Explanations of items in the balance sheet

18. Cash and cash equivalents

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

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

19. Trade accounts receivable

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

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, inventories consisted of the following items:

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

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

22. Prepaid expenses

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

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

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

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

23. Other current assets

23.1 Other current financial assets

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

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

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

23.2 Other current non-financial assets

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

25. Other non-current financial assets

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

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

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

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

26. Property, plant and equipment

* Prior-year figures adjusted; see Note 45

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

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

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

27. Intangible assets (without goodwill)

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

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

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

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

Spectrum licenses

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

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

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

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

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

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

Internally generated intangible assets relate to capitalized costs from software.

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

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

28. Goodwill

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

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

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

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

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

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

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

Goodwill after company acquisitions

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

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

Scheduled impairment test on December 31, 2020

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

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

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

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

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

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

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

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

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

Sensitivity of assumptions

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

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

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

intangible assets not yet usable (spectrum)

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

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

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

30. Trade accounts payable

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

31. Liabilities due to banks

a) Liabilities due to banks

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

Promissory note loans

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

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

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

Syndicated loans & syndicated loan facilities

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

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

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

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

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

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

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

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

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

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

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

b) Guaranty credit facilities

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

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 2020 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 € 20,307k (prior year: €14,760k), and from the acquisition of 1&1 IONOS Cloud GmbH (formerly: ProfitBricks GmbH) amounting to € 4,416k (prior year: € 4,416k).

34.2 Other current non-financial liabilities

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

34.3 Other non-current financial liabilities

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

Please refer to Note 45 regarding finance lease commitments.

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

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

35. Maturities of liabilities

The maturities of liabilities are as follows:

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

36.1 Stock Appreciation Rights (SAR United Internet)

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

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

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

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

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

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

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

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

36.2 Long Term Incentive Plan Business Applications (LTIP Hosting)

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

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

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

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

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

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

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

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

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

36.3 Long Term Incentive Plan Versatel (LTIP Versatel)

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

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

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

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

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

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

36.4 Stock Appreciation Rights Drillisch (SAR Drillisch)

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

Current SAR Drillisch plan

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

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

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

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

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

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

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

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

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

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

Replaced SAR Drillisch plan

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

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

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

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

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

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

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

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

36.5 Long Term Incentive Plan Portal (LTIP Consumer Application)

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

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

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

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

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

37. Capital stock

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

Authorized Capital 2015

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

Authorized Capital 2020

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

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

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

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

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

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

Conditional Capital 2015

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

Conditional Capital 2020

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

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

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

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

38. Reserves

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

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

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

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

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

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

39. Treasury shares

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

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

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

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

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

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

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

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

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

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

Treasury shares reduce equity and have no dividend entitlement.

40. Non-controlling interests

Non-controlling interests developed as follows:

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

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

41. Additional details on financial instruments

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Fair value hierarchy

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

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

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

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

Assets and liabilities measured at fair value

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, 2020:

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.

At the Annual Shareholders' Meeting on May 20, 2020, Dr. Claudia Borgas-Herold and Dr. Manuel Cubero del Castillo-Olivares were elected to the Supervisory Board. On the same day, Mr. Kurt Dobitsch (chair) was confirmed as a member of the Supervisory Board. At the same time, Mr. Kai-Uwe Ricke stepped down from his seat on the Supervisory Board.

On entry of the amendment to the Articles of Association on July 24, 2020, Mr. Phillipp von Bismarck and Prof. Dr. Yasmin Mei-Yee Weiß were elected to the Company’s Supervisory Board. Mr. Michael Scheeren (deputy chair) was re-elected to the Supervisory Board on this day.

