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Business Performance

Overall assessment of the business performance — management view

In 2012, the German economy posted slight growth despite the limited global economic development and the ongoing European sovereign debt crisis. Key factors were again the good consumer climate and the robust export market. Against this backdrop, advertising investments in Germany developed positively. The ProSiebenSat.1 Group continued to extend its lead in the TV advertising market and in the sale of video content online. In 2012, we not only strengthened our strong position in the TV business, but also made great progress on the way to becoming a digital entertainment & e-commerce powerhouse by expanding in growth areas. Having sold the Northern European portfolio, we are concentrating on expanding the core business of free TV in German-speaking countries and tapping into pioneering business areas by integrating the television and digital fields.

In the 2012 financial year, we again improved all of the Group’s relevant key financial indicators. On the basis of continuing operations, consolidated revenues increased by 7.1% to EUR 2.356 billion (previous year: EUR 2.199 billion). Recurring EBITDARecurring EBITDA Earnings before Interest, Taxes, Depreciation and Amortization. Describes earnings before interest, taxes, depreciation andamortization, adjusted for non-recurring items. climbed 2.7% to EUR 744.8 million. All segments contributed to this, with the growth segments Digital & Adjacent and Content Production & Global Sales in particular performing extremely dynamically. We also saw high rates of growth in distribution revenues. But we did not just increase our profitability in 2012 — we also continued to reduce our level of debt. At the end of the year — before reclassification of cash and cash equivalents from the Northern and Eastern European activities held-for-sale — it amounted to EUR 1.780 billion (previous year: EUR 1.818 billion). At the time the Group management report was compiled, the ProSiebenSat.1 Group had a solid financial and operating basis. We have made a positive start to the new 2013 financial year in the TV advertising market. Our growth areas are continuing to perform dynamically. In the months to come, we will continue to expand our strong market position with organic growth and targeted acquisitions.

Comparison of Actual and Expected Business Performance

The ProSiebenSat.1 Group announces its financial targets in the Annual Report. If necessary, they can be adjusted during the year. At the beginning of 2012, the ProSiebenSat.1 Group had announced its financial targets taking into account its discontinued operations, i.e. including its TV and radio portfolio in Northern and Eastern Europe. In the 2012 financial year, the Group increased recurring EBITDA including discontinued operations in Northern and Eastern Europe to EUR 871.7 million. The Group thus surpassed the previous year’s earnings and hit its forecast annual target. The ProSiebenSat.1 Group also achieved its objectives with regard to revenue growth and raised its underlying net incomeUnderlying net income Consolidated net income adjusted for amortization and impairment taken on intangible assets identified in the context ofbusiness combinations and thus the related tax effects. including discontinued activities. At the annual press conference in March 2012, the Group announced among other things that it was targeting higher recurring EBITDA than the previous year’s figure of EUR 850.0 million. The target was based on the assumption that the price level for the sale of TV advertising time would remain at least stable and the economic climate in the German core market would stay positive. In addition, the Group anticipated a continuation of the dynamic development in the growth areas outside the traditional TV business. These assumptions proved correct in 2012. However, portfolio optimization and the sale/proposed sale of the Northern European/Eastern European business activities have resulted in substantial changes to reporting and segmentation.

For better comparability, the following will therefore consider the figures generated on the basis of continuing operations, i.e. excluding the Northern and Eastern European activities, and compare them with the corresponding financial targets at Group level.

At the beginning of the year, the ProSiebenSat.1 Group targeted a mid-single-digit percentage increase in revenues. In fact, revenues from continuing operations also grew by 7.1% to EUR 2.356 billion. All segments made a contribution here. Recurring EBITDA from continuing operations also reached a new record figure at EUR 744.8 million (2011: EUR 725.5 million). The high revenue growth and the improvement in the financial result led to an additional EUR 58.0 million increase in profit from continuing operations to EUR 329.1 million. As previously indicated, the interest and financing expenses decreased by a total of more than EUR 50 million. This was particularly due to a lower average level of debt. In this context, the financial result overall improved by 37.9% or EUR 88.3 million to minus EUR 144.4 million. Underlying net income from continuing operations increased by 30.5% or EUR 83.1 million to EUR 355.5 million.

At the beginning of the year, the Group forecast that operating costsOperating costs Total costs excluding depreciation and amortization as well as non-recurring expenses. Relevant cost variable for calculating recurring EBITDA. would rise in proportion with revenues. However, due to more intensive investment in the growth areas, operating costs increased by 9.6% in total, and thus were above the growth rate of Group revenues. In the core business of television financed by advertising, operating costs were kept almost stable as expected. This is the result of consistent cost management.

In the 2011 Annual Report, we estimated that by 2015 the revenue potential of the Digital & Adjacent segment would be more than EUR 250 million compared to 2010. At the end of 2012, 66.7% or EUR 166.7 million had already been achieved. In 2012, the Content Production & Global Sales segment also posted a considerable revenue increase of EUR 57.8 million. However, due to start-up costs resulting from the international expansion of the portfolio, the segment’s recurring EBITDA decreased to EUR 4.3 million. At the end of 2011, the program production unit was combined with the digital activities and adjacent business area into the Diversification segment, thus becoming the object of a common revenues and earnings forecast for 2012 and 2013. On this basis, we reached our financial objectives at segment level on the basis of continuing operations. An overview on a segment basis is presented below.

We also continued to improve net financial debt in the past financial year. At the end of the year, it amounted to EUR 1.780 billion including cash and cash equivalents of the Northern and Eastern European business (previous year: EUR 1.818 billion). At 2.0 (previous year: 2.1), the leverageLeverage Shows how high net debt is in relation to recurring EBITDA in the last twelve months. factor was within the target range of 1.5 to 2.5.

Overall, the Group achieved its financial objectives also on the basis of continuing operations. The following chart provides an overview of the figures for 2012 including the Northern and Eastern European activities and the comparative figures for 2011.

 

COMPARISON OF THE ACTUAL AND FORECAST BUSINESS PERFORMANCE FOR THE GROUP

EUR m Actual figures 2011 continuing operations according to 2011 Annual Report1 Actual figures 2012 including discontinued operations1 Forecast for 20122 Actual figures 2011 continuing operations according to 2012 Annual Report3 Actual figures 2012 continuing operations3
1Figures including Northern and Eastern European activities, excluding the activities in Belgium and the Netherlands. 22012 forecast on the basis of continuing operations in accordance with the 2011 Annual Report, i.e. including the Northern and Eastern European activities, excluding the activities in Belgium and the Netherlands. 3Figures excluding Northern and Eastern European activities. 4Including cash and cash equivalents from the Northern and Eastern European business. 5Excluding cash and cash equivalents from the Northern and Eastern European business. 6The leverage factor is calculated using net financial debt (as of December 31, 2011) including cash and cash equivalents of the Northern and Eastern European activities of EUR 1,817.8 million and recurring EBITDA excluding the Belgian and Dutch business of EUR 850.0 million.
Revenues 2,756.2 2,969.1 (+7.7%) Increase 2,199.2 2,356.2 (+7.1%)
Operating costs 1,915.7 2,111.0 (-10.2%) Increase 1,482.9 1,624.6 (-9.6%)
Recurring EBITDA 850.0 871.7 (+2.6%) Increase 725.5 744.8 (+2.7%)
Underlying net income 309.4 415.1 (+34.2%) Increase 272.4 355.5 (+30.5%)
Net financial debt (per 12/31/) 1,817.8 1,780.44 (+2.1%) Reduction 1,817.84 1,870.85 (-2.9%)
Leverage 2.1 2.0 1.5 - 2.5 2.16 2.15
 

COMPARISON OF THE ACTUAL AND FORECAST BUSINESS PERFORMANCE FOR THE SEGMENTS1

  Actual figures 2011 Actual figures 2011 Forecast for 2012 Actual figures 2012 Actual figures 2012
EUR m Revenues Recurring EBITDA Revenues/Recurring EBITDA Revenues Recurring EBITDA
1The figures relate to continuing operations. 2As of the end of the 2011 financial year, the activities were still shown in the Diversification segment. This was the basis for the forecast ”significant increase“.
Broadcasting German-speaking 1,903.0 657.7 Stable development to slight increase 1,909.5 (+0.3%) 660.3 (+0.4%)
Digital & Adjacent2 254.4 66.9 Significant increase 351.2 (+38.1%) 89.7 (+34.1%)
Content Production & Global Sales2 37.7 9.6 Significant increase 95.4 (>+100%) 4.3 (-55.2%)

Explanatory Notes on Reporting Principles

Reporting on the basis of continuing operations. In December 2012, the ProSiebenSat.1 Group sold its Northern European television and radio activities to Discovery Communications. As a result of the disposal and the consequent focus on the core areas of German-speaking TV and digital activities, ProSiebenSat.1 Group has also put its Eastern European TV and radio activities up for sale.

