Group Earnings

068 / Multi-year comparison of revenues in EUR m

069 / Multi-year comparison of adjusted ebitda¹ in EUR m

In 2018, ProSiebenSat.1 Group’s revenue development was characterized by portfolio changes and currency effects. The deconsolidation of the online travel agency eTRAVELi Holding AB (“Etraveli”) in the third quarter of 2017 and the video-on-demand portal maxdome and the tour operator Tropo in 2018 had a significant impact here. Moreover, advertising revenues were below last year’s figures. Against this backdrop, revenues amounted to EUR 4,009 million and were therefore slightly lower than in the previous year, as expected (–2% or EUR –69 million year-on-year). Adjusted for portfolio and currency effects, ProSiebenSat.1 Group achieved a slight increase in revenues of 1%. The Group generated 81% of its revenues in Germany (previous year: 79%).

ProSiebenSat.1 Group generates the majority of its revenues in Germany and thus in the eurozone. The remaining share of revenues is mainly attributable to the US with the production business of Red Arrow Studios and digital studio Studio71 based there. This is why currency effects could impact on the business performance. Exchange rate fluctuations in the reporting period resulted primarily from the translation of USD into Euro.

070 / Revenues by region in EUR m, 2017 figures in parentheses

While revenues in the Entertainment segment declined by 4% year-on-year to EUR 2,626 million (previous year: EUR 2,737 million), both the Content Production & Global Sales (+6%) and the Commerce (+2%) segment made a positive contribution to revenues. ProSiebenSat.1 Group’s objective is to generate additional revenues beyond the traditional TV advertising business and above all to successively increase the share of the digital business. The TV advertising business is very profitable, but like all consumer-related industries it is economically sensitive and highly seasonal. Against this backdrop, the Group generates approximately a third of its annual revenues in the fourth quarter. Adjusted for portfolio changes, this also holds true for the past financial year.

071 / Revenues by quarter in EUR m, 2017 figures in parentheses

072 / Adjusted EBITDA by quarter in EUR m, 2017 figures in parentheses

Other operating income amounted to EUR 50 million (previous year: EUR 332 million), including income from the sale of maxdome. The large difference is primarily the result of the gross proceeds from the sale of Etraveli amounting to EUR 302 million.

073 / Total costs in EUR m

Total costs increased by 3% or EUR 120 million and amounted to EUR 3,710 million. The cost increase is mainly due to higher consumption of programming assets of EUR 1,319 million (previous year: EUR 1,145 million), which is included in the cost of sales.

The increase in consumption compared to the previous year is based on the further development of the Group’s programming strategy since 2017. That means, that ProSiebenSat.1 Group will increasingly focus on local content in the future. In parallel, the Group has reviewed its commitments from existing US studio contracts. ProSiebenSat.1 Group particularly considered the exploitability of the US products in light of the changed viewer behavior driven in part by video-on-demand platforms. In this context, ProSiebenSat.1 Group identified beyond the common impairment test, a need to impair programming assets by EUR 354 million in 2018. Total expenses amounting to EUR 170 million were recorded in the previous year that were related to the strategic realignment undertaken by the Executive Board in the third quarter of 2017.

The depreciation and amortization likewise recognized in total costs declined 16% or EUR 41 million to EUR 222 million. This development is based primarily on lower impairments on other intangible assets.

The ProSiebenSat.1 Group is operating in a challenging environment on the television market. Reach has been declining for some time, particularly for selected US titles. One of the reasons is that these program titles are aligned primarily for the specific requirements of the US television market. Another factor is that from the perspective of the ProSiebenSat.1 Group, the average quality of the titles acquired in the framework of the US studio agreements developed less strongly than anticipated. Furthermore, the US program titles are generally not available on a exclusive basis to the ProSiebenSat.1 Group stations. Moreover, only limited utilization is possible on a digital basis, while competing video-on-demand portals are making progress in gaining users. To counter this trend, the ProSiebenSat.1 Group aims increasingly to buy local content or to produce local content itself, reducing the share of US program titles in the free TV channel programing on a sustained basis.

Against this backdrop, in the fourth quarter of 2018 the ProSiebenSat.1 Group made the strategic decision to sub-license some of its US titles to 7TV, and not to broadcast them itself any longer. This is a portfolio of program titles which are already available and also those which will be received in the future from the US licensors. 7TV will use the programs to make its platform more attractive for users. In addition, as part of this strategic realignment, the ProSiebenSat.1 Group management decided to stop broadcasting certain US program titles.

