Quarterly Report • Nov 12, 2010
Quarterly Report
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| Jan.-Sept. 2009 | Jan.-Sept. 2009 | |
|---|---|---|
| Sales in 1 million | 1,409.0 | 1,224.8 |
| Earnings before interest, taxes depreciation and amortization (EBITDA) in 1 million |
270.8 | 319.31 |
| EBITDA without special items in 1 million | 270.8 | 269.1 |
| Earnings before interest and taxes (EBIT) in 1 million | 210.6 | 279.81 |
| EBIT without special items in 1 million | 210.6 | 229.6 |
| Employees at end of September | 4,869 | 4,485 |
| Share price at end of September (Xetra) in 1 | 11.86 | 10.31 |
| Earnings per share in 1 | 0.53 | 0.76 |
| EPS without special items in 1 | 0.53 | 0.57 |
| Q4/2009 | Q1/2010 | Q2/2010 | Q3/2010 | Q3/2009 | |
|---|---|---|---|---|---|
| Sales | 434.1 | 462.8 | 468.0 | 478.2 | 409.1 |
| EBITDA | 97.42 | 90.3 | 91.7 | 88.8 | 145.61 |
| EBITDA without special items | 87.0 | 90.3 | 91.7 | 88.8 | 95.4 |
| EBIT | 80.82 | 70.7 | 71.5 | 68.4 | 132.21 |
| EBIT without special items | 70.4 | 70.7 | 71.5 | 68.4 | 82.0 |
1 EBITDA and EBIT Jan.-Sept. 2009 / Q3 2009 incl. positive special items of 1 50.2 million from sale of shares
2 EBITDA and EBIT Q4 2009 incl. positive special items of 1 10.4 million from sale of shares
The first nine months of fiscal year 2010 were a successful period for us. We were able to expand our customer figures and are well on track to achieving the targets we set for 2010. In the course of our current quality drive, we successfully implemented key improvement measures and significantly increased customer satisfaction as a whole. At the same time, we have laid the foundation for further growth in the growing fields of "Mobile Internet" and "Cloud Applications", as well as for further international expansion.
In the first nine months of 2010, consolidated sales improved by 15.0% to 1 1,409.0 million. Despite the expenses for our DSL quality drive and high start-up costs for new business fields – now totaling 1 58.3 million – there was a slight year-on-year increase in earnings before interest, taxes, depreciation and amortization (EBITDA) to 1 270.8 million (prior year: 1 269.1 million – without special items of 1 50.2 million from the sale of shares).
In the third quarter of 2010, we made a further significant increase in expenditure for the establishment and development of our new business fields – especially for the marketing of our Mobile Internet products and Do-it-Yourself Homepage. With total expenditure of 1 39.1 million, we invested more than twice as much as in the first two quarters together. At the same time, we concluded negotiations on pre-service invoices we had queried. The resulting reimbursements for previous periods totaling 1 19.3 million were used to partially refinance the aforementioned expenses in our new business fields.
In our "Access" segment, sales grew strongly by 21.2% to 1 913.0 million in the first nine months of 2010. Despite a further significant increase in expenditure for our quality drive and the marketing launch of our Mobile Internet products, EBITDA was still slightly above the prior-year level at 1 102.6 million (+0.3%), while EBIT was down 16.9% on the previous year to 1 82.8 million as a result of scheduled depreciation of the acquired freenet customer base. The number of feebased Access contracts grew by 50,000 in the period under review, from 3.50 million contracts as of December 31, 2009 to 3.55 million. Marketing focused above all on the growth fields Mobile Internet and complete DSL packages. Following the signing of an MVNO agreement (Mobile Virtual Network Operator) with Vodafone in March 2010 and the subsequent product development, we started the marketing of new products in our Mobile Internet business on July 1, 2010. Accompanied by an extensive TV, print and online marketing campaign, the launch was well received by the market. We added 80,000 new customer contracts in the third quarter, and thus increased our customer base to 170,000 in this field. We also achieved strong growth in complete DSL contracts (of particular importance for us), adding a further 390,000 customer relationships (200,000 in the third quarter alone). However, the number of customer relationships for those business models gradually being phased out (narrowband, T-DSL and R-DSL) continued to fall. A total of 420,000 customer relationships were lost or migrated to complete DSL packages (of which 230,000 in the third quarter). As part of our DSL quality drive, we implemented key
measures such as process optimization, free hotlines and faster fault clearance times during the period under review and achieved a further significant increase in overall customer satisfaction.
We also invested heavily in customer growth in our second business segment, "Applications", during the period under review. The number of fee-based contracts grew by 380,000 to 6.03 million in the first nine months of 2010. There was organic growth in the number of ad-financed accounts from 26.3 million to over 27.3 million. Sales growth in this segment was slowed, however, by the contract conversion of a major customer of Sedo's subsidiary affilinet in late 2009. As a result, our listed subsidiary Sedo Holding AG posted a fall in sales of 20.4% in the period under review – whereas we enjoyed growth of 12.1% in the rest of the segment. Against this backdrop, total segment sales grew by just 5.2% to 1 495.5 million. Despite high pre-launch costs for new applications and a further significant increase in marketing expenses, segment EBITDA and EBIT were raised by 6.3% to 1 172.8 million and 5.3% to 1 132.5 million, respectively. The main focus areas in the "Applications" segment during the first nine months included the development of our Online Office products launched in the second quarter, the further development of our Sector Homepage into a Do-it-Yourself Homepage – which is also being advertised on TV as of July 1, 2010 – and our entry into the Polish market on August 27.
In view of the successful course of business so far this year, we confirm our sales forecast for 2010. We continue to expect consolidated sales to grow by around 15% (to a total of approx. 1 1.9 billion) and EBITDA to remain at the record level of the previous year (1 356.1 million without positive special items).
United Internet will continue to pursue its policy of sustainable growth in 2011. In order to utilize our wide range of opportunities, we will once again invest heavily in new business fields in the coming year. In the "Access" segment, further growth is expected in the number of customer contracts, especially for products enabling mobile internet usage. In the "Applications" segment, the focus in 2011 will be on entering new foreign markets for our Business Applications. In the field of our Consumer Applications, we plan to drive the technical integration and subsequent expansion of our newly acquired Mail.com service. As Germany's leading email provider, we also intend to make a strong entry into the field of legally secure email communication. The respective legislative procedure for the German "De-Mail" system is expected to be completed in the first quarter of 2011. Despite the high costs associated with these projects for sustainable growth in customer subscriptions, initial planning indicates that EBITDA in 2011 will reach a similar level to that of the current year.
Montabaur, November 11, 2010
Ralph Dommermuth
The global economy continued its recovery in 2010. As a result, the International Monetary Fund (IMF) repeatedly upgraded its forecasts for 2010 during the year. In its bi-annual "World Economic Outlook", the Fund reported global economic growth of 4.7% for the first half of 2010. At the same time, the IMF's experts stated that global growth was slowing at the beginning of the second half and that growth of around 4.8% was expected for the year as a whole.
Global economic growth is being driven above all by the emerging and developing nations, especially in Asia. Growth is somewhat slower in the developed economies – the IMF expects growth of 2.7% for these nations in 2010. Of particular concern, according to the Fund, is the situation in the Euro zone, which is expected to lag behind the other industrialized nations with an estimated growth rate of 1.7%.
One of the few exceptions in Europe is the export-led German economy, which has proved to be the Euro zone's powerhouse so far in 2010. Based on its development in 2010 so far, the IMF believes the German economy can grow by 3.3% this year – significantly more than the 2.6% expected for the USA.
The prevailing mood in the ICT sector has rarely been as good as at present. According to a survey of the high-tech industry association BITKOM, 78% of companies interviewed in the third quarter recorded increased sales. As a result, the BITKOM index climbed from 48 to 67 points and has thus reached the highest level since its introduction in 2001. According to the survey, demand in the ICT sector has grown strongly again since the beginning of the year: 74% of all companies now expect higher order income than in the previous year. Due to the positive development of business, 79% of companies (previously 71%) now expect sales growth in 2010 as a whole.
With its "Access" and "Applications" segments, United Internet AG is engaged predominantly in the ICT markets "fixed-line" and "mobile" networks (Access segment) as well as "cloud applications" and "online marketing" (Applications segment).
As expected, the development of demand for new (stationary) broadband connections has slowed since 2008. In its annual report published in March 2010, the German Federal Network Agency reported a further decline in the number of new connections to around 2.4 million in 2009 – compared to 3.1 million in 2008 and 4.6 million in 2007 – and expects the trend to continue in 2010. This has been confirmed by figures published so far this year by DSL suppliers operating in Germany, whose internal calculations indicate growth of around 630,000 connections in the first half of 2010.
