Major Influencing Factors on Financial Position and Performance

ProSiebenSat.1 is driving the digital transformation by expanding its TV portfolio with digital platforms, using new technologies and investing in complementary business areas in all segments. This strategy forms the basis for synergies and profitable growth: ProSiebenSat.1 posted another record year in 2017. The Group generated more than half of its revenues outside video advertising on TV.

Impact of General Conditions on the Business Performance

Economic indicators had a positive impact on the advertising industry at the end of the year. In the fourth quarter, audience shares also developed more positively again. ProSiebenSat.1 remains the market leader in Germany in terms of both the TV audience and the TV advertising markets. At the same time, the Company has grown dynamically thanks to diversification in the Commerce business, in particular. Against this backdrop, ProSiebenSat.1 Group increased its consolidated revenues by 7% to EUR 4,078 million (previous year: EUR 3,799 million). Furthermore, the Group’s relevant operating earnings figures set new records. With this, we have achieved our most important profitability targets. Revenue and earnings performance is in line with our expectations, which we adjusted in November. The financial position also developed as planned. (Fig. 079)

ProSiebenSat.1 is a leading omnichannel entertainment & commerce brand powerhouse. We are diversifying our business portfolio around the core business of television and are driving the digital transformation in all segments. The success of this strategy is reflected in the growing significance of revenues generated outside the traditional TV advertising business: For the full-year, the Group generated 51% of its revenues outside of video advertising on TV (previous year: 47%). 87% of this was attributable to Germany, which is the principal revenue market (previous year: 88%).

As with all consumer-related markets, the advertising industry often reacts very sensitively to macroeconomic developments. In addition, ProSiebenSat.1 Group’s revenue and earnings performance is characterized by seasonal effects and in particular the importance of the fourth quarter. As both propensity to spend and television use increase significantly in the runup to Christmas, the Company generates a far greater share of its annual revenues in the final quarter. In total, the Group generates approximately a third of its annual revenues and usually around 40% of its adjusted EBITDA in the fourth quarter. Adjusted for acquisition effects, this also holds true for the past year. (Fig. 076)

075 / Revenues by Quarter in EUR m, 2016 figures in parentheses

076 / Adjusted EBITDA by Quarter in EUR m, 2016 figures in parentheses

ProSiebenSat.1 is promoting additional business models in all segments and is thus growing more independently of seasonal or economic developments on the TV market. Here, the distribution of TV stations in HD quality is an important driver in the core business. The number of HD users further increased in 2017. As a result, the distribution revenues of ProSiebenSat.1 Group grew significantly. At the same time, ProSiebenSat.1 is promoting the increasingly platform-independent distribution and universal marketing of programming content. With this, the Group also offers an entertainment portfolio with VoD offerings and TV apps for digital devices and mobile usage. The market for digital entertainment offerings is growing significantly. However, the growing importance of the Internet is not only influencing the entertainment industry, but also driving growth in digital commerce. This is why ProSiebenSat.1 is investing in commerce portals with product areas which are particularly suited for video advertising. The objective is to develop thematically related portfolios, since bundling leads to additional revenue and cost saving potential. In 2017, the Commerce portfolio was once again the most important revenue driver. Group Environment

While macroeconomic conditions and industry-specific effects may significantly influence our business performance, exchange rate fluctuations have no material impact on the Group’s financial situation. Although ProSiebenSat.1 is international, the Company generates the majority of its revenues in Germany and thus in the eurozone (Fig. 077). The remaining share of revenues is mainly attributable to the US and Red Arrow’s production business. Business Development of the Segments

077 / Revenues by Region in %, 2016 figures in parentheses

The Group also limits risks arising from exchange rate fluctuations with derivative financial instruments. Currency risks may arise from license agreements related to the acquisition of programming rights. ProSiebenSat.1 signs license agreements mainly with US studios. The Group also uses hedging instruments to limit potential interest rate risks. 98% of variable interest loans and borrowings were covered by different hedging instruments at the end of the financial year 2017 (previous year: 98%). The Group uses different financing instruments and practices proactive financial management. Group Financial Position and Performance

When calculating deferred taxes, tax rate changes are incorporated in the applicable tax rate if the implementation of the change is considered to be sufficiently certain. While in financial year 2016 there were no significant effects on the Group’s deferred tax expenses due to tax rate changes, in financial year 2017 the tax reform in the US in particular resulted in deferred tax expenses of EUR 7 million. Notes, Note 13 „Income taxes“, page 201

Changes in the Scope of Consolidation

We practice active portfolio management aimed at leveraging synergies by connecting the business areas and particularly TV and digital offerings. The Group regularly analyzes its portfolio and assesses potential synergies (Fig. 080). Disposals are also part of this M&A strategy. For example, in the second quarter of 2017 ProSiebenSat.1 sold its shares in the online travel agency Etraveli for an enterprise value of EUR 508 million, meaning that it had more than doubled this value since the acquisition in November 2015. In addition, SevenVentures sold a majority of its media-for-equity portfolio for a mid double-digit million Euro amount. Strategy and Management System, Opportunity Report

Notes, Note 3 “Scope of consolidation,” page 188
Notes, Note 4 “Acquisitions, disposals and other transactions in connection with subsidiaries,” page 189
Notes, Note 36 “Events after the reporting period,” page 242