Explanations of items in the balance sheet

18. Cash and cash equivalents

As of the reporting date, cash and cash equivalents amounted to € 131,270k (prior year: € 117,573k). Cash and cash equivalents consist of bank balances, checks, and cash in hand. Bank balances generally bear variable interest rates for call money. As in the previous year, the current low interest rate level – which is even negative at present for amounts denominated in euros – meant that no interest was earned on bank balances.

The development and application of cash and cash equivalents is stated in the Consolidated Cash Flow Statement.

19. Trade accounts receivable

€k

2020

2019

Trade accounts receivable

473,283

484,181

Less

Bad debt allowances

-74,487

-80,480

Trade accounts receivable, net

398,796

403,701

thereof trade accounts receivable - current

344,838

346,004

thereof trade accounts receivable - non-current

53,959

57,697

As of December 31, 2020 bad debt allowances for trade accounts receivable amounted to € 74,487k (prior year: € 80,480k). The development of bad debt allowances can be seen below:

€k

2020

2019

As of January 1

80,480

69,945

Utilization

-56,446

-52,174

Additions charged to the income statement

56,211

65,893

Reversals

-5,401

-3,287

Exchange rate differences

-357

103

As of December 31

74,487

80,480

Additions charged to the income statement of each period under review do not comprise receivables arising during the year and eliminated before the reporting date.

As of December 31, the age profile of trade accounts receivable less the aforementioned allowances was as follows:

€k

2020

2019

Trade accounts receivable, net

351,697

347,844

6 – 15 days

9,499

10,929

16 – 30 days

7,259

7,774

31 – 180 days

17,214

23,322

181 – 365 days

8,694

10,790

> 365 days

4,435

3,042

398,796

403,701

20. Contract assets

€k

2020

2019

Contract assets

832,002

727,508

Less

Bad debt allowances

57,893

45,429

Contract assets, net

774,109

682,079

thereof contract assets - current

577,601

507,829

thereof contract assets - non-current

196,508

174,251

The development of bad debt allowances was as follows:

€k

2020

2019

As of January 1

45,429

33,083

Utilization

-20,588

-15,993

Additions charged to the income statement

33,052

28,339

As of December 31

57,893

45,429

21. Inventories

As of December 31, inventories consisted of the following items:

€k

2020

2019

Merchandise

Mobile telephony / mobile internet

75,151

72,327

DSL hardware

6,277

8,408

SIM cards

4,680

3,322

IP-TV

3,084

922

Other

437

308

Domain stock held for sale

3,211

3,300

92,839

88,589

Less

Bad debt allowances

-9,724

-11,423

Payments on account

2,274

2,102

Inventories, net

85,390

79,268

Goods recognized as material expense from inventories in cost of sales amounted to € 794,244k in the reporting period (prior year: € 734,579k). Of this total, an amount of € 2,205k (prior year: € 4,616k) refers to impairment of inventories.

Allowances include € 6,525k (prior year: € 8,114k) for mobile telephony/mobile internet and IP-TV, and € 3,199k (prior year: € 3,266k) for domain stock.

22. Prepaid expenses

Current prepaid expenses of € 214,382k (prior year: € 237,036k) consist mainly of contract initiation costs of € 93,594k (prior year: € 92,106k), contract fulfillment costs of € 55,441k (prior year: € 60,747k), and prepayments for wholesale fees of € 12,472k (prior year: € 45,957k), which were deferred and charged to the income statement on the basis of the underlying contractual period.

Non-current prepaid expenses of €144,795k (prior year: €284,252k) consist mainly of contract initiation costs of €85,767k (prior year: €83,480k), contract fulfillment costs of €40,375k (prior year: €46,829k). In contrast to the previous year, there were no prepayments as part of long-term purchasing contracts with pre-service providers of (prior year: €136,444k). Non-current prepaid expenses were reduced by an unscheduled reversal of prepaid advance payments for an advance service agreement amounting to €129,871k. These were reversed in the past over the originally agreed term of the agreement. Due to the premature termination in connection with the conclusion of a new long-term advance service agreement, a reassessment was made with regard to the term of the agreement, which led to the unscheduled reversal. For further information, please refer to Note 6.

At the end of the reporting period, the final balances of capitalized contract initiation costs amounted to € 179,361k (prior year: € 175,586k) and of capitalized contract fulfillment costs to € 95,816k (prior year: € 107,576k). In the fiscal year 2020, amortization of capitalized contract initiation costs amounted to € 84,872k (prior year: € 83,699k). Amortization of capitalized contract fulfillment costs amounted to € 69,557k in the fiscal year 2020 (prior year: € 85,283k).

The final balances of prepayments for wholesale fees amounted to € 12,472k as of the reporting date (prior year: € 182,401k). A total of € 40,038k was expensed in fiscal year 2020 (prior year: € 37,853k).

23. Other current assets

23.1 Other current financial assets

€k

2020

2019

Derivatives

30,832

0

Receivables from pre-service providers

16,420

13,428

Creditors with debit balances

12,021

13,075

Payments on account

8,688

6,065

Deposits

820

837

Other

13,481

14,736

Other financial assets, net

82,262

48,141

The derivatives mainly relate to the embedded derivatives agreed as part of Warburg Pincus’ investment in the Business Applications segment. As of the balance sheet date, these derivatives were reclassified from non-current to current assets due to their underlying maturity. For further information, please refer to Note 34.

The increase in receivables from pre-service providers mainly relates to advertising cost subsidies.

The creditors with debit balances mainly relate to financial recovery claims from suppliers.

23.2 Other current non-financial assets

€k

2020

2019

Receivables from tax office

7,941

9,947

Return claims hardware

4,410

3,825

Other non-financial assets, net

12,351

13,772

24. Shares in associated companies and non-current assets held for sale

The Group holds interests in several associated companies. The main investment remaining in 2020 is AWIN AG, Berlin, which the Group holds via its subsidiary 1&1 Mail & Media Applications SE, Montabaur.

AWIN AG, Berlin, is a global affiliate marketing network which offers services in the field of e-commerce and online marketing. AWIN is the world’s largest affiliate marketer, linking network advertisers and publishers around the world.

The following table contains summarized financial information on AWIN AG on the basis of a 100% shareholding as of December 31, 2020:

Summarized financial information on the main associated companies:

AWIN AG
€k

Current assets

418,252

Non-current assets

337,583

Current liabilities

365,506

Non-current liabilities

63,149

Shareholders’ equity

327,180

Sales

145,571

Other comprehensive income

-9,828

Net profit/loss

23,140

Total comprehensive income

13,312

AWIN sold a subsidiary during the reporting period. This led to a decline in revenue, while net income rose strongly over the same period.

A reconciliation with the carrying amount in the Consolidated Financial Statements as of December 31, 2020 – with an estimation of investment results for the fourth quarter – is presented below:

€k

AWIN AG

United Internet Group’s share in the net asset values

65,436

Impairment / impairment reversal effects

0

Closing date-related reconciliation effects

0

Carrying amount on Dec. 31, 2020

65,436

Dividend received in 2020

0

The prior-year figures also include shares in Tele Columbus AG, Berlin, which are disclosed separately in the reporting period as non-current assets held for sale. As of December 31, 2020, United Internet has a shareholding in Tele Columbus AG of 29.90%.

As an anchor investor in Tele Columbus AG, United Internet AG signed an agreement with Morgan Stanley Infrastructure Partners on December 21, 2020 to provide sustained support for the implementation of Tele Columbus’s Fiber Champion strategy. With this strategy, Tele Columbus plans to play a major role in driving the expansion of Germany’s fiber optic infrastructure.

UNA 422. Equity Management GmbH, a bidding company which will trade in future as Kublai GmbH and behind which is Morgan Stanley Infrastructure Partners, announced a voluntary public takeover offer of € 3.25 per Tele Columbus share on December 21, 2020. The takeover offer of Kublai GmbH was published on February 1, 2021.

If the takeover offer is successful, United Internet will contribute or sell its stake in Tele Columbus of around 29.90% to the bidding company. In return, United Internet will receive a shareholding in the bidding company. Following successful completion of the transaction, United Internet can increase its stake in the bidding company at its own discretion so that it has an indirect shareholding in Tele Columbus of between 29.9% and 40%.

The sale of shares in Tele Columbus and United Internet’s participation in the bidding company are subject to conclusion of the takeover offer. Management anticipates a successful takeover and approval by the supervisory authorities.

In accordance with IAS 28.20, shares in associated companies are to be recognized in the Consolidated Financial Statements by way of exception pursuant to IFRS 5, i.e., at fair value less costs to sell, if the shares qualify as non-current assets held for sale and the intention to sell exists as of the balance sheet date. The acceptance period of Kublai GmbH begins on February 1, 2021 and is expected to end on March 15, 2021. Following this, Tele Columbus shareholders who did not accept the offer during the acceptance period can still accept the offer within two weeks of publishing the result (extended acceptance period). Due to the existing agreement between United Internet and Morgan Stanley, United Internet reclassified the shares in Tele Columbus AG as of December 31, 2020 pursuant to IFRS 5 as assets held for sale.

At the time of reclassification, the assets were measured at fair value. Tele Columbus was already impaired in the past. In the reporting period, an impairment reversal of €29.2 million was recognized due to the higher offer price. By contrast, the prorated result of Tele Columbus led to a burden on earnings of € 11.8 million. Both effects are recognized in the result from associated companies. The carrying amount of shares in Tele Columbus as at the balance sheet date increased by € 17.3 million, from € 106.6 million to € 123.9 million. In the previous year, shares in Tele Columbus were disclosed under non-current assets of the Corporate segment.

The following table contains summarized financial information on the main associated companies on the basis of a 100% shareholding as of December 31, 2019:

Summarized financial information on the main associated companies:

Tele Columbus AG
€k

AWIN AG
€k

Current assets

112,366

374,777

Non-current assets

2,608,011

361,849

Current liabilities

171,093

330,861

Non-current liabilities

1,618,927

91,900

Shareholders’ equity

930,357

313,865

Sales

369,695

193,998

Other comprehensive income

-1,021

4,897

Net profit/loss

-50,882

6,744

Total comprehensive income

-51,903

11,640

Tele Columbus AG is an independent broadband cable network operator active in the German multimedia and communication sector with most of its network infrastructures in eastern Germany (Berlin, Brandenburg, Saxony, Saxony-Anhalt, and Thuringia), as well as in North Rhine-Westphalia and Hesse. Tele Columbus offers its customers digital TV program packages, as well as internet and telephone connections.

The shareholding in Tele Columbus AG corresponds to the proportion of voting rights. As in the previous year, it is valued using the equity method. As of the reporting date, the Group’s total stake in Tele Columbus amounted to 29.9% (prior year: 29.9%).

As financial information on Tele Columbus AG as of December 31, 2019 had not yet been published at the time of preparing the Consolidated Financial Statements of the previous year, the summarized financial information was estimated on the basis of the company’s quarterly statements as of September 30, 2019, taking account of adjustments which the United Internet Group believed to be necessary at this time.

A reconciliation of the main associated companies with the carrying amounts in the Consolidated Financial Statements as of December 31, 2019 – with an estimation of investment results for the fourth quarter – is presented below:

€k

Tele Columbus AG

AWIN AG

United Internet Group’s share in the net asset values

278,177

62,773

Impairment / reversal effects

-165,614

0

Closing date-related reconciliation effects

-5,923

0

Carrying amount on Dec. 31, 2019

106,639

62,773

Fair value of shares as of Dec. 31, 2019

106,639

62,773

Dividend received in 2019

0

0

As of December 31, 2020, other associated companies disclosed an aggregated carrying amount of € 24,131k (prior year: € 26,624k) and an aggregated loss of € 3,477k (prior year: € 5,107k). The earnings/loss contributions of other associated companies are only included in the aggregated loss on a prorated basis. Financial information is based in part on local accounting regulations as a reconciliation of this financial information with IFRS would incur disproportionately high costs.