The market for mobile broadband connections (Mobile Internet), however, is growing much more dynamically than for fixed-line broadband connections. In 2008, the volume of data transmitted via mobile phone networks already amounted to 11.5 million GB – more than triple the volume of 2007. This trend continued in 2009 with an increase in transmission volume to around 33.5 million GB. This strong growth in mobile internet usage is being driven above all by low prices which are more attractive for consumers, as well as by the boom in smartphones and their respective applications (apps). A trend which continues to be strong in 2010. According to a survey by the UK market research agency Canalys, global sales of smartphones grew by 64% to around 63 million handsets in the second quarter of 2010 alone. The hightech sector association BITKOM therefore expects sales of smartphones in Germany to grow by 47% to 8.2 million handsets in 2010.
The cloud computing market is also growing fast. According to the latest Experton Group survey presented at the international "Cloud Computing Conference" in Cologne in early October, German revenues from cloud computing will already pass the billion-euro mark this year with growth of 48% to 1 1.14 billion. Experts at the conference predicted that an increasing number of applications would be operated in future from online data centers, rather than the local PCs of private users or in-house corporate data centers.
Advertising markets have recovered faster than expected from the crisis. In the second quarter of 2010, for example, many US-based car, retail and finance companies were investing heavily in advertising again. In Western Europe, the favorable transmission times of the FIFA World Cup for European time zones gave the advertising sector as a whole a much-needed boost. In view of the solid progress made so far this year, the media agency group ZenithOptimedia has upgraded the figures in its "Advertising Expenditure Forecast" and now predicts global growth in ad spending of 4.8% (previously 3.5%) in 2010. Growth in Western Europe and Germany is expected to reach 3.0% and 2.4%, respectively. According to Zenith-Optimedia, the internet and TV survived the recession much better than other media and succeeded in expanding their share of total ad spending.
United Internet AG is the leading European internet specialist with over 9.5 million fee-based customer contracts and more than 27 million ad-financed free accounts.
| ACCESS | APPLICATIONS | ||
|---|---|---|---|
| Networks | Motivated team 4,800 employees, thereof 1,000 in and data centers |
product management, development | Content |
| Sales power on a daily basis Operational Excellence |
2 million new customer contracts p.a. 40,000 registrations for free services |
||
| User equipment |
37 million accounts in 8 countries 5 data centers 70.000 servers in Europe and USA |
Standard software |
|
In order to fully exploit the identified growth business fields, "Mobile Internet" and "Cloud Applications", we introduced a new segmentation for management and reporting purposes at the beginning of 2010. The former segments, "Products" and "Online Marketing", were discontinued and business is now represented by the segments "Access" and "Applications".
The "Access" segment comprises our fixed-line and mobile access products, including the corresponding applications. We operate in Germany in this segment, where we are among the top providers. We remain independent of network providers by purchasing standardized network services from various pre-service providers, which we then enhance with end-user devices and our own applications and services from our "Internet Factory" in order to differentiate ourselves from the competition. We market our Access products via the strong brands GMX, WEB.DE and 1&1, which enable us to reach a mass market while also targeting specific customer groups.
The "Applications" segment comprises the company's application business – whether ad-financed or via subscription fee. These applications include, for example, home pages and e-shops, Personal Information Management applications (e-mail, to-do lists, appointments, addresses), group work, online storage and office software, which we develop in our own "Internet Factory" or together with partners and market to various target groups via our brands GMX, WEB.DE, 1&1, united-domains, Fasthosts and InterNetX. We also offer our customers performance-based advertising and sales possibilities via Sedo and affilinet.
In the "Access" segment, sales in the first nine months of 2010 grew strongly by 21.2%, from 1 753.2 million to 1 913.0 million. Despite high expenses for the current DSL quality drive and the marketing start of our new Mobile Internet products, EBITDA improved slightly by 0.3%, from 1 102.3 million to 1 102.6 million. However, EBIT fell by 16.9% from 1 99.6 million last year to 1 82.8 million, due to depreciation of 1 16.2 million on freenet's DSL customer base acquired in late 2009. The acquisition of freenet's DSL customers in late 2009 significantly enhanced our strategic position in the current consolidation of the DSL market. Customer acquisition costs and costs for the conversion of resale DSL connections to complete packages (ULL) continue to be charged directly as expenses.
| Q4 2009 | Q1 2010 | Q2 2010 | Q3 2010 | Q3 2009 | |
|---|---|---|---|---|---|
| Sales | 273.5 | 300.8 | 301.4 | 310.8 | 254.4 |
| EBITDA | 21.8 | 31.7 | 34.5 | 36.4 | 45.2 |
| EBIT | 18.7 | 25.2 | 28.0 | 29.6 | 44.2 |
Thanks to the successful launch of our Mobile Internet products and the continued growth in complete DSL packages, the number of fee-based Access contracts grew in total by 50,000 contracts (from 3.50 million contracts as of December 31, 2009 to 3.55 million as of September 30, 2010). Following the signing of an MVNO agreement (Mobile Virtual Network Operator) with Vodafone in March 2010 and the subsequent product development, we started the marketing of new products in our Mobile Internet business on July 1, 2010. Accompanied by an extensive TV, print and online marketing campaign, the launch was well received by the market. We added 80,000 new customer contracts in the third quarter and thus increased our customer base to 170,000 in this field. We also achieved strong growth in complete DSL contracts (of particular importance for us), adding a further 390,000 customer relationships (200,000 in the third quarter alone). However, the number of customer relationships for those business models gradually being phased out (narrowband, T-DSL and R-DSL) continued to fall. 420,000 customer relationships were lost or migrated to complete DSL packages in the last nine months (of which 230,000 in the third quarter). Following successful sales efforts in the first six months, we failed to achieve our sales targets in the third quarter and lost a net total of 30,000 DSL contracts. The main reason was the performance of our largest sales partner, who fell far short of his targets. As part of our DSL quality drive, we implemented key measures such as process optimization, free hotlines and faster fault clearance times during the period under review and achieved a further increase in customer satisfaction.
| "Access" customer contracts | Dec. 31, 2009 | Sept. 30, 2010 | Change |
|---|---|---|---|
| Access, total | 3.50 million | 3.55 million | +50,000 |
| of which DSL complete (ULL) | 1.82 million | 2.21 million | + 390,000 |
| of which Mobile Internet | 0.09 million | 0.17 million | + 80,000 |
| of which narrowband / T-DSL / R-DSL | 1.59 million | 1.17 million | - 420,000 |
| "Access" customer contracts | June 30, 2010 | Sept. 30, 2010 | Change |
|---|---|---|---|
| Access, total | 3.50 million | 3.55 million | +50,000 |
| of which DSL complete (ULL) | 2.01 million | 2.21 million | + 200,000 |
| of which Mobile Internet | 0.09 million | 0.17 million | + 80,000 |
| of which narrowband / T-DSL / R-DSL | 1.40 million | 1.17 million | -230,000 |
In the first nine months of 2010 we focused above all on new services relating to our DSL quality drive and the preparation and launch of our Mobile Internet business:
On July 1, 2010, we began marketing our Mobile Internet tariffs and now offer the fully transparent tariffs 1&1 All-Net-Flat and 1&1 Notebook-Flat – with or without a fixed contractual period – for smartphones and laptops. The launch was accompanied by an extensive TV, print and online marketing introduction campaign.
Thanks to a product strategy based on transparency and flexibility, with innovative products offering excellent value for money and a variety of optional applications, we see good opportunities to enhance customer retention and achieve a further increase in average revenue per contract in our DSL business. In particular, we aim to achieve further growth in the migration of our customers to complete packages (ULL), which we regard as essential for improving customer retention. Following a very successful start, we are targeting dynamic growth in the booming Mobile Internet market, where we will be heavily marketing our products in the year-end season.
We also invested heavily in customer growth in the "Applications" segment during the first nine months of 2010. The number of fee-based contracts grew by 380,000 to 6.03 million. Although the statistics were pruned of 40,000 contracts following a change in debt collection policy abroad in the third quarter, there was growth of 35,000 foreign contracts from the acquisition of the Mail.com brand. The number of ad-financed Applications accounts around the world grew from 26.3 million to over 27.3 million.
Sales growth in the Applications segment, however, has slowed since the contract conversion of a major customer of Sedo's subsidiary affilinet in late 2009. As a result, our listed subsidiary Sedo Holding AG posted a fall in sales of 20.4% in the first nine months of 2010 – whereas we enjoyed growth of 12.1% in the rest of the segment. Against this backdrop, total segment sales grew by just 5.2% from 1 471.1 million to 1 495.5 million. Despite high pre-launch costs for new applications and a significant increase in marketing expenses, EBITDA and EBIT in this segment grew by 6.3%, from 1 162.5 million to 1 172.8 million, and by 5.3% from 1 125.8 million to 1 132.5 million, respectively. Foreign business grew by 27.1% and accounted for 1 147.4 million (prior year: 1 116.0 million) of total segment sales.