The following textual analysis of revenues and performance is made on the basis of continuing operations, i.e. excluding the sold or held-for-sale activities in Northern and Eastern Europe.

As a result of the requirements of IFRS 5, the companies disposed of and those held for sale in Northern and Eastern Europe in the 2012 financial year are posted separately as “discontinued operations” both in the income statement and in the cash flow statement. Consequently, earnings contributions and cash flows of these activities are not contained in the individual items of the income statement and the cash flow statement but are recognized as “Results from discontinued operations” and “Cash flow from discontinued operations”. The previous-year figures of the income statement and the cash flow statementCash flow statement The cash flow statement shows how cash and cash equivalents have changed as a result of cash inflows and outflows during the period. It is broken down into cash flow from operating activities, cash flow from investing activities and cash flow from financing activities. Cash and cash equivalents shown in the cash flow statement correspond to the cash and cash equivalents reported on the statement of financial position as at the reporting date. Cash flow from operating activities is derived indirectly from the consolidated profit or loss from continuing operations for the period. have been adjusted accordingly at consolidated and segment level and adjusted not only for the Northern and Eastern European activities but also for the operations disposed of in Belgium and the Netherlands in 2011. For the 2010 financial year, the income statement and the cash flow statement were adjusted only for the figures of the activities disposed of in the 2011 financial year. In the 2011 financial year, the Belgian TV activities and the Dutch TV and Print activities were deconsolidated with the completion of the contracts for the sale of the participations in June and July 2011. This means the income statement items of these companies are separately reported as the result of discontinued operations. For 2011, this result from discontinued operations shows net profit and the profit of deconsolidation after taxes.

In the Group balance sheet, the assets and the liabilities of the held-for-sale operations in Northern and Eastern Europe are reported as “Assets held for sale” and “Liabilities in connection with assets held for sale”. The previous year’s figures were not adjusted.

At the beginning of the 2012 financial year, the Group adjusted its segment reporting on the basis of its four-pillar strategy. In the first nine months of 2012 financial year, the segment structure of the Group included the segments Broadcasting German-speaking, Broadcasting International, Digital & Adjacent and Content Production & Global Sales. Due to the sale of the Northern European activities and of the Eastern Europe business held-for-sale, which were allocated to the Broadcasting International segment, the Group has reported on the basis of continuing operations only in the segments Broadcasting German-speaking, Digital & Adjacent and Content Production & Global Sales since the fourth quarter of 2012.

Explanatory notes on reporting figures. Recurring EBITDAEBITDA Abbreviation for Earnings before Interest, Taxes, Depreciation and Amortization., EBITDA and net financial debt are the key financial indicators for the ProSiebenSat.1 Group. In addition, analysts often refer to operating costs and underlying net incomeUnderlying net income Consolidated net income adjusted for amortization and impairment taken on intangible assets identified in the context ofbusiness combinations and thus the related tax effects. in their estimates, i.e. net income adjusted for non-cash special items and expenses from the concluded antitrust proceedings. Operating costsOperating costs Total costs excluding depreciation and amortization as well as non-recurring expenses. Relevant cost variable for calculating recurring EBITDA. are defined as total costsTotal costs Total of cost of sales, selling expenses and administrative expenses, as well as other operating expenses. excluding depreciation and amortization and non-recurring expenses and are the relevant cost items for calculating recurring EBITDAEBITDA Abbreviation for Earnings before Interest, Taxes, Depreciation and Amortization.. Recurring EBITDA is defined as earnings before interest, taxes, depreciation and amortization adjusted for non-recurring effects. The period or group net income is the net result after taxes, interest, depreciation and amortization. Therefore, the development of these key financial indicators is also described in the following presentation of the Group’s financial position and performance and in the outlook report.

Due to rounding, it is possible that single figures in these Group financial statements do not exactly add to the totals shown and that the percentage figures given do not exactly reflect the absolute figures they relate to. Change rates are based on a business perspective. Improvements are shown with a plus (+), deterioration with a minus (-).

ProSiebenSat.1 does not report on the basis of order volumes. There are various reasons for this. There are framework agreements on volumes to be taken and the conditions underlying these with a large number of our advertising customers. In so-called program screenings, the ProSiebenSat.1 Group informs its customers about the direction of the station planning. Advertising customers use this preview as an important basis for making decisions about their advertising investments for the subsequent year. The price level is primarily based on the factors of audience shares, reach, broadcast time, demand and number of available advertising inventory. As is customary in this business, the final budgets are confirmed on a month-by-month basis — sometimes, however, only in the short term. Only then is the revenue level transparent. Furthermore, additional advertising budgets are granted at short time notice towards the end of the year.

Major Influencing Factors on Financial Position and Performance

Impact of General Conditions on the Business Performance

With a share of 75.7% (previous year: 80.5%) in total revenues, the ProSiebenSat.1 Group generated the majority of its revenues from the sale of TV advertising time in the 2012 financial year as well. 89.7% (previous year: 90.5%) of this was attributable to the German TV advertising market.

REVENUE PERFORMANCE 2012 FROM CONTINUING OPERATIONS BY REGION

There is a strong correlation between the development of the TV advertising markets and macroeconomic conditions. At the same time, the advertising market often reacts to macroeconomic developments pro-cyclically. For this reason, advertising industry budgets are often allocated in the very short term. Furthermore, advertising business is subject to a strong seasonal fluctuation like virtually no other industry: The ProSiebenSat.1 Group generates a particularly high share of its annual advertising revenues from the TV business in the fourth quarter, because both television use and propensity to spend rise significantly during the Christmas season. Generally, as in 2012, approximately one third (2012: 33.5%) of annual revenues and approximately 40% (2012: 38.4%) of annual recurring EBITDA are generated in the final quarter.

REVENUE PERFORMANCE 2012 FROM CONTINUING OPERATIONS BY QUARTER

RECURRING EBITDA PERFORMANCE 2012 FROM CONTINUING OPERATIONS BY QUARTER

In order to make its growth less dependent on cyclical fluctuations in the advertising industry, the ProSiebenSat.1 Group will continue to advance its diversification strategy. Our objective is to open up additional sources of revenues outside the core business, free TV financed by advertising, and to further increase their share in total revenues.

In 2012, economic development in Germany again proved to be considerably more robust than that of its large European neighbors, even though momentum let up somewhat during the year. In this context, there were positive signs for the advertising industry as well. In the year as a whole, the Group posted an increase in TV advertising revenues with its TV station groups in all three German-speaking television markets. Due to the broadcast of the European Football Championship and the Olympic Games in the competing schedules of the public broadcasters, the audience shares of the large German private stations remained below the level of the previous year. This regressive development did not subdue TV advertising income growth significantly. The Group rather implemented moderate price rises and scored with viewers and advertising customers particularly at the important prime time due to outstanding programs such as “The Voice of Germany”, with ratings of up to 30.2%.

The ProSiebenSat.1 Group generated the majority of its revenues (92.9%) in the euro zone (previous year: 95.2%). Therefore, currency fluctuations had only a marginal influence on revenues and earnings performance in 2012 as well. Furthermore, ProSiebenSat.1 limits exchange rate fluctuations, which in particular could arise from the purchase of licensed programs in the USA, by using derivative financial instruments. In 2012, transaction effects did not have a material impact on the revenues and earnings performance of the Group and its segments. As well as currency-related effects, changing interest rates could impact the company’s earnings situation. In the 2012 financial year, the impact was not significant. In 2012, the Group’s interest expenses declined considerably year-on-year due to the lower average level of Group debt as well as lower Euribor money market rates.

