Explanations of items in the balance sheet

18. Cash and cash equivalents

As of the reporting date, cash and cash equivalents amounted to € 110,116k (prior year: € 131,270k). 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

As of December 31, 2021 bad debt allowances for trade accounts receivable amounted to € 68,202k (prior year: € 74,487k). The development of bad debt allowances can be seen below:

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:

20. Contract assets

The development of bad debt allowances was as follows:

21. Inventories

As of December 31, 2021, inventories consisted of the following items:

Goods recognized as material expense from inventories in cost of sales amounted to € 824,940k in the reporting period (prior year: € 794,244k). Of this total, an amount of € 2,053k (prior year: € 2,205k) refers to impairment of inventories.

Allowances include € 6,537k (prior year: € 6,525k) for mobile telephony/mobile internet and IP-TV, and € 2,960k (prior year: € 3,199k) for domain stock.

22. Prepaid expenses

Current prepaid expenses of € 213,974k (prior year: € 214,382k) consist mainly of contract initiation costs of € 86,825k (prior year: € 93,594k), contract fulfillment costs of € 46,862k (prior year: € 55,441k), and prepayments for wholesale fees of € 26,081k (prior year: € 12,472k), which were deferred and charged to the income statement on the basis of the underlying contractual period.

Non-current prepaid expenses of € 287,730k (prior year: € 144,795k) consist mainly of contract initiation costs of € 82,473k (prior year: € 85,767k), contract fulfillment costs of € 34,092k (prior year:€ 40,375k), and prepayments to advance service providers of € 171,165k (prior year: € 0k).

At the end of the reporting period, the final balances of capitalized contract initiation costs amounted to € 169,298k (prior year: € 179,361k) and of capitalized contract fulfillment costs to € 80,954k (prior year: € 95,816k). In the fiscal year 2021, amortization of capitalized contract initiation costs amounted to € 111,606k (prior year: € 84,872k). Amortization of capitalized contract fulfillment costs amounted to € 60,421k in the fiscal year 2021 (prior year: € 69,557k).

The final balances of prepayments for wholesale fees amounted to € 197,246k as of the reporting date (prior year: € 12,472k). A total of € 31,227k was expensed in fiscal year 2021 (prior year: € 40,038k).

23. Other current assets

23.1 Other current financial assets

The derivatives mainly relate to the embedded derivatives agreed as part of Warburg Pincus’ investment in the Business Applications segment, as well as other derivatives. For further information, please refer to Note 34.

The increase in receivables from advance 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

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

The Group holds interests in several associated companies. The main investment in 2021 are AWIN AG, Berlin, and Kublai GmbH, Frankfurt am Main, which the Group holds via its subsidiary United Internet Investments Holding AG & Co.KG, 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.

Kublai GmbH is the parent company of Tele Columbus. Tele Columbus AG, Berlin, 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 following table contains summarized financial information of the main associated companies on the basis of a 100% shareholding as of December 31, 2021:

* On the basis of a preliminary purchase price allocation

AWIN sold a subsidiary during the previous year. 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, 2021 – with an estimation of investment results for the fourth quarter – is presented below:

* On the basis of a preliminary purchase price allocation

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.

Kublai GmbH (formerly UNA 422. Equity Management GmbH), a bidding company 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.

As the takeover offer was successful, United Internet contributed or sold its stake in Tele Columbus of around 29.90% to the bidding company. In return, United Internet received a shareholding in the bidding company. Due to the successful completion of the transaction, United Internet increased its stake in the bidding company to 40%. The option to increase the stake was included in the agreement of December 21, 2020.

The acquisition costs for the shares in Kublai GmbH comprise the following items:

On the basis of the agreement between United Internet and Morgan Stanley dated December 21, 2020, United Internet reclassified its shares in Tele Columbus AG as of December 31, 2020 pursuant to IFRS 5 as assets held for sale.

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.

At the time of reclassification, the assets were measured at fair value. Tele Columbus was already impaired in the past. In the fiscal year 2020, 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 were recognized in the result from associated companies. The carrying amount of shares in Tele Columbus as at December 31, 2020 had increased by € 17.3 million, from € 106.6 million to € 123.9 million.

The shareholding in Tele Columbus AG corresponds to the proportion of voting rights. It was valued using the equity method. in the previous year, the Group’s total stake in Tele Columbus amounted to 29.90%.

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

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

As of December 31, 2021, other associated companies disclosed an aggregated carrying amount of € 38,536k (prior year: € 24,131k) and an aggregated loss of € 2,401k (prior year: € 3,477k). 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

Other non-current financial assets as at December 31, 2021 of € 11,617k (prior year: € 9,901k) mainly comprise loans to related parties of € 8,923k (prior year: € 8,423k).

In the previous year, the breakdown of other non-current financial assets was as follows:

The shares held in the Afilias Group were sold in the previous year. 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.