We intend to drive international expansion In the field of our consumer applications. To this end, we acquired Mail.com in the third quarter of 2010. In addition to the portal, the acquisition also included the email customers of this internationally operating brand. In the important US market, we have not only secured the memorable international domain Mail.com, but also other attractive email domains such as email.com, post.com and usa.com. Following the acquisition and the integration process planned for later, users of Mail.com will benefit from the far more powerful GMX mail technology in place of their former service. The particular strength of the Mail.com domain is its generic character: the name is easy to remember and thus a globally attractive and also neutral alternative to supplier-oriented address endings, such as Hotmail, Yahoo or Google Mail. We believe this generic email domain gives us a unique opportunity to differentiate ourselves in the fiercely competitive international email market. The GMX technology will be migrated in the coming months. Until the migration process is finally completed, the operations of Mail.com will be continued by the former owner. During this time its result is carried as other operating income in United Internet's statement of comprehensive income. Although the 35,000 subscription-based contracts of Mail.com are already included in the United Internet Group's contract reporting, the ad-financed accounts will not be added until the migration to GMX technology and subsequent application of our internal assessment criteria have been completed.
| Q4 2009 | Q1 2010 | Q2 2010 | Q3 2010 | Q3 2009 | |
|---|---|---|---|---|---|
| Sales | 160.4 | 161.8 | 166.4 | 167.3 | 154.5 |
| EBITDA | 62.9 | 60.5 | 58.4 | 53.9 | 51.3 |
| EBIT | 49.6 | 47.4 | 44.9 | 40.2 | 38.8 |
Total growth in customer contracts of 380,000 to 6.03 million in the first nine months of 2010 resulted from growth of 200,000 new Business Applications contracts to 4.21 million and growth of 180,000 new Consumer Applications contracts to 1.82 million.
The number of Applications contracts abroad increased by 180,000 to 2.40 million contracts.
| "Applications" customer contracts | Dec. 31, 2009 | Sept. 30, 20101 | Change |
|---|---|---|---|
| Total fee-based contracts | 5.65 million | 6.03 million | +380,000 |
| of which "domestic" | 3.43 million | 3.63 million | +200,000 |
| of which "foreign" | 2.22 million | 2.40 million | +180,000 |
| Ad-financed accounts | 26.3 million | 27.3 million | +1,000,000 |
| "Applications" customer contracts | June 30, 2010 | Sept. 30, 20101 | Change |
|---|---|---|---|
| Total fee-based contracts | 5.94 million | 6.03 million | +90,000 |
| of which "domestic" | 3.59 million | 3.63 million | +40,000 |
| of which "foreign" | 2.35 million | 2.40 million | +50,000 |
| Ad-financed accounts | 26.6 million | 27.3 million | +700,000 |
1 In the third quarter of 2010, the statistics were pruned of 40,000 foreign contracts (change in debt collection policy), while there was growth of 35,000 foreign contracts from the acquisition of the Mail.com brand.
In the first nine months of 2010, activities focused mainly on the expansion and further development of our portfolio of cloud applications:
In early 2010, 1&1 launched the Dynamic Cloud Server – a new kind of server offer. Users can freely choose the amount of RAM, processor speed, and hard drive capacity and flexibly adjust their settings according to requirements. Invoicing is based on the actual performance required for their respective applications, e.g. for websites, internet shops, games or web applications. Users can choose from a variety of Linux and Windows variants. Optimized default settings are offered for standard applications, such as mail, database, webhosting or game servers.
With our strong and specialized brands, steadily growing portfolio of cloud applications, and our existing relations with millions of small businesses and private users, we are well positioned to utilize the opportunities offered by cloud computing. Following our entry into the Polish market via the 1&1 brand, we will also launch operations in South America via the InterNetX brand in late 2010/early 2011.
United Internet can look back on a successful first nine months of 2010. Consolidated sales of United Internet AG grew by 15.0% in the period under review, from 1 1,224.8 million in the previous year to 1 1.409.0 million. Sales of the "Access" segment rose by 21.2%, from 1 753.2 million last year to 1 913.0 million. In the "Applications" segment, sales growth has slowed since the contract conversion of a major customer of Sedo's subsidiary affilinet in late 2009. As a result, our listed subsidiary Sedo Holding AG (formerly AdLINK Internet Media AG) posted a fall in sales of 20.4% in the first nine months of 2010 – whereas we enjoyed growth of 12.1% in the rest of the segment. Against this backdrop, total segment sales grew by just 5.2% from 1 471.1 million to 1 495.5 million.
In the third quarter of 2010, we made a further significant increase in expenditure for the establishment and development of our new business fields – especially for the marketing of our Mobile Internet products and Do-it-Yourself Homepage. With total expenditure of 1 39.1 million, we invested more than twice as
much as in the first two quarters together (1 8.7 million in Q1 and 1 10.5 million in Q2). At the same time, we concluded negotiations on pre-service invoices we had queried. The resulting reimbursements for previous periods totaling 1 19.3 million were used to partially refinance the aforementioned expenses in our new business fields.
Consolidated gross margin fell from 38.8% in the same period last year to 37.5%. The main reason were high expenses for our DSL quality drive, the strong growth of our complete DSL packages (ULL) and the recognition of increased hardware subsidies for our Mobile Internet products with a corresponding effect on earnings.
Due to scheduled write-downs on the acquired freenet DSL customer base, greatly increased total marketing expenditure and high pre-launch costs for new products, sales and marketing expenses grew from 1 167.6 million (13.7% of sales) in the same period last year to 1 227.0 million (16.1% of sales) in the reporting period. Administrative expenses rose more slowly than sales to 1 67.9 million (4.8% of sales) in the period under review, compared to 1 64.6 million (5.3% of sales) in the previous year.
Despite high expenses for our DSL quality drive and start-up costs in new business fields – now totaling 1 58.3 million – earnings before interest, taxes, depreciation and amortization (EBITDA) improved by 0.6%, from 1 269.1 million (comparable prior-year figure without positive special items of 1 50.2 million from the sale of shares) to 1 270.8 million. Due in particular to scheduled depreciation of 1 16.2 million on the freenet DSL customer base acquired in late 2009, earnings before interest and taxes (EBIT) fell as expected by 8.3% to 1 210.6 million (prior year: 1 229.6 million).
9M 2010 9M 2009
| Q4 2009 | Q1 2010 | Q2 2010 | Q3 2010 | Q3 2009 | |
|---|---|---|---|---|---|
| Sales | 434.1 | 462.8 | 468.0 | 478.2 | 409.1 |
| EBITDA | 97.42 | 90.3 | 91.7 | 88.8 | 145.61 |
| EBITDA without special items | 87.0 | 90.3 | 91.7 | 88.8 | 95.4 |
| EBIT | 80.82 | 70.7 | 71.5 | 68.4 | 132.21 |
| EBITDA without special items | 70.4 | 70.7 | 71.5 | 68.4 | 82.0 |
1 EBITDA and EBIT Jan.-Sept. 2009 / Q3 2009 incl. positive special items of 1 50.2 million.
2 EBITDA and EBIT Q4 2009 incl. positive special items of 1 10.4 million.
Due to the successful development of business, operative cash flow rose from 1 193.8 million in the same period last year to 1 208.5 million in the period under review.
Net cash flow from operating activities increased even more strongly from 1 183.7 million to 1 239.2 million.
In the first nine months of 2010, net cash flow for investing activities grew from 1 39.0 million to 1 53.8 million. The incoming side was dominated during the year so far by cash proceeds from the sale of investments from the EFF Fund amounting to 1 29.6 million, while outgoings mainly comprised investments in intangible assets and property, plant and equipment amounting to 1 70.1 million (of which 1 20.7 million for the acquisition of Mail.com). In the previous year, net outgoings for investing activities were dominated by the acquisition of freenet's DSL customer base (pre-payment 1 70.0 million) and the acquisition of united-domains AG (1 32.8 million), while the incoming side was dominated by income of 1 92.9 million from the partial sale of freenet shares.
Net cash outflows for financing activities in the first nine months of 2010 were dominated by a cash outflow of 1 111.6 million for the purchase of treasury shares and the dividend payment of 1 88.0 million.
Compared with December 31, 2009, the Group's balance sheet total fell from 1 1,323.4 million to 1 1.230.5 million as of September 30, 2010. Goodwill of the Applications segment remained virtually unchanged at 1 403.8 million (1 398.9 million as at December 31, 2009). Due to the dividend payment and purchase of treasury shares, cash and cash equivalents fell from 1 116.8 million to 1 71.9 million – despite the effect on liquidity of reducing other assets – while net bank liabilities rose slightly from 1 283.4 million to 1 297.4 million. Treasury shares held by United Internet AG amounted to 20,000,000 as at September 30, 2010 (compared to 10,272,371 as at December 31, 2009). After deduction of treasury shares, the Group's equity ratio amounted to 29.3% as at September 30, 2010 (following 33.2% as at December 31, 2009).
The United Internet AG share closed on September 30, 2010 at 1 11.86 and was thus 28.6% above the price on December 31, 2009 (1 9.22). Our share therefore performed much better in 2010 than the DAX index (approx. +5%) and the comparative TecDAX index, which fell by around 4% in the first nine months.
The Annual Shareholders' Meeting of United Internet AG on June 2, 2010 voted to accept the proposal of the Management Board and Supervisory Board to pay a dividend of 1 0.40 per share. This dividend comprises a regular amount of 1 0.20 for fiscal year 2009 plus a bonus dividend of a further 1 0.20 for the lack of dividend in the previous year. The total dividend payment of 1 88.0 million was made in June 2010.
