Financial position of the Group

Condensed consolidated statement of financial position
millions of €
  Dec. 31, 2016 Change Dec. 31, 2015 Dec. 31, 2014 Dec. 31, 2013 Dec. 31, 2012
Assets            
Current assets 26,638 (5,546) 32,184 29,798 21,963 15,019
Cash and cash equivalents 7,747 850 6,897 7,523 7,970 4,026
Trade and other receivables 9,362 124 9,238 10,454 7,712 6,417
Non-current assets and disposal groups held for sale 372 (6,550) 6,922 5,878 1,033 90
Other current assets 9,157 30 9,127 5,943 5,248 4,486
Non-current assets 121,847 10,111 111,736 99,562 96,185 92,923
Intangible assets 60,599 3,574 57,025 51,565 45,967 41,847
Property, plant and equipment 46,758 2,121 44,637 39,616 37,427 37,407
Investments accounted for using the equity method 725 (97) 822 617 6,167 6,726
Other non-current assets 13,765 4,513 9,252 7,764 6,624 6,943
Total assets 148,485 4,565 143,920 129,360 118,148 107,942
Liabilities and shareholders’ equity            
Current liabilities 33,126 (422) 33,548 28,198 22,496 22,995
Financial liabilities 14,422 (17) 14,439 10,558 7,891 9,260
Trade and other payables 10,441 (649) 11,090 9,681 7,259 6,445
Current provisions 3,068 (299) 3,367 3,517 3,120 2,885
Liabilities directly associated with non-current assets and disposal groups held for sale 194 190 4 6 113 9
Other current liabilities 5,001 353 4,648 4,436 4,113 4,396
Non-current liabilities 76,514 4,292 72,222 67,096 63,589 54,416
Financial liabilities 50,228 2,287 47,941 44,669 43,708 35,354
Non-current provisions 11,771 765 11,006 10,838 9,077 9,169
Other non-current liabilities 14,515 1,240 13,275 11,589 10,804 9,893
Shareholders’ equity 38,845 695 38,150 34,066 32,063 30,531
Total liabilities and shareholders’ equity 148,485 4,565 143,920 129,360 118,148 107,942
Chart: Structure of the consolidated statement of financial position

Total assets increased by EUR 4.6 billion compared with December 31, 2015, largely due to higher levels of intangible assets and property, plant and equipment. Additions from spectrum licenses alone contributed EUR 4.1 billion. The asset side was reduced as a result of the EUR 2.2 billion impairment of our financial stake in BT, which was recognized in profit and loss. Total liabilities and shareholders’ equity increased in particular on account of non-current financial liabilities.

Cash and cash equivalents increased by EUR 0.9 billion year-on-year. For detailed information on this change, 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.

Chart: Trade and other receivables

Trade and other receivables increased by EUR 0.1 billion to EUR 9.4 billion. The growth in the customer base resulting from T-Mobile US’ successful Un-carrier initiatives resulted in an increase in receivables. Exchange rate effects, mainly from the translation of U. S. dollars into euros, also had a positive effect. By contrast, factoring agreements concluded in the reporting period concerning monthly revolving sales of trade receivables due resulted in a reduction in receivables.

The decrease of EUR 6.6 billion in the carrying amount of assets and disposal groups held for sale to EUR 0.4 billion mainly resulted from the sale of our stake in the EE joint venture, which was completed on January 29, 2016 and reduced the carrying amount by EUR 5.8 billion. In this context, exchange rate effects totaling EUR 0.2 billion from the translation of pounds sterling to euros also lowered the net carrying amount compared with December 31, 2015. Secondly, the transaction agreed in the third quarter of 2015 for the exchange of spectrum licenses between T-Mobile US and a competitor with the aim of improving the mobile network coverage of T-Mobile US was completed in March 2016. This transaction reduced the net carrying amount by a further EUR 0.6 billion. A transaction agreed between T-Mobile US and a competitor in the third quarter of 2016 for the exchange of spectrum licenses, also aimed at improving the mobile network coverage of T-Mobile US, had an increasing effect of EUR 0.1 billion on the carrying amount. In December 2016, we agreed to sell our hosting service provider Strato to United Internet AG. This transaction increased the carrying amount by EUR 0.1 billion. We expect the transaction to close in the first half of 2017.

