1&1 AG — Annual Report 2016

Mar 23, 2017

Annual Report 2016

BEST OFFERS FOR GERMAN MOBILE MARKET

WITH UP TO 10 GIGABYTE IN THE PREMIUM SEGMENT

BEST VALUE FOR MONEY IN GERMANY´S LARGEST WIRELES SERVICE NETWORK

• » TODAY: 4G+ LTE
• » TOMORROW: With The Features of a Network Operator
• » FUTURE: Only Provider At Eye Level With MNOs

DRILLISCH AG PREMIUM BRANDS

www.smartmobil.de www.yourfone.de

INDEX

4 DATA AND FACTS

5 TO OUR SHAREHOLDERS

• 5 Letter from the Management Board
• 10 Report of the Supervisory Board
• 16 Declaration on Corporate Management/Corporate Governance Report

22 THE DRILLISCH GROUP AND THE MARKET ENVIRONMENT

• 23 Provider of innovative voice and data rate plans on Germany's largest mobile services network
• 24 Data revenues and data volume growing steadily
• 0RELOHGDWDWUDɝFDFFRUGLQJWRDSSOLFDWLRQ
• 26 The smartphone assistant and companion for everyday life
• 27 New technology 5G poised for launch/Positive outlook for software industry

28 MARKETING REPORT

• 'ULOOLVFKRHUVLQQRYDWLYHPRELOHUDWHSODQVZLWKDGGHGYDOXHDQGVHWVWKHEDUIRUSULFHDQGVHUYLFH
• 2QOLQHDQGRɞLQHSURGXFWV\$ZDUGZLQQLQJ'ULOOLVFKEUDQGVUHFLSLHQWVRIPXOWLSOHKRQRXUV
• 32 yourfone, Number 1 in mobile shop test

33 CONSOLIDATED MANAGEMENT REPORT

• 34 Business Report
• 47 Risk Report
• 52 Forecast Report
• 53 Compensation Report
• 56 Supplemental Information in Accordance with Section 315 (4) HGB
• 59 Important Events After the End of the Fiscal Year

60 CONSOLIDATED ANNUAL ACCOUNTS

• 61 Consolidated Comprehensive Income Statement
• 62 Consolidated Balance Sheet
• 64 Consolidated Change in Equity Statement
• 65 Consolidated Cash Flow Statement
• 66 Consolidated Notes

106 AFFIDAVIT BY LEGAL REPRESENTATIVES (BALANCE SHEET OATH)

107 AUDITOR´S OPINION

108 INVESTOR RELATIONS CORNER

• 109 Financial Calendar | Dividend Policy | Current Analyst Assessments
• 6KDUH3ULFH'HYHORSPHQW_0LGGOHDQG/RQJWHUP'LYLGHQG'HYHORSPHQW
• 111 Director´s Holdings | Shareholder Structure

112 SERVICE CORNER

• 113 Publications | Contacts | Information and Order Service
• 114 Glossary
• 117 Legal Information
• 118 Drillisch AG Brands the Choice is Yours!

DATA AND FACTS

Key Indicators of the Drillisch-Group	2016	2015	IV/2016	III/2016	II/2016	I/2016
Income Statement
Revenue in €m	710.0	629.5	187.9	180.9	167.8	173.4
Service revenues in €m	551.3	433.7	146.9	142.9	136.9	124.6
Gross profit in €m	278.9	254.4	73.2	68.6	68.9	68.2
Gross profit in % of revenue	39.3	40.4	39.0	37.9	41.1	39.3
EBITDA in €m	120.2	105.6	37.5	31.6	27.1	24.0
EBITDA margin in % of revenue	16.9	16.8	20.0	17.5	16.2	13.8
Depreciation excluding goodwill in €m	52.3	36.1	15.6	12.1	12.2	12.3
EBIT in $\epsilon$ m	58.7	69.5	12.7	19.4	14.9	11.7
EBIT in $\epsilon$ m - adjusted*	67.9	69.5	21.9	19.4	14.9	11.7
EBITmargin in % of revenue	8.3	11.0	6.8	10.7	8.9	6.7
EBIT margin % of revenue - adjusted*	9.6	11.0	11.7	10.7	8.9	6.7
EBT in €m	55.6	66.1	12.1	18.6	13.9	10.9
EBT in €m - adjusted*	64.8	66.1	21.3	18.6	13.9	10.9
EBT margin in % of revenue	7.8	10.5	6.4	10.3	8.3	6.3
EBT margin in % of revenue - adjusted*	9.1	10.5	11.3	10.3	8.3	6.3
Consolidated profits in €m	26.4	46.1	$-3.9$	13.1	9.7	7.5
Consolidated profits in €m - adjusted*	45.1	46.1	14.8	13.1	9.7	7.5
Consolidated profit margin in % of revenue	3.7	7.3	$-2.1$	7.3	5.8	4.3
Consolidated profit margin in % of revenue - adjusted*	6.4	7.3	7.9	7.3	5.8	4.3
Profit/loss per share in €	0.48	0.85	$-0.07$	0.24	0.17	0.14
Profit/loss per share in € - adjusted*	0.82	0.85	0.28	0.24	0.17	0.14
Cash flow
Cash flow from current business operations in $\epsilon$ m	80.5	76.2	22.5	$-3.6$	71.8	$-10.3$
Cash flow from investment activities in €m	$-24.5$	$-169.2$	$-1.3$	$-19.9$	$-0.8$	$-2.5$
Cash flow from financing activities in €m	$-86.6$	$-100.7$	0.5	$-0.4$	$-38.9$	$-47.9$
Cash in $\epsilon$ m	92.8	123.4	92.8	71.1	94.9	62.8
Balance Sheet
Balance sheet total in €m	595.2	688.7	595.2	582.6	611.7	626.5
Equity in $\notin$ m	283.4	353.0	283.4	287.5	274.4	360.5
Equity ratio (equity as % of balance sheet total)	47.6	51.3	47.6	49.3	44.9	57.5
Debenture bonds in €m	94.2	91.5	94.2	93.5	92.8	92.1
Financial liabilities in $\epsilon$ m	50.0	0.0	50.0	50.0	50.1	0.0
Employees Size of staff, annual average
(incl. Management Board)	916	733	916	918	923	928
Wireless Services Subscribers (31/12/2016) (in Thousands)	3,430	2,678	3,430	3,214	3,003	2,797
Thereof MVNO subscribers	3,359	2,587	3,359	3,138	2,922	2,712
Thereof budget subscribers	2,863	1,932	2,863	2,600	2,338	2,100
Thereof volume subscribers	496	655	496	538	584	612
Gross Profit per User (AGPPU)
AGPPU budget subscribers	8.66€	9.08€	8.18€	8.75€	9.11€	8.70€
AGPPU volume subscribers	3.07€	3.13€	3.11 €	3.26€	3.07€	2.88€
AGPPU subscribers (total)	7.58€	7.34€	7.38€	7.75€	7.85€	7.32€

\$GMXVWHGLQWKHȴVFDO\HDUDQGLQ4IRUWKHHHFWVIURPWKHUHVWUXFWXULQJRI3KRQH+RXVHDQGWKHVDOHRIWKHQHWZRUNRSHUDWRUEXVLQHVV

Vlasios Choulidis André Driesen ([HFXWLYH%RDUGDirector of SalesDirector of Finances

Dear Shareholders,

This past year was a very important one for Drillisch AG. Why? Back in 2014, we concluded D YHU\ ORQJWHUP DJUHHPHQW ZLWK 7HOHIµQLFD Deutschland concerning access to as much as RIWKDWFRPSDQ\ȇVQHWZRUNFDSDFLWLHVDQG to all available technologies, a move that has opened enormous opportunities for growth to us because we are the sole MBA (mobile bitstream access) MVNO on the German mar NHW\$VSDUWRIRXUHRUWV WR WDNH IXOODGYDQ tage of these opportunities, we acquired the former yourfone GmbH, The Phone House Deutschland Group and more than 200 shop ORFDWLRQV IURP 7HOHIµQLFD RYHU WKH FRXUVH RI the year 2015; these acquisitions will enable XV WR DGGUHVV D VLJQLȴFDQW VKDUH RI WKH FXV tomer potential in the POS sector as well as to secure accelerated growth in the online sector in future. This laid the cornerstones. In 2016, we felt compelled to prove that these decisions were the right ones and that the strategy could also be successfully realised. \$QGLQGHHGȂLQȴVFDO\HDUZHDGGHG\HW another chapter to the Drillisch AG success VWRU\ DQGZHUH DEOH WR UDLVH DOORI WKHPDMRU performance indicators once again, above all WKHJURVVSURȴWWKH(%Ζ7'\$DQGWKHQXPEHUV of MVNO subscribers. The decisive indicators of our core business continuously improved in each of the separate quarters of the past ȴVFDO\HDUDVZHOO7KHVHȴJXUHVLQGLFDWHWKDW we are also well on our way to reaching the targets we have set for ourselves for 2017 and to expanding our market position for the long term. Before we delve more deeply into the GHWDLOVRIȴVFDO\HDUKRZHYHUZHZRXOG like, as usual, to report to you on develop ments on the market relevant for us and how ZH FDQ EHVW SURȴW IURP WKHPRVW LPSRUWDQW trends in our industry.

The telecommunications market in a state RIȵX[– Drillisch, the only MBA MVNO, is independent, yet on a peer level with the network operators

\$FFRUGLQJWRDMRLQWPDUNHWDQDO\VHFRQGXFWHG by Dialog Consult and VATM in October 2016 (estimate), the German mobile market posted virtually constant revenues in 2016. While the YRLFH WUDɝF LQPRELOH OLQHV GHFOLQHG VOLJKWO\ the development in the revenues from mo bile data continued to be highly dynamic. Esti mates from VATM indicate that the total data YROXPHLQLQFUHDVHGE\IURP million gigabytes in 2015 to 774 million giga bytes in 2016. The average data volume per XVHUDQGPRQWKURVHE\IURPPHJ abytes in 2015 to 510 megabytes in 2016. The steady rise in data volumes and new technol ogies for faster data transmission (e.g. LTE), along with the integration of various media on mobile devices will secure growth potential

for mobile services providers in future as well. Powerful networks featuring high availability are an important prerequisite as digitalisation continues to expand in both the private arena and in industry.

Drillisch, the only MBA MVNO in Germany, is entitled to a certain share rising to as much as RIWKHXVHGQHWZRUNFDSDFLW\RI7HOHIµQL ca, assuring the Company of extensive access to the largest mobile services network in this country. We have contractually secured, unre VWULFWHGDFFHVVWRQRWRQO\/7(WKHIRXUWKJHQ eration network technology, but to all future technologies as well. Thanks to this situation, unique in Europe, we are able to perform like a network operator, yet do not have the bur den of investing billions in the installation and expansion of a network. We are therefore in a position to play a successful role in the trans formation of the telecommunications market WKDQNVWRPD[LPXPȵH[LELOLW\DXWRQRP\DQG plannability of our operating business.

Raising the bar with innovative and transparent mobile services products

ΖQȴVFDO\HDUMXVWDVLQWKHSDVW'ULOOLVFK UHJXODUO\VXEMHFWHGLWVRSHUDWLRQVWRFRPSUH KHQVLYHTXDOLW\DXGLWVE\WKLUGSDUW\LQVWLWXWHV and consistently received ratings of "excellent" DQG ȊJRRGȋ 'XULQJ WKH FHUWLȴFDWLRQ SURFHVV pursuant to the demanding quality stand DUGVRIWKHΖ62QRUPLQ6HSWHPEHU 2016, the high level of quality management at WKH WZR PDMRU 'ULOOLVFK VXEVLGLDULHV 'ULOOLVFK Online AG and yourfone AG was fully and completely convincing in all points for the au ditors.

Customer satisfaction plus consistent trans parency and security are important compo nents of the Company's success. The highest levels of transparency and security ensure the compliance of our products and services with the highest standards.

Attractive products and services together with outstanding quality in the segments 2QOLQHDQG2ɞLQH

Drillisch takes a premium approach, supple PHQWHGE\DPXOWLEUDQGVWUDWHJ\WRRHULQ novative mobile products with great success; transparency and performance are the out standing characteristics of the products that are right up to date at all times. Every custom HUȴQGVMXVW WKHULJKWSURGXFW WRPHHWKLVRU her needs in our portfolio.

In the age of the mobile internet, our prod XFWV DQG VHUYLFHV IHDWXULQJ VLPSOH ORZSULFH and powerful access to mobile data networks with data volume oriented to each individual's VSHFLȴFQHHGVDQGDIDVWFRQQHFWLRQPHHWWKH PDMRU FULWHULD GHWHUPLQLQJ FXVWRPHUVȇ GHFL sions when selecting a rate plan and provider.

In this constantly changing market environ PHQW 'ULOOLVFK RHUV FXVWRPHUV RYHUDOO WKH "best value for money" – through its estab OLVKHG RQOLQH EUDQGV DV ZHOO DV LQ EULFNDQG mortar trade.

Restructuring of Phone House

Following the sale in January 2017 of the distribution activities on behalf of other net work operators that are no longer a part of the Company's core business, the remaining Phone House companies now concentrate on their core competencies, which were our motivation for the acquisition of Phone House *URXSLQWKHNQRZKRZDQGWKH\HDUVRI experience in comprehensive care and opera tion of shop locations and hardware logistics that will in future serve exclusively our own RɞLQH FKDQQHO RSHUDWLQJ XQGHU WKH EUDQG name yourfone. Our access to free retail trade is nevertheless preserved by our conclusion of a distribution partnership for the broker age of mobile contracts for various online and RɞLQHEUDQGVRI'ULOOLVFK*URXSZLWKWKHEX\ er of the legacy brokerage business of Phone House. The resulting change in the Company's future earnings position and the related re coverability test of the Phone House goodwill recognised in the balance sheet as part of the purchase price allocation in 2015 resulted in a QRQFDVKUHGXFWLRQLQWKHYDOXHRIWKLVJRRG ZLOORIȜPLOOLRQSUHYLRXV\HDUȜ?LQWKH annual accounts that led to an unscheduled increase in amortisation and depreciation. Moreover, the restructuring and revaluation of Phone House caused unscheduled tax ex penses in the amount of €9.5 million. Detailed comments can be found on pages 42 to 43 of the management report. The consequence is WKDWFRQVROLGDWHGSURȴWLVUHGXFHGE\D WRWDO RIȜPLQQRQFDVKRQHWLPHH[SHQVHVUH lated to the Phone House restructuring. We KDYHPDGHDFRUUHVSRQGLQJDGMXVWPHQWRIWKH DHFWHGSURȴWLQGLFDWRUVLQWKH'DWDDQG)DFWV as well as in the presentation of the earnings position in the management report to ensure clearer understanding of the operating busi ness.

The operating business

Operating in a highly competitive economic sector, Drillisch Group not only achieved the upper end of the EBITDA forecast of €115 million to €120 million, but even exceeded the forecast slightly with an actual result of €120.2 million. The Company also succeed ed, as planned, in increasing the number of 0912VXEVFULEHUV7KHSURȴWDELOLW\DQG\LHOG indicators relevant for Drillisch of gross prof it and EBITDA continued to improve. Busi ness development clearly demonstrates that Drillisch has been pursuing a course of con VLVWHQWO\ SURȴWDEOH JURZWK IRUPDQ\ \HDUV D course that is largely independent of general HFRQRPLFȵXFWXDWLRQV

In comparison with the closing date of the previous year, the number of subscribers URVH E\ D WRWDO RI ? WR PLOOLRQ PLOOLRQ? D FRQVHTXHQFH of the continuing growth in the MVNO cli entele, whose numbers rose by a total of ? WR PLOOLRQ VXEVFULEHUV PLOOLRQ?:H DFKLHYHG HVSHFLDOO\ VWURQJJURZWKLQWKHKLJKO\SURȴWDEOHEXGJHW subscriber segment, posting an increase of VXEVFULEHUV ? WR PLOOLRQ VXEVFULEHUV PLOOLRQ? 7KDQNV WR

7

the improved customer and rate plan mix, the DYHUDJHJURVVSURȴWSHU0912FXVWRPHU\$* PPU) increased as well over the year and has QRZUHDFKHGWKHPDUNRIȜȜ

5HYHQXHV LQ ȴVFDO \HDU LQFUHDVHG E\ ȜPLOOLRQ?WRȜPLOOLRQ €629.5 million). In particular, a rise of €117.6 PLOOLRQ?LQVHUYLFHUHYHQXHVWRDWRWDORI ȜPLOOLRQȜPLOOLRQ?HQDEOHG XVWRJHQHUDWHDJURVVSURȴWLQȴVFDO\HDU WKDWDWȜPLOOLRQLVȜPLOOLRQ? higher than the level of the previous year ȜPLOOLRQ?7KHJURVVSURȴWPDUJLQ FDPHWR

Compared with the same period last year, the consolidated EBITDA, one of the most impor tant performance indicators in our business, LQFUHDVHG E\ ȜPLOOLRQ? WR Ȝ PLOOLRQȜPLOOLRQ

'HSUHFLDWLRQ URVH WR Ȝ PLOOLRQ LQ ȴVFDO \HDU SUHYLRXV \HDU ȜPLOOLRQ? \$G MXVWHGIRUWKHDERYHPHQWLRQHGZULWHRVRQ the Phone House goodwill, amortisation and depreciation came to €52.2 million (previous \HDUȜPLOOLRQ

This rise is primarily a consequence of the fol ORZLQJFLUFXPVWDQFHV

» The purchase price allocations previously described in the quarterly reports for your fone and Phone House, for which amorti sation and depreciation were recognized only pro rata temporis from the time of the acquisition in 2015. The resulting amortisa tion and depreciation in 2016 totals €20.7 PLOOLRQSUHYLRXV\HDUȜPLOOLRQ

• » The contribution of Drillisch to the invest ments in network expansion related to the 0%\$0912PRGHODJUHHGZLWK7HOHIµQLFD DQGWKHWUDGHPDUNULJKWVDFTXLUHGLQȴVFDO year 2016, both of which were capitalised as Other intangible assets. The resulting amortisation and depreciation totals €15.0 PLOOLRQSUHYLRXV\HDUȜPLOOLRQ
• » The aforementioned restructuring of Phone House that has been concluded in the amount of €9.2 million, which we de scribe in more detail on pages 42 and 43 of the management report.

The amortisation and depreciation and the val uation allowances did not have a cash impact DQG DHFW QHLWKHU WKH JXLGDQFH QRU WKH GLYL dend disbursement capability of Drillisch AG.

&RQVROLGDWHGSURȴWLQȴVFDO\HDUDPRXQW HG WR ȜPLOOLRQSUHYLRXV \HDU ȜPLO OLRQ?DQG WKHXQGLOXWHGSURȴWSHUVKDUHFDPH WR Ȝ SUHYLRXV \HDU Ȝ? \$GMXVWHG IRU YDOXDWLRQDOORZDQFHVDQGWKHWD[HHFWVUHODW ed to the restructuring of Phone House and the sale of the distribution business, consolidated SURȴWFDPHWRȜPLOOLRQDQGWKHXQGLOXWHG SURȴWSHUVKDUHFRUUHVSRQGLQJO\WRȜ

Based on the positive development in our earn ings position, we generated an operating cash ȵRZRIȜPLOOLRQLQȴVFDO\HDUUHSUH VHQWLQJDQLQFUHDVHRIȜPLOOLRQ?RYHU WKHVDPHSHULRGODVW\HDUȜPLOOLRQ

After disbursement of the dividends in the DPRXQWRIȜPLOOLRQLQ4SUHYLRXV \HDUȜPLOOLRQ?FDVKDQGFDVKHTXLYDOHQWV DWWKHHQGRIWKHȴVFDO\HDUFDPHWRȜPLO OLRQ 'HFHPEHU Ȝ PLOOLRQ? ΖQ FRPELQDWLRQZLWKDWWUDFWLYHȴQDQFLQJRSSRUWX QLWLHV 'ULOOLVFK \$* UHWDLQV DGHTXDWH ȵH[LELOLW\ to expand or supplement its business activities.

Outlook

7KH VXFFHVVIXO FRXUVH RI ȴVFDO \HDU H[ ceeded expected growth in the number of sub scribers pursuant to the continued expansion of the segment Online and the establishment of WKHVHJPHQW2ɞLQH:HZLOOFRQWLQXHRXUVWUDWH gy of investing strongly in subscriber acquisition – whether through the granting of subscriber EHQHȴWV DQGGLUHFWGLVWULEXWLRQFRVWV DHFWLQJ JURVVSURȴWVXFK DVFRPPLVVLRQV IRUGLVWULEX tion and cooperation partners or through gen eral advertising expenditures – in 2017.

Drillisch is in an excellent position for the future. 2XURXWORRNIRUȴVFDO\HDULVRSWLPLVWLFZH expect the number of MVNO customers to con tinue to rise, leading to a parallel continuation of the Company's successful development, and ZHFRQȴUPWKH(%Ζ7'\$IRUHFDVWIRUWKHFXUUHQW \HDURIȜPLOOLRQWRȜPLOOLRQ €120.2 million). Moreover, we expect a steady ULVHLQRSHUDWLQJFDVKȵRZ)RUHVHHDEOHFKDQJ es in earnings and costs such as the recently announced changes in the roaming regulation have been taken into account in these forecasts.

:H ZDQW WR HQVXUH WKDW VKDUHKROGHUV EHQHȴW appropriately from the success of the Company in future as well. Supervisory Board and Man

agement Board propose a rise in the dividend by 5 Cent to €1.80 per dividend entitled share IRUWKHSDVWȴVFDO\HDU:HZRXOGOLNHWR share the Company's success with its share holders in a similar scope (as a minimum) in WKHFRPLQJȴVFDO\HDUVDVZHFRQWLQXHWRSXU sue corporate policies aimed at sustained de velopment.

In conclusion, we would like to take this op portunity to thank our employees expressly and warmly for their continued commitment and their high readiness to perform because dependable collaboration in a spirit of trust is very important for our commercial success. %XWZHDUHDOVRMXVWDVGHHSO\JUDWHIXOWRRXU shareholders, customers and business part ners for the trust they have placed in us.

Best regards from Maintal.

Vlasios Choulidis André Driesen

Marc Brucherseifer 'LSO.IP&RORJQH&KDLUPDQ

of the Supervisory Board of Dear Shareholders, Drillisch AG.

During the reporting period 2016, the Drillisch AG Supervisory Board diligently performed the duties required of its members by law, company charter and rules of procedure. It carefully reviewed and monitored the man agement activities of the Management Board and acted as an advisory body to provide support in the management of the Company. The yardstick for the monitoring function in cluded in particular the legality, correctness, H[SHGLHQF\ DQG HFRQRPLF HɝFLHQF\ RI WKH Management Board's management as well DV WKH SHUIRUPDQFH HHFWLYHQHVV RI WKH ULVN management and the corporate organisation. Moreover, the Supervisory Board closely ex amined the position and development of the Company and Group as well as the business WUDQVDFWLRQVGXULQJȴVFDO\HDU7KH0DQ agement Board immediately involved the Su pervisory Board in any and all decisions which ZHUHRIIXQGDPHQWDOVLJQLȴFDQFHIRU'ULOOLVFK AG or Drillisch Group.

The activities of the Supervisory Board were based on the reports regularly submitted oral ly and in writing by the Management Board regarding the development of the Company's EXVLQHVVDQGLWVFRPPHUFLDODQGȴQDQFLDOSR sition; its strategic further development and corporate planning; its risk position and risk PDQDJHPHQWDQGWKHSURȴWDELOLW\RI'ULOOLVFK Group. The Management Board addressed any deviations in the course of business from existing plans and targets and explained the causes of the deviations. The Supervisory Board regularly obtained written and oral in formation from the Management Board, in particular monthly reports and special infor mation bulletins, about ongoing business de velopment and important business incidents during the periods between Supervisory Board meetings as well. The full membership of the Supervisory Board examined and discussed in detail business incidents, especially those of PDMRU VLJQLȴFDQFH IRU WKH &RPSDQ\ RQ WKH basis of the Management Board's reports; this ZDV H[SOLFLWO\ WKH FDVH IRU PHDVXUHV VXEMHFW to the consent of the Supervisory Board and IRUWUDQVDFWLRQVZKLFKVWURQJO\DHFWHGSURI itability and liquidity. The Supervisory Board carefully examined the submitted reports for plausibility and, as necessary, discussed them in detail with the Management Board. In addi tion, the Supervisory Board requested supple mentary information from the Management Board. In particular, the Management Board attended Supervisory Board meetings for the purpose of discussing and answering all ques tions posed by the Supervisory Board. The Supervisory Board chairperson was in regular contact with the Management Board outside of Supervisory Board meetings as well and ob tained information about the current business SRVLWLRQDQGPDMRUEXVLQHVVLQFLGHQWVZKLFK he discussed in detail with the Management Board. The Supervisory Board chairperson and the Management Board also regularly dis cussed strategic issues and risk management issues, the risk position, planning and compli ance.

Supervisory Board activities, meetings

A total of nine meetings of the full Superviso ry Board were held during the reporting pe riod 2016. The members attended six meet ings (on 23 March 2016, 11 May 2016, 19 May 2016, 10 August 2016, 9 November 2016 and 12 November 2016) and three meetings were held in the form of phone conferences (on 16 June 2016, 30 June 2016 and 31 October 2016). Moreover, two resolutions were adopt ed outside of Supervisory Board meetings during the reporting period 2016 (on 1 Febru ary 2016 regarding the approval of the acqui VLWLRQRIWKHUHPDLQLQJVKDUHVLQ*7&RP GmbH, Dusseldorf and on 5 October 2016 regarding the approval of an advisory agree ment entered into between Drillisch AG and Mr Paschalis Choulidis).

The most important point of the Supervisory Board activities in the reporting period con cerned the consultations related to, and adop tion of, resolutions regarding the status of the Company as MBA MVNO (mobile bitstream access) as well as the measures and transac tions executed so far in this context. The Su pervisory Board particularly supervised the integration of the The Phone House Compa nies, the conclusion of a further amendment DJUHHPHQWZLWK 7HOHIµQLFD DQG WKH VWDWXV RI the yourfone shop chain respectively the of ȵLQHEXVLQHVVΖQWKLVUHJDUGWKH6XSHUYLVRU\ Board approved the selling of the sales busi ness of The Phone House Telecom GmbH to DeinHandy GmbH, the acquisition of the re PDLQLQJVKDUHVLQ*7&RP*PE+DVZHOO as changes in the management of The Phone House Deutschland GmbH. Furthermore, the Supervisory Board intensively engaged in the strategic further development of Drillisch Group. Here, the Supervisory Board among others particularly discussed with the Man agement Board cooperation opportunities of Drillisch Group, the status of activities and FRRSHUDWLRQV RI 0RELOH 9HQWXUHV *PE+ LQ cluding management issues, as well as sever DOPDUNHWLQJPHDVXUHV7KHVHVXEMHFWVZHUH the focal points of deliberations in a total of six Supervisory Board meetings during the reporting period; in the other meetings, the Board also received information regarding WKH FXUUHQW VWDWXV RI WKH RɞLQH DQG RQOLQH segments.

Furthermore, the Supervisory Board ad GUHVVHGVHYHUDOLQGLYLGXDOVXEMHFWVZKLFKLQ clude the appointment of Mr Vlasios Choulidis as new board spokesman and the conclusion of an advisory agreement with Mr Paschalis &KRXOLGLVZKRUHVLJQHGZLWKHHFWRI-XQH 2016 as member and spokesman of the Man agement Board. The Supervisory Board also addressed the variable remuneration of the 0DQDJHPHQW %RDUG IRU ȴVFDO \HDU DQG approved agreements concluded between Di D/2*Ζ.D*PE+DFRPSDQ\UHODWHGWR6XSHU visory Board member Dr. Bernd H Schmidt, DQG'ULOOLVFK\$*UHVSHFWLYHO\Ζ42SWLPL]H6RIW ware AG as well a change to the Supervisory %RDUG RI Ζ42SWLPL]H 6RIWZDUH \$* ΖQ DGGL tion, the Supervisory Board, in consultation with the Personnel Committee, discussed the executive situation within the Group.

In addition, the Supervisory Board regularly received information about key points con cerning the commercial development and position of the Company and the Group, es

SHFLDOO\WKHGHYHORSPHQWRIVDOHVDQGSURȴWV the development in the number of subscrib HUV WKH JURVV SURȴW LQGLFDWRUV WKH \$*338 DYHUDJHJURVVSURȴWSHUXVHU?DQGWKHOLTXLG ity position and development as well as the Management Board's planning and discussed these matters with the Management Board in consideration of current market changes. In particular, the Supervisory Board examined LQ GHWDLO WKH VHSDUDWH ȴQDQFLDO VWDWHPHQWV for every quarter, discussed a more stringent separation of audit and advisory services of the auditor and resolved on the tendering of WKHDXGLWPDQGDWHIRUȴVFDO\HDU

Supervisory Board activities focused as well on the reporting from the committees, in particular from the Audit Committee and the Personnel Committee, and the monitoring of the risk management, the risk analysis and documentation of the risk control system. At this time, the Supervisory Board reviewed the composition of the committees, discussed the reporting of the Management Board to the Supervisory Board as well as measures to as VHVVWKHHɝFLHQF\RIWKH6XSHUYLVRU\%RDUGȇV work. Furthermore, the Supervisory Board DQG0DQDJHPHQW%RDUGMRLQWO\GHOLEHUDWHGRQ the cooperation of the governing bodies.

In addition, the Supervisory Board considered WKHDFFRXQWLQJ IRUȴVFDO\HDUWKHDXGLW of the annual accounts 2015, the Annual Gen eral Meeting 2016 (including the proposal for WKHDSSURSULDWLRQRISURȴWVIRUVXEPLVVLRQWR the Annual General Meeting), the Declaration RQ&RUSRUDWH0DQDJHPHQWDQGWKHMRLQW'HF laration of Conformity, and the Supervisory %RDUGUHSRUWIRUȴVFDO\HDU

The Supervisory Board has set up a total of WKUHH FRPPLWWHHV WKH \$XGLW &RPPLWWHH WKH Personnel Committee and the Nominating Committee.

The Personnel Committee of the Supervisory Board, whose members are Mr Marc Bruch erseifer (committee chair), Dr Susanne Rück ert (deputy committee chair) and Dr Horst Lennertz, held one meeting with the mem EHUVSUHVHQWLQȴVFDO\HDURQ)HEUXDU\ 2016). At this meeting the Personnel Commit tee discussed and appraised the Management Board's work and its membership as well as WKH ORQJWHUP VXFFHVVLRQ SODQQLQJ IRU WKH Management Board, taking into account the executive planning of the Company.

The Audit Committee of the Supervisory Board, whose members are Mr Frank Rothauge (committee chair), Dr Bernd H Schmidt and Dr Horst Lennertz, held four meetings with mem bers present during the reporting period (on 15 March 2016, 19 May 2016, 10 August 2016 and 9 November 2016). Moreover, one resolu tion was adopted outside of Audit Committee meetings during the reporting period 2016 (on 28 December 2016 regarding the services supplementary to the audit rendered by BDO AG Wirtschaftsprüfungsgesellschaft). The Au dit Committee monitored the accounting and WKH DFFRXQWLQJ SURFHVV WKH HɝFLHQF\ RI WKH internal control system with a special focus on the improvement potential at The Phone +RXVHDVZHOODVWKHHɝFLHQF\RIWKHULVNPDQ agement system and the compliance system established at the Company. The most impor tant point of the Audit Committee's activities formed the audit of the annual accounts 2015 and the audit review of the group half year re port 2016. Furthermore, the Audit Committee inter alia reviewed the independence of the auditor, discussed the supplementary servic es of the auditor, made a recommendation for WKH UH?HOHFWLRQ RI WKH DXGLWRU IRU DQG engaged in respect of the key audit issues for the annual audit 2016, the audit remuneration

agreements for 2016 and 2017 and the ten dering of the audit mandate for 2018. Finally, the Audit Committee intensively supervised the risk management system of Drillisch AG.

The Nomination Committee, whose mem bership includes all of the Supervisory Board PHPEHUVFKDLU0U0DUF%UXFKHUVHLIHU?PHW once during the reporting period (on 23 March 2016) and addressed, as required by the Com pany's Articles of Association, the election of Mr Norbert Lang as Supervisory Board mem ber (who was appointed by the Hanau Local Court before) as well as the composition of the Supervisory Board.

Personnel changes on the Management Board and Supervisory Board

Regarding the Management Board, Mr Pas chalis Choulidis on 23 March 2016 resigned as member and spokesman of the Management %RDUGRI'ULOOLVFK\$*ZLWKHHFWRI-XQH for private reasons. Against this background, the Supervisory Board in its meeting on 23 March 2016 appointed Mr Vlasios Choulidis as spokesman of the Management Board as of 1 July 2016 and changed the allocation of the responsibilities in the light of the resigna tion of Mr Paschalis Choulidis. The Manage ment Board is thus currently composed of Mr Vlasios Choulidis and Mr André Driesen. The Supervisory Board for the time being did not amend the Management Board due to its proven composition, which means that the proportion of women in the Management %RDUGLVVWLOOEXWLQOLQHZLWKWKHREMHFWLYHV set. Furthermore, the Supervisory Board on 5 October 2016 approved the conclusion of an advisory agreement between Drillisch AG and Mr Paschalis Choulidis. Regarding the Super visory Board, the shareholders meeting on 19 May 2016 elected Mr Norbert Lang as Supervi sory Board member for the remaining term of former Supervisory Board member Mr Johann Weindl (Section 10 (3) of the Company's Arti FOHVRI\$VVRFLDWLRQ?7KHWHUPVRIRɝFHRIWKH other Supervisory Board members (Mr Marc Brucherseifer, Dr Susanne Rückert, Dr Horst Lennertz, Mr Frank Rothauge and Dr Bernd H Schmidt) remain unchanged. They were elect HGRQ0D\IRUDWHUPRIRɝFHODVWLQJ until the closing of the Annual General Meet ing that adopts a resolution discharging them IRUȴVFDO\HDU7KH6XSHUYLVRU\%RDUGLQ accordance with Section 96 (1), Section 101 (1) AktG and Section 10 (1) of the Company's Ar ticles of Association, is thus composed of six members who are to be elected by the share holders meeting and complies with the target HGFRPSHWHQFHSURȴOHLQSDUWLFXODUWKHUHDUH at least two independent Supervisory Board members as Mr Frank Rothauge and Dr Su sanne Rückert particularly did not previously engage in the management of the Group, do not maintain any business relationship with the Company and its group companies and do not represent any material shareholders. The proportion of women in the Supervisory %RDUGRILVDOVRLQOLQHZLWKWKHWDUJHW REMHFWLYH7KH6XSHUYLVRU\%RDUGZDVFKDLUHG again in the reporting period 2016 by Mr Marc Brucherseifer; deputy chair of the Supervisory Board was Dr Susanne Rückert.

Annual accounts and consolidated annual accounts

The annual accounts and the consolidated annual accounts per 31 December 2016, the management reports for the stock corpora WLRQDQGWKH*URXSIRUȴVFDO\HDULQFOXG ing the explanatory report on the information pursuant to Section 289 (4) and Section 315 (4) HGB [German Commercial Code]), were prepared and submitted on time by the Man agement Board, and the accounting and risk management system were examined by BDO

\$* :LUWVFKDIWVSU¾IXQJVJHVHOOVFKDIW WKH ȴUP appointed by the Annual General Meeting to EH WKH DXGLWRUV DQG FHUWLȴHG E\ DQ XQTXDOL ȴHGDXGLWRUȇVRSLQLRQ

The separate annual accounts and the con solidated annual accounts, the management report and consolidated management report and the relevant audit reports from the audi tor were submitted to all members of the Su pervisory Board. Focal points of the audit en gagement to the auditor included in particular the internal controlling system regarding The Phone House, the consequences of the Bilan ]ULFKWOLQLH8PVHW]XQJVJHVHW] %LO58*? LQ WKH accounts under HGB [German Commercial Code], impairment test regarding goodwill and intangible assets (group accounts) and investment book values (individual accounts) as well as the valuation of deferred tax assets, the revenue recognition and the audit of the completeness of the restructuring reserve for 7KH3KRQH+RXVHDQGWKHVSLQRDQGVDOHRI the The Phone House sales business. The clos LQJGRFXPHQWVZHUHȴQDOO\JRQHWKURXJKDQG discussed during a meeting of the Audit Com mittee on 14 March 2017 in the presence of the auditor. At that time, the auditor reported RQWKHPRVWVLJQLȴFDQWUHVXOWVRIKLVDXGLWDQG explained the results; he also gave detailed answers to questions posed by the members of the Audit Committee. This discussion re volved in particular around the results of the DXGLW UHODWHG WR WKH GHȴQHG IRFDO SRLQWV RI the audit and the accounting process. The in ternal controlling system, the risk report and the risk management system were intensively discussed with the auditors in the meeting of the Audit Committee on 10 August 2016. Con

cerning the Company's system for the early detection of risks, the auditor determined that the Management Board had appropriately taken measures required pursuant to Section 91 (2) AktG, especially for the installation of a monitoring system, and that the monitoring system is suitable for the early detection of developments that could threaten the contin ued operation of the Company. Following its own audit, the Supervisory Board agreed with the audit results concluded by the auditor DQG DIWHU FRQVLGHULQJ WKH ȴQDO UHVXOWV RI LWV own audit, which were prepared by the Super visory Board Audit Committee, does not raise DQ\REMHFWLRQVΖQDUHVROXWLRQDGRSWHGGXULQJ its meeting on 22 March 2017, the Superviso ry Board approved the annual accounts and consolidated annual accounts 2016. The an nual accounts have therefore been adopted pursuant to Section 172 AktG.

During the Supervisory Board meeting on 22 March 2017, Management Board and Supervi VRU\%RDUGDGRSWHGDMRLQWUHVROXWLRQWRSUR pose the disbursement of a dividend in the amount of €1.80 per share to the Annual Gen eral Meeting. The dividend proposal is in line with the previous dividend strategy to allow the shareholders a maximum possible partic LSDWLRQLQWKHSURȴW7KH&RPSDQ\ȇVSRVLWLRQ VSHFLȴFDOO\LWVȴQDQFLQJDQGFDSLWDOVWUXFWXUH was discussed and reviewed at that time.

Corporate governance

None of the Supervisory Board members par ticipated in fewer than half of the Supervisory Board meetings during the reporting period. Except for the Supervisory Board meeting on 9 November 2016, at which Supervisory Board member Mr Norbert Lang was excused, all

members took part in the total of nine Super visory Board meetings. All committee mem bers also part in each of their respective com mittee meetings.

The Supervisory Board regularly reviewed FULWLFDOO\WKHHɝFLHQF\RILWVZRUNQDPHO\WKH availability of the Supervisory Board mem bers, the frequency of its meetings and the preparation and conduct of the meetings and their minutes. The Supervisory Board con FOXGHGWKDWLWVSHUIRUPDQFHLVHɝFLHQW

The Supervisory Board did not conduct any investor talks.

1R FRQȵLFWV RI LQWHUHVW ZLWKLQ WKH VHQVH RI Clause 5.5.3 of the Corporate Governance Co dex arose during the reporting period.

Management Board and Supervisory Board report on corporate governance pursuant to Clause 3.10 of the German Corporate Govern ance Codex within the context of the Decla ration on Corporate Management. During the reporting period, Management Board and Su SHUYLVRU\%RDUGVXEPLWWHGDMRLQW'HFODUDWLRQ of Conformity pursuant to Section 161 AktG, most recently on 21 March 2017, which by and large followed the recommendations of the German Corporate Governance. The declara tions and related explanatory comments are permanently available to the shareholders on the Company's internet site. In all other re spects, reference is made here to the remarks in the corporate governance report included in the Annual Report 2016.