At the end of September 2010, United Internet employed a total of 4,869 people (December 31, 2009: 4,571), of which 946 (December 31, 2009: 867) were employed outside Germany.
Over and above the statutory requirements, United Internet AG attaches great importance to its comprehensive risk management system. Our monitoring system identifies, classifies and evaluates risks while defining clear responsibilities. We not only regard efficient and forward-looking risk management as an important tool to anticipate dangerous developments, but as an important and value-adding responsibility. The risk management culture we have introduced enables us to deal with risks proactively.
In the first nine months of 2010, the overall risk situation remained mostly stable compared with the risk report provided in the annual financial statements 2009. The major operating risks for the Company's current and future assets, liabilities, financial position and profit or loss continue to focus on supplier dependency, technology and software systems, and the competition. We judge the probability of these identified risks as low to limited. Depending on the further share price performance of our listed investments, there may be (non-cash) burdens in our non-operating business from write-downs/impairment.
There were no risks which directly jeopardized the continued existence of United Internet in the period under review, neither from individual risks nor from the overall risk situation.
With the signing of an MVNO agreement in April 2010 and launch of our new Mobile Internet products on July 1, 2010, United Internet AG added a further access product to its product portfolio and entered a new, additional growth market. This entrepreneurial decision obviously involves certain new risks, which mainly result from the pricing of our products and from the minimum purchase volumes contractually agreed with our pre-service supplier. Should actual consumption of voice minutes and / or data volumes differ from the calculated assumptions for the pricing of products, or the minimum purchase volumes not be reached, this may result in a deterioration of the company's assets, liabilities, financial position and profit or loss. During the project planning phase, United Internet already attempted to minimize these risks with the aid of detailed planning based on past experience and external market studies. Following a successful product launch, these risks are being closely observed by means of regular monitoring and controlling of usage and permanent comparison of minimum purchase and sales volumes.
On November 2, 2010, United Internet AG acquired around 30% of ProfitBricks, an innovative start-up in the field of cloud hosting. The investment enables United Internet to add a complementary segment to applications in its own cloud computing business with the brands 1&1, GMX, WEB.DE, Fasthosts and InterNetX and access new customers in this growth market. ProfitBricks was founded by former 1&1 Management Board members Andreas Gauger and Achim Weiss, two "hosting veterans" with over 15 years' experience in the telecommunications and webhosting sector. The company's objective is to develop innovative, powerful cloud applications and complex cloud-server infrastructures and thus highperformance, so-called infrastructure-as-a-service solutions (IaaS). The target group comprises mainly developers and internet providers who will be able to create and operate their own products and applications for end-users based on the ProfitBricks solutions. The products are currently being developed from scratch and are expected to be ready in spring 2011.
There were no other major events subsequent to the reporting period which had a significant impact on the business development of United Internet.
The global economy continued its recovery in the first nine months of 2010. The International Monetary Fund (IMF) therefore upgraded its forecasts several times during the year and now expects growth of around 4.8% for 2010 as a whole. The Fund predicts growth of 4.2% in 2011. Despite the expected further recovery of the global economy, the IMF has also warned of high downside risks due to the vulnerability of the banking system and the precarious state finances.
The IMF believes that global economic growth will continue to be driven above all by the emerging and developing nations. The forecast for the developed economies, however, is quite different. The IMF forecasts growth of 7.1% and 6.4% in the emerging and developing nations in 2010 and 2011, while the industrialized nations will grow by just 2.7% and 2.2%. The Fund is particularly critical of the situation in the Euro zone, which is expected to lag far behind the other industrialized nations with estimated growth rates of 1.7% in 2010 and 1.6% in 2011.
One of the few exceptions in Europe is the export-led German economy, which the IMF believes can grow by 3.3% in 2010 and 2.0% in 2011.
The high-tech industry association BITKOM believes the ICT sector recovery will also continue. According to the association's latest survey, demand has grown strongly again since the beginning of the year: 79% of all companies (previously 71%) now expect sales growth in 2010 as a whole. Many companies are also recruiting new staff as a result of this encouraging development. 55% of ICT interviewed plan to create new jobs, while 29% aim to maintain their current headcount.
For the ICT market as a whole, the sector association forecasts that sales will remain virtually unchanged in 2010 at around 1 140 billion and grow by 1.6% to 1 142 billion in 2011. According to the BITKOM forecast, IT technology sales will increase by 1.4% to 1 64.4 billion in 2010 and by 3.8% to 1 66.8 billion in 2011. The most important trends will be cloud computing, mobile internet and IT security. In the field of telecommunications, sales are expected to fall by 1.1% to 1 63 billion in 2010 and remain at this level in 2011 – whereby sales with voice services will fall steadily while data services will rise strongly.
According to the study "LIFE - Digitales Leben" published in 2009, the trend toward broadband connections will continue in the years ahead – albeit with slightly flatter growth curves. The experts interviewed forecast growth to 36 million broadband connections in Germany by 2015 and data transmission speeds of over 100 MBit/s in some cases.
At the same time, experts predict very strong growth in "mobile" broadband usage and expect the number of broadband connections via mobile networks (mobile internet e.g. via UMTS) to grow to 41 million by 2015. This trend could already be observed over the past few years from the steady growth in data transmission revenues as a proportion of total mobile revenues, as well as from the success of modern smartphones. The high-tech association BITKOM therefore expects German sales of smartphones
to grow by 47% to 8.2 million handsets in 2010. At the same time, mobile data service sales will increase by 8% to 1 5.8 billion in 2010.
| 2009 | 2015e | |
|---|---|---|
| Stationary broadband connections | 24.9 | 36.0 |
| Mobile broadband | 7.7 | 41.0 |
Source: VATM, Mobile Web Watch 2009, LIFE – Digitales Leben
Within just a few years, the use of cloud computing has developed into a billion-euro market of considerable political importance for the German economy as a whole. This was the conclusion of sector association BITKOM at the international "Cloud Computing Conference" in Cologne in early October. Experts predict that an increasing number of applications will be operated in future from online data centers, rather than the local PCs of private users or in-house corporate data centers. According to the latest Experton Group survey presented at the conference, German revenues from cloud computing will already pass the billion-euro mark this year with growth of 48% to 1 1.14 billion. Annual growth is also expected to remain at an average of 48% in the coming years. In five years' time, therefore, cloud technologies will account for around 10% of total IT expenditure in Germany.
| 2010e | 2011e | 2015e | |
|---|---|---|---|
| Cloud services (SaaS, PaaS, IaaS) | 548.4 | 930.3 | 4,775.2 |
| Cloud integration & consulting | 194.2 | 316.5 | 799.9 |
| Cloud technology | 399.8 | 671.4 | 2,587.6 |
| Total | 1,142.4 | 1,918.2 | 8,162.7 |
Source: Experton Group 2010
As the recovery of the advertising markets continued to gain pace in 2010, media agency group Zenith-Optimedia upgraded the estimates in its "Advertising Expenditure Forecast" four times in a row and now predicts global growth in ad spending of 4.8% in 2010. Growth in Western Europe is expected to reach 3.0%, while the German and North American advertising markets are expected to grow by 2.4%. According to ZenithOptimedia, the internet and TV survived the recession much better than other media and succeeded in expanding their share of total ad spending. Gross spending in Germany for internet advertising is expected to grow by 16.1% this year.
The Online Marketing Group (Online-Vermarkterkreis - OVK) of the German Digital Economy Association (Bundesverband Digitale Wirtschaft – BVDW) is equally optimistic and forecasts growth in gross advertising revenues of 14% to 1 4.66 billion in Germany for 2010. Growth will be particularly strong in the field of video advertising, which is expected to generate revenues of 1 137.5 million by 2013 – a trend which is closely connected to the growing household penetration of broadband connections.
| 2009 | 2010e | |
|---|---|---|
| Classic online advertising | 2,168 | 2,450 |
| Search word marketing | 1,624 | 1,867 |
| Affiliate networks | 308 | 339 |
| Total gross advertising spend | 4,100 | 4,656 |
Source: BVDW
We see numerous growth opportunities for our two operating segments "Access" and "Applications".
In our "Access" segment, we aim to enhance customer retention via further migration to complete packages (ULL), more personalized service and more transparent and flexible products. Moreover, we want to raise average revenue per contract with the aid of integrated additional features and new applications in order to generate further growth. We also expect further growth from our successfully launched Mobile Internet campaign in the fast growing mobile internet market.
In the "Applications" segment, we intend to benefit from expected market growth in the field of cloud applications. With our growing portfolio of cloud applications, our strong and specialized brands, and our existing relations with millions of private and business customers, we are well prepared for this growth. In our Consumer Applications business, we believe that an increasingly wide range of products will enable us to convert ever more ad-financed users into paying customers. Following the introduction of De-Mail legislation in spring next year, further growth is also expected from the new procedures for secure e-mailing (De-Mail). In the field of Business Applications, we will target further growth with the aid of new, higher-priced cloud applications which will open up new business opportunities on the internet for our customers and help them digitize their corporate processes. Our foreign business is also expected to drive further growth: following 1&1's entry into the Polish market in August, we also plan to expand into the South American market via the InterNetX brand. For our listed subsidiary Sedo Holding AG, we expect sales to stabilize in the final quarter.
