1 wirecard ag Interim Report as at september 30, 2013
2 Key Figures Key figures Wirecard Group 9M M 2012 Revenues TEUR 341, ,538 EBITDA TEUR 89,793 78,128 EBIT TEUR 71,400 66,237 Earnings per share (basic) EUR Shareholders' equity TEUR 584, ,078 Total assets TEUR 1,251, ,950 Cash flow from operating activities (adjusted) TEUR 77,900 65,254 Employees of which part-time Segments in EUR '000 9M M 2012 Payment Processing & Risk Management Revenues 244, ,907 EBITDA 68,238 59,943 Acquiring & Issuing Revenues 123, ,745 EBITDA 21,380 17,827 Call Center & Communication Services Revenues 3,568 3,633 EBITDA Consolidation Revenues (30,720) (20,747) EBITDA 1 (30) Total Revenues 341, ,538 EBITDA 89,793 78,128
3 Q content CONTENTS Letter from the CEO 4 Group management report 1. Business Activities and Products 6 2. General Economic Conditions and Business Trends 9 3. Earnings, Financial and Asset Position Group Structure and Organization Report on Events after the Balance Sheet Date Research and Development/ Risk and Opportunities 27 7 Outlook 28 Wirecard stock 29 Consolidated Financial Statements Consolidated Balance Sheet 32 Consolidated Income Statement 34 Consolidated Cash-Flow Statement 36 Consolidated Statement of Changes in Equity 38 3 Explanatory Notes 1. Disclosures related to the company and its valuation principles Explanatory notes on consolidated balance sheet assets Explanatory notes on consolidated balance sheet equity and liabilities Notes to the consolidated income statement Notes to the consolidated cash flow statement Other notes Additional mandatory disclosures 63 Publication details 65
4 Management Report Business activities and products Letter from the CEO Dear Shareholders, The first three quarters of the current fiscal year have been a great success. As of September 30, 2013, our revenues totaled EUR million, an increase of 22 percent compared to the same period of the previous year. Our EBITDA increased in the first nine months of 2013 by 15 percent to EUR 89.8 million. After adjusting investments in the new Mobile Payment business field that were recognized in profit and loss, EBITDA growth in this period would have been 23.6 percent. The volume of transactions processed via the Wirecard platform increased in the first nine months of the year by 27.5 percent compared to the same period of the previous year, to EUR 19.0 billion. Asia contributed 15.8 percent of this amount, or EUR 3.0 billion. 4 The positive growth in our core business, which spans global payment processing, risk management and payment acceptance, is mostly based on three factors: sustainable growth for the ecommerce market, constant new customer acquisitions as well as our innovative strength. We are pleased about the success in our new Mobile Services business field, which includes both mobile payments as well as mobile payment services and the associated value-added services. Once again we have announced strategic alliances with renowned telecommunications service providers. Wirecard has staked its place as a leading partner for mobile payment solutions at the very start of the European mobile payment initiatives. In addition, we have been able to conclude further key strategic alliances with media and software companies. We presented the new product and price configurator for our payment page in the third quarter. This new service, which is designed to be a payment portal, offers fast online registration for merchants. This is a highly competitive product, which accelerates the simple go-live process for smaller shops. Asian business enjoyed highly dynamic growth in the first nine months of The acquisition of Payment Link, which was fully consolidated at the end of October, will allow us to expand our activities in Malaysia.