26. Property, plant and equipment

Further details and an alternative presentation of the development of property, plant and equipment in the fiscal years 2021 and 2020 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 € 500.6 million as of December 31, 2021 (prior year: € 461.7 million).

As of the reporting date, there are purchase obligations for property, plant and equipment totaling € 150.8 million (prior year: € 138.9 million).

27. Intangible assets (without goodwill)

Further details and an alternative presentation of the development of intangible assets in the fiscal years 2021 and 2020 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:

The residual amortization period for the customer base from the acquisition of the Drillisch Group (now 1&1 AG) 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.

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, 2021 are comprised as follows:

There was no amortization in the 2021 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 2021. 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:

The carrying amounts of intangible assets with indefinite useful lives (trademarks) totaled € 206,927k (prior year: € 207,988k). 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.

The useful life of trademarks is determined as being indefinite, as there are no indications that the flow of benefits will end in future. 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. In the fiscal year 2021, trademarks in the cash-generating unit 1&1 with a carrying amount of € 3.1 million were impaired as there are no plans at present to actively use these brands.

The rights similar to concessions result from a one-off payment in the fiscal year 2020 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.

Internally generated intangible assets relate to capitalized costs from software.

As of the balance sheet date, there were purchase commitments for intangible assets amounting to € 1.2 million (prior year: € 0.8 million).

28. Goodwill

Further details, including a presentation of the development of goodwill in the fiscal years 2021 and 2020, 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.

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:

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 we22 results from the acquisition of we22 AG in 2021.
• 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 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 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, 2021

Measurement at fair value less disposal costs

For the 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.

The cash flow forecasts are based on the Company’s budgets for the fiscal year 2022. These planning calculations were extrapolated by management for a period of up to 10 years (prior year: up to 10 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 0.05% for the Business Access segment (prior year: 0%). Management assumes an annual increase in cash flow of 0.05% for the Consumer Applications segment (prior year: 0%) and an annual increase in cash flow for the Business Applications segment of between 0.1% and 0.8% (prior year: between 0% and 0.8%). 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 in the reporting period are 3% (prior year: 2.7%) for the Business Access segment. The discount rate for the Consumer Applications segment is 5.8% (prior year: 5.2%), and the discount rate used for the Business Applications segment is in a range between 5.3 % and 6.8 % (prior year: between 5.1 % and 6.7 %).

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 Business Access segment are based on average annual sales growth rates of 0.8% or 3.4% (prior year: 1.0% or 2.5%). 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 3.4% and 11.1% (prior year: between 1.4% and 8.4%).

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 € 50,418k (prior year: € 50,245k), in the Consumer Applications segment they amount to € 41,309k (prior year: € 39,443k), and in the Business Access segment to € 62,000k (prior year: € 62,000k) (see Note 27).

Measurement at value-in-use

The recoverable amount of the cash-generating unit 1&1 Consumer Access is determined on the basis of a calculation of the value-in-use (in the previous year on the basis of fair value less disposal costs) using cash flow forecasts. The hierarchy of value-in-use as defined by IFRS 13 is set at Level 3 for this impairment test (in the previous year also Level 3).

The cash flow forecasts are based on a Group budget for the fiscal year 2022 as well as a planning calculation for the fiscal years 2023 to 2027. These planning calculations were extrapolated by management on the basis of external market studies and internal assumptions for the cash-generating unit. As it is expected that a sustainable level of sales and earnings will not yet have been achieved by the end of the detailed planning period (2027), it has been extended to include an interim phase for the years 2028 to 2032 inclusive until a sustainable level of sales and earnings is to be achieved.

The cash flow forecasts depend heavily on the estimation of future sales revenue. Sales revenue figures in the detailed planning period of the cash-generating unit 1&1 Consumer Access are based on average annual sales growth rates of 1.6% (prior year: 1.1%). Another key basic assumption for the planning of the cash-generating unit 1&1 Consumer Access is the number of subscribers, the gross profit forecast based on these subscriber numbers and on empirical values, and the discount rates applied. For future years, the number of subscribers is expected to increase and the gross profit to decrease slightly.

Value-in-use is largely determined by the present value of the perpetual annuity, which is particularly sensitive to changes in the assumptions regarding the long-term growth rate and the discount rate. For the perpetual annuity period, management assumes an annual increase in cash flows of 0.05% (prior year: 0.00%). This growth rate corresponds to the long-term average growth rate for the sector. The discount rates before tax used for the cash flow forecast in the fiscal year are 6.9% (prior year: 4.3% after tax).

In the Consumer Access segment, trademarks totaling € 53,200k (prior year: € 56,300k) are recognized. In the fiscal year 2021, trademarks in the cash-generating unit 1&1 Consumer Access with a carrying amount of € 3.1million were impaired as there are no plans at present to actively use these brands (see Note 27).

