DEUTSCHE TELEKOM INTERNATIONAL FINANCE B.V.

MAASTRICHT

Annual Report

for the year ended December 31, 2021

Table of contents

            page

Company boards reports

3

Report of the Management Board

4

Report of the Supervisory Board

7

Financial statements   

8

Statement of comprehensive income

9

Statement of financial position

10

Statement of changes in equity

11

Statement of cash flows

12

Notes to the financial statements

13

Other information        

32

Independent auditor’s report

33


Company boards reports

Report of the Management Board

The Management Board is pleased to present the financial statements of Deutsche Telekom International Finance B.V. (“the Company”) for the financial year ended December 31, 2021. The Company was incorporated in the Netherlands in 1995 as a wholly owned subsidiary of Deutsche Telekom AG (DTAG). The purpose of the Company is to finance business and companies belonging to the DTAG Group by raising funds from the capital markets.

Coronavirus pandemic

Different from what generally was predicted for the end of 2021, expecting positive results from the high percentage of persons being vaccinated against the Corona virus, the pandemic is not over yet. Considering the high number of infections by the Omicron variant of the virus, the existing vaccines seem not to be very effective against spreading. The quantification of the impact of the coronavirus crisis will depend heavily on the further course of the pandemic and whether countries will keep or dismiss restrictions.

The Management has reviewed the impact of the pandemic-economic crisis to the collectability of its financial assets and concluded that no impairment for this reason had to be recognized by the Company in 2020 and 2021 respectively and that the Company’s risk related to the coronavirus pandemic is limited. While it is impossible to quantify the long-term impact of the coronavirus pandemic, the Management foresees that uncertainties will remain in 2022.

Business activities

In 2021 the Company did not issue any new bonds, nor did it draw any new bank loans. As per the end of 2021 all existing loan contracts were with DTAG only.

In 2021 the Company redeemed two USD bonds with a total nominal amount of USD 556 million (EUR 484 million) and four EUR bonds with a total nominal amount of EUR 2,319 million. Loans granted to DTAG group companies were repaid for the same total nominal amounts.

The Company made a net profit of EUR 23,705 thousand in 2021 versus a net loss of EUR 57,543 thousand in 2020. The net result of the Company under IFRS is volatile since derivatives are carried at fair value and the non-derivative financial instruments at amortized cost. The net results in 2020 and in 2021 respectively were additionally affected by the deferred tax position the Company had taken due to assumed changes in the corporate income tax rates in the Netherlands and the impairment of loan assets in 2020 and release of impairment of loan assets in 2021. We refer to note 5 and 6 respectively of the notes to the financial statements for further details.

Management Board policy with respect to risks

The Management Board is responsible for the strategy, operations, financial position, financial reporting and compliance of the Company. Within each of these fields the Company faces certain risks which are managed by the Management Board. Each of the risk fields are reviewed and discussed in the Management Board meetings and measurements are mitigated. However, the way the Company has been structured makes it inherently very limited exposed to risks.

The strategic decisions are liaised with DTAG - Group Treasury and the Supervisory Board of the Company. Therefore, the risks related to the Company’s strategy are minimized.

The operational activities of the Company are performed by a small team of experienced staff. Nevertheless, management has established a fall-back procedure for mitigating the risks relating to the operational activities like omissions and fraud. Furthermore, the Company participates in the DTAG’s Internal Control System (ICS). The accounting-related ICS comprises both preventive and detective controls which include general IT management checks, 4 eyes principle, segregation of functions and the monitoring of the accounting reporting process. The internal audit department of DTAG is responsible for independently reviewing the functionality and effectiveness of the ICS and the Audit Committee of DTAG monitors the effectiveness of the ICS and the DTAG risk management system. The control test assessments in 2021 have proved that the ICS of the Company is effective.

The main financial risks arising from the Company’s financial instruments are currency risk, interest rate risk and liquidity risk. Additionally, there is a limited credit and counterparty default risk. Management of these risks is performed in accordance with DTAG Group financial risk management policy. We regard effective management of the interest rate risk and foreign currency risk as one of our main tasks. The currency risk is mitigated by means of raising the funds in the same currency as the corresponding financing provided to the borrowers. However, currency results under IFRS arise because the Company concluded some USD interest financial instruments in the past which are classified and valuated differently compared to the USD loans for which these contracts were concluded. The interest rate levels on and the maturity dates of the Company’s funding do in principle match with the interest rate levels on and the maturity dates of the corresponding loans provided by the Company. The credit and counterparty default risk is mainly covered by the guarantee agreement with DTAG. In this guarantee agreement the own risk for the Company is limited to EUR 10 million in total for all outstanding financial assets.

The Company has obligations to disclose annual and non-audited semi-annual external financial reporting and a monthly internal financial reporting. Since the activities of the Company and the kind of transactions closed do not differ much from previous ones, the risk of false or misleading reporting is low.

Compliance with rules and regulations is a main risk which has a narrow focus with the Management Board. Within DTAG there is close contact with the departments Group Compliance, Legal and Tax in order to mitigate the risks related to relevant changes in laws and regulations. Furthermore, the Management Board has access to a network of external legal and tax advisors in order to mitigate possible risks and uncertainties.

For further details of the risk policies we refer to note 1 of the notes to the financial statements.

Future business developments and financing   

The Management Board does not expect any new financings in 2022. Since derivatives are carried at fair value and the non-derivative instruments at amortized costs, the financial result under IFRS of the Company is expected to remain volatile. However, management expects net positive cash flow for the year ending December 31, 2022 as well as in each of the following years.

According to the regulations of the Dutch Civil Law (Wet Toezicht Bestuur effective as of 1 January 2013 and the gender appointment quota for supervisory boards effective as of 1 January 2022), the Company’s Management Board is unbalanced since less than 30% of its members are female. The Company’s Management Board has only two members and they have been appointed based on qualifications and availability, irrespective of gender. In order to create more balance, the Boards will take these regulations into account with respect to future appointments of Board members.

Events after the statement of financial position date

On January 25, 2022 the Company redeemed a EUR bond with a nominal amount of EUR 100 million. A loan to DTAG with the same nominal amount was repaid to the Company. These repayments will cause a negative impact of TEUR 25 on the interest result and TEUR 19 on equity of the Company in 2022.

Report of the Supervisory Board

As per December 31, 2021 the Supervisory Board of Deutsche Telekom International Finance B.V. comprised the following members:

Mr. S. Wiemann (chairman)

Dr. Ch. Dorenkamp

Dr. A. Lützner

The Supervisory Board met once on March 3, 2021. During this meeting the Management Board presented the business results for the year 2020 and a forecast for 2021. Furthermore, the appointment of the new statutory auditor was discussed as well as the non-extension of the current APA with the Dutch Tax Authorities.

In the reporting year, bonds and assignable loans to group companies were repaid in aggregate volumes per currency of EUR 2,319 million and USD 556 million (EUR 484 million), respectively.

The Supervisory Board has taken notice of the performed ICS control test assessment in 2021 and additionally, the chairman of the Supervisory Board has assessed the payment process of the Company. It was concluded that the ICS of the Company is effective, and the risk of fraud has been mitigated by the controls and payment procedures.

The Supervisory Board has taken notice of and agrees with the conclusion of the Management Board that the COVID-19 pandemic outbreak in 2020, the developments in 2021 and the global economic crisis as a consequence thereof did not trigger impairment of the financial assets.

According to the regulations of the Dutch Civil Law (Wet Toezicht Bestuur effective as of 1 January 2013 and the gender appointment quota for supervisory boards effective as of 1 January 2022), the Company’s Supervisory Board is unbalanced since less than 30% of its members are female. The Company’s Supervisory Board members have been appointed based on qualifications and availability, irrespective of gender. In order to create more balance, the Boards will take these regulations into account with respect to future appointments of Board members.

The financial statements for the year 2021 as presented by the Management Board have been audited and were given an unqualified opinion by the independent external auditor of Ernst & Young Accountants LLP. The independent auditor’s report is included in this report. The Supervisory Board has authorized the financial statements for the year 2021 of Deutsche Telekom International Finance B.V. for issue by the management Board on March 2, 2022 for approval of the General Meeting of Shareholders. The Supervisory Board recommends that the General Meeting of Shareholders adopts the financial statements for the year 2021.

The statement of comprehensive income for the year 2021 discloses a net profit of EUR 23,705 thousand. The Management Board has performed an equity, liquidity and solvency test and based on the outcome of these tests the Supervisory Board has approved the proposal made by the Management Board to distribute an amount of EUR 7,621,765.75 to the shareholder.

The Supervisory Board takes this opportunity to express its appreciation for the performance of the Management Board during the financial year 2021.

Maastricht, March 2, 2022

Dr. Ch. Dorenkamp   Dr. A. Lützner    S. Wiemann


Statement of comprehensive income

thousands of €

 

 

Note

 

2021

 

2020

 

 

 

 

Finance income

 

2

 

 

 

 

Interest income

 

 

947,235

 

1,055,039

Interest expense

 

 

(968,407)

 

(1,075,081)

Impairment reversals on financial assets

 

6

 

38,030

 

-

Impairment on financial assets

 

6

 

-

 

(39,366)

Other financial income (expense)

 

3

 

17,709

 

(6,658)

 

 

 

 

 

 

Profit (loss) from financial activities

 

 

34,567

 

(66,066)

 

 

 

 

General and administrative expenses

 

4

 

(288)

 

(352)

Other operating income

 

 

40

 

92

 

 

 

 

Loss from operations

 

 

(248)

 

(260)

 

 

 

 

 

 

Profit (loss) before income taxes

 

 

 

34,319

 

 

(66,326)

 

 

 

 

 

Income taxes

 

5

 

(10,614)

 

8,783

 

 

 

 

 

 

Profit (loss) after income taxes

 

 

 

23,705

 

 

(57,543)

 

 

 

 

Other comprehensive income

 

 

-

 

-

 

 

 

 

 

 

Profit (loss) attributable to owners:

 

 

23,705

 

(57,543)

Total comprehensive profit (loss) attributable to the owners:

 

 

23,705

 

(57,543)

 

 

 


Statement of financial position

(Before proposed appropriation of result)

thousands of €

 

 

Note

 

31-12-2021

 

31-12-2020

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Non-current assets

 

 