5 Q Management Report The Management Board has added granularity to its previous EBITDA forecast for fiscal year 2013 of EUR 120 to 130 million, to a current forecast of EUR 123 to 128 million. This already takes our investments in the new Mobile Payments division into account. Yours sincerely, Aschheim (Germany), November 2013 Dr. Markus Braun CEO 5
6 Management Report Business activities and products 1. Business activities and products With more than 15,000 customers and 13 years of experience on the market, Wirecard AG offers its customers state-of-the-art technology, transparent real-time reporting services and support in developing their international payment strategies, be these offline, online or mobile. Overview Wirecard AG is one of the world s leading independent providers of outsourcing and white label solutions for electronic payment transactions. The Wirecard Group has been supporting companies in accepting electronic payments from all sales channels. A global multichannel platform bundles international payment acceptances and methods, flanked by fraud prevention solutions. When it comes to issuing their own payment instruments in the form of cards or mobile payment solutions, Wirecard provides companies with an end-to-end infrastructure, including the requisite issuing licenses for card and account products. 6 As a software and IT specialist, Wirecard is also constantly expanding its portfolio with innovative payment technologies. Business model The Wirecard Group s business model is mostly based on transaction-based fees for the use of software or services. End-to-end solutions spanning the entire value chain are offered in customers own corporate designs as co-branded solutions (with card organizations) as well as under the Wirecard brand. The flexible combination of technology, service and banking services makes the Wirecard platform unique for customers in all industries.
7 Q Management Report Multi-Channel Payment Gateway global payment processing The Multi-Channel Payment Gateway, which is linked to 200 international payment networks (banks, payment solutions, card networks) provides payment and acquiring acceptance via the Wirecard Bank and global banking partners, including the integrated risk and fraud management systems. In addition, for example country-specific payment and debit systems as well as industry-specific access solutions such as BSP (Bank Settlement Plan) or the encryption of payment data during payment transfers (tokenization) are provided. In addition, Wirecard offers call center services (24/7) with trained native speakers in 16 languages. A modular, service-oriented software architecture allows Wirecard the flexibility to change its business processes in conformity with market conditions at any time, and to respond speedily to new customer requirements. At the same time, the Internet-based architecture of the platform makes it possible to run individual work processes in a centralized way from a single location or, alternatively, to distribute them across the various companies within the Group and run them at different locations around the world. Payment Acceptance Solutions payment acceptance/credit card acquiring Wirecard supports all sales channels with payment acceptance for credit cards and alternative payment solutions (multi-brand), technical transaction processing and settlement in several currencies, and it offers the corresponding POS terminal infrastructure as well as numerous other services. In addition to Principal Membership with Visa and MasterCard, there are also acquiring license agreements with JCB, American Express, Discover/Diners and UnionPay. Banking services such as forex management supplement outsourcing for financial processes. 7 Risk Management Solutions Risk management Wide-ranging tools are available for the use of risk management technology to minimize fraud scenarios and to prevent fraud (fraud/risk management). The Fraud Prevention Suite (FPS) uses rulebased decision-making logic (rule engine) and offers extensive reports, for example which proportion of transactions was rejected and why. In addition, FPS analyzes whether exclusively fraudulent transactions are rejected. Age verification, KYC identification (know your customer), analysis using device fingerprinting, hotlists and much more is included in the risk management strategies. An international network of service providers who have specialized in creditworthiness checks can also be included depending on the merchant s business model.
8 Management Report Business activities and products Issuing Solutions card-based solutions The offering for issuing solutions has been constantly expanded since 2007 and includes managing card accounts and processing card transactions (issuing processing) as well as issuing various card types, mostly Visa and MasterCard. The card number can be used in connection with a plastic card, virtually or in connection with a SIM card in mobile devices, or it can be used on a sticker or in the chip and magnetic strips on a plastic card for dual use (dual interface). Wirecard offers an SP-TSM Gateway (service provider-trusted service manager), which can be integrated into all major systems. In addition, Wirecard operates its own SP-TSM server. SP-TSM is used to provision card data in the form of secure elements in a mobile device, and includes, for example, card management, card personalization and PIN management. 8 Wallet Solutions solutions for mobile payments The Wallet Solution is based on a (white-label) platform which makes it possible to manage credit balance accounts and provides technical support for customer legitimation processes (KYC), peer-topeer money transfers and various top-up processes - and is compliant with national and regional regulations for the issue of Visa or MasterCard products. The platform has user interfaces for administrative functions (e.g. call center) and for consumers. These can access their wallet both via the Internet and also using their cellphone in the form of smartphone apps. The wallet solution supports peer-to-peer money transfers and also Internet payments, via the cellphone (in-app payment) and also in bricksand-mortar retail via NFC and QR-codes. Payment Innovations convergence of online, offline and mobile As one of the leading providers for payment and risk management solutions, Wirecard s work is based on developing its own innovations and it also implements customer-specific special solutions. In-app payments are just one of many future-oriented technologies in this regard. The mobile card reader solution on a white label basis simplifies mobile acceptance of card payments. In the couponing and loyalty segment, at present new value-added services are arising, which Wirecard is making possible by merging acquiring and issuing. Mobile advertising services with payouts and vouchers are also being offered, right in line with the trend for convergence in sales channels and payment systems.
