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40 Financial instruments and risk management

For further information on financial instruments, please refer in particular to Note 2 “Trade receivables,” Note 11 “Other financial assets,” Note 13 “Financial liabilities and lease liabilities,” Note 28 “Finance costs,” and Note 30 “Other financial income/expense.”

Carrying amounts, amounts recognized, and fair values by class and measurement category

millions of €

 

 

 

 

 

 

 

 

 

Amounts recognized in the statement of financial position in accordance with IFRS 9

 

Measurement category in accordance with IFRS 9

Carrying amount Dec. 31, 2021

Amortized cost

Fair value through other comprehensive income without recycling to profit or loss

Fair value through other comprehensive income with recycling to profit or loss

Fair value through profit or lossa

Assets

 

 

 

 

 

 

Cash and cash equivalents

AC

7,617

7,617

 

 

 

Trade receivables

 

 

 

 

 

 

At amortized cost

AC

5,814

5,814

 

 

 

At fair value through other comprehensive income

FVOCI

9,486

 

 

9,486

 

At fair value through profit or loss

FVTPL

0

 

 

 

0

Other financial assets

 

 

 

 

 

 

Originated loans and other receivables

 

 

 

 

 

 

At amortized cost

AC

5,224

5,224

 

 

 

Of which: collateral paid

AC

589

589

 

 

 

Of which: publicly funded projects

AC

1,794

1,794

 

 

 

At fair value through other comprehensive income

FVOCI

0

 

 

0

 

At fair value through profit or loss

FVTPL

233

 

 

 

233

Equity instruments

 

 

 

 

 

 

At fair value through other comprehensive income

FVOCI

437

 

437

 

 

At fair value through profit or loss

FVTPL

3

 

 

 

3

Derivative financial assets

 

 

 

 

 

 

Derivatives without a hedging relationship

FVTPL

1,202

 

 

 

1,202

Of which: termination rights embedded in bonds issued

FVTPL

464

 

 

 

464

Of which: energy forward agreements embedded in contracts

FVTPL

191

 

 

 

191

Of which: options received from third parties for the purchase or sale of shares in subsidiaries and associates

FVTPL

264

 

 

 

264

Derivatives with a hedging relationship

n.a.

1,560

 

 

364

1,196

Lease assets

n.a.

228

 

 

 

 

Cash and cash equivalents and trade receivables and other financial assets directly associated with non-current assets and disposal groups held for sale

AC

428

428

 

 

 

Equity instruments within non-current assets and disposal groups held for sale

FVOCI

29

 

29

 

 

Liabilities

 

 

 

 

 

 

Trade payables

AC

10,452

10,452

 

 

 

Bonds and other securitized liabilities

AC

93,857

93,857

 

 

 

Liabilities to banks

AC

4,003

4,003

 

 

 

Liabilities to non-banks from promissory note bonds

AC

483

483

 

 

 

Liabilities with the right of creditors to priority repayment in the event of default

AC

3,248

3,248

 

 

 

Other interest-bearing liabilities

AC

7,344

7,344

 

 

 

Of which: collateral received

AC

1,616

1,616

 

 

 

Other non-interest-bearing liabilities

AC

1,829

1,829

 

 

 

Of which: puttable shares of non-controlling interests in consolidated partnerships

AC

185

185

 

 

 

Lease liabilities

n.a.

33,133

 

 

 

 

Derivative financial liabilities

 

 

 

 

 

 

Derivatives without a hedging relationship

FVTPL

586

 

 

 

586

Of which: options granted to third parties for the purchase of shares in subsidiaries and associates

FVTPL

0

 

 

 

0

Of which: energy forward agreements embedded in contracts

FVTPL

7

 

 

 

7

Derivatives with a hedging relationship

n.a.

118

 

 

107

11

Trade payables and other financial liabilities directly associated with non-current assets and disposal groups held for sale

AC

1,086

1,086

 

 

 

Of which: aggregated by measurement category in accordance with IFRS 9

 

 

 

 

 

 

Assets

 

 

 

 

 

 

Financial assets at amortized cost

AC

19,083

19,083

 

 

 

Financial assets at fair value through other comprehensive income with recycling to profit or loss

FVOCI

9,486

 

 

9,486

 

Financial assets at fair value through other comprehensive income without recycling to profit or loss

FVOCI

466

 

466

 

 

Financial assets at fair value through profit or loss

FVTPL

1,438

 

 

 

1,438

Liabilities

 

 

 

 

 

 

Financial liabilities at amortized cost

AC

122,301

122,301

 

 

 

Financial liabilities at fair value through profit or loss

FVTPL

586

 

 

 

586

a

For energy forward agreements embedded in contracts and options received from third parties for the purchase or sale of shares in subsidiaries and associates, please refer to the detailed comments in the following section.

millions of €

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amounts recognized in the statement of financial position in accordance with IFRS 9

 

 

 

Amounts recognized in the statement of financial position in accordance with IFRS 16

Fair value Dec. 31, 2021b

Measurement category in accordance with IFRS 9

Carrying amount Dec. 31, 2020

Amortized cost

Fair value through other comprehensive income without recycling to profit or loss

Fair value through other comprehensive income with recycling to profit or loss

Fair value through profit or lossa

Amounts recognized in the statement of financial position in accordance with IFRS 16

Fair value Dec. 31, 2020b

Assets

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

AC

12,940

12,940

 

 

 

 

 

Trade receivables

 

 

 

 

 

 

 

 

 

 

At amortized cost

 

 

AC

6,007

6,007

 

 

 

 

 

At fair value through other comprehensive income

 

9,486

FVOCI

7,516

 

 

7,516

 

 

7,516

At fair value through profit or loss

 

0

FVTPL

0

 

 

 

0

 

0

Other financial assets

 

 

 

 

 

 

 

 

 

 

Originated loans and other receivables

 

 

 

 

 

 

 

 

 

 

At amortized cost

 

5,252

AC

4,722

4,722

 

 

 

 

4,758

Of which: collateral paid

 

 

AC

543

543

 

 

 

 

 

Of which: publicly funded projects

 

 

AC

1,676

1,676

 

 

 

 

 

At fair value through other comprehensive income

 

0

FVOCI

0

 

 

0

 

 

0

At fair value through profit or loss

 

233

FVTPL

204

 

 

 

203

 

203

Equity instruments

 

 

 

 

 

 

 

 

 

 

At fair value through other comprehensive income

 

437

FVOCI

425

 

425

 

 

 

425

At fair value through profit or loss

 

3

FVTPL

3

 

 

 

3

 

3

Derivative financial assets

 

 

 

 

 

 

 

 

 

 

Derivatives without a hedging relationship

 

1,202

FVTPL

1,992

 

 

 

1,992

 

1,992

Of which: termination rights embedded in bonds issued

 

464

FVTPL

889

 

 

 

889

 

889

Of which: energy forward agreements embedded in contracts

 

191

FVTPL

77

 

 

 

77

 

77

Of which: options received from third parties for the purchase or sale of shares in subsidiaries and associates

 

264

FVTPL

819

 

 

 

819

 

819

Derivatives with a hedging relationship

 

1,560

n.a.

2,047

 

 

21

2,026

 

2,047

Lease assets

228

 

n.a.

248

 

 

 

 

248

 

Cash and cash equivalents and trade receivables and other financial assets directly associated with non-current assets and disposal groups held for sale

 

 

AC

206

206

 

 

 

 

 

Equity instruments within non-current assets and disposal groups held for sale

 

29

FVOCI

32

 

32

 

 

 

32

Liabilities

 

 

 

 

 

 

 

 

 

 

Trade payables

 

 

AC

9,760

9,760

 

 

 

 

 

Bonds and other securitized liabilities

 

103,397

AC

87,702

87,702

 

 

 

 

97,655

Liabilities to banks

 

4,090

AC

5,257

5,257

 

 

 

 

5,393

Liabilities to non-banks from promissory note bonds

 

565

AC

490

490

 

 

 

 

586

Liabilities with the right of creditors to priority repayment in the event of default

 

3,389

AC

3,886

3,886

 

 

 

 

4,167

Other interest-bearing liabilities

 

7,321

AC

7,206

7,206

 

 

 

 

7,270

Of which: collateral received

 

 

AC

1,530

1,530

 

 

 

 

 

Other non-interest-bearing liabilities

 

 

AC

1,703

1,703

 

 

 

 

 

Of which: puttable shares of non-controlling interests in consolidated partnerships

 

 

AC

6

6

 

 

 

 

 

Lease liabilities

33,133

 

n.a.

32,715

 

 

 

 

32,715

 

Derivative financial liabilities

 

 

 

 

 

 

 

 

 

 

Derivatives without a hedging relationship

 

586

FVTPL

478

 

 

 

478

 

478

Of which: options granted to third parties for the purchase of shares in subsidiaries and associates

 

0

FVTPL

8

 

 

 

8

 

8

Of which: energy forward agreements embedded in contracts

 

7

FVTPL

129

 

 

 

129

 

129

Derivatives with a hedging relationship

 

118

n.a.

386

 

 

334

52

 

386

Trade payables and other financial liabilities directly associated with non-current assets and disposal groups held for sale

 

 

AC

398

398

 

 

 

 

 

Of which: aggregated by measurement category in accordance with IFRS 9

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

Financial assets at amortized cost

 

5,252

AC

23,875

23,875

 

 

 

 

4,758

Financial assets at fair value through other comprehensive income with recycling to profit or loss

 

9,486

FVOCI

7,516

 

 

7,516

 

 

7,516

Financial assets at fair value through other comprehensive income without recycling to profit or loss

 

466

FVOCI

456

 

457

 

 

 

457

Financial assets at fair value through profit or loss

 

1,438

FVTPL

2,199

 

 

 

2,199

 

2,198

Liabilities

 

 

 

 

 

 

 

 

 

 

Financial liabilities at amortized cost

 

118,762

AC

116,402

116,402

 

 

 

 

115,071

Financial liabilities at fair value through profit or loss

 

586

FVTPL

478

 

 

 

478

 

478

a

For energy forward agreements embedded in contracts and options received from third parties for the purchase or sale of shares in subsidiaries and associates, please refer to the detailed comments in the following section.

b

The practical expedient under IFRS 7.29a was applied for information on specific fair values.

Trade receivables include receivables amounting to EUR 2.8 billion (December 31, 2020: EUR 2.0 billion) due in more than one year. The fair value generally equals the carrying amount.

Disclosures on fair value

When determining the fair value, it is important to maximize the use of current inputs observable in liquid markets for the financial instrument in question and minimize the use of other inputs (e.g., historical prices, prices for similar instruments, prices on illiquid markets). A three-level measurement hierarchy is defined for these purposes. If prices quoted in liquid markets are available at the reporting date for the respective financial instrument, these will be used unadjusted for the measurement (Level 1 measurement). Other input parameters are then irrelevant for the measurement. One such example is shares and bonds that are actively traded on a stock exchange. If quoted prices on liquid markets are not available at the reporting date for the respective financial instrument, but the instrument can be measured using other inputs that are observable on the market at the reporting date, a Level 2 measurement will be applied. The conditions for this are that no major adjustments have been made to the observable inputs and no unobservable inputs are used. Examples of Level 2 measurements are collateralized interest rate swaps, currency forwards, and cross-currency swaps that can be measured using current interest rates or exchange rates. If the conditions for a Level 1 or Level 2 measurement are not met, a Level 3 measurement is applied. In such cases, major adjustments must be made to observable inputs or unobservable inputs must be used.

