2.3 Position of the Group

There were no significant acquisition or divestment effects on consolidated and segment sales and EBITDA in the fiscal year 2021. There were also only minor negative currency effects at Group and segment level (Business Applications segment) amounting to € -4.1 million for sales and € -0.1 million for EBITDA. The same applies to the Group’s asset position, for which there were no significant effects from currency fluctuations.

Group’s earnings position

In the fiscal year 2021, the total number of fee-based customer contracts in the United Internet Group was raised by 1.03 million to 26.68 million contracts. At the same time, ad-financed free accounts rose by 0.92 million to 40.32 million.

Consolidated sales increased by 5.2% in the fiscal year 2021, from € 5,367.2 million in the previous year to € 5,646.2 million. Despite currency losses of € 4.1 million, sales outside Germany improved by 12.1% from € 458.5 million to € 513.8 million.

The cost of sales fell from € 3,769.3 million to € 3,684.9 million during the reporting period. As a result, the cost of sales ratio fell from 70.2% (of sales) in the previous year to 65.3% (of sales). This improvement was due in part to a (non-period) positive effect of € +39.4 million in 2021 (for further details, please refer to the comments on earnings below), whereas in the previous year there was a write-off of VDSL contingents amounting to € -129.9 million. In addition, since the conclusion of the national roaming agreement, 1&1 is entitled to decrease or increase the ordered advance service capacities within contractually agreed ranges. This has resulted in positive effects for cost of sales. There was a corresponding improvement in the gross margin from 29.8% to 34.7%. This enabled gross profit torise faster than sales (5.2%) by 22.7% from € 1,597.9 million to € 1,961.2 million.

Due in part to the IONOS sales drive, sales and marketing expenses increased slightly faster than sales, from € 767.9 million (14.3% of sales) in the previous year to € 835.7 million (14.8% of sales).

There was a strongly disproportionate increase in administrative expenses from € 206.0 million (3.8% of sales) to € 243.0 million (4.3% of sales), due to increased legal and consultancy costs (for preparations and negotiations in connection with the rollout of the Company’s own 5G network).

Multi-period overview: Development of key cost items

(1) Including the non-period positive effect on earnings attributable to the second half of 2020 (EBITDA and EBIT effect: € +39.4 million)

Other operating expenses fell from € 30.9 million to € 21.2 million and other operating income from € 74.5 million in the previous year to € 54.8 million. Impairment losses on receivables and contract assets amounted to € -86.3 million (prior year: € -92.9 million).

Key earnings figures were influenced by various special items in the fiscal years 2020 and 2021, which in total had a net positive effect in the fiscal year 2021 and a strong net negative effect in the fiscal year 2020.

Special items 2021

• The special item “non-period effect from lower MBA MVNO prices in 2021” results from retroactively more favorable advance service prices for mobile communications in the second half of 2020 in connection with the national roaming agreement with Telefónica concluded on May 21, 2021 and had a non-period positive impact on EBITDA, EBIT, EBT, net income and EPS for the first time in the fiscal year 2021.
  
  Details are provided in chapter 2 “Economic report” under “Legal conditions / significant events”.


• The special item “non-cashvaluation effect from derivatives in 2021“ results from the quarterly revaluations of derivatives and had a positive impact on EBITDA, EBIT, EBT, net income and EPS in the fiscal year 2021. This effect was insignificant in the fiscal year 2020.

Special items 2020

• The special item “allocation of the non-period effect in 2021 to the correct period in 2020” results from correctly allocating the above mentioned earnings effect in 2021 and had a positive impact on EBITDA, EBIT, EBT, net income and EPS.
  
  Details are provided in chapter 2 “Economic report” under “Legal conditions / significant events”.


• The special item “write-off of VDSL contingents in 2020” results from the derecognition of accrued assets for VDSL contingents still available. In the fiscal year 2020, it had a negative effect on EBITDA, EBIT, EBT, net income, and EPS.


• The special item “Impairment reversals Tele Columbus in 2020” results from the impairment reversal of shares in Tele Columbus AG held by United Internet and disclosed in the result from associated companies. In the fiscal year 2020, it had a positive effect on EBT, net income, and EPS.