Basic assumptions of the impairment tests

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, or in the case of the cash-generating unit 1&1 Consumer Access the value-in-use:

* Discount rate before taxes

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% and a decline in the long-term growth rate in perpetuity of 0.1% to 0.25% 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 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 recoverable amount of the cash-generating unit 5G is determined by calculating value-in-use (in the previous year on the basis of fair value less cost of disposal) with the aid of cash flow forecasts. The hierarchy of value-in-use 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 2023 to 2040. As the spectrum runs until 2040, the test was conducted for the period 2022 to 2040. Due to the innovation cycle in the telecommunications industry, no perpetuity was applied.

The cash flow forecasts depend to a large extent on the estimate of future revenue, the assumptions regarding investments in the network infrastructure, and the ongoing operating costs of network operations. The main revenue drivers for the cash-generating unit 5G are growth in the number of 1&1 network subscribers and planning for the future data consumption of customers. The planning calculations were based on subscriber growth in the cash-generating unit 1&1 Consumer Access, while assumptions regarding future customer data consumption are based on empirical values. Planning for investments in the network infrastructure are based on specific rollout plans, which are mainly based on the rollout obligations arising from the spectrum acquisition and the contractually agreed rollout costs. Planning for the ongoing costs of network operation are based on agreements already concluded and assumptions about the development of energy costs based on experience. A further key basic assumption for the planning of the cash-generating unit is the discount rates used.

The discount rate before tax used for the cash flow forecast in the reporting period was 3.9% (prior year: 3.0% after tax, the comparable discount rate after tax for the reporting period is 2.9%). There was no impairment need in the reporting period. This also reflects the Management Board’s qualitative expectations due to the high degree of strategic importance.

Sensitivity of assumptions

The sensitivity of the assumptions made with respect to an impairment of the intangible asset not yet available for use (spectrum) depends on the basic assumptions for the cash-generating unit. In the course of analyzing sensitivity for the cash-generating unit 5G, an increase of 10% in operating costs for active network technology (in particular energy costs) was assumed.

These assumptions would not result in any changes to the impairment test. Based on current knowledge, management does not expect any significant deviations in the planned costs for passive infrastructure and network rollout costs due to the contractual constellations with the network rollout partners.

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 the value-in-use of a cash-generating unit could cause the carrying amount to significantly exceed the value-in-use.

30. Trade accounts payable

Trade accounts payable amount to € 585,869k (prior year: € 538,792k), of which liabilities with terms of more than one year total € 2,475k (prior year: € 6,014k).

31. Liabilities due to banks

a) Liabilities due to banks

Promissory note loans

At the end of the reporting period, total liabilities from promissory note loanswith terms until 2027 amounted to € 1,297.5 million (prior year: € 547.5 million).

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 of between 0.60% und 0.90% p.a. The transaction was closed in July 2021.

The five outstanding tranches from the promissory note loans 2014 and 2017 are all fixed-interest, as are three of the four tranches of the promissory note loans 2021. The fixed interest rates vary according to term between 0.70% and 2.15% p.a. The interest rate of the variable-interest tranche of the promissory note loan 2017 consists of the respective 6-month EURIBOR rate plus a margin of 0.60% p.a..

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

Syndicated loans & syndicated loan facilities

The syndicated loan totaling € 200.0 million redeemable on maturity in August 2021 was paid back in full in the fiscal year 2021.

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, 2021, € 250 million of the revolving syndicated loan facility had been drawn (prior year: € 550 million). As a result, funds of € 560 million (prior year: € 260 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 € 375 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 € 100 million (prior year: € 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 € 835 million (prior year: € 375 million).

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.

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.

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

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 2021 was as follows:

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

The current conditional purchase price liabilities refer to variable purchase price components from the acquisition of STRATO AG amounting to € 31,680k (prior year: € 20,307k) and of ProfitBricks GmbH amounting to € 4,416k (prior year: € 4,416k), as well as from the InterNetX put option of € 15,884k (prior year: € 7,721k).

34.2 Other current non-financial liabilities

Liabilities to the tax office mainly refer to sales tax liabilities. The increase compared to the previous year is due to a change in the law and the associated reverse charge of sales tax for telecommunications services. The resulting sales tax will be paid to the tax authorities after the end of the advance return period.

34.3 Other non-current financial liabilities

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 AG 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 AG 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 AG 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 from the InterNetX put option were transferred to short-term liabilities due to their term as at the reporting date.

35. Maturities of liabilities

The maturities of liabilities are as follows:

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

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 five different employee stock ownership plans in the reporting period 2021. 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 2020, is aimed at the group of executives and employees in key positions in the Consumer Access segment, and replaces the former SAR plan of Drillisch. The fifth 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 euro 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:

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: € 41,468k). The cumulative expense as of December 31, 2021 totaled € 36,866k (prior year: € 34,181k). Expenses of € 4,602k (prior year: € 7,287k) therefore relate to future years. The personnel expense for share options issued amounted to € 2,685k in the reporting period (prior year: € 879k).

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

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: € 30.00 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 IONOS Group (Business Applications segment) with the interests of the company, in order to raise the equity value of the company (IONOS TopCo SE) and other companies of the 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:

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: 1 to 4 years).

The fair value of commitments classified as equity instruments of the current year amounted in total to € 4,367k (prior year: € 3,326k), each as of the grant date.

The total expense of vested and future vested claims from the employee stock ownership plan amounts to € 34,716k (prior year: € 27,513k). The cumulative expense as of December 31, 2021 totaled € 32,813k (prior year: € 21,748k). Expenses for future years therefore account for € 1,903k (prior year: € 5,765k). The personnel expense in the reporting period in connection with issued stock options amounted to € 11,066k (prior year: € 9,467k).

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

In the fiscal year 2021, the Business Applications segment introduced a further employee stock ownership plan (Long-Term Incentive Plan, LTIP) for selected members of the management board and the managing directors of the we22 Group (we22 AG including subsidiaries and investments). The LTIP is designed to align the long-term interests of employees of the we22 Group (Business Applications segment) with the interests of the company, in order to raise the equity value of the we22 Group and IONOS TopCo SE.

Within the LTIP plan, qualifying employees of the we22 Group will be allocated so-called Management Incentive Plan (MIP) units. The grant is made on a straight-line basis over a period of around four years (beginning with the date of issue) and provided that the respective employee has not terminated their contract at the end of each year. The entitlements are settled in the form of cash.

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:

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

The total expense of vested claims from this employee stock ownership plan carried in the balance sheet as cash-settled share-based remuneration is expected to be € 2,846k (prior year: € 0k) The cumulative expense as of December 31, 2021 totaled € 669k (prior year: € 0k). The personnel expense recognized in the reporting period in connection with issued stock options amounted to € 669k (prior year: € 0k).

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 € 7,872k (prior year: € 6,922k). The cumulative expense as of December 31, 2021 totaled € 2,210k (prior year: € 1,008k) and the personnel expense from issued stock options amounted to € 1,202k in the reporting period (prior year: € 742k income). Expenses for future years therefore account for € 5,662k (prior year: € 5,914k).

36.4 Stock Appreciation Rights Drillisch (SAR Drillisch)

The Stock Appreciation Rights Drillisch (SAR) plan introduced in the first half of 2018 existed until April 17, 2020. It was aimed at executives and employees in key positions and based on virtual stock options of 1&1 AG (formerly 1&1 Drillisch AG).

An SAR Drillisch was the commitment of 1&1 AG (or one of its subsidiaries) to pay the option beneficiary a consideration whose amount depended on the share price performance and the operating result (EBIT) of 1&1 AG (consolidated). As part of the 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 AG. However, it was not a share right and thus not a (genuine) option to acquire shares of 1&1 AG. The entitlement arising from an SAR depended on the development of the share price and EBIT.

The old SAR Drillisch plan was canceled during the course of fiscal year 2020. At the time of cancelation, 77,400 stock options were outstanding and replaced by new equity instruments.

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

According to the current conditions, an SAR Drillisch is the commitment of 1&1 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 AG reserves the right to fulfill its commitment from the SAR plan (or the commitment of a subsidiary) to transfer shares of 1&1 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.

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

The total expense from the new employee stock ownership plan amounts to € 10,306k (prior year: € 9,083k). The expense for the reporting period was € 3,164k (prior year: € 1,879k). The cumulative expense as of December 31, 2021 amounts to € 5,043k (prior year: € 1,879k). Expenses for future years account for € 5,263k (prior year: € 7,204k).

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

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 2021, the fair value of commitments classified as equity instruments amounted to € 2,470k (prior year: € 3,529k).

The total expense from the employee stock ownership plan amounts to € 9,407k (prior year: € 7,544k). The cumulative expense as of December 31, 2021 totaled € 3,235k (prior year: € 1,758k). Expenses for future years therefore account for € 6,172k (prior year: € 5,786k). The personnel expense from issued stock options amounted to € 1,477k in the reporting period (prior year: € 1,089k).

37. Capital stock

The fully paid-in capital stock as of December 31, 2021 amounted to €194,000,000 (prior year: € 194,000,000) 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, 2021, capital reserves amounted to € 1,955 million (prior year: € 2,323 million). The decline is due to transactions with equity providers. See Note 4 for further details.

The accumulated result includes the past results of consolidated companies, less amounts for dividends payouts.

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

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 2021 and 2020 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 Group purchased a total of 514,972 treasury shares (prior year: 430,624) for an amount of € 18,721k (prior year: € 12,235k).

As of the balance sheet date, a total of 7,284,109 treasury shares were held (prior year: 6,769,137).

Treasury shares reduce equity and have no dividend entitlement.