22,999,560

 

25,603,950

Financial assets

6

 

22,999,560

 

25,603,950

 

 

Current assets

 

 

3,411,589

 

2,908,813

Financial assets

6

 

3,398,052

 

2,891,343

Income tax receivable

5

 

378

 

-

Other assets

 

 

3

 

3

Cash and cash equivalents

 

 

13,156

 

17,467

 

 

 

 

 

 

TOTAL ASSETS

 

 

26,411,149

 

28,512,763

 

 

 

SHAREHOLDER'S EQUITY AND LIABILITIES

 

 

 

 

 

 

 

Shareholder's equity

8

 

211,040

 

198,754

Issued Capital

 

 

500

 

500

Retained earnings

 

 

186,835

 

255,797

Net profit (loss)

 

 

23,705

 

(57,543)

 

 

Non-current liabilities

 

 

22,812,654

 

25,431,985

Financial liabilities

7

 

22,745,417

 

25,372,889

Deferred tax liability

5

 

67,237

 

59,096

 

 

 

 

Current liabilities

 

 

3,387,455

 

2,882,024

Financial liabilities

7

 

3,387,364

 

2,881,388

Income tax liability

5

 

-

 

495

Other liabilities

 

 

91

 

141

 

 

Liabilities

 

 

26,200,109

 

28,314,009

 

 

 

 

 

 

TOTAL SHAREHOLDER'S EQUITY AND LIABILITIES

 

 

26,411,149

 

28,512,763

 


Statement of changes in equity

thousands of €

Note

Issued share capital

Retained earnings

Result for the year

Total

 

 

8

 

 

 

 

 

 

 

 

 

Balance as at January 1, 2020

 

500

 

264,096

 

1,599

 

266,195

 

 

 

 

 

 

 

 

 

Movements

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

(57,543)

 

(57,543)

Appropriation of result

 

 

 

1,599

 

(1,599)

 

-

Transactions with owners

 

 

 

 

 

 

 

 

Dividends paid

 

 

 

(9,898)

 

 

 

(9,898)

 

 

 

 

 

 

 

 

 

Balance as at December 31, 2020

 

 

 

500

 

255,797

 

(57,543)

 

198,754

 

 

 

 

 

 

 

 

 

thousands of €

Note

Issued share capital

Retained earnings

Result for the year

Total

 

 

8

 

 

 

 

 

 

 

 

 

Balance as at January 1, 2021

 

500

 

255.797

 

(57.543)

 

198.754

 

 

 

 

 

 

 

 

 

Movements

 

 

 

 

 

 

 

 

Net profit

 

 

 

 

 

23.705

 

23.705

Appropriation of result

 

 

 

(57.543)

 

57.543

 

-

Transactions with owners

 

 

 

 

 

 

 

 

Dividends paid

 

 

 

(11.419)

 

 

 

(11.419)

 

 

 

 

 

 

 

 

 

 

 

Balance as at December 31, 2021

 

 

 

500

 

186.835

 

23.705

 

211.040

 

 

 

 

 

 

 

 

 

 

 


Statement of cash flows

thousands of €

Note

 

2021

 

2020

 

9

 

 

 

 

Proceeds from repayments of loans

6

 

2,803,289

 

5,295,962

Interest received

2

 

975,992

 

1,073,286

Interest paid

2

 

(969,556)

 

(1,056,628)

Interest received from derivatives

3

 

138,435

 

152,751

Interest paid from derivatives

3

 

(108,964)

 

(123,306)

Guarantee fees paid

7

 

(25,091)

 

(32,701)

Net income tax paid

5

 

(3,345)

 

(1,268)

Others

4

 

(363)

 

(521)

 

 

 

 

 

 

Net cash generated from operating activities

 

 

 

 

2,810,397

 

 

5,307,575

 

 

 

 

 

 

Repayment of financial liabilities

7

 

(2,803,289)

 

(5,295,962)

Dividend payments

8

 

(11,419)

 

(9,898)

 

 

 

 

 

 

Net cash used in financing activities

 

 

 

 

(2,814,708)

 

(5,305,860)

 

 

 

 

 

 

 

 

Net (decrease) increase in cash and cash equivalents

 

 

 

 

(4,311)

 

1,715

 

 

 

 

 

 

 

 

Cash and cash equivalents, at the beginning of the year

 

 

 

 

17,467

 

15,752

 

 

 

 

 

 

 

 

Cash and cash equivalents, at the end of the year

 

 

 

 

13,156

 

17,467

 

 


Notes to the financial statements

General information

Deutsche Telekom International Finance B.V. (hereafter “the Company”) is the financing company of Deutsche Telekom AG, Bonn, Germany (hereafter “DTAG”). Its principal activities consist of the issuance of debt instruments and funding of the Deutsche Telekom Group. The Company has its registered office at Stationsplein 8-K, Maastricht, the Netherlands, registered under number 33274743 with the Dutch trade register “Kamer van Koophandel” and is a 100% subsidiary of DTAG, which is also the ultimate parent of the Company. The Company’s financial statements are included in the consolidated financial statements of DTAG. The financial statements of the Company for the 2021 financial year were authorised for issue by the Management Board on March 2, 2022.

Basis of preparation

The financial statements have been prepared under the historical cost convention, as modified by the revaluation of its derivatives. The financial statements have been prepared in accordance with International Financial Reporting Standards (hereafter “IFRS”) as adopted by the EU and with Part 9 of Book 2 of the Dutch Civil Code. All IFRSs issued by the International Accounting Standards Board (hereafter “IASB”) adopted by the European Commission for use in the EU and effective at the time of preparing these financial statements have been applied by the Company. The financial year corresponds to the calendar year. Both the functional and presentation currency of the Company is Euro (EUR). All values are rounded to the nearest thousand except when indicated otherwise.

Initial application of standards, interpretations and amendments to standards and interpretations in the financial year

In the 2021 financial year, the Company applied the following IASB pronouncements and/or amendments to such pronouncements for the first time:

 

 

 

 

 

Pronouncement

Title

Applied by the

Changes

Impact on the presentation of the Company’s results of operations and financial position

Company from

Amendments to IFRS 16

Covid-19-related Rent Concessions / Covid-19-related Rent Concessions beyond 30 June 2021 a

January 1, 2021 b

Practical expedient for lessee accounting of rent concessions granted due to the Covid-19 pandemic. Instead of assessing whether a rent concession is a lease modification, the lessee can account for the changes in lease payments as if they were not lease modifications.

Practical expedient not applied by the Company.

Amendments to IFRS 4

Insurance Contracts – deferral of IFRS 9

January 1, 2021

Deferral of first-time application of IFRS 9 for insurance companies.

No material impact.

Amendments to IFRS 9, IAS 39 and IFRS 7, IFRS 4 and IFRS 16

Interest Rate Benchmark Reform (Phase 2)

January 1, 2021

The amendments address the impact of modifications of financial instruments required as a direct consequence of IBOR reform, hedge accounting requirements, and the accompanying disclosures.

No material impact.

a On issuance, the practical expedient was limited to rent concessions for which any reduction in lease payments affects only payments originally due on or before June 30, 2021. The IASB granted an extension to June 30, 2022.

b Earlier application is permissible.

Thanks to intensive preparatory and implementation work, the reform of interbank offered rates (IBORs) is currently generating low residual risks with the Company regarding the timing of implementation and the precise content of the planned changes for individual contracts concluded in foreign currencies. The Company is affected by this uncertainty in its interest rate derivative contracts concluded with DTAG where 6M-USD-LIBOR is part of the contract. As part of the LIBOR-reform the 6M-USD-Libor will not be published after June 30, 2023. Hence the contracts need to be adjusted to the new risk-free rate SOFR until mid of 2023 at the latest. But as the LIBOR legs of both derivatives cancel out each other the Company does not expect the changes in the benchmark rates to have a material impact. Other non-derivative financial assets and financial liabilities are not affected by the reform of IBORs and therefore, the Company did not change its risk management strategy.

Standards, interpretations and amendments issued, but not yet to be applied

Pronouncement

Title

To be applied by

Changes

Expected impact on the presentation of the Company’s results of operations and financial position

the Company from

IFRSs endorsed by the EU

 

 

Amendments to IAS 16

Proceeds before Intended Use

January 1, 2022

The amendment prohibits entities from deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Clarification of the definition of the costs of testing. Revenue and cost that relate to items produced that are not an output of the entity’s ordinary activities must be presented separately. Disclosure of the line item in the statement of comprehensive item that includes such revenue.

No material impact.

Amendments to IAS 37

Provisions, Contingent Liabilities and Contingent Assets

January 1, 2022

Clarification that the cost of fulfilling a contract includes all directly attributable costs. The cost of fulfilling the contract includes both the incremental costs of fulfilling that contract (such as direct wage and material costs) and an allocation of other costs that relate directly to fulfilling contracts. In addition, it is clarified that before a provision for an onerous contract is established, an entity should recognize any impairment loss that has occurred on assets used in (previously: dedicated to) fulfilling the contract.

No material impact.

Amendments to IFRS 3

Reference to the Conceptual Framework

January 1, 2022

Reference to the revised IFRS Conceptual Framework. Requirement that, for identifying liabilities within the scope of IAS 37 or IFRIC 21, an acquirer should apply IAS 37 or IFRIC 21 (instead of the Conceptual Framework) to identify the liabilities it has assumed in a business combination. Addition of an explicit statement that an acquirer should not recognize contingent assets in a business combination.

No material impact.

IFRS 17

Insurance Contracts

January 1, 2023

IFRS 17 governs the accounting for insurance contracts and replaces IFRS 4.

No material impact.

Amendments to IFRS 17

Insurance Contracts

January 1, 2023

Deferral of first-time application of IFRS 17 to January 1, 2023. The fundamental principles under IFRS 17 remain unaffected. The amendments to the standard, which refer to specific topics, are aimed at helping entities implement the standard and, at the same time, avoiding a significant loss of useful information. The option for companies to delay application of IFRS 9 until the initial application of IFRS 17 has also been extended until January 1, 2023.

No material impact.

IFRSs not yet endorsed by the EU a

 

 

 

Amendments to IAS 1

Presentation of Financial Statements

January 1, 2023

Clarification that the classification of liabilities as current or non-current should be based on rights that are in existence at the end of the reporting period. The amendment also clarifies the definition of settlement of a liability.