Changes in the Scope of Consolidation

Disposal of business activities in Northern Europe. At the end of 2012, the ProSiebenSat.1 Group sold its Northern European television and radio activities to Discovery Communications. The transaction was based on an enterprise value of EUR 1.325 billion. The relevant agreement was signed in the middle of December. The completion of the transaction is still subject to anti-trust approvals and is expected by the middle of April 2013. After the completion of the sale, the Northern European activities, which are shown as discontinued operations in both the income statement and the cash flow statementCash flow statement The cash flow statement shows how cash and cash equivalents have changed as a result of cash inflows and outflows during the period. It is broken down into cash flow from operating activities, cash flow from investing activities and cash flow from financing activities. Cash and cash equivalents shown in the cash flow statement correspond to the cash and cash equivalents reported on the statement of financial position as at the reporting date. Cash flow from operating activities is derived indirectly from the consolidated profit or loss from continuing operations for the period. for 2012, will be deconsolidated. The disposed portfolio covers all TV and radio activities of the Group in Norway, Sweden, Finland and Denmark. The program production unit in Northern Europe (Red Arrow Entertainment Group) is not part of the transaction.

With the disposal of its Northern European activities, the ProSiebenSat.1 Group is even more strongly focusing on its German-speaking TV and digital activities, the two areas with the highest growth and synergy potential. In this context, the Group has also put its TV and radio activities in Eastern Europe up for sale.

Acquisition of a majority interest in Left/Right Holdings, LLC. In August 2012, in the course of the international expansion of its program production business, ProSiebenSat.1 acquired a majority stake in the American production company Left/Right Holdings, LLC via the Red Arrow Entertainment Group. Left/Right is one of the leading TV production companies on America’s east coast and is Red Arrow’s biggest acquisition so far. Left/Right has been fully consolidated since August 2012. With the acquisition, Red Arrow has strengthened its position in the United States, the world’s largest TV market.

In 2012, there were no other events which had a significant impact on the earnings, financial position and performance of the Group and its segments. However, the ProSiebenSat.1 Group optimized its portfolio further on the basis of various strategic acquisitions. Alongside the international expansion of the program production business, the Group expanded with participations, particularly in the digital business.

In 2012, these in particular included “media-for-revenue share” and “media-for-equity” deals. Under these contracts, the ProSiebenSat.1 Group invests media services in return for a revenue or equity share in start-up companies. Our Ventures portfolio includes more than 50 partners, including stakes in a wide variety of online companies across the digital and lifestyle spectrum. It thus has a high degree of correlation to the target group characteristics of the ProSiebenSat.1 station family. The majority interests acquired in 2012 include the search machine marketing company Booming GmbH and the price comparison platform preis24.de GmbH. These acquisitions were concluded in May and September 2012 respectively and have since been fully consolidated. In August, the Group acquired the online travel business Tropo GmbH. We also expanded our digital business further with the acquisition of a majority interest in Covus Ventures, a company jointly owned by SevenVentures and the Covus Group, in September 2012. The main objective of Covus Ventures is to form and develop new business models and establish them in the market. Using new ways of generating revenues apart from traditional TV advertising, we are pursuing the objective of participating in the dynamic development of trend and growth markets, at the same time becoming less dependent on the TV advertising market and its economic fluctuations.

The following table gives an overview of selected portfolio measures. You will find further information relating to 2012 events here. The impact on reporting is described here.

 

PORTFOLIO MEASURES AND CHANGES IN THE SCOPE OF CONSOLIDATION IN 2012

Broadcasting German-speaking segment Acquisition of the private Austrian station Austria 9 TV in March 2012 (relaunch as sixx Austria on July 3, 2012)
> Fully consolidated since April 2012
Broadcasting International segment Launch of the new free TV station VOX in Norway in January 2012

Acquisition of three new radio stations (Radioselskabet af 1/7 2007 ApS, Newradio ApS and Radio Klassisk ApS) by the Danish SBS radio group in June 2012
> Fully consolidated since August 2012

Launch of the new free TV station Kutonen in Finland in September 2012

Launch of the new free TV station Super TV2 in Hungary in November 2012

Disposal of the TV and radio activities in Norway, Sweden, Finland and Denmark.
> Purchase agreements signed on December 14, 2012
Digital & Adjacent segment Foundation of the SugarRay GmbH creative agency (wholly owned subsidiary)
> Fully consolidated since February 2012

Majority interest in the Munich-based search engine marketing company Booming GmbH in May 2012
> Fully consolidated since May 2012

Launch of the new pay TV station ProSieben FUN in June 2012 Majority interest in the online travel business Tropo GmbH in August 2012
> Fully consolidated since September 2012

Majority interest in the price comparison site preis24.de GmbH in September 2012
> Fully consolidated since September 2012

Majority interest in Covus Ventures GmbH, a company jointly owned by SevenVentures and the Covus Group > Fully consolidated since October 2012
Content Production & Global Sales segment Majority interest in British production company CPL Productions Ltd. in February 2012
> Fully consolidated since March 2012

Majority interest in the British TV and film production company Endor Productions Ltd. in March 2012
> Fully consolidated since April 2012

Majority interest in the British production company New Entertainment Research and Design Ltd. (NERD TV) in May 2012
> Fully consolidated since June 2012

Majority interest in the Israeli production company July August Communications and Productions Ltd. in May 2012
> Fully consolidated since June 2012

Majority interest in the US production company Left/Right Holdings LLC in August 2012
> Fully consolidated since August 2012

Red Arrow International opens branch in Hong Kong
> Fully consolidated since December 2012

 

PORTFOLIO MEASURES AND CHANGES IN THE SCOPE OF CONSOLIDATION IN 2011

Broadcasting International segment Launch of PRO4 in Hungary in January 2011

Sale of the TV and print activities in Belgium and the Netherlands
> Deconsolidation of the activities in Belgium in June 2011
> Deconsolidation of the activities in the Netherlands in July 2011

Disposal of the Greek radio station Lampsi FM
> Deconsolidation in September 2011

Sale of Bulgarian radio stations
> Deconsolidation in November 2011

Sale of the Bulgarian music channel the Voice TV
> Deconsolidation in November 2011
Digital & Adjacent segment Acquisition of a further 50% of maxdome GmbH & Co. KG
> Fully consolidated since January 2011

Majority interest in Covus Games GmbH Operator of browsergames.de and 100% acquisition of burda:ic
> Full consolidation of Covus Games since May 2011, burda:ic since July 2011

Transmission of the call TV station 9Live discontinued in August 2011
Content Production & Global Sales segment Majority interest in the British production company, The Mob Film Holdings Limited., in March 2011
> Fully consolidated since April 2011

Majority interest in the US production company Fabrik Entertainment 2.0, LLC (previously Fuse Entertainment)
> Fully consolidated since December 2011

Majority interest in the Swedish production company Hard Hat AB
> Affiliated company as of December 2011, fully consolidated as of January 2012

Group Earnings

The following analysis of the revenue and earnings performance in 2012 relates to continuing operations, unless otherwise indicated.

The reconciliation below gives an overview of selected key figures in the income statement, taking into account the business held for sale in Northern and Eastern Europe.

 

KEY FIGURES OF THE PROSIEBENSAT.1 GROUP FOR 2012

  ProSiebenSat.1
including discontinued operations
Discontinued
operations
ProSiebenSat.1
continuing operations
EUR m 2012 2011 2012 2011 2012 2011
1Total costs excl. D&A and non-recurring expenses. 2EBITDA before non-recurring (exceptional) items. 3Non-recurring expenses netted against non-recurring income. 4Consolidated profit for the period, before the effects of purchase price allocation and non-cash currency valuation effects as well as expenses incurred for the antitrust proceedings in 2012.
Explanation of reporting principles in the fourth quarter or the 2012 financial year: The figures for 2012 relate to the key figures from continuing operations reported in line with IFRS 5, i.e. not taking into account the sold or held-for-sale activities in Scandinavia and Eastern Europe. For the income statement and the cash flow statement, the figures for 2011 were also adjusted for the figures of the activities in Belgium and the Netherlands disposed of in 2011. For the 2010 financial year, the income statement and the cash flow statement were adjusted only for the figures of the
activities disposed of in the 2011 financial year. In the 2011 financial year, the Belgian TV activities and the Dutch TV and Print activities were deconsolidated with the completion of the contracts for the sale of the participations in June and July 2011. This means the income statement items of these companies are separately reported as the result of discontinued operations. For 2011, this result from discontinued operations shows net profit and the profit of deconsolidation after taxes.
Due to rounding, it is possible that individual figures in these Group financial statements do not add exactly to the totals shown and that the percentage figures given do not reflect exactly the absolute figures they relate to. Change
rates are based on a business perspective. Improvements are shown with a plus (+), deterioration with a minus (–).
Revenues 2,969.1 2,975.2 612.9 776.0 2,356.2 2,199.2
Operating costs1 2,111.0 2,083.6 486.4 600.8 1,624.6 1,482.9
Total costs 2,389.3 2,339.6 620.5 711.7 1,768.8 1,628.0
Cost of sales 1,607.3 1,641.5 340.9 456.1 1,266.4 1,185.4
Selling expenses 354.3 364.0 124.4 155.9 229.9 208.1
Administrative expenses 316.0 305.3 72.1 93.2 243.9 212.1
Other operating expenses 111.7 28.8 83.1 6.5 28.6 22.4
EBIT 593.7 990.9 -7.2 410.4 600.9 580.5
Recurring EBITDA2 871.7 901.1 126.9 175.7 744.8 725.5
Non-recurring items3 -78.3 238.2 -13.9 311.2 -64.4 -73.0
EBITDA 793.4 1,139.3 113.0 486.8 680.4 652.5
Consolidated net profit attributable to shareholders of ProSiebenSat.1 Media AG 295.0 637.5 -29.7 373.3 324.7 264.2
Underlying net income4 415.1 685.3 59.6 412.9 355.5 272.4
 

