TELE COLUMBUS AG, BERLIN Group Management Report for the 2017 financial year 1. Group Fundamentals ............................................................................................... 5 2. Economic Report.................................................................................................... 11 3. Subsequent Events ................................................................................................ 27 4. Report on Expected Developments ........................................................................ 28 5. Risk Report ............................................................................................................ 31 6. Report on Opportunities ......................................................................................... 44 7. Management declaration pursuant to Section 289a HGB ....................................... 47 8. Non-Financial Declaration (CSR Report) according to Section 289b HGB ............. 47 9. Information on Possible Takeover Offers ............................................................... 48 10. Key Management Compensation Report ............................................................... 51 Consolidated Financial Statements For the financial year ended 31 December 2017 Consolidated Financial Statements ............................................................................. 65 I. Consolidated Income Statement ............................................................................ 69 II. Consolidated Statement of Other Comprehensive Income ..................................... 70 III. Consolidated Statement of Financial Position ........................................................ 71 IV. Consolidated Statement of Cash Flows .................................................................. 73 V. Consolidated Statement of Changes in Equity ....................................................... 75 VI. Notes to the Consolidated Financial Statements .................................................... 77 A. General Information ............................................................................................... 77 B. Basis of Consolidation ............................................................................................ 79 C. Accounting principles ............................................................................................. 89 D. Accounting and Measurement Policies ................................................................... 90 E. Notes to the Consolidated Income Statement and Consolidated Statement of Financial Position ................................................................................................. 108 F. Other Explanatory Notes ...................................................................................... 134 Declaration by the Group’s legal representatives ...................................................... 152 Independent Auditor’s Report ................................................................................... 153 2 Group Management Report for the 2017 financial year TELE COLUMBUS AG, BERLIN Group Management Report for the Financial Year 2017 1. Group Fundamentals ............................................................................................. 5 1.1 Business Model of the Group ........................................................................ 5 1.1.1 General Information .................................................................................... 5 1.1.2 The Group’s Structure ................................................................................ 5 1.1.3 Company Acquisitions ................................................................................ 6 1.1.4 Main Market and Core Business ................................................................. 6 1.1.5 Operating Segments ................................................................................... 7 1.1.5.1 TV segment ......................................................................................... 7 1.1.5.2 Internet and Telephony segment .......................................................... 7 1.1.5.3 Other .................................................................................................... 8 1.2 Management System .................................................................................... 8 1.3 Objectives and Strategies ........................................................................... 10 2. Economic Report ................................................................................................. 11 2.1 Macroeconomic and Industry Conditions .................................................... 11 2.2 Business Performance ................................................................................ 15 2.3 Performance ............................................................................................... 18 2.3.1 Financial Performance .............................................................................. 18 2.3.2 Financial Performance by Segment .......................................................... 21 2.3.3 Financial Position and Liquidity................................................................. 23 2.3.4 Financial position ...................................................................................... 26 2.3.5 Overall Conclusion ................................................................................... 27 3. Subsequent Events .............................................................................................. 27 4. Report on Expected Developments .................................................................... 28 5. Risk Report ........................................................................................................... 31 5.1 Risk Management System .......................................................................... 31 5.2 Key Features of the Accounting-Related Internal Control and Risk Management System .................................................................................. 34 5.3 Risks ........................................................................................................... 35 5.4 Industry-Specific Risks................................................................................ 37 5.5 Legal and Regulatory Changes ................................................................... 38 5.6 Operational Risks ....................................................................................... 39 5.7 Brand, Communication and Reputation ...................................................... 40 5.8 Legal Proceedings, Antitrust and Consumer Protection Procedures ........... 40 5.9 Financial Risks ........................................................................................... 41 5.10 Compliance Risks ....................................................................................... 43 5.11 Risks Associated with Planned Integration Measures ................................. 43 6. Report on Opportunities ...................................................................................... 44 6.1 Opportunity Management ........................................................................... 44 6.2 Opportunities .............................................................................................. 44 6.3 General Statement on the Risk and Opportunities Position from the Point of View of Group Management .......................................................... 46 7. Management declaration pursuant to Section 289a HGB ................................. 47 8. Non-Financial Declaration (CSR Report) according to Section 289b HGB ...... 47 3 Group Management Report for the 2017 financial year 9. Information on Possible Takeover Offers ........................................................... 48 9.1 Presentation and composition of share capital ............................................ 48 9.2 Restrictions on voting rights or on the transfer of shares ............................. 48 9.3 Direct or Indirect Shareholdings Exceeding 10 % of the Voting Rights ........ 48 9.4 Shares with Special Rights that Confer Powers of Control .......................... 49 9.5 Appointment and Dismissal of Members of the Board of Management and Supervisory Board / Amendments to the Articles of Association ................. 49 9.6 Powers of the Board of Management, in Particular with Regard to the Possibility of Issuing or Repurchasing Shares ............................................ 50 9.6.1 Authorised Capital .................................................................................... 50 9.6.2 Contingent Capital .................................................................................... 50 9.7 Significant Agreements of the Company Subject to the Condition of a Change of Control as a Result of a Takeover Offer and the Following Effects ................................................................... 51 9.8 Compensation Agreements of the Company made with the Members of the Board of Management or Employees in the Event of a Takeover Bid .... 51 10. Key Management Compensation Report ........................................................... 51 10.1 Compensation of the Board of Management ............................................... 52 10.1.1 The Board of Management Compensation system ................................... 52 10.1.2 Base Salary .............................................................................................. 53