9 Q Management Report 2. General conditions and performance 2.1. General economic conditions Global economic conditions In October 2013, the International Monetary Fund (IMF) trimmed its 2013 global economic growth forecast by 0.2 percentage points to 2.9%. The European Commission is forecasting a 0.4 percent downturn in economic output in the Eurozone in 2013, and zero economic output growth in the European Union (EU28). For Singapore, the IMF in October forecast 3.5% growth for At the same time, the IMF cut its 2013 forecast for the Asia5 states (Indonesia, Thailand, Malaysia, the Philippines and Vietnam) by 0.6% percentage points to 5.0%. Industry-specific underlying conditions We are convinced that the European ecommerce market still offers enormous growth potential. As a result of the forecasts that have been summarized for us by market research institutes such as Forrester Research, PhoCusWright, Deutscher Versandhandelsverband des deutschen Einzelhandels and others, we are expecting growth on the European ecommerce market of around 11 to 12 percent in 2013 for all industries. 9 According to a publication by emarketer in February 2013, the Asia/Pacific region, with growth of 30 percent, already has the potential to overtake North America as the world s largest market for ecommerce sales. This is due, in particular, to the volume in China. Our customer mix in Asia comprises ecommerce merchants, telecommunications and financial service providers, banks as well as the operators of public transport and infrastructure offerings, ensures the growth of our business, independent of the economy. ecommerce here is still in its infancy, and will converge directly with mobile commerce applications as part of the rapid spread of smartphones, because mobile devices will are or will become the sole source of access to the Internet for millions of people. Our early investments in companies which base their growth on state-of-the-art technologies for multi-channel enabled payment transaction solutions, mean that we already enjoy an excellent position in these regions Business in the period under review With more than 15,000 existing customers and contracts constantly being concluded with new customers, in the first nine months of 2013 Wirecard AG tied in to its successful business growth in the previous year.
10 Management Report General conditions and performance We.Enable.Your.Commerce Partners for your Success dmexco 2013 Cologne: Under the motto "We.Enable.Your.Commerce Partners for your Success", Wirecard teamed up with its partners for the first time at a joint trade fair stand and showcased its offerings. The service portfolios of the e-commerce specialists CGI, hybris, RatePay and Wirecard complement each other perfectly spanning system integration through to checkout process solutions. These enable retailers to structure their shops entirely on a "cross-channel" basis, thereby offering their customers a consistent shopping experience. Wirecard showcased its new payplugger.com payment portal at dmexco This portal impresses as a transparent product and price configurator, providing shop operators with a rapid online setup that allows going-live within 48 hours, while entirely eliminating media discontinuities. Wirecard Checkout Page as an adaptive payment page A smartphone or tablet add-on enables retailers to minimize the number of purchases that are broken off, providing optimum support for their customers' mobile shopping experience during payment. The solution also operates with every type of touchscreen and all standard mobile operating systems on the market, such as Android, ios, Windows Phone, BlackBerry and many more. 10 Transaction volume third quarter 2013 Wirecard s key USPs include its combination of software technology and banking products, the global orientation of the payment platform and innovative solutions that allow online payments to be processed efficiently and securely for customers. The lion s share of Group sales revenues is generated on the basis of business relations with providers of merchandise or services on the Internet, who outsource their payment processes to Wirecard AG. This means that the conventional services for the settlement and risk analysis of payment transactions performed by a payment services provider and the credit card acceptance (acquiring) performed by Wirecard Bank AG are closely linked. Economies of scale from the growing proportion of business customers who increase the transaction volume via acquiring bank services, as well as new product offerings are immanent in the technical platform. Fee income from the core business of Wirecard AG, namely acceptance and issuing means of payment along with associated value added services, is generally proportionate to the transaction volumes processed. During the third quarter of 2013, the transaction volume totaled EUR 6.9 billion (Q3 2012: EUR 5.4 billion). For the first nine months of 2013 a transaction volume of EUR 19.0 billion (previous year period: EUR 14.9 billion) was reached. In the third quarter of 2013, 17.4 percent of the total transaction volume (EUR 1.2 billion) was generated in Asia. In the first nine months of 2013 this amounted to EUR 3.0 billion or 15.8 percent.