Reconciliation of EBITDA, EBIT, EBT, net income, and EPS with figures adjusted for special items

Without consideration of the above mentioned opposing special items, the key performance measures EBITDA, EBIT, EBT, net income, and EPS for the fiscal year 2021 developed as follows:

In the fiscal year 2021, consolidated operating EBITDA rose by 3.4% from € 1,218.2 million in the previous year to € 1,259.4 million and consolidated operating EBIT by 5.6% from € 744.2 million to € 785.6 million.

These EBITDA and EBIT figures include initial costs for the construction of the 5G network of € -37.9 million (prior year: € -13.9 million) for 1&1 as well as announced investmentsfor a product and sales drive of IONOS amounting to € -36.8 million focusing on its cloud business and further international expansion.

As a result, the operatingEBITDA margin of 22.3% was below the prior-year figure (22.7%), while the operatingEBIT margin was unchanged at 13.9%.

Key sales and earnings figures of the Group (in € million)

(1) Excluding the non-period positive effect on earnings attributable to the second half of 2020 (EBITDA and EBIT effect: € +39.4 million) and excluding a non-cash valuation effect from derivatives (EBITDA and EBIT effect: € +4.9 million)

(2) Including the non-period positive effect on earnings in 2021 attributable to the second half of 2020 (EBITDA and EBIT effect: € +39.4 million) and excluding write-off of VDSL contingents that are still available (EBITDA and EBIT effect: € -129.9 million)

Quarterly development; change over prior-year quarter

(1) Excluding the non-period positive effect on earnings from the second half of 2020 (EBITDA and EBIT effect: € +34.4 million) and excluding a non-cash valuation effect from derivatives (EBITDA and EBIT effect: € +0.2 million)

(2) Excluding the non-period positive effect on earnings from the second half of 2020 (EBITDA and EBIT effect: € +5.0 million) and excluding a non-cash valuation effect from derivatives (EBITDA and EBIT effect: € +0.7 million)

(3) Excluding a non-cash valuation effect from derivatives (EBITDA and EBIT effect: € +2.1 million)

(4) Excluding a non-cash valuation effect from derivatives (EBITDA and EBIT effect: € +1.9 million)

(5) Including the non-period positive effect on earnings in 2021, partly attributable to the fourth quarter of 2020 (EBITDA and EBIT effect: € +20.2 million) and excluding non-cash write-off of VDSL contingents that are still available (EBITDA and EBIT effect: € -129.9 million)

Multi-period overview: Development of key sales and earnings figures

(1) Excluding the extraordinary income from revaluation of Drillisch shares (EBITDA and EBIT effect: € +303.0 million) and revaluation of ProfitBricks shares (EBITDA and EBIT effect: € +16.1 million), as well as without M&A transaction costs (EBITDA and EBIT effect: € -17.1 million), without restructuring charges in offline sales (EBITDA and EBIT effect: € -28.3 million) and without trademark writedowns Strato (EBIT effect: € -20.7 million)

(2) Excluding extraordinary income from the sale of virtual minds shares (EBITDA and EBIT effect: € +21.5 million) and excluding trademark writeups Strato (EBIT effect: € +19.4 million)

(3) Including the non-period positive effect on earnings in 2021 attributable to the second half of 2020 (EBITDA and EBIT effect: € +39.4 million) and excluding write-off of VDSL contingents that are still available (EBITDA and EBIT effect: € -129.9 million)

(4) Excluding the non-period positive effect on earnings attributable to the second half of 2020 (EBITDA and EBIT effect: € +39.4 million) and excluding a non-cash valuation effect from derivatives (EBITDA and EBIT effect: € +4.9 million)

Despite theabove mentioned burdens on earnings, operating earnings before taxes (EBT) and operating consolidated net income rose by 4.7% from € 696.3 million to € 729.0 million and by 7.6% from € 458.1 million to € 492.8 million, respectively.

The operating consolidated net income attributable to shareholders of United Internet AG also improved by 11.8% from € 351.0 million to € 392.4 million.

There was also a corresponding increase in operatingearnings per share (EPS) of 12.3%, from € 1.87 in the previous year to € 2.10, and in operatingEPS before PPA of 8.2% from € 2.32 to € 2.51.

Group’s financial position

Thanks to the Company’s positive development and based on consolidated net income of € 523.2 million (prior year: € 368.8 million), operative cash flow rose from € 954.1 million to € 987.8 million in 2021.

At€ 887.6 million, cash flow from operating activities in the fiscal year 2021 was below the prior-year figure (€ 925.7 million). This resulted in particular from prepayments made to advance service providers.