The Supervisory Board wishes to express its thanks to the members of the Management Board and to all of the Company associates for their successful work for, and commitment WR'ULOOLVFK*URXSLQWKHSDVWȴVFDO\HDUDVLQ the years before. Our special thanks go to our customers and shareholders for the trust they have placed in the Company.

Maintal, 22 March 2017 On behalf of the Supervisory Board

0DUF%UXFKHUVHLIHU'LSO.IP Chairperson of the Supervisory Board 0 % K LI 'L O .I

The term "corporate governance" refers to re VSRQVLEOH HHFWLYH FRUSRUDWH PDQDJHPHQW DLPHGDWVHFXULQJORQJWHUPDGGHGYDOXH(ɝ cient cooperation between management and VXSHUYLVRU\ ERDUGV UHVSHFW IRU VKDUHKROGHUVɒ interests, openness and transparency of cor SRUDWH FRPPXQLFDWLRQV DUH PDMRU DVSHFWV RI good corporate governance, which has always HQMR\HGDSRVLWLRQRIKLJKSULRULW\DW'ULOOLVFK\$* DQGLVDPDMRUIDFWRUIRUDFRPSDQ\ VVXFFHVV

In the following declaration, both, the Manage ment Board and the Supervisory Board, reports on the corporate governance of the Company in accordance with Clause 3.10 of the German &RUSRUDWH*RYHUQDQFH&RGH['&*.?DVZHOODV in accordance with Section 289a HGB [German Commercial Code] regarding corporate man agement.

Declaration of Conformity pursuant to Section 161 AktG [Germany Company Law]

The most recent Declaration of Conformity is sued by the Management Board and Supervi sory Board on 21 March 2017, which has been made permanently accessible on the internet at the site www.drillisch.de (to be found there under the section "Corporate Governance", subsection "Declaration of Conformity"), reads DVIROORZV

Drillisch Aktiengesellschaft

Declaration of the Management Board and Supervisory Board of Drillisch AG regarding the recommendations of the "Government Commission German &RUSRUDWH*RYHUQDQFH&RGH[ȋ pursuant to Section 161 AktG

Management Board and Supervisory Board of Drillisch AG hereby declare that the Company has acted, and continues to act, in conformity with the recommendations of the "Govern ment Commission German Corporate Gov

ernance Codex" announced by the Federal 0LQLVWU\RI-XVWLFHLQWKHRɝFLDOVHFWLRQRIWKH )HGHUDO *D]HWWH VXEMHFW WR WKH IROORZLQJ H[ ceptions. This declaration is made pursuant to WKH&RGH[DVUHYLVHGRQ0D\

Clause 3.8 (2) and (3)

\$JUHHPHQW RI DQ H[FHVV IRU 6XSHUYLVRU\ Board members in a D&O insurance policy for the Supervisory Board

The Company has concluded a liability insur ance policy covering pecuniary loss along with an excess of loss agreement for the Superviso ry Board which does not include an excess.

The Management and Supervisory Boards of Drillisch AG do not believe that the motivation DQGVHQVHRIUHVSRQVLELOLW\RIWKHRɝFHUVDQG directors would be enhanced by the agreement of an excess. Equally, the Management and Su pervisory Boards at Drillisch AG fear that there is a risk that the agreement of an excess for negligent actions and the related liability risks ZRXOGFRXQWHUDFWWKHHRUWVRI'ULOOLVFK\$*WR REWDLQWKHVHUYLFHVRIKLJKO\TXDOLȴHGSHUVRQV to serve on the Supervisory Board. This is the reason for the decision not to agree to an ex cess.

Clause 4.2.3 (3)

*Determination of a pension level target when making pension commitments, giving due consideration to the annual and long-WHUPH[SHQVHVIRUWKH&RPSDQ*

The agreements with the Management Board members regarding company pensions were concluded in part before the entry into ef fect of the above recommendation; the Su pervisory Board has not issued any pension commitments since the entry into force of the above recommendation. It cannot be deter mined from the Codex whether this recom mendation requires the Supervisory Board to make any determinations when no decisions regarding pensions have been made. We are

therefore, as a precaution, declaring an ex FHSWLRQWRWKLVUHFRPPHQGDWLRQMXVWDVLQWKH SUHYLRXV \HDUV 7KH SHQVLRQ EHQHȴWV IRU WKH Management Board members are oriented WRFRQWULEXWLRQV'HȴQHGFRPSRQHQWVRI WKH salary are contributed to a pension fund as deferred compensation. There has been no GHȴQLWLRQ RI D FRQFUHWH SHQVLRQ OHYHO WDUJHW Nevertheless, the Supervisory Board can ob WDLQDVXɝFLHQWO\SUHFLVHSLFWXUHRIWKHDQQXDO DQGORQJWHUPH[SHQVHVIRUWKH&RPSDQ\RQ the basis of the contractual provisions.

Clause 5.4.6 (1) second sentence Inclusion of the membership on committees in determining the compensation paid to Supervisory Board members

In accordance with Section 14 of the Drillisch AG Company Charter, an attendance fee is paid to Supervisory Board members for their activities on committees; the amount of the fee is dependent on the function of the spe FLȴFPHPEHURQWKHUHOHYDQWFRPPLWWHH7KH Supervisory Board at Drillisch AG is of the opinion that this compensation system gives due regard to the chairmanship of and mem bership on the committees within the sense of the Codex. The special compensation for attendance at committee meetings simultane ously takes the committee membership into account. But since the possibility that other opinions will be held in this respect cannot be excluded, a deviation from the aforemen tioned recommendation of the Codex is here by declared as a precautionary measure.

Maintal, 21 March 2017

On behalf of the Supervisory Board Marc Brucherseifer, Dipl.-Kfm.

The Management Board Vlasios Choulidis André Driesen

Targets for the composition of the Supervisory Board

In accordance with Clause 5.4.1 of the German Corporate Governance Codex, the Drillisch \$* 6XSHUYLVRU\ %RDUG GHȴQHG WKH IROORZLQJ targets for its composition, and these targets were given due consideration during the elec tion of the complete Supervisory Board by the Annual General Meeting 2013 and during the E\HOHFWLRQRID6XSHUYLVRU\%RDUGPHPEHUE\ WKH2UGLQDU\$QQXDO*HQHUDO0HHWLQJ

• » The Supervisory Board should include at least two industry representatives from the sectors telecommunications, media and/ RU Ζ7 \$W WKLV WLPH ȴYH 6XSHUYLVRU\ %RDUG members have relevant industry knowl edge, namely Messrs Marc Brucherseifer 'LSO.IP? 1RUEHUW /DQJ +RUVW /HQQHUW] 'UΖQJ?DQG)UDQN5RWKDXJH'LSO.IP?LQ the telecommunications sector and Messrs 0DUF %UXFKHUVHLIHU 'LSO.IP? DQG 'U Bernd H Schmidt in the IT sector.
• » The Supervisory Board should have at least one member with international experience HJLQWKHVHFWRUȴQDQFLDOHQJLQHHULQJWHOH communications, M&A). All members of the 6XSHUYLVRU\%RDUGIXOȴOWKHVHWDUJHWFULWHULD
• » No more than two former members of the Management Board should belong to the Supervisory Board. This target criterion is also met because only Mr Marc Brucherseif HU'LSO.IP?ZDVDFWLYHDVD0DQDJHPHQW Board member and CEO before his election to the Supervisory Board. Furthermore, the Supervisory Board members should reveal immediately to the Supervisory Board any FRQȵLFWV RI LQWHUHVW ZKLFK KDYH FXUUHQW ly arisen and, in the event of a permanent FRQȵLFWRILQWHUHVWUHVLJQWKHLUSRVLWLRQRQ the Supervisory Board.
• » The Supervisory Board should have at least two members who do not have a personal or commercial relationship to the Compa

Q\ LWV RɝFHUV DQG GLUHFWRUV D FRQWUROOLQJ VKDUHKROGHURUDFRPSDQ\DɝOLDWHGZLWKWKH ODWWHUZKLFKFDQOHDG WRDPDMRUFRQȵLFWRI interest which is not only temporary. In the estimation of the Supervisory Board, at least WZRPHPEHUVDUHLQGHSHQGHQW'U6XVDQQH 5¾FNHUWDQG0U)UDQN5RWKDXJH'LSO.IP

• » Supervisory Board members should resign from the Supervisory Board upon conclu sion of the Annual General Meeting follow ing their 75th birthday. This target criterion is also observed.
• » At least one member of the Supervisory Board should be a woman. This target cri WHULRQLV IXOȴOOHGE\ WKHPHPEHUVKLSRI'U Susanne Rückert on the Supervisory Board.

In addition, the Supervisory Board set targets for the proportion of women on the Superviso ry Board – and Management Board – pursuant WR6HFWLRQ?ȴUVWVHQWHQFH\$NW*LQȴVFDO year 2015 and determined a target for the pro portion of women on the Supervisory Board of DQG IRU WKH SURSRUWLRQ RI ZRPHQ RQ WKH 0DQDJHPHQW %RDUG RI ΖQGHSHQGHQW ly of these decisions, the selection of the po tential members of the boards, while taking these targets for the proportion of women into account, should always be based on the indi YLGXDOFRPSHWHQFHSURȴOHVRI WKHFDQGLGDWHV nevertheless, the Supervisory Board will strive to give preference to women candidates when HYHU WKH TXDOLȴFDWLRQV RIPXOWLSOH FDQGLGDWHV are equivalent. Furthermore, the Superviso ry Board has established a general limit of a maximum of 25 years for the total length of membership on the Supervisory Board pursu ant to Clause 5.4.1 of the German Corporate Governance Codex. These target criteria have also been taken into account. The Supervisory %RDUGɒVQRPLQDWLRQVRIFDQGLGDWHVIRUHOHFWLRQ to the Supervisory Board, while taking these goals into account, will continue to be oriented to the welfare of the Company.

Working methods of Management Board and Supervisory Board

The corporate management is based on close, constructive cooperation in a spirit of trust be tween Management and Supervisory Boards DV ZHOO DV RQ GHWDLOHG DQG FRQVWDQW ȵRZ RI information – this is in line with the common understanding of good corporate governance held by Management and Supervisory Boards at Drillisch.

The current Management Board has two mem bers. Mr Paschalis Choulidis has resigned from his positions on the Management Board and left the Company for personal reasons. The current members of the Management Board are shown in the consolidated notes (page 103 of the Annual Report 2016). The Management Board established targets for the proportion of women at the two management levels below WKH0DQDJHPHQW%RDUGLQȴVFDO \HDU LQ accordance with Section 76 (4) sentence 1 AktG and determined that the proportion of women at the two management levels below the Man DJHPHQW%RDUGVKRXOGEHZKLFKKDVEHHQ achieved. Currently, the proportion of wom en at the two management levels below the 0DQDJHPHQW %RDUG LV LQ WRWDO 1RWZLWK standing this, potential executives are always to be selected based on their individual com SHWHQFH SURȴOH EXW WKH 0DQDJHPHQW %RDUG will endeavor to give preference to women FDQGLGDWHV LQ FDVHV ZKHUH TXDOLȴFDWLRQV DUH equivalent. The members of the Management Board manage the Company on their own re VSRQVLELOLW\ DQG GHȴQH LQ FRQVXOWDWLRQ ZLWK the Supervisory Board, the strategic direction of Drillisch Group. The distribution of authority on the Management Board is regulated in rules of procedure. Fundamentally, each member of the Management Board manages the Compa ny on his sole authority within the framework of the business units assigned to him by the rules RISURFHGXUH0HDVXUHVRIVSHFLDOVLJQLȴFDQFH or which involve unusual risks always require

the prior agreement of the entire Management Board. The rules of procedure contain in addi WLRQDFDWDORJXHRIWKHPDMRUWUDQVDFWLRQVDQG events which require approval by the Supervi sory Board. The Management Board regularly DQG FRQWHPSRUDQHRXVO\ QRWLȴHV WKH 6XSHUYL sory Board in written and oral form about the FRXUVHRIEXVLQHVVWKHSRVLWLRQDQGSURȴWDELO ity of the Group, the planned business policies and other fundamental issues of corporate planning as well as about transactions which PD\ EH RI PDMRU VLJQLȴFDQFH IRU WKH SURȴWD bility or liquidity of the Group. Moreover, the Management Board reports to the chairperson of the Supervisory Board as required by other important events.

Legal provisions stipulate that the Superviso ry Board must have six members. The current members of the Supervisory Board are shown in the consolidated notes (page 103, item 34 of the Annual Report 2016). Five of the six Supervi sory Board members were elected by the Com pany's Annual General Meeting on 16 May 2013, QDPHO\0DUF%UXFKHUVHLIHU'LSO.IP?'U 6X VDQQH5¾FNHUW+RUVW/HQQHUW]'UΖQJ?)UDQN\$ 5RWKDXJH'LSO.IP?DQG'U%HUQG+6FKPLGW Mr Norbert Lang was elected to the Drillisch AG Supervisory Board by the Annual General Meet ing on 19 May 2016 for the remaining term of the already resigned former member of the su pervisory board, Johann Weindl.

7KH WHUPRIRɝFHRIDOORIWKHFXUUHQW6XSHU visory Board members will end upon the ad MRXUQPHQW RI WKH 2UGLQDU\ \$QQXDO *HQHUDO Meeting which adopts a resolution discharg LQJ WKH6XSHUYLVRU\%RDUGPHPEHUV IRUȴVFDO year 2017. The Board has, in its appraisal, an appropriate number of members who are in dependent within the sense of Clause 5.4.2 of the German Corporate Governance Codex, i.e. who do not have any commercial or personal UHODWLRQVKLS WR WKH &RPSDQ\ LWV RɝFHUV DQG directors, a controlling shareholder or a com SDQ\DɝOLDWHGZLWKWKHODWWHU

The Supervisory Board carries out its duties as a supervisory body both by monitoring the Management Board and by advising the latter's members in the conduct of business. The Su pervisory Board meets at least twice in every FDOHQGDU KDOI\HDU ΖW LV TXRUDWH LI DQG ZKHQ announcements have been properly sent to all of the members and a minimum of three mem bers participate in the adoption of resolutions. Unless otherwise provided by law or company charter, the Supervisory Board's decisions are PDGHE\VLPSOHPDMRULW\ YRWH 7KH 6XSHUYLVR ry Board's working methods are regulated in detail in rules of procedure adopted by the Su pervisory Board. The Supervisory Board reports on the Board's work in a separate Supervisory Board report. This report is printed on pages WR RI WKH \$QQXDO 5HSRUW IRU ȴVFDO \HDU 2016. The names, professions and domiciles of the current Supervisory Board members and their membership on other supervisory boards formed in accordance with legal requirements and on comparable domestic and foreign gov erning bodies of commercial enterprises are listed on page 103, item 34 of the consolidated notes.

Working methods and composition of the committees

The Supervisory Board has formed three com mittees, namely, a Nominating Committee, an Audit Committee and a Personnel Committee. The Audit Committee has adopted its own rules of procedure. Moreover, unless otherwise mandated by legal provisions, the provisions of the Company Charter applicable to the Super visory Board as well as the Supervisory Board's rules of procedure apply mutatis mutandis to this and to all other committees.

The Nominating Committee comprises all of the members of the Supervisory Board, is chaired by the Supervisory Board chairperson, and is responsible for proposing suitable candidates to the Supervisory Board for the latter's elec tion proposals to the Annual General Meeting.

The Audit Committee consists of Mr Rothauge (chairperson), Dr Lennertz and Dr Schmidt and is concerned in particular with the monitoring RIWKHDFFRXQWLQJSURFHVVWKHHHFWLYHQHVVRI the internal controlling system, the internal risk management system, the internal auditing sys WHPDQGWKHȴQDODXGLW7KHFKDLUSHUVRQRIWKH Audit Committee is independent and, owing to his previous professional activities, is also qual LȴHGDVDQDXWKRULW\LQWKHȴHOGRIDFFRXQWLQJ

The members of the Personnel Committee are 0U %UXFKHUVHLIHU 'LSO.IPFKDLUSHUVRQ? 'U /HQQHUW] DQG 'U 5¾FNHUW YLFHFKDLUSHUVRQ? The Personnel Committee is concerned with WKHDDLUVRIWKH0DQDJHPHQW%RDUGLQFOXGLQJ the terms and conditions of their employment contracts. The compensation for the Manage ment Board members is determined by the Supervisory Board acting in its entirety as re quired by statutory provisions.

Since there are two members of the Manage ment Board, it has not formed any committees.

Information regarding corporate management practices within the sense of Section 289a (2) no. 2 HGB– Risk management/Compliance

If the Company's success is to be assured over the long term, it is essential to identify and ana O\VHWKHULVNVRIEXVLQHVVDFWLRQVHHFWLYHO\DQG WRHOLPLQDWHRUUHVWULFWWKHLUHHFWVE\PHDQVRI the appropriate steering mechanisms. The risk management system at Drillisch ensures the responsible handling of these risks. It is espe cially designed with the aim of recognising risks early, then assessing and controlling them. The V\VWHPLVVXEMHFWWRFRQVWDQWIXUWKHUGHYHORS ment and adapted to changing circumstances. As necessary, the Management Board regular ly reports to the Supervisory Board regarding current risks and the measures initiated to KDQGOHWKHP7KHHHFWLYHQHVVRIWKHLQWHUQDO controlling system and of the risk management system – as well as the internal risk reporting – is monitored by the Supervisory Board's Audit Committee.

7KH PDMRU IHDWXUHV RI WKH LQWHUQDO FRQWUROOLQJ and risk management system with regard to the accounting process are described in detail in the management report pursuant to Section 289 (5) HGB and in the consolidated management re port (page 48 and 49 of the Annual Report 2016) pursuant to Section 315 (2) no. 5 HGB. The Man agement Board also reports in detail in this doc ument on current risks and their development.

Compliance is an important element of the management and corporate culture at Drillisch Group. For Drillisch AG, compliance encom passes the totality of all measures and actions aimed at ensuring conformity with legal stat utes and regulations as well as with the Com SDQ\ȇVRZQLQKRXVHVWDQGDUGVSULQFLSOHVDQG rules. In the eyes of Drillisch AG, conduct that is legally and ethically beyond reproach lays the JURXQGZRUN IRU DOO ORQJWHUP FRPSDQ\ VXF cess. To this end, the Management Board has implemented a compliance management sys tem that begins with, and builds on, a central compliance directive. The compliance directive DSSOLHVWRDOORIWKHRɝFHUVGLUHFWRUVDQGHP ployees of Drillisch Group and ensures that the values system is consistently and continuously lived across the full breadth of the Company.

.H\ HOHPHQWV RI WKH FRPSOLDQFH GLUHFWLYH concern a fair, respectful and trustworthy ap proach when dealing with colleagues and busi ness partners as well as the conduct displayed toward competitors. Bribery and corruption are not tolerated at Drillisch AG; the compli ance directive unambiguously realises this at titude through appropriate prohibitions and instructions. Violations of compliance require ments are unacceptable for us. We rigorously follow up on any indications of violations and REWDLQ FODULȴFDWLRQ RI WKH URRW FDXVHV:KHQ ever any violations are determined, they are

LPPHGLDWHO\UHFWLȴHGDQGLIQHFHVVDU\VWULFWO\ sanctioned as appropriate.

Compensation of Management Board and Supervisory Board

The compensation paid to members of the Man agement and Supervisory Boards is commensu rate with their tasks and the responsibility which has been assigned to them. The compensation system and the compensation paid to Manage PHQWDQG6XSHUYLVRU\%RDUGVLQȴVFDO\HDU are shown in the management report and notes and in the consolidated management report on pages 53 to 56 of the Annual Report 2016 (com pensation report) and in the consolidated notes ob Page 104, item 36 of the Annual Report.

5HSRUWDEOHWUDQVDFWLRQVZLWKȴQDQFLDOLQVWUX-PHQWVDQGKROGLQJVRIRɝFHUVDQGGLUHFWRUV

2ɝFHUV DQG GLUHFWRUV RI 'ULOOLVFK \$* LQ WKHLU role as persons who exercise management functions as well as persons in close relation ship to these people are obligated to disclose to the Company (and to BaFin [German Feder al Financial Supervisory Authority]) their own transactions with stock or debt securities of 'ULOOLVFK\$*RUDQ\ȴQDQFLDOLQVWUXPHQWVUHODW ed thereto if and when the total amount of the transactions carried out by a person obligated to reporting amounts to or exceeds a total of €5,000 within one calendar year.

7KHIROORZLQJWUDQVDFWLRQVZLWKȴQDQFLDOLQVWUXPHQWVZHUHUHSRUWHGWR'ULOOLVFK\$*LQȴVFDO\HDU 2016:

Date	Financial instrument	Type of transaction	Shares	Price/€	Reporting person
22/01/2015	Stock	Sale	2,407	25.67	H Lennertz, Supervisory Board
24/03/2016	Stock	Purchase	12,000	39.43	P Choulidis, Management Board
24/03/2016	Stock	Purchase	25,000	39.43	SP Beteiligungs GmbH, Management Board
18/04/2016	Stock	Purchase	10,000	34.33	P Choulidis, Management Board
19/04/2016	Stock	Purchase	15,000	34.89	MV Beteiligungs GmbH, Management Board
21/04/2016	Stock	Purchase	20,000	36.05	P Choulidis, Management Board

7KHVWRFNKROGLQJVRIRɝFHUVDQGGLUHFWRUVWKDWDUHWREHUHSRUWHGSXUVXDQWWR&ODXVHRIWKH *HUPDQ&RUSRUDWH*RYHUQDQFH&RGH[DUHVKRZQEHORZ

Directors' Holdings per 31/12/2016

3HUWKH0DQDJHPHQW%RDUGPHPEHUVFXUUHQWO\LQRɝFHKHOGWKHIROORZLQJVWRFNLQ'ULOOLVFK\$*

Management Board	Shares
Vlasios Choulidis	QRSDUVKDUHV
MV Beteiligungs GmbH	QRSDUVKDUHV

At the time of his withdrawal from the Management Board (30/06/2016), Mr Paschalis Choulidis held directly 467,000 QRSDUVKDUHVLQ'ULOOLVFK\$*3HUQRSDUVKDUHVRI'ULOOLVFK\$*ZHUHLQGLUHFWO\DWWULEXWDEOHWRKLP via SP Beteiligungs GmbH.

The Supervisory Board members held the following stock in Drillisch AG as per 31/12/2016:

Supervisory Board	Shares
0DUF%UXFKHUVHLIHU'LSO.IP	QRSDUVKDUHV
Maintal, 21 March 2017

Drillisch AG | Annual Report 2016

21

THE DRILLISCH GROUP AND THE MARKET ENVIRONMENT

• 23 Provider of innovative voice and data rate plans on Germany's largest mobile services network
• 24 Data revenues and data volume growing steadily
• 0RELOHGDWDWUDɝFDFFRUGLQJWRDSSOLFDWLRQ
• 26 The smartphone assistant and companion for everyday life
• 27 New technology 5G poised for launch/Positive outlook for software industry

Provider of innovative voice and data rate plans on Germany's largest mobile services network

Drillisch Group and the market environment

Drillisch has been a driving force on the Ger man mobile services market for many years, pioneering innovative voice and data rate plans for smartphone and tablet users. Thanks to management's many years of experience, the strong commitment of the associates to performance and its lean cost structures, the Company has been able to realise successfully its corporate strategy even in this highly com petitive market environment and to increase corporate value over the long term. The early decision to focus on groundbreaking market GHYHORSPHQWVLVDQRWKHUPDMRUIDFWRUIRURXU success.

The mobile services market in Germany has undergone fundamental change in the last ten years. An innovative mover on the Ger man mobile services market, Drillisch contin ues to generate new trends repeatedly. The Drillisch brand simply, for instance, was the ȴUVW SURYLGHU RQ WKH *HUPDQPRELOHPDUNHW WR RHUPRELOH FXVWRPHUV D FKRLFH EHWZHHQ WKH \HDU FRQWUDFWV WKDW ZHUH WKH QRUP DW that time and a new product with contracts that could be terminated from one month to the next. From Drillisch's perspective, the SURSRVLWLRQWKDWWKHRHURIDIDLUUDWHZLWKRXW the usual contract term of 24 months would lead to higher customer loyalty in most cases has proved to be true.

ΖQWKHDJHRIWKHPRELOHLQWHUQHWVLPSOHORZ price and powerful access to mobile data net works with data volume oriented to each indi YLGXDOȇV VSHFLȴF QHHGV DQG D IDVW FRQQHFWLRQ DUHWKHPDMRUFULWHULDGHWHUPLQLQJFXVWRPHUVȇ decisions when selecting a rate plan and pro vider.

In this constantly changing market environ ment, Drillisch, being the only MBA MVNO, RHUV FXVWRPHUV WKH ȊEHVW YDOXH IRUPRQH\ȋ – through its established online brands as well DVLQEULFNDQGPRUWDUWUDGH

More mobile lines in Germany, data revenues grow by about 5%

The Federal Network Agency issues quarterly reports on the number of SIM cards in Ger PDQ\RQLWVZHEVLWH7KHVHȴJXUHVVKRZ WKH QXPEHU RI DFWLYH 6Ζ0 FDUGV LQ 4 LQ FUHDVLQJLQFRPSDULVRQZLWK4E\ million to a total now of 128.6 million cards.

One important growth driver for the mobile market is the access to the mobile internet via fast data connections. While total revenue UHPDLQV VWDEOH DW Ȝ ELOOLRQ Ȝ billion), the share of revenues attributable to GDWDVHUYLFHVZLOOULVHE\DERXWIURP LQ WR LQ 7KLVLV WKH FRQFOX sion of the market study conducted by VATM and DIALOG CONSULT that was presented in 2FWREHU7KHSURMHFWLRQLVWKDWUHYHQXHV of €11.8 billion will be realised with data ser YLFHVLQȜELOOLRQ

SMS revenues and mobile internet revenues

Source: DIALOG CONSULT-/VATM-Analysen und Prognosen

9RLFH WUDɝF RQ PRELOH QHWZRUNV LV LQ VOLJKW GHFOLQHIRUWKHȴUVWWLPH:KLOHVDZ million minutes in phone calls from mobile GHYLFHV HYHU\ GD\ WKH FRUUHVSRQGLQJ ȴJXUH for 2016 was only 302 million minutes. During the same period, the landline connections fell

Data revenues and data volume growing steadily

from 405 million to 388 million minutes a day. Calls via the OTT providers, on the other hand, were able to increase substantially. Connec WLRQPLQXWHVXVLQJVRIWZDUHEDVHGWHOHSKRQ\ that is not billed through a connection net work operator (such as Skype, FaceTime or WhatsApp) rose from 231 million minutes in 2015 to 250 million minutes a day in 2016 and utilise the data packages of mobile subscrib ers as well. The trend to OTT connections for YRLFH WUDQVPLVVLRQ LV DOVR FRQȴUPHG E\ WKH annual market study (October 2016) conduct ed by the industry association VATM in collab oration with DIALOG CONSULT.

* Excluding roaming traffic (German SIM cards in foreign networks or foreign SIM cards in German networks)

OTT traffic = Call minutes that are not billed by a line network operator (Skype, FaceTime, vtok and many more) **

Source: DIALOG CONSULT-/VATM-Analysen und -Prognosen

The share in revenue of voice services has GHFOLQHGIURPWR7KHIRUHFDVWDV sumes that revenue in 2016 will fall to €12.7 ELOOLRQ ȜELOOLRQ? 7KH DVVXPSWLRQV in the market study are that revenues from other services such as the sale of devices or content will presumably decrease from €2.1 billion in 2015 to €1.9 billion in 2016.

0RELOHGDWDYROXPHLVH[SHFWHGWRLQFUHDVH by 45% annually up to 2022

The market study from VATM and DIALOG CONSULT assumes a total volume in mobile data of 774 million gigabytes in 2016, corre VSRQGLQJ WR JURZWK RI LQ FRPSDULVRQ with the previous year (591 million GB). The average monthly volume transmitted via a 6Ζ0 FDUG ZLOO ULVH E\ D JRRG WR 0% SUHYLRXV\HDU0%PRQWK?LQWKHHVWLPD tion of industry experts. Fast LTE connections and the data volumes using this technology will continue to drive dynamic growth in the IXWXUH ΖQ PRUH WKDQ RI WKH WRWDO mobile data volume was transmitted via the LTE standard.

Data traffic over wireless networks in Germany

Source: DIALOG CONSULT-/VATM-Analysen und Prognosen

The Mobility Report presented by the network RXWȴWWHU(ULFVVRQEDFNLQ1RYHPEHUDV VXPHVDWHQIROGLQFUHDVHLQPRQWKO\GDWDWUDI

0RELOHGDWDWUDɝFDFFRUGLQJWRDSSOLFDWLRQ

ȴFE\WKH\HDU7KHDYHUDJHGDWDWUDɝF per SIM card will reach 22 GB a month. Total PRELOHGDWDWUDɝFZLOOJURZE\DQDYHUDJHRI DERXWDQQXDOO\DFFRUGLQJWRWKH0RELOLW\ Report. The reasons given for this develop ment are the continuing expansion of perfor mance capability of the devices, the spread of LTE (4G) and the successor technology 5G and WKHXVHRIGDWDLQWHQVLYHDSSOLFDWLRQV

The viewing and sending of videos will lead all other applications and represent a large share RI WKH IXWXUH GDWD WUDɝF (ULFVVRQ SURMHFWV that total worldwide mobile volume will reach 8.5 million gigabytes in 2016. Uploads and downloads of content with moving images al UHDG\KDVDVKDUHRILQWKLVYROXPHWRGD\ In 2022, video content is expected to have a VKDUHRI– about 52 million gigabytes – in WKHPRELOHGDWD WUDɝF WRWDOOLQJPLOOLRQJL gabytes. Along with videos, other applications

Mobile data traffic according to application (annual growth rate in percent)

Source: Ericsson Mobility Report 2016

will contribute to the rise in data quantities, al though not in the same magnitude. The Top 5 ZLWKWKHKLJKHVWDYHUDJHDQQXDOJURZWKUDWHV

Taking and sending videos via social networks and the streaming of video and audio content using mobile devices has become an estab

lished part of internet use in Germany as well. At the time of the leading trade fair Photoki na in the middle of September 2016, Bitkom LVVXHGDSUHVVUHOHDVHQRWLQJ WKDW WZRWKLUGV RI*HUPDQVPDUWSKRQHXVHUV?ȴOPVKRUW videos on their devices and that six of ten us ers share these videos via WhatsApp, Snap chat or Facebook. In addition, more and more people, especially young people, are turning away from classic media. The UAS Fresenius in &RORJQHLQFRRSHUDWLRQZLWKWKH:Ζ.ΖQVWLWXWH (Wissenschaftliches Institut für Infrastruktur und Kommunikationsdienste), presented a study at WKHEHJLQQLQJRI\$XJXVWLQZKLFKRI WKHWR\HDUROGVVWDWHWKDWWKH\KDGQRW watched television in the last six months. In FRQWUDVWZDWFKHGYLGHRFRQWHQWRQWKHLU ODSWRSV3&V RQ WKHLU VPDUWSKRQHV DQG RQWDEOHWV

Eight out of ten Germans use internet-capable smartphones

Messenger apps are far and away the most important functions for smartphone users. In a survey conducted by TNS Infratest on behalf RI WKHQHWZRUNRSHUDWRU7HOHIµQLFDDQGSXE lished in the middle of September 2016, more WKDQRIWKHUHVSRQGHQWVQRWHGWKDWWKH\ regard messaging services such as WhatsApp to be an indispensable app on their smart phones. These applications were followed DW VRPH GLVWDQFH E\ VXUȴQJ RQ WKH ΖQWHUQHW ?VHQGLQJDQGUHFHLYLQJHPDLOV?DQG VHQGLQJSLFWXUHV?ΖQWRWDOWKHSUHYDOHQFH RILQWHUQHWFDSDEOHPRELOHSKRQHVURVHE\ WRDFXUUHQWOHYHORIZLWKLQRQH\HDUDF cording to Bitkom. The recent online study by ARD and ZDF from October 2016 concludes as well that smartphones are the most common ly used devices for internet access, having a VKDUHRI

The smartphone – assistant and companion for everyday life

Internet usage/device in Germany (in %)

Frankfurt

Frankfurt

Base: German-speaking population age 14 and older (2016: n=1,508; 2015: n=1,800; 2014: n=1,814).

Source: ARD/ZDF - Onlinestudien 2014-2016

Smartphones becoming assistants in everyday life, the Internet of Things will ensure continued dynamic development in data use

Smartphones serve primarily communica tion and entertainment, but more and more people are using their smartphones for other purposes such as shopping. A representative survey presented by the Bitkom association at the beginning of October 2016 revealed that the number of smartphone shoppers KDGDOPRVWGRXEOHGWRDFXUUHQWOHYHORI ZLWKLQWZR\HDUV0RUHWKDQRQHIRXUWKRIWKH UHVSRQGHQWV?DOVRXVHWDEOHWVIRURQOLQH shopping for products, services or digital ac WLYLWLHVVXFKDVȴOPLQJ

As the Consumer Electronics Show (CES) held in Las Vegas in January 2017 demonstrated, the networking of devices in the home will be RQH RI WKHPDMRU SRLQWV RI IXWXUH IRFXV \$F cording to a representative survey conducted by Bitkom in the middle of July 2016, more WKDQ RI DOO VPDUWSKRQH XVHUV FRXOG LP agine using their smartphones as the primary device for managing household appliances or systems. Breaking down the results according to age group reveals that interest is greatest DPRQJ WKH WR\HDUROGV?\$PRQJ WR\HDUROGVDUHRSHQWRWKHLGHD of mobile smart home applications; the corre VSRQGLQJȴJXUHDPRQJWR\HDUROGVLV DQGHYHQRI WKHVPDUWSKRQHXVHUV over the age of 65 could imagine such a use.

But the communication of more and more devices and machines with one another in the future will not be limited to the private VSKHUH'LJLWDOLVDWLRQNH\ZRUGΖQGXVWU\? and the Internet of Things (IoT) will create new forms of communication in industrial process es in particular. In its latest Visual Networking Index (most recently updated in June 2016),

New technology 5G poised for launch/Positive outlook for software industry

&LVFRSURMHFWVWKDWWKHQH[WIRXU\HDUVZLOOVHH ten interconnected devices for every person in the Germany. This will mean a doubling in the number of interconnected devices to 800 million by the year 2020.

1HZ ZLUHOHVV WHFKQRORJ\ Ȋ*ȋ SRLVHG IRU launch

Network providers and telecommunications companies are working at top speed on the implementation of the LTE successor tech nology "5G". The evolvement of the LTE (4G) standard (which continues to spread rapidly) ZLOO LQFOXGH DV DPDMRU IHDWXUH WKH LQWHUFRQ nection of many single devices with one an RWKHUSRLQWWRPXOWLSRLQW?ΖQDGGLWLRQWUDQV mission rates of up to 10 GBit/s will be 100 times faster than today's LTE standard. Data transmission rates that are up to one thou sand times faster are expected by the year 2030. Up to now, the industry has presumed WKDWWKHȴUVW*QHWZRUNVDQGDSSOLFDWLRQVZLOO become available from the year 2020, but cur rently a 4.5G standard regarded as a transition technology is being tested in various German cities. Its implementation could begin as early DV7KH&KLQHVHRXWȴWWHU=7(DQQRXQFHG in January 2017 that it intends to start opera WLRQRIDSUH*VWDQGDUGLQ*HUPDQ\DWVRPH point during 2017. This standard is expected WR RHU DQ LPSURYHPHQW LQ QHWZRUN FDSDFL ty for network operators by fully utilising the available spectrum resources.

'ULOOLVFK ZLOO SURȴW IURP WKH WHFKQRORJLFDO evolvement of the networks because it is the only MBA MVNO to have an unrestricted, ORQJWHUP DFFHVV DQG PDUNHWLQJ ULJKW ZLWK regulatory protection to current and all future technologies on the largest German mobile services network.

Outlook remains positive: German ITC market grows to over €160 billion

As the digital association Bitkom announced in its autumn economic forecast in Berlin at the end of October 2016, revenues from infor mation technology, telecommunications and entertainment electronics (ITC) will grow to €160.5 billion by the end of 2016. The associa WLRQKDVWKXVUHDɝUPHGLWVJURZWKSURMHFWLRQ RIIRUWKH*HUPDQPDUNHW7KHJURZWKLQ UHYHQXHZLOODOVRKDYHDSRVLWLYHHHFWRQWKH labour market. As of the end of the year, the ITC industry employed 1,030,000 people, mak LQJ LW WKH VHFRQGODUJHVW LQGXVWULDO HPSOR\HU in Germany.

Revenue with ITC products and services in Germany (in €bn)

Source: Bitkom, EITO, IDC, GfK

Information technology continues to be the growth driver in the industry and will, accord LQJWR%LWNRPLQFUHDVHE\WRȜELOOLRQ in 2016. Revenues in the software sector are growing the strongest; software providers can UHFRUG D SOXV RI WR Ȝ ELOOLRQ 5HYH QXHVIURPΖ7VHUYLFHVZLOOLQFUHDVHE\WR €38.2 billion while revenues from IT hardware ZLOOULVHE\WRȜELOOLRQ

MARKETING REPORT

• 'ULOOLVFKRHUVLQQRYDWLYHPRELOHUDWHSODQVZLWKDGGHGYDOXHDQGVHWVWKHEDUIRUSULFH and service
• 2QOLQHDQGRɞLQHSURGXFWV\$ZDUGZLQQLQJ'ULOOLVFKEUDQGVUHFLSLHQWVRIPXOWLSOHKRQRXUV
• 32 yourfone, Number 1 in mobile shop test

'ULOOLVFKRHUVLQQRYDWLYHPRELOHUDWHSODQVZLWKDGGHGYDOXHDQGVHWV the bar for price and service

'ULOOLVFKRHUVLQQRYDWLYHPRELOHUDWHSODQV with added value

Drillisch takes a premium approach, supple PHQWHG E\ D PXOWLEUDQG VWUDWHJ\ WR PDUNHW innovative mobile products with great success; transparency and performance are the out standing characteristics of the products that are always right up to date. Every type of user ZLOO ȴQG MXVW WKH ULJKW SURGXFW IRU KLV RU KHU needs.

'XULQJ WKH SDVW ȴVFDO \HDU WRS UHVXOWV were regularly posted in surveys, studies and audits for the two premium brands smartmo bil.de in the segment Online and yourfone in WKH VHJPHQW 2ɞLQH DV ZHOO DV IRU WKH RWKHU strong brands and cooperative activities in dis tribution.

Clearly, Drillisch meets the high standards it KDV VHW IRU LWVHOI RHULQJ WKH EHVW YDOXH IRU money on the German mobile services market without accepting any compromises with re spect to quality and service.

The Company's product portfolio and its orien tation to customer requirements ensure that Drillisch is always in line with current trends. Reliable and fast mobile internet access is of fundamental importance for most mobile phone users. Drillisch provides mobile phoning DQGVXUȴQJ WKDWDOZD\VXWLOLVHVWDWHRIWKHDUW mobile technology on Germany's largest mo bile network.

smartmobil.de once again improved its LTE rate plan portfolio in the middle of 0DUFK 7KHQHZ DOO

QHW ȵDW UDWHV KDYH IHDWXUHG HYHQPRUH KLJK speed data volume since that time. All of the current plans include unlimited calls and texts to all German networks as well as LTE data packages at a top speed of 50 MBit/s. Users selecting the smallest rate plan variation, LTE XS, receive 2 GB of data volume for only €7.99 DPRQWK/7(6RHUV*%RI/7(YROXPHIRU €12.99 a month, LTE M at €17.99 features 5 *%7KHODUJHVWDOOQHWȵDWUDWH/7(/ZLWK*%

Tarif	Telefonie-Flat	SMS-Flat	LTE Datenvolumen	EU Inklusivleistung
LTE XS			3 GB
LTES	✓		4 GB
LTE M			5 GB
LTE L	✓		6 GB	Telefonie- und SMS-Flat + 1 GB Datenvolumen

for €27.99 is the perfect companion for travel in other EU countries thanks to the inclusion of the EU package when abroad. The unlim ited phone calls that are part of the package include calls to mobile and landline networks within the EU country being visited and to Ger PDQ\0RUHRYHU*%GDWDYROXPHIRUVXUȴQJ in other EU countries is also provided.