In the context of the above strategic measures in the fourth quarter, impairment of EUR 178 million was recognized (EUR 122 million of which came from the transaction with 7TV). Furthermore, for onerous contracts in connection with the future acceptance of programming assets, provisions for onerous contracts of EUR 176 million were recognized (EUR 168 million of which from transaction with 7TV). The total effect from the change in the programming strategy therefore amounts to minus EUR 354 million.

Operating costs amounted to EUR 3,027 million (–1% or EUR 26 million) and were thus down slightly on the previous year. This decline was attributable to consolidation effects and efficient cost management. It reflects the initial effects of cost savings in line with the three-pillar strategy. The aim is to leverage synergies and pool resources more efficiently by making the portfolio more closely interconnected. Operating costs are the relevant cost item for calculating adjusted EBITDA. The reconciliation breaks down as follows:

Adjusted EBITDA declined by 4% or EUR 37 million to EUR 1,013 million. The adjusted EBITDA margin was 25.3% and thus — like operating costs — nearly stable at the previous year’s level (previous year: 25.8%).

EBITDA decreased by 47% to EUR 570 million (previous year: EUR 1,084 million). This figure is characterized by reconciling items of minus EUR 443 million (previous year: EUR 34 million), including the total effect from the further development of the programming strategy of minus EUR 354 million (previous year: EUR –170 million). In addition to this high reconciling item with a negative impact on earnings, there were expenses in 2018 relating to reorganizations, especially in connection with the alignment of the Group portfolio on the basis of the new three-pillar strategy. The reconciling items from reorganizations totaled minus EUR 68 million (previous year: EUR –45 million). Costs in the amount of EUR 34 million also resulted from M&A projects (previous year: EUR 32 million), which were likewise mainly attributable to the Entertainment segment. Other EBITDA effects amounted to EUR 13 million (previous year: EUR –21 million). This particularly includes positive effects from the deconsolidation of maxdome. In addition, this item includes fair value adjustments of share-based payments of EUR 8 million (previous year: EUR 4 million). Expenses from other material one-time items of EUR 14 million (previous year: EUR 22 million) had an opposite effect.

The financial result amounted to minus EUR 4 million (previous year: EUR –174 million). The improvement in the financial result is based primarily on the positive development of the other financial result. It amounted to EUR 72 million (previous year: EUR –82 million) and is characterized by the following opposite effects: In 2018 the Group recognized impairments and reversals of impairment on financial assets of EUR 86 million (net) (previous year: EUR –77 million). EUR 69 million of this (previous year: EUR –59 million) are related to the reassessment of put options; the largest individual item was the reassessment of shares in digital studio Studio71, that reflects the change in expectation for the future cash outflows. This was offset by valuation effects from earn-out liabilities of minus EUR 11 million (previous year: EUR 0 million). The impairments on financial investments amounted to EUR 13 million (previous year: EUR 23 million).

The interest result improved and amounted to minus EUR 63 million (previous year: EUR –83 million). The change compared to the previous year is primarily due to the lower addition of provisions for interest on taxes in 2018. The result from investments accounted for using the equity method, also recognized in the financial result, amounted to minus EUR 13 million. In 2017, this figure came to minus EUR 10 million.

Pre-tax profit amounted to EUR 344 million. This corresponds to a decline of 47% or EUR 302 million compared to the previous year, which reflects the reconciling item in connection with the altered programming strategy described above. The figure for the previous year predominantly contains the gross proceeds from the sale of the online travel agency Etraveli.

Income tax expenses decreased by EUR 71 million to EUR 94 million with a tax rate of 27.4% (previous year: 25.5%). The lower tax rate in 2017 was due in particular to the sale of Etraveli.

The developments described resulted in a decline in the net result of 48% to EUR 250 million (previous year: EUR 481 million). At the same time, the net result attributable to shareholders of ProSiebenSat.1 Media SE fell to EUR 248 million (previous year: EUR 471 million).

Adjusted net income fell by 2% to EUR 541 million (previous year: EUR 550 million). This item is adjusted by the above reconciling items and presented in the reconciliation. Basic adjusted earnings per share amounted to EUR 2.36 (previous year: EUR 2.40).

Further information on ProSiebenSat.1 Group’s revenue and earnings figures for 2018 can be found in the section Information.