Axel Springer AG Annual Report 2017

Plain-text annual report

Annual Report 17Foreword 82 Report of the Supervisory Board Executive Board 90 Consolidated Financial Statements Contents 4 6 8 The Axel Springer share 10 Combined Management Report 12 22 39 42 56 61 Fundamentals of the Axel Springer Group Economic Report Economic Position of Axel Springer SE Report on risks and opportunities Forecast Report Disclosures and explanatory report on the Executive Board pursuant to takeover law 65 Corporate Governance Report 91 93 93 94 95 96 97 Consolidated Statement of Financial Position Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity Consolidated Segment Report Notes to the Consolidated Financial Statements 166 Responsibility Statement 167 Independent Auditor’s Report 175 Boards 2 Group Key Figures in € millions Group Revenues Digital media revenues share 1) EBITDA, adjusted2) EBITDA margin, adjusted 2) Digital media EBITDA share1) EBIT, adjusted2) Net income3) Net income, adjusted2) 3) Segments4) Revenues Classifieds Media News Media Marketing Media Services/Holding EBITDA, adjusted2) Classifieds Media News Media Marketing Media Services/Holding Liquidity and financial position Free cash flow (FCF)2) FCF excl. effects from headquarter real estate transactions2) 5) Capex6) Capex excl. effects from headquarter real estate transactions5) 6) Total assets7) Equity ratio 2) 7) Net liquidity/debt2) 7) Share-related key figures8) Earnings per share, adjusted (in €)2) 3) 9) Earnings per share (in €)3) 9) Dividend (in €)10) Closing price (in €) Market capitalization11) Change yoy 2017 2016 8.3 % 3,562.7 3,290.2 71.5 % 67.4 % 8.5 % 645.8 595.5 18.1 % 18.1 % 80.0 % 72.5 % 504.0 378.0 327.5 471.1 450.0 299.9 1,007.7 1,509.8 984.5 60.7 413.2 218.8 95.6 – 81.7 497.4 341.1 – 200.9 – 152.5 879.5 1,481.6 856.2 72.9 354.6 214.4 82.2 – 55.7 270.5 229.7 – 156.8 – 130.4 7.0 % – 16.0 % 9.2 % 14.6 % 1.9 % 15.0 % – 16.8 % 16.5 % 2.0 % 16.3 % − 83.9 % 48.5 % − − – 0.3 % 6,435.6 6,456.2 43.5 % 40.9 % − – 1,020.2 – 1,035.2 8.1 % – 19.1 % 5.3 % 41.2 % 41.2 % 2.60 3.19 2.00 2.41 3.94 1.90 65.13 46.13 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). Foreword Annual Report 2017 Axel Springer SE Foreword 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 expected. Here, in addition to outstanding market positions and excellent management, we benefit from the continuing trend from print to online. As announced, this year we have introduced a new transparency with regard to our classifieds business. At two capital market days in London and New York, we gave analysts and investors a detailed insight into the business models. The result in News Media was not only stable, it even increased slightly. Our strong media brands are seen by many people as a trusted source of information and entertainment, both in print and in the growing digital environment. This is reflected in the business: The subscription numbers in the digital sector continue to grow, advertising revenues have risen. Here again it shows that print as a business model is more stable than is often claimed. In the past year, the world has changed even faster than in previous years. Politically, economically, socially and technologically. The media market is affected by all four dimensions. The change happens quickly and profoundly. The end is not to be foreseen. Axel Springer was and is very well prepared for this. That's why we can look back on a very successful year together with you. We are more digital than ever before and therefore grow stronger. At the beginning of the year 2017, we have positioned four key messages on the capital market: 1. In the Classifieds Media segment, we now regularly publish more information about our most important businesses. This enables our shareholders to better understand the good development. 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 Axel Springer SE Foreword Also noteworthy is the development of Business Insider. Our colleagues use the considerable reach of their content, e. g. videos, more and more to achieve higher revenues. Overall, Business Insider's growth in 2017 was over 45 %. And thus above the expected average growth that we had envisaged in the acquisition. In addition, we accelerated the internationalization of Business Insider through new country editions. Reach and user intensity of our offer for users of Samsung mobile phones, Upday, continue to be very good. On the publishing side, we have tackled the reorganiza- tion of the national publishing units (WELT, BILD). With this modification, we want to further strengthen the brands, align our publications more closely to print and digital target groups, leverage synergies between the brands and thus further improve the overall economic prospects. Editorial departments that have already integrated print and digital are not affected. With these measures we will not only live up to our economic responsibility. Especially in the area of "News Media" this was particularly challenging - and important in this year. "Fake News" and populist trends on the net are countered by our media with critical, profoundly researched journalism. This, too, was the key to success in 2017 for Axel Springer. There were also important developments in the portfolio of our Marketing Media segment: In January 2018 we concluded an agreement for the sale of our shareholding in aufeminin at a very attractive price, subject to approval by the responsible competition authorities. In addition, we created a good starting position for further develop- ment with the merger between Awin and affilinet. Our Supervisory Board appointed Dr. Stephanie Caspar to the Executive Board as of March 1, 2018. She assumes group-wide responsibility for a newly created division for technology and data. We have thus firmly established a paramount technology and data strategy at Axel Springer at the Executive Board level. In addition to the major strategic lines, Axel Springer was strengthened by a series of individual projects. These include, among others, successful real estate trans- actions in Berlin. In this way, we reduce our capital tied up in real estate and achieve high level profits. Adjacent to our company headquarters, our new building is currently under construction. I am happy that we will build it together with Rem Koolhaas. It will match our idea of modern, digital work. The cultural change of Axel Springer is also evident in the Tuesday Townhall Talk. The regular event introduced last year enables all employees of all companies of Axel Springer to have discussions with the Executive Board. And with the expansion of the share participation program to other companies within the Group, we have enabled even more employees to participate in the economic success. Many employees take part in it and thus strengthen their ties to Axel Springer. I am particularly happy that we have reached a goal in 2017 that is personally important to me: As of December 31, 2017, Axel Springer employed a proportion of 32 % women in management positions. We achieved this goal without quota. It is part of our cultural change. Diversity will continue to play a key role at Axel Springer, and the proportion of women should continue to rise. My joy over the commercial success of the year 2017 is only surpassed by one other message. Since 16th February our employee Deniz Yücel is free. For over a year he was detained in Turkey, without being charged. His freedom makes us all very happy. Many heartfelt regards Mathias Döpfner 5 Executive Board Dr. Mathias Döpfner Jan Bayer Chairman President News Media Born 1963, journalist. Career milestones: Born 1970, Master’s degree in media studies. Career mile stones: Frankfurter Allgemeine Zeitung, Süddeutsche Zeitung; Publisher Gruner+Jahr; Chief Editor Wochen- Volksstimme, Magdeburg; Publisher post, Hamburger Morgenpost, Süddeutsche Zeitung; Chairman of and DIE WELT. Member of the the Executive Board of the WELT Executive Board since 2000, Group. Member of the Executive Chairman since 2002. Board since 2012. 6 Executive Board Dr. Julian Deutz Dr. Andreas Wiele Dr. Stephanie Caspar Chief Financial Officer President Classifieds Media Since March 2018 President Technology and Data Born 1968, Master’s degree in Born 1962, lawyer. *1973, Master’s degree in business business administration. Career Career milestones: Editor, administration. Career milestones: milestones: OC&C Strategy Hamburger Morgenpost; Head Engagement Manager McKinsey; Consultants; head of M&A/Investor of Publishing Capital and Geo, Director Consumer Categories eBay; Relations Pixelpark AG; CFO Gruner+Jahr, Paris/France; Member of the Management Team/ Venturepark AG; CFO Steilmann- Execu tive Vice President and Chief Leiterin UX Immobilien Scout; CEO Gruppe; Axel Springer International; Operating Officer of Gruner+Jahr Mirapodo; Managing Director Head of Group Controlling/Corporate USA Publishing, New York. WeltN24; Managing Director Spring Development Axel Springer SE. Member of the Executive Board GmbH. Member of the Executive Member of the Executive Board since 2000. Board since 2018. since 2014. 7 The Axel Springer share Annual Report 2017 Axel Springer SE The Axel Springer share Successful stock market year 2017 Performance Axel Springer Share in € The stock exchanges can look back on a good year. The leading German index, the DAX (price index), closed the reporting year with growth of 9.6 %, while the MDAX (price index), which also includes the Axel Springer share, increased by 15.5 %. At the end of the year, the European media sector index DJ EuroStoxx Media was up 4.3 % on the previous year-end. The Axel Springer share gained 41.2 % for the full year, thus outperforming the benchmark indices. Market capitalization at the end of 2017 was around € 7.0 billion. 70 60 50 40 Axel Springer 1) DAX MDAX 1) DJ EuroStoxx Media 1) Closing price: € 65.13 Share Information1) € 2017 2016 Change Earnings per share, adjusted2) 3) 4) Earnings per share3) 4) Dividend5) Total dividend payout (€ millions)5) Year-end share price Highest price Lowest price Market capitalization (€ millions)6) Daily traded volume (Ø, € thousands) 2.60 3.19 2.00 215.8 65.13 68.10 46.34 2.41 8.1 % 3.94 – 19.1 % 1.90 5.3 % 205.0 5.3 % 46.13 41.2 % 51.34 32.6 % 39.91 16.1 % 7,027.2 4,977.2 41.2 % 01/01/17 12/31/17 1) Indexed on the year-end share price of Axel Springer SE as of December 31, 2016. Analyst Coverage The number of analysts publishing ratings of the Axel Springer share increased from 17 to 18 in the 2017 financial year. At the time of preparation of the annual financial statements, eight brokers recommend our share for purchase, eight classify it as "hold/neutral" and two recommend our share for sale. You can find the latest recommendations and share price targets in the Investor Relations section on our website at www.axelspringer.de. 9,371.7 6,799.2 37.8 % Investor Relations Dividend yield5) 6) 3.1 % 4.1 % Dividend yield per share per year7) 45.3 % – 6.6 % - - 1) Quotations based on XETRA closing prices. 2) Explanations with respect to the 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) Calculation based on average weighted shares outstanding in the reporting period (107.9 million; PY: 107.9 million). 5) The dividend for the financial year 2017 is subject to the condition of approval by the annual shareholders’ meeting. 6) Based on shares outstanding at the closing price, excluding treasury shares (107.9 million; PY: 107.9 million). 7) Share price development plus dividend payment. The company's Management and Investor Relations team presented the company and its strategy at investor conferences and road shows in Europe and the United States on a total of 19 days. In addition, we held regular dialogues with investors, analysts and other capital mar- ket participants in numerous discussions and telephone conferences throughout the year. As usual, the tele- phone conferences held in connection with the publica- tion of our financial reports were broadcasted live on the Internet as audio webcasts and will continue to be avail- able on our website. At the end of June, we also held two Capital Market Days in London and New York for the first time, which were dedicated exclusively to the classifieds business of Axel Springer. Almost all companies in the Classifieds 8 Annual Report 2017 Axel Springer SE The Axel Springer share Media segment were represented by presentations from top management. For the first time, revenues and earn- ings of the individual companies were presented for these companies in addition to detailed operating figures. We will continue to maintain our high level of transparen- cy in the future and provide semi-annual information about the developments in our classified offers. Both events enjoyed great interest: A total of around 100 analysts and investors accepted the invitation on site. In addition, many market participants watched the event live as a webcast. A video recording of the event can be found on our website www.axelspringer.de/cmd2017. Shareholder Structure Axel Springer Gesellschaft für Publizistik Dr. h.c. Friede Springer Dr. Mathias Döpfner Other shareholdings Share participation program In recent years, employees and executives have benefited from the company's performance through a share par- ticipation program. So far, participation was only possible for employees of Axel Springer SE and its domestic sub- sidiaries. The existing share participation program was fundamentally revised, inter alia with the aim of extending the circle of eligible persons to a larger number of com- panies belonging to the Group. The new share partici- pation program started in July 2017, initially with a six- month pilot phase for Axel Springer SE and all 100 % (subsidiary) companies in Germany, France, the UK and Belgium. Since January 2018, the program takes place with the regular attendance period of twelve months each. Eligible employees determine an amount of their basic salary, with which the corresponding number of shares are acquired each month. At the end of the year, employ- ees receive a share grant of 30 % of the converted base salary. The subsequent holding period is two years. 44.8 % 2.8 % 5.1 % 47.3 % Information on Listing Share type Registered share with restricted transferability Stock exchange Germany (Prime Standard) Status: December, 2017 Security Identification Number ISIN Capital stock it Juli 2017, z DE0005501357, DE0005754238 € 107,895,311.00 / divided up into 107,895,311 registered shares with no par value Thomson Reuters SPRGn.DE Annual shareholders‘ meeting The annual shareholders' meeting of Axel Springer SE took place in Berlin on April 26, 2017. Around 410 shareholders or 87.5 % of capital carrying voting rights participated. All resolutions proposed by the Manage- ment - including the proposal to increase the dividend by 5.6 % to € 1.90 (PY: € 1.80) per qualifying share - were approved by majorities of at least 93.8 %. Based on the 2016 year-end price, our share achieved a dividend yield of 4.1 %. A total of € 205.0 million (PY: € 194.2 million) was distributed to our shareholders. 9 Annual Report 2017 Axel Springer SE Combined Management Report Combined Management Report 12 Fundamentals of the Axel Springer Group 22 Economic report 39 Economic Position of Axel Springer SE 42 Report on risks and opportunities 56 Forecast Report 61 Disclosures and explanatory report on the Executive Board pursuant to takeover law 65 Corporate Governance Report 10 Annual Report 2017 Axel Springer SE Combined Management Report Summary of business performance and operating results in 2017 Axel Springer has had a very successful conclusion to the 2017 financial year. The forecast published in March 2017 and partially raised in August was met (see page 58). In the reporting year, revenues of € 3,562.7 million were 8.3 % higher than the prior-year figure (€ 3,290.2 million). This increase was mainly due to the good operational development. In addition, consolidation effects also contributed, while currency effects had a negative impact overall. Organically, i.e. adjusted for consolidation and currency effects, sales revenues were 6.3 % higher than in the previous year. All operating segments contributed to this revenue growth. The transformation towards an increasingly digital company is reflected in the share of digital business in our key figures: In 2017, we generated 71.5 % of our revenues and 87.1 % of our advertising revenue in the digital field. Compared with the prior year, adjusted EBITDA in- creased by 8.5 % to € 645.8 million (PY: € 595.5 million). The return remained stable at 18.1 % (PY: 18.1 %). The partially significant increase in earnings in the operating segments was only opposed by a deterioration in earnings in the Services/Holding segment. Overall, we generated 80.0 % of our operating result in the past financial year with digital activities. Adjusted earnings per share from continuing opera- tions of € 2.60 were 8.1 % above the prior year's figure of € 2.41. At the annual shareholders' meeting to be held on Wednesday, April 18, 2018, the Executive Board and Supervisory Board will propose a dividend of € 2.00 (PY: € 1.90) per qualifying share. Outlook 2018 For the financial year 2018, we expect Group revenues to increase by an amount in the low to mid single-digit percentage range. Organically, we also anticipate an increase in the low to mid single-digit percentage range. For adjusted EBITDA, we expect a rise in the lower double-digit percentage range. For the organic growth in EBITDA, we expect an increase in the mid to high single- digit percentage range. For the adjusted EBIT, due to higher depreciation, we expect an increase in the lower single-digit percentage range, organically a rise in the lower to mid single-digit percentage range. For the adjusted earnings per share, we expect an increase in the lower to mid single-digit percentage range. For the organic development, we anticipate an increase in the mid to high single-digit percentage range. You can find detailed information on our forecasts on page 58. Introductory remarks The combined management report for Axel Springer SE and the Group are summarized. The information contained in this combined management report relates to the economic situation and business performance of the Axel Springer Group. These statements are also largely applicable to Axel Springer SE. Additional information on the economic situation of the parent company Axel Springer SE is provided in a separate chapter on page 39. For explanations of the key performance indicators used and the adjustments of our operating results, please refer to page 33 of the combined management report and the notes to the consolidated financial statements section (31). 11 Annual Report 2017 Axel Springer SE Combined Management Report Fundamentals of the Axel Springer Group Fundamentals of the Axel Springer Group Segments Axel Springer Group Classifieds Media News Media Marketing Media Services/ Holding Jobs National Real Estate International General/ Other Reach Based Marketing Performance Marketing Business model Segments of the Axel Springer Group Axel Springer is a leading digital publisher with an em- phasis on digital classifieds and journalism. Already today, 71.5 % of total revenues and 80.0 % of adjusted EBITDA are generated by digital activities. Axel Springer operates one of the world's largest portfolios of digital classifieds. From an economic point of view, these offers are the most important pillar in the Group, particularly those in the subsegment Jobs and Real Estate. In addition, the offers in the News Media segment include a broad- based portfolio of successfully established brands such as the BILD and WELT Group in Germany or Business Insider in the USA. The Marketing Media segment com- prises all business models that generate revenues pre- dominantly through reach-based or performance-based forms of advertising. Legal structure, locations Axel Springer SE, as the holding company of the Axel Springer Group, is a listed stock corporation with its registered head office in Berlin. The Group also maintains offices at other locations in Germany. In addition, the Group comprises numerous companies abroad. The consolidated shareholdings of the Group are listed in section (42) in the notes to the consolidated financial statements. Axel Springer's business activities are bundled in three operating segments: Classifieds Media, News Media and Marketing Media. In addition, there is the Services/- Holding segment. As part of the publication of the nine-month figures for 2017, we have adjusted the names of our segments. The former Classified Ad Models have been renamed Classifieds Media, the Paid Models have become News Media and the segment previously called Marketing Models has been changed to Marketing Media. The content composition of the segments remained unchanged. Classifieds Media The Classifieds Media segment encompasses all busi- ness models that generate their revenues primarily through advertisers paying for advertising of jobs, real estate, cars, etc. Portfolio and market position Axel Springer has established one of the world's largest portfolios of leading online classifieds portals over the last few years. The activities of the Classifieds Media 12 Annual Report 2017 Axel Springer SE Combined Management Report Fundamentals of the Axel Springer Group segment are divided into three subsegments: Jobs, Real Estate and General/Other. The following graph gives an overview of the main brands in the Classifieds Media portfolio. Portfolio Classifieds Media Jobs Real Estate StepStone Totaljobs/Jobsite Saongroup SeLoger Immowelt Immoweb 1) As of 2018 part of the subsegment Jobs. General/ Other LaCentrale Yad2 @Leisure meinestadt.de1) Jobs comprises the StepStone Group and its subsidiar- ies, the leading company among the private-sector job boards in Germany, the UK, Ireland, South Africa and other countries. With its portals specialized in expert and managerial staff, according to the market research insti- tute TNS, StepStone delivers around two and a half times more applications than its nearest competitor in Germany. The Totaljobs Group and the Jobsite Group, which alongside the general main brands, also include among others the specialist portals Caterer.com, CWJobs.co.uk, CityJobs.com and eMedcareers.com, together deliver significantly more applications in the UK than their competitors. In Real Estate, Axel Springer is the leading provider in France and Belgium with SeLoger and Immoweb. SeLoger is the largest company in France in the field of specialized real estate classifieds in France and has been able to increase its average revenue per agent through price measures as well as an expansion of its offering in recent years, reaching an average value of € 724 in 2017 (PY: € 676) per month. The SeLoger's portfolio also includes some highly specialized niche portals such as: bellesdemeures.com for luxury real estate. Since the first quarter of 2018, Logic-Immo.com is also part of the portfolio (see page 24). In Belgium, Immoweb achieved an average revenue per agent of € 514 per month (PY: € 460). The Real Estate subsegment also includes the German Immowelt Group, which was created in 2015 from the merger of Immowelt and Immonet and is the clear number two of the German real estate portals. In the year 2017, the focus of the Immowelt Group was again on the marketing of the DUO offer, which enables agents to place their properties on both portals. This resulted in another significant increase in average reve- nue per agent. In 2017, this averaged € 294 per month (PY: € 252). General/ Other includes Car&Boat Media, based in Paris. The company operates LaCentrale, the leading specialist classifieds portal for used cars in France as well as other portals related to cars and boats. LaCen- trale's average revenue per agent in 2017 was € 410 per month. The Yad2 Group includes the leading generalist classifieds portal in Israel for real estate, cars and classi- fieds, as well as a leading job board (Drushim). The sub- segment also includes @Leisure, a leading operator of online holiday property rental portals. The group of com- panies based in Amsterdam includes, among others, the portals belvilla and casamundo as well as the company TraumFerienwohnungen and the DanCenter Group (previously Land & Leisure Group), which, among others, operates the portal DanCenter. The German regional portal meinestadt.de generates the majority of its revenues through digital classifieds. Business model and key factors The offers in the Classifieds Media segment generate revenues mainly through sales of classified ads. A certain price per ad is paid by HR departments for placing job ads, by estate agents for advertising real estate, and by car dealerships for publishing car ads. In addition, revenues are generated by marketing online advertising spaces and cooperations as well as through the provision of software functionalities for customers. Long-term growth drivers are, among others, the continuing reloca- tion of classified ads to the Internet, the acquisition of new customers and the increasing monetization of the offer. Moreover, business developments are significantly determined by the economic environment in the respec- tive market segments, the market position in the respec- tive segment, and online usage behavior of advertisers and seekers. 13 Annual Report 2017 Axel Springer SE Combined Management Report Fundamentals of the Axel Springer Group Within Jobs, ads are sold to job providers and logins are offered to online CV databases that belong to the respective portals in which the job advertisers can actively search for suitable candidates. Real Estate primarily generates revenues by selling advertising and display space to agents, project develop- ers, housing agencies, or private individuals. Within General/Other, revenues are based on the focus of the relevant portal. These include, among others, com- mercial automobile retailers, landlords of vacation homes, real estate agents and project developers. The portals are also partially aimed at private individuals who predomi- nantly sell second-hand goods via this marketplace. News Media The News Media segment includes primarily business models that are based on content creation and funded by paying readers and/or advertisers. Portfolio and market position The News Media segment is sub-divided into national and international offerings. The main activities in the News Media segment are illustrated in the following chart. Portfolio News Media National International The digital portfolio in News Media National mainly comprises BILD.de and WELT.de, including affiliated online portals such as Stylebook and Gründerszene, as well as the digital apps of magazines (including Autobild.de). In addition, with WELT (previously N24) a TV news channel belongs to the WELT Group. N24 was renamed WELT on January 18, 2018. In terms of reach BILD.de is Germany's strongest news and entertainment portal with a digital subscription model. In addition, BILD.de has the widest reach of journalistic mobile offers in Germany. BILD.de is also distributed via mobile channels, with apps for nearly all kinds of smartphones, tablet PC and smart TV, not to mention the mobile portal. In 2017, in addition to our portal Upday, it was one of the two most-visited mobile media brands in Germany ("digital facts 2017 12“, AGOF - Working Group for Online Research). BILD.de also offers other products such as fitbook.de and travebook.de. WELT digital products are some of the most successful stationary and mobile Internet sites in the segment of German quality media. The offering is also available on PC tablet, smartphones and e-readers as well as a digital subscription. WELT (previously N24) is leading in the TV news channel segment and maintained its 1.4 % market share in 2017 among the 14- to 49-year-old advertising- relevant audience group. BILD-Group WELT-Group Ringier Axel Springer Media Business Insider eMarketer upday Politico The print portfolio in the News Media National seg- ment comprises the newspapers of the umbrella brands BILD and WELT, as well as our magazines. 14 Annual Report 2017 Axel Springer SE Combined Management Report Fundamentals of the Axel Springer Group BILD is Europe's biggest daily newspaper with the wid- est reach, as well as the unchallenged number one in Germany with a share of 79.4 % of newsstand sales (all figures for the German newspapers and magazines are based on paid circulation as per German Audit Bureau of Circulation, (IVW - Informationsgemeinschaft zur Feststellung der Verbreitung von Werbeträgern) as at December 31, 2017). BILD am SONNTAG is Germany's best-selling nationwide Sunday newspaper in 2017, with a share of 59.8 %. B.Z. is one of Berlin's biggest news- papers. The automotive, computer and sports media of the BILD brand family make up a magazine portfolio built on the core brands of AUTO BILD, COMPUTER BILD and SPORT BILD. The WELT AM SONNTAG is the clear number one in the area of supraregional quality Sunday newspapers based on circulation. DIE WELT (including WELT KOMPAKT) is the third-biggest quality newspaper in Germany based on paid circulation. The subsegment News Media International comprises the international digital and print media offers. In Eastern Europe, Axel Springer is active with Ringier Axel Springer Media in the markets of Poland, Hungary, Serbia, Slovakia and, since 2017, also in the Baltic States. The portfolio includes leading digital and print offerings. With the digital offerings, we reach 77.7 % of the country's Internet users with the leading Polish online group Onet. In Hungary the leading job portal, profes- sion.hu, belongs to the portfolio. In Slovakia, azet.sk is the leading online portal, reaching 80.7 % of Internet users. Since the acquisition in the financial year 2017 of the CV Keskus Group, which operates the leading job portals in Estonia, Latvia and Lithuania, Ringier Axel Springer Media is also represented in the Baltic States. In Slovakia, the inclusion of the existing classifieds business in a joint venture with the Penta Group has created the leading classified portals in the Real Estate and Auto segments. Print offers include the largest Polish news- paper FAKT, the leading tabloid BLIKK in Hungary and the leading tabloid NOVY CAS in Slovakia, as well as other newspapers and magazines. In Slovakia, the sale of the print business, already agreed upon in 2017, is to take place in the middle of the year 2018 (see page 25). The Europe Joint Venture with POLITICO in Brussels continued its growth course in 2017 and has strength- ened its position as the most widely read and influential EU media brand. In 2017, 62 % of EU decisionmakers read POLITICO at least once a week. The website politi- co.eu, the printed weekly newspaper, the conference business and the digital payment offers continued to contribute to the growth course. In the US, Axel Springer is represented by the leading digital business and financial news provider Business Insider. In addition to businessinsider.com, the company also operates other services such as: for example, the INSIDER portal in the US and Business Insider UK in the UK. In 2017 Business Insider reached over 300 million monthly readers and viewers. In cooperation with finan- zen.net, Business Insider has been running a German portal since November 2015 and the Markets Insider since October 2016 in the USA. Business Insider also launched another digital subscription offering with Busi- ness Insider Prime in 2017 and is expanding its B2C offering to include the paid business customer product BI Intelligence. eMarketer complements the portfolio of innovative paid digital offerings in English-speaking countries and strengthens Axel Springer's position in business news and information. Based in New York, the company is a leading provider of analytics, studies and digital market data to companies and institutions. The mobile news aggregator Upday, developed in partner- ship with Samsung and initially launched in four countries, has been represented in 16 European countries since April 2017. Since then, Upday has become the largest mobile news offering in Europe. In December 2017, the platform reached a total of 498.4 million visits (IVW) in 16 countries, a quarter of them in Germany. Upday aggre- gates content from more than 3,500 different sources. In addition to "Top News" selected and summarized by journalist, news is displayed by algorithm that reflect the individual interests of users in the "My News". 15 Annual Report 2017 Axel Springer SE Combined Management Report Fundamentals of the Axel Springer Group Business model and key factors Revenues in the News Media segment mainly comprise circulation and advertising revenues. The circulation revenues come from the sale of classic print products and digital subscriptions. Advertising revenues are gener- ated by marketing the reach of our online and print media. The value chain is, however, aligned across media. It encompasses all the essential processes for the creation of information, entertainment and moving image content, ranging from conception, editorial work and production to sales and marketing. All journalism content is collected in integrated newsrooms, some of which are used for more than one publication, and processed there in accordance with the demands of our print and online media. News Media is marketed predominantly centrally in Germany via Media Impact, the leading cross media marketer (measured by gross market shares). The digital marketing portfolio also includes content produced by external companies. The cross-media approach to marketing enables optimal use of synergies, competencies and reach. The print business continues to face the challenge of falling print circulations. For advertisers, in addition to the circulation development, the reach is particularly important. In particular, BILD continues to benefit from the fact that, with just under 10 million daily readers, it has by far the largest reach among daily newspapers in Germany. We produce our newspapers, among others, in the three offset print shops in Hamburg-Ahrensburg, Essen- Kettwig and Berlin-Spandau. We therefore carry out all steps in the value chain ourselves, from production to monitoring dispatch logistics. The print media are distributed nationally and internationally above all by press wholesale companies, station book trade and press import companies. In Germany there are over 100 thousand retail shops where our newspapers and magazines are sold. In the digital business, industry's circulation revenues are still much smaller than in the print business, but are recording strong growth. The willingness to pay for digi- tal journalism is increasing and success stories of digital subscription models like the New York Times in the US illustrate this. Digital advertising revenues continue to be highly competitive due to the reach-based market power of Facebook and Google. For example, Facebook and Google already absorb two-thirds of the digital advertis- ing market in the US today. A key driver of this develop- ment is the shift in user behavior from desktop to mobile. However, we see the secure brand environment that publishers can guarantee by editing content as a great opportunity. Against the background of the often viral distribution of fake news, social media platforms have increasingly come under fire in 2017- exposing the brands of advertising customers to a reputation damag- ing environment. The production process of digital news media involves the journalistic preparation of content with subsequent provision on websites or other digital resources such as smartphones, tablets or smart TVs, or the processing and aggregation of information in databases. Distribution of digital products takes place predominantly via our own Internet pages or download platforms such as the app stores of Apple and Google. Cross-media, the segment is influenced by the political situation in the relevant markets, the economic environ- ment and, in particular, the development of the advertis- ing markets. In addition to the general market cycle, seasonal aspects and one-off effects such as special editions play a role. Marketing Media In the Marketing Media segment, all business models are summarized, the proceeds of which are generated predominantly by advertisers in reach-based or performance-based marketing. 16 Annual Report 2017 Axel Springer SE Combined Management Report Fundamentals of the Axel Springer Group Portfolio and market position The Marketing Media segment is divided into reach based and performance based offers. The principal activities are summarized in the graph below. Portfolio Marketing Media Reach Based Marketing Performance Marketing idealo aufeminin1) Bonial finanzen.net Awin 1) Sale envisaged for the second quarter of 2018. Reach Based Marketing includes idealo.de, Germany's leading and in terms of reach strongest portal for product search and price comparison. idealo accesses around 2.2 million products with more than 333 million offers from online retailers (status: average December 2017) and is also represented internationally with numerous offers. The product comparison portal ladenzeile.de is also part of the idealo Group. aufeminin and its affiliates provide online portals, forums and product subscriptions for predominantly female audiences. In addition to the internationally represented aufeminin portals, these include Marmiton, France's largest digital offering on the subject of cooking, the lifestyle brand My Little Paris with leisure tips, local recommendations and subscriptions, the UK parent portal netmums, the health portal Onmeda in Germany, France and Spain, and the Californian company Livingly Media with its four lifestyle portals Livingly, Zimbio, StyleBistro and Lonny. In December 2017, Axel Springer announced the signing of an option agreement for the sale of its stake in aufeminin to Télévision Française 1 (TF1). The sales agreement was concluded in January 2018 (see page 25). kaufDA.de and MeinProspekt.de operate under the umbrella of the Bonial International Group as Germany's leading consumer information portals regarding local shopping. The offerings distribute digitized advertising retail leaflets predominantly via mobile Internet at a re- gional level. The services are offered under local brands also in France, Sweden, Norway, Denmark (all Bonial), Spain, Mexico, Chile and Colombia (all Ofertia). In De- cember, Bonial announced the closure of US activities under the Retale brand, as profitability targets were not met (see page 24). finanzen.net, the financial portal with the highest reach in Germany, offers its users data on the latest develop- ments in the financial markets on a daily basis. The portal is part of its internationalization strategy, among others, also represented with an offer in Switzerland, Russia, Austria and the Netherlands. In addition, finanzen.net operates two portals in cooperation with Business Insider, the German edition of Business Insider and Markets Insider, a US stock exchange portal. In the field of TV and radio, Axel Springer is directly and indirectly involved in leading private radio stations and thus holds one of the biggest private radio portfolios in Germany. Further, Axel Springer also holds a minority interest in Do⁄an TV Holding, one of the leading private television and radio companies in Turkey. The Performance Marketing activities are bundled within the Awin Group (previously: Zanox group). The leading provider of success-based online marketing in Europe brings advertisers and publishers together, giving advertisers an efficient way to market their products and services on the Internet. Since January 2017, the US company ShareASale has also been part of the Awin Group. In October 2017, the merger of Awin and affilinet took effect. Axel Springer and United Internet, which had brought affilinet into the AWIN AG, thus strengthen their competitive position in the affiliate marketing area and lay the foundations for accelerated international growth. This also serves to prepare for a possible subsequent IPO of the Awin Group (see page 24). 17 Annual Report 2017 Axel Springer SE Combined Management Report Fundamentals of the Axel Springer Group Business model and key factors In our Reach Based Marketing, advertising spaces are marketed to advertising customers and charged based on the reach generated by the given media offerings (number of users or listeners) or the interaction generat- ed by the reach. Attractive content generates high reach values and topic-specific environments enable advertis- ers to precisely reach the desired target groups. In the course of the rising use of online media, reach based marketing particularly on the Internet is a major business. Besides display ads like banners, layer ads, and wallpaper, videos are also increasingly being used as online advertising formats. In addition, marketing collaborations and innovative forms of advertising such as native advertising, sponsoring and marketing via social media channels are used. Due to the increased automatic purchase and sale of advertising space (programmatic advertising) and the progressive spread of mobile devices, the forms of reach marketing are constantly changing. Through Performance Marketing, advertisers can promote their products and offerings on publisher web- sites through advertising such as text links, banner ads, or online videos. Advertisers pay only a performance fee to publishers if the ad has actually been used and led to the transaction requested by the advertiser. Our plat- forms provide the infrastructure for this efficient form of marketing, record data traffic and transactions, and facilitate a variety of services to advertisers and publishers. The business segment is benefiting from the growth of stationary and mobile Internet usage and the increasing number of relocation of purchases to the Internet. Through the Awin Group, Axel Springer is benefiting from growing demand from advertising companies for success-based advertising and marketing models. Services/Holding Group services, which also include the three domestic printing plants, as well as the holding functions are report- ed within the Services/Holding segment. Group services are purchased by in-house customers at standard market prices. Management and Control Executive Board divisions During the reporting year, the Executive Board of Axel Springer SE consisted of four members; from March 1, 2018 there will be five members. In its management of the company, the Executive Board is advised and supervised by a Supervisory Board composed of nine members. Axel Springer Executive Board Divisions Chairman and Chief Executive Officer Dr. Mathias Döpfner Chief Financial Officer Dr. Julian Deutz Executive Board Divisions News Media Jan Bayer Classifieds and Marketing Media Dr. Andreas Wiele (since March 2018 Classifieds Media) Technology and Data Dr. Stephanie Caspar (since March 2018) Executive Board responsibilities are divided as follows: Dr. Mathias Döpfner is Chairman and Chief Executive Officer of Axel Springer SE. All editors-in-chief and the corporate staff divisions Corporate Communications, Public Affairs, Strategy, Executive Personnel as well as the Axel Springer Academy report to him. 18 Annual Report 2017 Axel Springer SE Combined Management Report Fundamentals of the Axel Springer Group passing both group-wide targets and division targets are adopted every year anew. With regard to the Group targets for 2017, variable compensation is based primarily on the adjusted financial indicators EBITDA and EBIT. A presentation of the remuneration of the Executive Board can be found in the chapter "Corporate Govern- ance" under "Compensation Report" (from page 76). We also provide information on the remuneration of our Supervisory Board members (from page 80). Goals and Strategies Axel Springer is pursuing a strategy of profitable growth with the ultimate goal of becoming the leading digital publisher. This goal is considered to be achieved when the Group is the leader in its respective market segments and in the countries in which it operates. Segment strategies In the Classifieds Media segment, Axel Springer intends to further expand its position as a leading international provider of digital classified portals. In addition to organic development, additional acquisitions should contribute to growth, depending on acquisition opportunities. Synergies within the group are used consistently. In addition, early-stage activities were launched in the Classifieds Media segment in order to identify innovative business models and providers at an early stage. In the News Media segment, Axel Springer intends to exploit the potential of the strong BILD and WELT brands in the digital and printed as well as the international brands (e. g. Business Insider and eMarketer). At the beginning of 2018, Axel Springer has rebuilt the so far brand-based organization of the News Media National product portfolio and organized the publishing area across print and digital. The editors continue to work together brand-linked and cross-medially. Dr. Julian Deutz is responsible for the Finance and Personnel Executive Board division. In addition to the commercial departments, his division also includes, among others, Personnel, Law and Compliance, Group Purchasing, Group Security, as well as Corporate Audit & Risk Management. Jan Bayer is President News Media. In addition to the journalistic product portfolio, this division also includes Media Impact (Marketing), Sales Impact (sales), IT, and the printing plants are also assigned to this segment. In addition, from March 1, 2018, Jan Bayer will take over the responsibility from Dr. Andreas Wiele for the reach based offers of the Marketing Media segment. Dr. Andreas Wiele is President Classifieds and Marketing Media (from March 1, 2018: President Classifieds Media) and is responsible for the corresponding segments, in- cluding the associated investments. From March 1, 2018 he is responsible for the classifieds and performance- based marketing activities. From March 1, 2018, Dr. Stephanie Caspar will be re- sponsible for the overall technology and data strategy and the national digital media business as Executive Board member for Technology and Data. Corporate governance principles Axel Springer’s corporate governance principles are aligned with our core values of creativity, entrepreneur- ship, and integrity. There are also five principles, the "es- sentials", which are laid down in a separate Axel Springer corporate constitution. For more information on our inter- nal rules, see the section entitled "Important Management Practices" in the declaration of corporate governance law pursuant to Section 289f HGB (commercial law) on page 67 of this Annual Report. Basic principles of the compensation system The compensation of our employees, all the way up to senior management level, consists of a fixed component, and – for qualifying employees - an additional variable component. Variable compensation is determined on the basis of individual performance and the company’s suc- cess. To this end, individual target agreements encom- 19 Annual Report 2017 Axel Springer SE Combined Management Report Fundamentals of the Axel Springer Group In this way, the very different requirements in the publish- ing area of the print and digital business should be taken into account. The print area is about limiting the circula- tion decline and aligning our products even more consist- ently with the readers in order to consolidate the strong market position of our titles. The digital sector, on the other hand, requires greater investments across brands in technological innovations in the future. Axel Springer is aiming for a sustained positive development of digital subscription models in the context of readers' increasing willingness to pay for journalistic quality. Another focus is the expansion of the video content in the digital offers of BILD and WELT. The BILD Group achieves a superior reading and usage time compared to other competitors thanks to the ever-closer integration of print, online and mobile offerings and increases its share, especially among young and high-income readers. With the digital brand subscription BILDplus, the basis of paying readers on the Internet is established and expanded. The WELT Group wants to become the leading multi- media provider of quality journalism that can optimally serve print, digital, TV and out of home. For this the respective strengths are used: The print and digital offer- ings of the WELT Group use the moving image inventory of the TV news channel WELT (previously N24), while the quality news channel in conjunction with the other offers of the WELT Group serve to further expand its market position and better exploit its online potential. Further- more, the WELT Group will use its digital subscription model to further increase the base of paying readers on the Internet. Via the central marketer Media Impact, the segment offers advertisers an attractive, cross-media and strong reach based platform for campaigns. As one of the leading cross-media marketing firms (based on gross market shares), Media Impact will continue to expand its external marketing portfolio in the print and digital segments. The TV portfolio, together with Viacom's portfolio, will be mar- keted in the video image marketer Visoon Video Impact. The strategy of sustainable growth in the Marketing Media segment extends to reach based marketing and performance based marketing alike. In reach based marketing, the strategy focuses on financial and consum- er information portals. It is important to increase the range and use of offers, increase advertising utilization and develop new advertising, pricing and business models. Furthermore, innovative products and business models are promoted, developed and, if successful, expanded further via capital expenditures in early-stage activities. In the area of Performance Marketing, there is stronger integration of the activities bundled in the Awin Group; essentially by standardizing the technical platform and expanding services and the publisher network. Organic and acquisition-driven growth Furthermore, innovative products and business models are promoted, developed and, if successful, expanded further via capital expenditures in early-stage activities. This is complemented by inorganic growth. In all segments, Axel Springer seizes opportunities to expand the business model by investing in companies with innovative business ideas which are still in an early phase of their development. Alongside the indirect partic- ipations in start-ups as part of our investments in early phase funds, Project A Ventures, in particular, forms part of the Start-up Accelerator recently founded together with Porsche, which supports digital business ideas with high market potential. Furthermore, Axel Springer has an equi- ty stake in LAKESTAR II. The investment fund concen- trates on digital companies with a focus on Europe and the USA. A number of direct minority interests are also assigned on a selective basis to these indirect interests in startups. Over the past few years, Axel Springer has also established an early-phase portfolio in the USA that fo- cuses on digital journalism. 20 Annual Report 2017 Axel Springer SE Combined Management Report Fundamentals of the Axel Springer Group Above all, when the opportunities arise, companies that are well-established in the market will be acquired. We select suitable investments according to their appropriate strategic orientation, the quality of the management, the profitability and the scalability of the company business model. adjusted EBITDA and the adjusted EBIT are the basis for the performance-related compensation of executives (more about our compensation system can be found starting on page 76). These performance indicators and the adjusted EBITDA margin are anchored in our internal planning and control system. Among other things, we assess the profitability of investments in new or existing business segments using approved capital value methods that take business and country specific risks into consideration. Internal management system We have aligned our internal control system along our corporate strategy, defining financial performance indica- tors (which are also our performance measures) and non-financial performance indicators that measure the success of our strategy. Detailed monthly reports are an important element of our internal management and control system. These reports contain the monthly results of our most important activities, along with a consolidated statement of financial position, income statement, and cash flow statement. We use these reports to compare actual values with budget values. When variances arise, we investigate further or initiate suitable corrective measures. These reports are supplemented by regular forecasts of expected advertising revenues over the coming weeks and months, as well as forecasts of the likely develop- ment of earnings. Financial performance indicators Our focus is on sustainably increasing both our profitabil- ity and our corporate value. The most important target and performance indicators in terms of profitability are revenues, EBITDA and EBIT. At the same time, the Financial Control Parameters Selected financial control parameters on the Group level, € millions Revenues EBITDA, adjusted1) 2017 2016 3,562.7 3,290.2 645.8 595.5 EBITDA margin, adjusted 1) 18.1 % 18.1 % EBIT, adjusted1) 504.0 471.1 1) Explanations with respect to the relevant key performance indicators on page 33. Non-financial performance indicators In addition to the financial performance indicators, the following non-financial performance indicators are rele- vant for assessing our customer, market and supply- related performance, even if the entity as a whole is not controlled by it:  Unique Users/Visitors as well as business model- related key figures of our online media and the resulting market position  Reach of our media in the advertising market as well as key figures on brand and advertising awareness  Average circulation of all major newspapers and mag- azines sold  Digital subscriptions 21 Annual Report 2017 Axel Springer SE Combined Management Report Economic Report Economic Report General economic conditions and business development General economic conditions According to the International Monetary Fund (IMF), global economic growth in 2017 was + 3.7 % in real terms, slightly higher than expected. The main driving forces included the national economies of Europe and Asia. According to calculations by the Federal Statistical Office, the economy in Germany in the course of 2017 was characterized by strong economic growth. Price- adjusted gross domestic product rose by 2.2 % com- pared to the previous year. The German economy has thus grown for the eighth year in a row. Positive impulses for growth came mainly from the domestic market in 2017. Private consumption rose by 2.0 % in real terms. Investments increased by 3.0 % in 2017, which is above average. German exports also developed positively. Price-adjusted exports of goods and services were 4.7 % higher than in the previous year. Imports increased even more strongly at 5.2 % over the same period. The ifo Business Climate Index moved upwards in 2017. This applies both to the assessment of the business situation and to business expectations. Consumers were in high spirits, especially in the second half of 2017. This applies above all to the economic expectations of con- sumers. According to calculations by the Federal Statistical Office, consumer prices increased significantly in 2017 com- pared to the previous year by 1.8 %. The Federal Em- ployment Agency recorded 2.5 million unemployed on an annual average in 2017. The number thus decreased by 5.9 % compared to the previous year, the annual aver- age unemployment rate in 2017 was 5.7 %. According to estimates by the German Institute for Eco- nomic Research (DIW), the British economy grew by 1.5 % in real terms in 2017. The recession, partly ex- pected as a result of the Brexit vote, has so far failed to materialize. Private consumption increased more strongly in the third quarter of 2017 than at the beginning of 2017, and corporate investment also gave a stronger boost. At the same time, the foreign trade contribution was negative due to significantly increased imports. Accord- ing to the DIW estimate, inflation in the United Kingdom rose noticeably to 2.7 %. For France, the DIW expects price-adjusted economic growth in 2017 of 1.8 %. The inflation rate is likely to be below average relative to the euro area (1.4 %) at 1.1 %. In Central and Eastern Europe, the dynamic develop- ment accelerated in the third quarter of 2017 according to the DIW estimate. Overall, the region should have achieved real growth of 4.6 %. The main driver in most countries was private consumption. According to the DIW study, the USA achieved real economic growth of 2.3 % in 2017. In the third quarter of 2017, both private consumption and business invest- ment increased significantly. Foreign trade also provided positive impulses. Industry-specific environment Advertising Market According to the latest advertising market forecast of ZenithOptimedia (“Advertising Expenditure Forecast“, December 2017), the advertising market in Germany in 2017 grew by 0.9 % over the prior-year figure. According to these surveys, net revenues of the total advertising market amounted to € 20.1 billion in the period under review (including classified ads and leaflets, less discounts and agency commissions and excluding production costs), representing a nominal increase of 0.9 % over the previous year. In the online sector in Germany (display, keyword mar- keting and affiliate), net advertising revenues increased by 7.1 % to € 6.8 billion in 2017. The digital advertising expenditures thus represent a market share of the total advertising expenditures of 34.0 %. The advertisers are feeling the pressure of the rapid transformation of their companies. Marketing communication is shifting rapidly to online channels in response to changes in consumer behavior. 22 Annual Report 2017 Axel Springer SE Combined Management Report Economic Report In the print media, net advertising revenues of newspa- pers (newspapers, advertising papers and newspaper supplements) totaled € 4.6 billion in the reporting period, 2.5 % below the previous year's level. Magazines (con- sumer magazines, directory magazines, directory media) also had a decline compared to the previous year, with net advertising revenues falling by 6.3 % to € 2.2 billion. Commercial television in Germany recorded a decline of 0.8 % to € 4.5 billion in 2017 and net advertising revenues on radio were € 773 million, 0.7 % above the previous year. Net advertising revenues in outdoor advertising increased in 2017 by 1.6 % to € 1.1 billion. According to ZenithOptimedia, the following digital advertising revenue development is expected in 2017 for selected countries: print distribution (€ 4.6 billion), overall market growth in distribution will take place online over the next few years, while the print market will see a slight decline. The online distribution market will grow by 5 % each year from 2017-2021. But we see a positive trend: All major national daily newspapers in Germany already offer digital subscriptions. The Axel Springer products in this segment, BILD Plus and WELT Plus, pioneers with their respective founding years of 2013 and 2012, have seen a growing number of subscribers for years. The German press distribution market contracted somewhat further. The total paid circulation of newspapers and magazines was 5.0 % below the corresponding prior-year figure. Thanks to the price increases implemented in the past four quarters, however, circulation revenues declined by only 0.7 %. Anticipated Advertising Activity 2017 (Selection) Change in net ad revenues compared to prior year (nominal) Germany Central and Eastern Europe USA United Kingdom The 335 IVW-registered daily and Sunday newspapers achieved total sales of 16.5 million copies per publication date. Compared to the prior-year figure, this corresponds to a fall of 4.6 %. As in the prior year, retail sales (– 10.2 %) suffered a much greater decline than subscription sales (– 3.5 %). Demand in the segment of daily and Sunday newspapers within the press distribution market weakened by 4.8 %, weighted according to the respective frequency of publication. Online 7.1 % 16.3 % 14.6 % 4.6 % Source: ZenithOptimedia, Advertising Expenditure Forecast, December 2017. Press distribution market More and more people use the Internet as the main medium for news consumption. There is an increasing willingness to pay for digital content in Germany. Economically successful offers such as the New York Times, Washington Post, but also Netflix or Spotify prove that media content can be monetized not only via range models, but also via subscriptions. While digital news- paper distribution, at € 350 million, is not nearly as big as Overall sales of general-interest magazines, including membership and club magazines, was 91.0 million copies per publication date. Compared to the prior-year figure, this corresponds to a fall of 3.8 %. The number of IVW registered titles was 756 (– 2.2 % compared to the previous year). The demand for general-interest magazines weighted for their respective publication frequencies declined by 5.7 %. 23 Annual Report 2017 Axel Springer SE Combined Management Report Economic Report by the end of 2019. Axel Springer will rent the new building from 2020 on a long-term basis. In September 2017, Axel Springer announced that it would reorganize the publishing structure of its media brands (including BILD, WELT) as well as the marketing and sales activities in the German market. In order to make even better use of the different potential of print and digital offerings, two separate publishing areas are created to which the respective brands and teams are assigned. For this purpose, on the one hand, the digital activities of the media brands are bundled with digital marketing, customer service and IT which are part of Media Impact, and on the other hand the print offers, including print marketing, print distribution and printing plants. The reorganization concerns exclusively the pub- lishing areas, the editors continue to work fully integrated across all channels - digital, TV and print. With effect from October 1, 2017, Axel Springer and United Internet have merged their companies Awin and affilinet to build a joint affiliate network. Axel Springer will hereby strengthen its competitive position in the affiliate marketing sector. Following the transfer of 100 % of the affilinet shares by United Internet to AWIN AG, United Internet holds 20 % of the Awin Group. Previously, Axel Springer had taken over the shares still held by Swisscom Schweiz AG (47.5 %) for a purchase price of € 62.4 million under an option agreement. The combi- nation of the expertise, competences and reach of Awin and affilinet enables the development of innovative revenue models in order to increase further growth potential. At the end of November 2017, the Bonial Group, which is majority owned by Axel Springer, announced that it was closing its offer in the USA, a website and an app under the name Retale, as no convincing economic perspective was foreseeable. Business performance In January 2017, the Awin Group (previously Zanox Group), which is majority owned by Axel Springer, ac- quired 100 % of ShareASale, a leading affiliate network in the USA. Acquisition costs amounted to € 44.4 million and included, in addition to the purchase price paid in the year under review, a contingent purchase price liability of € 9.3 million dependent on the development of earnings. In June 2017, Axel Springer Digital Classifieds France entered into a purchase agreement with the French media holding company Spir Communication SA for the purchase of 100 % of the shares of Spir's subsidiary Concept Multimédia for a purchase price of € 105 million, taking into consideration purchase price adjustments which are to be determined on the basis of net debt and net cash. The transaction was approved by the French antitrust authorities at the end of January 2018 and com- pleted in early February. In particular, Concept Multimédia, headquartered in Aix-en-Provence and Paris, runs under the core brand of Logic-Immo.com a real estate portal in France as well as additional online portals for mediation of luxury real estate and new-build properties. In July 2017, we signed contracts to sell the new Axel Springer building under construction and the Axel-Springer-Passage for a total sale price of € 755 million. The sale of Axel-Springer-Passage, which was opened in 2004, was completed at the end of 2017 with payment of the purchase price of € 330 million (before tax payments of approximately € 80 million) and the hand- over of the building. The new owners of Axel-Springer- Passage are Blackstone Real Estate Partners Europe V and QUINCAP Investment Partners. We will continue to use the main part of the passage as a tenant until the end of 2020 after the completion of the sale. The sale of the Axel Springer new building to a company of the Norwe- gian state fund Norges Bank Real Estate Management is subject to the completion of the construction project (total investment volume of around € 300 million). The purchase price is € 425 million (before tax payments of about € 30 million). The sale is expected to be completed 24 Annual Report 2017 Axel Springer SE Combined Management Report Economic Report Overall statement of the Executive Board on the course of business and economic environment Digitization continues to be the defining trend for the economic environment for media companies. This reflects the development of the Axel Springer Group segments. While the two fully digitized segments Classifieds Media and Marketing Media registered significant organic revenue growth, revenues in the News Media segment were only slightly above the previous year's level due to the higher proportion of structurally declining print business. Business performance was also influenced by acquisitions in digital business models and by an active portfolio management. The overall positive development in the financial year confirms our strategy of rigorously digitizing the company. In December 2017, Axel Springer and Télévision Française 1 (TF1) signed an option agreement and in January 2018 signed an agreement to sell Axel Springer's interest in the French aufeminin Group at a price of € 38.74 per share. This was equivalent to a premium of 45.7 % on the closing price on December 8, 2017. Axel Springer's 78.43 % stake was therefore valued at € 286.1 million, plus a monthly interest payment until completion of the transaction. After carrying out a works council consul- tation as pertaining to French Law, the parties then concluded an appropriate purchase agreement at the beginning of January 2018. Completion of the transaction requires approval by the relevant antitrust authorities. In Slovakia, the acquisition of Autobazar.eu, the leading car section portal in Slovakia, and TopReality.sk, a leading Slovak real estate portal, was completed in December 2017. In addition, the sale of the newspaper and magazine portfolio, including the associated online offers, is scheduled for the middle of the year 2018 and should be completed with the approval of the relevant authorities. At the beginning of January 2018, we transferred the Axel Springer high-rise building in Berlin to Axel Springer Pensionstreuhandverein, thereby increasing plan assets to cover our pension obligations by approxi- mately € 140 million. As part of a long-term lease, we will continue to use the property as headquarters. 25 Annual Report 2017 Axel Springer SE Combined Management Report Economic Report Financial performance, liquidity and financial position Financial performance of the Group In the reporting year, revenues of € 3,562.7 million were 8.3 % above the prior-year figure (€ 3,290.2 million). The development of revenue was driven primarily by the good operational development of our activities. In addi- tion, consolidation effects, mainly due to the inclusion of eMarketer and DanCenter (previously Land & Leisure), had an impact. Overall, currency effects had an opposite effect. Adjusted for consolidation and currency effects, total revenues rose by 6.3 %. Organic revenue development for digital media is illustrated in the table below. Consolidation and currency effects have been adjusted. Revenue Development Digital Media, Organic yoy Digital Media Classifieds Media News Media Marketing Media 2017 2016 12.5 % 10.7 % 12.7 % 12.5 % 12.0 % 14.7 % 12.4 % 7.5 % International revenues increased by 12.5 % from € 1,564.3 million to € 1,759.8 million. The share of Axel Springer's revenues increased from 47.5 % to 49.4 %. Advertising revenues increased by 13.4 % to € 2,521.3 million (PY: € 2,223.1 million), due to a positive development of all three operating segments. In addition, particularly consolidation effects from the ac- quisition of DanCenter (previously Land & Leisure) in the Classifieds Media and the merger of Awin and affilinet, as well as the acquisition of ShareASale in the Marketing Media segment had an impact. Adjusted for consoli- dation and currency effects, advertising revenues within the Group increased by 10.8 %. Advertising revenues as a proportion of total revenues were 70.8 % (PY: 67.6 %). Of the total advertising revenues, 87.1 % were generated by digital activities. The decline in circulation revenues by 2.1 % from € 646.9 million to € 633.0 million, was due to market conditions. Although digital circulation revenues continued to increase significantly, they were not yet able to fully compensate for the decline in circulation revenues in printed publications. Circulation revenues as a proportion of total revenues were 17.8 % (PY: 19.7 %). Other revenues amounting to € 408.3 million were 2.8 % below the prior-year figure of € 420.2 million. Deconsoli- dation effects, in particular from the sale of Poliris and Smarthouse, had an impact. Adjusted for consolidation and currency effects, the decline was reduced to 0.8 %. Overall, other revenues represented a share of 11.5 % (PY: 12.8 %) of total revenues. Other operating income amounted to € 317.3 million (PY: € 339.9 million) and was mainly impacted in the reporting year by the sale of the Axel-Springer-Passage in Berlin (€ 200.5 million) and effects from the revaluation of contingent considerations (€ 56.6 million). In the previous year, in addition to income in connection with the estab- lishment of Ringier Axel Springer Schweiz AG (€ 102.2 million) and the sale of CarWale (€ 83.3 million), income from the sale of our real estate in Hamburg (€ 71.3 million) was included. Changes in inventories and other internal costs capitalized amounted to € 87.7 million (PY: € 82.6 million) in the reporting year and continued to relate mainly to comprehensive IT development projects for the develop- ment and expansion of our digital business models. Compared to the prior-year period, total expenses increased by 7.8 % to € 3,402.0 million (PY: € 3,155.5 million). The increase in purchased goods and services of 8.2 % to € 1,051.4 million (PY: € 971.5 million) mainly relates to the Awin Group and, in addition to an increase due to increasing revenues, resulted in particular from the acquisition of affilinet during the reporting year. The ratio of purchased goods and services to total revenues remains unchanged compared to the previous year at 29.5 %. 