Annual Report 2018 Location Map of Europe Helsinki Tech hub Stockholm (Brunna) Fulfillment center Szczecin (Gryfino) Dublin Fulfillment center Olsztynek Tech hub Zalando Lounge fulfillment center (start in 2019) Lodz (Gluchow) Fulfillment center (start in 2020) Paris (Moissy-Cramayel) Fulfillment center Verona (Nogarole Rocca) Milan (Stradella) Fulfillment center Fulfillment center (start in 2019) Lisbon Tech hub About Zalando Founded in 2008, Zalando is Europe’s leading online well as our own products. Our platform is a one-stop platform for fashion and lifestyle, connecting customers, fashion destination for inspiration, innovation and inter- brands and partners. We bring head-to-toe fashion to action. As Europe’s most fashionable tech company, more than 26 million active customers across 17 mar- we work hard to find digital solutions for every aspect of kets, offering clothing, footwear, accessories and the fashion journey: for our customers, partners and beauty. Around 2,000 brands are currently offered by every valuable player in the Zalando story. Our goal is to Zalando, from world famous names to local labels, as become the starting point for fashion. Location Map of Germany Location Maps Segment Figures Hamburg Outlet and AdTech Lab Brieselang Fulfillment center Berlin Münster Hanover Headquarters Outlet (upcoming) Outlet (upcoming) and outlet Dortmund Leipzig Mönchengladbach Tech hub Outlet Fulfillment center and tech office Cologne Erfurt Outlet Fulfillment center and tech office Frankfurt / Main Outlet Mannheim Outlet (upcoming) Stuttgart Outlet (upcoming) Ulm Lahr Outlet (upcoming) Fulfillment center Constance Outlet (upcoming) Segment Figures 2018 2017 Earnings position segments Revenue Fashion Store IN EUR M 4,967.7 4,150.5 Adjusted EBIT Fashion Store IN EUR M 162.0 213.7 Adjusted EBIT Fashion Store IN % OF REVENUE 3.3 5.2 Revenue Offprice IN EUR M 497.5 345.3 Adjusted EBIT Offprice IN EUR M 35.2 27.6 Adjusted EBIT Offprice IN % OF REVENUE 7.1 8.0 Revenue all other segments IN EUR M 444.8 345.3 Adjusted EBIT all other segments IN EUR M –24.4 –26.3 Adjusted EBIT all other segments IN % OF REVENUE –5.5 –7.6 Zalando at a Glance Key Figures Jan 1 – Dec 31, 2018 Jan 1 – Dec 31, 2017 Change Group key performance indicators Site visits (in millions) 3,137.2 2,563.5 22.4% Mobile visit share (in %) 79.3 70.7 8.7pp Active customers (in millions) 26.4 23.1 14.4% Number of orders (in millions) 116.2 90.5 28.4% Average orders per active customer 4.4 3.9 12.3% Average basket size (in EUR) 61.0 64.5 –5.4% Results of operations Revenue (in EUR m) 5,387.9 4,489.0 20.0% EBIT (in EUR m) 119.2 187.6 –36.5% EBIT (as % of revenue) 2.2 4.2 –2.0pp Adjusted EBIT (in EUR m) 173.4 215.1 –19.4% Adjusted EBIT (as % of revenue) 3.2 4.8 –1.6pp EBITDA (in EUR m) 205.7 246.4 –16.5% EBITDA (as % of revenue) 3.8 5.5 –1.7pp Adjusted EBITDA (in EUR m) 259.9 273.8 –5.1% Adjusted EBITDA (as % of revenue) 4.8 6.1 –1.3pp Financial position Net working capital (in EUR m) –84.3 –62.4 35.1% Equity ratio (as % of total liabilities) 47.9 51.6 –3.7pp Cash flow from operating activities (in EUR m) 212.8 193.7 9.8% Cash flow from investing activities (in EUR m) –207.0 –88.3 134.3% Free cash flow (in EUR m) –13.8 –85.0 –83.8% Capex (in EUR m) –278.4 –243.9 14.2% Cash and cash equivalents (in EUR m) 995.0 1,065.5 –6.6% Other Employees (as of the reporting date) 15,619 15,091 3.5% Basic earnings per share (in EUR) 0.21 0.42 –50.0% pp = percentage points Employees Active in 17 Around 2,000 from more than 130 European markets brands nations Zalando. The Starting Point for Fashion. corporate.zalando.com P. 6 Foreword Content P. 40 Report of the Supervisory Board P. 83 Background to the Group P. 48 Corporate Governance Report P. 76 The Zalando Share – 2018 in Review P. 8 Corporate Responsibility Content 01 Company 1.1 6 Foreword 1.2 8 Corporate Responsibility 1.3 40 Report of the Supervisory Board 1.4 48 Corporate Governance Report 1.5 76 The Zalando Share – 2018 in Review 02 Combined Management Report 2.1 83 Background to the Group 2.2 90 Report on Economic Position 2.3 110 Subsequent Events 2.4 110 Risk and Opportunity Report 2.5 119 Outlook 2.6 121 Supplementary Management Report to the Separate Financial Statements of ZALANDO SE 03 Consolidated Financial Statements 3.1 129 Consolidated Statement of Comprehensive Income 3.2 130 Consolidated Statement of Financial Position 3.3 132 Consolidated Statement of Changes in Equity 3.4 134 Consolidated Statement of Cash Flows 3.5 136 Notes to the Consolidated Financial Statements 3.6 205 Responsibility Statement by the