Annual Report 2019 Data & Facts
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ANNUAL REPORT 2019 DATA & FACTS DATA & FACTS Selected Performance Indicators 2019 2018 Change Q4 '19 Q4 '18 Change Q3 '19 Q2 '19 Q1 '19 PROFIT (IN €M) Revenues 3,674.9 3,634.5 1.1% 945.3 930.6 1.6% 923.3 903.8 902.5 Service revenues 2,943.0 2,854.4 3.1% 742.7 718.0 3.4% 748.5 731.0 720.8 Hardware and Other revenues 731.9 780.1 -6.2% 202.6 212.6 -4.7% 174.7 172.8 181.7 EBITDA 683.5 721.9 -5.3% 174.8 197.2 -11.3% 168.3 172.0 168.5 EBITDA margin in % of revenue 18.6% 19.9% 18.5% 21.2% 18.2% 19.0% 18.7% EBIT without PPA write-offs 641.8 681.6 -5.8% 165.0 186.8 -11.6% 158.5 160.9 157.4 EBIT margin in % of revenue without PPA write-offs 17.5% 18.8% 17.5% 20.1% 17.2% 17.8% 17.4% EBIT 528.5 567.2 -6.8% 137.2 158.2 -13.2% 130.2 132.3 128.8 EBIT margin in % of revenue 14.4% 15.6% 14.5% 17.0% 14.1% 14.6% 14.3% EBT 522.4 562.6 -7.1% 139.3 154.8 -10.0% 127.2 128.4 127.5 EBT margin in % of revenue 14.2% 15.5% 14.7% 16.6% 13.8% 14.2% 14.1% Profit per share in € excluding PPA write-offs 2.57 2.75 -6.6% 0.72 0.83 -13.8% 0.61 0.62 0.62 Profit per share in € 2.12 2.30 -7.7% 0.60 0.71 -15.5% 0.51 0.51 0.50 CASH FLOW (IN €M) Net inflow of funds from operating activities 375.7 155.6 141.5% 148.2 34.5 329.6% 141.3 69.2 17.0 Net outflow of funds in investment sector -230.5 -21.5 -974.3% -221.7 -5.9 -3,672.8% -3.6 -3.0 -2.3 Free cash flow 355.4 142.6 149.3% 136.5 28.7 376.4% 137.8 66.4 14.7 31/12/19 31/12/18 Change 31/12/19 31/12/18 Change 30/09/19 30/06/19 31/03/19 HEADCOUNT (INCL. MANAGEMENT BOARD) Total per end of December 3,163 3,150 0.4% 3,163 3,150 0.4% 3,082 3,108 3,123 CUSTOMER CONTRACTS (IN MILLIONS) Access, contracts 14.33 13.54 5.8% 14.33 13.54 5.8% 14.12 13.92 13.72 of which mobile internet 9.99 9.20 8.6% 9.99 9.20 8.6% 9.78 9.58 9.37 of which broadband 4.34 4.34 0.0% 4.34 4.34 0.0% 4.34 4.34 4.35 (ADSL, VDSL, FTTH) BALANCE SHEET (IN €M) Short-term assets 1,309.2 1,064.6 23.0% 1,309.2 1,064.6 23.0% 1,220.7 1,073.0 1,059.6 Long-term assets 5,152.7 4,182.1 23.2% 5,152.7 4,182.1 23.2% 5,161.6 4,150.4 4,206.3 Shareholders’ equity 4,640.8 4,280.1 8.4% 4,640.8 4,280.1 8.4% 4,538.6 4,448.7 4,366.0 Balance sheet total 6,461.9 5,246.6 23.2% 6,461.9 5,246.6 23.2% 6,382.3 5,223.4 5,265.9 Equity ratio 71.8% 81.6% 71.8% 81.6% 71.1% 85.2% 82.9% INDEX 2 DATA & FACTS 4 TO OUR SHAREHOLDERS 4 Letter from the Management Board 7 Management 8 Report of the Supervisory Board 14 Statement on Corporate Management/Corporate Governance Report 25 CONSOLIDATED MANAGEMENT REPORT 26 General information about the Company and Group 33 Business report 54 Supplementary report 55 Risk report 68 Opportunities report 71 Forecast report 74 Remuneration report 79 Supplementary information 85 Dependency report 87 CONSOLIDATED ANNUAL ACCOUNTS 89 Consolidated Comprehensive Income Statement 90 Consolidated Balance Sheet 92 Consolidated Cash Flow Statement 94 Consolidated Change in Equity Statement 95 Consolidated Notes per 31 December 2019 176 Change in Intangible Assets and Fixed Assets 179 AFFIDAVIT BY LEGAL REPRESENTATIVES (BALANCE SHEET OATH) 181 INDEPENDENT AUDITOR’S REPORT 191 INVESTOR RELATIONS CORNER 192 Investor Relations, Price Performance of the Share 193 Latest Research Notes, Shareholder Structure 195 OTHER 196 Glossary 200 Legal Information 201 Publications, Information and Order Service 201 Financial Calendar 201 Contacts 202 Brand Portfolio of 1&1 Drillisch AG 3 TO OUR SHAREHOLDERS TO OUR SHAREHOLDERS LETTER FROM THE MANAGEMENT BOARD Dear Shareholders, 1&1 Drillisch AG was able to increase its customer base and revenue again in fiscal year 2019. At the same time, profit declined because of higher costs for advance service. The year 2019 was also marked by successful participation in the 5G frequency auction, which ended on 12 June 2019. 