25. Other non-current financial assets

The development of other non-current financial assets was as follows:

€k

Jan. 1, 2020

Additions

Change in revaluation reserve

Change affecting income/ Impairment

Reclassifications

Disposal

Dec. 31, 2020

Afilias shares

44,622

32,855

-76,924

-553

0

Derivatives

31,450

-618

-30,832

0

Other

14,341

354

-2,384

-2,411

9,901

90,414

354

32,855

-618

-110,140

-2,964

9,901

The shares in the Afilias Group were sold at the end of the reporting period. The proceeds from disposal amounted to € 77,477k. The profit realized on disposal of € 76,924k, including the share of minority shareholders totaling € 27,835k, was recognized in equity. The profit attributable to shareholders of the parent company amounting to € 49,089k was reclassified from the revaluation reserve to revenue reserves.

As of the balance sheet date, derivatives were reclassified from non-current to current assets due to their remaining term.

€k

Jan. 1, 2019

Additions

Change in revaluation reserve

Change affecting income/ Impairment

Reclassifications

Disposal

Dec. 31, 2019

Afilias shares

42,796

1,826

44,622

Rocket shares

276,866

26,860

-83,784

-219,943

0

Derivatives

15,790

15,660

31,450

Other

12,594

3,631

-1,359

-525

14,341

348,046

3,631

27,328

15,660

-83,784

-220,468

90,414

In the previous year, United Internet sold its shares in Rocket Internet SE in several steps (share of voting rights as of December 31, 2018: 9.0%). United Internet Investments Holding AG & Co. KG had already sold 2,500,000 shares at a price of € 25 per share in July 2019. In the fourth quarter of 2019, the public share buyback offer of Rocket Internet amounting to 15,076,729 shares was accepted for all remaining 11,219,841 Rocket Internet shares held by the Company against payment of the offer price of € 21.50 per share. Due to the oversubscription of its buyback offer, Rocket Internet was only able to consider the acceptance declaration of United Internet Investments Holding for a total of 8,764,483 shares. The 2,455,358 Rocket Internet shares still held after the completion of the share buyback offer were acquired by Mr. Oliver Samwer at the end of 2019 as agreed at the offer price.

26. Property, plant and equipment

€k

2020

2019

Acquisition costs

- Telecommunication equipment

886,000

782,964

- Right of use

718,594

552,352

- Operational and office equipment

551,142

505,888

- Network infrastructure

228,254

212,540

- Payments on account

63,250

50,281

- Land and buildings

20,176

19,289

2,467,416

2,123,314

Less

Accumulated depreciation

-1,195,849

-962,710

Property, plant and equipment, net

1,271,567

1,160,604

* Prior-year figures adjusted; see Note 45

Further details and an alternative presentation of the development of property, plant and equipment in the fiscal years 2020 and 2019 can be found in the exhibit to the Notes to the Consolidated Financial Statements (Development of Non-current Assets).

The carrying value of property, plant and equipment held as lessee as part of lease arrangements amounts to € 461.7 million as of December 31, 2020 (prior year: € 350.0 million).

As of the reporting date, there are purchase obligations for property, plant and equipment totaling € 138.9 million (prior year: € 113.3 million).

27. Intangible assets (without goodwill)

€k

2020

2019

Acquisition costs

- Customer base

1,235,607

1,238,652

- Spectrum licenses

1,070,187

1,070,187

- Software / licenses

252,913

276,740

- Trademarks

210,457

213,497

- Rights similar to concessions

165,000

0

- Internally generated intangible assets

42,008

23,936

- Payments on account

17,438

7,046

- Right of use

9,282

0

- Other intangible assets

73,777

73,205

3,076,669

2,903,263

Less

Accumulated depreciation

-878,851

-735,871

Intangible assets, net

2,197,818

2,167,392

Further details and an alternative presentation of the development of intangible assets in the fiscal years 2020 and 2019 can be found in the exhibit to the Notes to the Consolidated Financial Statements (Development of Non-current Assets).

The carrying amount of the customer base results from the following company acquisitions::

€k

Dec. 31, 2020

Dec. 31, 2019

1&1 Drillisch

411,919

492,351

Strato

109,882

128,285

1&1 Versatel

101,740

107,366

World4You

19,631

21,479

home.pl

14,256

18,301

Arsys

7,004

11,550

Other

0

13,827

664,432

793,159

The residual amortization period for the customer base from the acquisition of the Drillisch Group (now 1&1 Drillisch) amounts to 2 to 10 years, depending on the customer groups, whereby 5 years applies to the major share. The residual amortization period for the customer base from the acquisition of STRATO AG amounts to 1 to 10 years, depending on the product groups, whereby 8 years applies to the major share. The residual amortization period for the customer base of the home.pl transaction amounts to 5 years and for Arsys 2 years. The residual amortization period for the customer base from the acquisition of the Versatel Group amounts to 1 to 19 years, depending on the products and services, whereby 19 years applies to the major share.

The carrying amounts of intangible assets with indefinite useful lives (trademarks) totaled € 207,988k (prior year: € 211,029k). Intangible assets with indefinite useful lives were subjected to an impairment test on the level of the cash-generating units as of the reporting date.

Spectrum licenses

In the previous year, the United Internet subsidiary 1&1 Drillisch participated in the 5G spectrum auction and purchased two frequency blocks of 2 x 5 MHz in the 2 GHz band, which are limited until December 31, 2040, and five frequency blocks of 10 MHz in the 3.6 GHz band, , which are limited until 2040. While the 3.6 GHz spectrum is already available, the frequency blocks in the 2 GHz band will only be available from January 1, 2026.

The intangible assets resulting from the purchase were recognized at cost.

As in the previous year, the carrying amounts of the frequency blocks as of December 31, 2020 are comprised as follows:

Frequency block

Amount in €k

3.6 GHz

735,190

2 GHz

334,997

1,070,187

There was no amortization in the 2020 financial year. The acquired frequency blocks will not be amortized until actual network operation commences and if these frequency blocks are also available at that time. The spectrum licenses are not yet usable and were therefore subjected to an impairment test in the fiscal year 2020. The impairment test was performed on the balance sheet date on the level of the cash-generating unit 5G. It did not result in any impairment in the fiscal year.

The following table provides an overview of trademarks according to the cash-generating units:

€k

Dec. 31, 2020

Dec. 31, 2019

1&1 Versatel

62,000

62,000

1&1 Drillisch

56,300

56,300

Mail.com

22,270

24,347

Strato

20,070

20,070

WEB.DE

17,173

17,173

home.pl

10,619

11,359

Arsys

7,553

7,553

united-domains

4,198

4,198

Fasthosts

3,848

4,071

World4You

3,494

3,494

Cronon

463

463

207,988

211,028

The useful life of trademarks is determined as being indefinite, as there are no indications that the flow of benefits will end in future.

Internally generated intangible assets relate to capitalized costs from software.

The rights similar to concessions result from a one-off payment in connection with the exercise of the first prolongation option of the MBA MVNO agreement in order to secure direct access to 5G technology and as a necessary component for the establishment of the Group’s own mobile communications network.

As of the balance sheet date, there were purchase commitments for intangible assets amounting to € 0.8 million (prior year: € 165.3 million).

28. Goodwill

Further details and an alternative presentation of the development of goodwill in the fiscal years 2020 and 2019 can be found in the exhibit to the Notes to the Consolidated Financial Statements (Development of Non-current Assets).

29. Impairment of goodwill and intangible assets with indefinite useful lives, as well as intangible assets not yet usable (spectrum licenses)

Goodwill and intangible assets with indefinite useful lives are subjected to an impairment test at least once per year. With reference to its internal budgeting process, the Group has chosen the last quarter of the fiscal year to conduct its statutory annual impairment test.

Goodwill acquired in the course of business combinations is allocated for impairment test purposes to cash-generating units.

In the previous year, the goodwill of 1&1 IONOS Cloud GmbH was allocated in full to the cash-generating unit 1&1 Hosting. Due to the merger of 1&1 IONOS Cloud GmbH (formerly ProfitBricks GmbH) and 1&1 IONOS SE as of January 1, 2019, the former separate cash-generating unit 1&1 IONOS Cloud GmbH was regarded as being part of the cash-generating unit 1&1 Hosting as of December 31, 2019. The impairment test is thus conducted on the level of the cash-generating unit 1&1 Hosting. Prior to the merger of goodwill of both cash-generating units, an impairment test was conducted on the goodwill of both units without any indication of an impairment need.

Impairment charges are always disclosed separately in the Income Statement and the Statement on the Development of Non-current Assets.

Goodwill as of December 31 is allocated to the cash-generating units as follows:

€k

Dec. 31, 2020

Dec. 31, 2019

Consumer Access

1&1 Consumer Access

2,178,460

2,178,460

2,178,460

2,178,460

Business Access

1&1 Versatel

398,261

398,261

398,261

398,261

Consumer Applications

1&1 Mail & Media

225,517

225,517

Mail.com

307

336

225,824

225,853

Business Applications

Strato

401,570

401,570

home.pl

117,979

121,760

Arsys

100,495

100,495

Fasthosts

60,524

64,044

World4You

51,250

51,250

united-domains

35,925

35,925

1&1 Hosting

28,562

28,562

InterNetX

5,237

5,237

Domain marketing

5,098

5,098

Cronon

252

0

806,892

813,941

Carrying amount according to balance sheet

3,609,437

3,616,515

Goodwill after company acquisitions

The carrying amounts of goodwill according to cash-generating unit result from various transactions over the past years. The Group’s goodwill is mainly the result of the following company acquisitions:

  • The goodwill of the cash-generating unit Cronon results from the acquisition of ASC Consulting in 2020.
  • The goodwill of the cash-generating unit World4You results from the acquisition of World4You in in 2018.
  • The goodwill of the cash-generating unit 1&1 Consumer Access (formerly Drillisch) results from the acquisition of the Drillisch Group in 2017 and the merger of the cash-generating units 1&1 Telecom and Drillisch in 2018.
  • The goodwill of the cash-generating unit 1&1 IONOS Cloud (formerly: ProfitBricks) results from the acquisition of the ProfitBricks Group in 2017. Due to the merger in fiscal year 2019, the cash-generating unit 1&1 IONOS Cloud has been incorporated into the cash-generating unit 1&1 Hosting.
  • The goodwill of the cash-generating units Versatel and 1&1 Telecom reflect goodwill from the acquisition of the Versatel Group in 2014. In the fiscal year 2018, goodwill of the cash-generating unit 1&1 Telecom was combined with the cash-generating unit 1&1 Consumer Access.
  • The goodwill of the cash-generating unit STRATO results from the acquisition of the STRATO Group in 2017.
  • The goodwill of the cash-generating unit home.pl results from the acquisition of home.pl S.A. in 2015.
  • The goodwill of the cash-generating unit Arsys results from the acquisition of Arsys Internet S.L. in 2013.
  • The goodwill of the cash-generating unit united-domains results from the acquisition of united-domains AG in 2008.
  • The goodwill of the cash-generating unit Fasthosts results from the acquisition of Fasthosts Internet Ltd. in 2006 and the acquisition of Dollamore Ltd. in 2008.
  • The goodwill of the cash-generating unit InterNetX results from the acquisition of InterNetX GmbH in 2005.
  • The goodwill of the cash-generating unit 1&1 Mail & Media mainly comprises goodwill from the acquisition of the portal business of WEB.DE AG in 2005.
Scheduled impairment test on December 31, 2020

For the Consumer Access, Business Access, Consumer Applications, and Business Applications segments, the recoverable amounts of the cash-generating units are determined on the basis of a calculation of fair value less disposal costs using cash flow forecasts. The hierarchy of fair value less disposal costs as defined by IFRS 13 is set at Level 3 for these impairment tests.

