ad pepper media International N.V.

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52990050T51W55KK4X45 2021-12-31 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 52990050T51W55KK4X45 2021-01-01 2021-12-31 iso4217:EUR iso4217:EUR xbrli:shares xbrli:pure iso4217:EUR xbrli:shares . false 20 « ANNUAL REPORT 21 CONTENT 01 Letter from the Board of Directors 02 Report of the Supervisory Board 03 Remuneration Report 04 Report of the Board of Directors 04.1 Governance 7 11 17 23 25 27 31 33 37 41 43 43 45 48 49 51 52 53 55 57 57 57 60 61 64 65 67 68 69 73 85 127 141 153 159 Our Governance Structure Comply or Explain Decree Article 10 Takeover Directive (Besluit Artikel 10 Overnamerichtlijn) 04.2 The ad pepper Share 04.3 Business Activity Disclaimer regarding Forward-looking Statements The ad pepper Group Segments of the ad pepper Group Employees and Values 04.4 Economic Development Macroeconomic Framework Presentation of Earnings Position Presentation of Financial and Net Asset Position 04.5 Risk Report Foreword Risk Classiﬁcation Operational risk Strategic risk Financial risk Compliance risk Risk Appetite Evaluation of Risk Management System Effectiveness Opportunities and Outlook 04.6 Responsibility Statement 05 Consolidated Financial Statements 06 Notes to the Consolidated Financial Statements 07 Statutory Financial 08 Other Information 09 At a Glance 10 Glossary KEY FIGURES AT A GLANCE 2021 2020 Gross sales1 (kEUR) 111,593 27,646 26,587 23.8 101,344 25,615 24,687 24.4 Revenue Gross proﬁt (kEUR) Gross margin (percent) in relation to gross sales Gross margin (percent) in relation to revenue EBITDA2 (kEUR) 96.2 96.4 4,378 3,194 3,156 2,564 0.08 6,559 5,448 5,332 4,341 0.17 EBIT3 (Operating proﬁt) (kEUR) EBT4 (Income before taxes) (kEUR) Net income (kEUR) Earnings per share (basic, EUR) Total assets (kEUR) 46,352 20,088 43.3 48,841 20,838 42.7 Shareholders‘ equity (kEUR) Equity ratio5 (percent) Liquid funds6 (kEUR) 23,761 249 25,342 231 Number of employees (as at 31 December) 2021 2020 2021 2020 2021 2020 Gross sales EBITDA Liquid funds 1 Gross sales represent the total amount billed and billable to clients by the Group, net of discounts, VAT and other sales-related taxes. Disclosure of gross sales information is not required under IFRS; however, it is voluntarily disclosed from 1 January 2018 onwards in the Consolidated Income Statement since management has concluded that the information is useful for users of the ﬁnancial statements. Please refer to Note [6]. 3 EBIT (earnings before interest and taxes) is an alternative performance measure and serves to present a company’s performance while eliminating the effects of differences among local taxation systems and different ﬁnancing activities. 4 5 6 Earnings before Tax. 2 EBITDA is an alternative performance measure. It stands for earnings before interest, taxes, depreciation and impairment losses/loss reversals on property, plant and equipment, impairment losses on goodwill, and amortisation and impairment losses/loss reversals on other intangible assets. This performance indicator neutralises the effects of the ﬁnancial result along with distortions of operational performance that result from divergent depreciation and amortisation methods and the exercise of measurement discretion. EBITDA is EBIT plus the amortisation of intangible assets and the depreciation of property, plant and equipment, plus impairment losses and minus impairment loss reversals, recognised in proﬁt or loss during the reporting period. Shareholders’ Equity/Total Assets. Liquid funds is an alternative performance mesasure and includes cash & cash equivalents and listed debt and marketeable securities. 2021 2020 Cash and cash equivalents Listed debt and marketable securities Liquid funds 20,704 3,057 24,330 1,012 2021 2020 23,761 25,342 EBIT 3,194 1,184 4,378 5,448 1,111 6,559 Depreciation & Amortisation EBITDA « 01 LETTER FROM THE BOARD OF DIRECTORS 01 01 LETTER FROM BOARD OF DIRECTORS LETTER FROM BOARD OF DIRECTORS Putting our people ﬁrst DEAR STAKEHOLDERS, In the ﬁnancial year 2021, the Group as a whole hired 18 additional staff members and entered several new markets. Our ﬁrst priority was, and continues to be, the health and safety of our employees. It was paramount that they could do their jobs safely, that they had the opportunity to work from home where possible, that social distancing rules were observed and that they were provided with adequate personal protective equipment. Our local teams meet regularly, both virtually and physically, to monitor and address employee health and wellbeing. We have invested in new technologies and remote learning capabilities, for instance, laying the foundation for future growth. With the conﬁdence and experience we have gained as a management team over the past few years, we are well equipped to face the coming year. In a year of continued disruption and transition, our teams rose to the occasion and quickly adapted while not losing sight of the need to invest further in our future. Hence, 2021 has been another successful year with double-digit growth and high levels of proﬁtability. Looking back, we have every reason to be proud of the results. With gross sales of EUR 111,593k (a 10.3 percent growth vs. 2020) and revenue of EUR 27,646k and growth of 8 percent, we managed to outperform an excellent previous year, a year which has seen unprecedented and unforeseen growth amid the COVID-19 crisis. As lockdowns became the new normal, businesses and consumers increasingly “went digital” by offering and buying more goods and services online, raising the share of e-commerce in global retail to levels never seen before. While 2021 saw an easing of pandemic restrictions in most markets where our Group operates, the trends described above are still intact and will remain so in the foreseeable future. We would like to take this opportunity to thank you, our stakeholders and shareholders, for your perseverance and patience. A very special thank you goes to our 249 employees and their families who have actively supported us and are highly motivated in their commitment to the future of the ad pepper Group. Our thanks also go to the Supervisory Board for the steady and constructive support provided. And of course, the strong performance achieved this year would not have been possible without our many long-standing and new clients, for whom we give our best every day. Thank you for the trust you have placed in us and for our excellent working relationships. The performances of our three operating segments varied While the Group achieved new revenue records, EBITDA fell somewhat short of the levels seen in the previous year. The main reason is subdued growth of our ad pepper segment, which saw a decline in revenue of 26 percent and in EBITDA of 68 percent largely due to the loss of a major client at the beginning of 2021. While new clients could be added in the course of 2021, we did not succeed to neutralise the impact on our revenue. On the other hand, our Webgains segment clearly saw another excellent year, beneﬁtting most from higher levels of e-commerce activity triggered by COVID-19. Here, revenue rose by 18 percent to a new record ﬁgure of EUR 15,543k and EBITDA to EUR 3,474k, strengthening our position as one of the leading afﬁliate-platforms in Europe. Revenue in the ad agents segment also increased signiﬁcantly by around 16 percent to a new record of EUR 8,166k, and the EBITDA of EUR 1,722k achieved in the reporting year clearly also marks a new all-time high. Yours faithfully, The Board of Directors ad pepper media International N.V. Strong balance sheet and ﬁnancial resources Dr Jens Körner, CEO Our balance sheet is strong and our ﬁnancial resources are substantial: our cash balances are at comfortable levels and reached a new high of EUR 23,761k despite the new share buyback programme announced on 2 August 2021. Our equity ratio is at a solid 43.3 percent, the Company continues to have no liabilities to banks and we plan to continue ﬁnancing our growth from our operating cashﬂow in the coming ﬁnancial year. Based on the strong balance sheet and on the ﬁnancial expectations for 2022, we therefore believe it is justiﬁed to assume that the Company’s continued existence as a going concern is assured. We carefully review acquisitions and are more inclined to pursue them if they offer potential synergies. Nuremberg, 29 March 2022 9 « 02 REPORT OF THE SUPERVISORY BOARD 02 02 REPORT OF THE SUPERVISORY BOARD REPORT OF THE SUPERVISORY BOARD effect as of 1 January of the respective year. The variable compensation component is pegged to previously agreed and measurable targets which can be controlled. The consolidated earnings budgeted for the following year are taken as the target. Members of the Board of Directors do not receive any guaranteed minimum bonus payments. Variable bonuses are usually paid during the ﬁrst quarter following publication of the consolidated annual results. DEAR SHAREHOLDERS, In the 2021 ﬁnancial year, the Supervisory Board performed its duties pursuant to the law and the Articles of Association. It advised the Board of Directors on a regular basis, monitored the Board of Directors in its management of the business, and was involved in decisions of key importance for the Company and the Group. In 2000, the ad pepper Group introduced a long-term incentive model in the form of stock option plans for employees in key positions, including members of the Board of Directors. Company stock options become exercisable once ad pepper’s share price exceeds speciﬁed threshold, but only vest one year after issue. Option plan tranches were issued to members of the Board of Directors in 2000, 2001, 2002, 2003, 2008, 2013, 2017 and 2020. The ad pepper Group has no pension obligations to members of the Board of Directors. Meetings in 2021 The total sum and structure of the Board of Directors’ compensation are designed to enable the Company to attract and retain suitably qualiﬁed executives. The compensation structure, pension scheme payments, and other ﬁnancial obligations are designed to promote the Company’s medium to long-term interests. The details of the compensation structure disclosed in this Annual Report reﬂect the size of the Company and take into consideration the fact that the Board of Directors currently consists of one member only (see also Note 39). Consequently, the Supervisory Board did not conduct a scenario analysis whereby different performance assumptions and corporate actions were examined. The compensation policy is expected to remain largely unchanged in 2022. The Supervisory Board held four meetings in 2021. Moreover, we collectively and individually interacted with the CEO and with the senior management outside the formal Supervisory Board meetings. The Chairman of the Supervisory Board and the CEO met regularly for bilateral discussions virtually and in person about the progress of the Company on a variety of matters. The Supervisory Board meetings were well attended in 2021 with an attendance rate of 100 percent of each Supervisory Board member. Due to COVID-19, meetings were partly held online. On 7 December 2021 the audit committee reported to the Supervisory Board on the functioning, and the development of, the relationship with the external auditor. The Board of Directors kept the Supervisory Board informed about the status of discussions around the development and implementation of the strategy for 2021 and beyond. The Supervisory Board discussed the status of the implementation with the Board of Directors in its meetings and also discussed it with the senior management regularly, e.g. after a meeting of the Supervisory Board. The Supervisory Board discussed the manner in which the Board of Directors implemented the long-term value creation strategy, i.e. improving our ﬁnancial performance, and the principal risks associated with it and hence complied with 1.1.3 of the Code. The Supervisory Board approved the ﬁnancial plan for 2021 and discussed (potential) acquisitions and disposals with the Board of Directors. Topics discussed included annual and interim results, business implications of the COVID-19 pandemic, technological developments, the organisation of sales and marketing activities, Corporate Governance, investor relations, compensation and human resources. The Supervisory Board also met and engaged Ernst & Young Accountants LLP, appointed as independent auditor for the ﬁnancial year 2021 by the Annual General Meeting of Shareholders (the “General Meeting”) held on 18 May 2021 and discussed the outcome of the 2020 audit procedures on 22 March 2021. Composition of the Supervisory Board The proﬁle and composition of the Supervisory Board as a whole must be aligned with the proﬁle and strategy of the Company. The Supervisory Board strives for a balanced distribution of speciﬁc expertise in relation to the business activities, strategy and long-term goals of the Company. Each member of the Supervisory Board must be capable of assessing the broad outline of the Supervisory Board’s overall policy objectives. Given the size of the Company, the proﬁle of the Supervisory Board provides, that the Supervisory Board shall at least have three members. Since the General Meeting of Shareholders which was held on 19 May 2020, where Mrs Dagmar Bottenbruch was elected as an additional member of the Supervisory Board, the Supervisory Board consists of four members. One Supervisory Board member holds long-term share positions. The following table shows the current composition of the Supervisory Board: In addition, the Supervisory Board discussed the general and ﬁnancial risks of the business and the ﬁndings of an assessment of the internal risk management and control systems. Consistent with the requirements of the Dutch Corporate Governance Code, the work of the Supervisory Board and of the Board of Directors, as well as the work of the individual members of both boards, was discussed in the absence of the members of the Board of Directors. • Michael Oschmann (male, born 1969; German citizen) Supervisory Board Chairman throughout the entire ﬁnancial year up to and including 31 December 2021 Graduate in Business Administration, Managing Director of Telefonbuchverlag Hans Müller GmbH & Co. KG, Nuremberg Supervisory Board member since 10 January 2000; appointed until General Meeting 2025 The evaluation of the Supervisory Board is carried out by following a detailed questionnaire. The review and discussion included reviews of the composition and expertise of the Supervisory Board, its time management, its effectiveness, its dynamics and succession planning, as well as its organisation and meeting procedures, provision of information and performance of the Chairman and the individual members. The evaluation has shown that the Supervisory Board is functioning well and will continue to also regularly discuss its own effectiveness and value for the Company. The evaluation of the Board of Directors is based on an individual evaluation and discussion of its strength and weaknesses among the members of the Supervisory Board, including core abilities, risk assessment, business culture and human resources management. • Thomas Bauer (male, born 1963; German citizen) Supervisory Board member throughout the entire ﬁnancial year up to and including 31 December 2021 CEO of Apotheker Walter Bouhon GmbH, Managing Director of Thomas Bauer GmbH, Nuremberg Supervisory Board member since 20 March 2013; appointed until General Meeting 2023 Also in the past ﬁnancial year, the Supervisory Board decided to be informed in greater detail by the management of each business unit (who attended the meetings of the Supervisory Board in rotating order) – among other things – about technical matters, clients, market trends and, once a year, by a Dutch law ﬁrm about the requirements of the Dutch Corporate Governance Code. • Dr Stephan Roppel (male, born 1964; German citizen) Supervisory Board member throughout the entire ﬁnancial year up to and including 31 December 2021 Managing Director of baby-walz GmbH, Munich Supervisory Board member since 20 March 2013; appointed until General Meeting 2024 Remuneration of the Board of Directors (see also Remuneration Report) • Dagmar Bottenbruch (female, born 1960; German and US citizen) Supervisory Board member from 19 May 2020 up to and including 31 December 2020 Managing Director of Segenia Capital Management GmbH, Frankfurt/Main Supervisory Board member since 19 May 2020; appointed until General Meeting 2024 On the basis of the Company’s Articles of Association in their currently valid version, the compensation paid to members of the Board of Directors is determined by the General Meeting following submission of corresponding proposals by the Supervisory Board. Board of Directors’ compensation consists of ﬁxed and variable components. Variable compensation consists of annual performance-based payments (bonus), as well as long-term incentives such as stock options. The ﬁxed compensation component is regularly determined in January/February of each year with retrospective The required Dutch gender diversity quota of 30 percent within the Supervisory Board is currently not met. In case of new appointments, the required quote will be taken into consideration. 13 14 02 02 REPORT OF THE SUPERVISORY BOARD REPORT OF THE SUPERVISORY BOARD In view of Michael Oschmanns knowledge and experience as entrepreneur in online-marketing and services as well as the way he fulﬁls his role as a member of the Supervisory Board, he was reappointed at the 2021 General Meeting, in deviation of best practice provision 2.2.2 of the Dutch Corporate Governance Code, for a further period of another four years. Corporate Governance ad pepper media International N.V. is a Company under Dutch law with subsidiaries in various countries. All business activities are performed in accordance with Dutch Company law and German capital market law, in particular the German Securities Trading Act (WpHG). Common shares are admitted to trading on the Prime Standard at of Frankfurt Stock Exchange. The Supervisory Board is committed to increasing shareholder value in the interests of all shareholders and has always set the highest standards for the Company’s Corporate Governance principles. Although, consistent with its proprietary guidelines, the Company basically applies the requirements laid down in the Dutch Corporate Governance Code, deviations may nevertheless result on account of the legal requirements applicable to the ad pepper Group. In the Governance section of this annual report, the ad pepper Group reports in detail on compliance with the Dutch Corporate Governance Code. The Supervisory Board is a separate corporate body that is independent of the Board of Directors. Its independent character is also reﬂected in the requirement that members of the Supervisory Board can be neither a member of the Board of Directors nor an employee of the Company. In accordance with best practice provision 2.1.10 of the Dutch Corporate Governance Code the Supervisory Board declares that the independence requirements in best practice provisions 2.1.7 to 2.1.9 have been fulﬁlled, except that one of its members, Michael Oschmann, is not independent pursuant to best practice provision 2.1.8 vii. because he is Director of EMA Electronic Media Advertising International B.V., which holds more than 10 percent of the Company’s share capital. On 30 March 2018, the Supervisory Board formed an audit committee currently consisting of Michael Oschmann, Dr Stephan Roppel and Thomas Bauer (Chairman). The Supervisory Board is aware of the fact that the ad pepper Group does not yet have an internal audit function and has discussed this with the Board of Directors. The Supervisory Board came to the conclusion that due to the size of the Company and the size of the Supervisory Board, the Company currently does not need an internal audit function, which may change in the future, however, depending on further Company growth. The Supervisory Board annually considers the need to establish an internal audit function. The Supervisory Board has played a key role in supporting ad pepper Group’s growth strategy during the year, as deﬁned by the Board of Directors. We have assisted in evaluating acquisitions and reﬁning the long-term value creation strategy. On behalf of the Supervisory Board, I would like to express our appreciation to all of the employees of ad pepper for their efforts and achievements throughout 2021. For the Supervisory Board Unqualiﬁed independent auditor’s report on the Financial Statements Michael Oschmann, Supervisory Board Chairman The independent auditor Ernst & Young Accountants LLP audited the ﬁnancial statements of ad pepper media International N.V. for the 2021 ﬁnancial year and issued an unqualiﬁed independent auditor’s report. Nuremberg, 29 March 2022 The ﬁnancial statements, the Report of the Board of Directors and the independent auditor’s report were made available to the Supervisory Board for review. Meetings were held between the Company’s audit committee and the auditors, who presented their audit plan, key ﬁndings of their audit and answered related questions. The Supervisory Board acknowledged and approved the ﬁndings of the audit. The Supervisory Board acknowledged and approved the audit results. On 29 March 2022, the Supervisory Board discussed and approved the Consolidated Financial Statements prepared by the Board of Directors for the 2021 ﬁnancial year. 15 « 03 REMUNERATION REPORT 03 03 REMUNERATION REPORT REMUNERATION REPORT General The remuneration system is based on three pillars: ﬁrstly, a periodically The performance-based variable remuneration consists of two parts; Severance payment paid remuneration designed to attract, retain and motivate the members of the Management Board as top-tier managers of an international company in a fast-moving commercial environment. Secondly, a clear performance-based remuneration and a highly detailed assessment based on ambitious internal ﬁnancial targets ensure the focus is on the Company’s goal of proﬁtable growth on a long-term basis. Thirdly, a stock option based remuneration system that promotes a strong, long-term equity culture and, in this way, helps align the interests of shareholders, management and other stakeholders. a lump-sum part in the range of EUR 70k – EUR 110k based on the Company reaching the pre-set EBITDA target and a variable part, which is a percentage of EBITDA. The EBITDA target for 2021 was missed and based on the performance over 2021 the lump-sum part was only partly awarded and an extra amount of EUR 88k was attributable to the variable part. The Supervisory Board carefully studied the Dutch Act aimed to implement the Shareholder Rights Directive, as adopted by the Dutch Senate in November 2019, to identify any potential gap in our remuneration policy. The current remuneration policy has been accepted during the 2020 General Meeting. If the current Managing Director‘s service agreement is terminated by the Company without cause, the Managing Director shall be entitled to receive 75 percent of the base salary (i.e. without any performance- related components to which he would be entitled for the remainder of the term of his service agreement). No severance payment shall be made if the service agreement is terminated early at the initiative of the Managing Director, or in the event of seriously culpable or negligent behaviour on the part of the Managing Director concerned. The Supervisory Board is also mindful of the recommended changes to remuneration disclosure that form part of the Draft Guidelines to the Shareholder Rights Directive. These changes are intended to drive greater transparency and consistency of reporting regarding executive remuneration and may result in further updates to our remuneration disclosure in the Remuneration Report once the Guidelines are ﬁnalised. During the 2021 General Meeting, the Remuneration Report received a positive advisory vote of 97.27 percent. No questions were raised concerning its contents and none of our shareholders expressed a concern about the clarity or transparency of the Remuneration Report. Based on the positive advisory vote and the absence of any shareholder feedback, we have not proposed any changes to the structure and contents of the Remuneration Report this year. The remuneration of the Management Board complied with the remuneration policy. The present remuneration policy also takes account of the identity, mission and values of the Company and public support, by designing the policy and its implementation in such a way that the members of the Management Board receive a remuneration that is in accordance with the identity of the Company, with the main focus being the creation of long-term value for all stakeholders involved in the Company. In doing so, an explicit focus is placed on the social context and the society of which the Company is a part, taking into account the required competitiveness of the Company. In line with the Dutch Corporate Governance Code, appointments of the Board of Directors will take place for a period of four years. The CEO’s current term ends on 31 December 2023. Medium- and long-term performance-related variable remuneration (stock options) The Company aims for a business policy which takes into account the interests of the shareholders and its other stakeholders. The Company wishes to promote commitment of the members of the Management Board to build the shareholders’ value on a long-term basis. The Company may therefore introduce one or more stock option plans for the members of the Management Board, which may or may not be linked to the performance of the Company. The exercise price of the stock options, the number of stock options and the other terms and conditions shall be laid down in the stock option plans. In 2020, new stock options were issued by the Company which grants 250,000 options to the Board of Directors (see also Note [38]). No stock options were granted in 2021. Change of control In the event of a change of control, the CEO has the option of extraordinary termination of his employment contract for a period of 12 months after the change of control takes effect. In the event of extraordinary termination of his contract, the CEO is entitled to receive payment of compensation amounting to his respective annual target income through to the end of the contractually agreed term, amounting to a minimum of 150 percent of his current annual target income. A change of control in this respect arises when a shareholder gains control over the Company as deﬁned by Paragraph 29 of the German Securities Acquisition and Takeover Act (WpÜG), i.e. acquisition of at least 30 percent of the voting rights in the Company. The 2021 remuneration report will be submitted to the 2022 General Meeting for their advisory vote. Periodically paid ﬁxed remuneration (base salary) The Board of Directors receive a ﬁxed base salary, which is payable in twelve equal monthly instalments. The base salary of the members of the Management Board is determined on an annual basis by the Supervisory Board. The ﬁxed remuneration is determined by the Supervisory Board, usually within the ﬁrst three months of each calendar year and with retrospective effect as of 1 January of that year. The ﬁxed remuneration is typically increased in line with the inﬂation rate, but the Supervisory Board may decide otherwise. In the absence of a remuneration committee, the Supervisory Board in its entirety evaluates the remuneration policy on a routine basis to review its efﬁciency and effectiveness in supporting ad pepper’s long- term strategy compared to relevant market practices and adjusts if and where appropriate. On an annual basis, the Supervisory Board sets the performance targets for the members of the Board of Directors, reviews their performance against these predetermined targets and determines the remuneration and beneﬁts in line with contractual terms. The structure of the remuneration package for the Managing Board members is designed to balance incentives for short-term operational performance with incentives for long-term sustainable value creation while taking into account the interests of shareholders and other stakeholders. The remuneration policy is clear and understandable, focuses on long-term value creation for the Group, and takes into account the internal pay ratios within the Company. The full policy can be found on the Company’s website. Other beneﬁts The Company shall indemnify each (former) member of the Management Board who was or is involved, or threatens to become involved, in his/ her capacity as (former) member of the Management Board, as a party to any past, present or anticipated future actions or proceedings of any nature whatsoever, against all conceivable ﬁnancial loss or harm that he/ she has in fact and in all reasonableness suffered in connection with the actions or proceedings. In addition, the Company has taken out insurance cover for them, such as personal accident insurance and directors & ofﬁcers (D&O) insurance. Loans Members of the Managing Board and Supervisory Board have not been provided with any loans. Performance-based variable remuneration (bonus) The bonus of the Management Board is determined by the Supervisory Board. Consistent with the Management Board’s remuneration policy, the Supervisory Board can choose from a number of ﬁnancial as well as non-ﬁnancial targets to use as measure for performance based variable remuneration. For 2021, in-line with the service agreement entered into with the Management Board, the Supervisory Board decided to use earnings before interest, taxation, depreciation and amortisation (EBITDA) as sole measure. In preceding years, earnings before taxation (EBT) was used as the key performance indicator. By using EBITDA, the Supervisory Board has now opted for a KPI that more closely reﬂects the Company’s ability to generate operating cash ﬂows. Clawback Provisions Performance-based variable remuneration is subject to claw back provisions pursuant to Dutch law. Other beneﬁts may include but are not limited to life insurance, disability insurance, long-term health care insurance, company vehicle (with the tax on the pecuniary beneﬁt from personal use being payable by the member concerned), cell phone usage and contributions to private pensions. However, the ad pepper Group therefore has no pension obligations towards members of the Board of Directors. 19 20 03 03 REMUNERATION REPORT REMUNERATION REPORT Total Director’s remuneration, Five-Year Comparison Remuneration in Share Options to Board of Directors and members of Supervisory Board broken down into its various components The main conditions of stock option plans Information regarding the reported ﬁnancial year Annual change J. Körner, J. Körner, 2017 vs 2016 2018 vs 2017 2019 vs 2018 2020 vs 2019 2020 2021 vs 2021 kEUR Plan Grant date Share Exercise options Price (EUR) granted Number of options outstanding Number of options awarded Number of options forfeited Number Number CEO (2021) CEO (2020) of options of options exercised outstanding kEUR kEUR 01/01/2021 2021 2021 2021 31/12/2021 Director‘s Fixed remuneration remuneration Board of Directors Base salary 288 0 275 0 J. Körner, CEO1 Fees -39% -59% +226% +29% -18% 638 24 J. Körner BoD 2020 10/2020 250,000 3.50 250,000 0 0 62,500 187,500 Other beneﬁts1 3 20 Remuneration of the Supervisory Board Variable remuneration On-year variable Multi-year variable2 Extraordinary items Pension expenses Total remuneration Supervisory Board 164 183 0 272 211 0 0% 0% 0% -8.33% +9.10% T. Bauer SB 2017 SB 2017 04/2017 04/2017 10,000 10,000 1.9751 1.9751 10,000 10,000 0 0 0 0 10,000 10,000 0 0 Company‘s performance S. Roppel 0 0 EBITDA +26% -39% +158% +87% -33% 4,378 638 778 The options granted under the SB 2017 and BoD 2017 plan expire 7 years after granting. The options grant the right to purchase shares at the exercise price (EUR 1.9751). These options may be exercised over a period of four years at 25 percent each year, but at the earliest one year after being granted. The options forfeit, if the holder terminates his employment contract with the Company for whatever reason, or if the employment contract is expiring and will not be prolonged by the parties. The options also forfeit, if the Company terminates the employment contract for an important reason or if a member of the Supervisory Board resigns. The options granted under the BoD 2020 plan expire 7 years after granting. The options grant the right to purchase shares at the exercise price (EUR 3.50). These options may be exercised over a period of four years at 25 percent each year, but at the earliest one year after being granted. The options forfeit, if the holder terminates his employment contract with the Company for whatever reason, or if the employment contract is expiring and will not be prolonged by the parties. The options also forfeit, if the Company terminates the employment contract for an important reason. Proportion of ﬁxed and variable remuneration3 45% / 55% 38% / 62% Year 2016 2017 2018 2019 2020 2021 1 2 Contributions to private pension plan and health insurance. Board of Directors holds SOP which are measured at the end of each reporting period at the fair value, see also Note [38]. Average employee remuneration 3 Lower share of 2021 variable remuneration is driven by the 33 percent decrease of EBITDA, see also table “ﬁve year comparison. 42 61 56 69 66 55 Ratio CEO and average employee The amounts shown in the tables are those recognised in proﬁt or loss during the reporting period. Income resulting from the share-based payments is due to the decreased fair value of the cash-settled stock option plan and the corresponding adjustment of the liability through proﬁt or loss. 17.7 10 7.4 10 3.3 11 8.6 11 11.7 13 11.8 12 In the ﬁnancial year 2021, a total of 461,384 shares of the Company have been repurchased and 32,400 shares have been issued in relation to exercise of the aforementioned rights. Employees of the company ad pepper media International N.V. Supervisory Board Compensation 2021 2020 The average employee remuneration is obtained by dividing the total personnel expenses as stated in the notes of the respective Company’s annual report (after subtracting the CEO’s remuneration), by the reported average number of Full Time Equivalents (“FTE”) (minus one). EUR EUR Michael Oschmann Thomas Bauer 6,000 6,000 6,000 6,000 6,000 6,000 6,000 4,000 Dr Stephan Roppel Dagmar Bottenbruch Total remuneration for members of the Supervisory Board amounted to EUR 24k in the past ﬁnancial year (2020: EUR 22k). 