Financial instruments not measured at fair value, the fair values of which are disclosed nevertheless

millions of €

 

 

 

 

 

 

 

 

 

Dec. 31, 2021

Dec. 31, 2020

 

 

 

 

 

 

 

 

 

 

Level 1

Level 2

Level 3a

Total

Level 1

Level 2

Level 3a

Total

Assets

 

 

 

 

 

 

 

 

Originated loans and receivables

 

5,252

 

5,252

 

4,758

 

4,758

Liabilities

 

 

 

 

 

 

 

 

Financial liabilities measured at amortized cost

94,637

23,661

464

118,762

87,384

26,798

889

115,071

Of which: bonds and other securitized liabilities

91,260

11,685

452

103,397

83,238

13,549

868

97,655

Of which: liabilities to banks

 

4,090

 

4,090

 

5,393

 

5,393

Of which: liabilities to non-banks from promissory notes

 

565

 

565

 

586

 

586

Of which: liabilities with the right of creditors to priority repayment in the event of default

3,377

 

12

3,389

4,146

0

21

4,167

Of which: other interest-bearing liabilities

 

7,321

 

7,321

 

7,270

 

7,270

a

Separation of embedded derivatives; the fair value of the entire instrument must be categorized as Level 1.

Financial instruments measured at fair value

millions of €

 

 

 

 

 

 

 

 

 

Dec. 31, 2021

Dec. 31, 2020

 

 

 

 

 

 

 

 

 

 

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

Assets

 

 

 

 

 

 

 

 

Trade receivables

 

 

 

 

 

 

 

 

At fair value through other comprehensive income

 

 

9,486

9,486

 

 

7,516

7,516

At fair value through profit or loss

 

 

0

0

 

 

0

0

Other financial assets – Originated loans and other receivables

 

 

 

 

 

 

 

 

At fair value through other comprehensive income

 

 

0

0

 

 

 

0

At fair value through profit or loss

145

77

10

232

133

62

8

203

Equity instruments

 

 

 

 

 

 

 

 

At fair value through other comprehensive income

29

 

437

466

 

 

457

457

At fair value through profit or loss

 

 

3

3

 

 

3

3

Derivative financial assets

 

 

 

 

 

 

 

 

Derivatives without a hedging relationship

 

286

916

1,202

 

207

1,785

1,992

Derivatives with a hedging relationship

 

1,560

 

1,560

 

2,047

 

2,047

Liabilities

 

 

 

 

 

 

 

 

Derivative financial liabilities

 

 

 

 

 

 

 

 

Derivatives without a hedging relationship

 

579

7

586

 

341

137

478

Derivatives with a hedging relationship

 

118

 

118

 

386

 

386

Of the equity instruments measured at fair value through other comprehensive income and recognized under other financial assets, the instruments presented in the different levels constitute separate classes of financial instruments. In each case, the fair values of the total volume of equity instruments recognized as Level 1 are the price quotations at the reporting date.

The listed bonds and other securitized liabilities are assigned to Level 1 or Level 2 depending on the market liquidity of the relevant instrument. Consequently, issues denominated in euros or U.S. dollars with relatively large nominal amounts are to be classified as Level 1, the rest as Level 2. The fair values of the instruments assigned to Level 1 equal the nominal amounts multiplied by the price quotations at the reporting date. The fair values of the instruments assigned to Level 2 are calculated as the present values of the payments associated with the debts, based on the applicable yield curve and Deutsche Telekom’s credit spread curve for specific currencies.

The fair values of liabilities to banks, liabilities to non-banks from promissory notes, and other interest-bearing liabilities are calculated as the present values of the payments associated with the debts, based on the applicable yield curve and Deutsche Telekom’s credit spread curve for specific currencies.

Since there are no market prices available for the derivative financial instruments in the portfolio assigned to Level 2 due to the fact that they are not listed on the market, the fair values are calculated using standard financial valuation models, based entirely on observable inputs. The fair value of derivatives is the price that Deutsche Telekom would receive or have to pay if the financial instrument were transferred at the reporting date. Interest rates of contractual partners relevant as of the reporting date are used in this respect. The middle rates applicable as of the reporting date are used as exchange rates. 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.

The equity instruments measured at fair value through other comprehensive income comprise a large number of investments in strategic, unlisted individual positions. Deutsche Telekom considers the chosen measurement through other comprehensive income without recycling to profit or loss to be appropriate because there are no plans to use the investments for short-term profit-taking. At the date of disposal of an investment, the total cumulative gain or loss is reclassified to retained earnings. Acquisitions and disposals are based on business policy investment decisions.

Investments in equity instruments at fair value through other comprehensive income

millions of €

 

 

 

2021

2020

Fair value as of December 31

466

457

Dividends recognized in profit/loss

0

1

Of which: on investments divested in the reporting period

0

0

Of which: on investments still held at the reporting date

0

0

Fair value at the derecognition date of instruments divested in the reporting period

249

52

Cumulative gains reclassified in the reporting period from other comprehensive income to retained earnings

121

7

Of which: from the disposal of investments

121

7

Cumulative losses reclassified in the reporting period from other comprehensive income to retained earnings

1

0

Of which: from the disposal of investments

1

0

Development of the carrying amounts of the financial assets and financial liabilities assigned to Level 3

millions of €

 

 

 

 

 

 

 

Equity instruments at fair value through other comprehensive income

Derivative financial assets at fair value through profit or loss: termination rights embedded in bonds issued

Derivative financial assets at fair value through profit or loss: stock options

Derivative financial assets at fair value through profit or loss: energy forward agreements embedded in contracts

Derivative financial liabilities at fair value through profit or loss: energy forward agreements embedded in contracts

Derivative financial assets at fair value through profit or loss: put option for shares

Carrying amount as of January 1, 2021

457

889

805

77

(129)

0

Additions (including first-time categorization as Level 3)

88

86

0

0

0

0

Decreases in fair value recognized in profit/loss (including losses on disposal)

0

(736)

(509)

(96)

(3)

0

Increases in fair value recognized in profit/loss (including gains on disposal)

0

182

773

194

130

22

Decreases in fair value recognized directly in equity

(133)

0

 

0

0

0

Increases in fair value recognized directly in equity

261

0

 

0

0

0

Disposals

(239)

0

(847)

0

0

0

Currency translation effects recognized directly in equity

3

43

0

16

(5)

0

Carrying amount as of December 31, 2021

437

464

222

191

(7)

22

The equity instruments assigned to Level 3 that are measured at fair value through other comprehensive income and carried under other financial assets are equity investments with a carrying amount of EUR 426 million measured using the best information available at the reporting date. As a rule, Deutsche Telekom considers transactions involving shares in those companies to have the greatest relevance. Transactions involving shares in comparable companies are also considered. The proximity of the relevant transaction to the reporting date, and the question of whether it was conducted at arm’s length, are relevant for deciding which information is used for the measurement. Furthermore, the degree of similarity between the object being measured and comparable companies must be taken into consideration. Based on Deutsche Telekom’s own assessment, the fair values of the equity investments at the reporting date could be determined with sufficient reliability. For the development of the carrying amounts in the reporting period, please refer to the table above. At the reporting date, investments with a carrying amount of EUR 29 million were held for sale, while there were no plans to sell the remaining investments. In the case of investments with a carrying amount of EUR 258 million, transactions involving shares in these companies took place at arm’s length sufficiently close to the reporting date, which is why the share prices agreed in the transactions were to be used without adjustment for the measurement as of December 31, 2021. In the case of investments with a carrying amount of EUR 7 million, an analysis of operational indicators (especially revenue, EBIT, and liquidity) revealed that the carrying amounts were equivalent to current fair values. Due to better comparability, previous arm’s length transactions involving shares in these companies are preferable to more recent transactions involving shares in similar companies. In the case of investments with a carrying amount of EUR 161 million, for which the last arm’s length transactions relating to shares in these companies took place some time ago, a measurement performed more recently relating to shares in similar companies provides the most reliable representation of the fair values. Here, multiples to the reference variable of expected revenue (ranging between 3.1 and 16) were taken. The 25 % quantile, the median, or the 75 % quantile was used for the multiples depending on the specific circumstances. If other values had been used for the multiples and for the expected revenue amounts, the fair values calculated would have been different. These hypothetical deviations (sensitivities) are shown in the table “Sensitivities of the carrying amounts of the financial assets and financial liabilities assigned to Level 3 depending on unobservable inputs.” In addition, non-material individual items with a carrying amount of EUR 11 million (when translated into euros) are included with differences in value of minor relevance.

For the development of the carrying amounts in the reporting year, please refer to the table above.

The derivatives without a hedging relationship assigned to Level 3 and carried under derivative financial assets relate to options embedded in bonds issued by T‑Mobile US with a carrying amount of EUR 464 million when translated into euros. The options, which can be exercised by T‑Mobile US at any time, allow early redemption of the bonds at fixed exercise prices. Observable market prices are available regularly and also at the reporting date for the bonds as entire instruments, but not for the options embedded therein. The termination rights are measured using an option pricing model. Historical interest rate volatilities of bonds issued by T‑Mobile US and comparable issuers are used for the measurement because these provide a more reliable estimate at the reporting date than current market interest rate volatilities. The spread curve, which is also unobservable, was derived on the basis of current market prices of bonds issued by T‑Mobile US and debt instruments of comparable issuers. Risk-free interest rates and spreads were simulated separately from each other. At the current reporting date, the following interest rate volatility and spreads were used for the various rating levels of the bonds:

For the development of the carrying amounts in the reporting year, please refer to the table above.

Interest rate volatilities and spreads used by rating level

%

 

 

 

Interest volatility
(absolute figure)

Spread

BBB+

0.2 %−0.3 %

0.2 %–1.2 %

BBB-

0.6 %–0.8 %

0.3 %–1.8 %

BB+/BB

0.8 %–1.0 %

0.6 %–2.9 %

For the mean reversion input, which is unobservable, 3 % was used. In our opinion, the values used constitute the best estimate in each case. If other values had been used for interest rate volatility, spread curve, or mean reversion, the fair values calculated would have been different. These hypothetical deviations (sensitivities) are shown in the table below. If the risk-free interest rate had been 50 basis points higher (lower) at the reporting date, the fair value of the options would have been EUR 120 million lower (EUR 150 million higher). In the reporting period, a net expense of EUR 82 million when translated into euros was recognized under the Level 3 measurement in other financial income/expense for unrealized losses for the options in the portfolio at the reporting date. In the reporting period, three options were exercised and the relevant bonds canceled prematurely. At the time of termination, the options and their respective total carrying amount of EUR 499 million when translated into euros were expensed and derecognized. Please refer to the table above for the development of the carrying amounts in the reporting period. The changes in value recognized in profit or loss in the reporting period were mainly attributable to fluctuations in the interest rates and historical interest rate volatilities in absolute terms that are relevant for measurement. Due to their distinctiveness, these instruments constitute a separate class of financial instruments.