Following the acquisition of licenses during the 5G spectrum auction, an additional cash-generating unit 5G was established for the Consumer Access segment in the previous year. As the market price derived on the balance sheet date of the previous year using market capitalization no longer related solely to the cash-generating unit Consumer Access, it was no longer used for the impairment test as Level 1 of the cash-generating unit.

The cash flow forecasts are based on the Company’s budgets for the fiscal year 2021. Due to the limited effects of the coronavirus pandemic in 2020, no significant impact on the cash flow forecast was taken into consideration. These budget calculations were extrapolated by management for a period of up to 19 years (prior year: up to 21 years) for the respective cash-generating units on the basis of external market studies and internal assumptions. Following this period, management assumes an annual increase in cash flow of 0% for the Consumer Access segment (prior year: 0.1%) and an annual increase in cash flow of 0% for the Business Access segment (prior year: 0.1%). Management assumes an annual increase in cash flow of 0% for the Consumer Applications segment (prior year: 0.1%) and an annual increase in cash flow for the Business Applications segment of between 0% and 0.8% (prior year: between 0.1% and 0.9%). The expected increase corresponds to long-term average growth of the sector in which the respective cash-generating unit operates. The discount rates after tax used for cash flow forecasts are 4.3 % (prior year: 3.8 %) for the Consumer Access segment and 2.7 % (prior year: 3.4%) for the Business Access segment. The discount rate for the Consumer Applications segment is 5.2 % (prior year: 4.6 %), and the discount rate used for the Business Applications segment is in a range between 5.1 % and 6.7 % (prior year: between 4.9 % and 6.4 %).

The following table presents the basic assumptions used when checking impairment of individual cash-generating units to which goodwill has been allocated, in order to determine their fair value less disposal costs:

Reporting year

Total proportion of goodwill

Long-term growth rate

Discount rate after taxes

Consumer Access

1&1 Consumer Access

2020

60.20%

0.00%

4.30%

2019

60.20%

0.10%

3.80%

1&1 Telecom

2020

n/a

n/a

n/a

2019

n/a

n/a

n/a

Business Access

1&1 Versatel

2020

11.00%

0.00%

2.70%

2019

11.00%

0.10%

3.40%

Consumer Applications

1&1 Mail & Media

2020

6.20%

0.00%

5.20%

2019

6.20%

0.10%

4.60%

Business Applications

Strato

2020

11.10%

0.01%

5.20%

2019

11.10%

0.12%

5.00%

home.pl

2020

3.40%

0.48%

6.20%

2019

3.40%

0.52%

5.80%

Arsys

2020

2.80%

0.77%

6.70%

2019

2.80%

0.89%

6.40%

Fasthosts

2020

1.80%

0.29%

5.80%

2019

1.80%

0.34%

5.50%

World4You

2020

1.40%

0.19%

5.60%

2019

1.40%

0.30%

5.30%

united-domains

2020

1.00%

0.00%

5.20%

2019

1.00%

0.10%

5.00%

InterNetX

2020

0.10%

0.00%

5.20%

2019

0.10%

0.10%

4.90%

Domain marketing

2020

0.10%

0.00%

5.10%

2019

0.10%

0.10%

4.90%

1&1 Hosting

2020

0.80%

0.16%

5.50%

2019

0.80%

0.26%

5.20%

The cash flow forecasts depend heavily on the estimation of future sales revenue. The management of the respective cash-generating unit expects a varied development of sales within its planning horizon. Sales revenue figures in the detailed planning period of the cash-generating units for the Consumer Access and Business Access segments are based on average annual sales growth rates of 1.0% (prior year: 1.9%). Sales revenue figures in the detailed planning period of the cash-generating units for the Consumer Applications and Business Applications segments are based on average annual sales growth rates of between 1.4% and 8.4% (prior year: between 1.8% and 4.9%).

Fair value less disposal costs is mainly based on the present value of the perpetual annuity, which is particularly sensitive to changes in assumptions on the long-term growth rate and the discount rate. For the calculation of fair value less disposal costs, disposal cost rates of between 0.2% and 3.0% were assumed (prior year: between 0.2% and 3.0%).

In the Business Applications segment, trademarks recognized amount to €50,245k (prior year: €51,209k), in the Consumer Applications segment they amount to €39,443k (prior year: €41,520k), in the Business Access segment to €62,000k (prior year: €62,000k), and in the Consumer Access segment to €56,300k (prior year: €56,300k) (see Note27).

In the course of business combinations, the trademarks were valued at their fair values less disposal cost using appropriate measurement methods (generally the so-called “royalty relief” method; in the cash-generating unit mail.com using the residual value method) and tested again for impairment on the reporting date. The trademark-relevant cash flows were multiplied with the trademark-relevant royalty rates. These amount to 0.75 % (prior year: 0.75 %) for the Consumer Access segment; range from 0.25% to 0.5% (prior year: 0.25% to 0.5%) for the Business Access segment; amount to 2.5% (prior year: 2.5%) for the Consumer Applications segment; and range from 0.5 % and 2.5 % (prior year: 0.5% to 2.5%) for the Business Applications segment. The forecast of trademark-relevant cash flows was based on the same assumptions regarding market development and discount rates as used for the calculation of fair values.

In the previous year, a strategic realignment from a single-brand strategy to a dual-brand strategy was implemented. As a result of this strategic realignment, an impairment reversal need of € 19,438k was recognized for the STRATO trademark in the previous year. The fair value of the STRATO trademark at the end of the reporting period amounts to € 34,700k (prior year: € 20,533k).

Sensitivity of assumptions

The sensitivity of the assumptions made with respect to the impairment of goodwill or trademarks depends on the respective cash-generating units.

In the course of analyzing sensitivity for cash-generating units to which goodwill or trademarks have been allocated, an increase in the discount rates (after taxes) of 1 percentage point and a decline in the long-term growth rate in perpetuity of 0.1 to 0.25 percentage points was assumed, as in the previous year. These assumptions would not result in any changes to the impairment test.

As in the previous year, the Company’s management believes that, on the basis of reasonable judgment, no generally possible change in one of the basic assumptions used to determine fair value less disposal costs of a cash-generating unit could cause the carrying value to significantly exceed the recoverable amount.

intangible assets not yet usable (spectrum)

The 5G spectrum carried in the balance sheet results from the 5G spectrum auction in 2019. 1&1 Drillisch purchased two frequency blocks of 2 x 5 MHz in the 2 GHz band and five frequency blocks of 10 MHz in the 3.6 GHz band, which are each usable for a limited period up to December 31, 2040. The frequency blocks in the 3.6 GHz band are immediately available and the frequency blocks in the 2 GHz band will be available from January 1, 2026. The spectrum is not usable until the Group has its own network and was therefore subjected to an impairment test on the level of the cash-generating unit “5G” in the newly created “5G” segment during the fiscal year 2020, as well as in the previous year.

The recoverable amount of the cash-generating unit “5G” is determined by calculating fair value less cost of disposal with the aid of cash flow forecasts. The hierarchy of fair value less disposal costs as defined by IFRS 13 is set at Level 3 for these impairment test.

The planning calculation on which the impairment test is based includes income statement planning and capital expenditure planning for the fiscal years 2021 to 2040. As the spectrum runs until 2040, the test was conducted for the period 2021 to 2040. Disposal costs of around 3% (prior year: 3%) were assumed for calculating fair value less costs of disposal. The discount rate after tax used for the cash flow forecast in the reporting period was 2.6% (prior year: 3.8%). There was no impairment need in the reporting period. This also reflects the Management Board’s qualitative expectations (there are no internal or external indications of impairment) due to the high degree of strategic importance.

30. Trade accounts payable

Trade accounts payable amount to € 538,792k (prior year: € 481,627k), of which liabilities with terms of more than one year total € 6,014k (prior year: € 6,092k).

31. Liabilities due to banks

a) Liabilities due to banks

€k

2020

2019

Bank loans

1,466,089

1,738,368

Less

Current portion of liabilities due to banks

-370,435

-243,733

Non-current portion of liabilities due to banks

1,095,654

1,494,635

Short-term loans/overdrafts

370,435

243,733

Current portion of liabilities due to banks

370,435

243,733

Total

1,466,089

1,738,368

As in the previous year, bank liabilities of € 1,466 million as of December 31, 2020 mainly comprise promissory note loansand syndicated loans.

Promissory note loans

At the end of the reporting period, total liabilities from promissory note loanswith terms until March 2025 amounted to € 547.5 million (prior year: € 835.5 million). Liabilities from promissory note loans totaling € 238.0 million were repaid in full as of the balance sheet date. In addition, a variable-interest promissory note loan amounting to € 50.0 million was repaid prematurely in March 2020.

The outstanding 7 tranches from the promissory note loans 2014 and 2017 are mainly fixed-interest. Depending on the term, the fixed interest rates vary between 0.897% and 2.150% p.a..

The promissory note loans are redeemable on maturity and 100% repayable.

Syndicated loans & syndicated loan facilities

As of the balance sheet date, a syndicated loan totaling € 200.0 million redeemable on maturity in August 2021 was outstanding.

The outstanding syndicated loan has a variable interest rate. The effective interest rate for interest periods of 3 and 6 months is tied to the respective EURIBOR rate plus a margin p.a.. This margin depends on the ratio of net liabilities to EBITDA (leverage) of the United Internet Group. At the end of the reporting period, the applicable interest rate was 0.60% p.a. (prior year: 0.60%). Redemption payments are possible at any time. By exercising a contractually agreed extension option in 2020, the term of the revolving syndicated loan was extended by one year, from the original date of January 2025 to January 2026.

A banking syndicate has granted United Internet AG a revolving syndicated loan facility totaling € 810 million until January 2025. In the fiscal year 2020, the Company made use of a contractually agreed prolongation option and extended the term of the revolving syndicated loan facility agreed on December 21, 2018 for the period from January 2025 to January 2026. A credit facility of € 690 million was agreed for this prolongation period.

As of December 31, 2020, € 550 million of the revolving syndicated loan facility had been drawn (prior year: € 700 million). As a result, funds of € 260 million (prior year: € 110 million) were still available to be drawn from the credit facility.

There are also variable interest rates for drawings from the revolving syndicated loan. The effective interest rates for the interest periods of 1, 3, or 6 months are tied to the EURIBOR rate plus a margin p.a.. The margin depends on the ratio of net liabilities to EBITDA (leverage) of the United Internet Group. The applicable interest rate as of the reporting date amounts to 0.45% p.a. (prior year: 0.45%).

In addition, United Internet AG has a bilateral credit facility of € 280 million. The facility has been granted until further notice and bears interest at normal market rates. United Internet AG is the sole borrower of this facility. Drawings of € 165 million had been made from the credit facility as at the end of the reporting period.

At the end of the reporting period, United Internet thus had free credit lines totaling € 375 million (prior year: € 310 million).

Credit lines granted (without the revolving syndicated loan facility)

€k

2020

2019

Credit lines granted

280,000

200,000

Credit lines utilized

165,000

0

Available credit lines

115,000

200,000

Average interest rate

0.25

0.43

No collateral was provided for any of the liabilities due to banks.

With the exception of the interest-bearing tranches of the promissory note loan, the fair values of bank liabilities mainly correspond to their carrying amounts. For further information on the promissory note loan, please refer to Note 41.

A euro cash pooling agreement (zero balancing) has been in place between United Internet AG and certain subsidiaries since July 2002. Under the agreement, credit and debit balances of the participating Group subsidiaries are pooled and netted via several cascades in a central bank account of United Internet AG and available each banking day.

In addition, the Group extended cash pooling in 2020 to include the US dollar (USD), in addition to the British pound sterling (GBP). All pooling participants are in the field of Business Applications. Liquidity is focused on a central bank account of 1&1 IONOS SE.

b) Guaranty credit facilities

In addition to the above mentioned credit lines, the Group had the following guaranty credit facilities at the end of the reporting period, which in some cases can also be used by other Group companies.