As of December 31, 2016, other current assets included the following significant effects: The carrying amount of other current financial assets decreased slightly by EUR 0.1 billion to EUR 5.7 billion. U. S. government bonds with a volume of EUR 2.8 billion that fell due and were repaid in the first half of 2016 reduced the carrying amount. By contrast, a refundable cash deposit of around EUR 2.1 billion recorded in the second quarter of 2016 in connection with a potential asset purchase in the United States increased this item. Inventories decreased by EUR 0.2 billion to EUR 1.6 billion, primarily due to lower stock levels of terminal equipment (in particular higher-priced smartphones) as of the reporting date.

Chart: Intangible assets and property, plant equipment

Intangible assets and property, plant and equipment increased by EUR 5.7 billion compared with the end of 2015 to EUR 107.4 billion in total.

Intangible assets increased by EUR 3.6 billion to EUR 60.6 billion, mainly due to additions totaling EUR 7.5 billion. This includes additions at T-Mobile US, largely in connection with transactions completed with competitors for the exchange of spectrum licenses totaling EUR 1.4 billion. Furthermore, there were additions from the acquisition of spectrum licenses by T-Mobile US in 2016 for around EUR 1.7 billion in total and by T-Mobile Polska for around EUR 1.0 billion. Positive exchange rate effects, primarily from the translation of U. S. dollars into euros, increased the carrying amount by EUR 1.1 billion. Amortization of EUR 4.1 billion, impairments of goodwill in the amount of EUR 0.5 billion, primarily in the Netherlands, as well as the reclassification of assets worth EUR 0.5 billion to non-current assets and disposal groups held for sale also lowered the carrying amount.

Property, plant and equipment increased by EUR 2.1 billion compared to December 31, 2015 to EUR 46.8 billion. Additions of EUR 11.4 billion primarily in the United States and Germany operating segments increased the carrying amount. This also included EUR 1.5 billion for capitalized higher-priced mobile devices. These relate to the business model JUMP! On Demand introduced at T-Mobile US in June 2015 under which customers no longer purchase the device but lease it. Exchange rate effects, primarily from the translation of U. S. dollars into euros, also increased the carrying amount by EUR 0.5 billion. Depreciation and amortization of EUR 8.6 billion and impairment losses of EUR 0.2 billion reduced the carrying amount, as did disposals of EUR 0.9 billion.

Other non-current financial assets increased by EUR 4.4 billion to EUR 7.9 billion. In return for our stake in the EE joint venture, we received a cash payment as well as a financial stake of 12.0 percent in BT. This addition increased the carrying amount by EUR 7.4 billion. As of December 31, 2016, an impairment of EUR 2.2 billion on this exchange-traded financial stake was recognized in profit and loss. The premature cancellation of interest rate derivatives with a fair value of EUR 0.6 billion also reduced the carrying amount. The settlement payment was recognized in net cash from operating activities in the amount of EUR 0.3 billion and in net cash used in financing activities in the amount of EUR 0.3 billion.

Chart: Financial liabilities

Our current and non-current financial liabilities increased by EUR 2.3 billion compared with the end of 2015 to EUR 64.7 billion in total.

In March 2016, we placed euro bonds with institutional investors for a total volume of EUR 4.5 billion. These comprised: a 4-year variable-interest bond with a volume of EUR 1.25 billion and a mark-up of 35 basis points above the 3-month EURIBOR; a 7-year fixed-interest bond with a volume of EUR 1.75 billion and a coupon of 0.625 percent; and a 12-year bond with a volume of EUR 1.5 billion and a fixed coupon of 1.5 percent. In April 2016, we placed a 5-year fixed-interest euro bond with a volume of EUR 0.5 billion and a coupon of 0.25 percent. In October 2016, we then issued a 7-year fixed-interest GBP bond with a volume of GBP 300 million and a coupon of 1.25 percent. All bonds were issued under our debt issuance program.

In September 2016, we placed U. S. dollar bonds with a total volume of USD 2.75 billion (around EUR 2.5 billion) with institutional investors. These comprised: a 3-year variable-interest bond with a volume of USD 250 million and a mark-up of 45 basis points above the 3-month USD Libor; a 3-year fixed-interest bond with a volume of USD 750 million and a coupon of 1.5 percent; a 5-year bond with a volume of USD 1.0 billion and a coupon of 1.95 percent; and a 7-year bond with a volume of USD 750 million and a coupon of 2.485 percent.

All bonds were issued by Deutsche Telekom International Finance B. V. with the guarantee of Deutsche Telekom AG. The issuances form part of our general corporate financing.

On April 1, 2016, T-Mobile US issued senior notes with a total volume of USD 1.0 billion (around EUR 0.9 billion). T-Mobile US expects to use the net proceeds from this offering for the purchase of 700 MHz A-block spectrum and other spectrum purchases.

In 2016, two U. S. dollar bonds were repaid in a total amount of USD 2.25 billion (around EUR 2.0 billion), as were euro bonds totaling EUR 0.9 billion, a bond in Swiss francs for CHF 0.4 billion (around EUR 0.4 billion), commercial paper in the amount of EUR 3.7 billion (net), and promissory notes in the amount of EUR 0.4 billion (net). The net decrease in liabilities to banks of EUR 0.1 billion also reduced the carrying amount of the financial liabilities.

In order to optimize the financing terms and conditions for our subsidiary T-Mobile US and thus also those for the Group, we provided T-Mobile US with a 3-year partially secured credit line of USD 2.5 billion and a secured loan of USD 660 million in December 2016. Together with the temporary loan commitments for up to USD 4.0 billion, which were made in March and April 2016 and run until the end of May 2017, Deutsche Telekom AG provided its subsidiary T-Mobile US with a total funding framework of more than USD 7 billion as of the reporting date. This does not increase the Group’s net debt. For further information, please refer to the explanations in Note 10 “Financial liabilities” in the notes to the consolidated financial statements.

Trade and other payables decreased by EUR 0.6 billion compared with the end of 2015 to EUR 10.4 billion, primarily attributable to the decrease in liabilities in our United States operating segment. Exchange rate effects from the translation from U. S. dollars into euros had an offsetting effect.

Provisions (current and non-current) stood at EUR 14.8 billion, EUR 0.5 billion higher than the prior-year level, of which EUR 8.5 billion (December 31, 2015: EUR 8.0 billion) related to provisions for pensions and other employee benefits. The increase in provisions for pensions and other employee benefits was attributable in part to actuarial losses of EUR 0.7 billion (before taxes) recognized directly in equity and current service costs of EUR 0.2 billion. By contrast, benefits of EUR 0.3 billion paid in the reporting year and the increase of our plan assets by EUR 0.3 billion (allocation under contractual trust agreement) reduced provisions. At EUR 6.4 billion, other provisions were slightly higher than in the prior year.

Other non-current liabilities increased by EUR 1.2 billion compared with the prior year to EUR 14.5 billion and included deferred tax assets, which increased by EUR 0.8 billion compared with the end of 2015 to EUR 10.0 billion, due in part to exchange rate effects from the translation of U. S. dollars into euros.

Shareholders’ equity increased by EUR 0.7 billion compared with December 31, 2015 to EUR 38.8 billion, due to profit after taxes of EUR 3.1 billion, currency translation effects recognized directly in equity of EUR 0.4 billion, and capital increases totaling EUR 0.3 billion carried out in connection with share-based payments. In addition, in connection with the option granted to our shareholders to have their dividend entitlements converted into shares, a capital increase of EUR 1.0 billion was carried out involving the contribution of the dividend entitlements. Dividend payments for the 2015 financial year to Deutsche Telekom AG shareholders of EUR 2.5 billion and to non-controlling interests of EUR 0.1 billion had an offsetting effect. In addition, as a result of the consummation of the sale of our stake in the former EE joint venture on January 29, 2016, the gains of EUR 0.9 billion from the translation of pounds sterling into euros that had until this date been disclosed in shareholders’ equity were reclassified through profit or loss to the consolidated income statement. Actuarial losses (after taxes) of EUR 0.5 billion also had a negative effect.

