ProSiebenSat.1’s most important goal is to grow sustainably and profitably in a dynamic competitive environment. With this, we are pushing ahead with the digital transformation. Since January 2018, the Group has bundled its portfolio in the pillars of Entertainment, Content Production & Global Sales and Commerce. Thereby, we have a holistic management system that reflects the financial growth targets and the interests of investors.

Strategy and Objectives

ProSiebenSat.1 Group’s most important goal is to seize opportunities in a changing market environment and to continue its profitable growth in the long term. For this purpose, the Group consequently continues to push ahead with its transformation from a traditional TV company into an integrated entertainment and commerce corporation. In order to accelerate this process, the Group rearranged itself into the three pillars of Entertainment, Content Production & Global Sales and Commerce since January 2018. Company Outlook, Opportunity Report

With everything we do, we want to delight, inspire and support those who use our offerings — and offer our advertising customers unique added value. Therefore, we are successively extending our value chain based on the high reach of TV. Thanks to our digital entertainment offerings, we deliver viewers and users attractive entertainment at any time or place. Our production businesses operates worldwide, which gives us crucial access to program content. In addition, we are using our wide TV reach to expand our dynamically growing commerce business and to increase and reinforce brand awareness via advertising.

At the same time, ProSiebenSat.1 is extending the value chain with the aim of increasingly offering its own products and mapping the entire retail chain, both digitally and offline. There is significant potential here as consumers and especially young customers, known as “digital natives,” now determine themselves when and where they want to see offers or products. ProSiebenSat.1 is therefore reacting to changes in consumer behavior. Commerce and entertainment are merging like never before as various media and channels are being used simultaneously. Furthermore, we are stimulating new advertising segments with our own products, e.g. in the health sector. The next step is to invest more in the growing fields of , and data in order to generate additional revenues with data-driven offerings and to customize advertising.

ProSiebenSat.1 is already one of the world’s most diversified TV companies. We established thriving initiatives in every business field. By successfully diversifying our business, we do not only strengthen the TV business, but can also generate additional revenues and grow more independent from the TV advertising market. Acquisitions are part of our strategy to push ahead with the transformation from a traditional TV company into a digital corporation as well as to open up new growth markets.

In 2017, the Group already generated half of its revenues outside the traditional TV advertising business. With this, we have achieved an important target of our growth strategy. With cross-linking, we are marketing our offerings on different media and can make optimum usage of the synergy potential between our business areas. This is the basis for our continuous growth: Consolidated revenues have grown by 11% every year since 2011, while has increased by an average of 6% at the same time. Acquisitions have accelerated growth. (Fig. 039) (Fig. 040)

039 / Multi-year Comparison of Revenues in EUR m

Multi-year Comparison of Revenues (Bar chart)

040 / Multi-year Ccomparison of Adjusted EBITDA performance1 in EUR m

Multi-year Comparison of Adjusted EBITDA Performance (Bar chart)

1Since January 1, 2017 renaming of recurring in adjusted EBITDA.

ProSiebenSat.1 expects to continue growing profitably. ProSiebenSat.1 has also set clear targets for its M&A measures. The corresponding financial targets result from the target range for the , while the Group pursues an earnings-oriented policy. The distribution ratio is based on and has been between 80% and 90% over the last five years. Due to the significant growth in earnings, ProSiebenSat.1 has stated an annual average increase in its dividend payments over the last five years of 12% (CAGR). The Group has also intensified its M&A activities at the same time. The ratio has constantly been within the defined benchmark range of 1.5 to 2.5 at the end of the year. Opportunity Report

Our financial strategy includes ongoing assessments of the capital structure. In this context, the Group increased its share capital by around 6.5% in November 2016. This capital increase has given the Group additional financial headroom for acquisitions. Funding needs for acquisitions made in the past financial year were covered with cash and cash equivalents. In addition, the media volume on digital platforms and on TV stations in particular represents a second investment currency for ProSiebenSat.1. By using media, the Group is able to establish new brands without high cash investments while accelerating companies’ growth at the same time. As a result, ProSiebenSat.1 is not only growing profitably; the Group is also earning high interest on the purchase price of its investments.

In the interest of reporting efficiency, ProSiebenSat.1 does not make further statements on the Group’s objectives and strategies in this Combined Management Report. Information on how the Group intends to manage and develop its business in the medium and long term and on changes in the objectives and strategies since the previous year can be found in the Annual Report.