No material impact.

Amendments to IAS 1 and IFRS Practice Statement 2

Presentation of Financial Statements

January 1, 2023

The amendments to IAS 1 will require entities to disclose their material accounting policies in the future rather than their significant accounting policies. The amendments to IFRS Practice Statement 2 “Making Materiality Judgements” contain guidance on applying materiality judgments to accounting policy disclosures.

No material impact.

Amendments to IAS 8

Definition of Accounting Estimates

January 1, 2023

Definition of accounting estimates. Clarification of how entities can distinguish between accounting policies and accounting estimates.

No material impact.

Amendments to IAS 12

Deferred Tax related to Assets and Liabilities arising from a Single Transaction

January 1, 2023

Clarification that deferred tax must be recognized when an entity accounts for transactions that, on initial recognition, give rise to equal taxable and deductible temporary differences. The amendments clarify in particular the recognition of deferred tax arising from transactions such as leases or restoration / decommissioning obligations.

No material impact.

Amendments to IFRS 17

Initial Application of IFRS 17 and IFRS 9 – Comparative information

January 1, 2023

Supplementary transition option relating to comparatives in the first reporting year, which allows for the option of a different classification pursuant to IFRS 9 (classification overlay) for the comparative periods in the year of first-time application of both standards. Under this option, for each financial asset for which the comparative period has not been adjusted to IFRS 9, the classification underlying the information available at the date of transition may be used. In addition, for financial assets that relate to insurance contracts, existing classification options under IFRS 9 can be exercised again if IFRS 9 was applied prior to the first-time application of IFRS 17.

No material impact.

a For standards not yet endorsed by the EU, the date of first-time adoption scheduled by the IASB is assumed for the time being as the likely date of first-time adoption.

With the exception of the standards, interpretations, and amendments of standards and interpretations that are effective for the first time in the financial year, the Company did not make any major changes in its accounting policies.


Accounting policies

Key assets and liabilities shown in the statement of financial position are subsequently measured as follows:

Items in the statement of financial position

Measurement principle

ASSETS

CURRENT ASSETS

Cash and cash equivalents

Amortized cost

Other financial assets

 

Loans to group companies; including interest receivables

Amortized cost

Derivative financial instruments

At fair value through profit and loss

ASSETS

NON-CURRENT ASSETS

Other financial assets

 

Loans to group companies

Amortized cost

Derivative financial instruments

At fair value through profit and loss

Deferred tax assets

Non-discounted amount measured at the tax rates that are expected to apply to the period when the asset is realized or the liability settled

SHAREHOLDERS' EQUITY AND LIABILITIES

CURRENT LIABILITIES

Financial liabilities

 

Bonds and other securitized liabilities

Amortized cost

Derivative financial instruments

At fair value through profit and loss

Income tax liabilities

Amount expected to be paid to the taxation authorities, using the tax rates that have been enacted or substantively enacted by the end of the reporting period

Other liabilities

Amortized cost

SHAREHOLDERS' EQUITY AND LIABILITIES

NON-CURRENT LIABILITIES

Financial liabilities

 

Bonds and other securitized liabilities

Amortized cost

Derivative financial instruments

At fair value through profit and loss

Deferred tax liabilities

Non-discounted amount measured at the tax rates that are expected to apply to the period when the asset is realized or the liability settled

 

The material principles on recognition and measurement outlined below were applied uniformly to all accounting periods presented in these financial statements.

Cash and cash equivalents, which include the balance from bank accounts included in the cash pooling and the inter-company current account with DTAG, are generally measured at amortized cost.

Financial instruments

Financial instruments are recognized as soon as the Company becomes a party to the contractual regulations of the financial instrument. However, in the case of regular way purchase or sale, the settlement date is relevant for the initial recognition and derecognition. This is the day on which the asset is delivered to or by the Company. In general, financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, the entity currently has a right to offset the recognized amounts and intends to settle on a net basis. Transferred financial assets are derecognized in full if substantially all the risks and rewards of ownership are transferred or if some of the risks and rewards of ownership are transferred (risk sharing) and the acquirer has both the legal and the practical ability to sell the assets to a third party. If, in cases where risk is shared, the acquirer is unable to sell the assets to a third party, the assets will continue to be recognized to the extent the maximum risk retained. Financial liabilities are derecognized when the obligation specified in the contract expires or if there is a substantial modification of the terms of the contract.

The Company has not yet made use of the option to designate financial instruments upon initial recognition as at fair value through profit or loss.

Financial assets include loans to group companies, interest receivables and derivative financial assets. They are measured at fair value upon initial recognition. For all financial assets not subsequently measured at fair value through profit or loss, the transaction costs directly attributable to the acquisition are recognized plus, in the case of loans to group companies, a loss account for expected credit losses. The fair values recognized in the statement of financial position are generally based on market prices of the financial assets. If these are not available, the fair value is determined using standard valuation models based on current market parameters. For this calculation, the cash flows already fixed or determined by way of forward rates using the current yield curve taking into account maturity adjusted spreads are discounted at the measurement date using the discount factors calculated from the yield curve applicable at the reporting date. Middle rates are used.

For the classification and measurement of Loans to group companies, the respective business model for managing the loans and whether the instruments have the characteristics of a standard loan, i.e., whether the cash flows are solely payments of principal and interest, is relevant. Assuming the assets have these characteristics and if the business model is to hold to collect the asset’s contractual cash flows, they are measured at amortized cost. This is computed using the effective interest method. The calculation takes into account any premium or discount on acquisition and includes transaction costs and fees that are an integral part of the effective interest rate. On each statement of financial position date, the Company determines the recoverable amount of the assets by the calculation of the expected credit losses contributable to each of the items.

At initial recognition, Loans to group companies are measured including a loss allowance account for expected credit losses. The loss allowance is determined at an amount equal to the lifetime expected credit losses if the credit risk on that financial instrument has increased significantly since initial recognition. Otherwise, the loss allowance is calculated at an amount equal to twelve-month expected credit losses. In this case, losses incurred later than twelve months after the reporting date would therefore not be considered. Based on the low credit risk assumption of Loans to group companies, the Company applies the practical expedient related to the identification of significant increase in credit risk.

When a loss allowance for expected credit losses is being determined, the historical probability of default supplemented by the relevant future parameters for the credit risk is used as the basis for the calculation. For all Loans to group companies, publicly available market data related to the Deutsche Telekom Group debt portfolio is used to determine the loss allowance for expected credit losses.

The loss allowance takes adequate account of the future expected credit risk; write-offs lead to the derecognition of the respective receivables. For allowances, financial assets are grouped together on the basis of similar credit risk characteristics, tested collectively for impairment, and written off, if necessary. The cash flows are discounted on the basis of the weighted average of the original effective interest rates of the financial assets in the relevant portfolio. Impairments of trade receivables are recognized in some cases using allowance accounts. The decision to account for credit risks using an allowance account or by directly reducing the receivable will depend on the reliability of the risk assessment.

Derivative financial assets are measured at fair value through profit and loss.

Financial liabilities are measured at fair value on initial recognition. For all financial liabilities not subsequently measured at fair value through profit and loss, the transaction costs directly attributable to the acquisition are also a component of the carrying amount. Subsequent to initial recognition all non-derivative financial liabilities are measured at amortized cost using the effective interest method. Financial liabilities are derecognized when the obligation under the liability is discharged, cancelled or expires.

Derivative financial liabilities are measured at fair value through profit and loss.

The Company uses derivative financial instruments to mitigate the interest rate risk resulting from its activities. The Company does not hold derivatives for speculative nor trading purposes. The Company does not apply hedge accounting as defined under IFRS 9. Derivatives that are not part of an effective hedging relationship as set out in IFRS 9 must be classified as and reported at fair value through profit or loss. If the fair values are negative, the derivatives are recognized as financial liabilities. Derivatives are recognized initially at fair value. Subsequent to initial recognition, derivatives are measured at fair value and changes in the fair value of derivatives are recognized immediately in other financial income (expense) in profit and loss. In the case that no market value is available, the fair value must be calculated using standard financial valuation models. The fair value of derivatives is the value that the Company would receive or have to pay if the financial instrument was discontinued at the reporting date. This is calculated on the basis of the contracting parties’ relevant exchange rates, interest rates and credit ratings at the reporting date. Calculations are made using mid rates. Currency basis and inter-tenor spreads are taken into account. In the case of interest-bearing derivatives, a distinction is made between the ”clean price” and the ”dirty price”. In contrast to the clean price the dirty price also includes the interest accrued. The fair values carried correspond to the full fair value or the dirty price.


INCOME TAXES

Income taxes include current income taxes as well as deferred taxes. Current and deferred tax assets and liabilities must be recognized where they are probable. They are measured in accordance with the tax laws applicable or already announced as of the reporting date, provided said announcement has the effect of actual enactment. Where current and deferred tax is recognized, it must be reported as income or expense except to the extent that the tax arises from a transaction which is recognized outside profit and loss, either in other comprehensive income or directly in equity, or in connection with a business combination. Current tax assets and current tax liabilities and deferred tax assets and deferred tax liabilities are offset in the statement of financial position if the Company has a legally enforceable right to set off current tax assets against current tax liabilities, has an intention to settle net, and the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority.

Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the tax authorities. The tax rates and tax laws used to compute the amounts are those that are enacted by the statement of financial position date.

Deferred income tax is recognised on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Other liabilities comprise provisions and other current obligations and are generally measured at amortized cost.

Dividend distribution to the Company’s shareholder is recognized as a liability in the financial statement in the period in which the dividends are approved by the Company’s shareholder.

Interest income (expense) is recognized as it accrues, using the effective interest method.

Other financial income (expense) includes gains (losses) from derivative financial instruments and from foreign exchange. Foreign-currency transactions are translated into the functional currency at the exchange rate at the date of transaction. At statement of financial position dates, monetary items are translated at the closing rate, and non-monetary items are translated at the exchange rate at the date of transaction. Exchange rate differences are recognized in other financial income (expense) in profit or loss.