Guaranty credit facilities

€k

2020

2019

Guaranty lines granted

105,000

105,000

Guaranty lines utilized

33,635

49,934

Available guaranty lines

71,365

55,066

Average interest rate

0.40%

0.40%

The guaranty credit facilities are available in particular for the provision of operational bank guarantees. The guaranty credit facilities granted are mostly for unlimited periods (“until further notice”). One agreement is limited until December 30, 2024. No collateral was provided to banks.

The stated average interest rate as of the reporting date is based on utilization.

32. Contract liabilities

€k

2020

2019

Contract liabilities

185,725

184,823

thereof current

152,094

149,930

thereof non-current

33,631

34,893

Contract liabilities mainly relate to payments on account received, deferred revenue, and deferred activation fees.

33. Other accrued liabilities

The development of accruals in fiscal year 2020 was as follows:

€k

Termination fees

Litigation risks

Restoration obligation

Other

Total

As of January 1

45,317

8,640

23,275

8,790

86,022

Utilization

8,872

543

1,196

7,472

18,083

Reversals

0

2,765

182

1,544

4,491

Addition

9,723

2,094

1,682

1,709

15,208

Effects of accrued interest

0

100

-125

0

-25

As of December 31, 2020

46,168

7,526

23,454

1,483

78,631

The accrual for termination fees refers to payments due to network operators in the case that a connection is terminated.

Litigation risks consist of various legal disputes of Group companies.

The accruals for restoration obligations mainly refer to possible obligations to remove active telecommunication technology in leased main distribution frames (MDFs). Where applicable, the reversal was offset against non-current assets directly in equity.

Other accruals refer mainly to provisions for warranties and impending losses.

34. Other liabilities

34.1 Other current financial liabilities

€k

2020

2019

Other current financial liabilities

- Leasing liabilities

97,761

82,988

- Spectrum liabilities

61,266

61,266

- Salary liabilities

38,741

34,043

- Marketing and selling expenses / commissions

21,781

22,635

- Conditional purchase price liabilities

25,014

0

- Creditors with debit balances

11,057

8,516

- Service / maintenance / restoration obligations

5,580

9,095

- Legal and consulting fees, auditing fees

4,819

6,069

- Other

12,617

14,823

Total

278,636

239,435

The current conditional purchase price liabilities refer to variable purchase price components from the acquisition of STRATO AG amounting to € 20,307k (prior year: €14,760k), and from the acquisition of 1&1 IONOS Cloud GmbH (formerly: ProfitBricks GmbH) amounting to € 4,416k (prior year: € 4,416k).

34.2 Other current non-financial liabilities

€k

2020

2019

Other current non-financial liabilities

- Liabilities to the tax office

37,280

41,541

- Other

9,467

8,796

Total

46,747

50,337

Liabilities to the tax office mainly refer to sales tax liabilities.

34.3 Other non-current financial liabilities

€k

2020

2019*

Other non-current non-financial liabilities

- Spectrum liabilities

886,389

947,655

- Leasing liabilities

376,067

310,052

- Conditional purchase price liabilities

7,721

24,523

- Other

8,567

7,689

Total

1,278,744

1,289,919

* Prior-year figures adjusted: retroactive increase in lease liability (Note 45)

Please refer to Note 45 regarding finance lease commitments.

Spectrum liabilities refer to the licenses acquired at auction in the fiscal year 2019. In 2019, the United Internet subsidiary 1&1 Drillisch signed an agreement with the German Federal Ministry of Transport and Digital Infrastructure (BMVI) and the German Federal Ministry of Finance (BMF) regarding the construction of mobile communication sites in so-called “not-spots”. 1&1 Drillisch is thus helping to close existing supply gaps and improve the provision of mobile communications in rural regions by building base stations. In return, 1&1 Drillisch benefits from an agreement allowing it to pay for the acquired 5G spectrum in installments. As a result, the license fees which were originally to be paid to the German government 2019 and 2024 can now be spread over the period up to 2030.

The non-current conditional purchase price liabilities refer to the InterNetX put option amounting to € 7,721k (prior year: € 5,347k). The purchase price liability from the acquisition of STRATO and 1&1 IONOS Cloud GmbH (formerly: ProfitBricks GmbH) was transferred to short-term liabilities due to its term as at the reporting date.

35. Maturities of liabilities

The maturities of liabilities are as follows:

Dec. 31, 2020

€k

Total

up to 1 year

1 to 5 years

Over 5 years

Financial liabilities

Liabilities due to banks

- Revolving syndicated loan facility

550,000

0

550,000

- Syndicated loan

200,249

200,249

0

0

- Promissory note loan

550,836

5,182

545,654

0

- Credit line

165,004

165,004

0

0

Trade accounts payable

538,793

532,779

6,014

0

Other financial liabilities

- Finance leases

473,828

97,761

208,790

167,277

- Others

1,083,551

180,875

324,423

578,253

Total financial liabilities

3,562,262

1,181,850

1,084,882

1,295,530

Non-financial liabilities

Income tax liabilities

114,621

114,621

0

0

Contract liabilities

185,725

152,094

33,631

0

Other accrued liabilities

78,631

9,302

52,387

16,943

Other non-financial liabilities

46,747

46,747

0

0

Total non-financial liabilities

425,725

322,765

86,017

16,943

Liabilities

3,987,986

1,504,615

1,170,899

1,312,472

The maturities of liabilities in the previous year were as follows:

Dec. 31, 2019

€k

Total

up to 1 year

1 to 5 years

Over 5 years

Financial liabilities

Liabilities due to banks

- Revolving syndicated loan facility

698,506

0

698,506

- Syndicated loan

200,182

223

199,959

0

- Promissory note loan

839,163

242,266

571,897

25,000

- Current account

517

517

0

0

Trade accounts payable

481,627

475,535

6,092

0

Other financial liabilities

- Finance leases

350,628

82,988

167,847

99,793

- Others

1,136,314

156,446

340,221

639,647

Total financial liabilities

3,706,936

957,974

1,286,016

1,462,945

Non-financial liabilities

Income tax liabilities

91,680

91,680

0

0

Contract liabilities

184,823

149,930

34,893

0

Other accrued liabilities

86,022

18,372

51,944

15,705

Other non-financial liabilities

50,337

50,337

0

0

Total non-financial liabilities

412,862

310,319

86,838

15,705

Liabilities

4,119,798

1,268,293

1,372,854

1,478,650

In the course of determining the maturities of liabilities due to banks, management assumed that the amount drawn from the revolving syndicated loan facility as at the respective reporting date would remain constant until the end of the term (2025).

36. Share-based payment – employee stock ownership plans

There were six different employee stock ownership plans in the reporting period 2020. One model with so-called Stock Appreciation Rights (SAR) is aimed at the group of senior executives and managers and based on virtual stock options of United Internet AG. The second plan, the Long-Term Incentive Plan Hosting (LTIP) was introduced in the second half of 2017 and is aimed at the group of executives and employees in key positions in the Business Applications segment. The third plan, the Long Term Incentive Plan Versatel (LTIP) was introduced in the first half of 2018 and is aimed at the group of executives and employees in key positions in the Business Access segment. The fourth plan, the Stock Appreciation Rights Drillisch (SAR) was introduced in the first half of 2018 and is aimed at the group of executives and employees in key positions in the Consumer Access segment. In the fiscal year 2020, the fourth plan was replaced by the fifth plan for executives and employees in key positions in the Consumer Access segment. The sixth plan, the Long-Term Incentive Plan Portal (LTIP) was introduced in the first half of 2019 and is aimed at the group of executives and employees in key positions in the Consumer Applications segment.

36.1 Stock Appreciation Rights (SAR United Internet)

The SAR plan employs so-called Stock Appreciation Rights (SARs) and is treated as an equity-settled, shared-based payment transaction. SARs refer to the commitment of United Internet AG (or a subsidiary) to pay the beneficiary a cash amount equivalent to the difference between the share price on the date of granting the option (agreed strike price) and the share price on exercising the option. The exercise hurdle is 120% of the share price, which is calculated as the average closing price in electronic trading (Xetra) of the Frankfurt Stock Exchange over the ten days preceding issuance of the option. Payment of value growth to the entitled person is limited – depending on the arrangements of the different tranches – to a) 100% of the calculated share price (strike price), or b) to a fixed euro amount. Moreover, the value growth is partly limited to a EUR amount.

An SAR corresponds to a virtual subscription right for one share of United Internet AG. However, it is not a share right and thus not a (genuine) option to acquire shares of United Internet AG. Nevertheless, United Internet AG retains the right to fulfill its commitment (or the commitment of a subsidiary) to pay the SAR in cash by also transferring United Internet AG shares from its stock of treasury shares to the beneficiary, at its own discretion. The program was carried as an equity settled plan.

Up to 25% of the option right may be converted at the earliest 24 months after the date of issue of the option; up to 50% at the earliest 36 months after the date of issue of the option. A total of up to 75% may be exercised at the earliest 48 months after the date of issue of the option; the full amount may be exercised at the earliest 60 months after the date of issue of the option.

Using an option pricing model (Black-Scholes model / Monte Carlo simulation) in accordance with IFRS 2, the fair value of the options issued was calculated using the following material measurement parameters:

Issue date

Oct. 1, 2020

Volume

350,000

SARs

Average market value per option

22.55

Strike price

30.00

Share price

32.47

Dividend yield

1.5

%

Volatility of the share

48.20

%

Expected term (years)

5

Risk-free interest rate

0

%

The volatility used to determine fair value was calculated on the basis of historical volatility for the last 6 and 12 months prior to the measurement date, respectively. The strike price is calculated on the basis of the average share price of the last 10 days prior to the issuance date.

The total expense from the stock ownership plan amounts to € 41,468k (prior year: € 33,613k). The cumulative expense as of December 31, 2020 totaled € 34,181k (prior year: € 33,302k). Expenses of € 7,287k (prior year: € 311k) therefore relate to future years. The personnel expense for share options issued amounted to € 879k in the reporting period (prior year: € 525k).

The changes in the virtual stock options granted and outstanding are shown in the following table:

SAR

Average strike price (€)

Outstanding as of December 31, 2018

697,500

37.74

issued

0

n/a

expired / forfeited

-20,000

37.49

Outstanding as of December 31, 2019

677,500

0.00

issued

350,000

30.00

expired / forfeited

-15,000

30.11

expired / forfeited

-25,000

32.79

expired / forfeited

-25,000

36.27

expired / forfeited

-85,000

31.15

Outstanding as of December 31, 2020

877,500

35.61

Exercisable as of December 31, 2020

0

n/a

Exercisable as of December 31, 2019

0

n/a

Weighted average remaining term

Weighted average remaining term
as at 31 December 2020 (in months)

35

Weighted average remaining term
as of December 31, 2019 (in months)

20

The range of strike prices (without consideration of minimum payments) for stock options outstanding at the end of the reporting period is between € 30.00 and € 44.06 (prior year: € 30.11 and € 44.06).

36.2 Long Term Incentive Plan Business Applications (LTIP Hosting)

An additional employee stock ownership plan (Long-Term Incentive Plan, LTIP) was introduced for the Business Applications segment in the fiscal year 2017. The LTIP is designed to align the long-term interests of management board members and other key employees of the 1&1 IONOS Group (Business Applications segment) with the interests of the company, in order to raise the equity value of the company (1&1 IONOS TopCo SE) and other companies of the 1&1 IONOS Group.

Within the LTIP plan, qualifying employees in the Hosting division will be allocated so-called Management Incentive Plan (MIP) units. The grant is made on a straight-line basis over a period of four years (beginning with the date of issue) and provided that the respective employee has not terminated his contract at the end of each year.

The entitlements under the LTIP plan can be settled in the form of shares or cash. In the case of settlement in the form of shares, rights may be settled by the provision of shares or options to acquire shares. As there is no current obligation for cash settlement, the plan is carried as equity-settled.

