Financial position of the Group

Condensed consolidated statement of financial position
millions of €
  Dec. 31, 2017 Change Dec. 31, 2016 Dec. 31, 2015 Dec. 31, 2014 Dec. 31, 2013
Assets            
Current assets 20,392 (6,246) 26,638 32,184 29,798 21,963
Cash and cash equivalents 3,312 (4,435) 7,747 6,897 7,523 7,970
Trade and other receivables 9,723 361 9,362 9,238 10,454 7,712
Non-current assets and disposal groups held for sale 161 (211) 372 6,922 5,878 1,033
Other current assets 7,196 (1,961) 9,157 9,127 5,943 5,248
Non-current assets 120,943 (904) 121,847 111,736 99,562 96,185
Intangible assets 62,865 2,266 60,599 57,025 51,565 45,967
Property, plant and equipment 46,878 120 46,758 44,637 39,616 37,427
Investments accounted for using the equity method 651 (74) 725 822 617 6,167
Other non-current assets 10,548 (3,217) 13,765 9,252 7,764 6,624
Total assets 141,334 (7,151) 148,485 143,920 129,360 118,148
liabilities and Shareholders’ equity            
Current liabilities 27,366 (5,760) 33,126 33,548 28,198 22,496
Financial liabilities 8,358 (6,064) 14,422 14,439 10,558 7,891
Trade and other payables 10,971 530 10,441 11,090 9,681 7,259
Current provisions 3,372 304 3,068 3,367 3,517 3,120
Liabilities directly associated with non-current assets and disposal groups held for sale (194) 194 4 6 113
Other current liabilities 4,664 (337) 5,001 4,648 4,436 4,113
Non-current liabilities 71,498 (5,016) 76,514 72,222 67,096 63,589
Financial liabilities 49,171 (1,057) 50,228 47,941 44,669 43,708
Non-current provisions 11,530 (241) 11,771 11,006 10,838 9,077
Other non-current liabilities 10,798 (3,717) 14,515 13,275 11,589 10,804
Shareholders’ equity 42,470 3,625 38,845 38,150 34,066 32,063
Total liabilities and shareholders’ equity 141,334 (7,151) 148,485 143,920 129,360 118,148

Total assets amounted to EUR 141.3 billion, down by EUR 7.2 billion against December 31, 2016. This decrease is largely attributable to the repayment of financial liabilities. Exchange rate effects, in particular from the translation of U.S. dollars into euros, also contributed to the decline.

Cash and cash equivalents decreased by EUR 4.4 billion year-on-year due in part to the outflows for the spectrum license purchased in the United States amounting to EUR 5.2 billion. For detailed information on the change in cash and cash equivalents, please refer to the consolidated statement of cash flows, and Note 30 “Notes to the consolidated statement of cash flows” in the notes to the consolidated financial statements.

Trade and other receivables increased by EUR 0.4 billion to EUR 9.7 billion. Receivables increased slightly as of year-end in each of the Europe, Group Development, and Germany operating segments. In the United States operating segment, receivables remained more or less unchanged from the prior-year level. The higher volume of receivables for terminal equipment sold under installment plans in connection with the market launch of higher-priced smartphones had an increasing effect. This increase was offset in particular by exchange rate effects from the conversion of U.S. dollars into euros and factoring agreements concluded in the reporting period on revolving monthly sales of trade receivables due.

Non-current assets and disposal groups held for sale decreased by EUR 0.2 billion to EUR 0.2 billion. The sale of Strato completed in March 2017 had a decreasing effect of EUR 0.1 billion. In addition, the transaction completed by T-Mobile US in March 2017 on the exchange of spectrum licenses also reduced this item by EUR 0.1 billion. Further transactions on the exchange of spectrum licenses were agreed and completed in the United States operating segment in the course of the year.

Other current assets developed as follows until December 31, 2017: Other current financial assets decreased by EUR 2.4 billion to EUR 3.3 billion. This decline was mainly attributable to the utilization of a cash deposit of EUR 2.0 billion placed with the FCC in June 2016 in connection with the spectrum auction concluded in April 2017 in the United States operating segment. Exchange rate effects from the translation of U.S. dollars into euros also contributed to the decline. Inventories increased by EUR 0.4 billion to EUR 2.0 billion, primarily due to higher inventories of terminal equipment (in particular new, higher-priced smartphone models) as of the reporting date in our United States and Germany operating segments. Exchange rate effects from the translation of U.S. dollars into euros decreased the carrying amount here again.

Intangible assets and property, plant and equipment increased by EUR 2.4 billion compared with the end of 2016 to EUR 109.7 billion in total.

Intangible assets grew by EUR 2.3 billion to EUR 62.9 billion, mainly due to additions totaling EUR 11.6 billion. In particular, investments in new mobile spectrum licenses by the United States operating segment at the spectrum auction that ended in April 2017 had an increasing effect of EUR 7.2 billion. In addition, the partial reversal recognized as of September 30, 2017 of impairment losses on spectrum licenses previously acquired by T-Mobile US increased the carrying amount by EUR 1.7 billion. By contrast, in the Systems Solutions operating segment, the unexpected decline in order entry prompted intra-year impairment testing of the assets assigned to this unit. An impairment loss on goodwill of EUR 1.2 billion was recognized as of September 30, 2017 as a result. In the Europe operating segment, the annual impairment test resulted in impairment losses on goodwill of EUR 0.8 billion in total in our national companies in Poland, Romania, and Albania. Negative exchange rate effects of EUR 4.5 billion, primarily from the translation of U.S. dollars into euros, and amortization of EUR 4.1 billion, decreased the carrying amount. The reclassification of intangible assets worth EUR 0.3 billion to non-current assets and disposal groups held for sale also reduced the carrying amount.

Property, plant and equipment increased by EUR 0.1 billion compared to December 31, 2016 to EUR 46.9 billion. Additions of EUR 11.5 billion resulted from investments in intensifying the network build-out in the United States operating segment and investments in the Germany and Europe operating segments in the broadband and fiber-optic roll-out, the IP transformation, and mobile infrastructure. This also included EUR 1.0 billion for capitalized 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. Of the additions, 69 percent related to investments intended to increase operating capacities. Exchange rate effects of EUR 1.9 billion, primarily from the translation of U.S. dollars into euros, reduced the carrying amount, as did depreciation of EUR 8.3 billion, impairment losses of EUR 0.1 billion, and disposals of EUR 1.0 billion. Of these disposals, EUR 0.7 billion was attributable to terminal equipment returned by customers under the JUMP! On Demand model.

As of December 31, 2017, other non-current assets included the following significant effects compared with the end of 2016: The carrying amount of other non-current financial assets decreased by EUR 2.2 billion to EUR 5.7 billion. This was largely attributable to the impairment losses of EUR 1.5 billion recognized in profit and loss in 2017 on the exchange-traded shares in BT, and to the exercise and remeasurement of early repayment options embedded in bonds issued by T-Mobile US. Deferred tax assets decreased by EUR 1.2 billion compared with the prior year, due in part to the remeasurement of deferred taxes undertaken as a result of the reduction in the applicable U.S. federal tax rate as of the 2018 financial year.

Current and non-current financial liabilities decreased by EUR 7.1 billion compared with the end of 2016 to EUR 57.5 billion. This is primarily the result of the early repayment of T-Mobile US’ debt instruments in the amount of EUR 9.5 billion (translated into euros) and regular repayments of bond liabilities of EUR 3.3 billion. New bonds of EUR 10.2 billion (translated into euros) were issued. In our United States operating segment, the Mandatory Convertible Preferred Stock issued by T-Mobile US in December 2014 was converted into T-Mobile US ordinary shares in December 2017. In connection with this conversion, EUR 0.8 billion were reclassified from financial liabilities to capital reserves, and associated conversion rights of a further EUR 0.9 billion embedded in these preferred shares were reclassified from financial liabilities to capital reserves. For further information on the development of financial liabilities, please refer to the explanations in Note 10 “Financial liabilities” in the notes to the consolidated financial statements.