The exchange rates of significant currencies changed as follows:

in €

Average rate

Rate at balance sheet date

2021

2020

31-12-2021

31-12-2020

 

 

 

 

 

1 Pound sterling (GBP)

1.16336

1.12416

1.19006

1.11352

1 Hong Kong dollar (HKD)

0.10880

0.11289

0.11320

0.10513

1 U.S. dollar (USD)

 

0.84568

 

0.87553

 

0.88285

 

0.81510

General administrative expenses include personnel costs, service fees, audit and consultancy fees and operational leases (telephone, computer equipment and office rent) and are recognized at cost.


Judgements and estimates

The Company exercises judgement in measuring and recognizing provisions. Judgement is necessary in assessing the likelihood that a liability will arise and to quantify the possible range of the final settlement. These estimates are subject to change as new information becomes available.

The determination of impairments to loan assets involves the exercise of judgement of the methodology used and the assumptions made for the calculation of the expected credit loss. We refer to the section under accounting policies (Financial assets) and Note 6 in the Financial Statements.

Regarding assumptions made for the calculation of fair values we refer to the section under accounting policies (Derivative financial instruments).

Coronavirus pandemic

There is still uncertainty regarding the extent to which business activities and thus the results of operations and financial position of DTAG will further be affected overall, depending on how the coronavirus pandemic develops. Possible future effects on the measurement of individual assets and liabilities are being analysed on an ongoing basis. DTAG has informed the Company that it has put in place cost-saving measures to mitigate potential effects on earnings.

Based on the analyses made by the Company and DTAG, the Company trust that DTAG will continue to be able to fulfil their liabilities towards the Company and judges the default risk being limited. The effects of the coronavirus pandemic and the economic crisis as a result thereof will not have a direct impact to the results, equity or valuation of the financial assets of the Company. The Company itself has taken additional measures to mitigate its operational risks.


Notes to the statement of comprehensive income

1. Risk management, financial derivatives and other disclosures on capital management

Principles of risk management

The Company’s principal financial liabilities, other than derivatives, mainly comprise issued bonds and the Company’s financial assets, other than derivatives, mainly comprise loans to group companies. These financial liabilities and assets are the result of the Company’s main purpose, i.e. to raise funds for DTAG or group companies of DTAG.

The main risks arising from the Company’s financial instruments are currency risk, interest rate risk and liquidity risk. Additionally, there is a limited credit and counterparty default risk. Management of these risks is performed in accordance with DTAG Group financial risk management policy. The Management Board regards effective management of the interest rate risk and foreign currency risk as one of its main tasks.

Historically, the Company has entered into various derivative transactions, primarily interest rate swaps and cross currency interest rate swaps, to mitigate the interest rate risk and currency translation risk arising from the group’s operations and its sources of funding. It is the Company’s policy that derivatives are exclusively used as hedging instruments, i.e. neither for trading nor other speculative purposes. In 2021 and 2020, the Company has not concluded any new derivative contracts.

For the presentation of market risks, IFRS 7 requires sensitivity analysis that show the effects of hypothetical changes of the relevant risk variables on profit or loss and shareholder’s equity. In addition to currency risks the Company is exposed to interest rate risks according to the definition of IFRS 7. The periodic effects are determined by relating the hypothetical changes in the risk variables to the balance of financial instruments at the reporting date. It is assumed that the balance at the reporting date is representative for the year as a whole.

Currency risk

Currency risk as defined by IFRS 7 arises on account of financial instruments being denominated in a currency that is not the functional currency and being of a monetary nature. The Company’s currency risk relates to positions in GBP, HKD and USD. The currency risk is mitigated by means of raising the funds in the same currency as the financing provided to the borrowers.

The currency sensitivity analysis is based on the following assumptions:

Major non-derivative monetary financial instruments (loans and other financial assets and interest-bearing and non-interest-bearing liabilities) are directly denominated in the functional currency.

Whereas derivatives are valued at fair value, non-derivative financial instruments are carried at amortized cost. The currency valuation result of both derivatives and non-derivative financial instruments are included in other financial income (expenses). Therefore, a change in exchange rates has an impact on the result of the Company.

Interest income and interest expense from financial instruments are recorded directly in the functional currency. The Company does not hedge the future net margins. This has an impact on the net profit margin of the Company.

If the euro had gained 10 percent against all currencies at December 31, 2021, other financial income would have been EUR 24.1 million lower and the equity would have been EUR 18.1 million lower (December 31, 2020: respectively EUR 25.4 million lower and EUR 19.0 million lower). If the euro had lost 10 percent against all currencies at December 31, 2021 the result would be in the opposite direction.

The hypothetical effect on profit or loss before income taxes of EUR 24.1 million mainly result from the currency sensitivity EUR/USD: EUR 24.0 million (2020: EUR 25.3 million).

Interest rate risk

The Company is exposed to interest rate risk on the interest-bearing receivables and interest-bearing liabilities. However, the interest rates on the Company’s funding do in principle match with the interest rates on the corresponding loans provided by the Company. Any interest rate exposure that arose nevertheless historically at the level of the Company has been mitigated by means of derivative contracts with DTAG so there will effectively be no interest rate risk with respect to cash flows at the level of the Company. However, as these derivatives are valued at fair value, a change in interest rates has an impact on the result of the company of the respective year.

The following table provides a breakdown of the USD Interest Rate Swaps concluded with DTAG:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maturity

CCY

Notional

Pay

Receive

 

 

 

 

 

June 15, 2030

USD

 

1,685,000,000

6.285%

6MUSLibor +1.120%

June 15, 2030

USD

 

1,685,000,000

6MUSLibor +1.045%

8.250%

 

 

 

 

 

 

 

 

 

Interest rate risks are presented by way of sensitivity analyses in accordance with IFRS 7. These show the effects of changes in market interest rates on interest payments, interest income and expense, other income components and, if appropriate, shareholder’s equity. The interest rate sensitivity analyses are based on the following assumptions:

Changes in the market interest rates of non-derivative financial fixed instruments do not affect income because they are not measured at fair value but at amortized cost.

Changes in the market interest rates of non-derivative financial variable instruments do not affect income because these instruments are back-to-back transactions.

Changes in the market interest rate of derivatives do affect other financial income or expense since they are measured at fair value and are not part of a hedging relationship as set out in IFRS 9. They are therefore taken into consideration in the income-related sensitivity calculations.

If the market interest rates had been 100 basis points higher (lower) at December 31, 2021, the profit or loss before income taxes would have been EUR 8.9 million lower (higher) and the equity would have been EUR 6.7 million lower (higher) (December 31, 2020: respectively EUR 29.3 million lower (higher) and 21.9 lower (higher)).

Some issued bonds and attributed loan contracts granted to DTAG include a step-clause. If the rating of DTAG changes and triggers the step-clause of the specific bonds and loan contracts, the interest rates of those contracts are adjusted. If the rating of DTAG had been upgraded to A3 and A- as of December 31, 2021, this would trigger interest rates of two Bonds and three loan contracts being lowered by 0.5%. Two loan contracts have been concluded with different starting dates and interest levels as the underlying bond and which were hedged by the derivatives concluded with DTAG. Consequently, by the decrease of the interest rate by 0.5% the profit or loss before income taxes would have been EUR 3.5 million lower (December 31, 2020: EUR 3.8 million lower). If the rating of DTAG had been downgraded below Baa1 and BBB+ as of December 31, 2021, the interest rates of two other bonds and two other loan contracts would have been increased by 0.5%. However, in that case the profit or loss before income taxes and equity would not have materially changed.


Credit and counterparty default risk

Loans are granted only to DTAG and DTAG group companies and as per the end of 2021, all existing loans are with DTAG. The maximum exposure to credit and counterparty default risk is generally represented by the carrying amounts of the financial assets that are carried in the statement of financial position, including derivatives with positive market values. However, the Company has concluded a guarantee and credit default insurance agreement with DTAG in favour of the owners of financial liabilities issued by the Company, for which the Company pays a fix guarantee fee plus a onetime premium on occasion of default, calculated as a ratio of the loan amount in default divided by the total amount of loans outstanding multiplied by EUR 10 million. This guarantee and credit default insurance agreement also covers the derivatives which were closed with DTAG, only for the reason of covering the interest exposures related to certain loans to affiliates companies. Therefore, management has assessed that the risk exposure of default (CVA/DVA) with regard to the two derivatives is not material.

The loans granted are unsecured and management does not expect non-performance by the counterparties of these loans. However, under IFRS 9 it is required to recognize and measure potential impairments in loans and receivables which are measured at Amortized Cost by the expected credit loss model. The general approach is applied. As per 31.12.2020 the provision on financial assets under IFRS 9 amounted to 39,438 thousands of euro (hereafter “TEUR”) and as per 31.12.2021 this was calculated at an amount of TEUR 1,408. This decrease of the impairment is due to the decreased one year default probability (1YDP) rate of DTAG per 31.12.2021 compared to 31.12.2020. The relatively high 1YDP rate of DTAG per 31.12.2020 was mainly driven by the merger of T-Mobile US with Sprint which had negative impacts on key financial figures of DTAG. The difference of TEUR 38,030 has been recognized through comprehensive profit (loss). Please also refer to Note 6.

Liquidity risk

Please refer to Note 7.

Capital management

The overriding aim of the Company's capital management is to match amounts, return and maturities of its financial assets with its financial liabilities in order to ensure its capability to repay its debt. The Company's objective when managing capital is to safeguard the Company’s ability to continue as a going concern in order to provide returns for the shareholder and benefits for other stakeholders.


2. Finance income (expense)

The following table provides a breakdown of finance income (expense):

thousands of €

 

2021

 

2020

 

 

 

 

 

 

Interest income

 

947,235

 

 

1,055,039

Interest expense

 

(968,407)

 

 

(1,075,081)

 

 

 

 

 

 

 

 

 

 

(21,172)

 

 

(20,042)

Interest income of TEUR 947,235 has been earned from loan contracts with Deutsche Telekom group companies in 2021 (2020: TEUR 1,055,039). All interest expense in 2021 and 2020 respectively has been derived from Deutsche Telekom group external debt. The negative interest result is mainly due to the fact that hedge accounting as defined in IFRS 9 is not applied. We refer to Note 1, 3 and 6.

3. Other financial income (expense)

The impairment and impairment reversals on financial assets in 2021 and 2020 are the recognition and release of provisions related to the expected credit losses on loans to group companies in accordance with IFRS 9. We refer to note 6.