Using an option pricing model (Black-Scholes model) in accordance with IFRS 2, the fair value of the options issued was calculated using the following material measurement parameters:

Nov. 1, 2019

Jan. 1, 2020

Mar. 1, 2020

Apr. 1, 2020

July 1, 2020

Number of MIP units granted

1,350

2,750

37,500

12,500

2,500

Strike price

203.20

205.50

207.70

208.50

186.50

Fair value at time of issue

77.96

52.64

58.62

57.78

57.45

Volatility

approx. 41 %

approx. 40 %

approx. 40 %

approx. 40 %

approx. 49 %

Maturity at the time of issue

approx. 2 years

approx. 2 years

approx. 2 years

approx. 2 years

approx. 1 year

Dividend yield

of 0 %

of 0 %

of 0 %

of 0 %

0 %

Risk-free interest

of 0 %

of 0 %

of 0 %

of 0 %

0 %

Jan. 1, 2019

April 1, 2019

July 1, 2019

Oct. 1, 2019

Number of MIP units granted

10,000

90,750

21,500

37,500

Strike price

153.60

156.20

182.00

161.50

Fair value at time of issue

54.06

62.60

54.55

81.24

Volatility

approx. 36 %

approx. 38 %

approx. 38 %

approx. 38 %

Maturity at the time of issue

approx. 3 years

approx. 3 years

approx. 2 years

approx. 2 years

Dividend yield

of 0 %

of 0 %

of 0 %

of 0 %

Risk-free interest

of 0 %

of 0 %

of 0 %

of 0 %

The volatility used to determine fair value was calculated using the price fluctuations of the past 180 days or last 360 days of the Business Applications division peer group.

Expense is recognized on a straight-line basis over a period of 4 years until the anticipated occurrence of an event defined by the contract conditions, providing that this occurs before the end of the 4-year period. This assessment is reviewed on each reporting date. Based on current estimates, the total underlying period is around 1 to 4 years (prior year: 4 years).

The fair value of commitments classified as equity instruments of the current year amounted in total to € 3,326k (prior year: € 10,441k), each as of the grant date.

The total expense of vested and future vested claims from the employee stock ownership plan amounts to € 27,513k (prior year: € 25,711k). The cumulative expense as of December 31, 2020 totaled € 21,748k (prior year: € 12,280k). Expenses for future years therefore account for € 5,765k (prior year: € 13,431k). The personnel expense in the reporting period in connection with issued stock options amounted to € 9,467k (prior year: € 7,424k).

The changes in the MIP units granted and outstanding are shown in the following table:

Units

Average strike price (€)

Outstanding as of December 31, 2018

225,000

114.70

issued

159,750

147.24

expired / forfeited

-5,000

114.70

Outstanding as of December 31, 2019

379,750

134.07

issued

56,600

206.73

expired / forfeited

-56,125

123.73

Outstanding as of December 31, 2020

380,225

146.42

Exercisable as of December 31, 2020

0

n/a

Exercisable as of December 31, 2019

0

n/a

36.3 Long Term Incentive Plan Versatel (LTIP Versatel)

An additional employee stock ownership plan (Long-Term Incentive Plan, LTIP) was introduced for the Business Access segment in the fiscal year 2018. The LTIP is designed to align the long-term interests of management board members and other key employees of the 1&1 Versatel Group (Business Access segment) with the interests of the company, in order to raise the equity value of the company (1&1 Versatel GmbH) and other companies of the 1&1 Versatel Group.

Within the LTIP plan, qualifying employees in the Business Access segment are allocated value growth shares. The grant is generally made over a period of six years (beginning with the date of issue) and provided that the respective employee has not terminated his contract at the end of each year and no event occurs as defined by the LTIP plan conditions.

The entitlements under the LTIP plan can be settled in the form of shares or cash. In the case of settlement in the form of shares, rights may be settled by the provision of shares or options to acquire shares. As there is no current obligation for cash settlement, the plan is carried as equity-settled.

The LTIP entitlement results from the difference between the terminal value and an initial value, which is multiplied by the respective value growth share and dilution factor.

Expense per participant is recognized on a straight-line basis over the period until the expiry of the respective LTIP contract, unless an event specified in the LTIP plan occurs. This assessment is reviewed on each reporting date. Based on current estimates, a total period of 6 years is used.

The total expense from the employee stock ownership plan amounts to € 6,922k (prior year: € 2,918k). The cumulative expense as of December 31, 2020 totaled € 1,008k (prior year: € 266k) and the personnel income from issued stock options amounted to € 742k in the reporting period (prior year: € -209k). Expenses for future years therefore account for € 5,914k (prior year: € 2,652k).

Average strike price (€)

Allocation

1.3% value growth share

2,245

Outstanding as of December 31, 2019

1.3% value growth share

2,245

Allocation

1% value growth

4,003

expired

Outstanding as of December 31, 2020

2.3% value growth share

3,009

Exercisable as of December 31, 2020

0

0

36.4 Stock Appreciation Rights Drillisch (SAR Drillisch)

A further plan, Stock Appreciation Rights Drillisch (SAR), introduced in the first half of 2018, is aimed at executives and employees in key positions in the Consumer Access segment and is based on virtual stock options of 1&1 Drillisch AG. In the first half of 2020, the SAR arrangements with participants were terminated and replaced by new SAR arrangements.

Current SAR Drillisch plan

An SAR corresponds to a virtual subscription right for one share of 1&1 Drillisch AG. However, it is not a share right and thus not a (genuine) option to acquire shares of 1&1 Drillisch AG.

According to the current conditions, an SAR Drillisch is the commitment of 1&1 Drillisch AG (or one of its subsidiaries), to pay the option beneficiary a consideration equivalent to the difference between the share price on the date of granting (strike price) and the share price on exercising the option. The exercise hurdle is 120% of the share price, which is calculated as the average closing price for the company share in electronic trading (Xetra) of the Frankfurt Stock Exchange over the ten days preceding issuance of the option. Payment of value growth to the entitled person is limited to 100% of the calculated share price (strike price).

Up to 25% of the option right may be converted at the earliest 24 months after the date of issue of the option; up to 50% at the earliest 36 months after the date of issue of the option. A total of up to 75% may be exercised at the earliest 48 months after the date of issue of the option; the full amount may be exercised at the earliest 60 months after the date of issue of the option.

The volatility used to determine fair value was calculated on the basis of historical volatility for the last 6 and 12 months prior to the measurement date, respectively. The strike price is calculated on the basis of the average share price of the last 10 days prior to the issuance date.

1&1 Drillisch AG reserves the right to fulfill its commitment from the SAR plan (or the commitment of a subsidiary) to transfer shares of 1&1 Drillisch AG from its stock of treasury shares by also paying the beneficiary in cash, at its own discretion. As there is currently no obligation to settle in cash, these commitments are accounted for as equity-settled transactions.

Pursuant to IFRS 2.28 (c), three commitments are replacements for the old SAR plan. The additional fair value was determined for the measurement of the replacement plans. This is the difference between the fair value of the equity instruments designated as replacements and the net fair value of the canceled equity instruments at the grant date of the replacement instruments.

The additional expense resulting from the grant of new equity instruments is allocated over the vesting period in accordance with IFRS 2.

Using an option pricing model (Black-Scholes model) in accordance with IFRS 2, the fair value of the options issued was calculated as follows:

Issue date

April 17, 2020

June 1, 2020

Oct. 1, 2020

Number of SARs

1,904,600

270,000

314,000

Strike price

19.07

23.20

19.80

Average market value per option

3.64

4.12

3.32

Starting price

19.84

22.95

18.95

Volatility of the share

55

%

54

%

58

%

Dividend yield

0.25

%

0.22

%

0.26

%

Risk-free interest rate

0

%

0

%

0

%

Expected term

5

years

5

years

5

years

The total expense from the new employee stock ownership plan amounts to € 9,083k. The previously recognized cumulative expense of the new plan as of December 31, 2020 for the SARs exercised in the reporting period and those not yet exercised as of the balance sheet date amounts to € 1,879k. Expenses for future years account for € 7,204k.

An additional fair value was determined for the measurement of the replacement plans. This results in an amount of € 1,793k from the difference between the fair value of the equity instruments designated as replacements (€ 1,946k) and the net fair value of the canceled equity instruments (€ 152.7k) at the grant date of the replacement instruments. The additional expenses resulting from the grant of new equity instruments were recognized in profit or loss in accordance with IFRS 2.

Replaced SAR Drillisch plan

Under the replaced plan, an SAR Drillisch was the commitment of 1&1 Drillisch AG (or one of its subsidiaries), to pay the option beneficiary a consideration whose amount depends on the share price performance and the operating result (EBIT) of 1&1 Drillisch AG (consolidated). As part of the replaced SAR plan, so-called SARs were allocated which were then granted over the vesting period. An SAR corresponded to a virtual subscription right for one share of 1&1 Drillisch AG. However, it was not a share right and thus not a (genuine) option to acquire shares of 1&1 Drillisch AG.

The entitlement arising from an SAR depended on the development of the share price and EBIT. Furthermore, various exercise conditions had to be observed. The SAR entitlement was calculated by multiplying the number of SARs exercised by an EBIT factor and the difference between the strike price and the starting price. The EBIT factor was derived from the percentage degree to which the EBIT targets of 1&1 Drillisch AG (“Target EBIT”) had been achieved. The year preceding the exercise date was decisive. For the EBIT factor, only a degree of achievement of the EBIT targets of 80% (exercise hurdle) to 120% (cap) was taken into account. The starting and strike prices were calculated as the average (arithmetic mean) of the closing prices of the 1&1 Drillisch AG share in Xetra trading (or a functionally comparable successor system) of the Frankfurt Stock Exchange on the last 10 trading days prior to the starting or exercise date. If the percentage share price increase was higher than EBIT growth, there was a further cap of 150% on the share price increase.

The allocated SARs could only be exercised for the first time after 4 years at the earliest. Each year, the participant had an exercise window of one month, beginning on the day after publication of the annual financial statements of 1&1 Drillisch AG. The last exercise window available to the participant was in the year following the end of the term. SARs not exercised by then expired without compensation. The possibility of exercising SARs in the first exercise window was limited to a maximum of 25%, and in the second exercise window to 50%, of the total number of SARs allocated to the participant at these points in time – including earlier exercises.

1&1 Drillisch AG reserved the right to fulfill its commitment from the SAR plan (or the commitment of a subsidiary) to transfer shares of 1&1 Drillisch AG from its stock of treasury shares by also paying the beneficiary in cash, at its own discretion. As no obligation to settle in cash existed, these commitments were accounted for as equity-settled transactions.

Using an option pricing model based on a Monte Carlo simulation in accordance with IFRS 2, the fair value of the options issued was determined as follows:

Issue date

Jan. 1, 2019

Jan. 1, 2019

Oct. 1, 2019

Number of SARs

4,500

8,600

64,300

Starting price

44.1

45.0

45.0

Exercise hurdle (Ebit factor)

80

%

80

%

80

%

Dividend yield

3.70

%

3.70

%

3.70

%

Volatility of the share

37.8

%

32.6

%

32.6

%

Expected term (years)

5

5

5

CAP (EBIT factor)

120

%

120

%

120

%

Fair value

196

€k

434

€k

3,252

€k

Until it was replaced by the new plan, the total expense from the stock ownership plan replaced in the first half of the year amounted to € 1,735k. In the fiscal year 2020, expenses of € 299k were recognized for this plan.

The changes in the virtual stock options granted and outstanding under the SAR Drillisch plan (including replaced SARs) are shown in the following table:

Number

Outstanding as of December 31, 2018

180,000

expired / forfeited

-180,000

issued

64,300

issued

4,500

issued

8,600

Outstanding as of December 31, 2019

77,400

expired / forfeited

-77,400

issues - replacement

534,800

issues - new grant

1,369,800

issued

270,000

issued

314,000

Outstanding as of December 31, 2020

2,488,600

The average weighted strike price for the share options issued as of December 31, 2020 amounts to €19.61.

36.5 Long Term Incentive Plan Portal (LTIP Consumer Application)

An additional employee stock ownership plan (LTIP Portal) was introduced by 1&1 Mail & Media Applications SE in the fiscal year 2019. The LTIP is designed to attract and retain skilled executives as well as to align the long-term interests of management board members and other key employees of the group with the interests of the company, in order to raise the equity value of the company (1&1 Mail & Media Applications SE) and other companies of the group.

The plan entitles the beneficiaries to participate in a certain proportion of the increase in value of the 1&1 Mail & Media Group. Within the LTIP plan, qualifying employees are allocated value growth shares. The grant is made over a period of six years (beginning with the date of issue) and provided that the respective employee has not terminated his contract at the end of each year and no event as defined by the LTIP plan conditions has occurred. The LTIP entitlement arises as soon as the full term of the LTIP contract ends or an event as defined by the LTIP plan conditions (e.g., the sale of shares held by United Internet AG in 1&1 Mail & Media Applications SE or similar) occurs.

The entitlements under the LTIP plan can be settled in the form of shares or cash. In the case of settlement in the form of shares, rights may be settled by the provision of shares in the company, provided they are traded on a stock exchange in the meantime, or shares in another company listed on a stock exchange, or the corresponding options to acquire shares. As there is no current obligation for cash settlement, the plan is carried as equity-settled.

As of the grant date in 2020, the fair value of commitments classified as equity instruments amounted to € 3,529k (prior year: € 4,015k).

The total expense from the employee stock ownership plan amounts to € 7,544k (prior year: € 4,015k). The cumulative expense as of December 31, 2020 totaled € 1,758k (prior year: € 669k). Expenses for future years therefore account for € 5,786k (prior year: € 3,346k). The personnel expense from issued stock options amounted to € 1,089k in the reporting period (prior year: € 669k).

Value growth shares

Average strike price (€)

Outstanding as of December 31, 2018

0

Allocation

2.7% value growth

1,487

Outstanding as of December 31, 2019

2.7% value growth

1,487

Allocation

1.55% value growth share

2,626

Outstanding as of December 31, 2020

4.25% value growth share

1,775

Exercisable as of December 31, 2020

0

0

Exercisable as of December 31, 2019

0

0

37. Capital stock

Following a capital reduction by means of cancelation of treasury shares, the fully paid-in capital stock as of December 31, 2020 amounted to €194,000,000 (prior year: € 205,000,000) divided into 194,000,000 registered no-par shares having a theoretical share in the capital stock of € 1.00 each.

Authorized Capital 2015

The Annual Shareholders' Meeting of May 20, 2020 resolved to cancel Authorized Capital 2015 and to create new Authorized Capital 2020 with the option to exclude subscription rights and to amend the Articles of Association accordingly.

Authorized Capital 2020

The Management Board is authorized, subject to the approval of the Supervisory Board, to increase the capital stock in the period ending August 31, 2023, by a maximum of € 77,500,000.00 by issuing on one or more occasions new no-par shares for cash and/or non-cash contributions (Authorized Capital 2020).

Shareholders are to be granted subscription rights with the following restrictions. The Management Board is authorized, subject to the approval of the Supervisory Board, to exclude the right to subscribe in the case of fractional amounts and also to exclude subscription rights to the extent that this should be necessary in order to grant subscription rights for new shares to bearers of warrants and convertible bonds issued by United Internet AG or its subsidiaries in the amount to which they would be entitled on exercise of their warrant or conversion rights or fulfillment of their conversion obligation.

In the case of a capital increase in return for cash contribution, the Management Board is further authorized, subject to the approval of the Supervisory Board, to exclude shareholders’ subscription rights for an amount of up to 10% of the capital stock existing at the time Authorized Capital 2020 becomes effective, or – if this amount is lower – at the time the resolution to use Authorized Capital 2020 is adopted, if the new shares are issued at an issuance price which is not substantially below the market price of those Company shares already listed at the time of the final determination of the issuance price, which shall be as near in time as possible to the share issuance date. This maximum amount of 10% of the capital stock includes the proportionate share of capital stock attributable to treasury shares sold on or after the effective date of this authorization in direct or analogous application of section 186 (3) sentence 4 German Stock Corporation Act (AktG), as well as the proportionate share of the capital stock attributable to shares subject to conversion and/or warrant rights or conversion obligations from bonds issued pursuant to the authorization of the Annual Shareholders’ Meeting of May 20, 2020, with the exclusion of subscription rights in accordance with section 186 (3) sentence 4 AktG.

The Management Board is further authorized, subject to the approval of the Supervisory Board, to exclude shareholders’ subscription rights in the case of capital increases in return for non-cash contribution in order to grant shares for the purpose of acquiring companies, parts of companies, interests in companies or other assets, including rights and receivables, or as part of business combinations.

The above mentioned authorizations to exclude subscription rights are limited in total to an amount of up 20% of the capital stock existing at the time Authorized Capital 2020 becomes effective, or – if this amount is lower – at the time the resolution to use Authorized Capital 2020 is adopted. This maximum amount of 20% of the capital stock includes the proportionate share of capital stock attributable to shares subject to conversion and/or warrant rights or conversion obligations from bonds issued pursuant to the authorization of the Annual Shareholders’ Meeting of May 20, 2020, with the exclusion of subscription rights, as well as the proportionate share of capital stock attributable to treasury shares sold on or after the effective date of this authorization in a manner other than via the stock exchange or by means of an offer to all shareholders.

The Management Board is further authorized, subject to the approval of the Supervisory Board, to determine the further details of the capital increase and its execution.

Conditional Capital 2015

The Annual Shareholders' Meeting of May 20, 2020 also resolved to cancel the existing authorization to issue warrants and convertible bonds and the associated Conditional Capital 2015, and to grant a new authorization to issue warrants and convertible bonds, and to exclude subscription rights for these warrants and convertible bonds, as well as to create conditional capital (Conditional Capital 2020), and to make the corresponding amendments to the by-laws.

Conditional Capital 2020

Capital stock is conditionally increased by up to € 25,000,000.00 by issuing up to 25,000,000 no-par value registered shares (Conditional Capital 2020). The conditional capital increase is earmarked for the granting of no-par value registered shares on exercise of conversion or warrant rights (or fulfillment of corresponding conversion obligations) or on exercise of the Company’s right to grant no-par value shares in the Company, instead of paying the cash amount due (or parts thereof), to the bearers of convertible bonds or bonds with warrants that have been issued by the Company or any subordinated Group company in the period ending August 31, 2023, on the basis of the authorizing resolution of the Annual Shareholders’ Meeting of May 20, 2020. The new shares will be issued at the warrant or conversion price to be determined in accordance with the above authorizing resolution.

The conditional capital increase is to be exercised only if bonds with warrant rights or conversion rights or obligations attached are issued pursuant to the authorizing resolution of the Annual Shareholders’ Meeting of May 20, 2020, and only to the extent that warrant or conversion rights are exercised or to the extent that bearers or holders of bonds obliged to convert their bonds fulfill their obligations, or to the extent that the Company exercises a right to grant no-par value shares in the Company, instead of paying the cash amount due (or parts thereof), and to the extent that cash compensation is not granted or treasury shares or shares in another listed company are not used to service bonds. The issued new shares shall participate in profits from the beginning of the fiscal year in which they are created; to the extent that it is legally permissible, the Management Board may, with the approval of the Supervisory Board, determine the profit participation of new shares and, notwithstanding section 60 (2) AktG, also for a fiscal year already expired.

The Management Board is authorized, subject to the approval of the Supervisory Board, to determine the further details concerning the execution of the conditional capital increase.

Interim dividend The Annual Shareholders’ Meeting of May 20, 2020 created the option of paying an interim dividend with a corresponding amendment to section 21 of the Articles of Association.

38. Reserves

As of December 31, 2020, capital reserves amounted to € 2,322,780k (prior year: € 2,643,946k). The decline is due to the reduction of capital by means of canceling 11,000,000 treasury shares with an effect on capital reserves of € 336,946k.

The accumulated result includes the past results of consolidated companies, insofar as no dividends were paid, less expenses for share-based remuneration.

At the end of the reporting period, the revaluation reserve attributable to shareholders of United Internet AG consisted of the following items:

€k

Dec. 31, 2020

Dec. 31, 2019

Financial assets at fair value through other comprehensive income

- Afilias shares

0

27,878

- Other investments

-2,235

-2,135

Share in other comprehensive income of associated companies:

-2,137

-570

Total

4,372

25,172

The shares in the Afilias Group were sold in the reporting period. The proceeds from disposal amounted to the equivalent of € 77,477k. The profit realized on disposal of € 76,924k was recognized in equity. The profit attributable to shareholders of the parent company amounting to € 49,089k was reclassified from the revaluation reserve to revenue reserves.

Translation differences from the annual financial statements of foreign subsidiaries without an effect on profit or loss are recognized in the currency translation adjustment.

An overview of the composition and changes in the reserves described above for the fiscal years 2020 and 2019 is provided in the Statement of Changes in Shareholders’ Equity.

39. Treasury shares

The authorization to acquire and use treasury shares that was granted by the Annual Shareholders’ Meeting on May 18, 2017 in accordance with section 71 (1) number 8 AktG expired on September 18, 2020.

The Annual Shareholders' Meeting of May 20, 2020 authorized the Management Board pursuant to section 71 (1) number 8 AktG, to acquire treasury shares for every permissible purpose within the scope of legal restrictions and subject to the following provisions. This authorization is granted for the period from September 19 to August 31, 2023. It is limited to a total share of 10 percent of the capital stock existing at the time the Annual Shareholders’ Meeting adopts this resolution or – if this amount is lower – at the time this authorization is exercised.

Treasury shares may be acquired via the stock exchange or by means of a public purchase offer made to all shareholders or through a public request made to all shareholders to submit sales offers or by granting tender rights to the shareholders.

The Management Board is also authorized, in addition to a sale via the stock exchange or a use in another manner that complies with the principle of equal treatment of all shareholders, to use treasury shares for the following purposes:

  • as (partial) consideration in connection with the acquisition of companies or interests in companies or parts of companies or in connection with business combinations;
  • to float shares of the Company on foreign stock exchanges on which they were previously not admitted to trading;
  • to grant United Internet shares as part of remuneration and/or employee stock ownership programs such that United Internet shares are offered or transferred to members of the Management Board of United Internet AG and/or to individuals who are or were in an employment relationship with the Company and/or to members of the management of affiliated companies. Insofar as United Internet shares are to be transferred to members of the Company’s Management Board, the decision on this is incumbent upon the Company’s Supervisory Board.

Shareholders’ statutory subscription rights with regard to these treasury shares are excluded in accordance with sections 71 (1) no. 8 and 186 (3) and (4) AktG to the extent that these shares are used pursuant to the above authorizations. Furthermore, the Managing Board is authorized to exclude shareholders’ subscription rights for fractional shares if treasury shares are sold by means of an offer to all shareholders.

The authorization may not be used for the purpose of trading with treasury shares.

Based on the authorization granted by the Annual Shareholders' Meeting on May 18, 2017 regarding the acquisition and use of treasury shares, and with the approval of the Supervisory Board, the Management Board of United Internet AG resolved on March 12, 2020 to cancel 11,000,000 treasury shares and to reduce the capital stock of United Internet AG by € 11,000,000, from € 205,000,000 to € 194,000,000. The number of shares issued decreased correspondingly by 11,000,000, from 205,000,000 to 194,000,000 shares. Issued shares continue to represent a notional share of capital stock of € 1 each. The cancelation of treasury shares is aimed at raising the percentage stake of United Internet shareholders. On completion of the capital reduction, the Company’s capital stock returned to the level prior to the capital increase for the Versatel acquisition in 2014.