Trade and other payables increased by EUR 0.5 billion compared with the end of 2016 to EUR 11.0 billion, mainly due to higher inventories of terminal equipment (in particular new higher-priced smartphone models) in our United States and Germany operating segments. Exchange rate effects from the translation from U.S. dollars into euros have an offsetting effect.

Current and non-current provisions increased slightly against the prior-year level by EUR 0.1 billion to EUR 14.9 billion, of which EUR 8.4 billion (December 31, 2016: EUR 8.5 billion) related to provisions for pensions and other employee benefits. The slight decrease in pension provisions is mainly due to the positive yield development from plan assets at fair value that resulted in an actuarial gain of EUR 0.1 billion recognized under other comprehensive income. At EUR 6.5 billion, other provisions were slightly higher than in the prior year.

Other non-current liabilities decreased by EUR 3.7 billion compared with the prior year to EUR 10.8 billion and included deferred tax liabilities, which decreased by EUR 3.0 billion compared with the end of 2016 to EUR 7.0 billion. The decrease was mainly attributable to our United States operating segment, where the reduction in the applicable U.S. federal tax rate from 35 percent to 21 percent as of the 2018 financial year prompted a remeasurement of the surplus amount of deferred tax liabilities. Other liabilities also decreased due to the decline in liabilities to Bundesanstalt für Post- und Telekomunikation (Federal Posts and Telecommunications Agency) resulting from the early retirement model, and to exchange rate effects, in particular from the translation of U.S. dollars into euros.

Shareholders’ equity increased from EUR 38.8 billion as of December 31, 2016 to EUR 42.5 billion, due to profit after taxes of EUR 5.6 billion. Shareholders’ equity increased by EUR 1.7 billion overall in connection with the conversion of Mandatory Convertible Preferred Stock into ordinary shares of T-Mobile US in our United States operating segment in December 2017, including the transfer of the conversion rights embedded in these preferred shares. In addition, in connection with the option granted to our shareholders to have their dividend entitlements for 2016 converted into shares, a capital increase of EUR 1.4 billion was carried out involving the contribution of the dividend entitlements. Dividend payments for the 2016 financial year to Deutsche Telekom AG shareholders of EUR 2.8 billion and to non-controlling interests of EUR 0.1 billion had an offsetting effect. As of December 31, 2017, ordinary shares in the amount of USD 0.4 billion (around EUR 0.4 billion) had been purchased under the share buy-back program announced at T-Mobile US in early December 2017. Under the program, T-Mobile US may, until the end of 2018, buy back ordinary shares of the company for a total amount of up to USD 1.5 billion. Currency translation effects recognized directly in equity reduced shareholders’ equity by EUR 2.2 million.

Net debt
millions of €
  Dec. 31, 2017 Change Dec. 31, 2016 Dec. 31, 2015 Dec. 31, 2014 Dec. 31, 2013
Financial liabilities (current) 8,358 (6,064) 14,422 14,439 10,558 7,891
Financial liabilities (non-current) 49,171 (1,057) 50,228 47,941 44,669 43,708
Financial liabilities 57,529 (7,121) 64,650 62,380 55,227 51,599
             
Accrued interest (692) 263 (955) (1,014) (1,097) (1,091)
Other (781) 248 (1,029) (857) (1,038) (881)
Gross debt 56,056 (6,610) 62,666 60,509 53,092 49,627
             
Cash and cash equivalents 3,312 (4,435) 7,747 6,897 7,523 7,970
Available-for-sale financial assets/ financial assets held for trading 7 (3) 10 2,877 289 310
Derivative financial assets 1,317 (1,062) 2,379 2,686 1,343 771
Other financial assets 629 (1,942) 2,571 479 1,437 1,483
Net debt 50,791 832 49,959 47,570 42,500 39,093

Our net debt increased by EUR 0.8 billion year-on-year to EUR 50.8 billion. The reasons for this are presented in the graphic above. Other effects of EUR 1.3 billion include, among other factors, liabilities for the acquisition of media broadcasting rights and financing options under which the payments for trade payables become due at a later point in time by involving banks in the process. This figure also includes the acquisition of ordinary shares in T-Mobile US under the aforementioned share buy-back program.