11 Q Management Report At the end of the quarter under review, the breakdown by target industries was as follows: 11 Target industries Based on direct sales distributed across the Group's target sectors and driven by technological expertise and service depth, Wirecard AG continued its operating growth during both the third quarter and the first nine months of 2013, as well as further expanding its international network of cooperation and sales partners, such as with the SAP Cloud solution SAP Business ByDesign, and with Berlin-based payleven GmbH. The acquisition of new customers in these various target sectors proved very successful. We entered into agreements with several airlines, for example. The Wirecard Group also gained further renowned fashion and lifestyle brand manufacturers as customers. In addition, the Digital Goods sales area concluded various agreements with major clients. A particular unique selling point of the Wirecard Group is the centralization of cash-free payment transactions from many and various distribution and procurement channels on a single platform. In addition to new business involving the assumption of payment processing, risk management and credit card acceptance in combination with ancillary and downstream banking services, there are significant cross-selling and up-selling opportunities in business with existing portfolio customers, contributing to consistent growth as the business relationships expand. The business activities of the Wirecard Group are classified into three key target industries, and these are addressed by means of cross-platform, industry-specific solutions and services as well as various integration options:
12 Management Report General conditions and performance Consumer goods Digital goods Tourism Consumer goods Our customers include merchants who sell physical products to their target group (B2C or B2B). Our customer segment comprises companies of various sizes, from ecommerce start-ups through to groups with international activities. These include Internet pure players, multi-channel, teleshopping and/or purely bricks-and-mortar merchants. The industry segmentation is highly varied: from traditional industries such as clothing, shoes, sporting equipment, books/dvds, entertainment systems, computer/it peripherals, furniture/fittings, tickets, cosmetics, etc. through to multi-platform structures and marketplaces. Digital goods The target industry digital goods comprises business models such as Internet portals, App software companies, career portals, Internet telephony and lotteries such as sports betting and poker. 12 Travel and transport Customers in the tourism sector mostly comprise airlines, hotel chains, travel portals, tour operators, travel agents, car rental companies, ferries and cruise lines as well as transport and logistics companies. Business growth in Asia The positive trend in our Asian business reflects, firstly, technology transfers that enable our subsidiaries in Southeast Asia to expand their product portfolios. Secondly, we are already productively deploying technology developments in our Mobile Payments business area that are still in the process of launching in Europe. Business trend in the field of banking services Wirecard Bank generates most of its revenues within the group via sister companies sales structures. This comprises banking services for companies as well as payment and card acceptance contracts and business and foreign currency accounts. Wirecard Bank AG announced its strategic alliance with UATP in March Since then, Wirecard can offer and process payment solutions for all UATP customers such as airlines, hotels, railway and travel companies. A UATP card project - a voucher program - has been agreed with Germany s second largest airline, airberlin, which already uses the Wirecard Group s services for payment processing. Forex management services are increasingly being provided for airlines and ecommerce providers who book incoming payments in various currencies as a result of their international business. This gives