Sensitivitiesa of the carrying amounts of the financial assets and financial liabilities assigned to Level 3 depending on unobservable inputs

millions of €

 

 

 

 

 

 

 

Equity instruments at fair value through other comprehensive income

Derivative financial assets at fair value through profit or loss: termination rights embedded in bonds issued

Derivative financial assets at fair value through profit or loss: stock options

Derivative financial assets at fair value through profit or loss: energy forward agreements embedded in contracts

Derivative financial liabilities at fair value through profit or loss: energy forward agreements embedded in contracts

Derivative financial assets at fair value through profit or loss: put option for shares

Multiple next-level-up quantile

111

 

 

 

 

 

Multiple next-level-down quantile

(81)

 

 

 

 

 

Expected revenues +10 %

15

 

 

 

 

 

Expected revenues -10 %

(15)

 

 

 

 

 

Interest rate volatilityb +10 %

 

51

 

 

 

 

Interest rate volatilityb -10 %

 

(46)

 

 

 

 

Spread curvec +50 basis points

 

(197)

 

 

 

 

Spread curvec -50 basis points

 

254

 

 

 

 

Mean reversiond +100 basis points

 

(32)

 

 

 

 

Mean reversiond -100 basis points

 

39

 

 

 

 

Future energy prices +10 %

 

 

 

60

33

 

Future energy prices -10 %

 

 

 

(73)

(33)

 

Future energy output +5 %

 

 

 

29

8

 

Future energy output -5 %

 

 

 

(40)

(8)

 

Future prices for renewable energy creditse +100 %

 

 

 

10

6

 

Future prices for renewable energy creditse from zero

 

 

 

(22)

(6)

 

Share price volatilityf +10 %

 

 

33

 

 

 

Share price volatilityf -10 %

 

 

(32)

 

 

 

Volatility of the fair value of the shares +10 %

 

 

 

 

 

3

Volatility of the fair value of the shares -10 %

 

 

 

 

 

(3)

Fair value of the shares +10 %

 

 

 

 

 

(20)

Fair value of the shares -10 %

 

 

 

 

 

22

a

Change in the relevant input parameter assuming all other input parameters are unchanged.

b

Interest rate volatility shows the magnitude of fluctuations in interest rates over time (relative change). The larger the fluctuations, the higher the interest rate volatility.

c

The spread curve shows, for the respective maturities, the difference between the interest rates payable by T-Mobile US and the risk-free interest rates. A minimum of zero was set for the spread curve for the sensitivity calculation, i.e., negative spreads are excluded.

d

Mean reversion describes the assumption that, after a change, an interest rate will revert to its average over time. The higher the selected value (mean reversion speed), the faster the interest rate will revert to its average in the measurement model.

e

Renewable energy credits is the term used for U.S. emission certificates.

f

The share price volatility shows the range of variation of the basic value over the remaining term of an option.

With a carrying amount of EUR -7 million when translated into euros, the derivatives without a hedging relationship assigned to Level 3 and carried under derivative financial liabilities relate to energy forward agreements embedded in contracts entered into by T‑Mobile US. The same applies to derivative financial assets with a carrying amount of EUR 191 million when translated into euros. These agreements consist of two components: the energy forward agreement and the acquisition of renewable energy credits by T‑Mobile US. The contracts were entered into with energy producers and will run for terms of between 12 and 15 years from the commencement of commercial operation. In the case of one energy forward agreement, commercial operation is set to begin in 2023; with the others, it has already begun. The terms of the contracts for which operation has already begun end between 2029 and 2035. The respective settlement period of the energy forward agreement, which is accounted for separately as a derivative, also starts when the facility begins commercial operation. Under the energy forward agreements, T‑Mobile US receives variable amounts based on the facility’s actual energy output and the then current energy prices, and pays fixed amounts per unit of energy generated throughout the term of the contract. The energy forward agreements are measured using valuation models because no observable market prices are available. The value of the derivatives is materially influenced by the facility’s future energy output, for which T‑Mobile US estimated a value of 4,057 GWh per year at the reporting date. The value of the derivatives is also significantly influenced by future energy prices on the relevant markets. Market prices are generally observable for a period of around five years, beyond that market liquidity is low. Furthermore, the value of the derivatives is materially influenced by the future prices for renewable energy credits, which are generally not observable for the period beyond around three years. For the unobservable portion of the term, T‑Mobile US used on-peak energy prices of between EUR 17.09/MWh and EUR 56.99/MWh when translated into euros and off-peak prices of between EUR 15.92/MWh and EUR 50.70/MWh when translated into euros. An average on-peak/off-peak ratio of 52 % was used. In our opinion, the values used constitute the best estimate in each case. At the reporting date, the calculated fair value from Deutsche Telekom’s perspective for all energy forward agreements is positive and amounts to a total of EUR 253 million when translated into euros for the assets and EUR 81 million for the liabilities. The valuation model was recalibrated in the reporting year on the basis of recently observed market and price trends. If other values had been used for future energy prices, future energy output, or future prices of renewable energy credits, the fair values calculated would have been different. These hypothetical deviations (sensitivities) are shown in the table above. In the reporting period, net income of EUR 210 million (when translated into euros) was recognized under the Level 3 measurement in other operating income/expense for unrealized gains for the derivatives. Please refer to the corresponding table for the development of the carrying amounts in the reporting period. The market-price changes in the reporting period were largely attributable to changes in observable and unobservable energy prices and to interest rate effects. Due to their distinctiveness, these instruments constitute a separate class of financial instruments. In the view of T‑Mobile US, the contracts were entered into at current market conditions, and the most appropriate parameters for the unobservable inputs were used for measurement purposes. The transaction price at inception was zero in each case. Since the unobservable inputs have a material influence on the measurement of the derivatives, the respective amount resulting from initial measurement – with the exception of the agreements concluded by Sprint that are explained below – was not carried on initial recognition. Instead, these amounts are amortized in profit or loss on a straight-line basis over the period of commercial energy generation (for a total amount of EUR 12 million per year when translated into euros). This amortization adjusts the effects from measuring the derivatives in each accounting period using the respective valuation models and updated parameters. All amounts from the measurement of the derivatives are presented in net terms per contract in the statement of financial position (derivative financial assets/liabilities) and in the income statement (other operating income/expenses). The development of the amount yet to be amortized in the income statement in the reporting period is shown in the following table. Unobservable inputs also have a material influence on the measurement of the derivatives for the agreements concluded by Sprint. However, under the requirements for business combinations, the respective amounts resulting from the measurement are recognized as derivative financial assets, as a result of which there are no amounts yet to be amortized for these agreements. On the following reporting dates, the effects from the periodic measurement of the derivatives will be recorded in full in the income statement (other operating expenses or other operating income).

The financial assets assigned to Level 3 include derivative financial assets with a carrying amount of EUR 222 million when translated into euros, resulting from the acquired stock options to purchase shares in T‑Mobile US. The stock options, which can be exercised at any time, mature in 2024, can be exercised partially at fixed and partially at variable purchase prices, and are measured using an option pricing model. In addition to the share price observable on the market and the risk-free interest rates, average share price volatilities of T‑Mobile US and comparable companies are calculated based on historic and current figures, since these provide a more reliable estimate for these inputs at the reporting date than exclusively using the current market volatilities. The figure used for the share price volatility at the current reporting date was 27.3 % which, in our opinion, constitutes the best estimate. At the reporting date, the calculated fair value for the stock option amounted to EUR 494 million. If another value had been used for the share price volatility, the fair value calculated would have been different. These hypothetical deviations (sensitivities) are shown in the table above. Due to their distinctiveness, these instruments constitute a separate class of financial instruments. The transaction price at inception was zero. Since the unobservable inputs have a material influence on the measurement of the options, the fair value resulting from initial measurement of EUR 1,005 million when translated into euros (before deduction of transaction costs) was not immediately recognized. Instead, this amount will be amortized in profit or loss over the lifetime of the options. This amortization adjusts the effects from measuring the options on an ongoing basis using the valuation model and updated parameters. All amounts from the measurement of the options are presented in net terms in the statement of financial position (other derivative financial assets) and in the income statement (other financial income/expense). The market-price changes in the reporting period are largely attributable to fluctuations in the share price and the risk-free interest rate. The stock options were partially exercised in the reporting period. The development of the amount yet to be amortized in the income statement in the reporting period is shown in the following table.

The financial assets assigned to Level 3 include a derivative financial asset with a carrying amount of EUR 22 million resulting from an option acquired in the reporting period for the sale of shares to Cellnex NL (put option). The option was acquired together with the shares; the option writer is Cellnex. The exercise price of the option essentially corresponds to the fair value of the shares, although fixed minimum exercise prices have been agreed if it is exercised before the end of the fourth year of the term. The option can be exercised at any time, runs until 2026, and is measured using an option pricing model. Taking into account the volatilities of comparable companies, a share price volatility of 20 % was used for the measurement, which in our opinion constitutes the best estimate for these unobservable inputs. The fair value of the shares, which is likewise unobservable, has not changed since the acquisition of the option and amounted to EUR 0.4 billion at the reporting date. The calculated fair value of the option was EUR 133 million at the reporting date. If other values had been used for the share price volatility and the fair value of the shares, the fair value calculated would have been different. These hypothetical deviations (sensitivities) are shown in the table above. The consideration (in the meaning of the IFRSs) paid by Deutsche Telekom to purchase the shares corresponded to the fair value of the shares; the transaction price for the option stood at zero. Since the unobservable inputs have a material influence on the measurement of the option, the fair value resulting from initial measurement of EUR 129 million was not immediately recognized. Instead, this amount will be amortized in profit or loss over four years. This amortization adjusts the effects from measuring the option on an ongoing basis using the valuation model and updated parameters. All amounts from the measurement of the options are presented in net terms in the statement of financial position (other derivative financial assets) and in the income statement (other operating expenses or other operating income). The change in value in the reporting year is mainly attributable to the fact that the fair value of the shares has remained unchanged since their acquisition, while the option is subject to minimum exercise prices. The development of the amount yet to be amortized in the income statement in the reporting period is shown in the following table.

For further information on this transaction, please refer to “Combination of the cell tower business in the Netherlands and creation of an infrastructure fund” in the section “Changes in the composition of the Group and other transactions” under “Summary of accounting policies.”

Development of the not yet amortized amounts

millions of €

 

 

 

 

Energy forward agreements

Stock options

Put option for shares

Measurement amounts on initial recognition

173

1,005

0

Measurement amounts on initial recognition (additions during the reporting period)

0

0

129

Measurement amounts amortized in profit or loss in prior periods

(18)

(127)

0

Measurement amounts amortized in profit or loss in the current reporting period

(10)

(201)

(19)

Currency translation adjustments

1

(49)

0

Disposals in the current reporting period

0

(372)

0

Measurement amounts not amortized as of December 31, 2021

146

256

111

For the trade receivables, loans issued, and other receivables assigned to Level 3, which are measured either at fair value through other comprehensive income or at fair value through profit or loss, the main factor in determining fair value is the credit risk of the relevant counterparties. If the default rates applied as of the reporting date had been 1 % higher (lower) with no change in the reference variables, the fair values of the instruments would have been 1 % lower (higher).

The financial assets measured at fair value through profit or loss and assigned to Level 3 include additional options acquired from third parties for the purchase of company shares, with a carrying amount of EUR 20 million. No notable fluctuations in value are expected from these individual items. Due to their distinctiveness, these instruments constitute a separate class of financial instruments.

