DEUTSCHE TELEKOM AG ANNUAL FINANCIAL STATEMENTS AND COMBINED MANAGEMENT REPORT AS OF DECEMBER 31, 2017 2 2 3 Contents ANNUAL FINANCIAL STATEMENTS OF DEUTSCHE TELEKOM AG 6 Balance sheet 7 Statement of income 8 Notes to the financial statements 8 Summary of accounting policies 11 Notes to the balance sheet 25 Notes to the statement of income 29 Other disclosures RESPONSIBILITY STATEMENT INDEPENDENT AUDITOR’S REPORT FURTHER INFORMATION 56 List of abbreviations 57 Contacts COMBINED MANAGEMENT REPORT – Excerpt from the annual report 2017 of Deutsche Telekom – A combined management report has been produced for Deutsche Telekom AG and the Deutsche Telekom Group and is also published in our 2017 Annual Report. Deutsche Telekom AG’s single-entity financial statements and the combined management report for the 2017 financial year are published in the electronic Federal Gazette (elektronischer Bundesanzeiger) and can also be accessed on the website of the register of companies. 4 4 5 ANNUAL FINANCIAL STATEMENTS OF DEUTSCHE TELEKOM AG 6 Balance sheet 7 Statement of income 8 Notes to the financial statements 8 Summary of accounting policies 11 Notes to the balance sheet 25 Notes to the statement of income 29 Other disclosures 6 BalanCe sheet millions of € Note Dec. 31, 2017 Dec. 31, 2016 ASSETS NONCURRENT ASSETS 1 Intangible assets 195 249 Property, plant and equipment 2,698 2,993 Financial assets 93,807 81,240 96,700 84,482 CURRENT ASSETS Inventories 2 1 1 Receivables 3 22,073 16,308 Other assets 4 1,659 1,629 Cash and cash equivalents 5 157 208 23,890 18,146 PREPAID EXPENSES AND DEFERRED CHARGES 6 676 516 DIFFERENCE BETWEEN PLAN ASSETS AND CORRESPONDING LIABILITIES 7 51 36 TOTAL ASSETS 121,317 103,180 SHAREHOLDERS’ EQUITY AND LIABILITIES SHAREHOLDERS' EQUITY 8 Capital stock 9 12,189 11,973 Less the imputed value of treasury shares (49) (50) Issued capital 12,140 11,923 Contingent capital of € 1,100 million Additional paid-in capital 10 31,333 30,190 Retained earnings 11 9,538 9,538 Unappropriated net income 5,928 3,795 58,939 55,446 ACCRUALS Pensions and similar obligations 13 3,164 3,247 Tax accruals 14 238 238 Other accruals 15 2,321 1,642 5,723 5,127 LIABILITIES 16 Debt 6,398 5,021 Other liabilities 50,101 37,413 56,499 42,434 DEFERRED INCOME 17 156 173 TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 121,317 103,180 annual finanCial statements Balance sheet 6 7 statement of income statement of inCome millions of € Note 2017 2016 Net revenue 19 3,603 3,927 Other own capitalized costs 20 4 4 TOTAL OPERATING PERFORMANCE 3,607 3,931 Other operating income 21 2,769 2,120 Goods and services purchased 22 (1,060) (1,151) Personnel costs 23 (2,732) (3,516) Depreciation, amortization and write-downs 24 (341) (338) Other operating expenses 25 (4,251) (3,570) Financial income (expense), net 26 7,151 4,717 Income taxes 27 (198) (154) INCOME AFTER INCOME TAXES 4,945 2,039 Other taxes 28 (18) (19) INCOME AFTER TAXES 4,927 2,020 Unappropriated net income carried forward from previous year 1,001 1,775 UNAPPROPRIATED NET INCOME 29 5,928 3,795 8 notes to the finanCial statements SUMMARY OF ACCOUNTING POLICIES DESCRIPTION OF THE RELATIONSHIP WITH THE FEDERAL REPUBLIC OF GERMANY DESCRIPTION OF BUSINESS ACTIVITIES The Federal Republic’s total shareholding in Deutsche Telekom amounted to Deutsche Telekom AG1, Bonn, (hereinafter referred to as Deutsche Telekom 31.89 percent at the end of the reporting period, of which 17.41 percent of the or the Company) operates as a provider of telecommunications services, infor- shares were held by KfW Bankengruppe (KfW) and attributable to the Federal mation technology (IT), multimedia, information and entertainment, security Republic in accordance with § 16 (4) of the German Stock Corporation Act (Aktien- services, as well as sales and agency services via its subsidiaries. Deutsche gesetz – AktG). The Federal Ministry of Finance is responsible for administering Telekom performs its activities both in and outside Germany. the Federal Republic’s shareholding and exercising its rights as a shareholder. As the Headquarters of the Deutsche Telekom Group, Deutsche Telekom In accordance with legal regulations, the Deutsche Bundespost Federal Posts performs strategic and cross-segment management functions and provides and Telecommunications Agency, Bonn (Federal Agency) assumes coordination services for other Group companies. These principally comprise services and administrative tasks that affect cross-company issues at Deutsche Telekom, rendered by Telekom Placement Services for providing employees with new Deutsche Post AG, Bonn, and Deutsche Postbank AG, Bonn. These are per- employment opportunities as part of the staff restructuring program, the Group formed on the basis of agency agreements for the Civil