In view of the successful course of business so far this year, we confirm our sales forecast for 2010. We continue to expect consolidated sales to grow by around 15% to a total of approx. 1 1.9 billion and EBITDA to remain at the record level of the previous year (1 356.1 million without positive special items).
United Internet will continue to pursue its policy of sustainable growth in 2011. In order to utilize our wide range of opportunities, we will once again invest heavily in new business fields in the coming year. In the "Access" segment, further growth is expected in the number of customer contracts, especially for products enabling mobile internet usage. In the "Applications" segment, the focus in 2011 will be on entering new foreign markets for our Business Applications. In the field of our Consumer Applications, we plan to drive the technical integration and subsequent expansion of our newly acquired Mail.com service. As Germany's leading email provider, we also intend to make a strong entry into the field of legally secure email communication. The respective legislative procedure for the German "De-Mail" system is expected to be completed in the first quarter of 2011. Despite the high costs associated with these projects for sustainable growth in customer subscriptions, initial planning indicates that EBITDA in 2011 will reach a similar level to that of the current year.
as of September 30, 2010 in 5k
| September 30, 2010 | Dezember 31, 2009 | |
|---|---|---|
| ASSETS | ||
| Current assets | ||
| Cash and cash equivalents | 71,902 | 116,812 |
| Accounts receivable and other assets | 91,443 | 91,290 |
| Inventories | 18,826 | 14,061 |
| Prepaid expenses | 38,096 | 30,360 |
| Other assets | 20,092 | 48,336 |
| 240,359 | 300,859 | |
| Non-current assets | ||
| Shares in associated companies / joint ventures | 100,182 | 126,628 |
| Other financial assets | 139,766 | 160,524 |
| Property, plant and equipment | 109,306 | 93,921 |
| Intangible assets | 224,503 | 228,341 |
| Goodwill | 403,809 | 398,926 |
| Deferred tax asset | 12,556 | 14,236 |
| 990,122 | 1,022,576 | |
| Total assets | 1,230,481 | 1,323,435 |
| September 30, 2010 | Dezember 31, 2009 | |
|---|---|---|
| LIABILITIES AND EQUITY | ||
| Liabilities | ||
| Current liabilities | ||
| Trade accounts payable | 194,869 | 193,197 |
| Liabilities due to banks | 198,198 | 51,462 |
| Advance payments received | 7,041 | 7,078 |
| Accrued taxes | 32,421 | 37,428 |
| Deferred revenue | 138,740 | 127,046 |
| Other accrued liabilities | 8,437 | 11,125 |
| Other liabilities | 70,843 | 61,874 |
| 650,549 | 489,210 | |
| Non-current liabilities | ||
| Convertible bonds | 0 | 4 |
| Liabilities due to banks | 171,116 | 348,767 |
| Deferred tax liabilities | 24,737 | 23,051 |
| Other liabilities | 23,908 | 22,641 |
| 219,761 | 394,463 | |
| Total liabilities | 870,310 | 883,673 |
| Equity | ||
| Capital stock | 240,000 | 240,000 |
| Additional paid-in capital | 42,782 | 39,971 |
| Accumulated profit | 315,503 | 285,546 |
| Treasury stock | -234,404 | -123,786 |
| Revaluation reserves | 7,550 | 12,717 |
| Currency translation adjustment | -21,414 | -24,326 |
| Equity attributable to shareholders of the parent company | 350,017 | 430,122 |
| Minority interests | 10,154 | 9,640 |
| Total equity | 360,171 | 439,762 |
| Total liabilities and equity | 1,230,481 | 1,323,435 |
from January 1 to September 30, 2010 in 5k
| 2010 January – September |
2009 January – September |
|
|---|---|---|
| Sales | 1,409,019 | 1,224,810 |
| Cost of sales | -881,285 | -749,174 |
| Gross profit | 527,734 | 475,636 |
| Selling expenses | -227,027 | -167,645 |
| General administrative expenses | -67,898 | -64,591 |
| Other operating income / expenses | -7,468 | 50,333 |
| Amortization of intangible assets resulting from company acquisitions | -14,740 | -13,927 |
| Operating result | 210,601 | 279,806 |
| Financial result | -9,212 | -15,576 |
| Amortization of investments | 0 | -2,851 |
| Results from associated companies | -19,806 | -20,588 |
| Pre-tax result | 181,583 | 240,791 |
| Income taxes | -64,031 | -65,221 |
| Net income before minority interests (from continued operations) | 117,552 | 175,570 |
| Results after tax from discontinued operations | 1,000 | 8,640 |
| Net income before minority interests (after discontinued operations) | 118,552 | 184,210 |
| Attributable to | ||
| minority interests | 595 | 1,980 |
| shareholders of United Internet AG | 117,957 | 182,230 |
| 25 | |
|---|---|
| 2010 January – September |
2009 January – September |
|
|---|---|---|
| Result per share of shareholders of United Internet AG (in D) | ||
| - basic | 0.53 | 0.79 |
| - diluted | 0.52 | 0.79 |
| thereof result per share (in C) – from continued operations | ||
| - basic | 0.53 | 0.76 |
| - diluted | 0.52 | 0.76 |
| thereof result per share (in C) – from discontinued operations | ||
| - basic | 0.00 | 0.03 |
| - diluted | 0.00 | 0.03 |
| Weighted average shares (in Million units) | ||
| - basic | 223.35 | 229.53 |
| - diluted | 225.34 | 230.11 |
| Statement of comprehensive income | ||
| Net income | 118,552 | 184,210 |
| Results directly included in equity | ||
| - currency translation adjustment | 2,954 | 2,193 |
| - Market value changes of available-for-sale financial instruments after taxes financial instruments after taxes |
-5,167 | 26,982 |
| -2,213 | 29,175 | |
| Total net income | 116,339 | 213,385 |
| Attributable to | ||
| - minority interests | 637 | 3,070 |
| - shareholders of United Internet AG | 115,702 | 210,315 |
from January 1 to September 30, 2010 in 5k
| 2010 January – September |
2009 January – September |
|
|---|---|---|
| Cash flow from operating activities | ||
| Net income (from continued operations) | 117,552 | 175,570 |
| Net income (from discontinued operations) | 1,000 | 8,640 |
| Adjustments to reconcile net income to net cash provided by operating activities | ||
| Depreciation and amortization | ||
| Depreciation and amortization of intangible assets and property, plant and equipment |
45,446 | 25,587 |
| Amortization of intangible assets resulting from company acquisitions |
14,740 | 13,927 |
| Amortization of other finacial assets | 0 | 2,851 |
| Compensation expenses from employee stock option plans | 3,831 | 3,239 |
| Results of at-equity companies | 19,806 | 20,588 |
| Distributed profit of associated companies | 983 | 0 |
| Income from deconsolidation of affiliated companies | 0 | -50,228 |
| Income from deconsolidation of the Display Marketing business | 0 | -10,217 |
| Change in deferred taxes | 3,366 | 4,692 |
| Non-cash expenses / income | 1,813 | -833 |
| Operative cash flow | 208,537 | 193,816 |
| Change in assets and liabilities | ||
| Change in receivables and other assets | 28,217 | 11,066 |
| Change in inventories | -4,764 | 5,865 |
| Change in deferred expenses | -7,735 | -111 |
| Change in trade accounts payable | 1,589 | -16,807 |
| Change in advance payments received | -39 | 375 |
| Change in other accrued liabilities | 1,969 | 1,829 |
| Change in accrued taxes | -5,008 | -14,224 |
| Change in other liabilities | 7,327 | 1,421 |
| Change in deferred income | 9,070 | 479 |
| Change in assets and liabilities, total | 30,626 | -10,107 |
| Cash flow from operating activities | 239,163 | 183,709 |
| 2010 January – September |
2009 January – September |
|
|---|---|---|
| Cash flow from investing activities | ||
| Capital expenditure for intangible assets and property, plant and equipment | -49,929 | -28,225 |
| Advance payments for intangible assets | 0 | -70,000 |
| Purchase of intangible assets by other business units | -20,207 | 0 |
| Purchase of shares in affiliated companies less cash received | 12 | -33,082 |
| Purchase of further shares in affiliated companies | -465 | 0 |
| Purchase of shares in associated companies / joint ventures | -1,170 | -3,757 |
| Payments from deconsolidation of financial assets | 15,567 | 1,414 |
| Investments in other financial assets | -135 | -229 |
| Repayments of loans granted | 83 | 0 |
| Payments of loans granted | -12,088 | -2,200 |
| Reductions from the disposal of the Display Marketing business | 0 | -1,154 |
| Payments from disposal of assets | 538 | 527 |
| Payments from the deconsolidation of associated companies | 0 | 92,869 |
| Refunding from shares in associated companies | 14,034 | 4,865 |
| Cash flow from investment activities | -53,760 | -38,972 |
| Cash flow from financing activities | ||
| Capital increase | 0 | 644 |
| Purchase of treasury stock | -111,600 | 0 |
