FINANCIAL REPORT AT A GLANCE

The objective:
The business model of a company or group should above all show what products and services a company offers and what benefit it creates for its customers and business partners.

Key contents from the Group business model 2016/17 section:
CECONOMY sees itself as the leading platform for companies, brands and concepts in the field of consumer electronics in Europe. At the top of the Group is CECONOMY AG, which assumes basic functions such as controlling, treasury or investor relations as a holding. The actual day-to-day business is taken care of by Group companies with strong brands such as MediaMarkt and Saturn.

CECONOMY's brand core is “We empower life in the digital world”. This translates as: we make life in the digital world easier for our customers with our tailor-made solutions.

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The objective:
A company’s management system presents the financial and non-financial key figures that are used to steer its business success.

Key contents from the Management system 2016/17 section:
The management system of CECONOMY aims, in particular, to strengthen and expand the Group’s positioning as a leading European platform for companies, brands and concepts in the consumer electronics area. This means that it is consistently aligned to the needs of all stake-holders involved in the Group.

The key figures of CECONOMY are the total sales growth adjusted for currency effects and portfolio changes, like-for-like sales, EBITDA (earnings before interest, taxes, depreciation and amortisation) and EBIT (earnings before interest and taxes) as well as EPS (earnings per share).

Brief explanation of the individual terms:

• Sales: Total value of goods and services that a company sells in a financial year.
• Sales growth: Change in sales in per cent compared to the previous financial year.
• Currency-adjusted like-for-like sales: The sales of the previous year’s period are converted at the rate of the corresponding period of the reporting year.
• Like-for-like sales adjusted for portfolio changes: Sales affected by portfolio changes are neither considered in the previous year nor in the reporting year for the total like-for-like sales.
• Like-for-like sales: Designation for currency-adjusted like-for-like sales on a comparable level or related to a comparable panel of sites, units or sales concepts such as online commerce and delivery. In the case of CECONOMY, this means that only the sales of locations, units or merchandising concepts are included in the like-for-like sales that can show a comparable history over a full financial year. As such, locations, units or merchandising concepts seeing major business changes such as closures in the reporting year or in the comparison year are excluded from the consideration.
• EBITDA and EBIT: Key figures to describe the commercial output of CECONOMY. The EBITDA corresponds to the earnings before the deduction of the net financial result, taxes, planned depreciation, amortisation, impairment losses and reversals of impairment losses on property and equipment, intangible assets and investment properties. By contrast, the EBIT key figure describes the profit before deduction of the net financial result and taxes.
• EPS: The EPS key figure describes the share of the profit or loss for the period that is made up by each share issued. It is calculated from the net result in the reporting year divided by the number of ordinary and preferential shares.

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The objective:
Sustainability management includes the planning, controlling and monitoring of the effects of the company's activities on the environment, society and individuals.

Key contents from the Sustainability management 2016/17 section:
CECONOMY views itself as a member of society that contributes to social value creation. Accordingly, our business activities are designed to create added value while reducing environmental strains. After splitting from METRO GROUP, CECONOMY AG therefore began in this reporting period to develop its own sustainability approach in order to give this subject the necessary weight in the overall company strategy.

In addition to this current planning, however, specific sustainability subjects were already implemented in the 2016/2017 financial year. As such, since the start of 2017 all MediaMarkt and Saturn stores in Germany have been switched 100 per cent to green electricity from German hydro power. What is more, customers in Germany can return old electrical appliances in all stores. This resulted in MediaMarktSaturn Deutschland amassing 35,000 tonnes of old devices in the reporting year. This is 50 per cent of the total amount of all returned devices in Germany, which came in at about 70,000 tonnes. Sustainability successes of this kind always depend on people too, for which reason CECONOMY is also consistently promoting the sustainability management of its own employees. To continue advising customers on sustainability in the future as well, regular product training sessions were held in the reporting year.

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The objective:
This section of the management report deals with all information relating to the subject of employees, from the HR strategy to recruitment, compensation models, workplace safety and diversity management to the figures for employee and staff cost development.