40. Non-controlling interests

Non-controlling interests developed as follows:

Pro-rated changes in the reporting period relate to increased stakes in 1&1 AG and IONOS TopCo SE. Please refer to Note 4.

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.

41. Additional details on financial instruments

The following table shows the carrying amounts for each category of financial assets and liabilities for fiscal year 2021:

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 2020:

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

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, 2021, 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

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

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, 2021:

* The value is not subject to any significant estimation assumptions.

A further purchase price liability measured at fair value is already due. Only its payment is outstanding. No sensitivity analysis has therefore been conducted.

Reconciliation to fair value in Level 3:

42. Transactions with related parties

IAS 24 defines related parties as those persons and companies that control or can exert a significant influence over the other party. Mr. Ralph Dommermuth, the major shareholder, as well as from the members of the Management Board and Supervisory Board of United Internet AG and their close relatives were classified as related parties. Moreover, companies over which the related parties exert a controlling influence are classified as related parties.

Mr. Michael Scheeren retired from the Supervisory Board on expiry of the balance sheet meeting on March 24, 2021. The Chairman of the Supervisory Board, Mr. Kurt Dobitsch, retired from the Supervisory Board with effect from the end of the Annual Shareholders' Meeting on May 27, 2021. At the same Annual Shareholders' Meeting, Mr. Stefan Rasch and Prof. Dr. Andreas Söffing were elected to the Supervisory Board. At its meeting on May 27, 2021, the Supervisory Board elected Mr. Philipp von Bismarck as Chairman of the Supervisory Board and Dr. Manuel Cubero as Deputy Chairman of the Supervisory Board.

In fiscal year 2021, the members of the Supervisory Board also held seats on supervisory boards or similar committees of the following companies:

Phillip von Bismarck

• No other offices

Kurt Dobitsch

• IONOS Holding SE (formerly: 1&1 IONOS Holding SE), Montabaur
• 1&1 Mail & Media Applications SE, Montabaur (chair)
• 1&1 AG (formerly: 1&1 Drillisch AG), Maintal (chair)
• Nemetschek SE, Munich (chair)
• Graphisoft S.E., Budapest / Hungary (until May 31, 2021)
• Vectorworks Inc., Columbia / USA (until May 31, 2021)
• Bechtle AG, Gaildorf
• Singhammer IT Consulting AG, Munich

Michael Scheeren

• IONOS Holding SE (formerly: 1&1 IONOS Holding SE), Montabaur (until February 23, 2021)
• 1&1 Telecommunication SE, Montabaur (chair, until February 23, 2021)
• 1&1 Mail & Media Applications SE, Montabaur (until February 23, 2021)
• 1&1 AG (formerly 1&1 Drillisch AG), Maintal (chair, until February 23, 2021)
• Tele Columbus AG, Berlin (until December 31, 2021)

Dr. Manuel Cubero del Castillo-Olivares

• Nürnberg Institut für Marktentscheidung e.V., Nuremberg (chair)
• Unicepta Holding GmbH, Cologne (chair of the advisory committee)

Prof. Dr. Yasmin Mei-Yee Weiß

• Zeppelin GmbH, Friedrichshafen
• Bayerische Beamten Lebensversicherung AG, Munich
• BLG Logistics Group AG & Co. KG, Bremen
• Börsenverein des deutschen Buchhandels, Frankfurt am Main (since March 2022)

Prof. Dr. Andreas Söffing

• Deutsche Oppenheim Family Office AG, Cologne (deputy chair of the advisory committee)
• Institut der Steuerberater Hessen e. V., Frankfurt (chair of the scientific committee)
• Nemetschek Innovationsstiftung, Munich (chair of the management board)
• Nemetschek Familienstiftung, Munich
• Capella GmbH, Hamburg

Dr. Claudia Borgas-Herold

• 1&1 AG, (formerly: 1&1 Drillisch AG), Maintal
• 1&1 Telecommunication SE, Montabaur (until September 10, 2021)
• Tele Columbus AG, Berlin (since May 28, 2021)

Stefan Rasch

• Tele Columbus AG, Berlin (until May 28, 2021)

The current remuneration system for Supervisory Board members was last amended by the Annual Shareholders' Meeting of May 20, 2020 and supplemented by the Annual Shareholders' Meeting of May 27, 2021 by section 13 of the Articles of Association of United Internet AG.

In addition to the reimbursement of cash expenses, each member of the Supervisory Board receives fixed annual remuneration of € 20,000.00. The chair receives € 30,000.00, the deputy chair receives € 22,500.00.

For serving on the Supervisory Board’s Audit and Risk Committee, the Chairman of the Audit and Risk Committee receives an additional € 20,000.00 per year, and each other member of the Audit and Risk Committee receives an additional € 15,000.00 per year. The Company shall support the members of the Audit and Risk Committee in taking part in necessary further training measures and shall also bear the costs incurred to a reasonable extent.

