Members of the Executive Board, Interview with Thomas Ebeling

CEO Thomas Ebeling looks back on financial year 2015 and explains how ProSiebenSat.1 plans to keep up its track record of growth in the years to come.

Mr. Ebeling, what was financial year 2015 like?

Thomas Ebeling: Both financially and strategically, 2015 was a good year for ProSiebenSat.1. We were able yet again to set new records in revenues and earnings. All three segments are growing profitably, and the digital and production businesses remain dynamic. Verivox and etraveli were our first two larger acquisitions, which strengthened our e-commerce business. At the same time, we’re pushing ahead with forward-looking topics like addressable TV advertising to ensure long-term growth. So we’re well positioned in all our segments.

“Growing to the Next Level” is the title of the Annual Report. What does that specifically refer to?

Thomas Ebeling: We’re outpacing our growth projections in all three segments. Which is why we’ve raised our targets for 2018 and are now expecting revenues to grow by EUR 1.85 billion compared to 2012. That means that by the end of 2018, our consolidated revenues will be around EUR 4.2 billion. Just a few years ago, ProSiebenSat.1 was a classic TV company. Today, we’re a significant digital player. Now our goal is to get above critical mass in multiple digital businesses. One example is our Travel Vertical, which we’ve been expanding systematically over the past few years.

What kind of reception has that strategy been getting in the capital market?

Thomas Ebeling:  We’ve earned a reputation with investors for being a frequent pioneer in innovative ideas and for picking up on trends very early and successfully. At the same time, we’ve set ourselves ambitious financial targets that we’ve achieved reliably. Our combination of dynamic growth and a high dividend yield makes us an attractive partner for investors. Our market capitalization has grown by a factor of forty since 2009. In 2015, our total shareholder return — meaning the total return on our stock, including dividend and trading price gains — was nearly 40 %, well above the DAX. We’ve also outperformed our European competitors. This year, we’ll again give our shareholders an adequate share in the Company’s success and have proposed to the Supervisory Board a dividend of EUR 1.80 per share of common stock for last financial year.

Let’s turn to business operations. How did the TV segment perform in 2015?

Thomas Ebeling:  In Germany, we earned the biggest Group audience share in ten years — 29.5 %. At the same time, we expanded our lead in the TV advertising market to a gross share of 44.4 %. Every year, our TV advertising business has shown extraordinarily sound growth, and our shareholders appreciate that very much. On top of that, our distribution business performed dynamically again in 2015. Our HD subscriber base grew by nearly 20 % to 6.2 million, and we want to attract a total of nine million subscribers by 2018.

How do you view the medium-term growth outlook for TV?

Thomas Ebeling:  We’re very optimistic about the future of TV. At the same time, we’re keeping a firm eye on the changing environment. Media usage habits will further develop. The fragmentation of the TV market will continue. We’re responding with new programming and services and are networking our TV content with digital platforms. That makes the TV experience even more intense, and the advertising business will profit from additional space. Our aim is to continuously expand our reach and attract new viewers and users. We want to be a leading digital entertainment provider both locally and globally. Which is why, for example, we acquired a majority stake in US multi-channel network CDS in 2015 and brought it together with Studio71, our own multi-channel network. That makes us Number 1 in Germany, and one of the top 5 in the world. We’ll keep expanding in the TV business as well.

Will there be new TV channels?

Thomas Ebeling:  We’ve launched three new free TV channels in the last five years — sixx, SAT.1 Gold and ProSieben MAXX — and they’ve been significant drivers for our growth with audiences. We foresee potential for additional channels, and will be launching a new documentary channel in 2016. We’re also strengthening our group of channels with attractive content. In 2015, we signed long-term license agreements with Disney and Warner Bros. So in Germany, our group of channels now carries six out of the Big Eight US studios. Our programming supply is secure beyond 2019. But that’s only part of our programming strategy. In the future, we’ll focus even more on developing our own content, so as to maintain as much control as possible over programming rights.

You’re still generating most of your revenue from classic TV advertising. The TV advertising market is growing. What do you expect in the years ahead?

Thomas Ebeling: Television has an outstanding position among entertainment media as its consistently high reach shows. As the media landscape becomes more and more fragmented, high reach will become increasingly important to advertisers. So TV advertising will continue to gain in value. That’s very clearly reflected through developments in the UK, where the rise in prices for TV advertising is ongoing. And we also have attractive growth opportunities in the TV ad market thanks to new technologies and forms of advertising. As TVs become networked with the Internet, we’ll be able to focus TV advertising regionally and even individually. We carried out the first projects on those lines successfully in 2015 with BMW, Daimler and Opel. We’ve also got into marketing digital outdoor signs, and can now offer advertising clients a full portfolio of video spaces: TV, online, mobile and digital outdoor advertising.

Let’s turn to the digital business. How did the Digital & Adjacent segment finish up last financial year?

Thomas Ebeling: Very successfully. We increased external revenues by nearly 40 % and recurring EBITDA by nearly 32 %. On an organic basis, we had double-digit percentage growth. The main contributors were our Ventures business, our video-on-demand portal maxdome, and our Travel Vertical.

Verivox and etraveli, which joined the Group in 2015, represent the Group’s first two major acquisitions in e-commerce. How are they performing?

Thomas Ebeling: Verivox and etraveli show that TV advertising works and can make a major contribution for many different kinds of business. We just bought Verivox in June. In the months since then, advertising on our TV channels has significantly boosted growth on the Online Comparison Portal. That’s a very nice demonstration of how strategically networking our TV and digital business can enhance value. As our portfolio expands, growth synergy also picks up because the number of our marketing spaces rises. We call that intrasynergies

Is ProSiebenSat.1 planning any other major acquisitions in 2016?

Thomas Ebeling: We’re continuing to explore the market very attentively. But we don’t need any major acquisitions to achieve our growth targets. In the digital business, we grew organically in a double-digit percentage range in 2015. Basically, our strategy focuses on smaller and larger bolt-on acquisitions. We aim for those primarily to expand our strong position in e-commerce, digital entertainment, and advertising technology. And we’ll also keep expanding with Red Arrow in the US and the UK. But 2015 already showed that we can grow and add value very nicely with smaller acquisitions. That’s because we have a major competitive advantage over many other sectors that must also face the challenges of digitalization: our major-reach TV channels.

How does that competitive advantage work?

Thomas Ebeling: We often acquire shares in a company in return for advertising space, which enables us to finance our growth without large cash investments. That’s one reason why as a rule we can distribute 80 % to 90 % of our underlying net income for the year as a dividend to our shareholders and yet we still keep growing dynamically. Besides, our approach is associated with significantly lower risk. In 2015, we built up our holdings in the two e-commerce platforms Amorelie and Flaconi. We had already acquired a minority interest in both of them before, and over a period of a year or two, we tried out how well their material could be marketed via our media. On top of that, we carefully monitor how the management teams can implement the business case successfully. If all those questions are answered with a clear yes, we increase our stake.

How far along is the Group in internationalizing its digital business?

Thomas Ebeling: Our foundation is first and foremost our successful business in Germany. We don’t export a brand to other countries unless we’ve already built it up successfully here. In 2015, by acquiring Scandinavian air travel portal etraveli, we took an important step in our Travel vertical. etraveli extends our portfolio with an Air Travel component and is represented in more than 40 countries all over the world. And — like Verivox — it also contributes significantly to our earnings.

How did things go in 2015 in the third segment, Content Production & Global Sales, where you produce programming and market it worldwide?

Thomas Ebeling: Our subsidiary Red Arrow also had a very successful year in 2015. We had strong organic growth. Once again, the largest share of revenues came from the US. We also continued expanding there. By founding Ripple Entertainment, we took an important step forward in growing our digital business. And with Karga Seven Pictures and Dorsey Pictures we’ve acquired two new majority interests. We’ve only just added Dorsey in January 2016. It’s Number 1 in outdoor adventure programming in the US and also has extensive expertise in branded entertainment. That enables us to cover a topic that hadn’t been included in our portfolio before.

What topics will ProSiebenSat.1 be dealing with in 2016 and beyond?

Thomas Ebeling: We’ll continue to focus on growth and have a clear strategy for all our segments. In TV, we plan to reinforce our portfolio of channels, launch new free TV services, and network TV even more systematically with our digital business. Two other ongoing priorities will be expanding our reach across as many platforms as possible and developing appealing content. In the Digital & Adjacent segment, we’ll be concentrating on building up additional successful e-commerce verticals, being a significant player in digital entertainment, and strengthening our position in AdTechnology. Red Arrow will be concerned mainly with continuing to grow in the US and the UK. We can do all that because our employees pursue the Company’s goals with tremendous enthusiasm. I’d like to thank them very warmly once again this year. It was their dedication that made it possible for us to be included among the 30 most valuable listed companies in Germany and enter the DAX. We’re looking forward to that and are proud of the achievement. But more than anything else, it’s an incentive for us to pursue our goals even more ambitiously in the future.<

Gunnar Wiedenfels … about COURAGE

When I think about what ProSiebenSat.1 really is, two things come to my mind: the passion with which we do our jobs, and our absolute determination to evolve and improve. That’s something I see in every interaction during my daily work. I’ve never met anyone here who was just holding down a job. We have a culture of learning — without it, we couldn’t carry out our strategy. Just a few years ago, we were a TV corporation only, with no expertise whatever in lines of business where we’re now a market leader. Now, we generate EUR 850 million in digital revenues a year and, to name just one example, we’re one of the biggest online travel providers in Germany. We have the courage to try new things. I think that’s wonderful, and it’s also what we’re known for in the market. Investors think highly of the pace at which we get business to further develop. But courage also means being willing to take risks — though with awareness and deliberation. We don’t get involved in reckless experiments. If we see our basic assumptions aren’t working out, we end the project and learn from it. That’s the only way that progress is possible. And our successes show we’re right. The combination of dynamic growth and high dividend returns has earned us a great deal of recognition in the capital markets. The fact that we’re going to be listed in the DAX is a terrific distinction. We’re now among the 30 most valuable companies in Germany. Of course, that’s good news. But first and foremost, we see it as an obligation to stay successful and continue to be a reliable partner for investors.

Christian Wegner … about ENTREPRENEURIAL SPIRIT

Entrepreneurial spirit at a big corporation? I think it’s essential. Comparing us with other media companies today, I get the impression that we’re growing much more vigorously and entrepreneurially. Acquisitions are a part of our strategy. But they’re not the only way for us to structure our transformation from a purely TV company into a digital corporation tapping new growth markets. We’ve launched successful initiatives in every business area: In the TV business, we’ve been founding new channels. In our marketing business, we’re pursuing innovative ideas for addressable TV. And Studio71, our multi-channel network, is just one example of how we’re developing digital entertainment offerings and building them up to be popular brands. What does that take? The freedom to try things out and build up new know-how, preferably through internal changes. Personally, I started out at ProSiebenSat.1 Production. Then I worked with our marketing company and the channels and was in charge of strategy alongside that. And for more than four years now I’ve been the Executive Board Member in charge of our Digital & Adjacent business. There’s no substitute for the experience you gain through internal job rotations. You need to know all the resources available at our Company and how other people are using them before you can seize opportunities in the right way. Anything else that defines us? We want to win, and we have fun doing what we do. And we’ve got lots of entrepreneurial spirit, so in the future, we can continue to push our ideas on the market.

Ralf Schremper … about OPPORTUNITIES

One reason for our dynamic growth is certainly that we’re good at spotting opportunities and making the most of them. That’s also the case for acquisitions. If we see that a company will bring us a clear gain in value, and that we can build synergies with other lines of business, we make the investment. In 2015, we completed more than 20 acquisitions. And for the first time, that also included two larger assets, Verivox and etraveli. Looking back, I think our acquisition strategy has proved to be very effective. We’ve greatly increased our portfolio value. Revenues from our emerging portfolio of investments have been growing significantly – by about 50 % in recent years. We’ll keep a very close eye on the market in the future as well. We are going for growth, but we have no need to realize further acquisitions in order to achieve our targets. We always decide in favor of an acquisition when we’re convinced it will advance our portfolio.

Conrad Albert … about RESPONSIBILITY

Sometimes I ask job applicants what the difference is between ProSiebenSat.1 and other companies. I think the answer to this question is important for anybody who works with us. ProSiebenSat.1 is more than just a business. What we do takes us into people’s homes. That’s a great privilege, and an even greater responsibility. We help shape opinions. The fact that we reach so many young people is a special opportunity. We can draw their attention to important issues. And it helps that we’re an entertainment corporation, because we’re good at communicating difficult topics in ways that make them more accessible and approachable for people. In 2015, we highlighted the issue of domestic abuse in the SAT.1 movie “Die Ungehorsame” — “The Disobedient Wife.” Because of our cooperation with the Federal Ministry for the Family in the aftermath of that broadcast, a great many more victims put in calls to the ministry’s counseling hotline. In March 2016, we aired the movie “Zwei Leben. Eine Hoffnung.” — “Two Lives, One Hope.” — about another important topic for society, organ donations. Even after all these years, I personally still find it incredibly fulfilling to work for a company that rouses almost everybody to have an opinion – whether positive or negative. But I’ve almost never come across anyone who’s indifferent about what we do. And I still find the conversations about that very exciting.

Executive Board responsibilities: reference date 12/31/2015