KEY FIGURES OF THE PROSIEBENSAT.1 GROUP FOR THE FOURTH QUARTER OF 2012

  ProSiebenSat.1 including discontinued operations Discontinued operations ProSiebenSat.1 continuing operations
EUR m Q4 2012 Q4 2011 Q4 2012 Q4 2011 Q4 2012 Q4 2011
1Total costs excl. D&A and non-recurring expenses. 2EBITDA before non-recurring (exceptional) items. 3Non-recurring expenses netted against non-recurring income. 4Consolidated profit for the period, before the effects of purchase price allocation and non-cash currency valuation effects as well as expenses incurred for the antitrust proceedings in 2012.
Explanation of reporting principles in the fourth quarter or the 2012 financial year: The figures for 2012 relate to the key figures from continuing operations reported in line with IFRS 5, i.e. not taking into account the sold or held-for-sale activities in Scandinavia and Eastern Europe. For the income statement and the cash flow statement, the figures for 2011 were also adjusted for the figures of the activities in Belgium and the Netherlands disposed of in 2011. For the 2010 financial year, the income statement and the cash flow statement were adjusted only for the figures of the
activities disposed of in the 2011 financial year. In the 2011 financial year, the Belgian TV activities and the Dutch TV and Print activities were deconsolidated with the completion of the contracts for the sale of the participations in June and July 2011. This means the income statement items of these companies are separately reported as the result of discontinued operations. For 2011, this result from discontinued operations shows net profit and the profit of deconsolidation after taxes.
Revenues 970.4 874.2 181.0 161.8 789.3 712.4
Operating costs1 657.0 560.8 147.5 126.1 509.5 434.7
Total costs 791.6 631.3 237.5 164.6 554.1 466.7
Cost of sales 492.7 451.8 105.3 109.6 387.4 342.3
Selling expenses 108.1 87.8 32.2 32.9 76.0 54.9
Administrative expenses 88.6 82.5 25.4 15.7 63.2 66.8
Other operating expenses 102.2 9.2 74.7 6.5 27.6 2.7
EBIT 185.0 237.9 -56.4 -11.5 241.3 249.3
Recurring EBITDA2 319.4 317.8 33.7 35.8 285.7 281.9
Non-recurring items3 -25.0 -42.8 -8.5 -27.4 -16.5 -15.4
EBITDA 294.4 275.0 25.2 8.5 269.3 266.5
Consolidated net profit attributable to shareholders of ProSiebenSat.1 Media AG 99.0 129.9 -78.6 -36.3 177.6 166.2
Underlying net income4 174.0 151.7 -4.9 -24.2 178.9 175.9

Revenue and Earnings Performance on the Basis of Continuing Operations

In 2012, the ProSiebenSat.1 Group’s consolidated revenues grew by 7.1% or EUR 157.1 million to EUR 2.356 billion. All segments made a contribution to this positive revenue performance. In the fourth quarter, which is seasonally most important, the Group generated 33.5% of its annual revenues in the reporting period.

The highest contribution to the increase in revenues in 2012 was made by the ProSiebenSat.1 Group’s growth areas. These include all of the Group’s revenue models outside the traditional TV advertising business. They are shown in the Digital & Adjacent and Content Production & Global Sales segments. The Group’s digital and adjacent activities were the strongest growth driver in 2012. Here, the Ventures unit with the media-for-revenues-share business model made the most important contribution. The music business, the video-on-demandVideo-on-demand Allows the user to stream or download videos at any time. portal maxdome and the online games business also contributed to the dynamic revenue performance. At EUR 446.7 million, the contribution of the Digital & Adjacent and Content Production & Global Sales segments to consolidated revenues increased year-on-year to 19.0% in total (previous year: 13.3%).

In the core business of advertising-financed free TV — recognized in the Broadcasting Germanspeaking segment — the revenues of EUR 1.910 billion remained at the previous year’s level (+0.3%). This corresponds to a share of 81.0% (previous year: 86.7%) of consolidated annual revenues.

This means that the proportion of revenues sources has shifted further in favor of the Group’s growth areas:

REVENUES BY SEGMENT FROM CONTINUING OPERATIONS

Other operating income (Notes page 194) amounted to EUR 13.4 million after EUR 9.3 million in the comparative period (+44.8%).

In 2012, the ProSiebenSat.1 Group consistently invested in growth areas such as new TV stations, the global expansion of the program production portfolio and the development of the digital business. As a result, costs increased as expected in the year under review. Total costs of the Group, comprising cost of sales, selling expenses and administrative expenses, as well as other operating expenses, increased by 8.6% or EUR 140.8 million in the reporting period to EUR 1.769 billion.

The majority of the cost increase can be attributed to higher cost of sales, which increased by 6.8% or EUR 81.0 million to EUR 1.266 billion in total. The main reason for this is higher production costs in the Digital & Adjacent and Content Production & Global Sales growth areas. They increased by 61.5% or EUR 64.5 million to EUR 169.3 million (previous year: EUR 104.8 million). In addition to this revenues-driven cost increase, higher depreciation and amortization of property, plant and equipment of intangible assets, which increased by EUR 12.2 million to EUR 37.1 million (previous year: EUR 24.9 million), also had an effect. On the other hand, the consumption of programming assets, included in cost of sales, decreased by 3.0% to EUR 838.7 million (previous year: EUR 864.3 million). The previous-year figure includes unscheduled impairments taken on the programming assets of 9Live.

Administrative expenses increased by 15.0% or EUR 31.8 million to EUR 243.9 million. Selling expenses rose by 10.4% to EUR 229.9 million (previous year: EUR 208.1 million).

Other operating expenses amounted to EUR 28.6 million, 27.9% or EUR 6.2 million higher than in the comparative period. The previous-year figure includes impairments of EUR 11.2 million on the brand value of 9Live and impairments or losses of EUR 9.3 million in connection with the disposal of subsidiaries in Greece and Bulgaria.

Total costsTotal costs Total of cost of sales, selling expenses and administrative expenses, as well as other operating expenses. include non-recurring expenses of EUR 64.7 million (previous year: EUR 73.1 million). At EUR 33.5 million, the majority of the non-recurring expenses are connected to the antitrust proceedings concluded in the fourth quarter 2012 and provisions for additional payments to bestseller authors (Notes page 193 and 223). The non-recurring expenses are reported under other operating expenses or in cost of sales. Other non-recurring expenses arose from acquisitions in the Group’s growth areas and in the course of consulting projects.

TOTAL COSTS FROM CONTINUING OPERATIONS

In 2012, the ProSiebenSat.1 Group posted a total increase in depreciation and amortization of 10.4% to EUR 79.5 million (previous year: EUR 72.0 million). This includes amortization of intangible assets of EUR 55.2 million (previous year: EUR 51.0 million) and depreciation of property, plant and equipment of EUR 24.3 million (previous year: EUR 21.0 million).

Operating costs — total costs adjusted for non-recurring expenses and depreciation and amortization — increased by 9.6% or EUR 141.7 million to EUR 1.625 billion for the reasons given. While operating costs posted an increase in the growth areas due to the expansion of business activities and as a result of investments and acquisitions, in the existing core business they remained almost at the previous year’s level (+1.1%). This is the result of consistent cost management with the goal of using resources efficiently by bundling them.