26 Annual Report 2017 Axel Springer SE Combined Management Report Economic Report The increase in personnel expenses by 9.3 % to € 1,202.1 million (PY: € 1,100.1 million) is mainly due to an increase in personnel in the digital business models, effects from the acquisition of subsidiaries, as well as higher expenses for restructuring measures and long-term compensation programs. The average number of employ- ees grew by 3.3 % to 15,836 in 2017. Depreciation, amortizations, and impairments amounted to € 236.1 million, and remained at the prior- year level (€ 232.6 million). Increased depreciation and amortization due to high investments in intangible assets was offset by slightly lower depreciation, amortization and impairments from purchase price allocations. Other operating expenses increased by 7.1 % to € 912.4 million (PY: € 851.2 million), mainly due to the inclusion of acquired subsidiaries. Income from investments amounted to € – 39.0 million (PY: € 40.2 million) and was impacted in the reporting year by impairments of financial assets, in particular of our share in Ringier Axel Springer Schweiz AG. In the previous year, income from investments was particularly influenced by effects from the contribution of our intererst in Thrillist and NowThis into the non-controlling interest in Group Nine Media. The operating income from investments included in EBITDA amounted to € 16.0 million (PY: € 18.7 million). The financial result was € – 18.4 million and slightly above the prior-year level (PY: € – 21.4 million). Income taxes amounted to € – 130.2 million (PY: € – 126.1 million) at the end of the reporting period. The tax rate of 25.6 % (PY: 21.9 %) was characterized in the reporting year by the release of deferred taxes due to changes in tax rates, particularly in the USA. In the previ- ous year, the tax rate was lower – as a consequence of the largely tax-neutral income in connection with the es- tablishment of Ringier Axel Springer Schweiz AG and the lower taxed income from the sale of CarWale. Compared with the prior year, adjusted EBITDA rose by 8.5 % to € 645.8 million (PY: € 595.5 million). The adjust- ed EBITDA margin is the same as in the previous year at 18.1 %. Adjusted EBITDA of digital media increased by 23.3 % from € 472.1 million to € 582.0 million. Based on the operating business, the digital business share in adjusted EBITDA was 80.0 % (PY: 72.5 %). Due to an increase in depreciation and amortization, adjusted EBIT increased by 7.0 % compared with the prior year to € 504.0 million (PY: € 471.1 million). Net income of the Group developed as follows: Net Income1) € millions Net income 2017 378.0 2016 Change 450.0 – 16.0 % Non-recurring effects – 117.0 – 234.6 − Depreciation, amortization, and impairments of purchase price allocations Taxes attributable to these effects Net income, adjusted2) Attributable to non-controlling interest Adjusted net income2) from continuing operations attributable to shareholders of Axel Springer SE Earnings per share, adjusted (in €)2) 3) Earnings per share (in €)3) 94.2 108.3 – 13.0 % – 27.8 327.5 – 23.8 299.9 − 9.2 % 47.1 40.4 16.6 % 280.4 259.5 8.1 % 2.60 3.19 2.41 8.1 % 3.94 – 19.1 % 1) Continuing operations, for the portion attributable to discontinued operations see notes to the consolidated financial statements under note (2d). 2) Explanations with respect to the relevant key performance indicators on page 33. 3) Calculation based on average weighted shares outstanding in the reporting period (107.9 million; PY: 107.9 million). Non-recurring effects included income from the sale, i.e. contribution of business units and real estate of € 172.4 million (PY: € 290.9 million), in particular in connection with the sale of the Axel-Springer-Passage in Berlin (PY: effects from the establishment of Ringier Axel Springer Schweiz AG, the sale of CarWale, as well as the disposal of the remaining part of the office building com- plex at the Hamburg site). In addition, impairment losses of € – 55.5 million on investments were included 27 Annual Report 2017 Axel Springer SE Combined Management Report Economic Report (PY: € – 3.0 million), mainly related to our interest in Ringier Axel Springer Schweiz AG, effects from the subsequent valuation of contingent considerations from options for the acquisition of non-controlling interests of € 34.9 million (PY: Expense of € – 29.7 million), as well as other effects from initial consolidations of € – 14.6 million (PY: € – 20.0 million), which mainly resulted from acquisition costs and further effects from purchase price allocations. Expenses of € – 20.2 million (PY: € – 3.5 million) related to the long-term Executive Board remuneration program (LTIP) were adjusted. Financial perfomance of the operating segment Classifieds Media In the Classifieds Media all business models are summarized, which generate their revenues mainly in the online classifieds business. The segment is sub-divided into Jobs, Real Estate, and General/Other. Key Figures Classifieds Media € millions Revenues Advertising revenues Other revenues 2017 2016 Change 1,007.7 990.4 17.3 879.5 858.5 14.6 % 15.4 % 20.9 – 17.1 % Jobs Real Estate General/Other EBITDA, adjusted1) Jobs Real Estate General/Other 473.2 290.1 244.4 413.2 197.3 146.2 78.1 410.0 270.7 198.8 354.6 175.8 121.5 15.4 % 7.2 % 23.0 % 16.5 % 12.2 % 20.4 % 64.9 20.3 % EBITDA margin, adjusted 41.0 % 40.3 % Jobs Real Estate General/Other 41.7 % 42.9 % 50.4 % 44.9 % 32.0 % 32.7 % 1) Segment EBITDA, adjusted includes non-allocated costs of € 8.5 million (PY.: € 7.6 million). Revenues in the Classifieds Media segment increased compared to the prior-year period by 14.6 % to € 1,007.7 million (PY: € 879.5 million). The deciding factor in parti- cular was again a very significant operational improvement, especially for the job and real estate portals. In addition, consolidation effects had a particular effect due to the inclusion of the DanCenter Group (previously Land & Leisure Group) in the subsegment General/Other. The organic increase in revenues, i.e. adjusted for consolida- tion and currency effects was 12.7 %. The currency effects mainly pertained to the job portal activities in the UK. The job portals achieved a revenue increase of 15.4 %, organi- cally they increased by 17.0 %. Once again, business in continental Europe primarily contributed to this growth, but activities in the UK also slightly accelerated their growth. The real estate portals showed an increase of 7.2 %. Consolidation effects from the sale of the software business at SeLoger in the previous year had a positive effect here. Organically, growth was at 10.8 %. The strongest growth was recorded in the Immowelt group. In the subsegment General/Other, the revenue increase of 23.0 % was primarily due to consolidation effects in the @Leisure group. Organically, revenues increased by 6.3 %. The adjusted EBITDA of the segment increased consider- ably by 16.5 % to € 413.2 million (PY: € 354.6 million). A significant part of this increase can be attributed to opera- tional improvements in earnings. Organically, i.e. adjusted for consolidation and currency effects, the increase was at 14.7 %. The margin of 41.0 % was slightly higher than the prior-year value (40.3 %). The adjusted EBITDA for the job portals increased by 12.2 % compared to the prior year. As in the case of revenues, the increase is primarily at- tributable to business in continental Europe. The earnings decline in the UK business of the StepStone Group is attributable, among other things, to investments in improv- ing its market position. Real estate portals recorded an adjusted EBITDA increase of 20.4 %, mainly due to im- provements in earnings at the Immowelt Group. The in- crease in adjusted EBITDA of 20.3 % in the subsegment General/Other was mainly attributable to consolidation effects in the @Leisure Group. Organically, the increase was 8.5 %. 28 Annual Report 2017 Axel Springer SE Combined Management Report Economic Report The adjusted EBIT in the Classifieds Media segment in- creased by 13.6 % from € 317.6 million to € 361.0 million. Depreciation, amortization and impairments / write-ups increased by 41.1 % to € 52.2 million (PY: € 37.0 million). News Media The News Media segment mainly comprises the BILD and WELT Group in the national segment, and in the interna- tional area particularly the digital media offerings in Europe and the USA. Key Figures News Media € millions Revenues 2017 2016 Change 1,509.8 1,481.6 1.9 % Advertising revenues Circulation revenues Other revenues 666.1 633.1 210.6 617.2 7.9 % 646.8 – 2.1 % 217.7 – 3.2 % National 1,109.2 1,142.4 – 2.9 % Advertising revenues Circulation revenues Other revenues International Advertising revenues Circulation revenues Other revenues 448.3 504.7 156.2 400.7 217.8 128.4 54.4 441.0 1.7 % 539.6 – 6.5 % 161.8 – 3.5 % 339.2 18.1 % 176.2 23.6 % 107.2 19.8 % 55.8 – 2.5 % EBITDA, adjusted 218.8 214.4 2.0 % National International 164.5 178.0 – 7.6 % 54.3 36.3 49.3 % EBITDA margin, adjusted 14.5 % 14.5 % National International 14.8 % 15.6 % 13.5 % 10.7 % Revenues in the News Media segment were € 1,509.8 million, which is 1.9 % above the prior-year figure (€ 1,481.6 million). The digital proportion of revenues was 33.9 %. Revenues of News Media National were € 1,109.2 million, which is 2.9 % below the prior-year figure. Here, the digital proportion of revenues is 24.1 %. National advertising revenues increased slightly by 1.7 %, in the reporting period, supported by a BILD special issue in the second quarter, strong digital growth and a slight increase in print advertising revenues in the third quarter. The national circulation revenues, based on the general market environment were 6.5 % lower than the prior-year value. Revenues at News Media International also increased due to the first-time consolidation of eMarketer in mid-2016 by 18.1 % to € 400.7 million. Organically, i.e. adjusted for consolidation and currency effects, they grew by 10.3 %. The evolution of digital offerings continued to be good, with Business Insider recording strong growth. By contrast, most print activities were unable to escape the market trend and achieved revenues below the previous year's level. The digital proportion of revenues from News Media Interna- tional was 60.9 %. The adjusted EBITDA of € 218.8 million was 2.0 % above the value of the previous year (€ 214.4 million). International business contributed to the slight increase in earnings, boosted by the first-time consolidation of eMarketer since July 2016. Organically, i.e. adjusted for consolidation and currency effects, EBITDA was 3.2 % below the prior-year level. The segment's margin remained stable at 14.5 % compared to the same period last year (14.5 %). Adjusted EBIT in the News Media segment increased by 1.1 % from € 180.9 million to € 182.9 million. Depreciation, amortization and impairments / write-ups increased by 6.9 % from € 33.5 million to € 35.8 million. 29 Annual Report 2017 Axel Springer SE Combined Management Report Economic Report Marketing Media In the Marketing Media segment, idealo, aufeminin and the Bonial Group, among others, are pooled in the reach-based marketing subsegment, whereas performance-based marketing consists of the Awin Group (previously Zanox Group). Key Figures Marketing Media € millions Revenues Advertising revenues Other revenues Reach Based Marketing Performance Marketing EBITDA, adjusted1) Reach Based Marketing Performance Marketing 2017 984.5 864.7 119.8 314.7 669.9 95.6 71.2 32.4 2016 Change 856.2 15.0 % 747.4 15.7 % 108.7 10.2 % 288.7 9.0 % 567.4 18.1 % 82.2 65.5 25.5 16.3 % 8.8 % 27.4 % EBITDA margin, adjusted 9.7 % 9.6 % Reach Based Marketing 22.6 % 22.7 % Performance Marketing 4.8 % 4.5 % intensified in the last quarter of the reporting year by the merger between Awin and affilinet in October. Organic growth was at 12.7 %. The adjusted EBITDA in the segment of € 95.6 million was 16.3 % above the prior-year value (€ 82.2 million). Earnings declines in the Bonial and aufeminin groups were more than compensated by improvements in other activities. In organic terms, too, the segment achieved an adjusted EBITDA improvement and increased by 8.4 %. Due to revenue growth, especially in the subsegment Performance Marketing, the return for the segment remained more or less stable at 9.7 % (PY: 9.6 %) despite the earnings growth. The adjusted EBIT in the Marketing Media segment increased by 14.9 % from € 67.4 million to € 77.4 million. Depreciation, amortization and impairments / write-ups increased by 22.6 % to € 18.2 million (PY: € 14.8 million). Services/Holding Group services, which also include the three domestic printing plants, as well as holding functions, are reported within the Services/Holding segment. The services of the Group Services are procured by in-house customers at normal market prices. 1) Segment EBITDA, adjusted includes non-allocated costs of € 8.1 million (PY: € 8.7 million). Key Figures Services/Holding € millions Revenues 2017 60.7 2016 Change 72.9 – 16.8 % EBITDA, adjusted – 81.7 – 55.7 Revenues in the Services/Holding segment decreased by 16.8 % due to market conditions compared to the comparable prior-year period, and amounted to € 60.7 million (PY: € 72.9 million). Revenues in the Marketing Media segment increased by 15.0 % to € 984.5 million (PY: € 856.2 million). In addition to a still very good operating performance, the consolidation of Awin and affilinet in Performance Marketing intensified in the fourth quarter. Organically, i. e. adjusted for consolidation and currency effects, the increase was 12.4 %. Revenues in Reach Based Marketing increased by 9.0 % to € 314.7 million. Adjusted for consolidation and currency effects, which resulted in particular from the sale of Smarthouse Media in the previous year, organic growth was 12.0 %. Revenues in Performance Marketing increased by 18.1 % to € 669.9 million. Revenue growth had already been positively impacted by the first-time consolidation of ShareASale since the beginning of 2017, and was further 30 Annual Report 2017 Axel Springer SE Combined Management Report Economic Report The adjusted EBITDA with € – 81.7 million was below the level of the previous year (€ – 55.7 million). This develop- ment was driven by a number of factors, including higher stock option costs, higher restructuring expenses, as well as lower revenues in the structurally declining business of printing plants. The adjusted EBIT in the Services/Holding segment amounted to € – 117.4 million (PY: € – 94.8 million). Depreciation, amortization and impairments / write-ups of € 35.7 million were slightly below the prior-year value (€ 39.0 million). Liquidity Financial Managment As a general rule, Axel Springer SE provides all financing for the Axel Springer Group. This arrangement ensures that the Group companies have sufficient liquidity at all times. The overriding goal of financial management is to provide cost-effective liquidity in the form of maturity- matched financing. Net Liquidity/Debt € millions Cash and cash equivalents Financial liabilities Net liquidity/debt1) 2017 216.8 2016 224.1 1,237.0 1,259.3 – 1,020.2 – 1,035.2 1) Explanations with respect to the relevant key performance indicators on page 33. In order to optimize our financing conditions, in May 2017, we improved the average rate of interest, extended the average term and significantly increased the financing volumes through the partial termination, transformation and subscription of our existing Schuldschein (promissory note). In this context, the long- term credit lines drawn down were repaid; furthermore, two promissory notes with floating interest rates were repaid prematurely. As at December 31, 2017, there were now promissory notes totaling € 879.0 million (December 31, 2016: € 580.5 million) with a term to April 2018 (€ 70.5 million), to October 2018 (€ 104.0 million), to October 2020 (€ 69.0 million), to May 2021 (€ 11.5 million), to May 2022 (€ 158.0 million), to May 2023 (€ 72.0 million) and to May 2024 (€ 394.0 million). In addition, we can avail ourselves of long-term credit lines of € 1,200.0 million (PY: € 1.500,0 million), the drawdown of which will be due for repayment in July 2020. Both the Schuldschein and the credit facilities may be used either for general business purposes or for financing acquisitions. As of, December 31, 2017, € 365.0 million (December 31, 2016: € 680.0 million) of the existing long-term credit facility (€ 1,200.0 million; PY: € 1,500.0 million) had been utilized. Short-term and long-term credit facilities that were not utilized amounted to € 855.0 million as of the balance sheet date (December 31, 2016: € 840.0 million). Cashflows Consolidated Cash Flow Statement (Condensed) € millions Cash flow from continuing operations Cash flow from investing activities 2017 490.7 – 194.5 2016 358.8 – 94.3 Cash flow from financing activities – 281.7 – 299.9 Change in cash and cash equivalents 14.5 – 35.4 Cash and cash equivalents as of December 31 216.8 224.1 Cash flow from operating activities in the reporting period was € 490.7 million and therefore significantly above the value for the prior-year period (€ 358.8 million). This development was due in particular to the positive devel- opment of operating earnings. In addition, the increase resulted from payments from long-term compensation programs and restructuring programs that were lower than in the previous year, as well as from tax refunds received in the reporting period. 31 Annual Report 2017 Axel Springer SE Combined Management Report Economic Report The cash flow from investing activities amounted to € – 194.5 million (PY: € – 94.3 million). At the end of December 2017, the sale of the Axel-Springer-Passage in Berlin was completed, the purchase price of € 330.0 million was collected and the related tax payments of € 79.9 million were made. Investments in intangible assets and property, plant and equipment increased in particular as a result of the new building in Berlin (on the total investment volume and the sale of the new building after completion see page 24). Payments (less cash acquired) for the acquisition of shares in consolidated subsidiaries and business units were mainly due to the acquisition of ShareASale and the cash outflows related to the exercise of options to acquire non-controlling interests in Immoweb, Onet and My Little Paris. In the previous year, payments were made in connection with the sale of the remaining part of the office building complex at the location in Hamburg, payments were received from the early repayment of the vendor loan granted to FUNKE Mediengruppe, payments were re- ceived in connection with the sale of 2.3 % of our share in Do⁄an TV Holding and the purchase price (less taxes) from the sale of our shares in CarWale. In addition to investments in intangible assets and property, plant and equipment in the previous year, these payments were offset by payments (less cash acquired) for the acquisi- tion of shares in consolidated subsidiaries and business units (mainly the acquisitions of eMarketer and DanCenter (previously Land & Leisure) and the exercise of option rights for the acquisition of the remaining non- controlling interests in Car & Boat Media. The cash flow from financing activities of € – 281.7 million (PY: € – 299.9 million) was characterized in particular by the payment of the dividend to the share- holders of Axel Springer SE, payments due to the exercise of the option rights to acquire remaining minority interests in Awin, the reorganization of our promissory notes and the repayment and reduction of our credit line in connection with this. Financial position Consolidated Balance Sheet (Condensed) € millions Non-current assets Current assets Assets Equity Non-current liabilities Current liabilities Equity and liabilities 12/31/2017 12/31/2016 4,994.1 5,393.0 1,441.5 1,063.2 6,435.6 6,456.2 2,801.5 2,638.6 2,036.1 2,427.2 1,598.0 1,390.4 6,435.6 6,456.2 The development of non-current assets resulted in particular from the reduction in intangible assets (€ – 257.9 million) and property, plant and equipment (€ – 67.5 million). Due to the expected sale of the aufeminin Group in the first half of 2018 and the sale of the print activities in Slovakia in the middle of the year 2018, the assets and liabilities to be disposed of were reported separately as held for sale. In addition, the sale of the Axel-Springer-Passage Berlin was completed at the end of December 2017, and carrying amounts of € 104.8 million (property, plant and equipment) and € 29.8 million (investment property) were derecognized. The sale was made for a purchase price payment of € 330.0 million. At the same time, financial assets were reduced by € 36.5 million, which was mainly due to the impairment of our investment in Ringier Axel Springer Schweiz AG as a result of the development of earnings. In contrast, the first-time consolidation of the companies ShareASale and affilinet, which were acquired in the reporting year, had a positive effect. The development of current assets was characterized by the reclassification of the assets held for sale of the aufeminin Group and the print activities in Slovakia. 32 Annual Report 2017 Axel Springer SE Combined Management Report Economic Report The increase in equity resulted mainly from the generated net income. In addition, in connection with the acquisi- tion of 100 % of the affilinet shares against the granting of 20 % non-controlling interests in the already fully consolidated Awin Group (including affilinet), the non- controlling interests were increased. In addition to the dividend payments to the shareholders of Axel Spring- er SE and other shareholders, the effects of currency translation of consolidated financial statements also had a reducing effect. The equity ratio increased to 43.5 % (PY: 40.9 %). The development of non-current liabilities was character- ized by the reclassification of short-term promissory notes and the decline in deferred tax liabilities, mainly due to the sale of the Axel-Springer-Passage in Berlin, changes in tax rates, particularly in the USA, and the reclassification of the aufeminin Group's liabilities and print activities in Slovakia as held for sale. In addition, other liabilities from agreed option rights decreased due to revaluation effects and the premature exercise of option rights to acquire non-controlling interests in My Little Paris. The development of short-term debt was due in particular to the reclassification of short-term promissory notes and the reclassification of the liabilities held by the aufeminin Group and the print activities in Slovakia as held for sale. In addition, the recognition of short-term debt decreased mainly due to cash outflows related to the exercise of the option to acquire non-controlling interests in Immoweb (14.5 % of 20.0 %), Onet (25 %) and Awin (47.5 %). Explanations with respect to the relevant key performance indicators In accordance with the International Financial Reporting Standards (IFRS), the performance indicators used in this Annual Report, adjusted EBITDA (earnings before inter- est, taxes, depreciation, and amortization), adjusted EBITDA margin, adjusted EBIT (earnings before interest and taxes), adjusted net income, adjusted earnings per share, free cash flow, net debt/liquidity and equity ratio are undefined performance indicators to be regarded as additional information. Adjusted EBITDA, adjusted EBITDA margin, adjusted EBIT, adjusted net income and adjusted earnings per share do not include any non-recurring effects, deprecia- tion, amortization and impairments from purchase price allocations and taxes attributable to these items. Non- recurring effects include effects from the acquisition and disposal (including contribution) of subsidiaries, business units, and investments (including effects from the sub- sequent valuation of contingent considerations and other option liabilities for the acquisition of non-controlling interests), as well as impairment and write-ups of in- vestments, effects from the sale of real estate, impair- ments, and write-ups of real estate used for own opera- tional purposes, plus expenses related to the long-term incentive plan for the current Executive Board members (LTIP) granted at the beginning of May 2016. Purchase price allocation effects include the expenses of amortiza- tion, depreciation, and impairments of intangible assets, and property, plant, and equipment from the acquisition of companies and business units. 33 Annual Report 2017 Axel Springer SE Combined Management Report Economic Report The adjusted EBITDA margin is the ratio between the adjusted EBITDA to revenues. The reconciliation of net income to adjusted EBITDA and adjusted EBIT results from the Group segment reporting. The financial perfor- mance of the Group contains the reconciliation of net income to the adjusted net income as well as the deter- mination of the adjusted earnings per share. The free cash flow results from the cash flow from operating activities less investments in intangible assets, property, plant and equipment, and investment property (capital expenditures), plus payments received for the disposal of intangible assets, property, plant and equipment and investment property. These partial amounts are stated separately in the Consolidated Statement of Cash Flows. Net debt/-liquidity is the balance of cash and cash equivalents and financial liabilities. The equity ratio reflects the ratio between equity and the balance sheet total as of the respective balance sheet date. We regard adjusted EBITDA, adjusted EBITDA margin, adjusted EBIT, adjusted net income and adjusted earnings per share as a suitable indicator for measuring the operating performance of Axel Springer, as these measures ignore effects that do not reflect Axel Springer's fundamental business performance. To assess our Group’s current financing and capital structure as well as the future financing volume, we regard free cash flow, net debt/liquidity, and equity ratio to be suitable performance indicators. Non-financial performance indicators Employees Axel Springer employed an average of 15,836 (PY: 15,323) employees in the reporting year (excluding vocational trainees and journalism students/interns). The slight increase of 3.3 % is mainly attributable to acquisi- tions and organic increase in personnel in the Classifieds Media and Marketing Media segments. Abroad, Axel Springer had an average of 7,425 employees (PY: 6,877); this corresponds to a share of 46.9 % (PY: 44.9 %). The group employed an average of 6,981 women and 8,854 men. The proportion of women increased to 44.1 % (PY: 43.5 %). The number of editors remained stable at 2,867 (PY: 2,888). In contrast, the number of employees increased by 5.1 % to 12,397, mainly due to the expan- sion of digital business activities and new investments. Employees by Segments Average number per year Classifieds Media News Media Marketing Media Services/Holding 2017 4,431 6,959 2,822 1,623 2016 Change 4,005 10.6 % 6,981 – 0.3 % 2,640 6.9 % 1,697 – 4.4 % Group 15,836 15,323 3.3 % The annual average increase in the number of employees in the Classifieds Media segment was due to acquisitions, but above all due to organic growth, especially in the subsegments Jobs and General/Other. In the Marketing Media segment, the increase resulted from the inorganic growth of the Awin Group, driven by ShareASale and affilinet, as well as from organic growth of the Bonial and the idealo Group. The decline in the News Media and Services/Holding segments is mainly attributable to staff reductions in offset printing plants, newspaper distribution, staff catering and event management. 34 Annual Report 2017 Axel Springer SE Combined Management Report Economic Report Length of service and age structure As of the reporting date in 2017, the average length of service with Axel Springer was 10.1 (PY: 10.1) years; 42.4 % (PY: 43.8 %) of the workforce belonged to the Group for more than ten years. More than half of all employees are between 30 and 49 years old. The proportion of severely disabled employees in the German companies averaged 3.7 % for the year (PY: 3.7 %). Equal opportunities and diversity In 2010, Axel Springer launched the initiative "Chancen: gleichl!". The aim was to increase the diversity and balance of women and men in leadership positions. At the end of 2016, a first milestone was reached: The proportion of women in management positions of 16 % in 2010 was almost doubled. As at December 31, 2017, the share within the Group was 32 %. This share should be further increased. In order to achieve this, the follow- ing topics should be in focus: Creating the best possible conditions for reconciling family life and work, promoting the potential of young women and developing a modern and attractive corporate culture. From this, concrete measures were derived, among others, systematic talent development with modules such as succession planning, talent development programs, mentoring and coaching. Axel Springer is committed to diversity and tolerance - based on nationality, age, gender, sexual orientation, physical ability and religion. Out of this conviction, numerous networks have been established; for example, parent networks, networking for tech-women, cross- company mentoring exclusively for women, and the LGBT network "queer: seite!". This is also supported, for example, by the annual participation of the Executive Board in Berlin's Christopher Street Day. Human resources development Our department for human resources development has consistently aligned its qualification activities in recent years with the requirements of digitization. In addition to established seminars and promotional programs, the range of shorter and unconventional formats has been greatly expanded, which in addition to the mere transfer of knowledge, leads to greater interlinking among each other. In this context, the collaboration platform moveoffice (Office 365) was introduced at Axel Springer and rolled out throughout the whole company. Networking, simultaneous and location-independent work in a team, open communication but also the shar- ing of knowledge are thus supported and promoted. Human resources development thus pursues the goal of developing Axel Springer into a permanent "learning organization" that copes well with change processes. With the Talent Management division, Axel Springer is investing in the development and retention of high potentials. Through network events and so-called talent dialogues at division and board levels, the Group creates transparency in terms of talent, development oppor- tunities and vacancies within the Axel Springer family. Increasing synergies, sharing knowledge between Axel Springer family companies, teaching new knowledge content, and guiding teams to adopt new work tech- niques such as agile process work are equally important. Research and development Axel Springer does not operate a research and devel- opment department in the sense of an industrial enter- prise. All areas of the company are optimizing existing offerings and working to establish innovative products in the market. Above all, this means that we are continually expanding our range of services through innovations in the digital business, developing editorial content and expanding our journalistic excellence. In doing so, we attach great importance to the early consideration of the changing use of media. In addition to our investments in companies in an early stage of development, we capital- ized internal costs of € 87.0 million relating to IT devel- opment projects for the expansion of our digital business models in the financial year. We also reported € 59.3 million as planned depreciation, amortization and 35 Annual Report 2017 Axel Springer SE Combined Management Report Economic Report The very accurate initial pricing is based on the excellent quality and quantity of data from LaCentrale, with which damage and defects can be priced in directly. Yad2, our generalist classifieds portal in Israel, has implemented high-quality 3D and virtual reality tours for its real estate business. These provide a complete visualization of the respective property. The new offerings allow potential buyers to virtually browse their future property. In particular, real estate developers who, unlike sellers of existing real estate, cannot offer on-site visits, have the opportunity to market new construction projects in less time and at lower cost. Further development of News Media Our journalistic products, both digital and printed, were consistently expanded in the reporting year. In the digital domain, we have made progress on the product and technology side. BILD and WELT work together with Facebook and Google on innovative approaches for platform-based paid content. The introduction of FITBOOK and NOIZZ brought innovative content models to the German market. WELT.de is now the fastest news website in Germany (based on loading speed). At the same time, our joint venture Verimi continues to work on a single sign-on process for all companies involved in Verimi in order to make the use of Internet services sig- nificantly easier and safer in the future. In addition to Axel Springer, the partners include Allianz, Bundesdruckerei, Core, Daimler, Deutsche Bank and Postbank, Deutsche Lufthansa, Deutsche Telekom, Giesecke + Devrient and Here Technologies. In the print sector, we have launched "die dame" (The Lady) in Germany as an innovative, high-quality print lifestyle magazine on the market. In the sports segment we successfully introduced the BIKE BILD. In addition, FUSSBALL BILD was launched in January 2017 throughout Germany as an innovative content syndication model. impairments on software and technologies that were developed in-house. Further development of Classifieds Media The development of new offers plays an important role in the Classifieds Media segment. The following examples illustrate this: The core technology of the StepStone platform, the so- called Search & Match algorithm, is being continuously developed further and consistently implemented at newly acquired companies. StepStone has also introduced rating capabilities for employers and wages, further increasing its relevance to job seekers. Within the StepStone Group, Good & Co has developed a personality test via App. Using the knowledge gained from this, the job seeker can get an impression of how far his or her value orientation fits into a specific company or, depending on data availability, even to a specific department. With StepWeb, StepStone is devel- oping a technology that aggregates publicly available data from job seekers to create a holistic profile. This enables companies to search for potential candidates and to actively approach them. The technology comple- ments StepStone Group's existing resume databases, which are used in the UK in particular. SeLoger has developed a range of offerings that build on the company's database and add value to the customer through algorithm-based processes. Thus, LaCoteImmo, as part of the SeLoger Group, offers the potential seller of a property an opportunity to have an indicative sale price. The intended audience generated by the product is of interest to agents, who can increase the likelihood of winning sales mandates through advertising in this environment. Likewise, Enriched Contacts provides SeLoger with an opportunity to assist agents with a scoring system particular to look after prospective buyers, where the probability is considered particularly high that the advertised property fits their previous search behavior and the prospect is in an intense phase of its search process. LaCentrale, our car portal in France, has developed a platform with MaVoitureCash that allows private car dealers to have their vehicle rated online while also showing dealers interested in the car. 36 Annual Report 2017 Axel Springer SE Combined Management Report Economic Report The topics of the report are determined in advance by market research and stakeholder surveys - those groups that have a legitimate interest in the company, be it em- ployees, customers or non-governmental organizations. The result: Above all, information on product responsibil- ity, customer satisfaction, journalistic independence, employer attractiveness, compliance with social and ecological standards as well as the company's ability to innovate was in demand. The report also provides trans- national figures on energy use and the calculated CO2 emissions. The sustainability reports of Axel Springer are audited by independent auditors. The current sustainability report was published in November 2016 and is available at www.sustainability.axelspringer.com. The next sustaina- bility report will be published in mid-2018. Separate combined non-financial report Axel Springer SE as well as the Axel Springer Group is required by Section 289b as well as Section 315b of the German Commercial Code (HGB) to expand its man- agement report with a non-financial statement for the first time for the 2017 financial year. We make use of our option to publish the non-financial statement at the statutory deadline of April 30, 2018 and separately from the combined management report of the Company. This separate report will be published on our website at www.axelspringer.de/NonfinancialReport. Further development of Marketing Media In the area of Marketing Media, the existing online ser- vices are continuously being developed and supple- mented by new ones. The development of innovative product functionalities and marketing technologies to increase range and use of offers and their monetization have a high priority for our investments. In addition, in the early stage, we invest in young companies that are de- veloping new business models and technologies, either as direct investments or indirectly through investment companies such as Project A-Ventures, in which Axel Springer and the Otto Group are both involved, or the start-up accelerator recently founded together with Por- sche to support digital business ideas with high market potential. Sustainability and social responsibility For Axel Springer, sustainability means linking economic success with ecologically sound and socially balanced action. These three criteria are an integral part of the corporate strategy. Hence, sustainability is integrated into the business processes. The Sustainability Depart- ment accompanies respective activities throughout the company - from measures to improve resource efficiency to social engagement initiatives. The department falls under the responsibility of the Chairman of the Executive Board. With our sustainability strategy, we take respon- sibility for present and future generations and create the basis for long-term business success. Axel Springer had already started to publish environmen- tal reports in the mid-1990s, and since 2000 publishes sustainability reports. Since 2005 we have been publish- ing a sustainability report on a biannual basis, which follows the full list of indicators in the Global Reporting Initiative (GRI), the internationally relevant format for sus- tainability reporting. The Sustainability Report 2016/2017 is also prepared in accordance with the Sustainability Reporting Standards of the Global Reporting Initiative (GRI). 37 Annual Report 2017 Axel Springer SE Combined Management Report Economic Report General assessment of the company’s financial performance, liquidity, and financial position by the Executive Board The strategy of digital transformation was also at the fore during the 2017 financial year, through organic growth and through acquisitions. Important milestones in the inorganic growth were the acquisition of the American affiliate network ShareASale and the merger of Awin with affilinet in Performance Marketing. Revenues, adjusted EBITDA, adjusted EBIT, and the adjusted earnings per share from continuing operations were all above the prior-year figures. At the end of the reporting year, the net debt was roughly at the level of the previous year. With a very strong cash flow, a still solid balance sheet structure, and the favorable financing options available to us, we continue to be in a good position to make the necessary investments to realize future growth. We continue to believe that the path of systematic digiti- zation is the right strategy for further improving the com- pany’s profitability in the future. Financial performance, liquidity, and financial position Group Key Figures (in € millions) 2017 2016 Revenues EBITDA, adjusted1) 3,562.7 3,290.2 645.8 595.5 EBITDA margin, adjusted 1) 18.1 % 18.1 % EBIT, adjusted1) Tax rate Net income2) Net income, adjusted1) 2) Earnings per share, adjusted (in €)1) 2) 3) Dividend per share (in €)4) Total dividends4) Net debt/liquidity1) Free cash flow1) 504.0 471.1 25.6 % 21.9 % 378.0 327.5 2.60 2.00 450.0 299.9 2.41 1.90 215.8 205.0 – 1,020.2 – 1,035.2 497.4 270.5 1) Explanations with respect to the relevant key performance indicators on page 33. 2) Continuing operations, for the portion attributable to discontinued operations see notes to the consolidated financial statements under note (2d). 3) Calculation based on average weighted shares outstanding in the reporting period (107.9 million; PY: 107.9 million). 4) The dividend for the financial year 2017 is subject to the condition of approval by the annual shareholders’ meeting. 38 Annual Report 2017 Axel Springer SE Combined Management Report Economic position of Axel Springer SE Economic position of Axel Springer SE € millions Revenues Net income Transfer to retained earnings Total dividends1) Dividend per share (in €)1) 2017 2016 2015 2014 2013 823.2 271.9 56.1 215.8 2.00 833.1 296.4 91.4 205.0 1.90 925.9 1,174.6 1,442.8 213.5 19.3 194.2 1.80 590.8 412.7 178.1 1.80 186.4 8.3 178.1 1.80 1) The dividend for the financial year 2017 is subject to the condition of approval by the annual shareholders’ meeting. Introductory remarks Financial performance Axel Springer SE is the parent company of the Axel Springer Group. Due to its subsidiaries, which Axel Springer SE controls directly or indirectly, the business development is subject to the same risks and oppor- tunities as the entire Group. These are presented in the report on risks and opportunities (see page 42 et segq.). Similarly, the expectations regarding the development of Axel Springer SE essentially correspond to the Group expectations described in the forecast report (see page 59). The following explanations are based on the annual financial statements of Axel Springer SE, which were prepared in accordance with the provisions of the German Commercial Code and the German Stock Corporation Act. The annual financial statements and management report are published in the German Federal Gazette and published on the Axel Springer SE website. Business activity Axel Springer SE is active in the News Media segment and publishes mainly nationwide daily and weekly news- papers. Axel Springer SE, as the parent company of the Axel Springer Group, carries out holding functions, manages group-wide liquidity management and provides additional services to Group companies. The economic framework conditions of Axel Springer SE correspond largely to those of the Group and are described in the economic report (see page 22 et seqq.). Income statement (Condensed) € millions Revenues Other operating income 2017 823.2 313.5 2016 833.1 139.5 Purchased goods and services – 199.9 – 208.5 Personnel expenses – 240.4 – 203.9 Amortization, depreciation and impairments of intangible assets and property, plant and equipment Other operating expenses Net income from non-current financial assets Net interest income Income taxes Net income – 19.0 – 21.1 – 422.5 – 401.6 215.8 – 33.2 – 165.7 233.2 – 30.1 – 44.2 271.9 296.4 Revenues decreased by € 9.9 million or 1.2 % in the reporting year. Declines in circulation revenues of € 28.1 million were partially offset by increases of advertising revenues and other revenues of € 8.6 million and € 9.6 million, respectively. Other operating income increased by € 174.0 million to € 313.5 million compared to the previous year. This was due in particular to higher income from the sale of real estate. In the reporting year, the Axel-Springer-Passage in Berlin was sold for a purchase price of € 330.0 million. The gain on disposal amounted to € 281.8 million. In the previous year, there was a profit of € 91.2 million from the sale of the office building in Hamburg. 39 Annual Report 2017 Axel Springer SE Combined Management Report Economic position of Axel Springer SE Liquidity The net debt (liabilities due to banks and promissory note less cash and cash equivalents) amounted to € 1,198.8 million as of December 31, 2017 (PY: € 1,242.8 million). In the reporting year, the financing conditions of our existing promissory notes were optimized through partial termination, conversion and redrafting. As of December 31, 2017, there were promissory notes totaling € 879.0 million (PY: € 580.5 million). The long-term revolving credit facilities were reduced to € 1,200.0 million in the 2017 financial year (PY: € 1,500.0 million) and had been utilized to € 365.0 million at the balance sheet date (PY: € 680.0 million). Financial position Balance Sheet (Condensed) € millions 12/31/2017 12/31/2016 Intangible assets and property, plant and equipment 153.8 170.7 Non-current financial assets 5,643.5 5,435.2 Receivables from affiliated companies 171.2 186.0 Cash and cash equivalents Other assets Total assets Equity Provisions 45.2 63.9 17.8 98.8 6,077.6 5,908.5 2,632.7 2,565.8 333.2 266.7 Liabilities due to banks and promissory note 1,244.0 1,260.6 Liabilities to affiliated companies 1,796.6 1,740.7 Other liabilities 71.1 74.7 Total equity and liabilities 6,077.6 5,908.5 The cost of purchased goods and services fell by € 8.6 million to € 199.9 million, mainly due to lower expenses for printing services. Personnel expenses rose to € 240.4 million (PY: € 203.9 million). Higher expenses resulted in particular from the valuation of share-based payment programs, restructur- ing measures and pensions. The decline in the average number of employees by 10.0 % from 1,586 in the pre- vious year to 1,427 in the 2017 financial year had the opposite effect. Amortization, depreciation and impairments of intangible assets and property, plant and equipment remained € 2.1 million below the previous year's level at € 19.0 million. The increase in other operating expenses to € 422.5 million (PY: € 401.6 million) resulted in particular from higher transaction costs in connection with the sale of real estate. Net income from non-current financial assets amounted to € 215.8 million (PY: € 233.2 million). Higher profit transfer from subsidiaries (€ 231.0 million; PY: € 207.5 million), was off-set in particular by lower income from participating interests (€ 16.3 million; PY: € 35.3 million) and higher impairments of non-current financial assets (€ 37.2 million; PY: € 18.8 million). The net interest income for the reporting year was € – 33.2 million (PY: € – 30.1 million) and mainly comprised interest expenses from the utilized revolving credit facility and the promissory note as well as the valuation of the pension obligations. The increase opposite to the previous year mainly resulted from prepayment fees in connection with the restructuring of the existing promissory note. Income taxes amounted to € 165.7 million (PY: € 44.2 million). The increase compared to the previous year was mainly due to real estate transactions. The 2017 financial year ended with a net income of € 271.9 million (PY: € 296.4 million). 40 Annual Report 2017 Axel Springer SE Combined Management Report Economic position of Axel Springer SE Profit utilization proposal The Supervisory Board and Executive Board propose that the company applies the full amount of the distri- butable profit of € 215.8 million (PY: € 205.0 million) to pay a dividend of € 2.00 (PY: € 1.90) per qualifying share for the 2017 financial year. The company does not currently hold any treasury shares, so that all the company’s shares qualify for dividends. However, the number of shares qualifying for dividends may be reduced in the time remaining before the annual shareholders’ meeting. In that case, an adjusted profit utilization proposal will be submitted to the annual shareholders’ meeting, without changing the target dividend of € 2.00 per qualifying share. Dependency Report The Executive Board of Axel Springer SE submitted the dependency report prescribed by Section 312 of the German Stock Corporations Act (Aktiengesetz – AktG) to the Supervisory Board and made the following concluding statement: “According to the circumstances known to the man- agement at the time of each transaction with an affiliated company, Axel Springer SE received adequate consider- ation for every such transaction and did not take, or fail to take, any actions in the reporting period, either at the behest or in the interest of the controlling company or a company affiliated with the controlling company.” The balance sheet total increased by € 169.1 million to € 6,077.6 million in the reporting year (PY: € 5,908.5 million). Non-current assets amounted to € 5,797.3 million (PY: € 5,605.9 million) and represented 95.4 % (PY: 94.9 %) of total assets. 45.4 % (PY: 45.8 %) was covered by equity. The decline in intangible assets and property, plant and equipment of € 16.9 million to € 153.8 million is attributable in particular to the sale of real estate in the reporting year. Non-current financial assets increased by € 208.3 million to € 5,643.5 million. This increase was mainly due to additional payments in capital reserves of subsidiaries for financing company acquisitions. Receivables from affiliated companies (€ 171.2 million; PY: € 186.0 million) and liabilities to affiliated companies (€ 1,796.6 million; PY: € 1,740.7 million) resulted mainly from group-wide liquidity management. Other assets (€ 63.9 million; PY: € 98.8 million) decreased mainly due to lower income tax receivables as at the balance sheet date. Equity increased by € 66.9 million to € 2,632.7 million (PY: € 2,565.8 million). The net profit for the reporting year (€ 271.9 million) more than compensated for the reduction in equity due to the dividend payment for the past financial year (€ 205.0 million). The equity ratio at the balance sheet date remained at 43.3 % (PY: 43.4 %) virtually unchanged. Provisions grew by € 66.5 million compared with the previous year's balance sheet date to € 333.2 million (PY: € 266.7 million). The reason for the increase was higher pension provisions due to a lower discount rate and higher obligations from share-based payment programs. 41 Annual Report 2017 Axel Springer SE Combined Management Report Report on risks and opportunities Report on risks and opportunities Risk policy principles and risk strategy At Axel Springer, we define risks as the possibility of negative deviations of actual business performance from the planned targets or objectives, while opportunities represent the possibility of positive deviations. The risk policy principles and risk strategy of Axel Springer are coordinated and closely aligned with the business strat- egy and business objectives. We do not seek to avoid risks at all costs, but to carefully weigh the opportunities and risks associated with our decisions and our business activities, from a well-informed perspective. Against this backdrop, opportunities should be exploited to generate income or increase the company’s value and risks should be assumed only if they remain within appropriate limits that are acceptable to the company. Thus, risks should be limited to a level deemed acceptable by the company’s management by taking appropriate measures, be transferred to third parties in full or in part, or, in those cases where risk mitigation is not considered advisable, be avoided or monitored closely. Group-wide risk management system In this reporting year, we have continued to develop and expand individual elements of internal corporate monitor- ing (risk management, compliance management, internal control and internal auditing) against the background of national and international requirements, and an increas- ingly complex and volatile environment of a growing and globally changing company. One focal point was the continuous improvement of the quality and completion of the risk inventory as well as the corresponding control measures and the integration of new investments and areas into the existing risk management system. The general form of structures and processes in the risk management system at Axel Springer are based on the internationally recognized “Enterprise Risk Management Framework”, a framework developed by the Committee of Sponsoring Organizations of the Treadway Commis- sion (COSO), which links the risk management process with the internal control system. Group-wide coordina- tion of the systems - risk management, compliance management and the internal control system as well as the related reporting – is carried out by the Compliance division as well as Corporate Audit & Risk Management. The risk management process at Axel Springer is inter alia focused in accordance with Section 91 (2) of the German Stock Corporations Act (AktG) on recognizing and evaluating all significant and existential risks as well as essential changes in the risk situation as promptly as possible. It should therefore be assured that correspond- ing control and countermeasures can be used in time to react to such risks. This approach gives us the neces- sary maneuvering room and allows for the controlled and responsible management of risks. Based on the risk management framework developed by COSO, the risks of Axel Springer are divided into the risk categories strategic, operative, reporting-relevant and compliance-related risks. Insofar it is appropriate and quantifiable, risks are assessed quantitatively with refer- ence to the parameters “loss amount” (impact) and “probability of occurrence”. Based on these parameters, risks are assigned to one of the following risks classes: critical risks, significant risks, risks to be monitored, and other risks. In order to achieve a focus on the relevant and significant risks at the Group level, an annual materiality limit is defined on the basis of adjusted EBITDA, from which the grading of the imaged risk matrix is derived. The materiality threshold at Group level is currently € 10 million. 42 Annual Report 2017 Axel Springer SE Combined Management Report Report on risks and opportunities The purpose of the risk inventories and analyses carried out in the top-down and bottom-up procedures is to systematically identify and assess cross-company, cross-divisional and cross-procedural risks in order to complete the risk inventory and ensure its quality. In the Governance, Risk & Compliance division, risk manage- ment activities are coordinated, risks are aggregated up to the Group level, reported risks are checked in terms of their plausibility, and the completeness of the required risk reports is monitored. The division is also responsible for all supporting measures, such as maintaining the risk management software, and reporting to the Supervisory Board and Executive Board. The semi-annual and ad-hoc risk reports prepared for the Executive Board and Supervisory Board focus primarily on existential risks and significant risks of individual business units and investments, along with the countermeasures adopted and suitable early warning indicators, to the extent they are available. Internal audit system Group Auditing within Axel Springer SE is organized as a process-independent staff department, which is under the control of the full Executive Board in functional terms, and under the Executive Board member in charge of Personnel and Finance in disciplinary terms. It provides consulting and investigations in all Group companies and divisions in a risk-oriented manner and aligns its activities with relevant national and international professional standards. In particular, Group Auditing has the task of inspecting the effectiveness of the internal risk management and control system as well as the compliance management system based on a risk-oriented inspection plan and to derive measures for eradicating weaknesses. Implemen- tation of improvement measures is tracked based on a systematic process. Risk Matrix of Axel Springer SE Critical Risks Significant Risks Risks to be Monitored Other Risks very high 50 % high 25 % medium 10 % low 5 % very low e c n e r r u c c O f o y t i l i b a b o r P Extent of Damage (€ millions) very low low medium high very high 0.5 2.5 5 10 For the purpose of effective management and trans- parent presentation of the risk situation, all risks record- ed are assessed both before risk management measures (gross assessment – inherent risk) and after the corresponding measures are taken (net assessment – residual risk). Whilst overall responsibility for risk management lies with the full Executive Board, the operational management of the individual risks falls primarily within the area of responsibility of the respective company divisions or Axel Springer investments. This includes the early detection and identification, assessment, definition of appropriate measures, the management and monitoring of such measures and adequate documentation and reporting processes. In addition, the respective divisional and senior manage- ments of our companies are required to participate in the semi-annual update campaign in addition to the system- atic, standardized risk-surveying conducted once a year. Additionally, they have to constantly monitor their area or company for a changing risk situation. Significant chang- es in the risk situation must be reported immediately to central risk management. 43 Annual Report 2017 Axel Springer SE Combined Management Report Report on risks and opportunities The results of individual audit or consultancy mandates are typically reported to the Executive Board and period- ically summarized to the Audit Committee of the Super- visory Board. We consider the following elements of the risk manage- ment system and internal control system to be significant with respect to the (consolidated) financial reporting process: To ensure the effectiveness of the internal audit system, a quality assurance and improvement process is set up, which provides for external quality assessments among others in accordance with professional guidelines. Report on the financial reporting related risk management system and internal control system pursuant to Section 289 (4) and Section 315 (4) of the Commercial Code (HGB) The (consolidated) financial reporting-related risk man- agement system and the connected internal control system are important elements of the internal manage- ment system of Axel Springer SE, which is also based on the internationally recognized framework of the Committee of Sponsoring Organizations of the Treadway Commission (COSO) (see page 42). As emphasized in the concept, the effective interplay of the risk manage- ment system and internal control system is meant to ensure the effectiveness and economic efficiency of the Group’s business activities, as well as the completeness and reliability of its financial reporting. The (consolidated) financial reporting related risk management system and internal control system comprise all organizational regulations and measures aimed at the detection and management of risks related to financial reporting. With a view to the (Group) accounting process, it is intended to ensure that the Group’s financial reports convey a true and fair view of the financial position, liquidity, and financial performance of Axel Springer SE and the Axel Springer Group, in compliance with all relevant laws, regulations, and standards. However, even an effective and therefore adequate and well-functioning risk man- agement system and internal control system cannot guarantee the prevention or detection of all irregularities or inaccurate disclosures.  Processes for identifying, assessing, and document- ing all significant financial reporting-related processes and risk areas, including the corresponding key controls. Such processes include financial and accounting systems, as well as administrative and operational business processes that generate important information used in the preparation of the separate and consolidated financial statements, including the management reports of the parent company and the Group.  Process-integrated controls (computer-assisted controls and access restrictions, dual control principle, functional separation, analytical controls).  Standardized financial accounting processes through the use of an intra-group shared service center for most consolidated German Group companies.  Group-wide directives in the form of accounting guide- lines, charts of accounts and reporting processes.  Quarterly communication of information to all consoli- dated Group companies on current developments re- lated to accounting, and the process of preparing the financial statements, as well as reporting deadlines to be observed.  Assuring the requisite expertise of employees involved in the financial accounting process by means of appropriate selection procedures and training.  Centralized preparation of the consolidated financial statements (including management report) employing manual and computer-system controls in respect of financial reporting-specific connections and depend- encies. 44 Annual Report 2017 Axel Springer SE Combined Management Report Report on risks and opportunities  Protection of financial reporting-related IT systems against unauthorized access, by means of access restrictions.  (cid:31)Monthly internal reports (complete income statement, statement of financial position, cash flow statement) and monthly reports on all cost units of the Group, including analysis and reporting of significant devel- opments and budget/actual variances.  Regular, group-wide reports to the persons responsible for reporting, the Executive Board and the Supervisory Board The effectiveness of the (consolidated) financial report- ing–related risk management system and internal control system is systematically reviewed and assessed by means of periodic control tests. As a process-indepen- dent staff unit, Group Auditing will inspect at regular intervals randomly selected elements of the accounting- related internal control system organized at central level and in the Group companies, in order to uncover weak- nesses and thus contribute towards improving the legal conformity with rules and regulations (compliance). Both the risk management system and the internal control system are being continuously refined. Risk areas If not stated elsewhere, all risks which have a considera- ble negative effect on reaching our company-wide tar- gets will be mentioned in the following. Within the risk areas described below, risks are typically presented in the order of their priority for the Group. This method may be deviated from in order to prevent repetitions and in the interests of readability. The risks recorded at the balance sheet date and described below are primarily based on the 2018 forecast period, unless the risks in question relate to long-term objectives. Market and competition risks Market and competitive risks basically relate to changes in sales and purchasing conditions as well as the devel- opment of competing suppliers. Since Axel Springer operates and acquires globally, a large number of eco- nomic factors must be taken into account to determine market risks. Economic forecasts, above all for the im- portant sales markets of Germany, Europe and the USA, serve as overarching indicators for assessing market and competition risks. Following positive economic growth in the year 2017, the market development in Germany for 2018 continues to be very good. The declining global uncertainties of the past year, a favorable labor market situation and low unemployment figures are leading to rising private consumption. In addition, companies benefit from an investment-friendly interest rate climate and rising demand, especially from the European and international economic area. Also for Europe an increase of the economic situation is predicted. This economic upturn tends to be distributed synchronously across the Euro area Member States. The low level of interest rates throughout Europe is seen as a key pillar for a sustained good economy. Uncertainties arise with regard to upcoming political events such as the UK's exit negotiations or the parliamentary elections in Italy. A cyclical economic upturn can be recognized world-wide in almost all major economies and is continuing. However, countries are in different stages of the business cycle. For example, the relatively high level of private debt in the US already points to an excess of the economic peak. Howev- er, it is unclear how the tax reform initiated by US President Trump will affect the economy. By contrast, economic growth in emerging markets is picking up. China, as the second largest economy in the world, has a decisive share in this development. The growth of the most important emerging market is greater than that of the USA. The con- sequences of the change of government in the US have not yet assumed the potentially negative impact on the global economy. However, possible protectionist intentions as well as political relations with North Korea and Russia pose risks to international markets. 