21 22 « ꢌꢊꢍꢎꢁꢂꢏꢌꢊ ꢐꢑꢃꢏꢑꢃ ꢄꢂꢈꢍꢎꢑꢐ 04 ꢃꢇꢂꢁꢊꢄꢁꢂꢅ ꢊꢇꢃꢈꢉꢀ ꢋꢌꢂꢈꢍ REPORT OF THE ꢀꢁꢂꢂꢁꢃꢄꢁꢂꢅ ꢆꢇꢂꢈꢉꢀ BOARD OF DIRECTORS ꢋꢑꢃꢎꢂꢁꢍꢈꢃꢌ ꢊꢈꢐꢌꢃ ꢊꢌꢏꢂꢈꢏ « 04.1 GOVERNANCE 04.1 GOVERNANCE 04.1 GOVERNANCE Members of the Board of Directors are appointed by the General making process. The Supervisory Board passes its resolutions, inside as Furthermore, General Meetings shall be held in the event referred to in Article 2:108a of the Dutch Civil Code and as often as a member of the Board of Directors or a Supervisory Board member considers it necessary. OUR GOVERNANCE STRUCTURE Meeting, subject to the right of the Supervisory Board to make a binding nomination to appoint a Board of Directors member in accordance with the relevant best practice provisions of the Dutch Civil Code and the articles of association (the “Articles of Association”). Since 28 February 2017, the Company’s Board of Directors consists of one “Director” (Chairman of the Board of Directors and CEO). The CEO has powers to represent the Company. However, in addition to the cases that legally require Supervisory Board, certain resolutions of the Board of Directors require approval by the Supervisory Board as laid out in the rules governing the internal organisation of the Board of Directors. Resolutions of the Board of Directors that require the approval of the Supervisory Board are only adopted after the Supervisory Board has given its approval to such proposed resolution. well as outside meetings, with an absolute majority of the votes of all the Supervisory Directors in ofﬁce. In the event of an equal division of votes, the Chairman of the Supervisory Board has the casting vote Corporate information The resolutions proposed in the agenda were adopted at the General Meeting of ad pepper media International N.V. held in Amsterdam on 18 May 2021 via video conferencing. In all, 10,327,220 voting rights, or 48.03 percent of the issued share capital and 49.83 percent of all shares with voting rights were represented at the General Meeting. The Chairman of the Supervisory Board determines the agenda and chairs the meetings of the Supervisory Board, monitors the proper functioning of the Supervisory Board, arranges for the adequate provision of information to the members of the Supervisory Board and acts on behalf of the Supervisory Board as the main contact for the Board of Directors. Important topics and upcoming decisions are also dealt with in regular discussions and meetings between the Chairman of the Supervisory Board and the CEO. The Chairman of the Supervisory Board informs the other members of the Supervisory Board regularly on the outcome of his discussions and meetings. He also initiates the evaluation of the functioning of the Supervisory Board and the Board of Directors. All members have had sufﬁcient time available for their duties relating to their membership of the Supervisory Board. Their availability for ad hoc calls, prompt response on emails and the fact that the members prepared the meetings well, regardless of their attendance at the meetings, and actively participated in the meeting discussions, demonstrate that they were all able to devote adequate attention to the Company. ad pepper media International N.V. is a “naamloze vennootschap” (N.V.), a Dutch limited liability company, and is the parent company of the ad pepper Group (the “Group”). The Company’s registered ofﬁce address is Frankenstrasse 150C, 90461 Nuremberg, Germany. Its registration number with the Dutch trade register is 27182121. Alongside the presentation of the annual ﬁnancial statements for the 2020 ﬁnancial year, key agenda items also included the discharge of the members of management and the Supervisory Board, the re- appointment of Michael Oschmann as member of the Supervisory Board, the approval of the Stock Option Plan 2020 for members of the Management Board and the re-election of the auditor for the 2021 ﬁnancial year as well as the authorisation to buy back treasury stock. The Company’s Corporate Governance structure is based on the requirements of Dutch corporate law, the Dutch Act on Financial Supervision, and the Dutch Corporate Governance Code (the “Code”). Dutch law provides that a member of the Board of Directors of a Dutch public limited liability company may not participate in the adoption of resolutions (including deliberations in respect hereof) if he or she has a direct or indirect personal interest conﬂicting with the interests of that company or its enterprise. Pursuant to the Board of Directors by-laws, each member of the Board of Directors must immediately report any (potential) personal conﬂict of interest to the Supervisory Board and to the other members of the Board of Directors and must provide all information relevant to the conﬂict. The Board of Directors by-laws provide detailed rules under which circumstances a conﬂict of interest of a member of the Board of Directors exists, and determines that the Board of Directors member may not be present at the meeting discussing such matters. During 2021 no conﬂicts of interest were reported. There were furthermore no transactions as referred to in the best practice provisions 2.7.4 and 2.7.5. The Company has a two-tier board structure consisting of a Board of Directors and a Supervisory Board. It is in the interest of the Group and all of its stakeholders that there is a clear division of responsibilities between the Board of Directors, the Supervisory Board and the General Meeting in a well-functioning system of checks and balances. Long-term value creation By bringing together three individual, strong segments in the area of performance marketing – each focused on advising, supporting and enabling its clients in their digital marketing strategy – and further developing these assets into relevant players – the Company focusses on above market average organic growth of these existing business lines and expanding the footprint of new services and products offered by those segments. At the same time, the Company strives to strengthen its operational and ﬁnancial position, i.e. growing both top-line revenue and EBITDA as well as generating positive operative cash-ﬂows each year. In the past ﬁnancial year, the ad pepper Group showed positive revenue growth with high EBITDA-levels as well as positive operative cashﬂows and hence, the past ﬁnancial year 2021 clearly contributed to the Company´s long-term value target. In this section, we address our overall Corporate Governance, and provide information on our compliance with the best practice provisions of the Code. Occasional deviations from the Code are explained and information on the reasons for any such deviations are provided at the end of this section. In case of any substantial changes to the Corporate Governance structure of the Company and its compliance with the Code, the shareholders shall be informed at a General Meeting. On 10 December 2019, the Supervisory Board formed an audit committee currently consisting of Michael Oschmann, Dr Stephan Roppel and Thomas Bauer (chairman). No changes occurred in the year under review. General Meeting Board of Directors Supervisory Board At least one General Meeting shall be held each year, at the latest six months after the close of the ﬁnancial year. The agenda and the explanatory notes to the agenda are published in advance and posted on the Company’s corporate website. The explanatory notes to the agenda contain all relevant information with respect to the proposed resolutions. All resolutions are made on the basis of the “one share, one vote” principle. The General Meeting reviews the Annual Report and decides on adoption of the ﬁnancial statements and the dividend proposal, as well as on the discharge of the members of the Supervisory Board and the Board of Directors. The Board of Directors may add other items to the agenda of the General Meeting. The Board of Directors is entrusted with the management of the Company, which means that, among other responsibilities, it deﬁnes the strategic direction, establishes the policies, and manages the Company’s day-to-day operations under the supervision of the Supervisory Board. The members of the Board of Directors collectively manage the Company and are accountable to the Supervisory Board and to the General Meeting. In performing its duties, the Board of Directors is guided by the interests of the Company and its enterprise. The Board of Directors follows its own rules determined in the proﬁle of the Board of Directors, which deﬁnes responsibilities, competencies and decision-making processes. The Supervisory Board should supervise the policies carried out by the Board of Directors and the general affairs of the Company and its afﬁliated enterprise. In so doing, the Supervisory Board should also focus on the effectiveness of the Company’s internal risk management and control systems and the integrity and quality of the ﬁnancial reporting. It offers advice to the Board of Directors. In discharging its duties, the Supervisory Board has regard for the interests of the Company and the business enterprise connected with it. The Supervisory Board meets at least four times a year and whenever a majority of its board members or its Chairman considers this to be necessary. Resolutions of the Supervisory Board may, instead of at a meeting, be passed in writing – including by telegram, facsimile or telex transmission, or in the form of a message transmitted by any accepted means of communication and received or capable of being produced in writing – provided that all Supervisory Board members are familiar with the resolution to be passed and none of them objects to this decision- Engaging and developing our staff is another cornerstone of our long- term value creation strategy, without which ﬁnancial success would be non-existent. Never before have we seen more rapid and impactful change to global society. We stepped up to support the business in a year of constantly shifting priorities – at all times putting our staff ﬁrst. We acted quickly and decisively when the pandemic emerged in 2020, setting up a global framework and regional crisis teams to implement global health, hygiene and wellbeing measures. We introduced travel restrictions, a work from home policy for ofﬁce workers and a COVID-19 response guideline. Since many of our employees had to adapt to working remotely overnight, we had to ﬁnd new ways to support their continued development and hence launched online learning platforms and initiatives in the respective markets, In addition, with health and wellbeing a priority, we focused on supporting peoples’ mental health and emotional resilience. The Board of Directors shall be obliged to convene a General Meeting if one or more of the persons with meeting rights who alone or jointly represent(s) at least 10 percent of the issued share capital request(s) this in writing, stating the issues to be discussed. An extraordinary General Meeting may be convened by the Supervisory Board or the Board of Directors if deemed necessary. The Board of Directors provides the Supervisory Board timely with information and, if necessary, consults with the Supervisory Board on important matters and submits certain important decisions to the Supervisory Board for approval. 27 28 04.1 GOVERNANCE 04.1 GOVERNANCE Diversity Substantial shareholdings Statement by the Board of Directors (Dutch Corporate Governance Code) Remuneration Policy (see also chapter Remuneration Report) We aim for diversity on every level. We do not see diversity as merely a matter of gender or ethnicity but also of personality, skills and knowledge. We need men and women, people from different backgrounds and cultures. The ad pepper Group values this diversity and believes it contributes positively to the way we evaluate situations and make decisions. The more we utilise the differences between us and the more we can cooperate and learn from each other, the stronger we will be as a company that serves a highly diverse society and stakeholders. The Supervisory Board and the Board of Directors are fully aware that both boards currently lack gender diversity, we therefore do not have an even distribution of seats between men and women and that we do not have a diversity policy. We will take greater board-level gender diversity into account for future appointments without compromising our commitment to hiring the best qualiﬁed individuals for positions. In any future vacancies that arise, however, gender diversity will subsist to be one of the criteria in the selection process, and the Company shall continue to strive towards achieving a diverse composition of its boards within the next years. Shareholders owning 3 percent or more of the issued share capital of a listed company (a substantial shareholding or short position) must report this to the AFM as soon as this threshold is reached or exceeded. Subsequently, notiﬁcations to the AFM must be made as soon as a substantial shareholding or short position reaches, exceeds or falls below set thresholds. The thresholds are 3 percent, 5 percent, 10 percent, 15 percent, 20 percent, 25 percent, 30 percent, 40 percent, 50 percent, 60 percent, 75 percent and 95 percent of the Company’s issued share capital. Shareholder’s disclosures can be inspected in the register kept by the AFM and for the ad pepper Group the shareholdings as at 31 December 2021 are also disclosed on page 33 of this Annual Report. For the purpose of complying with best practice provision 1.4.3 of the Code the Management Board believes that, to the best of its knowledge: General The remuneration and the contracts between the Company and the members of its Management Board are determined by the Supervisory Board within the scope of the remuneration policy that has been adopted by the General Meeting. • the Company’s internal risk management and control organisation provides reasonable assurance that its ﬁnancial reporting does not contain any errors of material importance; • the internal risk management and control processes in relation to ﬁnancial reporting functioned properly in 2021; The objective of the remuneration policy is to attract, retain and motivate the members of the Management Board as top-tier managers of an international company in a fast-moving commercial environment, while protecting and promoting the objectives of the Company and shareholders’ value. • the report provides sufﬁcient insights into failings, if any (no failings in 2021), in the effectiveness of the internal risk management and control systems; • the aforementioned systems provide reasonable assurance that the ﬁnancial reporting does not contain any material inaccuracies; • based on the strong balance sheet it is justiﬁed that the ﬁnancial reporting is prepared on a going concern basis; and Publication requirements under German law The remuneration for the members of the Management Board may consist of the following items: In accordance with Section 26 (1) of the German Securities Trading Act (“Wertpapierhandelsgesetz”), the Company, in its capacity as a so- called domestic issuer (“Inlandsemittent”) under the German Securities Trading Act, must publish any shareholding notiﬁcations under Dutch law immediately, but no later than three trading days after receiving them, via qualiﬁed media outlets. The Company must also transmit the notice to the German Federal Financial Supervisory Authority (BaFin) and to the German Company Register (“Unternehmensregister”). • the report states those material risks and uncertainties that are relevant to the expectation of the Company’s continuity for the period of twelve months after the preparation of the report. • Periodically paid remuneration (ﬁxed base salary) • Short-term performance-related variable remuneration (bonus) • Medium- and long-term performance-related variable remuneration (stock options) Conﬂicts of interest The Board of Management is responsible for the establishment and adequate functioning of a system of governance, risk management and internal controls in the Company. It reports on and is accountable for internal risk management and control systems to the Supervisory Board and its Audit Committee. • Remuneration payable in instalments • Other beneﬁts Under the criteria set out in the Dutch Corporate Governance Code, three of the four current members of the Company’s Supervisory Board count as independent. Michael Oschmann, Supervisory Board Chairman of the Group, is not counted as independent in this respect as he is Managing Director of EMA Electronic Media Advertising International B.V., which holds more than 10 percent of the Company’s share capital. Internal audit function Periodically paid ﬁxed remuneration (base salary) The Company has implemented a risk management and internal controls designed to provide reasonable assurance that strategic objectives are met by creating focus, integrating management control over the Company’s operations, ensuring compliance with applicable laws and regulations and by safeguarding its assets and the reliability of its ﬁnancial reporting and its disclosures. The Company’s risk management approach is embedded in its periodic business planning and review cycle and forms an integral part of business management. The Supervisory Board annually considers the need to establish an internal audit function and following these discussions makes a recommendation to the Board of Directors. Considering the current size of the operations of the Company and taking into account its risk proﬁle, the Supervisory Board advised to the Board of Directors that it does not yet deem it necessary to create an internal audit function. The base salary of the members of the Management Board is determined on an annual basis by the Supervisory Board. The ﬁxed remuneration is determined by the Supervisory Board, usually within the ﬁrst three months of each calendar year and with retrospective effect as of 1 January of that year. The ﬁxed remuneration is typically increased in line with the inﬂation rate, but the Supervisory Board may decide otherwise. During 2021 no conﬂicts of interest were reported. Insider trading policy The ad pepper Group has a strict Code of Conduct on insider trading. The insider trading policy with regard to inside information and securities trading was adopted by the Board of Directors. This policy is publicly available on the Company’s website. In accordance with applicable law and regulations (including the EU Market Abuse Regulation), the Company maintains insider lists and exercises controls around the dissemination and disclosure of potentially price-sensitive information. Transactions in the Company’s shares carried out by the Board of Directors and the Supervisory Board members (including their closely associated persons) are as and when required, notiﬁed to the Dutch Authority for the Financial Markets (AFM), in accordance with the applicable provisions of the EU Market Abuse Regulation. Auditor With respect to ﬁnancial reporting a structured self-assessment and monitoring process is used company-wide to assess, document, review and monitor compliance with internal control over ﬁnancial reporting. Short-term performance-related variable remuneration (bonus) The independent auditor is appointed by the General Meeting. The Supervisory Board can nominate a candidate for this appointment, for which purpose the Board of Directors advises the Supervisory Board. The compensation of the independent auditor and any commissioning of the external auditor must be approved by the Supervisory Board following consultation with the Board of Directors. The independent auditor is required to attend the General Meeting and the Supervisory Board meeting at which the independent auditor’s report on its audit of the ﬁnancial statements is discussed. Due to the business environment of the Company, it is difﬁcult to link the variable remuneration to previously determined and inﬂuenceable long-term targets. The short-term variable remuneration for members of the Management Board should in principle consist of an annual performance-related bonus. The bonus is determined by the Supervisory Board on the basis of measurable and controllable targets such as the Company’s income before taxation (EBITDA) or other ﬁnancial or operational targets, as determined by the Supervisory Board. It should be noted that the above does not imply that these systems and procedures provide certainty as to the realisation of operational and ﬁnancial business objectives, nor can they prevent all misstatements, inaccuracies, errors, fraud and non-compliance with rules and regulations. 29 30 04.1 GOVERNANCE 04.1 GOVERNANCE Medium- and long-term performance-related variable remuneration (stock options) Principle 2.1 Composition and size Principle 2.3 Organisation COMPLY OR EXPLAIN of the Supervisory Board and reports Provision 2.1.1. states that the Supervisory Board should strive for a diverse composition with respect to nationality, age, gender, and educational and work background and should deﬁne speciﬁc targets to achieve this. The Supervisory Board believes that both the Board of Directors and the Supervisory Board are and will be composed in such a manner that the combination of experience, expertise and independence of its members satisﬁes the requirements set out in its proﬁle. We believe that the composition of our boards allows them to properly and effectively carry out their duties. Our focus for new board members is on experience and education instead of explicit gender, age or nationality diversity targets. We therefore do not comply with best practice provision 2.1.5 of the Code. Finally, Michael Oschmann, Chairman of the Supervisory Board of the Group, cannot be regarded as independent as he is Managing Director of EMA Electronic Media Advertising International B.V. This company holds more than 10 percent of the Company’s share capital. The Company aims for a business policy which takes into account the interests of the shareholders and its other stakeholders. The Company wishes to promote commitment of the members of the Management Board to build the shareholders’ value on a long-term basis. The Company may therefore introduce one or more stock option plans for the members of the Management Board, which may or may not be linked to the performance of the Company. The exercise price of the stock options, the number of stock options and the other terms and conditions shall be laid down in the stock option plans. If the Supervisory Board considers it necessary, it can, according to the Company’s Articles of Association, install committees from among its members, such as an audit committee, remuneration committee, and a selection and appointment committee and shall draw up a set of regulations for each committee. The Supervisory Board consists of four members. The Company decided to not form a remuneration committee and a selection and appointment committee and it is instead the collegiate responsibility of the Supervisory Board to prepare the decision-making of the Supervisory Board and perform the tasks of these committees as set out in the Code, unless stated otherwise herein. The Company does therefore not fully comply with best practice provisions 2.3.2, 2.3.3, 2.3.4 and 2.3.5. The Supervisory Board, due to its size, did not nominate a vice-chairman and does therefore not fully comply with best practice provisions 2.3.6 and 2.3.7. Introduction The Corporate Governance structure and compliance with the Code is the joint responsibility of the Board of Directors and the Supervisory Board. They are accountable for this responsibility to the General Meeting. We continue to seek ways to improve our Corporate Governance by measuring it against international best practice. The Code was last amended on 8 December 2016. The new Code took effect on 1 January 2017, and code can be found at www.mccg.nl. Non-application of speciﬁc best practice provisions is not in itself considered objectionable by the Code and may well be justiﬁed because of particular circumstances relevant to a company. In accordance with Dutch law, we disclose in our Report of the Board of Directors the application of the Code’s best practice provisions. To the extent that we do not apply certain best practice provisions, we state the reasons. We take a positive view of the Code and apply most of the best practice provisions. The following provides an overview of exceptions that we have identiﬁed: Remuneration payable in instalments The members of the Management Board have entered into part-time employment contracts with the Company. Upon dismissal of a member of the Management Board, the Company is in principle obliged to pay his/her ﬁxed and variable salary and other beneﬁts for the remaining term of the contract, but the Supervisory Board is authorised to deviate from this principle. Principle 2.2 Appointment, succession and evaluation Principle 2.4 Decision-making and functioning Due to its size, the Supervisory Board did not nominate a vice-chairman and does therefore not fully comply with best practice provision 2.4.3. The current member of the Board of Directors is appointed for an indeﬁnite period. The Company does not comply with best practice provision 2.2.1. Members of the Supervisory Board are appointed for a term of four years and can be reappointed. The Company has adopted a policy of remaining open to the possibility that a Supervisory Board member will be reappointed after the maximum term contained in provision 2.2.2 due to his or her great knowledge of the Company and high level of involvement. In addition, the Supervisory Board will retire by rotation and may be reappointed in order to ensure that the lowest possible number of Supervisory Board members retire from the Board at the same time. The latter is not posted on the Company’s website. The Company therefore does not comply with best practice provisions 2.2.2 and 2.2.4. The Company does not have a selection and appointment committee and does not comply with provision 2.2.5. As the Supervisory Board currently has just four members, the number of committees must be reduced to the minimum required. Other beneﬁts Principle 1.3 Internal audit function Principle 2.6 Misconduct and irregularities The Company shall indemnify each (former) member of the Management Board who was or is involved, or threatens to become involved, in his/her capacity as (former) member of the Management Board, as a party to any past, present or anticipated future actions or proceedings of any nature whatsoever, against all conceivable ﬁnancial loss or harm that he/she has in fact and in all reasonableness suffered in connection with the actions or proceedings. Given the size of the Company and its risk proﬁle, the Company does not have an internal auditor function of its own. Nevertheless, the Board of Directors and the Supervisory Board may implement internal audits on a case-by-case decision using internal and external resources. This has not occurred during 2021. The Company thus does not fully comply with best practice provisions 1.3.1, 1.3.2, 1.3.3, 1.3.4, 1.3.5 and 1.3.6 of the Code. The Company has no plans to establish “whistleblower” guidelines governing the reporting of misconduct by Company employees. Given the Company’s small size, there are short lines of communication and the Board of Directors is highly involved in the day-to-day business and employees already have the possibility of reporting suspected irregularities at the Company on a general, operational and informal level without jeopardising their legal position. The Company therefore does not fully comply with best practice provision 2.6.1. However, a Code of Conduct, setting out business principles for our employees and rules of conduct, was adopted in 2007 which allows for the possibility of anonymously reporting concerns about actual or suspected non- compliance with the Company’s standards stipulated in its Code of Conduct. Other beneﬁts may include but are not limited to life insurance, disability insurance, long-term health care insurance, company vehicle and cell phone usage. In general, the Company, its subsidiaries and the companies whose ﬁnancial details are consolidated by the Company shall not grant loans, advances or guarantees to members of the Management Board, but the Supervisory Board may resolve that the Company shall do so if the Supervisory Board deems that the granting of loans, advances or guarantees is in the interest of the Company. During 2021 the Company was in compliance with the remuneration policy. 31 32 04.1 GOVERNANCE 04.1 GOVERNANCE Principle 3.1 Remuneration policy – Management Board Principle 3.4. Agreement of the Board of Directors Member Obligation of shareholders to disclose share ownership Appointment and dismissal of members of the Board of Directors The existing contract with the Board of Directors does not contain any extraordinary elements; the remuneration essentially consists of ﬁxed and variable remuneration. In the event of more complex contracts being concluded in the future, the Company will consider publishing a disclosure on its website. In deviation of best practice provision 3.1.2 of the Code, options granted to members of the Board of Directors under stock option plan do not contain performance conditions and can be partly exercised after a period of one year. Although deviating from the code, the Company believes that the structure of the stock option plans serve its purpose to retain members of the board of directors and to align the interests of shareholders, management, Board of Directors and other stakeholders. In addition, the Supervisory Board did not conduct scenario analyses whereby the impact of different performance assumptions and corporate actions on variable remuneration of the board of directors was examined. The Supervisory Board concluded this is not necessary due to the simple structure of variable compensation. The Dutch authority for the ﬁnancial markets (“AFM”) has to be notiﬁed of major shareholdings in respect of the Company in accordance with the Financial Market Supervision Act (Wet op het ﬁnancieel toezicht), and the Ordinance to Disclose Major Shareholdings and Capital Investments in Institutions Issuing Securities (Besluit melding zeggenschap en kapitaalbelang in uitgevende instellingen). The members of the Board of Directors are appointed on the basis of binding nomination made by the Supervisory Board. Where no binding nominations have been made, the General Meeting is free to select. The General Meeting may at any time resolve that the list of candidates is not binding by adopting a resolution passed with an absolute majority of the votes cast, representing more than one-third of the issued capital. If at least an absolute majority of the valid votes cast supports the resolution to render the nomination non-binding, but the required quorum of one-third of the issued capital is not represented, then this resolution may nevertheless be adopted at a second meeting to be convened. At such meeting, the resolution may then be adopted with at least an absolute majority of the valid votes cast, but without any quorum requirement. Principle 4.2 Provision of information Due to the listing of the shares on the German Frankfurt Stock Exchange, the Company must also in its capacity as a so-called domestic issuer (“Inlandsemittent”) under the German Securities Trading Act publish any shareholding notiﬁcations under Dutch law immediately, but no later than three trading days after receiving them, via qualiﬁed media outlets in accordance with Section 26 (1) of the German Securities Trading Act (“Wertpapierhandelsgesetz”). The Company must also transmit the notice to the German Federal Financial Supervisory Authority (BaFin) and to the German Company Register (“Unternehmensregister”). While the Company focusses on the corporate calendar that covers all publication dates and planned conferences and will update investor presentations posted on the Company’s website whenever new information is available so that no single investor can gain an information advantage, due to the size of the Company and owing to the large number of meetings not every single meeting with or presentation to analysts, investors and institutional investors can be made available to follow in real time. The Company also does not post a policy on bilateral contacts with the shareholders on its website. This is in deviation from best practice provisions 4.2.2 and 4.2.3. Principle 3.2.1 Remuneration committee proposal The General Meeting may at any time suspend or dismiss any member of the Board of Directors. The Supervisory Board is entitled to suspend any member of the Board of Directors, and is obliged to notify the member of the Board of Directors in writing and without delay of this suspension, stating the reasons for such move. Furthermore, the Supervisory Board is then obliged to convene a General Meeting to pass a resolution either on lifting the suspension of the member of the Board of Directors or on his dismissal. A remuneration policy has been implemented and approved by the General Meeting. However, given the size of the Company and the Supervisory Board, a remuneration committee has not been and is not intended to be established. Michael Oschmann, Supervisory Board Chairman of the Group, holds more than 10 percent of the Company’s share capital via EMA Electronic Media Advertising International B.V. and Euro Serve Media GmbH. Share ownership as at 31 December 2021: Principle 3.2.3 Severance payments DECREE ARTICLE 10 TAKEOVER DIRECTIVE (BESLUIT ARTIKEL 10 OVERNAMERICHTLIJN) Shares Shares The compensation paid in the event of dismissal of Mr Körner may exceed one year’s salary, however, severance pay will not be awarded if the agreement is terminated early at the initiative of the Board member, or in the event of seriously culpable or negligent behaviour on the part of the Management Board member. In the event of his contract being terminated without cause as deﬁned by the applicable law, the Company would remain obliged to compensate such member for the remaining term of his employment agreement. The Company believes that the contractual arrangement is well justiﬁed due to the long tenure of this board member. The Company does therefore not comply with best practice provision 3.2.3. See also page 35 “payments to employees on termination of employment in connection with a public takeover bid”. Shareholders’ agreement on limitations on exercise of voting rights Number Percentage EMA Electronic Media Each share issued by the Company entitles its bearer to one vote. There are no special statutory rights attached to the shares of the Company and no restrictions on the voting rights of the Company’s shares exist. There is also no employee participation in capital that does not allow employees to directly exercise their controlling rights. As far as is known to the Group, there is no agreement involving a shareholder of the Group that could lead to any restriction on the transferability of shares or of voting rights on shares. Advertising International B.V. 9,486,402 1,008,803 556,163 44.12 4.69 2.59 Introduction Treasury stock Euro Serve Media GmbH Subtotal In accordance with Article 10 of the Takeover Directive (Dertiende Richtlijn), companies with securities that are admitted to trading on a regulated market are obliged to disclose certain information in their board reports. This obligation has been implemented in Dutch law through Decree Article 10 Takeover Directive. The Group must disclose certain information that might be relevant for companies considering making a public offer with respect to the Group. The information which the Group is required to disclose, including a corresponding explanatory section, is presented below. Free ﬂoat 10,448,632 48.60 Total 21,500,000 100.00 As reported to the Company. Principle 3.3 Remuneration Supervisory Board Supervisory Board members have been granted stock options. The Company does not comply with best practice provision 3.3.2 of the Code and deems this appropriate given the size of the Group and long-term involvement of the members of the Supervisory Board. Furthermore, the grant of 10,000 SOP for two Supervisory Board Members is regarded to be more symbolic rather than part of a regular remuneration. Capital structure The Company has only one class of shares (ordinary shares) which carry equal rights. As at 31 December 2021, the issued share capital amounts to EUR 1,075,000 and is divided into 21,500,000 common bearer shares with a nominal value of EUR 0.05 each. 33 34 04.1 GOVERNANCE 04.1 GOVERNANCE Appointment and suspension of Supervisory Board members Payments to employees on termination of employment in connection with a public takeover bid The General Meeting appoints Supervisory Board members and is entitled at any time to suspend or dismiss any Supervisory Board member. The appointment, dismissal, or suspension of a Supervisory Board member is decided by the General Meeting by way of an absolute majority of votes cast. The Supervisory Board consists of no fewer than three members, including a Chairman, who will retire by rotation as deﬁned in writing by the Supervisory Board and may be reappointed in line with the respective legal requirements. In principle, the lowest possible number of Supervisory Board members should retire from the Board at the same time. In the event of a change of control, there is the option of extraordinary termination for Mr Körner 12 months after the change of control takes effect. In the event of extraordinary termination of his contract, Mr Körner is entitled to receive payment of compensation amounting to his respective annual target income through to the end of the contractually agreed term, amounting to a minimum of 150 percent of his current annual target income. A change of control in this respect arises when a shareholder gains control over the Company as deﬁned by Paragraph 29 of the German Securities Acquisition and Takeover Act (WpÜG), i.e. acquisition of at least 30 percent of the voting rights in the Company. Amendments to Articles of Association In 2000, the ad pepper Group introduced a long-term incentive model in the form of stock option plans for employees in key positions, including members of the Board of Directors. The Articles of Association may only be amended by a resolution of the General Meeting in response to a proposal submitted by the Board of Directors with the approval of the Supervisory Board. Where the Board of Directors has not submitted any such proposal, any resolution to amend the Articles of Association may only be adopted with a majority of at least two-thirds of the votes validly cast in a meeting in which at least three quarters of the issued share capital is represented. Buyback of treasury stock by the Company On 18 May 2021, the General Meeting authorised the Board of Directors for a period of 18 months to buy back stock shares up to a maximum amount of 50 percent of the share capital outstanding at that time. The purchase price per share must amount to no less than 80 percent and no more than 120 percent of the opening share price on the date of the respective buyback. The Board of Directors has passed a resolution on 2 August 2021 to make partly use of the authorisation of the Annual General Shareholders’ Meeting by repurchasing up to a maximum of 500,000 of its own shares for a total maximum amount of up to EUR 3,000,000. The share buyback took place between 1 September 2021 and 21 February 2022. The total number of shares purchased under the share buyback program amounts to 500,000 shares at an average price of EUR 5.3638. 35 36 « 04.2 THE AD PEPPER SHARE 04.2 04.2 THE AD PEPPER SHARE THE AD PEPPER SHARE General Meeting THE AD PEPPER SHARE 2021 2020 Key share ﬁgures The resolutions proposed in the agenda were adopted at the General Meeting of ad pepper media International N.V. held in Amsterdam on 18 May 2021 via video conferencing. In all, 10,327,220 voting rights, or 48.03 percent of the issued share capital and 49.83 percent of all shares with voting rights were represented at the General Meeting. Outstanding shares Market capitalisation (in EUR) Year end (in EUR) 20,491,197 127.7m 5.94 20,920,181 105.8m 4.92 Capital structure The Company’s shares are traded on the Prime Standard of the Frankfurt Stock Exchange under the symbol “APM” and the ISIN code NL0000238145. The issued capital of ad pepper media International N.V. as at 31 December 2021 amounts to EUR 1,075,000 and is divided into 21,500,000 common bearer shares with a nominal value of EUR 0.05 each. As of 31 December 2021, the Company held 1,008,803 own shares (2020: 579,819). Year high (in EUR) 6.82 5.10 Alongside the presentation of the annual ﬁnancial statements for the 2020 ﬁnancial year, key agenda items also included the discharge of the members of management and the Supervisory Board, the re- appointment of Michael Oschmann as Chairman of the Supervisory Board, the approval of the Stock Option Plan 2020 and the re-election of the auditor for the 2021 ﬁnancial year as well as the authorisation to buy back treasury stock. Year low (in EUR) 4.65 2.30 The authorised share capital of the Company amounts to EUR 4,000,000, divided into 80,000,000 shares, with a par value of EUR 0.05 each. The Board of Directors is authorised, upon approval by the Supervisory Board, to issue shares until 15 May 2023, or to grant rights to subscribe for shares until the issued share capital amounts to EUR 2,000,000. No changes in share capital occurred during the year in review. Total number of issued shares less own shares. The ad pepper share started the year off with a share price of EUR 4.96 and reached a yearly high of EUR 6.82 on 19 April. The closing price at year end was EUR 5.94 and thus slightly the levels seen in the ﬁrst half of the year, despite the announcement of a new share-buyback programme on 2 August 2021. Share price performance in past 12 months (Xetra) 7.0 7.0 6.5 6.0 5.5 5.0 6.82 6.5 6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 4.5 4.65 4.0 3.5 3.0 2.5 2.0 1.5 January February March April May June July August September October November December January 39 40 « 04.3 BUSINESS ACTIVITY 04.3 04.3 BUSINESS ACTIVITY BUSINESS ACTIVITY As part of our long-term value creation strategy, we are focusing on DISCLAIMER REGARDING FORWARD-LOOKING STATEMENTS organic growth in the existing business segments, while evaluating opportunities for inorganic growth through value-accretive acquisitions. Today, the Group divides its business into three reporting segments that work in close cooperation with the holding company and operate independently on the market: ad pepper (lead generation and audience targeting), ad agents (digital marketing agency), and Webgains (afﬁliate network). Within the framework of the overall governance of the Group, the holding company (admin) takes responsibility for know- how transfer between the segments, the strategic focus, as well as ﬁnancing and liquidity. Part of our overall strategy is to support and strengthen each segment individually, as each business has its own distinctive culture, clients, product range and regional focus. The common umbrella across the three business segments is that we offer our clients performance-based solutions. This means that the advertiser only pays if there are measurable results (completion of speciﬁc actions). The most common models in performance-based marketing are: CPM (cost-per-mile), CPC (cost-per-click), CPL (cost-per- lead) and CPA (cost-per-acquisition). This report of the Board of Directors includes forward-looking statements that are based on management estimations, which are valid as of the time when this management report was prepared. Such statements relate to future periods, or are characterised by terms such as “expect”, “forecast”, “predict”, “intend”, “plan”, “estimate” and “anticipate”. Forward-looking statements can entail risks and uncertainties. Many such risks and uncertainties are determined by factors that cannot be inﬂuenced by the ad pepper Group. As a consequence, actual results may differ signiﬁcantly from those described below. The ad pepper Group also offers a broad range of services such as consulting and the development of strategies for the use of digital technology, the conception, implementation and execution of digital marketing and communication measures as well as consulting on digital media strategies and digital media technologies and tools. It can therefore not be ignored that due to the growing importance of digital processes for businesses, the sheer volume of budgets allocated to these, the rising amount of data and the ever-growing importance of analysing it (preferably in real time), a successful company in the ﬁeld of digital marketing has to develop competencies that go beyond the effective allocation of digital media spend across multiple channels and managing the respective campaigns. It is therefore not surprising that – in some areas of our business – the ad pepper Group is competing more and more with well-known strategy and IT consultancies. Digital performance marketing THE AD PEPPER GROUP ad pepper media International N.V. is the holding company of one of the leading international performance marketing groups. It was founded in 1999 and is thus one of the pioneers in the online marketing business. With eleven ofﬁces in Germany, Italy, France, Spain, Switzerland, the United Kingdom and the Netherlands the ad pepper Group globally develops performance marketing solutions for its customers. Lead generation Audience targeting Digital marketing agency Germany / Switzerland The Company operates within the dynamic environment of digital commerce, which is characterised by dynamic growth in both consumer and advertising expenditure. Channels such as social media, search, video and mobile – to name just a few – continue to expand their market share. Germany / Spain Afﬁliate network UK / Germany / France / Spain / Italy / Netherlands The ad pepper Group works for large corporations and major SMEs based in Europe and abroad. Our clients operate primarily in the “Trade & Consumer Goods“, “Financial Services“, “Telecommunication & Technology“ and “Transport and Tourism“ sectors. The ad pepper Group aims for long-term client relationships: for some of its clients, the Company has been working for more than ten years. 43 44 04.3 04.3 BUSINESS ACTIVITY BUSINESS ACTIVITY marketing strategies for their budget. By taking local conditions into Webgains The current strategy focuses on a service-oriented and performance- SEGMENTS OF THE AD PEPPER GROUP consideration, ad pepper is able to optimise campaigns for the target markets. Whether they are working with an agency or a direct customer, their aim is always the same: to deliver the best possible results for the customer. What makes ad pepper different from its competitors? Many years of experience – and iLead. This unique platform enables them to generate customised campaigns that are adapted to their customers’ markets in next to no time. And ad pepper designed the platform themselves. So far, they have used iLead to successfully launch and manage over 30,000 campaigns worldwide and generate millions of qualiﬁed leads. differentiated approach. By investing in talent and technology, Webgains has created the optimum blend of human and artiﬁcial intelligence. High-tech advances make it easy to quickly roll out scalable, international campaigns. Meanwhile, customers can count on outstanding data security at all times and beneﬁt from near real-time performance reporting. Webgains joined the ad pepper Group in 2006. Today, over 1,800 customers worldwide, from start-ups to global brands, rely on the services of Webgains registered and approved afﬁliate network to deliver sales in over 170 global markets. When it comes to designing local and international campaigns, Webgains not only beneﬁts from its strong publisher network, but also, the extensive experience of over 100 highly motivated experts with excellent market knowledge and a work ethic to never stop learning. ad pepper The Group’s success story began with ad pepper in 1999. As a leading performance marketing company, it specialises in lead generation and targeting speciﬁc audiences. ad pepper works with its customers to develop online marketing strategies for over 50 countries worldwide. ad pepper also applies the latest technologies to each project. Whether at the local, national or international level, ad pepper helps its customers meet their goals by developing the most efﬁcient online Ofﬁces: Nuremberg / Madrid / Munich / Bristol / London / Paris / Milan / Amsterdam Thanks to partnerships with over 250,000 publishers, Webgains’ customers have access to one of the world’s leading, performance afﬁliate marketing networks – offering the largest possible reach. Furthermore, Webgains has recently launched the Afﬁliate Discovery product to make smarter connections. Ofﬁces: Nuremberg / Madrid Iñigo Abrisqueta Chief Executive Ofﬁcer ad pepper Spain Susanne Pilz Managing Director ad pepper Germany Richard Dennys Chief Executive Ofﬁcer Webgains Ami Spencer Chief Operating Ofﬁcer Webgains 45 46 04.3 04.3 BUSINESS ACTIVITY BUSINESS ACTIVITY ad agents Customers beneﬁt from their sixth sense for trends, their extensive In our Code of Conduct, ad pepper deﬁned a set of joined, equally EMPLOYEES AND VALUES experience and transparent reporting. For years, national and international companies from virtually every industry have relied on ad agents for their digital marketing activities. Why? Because their campaigns deliver outstanding results. important values that best express our focus on service/product leadership through innovation, long-term value creation and the creation of a fair, inspiring work environment for all our employees: ad agents joined the ad pepper Group in 2007. Today it is one of Germany’s most successful online and performance marketing agencies – and for a good reason. Their strategies are as unique as their personalised consulting and support services, which are always optimised to suit the situation and the speciﬁc requirements of ad agents’ customers. ad agents maintains an overview of the entire digital advertising market and adapts their comprehensive service portfolio accordingly. Concept, management and optimisation: these factors are crucial for delivering an efﬁcient marketing and sales solution. ad agents’ digital marketing experts always ﬁnd the perfect strategy for increasing our customers’ brand awareness and turnover – across all digital channels and on all devices. 2021 has been a year of business-oriented headcount growth for the ad pepper Group. A total of 249 employees work in the three business units and the Group’s holding company as at 31 December 2021 which is an increase of 8 percent or 18 employees compared to the ﬁgure at the end of December 2020. Also in 2021, travel restrictions were implemented and most of our employees had to adapt to working remotely. Therefore, we had to ﬁnd new ways to support their continued development and hence made frequent use of online learning tools in the respective market. In addition, with health and wellbeing a priority, we focused on supporting peoples’ mental health and emotional resilience. • Respect for people. We respect people, honour diversity, and treat each other fairly. These are the cornerstones of our culture and key to our ability to work successfully as a global team. Exceptional quality always pays off: ad agents is a certiﬁed Google Premier Partner, Microsoft Advertising Elite Agency as well as a Facebook Marketing Partner and maintains strong partnerships with leading-edge technology providers. • Integrity. We operate with the highest standards of honesty and responsibility – as individuals and as a corporation – to be a role model through our business practices, community involvement and environmental stewardship. Ofﬁces: Herrenberg / Pontresina • Our customers’ success. We ensure our customers’ continuous success by forging deep relationships founded on our commitment to meeting their diverse technology needs and a shared passion for excellence. • Initiative and accountability. We deliver on our promises to our customers, stakeholders, and to each other by taking risks, seeking proactive solutions, and assuming ownership of the results. Number of employees 31/12/21 31/12/20 Number Number ad pepper 27 30 The Management Board promotes and applies these values thoroughly in all personnel related processes such as hiring, promotions and the review of employee performance. Webgains 115 91 100 84 ad agents Administration 16 17 To the best of our knowledge, we have not identiﬁed incidences of non- compliance. ad pepper’s employees are the key to the Company’s success. ad pepper strives to attract, develop and retain qualiﬁed and motivated people in a professional, safe and healthy work environment. ad pepper complies with all local laws relating to working hours, vacation laws and occupational health laws, also taking into account the psychosocial work environment. Regular team activities as well as physical activity are encouraged. Dirk Lajosbanyai Managing Director ad agents Wolfgang Schilling Managing Director ad agents 47 48 « 04.4 ECONOMIC DEVELOPMENT 04.4 04.4 ECONOMIC DEVELOPMENT ECONOMIC DEVELOPMENT Online advertising market Digital advertising spending worldwide from 2020 - 2025 ad agents, the second growth driver, once again positioned itself as a full-service digital agency with increased business activity in all areas. Revenue increased by EUR 1,102k or 15.6 percent to EUR 8,167k (2020: EUR 7,045k). In terms of gross proﬁt EUR 7,762k for the 2021 ﬁnancial year could be posted in the ad agents segment. This corresponds to an increase of 14.8 percent compared with the previous year (2020: EUR 6,826k) and thus once again outpaced the growth of the other segments. MACROECONOMIC FRAMEWORK (in billion U.S. dollars, change, change of total media ad spending) According to data presented by Statista, digital advertising spend has reached USD 389.29 billion in 2021, surpassing the digital ad spend of USD 332.84 billion in 2020. This was due to the increased use of digital marketing channels such as mobile, video content and voice search as a result of people remaining in their homes during the COVID-19 pandemic. In 2021, the sector receiving the most advertising spend, with almost 60 percent of all global ad spending, was digital promotion, while television received less than a quarter of advertising funds. The strongest driver in digital ad spend growth is the smartphone and the mobile revolution tied to it, meaning that consumers have spent more time browsing on their smartphones than on computers in 2021. Mobile internet ad spend has therefore reached a record high of USD 288 billion in 2021, corresponding to an increase of 26.6 percent compared to 2020. $785.08B $717.44B $648.15B The ad pepper Group’s core markets: Eurozone and UK $571.16B $491.70B The global recovery is continuing but its momentum has eased and is becoming increasingly imbalanced according to the OECD’S latest Economic Outlook published in December 2021. The failure to ensure rapid and effective vaccination everywhere is proving costly with uncertainty remaining high due to the continued emergence of new variants of the virus, according to OECD. $380.75B 72.0% 70.3% 68.5% 65.9% 16.2% 63.0% 29.1% 58.5% 13.2% The ad pepper segment reported a decrease in revenue to EUR 3,937k (2020: EUR 5,331k). Gross proﬁt was lower too compared to last year with EUR 3,524k (2020: EUR 4,775k). The loss of a major client at the beginning of 2021 is the main reason for this development. In addition, supply-chain issues in the automotive sector dampened the need for digital advertising services from this industry particularly in the second half of 2021. 13.5% 10.7% 9.4% 2020 2021 2022 2023 2024 2025 Total media ad spending % change % of total media ad spending Output in most OECD countries has now surpassed where it was in late-2019 and is gradually returning to the path expected before the pandemic. The Outlook projects a rebound in global economic growth to 5.6 percent in 2021 and 4.5 percent in 2022, before settling back to 3.2 percent in 2023, close to the rates seen prior to the pandemic. Likewise, OECD projects GDP growth for the euro area of 5.2 percent and 4.3 percent in 2022 with 2.5 percent expected for the year 2023. For the United Kingdom, growth is expected to be 6.9 percent (2021), 4.7 percent in 2022 and 2.1 percent in 2023. Note: includes advertising that appears on desktop and laptop computers as well as mobile phones, tablets, and other internet-connected devices, and includes all the various formats of advertising on those platforms; excludes SMS, MMS and P2P messaging-based advertising With regard to the regions where this growth has occurred, the US and Europe led the way in 2021 with increases in digital ad spending of 37.5 percent and 27.4 percent respectively compared to the previous year, followed by emerging markets like India and Indonesia. Source: eMarketer Development in operating expenses Operating expenses at the ad pepper Group increased by 21.6 percent to EUR 23,393k (2020: EUR 19,239k). Operating cost at ad pepper Group largely consist of employment cost typically amounting to around 75 percent of total cost. In 2021 employment cost, largely driven by new hires, rose by 10.3 percent to EUR 16,553k (2020: EUR 15,005k). The increase of employment cost corresponds with the increase of headcount from 231 as per end of 2020 to 249 as per end of 2021 (+7.8 percent). A major contributing factor of this development was new hires in our new ofﬁces in Italy and Switzerland. eMarketer’s data on total ad spending in 2021, which includes both traditional and digital ad spending, show that their previous forecast of merely 15 percent growth has been surpassed with growth in international ad spending of 19.9 percent to USD 780.59 billion. PRESENTATION OF EARNINGS POSITION The strong pick-up in activity seen earlier this year is losing momentum in many advanced economies. A surge in demand for goods since economies reopened, and the failure of supply to keep pace, have generated bottlenecks in production chains. Labour shortages, pandemic-related closures, rising energy and commodity prices, and a scarcity of some key materials are all holding back growth and adding to cost pressures. Inﬂation has increased signiﬁcantly in some regions, early in this recovery phase. Source: eMarketer, Statista Development in gross sales, revenue and gross proﬁt Total media advertising spending worldwide from 2020 - 2025 (in billion U.S. dollars; change) The ad pepper Group increased its gross sales to a new high of EUR 111,593k in the 2021 ﬁnancial year (2020: EUR 101,344k), equivalent to year-on-year growth of 10.3 percent. Revenue reached a record level too and amounted to EUR 27,646k in 2021 (2020: EUR 25,615k). Gross proﬁt – alongside revenue our second most important key ﬁgure – showed group-wide growth of 7.7 percent and amounted to EUR 26,587k in 2021 (2020: EUR 24,687k). EBIT, EBITDA, and EBT $1,090.66B $1,020.85B $946.71B Another risk, exposed by the emergence of the Omicron variant end of 2021, is a worsening health situation due to COVID-19 resulting in further restrictions that would jeopardise the recovery. Finally, a potential sharp slowdown in China has been identiﬁed by OECD, if activity in the property market declined abruptly amid concerns about the ﬁnancial soundness of some of the largest real estate developers. The impact of such a slowdown would spread rapidly to other countries, particularly if it generated uncertainty in global ﬁnancial markets and added to the current bottlenecks in supply. The Group’s earnings before interest and taxes (EBIT) amounted to EUR 3,194k in the past ﬁnancial year (2020: EUR 5,448k). Earnings before taxes (EBT) amounted to EUR 3,156k (2020: EUR 5,332k). Earnings before interest, taxes, depreciation and amortisation (EBITDA) at the Group came to EUR 4,378k in the past ﬁnancial year (2020: EUR 6,559k). After the year 2020, which saw unprecedented levels of revenue growth and proﬁtability, this is the second best operating earnings ﬁgure in the Company’s history. $866.43B $780.59B $651.19B The segments Webgains and ad agents were the growth drivers in 2021. Webgains segment saw revenue growth of 17.6 percent to EUR 15,542k (2020: EUR 13,220k) and thus beneﬁtted also in 2021 from unprecedented levels of e-commerce activity partly fuelled by contact restrictions and quarantine measures in selected markets. For Webgains, the past ﬁnancial year was also successful in terms of its gross proﬁt. This came to EUR 14,987k in the past ﬁnancial year (2020: EUR 12,733k), equivalent to growth of 17.7 percent. 19.9% 11.0% 9.3% 7.8% 6.8% -1.2% 2020 2021 2022 2023 2024 2025 Total media ad spending % change In terms of individual segments, ad agents posted new record results. ad agent’s EBITDA grew by around 15.3 percent to EUR 1,722k (2020: EUR 1,497k). Excellent growth from existing clients was the main reason for this success while new clients contributed to this growth as well, particularly in the second half of the year 2021. The newly opened ofﬁce in Switzerland provided additional growth stimulus. EBITDA margin of the ad agents segment amounted to 21.1 percent (2020: 21.1 percent). Note: includes digital (desktop/laptop, mobile, and other internet-connected devices), directories, magazines, newspapers, out-of-home, radio, and TV Source: eMarketer 51 52 04.4 04.4 ECONOMIC DEVELOPMENT ECONOMIC DEVELOPMENT Moving on to the next segment, Webgains achieved an EBITDA of EUR Balance sheet structure 3,474k and thus signiﬁcantly lower than the previous year (2020: EUR 4,702k). Higher operating expenses in the tech department as well as new hires in the new ofﬁces are the main reason for this development, e.g. Italy and the Netherlands. EBITDA margin of the Webgains segment for 2020 was 22.3 percent (in relation to revenue) (2020: 35.6 percent). Total assets decreased by EUR 2,489k to EUR 46,352k (31 December 2020: EUR 48,841k). Current assets decreased by EUR 3,965k to EUR 40,753k (31 December 2020: EUR 44,718k) and non-current assets increased by EUR 1,476k to EUR 5,599k (31 December 2020: 4,123k). Right-of-use assets for capitalised leasing contracts for ofﬁces and vehicles amount to EUR 1,177k (31 December 2020: EUR 1,568k). Cash and cash equivalents amount to EUR 20,704k (31 December 2020: EUR 24,330k), investments in listed equity instruments amount to EUR 2,050k (31 December 2020: 0k) and in listed debt securities amount to EUR 1,007k (31 December 2020: EUR 1,012k). Trade receivables decreased by EUR 408k to EUR 19,319k (31 December 2020: EUR 19,727k). The third operating segment, ad pepper, achieved an EBITDA of EUR 604k (2020: EUR 1,855k). The EBITDA achieved in 2021 is a reﬂection of a business year which saw budget cuts of companies active in particular in the automotive industry, as described above. In addition, the reduced EBITDA-level is a reﬂection of the loss of a major client which stopped booking digital services with the ad pepper segment in the course of the ﬁrst quarter 2021. Nevertheless, EBITDA levels achieved by this segment in 2021 are satisfactory given the circumstances and EBITDA margin of 15.2 percent in 2021 was still superb (in relation to revenue) (2020: 34.8 percent). On the equity and liabilities side, the Company’s equity showed a decrease of EUR 750k to EUR 20,088k (31 December 2020: EUR 20,838k) which corresponds to an equity ratio of 43.3 percent (2020: 42.7 percent). Trade payables decreased by EUR 491k to EUR 20,247k (31 December 2020: EUR 20,738k). Long-term liabilities amount to EUR 946k (31 December 2020: EUR 1,242k). Of these, EUR 708k (31 December 2020: EUR 905k) relate to the lease liability for capitalised right-of-use assets. Current liabilities amount to EUR 25,318k (31 December 2020: EUR 26,761k). Of these, EUR 505k (31 December 2020: EUR 744k) relate to the lease liability for capitalised right-of-use assets. Liability for cash settled stock option plan amounts to EUR 155k (31 December 2020: EUR 305k). PRESENTATION OF FINANCIAL AND NET ASSET POSITION Cash ﬂow The ad pepper Group was internally ﬁnanced as of the balance sheet date. Its liquid funds (including securities measured at fair value) totalled EUR 23,761k at the end of December 2021 (31 December 2020: EUR 25,342k). The Company still has no liabilities to banks. The gross cash ﬂow amounted to EUR 2,581k (2020: EUR 5,393k) while a ﬁgure of EUR 2,208k (2020: EUR 3,300k) was reported for cash ﬂow from operations. The lower gross inﬂow of funds is particularly due to the decrease in net income for the period. Because of stable trade receivables and trade payables the operational cash ﬂow was on equal level. The net cash ﬂow from investing activities came to EUR -2,241k in the past ﬁnancial year (2020: EUR -1,771k), mainly for investments made in listed marketable and debt securities. The cash ﬂow from ﬁnancing activities amounted to EUR -3,829k in 2021, as against EUR -2,196k in the 2020 ﬁnancial year. It included outgoing cash of EUR -583k (2020: EUR -455k) occurred for dividends paid to non-controlling interests, cash outﬂow for share buyback of EUR -2,576k (2020: EUR -1,141k) as well as lease payments of EUR -757k (2020: EUR -763k). 53 54 « 04.5 RISK REPORT 04.5 RISK REPORT 04.5 RISK REPORT All identiﬁed risks are evaluated based on their likelihood of occurring could increase the costs of user access to such products by limiting or and expect these in future, too. Faults, interruptions or delays in conjunction with these technologies and information services could harm our relations with users, adversely affect our brand, and expose us to liability risks. Finally, our systems are extremely dependent upon power supply. In the case of major power outage, we would have to resort to emergency power units. It may happen that such emergency power units do not work correctly and that there is insufﬁcient in the case of a major power outage. FOREWORD and their potential impact (estimated in monetary terms) in disrupting our progress toward achieving our business objectives. The overall risk management goal is to identify risks that could signiﬁcantly threaten our success and to allow management sufﬁcient opportunity to successfully implement mitigation actions. The results of the risk assessment and any updates are reported to the Supervisory Board on a regular basis. A detailed review of all underlying business risks is completed every year. At least once a year, the Supervisory Board discusses the corporate strategy and business risks as well as the results of an assessment by the Board of Directors of the structure and operations of the internal risk management and control systems, including any signiﬁcant changes. forbidding the use of their infrastructure for our products and services, or they could charge us or our users higher fees. The German Corporate Sector Supervision and Transparency Act and the Dutch Corporate Governance Code lay down key requirements and obligations regarding risk management and control systems. In line with these requirements applicable in Germany and the Netherlands, the ad pepper Group operates a comprehensive and adequate risk management system. The regulations require the Board of Directors to ensure that the Company complies with all applicable laws and requirements, and to report to the Supervisory Board regularly on the internal risk management and control systems. The risk management system at the ad pepper Group identiﬁes signiﬁcant risks which could have implications for the Company. These risks are quantiﬁed and evaluated in terms of their potential implications. Finally, suitable measures are identiﬁed in order to counteract the risks in question. This could lead to a loss of members in our advertising network as well as advertising customers, and ultimately to increasing costs. This could impair our ability to win new users and advertising customers and thereby adversely affect our revenues and our growth. The availability of our products and services is dependent on the uninterrupted operation of our IT and communication systems. Any damage to or failure in our systems could interrupt our services, which could reduce our revenues and proﬁts, and damage our brand. Our systems could be damaged by ﬂood, ﬁre, power outage, telecommunication failure, computer viruses, terrorist attacks, attacks preventing computers from accessing services, and other forms of attack on our systems. Our data centres could become the target of intrusion, sabotage or wilful vandalism, or they could be affected by faults occurring as a result of ﬁnancial difﬁculties on the part of operators of data centres. Not all our systems are fully redundant and our natural disaster recovery plans cannot account for all eventualities. Natural disasters of this kind or operators of facilities we use deciding to shut down for ﬁnancial reasons without reasonable notice and/or other unexpected problems at our data centres could lead to prolonged interruptions to our services. Technology risk It is conceivable that technologies will be developed that block or suppress the display of our advertising on the Internet. Most of our revenues are generated in such a manner that advertising customers pay for their advertising to appear on websites. Technologies designed to block or suppress Internet advertising could thus have an adverse effect on our operating results. For instance, major players in the market such as the mobile operators or the providers of application ecosystems such as Apple and Google may decide to introduce ad blockers to their systems. These could seriously obstruct the delivery of advertisements to users of mobile apps and thus harm the business of the ad pepper Group. In addition to the dedicated risk management system outlined above, the following elements also serve to identify risks within the Group: • Operational planning, including updated intra-year forecasts • Quarterly ﬁnancial statements Internal risk management and control system • Monthly and quarterly reporting by subsidiaries (comparing target and actual results) to the Group The ad pepper Group is managed by a Board of Directors and Supervisory Board appointed by the General Meeting. The Supervisory Board responsibility is the oversight of the risk management system. Consistent with the requirements of the Dutch Corporate Governance Code, the Company has established a procedure for reporting actual or suspected irregularities within the Company and its afﬁliated enterprises. In addition, the Board of Directors has developed and implemented strategies, controls and mitigation measures to identify current and developing risks as part of the risk management system. Risk management policies and procedures are embodied in our Corporate Governance, Code of Conduct, and ﬁnancial reporting controls and procedures. A variety of functional experts evaluate these business risks and aim to mitigate and manage these risks on an ongoing basis. In general, the market for Internet advertising is characterised by rapid technological change, developing industry standards, frequent introduction of new products and services, and changing customer behaviour. The introduction of new products and services, and the emergence of new industry standards can render existing products and services obsolete and impossible to sell or require unexpected investment in new technology. Our success will depend on our ability to adapt to rapid technological changes, to improve existing solutions, and to develop and launch a host of new solutions in order to meet our customers’ and partners’ continuously changing demands. Advertising customers, for instance, are increasingly demanding online advertising networks and advertising that go beyond pure stills, integrating “rich media”, such as audio and video, interactivity and methods for more accurately targeted consumer contacts. In addition, in order to be successful, our network infrastructure must be efﬁcient and reliable. The higher the user frequency and the complexity of our products and services, the more CPU performance we will need. We have invested heavily in acquiring and leasing data centres and equipment and updating our technology and the infrastructure of our network in order to cope with growing trafﬁc and the launch of new products and services, and we expect to continue doing so. These investments are costly and complex and can lead to efﬁciency losses or downtime. If we fail to expand successfully or if efﬁciency losses or downtime occur, the quality of our products and services as well as customer satisfaction could suffer. This could damage our reputation and result in a loss of existing and potential customers, advertising clients, and members of our network. Cost increases, a lower frequency of use on the part of our partners in the advertising network, failure to adapt to new technologies, or changed business requirements could adversely affect our revenue and ﬁnancial strength. RISK CLASSIFICATION Risks are classiﬁed as operational, strategic, ﬁnancial risks, compliance and assessed according to their probability of occurrence and their potential ﬁnancial impact. The major risks for each classiﬁcation are described below: Identiﬁed risks are divided into four types: OPERATIONAL RISK • Catastrophic (loss of ability to achieve business objectives, e.g. worst-case scenario) Our systems do not support all types of advertising formats. Equally, certain website operators within our network do not accept all of the advertising formats offered by us. Moreover, a further increase in fast and powerful Internet access could generate new products and services which are only possible with increasing bandwidth. If we fail to successfully adapt to such developments, there is a risk that we could lose customers and/or parts of the advertising space marketed by us. We procure most of the software used at our Company externally and we plan to continue buying technologies from third- party suppliers in future as well. We cannot deﬁnitively say whether • Major (reduced ability to achieve business objectives) • Moderate (disruption to normal planning with a limited effect on achievement of business strategy and objectives) • Low (no material impact on the achievement of business strategy and objectives) Infrastructure risk Our products and services are dependent on users having access to the Internet and in some cases also require substantial bandwidth. This access is at present made available by companies that have signiﬁcant and growing inﬂuence on the market for broadband and Internet access, such as telephone companies, cable companies, and mobile communication providers. Some of these providers could start adopting measures to interrupt or impair user access to certain products, or they We also use other IT suppliers, including data centres and broadband providers. Any disturbance in network access or colocation services by these providers, or their inability to process current or larger data volumes could seriously damage our business. Furthermore, ﬁnancial or other difﬁculties on the part of our providers could have an adverse impact on our business. We have witnessed interruptions and delays in these services and in these the availability of IT infrastructure 57 58 04.5 RISK REPORT 04.5 RISK REPORT such technologies will continue to be available in future either at all rely in part on publishers for controls with respect to such activities. If fraudulent or other malicious activity is perpetrated by others, and the Group fails to detect or prevent it, the affected advertisers may experience or perceive a reduced return on their investment resulting in dissatisfaction with the Group’s solution, refusal to pay, refund demands or loss of conﬁdence of advertisers or publishers and ultimately withdrawal of future business. Market risk STRATEGIC RISK or on commercially reasonable terms. It is also possible that the trend towards marketing online advertising space via automated so-called ad exchanges will intensify further. By establishing and optimising demand-side platforms (DSPs) and/or supply-side platforms (SSPs), online networks such as the ad pepper Group may in future lose further relevance or even lose the basis of their business operations. We may also encounter problems which delay or prevent the successful design, development, introduction, or marketing of new solutions. Any solutions or improvements newly developed by us will have to fulﬁl the requirements of our present customers and prospective clients, and there is a risk that these will not meet with the desired acceptance on the market. If we fail to keep pace with technological developments and the launch of new industry standards at a reasonable cost, there is a risk that our expenditure will increase and that we will lose customers and advertising space. Our offering for advertisers and web publishers on the Internet covers products and services where pricing is largely based on cost per action (CPA), cost per lead (CPL), cost per download (CPD), cost per thousand impressions (CPM), or cost per click (CPC). Every ﬁeld of our business is exposed to strong competition, mainly from large media and/ or performance (digital) agencies or other advertising and afﬁliate networks offering similar online services and products. Beside this group of companies, we also compete with search engine providers, social media channels and marketplaces, such as Google, Facebook and Amazon, as well as large ad exchanges, i.e. marketplaces in which advertising space is auctioned in real time, similar to other market exchanges. Apart from this, we also compete with traditional advertising channels, such as direct marketing, TV, radio, cable, and print media, which are all striving to win a share of the total advertising budget for themselves. Personnel risk Our future success is to a signiﬁcant degree dependent on the continued service of the (single) member of our Board of Directors. If we lose the service of the (single) member of the Board of Directors, we may not be able to recruit suitable or qualiﬁed replacements and may incur additional expenses to recruit and train new staff, which could severely disrupt our business and growth. Intellectual property rights risk Our patents, trademarks, business secrets, copyrights, and other intellectual property rights constitute important assets for us. Various events beyond our control constitute a potential risk for our intellectual property rights. The same applies to our products and services. In general, highly qualiﬁed employees and management staff form the basis of any company’s long-term economic success. Retaining employees at the Company on a long-term basis is a factor of the utmost importance for the ad pepper Group, as is attracting new, highly qualiﬁed employees. Any departure of large numbers of these employees over a short period and subsequent inability to ﬁnd adequate replacements may inhibit the Company’s business performance. Speciﬁcally, the Company cannot guarantee that it will be able to retain key top performers in the event of any further intensiﬁcation in the competition for highly qualiﬁed employees, especially in the IT and Internet sectors. Effective protection of intellectual property may not be available in every country where our products and services are distributed or offered via the Internet. Furthermore, the efforts which we have made to protect our property rights may be insufﬁcient or ineffective. Any signiﬁcant impairment of our intellectual property rights can adversely affect our business or our competitiveness. Moreover, the protection of our intellectual property rights is costly and time-consuming. Any increase in the unauthorised use of our intellectual property could lead to increased administrative costs and work, and adversely affect our results. Although we aim to obtain protection for our intellectual property, it is conceivable that we may not be able to adequately protect some of our innovations. Moreover, in view of the often considerable costs of patent and/or intellectual property protection, we may refrain from protecting certain innovations and/or intellectual property which could prove to be important at a later date. Moreover, the number of people accessing the Internet using devices other than PCs, including mobile phones, PDAs and e-mail assistants, as well as TV receivers, has grown dramatically in recent years. If we do not succeed in future in securing an appropriate number of users of alternative devices and gaining the loyalty of these users for our products and services, or if we are too slow in developing products and technologies compatible with communication devices other than PCs, we will miss out on an increasingly important share of the market for online services. Many existing and potential advertisers have competitive advantages over our Company due to such factors as longer company histories, higher public awareness levels, larger customer bases, better access to popular websites and signiﬁcantly larger resources in terms of staff, ﬁnance, equipment, sales and marketing. These companies use their experience and resources in competition with us in different ways, such as pursuing more active M&A strategies, investing more in research and development, or competing more aggressively for advertising customers and websites. If our competitors succeed in offering similar or better services or more relevant advertising, this could lead to a signiﬁcant loss of advertisers and web publishers and hence adversely affect our revenues. A lack of qualiﬁed and motivated personnel could negatively impact our development and growth, increase our costs and harm our reputation. We face competition for qualiﬁed personnel, for example those in IT and marketing positions. In addition, to attract or retain qualiﬁed personnel, we might have to offer more competitive compensation packages and other beneﬁts, which could lead to higher personnel costs. Cybercrime, hacking, identity theft and risk of fraud Increasing international networking and the related possibility of IT system abuse are resulting in cybercrime risks for the ad pepper Group, such as the failure of central IT systems, the