The item “Other financial income” breaks down as follows:

thousands of €

 

2021

 

2020

 

 

 

 

 

Gain (loss) from financial instruments

 

16.477

 

 

(5.331)

Gain (loss) from foreign exchange differences

 

1.232

 

 

(1.327)

 

 

 

 

 

 

 

 

 

17.709

 

 

(6.658)

The position “Gain (loss) from financial instruments” in 2021 (and 2020) comprise the fair value change of two USD derivatives which were concluded with DTAG. The Company does not apply hedge accounting under IFRS. Therefore, all movements in fair value of financial instruments and related income and expenses are included in 'Other financial income’. The position “Gain (loss) from foreign exchange differences” includes a gain of TEUR 10 (2020: a gain of TEUR 2) resulted from spot trades (the exchange of interest margin in foreign currencies into euro) and is not disclosed in the net gain/loss by measurement category in Note 7.

4. General and administrative expenses

The following table provides a breakdown of total general and administrative expenses:

 

 

thousands of €

 

2021

 

2020

 

 

 

 

 

Personnel costs

 

 

 

 

Remuneration Management Board

 

100

 

99

Other personnel benefits

 

2

 

3

Other social security costs

 

10

 

10

Total personnel costs

 

 

112

 

 

112

 

 

 

 

Other general and administrative expenses

 

 

 

 

Office rent

 

16

 

16

Service fees

 

141

 

141

Audit and tax consultancy fees

 

3

 

62

Telephone

 

-

 

1

Computer lease

 

11

 

9

Other

 

5

 

11

Total other general and administrative expenses

 

 

176

 

 

240

 

 

 

 

 

Total general and administrative expenses

 

 

288

 

 

352

 

 

 

 

 

 

 

As at December 31, 2021 the Company employed 1 person (2020: 1).

Service fees of TEUR 141 have been paid in 2021 for services related to accounting, mainly provided by the shared service centre of DTAG (2020: TEUR 141). Furthermore, computer and software leasing fees of TEUR 11 have been paid in 2021 to DTAG (2020: TEUR 9).

The Audit and tax consultancy fees listed above relate to the procedures applied to the Company by accounting firms and external auditors as referred to in Section 1, subsection 1 of the Audit Firms Supervision Act (‘Wet toezicht accountantsorganisaties - Wta’) as well as by Dutch and foreign-based accounting firms, including their tax services and advisory groups. A reservation of fees for the audit of the 2019 and 2020 financial statements of TEUR 107 were no longer recognized and were reversed. An amount of TEUR 97 (2020: TEUR 55) has been recognized as fees for the audit of the 2021 financial statements and TEUR 14 (2020: TEUR 7) for tax services, regardless of whether the work was performed during the financial year. In 2021 fees of TEUR 26 (2020: TEUR 26) for other audit services were recognized in the position Interest expense in the Statement of comprehensive profit.

Remuneration Management Board and Supervisory Board

The remuneration of the Management Board consists of short-term employee benefits and complies with the “bezoldiging bestuurders” in accordance with Dutch law article “2:383 BW”. There are no long-term benefits. The remuneration of the Supervisory Board in 2021 was nil (2020: nil). As per 31.12.2021 and 31.12.2020 respectively no loan contracts were outstanding with the Management Board or the Supervisory Board.

5. Income taxes

Income taxes in the statement of comprehensive income:

 

 

 

 

thousands of €

 

2021

 

 

2020

 

 

 

 

Current income tax (expenses)

 

(2,473)

 

 

(545)

Deferred tax (expenses) income

 

(8,141)

 

 

9,329

 

 

 

 

 

 

 

 

 

(10,614)

 

 

8,783

On December 31, 2021 the Advance Pricing Agreement (APA) concluded with the Dutch Tax Authority expired and was not extended. The amount in “Current income tax expenses” reflects the calculated amount of income tax due over the year without having received a final assessment.

The position of current income tax (expenses) in 2020 was reduced by a refund of income tax paid of TEUR 2,429. It was assessed that the profit in 2017 had to be shifted partly to the parent company DTAG.

The Dutch Government announced changes in corporate income tax rates to be enacted in the years 2021 and 2022 respectively. The Company used the announced income tax rates for its calculation of the deferred tax assets and liabilities in 2020 and 2021 respectively which resulted in additional deferred tax expenses in 2020 and 2021.


The following table shows the reconciliation of the effective tax rate:

 

 

 

 

thousands of €

 

2021

 

 

2020

 

 

 

 

 

 

Profit (Loss) before income taxes

 

34,319

 

 

(66,327)

Expected income tax (expense) / benefit*

 

(8,529)

 

 

19,028

Income tax previous year(s)

 

26

 

 

2,429

Effect from the change in income tax rate **

 

(2,085)

 

 

(7,801)

Income tax (expense) / benefit according to income statement

 

(10,614)

 

 

8,783

Effective income tax rate (%)

 

30.9%

 

 

13.2%

* Applicable income tax rates in the Netherlands ranged from 15.0% to 25.0% in 2021 (2020: 16.5% to 25.0%).

For the Company the average income tax rate was 24.9% in 2021 (2020: 25.0%).

** Corporate income tax rate change in the Netherlands substantively enacted. Corporate income tax rates will change from 15.0% resp. 25.0% to 15.0% and 25.8% as from 1.1.2022.

Income taxes in the statement of financial position:

Current income taxes in the statement of financial position refer to receivable income taxes amounting to TEUR 378 as of December 31, 2021 (December 31, 2020: payable income taxes of TEUR 495). All income taxes are payable in the Netherlands.

Deferred taxes relate to the following key statement of financial position items:

 

 

 

 

 

 

 

 

 

thousands of €

 

31-12-2021

 

31-12-2020

Deferred taxes related to following key statement of financial position item:

Deferred tax assets

Deferred tax liabilities

Deferred tax assets

Deferred tax liabilities

 

 

 

 

 

 

 

Current assets

2.023

 

-

1.640

 

-

Financial assets

2.023

 

-

1.640

 

-

 

 

 

 

 

 

 

Non-current assets

45.447

 

(169.861)

63.435

 

(194.398)

Financial assets

20.610

 

(169.861)

33.889

 

(194.398)

Prepaid expenses*

24.837

 

-

29.546

 

-

 

 

 

 

 

 

 

Current liabilities

-

 

(48.858)

-

 

(52.595)

Financial liabilities

-

 

(2.961)

-

 

(2.658)

Other deferred income*

-

 

(45.897)

-

 

(49.937)

 

 

 

 

 

 

 

Non-current liabilities

109.348

 

(5.336)

130.224

 

(7.402)

Financial liabilities

109.348

 

(5.336)

130.224

 

(7.402)

 

 

 

 

 

 

 

Total

156.818

 

(224.055)

195.299

 

(254.395)

 

 

 

 

 

 

 

Of which: non-current

154.795

 

(175.197)

193.659

 

(201.800)

Netting:

(156.818)

 

156.818

(195.299)

 

195.299

Recognition:

-

 

(67.237)

-

 

(59.096)

 

 

 

 

 

 

 

 

 

* refers to tax balance sheet item

All deferred taxes relate to temporary differences between IFRS balance amounts and fiscal balance amounts and are volatile from year to year, mainly due to fair value movements of derivatives as no hedge accounting is being applied. Changes in deferred taxes are recognized in Income taxes in the statement of comprehensive income. There are no deferred taxes that relate to loss carry-forwards.


Notes to the statement of financial position

6. Financial assets

The following table provides a breakdown of the financial assets:

 

 

 

 

 

 

 

 

 

 

 

thousands of €

 

31-12-2021

 

31-12-2020

 

Total

 

Of which: current

 

Total

Of which: current

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans to group companies

 

 

25,430,617

 

3,089,433

 

 

27,381,259

 

2,554,902

Derivative financial instruments

 

 

658,376

 

-

 

 

777,593

 

-

Interest receivables

 

 

308,619

 

308,619

 

 

336,441

 

336,441

 

 

 

 

 

 

 

 

 

 

 

 

 

 

26,397,612

 

3,398,052

 

 

28,495,293

 

2,891,343

 

 

 

 

 

 

 

 

 

 

 

In 2021, loans to group companies were repaid to the Company for a total nominal amount of TEUR 2,803,289. Other movements in the value of “Loans to group companies” compared to 2020 consist of FX differences, impairment and amortization.

The following table provides a breakdown of loans to DTAG group companies:

thousands of €

 

31-12-2021 

 

31-12-2020 

 

Total

Of which: current

 

Total

Of which: current

Germany*

 

 

25,430,617

 

3,089,433

 

 

27,121,380

 

2,295,023

Hungary

 

 

-

 

-

 

 

259,879

 

259,879

 

 

 

 

 

 

 

 

 

 

 

 

 

 

25,430,617

 

3,089,433

 

 

27,381,259

 

2,554,902

 

 

 

 

 

 

 

 

 

 

 

* of which loans to shareholder: TEUR 25,430,617 (2020: TEUR 27,121,380)

As per 31.12.2021 all remaining loans to DTAG group companies are with DTAG only.

The following table shows the movement of the provision on financial assets under IFRS 9:

Movement of provision in accordance with IFRS 9

 

 

2021

 

2020

thousands of €

 

 

 

 

 

 

 

 

 

 

 

Provision previous year

 

 

(39.438)

 

(72)

Provision in the year through comprehensive profit (loss)

 

 

-

 

(39.366)

Release of provision in the year through comprehensive profit (loss)

 

 

38.030

 

-

Provision end of year

 

 

(1.408)

 

(39.438)

 

 

 

 

 

 

A financial asset is in default when it is 90 days past due and by an individual assessment of the Unlikeness to Pay (UtP).

With regard to all loans and receivables, none of those are past due.

There are no indications as of the reporting date that the debtors will not meet their payment obligations.

The Management Board calculates the provision on financial assets under IFRS 9 by using the 1-year Default Probability (PD) rate of DTAG and a Loss Giving Default (LGD) of 60%. As per 31.12.2021 all current and non-current financial assets relate to loans to the shareholder DTAG. The rating of DTAG is BBB (according to Standard & Poor’s), BBB+ (according to Fitch) and Baa1 (according to Moody’s).

