Financial position of the Group

Total assets/total liabilities and shareholders’ equity amounted to EUR 265.3 billion as of September 30, 2020, up by EUR 94.6 billion against December 31, 2019. This significant increase is mainly due to the change in the composition of the Group in connection with the acquisition of Sprint in the United States operating segment. The acquired and remeasured assets and liabilities of Sprint were included in all items of the statement of financial position upon consummation of the transaction on April 1, 2020.

For further information on the business combination of T‑Mobile US and Sprint, please refer to the section “Changes in the composition of the Group” in the interim consolidated financial statements.

On the assets side, trade receivables amounted to EUR 13.0 billion, up by EUR 2.1 billion against the 2019 year-end. EUR 2.8 billion of this increase is attributable to the inclusion of Sprint as of April 1, 2020. Excluding this effect, receivables in the United States operating segment declined, mainly due to the marketing of lower-priced terminal equipment in connection with new contracts under the Equipment Installment Plan (EIP) and coronavirus-induced higher bad debt allowances. In the Germany operating segment, receivables increased as a result of the contractual termination of a revolving factoring agreement for receivables from consumers and business customers. In the other operating segments, receivables declined slightly overall. Exchange rate effects, primarily from the translation from U.S. dollars into euros, also reduced the carrying amounts.

The carrying amounts of intangible assets and property, plant and equipment increased by EUR 64.7 billion overall to EUR 182.5 billion, mainly on account of the assets of EUR 73.7 billion acquired in connection with the business combination of T‑Mobile US and Sprint, which also includes preliminary goodwill arising from the transaction of EUR 8.4 billion. Capital expenditure totaling EUR 14.9 billion, especially to upgrade and build out the network in our United States operating segment, in connection with the broadband/fiber-optic build-out, the IP transformation, and mobile infrastructure in the Germany and Europe operating segments, also increased the carrying amounts. This also includes, in the United States operating segment, FCC spectrum licenses of EUR 1.0 billion – primarily acquired at a frequency auction that ended in March 2020 – and in the Group Development and Europe operating segments, spectrum licenses totaling EUR 0.5 billion – mainly in the Netherlands and Hungary. Depreciation and amortization reduced the net carrying amounts by EUR 14.5 billion in total. Negative exchange rate effects of EUR 7.8 billion, primarily from the translation of U.S. dollars into euros, reduced the carrying amounts, as did disposals of EUR 1.3 billion. The latter included EUR 0.2 billion in the United States for the derecognition of billing software for postpaid customers, which was still in development. Due to the migration of Sprint contract customers to the T‑Mobile US billing software, it was decided that this software was not suitable for the joint customer base and would not be put into operation. In addition, the following impairment losses reduced the carrying amounts by a total of EUR 0.6 billion and the following reversal of impairment losses increased the carrying amounts by EUR 50 million:

In the Systems Solutions operating segment, the realignment of the B2B telecommunications business in combination with the effects of the coronavirus pandemic triggered ad hoc impairment testing of assets, which identified a reduction in the business outlook for IT operations. The result was the recognition of a non-cash impairment loss of EUR 0.5 billion on non-current assets of the Systems Solutions cash-generating unit. EUR 426 million of the impairment loss related to the Systems Solutions operating segment. Another EUR 44 million related to software recognized in the Group Headquarters & Group Services segment which is subject to use by the Systems Solutions operating segment and is allocated to the Systems Solutions cash-generating unit for the purposes of impairment testing.

An ad hoc impairment test was also conducted in the Europe operating segment on account of the sale of the Romanian fixed-network business planned since October 2020. In this context, the associated loss of the existing MVNO agreements results in the recognition of an impairment loss totaling EUR 160 million on non-current assets of the Romanian mobile business, which will remain within the Group. In the Romanian fixed-network business, the planned sale resulted in a reversal of impairment losses recognized in the past on property, plant and equipment of EUR 50 million.

