Letter to the shareholders

Dear shareholders, employees, and friends of United Internet,

In the fiscal year 2020, United Internet once again made significant investments in new customer contracts and the expansion of existing customer relationships – and thus in sustainable growth. All in all, we increased the number of fee-based customer contracts organically by 910,000 to 25.65 million contracts. Of this total, 500,000 were added in the Consumer Access segment and 300,000 contracts in the Business Applications segment. A further 110,000 contracts and 1.81 million ad-financed free accounts were added in the Consumer Applications segment.

Consolidated sales grew by 3.3% in the fiscal year 2020, from € 5,194.1 million in the previous year to € 5,367.2 million. The development of sales was impeded by the effects of the coronavirus pandemic, which had an overall negative impact on the Consumer Access and Consumer Applications segments. There were opposing positive effects in the Business Access segment. Adjusted for these pandemic effects, like-for-like sales rose by 3.8%.

Earnings in 2020 and 2019 were impacted by various special items. The one-off, non-cash write-off of remaining VDSL contingents for existing customers in 2020 (€ -129.9 million) was opposed by income from the sale of shares in virtual minds in the previous year (€ +21.5 million).

Adjusted for these special items, consolidated EBITDA of € 1,178.8 million for the fiscal year 2020 was 5.3% down on the prior-year figure (€ 1,244.2 million). This decline was mainly due to the price increase introduced by Telefónica Germany on July 1, 2020 for the use by 1&1 Drillisch AG of Telefónica’s network capacity under the MBA MVNO agreement. In addition to this price rise, which will be reduced retroactively by € 34.4 million on the planned conclusion in May 2021 of a national roaming agreement with Telefónica (out-of-period recognition in fiscal 2021), earnings of 1&1 Drillisch were mainly burdened by initial costs for the rollout of the 5G network, as well as by effects from regulatory decisions. On top of this, the coronavirus pandemic also had a negative impact on earnings. Adjusted additionally for these negative effects, like-for-like EBITDA was 1.3% above the prior-year figure.

Similarly influenced by excessive MBA invoicing and the aforementioned effects, consolidated EBIT of € 704.8 million also fell short of the prior-year figure (€ 770.2 million – without trademark writeups for Strato). Adjusted for these effects, like-for-like EBIT was up 2.1% on the previous year.

Earnings per share (EPS) for the fiscal year 2020 fell from € 2.13 in the previous year to € 1.55. There was an overall negative impact on EPS in 2020 (EPS effect: € -0.21) from the non-cash write-off of VDSL contingents still available and – with an opposing effect – impairment reversals for Tele Columbus, whereas in the previous year EPS was positively impacted in total by the sale of virtual minds shares, the trademark writeups for Strato, and impairment reversals for Tele Columbus (EPS effect: € +0.25). Adjusted for these effects, operating EPS decreased by 6.4% from € 1.88 to € 1.76.

In addition to our operating business, the fiscal year 2020 was dominated by preparations for the construction of our own mobile communications network and the ongoing negotiations on national roaming with Telefónica Germany, needed for the transition period as we gradually establish our network. In an ad-hoc announcement on February 15, 2021, we reported that 1&1 Drillisch would accept Telefónica Germany’s offer – improved following a review by the EU Commission – for national roaming and the related MBA MVNO advance services. The terms offered by Telefónica with retroactive effect from July 2020 will therefore be based in future once more on the pricing mechanisms of the first five years of the MBA MVNO agreement. In particular, the offer again includes annually decreasing data prices, which are lower than the prices charged by Telefónica in the second half of 2020. The conclusion of an agreement, which Telefónica’s offer expects in May 2021, would constitute a further essential prerequisite for the planned rollout of a high-performance 5G network. Shared use of the Telefónica network ensures our customers can already enjoy nationwide mobile coverage during the construction phase of our own network.