disclosure or loss of the data integrity of conﬁdential data from business activities, the manipulation of IT systems in process control, or an increased burden or adverse impact on IT systems as a result of virus attacks. In addition, complications with the changeover of IT systems could negatively impact the earnings situation. Cyber incidents, in general, may cause disruption and impact business operations, potentially resulting in ﬁnancial losses, impediments of trading, violations of applicable privacy and other laws, regulatory ﬁnes, penalties, reputational damage, reimbursement of other compensation costs, or additional compliance cost. Likewise, there is a risk to the Group’s business (or parts thereof) if any or all of Google, Amazon, Facebook and other relevant players (i) cease to be a market leader in the online advertising industry (ii) were subject to adverse publicity or action impeding its provision of advertising services and infrastructure (iii) were to cease to regard the Group as a preferred partner (iv) were to expand its operations such that it competed directly with the Group or (v) otherwise ceased to be available as a technology provider to the Group. Moreover, Google recently announced that third-party cookies would be blocked in Chrome by 2022. As a result, third-party cookies will become effectively unusable for advertising measurement and many forms of third-party data already challenged by GDPR since May 2018, will cease to exist. While we expect the vast majority of our services and products to be unaffected, it can therefore not be excluded, that some of our business activities will not work beyond 2022. Unless we adapt to these changes, these businesses will be negatively affected. We try to mitigate this risk through personnel development programmes in the respective segments as well as incentive systems. Supporting this is an established, thorough annual review process from which we derive individually tailored and future-variable qualiﬁcation programmes as well as performance-related remuneration systems. It is also possible that the scope of patent and/or intellectual property protection could turn out to be insufﬁcient or that a previously granted patent is deemed to be invalid or non-enforceable. Furthermore, as our Company grows, there is a growing probability that lawsuits related to intellectual property issues will be ﬁled against us. Our products, services, and technologies may fail to fulﬁl the demands of third parties, and irrespective of their validity, defending such claims can be time-consuming and costly, whether in or out of court. Furthermore, in the event that claims against us are successfully upheld, it we may have to pay signiﬁcant damages, or discontinue services or practices, which may result in be violations of third-party rights. We may also need to obtain licenses to continue our existing business operations; this may also involve considerable additional costs. In addition, the ad pepper Group continues to closely monitor the development around COVID-19. The wellbeing of our employees and partners is our highest priority in this situation. Since early March 2020 we have encouraged all employees to work from home and continued to do so in 2021 which works out well given the nature of our business. Also, for the current business year, we do not expect major disruptions caused by COVID-19 in that respect. In addition, the Group may be subject to fraudulent and malicious activities undertaken by persons seeking to use its platforms to divert or artiﬁcially inﬂate the buyer purchases through its platform, mainly through fraudulently generated advertising impressions overstating the performance of advertising impressions. As we do not own content, we 59 60 04.5 RISK REPORT 04.5 RISK REPORT In addition, the possibility of in-house handling of advertising network Platform risk Should we fail to successfully handle these risks and uncertainties, this Currency risk functions can represent a possible risk for the ad pepper Group both at the level of the attractiveness of its offering vis-à-vis advertisers as well as to its negotiating power vis-à-vis the providers of online advertising inventory. could have signiﬁcantly adverse consequences for our revenue as well as our asset and ﬁnance position, see also Note [40]. The Group’s revenue growth depends partly on the ability to develop a reliable, scalable, secure, high-performance technology infrastructure that can efﬁciently handle increased usage globally. The platforms are scalable in principle. However, only the actual future expansion of the business will prove whether there is enough business available and the platforms scales well enough to cover the ﬁxed cost base that has been built. Inability to develop a scalable platform may have signiﬁcantly adverse consequences for our revenue as well as our asset and ﬁnance position. Since the ad pepper Group conducts a signiﬁcant share of its business outside the euro area, exchange rate ﬂuctuations can have a signiﬁcant impact on results. Currency risks from ﬁnancial instruments can impact accounts receivable, accounts payable, as well as cash and cash equivalents in a currency other than a company’s functional currency. For the ad pepper Group, the currency risk from ﬁnancial instruments is particularly relevant for GBP and, to a lesser extent, USD. No ﬁnancial instruments are used to hedge currency risks. Risks of our M&A strategy Finally, online advertising markets are characterised by rapid technological change, the establishment of new industry standards, regular launches of new products and services, and rapidly changing customer requirements. The introduction of new products and services based on innovative technologies and the resultant establishment of new industry standards could mean that our existing products and services become obsolete and unsellable, thus forcing us to make unforeseen and unplanned investments. Insufﬁcient ﬂexibility in adapting to these changes can have adverse effects on our revenue, ﬁnance and asset position. Historically, part of our Company’s growth has resulted from mergers and acquisitions, and we will continue to consider acquisitions in future as well. Furthermore, we will continually review our portfolio of shareholdings to assess whether company acquisitions might be appropriate. Every acquisition or sale can have material consequences for our revenue and ﬁnancial position. Furthermore, the integration of an acquired business or technology can cause unforeseen operational problems, expenditure, and risks. Areas in which we may face risks in this context include: Tax risk Our future income tax payments may be adversely affected by lower- than-expected proﬁts in jurisdictions with lower tax rates and higher proﬁts in jurisdictions with higher tax rates. If the valuation of our deferred tax receivables and payables changes this could also mean additional tax expenditure. FINANCIAL RISK In general, we expect our sales growth to decline over the course of time as a result of base effects and increasingly tough competition. We also expect growing pressure on our operating margins as a result of increasingly tough competition and a general increase in expenditure in other areas of our business. Furthermore, the margin could fall as a result of our Company having to pay a higher share of our advertising revenue to our website partners within our website portfolio and/or afﬁliate network. • implementation or modiﬁcation of controls, Low proﬁtability processes, and strategies of acquired businesses • diversion of management attention away We are exposed to risks that could prevent us from generating net proﬁts in the future. These risks depend on several factors, including our ability to: from other business matters Furthermore, the determination our tax provisions and other tax liabilities worldwide is a highly complex process, and in many instances the ﬁnal amount of tax to be paid is uncertain. Although we consider our estimates to be realistic, the actual tax result can differ from the amounts shown in our ﬁnancial statements and signiﬁcantly inﬂuence our ﬁnancial results in the period or periods to which such tax assessment applies. Our tax liability forecast can be examined by the responsible tax authorities at any time. Any negative outcome of such an examination can have an adverse effect on our ﬁnancial, revenue, and asset situation. Additionally, all of our tax positions are subject to changes in tax laws, regulations, jurisdiction as well as tax-related accounting standards and their interpretations. • overvaluation of businesses acquired, acceptance of the acquired business‘s products and services by our customers • cultural problems associated with the integration of the staff of acquired businesses into our Group • maintain and expand our existing advertising space on websites of publishers and afﬁliates, owners of e-mail lists and newsletter publishers • continued employment of staff companies which we acquire • integration of the accounting, management, and information systems as well as of the human resources administration and other administration systems of acquired businesses. • maintain and increase the number of advertising customers who use our products and services Dependency risk • increase the number of products and services we offered • adjust to changes in needs and habits of online advertising customers, also with a view to the technologies in demand on the market The ad pepper Group and its segments have signiﬁcant customer concentration, in terms of both advertisers and publishers (website owners), so economic difﬁculties or changes in the purchasing policies or patterns of its key customers could have a signiﬁcant impact on the ad pepper Group’s business and operating results. While the concentration of our business on a relatively small number of customers may provide certain beneﬁts to us, such as potentially more efﬁcient handling / decreased cost of sales, this concentration may expose the ad pepper Group to a material adverse effect if one or more of our large customers were to signiﬁcantly reduce their business with us for any reason, or to favour competitors or new entrants. Customers do not make binding long-term commitments to the ad pepper Group regarding booking volumes and could seek to materially change the terms of their business relationship at any time. Any such change could signiﬁcantly harm the ad pepper Group’s business and operating results. The integration of companies, products and personnel can constitute a considerable burden to our management and our internal resources. Acquisitions of foreign companies, in particular, are subject to additional risks. These include risks associated with integrating companies with different cultures and languages, exchange rate risks, and other country-speciﬁc economic, political and legal risks. In view of the number of acquisitions which we have completed in past years, the different customers and technological functionalities of the products and services acquired, future acquisitions may pose signiﬁcantly bigger challenges with respect to products, sales, marketing, customer support, research and development, buildings, information systems, accounting, human resources and other integration aspects, and may delay or threaten the complete integration of the businesses acquired. • respond to challenges resulting from the large and growing number of competitors in the industry • adapt to legal or regulatory changes with a view to the Internet as far as these concern use, advertising, and trade • achieve sales targets for partners with whom we have agreed minimum guarantees New accounting standards The International Accounting Standards Board (IASB) or other organisations may publish new or revised directives, interpretations, or other guidelines which could inﬂuence International Financial Reporting Standards (IFRS). As a result, it may happen that an accounting rule is adopted for which no rules previously existed, or that an accounting rule previously open for interpretation is declared to be generally valid. It is also conceivable that valid methods may be replaced entirely. Such IFRS-related changes can have a signiﬁcant impact on our ﬁnance, revenue and asset positions. Moreover, inability to adopt new accounting standards in time may severely damage our reputation. • generate revenue from services in which we have invested signiﬁcant time and resources • give priority to long-term goals over short-term results when necessary • adapt to technological changes designed to obfuscate or block online advertising on desktop PCs or mobile devices • adapt to changes in the competitive environment • achieve sufﬁcient proﬁtability and reputation in the market on the basis of our investments in new technologies and related products/services. Likewise, divestment of companies and/or businesses can lead to liability vis-à-vis the buyer, or additional expenses, for instance through indemnity clauses and guarantee commitments or long-term supply contracts. 61 62 04.5 RISK REPORT 04.5 RISK REPORT Liquidity and cash ﬂow risk Capital risk Although such technologies exist, they are far less effective than COMPLIANCE RISK cookies. Furthermore, we would have to develop or buy new technologies in order to prevent fraud in our networks. Replacing cookies could become time-consuming and requires considerable investment. Their development could turn out to be economically pointless or it may not be possible to implement them early enough in order to prevent the loss of customers or advertising space. The use of cookie technology or a comparable technology to collect information about Internet usage patterns may lead to lawsuits or investigations in future. Furthermore, many jurisdictions have detailed provisions concerning both the collection of personal data and the use of such data for direct marketing campaigns. All of the Company’s liquid funds and short-term marketable securities are essentially managed by ﬁnancial institutions. Based on the development of our business, the liquidity of ad pepper media International N.V. can at present be regarded as secure and, despite future investment in new companies, sufﬁcient to meet all future payment obligations. A moderate decline in liquid funds may arise if further investments are required in the future. Furthermore, the Company is dependent upon its customers’ payment discipline. Our receivables are typically unsecured and result from sales which are predominantly generated with customers based in Europe. The Company checks its customers’ creditworthiness on an ongoing basis and has made provisions for potential cases of default. Finally, negative developments on the capital markets can restrict our ability to obtain ﬁnancing. The past economic and ﬁnancial crisis during 2008/2009 led to certain restrictions on the availability of corporate ﬁnance and created a scenario such as that outlined above. Looking ahead, it is not possible to completely exclude future restrictions on our liquidity situation, especially in the case of a return to a scenario described above. Should one or more ﬁnancial institution go bankrupt in such a scenario, this may have severe consequences for the Company’s assets and ﬁnancial position. The price of our share at times experienced considerable ﬂuctuation since its initial listing and will continue remain volatile in the future. The share price may move rapidly in response to factors beyond our control, including: Governance risk Besides operational and ﬁscal risks, our business activity harbours a wide range of legal risks. Legal disputes and other proceedings may cause considerable damage to our business, our reputation or our brands, and entail high costs. We are subject to a variety of laws and regulations, many of which are not yet ﬁrmly established or are still developing. This includes wide-reaching legislation covering consumer protection, data protection, e-commerce and competition. Antitrust and competition claims or investigations may also require changes to our business operations. Any such risks are counteracted by internal and external law experts who thoroughly examine all contractual and regulatory matters. We endeavour to fulﬁl our obligations through constant monitoring and by avoiding conﬂicts arising from the violation of third-party rights or breach of regulatory provisions. No substantial litigation risks currently exist within the ad pepper Group. • ﬂuctuations in our quarterly results or in the results of our competitors • announcements of company sales and takeovers, new products, major contracts, business relationships or provision of capital • recommendations by equity analysts or changed proﬁt expectations • publication of proﬁts inconsistent with analysts’ expectations • number of shares outstanding Since December 1st the so-called Telecommunications Telemedia Data Protection Act (Telekommunikation-Telemedien-Datenschutz-Gesetz, TTDSG) is applicable replacing the data protection requirements in the Telemedia Act. The TTDSG introduces a strict cookie opt-in requirement very much in line with the preconditions in the EU Privacy and Electronic Communications Directive. Prior to this the German High Court has outlined in 2020 consent requirements for storing cookies on devices following a decision of the European Court of Justice on this issue. According to these decisions, companies need consent for storing cookies on user devices irrespective whether this Cookie-ID is personal data or not. These verdicts are the main reason why the German legislator has introduced a strict consent requirement for storing data in an end-user’s device. All in all, this leads to stricter data protection requirements that may have a negative impact on our business model. Namely, the upcoming European ePrivacy-Regulation may introduce stricter requirements. If adopted, such regulations would have a thorough impact on our business model. • share sales by us or our shareholders • short-selling, hedging or other derivative transactions with shares Furthermore, the stock market in general and the market for technology companies in particular have witnessed extreme share price and trading volume ﬂuctuations often unrelated or disproportionate to the operational performance of these companies. These general market and industry factors can seriously damage the price of our share irrespective of our actual performance. Data risk Websites usually install small ﬁles with an ID to identify a user, generally called “cookies”, on a device. Cookies usually collect information about users so that websites can adapt their contents to user needs. Lower (or volatile) share prices may lead to an inability to attract strong long-term investors and limit our ability to raise new equity and attract key personnel. Working capital risk The Group’s operating results and cash ﬂow vary from quarter to quarter due to the seasonal nature of advertising spending. In contrast to the higher advertising budgets spent during the fourth quarter, the third quarter of the calendar year is typically the slowest in terms of advertising spend (summer quarter). This affects the Group’s operating results, cash ﬂow and cash requirements. In addition, digital advertising spend is volatile and unpredictable. In periods of lower advertising spending this may have a material adverse effect on the Group’s revenue. Similarly, if faced with spikes in advertising spend and trafﬁc, the Group’s platforms must be able to support increased trafﬁc volumes and variety of advertising formats whilst maintaining a stable and effective infrastructure and reliable service to customers. This ﬂexibility and stability require signiﬁcant investments in both the Company’s organisation and technology, which increase the cost base. The Internet user’s browser software forwards the cookie information to the website. Our business depends on the use of cookies to track the trafﬁc of Internet users on the websites of our advertising customers, and to monitor and prevent fraud in our networks. Most of the latest Internet browsers enable Internet users to change their browser settings to prevent the storage of cookies on their hard disks. Internet users can also remove cookies from their hard disks at any time. In addition, in the past, lawsuits have been ﬁled against such companies after times of high price ﬂuctuations on the overall market or in individual shares. In the event that such lawsuits are ﬁled against us, this could lead to signiﬁcant costs and distract management time and resources. Furthermore, we depend on an easy way to transfer personal data from the EU to UK. At the end of June 2021 the European Commissions adopted an adequacy decision for the United Kingdom under GDPR. This decision facilitates a data transfer between EU and UK. Otherwise, our clients will have to agree on Standard Contractual Clauses to legalise a data transfer to UK. The duration of this decision is limited to four years. As the UK-Government has already announced to review the UK- GDRP and to lower burdens for companies it is yet unclear whether this adequacy decision has a bright future. Finally, as of 31 December 2021, EMA Electronic Media Advertising International B.V., one of the Company’s founding shareholders, owns shares representing around 44 percent of the share capital and typically more than 80 percent of the voting rights at the General Meeting. For the foreseeable future, EMA Electronic Media Advertising International B.V. will therefore continue to have signiﬁcant inﬂuence on the management and on all matters requiring approval by the shareholders, including the election of board members, important Company transactions, such as mergers or the sale of the Company as a whole or in part. This concentration of control limits our shareholders’ ability to inﬂuence Company matters and affects the liquidity of the ad pepper share traded on the stock exchange. In view of this, we may implement measures that our shareholders do not deem expedient. This in turn may have a lasting negative impact on our share price. According to the General Data Protection Regulation (“GDPR”), which came into effect in May 2018 in Europe, and to the EU Privacy and Electronic Communications Directive, consent of data subjects is required for storing information like cookies for tracking or targeting purposes on an end-user’s device. Therefore, the effectiveness of our technology may be impaired by regulations limiting or prohibiting the use of cookies. Furthermore, on the basis of the requirements set up by data privacy regulators, software manufacturers may provide new Internet browsers bearing default settings where cookies are not accepted and the user has to actively change such settings to accept cookies (“privacy by default“). If the use or effect of cookies were restricted, we would have to switch to other technologies in order to collect geographic or behaviour-related information. Although we abide by the applicable laws in the different jurisdictions, we cannot rule out the possibility that changes in legislation may have signiﬁcant repercussions for our business models and revenues. Any litigation or governmental action against us could become costly and time-consuming, or compel us to change our business practice and divert management attention away from other business ﬁelds. 63 64 04.5 RISK REPORT 04.5 RISK REPORT In addition, the regulatory environment in Europe is ever changing. More generally, from time to time we are or may become involved in private actions, investigations and various other legal proceedings by employees, suppliers, competitors, government agencies or others. Failure to comply with laws and regulations can damage our reputation and have negative ﬁnancial and operational consequences. As far as strategic risks are concerned, we try to mitigate the personnel As far as compliance risks are concerned as the Group is growing in a complex and rapidly changing environment and is in an ongoing process of establishing and improving its processes, regulatory violations may occur. Management’s risk appetite is generally low and matters of substantial signiﬁcance are also reviewed with the Supervisory Board through the two-tier board structure. The ad pepper Group is committed to complying with the laws and regulations of the countries in which we operate. However, with the General Data Protection and ePrivacy Regulation, compliance obligations and ﬁnancial penalties for noncompliance are increasing signiﬁcantly. Should the risk materialise, it would have a very high, potentially critical impact. We mitigate the risk by working with well-established external partners such as tax, legal and audit advisors in all countries we are operating, as well as building in-house capabilities through training and qualiﬁcation measures for existing staff. With the GDPR, which came into effect in May 2018 in Europe, as well as the EU e-commerce Directive, compliance obligations and ﬁnancial penalties for non-compliance are increasing signiﬁcantly and could potentially harm our business. The ad pepper Group has set up working groups in close cooperation with its external data protection ofﬁcer to continuously identify adjustment needs to ensure compliance with GDPR requirements. Nevertheless, the security measures which have been or will be implemented may not be effective, and ad pepper’s systems may be vulnerable to theft, loss, damage or interruption from a number of potential sources or events, including unauthorised access or security breaches, cyber-attacks, computer viruses, power loss, or other disruptive events. The ad pepper Group may not have the resources or technical sophistication to anticipate or prevent rapidly evolving forms of cyber-attacks. risk by providing attractive remuneration package, creation of a positive working environment and structured individual development plan. We try to manage the dependency risks and platform risks by building and maintaining customer relationships. We develop online advertising strategies and regularly monitor progress for existing clients and identify and build relationships with new customers. In general, management addresses market risks by actively monitoring the developments and evaluating the actual exposure to these risks. This includes participation in industry events, gaining information from analysts and research ﬁrms as well as creating business cases for new product developments. The ad pepper Group has a track record of identifying market changes early and investing into winning products and services ahead of time. We will, however, not pursue growth at all costs and expect sufﬁcient margins. We will primarily pursue organic growth strategies to meet our growth objectives. We aim for sufﬁcient operating margins whilst protecting the long-term viability of the Group. In general, management’s risk appetite in this ﬁeld is moderate. RISK APPETITE This section highlights those risks that the Group is willing to take, as well as those that are unacceptable. It includes a series of risk assertions which are aligned to our strategy, together with the risk parameters within which we expect to work. The Group operates in markets with high growth potential that are subject to volatility and intense competition. We will pursue ambitious growth targets and we are willing to accept certain levels of risk to increase the likelihood of achieving or exceeding our strategic objectives, subject to the parameters below. Moreover, GDPR not only imposes new compliance obligations regarding the handling of personal data, it has also signiﬁcantly increased ﬁnancial penalties for non-compliance. Failure to comply with GDPR may lead to regulatory enforcement proceedings, which can result in monetary penalties of up to 20 percent of worldwide revenue, orders to discontinue certain data processing operations, private lawsuits, or reputational damage. If any person, including any of our employees, negligently disregards or intentionally breaches our established controls with respect to client or ad pepper data, or otherwise mismanages or misappropriates that data, we could be subject to signiﬁcant litigation, monetary damages, regulatory enforcement proceedings, ﬁnes and/or criminal prosecution in one or more jurisdictions. These monetary damages may not be subject to contractual limit of liability or exclusion of consequential or indirect damages and could be substantial. In addition, our liability insurance may not cover us against claims related to security breaches, cyber- attacks or other breaches. The following overview table shows a summary of risk type and respective risk appetite: Risk category Risk Appetite In the ﬁeld of ﬁnancial risks, management addresses the low proﬁtability risk mainly through transparency and the permanent review process in connection with monthly results, forecasting and budgeting. In the event of M&A, a dedicated programme management team will be established for the accelerating shareholder value creation transformation. Through strong due diligence processes and closely managed integration processes, we seek to reduce the probability of M&A-related risk. Currency risks, on the other hand, are sought to be minimised through natural hedging by increasing the Company’s cost base in EUR. As far as Brexit uncertainty and political instability, in general, is concerned, the breadth of our service portfolio and our geographic reach help to mitigate our exposure to any particular localised risk. We monitor proposed changes in taxation legislation and new accounting standards to ensure these are taken into account when we consider our future business plans. We try to manage the working capital risk by increasing and diversifying our client base in a way, which allows us to become less dependent on fourth quarter gross sales. While the Group continues to be independent on external funding, the risk of not ﬁnding these funds is not regarded as imminent. Matters of substantial signiﬁcance are also reviewed with the Supervisory Board through the two-tier board structure. Management realises that the expansion of the business does require some risk taking and evaluates its risk appetite as medium. Management therefore estimates this overall ﬁnancial risk to be low. Operational risk Infrastructure risk Moderate Moderate Low The Board’s appetite for risk varies depending on the risk type. The Group measures risk by estimating the potential for loss of proﬁt, staff turnover and reputational damage. The Board has a low tolerance for ﬁnance- and compliance-related risk. Conversely, it has a higher tolerance for operational and strategic risk: Technology risk Cybercrime, hacking, identity theft and risk of fraud Intellectual property rights risk Low Operational risks are managed through the ongoing budgeting, forecasting and reporting process as well as training activities to constantly improve and update employees’ skills. Infrastructure risks are mitigated by regular backups, redundant server structures and moving to the cloud. To reduce fraud risk, anti-fraud teams are tasked with identifying unusual patterns, ideally in the design phase of advertising campaigns. Strategic risk Financial risk Personnel risk Low Market risk Low Dependency risk Platform risk Moderate Moderate Low Low proﬁtability Risks of our M&A strategy Currency risk Violations of other legal requirements Low The cost of these measures and control systems must be commensurate with the beneﬁts achieved. Management generally considers the likelihood of risks in the operational and technology area as moderate while evaluating the ﬁnancial impact of each event depending on the speciﬁc risk ﬁeld. Management’s risk appetite in this ﬁeld is moderate and we seek to mitigate risks through contracts, service level agreements, insurance and cooperation with established partners. Moderate Low The aim of compliance is to ensure irreproachable business conduct at all times and in all respects. Any failure to fulﬁl legal requirements and report obligations, any violation of the Corporate Governance Code or insufﬁcient management transparency may pose a risk to the required compliance. For this reason, the ad pepper Group established a Group-wide Code of Conduct as well as an insider trading policy, which provides for the safety and support of employees in various professional situations. Despite comprehensive measures taken within the realignment of the compliance programme and our compliance organisation, it is impossible for us to protect us against all risks. Tax risk New accounting standards Liquidity and cash ﬂow risks Working capital risk Capital risk Low Low Moderate Low Compliance risk Governance risk Low Data risk Low Violations of other legal requirements Low 65 66 04.5 RISK REPORT 04.5 RISK REPORT In the past ﬁnancial year, the ad pepper Group and its external data EVALUATION OF RISK MANAGEMENT SYSTEM EFFECTIVENESS OPPORTUNITIES AND OUTLOOK privacy ofﬁcer worked closely to ensure fulﬁlment of the obligations imposed by the European legislator through the GDPR. Regular meetings were held and results presented to the Board of Directors as well as the Supervisory Board. In 2021, the ad pepper Group achieved record revenues along with a satisfying level of proﬁtability. Driven by a solid growth, we generated consolidated revenue of EUR 27,646k and EBITDA of EUR 4,378k. The ongoing digital transformation, focusing on the right customers with the right set of services and products and thanks to the hard work of around 250 staff members helped once again achieving one of the best ﬁnancial performances in the Company’s history, second only to the unprecedented business year 2020. The ad pepper Group operates an information protection management system based on ISO 27001 comprising security guidelines as well as organisational and technical measures to prevent and address IT security incidents. Also in 2021, ad pepper Group also implemented regular cyber security awareness trainings for all Group staff due to higher frequency of so-called fake-president-fraud attempts. The Group repeatedly pointed out that no employees, including Management Board members, are allowed to ask for payments/money transfers via email and nobody in the Group is allowed to circumvent the four-eyes- principle. As mistakes are always possible, the Company is aware that there is a risk that an employee might execute a payment within the maximum available overdraft limit. The ad pepper Group’s long-term strategy is focused on creating value for our shareholders and stakeholders through proﬁtable growth. In implementing this strategy, the Company has evaluated the relevant operational, strategic, ﬁnancial and compliance risks as well as the risks and opportunities of future market trends for e-commerce in general and for digital advertising providers in particular. The Board of Directors is responsible for identifying and managing risks with appropriate measures. Signiﬁcant issues are also reviewed with the Supervisory Board through the two-tier board structure. Internal controls have a high priority and are continuously assessed and further improved. Separation between executive and controlling functions and compliance with directives and operating instructions are an integral part of the internal control system and no risk with a signiﬁcant impact were identiﬁed. The risk management and internal control systems, however, provide absolute assurance that errors, fraud losses, or unlawful acts will not occur. During the 2021 ﬁnancial year, no signiﬁcant shortcomings were found in the internal risk management and control system, and no risk with a signiﬁcant impact were identiﬁed. From a current perspective, we foresee no risks that, even in conjunction with other risks, could threaten the continued existence of the ad pepper Group. Please also refer to the disclosure on page 77 in the Consolidated Financial Statements. As mentioned before, we believe digitalisation is an ongoing, unstoppable trend. The digital transformation further accelerated and is an inevitable requirement for most businesses in order to generate growth and stay competitive. Most of our clients are B2C e-commerce clients who are continuously investing in digital solutions and looking for partners who can help achieve their business goals. This is a unique and tremendous opportunity for our Group. However, negative effects on the wider market based on the spread and impact of COVID-19 and its variants cannot be excluded and may be outside of the Company’s inﬂuence. The ﬁnancial years 2020 and – to a lesser degree – also 2021 showed a substantial increase in user time spent on the Internet and on mobile devices along with increased e-commerce transactions and volumes, as outlined above. But some industries remain negatively impacted by the pandemic, e.g. travel/leisure as well as industries highly dependent on functioning supply chains like – for instance – the automotive industry. In addition, despite substantial advances in vaccine production and development, a dampening of consumer conﬁdence and more cautious customer purchasing behaviour in an environment of overall lower growth and higher inﬂation cannot be excluded in the short to mid-term. We are convinced that risk management has to be part of the mindset and working methods of our staff, and retaining control is of prime importance to us. The Company continued to work on optimising its risk management and internal control systems in 2021 while acknowledging that such systems cannot offer absolute assurance against errors of material importance. The Board of Directors is conscious that the Company does not yet have an internal audit function and has discussed this with the Supervisory Board. After an in-depth discussion the Board of Directors and the Supervisory Board concluded that the Company does not currently require an internal audit function, although this may change in future depending on further company growth. From its evaluations, the Board of Directors concludes that the risk management system as well as the control of the business processes and the internal control within the Company are sufﬁcient, professional, appropriate and effective. The Board of Directors is of the opinion that the risk management system with its controls and processes provides an adequate level of assurance on the reliability of ﬁnancial information and control information in accordance with relevant laws and regulations. All in all, we are optimistic to achieve solid growth also in the year 2022. For our organic growth strategy, no additional ﬁnancing is needed given the strong balance sheet. We will continue to hire new staff, invest in new products, services and markets. We will concentrate on lucrative customer groups, as well as on broadening and diversifying these customer groups, which was key also in the past ﬁnancial year. 67 68 « 04.6 RESPONSIBILITY STATEMENT 04.6 04.6 