Cash flow from investing activities in the reporting period led to a net outflow of € 527.3 million (prior year: € 361.1 million). This resulted mainly from capital expenditures of € 289.8 million (prior year: € 447.0 million, of which € 165.0 million for the extension phase of the MBA MVNO agreement), from payments to acquire shares in associated companies totaling € 226.3 million (especially for the stake in Kublai GmbH), as well as from payments of € 20.6 million for the purchase of shares in affiliates (especially for the acquisition of we22 AG). In addition to capital expenditures, cash flow from investing activities in the previous year was also dominated by payments received for the disposal of financial assets (especially the sale of shares in Afilias Inc.) amounting to € 77.5 million.

United Internet’s free cash flow is defined as cash flow from operating activities, less capital expenditures, plus payments from disposals of intangible assets and property, plant, and equipment. Due to the much lower level of capital expenditures, free cash flow increased from € 483.8 million to € 600.8 million. The redemption share of lease liabilities is disclosed in cash flow from financing activities. After deducting the cash flow item “Redemption of finance lease liabilities and rights of use”, free cash flow rose from € 376.6 million to € 495.2 million in the fiscal year 2021.

Cash flow from financing activities in the fiscal year 2021 was dominated by the net assumption of loans totaling € 353.0 million (prior year: loan repayments of € 272.3 million), the redemption of frequency liabilities of € 61.3 million (prior year: € 61.3 million), the redemption of lease liabilities of € 105.6 million (prior year: € 107.2 million), the dividend payment of € 93.6 million (prior year: € 93.6 million), as well as the payment of € 456.8 million to minority shareholders for increased shareholdings in IONOS TopCo SE and 1&1 AG.

Cash and cash equivalents amounted to € 110.1 million as of December 31, 2021 – due to closing-date effects – compared to € 131.3 million on the same date in the previous year.

Development of key cash flow figures

(1) Free cash flow is defined as cash flow from operating activities, less capital expenditures, plus payments from disposals of intangible assets and property, plant and equipment

(2) 2021 including the repayment portion of lease liabilities (€ 105.6 million), which have been reported under cash flow from financing activities since the fiscal year 2019 (IFRS 16)

(3) 2020 including the repayment portion of lease liabilities (€ 107.2 million), which have been reported under cash flow from financing activities since the fiscal year 2019 (IFRS 16)

Multi-period overview: Development of key cash flow figures

(1) Free cash flow is defined as cash flow from operating activities, less capital expenditures, plus payments from disposals of intangible assets and property, plant and equipment

(2) 2017 without consideration of a capital gains tax refund originally planned for the fourth quarter of 2016 (€ 70.3 million)

(3) 2018 without tax payment from fiscal year 2016 (€ 34.7 million)

(4) 2019 without capital gains tax payment (€ 56.2 million) and without tax payments from fiscal year 2017 and previous years (€ 27.2 million) and including the repayment portion of lease liabilities, which have been reported under cash flow from financing activities since the fiscal year 2019 (IFRS 16)

(5) 2020 and 2021 including the repayment portion of lease liabilities, which have been reported under cash flow from financing activities since the fiscal year 2019 (IFRS 16)

Group’s asset position

The balance sheet total increased from € 9.231 billion as of December 31, 2020 to € 9.669 billion on December 31, 2021.

Development of current assets

Current assets rose from € 1,512.9 million as of December 31, 2020 to € 1,594.2 million on December 31, 2021. However, cash and cash equivalents disclosed under current assets decreased from € 131.3 million to € 110.1 million due to closing-date effects and M&A transactions. By contrast, trade accounts receivable rose slightly from € 344.8 million to € 380.5 million due to closing-date effects and the expansion of business. As a result of customer growth and increased hardware sales, the item contract assets rose from € 577.6 million to € 619.7 million and includes current claims against customers due to accelerated revenue recognition from the application of IFRS 15. Due to loans granted to associated companies and acquired derivatives, current other financial assets rose from € 82.3 million to € 119.0 million. By contrast, income tax claims fell from € 64.8 million to € 46.4 million. Inventories, current prepaid expenses, and other non- financial assets were virtually unchanged.