Net debt
millions of €
   Dec. 31, 2016 Change Dec. 31, 2015 Dec. 31, 2014 Dec. 31, 2013 Dec. 31, 2012
Financial liabilities (current) 14,422 (17) 14,439 10,558 7,891 9,260
Financial liabilities (non-current) 50,228 2,287 47,941 44,669 43,708 35,354
Financial liabilities 64,650 2,270 62,380 55,227 51,599 44,614
             
Accrued interest (955) 59 (1,014) (1,097) (1,091) (903)
Other (1,029) (172) (857) (1,038) (881) (754)
Gross debt 62,666 2,157 60,509 53,092 49,627 42,957
             
Cash and cash equivalents 7,747 850 6,897 7,523 7,970 4,026
Available-for-sale financial assets/ financial assets held for trading 10 (2,867) 2,877 289 310 27
Derivative financial assets 2,379 (307) 2,686 1,343 771 1,287
Other financial assets 2,571 2,092 479 1,437 1,483 757
Net debt 49,959 2,389 47,570 42,500 39,093 36,860
Chart: Changes in net debt

Our net debt increased by EUR 2.4 billion year-on-year to EUR 50.0 billion. The reasons for this are presented in the graphic on the previous page. Other effects of EUR 2.2 billion include, among other items, liabilities for the lease of network equipment classified as a finance lease primarily in our United States operating segment and liabilities for the acquisition of broadcasting rights. In addition, other effects include financing options under which the payments for trade payables become due at a later point in time by involving banks in the process.

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, 2016 amounted to EUR 4.9 billion (December 31, 2015: EUR 3.5 billion). This mainly relates to top-ups to existing factoring agreements as well as the conclusion of new 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 0.2 billion (2015: EUR 0.7 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 financing activities. As a result, we show these payables under financial liabilities in the statement of financial position.

In 2016, we leased network equipment for a total of 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 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, 2012 BBB+ Baa1 BBB+
Dec. 31, 2013 BBB+ Baa1 BBB+
Dec. 31, 2014 BBB+ Baa1 BBB+
Dec. 31, 2015 BBB+ Baa1 BBB+
Dec. 31, 2016 BBB+ Baa1 BBB+
Short-term rating A-2 P-2 F2
Outlook Stable Stable Stable
Financial flexibility            
    2016 2015 2014 2013 2012
Relative debt            
             
Net debt   2.3 x 2.4 x 2.4 x 2.2 x 2.1 x
EBITDA (adjusted for
special factors)
           
Equity ratio  % 26.2 26.5 26.3 27.1 28.3

To ensure financial flexibility, we primarily use the KPI relative debt. One component of this KPI is net debt, which our Group uses as an important indicator for investors, analysts, and rating agencies.

Condensed consolidated statement of cash flows      
millions of €
  2016 2015 2014
Net cash from operating activities 15,533 14,997 13,393
Cash outflows for investments in intangible assets (excluding goodwill and before spectrum investment) and property, plant and equipment (Cash Capex) (10,958) (10,818) (9,534)
Proceeds from disposal of intangible assets (excluding goodwill) and property, plant and equipment 364 367 281
Free cash flow (before dividend payments and spectrum investment) 4,939 4,546 4,140
       
Net cash used in investing activities (13,608) (15,015) (10,761)
       
Net cash used in financing activities (1,322) (876) (3,434)
Effect of exchange rate changes on cash and cash equivalents 250 267 323
Changes in cash and cash equivalents associated with non-current assets and disposal groups held for sale (3) 1 32
Net increase (decrease) in cash and cash equivalents 850 (626) (447)
       
Cash and cash equivalents 7,747 6,897 7,523
Chart: Changes in cash and cash equivalents

Free cash flow. Free cash flow of the Group before dividend payments and spectrum investment grew from EUR 4.5 billion in the prior year to EUR 4.9 billion. Net cash from operating activities increased by EUR 0.5 billion. Cash outflows for investments in intangible assets (excluding goodwill and before spectrum investment) and property, plant and equipment also increased by EUR 0.1 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 0.8 billion and was thus comparable with the prior year. Cash inflows from the cancellation of or changes in the terms of interest rate derivatives had a positive effect of EUR 0.2 billion compared with the prior-year period. A year-on-year decrease of EUR 0.2 billion in cash outflows for income taxes also had a positive impact. Net cash from operating activities was negatively affected by a EUR 0.2 billion decrease in the dividend payment from the former EE joint venture. The dividend payment received from BT of EUR 0.1 billion was matched in the prior-year period by dividend payments of a corresponding amount received from the Scout24 group. In addition, net interest payments that were EUR 0.1 billion higher year-on-year had a negative impact on net cash from operating activities.

The slight increase in cash capex compared with 2015 primarily related to the Germany, Europe, and United States operating segments. In each case, the cash outflows were for investments in network build-out and network modernization. For further details, please refer to Note 30 “Notes to the consolidated statement of cash flows” in the notes to the consolidated financial statements.