The loans have stated coupon interest rates as per December 31, 2021 of 0.15% to 9.33% (2020: 0.15% to 9.33%) and mature up to 20 years (2020: up to 21 years). The average interest rate of the loans was 3.63% as of December 31, 2021 (2020: 3.41%).

The Company does not hold derivatives for speculative nor for trading purposes. All derivatives have been contracted with the parent company DTAG. The Company does not make use of hedge accounting as defined under IFRS 9. Since derivatives are carried at fair value and the non-derivative instruments at amortized costs, the financial result under IFRS of the Company is volatile. As shown by the liquidity analysis under note 7 the Company always has net positive cash flows in every year until the last contract expires.

All interest receivables as of December 31, 2021 (and December 31, 2020 respectively) refer to accrued interest from companies of DTAG Group, of which TEUR 308,619 relate to DTAG (2020: TEUR 330,606).

7. Financial liabilities

The following table provides a breakdown of financial liabilities and its maturities:

thousands of €

31-12-2021

Total

due within

due > 1 year

due

 

1 year

< 5 years

> 5 years

Bonds and other securitized liablities

25,311,872

 

3,079,443

 

8,185,248

 

14,047,181

Guarantee fees payable

109,868

 

11,554

 

20,234

 

78,080

Interest liabilities

296,367

 

296,367

 

-

 

-

Derivative financial instruments

414,674

 

-

 

-

 

414,674

 

 

 

 

 

 

 

 

 

 

26,132,781

 

3,387,364

 

8,205,482

 

14,539,935

thousands of €

31-12-2020

Total

 

due within

 

due > 1 year

 

due

 

 

1 year

 

< 5 years

 

> 5 years

Bonds and other securitized liablities

27,284,177

 

2,546,838

 

10,575,851

 

14,161,488

Guarantee fees payable

127,017

 

12,364

 

28,025

 

86,628

Interest liabilities

322,186

 

322,186

 

-

 

-

Derivative financial instruments

520,897

 

-

 

-

 

520,897

 

 

 

 

 

 

 

 

 

 

28,254,277

 

2,881,388

 

10,603,876

 

14,769,013

The average interest rate for bonds is 3.66% as of December 31, 2021 (2020: 3.42%).

Guarantee fee liabilities to be paid to DTAG are paid over the terms of the external financial instruments. DTAG provides a full and irrevocable guarantee for all liabilities issued by the Company, except for the own risk of EUR 10 million the Company is exposed to. Payment dates of guarantee fees are generally matched with interest payment dates of the external financial liabilities.

In 2021 (and 2020 respectively) all interest liabilities refer to group external debt.

In 2021 bonds were repaid by the Company for a total nominal amount of TEUR 2,803,289. Other movements in the value of “Bonds and other securitized liabilities” compared to 2020 consist of FX differences and amortization.

Liquidity analysis

The following table shows the contractually agreed undiscounted interest and guarantee payments and repayments of the non-derivative financial instruments and the derivatives with positive and negative values as of December 31, 2021 and as of December 31, 2020 respectively. All instruments held at December 31, 2021 (December 31, 2020 respectively) and for which payments were already contractually agreed are included. Planning data for future new assets or liabilities were not included. Each amount in foreign currency was translated at the closing rate prevailing on reporting date. The variable interest payments arising from the financial instruments were calculated using the last interest rates fixed before December 31, 2021 (December 31, 2020 respectively). Based on this liquidity analysis the Company expects net positive cash flows in all years presented herein.


The following tables show the undiscounted liquidity analysis as of December 31, 2021:

thousands of €

 

2022

 

2023-2026

 

>2026

 

Total cash flows

Carrying amount

Non derivative borrowings (cash payables)

(4,013,729)

(11,244,116)

(17,085,112)

(32,342,957)

(25,311,872)

Bonds fix

(3,613,729)

(11,244,116)

(17,085,112)

(31,942,957)

Bonds floating

(400,000)

-

-

(400,000)

 

Guarantees payable

(22,566)

(63,833)

(45,691)

(132,090)

(109,868)

 

Derivatives

30,362

121,388

106,214

257,964

243,702

IR Derivatives outflow

(114,042)

(456,335)

(399,293)

(969,670)

IR Derivatives inflow

144,404

577,723

505,507

1.227,634

 

Loans granted (cash receivables)

4,015,894

11,216,448

17,044,597

32,276,939

25,430,617

Loans to aff. comp. fix

3,615,282

11,216,448

17,044,597

31,876,327

Loans to aff. comp. floating

400,612

-

-

400,612

 

 

Total Cash Flow

9,961

29,887

20,008

59,856

The following tables show the liquidity analysis as of December 31, 2020:

thousands of €

 

2021

 

2022-2025

 

>2025

 

Total cash flows

Carrying amount

Non derivative borrowings (cash payables)

(3,488,019)

(13,724,425)

(17,689,381)

(34,901,825)

(27,284,177)

Bonds fix

(3,488,019)

(13,324,425)

(17,689,381)

(34,501,825)

Bonds floating

-

(400,000)

-

(400,000)

 

Guarantees payable

(24,639)

(71,879)

(55,452)

(151,970)

(127,017)

 

Derivatives

28,032

112,072

126,081

266,185

256,696

IR Derivatives outflow

(104,402)

(416,859)

(468,966)

(990,227)

IR Derivatives inflow

132,434

528,931

595,047

1,256,412

 

Loans granted (cash receivables)

3,495,213

13,716,939

17,643,514

34,855,666

27,381,259

Loans to aff. comp. fix

3,494,601

13,316,335

17,643,514

34,454,450

Loans to aff. comp. floating

612

400,604

-

401,216

 

 

Total Cash Flow

10,587

32,707

24,762

68,056

Additional disclosures on financial instruments

The following table provides carrying amounts, amounts recognized and fair values by measurement categories:

thousands of €

 

 

Category in accordance to IFRS 9

 

Carrying amount 31.12.2021

 

Amounts recognized in statement of financial position according to IFRS 9

 

Fair Value 31.12.2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortized cost

Fair value recognized in profit or loss

 

Assets

 

 

 

 

 

 

 

Cash and cash equivalents 1

 

AC

13,156

13,156

-

-

 

Loans to aff. comp.

 

AC

25,430,617

25.430,617

-

29,773,211

 

Other financial assets 1

 

AC

308,619

308,619

-

-

 

Derivative financial assets

 

FVTPL

658,376

-

658,376

658,376

 

Liabilities

 

 

Bonds and other securitized liablities

 

AC

25,311,872

25,311,872

-

29,353,837

 

Other financial liabilities

 

AC

406,235

406,235

-

415,402

 

Derivative financial liabilities

 

FVTPL

414,674

-

414,674

414,674

 

 

 

 

 

 

 

Thereof aggregated according to IFRS 9 categories

 

 

 

 

Assets

 

 

 

 

Financial assets carried at amortized cost

 

 

AC

 

25,739,236

25,739,236

-

29,773,211

 

Financial assets at fair value through profit and loss

 

 

FVTPL

 

658,376

-

658,376

658,376

 

Liabilities

 

 

 

 

Financial liabilities carried at amortized cost

 

AC

25,718,107

25,718,107

-

29,769,239

 

Financial liabilities at fair value through profit and loss

 

FVTPL

 

414,674

-

414,674

414,674

 

thousands of €

 

Category in accordance to IFRS 9

Carrying amount 31.12.2020

Amounts recognized in statement of financial position according to IFRS 9

Fair Value 31.12.2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortized cost

Fair value recognized in profit or loss

Assets

 

Cash and cash equivalents 1

AC

17,467

17,467

-

-

Loans to aff. comp.

AC

27,381,259

27,381,259

-

32,540,911

Other financial assets 1

AC

336,441

336,441

-

-

Derivative financial assets

FVTPL

777,593

-

777,593

777,593

Liabilities

 

Bonds and other securitized liablities

AC

27,284,177

27,284,177

-

32,518,490

Other financial liabilities

AC

449,203

449,203

-

461,317

Derivative financial liabilities

FVTPL

520,897

-

520,897

520,897

 

 

 

 

 

Thereof aggregated according to IFRS 9 categories

 

 

 

 

Assets

 

 

 

Financial assets carried at amortized cost

 

 

AC

 

27,717,700

27,717,700

-

32,540,911

Financial assets at fair value through profit and loss

 

 

FVTPL

 

777,593

-

777,593

777,593

Liabilities

 

 

 

 

Financial liabilities carried at amortized cost

AC

27,733,380

27,733,380

-

32,979,807

Financial liabilities at fair value through profit and loss

 

 

FVTPL

 

520,897

-

520,897

520,897

1 We refer to the exception of IFRS 7.29(a) for the disclosure of the fair value. The amounts disclosed are approximately equal to the fair values.

AC = Amortized Cost

FVTPL = Fair Value and changes in Profit and Loss

Only derivative financial instruments are measured at fair value in the statement of financial position of the Company. IFRS 7 requires that the classification of financial instruments at fair value is determined by reference to the source of input used to derive the fair value. The classification uses the following three-level hierarchy: Level 1 uses quoted prices in active markets for identical assets or liabilities as input for the determination of the fair value, level 2 uses inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices) and level 3 uses inputs for the asset or liability that are not based on observable market data (unobservable inputs). The derivatives of the Company are exclusively categorised under level 2 in the fair value hierarchy of IFRS 7.

The fair values recognized in the statement of financial position generally correspond to the market prices of the financial assets. If these are not immediately available, they must be calculated using standard valuation models based on current market parameters. For this calculation, the cash flows already fixed or determined by way of forward rates using the current yield curve taking into account maturity adjusted spreads are discounted at the measurement date using the discount factors calculated from the yield curve applicable at the reporting date. Middle rates are used.

Since no quoted prices are available for the derivative financial instruments of the Company, the fair value is determined with the use of standard valuation models based on observable market parameters. For this calculation, the cash flows already fixed or determined by way of forward rates using the current yield curve taking into account maturity adjusted spreads are discounted at the measurement date using the discount factors calculated from the yield curve applicable at the reporting date. Middle rates are used. A distinction between the Clean and the Dirty price is made. The Dirty Price also comprises accrued interest. The recognized Fair Values correspond to the Full Fair Value or the Dirty Price.

The classification in level 1 or level 2 of quoted bonds has been determined by the trading volume of the instrument. USD and EUR denominated bonds traded in an active market have been classified in level 1, all other, traded in less liquid markets, in level 2.