| Change in bank liabilities | -30,915 | -94,760 |
| Dividend payments | -88,000 | 0 |
| Dividend payments to minority interests | -1,148 | -151 |
| Repayment from convertible bonds | -4 | -2 |
| Cash flow from financing activities | -231,667 | -94,269 |
| Net increase/decrease in cash and cash equivalents | -46,264 | 50,468 |
| Cash and cash equivalents at beginning of fiscal year | 116,812 | 55,372 |
| Currency translation adjustments of cash and cash equivalents | 1,354 | 372 |
| Cash and cash equivalents at end of fiscal year | 71,902 | 106,212 |
from January 1 to September 30, 2010
| Capital stock | Additional paid-in capital |
Accumulated profit |
Capital stock | |||
|---|---|---|---|---|---|---|
| Share | 3k | 3k | 3k | Share | 3k | |
| Balance as of January 1, 2009 | 251,469,184 | 251,469 | 163,896 | 5,619 | 22,000,000 | -264,987 |
| Net income | 182,230 | |||||
| Other net income | ||||||
| Total net income | 182,230 | |||||
| Exercise of conversion rights | 156,472 | 157 | 526 | |||
| Employee stock ownership programme Sedo (AdLINK) |
11 | |||||
| Employee stock ownership programme United Internet |
2,935 | |||||
| Distribution of profits | ||||||
| Balance as of September 30, 2009 | 251,625,656 | 251,626 | 167,368 | 187,849 | 22,000,000 | -264,987 |
| Balance as of January 1, 2010 | 240,000,000 | 240,000 | 39,971 | 285,546 | 10,272,371 | -123,786 |
| Net income | 117,957 | |||||
| Other net income | ||||||
| Total net income | 117,957 | |||||
| Issue of treasury shares | -60 | -81,525 | 982 | |||
| Employee stock ownership programme Sedo (AdLINK) |
142 | |||||
| Employee stock ownership programme United Internet |
2,729 | |||||
| Change in amount of holdings | 9,809,154 | -111,600 | ||||
| Dividend payments | -88,000 | |||||
| Distribution of profits | ||||||
| Change in amount of holdings | ||||||
| Balance as of September 30, 2010 | 240,000,000 | 240,000 | 42,782 | 315,503 | 20,000,000 | -234,404 |
| Currency translation |
Revaluation reserve |
Equity attributable to shareholders of the parent company |
Minority interests |
Total equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 3k | 3k | 3k | 3k | 3k | 3k | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| -28,692 | 10,002 | -264,987 | 137,307 | 8,273 | 145,580 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 182,230 | 1,980 | 184,210 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 145,580 | 8,273 | 137,307 | -28,692 | 10,002 |
|---|---|---|---|---|
| 184,210 | 1,980 | 182,230 | ||
| 29,175 | 1,090 | 28,085 | 2,193 | 25,892 |
| 213,385 | 3,070 | 210,315 | 2,193 | 25,892 |
| 683 | 683 | |||
| 39 | 28 | 11 | ||
| 2,935 | 2,935 | |||
| -151 | -151 | 0 | ||
| 362,471 | 11,220 | 351,251 | -26,499 | 35,894 |
| 439,762 | 9,640 | 430,122 | -24,326 | 12,717 |
| 118,552 | 595 | 117,957 | ||
| -2,213 | 42 | -2,255 | 2,912 | -5,167 |
| 116,339 | 637 | 115,702 | 2,912 | -5,167 |
| 922 | 922 | |||
| 180 | 38 | 142 | ||
| 2,729 | 2,729 | |||
| -111,600 | -111,600 | |||
| -88,000 | -88,000 | |||
| -151 | -151 | 0 | ||
| -10 | -10 | 0 | ||
| 360,171 | 10,154 | 350,017 | -21,414 | 7,550 |
United Internet AG is a service company operating in the telecommunication and information technology sector with registered offices at Elgendorfer Strasse 57, 56410 Montabaur, Germany. The company is registered at the district court of Montabaur under HR B 5762.
As was the case with the consolidated financial statements as of December 31, 2009, the interim report of United Internet AG as of September 30, 2010 complies with the International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB) and adopted by the EU.
The condensed consolidated interim report for the period from January 1, 2010 to September 30, 2010 was prepared in accordance with IAS 34 Interim Financial Reporting.
A condensed reporting format was chosen for the presentation of this consolidated interim report, as compared with the consolidated financial statements, and is thus to be read in conjunction with the consolidated financial statements as of December 31, 2009. With the exception of the new standards and interpretations described below, the accounting and valuation principles applied in the consolidated financial statements as of December 31, 2009 were adopted without change for the preparation of this consolidated interim report.
In January 2008, the IASB issued the revised standards IFRS 3 Business Combinations and IAS 27 Consolidated and Separate Financial Statements. The standards are the result of the second phase of the project undertaken jointly with the Financial Accounting Standards Board (FASB) to reform the accounting for business combinations. The revised IFRS 3 and IAS 27 were endorsed by the European Union in June 2009. United Internet AG has been applying the revised standards prospectively for transactions and business combinations since January 1, 2010.
The initial mandatory application of IFRS 2 Share-based Payment, IFRIC 17 Distributions of Non-cash Assets to Owners and IFRIC 18 Transfers of Assets from Customers led to no effects or amendments with regard to the Group's reporting.
The initial mandatory application of the amended standards of the Annual Improvement Project 2009 ("AIP 2009") led to no significant changes.
The publication of IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments has had no impact on Group accounting.
Changes in the reporting unit
During the course of the period under review, 1&1 Internet Sp. z o.o , Warsaw / Poland, and United Internet Dialog GmbH, Montabaur, were founded. AdLINK Internet Media AG was renamed as Sedo Holding AG and the company's registered office was relocated from Montabaur to Cologne. GMX GmbH and GMX Internet Services GmbH were merged into WEB.DE GmbH – today 1&1 Mail & Media GmbH. Goldbach Media AG was renamed as Goldbach Group AG.
This consolidated interim report was not audited according to Sec. 317 HGB nor reviewed by an auditor.
The consolidated interim report includes all subsidiaries and associated companies.
In a contract dated July 19, 2010, GMX Internet Services Inc. acquired the operating activities of mail.com by means of an asset deal. This involved purchasing the main components required to continue the business operations of mail.com.
On the date of transfer, the acquired assets were already capable of generating income themselves or could be made capable of such with the aid of freely available additions. In the course of the transaction, service contracts were also concluded which enable mail.com to migrate to the company's own technical platform, without restricting the provision of service. The acquisition of operations was thus classified as a business combination.
The purchase price of 1 20,207k was settled fully in cash during the period under review. At the same time, the sellers were granted an additional purchase price as part of a so-called earn-out agreement. The size of this additional purchase price depends on the attainment of clearly defined success factors.
The transaction mainly involved the transfer of intangible assets. No comparison of fair value has thus been made. No employees or debts were transferred.
The preliminary fair values of the identifiable assets as of the acquisition date were as follows:
| 3k | |
|---|---|
| Cash disbursement | 20,207 |
| Earn-out agreement | 1,102 |
| Purchase price | 21,309 |
| 3k | |
| Trademark | 20,087 |
| Customer base | 513 |
| Service agreements | 249 |
| 20,849 | |
| Goodwill | 460 |
| Acquisition costs | 21,309 |
Goodwill of 1 460k results from synergies expected to accrue from the acquisition of business operations.
Sedo GmbH holds 49% of shares in Intellectual Property Management Company Inc, domiciled in Dover, Delaware / USA. Until December 31, 2009 the company was carried as an associated company using the equity method. Sedo GmbH also owns a purchase option for a further 32% of shares which is exercisable as of January 1, 2010. According to IAS 27 Consolidated and Separate Financial Statements, the possibility to exercise the option means that the company must be carried as a fully consolidated company in the consolidated financial statements as of fiscal year 2010. The Company has renounced the required disclosures according to IFRS 3 Business Combinations, as the full consolidation of the company is of minor significance for the validity of the consolidated financial statements.
The consolidated group remained otherwise unchanged from the consolidated financial statements as at December 31, 2009.
