Report on the audit of the consolidated financial statements and of the combined management report

To Deutsche Telekom AG, Bonn

REPORT ON THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS AND OF THE COMBINED MANAGEMENT REPORT

Audit Opinions

We have audited the consolidated financial statements of Deutsche Telekom AG, Bonn, and its subsidiaries (the Group) which comprise the consolidated balance sheet as at December 31, 2022, the consolidated statement of profit and loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the financial year from January 1 to December 31, 2022, and the notes to the consolidated financial statements, including a summary of significant accounting policies. In addition, we have audited the combined management report for the parent and the group of Deutsche Telekom AG, Bonn, for the financial year from January 1 to December 31, 2022. In accordance with the German legal requirements, we have not audited the content of the combined non-financial statement pursuant to Sections 289b and 315b German Commercial Code (HGB) included in the combined management report as well as the statement on corporate governance pursuant to Sections 289f and 315d HGB, included in section “Corporate governance statement and declaration of conformity” within the chapter “Governance and other disclosures”, including the respective declaration of conformity pursuant to Section 161 Stock Corporation Act (AktG). In addition, we have not audited the content of the disclosures described as non-management report disclosures within the chapter “Preliminary remarks” in the combined management report.

In our opinion, on the basis of the knowledge obtained in the audit,

• the accompanying consolidated financial statements comply, in all material respects, with the IFRS as adopted by the EU and the additional requirements of German commercial law pursuant to Section 315e (1) HGB and, in compliance with these requirements, give a true and fair view of the assets, liabilities and financial position of the Group as at December 31, 2022 and of its financial performance for the financial year from January 1 to December 31, 2022, and
• the accompanying combined management report as a whole provides an appropriate view of the Group’s position. In all material respects, this combined management report is consistent with the consolidated financial statements, complies with German legal requirements and appropriately presents the opportunities and risks of future development. Our audit opinion on the combined management report does not cover the content of the above-mentioned statements and non-management report disclosures.

Pursuant to Section 322 (3) sentence 1 HGB, we declare that our audit has not led to any reservations relating to the legal compliance of the consolidated financial statements and of the combined management report.

Basis for the Audit Opinions

We conducted our audit of the consolidated financial statements and of the combined management report in accordance with Section 317 HGB and the EU Audit Regulation (No. 537/2014; referred to subsequently as “EU Audit Regulation”) and in compliance with German Generally Accepted Standards for Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer (IDW). We performed the audit of the consolidated financial statements in supplementary compliance with the International Standards on Auditing (ISA). Our responsibilities under those requirements, principles and standards are further described in the “Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements and of the Combined Management Report” section of our auditor’s report. We are independent of the group entities in accordance with the requirements of European law and German commercial and professional law, and we have fulfilled our other German professional responsibilities in accordance with these requirements. In addition, in accordance with Article 10 (2) point (f) of the EU Audit Regulation, we declare that we have not provided non-audit services prohibited under Article 5 (1) of the EU Audit Regulation. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions on the consolidated financial statements and on the combined management report.

Key Audit Matters in the Audit of the Consolidated Financial Statements

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the financial year from January 1 to December 31, 2022. These matters were addressed in the context of our audit of the consolidated financial statements as a whole and in forming our audit opinion thereon; we do not provide a separate audit opinion on these matters.

In the following we present the key audit matters we have determined in the course of our audit:

1. Accounting of revenue

2. Impacts of the development of the macroeconomic environment on the valuation of certain balance sheet items

Our presentation of these key audit matters has been structured as follows:

a) description (including reference to corresponding information in the consolidated financial statements)

b) auditor’s response

1. Revenue recognition

a) Deutsche Telekom AG recognises revenues of billions of EUR 114.2 in the consolidated statement of profit and loss for the financial year 2022. These revenues are generated through the rendering of services, i.e. rendering mobile and fixed-network voice and data services and ICT services as well as with the sale of goods and merchandise. Due to the business model and its wide range of services, the accurate recognition of this revenue in the consolidated statement of profit and loss in compliance with the applicable International Financial Reporting Standard “Revenue from contracts with customers” (IFRS 15) requires the coordinated interaction of a variety of complex IT systems, in which a high number of transactions are initiated, processed and invoiced in an automated manner.

In view of this complexity and the dynamic development of the services, the recognition of revenue with the necessary IT systems was of particular significance in the scope of our audit.