Development of non-current assets

Non-current assets rose strongly from € 7,594.0 million as of December 31, 2020 to € 8,074.9 million on December 31, 2021. This was mainly due to the increase in shares in associated companies from € 89.6 million to € 431.6 million – resulting in particular from the acquisition of a stake in Kublai GmbH and the reclassification of assets previously classified as held-for-sale (Tele Columbus). As a result of capital expenditure in fiscal year 2021, property, plant, and equipment rose from € 1,271.6 million to € 1.379.6 million, while intangible assets declined from € 2,197.8 million to € 2,059.4 million mainly due to amortization. Goodwill increased from € 3,609.4 million to € 3,627.8 million, primarily as a result of the acquisition of we22 AG. The strong increase in prepaid expenses from € 144.8 million to € 287.7 million was due to closing-date effects and the long-term portion of payments under the contingent agreement with Deutsche Telekom. Non-current other financial assets, trade accounts receivable, contract assets, and deferred tax assetswere all largely unchanged.

Development of current liabilities

Current liabilities increased from € 1,504.6 million as of December 31, 2020 to € 1,606.2 million on December 31, 2021. Due to closing-date effects, current trade accounts payable increased from € 532.8 million to € 583.4 million. Current liabilitiesdue tobanks fell from € 370.4 million to € 325.4 million. Income tax liabilities declined from € 114.6 million to € 58.4 million. Current other financial liabilities rose from € 278.6 million to € 329.2 million as a result of closing-date effects. Due to a change in legislation (reverse charge of sales tax for TC services), current other non-financial liabilities increased from € 46.7 million to € 135.7 million and mainly include liabilities due to tax authorities. The item current contract liabilities, which mainly includes payments received from customer contracts for which the performance has not yet been completely rendered, and the itemcurrent other accrued liabilities were largely unchanged.

Development of non-current liabilities

Non-current liabilities increasedfrom € 2,815.0 million as of December 31, 2020 to € 3,139.7 million on December 31, 2021. This was mainly due to long-term liabilitiesdue tobanks, which rose from € 1,095.7 million to € 1,497.4 million following the assumption of long-term loans in connection with M&A transactions. For details on M&A financing, please refer to the comments on net bank liabilities on the following page.

As in 2014 and 2017, United Internet AG successfully placed a promissory note loan (“Schuldscheindarlehen”) in its fiscal year 2021. As the transaction was significantly oversubscribed, the Company decided to raise the originally planned placement volume to an ultimate amount of € 750 million. The promissory note loan comprises several tranches with terms of three to six years and largely fixed interest rates with an average interest rate of 0.79% p.a. The transaction was closed in July 2021.

The items deferred tax liabilities, non-current trade accounts payable,non-current contract liabilities (which mainly include payments received from customer contracts for which the performance has not yet been completely rendered), as well as non-current other accrued liabilities and other financial liabilities were all largely unchanged.

Development of equity

The Group’s equity capital rose from € 4,911.2 million as of December 31, 2020 to € 4,923.2 million on December 31, 2021. There was a decrease in capital reserves which was offset in part by an increase in accumulated profit. The decline in capital reserves from € 2,322.8 million to € 1,954.7 million was due to the increase in shares in IONOS TopCo SE and in shares in 1&1 AG. By contrast, the Group’s accumulated profit rose from € 2,240.5 million to € 2,562.6 million and contains the past profits of the consolidated companies, insofar as they were not distributed. Due to the even stronger increase in total assets, the consolidated equity ratio fell from 53.2% to 50.9 %.

In an ad-hoc disclosure issued on August 6, 2021, United Internet AG announced its intention to launch a share buyback program with a volume of up to € 160 million. The program commenced on August 10, 2021 and was to expire no later than on April 30, 2022. On September 13, 2021, the Management Board of United Internet AG resolved to prematurely suspend the share buyback program on expiry of September 13, 2021. In the course of the share buyback program up to September 10, 2021, the Company purchased a total of 514,972 treasury shares at an average price of € 36.35 and with a total volume of € 18.7 million. As at the balance sheet date of December 31, 2021, United Internet AG therefore held 7,284,109 treasury shares (approx. 3.75% of the capital stock of 194,000,000 shares) – compared to 6,769,137 treasury shares as at December 31, 2020.