Off-balance sheet assets and other financing formats. In addition to the assets recognized in the statement of financial position, we use off-balance sheet assets. This primarily relates to leased property. For more information, please refer to the explanations in Note 33 “Leases,” and Note 34 “Other financial obligations,” in the notes to the consolidated financial statements.

Off-balance-sheet financial instruments mainly relate to the sale of receivables by means of factoring. Total receivables sold as of December 31, 2017 amounted to EUR 4.7 billion (December 31, 2016: EUR 4.9 billion). This mainly relates to factoring agreements in the United States and Germany operating segments. The agreements are used in particular for active receivables management.

Furthermore, in the reporting year, we chose financing options totaling EUR 0.3 billion (2016: EUR 0.2 billion) which extended the period of payment for trade payables from operating and investing activities by involving banks in the process and which upon payment are shown under cash flows used in/from financing activities. As a result, we show these payables under financial liabilities in the statement of financial position.

In 2017, we leased network equipment for a total of EUR 1.0 billion (2016: EUR 0.9 billion), primarily in the United States operating segment, which is recognized as a finance lease. In the statement of financial position, we therefore also recognize this item under financial liabilities and the future repayments of the liabilities in net cash from/used in financing activities.

Finance management. Our finance management ensures our Group’s ongoing solvency and hence its financial equilibrium. The fundamentals of Deutsche Telekom’s finance policy are established each year by the Board of Management and overseen by the Supervisory Board. Group Treasury is responsible for implementing the finance policy and for ongoing risk management.

The rating of Deutsche Telekom AG
  Standard &
 Poor’s
Moody’s Fitch
Long-term rating      
Dec. 31, 2013 BBB+ Baa1 BBB+
Dec. 31, 2014 BBB+ Baa1 BBB+
Dec. 31, 2015 BBB+ Baa1 BBB+
Dec. 31, 2016 BBB+ Baa1 BBB+
Dec. 31, 2017 BBB+ Baa1 BBB+
Outlook Stable Stable Stable
Short-term rating A-2 P-2 F2
Financial flexibility
    2017 2016 2015 2014 2013
Relative debt            
             
Net debt   2.3 x 2.3 x 2.4 x 2.4 x 2.2 x
 EBITDA (adjusted
for special factors)
           
Equity ratio  % 30.0 26.2 26.5 26.3 27.1

To ensure financial flexibility, we primarily use the KPI relative debt. This is a core component of our finance strategy and an important performance indicator for investors, analysts, and rating agencies.

 

Condensed consolidated statement of cash flows
millions of €
  2017 2016 2015
Net cash from operating activities 17,196 15,533 14,997
Cash outflows for investments in intangible assets (excluding goodwill and before spectrum investment) and property, plant and equipment (Cash Capex) (12,099) (10,958) (10,818)
Proceeds from disposal of intangible assets (excluding goodwill) and property, plant and equipment 400 364 367
Free cash flow (before dividend payments and spectrum investment) 5,497 4,939 4,546
       
Net cash used in investing activities (16,814) (13,608) (15,015)
       
Net cash Used in financing activities (4,594) (1,322) (876)
Effect of exchange rate changes on cash and cash equivalents (226) 250 267
Changes in cash and cash equivalents associated with non-current assets and disposal groups held for sale 3 (3) 1
Net increase (decrease) in cash and cash equivalents (4,435) 850 (626)
       
Cash and cash equivalents 3,312 7,747 6,897

Free cash flow. Free cash flow of the Group before dividend payments and spectrum investment grew from EUR 4.9 billion in the prior year to EUR 5.5 billion, with net cash from operating activities increasing by EUR 1.7 billion to EUR 17.2 billion. Cash outflows for investments in intangible assets (excluding goodwill and before spectrum investment) and property, plant and equipment increased by EUR 1.1 billion.

The increase in net cash from operating activities was mainly attributable to the positive business development of our United States operating segment. In the reporting period, factoring agreements were concluded for monthly revolving sales of trade receivables, mainly in the United States and Germany operating segments. Their effect on net cash from operating activities amounted to EUR 0.3 billion and was thus EUR 0.5 billion lower than in the prior year. In 2016, cash inflows from the cancellation of or changes in the terms of interest rate derivatives had a negative effect of EUR 0.3 billion. A year-on-year increase of EUR 0.1 billion in cash outflows for income taxes also had a negative impact. The dividend payments received from BT amounted to EUR 0.2 billion compared with the prior year in which dividend payments comprised EUR 0.1 billion from BT and EUR 0.2 billion from the former joint venture EE. By contrast, net interest payments that were EUR 0.1 billion lower year-on-year had a positive impact on net cash from operating activities.

The EUR 1.1 billion increase in cash capex compared with 2016 primarily related to the United States, Germany, and Europe operating segments. Cash outflows relate to network modernization and the continued network build-out, including roll-out of the 4G/LTE network and the broadband/fiber-optic build-out. For further details, please refer to Note 30 “Notes to the consolidated statement of cash flows” in the notes to the consolidated financial statements.

Reconciliation for the change in disclosure of key figures for the prior-year comparative period in 2017
millions of €
  Total
revenue
Profit (loss)
from
operations (EBIT)
EBITDA Adjusted
EBITDA
Depreciation
and
amortization
Impairment
losses
Segment
assets
Segment
liabilities
FY 2016/December 31, 2016
Presentation as of December 31, 2016 – as reported
               
Germany 22,041 4,081 7,890 8,800 (3,796) (13) 33,353 26,423
United States 33,738 3,685 8,967 8,561 (5,282) 68,349 49,791
Europe 12,747 717 3,963 4,094 (2,594) (652) 30,778 12,519
Systems Solutions 7,907 (330) 245 582 (575) 9,031 6,073
Group Headquarters & Group Services 2,212 1,001 1,522 (576) (493) (28) 42,628 50,502
Total 78,645 9,154 22,587 21,461 (12,740) (693) 184,139 145,308
Reconciliation (5,550) 10 (43) (41) 53 (35,654) (35,668)
Group 73,095 9,164 22,544 21,420 (12,687) (693) 148,485 109,640
FY 2016/December 31, 2016
+/‒ Change in disclosure: Technology and Innovation Board department and group Development operating segment
               
Germany (267) (457) (563) (563) 106 (1,336) (829)
United States
Europe (1,293) 467 (190) (228) 242 415 (4,178) (1,528)
Systems Solutions (914) 180 33 (52) 147 (1,569) (830)
Group Development 2,347 2,730 3,490 943 (345) (415) 11,221 2,417
Group Headquarters & Group Services 1,255 (2,920) (2,765) (94) (155) (4,926) (19)
Total 1,128 5 6 (5) (788) (789)
Reconciliation (1,128) (5) (6) 5 788 789
Group
FY 2016/December 31, 2016 =
presentation as of December 31, 2017
               
Germany 21,774 3,624 7,327 8,237 (3,690) (13) 32,017 25,594
United States 33,738 3,685 8,967 8,561 (5,282) 68,349 49,791
Europe 11,454 1,184 3,773 3,866 (2,352) (237) 26,600 10,991
Systems Solutions 6,993 (150) 278 530 (428) 7,462 5,243
Group Development 2,347 2,730 3,490 943 (345) (415) 11,221 2,417
Group Headquarters & Group Services 3,467 (1,919) (1,243) (670) (648) (28) 37,702 50,483
Total 79,773 9,154 22,592 21,467 (12,745) (693) 183,351 144,519
Reconciliation (6,678) 10 (48) (47) 58 (34,866) (34,879)
Group 73,095 9,164 22,544 21,420 (12,687) (693) 148,485 109,640