1&1 Drillisch acquired two frequency blocks à 2 x 5 MHz in the 2 GHz range and five frequency blocks à 10 MHz in the 3.6 GHz range. The total hammer price was around €1.07 billion. The acquisition of these frequencies laid the cor- nerstone for successful and long-term positioning as the fourth wireless network operator in Germany. Now we will commence the construction of an efficient wireless network. Moreover, on 5 September 2019, 1&1 Drillisch concluded an agreement with the Federal Ministry of Transport and Digital Infrastructure (BMVI) and the Federal Ministry of Finance (BMF) regarding the construction of hundreds of wireless communications sites in so- called “white spots.” Our actions in this regard will help to close existing coverage gaps and contribute to the improvement of wireless communications coverage in rural regions. In return, we will be allowed to pay the costs for the acquired 5G frequencies in 12 annual instalments. This agreement fits in with our long-term financing strategy, which provides for the majority of the expenditures for the construction of a modern 5G network to be financed from current income. Finally, on 30 December 2019, the first option to extend the MBA MVNO contract with Telefónica Germany that was set to expire on 30 June 2020 was exercised; with the re- newal, the contract will now remain effective until at least 30 June 2025. Thanks to this extension and our option for a second extension, 1&1 Drillisch has secured long-term access to the Telefónica wireless network. Ensuring uninterrupted coverage during the construction phase of our own nationwide wireless network will require us to conclude a national roaming agreement with one of the three established network operators. To this end, we are currently conducting negotia- tions with various parties, including Telefónica Germany; the talks with the latter company are based on its voluntary commitment within the framework of the EU approval for the merger with E-Plus in 2014. As 1&1 Drillisch described in the financial reports during fiscal year 2019, certain advance service prices are the subject of several arbitration proceedings initiated by 1&1 Drillisch, in the course of which 1&1 Drillisch expects binding decisions on the type and amount of permanent price adjustments in the form of retroactively lower advance service prices. 4 TO OUR SHAREHOLDERS The first petition for a retroactive reduction of the advance service prices filed by 1&1 Drillisch (Price Review 1 of September 2017) was not granted. In an assessor’s report dated 19 December 2019, the assessor confirmed the decision already announced in the draft of the assessor’s report. 1&1 Drillisch considers the assessor’s report to be incorrect for various reasons and sees methodological errors and discrepancies in content. Further- more, 1&1 Drillisch does not consider essential features of the MBA model introduced in the context of the merger approval of the E-Plus acquisition to have been adequately considered in the report. This includes above all the special privilege of the MBA MVNO. In the interest of its shareholders, 1&1 Drillisch will initiate legal action against the asses- sor’s report. Now for the operating side of the business: In 2019, 1&1 Drillisch continued to invest in new customer contracts as well as in retention and increased value of current customer relationships with the objective of ensuring sus- tained growth in profits. The number of customer contracts in the current product lines rose by 790,000 to 14.33 million contracts (31/12/2018: 13.54 million) in the fiscal year. The new contracts were acquired in the mobile internet business where the number of cus- tomers rose by 790,000 (8.6 percent) to 9.99 million contracts (31/12/2018: 9.20 million). Broadband lines pursuant to 4.34 million contracts remained constant. In comparison with the closing date of the previous year, the number of customer contracts increased in total by 790,000 (5.8 percent). Revenues increased in fiscal year 2019 by €40.4 million (1.1 percent) to €3,674.9 million (2018: €3,634.5 million). The high-margin service revenues increased by €88.6 million (3.1 percent) to €2,943.0 million (2018: €2,854.4 million). These earnings are the focus of our attention because they are sustainable and determine profit. In contrast, the low-margin Other sales – essentially from the realisation of hardware sales brought forward (in particular from investments in smartphones that will be reimbursed by the customers over the minimum contract term in the form of higher package prices) – declined by €48.2 million (6.2 percent) from €780.1 million in the previous year to €731.9 million in fiscal year 2019.