Planning and Management

ProSiebenSat.1 has a management system based on key figures. This forms the basis for all economic and strategic decisions. Company-specific key performance indicators (KPI) are derived from the Group’s strategy and cover both financial and non-financial aspects (Fig. 041). They are planned and managed centrally by the Executive Board of ProSiebenSat.1 Media SE. The planning and management process is complemented by the monitoring of key figures on the basis of regularly updated data. This also includes the assessment of developments as part of opportunity and risk management. Risk and Opportunity Report

Intragroup Management System

The performance indicators specific to ProSiebenSat.1 are aligned to the interests of the capital providers and cover financial planning as well as aspects of comprehensive revenue and earnings management. The Group has defined specific performance indicators for each segment and will update its management system accordingly as part of the switch to a three-pillar structure.

041 / Overview of Relevant Key Performance Indicators as of December 31, 2017

Non-financial performance indicators

Broadcasting German-speaking segment

  • Audience shares

Financial performance indicators


  • Revenues
  • Adjusted EBITDA
  • Adjusted net income
  • Leverage ratio

Broadcasting German-speaking segment and
Content Production & Global Sales segment

  • External revenues
  • Adjusted EBITDA

Digital Entertainment segment and
Digital Ventures & Commerce segment

  • External revenues
  • Adjusted EBITDA
  • Non-financial performance indicators: The development of audience shares is a key criterion in programming and media planning in the core business of advertising-financed television. At the same time, the Group is using its advertising reach to establish new brands and expand its portfolio with digital business sectors. In Germany, TV usage data is collected by on behalf of . ProSiebenSat.1 analyzes viewer ratings that have been empirically collected by the institutions on a daily basis; these form the basis for program planning. In addition, this data is used as a benchmark for the calculation of advertising time prices since this indicates the number of potential customers a broadcast is able to reach.
  • Financial performance indicators: External revenues, adjusted EBITDA and adjusted net income are the central key figures used to manage profitability. The earnings figure adjusted EBITDA stands for adjusted earnings before interest, taxes, depreciation and amortization. Significant reconciling items, such as costs related to M&A transactions, reorganizations and legal claims, are not taken into account so that this figure provides the Executive Board as the chief operating decision maker with the appropriate performance measure to assess the operating profitability of the Group and the segments respectively. Adjusted net income represents the adjusted consolidated net profit after non-controlling interests and provides a suitable indicator for calculating the dividend. In addition to the adjustments from adjusted EBITDA, effects of and other reconciling items in particular are adjusted in the calculation.

    Reconciling items can influence or even overshadow operating performance and can make a multi-year comparison difficult. Therefore, adjusted earnings figures constitute suitable measures of performance with regard to sustainable profitability. However, the analysis of unadjusted key earnings figures provides a holistic view of the expense and income structure. For this reason, ProSiebenSat.1 Group also uses EBITDA as a financial performance indicator. In addition, EBITDA facilitates international comparison, as it does not take into account the effects of taxes and depreciation and amortization or the financing structure. Internally, EBITDA serves as a performance indicator both at Group level and for the Digital Entertainment and Digital Ventures & Commerce segments.

    ProSiebenSat.1 Group is investing in markets with long-term growth opportunities and examining options to expand its portfolio. Part of the investment strategy is the acquisition of companies that complement our value chain synergistically. A capital-efficient leverage ratio is a key performance indicator for the Group’s financial planning. The leverage ratio indicates the level of in relation to LTM adjusted EBITDA – i.e. EBITDA adjusted for reconciling items that ProSiebenSat.1 Group has generated in the last twelve months (LTM = last twelve months). The target value is a ratio between 1.5 and 2.5.

Our Group strategy is designed for sustainable and profitable growth. A primary objective is therefore to increase the above earnings figures through continuous revenue growth in all segments. The business units operate mainly as profit centers, which means that they act with full responsibility for revenues and earnings. At the same time, this results in flexibility, which is an important element for ProSiebenSat.1’s success, as the Company operates in a dynamic industry environment and is consistently diversifying its value chain. The organizational entities reach operating decisions independently within a centrally adopted framework based on the competitive environment. This performance-based approach supports entrepreneurial activities among our employees on all levels.

With their knowledge and ideas, every employee of our Company is contributing towards the development of ProSiebenSat.1’s strengths while driving innovation. We are therefore systematically investing in human resources development and targetedly promoting young staff while giving all employees an appropriate share in the Company’s success. Adjusted EBITDA is the key indicator for the Group and its segments. In addition to adjusted EBITDA, EBITDA in financial year 2017 also served as a performance indicator and as a basis for measuring performance-based employee compensation thanks to the holistic view of the Company’s expense and income structure. Net financial debt and EBITDA of the Group and external revenues and EBITDA in the Digital Entertainment and Digital Ventures & Commerce segments serve as a variable basis for determining the Executive Board’s compensation.

By harmonizing the Executive Board’s compensation with our KPI for corporate management, we implemented a holistic and effective management system, which reflects the company-specific characteristics. Further information about the individual compensation of Executive Board members can be found in the Compensation Report. Compensation Report

042 / Definition of Selected Non-IFRS Figures

Adjusted EBITDA:

Adjusted EBITDA stands for adjusted earnings before interest, taxes, depreciation and amortization. It describes earnings before interest, taxes, depreciation and amortization, adjusted for certain influencing factors.

These factors include costs in connection with M&A transactions, reorganizations, legal claims, valuation effects of incentive programs such as the Group Share Plan (GSP), results of and other significant influences. Since the review of the Group-wide management system in the third quarter of 2017, this also includes valuation effects in connection with the strategic realignment of business units.

  • Costs in connection with M&A transactions include consulting expenses and other expenses for ongoing, closed or cancelled M&A transactions.
  • Reorganization measures include functional and personnel expenses for significant reorganizations and restructurings. They comprise expenses such as severance payments, leave compensation, consulting costs and impairments on non-current assets.
  • Legal claims include fines, penalties, repayment claims and consulting costs in connection with significant ongoing or expected legal claims.
  • Valuation effects of the Group Share Plan (GSP) include the portion of the changes in the of the share-based payment plans that affects profit or loss, which results from the difference between the share price on the issue date and the current price on the reporting date.
  • Other significant effects include transactions approved by the Group Chief Financial Officer but not connected to current operating performance. In this context, ProSiebenSat.1 considers transactions of at least EUR 0.5 million to be significant.
  • Valuation effects in connection with the strategic realignment of business units primarily relate to the underlying business objective or strategy of the unit in question.

Adjusted net income:

Adjusted net income is the consolidated net profit (after non-controlling interests) before the effects of purchase price allocations and additional reconciling items. These include valuation effects on financial investments, put options, and earn-out liabilities recognized in the other item, as well as ineffectiveness from financial derivatives and valuation effects on the Group Share Plans.

043 / Information on Reporting and Accounting Policies

Reporting and use of non-IFRS figures:

In addition to the financial information determined in accordance with IFRS, this Annual Report also includes non-IFRS figures. The reconciliation of these non-IFRS figures with the corresponding IFRS figures is shown in the Group’s earnings. Detailed definitions of these non-IFRS figures can be found in the glossary.

For its financial, strategic and operating decisions, ProSiebenSat.1 Media SE uses primarily non-IFRS figures as the basis of making decisions. These also provide investors with additional information which also allow a multi-year performance comparison, as they are adjusted for specific factors.

These figures are not determined on the basis of IFRS and may therefore differ from other entities’ non-IFRS figures. Therefore, they do not replace the IFRS figures and are not more important than the IFRS figures, but they do provide supplementary information. We are convinced that the non-IFRS figures are of particular interest to our investors for the following reasons:

  • Reconciling items can influence or even overshadow operating performance; figures adjusted for such items therefore offer supplementary information for the assessment of the Company’s operating performance. Adjusted figures thus are more relevant for managing the Company.
  • Moreover, adjusted net income is an important factor at ProSiebenSat.1 Media SE for the calculation of the dividend payment, as we want to give the shareholders a share in the Company’s operating profitability.
  • The Group has implemented a holistic management system. Non-IFRS figures are calculated consistently for the past and the future; they form an important foundation for internal controlling and the management’s decision-making processes.

Adjusting the management system:

At the beginning of the financial year 2017, we refined the internal management system. In comparison to the current methodology of adjusting selected earnings-based performance indicators, a complete income statement adjusted for certain influencing matters (non-IFRS income statement) will be prepared and disclosed in the analysis of Group earnings of the Management Report. The conceptional refinement of the management system results in

  • increased transparency in the presentation of specific factors where adjustment is required,
  • integrated and consistent treatment of specific factors in the complete income statement where adjustment is required and
  • standardization in the labeling of the adjusted earnings-related performance indicators.

In this context, the new labeling for the terms recurring EBITDA and underlying net income are adjusted EBITDA and adjusted net income.

For adjusted EBITDA there is no deviation to what previously was recurring EBITDA. On the other hand, the consistent adjustment of special factors in the reconcilation to adjusted net income results in a difference in value.

Accounting of Share-based Payments from the Group Share Plans:

ProSiebenSat.1 involves its employees in the company’s success with performance-based compensation. This also includes share-based payment plans (Group Share Plans) in which selected executives and the Executive Board participate. In this context, participants receive so called Performance Share Units that entitle them to subscribe for shares. Due to the decision of the Executive Board and Supervisory Board of March 11, 2016, to settle the claims of the beneficiaries of the Group Share Plans in cash in the future and the associated conversion of the accounting for these share-based payments from equity-settled to cash-settled, cash-settled share-based payments in accordance with IFRS 2 are recognized in this Annual Report. In contrast to previous accounting (equity settlement), the ongoing recognition in profit or loss of changes in the fair value of the obligation with cash settlement planned in accordance with IFRS 2 results in significantly higher earnings volatility, which is attributable to the fluctuations in the price of the ProSiebenSat.1 share. ProSiebenSat.1 Group is therefore adjusting adjusted EBITDA and adjusted net income for the portion of the changes in the fair value of the share-based payment plans that affects profit or loss, which results from the difference between the share price on the issue date and the current price on the reporting date.

Valuation of Earn-outs and Put Options:

Due to the Company’s continuous M&A activities and the current investment strategy, the obligations from earn-outs and put options have steadily increased as ProSiebenSat.1 Group acquires further shares in connection with the acquisition of the ability to control these entities. ProSiebenSat.1 Media SE therefore adjusts the changes in the fair value of these liabilities in the calculation of adjusted net income. This adjustment results in greater transparency by revealing these effects and enables better comparison with operating performance.

Operational and Strategic Planning

Management and planning are closely intertwined at ProSiebenSat.1. Target figures are defined and determined for various periods within the context of planning, with a focus on the management indicators outlined above.

The diagram below shows the individual planning levels for the financial year 2017 (Fig. 044). The different levels in the planning process build on each other and are closely linked to our risk management:

044 / Planning Calendar 2017

Planning Calendar 2017 (Graphic)

Multi-year planing (long term corporate planning on a annual basis); in the forth quarter of 2017, multi-year planning has been actualised.

Budget (operating plan for the year on a monthly basis

Monthly reporting (trend projections)

  • Strategy meeting: Analyses of strengths and weaknesses are an important strategic planning instrument. Market conditions and current key figures for relevant competitors are compared, the Company works out its own strengths, opportunities and risks are assessed and growth strategies are developed. Once a year, the Executive Board and the Supervisory Board discuss the results at a strategy meeting. Report of the Supervisory Board

    The Group pursues a consistent growth and diversification strategy aimed at strengthening the core business of television and leveraging synergies by linking the advertising business to the digital business. Nothing changed here in 2017; however, individual requirements were prioritized and redefined at the strategy meeting. The strategy meeting was held in June 2017.
  • Multi-year planning (long-term corporate planning on an annual basis): Multi-year planning constitutes a detailed quantitative depiction of strategic planning. This is done on an annual basis and contains targets for a five-year period. The relevant key financial figures from the income statement, statement of financial position and statement of cash flows of individual subsidiaries are analyzed and aggregated at segment and Group level.
  • Budget (operating plan for the year on a monthly basis): For the budget, the targets based on the multi-year planning for the individual financial and non-financial performance indicators are specified on a monthly basis in a top-down/bottom-up process.
  • Monthly reporting and trend projections: Trend projections are an important tool in planning during the year. They allow the Company’s expected performance for the year to be calculated on the basis of the targets achieved to date and to be compared with the target figures that were originally budgeted. The aim is to identify potential discrepancies between the target and actual figures immediately and to implement the necessary countermeasures promptly.

In 2017, the Executive Board and the Supervisory Board also discussed short-term and long-term targets. In addition to monthly reporting, potential risks are reported to the Group Risk and Officer on a quarterly basis. In particular, any changes to the early warning risk indicators during the year and over time are analyzed here. For example, the development of audience shares is an important early warning indicator. Additional growth opportunities and therefore potential positive deviations from projected targets are analyzed in parallel with risk management; they are taken into account in budget planning. (Fig. 045)

045 / Budget Planning and Risk management at ProSiebenSat.1

Budget Planning and Risk Management at ProSiebenSat.1 (Graphic)

1 Also refer to Annual Report 2017 under Risk Report.

Addressable TV
Addressable TV describes the opportunity to broadcast digital advertising in linear television programming selectively — i. e. nationally, regionally or according to target group — on Internet- connected TV sets by means of HbbTV technology. It thus combines the reach of the television mass medium with the targeted addressability of the online world. In this context, the so-called SwitchIn is a possible advertising format: The digital advertising window covers part of the screen as soon as the viewer switches to a ProSiebenSat.1 channel.
The umbrella term AdTech refers to all products, providers, systems, and tools relating to advertising technology. AdTech forms the basis for programmatic advertising, for data-based, automated, and individualized buying and selling, and for real-time adjustment of advertising space. The entire process – from commissioning to performance of the service – take places within the technology platforms provided for programmatic advertising. As such, AdTech replaces manual buying and selling of online advertising space and instead establishes a more efficient and flexible form of advertising dynamics for marketers and advertisers. Viewers can be targeted in an even better optimized way and with even greater target group focus, for example by means of individualized, real-time topic management. ProSiebenSat.1 currently sells around 50% of its digital display advertising via programmatic advertising systems.
Adjusted EBITDA
Adjusted EBITDA stands for adjusted earnings before interest, taxes, depreciation and amortization. It describes earnings before interest, taxes, depreciation and amortization, adjusted for certain influencing factors.
Abbreviation for Earnings before Interest, Taxes, Depreciation and Amortization.
Leverage ratio
Common key ratio for measuring the debt position. It is calculated as the ratio of net financial debt to adjusted EBITDA of the last twelve months.
The share of the profit of a stock corporation distributed to the shareholders. The amount of the dividend is proposed by the Executive Board and approved by the Annual General Meeting. The
dividend depends, among other things, on the profitability, economic situation and dividend policy of the company. The basis of assessment for the distribution is the profit calculated according to commercial law.
Adjusted net income
Adjusted net income is the consolidated net profit (after non-controlling interests) before the effects of purchase price allocations and additional reconciling items. These include valuation effects on financial investments, put options, and earn-out liabilities recognized in the other financial result item, as well as ineffectiveness from financial derivatives and valuation effects on the Group Share Plans.
Shows how high net debt is in relation to adjusted EBITDA in the last twelve months.
GfK Fernsehforschung
GfK Fernsehforschung is a department within the GfK Group (Gesellschaft für Konsumforschung) that collects TV consumption data for Germany exclusively on behalf of the Arbeitsgemeinschaft Fernsehforschung (AGF). On a daily basis, GfK Fernsehforschung records the TV consumption of the households on the television panel, the people living in these households and their guests with electronic measuring instruments. This data is considered “the currency” in Germany’s TV market.
Arbeitsgemeinschaft Fernsehforschung (AGF)
In the Arbeitsgemeinschaft Fernsehforschung (Working Group of Television Research), the ARD and ZDF broadcasters, the ProSiebenSat.1 Media SE station groups and the RTL Deutschland media group join forces to carry out and develop continual quantitative television audience research in Germany (ratings). The data collected exclusively by the GfK TV research department is recognized in the television market as the common currency for advertising and program planning. The AGF/GfK television panel includes 5,000 households consisting of almost 10,500 persons, which report on a daily basis (reporting basis D+EU television panel). This shows the television consumption of 75.08 million people from the age of 3 or 38.19 million television households (as of January 1, 2016).
Purchase price allocation
Process by which the purchase price for a newly acquired entity is allocated to the acquired assets and (contingent) liabilities on the acquisition date.
Net financial debt
Total loans and borrowings minus cash and cash equivalents and current financial assets.
If an entity is separated from the Group, all assets and liabilities are eliminated from the consolidated financial statements by way of deconsolidation. This applies if the Group parent loses control, such as by selling all of its shares or its majority interest to third parties, if the parent’s ownership interest is diluted such that it loses control, or if the entity’s valuation changes (e.g. subordinate importance).
Fair Value
The fair value is defined according to IFRS 13.9 as the price that would be received to sell the asset or paid to transfer the liability in an orderly transaction between market participants on the measurement date.
Financial result
Is composed of the interest result, other financial result and income from investments accounted for using the equity method.
Compliance is part of corporate governance. It refers to compliance with laws, directives, and voluntary codes within the company.