In addition, the Chairman of the Audit and Risk Committee receives further remuneration of up to € 15,000.00 per fiscal year, which may be used for the engagement of auditors and/or tax advisors whose support the Chairman requires to perform his duties as Chairman of the Audit and Risk Committee, provided that such support cannot be provided primarily by using the resources and advisory services already available to the Company.

A Supervisory Board member who only served as a member of the Supervisory Board or the Audit and Risk Committee for part of the fiscal year receives a lower amount of remuneration on a pro rata temporis basis for each month or part thereof.

In addition, each member of the Supervisory Board receives an attendance fee of € 1,000 for each time they attend a Supervisory Board meeting held in person. If the Supervisory Board meeting is not held in person but only virtually (in particular if a meeting is held only by telephone or only via videoconference), the members of the Supervisory Board receive no attendance fee if the meeting lasted no more than one hour; half the attendance fee if the meeting lasted more than one hour but no more than two hours; and the full attendance fee if the meeting lasted two hours or more. Members who do not personally attend meetings of the Supervisory Board held in person (e.g. by participating via telephone or videoconference) always receive only 25% of the attendance fee, and if they participate solely by submitting a voting rights message are not entitled to any attendance fee.

The following table provides details on the compensation received by members of the Supervisory Board of United Internet AG (€k):

* Reimbursement of value added tax

There are no subscription rights or share-based payments for members of the Supervisory Board.

The Supervisory Board is responsible for determining the remuneration of the Management Board. The members of the Management Board are compensated according to performance. This compensation consists of a fixed and a variable element (bonus). A target remuneration figure is agreed for the fixed component and the bonus, which is regularly reviewed. The last review was made in fiscal year 2017. The fixed remuneration component is paid monthly as a salary. The size of the bonus depends on reaching certain, fixed financial targets agreed at the beginning of the fiscal year. These targets are based mainly on sales and earnings figures. The target attainment corridor is generally between 90% to 120%. No bonus is paid below 90% of the agreed target and the bonus calculation ends at 120% of the agreed target. No subsequent amendment of the performance targets is allowed. There is no minimum guaranteed bonus. Payment is generally made after the Annual Financial Statements have been adopted by the Supervisory Board.

There are no retirement benefits from the Company to members of the Management Board.

The following table provides details on the compensation received by members of the Management Board:

* Share-based payments (so-called Stock Appreciation Rights) are compensation components with a long-term incentive and paid out over a total period of 6 years

Total Management Board remuneration as defined by section 314 (1) number 6 a and b HGB, i.e., including the market value of share-based payments, amounted to € 1,055k (prior year: € 8,527k). The corresponding remuneration as defined by IAS 24 (including the current expense from share-based remuneration) amounted to € 3,691k (prior year: € 8,527k). No SARs were granted to Management Board members in the reporting period. Members of the Management Board were not granted any advances or loans in the reporting period nor in the previous year.

Reference is also made to the disclosures in the Remuneration Report.

The number of shares in United Internet AG held by members of the Management Board and the Supervisory Board is presented in the following table:

In addition, the United Internet Group can exert a significant influence on its associated companies.

Transactions with related parties

Sales to and purchases from related parties are conducted at standard market conditions. The open balances at year-end are unsecured, non-interest-bearing and settled in cash. There are no guarantees for receivables from or liabilities due to related parties. No allowances were recognized for receivables from related parties in fiscal year 2021 or the previous year. An impairment test is conducted regularly. This includes an assessment of the financial position of the related party and the development of the market in which they operate.

As in the previous year, United Internet’s premises in Montabaur and Karlsruhe are leased in part from Mr. Ralph Dommermuth, the Chief Executive Officer and a major shareholder of the Company. The corresponding lease agreements have different terms between the end of 2021 and June 2028. The resulting rent expenses are customary and amounted to € 13,206k in fiscal year 2021 (prior year: € 10,216k).

The following table presents rights of use in connection with related parties.

The following table presents lease liabilities in connection with related parties.

At the end of the reporting period, there were two loan agreements with associated companies totaling € 7,183k (prior year: € 6,099k).

The loans have terms of one and up to eight years. The tranches each have fixed interest rates of 2.5% p.a. to 3.0% p.a..

The following table presents the outstanding balances and total transactions volumes with associated companies in the respective fiscal year:

43. Objectives and methods of financial risk management

Principles of risk management

The risk management system introduced by the United Internet Group is based on the COSO-ERM framework and is described in detail in the Management Report.

The principles of finance policy are set by the Management Board and monitored by the Supervisory Board. Certain transactions require the prior approval of the Supervisory Board.

The main financial liabilities used by the Group include bank loans, promissory note loans and overdraft facilities, trade accounts payable, and other financial liabilities.

The Group holds various financial assets which result directly from its business activities. They consist mainly of trade accounts receivable, and short-term deposits.

As of the reporting date, the Group mainly held primary financial instruments.