13 Q Management Report them a safe calculation basis in 48 different currencies, whether for settlement of merchandise and services in foreign currency or when receiving foreign exchange from concluded transactions. Issuing business Income in the Issuing division comprises B2B product lines such as the Supplier and Commission Payments solution as well as B2C prepaid card products. This spans issuing prepaid cards based on the card platform developed in house and the UK business added by Wirecard Card Solutions Ltd. in Newcastle. The development in this division was very positive. Mobile Payment business field At the beginning of the year we announced our strategic alliance with the Vodafone Group. This alliance is based on creating, implementing and processing all of the technical mobile payment process and issuing virtual and physical co-branded Visa cards. Vodafone payment services are being rolled out internationally starting this year. The cooperation with Wirecard spans several, relevant European countries. As part of our continuing cooperation venture with Telefónica Deutschland, in 2013 we showcased new solutions for direct bank transfers from smartphone to smartphone (person-to-person), and a digital wallet. This is backed by technical implementation by Wirecard AG, which provides the processes that Telefónica requires, such as payment processes, and adding the virtual "O2 Wallet mpass Card" to NFC-enabled SIM cards. 13 Our Mobile Payments business area announced further successes after the end of the reporting period: The E-Plus' "Mobile Wallet" app will enable users to make non-cash payments by smartphone, redeem coupons or collect bonus points. For its various brands, E-Plus is cooperating with Wirecard as the issuer of a digital maestro credit card for the wallet that allows consumers to make payments at all contactless acceptance points. Orange, the largest mobile operator in France, has chosen Wirecard as its partner for the launch in France of its new mobile payment service Orange Cash". As part of the strategic alliance, Wirecard will provide the technical platform needed to manage the mobile payment application. This allows consumers to pay just with the mobile handset at any contactless POS terminal. Wirecard Card Solutions Ltd., a member of Visa Europe, is the card issuing institution. Orange will use Wirecard s loyalty and couponing platform to launch mobile value-added services. The payment service is currently in test operations in Strasbourg and Caen. These two cities are pioneers for the use of Near Field Communication (NFC) in France. Orange Cash will be launched nationwide in the second quarter of 2014.
14 Management Report General conditions and performance Telecommunications systems are currently establishing new ecosystems with the introduction of contactless payments. We are supporting these companies in introducing their own mobile payment products based on Near-Field-Communication (NFC) technology. Payments are made via a wireless connection to the payment terminal. The requisite card data is transferred using NFC technology via a contactless interface, for example between the end customer s physical or virtual card and the merchant s payment terminal. Corresponding encryption technologies are used for the transfer as they are applied today in EMV cards. Wirecard AG is an end-to-end solution and service provider for the technical processing of multifunctional mobile payment solutions: Mobile at the Point-of-Sale Payment on Mobile Mobile as the Point-of-Sale 14 If payments are made using mobiles (payment on mobile), the customer either pays directly from a mobile application (in-app payment) or, for example, via the Wirecard Payment Page or the smartphone s mobile browser. In-App Payments always demand that the customer previously registers with the respective provider. Payment data can also be stored. In the case of browser-based payment processes, traditional ecommerce transactions are performed. The mobile device is only used as a front-end device, such as a laptop. However a mobile device can also be used as a payment terminal (mobile as the point of sale). i.e., a tablet or smartphone becomes the point of acceptance using a card reader. Wirecard uses a whitelabel program for its Mobile Card Reader. This program comprises various card reader solutions, the associated card acceptance together with wallet applications, and open interfaces for developers. The card readers are add-on devices for smartphones or tablets, and support both the EMV standard and also magnetic strips for mobile card payments at the point of sale. The end customer confirms payment by signing the touchscreen or with their PIN. Our end-to-end solutions are independent of specific transfer technologies, and include providing mobile wallets on a white-label basis including the associated technical services, end-to-end card management and the issue of virtual or plastic cards with NFC technology. In addition, as a Service Provider-Trusted Service Manager (SP-TSM) we store, or provision, virtual card data in the SIM cards for NFC-enabled mobile phones. Wirecard Bank AG and Wirecard Card Solutions Ltd. have the licenses required to issue virtual or contactless cards that are based on emoney credit cards or MasterCard or Visa.
