Selected notes to the consolidated statement of financial position

TRADE AND OTHER RECEIVABLES

Trade and other receivables decreased by EUR 0.8 billion to EUR 8.9 billion, mainly due to reclassification and remeasurement effects from the mandatory first-time application of the new accounting standards IFRS 9 and IFRS 15. For example, receivables from long-term construction contracts in the amount of EUR 0.2 billion accounted for in accordance with IAS 11 were reclassified as contract assets as of January 1, 2018. In addition, the volume of receivables for terminal equipment sold under installment plans in the United States operating segment decreased. Exchange rate effects, primarily from the translation from U.S. dollars into euros, had a slight offsetting effect.

CONTRACT ASSETS

Following the transition to IFRS 15, a remeasurement effect of EUR 1.6 billion was recognized directly in equity as of January 1, 2018 in relation to the initial recognition of contract assets. In prior periods, under IFRS 15, these would have led to the earlier recognition of revenue, in particular from the sale of goods and merchandise. Further, as a result of the transition, receivables from long-term construction contracts in the amount of EUR 0.2 billion, which were previously recognized as trade and other receivables, were reclassified as contract assets. For more information, please refer to the section “Accounting policies”.

INVENTORIES

At EUR 1.6 billion, inventories were down EUR 0.4 billion compared with December 31, 2017, mainly due to lower inventories of terminal equipment (especially higher-priced smartphones) at T-Mobile US.

NON-CURRENT ASSETS AND DISPOSAL GROUPS HELD FOR SALE

At the reporting date, the carrying amount of non-current assets and disposal groups held for sale was unchanged at EUR 0.2 billion. During the reporting period, sales of real estate took place in the Group Headquarters & Group Services segment, while a portfolio of shareholdings of a comparable volume in the Group Development operating segment was classified as non-current assets and disposal groups held for sale.

INTANGIBLE ASSETS AND PROPERTY, PLANT AND EQUIPMENT

Intangible assets increased from EUR 62.9 billion to EUR 63.6 billion. Additions totaling EUR 1.7 billion increased the carrying amount and mainly related to capital expenditures in the United States and Germany operating segments. Changes in the composition of the Group in the amount of EUR 0.4 billion – mainly from the acquisition of online TV provider Layer3 TV in the United States operating segment – also increased the carrying amount. On the acquisition date, an identifiable intangible asset of EUR 0.1 billion in connection with technology developed by Layer3 TV, and goodwill of EUR 0.2 billion were recognized. Positive exchange rate effects, primarily from the translation of U.S. dollars into euros, increased the carrying amount by EUR 1.0 billion. Depreciation, amortization and impairment losses decreased the carrying amount by EUR 2.1 billion.

The first-time application of IFRS 15 as of January 1, 2018 produced effects that reduced the carrying amount of intangible assets by EUR 0.1 billion. Under the new accounting standard, contract assets must be capitalized for the first time. For detailed information on the requirements and the effects of the first-time application of the standard, please refer to the section “Accounting policies”. An initial consequence was that the carrying amounts of the cash-generating units that must be tested for impairment in accordance with IAS 36 increased when IFRS 15 was applied for the first time on January 1, 2018. As a result, the carrying amounts of the cash-generating units Romania and Poland in the Europe operating segment and of the cash-generating unit Netherlands in the Group Development operating segment exceeded in each case the recoverable amounts for these units. Consequently, the goodwill recognized for these units then had to be impaired as of January 1, 2018. The recoverable amounts of these three units, along with the relevant valuation methods and the assumptions and parameters on which they are based, are described in the 2017 Annual Report, Note 5 “Intangible assets". The recoverable amount for the cash-generating unit Romania was EUR 10 million below its carrying amount as of January 1, 2018; the corresponding figure for the Poland unit was EUR 19 million below the carrying amount, and for the Netherlands unit EUR 68 million below the carrying amount. The corresponding goodwill impairments for these units were recognized directly in equity by reducing retained earnings as of January 1, 2018.

Compared with December 31, 2017, property, plant and equipment increased by EUR 1.0 billion to EUR 47.8 billion. Additions of EUR 5.0 billion, primarily in the United States and Germany operating segments, increased the carrying amount. They included, in particular, capital expenditure in connection with the modernization of the T-Mobile US network as well as for broadband and fiber-optic build-out, the IP transformation, and mobile infrastructure in the Germany operating segment. A further EUR 0.5 billion was attributable to the capitalization of higher-priced mobile handsets in connection with the JUMP! On Demand business model introduced at T-Mobile US, under which customers do not purchase the device but lease it. Positive exchange rate effects, primarily from the translation of U.S. dollars into euros, decreased the carrying amount by EUR 0.3 billion. Depreciation, amortization and impairment losses in the amount of EUR 4.2 billion and disposals of EUR 0.3 billion – EUR 0.2 billion of which was accounted for by terminal equipment returned by customers under the JUMP! On Demand program – reduced the carrying amount.

CAPITALIZED CONTRACT COSTS

Following the transition to IFRS 15, a remeasurement and reclassification effect of EUR 1.2 billion was recognized directly in equity as of January 1, 2018 in relation to the initial recognition of capitalized contract costs. Under IFRS 15, these costs would have resulted in the later recognition of selling expenses in earlier reporting periods. The carrying amount had changed to EUR 1.4 billion as of June 30, 2018. For more information, please refer to the section “Accounting policies".