45 Annual Report 2017 Axel Springer SE Combined Management Report Report on risks and opportunities Despite the overall very positive forecasts, the above- mentioned economic and political framework conditions must be viewed critically, as negative changes in Axel Springer's sales markets could lead to revenue reduc- tions in all segments of the company at national and international level. A particular challenge for Axel Springer's digital trans- formation and expansion is the high dynamics of digital offers and innovations. Digital technologies have long since established themselves in private and business everyday life. The digital transformation is comprehensive, omnipresent, changing people, society and markets in a sustainable way. New technologies enable a variety of innovations that offer good growth opportunities, while at the same time threatening traditional business models and forcing companies to fundamentally rethink and develop their business. Classifieds & Marketing Media Our Classifieds Media segment is also continuously exposed to high market and competitive dynamics, among others, due to ever shorter innovation cycles and technological change. Increasing competition threatens to continue on the part of the world's leading Internet corporations Google, Apple, Facebook and Amazon, called GAFA for short, which penetrate into new market segments and may possibly compete with our business segments. These dominant US companies not only pool specialized knowledge in their corporations, but also point the way in the course of digitized globalization. GAFA dominate the B2C domain on the Internet, e. g. through its platforms, the business relationships with retailers on the one hand, and with private persons on the other, so that hardly any retailer can afford to ignore, for example, Amazon's marketplace or refrain from integrat- ing Google or Facebook into its communications and marketing strategy. However, young companies with innovative and disruptive technologies or business mod- els may also pose potential risks, as well as associations of direct competitors, for example in the field of real es- tate marketing. In addition, the potential for missing out on trends, the late introduction of new technologies, as well as the lack of further development of our own prod- ucts could increase this risk and, as a result, jeopardize our existing market position. In order to limit the before mentioned market and competition risks, a systematic and continuous monitoring of the market and competitive environment and resulting trends is carried out. Based on this information, control measures for operational man- agement are derived. We enhance the attractiveness of our business models by investing in innovative product development, the use of new technologies, journalistic expertise, target-group-oriented marketing and increasing brand awareness through, for example, TV campaigns. With these measures, we want to meet the changing needs of our customers and readers while at the same time maintaining or expanding our competitive edge. The acquisition of highly qualified key personnel with appro- priate expertise and the development of long-term cus- tomer relationships also reduces risk. In addition, new business models are constantly being tested, the digitization of our products promoted, and our product portfolio supplemented both nationally and increasingly internationally. Many of our digital marketing and classifieds offerings are constantly faced with the risk of a sudden loss of visibility resulting from the dominance of large internet search engines. The ever-changing and partly non- transparent criteria of the search algorithms can have a significant impact on the current and future revenue situation. Even small increases and decreases in the visibility or placement on the results pages can lead to significant traffic loss and concomitant decline in traffic- related revenues for certain business models. We counter this risk by targeting paid ads on search engine results pages, improving online page structure, and search engine optimization. At the same time, the continuous improvement of the attractiveness of our offerings and the increase of awareness of the brands and offers of Axel Springer are in the foreground, in order to make their range and use more independent of offers of third parties, in particular the search engine visibility. News Media Digitization has significantly changed consumer and reader behavior. The increased importance and use of 46 Annual Report 2017 Axel Springer SE Combined Management Report Report on risks and opportunities digital offerings, in particular the digitization of print me- dia, continues to lead to ongoing revenue reductions in the area of printed publications. The rapid development in the performance of mobile devices also drives the digital transformation and leads to a rapidly increasing use of the mobile Internet compared to the stationary one. A further acceleration of this trend or unpredictable market developments could further increase the already factored in declines due to the structural change. In the television news market, too, the changing user behavior is reflected in the growing demand for video on demand and mobile services. This, as well as the increasing mar- ket density results in declining viewership and ultimately in advertising revenue losses. Falling advertising reve- nues are compounded by the general economic down- turn in the TV advertising market. Our national print business is still confronted with in- creasing challenges in the marketing environment. In addition to increasingly specific customer requirements, the general market and media situation is subject to an increasing number of competitors and at the same time a high degree of dynamism. With the marketing alliance Score Media, a national cross-media newspaper mar- keter, founded by several newspaper publishers and media groups, Media Impact, a joint marketing company with FUNKE media group, has a major counterpart. The competition for the daily newspaper titles of Axel Spring- er SE has increased significantly. Price pressure on ad marketing and the concomitant loss of revenue in the print sector cannot be ruled out for the coming financial year either. As a counterweight to Score Media, the marketing group Red Impact was founded under the umbrella of Media Impact. This cooperation, which Me- dia Impact has entered into with other media groups in order to bundle the marketing of all relevant German tabloid titles under one roof, enables all participants to develop further sales potential for their brands in addition to the already established marketing. The development of technical expertise helps us to con- tinue our successful offensive strategy also in the area of national trade customers. In particular, it focuses on accompanying important retail customers in their trans- formation into the digital business. In addition to the challenging competitive environment, our advertising revenues in the print and online sectors are exposed to the risk that annual contracts with major agency groups will not be concluded, or only at a lower volume. Also, the loss of large advertisers due to legal advertising restrictions or the evasion of significant com- mercial customers to other forms of advertising such as television or other online media pose a serious risk. The marketing of audiovisual content also confronts risks. Visoon Impact, a company of Axel Springer and Viacom International Media Networks and active since the begin- ning of 2016, is responsible for the marketing of audio- visual content. Should the broadcasting performance of the clients deteriorate, this means a loss of attractiveness of the program for the viewers. Ultimately, fewer viewers lead to significantly lower prices that can be achieved in the market, even losing their relevance as an advertising medium. In order to identify and counteract changing customer needs at an early stage, we carry out continuous market analyses and intensify customer service. Organizational restructuring measures, which primarily serve to strengthen customer support, also contribute to risk minimization. The use of the mobile Internet has accelerated rapidly in recent years compared to the stationary Internet. The increasing orientation towards mobile services is risky, because the traffic in the mobile environment is associat- ed with lower advertising prices and a lower utilization. In order to reduce risk, we combine the mobile and sta- tionary marketing and work on opportunities to attain an even better monetization of mobile traffic. As a result, a shift in traffic from stationary to mobile leads, at least today, to a downward trend in advertising revenues. In a risk-reducing manner, we hereby exploit technical possi- bilities, for example by redirecting mobile access to sta- tionary websites. The increased availability and, above all, the widespread use of ad blockers also harbors risks for our digital ad- vertising revenues by restricting marketing opportunities in the online advertising market and reducing advertising 47 Annual Report 2017 Axel Springer SE Combined Management Report Report on risks and opportunities effectiveness. Specifically preconfigured browser and browser add-on programs are called ad blockers, which prevent the display of advertising on the targeted pages, both stationary and mobile, and thus have a revenue- reducing effect. This not only affects our digital payment offerings, but also our business models for reach market- ing and performance-oriented advertising models. For the impact of the ePrivacy Regulation on our digital busi- ness models, please refer to the "Political and Legal Risks" section. We counter the proliferation of ad blockers both with legal action against providers and with the development of alternative revenue streams. Also, technical solutions for detecting and deactivating ad blockers are increas- ingly being used. For example, for the readers of BILD.de, the journalistic content can only be used if the ad block- ers used are deactivated or an almost ad-free subscrip- tion is concluded. Political and legal risks The relevance of data protection as well as the social and political sensitivity to privacy and security gaps in the digital domain have been steadily increasing for years. For 2018, completely new risks arise from two European legislations. On the one hand, this is the European Gen- eral Data Protection Regulation (DSGVO), which will apply from May 25, 2018. In addition to numerous sub- stantive tightening of data protection (including consent, information to those affected, the processing of large amounts of data in the context of "Big Data and the requirements for IT security) the DSGVO brings two fundamental changes, which increase significantly the risks for data processing companies: There is a corpo- rate accountability under which the data processor must be able to demonstrate compliance with the GDPR. In addition, the fines will be drastically increased in case of breaches. Fines of up to 4 % of group-wide turnover are possible, based on antitrust law. GDPR, the ePrivacy Regulation has not yet been decid- ed. Also, a concrete date of entry into force and any transition periods are not finalized (as of February 2018). Axel Springer deals with possible consequences and possible measures at an early stage. These include inter- nal projects, but in the broader sense also the participa- tion as a founding partner in the joint venture Verimi. At the same time, Axel Springer, as well as the entire Euro- pean industry of publishers, marketers and e-commerce, is extremely concerned about the current drafts. This applies equally to the associations of publishers and the internet economy. In order to be able to counteract the associated risks, Axel Springer is informed about these developments at an early stage, also through the associations represent- ing us. The stakeholders in the publishing and media industries throughout Europe are making an effort to explain to political decision-makers the business models and risks that exist among members, so that they are properly reflected in the democratic legislative process. Axel Springer also intends to take timely measures to identify changes that are relevant to Axel Springer and to adequately implement the resulting organizational and legal requirements as part of its risk-based prioritization. In order to reduce the risk of legal violations, binding guidelines are also issued for divisions and subsidiaries, which include organizational and risk-based measures for increased data protection compliance. For the measures taken by Axel Springer in the area of IT securi- ty, please refer to the section "IT risks". Nevertheless, the political and legal risks can by no means be completely ruled out. In view of the continuous technical development of the digital business models and a largely new and risk-increasing legal situation and in the absence of relevant case law, there is often an unclear legal situation and thus the latent danger of warnings and possible legal violations. The second European legislation is the draft of ePrivacy Regulation. Among others, this should regulate the very relevant setting of cookies and the creation of user pro- files on the Internet for Axel Springer. In contrast to the Specifically, this concerns the regulation of the use of so- called cookies and similar technologies, in particular the admissibility of creating user profiles as well as the inte- gration of advertising networks and "retargeting" in the 48 Annual Report 2017 Axel Springer SE Combined Management Report Report on risks and opportunities areas of web, mobile and app. The obtaining of consents, so-called "opt-ins", warnings and potential legal viola- tions bring with it reputational damage, particularly to well-known brands of Axel Springer such as BILD and WELT, alongside direct legal and commercial conse- quences. The involvement of public service broadcasting on the Internet continues to pose a risk to us. Above all, the ARD has gone with a fee-financed, text-focused news app of the Tagesschau far into the business field of the private press and distorted the competition. Naturally, it is more difficult for publishers to enforce paid apps against this and other free offers from ARD's state broadcasters. After negotiations with the ARD and the NDR had been fruitless, Axel Springer SE filed with seven other publish- ers and full support of the newspaper publisher's associ- ation BDZV action against ARD and NDR at the competi- tion chamber of the District Court of Cologne. The district court granted the claim in September 2012 for the most part. The defendants have appealed against the judgment and prevailed in the appeal before the Higher Regional Court of Cologne. The plaintiffs lodged an appeal against this before the Federal Court of Jus- tice, the appeal was granted and the case remanded to the Higher Regional Court of Cologne for a new trial. Admittedly, the Cologne Higher Regional Court respond- ed to the publishers' request and did not approve the appeal. Nevertheless, the legal process is not over, be- cause after an unsuccessful so-called non-admission complaint, the NDR has now challenged the violation of a right to have a hearing in court with the Federal Court of Justice. Our business remains exposed to the risks of distortion of competition from public service broadcast- ing and regulatory pressure from legislators at all relevant levels of government, despite countermeasures taken. Further potential risks or uncertainties for the Axel Springer arise from the political situation in the individual countries. The Polish media landscape, in particular, has been decisively influenced by the political influence of the national-conservative government; currently already on public-law but in the future also through attempts to influence private media. Government-influenced compa- nies could reduce or even stop their advertising activities in our products, which would lead to a significant decline in our advertising revenues. We counteract this risk with targeted cost-saving measures and programs for secur- ing earnings. IT risks For Axel Springer, as a Group with a high degree of digitization of its offers and internal processes, there are numerous significant risks with regard to the availability of IT systems used and the confidentiality and integrity of information. Due to the high degree of integration of information technologies into business processes, Axel Springer relies on a high availability of IT components. A signifi- cant impact on the availability can be a failure of the IT infrastructure and the applications run on it, such as the use of paid content on BILD.de. Potential causes of impairment include internal factors such as the increas- ing complexity of systems and longer-term infrastructure, as well as external factors such as: Computer crime by deliberately induced data encryption (so-called ransom- ware attacks) or by third party injected malicious soft- ware. In the worst case, these can result in business interruptions with far-reaching consequences for revenue and reputation. Additional IT risks are classified as important if the confi- dentiality of information and data integrity is compro- mised as a consequence. Against the background of the growing importance of paid content, notifiable services and the associated collection and storage of personal data as well as the constantly growing computer crime, the sensitive handling and protection of data is of great importance. For this reason, targeted measures have been and are being taken to prevent or limit as far as possible the effects and likelihood of criminal acts and the failure of IT components. The risk reduction measures include DDoS protection, emergency data centers, vulnerability analysis, use of encryption, identity & access management, con- 49 Annual Report 2017 Axel Springer SE Combined Management Report Report on risks and opportunities solidation and standardization, and improving of systems. These measures are continuously analyzed and, if nec- essary, expanded and improved. Reputation risks As part of the risk survey at Axel Springer reputation risks are not separately levied, as they usually result in a secondary risk or effect related to the primary risks. A violation of law and order can cause high attention and damage our reputation due to Axel Springer's prominent position in contributing to social opinion. Potential reputa- tion risks may arise, for example, from the violation of journalistic independence if the journalistic work is endan- gered due to personal advantage, inadequate research, incomplete information or lack of care in dealing with sources. Violation of country-specific laws and regulations, as well as non-compliance with equal treatment and opportunity programs can also damage reputation. In order to avoid reputation risks, the risk management measures introduced are primarily intended to prevent the occurrence of a corresponding primary risk. Regard- less, it includes the basic compliance with law and order, education campaigns and public relations work on es- tablished measures to prevent reputation damage. In addition, our International Social Policy, a catalogue of social standards, counteracts potential reputation risks. The International Social Policy defines the attitude of the company and others on questions of legal compliance, the protection of children and young people, dealing with employees and health and safety. These standards are globally binding for all activities of the company and can lead to a significant loss of image if disregarded. For further information, please refer to the section “Important management practices” on page 67 et seqq. wood, pulp and paper industries and environmental organizations. In addition, we use monitoring measures along the value chain. Our internal and external commu- nication in this respect is characterized by openness and transparency. Violations of confidentiality agreements and insider regu- lations as well as information that has not been published correctly in the context of external reporting can have economic or legal consequences for Axel Springer. In addition, there is the risk of damage to the image of the Group or its brands through negative reporting or cam- paigns in social media channels, even if there is no viola- tion of the law from a legal perspective. The following risk management measures primarily serve to avoid or reduce reputational risks: Compliance with law and regulations, education campaigns and public relations as well as relevant guidelines (e. g. guideline on journalistic independence). These should prevent the occurrence of a corresponding primary risk and protect against reputational damage. Strategic risks Significant strategic risks at Axel Springer result primarily from decisions to invest in new business fields and mod- els as well as companies that develop differently than planned over the long term or that cannot assert them- selves on the market or are displaced by new business models. Also a possible insufficient diversification holds a high risk potential. Unscheduled write-off in the case of expected permanent impairment in the context of the impairment tests to be performed would be the result. In addition to our activities in the Classifieds Media and Marketing Media segments, this risk also affects our product portfolio of national and international News Media offerings. Axel Springer operates an advanced sustainability man- agement system that meets international standards. However, if we were to recognize potential environmental and social conflicts in the procurement of resources along the wood, pulp, paper and recycling chain too late, this could damage our image. In order to effectively minimize this risk, we work closely with experts from the Overall, however, the business fields and models of our investments are very heterogeneous, so that diversifica- tion avoids so-called cluster risks. There is also further risk minimization, preventive control measures such as clear investment criteria, which we use to review new investments as part of our M & A activities, as well as active portfolio and investment management, the estab- 50 Annual Report 2017 Axel Springer SE Combined Management Report Report on risks and opportunities such as unplanned project delays as well as cost over- runs due to planning, tendering or procurement errors, or raw material price increases such as steel, glass or concrete. To reduce the aforementioned risks, a corre- sponding general contractor agreement was concluded, professional project controlling and reporting structures were established. Also, the development of supplier relationships and their early contractual commitment help us to minimize these risks. In addition to our construction project Berlin, our con- struction activities at the Hamburg site are also subject to risk. In the part of the building sold to the city of Ham- burg, work is still to be done which, like the construction activities in Berlin, is subject to risk. Here, too, risk reduc- tion is achieved through systematic and highly profes- sional project management and the involvement of ex- ternal specialists. Personnel risks The individual abilities, professional skills and commit- ment of our employees make a significant contribution to the success of Axel Springer. A significant risk therefore represents the loss of specialists and executives and the associated company-specific loss of knowledge and competence. We act professionally and actively. One focus of our HR management is the targeted and for- ward-looking development and motivation of employees through individual training and further education measures, regular feedback discussions, attractive bo- nus programs, flexible working time models and a com- prehensive offer for better reconciliation of work and family life. Field-specific measures based on educational needs analysis also help us to identify individual employ- ee needs and to minimize the risk of loss of skilled work- ers. Systematic succession planning and development, especially in the case of age-related fluctuation, is indis- pensable. In this way, the transfer of valuable wealth of experience and company expertise should be guaran- teed and the personnel requirements should be covered in the long term. lishment and maintenance of a qualified management level and active and systematic monitoring of business and market development. In addition to the aforementioned risks, the dependence on strategically important cooperation partners is also risky, for example for Upday, a personalized pan- European news service that was developed in collabora- tion with Samsung and currently represents the news app with the widest reach in Germany. If Samsung does not want to continue the cooperation, this would call into question the continued existence of the business model. Active key account management, legal support in the negotiation and renegotiation of contracts and continu- ous monitoring of the business activities of our coopera- tion partners contribute to reducing this risk. Other risks Axel Springer is naturally exposed to natural hazards that continue to pose significant risks to the Group. Possible damage caused by natural phenomena can lead to property damage and business interruptions. We counter these risks in two ways: On the one hand structural and organizational structural measures were taken to in- crease the safety standard even further, on the other hand there is an insurance protection to mitigate any financial consequences. Terrorist attacks continue to pose a serious risk to Axel Springer and, due to the current global political situation, a significant increase in risk. We counter this, among others, with increased security standards, significantly tightened access regulations and controls as well as a detailed education and training of the safety-relevant group of people. The financial risk from possible property damage and business interruptions is covered here by appropriate insurance. In order to support the cultural change to the leading digital publishing house, work is under way on the con- struction of the new publishing house of Axel Spring- er SE, which should enable employees to work together more closely and exchange knowledge more effectively. When implementing such a major project, Axel Springer is inevitably confronted with construction-specific risks 51 Annual Report 2017 Axel Springer SE Combined Management Report Report on risks and opportunities In addition, the difficult situation in recruiting junior ex- ecutives and executives represents a continuously grow- ing risk. Due to demographic change and increasing competition in the personnel market, it is increasingly difficult to recruit qualified personnel. Particularly with regard to the continuously increasing digitization of the Group, IT specialists in particular will continue to be in greater demand. That is why we have set up an internal recruiting team that designs personnel strategy initiatives and, for example, pursues the long-term development of a shared talent pool with a focus on bottleneck and key functions. In addition, professional employer branding, our social media activities on Facebook and Instagram, and university marketing with its diverse internal and external events make an important contribution to setting us apart from other companies and positioning Axel Springer as an attractive and innovative employer in the relevant target group. Financial risks and risks from the use of financial instruments With regard to financial risks, default risks for loans and investments as well as interest rate risks for Axel Spring- er are particularly important for the 2018 financial year. We counter the risk of possible default of loans, which Axel Springer assigns on a case-by-case basis, by regu- larly informing ourselves about the economic and finan- cial situation of the borrower, analyzing and processing these data accordingly, and thus identifying possible negative developments at an early stage. Should these manifest themselves, we allow the borrowers to collat- eralize their assets on a case-by-case basis. Regarding our stake in Do⁄an TV Holding A.S., potential default risks from the agreed sales options were fully hedged by bank guarantees. In order to counteract possible default risks when invest- ing funds that are not required for operational purposes, investment is made according to predefined criteria that are specified in a Group guideline. It defines fixed asset limits for risk limitation that must not be exceeded are defined therein. The limit compliance is monitored by consistent, daily monitoring. The existing interest rate risk results primarily from a financial asset or liability with variable interest rates. However, this risk is limited due to well-defined financing principles and regular monitoring of the variable interest component. Among others, we finance ourselves on borrower's promissory notes, which are mostly fixed income. Any additional interest rate risk that could affect the promissory notes and variable interest rate credit lines is minimized, where necessary, by the use of inter- est rate derivatives. Significant financing risks due to uncertain developments in the financial sector are cur- rently not apparent to Axel Springer: The current € 1.2 billion (up to 2020) credit line taken out as part of secur- ing liquidity has been bindingly committed by the partici- pating banks. The interest rate is linked to a ratio be- tween the net debt and the earnings ratio of the Axel Springer Group, so that the use of the credit lines would result in higher interest charges if the debt ratio is higher. In addition, we have to take into account some uncritical additional conditions under the loan agreements, which give the banks a right of termination in the event of non- performance. We comply with these and therefore con- sider the risk of early maturity of drawn loans to be low. Continuous monitoring of the money, capital and credit markets shows that the company can refinance on good terms due to its continued excellent credit standing and reputation. Furthermore, we have a reliable generation of liquidity due to a diversified customer base with no signif- icant delays or defaults. Due to the degree of internationalization of Axel Springer, there are corresponding currency risks for the Group. These result from expenses, revenues, income from participations as well as receivables and liabilities in foreign currencies (transaction risk). The risk of changes in value due to exchange rate fluctu- ations is largely avoided by raising operating costs in the countries in which we sell our products and services. Residual currency risks from foreign currency cash flows are insignificant, as we generate most of our results in the euro currency area. Currency risks from open net positions of € 5 million or more per foreign currency are analyzed in a treasury committee. The Treasury Commit- tee meets at least six times a year to better identify po- 52 Annual Report 2017 Axel Springer SE Combined Management Report Report on risks and opportunities tential risks and resolve countermeasures. Local curren- cy financial resources generated in non-euro countries are either reinvested to expand local business activities, invested in and secured or distributed by Axel Spring- er SE. The liquidity risk arising from exchange rate fluctu- ations on foreign currency financial assets is therefore limited. Currency effects from the translation of foreign currency financial statements (translation risk) are recognized directly in accumulated equity. Therefore, Axel Springer does not hedge against such currency risks. The risks from financial instruments and hedging measures are explained in detail in Note (34) of the ex- planatory notes to the consolidated financial statements. Overall risk assessment The overall risk situation of the Axel Springer Group consists of the individual risks of all risk categories of the consolidated majority holdings and the central areas. Taking into account the interaction of risks and risk ag- gregation, there are currently no risks that could jeopard- ize the continued existence of the Axel Springer Group or could significantly influence its asset, earnings and finan- cial position. This applies to the condition that there is no significant deterioration of the economy in our markets and the media industry and, consequently, a significant deterioration in the market and earnings position of the Group. In addition, risk concentrations are reduced through continuous diversification, internationalization, optimization of the brand and product portfolio and digitization. In contrast to the presentation in the 2016 Annual Report, there are slight changes in risk positions, in particular as a result of the acquisitions and sales of companies and the associated investments. However, these changes did not materially affect the overall risk situation and risk- bearing capacity of the company. Opportunity management Axel Springer pursues the goal of sustainably securing entrepreneurial success. Potential opportunities arising from positive developments in the course of business activities should be identified early and systematically exploited. As part of the management, strategic and planning processes, potential opportunities induced both internally as well as externally are identified and assessed for the company divisions and interests. External oppor- tunities are offered, for example, by changing market structures or customer requirements; internal opportuni- ties arise from product innovations or quality improve- ments. This is based, for example, on market and com- petition monitoring activities and analyses as well as regular dialog with experts. In considering the risks in- volved, identified opportunities are fundamental to corpo- rate decision-making and the introduction of corre- sponding measures, such as measures regarding investments in new markets or technologies. Responsi- bility for the management of opportunities is taken in as decentralized a manner as possible by the operational divisions and their management or senior managers. Opportunities In line with the definition of risks, opportunities are mir- rored as the possibility of positive deviations from defined targets and can thus serve both the added value and the generation of potential competitive advantages. They may arise from unscheduled and/or non-budgeted posi- tive developments and/or events. This applies if there is insufficient certainty regarding the occurrence of events, or the framework conditions and environment develop in a more favorable manner than expected. In addition, potential arising from long-term strategic decisions that had not been fully budgeted may lead to additional growth. 53 Annual Report 2017 Axel Springer SE Combined Management Report Report on risks and opportunities Strategic opportunities In a constantly changing environment we continue to develop our company so that we are able to face global and industry-specific challenges in the future with inno- vative and tailored solutions. Axel Springer’s international digitization strategy offers further promising opportunities for generating additional growth and revenues based on highly positive develop- ments within the digital markets. Axel Springer exploits these developments by investing in new or future- oriented technologies, entering into new forms of coop- eration, the ongoing digital transformation and monetiza- tion of journalistic products. In addition, by combining different media, we achieve the most comprehensive multimedia coverage in the German media landscape. This spans digital, print, video, and live TV, with an em- phasis on quality journalism as the hallmark in all media channels. Acquiring interests in companies with promising digital business models in the early and growth phases of their life cycle gives us the opportunity to make contacts within the industry and to other founders and investors as well as to access and use new ideas and business models. On the other hand, we can gain access to co- investments, which may also be available to us for a later majority acquisition. If the portfolio companies develop successfully, we can benefit from potentially significant increases in value. For this purpose, Axel Springer and Martin Varsavsky, an experienced Internet entrepreneur and member of the supervisory board of Axel Spring- er SE, founded an investment fund for media start-ups. This cooperation is not only intended to secure long-term growth, but also to further expand our business in the US market. In addition to this new early-stage investment, the start-up accelerator recently founded with Porsche, which supports digital business ideas with high market potential, can offer valuable strategic opportunities. We see further growth opportunities in our digital internation- alization strategy and the associated entry into new or expanding existing markets. For example, the introduc- tion of successful business models on the home market, the acquisition of existing and successfully established companies and the establishment of strategic partner- ships in international growth regions offer considerable potential for success. Compared to our competitors, we also benefit from the fact that we already have strong market positions in many countries. The sale of the new Axel Springer building and the Axel- Springer-Passage will provide us with additional liquid funds that can be used for future growth initiatives, es- pecially in the digital sector. Market and competitive opportunities Should the global economy develop better than previ- ously forecasted, this could have a positive impact on our revenue performance. The deciding factor will be the impact that regional conflicts and crises will have on our core markets when the world economy is highly inter- connected. Nonetheless, its early investments in regional and digital growth markets places Axel Springer in a good position to capitalize on the opportunities this brings. Even a negative macroeconomic development can open up opportunities: This could eliminate competi- tors from the market, thereby strengthening our own position. In addition, it would be possible to acquire companies at advantageous prices, thus expanding our position in existing markets and investing in new markets with growth potential. Additional industry-specific potential to generate un- planned revenues for Axel Springer may also arise from higher advertising expenditures on individual advertising media than forecasted by advertising associations. This could in particular be the case if the media mix changes in our favor, or, in other words, if advertising expenditure flows into the digital sector driven by journalistic content. For example, the paid subscription service for journalistic offers announced by Google and Facebook could help us to better market our paid content online. Should this actually happen and succeed, additional sales revenues could result and the brands of Axel Springer can be strengthened. Furthermore, increasing mistrust of Fake News could also strengthen the paid journalistic payment offers in the journalistic pay range of Axel Springer and generate higher circulation revenues. The technological developments in the marketing business - in addition to the associated challenges - also provide further opportu- 54 Annual Report 2017 Axel Springer SE Combined Management Report Report on risks and opportunities nities for additional advertising revenues. Thus, a change in the online marketing by programmatic advertising is taking place. This form of media planning stands for the automated purchase and sale of advertising with the help of target group data in digital media and thus a change from the marketing of the environment to the marketing of target groups. With our know-how and the targeted customer approach through targeting measures, there are promising additional opportunities in the adver- tising business. The international orientation of Axel Springer, which has increased as a result of correspond- ing investments, represents a further advantage for the Group in advertising business. Compared to competing publishers with a stronger focus on the German- speaking area, we can offer global customers a broader readership or higher reach for ad campaigns from a single source. All divisions and companies of Axel Springer are working on the continuous improvement of technologies and processes in order to maintain and expand their position in the competitive field. This includes an intensive cross- company exchange on successful business models, as well as innovative start-ups. Political and legal opportunities The ancillary copyright for press publishers (Leistungs- schutzrecht für Presseverleger) entered into force at the beginning of August 2013, with the aim of further enhancing the protection of intellectual property. This stipulates that license fees shall be chargeable to search engine providers for using publisher content, unless such use relates to “individual words” or “the smallest text snippets“. Google as the market leader among the search engine providers rejected this. At present, there is a revocable “free-of-charge” consent granted by the publishers to Google to use their text snippets in search results. VG Media (collecting company), which repre- sents more than 200 digital publisher offers, including by Axel Springer, has filed a payment claim against Google, which is currently pending before the Berlin Court of Appeal in a second instance. Depending on the outcome of the legal dispute or the agreement reached, this may have a positive effect on Axel Springer and its digital offerings. Business and other opportunities Axel Springer is continually working on the optimization of operational processes and structures. Axel Springer therefore regards inter-company, cross-divisional and cross-functional interlinking as a key factor for success in order to produce innovative and tailored content as well as provide high quality products and services for our customers. For this Axel Springer has begun a compre- hensive restructuring with the separation of the prints from the digital business. If the new organizational struc- ture is implemented swiftly and consistently for a cross- brand collaboration of core functions, this could, in addi- tion to more efficient marketing, be associated with addi- tional opportunities for greater growth, especially in the digital business and synergy potential in the cost area. Axel Springer could better identify and exploit opportuni- ties through focused teams, clear responsibilities and less structural complexity. The increased and promoted exchange of e. g. techno- logical know-how of our companies offers additional opportunities to further improve our position in our core markets. 55 Annual Report 2017 Axel Springer SE Combined Management Report Forecast report Forecast report Anticipated economic environment Anticipated Economic Development (Selection) General economic environment The upward trend of the world economy will accelerate according to the forecast of the International Monetary Fund (IMF). Accordingly, the growth rate of the global economy in 2018 should rise to a real + 3.9 %. The boom is mainly driven by a significant growth spurt in the indus- trialized countries. According to estimates by the ifo Institute, the upturn will continue in Germany in 2018. Growth drivers will therefore continue to be domestic demand and exports. According to the forecast, private consumption is expected to expand strongly with a real growth rate of 1.7 % driven by rising employment and rising wages. In view of the continued increase in the capacity utilization rate of the German economy in the previous year, the strong growth in corporate investment is expected to continue at 3.9 % in real terms. According to the ifo forecast, exports will continue to rise strongly in 2018, with real growth of 5.6 %. With a price-adjusted expan- sion of 5.5 %, imports will develop similarly dynamically. According to forecasts by the ifo Institute, consumer prices will rise by 1.9 % in 2018 in view of the continuing buoyant economy. Unemployment is expected to fall to 5.3 % due to persistently high employment creation. At the same time, the number of persons in employment will rise by around 490,000. On average for the year 2018, the ifo Institute expects around 44.8 million people to be in gainful employment. Change in gross domestic product compared to prior year (real) Germany1) United Kingdom2) France2) Central and Eastern Europe2) USA2) 1) Source: ifo Institut, December 2017. 2) Source: DIW, December 2017. 2018 2.6 % 1.4 % 1.8 % 3.5 % 2.5 % According to a forecast by the German Institute for Economic Research (DIW), the British economy will expand by 1.4 % in 2018. Investments are unlikely to contribute to growth due to slightly restrictive monetary policy and persistently high levels of uncertainty in the face of the Brexit negotiations. However, positive impuls- es are to be expected from foreign trade, helped by the ongoing recovery in the eurozone and the continuing low value of the British pound. For France, the DIW forecasts a real growth rate of 1.8 % for 2018. According to the economic research institute, the environment has improved slightly as a result of labor market and tax reforms. The DIW expects only modest price increases and rising of disposable income in real terms. The economic forecast of the DIW comes to altogether optimistic expectations for the states of Central and Eastern Europe. Consumption should remain the main driver. The economic recovery in the region goes hand in hand with a significantly and continuously falling unemployment rate. Investments should gain some momentum. Exports benefit from growing foreign demand. Overall, price-adjusted growth will amount to 3.5 % in Central and Eastern Europe, according to the DIW. 56 Annual Report 2017 Axel Springer SE Combined Management Report Forecast report According to the DIW forecast, the development of the US economy remains upward. The continuous im- provement of the labor market situation supports private consumption. The DIW estimates the real growth rate of US economic output for 2018 at 2.5 %. It is assumed that the tax reform will only have a relatively small stimulating effect on economic growth. Industry environment According to the current advertising market forecast of ZenithOptimedia, a worldwide increase of 4.1 % (nominal) is expected for the year 2018. The shift of advertising budgets to the internet continues with undiminished speed. According to ZenithOptimedia's current forecast, the share of online advertising in the global advertising cake will rise to 40 % next year. The forecasts for Germany available to date show a largely similar picture for the individual media genres. ZenithOptimedia expects net advertising market revenue (marketing revenues net of rebates and agent’s commis- sion) in Germany for 2018 to increase by 2.3 % (nominal). Thus, the total advertising market will not grow as fast as the general economy, which is expected to expand at a nominal rate of 4.0 % (+ 2.2 % in real terms) according to the DIW. Growth in the advertising market is driven by digital (+8.0 %), TV (+2.8 %), outdoor (+2.6 %) and radio (+1.8 %). ZenithOptimedia is predicting a decrease in net advertising revenues for newspapers (– 3.2 %) and magazines (– 5.5 %). The forecast data continue to reflect the structural redistribution of advertising expenditure in favor of digital offers. In the coming year, the share of online and mobile in Germany should rise to 35.9 %. This puts Germany below the global average. ZenithOptimedia says publish- ers will hardly benefit from the additional online ad reveue. Reason is the dominance of the big tech companies from the USA. However, global trends also set the direction for Germa- ny. Growth in the advertising market is technology-driven, especially in the mobile, online moving images (video), social media and programmatic growth segments. Thanks to the continued proliferation of mobile devices, technical advances in advertising, increased variety of ad formats, and technical innovations in driving multi-device campaigns, a significant increase in digital advertising investments is expected. The progressive automation of advertising booking through programmatic buying platforms is also seen as a driver for online and mobile advertising. In addition, all media will in future be digital, addressable and thus programmatically tradable. The challenge for the market- ers will be, on the one hand, to connect their inventory to the available trading platforms and, on the other hand, to provide data that will enable advertisers to address consumers in a more targeted manner - and thus more effectively. The industry expects positive stimuli for the advertising industry from the two sporting highlights of 2018, the Winter Olympics in South Korea and the World Cup in Russia, with sports-related advertising media likely to benefit from this. One of the big trends in the advertising industry is the use of artificial intelligence for mass communication. Self-learning technologies predict customer behavior and focus on personalized customer engagement. The expectation of further increasing budgets in the area of digital classified ads in 2018 is confirmed by a study of the strategy consultancy OC & C Strategy Consultants in the spring of 2017. According to this study, advertising expenditures (online) in Germany for job advertisements will rise by an average of 12 % per year by 2020 compared to 2016. This growth goes hand in hand with the forecast that by 2020, 63 % of advertising spending in the area of job advertisements in Germany will be made online, whereas in 2016 the share was still at 50 %. For the German real estate advertising market (online), OC & C expects an average increase of 9 % by 2020 compared to 2016. The online share of real estate advertising spend was already 69 % in 2016, and according to the study, it will increase even further to 77 % by 2020. 57 Annual Report 2017 Axel Springer SE Combined Management Report Forecast report Group Strategic and organizational orientation The highest strategic priority for Axel Springer is to pursue the consistent digitization of its business. We aim to attain the goal of becoming the leading digital publisher by further developing our digital offerings in Germany and abroad, and by making targeted acquisitions. Comparison of forecast with actual performance The forecast targets published in March 2017, and raised at mid-year 2017 for adjusted EBITDA, adjusted EBIT and adjusted earnings per share were attained. For revenues the forecast was exceeded. Group Revenues EBITDA, adjusted EBIT, adjusted Forecast / adjustments during the year Mid single-digit percentage increase Mid to high single-digit percentage increase / high single-digit percentage increase Mid single-digit percentage increase / mid to high single-digit percentage increase Earnings per share, adjusted Mid to high single-digit percentage increase / high single-digit percentage increase 2017 8.3 % 8.5 % 7.0 % 8.1 % The digital international markets in which Axel Springer engages in with its own corporate activities will develop differently according to the prognosis of Zenith- Optimedia: In the online market in Western Europe, net advertising volume will increase by 7.3 % to USD 42.7 billion in 2018, based on the assumption of constant exchange rates. While in the UK (+3.8 %) digital advertis- ing spending will grow less strongly than in Germany, France (+10.4 %) and the US (+13.1 %) are expected to achieve higher growth. Anticipated Advertising Activity 2018 (Selection) Change in net ad revenues compared to prior year (nominal) Germany Central and Eastern Europe USA United Kingdom Online 8.0 % 12.9 % 13.1 % 3.8 % Source: ZenithOptimedia, Advertising Expenditure Forecast, December 2017. The expected positive development of foreign advertising spending on digital classified advertisements in 2018 is also underpinned by the OC & C study. For the job market in the United Kingdom, the analysis forecasts an average increase in digital advertising spending of 3 % per year by 2020 compared to 2016. Real estate markets in France and Belgium are expected to grow by 6 % and 5 % respectively over the same period. Compared to the German market, the online share of advertising spending in the respective foreign markets in 2016 was already comparatively high, at 79 % in the UK, 65 % in France and 67 % in Belgium. For 2020, accord- ing to the study, a further shift in advertising spend from offline channels to online channels is forecast in all three markets. As a result, the United Kingdom is expected to have an 85 % online share of advertising spend in the jobs segment, and France 72 % and Belgium 73 % in the real estate segment (based on advertising expenses online + offline per category). 58 Annual Report 2017 Axel Springer SE Combined Management Report Forecast report Slovakia in the middle of the year 2018. Due to the significant implications of these effects, we also state our expectations regarding the organic development of our key performance indicators that result from adjusted consolidation and currency effects, as well as the effects from IFRS 16. Consideration of IFRS 15 follows an ap- propriate adjustment of our prior-year figures, which reduces the Group revenues for 2017 by approximately € 500 million in the Marketing Media segment. For the financial year 2018, we expect Group revenues to increase by an amount in the low to mid single-digit percentage range. Organically, we also assume growth in the low to mid single-digit percentage range. For adjusted EBITDA, we expect a rise in the low double-digit percentage range. For organic growth in adjusted EBITDA we assume an increase in the mid to high single-digit percentage range. For adjusted EBIT, we expect a rise in the low single- digit percentage range due to higher depreciation, amortization and impairments, and organically we expect an increase in the low to mid single-digit percentage range. For the adjusted earnings per share, we expect an increase in the low to mid single-digit percentage range. For the organic development we assume a rise in the mid to high single-digit percentage range. Anticipated business developments and financial performance of the segments The revenues of the Classifieds Media segment are expected to show a rise in the double-digit percentage range. Organic growth is expected to be in the high single-digit to low double-digit percentage range. We expect adjusted EBITDA to increase in the double-digit percentage range. The organic increase should lie in the high single-digit to low double-digit percentage range, despite increased investments in IT, marketing and sales. Segments Revenues Classifieds Media News Media Marketing Media Services/ Holding Forecast 2017 Low double-digit percentage increase Development roughly on par with prior-year level High single-digit to low double-digit percentage increase Considerable decline EBITDA, adjusted Classifieds Media Low double-digit percentage increase News Media Marketing Media Services/ Holding EBIT, adjusted Stable development High single-digit to low double-digit percentage increase Significant deterioration Classifieds Media Development significantly below development of EBITDA, adjusted News Media Marketing Media Services/ Holding Comparable development to EBITDA, adjusted Development slightly below development of EBITDA, adjusted Significant deterioration 14.6 % 1.9 % 15.0 % -16.8 % 16.5 % 2.0 % 16.3 % -46.5 % 13.6 % 1.1 % 14.9 % -23.9 % Business development in the segments confirmed or exceeded expectations for both revenue, adjusted EBITDA and adjusted EBIT. In terms of revenues the forecast was exceeded in the News Media and Marketing Media segments and in terms of adjusted EBITDA in all three operating segments Classifieds Media, News Media and Marketing Media. Anticipated business developments and financial performance of the Group The forecast for the financial year 2018, takes the application of the new accounting standards IFRS 15 and IFRS 16 into account (for impacts, we refer to the notes to the consolidated financial statement of the Group Note (3q)), the initial consolidation of Logic-Immo from February 2018, as well as the sales of aufeminin in the second quarter of 2018 and the print portfolios in 59 Annual Report 2017 Axel Springer SE Combined Management Report Forecast report Dividend policy Subject to the condition of continued sound financial performance in the future, Axel Springer will pursue a dividend policy of stable or slightly increased dividend distribution, while also allowing for the financing of growth. Anticipated development of the workforce The annual average number of employees in the Group for 2018 will be higher than the prior-year figure. This is mainly due to organic growth and acquisitions in connection with the digital transformation of the Group’s business. Planning assumptions We plan the future development of the financial perfor- mance, liquidity, and financial position on the basis of assumptions that are plausible and sufficiently probable from today’s perspective. However, actual developments could possibly be much different from the assumptions applied and thus from the business plans and trend forecasts prepared on the basis of those assumptions. In particular, the forecast is based on the assumption that no significant deterioration in the economic environ- ment will follow and that the actual exchange rates do not deviate significantly from the underlying assumed exchange rates. The forecasts for adjusted EBITDA, adjusted EBIT, and the adjusted earnings per share reflect the expected effects at the time of the publication of the Annual Report from known acquisitions (particularly Logic-Immo), divestments (in particular aufeminin and the print portfolio in Slovakia) and planned restructuring expenses. The additional disclosures regarding organic development have been adjusted for consolidation and currency ef- fects, as well as effects from the application of the new accounting standards IFRS 16. In the News Media segment, we expect a decrease in revenues in the low to mid single-digit percentage range for the financial year 2018. Deconsolidation effects from the sale of the print portfolio in Slovakia will have an im- pact here from mid year. Organically, we expect a decline in revenues in the low single-digit percentage range. For adjusted EBITDA we expect a rise in the mid single-digit percentage range. Organically, we assume a decline in the low to mid single-digit percentage range. We expect revenues in the Marketing Media segment to decrease by an amount in the high single-digit to low double-digit percentage range, based essentially on the anticipated closing of the sale of aufeminin in France. In terms of organic development, we expect an increase in revenues in the high single-digit percentage range. Start- ing point for the forecast is the reduced revenue for 2017 by approximately € 500 million after applying IFRS 15. For adjusted EBITDA, we expect an increase in the high single-digit percentage range and organically we expect a growth in the low double-digit percentage range. For the Services/Holding segment, we expect a de- cline in revenues in the mid single-digit percentage range, depending on market conditions. For the organic devel- opment too, we expect a decline in the mid single-digit percentage range. For adjusted EBITDA, we expect a rise (improvement) in the low to mid single-digit percent- age range and equally organically a rise in the low to mid single-digit percentage range. For adjusted EBIT, we expect developments in all seg- ment to be below that of adjusted EBITDA due to higher depreciation. Anticipated liquidity and financial position With regard to liquidity and financial position, invest- ments in property, plant and equipment and intangible assets will be significantly above the prior-year level, mainly due to investments in the new building in Berlin. Financing will be provided by operating cash flow. Ex- cluding the investments for the new building in Berlin, investments are also expected to be significantly above the prior-year figure. 60 Annual Report 2017 Axel Springer SE Combined Management Report Disclosure and explanatory report of the Executive Board pursuant to takeover law Disclosure and explanatory report of the Executive Board pursuant to takeover law This section contains the disclosures pursuant to Sec- tions 289a (1), 315a (1) of the Commercial Code and the explanatory report of the Executive Board in accordance with Section 176 (1) sentence 1 AktG related to Section 9 (1) lit. c) ii) SE-VO. Composition of subscribed capital The subscribed capital of the company amounts to € 107,895,311.00 and is divided into 107,895,311 regis- tered shares. The shares may only be transferred with the company's consent (registered shares of restricted transferability, see below). Different classes of shares do not exist. All shares have the same rights and obligations. Each share grants one vote at the annual shareholders' meeting and is decisive for the share of the shareholders in the profits of the company. This does not apply to treasury shares held by the company (see page 64), on treasury shares), from which the company has no rights (see Section 71b of the German Stock Corporation Act). Restrictions on voting rights or the transfer of shares Pursuant to Section 5 (3) of the Articles of Association of the company, the shares and the subscription rights to shares in Axel Springer SE may only be transferred with the consent of the Company. The approval is granted by the Executive Board, whereby the Supervisory Board decides internally on the approval. The consent can be refused according to the statute without giving reasons. However, the company does not arbitrarily refuse to approve the transfer of the shares. According to the knowledge of the company's Executive Board, transfer restrictions under the law of obligations arise from the following agreements:  On July 31/August 4, 2006, a share transfer re- striction agreement was concluded between Dr. Ma- thias Döpfner, Brilliant 310. GmbH, Axel Springer AG and M.M. Warburg & Co. KGaA. Under this share transfer restriction agreement, the direct and indirect purchase or disposal of the shares of Axel Springer AG by Brilliant 310. GmbH or by Dr. Mathias Döpfner are made contingent to the prior consent of Axel Springer SE in accordance with the Articles of Asso- ciation of the company.  By virtue of a declaration dated August 14, 2012, Dr. Mathias Döpfner acceded to a pool agreement (“pool agreement”) concluded between Dr. h. c. Friede Springer and Friede Springer GmbH & Co. KG, in re- spect of the 1,978,800 shares of Axel Springer SE that were given to him as a present by Dr. h. c. Friede Springer on the same date. In total, the pool agree- ment includes 52,826,967 voting shares of Axel Springer SE (pool-linked shares). Under the terms of the pooling agreement, a pool member wishing to transfer his pooled shares to a third party must first offer these shares to the other pool members for pur- chase (purchase right). The purchase right expires two weeks after the purchase offer. It does not apply to transfers to certain persons close to the pool member.  In addition, shares of Axel Springer SE acquired by the Brilliant 310. GmbH and Dr. Mathias Döpfner were pledged to a bank; the same applies to the shares of Axel Springer SE held by Dr. Giuseppe Vita. Under the virtual stock option plans 2011 II and 2014 for executives, the beneficiaries are required to make a personal investment in shares of Axel Springer SE. These shares are not subject to any restrictions on disposal, but any disposition of these shares would cause the corresponding virtual stock option rights to lapse without replacement or compensation (for information on the virtual stock option plan 2011 II and 2014 for senior executives, see page 80). 61 Annual Report 2017 Axel Springer SE Combined Management Report Disclosure and explanatory report of the Executive Board pursuant to takeover law The same applies to the virtual stock option plans 2012 and 2014 for members of the Executive Board (see page 78 for information on the virtual stock option plans 2012 and 2014 for Executive Board members). Finally, persons performing managerial duties at Axel Springer SE within the meaning of the European Market Abuse Regulation (MAR) must comply with the closed periods established by Section 19 (11) MAR (trade prohibitions); Based on these statutory blocking periods, the Company has developed guidelines for trading in shares of Axel Springer SE, which should be followed by persons of senior management. Voting right restrictions According to the aforementioned pool contract between Dr. Mathias Döpfner, Dr. h. c. Friede Springer and Friede Springer GmbH & Co. KG the voting rights and other rights arising from the pooled shares in the Annual Gen- eral Meeting of Axel Springer SE are to be exercised in accordance with the respective resolutions of the pool members, irrespective of whether and in what sense the relevant pool member was voting on the pool. The voting rights of the pool members in the pool meeting are based on their voting rights at the General Meeting of Axel Springer SE, calculated on the basis of the respec- tive number of voting pool-linked shares. As long as Friede Springer GmbH & Co. KG holds an indirect inter- est in Axel Springer SE, its voting rights are based on the number of shares of the pooling shares held indirectly by Friede Springer GmbH & Co. KG. Furthermore, restrictions on voting rights may exist in accordance with the provisions of the German Stock Corporation Act (AktG), for example pursuant to Section 136 AktG and capital market regulations, in particular pursuant to Sections 33 et seqq. (prev. Sections 21 et seqq. WpHG). Securities Trading Act (Wertpapier- handelsgesetz, "WpHG"). Shareholdings that represent more than 10 % of voting rights At the end of the 2017 financial year, the following direct and indirect shareholdings in the capital of Axel Springer SE, which exceeded the threshold of 10 % of the voting rights, existed on the basis of the voting rights announce- ments received by the company up to December 31, 2017 in accordance with Sections 33, 34 WpHG (prev. Sections 21, 22 WpHG): Axel Springer Gesellschaft für Publizistik GmbH & Co, Berlin, Germany (direct), AS Publizistik GmbH, Berlin, Germany (indirect), Friede Springer GmbH & Co. KG, Berlin, Germany (indirect), Friede Springer Verwaltungs- GmbH, Berlin, Germany (indirect), Dr. h. c. Friede Springer, Berlin, Germany (indirect), and Dr. Mathias Döpfner, Potsdam, Germany (indirect). Information on the amount of the aforementioned shareholdings in the Company can be found in statements on the voting rights disclosures in the Notes to the Financial Statements 2017 of Axel Springer SE, see www.axelspringer.com/financialpublications, as well as in the section "Voting Rights Announcements" on the Company's website at www.axelspringer.com/votingrights. Shares with special rights that confer powers of control Shares with special rights conferring control powers have not been issued. Manner of controlling voting rights when employees hold shares in the company's capital As part of the bonus and share bonus program for 2009 and the share participation programs for the years 2011, 2012, 2013, 2014, 2015 and 2017, Deutsche Bank AG was initially entered into the share register as the third- party holder of the shares transferred to employees. However, each employee is free to be registered as a shareholder in the share register. 62 Annual Report 2017 Axel Springer SE Combined Management Report Disclosure and explanatory report of the Executive Board pursuant to takeover law Statutory provisions and provisions of the Articles of Association pertaining to the appointment and dismissal of Executive Board members and amendments to the Articles of Association The Executive Board of Axel Springer SE consists of at least two persons according to the Articles of Associa- tion of the Company. The Supervisory Board determines the number of Executive Board members, appoints them and dismisses them. Pursuant to Section 8 (2) sentence 1 of the Articles of Association in connection with Sec- tion 46 (1) SE-VO, the members of the Executive Board are appointed for a maximum period of five years; reap- pointments are allowed. If several persons are appointed as members of the Executive Board, the Supervisory Board may appoint a member as Chairman of the Exec- utive Board (Section 8 (3) sentence 2 of the Articles of Association). If a required member of the Executive Board is absent, the court has to appoint a member in urgent cases at the request of one involved party (Sec- tion 9 (1) lit. c) ii) SE-VO in connection with Section 85 (1) sentence 1 AktG). The Supervisory Board may revoke the appointment as a member of the Executive Board and the appointment as Chairman of the Executive Board if there is good cause (see in detail Section 39 (2) sentence 1, Section 9 (1) lit. c) ii) SE Regulation, Section 84 (3) sentences 1 and 2 AktG). Insofar as mandatory statutory provisions or provisions of the Articles of Association do not require a greater majori- ty, amendments to the Articles of Association are made by a resolution of the General Meeting by a majority of two-thirds of the votes cast or, if at least half of the share capital is represented, by a simple majority of the votes cast (cf. Section 21 (2) sentence 2 of the Articles of Asso- ciation in connection with Section 51 sentence 1 SEAG, Section 59 (1) and (2) SE-VO). The latter does not apply to an amendment changing the business object and purpose of the company, or to a resolution regarding the relocation of the registered head office of the SE to an- other member state pursuant to Section 8 (6) SE-VO as well as cases that prescribe a higher majority stake (see Section 51 (2) SEAG, Section 59 (1) and (2) SE-VO). An amendment to the corporate governance principles laid down in Section 3 of the Articles of Association requires a majority of at least four-fifths of the votes cast (see Sec- tion 21 (3) of the Articles of Association). The Supervisory Board is authorized to adopt amend- ments to the Articles of Association which only affect the wording (Section 13 of the Articles of Association). Authority of the Executive Board to issue or buy shares back The Executive Board was authorized, in accordance with Section 5 (4) of the Articles of Association, and based on the resolution of the annual shareholders’ meeting of April 14, 2015, to increase the capital stock by April 13, 2020, subject to the approval of the Supervisory Board, by issuing registered shares of restricted transferability, either in a single tranche or in several tranches and in return for cash and/or non-cash contributions (including mixed non-cash contributions), up to a total of € 11,000,000.00 (authorized capital). By partially drawing down this authorized capital, the capital stock was increased by € 8,955,311.00 and 8,955,311 new registered shares of Axel Springer SE were issued to General Atlantic, with effect from Decem- ber 9, 2015. The remaining authorized capital, which allows an increase of the share capital by a further € 2,044,689.00 until April 13, 2020, was not utilized until the end of the year under review. By resolution of the General Meeting on April 16, 2014 (Agenda item 8), the Executive Board was authorized, with the approval of the Supervisory Board, until April 15, 2019 to acquire treasury shares of up to 10 % of the share capital existing at the time of the resolution. The acquisition may be made via the stock exchange or by means of a public offer addressed to all shareholders or a public invitation to submit an offer. Along with the shares held by the company or attributa- ble to the company in accordance with Section 5 SE-VO in conjunction with Sections 71a ff. AktG, the shares 63 Annual Report 2017 Axel Springer SE Combined Management Report Disclosure and explanatory report of the Executive Board pursuant to takeover law purchased by virtue of the foregoing authorization may not at any time exceed 10 % of the company’s capital stock. Details concerning this authorization are provided in the invitation to the annual shareholders’ meeting of April 16, 2014, which is available on the website of Axel Springer SE (see Agenda Item 8 and the Executive Board’s report on this subject). The company held no treasury shares at the end of financial year 2017. There is no contingent capital at Axel Springer SE. Significant agreements of the company subject to the condition of a change of control resulting from a takeover offer With the exception of regulations in the promissory notes and consortium loans stated in the following, as well as contractually entitled cancellation rights for Executive Board members in case of a change of control (see further information below and page 78 of this Annual Report), the company has not concluded any major agreements that would take effect in the event of a change of control due to a takeover. The company has placed promissory notes on the capi- tal market since April 2012. Following partial termination, conversion and redrafting in October 2014 and May 2017 as well as the termination of two variable tranches in October 2017, the promissory notes have a total amount of € 879,000,000.00 available in nine tranches. The lender may demand, in the event of a change of control, that the claim held can be partially or fully paid back early within a 90 days period. Aside from specific exceptions that relate to the share- holders that currently control Axel Springer SE, a change of control is understood to mean, in the context of the promissory notes, the acquisition of shares of Axel Spring- er SE representing more than 50 % of the capital stock and/or voting rights by one or more parties acting together. With regard to the syndicated loans renegotiated in July 2015 and totaling € 1,200,000,000.00, the lenders are also entitled to terminate the loan in the event of a change of control with a term of 30 days following the receipt of such knowledge. Aside from specific excep- tions that relate to the shareholders that currently control Axel Springer SE, a change of control is understood to mean the acquisition of shares of Axel Springer SE rep- resenting more than 50 % of voting rights by one or more parties acting together. Indemnification agreements between the company and the Executive Board members or employees in the event of a change of control Some Executive Board members have the right to termi- nate their employment contracts in the event of a change in control. A change of control within the meaning of these contracts exists if the majority shareholder Dr. h. c. Friede Springer no longer - directly or indirectly - should hold or control the majority of shares. In such a case, the members of the Executive Board concerned are entitled to payment of the basic salary for the last agreed remain- ing period of contract (some of the entitled Executive Board members are entitled to payment of at least one annual basic salary) or a severance payment equal to the total remuneration for the duration of the original remain- ing term; the above payments are regularly limited in amount. In addition, the company pays the performance- related remuneration pro rata temporis for the period of the activity in the year of departure. Other remuneration does not exist for the service contracts of members of the Executive Board in the event of termination of em- ployment due to a change of control. Corresponding compensation agreements with other employees of the company do not exist. 