In 2021 and in 2020 the guarantee fees have been classified in level 2 and a fair value for the Other financial liabilities is disclosed accordingly. The fair values of the financial instruments classified in level 1 equal the nominal amounts multiplied by the price quotations at the reporting date. All other fair values of the financial instruments classified in level 2 are calculated as present values of the payments associated with the debts, based on the applicable yield curve and DTAG’s credit spread curve for specific currencies.


The following table shows the classification of financial instruments that are not recognized at fair value but whose fair values are disclosed:

thousands of €

31-12-2021

 

 

 

 

 

 

 

 

 

 

 

Level 1

Level 2

Total

Assets

 

 

Loans to aff. comp.

 

 

29,773,211

 

29,773,211

 

 

 

 

 

Liabilities

 

 

 

 

 

Financial liabilities at amortized cost

19,797,888

 

9,971,351

 

29,769,239

- of which marketable securities

19,797,888

 

 

 

19,797,888

- of which non-marketable securities

 

 

9,555,949

 

9,555,949

- of which other financial liabilities

 

 

415,402

 

415,402

 

 

 

 

 

 

 

thousands of €

31-12-2020

 

 

 

 

 

 

 

 

 

 

 

Level 1

Level 2

Total

Assets

 

 

Loans to aff. comp.

 

 

32,540,911

 

32,540,911

 

 

 

 

 

Liabilities

 

 

 

 

 

Financial liabilities at amortized cost

22,242,234

 

10,737,573

 

32,979,807

- of which marketable securities

22,242,234

 

 

 

22,242,234

- of which non-marketable securities

 

 

10,276,256

 

10,276,256

- of which other financial liabilities

 

 

461,317

 

461,317

 

 

 

 

 

 

 

The following table provides net gains and losses from interests by measurement categories:

thousands of €

 

 

 

From interest

 

From subsequent measurement

 

From derecognition

 

Net gain (loss)

 

 

At fair value

Currency translation

 

2021

Financial Assets at Amortized Cost (AC)

947,235

 

-

 

815,552

 

38,030

1,800,817

Financial Instruments measure at Fair Value and changes in Profit and Loss

 

 

16,477

 

 

 

-

16,477

Financial liabilities measured at amortized cost (AC)

 

(968,407)

 

-

 

(814,310)

 

-

 

(1,782,717)

thousands of €

 

 

 

From interest

 

From subsequent measurement

 

From derecognition

 

Net gain (loss)

 

 

At fair value

Currency translation

 

2020

Financial Assets at Amortized Cost (AC)

1,055,039

 

-

 

(825,147)

 

(39,366)

190,526

Financial Instruments measure at Fair Value and changes in Profit and Loss

 

 

(5,331)

 

 

 

-

(5,331)

Financial liabilities measured at amortized cost (AC)

 

(1,075,081)

 

-

 

823,819

 

-

 

(251,262)

The following financial instruments are subject to enforceable master netting arrangements and similar agreements. The counterparty for all those derivative financial instruments is DTAG. Even though a netting option exists, netting is currently not applied. However, both parties will have the potential right to settle all derivative financial instruments on a net basis in the event of default of the other party.

Offsetting 31.12.2021:

 

 

 

 

 

 

 

 

 

 

thousands of €

 

Derivative financial assets

Derivative financial liabilities

Net amount presented in the balance sheet

 

658,376

 

414,674

Related amounts not set off in the balance sheet

 

414,674

 

414,674

thereof: financial instruments

 

414,674

 

414,674

thereof: collaterals

 

-

 

-

Net amount

 

243,702

 

-

 

 

 

 

 

Offsetting 31.12.2020:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

thousands of €

 

Derivative financial assets

Derivative financial liabilities

Net amount presented in the balance sheet

 

777,593

 

520,897

Related amounts not set off in the balance sheet

 

520,897

 

520,897

thereof: financial instruments

 

520,897

 

520,897

thereof: collaterals

 

-

 

-

Net amount

 

256,696

 

-

Interest from financial instruments is recognized in finance income and other financial income (expense). We refer to notes 2 and 3.

Currency translation from financial instruments is recognized in other financial income (expense). We refer to note 3.

The net result from the subsequent measurement for financial instruments held for trading also includes interest and currency translation effects.

Finance expense from financial liabilities measured at amortized cost primarily consists of interest expense on bonds and other financial liabilities.

Finance income from loans and receivables primarily consists of interest income on loans to group companies.

8. Equity

The issued share capital amounts to EUR 500,000 and consists of 1,000 shares of common stock at a par value of EUR 500. There were no movements in the number of shares in 2021 or 2020. All shares are held by DTAG.

In 2021 the Company paid EUR 11,418.61 dividend per share (2020: EUR 9,897.62). In 2020 as well as in 2021 the Management Board assessed that the Company expects net positive cash flows for the year ending December 31, 2022 as well as in each of the following years. For the result of these assessments we refer to the liquidity analyses in note 7 of these notes.

9. Notes to the statement of cash flows

The statement of cash flows has been prepared using the direct method, showing each major class of gross receipts and gross cash payments.

The position of “Cash and cash equivalents” refers to the balance from bank accounts included in the cash pooling and the inter-company current account, both with DTAG and is completely available for use by the Company.

Net cash generated from operating activities is mainly a result of the net margin earned by the Company and cash inflows for loans that have been repaid to the Company.

Net cash used in financing activities mainly includes cash inflows from bonds issued by the Company and cash outflows for the redeemed bonds and dividend payment to the Companies’ shareholder.

As far as applicable for the years 2020 and 2021 the cash in- and outflows for loan and derivative repayments and for new loans granted to companies of DTAG Group matched the cash in- and outflows from issues and/or repayments of bonds.

10. Segment reporting

The primary activity of the Company is to finance its parent company and DTAG group companies. Therefore, segment information other than geographic information and information per major customer is not reported separately. There is only one reportable segment.


Geographic information

Interest income from group companies according to their country of operations:

 

 

thousands of €

 

2021

 

2020

 

 

 

 

 

Germany

 

942.932

 

1.044.602

Hungary

 

4.303

 

10.437

 

 

 

947.235

 

 

1.055.039

 

 

 

 

In 2021, more than 10% of the total interest income has been earned from loans with DTAG (TEUR 942,932or 99.5%).

In 2020, more than 10% of the total interest income has been earned from loans with DTAG (TEUR 1,044,602 or 99.0%).

For non-current loan receivables, we refer to note 6.

11. Events after the statement of financial position date

On January 25, 2022 the Company redeemed an EUR Bond with a nominal amount of EUR 100 million and a loan to DTAG with the same nominal amount was repaid to the Company. These repayments will cause a negative impact on the interest result of TEUR 25 and TEUR 19 on equity of the Company in 2022.

No other events have occurred since December 31, 2021 which would make the present financial position materially different from that shown in the statement of financial position as of that date or which would require adjustment to or disclosure in the financial statement.

12. Related parties

The Company is a group finance company and hence it had related party transactions during 2021 and 2020 respectively. Main existing transactions are with DTAG and are covered by loan contracts, derivative agreements and a guarantee and credit default risk insurance agreement. Related party transactions with other Deutsche Telekom group companies, such as the shared service centre, were covered by service level agreements. All transactions with DTAG and other Deutsche Telekom group companies are based on the arm’s length principle. All amounts of material transactions with related parties are disclosed in notes 2, 3, 4, 6, 7, 8 and 10.

Maastricht, March 2, 2022

The Management Board:The Supervisory Board:

F. Roose       S. Wiemann

M. Schäfer     Dr. Ch. Dorenkamp

     Dr. A. Lützner 

Independent auditor’s report

To: the shareholder and supervisory board of Deutsche Telekom International Finance B.V.

Report on the audit of the financial statements 2021 included in the annual report

Our opinion

We have audited the financial statements 2021 of Deutsche Telekom International Finance B.V. based in Maastricht, the Netherlands.

In our opinion the accompanying financial statements give a true and fair view of the financial position of Deutsche Telekom International Finance B.V. as at December 31, 2021 and of its result and cash flows for 2021 in accordance with International Financial Reporting Standards as adopted by the European Union (EU-IFRS) and with Part 9 of Book 2 of the Dutch Civil Code.

The financial statements comprise:

The statement of financial position as at December 31, 2021

The following statements for 2021: the statements of comprehensive income, changes in equity and cash flows

The notes comprising a summary of the significant accounting policies and other explanatory information

Basis for our opinion

We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. Our responsibilities under those standards are further described in the Our responsibilities for the audit of the financial statements section of our report.

We are independent of Deutsche Telekom International Finance B.V. (“the Company”) in accordance with the EU Regulation on specific requirements regarding statutory audit of public-interest entities, the “Wet toezicht accountantsorganisaties” (Wta, Audit firms supervision act), the “Verordening inzake de onafhankelijkheid van accountants bij assurance-opdrachten” (ViO, Code of Ethics for Professional Accountants, a regulation with respect to independence) and other relevant independence regulations in the Netherlands. Furthermore we have complied with the “Verordening gedrags- en beroepsregels accountants” (VGBA, Dutch Code of Ethics).

We believe the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Information in support of our opinion

We designed our audit procedures in the context of our audit of the financial statements as a whole and in forming our opinion thereon. The following information in support of our opinion and any findings were addressed in this context, and we do not provide a separate opinion or conclusion on these matters.

Our understanding of the business

Deutsche Telekom International Finance B.V.’s purpose is to raise debt capital on the capital and banking market in the form of bonds to finance Deutsche Telekom AG and its subsidiaries. The repayment of the bonds and other securitized liabilities to the investors is guaranteed by Deutsche Telekom A.G. as disclosed in notes 6 and 7 to the financial statements. The Company has two derivative financial instruments in place to mitigate interest rate risk.


We paid specific attention in our audit to a number of areas driven by the operations of the Company and our risk assessment.

We start by determining materiality and identifying and assessing the risks of material misstatement of the financial statements, whether due to fraud or error in order to design audit procedures responsive to those risks and to obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

Materiality

Materiality

€ 264,000,000

Benchmark applied

Approximately 1% of total assets

Explanation

We chose this benchmark, a generally accepted auditing practice, based on our analysis of the perspectives of users of the financial statements and considering the importance of the bond and loan balances included in the financial statements.