OTHER FINANCIAL ASSETS

Other financial assets decreased from EUR 9.0 billion (as of December 31, 2017) to EUR 4.4 billion. On March 23, 2018, the 12 percent stake in BT, which is worth EUR 3.1 billion, was transferred to the Group’s own trust, Deutsche Telekom Trust e.V., where it will serve as plan assets to cover pension entitlements. The impairment loss on the exchange-traded stake in BT – which was recognized in other comprehensive income for the period from January 1, 2018 until the date of transfer – reduced the carrying amount by EUR 0.7 billion.

TRADE AND OTHER PAYABLES

Trade and other payables decreased by EUR 2.0 billion to EUR 8.9 billion, mainly due to a seasonal reduction in procurement volumes, especially in the United States, Europe, and Germany operating segments. Exchange rate effects, mainly from the translation of U.S. dollars into euros, had a minor offsetting effect.

OTHER LIABILITIES

Current and non-current other liabilities decreased by EUR 2.0 billion to EUR 6.3 billion. The main reason for this decline were the reclassification effects triggered by the transition to IFRS 15: Deferred revenue of EUR 1.8 billion, previously recognized under other liabilities, was reclassified as contract liabilities. For further information on application of the new accounting standard, please refer to the section “Accounting policies”.

FINANCIAL LIABILITIES

Current and non-current financial liabilities increased by EUR 3.7 billion to EUR 61.3 billion compared with the end of 2017.

In the first half of 2018, T-Mobile US placed fixed-interest U.S. dollar bonds with a volume of USD 2.5 billion (EUR 2.0 billion) with institutional investors: an 8-year bond with a volume of USD 1.0 billion and a coupon of 4.500 percent and a 10-year bond with a volume of USD 1.5 billion and a coupon of 4.750 percent. In addition, Deutsche Telekom International Finance B.V. issued euro bonds with a total volume of EUR 3.1 billion and U.S. dollar bonds with a total volume of USD 1.75 billion (EUR 1.4 billion).

A contrary effect in the reporting period was generated by T-Mobile US’ premature repayment of senior notes in the amount of USD 1.0 billion (EUR 0.8 billion) with an interest rate of 6.125 percent, in the amount of USD 1.75 billion (EUR 1.4 billion) with an interest rate of 6.625 percent, and in the amount of USD 0.6 billion (EUR 0.5 billion) with an interest rate of 6.838 percent.

In addition, euro bonds for a total amount of EUR 1.1 billion were repaid by the Group in the reporting period. The net change of EUR 0.4 billion in commercial paper also decreased the carrying amount of the financial liabilities.

The total increase of EUR 0.1 billion in liabilities to banks compared with the end of 2017 was mainly due to a loan originated by the European Investment Bank in January 2018 for an amount of EUR 0.2 billion and a term of 7 years. Repayments in the reporting period had an offsetting effect.

The settlement agreed in the Toll Collect arbitration proceedings increased financial liabilities by EUR 0.6 billion. For more information, please refer to the section “Other transactions that had no effect on the composition of the Group”.

A year-on-year increase in the carrying amount of the financial liabilities of around EUR 0.4 billion relates to exchange rate effects in the United States operating segment.

The following table shows the composition and maturity structure of financial liabilities as of June 30, 2018:

millions of €        
  June 30, 2018 Due
within 1 year
Due
>1 ≤ 5 years
Due
> 5 years
Bonds and other securitized liabilities 48,286 1,459 19,293 27,534
Liabilities to banks 5,082 1,327 3,084 671
Finance lease liabilities 2,646 864 1,233 549
Liabilities to non-banks from promissory notes 514 179 53 283
Other interest-bearing liabilities 2,234 1,323 778 133
Other non-interest-bearing liabilities 1,551 1,440 106 5
Derivative financial liabilities 950 117 109 724
FINANCIAL LIABILITIES 61,263 6,708 24,656 29,899

CONTRACT LIABILITIES

Following the transition to IFRS 15, a remeasurement effect of EUR 0.6 billion was recognized directly in equity as of January 1, 2018 in relation to the initial recognition of contract liabilities, which would have resulted in the later recognition of revenue in earlier reporting periods under IFRS 15. In addition, a total of EUR 1.9 billion was reclassified as contract liabilities in accordance with IFRS 15. These reclassifications mainly comprise deferred revenue that was recognized under other liabilities as of December 31, 2017. The carrying amount for current and non-current contract liabilities was remeasured at EUR 2.4 billion as of the end of the first half of 2018. For more information, please refer to the section “Accounting policies”.

 

PROVISIONS FOR PENSIONS AND OTHER EMPLOYEE BENEFITS

Provisions for pensions and other employee benefits decreased from EUR 8.4 billion as of December 31, 2017 to EUR 5.7 billion. The main reason for this decline was the transfer, on March 23, 2018, of the 12 percent stake in BT (valued at EUR 3.1 billion) to the Group’s own trust, Deutsche Telekom Trust e.V., where it will serve 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 2017 Annual Report.

On July 20, 2018, the new life expectancy tables (Heubeck-Richttafeln 2018 G) were published. They take account of the latest statistics of Germany’s statutory pension scheme and Federal Statistical Office. For the first time, the tables include socioeconomic factors. Overall, Deutsche Telekom expects the first-time application of the new tables to result in a moderate increase in its defined benefit obligations, which will be recognized under other comprehensive income. At present, the financial impact of this cannot be assessed with sufficient certainty.