 

RECONCILIATION OF OPERATING COSTS FROM CONTINUING OPERATIONS

EUR m 2012 2011
1Depreciation, amortization and impairment of intangible assets and property, plant and equipment.
Total costs 1,768.8 1,628.0
Non-recurring expenses -64.7 -73.1
Depreciation and amortization1 -79.5 -72.0
Operating costs 1,624.6 1,482.9

Revenue growth resulted in an increase of EBITDAEBITDA Abbreviation for Earnings before Interest, Taxes, Depreciation and Amortization. before and after non-recurring items. EBITDAEBITDA Abbreviation for Earnings before Interest, Taxes, Depreciation and Amortization. year-on-year increased by 4.3% to EUR 680.4 million (previous year: EUR 652.5 million). It includes the income-reducing non-recurring expenses described above amounting to EUR 64.7 million (previous year: EUR 73.1 million), which are offset by non-recurring income of EUR 0.2 million (previous year: EUR 0.1 million). Recurring EBITDARecurring EBITDA Earnings before Interest, Taxes, Depreciation and Amortization. Describes earnings before interest, taxes, depreciation andamortization, adjusted for non-recurring items. adjusted for these non-recurring effects grew by 2.7% to EUR 744.8 million (previous year: EUR 725.5 million). The recurring EBITDA margin was 31.6% (previous year: 33.0%).

The following table shows a reconciliation of EBITDA before and after non-recurring effects:

 

RECONCILIATION OF RECURRING EBITDA FROM CONTINUING OPERATIONS

EUR m 2012 2011
1Depreciation/amortization and impairment of intangible assets and property, plant and equipment. 2Non-recurring expenses of EUR 64.7 million (previous year: EUR 73.1 million) less non-recurring income of EUR 0.2 million (previous year: EUR 0.1 million).
Profit before income taxes 456.5 347.8
Financial result -144.4 -232.7
EBIT 600.9 580.5
Depreciation and amortization1 79.5 72.0
Thereof from purchase price allocations 4.4 22.9
EBITDA 680.4 652.5
Non-recurring items2 64.4 73.0
Recurring EBITDA 744.8 725.5

In 2012, the financial result improved by a considerable 37.9% or EUR 88.3 million to minus EUR 144.4 million. The change is based on the positive development of the interest result and the other financial result. The interest result improved by 22.3% or EUR 43.9 million to minus EUR 153.2 million. Lower interest expenses resulting from the lower average level of Group debt and lower interest rate levels had a positive effect here. The other financial result improved by EUR 37.3 million to minus EUR 1.5 million (previous year: minus EUR 38.8 million). The previous year’s figure includes one-off expenses in connection with the maturity extension and the early repayment of loans as well as the related unwinding of interest rate hedges.

In 2012, the ProSiebenSat.1 Group increased its earnings before taxes significantly by 31.2% or EUR 108.7 million to EUR 456.5 million. In addition to the revenue growth, the improvement of the financial result had a major positive effect on the pre-tax result. After income taxes of EUR 127.4 million (previous year: EUR 76.7 million), the Group generated net income from continuing operations of EUR 329.1 million (previous year: EUR 271.1 million). The tax rate was 27.9% (previous year: 22.1%). The net profit after taxes and non-controlling interests from continuing operations rose to EUR 324.7 million and thus exceeded the previous year figure by 22.9% or EUR 60.5 million. Underlying net incomeUnderlying net income Consolidated net income adjusted for amortization and impairment taken on intangible assets identified in the context ofbusiness combinations and thus the related tax effects. from continuing operations increased by 30.5% or EUR 83.1 million year-on-year to EUR 355.5 million. Underlying net income is adjusted for non-cash special items as well as expenses of EUR 27.7 million from the concluded antitrust proceedings. Underlying net income results in basic earnings per preference share for continuing operations of EUR 1.69 (previous year: EUR 1.29); the adjusted basic earnings per common share for continuing operations amount to EUR 1.67 (previous year: EUR 1.28).

 

RECONCILIATION OF UNDERLYING NET INCOME FROM CONTINUING OPERATIONS

EUR m 2012 2011
1Amortization of purchase price allocations before tax: EUR 4.4 million (previous year: EUR 4.5 million). 2Impairment before tax: EUR 0.0 million (previous year: EUR 18.4 million).
Consolidated net profit (after non-controlling interests) 324.7 264.2
Amortization from purchase price allocations (after tax)1 3.1 3.5
Impairment in connection with original purchase price allocations (after tax)2 -/- 13.9
Valuation effects from the first time consolidation of maxdome -/- -18.2
Impairment of ZeniMax -/- 9.0
Expenses from the concluded antitrust proceedings 27.7 -/-
Underlying net income 355.5 272.4

Revenue and Earnings Performance Including Discontinued Operations

Consolidated revenues including discontinued operations in Northern and Eastern Europe at EUR 2.969 billion remained at the previous year’s level of EUR 2.975 billion. The corresponding recurring EBITDA fell by 3.3% to EUR 871.7 million (previous year: EUR 901.1 million). The previous year’s figures include earnings contributions, deconsolidation effects and profit from the sale of the subsidiaries in Belgium and the Netherlands amounting to EUR 375.0 million. The Belgian and the Dutch activities were deconsolidated in June and July 2011.

Including discontinued operations, EBITDA was EUR 793.4 million. The previous year figure of EUR 1,139 billion is determined by the proceeds from the disposal of the Belgian and Dutch activities in the amount of EUR 335.8 million. The EBITDA including discontinued operations in the year of 2012 contains non-recurring items of minus EUR 78.3 million (previous year: EUR 238.2 million). Non-recurring expenses primarily arose from the antitrust proceedings concluded in the fourth quarter of 2012 and provisions for additional payments to bestseller authors (Notes page 193 and 223). Other non-recurring items resulted from the process of disposing of the Northern and Eastern European TV and radio activities.

Earnings from discontinued operations before taxes decreased by EUR 412.2 million to minus EUR 6.2 million. This takes into account the earnings contributions from the activities in Northern and Eastern Europe for 2012.

Overall, net profit after taxes and non-controlling interests including discontinued operations decreased to EUR 295.0 million. This equates to a decline of 53.7% or EUR 342.5 million. The previous-year figure includes the high tax-free profit of EUR 335.8 million from the sale of the Dutch and Belgian operations. Adjusted for the impairment on goodwill of the Eastern European activities of EUR 57.4 million, other non-cash items such as amortization from purchase price allocations (PPA) after tax of EUR 35.0 million, and additional expenses of EUR 27.7 million from the concluded antitrust proceedings, underlying net income including discontinued operations reached EUR 415.1 million (previous year: EUR 685.3 million).

RECONCILIATION OF REVENUES INCLUDING DISCONTINUED OPERATIONS

RECONCILIATION OF CONSOLIDATED NET PROFIT AFTER MINORITY INTERESTS INCLUDING DISCONTINUED OPERATIONS

Group Financial Position and Performance

Principles and Objectives of Financial Management

Risk control and the centralized management are key principles of ProSiebenSat.1 Group’s financial management. Financial management is centrally managed by the Group Finance & Treasury department at ProSiebenSat.1 Media AG. This department manages the Group’s financing activities and is the contact for all managing directors and employees in the Group responsible for finance. The prevailing objectives of our financial management are:

  • to ensure that the entire ProSiebenSat.1 Group remains solvent by managing its liquidity efficiently across the organization,

  • to secure its financial flexibility and stability, in other words, maintaining and optimizing its ability to obtain funding,

  • to manage its financial risks by using derivative financial instruments.



The Group financial management covers the capital structure management and corporate funding, cash and liquidity management, and the management of market price risks, counterparty risks and credit default risks.

  • The aim of capital structure management is to optimize the way in which the Group’s capital structure and funding are organized by employing a range of financial instruments. These include equity or equity-like instruments as well as debt instruments. In its choice of suitable instruments, the Company takes into account factors such as the level of market receptivity, funding terms and conditions, flexibility or restrictions, diversification of the investor base and maturity profiles. The ProSiebenSat.1 Group raises and manages its debt funding on a centralized basis. This enables the Group to obtain economies of scale and optimize its cost of capital. In connection with the capital management structure at the ProSiebenSat.1 Group, managing leverageLeverage Shows how high net debt is in relation to recurring EBITDA in the last twelve months. is given particular priority.

  • As part of its cash and liquidity management, the Group optimizes and centralizes cash flows and secures liquidity across the Group. Cash pooling is an important tool here. Using rolling, Group-wide liquidity planning the ProSiebenSat.1 Group captures and forecasts both operating cash flows and cash flows from non-operating activities, thus deriving liquidity surpluses or requirements. Liquidity requirements are covered either by existing cash positions or the revolving credit facility (RCF).

  • The management of market price risks comprises centrally managed interest rate and currency management. The objective is to limit the effects of interest and currency volatility to Group profit and cash flow. Cash instruments as well as derivatives such as conditional and unconditional forward transactions are deployed. These instruments are used exclusively for hedging purposes.

  • The management of counterparty and credit default risks centers on trading relationships and creditor exposure to financial institutions. When entering into trading transactions, the ProSiebenSat.1 Group pays attention to ensuring that business is widely diversified involving counterparties of sufficiently high credit quality. For this purpose, the Group draws on external ratings supplied by international agencies. The Group’s risk with respect to financial institutions primarily arises from its investment of cash and cash equivalents and from its use of derivatives as part of its interest-rate and currency management activities.

Borrowings

In December 2012, the ProSiebenSat.1 Group sold its television and radio activities in Northern Europe. The Group intends to use part of the sales proceeds totaling EUR 500 million to repay term loans under the syndicated facilities agreement of the ProSiebenSat.1 Group ahead of maturity. In 2011, as a result of the disposal of the TV and print activities in Belgium and the Netherlands, the ProSiebenSat.1 Group already prepaid a third of its term loans totaling EUR 1.2 billion, at the same time extending a significant portion of its remaining loans to July 2016. The Group thus improved its capital structure on a sustained basis.

Financing Structure

As of December 31, 2012, the financial debt of the ProSiebenSat.1 Group comprised 59.9% non-current loans and borrowings (December 31, 2011: 65.0%) and 5.9% current loans and borrowings (December 31, 2011: 0.0%).

An essential part of the Group‘s funding comprises secured term loans ( Term LoanTerm loan Loan in which the loan obligation is repaid at the end of the agreed duration (secured term loan). B, C and D) with different maturities. In addition to these term loans, which are carried as non-current loans and borrowings, the secured facilities agreement includes a revolving credit facility (RCF), which has been divided into two tranches with differing maturities since May 2012.

DEBT FINANCING AND MATURITIES AS OF DECEMBER 31, 2012

  • As of December 31, 2012, the nominal value of the term loans was unchanged at EUR 2.360 billion.

  • The available amount of the revolving credit facilityCredit facility Defined loan framework at one or more banks which can be utilized to cover credit requirements. has been reduced from its original amount of EUR 600.0 million to the current level of EUR 590.0 million (December 31, 2011: EUR 568.4 million). This is due to the default of certain lenders as a result of the financial crisis. At the end of May 2012, the ProSiebenSat.1 Group extended the maturity of the major portion of this credit facility to July 2016, and issued as the new RCF 2. The remaining facility amount (RCF 1) continues to mature in July 2014. To the end of the year, further portions of the RCF 1 were extended. In this context, as of the reporting date, the RCF 2 amounted to EUR 359.4 million and RCF 1 was EUR 230.6 million.

    As of December 31, 2012, the cash drawing on the revolving credit facilities was EUR 230.6 million. As of the reporting date, the Group had total available facilities of EUR 359.4 million (December 31, 2011: EUR 548.4 million). The Group can draw down these facilities on a revolving basis for general corporate purposes.

    Furthermore, the ProSiebenSat.1 Group has concluded lease contracts (Notes page 178) for property at the Unterföhring site. In line with IFRS, these are largely classified as finance leases. This real estate is capitalized as property, plant and equipment and the respective leasing obligations are recognized as other financial liabilities. The real estate leases end in 2019 at the earliest. There are also smaller-scale leases for technical equipment. The ProSiebenSat.1 Group reported liabilities under finance leases totaling EUR 98.8 million as of December 31, 2012 (previous year: EUR 101.0 million). There were no other significant off-balance sheet financing instruments.

    The interest rates payable on the term loans and the amounts drawn under the available revolving credit facility are variable and are based on Euribor money market rates plus an additional credit margin.
  • At the reporting date, the credit margin was 2.5% per annum for Term Loan D and 1.875% per annum for Term Loan C. The credit margin for Term LoanTerm loan Loan in which the loan obligation is repaid at the end of the agreed duration (secured term loan). B and the revolving credit facility (RCF 1 and RCF 2) depend on the leverageLeverage Shows how high net debt is in relation to recurring EBITDA in the last twelve months. factor. For Term Loan B and the RCF 1, it amounted to 1.0% per annum as of December 31, 2012 (previous year: 1.0% per annum) and 2.0% per annum for the new RCF 2.
  • Risks from the change of variable interest rates are hedged with various hedging instruments in the form of interest rate swapsInterest rate swaps Derivative financial instruments to swap cash flows. For example, with interest rate swaps a swap is made between fixed and floating rate cash flows.. As of December 31, 2012, the hedge ratio for all noncurrent loans and borrowings was almost 68% (December 31, 2011: almost 100%). On December 31, 2012, the average fixed-interest swap rate was around 3.9% per year (previous year: Around 4.6% per year). In 2012 financial year, Group interest expenses declined by a total of EUR 49.2 million to EUR 156.2 million. This is due to the lower average level of Group debt as well as lower Euribor money market rates compared to the previous year.

GROUP-WIDE CORPORATE FINANCING

The ProSiebenSat.1 Group entered into the loans with an original facilities amount of EUR 4.2 billion in the course of the acquisition of the SBS Broadcasting Group in 2007. In connection with the partial prepayment totaling EUR 1.2 billion of Term Loans B and C and a maturity extension for EUR 2.1 billion (new Term Loan D), the ProSiebenSat.1 Group agreed with its lenders various amendments to the syndicated facilities agreement. The amendments provide the ProSiebenSat.1 Group with more flexibility for future financing. In 2012, the ProSiebenSat.1 Group extended the maturity of the major portion of the EUR 359.4 million credit facility until July 2016 (new RCF 2).

The syndicated facilities agreement for Term Loans B, C and D and the revolving credit facility (RCF 1 and RCF 2) requires the ProSiebenSat.1 Group to comply with certain key financial ratios. Thus the ProSiebenSat.1 Group has to maintain a specific ratio of net financial debt to EBITDA. The ratio of consolidated EBITDA to the consolidated net interest result is also defined in the agreement. Compliance with the key financial covenants is reviewed quarterly for the respective previous twelve-month period.

The ProSiebenSat.1 Group complied with the contractual requirements in the reporting period. Non-compliance with the contractual financial ratios would give cause for early termination.

In the case of impending or incurred breaches of the key financial covenants, the ProSiebenSat.1 Group’s facilities agreement also allows the contribution of equity or equitylike funds in the form of subordinated loans within certain periods. Such an addition of equity or equity-like funds — a so-called equity cure — is treated as an increase in consolidated EBITDA for the purposes of calculating compliance with the financial covenantsFinancial covenants Obligations in the context of loan contracts. These relate primarily to key financial indicators that the borrower has to comply with..

In the event that ownership control of the ProSiebenSat.1 Media AG changes (change of control), the lenders may demand a termination of the facilities agreement and repayment of all outstanding amounts within a certain period after the change of control takes place. In addition, the facilities agreement includes a number of standard market obligations which, subject to extensive exceptions and among other elements, limit ProSiebenSat.1 Group’s ability to provide other security interests in its present or future assets, to assume further financial liabilities, to sell assets, to acquire business operations in whole or in part, or to provide guarantees, declarations of indemnification, or liability declarations outside the normal course of business. The facilities agreement also contains a number of customary default clauses. The default clauses provide that the lenders may demand immediate repayment in full of all amounts outstanding under the facilities agreement if breaches of contract defined in more detail under the agreement occur and if those breaches (assuming they are curable) are not remedied within a specified period.

Financing Analysis

In 2012, before reclassification of cash and cash equivalents from the Northern and Eastern European business, net financial debt decreased by 2.1% or EUR 37.4 million to EUR 1.780 billion. In view of the reclassification of cash and cash equivalents from the Northern and Eastern European business totaling EUR 90.4 million, net financial debt increased by 2.9% or EUR 53.0 million to EUR 1.871 billion.

GROUP NET FINANCIAL DEBT

1 Before reclassification of cash and cash equivalents from the Northern and Eastern European business.

The leverage factorLeverage factor Common key ratio for measuring the debt position. It is calculated as the ratio of net financial debt to recurring EBITDA of the last twelve months. is within the defined target range of 1.5 to 2.5 times, with the value having again improved on the previous year. Thus the ratio of net financial debt before reclassification of cash and cash equivalents from the Northern and Eastern European business to recurring EBITDA of the last twelve months (LTM recurring EBITDA) was 2.0 times on the reporting date (December 31, 2011: 2.1 times). This is the result of improved earnings.

RATIO NET FINANCIAL DEBT BEFORE RECLASSIFICATION TO LTM RECURRING EBITDA

Leasing commitments are not included when calculating the leverage factor.
1 Before reclassification of cash and cash equivalents from the Northern and Eastern European business.

Analysis of Liquidity and Capital Spending

The ProSiebenSat.1 Group’s cash flow statementCash flow statement The cash flow statement shows how cash and cash equivalents have changed as a result of cash inflows and outflows during the period. It is broken down into cash flow from operating activities, cash flow from investing activities and cash flow from financing activities. Cash and cash equivalents shown in the cash flow statement correspond to the cash and cash equivalents reported on the statement of financial position as at the reporting date. Cash flow from operating activities is derived indirectly from the consolidated profit or loss from continuing operations for the period. shows the generation and use of cash flows. It is broken down into cash flow from operating activities, cash flow from investing activities and cash flow from financing activities. Cash and cash equivalents shown in the cash flow statement correspond to the cash and cash equivalents reported in the statement of financial position as of December 31, 2012 and December 31, 2011 respectively.

Unless otherwise stated, the following textual analysis of liquidity and capital spending relates to cash flow from continuing operations of the ProSiebenSat.1 Group. The reconciliation below provides an overview of selected key ratios in the cash flow statement, taking account of the discontinued television and radio activities in Northern and Eastern Europe.

 

CASH FLOW STATEMENT

EUR m Q4 2012 Q4 2011 2012 2011
Result from continuing operations 177.8 166.1 329.1 271.1
Result from discontinued operations -78.7 -36.2 -30.2 373.2
Cash flow 593.9 594.9 1,863.2 1,916.3
Change in working capital 51.0 15.8 -32.8 -17.7
Dividends received -/- -/- 5.5 3.3
Income tax paid -38.5 -8.0 -129.1 -102.1
Interest paid -34.5 -44.5 -160.0 -204.4
Interest received 0.5 2.2 1.6 7.1
Cash flow from operating activities of continuing operations 470.3 460.3 1,202.1 1,174.5
Cash flow from operating activities of discontinued operations 124.1 96.3 363.1 182.4
Cash flow from investing activities of continuing operations -207.5 -222.8 -945.8 -973.4
Cash flow from investing activities of discontinued operations -100.6 -74.4 -317.9 1,122.1
Free cash flow from continuing operations 262.8 237.5 256.3 201.2
Free cash flow from discontinued operations 23.5 21.9 45.2 1,304.5
Free cash flow 286.3 259.4 301.5 1,505.7
Cash flow from financing activities of continuing operations 1.2 -0.6 -30.9 -1,724.2
Cash flow from financing activities of discontinued operations -0.4 -/- -0.8 -0.4
Effect of foreign exchange rate changes of continuing operations on cash and cash equivalents -0.7 1.6 2.5 -1.4
Effect of foreign exchange rate changes of discontinued operations on cash and cash equivalents 0.1 0.1 2.4 -2.4
Change in cash and cash equivalents total 286.4 260.6 274.8 -222.8
Cash and cash equivalents at beginning of reporting period 506.3 257.3 517.9 740.7
Minus held-for-sale cash and cash equivalents at end of reporting period -90.4 -/- -90.4 -/-
Cash and cash equivalents at end of reporting period 702.3 517.9 702.3 517.9

Cash flow from operating activities: In 2012, operating cash flow from continuing operations was EUR 1.202 billion. This equals a year-on-year increase of 2.3% or EUR 27.6 million. Higher consolidated net profit positively impacted cash flow from operating activities. Increased cash flow was driven not only by improved business performance, but also by lower interest payments in comparison to the previous year and lower other financing costs. On the other hand, tax payments increased to EUR 129.1 million (previous year: EUR 102.1 million). Furthermore, changes in working capitalWorking Capital Calculated on the basis of current assets minus current liabilities, thus providing an assessment of liquidity. and thus capital tied up partially compensated the rise in operating cash flow. The change in working capital amounted to minus EUR 32.8 million (previous year: minus EUR 17.7 million).

Cash flow from investing activities: Investing activities resulted in outflows of EUR 945.8 million, a slight year-on-year decline of 2.8% or EUR 27.5 million compared to 2011. The core area of investing activities within the ProSiebenSat.1 Group is the acquisition of programming rights.

In 2012, cash outflow from acquiring programming rights was EUR 843.3 million, down 10.2% or EUR 95.5 million year-on-year. The decline resulted from lower investments in acquiring licensed formats. Parallel to acquiring licenses, the Group secures its attractive supply of programming with commissioned productions and own productions. Investments in commissioned productions increased in 2012. Own formats are based on the development and implementation of inhouse ideas and are primarily produced with a view to being broadcast in the near future. For this reason, they are recognized immediately as an expense in the cost of sales and do not constitute investments. Commissioned and own productions sharpen the station profile and contribute to improving cost efficiency and creating Group-wide synergies. For this reason, the expansion of the Red Arrow Entertainment Group, which has broadened its program production portfolio considerably in the last few months, is an important step.

In the 2012 financial year, the majority of programming investments were made in the Broadcasting German-speaking segment, with EUR 842.0 million or 99.8% (previous year: EUR 933.7 million or 99.5%). In addition, in the 2012 financial year, ProSiebenSat.1 made investments of EUR 59.9 million in intangible assets (+68.0% year-on-year) and EUR 28.5 million in property, plant and equipment (+42.2% year-on-year). The focus of investing activities in respect to intangible assets was the Digital & Adjacent growth segment, which received approximately two thirds of investments. They mainly went into the acquisition of licenses in the Online Games business. For example, in 2012, ProSiebenSat.1 Games secured exclusive licenses for the European distribution of online games from the US games developer Sony Online Entertainment. The games business is the fastest growing entertainment sector in the world and is therefore one of the ProSiebenSat.1 Group’s most important growth drivers in the digital business. Almost all investments made in property, plant and equipment (91.1%) were in the Broadcasting German-speaking segment. They mainly relate to technical facilities and advance payments.

The stated cash flows from investing activities had the following breakdown by segment: 95.0% (previous year: 97.1%) of investments in programming assets, intangible assets and property, plant and equipment were made in the Broadcasting German-speaking segment, the most important segment of the Group in terms of revenues. The Digital & Adjacent and Content Production & Global Sales segments received 4.6% (previous year: 2.6%) and 0.4% (previous year: 0.2%) of investments respectively.

INVESTMENTS BY SEGMENT FROM CONTINUING OPERATIONS

Assets resulting from initial consolidations are not reported as segment-specific investments but are shown as cash outflow from additions to the scope of consolidation.

Cash outflow from additions to the scope of consolidation in 2012 increased by a total of 65.1% or EUR 10.7 million to EUR 27.1 million (previous year: EUR 16.4 million). In the 2012 financial year, the ProSiebenSat.1 Group primarily strengthened its program production unit and its digital business strategically.

With its acquisition of majority interests in the American production company Left/Right and in the British production firms CPL Productions, Endor Productions and NERD TV, Red Arrow Entertainment Group expanded its portfolio, thus strengthening its presence in the key markets of USA and Great Britain. With a majority holding in the production company July August Productions, Red Arrow also entered the Israeli TV market, one of the world’s most creative TV markets. The Group also used the growth opportunities in the Digital & Adjacent segment. The Group thus extended its Ventures business, acquiring majority interests in the search engine marketing company Booming, the price comparison platform preis24.de and the travel agency Tropo. Through participations in the form of media-for-equity deals, ProSiebenSat.1 secures access to new markets, without having to make any larger cash investments.

Assets resulting from initial consolidations are not reported as segment-specific investments. The liquid funds used for the acquisition of the initially consolidated companies are shown as cash outflow from additions to the scope of consolidation.

There were no noteworthy disinvestments in the financial year. In the previous year, cash flows were generated from the disposal of radio stations in Greece and Bulgaria.

Free cash flow: Free cash flowFree cash flow A key parameter for assessing the financial strength of the Group. Total cash and cash equivalents generated in operating business less the balance of cash used and generated in thecontext of investing activities. as the surplus cash generated is a key ratio for assessing the financial strength of the ProSiebenSat.1 Group. In 2012, on the basis of continuing operations this figure increased by EUR 27.4% to EUR 256.3 million (previous year: EUR 201.2 million). This was equally supported by improved operating cash flow and lower investment volume. Including discontinued operations, free cash flow was EUR 301.5 million after EUR 1.506 billion in the previous year. The comparably high previous-year figure includes cash flow from the sale of the Dutch TV and printing activities (EUR 1.459 billion).

Cash flow from financing activities: In respect to financing activities in the 2012 financial year, the Group's cash inflows were funds principally due to draw-downs of EUR 230.6 million of the revolving credit facility (previous year: EUR 0.0 million). An effect in the opposite direction was an outflow due to the dividend payment of EUR 245.7 million (previous year: EUR 241.2 million). This resulted in cash flow from financing activities from continuing operations of EUR 30.9 million. In 2011, cash flow from financing activities was minus EUR 1.724 billion. The high outflows in the previous year were largely the result of the partial term loanTerm loan Loan in which the loan obligation is repaid at the end of the agreed duration (secured term loan). repayment of EUR 1.2 billion, the full repayment of the revolving credit facilityCredit facility Defined loan framework at one or more banks which can be utilized to cover credit requirements. amounting to EUR 230.0 million and the dividend payment of EUR 241.2 million.

Cash and cash equivalents: The overall cash flows described resulted in a considerable increase of cash and cash equivalents compared to the previous-year reporting date. Cash and cash equivalents thus increased year-on-year by 35.6% or EUR 184.4 million to EUR 702.3 million (previous year: EUR 517.9 million). In the fourth quarter — the reporting period with the highest revenues and cash flow — the Group generated cash and cash equivalents totaling EUR 286.4 million (previous year: EUR 260.6 million). Thus, the ProSiebenSat.1 Group has a comfortable level of liquidity.

CHANGE IN CASH AND CASH EQUIVALENTS

Analysis of Assets and Capital Structure

The held-for-sale activities in Northern and Eastern Europe led to structural changes of the Group balance sheet compared to December 31, 2011. Thus the asset and liability items of the Northern and Eastern European subsidiaries were reported in the relevant current balance sheet items as of the reporting date, with the assets and liabilities of these business activities being reclassified to the respective “Assets held for sale” and “Liabilities in connection with assets held for sale” items. The previous-year figures are not adjusted.

BALANCE SHEET STRUCTURE

As of December 31, 2012, total assets amounted to EUR 5.413 billion (December 31, 2011: EUR 5.034 billion). This corresponds to an increase of 7.5% compared to the previous-year reporting date. The rise in total assets is mainly due to higher cash and cash equivalents. Adjusted for the mentioned reclassification effect, higher intangible assets and an increase in programming assets resulted in total assets increasing. Significant value changes to balance sheet items compared to December 31, 2011 are outlined below. To achieve a better comparison, the effects from the reclassification of the Northern and Eastern European subsidiaries are described as “Assets held for sale” and “Liabilities in connection with assets held for sale” in addition to the change to the reported balance sheet items.

Non-current and current assets: Compared to December 31, 2011, intangible assets decreased by 51% to EUR 1.063 billion (previous year: EUR 2.169 billion). The share of intangible assets in total assets declined to 19.6% (December 31, 2011: 43.1%). Without the reclassification effect, there would have been an increase of EUR 38.2 million, equivalent to 1.8%. Key factors were firsttime consolidations in the course of expanding the international program production portfolio. In the context of first-time consolidations, goodwill totaling EUR 56.1 million was recognized.

Alongside intangible assets, programming assetsProgramming assets Rights to TV program content (e.g. feature films, series, commissioned productions) capitalized as a separate item due to their particular importance for the financial position and performance at the ProSiebenSat.1 Group. Feature films and series are posted on the statement of financial position as of the beginning of the license term. Commissioned productions are capitalized as broadcast-ready programming assets as of their date of formal acceptance. Until being broadcast, sport rights are included in advance payments. They are then posted to programming assets. When programs are broadcast, a program consumption item is posted in the income statement. are the most important assets of the ProSiebenSat.1 Group with a 23.6% share of total assets (December 31, 2011: 30.4%). Reclassification also resulted in a decline of non-current and current assets which now total EUR 1.277 billion (December 31, 2011: EUR 1.531 billion). Without reclassification, there would have been a slight increase in programming assets, primarily due to the acquisition of licensed programming, particularly for series in the Broadcasting German-speaking segment.

Cash and cash equivalents increased to EUR 702.3 million. Higher liquidity of EUR 184.4 million or by 35.6% was driven by draw-downs of EUR 230.6 million on the revolving credit facilityCredit facility Defined loan framework at one or more banks which can be utilized to cover credit requirements. (RCF) as well as higher cash flow from operating activities.

Trade accounts receivable: As a result of the reclassification, trade accounts receivable were slightly lower than the previous year. At EUR 268.7 million, they were down 3.8% from EUR 279.4 million. However, without the reclassification and thus on a like-for-like basis, there was an increase of EUR 69.6 million or 24.9%. The increase was mainly due to the Digital & Adjacent and Content Production & Global Sales growth areas.

Shareholders’ equity: Compared to December 31, 2011, shareholders’ equity increased by EUR 59.5 million or 4.1% to EUR 1.501 billion. Consolidated net profit, as well as currency translation effects reported in other comprehensive income contributed to this increase. An opposite effect arose from the EUR 245.7 million dividend paid out in the 2012 financial year. Due to higher total assets on the reporting date, the equity ratio decreased to 27.7% (December 31, 2011: 28.6%). The Group thus maintains a solid financial position.

Non-current and current liabilities and provisions: As a result of draw-downs on the revolving credit facility, current loans and borrowings rose from EUR 0.1 million to EUR 230.9 million as of December 31, 2011. As of December 31, 2012, EUR 230.6 million had been drawn from the revolving credit facility. As a result, non-current and current financial liabilities increased by EUR 237.4 million to EUR 2.573 billion. Other non-current and current financial liabilities also increased. Contractually agreed purchase price payments for acquisitions and valuation effects from hedge accountingHedge accounting Shows an economic hedge relationship in line with IAS 39. Here what are often opposing value changes of the hedged underlying transactions and the derivative financial instruments used for hedging are recorded in accounting terms. resulted in other non-current and current financial liabilities increasing by EUR 26.6 million to EUR 353.1 million (+8.1%).

On the other hand, due to the consumption of programming provisions (Notes page 180) as well as the reclassification, provisions as of December 31, 2012 decreased. The largest provisions item in the balance sheet remains the EUR 52.2 million for other current provisions (December 31, 2011: EUR 78.7 million). This includes a provision of EUR 5.8 million in connection with additional payments to bestseller authors recognized as of the reporting date.

The provision recognized during the year relating to the antitrust proceedings is posted as other current liabilities in the balance sheet as of December 31, 2012. The now concluded antitrust proceedings resulted in obligations amounting to a total of EUR 27.7 million. As a result other current liabilities increased by EUR 14.1 million to EUR 202.6 million (December 31, 2012: EUR 188.5 million).

Non-current and current trade accounts payable declined considerably, totaling EUR 322.2 million on the reporting date (December 31, 2011: EUR 456.8 million). Without the effect resulting from the reclassification of the Northern and Eastern European subsidiaries, trade accounts payable would have been at the level of the previous year. Due to the reclassification, deferred tax liabilities were also lower. As of December 31, 2012, they totaled EUR 66.7 million (December 31, 2011: EUR 138.7 million).

ACCOUNTING ASSUMPTIONS AND ESTIMATES

Preparers of financial statements need to make assumptions and estimates to a certain extent when applying accounting policies and when recognizing income, expenses, assets, and
liabilities. Detailed information on the effect of using assumptions and estimates is disclosed under No. 6 of the Notes to the consolidated financial statements.