Management Board Easy Navigation Menu 3.7 205 Independent Auditor’s Report 04 Service Further Information in the Report 4.1 217 Glossary 4.2 220 GRI Index 4.3 225 Financial Calendar 2019 Further Information 4.4 225 Imprint on the Internet Company 1.1 6 Foreword 1.2 8 Corporate Responsibility 8 do.THINK Ahead 14 do.GROW – Employees 21 do.KNOW – Products 30 do.PROTECT – Environment 36 do.CONNECT – Societal Engagement 1.3 40 Report of the Supervisory Board 1.4 48 Corporate Governance Report 48 Declaration of Conformity 50 Corporate Governance 52 Management Board and Supervisory Board Procedures 57 Target of Female Representation on the Supervisory Board, the Management Board and on Management Levels below the Management Board According to Sections 76 (4), 111 (5) AktG 57 Takeover Law Disclosures Pursuant to Sections 289a (1), 315a (1) HGB and Explanatory Report 61 Remuneration Report 1.5 76 The Zalando Share – 2018 in Review 76 Capital Markets and Share Price Development 78 Shareholder Structure 79 Research Coverage 79 Stock Indices 80 Annual General Meeting 80 Close Dialogue with the Capital Markets COMPANY COMBINED MANAGEMENT CONSOLIDATED FINANCIAL SERVICE 01 REPORT STATEMENTS 6 1.1 FOREWORD Rubin Ritter David Schneider Robert Gentz Dear Shareholders, 2018 was in many ways a remarkable year for Zalando. Celebrating our 10th birthday in September offered an opportunity to look back at many important milestones along the way of growing Zalando to the company it is today. Personally, the Zalando birthday was a moment for self-reflection. The development of Zalando has surpassed all of our dreams and expectations, and we are deeply thankful to everyone who has contributed to this great story. While our 10th birthday marks the end of our first decade, it more importantly marks the beginning of our next decade. The opportunity in front of us remains impressive: The European Union is home to a population of more than 512 million people, with an annual fashion spend of 430 billion euros. Today, we serve just north of 1.6% of this demand, and while many consider us a large com- pany, we still consider Zalando a small company compared to our potential. We believe that we will be able to play an even more important role in the lives of our customers, building deeper relation- ships with them. Our goal is to become the starting point for fashion. Zalando is driven by the fundamental conviction that a platform business model relying on the collective talent of the fashion world is the key to success. Building deep relationships with Euro- pean fashion customers will make us even more relevant for our brand partners. And only in partnership with the leading brands will we be able to curate the most interesting assortment and content for customers to enjoy. ZALANDO SE ANNUAL REPORT 2018 COMPANY COMBINED MANAGEMENT CONSOLIDATED FINANCIAL SERVICE 01 REPORT STATEMENTS 7 1.1 FOREWORD 2018 also had challenging moments. We used these as opportunities to learn and further focus our strategy. Our 10th anniversary reminded us to think in longer time periods than quarters or seasons. When we hit challenging times, we worked hard to fix problems that needed fixing, but at the same time we made sure that our team focused on what really matters: the needs of our customers and how we intend to serve them in the future. That way, having a bad quarter never kept us from having a great decade. The opportunities and tasks ahead are considerable, but we are convinced we will master them with relentless customer focus, speed and a highly skilled team of more than 15,500 talents that embrace challenges as opportunities, think like entrepreneurs and always act with the customer in mind. We’re excited to take you along with us. Berlin, February 25, 2019 Robert Gentz David Schneider Rubin Ritter ZALANDO SE ANNUAL REPORT 2018 COMPANY COMBINED MANAGEMENT CONSOLIDATED FINANCIAL SERVICE 01 REPORT STATEMENTS 8 1.2 Corporate RESPONSIBILITY 1.2 Corporate Responsibility 1.2.1 do.THINK Ahead − Corporate responsibility and sustainability are increasingly important drivers of business success at Zalando, and it is our bold ambition to become a leading online destination for sustainable fashion in Europe by 2020. − We want to run our business responsibly and use our tech and fashion expertise to enable our customers, brands and the industry to make more sustainable choices. − For the first time, we are reporting transparently and comprehensively on the clear targets we set in 2017 for each of our four do.STRATEGY focus areas: employees, products, environment and society.