15 Q Management Report The range of services is supplemented by the acceptance and processing of card payments, account management, couponing and loyalty solutions, commercial network operations and additional banking services. Call Center & Communication Services Division Wirecard Communication Services GmbH concentrates primarily on providing core services to the Wirecard Group. The hybrid call center structure, i.e. the bundling of virtual stationary call centers with stationary ones, also enables third-party customers of premium expert services to benefit in the following segments: Financial Services First & Second Level User Helpdesk (specifically in the field of console, PC and mobile games as well as commercial software, security and navigation) Mail order/direct response TV (DRTV) and targeted customer service (outbond) Market and opinion research/web hosting During the past quarter, business with new and existing customers at Wirecard Communication Services grew on schedule Reporting segments 15 Wirecard AG reports on its business development in three segments. Payment Processing & Risk Management (PP&RM) This reporting segment includes the business activities of Wirecard Technologies GmbH, Wirecard Payment Solutions Holdings Ltd., Dublin (Ireland) and its subsidiaries, Wirecard Asia Group (Singapore) comprising Wirecard Asia Pte. Ltd. (Singapore) and its subsidiaries, Wirecard Processing FZ-LLC and cardsystems Middle East FZ-LLC in Dubai (United Arab Emirates), Pte. Ltd. in Singapore with its subsidiaries, PT Prima Vista Solusi, Jakarta (Indonesia), Trans Infotech Pte. Ltd. in Singapore with its subsidiaries, Wirecard Retail Services GmbH, Wirecard (Gibraltar) Ltd., Click2Pay GmbH, and Wirecard Central Eastern Europe GmbH. Branches and companies of the Wirecard Group at locations outside Germany serve primarily to promote regional sales and localization of the products and services of the Group as a whole. The business activities of the companies included in the Payment Processing & Risk Management reporting segment exclusively comprise products and service for the acceptance or implementation and the downstream processing of electronic payments and the associated processes.
16 Management Report General conditions and performance We offer our customers access to a large number of payment and risk management methods via a uniform technical platform which spans our various products and services. Acquiring & Issuing (A&I) This reporting segment spans the entire current business activities of Wirecard Bank AG, the Wirecard Card Solutions Ltd. and Wirecard Acquiring & Issuing GmbH. This segment includes acceptance (acquiring) and issuing credit cards and prepaid cards as well as account and payment transaction services for corporate and private customers. Call Center & Communication Services (CC&CS) This reporting segment spans all of the products and services of Wirecard Communication Services GmbH which deal with the call-center assisted support of corporate and private customers. In addition to its primary task of supporting the two main segments named above, this reporting segment also has its own portfolio of customers. 16
17 Q Management Report 3. Earnings-, Financial and Asset position Wirecard AG mostly publishes its figures in thousands of euro (EUR K). The use of rounding means that it is possible that some figures do not add up exactly to form the totals stated, and that the figures and percentages do not exactly reflect the absolute values on which they are based Financial performance In Q Wirecard AG once again substantially increased its revenues and also its operating profits. Revenue growth In the Q3 2013, consolidated revenues were up by 23.0 percent to EUR 124,972K (Q3 2012: EUR 101,641K). In the nine-month period 2013 consolidated revenues increased from EUR 279,538K by 22.0 percent to EUR 341,119K. Revenue recorded in the core Payment Processing & Risk Management segment stemming from risk management services and processing online payment transactions lifted in the Q by 21.3 percent to EUR 91,325K (Q3 2012: EUR 75,268K). In the nine-month period 2013 revenues totaled EUR 244,344K (9M 2012: EUR 193,907K). 17 The proportion of consolidated revenues accounted for Acquiring & Issuing increased in the Q by 22.8 percent to EUR 40,687K (Q3 2012: EUR 33,143K), and for the nine-month period 2013 this totaled EUR 123,926K (9M 2012: EUR 102,745K), with the proportion of Issuing of EUR 29,091K for the nine-month period Income from Acquiring & Issuing in the nine-month period 2013 primarily comprised out of commissions, interest from financial investments and income from processing payments, as well as exchange rate gains from processing transactions in foreign currencies. Customer deposits to be invested by the Wirecard Bank and Wirecard Card Solutions (September 30, 2013: EUR 255,866K; September 30, 2012: EUR 221,649K) are held only in sight deposits, overnight or fixed-term deposits and bearer bonds with or held by other banks which meet the creditworthiness requirements from the group s own risk valuation and - to the extent that third-party ratings are available - are assessed by rating agencies of note as being subject to minimal risk. In addition, the group prepares its own risk valuation for the counterparty. The interest income recorded by Acquiring & Issuing segment in the nine-month period 2013 totaled EUR 2,339K (9M 2012: EUR 2,495K), and in the Q this totaled EUR 868K (Q3 2012: EUR 719K) and is presented as revenues. Accordingly, it is not included in the Group s net financial income but is also reported here as revenues. It comprises interest income on investment of own as well as customer funds (deposits and acquiring money) with external banks.