The disclosures of the executive directors concerning revenue are contained in the sections “Accounting policies” and “Judgements and estimates” of the “Summary of accounting policies” chapter and in section “20 – Net revenue” of the “Notes to the consolidated statement of profit and loss” chapter of the notes to the consolidated financial statements.

b) In order to assess the risks of material misstatement, we obtained an understanding of the process flows and the internal controls in place in connection with the recognition of revenue by taking into account the corporate environment and the applicable accounting standards.

To the extent that identified controls were relevant to our audit of revenue, we tested the controls for design and implementation. This testing of design and implementation covered both manual controls (e.g. controls for maintaining tariff changes in the invoicing and accounting systems, controls for monitoring the automated IFRS 15 routines) and automated controls in the IT systems used for the purposes of revenue recognition (system-integrated input, processing and output controls for transaction processing). In the IT systems that are important to the implemented controls, we also tested the general IT controls – particularly those that secure authorised access, ensure system operation and changes in relation to these IT systems – for design and implementation by involving IT specialists.

Based on the risks of material misstatement identified in the scope of these audit procedures, we selected manual and automated controls, as well as related general, IT controls from the controls relevant to the audit in connection with the recognition of revenue. These controls were tested for operating effectiveness to assess their effectiveness in the reporting year with the support of IT specialists.

Apart from testing the operating effectiveness, we performed, inter alia, the following substantive procedures in response to identified risks of material misstatement:

• By involving IFRS specialists, we assessed for selected business models as to whether the accounting policies defined for these models by the executive directors of Deutsche Telekom AG result in revenue recognition according to the requirements of the relevant IFRS 15 financial reporting standard;
• We tested the reconciliation of transaction data recorded in the upstream systems to the revenue reported in the general ledger for accuracy and completeness. This also included the examination of manual adjustment postings for revenue cut-off;
• To further audit revenue, we used data analysis tools to generate evaluations of different revenue flows over time and analysed deviations from expected customer and revenue trends. We examined the customer and contract data used in the analyses by comparing the related contracts with the corresponding data in the master data systems on a sample basis.

2. Impact of the development of the macroeconomic environment on the measurement of certain balance sheet items

a) The consolidated financial statements of Deutsche Telekom AG contain accounts, the measurement of which is affected, among other things, by the development of macroeconomic conditions. In the light of the current geopolitical uncertainty, this initially relates to the economic development. In addition, the estimate of the trend of the inflation rates (especially given the currently rising energy, investment and personnel costs) and significantly higher interest rate levels have an impact on measurement.

In particular, the following items recognised in the consolidated financial statements of Deutsche Telekom AG are affected:

• Goodwill of mEUR 20,647 (prior year: mEUR 20,531) and long-term equity investments accounted for using the equity method of accounting of mEUR 1,318 (prior year: mEUR 938) included in intangible assets,
• Provisions for pensions and similar obligations of mEUR 4,150 (prior year: mEUR 6,134), and
• Lease liabilities of mEUR 38,792 (prior year: mEUR 33,134).

Goodwill is tested for impairment once a year and, if necessary, on the occasion of events that cause an impairment in accordance with IAS 36. Long-term equity investments accounted for using the equity method – in particular the long-term equity investment in GlasfaserPlus GmbH, Cologne (GlasfaserPlus) – are tested for any impairment on the occasion of events that cause an impairment. For this purpose, future cash flows are estimated at the cash-generating unit level and discounted at the weighted average cost of capital of the Company (WACC) at the date of measurement. The future cash flows are derived from the current medium-term plans adopted by the executive directors, which are based on assumptions made by the executive directors on the future market and corporate development. In particular, the economic development influences revenue and cash inflows, whereas the expenses and cash outflows are increased by the assumed inflation rate. Furthermore, the increase in the general interest rate level affects the weighted average cost of capital of the cash-generating unit.

Both the measurement of pension provisions and the measurement of lease liabilities are affected by the change in the interest rate level, with relatively small changes in the interest rate level being likely to have a significant impact on measurement, especially in the case of long-term forecasts and commitments.

In the case of the impairment tests, the results of the measurement are highly dependent on the judgment of future cash inflows by the executive directors and, in respect of all items listed above, on the respective discount rate determined by the executive directors and are therefore subject to uncertainties. Against this background and due to the complexity of the underlying measurement models, the effects of the development of the macroeconomic environment on the listed balance sheet items are of particular significance in the scope of our audit.

