Basic accounting principles

These consolidated annual accounts have been prepared in conformity with the Inter-national Financial Reporting Standards (IFRS) as they are to be applied in the EU and the relevant interpretations issued by the International Accounting Standards Board (IASB). Moreover, the commercial law provisions to be applied in accordance with Section 315a (1) HGB have been observed.

The consolidated annual accounts have been prepared in euros. Unless otherwise spe-cifically indicated, all of the amounts are shown in thousand euros (€k). Assets and liabilities are sub-categorised as long-term and short-term assets or liabilities according to the attributable periods. The consolidated income statement is structured according to the cost summary method. The fiscal year is the equivalent of the calendar year.

Beginning in fiscal year 2012, application of the following standards and interpreta-tions as revised or newly published by the IASB was mandatory:

¨Amendment of IFRS 7: “Transfer of Financial Assets”

The new regulation did not materially affect the consolidated annual accounts.

The IASB and the IFRIC (International Financial Reporting Interpretations Commit-tee) have issued the following standards, interpretations and amendments to exis-ting standards, but their application is not yet obligatory, and Drillisch AG has not prematurely applied them. The application of these IFRSs presumes that they will be adopted by the EU within the scope of the IFRS endorsement procedure.

Consolidated Notes

The application of the following standards and interpretations which have already been adopted, revised or newly issued by the IASB was not yet mandatory in fiscal year 2012:

IFRS 1 Severe Hyperinflation and Removal of Fixed Dates for First-Time Adop-ters (Amendment)

01.01.2013 Yes

IFRS 1 Government Loans (Amendment) 01.01.2013 No

IFRS 7 Offsetting Financial Assets and Financial Liabilities (Amendment)

01.01.2013 Yes

IFRS 9 Financial Instruments and Subse-quent Amendments (Amendments to IFRS 9 and IFRS 7)

01.01.2015 No

IFRS 10 Consolidated Financial Statements 01.01.2014 Yes

IFRS 11 Joint Arrangements 01.01.2014 Yes

IFRS 12 Disclosure of Interests in Other Entities

01.01.2014 Yes

IFRS 13 Fair Value Measurement 01.01.2013 Yes

IAS 1 Presentation of Other Financial Statements (Amendment)

01.07.2012 Yes

IAS 12 Deferred Tax: Realisation of Under-lying Assets (Amendment)

01.01.2013 Yes

IAS 19 Employee Benefits (Amendment) 01.01.2013 Yes

IAS 27 Separate Financial Statements 01.01.2014 Yes

IAS 28 Investments in Associates and Joint Ventures

01.01.2014 Yes

IAS 32 Offsetting Financial Assets and Financial Liabilities (Amendment)

01.01.2014 Yes

Various Improvements to IFRS 2009–2011 01.01.2013 No

IFRS 10/11/12 Transition Guidance (Amendment) 01.01.2013 No

IFRS 10/11, IAS 27 Investment Entities (Amendment) 01.01.2014 No

Interpretations

IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine

01.01.2013 Yes

Consolidated Notes

To the extent discernible today, no significant effects on the consolidated annual accounts are to be expected from the new regulations (with the exception of the amendment to IAS 19 related to the equity holding in freenet AG). Depending on the actuarial gains and losses of the pension provisions at freenet AG, there can be a non-operating increase or decrease in the equity of Drillisch Group.

C. Consolidation

Consolidation principles and consolidated companies

Business combinations are measured according to the acquisition method. The purchase price is allocated to the identified assets and liabilities of the acquired sub-sidiary. The value relationships at the point in time at which the control over the subsidiary is obtained are authoritative. Measurable assets and the assumed liabili-ties are valued at their full fair value, regardless of the amount of the participation.

Any remaining positive difference is shown as goodwill. A negative difference which remains is included as directly effective on income. The disclosed hidden reserves and hidden encumbrances are carried forward to the following periods in the same way as the handling of the corresponding assets and liabilities, written off as scheduled or reversed.

Joint ventures and interests which are unilaterally controlled are included in ac-cordance with the equity method. The balance sheets for these companies are pre-pared with their identified, proportionate assets which have been revaluated (plus any goodwill) and liabilities in one item. The goodwill derived during the application of the equity method is not written off as scheduled depreciation, but it is reviewed at least once a year for any signs of a decrease in value. The equity measurement is always updated by the proportionate period results. Profits and losses from business transactions with these companies are eliminated proportionately.

Consistent accounting and valuation methods are applied to the separate accounts included in the consolidated annual accounts of Drillisch AG.

All of the receivables and payables as well as income and expenditures among the companies included in the consolidated annual accounts are eliminated, as are inte-rim results.

The parent company´s annual accounts as well as those of all of the important subsi-diaries controlled by the former, whether directly or indirectly, were included in the consolidated annual accounts of Drillisch AG per 31 December 2012. There is control of a company if the parent company, legally or de facto, has the opportunity to de-termine the financial and business policies of a company with the aim of obtaining economic benefits.

The initial inclusion in the consolidated annual accounts takes place at the point in time from which control can be exercised or at which the criteria for joint ventures and associated companies are fulfilled. Companies which are not included are singly and in their totality of only minor importance, both from quantitative and qualitati-ve perspectiqualitati-ves, and the balance sheets are prepared in accordance with IAS 39.

Consolidated Notes

The following companies are included in the consolidated annual accounts:

Share of

capital Held

by

% No.

1. Drillisch AG, Maintal

2. Drillisch Telecom GmbH, Maintal 100 1

3. IQ-optimize Software AG (“IQ-optimize AG”), Maintal 100 1

4. MS Mobile Services GmbH (“MS Mobile GmbH”), Maintal 100 2

5. MSP Holding GmbH, Maintal 100 1

6. MSP Beteiligungs GmbH, Maintal 100 5

7. eteleon e-solutions AG, Munich 100 5

8. b2c.de GmbH, Munich 100 7

9. Intelligram GmbH, Munich 100 8

Drillisch Telecom GmbH, Maintal

The merger of the subsidiary Simply Communication GmbH with Drillisch Telekom GmbH was entered in the Commercial Register on 24 August 2012, effective retroac-tively to 1 January 2012.

freenet AG, Büdelsdorf

As of 31 December 2012, Drillisch AG held a total of 8,866,658 shares in freenet AG.

The combined holdings in freenet AG stock of Drillisch AG and MSP Holding GmbH amounted to 26,686,658 shares per 31 December 2012, corresponding to a share in the freenet AG capital of 20.84%. The fair value per share of freenet AG stock per 31 December 2012 amounted to €14.00, while the book value per share came to €9.73.

D. General accounting and evaluation methods