The aim of financial risk management is to limit these risks through ongoing operating and financial activities. The Group is hereby exposed to certain risks with regard to its assets, liabilities, and planned transactions, especially liquidity risks and market risks, as described below.

Liquidity risk

Liquidity risk constitutes the risk that a company will be unable to meet the financial obligations arising from its financial liabilities. As in the previous year, the general liquidity risk of United Internet consists of the possibility that the Group may not be able to meet its current financial obligations in due time. Especially in view of the cost-intensive rollout of the mobile communications network over many years, both short-term liquidity forecasts and longer-term financial planning are conducted in order to secure the solvency and the financial flexibility of the United Internet Group at all times. We expect to be able to cover investments in the mobile communications network predominantly from existing liquidity and future cash flows from operating activities, as well as loans.

As a result of the expected positive contribution to liquidity from operations and the interest-optimized use of the credit lines already granted, the Group is able to ensure the continual coverage of its financial needs at all times. The credit commitments granted to the Company by banks and the existing syndicated loan facility offer sufficient flexibility for these needs. In order to maintain financial stability, a balanced financial structure is sought which provides both the diversification of financial instruments and a balanced maturity profile.

Global cash requirements and surpluses are managed by the central liquidity management system. The daily automated pooling of bank balances held by the participating Group companies (cash pooling) provides United Internet AG at all times with the predominant proportion of its cash denominated in euro. The Group has established standardized processes and systems to manage its bank and netting accounts as well as for the execution of payment transactions.

At the end of the reporting period, the Company had total liquid funds of € 110.1 million (prior year: € 131.2 million) as well as free credit lines of € 835 million (prior year: € 375 million) and thus has more than sufficient liquidity reserves for the fiscal year 2022. The Management Board assumes that additional lines can be raised on the capital market if necessary.

The following tables show all contractually fixed payments for redemption, repayments, and interest for financial liabilities carried in the balance sheet as of December 31, 2021 and 2020:

Payments from other financial liabilities mainly comprise payment obligations in connection with the 5G spectrum auction of € 61.3 million (prior year: € 61.3 million), as well as expected payments from derivatives of € 52.0 million (prior year: € 32.7 million) in fiscal year 2022. Payments to the German government do not follow a linear pattern. Cash outflows of € 61.3 million (prior year: € 61.3 million) are expected each year in the fiscal years 2022 to 2026 and of € 128 million (prior year: € 128 million) each year in the fiscal years 2027 to 2031.

For the calculation of cash flows from liabilities to banks, management assumed that the portion of the revolving syndicated loan facility currently used amounting to € 250 million (prior year: € 550 million) would remain constantly drawn until the end of its term (2025).

Please refer to Note 31for details on interest and redemption payments for liabilities to banks.

The Company has no significant concentration of liquidity risks.

Market risk

The activities of United Internet are mainly exposed to financial risks from changes in interest rates, exchange rates, stock exchange prices, and credit or contingency risks.

Interest risk

The interest (rate) risk refers to the risk that fair values or future interest payments on existing and future financial liabilities may fluctuate due to changes in market interest rates.

The Group is fundamentally exposed to interest risks as some of its financial instruments as of the reporting date bear variable interest rates with varying terms. An interest risk exists for drawdowns under the revolving syndicated loan and the syndicated loan totaling € 250 million (prior year: € 750 million).

With the aid of the liquidity planning, various investment possibilities or possibilities to reduce surplus liquidity are constantly analyzed. The maturity profile and amount of the Group’s variable-rate financial instruments are regularly reviewed and appropriate measures are taken to ensure liquidity and the management of interest risks.

Market interest rate changes might have an adverse effect on the interest result and are included in our calculation of sensitive factors affecting earnings. In order to present market risks, United Internet has developed a sensitivity analysis which shows the impact of hypothetical changes to relevant risk variables on pre-tax earnings. The reporting period effects are illustrated by applying these hypothetical changes in risk variables to the stock of financial instruments as of the reporting date.

Due to the current interest policy of the European Central Bank, the EURIBOR interest rate of relevance for the United Internet Group is negative as of the balance sheet date. No expenses were incurred due to negative interest on liquidity held. The Group does not expect any material changes in risk premiums in the foreseeable future. United Internet currently regards the interest risk for its existing variable-rate financial instruments as low.

The interest risk is negligible for other interest-bearing liabilities. At the end of the reporting period, there were no external interest-hedging transactions.

Currency risk

A currency risk is the risk that fair values or future cash flows of financial instruments may fluctuate due to changes in exchange rates. The Group companies are mainly exposed to currency risks as a result of their operations (if revenue and/or expenses are in a currency other than the functional currency of the respective company). In order to cover such foreign currency risks, United Internet strives to achieve an equilibrium between the incoming and outgoing payments in non-functional currencies (so-called natural hedging). Currency risks which do not affect cash flows (i.e., risks from translating the assets and liabilities of the Group’s foreign companies) are not hedged against. With regard to operating activities, individual Group companies perform their business mainly in their respective functional currencies. As in the previous year, the currency risk from operations is therefore regarded as low. In the reporting period, there were no currency risks which significantly affected cash flows. At the end of the reporting period, there were no external currency-hedging transactions.