According to IFRS 8, the identification of operating segments to be included in the reporting process is based on the so-called management approach. External reporting should therefore be based on the Group's internal organization and management structure, as well as internal financial reporting to the "Chief Operating Decision Maker". In the United Internet Group, the Management Board is responsible for assessing and controlling the success of the various segments.
| January – September 2010 | Access | Applications | Head Office/ | United Internet | |
|---|---|---|---|---|---|
| Segment | Segment | Investments | Reconciliation | Group | |
| 3k | 3k | 3k | 3k | 3k | |
| Total revenues | 914,232 | 498,545 | 2,766 | - | - |
| - thereof internal revenues |
1,189 | 3,058 | 2,277 | - | - |
| External revenues | 913,043 | 495,487 | 489 | - | 1,409,019 |
| - thereof domestic | 913,043 | 348,047 | 489 | - | 1,261,579 |
| - thereof non-domestic | 0 | 147,440 | 0 | - | 147,440 |
| EBITDA | 102,562 | 172,805 | -4,580 | 0 | 270,787 |
| EBIT | 82,782 | 132,515 | -4,696 | 0 | 210,601 |
| Financial result | -8,517 | -695 | -9,212 | ||
| Results from at-equity companies | -12,420 | -7,386 | -19,806 | ||
| EBT | -25,633 | 207,216 | 181,583 | ||
| Tax expense | -64,031 | -64,031 | |||
| Net income (from continued operations) | 117,552 | ||||
| Results from discontinued operations | 1,000 | 1,000 | |||
| Net income (after discontinued operations) | 118,552 | ||||
| Investments in intangible assets, property, plant and equipment |
11,538 | 38,366 | 25 | - | 49,929 |
| Amortization / depreciation | 19,780 | 40,290 | 116 | - | 60,186 |
| - thereof intangible assets, property, plant and equipment |
19,780 | 25,550 | 116 | - | 45,446 |
| - thereof intangible assets capitalized during company acquisitions |
0 | 14,740 | 0 | - | 14,740 |
| Number of employees | 1,753 | 3,090 | 26 | - | 4,869 |
| - thereof domestic | 1,675 | 2,222 | 26 | - | 3,923 |
| - thereof non-domestic | 78 | 868 | 0 | - | 946 |
In order to fully exploit the identified growth business fields "Mobile Internet" and "Cloud Applications", a new segmentation for management and reporting purposes was introduced at the beginning of 2010. The former segments, "Products" and "Online Marketing" were discontinued. In the course of repositioning the United Internet Group, management and consolidated reporting will be undertaken via the segments "Access" and "Applications" from the reporting period 2010 onward. In order make reporting periods comparable, prior-year periods are presented in the new segmentation format.
The Management Board of United Internet AG mainly controls operations on the basis of key earnings figures. The Management Board of United Internet AG measures segment success primarily on the basis of sales revenues, earnings before interest, taxes, depreciation and amortization (EBITDA) and the result of ordinary operations (EBIT). Transactions between segments are charged at market prices. Information on sales revenues is allocated to the country in which the company is domiciled.
| Access Segment |
Applications Segment |
Head Office/ Investments |
Reconciliation | United Internet Group |
|
|---|---|---|---|---|---|
| 3k | 3k | 3k | 3k | 3k | |
| Total revenues | 754,549 | 475,170 | 3,113 | - | - |
| - thereof internal revenues |
1,374 | 4,061 | 2,587 | - | - |
| External revenues | 753,175 | 471,109 | 526 | - | 1,224,810 |
| - thereof domestic | 753,175 | 355,136 | 526 | - | 1,108,837 |
| - thereof non-domestic | 0 | 115,973 | 0 | - | 115,973 |
| EBITDA | 102,344 | 162,450 | 54,526 | 0 | 319,320 |
| EBIT | 99,648 | 125,752 | 54,406 | 0 | 279,806 |
| Financial result | -14,063 | -1,513 | -15,576 | ||
| Amortization of investments | -2,851 | 0 | -2,851 | ||
| Results from at-equity companies | -18,005 | -2,583 | -20,588 | ||
| EBT | 19,487 | 221,304 | 240,791 | ||
| Tax expense | -65,221 | -65,221 | |||
| Net income (from continued operations) Results from discontinued operations |
8,640 | 175,570 8,640 |
|||
| Net income (from discontinued operations) | |||||
| Investments in intangible assets, property, plant and equipment |
11,960 | 16,228 | 37 | - | 184,210 28,225 |
| Amortization / depreciation | 2,696 | 36,698 | 120 | - | 39,514 |
| - thereof intangible assets, property, plant and equipment |
2,696 | 22,771 | 120 | - | 25,587 |
| - thereof intangible assets capitalized during company acquisitions |
0 | 13,927 | 0 | - | 13,927 |
| Number of employees | 1,560 | 2,901 | 24 | - | 4,485 |
| - thereof domestic | 1,521 | 2,092 | 24 | - | 3,637 |
| - thereof non-domestic | 39 | 809 | 0 | - | 848 |
Segment reporting of United Internet AG in the reporting period of 2010 was as shown in the table on page 33.
Segment reporting of United Internet AG in the reporting period of 2009 was as shown in the table on page 34.
The reconciliation of earnings before taxes (EBT) represents the corresponding EBT contribution of the Access and Applications segments.
On July 6, 2009, United Internet's subsidiary AdLINK Internet Media AG (now Sedo Holding AG) reached an agreement with Hi-media S. A., Paris, concerning the transfer of its Display Marketing business to the Hi-media Group. The contract was closed on August 31, 2009. Earnings after tax of the discontinued operation are disclosed separately. All figures refer to continued operations.
Personnel expenses amounted to 1 148,445k (prior year: 1 134,118k) in the reporting period of 2010. At the end of September 2010, United Internet employed a total of 4,869 people, of which 946 were employed outside Germany. The number of employees at the end of September 2009 amounted to 4,485, of which 848 were employed outside Germany.
Depreciation and amortization of intangible assets and property, plant and equipment amounted to 1 45,446k (prior year: 1 25,587k). Of this increase, an amount of 1 16,203k results mainly from the scheduled depreciation of freenet AG's DSL customer base acquired in the 4th quarter of 2009.
Amortization of capitalized intangible assets resulting from business combinations amounted to 1 14,740k (prior year: 1 13,927k).
Total depreciation and amortization thus amounted to 1 60,186k in the reporting period of 2010 (prior year: 1 39,514k).
Explanations are only given for those items which display notable changes in the amounts presented as compared with the last consolidated financial statements.
The following table gives an overview of the development of shares in associated companies / joint ventures:
| 2010 | |
|---|---|
| 3k | |
| Carrying amount at the beginning of the fiscal year | 126,628 |
| Additions | 1,170 |
| Adjustments | |
| - Dividends | -983 |
| - Shares in result | -19,806 |
| - Others | 7,280 |
| Disposals | -14,107 |
| 100,182 |
The addition to shares in associated companies results mainly from the European Founders Fund No. 1.
The shares in results refer to the corresponding profit contributions of associated companies.
Other adjustments totaling 1 7,431k refer to negative profit contributions of associated companies with an investment value of 1 0k as well as negative profit contributions directly stated in the equity of associated companies amounting to 1 -151k. The negative profit contributions of associated companies with an investment value of 1 0k are only considered if the associated companies were provided with long-term loans or if there are credit / liability commitments.
Disposals result from capital repayments of the European Founders Fund No. 1.
The development of these shares was as follows:
| Jan. 1, 2010 | Additions | Recycling | Addition | Disposal | Sept. 30, 2010 | |
|---|---|---|---|---|---|---|
| 3k | 3k | 3k | 3k | 3k | 3k | |
| Goldbach shares | 15,804 | 7,873 | 23,677 | |||
| Hi-media shares | 23,344 | -8,144 | 15,200 | |||
| Afilias shares | 5,601 | 5,601 | ||||
| freenet shares | 59,845 | -4,823 | 55,022 | |||
| Portfolio-companies of EFF Nr. 3 |
36,559 | -15,567 | 20,992 | |||
| Hi-media (Vendor Loan) | 12,195 | 12,195 | ||||
| Others | 7,176 | 135 | -232 | 7,079 | ||
| 160,524 | 135 | 0 | -5,094 | -15,799 | 139,766 |
The change in other financial assets results mainly from the disposal of portfolio companies from European Fonders Fund No. 3. The subsequent valuation of listed shares in Goldbach, Hi-media and freenet to fair value as of the balance sheet date led to a net decrease in the revaluation reserve without recognition in income.
A total of 1 70,778k (prior year: 1 28,225k) was invested in property, plant and equipment and intangible assets during the interim reporting period. In addition to the expansion of infrastructure and the data centers, investments focused mainly on the acquisition of mail.com amounting to 1 20,849k.
Goodwill of 1 403,809 k consists solely of assets belonging to the Applications segment.
Liabilities due to banks result mainly from a syndicated loan granted to United Internet AG with a term until September 13, 2012. The total credit line amounts to 1 500.0 million. No special collateral was required for the syndicated loan. The entire credit line is divided into a Tranche A amounting to 1 300.0 million and a Tranche B of 1 200.0 million.
Tranche A has a term of five years and is to be redeemed from March 14, 2010 in six equal half-yearly installments. As of December 30, 2009 the first partial amount of Tranche A amounting to 1 50.0 million was repaid prematurely. The second contractual repayment of 1 50.0 million was made in the third quarter of 2010. As of September 30, 2010, 1 200.0 million have thus been used from Tranche A, of which 1 100.0 million is disclosed under current liabilities due to banks. Tranche B is a revolving syndicated loan expiring on September 13, 2012, which had not been used as of September 30, 2010.