Powerful surf options: Data Snack and LTE Turbo 225

The mobile rate plans from Drillisch turn mo ELOHVXUȴQJLQWRDJHQXLQHH[SHULHQFH\$IXQGD mental component of them all is generous LTE data volume at speeds up to 50 MBit/s. Users who suddenly feel additional hunger for data can satisfy their desire with the Data Snack. An additional 1 GB of LTE data volume is provided LQ WKHFXUUHQWPRQWK IRUOHVV WKDQȴYHHXURV Booking the extra volume could not be sim pler. If both the data volume included in the package and the volume provided by the auto matic data service have been consumed, users simply send a text message to request the Data Snack. The option is available to customers of all Drillisch brands and can be booked once a month.

'ULOOLVFKRHUVLQQRYDWLYHPRELOHUDWHSODQVZLWKDGGHGYDOXHDQGVHWV the bar for price and service

New customers of the premium brands smart mobil.de and yourfone also have the opportu nity to surf while on the go at 4.5 times the pre vious maximum speed of 50 MBit/s. The option "LTE Turbo 225" can, upon request, be booked LQ DGGLWLRQ WR HYHU\ DOOQHW ȵDW UDWH ZLWK /7( Besides the mobile network operators, Dril OLVFKLVWKHRQO\0912WRRHUWKLVWRSVSHHG on the German mobile services market.

Added value from attractive rate plan options: BILDplus and Napster Music-Flat

Customers seeking even more value than the powerful LTE rate plans can add to the various Drillisch brands if desired. The option "BILD

plus" secures full ac cess to all of the con tent on BILD.de for users for only €4.99 a month, including exclusive background reports, videos and photos. BILDplus is

included in the rate plans for BILDconnect, the MRLQWPRELOH SURGXFW IURP %Ζ/' DQG 'ULOOLVFK 7KH RSWLRQ Ȋ1DSVWHU 0XVLF)ODWȋ IRU Ȝ D PRQWKZLOODWWUDFWXVHUVZKRHQMR\OLVWHQLQJWR music. More than 40 million songs and thou sands of audio books are available for selec tion. helloMobil customers can choose from DPRQJ YDULRXV DOOQHW ȵDW UDWHV WKDW LQFOXGH 1DSVWHU0XVLF)ODW7KHVHUYLFHFDQEHERRNHG as an option if desired for all of the other Dril lisch brands.

Successful distribution cooperation with Springer-Verlag

6SULQJHU9HUODJ DQG 'ULOOLVFK KDYH EHHQ VXF FHVVIXOLQUHFHQW\HDUVLQMRLQWO\UHDOLVLQJGLVWUL bution cooperation activities. This established cooperation of the last few years has been in WHQVLȴHGE\WKHDGGLWLRQRI%Ζ/'FRQQHFW7KLVLV a new mobile service focusing on smartphone rate plans with large LTE data volumes and the inclusion of the BILDplus option. One special feature of the rate plans is the practical data re set function. Users wishing to avoid the throt tling of data speeds when the included volume has been consumed can simply reset the data counter to 0 for a small additional monthly charge and continue to surf at LTE high speed. The rate plans were expanded by the addi tion of two data rate plans in December. "Data ȋLVDQLQWHUQHWȵDWUDWHZLWK*%/7(DW speeds up to 50 MBit/s for only €5.95 a month (€6.95 a month for a term of one month). Fre quent surfers will choose "Data 3000" featuring 3 GB LTE for €12.95 (€14.95 monthly for a term of one month).

yourfone launches new rate plan portfolio

\RXUIRQHLQWURGXFHGQHZDOOQHWȵDWUDWHSODQV LQ\$SULO(QWU\UDWHSODQLVȊ/7(;6ȋRHULQJ*% LTE data volume for €7.99. "LTE S" comes with 4 GB for €12.99, "LTE M" with 5 GB for €17.99

2QOLQHDQGRɞLQHSURGXFWV\$ZDUGZLQQLQJ'ULOOLVFKEUDQGVUHFLSLHQWV of multiple honours

and "LTE L" with 6 GB for €22.99. The package price for all of these rate plans increases by €7 a month from the 13th month. By introducing these rate plans, yourfone has set standards IRUWKHEULFNDQGPRUWDUWUDGHΖQFRPSDULVRQ with the competition, yourfone customers save XSWRȜRYHUWKHWZR\HDUWHUPRIWKHFRQ tract (in comparison with RED 6 GB from Voda fone for 24 months).

yourfone opens up additional distribution channels

yourfone is present in more than 200 mo QREUDQG VKRSV DFURVV WKH FRXQWU\ DQG LV steadily increasing its distribution range by the addition of further partners. The mobile provider is now cooperating with Brodos AG, einsAmobile GmbH, Euronics Deutschland eG, +HUZHFN\$*.RPVD.RPPXQLNDWLRQ6DFKVHQ AG, netcom GmbH, Stahlgruber GmbH and others.

Award-winning: Drillisch brands recipients of multiple honours

Drillisch brands regularly receive recognition from impartial observers for their outstanding YDOXHIRUPRQH\7KH\HDUZDVQRGLHU ent in this respect. For the second time in suc FHVVLRQWKH7DULIWLSSGHHGLWRULDOVWDDQGWKHLU readers selected the online premium brand smartmobil.de as the "Provider of the Year"

LQ WKH FDWHJRU\ Ȋ\$OO1HW Flats". The grounds given E\WKHUDWHSODQH[SHUWV VPDUWPRELOGHȇV RHU RI the LTE XS for €7.99 a month has been setting "the benchmark for pop XODU DOOQHW ȵDW UDWHV IRU months."

The study "Mobile Providers 2016" conducted E\ WKH 'HXWVFKH ΖQVWLWXW IRU 6HUYLFH4XDOLW¦W 'Ζ64?SURGXFHGQRIHZHUWKDQWHVWZLQQHUV from Drillisch.

• » VPDUWPRELOGH WRRN ȴUVW SODFH LQ HDFK RI WKH VXEFDWHJRULHV Ȋ3ULFHȋ DQG Ȋ/RZHVW Complaint Rate".
• » yourfone stood right at the top of the win ner's podium in the category "Service".

\$QRWKHUDZDUGIURP'Ζ64ZHQWWRVLPSO\WKH pioneer among the mobile discount service providers. It was proclaimed as one of "Ger many's Savings Champions 2016" in the cate

gory of mobile provid ers. What makes the 'Ζ64VWXG\VSHFLDOWKH winners are not de termined by a limited, RQHWLPH SULFH FRP parison; the price level is monitored over a pe riod of four years. The market researchers compared 350 compa nies in various sectors with 18,000 prices in

FDWHJRULHV3URYLGHUVZKRRHUWKHLUSURG ucts and services at especially low prices were awarded the laurels. The study appraised 19

yourfone, Number 1 in mobile shop test

PRELOH VHUYLFHV SURYLGHUV 2QH NH\ ȴQGLQJ LV that the alternative providers have overtaken the network operators in the customer assess ment.

Another outstanding placement serves as con ȴUPDWLRQWKDW\RXUIRQHFDQGRPRUHWKDQMXVW keep pace with the giants of the industry. On EHKDOI RI WKH MRXUQDO :LUWVFKDIWV:RFKH WKH 'HXWVFKHV .XQGHQLQVWLWXW '.Ζ? VFUXWLQLVHG 16 mobile network providers and their rate plans in the course of the study "Best Mobile Services Provider 2016". Besides the providers themselves, 23,000 customers were surveyed DERXWRHUHGSURGXFWVDQGVHUYLFHVFXVWRPHU service and terms and conditions. In the over all result, yourfone came in ahead of providers VXFKDV70RELOH2² , Blau or klarmobil.

TÜV Saarland gave the top mark of "EXCEL LENT" to no fewer than 11 Drillisch brands. Along with smartmobil.de, brands such as sim ply, winSIM, maXXim or helloMobil gave con vincing evidence of their outstanding value for money. During its critical audits, TÜV Saarland looks not only at pricing and the innovative strength of the products being audited, but also at additional factors such as the ordering process, delivery or advising help from custom er service.

yourfone Number 1 in mobile shop test

In January 2017, the Deutsches Institut für 6HUYLFH4XDOLW¦W'Ζ64?FRQGXFWHGDVXUYH\RQ EHKDOI RI QWY VHQGLQJ P\VWHU\ VKRSSHUV WR test 15 shops of each of the providers your IRQH 7HOHNRP 9RGDIRQH 7HOHIµQLFD DQG0R ELOFRP'HELWHO ZLWK UHVSHFW WR WKHLU DGYLVLQJ service. yourfone emerged as the winner of the advising test. In the course of the test, the yourfone employees demonstrated the great est advising competence; all of the customer's questions about rate plans and hardware were answered correctly. It was also emphasised that the advisers asked about details of the

customer's personal needs and gave advice WKDWZDVDERYHDYHUDJHLQLWVFRQVLGHUDWLRQRI the individual. The friendliness and willingness to help of the shop clerks as well as the short waiting times in the shops were also given spe

FLDOPHQWLRQ\RXUIRQHȇVSHUIRUPDQFHFRQȴUPV the results of the nationwide study of mo bile services providers conducted by Stiftung :DUHQWHVW LQ VSULQJ \RXUIRQH WRRN ȴUVW place in the categories Price and Customer Orientation plus second place in the overall rating during this test as well. These outstand ing results put yourfone far ahead of providers such as Deutsche Telekom, Vodafone or Mobil FRP'HELWHO

CONSOLIDATED MANAGEMENT REPORT

• 34 Business Report
• 47 Risk Report
• 52 Forecast Report
• 53 Compensation Report
• 56 Supplementary Information in Accordance with Section 315 (4) HGB
• 59 Important Events After the End of the Fiscal Year

1. General information about the Company

1.1. Drillisch Group

Drillisch AG, Maintal, along with its subsidi DULHVFROOHFWLYHO\ Ȋ'ULOOLVFKȋ?LVDPRELOHVHU vices provider and virtual network operator operating exclusively in Germany with guar DQWHHG DFFHVV WR D VSHFLȴF VKDUH RI WKH QHW ZRUNFDSDFLW\RI7HOHIµQLFDLQ*HUPDQ\DVR called mobile bitstream access mobile virtual QHWZRUNRSHUDWRU 0%\$0912?'XULQJȴVFDO year 2016, the Company added to the many \HDUVRILWVVXFFHVVVWRU\RISURȴWDEOHJURZWK

2QH RI WKH PRVW SURȴWDEOH DQG LQQRYDWLYH providers of rate plans for voice and data communications in Germany, Drillisch is a regular source of new pioneering ideas on the German mobile services market. Operating as an MBA MVNO, Drillisch compiles packages RIȵH[LEOHVHUYLFHVEDVHGRQLWVRZQSURGXFW ideas, drawing on standardised and unbun dled advance services from the network op HUDWRUV7HOHIµQLFD*HUPDQ\*PE+ &R2+* Ȋ7HOHIµQLFDȋ? DQG 9RGDIRQH *PE+ Ȋ9RGD fone"). The most important sales channels are WKHLQWHUQHWWKHȴUPȇVRZQVKRSFKDQQHORS erating under the brand name yourfone and a network of independent distributors and cooperation partners. Drillisch expects its suc cessful corporate development to continue in ȴVFDO\HDU

Drillisch – sole MBA MVNO on the German mobile market

Pursuant to the MBA MVNO agreement con FOXGHGZLWK7HOHIµQLFDLQ-XQH7HOHIµQL ca grants to Drillisch (as the only competitor on the German mobile market) access to up WR RI WKH XWLOLVHG QHWZRUN FDSDFLW\ RI 7HOHIµQLFDLQWKHPRELOHQHWZRUNRI7HOHIµQLFD DQG (3OXV WKDW LV FRQWUROOHG DIWHU WKHPHUJ er of the two companies. This right applies to all future as well as current technologies. At the same time, Drillisch obtains access ULJKWVWRWKHVRFDOOHG*ROGHQ*ULG1HWZRUN RI 7HOHIµQLFD WKDW KDV EHHQ FUHDWHG E\ WKH merger. This means access to the enhanced IRRWSULQWRIWKHPRELOHQHWZRUNRI7HOHIµQLFD LQFOXGLQJDOOQHFHVVDU\WHFKQLFDOVSHFLȴFDWLRQV and the technical capability to reduce speed and restrict transport in the event of excessive data utilisation by end customers.

In accordance with the concluded agreement, WKHUH DUH DOVR WKH IROORZLQJ RSWLRQV ? EH FRPLQJ D VRFDOOHG IXOO 0912 LQ WKH PRELOH QHWZRUNRI7HOHIµQLFDWKDWLVDPRELOHSURYLG er that operates its own full core network and XVHV VROHO\ WKH DFFHVV QHWZRUN RI 7HOHIµQLFD ("Full MVNO"), and/or (2) becoming a licensed mobile network operator ("MNO").

Raising the bar with innovative and transparent mobile services products

Drillisch takes a premium approach, supple PHQWHGE\DPXOWLEUDQGVWUDWHJ\WRRHULQ novative mobile products with great success; transparency and performance are the out standing characteristics of the products that are right up to date at all times. Every type of XVHUZLOOȴQGDSURGXFWWKDWLVMXVWULJKWIRUKLV or her needs.

ΖQWKHDJHRIWKHPRELOHLQWHUQHWVLPSOHORZ price and powerful access to mobile data net works with data volume oriented to each indi YLGXDOȇV VSHFLȴF QHHGV DQG D IDVW FRQQHFWLRQ DUHWKHPDMRUFULWHULDGHWHUPLQLQJFXVWRPHUVȇ decisions when selecting a rate plan and pro vider.

In this constantly changing market environ ment, Drillisch, being the only MBA MVNO, is XQULYDOOHGLQRHULQJFXVWRPHUVWKHȊEHVWYDO ue for money" – through its established online EUDQGVDVZHOODVLQEULFNDQGPRUWDUWUDGH

smartmobil.de, for instance, the premium EUDQGLQWKHVHJPHQW2QOLQHRHUVXQOLPLWHG calls and texts in all German networks along with LTE data volumes at speeds up to 50

MBit/s for all of its rate plans. And smartmo bil.de showed that the change to a new mobile services provider can also be a smart move in its new campaign featuring the professional footballer Lukas Podolski called "Wechsel Dich smart!" For as little as €6.99 a month (for the ȴUVWPRQWKVRIWKHFRQWUDFWVXEVHTXHQWO\ €9.99 a month), customers can have 750 MB in data volume and unlimited calls and texts in the rate plan LTE Special. Users requiring more data volume can choose between the LTE rate plans LTE Starter (1.5 GB), LTE All (3 GB) or LTE Pro (5 GB). All of these rate plans include unlimited calls and texts. Anyone who wants to surf even faster can more than quad UXSOH VXUȴQJ VSHHG WR 0%LWVLQVWHDG RI 50 MBit/s for the low additional charge of €5.00 a month. All of these rate plans can be selected with various contract terms as well as monthly termination periods.

7KH UDQJH RI UDWH SODQV RHUHG E\ 'ULOOLVFK KRZHYHULVQRWUHVWULFWHG WRDOOQHWȵDWUDWHV with LTE, but includes as well rate plans for users who primarily want to surf a lot at high speed on mobile devices. They have the choice, for example, of taking winSIM or maXXim rate plans with data volumes of 1, 2 or 3 GB as well as voice minutes and unlimited texts for as low as €5.99 a month.

Drillisch puts in an appearance in bustling pedestrian zones and shopping centres with yourfone, the premium brand in the segment 2ɞLQH7KH\RXUIRQHVKRSVVFRUHSRLQWVZLWK their striking appearance as well as their top locations. The brand addresses new target groups with its memorable brand message "yourfone und Du" and a direct approach to customers such as "Du kannst jetzt richtig aufdrehenȋ PRUHRYHU LW RHUV D QHZ VKRS experience as well as competent and cus WRPHUFHQWULF DGYLVLQJ LQ DOO DUHDV RIPRELOH communication.

Moreover, the attractive rate plans available in the shops that can also be combined with the latest models of the top smartphones make a convincing argument with their outstand LQJ SULFHSHUIRUPDQFH UDWLR 2SWLRQV LQFOXGH unlimited calls and texts in combination with various LTE data packages from 500 MB to 10 GB. If customers decide to take a complete package comprising rate plan and smart phone, they can decide whether they wish to purchase the smartphone straight away or by PDNLQJ D RQHWLPH SD\PHQW DQG D PRQWKO\ hardware surcharge.

Product transparency and customer service

Drillisch has in the past regularly requested the performance of extensive quality tests by independent third parties. The awarded certif icates have all featured the ratings "Excellent" DQG Ȋ*RRGȋ 'XULQJ WKH FHUWLȴFDWLRQ SURFHVV pursuant to the demanding quality stand DUGVRIWKHΖ62QRUPLQ6HSWHPEHU 2016, the high level of quality management at WKH WZR PDMRU 'ULOOLVFK VXEVLGLDULHV 'ULOOLVFK Online and yourfone was fully and completely convincing in all points for the auditors.

Drillisch products satisfy the very highest na tional and international standards with the highest level of transparency and security. Our sustained work to achieve this transparency and security as well as customer satisfaction are important elements of our corporate suc cess. Drillisch Group will continue to request these extensive audits in the future as well.

Drillisch AG is the Group's holding

Within Drillisch Group, Drillisch AG, the par ent company, concentrates on holding tasks VXFK DVPDQDJHPHQWȴQDQFHV DQG DFFRXQW ing, controlling, cash management, human resources, risk management, corporate com munications and investor relations along with WKH GHȴQLWLRQ PDQDJHPHQW DQG PRQLWRULQJ of the global corporate strategy.

Drillisch Online AG

Drillisch Online AG is in charge of the operat ing mobile services business in the segment Online and operates all of the established on line brands of the Group such as smartmobil. de, maXXim, sim.de, winSIM, DeutschlandSIM or simply.

yourfone AG

yourfone AG operates under its brand name DQGLVUHVSRQVLEOHIRUWKHIXOOUDQJHRIRɞLQH VDOHV 7KH FRPSDQ\ȇV ZKROO\RZQHG VXEVLGL aries, yourfone Retail AG and yourfone Shop *PE+ UHJLVWHUHG RɝFHV RI ERWK LQ '¾VVHO dorf), have been in charge of shop operations since July 2015. During this time, yourfone has opened a total of more than 250 of its own and partner shops. About 220 of them were still operating at the end of 2016.

GTCom GmbH

GTCom GmbH is a mobile services provider ZLWKEUDQGVOLNH*DOHULDPRELORUQWYJRVSH cialising in prepaid products and operating in Germany as a subsidiary of Drillisch AG.

The Phone House Deutschland GmbH

Phone House Group, a subsidiary of Drillisch AG, is a distributor for mobile communica tions operating in Germany. In September 2016, Drillisch and the former shareholder, 'L[RQV&DUSKRQH3/&/RQGRQ8.DJUHHGRQ DȴQDOSXUFKDVHSULFHSD\PHQWLQWKHDPRXQW RI Ȝ PLOOLRQ 7KLV SD\PHQW VDWLVȴHV DOO of the unresolved claims from the variable HDUQRXW FRPSRQHQW DJUHHG GXULQJ WKH SXU chase of Phone House in 2015 and all of the other mutual claims, with the exception of a remaining obligation in the amount of €5.8 million that will become due only if, and to the extent that, payments are received from litigation that was initiated before the time at which Phone House was purchased. There are no risks for Drillisch related to these cir cumstances. Subsequent to the agreement, Drillisch decided as well to outsource the dis tribution business of Phone House, above all pursuant to network operator agreements, to a new company, The Phone House Telecom Vertrieb GmbH, and to sell the new company WR'HLQ+DQG\*PE+2EHUWVKDXVHQHHFWLYH per 1 January 2017. The Phone House compa nies remaining in Drillisch Group (The Phone House Deutschland GmbH and The Phone House Telecom GmbH) are in charge of both partner and own yourfone shops and provide the complete range of hardware supplies for RQOLQHDQGRɞLQHVDOHV

IQ-optimize Software AG is the IT service provider for the Group

The IT competence of Drillisch Group is bun GOHG LQ WKH VXEVLGLDU\ Ζ4RSWLPL]H 7KLV FRP pany provides in particular virtually all of the IT services for the Group's mobile services pro viders.

Segment Online

Drillisch Online AG and its broad range of es tablished online brands are in charge of the operating mobile services business in the segment Online. Drillisch Online AG and its EUDQGVRHUKLJKSHUIRUPDQFH/7(UDWHSODQV tailored to match customer needs in Germa ny's largest mobile services network. Every FXVWRPHUZLOOȴQG WKHFRPELQDWLRQRIXQOLP ited calls and texts along with various data packages at maximum speed of up to 225 MBit/s in the current rate plan portfolio that LVMXVWULJKWIRUKLPRUKHUDQGVXLWVKLVRUKHU mobile communication needs. Moreover, cus tomers can go to the online shops and select from a broad range of the latest smartphones and accessories that will best serve their pur poses.

6HJPHQW2ɞLQH

yourfone AG operates under its brand name DQGLVUHVSRQVLEOHIRUWKHIXOOUDQJHRIRɞLQH sales. Its two subsidiaries yourfone Retail AG and yourfone Shop GmbH have been han dling shop operations since July 2015. Drillisch has been operating at top locations in bustling pedestrian zones and shopping centres under the name of yourfone, the premium brand IRU WKH VHJPHQW 2ɞLQH VLQFH WKHPLGGOH RI last year. The attractive rate plans available in the shops that can also be combined with the latest models of the top smartphones make a convincing argument with their outstanding value for money.

The Drillisch AG subsidiary Phone House takes care of both partner and own yourfone shops as well as distribution business and, un til the end of the year, also sold original prod ucts from network operators along with the Group's own yourfone rate plans.

Employees

ΖQ ȴVFDO \HDU DQ DYHUDJH RI HP ployees – including the two members of the Drillisch AG Management Board – was on the SD\UROORI'ULOOLVFK*URXSSUHYLRXV\HDU

1.2. Company management – objectives and strategies

7KH &RPSDQ\ɒV VWUDWHJ\ HPSKDVLVHV SURȴWD ble growth. The focus for new business is on WKHPDUNHWLQJRILQQRYDWLYHDQGKLJKSHUIRU PDQFHȵDWUDWHSURGXFWVΖQWKHHVWLPDWLRQRI WKH 0DQDJHPHQW %RDUG KLJKSHUIRUPDQFH transparent rates in the LTE technology rep resent the greatest opportunities for growth on the German market. The highest growth rates are expected in data communications. The Company has placed its own successful EUDQGV WKH SUHPLXP EUDQGV VPDUWPRELO de and yourfone along with the other online EUDQGV 'ULOOLVFK DOVR RHUV DWWUDFWLYH UDWH plan packages in combination with smart phones and tablets, enabling the Company to EHQHȴWIURPWKHFRQWLQXLQJERRPLQGHPDQG IRUKLJKHQGPRELOHGHYLFHV'ULOOLVFKDOVRRI IHUV DQ RSWLPDO UDWH SODQ ZLWKRXW ORQJWHUP contract obligations for every user group to the growing number of potential customers who already own such a mobile phone and DUHQRZORRNLQJ IRU DKLJKSHUIRUPDQFH DQG VLPXOWDQHRXVO\ ORZSULFH UDWH SODQ 7KH H[ pansion of current sales activities and the opening of new distance trade channels by means of attractive product lines are at the IRUHIURQWRI WKH&RPSDQ\ȇVHRUWV3URDFWLYH quality management ensures that products and services as well as distribution channels are continuously monitored with the goal of LQFUHDVLQJ DEVROXWH SURȴWDELOLW\ RQ WKH EDVLV RIJURVVSURȴWDQG(%Ζ7'\$

Value-oriented management system

7KHIRFXVRIWKHYDOXHRULHQWHGPDQDJHPHQW V\VWHPDW'ULOOLVFKLVRQDORQJWHUPLQFUHDVH LQ WKH FRUSRUDWH YDOXH WKURXJK SURȴWDEOH growth. The key performance indicators are WKH DGMXVWHG FRQVROLGDWHG (%Ζ7'\$ EDVHG RQ IFRS (earnings before interest, taxes, depreci DWLRQDQGDPRUWLVDWLRQDGMXVWHG IRUH[WUDRU GLQDU\DQGRQHRIDFWRUV?DQGJURVVSURȴW

0DMRU HOHPHQWV RI YDOXHRULHQWHG PDQDJH PHQWLQFOXGHWKHIROORZLQJ

• 1. Thanks to its lean structure, Drillisch is highly efficient in terms of costs. This has enabled the Group to increase its EBITDA continuously over the past 15 years. Dril lisch achieves this high level of economic ef ficiency by consistently optimising business processes and by making efficient use of its personnel.
• 1. \$OO RI WKH PDMRU Ζ7 VHUYLFHV UHTXLUHG DW Drillisch are performed by its subsidiary Ζ4RSWLPL]HVRWKDWWKH&RPSDQ\LVQRWGH pendent on external providers. The struc ture enables fast and flexible action and response on the market.
• 1. Drillisch is innovative in the design and de velopment of new products and rate plans. For example, in 2005 the Company became one of the first providers to sell mobile ser vices under its own discount brand name. Similarly, Drillisch began as early as in 2010 to align its product portfolio with the on going changes in the way smartphone cus tomers used their phones. The budget and package plans containing a certain volume of call minutes, text messages and data for a fixed monthly charge were new creations at that time; today they are commonly availa ble on the market. This innovation strength makes it possible for the Group to develop new business fields ahead of competitors.
• 1. Drillisch constantly works on the further de velopment of distribution channels, taking advantage of its competence and new ideas so that the Company can successfully mar ket its innovative products.
• 1. Moreover, long years of experience in the Company and on the mobile services mar ket are available to Drillisch at the first and second management levels.

2. Business report

2.1. General conditions in the industry

Mobile revenues in Germany in 2016 virtually constant

In 2016, revenues on the German mobile ser YLFHVPDUNHWȂDFFRUGLQJWRDMRLQW7&PDUNHW analysis by Dialog Consult and VATM from October 2016 (estimate) – remained virtually constant at €26.4 billion in comparison with €26.5 billion in 2015. This development is be ing driven by the continued dynamic growth in revenues with mobile data, which rose by IURPȜELOOLRQLQWRDERXWȜ billion in 2016. The number of activated SIM cards increased by 3.4 million over the previ RXV\HDUWRPLOOLRQPLOOLRQ? 9RLFHWUDɝFRYHUPRELOHOLQHVGHFOLQHGVOLJKWO\ from 311 million minutes a day in 2015 to 302 million minutes in 2016. Call minutes via land lines posted a continued decline in 2016 from 405 million to 388 million call minutes a day. The study estimates that call minutes using 277 RYHUWKHWRS? SURYLGHUV URVH IURP million minutes in 2015 to 250 million minutes in 2016. Contrary to the development of voice WUDɝF RQ PRELOH QHWZRUNV 9\$70 HVWLPDWHV indicate that total data volume in 2016 rose E\ IURPPLOOLRQ JLJDE\WHVLQ to 774 million gigabytes in 2016. Average data volume per user and month increased sub VWDQWLDOO\ RQFH DJDLQ E\ IURP 0% in 2015 to 510 MB in 2016. The demand for higher data volumes and new technologies for faster data transmission (e.g. LTE) along with the integration of various media on mo bile devices will secure growth potential for mobile services providers in the future as well.

IT industry growth continues in 2016

The IT industry was able to seamlessly con tinue the positive development of previous years in 2016. According to information from %Ζ7.20 2FWREHU HVWLPDWH? UHYHQXHV LQ *HUPDQ\ URVH E\ DERXW WR Ȝ ELO OLRQ 3UHVV LQIRUPDWLRQ IURP %Ζ7.20 LVVXHG in October 2016 notes that 1.03 million peo SOH DUH HPSOR\HGLQ WKHΖ7LQGXVWU\ 7KLVȴJ ure means that the IT industry in Germany employs more people than the automotive or chemical industries. The IT industry is one of WKHMREHQJLQHVRIWKH*HUPDQHFRQRP\DQG WXUQVJURZWKGLUHFWO\LQWRQHZMREV

Drillisch holds its position on the mobile services market

Drillisch is in competition with the three re maining network operators (Vodafone, Tel HNRP DQG 7HOHIµQLFD? DV ZHOO DV ZLWK RWKHU service providers and MVNOs. The network RSHUDWRUVKDYHDPDUNHWVKDUHRIDERXW in Germany as shown in a TC market analysis from VATM in 2016. The remaining market is essentially shared by the service provider freenet AG and the independent service pro viders Drillisch and United Internet. Despite intense competition, Drillisch was able to in crease its clientele of MVNO customers by DERXWLQ

2.2. General economic conditions

Economic development and growth of the JURVVGRPHVWLFSURGXFW*'3?RILQ were marked by the problematic conditions in WKH LQWHUQDWLRQDO HQYLURQPHQW DQG E\ WKH ȴ nancial crisis and the loss of trust in Europe. A SRVLWLYHGHYHORSPHQWLQHPSOR\PHQWȴJXUHV rising incomes from employment and the con tinued strength of consumption demand from private households and government budgets in Germany, however, contributed to further economic growth in 2016. The German gov

HUQPHQW H[SHFWV JURZWK RI LQ According to the annual assessment of the Council of Experts regarding the appraisal of overall economic development from Novem EHU RI WKH GHFOLQH LQ JURZWK LV D consequence of a lower number of workdays in 2017.

Nonetheless, the Drillisch Management Board KDV QRWLFHG OLWWOH LPSDFW RQ WKH &RPSDQ\ɒV own mobile services business from the rise and fall of the economy in recent years. The steady growth in the use of the mobile inter net has had greater impact.

2.3. Revenue and earnings position

)XUWKHU (%Ζ7'\$ JURZWK LQ ȴVFDO \HDU LV impressive evidence that Drillisch has main tained its operating earning power. This good development of our business is supported by the ongoing dynamic developments in the ȴHOGVRIPRELOHVHUYLFHVDQGPRELOHLQWHUQHW 'ULOOLVFKXVHVLQQRYDWLYHSURGXFWVLQFRQMXQF WLRQZLWKHɝFLHQWPDUNHWLQJDQGGLVWULEXWLRQ concepts to maintain its top position in the German telecommunications industry.

The "service revenues", essentially the income from the provision of the ongoing mobile ser vices (voice and data transmission) and their billing on the basis of the current customer UHODWLRQVKLSV URVH E\ Ȝ PLOOLRQ ? LQȴVFDO\HDUWRȜPLOOLRQSUHYLRXV \HDUȜPLOOLRQ

7KH ORZPDUJLQ Ȋ2WKHU UHYHQXHVȋ DPRXQW HG WR Ȝ PLOOLRQ SUHYLRXV \HDU Ȝ million). As a consequence of changes in the distributor partner structure of Phone House and the decline in distribution business, "Oth er revenues" fell in comparison with the same period of the previous year by €37.2 million. The impact of this development in "Other rev enues" on the EBITDA in the group, however, is very limited.

Total revenue in 2016 amounted to €710.0 PLOOLRQ SUHYLRXV \HDU Ȝ PLOOLRQ? 5HY enue in the segment Online increased by ȜPLOOLRQ?WRȜPLOOLRQSUHYL RXV\HDUȜPLOOLRQ?5HYHQXHVLQWKHVHJ PHQW2ɞLQHDQGWKHVHJPHQW0LVFHOODQHRXV Holding amounted to €307.2 million (previous \HDUȜPLOOLRQ?DQGȜPLOOLRQSUHYL RXV\HDUȜPLOOLRQ?UHVSHFWLYHO\5HYHQXH LQWKHVHJPHQW2ɞLQHLQWKHSUHYLRXV\HDULQ cluded €25.0 million that was paid by the seller in connection with the acquisition of yourfone Retail. Total segment revenues contain €81.6 million in sales revenues from intercompany relationships that were eliminated during the FRQVROLGDWLRQ SURFHVV SUHYLRXV \HDU Ȝ million).

The MVNO clientele increased further over WKHFRXUVHRI WKH \HDUE\? WR PLOOLRQVXEVFULEHUV'HFHPEHU 2.587 million MVNO subscribers).

7KH QXPEHU RI TXDOLWDWLYHO\ KLJKHUYDOXH KLJKPDUJLQ EXGJHW VXEVFULEHUV LQFUHDVHG E\ WRPLOOLRQVXEVFULEHUVSHU 'HFHPEHU 'HFHPEHU

million subscribers). The number of low HUPDUJLQ YROXPH VXEVFULEHUV GHFUHDVHG as expected from 655,000 per 31 December 2015 to 496,000 subscribers per 31 December 2016.

The total number of customers, i.e. including the remaining subscriber contracts in the ser vice provider model, rose by 752,000 to 3.430 PLOOLRQ'HFHPEHUPLOOLRQ?VR the trend to a rise in the total customer num bers continues.

ΖQȴVFDO\HDUFRVWRIPDWHULDOVLQFUHDVHG E\ WR Ȝ PLOOLRQ SUHYLRXV \HDU €375.1 million). In the segment Online, the FRVWRIPDWHULDOVURVHE\ȜPLOOLRQ? WR ȜPLOOLRQ SUHYLRXV \HDU ȜPLO lion). The overproportional rise in cost of ma terials (in percentage terms) in comparison with growth in revenue in the segment On OLQH UHȵHFWV DERYH DOO WKH GLUHFW LQYHVWPHQWV in customer growth (e.g. commissions to distribution and cooperation partners). Cost RI PDWHULDOV LQ WKH VHJPHQW 2ɞLQH DQG WKH segment Miscellaneous/Holding amounted to ȜPLOOLRQSUHYLRXV\HDUȜPLOOLRQ? DQGȜPLOOLRQSUHYLRXV\HDUȜPLOOLRQ? respectively. The total of the segment expens

es includes expenditures from intercompany relationships in the amount of €68.1 million that were eliminated during the consolidation SURFHVVSUHYLRXV\HDUȜPLOOLRQ

*URVV SURȴW LQFUHDVHG E\ ȜPLOOLRQ IURP Ȝ PLOOLRQ LQ ȴVFDO \HDU WR Ȝ million per 31 December 2016, primarily a

consequence of the continued growth in the subscriber base and the qualitative improve PHQWRIWKH\$*338DYHUDJHJURVVSURȴWSHU user) from €7.34 in 2015 to €7.58 in 2016. This LPSURYHPHQWLQJURVVSURȴWRFFXUUHGGHVSLWH WKHVLJQLȴFDQWO\KLJKHUGLUHFWH[SHQVHVUHODW ed to new customer acquisition such as re tailer commissions, the reduction of package and activation fees or the granting of Friends 5HFUXLW )ULHQGV RU 013 ERQXVHV 013 PR bile number portability), which, in contrast to advertising expenditures, have a direct im SDFW RQ JURVV SURȴW 7KLVLV UHȵHFWHG DVZHOO LQWKHJURVVSURȴWIURPWKH0912VXEVFULEHU base (average number of MVNO subscribers multiplied by the AGPPU), which continues to ULVH7KHJURVVSURȴWPDUJLQSHU'HFHPEHU FDPHWRSUHYLRXV\HDU

ΖQ ȴVFDO \HDU JURVV SURȴW LQ WKH VHJ PHQW2QOLQHLQFUHDVHGE\WRȜPLO OLRQSUHYLRXV\HDUȜPLOOLRQ?7KHJURVV SURȴWPDUJLQLQWKHVHJPHQW2QOLQHFDPHWR SUHYLRXV \HDU?*URVVSURȴWLQ WKH VHJPHQW 2ɞLQH LQ FDPH WR Ȝ PLOOLRQ SUHYLRXV \HDU Ȝ PLOOLRQ? 7KH JURVVSURȴWPDUJLQFDPH WRSUHYLRXV \HDU?*URVVSURȴWLQWKHVHJPHQW0LV FHOODQHRXV+ROGLQJIRUWKHȴVFDO\HDUFDPHWR ȜPLOOLRQSUHYLRXV\HDUȜPLOOLRQ?DQG WKH JURVV SURȴW PDUJLQ DPRXQWHG WR SUHYLRXV\HDU

Other operating income of €18.5 million (pre YLRXV \HDU Ȝ PLOOLRQ? FRQWDLQV RQHWLPH LQFRPH RI Ȝ PLOOLRQ SUHYLRXV \HDU Ȝ? from the premature repayment or reversal of DPDMRUSDUWRIWKHUHPDLQLQJSXUFKDVHSULFH OLDELOLWLHVUHODWHGWRWKHHDUQRXWFRPSRQHQWV agreed in 2015 as part of the acquisition of Phone House resulting from the expected percentage compensation on the monthly revenues from the end customers brokered by The Phone House Deutschland GmbH be fore the acquisition. This income is contrasted by expenditures of a comparable magnitude WKDWDUHUHȵHFWHGLQSHUVRQQHOH[SHQVHVDQG Other operating expenses and that are also related to the acquisition of Phone House or the restructuring of Phone House.

\$VDFRQVHTXHQFHRI WKHVLJQLȴFDQWLQFUHDVH in the average number of employees in com SDULVRQZLWKWKHSUHYLRXV\HDUDQGRQHWLPH expenses from the creation of a restructur LQJSURYLVLRQUHODWHG WR WKH UHRULHQWDWLRQRI the subsidiary Phone House in the amount RIȜPLOOLRQSUHYLRXV \HDUȜ?SHUVRQ QHO H[SHQVHV URVHE\ WRȜPLOOLRQ SUHYLRXV\HDUȜPLOOLRQ?7KHSHUVRQQHO H[SHQVHV UDWLR LQFUHDVHG E\ WR SUHYLRXV\HDU

Other operating expenses declined in total by ȜPLOOLRQWRȜPLOOLRQSUHYLRXV\HDU €124.7 million). Expenses for rent and ancil lary rent costs rose by €6.3 million to €16.7

PLOOLRQSUHYLRXV\HDUȜPLOOLRQ?7KLVLQ crease is essentially a consequence of the fact that the rent expenses from the operation of own shops in the previous year were incurred only pro rata temporis from 1 July 2015. Ex penditures related to bad debts and valuation DOORZDQFHVRQUHFHLYDEOHVLQȴVFDO\HDU DPRXQWHG WR Ȝ PLOOLRQ SUHYLRXV \HDU €10.5 million). Advertising expenses declined by €31.1 million to €33.4 million (previous \HDU ȜPLOOLRQ? SULPDULO\ EHFDXVH RI WKH shift away from general brand advertising to direct expenditures for new customer acqui VLWLRQWKDWLPSDFWJURVVSURȴW2QHWLPH2WK er operating expenses of about €3.2 million SUHYLRXV \HDUȜ?ZHUHLQFXUUHGSXUVXDQW WR WKHVHWWOHPHQWFRQFHUQLQJ WKHȴQDOLQVWDO PHQW RI WKH HDUQRXW FRPSRQHQWV DQG WKH simultaneous waiver of any and all other mu tual claims (with the exception of a remaining obligation of €5.8m that will become due only if and when, and to the extent that, payments result from litigation that commenced before the time Phone House was acquired) conclud ed with Dixons Carphone PLC.

The consolidated EBITDA (earnings before in terest, taxes, depreciation and amortisation), one of the most important management in dicators in Drillisch Group, rose by €14.9 mil OLRQ? WRȜPLOOLRQSUHYLRXV \HDU €105.3 million) in 2016. The EBITDA margin DPRXQWHGWRSUHYLRXV\HDU

EBITDA

The EBITDA in the segment Online increased E\ȜPLOOLRQ?WRȜPLOOLRQSUH YLRXV\HDUȜPLOOLRQ?ΖQWKHVHJPHQW2I ȵLQH WKH (%Ζ7'\$ DPRXQWHG WR Ȝ PLOOLRQ SUHYLRXV \HDU ȜPLOOLRQ? 7KH (%Ζ7'\$RI WKHSUHYLRXV\HDUZDVSRVLWLYHO\LQȵXHQFHGE\ an allowance for advertising expenses in the DPRXQWRIȜPLOOLRQJUDQWHGE\7HOHIµQLFD as part of the acquisition of yourfone Retail AG. The EBITDA in the segment Miscellane ous/Holding per 31 December 2016 amount HG WR Ȝ PLOOLRQ SUHYLRXV \HDU Ȝ PLO lion). In the previous year, the EBITDA of this VHJPHQWZDVLQȵXHQFHGODUJHO\E\KLJKHUOH gal and professional fees incurred within the framework of the company acquisitions.

Amortisation and depreciation rose by €25.4 PLOOLRQ WRȜPLOOLRQSUHYLRXV \HDUȜ million). Among other factors, the increase in amortisation and depreciation results from WKH LQWDQJLEOH DVVHWV LGHQWLȴHG ZLWKLQ WKH framework of the purchase price allocations of yourfone and the Phone House in the pre vious year; these assets will be depreciated over the usual useful life of 6 or 2.5 years, and WKHZULWHRLQZDVUHFRJQLVHGRQO\SUR rata temporis since the acquisition. The re sulting amortisation and depreciation in 2016 WRWDOVȜPLOOLRQSUHYLRXV\HDUȜPLO lion). Depreciation and amortisation of €15.0 million (previous year €5.0 million) result in addition from Drillisch's contribution of €150 PLOOLRQDJUHHGZLWK7HOHIµQLFDLQWKHSUHYLRXV year as part of the MBA MVNO model to the investments previously made and to be made LQIXWXUHE\7HOHIµQLFDLQWKHH[SDQVLRQRIWKH LTE network and in future technologies and IURP WKH WZR WUDGHPDUNV DFTXLUHG LQ ȴVFDO year 2016 that have both been capitalised un der Other intangible assets and will be written RRYHU WKH H[SHFWHGXVHIXOOLIHRI DQG years. The restructuring of Phone House and subsequent sale of the distribution business (i.e. above all from the brokerage of original

contracts from other network operators) per 1 January 2017 results in a related change in the Company's future earnings position. The related recoverability test of the Phone House goodwill recognised in the balance sheet as part of the purchase price allocation in 2015 resulted moreover in a reduction in the value RIWKLVJRRGZLOORIȜPLOOLRQSUHYLRXV\HDU €0.0) that also increased the amortisation and GHSUHFLDWLRQ1RQHRIWKHZULWHRVDQGYDOXH DOORZDQFHVDHFWHGFDVK

The EBIT (earnings before interest and tax HV?DPRXQWHGWRȜPLOOLRQSUHYLRXV\HDU €69.2 million). The increase in amortisation and depreciation led to a decline in the EBIT PDUJLQ RI IURP LQ WR per 31 December 2016.

7KHLQWHUHVWUHVXOWDPRXQWHGWRȜPLOOLRQ SUHYLRXV\HDUȜPLOOLRQ

Taxes on income rose by €9.1 million to €29.1 PLOOLRQSUHYLRXV \HDU ȜPLOOLRQ?2QH RI the factors causing the increase in comparison ZLWKWKHSUHYLRXV\HDULVWKDWWKHZULWHRRQ the goodwill of Phone House in the consolidat ed annual accounts 2016 does not permit the recognition of deferred tax assets. This leads to additional expenses for taxes on income and the lack of recognition of deferred tax as VHWVWRWDOOLQJȜPLOOLRQSUHYLRXV\HDUȜ? Second, the restructuring of Phone House and the sale of the distribution business, including the network operator contracts, meant that the deferred tax assets created on the accu PXODWHG GHȴFLW FDUULHG IRUZDUG IRU 3KRQH House had to be revaluated. Pursuant to the strict requirements of IAS 12.34 et seqq. for FRQYLQFLQJ HYLGHQFH WKDW VXɝFLHQW WD[DEOH SURȴWZLOOEHDYDLODEOHDJDLQVWZKLFKGHIHUUHG tax assets can be utilised when there is a his WRU\RIGHȴFLWVWKHGHIHUUHGWD[DVVHWVHHF tive on earnings created in the previous year LQ WKHDPRXQWRIȜPLOOLRQSUHYLRXV\HDU Ȝ?ZHUHUHYHUVHGDVHHFWLYHH[SHQGLWXUHV and deferred tax assets in the amount of €1.1 PLOOLRQ RQ QHZ GHȴFLWV UHOHYDQW IRU WD[HV LQ 2016 were not created. In total, the tax result LQ ZDV DHFWHG E\ WKH UHVWUXFWXULQJ RI Phone House and the sale of the distribution business in the amount of €9.5 million (pre YLRXV \HDU Ȝ? )XUWKHU GHWDLOV FDQ DOVR EH found in the transition statement of the ex penses for taxes on income in the consolidat ed notes on page 77 of this Annual Report.

&RQVROLGDWHG SURȴW DPRXQWHG WR Ȝ PLO OLRQ SUHYLRXV \HDU Ȝ PLOOLRQ? 7KH FRQ VROLGDWHGSURȴWIURPFORVHGGLYLVLRQVFDPHWR ȜSUHYLRXV\HDUȜPLOOLRQ?DQGLQFOXGHG LQ WKHSUHYLRXV \HDU WKHSURȴW IURP WKH VDOH of the participation in The Phone House Man agement GmbH, which was acquired with the intent to resell at the beginning of May 2015. 7KH FRQVROLGDWHG WRWDO SURȴW SHU 'HFHP ber 2016 amounted to €26.2 million (previous \HDU ȜPLOOLRQ? 7KH XQGLOXWHG SURȴW SHU VKDUH FDPH WR Ȝ SUHYLRXV \HDU Ȝ? \$GMXVWHG IRU WKH DERYH PHQWLRQHG YDOXH DO ORZDQFHVDQGWKHQHJDWLYHWD[HHFWVUHODWHG to the restructuring of Phone House and the sale of the distribution business, consolidat HGSURȴWFDPHWRȜPLOOLRQ7KHXQGLOXWHG SURȴWSHUVKDUHZRXOGKDYHFRUUHVSRQGLQJO\ amounted to €0.82.

General statement on business development

Operating in a favourable, although highly competitive, economic sector, Drillisch Group not only achieved the upper end of the EBIT DA forecast of €115 million to €120 million, but even exceeded the forecast slightly with an actual result of €120.2 million. The Com pany also succeeded, as planned, in increas ing the number of MVNO subscribers again.

7KHSURȴWDELOLW\DQG\LHOGLQGLFDWRUVUHOHYDQW IRU'ULOOLVFKRIJURVVSURȴWDQG(%Ζ7'\$FRQWLQ ued to improve. Business development clearly demonstrates that Drillisch has been pursuing DFRXUVHRIFRQVLVWHQWO\SURȴWDEOHJURZWKIRU many years, a course that is largely independ HQW RI JHQHUDO HFRQRPLF ȵXFWXDWLRQV 0DQ agement Board and Supervisory Board there fore intend to propose a dividend of €1.80 for each share entitled to dividends to the Annual General Meeting.

\$VVHWVOLDELOLWLHVDQGȴQDQFLDOSRVLWLRQ

/RQJWHUP DVVHWV GHFOLQHG LQ WRWDO E\ Ȝ PLOOLRQWRȜPLOOLRQ'HFHPEHU Ȝ PLOOLRQ? GXULQJ ȴVFDO \HDU 5HD sons for the decline (among others) include WKH VFKHGXOHG GHSUHFLDWLRQ LQ ȴVFDO \HDU RIWKHLQWDQJLEOHDVVHWVLGHQWLȴHGGXULQJ the purchase price allocations for yourfone and Phone House in the previous year over their usual useful life of 6 or 2.5 years in the amount of €20.6 million. Goodwill declined by €8.5 million to €98.5 million (31 December Ȝ PLOOLRQ? 7KH FKDQJH RYHU WKH previous year is essentially a consequence RI WKHZULWHRV GHVFULEHG DERYHLQ WKH VHF tion on the earnings position on the goodwill of Phone House that was provisionally iden WLȴHG LQ WKH SUHYLRXV \HDU SHU 'HFHPEHU 2015. The remaining goodwill of Phone House in the amount of €9.3 million (31 December 2015. €17.7 million) represents essentially the access to free retail trade for establishment DQGH[SDQVLRQRI WKH&RPSDQ\ȇVRZQRɞLQH sales obtained with the acquisition of Phone +RXVHDVZHOODVWKHNQRZKRZDQG\HDUVORQJ experience in comprehensive operation of shop locations and hardware procurement inherent in the takeover of the Phone House workforce. In future, Phone House will con centrate on these core competencies within Drillisch Group.

Deferred tax reimbursements decreased by €2.3 million to €12.7 million (31 December ȜPLOOLRQ

The cash balance declined by €30.6 million WR Ȝ PLOOLRQ 'HFHPEHU Ȝ million). The decline was caused primarily by the dividend disbursement in May 2016, the UHGXFWLRQ LQ VXSSOLHU SD\DEOHV DQG RXWȵRZ IURPWKHSD\PHQWRI2WKHUȴQDQFLDOOLDELOLWLHV The reduction in inventories and income from the operating mobile business had a posi WLYH HHFW 7UDGH UHFHLYDEOHV DPRXQWHG WR ȜPLOOLRQ 'HFHPEHU ȜPLO lion). Other current assets declined by €27.1 PLOOLRQ WR Ȝ PLOOLRQ 'HFHPEHU €32.1 million) and comprised in the previous year essentially receivables due from network operators in the amount of €24.0 million (31 'HFHPEHUȜ?ΖQWRWDOFXUUHQWDVVHWV decreased by €83.4 million to €200.5 million 'HFHPEHUȜPLOOLRQ

The assets of the disposal group concern the current assets to be recognised separately of Phone House Telecom Vertrieb GmbH, which was sold in January 2017. These assets com prise essentially receivables due from net work operators in the amount of €16.9 million from the Phone House brokerage activities. In accordance with the provisions of IFRS 5, as VHWV WKDWDUHFODVVLȴHGDVEHLQJKHOG IRUVDOH must be recognised as separate items in the balance sheet.

The balance sheet total for Drillisch Group de creased by a total of €93.5 million to €595.2 million per 31 December 2016 (31 December ȜPLOOLRQ

In comparison with the previous year, eq uity decreased by a total of €69.6 million to Ȝ PLOOLRQ 'HFHPEHU Ȝ million). Subscribed capital remains un changed at €60.2 million; capital reserves are also unchanged at €295.6 million. Owing to the dividend disbursement in May 2016, accu PXODWHGGHȴFLWEDODQFHGDJDLQVWWKHFRQVROL GDWHGSURȴWWRWDOOLQJȜPLOOLRQ?LQFUHDVHG WRȜPLOOLRQ'HFHPEHUȜ PLOOLRQ? 7KH LWHP 2WKHU HTXLW\ RI Ȝ PLO OLRQ'HFHPEHUȜPLOOLRQ?UHȵHFWV the actuarial gain or loss from the measure ment of the pension provisions recognised as QRQRSHUDWLQJUHVXOWVLQDFFRUGDQFHZLWKΖ\$6 19. The equity ratio per 31 December 2016 FDPHWR'HFHPEHU

/RQJWHUP OLDELOLWLHV URVH E\ Ȝ PLOOLRQ WR Ȝ PLOOLRQ 'HFHPEHU Ȝ million). The deferred tax liabilities declined by €3.1 million to €28.1 million per 31 Decem EHU 'HFHPEHU Ȝ PLOOLRQ? and result essentially from the assets and lia ELOLWLHVLGHQWLȴHGZLWKLQWKHIUDPHZRUNRIWKH purchase price allocations of yourfone and 3KRQH+RXVHLQ2WKHUORQJWHUPȴQDQ cial liabilities comprised in the previous year ORQJWHUP OLDELOLWLHV RI Ȝ PLOOLRQ IURP WKH acquisition of Phone House within the frame ZRUN RI ORQJWHUP HDUQRXW FRPSRQHQWV /RQJWHUP2WKHUOLDELOLWLHVURVHE\ȜPLO OLRQWRȜPLOOLRQ'HFHPEHUȜ million). The increase results mainly because RI OLDELOLWLHV RZHG WR 7HOHIµQLFD IURP WKH DF quisition in 2016 of the trademark rights for WKHXWLOLVDWLRQRIWKHWUDGHQDPH7HOHIµQLFD

In December 2013, Drillisch AG issued a QRQVXERUGLQDWHG FRQYHUWLEOH ERQG ZLWK D total volume of €100.0 million and a term of ȴYH \HDUV WKLV ERQG ZDV UHFRJQLVHG LQ WKH balance sheet per 31 December 2016 at a val XHRIȜPLOOLRQ'HFHPEHUȜ million). The convertible bond includes an an

QXDOFRXSRQRI7KHERQGZDVLVVXHGDW RIWKHQRPLQDOYDOXHDQGZLOODOVREHUH GHHPHGDW7KHWHUPRIWKHERQGHQGV on 12 December 2018.

6KRUWWHUP OLDELOLWLHV GHFUHDVHG ZLWK UHVSHFW WRWKHHQGRIȴVFDO\HDUE\ȜPLOOLRQ WRȜPLOOLRQ'HFHPEHUȜ million). Above all, trade accounts payable fell by €36.0 million to €44.9 million (31 December ȜPLOOLRQ?2WKHUȴQDQFLDOOLDELOLWLHV RI Ȝ PLOOLRQ SUHYLRXV \HDU Ȝ PLOOLRQ? DUHUHODWHGWRFRQWLQJHQWVKRUWWHUPSXUFKDVH price liabilities from the acquisition of Phone House. In the previous year, this item included a cash agreement with a large supplier in the amount of €40.0 million as well as the contin JHQWVKRUWWHUPSXUFKDVHSULFHOLDELOLWLHVIURP the acquisition of Phone House and GTCom in the total amount of €24.7 million. Tax liabili ties increased by €6.3 million to €11.4 million 'HFHPEHU Ȝ PLOOLRQ? 3D\PHQWV received on account declined to €4.2 million 'HFHPEHUȜPLOOLRQ?%DQNORDQV and overdrafts of €50.0 million (31 Decem EHU Ȝ? UHVXOW IURP WKH XWLOLVDWLRQ RI the credit line that has been available since December 2014. Other liabilities fell by €6.5 PLOOLRQ WR Ȝ PLOOLRQ 'HFHPEHU Ȝ PLOOLRQ? 6KRUWWHUP SURYLVLRQV SHU December 2016 amounted to €10.7 million 'HFHPEHUȜPLOOLRQ

The debts of the disposal group are related WR WKHVKRUWWHUPGHEWVRI3KRQH+RXVH7HO ecom Vertrieb GmbH, which was sold in Jan uary 2017, that must be recognised separate ly; they comprise essentially trade liabilities due to distribution partners in the amount of €16.4 million. In accordance with the pro YLVLRQV RIΖ)56 GHEWV WKDW DUH FODVVLȴHG DV being held for sale must be recognised as sep arate items in the balance sheet analogously to the assets.

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&DVK ȵRZ IURP FXUUHQWEXVLQHVV DFWLYLWLHVLQ ȴVFDO \HDU DPRXQWHG WR Ȝ PLOOLRQ SUHYLRXV\HDUȜPLOOLRQ?DQGWKLVIXUWKHU LQFUHDVH RYHU WKH SUHYLRXV \HDU UHȵHFWV WKH earning power of the operating business.

Cash flow from current business activities (in €m)

&DVK ȵRZ IURP LQYHVWPHQW DFWLYLWLHV LQ WKH DPRXQW RI Ȝ PLOOLRQ SUHYLRXV \HDU Ȝ PLOOLRQ? LV UHODWHG LQ WKH DPRXQW RI ȜPLOOLRQ SUHYLRXV \HDU ȜPLOOLRQ? WR payments for acquisitions within the frame work of the payment of contingent purchase price liabilities from the acquisition of Phone House and GTCom. Payments of €5.8 million SUHYLRXV \HDU SD\PHQWV RI Ȝ PLOOLRQ? ZHUHHHFWHGIRULQYHVWPHQWVLQWDQJLEOHDQG intangible assets. Received interest payments DPRXQWHGWRȜPLOOLRQSUHYLRXV\HDUȜ million).

'XULQJȴVFDO \HDU WKHUHZDVRYHUDOODQ RXWȵRZ RI IXQGV IURP ȴQDQFLQJ DFWLYLWLHV RI ȜPLOOLRQSUHYLRXV\HDURXWȵRZRIIXQGV of €100.7 million) resulting largely from €95.8 PLOOLRQ SUHYLRXV \HDU Ȝ PLOOLRQ? LQ GLY idend disbursements paid in May 2016 and IURPȜPLOOLRQSUHYLRXV \HDUȜPLO OLRQ?LQWKHFKDQJHLQ2WKHUȴQDQFLDOOLDELOLWLHV DQG IURP Ȝ PLOOLRQ SUHYLRXV \HDU Ȝ PLOOLRQ?LQLQWHUHVWSDLG7KLVRXWȵRZRIIXQGV is in contrast to payments received from the XWLOLVDWLRQRIȴQDQFLQJORDQVLQWKHDPRXQWRI ȜPLOOLRQȜ?IURPWKHȴUVWWLPHXWLOLVD tion of the credit line that has been available since December 2014.

3ULQFLSOHVDQGREMHFWLYHVRIWKHȴQDQFLDO and capital management

7KHȴQDQFLQJRIWKH*URXSLVKDQGOHGFHQWUDO ly by the parent company Drillisch AG. The top SULRULW\ RI WKH ȴQDQFLDOPDQDJHPHQW DW 'ULO lisch is to secure the Company's liquidity at all times. Liquidity reserves are always main tained in such an amount that any and all pay ment obligations can be met on time. Liquidi W\LVVHFXUHGRQWKHEDVLVRIGHWDLOHGȴQDQFLDO SODQQLQJ %XVLQHVV RSHUDWLRQV DUH ȴQDQFHG IURP FDVK ȵRZ DQG IUHH FDVK 7KH&RPSDQ\ strives to develop further and to optimise the ȴQDQFLDOPDQDJHPHQWFRQWLQXRXVO\

As a general principle, the company law provi sions form the framework of capital manage ment in Drillisch Group. In cases in which con tractual provisions must be observed, equity is managed additionally in accordance with WKHSULQFLSOHVGHȴQHGLQ WKHVHSURYLVLRQVΖQ cases in which no special provisions need be observed, the equity being managed is the equity as disclosed in the balance sheet. Oth erwise, the equity from the balance sheet is DGMXVWHGDFFRUGLQJWRWKHFRQWUDFWXDOUHTXLUH ments. During the reporting period, the Com pany complied with both company law and contractual provisions at all times.

1RQȴQDQFLDOSHUIRUPDQFHLQGLFDWRUV

In addition to the development in the num ber of subscribers explained in the business UHSRUWWKHQRQȴQDQFLDOSHUIRUPDQFHLQGLFD WRUVGHVFULEHGEHORZDORQJZLWKHɝFLHQWYDO XHRULHQWHG FRUSRUDWH PDQDJHPHQW DUHPD MRUIDFWRUVFRQWULEXWLQJWR'ULOOLVFKȇVVXFFHVV

Quality of the products: All of the Drillisch Group brands have been awarded an ISO cer WLȴFDWHSXUVXDQWWR'Ζ1(1Ζ62IRU outstanding quality management in the are as of online product marketing and customer service. Nationally and internationally, this is the most commonly applied and important VWDQGDUGIRUGHȴQLQJWKHTXDOLW\RISURFHVVHV in a company.

Knowledge of the markets: As a consequence of the more than 20 years of activities by Dril lisch and its predecessor companies on the mobile services market, the Company has es tablished a position of trust among customers and network providers. This is what enables Drillisch to recognise upcoming trends in good time and to utilise them to raise value. Real ising innovative marketing ideas and alterna tive distribution solutions has repeatedly led WR'ULOOLVFKȇVVXFFHVVLQRHULQJSURGXFWVDWDQ early stage which meet the needs of the cus WRPHUV2QHLPSRUWDQWREMHFWLYHLVLQFUHDVLQJ WKH VXEVFULEHU EDVH ZLWK ORQJWHUP YDOXH E\ securing a greater market share in the rele vant segments.

First-class customer service: Drillisch sets high standards for its own customer service, based on its many years of experience as a PRELOHVHUYLFHVSURYLGHU1RWFRQWHQWMXVW WR maintain these standards, the Company has succeeded in improving them even further through consistent quality management.

(ɝFLHQF\ RI EXVLQHVV SURFHVVHV Drillisch works constantly on the improvement of ef ȴFLHQF\ LQ EXVLQHVV SURFHVVHV HRUWV ZKLFK have led to permanent increases in productiv LW\ΖQWKH&RPSDQ\ɒVRZQHVWLPDWLRQ'ULOOLVFK LVRQHRI WKHPRVWSURȴWDEOHPRELOHVHUYLFHV providers in Germany.

3. Forecast, opportunity and risk report

3.1. Risk management system

The risk management system is an integral component of corporate policy aimed at ear ly exploitation of opportunities as well as the detection and limitation of risks. Drillisch oper ates a risk management system throughout the Group that includes continuous observation to ensure early recognition and the standardised recording, assessment, control and monitor LQJ RI ULVNV 7KH REMHFWLYH LV WR REWDLQ LQIRU mation about negative developments and the UHODWHGȴQDQFLDOHHFWVDVHDUO\DVSRVVLEOHVR that the appropriate measures can be initiated to counteract them. The management of the company results and company value makes use of the instruments of risk management, They can become a strategic success factor for corporate management – for Drillisch itself as well as for the subsidiaries.

If the Company is to be consistently successful LQWKHFRQȵLFWEHWZHHQRSSRUWXQLWLHVIRUSURI it and the threat of loss, risks must be taken LQWRFRQVLGHUDWLRQGXULQJWKHGHFLVLRQPDNLQJ process systematically and in accordance with standards which are uniform throughout the *URXS5LVNPDQDJHPHQWLQFOXGHVWKHGHȴQL WLRQ RI ULVN ȴHOGV WKH UHFRUGLQJ RI ULVNV DQG the communication of risks by the operating units, the assignment of responsibilities and tasks and the documentation of these steps. The concrete implementation of the proce dures which have been issued is secured by a monitoring system. The Drillisch risk manage ment process utilises the following building blocks for the exploitation of opportunities ZLWKRXWGHOD\DQGWKHHDUO\GLVFRYHU\RIULVNV

• » The internal controlling system

• » The daily, weekly and monthly manage ment reporting, especially in the areas con trolling, cash management and the operat ing business segments

• » The continuous monitoring of the market

• » The quarterly risk inventory

The coordination of risk management is han dled at the group level by Group Controlling DQG /HJDO%DVHG RQPRQWKO\ FORVHRXWV WKH UHJXODU FRPSDULVRQ RI EXGJHW DQG DVLV ȴJ ures as well as market analyses and market observations, opportunities and risks from operating and strategic areas can be recog nised early and incorporated into the risk portfolio by implementation of suitable meas ures. Lines of responsibility and accountabil ity are clearly regulated at Drillisch and are based on the corporate structure of Drillisch Group. Risk management includes the secur ing of risks outside of the Group as well. Ad equate insurance policies, provided that they DUH UHJDUGHG DV EHLQJ HFRQRPLFDOO\ MXVWLȴD ble, have been concluded to cover incidents of loss and liability risks arising in the course of daily business. Risks are assessed as far as possible by determining the probability of their occurrence and possible impact on earn ings and assets. The probability of occurrence DQGWKHLPSDFWDUHFODVVLȴHGDQGDVVHVVHGDS propriately. The assessment of the degree of WKHULVNDQGWKHSRVVLEOHȴQDQFLDOLPSDFWDUH based on the criteria low, medium, high and very high; the assessment of the probability of RFFXUUHQFHLVFODVVLȴHGDFFRUGLQJ WRXQOLNHO\ possible, probable and highly probable.

RISK ASSESSMENT MATRIX

Probability of occurrence

The Management Board and the Audit Com mittee of the Supervisory Board are regular ly provided with reports on the risk situation DQGWKHHHFWLYHQHVVRIWKHULVNPDQDJHPHQW system with all of its controlling functions. The results are discussed by both the Manage ment Board and Supervisory Board.

3.2. Description of the major features of the internal controlling and the risk management system with respect to the accounting process (Section 315 (2) HGB)

The internal controlling system in Drillisch Group includes all of the principles, proce dures and measures needed to secure the HHFWLYHQHVVFRUUHFWQHVVDQGHFRQRPLFHɝ ciency of the accounting and to assure com pliance with the relevant legal requirements. Besides the manual process controls in the form of the "two sets of eyes principle", auto PDWLFΖ7SURFHVVFKHFNVDOVRIRUPDPDMRUSDUW of the integrated controlling measures. The risk management system in Drillisch Group as a component of the internal controlling sys tem is oriented, with respect to the account ing, to the risk of incorrect representation in the bookkeeping and the external reporting. A "monitoring system for the early recogni WLRQ RI ULVNV WKUHDWHQLQJ WKH &RPSDQ\ɒV H[ istence" has been set up in Drillisch Group to ensure the systematic early detection of risks throughout the Group so that, going beyond the scope originally required by statutory pro visions, other risks as well as those threaten LQJWKHH[LVWHQFHRIWKHȴUPDUHGHWHFWHGHDU ly, controlled and monitored. In accordance with Section 317 (4) HGB, the auditor apprais es the functional capability of the system for the early detection of risks, which is adapted without delay to any and all changes in the en vironment. The bookkeeping software from the manufacturer Sage is used for the posting

of accounting items in Drillisch Group, while the consolidation software from the manu facturer Infor Global Solutions is used at the group level.

Risks related to accounting can arise from the conclusion of unusual or complex transac tions, for example. Moreover, business trans actions which are not handled as a matter of URXWLQH DUH VXEMHFW WR ODWHQW ULVN 7KHPHDV ures of the internal controlling system orient ed to the correctness of the accounting en sure that all of the business transactions are recorded completely and contemporaneously in conformity with legal and statutory require ments. Furthermore, it is assured that assets and debts are correctly recognised, measured and disclosed in the annual accounts. The controlling activities include the analysis of material circumstances and developments, for example, using special indicator systems. The organisational separation of administra tive, executive, billing and approval functions VLJQLȴFDQWO\UHGXFHYXOQHUDELOLW\WRIUDXG7KH internal controlling system also assures the representation of changes in the economic or legal environment of Drillisch Group and en sues the application of any new or amended legal provisions for the accounting.

In addition to the internal controlling system, the auditor and other auditing bodies are in directly incorporated into the controlling envi ronment of Drillisch Group by means of audit ing activities independent of processes. The audit of the separate and consolidated annual accounts by the auditor is especially impor WDQW DV PDMRU PRQLWRULQJ PHDVXUHV ZLWK UH spect to the accounting process.

3.3. Market-related risks

7KHPDMRUFURVVVHJPHQWULVNVUHODWHGWRWKH PDUNHWDUHDVIROORZV

• » Drillisch operates in a market environment which is by and large saturated and con sequently highly competitive. Substantial increases in overall turnover cannot be expected on the German mobile services market in 2017.
• » Drillisch may possibly not be successful in acquiring and maintaining a satisfactory share of this market.
• » 7KHEURDGDYDLODELOLW\RIORZFRVWUDWHVDQG products may cause the prices which can be charged for mobile services to decline.
• » A decline in prices on the market for mo bile services or further reductions in the termination charges could result in falling sales and income.
• » The expenditures required to acquire new customers and retain the loyalty of current customers are comparatively high, espe FLDOO\ LQ WKH VHJPHQW RI ȴ[HGWHUP FRQ tracts. These expenditures may continue to rise in the future.
• » 'ULOOLVFKLVVXEMHFW WRUHJXODWRU\UHVWUDLQWV in its business activities. These general conditions may change and could impact business.
• » Mobile services providers are dependent RQ QHWZRUN RSHUDWRUV LQ RHULQJ WKHLU products and services because they do not have their own network.

The occurrence of one of these risks would KDYHFRUUHVSRQGLQJHHFWVRQWKHDVVHWVDQG OLDELOLWLHVWKHȴQDQFLDOSRVLWLRQDQGHDUQLQJV From today's perspective, the Management Board does not consider the risks to be ex istential threats because the risks described above are currently located in a low to mod erate range.

&RPSDQ\VSHFLȴFULVNV

7KHHHFWVRIWKHULVNVGHVFULEHGEHORZFRXOG KDYHDORZWRPDMRULPSDFWGHSHQGLQJRQWKH SUREDELOLW\RIRFFXUUHQFHRIHDFKVSHFLȴFULVN

7KHPDMRUFURVVVHJPHQWULVNVVSHFLȴFWR'ULO OLVFKDUHDVIROORZV

• » 7KHQHWȴQDQFLDOGHEWRI'ULOOLVFKFRXOGLQ crease, e.g. as a consequence of the take over of companies, leading to a worsening RIWKHȴQDQFLDOUHVXOWVDQGWKHHTXLW\UDWLR 7KLVFRXOGKDYH DORQJWHUP HHFWRQ WKH Company's ability to disburse dividends and to take out new loans.
• » Drillisch utilises in part credit lines with var LDEOHLQWHUHVWUDWHVIRUVKRUWWHUPȴQDQFLDO dispositions. The variable interest rates are RULHQWHG WR ȴQDQFLDO LQGLFDWRUV DJUHHG LQ advance and other factors. An increase in the agreed basic interest rate or changes in WKHȴQDQFLDOLQGLFDWRUVFRXOGKDYHDQHJD tive impact on the earnings position.
• » The maintenance of the functional capabil ity and the regular evolvement of the soft ware systems used by the Company, which it has in part developed itself, for the admin istration of the customers and the billing of performed services is of decisive impor tance for the success of Drillisch. Software errors can cause disruptions in the program execution, in extreme cases causing a per manent failure of the software and the loss of data, and prevent the Company from de YHORSLQJ DQG RHULQJ QHZ PRELOH VHUYLFH products within a short period of time.
• » Drillisch is highly dependent on the Man agement Board members and on employ ees in key positions.
• » There is a fundamental possibility that there will be changes for assessment peri RGVWKDWKDYHQRWEHHQȴQDOO\UHYLHZHGUH sulting in tax back payments or changes in WKHDFFXPXODWHGGHȴFLWVFDUULHG IRUZDUGLI

and when tax authorities, in the course of WKHLU WD[ DXGLWV VKRXOG GHFLGH RQ GLHU ent interpretations of tax statutes or devi ating measurements of the circumstances on which the assessments are based. This is also true of types of expenditures that have in part never been audited, especial O\EHFDXVHWKH\DUHXVXDOO\QRWWKHVXEMHFW of an audit by tax authorities. Furthermore, changing legal precedents based on court decisions or changes in the interpretation of legal statutes can result in retroactive corrections in the types of taxes and lead to tax risks.

)XUWKHUPRUH WKH IROORZLQJ PDMRU ULVNV VSH FLȴFWR'ULOOLVFKH[LVWIRUWKHVHJPHQWV2QOLQH DQG2ɞLQH

• » As Drillisch does not operate its own net ZRUN LW LV ȴUVW RI DOO GHSHQGHQW IRU LWV range of services on the network access JXDUDQWHHG E\ 7HOHIµQLFD LQFOXGLQJ WKH provision of any and all present and fu ture mobile service technologies which are available. Second, whenever accounts are activated in another network, Drillisch is also dependent on the provision of all of the necessary preliminary mobile services.
• » Drillisch is vulnerable to the risk that contract customers will not meet their payment obli gations under their mobile service contracts.
• » Owing to the future obligation to take over DWOHDVWRIWKHSUHVHQWDQGIXWXUHQHW ZRUN FDSDFLW\ RI 7HOHIµQLFD IRU QHZ FXV WRPHUV DV ZHOO DV DGGLWLRQDO GHȴQHG FD pacity for existing customers, there is a risk that Drillisch may not be able to utilise fully the purchased volume in future. Unused capacities can cause expenses that are not covered by direct income or rebates.
• » The operation of the Company's own VKRSVFDQUHVXOWLQȴ[HGFRVWVWKDWDUHQRW initially met by direct income in compara ble amounts.

However, Drillisch does not regard the result LQJFURVVVHJPHQW ULVNVDQG WKH ULVNV IRU WKH VHJPHQWV2QOLQHDQG2ɞLQHWREHRIDQH[LV tential nature because the above mentioned risks are located in a low to mid band (risk as sessment 1 and 2).

3.5. Opportunities

7KH PDMRU FURVVVHJPHQW RSSRUWXQLWLHV VSH FLȴFWR'ULOOLVFKDUHDVIROORZV

• » The design of its own rate plans in the MVNO model gives Drillisch the opportuni W\WRUHVSRQGTXLFNO\DQGȵH[LEO\WRFKDQJ es on the market. This situation repeatedly creates opportunities to exploit or realise this competitive advantage to increase earnings.
• » Drillisch now has the opportunity to im prove its market position as well as its EXVLQHVV YROXPH VLJQLȴFDQWO\LQ WKH \HDUV to come on the basis of all products and WHFKQRORJLHV DYDLODEOH RQ WKH 7HOHIµQLFD network at the moment and in future.
• » Unrestricted access to LTE as well as to even more sophisticated future technol RJLHV JXDUDQWHHV 'ULOOLVFK WKH ORQJWHUP ȵH[LELOLW\ LW QHHGV WR EH DEVROXWHO\ LQGH pendent in the design of new products, thus allowing fair competition on equal footing with the three remaining German network operators.

• » The basic term of the MBA agreement of 5 years and the option of extending this term WZLFH WR D WRWDO RI \HDUV RHU 'ULOOLVFK WKH RSSRUWXQLW\ IRU FRQWLQXLQJ ORQJWHUP successful corporate development as well as a high degree of planning security.

• » In addition, the agreement concluded with 7HOHIµQLFDJLYHV'ULOOLVFKWKHRSSRUWXQLW\WR EHFRPHDIXOO0912RQWKH7HOHIµQLFDPR bile network or even to become a licensed mobile network operator. The latter can initially and with technical support from 7HOHIµQLFD ȊQDWLRQDO URDPLQJȋ? EH OLPLWHG WRVSHFLȴFUHJLRQVLQ*HUPDQ\

• » 7KHLQFUHDVHLQPRELOHGDWDWUDɝFDQGWKH related demand for mobile services rate SODQVLQFOXGLQJGDWDYROXPHRHU'ULOOLVFK WKH RSSRUWXQLW\ WR FRQWLQXH WR LQȵXHQFH and guide the market proactively with its ȵH[LEOHUDWHSODQFRQFHSWV
• » The growing prevalence of mobile appli cations such as music streaming, online JDPHV RU ȴOP DQG YLGHR VWUHDPLQJ ZLOO continue to produce high demand for mo bile data rate plans in future as well.
• » The good operating results and the related FDVK ȵRZ ZLOO DOVR SURYLGH RSSRUWXQLWLHV in future to disburse attractive dividends and, if necessary, to obtain loans with good terms and conditions.
• » The utilisation and steady further devel opment of software systems developed by the Company itself for the management of customers and billing of performed service mean almost total independence from any WKLUGSDUW\VHUYLFHV7KHUHODWHGHɝFLHQF\ VSHHG DQG ȵH[LELOLW\ JLYH 'ULOOLVFK D FRP petitive advantage over other companies.

There is an additional opportunity for Drillisch LQWKHVHJPHQW2ɞLQH

» 7KH RSHUDWLRQ RI EULFNDQGPRUWDU VDOHV ORFDWLRQV RHUV 'ULOOLVFK WKH FKDQFH WR H[ SDQGVXEVWDQWLDOO\LWVZLGHDUHDGLVWULEXWLRQ capacity at central, established locations.

Forecast Report

3.6. Summary of opportunity and risk position

7KHUHZHUHQRWDQ\VLJQLȴFDQWFKDQJHVLQWKH opportunities and risks of ongoing business operations in 2016 in comparison with the previous year. The opportunities and risks de VFULEHGKHUHDUHWKHPDMRURSSRUWXQLWLHVDQG ULVNVZKLFKKDYHEHHQLGHQWLȴHGDWWKLVWLPH 7KHSRVVLELOLW\WKDWDGGLWLRQDOPDMRURSSRUWX nities and risks that at this time have not been recognised by management exist or that the probability of the occurrence of such oppor tunities and risks has been wrongly assessed as negligible cannot be excluded. Adequate precautions have been taken to counter any probable risks. There are at this time no known risks which would threaten the Com SDQ\ɒVH[LVWHQFH

3.7. Outlook

This report contains certain statements ori ented to the future which are based on the FXUUHQW DVVXPSWLRQV DQG SURMHFWLRQV RI WKH Company's management. Various risks, un certainties and other factors, both known and XQNQRZQFDQFDXVHWKHDFWXDOUHVXOWVȴQDQ cial position, development or performance of the Company to deviate substantially from the assessment shown here.

General economic conditions

In the opinion of the German government DQGWKHJUHDWPDMRULW\RIWKHPRVWLPSRUWDQW economic research institutes, the economic upswing in Germany is not yet at an end. De spite the ongoing economic weakness of the (XURSHDQHQYLURQPHQWDQGWKHVSHFLDOHHFWV arising from the lower number of workdays in 2017, the German government are assuming HFRQRPLFJURZWKLQ*HUPDQ\RIIRU The Deutsches Institut für Wirtschaftsforschung H[SHFWV HFRQRPLF JURZWK RI DERXW IRU 2017. The ifo Economic Forecast 2016/2017 is assuming growth in the real gross domestic SURGXFW RI IRU 7KDQNV WR WKH GR mestic German economy, which remains very healthy, real economic development in Ger many is remarkably resilient.

Drillisch Management Board forecast regarding development on the German mobile services market

The Drillisch Management Board expects the telecommunications and IT markets in Ger many to remain important innovation drivers for the German economy. However, there will SUHVXPDEO\ QRW EH DQ\ VLJQLȴFDQW JURZWK LQ revenues in the telecommunications industry because, although use is on the rise, price sen sitivity will remain at the same level. Mobile data communications will remain the most important growth segment in telecommuni cations. Network quality and the availability of fast data connections continue to gain in importance for consumers. Moreover, the dis placement of the landline network by mobile services will continue. Simplicity in making SKRQHFDOOVDQGȊVXUȴQJȋDWORZSULFHVZLOOUH main the focus of interest for mobile services FXVWRPHUV 7KH YLUWXDOO\ IXOODUHD DYDLODELOLW\ RIPRELOHKLJKVSHHGΖQWHUQHWWKHFRQWLQXLQJ growth in popularity of powerful smartphones and of services such as cloud applications, VWUHDPLQJVHUYLFHVIRUSKRWRVRUPXVLFȊQHDU ȴHOGȋ DQG ȊPDFKLQHWRPDFKLQH FRPPXQLFD tion" along with the spread of LTE give rise to the expectation that growth rates in the use of mobile data communications will continue to be high. The greatest turnover growth and growth potential are predicted for this seg ment of the mobile services market. Drillisch LQWHQGV WRPDNHXVHRILWV FXVWRPHUIULHQGO\ SRUWIROLRWRSURȴWIURPWKLVGHYHORSPHQW

In the segment Online, Drillisch is aiming to in FUHDVHVLJQLȴFDQWO\LWV0912FOLHQWHOHDQGLP prove further its mix of rate plans in the com LQJȴVFDO\HDUWKHUHE\FRQWLQXLQJWKHSRVLWLYH

Compensation Report

GHYHORSPHQW RI JURVV SURȴW LQ LWV RSHUDWLQJ business and a substantial rise in turnover in the area of "service revenues".