The currency risks arising from original financial instruments in a currency and of a monetary nature other than that of the functional currency as of the reporting date were valued by the Company. No material currency risks arose from this analysis.

Stock exchange risk (valuation risk)

The United Internet Group recognizes financial assets (equity instruments) as follows:

• measured at fair value through other comprehensive income with no recycling of cumulative gains and losses upon derecognition or
• measured at fair value through profit or loss.

Depending on the measurement category and the share price development of listed investments, changes in equity without affecting income, or income and expenses, may arise.

There were no listed equity instruments as at the end of the reporting period.

Credit and contingency risk

As a result of its operating activities, the Group is exposed to a contingency risk. In order to reduce default risks, a sophisticated and preventive fraud management system has been established which is permanently enhanced. Outstanding amounts are monitored locally and on a continual basis. Individual and lump-sum allowances are made to account for non-avoidable contingency risks.

With regard to trade accounts receivable, the maximum risk in the gross amount stated in the balance sheet is before allowances. Trade accounts receivable which are not impaired as of the reporting date, are classified according to periods in which they become overdue (see Note19).

With regard to possible risks in connection with the corona pandemic, please refer to Note3.

Internal rating system

A pre-contractual fraud check is generally conducted and collection agencies are also used for the management of receivables. In addition, a pre-contractual check of creditworthiness is made in the media sales business.

The Company has no significant concentration of credit risks.

Risks from financial covenants

The existing loans of United Internet AG are tied to so-called financial covenants. The infringement of a certain net debt-to-EBITDA ratio could result in individual banks terminating outstanding loans with the Company. In view of the low net debt-to-EBITDA ratio of United Internet at present, the probability of infringement is regarded as low. Compliance with the covenants is regularly monitored by the Company’s Management Board and was met throughout the year.

Capital management

In addition to the legal provisions for stock corporations, United Internet AG has no further obligations to maintain capital according to its statutes or other agreements. The key financial indicators used by the Company are mainly performance-oriented. The targets, methods, and processes of capital management are thus subordinate to these performance-oriented financial indicators.

In order to maintain and adapt its capital structure, the Company can adjust dividend payments or pay capital back to its shareholders, can purchase treasury shares and place them again if required, or issue new shares. Please refer to the statement of changes in shareholders’ equity. As of December 31, 2021 and December 31, 2020, no changes were made to the Company’s targets, methods, and processes.

44. Contingencies, contingent liabilities, and other commitments

Contingent liabilities

Contingent liabilities represent a possible obligation whose existence depends on the occurrence of one or more uncertain future events, or a current obligation whose payment is not likely or whose amount cannot be reliably estimated.

In the previous years, advance service providers have filed claims in the low three-digit million range (for the purposes of internal classification, amounts of up to € 333 million are defined as being in the low three-digit million range, and the claims filed do not exceed this amount in total). As of the reporting date December 31, 2021, United Internet AG considers the claims of the counterparties to be unfounded and regards an outflow of resources for these contingent liabilities as unlikely.

Litigation

Litigation risks mainly relate to various legal disputes of Group subsidiaries.

Accruals for litigation were formed for any commitments arising from these disputes (see Note33).

Guarantees

As of the reporting date, the Group has issued no guarantees.

Guarantees and other obligations

The Company is jointly and severally liable for credit lines granted to companies of the United Internet Group by a bank. The credit facilities had only been utilized with regard to guarantees as of the reporting date.

The Management Board has no knowledge of any other facts which could have a significant, adverse effect on the business activities, the financial situation or the operating result of the Company.

45. Leases and other financial commitments

Group as lessee

The obligations mainly comprise leased network obligations including subscriber lines, buildings, technical equipment, and vehicles.

Most leases have options to prolong the contractual relationship. The terms of these prolongation options are negotiable or identical with the current terms. The Company currently intends to exercise all material prolongation options. The Company does not intend to exercise any material termination options.

The following expenses from leases were incurred in the reporting period:

As of December 31, 2021, the carrying amounts of right–of-use assets by class of underlying assets are as follows:

As of December 31, 2021, existing lease liabilities have the following terms:

As of December 31, 2021, lease obligations developed as follows:

Payments as a result of lease obligations are disclosed in cash flow from financing activities.

For further information, please refer to the explanations in 2.3and Note 43.

Group as lessor

Finance leases

The Group acts as the lessor of finance leases via the 1&1 Versatel Group. Receivables from finance leases are disclosed in trade accounts receivable. The following table shows a reconciliation of gross investments in leases and the present value of outstanding minimum lease payments, as well as their maturities: