TELE COLUMBUS AG, BERLIN Combined Management Report for the fiscal year 2016 Introduction ................................................................................................................... 5 1. Fundamentals of the company ................................................................................. 5 2. Economic Report .................................................................................................... 12 3. Tele Columbus AG – condensed version according to HGB ................................... 30 4. Supplementary Report ........................................................................................... 32 5. Report on expected developments ......................................................................... 33 6. Risk Disclosure Report ........................................................................................... 38 7. Opportunity Report ................................................................................................. 52 8. Declaration on company management according to § 289a HGB ........................... 56 9. Information on possible takeover offers .................................................................. 56 10. Compensation Report ............................................................................................ 60 Consolidated Financial Statements for the fiscal year ended 31 December 2016 Consolidated Financial Statements ............................................................................. 70 I. Consolidated income statement ............................................................................. 78 II. Consolidated statement of other comprehensive income ....................................... 79 III. Consolidated statement of financial position ........................................................... 80 IV. Consolidated statement of cash flows .................................................................... 82 V. Consolidated statement of changes in equity ......................................................... 84 VI. Notes to the consolidated financial statements ....................................................... 86 A. General information ................................................................................................ 86 B. Basis of consolidation ............................................................................................. 94 C. Basis of accounting .............................................................................................. 109 D. Accounting policies............................................................................................... 109 E. Explanatory notes to the consolidated income statement and consolidated statement of financial position ......................................................... 131 F. Other explanatory notes ....................................................................................... 160 Declaration by the Group's legal representatives ...................................................... 182 Auditor’s Report ........................................................................................................ 183 2 Combined Management Report for the fiscal year 2016 TELE COLUMBUS AG, BERLIN Combined management report for the financial year 2016 Introduction ................................................................................................................. 5 1. Fundamentals of the company .............................................................................. 5 1.1 Business model of the Group ...................................................................... 5 1.1.1 General Information .................................................................................... 5 1.1.2 Structure of the Group ................................................................................ 6 1.1.3 Company acquisitions ................................................................................. 6 1.1.4 Main market and core business .................................................................. 6 1.1.5 Operating Segments ................................................................................... 7 1.1.5.1Segment “TV” .......................................................................................... 7 1.1.5.2Segment “Internet and Telephony” .......................................................... 8 1.1.5.3“Other” ..................................................................................................... 8 1.2 Management System .................................................................................. 8 1.3 Objectives and strategies .......................................................................... 10 2. Economic Report.................................................................................................. 12 2.1 Macroeconomic and industry conditions .................................................... 12 2.2 Business Performance .............................................................................. 16 2.3 Situation .................................................................................................... 19 2.3.1 Income situation ........................................................................................ 19 2.3.2 Earnings position by segment information ................................................. 22 2.3.3 Financial position and liquidity................................................................... 24 2.3.4 Asset Status .............................................................................................. 28 2.3.5 Overall statement ...................................................................................... 29 3. Tele Columbus AG – condensed version according to HGB ............................ 30 4. Supplementary Report ......................................................................................... 32 5. Report on expected developments ..................................................................... 33 6. Risk Disclosure Report ........................................................................................ 38 6.1 Risk Management System ........................................................................ 38 6.2 Key features of the accounting internal control and risk management system ................................................................................. 40 6.3 Risks ......................................................................................................... 42 6.4 Industry-specific risks ................................................................................ 44 6.5 Legal and regulatory changes ................................................................... 45 6.6 Operational risks ....................................................................................... 46 6.7 Brand, communication and reputation ....................................................... 46 6.8 Legal proceedings, antitrust and consumer protection procedures ............ 47 6.9 Financial risks ........................................................................................... 47 6.10 Compliance risks ....................................................................................... 49 6.11 Risks associated with planned integration measures................................. 50 6.12 Overall picture of the risk situation............................................................. 52 3 Combined Management Report for the fiscal year 2016 7. Opportunity Report .............................................................................................. 52 7.1 Opportunities ............................................................................................. 52 7.2 Overall picture of opportunities .................................................................. 56 8. Declaration on company management according to § 289a HGB .................... 56 9. Information on possible takeover offers ............................................................ 56 9.1 Presentation and composition of subscribed capital .................................. 56 9.2 Restrictions on voting rights or the transfer of shares ................................ 57 9.3 Direct or indirect shareholdings exceeding 10 % of the voting rights ......... 57 9.4 Shares with special rights that confer powers of control ............................ 58 9.5 Appointment and dismissal of members of the Management Board and Supervisory Board / amendments to the articles of incorporation ....... 58 9.6 Powers of the Supervisory Board, in particular with regard to the possibility of issuing or repurchasing shares ............................................. 59 9.6.1 Authorised capital ..................................................................................... 59 9.6.2 Contingent capital ..................................................................................... 59 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 . 59 9.8 Compensation agreements of the company, which are made with the members of the Management Board or employees in the event of a takeover bid .............................................................................................. 60 10.Compensation Report.......................................................................................... 60 10.1 Remuneration of Management Board .......................................................