RESPONSIBILITY STATEMENT RESPONSIBILITY STATEMENT RESPONSIBILITY STATEMENT In accordance with the EU Transparency Directive, as incorporated in Chapter 5.1A of the Dutch Financial Supervision Act (Wet op het ﬁnancieel toezicht), the Board of Directors declares that, to the best of its knowledge: • The Consolidated Financial Statements for the year ended 31 December 2021 give a true and fair view of the assets, liabilities, ﬁnancial position and proﬁt or loss of ad pepper media International N.V. and its consolidated companies. • The report of the Board of Directors gives a true and fair view of the position as of the balance sheet date and the state of affairs during the 2021 ﬁnancial year of ad pepper media International N.V. and its afﬁliated companies, of which the data has been included in the Consolidated Financial Statements. • The report of the Board of Directors describes the principal risks that ad pepper media International N.V. faces. Board of Directors ad pepper media International N.V. Dr Jens Körner, CEO Nuremberg, 29 March 2022 71 72 « 05 CONSOLIDATED FINANCIAL STATEMENTS 05 05 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED INCOME STATEMENT CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 1/1 - 31/12/2021 1/1 - 31/12/2020 1/1 - 31/12/2021 1/1 - 31/12/2020 Note [6] kEUR kEUR kEUR kEUR Gross sales1 111,593 101,344 Net income 2,564 4,341 Media cost2 [8] -83,947 27,646 -1,059 26,587 -15,739 -7,707 530 -75,729 25,615 -928 Other comprehensive income Revenue Items that may be reclassiﬁed subsequently to proﬁt or loss: Currency translation differences Cost of sales [8] 236 -6 -232 18 Gross proﬁt 24,687 -13,411 -7,108 1,514 -234 Revaluation of listed debt securities Other comprehensive income, net of tax Total comprehensive income Selling and marketing expenses General and administrative expenses Other operating income Other operating expenses Operating proﬁt [9] [10] [11] [12] 230 -214 4,127 677 2,794 839 Attributable to non-controlling interests Attributable to shareholders of the parent company -477 1,955 3,450 3,194 78 5,448 5 Financial income [13] [13] Financial expenses -116 -121 Income before taxes Income taxes 3,156 -592 5,332 -991 [14] Net income 2,564 1,725 839 4,341 3,664 677 attributable to shareholders of the parent company attributable to non-controlling interests Basic earnings per share on net income for the year attributable to shareholders of the parent company [15] [15] 0.08 0.08 0.17 0.17 Diluted earnings per share on net income for the year attributable to shareholders of the parent company Weighted average number of shares outstanding (basic) Weighted average number of shares outstanding (diluted) [15] [15] 20,735,183 20,977,243 21,004,055 21,135,862 1 2 Gross sales represent the total amount billed and billable to clients by the Group, net of discounts, VAT and other sales-related taxes. Disclosure of gross revenue information is not re- quired under IFRS; however, it is voluntarily disclosed from 1 January 2018 onwards in the Consolidated Income Statement as management has concluded that the information is useful for users of the ﬁnancial statements. Please refer to Note [6]. Media cost relates to payments made to suppliers of ad inventory (commonly referred to as media buys and publishers). Disclosure of media cost information is not required under IFRS; however, it is voluntarily disclosed from 1 January 2018 onwards in the Consolidated Income Statement as management has concluded that the information is useful for users of the ﬁnan- cial statements. Please refer to Note [8] 75 76 05 05 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF FINANCIAL POSITION – ASSETS CONSOLIDATED STATEMENT OF FINANCIAL POSITION – EQUITY AND LIABILITIES 31/12/2021 31/12/2020 31/12/2021 31/12/2020 Note kEUR kEUR Note kEUR kEUR Non-current assets Intangible assets Equity attributable to shareholders of the parent company Issued capital [16], [17] [17] 628 346 737 412 [25] [26] [27] 1,075 63,782 -46,182 18,675 1,413 1,075 63,782 -45,176 19,681 1,157 Property, plant and equipment Right-of-use assets Share premium [41] 1,177 3,057 391 1,568 1,012 394 Reserves Listed debt and marketable securities Other ﬁnancial assets Total non-current assets Current assets [18] Total [19] Non-controlling interests Total equity [28] 5,599 4,123 20,088 20,838 Non-current liabilities Deferred tax liabilities Other liabilities Trade receivables [20] [21] [22] [23] [24] 19,319 398 19,727 340 [14] 81 865 946 31 1,211 1,242 Other receivables [29], [41] Income tax receivables Other ﬁnancial assets Cash and cash equivalents Total current assets Total assets 306 292 Total non-current liabilities Current liabilities Trade payables 26 29 20,704 40,753 46,352 24,330 44,718 48,841 [30] [31] 20,247 446 20,738 273 Contract liabilities Other liabilities [2], [32], [40] [33], [41] [14] 2,286 1,609 730 2,841 2,090 819 Other ﬁnancial liabilities Income tax liabilities Total current liabilities Total liabilities 25,318 26,264 46,352 26,761 28,003 48,841 Total equity and liabilities 77 78 05 05 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF CASH FLOWS 1/1 - 31/12/2021 1/1 - 31/12/2020 1/1 - 31/12/2021 1/1 - 31/12/2020 Note kEUR kEUR Note kEUR kEUR Net income 2,564 4,341 Net cash ﬂow from/used in operating activities Purchase of intangible assets and property, plant and equipment Proceeds from sale of intangible assets and property, plant and equipment Proceeds from sale of securities 2,208 3,300 Adjustments for: [16], [17] [11], [12] -299 57 -787 10 Depreciation and amortisation Gain/loss on sale of ﬁxed assets Share-based compensation Gain/loss on sale of securities and other investments (after bank charges) Other ﬁnancial income and ﬁnancial expenses Income taxes [16], [17], [41] [11], [12] [38] 1,184 -10 1,111 -9 0 0 371 5 271 0 Purchase of securities -1,999 -2,241 87 -994 [18], [13] Net cash ﬂow from/used in investing activities Issuance of shares -1,771 163 33 116 991 -611 -735 -82 [14] 592 -982 -195 -981 2,581 354 -82 Payment of lease liabilities [41] [28] -757 -763 Income from the release of accrued liabilities Other non-cash expenses and income Cash settlement of stock option plans Gross cash ﬂow [11], [37] Purchase of treasury shares -2,576 -583 -1,141 -455 Dividends to non-controlling interests [38] [20] [30] Net cash ﬂow from/used in ﬁnancing activities Net decrease/increase in cash and cash equivalents Cash and cash equivalents at beginning of period Effect of exchange rates on cash and cash equivalents Cash and cash equivalents at end of period -3,829 -3,862 24,330 236 -2,196 -667 5,393 -4,865 -273 2,904 677 30 Change in trade receivables Change in other assets 25,229 -232 Change in trade payables 528 -472 268 -931 78 [23] 20,704 24,330 Change in other liabilities Income taxes received Income taxes paid -450 5 Interest received Interest paid -116 -121 79 80 05 05 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 2021 Balance at 1/1/2021 Proﬁt for the period Other comprehensive income Total comprehensive income Share-based payment Dividends Purchase of treasury Cash settlement of SOP's shares Issuance of shares Balance at 31/12/2021 Note [25] Issued capital (kEUR) Share premium (kEUR) Reserves 1,075 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1,075 [26] [27] 63,782 63,782 Treasury reserve (kEUR) For employee stock option plans (kEUR) Accumulated deﬁcit (kEUR) -2,417 2,663 0 0 0 0 0 0 0 0 164 0 0 0 0 -2,576 0 0 87 0 -4,906 2,827 [38] [2] 0 0 -44,051 1,725 1,725 -636 0 -42,962 Currency translation basis of preparation differences (kEUR) -1,389 18 0 0 236 -6 236 -6 0 0 0 0 0 0 0 0 0 0 0 -1,153 12 [18] [28] Revaluation of listed debt securities (kEUR) Subtotal reserves (kEUR) -45,176 1,725 230 1,955 164 -2,576 -636 87 -46,182 Equity attributable to shareholders of the parent company (kEUR) 19,681 1,157 1,725 839 230 0 1,955 839 164 0 0 -583 -583 -2,576 0 -636 0 87 0 18,675 1,413 Non-controlling interests (kEUR) Total equity (kEUR) 20,838 2,564 230 2,794 164 -2,576 -636 87 20,088 81 82 05 05 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 2020 Balance at 1/1/2020 Proﬁt for the period Other comprehensive income Total comprehensive income Share-based payment Dividends Purchase of treasury Cash settlement of SOP's shares Issuance of shares Balance at 31/12/2020 Note [25] Issued capital (kEUR) 1,075 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1,075 [26] [27] Share premium (kEUR) 63,782 63,782 Reserves Treasury reserve (kEUR) -1,438 2,558 -47,715 -1,157 0 0 0 0 0 0 0 0 105 0 0 0 0 0 0 0 -1,142 0 0 0 0 0 0 163 0 -2,417 2,663 [38] [2] For employee stock option plans (kEUR) Accumulated deﬁcit (kEUR) Currency translation differences (kEUR) Revaluation of listed debt securities (kEUR) Subtotal reserves (kEUR) 0 3,664 0 0 3,664 -232 18 0 0 -44,051 -1,389 18 -232 18 0 0 0 0 [18] 0 0 0 -47,751 3,664 -214 3,450 105 -1,142 163 -45,176 Equity attributable to shareholders of the parent company (kEUR) 17,105 935 3,664 677 -214 0 3,450 677 105 0 0 -455 -455 -1,142 0 0 0 0 163 0 19,681 1,157 [28] Non-controlling interests (kEUR) Total equity (kEUR) 18,040 4,341 -214 4,127 105 -1,142 163 20,838 83 84 « 06 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 06 06 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS This report includes the reports from the Board of Directors and the Consolidated Group Summary of new accounting policies CORPORATE INFORMATION [1] Supervisory Board, Consolidated Financial Statements, Company Financial Statements and other information. The subsidiaries included in consolidation are as follows: The following further amendments, improvements and interpretations to existing standards require ﬁrst-time application in the ﬁnancial year beginning 1 January 2021: The Consolidated Financial Statements of ad pepper media International N.V. (the “Company”) for the year ended 31 December 2021 were authorised for issue by the Board of Directors on 29 March 2022. ad pepper media International N.V. is a public company incorporated in the Netherlands , domiciled at Frankenstrasse 150 C, 90461 Nuremberg , Germany and is the ultimate parent and controlling party of the ad pepper Group (the “Group”). The Company’s shares are publicly traded under WKN 940883 (ISIN NL0000238145) on the Prime Standard of the Frankfurt Stock Exchange. The business activities of ad pepper media International N.V. involve holding investments in other entities whose objective is to market advertising space on the internet and providing services for the subsidiaries. Since its formation, the Group has been geared towards acting ﬂexibly to meet the requirements of a whole range of different markets as an international Group. Entity 31/12/2021 31/12/2020 Statement of compliance • Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 “Interest Rate Benchmark Reform” (Phase 2) (publication: November 2020): The objective of the second phase of the Board’s project was to assist entities in providing useful information about the effects of the transition to alternative benchmark rates. The amendments affect the following key areas: changes in the basis for determining the contractual cash ﬂows, hedge accounting and disclosures and had no impact on the Consolidated Financial Statements. Share in percent Share in percent The Consolidated and Company Financial Statements of ad pepper media International N.V. and its subsidiaries have been prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union (EU), in conjunction with Part 9 of Book 2 of the Dutch Civil Code. The same accounting principles may be applied in the Company’s Financial Statement and the Consolidated Financial Statements. If the accounting principles of the Company’s Financial Statements differ from the accounting principles applied in the Consolidated Financial Statements, this is disclosed. ad pepper media GmbH, Nuremberg, Germany 100 100 100 65 100 100 100 65 ad pepper media France S.A.R.L., Paris, France ad pepper media USA LLC, New York, USA ad pepper media Spain S.A., Madrid, Spain • Amendments to IFRS 4 Insurance Contracts – deferral of IFRS 9 (publication: December 2020): The new standard, effective for reporting periods beginning on or after 1 January 2021 replaces IFRS 4 Insurance Contracts and has no impact on the Group. • Amendment to IFRS 16 Leases COVID-19 Related Rent Concessions (publication October 2020): On 28 May 2020, the IASB issued the COVID-19-Related Rent Concessions - amendment to IFRS 16 Leases. These amendments provide relief to lessees from applying IFRS 16 guidance on lease modiﬁcation accounting for rent concessions arising as a direct consequence of the COVID-19 pandemic. As a practical expedient, a lessee may elect not to assess whether a COVID-19 related rent concession from a lessor is a lease modiﬁcation. A lessee that makes this choice accounts for any change in lease payments resulting from the COVID-19 related rent concession the same way they would account for the change under IFRS 16, if the change were not a lease modiﬁcation. The amendment had a minor impact on the Consolidated Financial Statements. Webgains S.L., Madrid, Spain 65 65 Basis of consolidation The ad pepper Group is an international provider of interactive products and services for websites and advertisers. The Company currently markets campaigns and websites worldwide and operates from eleven ofﬁces in Europe. The ad pepper Group uses state-of-the-art technology to link thousands of small, medium and large websites to form a top- quality advertising network with global reach and a precise focus on its target groups. In addition to a regional, national and international marketing presence, website partners receive a large number of other important products and services such as trafﬁc analysis and performance optimisation, provided by the ad pepper Group and its afﬁliated entities in a localised form. Webgains Ltd., London, United Kingdom 100 60 100 60 The Consolidated Financial Statements comprise the ﬁnancial statements of ad pepper media International N.V. and its subsidiaries as at 31 December each year. The ﬁnancial statements of the subsidiaries are prepared for the same reporting year as those of the parent company, using consistent accounting policies. Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. All business combinations are accounted for under the acquisition method. In accordance with this method, the purchase price has been allocated to the fair value of the interest held in the net assets of the consolidated subsidiaries at the time of acquisition. ad agents GmbH, Herrenberg, Germany ad agents AG, Pontresina, Switzerland 60 60 Webgains Italy S.r.l., Milan, Italy 100 100 100 100 100 0 Webgains GmbH Nuremberg, Germany Webgains B.V., Amsterdam, Netherlands Refer to Note [4]. ACCOUNTING PRINCIPLES [2] In doing so, all identiﬁable assets, liabilities and contingent liabilities are recognised at fair value and measured accordingly in the consolidated balance sheet. Following adjustments to the fair values of assets acquired and liabilities assumed, any resulting positive difference is capitalised in the balance sheet as goodwill. Situations in which the fair value of net assets is greater than the purchase price paid result in a negative difference. In the event that such difference remains following reassessment of the allocation of the purchase price or determining the fair value of acquired assets, liabilities and contingent liabilities, this is recognised immediately as income. The proportion of assets, liabilities and contingent liabilities of the subsidiary applicable to non-controlling interest is also recognised at fair value. All intra-group balances, transactions, income and expenses, and proﬁts and losses resulting from intra-group transactions that are recognised in assets are eliminated in full. Basis of preparation Changes in accounting policies and estimates The Consolidated Financial Statements have been prepared on a historical cost basis, except for employee beneﬁt liabilities, which have been measured at fair value. The Consolidated Financial Statements are presented in EUR. All values are rounded up or down to the nearest thousand euro (kEUR) or million euro (mEUR) except where indicated otherwise. Due to rounding, individual ﬁgures may not add up exactly to the totals stated. Based on the requirements of the Dutch Civil Code, a full Annual Report comprises reports from the Board of Directors and the Supervisory Board, Consolidated Financial Statements, Company Financial Statements and other information. The accounting policies adopted in the preparation of the Group’s annual Consolidated Financial Statements are consistent with those followed in the preparation of the Group’s annual Consolidated Financial Statements for the year ended 31 December 2020 except for the adoption of new standards effective as of 1 January 2021. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective. Several amendments and interpretations apply for the ﬁrst time in 2021, but do not have an impact on the Consolidated Financial Statements of the Group. 87 88 06 06 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS New amendments and interpretations requiring application in ﬁnancial A) Judgements For the measurement of the fair value of equity-settled transactions with Transactions of foreign currencies are initially recorded at the functional currency rate applicable at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange applicable at the balance sheet date. All differences are applied as either proﬁt or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate applicable on the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rate applicable on the date when the fair value was determined. years beginning after January 2021: employees at the grant date, the Group uses a Monte Carlo simulation model. For cash-settled share-based payment transactions, which have been reclassiﬁed from equity-settled stock options, the liability must be remeasured at the end of each reporting period up to the date of settlement, with any changes in fair value recognised in proﬁt or loss. The assumptions and models used for estimating fair value for share- based payment and cash-settled transactions are disclosed in Note [38]. Preparing the ﬁnancial statements in accordance with the IFRS requires the Group management to make judgements in respect to the recognised amounts of revenue in all three operational segments. The Company assesses its revenue arrangement in its business units against speciﬁc criteria in order to determine if it is acting as principal or agent. The factors speciﬁed by IFRS 15 indicate that the Group does not control services before they are transferred to customers. Therefore, the Group determined that it is an agent in all its customer contracts and is recognising its revenue on a net basis, consequently excluding media cost owed to delivery partners from revenue and cost of sales respectively. • Amendments to IFRS 16 “COVID-19-Related Rent Concessions beyond 30 June 2021“: The original amendment was issued on 28 May 2020 and was intended to apply until 30 June 2021, but as the impact of the COVID-19 pandemic is continuing, the IASB extended the period of application of the practical expedient to 30 June 2022. This amendment is not expected to have an impact on the Group. • Amendments to IFRS 3 Business Combinations (updating a reference without signiﬁcant changes to its requirements); IAS 16 Property, Plant and Equipment (changes regarding proceeds from items produced), IAS 37 Provisions (changes regarding costs a company should include as the cost of fulﬁlling an onerous contract), Contingent Liabilities and Contingent Assets (changes regarding costs a company should include as the cost of fulﬁlling an onerous contract) and Annual Improvements 2018-2020. These amendments are not expected to have an impact on the Group. Deferred tax assets Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable proﬁt will be available, against which the losses can be utilised. Signiﬁcant management judgement is required to determine the amount of deferred tax assets that can be recognised, based on the likely timing and level of future taxable proﬁts together with future tax planning strategies. Further information is presented in the note on incomes taxes (Note [14]). As at the reporting date, the assets and liabilities of those subsidiaries that have a functional currency other than the EUR are translated into the presentation currency of ad pepper media International N.V. (EUR) at the rate of exchange applicable at the balance sheet date, and their income statements are translated at the weighted average exchange rates for the year. The exchange differences arising from the translation are applied directly to other comprehensive income. On disposal of a foreign entity, the deferred cumulative amount recognised in other comprehensive income relating to that particular foreign operation is recognised in the income statement. B) Estimates and assumptions The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date that have a signiﬁcant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next ﬁnancial year are discussed below. • Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2: Disclosure of Accounting Policies. These amendments are effective on 1 January 2023 and their impact on the Group is currently under evaluation. Leases – Estimating the incremental borrowing rate The Group cannot readily determine the interest rate implicit in the lease contracts for ofﬁces and cars. Therefore, it uses its incremental borrowing rate (IBR) to measure lease liabilities. The IBR is the rate of interest that the Group would have to pay to borrow over a similar term and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The IBR therefore reﬂects what the Group “would have to pay”, which requires estimation when no observable rates are available. The Group estimates the IBR using the market interest rate provided by its bank. Accrued liabilities The signiﬁcant foreign currency exchange rates developed as follows: • Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates an Errors: Deﬁnition of Accounting Estimates. These amendments are effective on 1 January 2023 and their impact on the Group is currently under evaluation. In measuring accrued liabilities for afﬁliate credits not yet disbursed in the Webgains segment, reference has been made to assumptions determined with the assistance of various controlling and reporting tools. Based on various evaluations, the ad pepper Group assesses the disbursement of credits for conﬁrmed transactions that have not been called up more than one year after the closure of the programme as well as of credits of inactive publishers as unlikely and has reduced the accrued liability by the resultant amounts. Foreign currency per EUR 1 Closing rate Closing Average Average rate rate rate 31/12/21 31/12/20 2021 2020 • IFRS 17 Insurance Contracts including Amendments to IFRS 17. These amendments are effective on 1 January 2023 and will not have any impact on the Group. USD GBP CHF 1.334 0.8393 1.0363 1.2281 0.9031 1.0857 1.1886 0.8776 1.2278 1.1250 0.8874 1.0826 Signiﬁcant accounting judgements, estimates and assumptions The provision for expected credit losses of trade receivables An impairment analysis is performed at each reporting date using a matrix to calculate expected credit losses (ECL) for trade receivables. The provision is initially based on the Group’s historical observed default rates and potentially adjusted with forward-looking information. At every reporting date, the historical observed default rates are updated, changes in the forward-looking estimates and evidence for impairment are analysed. Property, plant and equipment In the application of the Group’s accounting policies, which are described below in Note [3], the directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Judgements, estimates and assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date have been applied in particular to the assessment of revenue from contracts with customers (Note [5]), accrued liabilities for outstanding afﬁliate payments (Note [30]), incremental borrowing rates of right-of-use liabilities (Note [41]), the provision for expected credit losses of trade receivables (Note [40]), share based payments (Note [38]) and on the measurement of deferred tax assets on losses carried forward (Note [14]). SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [3] Property, plant and equipment are stated at historical cost, excluding the costs of day-to-day servicing, less accumulated depreciation and accumulated impairment in value. Subsequent costs are included in the asset’s carrying value or recognised as separate asset, as appropriate, only when it is probable that future economic beneﬁts associated with the line item will ﬂow to the Group and the cost of the item can be reliably measured. Depreciation is calculated on a straight-line basis over the useful life of the assets. The estimated useful lives of the assets are between three and ten years. An item recorded under property, plant and equipment is derecognised on disposal or when no future economic beneﬁts are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement in the year the asset is derecognised. Foreign currency translation Share based payments Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model, which depends on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model including the expected life of the share option or appreciation right, volatility and dividend yield, and assumptions about them. The Consolidated Financial Statements are presented in EUR, which is the Company’s functional and presentation currency. Each entity in the Group determines its own functional currency, and items included in the ﬁnancial statements of each entity are measured using that functional currency. 89 90 06 06 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Intangible assets Lease liabilities Impairment of non-ﬁnancial assets Investments and other ﬁnancial assets At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include ﬁxed payments (including in-substance ﬁxed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate. Variable lease payments that do not depend on an index or a rate are recognised as expenses (unless they are incurred to produce inventories) in the period in which the event or condition that triggers the payment occurs. In calculating the present value of lease payments, the Group uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reﬂect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modiﬁcation, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset. The Group’s lease liabilities are included in other long-term and short-term other ﬁnancial liabilities. Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is the fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. All intangible assets have ﬁnite lives and are amortised using the straight- line method over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset are reviewed at least at each ﬁnancial year-end. Gains or losses arising from derecognising an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the income statement when the asset is derecognised. The Group assesses at each reporting date whether there is an indication that a non-monetary asset (property, plant and equipment; intangible assets, right-of-use assets) may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of the fair value of the asset or cash-generating unit less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inﬂows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash ﬂows are discounted to their present value using a pre-tax discount rate that reﬂects current market assessments of the time value of money and the risks speciﬁc to the asset. In determining fair value less costs to sell, an appropriate valuation model is used. The valuation model is based on a discounted cash ﬂow method. Financial assets within the scope of IFRS 9 Financial Instruments are classiﬁed and subsequently measured at fair value through proﬁt or loss, amortised cost, or fair value through OCI, as appropriate. The classiﬁcation of ﬁnancial assets at initial recognition depends on the ﬁnancial asset’s contractual cash ﬂow characteristics and the Group’s business model for managing them. In order for a ﬁnancial asset to be classiﬁed and measured at amortised cost or fair value through OCI, it needs to give rise to cash ﬂows that are “solely payments of principal and interest (SPPI)” on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at instrument level. The Group’s business model for managing ﬁnancial assets refers to how it manages its ﬁnancial assets in order to generate cash ﬂows. The business model determines whether cash ﬂows will result from collecting contractual cash ﬂows, selling the ﬁnancial assets, or both. For purposes of subsequent measurement, ﬁnancial assets are classiﬁed in four categories: Leases The Group assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identiﬁed asset for a period of time in exchange for consideration. The Group applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Group recognises lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets. Impairment losses are recognised in the income statement in those expense categories consistent with the function of the impaired asset. For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group makes an estimate of the recoverable amount. • Financial assets at amortised cost (debt instruments) • Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments) • Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon derecognition (equity instruments) Short-term leases and leases of low-value assets The Group applies the short-term lease recognition exemption to its short-term leases of ofﬁce space and cars (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low- value assets recognition exemption to leases of ofﬁce equipment that are considered to be of low value. Lease payments on short-term leases and leases of low value assets are recognised as expense on a straight-line basis over the lease term. • Financial assets at fair value through proﬁt or loss A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If this is the case, the carrying amount of the asset is increased to its recoverable amount. This increased amount shall not exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised on the asset in prior years. Such reversal is recognised in proﬁt or loss unless the asset is carried at a revalued amount, in which case the reversal is treated as a revaluation increase. Impairment losses recognised for goodwill are not reversed for subsequent increases in its recoverable amount. Currently the most relevant to the group categories are: Right-of-use assets The Group recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right- of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets, as follows: • Financial assets at amortised cost (debt instrument), which includes trade receivables • Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments) • Financial assets at fair value through proﬁt or loss Research and development costs Research costs are expensed as incurred. An intangible asset resulting from the development of an individual project is only capitalised when it cumulatively meets the criteria for recognition stipulated in IAS 38. During the period of development, the asset is tested for impairment annually. Following the initial recognition of the development expenditure, the cost model is applied requiring the asset to be carried at cost less any accumulated amortisation and accumulated impairment losses. Amortisation of the asset begins when development is complete and the asset is available for use. Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognised in proﬁt or loss when the asset is derecognised, modiﬁed or impaired. • Ofﬁce space 1 to 5 years • Vehicles 3 years Other receivables Financial assets at fair value through other comprehensive income are carried in the statement of ﬁnancial position at fair value with net changes in fair value recognised in the other comprehensive income. This category includes listed debt investments. Other receivables consist mainly of security deposits made for rental agreements. Upon initial recognition, other receivables are measured at fair value. Subsequently, they are measured at amortised cost, after deduction of any write-downs. A write-down is applied when objective indications suggest that the receivable may not be fully collectible. If ownership of the leased asset transfers to the Group at the end of the lease term or the cost reﬂects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset. The right-of-use assets are also subject to impairment. 91 92 06 06 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS A ﬁnancial asset is primarily derecognised (i.e., removed from the When actions such as insolvency or comparable proceedings have been initiated or other substantial indications that receivables are impaired become apparent like a deterioration of the payment behaviour, the receivables are individually tested for impairment (stage 3 of the impairment model). All receivables more than 90 days overdue are tested for impairment. Impaired debts are written off when they are deemed uncollectable. In the reporting year, bad debt allowance on trade receivables was applied at a rate of 50 percent after 120 days overdue, 75 percent after 240 days overdue, and 100 percent after one year overdue. However, in certain cases the Group may also consider a ﬁnancial asset to be uncollectable when external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full, before taking into account any credit enhancements held by the Group. Where discounting is used, the increase in the provision due to the Cash-settled transactions Group's consolidated statement of ﬁnancial position) when: passage of time is recognised as a ﬁnance cost. Accrued liabilities are obligations to pay for goods or services received or delivered that have neither been paid, nor invoiced by the suppliers. Even though estimates are occasionally required to determine the amount or timing of accrued liabilities, the degree of uncertainty is generally much lower than for provisions. Accrued liabilities are recognised under trade payables. A liability is recognised for the fair value of cash-settled transactions. The fair value is measured at modiﬁcation date and at each subsequent reporting date up to and including the settlement date, with changes recognised in employee beneﬁts expense in proﬁt or loss. • The rights to receive cash ﬂows from the asset have expired or Revenue from contracts with customers • The Group has transferred its rights to receive cash ﬂows from the asset or has assumed an obligation to pay the received cash ﬂows in full without material delay to a third party under a 'pass-through' arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. The Group is in the business of providing performance marketing services, in which third parties provide services to its customers. When another party provides goods or services to its customers, the Group determines whether it is a principal or an agent in these transactions by evaluating the nature of its promise to the customer. The Company has concluded that it is acting as an agent in all of its revenue arrangements, as its role is restricted to arranging a third party that supplies ad inventory to deliver the ad to the end customer. Consequently, the Group records revenue at the net amount that it retains for its services, which is limited to campaign management, while media cost for ad inventory used is excluded from the revenue deﬁnition. For further explanations, please refer to Note [2]. Contract liabilities A contract liability is recognised if a payment is received or a payment is due (whichever is earlier) from a customer before the Group transfers the related goods or services. Contract liabilities are recognised as revenue when the Group performs under the contract. When the Group has transferred its rights to receive cash ﬂows from an asset, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Group continues to recognise the transferred asset to the extent of its continuing involvement. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reﬂects the rights and obligations that the Group has retained. The carrying amount of the asset is reduced through use of an allowance account. The amount of the loss is recognised in proﬁt or loss. If the amount of the impairment loss decreases in a subsequent period and the decrease can be related objectively to an event occurring after the recognition of impairment, the impairment loss previously recognised is reversed. Any subsequent reversal of an impairment loss is recognised in proﬁt or loss to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date. Financial liabilities Financial liabilities are liabilities that must be settled in cash or other ﬁnancial assets. Based on their nature, ﬁnancial liabilities are measured at amortised costs and are derecognised upon settlement or cancellation. Revenue from contracts with customers is recognised when the service is rendered. Depending on the requirements of the speciﬁc product, this usually occurs when successful transactions result from user action (CPA), ad impressions are generated (CPC) or personal data is provided (CPL). Gross sales represent the total amount billed and billable to clients by the Group, net of discounts, VAT and other sales-related taxes. Disclosure of gross sales information is not required under IFRS, however, it is voluntarily disclosed in the Consolidated Income Statement, as management has concluded that the information is useful for users of the ﬁnancial statements. Share-based payment transactions Fair value Treasury shares The fair value of investments that are actively traded in organised ﬁnancial markets is determined by reference to quoted market bid prices at the close of business on the balance sheet date. For investments where there is no active market, fair value is determined using valuation techniques. Such techniques include using recent arm’s length market transactions; reference to the current market value of another instrument which is substantially the same; discounted cash ﬂow analysis or other valuation models. If the fair value of an unquoted equity instrument cannot be measured reliably, it is carried at cost. Equity-settled transactions The Group’s own equity instruments that are repurchased (treasury shares) are deducted from equity. No gain or loss is recognised in the income statement on the purchase, sale, issue, or cancellation of the Group’s own equity instruments. Employees (including senior executives) of the Group receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments (“equity-settled transactions”). The cost of equity-settled transactions with employees is measured by reference to the fair value at the date on which they are granted. The fair value is determined by an external value using an appropriate pricing model, further details of which are given in Note [40]. The cost of equity-settled transactions (remuneration cost) is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulﬁlled, ending on the date on which the relevant employees become fully entitled to the award (the “vesting date”). As all performance obligations have an original expected duration of less than one year and meet the requirement of the right to invoice practical expedient in IFRS 15.B16, the Company does not disclose the amount of the remaining performance obligations. Cash and cash equivalents Cash and cash equivalents in the statement of ﬁnancial position comprise cash at banks and in hand. For the purpose of the consolidated cash ﬂow statement, cash and cash equivalents consist of cash and cash equivalents as deﬁned above. Impairment of ﬁnancial assets carried at amortised cost Rendering of services Webgains The Group recognises an allowance for expected credit losses (ECL) for all debt instruments not held at fair value through proﬁt or loss. For trade receivables and contract assets, the Group applies a simpliﬁed approach in calculating ECL in line with IFRS 9. A default on receivables expected over the respective term (stage 2 of the impairment model) is determined for trade accounts receivable based on historical default rates for a respective customer portfolio, adjusted for forward-looking factors speciﬁc to the debtors and the economic environment, based on segment and geographic allocation. The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reﬂects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The income statement charge or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period. The dilutive effect of outstanding options is reﬂected as additional share dilution in the computation of earnings per share (further details are provided in Note [15]). Revenue in this segment is generated by placing the merchant’s advertising on publishers’ websites (afﬁliate marketing). By using the Webgains technology platform, appropriate publishers are selected for placement of the advertisements on websites likely to drive trafﬁc back to the merchant’s website and consequently enhance the merchant’s transaction values. The merchant pays us on a cost-per-action basis (CPA), which means that the merchant only pays when successful transactions result from the trafﬁc. The price billed to the merchant consists of an override and a commission. The override is considered the amount the Group is entitled to for its services. Provisions and accrued liabilities Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outﬂow of resources embodying economic beneﬁts will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation although the respective due date or amount is still uncertain. If the effect of the time value of money is material, long-term provisions are discounted using a current pre-tax rate that reﬂects, where appropriate, the risks speciﬁc to the liability. 93 94 06 06 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The commission is the amount paid to our publishers and is excluded Interest income BUSINESS COMBINATIONS [4] under IFRS 15 from the revenue deﬁnition. Consequently, commission to publishers is also not included in the Group’s cost of sales. The contractual agreement provides the customer with a recall period, where every occurred transaction can be cancelled within a certain period. Interest income is recognised as it accrues using the effective interest rate method. As in 2020, no business combinations occurred in the 2021 ﬁnancial year. The following subsidiaries have been incorporated in 2021: Current income tax Depending on the industry the transaction occurred in, the recall periods range from 30 days in the fashion and beauty industry up to 360 days for insurance, travel and mobile sales. Based on historical data, the Group calculates at year-end the amount to be recognised as return assets and refund liabilities for transactions in the recall period. Current taxes are determined on the basis of annual earnings with due reference to national tax rates and tax legislation in the various tax jurisdictions valid as of the balance sheet date. Current income tax relating to items recognised directly in other comprehensive income is only recognised there and not in the income statement. Country of Incorporation Date of Incorporation Date of Capital Contribution Date of Commercial Register Entry Webgains B.V. Netherlands 18 November 2021 28 December 2021 18 November 2021 ad pepper Revenue in the ad pepper segment is generated by marketing internet advertising space. Advertising customers book units (ad impressions, ad clicks, registrations, mail-outs, transactions) via the Company, and these are then supplied over a period deﬁned by the customer. ad pepper customers pay us on the basis of cost per click (CPC), cost per lead (CPL) or cost per impression (CPM). All of the three billing methods consist of media costs owed to ad pepper’s delivery partners and a service charge as an amount levied by the Group for its services. The media cost is the amount paid to the delivery partners and is excluded under IFRS 15 from the revenue deﬁnition. Consequently, media costs are also not included in the Group’s cost of sales. Deferred income tax Deferred income tax is provided using the liability method on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for ﬁnancial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences, except for goodwill, whereon the recognition is not permitted. Deferred income tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable proﬁt will be available against which the deductible temporary differences and the carry forward of unused tax credits and unused tax losses can be utilised. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufﬁcient taxable proﬁt will be available to allow all or part of the deferred income tax asset to be utilised. In cases in which the campaign starts before the balance sheet date and lasts beyond this date, revenue is accounted proportionately based on the stage of completion at the end of the reporting period. Stage of completion is determined as the proportion of the costs incurred until the end of the reporting period in the total costs of the campaign, which can be reliably estimated. Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable proﬁt will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Deferred income tax relating to items recognised directly in other comprehensive income is only recognised there and not in the income statement. Deferred income tax assets and deferred income tax liabilities are offset if there is a legally enforceable right to set off current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority. ad agents Revenue in the ad agents segment is mainly generated by providing search engine advertising. In these contractual agreements with clients where search engine providers are contracted by ad agents, and on its behalf the amounts billed to customers consist of media costs owed by ad agents to the search engine providers and a fee as a percentage of the media cost, the Group levies for its services. In other contractual arrangements, the search engine provider enters a direct contractual agreement with ad agents’ client, so that media costs are not invoiced by ad agents but are charged from search engine provider to client directly. In this case, the amount billed to the customer consists only of the fee as a percentage of the media cost. In both cases, the Group is only entitled to the service charge as a percentage of the media budget. Media costs billed to clients and owed to search engine providers for indirect billing agreements do not constitute revenue according to IFRS 15 and are consequently excluded from cost of sales. 95 96 06 06 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Contract balances As all ads are placed on third-party ad inventory properties, the Group REVENUE FROM CONTRACTS WITH CUSTOMERS [5] has no control over the advertising inventory before it is transferred to our customers, with the Group acting as an agent in all contractual arrangements. 31/12/21 31/12/20 Disaggregated revenue information kEUR kEUR Webgains The following is a breakdown of the Group’s revenue from contracts with customers, which is based on the invoicing country: Contract liabilities 272 273 The performance obligation is satisﬁed over time and occurs when successful transactions result from trafﬁc. Contracts with clients are generally concluded for periods of 12 months or less. The invoicing is transaction-based and is carried out monthly. Contract liabilities include short-term advances received from customers during 2021 to render SEA (Search Engine Advertising) services in the ad agents segment. For the year ended 31 December 2021 The contract provides the customer with a recall period, in which any transaction can be cancelled within a certain period. Depending on the industry, the recall periods range from 30 days in the fashion and beauty industry and up to 360 days for insurance, travel and mobile sales. Based on historical data, at year-end the Group calculates the amount to be recognised as return assets and refund liabilities for transactions in the recall period. As at 31 December 2021 and 31 December 2020, the Group’s calculation resulted in amounts that have no material impact on the revenue recognised in the ﬁnancial year. Segments ad pepper Webgains ad agents Total Performance obligations kEUR kEUR kEUR kEUR Geographical markets Germany Information about the Group’s performance obligations is summarised below: 2,262 0 2,648 10,480 1,775 639 7,197 0 12,107 10,480 3,450 United Kingdom Spain ad pepper 1,675 0 0 Service orders received from clients in accordance with framework agreements are generally short term in nature. The performance obligation is satisﬁed over time and usually occurs when the user provides personal data or when an impression is generated on the user’s device. Revenue therefore accrues each time the ad is displayed or personal data is entered by the user. Clients are invoiced monthly for the service delivered during the month based on the agreed transaction price multiplied by the delivered amounts. Payment is generally due within 14 days of invoicing. Other 970 8,167 1,609 As all performance obligations have an original expected duration of less than one year and meet the requirement of the right to invoice practical expedient in IFRS 15.B16, the Company does not disclose the amount of the remaining performance obligations. Revenue 3,937 15,542 27,646 For the year ended 31 December 2020 Segments ad pepper Webgains ad agents Total SEGMENT REPORTING [6] kEUR kEUR kEUR kEUR As all ads are placed on third-party ad inventory properties, the Group has no control over the advertising inventory before it is transferred to its customers, with the Group acting as an agent in all contractual arrangements. Geographical markets Germany 3,487 0 2,364 9,102 1,228 526 7,064 12,915 9,102 3,072 526 IFRS 8 requires entities to report ﬁnancial and descriptive information on their reportable segments. Reportable segments are operating segments or aggregations of operating segments that meet speciﬁc criteria. Operating segments are components of an entity for which separate ﬁnancial information is available that is evaluated regularly by the chief operating decision-maker in deciding how to allocate resources and in assessing performance. United Kingdom Spain 0 0 1,844 0 ad agents Service orders received from clients in accordance with annual framework agreements are generally short term in nature. The performance obligation resulting from each service order is satisﬁed over time and occurs when the user clicks on the phrase created and placed by ad agents on search engines. The customer pays on a CPC basis, which means that the customer pays ad agents only when a user clicks on the ad in the search engine. Clients are invoiced monthly for the services provided during the month as a percentage fee of the media budget used during the month or in case of indirect billing contracts as media budget used for third-party delivery partners plus a percentage fee of the media budget. The payments are due within 0 to 90 days from invoicing. Other 0 Revenue 5,331 13,220 7,064 25,615 Includes USA, which was presented separately in prior years. Generally, ﬁnancial information must be reported on the same basis as it is used internally for evaluating operating segment performance and deciding how to allocate resources to operating segments. Financial information reported to the Group’s chief operating decision- maker for the purposes of resource allocation and assessment of segment performance is focused on the category Segment proﬁt, reﬂecting the EBIT (Earnings before interest and taxes) or EBITDA (Earnings before interest, taxes, depreciation and amortisation) earned by each segment as stipulated by the IFRS. 97 98 06 06 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS This is the measure reported to the chief operating decision-maker for the purposes of resource allocation and assessment of segment performance. The basis of accounting for intersegment transactions is the “dealing at arm’s length” principle. Financial year 2021 ad pepper Webgains ad agents Admin Intersegment elimination Group Financial year 2020 ad pepper Webgains ad agents Admin Intersegment elimination Group kEUR kEUR kEUR kEUR kEUR kEUR kEUR kEUR kEUR kEUR kEUR kEUR Gross sales 7,983 77,723 25,893 319 -325 111,593 Gross sales 10,443 67,834 23,083 417 -433 101,344 Thereof external Thereof intersegment Revenue 7,979 4 77,722 1 25,892 1 0 319 319 0 0 -325 -324 0 111,593 0 Thereof external Thereof intersegment Revenue 10,431 12 67,834 0 23,079 4 0 417 417 0 0 -433 -433 0 101,344 0 3,941 3,937 4 15,542 15,542 0 8,168 8,167 1 27,646 27,646 0 5,343 5,331 12 13,220 13,220 0 7,068 7,064 4 25,615 25,615 0 Thereof external Thereof intersegment Gross proﬁt Thereof external Thereof intersegment Gross proﬁt 319 319 -324 -5 417 417 -433 -16 3,524 14,987 7,762 26,587 4,787 12,733 6,765 24,687 Expenses (including cost of sales) and other income Expenses (including cost of sales) and other income -3,473 -136 -5 -12,615 -547 -222 857 -6,693 -247 0 -1,990 -254 0 319 0 -24,452 -1,184 -227 -3,649 -173 0 -8,984 -465 -108 1,409 4,702 4,237 4 -5,805 -233 -55 -2,147 -240 0 417 0 -20,168 -1,111 -163 Thereof amortisation and depreciation Thereof other non-cash expenses Thereof other non-cash income EBITDA Thereof amortisation and depreciation Thereof other non-cash expenses Thereof other non-cash income EBITDA 0 0 475 604 468 0 9 64 0 1,405 4,378 3,194 78 88 8 4 0 1,509 6,559 5,448 6 3,474 2,927 6 1,722 1,475 0 -1,417 -1,671 74 -5 -5 -2 2 1,867 1,693 0 1,497 1,264 0 -1,491 -1,730 2 -16 -16 0 Operating proﬁt Operating proﬁt Financial income Financial income Financial expenses -8 -28 -17 -65 -116 Financial expenses -14 -22 -19 -67 0 -122 Income taxes -155 305 -111 2,794 -326 1,132 0 0 -592 Income taxes -308 1,371 -321 3,897 -362 883 0 0 -991 Net income for the year -1,662 -5 2,564 Net income for the year -1,795 -16 4,341 Gross sales represent the total amount billed and billable to clients by the Group, net of discounts, VAT and other sales-related taxes. Disclosure of gross revenue information is not required under IFRS; however, it is voluntarily disclosed from 1 January 2018 onwards in the Consolidated Income Statement since management has concluded that the information is useful for users of the ﬁnancial statements 99 100 06 06 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Geographical information MEDIA COST AND COST OF SALES [8] GENERAL AND ADMINISTRATIVE EXPENSES [10] OTHER OPERATING The Group operates in three principal geographical areas – the United Kingdom, Germany and Spain. The Group’s revenue from continuing operations from external customers and information about its non- current assets by geographical location are detailed below whereby non-current assets are shown exclusive of ﬁnancial instruments: EXPENSES [12] Other operating expenses consist of the following: 2021 2020 Media cost The expenses are broken down as follows: Revenue from external Non-current assets customers 2021 2020 kEUR kEUR ad pepper ad agents Webgains Total media cost COS 4,043 5,101 2021 2020 kEUR kEUR Foreign exchange losses 189 43 17,725 62,179 83,947 1,059 16,014 54,614 75,729 928 Year ended 2021 Year ended 2020 2021 2020 kEUR kEUR Expected credit losses on trade receivables Personnel costs 4,684 4,434 227 61 162 29 Depreciation on right-of-use assets Other facility costs 674 714 938 720 622 795 kEUR kEUR kEUR kEUR Other Germany United Kingdom Spain 12,107 12,915 1,161 1,679 Total 477 234 Total 85,006 76,657 Professional and other services 10,480 3,450 9,102 3,072 526 600 302 840 197 1 General operating costs (communication, travel, other supplies) Cost of sales predominantly comprises third-party data centre services, professional fees and other purchased services. 657 40 438 99 Other 1,609 88 Other Total 27,646 25,615 2,151 2,717 Total 7,707 7,108 FINANCIAL RESULT, NET [13] Includes USA, which was presented separately in prior years. SELLING AND MARKETING EXPENSES [9] Net ﬁnancial income consists of the following: 2021 2020 NOTES TO THE INCOME STATEMENT [7] OTHER OPERATING INCOME [11] kEUR kEUR This item comprises all costs associated with attracting customers and orders. The expenses are broken down as follows: Interest income 27 5 Gains from securities measured at ”fair value through proﬁt or loss“ Other operating income consists of the following: 51 78 0 5 The income statement was prepared using the function of expense method. The expenses include personnel expenses of EUR 16,553k (2020: EUR 15,005k) as well as depreciation and amortisation of EUR 1,184k (2020: EUR 1,111k), thereof EUR 698k (2020: EUR 740k) depreciation on right-of-use assets. Amortisation of intangible assets is included in selling expenses EUR 287k (2020: EUR 136k) and administration expenses EUR 26k (2020: EUR 28k). The personnel expenses include the employer’s contribution to state pension schemes amounting to EUR 955k (2020: EUR 791k), which must be disclosed as employer’s contribution to a deﬁned contribution plan. 2021 2020 Financial income Interest expenses 2021 2020 kEUR kEUR -81 -69 kEUR kEUR Personnel costs 11,869 10,570 Interest on lease liabilities Financial expenses Net ﬁnancial result -35 -52 Gains on sale of property, plant and equipment Facility costs 85 370 88 259 -116 -38 -121 -116 57 10 Advertising and sales promotion Professional and other services Income from the release of accrued liabilities 1,809 1,293 449 24 472 1,032 1,514 General operating costs (communication, travel, other supplies) Other 1,319 287 1,041 160 Total 530 Other Total 15,739 13,411 Income from the release of accrued liabilities includes an amount of EUR 276k relating to reversals of non-disbursed afﬁliate credits in the Webgains segment that the ad pepper Group believes are unlikely to be paid out (2020: EUR 472k) and reversals of EUR 173k in connection with time-barred claims (2020: EUR 890k). 101 102 06 06 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Deferred tax assets of EUR 0k (2020: EUR 0k) on tax losses are INCOME TAXES [14] EARNINGS PER SHARE [15] NON-CURRENT ASSETS recognised for companies with a history of losses. No deferred tax liabilities were recognised as of 31 December 2021 (2020: EUR 0k) for taxes on non-distributed proﬁts of subsidiaries. If deferred taxes were to be recognised for these temporary differences, only the source tax rates applicable in each case, where appropriate taking into account the German tax of 5 percent on the distributed dividends, would have to be applied for the computation. Basic earnings per share are calculated by dividing net proﬁt for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share are calculated by dividing the net proﬁt attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares. INTANGIBLE ASSETS [16] Income tax expenses 2021 2020 kEUR kEUR In 2021 and 2020, no software IT solutions were developed in-house for the Company’s own use, and therefore none were capitalised. Expenses were related to maintenance. Additions mainly relate to an amount of EUR 178k in connection with the purchase of additional software for operational and administrative purposes. Software and databases are amortised over a useful life of three to ﬁve years. Trademarks are amortised over a useful life of 12 years. Current income tax expenses Deferred income tax income/(expense) Total -545 -999 -47 8 ad pepper media International N.V. has its tax domicile in Germany and forms a ﬁscal unity with ad pepper media GmbH and Webgains GmbH. The reconciliation between expected income tax expense and actual income tax expense based on the German statutory tax rate (combined corporate income tax and trade tax on income) of 32.17 percent (2020: 32.17 percent) is as follows: -592 -991 The income and share data used in the computations of basic and diluted earnings per share are as follows: The current income taxes reported relate to the taxes paid or payable by individual local entities. The calculation of the deferred taxes was based on the country-speciﬁc tax rates. Due to the existing unused tax losses in ad pepper media International N.V., ad pepper media France S.A.R.L. and ad pepper media USA LLC, deferred tax assets of EUR 9,925k (2020: EUR 9,600k) were calculated on the basis of the unused tax losses of EUR 32,301k (2020: EUR 31,090k). Deferred tax assets from unused tax losses were recorded to the extent that it is probable that future taxable proﬁt is available against which they can be utilised within a foreseeable planning period. 2021 2020 2021 2020 Net income attributable to shareholders of the parent company in kEUR kEUR kEUR 1,725 3,664 Expected income tax -1,015 -1,715 Number of shares at the beginning of the period Effect of lower tax rate in other jurisdication 20,920,181 21,000,708 20,491,197 20,920,181 20,735,183 21,004,055 373 0 453 0 Number of shares at the end of the period Foreign tax from limited taxation Tax-free gains Thus, an amount of deferred tax assets of EUR 0k (2020: EUR 0k) has been recognised for the tax loss carry forwards. All of the available tax loss carry forwards are non-expiring. 5 -13 1 Weighted average number of shares outstanding (basic) Prior year income tax 178 Basic earnings per share in EUR 0.08 0.17 Utilisation of previously unrecognised tax losses 86 -337 135 390 -28 -61 Weighted average number In addition to the unused tax losses, the following signiﬁcant deferred tax liabilities result from temporary differences: of shares outstanding (diluted) 20,977,243 21,135,862 0.08 0.17 Current year tax losses not recognised Diluted earnings per share in EUR Non-taxable stock option income/(expense) Deferred tax liabilities 2021 2020 kEUR kEUR Non-tax-deductible expenses and other The weighted average number of shares outstanding in 2021 was calculated on a daily basis. In 2021, the options granted resulted in dilution of an average of 242,060 shares (2020: 131,808 shares). No new shares in ad pepper media International N.V. were admitted for trading on the Frankfurt Stock Exchange in 2021 (2020: 0 shares). In November 2020 and September 2021, the Company started a share repurchase programme. Until 31 December 2021 461,384 shares were acquired (2020: 252,527 shares). Securities Other 0 0 -17 -18 81 31 Actual income tax expenses -592 -991 Total 81 31 Changes in deferred tax liabilities on temporary differences recognised in proﬁt or loss amount to EUR 47k (2020: EUR 8k). The change in deferred tax assets on temporary differences is recognised in proﬁt or loss. Deferred tax assets and liabilities are netted if the Company has the legally enforceable right to set off current tax assets against current tax liabilities and if they relate to the same tax authorities and the same taxable entity. As a result, deferred tax assets of EUR 0k (2020: EUR 0k) and deferred tax liabilities of EUR 81k (2020: EUR 31k) were recognised in the statement of ﬁnancial position. Deferred tax assets and liabilities are classiﬁed as non-current. 32,400 treasury shares (2020: 172,000 shares) were sold in connection with the exercise of employee stock options. Diluted earnings per share are computed based on the weighted average number of ordinary shares outstanding, including the dilutive effect of shares to be issued in the future under certain arrangements such as option plans. 103 104 06 06 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS MOVEMENT SCHEDULE OF INTANGIBLE ASSETS AND PROPERTY, PLANT AND EQUIPMENT [17] Historical cost Accumulated depreciation/amortisation/impairment Book value Financial year 2021 Balance at 1/1/2021 Additions Disposals Exchange differences Balance at 31/12/2021 Balance at 1/1/2021 Depreciation/ amortisation Disposals Exchange differences Balance at 31/12/2021 Financial year Previous year 31/12/2021 31/12/2020 kEUR kEUR kEUR kEUR kEUR kEUR kEUR kEUR kEUR kEUR kEUR kEUR Intangible assets Software 2,786 644 178 0 0 0 0 66 0 3,030 644 -2,052 -641 -312 -1 0 0 0 -40 0 -2,404 -642 626 2 734 3 Brands and customer bases Total 3,430 178 66 3,674 -2,693 -313 -40 -3,046 628 737 Property, plant and equipment Other equipment, operational and ofﬁce equipment Total 1,441 121 -39 39 1,562 -1,029 -176 0 -11 -1,216 346 412 4,871 299 -39 105 5,236 -3,722 -489 0 -51 -4,262 974 1,149 Historical cost Disposals Accumulated depreciation/amortisation/impairment Book value Financial year 2020 Balance at 1/1/2020 Additions Exchange differences Balance at 31/12/2020 Balance at 1/1/2020 Depreciation/ amortisation Disposals Exchange differences Balance at 31/12/2020 Financial year 31/12/2020 31/12/2019 Previous year kEUR kEUR kEUR kEUR kEUR kEUR kEUR kEUR kEUR kEUR kEUR kEUR Intangible assets Software 2,275 644 549 0 -1 0 -37 0 2,786 644 1,920 640 163 1 -1 0 -30 0 2,052 641 734 3 355 4 Brands and customer bases Total 2,919 549 -1 -37 3,430 2,560 164 -1 -30 2,693 737 359 Property, plant and equipment Other equipment, operational and ofﬁce equipment Total 1,465 238 -227 -35 1,441 1,074 208 -226 -27 1,029 412 391 4,384 787 -228 -72 4,871 3,634 372 -227 -57 3,722 1,149 750 105 106 06 06 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Overview about debt and marketable securities: The maturities of the other ﬁnancial assets as at the end of the period NON-CURRENT SECURITIES [18] OTHER are as follows: RECEIVABLES [21] 2021 Debt Marketable Total 31/12/21 31/12/20 Securities classiﬁed at “fair value through proﬁt or loss” securities securities Other receivables consist of the following: kEUR kEUR kEUR kEUR kEUR Due in between one and ﬁve years Due in more than ﬁve years Total 391 394 2021 2020 Book value 1/1 1,012 0 1,012 31/12/21 31/12/20 0 0 Purchase 0 -5 1,999 51 1,999 46 kEUR kEUR 391 394 kEUR kEUR Unrealised gains/losses (-) Book value 31/12 Book value 1/1 Purchase 0 0 Value-added tax receivables 129 115 1,007 2,050 3,057 1,999 0 Prepayments Other 269 0 224 1 Unrealised gains recognised in proﬁt or loss 51 0 Total 398 340 2020 Debt Marketable securities securities Total CURRENT ASSETS Book value 31/12 2,050 0 kEUR kEUR kEUR Book value 1/1 Purchase 994 0 944 Purchase includes investments in listed equity instruments only. TRADE RECEIVABLES [20] 0 18 0 0 0 0 18 INCOME TAX RECEIVABLES [22] Unrealised gains/losses (-) Book value 31/12 Securities classiﬁed at “fair value through other comprehensive income” Trade receivables are initially measured at fair value and subsequently carried at amortised cost. Trade receivables consist of the following: 1,012 1,012 2021 2020 Income tax receivables include tax prepayments on capital gains of EUR 306k (2020: EUR 292k). kEUR kEUR 31/12/21 31/12/20 Book value 1/1 Purchase 1,012 0 OTHER FINANCIAL ASSETS [19] kEUR kEUR 0 994 Trade receivables, gross Provision 19,851 20,228 Unrealised gains/losses (-) recognised in other comprehensive income -532 -501 Other ﬁnancial assets consist of the following and are measured at amortised cost: OTHER CURRENT Trade receivables, net 19,319 19,727 -5 18 FINANCIAL ASSETS [23] Book value 31/12 1,007 1,012 31/12/21 31/12/20 Trade receivables are only due from third-party customers, are non- interest bearing and generally have a term of 0 to 90 days. Other current ﬁnancial assets consist of the following: kEUR kEUR The maturities of the listed debt securities as at the end of the period are as follows: Deposits Total 391 394 The provision is calculated on the basis of all information available to the Company and includes all expected credit losses on receivables as of 31 December 2021. For further information, please refer to Notes [3] and [40]. 391 394 31/12/21 31/12/20 kEUR kEUR Fair value 31/12/21 31/12/20 Interest receivables Other 0 1 kEUR kEUR As at 31 December 2021, all campaigns were billed to the extent that revenue was recognised. Consequently, the amount of contract assets is nil. 26 28 Due within one year Due between one and ﬁve years Due in more than ﬁve years Total 0 0 Total 26 29 1,007 0 1,012 0 1,007 1,012 107 108 06 06 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2020 Before income taxes Income taxes After income taxes CASH AND CASH EQUIVALENTS [24] RESERVES [27] Reserves include treasury reserves with a value of EUR -4,906k (2020: EUR -2,417k). Currency translation differences -232 18 0 0 0 -232 18 This item includes cash at banks and cash in hand. For the purpose of the consolidated cash ﬂow statement, cash and cash equivalents comprise cash at banks and on hand of EUR 20,704k (2020: EUR 24,330k). Revaluation of listed debt securities Under the shareholder resolution of 18 May 2021, the ad pepper Group was authorised to repurchase treasury stock of up to 50 percent of the issued capital within the following 18 months. The Company started a share repurchase programme in October 2020 and September 2021 and has acquired 461,384 shares (2020: 252,527 shares). As of 31 December 2021, the Company held 1,008,803 treasury shares (2020: 579,819) at a nominal value of EUR 0.05 each, which equals 4.69 percent (2020: 2.70 percent) of the share capital. According to a shareholder resolution, those shares can only be used for a stock option plan (“SOP”) or the cancellation of shares. 32,400 shares were sold under the employee stock option plan (2020: 172,000 shares), 135,000 cash settlements of equity settled stock option plans occurred (2020: no shares). Total other comprehensive income -214 -214 The authorised share capital of the Company amounts to EUR 4,000,000, divided into 80,000,000 shares with a par value of EUR 0.05 each. The Board of Directors is authorised, upon approval by the Supervisory Board, to issue shares until 15 May 2023, or to grant rights to subscribe for shares until the issued share capital amounts to EUR 2,000,000. EQUITY ISSUED CAPITAL [25] No new shares in ad pepper media International N.V. were admitted for trading on the Frankfurt Stock Exchange in 2021 (2020: 0 shares). The issued capital of ad pepper media International N.V. comprises 21,500,000 (2020: 21,500,000) bearer shares each with a nominal value of EUR 0.05 and is fully paid in. Number of shares outstanding NON-CONTROLLING INTERESTS [28] The number of shares issued and outstanding as at 31 December 2021 totalled 20,491,197 (2020: 20,920,181). Each share has a nominal value of EUR 0.05. Non-controlling interests comprise non-controlling interests in two subsidiaries as at 31 December 2021 and 2020. They include non- controlling interests in ad agents GmbH and ad pepper media Spain S.A. These result from the acquisition of 60 percent of the shares in ad agents GmbH and from the sale of a 35 percent share in ad pepper media Spain S.A. in recent years. The net income/loss for the year for ad agents GmbH and ad pepper media Spain S.A. is allocated proportionately to the non-controlling interests. In 2021, non-controlling interests in ad pepper media Spain S.A. received a dividend payment of EUR 323k (2020: EUR 395k), while non-controlling interests of ad agents GmbH received a dividend in 2021 of EUR 260k (2020: EUR 60k). Reserves include also the expenses incurred for stock option plans amounting to EUR 2,827k (2020: EUR 2,663k) and the currency translation reserve amounting to EUR -1,153k (2020: EUR -1,389k). SHARE PREMIUM [26] The total other comprehensive income recognised directly in equity and the corresponding income taxes are as follows: The capital reserve mainly comprises the premium paid upon share issues. 2021 Before income taxes Income taxes After income taxes Currency translation differences Summarised ﬁnancial information in respect of ad pepper media’s subsidiaries that have material non-controlling interest as at 31 December 2021, reﬂecting 100 percent of the underlying subsidiary’s relevant ﬁgures, is set out on the following page: 236 -6 0 0 0 236 -6 Revaluation of listed debt securities Total other comprehensive income 230 230 109 110 06 06 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ad agents GmbH ad pepper media Spain S.A. 31/12/21 NON-CURRENT LIABILITIES CURRENT LIABILITIES 31/12/21 31/12/20 31/12/20 OTHER LONG-TERM LIABILITIES [29] TRADE PAYABLES [30] kEUR kEUR kEUR kEUR Non-current assets Current assets 515 704 74 239 4,557 5,072 120 4,364 5,068 278 1,465 1,539 2 3,362 3,601 146 Trade payables include accrued liabilities and are recognised at amortised cost. Accrued liabilities for afﬁliate credits not yet disbursed in the Webgains segment amount to EUR 16,015k (2020: EUR 16,928k). Total assets Other long-term liabilities consist of the following: Non-current liabilities Current liabilities Total liabilities Net assets 3,280 3,400 1,672 2,998 3,276 1,792 712 714 825 2,172 2,318 1,283 31/12/21 31/12/20 kEUR kEUR Employee beneﬁts liability Lease liability 157 305 CONTRACT LIABILITIES [31] Equity attributable to owners of the Company 708 906 1,003 668 40 1,075 717 40 536 289 35 834 449 35 Total 865 1,211 Non-controlling interests Contract liabilities consist of short-term advances for search engine advertising services from clients in the ad agents segment. Non-controlling interests in percent The employee beneﬁts liability relates to the obligation resulting from the cash-settled stock option plans. The increase was a non-cash change. For further details on cash-settled stock option plans, please refer to Note [38]. During the year, lease liabilities including interests were paid for an amount of EUR 792k (2020: EUR 762k). Please refer to Note [41] for cash ﬂow and non-cash-ﬂow changes. Reductions in other long-term liabilities resulted in cash-ﬂow changes. ad agents GmbH ad pepper media Spain S.A. 2021 2021 2020 kEUR kEUR 2021 2020 2020 At 1 January 273 146 kEUR kEUR kEUR kEUR Deferred during the year 425 387 Revenue 7,197 7,064 1,675 3,072 Recognised as revenue during the year Expenses 6,667 -6,180 1,211 -2,149 -426 -260 The maturities of the other long-term liabilities as of the end of the period are as follows: Net proﬁt/(loss) for the year 529 884 464 923 At 31 December 272 273 Proﬁt attributable to owners of the Company 318 211 0 530 354 0 302 162 0 600 323 0 31/12/21 31/12/20 Proﬁt attributable to non-controlling interests kEUR kEUR Other comprehensive income attri- butable to owners of the Company Due in between one and ﬁve years Due in more than ﬁve years 865 1,211 0 0 Other comprehensive income attri- butable to non-controlling interests Total 865 1,211 0 0 0 0 Total comprehensive income/loss for the year 529 884 -41 884 -770 -214 464 585 -3 923 440 -55 Net cash inﬂow/(outﬂow) from operating activities Net cash inﬂow/(outﬂow) from investing activities Net cash inﬂow/(outﬂow) from ﬁnancing activities -814 29 -308 -935 -353 -1,185 -800 Total net cash inﬂow/(outﬂow) -1,292 111 112 06 06 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OTHER LIABILITIES [32] RELATED PARTY DISCLOSURES [34] CONTINGENT LIABILITIES AND OTHER FINANCIAL OBLIGATIONS [36] ADDITIONAL CASH FLOW INFORMATION [37] Other liabilities consist of the following: Pursuant to the IAS 24 deﬁnition, the Board of Directors and members of the Supervisory Board have been identiﬁed as related parties. The compensation paid to all members of these boards is based exclusively on their functions as individuals in key positions. Further information about the compensation paid to these individuals can be found in Note [40]. All entities over which the Supervisory Board Chairman Michael Oschmann has signiﬁcant inﬂuence are considered as related parties to the Company. The following information is provided to supplement the statement of cash ﬂows: Other non-cash expenses and income comprises expenses for allocation to and income from the release of valuation allowances on trade receivables and expenses from writing down receivables. This item also includes write-downs of afﬁliate credits not yet disbursed and reversals of time-barred claims. ad pepper media International N.V. has provided guarantees for all outstanding liabilities of its subsidiary, ad pepper media GmbH (register number: HRB 16494) as at 31 December 2021, until these are satisﬁed in full. As a result, the individual local statutory accounts of ad pepper media GmbH are exempt from audit under the requirements of Section. 264 para. 3 of the German Commercial Code (HGB). As at 31 December 2021, ad pepper media GmbH’s outstanding liabilities amounted to EUR 1,860k (2020: EUR 6,234k). 