Net bank liabilities (i.e., current and non-current bank liabilities less cash and cash equivalents) increased from € 1,334.8 million as of December 31, 2020 to € 1,712.6 million on December 31, 2021. This rise was due to the assumption of new loans for funding, among other things, the investment in Kublai GmbH (€ 220 million), the increased stakes in IONOS TopCo SE (€ 310 million) and 1&1 AG (€ 149 million), and the acquisition of we22 AG (€ 21 million).

Multi-period overview: development of relative indebtedness

(1) Net bank liabilities = balance of bank liabilities and cash and cash equivalents

(2) Free cash flow without consideration of a capital gains tax refund originally planned for the fourth quarter of 2016 of € 70.3 million (2017), a tax payment from fiscal year 2016 of € 34.7 million (2018) and tax payments from fiscal year 2017 and previous years of € -22.1 million (2019); Free cash flow 2019, 2020 and 2021 incl. the repayment portion of lease liabilities, which have been reported under cash flow from financing activities since the financial year 2019 (IFRS 16)

Further details on the objectives and methods of the Group’s financial risk management are provided under note 43 of the Notes to the Consolidated Financial Statements.

Multi-period overview: development of key balance sheet items

(1) Decrease due to Tele Columbus impairment charges (2018); decrease due to reclassification Tele Columbus (2019); increase due to stake in Kublai (2021)

(2) Increase due to subsequent valuation of shares in listed companies (2018); decrease due to sale of Rocket Internet shares (2019); decrease due to sale of Afilias shares (2020)

(3) Increase due to initial application of IFRS 16 (2019)

(4) Increase due to initial recognition of acquired 5G frequencies (2019)

(5) Increase due to World4You takeover (2018)

(6) Decrease due to withdrawal of treasury shares (2020)

(7) Increase due to transitional effects from initial application of IFRS 15 (2018)

Management Board’s overall assessment of the Group’s business situation

Following the sharp downturn in the global economy in 2020 as a result of the coronavirus pandemic, the International Monetary Fund (IMF) indicate a return to economic growth in 2021, which was ultimately higher than expected at the beginning of the year.

By contrast, the economic recovery in Germany – United Internet’s most important market by far – was slower than anticipated in 2021. The IMF has calculated that economic output increased by 2.7%, and thus 0.8 percentage points less than expected at the beginning of the year. The IMF’s calculations for Germany are in line with the preliminary figures of the country’s Federal Statistics Office (Destatis), which forecast a 2.7% increase in (price-adjusted) gross domestic product (GDP) for 2021. Following the sharp fall in GDP as a result of the coronavirus pandemic in 2020, the Federal Statistics Office had also forecast stronger growth and thus a faster recovery at the beginning of 2021.

Thanks to its stable and largely non-cyclical business model, United Internet made good progress again in the fiscal year 2021. The Company was able to achieve the targets it set itself with an increase in customer contracts of 1.03 million to 26.68 million and sales growth of 5.2% to € 5.646 billion. At the same time, there was a further improvement in operating earnings – despite increased investment in future topics – with 3.4% growth in EBITDA to around € 1,259 million and 5.6% growth in EBIT to around € 786 million. These figures include initial costs for the construction of 1&1’s own 5G mobile communications network of € -37.9 million (prior year: € -13.9 million), and investments of € -36.8 million for a product and sales drive of IONOS focusing on its cloud business and further international expansion.

This positive performance once again highlights the benefits of United Internet’s business model based predominantly on electronic subscriptions with fixed monthly payments and contractually fixed terms. This ensures stable and predictable revenues and cash flows, offers protection against cyclical influences and provides the financial scope to win new customers, expand existing customer relationships, and grasp opportunities in new business fields and new markets – organically or via investments and acquisitions.

In the fiscal year 2021, the Company once again invested heavily in gaining and expanding customer relationships, as well as in developing new products – thus laying the basis for future growth.

The Group’s financial position also remained strong in fiscal 2021. At € 600.8 million (or € 495.2 million after leasing), free cash flow remained high (prior year: € 483.8 million, or € 376.6 million after leasing, including a one-off payment of € 165 million for the extension phase of the MBA MVNO agreement). This once again underlines the Group’s ability to generate very healthy levels of cash while at the same time achieving stable and qualitative growth.

As of the reporting date for the Annual Financial Statements 2021, and at the time of preparing this Management Report, the Management Board believes that the United Internet Group as a whole is well placed for its further development. It regards the financial position and performance – subject to possible special items – as positive and is optimistic about the Group’s future prospects.