18 Management Report Earnings-, Financial and Asset position The Call Center & Communication Services segment generated revenues of EUR 3,568K in the period under review, compared with EUR 3,633K in the nine-month period Revenues in the Q totaled EUR 1,189K (Q3 2012: EUR 1,059K). Development of key expenditure items Other own work capitalized primarily comprises the continued development of the core system for payment processing activities as well as capital expenditure on Mobile Payment projects. In this regard, own work is only capitalized if it is subject to mandatory capitalization in accordance with IFRS accounting principles. In the nine-month period 2013 the total own work capitalized amounted to EUR 14,781K (previous year: EUR 6,317K) and in the Q this totaled EUR 6,046K (Q3 2012: EUR 2,136K). It is corporate policy to value assets conservatively and to capitalize them only if this is required in terms of international accounting standards. 18 The Group s cost of materials increased in the nine-month period 2013 to EUR 202,540K, compared to EUR 160,842K in the previous year. In the Q this totaled EUR 74,367K (Q3 2012: EUR 58,325K). In particular, the cost of materials includes commission payables to banks issuing credit cards (Interchange), charges payable to credit card companies (e.g. MasterCard and Visa), transaction costs as well as transaction-based fees to third party suppliers (e.g. in the field of risk management and acquiring). It also includes expenses for payment guarantees and factoring. In the field of acquiring it comprises commission costs for external distributions. At the segment of Acquiring & Issuing, the cost of materials comprises expenses incurred by the Acquiring, Issuing and Payment divisions such as Interchange, and primarily processing costs for external services providers, production, personalization and transaction costs for prepaid cards and the payment transactions effected with them, and account management and transaction charges for keeping customer accounts. In the nine-month period 2013 the cost of materials, not adjusted for consolidation effects, amounted to EUR 83,145K at Wirecard Bank, compared with EUR 65,844K in the nine-month period Gross earnings (revenues including other own work capitalized less cost of materials) increased in the nine-month period 2013 by 22.7 percent, amounting to EUR 153,360K (9M 2012: EUR 125,013K). In the Q gross earnings increased by 24.6 percent to EUR 56,651K (Q3 2012: EUR 45,452K). In the nine-month period 2013, without taking consolidation effects into account, Group personnel expenses in the nine-month period 2013 increased to EUR 34,481K, and thus increased by 28.3 percent year-on-year (9M 2012: EUR 26,885K). The consolidated personnel expense ratio lifted by 0.5 percentage points year-on-year, to 10.1 percent. The increase in personnel expenses is due to the acquisitions made and the new hires in connection with the Mobile Payment projects, which also restrict the comparability of this item.