In the reporting period, the Company purchased a total of 430,624 treasury shares (prior year: 12,635,523) for an amount of € 12,235k (prior year: € 373,584k).

As of the balance sheet date 6,769,137 treasury shares were held (prior year: 17,338,513).

Treasury shares reduce equity and have no dividend entitlement.

40. Non-controlling interests

Non-controlling interests developed as follows:

€k

1&1 Drillisch AG / Consumer Access (24.69%)

1&1 IONOS TopCo SE/Business Applications (33.33%)

Total

Jan. 1, 2020

447,915

-143,163

304,753

Pro-rated result

54,217

23,995

78,212

Pro-rated other comprehensive income

-11

5,894

5,883

Other changes in equity

538

5,341

5,879

Dividend

-2,176

-401

-2,577

Dec. 31, 2020

500,483

-108,333

392,151

€k

1&1 Drillisch AG / Consumer Access (24.69%)

1&1 IONOS TopCo SE/Business Applications (33.33%)

Total

Jan. 1, 2019

390,102

-166,776

223,325

Pro-rated result

95,462

19,556

115,018

Pro-rated other comprehensive income

95

2,833

2,928

Pro-rated changes

-35,312

0

-35,312

Other changes in equity

-95

1,447

1,352

Dividend

-2,335

-222

-2,557

Dec. 31, 2019

447,915

-143,163

304,753

Pro-rated changes in the fiscal year 2019 relate to United Internet’s increased stake in 1&1 Drillisch AG and the acquisition of treasury stock by 1&1 Drillisch AG itself.

The following financial information comprises summarized details on the assets, liabilities, profits or losses, and cash flows of the subsidiary with material non-controlling interests.

1&1 Drillisch AG (Consumer Access)

in € million

2020

2019

Current assets

1,553

1,309

Non-current assets

5,137

5,153

Current liabilities

575

549

Non-current liabilities

1,262

1,272

Shareholders’ equity

4,854

4,641

Sales revenue

3,787

3,675

Pre-tax result

313

522

Income taxes

-93

-149

Net income

220

374

Cash flows from operating activities,

451

376

investing activities or

-397

-231

financial activities

-81

-117

1&1 IONOS TopCo SE (Business Applications)

in € million

2020

2019

Current assets

232

176

Non-current assets

1,257

1,319

Current liabilities

233

203

Non-current liabilities

1,583

1,723

Shareholders’ equity

-327

-431

Sales revenue

988

924

Pre-tax result

117

102

Income taxes

-42

-44

Net income

75

58

Cash flows from operating activities,

166

169

investing activities or

37

-68

financial activities

-136

-108

41. Additional details on financial instruments

The following table shows the carrying amounts for each category of financial assets and liabilities for fiscal year 2020:

€k

Measurement category acc. to IFRS 9

Carrying amount on Dec. 31, 2020

Amortized cost

Fair value not through profit or loss

Fair value through profit or loss

Measurement acc. to IFRS 16

Fair Value per 31.12.2020

Financial assets

Cash and cash equivalents

ac

131,270

131,270

131,270

Trade accounts receivable

- Receivables from finance leases

n/a

60,165

60,165

62,814

- Others

ac

338,631

338,631

338,631

Other current financial assets

- At amortized cost

ac

47,684

47,684

47,684

- Fair value through other comprehensive income

fvoci

3,746

3,746

3,823

- Fair value through profit or loss

fvtpl

30,832

30,832

30,832

Other non-current financial assets

- At amortized cost

ac

9,901

9,901

9,901

Financial liabilities

Trade accounts payable

flac

-538,793

-538,793

-538,793

Liabilities due to banks

flac

-1,466,089

-1,466,089

-1,472,006

Other financial liabilities

- Leasing liability

n/a

-473,828

-473,828

-

- Fair value through profit or loss

fvtpl

-32,735

-32,735

-32,735

- Others

flac

-1,050,817

-1,050,817

-1,050,817

Of which aggregated acc. to measurement categories:

Financial assets at amortized cost

ac

527,486

527,486

527,486

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

fvoci

3,746

3,746

3,823

Financial assets at fair value through profit or loss

fvtpl

30,832

30,832

30,832

Financial liabilities at amortized cost

flac

-3,055,699

-3,055,699

-3,061,615

Financial liabilities measured at fair value through profit or loss

fvtpl

-32,735

-32,735

-32,735


The following net results were stated for the individual categories of financial instruments acc. to IFRS 9 in fiscal year 2020:

Net result acc. to measurement categories 2020 (in €k)

Net profits and losses from subsequent measurement

€k

Measurement category IFRS 9

From interest and dividends

At fair value

Currency translation

Allowance

Net result

Financial assets at amortized cost

ac

294

--

2,412

-59,817

-57,111

Financial assets at fair value

- through other comprehensive income

fvoci

842

32,215

--

--

33,057

- through profit or loss

fvtpl

-618

--

--

-618

Financial liabilities at amortized cost

flac

-17,455

--

1,034

--

-16,421

Financial liabilities measured at fair value

- through profit or loss

fvtpl

-7,866

-7,866

Total

-16,319

23,731

3,446

-59,817

-48,959

With the exception of trade accounts receivable in connection with finance leases, cash and cash equivalents, trade accounts receivable, and other current financial assets mostly have short remaining terms. Their carrying amounts on the reporting date are thus similar to fair value.

Investments and derivatives are carried at fair value. In the case of the remaining other non-current financial assets carried at amortized cost, it is assumed that their carrying amounts correspond to fair value.

Trade accounts payable mostly have short remaining terms. Their carrying amounts on the reporting date are thus similar to fair value. The same applies to current liabilities due to banks.

For the remaining other non-current liabilities recognized at amortized cost, it is assumed that their carrying amounts correspond to their fair values.

Non-current liabilities due to banks are loans which can be prematurely redeemed. In addition, both the basic interest rate and the margin are variable. The margin depends on predefined KPIs of the United Internet Group. Due to these factors, it is assumed that their carrying amounts of non-current liabilities correspond approximately to fair value. The fair value measurement of the promissory note loans is based at least in part on input parameters not observable on the market.

Due to changed interest rates, there are slight deviations between the carrying value and fair value of receivables and liabilities in connection with finance leases.

The conditional purchase price liabilities are carried at fair value. In the case of the remaining other non-current financial liabilities carried at amortized cost, it is assumed that their carrying amounts correspond to fair value.

The following table shows the carrying amounts for each category of financial assets and liabilities for fiscal year 2019:

€k

Measurement category acc. to IFRS 9

Carrying amount on Dec. 31, 2019

Amortized cost

Fair value not through profit or loss

Fair value through profit or loss

Measurement acc. to IFRS 16

Fair value as of Dec. 31, 2019

Financial assets

Cash and cash equivalents

ac

117,573

117,573

117,573

Trade accounts receivable

- Receivables from finance leases

n/a

65,121

65,121

67,465

- Others

ac

338,580

338,580

338,580

Other current financial assets

- At amortized cost

ac

48,141

48,141

48,141

Other non-current financial assets

- At amortized cost

ac

12,594

12,594

12,594

- Fair value through other comprehensive income

fvoci

47,006

47,006

47,006

- Fair value through profit or loss

fvtpl

31,450

31,450

31,450

Financial liabilities

Trade accounts payable

flac

-481,627

-481,627

-481,627

Liabilities due to banks

flac

-1,738,368

-1,738,368

-1,726,288

Other financial liabilities

- Leasing liability

n/a

-350,628

-350,628

-

- Fair value through profit or loss

fvtpl

-25,604

-25,604

-25,604

- Others

flac

-1,110,710

-1,110,710

-1,110,710

Of which aggregated acc. to measurement categories:

Financial assets at amortized cost

ac

516,888

516,888

516,888

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

fvoci

47,006

47,006

47,006

Financial assets at fair value through profit or loss

fvtpl

31,450

31,450

31,450

Financial liabilities at amortized cost

flac

-3,330,705

-3,330,705

-3,318,625

Financial liabilities measured at fair value through profit or loss

fvtpl

-25,604

-25,604

-25,604

The following net results were stated for the individual categories of financial instruments acc. to IFRS 9 in fiscal year 2019:

Net result acc. to measurement categories 2019 (in €k)

Net profits and losses from subsequent measurement

€k

Measurement category IFRS 9

From interest and dividends

At fair value

Currency translation

Allowance

Net result

Financial assets at amortized cost

ac

1,075

--

-1,453

-65,893

-66,270

Financial assets at fair value

- through other comprehensive income

fvoci

992

468

--

--

1,460

- through profit or loss

fvtpl

15,660

--

--

15,660

Financial liabilities at amortized cost

flac

-35,183

--

-623

--

-35,806

Financial liabilities measured at fair value

- through profit or loss

fvtpl

-9,691

-9,691

Total

-33,116

6,437

-2,076

-65,893

-94,647

The fair value of financial assets and liabilities is stated at the amount at which the instrument concerned might be exchanged in a current transaction (excluding a forced sale or liquidation) between willing business partners.

The methods and assumptions used to determine fair values are shown below:

  • Cash and short-term deposits, trade accounts receivable, trade accounts payable, and other current assets and liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.
  • Long-term fixed-rate and variable-rate receivables/borrowings are evaluated by the Group based on parameters such as interest rates, specific country risk factors, individual creditworthiness of the customer and the risk characteristics of the financed project. Based on this evaluation, allowances are taken to account for the expected losses of these receivables. As at December 31, 2019, and as in the previous year, the carrying amounts of such receivables, net of allowances, are not materially different from their calculated fair values.
  • The fair value of bank loans and other financial liabilities is estimated by discounting future cash flows using interest rates currently available for debt on similar terms, credit risk and remaining maturities.
  • Financial assets and liabilities measured at fair value are measured using appropriate measurement techniques. Where available, stock exchanges prices on active markets are used. The valuation of shares in non-listed companies is based mainly on present value models. The valuation of derivatives and conditional purchase price liabilities is based mainly option pricing models.
Fair value hierarchy

The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by measurement technique:

Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities

Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly

Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.

Assets and liabilities measured at fair value

€k

as of Dec. 31, 2020

Level 1

Level 2

Level 3

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

3,746

3,746

Listed shares

3,746

3,746

Financial assets at fair value through profit or loss

30,832

30,832

Derivatives

30,832

30,832

Financial liabilities measured at fair value through profit or loss

-32,735

-32,735

Purchase price liabilities

-32,735

-32,735

As in the previous year, there were no transfers between levels during the reporting period.