The disclosures provided by the executive directors on the goodwill and long-term equity investments in companies accounted for using the equity method, on pension provisions and on lease liabilities are included in the sections “Accounting policies” and “Judgements and estimates” of the “Summary of accounting policies” chapter and in section “6 – Intangible assets”, “10 – Investments accounted for using the equity method”, “13 – Financial liabilities and lease liabilities”, and “15 – Provisions for pensions and other employee benefits” of the “Notes to the consolidated financial statements”.

b) At the beginning and during our audit, we assessed to what extent the measurement processes were influenced by subjectivity, complexity, or other inherent risk factors.

With regard to the forecast of future cash flows within the scope of the impairment tests, we first assessed the reliability of the planning by means of reviews of adherence to the budget planning in the past. Subsequently, we documented the underlying planning process and critically assessed it. In addition, we assessed selected planning assumptions based on general and industry-specific market expectations for plausibility. In this context, we particularly looked at the consideration of possible impacts of external effects on the economic development. In addition, we performed sensitivity analyses. Finally, we compared the projected cash inflows in the measurement models with the medium-term planning of the Company approved by the executive directors.

In the audit of the WACC as part of the impairment tests and the discount rates used to measure pension provisions and lease liabilities, we examined the overall appropriateness of the interest rates used and obtained an understanding of the related calculation methodology.

In addition, we prepared bandwidths for selected discount interest rates and examined whether the actual discount rates used are within these ranges.

Due to the particularly high interest sensitivity of the measurement model for the long-term equity investment in GlasfaserPlus accounted for using the equity method, we additionally performed our own sensitivity analyses to ensure that the impairment determined by Deutsche Telekom AG, Bonn, is within an appropriate range.

As part of our audit, we involved internal valuation specialists. With their support, we obtained an understanding of the valuation method used at Deutsche Telekom AG, Bonn, for impairment testing purposes and the valuation of pension provisions and of the processes in place to determine the recoverable amounts.

Other Information

The executive directors and/or the supervisory board are responsible for the other information. The other information comprises

• the report of the supervisory board,
• the combined non-financial statement pursuant to Sections 289b and 315b HGB included in the combined management report,
• the non-management report disclosures included in the section “Preliminary remarks” of the combined management report,
• the corporate governance statement pursuant to Sections 289f and 315d HGB included in the chapter “Governance and other disclosures” of the combined management report, including the respective declaration of conformity according to Section 161 AktG,
• the executive directors’ confirmation regarding the consolidated financial statements and the combined management report pursuant to Section 297 (2)  sentence 4 and Section 315 (1) sentence 5 HGB, and
• all other parts of the annual report,
• but not the consolidated financial statements, not the audited content of the combined management report and not our auditor’s report thereon.

The supervisory board is responsible for the report of the supervisory board. The executive directors and the supervisory board are responsible for the statement according to Section 161 AktG concerning the German Corporate Governance Code within the chapter “Governance and other disclosures” of the combined management report. Otherwise, the executive directors are responsible for the other information.

Our audit opinions on the consolidated financial statements and on the combined management report do not cover the other information, and consequently we do not express an audit opinion or any other form of assurance conclusion thereon.

In connection with our audit, our responsibility is to read the other information identified above and, in doing so, to consider whether the other information

• is materially inconsistent with the consolidated financial statements, with the audited content of the combined management report or our knowledge obtained in the audit, or
• otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the Executive Directors and the Supervisory Board for the Consolidated Financial Statements and the Combined Management Report

The executive directors are responsible for the preparation of the consolidated financial statements that comply, in all material respects, with IFRS as adopted by the EU and the additional requirements of German commercial law pursuant to Section 315e (1) HGB, and that the consolidated financial statements, in compliance with these requirements, give a true and fair view of the assets, liabilities, financial position and financial performance of the Group. In addition, the executive directors are responsible for such internal control as they have determined necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud (i.e., fraudulent financial reporting and misappropriation of assets) or error.

In preparing the consolidated financial statements, the executive directors are responsible for assessing the Group’s ability to continue as a going concern. They also have the responsibility for disclosing, as applicable, matters related to going concern. In addition, they are responsible for financial reporting based on the going concern basis of accounting unless there is an intention to liquidate the Group or to cease operations, or there is no realistic alternative but to do so.

Furthermore, the executive directors are responsible for the preparation of the combined management report that as a whole provides an appropriate view of the Group’s position and is, in all material respects, consistent with the consolidated financial statements, complies with German legal requirements, and appropriately presents the opportunities and risks of future development. In addition, the executive directors are responsible for such arrangements and measures (systems) as they have considered necessary to enable the preparation of a combined management report that is in accordance with the applicable German legal requirements, and to be able to provide sufficient appropriate evidence for the assertions in the combined management report.

The supervisory board is responsible for overseeing the Group’s financial reporting process for the preparation of the consolidated financial statements and of the combined management report.

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements and of the Combined Management Report

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and whether the combined management report as a whole provides an appropriate view of the Group’s position and, in all material respects, is consistent with the consolidated financial statements and the knowledge obtained in the audit, complies with the German legal requirements and appropriately presents the opportunities and risks of future development, as well as to issue an auditor’s report that includes our audit opinions on the consolidated financial statements and on the combined management report.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Section 317 HGB and the EU Audit Regulation and in compliance with German Generally Accepted Standards for Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer (IDW) and in supplementary compliance with the ISA will always detect a material misstatement. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements and this combined management report.

We exercise professional judgment and maintain professional scepticism throughout the audit. We also

• identify and assess the risks of material misstatement of the consolidated financial statements and of the combined management report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our audit opinions. The risk of not detecting a material misstatement resulting from fraud is higher than the risk of not detecting a material misstatement resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls.
• obtain an understanding of internal control relevant to the audit of the consolidated financial statements and of arrangements and measures relevant to the audit of the combined management report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an audit opinion on the effectiveness of these systems.
• evaluate the appropriateness of accounting policies used by the executive directors and the reasonableness of estimates made by the executive directors and related disclosures.
• conclude on the appropriateness of the executive directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in the auditor’s report to the related disclosures in the consolidated financial statements and in the combined management report or, if such disclosures are inadequate, to modify our respective audit opinions. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to be able to continue as a going concern.
• evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements present the underlying transactions and events in a manner that the consolidated financial statements give a true and fair view of the assets, liabilities, financial position and financial performance of the Group in compliance with IFRS as adopted by the EU and with the additional requirements of German commercial law pursuant to Section 315e (1) HGB.
• obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express audit opinions on the consolidated financial statements and on the combined management report. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinions.
• evaluate the consistency of the combined management report with the consolidated financial statements, its conformity with German law, and the view of the Group’s position it provides.
• perform audit procedures on the prospective information presented by the executive directors in the combined management report. On the basis of sufficient appropriate audit evidence we evaluate, in particular, the significant assumptions used by the executive directors as a basis for the prospective information, and evaluate the proper derivation of the prospective information from these assumptions. We do not express a separate audit opinion on the prospective information and on the assumptions used as a basis. There is a substantial unavoidable risk that future events will differ materially from the prospective information.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We provide those charged with governance with a statement that we have complied with the relevant independence requirements, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, the actions taken or safeguards applied to eliminate independence threats.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements for the current period and are therefore the key audit matters. We describe these matters in the auditor’s report unless law or regulation precludes public disclosure about the matter.

OTHER LEGAL AND REGULATORY REQUIREMENTS

Report on the Audit of the Electronic Reproductions of the Consolidated Financial Statements and of the Combined Management Report Prepared for Publication Pursuant to Section 317 (3a) HGB

Audit Opinion

We have performed an audit in accordance with Section 317 (3a) HGB to obtain reasonable assurance whether the electronic reproductions of the consolidated financial statements and of the combined management report (hereinafter referred to as “ESEF documents”) prepared for publication, contained in the file, which has the SHA-256 value AA12A46272BE9689039D55CAB4AAE 04971F9022687F18A3C2BCA3F2EF02F4575, meet, in all material respects, the requirements for the electronic reporting format pursuant to Section 328 (1) HGB (“ESEF format”). In accordance with the German legal requirements, this audit only covers the conversion of the information contained in the consolidated financial statements and the combined management report into the ESEF format, and therefore covers neither the information contained in these electronic reproductions nor any other information contained in the file identified above.

In our opinion, the electronic reproductions of the consolidated financial statements and of the combined management report prepared for publication contained in the file identified above meet, in all material respects, the requirements for the electronic reporting format pursuant to Section 328 (1) HGB. Beyond this audit opinion and our audit opinions on the accompanying consolidated financial statements and on the accompanying combined management report for the financial year from January 1 to December 31, 2022 contained in the “Report on the Audit of the Consolidated Financial Statements and of the Combined Management Report” above, we do not express any assurance opinion on the information contained within these electronic reproductions or on any other information contained in the file identified above.

Basis for the Audit Opinion

We conducted our audit of the electronic reproductions of the consolidated financial statements and of the combined management report contained in the file identified above in accordance with Section 317 (3a) HGB and on the basis of the IDW Auditing Standard: Audit of the Electronic Reproductions of Financial Statements and Management Reports Prepared for Publication Purposes Pursuant to Section 317 (3a) HGB (IDW AuS 410 (06.2022)). Our responsibilities in this context are further described in the “Group Auditor’s Responsibilities for the Audit of the ESEF Documents” section. Our audit firm has applied the IDW Standard on Quality Management: Requirements for Quality Management in the Audit Firm (IDW QS 1).

Responsibilities of the Executive Directors and the Supervisory Board for the ESEF Documents

The executive directors of the parent are responsible for the preparation of the ESEF documents based on the electronic files of the consolidated financial statements and of the combined management report according to Section 328 (1) sentence 4 no. 1 HGB and for the tagging of the consolidated financial statements according to Section 328 (1) sentence 4 no. 2 HGB.

In addition, the executive directors of the parent are responsible for such internal controls that they have considered necessary to enable the preparation of ESEF documents that are free from material intentional or unintentional non-compliance with the requirements for the electronic reporting format pursuant to Section 328 (1) HGB.

The supervisory board is responsible for overseeing the process for the preparation of the ESEF documents as part of the financial reporting process.

Group Auditor’s Responsibilities for the Audit of the ESEF Documents

Our objective is to obtain reasonable assurance about whether the ESEF documents are free from material intentional or unintentional non-compliance with the requirements of Section 328 (1) HGB. We exercise professional judgment and maintain professional scepticism throughout the audit. We also

• identify and assess the risks of material intentional or unintentional non-compliance with the requirements of Section 328 (1) HGB, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our audit opinion.
• obtain an understanding of internal control relevant to the audit on the ESEF documents in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an assurance opinion on the effectiveness of these controls.
• evaluate the technical validity of the ESEF documents, i.e. whether the file containing the ESEF documents meets the requirements of the Delegated Regulation (EU) 2019/815, in the version in force at the balance sheet date, on the technical specification for this electronic file.
• evaluate whether the ESEF documents enable a XHTML reproduction with content equivalent to the audited consolidated financial statements and to the audited combined management report.
• evaluate whether the tagging of the ESEF documents with Inline XBRL technology (iXBRL) in accordance with the requirements of Articles 4 and 6 of the Delegated Regulation (EU) 2019/815, in the version in force at the balance sheet date, enables an appropriate and complete machine-readable XBRL copy of the XHTML reproduction.

Further information pursuant to Article 10 of the EU Audit Regulation

We were elected as Group auditor by the annual general meeting on April 7, 2022. We were engaged by the supervisory board on July 11, 2022. We have been the Group auditor of Deutsche Telekom AG, Bonn, since the financial year 2022.

We declare that the audit opinions expressed in this auditor’s report are consistent with the additional report to the audit committee pursuant to Article 11 of the EU Audit Regulation (long-form audit report).

OTHER MATTER – USE OF THE AUDITOR’S REPORT

Our auditor’s report must always be read together with the audited consolidated financial statements and the audited combined management report as well as with the audited ESEF documents. The consolidated financial statements and the combined management report converted into the ESEF format – including the versions to be submitted for inclusion in the Company Register – are merely electronic reproductions of the audited consolidated financial statements and the audited combined management report and do not take their place. In particular, the ESEF report and our audit opinion contained therein are to be used solely together with the audited ESEF documents made available in electronic form.

GERMAN PUBLIC AUDITOR RESPONSIBLE FOR THE ENGAGEMENT

The German Public Auditor responsible for the engagement is Dr. Tim Hoffmann.

Düsseldorf, February 21, 2023

Deloitte GmbH
Wirtschaftsprüfungsgesellschaft