Net gain/loss by measurement category

millions of €

 

 

 

 

 

 

 

 

 

 

Recognized in profit or loss from interest and dividends

Recognized in profit or loss from subsequent measurement

Recognized directly in equity from subsequent measurement

Recognized in profit or loss from derecognition

Net gain (loss)

 

 

 

At fair value

Currency translation

Impairments/
allowancesa

At fair valueb

 

 

Debt instruments measured at amortized cost

2021

16

n.a.

1,140

(288)

n.a.

(123)

745

2020

15

n.a.

(1,207)

(418)

n.a.

(188)

(1,798)

Debt instruments measured at fair value through profit or loss

2021

11

0

n.a.

n.a.

n.a.

3

14

2020

16

0

n.a.

n.a.

n.a.

10

26

Debt instruments measured at fair value through other comprehensive income

2021

0

n.a.

n.a.

(351)

(80)

(63)

(494)

2020

0

n.a.

n.a.

(435)

(19)

(64)

(518)

Equity instruments measured at fair value through profit or loss

2021

0

0

n.a.

n.a.

n.a.

0

0

2020

0

0

n.a.

n.a.

n.a.

8

8

Equity instruments measured at fair value through other comprehensive income

2021

0

n.a.

n.a.

n.a.

112

n.a.

112

2020

1

n.a.

n.a.

n.a.

62

n.a.

63

Derivatives measured at fair value through profit or loss

2021

n.a.

(38)

n.a.

n.a.

n.a.

n.a.

(38)

2020

n.a.

297

n.a.

n.a.

n.a.

n.a.

297

Financial liabilities measured at amortized cost

2021

(3,587)

n.a.

(1,417)

(41)

n.a.

n.a.

(5,045)

2020

(3,510)

n.a.

1,462

n.a.

n.a.

n.a.

(2,048)

 

2021

(3,560)

(38)

(278)

(680)

32

(182)

(4,706)

2020

(3,477)

296

255

(853)

43

(234)

(3,970)

a

The amount recognized under financial liabilities measured at amortized cost corresponds to the change in the carrying amount of puttable shares of non-controlling interests in consolidated partnerships, recognized under other non-interest-bearing liabilities.

b

The amount reported under debt instruments measured at fair value through other comprehensive income is the net amount after deduction of the effects recognized in profit or loss for impairment losses in the amount of EUR -414 million.

Net gain/loss by measurement category

millions of €

 

 

 

 

 

 

 

 

 

 

 

Recognized in profit or loss from interest and dividends

Recognized in profit or loss from subsequent measurement

Recognized directly in equity from subsequent measurement

Recognized in profit or loss from derecognition

Net gain (loss)

 

 

 

 

At fair value

Currency translation

Impairments/
allowancesa

At fair valueb

 

 

 

Debt instruments measured at amortized cost

2021

16

n.a.

1,140

(288)

n.a.

(123)

745

 

2020

15

n.a.

(1,207)

(418)

n.a.

(188)

(1,798)

 

Debt instruments measured at fair value through profit or loss

2021

11

0

n.a.

n.a.

n.a.

3

14

 

2020

16

0

n.a.

n.a.

n.a.

10

26

 

Debt instruments measured at fair value through other comprehensive income

2021

0

n.a.

n.a.

(351)

(80)

(63)

(494)

 

2020

0

n.a.

n.a.

(435)

(19)

(64)

(518)

 

Equity instruments measured at fair value through profit or loss

2021

0

0

n.a.

n.a.

n.a.

0

0

 

2020

0

0

n.a.

n.a.

n.a.

8

8

 

Equity instruments measured at fair value through other comprehensive income

2021

0

n.a.

n.a.

n.a.

112

n.a.

112

 

2020

1

n.a.

n.a.

n.a.

62

n.a.

63

 

Derivatives measured at fair value through profit or loss

2021

n.a.

(38)

n.a.

n.a.

n.a.

n.a.

(38)

 

2020

n.a.

297

n.a.

n.a.

n.a.

n.a.

297

 

Financial liabilities measured at amortized cost

2021

(3,587)

n.a.

(1,417)

(41)

n.a.

n.a.

(5,045)

 

2020

(3,510)

n.a.

1,462

n.a.

n.a.

n.a.

(2,048)

 

 

2021

(3,560)

(38)

(278)

(680)

32

(182)

(4,706)

 

2020

(3,477)

296

255

(853)

43

(234)

(3,970)

 

a

The amount recognized under financial liabilities measured at amortized cost corresponds to the change in the carrying amount of puttable shares of non-controlling interests in consolidated partnerships, recognized under other non-interest-bearing liabilities.

b

The amount reported under debt instruments measured at fair value through other comprehensive income is the net amount after deduction of the effects recognized in profit or loss for impairment losses in the amount of EUR -414 million.

Interest from financial instruments is recognized in finance costs, dividends in other financial income/expense (income from investments).

For further information, please refer to Note 28 “Finance costs” and Note 30 “Other financial income/expense.”

The other components of the net gain/loss are generally recognized in other financial income/expense, except for allowances on trade receivables that are classified as debt instruments measured at amortized cost and debt instruments measured at fair value through other comprehensive income, which are reported under other operating expenses. The loss/gain from energy forward agreements and from options received from third parties for the purchase or sale of shares in associates are reported under other operating expenses/other operating income.

For further information, please refer to Note 2 “Trade receivables.”

The net loss from the subsequent measurement for financial instruments allocated to the measurement category at fair value through profit or loss (EUR 288 million) also includes interest and currency translation effects. The net currency translation gains on financial assets classified as debt instruments measured at amortized cost (EUR 1,140 million) are primarily attributable to the Group-internal transfer of foreign-currency loans taken out by Deutsche Telekom’s financing company, Deutsche Telekom International Finance B.V., on the capital market. These are offset by corresponding currency translation losses on capital market liabilities of EUR 1,417 million. These include currency translation gains from derivatives that Deutsche Telekom used as hedging instruments for hedge accounting in foreign currency (EUR 446 million; 2020: losses of EUR 452 million). Finance costs from financial liabilities measured at amortized cost (expense of EUR 3,587 million) primarily consist of interest expense on bonds and other (securitized) financial liabilities. The item also includes interest expense from the addition of accrued interest and interest income from interest discounted from trade payables. However, it does not include the interest expense and interest income from interest rate derivatives Deutsche Telekom used in the reporting year to hedge the fair value risk of financial liabilities.

For further information, please refer to Note 28 “Finance costs.”

Principles of risk management. Deutsche Telekom is exposed in particular to risks from changes in exchange rates, interest rates, and market prices that affect its assets, liabilities, and forecast transactions. Financial risk management aims to limit these market risks through ongoing operational and finance activities. Selected derivative and non-derivative hedging instruments are used for this purpose, depending on the risk assessment. However, Deutsche Telekom only hedges the risks that affect the Group’s cash flow. Derivatives are exclusively used as hedging instruments, i.e., not for trading or other speculative purposes. To reduce the credit risk, hedging instruments are generally only concluded with leading financial institutions whose credit rating is at least BBB+/Baa1. In addition, the credit risk for derivatives with a positive market value is generally minimized through collateral agreements with all core banks. Furthermore, the limits for deposits are also set and monitored on a daily basis depending on the rating, share price performance, and credit default swap level of the respective counterparty.

The fundamentals of Deutsche Telekom’s financial policy are established by the Board of Management and overseen by the Supervisory Board. Group Treasury is responsible for implementing the financial policy and for ongoing risk management. Certain transactions require the prior approval of the Board of Management, which is also regularly briefed on the severity and amount of the current risk exposure.

Group Treasury regards effective management of the market risk as one of its main tasks. The main risks relate to foreign currencies and interest rates.

Currency risks. Deutsche Telekom is exposed to currency risks from its investing, financing, and operating activities. Risks from foreign currencies are hedged to the extent that they influence the Group’s cash flows. Foreign-currency risks that do not influence the Group’s cash flows (i.e., the risks resulting from the translation of assets and liabilities of foreign operations into the Group’s reporting currency) are generally not hedged, however. Deutsche Telekom may nevertheless also hedge this foreign-currency risk under certain circumstances.

Foreign-currency risks in the area of investment result, for example, from the acquisition and disposal of investments in foreign companies. Deutsche Telekom hedges these risks. If the risk position exceeds EUR 100 million, the Board of Management must make a special decision on how the risk shall be hedged. If the risk position is below EUR 100 million, Group Treasury performs the currency hedging itself. At the reporting date, Deutsche Telekom was not exposed to any significant risks from foreign-currency transactions in the field of investments.

Foreign-currency risks in the financing area are caused by financial liabilities in foreign currency and loans in foreign currency that are issued to Group entities for financing purposes. Group Treasury hedges these risks. Cross-currency swaps and currency derivatives are used to convert financial obligations and intragroup loans denominated in foreign currencies into the Group entities’ functional currencies.

At the reporting date, the foreign-currency liabilities for which currency risks were hedged mainly consisted of bonds in U.S. dollars and pounds sterling. On account of these hedging activities, Deutsche Telekom was not exposed to any significant currency risks in the area of financing at the reporting date.

The Group entities predominantly execute their operating activities in their respective functional currencies. Payments made in a currency other than the respective functional currency result in foreign-currency risks in the Group. These mainly relate to payments for telecommunications services (procurement of network technology and mobile communications equipment as well as payments to international telecommunications companies and for the provision of connection services) and IT services (procurement of IT hardware, software, and services). Deutsche Telekom generally uses currency derivatives for hedging purposes. On account of these hedging activities, Deutsche Telekom was not exposed to any significant exchange rate risks from its operating activities at the reporting date.

For the presentation of market risks, IFRS 7 requires sensitivity analyses that show the effects of hypothetical changes of relevant risk variables on profit or loss and shareholders’ equity. In addition to currency risks, Deutsche Telekom is exposed to interest rate risks and price risks in its investments. 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 risks as defined by IFRS 7 arise on account of financial instruments being denominated in a currency that is not the functional currency and being of a monetary nature; differences resulting from the translation of financial statements into the Group’s presentation currency are not taken into consideration. Relevant risk variables are generally all non-functional currencies in which Deutsche Telekom has contracted financial instruments.

The currency sensitivity analyses are based on the following assumptions: Major non-derivative monetary financial instruments (liquid assets, receivables, interest-bearing securities and/or debt instruments held, interest-bearing liabilities, lease liabilities, non-interest-bearing liabilities) are either directly denominated in the functional currency or are transferred to the functional currency through the use of derivatives. Exchange rate fluctuations therefore have no effects on profit or loss, or shareholders’ equity.

Equity instruments held are of a non-monetary nature and therefore are not exposed to a currency risk as defined by IFRS 7.

Interest income and interest expense from financial instruments are also either recorded directly in the functional currency or transferred to the functional currency using derivatives. For this reason, there can be no effects on the variables considered in this connection.

In the case of fair value hedges designated to hedge currency risks, the changes in the fair values of the hedged item and the hedging instrument attributable to changes in exchange rates balance out almost completely in the income statement in the same period. As a consequence, these financial instruments are not exposed to currency risks with an effect on profit or loss, or shareholders’ equity, either.

Cross-currency swaps are always assigned to non-derivative hedged items, so these instruments do not have any currency effects, either.