ΖQ WKH VHJPHQW 2ɞLQH 'ULOOLVFK LV DLPLQJ WR LQFUHDVH VLJQLȴFDQWO\ LWV 0912 FOLHQWHOH LP prove further its mix of rate plans and achieve a substantial rise in turnover in the area of "service revenues" as well. These steps, in FRQMXQFWLRQZLWKWKHRQJRLQJH[SDQVLRQRIRI ȵLQHVDOHVDUHWKHEDVLVIRUWKH0DQDJHPHQW Board's assumption of a positive development LQJURVVSURȴWDQG(%Ζ7'\$LQWKHFRPLQJȴVFDO year.

In view of these general conditions, the Man DJHPHQW %RDUG H[SHFWV RYHUDOO D VLJQLȴFDQW increase in MVNO clientele and a related con tinuation of the positive development of gross SURȴWLQLWVRSHUDWLQJEXVLQHVVDQGDVXEVWDQ tial rise in turnover in the area of "service rev enues". The Management Board expects an LQFUHDVHLQDGMXVWHG(%Ζ7'\$WRȜPLOOLRQWR €170 million for 2017.

4. Compensation report

The structure of the compensation system for the Management Board is determined by the Supervisory Board. The criteria for the rea sonableness of the compensation include in particular the duties and responsibilities of each of the Management Board members; their personal performance; the performance of the Management Board as a whole; and the economic position, the success and the future prospects of the Company, taking into account its comparative environment. The compensation for the Management Board PHPEHUVFRPSULVHVVKRUWWHUPFRPSRQHQWV DQG IDFWRUVZLWK ORQJWHUP LQFHQWLYH FRPSR QHQWV7KHVKRUWWHUPFRPSRQHQWVFRQVLVWRI elements not contingent on success and mer LWEDVHG HOHPHQWV 7KH HOHPHQWV QRW FRQWLQ JHQWRQVXFFHVVFRPSULVHȴ[HGFRPSHQVDWLRQ DVZHOODVSD\PHQWLQNLQGDQGRWKHUEHQHȴWV 7KH ȴ[HG FRPSHQVDWLRQ DV EDVLF FRPSHQVD tion not contingent on success is paid monthly as a salary and reviewed annually. In addition, the Management Board members receive RWKHU EHQHȴWV LQ SDUWLFXODU DOORZDQFHV IRU KHDOWK DQGORQJWHUPFDUHLQVXUDQFH DVZHOO as payments in kind comprising essentially the use of a company vehicle. The Manage ment Board's compensation always includes YDULDEOHPHULWEDVHGFRPSHQVDWLRQHOHPHQWV 7KHVH HOHPHQWV DUH UHGHȴQHG HYHU\ \HDU E\ the Supervisory Board on the basis of targets.

Mr Paschalis Choulidis voluntarily stepped down from the Drillisch AG Management Board per 1 July 2016. For the purpose of the following remarks, Mr Paschalis Choulidis is included as a Management Board member for the period from 1 January 2016 to 30 June 2016.

(VWDEOLVKLQJ D ORQJWHUP LQFHQWLYH FRPSR nent, the Supervisory Board in 2016 conclud HG D ȊORQJWHUPLQFHQWLYHERQXVȋ/7Ζ? DJUHH ment for a period of three years with the two Management Board members Paschalis Choulidis and Vlasios Choulidis and in 2015 a "bonus 2015–2017" agreement with the Man agement Board member André Driesen for a period of three years. The parameter for de termining success is the consolidated EBITDA. In the event of a premature termination of the service relationship within the agreed period, the Management Board members receive a GHȴQHG DPRXQW GHSHQGHQW RQ WKH WLPH RI their withdrawal.

The agreements with the Management Board members have been concluded to 31 March 2018 (Mr André Driesen) and to 31 December 2018 (Mr Vlasios Choulidis). In the event of a premature termination of the service rela tionship, Mr Vlasios Choulidis' Management Board contract does not contain any express settlement commitment with the exception of the following regulation. In the event that

Compensation Report

there is a change in the Drillisch shareholder VWUXFWXUH RIPRUH WKDQ FKDQJH RI FRQ trol), a part of the compensation not based RQVXFFHVVDQGPHULWEDVHGFRPSHQVDWLRQRI the Board Member Vlasios Choulidis will be deemed earned. Mr Vlasios Choulidis will re FHLYH D UHWHQWLRQ ERQXV IRU HYHU\ ȴVFDO \HDU between 2016 and 2018 in which he has been active on behalf of the Company pursuant to his appointment and service agreement over the entire period. Mr Paschalis Choulidis re ceived a retention bonus for the period of ȴVFDO \HDU GXULQJ ZKLFK KH ZDV DFWLYH on behalf of the Company pursuant to his ap pointment and service agreement. The Man agement Board members receive compen VDWLRQLQ WKHDPRXQWRIȜNSUHYLRXV\HDU €33k) for their supervisory board activities on behalf of various subsidiaries. The Man agement Board members did not receive any loans or advance payments in the reporting period. No pension commitments have been made to the Management Board.

Compensation for the members of the Com pany's Management Board comprises the fol ORZLQJHOHPHQWV

Compensation for the members of the Company's Management Board 2016
Paid compensa tion (in €k)		Paschalis Choulidis Chief Finance Communications and IT 2ɝFHUXQWLO			Vlasios Choulidis &DUH2ɝFHU		CEO, Chief Sales, Marketing, Customer		André Driesen &KLHI)LQDQFLDO2ɝFHU
	2015	2016	2016 (Min)	2016 (Max)	2015	2016	2016 (Min)	2016 (Max)	2015	2016	2016 (Min)	2016 (Max)
Fixed compensation	630	362	362	362	630	700	700	700	300	400	400	400
)ULQJHEHQHȴWV	0	0	0	0	17	20	20	20	7	12	12	12
Total	630	362	362	362	647	720	720	720	307	412	412	412
2QH\HDUYDULDEOH compensation Multiannual variable	720	400	0	400	720	800	0	800	200	240	0	240
compensation /7Ζ	790	0	0	0	790	0	0	0	0	0	0	0
/7Ζ	0	275	275	275	0	1,080	550	1,080	0	0	0	0
%RQXV	0	0	0	0	0	0	0	0	100	100	0	100
5HWHQWLRQERQXV	0	200	0	200	0	400	0	400	0	0	0	0
Total	1,510	875	275	875	1,510	2,280	550	2,280	300	340	0	340
Pension expenses	2	1	1	1	2	2	2	2	1	2	2	2
Total compensation	2,142	1.238	638	1,238	2.159	3,002	1,272	3,002	608	754	414	754

Compensation Report

Compensation for the members of the Company's Management Board 2016

Payments (in €k)		Paschalis Choulidis Chief Finance Communications and IT 2ɝFHUXQWLO			Vlasios Choulidis CEO, Chief Sales, Marketing, Customer &DUH2ɝFHU			André Driesen &KLHI)LQDQFLDO2ɝFHU
	2015	2016	2016 (Min)	2016 (Max)	2015	2016	2016 (Min)	2016 (Max)	2015	2016	2016 (Min)	2016 (Max)
Fixed compensation	630	362	362	362	630	700	700	700	300	400	400	400
)ULQJHEHQHȴWV	0	0	0	0	17	20	20	20	7	12	12	12
Total	630	362	362	362	647	720	720	720	307	412	412	412
2QH\HDUYDULDEOH compensation	720	400	0	400	720	800	0	800	200	240	0	240
Multiannual variable compensation
/7Ζ	0	2,220	0	2,220	0	2,220	0	2,220	0	0	0	0
/7Ζ	0	0	0	0	0	0	0	0	0	0	0	0
%RQXV	0	0	0	0	0	0	0	0	0	0	0	0
5HWHQWLRQERQXV	0	200	0	200	0	0	0	0	0	0	0	0
Total	720	2,820	0	2,820	720	3,020	0	3,020	200	240	0	240
Pension expenses	2	1	1	1	2	2	2	2	1	2	2	2
Total compensation	1,352	3,183	363	3,183	1,369	3,742	722	3,742	508	654	414	654

The compensation paid to the Management Board member André Driesen was related in the previous year to his time as Management Board member.

ΖQȴVFDO\HDUGHIHUUHGFRPSHQVDWLRQLQ the amount of €165k (pro rata temporis to 30 June 2016) for the Management Board mem ber Paschalis Choulidis and in the amount of €230k for Vlasios Choulidis was paid into a pension fund.

The multiannual compensation refers to a ORQJWHUPLQFHQWLYHFRPSRQHQWZKLFKZLOOEH SDLGRXWLQȴVFDO\HDURU

The members of the Supervisory Board re FHLYH ȴ[HG FRPSHQVDWLRQ IRU HDFK IXOO ȴVFDO year of their participation in the Supervisory %RDUG WKH DPRXQW LV VSHFLȴHG LQ WKH FRP pany charter. The chairperson receives twice the amount, while the deputy chairperson and the chairperson of the Audit Committee each receive €12.5k in addition to the regular compensation. Moreover, attendance fees are paid per meeting and Supervisory Board member for each personal and physical par ticipation in a physical meeting of the Super visory Board and as a member of its commit tees. Supervisory Board members who did not belong to the Supervisory Board during WKH IXOO ȴVFDO \HDU UHFHLYH SUR UDWD WHPSRULV compensation according to the duration of their membership on the Supervisory Board. 2QHTXDUWHURIWKHȴ[HGFRPSHQVDWLRQLVSD\ able upon the expiration of each and every quarter. The attendance fees as accrued are payable upon the expiration of each and every quarter. The Supervisory Board members are also reimbursed for all of their expenses and for any turnover tax which must be paid on their compensation and expenses. In its own interest, the Company provides reasonable insurance at its own expense to the members of the Supervisory Board to cover the exercise of their activities as Supervisory Board.

Supplemental Information in Accordance with Section 315 (4) HGB

The compensation for the Supervisory Board members comprised the following elements.

Supervisory Board Compensation (in €k)	2016	2015
0DUF%UXFKHUVHLIHU'LSO.IP	74.0	77.0
Dr Susanne Rückert	53.5	55.5
Norbert Lang	37.0	3.4
+RUVW/HQQHUW]'UΖQJ	49.0	51.0
)UDQN5RWKDXJH'LSO.IP	63.5	63.5
Dr Bernd H Schmidt	47.0	47.3
-RKDQQ:HLQGO'LSO.IP	0.0	20.6
	324.0	318.3

5. Supplementary information

5.1. Supplementary information in accordance with Section 315 (4) HGB (information relevant for acquisitions)

The subscribed capital amounts to €60,241,113.90 and is distributed in QRSDUVKDUHVLVVXHGWRWKHEHDUHU with a proportionate share in the share capital of €1.10. Each share is the equivalent of one vote. The securitisation of the stock is exclud ed. In accordance with Sections 84, 85 AktG LQFRQMXQFWLRQZLWK6HFWLRQRIWKHFRPSDQ\ charter, the Management Board is appointed and recalled by the Supervisory Board. Any amendments to the company charter must be adopted in conformity with legal statutes (Sec tions 179 et seqq. AktG) by the Annual Gener al Meeting. Moreover, the Supervisory Board is authorised to amend the company charter LIDQGZKHQVXFKDPHQGPHQWVDHFWRQO\WKH wording. Per 31 December 2016, United Inter QHW9HQWXUHV\$*0RQWDEDXUKHOGRI the Drillisch AG stock.

Approved Capital I

Pursuant to a resolution adopted by the An nual General Meeting on 21 May 2014, the Management Board is authorised to increase the Company's share capital by a total of €23,403,166.60 by single or multiple issue of QHZQRSDUVKDUHVDJDLQVWFDVKDQGRUFRQWUL butions in kind (approved capital) by 20 May VXEMHFWWRWKHFRQVHQWRIWKH6XSHUYLVR ry Board. There is a balance of €21,669,969.20 subsequent to the capital increase of May 2015. In the event of cash contributions, the new shares may also be taken over by one or PRUHEDQNVRURWKHUFRPSDQLHV IXOȴOOLQJWKH SUHUHTXLVLWHVRI6HFWLRQ?ȴUVWVHQWHQFH \$NW*VXEMHFW WR WKHREOLJDWLRQ WRRHU WKHP for subscription to the shareholders (indirect subscription right). On principle, a subscrip tion right is to be granted to the shareholders. However, the Management Board is author LVHGVXEMHFWWRWKHFRQVHQWRIWKH6XSHUYLVRU\ Board, to exclude shareholders' subscription ULJKWV

• » So that fractional amounts are excluded from the subscription right;
• » If the capital increase is achieved by cash contributions and the issue price of the QHZVKDUHVLVQRWVLJQLȴFDQWO\ORZHU WKDQ that of the equivalent shares already trad HG RQ WKH H[FKDQJH DW WKH WLPH RI WKH ȴ nal determination of the issue price by the Management Board. The number of shares issued with the exclusion of subscription rights pursuant to Section 186 (3) fourth VHQWHQFH\$NW*PD\QRWH[FHHGLQWRWDO of the share capital, either at the point in WLPHRI WKHLUEHFRPLQJ HHFWLYHRU DW WKH point in time of the exercise of the authori sation. Any shares which have been issued or must be issued to satisfy subscription rights from options or convertible bonds, provided that the debenture bonds have been issued during the term of this au WKRULVDWLRQ VXEMHFW WR DSSOLFDWLRQ PXWDWLV mutandis of Section 186 (3), fourth sen tence AktG and excluding the subscription ULJKWPXVWEHLQFOXGHGLQ WKLVȴJXUH)XU

Supplemental Information in Accordance with Section 315 (4) HGB

thermore, shares that are issued or sold in exclusion of subscription rights during the term of this authorisation on the basis of an authorisation to utilise own shares pur suant to Section 71 (1) no. 8, Section 186 (3) fourth sentence AktG must be included in WKLVȴJXUH

• » To the extent that, as protection from dilu tion, it is necessary to grant to the holders or creditors of option or conversion rights from option or convertible bonds that have been, or will be, issued by the Com pany and/or subordinate group under takings subscription rights in the scope to which said persons would be entitled after the exercise of their conversion or option ULJKWVRUDIWHUIXOȴOPHQWRIWKHFRQYHUVLRQ obligation;
• » If the capital increase against contribu tions in kind is carried out for the purpose of providing shares within the framework of corporate mergers or of acquiring com panies or parts of companies, holdings in companies or other assets;
• » So that new shares up to a proportion ate amount of the share capital total OLQJ ȜPD\ EH LVVXHG DV VWD shares to employees of the Company or RIDɝOLDWHGFRPSDQLHVZLWKLQWKHVHQVHRI Section 15 et seqq. AktG.

This authorisation is restricted to the extent that, after exercise of the authorisation, the WRWDO YDOXH RI WKH VKDUHV VXEMHFW WR H[FOX sion of a subscription right issued for this DSSURYHGFDSLWDOPD\QRWH[FHHGRIWKH share capital at the time the authorisation HQWHUVLQWRHHFWRU ȂLI WKLV YDOXHLVORZHU Ȃ at the time the authorisation is exercised. 6KDUHVVXEMHFW WRH[FOXVLRQRIDVXEVFULSWLRQ right that are issued to compensate fractional amounts and/or as protection from dilution for holders or creditors of option or converti

EOHERQGVRUDVVWDVKDUHVDUHH[FOXGHGIURP FRQVLGHUDWLRQ6KDUHVWKDWDUHLVVXHGVXEMHFW to exclusion of a subscription right from oth er approved capital during the term of the above authorisation must also be included in WKLVOLPLWDVPXVWVKDUHVWKDWDUHLVVXHG pursuant to the exercise of option and/or con vertible bonds or option/conversion rights or obligations associated with convertible bonds, provided that the corresponding option and/ RUFRQYHUWLEOHERQGVDUHLVVXHGVXEMHFWWRH[ clusion of a subscription right during the term of this authorisation. Exclusions of subscrip tion rights for the compensation of factional amounts and/or as protection from dilution for holders or creditors of option or conver sion rights associated with option or convert LEOHERQGVDQGRUIRUWKHLVVXHRIVWDVKDUHV DUHQRWLQFOXGHGLQWKHOLPLW

Furthermore, the Management Board is au WKRULVHG VXEMHFW WR WKH FRQVHQW RI WKH 6X pervisory Board, to determine the further content of the stock rights and the terms and conditions of the issue of the shares. The Su pervisory Board is authorised to amend the current version of the company charter in DFFRUGDQFHZLWKWKHVSHFLȴFXWLOLVDWLRQRIWKH approved capital or after the expiration of the authorisation.

Approved Capital II

The Management Board is authorised, sub MHFWWRWKHFRQVHQWRIWKH6XSHUYLVRU\%RDUG to increase the Company's share capital by as much as €5,850,791.65 by a single or multi SOH LVVXH RI QHZ QRSDU VKDUHV DJDLQVW FDVK contributions and/or contributions in kind before the lapse of 20 May 2020 (Approved Capital II). In the event of cash contributions, the new shares may also be taken over by one RU PRUH EDQNV RU RWKHU FRPSDQLHV IXOȴOOLQJ WKHSUHUHTXLVLWHVRI6HFWLRQ?ȴUVWVHQ WHQFH\$NW*VXEMHFW WR WKHREOLJDWLRQ WRRHU

Supplemental Information in Accordance with Section 315 (4) HGB

them for subscription solely and exclusive ly to the shareholders (indirect subscription right). On principle, a subscription right is to be granted to the shareholders. The Manage PHQW %RDUG LV DXWKRULVHG KRZHYHU VXEMHFW to the consent of the Supervisory Board, to exclude shareholders' subscription rights for QHZQRSDUVKDUHVIURP\$SSURYHG&DSLWDOΖΖLI and when the capital increase is undertaken against contributions in kind for the purpose of granting shares within the context of corpo rate mergers or for the purpose of acquiring companies, parts of companies, holdings in companies or other assets.

Furthermore, the Management Board is au WKRULVHGVXEMHFWWRWKHFRQVHQWRIWKH6XSHU visory Board, to determine the further content of the stock rights and the terms and condi tions of the issue of the shares. The Supervi sory Board is authorised to amend the current version of the company charter in accordance ZLWKWKHVSHFLȴFXWLOLVDWLRQRI\$SSURYHG&DSLWDO II or after the expiration of the authorisation.

Contingent Capital 2013

The authorisation granted to the Manage ment Board during the Annual General Meet ing of 16 May 2013 to issue option and/or convertible bonds with a total nominal value not to exceed €100.0m was exercised in full (contingent capital 2013). In December 2013, 'ULOOLVFK \$* LVVXHG D QRQVXERUGLQDWHG FRQ vertible bond with a total volume of €100.0m DQGDWHUPRIȴYH\HDUV7KHWHUPRIWKHERQG ends on 12 December 2018.

Contingent Capital 2015

There has been a contingent increase in capi tal of up to €17,600,000.00 by the issue of up WRQRSDUYDOXHEHDUHUVKDUHVZLWK SURȴW HQWLWOHPHQW IURP WKH EHJLQQLQJ RI WKH ȴVFDO\HDURIWKHLULVVXH7KHFRQWLQJHQWFDSLWDO increase serves the purpose of granting shares to the holders or creditors of option bonds, FRQYHUWLEOHERQGVSURȴWVKDULQJULJKWVDQGRU income bonds or combinations of these instru ments that, pursuant to the authorisation of agenda item 10 of the Annual General Meeting of 21 May 2015, are issued against cash by the Company or by a company in which the Com SDQ\ GLUHFWO\ RU LQGLUHFWO\ KROGV D PDMRULW\ interest and that grant a conversion or option ULJKWWRQRSDUEHDUHUVKDUHVRIWKH&RPSDQ\ or that determine a conversion/option obliga tion. The contingent capital increase is to be carried out solely to the extent that the option and/or conversion rights from the debenture bonds are exercised or that option/conversion obligations from the debenture bonds are ful ȴOOHGDQGSURYLGHGWKDWFDVKFRPSHQVDWLRQLV not paid or that treasury stock or stock from another listed company is not utilised for this purpose. The Management Board is author LVHGVXEMHFWWRWKHFRQVHQWRIWKH6XSHUYLVRU\ Board, to determine the details of the conduct of the contingent capital increase (Contingent Capital 2015).

Treasury stock

The Annual General Meeting on 21 May 2015 adopted a resolution authorising the Drillisch AG Management Board to acquire treasury VWRFNWRWDOOLQJXSWRRIWKHVKDUHFDSLWDODW the time of the Annual General Meeting 2015 on or before 20 May 2020 (including the use of derivatives). Per the closing date 31 December 2016, Drillisch AG did not hold any shares of its own stock.

5.2. Statement on corporate management pursuant to Section 289a HGB

Drillisch has published the statement on cor porate management pursuant to Section 289a HGB, which also contains the Declaration of Conformity pursuant to Section 161 AktG, RQ WKH &RPSDQ\ɒV LQWHUQHW VLWH DW ZZZGULO lisch.de Drillisch AG Corporate Govern ance Declaration of Conformity. Moreover,

Important Events After the End of the Fiscal Year

Management Board and Supervisory Board describe in detail the principles of good, val XHRULHQWHG FRUSRUDWH PDQDJHPHQW LQ IXOO awareness of responsibility as pursued at Dril lisch in the corporate governance report in the \$QQXDO5HSRUWDQGRQWKH&RPSDQ\ɒVLQWHUQHW site. In addition, the working methods of the Management Board and Supervisory Board as well as the composition and working methods of the committees are described.

ΖPSRUWDQWHYHQWVDIWHUWKHHQGRIWKHȴVcal year

Reference is made here to section 16 of the FRQVROLGDWHG QRWHV UHJDUGLQJ WKH HHFWV RI the sale of The Phone House Telecom Vertrieb GmbH in January 2017. No further important events occurred after the balance sheet date.

Maintal, 21 March 2017

CONSOLIDATED ANNUAL ACCOUNTS FOR THE FISCAL YEAR FROM 1 JANUARY 2016 TO 31 DECEMBER 2016

• 61 Consolidated Comprehensive Income Statement
• 62 Consolidated Balance Sheet
• 64 Consolidated Change in Equity Statement
• 65 Consolidated Cash Flow Statement
• 66 Consolidated Notes
• \$ɝGDYLWE\/HJDO5HSUHVHQWDWLYHV%DODQFH6KHHW2DWK
• 107 Auditor´s Opinion

Consolidated Comprehensive Income Statement

Consolidated Annual Accounts for the Fiscal Year from 1 January 2016 to 31 December 2016

		2016	2015
	([KLELWQR	€k	€k
Sales	1	710,012	629,546
Other own work capitalised		1,922	2,238
Other operating income	2	18,528	20,175
Raw material, consumables and services used	3
Personnel expenses	4
Other operating expenses	5
Depreciation and amortisation	6
Operating result		58,726	69,183
Interest income		1,151	643
Interest and similar expenses
Financial result	7	-3,170	-3,386
3URȴWEHIRUHWD[HV		55,556	65,797
Taxes on income	8
&RQVROLGDWHGSURȴWIURPRQJRLQJGLYLVLRQV		26,434	45,799
&RQVROLGDWHGSURȴWIURPFORVHGGLYLVLRQV	16	0	310
&RQVROLGDWHGSURȴW		26,434	46,109
Actuarial gains/losses from pensions			182
Taxes on income		95
Items which cannot be included in operating results in the future			133
Items which can be included in operating results in the future		0	0
Consolidated comprehensive results		26,215	46,242
3URȴWSHUVKDUHLQȜ?IURPRQJRLQJGLYLVLRQV
Undiluted	39	0.48	0.85
Diluted	39	0.48	0.82

Consolidated Balance Sheet

Consolidated Annual Accounts for the Fiscal Year from 1 January 2016 to 31 December 2016

ASSETS
		31.12.2016	31.12.2015
	([KLELWQR	€k	€k
Fixed assets
Other intangible assets	9	255,330	271,341
Goodwill	10	98,546	106,994
Tangible assets	11	10,584	11,012
2WKHUȴQDQFLDODVVHWV		561	499
Deferred taxes	8	12,697	14,977
Fixed assets, total		377,718	404,823
Current assets
Inventories	12	9,984	32,384
Trade accounts receivable	13	92,658	88,504
Tax reimbursement claims	14	38	7,475
Cash	31	92,771	123,432
Other current assets	15	5,021	32,084
Current assets, total		200,472	283,879
Assets of the disposal group	16	17,014	0
ASSETS, TOTAL		595,204	688,702

Consolidated Balance Sheet

Consolidated Annual Accounts for the Fiscal Year from 1 January 2016 to 31 December 2016

6+\$5(+2/'(56ȇ(48Ζ7<\$1'/Ζ\$%Ζ/Ζ7Ζ(6

		31.12.2016	31.12.2015
	([KLELWQR	€k	€k
Shareholders' equity
Subscribed capital		60,241	60,241
Capital reserves		295,559	295,559
Earnings reserves		31,123	31,123
Other equity
8QDSSURSULDWHGUHWDLQHGHDUQLQJV\$FFXPXODWHGGHȴFLW
Equity, total	17	283,400	353,023
Long-term liabilities
Pension provisions	19	1,655	1,361
Deferred tax liabilities	8	28,062	31,169
Debenture bonds	20	94,231	91,457
2WKHUȴQDQFLDOOLDELOLWLHV	20	0	9,930
Leasing liabilities	18	796	518
Other liabilities	25	16,730	111
Long-term liabilities, total		141,474	134,546
Short-term liabilities
6KRUWWHUPSURYLVLRQV	21	10,712	12,162
Tax liabilities	22	11,397	5,104
Trade accounts payable	23	44,940	80,911
Payments received on account	24	4,179	5,440
2WKHUȴQDQFLDOOLDELOLWLHV	20	5,800	64,670
Leasing liabilities	18	1,029	694
Bank loans and overdrafts	20	50,011	0
Other liabilities	25	25,678	32,152
Short-term liabilities, total		153,746	201,133
Liabilities of the disposal group	16	16,584	0
6+\$5(+2/'(56 (48Ζ7<\$1'/Ζ\$%Ζ/Ζ7Ζ(6727\$/		595,204	688,702

Consolidated Change in Equity Statement

Consolidated Annual Accounts for the Fiscal Year from 1 January 2016 to 31 December 2016

	Number of shares	Subscribed capital	Capital reserves	Earnings reserves	Other equity	8QDSSURSUL ated retained earnings/ Accumulated GHȴFLW	Equity, total
		€k	€k	€k	€k	€k	€k
Per 01/01/2015	53,189,015	58,508	231,232	31,123	-550	10,830	331,143
Dividend payments		0	0	0	0
Capital increase	1,575,634	1,733	64,327	0	0	0	66,060
Consolidated comprehensive results		0	0	0	133	46,109	46,242
Per 31/12/2015	54,764,649	60,241	295,559	31,123	-417	-33,483	353,023
Per 01/01/2016	54,764,649	60,241	295,559	31,123	-417	-33,483	353,023
Dividend payments		0	0	0	0
Capital increase		0	0	0	0	0	0
Consolidated comprehensive results		0	0	0		26,434	26,215
Per 31/12/2016	54,764,649	60,241	295,559	31,123	-636	-102,887	283,400

Consolidated Cash Flow Statement

Consolidated Annual Accounts for the Fiscal Year from 1 January 2016 to 31 December 2016

	2016	2015
	€k	€k
Consolidated earnings before interest and taxes	58,726	69,493
Income tax paid
Income tax received	6,664	2,427
Depreciation and amortisation	61,480	36,074
5HVXOWVIURPWKHGLVSRVDORIȴ[HGDVVHWV		82
Change in inventories	22,401
Change in receivables and other assets	9,818
Change in trade payables, other liabilities and provisions		45,263
Change in payments received on account
&DVKȵRZIURPFXUUHQWEXVLQHVVDFWLYLWLHV	80,467	76,209
Payments for investments in tangible and intangible assets
Payments for acquisitions less acquired cash
3D\PHQWVIURPWKHUHVDOHRIȴQDQFLDODVVHWV	0	569
2XWJRLQJSD\PHQWVIRULQYHVWPHQWVLQRWKHUȴQDQFLDODVVHWV	0
Interest received	837	355
&DVKȵRZIURPLQYHVWPHQWDFWLYLWLHV	-24,505	-169,210
Dividend payments
Incoming payments from the taking out of loans	50,000	0
Interest paid
\$PRUWLVDWLRQRI2WKHUȴQDQFLDOOLDELOLWLHV	613
Incurrence/amortisation of investment liabilities
&DVKȵRZIURPȴQDQFLQJDFWLYLWLHV	-86,623	-100,657
Change in cash	-30,661	-193,658
Cash at end of period	92,771	123,432
Cash at beginning of period	123,432	317,090

explanation in Section 31

A. General information

Drillisch AG is a listed stock corporation that RHUV WHOHFRPPXQLFDWLRQ VHUYLFHV 'ULOOLVFK was founded in 1997. The core business of Drillisch Group is telecommunications and is ORFDWHG HVVHQWLDOO\ LQ WKH ZKROO\RZQHG VXE sidiaries Drillisch Online AG, yourfone AG (reg LVWHUHG RɝFH RI ERWK LQ 0DLQWDO? DQG 3KRQH +RXVH 'HXWVFKODQG *PE+ UHJLVWHUHG RɝFH in Münster) and its subsidiaries.

The Group has concluded an MBA MVNO agreement with the network operator 7HOHIµQLFDDQGDQ0912DJUHHPHQWZLWKWKH network operator Vodafone; in addition to these agreements, it has service provider li cences from the networks Telekom, Vodafone DQG 7HOHIµQLFD 7KH 'ULOOLVFK EXVLQHVV FRP prises essentially the marketing of postpaid DQG SUHSDLG SURGXFWV LQ WKH 7HOHIµQLFD DQG Vodafone networks.

7KHDGGUHVVDQGUHJLVWHUHGRɝFHRI'ULOOLVFK AG as the parent company of the Group is :LOKHOP5¸QWJHQ6WUDVVH Ȃ 0DLQ tal, Germany. The Company is registered at Hanau Local Court under HRB 7384. The con solidated annual accounts are submitted to the operator of the [German] Federal Gazette and subsequently published in the Federal Gazette.

The Management Board prepared the consol idated annual accounts and the consolidated management report per 31 December 2016 on 21 March 2017 and released them for sub mission to the Supervisory Board.

B. Basic accounting principles

These consolidated annual accounts have been prepared in conformity with the Inter national Financial Reporting Standards (IFRS) as they are to be applied in the EU and the relevant interpretations issued by the Inter national Accounting Standards Board (IASB). Moreover, the commercial law provisions to be applied in accordance with Section 315a (1) HGB [German Commercial Code] have been observed.

The consolidated annual accounts have been SUHSDUHG LQ HXURV 8QOHVV RWKHUZLVH VSHFLȴ cally indicated, all of the amounts are shown in thousand euros (€k). Assets and liabilities DUH EURNHQ GRZQ LQWR ORQJWHUP DQG VKRUW term assets and liabilities according to the at tributable periods. The consolidated income statement is structured according to the cost VXPPDU\PHWKRG7KHȴVFDO\HDULVWKHHTXLY alent of the calendar year.

%HJLQQLQJ LQ ȴVFDO \HDU DSSOLFDWLRQ RI the following standards and interpretations as revised or newly published by the IASB was PDQGDWRU\

Standards/Interpretations

		Mandatory application IRUȴVFDO\HDUV EHJLQQLQJZLWK
Standards
IFRS 11	Accounting for Acquisition of Interests in Joint Operations (Amendment)	01.01.2016
IAS 16, IAS 38	&ODULȴFDWLRQRI\$FFHSWDEOH0HWKRGVRI'HSUHFLDWLRQDQG\$PRUWLVDWLRQ (Amendment)	01.01.2016
IAS 16, IAS 41	\$JULFXOWXUH%HDUHU3ODQWV\$PHQGPHQW	01.01.2016
IFRS 10/12, IAS 28	ΖQYHVWPHQW(QWLWLHV\$SSO\LQJWKH&RQVROLGDWLRQ([FHSWLRQ\$PHQGPHQW	01.01.2016
IAS 1	Disclosure Initiative (Amendment)	01.01.2016
Miscellaneous	ΖPSURYHPHQWVWRΖ)56	01.01.2016
IAS 27	Equity Method in Separate Financial Statements (Amendments)	01.01.2016

7KHQHZUHJXODWLRQVGLGQRWPDWHULDOO\DHFW the consolidated annual accounts.

The IASB and IFRIC (International Financial Reporting Interpretations Committee) have is sued the following standards, interpretations and amendments to current standards. How ever, their application is not yet mandatory, and Drillisch AG does not apply them prema

turely. The application of these IFRS presumes that they have been adopted by the EU within the scope of the IFRS endorsement procedure.

The application of the following standards and interpretations which have already been adopted, revised or newly issued by the IASB ZDVQRW\HWPDQGDWRU\LQȴVFDO\HDU

		Mandatory application IRUȴVFDO\HDUV EHJLQQLQJZLWK	Adoption E(8 Commission
Standards
IFRS 15	Revenue from Contracts with Customers	01.01.2018	Yes
IFRS 9	Financial Instruments	01.01.2018	Yes
IFRS 16	Leases	01.01.2019	No
IAS 7	Statement of Cash Flows (Amendment)	01.01.2017	No
IAS 12	ΖQFRPH7D[HV5HFRJQLWLRQRI'HIHUUHG7D[\$VVHWVIRU Unrealised Losses (Amendment)	01.01.2017	No

Standards/Interpretations

Drillisch is currently examining the possible impact from the amendment of IFRS 15 (Rev enue from Contracts with Customers), IFRS 9 (Financial Instruments) and IFRS 16 (Leases) RQIXWXUHȴQDQFLDOUHSRUWLQJ

The new provisions of IFRS 15 include a require ment for the capitalisation of contract costs. If and when certain prerequisites are met, the costs for the successful conclusion of the con tract (e.g. commissions) must be capitalised and allocated across the estimated useful life.

The Group presumes at this time that the initial application of IFRS 16 will lead to an increase in ȴ[HGDVVHWVXWLOLVDWLRQULJKWV?DQGDVLPXOWDQH RXVULVHLQȴQDQFLDOOLDELOLWLHVSD\PHQWREOLJD tions) because of current leases for distribution shops and commercial properties with a term of more than twelve months. A reliable state PHQWRQWKHSRVVLEOHHHFWVFDQQRWEHPDGH at this time.

)URPWRGD\ȇVSHUVSHFWLYHQRPDMRUHHFWVDUH to be expected on the consolidated annual ac counts from the future application of further new regulations.

C. Consolidation

Consolidation principles and consolidated companies

Corporate mergers are measured accord ing to the acquisition method. The purchase SULFH LV GLVWULEXWHG DPRQJ WKH LGHQWLȴHG DV sets and liabilities, including contingent lia bilities, of the acquired subsidiary. The value relationships at the point in time at which the control over the subsidiary is obtained are authoritative. The measurable assets and the assumed liabilities, including contingent liabil ities, are measured in full at their fair values irrespective of the amount of the holding. Any UHPDLQLQJSRVLWLYHGLHUHQFHLVUHFRJQLVHGDV JRRGZLOO\$Q\UHPDLQLQJQHJDWLYHGLHUHQFHLV recognised directly as operating results after being reviewed once again. The disclosed hid den reserves and hidden encumbrances are carried forward to the following periods in the same way as the handling of the correspond LQJDVVHWVDQGOLDELOLWLHVZULWWHQRDVVFKHG uled or reversed.

Minor holdings and holdings on which no de cisive control is exercised are disclosed in the balance sheet at cost of acquisition carried forward.

Consistent accounting and valuation methods are applied to the separate accounts included in the consolidated annual accounts of Dril lisch AG.

All of the receivables and payables as well as income and expenditures among the compa nies included in the consolidated annual ac counts are eliminated, as are interim results.

7KHSDUHQWFRPSDQ\ɒVDQQXDODFFRXQWVDVZHOO as those of all of the important subsidiaries controlled by the former, whether directly or indirectly, were included in the consolidated annual accounts of Drillisch AG per 31 Decem ber 2016. There is control of a company if the parent company, legally or de facto, has the RSSRUWXQLW\ WR GHWHUPLQH WKH ȴQDQFLDO DQG business policies of a company with the aim RIREWDLQLQJFRPPHUFLDOEHQHȴWV

A company is included in the consolidated ac FRXQWVIRUWKHȴUVWWLPHIURPWKHPRPHQWDW which control can be exercised or the criteria IRU MRLQW YHQWXUHV DQG DVVRFLDWHG FRPSDQLHV are met. Companies which are not included are severally and in their totality of only minor importance, both from quantitative and qual itative perspectives, and the balance sheets are prepared in accordance with IAS 39.

7KHIROORZLQJFRPSDQLHVDUHLQFOXGHGLQWKHFRQVROLGDWHGDQQXDODFFRXQWV

		Share of Held	capital by
		%	No.
1.	Drillisch AG, Maintal
2.	Drillisch Online AG, Maintal	100	1
3.	Ζ4RSWLPL]H6RIWZDUH\$ȌΖ4RSWLPL]H\$ȋ?0DLQWDO	100	1
4.	Drillisch Netz AG, Düsseldorf	100	1
5.	The Phone House Deutschland GmbH, Münster	100	1
6.	GTCom GmbH, Düsseldorf	100	1
7.	yourfone AG, Maintal	100	1
8.	Mobile Ventures GmbH, Maintal	100	2
9.	The Phone House Telecom GmbH, Münster	100	5
10.	The Phone House Services GmbH, Münster	100	5
11.	The Phone House Telecom Vertrieb GmbH, München	100	9
12.	yourfone Retail AG, Düsseldorf	100	7
13.	yourfone Shop GmbH, Düsseldorf	100	12

The distribution business of The Phone House Telekom GmbH was divested to The Phone House Telecom Vertrieb GmbH at the and of D UHDG\PDGH FRPSDQ\ ZDV DFTXLUHG for this purpose.

D. General accounting and evaluation methods

5HDOLVDWLRQRILQFRPHDQGH[SHQVHV

ΖQWKHVHJPHQWV2QOLQHDQG2ɞLQHUHYHQXHV DUHJHQHUDWHGIURPWKHRHUHGPRELOHVHUYLF HV RQHWLPH DFWLYDWLRQ FKDUJHV DQG WKH VDOH of mobile devices and accessories. Revenues from mobile services include monthly ser vice charges, charges for special features and connection and roaming charges. Revenues from mobile services are realised on the basis of usage units actually used and contractual IHHV OHVV DQ\ FUHGLW QRWHV DQG DGMXVWPHQWV pursuant to reduced prices. The revenues from the sale of mobile telephones, mobile data devices and accessories and the related expenditures are realised as soon as the prod ucts have been delivered and accepted by the customers. Moreover, revenues are generat ed for the brokerage of mobile services rate plans to other providers and from the receipt of advertising cost subsidies.

Some of the end customer contracts are mul WLSOHFRPSRQHQWFRQWUDFWVΖQWKHFDVHRIPXO WLSOHFRPSRQHQWFRQWUDFWVWKHUHYHQXHPXVW be recognised for each of the separately iden WLȴDEOHFRPSRQHQWV\$JUHHPHQWVIRUWKHVDOH of bundled products or the performance of bundled services must be broken down into their separate components and a separate contribution to earnings must be recognised for each component. If mobile services rate plans include the provision of a mobile device, the revenue is realised on the basis of the fair value of the individual components. The price IRU WKH PXOWLSOHFRPSRQHQW WUDQVDFWLRQ LQ its entirety is distributed among the various components on the basis of the proportion ate fair value (i.e. the fair value of each sepa rate component is set in ratio to the fair value of the bundled services as a whole). With re spect to mobile services rate plans brokered by third parties, the proportionate fair value

of a single component and therefore the reve nue realised for this component is recognised separately from that part of the considera tion to be paid by the customer for the mul WLSOHFRPSRQHQW WUDQVDFWLRQ LQ LWV HQWLUHW\ independently of the performance of further services. For this reason, the outstanding ba sic fees for these mobile services rate plans proportionately attributable to the mobile de vice are allocated to this device.

In the segment Miscellaneous/Holding, reve QXHVDUHJHQHUDWHGIURPWKHRHULQJRIFXV tom software solutions, maintenance and support services, holding services and (to a VOLJKWH[WHQW? WKHRHULQJRIPRELOHVHUYLFHV Revenues from software solutions, revenues from maintenance and support services and revenues from holding services are based on contractual provisions.

Operating expenses are recognised at the time the service is utilised or at the moment the expenses are incurred.

Interest expenses are recognised appropriate ly for the period in consideration of the out VWDQGLQJORDQ WRWDO DQG WKH HHFWLYHLQWHUHVW UDWHZKLFKLVDSSOLFDEOH7KHHHFWLYHLQWHUHVW rate is the interest rate which results in the cash value of the estimated future payments RYHU WKH H[SHFWHG XVHIXO OLIH RI WKH ȴQDQFLDO asset corresponding to the net book value.

Intangible assets

Other intangible assets in Fixed assets are disclosed in the balance sheet at cost of ac quisition or manufacturing less any scheduled GHSUHFLDWLRQ FDOFXODWHG E\ WKH VWUDLJKWOLQH PHWKRG\$XVHIXOOLIHRIWKUHHWRȴIWHHQ\HDUV is taken as the basis. The manufacturing costs include overhead costs as well as the immedi ately attributable direct costs. Borrowing costs are measured in the period in which they are incurred as expenditures because there are no qualifying assets pursuant to IAS 23.5.

Intangible assets with an indeterminate useful OLIHDUHQRWZULWWHQRDFFRUGLQJWRDVFKHGXOH 7KH\DUHVXEMHFWHGWRDQDQQXDOWHVWWRGHWHU mine the recoverability of their value and, in addition, whenever there are indications of a ORVVRIYDOXH\$VDSSURSULDWHFDVKJHQHUDWLQJ units are used for comparison. If the book val ue of the intangible asset or of the underlying FDVKJHQHUDWLQJXQLWLVKLJKHUWKDQWKHUHFRY HUDEOHYDOXHWKHGLHUHQFHLVZULWWHQR

If the reasons for the previously recorded de valuations cease to exist, the assets are writ ten up without goodwill.

In accordance with IFRS, there is no scheduled depreciation of goodwill.

During the review of possible value depreci ation, the goodwill acquired during a corpo UDWH PHUJHU LV DWWULEXWHG WR WKH FDVKJHQHU DWLQJXQLWVZKLFKZLOOSUHVXPDEO\SURȴWIURP WKH QRQPHDVXUDEOH DVVHWV GHWHUPLQLQJ WKH value. The recoverability test is conducted once a year and, in addition, whenever there are indications for a loss of value in the cor UHVSRQGLQJ FDVKJHQHUDWLQJXQLWΖI WKHERRN YDOXHRIWKHFDVKJHQHUDWLQJHQWLW\H[FHHGVLWV recoverable value, the goodwill attributed to WKLVFDVKJHQHUDWLQJXQLWLVGHSUHFLDWHGE\WKH DPRXQW RI WKH GLHUHQFH \$Q\ ORVV RI YDOXH will not be reversed.

7KH UHFRYHUDEOH YDOXH IRU D FDVKJHQHUDWLQJ unit which corresponds to the legal entity is calculated on the basis of its value in use. The value in use is determined by application of the DCF procedure. The calculations are EDVHGRQSURMHFWLRQVUHVXOWLQJ IURPȴQDQFLDO plans approved by management and are also used for internal purposes.

Tangible assets

Tangible assets are disclosed at cost of acqui VLWLRQ OHVV VFKHGXOHG VWUDLJKWOLQH GHSUHFLD WLRQ7KHGHSUHFLDWLRQSHULRG IRUȴ[WXUHVȴW tings and equipment varies between two and nineteen years. The depreciation period for tenant installations varies between two and ȴYH\HDUV\$GGLWLRQVGXULQJWKHȴVFDO\HDUDUH ZULWWHQRSURUDWDWHPSRULV%RUURZLQJFRVWV are measured in the period in which they are incurred as expenditures because there are no qualifying assets pursuant to IAS 23.5.

Financial instruments

\$ȴQDQFLDOLQVWUXPHQWLV DFRQWUDFWZKLFKVL PXOWDQHRXVO\OHDGVWRWKHFUHDWLRQRIDȴQDQ cial asset for one company and to the creation RIDȴQDQFLDOOLDELOLW\RUHTXLW\LQVWUXPHQWIRU another company. Financial instruments are included in the consolidated balance sheet at the point in time at which a consolidated FRPSDQ\ EHFRPHV WKH SDUW\ WR WKH ȴQDQFLDO instrument. In the case of purchases and sales usual on the market, however, the day of per formance is relevant for the initial recognition and derecognition in the balance sheet.

\$ ȴQDQFLDO DVVHW LV GHUHFRJQLVHG ZKHQ WKH conditions of IAS 39.17 and seqq. have been IXOȴOOHGΖIDQGZKHQWKH*URXSKDVDVVLJQHG LWV FRQWUDFWXDO ULJKWV WR SD\PHQW ȵRZV IURP an asset and retained essentially all of the risks and opportunities associated with the ownership of this asset, the Group contin ues to recognise the asset in the scope of the Group's ongoing involvement.

Financial assets include in particular cash and FDVK HTXLYDOHQWV WUDGH UHFHLYDEOHV ȴQDQFLDO assets available for sale and loans and receiva EOHVDQGGHULYDWLYHȴQDQFLDODVVHWVPDLQWDLQHG for commercial purposes. Financial liabilities include trade accounts payable, bank loans DQGRYHUGUDIWVOLDELOLWLHVIURPȴQDQFHOHDVLQJ UHODWLRQVKLSV DQG GHULYDWLYH ȴQDQFLDO OLDELOL WLHV)LQDQFLDODVVHWVDQGȴQDQFLDOOLDELOLWLHVDUH GLVFORVHGDVEDODQFHVRQO\LIWKHUHLVDQRVHW right with respect to the amounts and the in tention is to realise a balance on a net basis.

Financial instruments are measured at fair YDOXHZKHQUHFRJQLVHGIRUWKHȴUVWWLPH7KH transaction expenses which are directly attrib utable to the acquisition must be taken into DFFRXQW IRU DOO RI WKH ȴQDQFLDO DVVHWV DQG OL abilities which are subsequently measured at IDLU YDOXH DV QRQRSHUDWLQJ UHVXOWV 7KH IDLU values measured in the balance sheet corre VSRQGDVDUXOHWRWKHPDUNHWSULFHVRIWKHȴ nancial assets and liabilities.

The subsequent valuation depends on wheth HUDȴQDQFLDOLQVWUXPHQWLVKHOGIRUWUDGLQJRU XQWLOLWVȴQDOPDWXULW\ZKHWKHULWLVDYDLODEOH for sale or whether it comprises loans and receivables extended by the company. Finan cial instruments held for trading are meas ured at the fair value as operating results. If it is intended, and can also from a commer cial standpoint be expected with reasonable FRQȴGHQFH WKDW WKH ȴQDQFLDO LQVWUXPHQWV ZLOOEHKHOGXQWLOWKHLUȴQDOPDWXULW\WKH\DUH PHDVXUHGLQDFFRUGDQFHZLWKWKHHHFWLYHLQ terest rate method with the acquisition costs FDUULHGIRUZDUG\$OORWKHURULJLQDOȴQDQFLDODV sets, provided that they are not loans or re FHLYDEOHV DUH FODVVLȴHG DV DYDLODEOH IRU VDOH and measured at fair value. The fair value is determined on the basis of market prices (ex FKDQJH SULFHV? \$Q\ SURȴW DQG ORVV UHVXOWLQJ from the measurement at fair value is posted DVQRQRSHUDWLQJ UHVXOWVLQ HTXLW\ 7KLVGRHV QRW DSSO\ LI WKHUH DUH SHUPDQHQW RU PDMRU ORVVHVLQYDOXHRIȴQDQFLDOLQVWUXPHQWV:KHQ WKH ȴQDQFLDO LQVWUXPHQWV DUH GHUHFRJQLVHG WKHFXPXODWLYHSURȴWVDQGORVVHVUHFRUGHGLQ shareholders' equity are shown as operating results in the income statement.

2WKHUȴQDQFLDODVVHWV

2WKHUȴQDQFLDODVVHWVDUHDOZD\VGLVFORVHGDW cost of acquisition less required valuation al lowances.

Inventories

The inventories comprise solely and exclu sively merchandise and payments on account. They are measured at acquisition costs or the lower realisable net sale value. The measure ment of the merchandise is based on the FIFO ȴUVWLQȴUVWRXW?SULQFLSOH

Receivables and other assets

Receivables and other assets are measured at nominal value in the balance sheet. Valuation allowances are created for default risks. Re ceivables and liabilities related to the network RSHUDWRUV7HOHNRP9RGDIRQHDQG7HOHIµQLFD are disclosed in the balance sheet as balances in each case. Any receivables that result from the calculation of the balance are disclosed in the other current assets; any liabilities are dis closed under the trade accounts payable.

Liabilities

Liabilities are disclosed at cost of acquisition carried forward in accordance with IAS 39. Directly attributable issue costs are deducted when the liabilities are assumed and distrib uted as operating results over the entire term.

Leases

/HDVHV DUH FODVVLȴHG SXUVXDQW WR Ζ\$6 DV ȴQDQFH OHDVHV LI DQG ZKHQ HVVHQWLDOO\ DOO RI the threats and opportunities associated with WKHRZQHUVKLSRIWKHOHDVHGREMHFWDUHWUDQV ferred to the lessee. All other leases must be FODVVLȴHGDVRSHUDWLQJOHDVHV

\$VVHWV KHOG ZLWKLQ WKH IUDPHZRUN RI ȴQDQFH leases are capitalised at the beginning of the lease at attributable fair value or, if this value is lower, at the cash value of the mini PXPOHDVLQJLQVWDOPHQWDQGZULWWHQRVXE VHTXHQWO\ RYHU D VWUDLJKWOLQH VFKHGXOH 7KH corresponding liability to the lessor is recog nised in the balance sheet as obligation from ȴQDQFHOHDVH7KHOHDVLQJLQVWDOPHQWVDUHDO ORFDWHGSURSRUWLRQDWHO\WRȴQDQFLQJH[SHQVHV and reduction in the lease obligation so that over the periods a constant interest rate on the remaining balance of the obligations is created for each reporting period. Payments from operating leases are recognised accord LQJ WR WKH VWUDLJKWOLQH PHWKRG DV RSHUDWLQJ results over the term of the pertinent lease.

Pension provisions

3HQVLRQ SURYLVLRQV IRU PHULWEDVHG SHQVLRQ commitments are determined actuarially ac FRUGLQJ WR WKH SURMHFWHG XQLW FUHGLW PHWKRG and disclosed in the balance sheet on the ba sis of an assessor's valuation on the balance sheet date.

The actuarial gains and losses are recognised immediately in the year in which they occur. The disclosure of the actuarial gains and loss es is measured directly in equity as a compo nent of Other equity items. They are not rec ognised in the income statement, either in the year of their occurrence or in later periods, in accordance with IAS 19.93D.

7KH VFKHPH DVVHWV RVHW DJDLQVW WKH FDVK value of the pension provisions come from reinsurance policies covering a part of the claims from the pension commitments. The reinsurance policies are severally pledged to WKHEHQHȴFLDU\LQHDFKFDVHWKHRVHWDJDLQVW the cash value of the provisions is based on fair value.

Short-term provisions

Provisions are created for a legal or de facto obligation which originated in the past if it is SUREDEOHWKDWWKHIXOȴOPHQWRIWKHREOLJDWLRQ ZLOO UHVXOW LQ DQ RXWȵRZ RI *URXS UHVRXUFHV and a reliable estimate of the amount of the obligation can be made.

'HIHUUHGWD[HV

Deferred taxes are recognised according to WKHOLDELOLW\PHWKRGIRUWHPSRUDU\GLHUHQFHV between the tax value measurements and the book values. The tax rates which will presum ably apply at the point in time of the reversal RIWKHWHPSRUDU\GLHUHQFHVDUHDSSOLHG'H ferred taxes are not created if the temporary GLHUHQFHUHVXOWVIURPJRRGZLOO

Deferred taxes are shown as tax revenue or expenses in the income statement unless they GLUHFWO\DHFWLWHPVLQFOXGHGLQVKDUHKROGHUVȇ HTXLW\ DV QRQRSHUDWLQJ UHVXOWV LQ WKLV FDVH WKHGHIHUUHGWD[HVDUHDOVRVKRZQDVQRQRS erating results in shareholders' equity.

Deferred tax claims are recognised for all tem SRUDU\ GHGXFWLEOH GLHUHQFHV DQG WD[UHODW HG DFFXPXODWHGGHȴFLWV FDUULHG IRUZDUG WKDW have not yet been utilised to the extent that it is likely that taxable income against which WKHGHGXFWLEOHWHPSRUDU\GLHUHQFHVDQGWKH WD[UHODWHG DFFXPXODWHG GHȴFLWV FDUULHG IRU ward can be applied will be available.

The book value of the deferred tax claims is re viewed on every closing date and reduced by WKHDPRXQWIRUZKLFKVXɝFLHQWWD[DEOHSURȴW is no longer likely to be available. Deferred tax claims that have not been recognised are re viewed on every closing date and recognised in the amount to which it has become likely WKDWDIXWXUHWD[DEOHSURȴWZLOOPDNHWKHUHDOL sation of the deferred claim possible.

Regarding the sale of held assets/disposal groups

Fixed assets or disposal groups that encom SDVV DVVHWV DQG GHEWV DUH FODVVLȴHG DV KHOG for sale or for disbursement if and when it is extremely likely that they will by and large be realised by sale or disbursement and not by continued utilisation.

In general, these assets or disposal groups are recognised at the lower of their book val ue and attributable fair value, less any costs of sale. Any impairment expenses of a dispos al group will initially be attributed to goodwill and then to the remaining assets and debts on a proportionate basis. Impairment expens HV DW WKH WLPH RI WKH LQLWLDO FODVVLȴFDWLRQ DV KHOGIRUVDOHRUGLVEXUVHPHQWDQGODWHUSURȴWV and losses during revaluation are recognised LQSURȴWRUORVV

Intangible and tangible assets are no longer VXEMHFW WR VFKHGXOHG GHSUHFLDWLRQ RQFH WKH\ KDYH EHHQ FODVVLȴHG DV KHOG IRU VDOH RU GLV bursement.

Long-term incentive components

The variable compensation for Management Board members and other executive employ HHVFRQWDLQVDORQJWHUPLQFHQWLYHFRPSRQHQW WKDW ZLOO QRW EH SDLG XQWLO ȴVFDO \HDUV 2019 or 2020. A provision has been created on the basis of the fair value.

Factoring

Receivables from the provision of mobile de vices provided to customers as part of a mo bile services contract have been sold in part to a bank in the form of a factoring transaction VLQFHȴVFDO\HDU%\WDNLQJWKLVVWHS'ULO OLVFKVHFXUHVIRULWVHOIWKHFDVKEHQHȴWDWWKH WLPHWKHFRQWUDFWLVFRQFOXGHG&DVKRXWȵRZV

over the term of the contracts are in contrast WRWKLVEHQHȴW7KHVDOHWDNHVSODFHTXDUWHUO\ 7KHDJUHHPHQWGRHVQRWKDYHDGHȴQLWHWHUP and Drillisch can freely decide whether, and in what scope, the nominal volume agreed with the bank will be exploited. The opportunities and risks related to the sold receivables rele vant for the assessment of opportunities and risks are transferred in full upon the sale of the receivables to the bank, taking into ac FRXQW D ȴ[HG DQG D YDULDEOH SXUFKDVH SULFH discount. Drillisch recognises the purchase price payments that are received in its oper DWLQJFDVKȵRZ

Application of assumptions and estimates

During the preparation of the consolidated annual accounts, assumptions were made DQGHVWLPDWHVDSSOLHGZKLFKDHFWHGWKHGLV closure and measurement of the assets, liabil ities, earnings, expenditures and contingent liabilities recognised in the balance sheet. These assumptions and estimates are related primarily to the determination of commer cial lifetimes used as a standard throughout the Group; the assumptions concern the re coverability of goodwill, trademark rights, in ventories and receivables, the measurement of provisions and the realisability of future tax relief. The actual values may, in individual cases, deviate from the assumptions and esti mates which have been made, especially with respect to interest rates and volatilities. Any changes will be given due consideration with HHFW RQ WKH UHVXOWVZKHQHYHUPRUHSUHFLVH knowledge becomes available.

Estimates are necessary especially in meas uring the goodwill in the balance sheet and its recoverability tests, in determining the discount factor for calculation of the pension provisions and the measurement of invento ries, trade receivables and other provisions when disclosing them in the balance sheet.

'ULOOLVFK *URXS KDV D FHQWUDO DSSURDFK WR ȴ QDQFLDO ULVN PDQDJHPHQW IRU WKH LGHQWLȴFD tion, measurement and control of risks. The risk items are derived from the income and H[SHQGLWXUHV DHFWLQJ SD\PHQWV ZKLFK DUH undertaken and planned throughout the Group.

([SODQDWRU\FRPPHQWVRQWKHFRQVROLGDWHGFRPSUHKHQVLYHLQFRPHVWDWHPHQW

	2016	2015
	€k	€k
Telecommunications
Service revenues	551,324	433,679
Other revenues	158,688	195,867
	710,012	629,546

Service revenues comprise essentially the earnings related to the provision of the ongo ing mobile services (voice and data transmis sion).

Other revenues comprise essentially revenue from brokerage and hardware sales, income from commissions, advertising cost subsidies, bonuses from network operators and sales from software services.

1. Sales

2. Other operating income

	2016	2015
	€k	€k
Income from the reversal of contingent purchase price liabilities	8,300	0
Reversal of provisions and liabilities	3,314	696
Rent income shop	2,557	3,262
5HFHLSWRIZULWWHQR΍UHFHLYDEOHV	811	935
ΖQVXUDQFHEHQHȴWV5HLPEXUVHPHQWRIGXQQLQJIHHV	553	3,023
Compensation payment leasing	0	10,000
Miscellaneous	2,993	2,259
Other operating income from ongoing business operations	18,528	20,175
Remaining other operating income from closed business divisions	0	631
Other operating income, total	18,528	20,806

3. &RVWRIPDWHULDOV([SHQGLWXUHVIRU purchased services

Cost of materials essentially concerns the fees for the ongoing use of the network operators' mobile networks (air time), expenditures from the capacity model within the framework of WKH 0%\$ 0912 DJUHHPHQW ZLWK 7HOHIµQLFD commissions and bonuses paid to distribu tion partners and expenditures from business with goods (purchase of mobile devices, SIM cards).

4. 3HUVRQQHOH[SHQVHV

	2016	2015
	€k	€k
Wages and salaries	53,172	41,759
Social security	6,500	5,101
	59,672	46,860

The number of employees (excluding Management Board) came to:	2016	2015
Annual average	913	730
\$QQXDODYHUDJHYRFDWLRQDOWUDLQHHV	58	51

5. 2WKHURSHUDWLQJH[SHQVHV

	2016	2015
	€k	€k
Advertising expenses	33,428	64,542
Rent and secondary costs	16,654	10,374
Bad debts and valuation allowances	16,422	10,463
Billing and external work	13,341	15,544
Expenditures from commitments	10,611	0
Legal and professional fees	6,558	7,930
Ancillary expenses for money transactions	2,602	2,165
Vehicle costs	1,651	1,173
Postal and telephone fees / Dedicated lines	1,627	1,677
Licences	758	1,006
Travel and entertainment expenses	719	815
Miscellaneous	15,109	9,052
Other operating expenses from ongoing business operations	119,480	124,741
Other operating expenses from closed divisions	0	321
	119,480	125,062

Bad debt losses and valuation allowances are related solely to the valuation category "Loans and Receivables".

6. Depreciation and amortisation

	2016	2015
	€k	€k
Intangible assets
Own produced software	2,438	1,640
Customer relationships	20,674	15,808
Purchased software/licences/utilisation rights	25,496	14,857
Goodwill	9,200	0
Tangible assets	3,672	3,769
	61,480	36,074

7. Financial results

ΖQWHUHVWLQFRPHΖQWHUHVWDQGVLPLODUH[SHQVHV

The interest income results solely from the valuation category of the "Loans and Receiv ables". Interest and similar expenses are allo FDWHGVROHO\WRWKHYDOXDWLRQFDWHJRU\ȴQDQFLDO liabilities measured at amortised cost of ac quisition.

Interest and other expenses include bank charges and commissions in the amount of ȜNSUHYLRXV\HDUȜN

8. 7D[HVRQLQFRPH

	2016	2015
	€k	€k
Current taxes on income	29,853	16,434
Deferred taxes		3,564
Disclosed expenses for income taxes	29,122	19,998

Taxes on income which have either been paid or which are owed as well as deferred taxes are disclosed as taxes on income. Taxes on income comprise corporate income tax, soli GDULW\VXUFKDUJHDQG WUDGH WD[(HFWLYHDQG deferred taxes are levied on stock companies DVIROORZVFRUSRUDWHLQFRPHWD[SUHYL RXV\HDU?VROLGDULW\VXUFKDUJHRI SUHYLRXV \HDU ? DQG WUDGH WD[ OHYLHG DFFRUGLQJWRWKHUDWHVFKDUJHGLQWKHVSHFLȴF municipality.

The rollover from the expected expenditures for taxes on income which would result from application of the Group's income tax rate to the disclosed tax expenditure is presented be ORZ

	2016	2015
	€k	€k
Earnings before taxes on income (from ongoing business operations)	55,556	65,797
7D[H[SHQVHVIURPDSSOLFDWLRQRI*URXSȇVLQFRPHWD[UDWHRISUHYLRXV\HDU	16,806	19,903
Depreciation on goodwill Phone House	2,783	0
Taxes for previous year	640
Trade tax additions	387	329
1RQGHGXFWLEOHH[SHQVHVDQGWD[H[HPSWLQFRPH	73	52
7D[H΍HFWVIURPUHYHUVDORIGHIHUUHGWD[HVRQDFFXPXODWHGGHȴFLWVFDUULHGIRUZDUG Phone House 2015	5,600	0
7D[H΍HFWVIURPWKHUHYHUVDORIRWKHUGHIHUUHGWD[HV	641	0
7D[H΍HFWVIURPGHIHUUHGWD[HVQRWFUHDWHGRQDFFXPXODWHGGHȴFLWVFDUULHGIRUZDUG Phone House 2016	1,110	0
7D[H΍HFWVIURPRWKHUDFFXPXODWHGGHȴFLWVFDUULHGIRUZDUGȂWD[HVRQLQFRPH	303	0
2WKHUH΍HFWV	779
	29,122	19,998

The deferred taxes are calculated on the basis of the tax rates which are applicable accord ing to the present legal situation or which are expected at the point in time of realisation. A WD[UDWHRIDERXWSUHYLRXV\HDUDERXW ?ZDVDSSOLHGFRPSULVLQJFRUSRUDWHLQ FRPHWD[RIWKHVROLGDULW\VXUFKDUJHRI DQGDQDYHUDJHWUDGHWD[UDWHRI

The deferred tax reimbursements and liabili WLHVDUHFRPSRVHGRIWKHIROORZLQJ

	2016	2015
	€k	€k
Deferred tax reimbursements for
Other intangible assets	206	87
Tangible assets	1,405	1,405
Financial assets	699	699
Other current assets	7,774	3,428
Leasing liabilities	552	367
Trade accounts receivable	0	353
Pension provisions	1	1
6KRUWWHUPSURYLVLRQV	623	3,037
\$FFXPXODWHGGHȴFLWVFDUULHGIRUZDUG	1,437	5,600
	12,697	14,977
Deferred tax liabilities for
Other intangible assets	26,514	30,255
Tangible assets	962	321
Leasing assets	546	360
Other equity
Pension provisions	37	48
Debenture bonds	279	375
	28,062	31,169

Of the deferred tax reimbursements, €8,203k SUHYLRXV \HDU ȜN? LV UHODWHG WR VKRUW WHUP DQG ȜN SUHYLRXV \HDU ȜN? WR ORQJWHUP DVVHWV DQG OLDELOLWLHV DV ZHOO DV ȜN SUHYLRXV \HDU ȜN? WR DFFX PXODWHG GHȴFLWV FDUULHG IRUZDUG 2I WKH GH IHUUHG WD[SD\PHQWVȜNSUHYLRXV \HDU ȜN?LVUHODWHGWRVKRUWWHUPDQGȜN SUHYLRXV\HDUȜN?WRORQJWHUPDVVHWV and liabilities.

Pursuant to the strict requirements of IAS HW VHTT IRU FRQYLQFLQJ YHULȴFDWLRQ RI VXɝFLHQWO\SRVLWLYHIXWXUHWD[DEOHLQFRPHIRU the recognition of deferred tax reimburse PHQWVZKHQWKHUHLVDKLVWRU\RIGHȴFLWVWKH GHIHUUHG WD[ UHLPEXUVHPHQWV HHFWLYH RQ HDUQLQJVRQ WKH DFFXPXODWHGGHȴFLWVFDUULHG forward of The Phone House Deutschland created in the previous year in the amount RIȜPLOOLRQSUHYLRXV \HDU Ȝ?ZHUH UH YHUVHGDVHHFWLYHH[SHQGLWXUHV

7KH WUDQVODWHG GHȴFLWV DWWULEXWDEOH WR 7KH Phone House Deutschland amount to ȜNSUHYLRXV\HDUȜN?7KHDFFX PXODWHG GHȴFLWV FDUULHG IRUZDUG UHOHYDQW IRU WD[HVDUHQRWVXEMHFWWRH[SLUDWLRQ

([SODQDWRU\FRPPHQWVRQWKHFRQVROLGDWHGEDODQFHVKHHW

9. Other intangible assets

	Trade marks	Customer relation ships	2ZQ produced VRIWZDUH	Purchased VRIWZDUH licences	Total
	€k	€k	€k	€k	€k
Acquisition and manufacturing costs
Per 1 January 2015	7,367	8,650	26,530	40,317	82,864
Additions	0	0	2,238	150,633	152,871
Additions Change in consolidated companies	40,610	73,060	268	29,384	143,322
Disposals	0	0	0	6,967	6,967
Per 31 December 2015	47,977	81,710	29,036	213,367	372,090
Additions	0	0	1,922	31,132	33,054
Additions Change in consolidated companies	0	0	0	0	0
Disposals	0	0	27	1,463	1,490
Per 31 December 2016	47,977	81,710	30,931	243,036	403,654
Accrued depreciation
Per 1 January 2015	0	8,650	23,248	19,664	51,562
Additions	0	15,808	1,640	14,857	32,305
Additions Change in consolidated companies	0	0	35	19,790	19,825
Disposals	0	0	0	2,943	2,943
Per 31 December 2015	0	24,458	24,923	51,368	100,749
Additions	0	20,674	2,438	25,496	48,608
Additions Change in consolidated companies	0	0	0	0	0
Disposals	0	0	3	1,030	1,033
Per 31 December 2016	0	45,132	27,358	75,834	148,324
Book values
Per 31 December 2015	47,977	57,252	4,113	161,999	271,341
Per 31 December 2016	47,977	36,578	3,573	167,202	255,330

The additions of the own produced software are related to the software developed by Ζ4RSWLPL]H\$*DQGXVHGE\WKH&RPSDQ\

The additions of purchased software/licenc es and utilisation rights in 2015 concerned basically Drillisch's contribution of €150.0m DJUHHG ZLWK 7HOHIµQLFD DV SDUW RI WKH 0%\$ MVNO model) to the investments previously PDGHDQGWREHPDGHLQIXWXUHE\7HOHIµQLFD in the expansion of the LTE network and in fu ture technologies.

Per 31 December 2016, the book value of the utilisation right was €135m and has a remain ing amortisation period of 13.5 years.

The additions in purchased software/licences and utilisation rights in 2016 essentially relate to investments made in utilisation rights for WKHXVHRIFHUWDLQ7HOHIµQLFDWUDGHPDUNV

7KH FXVWRPHU UHODWLRQVKLSV LGHQWLȴHG ZLWKLQ the framework of the purchase price alloca tions in 2015 have a book value of €36.6m per 31 December 2016 and an average remaining amortisation period of 1 to 4 years.

The depreciation on the purchased software/ licenses and utilisation rights essentially con cerns investments related to the establish ment and expansion of the MBA MVNO busi ness model to utilisation rights for the use of FHUWDLQ7HOHIµQLFDWUDGHPDUNV

During the purchase price allocation process for Telco GmbH in 2007 and for eteleon AG in 2009, for yourfone AG in 2015 and for GT Com GmbH in 2015, customer relationships, own produced software and the trademarks 7HOFR HWHOHRQ DQG \RXUIRQH ZHUH LGHQWLȴHG The trademarks are intangible assets with an LQGHȴQLWHXVHIXOOLIH%DVHGRQWKHDQDO\VLVRI the relevant factors (planning related to the fu ture use of the asset, expected market behav iour, and so on), there is no foreseeable limi tation to the periods in which the trademarks ZLOOSUHVXPDEO\JHQHUDWHQHWFDVKȵRZV

The trademarks Telco and eteleon are recog QLVHGLQWKHFDVKJHQHUDWLQJXQLW'ULOOLVFK2QOLQH AG at a book value of €7.4m and the trademark \RXUIRQH LV GLVFORVHG LQ WKH FDVKJHQHUDWLQJ unit yourfone AG at a book value of €40.6m.

10. Goodwill

7KHJRRGZLOOZDVDWWULEXWHGWRWKHFDVKJHQHUDWLQJXQLWVDVVKRZQEHORZ

	Acquisition costs	Addition	Accrued depreciation per 31 December 2016	Book Value 2016	Book Value 2015
	€k	€k	€k	€k	€k
Drillisch Online AG	90,120	0	22,976	67,144	67,144
Ζ4RSWLPL]H\$*	103	0	41	62	62
yourfone AG	19,185	0	0	19,185	19,185
GTCom GmbH	2,888	0	0	2,888	2,888
TPH Deutschland GmbH	17,715	752	9,200	9,267	17,715
	130,011	752	32,217	98,546	106,994

The value of the goodwill was reviewed using WKHDPRXQWVUHDOLVDEOHIRUWKHVHFDVKJHQHU ating entities, calculated on the basis of their values of use. The values of use result from WKH GLVFRXQWHG IXWXUH FDVK ȵRZV 7KH FRP pany budget approved by management for the years 2017 to 2021 and for the time af WHUWKDWLVEDVHGRQDVXVWDLQHGQHWSURȴWDWD FRQVWDQW JURZWK UDWHRISUHYLRXV \HDU ?GHULYHG IURP WKHEXGJHWDU\ȴJXUHV IRU 7KH PDMRU IXQGDPHQWDO DVVXPSWLRQ IRUWKHSODQQLQJRIWKHFDVKJHQHUDWLQJXQLWV is the number of subscribers and the gross SURȴWSODQQLQJEDVHGRQWKLVVXEVFULEHUQXP ber, our experience and discounting rates assumed for this purpose. Rising subscriber QXPEHUVDQGLQFUHDVLQJJURVVSURȴWVDUHH[ pected in the coming years.

7KHFDVKȵRZZDVGLVFRXQWHGXVLQJDZHLJKWHGDYHUDJHFDSLWDOFRVWUDWHEHIRUHWD[HVZDFF

	Detailed budget period	Subsequent period	Detailed budget period	Subsequent period
	2016	2016	2015	2015
Drillisch Online AG	5.78	5.28	5.59	5.09
Ζ4RSWLPL]H\$*	5.78	5.28	5.74	5.24
yourfone AG	5.66	5.16	5.51	5.01
GTCom GmbH	5.82	5.32	5.45	4.95
TPH Deutschland GmbH	9.44	8.94	5.63	5.13

The restructuring of Phone House and sub sequent sale of the distribution business, in cluding the network operator contracts, per 1 January 2017 results in a change in the Com pany's future earnings position. The related recoverability test of the Phone House good will recognised in the balance sheet as part of the purchase price allocation in 2015 resulted moreover in a reduction in the value of this JRRGZLOO RI ȜPLOOLRQSUHYLRXV \HDU Ȝ? WKDWLVWREHDWWULEXWHGWRWKHVHJPHQW2ɞLQH

No further devaluations of goodwill were re TXLUHG LQ ȴVFDO \HDU 7KHUH ZDV QR GH valuation of goodwill even from an increase LQWKHGLVFRXQWLQWHUHVWUDWHE\DERXWDQG LQFRQVLGHUDWLRQRIDOXPSVXPGHGXFWLRQRI IURPWKHH[SHFWHGFDVKȵRZ

11. Tangible assets

	)L[WXUHVȴWWLQJVDQG	Tenant	Total
	equipment	installations
	€k	€k	€k
Acquisition costs
Per 1 January 2015	7,104	244	7,348
Additions	3,743	1,515	5,258
Additions Change in consolidated companies	25,857	5,604	31,461
Disposals	1,754	0	1,754
Per 31 December 2015	34,950	7,363	42,313
Additions	4,511	603	5,114
Additions Change in consolidated companies	0	0	0
Disposals	5,080	19	5,099
Per 31 December 2016	34,381	7,947	42,328
Accrued depreciation
Per 1 January 2015	4,528	224	4,752
Additions	3,734	35	3,769
Additions Change in consolidated companies	20,499	3,838	24,337
Disposals	1,557	0	1,557
Per 31 December 2015	27,204	4,097	31,301
Additions	3,439	233	3,672
Additions Change in consolidated companies	0	0	0
Disposals	2,888	341	3,229
Per 31 December 2016	27,755	3,989	31,744
Book values
Per 31 December 2015	7,746	3,266	11,012
Per 31 December 2016	6,626	3,958	10,584

Finance leases are disclosed in the tangible asset as explained in Section 18.

12. Inventories

	2016	2015
	€k	€k
Merchandise	7,469	30,219
Value allowances for merchandise
Payments on account	3,389	2,396
	9,984	32,384

The merchandise consists primarily of mobile phones, SIM cards, prepaid bundles and accessories. The payments on account represent primarily vouchers in stock.

13. Trade accounts receivable

	2016	2015
	€k	€k
Gross receivables	104,016	107,383
Valuation allowances on receivables
	92,658	88,504

Analysis of maturity of trade receivables

		Thereof neither	Thereof not devalued as of closing date DQGRYHUGXHLQWKHIROORZLQJWLPHVSDQV
	Book value	devalued nor overdue as of closing date	Less than 30 days	%HWZHHQ 31 and 90 days	%HWZHHQ 91 and 180 days	More than 180 days
	€k	€k	€k	€k	€k	€k
31 December 2016	92,658	69,747	5,416	4,681	6,678	6,136
31 December 2015	88,504	75,285	4,630	3,399	1,574	3,616

With respect to the receivables that as of the closing date had not been devaluated and that were not overdue, nothing was known as of the closing date which would indicate that WKHGHEWRUVZRXOGQRWIXOȴOWKHLUSD\PHQWRE ligations.

Receivables that as of the closing date were not devaluated, but that were overdue, com prise receivables (i.a.) due from customers and suppliers with whom payment in instal PHQWVLQWKHDPRXQWRIȜNSUHYLRXV\HDU €655k) has been agreed. As long as the debt ors are in compliance with their payment obli

gations, no valuation allowances will be taken and the receivables will continue to be meas ured at cost of acquisition.

In Drillisch Group, valuation allowances are created on doubtful receivables to take into account estimated losses which result from customers' insolvency. The criteria used by management for the assessment of the rea sonableness of the valuation allowances for doubtful receivables are the maturity struc ture of the receivable balances and experi HQFHUHODWHGWRWKHZULWHRVRIUHFHLYDEOHVLQ the past, the creditworthiness of the custom

ers and the changes in terms and conditions RI SD\PHQW ΖI WKH FXVWRPHUVȇ ȴQDQFLDO SRVL WLRQ GHWHULRUDWHV WKH VFRSH RI WKHZULWHRV which must actually be taken can exceed the VFRSHRIWKHH[SHFWHGZULWHRV

7KHYDOXDWLRQDOORZDQFHVRQWUDGHUHFHLYDEOHVKDYHGHYHORSHGDVVKRZQEHORZ

	2016	2015
	€k	€k
9DOXDWLRQDOORZDQFHVSHU-DQXDU\	18,879	2,177
Additions from the change in the group of consolidated companies	0	13,948
Additions (expenses for valuation allowances)	12,541	28,094
Consumption / Reversal
9DOXDWLRQDOORZDQFHVSHU'HFHPEHU	11,358	18,879

14. 7D[UHLPEXUVHPHQWFODLPV

	2016	2015
	€k	€k
Corporate income tax	38	3,551
Trade tax	0	3,924
	38	7,475

15. Other current assets

	2016	2015
	€k	€k
Other receivables due from network operators	0	23,970
Other receivables acquisition yourfone	1,129	2,149
Advance payments	2,085	2,126
Miscellaneous	1,807	3,839
	5,021	32,084

Other receivables due from network opera tors in 2015 essentially comprised receivables from commissions and bonuses due from all of the mobile network operators in Ger many from brokerage business conducted

by the subsidiary The Phone House, which is QRWFODVVLȴHGDVWKHFRUHEXVLQHVVRI'ULOOLVFK Group. They are consequently not disclosed under trade receivables, but under assets of the disposal group in 2016.

16. Assets and liabilities of the disposal JURXS&RQVROLGDWHGSURȴWIURPFORVHG divisions

In May 2015, Drillisch acquired The Phone House Deutschland GmbH, Münster, and its subsidiaries from Dixons Carphone PLC. In September 2016, Drillisch decided to divest the distribution business of Phone House, above all pursuant to network operator agreements from 1 October 2016 on, to a new company, The Phone House Telecom Vertrieb GmbH, and to sell the new company to DeinHandy GmbH, Obertshausen. The sale was complet ed in January 2017. The core Phone House companies remaining in Drillisch Group (The Phone House Deutschland GmbH and The Phone House Telecom GmbH) will in future be in charge exclusively of yourfone partner and own yourfone shops and continue to provide the complete range of hardware supplies for RQOLQHDQGRɞLQHVDOHV

The current assets of the disposal group in the amount of €16.9m comprise essentially receiv ables due from network operators from com mission claims related to the divested broker DJHEXVLQHVV7KHVKRUWWHUPOLDELOLWLHVRIWKH disposal group include €16.4m that comprise HVVHQWLDOO\WUDGHOLDELOLWLHV7KHUHDUHQRȴ[HG DVVHWV DQG ORQJWHUP OLDELOLWLHV 7KH FRPSUH hensive income statement includes €9k that is attributable to The Phone House Telecom Vertrieb GmbH for the period from 1 October to 31 December 2016. Since the segments are not steered according to assets and liabilities, QR VWDWHPHQWV DERXW WKH VHJPHQW FODVVLȴFD tion of the disposal group can be made.

7KH SURȴW IURP FORVHG GLYLVLRQV LQ WKH SUH vious year included income from The Phone House Management GmbH, Münster, that was sold in November 2015. This company was acquired in combination with the acqui sition of Phone House Group at the beginning of May 2015 and was intended for resale as of its acquisition. The share of the total prof it from ongoing divisions to which Drillisch AG shareholders are entitled amounts to ȜN SUHYLRXV \HDU ȜN? DQG WKH share from discontinued activities comes to ȜNSUHYLRXV\HDUȜN?ΖQFRPHWD[GXHRQ WKH SURȴW IURP FORVHG GLYLVLRQV DPRXQWV WR ȜNSUHYLRXV\HDUȜN

17. Equity

The Company's share capital in the DPRXQW RI Ȝ SUHYLRXV \HDU €60,241,113.90) is distributed in 54,764,649 SUHYLRXV \HDU ? QRSDU VKDUHV LV sued to the bearer with an unchanged propor tionate share in the share capital of €1.10.

The Annual General Meeting of 19 May 2016 adopted a resolution to distribute a dividend of €1.75 for each and every share entitled to receive a dividend. The number of shares is sued at the point in time of the Annual Gener al Meeting totalled 54,764,649, The disburse ment consequently amounted to a total of €95.8m.

Management Board and Supervisory Board will propose a dividend of €1.80 for each share entitled to dividends to this year's An nual General Meeting. Based on the share capital entitled to dividends, the calculated disbursement will amount to €98.6m.

Capital reserves

The capital reserves contain the premium over the nominal amount from the issue of shares by Drillisch AG. The amount in excess of the par value of €1.10 for the sale of new shares in 2015 was attributed to the capital reserves.

Furthermore, the capital reserves contain the equity component of the conversion bond de scribed in the subheading "Debenture bond" under Section 20.

Earnings reserves

7KHHDUQLQJV UHVHUYHVFRQWDLQ WKHSURȴWV UH alised in the past by the companies included in the consolidated annual accounts that were not distributed or carried forward to a new ac count from a Group perspective.

Approved Capital I

The Annual General Meeting of 21 May 2014 DXWKRULVHG WKH 0DQDJHPHQW %RDUG VXEMHFW to the approval of the Supervisory Board, to increase the Company's share capital by as much as €23,403,166.60 by a single or multi SOH LVVXH RI QHZ QRSDU VKDUHV DJDLQVW FDVK contributions and/or contributions in kind before the lapse of 20 May 2019 (Approved Capital). There is a balance of €21,669,969.20 subsequent to the capital increase of May 2015. In the event of cash contributions, the new shares may also be taken over by one or PRUHEDQNVRURWKHUFRPSDQLHV IXOȴOOLQJWKH SUHUHTXLVLWHVRI6HFWLRQ?ȴUVWVHQWHQFH \$NW*VXEMHFW WR WKHREOLJDWLRQ WRRHU WKHP for subscription to the shareholders (indirect subscription right). On principle, a subscrip tion right is to be granted to the shareholders. However, the Management Board is author LVHGVXEMHFWWRWKHFRQVHQWRIWKH6XSHUYLVRU\ Board, to exclude shareholders' subscription ULJKWV

• » So that fractional amounts are excluded from the subscription right;
• » If the capital increase is achieved by cash contributions and the issue price of the

QHZVKDUHVLVQRWVLJQLȴFDQWO\ORZHU WKDQ that of the equivalent shares already trad HG RQ WKH H[FKDQJH DW WKH WLPH RI WKH ȴ nal determination of the issue price by the Management Board. The number of shares LVVXHGVXEMHFWWRH[FOXVLRQRIWKHVXEVFULS tion pursuant to Section 186 (3), fourth sentence AktG (German Company Law) PD\QRW H[FHHG RI WKHVKDUHFDSLWDO neither at the point in time at which the DXWKRULVDWLRQEHFRPHVHHFWLYHQRUDWWKH point in time that it is exercised. Any shares which have been issued or must be issued to satisfy subscription rights from option or convertible bonds, provided that the debenture bonds have been issued dur LQJ WKH WHUP RI WKLV DXWKRULVDWLRQ VXEMHFW to application mutatis mutandis of Section 186 (3) fourth sentence AktG and excluding the subscription right, must be included in WKLVȴJXUH)XUWKHUPRUHDQ\VKDUHVZKLFK DUHLVVXHGRUVROGVXEMHFWWRWKHH[FOXVLRQ of a subscription right during the term of this authorisation on the basis of an au thorisation for the use of treasury stock in accordance with Section 71 (1) no. 8 and Section 186 (3) fourth sentence AktG must EHLQFOXGHGLQWKLVȴJXUH

» To the extent that, as protection from dilu tion, it is necessary to grant to the holders or creditors of option or conversion rights from option or convertible bonds that have been, or will be, issued by the Com pany and/or subordinate group under takings subscription rights in the scope to which said persons would be entitled after the exercise of their conversion or option ULJKWVRUDIWHUIXOȴOPHQWRIWKHFRQYHUVLRQ obligation;

• » If the capital increase against contribu tions in kind is carried out for the purpose of providing shares within the framework of corporate mergers or of acquiring com panies or parts of companies, holdings in companies or other assets;
• » So that new shares up to a proportion ate amount of the share capital total OLQJ ȜPD\ EH LVVXHG DV VWD shares to employees of the Company or RIDɝOLDWHGFRPSDQLHVZLWKLQWKHVHQVHRI Section 15 et seqq. AktG.

This authorisation is restricted to the extent that, after exercise of the authorisation, the WRWDO YDOXH RI WKH VKDUHV VXEMHFW WR H[FOX sion of a subscription right issued for this DSSURYHGFDSLWDOPD\QRWH[FHHGRI WKH share capital at the time the authorisation HQWHUVLQWRHHFWRU ȂLI WKLV YDOXHLVORZHU Ȃ at the time the authorisation is exercised. 6KDUHVVXEMHFW WRH[FOXVLRQRIDVXEVFULSWLRQ right that are issued to compensate fractional amounts and/or as protection from dilution for holders or creditors of option or converti EOHERQGVRUDVVWDVKDUHVDUHH[FOXGHGIURP FRQVLGHUDWLRQ6KDUHVWKDWDUHLVVXHGVXEMHFW to exclusion of a subscription right from oth er approved capital during the term of the above authorisation must also be included in WKLVOLPLWDVPXVWVKDUHVWKDWDUHLVVXHG pursuant to the exercise of option and/or con vertible bonds or option/conversion rights or obligations associated with convertible bonds, provided that the corresponding option and/ RUFRQYHUWLEOHERQGVDUHLVVXHGVXEMHFWWRH[ clusion of a subscription right during the term of this authorisation. Exclusions of subscrip tion rights for the compensation of factional amounts and/or as protection from dilution for holders or creditors of option or conver sion rights associated with option or convert LEOHERQGVDQGRUIRUWKHLVVXHRIVWDVKDUHV DUHQRWLQFOXGHGLQWKHOLPLW

Furthermore, the Management Board is au WKRULVHG VXEMHFW WR WKH FRQVHQW RI WKH 6X pervisory Board, to determine the further content of the stock rights and the terms and conditions of the issue of the shares. The Su pervisory Board is authorised to amend the current version of the company charter in DFFRUGDQFHZLWKWKHVSHFLȴFXWLOLVDWLRQRIWKH approved capital or after the expiration of the authorisation.

Approved Capital II

The Management Board is authorised, sub MHFWWRWKHFRQVHQWRIWKH6XSHUYLVRU\%RDUG to increase the Company's share capital by as much as €5,850,791.65 by a single or multi SOH LVVXH RI QHZ QRSDU VKDUHV DJDLQVW FDVK contributions and/or contributions in kind before the lapse of 20 May 2020 (Approved Capital II). In the event of cash contributions, the new shares may also be taken over by one RU PRUH EDQNV RU RWKHU FRPSDQLHV IXOȴOOLQJ WKHSUHUHTXLVLWHVRI6HFWLRQ?ȴUVWVHQ WHQFH\$NW*VXEMHFW WR WKHREOLJDWLRQ WRRHU them for subscription solely and exclusive ly to the shareholders (indirect subscription right). On principle, a subscription right is to be granted to the shareholders. The Manage PHQW %RDUG LV DXWKRULVHG KRZHYHU VXEMHFW to the consent of the Supervisory Board, to exclude shareholders' subscription rights for QHZQRSDUVKDUHVIURP\$SSURYHG&DSLWDOΖΖLI and when the capital increase is undertaken against contributions in kind for the purpose

of granting shares within the context of corpo rate mergers or for the purpose of acquiring companies, parts of companies, holdings in companies or other assets.

Furthermore, the Management Board is au WKRULVHG VXEMHFW WR WKH FRQVHQW RI WKH 6X pervisory Board, to determine the further content of the stock rights and the terms and conditions of the issue of the shares. The Su pervisory Board is authorised to amend the current version of the company charter in DFFRUGDQFHZLWKWKHVSHFLȴFXWLOLVDWLRQRI\$S proved Capital II or after the expiration of the authorisation.

Contingent Capital 2013

The authorisation granted to the Manage ment Board during the Annual General Meet ing of 16 May 2013 to issue option and/or convertible bonds with a total nominal value not to exceed €100.0m was exercised in full (Contingent Capital 2013). In December 2013, 'ULOOLVFK \$* LVVXHG D QRQVXERUGLQDWHG FRQ vertible bond with a total volume of €100.0m DQGDWHUPRIȴYH\HDUV7KHWHUPRIWKHERQG ends on 12 December 2018.

Contingent Capital 2015

There has been a contingent increase in cap ital of up to €17,600,000.00 by the issue of XS WRQRSDU YDOXHEHDUHUVKDUHV ZLWKSURȴWHQWLWOHPHQWIURPWKHEHJLQQLQJRI WKH ȴVFDO \HDU RI WKHLU LVVXH 7KH FRQWLQJHQW capital increase serves the purpose of grant

ing shares to the holders or creditors of op WLRQ ERQGV FRQYHUWLEOH ERQGV SURȴWVKDULQJ rights and/or income bonds or combinations of these instruments that, pursuant to the au thorisation of agenda item 10 of the Annual General Meeting of 21 May 2015, are issued against cash by the Company or by a compa ny in which the Company, directly or indirect O\KROGV DPDMRULW\LQWHUHVW DQG WKDW JUDQW D FRQYHUVLRQ RU RSWLRQ ULJKW WR QRSDU EHDUHU shares of the Company or that determine a conversion/option obligation. The contingent capital increase is to be carried out solely to the extent that the option and/or conversion rights from the debenture bonds are exer cised or that option/conversion obligations IURP WKH GHEHQWXUH ERQGV DUH IXOȴOOHG DQG provided that cash compensation is not paid or that treasury stock or stock from another listed company is not utilised for this purpose. The Management Board is authorised, sub MHFWWRWKHFRQVHQWRIWKH6XSHUYLVRU\%RDUG to determine the details of the conduct of the contingent capital increase (Contingent Capi tal 2015).

Treasury stock

The Annual General Meeting on 21 May 2015 adopted a resolution authorising the Drillisch AG Management Board to acquire treasury VWRFNWRWDOOLQJXSWRRIWKHVKDUHFDSLWDODW the time of the Annual General Meeting 2015 on or before 20 May 2020 (including the use of derivatives). Per the closing date 31 December 2016, Drillisch AG did not hold any shares of its own stock.

18. Leases

7KHWDQJLEOHDVVHWVLQFOXGHWKHIROORZLQJȴQDQFHOHDVHV

	)L[WXUHVȴWWLQJVDQGHTXLSPHQW
	€k
Acquisition costs
Per 1 January 2015	2,888
Additions	0
Disposals	824
Per 31 December 2015	2,064
Additions	1,349
Disposals	824
Per 31 December 2016	2,589
Accrued depreciation Per 1 January 2015	805
Additions	894
Disposals	824
Per 31 December 2015	875
Additions	733
Disposals	824
Per 31 December 2016	784
Book values
Per 31 December 2015	1,189
Per 31 December 2016	1,805

Leasing liabilities	8SWR\HDU	1–5 years
	€k	€k
Leasing payments	1,074	816
Interest	45	20
Cash values	1,029	796

9DULRXVȴ[HGDVVHWVZHUHVROG WR*()\$/HDV ing GmbH, Wuppertal, and then leased back RQ WKH EDVLV RI VDOHDQGOHDVH WUDQVDFWLRQV The cash value of the leasing instalments was carried as a liability. The leasing agreements contain options for extension or purchase.

19. Pension provisions

Provisions are created for commitments from pension expectancies to present and former employees or their survivors.

Pension provisions are measured and dis closed in the balance sheet in accordance with IAS 19. The future commitments are measured by applying actuarial procedures and using SUXGHQW HVWLPDWHV RI WKH UHOHYDQW LQȵXHQWLDO variables. The company pension plan in the *URXSLVPHULWEDVHG DQG DV D UXOHGHSHQGV on the time of service to the Company and the compensation paid to the employees.

The following calculation parameters are used in addition to the assumptions about life ex SHFWDQF\

Calculation parameters	2016	2015
	%	%
Calculated interest rate	1.70	2.40
Expected income from scheme assets	1.70	2.40
Expected development of income	0.00	0.00
Expected development of pensions	0.00	0.00
Fluctuation	0.00	0.00

'XULQJȴVFDO\HDUWKHPHWKRGIRUWKHGLV FORVXUHRISHQVLRQSURYLVLRQVIRUPHULWEDVHG SHQVLRQ VFKHPHV VRFDOOHG GHȴQHG EHQHȴW plans) in the balance sheet was changed. The actuarial gains and losses are recognised im mediately in the year in which they occur. The disclosure of the actuarial gains and losses is measured directly in equity as a component of Other equity items. They are not recog

nised in the income statement, either in the year of their occurrence or in later periods, in accordance with IAS 19.93D.

7KHUHIHUHQFHWDEOHV*IURP.ODXV+HX beck were used for the biometrical basis of WKH FDOFXODWLRQV 7KH ȵXFWXDWLRQ SUREDELOLW\ ZDVHVWLPDWHGVSHFLȴFDOO\WRDJHDQGVH[

The expected income from scheme assets is oriented to the calculated interest rate.

Analysis of pension model	2016	2015
	€k	€k
&DVKYDOXHRISHQVLRQH[SHFWDQFLHVIRUPHULWEDVHGSHQVLRQFRPPLWPHQWV'%2	2,162	1,792
Fair value of scheme assets	507	431
Shortfall of scheme	1,655	1,361
\$GMXVWPHQWRIREOLJDWLRQVEDVHGRQH[SHULHQFH	13
\$GMXVWPHQWRIVFKHPHDVVHWVEDVHGRQH[SHULHQFH	63

As of the closing date, the amount of pension commitments which result are disclosed in the bal DQFHVKHHWDVIROORZV

Balance sheet obligations	2016	2015
	€k	€k
Cash value of pension expectancies for pension commitments (DBO)	2,162	1,792
\$FWXDULDOSURȴWV?ORVVHV?QRWFRQVLGHUHG	0	0
Costs for changes in claims from previous years not considered	0	0
Market value of scheme assets
Pension provisions per 31 December	1,655	1,361

ΖQ WKH FXUUHQW ȴVFDO \HDU DV LQ WKH SUHYLRXV \HDU WKH REOLJDWLRQV ZHUH ȴQDQFHG HVVHQWLDOO\ E\ scheme assets.

Development of cash value of pension expectancies (DBO)	2016	2015
	€k	€k
Per 1 January	1,792	1,868
Addition to consolidated companies	0	59
&RVWVIRUSHQVLRQFODLPVDFTXLUHGLQȴVFDO\HDU	13	9
Interest	43	38
Pension payments	0	0
6HUYLFHSHULRGH[SHQVHVWREHR΍VHWUHWURDFWLYHO\	0	0
\$FWXDULDOSURȴWV?ORVVHV	314
Other changes	0	0
Per 31 December	2,162	1,792

The costs for the pension claims acquired dur LQJWKHȴVFDO\HDUDUHGLVFORVHGLQWKHSHUVRQ nel expenses and the interest, including the income from the scheme assets, is disclosed LQWKHȴQDQFLDOUHVXOWV

Pension expenditures (NPPC)	2016	2015
	€k	€k
&RVWVIRUSHQVLRQFODLPVDFTXLUHGLQȴVFDO\HDU	13	9
Interest	43	38
Expected income from scheme assets
Actuarial gains/losses recognised in operating results	0	0
6HUYLFHSHULRGH[SHQVHVWREHR΍VHWUHWURDFWLYHO\	0	0
	43	37

Amounts approximately equivalent to those RIWKHFXUUHQWȴVFDO\HDUDUHH[SHFWHGIRUWKH FRPLQJȴVFDO\HDUΖQFRQVLGHUDWLRQRIVWDQG

DUGUHWLUHPHQWDJHWKHȴUVWSD\PHQWVRIEHQ HȴWVDUHH[SHFWHGLQ

7KHUHLQVXUDQFHGHYHORSHGDVIROORZV

Development of fair value of scheme assets	2016	2015
	€k	€k
Per 1 January	431	343
Addition to consolidated companies	0	79
Expected income from scheme assets	13	10
\$FWXDULDOSURȴWV?ORVVHV	63
Per 31 December	507	431
Actual income from scheme assets	2016	2015
	€k	€k
Expected income from scheme assets	13	10
\$FWXDULDOSURȴWV?ORVVHV	63
Per 31 December	76	9

1R FRQWULEXWLRQVZHUHPDGH WR WKH UHLQVXUDQFH IRU ȴVFDO \HDU 7KH VFKHPH DVVHWVGHULYH exclusively from two reinsurance policies.

Sensitivity analysis

In the event of a change in life expectancy of +1 \HDUDQGDFKDQJHLQLQWHUHVWUDWHVRIs all other conditions remaining unchanged, the cash value of the pension expectancies would be €229k higher or €185k lower, respectively.

In the event of a change in life expectancy of \HDUDQGDFKDQJHLQLQWHUHVWUDWHVRIs all other conditions remaining unchanged, the cash value of the pension expectancies would be €211k higher or €200k lower, respectively.

Schemes oriented to contributions exist as well. This does not result in any obligations for Drillisch AG beyond the payment of the con tributions to external institutes. Expenses for schemes oriented to contributions of this type DPRXQWHG WR ȜP LQ WKH ȴVFDO \HDUSUHYL RXV\HDUȜP

20. Bank loans and overdrafts, Debenture ERQGVDQG2WKHUȴQDQFLDOOLDELOLWLHV

Bank loans and overdrafts

A revolving loan agreement for a total of €100.0m was agreed between the Commer zbank Aktiengesellschaft, Frankfurt, and the %+)%DQN\$NWLHQJHVHOOVFKDIW)UDQNIXUWDVWKH arrangers and Drillisch AG on 19 December 2014. An amount of €50.0m of the credit line ZDV XWLOLVHG LQ ȴVFDO \HDU 7KH LQWHUHVW UDWH FRPSULVHG WZR FRPSRQHQWV WKH (85Ζ BOR applicable to the relevant interest period and a margin agreed in the loan agreement. The loan agreement runs until 19 December 2019.

The applicable margin is oriented to the ratio RIFRQVROLGDWHGQHWȴQDQFLDOGHEW WRFRQVROL dated EBITDA on the basis of the 12 months previous to the relevant quarterly closing GDWH7KHPLQLPXPPDUJLQLVZKLFKLV UHDFKHGIRUDUDWLRRIFRQVROLGDWHGQHWȴQDQ cial debt to consolidated EBITDA of less than 0.5 to 1. If this ratio is greater than 2 to 1, the PD[LPXPSRVVLEOHPDUJLQRIDSSOLHV

7KHORDQLV WLHG WR DVSHFLȴF ȴQDQFLDOLQGLFD tor (degree of indebtedness); in the event of failure to comply with this indicator, the loan agreement may be terminated. The Company ZDVLQFRPSOLDQFHZLWKWKHVHFULWHULDLQȴVFDO year 2016.

The total interest expenses related to the loan DPRXQWHGWRȜNLQȴVFDO\HDUSUHYL RXV\HDUȜN

Debenture bonds

In December 2013, Drillisch AG issued a QRQVXERUGLQDWHG FRQYHUWLEOH ERQG ZLWK D WRWDO YROXPH RI ȜP DQG D WHUP RI ȴYH years. The convertible bond includes an an QXDO FRXSRQ RI 7KH ERQGZDV LVVXHG DWRIWKHQRPLQDOYDOXHDQGZLOODOVREH UHGHHPHG DW 7KH FRQYHUVLRQ ULJKW LV recognised in the capital reserves at a value of ȜP\$QLQWHUHVWUDWHRIZDVDSSOLHG for the allocation and led to an initial meas urement of the bond of €86.1m. It has been possible to convert the bonds with a nominal value of €100k each into Drillisch AG shares since 22 January 2014. In accordance with the terms and conditions of the bonds, the con YHUVLRQ SULFH ZDV DGMXVWHG IURP WKH RULJLQDO €24.2869 to €20.9876 per share following the disbursement of a cash dividend in May 2014, May 2015 and May 2016, corresponding to SUHYLRXV \HDU ? VKDUHV per partial debenture. The term of the bond ends on 12 December 2018.

Interest will accrue to the liability for the bond LQDFFRUGDQFHZLWK WKHHHFWLYHLQWHUHVWUDWH method.

2WKHUȴQDQFLDOOLDELOLWLHV

2WKHUȴQDQFLDOOLDELOLWLHVLQFOXGHDFRQWLQJHQW price liability in the amount of €5.8m (previ RXV\HDUȜP

	Per 01/01/2016	8WLOLVDWLRQV	Reversals	Creations	Per 31/12/2016
	€k	€k	€k	€k	€k
Commissions	5,130	150	80	170	5,070
Deconstruction actions	1,833	49	0	139	1,923
Litigation risks	3,491	1,025	817	1,279	2,928
Miscellaneous	1,708	1,051	0	134	791
	12,162	2,275	897	1,722	10,712

21. Short-term provisions

'ULOOLVFK*URXSSUHVXPHVWKDWWKHUHZLOOEHDQRXWȵRZRIIXQGVLQȴVFDO\HDU

22. 7D[OLDELOLWLHV

	2016	2015
	€k	€k
Corporate income tax	2,906	1,368
Trade tax	8,491	3,736
	11,397	5,104

23. Trade accounts payable

This item includes essentially invoices from network operators.

24. Payments received on account

This item includes income from sold vouchers DQGWRSXSVE\SUHSDLGFXVWRPHUVZKLFKKDG not yet been used for phone calls as of the balance sheet date.

Payments received on account declined, es sentially a consequence of the decrease in prepaid accounts and the reduction in vouch er sales.

25. Other liabilities

	2016	2015
	€k	€k
Liabilities utilisation right	24,686	0
Payroll	12,220	14,801
Deferred income	1,428	15,388
Income tax	633	305
Security deposits	624	11
Miscellaneous	2,817	1,758
	42,408	32,263

3D\UROOOLDELOLWLHVLQFOXGHȜPSUHYLRXV\HDUȜP?LQORQJWHUPOLDELOLWLHVIURPERQXVHVȂ 2017, an LTI programme 2016–2018 and an LTI programme 2016–2019.

26. Analysis of maturity

	2016 book value	&DVKȵRZ			&DVKȵRZ 2017–2021
		< 1 month	1–3 months	3 months to 1 year	> 1 year
	€k	€k	€k	€k	€k
Bank loans and overdrafts	50,011	50,011	0	0	0
Debenture bonds	94,231	0	0	750	100,750
Trade accounts payable	44,940	44,940	0	0	0
/LDELOLWLHVIURPȴQDQFHOHDVLQJ	1,825	90	179	806	816
2WKHUȴQDQFLDOOLDELOLWLHV	5,800	0	5,800	0	0
Other liabilities	42,408	5,287	5,972	14,519	17,043

The total value of the debenture bonds at maturity amounts to €100,000k; the total value of the Other liabilities at maturity amounts to €42,722k.

27. 1HWSURȴWVDQGORVVHVIURPYDOXDWLRQFDWHJRULHV

	Interest	from subsequent valuation			Net results
		at fair value	valuation DOORZDQFHV	from disposal 3 months to 1 year	2016	2015
	€k	€k	€k	€k	€k	€k
Loans and receivables	199	0		811
Salable assets	0	0	0	0	0	0
Trade assets	0	0	0	0	0	0
Liabilities at cost of acquisition
(carried forward)		0	0	0
	-3,485	0	-16,422	811	-19,096	-12,828

28. 2WKHUȴQDQFLDOREOLJDWLRQV\$YDLODELOLW\IRUXVH

2WKHUȴQDQFLDOREOLJDWLRQV

	Rents	Leasing	Total	Previous year
	€k	€k	€k	€k
Due in less than 1 year	9,296	3,383	12,679	21,323
Due in 1 to 5 years	22,221	805	23,026	29,007
Due in more than 5 years	206	0	206	3,646
	31,723	4,188	35,911	53,976

ΖQ WKH ȴVFDO \HDU ȜN SUHYLRXV \HDU €7,959k) for rent and leasing payments was included in expenditures.

ΖQDGGLWLRQRWKHUȴQDQFLDOOLDELOLWLHVDUHUHODW ed to the procurements of supplies and ser vices and amount to €16m. Of this amount, €8m will be due each year in 2017 and 2018.

Drillisch has acquired network capacities com prising data volume as well as voice and text PHVVDJHDOORWPHQWVIURP7HOHIµQLFDSXUVXDQW to binding provisions of the MBA MVNO agree ment for the basic term of the agreement (July 2015 to June 2020). The capacity which must be purchased will rise according to a glide path RYHUWKHEDVLFWHUPRIWKHDJUHHPHQWWR RIWKHWRWDOFDSDFLW\RIWKH7HOHIµQLFDQHWZRUN Moreover, Drillisch has accepted an obligation WRSXUFKDVHDȴ[HGDOORWPHQW IRUH[LVWLQJFOL entele independently of network usage. The payments during the basic term are in the middle to high hundreds of millions range. \$QH[DFWDPRXQWFDQQRWEHVSHFLȴHGEHFDXVH the payments are dependent on a number of contractual variables. Among other factors, the payment obligation is dependent on the future actual usage of all subscribers on the 7HOHIµQLFDQHWZRUN

Availability for use

There are receivables due from end custom ers related to the provision of devices within the scope of mobile service contracts per 31 December 2016 that have not yet been real ised. The payments are due in the following \HDUV

	2016	2015
	€k	€k
Due in less than 1 year	2,434	2,018
Due in 1 to 5 years	89	2,013
Due in more than 5 years	0	0
	2,523	4,031

29. \$GGLWLRQDOGLVFORVXUHVRIȴQDQFLDO instruments in accordance with IFRS 7

\$ ȴQDQFLDO UHSRUWLQJ V\VWHP UHVSRQVLEOH IRU WKH VHFXULW\ DQG ȴQDQFLQJ DFWLYLWLHV RI WKH Group has been implemented throughout Drillisch Group. Market, liquidity and loan risks RIWKH*URXSFDQEHLGHQWLȴHGDQGDSSURSUL ate measures and strategies determined with WKHDLGRIWKLVȴQDQFLDOUHSRUWLQJV\VWHP7KH risks are managed centrally in accordance with guidelines issued by the Management Board.

'ULOOLVFK *URXS LV VXEMHFW WR YDULRXV WKUHDWV LQLWVEXVLQHVVȴHOGV7KHVHWKUHDWVDQGWKHLU management are described in detail in the risk report which is part of the consolidated management report. In cases in which no spe cial provisions must be observed, the taxable equity is the equity as disclosed in the balance sheet. Capital management is described un der Section 2.5 of the consolidated manage ment report.

7KH ULVNV UHVXOWLQJ IURP WKH ȴQDQFLDO LQVWUX ments are related to loan risks, liquidity risks and market risks. The loan risks take the form RIWKHULVNVRIORVVHVRIȴQDQFLDODVVHWV/LTXLG LW\ULVNVDUHUHȴQDQFLQJULVNVDQGDUHULVNVRI

95

WKHRQWLPHIXOȴOPHQWRIWKH*URXSȇVH[LVWLQJ payment obligations. Market risks occur in the Group in the form of interest risks.

The risk of asset losses in the Group is limited DV D PD[LPXP WR WKH ERRN YDOXHV RI WKH ȴ QDQFLDODVVHWV)RUWKHRULJLQDOȴQDQFLDOLQVWUX ments, this is the total of the book values. The risk of asset losses is given due consideration by valuation allowances or insurance policies. There is no concentration of risks of loss of as sets on individual debtors, especially because of the mass business. When seen against this background, the risk of loss is deemed to be slight.

Early recognition of the future liquidity sit uation is obtained by considering payment ȵRZVWDNLQJLQWRDFFRXQWWKHSODQQHGDVVHWV and liabilities and earning position in the mid GOHWHUP SODQQLQJ RI WKH *URXS 7KH VKRUW term liquidity planning is updated daily with DFWXDOȴJXUHV

IFRS 7 requires sensitivity analyses to show PDUNHW ULVNV 7KH LQȵXHQFH RI ULVN YDULDEOHV on earnings and equity is to be described by hypothetical changes in these variables based on past experience.

Financial instruments that are measured at costs of acquisition carried forward are not VXEMHFWWRDQ\ULVNVIURPFKDQJHVLQWKHPDU ket interest level.

2ULJLQDOȴQDQFLDOLQVWUXPHQWVZLWKDYDULDEOH LQWHUHVW UDWH DUH VXEMHFW WR PDUNHW LQWHUHVW risks and are included in the sensitivity anal \VLV1RVXFKȴQDQFLDOLQVWUXPHQWVH[LVWHGRQ the balance sheet closing date.

As of the closing date, bank loans and over GUDIWVZHUHVXEMHFWWRDYDULDEOHLQWHUHVWUDWH EDVHG RQ WKH (85Ζ%25 SOXV D FRPSDQ\VSH FLȴFPDUJLQKRZHYHUDQ(85Ζ%25UDWHRIDW OHDVWLVWREHDSSOLHG

If the market interest level increases by 10 EDVHSRLQWVWKHUHZRXOGEHDQHJDWLYHHHFW RQWKHSURȴWEHIRUHWD[HVRIȜNPRQWKO\SUH YLRXV \HDU ȜN? ΖI WKH PDUNHW LQWHUHVW OHYHO declines by 10 base points, there would at this WLPHEHDQHHFWRQWKHSURȴWEHIRUHWD[HVRI ȜNSUHYLRXV\HDUȜN?EHFDXVHRIWKHDIRUH mentioned minimum EURIBOR.

7KH FRPSDQ\VSHFLȴF PDUJLQ LV RULHQWHG WR WKHUDWLRRIFRQVROLGDWHGQHWȴQDQFLDOGHEWWR consolidated EBITDA on the basis of the 12 months prior to the relevant quarterly clos ing date. If this margin increases by 0.5 units, WKHUHZRXOGEHDQHJDWLYHHHFWRQWKHSURȴW EHIRUH WD[HV RI ȜN PRQWKO\ SUHYLRXV \HDU €0k). If this margin decreases by 0.5 units, WKHUHZRXOG DW WKLV WLPH EH DQ HHFW RQ WKH SURȴWEHIRUHWD[HVRIȜNSUHYLRXV\HDUȜN? 7KHPLQLPXPPDUJLQZDVHHFWLYHSHU'H cember 2016.

0LVFHOODQHRXV GLVFORVXUHV DERXW ȴQDQFLDO instruments

1RQH RI WKH ȴQDQFLDO DVVHWV ZHUH UHFODVVL ȴHGLQWRDQRWKHUYDOXDWLRQFDWHJRU\SXUVXDQW to IAS 39 during the reporting period. None RI WKHȴQDQFLDODVVHWVDQGȴQDQFLDOOLDELOLWLHV were designated as operating results at fair value during the reporting period. The perti QHQW ERRN YDOXH IRU VKRUWWHUP ȴQDQFLDO DV sets and liabilities that are not derivatives is a reasonable approximation of the fair value within the sense of IFRS 7.29(a).

The valuation categories shown below result IURPWKHFODVVLȴFDWLRQRIDOODVVHWVDQGOLDELOL WLHVSXUVXDQWWRΖ\$6

		Measurement according to IAS 39
	Book value 31/12/2016	Cost of acquisition (carried IRUZDUG	Fair value non operating results	Fair value operating results	Fair value 31/12/2016
	€k	€k	€k	€k	€k
Assets
Trade accounts receivable	92,658
Loans and receivables	92,658	92,658			92,658
Other current assets	5,021
Loans and receivables	2,937	2,937	0		2,937
1RȴQDQFLDOLQVWUXPHQW	2,085
Cash	92,771
Loans and receivables	92,771	92,771	0		92,771
2WKHUȴQDQFLDODVVHWV	561
Available for sale	561		561		561
7RWDOȴQDQFLDODVVHWV	188,927	188,366	561	0	188,927
Shareholders' Equity and Liabilities
Trade accounts payable	44,940
Loans and receivables	44,940	44,940			44,940
Bank loans and overdrafts	50,011
Loans and receivables	50,011	50,011			50,011
Debenture bonds	94,231
Loans and receivables	94,231	94,231			94,231
2WKHUȴQDQFLDOOLDELOLWLHV	5,800
Loans and receivables	5,800		0	5,800	5,800
Other liabilities	42,408
Loans and receivables	25,342	25,342	0	0	25,342
1RȴQDQFLDOLQVWUXPHQW	17,066
7RWDOȴQDQFLDOOLDELOLWLHV	220,324	214,524	0	5,800	220,324

188,366	188,366		0	188,366
561		561		561
188,927	188,366	561	0	188,927
220,324	214,524	0	5,800	220,324
220,324	214,524	0	5,800	220,324

		Measurement according to IAS 39
	Book value 31/12/2015	Cost of acquisition (carried IRUZDUG	Fair value non operating results	Fair value operating results	Fair value 31/12/2015
	€k	€k	€k	€k	€k
Assets
Trade accounts receivable	88,504
Loans and receivables	88,504	88,504			88,504
Other current assets	32,084
Loans and receivables	29,958	29,958			29,958
1RȴQDQFLDOLQVWUXPHQW	2,126				0
Cash	123,432
Loans and receivables	123,432	123,432	0		123,432
2WKHUȴQDQFLDODVVHWV	499
Available for sale	499		499		499
7RWDOȴQDQFLDODVVHWV	242,393	241,894	499	0	242,393
Shareholders' Equity and Liabilities
Trade accounts payable	80,911
Loans and receivables Bank loans and overdrafts	80,911 91,457	80,911			80,911
Loans and receivables	91,457	91,457			91,457
Debenture bonds	74,600
Loans and receivables	74,600	40,000		34,600	74,600
2WKHUȴQDQFLDOOLDELOLWLHV	32,333
Loans and receivables	42	42			42
1RȴQDQFLDOLQVWUXPHQW	32,291				0
7RWDOȴQDQFLDOOLDELOLWLHV	247,010	212,410	0	34,600	247,010
Summarised according to valuation categories of IAS 39			Measurement according to IAS 39
Financial assets
Loans and receivables	241,894	241,894		0	241,894
Available for sale	499		499		499
7RWDOȴQDQFLDODVVHWV	242,393	241,894	499	0	242,393
Financial liabilities
Loans and receivables	247,010	212,410	0	34,600	247,010

7RWDOȴQDQFLDOOLDELOLWLHV 247,010 212,410 0 34,600 247,010

Financial assets and liabilities measured at IDLUYDOXHPXVWEHFODVVLȴHGDFFRUGLQJWRYDU LRXVYDOXDWLRQOHYHOVVRFDOOHGIDLUYDOXHKLHU archy). The hierarchy levels are based on the factors used to determine the attributable fair value. Level 1 utilises the quoted price (unad MXVWHG?RQDFWLYHPDUNHWV IRULGHQWLFDODVVHWV or liabilities. Level 2 utilises inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 utilises inputs which are not based on observable market data and must be determined on the basis of valuation methods.

Financial liabilities in the amount of €5.8m SUHYLRXV \HDU ȜP? H[LVWHG SHU 'H cember 2016; they are measured at the attrib XWDEOHIDLUYDOXH7KHUHZHUHȴQDQFLDOUHFHLY

DEOHVLQWKHDPRXQWRIȜPSUHYLRXV\HDU €0.5m) that are measured at the attributable fair value.

The variable purchase price liability from the acquisition of The Phone House Deutschland GmbH was measured in accordance with Lev el 3 (no observable market values, valuation based on valuation models). The variable pur chase price liabilities arise from legal disputes related to Phone House that are still pending. If and when further payments are received, Drillisch must (pursuant to the purchase con tract) forward them to the seller.

The measurement is oriented to the maxi mum amount that in all likelihood must be SDLGΖQWRWDOȜPSUHYLRXV\HDUȜP?LV WREHFODVVLȴHGDW/HYHO

7KHȴQDQFLDOLQVWUXPHQWVLQFOXGHGLQ/HYHOGHYHORSHGDVVKRZQEHORZGXULQJWKHȴVFDO\HDU

	2016
	€k
1 January	34.1
\$GGLWLRQVWR2WKHUȴQDQFLDODVVHWV	0.1
Amortisation and depreciation	19.5
Other operating income	8.3
Other operating expenses	.2
31 December	5.2

5HJDUGLQJ WKH VDOH RI DYDLODEOH ȴQDQFLDO DV sets, no allocation to the AFS (available for VDOH? UHVHUYHV ZDV UHFRJQLVHG LQ WKH ȴVFDO year, as was the case in the previous year as well.

Drillisch, acting through its subsidiary your fone AG, has sold part of the receivables from the provision of mobile devices to customers in relation to mobile contracts to a bank and KDVLQWKLVZD\VHFXUHGWKHFDVKEHQHȴWDWWKH time of the conclusion of the contract. Cash RXWȵRZVRYHUWKHWHUPRIWKHFRQWUDFWVDUHLQ FRQWUDVWWRWKLVEHQHȴW7KHYROXPHRIVROGUH FHLYDEOHVGXULQJȴVFDO\HDUDPRXQWHGWR ȜPSUHYLRXV \HDU Ȝ? 3XUFKDVH SULFH discounts and other fees (interest and bank margin) related to the sale of the receivables WRWDOOLQJȜPSUHYLRXV\HDUȜ?ZHUHUHF RJQLVHGDVHHFWLYHH[SHQGLWXUHV3URYLVLRQV for expenses from the claims management to be conducted by Drillisch have not been cre ated owing to a lack of materiality. There are no further risks or payment obligations in this context.

30. Segment reporting

The segment reporting is aligned with the in ternal organisation and reporting structure. 7KH GLHUHQWLDWLRQ EHWZHHQ WKH VHJPHQWV 2QOLQHDQG2ɞLQHLVEDVHGRQWKHH[SDQGHG sales structure. The segment Miscellaneous/ Holding is described in addition to the seg PHQWV2QOLQHDQG2ɞLQH

The Group's activities in the area of mobile VHUYLFHVGLHUHQWLDWHGDFFRUGLQJWRWKHVDOHV structure, are shown in the segments Online DQG2ɞLQH

In the segment Online, mobile services of WKH QHWZRUN RSHUDWRUV 7HOHIµQLFD *HUPDQ\ GmbH & Co. OHG and Vodafone D2 GmbH are marketed via online distribution channels and are provided to the acquired customers on the basis of mobile services contracts. The advance services acquired from the two net work operators are resold to end consumers for the Company's own account and at rates WKDW 'ULOOLVFK GHȴQHV LWVHOI EDVHG RQ LWV RZQ calculations.

ΖQWKHVHJPHQW2ɞLQHPRELOHVHUYLFHVRQWKH QHWZRUN RI 7HOHIµQLFD *HUPDQ\ *PE+ &R OHG are marketed basically via own and part ner shops and provided to the customers ac quired via these channels on the basis of mo bile services contracts. Moreover, the segment 2ɞLQHHQFRPSDVVHVDOORIWKHDFWLYLWLHVUHODWHG to the full operation of own and partner shops and the provision of hardware in the segment 2ɞLQHLQFOXGLQJWKHGLVWULEXWLRQEXVLQHVV7KH advance services acquired from the network RSHUDWRU7HOHIµQLFD*HUPDQ\*PE+ &R2+* are resold to end consumers for the Company's RZQDFFRXQWDQGDWUDWHVWKDW'ULOOLVFKGHȴQHV itself based on its own calculations. In addition, rates of the network operators are calculated on a commission basis in distribution.

The segment Miscellaneous/Holding compris HVDOORIWKHDFWLYLWLHVUHODWHGWRWKHRHULQJRI custom software solutions, maintenance and support services, holding services and (to a small extent) mobile services as well.

Segment Report 01/01/2016 – 31/12/2016	Online	2ɞLQH	Miscellaneous/ Holding	Consolidation	Gesamt
	€k	€k	€k	€k	€k
Sales with third parties	432,536	276,485	991	0	710,012
ΖQFRPSDQ\VDOHV	37,141	30,670	13,786		0
Segment sales	469,677	307,155	14,777	-81,597	710,012
Cost of materials external third parties				0
Cost of materials from in WHUFRPSDQ\UHODWLRQVKLSV				68,057	0
Cost of materials for segment	-268,303	-230,335	-523	68,057	-431,104
*URVVSURȴWIRUVHJPHQW	201,374	76,820	14,254	-13,540	278,908
Segment EBITDA	128,253	-4,227	-3,820	0	120,206

ΖQWKHVHJPHQWV2ɞLQHDQG2QOLQHVDOHVUHYHQXHVRIȜPPRUHWKDQRIWKH*URXSVDOHV revenues) were achieved with one external customer/business partner.

Segment Report 01/01/2015 – 31/12/2015	Online	2ɞLQH	Miscellaneous/ Holding	Consolidation	Gesamt
	€k	€k	€k	€k	€k
Sales with third parties	342,729	285,688	1,129	0	629,546
ΖQFRPSDQ\VDOHV	15,485	4,993	8,638		0
Segment sales	358,214	290,681	9,767	-29,116	629,546
Cost of materials external third parties				0
Cost of materials from in WHUFRPSDQ\UHODWLRQVKLSV				20,611	0
Cost of materials for segment	-174,714	-220,373	-625	20,611	-375,101
*URVVSURȴWIRUVHJPHQW	183,499	70,308	9,142	-8,505	254,444
Segment EBITDA	85,761	25,901	-6,405	0	105,257

7KHUROORYHURIWKHWRWDORIWKHVHJPHQWSURȴWV(%Ζ7'\$?WRWKHSURȴWEHIRUHWD[HVRQLQFRPHLV GHWHUPLQHGDVVKRZQEHORZ

	2016	2015
	€k	€k
7RWDOVHJPHQWSURȴWV(%Ζ7'\$	120,206	105,257
Depreciation and amortisation
Operating result	58,726	69,183
Financial result
3URȴWEHIRUHWD[HVRQLQFRPH	55,556	65,797

All business relations within and/or between the segments are eliminated in the course of consolidation. Such relations are essential O\ WKHRVHWWLQJRI WKHH[SHQVHVDQGLQFRPH within the Group. The accounting principles (IFRS as they are to be applied in the EU) are identical for all of the segments.

The transfer prices correspond on principle to the prices determined by arm's length com SDULVRQ 7KH PDMRU VHJPHQW H[SHQGLWXUHV DQGLQFRPHZLWKRXWHHFWRQSD\PHQWVFRQ tain the allocations to the provisions.

31. ([SODQDWRU\FRPPHQWVRQWKHFDSLWDO ȵRZVWDWHPHQW

7KH OLTXLGLW\ FDVK? VKRZQ LQ WKH FDVK ȵRZ statement includes cash on hand and cash in banks that is disclosed under Cash in the con solidated balance sheet.

7KH FDVK ȵRZ VWDWHPHQW KDV EHHQ SUHSDUHG in compliance with IAS 7 and breaks down the FKDQJHV LQ FDVK DFFRUGLQJ WR SD\PHQW ȵRZV IURPFXUUHQWEXVLQHVVLQYHVWPHQWDQGȴQDQF LQJDFWLYLWLHV&DVKȵRZIURPFXUUHQWEXVLQHVV activities is calculated using the indirect meth od.

7KH GLVFORVXUH LQ WKH FDVK ȵRZ IURP LQYHVW ment activities to payments for acquisitions less acquired cash concerns payments made within the framework of the agreements on HDUQRXWFRPSRQHQWV IRULQYHVWPHQWVRI WKH previous year.

7KH GLVFORVXUHLQ WKH&DVK ȵRZ IURP ȴQDQF LQJ DFWLYLWLHV XQGHU 2WKHU ȴQDQFLDO OLDELOLWLHV FRQFHUQVDSUHȴQDQFLQJFDVKDJUHHPHQW?E\ a business partner of The Phone House Tele com GmbH.

The initial amount of the "Consolidated earn ings before interest and taxes" can be derived from the comprehensive income statement as VKRZQEHORZ

	2016	2015
	€k	€k
Consolidated earnings	26,434	46,109
Taxes on income	29,122	19,998
Financial result	3,170	3,386
Consolidated EBIT	58,726	69,493

32. Auditor's fee

	2016	2015
	€k	€k
1. Audit services	493	445
2WKHUFHUWLȴFDWLRQVHUYLFHV	57	3
3. Tax accountant services	199	152
4. Other services	3	294
	752	894

33. Related party disclosures

Per 31 December 2016, there were amounts (income and expenses) owed from and owed WRUHODWLYHVDQGFRPSDQLHVDVVKRZQEHORZ

The Baugemeinschaft Maintal, consisting of the shareholders Paschalis Choulidis and Mar LDQQH&KRXOLGLVKDVOHWRɝFHVSDFHLQ0DLQWDO to Drillisch Group. The lease runs until 31 De cember 2020. Rent expenses in 2016 came to ȜNSUHYLRXV\HDUȜN

The company VPM Immobilien Verwaltungs *PE+0DLQWDOVKDUHKROGHUV9ODVLRV&KRXOLG is, Paschalis Choulidis and Marc Brucherseif HU?KDVOHWRɝFHVSDFHLQ0DLQWDOWR'ULOOLVFK Group. The lease runs until 31 December 2020. Rent expenses in 2016 came to €179k SUHYLRXV\HDUȜN

Ms Marianne Choulidis and Ms Simone Choulidis (until 30 June 2016) received com SHQVDWLRQWRWDOOLQJȜNSUHYLRXV\HDUȜN? as employees of Drillisch Online AG.

The company SP Beteiligungs GmbH, Langensel EROGVKDUHKROGHU0V6LPRQH&KRXOLGLV? UHDO LVHGVDOHVLQWKHDPRXQWRIȜNSUHYLRXV\HDU ȜN?ZLWK'ULOOLVFK*URXSLQȴVFDO\HDU

7KHFRPSDQ\'ΖD/2*Ζ.D*PE+6DDUEU¾FNHQ (shareholder Dr Bernd H Schmidt), realised VDOHV LQ WKH DPRXQW RI ȜN SUHYLRXV \HDU ȜN?ZLWK'ULOOLVFK*URXSLQȴVFDO\HDU

There were no amounts due to or due from the related parties mentioned above per 31 December 2016.

7KH FRPSDQ\ -3& %HWHLOLJXQJV XQG 9HU waltungsgesellschaft mbH, Gelnhausen, (shareholder Mr Jannis Choulidis), the legal successor to Flexi Shop GmbH, Frankfurt am Main (shareholder Mr Jannis Choulidis), real LVHGVDOHVLQWKHDPRXQWRIȜNSUHYLRXV\HDU ȜN?ZLWK'ULOOLVFK*URXSLQȴVFDO\HDU 7KHDPRXQWRIȜNSUHYLRXV\HDUȜN?ZDV owed to this company per 31 December 2016.

34. Supervisory Board

Marc Brucherseifer, Dipl.-Kfm.

0HUFKDQW.¸OQ

- Chairperson -

Dr. Susanne Rückert

Lawyer, Meerbusch

- Vice Chairperson -

Norbert Lang

Merchant, Waldbrunn Seats held on supervisory boards required by law or RWKHUVXSHUYLVRU\ERGLHV Rocket Internet SE, Berlin (Supervisory Board Vice Chairperson) +Ζ0HGLD6\$3DULVXQWLO6HSWHPEHU

Horst Lennertz, Dr.-Ingenieur Consultant, Meerbusch

Frank A Rothauge, Dipl.-Kfm. Managing Partner, Wetzlar

Dr Bernd H Schmidt

Managing Partner, Saarbrücken Seats held on supervisory boards required by law or RWKHUVXSHUYLVRU\ERGLHV Ζ4RSWLPL]H6RIWZDUH\$*0DLQWDO (Supervisory Board Chairperson)

The following members of the Supervisory Board were members of the following committees in 2016:

Nominating Committee:

Mr Brucherseifer, Dr Rückert, Mr Rothauge, Dr Schmidt, Dr Lennertz, Mr Lang; chair: Mr Brucherseifer

Audit Committee:

Mr Rothauge, Dr Lennertz, Dr Schmidt; chair: Mr Rothauge

Personnel Committee:

Mr Brucherseifer, Dr Rückert and Dr Lennertz; chair: Mr Brucherseifer

35. Management Board

Paschalis Choulidis, Langenselbold,

([HFXWLYH2ɝFHU)LQDQFH&RPPXQLFDWLRQV DQGΖ7(until 30 June 2016) CEO (until 30 June 2016) Seats held on supervisory boards required by law or RWKHUVXSHUYLVRU\ERGLHV Drillisch Online AG, Maintal Drillisch Netz AG, Düsseldorf (until 2 February 2016) yourfone AG, Maintal yourfone Retail AG, Düsseldorf

Vlasios Choulidis, Gelnhausen,

([HFXWLYH2ɝFHU6DOHV0DUNHWLQJDQG &XVWRPHU&DUH CEO (since 30 June 2016) Seats held on supervisory boards required by law or RWKHUVXSHUYLVRU\ERGLHV Drillisch Online AG, Maintal The Phone House Deutschland GmbH, Münster (Super visory Board Chairperson) yourfone AG, Maintal yourfone Retail AG, Düsseldorf Drillisch Netz AG, Düsseldorf (since 2 February 2016)

André Driesen,.UHIHOG

&)2

Seats held on supervisory boards required by law or RWKHUVXSHUYLVRU\ERGLHV The Phone House Deutschland GmbH, Münster Ζ4RSWLPL]H6RIWZDUH\$*0DLQWDO Drillisch Netz AG, Düsseldorf (Supervisory Board Chair person) (since 3 February 2016) yourfone Retail AG, Düsseldorf (Supervisory Board Chairperson) (since 6 July 2016)

36. Compensation paid to management in key positions and Supervisory Board

Compensation paid to Management Board members in 2016 totalled €4,994k, there RI ȜN YDULDEOH SUHYLRXV \HDU ȜN thereof €3,320k variable).

7KH YDULDEOH FRPSHQVDWLRQ LQFOXGHV ORQJ term incentive components (LTI 2016–2018 or ERQXVȂ? IRUȴVFDO \HDULQ WKH DPRXQW RI ȜN SUHYLRXV \HDU ȜN? The LTI programme has a term from 1 January 2016 to 31 December 2018, the bonus 2015– 2017 from 1 April 2015 to 31 December 2017. The total provisions for the LTI programme and bonus 2015–2017 amount to €1,555k. Payments will not be made until the expiration RI WKH /7Ζ SURJUDPPH LQ ȴVFDO \HDU RU IRUWKHERQXVȂ?LQȴVFDO\HDU In addition, the Management Board members received compensation for their activities as Supervisory Board members of subsidiaries in WKHDPRXQWRIȜNSUHYLRXV\HDUȜN

Compensation paid to the members of the Su pervisory Board for their work in the parent company in the reporting period amounted to Ȝ.SUHYLRXV\HDUȜN

The compensation system is described in the compensation report, which is a component of the consolidated management report.

37. Directors' Holdings
	\$VSHU'HFHPEHUWKH0DQDJHPHQW%RDUGPHPEHUVKHOGWKHIROORZLQJVWRFNLQ'ULOOLVFK\$*
Vlasios Choulidis	QRSDUVKDUHVWKHUHRIQRSDUVKDUHVYLD09%HWHLOLJXQJV*PE+
	7KH6XSHUYLVRU\%RDUGPHPEHUVKHOGWKHIROORZLQJVWRFNLQ'ULOOLVFK\$*DVSHU'HFHPEHU
0DUF%UXFKHUVHLIHU'LSO.IP	QRSDUVKDUHV

» 0DQDJHPHQW%RDUGDQG6XSHUYLVRU\%RDUGKROGDWRWDORIRIWKHVWRFNRI'ULOOLVFK\$* per 31 December 2016.

38. Declaration in accordance with Section 161 AktG

Management Board and Supervisory Board of Drillisch AG submitted the declaration re quired by Section 161 of the German Compa ny Law on 23 March 2016 and made it per manently accessible to shareholders at the Internet address www.drillisch.de.

39. 3URȴWSHUVKDUH

7KHXQGLOXWHGSURȴWSHUVKDUHLVFDOFXODWHGLQ accordance with IAS 33.9 et seqq. by dividing WKHFRQVROLGDWHGSURȴWIURPFRQWLQXLQJEXVL ness operations by the weighted average of the number of ordinary shares outstanding.

7KHGLOXWHGSURȴWSHUVKDUHLVFDOFXODWHGLQDF cordance with IAS 33.30 et seqq. by dividing the consolidated results from continuing busi QHVVRSHUDWLRQVDGMXVWHGIRUWKHDIWHUWD[HI

fects of any interest recognised in the period related to potential ordinary shares, by the weighted average number of shares outstand

ing plus the weighted number of shares which would be issued on the conversion of all dilu tive potential shares into ordinary shares.

	2016	2015
&RQVROLGDWHGSURȴWLQȜN	26,434	45,799
Weighted average less own shares held (number)	54,764,649	54,022,158
8QGLOXWHGFRQVROLGDWHGSURȴWSHUVKDUHLQȜ	0.48	0.85
&RQVROLGDWHGSURȴWLQȜN	26,434	45,799
1HWH΍HFWRQUHVXOWVIURPFRQYHUWLEOHERQGLQȜN	0	2,386
\$GMXVWHGFRQVROLGDWHGSURȴWLQȜN	26,434	48.185
Weighted average less own shares held (number)	54,764,649	54,022,158
Shares from convertible bond to be included as average (number)	0	4,549,942
\$GMXVWHGZHLJKWHGDYHUDJHOHVVRZQVKDUHVKHOGQXPEHU	54,764,649	58,572,100
'LOXWHGFRQVROLGDWHGSURȴWSHUVKDUHLQȜ	0.48	0.82

'LOXWLRQ HHFWV FDQ UHVXOW EHFDXVH RI SRWHQ tial ordinary shares from the issue of the con vertible bond. The calculation of the diluted SURȴWSHU'HFHPEHUGLGQRWLQFOXGH consideration of 4,764,718 shares because they would have counteracted a dilution.

40. ([HPSWLRQIURPWKHREOLJDWLRQWR disclose the annual accounts pursuant to Section 264 (3) HGB

The following German subsidiaries in the legal IRUPRIDVWRFNFRUSRUDWLRQ IXOȴOOHG WKHFRQ ditions required pursuant to Section 264 (3) HGB for the exercise of the exemption provi VLRQLQȴVFDO\HDU

• » Drillisch Online AG, Maintal
• » Ζ4RSWLPL]H6RIWZDUH\$*0DLQWDO

Maintal, 21 March 2017

Drillisch Aktiengesellschaft

Vlasios Choulidis André Driesen

\$ɝGDYLWE\/HJDO5HSUHVHQWDWLYHV%DODQFH6KHHW2DWK

To the best of our knowledge, and in accord ance with the applicable reporting principles, WKH FRQVROLGDWHG ȴQDQFLDO VWDWHPHQWV JLYH D WUXH DQG IDLU YLHZRI WKH DVVHWVOLDELOLWLHVȴ QDQFLDOSRVLWLRQDQGSURȴWRUORVVRIWKHJURXS and the group management report includes a fair review of the development and perfor mance of the business and the position of the group, together with a description of the prin cipal opportunities and risks associated with the expected development of the group.

Maintal, 21 March 2017

Vlasios Choulidis André Driesen

Auditor´s Report

:H KDYH DXGLWHG WKH FRQVROLGDWHG ȴQDQFLDO statements prepared by the Drillisch Aktieng esellschaft, Maintal, comprising the statement RI ȴQDQFLDO SRVLWLRQ WKH VWDWHPHQW RI FRP prehensive income, the statement of chang HVLQHTXLW\WKHVWDWHPHQWRIFDVKȵRZVDQG WKHQRWHV WR WKHFRQVROLGDWHGȴQDQFLDOVWDWH ments, together with the group management UHSRUW IRU WKH ȴQDQFLDO \HDU IURP -DQXDU\ 2016 to 31. December 2016. The preparation RI WKHFRQVROLGDWHGȴQDQFLDOVWDWHPHQWV DQG the group management report in accordance with IFRSs as adopted by the EU, and the ad ditional requirements of German commercial law pursuant to § 315a(1) of the HGB (and the supplementary provisions of the shareholder agreement/articles of association/articles of incorporation) are the responsibility of the legal representatives of the parent company. Our responsibility is to express an opinion on the FRQVROLGDWHGȴQDQFLDOVWDWHPHQWVDQGRQWKH group management report based on our au dit.

We conducted our audit of the consolidat HG ȴQDQFLDO VWDWHPHQWV LQ DFFRUGDQFH ZLWK § 317 of the HGB and the German generally DFFHSWHGVWDQGDUGV IRU WKH DXGLWRIȴQDQFLDO statements promulgated by the Institut der Wirtschaftsprüfer [Institute of Public Auditors in Germany] (IDW). Those standards require that we plan and perform the audit such that PLVVWDWHPHQWV PDWHULDOO\ DHFWLQJ WKH SUHV HQWDWLRQ RI WKH QHW DVVHWV ȴQDQFLDO SRVLWLRQ and results of operations in the consolidated ȴQDQFLDO VWDWHPHQWV LQ DFFRUGDQFH ZLWK WKH DSSOLFDEOHȴQDQFLDOUHSRUWLQJIUDPHZRUNDQG in the group management report are detected ZLWKUHDVRQDEOHDVVXUDQFH.QRZOHGJHRIWKH business activities and the economic and legal environment of the group and expectations as to possible misstatements are taken into account in the determination of audit proce GXUHV7KHHHFWLYHQHVVRIWKHDFFRXQWLQJUH lated internal control system and the evidence supporting the disclosures in the consolidat HG ȴQDQFLDO VWDWHPHQWV DQG WKH JURXSPDQ agement report are examined primarily on a test basis within the framework of the audit. 7KH DXGLWLQFOXGHV DVVHVVLQJ WKHȴQDQFLDOLQ formation of those components consolidated, the scope of the consolidation, the accounting and consolidation principles used and the sig QLȴFDQW HVWLPDWHVPDGH E\PDQDJHPHQW DV well as evaluating the overall presentation of WKHFRQVROLGDWHGȴQDQFLDOVWDWHPHQWVDQGWKH group management report. We believe that our audit provides a reasonable basis for our opinion.

Our audit has not led to any reservations.

ΖQ RXU RSLQLRQ EDVHG RQ WKH ȴQGLQJV RI RXU DXGLW WKH FRQVROLGDWHG ȴQDQFLDO VWDWHPHQWV comply with IFRSs as adopted by the EU, the additional requirements of German commer cial law pursuant to § 315a(1) of the HGB (and the supplementary provisions of the share holder agreement/articles of association/ articles of incorporation) and give a true and IDLU YLHZ RI WKH QHW DVVHWV ȴQDQFLDO SRVLWLRQ and results of operations of the group in ac cordance with these requirements. The group management report is consistent with the FRQVROLGDWHG ȴQDQFLDO VWDWHPHQWV FRPSOLHV with the legal requirements and as a whole provides a suitable view of the group's posi tion and suitably presents the opportunities and risks of future development.

Düsseldorf, 21 March 2017 BDO AG Wirtschaftsprüfungsgesellschaft

signed Fritz	signed Ahrend
Wirtschaftsprüfer	Wirtschaftsprüfer
(German Public Auditor)	(German Public Auditor)

INVESTOR RELATIONS CORNER

• 109 Financial Calendar | Dividend Policy | Current Analyst Assessments
• 6KDUH3ULFH'HYHORSPHQW_0LGGOHDQG/RQJWHUP'LYLGHQG'HYHORSPHQW
• 111 Director´s Holdings | Shareholder Structure

Financial Calendar | Dividend Policy | Current Analyst Assessments

1. Financial Events Calendar

Finacial Events 2017*
Date	Subject
Thursday, 23rd March 2017	Annual Report 2016
Thursday, 11th May 2017	4XDUWHUO\&ORVH4
Thursday, 18th May 2017	Annual General Meeting, Frankfurt
Thursday, 10th August 2017	4XDUWHUO\&ORVH4
Tuesday, 14th November 2017	4XDUWHUO\&ORVH4

7KHVHSURYLVLRQDOGDWHVDUHVXEMHFWWRFKDQJH

2. Dividend Policy

The Annual General Meeting on 19 May 2016 adopted a resolution to disburse a dividend RI Ȝ SHU YRWLQJ VKDUH IRU WKH SDVW ȴVFDO year 2015, the seventh dividend increase in VXFFHVVLRQ)RUȴVFDOERWKWKHVXSHUYL

sory board and the management board, pro pose the eighth increase in the dividend to €1.80 to the Annual General Meeting on 18 May 2017. We want to ensure that sharehold HUVEHQHȴWDSSURSULDWHO\IURPWKHVXFFHVVRI the Company in future as well.

3. Current Analyst Assessments (Last Reveised 20 February 2017)

ΖQSRVWLQJDQ(%Ζ7'\$IRUȴVFDO\HDULQWKH amount of €120.2 million, we exceeded the IRUHFDVW(%Ζ7'\$IRUHFDVWȜPLOOLRQWR ȜPLOOLRQ?DQGVXUSDVVHGWKHȴJXUHRIȜ PLOOLRQLQȴVFDO\HDU:HH[SHFWDIXUWKHU LQFUHDVH LQ WKH SURȴWDEOH GHYHORSPHQW WR DQ (%Ζ7'\$RIȜPLOOLRQWRȜPLOOLRQLQȴVFDO year 2017. Overall, the capital market views the 'ULOOLVFKVWRFNDVSURPLVLQJEHFDXVHRIRXUORQJ term dividend policy and good strategic posi tioning on the German mobile network market.

Latest analyst assessments (per 20 February 2017)
Analysis	Rating	Target	Date
DZ Bank	Ȍ%X\Ȋ	€50.00	20 February 2017
ODDO	Ȍ+ROGȊ	€44.00	20 February 2017
UBS	Ȍ%X\Ȋ	€50.00	15 February 2017
.HSOHU	Ȍ%X\Ȋ	€49.00	13 February 2017
Barclays	Ȍ2YHUZHLJKWȊ	€60.00	07 February 2017
HSBC	Ȍ%X\Ȋ	€48.00	07 February 2017
Macquarie	Ȍ%X\Ȋ	€53.00	07 February 2017
Warburg	Ȍ+ROGȊ	€40.00	01 February 2017

A constantly updated overview of the analysts' recommenda tions can be found on the Dril lisch AG IR home page

www.drillisch.de

• Investor Relations
• Research Notes

6KDUH3ULFH'HYHORSPHQW_0LGGOHDQG/RQJWHUP'LYLGHQG'HYHORSPHQW

7KHSHUIRUPDQFHRIWKH'ULOOLVFKVWRFNGXULQJLQFRPSDULVRQZLWKWKHLQGLFHV
	2015 year end	2016 year end	%-change
Drillisch	€39.09	€40.895	+ 4.6
TecDAX	1,830.74	1,811.72
DAX	10,743.01	11,481.06	+ 6.9

4. Share Price Development in Trading Year 2016

0LGGOHDQGORQJWHUPSULFHSHUIRUPDQFHRIWKH'ULOOLVFKVWRFNVLJQLȴFDQWO\EHWWHUWKDQ'\$;DQG7HF'\$;

0LGGOHDQGORQJWHUPSULFHSHUIRUPDQFHRIWKH'ULOOLVFKVWRFNVLJQLȴFDQWO\EHWWHUWKDQ(852672;;

ΖQGLFHVDQGWKH'ULOOLVFK6KDUHVKRZDGLYLGHQGDGMXVWHGSHUIRUPDQFH

98.606

225.321

Director´s Holdings | Shareholder Structure

5. Directors' Holdings per 31 December 2015

Management Board	No-par-shares
Vlasios Choulidis	400,000 f
MV Beteiligungs GmbH	15,000 f
Supervisory Board	No-par-shares
0DUF%UXFKHUVHLIHU'LSO.IP&KDLU	1,019,775 f

6. Shareholder Structure (as of 31 December 2016)

6RXUFH'LVFORVXUHVE\WKHFRUSRUDWLRQVSXUVXDQWWRVHFWLRQV*HUPDQ6HFXULWLHV7UDGLQJ\$FW:HUWSDSLHUKDQGHOVJHVHW]:S+*?DQGXQOHVVthe company was not LQIRUPHGRIDPRUHUHFHQWȴJXUH

1) 2QWKHEDVLVRIWKH;(75\$FORVLQJSULFHȜRQ'HFHPEHU)UHH)ORDWDFFWRWKHUXOHRI'W%RHUVH\$*

7. Investor Relations

Communications are conducted in conformity with the fair disclosure principle, i.e. all share holders and interested parties are simultane ously provided with the same type of informa tion about all important developments. The ongoing work can be followed and tracked equally by all investor groups on our investor relations home page where all of our relevant reports can be viewed. Many of the people in terested in our Company also take advantage of the opportunity for personal contact via email and/or telephone.

SERVICE CORNER

• 113 Publications | Contacts | Information and Order Service
• 114 Glossary
• 117 Legal Information
• 118 Drillisch AG Brands the Choice is Yours!

Publications | Contacts | Information and Order Service

Publications

This Annual Report 2016 is also available in German.

You can view and download our business DQG TXDUWHUO\ UHSRUWV DGKRF DQQRXQFH ments, press releases and other publica tions about Drillisch AG at www.drillisch.de Investor Relations

Information and Order Service

Please use our online order service under the heading Investor Relations on our website www.drillisch.de.

Naturally, we would also be happy to send you the desired information by post or by fax. We will be glad to help you with any personal queries by telephone.

Your Contacts

Our Investor Relations and Press Department will be glad to answer any questions you may KDYHFRQFHUQLQJWKH\$QQXDO5HSRUWDQG'ULOOLVFK\$*

Investor Relations

:LOKHOP5¸QWJHQ6WUD¡H D – 63477 Maintal 7HOHIRQ? )D[ ? (0DLO LU#GULOOLVFKGH

Press (Products)

:LOKHOP5¸QWJHQ6WUD¡H D – 63477 Maintal 7HOHIRQ? )D[ ? (0DLO SUHVVH#GULOOLVFKGH

Glossary

3G

Abbreviation for the mobile telephone network standard of the third genera tion, also known as x UMTS. The ana logue A, B and C networks (until the end RI ? DUH NQRZQ DV WKH ȴUVW JHQHUD tion; the digital GSM standard introduced in 1992 is called the 2nd generation.

4G

The most recent mobile telephone net work standard – successor to x UMTS – is called the 4th mobile telephone net work generation. (See also x LTE)

A

AGPPU

(Abbreviation for DYHUDJHJURVVSURȴWSHU user)

Aktiengesetz (German Company Law)

The German Company Law (Aktienge setz, AktG) regulates the structure and governing bodies of stock corporations, e.g. Supervisory Board and Management Board, and shareholder rights.

Apps

Apps (or mobile apps) is the short form for applications, small software pro grams for mobile end appliances, such as x smartphones or x tablet comput ers. These programs range from simple WRROV DQG IXQ JDPHV RHULQJ MXVW RQH IXQFWLRQULJKWXSWRHQWLUHVXLWHVRHULQJ a comprehensive range of functions.

ARPU

(Abbreviation for average revenue per user) Shows the average revenue from each customer.

C

Cash Flow

1HWLQȵRZRIDOORIWKHFDVKZKLFKUHVXOWV from sales activities and other ongoing DFWLYLWLHVGXULQJDVSHFLȴFSHULRG

Consolidated Cash Flow Statement

7KHFRQVROLGDWHGFDVKȵRZVWDWHPHQWLV WKHOLTXLGLW\RULHQWHGSDUWRIDFFRXQWLQJ It represents a determination of the val XHRISD\PHQWȵRZVRYHU WKHFRXUVHRI D ȴVFDO \HDU EURNHQ GRZQLQWR WKH FDW egories of current business operations, LQYHVWPHQWDFWLYLWLHVDQGȴQDQFLQJDFWLY ities. Incoming and outgoing payments during the relevant reporting period are compared with one another; on this basis, the changes in cash inventory are determined and explained.

Corporate Governance

Name of guidelines (code of conduct) for good management.

Credit Customer

Customer who has concluded a contract with a rate schedule designed by Dril lisch and who is billed once monthly in the Company's own billing system.

D

DCF

(Abbreviation for GLVFRXQWHGFDVKȵRZ) A DCF analysis is based on the total of all RIWKHFDVKȵRZVSURMHFWHGIRUWKHIXWXUH and discounts them to the present value.

Debit Customer

Customer who is billed in a network op erator system in accordance with a pre paid rate schedule set by the network RSHUDWRU UHTXLULQJ WKH SULRU WRSXS RI the card with credit.

Directors' Dealings

Stock transactions undertaken by the Management Board or Supervisory Board or the relevant report of holdings.

Dividends

7KH GLYLGHQG LV WKH SURȴW ZKLFK LV GLV tributed proportionally for each share of stock in the stock corporation. The Gen eral Meeting of the stock corporation de cides about the amount of the dividend and its distribution.

EBIT

Abbreviation for earnings before interest and taxes.

E

EBITDA

Abbreviation for earnings before interest, taxes, depreciation and amortisation, the most important performance indicator.

EDGE

(Abbreviation for enhanced data rates for GSM evolution) This special modula tion protocol increases the transmission speed in x GSM mobile telephony net works to as much as 473 kbit/s (in com SDULVRQ*356NELWV

F

Flat Rates (mobile telephony services)

\$ ȵDW UDWH LV D OXPSVXP UDWH IRU WHOH communications services such as teleph ony and data transmissions. The mobile WHOHSKRQH VHUYLFHV LQGXVWU\ RHUV ȵDW rates for landline or mobile connections VLQJO\RUDVDFRPELQDWLRQȵDWUDWHIRUDOO networks.

Free Float

Number or proportion of shares which can be freely traded on the stock mar ket rather than being held by strategic investors.

g~paid

Virtual cash card system which makes possible the secure distribution of acti vation codes for topping up xSUHSDLG cards (e.g. in wireless networks, for on line payment systems).

GPRS

(Abbreviation for general packet radio service) Technology providing higher data transmission rates in GSM networks (up to 171.2 kbit/s).

GSM

(Abbreviation for global system for mobile communications 3DQ(XURSHDQ VWDQGDUG in the range of 900 and 1,800 MHz for dig ital mobile telephone networks.

H

HSDPA

(Abbreviation for KLJKVSHHG GRZQOLQN packet access) This special transmission protocol within the mobile telephone standard x UMTS makes it possible to increase data rates between telecommu nications network and end device (down link) to as much as 7.2 MBit/s.

Glossary

HSUPA

(Abbreviation for high-speed uplink packet access) This transmission protocol within the mobile telephone standard UMTS makes it possible to increase data rates between end device and telecommuni cations network (uplink) to as much as 5.8 MBit/s.

IFRS

(Abbreviation for International Financial Reporting Standards) Body of internation al accounting standards.

I

Issuer

An issuer is the party who issues secu rities.

L

LTE

LTE stands for Long Term Evolution and describes the internationally coordinated development of existing wireless com PXQLFDWLRQ WHFKQRORJ\ ΖW RHUV KLJKHU data rates than GSM or UMTS. LTE is clas VLȴHGDVWKHUGZLUHOHVVFRPPXQLFDWLRQ generation, with the chronological name 3.9 G. As with the other wireless commu nication generations, operation requires a network comprised of base stations WKDWVHUYLFHDVSHFLȴFDUHDDQGDSSURSUL ately compatible end appliances. In the frequency ranges that are earmarked in Germany for LTE, the network structure that still has to be established is very sim ilar to the cell structure currently used by the existing wireless communication networks. As such, numerous existing wireless communication sites will also be used for LTE technology. 6RXUFH KWWS emf2.bundesnetzagentur.de/tech_lte.html )

M

MBA MVNO (Mobile Bitstream Access 0RELOH9LUWXDO1HWZRUN2SHUDWRU

An MBA MVNO is a telephone com pany that is comparable to an MVNO (see MVNO); however, in contrast to an MVNO, it has entered into an obligation to purchase network capacity (percent age share of the utilised network capaci ty of a network operator). An MBA MVNO operates on equal footing with the net work operator and has unlimited access to all current and future technologies.

MMS

(Abbreviation for multimedia messaging service) MMS makes it possible to use a mobile telephone to send multimedia messages – documents, pictures, even short video sequences – to other mobile HQGGHYLFHVRUWRHPDLODGGUHVVHV

Mobile Payment

0RELOH SD\PHQW RU PSD\PHQW? UHIHUV to the initiation, authorisation or real isation of payment (on the part of the debtor as a minimum) using a mobile electronic means of communication, e.g. cash card purchase using x g~paid, payment of parking fees using a mobile phone or bank transfers via SMS.

Multimedia

Buzzword for the simultaneous integra tion of text information, still photos, vid HRȴOPVDQGVRXQGV

MVNO (Mobile Virtual Network Operator) Private telephone company without its own wireless network which, on its own behalf and for its own account, sells wireless services, x SIM cards and wire OHVV HQGGHYLFHV DVZHOO DV YDOXHDGGHG services (e.g. x SMS, SMS Premium, x MMS). These services are based on standardised, unbundled advance ser vices on the procurement side, allowing DQ 0912 VLJQLȴFDQWO\ LQFUHDVHG URRP for manoeuvring in the product and sales areas in comparison with an MSP.

N

1HDUȴHOGFRPPXQLFDWLRQ1)&

1HDU ȴHOG FRPPXQLFDWLRQ RU 1)& LV D wireless transmission technology for enabling contactless data exchange EHWZHHQ DSSOLDQFHV WKDW DUH MXVW D IHZ centimetres apart. For example, it can be used to provide access to content, or to RHUVHUYLFHVVXFKDVFDVKOHVVSD\PHQWV or ticketing. 6RXUFH KWWSZZZHOHNWURQ LNNRPSHQGLXPGHVLWHVNRPKWP

No-frills Provider

7KHVHDUHSURGXFWVZKLFKDUHRHUHGDW comparatively low prices, but with very few options or additional features. On the wireless services market, the dis counters are frequently referred to as ȊQRIULOOVSURYLGHUVȋ

P

PIN

\$EEUHYLDWLRQ IRUSHUVRQDOLGHQWLȴFDWLRQ number) A number, usually consisting of four digits, saved on a data carrier, HQWHUHG DV YHULȴFDWLRQZKHQ WKHKROGHU XVHV D PDFKLQH 7KH EHVWNQRZQ H[ amples are bank debit cards and cash points or x SIM cards in a mobile phone. If the authorisation is blocked because of a series of incorrect entries, the device can no longer be used without entry of the x38.

Post-paid

Payment model; the customer does not pay for the services he/she has used un til the end of the statement period, when an invoice is issued.

Pre-paid

Payment model; the customer cannot XVH WKH VHUYLFHV XQWLO D SUHSDLG? DF count has been topped up.

3URȴWSHU6KDUH

7KLVȴJXUHVKRZVWKHDPRXQWRIWKHUH DOLVHGFRQVROLGDWHGSURȴWRUGHȴFLWZKLFK can be appropriated to a single share of VWRFN7KHȴJXUHLVFDOFXODWHGE\GLYLGLQJ the results for the year (consolidated SURȴWGHȴFLW?E\WKHZHLJKWHGDYHUDJHRI the number of issued shares.

PUK

(Abbreviation for personal unblocking key) A number, usually consisting of 8 digits, which can be used to unblock a blocked x PIN (also called super PIN).

R

Roaming

Process allowing telephone calls to be placed using the networks of various network operators, such as international URDPLQJ LQ WKH SDQ(XURSHDQ *60 V\V tem.

Glossary

6HFXULW\ΖGHQWLȴFDWLRQ1XPEHU

7KH VL[SODFH FRPELQDWLRQ RI GLJLWV DQG OHWWHUVXVHGLQ*HUPDQ\:.1?LGHQWLȴHV each security uniquely.

S

SIM

(Abbreviation for subscriber identity module) Chip card which is placed in a mobile telephone or other mobile end device. It LGHQWLȴHV WKHGHYLFHZLWK WKHXVHU YHUL ȴHVKLVKHULGHQWLW\YLDDx PIN and au WKRULVHV WKH XVH RI WKH RHUHG VHUYLFHV (e.g. mobile telephone services). In addi WLRQ WR QHWZRUNUHODWHG GDWD GDWD VXFK as address book entries or text messag es can be stored on a SIM card.

Smartphone

A mobile phone with more advanced computer functions and connectivi W\ WKDQ RHUHG E\ D VWDQGDUG PRELOH SKRQH (TXLSSHG ZLWK KLJKUHVROXWLRQ touch screen and internet connection via mobile broadband or WLAN, smart phones can display web pages, for exam SOHRUUHFHLYHDQGVHQGHPDLOV

SMS

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A stock index provides comprehensive information regarding the development of prices on the stock markets. One ex ample for the German stock market is the Deutsche Aktienindex (DAX); chang es in stock prices as well as dividend pay ments are integrated into the calculation of its values.

Supervisory Board

The Supervisory Board is one of the governing bodies of stock companies; its members are elected by the General Meeting and, depending on the number of employees in the company, by the workforce. It is responsible for monitor ing the management of the corporation. The Supervisory Board of a stock corpo ration consists of a minimum of three members, who may not simultaneously be members of the Management Board.

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Tablet computer

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Stock index introduced on 24/03/2003 compiling the 30 most important Ger man technology stocks. It is the succes sor of the Nemax50.

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UMTS

(Abbreviation for universal mobile telecommunications system) International mobile telephone standard of the third generation which combines mobile mul timedia and telematics services under the frequency range of 2 GHz.

V

Value-Added Services (VAS)

Services which produce additional value, such as ring tones for mobile phones.

W

Wireless Services Discounter

Provider of very low wireless services rates which do not include subsidisa WLRQRIWKHGHYLFHDQGRHUWUDQVSDUHQW terms and conditions. As a rule, no basic fee, minimum turnover or term of con tract.

Wireless Services Provider (WSP)

Private telephone company without its own wireless network which, on its own behalf and for its own account, sells wire less services, x SIM cards and wireless HQGGHYLFHV DVZHOO DV YDOXHDGGHGVHU vices (e.g. SMS, SMS Premium, x MMS).

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Automation of production and business processes using IT systems and special software.

Legal Information

Company Headquarters:

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Responsible:

Drillisch AG

Management Board:

Paschalis Choulidis (Spokesperson, until 30 June 2016)

Vlasios Choulidis (Spokesperson from 1 July 2016) André Driesen

Supervisory Board:

Marc Brucherseifer &KDLUPDQ?'LSO.IP

Dr Susanne Rückert (Deputy Chairperson)

Norbert Lang

Dr Horst Lennertz, Ingenieur

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Dr Bernd H. Schmidt

Investor Relations Contact:

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Disclaimer:

The information provided in this publication has been checked carefully. However, we FDQQRW JXDUDQWHH WKDW DOO VSHFLȴFDWLRQV DUH complete, correct and up to date at all times.

Future-oriented Statements:

This report contains certain statements ori ented to the future which are based on the FXUUHQW DVVXPSWLRQV DQG SURMHFWLRQV RI WKH management of the Drillisch Group. Various risks, uncertainties and other factors, both known and unknown, can cause the actual re VXOWVȴQDQFLDOSRVLWLRQGHYHORSPHQWRUSHU formance of the Company to deviate substan tially from the assessments shown here. The factors described in our reports to the Frank furt Stock Exchange are among such factors. The Company does not undertake any obli JDWLRQ WR XSGDWH VXFK IXWXUHRULHQWHG VWDWH ments and to adapt them to future events or developments.

Drillisch AG Brands – the Choice is Yours!

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Drillisch AG

:LOKHOP5¸QWJHQ6WUD¡H 63477 Maintal Germany