In the same ad-hoc announcement, we reported that 1&1 Drillisch planned to expand its fiber-optic offerings and would in future receive VDSL and FTTH advance services (fiber-to-the-home/FTTH) from its affiliate 1&1 Versatel. For this purpose, 1&1 Drillisch has entered into an agreement with 1&1 Versatel regarding the long-term purchase of FTTH and VDSL complete packages including Voice and IPTV effective from April 1, 2021. At the same time, 1&1 Versatel has entered into an agreement with Deutsche Telekom on the use of its FTTH and VDSL connections for households. These enable 1&1 Versatel to provide FTTH/VDSL complete packages for 1&1 Drillisch, as 1&1 Versatel’s nationwide fiber-optic transport network is largely connected to the local broadband networks of Deutsche Telekom. In addition to the existing access to FTTH connections of well-known city carriers, 1&1 Versatel will thus have initial access to approx. 750,000 additional FTTH connections. The number of marketable FTTH connections of Deutsche Telekom is expected to increase by an average of 2 million households per year in the coming years. FTTH connections for private households enable bandwidths of up to 1Gbit/s. Households not yet equipped with FTTH will be supplied with VDSL connections (up to 250 Mbit/s). By signing this agreement, we have taken a further step toward our goal of providing an ever-growing number of households with guaranteed gigabit speeds as fiber-optic becomes more and more the standard for fast communication.

Together with Morgan Stanley Infrastructure Partners, we also plan to provide sustained support for the implementation of Tele Columbus’s Fiber Champion strategy. In a first step, Kublai GmbH (a bidding company backed by Morgan Stanley) has submitted a voluntary public takeover offer for the Tele Columbus shares. If the takeover bid is successful, United Internet will contribute its stake in Tele Columbus of around 29.9% to Kublai in return for a shareholding in Kublai GmbH. Part of Tele Columbus’s Fiber Champion strategy is to open up its broadband network for cooperation partners. In view of this, 1&1 Drillisch has signed a binding preliminary agreement with Tele Columbus to use the latter’s cable/fiber-optic network as a pre-service for its broadband products, enabling it to tap new target groups via fiber-optic and, for the first time, also via cable connections. United Internet’s stake in Kublai and the cooperation agreement are currently still subject to the successful conclusion of the takeover offer, expected in April 2021.

Last but not least, we also strengthened our Business Applications segment in early 2021 with the acquisition of the Cologne-based company we22 AG, which develops software for the creation, maintenance and hosting of websites. we22 is best-known for its white-label website builder CM4all, which has been used to create and operate more than 5 million websites to date. With over 25 language versions, CM4all has been an essential part of the product offering of over 50 hosting providers worldwide since 2000. Under its Web4Business brand, we22 also offers website creation and online marketing services to small businesses in Germany. we22's products and services will also be made available to IONOS customers in the future. Moreover, CM4all will continue to be offered as a white-label solution for other internet providers and business customers.

For the fiscal year 2020, the Management Board and Supervisory Board will propose a dividend of € 0.50 per share (prior year: € 0.50) at the Annual Shareholders' Meeting to be held on May 27, 2021. On the basis of around 187.2 million shares with dividend entitlement (as of December 31, 2020), the total dividend payment for fiscal year 2020 would amount to € 93.6 million. The dividend payout ratio corresponds to 28.3% of adjusted consolidated net income for 2020 after minority interests (€ 330.2 million) and would thus lie – in view of the investments due to be made in the 5G mobile network of 1&1 Drillisch – within the medium range of our dividend policy.

For the fiscal year 2021, we expect sales growth to approx. € 5.5 billion. Without consideration of out-of-period income of approx. € 34.4 million in connection with the planned conclusion of a national roaming agreement, EBITDAis expected to increase to approx. € 1.22 billion. This forecast includes negative effects on sales and earnings from the coronavirus pandemic of approx. € 25 million as well as high investments in future topics. For example, 1&1 Drillisch plans initial costs for the 5G network rollout in 2021 of approx. € 30 million and IONOS an additional approx. € 40 million for a product and sales drive. Following the integration of STRATO, World4You, and ProfitBricks in the past few years and its successful rebranding, IONOS aims to focus on expanding its cloud business and driving further internationalization. In the current year, IONOS expects to reach sales of approx. € 1 billion for the first time. Its IPO is scheduled to be held within the next two years.

We are well prepared for the next steps in our company’s development and upbeat about our future prospects. In view of the past year and the challenges that lie ahead, we would like to express our particular gratitude to all employees for their dedicated efforts as well as to our shareholders and customers for the trust they continue to place in United Internet AG.

Montabaur, March 2021

The Management Board

Ralph Dommermuth   Martin Mildner