Deutsche Telekom is therefore only exposed to currency risks from specific currency derivatives. Some of these are currency derivatives that are part of an effective cash flow hedge for hedging payment variability resulting from changes in exchange rates in accordance with IFRS 9. Volatility of exchange rates of the currencies on which these transactions are based affects the hedging reserves in shareholders’ equity and the fair value of these hedging instruments. Others are currency derivatives that are neither part of one of the hedges defined in IFRS 9 nor part of a natural hedge. These derivatives are used to hedge planned transactions. Changes in exchange rates of the currencies on which such financial instruments are based affect other financial income or expense (net gain/loss from remeasurement of financial assets and liabilities to fair value).

If the euro had gained (lost) 10 % against all currencies at December 31, 2021, the hedging reserves in shareholders’ equity and the fair values of the hedging instruments before taxes would have been EUR 13 million higher (lower) (December 31, 2020: EUR 23 million higher (lower)). The hypothetical effect of EUR 13 million on profit or loss primarily results from the currency sensitivities EUR/USD: EUR 16 million, EUR/GBP: EUR -7 million, and EUR/CHF: EUR 4 million. If the euro had gained (lost) 10 % against all currencies at December 31, 2021, other financial income and the fair value of the hedging instruments before taxes would have been EUR 31 million lower (higher) (December 31, 2020: EUR 137 million higher (lower)). The hypothetical effect of EUR -31 million on profit or loss primarily results from the currency sensitivities EUR/USD: EUR -72 million, EUR/GBP: EUR 34 million, and EUR/HUF: EUR 5 million.

Interest rate risks. Deutsche Telekom is exposed to interest rate risks, mainly in the euro zone and in the United States. The interest rate risks are managed as part of the interest rate management activities. For the debt position in euros a maximum variable percentage is set on an annual basis. The debt position of T‑Mobile US in U.S. dollars is primarily determined through partially cancelable, fixed-income debt instruments. The composition of the liabilities portfolio (ratio of fixed to variable) is managed by issuing non-derivative financial instruments and, where necessary, also deploying derivative financial instruments.

Including derivative hedging instruments, an average of 46 % (2020: 44 %) of the debt position denominated in euros had a variable rate of interest in 2021. There were no significant fluctuations in the course of the reporting year. In U.S. dollars, – compared to 2020 – the average variable share decreased from 8 % to 0 %, mainly due to the issuing of new fixed-interest bonds by T‑Mobile US.

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, shareholders’ equity. The interest rate sensitivity analyses are based on the following assumptions: Changes in the market interest rates of non-derivative financial instruments with fixed interest rates only affect income if these are measured at their fair value. As such, all financial instruments with fixed interest rates that are carried at amortized cost are not subject to interest rate risk as defined in IFRS 7.

In the case of fair value hedges designated for hedging interest rate risks, the changes in the fair values of the hedged item and the hedging instrument attributable to changes in interest rates balance out almost completely in the income statement in the same period. This means that interest-rate-based changes in the measurement of the hedged item and the hedging instrument largely do not affect income and are therefore not subject to interest rate risk.

In the case of interest rate derivatives in fair value hedges, however, changes in market interest rates affect the amount of interest payments. As a consequence, they have an effect on interest income and are therefore included in the calculation of income-related sensitivities.

Changes in the market interest rate regarding financial instruments that were designated as hedging instruments in a cash flow hedge to hedge payment variability resulting from changes in interest rates affect the hedging reserve in shareholders’ equity and are therefore taken into consideration in the equity-related sensitivity calculations.

Changes in market interest rates affect the interest income or expense of non-derivative variable-interest financial instruments, the interest payments of which are not designated as hedged items of cash flow hedges against interest rate risks. As a consequence, they are included in the calculation of income-related sensitivities.

In addition, changes in the market interest rate had an impact on the carrying amount of trade receivables recognized at fair value and originated loans and other receivables. However, this variability is not managed.

Changes in the market interest rate regarding interest rate derivatives (interest rate swaps, cross-currency swaps) that are not part of a hedging relationship as set out in IFRS 9 affect other financial income or expense and are therefore taken into consideration in the income-related sensitivity calculations. Currency derivatives are not exposed to interest rate risks and therefore do not affect the interest rate sensitivities.

If the market interest rates had been 100 basis points higher at December 31, 2021, profit or loss before taxes would have been EUR 272 million (December 31, 2020: EUR 199 million) lower. If the market interest rates had been 100 basis points lower at December 31, 2021, profit or loss before taxes would have been EUR 263 million (December 31, 2020: EUR 198 million) higher. The hypothetical effect of EUR 263 million/EUR -272 million on profit or loss primarily results from potential effects of EUR 262 million/EUR -262 million from interest rate derivatives. In addition, potential effects of EUR -22 million/EUR 23 million result from the stock options received from SoftBank, of EUR 4 million/EUR ‑4 million from the forward transaction to hedge the price of acquiring T‑Mobile US shares in the future, and of EUR 12 million/EUR -23 million from the energy forward agreements entered into by T‑Mobile US. Potential effects from interest rate derivatives are partially balanced out by the contrasting performance of non-derivative financial instruments, which cannot, however, be shown as a result of applicable accounting standards. The effects from the options embedded in the bonds issued by T‑Mobile US are not included in this simulation. The resulting sensitivities are set out in the above table “Sensitivities of the carrying amounts of the financial assets and financial liabilities assigned to Level 3 depending on unobservable inputs.” However, the effects from the other financial instruments assigned to Level 3 described above are included. If the market interest rates had been 100 basis points higher (lower) at December 31, 2021, the hedging and revaluation reserves in equity before taxes would have been EUR 129 million higher (EUR 129 million lower) (December 31, 2020: EUR 271 million higher (EUR 271 million lower)).

Other price risks. As part of the presentation of market risks, IFRS 7 also requires disclosures on how hypothetical changes in risk variables affect the price of financial instruments. Important risk variables are stock exchange prices or indexes.

If the share price of T‑Mobile US had been 10 % higher (lower) at December 31, 2021, the fair value of unconditional forward transactions and options held for the purchase of shares in T‑Mobile US would have been EUR 350 million higher (EUR 335 million lower) (December 31, 2020: EUR 384 higher (EUR 359 million lower)). In addition, aside from the value-creating factors in the financial instruments assigned to Level 3 described above, there were no other price risks at the reporting date.

Deutsche Telekom is exposed to a credit risk from its operating activities and certain financing activities. As a rule, transactions with regard to financing activities are only concluded with counterparties that have at least a credit rating of BBB+/Baa1, in connection with an operational credit management system. At the level of operations, the outstanding debts are continuously monitored in each area, i.e., locally. Credit risks are taken into account through individual allowances and allowances calculated at portfolio level. The solvency of the business with corporate customers, especially international carriers, is monitored separately. In terms of the overall risk exposure from the credit risk, however, the receivables from these counterparties are not so extensive as to justify extraordinary concentrations of risk.

Maximum credit risk of financial assets

millions of €

 

 

 

Classes of financial instruments (IFRS 7)

Measurement category (IFRS 9)

2021a

2020

Originated loans and other receivables

AC

5,249

4,733

FVOCI

0

0

FVTPL

233

203

Cash and cash equivalents

AC

7,624

13,012

Trade receivables

AC

6,062

6,128

FVOCI

9,633

7,516

FVTPL

1

0

Contract assets (IFRS 15)

n.a.

2,054

1,966

Lease receivables

n.a.

228

248

a

Including the assets of T-Mobile Netherlands included under assets directly associated with non-current assets and disposal groups held for sale as of December 31, 2021.

Development of allowancesa

millions of €

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General approach

Simplified approach

 

12-month expected credit losses

Lifetime expected credit losses

 

Stage 1 – No change in credit risk since initial recognition

Stage 2 – Significant increase in credit risk since initial recognition, not credit-impaired

Stage 3 – Credit-impaired at the reporting date (not purchased or originated credit-impaired)

 

 

 

 

 

Cash and cash equivalents

Originated loans and other receivables

Cash and cash equivalents

Originated loans and other receivables

Cash and cash equivalents

Originated loans and other receivables

Trade receivables

Contract assets

Lease assets

 

AC

AC

FVOCI

AC

AC

FVOCI

AC

AC

FVOCI

AC

FVOCI

n.a.

n.a.

January 1, 2021

0

(4)

0

0

0

0

0

(10)

0

(1,313)

(280)

(38)

0

Reclassification due to a change in business model

 

 

 

 

 

 

 

 

 

(1)

 

 

 

Additions

 

 

 

 

 

 

 

(5)

 

(596)

(351)

(34)

 

Use

 

 

 

 

 

 

 

 

 

384

305

34

 

Reversal

 

1

 

 

 

 

 

 

 

213

 

6

 

Other

 

 

 

 

 

 

 

 

 

92

 

2

 

Foreign currency effect

 

 

 

 

 

 

 

 

 

(4)

(31)

(8)

 

December 31, 2021

0

(3)

0

0

0

0

0

(15)

0

(1,225)

(357)

(38)

0

a

Including the allowances of T-Mobile Netherlands included under assets directly associated with non-current assets and disposal groups held for sale as of December 31, 2021.

There were no material transfers in the general approach.

Credit rating of financial assets measured at amortized cost or at fair value through other comprehensive income

millions of €

 

 

 

 

 

 

 

 

 

Dec. 31, 2021a

Dec. 31, 2020

 

 

 

 

 

 

 

 

 

 

Contractual obligations fulfilled to date

Disruptions in per­formance already occurred

Non-per­forming

Total

Contractual obligations fulfilled to date

Disruptions in per­formance already occurred

Non-per­forming

Total

General approach (short term)

 

 

 

 

 

 

 

 

12-month expected credit losses (stage 1)

11,291

 

 

11,291

15,909

 

 

15,909

Lifetime expected credit losses

 

 

 

 

 

 

 

 

Significant increase in credit risk, but not credit-impaired (stage 2)

 

83

 

83

 

158

 

158

Credit-impaired at the reporting date, but not purchased or originated credit-impaired (stage 3)

 

 

52

52

 

 

42

42

 

11,291

83

52

11,426

15,909

158

42

16,109

General approach (long term)

 

 

 

 

 

 

 

 

12-month expected credit losses (stage 1)

1,449

 

 

1,449

1,650

 

 

1,650

Lifetime expected credit losses

 

 

 

 

 

 

 

 

Significant increase in credit risk, but not credit-impaired (stage 2)

 

2

 

2

 

1

 

1

Credit-impaired at the reporting date, but not purchased or originated credit-impaired (stage 3)

 

 

1

1

 

 

0

0

 

1,449

2

1

1,452

1,650

1

0

1,651

Simplified approach

 

 

 

 

 

 

 

 

Trade receivables

15,161

696

1,060

16,917

13,379

489

1,080

14,948

Contract assets

2,056

29

8

2,093

1,994

8

8

2,010

Lease receivables

228

 

 

228

239

0

8

247

 

17,445

725

1,068

19,238

15,612

497

1,096

17,205

Financial assets that are purchased or originated credit-impaired

 

 

 

 

 

 

 

 

Receivables

 

 

 

0

11

 

 

11

 

30,185

810

1,121

32,116

33,182

656

1,138

34,976

a

Including the assets of T-Mobile Netherlands included under assets directly associated with non-current assets and disposal groups held for sale as of December 31, 2021.

Offsetting of financial instruments

millions of €

 

 

 

 

 

 

 

 

 

Dec. 31, 2021

Dec. 31, 2020

 

 

 

 

 

 

 

 

 

 

Trade receivables

Trade payables

Derivative financial assets

Derivative financial liabilities

Trade receivables

Trade payables

Derivative financial assets

Derivative financial liabilities

Gross amounts subject to enforceable master netting arrangements or similar agreements

181

158

1,844

696

465

441

2,254

727

Amounts set off in the statement of financial position in accordance with IAS 32.42

(100)

(100)

 

 

(119)

(119)

 

 

Net amounts presented in the statement of financial position

81

58

1,844

696

346

322

2,254

727

Amounts subject to enforceable master netting arrangements or similar agreements and not meeting all offsetting requirements in accordance with IAS 32.42

(23)

(23)

(1,831)

(664)

(28)

(28)

(2,210)

(727)

Of which: amounts related to recognized financial instruments

(23)

(23)

(241)

(241)

(28)

(28)

(693)

(693)

Of which: amounts related to financial collateral (including cash collateral)

 

 

(1,590)

(423)

 

 

(1,517)

(34)

Net amounts

58

35

13

32

318

294

44

0

Offsetting is applied in particular to receivables and liabilities at Deutsche Telekom AG and Telekom Deutschland GmbH for the routing of international calls via the fixed network and for roaming fees in the mobile network.

In line with the contractual provisions, in the event of insolvency all derivatives with a positive or negative fair value that exist with the respective counterparty are offset against each other, leaving a net receivable or liability. The net amounts are normally recalculated every bank working day and offset against each other. When the netting of the positive and negative fair values of all derivatives was positive from Deutsche Telekom’s perspective, the counterparty provided Deutsche Telekom with cash pursuant to the collateral contracts mentioned in Note 1 “Cash and cash equivalents.” The credit risk was thus further reduced.

When the netting of the positive and negative fair values of all derivatives was negative from Deutsche Telekom’s perspective, Deutsche Telekom provided cash collateral to counterparties pursuant to collateral agreements. The net amounts are normally recalculated every bank working day and offset against each other. The cash collateral paid is offset by corresponding negative net derivative positions of EUR 423 million at the reporting date, which is why it was not exposed to any credit risks in this amount at the reporting date.

For further information, please refer to Note 11 “Other financial assets.”

The collateral paid is reported under originated loans and other receivables within other financial assets. On account of its close connection to the corresponding derivatives, the collateral paid constitutes a separate class of financial assets. Likewise, the collateral received, which is reported as other interest-bearing liabilities under financial liabilities, constitutes a separate class of financial liabilities on account of its close connection to the corresponding derivatives. There were no other significant agreements reducing the maximum exposure to the credit risk of financial assets. The maximum exposure to the credit risk of the other financial assets thus corresponds to their carrying amounts.

In accordance with the terms of the bonds issued by T‑Mobile US, T‑Mobile US has the right to terminate the majority of bonds prematurely under specific conditions. The rights of early termination constitute embedded derivatives and are presented separately as derivative financial assets in the consolidated statement of financial position. Since they are not exposed to any credit risk, they constitute a separate class of financial instruments. Please refer to the explanations above for more information on the energy forward agreements for which no collateral is provided. There is also no credit risk on embedded derivatives held.

No collateral is provided for the options received from third parties for the purchase or sale of shares in subsidiaries and associates.

In connection with auctions for the planned acquisition of spectrum licenses, subsidiaries of Deutsche Telekom have deposited additional cash collateral of EUR 90 million when translated into euros. At the reporting date, cash and cash equivalents of EUR 76 million when translated into euros were pledged as collateral for liabilities issued by Sprint with right of creditors to priority repayment in the event of default. This cash collateral is not exposed to any significant credit risk.

For further information, please refer to Note 13 “Financial liabilities and lease liabilities.”

Liquidity risk. For further information, please refer to Note 13 “Financial liabilities and lease liabilities.”

Hedge accounting

Fair value hedges. To hedge the fair value risk of fixed-interest liabilities, Deutsche Telekom primarily uses interest rate swaps and forward interest rate swaps (pay variable, receive fixed) denominated in EUR, GBP, and USD. Fixed-income bonds denominated in EUR, GBP, and USD were designated as hedged items. The changes in the fair values of the hedged items resulting from changes in the EURIBOR, GBP LIBOR, or USD LIBOR swap rate are offset against the changes in the value of these interest rate swaps. In addition, cross-currency swaps mainly in the EUR/USD and EUR/GBP currency pairs, are designated as fair value hedges, which convert fixed-income foreign currency bonds into variable-interest EUR bonds to hedge the interest rate and currency risk. The changes in the fair value of the hedged items resulting from changes in the USD LIBOR and GBP LIBOR swap rate as well as the USD and GBP exchange rate, are offset against the changes in the value of the cross-currency swaps. The aim of the fair value hedges is thus to transform the fixed-income bonds into variable-interest debt, thus hedging the fair value (interest rate risk and currency risk) of these financial liabilities. Credit risks are not part of the hedging.

Cash flow hedges – interest rate risks. Deutsche Telekom mainly uses payer interest rate swaps and forward-payer interest rate swaps (pay fixed, receive variable) to hedge the cash flow risk of existing and future debt. The interest payments to be made in the hedging period are the hedged items and are recognized in profit or loss in the same period. Hedged items may be individual liabilities, portfolios of liabilities, or combinations of liabilities and derivatives (aggregate risk exposure). The changes in the cash flows of the hedged items resulting from changes in the USD LIBOR rate and the EURIBOR rate are offset against the changes in the cash flows of the interest rate swaps. The aim of this hedging is to transform the variable-interest bonds into fixed-income debt, thus hedging the cash flows of the financial liabilities. Credit risks are not part of the hedging.

Cash flow hedges – currency risks. Deutsche Telekom entered into currency derivative and cross-currency swaps (pay fixed, receive variable) to hedge cash flows not denominated in a functional currency. The payments in foreign currency to be made in the hedging period are the hedged items and are recognized in profit or loss in the same period. The terms of the hedging relationships will end in the years 2022 through 2033. In the case of rolling cash flow hedges for hedging currency risks, short-term currency forwards are entered into, which are then extended by means of follow-up transactions.

At each reporting date, the effectiveness of the fair value and cash flow hedges is reviewed prospectively based on the main contractual features and determined retrospectively in the form of a statistical regression analysis; for rolling foreign currency hedges the effectiveness is reviewed using the dollar offset test. All hedging relationships were sufficiently effective as of the reporting date.

Hedging of a net investment. The hedges of the net investment in T‑Mobile US against fluctuations in the U.S. dollar spot rate de-designated in prior periods did not generate any effects in 2021. The amounts recognized in total other comprehensive income would be reclassified in the event of the disposal of T‑Mobile US.

Conditions of derivative financial instruments in hedging relationships

millions of €

 

 

 

 

 

 

 

2022

 

Nominal amount

Average hedge rate

Average swap rate received

Average swap rate paid

Average margin paid

Average margin received

Fair value hedges

 

 

 

 

 

 

Interest rate risk

 

 

 

 

 

 

EURIBOR

1,000

 

0.4715 %

6M EURIBOR

0.3100 %

 

USD LIBOR

 

 

 

 

 

 

GBP LIBOR

 

 

 

 

 

 

Cross-currency risk

 

 

 

 

 

 

USD/EUR

 

 

 

 

 

 

GBP/EUR

 

 

 

 

 

 

Other

 

 

 

 

 

 

Cash flow hedges

 

 

 

 

 

 

Currency risk

 

 

 

 

 

 

Buy

 

 

 

 

 

 

USD/EUR

288

1.1740

 

 

 

 

GBP/EUR

836

0.9029

6.5000 %

6.5717 %

 

 

Other

3

 

 

 

 

 

Sell

 

 

 

 

 

 

USD/EUR

222

1.1983

 

 

 

 

CHF/EUR

9

1.0578

 

 

 

 

Interest rate risk

 

 

 

 

 

 

EURIBOR

1,400

 

6M EURIBOR

-0.2574 %

 

0.3214 %

USD LIBOR

1,104

 

3M USD LIBOR

5.3750 %

 

2.8012 %

millions of €

 

 

 

 

 

 

 

2023-2026

 

Nominal amount

Average hedge rate

Average swap rate received

Average swap rate paid

Average margin paid

Average margin received

Fair value hedges

 

 

 

 

 

 

Interest rate risk

 

 

 

 

 

 

EURIBOR

7,525

 

0.8730 %

6M EURIBOR

0.4082 %

 

USD LIBOR

662

 

2.4860 %

3M USD LIBOR

1.1020 %

 

GBP LIBOR

 

 

 

 

 

 

Cross-currency risk

 

 

 

 

 

 

USD/EUR

 

 

 

 

 

 

GBP/EUR

692

0.8680

1.8750 %

3M EURIBOR

0.5536 %

 

Other

79

 

 

 

 

 

Cash flow hedges

 

 

 

 

 

 

Currency risk

 

 

 

 

 

 

Buy

 

 

 

 

 

 

USD/EUR

199

1.1859

 

 

 

 

GBP/EUR

 

 

 

 

 

 

Other

 

 

 

 

 

 

Sell

 

 

 

 

 

 

USD/EUR

376

1.2355

 

 

 

 

CHF/EUR

27

1.0578

 

 

 

 

Interest rate risk

 

 

 

 

 

 

EURIBOR

5,778

 

6M EURIBOR

-0.1293 %

 

0.3844 %

USD LIBOR

1,324

 

3M USD LIBOR

4.7500 %

 

2.0707 %

millions of €

 

 

 

 

 

 

 

2027 and thereafter

 

Nominal amount

Average hedge rate

Average swap rate received

Average swap rate paid

Average margin paid

Average margin received

Fair value hedges

 

 

 

 

 

 

Interest rate risk

 

 

 

 

 

 

EURIBOR

6,300

 

1.6231 %

6M EURIBOR

0.9189 %

 

USD LIBOR

4,736

 

4.1460 %

3M USD LIBOR

1.6014 %

 

GBP LIBOR

 

 

 

 

 

 

Cross-currency risk

 

 

 

 

 

 

USD/EUR

1,557

1.1221

8.7500 %

3M EURIBOR

5.8751 %

 

GBP/EUR

925

0.8646

2.8420 %

6M EURIBOR

0.9015 %

 

Other

818

 

 

 

 

 

Cash flow hedges

 

 

 

 

 

 

Currency risk

 

 

 

 

 

 

Buy

 

 

 

 

 

 

USD/EUR

1,758

1.3508

8.7832 %

7.7842 %

 

 

GBP/EUR

441

0.9071

7.9337 %

7.5761 %

 

 

Other

 

 

 

 

 

 

Sell

 

 

 

 

 

 

USD/EUR

55

1.2357

 

 

 

 

CHF/EUR

 

 

 

 

 

 

Interest rate risk

 

 

 

 

 

 

EURIBOR

 

 

 

 

 

 

USD LIBOR

 

 

 

 

 

 

Nominal and carrying amounts of derivative financial instruments in hedging relationships

millions of €

 

 

 

 

 

 

 

 

 

 

 

 

2021

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nominal amount of the hedging instruments

Carrying amount of the hedging instruments

Change in value of the hedging instruments in the reporting period for determining ineffectiveness

Nominal amount of the hedging instruments

Carrying amount of the hedging instruments

Change in value of the hedging instruments in the reporting period for determining ineffectiveness

 

 

in foreign currencies

in euros

Financial assets

Financial liabilities

in foreign currencies

in euros

Financial assets

Financial liabilities

Disclosure of the hedging instruments in the statement of financial position

Fair value hedges

 

 

 

 

 

 

 

 

 

 

Other financial assets/
financial liabilities

Interest rate risk

 

20,224

972

(3)

(957)

 

21,680

1,902

0

1,058

Of which: EUR

 

14,825

 

 

 

 

15,463

 

 

 

 

Of which: USD

6,115

5,399

 

 

 

6,671

5,438

 

 

 

 

Of which: GPB

0

0

 

 

 

700

779

 

 

 

 

Cross-currency risk

 

4,071

223

(8)

(114)

 

3,191

123

(52)

173

Other financial assets/
financial liabilities

Of which: USD

1,747

1,557

 

 

 

1,747

1,557

 

 

 

 

Of which: GPB

1,400

1,617

 

 

 

700

796

 

 

 

 

Of which: other

 

897

 

 

 

 

839

 

 

 

 

Cash flow hedges

 

 

 

 

 

 

 

 

 

 

Other financial assets/
financial liabilities

Currency risk

 

4,214

321

(1)

257

 

4,326

12

(73)

(183)

Buy

 

 

 

 

 

 

 

 

 

 

 

USD/EUR

2,872

2,245

 

 

 

2,880

2,255

 

 

 

 

GBP/EUR

1,155

1,277

 

 

 

1,163

1,282

 

 

 

 

Other

 

3

 

 

 

 

19

 

 

 

 

Sell

 

 

 

 

 

 

 

 

 

 

 

USD/EUR

746

654

 

 

 

895

732

 

 

 

 

Other

 

36

 

 

 

 

38

 

 

 

 

Interest rate risk

 

9,606

43

(105)

67

 

10,845

9

(261)

(1,307)

Other financial assets/
financial liabilities

USD LIBOR

2,750

2,428

 

 

 

3,750

3,057

 

 

 

 

EURIBOR

 

7,178

 

 

 

 

7,788

 

 

 

 

In this and the following tables on hedging relationships, losses are shown as negative amounts unless explicitly stated otherwise.

Disclosures on hedged items in hedging relationships

millions of €

 

 

 

 

 

 

 

 

 

 

Carrying amount of the hedged items (including cumulative fair value hedge adjustments)

Cumulative adjustments to the carrying amount of the designated fair value hedges

Change in the fair value of the hedged items for determining ineffectiveness in the reporting period

Remaining balance of cumulative adjustments to the carrying amount of the de-designated fair value hedges

Balance of amounts recognized in other com­prehensive income relating to hedged risk (existing hedging relationships)a

Balance of amounts recognized in other com­prehensive income relating to hedged risk (terminated hedging relationships)a

Presentation of the hedged items in the statement of financial position

Fair value hedges

 

 

 

 

 

 

 

Financial liabilities

Interest rate risk

2021

20,923

799

970

277

n.a.

n.a.

2020

23,417

1,741

(1,044)

258

n.a.

n.a.

Cross-currency risk

2021

4,304

59

129

0

n.a.

n.a.

2020

3,219

188

(164)

0

n.a.

n.a.

Cash flow hedges

 

 

 

 

 

 

 

n.a.

Currency risk

2021

n.a.

n.a.

(255)

n.a.

129

8

2020

n.a.

n.a.

179

n.a.

132

8

Interest rate risk

2021

n.a.

n.a.

(42)

n.a.

(43)

(1,847)

2020

n.a.

n.a.

1,267

n.a.

(198)

(2,008)

Hedges of net investment

 

 

 

 

 

 

 

n.a.

Currency risk

2021

n.a.

n.a.

0

n.a.

794

n.a.

2020

n.a.

n.a.

0

n.a.

794

n.a.

a

Figures include non-controlling interests.

The recorded ineffectiveness in the income statement mainly results from the different discount rates of the hedged items (fixed-income) and designated hedging instruments (fixed-income and variable-interest). Furthermore, cross-currency interest rate hedges are impacted by effects from cross currency basis spreads, which are included in the hedging instruments, but not in the hedged items. For some hedges, the characteristics of hedging instruments and hedged items differ, resulting in ineffectiveness. In the case of interest rate hedges on highly probable future borrowings, ineffectiveness could arise if time shifts occur. The relative amounts of the ineffectiveness are not expected to increase significantly in the future. Furthermore, there are no other potential sources of ineffectiveness.

Reconciliation of total other comprehensive income from hedging relationshipsa

millions of €

 

 

 

 

 

 

 

Designated risk components (effective portion)

 

 

 

 

Cash flow hedges

Hedges of net investment

Total designated risk components

Hedging costsb

Total other comprehensive income

 

Currency risk

Interest rate risk

Currency risk

Balance at January 1, 2021

141

(2,206)

794

(1,271)

24

(1,247)

Changes recognized directly in equity

254

42

0

296

60

356

Reclassification to profit or loss due to occurrence of the hedged item

(258)

275

0

17

2

19

Balance at December 31, 2021

137

(1,889)

794

(958)

86

(872)

a

Figures include non-controlling interests.

b

The hedging costs relate entirely to cross-currency basis spreads.

Reconciliation of total other comprehensive income from hedging relationshipsa

millions of €

 

 

 

 

 

 

 

 

Designated risk components (effective portion)

 

 

 

 

 

Cash flow hedges

Hedges of net investment

Total designated risk components

Hedging costsb

Total other comprehensive income

 

 

Currency risk

Interest rate risk

Currency risk

 

Balance at January 1, 2021

141

(2,206)

794

(1,271)

24

(1,247)

 

Changes recognized directly in equity

254

42

0

296

60

356

 

Reclassification to profit or loss due to occurrence of the hedged item

(258)

275

0

17

2

19

 

Balance at December 31, 2021

137

(1,889)

794

(958)

86

(872)

 

a

Figures include non-controlling interests.

b

The hedging costs relate entirely to cross-currency basis spreads.

Derivatives. The following table shows the fair values of the various derivatives. A distinction is made depending on whether these are part of an effective hedging relationship as set out in IFRS 9 (fair value hedge, cash flow hedge, net investment hedge) or not. Other derivatives can also be embedded, i.e., a component of a composite instrument that contains a non-derivative host contract.

millions of €

 

 

 

Net carrying amounts
Dec. 31, 2021

Net carrying amounts
Dec. 31, 2020

Assets

 

 

Interest rate swaps

 

 

Without a hedging relationship

8

22

In connection with fair value hedges

972

1,902

In connection with cash flow hedges

43

9

Currency forwards/currency swaps

 

 

Without a hedging relationship

44

15

In connection with cash flow hedges

17

8

Cross-currency swaps

 

 

Without a hedging relationship

227

169

In connection with fair value hedges

223

123

In connection with cash flow hedges

305

3

Other derivatives in connection with cash flow hedges

0

0

Other derivatives without a hedging relationship

246

819

Embedded derivatives

677

966

Liabilities

 

 

Interest rate swaps

 

 

Without a hedging relationship

64

31

In connection with fair value hedges

3

0

In connection with cash flow hedges

105

261

Currency forwards/currency swaps

 

 

Without a hedging relationship

15

41

In connection with cash flow hedges

1

28

In connection with net investment hedges

0

0

Cross-currency swaps

 

 

Without a hedging relationship

45

264

In connection with fair value hedges

8

52

In connection with cash flow hedges

0

46

Other derivatives in connection with cash flow hedges

0

0

Other derivatives without a hedging relationship

454

13

Embedded derivatives

7

129

Transfer of financial assets

Factoring transactions with substantially all risks and rewards being transferred

Deutsche Telekom is party to two factoring agreements under which it sells – on a revolving basis – trade receivables from consumers and business customers relating to both charges already due and charges from sales of handsets payable over a period of up to two years.

In one transaction, receivables are sold directly to a structured entity. This structured entity holds the receivables and allocates the risks and rewards resulting from these to Deutsche Telekom and a bank on the basis of contractual arrangements. It is financed through the issue of commercial paper to third parties outside the Group or, alternatively, through a credit facility provided by a bank. Deutsche Telekom does not consolidate the structured entity because it does not control the relevant activities.

The receivables being sold are selected from a portfolio in compliance with the eligibility criteria set out in the receivables purchase agreement and an obligatory minimum volume, based on the decision of the structured entity. Deutsche Telekom is obligated to buy back aged receivables and receivables for which a write-down is imminent at nominal value. This would not affect the allocation of the credit risk-related losses, as these would be passed back to the buyer in line with the agreed risk allocation. The cash flows resulting from the buy-backs normally occur in the month following the buy-back. The structured entity does not have any business activities other than the purchase or sale of trade receivables or other investments. Deutsche Telekom is not exposed to risks other than the credit risks and late-payment risks resulting from the sold receivables stipulated in the agreement.

The risks relevant for the risk assessment with respect to the sold receivables are based on the credit risk and the late-payment risk. Deutsche Telekom bears certain portions of the credit risk. The other credit risk-related losses are borne by the buyer. The late-payment risk continues to be borne in full by Deutsche Telekom. All receivables sold were derecognized in full, since substantially all risks and rewards were transferred. At the derecognition date, the fair value of the expected losses is expensed as financial liabilities.

Deutsche Telekom continues to perform servicing for the receivables sold, with the structured entity having the right to transfer the servicing to third parties for no specific reason. Please refer to the table below for the disclosures on the continuing involvement resulting from the receivables sold.

In another transaction, receivables are sold directly to a bank, with Deutsche Telekom having the right to decide on a case-by-case basis whether and to what extent the revolving nominal volume will be used. Sales exceeding this amount must be agreed on a case-by-case basis. The risks relevant for the risk assessment with respect to the receivables sold are the credit risk and the late-payment risk, which are transferred to the buyer of the receivables in full in return for payment of a fixed purchase price discount. Losses relating to certain receivables are reimbursed up to a maximum amount under a credit insurance policy, which reduces the credit risk. The receivables sold until the reporting date were derecognized in full. At the derecognition date, the fixed purchase price discount is expensed. Deutsche Telekom continues to perform receivables credit management against payment for the receivables sold. For the disclosures on the receivables sold, please refer to the table below.

For three factoring agreements terminated as planned in the first quarter of the financial year, expenses of EUR 1.5 million have been recognized on a cumulative basis since commencement of the agreements.

Factoring transactions involving the splitting of significant risks and rewards as well as the transfer of control

There is also a revolving factoring transaction in place under which a bank is required to purchase trade receivables from charges from sales of handsets payable over a period of up to two years. Deutsche Telekom has the right to decide on a case-by-case basis whether the revolving nominal volume will be used and to what extent. The risks relevant for the risk assessment with respect to the receivables sold are the credit risk and the late-payment risk. Deutsche Telekom bears credit risk-related losses from the various tranches up to a certain amount in each case; the other credit risk-related losses are borne by the bank. The late-payment risk is borne in full by Deutsche Telekom. Due to the allocation of the material risks between Deutsche Telekom and the bank, substantially all the risks and rewards of ownership of the receivables were neither transferred nor retained. Control of the receivables sold was transferred to the bank because it has the practical ability to resell the receivables. The bank has the right to sell all overdue receivables back to Deutsche Telekom. The purchase price corresponds to the nominal amount and is payable in the month following the buy-back. This does not affect the allocation of the credit risk-related losses, as the losses would be passed back to the bank in line with the agreed risk allocation. All receivables sold have been derecognized. At the derecognition date, the fair value of the expected losses is expensed as financial liabilities. Please refer to the table below for the disclosures on the continuing involvement resulting from the receivables sold.

Factoring transactions involving the splitting of significant risks and rewards with control remaining at Deutsche Telekom

In addition, there are several factoring agreements in place under which Deutsche Telekom sells – on a revolving basis – trade receivables from consumers and business customers relating to both charges already due and charges from sales of handsets payable over a period of up to two years.

In two transactions, subsidiaries of Deutsche Telekom sell receivables to structured entities that are also subsidiaries of Deutsche Telekom and were established for the sole purpose of these factoring agreements. The required funding is provided to these structured entities in the context of Deutsche Telekom’s general Group financing. These structured entities have no assets and liabilities other than those resulting from the purchase and sale of the receivables under factoring agreements. The structured entities transfer the legal role of creditor for the receivables in each case to a bank that performs this role on behalf of the respective investors who have beneficial ownership of the receivables (administrative agent). These investors are nine banks and six other structured entities altogether. Deutsche Telekom does not consolidate these six other structured entities because it has no control over their relevant activities. The six other structured entities are financed through the issue of commercial paper to third parties outside the Group or, alternatively, through a credit facility provided in each case by a bank.

In a further transaction, receivables are sold directly to a structured entity. This structured entity holds the receivables and allocates the risks and rewards resulting from these to Deutsche Telekom and a bank on the basis of contractual arrangements. It is financed through the issue of commercial paper to third parties outside the Group or, alternatively, through a credit facility provided by a bank. Deutsche Telekom does not consolidate the structured entity because it does not control the relevant activities.

The receivables being sold are selected from the relevant portfolios, either in an automated process in compliance with the eligibility criteria set out in the receivables purchase agreement or based on the decision of the relevant structured entity taking an obligatory minimum volume into account. Receivables are sold largely on a daily basis and are billed on a monthly basis. The purchase price up to a specific amount will be paid out immediately upon sale; remaining portions of the purchase price will only be paid to the extent that the volume of receivables sold in the relevant portfolio decreases further accordingly or the characteristics of the receivables change. In all transactions, Deutsche Telekom is obligated to buy back aged receivables and receivables for which a write-off is imminent at nominal value. Such buy-backs would not affect the allocation of the credit risk-related losses in any way, as the latter would be passed back to the buyers in line with the agreed risk allocation. The cash flows resulting from the buy-backs normally occur in the month following the buy-back. None of the structured entities has business activities other than the purchase or sale of trade receivables or other investments. In none of the transactions is Deutsche Telekom exposed to risks other than the credit risk and late-payment risk resulting from the sold receivables agreed in the respective agreement.

In other transactions, receivables are sold directly to buyers outside the Group without the involvement of structured entities. If more receivables are purchased in individual portfolios, the purchase price payment is deferred until the maximum program volume decreases further accordingly. In all those transactions, Deutsche Telekom has the right to decide whether receivables are sold and in which volume. In individual portfolios, receivables for which a write-off is imminent are sold back to Deutsche Telekom. Here the purchase price corresponds to the actual proceeds from collection or disposal and is payable after Deutsche Telekom receives these proceeds from collection or disposal. These buy-backs would affect neither the allocation of the credit risk-related losses nor Deutsche Telekom’s liquidity situation. In one portfolio, the existing credit insurance reimburses losses relating to certain receivables to a specific maximum amount and thus reduces the exposure to loss.

The risks relevant for the risk assessment with respect to the sold receivables are based on the credit risk and the late-payment risk. Deutsche Telekom bears certain portions of the credit risk in the individual transactions. The other credit risk-related losses are borne by the respective buyers. The late-payment risk in all transactions continues to be borne in full by Deutsche Telekom. Substantially all the risks and rewards of ownership of the receivables were neither transferred nor retained (allocation of the material risks and rewards between Deutsche Telekom and the buyers). Deutsche Telekom continues to perform servicing for the receivables sold. Under the factoring agreements in which structured entities are engaged, buyers have the unilateral right to transfer the servicing to third parties for no specific reason. Although Deutsche Telekom is not authorized to use the receivables sold other than in its capacity as servicer, it retains control over the receivables sold because the buyers and the structured entities do not have the practical ability to resell the purchased receivables. At the time the receivables are sold, the fair value of the expected losses is expensed. Expected future payments are presented as a component of the associated liability. In transactions with structured entities, certain portions of the purchase price are initially held back and, depending on the amount of the actual defaults, are only paid to Deutsche Telekom at a later date. To the extent that such portions of the purchase price are expected to be received in the future, they are recognized at fair value. Deutsche Telekom continues to recognize the trade receivables sold to the extent of its continuing involvement, i.e., in the maximum amount with which it is still liable for the credit risk and late-payment risk inherent in the receivables sold, and recognizes a corresponding associated liability presented in liabilities to banks. The receivables and the associated liability are then derecognized in the extent to which Deutsche Telekom’s continuing involvement is reduced (particularly when payment is made by the customer). The carrying amount of the receivables is subsequently reduced by the extent to which the actual losses to be borne by Deutsche Telekom resulting from the credit risk and the late-payment risk exceed the losses initially expected. This amount is recognized as an expense. Please refer to the table below for the disclosures on the continuing involvement resulting from the receivables sold.

Transfer of financial assets

millions of €

 

 

 

 

 

 

 

2021

 

 

Transfer of substantially all risks and rewards

Allocation of substantially all risks and rewards

 

 

Partial transfer of the credit risk and full retention of the late-payment risk

Full transfer of the credit and late-payment risk

Transfer of control

Retention of control

 

 

Partial transfer of the credit risk and full retention of the late-payment risk

Partial or full transfer of the credit risk and full retention of the late-payment risk

 

 

With the involvement of structured entities

Without the involvement of structured entities

With the involvement of structured entities

Without the involvement of structured entities

Total

End of contract terms

2023

2022

2022

2022-2025

2022

 

Contractual maximum volume

95

85

90

8,829

324

9,423

Purchase prices to be paid immediately

95

85

80

2,041

324

2,625

Volume of receivables sold as of the reporting date

101

75

79

2,799

250

3,304

Scope of volume of receivables sold in the reporting year

11-49

26-75

18-32

1.533-2.046

112-296

 

Provision for receivables management

0

0

0

0

0

0

Continuing involvement

 

 

 

 

 

 

Maximum credit risk (before credit insurance)

6

0

15

593

0

614

Credit insurance

0

29

0

0

21

50

Maximum late-payment risk

0

0

0

6

0

6

Carrying amount of the continuing involvement (asset side)

0

0

0

507

0

507

Carrying amount of the associated liability

0

0

0

599

0

599

Fair value of the associated liability

0

0

0

91

0

91

Buy-back agreements

 

 

 

 

 

 

Nominal value of receivables that can be bought back at the nominal amount

0

0

79

2,743

0

2,822

Nominal value of receivables that can be bought back at the collected amount

101

0

0

56

0

157

Purchase price discounts recognized in profit or loss, program fees, and pro rata loss allocations

 

 

 

 

 

 

Current reporting year

1

0

1

91

1

94

Cumulative since commencement of the agreement

7

3

7

1,262

4

1,283

Transfer of financial assets

millions of €

 

 

 

 

 

 

 

 

2021

 

 

 

Transfer of substantially all risks and rewards

Allocation of substantially all risks and rewards

 

 

 

Partial transfer of the credit risk and full retention of the late-payment risk

Full transfer of the credit and late-payment risk

Transfer of control

Retention of control

 

 

 

Partial transfer of the credit risk and full retention of the late-payment risk

Partial or full transfer of the credit risk and full retention of the late-payment risk

 

 

 

With the involvement of structured entities

Without the involvement of structured entities

With the involvement of structured entities

Without the involvement of structured entities

Total

 

End of contract terms

2023

2022

2022

2022-2025

2022

 

 

Contractual maximum volume

95

85

90

8,829

324

9,423

 

Purchase prices to be paid immediately

95

85

80

2,041

324

2,625

 

Volume of receivables sold as of the reporting date

101

75

79

2,799

250

3,304

 

Scope of volume of receivables sold in the reporting year

11-49

26-75

18-32

1.533-2.046

112-296

 

 

Provision for receivables management

0

0

0

0

0

0

 

Continuing involvement

 

 

 

 

 

 

 

Maximum credit risk (before credit insurance)

6

0

15

593

0

614

 

Credit insurance

0

29

0

0

21

50

 

Maximum late-payment risk

0

0

0

6

0

6

 

Carrying amount of the continuing involvement (asset side)

0

0

0

507

0

507

 

Carrying amount of the associated liability

0

0

0

599

0

599

 

Fair value of the associated liability

0

0

0

91

0

91

 

Buy-back agreements

 

 

 

 

 

 

 

Nominal value of receivables that can be bought back at the nominal amount

0

0

79

2,743

0

2,822

 

Nominal value of receivables that can be bought back at the collected amount

101

0

0

56

0

157

 

Purchase price discounts recognized in profit or loss, program fees, and pro rata loss allocations

 

 

 

 

 

 

 

Current reporting year

1

0

1

91

1

94

 

Cumulative since commencement of the agreement

7

3

7

1,262

4

1,283

 

millions of €

 

 

 

 

 

 

2020

 

 

Transfer of substantially all risks and rewards

Allocation of substantially all risks and rewards

 

 

Full transfer of the credit and late-payment risk

Transfer of control

Retention of control

 

 

Partial transfer of the credit risk and retention of most of the late-payment risk

Partial or full transfer of the credit risk and full retention of the late-payment risk

 

 

With the involvement of structured entities

Without the involvement of structured entities

Total

End of contract terms

2021-2022

2021

2021-2024

2022

 

Contractual maximum volume

180

90

4,637

324

5,231

Purchase prices to be paid immediately

180

80

1,984

324

2,568

Volume of receivables sold as of the reporting date

94

61

2,677

297

3,129

Scope of volume of receivables sold in the reporting year

36-116

22-57

1,703-2,147

185-306

 

Provision for receivables management

0

0

0

0

0

Continuing involvement

 

 

 

 

 

Maximum credit risk (before credit insurance)

0

14

819

0

833

Credit insurance

27

0

0

23

50

Maximum late-payment risk

0

0

6

1

7

Carrying amount of the continuing involvement (asset side)

0

0

816

1

817

Carrying amount of the associated liability

0

0

825

1

826

Fair value of the associated liability

0

0

9

0

9

Buy-back agreements

 

 

 

 

 

Nominal value of receivables that can be bought back at the nominal amount

0

61

2,562

0

2,623

Nominal value of receivables that can be bought back at the collected amount

0

0

116

0

116

Purchase price discounts recognized in profit or loss, program fees, and pro rata loss allocations

 

 

 

 

 

Current reporting year

0

1

114

1

116

Cumulative since commencement of the agreement

4

6

1,178

3

1,191

Carrier
A telecommunications network operator.
Glossary
Roaming
Refers to the use of a communication device or just a subscriber identity in a visited network rather than one’s home network. This requires the operators of both networks to have reached a roaming agreement and switched the necessary signaling and data connections between their networks. Roaming comes into play, for example, when cell phones and smartphones are used across national boundaries.
Glossary