We have also taken into account misstatements and/or possible misstatements that in our opinion are material for the users of the financial statements for qualitative reasons.

We agreed with the supervisory board that misstatements in excess of € 13,200,000, which are identified during the audit, would be reported to them, as well as smaller misstatements that in our view must be reported on qualitative grounds.

Our focus on fraud and non-compliance with laws and regulations

Our responsibility

Although we are not responsible for preventing fraud or non-compliance and we cannot be expected to detect non-compliance with all laws and regulations, it is our responsibility to obtain reasonable assurance that the financial statements, taken as a whole, are free from material misstatement, whether caused by fraud or error.

Our audit response related to fraud risks

We identify and assess the risks of material misstatements of the financial statements due to fraud. During our audit we obtained an understanding of the Company and its environment and the components of the system of internal control, including the risk assessment process and the management board’s process for responding to the risks of fraud and monitoring the system of internal control and how the supervisory board exercises oversight, as well as the outcomes. We refer to section ‘Management Board policy with respect to risks’ of the report of the management board for management’s risk assessment taking into consideration the potential for fraud.

We evaluated the design and relevant aspects of the system of internal control and in particular the fraud risk assessment, as well as the code of conduct and other relevant policies that apply in the Deutsche Telekom group. We evaluated the design and the implementation of internal controls designed to mitigate fraud risks.

As part of our process of identifying fraud risks, we evaluated fraud risk factors with respect to financial reporting fraud, misappropriation of assets and bribery and corruption. We evaluated whether these factors indicate that a risk of material misstatement due to fraud is present.


We incorporated elements of unpredictability in our audit. We also considered the outcome of our other audit procedures and evaluated whether any findings were indicative of fraud or non-compliance.

As in all of our audits, we addressed the risks related to management override of controls and we have performed procedures among others to evaluate key accounting estimates for management bias that may represent a risk of material misstatement due to fraud, in particular relating to important judgment areas and significant accounting estimates, including the measurement of expected credit losses and valuation of derivatives as disclosed in ‘Judgements and estimates’ in the notes to the financial statements. We have also used data analysis to identify and address high-risk journal entries.

We considered available information and made enquiries of relevant members of the management board and the supervisory board.

The consideration of the potential risk of management override of controls or other inappropriate influence over the financial reporting process, enquiries and assessment of other available information did not lead to specific indications for fraud or suspected fraud potentially materially impacting the view of the financial statements.

Our audit response related to risks of non-compliance with laws and regulations

We assessed factors related to the risks of non-compliance with laws and regulations that could reasonably be expected to have a material effect on the financial statements from our general industry experience, through discussions with the management board, reading minutes, inspection of internal audit and compliance reports and performing substantive tests of details of classes of transactions, account balances or disclosures.

We also inspected lawyers’ letters and correspondence with regulatory authorities and remained alert to any indication of (suspected) non-compliance throughout the audit. Finally we obtained written representations that all known instances of non-compliance with laws and regulations have been disclosed to us.

Our audit response related to going concern

As disclosed in section ‘Capital management’ in the notes to the financial statements, the management board made a specific assessment of the Company’s ability to continue as a going concern and to continue its operations for at least the next 12 months. We discussed and evaluated the specific assessment with the management board exercising professional judgment and maintaining professional skepticism. We considered whether the management board’s going concern assessment, based on our knowledge and understanding obtained through our audit of the financial statements or otherwise, contains all events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern, including considerations relating to the financial position of Deutsche Telekom A.G. as recipient and guarantor of the loans to group companies. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion.

Based on our procedures performed, we did not identify serious doubts on the Company’s ability to continue as a going concern for the next 12 months. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause a Company to cease to continue as a going concern.

Our key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements. We have communicated the key audit matters to the supervisory board. The key audit matters are not a comprehensive reflection of all matters discussed.


Measurement of expected credit losses on loans to Deutsche Telekom AG

Risk

We consider the measurement of expected credit losses on loans to group companies as disclosed in note 6 to the financial statements, to be a key audit matter due to the significance of the carrying amount of the loans to group companies and the inherent estimation uncertainty and subjective judgments required in determining the probability of default and the loss given default rates in order to measure the expected credit losses.

The expected credit losses as of December 31, 2021 amount to € 1.4 million, a decrease of € 38.0 million from December 31, 2020. The decrease in the provision is driven by a lower probability of default as disclosed in note 1 to the financial statements.

Our audit approach

Our audit procedures included, amongst others, evaluating the appropriateness of the Company’s accounting policies related to recognition of expected credit losses in accordance with of IFRS 9 ‘Financial Instruments’, and the low credit risk simplification of paragraph 5.5.10 in particular. We evaluated whether the accounting policies and methods applied for making estimates have been applied consistently. We also evaluated the design of internal controls of the processes underlying the estimation process, as relevant to our audit of the financial statements.

Furthermore, we verified that the management board appropriately measures the loss allowance at an amount equal to 12-month expected credit losses, instead of the lifetime expected credit losses, taking into consideration the external credit rating of Deutsche Telekom AG. We tested mathematical accuracy of management’s expected credit losses provision calculations and, using independent EY statistics, we challenged key assumptions in the model, i.e. the probability of default and loss given default rates. We also performed sensitivity analyses on these key assumptions.

Key observations

We conclude that the management board’s assessment of the amount of expected credit losses is appropriate and in accordance with EU-IFRS.

Valuation of derivatives

Risk

We consider the valuation of derivatives to be a key audit matter due to inherent complexities in the valuation process, their significance to the financial statements and their sensitivity to changes in assumptions for longer-dated interest rate swaps and the potential impact from the Libor-reform. We refer to notes to the financial statements; notes 6 and 7 in particular.

Our audit approach

Our audit procedures included, amongst others, evaluating the appropriateness of the Company’s accounting policies related to the valuation of derivates in accordance with IFRS 13 ‘Fair Value Measurement’, considering current and emerging market practices. We evaluated whether the accounting policies and methods applied for determining the fair value of derivatives have been applied consistently. We also evaluated the design of internal controls of the processes underlying the valuation, as relevant to our audit of the financial statements.

We obtained management’s model and assumptions based on which it determined the fair value of derivative financial instruments to amount to € 658.4 million (asset) and € 414.7 million (liability). We also obtained the derivative contracts. We engaged EY valuation experts to independently verify the fair value of the derivatives using EY models and market data. We also evaluated the impact of any credit and debit valuation adjustments.

Key observations

We conclude the management board’s assumptions used in the valuation of derivatives to be reasonable compared to market data and the chosen models to be in line with market practice.


Report on other information included in the annual report

The annual report contains other information in addition to the financial statements and our auditor’s report thereon.

Based on the following procedures performed, we conclude that the other information:

Is consistent with the financial statements and does not contain material misstatements.

Contains the information as required by Part 9 of Book 2 of the Dutch Civil Code for the management report and the other information as required by Part 9 of Book 2 of the Dutch Civil Code.

We have read the other information. Based on our knowledge and understanding obtained through our audit of the financial statements or otherwise, we have considered whether the other information contains material misstatements. By performing these procedures, we comply with the requirements of Part 9 of Book 2 of the Dutch Civil Code and the Dutch Standard 720. The scope of the procedures performed is substantially less than the scope of those performed in our audit of the financial statements.

The management board is responsible for the preparation of the other information, including the management report in accordance with Part 9 of Book 2 of the Dutch Civil Code and other information required by Part 9 of Book 2 of the Dutch Civil Code.

Report on other legal and regulatory requirements and ESEF

Engagement

We were engaged by the supervisory board as auditor of Deutsche Telekom International Finance B.V. on October 18, 2021, as of the audit for the year 2021 and have operated as statutory auditor since that date.

No prohibited non-audit services

We have not provided prohibited non-audit services as referred to in Article 5(1) of the EU Regulation on specific requirements regarding statutory audit of public-interest entities.

European Single Electronic Reporting Format (ESEF)

Deutsche Telekom International Finance B.V. has prepared the annual report in ESEF. The requirements for this are set out in the Delegated Regulation (EU) 2019/815 with regard to regulatory technical standards on the specification of a single electronic reporting format (hereinafter: the RTS on ESEF).

In our opinion, the annual report, including the financial statements, prepared in XHTML format by Deutsche Telekom International Finance B.V., complies in all material respects with the RTS on ESEF.

Management is responsible for preparing the annual report, including the financial statements, in accordance with the RTS on ESEF.

Our responsibility is to obtain reasonable assurance for our opinion whether the annual report complies with the RTS on ESEF.

Our procedures, taking into account Alert 43 of the NBA (the Netherlands Institute of Chartered Accountants), included amongst others:

obtaining an understanding of the Company’s financial reporting process, including the preparation of the annual report in XHTML format

obtaining the annual report in XHTML format and performing validations to determine whether the annual report in XHTML format has been prepared in accordance with the technical specifications as included in the RTS on ESEF.


Description of responsibilities regarding the financial statements

Responsibilities of the management board and the supervisory board for the financial statements

The management board is responsible for the preparation and fair presentation of the financial statements in accordance with EU-IFRS and Part 9 of Book 2 of the Dutch Civil Code. Furthermore, the management board is responsible for such internal control as the management board determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error.

As part of the preparation of the financial statements, the management board is responsible for assessing the Company’s ability to continue as a going concern. Based on the financial reporting frameworks mentioned, the management board should prepare the financial statements using the going concern basis of accounting unless the management board either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. The management board should disclose events and circumstances that may cast significant doubt on the Company’s ability to continue as a going concern in the financial statements.

The supervisory board is responsible for overseeing the Company’s financial reporting process.

Our responsibilities for the audit of the financial statements

Our objective is to plan and perform the audit engagement in a manner that allows us to obtain sufficient and appropriate audit evidence for our opinion.

Our audit has been performed with a high, but not absolute, level of assurance, which means we may not detect all material errors and fraud during our audit.

Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. The materiality affects the nature, timing and extent of our audit procedures and the evaluation of the effect of identified misstatements on our opinion.

We have exercised professional judgment and have maintained professional skepticism throughout the audit, in accordance with Dutch Standards on Auditing, ethical requirements and independence requirements. The ‘Information in support of our opinion’ section above