In fiscal year 2020, the members of the Supervisory Board also held seats on supervisory boards or similar committees of the following companies:

Kurt Dobitsch

• 1&1 IONOS Holding SE, Montabaur
• 1&1 Telecommunication SE, Montabaur (deputy chair) (until September 30, 2020)
• 1&1 Mail & Media Applications SE, Montabaur (until September 30, 2020 deputy chair; as of October 1, 2020 chair)
• 1&1 Drillisch Aktiengesellschaft, Maintal
• Nemetschek SE, Munich (chair)
• Graphisoft S.E., Budapest / Hungary
• Vectorworks Inc., Columbia / USA
• Bechtle AG, Gaildorf
• Singhammer IT Consulting AG, Munich

Kai-Uwe Ricke (until May 20, 2020)

• 1&1 Telecommunication SE, Montabaur
• 1&1 Mail & Media Applications SE, Montabaur (chair) (until September 30, 2020)
• 1&1 Drillisch Aktiengesellschaft, Maintal (deputy chair)
• EuNetworks Group Limited, London, United Kingdom
• Delta Partners Group Limited, Dubai, United Arab Emirates (until July 1, 2020)
• Delta Partners Capital Limited, Dubai, United Arab Emirates
• Delta Partners Growth Fund II GP Limited, Cayman Islands
• Delta Partners Growth Fund II (Carry) General Partner Limited, Cayman Islands
• Virgin Mobile CEE B.V., Amsterdam / Netherlands
• Virgin Mobile Polska Sp. z o.o, Warsaw / Poland (chair of the board of directors) (until July 23, 2020)
• Cash Credit Limited, Cayman Islands

Michael Scheeren

• 1&1 IONOS Holding SE, Montabaur
• 1&1 Telecommunication SE, Montabaur (chair)
• 1&1 Mail & Media Applications SE, Montabaur
• 1&1 Drillisch Aktiengesellschaft, Maintal (chair)
• Tele Columbus AG, Berlin

Phillipp von Bismarck

• No other offices

Prof. Dr. Yasmin Mei-Yee Weiß

• Zeppelin GmbH, Friedrichshafen
• Bayerische Beamten Lebensversicherung AG, Munich
• BLG Logistics Group AG & Co. KG, Bremen

Dr. Claudia Borgas-Herold

• 1&1 Drillisch Aktiengesellschaft, Maintal
• 1&1 Telecommunication SE, Montabaur

Dr. Manuel Cubero del Castillo-Olivares

• Nürnberg Institut für Marktentscheidungen e.V. (chair)
• Unicepta Holding GmbH, Cologne (chair)

On May 20, 2020, the Annual Shareholders' Meeting adopted a new remuneration system which complies fully with the German Corporate Governance Code. It consists of a fixed remuneration component and an attendance fee per meeting. The fixed remuneration for an ordinary member of the Supervisory Board amounts to € 20k per full fiscal year. The Chairman of the Supervisory Board receives € 30k. The attendance fee amounts to € 1k for each meeting.

The members of the Supervisory Board of United Internet AG are also members of the supervisory board of various subsidiaries. As of fiscal year 2015, they also receive remuneration from these subsidiaries. The remuneration of the subsidiaries also consists of a fixed annual remuneration and an attendance fee for each meeting. The fixed annual remuneration varies between the subsidiaries, while the standard attendance fee amounts to € 1k for each meeting.

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

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 € 8,527k (prior year: € 503k). 350,000 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.

As in the previous year, Mr. Frank Krause exercised no subscription rights in the fiscal year 2020.

Reference is also made to the Remuneration Report, which is part of the Combined Management 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 2020 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 € 10,216k in fiscal year 2020 (prior year: € 6,765k).

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 € 6,099k (prior year: € 10,100k).

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:

As in the previous year, receivables from other related parties mainly result from loans to AWIN.

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, available-for-sale financial investments, 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. To ensure the solvency and financial flexibility of the United Internet Group at all times, short-term liquidity forecasts and longer-term financial planning are conducted.

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 € 131.2 million (prior year: € 117.4 million) as well as free credit lines of € 375 million and thus has more than sufficient liquidity reserves for the fiscal year 2021.

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, 2020 and 2019:

Payments from other financial liabilities mainly comprise payment obligations of € 61.3 million in connection with the 5G spectrum auction, as well as expected payments from derivatives of € 32.7 million (prior year: € 20.1 million) in fiscal year 2021. Payments to the German government do not follow a linear pattern. Cash outflows of € 61.3 million are expected each year in the fiscal years 2021 to 2025 and of € 128 million each year in the fiscal years 2026 to 2030.

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 € 550 million (prior year: € 700 million) would remain constantly drawn until the end of its term (2025).

Please refer to Note 31 for 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 € 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)

In the fiscal year 2020, the United Internet Group recognized financial assets (equity instruments) as follows: