1&1 AG — Interim / Quarterly Report 2017

Nov 13, 2017

Income Statement Q3 2017

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DRILLISCH AG PREMIUM BRANDS

2

www.1und1.de www.yourfone.de www.smartmobil.de

Drillisch AG | Income Statement Q3 2017

Selected Key Figures	30/09/2017	30/09/2016	Change
PROFIT (IN € M)
Revenue	1,965.2	1,788.4	9.9%
EBITDA1	352.7	282.9	24.7%
EBITDA margin in % of revenue1	17.9%	15.8%
EBIT1	328.9	277.0	18.8%
EBIT margin in % of revenue1	16.7%	15.5%
EBT1	321.2	258.3	24.4%
EBT margin in % of revenue1	16.3%	14.4%
EPS1,2	2.02	1.49	35.6%
CASH FLOW (IN € M) Cash fl ow from operating activities	299.5	44.0	580.3%
Cash fl ow from investments	25.2	-22.8	210.7%
Free cash fl ow	290.9	21.2	1,272.2%
STAFF (INCL. MANAGEMENT BOARD)
Total per end of September	3,494	3,524	-0.9%
thereof in Germany	3,494	3,524	-0.9%
thereof abroad	0	0
CUSTOMER CONTRACTS (IN MILLIONS)
Current Product Lines
Access, contracts	12.39	8.30	4.09
thereof Mobile Internet	8.06	4.10	3.96
thereof DSL/VDSL	4.33	4.20	0.13
Volume-based MVNO Contracts, MSP Contracts and Discontinued Product Lines
Access, contracts	0.62	0.20	0.42
thereof volume/service providers	0.49	0	0.49
thereof T-DSL/R-DSL	0.13	0.20	-0.07

Selected Key Figures	30/09/2017	31/12/2016	Change
BALANCE SHEET (IN € M)
Current assets	630.7	263.5	139.3%
Fixed assets	4,063.3	1,579.7	157.2%
Shareholders' equity	3,745.2	-412.8
Equity ratio	79.8%	-22.4%
Balance sheet total	4,694.0	1,843.3	154.7%

1 from ongoing activities

2 in the previous year, calculated at the weighted average of the shares to be used per 30/09/2017 for better comparability

5 LETTER FROM THE MANAGEMENT BOARD

• 8 QUARTERLY RELEASE PER 30 SEPTEMBER 2017
• 9 Course of Business
• 11 Situation in the Group
• 14 Supplementary Report
• 15 Report on Risks and Opportunities
• 15 Forecast Report
• 16 Explanatory comments on the quarterly release

18 CONSOLIDATED FINANCIAL STATEMENTS PER 30 SEPTEMBER 2017

• 19 Balance Sheet
• 21 Comprehensive Income Statement
• 22 Cash Flow Statement
• 23 Change in Equity Statement
• 24 Segment Reporting

25 FINANCIAL CALENDAR / LEGAL INFORMATION

Letter from the Management Board

Vlasios Choulidis André Driesen Martin Witt Board Spokesman Director Director

Dear Sir or Madam,

Drillisch AG has brought the fi rst nine months of fi scal year 2017 to a successful conclusion. In comparison with the same period last year, we have once again increased the number of our MVNO subscribers, our revenues and the EBITDA from ongoing activities.

As of the successful completion of the complete transaction at the beginning of September 2017, Drillisch has become a new major power, the fourth, on the German telecommunications market. Since that date, 1&1 Telecommunication SE has been a wholly-owned subsidiary of Drillisch. A powerful full-service telecommunications provider has been created under the umbrella of United Internet, one that can exploit from a position of strength any and all opportunities for growth that present themselves.

In cooperation with the new subsidiary 1&1, Drillisch will in future be able to off er to its customers attractive product bundles comprising mobile and landline services, TV and other content from a single source as well as its mobile network-only and DSL-only products. By employing this marketing approach, we will develop new customer and product segments and will hold to our course of profitable growth.

The even more effi cient exploitation of the MBA MVNO contract is the basis for Drillisch as it continues to set itself apart from its competitors in future. Within this new affi liation, we have access to the "internet factory" under the umbrella of United Internet, and we will enhance and develop further the successful SIM-only products by the addition of attractive devices, applications we have ourselves developed and services of the corporate group. Drillisch operates and will continue to operate exclusively in Germany, where its brands make it one of the leading integrated providers. Our products – the premium brand 1&1, the offl ine channel of the yourfone brand and the tried and proven market strategy of multiple brands from Drillisch Online AG – address specifi c target groups on the market. We can off er our mobile products at all times at the state-of-the-art level of the network technology of Telefónica Germany. Customers select the product that best suits their needs, including comprehensive services and the best value for money on Germany's largest network.

Before we go into the details of our operating business, we would like to give you an overview of the signifi cant accounting eff ects that the successfully concluded transaction with United Internet AG has on our fi gures as this will help you to understand our remarks.

On 12 May 2017, Drillisch AG (Drillisch) and United Internet AG (United Internet) concluded a business combination agreement regulating Drillisch's step-by-step acquisition of 1&1 Telecommunication SE (1&1).

Letter from the Management Board

As part of the total transaction, 1&1 will in legal terms be absorbed by Drillisch; this move will create a strong full-service telecommunications provider with signifi cant potential for synergy and growth under the umbrella of United Internet.

The fi rst step was the acquisition by Drillisch AG on 16 May 2017 of about 7.75% of 1&1 in the form of a capital increase against non-cash contributions. United Internet AG received 9.1 million new shares of Drillisch stock, increasing United Internet AG's holding in Drillisch AG from 20.08% to just over 30%.

Upon exceeding the holding threshold of 30%, United Internet published a voluntary, public takeover off er to Drillisch AG shareholders parallel to the transaction. In response to the voluntary, public takeover off er of €50 in cash for each share of Drillisch stock published on 26 May 2017, a total of 1,224,157 shares of Drillisch stock, corresponding to 1.78% of the outstanding shares at the time, was tendered to United Internet AG as of the expiration of the extended acceptance deadline on 12 July 2017. Drillisch AG's Management and Supervisory Boards did not issue a concrete recommendation for action to the Drillisch AG shareholders, but advocated the transaction as a whole.

During an extraordinary General Meeting of Drillisch AG held on 25 July 2017, the shareholders, by a vote of 97.85% of the valid votes cast, approved an increase in the share capital from €70,209,499.80 to €188,941,113.90 against contribution of all shares of the 1&1 stock not yet held by Drillisch in the form of a non-cash capital increase.

As of the registration of the non-cash capital increase in the Commercial Register on 8 September 2017, Drillisch acquired the remaining share of about 92.25% in 1&1. Since that date, 1&1 has been a wholly-owned subsidiary of Drillisch. Because of the successful completion of this transaction as a whole, Drillisch has become the new fourth major power on the German telecommunications market.

In contrast to the transaction described above, which in legal terms saw Drillisch (the legal acquirer) acquiring the shares in 1&1 as part of the non-cash capital increase, the IFRS accounting (cf. IFRS 3. 6 in conjunction with IFRS 3. B19) applies an economic method for identifi cation of the acquirer. Following the IFRS provisions leads to the classifi cation of the acquisition of the shares of 1&1 stock by Drillisch as a reverse acquisition.

In the accounting, it is assumed that 1&1 as the economic acquiree has acquired the shares of Drillisch stock. The calculation of the goodwill and the hidden reserves as well as hidden liabilities that must be reversed in the process of the purchase price allocation and the accounting principles that are to be applied as of the point in the time of the acquisition are based on the perspective of the economic acquirer. The consequence is that there is no longer any comparability of the balance sheet and comprehensive income statement of previous Drillisch fi nancial statements because, for one, the fi gures of 1&1 must be given as the comparable fi gures of the previous year and, for another, the comprehensive income statement must be prepared according to the cost-of-sales method and the accounting principles of 1&1 must be applied. The date of registration of the Capital Increase II in the Commercial Register is deemed the point in time of the acquisition, i.e. the time at which the economic acquirer obtains control over the acquired company; in the present case, that date is 8 September 2017. The inclusion of Drillisch as the acquired company in the consolidated fi nancial statements is therefore only proportional for the time period from the moment control was gained. Drillisch is there-

Letter from the Management Board

fore considered only for about one month in the comprehensive income statement and the capital fl ow statement of the quarterly fi nancial statements per 30 September 2017.

Now for the operating side of the business:

During the fi rst nine months of 2017, we were able to grow signifi cantly over the same period of the previous year in a market environment that remains intensely competitive.

Along with the generally positive development of our clientele for the current product lines, which rose in comparison with the closing date of the previous year across all customer groups by 4.09 million (49.3%) – 3.35 million from the initial inclusion of Drillisch – to 12.39 million subscribers (9 months 2016: 8.30 million), we increased revenues in the fi rst nine months by €176.8 million (9.9%) to €1,965.2 million (9 months 2016: €1,788.4 million).

Despite high investments in customer growth, the consolidated EBITDA from ongoing activities (earnings before interest, taxes, depreciation and amortisation from ongoing activities) increased by €69.8 million (24.7%) to €352.7 million during the fi rst nine months (9 months 2016: €282.9 million). These fi gures are evidence that our course for growth is continuing during the year and is in line with our budget for the year as a whole. The EBITDA margin from ongoing activities rose by 2.1% to 17.9% (9 months 2016: 15.8%).

We are in an excellent position to take the next steps in our Company's development and we are looking ahead into the future with confi dence. At the conclusion of the fi rst nine months, we can confi rm our forecast for growth and expect an increase in the adjusted EBITDA to between €160 million and €170 million for fi scal year 2017 (on a stand-alone basis, i.e. excluding 1&1).

We expect an EBITDA in 2017 in the amount of €520 million to €530 million for the combined entity and are anticipating a further increase in profi tability for business year 2018. Furthermore, we intend to ensure that shareholders benefi t appropriately from the success of the Company in future as well.

In conclusion, we would like to take this opportunity to thank our employees expressly and warmly for their continued commitment and their high readiness to perform because dependable collaboration in a spirit of trust is very important for our commercial success. But we are also just as deeply grateful to our shareholders, customers and business partners for the trust they have placed in us.

Best regards from Maintal

Vlasios Choulidis André Driesen Martin Witt

7

Drillisch AG | Income Statement Q3 2017

QUARTERLY RELEASE PER 30 SEPTEMBER 2017

• 9 Course of Business
• 11 Situation in the Group
• 14 Supplementary Report
• 15 Report on Risks and Opportunities
• 15 Forecast Report
• 16 Explanatory comments on the quarterly release

Course of Business

Since the initial consolidation of Drillisch by 1&1 per 8 September 2017, Drillisch has changed the number of customer contracts and distinguishes between "current product lines" on the one hand and "volume contracts/MSP contracts/discontinued product lines" on the other. The "current product lines" include, for one, the 1&1 mobile internet contracts and the Drillisch MVNO budget contracts (compiled under mobile internet) and, for another, the 1&1 DSL/VDSL contracts (DSL complete packages). The Drillisch MVNO volume contracts and mobile service provider contracts and the 1&1 T-DSL/R-DSL contracts fall under the "MVNO volume contracts/MSP contracts/ discontinued product lines."

The number of contracts subject to charge rose in the fi rst 9 months of 2017 in the segment of the "current product lines" – also a consequence of the consolidation of Drillisch since 8 September 2017 – by 3.85 million contracts to 12.39 million. In the mobile internet business, it was possible to acquire 3.75 million customer contracts (thereof 3.35 million from the initial consolidation of Drillisch), raising the number of customers to 8.06 million. The number of DSL complete contracts (ULL = unbundled local loop) rose as well by about 100,000 contracts to 4.33 million.

Development of contracts during the fi rst 9 months of 2017 (in millions)

	30/09/2017	31/12/2016	Change
Total contracts	12.39	8.54	+ 3.85
thereof mobile internet	8.06	4.31	+ 3.75
thereof DSL complete packages (ULL)	4.33	4.23	+ 0.10

Development of the contracts in comparison with the previous quarter (in millions)

	30/09/2017	30/06/2017	Change
Access, total contracts	12.39	8.88	+ 3.51
thereof mobile internet	8.06	4.57	+ 3.49
thereof DSL complete packages (ULL)	4.33	4.31	+ 0.02

In addition to these subscription-based customer contracts in the current product lines, Drillisch maintains an additional 0.62 million customer relationships, thereof 0.49 million in volume and MSP contracts and 0.13 million in the discontinued product line T-DSL/R-DSL, in the segments "Online" and "Offl ine".

The Group's operating business activities essentially break down into the two reporting segments "Online" and "Offl ine". The segment reporting is aligned with the internal organisation and reporting structure. The diff erentiation between the segments Online and Offl ine is based on the expanded sales structure. The segment Miscellaneous is presented in addition to the two segments mentioned above.

Course of Business

Development in the segment "Online"

The mobile and landline services subject to charge provided by the Group, including the related applications from online sales, are encompassed by the segment "Online". The revenues and the related expenses from the Drillisch online sales were also allocated to the segment Online for the fi rst time from the beginning of September 2017.

Revenue in the segment Online increased by €180.5 million (10.0%) to €1,982.9 million (previous year: €1,802.4 million). The segment EBITDA rose by 24.4% from €282.9 million in the previous year to €352.1 million. As previously, all of the customer acquisition costs for mobile and DSL products as well as the costs of converting resale DSL lines to DSL complete packages (ULL = unbundled local loop) were recognised directly as expenses. In the segment Online, the cost of materials fell by €23.4 million to €1,277.3 million (previous year: €1,253.9 million). Total segment revenues contain €1.6 million in sales revenues from intercompany relationships that were eliminated during the consolidation process (previous year: €0.0 million).

Major revenue and profi t indicators in the segment "Online"

	30/09/2017	30/09/2016	Change
Revenue (in €m)	1,983.0	1,802.4	180.6
EBITDA (in €m)	352.1	282.9	69.1
EBITDA margin (in %)	17.8	15.7	2.1

Development in Segment "Offl ine"

As part of the initial consolidation of Drillisch from the beginning of September 2017, sales revenues and the related expenses from the stationary sale of mobile products were recognized for the fi rst time in the segment.

Revenues in the segment Offl ine came to €15.3 million (previous year: €0.0). The segment revenues include total sales revenues from intercompany relationships of €4.7 million that were eliminated during the consolidation process (previous year: €0.0 million). Cost of materials in the segment Off line amounted to €9.0 million (previous year: €0.0). The total of the segment expenses includes expenses from intercompany relationships in the amount of €5.1 million that were eliminated during the consolidation process (previous year: €0.0 million). Customer acquisition costs were posted directly as expenses in the segment Offl ine as well. In the segment Offl ine, the EBITDA amounted to €0.2 million (previous year: €0.0 million).

Major revenue and profi t indicators in the segment "Offl ine"

	30/09/2017	30/09/2016	Change
Revenue (in €m)	15.3	0.0	15.3
EBITDA (in €m)	0.2	0.0	0.2
EBITDA margin (in %)	1.1	0.0	1.1

Earnings position

Growth during the fi rst nine months of 2017 was driven above all by the contract customer business of the two segments Online and Offl ine. In this core business, the number of customer contracts subject to charge in the current product lines was increased by 4.09 million contracts (thereof 3.35 million from the initial consolidation of Drillisch) to 12.39 million.

Revenues rose in the fi rst nine months of 2017 by 9.9% from €1,788 million in the previous year to €1,965 million. The initial consolidation of Drillisch results in a revenue contribution in the amount of €54.6 million (previous year: €0.0). Adjusted for the share of revenue of the mass market customers that were not acquired from Versatel until May 2017 and the revenue contribution of Drillisch, revenues would have risen by 5.0% in comparison with the comparable period of the previous year. The positive revenue development results primarily from the continued rise in the number of contract customers and the related monthly payments.

All customer acquisition costs as well as the costs for converting resale DSL lines to DSL complete packages and upgrades to VDSL lines were as before posted directly as expenses.

In the fi rst nine months of 2017, the costs of sales rose underproportionately to the development of revenues by €99.2 million (7.9%) (thereof €31.2 million from the initial consolidation of Drillisch) to €1,360 million (previous year: €1,261 million). The gross margin rose accordingly from 30.2% in the previous year to 32.2%. Gross profi t rose by 16.7% from €541.4 million in the previous year to €631.8 million and increased more sharply than revenue.

Distribution costs rose slightly from €220.3 million in the previous year to €249.7 million in the fi rst nine months of 2017. In relation to revenue, the distribution costs in the fi rst nine months of 2017 came to 12.7% (previous year 12.3%). Administration costs increased (also a consequence of the initial consolidation of Drillisch) from €48.6 million in the previous year (2.7% of revenue) to €52.3 million (also 2.7% of revenue).

The EBITDA from ongoing business activities in the fi rst nine months of 2017 amounted to €352.7 million (previous year: €282.9 million). Earnings before taxes (EBT) rose by 24.4% from €258.3 million to €321.2 million. Tax expenses in in the fi rst nine months of 2017 amounted to €74.9 million (previous year: €77.0 million). The change in the tax rate from 29.8% per 30 September 2016 to 23.3% per 30 September 2017 results mainly from an adjustment in the deferred tax assets in the amount of €24.6 million (previous year: €0.0) related to the purchase of the Versatel mass market clientele by 1&1.

Consolidated profi t from ongoing activities rose from €181.3 million in the previous year to €246.3 million in the fi rst nine months of 2017. Consolidated profi t of €172.9 million results from the non-ongoing activities (previous year: €-4.2 million). The profi t from the non-ongoing activities in this year results essentially from the sale of Versatel Group. The consolidated profi t and consolidated comprehensive results in the fi rst nine months of 2017 amounted to €419.2 million (previous year: €177.1 million).

	30/09/2017	30/09/2016	Change
Revenue*	1,965.2	1,788.4	176.8
EBITDA*	352.7	282.9	69.8
EBITDA margin* (in %)	17.9	15.8	2.1
EBIT*	328.9	277.0	51.9
EBIT margin* (in %)	16.7	15.5	1.2

Major revenue and profi t indicators (in €m)

*from ongoing activities

Financial position

Thanks to the positive development of profi ts, cash fl ow from current business activities from ongoing activities rose from €44.0 million in the previous year to €299.5 million in the fi rst nine months of 2017.

Back payments for taxes of about €100 million as well as advance payments for procured services that were not recognised on expenditures until the following period in the amount of approximately €41 million resulted in the previous years to outgoing cash payments that had a negative eff ect on operating cash fl ow.

Cash fl ow from investments shows in total net incoming payments of €25.2 million during the reporting period (previous year: outgoing payments of €22.8 million). They result, on the one hand, primarily from investments in intangible and tangible assets in the amount of €8.6 million (previous year: outgoing payments of €22.8 million) and interest received in the amount of €0.6 million (previous year: €0.1 million). On the other hand, the incoming payments from the initial consolidation of Drillisch resulting from the reverse acquisition in the amount of €33.1 million (previous year: €0.0) are included here and refl ect the level of cash at Drillisch at the time of the initial consolidation.

The free cash fl ow (defi ned as net incoming payments from operating activities reduced by investments in intangible and tangible assets plus incoming payments from the disposal of intangible and tangible assets) rose from €21.2 million in the same period of the previous year to €290.9 million during the fi rst nine months of 2017.

Defi nitive factors in the cash fl ow from fi nancing activities, which during the fi rst nine months of 2017 amounted to €-185.9 million (previous year: €-37.8 million), were the repayment of fi nancing loans in the amount of €200.0 million (previous year: €0.0), interest payments in the amount of €8.4 million (previous year: €18.8 million) and incoming payments from the assumption of losses in the amount of €12.5 million (previous year: €8.7 million) and incoming payments from the change of cash pool balances within the framework of cash pooling in the amount of €10.1 million (previous year: outgoing payments of €27.7 million).

Assets and liabilities

The balance sheet total increased from €1.843 billion per 31 December 2016 to €4.694 billion per 30 September 2017. The changes in assets and liabilities result mainly from the initial inclusion and consolidation of Drillisch in the consolidated fi nancial statements per 30 Sep-

tember 2017 and from the sale of the Versatel Group in May 2017.

Short-term assets rose signifi cantly from €263.5 million per 31 December 2016 to €630.7 million per 30 September 2017. The cash holdings disclosed in the short-term assets rose from €4.6 million to €39.2 million. Trade accounts receivable rose from €152.2 million to €207.9 million. The substantial increase in the claims due from affi liated companies in the amount of €241.2 million (previous year: €4.1 million) are related essentially to claims against United Internet pursuant to the cash pooling still in eff ect on the closing date (€82 million) and to claims from the sale of the Versatel Group (€158 million). Prepaid expenses rose as a consequence of the closing date and the expansion of business activities from €47.7 million to €70.0 million. Other non-fi nancial assets increased by €7.4 million to €17.5 million, largely because of the aforementioned initial inclusion of Drillisch in the consolidated fi nancial statements.

Long-term assets rose signifi cantly as well from €1,579.7 million per 31 December 2016 to €4,063.3 million per 30 September 2017. The increase of €2,483.6 million essentially results from the assets determined as part of the provisional purchase price allocation less the related write-off s totalling €3,632.9 million that are refl ected in the increase in goodwill and the other intangible assets. In contrast, fi xed assets declined, primarily because of the sale of the Versatel Group, by €532.9 million to €22.3 million (31 December 2016: €555.2 million).

Short-term liabilities decreased from €1,046.7 million per 31 December 2016 to €726.3 million per 30 September 2017. The short-term trade accounts payable fell from €295.5 million to €265.4 million because of the closing date. Liabilities due to affi liated companies declined from €594.8 million per 31 December 2016 to €193.2 million and encompass primarily liabilities from a call option for the remaining 15% of the shares in 1&1 Telecom Holding GmbH, which will be exercised in January 2018. Last year, the liabilities due to affi liated companies comprised primarily short-term liabilities related to the cash pooling with United Internet. Income tax liabilities rose from €12.0 million per 31 December 2016 to €78.1 million per 30 September 2017. The cause for this is mainly the signifi cant rise in profi t before tax. Shortterm bank loans and overdrafts per 30 September 2017 amounted to €50.1 million (31 December 2016: €0.0) and are related to the external credit line utilised by Drillisch.

Long-term liabilities decreased from €1,209.3 million per 31 December 2016 to €222.5 million per 30 September 2017. The cause for this was above all the complete repayment of the long-term liabilities due to affi liated companies in the amount of €1,000.0 million from the fi nancing of the acquisition of the Versatel Group, which was sold in May 2017.

The equity in the Group rose from €-412.8 million per 31 December 2016 to €3,745.2 million per 30 September 2017. The major cause of this substantial increase was in the consolidation eff ects related to the recognition of the reverse acquisition. The Company's share capital in the amount of €194.4 million is distributed in 176,764,649 no-par shares issued to the bearer with a proportionate share in the share capital of €1.10 and is the equivalent of the share capital of Drillisch AG. The equity ratio rose accordingly from -22.4% to 79.8%.

The negative equity of 1&1 per 31 December 2016 resulted from reorganisation actions taken within the framework of the evolvement of the corporate structure of the United Internet Group from 2014 to 2016; the goal of these measures was the separation of the business activities of the United Internet Group into the divisions Access, Hosting, Portal and Corporate.

At this time, disbursements and/or profi t transfers from companies included in the consolidation to companies outside of the consolidation of a partial group were disclosed without impact on income as withdrawals from equity. Contributions from companies outside of the group of consolidated companies to companies in the consolidated group of a partial group were recognised as contributions to equity.

As part of the sale of the Versatel Group in May 2017, the negative equity was completely balanced out by contributions from United Internet.

Supplementary Report

The Drillisch AG Supervisory Board has appointed Mr Ralph Dommermuth as CEO and Mr Martin Witt as member of the Drillisch AG Management Board. Mr Dommermuth's appointment will become eff ective per 1 January 2018; Mr Witt's appointment became eff ective per 1 October 2017. Mr Vlasios Choulidis will resign from the Drillisch Management Board eff ective per 31 December 2017.

The Hanau Local Court has appointed Mr Kurt Dobitsch, Mr Kai-Uwe Ricke and Mr Michael Scheeren as members of the Drillisch AG Supervisory Board, eff ective per 14 October 2017; their appointment is eff ective until the conclusion of the next ordinary Annual General Meeting of Drillisch AG. Mr Kurt Dobitsch, Mr Kai-Uwe Ricke and Mr Michael Scheeren succeed Dr Susanne Rückert and Mr Frank Rothauge, who have stepped down pursuant to the business combination agreement, and Dr Bernd H Schmidt, who previously resigned from the Drillisch AG Supervisory Board at the end of May.

Report on Risks and Opportunities

The risk management system is an integral component of corporate policy aimed at early exploitation of opportunities and the detection and limitation of risks. Drillisch operates a risk management system throughout the Group that includes continuous observation to ensure early recognition and the standardised recording, assessment, control and monitoring of risks. The objective is to obtain information about negative developments and the related fi nancial eff ects as early as possible so that the appropriate measures can be initiated to counteract them. The management of the company results and company value makes use of the instruments of risk management, which can thus become a strategic success factor for the Company's management for subsidiaries and Drillisch itself.

General statement from the Management Board regarding the Group's risks and opportunities position

The assessment of the overall risks situation is the result of a consolidated consideration of all major risk areas and specifi c risks, taking into account interdependencies. Risks threatening the existence of Drillisch Group from either specifi c risk positions or the overall risk situation were not discernible during the reporting period and at the point in time of preparation of this quarterly release.

Forecast Report

Forecast for fi scal year 2017

The Management Board expects a signifi cant increase in clientele and a related continuation of the positive development of gross profi t in its operating business and a substantial rise in revenue for 2017 as a whole. About 3.35 million contracts subject to charge were added in Q3 from the consolidation of Drillisch as of 8 September 2017. The Management Board expects an adjusted EBITDA from ongoing activities in the amount of between €520 and €530 million for 2017.

Future-oriented statements and forecasts

This quarterly release contains future-oriented statements that are based on the current expectations, assumptions and forecasts of the Drillisch AG Management Board and the information available to the Board at this time. The future-oriented statements are subject to various risks and uncertainties and are based on expectations, assumptions and forecasts that may possibly prove in future to be false. Drillisch does not guarantee that the future-oriented statements will prove to be true, and it neither assumes any obligation nor has the intention to adjust or update any future-oriented statements made in this quarterly release.

Explanatory comments on the quarterly release

Information about the Company

Drillisch AG is a listed stock corporation that off ers telecommunication services. Drillisch was founded in 1997. The core business of Drillisch Group is telecommunications and is essentially conducted by the wholly-owned subsidiaries Drillisch Online AG ("Drillisch Online"), Maintal, and 1&1 Telecommunication SE ("1&1"), Montabaur.

The Group has concluded an MBA MVNO agreement with the network operator Telefónica Germany GmbH & Co. OHG (Telefónica) and an MVNO agreement with the network operators Telefónica and Vodafone; in addition to these agreements, it holds service provider licences from the networks Telekom, Vodafone and Telefónica. Drillisch's primary activity is the marketing of postpaid and prepaid products in the networks of Telefónica and Vodafone as well as landline and DSL products, including the related applications (such as home networking, online storage, telephony, video on demand or IPTV).

The address and registered offi ce of Drillisch AG as the parent company of the Group is Wilhelm-Röntgen-Strasse 1–5, 63477 Maintal, Germany. The Company is registered at Hanau Local Court under HRB 7384.

Major accounting, valuation and consolidation principles

The quarterly release from Drillisch AG per 30 September 2017 was prepared, just as the consolidated annual fi nancial statements of the economic aquiree per 31 December 2016, in compliance with the International Financial Reporting Standards (IFRS) as they are to be applied in the European Union (EU).

The quarterly release does not represent an interim report within the sense of IAS 34. The accounting and valuation principles applied in the quarterly release are consistent with the methods used in the previous year by the economic acquiree with the exception of the standards whose application has newly been mandated and must be viewed in the context of the consolidated annual fi nancial statements of the economic acquiree per 31 December 2016.

Application of assumptions and estimates

During preparation of the quarterly release, management makes discretionary decisions, estimates and assumptions that aff ect the amounts of the income, expenses, assets and liabilities disclosed on the closing date and the disclosure of contingent liabilities. The uncertainty related to these assumptions and estimates may lead to results that in future require substantial adjustments in the book value of the relevant assets or liabilities.

Use of fi nancial performance indicators relevant for business

Additional fi nancial performance indicators such as EBITDA, EBITDA margin, EBIT or EBIT margin are used – in addition to the disclosures required by the International Financial Reporting Standards (IFRS) – in the Company's annual and interim fi nancial statements to ensure a clear and transparent presentation of Drillisch's business development.

The performance indicators used by Drillisch have been adjusted for special eff ects to the extent this is necessary for a clear and transparent presentation. As a rule, the special effects are related solely to those eff ects that, because of their nature, frequency and/or scope, are capable of negatively aff ecting the meaningfulness of the fi nancial performance indicators for the fi nancial and income development of the Company. All special eff ects are pointed out and explained in the relevant chapter of the fi nancial statements for the purpose of the rollover to the unadjusted fi nancial performance indicators.

Explanatory comments on the quarterly release

Mandatory application of new accounting standards

The application of IAS 12 "Recognition of Deferred Tax Assets for Unrealised Losses" and IAS 7 "Disclosure Initiative" is possible for the fi rst time in fi scal year 2017. As of this time, the EU Commission has not yet accepted the application of these standards, so they have not been given consideration in this quarterly release.

Miscellaneous

All of the subsidiaries are included in the consolidated fi nancial statements.

The following company was acquired during the reporting period 2017:

» Drillisch AG, Maintal.

The following company was sold during the reporting period 2017:

» Versatel Telecommunications GmbH, Düsseldorf.

Other than this company, the group of consolidated companies has essentially remained unchanged over the consolidated annual fi nancial statements of the economic acquiree per 31 December 2016.

The quarterly release has not been audited pursuant to Section 317 HGB [German Commercial Code] or subjected to a review by an independent accountant.

CONSOLIDATED FINANCIAL STATEMENTS PER 30 SEPTEMBER 2017

• 19 Balance Sheet
• 21 Comprehensive Income Statement
• 22 Cash Flow Statement
• 23 Change in Equity Statement
• 24 Segment Reporting

Balance Sheet

ASSETS	30/09/2017	31/12/2016
	€k	€k
Current assets
Cash and cash equivalents	39,230	4,562
Trade accounts receivable	207,921	152,232
Claims due from affi liated companies	241,204	4,099
Inventories	51,168	39,286
Prepaid expenses	69,963	47,662
Other fi nancial assets	17,447	7,415
Income tax assets	3,774	8,056
Other non-fi nancial assets	0	223
Current assets, total	630,706	263,535
Fixed assets
Other fi nancial assets	5,771	5,091
Tangible assets	22,344	555,220
Other intangible assets	828,494	243,173
Goodwill	2,974,287	506,482
Trade accounts receivable	0	55,841
Prepaid expenses	105,175	122,248
Deferred tax assets	127,214	91,669
Fixed assets, total	4,063,287	1,579,724
ASSETS, TOTAL	4,693,993	1,843,259

Balance Sheet

SHAREHOLDERS' EQUITY AND LIABILITIES	30/09/2017	31/12/2016
	€k	€k
Short-term liabilities
Trade accounts payable	265,395	295,492
Liabilities due to affi liated companies	193,190	594,798
Bank loans and overdrafts	50,083	1
Payments on account	5,936	4,164
Income tax liabilities	78,126	12,020
Deferred income	48,429	63,661
Other provisions	20,395	11,183
Other fi nancial liabilities	56,941	61,146
Other non-fi nancial liabilities	7,843	4,264
Short-term liabilities, total	726,337	1,046,729
Long-term liabilities
Deferred tax liabilities	198,104	43,190
Trade accounts payable	0	9,285
Liabilities due to affi liated companies	0	1,003,963
Deferred income	0	26,254
Other provisions Other fi nancial liabilities	12,331 12,049	40,450 86,207
Long-term liabilities, total	222,484	1,209,349
Shareholders' equity
Share capital	194,441	121
Capital reserves	2,449,085	-1,067,670
Unappropriated retained earnings	1,101,645	615,289
Equity attributable to the shareholders of the parent company	3,745,171	-452,260
Non-controlling interests	0	39,441
Total of equity	3,745,171	-412,819
SHAREHOLDERS' EQUITY AND LIABILITIES, TOTAL	4,693,993	1,843,259

Comprehensive Income Statement

	I-III/2017	I-III/2016
	€k	€k
Sales	1,965,197	1,788,426
Income from affi liated companies	26,789	14,002
Cost of sales	-1,360,198	-1,261,001
Gross profi t from turnover	631,788	541,427
Sales costs	-249,678	-220,304
Administration costs	-52,249	-48,602
Other operating expenses	-17,120	-12,981
Other operating income	16,169	17,428
Profi t/loss from operating activities	328,910	276,968
Financial result	-7,702	-18,711
Profi t before taxes	321,207	258,257
Tax expenses	-74,942	-76,969
Consolidated profi t from ongoing activities	246,265	181,289
Consolidated profi t from non-ongoing activities	172,930	-4,234
Consolidated profi t	419,195	177,055
Categories that may subsequently be reclassifi ed as profi t or loss	0	0
Categories that will not subsequently be reclassifi ed in the profi t and loss account	0	0
Consolidated comprehensive results	419,195	177,055
thereof attributable to
Non-controlling interests	0	28,818
Drillisch AG shareholders	419,195	148,237
Profi t per share of the shareholders of Drillisch AG in EUR*
- undiluted**	2.02	1.49
- diluted**	2.02	1.49

* from ongoing activities

** in the previous year, calculated at the weighted average of the shares to be used per 30/09/2017 for better comparability

Cash Flow Statement

	I-III/2017	I-III/2016
	€k	€k
Consolidated earnings before interest and taxes	328,910	276,968
Income tax paid	-101,172	-81,369
Income tax received	165	0
Write-off s	23,765	5,944
Change in inventories	-5,461	1,051
Change in receivables and other assets	10,293	-141,076
Change in trade payables, other liabilities and provisions	43,179	-17,524
Change in payments received on account	-208	29
Cash fl ow from current business activities from ongoing business activities	299,471	44,023
Cash fl ow from current business activities from non-ongoing business activities	-38,379	111,889
Payments for investments in tangible and intangible assets	-8,557	-22,828
Incoming payments from the initial consolidation of Drillisch related to the reverse acquisition	33,125	0
Payments for investments in other fi nancial assets	0	-46
Interest received	624	108
Cash fl ow from investment activities from ongoing business activities	25,192	-22,766
Cash fl ow from investment activities from non-ongoing business activities	-58,639	-78,035
Incoming payments from assumption of losses	12,498	8,715
Outgoing payments for amortisation of loans	-200,000	0
Interest paid	-8,412	-18,819
Amortisation of Other fi nancial liabilities	10,129	-27,745
Incurrence/amortisation of investment liabilities	-86	0
Cash fl ow from fi nancing activities from ongoing business activities	-185,871	-37,849
Cash fl ow from fi nancing activities from non-ongoing business activities	-7,105	-13,634
Change in cash from ongoing business activities	138,792	-16,592
Change in cash from non-ongoing business activities	-104,123	20,220
Cash at end of period	39,230	4,631
Cash at beginning of period	4,562	1,003

Change in Equity Statement

	Number of shares	Subscribed capital	Capital reserves	Unappropria ted retained earnings	Equity attributable to the Drillisch AG shareholders	Non controlling interests	Equity, total
		€k	€k	€k	€k	€k	€k
Per 1 January 2016	121,000	121	-1,058,956	390,004	-668,831	-65	-668,896
Appropriation of earnings 2015			-8,714	8,714	0	0	0
Consolidated profi t				148,237	148,237	28,818	177,055
Per 30 September 2016	121,000	121	-1,067,670	546,955	-520,594	28,753	-491,841
Per 1 January 2017	121,000	121	-1,067,670	615,289	-452,260	39,441	-412,819
Consolidated profi t				419,195	419,195	0	419,195
Total Results
Issue of shares of	176,643,649	194,320			194,320	0	194,320
Corporate merger			3,516,755	67,160	3,583,916	-39,441	3,544,474
Per 30 September 2017	176,764,649	194,441	2,449,085	1,101,645	3,745,171	0	3,745,171

Segment Reporting

Segment Report 01/01/2017 – 30/09/2017	Online	Offl ine	Mis cellaneous	Consoli dation / Holding	Total
	€k	€k	€k	€k	€k
Sales with third parties	1,981,401	10,566	18	0	1,991,985
Intra-company sales	1,573	4,731	0	-6,303	0
Segment sales	1,982,973	15,297	18	-6,303	1,991,985
Cost of materials external third parties Cost of materials from intra-company relationships	-1,275,378 -1,960	-3,887 -5,075	-2 -1	0 7,036	-1,279,267 0
Cost of materials for segment	-1,277,338	-8,962	-4	7,036	-1,279,267
Gross profi t for segment	705,635	6,335	15	733	712,718
Segment EBITDA	352,056	166	229	224	352,674

Segment Report 01/01/2016 – 30/09/2016	Online	Offl ine	Mis cellaneous	Consoli dation / Holding	Total
	€k	€k	€k	€k	€k
Sales with third parties	1,802,428	0	0	0	1,802,428
Intra-company sales	0	0	0	0	0
Segment sales	1,802,428	0	0	0	1,802,428
Cost of materials external third parties Cost of materials from intra-company relationships	-1,253,899 0	0 0	0 0	0 0	-1,253,899 0
Cost of materials for segment	-1,253,899	0	0	0	-1,253,899
Gross profi t for segment	548,529	0	0	0	548,529
Segment EBITDA	282,913	0	0	0	282,913

Financial Calendar

Financial Events 2017*

Date Subject

Tuesday, 14 November 2017 Quarterly Close Q3 2017

* Date is preliminary and subject to change.

Legal Information

Drillisch AG is a member of the United Internet Group.

Company Headquarters:

Wilhelm-Röntgen-Straße 1-5 D – 63477 Maintal

Telephone: +49 (0) 6181 / 412 3 Fax: +49 (0) 6181 / 412 183

Responsible:

Drillisch AG

Management Board:

Vlasios Choulidis (Spokesperson)

André Driesen

Martin Witt (since October 2017)

Supervisory Board:

Marc Brucherseifer, Dipl.-Kfm. (Chair)

Dr Susanne Rückert (Deputy Chair) (until October 2017)

Kurt Dobitsch (since October 2017)

Norbert Lang

Horst Lennertz, Dr.-Ing.

Frank Rothauge, Dipl.-Kfm. (until October 2017)

Kai-Uwe Ricke (since October 2017)

Michael Scheeren (since October 2017)

Dr Bernd H. Schmidt (until 31 May 2017)

Investor Relations Contact:

Telephone: +49 (0) 6181 / 412 200 Fax: +49 (0) 6181 / 412 183 E-mail: ir@drillisch.de

Commercial Register Entry: HRB 7384 Hanau VAT ID No.: DE 812458592 Tax No.: 03522506037 Off enbach City Tax Offi ce

Disclaimer:

The information provided in this publication is checked carefully. However, we cannot guarantee that all specifi cations are complete, correct and up to date at all times.

Future-oriented Statements:

This report contains certain statements oriented to the future which are based on the current assumptions and projections of the management of the Drillisch Group. Various risks, uncertainties and other factors, both known and unknown, can cause the actual results, fi nancial position, development or performance of the Company to deviate substantially from the assessments shown here. Such factors include those which we described in reports to the Frankfurt securities exchange. The Company does not undertake any obligation to update such future-oriented statements and to adapt them to future events or developments.

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Drillisch AG | Income Statement Q3 2017

Drillisch AG

Wilhelm-Röntgen-Straße 1-5 63477 Maintal Germany