Selected notes to the consolidated statement of financial position

Trade and other receivables

At EUR 9.9 billion, trade and other receivables decreased by EUR 0.1 billion against the 2018 year-end level. Declines in trade receivables in the Europe and Germany operating segments were offset by an increase of EUR 0.2 billion in trade receivables in the Group Development operating segment, mainly from the acquired Tele2 Netherlands. Exchange rate effects, primarily from the translation from U.S. dollars into euros, also increased the carrying amount.

Contract assets

At EUR 1.9 billion, contract assets were up EUR 0.1 billion as of the reporting date compared with December 31, 2018. Contract assets arise from the application of IFRS 15 since the 2018 financial year and relate to receivables that have not yet legally come into existence, which arise from the earlier – as compared to billing – recognition of revenue, in particular from the sale of goods and merchandise. Furthermore, receivables from long-term construction contracts are recognized under contract assets.

Inventories

Compared with December 31, 2018, inventories were EUR 0.2 billion lower at EUR 1.6 billion, due primarily to a decrease in inventories of higher-priced smartphones in the United States operating segment.

Intangible assets and property, plant and equipment

Intangible assets increased by EUR 4.7 billion to EUR 69.6 billion. Additions totaling EUR 5.6 billion increased the carrying amount and mainly relate to capital expenditures in the Germany, United States, Europe, and Group Development operating segments. In the Germany operating segment, additions of EUR 2.2 billion relate to the 5G licenses acquired in Germany. In the United States operating segment, capital expenditures included a total of EUR 1.0 billion for the acquisition of FCC mobile licenses. In the Europe operating segment, 5G licenses acquired in Austria increased the carrying amount by EUR 0.1 billion. Changes in the composition of the Group increased the carrying amount by a further EUR 0.7 billion. The acquisition of Tele2 Netherlands in the Group Development operating segment resulted in identifiable intangible assets totaling EUR 0.5 billion at the acquisition date (including customer base and spectrum licenses) in addition to goodwill of EUR 0.2 billion. Positive exchange rate effects, primarily from the translation of U.S. dollars into euros, increased the carrying amount by EUR 2.0 billion. Amortizations reduced the net carrying amount by EUR 3.6 billion.

Property, plant and equipment decreased by EUR 0.6 billion compared with December 31, 2018 to EUR 50.0 billion. The first-time application of IFRS 16 as of January 1, 2019 accounted for a reduction of EUR 2.5 billion. Assets arising from finance leases that were reported under property, plant and equipment until December 31, 2018, for which Deutsche Telekom as the lessee bore substantially all the risks and rewards associated with the lease, are now recognized as rights to use the underlying leased assets. For more information on the first-time application of IFRS 16, please refer to the section “Accounting policies.” Depreciation, amortization and impairment losses of EUR 6.6 billion and disposals of EUR 0.3 billion also reduced the carrying amount. Additions of EUR 7.8 billion – especially to upgrade and build out the network in our United States operating segment and in connection with the broadband/fiber-optic build-out, the IP transformation, and mobile infrastructure in the Germany and Europe operating segments – increased the carrying amount. Effects of changes in the composition of the Group resulting from the acquisition of Tele2 Netherlands increased the carrying amount by EUR 0.3 billion. Positive exchange rate effects, primarily from the translation of U.S. dollars into euros, increased the carrying amount by EUR 0.7 billion.

Right-of-use assets

As a consequence of the first-time application of IFRS 16 as of January 1, 2019, the rights to use the underlying lease assets were recognized in the amount of the lease liability, adjusted by the amount of the prepaid or accrued lease payments. The remeasurement and reclassification effect reported amounted to EUR 16.2 billion as of January 1, 2019. This includes both rights to use lease assets recognized in the statement of financial position for the first time and rights to use assets arising from finance leases in the amount of EUR 2.5 billion that were previously disclosed under property, plant and equipment. For more information on the first-time application of IFRS 16, please refer to the section “Accounting policies.” The carrying amount had changed to EUR 18.5 billion as of September 30, 2019. In the first three quarters of 2019, the figure included additions of EUR 4.5 billion, mainly in the United States operating segment. Effects of changes in the composition of the Group totaling EUR 0.2 billion, due in particular to the acquisition of Tele2 Netherlands in the Group Development operating segment, and positive exchange rate effects totaling EUR 0.6 billion also increased the carrying amount. Depreciation, amortization and impairment losses totaling EUR 2.7 billion and disposals of EUR 0.3 billion had an offsetting effect.

Capitalized contract costs

Capitalized contract costs increased by EUR 0.2 billion as of September 30, 2019 to EUR 2.0 billion, mainly due to a higher level of capitalized costs of obtaining a contract, in particular in the United States operating segment. Capitalized contract costs arise from the application of IFRS 15 since January 1, 2018.

Investments accounted for using the equity method

The carrying amount of investments accounted for using the equity method decreased by EUR 0.6 billion compared with December 31, 2018 to EUR 0.4 billion. This was primarily due to the transfer of the 11.34 percent stake in Ströer SE & Co. KGaA to the plan assets of Deutsche Telekom Trust e.V. as of August 14, 2019 to cover existing pension obligations. For more information, please refer to the section “Changes in the composition of the Group.”

Other financial assets

Current and non-current other financial assets increased by EUR 2.8 billion compared with December 31, 2018 to EUR 7.3 billion. Positive measurement effects from embedded derivatives at T‑Mobile US increased the carrying amount. Furthermore, grants receivable from funding projects for the broadband build-out in Germany, which as a result of the change in estimate since the start of the third quarter are to be recognized as other financial assets upon conclusion of the agreement, also increased the carrying amount by EUR 1.3 billion. For more information on the change in estimate, please refer to the section “Accounting policies.”

Trade and other payables

Trade and other payables decreased by EUR 1.8 billion to EUR 8.9 billion due to the reduction in the level of liabilities, mainly in the United States, Europe, and Germany operating segments. Exchange rate effects from the translation of U.S. dollars into euros had an offsetting effect.

Other liabilities

Current and non-current other liabilities decreased by EUR 0.9 billion to EUR 5.2 billion. This decline is mainly attributable to the fact that, as a consequence of the first-time application of IFRS 16, liabilities from straight-line leases, primarily for cell sites in the United States operating segment, were no longer required to be reported. As of January 1, 2019, first of all, the lease terms underlying these liabilities were adjusted to the lease terms determined in accordance with IFRS 16, increasing shareholders’ equity, and the remaining prepaid expense was offset against the right-of-use asset. This reduced other liabilities by EUR 2.2 billion as of the transition date. For more information on the application of IFRS 16, please refer to the section “Accounting policies.” Due to the change in estimate implemented at the start of the third quarter of 2019 in connection with the accounting treatment of contractual grants receivable from funding projects for the broadband build-out in Germany, non-financial other liabilities of EUR 0.9 billion were recognized for existing build-out obligations. For more information on the change in estimate, please refer to the section “Accounting policies.”

Other provisions

Current and non-current other provisions decreased by EUR 0.2 billion to EUR 6.2 billion. The decline in current other provisions was mainly due to the performance-related compensation components for the prior year paid to employees in the second quarter of 2019. The carrying amount of non-current other provisions was reduced among other things by a slight increase in provisions for restoration obligations.

Financial liabilities

Current and non-current financial liabilities increased by EUR 7.4 billion to EUR 69.7 billion compared with the end of 2018.

The following borrowings or repayments of debt were made in the reporting period:

Deutsche Telekom AG issued euro bonds with a total volume of EUR 3.9 billion, pound sterling bonds with a total volume of GBP 0.4 billion (EUR 0.5 billion), U.S. dollar bonds of USD 0.1 billion (EUR 0.1 billion), and Australian dollar bonds of AUD 0.1 billion (EUR 0.1 billion). In addition, OTE PLC issued a euro bond with a volume of EUR 0.4 billion. A loan of EUR 0.5 billion was issued by the European Investment Bank. A promissory note taken out in the amount of EUR 0.3 billion also increased the carrying amount of the financial liabilities. Scheduled repayments of U.S. dollar bonds totaling USD 1.8 billion (EUR 1.6 billion), liabilities to banks totaling EUR 0.2 billion, and promissory notes totaling EUR 0.2 billion, had an offsetting effect. The net change of EUR 0.5 billion in commercial paper and net short-term borrowings of EUR 0.6 billion also reduced the carrying amount of the financial liabilities.

An increase in the carrying amount of other interest-bearing liabilities compared with December 31, 2018 relates to the spectrum licenses acquired in the Germany operating segment for EUR 2.2 billion. In place of a lump-sum payment, government representatives agreed to the payment of the purchase price in annual installments from 2019 through 2030. After deducting collateral of EUR 36 million and the first, already paid installment of EUR 0.1 billion, the resulting financial liabilities had a carrying amount of EUR 2.0 billion. Payment by installment was granted on the condition that Deutsche Telekom assumes additional build-out obligations.

An increase in the carrying amount of the financial liabilities compared with December 31, 2018 of around EUR 0.6 billion in total relates to exchange rate effects in the United States operating segment.

The first-time application of IFRS 16 resulted in finance lease liabilities being reclassified from financial liabilities to lease liabilities. Based on the carrying amounts as of December 31, 2018, this reclassification reduced financial liabilities by EUR 2.5 billion. For more information on the application of the new accounting standard, please refer to the section “Accounting policies.”

The following table shows the composition and maturity structure of financial liabilities as of September 30, 2019:

Lease liabilities

The first-time application of IFRS 16 led to the recognition of current and non-current lease liabilities totaling EUR 18.1 billion. These also included the finance lease liabilities that used to be reported under financial liabilities. The carrying amount of the recognized lease liabilities increased to EUR 20.3 billion as of September 30, 2019. Overall, lease liabilities in the amount of EUR 4.1 billion are due within one year. Lease liabilities primarily relate to the United States operating segment. For more information on the application of the new accounting standard, please refer to the section “Accounting policies.”

Contract liabilities

Compared with September 30, 2019, the carrying amount of current and non-current contract liabilities decreased by EUR 0.1 billion to EUR 2.2 billion. These mainly comprise deferred revenues.

Provisions for pensions and other employee benefits

Provisions for pensions and other employee benefits increased from EUR 5.5 billion as of December 31, 2018 to EUR 6.7 billion, mainly due to interest rate adjustments and a decline in the price of the BT Group plc share transferred to plan assets. All this resulted in an actuarial loss of EUR 1.5 billion to be recognized directly in equity. On August 14, 2019, Deutsche Telekom transferred its 11.34 percent stake in Ströer SE & Co. KGaA, worth EUR 0.4 billion, to the Group’s own trust, Deutsche Telekom Trust e.V., as plan assets. Due to the netting of the present value of the pension obligations with the plan assets, the increase in external cover led to a reduction in provisions for pensions and other employee benefits. For more information on the Global Pension Policy and a description of the plan, please refer to the 2018 Annual Report.

As of March 31, 2019, Deutsche Telekom changed the method it uses to calculate the discount rate in the euro zone, Switzerland, and the United Kingdom for determining pension obligations in accordance with IAS 19. The discount rate continues to be determined based on the yields of high-quality European corporate bonds with an AA rating, mapped in a yield curve showing the corresponding spot rates. The changes result from a change in provider for the determination of the yield curves.

Under the new method, adjustments are made in relation to the selection of the bonds available on the market (previous data basis: Bloomberg; data basis after adjustment: Thomson Reuters) as well as in the determination of the yield curve from this data. The first step is to remove bonds with special options (e.g., put or call options) or other properties (e.g., low-volume bonds, bundled bonds) from the available portfolio. Then a regression curve is determined based on the bond market so as to identify potential outliers (calculated using the double standard deviation) and likewise remove these from the bond portfolio for determining the interest rate. The yield curve determined using this method is subsequently applied to the cash flows in the pension plans so as to determine an equivalent uniform discount rate.

The Group’s pension obligations are based on pension commitments mainly in Germany, Greece, and Switzerland. Without the change, the discount rate as of September 30, 2019 would be 0.26 percentage points lower in Germany, 0.26 or 0.25 percentage points lower in Greece, and 0.05 percentage points lower in Switzerland, and the defined benefit obligations would be EUR 408 million higher.

Shareholders’ equity

Shareholders’ equity increased by EUR 1.7 billion as of December 31, 2018 to EUR 45.1 billion, due in particular to the profit of EUR 4.5 billion. Non-cash effects from currency translation of EUR 1.2 billion, capital increases from share-based payments of EUR 0.4 billion, and income taxes relating to components of other comprehensive income of EUR 0.6 billion also increased shareholders’ equity, as did the transition to IFRS 16. The cumulative effect of this was an increase of EUR 0.3 billion in retained earnings (including shares attributable to non-controlling interests) recognized directly in equity as of January 1, 2019. The acquisition of Tele2 Netherlands in the Group Development operating segment resulted in transactions with owners which increased shareholders’ equity by EUR 0.5 billion, and effects of EUR 0.2 billion from changes in the composition of the Group. For more information, please refer to the section “Changes in the composition of the Group.” The carrying amount was reduced by dividend payments for the 2018 financial year to Deutsche Telekom AG shareholders in the amount of EUR 3.3 billion and to other shareholders of subsidiaries in the amount of EUR 0.2 billion. Shareholders’ equity was also reduced by EUR 1.5 billion due to the remeasurement of defined benefit plans and by a total of EUR 1.0 billion due to losses from hedging instruments, mainly in connection with forward-payer swaps concluded for highly probable future borrowings at T‑Mobile US.