€k

as of Dec. 31, 2019

Level 1

Level 2

Level 3

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

47,006

2,384

44,622

Listed shares

2,384

2,384

Non-listed equity instruments

44,622

44,622

Financial assets at fair value through profit or loss

31,450

31,450

Derivatives

31,450

31,450

Financial liabilities measured at fair value through profit or loss

-25,604

-24,523

Purchase price liabilities

-25,604

-1,081

-24,523

The following table shows the main non-observable input factors for the fair value measurements categorized in Level 3 of the fair value hierarchy and a quantitative sensitivity analysis as of December 31, 2020:

31.12.2020

Measurement method

Main non-observable input factors

Considered in measurement

Sensitivity of input factor on fair value

Foreign currency-based derivatives

Monte Carlo simulation

Exit date of Warburg Pincus from Business Application segment as of Dec. 31, 2020

0.75 year

0.5 year

-0.5 year

€ +1.6 million

€ -2.7 million

Volatility

8.7%

+1%

-1%

€ +0.7 million

€ -0.7 million

Earnings-based derivatives

Black-Scholes model

Exit date of Warburg Pincus from Business Application segment as of Dec. 31, 2020

0.75 year

0.5 year

-0.5 year

€ -2.5 million

€ +5.9 million

Volatility

43.8%

+1%

-1%

€ -0.2 million

€ +0.2 million

Conditional purchase price liability

Black-Scholes model

Exit date of Warburg Pincus from Business Application segment as of Dec. 31, 2020

0.75 year

0.5 year

-0.5 year

€ -2.0 million

€ +4.9 million

Volatility

43.8%

+1%

-1%

€ -0.2 million

€ +0.2 million

Conditional purchase price liability

Modified multiple

EBITDA growth

4%

+1%

-1%

€ + 0.1 million

€ -0.1 million

Dec. 31, 2019

Measurement method

Main non-observable input factors

Considered in measurement

Sensitivity of input factor on fair value

Non-listed share

DCF method

Long-term growth rate of cash flows for subsequent years

0.1%

+ 0.25%

-0.25%

€ + 1.90 million

€ -0.7 million

Foreign currency-based derivatives

Black-Scholes model

Exit date of Warburg Pincus from Business Application segment as of Dec. 31, 2019

2 years

+1 year

-1 year

€ + 0.62 million

€ -1.27 million

Volatility

7.1%

€ +1%

€ -1%

€ + 0.43 million

€ - 0.50 million

Earnings-based derivatives

Monte Carlo simulation

Exit date of Warburg Pincus from Business Application segment as of Dec. 31, 2019

2 years

+1 year

-1 year

€ - 1.40 million

€ +2.34 million

Volatility

40.07%

+1%

-1%

€ - 0.1 million

€ +0.1 million

Conditional purchase price liability

Monte Carlo simulation

Exit date of Warburg Pincus from Business Application segment as of Dec. 31, 2019

2 years

+1 year

-1 year

€ - 1.16 million

€ +1.94 million

Volatility

40.07%

+1%

-1%

€ - 0.1 million

€ +0.1 million

Conditional purchase price liability

Modified multiple

EBITDA growth

5%

+1%

-1%

€ + 0.1 million

€ -0.1 million

Conditional purchase price liability

Modified multiple

EBITDA growth

5%

+1%

-1%

€ + 0.1 million

€ -0.1 million

Reconciliation to fair value in Level 3:

€k

Non-listed share

Derivatives

Conditional purchase price obligation

As of January 1, 2019

42,796

22,590

-14,982

Revaluation recognized in other comprehensive income

1,826

0

0

Revaluation recognized in profit or loss

0

8,860

-10,622

As of December 31, 2019

44,622

31,450

-25,604

Revaluation recognized in other comprehensive income

32,855

0

0

Revaluation recognized in profit or loss

0

-618

-7,131

Derecognition

-77,477

-

As of December 31, 2020

0

30,832

-32,735

50. List of shareholdings of the United Internet AG Group acc. to section 313 (2) HGB

As of December 31, 2020, the Group includes the following subsidiaries in which United Internet AG holds a direct or indirect majority interest (as indicated by the shareholdings in brackets). Unless otherwise stated, the shareholding corresponds to the proportion of voting rights:

1&1 Mail & Media Applications SE, Montabaur (100.0%)

  • 1&1 Mail & Media Development & Technology GmbH, Montabaur (100,0 %)
  • 1&1 Mail & Media GmbH, Montabaur (100,0 %)
    • 1&1 De-Mail GmbH, Montabaur (100,0 %)
    • 1&1 Energy GmbH, Montabaur (100,0 %)
    • 1&1 Mail & Media Inc., Chesterbrook / USA (100,0 %)
  • 1&1 Mail & Media Service GmbH, Montabaur (100,0 %)
  • UIM United Internet Media Austria GmbH, Vienna / Austria (100.0%)
  • United Internet Media GmbH, Montabaur (100,0 %)

1&1 Versatel GmbH, Düsseldorf (100.0%)

  • 1&1 Versatel Deutschland GmbH, Düsseldorf (100,0 %)
    • TROPOLYS Service GmbH, Düsseldorf (100,0 %)
    • TROPOLYS Netz GmbH, Düsseldorf (100,0 %)
    • Versatel Immobilien Verwaltungs GmbH, Düsseldorf (100,0 %)

1&1 Drillisch Aktiengesellschaft, Maintal (75.1%)

  • 1&1 Telecommunication SE, Montabaur (100,0 %)
    • 1&1 Logistik GmbH, Montabaur (100,0 %)
    • 1&1 Telecom Holding GmbH, Montabaur (100,0 %)
      • 1&1 Telecom GmbH, Montabaur (100,0 %)
    • 1&1 Telecom Sales GmbH, Montabaur (100,0 %)
    • 1&1 Telecom Service Montabaur GmbH, Montabaur (100,0 %)
    • 1&1 Telecom Service Zweibrücken GmbH, Zweibrücken (100,0 %)
  • Blitz 17-665 SE, Maintal (100,0 %)
  • Blitz 17-666 SE, Maintal (100,0 %)
  • CA BG AlphaPi AG, Wien / Österreich (100,0 %)
  • Drillisch Logistik GmbH, Münster (100,0 %)
  • Drillisch Online GmbH, Maintal (100,0 %)
    • Drillisch Netz AG, Düsseldorf (100,0 %)
  • IQ-optimize Software AG, Maintal (100,0 %)

1&1 IONOS TopCo SE (formerly: 1&1 Internet TopCo SE), Montabaur (66.67%)

  • 1&1 IONOS Holding SE, Montabaur (100,0 %)
    • STRATO AG, Berlin (100,0 %)
      • Cronon GmbH, Berlin (100,0 %)
      • STRATO Customer Service GmbH, Berlin (100,0 %)
    • 1&1 IONOS SE, Montabaur (100,0 %)
      • 1&1 IONOS Datacenter SAS, Niederlauterbach / Frankreich (100,0 %)
      • 1&1 Internet Development SRL, Bukarest / Rumänien (100,0 %)
      • 1&1 IONOS España S.L.U., Madrid / Spanien (100,0 %)
      • 1&1 IONOS Ltd., Gloucester / Großbritannien (100,0 %)
      • 1&1 IONOS (Philippines) Inc., Cebu City / Philippinen (100,0 %)
      • 1&1 IONOS S.a.r.L., Saargemünd / Frankreich (100,0 %)
      • 1&1 IONOS Service GmbH, Montabaur (100,0 %)
      • 1&1 IONOS Inc., Chesterbrook / USA (100,0 %)
        • A1 Media USA LLC, Chesterbrook / USA (100,0 %)
        • 1&1 Cardgate LLC, Chesterbrook / USA (100,0 %)
    • 1&1 IONOS Cloud Inc., Newark / USA (100,0 %)
    • 1&1 IONOS UK Holdings Ltd., Gloucester / Großbritannien (100,0 %)
      • Fasthosts Internet Ltd., Gloucester / Großbritannien (100,0 %)
    • Arsys Internet S.L.U., Logroño / Spanien (100,0 %)
      • Arsys Internet E.U.R.L., Perpignan / Frankreich (100,0 %)
      • Nicline Internet S.L., Logroño / Spanien (100,0 %)
      • Tesys Internet S.L., Logroño / Spanien (100,0 %)
    • home.pl S.A., Stettin / Polen (100,0 %)
      • AZ.pl Sp. z o.o., Stettin / Polen (100,0 %)
      • HBS Cloud Sp. z o.o., Stettin / Polen (100,0 %)
      • premium.pl Sp. z o.o., Stettin / Polen (75,0 %)
    • Immobilienverwaltung AB GmbH, Montabaur (100,0 %)
    • Immobilienverwaltung NMH GmbH, Montabaur (100,0 %)
    • InterNetX Holding GmbH, Regensburg (95,56 %)
      • InterNetX GmbH, Regensburg (100,0 %)
        • InterNetX, Corp., Miami / USA (100,0 %)
        • PSI-USA, Inc., Las Vegas / USA (100,0 %)
        • Schlund Technologies GmbH, Regensburg (100,0 %)
        • Domain Robot Enterprises Inc., Vancouver / Kanada (100%)
      • Sedo GmbH, Köln (100,0 %)
        • DomCollect International GmbH, Montabaur (100,0 %)
        • Sedo.com LLC, Cambridge / USA (100,0 %)
    • united-domains AG, Starnberg (100,0 %)
      • United Domains Inc., Cambridge / USA (100,0 %)
      • united-domains Reselling GmbH, Starnberg (100,0 %)
    • World4You Internet Services GmbH, Linz / Österreich (100,0 %)
Other:
  • CA BG AlphaRho AG, Vienna / Austria (100.0%)
  • MIP Multimedia Internet Park GmbH, Zweibrücken (100,0 %)
  • United Internet Corporate Services GmbH, Montabaur (100,0 %)
    • A 1 Marketing Kommunikation und neue Medien GmbH, Montabaur (100,0 %)
  • United Internet Investments Holding AG & Co. KG, Montabaur (100,0 %)
  • United Internet Service SE, Montabaur (100,0 %)
    • United Internet Sourcing & Apprenticeship GmbH, Montabaur (100,0 %)
  • United Internet Management Holding SE, Montabaur (100,0 %)
  • United Internet Corporate Holding SE, Montabaur (100,0 %)
Associated companies

Investments over whose financial and business policies the Group has a significant influence are carried as associated companies using the equity method pursuant to IAS 28 and comprise the following main companies:

  • Intellectual Property Management Company Inc., Dover / USA (49,0 %)
  • DomainsBot S.r.l, Rom / Italien (49,0 %)
    • DomainsBot Inc., Dover / USA (100,0 %)
  • rankingCoach International GmbH, Köln (30,70 %)
  • uberall GmbH, Berlin (27,56 %)
  • Tele Columbus AG, Berlin (29,90 %)*
  • Open-Xchange AG, Köln (25,39 %)
  • AWIN AG, Berlin (20,0 %)

* Classified as non-current assets held for sale as at the balance sheet date.

    Other investments

    Companies in which the Group has invested and over whose financial and business policies it has no significant influence (

    • MMC Investments Holding Company Ltd., Port Louis / Mauritius (11.36%)
    • POSpulse GmbH, Berlin (1.49%)
    • High-Tech Gründerfonds III GmbH & Co. KG, Bonn (0.95%)
    Changes in the reporting unit

    The following company was merged with an existing Group company in the fiscal year 2020:

    • United Internet Service Holding GmbH, Montabaur, was merged with 1&1 Versatel GmbH, Düsseldorf.
    • DP ASIA Sp. z o.o., Stettin / Poland, was merged with premium.pl Sp. z o.o as of December 1, 2020
    • DP EUROPE Sp. z o.o., Stettin / Poland, was merged with premium.pl Sp. z o.o as of December 1, 2020
    • DP POLAND Sp. z o.o., Stettin / Poland, was merged with premium.pl Sp. z o.o as of December 1, 2020
    • Mobile Ventures GmbH, Maintal, was merged with Drillisch Online GmbH as of October 23, 2020

    The following company was sold in the fiscal year 2020:

    • 1&1 Berlin Telecom Service GmbH, Berlin (100.0%)
    • Afilias Inc, Horsham, USA (9.82%)
    • Shares in the following associated company were sold in the reporting period:
    • ePages GmbH, Hamburg (25.01%)

    The following companies were liquidated in the fiscal year 2020:

    • General Media Xervices GMX SL, Madrid, Spain (100.0%)
    • GMX Italia SRL, Milan, Italy (100.0%)
    • 1&1 Internet Sp. z o.o. Warsaw, Poland (100.0%)
    • PipesBox GmbH, Rostock (15.04%)

    The following companies were acquired in the fiscal year 2020:

    • ASCI Consulting GmbH, Berlin (100.0%) (asset deal)

    51. Corporate Governance Code

    The declaration pursuant to section 161 AktG on observance of the German Corporate Governance Code was submitted by the Management Board and Supervisory Board and has been made available to shareholders via the internet portal of United Internet AG (www.united-internet.de).

    Montabaur, March 19, 2021

    The Management Board

    Ralph Dommermuth   Martin Mildner