Right-of-use assets with regard to leases increased by EUR 13.8 billion compared with December 31, 2019 to EUR 31.8 billion. In connection with the business combination with Sprint, right-of-use assets of EUR 6.3 billion were recognized. Another EUR 9.4 billion came from the agreement concerning the lease and use of cell sites concluded between T‑Mobile US and American Tower on September 14, 2020. This was a modification to existing agreements with American Tower. The agreement gives T‑Mobile US greater flexibility in the course of merging the mobile networks of T‑Mobile US and Sprint and of the 5G network build-out.

Current and non-current financial assets increased by EUR 2.0 billion to EUR 9.3 billion. The acquisition of Sprint resulted in an increase of EUR 0.4 billion. Derivatives without a hedging relationship increased by EUR 0.7 billion, mainly in connection with new additions of embedded derivatives and embedded derivatives transferred in connection with the acquisition of Sprint at T‑Mobile US, including their subsequent measurement and the subsequent measurement of the stock options to buy shares in T‑Mobile US received from SoftBank in June 2020. Derivatives with a hedging relationship increased by EUR 1.3 billion, primarily due to the increase in positive fair values from interest rate swaps in fair value hedges. In addition, other financial assets increased by EUR 0.4 billion in connection with grants receivable from funding projects for the broadband build-out in Germany. In connection with cash collateral, in particular in connection with forward-payer swaps concluded for borrowings at T‑Mobile US, which were terminated prematurely in April 2020, the carrying amount of other financial assets decreased by EUR 0.5 billion.

The increase of EUR 6.9 billion in other assets to EUR 20.9 billion was also mainly due to the inclusion of Sprint as of April 1, 2020. Cash and cash equivalents increased by EUR 5.2 billion.

On the liabilities and shareholders’ equity side, current and non-current financial liabilities increased by EUR 41.5 billion compared with the end of 2019 to a total of EUR 107.9 billion. EUR 39.8 billion of this resulted from the transfer of liabilities from Sprint. Immediately after the transaction, liabilities of the former Sprint totaling USD 9.8 billion (EUR 8.9 billion) were repaid. Since then, a number of refinancing measures have been implemented in connection with the business combination. On April 1, 2020, T‑Mobile US raised a new term loan of USD 4 billion (EUR 3.7 billion). Senior secured notes, issued on April 9, 2020 for a total of USD 19 billion (EUR 17.3 billion) were used to repay a briefly utilized bridge loan facility. Furthermore, T‑Mobile US issued senior secured notes on June 24, 2020 for a total of USD 4.0 billion (EUR 3.6 billion). In the course of the third quarter of 2020, T‑Mobile US repaid a number of bonds with a total value of EUR 3.6 billion, some of them prematurely. Furthermore, bonds with a total volume of EUR 1.6 billion when translated into euros were issued in the Group in various currencies in the first half of 2020. Bonds in various currencies with a total volume of EUR 6.3 billion when translated into euros were repaid. A Deutsche Bundespost treasury note (zero-coupon bond) issued in the past with a carrying amount of EUR 1.4 billion fell due on December 31, 2019 and was repaid on that date by a bank using its own funds. The payment by Deutsche Telekom AG to this bank was made on the following bank working day of January 2, 2020. Financial liabilities increased by EUR 1.2 billion in connection with collateral received for derivative financial instruments.

Current and non-current lease liabilities increased by EUR 14.0 billion to EUR 33.9 billion compared with December 31, 2019. EUR 6.8 billion of this increase is attributable to the inclusion of Sprint. In connection with the modification of existing leases that T‑Mobile US agreed with American Tower, lease liabilities increased by EUR 9.4 billion. Exchange rate effects, in particular from the translation of U.S. dollars into euros, lowered the carrying amount by EUR 1.0 billion.

Trade and other payables decreased by EUR 1.1 billion to EUR 8.3 billion, due in particular to lower liabilities to terminal equipment vendors and declines in liabilities for purchased services in the United States operating segment. Liabilities also decreased in the other operating segments. Exchange rate effects, especially from the translation from U.S. dollars into euros, also decreased the carrying amount. The inclusion of Sprint increased the carrying amount by EUR 2.9 billion.

Provisions for pensions and other employee benefits increased from EUR 5.8 billion as of December 31, 2019 to EUR 8.5 billion, mainly due to a decline in the prices of plan assets, interest rate adjustments, and the change in the composition of the Group in connection with the acquisition of Sprint.

Other liabilities increased by EUR 3.0 billion compared with December 31, 2019 to EUR 17.0 billion, due in particular to higher current and non-current other liabilities, contract liabilities, and other provisions. The inclusion of Sprint increased other liabilities by EUR 0.7 billion. In addition, other liabilities increased by EUR 0.3 billion due to existing build-out obligations in connection with grants receivable from funding projects for the broadband build-out in the Germany operating segment. The carrying amounts of contract liabilities and other provisions also increased in particular as a result of the inclusion of Sprint.

Shareholders’ equity increased from EUR 46.2 billion as of December 31, 2019 to EUR 72.0 billion. The business combination of T‑Mobile US and Sprint consummated on April 1, 2020 resulted in an increase in shareholders’ equity of EUR 30.7 billion as of the date of first-time consolidation. Profit of EUR 4.0 billion and capital increases from share-based payments of EUR 0.4 billion also increased the carrying amount. Shareholders’ equity was reduced in connection with dividend payments for the 2019 financial year to Deutsche Telekom AG shareholders in the amount of EUR 2.8 billion and to other shareholders of subsidiaries in the amount of EUR 0.2 billion. Other comprehensive income also reduced shareholders’ equity by EUR 6.2 billion. The main factors in this negative other comprehensive income were the currency translation effects recognized directly in equity (EUR 3.9 billion), the remeasurement of defined benefit plans (EUR 1.9 billion), and losses from hedging instruments, mainly from forward-payer swaps concluded for borrowings at T‑Mobile US, which were terminated prematurely in April 2020 and for which the cumulative changes in value must be reversed over the terms of the loans (EUR 1.0 billion). By contrast, income taxes relating to components of other comprehensive income of EUR 0.4 billion had a positive impact on other comprehensive income.

For further information on the statement of financial position, please refer to the section “Selected notes to the consolidated statement of financial position” in the interim consolidated financial statements.

Changes in net debt

millions of €

Other effects of EUR 0.6 billion included effects from the measurement of embedded derivatives at T‑Mobile US and a large number of smaller effects.

Free cash flow AL (before dividend payments and spectrum investment) increased by EUR 0.1 billion year-on-year to EUR 5.3 billion. The following effects impacted on this development:

Excluding interest payments for zero-coupon bonds and the premature termination of forward-payer swaps concluded for borrowings at T‑Mobile US, net cash from operating activities increased by EUR 2.7 billion. In particular, the sustained strong performance of the operating segments, especially the United States, including Sprint, had an increasing effect on net cash from operating activities. Higher (net) interest payments, which were up by EUR 1.5 billion in total, mainly as a result of the financial liabilities recognized and the restructuring begun in connection with the acquisition of Sprint, and the related increase in financing, including the handling charges incurred for a briefly utilized bridge loan facility, had a negative effect. Income tax payments decreased by EUR 0.1 billion compared with the prior-year period. Factoring agreements of EUR 0.6 billion had a negative impact on net cash from operating activities in the first three quarters of 2020, mainly as a result of the contractual termination of a revolving factoring agreement in the Germany operating segment. In the prior-year period, factoring agreements had had a positive effect of EUR 0.3 billion.

Cash capex (before spectrum investment) increased by EUR 1.5 billion to EUR 11.5 billion, largely on account of the inclusion of Sprint and the ongoing 5G network build-out in the United States. In the Germany operating segment, cash capex decreased by EUR 0.4 billion.

The increase in repayments of lease liabilities was due in particular to payments for leases in the United States operating segment, partly as a result of the inclusion of Sprint, and partly as a result of payments for new leases concluded in 2019 for network technology and cell sites in connection with the 5G network build-out.

For further information on the statement of cash flows, please refer to the section “Notes to the consolidated statement of cash flows” in the interim consolidated financial statements.