31/12/21 31/12/20 kEUR kEUR Value-added tax liabilities 1,725 2,281 Liabilities for payroll tax and social security contributions 392 169 365 195 Employee holiday accrual Sales to related parties Amounts owed by related parties Total 2,286 2,841 ad pepper media International N.V. has provided guarantees for all outstanding liabilities of its subsidiary, ad agents GmbH (register number: HRB 16494) as at 31 December 2021, until these are satisﬁed in full. As a result, the individual local statutory accounts of ad agents GmbH are exempt from audit under the requirements of Section 264 para. 3 of the German Commercial Code (HGB). As at 31 December 2021, ad agents GmbH’s outstanding liabilities amounted to EUR 4,069k (2020: EUR 3,992k). STOCK OPTION PROGRAMMES [38] Entity with signiﬁcant 2021 2020 2021 2020 inﬂuence over the Group: Ragnar Tessloff GmbH Fairrank GmbH 0 0 0 1 0 0 0 0 OTHER FINANCIAL LIABILITIES [33] By doubling the number of options and halving the exercise price, all stock options programmes mentioned below were adjusted to the share split on 27 May 2009. Options granted under the Ongoing SOP are subject to the following provisions: The amounts are classiﬁed as trade receivables (Note [20]). Other ﬁnancial liabilities consist of the following: ad pepper media International N.V. has provided guarantees for all outstanding liabilities of its subsidiary Webgains GmbH (registered number: HRB 37198) that existed as at 31 December 2021, until these are satisﬁed in full. As a result, the individual local statutory accounts of Webgains GmbH are exempt from audit under the requirements of Section 264 Par. 3 German Commercial Code (HGB). As at 31 December 2021, the outstanding liabilities of Webgains GmbH amount to EUR 4,407k (2020: EUR 0k). The options are granted to employees of the ad pepper Group. Altogether, 499,292 shares were reserved for the “Ongoing SOP 2001”. The subscription ratio is one share per option right. The subscription price is based on the average share price on Xetra during the ﬁrst ten trading days of May 2001 for the 2001 plan, or the ﬁrst ten trading days in January for subsequent plans. Options can only be exercised when the share price has risen at least 10 percent above the subscription price, but no sooner than one year after the option has been granted. As a rule, the stock options granted do not expire. However, the options expire if an employee terminates his or her employment contract or if the Company terminates the employment for good cause. Terms and conditions of transactions with related parties 31/12/21 31/12/20 kEUR kEUR The sales to related parties are made on terms equivalent to those that prevail in at arm’s length transactions. Outstanding balances at the year-end are unsecured and interest free, and settlement occurs in cash. As at 31 December 2021, the Group recognised no provision for expected credit losses in respect of amounts owed by related parties. Bonuses and commissions 618 920 Accrued liabilities for outstanding invoices 474 0 412 0 Other ﬁnancial obligations mainly result from short-term ofﬁce leases and ofﬁce equipment. Severance payments Current lease liabilities Other 505 12 745 13 The future minimum payment obligations resulting from the contracts in place as at 31 December 2021 are as follows: In January 2003, the “Ongoing SOP 2003” for executives was replaced by the “Executive SOP 2003”, the aim of which is to encourage executives to remain with the Company. Under this plan, a non- recurring issue of options was granted to executives; the exercise price for these options is also based on the average share price during the ﬁrst ten trading days in January. 10 percent of the options may be exercised in each of the following ten years. Pursuant to the resolution of the General Meeting dated 2 May 2005, the exercise of these executive stock options can in particular cases also be settled in cash at the request of the ad pepper Group. Total 1,609 2,090 LITIGATION AND CLAIMS [35] < 1 year > 1 year > 5 years to 5 years Total kEUR kEUR kEUR kEUR Neither the ultimate parent nor any of its subsidiaries are involved in any material litigation with third parties. Other ﬁnancial obligations 159 6 0 165 113 114 06 06 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS In 2004, an employee equity-participation programme involving 136,100 Furthermore, an employee equity-participation programme involving 30,000 options was launched for Supervisory Board members (“Executive SOP 2017 SB”). The plan retains the Company the right to fulﬁl its commitment to transfer shares by paying to the beneﬁciary a cash amount equal to the difference between the issue price and the average closing price on Xetra during the last ten trading days before exercising the option. The valuation was carried out by simulation (Monte Carlo method). The volatility was calculated from the development of the Company's share price between 1 February 2011 and 28 February 2017. The shares may be exercised over a period of four years, but at the earliest one year after being granted. The fair value of the individual tranches at the time of granting is between EUR 0.390 and EUR 0.654 per issued option. The maximum cost of the programme over the entire period is EUR 16k. An employee equity-participation programme involving 440,000 options was launched for executive employees in 2020 (“SOP 2020 BoD”). The plan retains the Company the right to fulﬁl its commitment to transfer shares by paying to the beneﬁciary a cash amount equal to the difference between the issue price and the average closing price on Xetra during the last ten trading days before exercising the option. The valuation was carried out by simulation (Monte-Carlo method). The volatility was calculated from the development of the Company's share price between 1 October 2014 and 30 September 2020. The options may be exercised over a period of four years at 25 percent each year, but at the earliest one year after being granted. The fair value of the individual tranches at the time of granting is between EUR 0.735 and EUR 1.223 per issued option. The maximum cost of the programme over the entire period is EUR 441k. options was launched for executive employees 16 (“Ongoing SOP 2004”). The valuation was carried out by simulation (Monte-Carlo method). The option rights can be exercised one year after they were granted at the earliest. The fair values at the time of granting amounted to EUR 1.0585 per issued option. The maximum cost of the programme over the entire period is EUR 144k. An employee equity-participation programme involving 300,000 options was launched for the members of the Board of Directors in 2017 (“Executive SOP 2017 BoD”). The plan retains the Company the right to fulﬁl its commitment to transfer shares by paying to the beneﬁciary a cash amount equal to the difference between the issue price and the average closing price on Xetra during the last ten trading days before exercising the option. The valuation was carried out by simulation (Monte-Carlo method). The volatility was calculated from the development of the Company's share price between 1 February 2011 and 28 February 2017. The options may be exercised over a period of four years at 25 percent each year, but at the earliest one year after being granted. The fair value of the individual tranches at the time of granting is between EUR 0.390 and EUR 0.654 per issued option. The maximum cost of the programme over the entire period is EUR 161k. In October 2018 after the ﬁrst vested tranche was settled in cash, this plan was reclassiﬁed from an equity-settled into a cash-settled option plan. At modiﬁcation date the Company recognised a liability for employee beneﬁts based on the fair value of the cash-settled award, posting the corresponding debit of EUR 313k as equity. Ongoing Ongoing Ongoing Executive Executive Executive SOP 2017 SOP 2020 SOP 2020 SOP 2001 SOP 2003 SOP 2004 SOP 2003 SOP 2006 SOP 2008 (BoD, (BoD) (MD) MD, SB) Share price when granted, in EUR 1.30 18/5/01 1.365 0.89 15/1/03 0.89 2.22 16/1/04 2.225 0.89 15/1/03 0.89 3.80 16/1/06 3.795 1.40 15/5/08 1.50 1.94 11/4/17 1.9751 3.56 2/10/20 3.50 3.56 2/10/20 3.50 An employee equity-participation programme involving 250,000 options was launched for the members of the Board of Directors in 2020 (“SOP 2020 BoD”). The plan retains the Company the right to fulﬁl its commitment to transfer shares by paying to the beneﬁciary a cash amount equal to the difference between the issue price and the average closing price on Xetra during the last ten trading days before exercising the option. The valuation was carried out by simulation (Monte-Carlo method). The volatility was calculated from the development of the Company's share price between 1 October 2014 and 30 September 2020. The options may be exercised over a period of four years at 25 percent each year, but at the earliest one year after being granted. The fair value of the individual tranches at the time of granting is between EUR 0.735 and EUR 1.223 per issued option. The maximum cost of the programme over the entire period is EUR 250k. Date of grant Exercise price, in EUR Risk-free interest rate, in percent 4.00 3.50 2.75 4.50 3.48 4.15 10 -0.36 7 -0.72 7 -0.72 7 Estimated term, in years Do not expire Do not expire Do not expire Do not expire Do not expire Future dividend, in EUR 0 0 0 0 0 0.04-0.06 50 0.05 51 0.05 48 0.05 48 Estimated volatility, in percent 93 73 40 53 56 The liability for the cash-settled SOP is measured at the end of each reporting period until settled, at the fair value. The original terms and conditions of Executive SOP 2017 BoD have not changed. The carrying amount of the liability relating to the cash-settled SOP 2017 BoD at 31 December 2021 was EUR 0k (2020: EUR 305k). The average share price during 2021 was EUR 5.74 (2020: EUR 3.66). In October 2021 after the ﬁrst vested tranche was settled in cash, this plan was reclassiﬁed from an equity-settled into a cash-settled option plan. At modiﬁcation date the Company recognised a liability for employee beneﬁts based on the fair value of the cash-settled award, posting the corresponding debit of EUR 155k as equity. The personnel expense recognised for employee services received during the year is shown in the following table: Furthermore, an employee equity-participation programme involving 150,000 options was launched for executive employees (“Executive SOP 2017 MD”). The plan retains the Company the right to fulﬁl its commitment to transfer shares by paying to the beneﬁciary a cash amount equal to the difference between the issue price and the average closing price on Xetra during the last ten trading days before exercising the option. The valuation was carried out by simulation (Monte-Carlo method). The volatility was calculated from the development of the Company's share price between 1 February 2011 and 28 February 2017. The options may be exercised over a period of four years at 25 percent each year, but at the earliest one year after being granted. The fair value of the individual tranches at the time of granting is between EUR 0.390 and EUR 0.654 per issued option. The maximum cost of the programme over the entire period is EUR 80k. 2021 165 2020 105 The liability for the cash-settled SOP is measured at the end of each reporting period until settled, at the fair value. The original terms and conditions of Executive SOP 2020 BoD have not changed. The carrying amount of the liability relating to the cash-settled SOP 2020 BoD at 31 December 2021 was EUR 155k (2020: EUR 0k). Expense arising from equity-settled share-based payment transactions Expense/(income) arising from the measurement of the liability for cash-settled share-based payment transactions 206 166 Total expense/(income) arising from share-based payment transactions 371 271 115 116 06 06 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The following table shows the changes in the options during the ﬁnancial year 2021: TOTAL REMUNERATION OF KEY MANAGEMENT [39] FINANCIAL INSTRUMENTS [40] 2021 2020 Weighted average Weighted average The classes of ﬁnancial instruments within the meaning of IFRS 7.6 are deﬁned in accordance with the categories of ﬁnancial instruments in IFRS 9. IFRS 9 contains three categories for classifying ﬁnancial assets: “measured at amortised cost”, “measured at fair value through proﬁt or loss” and “measured at fair value through other comprehensive income.” exercise price 2021 exercise price 2020 2021 2020 Options outstanding at the beginning of the ﬁnancial year Options granted during the ﬁnancial year 922,400 479,400 690,000 0 3.14 0 1.258 3.50 0 kEUR kEUR 0 0 Short-term employee beneﬁts 452 547 Options forfeited during the ﬁnancial year 0 Post-employment beneﬁts 1. Capital risk management (pensions and health insurance) 3 20 Options exercised during the ﬁnancial year -304,900 0 -247,000 0 2.42 0 1.26 0 Stock options 183 211 Options expired during the ﬁnancial year The Group manages its capital with the aim of optimising returns on investments in business entities by optimising the debt equity ratio and maximising its shareholder value by maintaining a high credit rating and a good equity ratio. At the same time, the Group ensures that entities can operate under the going concern assumption. The capital structure of the Group consists of liabilities other than borrowings, cash and cash equivalents, securities measured at fair value through proﬁt or loss and the equity attributable to the parent company’s shareholders, consisting of issued shares in circulation, the capital reserve, retained earnings brought forward and other equity items. Total remuneration of key management Options outstanding at the end of the ﬁnancial year Exercisable options as of 31 December 617,500 100,000 1.9751-3.50 922,400 638,650 0.890-3.795 3.49 3.42 0 3.14 3.293 0 638 778 Range of exercise prices of outstanding options as of 31 December The amounts shown in the table above are recognised as expenses during the reporting period. Income resulting from the share-based payments is due to the decreased fair value of the cash settled stock option plan and the corresponding adjustment of the liability through proﬁt or loss. Options to purchase shares of the Company held by the members of the Board of Directors have the following expiration dates and exercise prices: The weighted exercise price of stock options exercised during 2021 amounts to EUR 2.42 (2020: EUR 1.26). All outstanding stock option programmes have an expiration date. For the remaining stock option programme, the average remaining contractual life amounts to 6.0 years. Net indebtedness The Group manages its capital structure and makes adjustments to it that take into account changes in the general economic environment. In order to maintain or adjust the capital structure, the Group can make dividend payments or pay back capital to the shareholders, issue new shares or buy back its own shares. No changes in the objectives, guidelines and procedures were made as at 31 December 2021 compared to 31 December 2020. Negative net indebtedness means that the Group is debt-free. Net indebtedness at the end of the year was as follows: Expiration Exercise price 31/12/21 31/12/20 EUR Number Number Executive SOP 2017 BoD 11/4/24 2/10/27 1.98 3.50 0 75,000 SOP 2020 BoD 187,500 250,000 31/12/21 31/12/20 kEUR kEUR Current and non-current ﬁnancial liabilities 22,564 -20,704 -3,057 23,734 -24,330 -1,012 Cash and cash equivalents Listed debt and marketable securities Net liabilities -1,197 -1,608 Equity per balance sheet including non-controlling interest 20,088 20,838 Net indebtedness, in percent -6 -8 117 118 06 06 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2. Signiﬁcant accounting policies Other ﬁnancial liabilities measured at amortised cost include, lease Interest income and expenses per category of ﬁnancial instruments 6. Foreign currency risk management liabilities (Note [41], trade payables (Note [30]) and other ﬁnancial liabilities (Note [33]). (IFRS 7.20 (b)): The rent and similar deposits referred to in Note [19], carried at their nominal amount of EUR 165k (2020: EUR 137k), are pledged as collateral for bank guarantees. The Group does not hold any collateral for credit facilities. Detailed information on the main accounting policies applied, including the recognition criteria, the measurement bases and the bases for the recognition of income and expenses, are presented separately for each category of ﬁnancial assets, ﬁnancial liabilities and equity instruments in the following section 3. Certain transactions in the Group are denominated in foreign currencies. This can result in risk from ﬂuctuations in exchange rate. The carrying amounts of the monetary assets and liabilities of the Group denominated in foreign currencies are as follows: Financial assets 31/12/21 31/12/20 Due to the short-term maturities of cash and cash equivalents, trade receivables and payables, current ﬁnancial assets and liabilities, their respective fair values approximate their carrying amounts. The fair values of non-current ﬁnancial liabilities consisting exclusively of lease liabilities are based on carrying amounts, which are a reasonable approximation of fair value. kEUR kEUR Measured at amortised cost -76 -69 Financial assets 31/12/21 31/12/20 Measured at fair value through other comprehensive income 2 1 0 kEUR kEUR Measured at fair value through proﬁt or loss USD GBP 316 3,504 Hierarchical classiﬁcation of fair values of ﬁnancial instruments pursuant to IFRS 7 as at 31 December 2021: 65 14,032 15,203 3. Categories of ﬁnancial instruments Total 14,348 18,707 Carrying amount per category of ﬁnancial instruments: Fair Value 31/12/21 Level 1 Level 2 Level 3 4. Objectives of ﬁnancial risk management Financial assets 31/12/21 31/12/20 kEUR kEUR The main ﬁnancial liabilities used by the Group comprise trade payables and lease liabilities. The primary purpose of these ﬁnancial liabilities is to ﬁnance the Group’s business activities. The Group has various ﬁnancial assets, such as trade receivables, cash and securities. Financial assets at fair value through other comprehensive income Financial liabilities 31/12/21 31/12/20 Debt instruments at amortised cost 40,440 44,480 kEUR kEUR Debt instruments at fair value through other comprehensive income and marketable instruments at fair value through proﬁt or loss USD GBP 13 1,358 1,007 2,050 1,007 2,050 0 0 0 0 11,358 11,366 Financial assets at fair value through proﬁt and loss Group management monitors and manages the ﬁnancial risks of the Group. These risks include the market risk (including exchange rate risks, interest rate-related fair value risks and price risks), the credit risk, the liquidity risk and interest rate-related cash ﬂow risks. In addition, the management decides on the utilisation of derivative and non-derivative ﬁnancial transactions and the investment of surplus liquidity in securities. The Group does not enter into any contracts with or deal in ﬁnancial instruments, including derivative ﬁnancial instruments, for speculative purposes. 3,057 1,012 Total 11,371 12,724 Total 43,497 45,492 Debt instruments at amortised cost include trade receivables (Note [20]), other non-current ﬁnancial assets (Note [19]), current ﬁnancial assets (Note [23]) and cash and cash equivalents (Note [24]). Debt instruments at fair value through other comprehensive income included investments in listed debt instruments as well as marketable instruments at fair value through proﬁt and loss (Note [18]). Fair values of these instruments were determined by reference to published price quotations in an active market. Net gains and losses per category of ﬁnancial instruments (IFRS 7.20 (a)): Financial assets 31/12/21 31/12/20 kEUR kEUR At fair value through proﬁt and loss 5. Market risk Unrealised gains 51 0 The Group’s activities expose it primarily to ﬁnancial risks from changes in exchange rates (see 6. below) and interest rates (see 7. below). Market risk positions are determined by means of sensitivity analysis. As no further investments in listed debt instruments are held by the Group, the market risk exposure in conjunction with interest rate risk of the Group decreased signiﬁcantly. The nature and means of risk management and assessment, however, remain unchanged. Total 51 0 At fair value through other comprehensive income Financial liabilities 31/12/21 31/12/20 kEUR kEUR Unrealised gains/losses (-) -5 18 Other ﬁnancial liabilities measured at amortised cost Total -5 18 22,564 23,734 Total 22,564 23,734 Unrealised losses result from the fair value changes of debt securities classiﬁed at fair value through other comprehensive income and unrealised gains result from the fair value changes of debt securities classiﬁed at fair value through proﬁt and loss. 119 120 06 06 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Foreign currency sensitivity analysis 8. Credit risk management The expected loss rates (stage 2 of the impairment model) amount The Group is primarily exposed to exchange rate risk from the currencies USD and GBP. The following table shows the sensitivity from the point of view of the Group, assuming a 10 percent rise or fall in the EUR against the respective foreign currency. The 10 percent shift represents management’s assessment with regard to a reasonable possible change in the exchange rate. The sensitivity analysis only includes outstanding monetary positions denominated in foreign currency and adjusts their translation at the end of the period to reﬂect a 10 percent change in the exchange rates. to 0 percent for the segments ad agents and ad pepper media. The expected loss rate for the Webgains segment is 0.5 percent. The Company abstains from disclosing an ECL table, as the application of the expected loss rates results in immaterial amounts for the Group. The Company tests for impairment (stage 3 of the impairment model) if there are substantial indications that receivables may be uncollectable, e.g. deterioration of payment behaviour or initiation of insolvency proceedings. An account of individual value adjustments is only maintained for trade receivables. Credit risk is the risk of loss for the Group should contractual parties not meet their contractual obligations. Business relationships are only entered into with creditworthy counterparties, and, where appropriate, the Group obtains collateral to reduce the risk of loss due to the non-fulﬁlment of obligations. The Group only enters into business relationships with entities that are rated “investment grade” or above. If such information is not available, the Group makes use of other available ﬁnancial information and its own trading records in order to evaluate its major customers. The risk exposure of the Group and the credit ratings are continuously monitored. The Group has trade receivables with a large number of customers spread over various sectors and geographical territories. Continuous credit assessments are carried out with regard to the ﬁnancial condition of the receivables. Effect of USD +10% Effect of USD +10% Effect of GBP +10% Effect of GBP +10% Total Total 31/12/21 31/12/20 31/12/21 31/12/20 31/12/21 31/12/20 kEUR kEUR kEUR kEUR kEUR kEUR The reconciliation of changes in the loss allowance is as follows: Net income for the year -64 -68 -90 -137 -154 -205 Loss allowance 2021 2020 kEUR kEUR Effect of USD -10% Effect of USD -10% Effect of GBP -10% Effect of GBP -10% Total Total An impairment analysis is performed at each reporting date to measure expected credit losses. The provision rates are based on days past due for every single customer, reﬂecting reasonable and supportable information that is available at the reporting date about past events and current conditions and customer-speciﬁc, forward-looking information from the client-facing account manager. If a customer defaults, all outstanding amounts relating to that counterparty are subject to an allowance calculation. The default is primarily determined on the basis of individual assessment – prompted by noticeable changes in payment behaviour, or application for bankruptcy. Individual assessment is generally supported by the information provided by the client-facing account manager. Balance at beginning of year Allowances in the period Additions 501 432 31/12/21 31/12/20 31/12/21 31/12/20 31/12/21 31/12/20 kEUR kEUR kEUR kEUR kEUR kEUR 428 -181 -216 532 467 -335 -63 Net income for the year 78 83 109 168 187 251 Reversals Consumption Balance at end of period 501 7. Interest rate risk management The Group was exposed to interest rate risks in the period under review, because the parent company held investments at ﬁxed interest rates. However, with the sale of the bond (see Note [18]), the risk exposure in this area was reduced to zero. The analysis shows that allowances were set up on a gross receivables amount of EUR 655k (2020: EUR 616k). For all other ﬁnancial assets, no material credit losses are anticipated despite trade receivables that are subject to the impairment model acc. to IFRS 9.5.5. Interest rate sensitivity analysis Generally, trade receivables are considered at 100 percent in the credit loss allowance if they are past due for more than one year. Trade receivables are written off and derecognised if there is good reason to assume that the outstanding amount is unrecoverable in part or in whole, for example after completion of insolvency proceedings. The sensitivity analyses described below were determined on the basis of the interest rate risk exposure for non-derivative ﬁnancial instruments on the balance sheet date. In 2021, an increase or decrease in the interest rate of 50 basis points, which was assumed by the management for the interest rate risk, would have increased/decreased the other comprehensive income of the Group by EUR 7k (2020: EUR 12k). The Group is not exposed to any signiﬁcant credit risks relating to a single contractual party or group of contractual parties with similar characteristics. The reported carrying amount reﬂects the maximum credit risk of the Group. The Group deﬁnes contractual parties as those with similar characteristics if they are related parties. The concentration of credit risk from customer relationships did not exceed 3.3 percent (2020: 3.1 percent) of the ﬁnancial gross asset values at any time during the reporting period. The carrying amount of the ﬁnancial assets included in the Consolidated Financial Statements less any impairment losses represents the Group’s maximum credit risk. Any collateral is ignored. There are no credit derivatives for hedging outstanding amounts from customers, nor have there been. 121 122 06 06 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 9. Liquidity risk management The amounts recognised in proﬁt or loss, are as follows: LEASES [41] The Group monitors the risk of liquidity shortage on a continuous basis with the help of a liquidity planning tool. This tool takes into account the maturities of ﬁnancial investments and ﬁnancial assets (e.g., receivables, other ﬁnancial assets) and expected cash ﬂow from operating activities. The Group’s aim is to maintain a balance between continuous coverage of funding needs and the necessity of ﬂexibility. 2021 2020 The Group has lease contracts for ofﬁce space (lease terms between 4 and 9 years) and cars (3 years). The Group’s obligations under its leases are secured by the lessor’s title to the leased assets. There are several lease contracts that include extension and termination options, which are further discussed below. kEUR kEUR Depreciation expenses of right-of-use assets The maturities of the ﬁnancial liabilities of the Group as at 31 December 2021 are presented below. The information is based on contractual, undiscounted payments. 698 35 740 53 Interest expense on lease liabilities The Group also has certain leases for ofﬁce equipment with low value and/or lease terms of 12 months or less. The Group applies the “short- term lease” and “lease of low-value assets” recognition exemptions. Expense relating to short-term leases (included in administrative expense) Financial liabilities 31/12/21 < 1 mth. > 1 mth., 3 mth. to 1 year < 3 mth. 1 to 5 years > 5 years Total 63 24 Expenses relating to leases of low-value assets (included in administrative expenses) kEUR kEUR kEUR kEUR kEUR kEUR Lease liabilities Trade payables 42 85 369 741 0 1,237 Set out below are the carrying amounts of right-of-use assets recognised and the movements during the period: 0 0 19,737 510 0 0 0 20,247 Total amount recognised in proﬁt or loss 796 817 Other ﬁnancial liabilities measured at amortised cost Right-of-use assets Lease liabilities 823 565 0 221 0 1,609 Total 20,602 1,160 369 962 0 23,093 Rental agreements for the ofﬁce leases in Nuremberg, Herrenberg and Madrid contain extension options on automatic annual renewal terms. These options have not been executed so far, also due to uncertainties in conjunction with COVID 19. Therefore, these options are not considered in the valuation process. There are no purchase options or restrictions imposed by lease arrangements. Ofﬁce Cars Total space The lease liabilities disclosed in the above table are the gross amounts. kEUR kEUR kEUR kEUR As at 1 January 2021 2,621 245 0 222 45 2,843 290 -1,650 -290 0 Financial liabilities 31/12/20 < 1 mth. > 1 mth., 3 mth. to 1 year < 3 mth. 1 to 5 years > 5 years Total Additions Disposal kEUR kEUR kEUR kEUR kEUR kEUR -29 -29 Lease payables Trade payables 63 125 555 953 0 1,696 Exchange rate difference 20,513 225 0 0 0 20,738 71 0 71 -30 Other ﬁnancial liabilities Subtotal 2,937 238 3,175 -1,970 measured at amortised cost 975 890 0 225 0 2,090 Depreciation expense as at 1 January 2021 Total 21,551 1,240 555 1,178 0 24,524 -1,162 -113 -1,275 0 Depreciation expense -625 0 -74 29 -699 29 0 0 Disposal Exchange rate difference -53 0 -53 0 Depreciation expense as at 31 December 2021 -1,840 -158 -1,998 0 792 -35 Payments 0 0 0 0 0 0 Interest expense As at 31 December 2021 1,097 80 1,177 -1,213 123 124 06 06 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS EVENTS AFTER THE BALANCE SHEET DATE [42] Up until the day of authorisation for issuance, there were no events that would have exerted substantial inﬂuence on the net assets, ﬁnancial position or results of operations as at 31 December 2021. APPLICATION OF ART. 264 PAR. 3 OF GERMAN COMMERCIAL CODE (HBG) [43] The following German subsidiaries in the legal form of capital corporation as deﬁned in Section. 264a made use of the exemption clause included in Section 264 para. 3 of the German Commercial Code: • ad pepper media GmbH, Nuremberg • Webgains GmbH, Nuremberg • ad agents GmbH, Herrenberg Nuremberg, March 2022 The Board of Directors of ad pepper media International N.V. comprised the following members in the ﬁnancial year 2021: Dr Jens Körner, CEO Nuremberg, Germany The Supervisory Board of ad pepper media International N.V. in the ﬁnancial year 2021 consisted of: Michael Oschmann (Chairman) Thomas Bauer Dr Stephan Roppel Dagmar Bottenbruch 125 126 « 07 STATUTORY FINANCIAL 07 07 STATUTORY FINANCIAL STATUTORY FINANCIAL STATEMENTS AND NOTES OF THE HOLDING COMPANY AD PEPPER MEDIA INTERNATIONAL N.V. (THE “HOLDING COMPANY”) BALANCE SHEET OF THE HOLDING COMPANY (AFTER PROFIT APPRIOPRIATION) – ASSETS BALANCE SHEET OF THE HOLDING COMPANY (AFTER PROFIT APPRIOPRIATION) – EQUITY AND LIABILITIES 31/12/21 31/12/20 31/12/21 31/12/20 Note kEUR kEUR Note kEUR kEUR Non-current assets Equity attributable to shareholders of the parent company Intangible ﬁxed assets Tangible ﬁxed assets [2] [3] 136 373 243 503 Issued capital [9] [9] [9] 1,075 63,782 -46,182 18,675 360 1,075 63,782 -45,176 19,681 608 Share premium Financial ﬁxed assets [4], [5] 9,073 9,583 7,688 8,434 Other reserves Total non-current assets Current assets Total equity Non-current liabilities Provisions [10] [11] [12] Receivables due from subsidiaries Prepaid expenses and other current assets Cash and cash equivalents Total current assets Total assets [6] [7] [8] 2,482 253 2,222 198 269 42 Current liabilities Total liabilities Total equity and liabilities 965 931 7,951 10,686 20,269 10,408 12,828 21,262 1,594 20,269 1,581 21,262 129 130 07 07 STATUTORY FINANCIAL STATUTORY FINANCIAL Unrealised gains on transactions between the Holding Company and PROFIT OR LOSS ACCOUNT OF THE HOLDING COMPANY NOTES TO THE STATUTORY FINANCIAL STATEMENTS OF THE HOLDING COMPANY its investments in consolidated subsidiaries are eliminated in full, based on the consolidation principles. The Holding Company Financial Statements are presented in EUR, which is the Holding Company’s functional currency. The amounts are in thousands of EUR (rounded to the nearest thousand), unless otherwise stated. There have been no changes to the accounting policies of the Holding Company. Due to rounding up or down, individual ﬁgures may not add up exactly to the totals stated. 1/1 - 31/12/21 1/1 - 31/12/20 Note [14] kEUR kEUR [1] Basis of preparation and signiﬁcant accounting policies Revenue 319 417 Other operating income 1,846 -824 -1,740 -37 2,452 -607 -2,239 -2 The Company Financial Statements for ad pepper media International N.V. (Commercial Register No. 27182121) have been prepared in accordance with the statutory provisions of Part 9, Book 2 of the Dutch Civil Code. In accordance with subsection 8 of section 362, Book 2 of the Dutch Civil Code, the same accounting principles may be applied in the Company’s ﬁnancial statement and the consolidated ﬁnancial statements. The Holding Company’s ﬁnancial data is included in the Consolidated Financial Statements. The notes to the Company’s balance sheet and income statement are limited to items that differ from the corresponding items in the Consolidated Financial Statements and that are of material signiﬁcance. Selling and marketing expenses General and administrative expenses Other operating expenses Earnings before interest and tax (EBIT) Interest income [2] Intangible ﬁxed assets Trade- Software marks Total -436 73 22 2 kEUR 4 kEUR 177 153 0 kEUR 181 153 0 Interest expenses -65 -67 Book value at 1/1/20 Additions Loss before taxes -427 2,153 1,725 -43 0 Share in result of subsidiaries and participations Net result for the year 3,707 3,664 Disposals 0 Amortisation -1 -90 -91 The Holding Company applies the acquisition method to account for acquiring subsidiaries, consistent with the approach identiﬁed in the Consolidated Financial Statements. The consideration transferred for the acquisition of a subsidiary is the fair value of assets transferred to the Holding Company, liabilities incurred to the former owners of the acquired company, and the equity interests issued by the Holding Company. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identiﬁable assets acquired and liabilities and contingent liabilities assumed in an acquisition are measured initially at their fair values at the acquisition date, and are subsumed in the net asset value of the investment in consolidated subsidiaries. Acquisition-related costs are expensed as incurred. Book value at 31/12/20 Purchase value 3 240 1,726 -1,487 240 0 243 2,370 -2,128 243 0 *Revenue relates solely to license fee charged to subsidiaries. 644 -641 3 Accumulated amortisation Book value at 1/1/21 Additions 0 Disposals 0 0 0 Amortisation -1 -106 133 1,726 -1,593 133 -107 136 2,370 -2,234 136 Book value at 31/12/21 Purchase value 3 644 -641 3 Accumulated amortisation Book value at 31/12/21 Investments in consolidated subsidiaries are measured at net asset value. Net asset value is based on the measurement of assets, provisions and liabilities, and determination of proﬁt based on the principles applied in the Consolidated Financial Statements. If the valuation of a subsidiary based on the net asset value is negative, it will be stated at nil. If and insofar as the Holding Company has the ﬁrm intention of enabling the participation to settle its debts, a provision is recognised for this. When the Holding Company ceases to have control over a subsidiary, any retained interest is re-measured to fair value, with the change in carrying amount to be accounted for in the income statement. When parts of investments in consolidated subsidiaries are bought or sold, and such transaction does not result in the loss of control, the difference between the consideration paid or received and the carrying amount of the net assets acquired or sold is directly recognised in equity. Intangible assets are amortised over a useful life of three years. 131 132 07 07 STATUTORY FINANCIAL STATUTORY FINANCIAL [3] Tangible ﬁxed assets The Group recognises right-of-use assets at the commencement date of The movements during the year are as follows: Subsidiary companies [5] Marketable securities the lease (i.e., the date the underlying asset is available for use). Right- of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any re-measurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred and lease payments made at or before the commencement date, less any lease incentives received. Unless the Group is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the capitalised right-of- use assets are depreciated on a straight-line basis over the shorter of their estimated useful lives and the lease term. Right-of-use assets are subject to impairment. Tangible ﬁxed assets can be speciﬁed as follows: 31/12/21 31/12/20 Invest- ments Loans Financial assets Total kEUR kEUR 31/12/21 31/12/20 including invest- Due within one year 0 0 kEUR kEUR ments Due within one and ﬁve years Due in more than ﬁve years 1,007 0 1,012 0 Tangible ﬁxed assets Right-of-use assets 60 79 kEUR kEUR kEUR kEUR 313 424 Total 1,007 1,012 Book value at 1/1/20 Total 373 503 3,717 0 119 3,836 Additions 0 100 0 100 The depreciation percentages used for tangible assets range from 12.5 percent to 33.3 percent. Securities measured at fair value through other comprehensive income Dividends and repayments -824 0 0 0 0 -824 Tangible ﬁxed assets 2021 2020 In the reporting period, no securities measured at fair value through other comprehensive income were acquired (2020: EUR 994k). Unrealised losses of EUR 6k (2020: unrealised gains EUR 18k) were recognised in other comprehensive income. For further information on investments made please refer to Note [18] of the Consolidated Financial Statements. Share of net proﬁt 3,707 3,707 kEUR kEUR Investments in subsidiaries [4] Financial ﬁxed assets Book value at 1/1 Additions 79 24 50 0 0 0 0 50 4 0 80 0 Translation adjustments 31/12/21 31/12/20 -235 -235 Disposals Securities measured at fair value through proﬁt or loss In the reporting period, securities measured at fair value through proﬁt or loss were acquired for EUR 1,999k (2020: EUR 0k). Purchases include investments in listed equity instruments only. Realised gains of EUR 51k (2020: EUR 0k) were recognised in proﬁt or loss. kEUR kEUR Book value at 1/1/21 Depreciation -23 60 -25 79 6,415 100 119 6,634 Subsidiaries at net asset value 5,397 6,457 Book value at 31/12 Purchase value Additions 0 400 0 400 Listed debt and marketable securities 3,057 500 1,012 100 280 -220 60 277 -198 79 Dividends and repayments Loans Other Accumulated depreciation Book value at 31/12 -3,552 1,990 0 0 0 0 -3,552 1,990 119 119 In 2021 the Company did not sell marketable ﬁnancial assets. In 2020 the Company sold ﬁnancial assets of EUR 2,152k and realised losses of EUR 122k in the proﬁt or loss. Share of net proﬁt Total 9,073 7,688 Investments in subsidiaries 20 256 0 0 0 0 20 256 Investments in subsidiary companies consist of the following: For further information on investments made please refer to Note [18] of the Consolidated Financial Statements. Translation adjustments Right-of-use assets 2021 2020 Book value at 31/12/21 kEUR kEUR 31/12/21 31/12/20 5,129 500 119 5,748 Book value at 1/1 Additions 424 530 [6] Group companies kEUR kEUR 6 0 11 0 Subsidiaries at net asset value Provisions for subsidiaries 5,397 6,457 The receivables from Group companies mature within one year. Disposals -269 -42 Depreciation -117 313 658 -345 313 -117 424 652 -228 424 Total 5,129 6,415 [7] Prepaid expenses and other current assets Book value at 31/12 Purchase value Accumulated depreciation Book value at 31/12 31/12/21 31/12/20 kEUR kEUR Income tax receivables Other receivables 128 118 125 80 Total 253 198 133 134 07 07 STATUTORY FINANCIAL STATUTORY FINANCIAL [8] Cash and cash equivalents No restrictions on cash exist at balance sheet date. [9] Shareholders’ equity Balance at 1/1/2021 Proﬁt for the period Other comprehensive income Total comprehensive income Share-based payment Dividends Purchase of treasury Cash settlement of SOP's shares Issuance of shares Balance at 31/12/2021 Note kEUR kEUR kEUR kEUR kEUR kEUR kEUR kEUR kEUR kEUR [25] Issued capital 1,075 0 0 0 0 0 0 0 0 1,075 [26] [27] Share premium Reserves 63,782 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 63,782 0 0 0 0 0 0 Treasury reserve -2,417 2,663 -44,051 0 -2,576 0 87 0 -4,906 2,827 -42,962 [38] [2] For employee stock option plans Accumulated deﬁcit 0 0 164 0 0 0 0 1,725 1,725 -636 0 Currency translation basis of preparation differences -1,389 18 0 0 236 -6 236 -6 0 0 0 0 0 0 0 0 0 0 0 0 -1,153 12 [18] Revaluation of listed debt securities Subtotal reserves -45,176 19,681 1,725 1,725 230 230 1,955 1,955 164 164 -2,576 -2,576 -636 -636 87 87 -46,182 18,675 Total equity Balance at 1/1/2020 Proﬁt for the period Other comprehensive income Total comprehensive income Share-based payment Dividends Purchase of treasury Cash settlement of SOP's shares Issuance of shares Balance at 31/12/2020 Note kEUR kEUR kEUR kEUR kEUR kEUR kEUR kEUR kEUR kEUR [25] Issued capital 1,075 0 0 0 0 0 0 0 0 1,075 [26] [27] Share premium 63,782 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 63,782 0 Reserves 0 0 0 Treasury reserve -1,438 2,558 -47,715 -1,157 0 0 0 0 -1,142 163 0 -2,417 2,663 -44,051 -1,389 18 [38] [2] For employee stock option plans Accumulated deﬁcit Currency translation differences Revaluation of listed debt securities Subtotal reserves Total equity 0 0 0 105 0 0 3,664 0 0 3,664 -232 18 0 0 0 -232 18 0 0 [18] 0 0 0 0 -47,751 17,105 3,664 3,664 -214 -214 3,450 3,450 105 105 -1,142 -1,142 163 163 -45,176 19,681 135 136 07 07 STATUTORY FINANCIAL STATUTORY FINANCIAL Issued capital Authorised capital [12] Current liabilities The future minimum payment obligations resulting from the contracts for short-term rent and other agreements in place as at 31 December 2021 are as follows: At the end of 2021, the issued capital of ad pepper media International N.V. comprises 21,500,000 (2020: 21,500,000) bearer shares with a nominal value of EUR 0.05 each. The authorised share capital of the Holding Company amounts to EUR 4,000,000, divided into 80,000,000 shares, with a par value of EUR 0.05 each. The Board of Directors is authorised, upon approval by the Supervisory Board, to issue shares until 15 May 2023, or to grant rights to subscribe for shares until the issued share capital amounts to EUR 2,000,000. 31/12/21 31/12/20 2021 2020 kEUR kEUR Accrued expenses Other current liabilities Lease liabilities Total 234 137 kEUR kEUR Additional paid-in capital 612 119 965 675 119 931 No later than 1 year 87 54 Later than 1 year and no later than 5 years Proceeds from the issuance of shares increased the additional paid in capital by the amount by which they exceeded the par value of the shares. Furthermore, it also includes expenses incurred for stock option plans. 4 0 0 0 Proposed appropriation of the result for the ﬁnancial year 2021 Later than 5 years The Board of Directors, with the approval of the Supervisory Board, proposes to allocate the result for the ﬁnancial year 2021 amounting to EUR 1,725k to the accumulated deﬁcit without payment of dividend. The ﬁnancial statements reﬂect this proposal. Other current liabilities comprise mainly VAT payables and bonus accruals. Treasury reserves [14] Other operating income Purchase of treasury shares [13] Contingent liabilities Other operating income mainly includes management and shared services charged to subsidiaries of EUR 1,103k (2020: EUR 886k) and other income resulting from the proﬁt distribution agreement with the subsidiary ad pepper media GmbH of EUR -163k (2020: EUR 1,566k) and Webgains GmbH of EUR 906k (2020: EUR 0k). By a shareholders’ resolution dated 18 May 2021, the Board of Directors was authorised to repurchase treasury stock of up to 50 percent of the issued capital within the following 18 months. The Board of Directors made partial use of this authorisation on 2 August 2021 to repurchase up to a maximum of 500,000 of its own shares for a total maximum amount of up to EUR 3,000,000. The share buy-back will take place between 1 September 2021 and 17 November 2022. As a consequence, as of 31 December 2021, 461,384 shares with a value of EUR 2,576,000 were repurchased under this buy-back programme. [10] Non-current liabilities Contingent liabilities mainly result from rented ofﬁces and ofﬁce equipment. The rent deposit for the ofﬁce facilities in Nuremberg, which is carried at its nominal value of EUR 119k (2020: EUR 119k), is pledged as collateral for bank guarantees. 31/12/21 31/12/20 kEUR kEUR ad pepper media International N.V. has provided guarantees for all outstanding liabilities of its subsidiary ad pepper media GmbH (registered number: HRB 16494) that existed as at 31 December 2021, until these are satisﬁed in full. As a result, the individual local statutory accounts of ad pepper media GmbH are exempt from audit under the requirements of Section 264 Par. 3 German Commercial Code (HGB). As at 31 December 2021, the outstanding liabilities of ad pepper media GmbH amount to EUR 1,860k (2020: EUR 6,234k). [15] Employee information Employee beneﬁts liability Lease liability 155 293 205 315 At the end of the ﬁnancial year, the Holding Company employed 17 people (2020: 18). All employees are employed outside the Netherlands. Total 360 608 By a shareholders’ resolution dated 19 May 2020, the Board of Directors was authorised to repurchase treasury stock of up to 50 percent of the issued capital within the following 18 months. The Board of Directors made partial use of this authorisation on 19 October 2020 and repurchased up to a maximum of 500,000 of its own shares for a total maximum amount of up to EUR 2,250,000. The share buy-back took place from 19 October 2020 until 9 April 2021. During this period, the Company bought back 447,236 shares with a value of EUR 2,249,994. 2021 2020 The employee beneﬁts liability relates to the obligation resulting from the cash-settled option plan. For further details on cash-settled stock option plans, please refer to Note [38] of the consolidated ﬁnancial statements. kEUR kEUR Wages and salaries 1,116 1,414 ad pepper media International N.V. has provided guarantees for all outstanding liabilities of its subsidiary ad agents GmbH (registered number: HRB 16494) that existed as at 31 December 2021, until these are satisﬁed in full. As a result, the individual local statutory accounts of ad agents GmbH are exempt from audit under the requirements of Section 264 Par. 3 German Commercial Code (HGB). As at 31 December 2021, the outstanding liabilities of ad agents GmbH amount to EUR 4,069k (2020: EUR 3,992k). Stock option expenses/income Social security costs 371 196 271 181 [11] Provisions Other employment expenses 13 23 Number of shares outstanding The numbers of shares issued and outstanding as at 31 December 2021 totalled 20,491,197 (2020: 20,920,181). Each share has a nominal value of EUR 0.05. Total 1,696 1,889 31/12/21 31/12/20 kEUR kEUR These costs are included in the cost of sales, selling expenses, and general and administrative expenses. Pension costs included in social security costs amount to EUR 70k (2020: EUR 66k). Subsidiaries Total 269 43 ad pepper media International N.V. has provided guarantees for all outstanding liabilities of its subsidiary Webgains GmbH (registered number: HRB 37198) that existed as at 31 December 2021, until these are satisﬁed in full. As a result, the individual local statutory accounts of Webgains GmbH are exempt from audit under the requirements of Art. 264 Par. 3 German Commercial Code (HGB). As at 31 December 2021, the outstanding liabilities of Webgains GmbH amount to EUR 4,407k (2020: EUR 0k). 269 43 Provisions for subsidiaries relate to subsidiaries with a negative net asset value. For further information please refer to Note [4]. 137 138 07 07 STATUTORY FINANCIAL STATUTORY FINANCIAL The average number of personnel employed during the year was: [17] Independent auditor’s fees 2021 Fee Fee other Total fee 2021 2020 Ernst & Young Ernst & Young Ernst & Young Accountants LLP ofﬁces FTEs FTEs IT 2 2 kEUR kEUR kEUR Marketing Administration 1 14 17 1 14 17 Audit of ﬁnancial statements 215 0 215 0 215 0 Other services Total Total 215 0 215 [16] Information relating to the Board of Directors and Supervisory Board 2020 Fee Fee other Total fee The Board Ernst & Young Ernst & Young Ernst & Young Accountants LLP ofﬁces Dr Jens Körner (Chief Executive Ofﬁcer) Associated companies Shares Stock Shares Stock kEUR kEUR kEUR options options Audit of ﬁnancial statements Nuremberg, 29 March 2022 2021 2021 2020 2020 85 0 120 0 205 0 EMA Electronic Media Advertising Int. B.V. Other services Total 85 120 205 9,486,402 556,163 0 0 9,486,402 556,163 0 0 Euro Serve Media GmbH The Supervisory Board [18] Events after the balance sheet date Michael Oschmann Thomas Bauer The ultimate shareholders of both associated companies are Michael and Constanze Oschmann. Up until the day of authorisation for issuance, there were no events that would have exerted substantial inﬂuence on the net assets, ﬁnancial position or results of operations as at 31 December 2021. Dr Stephan Roppel Dagmar Bottenbruch 139 140 « 08 OTHER INFORMATION 08 08 OTHER INFORMATION OTHER INFORMATION OTHER INFORMATION Statutory arrangements for appropriation of results According to Article 15 of the Holding Company‘s articles of association, the Annual General Meeting of shareholders determines the appropriation of the Holding Company‘s net result for the year and the previous year. Independent auditor’s report The independent auditor’s report on these ﬁnancial statements is included on the following pages. 143 144 08 08 OTHER INFORMATION OTHER INFORMATION Information in support of our opinion INDEPENDENT AUDITOR’S REPORT We designed our audit procedures in the context of our audit of the ﬁnancial statements as a whole and in forming our opinion thereon. The following information in support of our opinion and any ﬁndings were addressed in this context, and we do not provide a separate opinion or conclusion on these matters. To: the shareholders and supervisory board of ad pepper media International N.V. Our understanding of the business REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS 2021 INCLUDED IN THE ANNUAL REPORT Ad pepper media International N.V. is the head of a group of companies that provides online marketing services. We paid speciﬁc attention in our audit to a number of areas driven by the operations of the group and our risk assessment. We start by determining materiality and identifying and assessing the risks of material misstatement of the ﬁnancial statements, whether due to fraud or error in order to design audit procedures responsive to those risks and to obtain audit evidence that is sufﬁcient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Our opinion We have audited the ﬁnancial statements 2021 of ad pepper media International N.V. based in Amsterdam. The ﬁnancial statements comprise the consolidated and statutory ﬁnancial statements. Materiality In our opinion: • the accompanying consolidated ﬁnancial statements give a true and fair view of the ﬁnancial position of ad pepper media International N.V. as at 31 December 2021 and of its result and its cash ﬂows for 2021 in accordance with International Financial Reporting Standards as adopted by the European Union (EU-IFRS) and with Part 9 of Book 2 of the Dutch Civil Code Materiality € 276,000 (2020: € 250,000) Approximately 1% of revenue • the accompanying statutory ﬁnancial statements give a true and fair view of the ﬁnancial position of ad pepper media International N.V. as at 31 December 2021 and of its result 2021 in accordance with Part 9 of Book 2 of the Dutch Civil Code Benchmark applied Explanation We have applied this benchmark based on our professional judgement and taking into account the expectations of users of the ﬁnancial statements. Revenue was concluded to be the most appropriate measure as it is considered to be reﬂective of the growth in and development of the company’s activities. The consolidated ﬁnancial statements comprise: • the consolidated statement of ﬁnancial position as at 31 December 2021 • the following statements for 2020: the consolidated income statement, the consolidated statements of comprehensive income, changes in equity and cash ﬂows • the notes comprising a summary of the signiﬁcant accounting policies and other explanatory information. We have also taken into account misstatements and/or possible misstatements that in our opinion are material for the users of the ﬁnancial statements for qualitative reasons. We agreed with the supervisory board that misstatements in excess of € 13,800, which are identiﬁed during the audit, would be reported to them, as well as smaller misstatements that in our view must be reported on qualitative grounds. The company ﬁnancial statements comprise: • the balance sheet of the holding company as at 31 December 2021 • the proﬁt and loss account of the holding company for 2021 • the notes comprising a summary of the accounting policies and other explanatory information. Scope of the group audit Ad pepper media International N.V. is at the head of a group of entities. The ﬁnancial information of this group is included in the consolidated ﬁnancial statements. While the entities in the group operate in various countries, their ﬁnancial information is managed centrally. We have performed our audit procedures over the ﬁnancial information of all entities in the group on a consolidated basis. Basis for our opinion We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. Our responsibilities under those standards are further described in the Our responsibilities for the audit of the ﬁnancial statements section of our report. Teaming and use of specialists We are independent of ad pepper media International N.V. in accordance with the EU Regulation on speciﬁc requirements regarding statutory audit of public-interest entities, the “Wet toezicht accountantsorganisaties” (Wta, Audit ﬁrms supervision act), the “Verordening inzake de onafhankelijkheid van accountants bij assurance-opdrachten” (ViO, Code of Ethics for Professional Accountants, a regulation with respect to independence) and other relevant independence regulations in the Netherlands. Furthermore we have complied with the “Verordening gedrags- en beroepsregels accountants” (VGBA, Dutch Code of Ethics). We ensured that the audit team included the appropriate skills and competences which are needed for the audit of a listed client. We included specialists in the areas of information technology, share based payments and income tax. We believe the audit evidence we have obtained is sufﬁcient and appropriate to provide a basis for our opinion. 145 146 08 08 OTHER INFORMATION OTHER INFORMATION Our focus on fraud and non-compliance with laws and regulations Our audit response related to going concern Our responsibility As disclosed in section ’01 Letter from the board of directors’ and in the management statements in section ‘04.1 Governance’ management made a speciﬁc assessment of the company’s ability to continue as a going concern and to continue its operations for at least the next 12 months. We discussed and evaluated the speciﬁc assessment with management exercising professional judgment and maintaining professional skepticism. We considered whether management’s going concern assessment, based on our knowledge and understanding obtained through our audit of the ﬁnancial statements or otherwise, contains all events or conditions that may cast signiﬁcant doubt on the company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the ﬁnancial statements or, if such disclosures are inadequate, to modify our opinion. Although we are not responsible for preventing fraud or non-compliance and we cannot be expected to detect non-compliance with all laws and regulations, it is our responsibility to obtain reasonable assurance that the ﬁnancial statements, taken as a whole, are free from material misstatement, whether caused by fraud or error. Our audit response related to fraud risks We identify and assess the risks of material misstatements of the ﬁnancial statements due to fraud. During our audit we obtained an understanding of the entity and its environment and the components of the system of internal control, including the risk assessment process and management’s process for responding to the risks of fraud and monitoring the system of internal control and how the supervisory board exercises oversight, as well as the outcomes. We refer to section ‘04.5 Risk report’ for management’s risk assessment and section ‘02 Report of the supervisory board’ in which the supervisory board reﬂects on this risk assessment. Based on our procedures performed, we did not identify serious doubts on the company’s ability to continue as a going concern for the next 12 months. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause a company to cease to continue as a going concern. We evaluated the design and relevant aspects of the system of internal control and in particular the fraud risk assessment, as well as the code of conduct, whistle blower procedures and incident registration. We evaluated the design and the implementation of internal controls designed to mitigate fraud risks. Our key audit matters Key audit matters are those matters that, in our professional judgment, were of most signiﬁcance in our audit of the ﬁnancial statements. We have communicated the key audit matters to the supervisory board. The key audit matters are not a comprehensive reﬂection of all matters discussed. As part of our process of identifying fraud risks, we evaluated fraud risk factors with respect to ﬁnancial reporting fraud, misappropriation of assets and bribery and corruption in close co-operation with our forensic specialists. We evaluated whether these factors indicate that a risk of material misstatement due fraud is present. In comparison with previous year, our key audit matters did not change. We incorporated elements of unpredictability in our audit. We also considered the outcome of our other audit procedures and evaluated whether any ﬁndings were indicative of fraud or non-compliance. Risk of inappropriate revenue recognition, including the risk of management overriding revenue recognition controls (see note 5 to the consolidated ﬁnancial statements) As in all of our audits, we addressed the risks related to management override of controls and when identifying and assessing fraud risks we presumed that there are risks of fraud in revenue recognition. We describe the audit procedures responsive to the risk of management override of controls and the presumed risk of fraud in revenue recognition in the description of our audit approach for the key audit matter ‘Risk of inappropriate revenue recognition, including the risk of management overriding revenue recognition controls ‘. Risk Recognizing revenue is a routine process for the company, with a high number of transactions during the year. Revenue is an important performance indicator to the board of directors, the supervisory board as well as to other stakeholders and, therefore, we believe it to be subject to a higher risk of manipulation. As a result, we consider this a key audit matter. Our audit approach We have analyzed the company’s revenue recognition policies and procedures for the various sources of revenue. We evaluat- ed the design and implementation of internal controls embedded in revenue recognition processes, including internal controls related to IT processes relevant to revenue recognition for Webgains. In the latter IT specialists were involved as well. We considered available information and made enquiries of relevant executives, directors and the supervisory board. The fraud risks we identiﬁed, enquiries and other available information did not lead to speciﬁc indications for fraud or suspected fraud potentially materially impacting the view of the ﬁnancial statements. We discussed with and challenged management in their evaluation of revenue arrangements and the related analysis of recognizing revenue as principal or agent. We validated management’s analysis based on inspection and interpretation of agreements with both customers and suppliers. Our audit response related to risks of non-compliance with laws and regulations We assessed factors related to the risks of non-compliance with laws and regulations that could reasonably be expected to have a material effect on the ﬁnancial statements from our general industry experience, through discussions with the management board, reading minutes and inspection of other relevant documents regarding compliance with laws and regulations and performing substantive tests of details of classes of transactions, account balances or disclosures. We applied a data-analytics driven audit approach to revenue in which we veriﬁed that revenue recognized during the year subsequently resulted in cash receipt. We also performed testing of revenue related accounts such as trade receivables and we tested appropriate cut-off of revenue between 2021 and 2022. Finally, we used data analysis to identify and address high-risk journal entries and we performed procedures to evaluate key accounting estimates for management bias in respect of revenue recognition. We also inspected lawyers’ letters and correspondence with regulatory authorities and remained alert to any indication of (suspected) non- compliance throughout the audit. Finally we obtained written representations that all known instances of non-compliance with laws and regulations have been disclosed to us. Key observations We conclude that the revenue for 2021 has been appropriately recognized and disclosed in the ﬁnancial statements. 147 148 08 08 OTHER INFORMATION OTHER INFORMATION European Single Electronic Reporting Format (ESEF) REPORT ON OTHER INFORMATION INCLUDED IN THE ANNUAL REPORT Ad pepper media International N.V. has prepared the annual report in ESEF. The requirements for this are set out in the Delegated Regulation (EU) 2019/815 with regard to regulatory technical standards on the speciﬁcation of a single electronic reporting format (hereinafter: the RTS on ESEF). The annual report contains other information in addition to the ﬁnancial statements and our auditor’s report thereon. Such other information consists of the Report of the Supervisory Board, the Report of the Board of Directors, the letter from the Board of Directors, the remuneration report and other information. In our opinion, the annual report, prepared in the XHTML format, including the partially marked-up consolidated ﬁnancial statements, as included in the reporting package by ad pepper media International N.V., complies in all material respects with the RTS on ESEF. Based on the following procedures performed, we conclude that the other information: Management is responsible for preparing the annual report, including the ﬁnancial statements, in accordance with the RTS on ESEF, whereby management combines the various components into a single reporting package. • Is consistent with the ﬁnancial statements and does not contain material misstatements • Contains the information as required by Part 9 of Book 2 for the management board report and the other information as required by Part 9 of Book 2 of the Dutch Civil Code and as required by Sections 2:135b and 2:145 sub section 2 of the Dutch Civil Code for the remuneration report. Our responsibility is to obtain reasonable assurance for our opinion whether the annual report in this reporting package complies with the RTS on ESEF. We have read the other information. Based on our knowledge and understanding obtained through our audit of the ﬁnancial statements or otherwise, we have considered whether the other information contains material misstatements. By performing these procedures, we comply with the requirements of Part 9 of Book 2 and Section 2:135b sub-Section 7 of the Dutch Civil Code and the Dutch Standard 720. The scope of the procedures performed is substantially less than the scope of those performed in our audit of the ﬁnancial statements. Our procedures, taking into account Alert 43 of the NBA (the Netherlands Institute of Chartered Accountants), included amongst others: • obtaining an understanding of the company’s ﬁnancial reporting process, including the preparation of the reporting package • obtaining the reporting package and performing validations to determine whether the reporting package containing the Inline XBRL instance document and the XBRL extension taxonomy ﬁles have been prepared in accordance with the technical speciﬁcations as included in the RTS on ESEF • examining the information related to the consolidated ﬁnancial statements in the reporting package to determine whether all required mark-ups have been applied and whether these are in accordance with the RTS on ESEF. Management is responsible for the preparation of the other information, including the management board report in accordance with Part 9 of Book 2 of the Dutch Civil Code and other information required by Part 9 of Book 2 of the Dutch Civil Code. Management and the supervisory board are responsible for ensuring that the remuneration report is drawn up and published in accordance with Sections 2:135b and 2:145 sub section 2 of the Dutch Civil Code. DESCRIPTION OF RESPONSIBILITIES REGARDING THE FINANCIAL STATEMENTS REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS AND ESEF Responsibilities of management and the supervisory board for the ﬁnancial statements Engagement Management is responsible for the preparation and fair presentation of the ﬁnancial statements in accordance with EU-IFRS and Part 9 of Book 2 of the Dutch Civil Code. Furthermore, management is responsible for such internal control as management determines is necessary to enable the preparation of the ﬁnancial statements that are free from material misstatement, whether due to fraud or error. We were engaged by the supervisory board as auditor of ad pepper media International N.V. on 27 July 2018, as of the audit for the year 2018 and have operated as statutory auditor since. As part of the preparation of the ﬁnancial statements, management is responsible for assessing the company’s ability to continue as a going concern. Based on the ﬁnancial reporting frameworks mentioned, management should prepare the ﬁnancial statements using the going concern basis of accounting unless management either intends to liquidate the company or to cease operations, or has no realistic alternative but to do so. Management should disclose events and circumstances that may cast signiﬁcant doubt on the company’s ability to continue as a going concern in the ﬁnancial statements. No prohibited non-audit services We have not provided prohibited non-audit services as referred to in Article 5(1) of the EU Regulation on speciﬁc requirements regarding statutory audit of public-interest entities. The supervisory board is responsible for overseeing the company’s ﬁnancial reporting process. Other non-prohibited services provided Our services are only related to the audit of the ﬁnancial statements. 149 150 08 08 OTHER INFORMATION OTHER INFORMATION Our responsibilities for the audit of the ﬁnancial statements Our objective is to plan and perform the audit engagement in a manner that allows us to obtain sufﬁcient and appropriate audit evidence for our opinion. Our audit has been performed with a high, but not absolute, level of assurance, which means we may not detect all material errors and fraud during our audit. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to inﬂuence the economic decisions of users taken on the basis of these ﬁnancial statements. The materiality affects the nature, timing and extent of our audit procedures and the evaluation of the effect of identiﬁed misstatements on our opinion. We have exercised professional judgment and have maintained professional skepticism throughout the audit, in accordance with Dutch Standards on Auditing, ethical requirements and independence requirements. The ‘Information in support of our opinion’ section above includes an informative summary of our responsibilities and the work performed as the basis for our opinion. Our audit further included among others: • Performing audit procedures responsive to the risks identiﬁed, and obtaining audit evidence that is sufﬁcient and appropriate to provide a basis for our opinion • Obtaining an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control • Evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management • Evaluating the overall presentation, structure and content of the ﬁnancial statements, including the disclosures • Evaluating whether the ﬁnancial statements represent the underlying transactions and events in a manner that achieves fair presentation Communication We communicate with the supervisory board regarding, among other matters, the planned scope and timing of the audit and signiﬁcant audit ﬁndings, including any signiﬁcant ﬁndings in internal control that we identify during our audit. In this respect we also submit an additional report to the audit committee in accordance with Article 11 of the EU Regulation on speciﬁc requirements regarding statutory audit of public-interest entities. The information included in this additional report is consistent with our audit opinion in this auditor’s report. We provide the supervisory board with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the supervisory board, we determine the key audit matters: those matters that were of most signiﬁcance in the audit of the ﬁnancial statements. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, not communicating the matter is in the public interest. Amsterdam, 29 March 2022 Ernst & Young Accountants LLP Signed by G.M.J. Bloetjes 151 152 « ꢌꢊꢍꢎꢁꢂꢏꢌꢊ ꢐꢑꢃꢏꢑꢃ ꢄꢂꢈꢍꢎꢑꢐ 09 ꢃꢇꢂꢁꢊꢄꢁꢂꢅ ꢊꢇꢃꢈꢉꢀ ꢋꢌꢂꢈꢍ AT A GLANCE ꢀꢁꢂꢂꢁꢃꢄꢁꢂꢅ ꢆꢇꢂꢈꢉꢀ ꢋꢑꢃꢎꢂꢁꢍꢈꢃꢌ ꢊꢈꢐꢌꢃ ꢊꢌꢏꢂꢈꢏ 09 09 AT A GLANCE AT A GLANCE ADDRESSES The ad pepper Group subsidiaries operate in the following countries: ad pepper media International N.V. France Spain Netherlands Group headquarters Nuremberg Frankenstrasse 150 C 90461 Nuremberg Webgains France SARL 21 Boulevard Haussmann 75009 Paris ad pepper media Spain S.A. Avenida Alberto Alcocer 46A, 1ºA 28016 Madrid Webgains B.V. Concertgebouwplein 15 H, 1071LL GERMANY FRANCE SPAIN Amsterdam NETHERLANDS Phone +49 (0) 911 929057-0 Webgains, S.L. Avenida Alberto Alcocer 46A, 1ºA 28016 Madrid Germany UK ad pepper media GmbH Frankenstrasse 150 D 90461 Nuremberg GERMANY SPAIN Webgains Ltd 21 Farringdon Road Third Floor Italy London EC1M 3HA UNITED KINGDOM ad agents GmbH Am Joachimsberg 10-12 71083 Herrenberg GERMANY Webgains Italy S.r.l. Via San Giovanni Sul Muro, 18 20121 Milan Webgains Ltd The Quorum ITALY Bond Street Webgains GmbH Frankenstrasse 150 C 90461 Nuremberg GERMANY South Bristol BS1 3AE UNITED KINGDOM Switzerland ad agents AG Europaallee 41 8021 Zürich Webgains GmbH Frauenstraße 17 80469 München GERMANY SWITZERLAND ad agents AG Via Maistra 100 7504 Pontresina SWITZERLAND 155 156 09 09 AT A GLANCE AT A GLANCE Contact for investors Disclaimer DATES AND CONTACTS Dr Jens Körner (CEO) ad pepper media International N.V. Frankenstrasse 150 C 90461 Nuremberg This Annual Report contains forward-looking statements which are based on current assumptions and assessments made by the manage- ment of ad pepper media International N.V. These statements are not to be understood as a guarantee that such expectations will in fact materialise. Future developments and the results actually achieved by ad pepper media International N.V. and its afﬁliated companies depend upon a number of risks and uncertainties and may therefore deviate signiﬁcantly from the forward-looking statements. Several of these factors are beyond ad pepper media’s control and cannot be precisely estimated in advance, such as the future economic environment and the actions of competitors and other market players. There are no plans to update the forward-looking statements nor does ad pepper media International N.V. undertake any separate obligation to do so. Company calendar All ﬁnancial and press data relevant for the capital market at a glance: GERMANY Phone: +49 (0) 911 929057-0 Fax: +49 (0) 911 929057-157 E-mail: [email protected] Annual Report 2021 29 March 2022 Annual General Meeting (Amsterdam, The Netherlands) 17 May 2022 25 May 2022 www.adpeppergroup.com Quarterly Report I/2022 Quarterly Report II/2022 Quarterly Report III/2022 25 August 2022 24 November 2022 Imprint Editorial responsibility: Headquarters Nuremberg, Germany ad pepper media International N.V. Frankenstrasse 150 C 90461 Nuremberg GERMANY Phone: +49 (0) 911 929057-0 Fax: +49 (0) 911 929057-157 E-mail: [email protected] www.adpeppergroup.com Prime Standard, Frankfurt Stock Exchange ISIN: NL0000238145 Our 2021 Annual Report as well as the Interim Financial Reports for 2021 are available at www.adpeppergroup.com under: Investor relations / Publications / Financial reports. HRB Nuremberg 17591 VAT-ID-No.: DE 210757424 Board of Directors: Dr Jens Körner, CEO 157 158 « 10 GLOSSARY 10 10 GLOSSARY GLOSSARY Afﬁliate: Cybercrime: SEA: GLOSSARY Website that adds banners/buttons/text links that link through to merchant sites, in order to earn commission based on leads/sales generated. Criminal activities carried out by means of computers or the internet. Search Engine Advertising – Search engine marketing covers all marketing activities related to search engines. This includes paid keyword advertising, improved ranking within the search results, and afﬁliate marketing. Display advertising: Non-IFRS ﬁnancial measures Delivery of ads to the target group, avoidance of waste coverage, and the efﬁcient management of digital advertising activities in accordance with customer-deﬁned KPIs. Afﬁliate marketing: EBIT: Afﬁliate marketing is a form of internet advertising where-by online vendors (merchants) place advertising banners on partner websites (afﬁliates) in order to reach more customers. Whenever a user clicks on the banner and buys the product or carries out a pre-deﬁned action, the website operator who displayed the ad receives a commission. This commission is based on the sales rate of the products and services referred by the afﬁliate. SEO: Income before Interest and Tax. Includes all measures designed to feature websites as high as possible on the result pages of search engines. e-commerce: EBITDA: The electronic commerce describes every type of transaction on the internet. The most well-known type of e-commerce is online shopping, although it is much more than marketing and sales online; various online services, service and management of business transaction processes are also part of e-commerce. Income before Interest, Tax, Depreciation and Amortisation. EBT: Income before Tax. Afﬁliate network: Equity ratio: Afﬁliate networks facilitate cooperation between merchants and afﬁliates, act as providers of technological and/or other services who take over tracking and invoicing on behalf of afﬁliates and merchants. Also frequently known as afﬁliate platform. Hacking: Shareholders’ Equity/Total Assets. The gaining of unauthorised access to data in a system or computer. Gross sales: Identity theft: Gross sales represent the total amount billed and billable to clients by the Group, net of discounts, VAT and other sales-related taxes. Disclosure of gross sales information is not required under IFRS; however, it is voluntarily disclosed from 1 January 2018 onwards in the Consolidated Income Statement since management has concluded that the information is useful for users of the ﬁnancial statements. The fraudulent practice of using another person's name and personal information in order to obtain credit, loans, etc. Audience targeting: Audience targeting is the ability to take your full audience of prospective customers and segment it into groups based on different criteria, including online behavioural characteristics, demographics, interests, and intent. Audience targeting helps more effectively deliver personalised and optimised experiences based on customer needs and interests. Lead: A successfully established contact between a product or service provider and a potential customer. Liquid funds: Lead generation: Cash & cash equivalents including listed debt securities. Cookie: A successfully established contact between a product or service provider and a potential customer. A ‘qualiﬁed lead’ signiﬁes that the customer has conﬁrmed interest, for example through registering for a newsletter or submitting a contact form. Small text ﬁle used to enhance the user experience of websites by storing settings entered on site, for instance a country selection on an entry page. Used on most programs for tracking sales. Media cost: Media cost relate to payments made to suppliers of ad inventory (commonly referred to as media buys and publishers). Disclosure of media cost information is not required under IFRS; however, it is voluntarily disclosed from 1 January 2018 onwards in the Consolidated Income Statement as management has concluded that the information is useful for users of the ﬁnancial statements. CPA: Performance marketing: Cost per acquisition – a billing method whereby the advertising customer only pays for their online ad when a user carries out a particular action that has been pre-deﬁned by the advertiser (user makes purchase or registers for a newsletter, for example). Also known as pay per action. Online marketing tools used to calculate success rates. Search engine marketing, afﬁliate marketing, and e-mail marketing all fall under the category of performance marketing, as do banner ads, which are delivered in a targeted manner with fees based on success rates (‘cost per click,’ ‘cost per sale,’ ‘cost per lead’). Business terms CPC: Publisher: Ad: Cost per click – billing unit for online advertising. Costs are calculated according to the number of times a user clicks on an ad (website banner). Also known as pay per click. Website operators are generally known as publishers. They play a particular role in afﬁliate marketing. This is where the publishers take on the functions of distribution partners (afﬁliates). Short for advertisement in print or on TV or otherwise. Ad spending: The amount of money spent on advertising for a product or activity. CPL: Risk of fraud: Cost per lead – fee per dataset. Also known as PPL (pay per lead). The possibility of an organisation being subject to fraudulent activity. Advertiser: Advertisers/Merchants (providers and operators of the program) advertise their products and services on the afﬁliates’ websites and pay them a commission on sales generated. CPM: Cost per mile – shows the costs per 1,000 ad views (see ad impression) for an advertising booking. 161 162 ad pepper media International N.V. Frankenstrasse 150 C 90461 Nuremberg GERMANY www.adpeppergroup.com

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