A promissory note loan ("Schuldscheindarlehen") of 1 150.0 million was negotiated on July 23, 2008. The loan is redeemable on maturity and divided into a Tranche A of 1 78.0 million with a term until July 23,
2011 and a Tranche B of 1 72.0 million with a term until July 23, 2013. No special collateral was required for this promissory note loan. Interest on the loan is variable. The face interest rate for the 3-month interest period is tied to the EURIBOR rate plus a margin p.a..
Working capital loans for United Internet AG amounting in total to 1 55.0 million have been extended to 2011, or are available until further notice.
Other current liabilities consist mainly of liabilities due to the tax office, as well as salary and social security liabilities.
Non-current liabilities result mainly from minority interests of the partnerships European Founder Funds No. 2 and No. 3, from the liability arising from interest hedging, and from the option agreement in connection with a put option from the purchase of remaining shares in united-domains AG.
As of September 30, 2010, fully paid capital stock amounted to 1 240,000,000 divided into 240,000,000 registered shares each having a theoretical share in the capital stock of 1 1.
With the approval of the Supervisory Board, the Management Board has resolved to offer Group employees shares in the amount of 1 360 per employee in fiscal year 2010. These shares were provided from the Company's own stock of treasury shares at the end of February 2010. The Xetra closing price on issuance amounted to 1 11.31. A total of 81,525 shares were issued in the course of this program. The historic acquisition costs amounted to 1 982k, the resulting personnel expense 1 922k. Capital reserves decreased by 1 60k – the amount of the difference between the fair value and the original acquisition costs of the treasury shares.
As of September 30, 2010, the Company held a total of 20.0 million treasury shares or 8.33% of current capital stock. The average acquisition cost per share amounted to 1 11.72. Treasury shares reduce equity capital and are not en-titled to dividend payments.
The dividend payment for fiscal year 2009 amounting to 1 88.0 million was made on June 4, 2010.
The change in revaluation reserves resulted mainly from the subsequent valuation of shares in Goldbach, Hi-media and freenet. Profits and losses from subsequent valuation to fair value are recognized directly in equity capital at net value, i.e. less deferred taxes. Please see Note 8 for details.
The current employee stock ownership plan of the United Internet AG Group employs virtual stock options (so-called Stock Appreciation Rights – SARs). The changes in the virtual stock options granted and outstanding are shown in the following table:
| United Internet AG | Sedo Holding AG | |||||
|---|---|---|---|---|---|---|
| SAR | Average strike price (1) |
SAR | Average strike price (1) |
|||
| Outstanding of December 31, 2009 | 7,978,000 | 8,71 | 470,000 | 12,27 | ||
| Issued | 20,000 | 11,33 | 40,000 | 4,21 | ||
| Issued | 400,000 | 9,73 | - | - | ||
| Issued | 400,000 | 8,96 | ||||
| Expired | -300,000 | 11,30 | -10,000 | 15,51 | ||
| Outstanding of September 30, 2010 | 8,498,000 | 8,68 | 500,000 | 11,56 |
United Internet AG is subject to significant influence, as defined by IAS 24, from Mr. Ralph Dommermuth, the major shareholder, as well as from the members of the Management Board and Supervisory Board.
There is no change in the circle of related parties as compared with the consolidated financial statements as at December 31, 2009.
The number of shares in United Internet AG held by members of the Management Board and Supervisory Board is shown in the following table:
| Share holdings (in units) | September 30, 2010 | ||
|---|---|---|---|
| Management Board | |||
| Ralph Dommermuth | 92,000,000 | ||
| Norbert Lang | 576,128 | ||
| Gesamt | 92,576,128 | ||
| Supervisory Board | |||
| Kurt Dobitsch | – | ||
| Kai-Uwe Ricke | – | ||
| Michael Scheeren | 700,000 | ||
| Total | 700,000 |
On October 1, 2010, Mr. Norbert Lang sold 250,000 shares of United Internet AG at a price of 1 11.85 per share via NBL Vermögensverwaltung GmbH & Co. KG. The total volume amounted to 1 2,963k. Of the total shares sold, 173,700 are attributable to Mr. Norbert Lang.
United Internet's premises in Montabaur are leased from Mr. Ralph Dommermuth. The resulting rent expenses are customary and amounted to 1 1,684k in the reporting period 2010 (prior year: 1 1,378k).
The United Internet Group can also exert a material influence on its associated companies and joint ventures.
No significant transactions took place.
In a contract dated November 2, 2010, United Internet Beteiligungen GmbH acquired a 30% stake in ProfitBricks GmbH, Berlin. The share purchase was made as part of a capital increase.
There were no other significant events subsequent to the balance sheet date which may have resulted in a different representation of the Company's assets, financial position and earnings.
Montabaur, November 11, 2010
The Management Board
Ralph Dommermuth Norbert Lang
Quarterly development in 5 million
| Q4 2009 | Q1 2010 | Q2 2010 | Q3 2010 | Q3 2009 | |
|---|---|---|---|---|---|
| Sales | 434.1 | 462.8 | 468.0 | 478.2 | 409.1 |
| Cost of sales | -267.4 | -291.7 | -292.9 | -296.7 | -241.3 |
| Gross profit | 166.7 | 171.1 | 175.1 | 181.5 | 167.8 |
| Selling expenses | -60.4 | -70.0 | -71.7 | -85.3 | -55.1 |
| General administrative expenses | -28.1 | -22.4 | -22.6 | -22.9 | -23.6 |
| Other operating income / expenses | 7.8 | -3.2 | -4.3 | 0.0 | 47.9 |
| Amortization of intangible assets resulting from company acquisitions |
-5.2 | -4.8 | -5.0 | -4.9 | -4.8 |
| Operating result | 80.8 | 70.7 | 71.5 | 68.4 | 132.2 |
| Financial result | -4.9 | -6.1 | -2.9 | -0.2 | -3.7 |
| Amortization of investments | -0.7 | 0 | 0 | 0 | -2.8 |
| Results from associated companies | 11.7 | -7.5 | -8.4 | -3.9 | -7.9 |
| Pre-tax result | 86.9 | 57.1 | 60.2 | 64.3 | 117.8 |
| Income taxes | 8.7 | -18.6 | -21.9 | -23.5 | -25.3 |
| Net income before minority interests (from continued operations) |
95.6 | 38.5 | 38.3 | 40.8 | 92.5 |
| Result from discontinued operations | 3.4 | 0.0 | 0.8 | 0.2 | 8.8 |
| Net income before minority interests (after discontinued operations) |
99.0 | 38.5 | 39.1 | 41.0 | 101.3 |
| Attributable to | |||||
| minority interests | 1.2 | 0.2 | 0.3 | 0.1 | 1.8 |
| shareholders of United Internet AG | 97.9 | 38.3 | 38.8 | 40.9 | 99.5 |
| Result per share of shareholders of United Internet AG (in 3) |
|||||
| - basic | 0.43 | 0.17 | 0.17 | 0.19 | 0.43 |
| - diluted | 0.42 | 0.17 | 0.17 | 0.18 | 0.43 |
| thereof result per share (in 3) - from continued operations |
|||||
| - basic | 0.41 | 0.17 | 0.17 | 0.19 | 0.40 |
| - diluted | 0.40 | 0.17 | 0.17 | 0.18 | 0.40 |
| thereof result per share (in 3) - from discontinued operations |
|||||
| - basic | 0.02 | 0.00 | 0.00 | 0.00 | 0.03 |
| - diluted | 0.02 | 0.00 | 0.00 | 0.00 | 0.03 |
| March 25, 2010 | Annual financial statements for fiscal year 2009 |
|---|---|
| March 25, 2010 | Press and analyst's conference |
| May 12, 2010 | Quarterly Report 2010 |
| June 2, 2010 | Annual Shareholder's Meeting in Frankfurt am Main, Alte Oper |
| August 27, 2010 | 6-Month Report 2010 |
| August 27, 2010 | Press and analyst's conference |
| November 11, 2010 | 9-Month Report 2010 |
Publisher and copyright © 2010 United Internet AG Elgendorfer Straße 57 D-56410 Montabaur Germany www.united-internet.com
Investor Relations Phone: +49(0) 2602 96-1631 Fax: +49(0) 2602 96-1013 E-mail: [email protected]
November 2010 Registry court: Montabaur HRB 5762
This report is available in German and English. Both versions can be downloaded from www.united-internet.de. In all cases of doubt, the German version shall prevail.
This Annual Report contains certain forward-looking statements which reflect the current views of United Internet AG's management with regard to future events. These forward looking statements are based on our currently valid plans, estimates and expectations. The forwardlooking statements made in this Annual Report are only based on those facts valid at the time when the statements were made. Such statements are subject to certain risks and uncertainties, as well as other factors which United Internet often cannot influence but which might cause our actual results to be materially different from any future results expressed or implied by these statements. Such risks, uncertainties and other factors are described in detail in the Risk Report section of the Annual Reports of United Internet AG. United Internet does not intend to revise or update any forward-looking statements set out in this Annual Report.
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