Key contents from the Employees 2016/17 section:
CECONOMY has set itself the target of further increasing its visibility in the market and to support customers in an increasingly digital world and to make their lives easier with tailor-made solutions. This requires committed employees. However, we are also convinced that we will only be able to grow further if we also promote these employees. We therefore focus in our HR strategy on two main areas; first, on the HR management including hiring, retention and development and second, on workplace safety and health promotion.

We have already developed a good image as regards our popularity as an employer. In our first-ever participation in a major study among schoolchildren regarding their dream employer, MediaMarktSaturn shot from zero to 26 in the reporting year, although retail actually dropped slightly by sector comparison of the study.

It is our declared aim to promote diversity in our company. To this end, at CECONOMY we aim, among other things, to achieve a share of women in management roles that corresponds to the workforce structure. Overall, the share of women in the total workforce was 39.9 per cent in the reporting year, 25 per cent of our executives were women.

CECONOMY’s workforce by fulltime equivalents in the reporting period stood at 57,852 employees on average and was therefore within the range of the previous year.

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The objective:
The presentation of the macroeconomic and sector-specific parameters enable placing the business development of one company in the reporting period in commercial context.

Key contents from the Macroeconomic and sector-specific parameters 2016/17 section:
On a macroeconomic level, the global economy performed better in the reporting period and in a more unified way than in the previous year. The key markets for CECONOMY, Germany and Western Europe, also showed positive tendencies. The German economy was solid across all sectors. In Western Europe, a growth recovery set in. Retail benefited from increasing private consumption at only slightly rising prices. Spain was again the most positive in Western Europe.

Related to the sector, sales in consumer electronics retailing in Germany rose strongly in the reporting period. Consumer electronics made the biggest contribution to this. In Southern Europe, Spain posted only a slightly positive performance after a multiple-year growth phase. The same tendency was also seen by markets in Italy and Switzerland.

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The objective:
On the basis of the key figures for the earnings, financial, and asset position, a company’s economic situation can be assessed. The earnings position thereby describes the success in the reporting period on the basis of sales and the result. The financial position sheds light on the performance of the funds available. The net assets present and explain the non-current and current assets from the statement of financial position.

Key contents from the results of operations, financial position and net assets 2016/17 section:
Related to the earnings position, CECONOMY fulfilled the outlooks both for sales and for EBIT before special items in the reporting period.

• Total sales increased by 1.3 per cent to €22.2 billion (2015/16: €21.9 billion).
• EBIT before special items improved by €6 million to €471 million (2015/16: €466 million), including negative currency effects in the amount of around €4 million.

When considering the financial position, the available funds were strongly influenced in the reporting period by the consequences of the hive-down and spin-off of the wholesale and food retailing business to the new METRO AG.

• The consolidated balance sheet therefore posted equity as of the closing date of 30 September 2017 in the amount of €666 million (30/09/2016: €5.332 billion). The equity ratio was 8.0 per cent (30/09/2016: 21.4 per cent).
• Net liquidity from continuing operations came in at €317 million (30/09/2016: €642 million). This lower net liquidity was mainly caused by an increase in financial borrowings as a result of the acquisition of the 24.33 per cent stake in the French consumer electronics retailer Fnac Darty S.A.

With a view to the net assets in the reporting period, the statement of financial position sum of CECONOMY fell following the demerger by €16.67 billion to €8.3 billion (30/09/2016: €25.0 billion).

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The objective:
The report on events after the closing date lists events that occurred between the statement of financial position closing date and the time of the preparation of the consolidated financial statements and may influence the assessment of the earnings, financial and asset position. The outlook notes the expectations for the company's expected economic performance.

Key contents from the Report on events after the closing date and outlook 2016/17 section:
Within the framework of the report on events after the closing date, it is noted for the reporting period that there was no event between the balance sheet closing date (30 September 2017) and the preparation of the consolidated financial statements (29 November 2017) that is significant for the assessment of the earnings, financial, and asset position of CECONOMY AG.

For the 2017 calendar year, it must be assumed that global economic growth is recovering thanks to a stronger US economy and an upswing in emerging markets. For the eurozone, we expect moderate economic growth of 2.1 per cent for 2017. Europe's consumer electronics retailing will also most likely continue to see a positive performance. In Germany we expect moderate growth in the consumer electronics sector in the current 2017/2018 financial year.

Outlook*

Sales
CECONOMY expects a slight increase in total sales for the 2017/18 financial year compared to the previous year. The Company also expects that like-for-like sales in the Western/Southern Europe region will contribute to this in particular. Accordingly, we expect a slight improvement of the net working capital compared to the previous year.

Earnings
Both for the EBITDA and EBIT, CECONOMY expects an increase at least in the mid single-digit percentage range without consideration of the earnings contributions from the investment in Fnac Darty S.A. The Western/Southern Europe region will contribute to this. The relevant comparison figures in the previous year 2016/2017 are adjusted for special items (EBITDA: €704 million, EBIT: €471 million).

In addition, the EBITDA and EBIT figures for 2017/18 will include our share in the profit or loss for the period generated by Fnac Darty S.A. Based on current analysts’ estimates, we expect this investment to make a contribution to earnings in the low to mid double-digit millions in financial year 2017/18.

*The outlook is based on currency-adjusted figures and before portfolio changes.

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The objective:
In conjunction with the consolidated financial statements, the risk and opportunity report should allow a correct impression of the likely performance of the company and the associated major opportunities and risks to be made. Risk reporting includes information on the individual risks and a breakdown of the risk situation and of the risk management system. Along the same lines, the opportunity report contains, among other things, the key information on opportunities, the opportunities management process and the measures for the development and steering of corporate potentials.

Key contents from the Risk and opportunity report 2016/17 section:
After the demerger of METRO GROUP, CECONOMY partly rearranged its opportunities and risk management, as former key risks of METRO GROUP no longer apply for CECONOMY. Risk from stationary retail, in particular, but also from online commerce with its strong competition arise for the new Group. Financial risks, which may have a negative impact on the net financial results, are added to this. These risks are therefore controlled centrally.

On the other hand, there are varied opportunities for CECONOMY for a positive business performance over the long term in the future. Here, we benefit above all from our very high level of brand awareness and the leading position in many European markets. Another key opportunity for our company is a much faster expansion of online commerce than expected. In addition, we are also seeing a major opportunity in the further expansion of our service range.

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The objective:
The remuneration report explains the composition of the income of the Management Board, Supervisory Board and executives. The information on the Management Board and Supervisory Board is usually guided by the requirements of the German Commercial Code and the recommendations of the German Corporate Governance Code (DCGK).

Key contents from the Remuneration report 2016/17:
The total remuneration of the Management Board is based on two remuneration systems in the reporting period, which consist of the same elements: a fixed annual base salary, which is paid out in monthly instalments, and two variable performance-based components. These are the so-called short-term incentive (STI/short-term performance-based remuneration) and the long-term incentive (LTI/performance-based remuneration with a long-term incentive). The STI honours the operating business performance on the basis of financial success targets relating to the reporting period. In addition, the LTI is designed to achieve sustainable growth in the company’s value and correspondingly applies a multi-year assessment basis.

The two remuneration systems of the Management Board result from the demerger of CECONOMY in the reporting period, which necessitated, in particular, an adjustment of the targets and benchmark parameters for the variable components of STI and LTI. The 2016/17 remuneration report therefore describes both the system for the remuneration of the members of the Management Board of the former METRO AG until the time of the demerger coming into effect, as well as the system for the remuneration of the members of the Management Board of CECONOMY AG from the time of the demerger coming into effect. The Management Board members Pieter Haas and Mark Frese, who also sat on the Management Board of METRO AG, thereby generated total remuneration of €3.354 million or €2.698 million in the reporting period. Dr Dieter Haag Molkenteller, member of the Management Board since 13 July 2017, earned total remuneration of €463,000.

The members of the Supervisory Board are paid an annual fixed remuneration, which is payable at the end of the relevant financial year. As a rule, the remuneration for an individual member is €80,000.

For selected managers of CECONOMY AG, since the 2013/14 financial year a long-term incentive existed in the form of a Sustainable Performance Plan (SPP). With the demerger on 12 July 2017, however, the SPP ended early with the reporting period. Within the framework of the SSP version 2014, in the past financial year a total amount of €409,818.25 was paid to seven entitled persons of CECONOMY AG.

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