Service Health Insurance Supply Services unit, whose activities include the management of the Company’s Fund (Postbeamtenkrankenkasse – PBeaKK), the Recreation Service (Erholungs- real estate portfolio, the Group Innovation unit, which is responsible for the werk), the Supplementary Retirement Pensions Institution (Versorgungsanstalt Group’s innovation areas, and the Group Development unit with the Group der Deutschen Bundespost – VAP), the Welfare Service (Betreuungswerk), and functions of mergers & acquisitions and strategic portfolio management. The the Civil Service Pension Fund (Postbeamtenversorgungskasse), among others. Company also encompasses the International Carrier Sales and Solutions unit, which primarily provides wholesale telecommunications services to Deutsche The Federal Republic purchases services from the Company as a customer of Telekom’s subsidiaries. Deutsche Telekom. In the course of business, Deutsche Telekom deals directly with individual authorities and other government agencies as mutually independ- Part of the Company’s workforce is employed in its subsidiaries. Most of these ent individual customers. Services provided to any one department or agency are civil servants who have been assigned jobs in compliance with the statutory do not represent a significant component of Deutsche Telekom’s net revenue. provisions. The Federal Network Agency for Electricity, Gas, Telecommunications, Posts, Deutsche Telekom and T-Systems International GmbH, Frankfurt/Main (here- and Railways is a separate higher federal authority within the scope of business inafter referred to as T-Systems), signed a purchase and transfer agreement for of the Federal Ministry of Economics and Energy. One of its tasks is to super- the transfer of Deutsche Telekom’s T-Sec DTAG operating unit with effect from vise the telecommunications sector in Germany. In this capacity it regulates the January 1, 2017. T-Sec DTAG comprises the Group Security Services unit as business activities of Deutsche Telekom. well as the departments from the Group Innovation + unit that are concerned with security (Access Security, Business Infrastructure & Product Integration, BASIS OF PREPARATION Business Security, and Business Segment Support). The annual financial statements and the management report of Deutsche Telekom, which is combined with the Group management report in accordance Furthermore, by way of a purchase and transfer agreement between T-Systems with § 315 (5) of the German Commercial Code (Handelsgesetzbuch – HGB) and Deutsche Telekom with economic effect from September 1, 2017, the in conjunction with § 298 (2) HGB, are prepared in accordance with German Product & Innovation, M2M operating unit was transferred to T-Systems as part GAAP and the German Stock Corporation Act. of a transfer of operations aimed at consolidating all of the Group’s IoT (Internet of Things) units. The balance sheet and the statement of income are prepared in accordance with the classification requirements of § 266 and § 275 HGB. The statement of income By way of a sale and transfer agreement between Deutsche Telekom Training is prepared using the total cost method in accordance with § 275 (2) HGB. Unless GmbH, Bonn, and Deutsche Telekom, the TT-DTAG operating unit, comprising otherwise stated, all amounts shown are in millions of euros (millions of €/EUR). the Solution Management EU, Change & Transformation, Technology eLearning The financial year corresponds to the calendar year. Certain items have been Horizontal, and Solution Management TI business areas, was transferred to aggregated for presentation purposes in the balance sheet and the statement Deutsche Telekom as part of a transfer of operations with economic effect from of income in order to make the financial statements clearer. These items are March 1, 2017. disclosed separately in the notes. Other required disclosures for individual items of the balance sheet and the statement of income are also made in the notes. These transfers of operations had no material impact on Deutsche Telekom’s results of operations and financial position. Deutsche Telekom aggregated all disclosures on the compensation of the Board of Management and the Supervisory Board in a “Compensation report” in the combined management report, to which some information that is still required to be shown in the notes to the Company’s financial statements was added. 1 Deutsche Telekom was entered into the commercial register of the Bonn District Court (Amtsgericht – HRB 6794) under the name Deutsche Telekom AG on January 2, 1995. annual finanCial statements notes to the financial statements – 8 9 summary of accounting policies ACCOUNTING POLICIES Assets are depreciated over the following useful lives: Purchased intangible assets are