19 Q Management Report Other operating expenses essentially comprise expenses on sales and marketing, operating equipment and leasing, consultancy and similar fees, as well as office expenses. In the nine-month period 2013, these amounted to EUR 31,220K in the Wirecard Group (9M 2012: EUR 22,114K), and in the Q these totaled EUR 11,422K (Q3 2012: EUR 8,399K). As a result, in the nine-month period 2013 they amounted to 9.2 percent (9M 2012: 7.9 percent) of revenues or 9.1 percent of revenues in the Q (Q3 2012: 8.3 percent). This also includes costs of developing the Mobile Payment projects. Depreciation and amortization in the nine-month period 2013 amounted to EUR 18,393K (9M 2012: 11,891K) and in the Q this totaled EUR 6,804K (Q3 2012: EUR 4,267K). Amortization/depreciation increased in the nine-month period 2013 compared to the same period of the previous year, mostly due to the initial consolidation of the acquisitions and asset purchases. Other operating income comprised primarily income from the reversal of provisions and from contractual agreements in the nine-month period 2013 this totaled EUR 2,134K for the Group as a whole, compared with EUR 2,114K in the previous year. EBITDA development The pleasing earnings growth is due to the increase of the transaction volume processed by the Wirecard Group, economies of scale from the transaction-oriented business model and from the increased use of our banking services. 19 Earnings before interest, taxes, depreciation and amortization (EBITDA) were up in the nine-month period 2013 by 14.9 percent in the Group from EUR 78,128K in the previous period to EUR 89,793K. The EBITDA margin in the nine-month period 2013 amounted to 26.3 percent (previous year: 27.9 percent). In the Q EBITDA totaled EUR 33,552K. The corresponding EBITDA margin totaled 26.8 percent. EBITDA in the Payment Processing & Risk Management segment in the nine-month period 2013 totaled EUR 68,238K, and was thus up by 13.8 percent (9M 2012: EUR 59,943K). In the nine-month period 2013 the Acquiring & Issuing segment accounted for EUR 21,380K of EBITDA (9M 2012: EUR 17,827K), and in the nine-month period 2013 Issuing accounted for EUR 9,427K and in the Q it accounted for EUR 2,752K.
20 Management Report Earnings-, Financial and Asset position Financial result Net financial income in the nine-month period 2013 totaled EUR - 3,311K (9M 2012: EUR - 970K). Group financial expenditure in the nine-month period 2013 amounted to EUR 4,464K (previous year: EUR 3,416K) and resulted primarily from loans taken out for past corporate acquisitions and the revaluation of financial assets. Financial income does not include interest income generated by the Wirecard Bank and Wirecard Card Solutions Ltd., which must be reported as revenue in accordance with IFRS accounting principles. Taxes Owing to the international orientation of the business, the cash-to-taxes ratio for the nine-month period 2013 (without deferred taxes) amounted to 14.1 percent (9M 2012: 17.0 percent). Including deferred taxes, the tax rate came to 16.6 percent (previous year: 18.9 percent). Profit after taxes In the nine-month period 2013 earnings after taxes increased from EUR 52,941K in the previous year by 7.2 percent to EUR 56,757K. 20 Earnings per share The average number of shares issued (basic) in nine-month period 2013 was 112,192,241 shares (9M 2012: 109,488,193). Earnings per share (basic) in the nine-month period 2013 totaled EUR 0.51 (9M 2012: EUR 0.48) Financial performance Principles and objectives of finance management The primary objectives of finance management are to secure a comfortable liquidity situation at all times along with operational control of financial flows. The Treasury department is responsible for monitoring currency hedges. Following individual inspections, risks are restricted by additional deployment of financial derivatives. As in the previous year, currency options were deployed as financial derivatives to hedge revenues in foreign currencies in the period under review. It has been stipulated throughout the Group that no speculative transactions are entered into with financial derivatives (see Chapter 7.7 Financial Risks of the 2012 annual report). Capital and financing analysis Wirecard AG reports equity of EUR 584,422K (December 31, 2012: EUR 541,730K). Due to the nature of our business, the highest liabilities exist vis-à-vis merchants in the field of credit card acquiring and customer deposit-taking as part of banking operations. These have a substantial effect on the equity ratio. The commercial banks, which granted Wirecard AG loans as at September 30, 2013 amounting to EUR 158,832K at variable interest rates of between 1.7 and 3.95 percent, do not include these items in the credit agreement concluded in 2013 in equity capital calculations due to the facts and circumstances associated with this particular business model. According to Wirecard AG, this calculation reflects a true and fair view of the company's actual situation. These banks determine Wirecard AG s