17Annual Report Contents 4 Foreword 82 Report of the Supervisory Board 6 Executive Board 90 Consolidated Financial Statements 91 Consolidated Statement of 8 The Axel Springer share Financial Position 10 Combined Management Report 93 Consolidated Income Statement 93 Consolidated Statement of 12 Fundamentals of the Axel Springer Group Comprehensive Income 22 Economic Report 94 Consolidated Statement of 39 Economic Position of Axel Springer SE Cash Flows 42 Report on risks and opportunities 95 Consolidated Statement of Changes in Equity 56 Forecast Report 96 Consolidated Segment Report 61 Disclosures and explanatory report on the Executive Board pursuant to takeover law 97 Notes to the Consolidated Financial Statements 65 Corporate Governance Report 166 Responsibility Statement 167 Independent Auditor’s Report 175 Boards 2 Group Key Figures in € millions Change yoy 2017 2016 Group Revenues 8.3 % 3,562.7 3,290.2 Digital media revenues share 1) 71.5 % 67.4 % EBITDA, adjusted2) 8.5 % 645.8 595.5 EBITDA margin, adjusted 2) 18.1 % 18.1 % Digital media EBITDA share1) 80.0 % 72.5 % EBIT, adjusted2) 7.0 % 504.0 471.1 3) Net income – 16.0 % 378.0 450.0 Net income, adjusted2) 3) 9.2 % 327.5 299.9 Segments4) Revenues Classifieds Media 14.6 % 1,007.7 879.5 News Media 1.9 % 1,509.8 1,481.6 Marketing Media 15.0 % 984.5 856.2 Services/Holding – 16.8 % 60.7 72.9 EBITDA, adjusted2) Classifieds Media 16.5 % 413.2 354.6 News Media 2.0 % 218.8 214.4 Marketing Media 16.3 % 95.6 82.2 Services/Holding − – 81.7 – 55.7 Liquidity and financial position Free cash flow (FCF)2) 83.9 % 497.4 270.5 FCF excl. effects from headquarter real estate transactions2) 5) 48.5 % 341.1 229.7 6) Capex − – 200.9 – 156.8 5) 6) Capex excl. effects from headquarter real estate transactions − – 152.5 – 130.4 7) Total assets – 0.3 % 6,435.6 6,456.2 Equity ratio 2) 7) 43.5 % 40.9 % 2) 7) Net liquidity/debt − – 1,020.2 – 1,035.2 Share-related key figures8) Earnings per share, adjusted (in €)2) 3) 9) 8.1 % 2.60 2.41 3) 9) Earnings per share (in €) – 19.1 % 3.19 3.94 Dividend (in €)10) 5.3 % 2.00 1.90 Closing price (in €) 41.2 % 65.13 46.13 Market capitalization11) 41.2 % 7,027.2 4,977.2 Average number of employees 3.3 % 15,836 15,323 1) Based on the operating business (without the segment Services/Holding). 2) Explanations regarding relevant key performance indicators on page 33. 3) Continuing operations, for the portion attributable to discontinued operations see notes to the consolidated financial statements under note (2d). 4) Adaption of segment names to Classifieds Media (Classified Ad Models), News Media (Paid Models) and Marketing Media (Marketing Models), cf. page 12. 5) Referring to the new headquarter building in Berlin as well as the sale of the office building complex in Hamburg. 6) Cash flow from operating activities minus capital expenditures, plus cash inflows from disposals of intangible assets and property, plant and equipment. 7) As of December 31, 2017 and December 31, 2016, respectively. 8) Quotations based on XETRA closing prices. 9) Calculation based on average weighted shares outstanding in the reporting period (107.9 million; PY: 107.9 million). 10) The dividend for the financial year 2017 is subject to the condition of approval by the annual shareholders’ meeting. 11) Based on shares outstanding at the closing price, excluding treasury shares (107.9 million; PY: 107.9 million). Annual Report 2017 Foreword Foreword Axel Springer SE We have consistently implemented these messages. A winning formula that has been better understood, even outside of Axel Springer. As well as the fact that in the digital world we rely on both journalism and classifieds offerings: We give our customers more and more exactly what they need – precise information for important life decisions, for example when looking for a job or a flat. Therefore, the Axel Springer share benefited from signifi- cant valuation premiums. The price increase of 41.2 % and the clear outperformance of all benchmark indices confirm this. In the second half of 2017 in particular, the share reached new all-time highs several times. Axel Springer owns one of the world's largest portfolios of online classifieds companies, including brands such as StepStone, SeLoger and Yad2. This business is perceived much more by analysts and investors than ever before. For many of them, it now accounts for the majority of the company value. These classifieds again saw outstanding organic growth - stronger than we In the past year, the world has changed even faster than expected. Here, in addition to outstanding market in previous years. Politically, economically, socially and positions and excellent management, we benefit from technologically. The media market is affected by all four the continuing trend from print to online. As announced, dimensions. The change happens quickly and profoundly. this year we have introduced a new transparency with The end is not to be foreseen. Axel Springer was and is regard to our classifieds business. At two capital market very well prepared for this. That's why we can look back days in London and New York, we gave analysts and on a very successful year together with you. We are more investors a detailed insight into the business models. digital than ever before and therefore grow stronger. The result in News Media was not only stable, it even At the beginning of the year 2017, we have positioned increased slightly. Our strong media brands are seen four key messages on the capital market: by many people as a trusted source of information and entertainment, both in print and in the growing digital 1. In the Classifieds Media segment, we now regularly environment. This is reflected in the business: The publish more information about our most important subscription numbers in the digital sector continue to businesses. This enables our shareholders to better grow, advertising revenues have risen. Here again it understand the good development. shows that print as a business model is more stable than is often claimed. 2. For the News Media segment, we have given a stable outlook (adjusted EBITDA) for the year 2019. 3. In terms of our digital journalistic offerings, we want to show that these business models can be profita- ble before we make further significant acquisitions in this area. 4. Our focus is on Classifieds Media and News Media. 4 Annual Report 2017 Foreword Axel Springer SE Also noteworthy is the development of Business Insider. In addition to the major strategic lines, Axel Springer was Our colleagues use the considerable reach of their strengthened by a series of individual projects. These content, e. g. videos, more and more to achieve higher include, among others, successful real estate trans- revenues. Overall, Business Insider's growth in 2017 was actions in Berlin. In this way, we reduce our capital tied over 45 %. And thus above the expected average growth up in real estate and achieve high level profits. Adjacent that we had envisaged in the acquisition. In addition, we to our company headquarters, our new building is accelerated the internationalization of Business Insider currently under construction. I am happy that we will through new country editions. Reach and user intensity build it together with Rem Koolhaas. It will match our of our offer for users of Samsung mobile phones, Upday, idea of modern, digital work. The cultural change of Axel continue to be very good. Springer is also evident in the Tuesday Townhall Talk. The regular event introduced last year enables all On the publishing side, we have tackled the reorganiza- employees of all companies of Axel Springer to have tion of the national publishing units (WELT, BILD). With discussions with the Executive Board. And with the this modification, we want to further strengthen the expansion of the share participation program to other brands, align our publications more closely to print and companies within the Group, we have enabled even digital target groups, leverage synergies between the more employees to participate in the economic success. brands and thus further improve the overall economic Many employees take part in it and thus strengthen their prospects. Editorial departments that have already ties to Axel Springer. integrated print and digital are not affected. I am particularly happy that we have reached a goal in With these measures we will not only live up to our 2017 that is personally important to me: As of December economic responsibility. Especially in the area of "News 31, 2017, Axel Springer employed a proportion of 32 % Media" this was particularly challenging - and important women in management positions. We achieved this goal in this year. "Fake News" and populist trends on the without quota. It is part of our cultural change. Diversity net are countered by our media with critical, profoundly will continue to play a key role at Axel Springer, and the researched journalism. This, too, was the key to proportion of women should continue to rise. success in 2017 for Axel Springer. My joy over the commercial success of the year 2017 There were also important developments in the portfolio is only surpassed by one other message. Since 16th of our Marketing Media segment: In January 2018 we February our employee Deniz Yücel is free. For over a concluded an agreement for the sale of our shareholding year he was detained in Turkey, without being charged. in aufeminin at a very attractive price, subject to approval His freedom makes us all very happy.