64 Annual Report 2017 Axel Springer SE Combined Management Report Corporate Governance Report Corporate Governance Report There follows a report by the Executive Board – also on behalf of the Supervisory Board – on corporate govern- ance at Axel Springer, in conformity with the recommen- dation set out in Section 3.10 of the German Corporate Governance Code ("GCGC"). This section also contains the management declaration pursuant to Section 289f of the German Commercial Code ("HGB") and the Com- pensation Report. Good corporate governance as a guiding principle At Axel Springer, sound transparent corporate governance is considered to be a crucial element of responsible man- agement and supervision geared to increasing the com- pany’s value on a sustainable basis. It promotes the trust and confidence of our national and international investors, customers, employees, and the public in the management and supervision of the company and is therefore an es- sential basis for the company’s long-term success. In this respect, we are guided by the GCGC. We have taken appropriate measures in order to comply with and implement the recommendations of the Code. The Cor- porate Governance Officer is the Executive Board mem- ber in charge of Finance and Personnel. The implemen- tation of and adherence to the recommendations of GCGC are reviewed continually. Management declaration pursuant to Section 289f of the Commercial Code Declaration of conformity according to Section 161 AktG On November 7, 2017, the Executive Board and Super- visory Board published the following Declaration of Con- formity: Pursuant to Section 161 of the German Stock Corpora- tion Act (Aktiengesetz, “AktG”), the Executive Board and the Supervisory Board of Axel Springer SE declare the following: I. Future-related section The Company follows the recommendations of the Ger- man Corporate Governance Code (Deutscher Corporate Governance Kodex, “DCGK”) as amended on February 7, 2017 and published by the German Federal Ministry of Justice and Consumer Protection in the official an- nouncements section of the electronic Federal Gazette on April 24, 2017, with the exception of the deviations set out and reasoned below: 1. Consideration of the relationship between the com- pensation of the Executive board and that of senior management and the staff overall, particularly in terms of its development over time (Item 4.2.2 sentence 6 DCGK) The Supervisory Board pays close attention to the ap- propriateness and customariness of Executive Board’s compensation and takes into account a multitude of criteria, in particular those listed in Section 87 AktG and in Item 4.2.2 sentences 4 and 5 DCGK. Nevertheless, a deviation from the recommendation of Item 4.2.2 sen- tence 6 DCGK is declared on a precautionary basis because - apart from uncertainties in interpretation - there are also doubts as to whether the particular em- phasis on the relation between the Executive Board compensation and the compensation of senior man- agement or the staff overall is in accordance with the importance of this criterion in the context of assessing the appropriateness and customariness of Executive Board remuneration. 2. Disclosure of the individual Executive Board compen- sation in tabular form in the Compensation Report (Item 4.2.5 sentences 5 and 6 DCGK) Executive Board compensation is disclosed in accord- ance with the provisions of law and in consideration of the so-called “opt-out“ resolution of the company's Annual General Meeting of April 16, 2014. Based on this resolution, and in accordance with Section 286 (5) sen- tence 1 and Section 314 (2) sentence 2 of the German Commercial Code (Handelsgesetzbuch, “HGB”), the individual compensation of the members of the Executive Board is not disclosed in the company's annual financial and annual consolidated financial statements for the financial years 2014 to (and including) 2018. As long as a 65 Annual Report 2017 Axel Springer SE Combined Management Report Corporate Governance Report corresponding valid opt-out resolution of the Annual General Meeting is in effect, the company will not include the representations recommended according to Item 4.2.5 sentences 5 and 6 DCGK in the Compensation Report. 3. Setting of a general limitation to the length of mem- bership of the Supervisory Board, and taking it into ac- count when making recommendations to the competent election bodies (Item 5.4.1 sentences 3 and 7 DCGK) The Supervisory Board has resolved to refrain from set- ting any general limitation in view of the length of mem- bership of the Supervisory Board. A general limit would not take into account individual factors justifying longer membership of individual Supervisory Board members. 4. Disclosure of relationships between Supervisory Board candidates and the Company, its executive bodies and with shareholders holding a material interest in the com- pany, in election recommendations to the Annual Gen- eral Meeting (Item 5.4.1 sentence 12 DCGK) In its election recommendations to the Annual General Meeting, the Supervisory Board will disclose all legally required information concerning Supervisory Board members and also introduce the candidates at the An- nual General Meeting where possible. Furthermore, shareholders will at the Annual General Meeting be given an opportunity to ask questions concerning the candi- dates. In the opinion of the Supervisory Board, this will provide the shareholders with a solid and adequate basis of information for judging the proposed candidates. 5. Individualized disclosure of Supervisory Board com- pensation (Item 5.4.6 sentences 5 and 6 DCGK) The compensation granted to the members of the Su- pervisory Board, and the payments made by the Com- pany to the members of the Supervisory Board for ser- vices provided personally, are not individually itemized in the Notes or the Management Report (Item 5.4.6 sen- tences 5 and 6 DCGK). This information is not individually itemized because the competitors of Axel Springer SE do not publish any information on individual compensation either. Addition- ally, the Articles of Association of Axel Springer SE do not regulate the individual distribution of compensation between the Supervisory Board members. Rather, it expressly assigns the responsibility for this to the Super- visory Board; the individualized disclosure of the Super- visory Board compensation would undermine such as- signment of competence by the Annual General Meeting. Furthermore, the company's Annual General Meeting decided on April 16, 2014 that no details of the individual compensation of members of the Executive Board will be disclosed in the company’s stand-alone and consolidat- ed annual financial statements to be prepared for finan- cial years 2014 to (and including) 2018 so that, for the sake of consistency, the individual compensation of the Supervisory Board members is also not disclosed in itemized form. II. Retrospective section Time since issuance of the latest Declaration of Conformity on November 2, 2016 until publication of the amended version of the Code on April 24, 2017: In the time since issuance of the latest Declaration of Conformity on November 2, 2016 until publication of the amended version of the Code on April 24, 2017, the company has followed the recommendations of DCGK as amended on May 5, 2015 and published by the Ger- man Federal Ministry of Justice in the official announce- ments section of the Federal Gazette of June 12, 2015, with the exception of the deviations justified and stated above under I. 1 through I. 5, whereas, in the version of the Code applicable in this period of time, the recom- mendation referred to under I. 3 was issued in Item 5.4.1 sentences 2 and 5 DCGK, and the recommendation stated under I. 4 in Item 5.4.1 sentence 8 DCGK. Time since publication of the amended version of the Code on April 24, 2017: The recommendations of the DCGK as amended on February 7, 2017 and published by the German Federal Ministry of Justice and Consumer Protection in the offi- cial announcements section of the Federal Gazette on 24 April 2017, have been followed by the Company since 66 Annual Report 2017 Axel Springer SE Combined Management Report Corporate Governance Report they were announced, with the exception of the devia- tions set out and reasoned above under I. 1 through I. 5. Berlin, November 7, 2017 Axel Springer SE The Supervisory Board The Executive Board” The Declaration of Conformity from November 7, 2017 can, just like previous versions, also be seen via the link www.axelspringer.com/declarationofconformity. Important management practices Axel Springer is the only independent digital publisher that has a corporate constitution. Section 3 of the Company's Articles of Association ("Principles of Corporate Govern- ance") sets out the essentials that summarize the values to which Axel Springer SE is committed and which, above all, meets the social responsibility of media com- panies in a democracy in a transparent manner. The essentials were formulated by Axel Springer in 1967, changed after reunification in 1990, supplemented by considering the attacks of September 11, 2001, and finalized in 2016 on the internationalization of the compa- ny as an international option; this international variant was also set out in the Articles of Association by the 2017 Annual General Meeting. The essentials are derived from the idea of freedom as the most important value and its safeguarding as an objective and see the unconditional support for the free constitutional state of Germany, the reconciliation between Jews and Germans, the support of the transatlantic Alliance with the United States of Ameri- ca, the rejection of any kind of political totalitarianism and the defense of the free social market economy. As part of corporate governance, Axel Springer has a Compliance division as well as Corporate Auditing & Risk Management section. Within the framework of Corporate Governance, this department supports central divisions and subsidiaries through responsibly handling risks via approaches and requirements, amongst other things, for a comprehensive risk management system, an internal control system, and a compliance management system. As described in the report on risks and opportunities (see page 42 et seqq.), risk management and the internal con- trol system seek to identify, analyze and assess, manage and report on risks at Axel Springer, and to systematically monitor the measures taken to minimize risks. At Axel Springer, compliance means the fulfillment of all laws, regulations, and guidelines, as well as the com- mitments undertaken voluntarily. Violations of these regulations can cause sustained economic damage to the company, resulting in civil and criminal consequenc- es as well as damage to reputation. Against this back- drop, the goal of compliance management is to institute structures and processes to ensure that all directors and employees, and senior executives, conduct themselves preventively in accordance with applicable laws and regulations. In order to take account of the Group structure, the Compliance Management System is organized both centrally and de-centrally. The central component is the Compliance Committee and the Chief Compliance Officer. Decisive compliance officers are named in the individual companies. As part of the Compliance Organization, Axel Springer has had a binding Code of Conduct. This is to be under- stood as a summary of important behavioral rules of Axel Springer. It clarifies ethical, moral and legal requirements and serves to assess whether an action is permissible or not. The Code of Conduct has, among other things, integrated the existing Corporate Principles and Values, Leadership Principles, Journalistic Guidelines, Internation- al Social Policy, and Environmental Policy, which are summarized below: The corporate values of Axel Springer guide every em- ployee in their work and shape the corporate culture. They are: creativity as the crucial prerequisite for success in journalism and business; entrepreneurship in the sense of being courageously inventive, self-reliant and results- oriented, qualities that are expected of all managers and employees; integrity in all dealings with the company, readers, customers, employees, business partners, and shareholders. The management principles, which are built on company values, should give management a concrete 67 Annual Report 2017 Axel Springer SE Combined Management Report Corporate Governance Report framework that creates transparency regarding the requirements and expectations of management roles. In addition, Axel Springer has set guidelines to ensure journalistic independence. These guidelines substantiate and expand on the professional ethics of the press as set out by the German Press Council in conjunction with the press associations in the publishing principles (Press Code), and to which Axel Springer voluntarily commits with regard to printed complaints (see Section 16 of the Press Code). Axel Springer specifically delineates the boundaries between advertising and editorial copy, and between the editors’ and reporters’ private and business interests. It also precludes actions in pursuit of personal advantages and defines the company’s position with respect to the treatment of news sources. The guidelines thus represent the framework for independent and criti- cal journalism in the editorial divisions of all media be- longing to the Group. The editors-in-chief are responsible for observing and implementing the guidelines in the company’s day-to-day activities. Furthermore, Axel Springer has developed a catalogue of social standards applicable to all the company’s activities. Known as the International Social Policy, it states the company’s positions on matters of human rights, adher- ence to the rule of law, the protection of children and young people, the treatment of employees, equal oppor- tunities, health and safety, and the compatibility of work and family, and other matters. The standards are a bind- ing guideline for social integrity and are globally binding for all activities of the company. Compliance with the principles described in the International Social Policy is also expected of our business partners. The integration of International Social Policy regulations into the group-wide Code of Conduct and the codes of conduct and corpo- rate principles contained therein significantly increased the level of recognition of the International Social Policy. Furthermore, the company has issued an Environmental Guideline comprising four points, which serves as a practical guide to the many environmental protection measures conducted at Axel Springer and which is also part of the Code of Conduct. The requirements of the Code of Conduct are taught in both on-the-job and online training courses. The Code of Conduct can be found at www.axelspringer.de/coc_en. In addition to the Code of Conduct as a superordinate code, internal guidelines provide detailed rules on indi- vidual business and procedural practices. In order to ensure decentralized compliance with legal requirements and governance minimum standards, so-called corpo- rate principles are introduced for selected, primarily sensitive regulatory areas such as tax compliance and anti-corruption. These principles contain minimum re- quirements that must be individually implemented and adhered to in the respective company and, if applicable, subsidiary. The respective managers are responsible for this, who at the same time have to observe the respec- tive, possibly deviating local legal regulations. In order to further strengthen good corporate govern- ance and effective compliance management, there is an electronic whistle-blower system in addition to the exist- ing reporting channels. This allows both employees and external persons to provide confidential and, if desired, anonymous information about suspected or actual viola- tions and malfunctions, thus contributing to the preven- tion and clarification of compliance violations. The elec- tronic whistle-blower system can be accessed at www.axelspringer.de/whistleblower. Finally, every two years, the company submits a sustain- ability report that complies with the criteria set out in the "Global Reporting Initiative" (GRI), including the "Media Sector Supplement" (GRI+). Procedures of the Executive Board and Supervisory Board, and composition of the committees of the Supervisory Board Cooperation between the Executive Board and Supervisory Board The management and supervision of the company, which is organized in the legal form of a European company (Societas Europaea SE) are carried out by means of a dual board system. The Executive Board manages the compa- ny under its own responsibility. The Supervisory Board appoints the members of the Executive Board, and moni- 68 Annual Report 2017 Axel Springer SE Combined Management Report Corporate Governance Report tors and advises the latter in the conduct of the business. The two boards work closely together in an atmosphere of trust and confidence to sustainably enhance the compa- ny’s value. The two boards are strictly separated in terms of personnel and their areas of authority. Procedures of the Executive Board In its executive function, the Executive Board is obligated to pursue the interests of the company and dedicated to sustainable company development. It develops the stra- tegic orientation of the company and is responsible for its implementation in coordination with the Supervisory Board. The Executive Board manages the company’s affairs in compliance with the relevant laws, the Articles of Association, and its rules of procedure. It provides regular, timely, and comprehensive infor- mation to the Supervisory Board on all relevant matters of strategy, planning, business development, risk man- agement including the risk situation, as well as the inter- nal control system and compliance management system. In accordance with the internal rules of procedure adopted by the Supervisory Board, important decisions of the Executive Board or specific cases require the approval of the Supervisory Board. Such decisions in- clude, above all, the creation or discontinuation of busi- ness divisions, the acquisition or sale of significant equity investments, and the adoption of the company’s annual financial plan. The members of the Executive Board are jointly respon- sible for the management, work together collegially, and keep each other informed of important measures and business transactions in their business divisions. Without prejudice to the overall responsibility of all members of the Executive Board, each member of the Executive Board - apart from decisions to be taken by the entire Executive Board - is responsible for directing the as- signed business to him/her. The Executive Board meets regularly in the form of Ex- ecutive Board meetings, which are convened and chaired by the Executive Board Chairman, as a general rule. Furthermore, every Executive Board member and the Chairman of the Supervisory Board are entitled to convene a meeting. The Executive Board aims to ensure diversity with regard to the staffing of leading positions within the company; the Executive Board has set targets for the proportion of women holding management positions in the first two management levels of Axel Springer SE beneath the Executive Board; for more information see page 71. As a general rule, the full Executive Board adopts resolu- tions by a simple majority of the votes cast; in the case of resolutions adopted by a simple majority, the Chair- man casts the deciding vote. A resolution adopted in spite of being opposed by the Chairman and Chief Ex- ecutive Officer is deemed to be invalid, also subject to the limits of the applicable laws. Rules of procedure issued from the Supervisory Board for the Executive Board regulate the particulars, including among others:  The obligation of observance, adherence and group- wide anchoring of the corporate constitution,  The executive organization chart and the decisions to be made by the full Executive Board,  The duties of the Chairman of the Executive Board,  Transactions that require the approval of the Supervi- sory Board,  Rules concerning the regular, timely, and comprehen- sive provision of information to the Supervisory Board,  Rules concerning meetings and the adoption of reso- lutions,  Obligation to disclose conflicts of interest. 69 Annual Report 2017 Axel Springer SE Combined Management Report Corporate Governance Report The Executive Board of the company consisted of four members during the 2017 financial year and from March 1, 2018 will increase to five members: (page 82) for additional information on the specific activi- ties of the Supervisory Board in financial year 2017.  Dr. Mathias Döpfner, Chairman and Chief Executive Officer The internal rules of procedure of the Supervisory Board comply with the requirements of the GCGC and contain rules covering the following topics, among others:  Jan Bayer, President News Media  Election and duties of the Chairman and Vice Chairman of the Supervisory Board  Dr. Stephanie Caspar, President Technology and Data (from March 1, 2018)  Calling of meetings  Dr. Julian Deutz, Chief Financial Officer  Adoption of resolutions at meetings or by voting by  Dr. Andreas Wiele, President Classifieds and Marketing Media (from March 1, 2018 President Classifieds Media) Procedures of the Supervisory Board As per the company’s Articles of Association, the Super- visory Board of Axel Springer SE is composed of nine members, who are elected by the annual shareholders’ meeting. The regular term of office of Supervisory Board members is five years; they are eligible for re-election at the end of their terms. The Supervisory Board elects its Chairman from among its own ranks; the term of office of the Supervisory Board Chairman coincide with that of the Supervisory Board. The Supervisory Board advises the Executive Board and monitors the work of the Exec- utive Board. It holds at least four meetings a year. In case of necessity, it meets without the Executive Board in attendance. Meetings may be held and resolutions adopted also by way of written correspondence, tele- phone calls, faxes, or electronic media. As a general rule, the Supervisory Board adopts resolutions by a simple majority of the members voting on the resolution; in case of a tie, the Chairman casts the deciding vote. The Su- pervisory Board deliberates on the company’s business developments, planning, strategy, and significant capital expenditures at regular intervals. The Supervisory Board adopts the separate financial statements of Axel Springer SE and approves the consolidated financial statements of the Group. It regularly assesses the efficiency of its work. Please refer to the report of the Supervisory Board way of written correspondence, telephone calls, fax, or electronic media  Supervisory Board committees, including their composition, organization, and duties  Obligation to disclose conflicts of interest The members of the Supervisory Board are:  Dr. Giuseppe Vita, Chairman  Dr. h. c. Friede Springer, Vice Chairwoman  William E. Ford  Oliver Heine  Rudolf Knepper  Lothar Lanz  Dr. Nicola Leibinger-Kammüller  Prof. Dr.-Ing. Wolfgang Reitzle  Martin Varsavsky The term of office of all current Supervisory Board mem- bers regularly ends at the end of the Annual General Meeting in 2019. William E. Ford and Rudolf Knepper announced in January, i.e. February 2018 that they will 70 Annual Report 2017 Axel Springer SE Combined Management Report Corporate Governance Report resign from their positions at the end of the ordinary Annual General Meeting in the 2018 financial year. The Supervisory Board will therefore propose two new can- didates as choices to be elected into the Supervisory Board of Axel Springer SE who are to take over the mandates of Bill Ford and Rudolf Knepper for the re- mainder of their tenure. The requirements for expertise and independence within the meaning of Section 9 (1) lit. c) ii) SE Regulation in connection with Section 100 (5) 1st var. AktG (financial experts), are met among others by the Chairman of the Supervisory Board, Dr. Giuseppe Vita, and Lothar Lanz, who chairs the Audit Committee. In addition, the mem- bers of the Supervisory Board are, in accordance with Section 100 (5) 2nd var. AktG know in its entirety the sector in which the company operates. Composition and procedures of committees The Executive Board has not formed committees. In accordance with its internal rules of procedure, the Supervisory Board has formed four permanent commit- tees to support the work of the full board: the Executive Committee, the Personnel Committee, the Nominating Committee, and the Audit Committee. In those matters stipulated in the internal rules of procedure of the Supervi- sory Board, the committees prepare the resolutions to be adopted and other matters to be addressed by the full board. Within the limits of applicable laws, the committees also adopt resolutions in lieu of the full board in those matters stipulated in the internal rules of procedure of the Supervisory Board. The internal rules of procedure of the Supervisory Board stipulate the procedures for meetings and resolutions adopted by the committees and define their areas of responsibility. In March 2017, an Advisory Committee on Corporate Structure was also formed, which is responsible for preparing possible decisions of the Supervisory Board on questions of corporate structure. Please refer to the Report of the Supervisory Board (see page 82) for information on the areas of responsibility and composition of the committees. Lothar Lanz is the Chairman of the Audit Committee of the Supervisory Board; according to the Supervisory Board, Mr. Lanz is particularly suited to the Audit Com- mittee due to his many years of experience as Chief Financial Officer, his special expertise and his personality. He satisfies the requirements of expert knowledge and independence within the meaning of Section 9 (1) letter c) ii) SE-VO in conjunction with Section 107 (4), 100 (5) AktG (financial expert), and the requirements of the rec- ommendations in Section 5.3.2 Sentences 2 and 3 DCKG. Furthermore, the members of the Audit Commit- tee in their entirety are familiar with the sector in which the company operates. Provisions to promote the participation of women in management positions according to Section 76 (4) and Section 111 (5) of the German Stock Corporation Act (“AktG”) Since 2010, Axel Springer has pursued a group-wide strategy to promote diversity; reference is made to page 35 of the Annual Report with regard to the company’s personnel policies designed to assure equal opportunity and diversity as well as the group-wide targets to in- crease the proportion of women at all management levels. In addition to this voluntary group-wide commitment, the law for the equal participation of men and women in management positions in the private and public sector (Gesetz für die gleichberechtigte Teilhabe von Frauen und Männern an Führungspositionen in der Privat- wirtschaft und im öffentlichen Dienst), also obliges cer- tain companies, including Axel Springer SE, to set tar- gets for the proportion of women acting on the Supervisory Board, Executive Board and the two man- agement levels beneath the Executive Board, and speci- fy when the respective proportion of women should be achieved. As the statutory minimum share of 30 % of women and 30 % of men is not applicable to the Super- visory Board of Axel Springer SE for the replacement of vacating Supervisory Board mandates, the Supervisory Board itself must set a target size. 71 Annual Report 2017 Axel Springer SE Combined Management Report Corporate Governance Report Accordingly, the Supervisory Board of Axel Springer SE decided in September 2015, to set targets with regard to the proportion of women on the Supervisory Board, and the Executive Board of Axel Springer SE, each with a deadline of implementation of no later than June 30, 2017. With the specified target figures of 22.2 % (Super- visory Board) and 0 % (Executive Board), the status was recorded at the time of the resolution. The proportion of women in both committees was maintained, thereby achieving the set targets. By resolution of the Super- visory Board of April 2017, the previous targets of 22.2 % (Supervisory Board) and 0 % (Executive Board) were confirmed; see for justification page 73 (right-hand column and 74 (right-hand column) of the Annual Report. The aforementioned target figures are to be achieved by the end of the day of the Annual General Meeting in the financial year 2019, but no later than April 30, 2019. Notwithstanding this, on February 13, 2018, the Super- visory Board appointed Dr. Stephanie Caspar to be President of Technology and Data as of March 1, 2018, so that as of March 1, 2018 the proportion of women in the Executive Board will be 20 %. The Executive Board of the company passed a resolu- tion in May 2015 to set a target of 25 % and a deadline for implementation of no later than June 30, 2017, for the first and second management levels of the company beneath the Executive Board; at the time the targets were set, the proportion of women in the first manage- ment level beneath the Executive Board was 22.6 %, and 19.5 % in the second management level beneath the Executive Board at Axel Springer SE. At the time of expiry on June 30, 2017, the proportion of women in the first management level of Axel Springer SE below the Executive Board was 25 % and in the second manage- ment level 23.9 %. At the top management level of Axel Springer SE, we therefore attained our set targets. At the second management level at Axel Springer SE, given the short time frame, we recorded a considerable increase of 4.4 %-points, nevertheless we marginally missed our objective by 1.1 %-points despite various measures aimed at sustainably increasing the proportion of women in the long-term. The main reason for narrowly missing our desired targets at the second management level was that despite all the set targets and measures undertaken, in the end, actual appointments for available positions were primarily made on the basis of the suitability and qualifications of candidates, so that during the relevant time frame, as a rule, the most suited applicant was chosen to fill the actual position. On the other hand, fluctuations in the first two management levels are mini- mal and any increase will therefore take place gradually but sustainably. Accordingly, the increase in targets set for the proportion of women represented in the first two management levels below the level of the Executive Board at Axel Springer SE was agreed to be 30 % re- spectively, effective from July 1, 2017, and with an im- plementation period of three years, in other words, until June 30, 2020. Of course, these targets do not preclude any additional increase in the proportion of women on the Supervisory and Executive Boards, as well as in the two top management levels at Axel Springer SE within the given implementation period. Description of the Diversity Concept for the Management Board and Supervisory Board For several years now, Axel Springer SE has been pursu- ing diversity concepts with a view to filling positions on both the Executive Board and the Supervisory Board in order to sustainably strengthen the diversity in both committees. For the composition of the Supervisory Board, it has set the goals listed below. The objectives are to observe the diversity of the members of the Supervisory Board, par- ticularly with regard to their knowledge, their education, their professional background and positions held, the origin, gender and age of the Supervisory Board mem- bers. These criteria are always taken into account in the search for suitable candidates for succession on the Supervisory Board and are used as the basis for election proposals. As a result, while choosing the most recently selected candidates particular emphasis was put on the further internationalization of the Supervisory Board and the strengthening of its digital expertise. The Supervisory Board also pursues a concept of diver- sity in terms of the composition of the Executive Board, 72 Annual Report 2017 Axel Springer SE Combined Management Report Corporate Governance Report which aims at diversity in the case of necessary new appointments in the future, in particular with regard to an increase in the proportion of women, internationality and the age of the Executive Board members. These princi- ples of diversity are kept in mind in long-term succession planning and are taken into account when new appoint- ments are made in the future. Further information on corporate governance Goals for the composition of the Supervisory Board The Supervisory Board of Axel Springer SE has decided the following objectives for its composition, in particular with respect to with reference to Section 5.4.1 sentenc- es 2 and 3 of GCGC: The Supervisory Board of Axel Springer SE should be composed in such a way that its members generally possess all knowledge, abilities, and professional experi- ence necessary to properly perform the duties of the Supervisory Board. With due consideration given to the company’s business object and purpose set forth in the Articles of Association, the size of the company, and the relative importance of its international activities, the Supervisory Board will also strive, as a goal for the upcoming regular elections, to bring about a composition of its members that is appro- priate in view of the following considerations, in particular:  At least two seats on the Supervisory Board should be held by persons who fulfill the criterion of interna- tionality to a particular degree (for example, by reason of relevant experience in international business).  Supervisory Board members should not hold any position on a board or perform any consulting work for important competitors of the company.  The Supervisory Board should have an adequate proportion of women. Currently, two of the nine members (22.2 %) are women; the Supervisory Board considers this adequate in any event. Accordingly, and due to the fact that no regular Supervisory Board elections are due within the implementation period un- til the regular General Meeting in financial year 2019, the legally required target for the proportion of women on the Supervisory Board of Axel Springer SE was set at 22.2 %.  In making nominations, due consideration should be given to the general rule that Supervisory Board members should not be older than 72 years; the Supervisory Board can approve exceptions to this policy.  Furthermore, the Supervisory Board should ensure that as few members as possible are subject to a po- tential conflict of interests.  Furthermore, the Supervisory Board should give due consideration to the principle that its composition should meet the criterion of diversity.  With respect to its composition, the Supervisory Board adopted the goal that at least two of its mem- bers will be independent according to the definition of the GCGC; this objective takes into account the own- ership structure of the company. However, the Supervisory Board decided not to define a regulatory limit with regard to the length of membership of the Supervisory Board, despite the recommendation stated in Section 5.4.1 sentence 3 of the GCGC. A fixed regulatory limit fails to take into account individual factors that may justify an extended length of membership for individual Supervisory Board members (for more infor- mation regarding this see the deviation declared in the Declaration of Conformity of November 7, 2017, see page 65). In addition, the Supervisory Board of Axel Springer SE, in accordance with the recommendation of Section 5.4.1 Sentence 2 GCGC, has drawn up a "Competence Pro- file" based on the already developed requirements for the members of the Supervisory Board of Axel Springer SE, which shows the competencies that the Supervisory Board considers necessary for the overall committee. At 73 Annual Report 2017 Axel Springer SE Combined Management Report Corporate Governance Report the same time, it should serve as the basis for the devel- opment of nominations for Supervisory Board members to the General Meeting. The competency profile covers the areas of media and digitization competence (sector and strategy compe- tence), international competence, innovation compe- tence, financial competence, personnel and team com- petence as well as control competence and details the requirements within these areas with regard to the overall committee. In the view of the Supervisory Board, the current compo- sition of the Supervisory Board of Axel Springer SE fulfills the competence profile that has been worked out, as well as fully achieves the aforementioned goals. In par- ticular, the number of independent members exceeds the above-mentioned objective. From the point of view of the Supervisory Board, it must be considered as inde- pendent: Dr. Giuseppe Vita, William E. Ford, Rudolf Knepper, Lothar Lanz, Dr. Nicola Leibinger-Kammüller, Prof. Dr.-Ing. Wolfgang Reitzle and Martin Varsavsky. With regard to its proposals on the election of new Supervisory Board members, the Supervisory Board makes sure that the respective candidates are able to put aside the expected amount of time. Axel Springer SE publishes a CV for all members of the Supervisory Board on the company's website as well as an overview of its main activities, which is updated annually. Goals for the composition of the Executive Board The Supervisory Board has decided on the following objectives for the composition of the Executive Board of Axel Springer SE, in particular with respect to Section 5.1.2 sentence 2 of GCGC:  In making decisions concerning the composition of the Executive Board, the Supervisory Board should give due consideration to the principle for diversity and should strive in particular to give appropriate con- sideration to women. In this context, the Supervisory Board has also complied with its statutory obligation to establish a target for the proportion of women on the Executive Board, see page 71. At the time of de- termining the target, no changes were planned in the composition of the Executive Board. As a result, the Supervisory Board has once again set a target of 0 % with a deadline for implementation before the Annual General Meeting in the 2019 financial year, by April 30, 2019 the latest though. The Supervisory Board appointed Dr. Stephanie Caspar to be President of Technology and Data as of March 1, 2018. From March 1, 2018, the proportion of women on the Executive Board will therefore be 20 %.  The Supervisory Board should work together with the Executive Board to assure long-term succession planning.  At the time of being (re-)appointed to the Executive Board, no member should be older than 62 years, as a general rule; the Supervisory Board can approve exceptions to this rule. Goals concerning the staffing of key functions In view of the recommendation set out in Section 4.1.5 of the GCGC, reference is made to the description of personnel policies designed to assure equal opportunity and diversity on page 35 of the Annual Report, and to the stipulated targets in the two top management levels of the company beneath the Executive Board on page 71 of the Annual Report. Shareholders and annual shareholders’ meeting The annual shareholders’ meeting is the central organ via which Axel Springer SE shareholders can exercise their rights and their voting rights. Every share confers the right to cast one vote in the annual shareholders’ meet- ing. Those shareholders who are registered in the share register and have registered for the meeting in time are entitled to vote. The Chairman of the Supervisory Board generally chairs the shareholders’ meeting. To make it easier for shareholders to exercise their prerogatives at the annual shareholders’ meeting, their votes can be cast by authorized proxies. Axel Springer SE also desig- nates a voting proxy whom shareholders can elect to execute their voting rights according to their instructions. All required reports and documents are made available 74 Annual Report 2017 Axel Springer SE Combined Management Report Corporate Governance Report to the shareholders in advance, also on the company’s Internet page. The annual shareholders’ meeting resolves specifically on the utilization of the distributable profit, the ratification of the actions of the Executive Board and Supervisory Board, the election of the Supervisory Board, the election of the independent auditor, and other matters legally assigned to them, such as corporate actions and other amendments to the Articles of Association. The resolutions of the annual shareholders’ meeting require a simple majority of the votes cast, unless another majority is prescribed by law or by the company’s Articles of Association. The Articles of Association can be inspected on the company’s website at www.axelspringer.com/articlesofassociation. Conflicts of interest The members of the Executive Board and Supervisory Board are bound to promote the interests of the compa- ny. No member of either board may, through their deci- sions, pursue personal interests or take advantage of business opportunities that should be the province of the company. Executive Board members may not demand or accept gifts or other benefits from, or grant unjustified benefits to, third parties in connection with their activities, either for their own benefit or for that of others. Sideline activities of the Executive Board require the consent of the Superviso- ry Board. Executive Board members are subject to a comprehensive anti-competition clause during the period of their activity for Axel Springer. Every Executive Board member must inform the Supervisory Board of any con- flict of interest without delay. No conflicts of interest arose within the Executive Board in the financial year. Also, every member of the Supervisory Board must inform the Supervisory Board immediately of any con- flicts of interest that may arise. In the annual sharehold- ers' meeting, the Supervisory Board reports on all con- flicts of interest and how to treat them. No conflicts of interest arose within the Supervisory Board in the financial year. Memberships on other supervisory bodies A summary of the seats held by the Executive Board and Supervisory Board members of Axel Springer SE on other legally prescribed supervisory boards or compara- ble boards in Germany and abroad can be found on page 175. Transparency Axel Springer is committed to always providing compre- hensive and consistent information in a timely and simul- taneous manner on the significant events and develop- ments relevant to an evaluation of the company’s present and future business performance to all capital market participants. Reporting on the business situation and Group results is presented in its Annual Report, at its annual financial statements press conference, and in its semi-annual financial report and quarterly financial state- ments. Therefore, the company also regularly uses the transmission paths on the Internet. Axel Springer also takes part in numerous conferences at important interna- tional stock exchanges or carries out corresponding road shows; further information can be found on page 8 of the Annual Report. In addition, to the extent legally required, the company will publish information in the form of ad- hoc announcements. Furthermore, it informs the interest- ed public by means of press releases, the company's websites or dedicated events such as a Capital Markets Day. In order to ensure equal treatment of all capital market participants, Axel Springer also publishes information relevant to the capital markets simultaneously in German and English on the company’s website. Financial report- ing dates are published in the financial calendar with sufficient advance notice. Immediately upon receiving the corresponding notices, the company publishes changes in the composition of the shareholder structure that are subject to the reporting obligation according to Section 40 of the WpHG (prev. Section 26 WpHG), and on the purchase and sale of shares by persons who exercise management duties at Axel Springer (directors’ dealings), in accordance with Section 19 of the Market Abuse Regulation. 75 Annual Report 2017 Axel Springer SE Combined Management Report Corporate Governance Report Preparation and audit of the financial statements The consolidated financial statements and interim finan- cial statements are prepared in accordance with Interna- tional Financial Reporting Standards (IFRS), as they are to be applied in the European Union. The quarterly statement is also prepared on the basis of IFRS. The consolidated financial statements also contain the dis- closures prescribed by Section 315e (1) HGB. The con- solidated financial statements are prepared by the Exec- utive Board of Axel Springer SE and audited by the independent auditor. Axel Springer publishes the consol- idated financial statements within 90 days and the quar- terly statements as well as the interim financial report within 45 days of the respective period ending dates. The notes to the consolidated financial statements also contain information on the company’s relationships with shareholders who are to be classified as related parties according to the definitions of the applicable accounting regulations. In accordance with the GCGC, it is agreed with the independent auditor in each financial year that the latter will inform the Chairman of the Supervisory Board or the Audit Committee without delay of any cir- cumstances arising during the course of the audit that would constitute grounds for disqualification or partiality. It is also agreed that the independent auditor will imme- diately report any material issues, matters, and events arising during the course of the audit that fall within the purview of the Supervisory Board. It is further agreed that the independent auditor will inform the Supervisory Board or make an observation in the audit report if the independent auditor were to discover, during the course of the audit, any facts that contradict the Declaration of Conformity by the Executive Board and Supervisory Board according to Section 161 AktG. In addition, the Audit Committee has established a system for monitor- ing and approving non-audit services by the auditor. Compensation report Axel Springer’s compensation policy follows the principle of granting compensation to the Executive Board and Supervisory Board that is based on their performance in the interest of sustainable corporate development. Executive Board In accordance with the requirements of the German Stock Corporation Act and the recommendations of GCGC, the compensation of the Executive Board mem- bers consists of fixed and variable components. The variable compensation consists of a cash component paid as an annual bonus and long-term compensation components in the form of the long-term incentive plan launched in 2016 and the virtual stock option plans last granted in the year 2014. All components of compensa- tion are appropriate, both individually and as a whole. The Supervisory Board has considered at length the appropriateness and adequacy of the Executive Board compensation by taking into account a number of criteria, including in particular Section 87 of the German Stock Corporation Act (“AktG”) and Section 4.2.2 sentences 4 and 5 of the GCGC, such as the tasks of the individual Executive Board member, his personal performance and the economic position, success and future prospects of Axel Springer. Due consideration is also given to the industry environment. In the reporting year, the Supervisory Board did not consult any external compensation expert. The fixed compensation corresponds to the annual fixed salary; in addition, the Executive Board members receive a company car or company car allowance, the assumption of premiums for insurance against the risk of invalidity and death, individual travel and security expens- es as fringe benefits. The annual fixed salary is generally established for the entire term of an employment agree- ment and is disbursed in 12 monthly installments. 76 Annual Report 2017 Axel Springer SE Combined Management Report Corporate Governance Report The variable compensation is in the form of an annual bonus as a cash component, and depends on individual performance with regards to individual objectives (relat- ing to the quantitative divisional objectives and qualitative individual objectives, amongst others, based on the strategy of Axel Springer SE) as well as Group objectives; it is limited to double the sum payable for 100 % achievement of objectives. The Group's target for the year 2017 and the previous year was the Group's ad- justed EBITDA. Individual objectives for measuring per- formance of individuals and Group objectives are decid- ed upon by the Supervisory Board. Part of the variable cash component is based on annual objectives and in part based on achievement of Group objectives estab- lished for an assessment period of three years. Achieve- ment of objectives is initially determined by the Chairman of the Supervisory Board members and the respective Executive Board member and then reviewed and ap- proved by the Supervisory Board. In addition, there is a long-term variable compensa- tion component in the form of a Long-Term Incentive Plan (“LTIP”), which was granted to the in 2016 already incumbent Executive Board members as of May 1, 2016, and runs until 2023, including holding periods. The LTIP stipulates a participation in the increase in the company value, measured on the basis of market capitalization in the form of a cash payment claim with subsequent obli- gation to purchase shares. It will be distributed in the form of a cash bonus and contains a subsequent obligation to purchase Axel Springer shares in the corresponding amount. The com- pensation entitlement requires market capitalization of Axel Springer SE to increase by at least 40 % within three, four, and maximally five years (respective performance periods). No claim for compensation can be made below this threshold. In the event of targets being achieved, the whole Executive Board is entitled to payment amounting to a total of 4 % of the increase in market capitalization. The compensation entitlement will increase only up to a growth in market capitalization by maximally 60 %. The increase in market capitalization is calculated on the basis of the volume-weighted average price of Axel Springer shares for the last 90 calendar days before May 1, 2016 or before the end of the respective performance period multiplied by the number of outstanding Axel Springer shares (less own shares) adding dividend distri- butions during the performance period. In the event of targets being achieved, an amount in the value of 50 % of the total amount (“payout amount I“) will be paid out. On meeting the targets after four or five years respectively, a lock-up period of two or one year respectively follows, before the remaining 50 % of the total amount ("payout amount II") will be paid out. Should targets be met prematurely after three years, each Exec- utive Board member will have the option to request payout amount I. The payout amount II will then only be paid out after four or five years and a waiting period of two years or one year after the target has been reached. The net amount of all payouts (after the Executive Board member's taxes and duties are paid) in each case has to be fully invested in Axel Springer shares by the Executive Board member. Regarding the shares acquired with pay- out amount I, or II respectively, the Executive Board mem- ber has to retain the shares for a minimum of two years, or one year respectively. The LTIP contains the usual provi- sions for early resignation. Thus, for instance all non- contractual claims paid under the LTIP lapse if the mem- ber of the Executive Board leaves the Executive Board at his own request before expiry of the waiting period. The LTIP is valued as a share-based compensation program with cash settlement at its fair value as of the balance sheet date and is recorded according to the expected vesting date. The value of the LTIP at the grant date was calculated on the basis of a stochastic model for the valuation of stock option rights taking into account the seven-year term of the LTIP (including holding periods) and is determined at € 32.1 million. 77 Annual Report 2017 Axel Springer SE Combined Management Report Corporate Governance Report Until the LTIP was introduced, the long-term variable compensation component was presented in the form of virtual stock option plans, according to which stock options were last granted in 2014 and whose key pa- rameters are shown below: Executive Board Program Grant date Term in years Vesting period in years 2012 2014 I 2014 II 01.01.2012 01.01.2014 01.09.2014 6 4 6 4 6 4 Stock options granted 450,000 205,313 675,000 Underlying (€) Maximum payment (€) Value at grant date (€) Total value at grant date (€ millions) 30.53 61.06 5.26 44.06 88.12 6.69 44.56 89.12 6.26 2.4 1.4 4.2 The 2012 Executive Board program was terminated in the 2016 financial year by exercising the existing options. If the Executive Board service agreement or the ap- pointment to the Executive Board exists for at least the end of the four year waiting period, then all virtual stock options may become vested to the member of the Exec- utive Board. If the working relationship or the appoint- ment of the authorized members of the Executive Board finishes before the end of the waiting period, but at least one year after the grant date, then the stock options generally become vested pro rata temporis relating to the waiting period. A further condition for vesting to take place is that within a period of one year before the end of the waiting period, either the volume-weighted average price of the Axel Springer share in a period of 90 calendar days is at least 30 % over the base value or the percentage increase of this average price compared to the base value exceeds the development of the DAX. Exercising stock options is only possible if the volume- weighted average price of the Axel Springer share of the last 90 calendar days before exercising such options is at least 30 % over the base value and that the percent- age increase exceeds that of the DAX index. Each option grants a payment claim in the amount of the growth in value of the Axel Springer share, restricted to a maxi- mum of 200 % of the base value, which corresponds to the difference between the volume-weighted average price during the last 90 calendar days prior to exercise and the base value. Executive Board members are obligated to hold one Axel Springer share for every ten stock options as a personal investment. Disposing of these shares prior to exercising the options would result in the stock options being for- feited at the same rate. With regards to the Executive Board Programs that are granted, see the information in the notes to the consoli- dated financial statements under Section (13). Executive Board members have received contractually- agreed pension provisions. Payment of pension applies when reaching the age of 62, provided that the Executive Board member is no longer at their post at this point. In case of premature departure, the Executive Board mem- ber has – after five years since the pension entitlement or earlier employment with the company – a vested claim to a pension payment proportional to the length of his em- ployment with the company. Payments are also made in case of a complete reduction in earning capacity. Executive Board members have the right to terminate their employment contracts in the event of a change of control. In such a case, they will have the right to receive payment of their base salary for the most recently nego- tiated remaining contractual term (some of the eligible Executive Board members will have the right to receive payment of an amount equal to at least one year’s base salary) and/or a lump sum amounting to the total remu- neration for the duration of the original residual term; the amount of the aforementioned payments is typically limited. In addition, the Company pays the performance- related remuneration pro rata temporis for the period of 78 Annual Report 2017 Axel Springer SE Combined Management Report Corporate Governance Report the activity in the year of departure. Other remuneration does not exist for the service contracts of members of the Executive Board in the event of termination of em- ployment due to a change of control. In the 2017 reporting year the total compensation paid to the Executive Board was € 19.7 million (PY: € 19.2 million excl. LTIP). The fixed components totaled € 9.5 million (PY: € 9.1 million); this figure also includes com- ponents for fringe benefits (company car or company car allowance, the assumption of premiums for insurance against the risk of invalidity and death and security ex- penses). The variable cash component came to a total of € 10.2 million (PY: € 10.1 million). According to this, the fixed compensation including fringe benefits in the finan- cial year amounts to a proportion of 48 % (PY: 47 %) of total remuneration (in the prior year excluding LTIP). In 2012, global growth investor General Atlantic entered into a strategic partnership in the context of a joint growth and internationalization strategy with a 30 % stake in Axel Springer's online classifieds business and in connection with the sale of its stake in the online classi- fieds business on the Axel Springer SE itself involved. Following the sale of its shares in the company by way of various partial sales, most recently in the summer of the reporting year, General Atlantic, in recognition of the outstanding success of the joint investment in the online classifieds business and the development of the compa- ny, has made a voluntary one-time special payment to the company subject to the provision to grant a special payment to the Executive Board as well as to selected executives essential to the success of the investment. The Supervisory Board of Axel Springer SE has granted the Executive Board members a recognition bonus total- ing € 12.0 million (gross) from these funds, which have been purposefully made available to Axel Springer SE. An economic burden was not associated with Axel Springer SE or the group companies, as all the expenses associated with the recognition award, including statuto- ry fees, were borne by the purposeful special payment made by General Atlantic. The Executive Board thus received € 31.7 million in the reporting year, including the recognition premium. In the 2016 financial year, in addition, a long-term varia- ble remuneration was granted in the form of an LTIP, the value of which was determined at the grant date on the basis of a stochastic model for the valuation of stock options taking into account the seven-year term (includ- ing holding periods) and amounted to € 32.1 million. Guaranteed pension payments to members of the Exec- utive Board resulted in a personnel expense of € 1.6 million in financial year 2017 (PY: € 2.3 million). The cash value of the guaranteed pension payments in pension provisions totaled € 17.5 million (PY: € 15.2million). Loans or advances were not granted to members of the Executive Board in the 2017 financial year. In the case of guaranteed pension payments to Executive Board mem- bers, which became effective with the relevant recom- mendation in Section 4.2.3 sentence 11 GCGC on June 10, 2013, the Supervisory Board established the pension level desired in compliance with the previously stated Code recommendation and considered the annual and long-term expense for the company derived from this. Axel Springer SE does not disclose the total compensa- tion of individual Executive Board members by name, given that Sections 314 (3) and 286 (5) HGB expressly place the disclosure of Executive Board compensation by name under the reservation of a differing resolution of the annual shareholders’ meeting with a qualified majority of the share capital represented upon the adoption of the resolution. The annual shareholders’ meeting of Axel Springer SE passed a resolution on April 16, 2014 with the required majority. 79 Annual Report 2017 Axel Springer SE Combined Management Report Corporate Governance Report Supervisory Board The compensation of the Supervisory Board is set by the annual shareholders’ meeting. The compensation of the Supervisory Board of Axel Springer SE is regulated by Section 16 of the Articles of Association of Axel Springer SE. According to this, the Supervisory Board of Axel Springer SE receives fixed compensation of € 3.0 million annually. The Supervisory Board decides how the aforementioned amount is dis- tributed among its members, with appropriate considera- tion given to their activities as chairman and in the com- mittees. If the member does not serve on the Supervisory Board or exercise a higher-paying function of a Supervisory Board member for the full year, such member will receive a pro-rated share of the full-year compensation. Only full months of activity are taken into ac-count for this purpose. The compensation is payable after the close of the given financial year. For the reporting year 2017, the Supervisory Board will receive total compensation of € 3.0 million (PY: € 3.0 million). In addition, the company reimburses all mem- bers of the Supervisory Board for their expenses and for the value-added tax payable on their compensation and on the reimbursement of their expenses. The company pays the premium for the D&O insurance taken out for members of the Supervisory Board. Contrary to Section 5.4.6 sentences 5 and 6 of the GCGC, the compensation paid to members of the Su- pervisory Board, as well as the compensation paid by the company to them for services rendered personally, are not presented in the Corporate Governance Report, since Axel Springer SE’s competitors do not disclose such information either. In addition, the Articles of Asso- ciation do not regulate the individual distribution of com- pensation between the members of the Supervisory Board, but expressly assign it to the Supervisory Board; the individualized statement of the remuneration of the Supervisory Board would undermine this allocation of powers to the General Meeting. Also on April 16, 2014, the Company's General Meeting resolved that the dis- closure of the individualized compensation of the Execu- tive Board in the annual and consolidated financial statements of the company, which are to be prepared for the financial years 2014 to 2018 (inclusive), should be avoided, meaning therefore that the compensation of the Supervisory Board members is not published in individu- alized form either. Share-based compensation of senior executives Axel Springer has issued virtual stock option plans for selected senior executives, the main parameters of which are shown in the following: Senior Executive Program Grant date Term in years Vesting period in years Stock options granted Underlying (€) Maximum payment (€) Value at grant date (€) Total value at grant date (€ millions) 2011 II 2014 01.10.2011 01.03.2014 6 4 5 3 472,500 60,000 35.00 70.00 2.31 46.80 93.60 8.14 1.1 0.5 Provided that the beneficiary is employed by the compa- ny at least until the expiration of the respective vesting period, all virtual stock options granted to the relevant senior executives may become vested. If the authorized senior executive is not employed by the company before the end of the vesting period, but is at least one year after the grant date, the stock options are vested up to one half (Senior Executive Programs 2014) or to one quarter per elapsed year of the waiting period (Senior Executive Program 2011 II). 80 Annual Report 2017 Axel Springer SE Combined Management Report Corporate Governance Report Beneficiaries are obligated to hold one Axel Springer share for every ten stock options as their own investment. Disposing of these shares prior to exercising the options would result in the stock options being forfeited at the same rate. The Senior Executive Program 2011 II was completed during the financial year 2016 as the stock options were exercised or forfeited. With regards to the executive programs that are granted, see the information in the notes to the consolidated financial statements under Section (12). A further condition for vesting to take place is that within a period of one year before the end of the waiting period, either the volume-weighted average price of the Axel Springer share in a period of three calendar months is at least 30 % over the base value or the percentage in- crease of this average price compared to the base value exceeds the development of the DAX. Exercising stock options is only possible if the volume- weighted average price of the Axel Springer share during the three calendar months before exercising such op- tions is at least 30 % over the base value and that the percentage increase exceeds that of the DAX index. Each option grants a payment claim in the amount of the growth in value of the Axel Springer share, restricted to a maximum of 200 % of the base value, which corre- sponds to the difference between the volume-weighted average price during the last three calendar months prior to exercise and the base value. 81 Report of the Supervisory Board Dr. Giuseppe Vita Chairman Dr. h. c. Friede Springer Vice Chairwoman Oliver Heine Attorney at law and partner in the law firm Heine & Partner William E. Ford CEO General Atlantic Rudolf Knepper Entrepreneur Lothar Lanz Member of various Supervisory Boards Dr. Nicola Leibinger-Kammüller President and Chairwoman of the Executive Board of TRUMPF GmbH + Co. KG Prof. Dr.-Ing. Wolfgang Reitzle Entrepreneur Martin Varsavsky CEO Prelude Fertility Inc. 82 Annual Report 2017 Axel Springer SE Report of the Supervisory Board In financial year 2016, the supervisory board performed all the duties incumbent upon it by virtue of applicable laws, the company’s Articles of Association, and internal rules of procedure. It worked closely and trustfully with the Executive Board in an advisory role and supervised the management of the company. cussed specific transactions of importance to the com- pany’s future development. It adopted resolutions on those transactions and measures for which the participa- tion of the Supervisory Board is required by law, by the company’s Articles of Association, or by the Executive Board’s internal rules of procedure. By means of written and oral reports, the Executive Board informed the Supervisory Board in detail, regularly, and promptly about all essential matters of strategy, planning, business performance, and the risk situation of the company, as well as the risk management system, the Internal Control System (ICS), and matters pertaining to compliance. The Executive Board informed the Super- visory Board of matters of particular importance between meetings; in addition, the Chairman of the Supervisory Board and the Chairman of the Executive Board held regular information and advisory meetings. The Supervisory Board examined the relevant planning documents and financial statements presented to it and assured itself that they were correct and appropriate. It reviewed and discussed all submitted reports and docu- ments to an appropriate extent. It was not necessary in financial year for the Supervisory Board to inspect compa- ny books and documents beyond those presented during the normal course of reporting by the Executive Board. The Supervisory Board discussed with the Executive Board all matters of crucial importance for the company, especially the company’s business plan, business struc- ture, business strategy, major investment and disinvest- ment plans, and personnel matters; the strategic orienta- tion of the company was coordinated between the Executive Board and Supervisory Board, and the status in relation to the implementation of the strategy was discussed. Furthermore, the Supervisory Board dis- Composition and meetings of the Supervisory Board As per the company’s Articles of Association, the Supervi- sory Board is composed of nine members (see page 70 of the Annual Report regarding the individual members of the Supervisory Board). William E. Ford, CEO of General At- lantic, and Rudolf Knepper informed the Chairman of the Supervisory Board in January, i.e. February 2018 that they will resign from office at the end of the General Meeting in the 2018 financial year. The Supervisory Board will there- fore propose to the General Meeting two new candidates for election to the Supervisory Board of Axel Springer SE, who shall assume their mandates for the remainder of Bill Ford's and Rudolf Knepper's term of office. The Supervisory Board thanks Bill Ford for his work on the Supervisory Board of Axel Springer SE. During his affilia- tion, he has variously supported and advised our company on the basis of his more than two decades of experience in managing investments in growth companies, his inter- national experience and digital knowledge. Furthermore, the Supervisory Board likes to thank Rudolf Knepper for his long-standing successful work as Executive Board and Supervisory Board member of Axel Springer SE and for his high degree of loyalty to the company. 83 Annual Report 2017 Axel Springer SE Report of the Supervisory Board The term of current members of the Supervisory Board ends with the expiry of the 2019 ordinary Annual General Meeting in the 2019 financial year, which is decisive for the ratification of actions by the company's Boards for the 2018 financial year. A total of seven meetings of the Supervisory Board were held during the period under review, four in the first and three in the second half of the calendar year, with ex- traordinary meetings held on March 23, 2017 and July 4, 2017. Some individual members were excused and unable to attend some of the meetings; none of the Supervisory Board members attended fewer than four sessions of the plenum. The members that apologized for their absence for the most part participated in resolu- tions by written vote. Important matters addressed by the Supervisory Board At the meeting on, February 14, 2017, the Supervisory Board dealt with the financial plan 2017 presented by the Executive Board and approved it. The Executive Board informed the Supervisory Board about preliminary figures on business development in the expired financial year 2016. The Supervisory Board also primarily focused on real estate sales in Berlin. In its meeting on March 7, 2017, the Supervisory Board devoted its attention primarily to the separate financial statements of the parent company and the consolidated financial statements of the Group as at December 31, 2016 (including, in each case, the combined manage- ment report and Group management report), as well as the report on the company’s dealings with affiliated com- panies (Dependency Report), along with the respective audit reports. In accordance with the recommendations of the Audit Committee, it approved the annual financial statements of Axel Springer SE, the consolidated financial statements and the combined management and group management report and approved the dependent com- pany report. It followed the Executive Board’s profit utili- zation proposal for financial year 2016 and agreed to the Corporate Governance Report issued jointly with the Executive Board. In addition, the Supervisory Board dealt with the agenda for the 2017 General Meeting; this in- cluded inter alia the proposed resolutions for the General Meeting including the proposal for the election of the auditor for the 2017 financial year and the election of William E. Ford to the Company's Supervisory Board and the proposal to update the Company Constitution, the essentials, with a corresponding amendment to the com- pany's Articles of Association. In addition, the Supervisory Board adopted a resolution regarding its report for the 2016 financial year, which was submitted at the annual shareholders' meeting. Finally, it was decided to set up an advisory committee on corporate structure. In the extraordinary meeting on March 23, 2017, the Supervisory Board dealt in particular with the corporate structure. In addition, the company reported on the current status of investment projects. At the meeting on April 26, 2017, the Supervisory Board focused on preparing for the upcoming General Meeting. In addition, among others, the achievement of the tar- gets for the proportion of women in the Supervisory Board and Executive Board resolved in September 2015 was discussed, and new targets and deadlines were defined with regard to both bodies. At the extraordinary meeting on July 4, 2017, which was held in the form of a telephone conference, the Supervi- sory Board dealt with issues relating to the remuneration of the Executive Board. At the meeting on September 6, 2017, the Executive Board reported on the planned reorganization of the publishing divisions in Germany. The Supervisory Board also passed a resolution on the share participation pro- gram planned for the 2018 financial year for employees of the Company and of certain affiliated companies. In addition, the Supervisory Board was informed about the current status of real estate projects and the progress of the new Axel Springer building in Berlin. The Supervisory Board drew up a "competence profile" for the entire Supervisory Board and passed a resolution on this. In addition, the re-designation of the Executive Board divi- sions was approved and the Executive Board provided 84 Annual Report 2017 Axel Springer SE Report of the Supervisory Board information about the US strategy and developments at Business Insider. Work of the committees of the Supervisory Board At its meeting on November 7, 2017, the Supervisory Board focused on Axel Springer's corporate strategy focusing on the News Media segment on the basis of a comprehensive presentation of the Executive Board. The Executive Board reported on the changes in accounting from 2018 due to new IFRS standards. In addition, the Supervisory Board adopted a resolution on the Declara- tion of Conformity, published on the same date. It also carried out a self-assessment of its efficiency and con- tinued to assess its activity as efficient on the basis of a prior written survey followed by a detailed discussion. In addition, the Executive Board informed the Supervisory Board about the current status of the company's trans- action plans. Conflicts of interest There were no conflicts of interest in the Supervisory Board during the reporting year. Corporate governance The Executive Board and Supervisory Board issued their common Declaration of Conformity (pursuant to Section 161 of the German Stock Corporations Act (AktG)) in November 2017. This explanation with information on exceptions to the recommendations made in the GCGC is made permanently available on the company's website. It is also available on page 65 of the Annual Report. Additional information on corporate governance in the Axel Springer Group may be found in the joint Corporate Governance Report of the Executive Board and Super- visory Board (see page 65). In the interest of performing its duties in an efficient man- ner, the Supervisory Board has formed an Executive Committee, an Audit Committee, a Personnel Committee, and a Nominating Committee as permanent committees. In March 2017, an advisory committee on corporate structure was formed. The Chairman of the Audit Com- mittee is Lothar Lanz, in the Corporate Structure Com- mittee Martin Varsavsky, and in the other committees Chairman of the Supervisory Board, Dr. Giuseppe Vita fulfills that role. The chairmen of the committee report to the plenum on the work of the committees and the deci- sions taken by the committees. Notwithstanding the general responsibility of the full Supervisory Board, the Executive Committee is re- sponsible for matters that are exclusively or predomi- nantly related to publishing and journalism and for mat- ters of strategy, financial planning, capital expenditures, and the financing of investment. It is in particular respon- sible, instead of the Supervisory Board, for approving significant management actions undertaken by the Ex- ecutive Board concerning investments or operative busi- ness operations. Finally, the Executive Committee pre- pares decisions regarding the organization of the Executive Board and takes decisions, within stipulated limits, regarding the approval to sell shares of the com- pany and subscription rights to such shares. The mem- bers of the Executive Committee are Dr. Giuseppe Vita, acting as the Chairman, Dr. h. c. Friede Springer, acting as the Vice Chairwoman, as well as Lothar Lanz and Prof. Dr.-Ing. Wolfgang Reitzle. 85 Annual Report 2017 Axel Springer SE Report of the Supervisory Board The Executive Committee held eight meetings during the reporting period, of which three were extraordinary meet- ings; members of the Executive Board also took part frequently at these meetings. In addition, resolutions were passed in circulation proceedings. The Presidency agreed upon the following transactions: In February and April 2017 (in view of the final purchase price) the acqui- sition of Logic-Immo, in March 2017 the sale of the print business and related online activities of Ringier Axel Springer Slovakia, in July 2017 the acquisition of Affilinet GmbH by the AWIN AG and the acquisition of shares in AWIN AG held by Swisscom Schweiz AG, in October 2017 the sale of the Slovak Ringier Axel Springer Print Portfolio including related online activities and in Decem- ber 2017 the sale of the aufeminin Group to TF1. It was also discussed and decided, among others, on an exchange offer for existing fixed-interest promissory notes and the renewal of a promissory note, the sale of the Berlin skyscrapers to Axel Springer Pensionstreu- hand e.V., and the sale and lease-back of the Axel- Springer-Passage and the new building. Further subject matters were decisions about granting approval to con- clude control and profit and loss transfer agreements within the Group as well as to transfer shares of the company in accordance with Section 5 (3) of the Com- pany’s Articles of Association. The Personnel Committee is responsible in particular for preparing decisions on the appointment and dismis- sal of Executive Board members. It is also responsible for preparing the resolutions to be adopted by the Su- pervisory Board on the compensation of individual mem- bers of the Executive Board. If the Personnel Committee consists of three or more members, then it approves resolutions in lieu of the Supervisory Board in all other matters pertaining to employment contracts; the same applies in matters pertaining to the extension of loans within the meaning of Sections 89, 115 AktG and on the approval of contracts with Supervisory Board members pursuant to Section 114 AktG. If the Personnel Commit- tee consists of two members, then it is responsible for preparing the resolutions to be adopted by the Supervi- sory Board regarding such matters. To the extent it bears responsibility, the Personnel Committee also rep- resents the company in transactions with individual Ex- ecutive Board members. Finally, if the Personnel Com- mittee consists of three or more members, then it shall decide on granting approval for management actions assigned to it that require approval; if it consists of two members, then it is responsible for preparing the resolu- tions to be adopted by the Supervisory Board regarding such business matters. The members of the Personnel Committee are Dr. Giuseppe Vita, acting as the Chair- man, and Dr. h. c. Friede Springer, acting as the Vice Chairwoman. The Personnel Committee met twice during the reporting period. It prepared, among others, the decision of the plenary session on the extension of the term of office of a member of the Executive Board, together with the asso- ciated extension of the respective Executive Board con- tract, dealt with the individual goals and the Group ob- jectives for the cash component of the variable remuneration component of the Executive Board remu- neration. The Audit Committee, notwithstanding the responsibil- ity of the full Supervisory Board, is responsible for pre- paring the decisions to be made by the Supervisory Board on the adoption of the separate financial state- ments of the parent company and the approval of the consolidated financial statements of the Group, by means of conducting a preliminary review of the separate financial statements, the Dependency Report, and the consolidated financial statements, as well as the com- bined management report of the parent company and the group, the review of the profit utilization proposal, the discussion of the audit report with the auditor, as well as the monitoring of the accounting process and the audit, in this regard in particular the independence of the audi- tor, the monitoring of the effectiveness of the risk man- agement system, the internal control system (ICS), the compliance management system and the internal audit- ing system. The Audit Committee also monitors and approves the non-audit services provided by the auditor. It is also responsible for auditing the interim financial statements and interim reports and discussing the audi- tor's report on a possible audit review of the interim financial statements. With regard to the audit of the 86 Annual Report 2017 Axel Springer SE Report of the Supervisory Board financial statements, the Audit Committee is responsible for preparing the proposal of the Supervisory Board to the annual shareholders’ meeting on the election of the independent auditor and the engagement of the inde- pendent auditor, and for adopting audit priorities, among other matters. The Audit Committee consists of Lothar Lanz, acting as the Chairman, Dr. Giuseppe Vita, acting as the Vice Chairman, and Oliver Heine, Rudolf Knepper and Dr. h. c. Friede Springer as additional members. The Audit Committee held four meetings during the course of the financial year. It has been informed of the scope, course, and result of the 2016 annual financial statements and consolidated financial statements and discussed them with the auditors, prepared the deci- sions of the Supervisory Board regarding adoption of the financial statements (including the combined manage- ment report and group management report) and approv- al of the Group consolidated statements as well as the audited interim financial statements and reports for 2015. Alongside this, in February 2017, the Audit Committee handled preparation of the passing of the resolution by the full board regarding the proposal at the annual shareholders' meeting to commission the independent auditor for the 2017 financial year. To this effect, the Supervisory Board was also in receipt of written confir- mation from Ernst & Young GmbH regarding their inde- pendence. In addition, the Audit Committee dealt with the audit priorities of the independent auditor for the 2017 financial year and issued the auditor with the audit assignment for the 2017 financial year. The Audit Com- mittee also dealt with the monitoring of the effectiveness of the risk management system, the internal control system (ICS), of the compliance management system and of the internal audit system, as well as additional compliance issues. The Audit Committee also has, among others, discussed the necessary adjustments to the Company's reporting due to changes in accounting rules, dealt with non-financial reporting (CSR), and ap- proved audit assignments for non-audit services. The Nominating Committee prepares the proposal of the Supervisory Board to the annual shareholders’ meet- ing on the election of Supervisory Board members; in particular, it proposes suitable candidates for the Super- visory Board, also in consideration of the competency profile and the diversity and independence criteria adopted by the Supervisory Board. It develops and re- views the job profiles relative to the qualifications ex- pected of Supervisory Board members by the company, and continually adapts them to suit changing company requirements. The members of the Nominating Commit- tee are Dr. Giuseppe Vita, acting as the Chairman, and Dr. h. c. Friede Springer, acting as the Vice Chairwoman. The Nominating Committee did not meet during the financial year. The Advisory Committee on Corporate Structure held a meeting in the reporting year. The committee consists of Martin Varsavsky as chairman and William E. Ford and Lothar Lanz as members. Separate financial statements of the parent company and consolidated financial statements of the Group; management report for the parent company and the Group Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft audited the annual financial statements of the parent company and the consolidated financial statements of the Group, as well as the combined management report of the parent company and the Group, all of which were prepared by the Executive Board for financial year 2017, and issued an unqualified audit opinion in every case. In connection with the audit, the independent auditor also noted in summary that the Executive Board has implemented a risk management system that fulfills the requirements of law, and that this system is generally suitable for the early detection of any developments that could endanger the company’s survival as a going concern. 87 Annual Report 2017 Axel Springer SE Report of the Supervisory Board The Supervisory Board acknowledged and approved the audit results. Based on the results of its own review, the Supervisory Board noted that it had no objections to raise. Based on the recommendations of the Audit Committee, the Supervisory Board approved the annual financial statements of the parent company and the consolidated financial statements of the Group, as well as the combined management report of the parent com- pany and the Group, all of which were prepared by the Executive Board. Accordingly, the annual financial statements of Axel Springer SE were officially adopted. The Supervisory Board also reviewed the proposal of the Executive Board concerning the utilization of the distrib- utable profit and concurred with that proposal, in con- sideration of the company’s financial year net income, liquidity, and financing plan. The Executive Board also submitted its report on the company’s dealings with related parties pursuant to Section 312 of the German Stock Corporations Act (AktG) to the Supervisory Board. The Supervisory Board was also in receipt of the corresponding audit report by Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft. Both reports were also provided to each member of the Supervisory Board in advance. The audit opinion of the independent auditor reads as follows: The aforementioned documents and the proposal of the Executive Board for the utilization of the distributable profit, as well as the audit reports of Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, were provided to all members of the Supervisory Board in a timely manner. The documents were audited and discussed in the presence of the independent auditor in the meeting of the Audit Committee of March 6, 2018. The inde- pendent auditor reported on the key results of the audit and was available for additional information if required. No deficiencies in the internal control and risk manage- ment system, as it relates to the financial accounting process, were noted. The independent auditor explained further the scope, priorities, and costs of the audit. No circumstances that would cast doubt on the impartiality of the independent auditor arose. The Audit Committee resolved to recommend to the Supervisory Board that it approve the separate financial statements of the parent company and the consolidated financial statements of the Group, as well as the combined management report of the parent company and the Group. The Audit Committee reported to the Supervisory Board in the balance sheet meeting of March 7, 2018 on the inves- tigations carried out by the Committee and the results thereof, alongside their recommendations for approval of the separate financial statements of the parent company and consolidated financial statements of the Group, and the combined management report of the parent company and the Group. The Supervisory Board has reviewed the documents in question, having noted and duly considered the report and recommendations of the Audit Committee and the reports of Ernst & Young GmbH Wirtschafts- prüfungsgesellschaft, and having discussed them with the independent auditor, who was in attendance. 88 Annual Report 2017 Axel Springer SE Report of the Supervisory Board “Based on the audit and evaluation conducted in ac- cordance with our professional duties, we hereby con- firm that Thanks to the members of the Executive Board and to all employees of the company 1. the factual information contained in the report is correct; 2. the consideration provided by the company in respect of the legal transactions mentioned in the report was not inappropriately high.” The Supervisory Board also reviewed the report of the Executive Board on the dealings with related parties pursuant to Section 312 AktG and the independent auditor’s report on this subject. At the Supervisory Board meeting of March 7, 2018, the independent auditor also reported orally on the principal findings of the audit and provided additional information, as requested. The Su- pervisory Board acknowledged and approved the report of the independent auditor. Based on the final results of its own review, the Supervisory Board had no objections to raise with respect to the results of the audit report of the independent auditor or the Executive Board’s decla- ration on the report pursuant to Section 312 (3) AktG. The Supervisory Board wishes to thank all members of the Executive Board and all employees for their out- standing work in the past year. The Supervisory Board likes to welcome Dr. Stephanie Caspar, who, following the Board's meeting of February 13, 2018, was appointed Executive Board member responsible for Technology and Data with effect of March 1, 2018, and looks forward to working with her. Berlin, on March 7, 2018 The Supervisory Board Dr. Giuseppe Vita Chairman 89 Consolidated Financial Statements 91 Consolidated Statement of Financial Position 93 Consolidated Income Statement 93 Consolidated Statement of Comprehensive Income 94 Consolidated Statement of Cash Flows 95 Consolidated Statement of Changes in Equity 96 Consolidated Segment Report Notes to the Consolidated Financial Statements 97 General information 115 Notes to the consolidated statement of financial position 138 Notes to the consolidated income statement 144 Notes to the consolidated statement of comprehensive income 145 Notes to the consolidated statement of cash flows 146 Notes to the consolidated segment report 149 Other disclosures 90 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Consolidated Statement of Financial Position Consolidated Statement of Financial Position € millions ASSETS Non-current assets Intangible assets Property, plant, and equipment Investment property Non-current financial assets Investments accounted for using the equity method Other non-current financial assets Receivables due from related parties Receivables from income taxes Other assets Deferred tax assets Current assets Inventories Trade receivables Receivables due from related parties Receivables from income taxes Other assets Cash and cash equivalents Assets held for sale Total assets Note 12/31/2017 12/31/2016 (4) (5) (6) (7) (36) (9) (26) (8) (36) (9) (29) (10) 4,994.1 5,393.0 3,904.4 4,162.3 451.7 0.0 526.8 167.5 359.3 12.1 0.6 44.0 54.6 519.2 29.8 563.3 221.0 342.3 23.4 0.4 39.5 55.0 1,441.5 1,063.2 19.8 693.9 17.2 21.7 104.7 216.8 367.3 21.6 614.6 16.6 65.0 121.3 224.1 0.0 6,435.6 6,456.2 91 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Consolidated Statement of Financial Position € millions EQUITY AND LIABILITIES Equity Shareholders of Axel Springer SE Non-controlling interests Non-current provisions and liabilities Provisions for pensions Other provisions Financial liabilities Trade payables Liabilities due to related parties Other liabilities Deferred tax liabilities Current provisions and liabilities Provisions for pensions Other provisions Financial liabilities Trade payables Liabilities due to related parties Liabilities from income taxes Other liabilities Liabilities related to assets held for sale Total equity and liabilities Note 12/31/2017 12/31/2016 (11) 2,801.5 2,638.6 2,290.1 2,217.4 511.4 421.2 2,036.1 2,427.2 343.2 79.8 350.4 69.8 1,062.0 1,258.3 0.1 23.7 158.1 369.3 0.2 6.5 211.6 530.5 1,598.0 1,390.4 20.4 186.0 175.1 462.0 40.8 60.9 581.6 71.2 21.2 183.2 1.0 379.6 23.1 37.3 745.1 0.0 6,435.6 6,456.2 (13) (14) (15) (36) (16) (26) (13) (14) (15) (36) (16) (10) 92 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Consolidated Income Statement Consolidated Income Statement € millions Revenues Other operating income Change in inventories and internal costs capitalized Purchased goods and services Personnel expenses Depreciation, amortization, and impairments Other operating expenses Income from investments Result from investments accounted for using the equity method Other investment income Financial result Income taxes Income from continued operations Income from discontinued operations (after taxes) Net income Net income attributable to shareholders of Axel Springer SE Net income attributable to non-controlling interests Basic/diluted earnings per share (in €) from continued operations Basic/diluted earnings per share (in €) from discontinued operations Consolidated Statement of Comprehensive Income € millions Net income Actuarial gains/losses from defined benefit pension obligations Items that may not be reclassified into the income statement in future periods (after taxes) Currency translation differences Changes in fair value of available-for-sale financial assets Changes in fair value of derivatives in cash flow hedges Other income/loss from investments accounted for using the equity method Items that may be reclassified into the income statement in future periods if certain criteria are met (after taxes) Other income/loss Comprehensive income Comprehensive income attributable to shareholders of Axel Springer SE Comprehensive income attributable to non-controlling interests Note (28) 2017 379.3 – 3.4 – 3.4 – 80.8 – 17.8 0.1 2.8 – 95.7 – 99.1 280.2 240.6 39.6 93 Note 2017 2016 (18) (19) (19) (20) (21) (22) (23) (24) (25) (26) (2d) (27) (27) 3,562.7 3,290.2 317.3 87.7 339.9 82.6 – 1,051.4 – 971.5 – 1,202.1 – 1,100.1 – 236.1 – 232.6 – 912.4 – 851.2 – 39.0 – 43.9 4.9 40.2 23.4 16.8 – 18.4 – 21.4 – 130.2 – 126.1 378.0 450.0 1.3 379.3 345.5 33.9 3.19 0.01 1.9 451.9 427.3 24.6 3.94 0.02 2016 451.9 – 25.3 – 25.3 – 47.0 13.6 0.1 – 1.9 – 35.2 – 60.5 391.4 372.4 19.0 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Consolidated Statement of Cash Flows Consolidated Statement of Cash Flows € millions Net income Reconciliation of net income to the cash flow from operating activities Depreciation, amortization, impairments, and write-ups Result from investments accounted for using the equity method Dividends received from investments accounted for using the equity method Income from disposal of subsidiaries and business units, intangible assets and property, plant and equipment, financial assets and assets held for sale Changes in non-current provisions Changes in deferred taxes Other non-cash income and expenses Changes in trade receivables Changes in trade payables Changes in other assets and liabilities Cash flow from operating activities1) Proceeds from disposals of intangible assets, property, plant, and equipment, and investment property Proceeds from disposals of consolidated subsidiaries and business units, less cash and cash equivalents given up Proceeds from disposals of non-current financial assets including repayment of vendor loan Proceeds from / disbursements of investments in short-term financial funds Puchases of intangible assets and property, plant and equipment Purchases of shares in consolidated subsidiaries and business units less cash and cash equivalents acquired Purchases of investments in non-current financial assets Cash flow from investing activities1) Dividends paid to shareholders of Axel Springer SE Dividends paid to other shareholders Purchase of non-controlling interests Disposal of non-controlling interests Repayments of liabilities under finance leases Proceeds from financial liabilities Repayments from financial liabilities Other financial transactions Cash flow from financing activities1) Cash flow-related changes in cash and cash equivalents Changes in cash and cash equivalents due to exchange rates Changes in cash and cash equivalents due to changes in companies included in consolidation Cash and cash equivalents at beginning of period Reclassification relating to assets held for sale Cash and cash equivalents at end of period 1) For the portion attributable to discontinued operations see note (2d) € millions Cash flows contained in the cash flow from operating activities Income taxes paid Income taxes received Interest paid Interest received Dividends received Note (24) (29) (29) 2017 379.3 236.1 43.9 4.8 2016 451.9 232.6 – 23.4 3.8 – 207.2 – 264.3 3.1 – 104.2 0.5 – 86.5 69.7 151.2 490.7 207.7 8.7 19.5 3.3 7.9 – 28.7 5.2 – 41.4 13.7 1.4 358.8 68.5 74.1 318.4 – 2.7 – 200.9 – 156.8 (2c) – 185.1 – 365.3 (29) – 47.6 – 194.5 – 205.0 – 10.5 – 63.7 0.0 – 0.4 639.0 – 660.7 19.6 – 30.5 – 94.3 – 194.2 – 8.9 – 30.9 2.4 – 0.7 271.4 – 264.7 – 74.3 (29) – 281.7 – 299.9 14.5 – 7.0 0.2 224.1 – 14.9 216.8 – 35.4 1.0 0.0 253.8 4.7 224.1 (10) (29) 2017 2016 (29) – 161.8 – 170.3 63.0 – 20.1 4.6 13.9 37.1 – 16.6 16.6 15.2 94 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Consolidated Statement of Changes in Equity Consolidated Statement of Changes in Equity Accumulated other comprehensive income Changes in fair value Sub- scribed capital Ad- ditional paid-in capital Accumu- lated retained earnings Treasury shares Currency translation Available- for-sale financial assets Deriva- tives in cash flow hedges Other equity Share- holders of Axel Springer SE Non- controlling interests Equity 107.9 499.8 1,508.4 0.0 31.5 12.4 – 0.3 – 97.1 2,062.7 448.8 2,511.5 427.3 427.3 – 194.2 – 5.1 – 23.3 – 5.3 0.2 – 41.4 – 41.4 13.6 13.6 0.1 0.1 4.9 427.3 – 27.2 – 54.9 24.6 – 5.6 451.9 – 60.5 – 27.2 372.4 19.0 391.4 – 194.2 – 9.7 – 203.9 5.1 0.0 22.8 22.8 – 18.4 – 58.5 – 77.0 – 5.1 – 1.1 – 6.2 107.9 500.1 1,707.6 0.0 – 5.0 26.0 – 0.2 – 119.2 2,217.4 421.2 2,638.8 345.5 345.5 – 205.0 0.0 40.7 – 5.0 – 0.6 1.0 – 86.2 – 86.2 – 18.0 – 18.0 0.1 0.1 – 0.7 – 104.9 5.8 – 99.1 – 0.7 240.6 39.6 280.2 345.5 33.9 379.3 1.1 0.0 – 205.0 – 9.8 – 214.8 41.7 58.1 99.8 – 5.0 0.4 2.1 0.2 – 2.9 0.6 107.9 501.0 1,883.2 0.0 – 90.1 8.0 – 0.1 – 119.9 2,290.1 511.4 2,801.5 € millions Balance as of 01/01/2016 Net income Other income/loss Comprehensive income Dividends paid Change in consolidated companies Purchase of non- controlling interests Other changes Balance as of 12/31/2016 Net income Other income/loss Comprehensive income Dividends paid Change in consolidated companies Purchase and disposal of non-controlling interests Other changes Balance as of 12/31/2017 95 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Consolidated Segment Report Consolidated Segment Report Operating segments (30) Classifieds Media1) News Media1) Marketing Media1) Services/Holding Consolidated totals € millions Revenues 2017 2016 2017 2016 2017 2016 1,007.7 879.5 1,509.8 1,481.6 984.5 856.2 Internal revenues 0.9 0.6 6.7 5.9 4.8 8.5 Segment revenues 1,008.6 880.1 1,516.5 1,487.6 989.3 864.7 2017 60.7 161.4 222.0 2016 2017 2016 72.9 3,562.7 3,290.2 156.0 228.9 EBITDA, adjusted2) 413.2 354.6 218.8 214.4 95.6 82.2 – 81.7 – 55.7 645.8 595.5 EBITDA margin, adjusted2) Thereof income from investments Thereof accounted for using the equity method Depreciation, amortiza- tion, impairments, and write-ups (except from non-recurring effects and purchase price allocations) EBIT, adjusted2) Amortization and impairments from purchase price allocations 41.0% 40.3% 14.5% 14.5% 9.7% 9.6% 18.1% 18.1% 1.0 1.0 0.4 10.0 16.9 0.1 6.3 12.7 5.7 1.8 1.3 – 0.7 0.0 16.0 18.7 – 6.2 – 0.4 0.0 8.8 6.6 – 52.2 – 37.0 – 35.8 – 33.5 – 18.2 – 14.8 – 35.7 – 39.0 – 141.9 – 124.3 361.0 317.6 182.9 180.9 77.4 67.4 – 117.4 – 94.8 504.0 471.1 – 55.6 – 58.8 – 21.9 – 22.9 – 16.7 – 26.6 0.0 0.0 – 94.2 – 108.3 Non-recurring effects – 17.2 54.1 – 66.2 74.0 36.8 40.9 163.5 65.6 117.0 234.6 Segment earnings before interest and taxes Financial result Income taxes Income from continued operations Income from discontinued operations Net income 288.2 312.9 94.8 232.1 97.6 81.6 46.1 – 29.1 526.7 597.5 – 18.4 – 21.4 – 130.2 – 126.1 378.0 450.0 1.3 1.9 379.3 451.9 1) Adjustment of segment name (see Annual Report 2017, p. 11 and note (30a)). 2) Adjusted for non-recurring effects (see Annual Report 2017, p. 33 and note (31)). Geographical information (30) € millions Revenues Non-current segment assets Germany Other countries Consolidated totals 2017 2016 2017 2016 2017 2016 1,802.9 1,725.9 1,759.8 1,564.3 3,562.7 3,290.2 1,352.5 1,388.3 3,003.6 3,323.0 4,356.1 4,711.3 (31) (31) 96 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements General information (1) Basic principles Axel Springer SE is a European exchange-listed stock corporation (Societas Europaea) with its registered head office in Berlin, Germany. The company is registered in the Commercial Register of the local court Berlin-Char- lottenburg under number HRB 154517 B. The principal activities of Axel Springer SE and its subsidiaries (“Axel Springer Group”, “Axel Springer” or the “Group”) are de- scribed in note (30a). On February 20, 2018, the Executive Board of Axel Springer SE authorized the consolidated financial state- ments for fiscal year 2017 and subsequently presented them to the Supervisory Board for approval. The consoli- dated financial statements were prepared by application of Section 315e HGB in accordance with the Interna- tional Financial Reporting Standards (IFRS) of the Inter- national Accounting Standards Board (IASB) and the in- terpretations of the IFRS Interpretations Committee (IFRS IC) approved by the IASB, in effect and recognized by the European Union (EU) on the reporting date. The reporting currency is the euro (€); unless otherwise indi- cated, all figures are stated in euro millions (€ millions). Totals and percentages have been calculated based on the euro amounts before rounding and may differ from a calculation based on the reported million euro amounts. The consolidated financial statements and consolidated management report will be published in the Federal Ga- zette in Germany. (2) Consolidation (a) Consolidation principle The financial consolidated statements include Axel Springer SE and its subsidiaries over which Axel Springer SE either directly or indirectly has control, can influence variable outflows from the subsidiary, and is exposed to the variability of these outflows. The consideration transferred in business combinations is offset against the pro-rated fair value of the acquired assets and liabilities on the acquisition date. Any remain- ing positive difference allocated to our interests is capital- ized as goodwill and recognized in the amount allocated to our shares, unless we acquire all shares in the com- pany. Negative differences are immediately recognized as income. The acquisition date indicates the time at which the possibility for gaining control of the acquired business or company was obtained. We offset differ- ences arising from disposals and purchases of non-con- trolling interests in equity. If in the context of business combinations reciprocal call and put options for the remaining non-controlling inter- ests are agreed upon, in which the acquisition price to be paid is based on future company results, we assume an anticipated acquisition of these remaining shares. In- sofar, non-controlling interests are not disclosed. The contingent consideration for these shares is accounted for as a financial liability measured at fair value. The ef- fects of its remeasurement at each balance sheet date are recorded in the income statement. Associated companies in which the Axel Springer Group can exert significant influence over the financial and op- erating policies, as well as joint venture companies that are managed jointly by Axel Springer and one or more other parties, are included in the consolidated financial statements by application of the equity method. The IFRS separate and consolidated financial statements of these companies as at the Axel Springer Group’s report- ing date, respectively, serve as the basis for applying the equity method. Goodwill and assets and liabilities in- cluded in the amortized carrying amount are accounted for using the accounting principles applied to business combinations. Losses that exceed the carrying amount of the investment, or any other long-term receivables re- lated to the financing of these companies, are not recog- nized, unless the Axel Springer Group is bound by addi- tional contribution requirements. Intercompany profits and losses are eliminated on a pro-rated basis. The car- rying amounts of investments are tested for impairment; if impairments exist, they are written down to the lower recoverable amount. 97 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements (b) Companies included in the consolidated financial statements Companies included in the consolidated financial state- ments broke down as follows: Fully consolidated companies Germany Other countries Investments accounted for using the equity method Germany Other countries 12/31/2017 12/31/2016 88 136 7 6 79 120 5 6 Consolidated companies are listed in note (42). Essen- tially, the following major changes occurred in 2017: At the beginning of January, we acquired 100 % of the shares in ShareASale.com Inc., Chicago, USA, through AWIN Inc. (previously Digital Window, Inc.), Wilmington, USA. ShareASale.com Inc. has been included in our consolidated financial statements by means of full con- solidation since then. At the beginning of October, United Internet has contrib- uted 100 % of the shares in affilinet GmbH, Munich, into AWIN AG, Berlin, and thereby received 20 % of the shares in the Awin Group (including affilinet). As a conse- quence of this transaction, we have fully consolidated af- filinet GmbH and six further foreign subsidiaries since then. The other changes relate to initial consolidations, decon- solidations, mergers, and liquidations which are immate- rial for the consolidated financial statements. (c) Acquisitions and divestitures At the beginning of January 2017, we have acquired through AWIN Inc. (previously Digital Window,Inc.), Wil- mington, USA, a company of the Awin Group (previously zanox Group) owned by Axel Springer, and consolidated 100 % of the shares in ShareASale.com Inc., Chicago, USA, a leading affiliate network in the USA. Acquisition costs amounted to € 44.4 million and, in ad- dition to the purchase price of € 33.1 million paid in 2017, include a paid purchase price adjustment of € 2.0 million as well as a contingent purchase price liabil- ity of € 9.3 million recorded at the acquisition date which is dependent upon reaching earnings targets in 2017. The acquisition-related expenses recorded in other oper- ating expenses totaled € 0.2 million. Based on the purchase price allocation, the acquisition costs were allocated to the purchased assets and liabili- ties on the acquisition date as follows: € millions Intangible assets Other assets Cash and cash equivalents Provisions and liabilities Deferred tax liabilities Net assets Acquisition cost Goodwill Carrying amount after acquisition 25.7 2.2 16.2 – 15.2 – 10.2 18.8 44.4 25.5 Of the intangible assets acquired, intangible assets with carrying amounts of € 12.0 million have indefinite useful lives. The non-tax-deductible goodwill is above all at- tributable to inseparable values such as employee exper- tise, expected synergy effects from the integration and the strategic advantages resulting from the leading mar- ket position and digital range of the company, and was allocated to the Marketing Media segment. Since first inclusion as of the beginning of January 2017, ShareASale contributed to consolidated revenues in the amount of € 14.0 million and to consolidated net income in the amount of € 6.1 million. As of October 1, 2017, Axel Springer and United Inter- net have merged their respective companies Awin and affilinet to create a common affiliate network. Axel 98 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements Springer thereby strengthens its market position in affili- ate marketing business. After contributing 100 % of the affilinet shares, United Internet holds 20 % in the Awin Group. The preliminary acquisition costs for the acquisition of the affilinet Group amounted to € 100.6 million and com- prised the purchase price of € 1.4 million paid in 2017, and the fair value of the 20 % of the shares in the Awin Group given in exchange totaling € 99.2 million. As a re- sult of the exchange following the contribution of the Awin shares, a positive difference of € 61.6 million was recorded directly in equity (thereof € 20.1 million attribut- able to non-controlling shareholders), taking into account the fair value of these shares and the addition of non-co- trolling interests in the amount of € 37.6 million. The share of the net assets of the Awin Group, which was at- tributable to non-controlling shareholders, increased by € 56.6 million of which € – 1.1 million resulting from for- eign currency translation effects needed to be reclassi- fied into the according accumulated other comprehen- sive income position. The acquisition-related expenses recorded in other operating expenses amounted to € 0.5 million. Based on the preliminary purchase price allocation, the preliminary acquisition costs were allocated to the pur- chased assets and liabilities at the acquisition date as follows: € millions Intangible assets Property, plant, and equipment Trade receivables Other assets Cash and cash equivalents Trade payables Provisions and other liabilities Deferred tax liabilities Net assets Acquisition cost (preliminary) Goodwill (preliminary) Carrying amount after acquisition 29.2 0.7 30.2 1.0 3.6 – 26.0 – 6.2 – 9.5 23.1 100.6 77.5 The purchase price allocation considers all knowledge and adjusting events about conditions that already ex- isted on the acquisition date, and has not yet been com- pleted, particularly due to the closeness in time to the re- porting date. Of the intangible assets acquired, intangible assets with carrying amounts of € 20.8 million have indefinite useful lives. The non-tax-deductible goodwill is above all at- tributable to inseparable values such as employee exper- tise, expected synergy effects from the integration and the strategic advantages resulting from the leading mar- ket position and digital reach of the company, and was allocated to the Marketing Media segment. The gross amount of the acquired trade receivables was € 31.1 million. Corresponding valuation allowances of € 0.9 million were recorded. Since initial consolidation as of the beginning of October 2017, the affilinet Group contributed to consolidated rev- enues in the amount of € 37.5 million and to consoli- dated net income in the amount of € 0.6 million. If the af- filinet Group had already been fully consolidated on January 1, 2017, the affilinet Group would have contrib- uted to consolidated revenues in the amount of € 155.9 million and to consolidated net income in the amount of € 4.7 million. 99 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements Further business combinations that occurred in the reporting period related in particular to the acquisition of 100 % of the shares in CV Keskus OÜ, Tallinn, Estonia, Tourismuszentrum GmbH Mecklenburgische Ost- seeküste, Kröpelin, ICI Formations SAS, Paris, France, t- bee GmbH, Puchheim, Turijobs Tourism Services S.L., Barcelona, Spain, G-Construct SA, Brussels, Belgium and Autobazar.EU portál s.r.o., Topreality.sk s.r.o. und RealSoft s.r.o, all Nové Mesto nad Váhom, Slovakia, as well as the acquisition of a division of Ad Up Technology AG, Hamburg. These business acquisitions were gener- ally carried out in the context of our strategy to become the leading digital publisher and individually had no major effects on the financial position, liquidity, and financial performance of the Axel Springer Group. The acquisition costs for the acquisitions – which are partly preliminary – carried out in the reporting period amounted to € 36.9 million and contained besides the purchase prices paid also contingent considerations amounting to € 3.9 million. The acquisition-related ex- penses recorded in other operating expenses totaled € 0.2 million. The contingent considerations resulted from earn-out agreements, and were recorded at their fair values on the acquisition date. The fair value predominantly de- pends on earnings performance of the acquired compa- nies in the years prior to possible payment dates or exer- cise dates. The cumulative acquisition costs of the business combi- nations were allocated to the purchased assets and lia- bilities based on the partly preliminary purchase price al- locations as follows: € millions Intangible assets Property, plant, and equipment Trade receivables Other assets Cash and cash equivalents Trade payables Provisions and other liabilities Deferred tax liabilities Net assets Acquisition cost (preliminary) Goodwill (preliminary) Carrying amount after acquisition 20.9 0.2 0.8 0.6 1.2 – 1.1 – 1.2 – 3.0 18.3 36.9 18.6 The purchase price allocations consider all knowledge and adjusting events regarding conditions that already existed on the acquisition date, and have not yet been completed for some acquisitions because of the close- ness in time to the publication of the consolidated finan- cial statements. Of the intangible assets acquired in these acquisitions, intangible assets with carrying amounts of € 9.5 million have indefinite useful lives. The predominantly non-tax- deductible goodwill is above all attributable to insepara- ble values such as employee expertise as well as ex- pected synergy effects from the integration and was allo- cated to the News Media (€ 11.9 million) and Classifieds Media (€ 6.7 million) segments. Since their respective initial consolidations, these compa- nies have contributed to the 2017 consolidated revenues in the amount of € 5.5 million and to the 2017 consoli- dated net income in the amount of € 1.2 million. If these acquisitions had already been finalized on January 1, 2017, consolidated revenues 2017 would have in- creased by € 10.1 million and consolidated net income 2017 by € 0.7 million. In June 2017, Axel Springer Digital Classifieds France entered into a purchase agreement with the French me- dia holding company Spir Communication SA ("Spir") for 100 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements the purchase of 100 % of the shares of Spir's subsidiary Concept Multimédia SAS for a purchase price of € 105 million, taking into consideration purchase price adjustments which are to be determined on the basis of net debt and net cash. The transaction was approved by the French antitrust authorities at the end of January 2018 and completed in early February 2018. In particu- lar, Concept Multimédia, headquartered in Aix-en-Pro- vence and Paris, runs under the core brand of Logic- Immo.com a real estate portal in France as well as addi- tional online portals for mediation of luxury real estate and newly-built properties. Additional transactions carried out in the reporting pe- riod, as well as finalizations of purchase price allocations arising from acquisitions of companies in the prior year, had no material effects individually and collectively on the financial position, liquidity, and financial performance of the Axel Springer Group. Acquisitions and divestitures in the prior year: As part of the expansion of our digital activities in the English-speaking countries and the expansion of the in- novative paid-content portfolio, we acquired approxi- mately 93 % of the shares in eMarketer Inc., New York, USA at the beginning of July 2016. eMarketer is a lead- ing provider of high-quality analyses, studies and digital market data for companies and institutions. Reciprocal call and put options were agreed upon for the remaining approximately 7 % of the shares, for which the purchase price to be paid will be measured by the future corporate earnings of eMarketer. Insofar non-controlling interests are not accounted for in this respect. The acquisition costs amounted to € 219.0 million and comprised the purchase price paid in July 2016 in the amount of € 207.0 million, a purchase price adjustment paid in October 2016 in the amount of € 2.0 million as well as a contingent purchase price liability of € 10.0 mil- lion recorded at the acquisition date for the agreed op- tion rights. The acquisition-related expenses recorded in other operating expenses of the fiscal year 2016 amounted to € 1.6 million. Based on the purchase price allocation, the acquisition costs were allocated to the purchased assets and liabili- ties on the acquisition date as follows: € millions Intangible assets Property, plant, and equipment Trade receivables Other assets Deferred tax assets Cash and cash equivalents Trade payables Provisions and other liabilities Deferred tax liabilities Net assets Acquisition cost Goodwill Carrying amount after acquisition 137.2 5.1 5.6 22.3 0.4 8.7 – 3.3 – 25.1 – 57.5 93.5 219.0 125.5 Of the intangible assets acquired, intangible assets with carrying amounts of € 79.0 million have indefinite useful lives. The non-tax-deductible goodwill is above all at- tributable to inseparable values such as employee exper- tise, expected synergy effects from the integration and the strategic advantages resulting from the leading mar- ket position of the company, and was allocated to the News Media segment. The gross amount of the acquired trade receivables was € 5.6 million. No valuation allowances were recorded. Since initial consolidation as of July 8, 2016, eMarketer contributed to consolidated revenues 2016 in the amount of € 13.8 million and to consolidated net income 2016 in the amount of € – 3.5 million. If eMarketer had already been fully consolidated on January 1, 2016, eMarketer would have contributed to consolidated reve- nues 2016 in the amount of € 33.7 million and to consol- idated net income 2016 in the amount of € – 3.9 million. 101 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements In order to strengthen our market position in Scandina- via, we acquired 75.96 % of the shares of Land & Lei- sure A/S, Copenhagen, Denmark, at the end of July 2016 via the @Leisure Group through a public takeover offer. Land & Leisure A/S offers vacation homes under the brand DanCenter and accommodations in holiday parks in Denmark, Sweden, Norway, and Germany un- der the brand Danland. The preliminary acquisition costs amounted to € 47.0 million and included the purchase price paid in 2016. The acquisition-related expenses recorded in other oper- ating expenses of the fiscal year 2016 amounted to € 0.8 million. Based on the preliminary purchase price allocation, the preliminary acquisition costs were allocated to the pur- chased assets and liabilities at the acquisition date as follows: € millions Intangible assets Property, plant, and equipment Non-current financial assets Trade receivables Other assets Deferred tax assets Cash and cash equivalents Trade payables Provisions and other liabilities Deferred tax liabilities Net assets Share of non-controlling interests in net assets Acquisition cost (preliminary) Goodwill (preliminary) Carrying amount after acquisition 43.7 4.8 1.1 7.9 1.8 0.1 12.8 – 13.9 – 4.1 – 9.7 44.4 10.2 47.0 12.8 The purchase price allocation considers all knowledge and adjusting events about conditions that already ex- isted on the acquisition date, and had not yet been com- pleted, particularly due to the closeness in time to De- cember 31, 2016. Of the intangible assets acquired, intangible assets with carrying amounts of € 32.8 million have indefinite useful lives. The non-tax-deductible goodwill is above all at- tributable to inseparable values such as employee exper- tise, expected synergy effects from the integration and the strategic advantages resulting from the leading mar- ket position and digital range of the company, and was allocated to the Classifieds Media segment. In September 2016, we increased our share in Land & Leisure to 93.17 % at a purchase price of € 10.6 million and acquired the remaining approximately 6.8 % of the share capital at a purchase price of € 3.5 million as part of a squeeze-out process in November 2016. Both transactions were treated in the balance sheet as an ac- quisition of non-controlling interests (€ 10.2 million). The difference in the amount of € 3.9 million was offset in ac- cumulated retained earnings attributable to the share- holders of Axel Springer SE. The gross amount of the acquired trade receivables was € 8.4 million. Corresponding valuation allowances of € 0.5 million were recorded. Since initial consolidation as of the end of July 2016, Land & Leisure contributed to consolidated revenues 2016 in the amount of € 15.1 million and to consolidated net income 2016 in the amount of € – 0.6 million. If Land & Leisure had already been fully consolidated on January 1, 2016, Land & Leisure would have contributed to con- solidated revenues 2016 in the amount of € 41.5 million and to consolidated net income 2016 in the amount of € 3.0 million. In December 2016, we entered into an option agreement to acquire the remaining 47.5 % shares in the Awin Group (previously zanox Group) and treated it as an ac- quisition of non-controlling interests. The share of the net assets of the Awin Group, which was attributable to non- controlling shareholders, amounted to € 44.5 million of 102 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements which € 4.9 million resulting from foreign currency trans- lation effects needed to be reclassified into the according accumulated other comprehensive income position. Due to the option agreement, a liability for contingent consid- eration was recorded in the amount of € 63.1 million. The remaining difference of € 23.5 million was offset within the accumulated retained earnings attributable to the shareholders of Axel Springer SE which decreased accordingly. Overall, the equity was reduced by € 63.1 million. Further business combinations that occurred in 2016 related in particular to the acquisition of 50.01 % of the shares in Traum-Ferienwohnungen GmbH, Bremen, of 60.4 % of the shares in infoRoad GmbH, Heroldsberg, as well as 100 % of the shares in Good & Co Labs, Inc., San Francisco, USA, and Milkround Online Ltd., London, United Kingdom. These business combinations were carried out in the context of our strategy to become the leading digital publisher, and individually had no material effects on the financial position, liquidity, and financial performance of the Axel Springer Group. The acquisition costs for the acquisitions – which are partly preliminary – carried out in 2016 – amounted to € 41.2 million and contained besides the purchase prices paid in 2016 also contingent considerations amounting to € 2.6 million. The acquisition-related ex- penses recorded in other operating expenses of the fis- cal year 2016 totaled € 0.2 million. The contingent considerations resulted from earn-out agreements as well as from option rights for the pur- chase of the remaining shares, and were recorded at their fair values on the acquisition date. The fair value predominantly depends on earnings performance of the acquired companies in the years prior to possible pay- ment dates or exercise dates of the options. The cumulative acquisition costs of the business combi- nations in 2016 were allocated to the purchased assets and liabilities based on the partly preliminary purchase price allocations as of December 31, 2016, as follows: € millions Intangible assets Property, plant, and equipment and non-current financial assets Trade receivables Other assets Deferred tax assets Cash and cash equivalents Trade payables Financial liabilities Provisions and liabilities Deferred tax liabilities Net assets Share of non-controlling interests in net assets Acquisition cost (preliminary) Goodwill (preliminary) Carrying amount after acquisition 39.6 0.3 0.7 1.4 3.3 0.9 – 0.1 – 0.2 – 7.2 – 13.0 25.7 11.2 41.2 26.7 The purchase price allocations consider all knowledge and adjusting events regarding conditions that already existed on the acquisition date, and have not yet been completed for some acquisitions because of the close- ness in time to the publication of the consolidated finan- cial statements 2016. Of the intangible assets acquired in these acquisitions, intangible assets with carrying amounts of € 23.7 million have indefinite useful lives. The predominantly non-tax- deductible goodwill is above all attributable to insepara- ble values such as employee expertise as well as ex- pected synergy effects from the integration and was allo- cated to the Classifieds Media (€ 24.6 million) and News Media (€ 2.1 million) segments. Since their respective initial consolidations, these compa- nies have contributed to the 2016 consolidated revenues in the amount of € 9.3 million and to the 2016 consoli- dated net income in the amount of € – 3.2 million. If these acquisitions had already been finalized on January 1, 2016, consolidated revenues 2016 would have 103 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements changed by € 12.5 million and consolidated net income 2016 by € – 3.0 million. At the beginning of January 2016, we jointly established with Ringier the company Ringier Axel Springer Schweiz AG, Zurich, Switzerland, in which we hold 50 % of the shares. The company gathers all Swiss-Ger- man and West Swiss newspaper titles (including their as- sociated online portals) and the West Swiss broadsheet, Le Temps, belonging to Ringier and the entire business of Axel Springer in Switzerland. Due to rights granted to Ringier under the shareholder agreement, the company has been included in the consolidated financial state- ments using the equity method since then, see note (7a). The carrying amounts contributed at the beginning of 2016 and of the assets and liabilities received in return as well as the recognition to profit or loss of foreign cur- rency translation differences previously recognized in other comprehensive income in equity were as follows: € millions Fair value of investment Receivable from disposal of trademarks Other contractual claims and obligations Additions net assets Goodwill Intangible assets Property, plant, and equipment and non-current financial assets Trade receivables Other assets Deferred tax assets Cash and cash equivalents Provisions and liabilities Deferred tax liabilities Disposal net assets Cumulative translation differences Result from disposal Carrying amount 140.2 40.6 – 16.9 163.9 62.3 88.1 4.1 3.0 6.2 9.0 4.0 – 56.0 – 10.0 110.7 49.0 102.2 The income from disposal recorded in other operating in- come of 2016 amounted to € 102.2 million, was allo- cated to the News Media segment and adjusted as a non-recurring effect. In January 2016, our shares (90.3 %) in the previously fully consolidated Automotive Exchange Private Limited, Mumbai, India (CarWale), were sold completely at a dis- posal price totaling € 81.1 million. The purchase price af- ter deduction of taxes amounted to € 64.0 million. The profit reported in other operating income of 2016 totaled € 83.3 million, was allocated to the Classifieds Media segment and adjusted as a non-recurring effect. The car- rying amounts of the assets and liabilities disposed of were as follows: € millions Goodwill Intangible assets Property, plant, and equipment Trade receivables Other assets Cash and cash equivalents Trade payables Financial liabilities Provisions and liabilities Deferred tax liabilities Disposal net assets Share of non-controlling interests in net assets Cumulative translation differences Selling price Gain on disposal before taxes Carrying amount 11.0 5.1 0.7 1.2 2.6 0.1 – 0.5 – 15.5 – 4.2 – 1.6 – 1.2 – 1.2 2.2 81.1 83.3 Further divestments finalized in 2016 related to dis- posal of 91.0 % of the shares in Smarthouse Media GmbH, Karlsruhe, 100 % of the shares in Axel Springer Vertriebsservice GmbH, Berlin, as well as the contribu- tion of 100 % of the shares in Poliris S.A.S., Paris, France, into AC3 SAS which was founded together with Gercop. These divestments individually had no material effects on the financial position, liquidity, and financial 104 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements performance of the Axel Springer Group. The cumulative gain on disposal recorded in other operating income or other operating expenses 2016 with respect to these fur- ther divestments amounted to € 17.5 million and was adjusted as a non-recurring effect. The carrying amounts of the assets and liabilities disposed of were as follows: € millions Goodwill Intangible assets Property, plant, and equipment Trade receivables Other assets Deferred tax assets Cash and cash equivalents Trade payables Financial liabilities Provisions and liabilities Deferred tax liabilities Disposal net assets Share of non-controlling interests in net assets Selling price Gain on disposal Carrying amount 9.9 13.8 1.1 12.5 1.6 0.6 9.6 – 1.5 – 0.2 – 20.1 – 4.4 23.1 0.4 40.2 17.5 Additional transactions carried out in 2016, as well as fi- nalizations of purchase price allocations arising from company acquisitions in the reporting year 2015, had no material effects individually or collectively on the financial position, liquidity, and financial performance of the Axel Springer Group. (d) Discontinued Operations In 2014, we sold our German regional newspapers, TV program guides and women's magazines. In the reporting year, the resulting subsequent income and expenses were shown separately as discontinued operations in the same way as in the previous year. For a part of the purchase price, the FUNKE Medien- gruppe was granted a multi-year subordinated vendor loan from the Axel Springer SE. The loan was fully repaid in the previous year (see note (29)). The results of the discontinued operations are as follows: Mio. € 2017 2016 Gain on disposal of discontinued operations before taxes Taxes on the gain on disposal Gain on disposal of discontinued operations after taxes Income from discontinued operations (after taxes) 1.9 – 0.6 1.3 1.3 2.8 – 0.9 1.9 1.9 As in the previous year, the cash inflows and cash out- flows attributed to the discontinued operations were only included in the cash flow from investing activities and amounted to € – 2.1 million (PY: € – 3.2 million). (e) Translation of separate financial statements denominated in foreign currency Assets and liabilities of subsidiaries for which the func- tional currency is not the euro have been translated at the exchange rate in effect on the reporting date. Good- will and fair value adjustments of assets and liabilities re- lated to the acquisition of companies outside the Euro- pean Monetary Union are assigned to the acquired company and accordingly translated at the exchange rate in effect on the reporting date. Items of the income statement of these subsidiaries have been translated at the weighted average exchange rate for the year. Equity components have been translated at the historical exchange rate at the date of origination. Foreign exchange differences resulting from the transla- tion have been recognized within accumulated other comprehensive income and/or non-controlling interests. 105 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements The exchange rates to the euro of foreign currencies that are significant for the Axel Springer Group underwent the following changes in the past year: 1 € in foreign currency Average price Exchange rate on balance sheet date Polish zloty Swiss franc US-Dollar Hungarian forint 2017 2016 12/31/2017 12/31/2016 4.26 1.11 1.13 4.36 1.09 1.11 4.18 1.17 1.20 4.42 1.08 1.06 309.29 311.44 310.03 309.82 British pound 0.88 0.82 0.89 0.86 (3) Explanation of significant accounting and valuation methods (a) Basic Principals The accounting and valuation principles applied uniformly across the Axel Springer Group in fiscal year 2017 are basically the same as those applied in the previous year. For information on the accounting and valuation methods resulting from new or revised IFRS Standards and IFRS IC Interpretations, please refer to note (3q). (b) Recognition of income and expenses The Axel Springer Group mainly generates advertising and circulation revenues. Revenues are recognized at the time when the significant risks of ownership have passed to the buyer/the services have been rendered, the amount of revenue can be reliably measured, and it is sufficiently probable that the economic benefits will flow to the enterprise. Revenues are stated net of any discounts allowed. Revenues from services rendered over a certain period in an indefinite number of transac- tions are recognized on a straight-line basis over the contractual term. Advertising revenues include sales from the online classi- fied offerings, reach-based marketing and performance marketing, as well as from advertising marketing for our digital media and print media. Circulation revenues encompass the sales of print media to retailers, wholesalers, and subscribers. Revenue is not recognized for that portion of products sold, which can be expected, on the basis of historical experience, to be returned. In addition, circulation revenues include the sale of digital subscriptions. Where significant risks and rewards of business activities do not lie with the Axel Springer Group or the income is collected in the interest of third parties, only the corre- sponding commission income or proportion of revenue accruing to the Axel Springer Group are recognized as revenues. Offers that contain multiple service components ("bundle products") are separated for purposes of revenue recog- nition when the delivered components have an inde- pendent benefit and the market values of goods not yet delivered or services not yet performed can be deter- mined objectively. The total remuneration for these offers is distributed in principle among the individual service components in such a way that the service components still to be provided are allocated part of the remuneration in the amount of their fair value, and then the service components already provided are allocated the remain- ing remuneration in proportion to their fair values. Revenues from barter transactions are recognized if the goods or services exchanged are dissimilar and the amount of revenue can be measured reliably. Revenues are measured at the fair value of services received. If the fair value of the service received under barter transac- tions cannot be measured reliably, the fair value is deter- mined on the basis of the service rendered. Other income is recognized when the future inflow of economic benefits from the transaction can be meas- ured reliably and was received by the company during the reporting period. Operating expenses are recognized either when the cor- responding goods or services are sold or rendered, or at the time of their origination. 106 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements Interest expenses and income are recognized on an ac- crual basis in the period of their occurrence. Interest ex- penses incurred in connection with the acquisition and production of qualified assets are capitalized as assets in the financial statements. Dividend income is recognized when the legal entitlement is constituted. (c) Intangible assets Internally generated intangible assets are measured as the sum of costs incurred in the development phase from the time when the technical and economic feasibil- ity has been demonstrated until the time when the intan- gible asset has been completed. The capitalized produc- tion costs include all costs that are directly or indirectly allocable to the development phase. Costs for the self- development of websites are capitalized only when the website directly serves the generation of revenues. Pur- chased intangible assets are measured at cost. Internally generated and purchased intangible assets that have a determinable useful life are amortized over their expected useful lives using the straight-line method, starting from the time when they become available for use by the enterprise, as follows: Software Licenses Supply rights Internet platform Customer relationships Useful life in years 3 - 8 3 - 10 3 - 6 3 - 8 3 - 17 Intangible assets with an indefinite useful life, which in- clude goodwill, title rights, and brand rights, are not amortized. At present, the use of these assets by the company is not limited by any economic or legal re- strictions. (d) Property, plant, and equipment Property, plant, and equipment are measured at cost and depreciated over their expected useful lives using the straight-line method. Any gains or losses on the dis- posal of property, plant, and equipment are recognized as other operating income or expenses. Leased assets whose economic benefits are attributable to Axel Springer are recognized and measured at the present value of the minimum future lease payments or the lower fair value of the leased asset and depreciated by the straight-line method over the minimum contract term, taking any existing residual value into considera- tion. When it is reasonably certain that ownership will pass to Axel Springer at the end of the lease period, such assets are depreciated over their useful lives. The present value of the payment obligations associated with the minimum future lease payments is recognized as a li- ability. For depreciation purposes, the following useful lives are generally applied for property, plant, and equipment: Buildings Leasehold improvements Printing machines Editing systems Other operational and business equipment Useful life in years 30 - 50 2 - 15 5 - 20 3 - 7 2 - 15 Capital investment subsidies and bonuses granted by the government are recognized when it is reasonably certain that the subsidies will be granted and the related terms and conditions will be fulfilled. Bonuses and subsi- dies granted for the acquisition or construction of prop- erty, plant and equipment are recognized in a deferred income item within other liabilities. In subsequent peri- ods, the deferred income item is released and recog- nized as income over the useful life of the corresponding assets. 107 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements (e) Investment property Investment property intended for lease to third parties is measured at amortized cost. Such property is depreci- ated over a useful life of 50 years using the straight-line method. For leased assets whose economic benefits are attributable to Axel Springer, see note (3d). (f) Recognition of impairment losses in intangible assets, in property, plant, and equipment, and in investment property Impairment losses are recognized in intangible assets, in property, plant, and equipment, and in investment prop- erty when as a result of certain events or changed cir- cumstances, the carrying amount of the assets is no longer covered by the recoverable amount, i.e. the higher of the fair value less cost of disposal (“net realizable value”), and the value in use. If it is not possible to deter- mine the recoverable amount of an individual asset, the determination of the recoverable amount is carried out at the cash generating unit level, or in the group of cash generating units (each one a “reporting unit”) to which the asset belongs. Goodwill and intangibles with indefinite useful lives which are acquired in the context of business combinations, are not subject to amortization, and shall be tested at least once annually for impairment. In order to carry out the impairment tests, these assets are assigned to those reporting units that can be expected to profit from the synergies of the business combinations. These reporting units represent the lowest level at which these assets are monitored for management purposes. They generally correspond to individual titles and digital products of the Axel Springer Group. In the case of integrated business models, individual titles and digital products are summed up in a single reporting unit. If the carrying amount exceeds the recoverable amount, this results in an impairment loss. For reporting units, the goodwill is initially reduced, and an additional impairment loss is allocated pro rata to the carrying amounts of the other assets of the reporting unit. As a basic principle, the recoverable amount is initially determined based on the value in use. The net realizable value is additionally determined when the value in use is less than the carrying amount. The net realizable value corresponds to the amount reduced by the selling costs, which can be achieved on commercial terms through the sale of an asset or reporting unit. As quoted prices are not observable, as a general rule, the net realizable value is determined as the present value of future cash flows, which are derived from the medium-term planning and from the point of view of an independent third party. Thus, the valuation is based on unobservable input fac- tors (Level 3, see note (3g)). The determination of the value in use is taking into con- sideration the further use within the Group and is based on the estimated future cash flows, which are derived from the medium-term planning. Expenses of the Group’s central operations are also taken into account. Basically, the planning horizon for the medium-term plan- ning is five years. However, the values in use are primar- ily determined by the terminal value. The amount of the terminal value depends on the forecasted cash flow in the fifth year of medium-term planning, on the growth rate of the cash flows subsequent to the medium-term planning, and on the discount rate. The cash flows to be received after the five-year period are extrapolated on the assumption of a growth rate, which is derived from the assumed average market or industry growth rate of the reporting unit. The discount rates for every business unit are deter- mined with reference to the weighted average costs of capital and costs of debt of comparable companies. In this respect, country-specific risk premiums and tax rates are taken into account. Estimation uncertainties arise in the following assump- tions applied in the calculations:  Medium-term planning: The medium-term planning is determined on the basis of past historical values, and factors in business-segment-specific expectations about future market growth. Here, we assume that cash flows in the electronic media sector will usually exhibit higher growth rates than in the print sector. 108 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements  Discount rates: Based on the average weighted capi- tal costs of the sector in question, the discount rates of the reporting units also consider country-specific risks, which reflect the current market estimates. For financial assets and financial liabilities which need to be measured at fair value, we apply the following valua- tion hierarchy. Hereby, the input factors used in the valu- ation models are categorized into three levels:  Growth rates: The growth rates are determined on the basis of published market research reports for the sectors in question. In estimating the long-term growth rates with regard to the determination of the value in use, due consideration was given to the com- pensatory effects between the different business lines, based on the adopted strategy of the Group. Impairment losses are reversed when the recoverable amount exceeds the carrying amount of an asset or a re- porting unit, due to changes in the estimates upon which the measurement is based. The reversal is limited to the amount that would have resulted if previous impairment losses had not been recognized. A recognized impair- ment loss in goodwill is never reversed. (g) Financial assets and liabilities Financial assets are mainly composed of cash and cash equivalents, trade receivables, receivables from related parties, loans, investments, securities, and financial de- rivatives with positive market values. Financial liabilities are mainly composed of trade payables, liabilities due to related parties, liabilities due to banks, promissory notes, contingent consideration, and financial derivatives with negative market values. The initial recognition and derecognition of financial in- struments coincide with the settlement dates of custom- ary market purchases and sales of financial assets. A financial asset is derecognized when the contractual rights to the cash flows from the financial asset have ex- pired or have been transferred to third parties, or when the Group has assumed a contractual obligation to pay the cash flows to a third party, under which the risks and rewards or the power of control were transferred. A fi- nancial liability is derecognized when the obligation un- derlying the liability is settled or annulled, or has expired.  Level 1: Quoted (unadjusted) prices in active markets for identical assets or liabilities (e.g. stock market prices).  Level 2: Input factors other than prices quoted in Level 1, which are observable for the asset or the lia- bility, either directly or indirectly (e.g. interest yield curves, forward rates).  Level 3: Input factors which are not observable on a market for the asset or the liability (e.g. estimated fu- ture results) When determining the fair value, the application of rele- vant and observable input factors is given high priority, whereas the application of non-observable input factors is given less priority. The classification of the valuation models into the respective valuation hierarchy levels is monitored at the end of each reporting period. Investments and securities Investments that have not been consolidated or ac- counted for using the equity method in the consolidated financial statements, as well as securities, are measured at fair value if it can be determined reliably on the basis of stock exchange or market prices and generally accepted valuation methods, respectively. Otherwise, they are measured at amortized cost. The valuation methods em- ployed include especially the discounted cash flow method (DCF method) based on the expected invest- ment income. We assume that the fair value of invest- ments and securities is not reliably measurable when ei- ther material valuation differences appear in estimating fair values based on projections and scenarios, or when the likelihood of such projections and scenarios cannot be reliably determined. Any unrealized gains or losses re- sulting from the changes in fair value of the financial as- sets and liabilities, considering resulting tax effects, are recognized in accumulated other comprehensive in- come. Changes in fair value are not recognized in profit 109 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements or loss until the corresponding non-current financial as- sets are sold or an impairment loss is recognized. The carrying amounts of investments and securities are reviewed on every reporting date to determine whether there are objective indications of a prolonged impair- ment. We assume a prolonged impairment when the im- pairment is significant, i.e. the impairment is at least 20 % of the carrying amount of the investment, or if the impair- ment already exists for twelve months. If a significant im- pairment is found to exist, an impairment loss is recog- nized in profit or loss. Loans, receivables, and other financial assets Upon initial recognition, loans, receivables, and other fi- nancial assets are measured at fair value plus transaction costs. In subsequent periods, they are measured at amortized cost, after deduction of any write-downs, us- ing the effective interest method. A write-down is taken when objective indications suggest that the receivable may not be fully collectible. Such an indication might be the insolvency or other considerable financial problems of the debtor, for example. The amount of the write- down is measured as the difference between the carry- ing amount of the receivable and the present value of the estimated future cash flows from this receivable, dis- counted by application of the effective interest rate. Write-downs are charged against income both in the form of an account for allowances on doubtful accounts and by means of direct write-downs. The account for al- lowances on doubtful accounts is used, in particular, for allowances on doubtful trade receivables and receivables due from related parties. If in subsequent periods the fair value has objectively risen, the write-downs are reversed and recognized in income in the appropriate amounts. Financial derivatives Financial derivatives are utilized to hedge against cur- rency and interest rate risks that have an influence on fu- ture cash flows. These are stated at their current market value. The valuation is based on observable parameters, using recognized valuation methods, and is particularly influenced by the development of forward rates or yield curves. If the conditions for the application of hedge ac- counting are met, changes in the fair values, including the tax effects, are recognized directly in equity as accu- mulated other comprehensive income. The amounts rec- ognized in accumulated other comprehensive income are recycled when the underlying transaction is recog- nized on the balance sheet or income statement. The changes in the fair value of derivatives that do not meet the conditions for the application of hedge accounting, despite their economic hedging effect, are measured at fair value through profit and loss. Furthermore, financial derivatives are used to cover the risk of impairments of investments and securities. When the underlying financial assets are recognized at amortized costs because their fair values are not reliably measurable, the financial deriv- ative is recognized at amortized costs as well. Contingent consideration Contingent consideration arising from options written over non-controlling interests and earn-out agreements in connection with business combinations and the acqui- sition of non-controlling interests are recognized at fair value. To the extent it can be reliably measured, this value is derived from the estimated profit trends of the acquired companies in the years prior to the possible ex- ercise dates of the options or the payment dates of the earn-outs. In the subsequent periods, changes in the fair value are recognized immediately in income. The dis- count rates are determined on the basis of the Group’s cost of debt. The earnings used as a basis for measure- ment are generally EBITDA figures adjusted for material non-recurring effects. Other financial liabilities Upon initial recognition, other non-derivative financial lia- bilities are measured at fair value less transaction costs. In subsequent periods, they are principally measured at amortized cost using the effective interest method. Liabil- ities arising from put options written over non-controlling interests, which are not recognized as contingent con- sideration, are measured at the present value of the re- demption amount through profit or loss. 110 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements (h) Inventories Inventories are measured at cost. Purchase costs are determined on the basis of a weighted average value. Production costs include all costs directly related to the units of production and production-related overhead costs. Inventories are measured at the reporting date at the lower of the purchase or production cost and the net realizable value. The net realizable value is the estimated selling price less estimated costs to be incurred until the sale. The net realizable value of goods and services in progress is calculated as the net realizable value of fin- ished goods and services less remaining costs of com- pletion. Impairments are reversed whenever the reasons justifying an earlier write-down no longer exist. (i) Assets held for sale and discontinued operations Assets are classified as held for sale when their disposal has been initiated, the sale of such is highly probable and the asset or disposal group is available for immediate sale in its present condition. The non-current assets held for sale are measured at the lower of the carrying amount or the fair value less costs to sell. Depreciation is no longer applied to these assets. Liabilities that are held in connection with assets held for sale are disclosed like- wise separately in the balance sheet as a current item. Discontinued operations represent a material geograph- ical or operational line of business of the Group that is available for sale. The results from continued operations in the fiscal year and the prior year are shown in the income statement. The results from discontinued operations are shown sep- arately. Cash inflows and cash outflows from discontin- ued operations are shown separately in the notes to the consolidated financial statements. The information in the notes relates to the continued operations of the Group. (j) Pension provisions Pension obligations under defined benefit plans are de- termined using the projected unit credit method under which future changes in compensation and benefits are taken into account. In order to calculate the pension pro- visions, the present value of the obligations is netted against the fair value of the plan assets. The expected life spans of the participants are deter- mined with reference to the country-specific recognized actuarial tables. The present value of the defined benefit commitments is determined by discounting the esti- mated future cash outflows. The discount rate applied for this purpose is determined with reference to high- quality AA-rated corporate bonds that match the under- lying pension obligations with respect to currency and maturity. If corporate bonds with matching terms do not exist, then the yields of these bonds at the balance sheet date are adjusted along the yield curve for fixed-interest government bonds using a constant spread over the term of the underlying pension obligations. The return underlying the measurement of the plan as- sets is identical to the discount rate for defined benefit commitments. Actuarial gains and losses resulting from changes in ac- tuarial parameters are offset against accumulated other comprehensive income without affecting net income. (k) Other provisions and accrued liabilities Other provisions have been formed to account for all dis- cernible legal and constructive obligations to third par- ties, provided that the settlement of the obligation is probable and the amount of the obligation can be reliably estimated. The amount of each provision corresponds to the expected settlement amount. In the case of long- term provisions, the expected settlement amount is dis- counted to the present value at the reporting date by ap- plication of appropriate market rates of interest. Provi- sions are recognized for restructuring expenses only when the intended measures have been sufficiently con- cretized and announced on or before the reporting date. (l) Deferred taxes Deferred taxes are recognized to account for the future tax effects of temporary differences between the tax ba- ses of assets and liabilities and the carrying amounts of those assets and liabilities in the consolidated financial statements, and for interest and tax loss carry-forwards. Deferred taxes are measured on the basis of the tax laws already enacted for those fiscal years in which it is prob- able that the differences will reverse or the tax loss carry- 111 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements forwards can be utilized. Deferred tax assets are recog- nized for temporary differences or interest and tax loss carry-forwards only when the ability to utilize them in the near future appears to be reasonably certain. Deferred taxes are recognized for temporary differences resulting from the fair value measurement of assets and liabilities obtained through business combinations. Deferred taxes are recognized for temporary differences relating to goodwill only when the goodwill can be utilized for tax purposes. Deferred tax assets and liabilities of tax groups are netted if they are based on the same kind of income taxes; otherwise, they are netted only if the de- ferred taxes are based on the income taxes imposed by the same tax authority and only when current taxes can be netted as well. (m) Treasury shares Treasury shares are measured at cost and are charged directly to equity. (n) Share-based payment programs As part of performance-based remuneration programs, Axel Springer Group grants equity-settled and cash-set- tled share-based payment programs. The compensation components to be recognized as expenses over the vesting period are measured as the fair value of the op- tions granted at the time when they were granted (in case of equity-settled programs) or at the reporting date (in case of cash-settled programs). The fair values are determined on the basis of generally accepted option pricing models. The corresponding amount is recognized in the additional paid-in capital (in the case of equity-set- tled programs) or as provisions/liabilities (in the case of cash-settled programs). Additions to liabilities or provi- sions are recognized in personnel expenses; reversals are accounted for in other operating income (o) Transactions in foreign currencies Purchases and sales in foreign currencies are translated at the exchange rate on the date of the transaction. As- sets and liabilities in foreign currencies are translated into the functional currency at the exchange rate on the re- porting date. Any foreign exchange gains or losses re- sulting from such translations are recognized in income. (p) Estimates and assumptions The preparation of financial statements requires esti- mates and assumptions, as well as the exercise of dis- cretionary powers, which can have an impact on the amount and disclosure of assets and liabilities, income and expenses and contingent liabilities. Estimates and assumptions are regularly reviewed and adjusted if nec- essary. Nevertheless, they may differ from the actual val- ues. Estimates and assumptions which are affected by uncertainty are associated in particular with impairment testing of goodwill and intangible assets with indefinite useful lives (see note (3f)), for allocating purchase prices (see note 2c)) and assessing contingent purchase price liabilities (see note (3g)), setting actuarial parameters in the context of the valuation of pension obligations (see note (3j)), determining the amount of deferred tax assets to be capitalized (see note (3l)), determining fair values of financial assets (see note (3g)), accounting for other pro- visions (see note (3k)), assessing share-based compen- sation programs (see note (3n)), and the determination of the useful lives of intangible assets (see note (3c)) and property, plant and equipment (see note (3d)). Infor- mation concerning the carrying amounts, which are based on estimates and assumptions, can be found in the comments on the specific line items. (q) New accounting standards In the fiscal year 2017, IFRS Standards or IFRIC Interpre- tations to be applied for the first time caused no material changes for Axel Springer. The following IFRSs have al- ready been published, but have not yet been applied: With the publication of the final version of IFRS 9 “Finan- cial Instruments” in July 2014, the IASB completed its project for replacing IAS 39 “Financial Instruments: Recognition and Measurement”. IFRS 9 provides a standardized approach for classification and measure- ment of financial assets and liabilities which is primarily based on the company's business model and the cash flows of the financial instrument. Furthermore, IFRS 9 contains a new impairment model which also demands the recording of expected losses in addition to incurred losses. Finally, IFRS 9 also contains new guidelines for the use of hedge accounting, targeted in particular at better illustration of the risk management activities of a 112 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements company and the monitoring of non-financial risks. Axel Springer has to apply IFRS 9 beginning with Janu- ary 1, 2018. At the date of the initial application, we will record the cumulative effects of applying the new stand- ard in equity. Our analyses have shown that the classifi- cation and valuation of financial assets as well as the ac- counting for financial liabilities will only change to an insignificant extent. In the future, we will generally recog- nize investments that are not consolidated or not in- cluded in the consolidated financial statements using the equity method at fair value through profit or loss. On De- cember 31, 2017 fair value adjustments recorded in ac- cumulated other comprehensive income for investments classified as available-for-sale will be reclassified into ac- cumulated retained earnings. For all trade receivables, contract assets in accordance with IFRS 15, as well as receivables from leasing contracts in accordance with IFRS 16, we will apply the simplified procedure for the determination of risk provision for expected credit losses. Therefore we do not expect any significant change in risk provisions compared to the present accounting. The hedge accounting is in principle simplified by the new regulations. However, due to the low level of relevant hedging instruments we expect no significant adaptation effects. Overall, there will not be any significant changes in the presentation and recognition of financial assets and liabilities through the application of IFRS 9. In May 2014, the IASB published the new standard for revenue recognition, IFRS 15 “Revenue from Contracts with Customers”, which will completely replace the exist- ing regulations for the recognition of revenue, including related interpretations, in accordance with IAS 18 “Reve- nue” and IAS 11 “Construction Contracts”. Conse- quently, revenues will be recognized in the future, when the customer obtains control over the agreed goods and services and can derive benefits from these. Revenues are recognized in the amount of the consideration that the company will presumably receive. The new standard provides a five-step process, in which the volume of sales and the time or the period of revenue recognition can be determined. The model is as follows: Identifica- tion of the customer contract, identification of the individ- ual performance obligations, determination of the trans- action price, allocation of the transaction price to the separate contractual obligations, and the realization of revenue when individual contractual obligations are ful- filled. Furthermore, the new standard requires future qualitative and quantitative disclosures which go far be- yond the current regulations. Axel Springer has to apply IFRS 15 beginning with January 1, 2018. We will apply the standard retrospectively, and will also report the comparative period by applying the new standard in the reporting year 2018. At Axel Springer, IFRS 15 will have an impact in particular on contracts that can give rise to a new classification, whether a principal or agent activity exists. Thus, for each separate performance obligation it is to be examined whether these are controlled prior to transfer to the customer. As supportive indicators, only the primary responsibility for provision of the service, the inventory risk as well as the pricing competency are to be taken into account in the assessment. Any potentially existing default risk should be disregarded. Taking into account the newly introduced control principle as well as the modified indicators, the contractual relationships of our business model in the area of Performance Market- ing are to be accounted for as agent relationships from 2018 onwards. As a result of this change, both the reve- nues of the Performance Marketing subsegment and the material expenses will decrease. With respect to the fis- cal year 2017, application of the new regulations would result in a reduction in the revenues and the material ex- penses of approximately € 500 million. This would corre- spond to a decline in sales in the Performance Marketing subsegment of around 75 %. Our Group performance figures adjusted EBITDA and adjusted EBIT, as well the balance sheet disclosure are not affected. The adjusted EBITDA margin of the Group as well as of the Marketing Media segment will increase accordingly. In addition, due to IFRS 15, an adjustment in the bundle offerings would result. In some cases, these contracts lead to an earlier recognition of revenues, since instead of the residual value method (see note (3b)), a price reduction in the bundle offer will also be applied to the goods to be deliv- ered or services to be rendered in proportion to their fair values. The effects of these adjustments are, however, of minor importance. In the reporting period, we also have also conducted a group-wide survey of the likely impact of the new lease 113 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements accounting standard (IFRS 16). In January 2016, IASB published IFRS 16, “Leases”. IFRS 16 replaces IAS 17 “Leases” and the associated interpretations. According to the new regulation, lessees are required to account for all leases in the form of a right-of-use asset, and a corresponding leasing liability. A leasing relation- ship exists if the fulfillment of the contract depends on the use of an identifiable asset, and the customer simul- taneously obtains control of this asset. The presentation in the income statement is essentially a financing trans- action, so that the right-of-use asset usually is depreci- ated in a linear manner, and the leasing liability is up- dated in accordance with the effective interest method. Leases with a total duration of a maximum of twelve months, and leases of so-called low-value assets (new value of up to USD 5,000) are excluded from this princi- ple. In such cases, the lessee has the option of selecting an accounting method which is similar to that of the pre- vious operating lease. IFRS16 is to be applied at the lat- est to fiscal years starting on or after January 1, 2019. Axel Springer will avail of the possibility of early applica- tion of the standard and apply IFRS 16 beginning with January 1, 2018. On January 1, 2018, we will record the cumulative effects of the initial application of the new standard in equity. At Axel Springer, the new regulations will affect in particular the accounting and valuation of rental and lease contracts, which are currently classified as operating leases. These mainly comprise office spaces, leased vehicles and other leased operating and office equipment, which will lead to the recognition of right-of-use assets and corresponding leasing liabilities in the future. We will make use of the duration-specific and value-specific simplification rules described above. On the basis of existing leasing relationships at the reporting date, we expect an increase in the adjusted Group EBITDA by approximately € 45-50 million in 2018 due to the changed accounting for lease expenses; we do not expect a significant effect on the adjusted Group's EBIT. The increase in adjusted Group EBITDA 2018 is ex- pected to be distributed as follows across the operating segments: News Media (approximately 45 %), Classifieds Media (approximately 35 %), Marketing Media (approxi- mately 20 %). Taking into account the interest expenses to be recorded in the financial result from the compound- ing of the leasing liabilities, a negative effect on the net income for 2018 in the low single-digit million Euro range results. Due to the reporting of the leasing liabilities in the fiscal year 2018, net debt is expected to increase by ap- proximately € 200 million to € 220 million. At the same time, due to the future disclosure of the lease payments in the cash flow from financing activities, the free cash flow 2018 will increase by around € 40 million to € 45 million. Furthermore, IASB and IFRS IC have published addi- tional pronouncements that have had, or will have, no material influence on our consolidated financial state- ments. 114 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements Notes to the consolidated statement of financial position (4) Intangible assets The changes in intangible assets were as follows: € millions Acquisition or production cost Balance as of January 1, 2016 Initial consolidation Deconsolidation Currency effects Additions Disposals Transfers Purchased rights and licenses Internally generated rights Goodwill Total 2,012.1 208.7 2,277.9 4,498.7 210.6 – 23.7 – 12.4 35.2 – 9.8 – 20.9 9.9 – 4.5 – 8.7 64.9 – 2.3 20.9 168.8 – 8.9 – 13.2 0.0 0.0 0.0 389.2 – 37.2 – 34.3 100.1 – 12.0 0.0 Balance as of December 31, 2016 2,191.1 288.9 2,424.6 4,904.6 Initial consolidation Deconsolidation Currency effects Additions Disposals Transfers Balance as of December 31, 2017 Depreciation, amortization, and impairments Balance as of January 1, 2016 Deconsolidation Currency effects Additions Disposals Transfers Balance as of December 31, 2016 Deconsolidation Currency effects Additions Thereof amortization Thereof impairment losses Disposals Transfers Balance as of December 31, 2017 Carrying amounts Balance as of December 31, 2017 Balance as of December 31, 2016 71.2 – 8.3 – 37.4 33.8 – 50.4 – 160.2 2,039.9 469.2 – 12.1 – 5.9 127.7 – 9.5 – 4.1 565.3 – 7.4 – 1.1 110.4 108.8 1.6 – 49.7 – 51.6 566.0 1,473.9 1,625.8 5.4 0.0 – 3.2 79.6 – 1.4 0.0 369.2 103.4 – 1.9 – 5.3 48.7 – 2.1 4.1 146.8 0.0 – 1.5 69.9 67.1 2.8 – 1.3 4.6 218.4 150.9 142.0 124.6 – 1.7 – 53.1 0.0 0.0 – 184.4 2,310.0 29.1 0.0 1.0 0.0 0.0 0.0 30.1 0.0 0.2 2.0 0.0 2.0 0.0 – 2.0 30.3 201.2 – 10.0 – 93.6 113.4 – 51.8 – 344.7 4,719.1 601.7 – 14.0 – 10.2 176.4 – 11.6 0.0 742.2 – 7.4 – 2.5 182.3 175.8 6.5 – 51.0 – 49.0 814.7 2,279.7 2,394.4 3,904.4 4,162.3 115 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements The purchased rights and licenses mainly comprised title rights, trademarks, and customer relationships. The in- ternally generated intangible assets mainly consisted of software solutions and websites. The reclassifications in the prior year consisted almost exclusively of the reclassification into assets held for sale (see note (10)). In the following tables, we disclose the allocation of goodwills and the purchased rights and licenses within the intangi- ble assets with indefinite useful lives for reporting units, as well as the discount rates and growth rates used for impair- ment testing: € millions Other intangible assets with indefinite useful life Goodwill Total Discount rate (before tax) Discount rate (after tax) Growth rate 590.8 377.9 365.1 355.2 278.6 198.1 189.9 189.1 172.5 9.2% 8.6% 8.6% 10.4% 10.8% 7.9% 10.2% 11.1% 9.0% 7.0% 6.9% 7.6% 7.9% 8.4% 6.3% 8.4% 7.9% 7.4% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 591.5 7.6% – 10.9% 5.5% – 8.1% 1.5% – 2.5% 127.4 142.2 172.6 146.2 31.2 56.1 55.1 73.2 102.7 122.4 2017 SeLoger StepStone Ringier Axel Springer Media Business Insider Awin Immowelt Yad2 eMarketer @Leisure Others Total thereof Classifieds Media thereof News Media thereof Marketing Media 463.4 235.7 192.5 209.0 247.4 142.1 134.8 115.9 69.8 469.1 2,279.7 1,275.9 607.1 396.3 1,029.0 3,308.7 585.2 397.2 46.5 1,861.0 1,004.3 442.8 116 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements 2016 SeLoger Business Insider Ringier Axel Springer Media StepStone AuFeminin eMarketer Immowelt Yad2 Awin Others Total thereof Classifieds Media thereof News Media thereof Marketing Media € millions Other intangible assets with indefinite useful life Goodwill 463.4 237.1 192.4 235.8 166.2 131.7 142.1 138.2 148.9 538.6 2,394.4 1,278.8 647.9 467.2 127.4 165.8 206.2 141.1 55.5 82.9 56.1 56.6 0.0 231.2 1,122.8 589.8 459.2 73.8 Total 590.8 402.9 398.6 377.0 221.6 214.6 198.1 194.8 148.9 769.8 3,517.2 1,868.5 1,107.1 540.9 Discount rate (before tax) Discount rate (after tax) Growth rate 10.0% 9.4% 8.2% 9.5% 11.4% 10.1% 8.6% 10.1% 10.6% 7.6% 7.3% 7.2% 7.7% 8.6% 7.3% 6.8% 8.3% 8.4% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 6.4% – 10.8% 5.0% – 8.6% 1.5% – 2.5% The changes in goodwill of the major reporting units were as follows: € millions 01/01/2016 Initial consolid ation Deconsolid ation Currency effects 12/31/2016 SeLoger Awin 471.5 157.0 0.0 0.0 StepStone 242.3 12.1 Business Insider Ringier Axel Springer Media Immowelt Yad2 eMarketer @Leisure 230.4 0.0 198.3 – 0.1 142.1 132.0 0.0 0.0 0.0 125.5 40.5 28.9 AuFeminin 166.4 0.1 – 8.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 – 8.1 – 18.6 463.4 148.9 235.8 6.7 237.1 – 5.7 0.0 6.2 6.3 – 0.1 – 0.3 192.4 142.1 138.2 131.7 69.4 166.2 Initial conso- lidation 0.0 103.1 6.0 0.0 11.7 0.0 0.0 0.0 0.4 0.0 Total 1,780.5 166.5 – 8.0 – 13.7 1,925.2 121.3 Deconsolid ation Currency effects Transfers 12/31/2017 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 – 4.6 – 6.1 0.0 0.0 0.0 463.4 247.4 235.7 – 28.2 0.0 209.0 9.8 0.0 – 3.5 – 15.7 0.0 – 19.4 0.0 0.0 0.0 0.0 – 3.1 – 163.1 192.5 142.1 134.8 115.9 69.8 0.0 – 51.5 – 182.5 1,810.6 117 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements In addition to the discount rates and growth rates stated above, the impairment tests depend upon the medium- term planning of the reporting units. The medium-term planning of SeLoger is based on an increased market penetration through the development of innovative marketing offers. The high brand awareness of the core brand SeLoger will be maintained and further increased by continuous investments in marketing. User- friendly and innovate products will differentiate SeLoger from competitors. The online real estate classifieds mar- ket in France is assumed to grow moderately during the planning period. In the medium-term planning of the StepStone Group, we assume that the anticipated development of the economy in continental Europe will still have a positive impact on the labor market. The assumptions made in- clude increasing revenues in our European and South Af- rican core markets as well as in our Latin American mar- kets. The respective market position is to be expanded and strengthened in particular through the further devel- opment of the product portfolio and further improvement of the system infrastructure, as well as by intensified marketing measures (online and offline) to further strengthen the Candidate Delivery (StepStone's capacity to deliver relevant candidates to its customers). In addi- tion, Step-Stone is strengthening the sales organization in the UK in order to realize synergies between the indi- vidual job portals. We expect the returns of the Step- Stone Group to remain at a high level. In the medium-term planning of Ringier Axel Springer Media, we assume that our digital content offerings will increasingly and sustainably participate in the structural shift from print to digital channels and that our digital business models will gain in importance in the areas of paid-content models and classified ad models in the long-term. However, the revenue streams in sales and in the print advertising market will come under increasing pressure in the coming years. It will be possible to at least partly compensate for the declining circulation fig- ures by price increases. With a strict cost management in the print business it shall be possible to largely main- tain profitability. The medium-term planning of Business Insider is based on the assumption that sales will grow signifi- cantly. Advertising revenues as the main revenue source benefit from increasing user numbers. One relevant source of growth however is planned to be realized through circulation revenues from both B2B and B2C subscription offers. In order to reasonably consider in the cash flow projections the period of developing the com- pany to stable conditions, we have used a detailed plan- ning period of eight years, thereby exceeding the period normally applied. The medium-term planning of Awin Group (previously Zanox Group) is based on the merger of the two busi- nesses, Awin and affilinet, to develop a combined affiliate network. The merger will strengthen their competitive po- sition and lay the foundations for accelerated growth in the core markets of Germany, western Europe and the USA, inter alia through the integration of platforms, the development of new and innovative business products (e.g. in the area of influencer marketing), and the realiza- tion of cost synergies. The medium-term planning of the Immowelt Group is based on the assumption of continued positive market conditions related to economic growth, employment rates and interest rate developments. As result for the German real estate market, the Immowelt Group as- sumes stable development in case of continuing intense competition. Furthermore, the planning includes price in- creases and the possibility of up-selling activities in case of a largely stable customer base. In future years, invest- ments in brand awareness are planned and various new product developments for differentiation on the market will be realized. The returns are expected to remain at a high level. The medium-term planning of Yad2 is based on the as- sumption of a moderate economic growth of Israel. Yad2 benefits from a high brand awareness in the classifieds market that translates into an excellent market position. Thus, in addition to continuous product innovations Yad2 assumes further growth of classifieds revenues in all of their three core verticals jobs, real estate and cars. At the 118 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements same time advertising banner revenues are expected to decline. global booking platforms and to expand its market posi- tion in the travel segment. The medium-term planning of eMarketer is based on the assumption, that the average revenue per customer can be increased through additional customers and the sale of new products. In addition, it is assumed to in- crease the number of customers continuously through an improved customer retention. Additional growth also stems from content expansions to attract new industry segments that are affected by digitalization. In the medium-term planning of @Leisure Group, on one hand, the growth of Traum-Ferienwohnungen in the self-service segment as a result of new products and tar- iffs in the listing business, as well as the new range of in- telligent software solutions for booking administration and sales channel control for private landlords contribute to this. On the other hand, DanCenter Group, through organic growth, as well as the further expansion of ca- pacities of the Belvilla Group in high-demand target re- gions made a significant impact to the growth of the full- service segment. The Group is also planning to differenti- ate itself more strongly from the competition through fur- ther investments in the full-service segment and to accel- erate its growth through specific cooperation with big As in the previous year the recoverable amount was de- termined as the value in use for all reporting units. In the course of a sensitivity analysis, we have assumed separately for each of our large reporting units a 10 % decrease of future cash flows in the last planning year, a 10 % increase of the weighted average costs of capital or a decrease of the terminal growth rate by half a percent- age point. On this basis, no reporting unit showed that its carrying amount of the assets exceeded its recovera- ble amount. Goodwill allocated to the other reporting units of the Group and intangible assets with indefinite useful lives of € 591.5 million (PY: € 769.8 million) amounted to less than 5 % (PY: 5 %) of the total value. In the course of a sensitivity analysis, we have assumed separately for each of our other reporting units a 10 % decrease of future cash flows in the last planning year, a 10 % increase of the weighted average costs of capital or a decrease of the terminal growth rate by half a percentage point. As in the previous year, no impairment was indicated for any of the other reporting units. 119 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements (5) Property, plant and equipment The changes in property, plant, and equipment were as follows: € millions Acquisition or production cost Balance as of January 1, 2016 Initial consolidation Deconsolidation Currency effects Additions Disposals Transfers Technical equipment and machinery Other equipment, operational and office equipment Construction in progress Total Land and buildings 416.2 535.2 222.3 22.7 1,196.4 3.9 0.0 – 0.5 1.1 – 0.1 3.2 0.0 0.0 2.3 4.2 0.0 1.1 6.3 – 4.6 – 3.2 22.5 – 1.2 1.4 Balance as of December 31, 2016 423.8 542.9 243.5 Initial consolidation Deconsolidation Currency effects Additions Disposals Transfers Balance as of December 31, 2017 Depreciation, amortization, and impairments 0.0 0.0 0.9 2.1 – 138.4 3.1 291.6 0.0 0.0 0.3 3.7 – 2.3 1.7 546.3 0.8 – 0.2 – 0.3 36.7 – 11.5 – 4.0 265.0 Balance as of January 1, 2016 140.3 393.1 155.6 Deconsolidation Currency effects Additions Transfers 0.0 0.2 8.8 0.5 0.0 2.8 21.6 0.0 – 3.5 – 2.2 25.0 0.0 Balance as of December 31, 2016 149.8 417.5 174.9 0.0 0.0 0.0 31.2 0.0 – 2.5 51.3 0.0 0.0 0.1 50.5 – 0.4 – 7.6 93.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 10.3 – 4.6 – 1.4 59.1 – 1.3 3.1 1,261.5 0.8 – 0.2 1.0 93.0 – 152.5 – 6.8 1,196.8 689.0 – 3.5 0.7 55.4 0.5 742.2 – 0.1 0.4 53.5 52.5 1.0 – 45.9 – 4.8 745.1 0.0 0.2 7.1 7.1 0.0 – 34.3 – 0.5 122.3 0.0 0.1 21.7 20.7 1.0 – 1.8 0.0 – 0.1 0.0 24.8 24.8 0.0 – 9.8 – 4.4 437.5 185.4 169.3 274.0 108.8 125.4 79.7 68.6 93.9 51.3 451.7 519.2 120 Deconsolidation Currency effects Additions Thereof depreciation Thereof impairment losses Disposals Transfers Balance as of December 31, 2017 Carrying amounts Balance as of December 31, 2017 Balance as of December 31, 2016 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements As of December 31, 2017, property, plant and equip- ment with acquisition or production cost of € 299.3 mil- lion (PY: € 298.5 million) were in use, that had already been fully depreciated. (6) Investment property The investment property developed as follows: At the balance sheet date, property, plant, and equip- ment amounting to € 37.9 million (PY: € 35.7 million) had been pledged as security for own liabilities. As of December 31, 2017, the carrying amount of prop- erty, plant, and equipment as part of finance leases was € 0.2 million (PY: € 0.8 million). At the End of 2017, the sale of the Axel-Springer-Pas- sage in Berlin, which was contracted in July 2017, was completed with payment of the purchase price of € 330 million (before tax payments of approximately € 80 mil- lion) and the handover of the building. The carrying value amounted to € 134.6 million and related with € 104.8 million to property, plant and equipment and with € 29.8 million to investment property (see note (6)). The tax expense, taking into account the reversal of de- ferred tax liabilities from previous years, amounted to € 55.7 million. Axel Springer will use the main part of the Axel-Springer-Passage as a tenant from January 1, 2018 till the end of 2020. Additions during the reporting year in construction in pro- gress amounted to € 48.3 million (PY: € 26.3 million) and relates to the new Axel Springer building in Berlin (for ad- ditional information to the construction project see note (39)). In July 2017, a contract was signed for the sale of the new Axel Springer building under construction. The pur- chase price amounts to € 425 million (before tax pay- ments of approximately € 30 million). The sale is subject to the completion of the construction and expected to be completed by the end of 2019. Axel Springer will rent the new building starting in 2020 on a long-term basis. € millions Acquisition or production cost Balance as of January 1, 2016 Transfers Balance as of December 31, 2016 Transfers Disposals Balance as of December 31, 2017 Depreciation, amortization, and impairments Balance as of January 1, 2016 Additions Transfers Balance as of December 31, 2016 Additions Transfers Disposals Balance as of December 31, 2017 Carrying amounts As of December 31, 2017 As of December 31, 2016 Investment property 39.4 – 3.1 36.3 0.5 – 36.8 0.0 6.2 0.8 – 0.5 6.5 0.3 0.1 – 6.9 0.0 0.0 29.8 The investment property exclusively concerned office and retail space leased to third parties in the Axel- Springer-Passage in Berlin. As a result of the sale of the Axel-Springer-Passage at the end of December 2017, the carrying amount has been derecognized (see note (5)). Due to lower own use of office space in the reporting year reclassifications with carrying amounts of € 0.4 mil- lion from property, plant and equipment to investment property took place. In the previous year, due to in- 121 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements creased use of office space, reclassifications with carry- ing amounts totaling € 2.6 million from investment prop- erty to property, plant and equipment took place. In the reporting year, rental revenues of € 2.4 million (PY: € 2.4 million) were generated, with corresponding di- rectly attributable operating expenses of € 0.4 million (PY: € 0.4 million). from the legal share due to special contractual arrange- ments with regard to profit participation. The same ap- plies in the event of the disposal of the investment, for which our share is 35 %. Summarized financial information (pursuant to IFRS) re- garding the investment (including PPA effects and the goodwill (on a 100 % basis)) are shown below: The fair value of the investment property on the previous year's reporting date amounted to € 40.2 million. The valuation carried out by ourselves took place on the ba- sis of forecasted net cash flows using the DCF method. The calculation was based on a discount rate of 5.4 % and a terminal growth rate of rate of 4.4 %. € millions Revenues Income after taxes Other income/loss Comprehensive income On the previous year's reporting date the future mini- mum lease payments from investment property broke down as follows: € millions Current assets Non-current assets € millions Due in up to one year Due in one to five years Due in more than five years Total 2016 Current liabilities Non-current liabilities Net assets 1.8 4.7 1.0 7.5 2017 206.8 12.7 7.3 19.9 2016 255.2 8.1 – 2.5 5.6 12/31/2017 12/31/2016 61.0 419.0 86.1 525.8 – 108.4 – 106.9 – 86.3 285.3 – 98.5 406.6 (7) Non-current financial assets (a) Investments recognized using the equity method At the beginning of January 2016, we completed - to- gether with Ringier - the establishment of Ringier Axel Springer Schweiz AG, Zurich, Switzerland (see note (2c)), in which we legally hold a 50 % stake. The company gathers all Swiss-German and West Swiss newspaper ti- tles (including their associated online portals) and the West Swiss broadsheet, Le Temps, belonging to Ringier and the entire business of Axel Springer in Switzerland. Due to rights granted to Ringier under the shareholder agreement, we account for our investment in this associ- ated company using the equity method. The share of the total comprehensive income attributable to us diverges Of the total comprehensive income, an amount of € 9.0 million (PY: € 3.5 million) is attributable to our share. Taking into account an impairment loss in the amount of € 38.7 million during the reporting year, as of December 31, 2017, thus we disclose a carrying amount of € 103.0 million (PY: € 143.7 million) for our invest- ment. The change in the carrying amount of the invest- ment also resulted from currency translation effects rec- ognized in accumulated other comprehensive income. The impairment loss recorded in the News Media seg- ment is due to the development of the advertising market and the digitization potential of the segment in Switzer- land and the resulting earnings expectations for future years. The recoverable amount of € 103.0 million bases on the fair value less cost to sell. The calculation based on non-observable impact factors (Level 3) using a dis- 122 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements counted cash flow method by discounting future ex- pected dividend payments. The used discount rate after taxes amounted to 7.07 % (PY: 5.90 %). (8) Trade receivables The trade receivables broke down as follows: € millions 12/31/2017 12/31/2016 Trade receivables, nominal Allowances for doubtful trade receivables Trade receivables 715.5 – 21.6 693.9 640.0 – 25.4 614.6 The changes in the allowances for doubtful trade receiv- ables are presented below: € millions Balance as of January 1 Additions Reversals Utilization Disposal due to deconsolidation Other changes Balance as of December 31 2017 25.4 6.7 – 0.8 – 4.0 0.0 – 5.7 21.6 2016 26.8 4.8 – 2.5 – 2.0 – 1.6 – 0.1 25.4 Other changes mainly relate to reclassifications into as- sets held for sale (see note (10)). As of December 31, 2017, receivables in the amount of € 569.6 million (PY: € 424.1 million) were neither past due nor subject to valuation allowances. With regard to these receivables, there were no indications at the re- porting date that would suggest that the customers would not fulfill their payment obligations. Summarized financial information regarding all compa- nies which are accounted for using the equity method and are not individually material are shown below: € millions Carrying amount Share attributable to Axel Springer SE: Income from continued operations Other income/loss Comprehensive income 2017 64.5 1.1 0.0 1.1 2016 77.2 – 7.9 0.0 – 7.9 In the previous year proportionate net income to be rec- ognized in income from investments was not recorded in the amount of € – 0.5 million, since the respective net in- vestment had been impaired in the previous year. (b) Other non-current financial assets The other non-current financial assets particularly in- cluded an amount of € 155.3 million (PY: € 146.3 million) relating to options secured by bank guarantees for the sale of our shares in Do⁄an TV ("put options"). The valu- ation of the put options at the balance sheet date is based on the discounted payment claim deriving from the agreed option rights, minus all costs to be incurred. The discount rates were determined according to the duration of the put options and the default risk, taking into account the granted bank guarantees. Also included are the shares in Group Nine Media Inc. of € 68.5 million (PY: € 72.3 million) which we received in connection with the disposal of our shares in Thrillist Me- dia Group Inc. and NowThis Media Inc. in the previous year. In addition, other non-current financial assets mainly in- cluded other investments and other loans. 123 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements The past-due trade receivables at the reporting date for which no valuation allowances have been charged are presented in the table below: balances in accounts payable and receivables from the insolvency proceedings against the Kirch Group. € millions up to 30 days 31 to 90 days 91 to 180 days 181 to 360 days 361 days and longer (9) Other assets 12/31/2017 12/31/2016 70.6 30.4 3.9 4.2 4.8 46.3 23.1 6.5 3.6 5.0 The other assets broke down as follows: € millions 12/31/2017 12/31/2016 Reimbursement claim for pension obligations Derivatives Deposits Other Other financial assets Thereof current Thereof non-current Advance payments Receivables from other taxes Other Other non-financial assets Thereof current Thereof non-current Other assets Thereof current Thereof non-current 24.8 0.0 10.4 43.1 78.3 42.8 35.5 25.3 30.5 14.6 70.4 61.9 8.5 148.7 104.7 44.0 26.6 0.6 4.8 63.5 90.7 58.1 32.6 33.9 23.7 12.6 70.2 63.2 6.9 160.9 121.3 39.5 Regarding the reimbursement right concerning pension obligations, see note (13). The miscellaneous other financial assets particularly in- cluded a purchase price claim for the final instalment re- garding the sale of the office building in Hamburg, debit (10) Assets held for sale At the balance sheet date, the assets held for sale and the related liabilities disclosed broke down as follows: € millions auFeminin Group RAS Slovakia Infor Biznes Held for sale 12/31/2017 Assets Liabilities 285.3 78.8 3.2 367.3 55.7 15.5 0.0 71.2 In December 2017, Axel Springer and Télévision Fran- çaise 1 (TF1) signed an option agreement and in January 2018 signed an agreement on the sale of Axel Springer's share in the French aufeminin Group (Marketing Media segment). Completion of the transaction requires ap- proval by the relevant antitrust authorities. As of the reporting date, assets and liabilities of the aufeminin Group broke down as follows: € millions Goodwill Other intangible assets Property, plant, and equipment and non-current financial assets Inventories Trade receivables Other assets Deferred tax assets Cash and cash equivalents Assets held for sale Trade payables Other liabilities and provisions Deferred tax liabilities Liabilities related to assets held for sale Carrying amount 163.1 63.6 1.5 3.8 28.2 9.7 2.1 13.3 285.3 11.2 29.9 14.6 55.7 124 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements In addition to the assets held for sale, as of the reporting date intragroup receivables by cashpooling of the aufminin Group towards Axel Springer existed in the amount of € 52.8 million, which will be derecognized with the sale as well. The proportion of non-controlling interests in the net assets amounted to € 43.9 million. From the accumulated other comprehensive income from currency translation, € – 2.3 million is attributable to the assets and liabilities of the auFeminin Group. In November 2017, the sale of the newspaper and mag- azine portfolio including the associated online offers of RAS Slovakia (News Media segment) was contracted. The disposal is expected after authorization by the local authorities in the middle of the year 2018. As of the reporting date, assets held for sale and the re- lated liabilities of RAS Slovakia broke down as follows: € millions Goodwill Other intangible assets Trade receivables Other assets Cash and cash equivalents Assets held for sale Trade payables Other liabilities and provisions Deferred tax liabilities Liabilities related to assets held for sale Carrying amount 19.4 49.8 6.6 1.4 1.6 78.8 3.4 1.7 10.4 15.5 As of December 31, 2017 the proportion of non-control- ling interests in the net assets amounted to € 4.9 million. The valuation of the fair value less costs to sale lead to an impairment loss in goodwill in the amount of € 2.0 million (see note (22)). (11) Equity The components and changes in consolidated equity are summarized in the consolidated statement of changes in equity. (a) Subscribed capital The fully paid-in subscribed capital in the amount of € 107.9 million remained unchanged and is divided into 107,895,311 registered shares with a calculated ratio of € 1.00 per share. The shares can only be transferred with the company’s consent. (b) Authorized capital The Annual General Meeting of April 14, 2015 allowed the Executive Board, with the approval of the Supervi- sory Board, to increase the share capital until April 13, 2020 by up to € 11,000,000 through the issue of newly registered shares in return for cash and/or contributions in kind (authorized capital). With the approval of the Su- pervisory Board, the Executive Board can waive the sub- scription right of the shareholders in case of a capital in- crease against contributions in kind. As of December 31, 2017 the authorized capital remained un-changed as compared to the previous year totaling € 8,955,311 with the result that the remaining authorized capital amounted to € 2,044,689. (c) Additional paid-in capital The additional paid-in capital (€ 501.0 million; PY: € 500.1 million) mainly consists of the share premium achieved from the capital increase against contributions in kind from the fiscal year 2015 and the equivalent of the personnel expenses for the share-based payment pro- grams (see note (12)). (d) Accumulated retained earnings The accumulated retained earnings comprised the in- come of the companies included in the consolidated fi- nancial statements, to the extent that they have not been distributed to shareholders. In the reporting year, Axel Springer SE distributed an amount of € 205.0 million (PY: € 194.2 million) or € 1.90 (PY: € 1.80) per qualifying share for the previous reporting year. For the reporting year 2017, the Executive Board and the Supervisory Board propose to distribute a dividend of € 2.00 per share entitled to the dividend, in total representing ap- proximately € 216 million in expected payments. Pay- ment of the proposed dividend is contingent upon ap- proval at the Annual General Meeting on April 18, 2018. 125 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements Moreover, transactions with shareholders are recognized within the accumulated retained earnings. In the report- ing year, the contribution of 20 % of the shares of AWIN AG (previously ZANOX AG) related to the acquisition of the affilinet Group led to an increase of the accumulated retained earnings in the amount of € 41.5 million (see note (2c)). (e) Accumulated other comprehensive income At the balance sheet date, accumulated other compre- hensive income mainly comprised actuarial gains and losses from pension plans of € – 118.9 million (PY: € – 120.4 million). In the previous year, this included ac- tuarial losses (after taxes) of € 5.1 million, which were re- classified into accumulated retained earnings as a result of the deconsolidation of the entire Swiss business from Axel Springer. Changes in foreign currency translations are primarily due to conversions of financial statements denominated in US dollar. In the previous year, changes resulted from the reclassification of unrealized gains and losses from foreign currency translations previously recognized under accumulated other comprehensive income into the in- come statement due to the disposal of investments (see note (2c)). (f) Non-controlling interests The non-controlling interests mainly related to the follow- ing companies: € millions 12/31/2017 12/31/2016 Ringier Axel Springer Media Group 261.0 243.7 Immowelt Group Awin Group (previously Zanox Group) Other companies Non-controlling interests 74.1 58.8 117.4 511.4 70.9 0.0 106.5 421.2 As of December 31, 2017 the non-controlling interests in Ringier Axel Springer amounted to 50.0 % (PY: 50.0 %), whilst their share in the Group net income amounted to € 11.4 million (PY: € 13.2 million). As in the previous year, there were no distributions in the reporting year. Summarized financial information for the Ringier Axel Springer Media sub-group are shown in the following ta- ble: € millions Revenues Net income Comprehensive income Current assets Non-current assets Current liabilities Non-current liabilities Cash flow from operating activities 2017 273.0 20.0 43.9 187.7 466.8 71.1 51.6 41.2 2016 267.4 24.8 13.6 133.0 503.2 109.4 36.0 44.0 Cash flow from investing activities – 14.2 – 39.7 Cash flow from financing activities – 28.6 – 2.9 Regarding the contribution of 20 % of the shares of AWIN AG (previously ZANOX AG) related to the acquisi- tion of the affilinet Group see note (2c). (12) Share-based payment In the reporting year, the expenses recorded for share- based payment programs amounted to € – 44.9 million (PY: € – 7.9 million). These effects were attributable to eq- uity-settled programs with an amount of € – 1.0 million (PY: € – 0.2 million) and to cash-settled programs with an amount of € – 43.9 million (PY: € – 7.7 million). The liability recorded for share-based payments concerns especially the following stock option plans and totaled € 55.1 million (PY: € 15.1 million). As of May 1, 2016 members of the Executive Board were granted a new long-term variable remuneration in the form of a long-term incentive plan ("LTIP") with a dura- tion - including lock-up periods - until 2023. The LTIP stipulates a participation in the increase in the company value, measured on the basis of market capitalization. It will be distributed in the form of a cash bonus and con- tains a subsequent obligation to purchase Axel Springer shares in the corresponding amount. 126 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements The compensation entitlement requires market capitaliza- tion of Axel Springer SE to increase at least 40 % within three, four, and maximally five years (respective "perfor- mance periods"). No claim for compensation can be made below this threshold. In the event of targets being achieved, the whole Executive Board is entitled to pay- ment amounting to a total of 4 % of the increase in market capitalization. The compensation entitlement will increase only up to a growth in market capitalization by maximally 60 %. The increase in market capitalization will be calculated on the basis of the volume-weighted average price of the Axel Springer share within the last 90 calendar days before May 1, 2016, or before the end of the respective performance period, multiplied by the number of out- standing Axel Springer shares (less treasury shares) adding dividend payments during the performance peri- od. In the event of targets being achieved, an amount in the value of 50 % of the total amount (“payout amount I“) will be paid out. On meeting the targets after four or five years respectively, a lock-up period of two or one year respectively follows, before the remaining 50 % of the total amount ("payout amount II") will be paid out. Should targets be met prematurely after three years, each Executive Board member will have the option to request pay-out amount I. Payout amount II will then only be remunerated after targets are once again met after four or five years, and after a lock-up period of two, or one year respectively. The net amount of all payouts (after the Executive Board members’ taxes and duties are paid) in each case has to be fully invested in Axel Springer shares by the Executive Board member. Regarding the shares acquired with pay- out amount I, or II respectively, the Executive Board member has to retain the shares for a minimum of two years, or one year respectively. The LTIP contains the usual provisions for early resignation. Thus, all non-con- tractual claims paid under the LTIP lapse if the member of the Executive Board leaves the Executive Board at his own request before expiration of the waiting period. The LTIP is valued as a share-based compensation pro- gram with cash settlement at its fair value as of the bal- ance sheet date and is recorded according to the ex- pected vesting date. The value of the LTIP at the grant date was calculated on the basis of a stochastic model for the valuation of share option rights at € 32.1 million. The calculated remunera- tion component for the financial year 2017 recorded in personnel expenses amounted to € 20.2 million (PY: € 3.5 million) for all members of the Executive Board. An accumulated liability was recognized in the amount of € 23.7 million (PY: € 3.5 million). 127 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements Members of the Executive Board and selected executives (beneficiaries) were granted virtual stock option plans, the fundamental parameters of which are described below: Grant date Term in years Qualifying period in years Option rights granted Underlying (€) Maximum payment (€) Value at grant date (€) Total value at grant date (€ million) Virtual stock option plans Executive Board Program Senior Executive Program 2012 2014 I 2014 II 2011 II 2014 01/01/2012 01/01/2014 09/01/2014 10/01/2011 03/01/2014 6 4 6 4 6 4 6 4 5 3 450,000 205,313 675,000 472,500 60,000 30.53 61.06 5.26 2.4 44.06 88.12 6.69 1.4 44.56 89.12 6.26 4.2 35.00 70.00 2.31 1.1 46.80 93.60 8.14 0.5 Provided that the beneficiary is employed by the com- pany at least until the expiration of the vesting period, all virtual stock options granted to the relevant senior exec- utive may become vested. If the authorized senior execu- tive's employment with the company ends before the end of the vesting period, but is at least one year after the grant date, the stock options are vested on a pro- rated basis in relation to the vesting period (Executive Board program), up to one half (senior executive pro- gram 2014), or to one quarter per elapsed year of the vesting period (senior executive program 2011 II). A further condition for vesting to take place is that either the volume-weighted average price of the Axel Springer share is at least 30 % over the base value or that the per- centage increase of this average price exceeds that of the base value of the development of the DAX over a pe- riod of 90 calendar days (Executive Board program) or three calendar months (senior executive programs) within a time period of a year before the end of the waiting pe- riod. Exercising stock options is only possible if the volume- weighted average price of the Axel Springer share 90 calendar days (Executive Board program) or three calen- dar months (executive programs) before exercising such options is at least 30 % over the base value and that the percentage increase exceeds that of the DAX index. Each option grants a payment claim in the amount of the growth in value of the Axel Springer share, restricted to a maximum of 200 % of the base value, which corre- sponds to the difference between the volume-weighted average price during the last 90 calendar days or three months prior to exercise and the base value. Beneficiaries are obligated to hold one Axel Springer share for every ten stock options as their own invest- ment. Disposing of these shares prior to exercising the stock options would result in the stock options being for- feited at the same rate. The value of the options was determined by application of a Black-Scholes model in a Monte Carlo simulation at the grant date. The options will be remeasured at each reporting date and recognized proportionally in accord- ance with the projected vesting. 128 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements The development of the stock options is shown below: 01/01/2016 Exercise Lapse 12/31/2016 Exercise Lapse 12/31/2017 Virtual stock option plans Executive Board Program Senior Executive Program 2012 2014 I 2014 II 2011 II 2014 393,750 205,313 675,000 472,500 60,000 – 393,750 0 0 0 0 0 0 0 0 0 – 471,650 – 850 205,313 675,000 0 0 0 0 205,313 675,000 0 0 0 0 0 0 60,000 0 0 60,000 The expenses and income in the fiscal year, as well as the portfolio of liabilities and provisions at the reporting date are shown below: € millions Expenses/revenues 2017 Expenses/Income 2016 Carrying amount as of 12/31/2017 Carrying amount as of 12/31/2016 Virtual stock option plans Executive Board Program Senior Executive Program 2012 0.0 1.7 0.0 0.0 2014 I – 4.2 0.5 4.9 0.7 2014 II – 10.7 0.9 13.0 2.3 2011 II 0.0 0.5 0.0 0.0 2014 – 1.2 0.2 1.3 0.1 The following major stock option programs existed at our subsidiaries: Upon closing date of the acquisition with respect to the majority shareholding in Business Insider at the end of 2015, both management board members of Business In- sider were granted a total of 21,952 new stock options to acquire shares in Business Insider Inc. as a replace- ment for an existing stock option program. The new stock options are vested over a period of ten years. 30 % of these granted stock options become vested after three years and subsequently, a further 10 % of the granted stock options become vested each year over the remaining vesting period. The option rights become ex- ercisable once they are vested until the end of the total period of 10 years after grant date. The exercise of the options is not dependent upon any other earnings or market conditions. Should the employment relationship with the two management board members be termi- nated after the first three years, there is – depending on the reason for the termination – a purchase obligation on the side of Axel Springer or rather a right to acquire the shares arising from the options which have vested. Within a three-month period after the total period of ten years, the management board members are entitled to tender all shares that have been obtained through the options to Axel Springer at fair value on exercise date, which leads to an irrevocable obligation to be settled in cash. Thus, it is a cash-settled share-based payment. 129 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements At grant date, the fair value of these stock options was € 12.9 million. A partial amount of € 7.4 million of the fair value of the options was treated as consideration trans- ferred in the course of the initial consolidation for the ac- quisition. The remaining fair value of € 5.5 million was classified as remuneration for the continuing employment of the board members of Business Insider. The fair value was determined on the basis of an option pricing model using a Monte Carlo simulation, taking into account the strike price of the options, the risk-free interest rate and the expected dividends; the volatility was derived using a peer group comparison. At each reporting date, the op- tion rights will be remeasured; likewise, the personnel ex- penses to be recorded over the vesting period will be calculated. As of December 31, 2016, one management board member had resigned from the company, so that a total of 6,098 options have expired. As of December 31, 2017 15,854 options existed unchanged as compared to the previous year, none of which are exercisable. The exer- cise price to be paid for the option per share is kUSD 3.6 (k€ 3.4). The weighted average remaining term of these options was 7.8 years (PY: 8.8 years). In the reporting year, the stock option program was ad- justed. In the event of earnings and revenue targets be- ing achieved at the end of June 2018, 30 % of the stock options will be acquired by Axel Springer for USD 4.6 million (€ 3.8 million). In addition, it has been agreed that, should targets be met in the year 2020, the management board member of Business Insider will receive an upfront payment in the amount of USD 15.0 million (€ 12.5 mil- lion), which will be offset against future payments from the stock option program. There is no repayment obliga- tion in case of stock options being forfeited or not exer- cised. If targets are not achieved, the stock option pro- gram will continue unchanged at the respective dates. Due to the adjustment of the stock option program the fair value of the program increased by approximately USD 4.2 million (€ 3.5 million). The fair value was still de- termined on the basis of an option pricing model using a Monte Carlo simulation. In the reporting year, an amount of € 4.9 million in per- sonnel expenses was recorded (PY: 1.7 million in per- sonnel expenses and € 1.1 million in other operating in- come). The value of the liability as of December 31, 2017 arising from the option program amounted to € 12.3 mil- lion (PY: € 8.5 million). Our subsidiary AUFEMININ SA has granted its senior executives option rights to be settled with shares in AUFEMININ SA as well as free shares. In August 2016, June 2017 and December 2017, senior executives were given the right to receive a total of 150 thousand free shares in AUFEMININ SA. The fair value of a free share at the grant or modification date was be- tween € 26.56 and € 38.34 and was based on the cur- rent share price on the stock market taking into account expected dividends. The free shares will become fully vested two years after the grant date, provided that the relevant earnings targets have been reached. As of the balance sheet date, the weighted average remaining term of the free shares was between one and two years (PY: two years). In November 2013, 300 thousand stock options for ac- quisition of one share of AUFEMININ SA, each with an exercise price of € 26.19 were issued to senior execu- tives. These options vested upon expiration of the first (50 %) and second (50 %) years after the grant date, in- sofar as the earnings target established for the individual tranche (EBITDA for the fiscal year prior to the year of vesting) was achieved. Once they have vested, the op- tions can be exercised for a total of five (50 %) or four (50 %) years. 130 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements The number of options and the weighted average exer- cise price developed as follows: € 48.6 million) and were shown as social security contri- butions in personnel expenses. 2017 2016 Options in thousands Exercise price1) in € Options in thousands Exercise price1) in € Balance as of January 1 Lapse Exercise Balance as of December 31 Thereof exercisable 250 – 30 – 15 26.19 26.19 26.19 441 – 67 – 124 23.32 24.00 17.16 205 26.19 250 26.19 205 26.19 250 26.19 1) Weighted average exercise price. The weighted average stock price at the date of exercise of the stock options during the financial year was € 26.57 (PY: € 28.94). As in the previous year, the exer- cise price for options outstanding at the balance sheet date was € 26.19. The weighted average remaining term of the options was two years (PY: three years). The compensation expense for option rights and free shares recognized in personnel expenses amounted to € 1.0 million in the reporting year (PY: € 0.2 million); the additional paid-in capital was increased accordingly. Other share-based payment programs were individually and in total insignificant for the financial position, liquidity, and financial performance of the Group. (13) Pension obligations The pension obligations in the reporting year relate al- most exclusively to Group companies domiciled in Ger- many. Under its defined contribution pension plans, the Group mainly contributes to public-sector pension insurance carriers by virtue of the applicable laws. The current con- tribution payments amounted to € 50.0 million (PY: Provisions for pensions were created to account for the obligations arising from vested pension rights and cur- rent benefits for former and active employees of the Axel Springer Group and their survivors. The reserves for per- formance-based pension plans correspond to the cash value of the obligations on the reporting date less the time value of the plan assets. Along with general actuarial risks such as risks from salary and pension increases, longevity risk, and interest rate risk as well as inflation risk, capital market and investment risk. Essentially, four different pension plans exist in the Ger- man Group companies that are subject to the German Company Pension Act, and thus to the statutory regula- tions relating in particular to vesting, compensation for inflation in the benefit phase, and insolvency protection by the Pensions Guarantee Corporation. The pension plans are partially financed by premium reserve funds that are managed by Axel Springer Pensionstreuhand e.V. as trustee. Two pension plans provide for an annual pension for entitled persons based on fixed amounts that depend for the first pension plan only on the length of service in the company, and for the second pension plan additionally on the position in the company, and are static in the vesting period and dynamic in the benefit payment period in accordance with the requirements of the Company Pension Act. The promises to the Execu- tive Board correspond in their design to the second pen- sion plan and are additionally dynamic in the vesting pe- riod depending on inflation. The third pension plan is a defined-contribution benefit in which a benefit is calcu- lated using fixed factor tables dependent on converted compensation components. Ongoing benefits are ad- justed from the beginning of pension payments at 1 % p.a. The fourth pension plan includes direct commit- ments based on subsidized remuneration conversions which are congruently covered by insurance and usually grant a one-time payment upon retirement. 131 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements The measurement was based on the following parame- ters: The changes in the present value of the pension obliga- tions are almost completely attributable to Germany and are presented in the table below: Information in % 2017 2016 Discount rate Salary trend Pension trend 1.6 1.5 1.5 1.7 1.5 1.5 As in the previous year, the expected life spans were de- termined with reference to the guideline tables 2005 G by Dr. Klaus Heubeck. The amount of the provision is almost completely at- tributable to Germany and was calculated as follows: € millions 12/31/2017 12/31/2016 Present value of defined benefit obligations financed by fund Fair value of plan assets Present value of defined benefit obligations not financed by fund Reclassification into liabilities in connection with assets held for sale Provision Thereof current Thereof non-current Reimbursement right Net obligation 407.4 384.8 – 174.9 – 162.9 131.2 149.6 – 0.2 363.5 20.4 343.2 – 24.8 338.7 0.0 371.5 21.1 350.4 – 26.6 345.0 € millions 2017 Present value of obligations as of January 1 534.4 Change in consolidated companies Current service cost Interest expense 0.0 8.4 8.8 2016 502.5 – 0.3 6.5 11.7 Actuarial gains/losses arising from changes in demographic assumptions – 1.9 – 2.9 Actuarial gains/losses arising from changes in financial assumptions Payments by employees Payments to retirees Plan curtailments Reclassification into or from liabilities in connection with assets held for sale (see note (10)) Present value of obligations as of December 31 7.2 3.0 36.2 3.0 – 21.4 – 22.3 0.1 – 0.1 – 0.2 0.0 538.4 534.4 In the fiscal year 2018, contributions to fund-financed defined benefit plans are expected to total € 1.2 million (PY: € 30.4 million). In addition, as of January 1, 2018 the Axel Springer high-rise (main building) in Berlin was transferred to Axel Springer Pensionstreuhand e.V., Ber- lin, on a fiduciary basis (see note (40)). 132 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements The fair value of the plan assets is almost completely at- tributable to Germany and showed the following changes: € millions Plan assets as of January 1 Income from plan assets Employee contribution Employer contribution Benefits paid Actuarial gains/losses arising from changes in demographic assumptions Actuarial gains/losses arising from changes in financial assumptions Additions to plan assets 2017 162.9 2.9 0.3 0.3 2016 163.3 3.9 0.2 0.3 – 18.1 – 0.6 0.2 – 4.2 0.1 26.3 0.0 0.0 Plan assets as of December 31 174.9 162.9 The investment portfolio for the plan assets is almost completely attributable to Germany and broke down as follows: € millions Shares Bonds Money market instruments Cash and cash equivalents Real estate funds Others 12/31/2017 12/31/2016 53.7 72.5 0.0 21.8 18.3 7.8 36.2 43.0 0.6 75.1 3.5 3.8 Plan assets with market price quotations 174.1 162.1 Real Estate Others Plan assets without market price quotations 0.5 0.3 0.8 0.5 0.2 0.7 in the income statement, the income from the reim- bursement was netted with the corresponding pension expenses. Based on the existing contractual regula- tions, we do not assume a short-term settlement of the reimbursement claim and the corresponding pension obligations any more, and therefore in the reporting pe- riod, we classified the asset as well as the related pen- sion liability in an amount of € 22.7 million (PY: € 24.4 million) as non-current. The remaining amount of € 2.1 million (PY: € 2.2 million) was classified as current. The value of the reimbursement right developed as fol- lows: € millions Reimbursement right as of January 1 Income from reimbursement rights Paid-out benefits 2017 2016 26.6 0.4 27.4 0.6 – 2.1 – 2.2 Actuarial gains/losses arising from changes in demographic assumptions – 0.3 – 0.2 Actuarial gains/losses arising from changes in financial assumptions 0.2 1.0 Reimbursement right as of December 31 24.8 26.6 The expenses for defined benefit pension plans are al- most completely attributable to Germany and broke down as follows: € millions Current service cost Interest expense Employee contribution Income from plan assets Income from reimbursement rights Plan curtailments 2017 2016 8.4 8.8 – 0.1 – 2.9 – 0.4 0.1 13.9 6.5 11.7 0.0 – 3.9 – 0.6 – 0.1 13.5 Total 174.9 162.9 Pension expenses Axel Springer SE is entitled to reimbursement of pension obligations or pension expenses arising in connection with them in the context of the outsourcing of rotogra- vure printing operations in 2005. The reimbursement right was presented as an other financial asset, whereas Service cost is presented within the personnel expenses. The interest portions contained in the pension expenses 133 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements The sensitivity calculations are based on the average term of the pension obligations calculated as of the bal- ance sheet date. The calculations were carried out in iso- lation for the actuarial parameters classified as material. As the sensitivity analysis is based on the average term of the expected pension obligations and as a conse- quence, the expected payment dates are not taken into account, they only lead to approximate information or to describe tendencies. In case of changes to the mortality rates or life expectancies which act as a basis, it is as- sumed that if life expectancy of the beneficiary increases by one year as of December 31, 2017, pension obliga- tions in Germany would have risen by 3.2 % (PY: 3.1 %). As of December 31, 2017, the weighted average dura- tion of the defined benefit obligation was 14 years (PY: 15 years). and the income from the plan assets and interest reim- bursements are presented as components of interest ex- penses. An increase or decrease in the material actuarial as- sumptions would have the following effects on the pre- sent value of the total pension obligations as of the bal- ance sheet date: Information in % Increase by 25 basis points Decrease by 25 basis points 2017 Discount rate Salary trend Pension trend – 3.4 0.1 2.4 3.6 – 0.1 – 2.3 Information in % Increase by 25 basis points Decrease by 25 basis points 2016 Discount rate Salary trend Pension trend – 3.4 0.1 2.4 3.7 – 0.1 – 2.3 134 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements (14) Other provisions The other provisions broke down as follows: € millions Other obligations towards employees Partial early retirement program (Altersteilzeit) Structural measures Discounts and rebates Returns Litigation expenses Other taxes Dismantling obligations Other Other provisions Balance as of 01/01/2017 Utilization Reversals Additions Other changes Balance as of 12/31/2017 Thereof current Thereof non- current 98.9 – 65.8 – 3.8 72.0 42.7 28.8 14.4 11.9 5.5 9.4 7.8 33.7 253.0 – 10.0 – 22.5 – 11.8 – 8.9 – 0.2 0.0 – 0.1 – 15.3 0.0 – 1.0 – 0.9 – 0.3 – 0.3 – 2.4 – 0.5 – 1.8 12.2 38.1 14.6 9.6 6.6 1.6 0.1 14.8 – 9.7 0.0 – 0.3 – 0.7 – 0.3 – 0.1 0.0 0.4 – 0.7 91.6 44.9 43.1 15.6 12.0 11.6 8.5 7.7 68.5 11.2 31.8 15.6 12.0 10.5 8.5 1.2 30.8 26.8 23.1 33.7 11.3 0.0 0.0 1.1 0.0 6.5 4.0 – 134.6 – 10.9 169.7 – 11.4 265.8 186.0 79.8 Other obligations towards employees primarily in- cluded variable compensation tied to performance. Structural measures were mainly allocated to the newspaper and magazine as well as distribution and sales divisions, and printing plants. Provisions for re- turns comprised the expected sales returns of publish- ing products. Other provisions mainly involved restruc- turing measures still to be implemented in connection with the sale of the office building complex in Hamburg and the sale of the Axel-Springer-Passage in Berlin (see note (5)) and guarantee obligations in the context of the takeover of the domestic regional newspapers, TV program guides, and women's magazines by FUNKE Mediengruppe. The other changes resulted from the initial consolida- tion of acquired companies, currency translation differ- ences, compounding and also from reclassifications into liabilities related to assets held for sale (see note (10)). 135 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements (15) Financial liabilities The financial liabilities comprised liabilities from promis- sory notes in the amount of € 817.7 million (PY: € 577.5 million), other liabilities due to banks amounting to € 365.1 million (PY: € 681.2 million), as well as from fi- nance leases of € 0.3 million (PY: € 0.6 million). The interest rates were mainly equivalent to the effective rates of interest. In the case of fixed-interest loan tranches, the interest rates were fixed until the maturity date. Furthermore, on the reporting date additional unused short-term and long-term credit facilities amounted to € 855.0 million (PY: € 840.0 million). The promissory notes (nominal amounts) were character- ized by the following utilizations, interest rates, and ma- turities at the reporting date: (16) Other liabilities The other liabilities broke down as follows: Interest rate in % Maturity € millions 12/31/2017 12/31/2016 2017 € million 2016 € million 327.5 146.0 0.0 0.0 104.0 162.0 0.0 112.0 177.0 72.0 70.5 69.0 66.5 12.0 11.5 0.0 0.0 1.14 0.73 1.03 0.91 3.06 1.47 05/30/2024 05/30/2022 10/11/2018 05/30/2023 04/11/2018 10/12/2020 0.0 6-month EURIBOR + 0.7 05/30/2024 0.0 6-month EURIBOR + 0.55 05/30/2022 0.0 0.51 05/30/2021 71.5 6-month EURIBOR + 0.9 10/12/2020 58.0 6-month EURIBOR + 0.7 10/11/2018 The other liabilities due to banks (nominal amounts) were characterized by utilizations, interest rates, and maturities set forth in the table below. All liabilities were denomi- nated in euros. Short-term loans are not presented in the table. 2017 € million 2016 € million Interest rate in % Maturity 170.0 190.0 1-month EURIBOR + 0.425 07/03/2020 135.0 130.0 Eonia + 0.425 07/03/2020 60.0 60.0 Eonia + 0.475 07/03/2020 0.0 2.4 300.0 3-month EURIBOR + 0.80 07/22/2020 2.9 3-month EURIBOR + 0.30 10/15/2022 Contingent consideration and other put options for purchase of non-controlling interests Debit balances in accounts receivable Liabilities from derivatives Other Other financial liabilities Thereof current Thereof non-current Advance payments from customers Liabilities from other taxes Liabilities due to employees Advance payments Accrued liabilities Capital investment subsidies Liabilities due to social insurance carriers Liabilities for duties and contributions Other 297.9 511.5 12.6 0.4 51.9 362.8 233.3 129.5 204.9 55.7 45.4 14.2 20.3 4.3 8.5 5.1 18.5 13.4 12.9 33.7 571.6 379.6 192.0 173.5 68.0 41.8 27.8 19.9 10.0 9.5 4.9 29.7 Other non-financial liabilities 376.9 385.1 Thereof current Thereof non-current Other liabilities Thereof current Thereof non-current 348.3 365.5 28.6 739.7 581.6 158.1 19.5 956.7 745.1 211.6 Other financial liabilities mainly related to other loan liabili- ties. Contingent consideration and other put options for 136 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements the purchase of non-controlling interests primarily de- creased due to payouts and subsequent valuation (see note (33)). Advanced payments from customers in- creased due to the development of the operating earn- ings performance. Liabilities due to employees related to outstanding wage and salary payments, management bonuses, and severance award claims. Accrued liabilities contained liabilities resulting from over-time and unused vacation. (17) Maturity analysis of financial liabilities The contractually agreed (undiscounted) payments related to financial liabilities are presented in the following table: € millions Financial liabilities Contingent consideration and other put options for purchase of non-controlling interests Other non-derivative financial liabilities Derivative financial liabilities € millions Financial liabilities Contingent consideration and other put options for purchase of non-controlling interests Other non-derivative financial liabilities Derivative financial liabilities Undiscounted cash outflows Carrying amount as of 12/31/2017 2018 2019-2022 2023 ff. 1,237.0 185.4 633.3 472.2 297.8 547.5 0.4 199.5 516.5 0.2 88.9 15.0 0.2 10.9 16.0 0.0 Undiscounted cash outflows Carrying amount as of 12/31/2016 2017 2018-2021 2022 ff. 1,259.3 14.2 1,286.5 511.5 450.0 12.9 333.1 437.2 12.5 177.2 10.5 0.4 0.5 7.0 2.2 0.0 137 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements Notes to the consolidated income statement (18) Revenues The revenues broke down as follows: € millions Advertising revenues Circulation revenues Printing revenues Other revenues Revenues 2017 2016 2,521.3 2,223.1 633.0 49.2 359.1 646.9 54.6 365.7 3,562.7 3,290.2 During the fiscal year, revenues from barter transactions amounted to € 54.5 million (PY: € 56.4 million). These revenues were generated mainly from the bartering of advertising services. (19) Other operating income and change in inventories and internal costs capitalized The other operating income broke down as follows: € millions 2017 2016 Income from disposal of intangible assets, property, plant, equipment, and investment property Subsequent valuation of contingent purchase price liabilities and other option liabilities for the acquisition of non- controlling interests Income from reversal of provisions Foreign exchange gains Gain on disposal of subsidiaries and business units Miscellaneous operating income 204.7 71.8 54.9 8.5 4.6 4.2 40.5 1.6 20.2 3.8 207.2 35.2 Other operating income 317.3 339.9 Income from the disposal of intangible assets and prop- erty, plant and equipment and investment property re- sulted in € 200.5 million from the sale of the Axel- Springer-Passage in Berlin (see note (5)). Gains from the subsequent valuation of contingent purchase price liabili- ties in the amount of € 50.0 million were attributable to options to acquire non-controlling interests in Bonial Holding (see note (33)). Miscellaneous operating income contained a large number of non-material items. Change in inventories and internal costs capital- ized increased to € 87.7 million (PY: € 82.6 million) in the reporting year and mainly related to IT development projects to develop and expand our digital business models. (20) Purchased goods and services The purchased goods and services broke down as fol- lows: € millions 2017 2016 Raw materials and supplies and purchased merchandise1) Purchased services 114.5 936.8 122.8 848.7 Purchased goods and services 1,051.4 971.5 1) Reclassification of expenses of the previous year into expenses for purchased ser- vices on a pro-rated basis Raw materials and supplies and purchased merchandise comprised paper costs amounting to € 53.3 million (PY: € 52.9 million). The cost of purchased services was predominantly com- posed of publisher services in the context of perfor- mance-based marketing, purchased third-party printing services and professional fees. The purchased third- party printing services also included paper costs. The increase in purchased services is mainly attributable to the Awin Group (previously zanox Group) and is due to increased revenues and to the acquisition of affilinet in the reporting year. 138 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements (21) Personnel expenses (22) Depreciation, amortiziation, and impairments The personnel expenses broke down as follows: The depreciation, amortization, and impairments broke down as follows: € millions Impairment losses in goodwill 2017 2.0 2016 0.0 Amortization of other intangible assets 175.8 173.8 Impairment losses in other intangible assets Depreciation of property, plant, and equipment Impairment losses in property, plant, and equipment Depreciation of investment property Depreciation, amortization, and impairments 4.5 2.6 52.5 54.3 1.0 0.3 1.1 0.8 236.1 232.6 Impairment losses in financial assets recognized in the fiscal year are included in the income from investments. € millions Wages and salaries Social security Pension expenses Expenses for share-based payments Other benefit expenses 2017 995.4 148.7 11.6 44.9 1.5 2016 940.9 138.0 8.7 7.9 4.6 Personnel expenses 1,202.1 1,100.1 The average number of employees in the Group is shown below: Salaried employees Editors Wage-earning employees Total employees 2017 2016 12,397 11,797 2,867 2,888 572 638 15,836 15,323 The increase in personnel figures compared to the prior year resulted besides the initial consolidation of acquired companies from staff increases in the strongly growing digital business units. 139 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements (23) Other operating expenses The other operating expenses broke down as follows: € millions Advertising expenses Expenses for non-company personnel Mailing and postage expenses Rental and leasing expenses Consulting, audit and legal fees Commissions and gratuities Maintenance and repairs Subsequent valuation of contingent purchase price liabilities and other option liabilities for the acquisition of non- controlling interests Travel expenses Training of employees Services provided by related parties Allowances for doubtful receivables Other taxes Foreign exchange losses Miscellaneous operating expenses 2017 266.8 181.7 94.5 69.9 53.3 38.9 30.7 21.4 26.7 16.3 16.6 7.4 8.4 2.9 76.9 2016 243.1 161.0 77.7 61.0 51.9 36.6 31.1 30.4 30.3 12.5 11.8 10.2 8.2 5.1 80.1 Other operating expenses 912.4 851.2 The miscellaneous operating expenses included addi- tions to provisions relating to legal and other risks, as well as other operating expenses. The following professional fees for the services rendered by the auditor Ernst & Young GmbH were recognized: € millions 2017 2016 Audits of the annual financial statements Tax advisory services Other services Total professional fees 1.4 0.3 0.2 1.9 1.2 0.4 0.4 2.1 The professional fees for the audit of financial statements included statutory and voluntary audits of the separate fi- nancial statements of Axel Springer SE and other Ger- man subsidiaries, the consolidated financial statements, the auditor's review of the half-year financial report, the audit of financial statements according to IDW PS 480, which prescribes the audit of financial statements com- piled for a special purpose, the audit of internal control systems in service companies according to IDW PS 951, as well as the audit of the system implemented in order to ensure compliance with Section 32 (1) WpHG. The tax advisory fees were a result of support services regarding specific tax questions. Other services consisted of due diligence services as part of acquisitions within the fiscal year. (24) Income from investments The income from companies accounted for using the eq- uity method amounted to € – 43.9 million (PY: € 23.4 mil- lion). Besides of our share in the investee’s net income, it consisted of impairment losses of € 51.1 million (PY: € 2.5 million). Impairment losses were mainly attributable to our investment in Ringier Axel Springer Schweiz AG. In the previous year, income from investments included in- come from the disposal of Thrillist Media Group Inc. of € 29.2 million (see note (7)). The other investment income of € 4.9 million (PY: € 16.8 million) included dividends received from other invest- ments as well as impairment losses from other invest- ments in the amount of € 4.4 million (PY: € 0.2 million). In the previous year, the other operating income included income from the disposal of NowThis Media Inc. in the amount of € 5.6 million (see note (7b)). 140 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements (25) Financial result The net financial result broke down as follows: € millions 2017 2016 Interest income from bank accounts Interest income from loans and securities Interest income from taxes Other interest income Interest income 0.7 0.9 0.4 7.2 9.2 1.2 8.0 1.7 1.8 12.7 Changes in current and deferred taxes are mainly related to the sale of the Axel-Springer-Passage (see note (5)) as well as the disposal of the office building complex in Hamburg in the previous year. The increase in deferred tax income resulted from tax rate changes in particular in the USA. The expected income tax expense – applying the tax rate of Axel Springer SE – is reconciled to the income tax expense recognized in the income statement as follows: Interest expenses on liabilities due to banks and on promissory note – 18.0 – 16.9 € millions Income before income taxes 2017 508.3 2016 576.1 Interest expenses on pension provisions, less reimbursements Interest expenses from compounding Miscellaneous interest expenses – 5.2 – 3.6 – 3.2 – 7.2 – 3.6 – 1.1 Interest and similar expenses – 30.0 – 28.7 Other financial result Financial result 2.4 – 5.4 – 18.4 – 21.4 A total of € 2.3 million (PY: € 10.7 million) of the interest income and € – 19.3 million (PY: € – 16.9 million) of the interest expense was allocated to financial assets and lia- bilities that were not measured at fair value through profit or loss. (26) Income taxes The income taxes paid or owed and the deferred taxes are recognized under income taxes. The income taxes consist of trade tax, corporate income tax, and solidarity surcharge, and the corresponding foreign income taxes. The income tax expenses are broken down below: € millions Current taxes Deferred taxes 2017 274.6 2016 149.0 – 144.4 – 22.9 Income taxes from discontinued operations 130.2 126.1 Income taxes from continued operations 0.6 0.9 Income taxes 130.8 126.9 Tax rate of Axel Springer SE 31.00% 31.00% Expected tax expenses Differing tax rates Changes in tax rates Permanent differences Adjustments to carrying amounts of deferred taxes Current income taxes for prior years Deferred income taxes for prior years Non-deductible operating expenses Tax-exempt income Trade tax additions/deductions Other effects Income taxes 157.6 – 3.8 – 55.0 2.8 6.3 27.8 – 19.1 12.5 – 1.2 2.4 – 0.1 130.2 178.6 – 13.8 – 19.3 0.4 10.8 4.2 1.6 9.5 – 43.3 1.6 – 4.1 126.1 Companies with the legal form of a corporation domiciled in Germany are subject to corporate income tax at the rate of 15 % and solidarity surcharge of 5.5 % of the cor- porate income tax owed. In addition, the profits of these companies are subject to trade tax, for which the amount is municipality-specific. Companies with the legal form of a partnership are subject to trade tax exclusively. The net income is assigned to the shareholder for pur- poses of corporate income tax. The Group tax rate re- mains unchanged at 31.0 %. The effects of different tax rates for partnerships and for foreign income taxes from the tax rate applicable to Axel Springer SE are explained in the reconciliation in the item differing tax rates. In the reporting year, effects from tax 141 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements rate changes mainly resulted from reduced tax rates in the USA. In the previous year, tax rate changes particu- larly in France, Great Britain and Israel had a positive im- pact. The permanent differences result mainly from im- pairment losses in goodwill and deconsolidation effects that are not taken into account for tax purposes. The ad- justments made to the carrying amounts of deferred taxes included € 21.4 million (PY: € 17.3 million) for the non-recognition of deferred taxes on tax loss carry-for- wards. In addition, effects from the first-time recognition of deferred tax assets are included. In the previous year, tax-exempt income was mainly attributable to the estab- lishment of the company Ringier Axel Springer Schweiz AG (see note (2c)). Deferred tax assets and liabilities were recognized to ac- count for temporary differences and tax loss carry-for- wards, as follows: € millions 12/31/2017 12/31/2016 Deferred tax assets Deferred tax liabilities Deferred tax assets Deferred tax liabilities Intangible assets 11.8 374.2 13.3 463.1 Property, plant, and equipment and investment property Non-current financial assets Inventories Receivables and other assets Pension provisions Other provisions Liabilities 2.2 1.0 0.6 54.9 19.1 11.1 22.9 51.0 0.3 0.0 6.5 0.0 5.9 3.9 1.8 0.8 0.6 52.5 21.4 15.0 11.1 79.2 0.3 0.0 10.2 0.5 5.4 41.0 Temporary differences 123.6 441.8 116.5 599.7 Tax loss carry- forwards Total Offsetting Amounts as per balance sheet 3.5 0.0 7.7 0.0 127.1 441.8 124.2 599.7 – 72.5 – 72.5 – 69.3 – 69.3 54.6 369.3 55.0 530.5 The decrease in deferred tax liabilities related to intangi- ble assets mainly resulted from tax rate changes, amorti- zations as well as reclassifications into liabilities related to assets held for sale (see note (10)). The decrease in de- ferred tax liabilities related to property, plant, and equip- ment, and investment property and liabilities concerns mainly the sale of the Axel-Springer-Passage (see note (5)) as well as the disposal of the office building complex in Hamburg in the previous year. The net balance of deferred tax items from January 1 to December 31, 2017 was derived as follows: € millions Deferred tax assets as of January 1 2017 55.0 2016 46.8 Deferred tax liabilities as of January 1 – 530.5 – 481.2 Net tax position as of January 1 – 475.5 – 434.4 Deferred tax of current year 144.4 22.9 Changes in deferred taxes recognized in other comprehensive income Changes due to currency translations 1.6 14.9 11.0 0.0 Changes in consolidation group – 23.0 – 75.0 Reclassification into assets and liabilities held for sale 22.8 0.0 Net tax position as of December 31 – 314.8 – 475.5 Deferred tax assets as of December 31 54.6 55.0 Deferred tax liabilities as of December 31 – 369.3 – 530.5 Of the deferred tax assets, an amount of € 22.4 million (PY: € 9.6 million), and of the deferred tax liabilities, an amount of € 5.2 million (PY: € 1.0 million) can be real- ized in the short term. The amount of deferred tax assets to be disclosed in accordance with IAS 12.82 was € 3.8 million (PY: € 4.5 million). It is expected that this amount can be re- alized by utilization against the available operating in- come. Deferred taxes in the total amount of € 52.2 million (PY: € 50.6 million) were recognized directly in equity, as they relate to matters that were likewise recognized di- rectly in equity. 142 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements (27) Earnings per share The earnings per share were determined as follows: Result of continued operations attributable to shareholders of Axel Springer SE Result of discontinued operations attributable to shareholders of Axel Springer SE Net income attributable to shareholders of Axel Springer SE Weighted average shares outstanding Earnings per share from continuing operations (basic/diluted) Earnings per share from discontinued operations (basic/diluted) Net income attributable to shareholders of Axel Springer SE per share (basic/diluted) 2017 2016 € millions 344.1 425.4 € millions 1.3 1.9 € millions 345.5 427.3 000s 107,895 107,895 € 3.19 3.94 € 0.01 0.02 € 3.20 3.96 In the fiscal year, no deferred tax assets were recog- nized with respect to corporate income tax loss carry- forwards amounting to € 233.6 million (PY: € 209.6 mil- lion), and with respect to trade tax loss carry-forwards amounting to € 87.7 million (PY: € 45.4 million) because it did not appear probable that sufficient taxable income could be generated for these amounts in the near fu- ture. In addition, there are interest carry-forwards amounting to € 1.9 million (PY: € 1.9 million) for which no deferred tax assets were recognized. Of these tax loss carry-forwards, an amount of € 6.1 million (PY: € 4.4 million) can be carried forward for up to five years and an amount of € 0.0 million (PY: € 1.9 million) can be carried forward for six to ten years. The utilization of tax loss carry-forwards or interest carry-forwards that had not previously been recognized as deferred tax assets caused a reduction in income tax expenses of € 1.9 mil- lion (PY: € 2.3 million). In the past fiscal year, there were corrections of recognized tax loss carry-forwards due to tax audits or differing tax assessments in the amount of € – 0.7 million (PY: € 0.3 million). As a rule, deferred taxes must be recognized to account for the difference between the Group’s interest in the equity of the subsidiaries as presented in the consoli- dated balance sheet and the corresponding investment balance recognized in the financial statements for tax purposes, e.g. by retaining profits. Deferred tax liabilities were not recognized on differences of € 6.0 million (PY: € 8.2 million) because a realization is not planned at the present time. In the case of sale or profit distribution, 5 % of the gain on disposal or the dividend, respectively, would be subject to taxation in Germany; in addition, foreign withholding taxes might be incurred. 143 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements Notes to the consolidated statement of comprehensive income (28) Other income/loss The other income/loss broke down as follows: 2017 2016 € millions Before tax Tax effect Net Before tax Tax effect Net Actuarial gains/losses from defined benefit pension obligations Currency translation differences Changes in fair value of available-for-sale financial assets Changes in fair value of derivatives in cash flow hedges Other income/loss from investments accounted for using the equity method Other income/loss – 5.1 – 80.8 – 17.8 0.1 2.8 – 100.7 1.7 0.0 0.0 0.0 0.0 1.6 – 3.4 – 80.8 – 17.8 0.1 2.8 – 99.1 – 36.4 – 47.0 13.6 0.2 – 1.9 – 71.5 11.0 0.0 0.0 0.0 0.0 11.0 – 25.3 – 47.0 13.6 0.1 – 1.9 – 60.5 Other income/loss from companies accounted for using the equity method in the reporting year and the previous year is exclusively attributable to items that may not be reclassified into the income statement in future periods. 144 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements Notes to the consolidated statement of cash flows (29) Other disclosures The cash and cash equivalents were composed of short- term available cash in banks, securities, cash on hand, and checks. Additions in both intangible assets and property, plant, and equipment of € 6.6 million (PY: € 5.3 million) were not yet reflected in cash. The cash flow from investing activities contains income taxes paid of € 113.0 million (PY: € 17.1 million). In the reporting period these resulted from real estate sales. Together with the income taxes paid in the cash flow from operating activities disclosed below the cash flow statement the income taxes paid amount in total to € 274.7 million (PY: € 187.4 million). The acquisition costs, cash payments, and purchased assets and liabilities for business acquisitions are pre- sented in the following table (see note (2c) for the major acquisitions): € millions Intangible assets Property, plant, and equipment Non-current financial assets Trade receivables Other assets Cash and cash equivalents Provisions and other liabilities Deferred tax liabilities Net assets Acquisition cost (preliminary) Thereof paid 2017 75.9 0.9 0.0 31.0 3.9 21.1 – 49.8 – 22.7 2016 220.6 10.2 1.1 14.2 29.1 22.4 – 53.8 – 80.3 60.2 163.6 181.9 86.2 307.2 293.7 The amounts from the purchases of shares in consoli- dated subsidiaries and business units less cash and cash equivalents acquired reported in the cash flow statement, in addition to the cash payments and ac- quired funds listed in the table, also include payments for acquisitions of the previous years (in particular payments from contingent considerations totaling € 120.0 million (PY: € 93.4 million); see note (33)). The following table provides details of sales proceeds, paid up amounts, and disposed assets and liabilities arising from transactions with loss of control: € millions Goodwill Other intangible assets Property, plant, and equipment and non- current financial assets Trade receivables Other assets Cash and cash equivalents Provisions and other liabilities Deferred tax liabilities Disposal net assets Net realizable value Thereof paid-up 2017 1.7 0.8 0.1 3.6 0.7 0.4 – 5.1 – 0.3 1.9 6.4 5.6 2016 83.3 107.1 5.8 16.7 20.0 13.7 – 97.9 – 16.0 132.6 268.1 90.9 In the previous year, besides the received purchase prices (after taxes), the proceeds from disposals (after taxes) comprised in particular the addition of the net as- sets of € 163.9 million in connection with the establish- ment of the company Ringier Axel Springer Schweiz AG, see note (2c). The disclosure of cash inflows from divest- itures in the cash flow statement is made under pro- ceeds from disposals of consolidated subsidiaries and business units less cash and cash equivalents given up. The proceeds from disposal of intangible assets proper- ty, plant, and equipment, and investment property in the amount of € 247.6 million related to the sale of the Axel- Springer-Passage in Berlin, see note (5). For the pur- chases of intangible assets and property, plant, and 145 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements equipment in connection with the new Axel Springer headquarter building in Berlin see note (5) and note (39). In the previous year the payments from the disposal of fi- nancial assets, including repayment of the vendor loan, amounting to € 247.9 million relate to the early repayment of the subordinated vendor loan including capitalized inter- est from the FUNKE Mediengruppe, see note (2d). In the line purchase of non-controlling interests primarily the payment for the exercise of the option on the acquisition of non-controlling interests of the Awin Group has been rec- orded, see note (2c) and note (33). The change in the statement of financial positions of cur- rent and non-current financial liabilities related almost exclu- sively from cash proceeds and cash repayments disclosed in the cash flow from financing activities. The cash inflows from other financial transactions resulted primarily from other non-current loans and correspond to the change in the statement of financial positions within other non-current financial liabilities. In the previous year the other financing activities within the cash flow from financing activities included the transfer to the plan assets of € 67.5 million, which was part of the purchase price received in 2015 for the sale of the Hamburg office building complex. Regarding cash inflows and outflows with respect to dis- continued operations, see note (2d). Notes to the consolidated segment report (30) Basic principles of segment reporting The segment reporting reflects the internal management and reporting structures. In the fiscal year the names of our segments have been adjusted. The content compo- sition of the segments remained unchanged. The report- ing format is broken down into the three operating seg- ments, those being News Media (previously Paid Models), Marketing Media (previously Marketing Models), and Classifieds Media (previously Classifieds Ad Models). In addition, there is the Services/Holding segment. Segmentation of assets, liabilities, and investments based on the operating segments does not occur as these measures do not serve as a basis for decision making at segment level. (a) Operating segments All business models which predominantly generate reve- nues in online classified advertising are summarized in the Classifieds Media segment. Our portfolio comprises leading domestic and foreign online classified portals fo- cusing on real estate, jobs and cars, as well as general classifieds. Our online classifieds portals include the real estate portals SeLoger, Immoweb, Immowelt/Immonet, the job portals of the StepStone Group (including the portals of Totaljobs, Jobsite and Saongroup), the re- gional portal meinestadt.de, the portals of @Leisure for holiday properties (incl. the portals Traum-Ferienwoh- nungen and DanCenter), as well as the car and general- ist classified ad portals LaCentrale and Yad2. The News Media segment includes primarily business models that are based on content creation and funded by paying readers and/or advertisers. News Media Na- tional include the digital and print media of the BILD and WELT Group, the computer, car and sport magazines of the BILD brand family, B.Z. and the music magazines. News Media International include Axel Springer's digital and printed media services in Europe and the USA. In Europe our main areas of representation are in Poland, Slovakia, Serbia, Hungary, Switzerland, Belgium, Spain and the Baltic States. Onet.pl and azet.sk, the leading in- ternet portals in Poland and Slovakia, also belong to this sub-segment. In the USA, we are represented with busi- nessinsider.com and additionally with eMarketer. The Marketing Media segment compromises all domes- tic and foreign business models whose revenues are pri- marily generated by advertising customers in marketing based on performance or reach. These include, in partic- ular, the performance-based activities of the Awin Group (previously Zanox Group), which have been strengthened through the offerings of ShareASale.com and the affilinet Group, as well as the reach-based marketing offers of 146 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements Idealo, finanzen.net, Bonial and auFeminin (see for the planned disposal of auFeminin note (10), (40)). The Services/Holding segment comprises group services including IT, printing plants, real estate management, gastronomy, and financial and personnel services, as well as holding functions such as accounting, controlling, finance, law, tax, HR, internal audit, strategy, and com- munication. Group services are purchased by customers within the Group and are priced at arm’s length. (b) Geographical information The activities of the Axel Springer Group are conducted mainly in Germany, other European countries, and the USA. For purposes of geographical segment reporting, the revenues are segmented according to the location of the customer’s registered office and the non-current assets according to the location of the legal entity. (31) Segment information The segment information was compiled on the basis of the recognition and measurement methods applied in the consolidated financial statements. The external revenues comprise circulation revenues from the sale of publishing products, advertising reve- nues, and revenues from rendering services. The internal revenues consist of revenues from the exchange of goods and services between the various segments. The transfer pricing is based on cost coverage. We use the performance figure adjusted EBITDA, which illustrates earnings before interest, taxes, depreciation and amortization, as well as adjusted EBIT, which is de- fined as earnings before interest and taxes, to measure segment results. In calculating this performance figure, non-recurring effects and effects of purchase price allo- cations are eliminated. Non-recurring effects include ef- fects from the acquisition and disposal (including contri- bution) of subsidiaries, business units, and investments (including effects from the subsequent valuation of con- tingent considerations and other option liabilities for the acquisition of non-controlling interests), as well as impair- ment and write-ups of investments, effects from the sale of real estate, impairments, and write-ups of real estate used for own operational purposes, plus expenses re- lated to the long-term incentive plan for the current Exec- utive Board members (LTIP) granted at the beginning of May 2016. Purchase price allocation effects include the expenses of amortization, depreciation, and impairments of intangible assets, and property, plant, and equipment from the acquisition of companies and business divi- sions. 147 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements The breakdown of the eliminated non-recurring effects from the adjusted EBITDA and adjusted EBIT into the segments is shown below: 2017 2016 Classifieds Media News Media Marketing Media Services/ Holding Classifieds Media News Media Marketing Media Services/ Holding – 2.4 – 10.9 – 1.3 0.0 – 2.6 – 17.0 – 0.4 0.0 – 15.1 – 2.6 52.7 0.0 – 20.2 – 3.0 – 6.6 0.0 € millions Effects from acquisitions of subsidiaries and investments Subsequent valuation of contingent purchase price liabilities and other option liabilities for the acquisition of non- controlling interests Effects from initiated and finalized disposals of subsidiaries, investments and real estate Impairment on investments Executive Board Program 2016 (LTIP) Non-recurring effects – 17.2 – 66.2 36.8 163.5 54.1 74.0 0.4 0.0 0.0 – 12.4 – 40.3 0.0 0.7 183.7 – 15.3 0.0 0.0 – 20.2 77.4 – 0.5 0.0 94.0 0.0 0.0 50.3 – 2.5 0.0 40.9 69.1 0.0 – 3.5 65.6 The effects from business acquisitions are mainly at- tributable to the News Media segment, mainly resulting from effects of purchase price allocations in connection with the establishment of Ringier Axel Springer Schweiz AG. In the previous year effects of purchase price alloca- tions in connection with the acquisition of eMarketer have been included. The effects of the subsequent valuation of contingent consideration and other option liabilities for the acquisi- tion of non-controlling interests related primarily to Bonial Holding (Marketing Media) and Immowelt (Classifieds Media) in the reporting year (PY: Immowelt and Im- moweb (both Classifieds Media)). The effects from the sale and disposal of real estate and companies conducted and initiated are mainly attributa- ble to the sale of the Axel-Springer-Passage in Berlin (Services/Holding, see note (5)). In the previous year, the effects related primarily to the disposal of CarWale (Clas- sifieds Media), as well as the income from the disposal of the entire Swiss business in connection with the estab- lishment of Ringier Axel Springer Schweiz AG jointly with Ringier (News Media), the income from the disposal of Smarthouse Media and the disposal of the investment in Thrillist (both Marketing Media). Furthermore, in the previ- ous year the gain on the sale of the office building com- plex in Hamburg was included in the Services/Holding segment. The impairments on investments related primarily to the News Media segment and related to Ringier Axel Sprin- ger Schweiz AG, see note 7(a). For the long-term incentive plan for the current Executive Board members 2016 (LTIP) see further explanations in note (12). 148 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements The reconciliation of the income from investments dis- closed in the income statement as well as the impair- ments are shown below: goals, methods, and processes of our capital manage- ment are subordinate to the earnings-driven financial key figures. € millions 2017 2016 Income from investments included in adjusted EBITDA 16.0 18.7 Non-recurring effects included in result from investments accounted for using the equity method Non-recurring effects included in other investment income Income from investments – 51.1 16.8 – 4.0 – 39.0 4.7 40.2 Depreciation, amortization, impairments, and write-ups (except from non-recurring effects and purchase price allocations) Amortization and impairments from purchase price allocations Depreciation, amortization, and impairments – 141.9 – 124.3 – 94.2 – 108.3 – 236.1 – 232.6 The non-current segment assets include goodwill, intan- gible assets, property, plant, and equipment as well as in- vestment properties. The largest share of non-current segment assets of the other countries is attributable to France in the amount of € 839.6 million (PY: € 1,024.8 million) and the USA in the amount of € 668.0 million (PY: € 733.6 million). Other disclosures (32) Capital management Beyond the provisions of German law applicable to stock corporations, Axel Springer SE is not subject to any fur- ther obligations relating to capital preservation, whether from its own Articles of Incorporation or from contractual obligations. The financial key figures we used for man- agement purposes are primarily earnings-driven. The We can utilize the funds derived from the promissory notes (€ 879.0 million) and also avail ourselves of our long-term credit lines (€ 1,200.0 million), both for general business purposes as well as to finance acquisitions. In order to optimize our financing conditions, in May 2017, we improved the average rate of interest, ex- tended the average term and significantly increased the financing volumes through the partial termination, trans- formation and subscription of our existing promissory notes. In this context, the long-term credit lines drawn down were also repaid, as well the early repayment of two promissory notes with floating interest rates. The maturity of our credit lines remained unchanged. As of December 31, 2017, there were now promissory notes totaling € 879.0 million with a term to April 2018 (€ 70.5 million), to October 2018 (€ 104.0 million), to Oc- tober 2020 (€ 69.0 million), to May 2021 (€ 11.5 million), to May 2022 (€ 158.0 million), to May 2023 (€ 72.0 mil- lion) and to May 2024 (€ 394.0 million). In addition, on the balance sheet date credit lines amounting to € 1,200.0 million, the utilization of which is due for repay- ment in July 2020. The utilization of the credit lines is tied to compliance with covenants. Since the existence of the credit lines we have fully complied with all credit terms. For the purpose of maintaining and adjusting the capital structure, the company can adjust the dividend pay- ments to its shareholders or purchase treasury shares representing up to 10.0 % of the subscribed capital as of the date of the resolution at the Annual General Meeting on the authorization to acquire treasury shares on April 16, 2014. Treasury shares can be used for acquisition fi- nancing or they can be retired. At the reporting date and the prior year's reporting date, we held no treasury shares. 149 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements (33) Financial assets and liabilities The balance sheet items comprising financial assets and liabilities can be attributed to the measurement categories ac- cording to IAS 39 as follows: € millions Assets 12/31/2017 Other non-current investments and securities Loans and advances Derivatives Other non-current financial assets Trade receivables Receivables due from related parties Other Other assets Cash and cash equivalents Liabilities 12/31/2017 Financial liabilities Trade payables Liabilities due to related parties Derivatives designated as a hedging instrument Contingent consideration Other Other liabilities Assets 12/31/2016 Other non-current investments and securities Loans and advances Derivatives Other non-current financial assets Trade receivables Receivables due from related parties Derivatives Other Other assets Cash and cash equivalents Liabilities 12/31/2016 Financial liabilities Trade payables Liabilities due to related parties Derivatives designated as a hedging instrument Derivatives not designated as a hedging instrument Contingent consideration Other Other liabilities Carrying amount Loans and receiv- ables Financial liabilities Available- for-sale financial assets Financial assets and liabilities held for trading No category according to IAS 39 and non financial assets and liabilities 40.1 40.1 693.9 29.3 53.5 53.5 216.8 41.6 41.6 614.6 40.0 63.5 63.5 224.1 1,236.8 462.1 22.9 281.8 281.8 1,258.7 379.8 23.1 249.3 249.3 163.9 163.9 155.3 155.3 154.5 154.5 0.4 0.4 146.3 146.3 0.6 0.6 0.6 12.4 12.4 95.2 95.2 0.3 41.6 80.6 376.9 457.4 96.8 96.8 0.6 6.5 309.3 385.1 695.0 163.9 40.1 155.3 359.3 693.9 29.3 148.7 148.7 216.8 1,237.0 462.1 64.5 0.4 80.6 658.7 739.7 154.5 41.6 146.3 342.3 614.6 40.0 0.6 160.3 160.9 224.1 1,259.3 379.8 29.6 0.6 12.4 309.3 634.4 956.7 150 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements With the exception of the following financial assets and liabilities, the valuation is at amortized cost. 12/31/2017 12/31/2016 Fair value based on market price (level 1) Fair value based on observable market data (level 2) Fair value not based on observable input factors (level 3) Fair value based on market price (level 1) Fair value based on observable market data (level 2) Fair value not based on observable input factors (level 3) 103.7 155.3 0.4 106.0 0.6 146.3 0.6 12.4 80.6 309.3 € millions Other non-current investments and securities Derivatives not designated as a hedging instrument (positive fair value) (see note (35b)) Derivatives designated as a hedging instrument (negative fair value) (see note (35a)) Derivatives not designated as a hedging instrument (negative fair value) (see note (35b)) Contingent consideration Besides additions of € 21.1 million (PY: € 77.9 million) and disposals of € 5.6 million (PY: € 0.0 million) the de- velopment of other non-current investments and securi- ties related to fair value changes of € – 17.8 million (PY: € 13.9 million) recognized directly in equity. In addition, fair value changes of € – 0.6 million (PY: € 0.0 million) have been recognized in other investment income. In the reporting year, the fair values of liabilities for contingent considerations from business combinations developed as follows: € millions January, 1 Acquisitions or granting of option rights Payment Subsequent valuation affecting net income Thereof other operating income Thereof other operating expenses Compound Other December, 31 2017 Thereof Immoweb Thereof Bonial Holding thereof Awin Thereof Onet 309.3 13.2 – 187.0 – 43.9 – 56.6 12.6 2.0 – 13.0 80.6 67.4 54.2 63.1 41.9 – 52.8 3.4 3.4 0.2 18.2 – 62.4 – 43.8 – 50.0 – 50.0 0.1 4.3 – 1.1 – 1.1 0.4 0.0 2.0 2.0 0.0 Other effects mainly related to the reclassification of con- tingent considerations into liabilities related to assets held for sale, see note (10). The subsequent valuation of the contingent consideration for the acquisition of non- controlling interests of the Bonial Holding is connected to the closing of the business in the USA in the reporting year and the associated adjustment of the medium-term planning of the entity. 151 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements € millions January, 1 Acquisitions or granting of option rights Divestment Payment Subsequent valuation affecting net income Thereof other operating income Thereof other operating expenses Compound Other December, 31 2016 307.8 75.2 0.0 – 93.4 17.2 – 3.1 20.3 2.2 0.3 Thereof Immoweb 61.2 Thereof Bonial thereof Awin Holding Thereof Onet Thereof Car&Boat Media 0.0 63.1 52.8 42.9 89.8 5.5 5.5 0.7 0.0 1.8 1.8 – 0.4 – 1.9 0.9 – 1.5 2.4 – 89.7 – 0.6 – 0.6 0.5 0.0 309.3 67.4 63.1 54.2 41.9 The fair value measurement of the contingent purchase price liabilities essentially depends on the estimated re- sults of the acquired companies in the years before the possible exercise periods of the option rights or the pay- ment dates of the earn-outs. The earnings used as a ba- sis for measurement are generally EBITDA figures ad- justed for material non-recurring effects. In case of an increase of the relevant estimated earnings measures by 10 %, the value of the contingent consideration would in- crease by approximately 23 %. A decrease of the rele- vant earnings measures by 10 % would result in a reduc- tion of approximately 2 %. With the exception of the financial liabilities presented below, the carrying amounts of the financial assets and liabilities were identical to their fair values. € millions 12/31/2017 12/31/2016 Carrying amount Fair value Carrying amount Fair value Financial liabilities 793.3 804.1 448.0 456.1 Thereof promissory note 793.3 804.1 448.0 456.1 The fair value disclosed is determined on the basis of the advantage between the contractually agreed effective in- terest rate and the market interest rate taking into ac- count our credit risk (level 2 of the measurement hierar- chy, see note (3g)). The net gains and losses of financial instruments (exclud- ing interest and income from investments) recognized in the income statement are presented in the following ta- ble. € millions Loans and receivables, financial liabilities Available-for-sale financial assets Financial assets and liabilities held for trading 2017 2016 – 5.2 – 4.5 – 27.3 5.5 4.7 15.0 The net gains and losses in the categories of “loans and re- ceivables” and “financial liabilities” consisted mainly of the result from the currency conversion and valuation allow- ances. The net gains or losses of available-for-sale financial assets consisted mainly of impairment losses. In the previous year gains and losses on the disposal of these financial assets have been included. The net gains or losses in the category of “financial assets and liabilities held for trading” mostly resulted from changes 152 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements in fair value of foreign currency derivatives and gains (PY: expenses) from other financial derivatives. In the fiscal year, fair value changes of € – 17,7 million (PY: € 14.1 million) before taxes were recognized directly in eq- uity. (34) Financial risk management With respect to its financial assets and liabilities, the Axel Springer Group is exposed to financial market risks, li- quidity risks, and credit risks. The task of financial risk management is to limit these risks by means of targeted measures. (a) Financial market risks Financial market risks for financial assets and liabilities mainly consist of interest rate risks and exchange rate risks. In principle, the effects of these risks on the value can be assessed promptly and, where applicable, the loss risks can be reduced. Selected derivative hedging instruments are used to hedge risks. The use of financial derivatives is governed by appropriate guidelines of the Group. These guidelines define the relevant responsibilities, permissible actions, reporting requirements and business partner limit, and prescribe the strict separation of trading and back-office functions. To hedge the interest rate risk, we employ in particular interest rate derivatives such as interest rate swaps, in addition to increased use of fixed interest agreements. The degree of hedging specified in the Axel Springer fi- nance regulations ranges between 30 % and 100 % of the underlying transaction volume. The use of fixed inter- est agreements and interest rate derivatives resulted in an annual average hedging ratio regarding the gross in- debtedness (promissory notes and liabilities for banks) of 49.0 % (PY: 39.1 %). The effects of market interest rate changes on variable- interest financial instruments not hedged with financial derivatives are calculated using a sensitivity analysis. As- suming a parallel shift in the yield curve of +50 basis points, the financial result would decrease by € 0.9 mil- lion (PY: € 1.8 million). Assuming a parallel shift of the in- terest curve by – 50 basis points, the financial result would increase by € 0.4 million (PY: € 0.0 million). The fi- nancial result reacts less sensitively to interest rate re- ductions due to variable interest rate financial instru- ments with an agreed minimum interest rate. Currency risks from operations are mainly avoided through the occurrence of operating costs in the coun- tries in which we sell our products and services. Remain- ing currency risks from operations are insignificant to the Group since the majority of adjusted EBITDA is earned in the euro currency zone. In the reporting period, the share of adjusted EBITDA not earned in Euros was 13 % (PY: 20 %). Currency risks from foreign currency claims and liabilities (without liabilities from contingent consideration) as well as claims and liabilities in euros in non-euro countries with net exposures starting at € 5 million per foreign cur- rency are in principal hedged by means of maturity-con- gruent forward exchange transactions. Local-currency cash flows generated in non-euro zone countries are either reinvested to expand local business operations, or invested with Axel Springer SE and hedged by means of forward exchange deals or distrib- uted in the form of dividends. Therefore, the foreign ex- change risk from fluctuating exchange rates for foreign currency cash and cash equivalents is limited. Effects from the currency translation of statements pre- pared by subsidiaries in foreign currencies are recorded directly in accumulated other comprehensive income. Therefore, Axel Springer does not hedge such currency effects. (b) Liquidity risk We continually monitor the availability of financial re- sources to fund the company’s operating activities and investments by means of a Group-wide liquidity plan- ning system and monthly cash flow analyses. Liquidity 153 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements and financial flexibility of the Axel Springer Group is en- sured by fixed credit lines in the amount of € 1,200.0 million (until 2020) as well as by the promissory notes (€ 879.0 million). Note (17) contains a maturity analysis of our financial liabilities. The payment obligations for fi- nancial obligations that have been contractually agreed but not yet recorded are presented in note (39). (c) Credit risk Financial assets may be impaired if business partners do not adhere to payment obligations. The maximum expo- sure to risk from financial assets, which are fundamental- ly subject to credit risk, correspond to their carrying amounts. Significant risk items are contained in non-current finan- cial assets (loans) as well as in trade receivables, receiva- bles due from related parties, and other assets. The majority of our business models are based on a widely distributed and heterogeneous customer base. We therefore estimate the risk of significant defaults to be low. To the extent that credit risks are discernible, we reduce them using active management of receivables, credit limits, and credit checks of our business partners. Appropriate allowances are formed to account for dis- cernible default risks. Investments in securities are made only in instruments with first-class ratings according to our finance regula- tions. Investment in time deposits occurs exclusively at financial institutions that belong to the deposit protection fund and/or are classified by leading rating agencies as being at least of Investment Grade Status BBB- (S&P) or Baa3 (Moody’s). (35) Financial derivatives (a) Financial derivatives designated as hedging instruments match the corresponding tranches of the variable-inter- est loans (hedged items). The interest rate swap was measured at fair value. The changes in the fair value were recognized in accumulated other comprehensive income until the hedged item was realized. The fair value measurement of the interest rate swap on the reporting date yielded negative fair values of € – 0.4 million (PY: € – 0.6 million). During the reporting period a profit (after tax) of € 0.1 million was recorded in other comprehensive income (PY: € 0.1 million). In addition, in the previous year designated hedging in- struments were used to hedge against currency risks from purchase price payments for company acquisitions in foreign currency. Unrealized gains of € 4.1 million from foreign exchange transactions and currency options real- ized during the previous year were initially recorded in other equity to hedge purchase price payments and were included in acquisition costs of the acquired non-fi- nancial assets. On the reporting date as well as in the previous year, there were no further derivatives desig- nated as hedging instruments. (b) Financial derivatives not designated as hedging instruments In order to secure our investment in Do⁄an TV, we con- cluded several put options for a successive sale of all shares with the seller. With regard to the accounting of this hedging agreement, see note (7b). From the valua- tion of these put options we recognized gains of € 6.4 million (PY: losses of € 4.9 million) in the financial result. Besides the agreed fixed price secured by bank guar- antees, the valuation of the derivatives depends in par- ticular on the discounting of the future payment entitle- ments. A supposed variation of the interest rate by 25 basis points would lead to an opposite change of the fair value of the put options by approximately € 1.1 mil- lion (PY: € 1.4 million). In the reporting period, designated hedging instruments were used in particular to hedge against the interest rate risks of long-term liabilities. The cash flows were hedged through an interest rate swap. Regarding maturity and nominal amount the interest rate swap was chosen to Furthermore, as of the balance sheet date of the previ- ous year for exchange transactions with a nominal value of € 138.3 million forward exchange transactions and exchange options with a negative fair value of € – 12.4 million and a positive fair value of € 0.6 million; 154 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements these were entered in order to secure against currency risks in loans from foreign subsidiaries or a contingent purchase price liability. The profits and losses from the fair value measurement of these forward exchange transactions, as well as the opposite profits and losses from the foreign currency measurement of the hedged loan claims and obligations were recognized. (36) Relationships with related parties Related parties are defined as those persons and com- panies that control the Axel Springer Group, or that are controlled, jointly managed, or subject to significant influ- ence by the Axel Springer Group. Accordingly, the mem- bers of the Springer family, the companies controlled, jointly managed, or subject to significant influence by this family, as well as companies in whose management they hold a key position have been defined as related parties for the Axel Springer Group. Control of the Group is ex- ercised by Axel Springer Gesellschaft für Publizistik GmbH & Co. or its parent company, Friede Springer GmbH & Co. KG, a majority of which is attributable to Dr. h.c. Friede Springer. In addition, the subsidiaries, joint ventures, and associated companies of the Axel Springer Group have been defined as related companies. In addi- tion to the active members of the Executive Board and Supervisory Board of Axel Springer SE (including their family members) and their controlled or jointly managed holdings, the institutions managing the plan assets of the Axel Springer Group must also be considered related parties. Besides the business relationships with the consolidated subsidiaries, the following business relationships existed with related parties: € millions Balance sheet Loans Receivables Thereof trade Allowances included Provisions Liabilities Thereof trade Income statement Goods and services supplied Goods and services received Financial result Total Associated companies Other related parties Total Associated companies Other related parties 12/31/2017 12/31/2016 0.6 2.2 0.9 1.2 17.5 52.2 2.8 2.5 75.9 0.1 2.7 40.0 6.8 18.3 15.2 29.4 2.4 2016 24.6 40.3 1.0 1.5 37.6 5.6 3.1 0.0 15.5 0.8 17.7 2.2 0.9 1.3 2.3 1.1 15.2 15.2 13.9 1.7 6.8 38.0 0.1 0.7 29.3 3.4 1.2 17.5 64.3 3.7 2017 19.2 78.3 0.1 0.1 27.0 2.5 0.0 0.0 12.0 0.9 16.7 2.5 0.1 155 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements The changes in the allowances for receivables due to re- lated parties are presented in the table below: € millions Balance as of January 1 Additions Utilization Reversals Other changes Balance as of December 31 2017 18.3 0.2 – 17.0 – 0.4 0.0 1.2 2016 26.5 1.1 – 9.3 0.0 – 0.1 18.3 As of December 31, 2017, receivables in the amount of € 2.6 million (PY: € 2.6 million) were neither past due nor subject to valuation allowances. With regard to these re- ceivables, there were no indications at the reporting date that would suggest that the related parties would not ful- fill their payment obligations. The receivables and liabilities relating to associated com- panies mainly relate to Ringier Axel Springer Schweiz AG and contain outstanding receivables and liabilities in con- nection with the formation of the company (see note (2c)). The provisions referred to pension obligations owed to members of the Executive Board. The liabilities include obligations from the share-based compensation pro- grams granted to the Management Board of Axel Springer SE in the amount of € 41.6 million (PY: € 6.5 million). Goods and services provided to related parties were mostly related to the distribution of newspapers and magazines as well as other services. The services re- ceived from related parties mainly regarded Executive Board or Supervisory Board services, purchased pub- lishing products and other services. In the fiscal year 2017, the fixed compensation of the members of the Executive Board of Axel Springer SE amounted to € 9.5 million (PY: € 9.1 million). The varia- ble compensation amounted to € 10.2 million (PY: € 10.1 million). The measurement of the share-based compensation granted to the Executive Board of Axel Springer SE resulted in personnel expenses of € 35.1 million (PY: personnel expenses of € 3.5 million) and other operating income of € 3.1million). Furthermore, the Supervisory Board has granted the Executive Board members a bonus totaling € 12.0 million, which was part of a voluntary one-off payment of the global growth in- vestor General Atlantic in recognition of the outstanding success of the joint investment in the online classifieds business and the development of the company and which did not lead to expenses in the consolidated in- come statement (see further explanation in the combined management report, page 79). Guaranteed pension pay- ments to members of the Executive Board resulted in a personnel expense of € 1.6 million (PY: € 2.3 million). The compensation of the members of the Supervisory Board amounted to € 3.0 million (PY: € 3.0 million). At the end of 2017, we have founded an investment fund for media start-ups together with a related party of a Su- pervisory Board member. Axel Springer's share in the in- vestment fund is approx. 93 %, which needs to be treated as a joint venture due to partnership arrange- ments. For the takeover of the management services the related party of the Supervisory Board member receives an annual compensation of USD 0.3 million (€ 0.3 mil- lion). In the previous year a Supervisory Board member received compensation of € 0.1 million for services as an author. The compensation of the members of the Executive and Supervisory Board is described in detail in the compen- sation report, which is part of the notes to the consoli- dated financial statements. The compensation report is included in the section “Corporate Governance Report”. An amount of € 2.5 million (PY: € 2.7 million) was paid to former Executive Board members and former managing directors and their survivors. A total amount of € 31.4 million (PY: € 33.6 million) was deferred for pension obli- gations. For transactions with the institutions managing the plan assets of the Axel Springer Group, please find the expla- nations in note (13). 156 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements (37) Contingent liabilities As of December 31, 2017, contingent liabilities from guarantees existed in the amount of € 4.3 million (PY: € 4.9 million). (38) Contingent assets Contingent assets were due from KirchMedia GmbH & Co KGaA i. L. in the amount of € 211.3 million (PY: € 221.0 million). Insofar as advance payments are an- nounced in the context of the insolvency proceedings against KirchMedia GmbH & Co. KGaA i.L., we recog- nize them as receivables. The receivables accepted in the table of claims by the insolvency administrator origi- nally totaled € 325.0 million. A total of € 8.1 million (PY: € 3.3 million) was paid out in the reporting year. (39) Other financial commitments The other financial commitments broke down as follows: € millions 12/31/2017 12/31/2016 Purchase commitments for - intangible assets - property, plant, and equipment - inventories Future payments under operating leases Future payments under finance leases Long-term purchase obligations 1.9 193.7 48.9 479.3 0.3 38.4 0.8 228.7 22.9 198.5 0.7 59.9 Other financial obligations 762.5 511.5 In Berlin, the construction of the new Axel Springer build- ing in direct vicinity of the old headquarter building is cur- rently taking place. From 2020 on up to 3,500 employ- ees will be working on about 52,000 m2. Total construction budget will be approximately € 305 million. As of the balance sheet date, investments amounted to around € 90 million (PY: around € 42 million). The pur- chase commitments for property, plant, and equipment almost exclusively result from this new construction pro- ject. In July 2017 a contract for the sale of the new Axel Springer building under construction was signed (see note (5)). The increase in purchase commitments for inventories is due to new paper delivery contracts. The increase in future payments under operating leases primarily relates to the leaseback of the Axel-Springer high-rise (main building) (see note (40)) and the Axel- Springer-Passage (see note (5)) (both in Berlin). Long-term purchase obligations resulted primarily from contracts for TV productions. The future minimum lease payments from operating leases on December 31, 2017 are broken down in the following table: € millions Due in up to one year Due in one to five years Due in more than five years Total 2017 73.8 208.7 196.8 479.3 2016 58.5 118.9 21.1 198.5 (40) Events after the reporting date On January 1, 2018, the Axel-Springer high-rise (main building) in Berlin was transferred with a fair value of € 156.0 million for the formation of plan assets to Axel Springer Pensionstreuhand e.V., Berlin, ("association") on a fiduciary basis. In return, the association made a pay- ment in the amount of € 15.6 million, so that the plan as- sets increased in total by € 140.4 million. For further use of the building by Axel Springer, a rental contract with a duration of 30 years and an initial annual rent in the amount of € 5.9 million was concluded with the associa- tion. The disposal and leaseback were to be reported as a so-called sale-and-leaseback transaction according to the new standard for lease accounting (IFRS 16). Conse- quently, the remaining carrying amount of the building as of January 1, 2018 (€ 27.0 million) in the amount of € 19.7 million was to be carried forward as a new leasing right-of-use asset and derecognized in the amount of 157 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements € 7.3 million. On the basis of the future rent payments, a leasing liability in the amount of € 113.8 was recognized as of January 1, 2018. In total, the transaction resulted in income of € 34.9 million in the fiscal year 2018. In December 2017, Axel Springer and Télévision Fran- çaise 1 (TF1) signed an option agreement and in January 2018 an agreement on the sale of Axel Springer's share in the French aufeminin Group at a price of € 38.74 per share. This was equivalent to a premium of 45.7 % on the closing price as of December 8, 2017. Axel Spring- er's 78.43 %-share was therefore valued at € 286.1 mil- lion, plus a monthly interest payment until completion of the transaction. Completion of the transaction requires approval by the relevant antitrust authorities (for further information, see note (10)). At the beginning of February 2018, the acquisition of 100 % of the shares in Concept Multimédia SAS, Aix-en- Provence/Paris, France, was completed (for further infor- mation, see note (2c)). Moreover, there are no further significant events after the reporting date to be reported. (41) Declaration of Conformity with the German Corporate Governance Code Axel Springer SE published the Declaration of Conformity with the German Corporate Governance Code issued by the Management Board and Supervisory Board in ac- cordance with Section 161 of the German Stock Corpo- rations Act (AktG) on the company’s website www.axel- springer.de → Investor Relations → Corporate Governance, where it is permanently available to share- holders. The Declaration of Conformity is also printed in the Corporate Governance section of this Annual Report. 158 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements (42) Companies included in the consolidated financial statements and share property 12/31/2017 12/31/2016 No. Company 1 Axel Springer SE, Berlin 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 Fully consolidated subsidiaries Germany affilinet GmbH, Munich AS Osteuropa GmbH, Berlin AS TV-Produktions- und Vertriebsges. mbH, Hamburg AWIN AG (previously ZANOX AG), Berlin Axel Springer All Media GmbH & Co. KG, Berlin Axel Springer Asia GmbH, Hamburg Axel Springer Auto-Verlag GmbH, Hamburg Axel Springer Digital Classifieds GmbH, Berlin Axel Springer Digital Classifieds Holding GmbH, Berlin Axel Springer Digital GmbH, Berlin Axel Springer Digital Ventures GmbH, Berlin Axel Springer Digital Ventures US GmbH, Berlin Axel Springer Digital Ventures US II GmbH (previously Sechsundsiebzigste "Media" Vermögensverwaltungsges. mbH), Berlin Axel Springer Druckhaus Spandau GmbH & Co. KG, Berlin Axel Springer hy GmbH (previously Axel Springer Transformator Holding GmbH), Berlin Axel Springer Ideas Engineering GmbH, Berlin Axel Springer ideAS Ventures GmbH, Berlin Axel Springer INSIDER Ventures GmbH, Berlin Axel Springer International GmbH, Berlin Axel Springer International Holding GmbH, Berlin Axel Springer Kundenservice GmbH, Hamburg Axel Springer Liveware IT GmbH, Berlin Axel Springer Mediahouse Berlin GmbH, Berlin Axel Springer Medien Accounting Service GmbH, Berlin Axel Springer Offsetdruckerei Ahrensburg GmbH & Co. KG, Ahrensburg Axel Springer Offsetdruckerei Kettwig GmbH & Co. KG, Essen Axel Springer Personalservice GmbH, Berlin Axel Springer Services & Immobilien GmbH, Berlin Axel Springer Sport Dienstleistungs-GmbH, Hamburg Axel Springer Sport Verlag GmbH, Hamburg Axel Springer Syndication GmbH, Berlin Axel Springer Teaser Ad GmbH (previously Sechsundneunzigste "Media" Vermögensverwaltungsges. mbH), Berlin Axel Springer TV Productions GmbH, Hamburg "Axel Springer Verlag" Beteiligungsgesellschaft mbH, Berlin B.Z. Ullstein GmbH, Berlin Bilanz Deutschland Wirtschaftsmagazin GmbH, Hamburg BILD GmbH & Co. KG, Berlin Bonial Holding GmbH, Berlin Bonial International GmbH, Berlin Bonial Management GmbH, Berlin Buch- und Presse-Großvertrieb Hamburg GmbH & Co. KG, Hamburg Buzz Technologies GmbH, Berlin Casamundo GmbH, Hamburg Commerz-Film GmbH, Berlin comparado GmbH, Lüneburg COMPUTER BILD Digital GmbH, Hamburg Contact Impact GmbH, Hamburg Content Factory TV-Produktion GmbH, Berlin DanCenter GmbH, Hamburg eprofessional GmbH, Hamburg finanzen.net GmbH, Karlsruhe Gofeminin.de GmbH, Cologne 159 Share- holding in % via No. Share- holding in % - - - - 100.0 100.0 52.5 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 - 100.0 - 100.0 100.0 - 100.0 100.0 100.0 - 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 - 100.0 100.0 100.0 100.0 100.0 72.5 100.0 100.0 77.1 51.0 100.0 100.0 100.0 100.0 - 5 21 1 11 1 21 1 11 9 1 11 12 12 1 12 35 35 12 130 1 20 1 17 1 1 1 1 1 1 31 1 35 6 1 1 35 35 1 11 39 39 1 1 92 21 56 1 6 via No. - - 21 1 11 1 21 1 11 9 1 11 12 - 1 - 35 35 - 1 20 1 - 1 1 1 1 1 1 31 1 35 - 1 1 35 35 1 11 39 39 1 1 92 21 56 1 - 16) 6) 5) 5) 5) 5) 5) 6) 5) 5) 5) 5) 5) 5) 5) 5) 6) 6) 5) 5) 5) 5) 5) 5) 5) 5) 6) 9) 6) 5) 5) 10) 88 100.0 139 100.0 5 12 100.0 75.0 88 139 5 12 103 100.0 103 100.0 100.0 100.0 80.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 62.1 100.0 100.0 80.1 19.9 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 72.5 100.0 100.0 77.1 51.0 100.0 100.0 100.0 100.0 75.1 100.0 100.0 100.0 75.0 100.0 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements No. Company 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 hamburg.de GmbH & Co. KG, Hamburg Idealo International GmbH, Berlin Idealo Internet GmbH, Berlin ImmoSolve GmbH, Bad Bramstedt Immowelt AG, Nuremberg Immowelt Hamburg GmbH (previously Immonet GmbH), Hamburg Immowelt Holding AG, Nuremberg infoRoad GmbH, Heroldsberg Maz&More TV-Produktion GmbH, Berlin Media Impact GmbH & Co. KG, Berlin meinestadt.de GmbH, Cologne meinestadt.de Holding GmbH, Berlin meinestadt.de Vertriebs-GmbH, Cologne MeinProspekt GmbH, Berlin Newspaper Impact GmbH, Hamburg PACE Paparazzi Catering & Event GmbH, Berlin Panther Holding GmbH, Berlin Sales Impact GmbH & Co. KG, Hamburg StepStone Continental Europe GmbH, Berlin StepStone Deutschland GmbH, Dusseldorf StepStone GmbH, Berlin t-bee GmbH, Puchheim Tourismuszentrum GmbH Mecklenburgische Ostseeküste, Kröpelin TraderFox GmbH, Reutlingen Transfermarkt GmbH & Co. KG, Hamburg Traum-Ferienwohnungen GmbH, Bremen Ullstein Ges. mit beschränkter Haftung, Berlin Umzugsauktion GmbH & Co. KG, Schallstadt upday GmbH & Co. KG, Berlin upday Holding GmbH, Berlin Vertical Media GmbH, Berlin Visoon Video Impact GmbH & Co. KG, Berlin Visual Meta GmbH, Berlin WeltN24 Club GmbH (previously Sechsundachtzigste "Media" Vermögensverwaltungsges. mbH), Berlin WeltN24 GmbH, Berlin YOURCAREERGROUP GmbH, Dusseldorf Other countries @Leisure BR B.V., Eindhoven, Netherlands @Leisure Holding B.V., Rotterdam, Netherlands AanZee VillaXL B.V., Bergen, Netherlands Administrationsselskabet af 1.10.2015 ApS, Copenhagen, Denmark affilinet Austria GmbH, Vienna, Austria affilinet Benelux B.V., Amsterdam, Netherlands affilinet España SLU, Madrid, Spain affilinet France SAS, Saint-Denis, France affilinet Limited, London, United Kingdom affilinet Schweiz GmbH, Zurich, Switzerland alFemminile s.r.l., Milan, Italy APM Print d.o.o., Belgradee, Serbia AS-NYOMDA Kft, Kecskemét, Hungary AUFEMININ SA, Paris, France auFeminin.com Productions SARL, Paris, France Autobazar.EU portál s.r.o., Nové Mesto nad Váhom, Slovakia AWIN AB (previously zanox we create partners AB), Stockholm, Sweden AWIN B.V. (previously zanox B.V.), Amsterdam, Netherlands AWIN Global Affiliate Network S.L. (previously ZANOX Hispania SL), Madrid, Spain AWIN Inc. (previously Digital Window Inc.), Wilmington, USA AWIN Ltd. (previously Digital Window Limited), London, United Kingdom AWIN SAS (previously zanox SAS), Paris, France AWIN Sp. z o.o. (previously zanox Sp. z o.o.), Warsaw, Poland 160 12/31/2017 12/31/2016 Share- holding in % via No. Share- holding in % via No. - 100.0 74.9 100.0 100.0 100.0 55.0 60.4 100.0 74.9 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 50.1 51.0 50.0 100.0 100.0 100.0 100.0 88.0 51.0 75.6 100.0 100.0 100.0 100.0 51.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 78.3 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 - 56 11 59 60 60 10 8 88 6 65 10 64 40 1 1 56 1 74 72 10 79 44 52 38 90 35 59 1 82 88 6 56 88 1 72 91 10 91 61.9 100.0 74.9 51.0 100.0 100.0 55.0 60.4 100.0 74.9 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 - - - 51.0 50.0 100.0 100.0 100.0 100.0 88.0 51.0 75.6 - 100.0 100.0 100.0 51.0 100.0 9) 9) 5) 6) 5) 5) 6) 5) 5) 5) 6) 5) 6) 6) 9) 6) 5) 5) 11 56 11 59 60 60 10 8 88 6 65 10 64 40 1 1 56 1 74 74 10 - - - 38 90 35 59 1 82 88 6 56 - 1 74 91 10 91 139 100.0 153 2 2 2 2 2 2 103 195 197 21 103 222 5 5 5 - - - - - - 100.0 100.0 100.0 78.4 100.0 - 100.0 100.0 100.0 - - - - - - 103 195 197 21 103 - 5 5 5 110 100.0 110 5 5 5 100.0 100.0 100.0 5 5 5 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements 12/31/2017 12/31/2016 No. 113 114 115 116 117 118 119 120 121 122 123 124 Company AWIN SRL (previously zanox SRL), Milan, Italy AWIN VEICULAÇÃO DE PUBLICIDADE NA INTERNET LTDA. (previously ZANOX VEICULAÇÃO DE PUBLICIDADE NA INTERNET LTDA.), São Paulo, Brazil Axel Springer Beteiligungen Schweiz AG, Zurich, Switzerland Axel Springer Digital Classifieds France SAS, Paris, France Axel Springer España S.A., Madrid, Spain Axel Springer France S.A.S., Paris, France Axel Springer International AG, Zurich, Switzerland Axel Springer International Limited, London, United Kingdom Axel Springer Norway AS, Oslo, Norway Axel Springer Schweiz AG, Zurich, Switzerland Belles Demeures S.A.S., Paris, France Belvilla Ferienwohnungen GmbH, Kitzbühel, Austria 125 BEMFEMININO.COM.BR, Sao Paulo, Brazil 126 127 128 129 130 131 132 Blikk Kft., Budapest, Hungary Bonial Enterprises North America Inc., New York, USA Bonial SAS, Paris, France Business Insider Europe Limited, London, United Kingdom Business Insider Inc., New York City, USA Candidate Manager (US) Inc, Boston, USA Candidate Manager Ltd, Dublin, Ireland 133 Car&Boat Media SAS, Paris, France 134 135 136 137 CaribbeanJobs Ltd, George Town, Cayman Islands City-Nav Sp. z o.o., Poznań, Poland Coral-Tell Ltd., Tel Aviv, Israel CV Keskus OÜ, Tallinn, Estonia 138 Cybersearch S.A., Guatemala City, Guatemala 139 140 141 142 143 144 145 146 147 148 149 150 151 152 153 DanCenter A/S, Copenhagen, Denmark DanCenter EDB Service ApS, Copenhagen, Denmark DreamLab sp. z o.o., Krakow, Poland eMarketer Europe Ltd., London, United Kingdom eMarketer Inc., New York, USA ENFEMENINO AUFEMININ S.A, Madrid, Spain Estascontratadocom S.A., Panama City, Panama Etoilecasting.com SAS, Paris, France Gambettes Box SAS, Paris, France Garantie System SAS, Paris, France G-Construct SA, Brussels, Belgium GoBrands Sp. z o.o., Krakow, Poland Good & Co Labs, Inc., San Francisco, USA ICI Formations SAS, Paris, France Land & Leisure A/S, Copenhagen, Denmark 154 ictjob SPRL, Waterloo, Belgium 155 156 157 158 159 160 161 162 Immoweb SA, Brussels, Belgium Interactive Junction Holdings Proprietary Limited, Rosebank/Johannesburg, South Africa Jobmagnet Limited, London, United Kingdom Jobs LU Ltd, Dublin, Ireland Jobs.ie Ltd, Dublin, Ireland Jobsite UK (Worldwide) Limited, London, United Kingdom Les Rencontres aufeminin.com SAS, Paris, France Livingly Media, Inc., San Carlos, USA 163 Maritimo 101 SL, Malaga, Spain 164 Marmiton SAS, Paris, France 165 MyJob Group Ltd i.L., Sheffield, United Kingdom 166 Media Impact Polska Sp. z o.o., Warsaw, Poland 167 Merci Alfred S.A.S., Paris, France 161 Share- holding in % via No. Share- holding in % 5 5 51 100.0 100.0 0.0 122 100.0 10 100.0 1 1 100.0 100.0 120 100.0 21 100.0 120 100.0 1 100.0 188 100.0 90 103 104 198 39 40 50.0 - - 100.0 100.0 100.0 130 100.0 12 100.0 132 202 10 116 202 182 100.0 100.0 61.0 39 100.0 - 10 100.0 198 214 202 - 100.0 0.0 91 100.0 100.0 100.0 100.0 93.4 100.0 100.0 100.0 100.0 100.0 - 139 183 143 12 103 214 103 172 133 155 183 via No. 5 5 51 122 10 1 1 120 21 120 1 188 90 - - 198 39 40 130 12 132 202 10 116 202 - 10 - 214 202 153 139 183 143 12 103 214 103 172 133 - 7) 11) 7) 9) 9) 100.0 183 74 100.0 208 - - 100.0 72 209 116 186 74 202 202 212 103 103 139 103 99.0 1.0 80.0 100.0 - 100.0 100.0 100.0 100.0 100.0 100.0 100.0 - 100.0 183 199 103 50.0 50.0 100.0 74 - 91 74 209 116 202 - 202 202 212 103 103 153 103 160 183 199 103 100.0 100.0 0.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 50.0 99.9 0.1 100.0 100.0 98.0 100.0 100.0 100.0 100.0 61.0 39.0 100.0 69.3 100.0 100.0 100.0 0.0 100.0 100.0 100.0 100.0 93.9 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 - 99.0 1.0 94.5 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 - 50.0 50.0 100.0 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements 12/31/2017 12/31/2016 No. Company 168 Milkround Online Ltd., London, United Kingdom 169 My Little Box KK, Tokyo, Japan 170 ofeminin.pl Sp. z o.o., Warsaw, Poland 171 My Little Campus SAS, Paris, France 172 My Little Paris S.A.S., Paris, France 173 My Web Ltd, Ebene, Mauritius 174 175 176 177 178 179 180 181 182 183 184 185 186 187 188 189 NARKS INFOSERVIS, a.s., Bratislava, Slovakia Netmums Limited, London, United Kingdom New Digital d.o.o. Belgradee, Belgrade, Serbia NIJobs.com Ltd, Belfast, United Kingdom NIN d.o.o., Belgrade, Serbia Ofertia Colombia Retail Services SAS, Bogotá, Colombia OfertiaCL Retail Services SpA, Santiago de Chile, Chile OFERTIAMX RETAIL SERVICES, S. de R.L. de C.V., Mexico City, Mexico ONET Holding Sp. z o.o., Warsaw, Poland Onet.S.A., Krakow, Poland OnetMarketing Sp. z o.o., Krakow, Poland Opineo Sp. z o.o., Wroclaw, Poland Pnet (Pty) Ltd, Johannesburg, South Africa Praxis SARL, Chambery, France PressImmo On Line S.A.S., Paris, France profession.hu Kft, Budapest, Hungary 190 RealSoft s.r.o., Nové Mesto nad Váhom, Slovakia 191 192 193 Residence de Monbrison A/S, Copenhagen, Denmark SeLoger Finances S.A.S., Paris, France Seloger Solutions SAS, Paris, France 194 SeLoger.com SAS, Paris, France 195 196 197 198 199 200 201 202 203 204 205 206 207 208 Ringier Axel Springer d.o.o., Belgrade, Serbia Ringier Axel Springer Inwestycje Sp. z o.o., Warsaw, Poland Ringier Axel Springer Magyarország Kft, Budapest, Hungary Ringier Axel Springer Media AG, Zurich, Switzerland Ringier Axel Springer Polska Sp. z o.o., Warsaw, Poland Ringier Axel Springer Slovakia a.s., Bratislava, Slovakia Saknai Net Ltd., Tel Aviv, Israel Saongroup Limited, Dublin, Ireland ShareASale.com Inc., Chicago, USA Skapiec Sp. z o.o., Wroclaw, Poland soFeminine.co.uk Limited, London, United Kingdom SOKOWEB TECHNOLOGIES, S.L., Barcelona, Spain SPORT.SK s.r.o., Zilina, Slovakia StepStone France SAS, Paris, France 209 StepStone NV, Brussels, Belgium 210 211 212 StepStone Austria GmbH, Vienna, Austria StepStone Services Sp. z o.o., Warsaw, Poland StepStone UK Holding Limited, London, United Kingdom 213 Tecoloco El Salvador S.A. de C.V., San Salvador, El Salvador 214 215 Tecoloco International Inc, Panama City, Panama Traveezee Insurance N. V., Eindhoven, Netherlands 216 Tecoloco S.A. de C.V. Honduras, Tegucigalpa, Honduras 217 Tecoloco.com S.A. de C.V. Nicaragua, Managua, Nicaragua 218 219 220 Topic Travel B.V., Den Haag, Netherlands Topreality.sk s.r.o., Nové Mesto nad Váhom, Slovakia Totaljobs Group Limited, London, United Kingdom 162 Share- holding in % 100.0 100.0 - 100.0 91.7 100.0 100.0 100.0 100.0 100.0 99.7 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 50.0 50.0 73.2 - - 100.0 - 100.0 99.0 100.0 50.0 100.0 89.0 70.0 100.0 100.0 100.0 100.0 70.0 66.7 100.0 100.0 0.0 100.0 100.0 100.0 100.0 0.0 100.0 - 99.6 0.4 95.0 3.0 2.0 100.0 100.0 100.0 Share- holding in % via No. 220 172 - 172 103 186 222 103 195 202 195 206 206 206 198 182 183 182 202 188 194 198 219 222 139 - - 116 - 198 199 198 120 198 198 136 212 109 182 103 40 200 100.0 100.0 51.0 49.0 100.0 70.0 100.0 100.0 100.0 100.0 100.0 99.7 - - 100.0 75.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 - 73.2 100.0 100.0 97.7 2.3 100.0 99.0 100.0 50.0 100.0 89.0 70.0 100.0 - 100.0 100.0 63.6 66.7 72 100.0 72 210 73 72 74 214 202 202 100.0 0.0 100.0 100.0 100.0 100.0 0.0 100.0 - 100.0 214 202 214 213 138 99.6 0.4 95.0 3.0 2.0 91 100.0 9) 9) 3) 9) 12) 9) 7) via No. 220 172 103 199 172 103 186 222 103 195 202 195 - - 206 198 182 183 182 202 188 194 198 - 153 188 194 116 10 198 199 198 120 198 198 136 212 - 182 103 40 200 74 74 210 73 74 74 214 202 202 91 214 202 214 213 138 91 - 222 212 - 100.0 212 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements No. 221 222 223 224 225 226 227 228 Company Turijobs Tourism Services S.L., Barcelona, Spain United Classifieds s.r.o., Bratislava, Slovakia upday France SARL, Paris, France upday Italia S.r.l., Milan, Italy upday Nederlands B.V., Amsterdam, Netherlands upday Nordics AB, Stockholm, Sweden upday Polska Sp. z o.o. Sp.k., Warsaw, Poland upday UK Ltd., London, United Kingdom 229 WEBIMM SAS, Paris, France 230 231 232 wewomen.com Inc., Wilmington, USA YOURCAREERGROUP Austria GmbH, Vienna, Austria YOURCAREERGROUP Switzerland GmbH, Kloten, Switzerland No. Company Other subsidiaries1) Germany 12/31/2017 12/31/2016 Share- holding in % via No. 100.0 60.0 100.0 100.0 100.0 100.0 100.0 100.0 65.0 100.0 100.0 100.0 72 200 83 83 83 83 83 83 194 103 72 72 Share- holding in % - 60.0 100.0 - - - 100.0 100.0 65.0 - - 100.0 via No. - 200 83 - - - 83 83 194 - - 74 12/31/2017 Share hol- ding in % via No. No. Company 12/31/2017 Share hol- ding in % via No. 233 Achtundachtzigste "Media" Vermögensverwaltungsges. mbH, Berlin 100.0 234 Achtundsiebzigste "Media" Vermögensverwaltungsges. mbH, Berlin 100.0 1 1 235 AS Buchversand GmbH, Munich 100.0 35 236 Axel Springer All Media Verwaltungs-GmbH, Berlin 100.0 1 237 Axel Springer Audio GmbH (previously Neunundachtzigste "Me- dia" Vermögensverwaltungsges. mbH), Berlin 100.0 1 238 Axel Springer Financial Media GmbH, Munich 239 Axel Springer Print Management GmbH, Ahrensburg 240 Axel Springer Security GmbH, Berlin 241 BILD Multimedia Verwaltungs GmbH, Berlin 242 Bonial Ventures GmbH, Berlin 243 CEO Event GmbH, Berlin 244 Dreiundneunzigste "Media" Vermögensverwaltungsges. mbH, Berlin 100.0 100.0 100.0 100.0 74.9 1 1 1 1 1 100.0 84 100.0 1 245 Dreizehnte "Media" Vermögensverwaltungsges. mbH, Hamburg 100.0 246 Einhundertdritte "Media" Vermögensverwaltungsges. mbH, Berlin 100.0 247 Einhunderterste "Media" Vermögensverwaltungsges. mbH, Berlin 100.0 248 Einhundertste "Media" Vermögensverwaltungsges. mbH, Berlin 100.0 249 Einhundertzweite "Media" Vermögensverwaltungsges. mbH, Berlin 100.0 250 Einundneunzigste "Media" Vermögensverwaltungsges. mbH, Berlin 100.0 251 Finanzen Corporate Publishing GmbH, Berlin 100.0 252 Fünfundachtzigste "Media" Vermögensverwaltungsges. mbH, Berlin 100.0 1 1 1 1 1 1 1 1 253 Fünfundneunzigste "Media" Vermögensverwaltungsges. mbH, Ber- lin 100.0 1 254 Fünfundsiebzigste "Media" Vermögensverwaltungsges. mbH, Berlin 100.0 35 260 Media Impact Management GmbH, Berlin 74.9 6 261 meinestadt.de Vermögensverwaltungsgesellschaft mbH, Cologne 100.0 64 262 myPass GmbH, Berlin 100.0 1 263 Neunundneunzigste "Media" Vermögensverwaltungsges. mbH, Berlin 100.0 1 264 Room 49 GmbH, Berlin 265 Sales Impact Management GmbH, Hamburg 266 Scubia GbR, Berlin 267 Shop Now GmbH i.L., Berlin 100.0 18 100.0 1 50.0 50.0 90.0 56 70 18 268 Siebenundachtzigste "Media" Vermögensverwaltungsges. mbH, Berlin 100.0 269 SPRING Axel Springer Digital News Media GmbH & Co. KG, Ber- lin 100.0 270 SPRING Axel Springer Digital News Media Management GmbH (previously Zweiundachtzigste "Media" Vermögensverwaltungs- ges. mbH), Berlin 100.0 1 1 1 271 Tarif24 GmbH, Berlin 272 TOPS Online Publications GbR, Lüneburg 273 Transfermarkt Verwaltungs GmbH, Hamburg 274 TunedIn Media GmbH i.L., Berlin 275 Umzugsauktion Verwaltungs GmbH, Schallstadt 276 upday Management GmbH, Berlin 277 Varsavsky Axel Springer Management GmbH (previously Sie- benundneunzigste "Media" Vermögensverwaltungsges. mbH), Berlin 278 Vierundneunzigste "Media" Vermögensverwaltungsges. mbH, Berlin 279 Visoon Video Impact Management GmbH, Berlin 100.0 56 90.0 10.0 51.0 86.4 46 56 38 1 100.0 59 100.0 1 100.0 12 100.0 1 51.0 6 100.0 35 255 Hammerich & Lesser Zeitschriften- und Buchverlag GmbH, Ham- burg 100.0 1 280 Zuio GmbH, Berlin 256 Hauptstadtsee 809. VV GmbH, Berlin 257 hy! GmbH, Berlin 258 Informationsmedien Handels GmbH, Hamburg 259 kinkaa GbR, Berlin 100.0 100.0 100.0 50.0 50.0 1 1 1 56 70 281 Zweiundsechzigste "Media" Vermögensverwaltungsges. mbH, Berlin 100.0 1 Other countries 282 Alpha Real spol. s.r.o., Zilina, Slovakia 283 AUTOVIA, s.r.o., Bratislava, Slovakia 100.0 200 100.0 222 163 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements No. Company 12/31/2017 Share hol- ding in % via No. No. Company 284 Axel Springer Hírszolgálat Kft, Tatabánya, Hungary 100.0 197 324 Project A Ventures GmbH & Co. KG, Berlin 285 Axel Springer International Group Limited, London, United King- dom 100.0 1 286 Axel Springer Media France S.A.R.L., Neuilly-sur-Seine, France 100.0 63 287 Axel Springer Media Italia s.r.l., Milan, Italy 100.0 63 288 Axel Springer Publishing International Limited, London, United Kingdom 100.0 284 289 Axel Springer Services Inc., Wilmington, USA 100.0 12 290 Axel Springer TV International Limited, London, United Kingdom 100.0 284 291 Azet.sk – katalóg s.r.o., Zilina, Slovakia 292 BILD Inc., City of Wilmington, USA 293 Car Price List Yad2 Ltd., Tel Aviv, Israel 294 CompuTel Telefonservice AG, Chur, Switzerland 295 Cpress Media s.r.o., Zilina, Slovakia 296 Digitalni klik d.o.o., Zagreb, Croatia 297 ETSBA Ltd., Tel Aviv, Israel 298 Euro Blic Press d.o.o., Banja Luka, Bosnia-Herz. 299 eurobridge Inc., New York, USA 300 Flyers 24hs S.A., São Paulo, Brazil 100.0 200 100.0 38 100.0 136 100.0 122 100.0 200 60.0 58 100.0 136 100.0 195 100.0 1 58.3 242 301 Gemini Moon Trading 343 Proprietary Limited i.L., Cape Town, South Africa 100.0 156 302 ICI JOB SAS, Paris, France 303 Immostreet ES, Barcelona, Spain 304 Jean Frey AG, Zurich, Switzerland 305 Jobcity Ltd., Tel Aviv, Israel 306 Media Impact Inc., New York, USA 307 Novy cas, a.s., Bratislava, Slovakia 308 Realty Media House s.r.o., Bratislava, Slovakia 309 Ringier Axel Springer SK, a.s., Bratislava, Slovakia 100.0 152 100.0 188 100.0 122 100.0 136 100.0 63 89.0 198 100.0 174 89.0 198 310 Saongroup Caribbean (Jamaica) Ltd, Kingston, Jamaica 100.0 134 325 Radio Hamburg GmbH & Co. KG, Hamburg 326 Varsavsky Axel Springer GmbH & Co. KG, Berlin 327 Verimi GmbH, Frankfurt on the Main Other countries 328 AC3 SAS, Guipavas, France 329 Editions Mondadori Axel Springer (EMAS) S.E.N.C., Montrouge Cedex, France 330 INFOR BIZNES Sp. z o.o., Warsaw, Poland 331 Ozy Media, Inc., Mountain View, USA 332 QWANT SAS, Paris, France 333 Ringier Axel Springer Schweiz AG, Zurich, Switzerland 50.0 115 Other associated companies and joint ventures2) Germany 334 Berliner Pool TV Produktion Gesellschaft mbH, Berlin 50.0 88 335 Blitz-Tip Radio Hessen Beteiligungsges. mbH & Co. KG, Bad Soden am Taunus 33.3 1 336 Dalim Software GmbH, Kehl 337 Filmgarten GmbH, Berlin 338 Ges. für integr. Kommunikationsforschung mbH & Co. KG, Mu- nich 339 Ges. für integr. Kommunikationsforschung Verwaltungs GmbH, Munich 340 Intermedia Standard Presse-Code GmbH, Hamburg 341 InterRed GmbH, Haiger 342 ISPC Intermedia Standard Presse-Code GmbH & Co.KG, Ham- burg 343 LAUT AG, Constance 344 Marina Wendtorf Invest II GmbH & Co. KG, Kiel 345 Mont Ventoux Media GmbH, Berlin 346 Project A Management GmbH, Berlin 12/31/2017 Share hol- ding in % 26.3 35.0 93.3 11.1 via No. 11 1 12 4) 1 8) 40.0 116 50.0 118 49.0 196 16.8 18.4 12 8) 12 8) 21.9 42.0 20.0 20.0 32.0 24.0 1 56 1 1 1 1 32.0 1 25.0 1 49.0 139 50.0 26.3 37.5 33.3 30.0 34 11 11 1 56 1 1 311 Saongroup Caribbean (Trinidad) Ltd, Port of Spain, Trinidad,and Tobago 100.0 134 347 Project A Services GmbH & Co. KG, Berlin 312 Saongroup.com India Pvt Ltd, Pune, India 313 Tecoloco Holding S.A. de C.V., San Salvador, El Salvador 100.0 202 100.0 0.0 214 202 348 Qivive GmbH i. L., Bad Homburg 349 Sparheld International GmbH, Berlin 350 V.V. Vertriebs-Ver. Berl. Zeitungs- und Zeitschr. Grossisten, Berlin 48.5 314 Tecoloco.com S.A. de C.V. Panama, Panama City, Panama 100.0 214 351 Zeitungs- und Zeitschriften Vertrieb Berlin GmbH, Berlin 35.5 315 Turijobs México S DE RL DE CV, Mexico-Stadt, Mexico 316 upday Polska Sp. z o.o., Warsaw, Poland 317 Yad2 Internet Ads Ltd., Haifa, Israel 318 Yad2Pay Ltd., Tel Aviv, Israel 319 zanox Switzerland AG i.L., Zurich, Switzerland 320 Zivot Publishing, a.s., Bratislava, Slovakia Investments accounted for using the equity method Germany 85.0 15.0 221 72 100.0 83 100.0 136 100.0 136 100.0 5 89.0 198 Other countries 352 Asocijacija Privatnih Media, Belgrade, Serbia 353 BULGARPRESS OOD, Veliko Tarnovo, Bulgaria 354 EMAS Digital SAS, Montrouge Cedex, France 20.0 195 25.5 1 50.0 118 355 HUNGAROPRESS Sajtóterjesztö Kft, Budapest, Hungary 24.0 1 356 Inoveo Holding SA, Sugiez, Switzerland 20.0 194 357 Real Estate Media S.A., Esch-sur-Alzette, Luxembourg 35.0 155 358 SereniPay SAS, Paris, France 359 VINA WOMAN UK LTD., London, United Kingdom 19.4 133 30.0 103 321 AS TYFP Media GmbH & Co. KG, Berlin 322 Axel Springer Plug and Play Accelerator GmbH, Berlin 323 mytic myticket AG, Frankfurt on the Main 50.0 50.0 24.9 1 12 1 164 Annual Report 2017 Axel Springer SE Consolidated Financial Statements Notes to the Consolidated Financial Statements No. Other significant investments Germany 360 ANTENNE BAYERN GmbH & Co. KG, Ismaning 361 RADIO/TELE FFH GmbH & Co. Betriebs-KG, Bad Vilbel Other countries 362 Airbnb, Inc., San Francisco, USA 363 Do⁄an TV Holding A.S., Istanbul, Turkey 364 Group Nine Media, Inc., New York, USA 365 Lakestar II LP, Guernsey, Guernsey 12/31/2017 Shareholding in % via No. Equity € million 13) Net Income € million 13) 16.0 15.0 0.1 7.0 13.0 6.6 1 1 1 45 12 12 - - - 303.7 - 143.4 - 15) - 15) - 15) – 36.0 - 14) – 3.2 1) No full consolidation due to immaterial impact (relation of net income and balance sheet total 9) Due to option rights in the reporting year and/or in the prior year a share for the company to net income and balance sheet total of the Group). of 100 % consolidated. 2) No at-equity consolidation due to immaterial impact (relation of net income of the company to 10) Due to option rights in the reporting year and in the prior year a share net income of the Group). of 89.99 % consolidated. 3) Control due to existing option rights exercisable at any time. 4) In the reporting year and/or the previous year, no control due to the lack of contractual agree- ments, which exclude the power of control and the possibility to influence the variable out- flows. 5) The company has exercised the exemption rights of Section 264 (3) of the German Commer- cial Code (Handelsgesetzbuch - HGB). 6) The company has exercised the exemption rights of Section 264b of the German Commercial 11) Control due to contractual agreements and rights to obtain power. 12) Applying rules of Section 357(1) of the Companies Act 2014. 13) Unless otherwise stated, equity and profit for the year according to local annual financial statements for the financial year 2016. Values translated into foreign currency using the closing rate as at December 31, 2017. 14) The company was recently founded. There is no financial statement yet. 15) No statement of equity and profit for the year as the annual financial statements are not Code (Handelsgesetzbuch – HGB). 7) Shares less than 0.1 %. 8) Significant influence on the basis of contractual agreements. published. 16) Due to option rights in the prior year a share of 100 % consolidated (see note (2c)). 165 Responsibility Statement To the best of our knowledge, and in accordance with the applicable reporting principles, the consolidated fi- nancial statements give a true and fair view of the finan- cial position, liquidity, and financial performance of the Group, and the Group management report includes a fair review of the development and performance of the busi- ness and the position of the Group, together with a de- scription of the principal rewards and risks associated with the expected development of the Group. Berlin, February 20, 2018 Axel Springer SE Dr. Mathias Döpfner Jan Bayer Dr. Julian Deutz Dr. Andreas Wiele 166 Independent Auditor’s Report To Axel Springer SE Report on the audit of the consolidated financial statements and of the Group management report Opinions We have audited the consolidated financial statements of Axel Springer SE, Berlin, and its subsidiaries (the Group), which comprise the consolidated statement of financial position as at December 31, 2017, and the consolidated income statement, consolidated statement of compre- hensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the fiscal year from January 1 to December 31, 2017, and notes to the consolidated financial statements, including a summary of significant accounting policies. In addition, we have audited the management report of Axel Springer SE and the Axel Springer Group (hereinafter “Group management report”) for the fiscal year from Jan- uary 1 to December 31, 2017. With respect to the sec- tion “Corporate Governance Report”, we have solely au- dited the information contained in its subsection “Compensation Report”. In accordance with the German legal requirements, we have not audited the content of the other information included in the section “Corporate Governance Report”. In our opinion, on the basis of the knowledge obtained in the audit,  the accompanying consolidated financial statements comply, in all material respects, with the IFRSs as adopted by the EU, and the additional requirements of German commercial law pursuant to Section 315e (1) HGB [“Handelsgesetzbuch”: German Commercial Code] and, in compliance with these requirements, give a true and fair view of the assets, liabilities, and fi- nancial position of the Group as at December 31, 2017, and of its financial performance for the fiscal year from January 1 to December 31, 2017, and  the accompanying Group management report as a whole provides an appropriate view of the Group’s position. In all material respects, this Group manage- ment report is consistent with the consolidated finan- cial statements, complies with German legal require- ments and appropriately presents the opportunities and risks of future development. Our opinion on the Group management report does not cover the con- tent of the section “Corporate Governance Report” re- ferred to above. Pursuant to Section 322 (3) Sentence 1 HGB, we de- clare that our audit has not led to any reservations relat- ing to the legal compliance of the consolidated financial statements and of the Group management report. Basis for the opinions We conducted our audit of the consolidated financial statements and of the Group management report in ac- cordance with Section 317 HGB and the EU Audit Regu- lation (No 537/2014, referred to subsequently as “EU Audit Regulation”) and in compliance with German Gen- erally Accepted Standards for Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer [Insti- tute of Public Auditors in Germany] (IDW). Our responsi- bilities under those requirements and principles are fur- ther described in the “Auditor’s responsibilities for the audit of the consolidated financial statements and of the Group management report” section of our auditor’s re- port. We are independent of the group entities in accord- ance with the requirements of European law and German commercial and professional law, and we have fulfilled our other German professional responsibilities in accord- ance with these requirements. In addition, in accordance with Art. 10 (2) f) of the EU Audit Regulation, we declare that we have not provided non-audit services prohibited under Art. 5 (1) of the EU Audit Regulation. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions on the consolidated financial statements and on the Group management report. 167 Annual Report 2017 Axel Springer SE Independent Auditor’s Report Key audit matters in the audit of the consolidated financial statements Key audit matters are those matters that, in our profes- sional judgment, were of most significance in our audit of the consolidated financial statements for the fiscal year from January 1 to December 31, 2017. These matters were addressed in the context of our audit of the consol- idated financial statements as a whole, and in forming our opinion thereon; we do not provide a separate opin- ion on these matters. Below, we describe what we consider to be the key au- dit matters: [1] Goodwill impairment test Reasons why the matter was determined to be a key au- dit matter In the consolidated financial statements of Axel Springer SE, the balance sheet item "Intangible assets" showed goodwill in the amount of € 2.280 million, which repre- sented approximately 35 % of the balance sheet total, and approximately 83 % of the Group's balance sheet equity. On November 30 of each year, the company carries out a goodwill impairment test in order to determine whether there are impairment loss requirements. The result of these valuations depends to a large extent on how the executive directors estimate future cash inflows and de- rive relevant discount rates. Given the complexity in connection with the valuation as well as the professional judgment that can be exercised as part of the valuation process, the impairment test for goodwill constitutes a key audit matter within the scope of our audit. Auditor’s response As part of our audit, we have examined the process im- plemented by the executive directors of Axel Springer SE, as well as the accounting and valuation guidelines that have been used to calculate the recoverable amounts from cash-generating units or groups of such units to which goodwill has been allocated, in order to determine the possible risk of errors. In addition, we have gained an understanding of the steps involved in the pro- cess and of the internal controls implemented. We have determined that the approach adopted by the executive directors of Axel Springer SE is in accordance with IAS 36. We have analyzed the business plans by comparing ac- tual past earnings with the current performance of busi- ness figures. As part of our analysis, we have also exam- ined the market performance of comparable companies based on figures from the actual financial year and fore- casted figures for future financial years. We have re- viewed the key assumptions made in the business plans for development and growth of the business by discuss- ing these in detail with the executive directors of Axel Springer SE. This is the basis on which we have as- sessed the appropriateness of these assumptions. The appropriateness of the various key valuation as- sumptions, such as the discount rate and the terminal growth rate, was examined with the support of our inter- nal valuation experts based on an analysis of market indi- cators. We have analyzed the parameters that were ap- plied when calculating the discount rates to ensure correct derivation, and have verified that the calculation is in accordance with the corresponding IAS 36 require- ments. By means of sensitivity analyses, we have assessed the risk of impairments in the event of changes to key valua- tion assumptions. Further, we have verified the mathe- matical correctness of the valuation model taking into ac- count the requirements of IAS 36. Based on our audit procedures, no reservations apply in relation to the valuation of goodwill. 168 Annual Report 2017 Axel Springer SE Independent Auditor’s Report Reference to related disclosures Auditor’s response Information relating to the accounting and valuation methods applied to goodwill can be found in the notes to the consolidated financial statements in section (3) "Ex- planation of significant accounting and valuation meth- ods", regarding impairments of intangible assets to sec- tion (f). Related information concerning the exercise of professional judgment by the executive directors and the sources of uncertainties in relation to estimates as well as disclosures relating to goodwill can be found in the notes to the consolidated financial statements in the sec- tion "Notes to the consolidated statement of financial po- sition", note (4) "Intangible assets". This note also in- cludes information with respect to sensitivity. [2] Revenue recognition Reasons for classification as a key audit matter For the fiscal year 2017, the Axel Springer Group recog- nized total revenues of € 3,563 million, predominantly from circulation and advertising activities. Circulation rev- enues are generated from the sales of newspapers and magazines ("print media") as well as digital subscription models. Advertising revenues are generated from the marketing of advertisements and advertising space in online and print media. Of the total revenue figure, € 1,759 million originate from revenues generated out- side of Germany, which represents a share of 49 %. The executive directors of Axel Springer SE issued de- tailed accounting guidelines for the recognition of reve- nues and implemented corresponding processes. Given the large number of different contractual agree- ments for the various services in the different segments and countries included in the consolidated financial statements of Axel Springer SE, our view is that revenue recognition is complex. As the issues concerning reve- nue recognition are considered material and complex, we consider revenue recognition as a key audit matter. As part of our audit, we have assessed the accounting and valuation guidelines applied in the consolidated fi- nancial statements of Axel Springer SE for revenue recognition with respect to the criteria defined in IAS 18. We have verified the processes implemented by the ex- ecutive directors of Axel Springer SE in relation to reve- nue recognition, particularly by ensuring that returns and further sales discounts have been taken into account correctly; we have also reviewed the controls imple- mented as part of these processes. In addition, we have analyzed the key revenues for the fiscal year 2017 to determine whether, inter alia, there is a correlation with the associated trade receivables and with payments received. Furthermore, we have randomly verified appropriate revenue recognition on the basis of contractual agreements in regard to the requirements of IAS 18. We have audited the revenues for the fiscal year 2017 on a random basis with regard to accrual account- ing by performing case-by-case assessments of revenue transactions shortly before and after the reporting date. In addition, we obtained balance confirmations from cus- tomers on a random basis. Based on our audit procedures, no reservations apply in relation to revenue recognition from the sale of circulation and advertising services. Reference to related disclosures For information concerning the accounting and valuation methods used for revenues, see the notes to the consoli- dated financial statements, section (3) "Explanation of significant accounting and valuation methods", in section (b) "Recognition of income and expenses". For the effect on revenues regarding changes to companies included in the consolidation of financial statements, see section (2) “Consolidation”, in section (c) "Acquisitions and di- vestitures". Detailed information concerning the compo- sition of revenues can be found in the notes to the con- solidated financial statements, in the "Notes to the consolidated statement of comprehensive income" sec- tion, note (18) "Revenues". 169 Annual Report 2017 Axel Springer SE Independent Auditor’s Report [3] Internally generated rights Reasons for classification as a key audit matter In its consolidated financial statements, under the bal- ance sheet item "Intangible assets," Axel Springer SE discloses internally generated rights with a carrying amount of € 132 million. The consolidated income state- ment item "Change in inventories and internal costs capi- talized" amounts to € 88 million and mainly comprises IT development projects for upgrading and expanding the digital business model. The costs attributable to develop- ment, in particular those relating to software solutions and websites were capitalized in accordance with the re- quirements of IAS 38. The criteria for capitalizing internally generated rights pur- suant to IAS 38 are subject to professional judgment in regard to, inter alia, future economic benefits and the clear distinction from the further development of existing projects, since these criteria are, to a large degree, de- pendent on the assessments and assumptions of the ex- ecutive directors. In light of the material importance, the complexity of the valuation models and the assumptions of the executive directors which are subject to professional judgment, we consider the determination of the fair values as a key au- dit matter. Auditor’s response During the course of our audit, we analyzed the process implemented by the legal representative of Axel Springer SE as well as the accounting and valuation guidelines for capitalizing internally generated rights in order to deter- mine the types of error risks that these may present. We have obtained an understanding of the relevant process steps and internal controls implemented. We have verified the accounting and valuation guidelines applied in the consolidated financial statements of Axel Springer SE regarding the capitalization of internally gen- erated rights on the basis of the criteria defined in IAS 38 including the implementation by the executive directors. We have verified compliance with the capitalization re- quirements defined by IAS 38 by means of random checks. On the basis of documentation substantiating the existence of significant improvements relating to ex- isting software solutions and websites, we have verified the recognition criterion relating to the economic benefit of the individually capitalized IT development project. In addition, we have verified the capitalized amounts for key projects based on the reported costs, capitalization date as well as estimated useful life. Overall, as a result of our audit procedures, no reserva- tions apply in relation to the capitalization of internally generated rights. Reference to related disclosures Information relating to internally generated intangible as- sets can be found in the notes to the consolidated finan- cial statements under section (3) "Explanation of signifi- cant accounting and valuation methods," note (c), and section (4) "Intangible assets", "Notes to the consoli- dated statement of financial position." [4] Contingent considerations arising from earn- out agreements and option liabilities for the acquisition of non-controlling interests Reasons for classification as a key audit matter As a result of Contingent considerations arising from earn-out agreements and option liabilities for the acquisi- tion of non-controlling interests agreed within the context of business combinations, the consolidated statement of financial position of Axel Springer SE as of December 31, 2017, showed contingent considerations and other op- tions liabilities amounting to € 81 million. During the fiscal year, these liabilities decreased due to payments in the amount of € 187 million and of reclassifications into liabil- ities related to assets held for sale in the amount of € 12 million, and had a positive effect on the consolidated in- come statement in the amount of € 42 million. The valu- ation of contingent considerations mainly depends on the expected earnings of acquired companies in the years prior to possible exercise dates of the option 170 Annual Report 2017 Axel Springer SE Independent Auditor’s Report rights. The earnings performance projected by executive directors of the company is associated with non-observ- able market inputs and thus is largely dependent on pro- fessional judgment of the executive directors of Axel Springer SE. In light of the material importance, the complexity of the valuation models and the assumptions of the executive directors which are subject to professional judgment, we consider the determination of the fair values as a key au- dit matter. Auditor’s response As part of our audit, we have, inter alia, verified the meth- odological approach used for the valuation of contingent considerations. The initial recognition and the valuation of the contingent considerations were carried out as part of the relevant acquisition. To ensure appropriate disclosure in the balance sheet, we have critically reviewed the con- tractual regulations and shareholder agreements for the respective option rights to acquire non-controlling inter- ests. We have reviewed the valuation model used for calculat- ing contingent considerations in order to verify compli- ance with the relevant IFRSs including the implementa- tion by the executive directors of Axel Springer SE. We have analyzed the business plans by comparing ac- tual past earnings with the current performance of busi- ness figures. As part of our analysis, we have also exam- ined the market performance of comparable companies based on figures from the actual financial year and fore- casted figures for future financial years. We have re- viewed the key assumptions made in the business plans for development and growth of the business by discuss- ing these in detail with the executive directors of Axel Springer SE. This is the basis on which we have as- sessed the appropriateness of these assumptions. Based on our audit procedures, no reservations apply in relation to the valuation of contingent considerations. Reference to related disclosures Information relating to contingent considerations, can be found in the notes to the consolidated financial state- ments under section (3) "Explanation of significant ac- counting and valuation methods", note (g). Additional in- formation, in particular information relating to maturities, can be found in section (16) "Other liabilities" and in sec- tion (17) "Maturity analysis of financial liabilities". Infor- mation with respect to valuation and sensitivity is con- tained in section (33) "Financial assets and liabilities" of the notes to the consolidated financial statements. Other information The Supervisory Board is responsible for the Report of the Supervisory Board; the executive directors are re- sponsible for the other remaining information. This other remaining information comprises the information stated in section “Corporate Governance Report” of the Group management report with the exception of the content of the Compensation Report; furthermore these contain other parts stipulated for the annual report of which we have received a version up until the issuing of this Audi- tor's Report:  the section “Group Key Figures“,  the section “Foreword“,  the section “Executive Board“,  the section “The Axel Springer Share“,  the section “Report of the Supervisory Board“,  the section “Responsibility Report“ and  the section “Boards“. Our opinions on the consolidated financial statements and on the Group management report do not cover the other information, and consequently we do not express an opinion or any other form of assurance conclusion thereon. 171 Annual Report 2017 Axel Springer SE Independent Auditor’s Report In connection with our audit, our responsibility is to read the other information and, in so doing, to consider whether the other information  is materially inconsistent with the consolidated finan- cial statements, with the Group management report or our knowledge obtained in the audit, or the executive directors are responsible for such arrange- ments and measures (systems) as they have considered necessary to enable the preparation of a Group manage- ment report that is in accordance with the applicable German legal requirements, and to be able to provide sufficient appropriate evidence for the assertions in the Group management report.  otherwise appears to be materially misstated. Responsibilities of the executive directors and the Supervisory Board for the consolidated financial statements and the Group management report The executive directors are responsible for the prepara- tion of the consolidated financial statements that comply, in all material respects, with IFRSs as adopted by the EU and the additional requirements of German commercial law pursuant to Section 315e (1) HGB, and that the con- solidated financial statements, in compliance with these requirements, give a true and fair view of the assets, lia- bilities, financial position, and financial performance of the Group. In addition, the executive directors are re- sponsible for such internal control as they have deter- mined necessary to enable the preparation of consoli- dated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, the executive directors are responsible for assessing the Group’s ability to continue as a going concern. They also have the responsibility for disclosing, as applicable, mat- ters related to going concern. In addition, they are re- sponsible for financial reporting based on the going con- cern basis of accounting unless there is an intention to liquidate the Group or to cease operations, or there is no realistic alternative but to do so. Furthermore, the executive directors are responsible for the preparation of the Group management report that, as a whole, provides an appropriate view of the Group’s po- sition and is, in all material respects, consistent with the consolidated financial statements, complies with German legal requirements, and appropriately presents the op- portunities and risks of future development. In addition, The Supervisory Board is responsible for overseeing the Group’s financial reporting process for the preparation of the consolidated financial statements and of the Group management report. Auditor’s responsibilities for the audit of the con- solidated financial statements and of the Group management report Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and whether the Group management re- port as a whole provides an appropriate view of the Group’s position and, in all material respects, is con- sistent with the consolidated financial statements and the knowledge obtained in the audit, complies with the Ger- man legal requirements and appropriately presents the opportunities and risks of future development, as well as to issue an auditor’s report that includes our opinions on the consolidated financial statements and on the Group management report. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Section 317 HGB and the EU Audit Regulation and in compliance with German Generally Accepted Stand- ards for Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer (IDW) will always detect a material misstatement. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements and this Group management report. 172 Annual Report 2017 Axel Springer SE Independent Auditor’s Report We exercise professional judgment and maintain profes- sional skepticism throughout the audit. We also  identify and assess the risks of material misstatement of the consolidated financial statements and of the Group management report, whether due to fraud or error, design and perform audit procedures respon- sive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinions. The risk of not detecting a material misstate- ment resulting from fraud is higher than for one result- ing from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the over- ride of internal control.  obtain an understanding of internal control relevant to the audit of the consolidated financial statements and of arrangements and measures (systems) relevant to the audit of the Group management report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of these systems.  evaluate the appropriateness of accounting policies used by the executive directors and the reasonable- ness of estimates made by the executive directors and related disclosures.  conclude on the appropriateness of the executive di- rectors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or condi- tions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in the auditor’s report to the related disclosures in the consolidated financial statements and in the Group management report or, if such dis- closures are inadequate, to modify our respective opinions. Our conclusions are based on the audit evi- dence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to be able to continue as a going concern.  evaluate the overall presentation, structure and con- tent of the consolidated financial statements, including the disclosures, and whether the consolidated finan- cial statements present the underlying transactions and events in a manner that the consolidated financial statements give a true and fair view of the assets, lia- bilities, financial position and financial performance of the Group in compliance with IFRSs as adopted by the EU and the additional requirements of German commercial law pursuant to Section 315e (1) HGB.  obtain sufficient appropriate audit evidence regarding the financial information of the entities or business ac- tivities within the Group to express opinions on the consolidated financial statements and on the Group management report. We are responsible for the direc- tion, supervision and performance of the group audit. We remain solely responsible for our audit opinions.  evaluate the consistency of the Group management report with the consolidated financial statements, its conformity with [German] law, and the view of the Company’s position it provides.  perform audit procedures on the prospective infor- mation presented by the executive directors in the Group management report. On the basis of sufficient appropriate audit evidence we evaluate, in particular, the significant assumptions used by the executive di- rectors as a basis for the prospective information, and evaluate the proper derivation of the prospective infor- mation from these assumptions. We do not express a separate opinion on the prospective information and on the assumptions used as a basis. There is a sub- stantial unavoidable risk that future events will differ materially from the prospective information. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. 173 Annual Report 2017 Axel Springer SE Independent Auditor’s Report We also provide those charged with governance with a statement that we have complied with the relevant inde- pendence requirements, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence and where appli- cable, the related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated fi- nancial statements of the current period and are there- fore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter. German Public Auditor responsible for the engagement The German Public Auditor responsible for the engage- ment is Nathalie Mielke. Berlin, February 21, 2018 Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft Other legal and regulatory requirements Ludwig Wirtschaftsprüfer Mielke Wirtschaftsprüferin Further information pursuant to Art. 10 of the EU Audit Regulation We were elected as group auditor by the Annual General Meeting on April 26, 2017. We were engaged by the Su- pervisory Board on April 26, 2017. We have been the group auditor of Axel Springer SE without interruption since fiscal year 2007. We declare that the opinions expressed in this auditor’s report are consistent with the additional report to the au- dit committee pursuant to Art. 11 of the EU Audit Regu- lation (long-form audit report). In addition to the financial statement audit, we have pro- vided to group entities the following services that are not disclosed in the consolidated financial statements or in the Group management report: due diligence services, mandatory audits of financial statements, services relat- ing to enforcement examinations, review of interim finan- cial statements, the audit of the system implemented in order to ensure compliance with Section 32 (1) WpHG, the audit of financial statements according to IDW PS 480, which prescribes the audit of financial statements compiled for a special purpose as well as the audit of in- ternal control systems in service companies according to IDW PS 951. 174 Boards Supervisory Board The Supervisory Board is composed of the following persons: Name, occupation Seats on other mandatory supervisory boards in Germany Seats on comparable boards in Germany and abroad Dr. Giuseppe Vita Chairman of the Supervisory Board of Axel Springer SE Dr. h. c. Friede Springer Vice Chairwoman of the Supervisory Board of Axel Springer SE William E. Ford CEO General Atlantic Oliver Heine Attorney at law and partner in the law firm Heine & Partner Rudolf Knepper Entrepreneur Lothar Lanz Member of various Supervisory Boards UniCredit S.p.A., Italy (Chairman of the Board of Directors) Authentic Brands Group L.L.C., USA (Board of Directors, since October 2017) IHS Markit Ltd., United Kingdom (Board of Directors) Oak Hill Advisors, L.P., USA (Partnership Committee) TBG AG, Switzerland (Board of Directors) Tory Burch LLC, USA (Board of Directors) YooApplications AG, Switzerland (Board of Directors) Bauwert AG (Vice Chairman, Chairman, until March 2017) Dermapharm Holding SE (since January 2018) Home24 AG (Chairman) TAG Immobilien AG (Vice Chairman) Zalando SE (Chairman) Do⁄an TV Holding A.S., Turkey (Supervisory Board, until March 2017) Kinnevik AB, Sweden (Board of Directors) Dr. Nicola Leibinger-Kammüller President and Chairwoman of the Managing Board of TRUMPF GmbH + Co. KG Siemens AG Voith GmbH & Co. KGaA, previously Voith GmbH TRUMPF Schweiz AG, Switzerland (Board of Directors) Prof. Dr.-Ing. Wolfgang Reitzle Entrepreneur Martin Varsavsky CEO Prelude Fertility Inc. Continental AG (Chairman) Hawesko Holding AG (Vice Chairman, until June 2017) Linde AG (Chairman) Medical Park AG (Chairman) Ivoclar Vivadent AG, Liechtenstein (Board of Directors) Fon Wireless Ltd., United Kingdom (Chairman of the Board of Directors) 175 Annual Report 2017 Axel Springer SE Executive Board The Executive Board is composed of the following persons: Executive Board member Seats on mandatory supervisory boards in Germany Seats on comparable boards in Germany and abroad Boards Dr. Mathias Döpfner Chairman and Chief Executive Officer Journalist Jan Bayer President News Media Media scholar Dr. Julian Deutz Chief Financial Officer Master’s Degree in Business Administration AWIN AG (since June 2017) Dr. Andreas Wiele President Classifieds and Marketing Media (since March 1, 2018 President Classifieds Media) Lawyer AWIN AG (Chairman), previously ZANOX AG Immowelt AG (Chairman) Immowelt Holding AG (Chairman) Dr. Stephanie Caspar (since March 1, 2018) Chief Technology and Data Officer Master’s Degree in Business Administration Axel Springer Schweiz AG, Switzerland (Chairman of the Board of Directors) Business Insider Inc., USA (Chairman of the Board of Directors) eMarketer Inc., USA (Chairman of the Board of Directors) Ringier Axel Springer Schweiz AG, Switzerland (Board of Directors) Time Warner Inc., USA (Board of Directors) Vodafone Group Plc., United Kingdom (Board of Directors) Warner Music Group Corp., USA (Board of Directors) Business Insider Inc., USA (Board of Directors) eMarketer Inc., USA (Board of Directors) Media Impact GmbH & Co. KG, Germany (Chairman of the Advisory Board) ONET S.A., Poland (Supervisory Board, since July 2017) Ringier Axel Springer Media AG, Switzerland (Vice Chairman of the Board of Directors, since July 2017, previously Board of Directors) Ringier Axel Springer Schweiz AG, Switzerland (Chairman of the Board of Directors, since June 2017) Axel Springer Beteiligungen Schweiz AG, Switzerland (Board of Directors, since September 2017) Axel Springer Digital Classifieds France SAS, France (Supervisory Board) Axel Springer International AG, Switzerland (Chairman of the Board of Directors, since June 2017, previously Board of Directors) Axel Springer Schweiz AG, Switzerland (Board of Directors) CompuTel Telefonservice AG, Switzerland (Chairman of the Board of Directors, since September 2017) Do⁄an TV Holding A.S., Turkey (Supervisory Board, since March 2017) Jean Frey AG, Switzerland (Chairman of the Board of Directors, since September 2017) Ringier Axel Springer Media AG, Switzerland (Board of Directors, since July 2017) Ringier Axel Springer Schweiz AG, Switzerland (Board of Directors, until June 2017) SeLoger.com SAS, France (Supervisory Board) StepStone GmbH, Germany (Supervisory Board) @Leisure Holding B.V., Netherlands (Chairman of the Board of Directors) Aufeminin S.A., France (Board of Directors) Axel Springer Digital Classifieds France SAS, France (Chairman of the Supervisory Board) Business Insider Inc., USA (Board of Directors) Car & Boat Media SAS, France (Chairman of the Supervisory Board) Coral-Tell Ltd., Israel (Chairman of the Board of Directors ) Elvaston Capital Management GmbH, Germany (Advisory Board, since January 2017) Immoweb SA, Belgium (Chairman of the Board of Directors) Magnolia AG, Switzerland (Board of Directors, since December 2017) Media Impact GmbH & Co. KG, Germany (Advisory Board, until September 2017) meinestadt.de GmbH, Germany (Chairman of the Supervisory Board) SeLoger.com SAS, France (Chairman of the Supervisory Board) StepStone GmbH, Germany (Chairman of the Supervisory Board) Media Impact GmbH & Co. KG, Germany (Advisory Board, since October 2017) Visoon Video Impact Management GmbH, Germany (Advisory Board, since November 2017) 176 Financial Calendar March 8, 2018 Annual Report 2017 Annual results press conference, telephone conference for investors and analysts, audio webcast April 18, 2018 Annual General Meeting Video webcast of the speech of the CEO May 8, 2018 Quarterly Statement as of March 31, 2018 Telephone conference, audio webcast July 27, 2018 Interim Financial Report as of June 30, 2018 Telephone conference, audio webcast November 7, 2018 Quarterly Statement as of September 30, 2018 Telephone conference, audio webcast December 12, 2018 Capital Markets Day Video webcast Imprint Address Axel Springer SE Axel-Springer-Straße 65 10888 Berlin, Germany Phone: +49 30 2591-0 Investor Relations ir@axelspringer.de Phone: +49 30 2591-77421/-77425 Fax: +49 30 2591-77422 Corporate Communications information@axelspringer.de Phone: +49 30 2591-77600 Fax: +49 30 2591-77603 Design Axel Springer SE, Corporate Communications Photos Andreas H. Bitesnich / Matti Hillig / Sergio Rinaldi The Annual Report and up-to-date information about Axel Springer are available on the Internet at: www.axelspringer.de The English translation of the Annual Report is provided for convenience only. The German original is legally binding.

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