ad pepper media International N.V.

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ifrs-full:ReserveOfGainsAndLossesOnFinancialAssetsMeasuredAtFairValueThroughOtherComprehensiveIncomeMember 52990050T51W55KK4X45 2022-12-31 ifrs-full:IssuedCapitalMember 52990050T51W55KK4X45 2021-12-31 adpepper:ReservesMember 52990050T51W55KK4X45 2021-12-31 ifrs-full:IssuedCapitalMember 52990050T51W55KK4X45 2022-12-31 adpepper:ReservesMember 52990050T51W55KK4X45 2022-12-31 ifrs-full:ReserveOfGainsAndLossesOnFinancialAssetsMeasuredAtFairValueThroughOtherComprehensiveIncomeMember 52990050T51W55KK4X45 2021-12-31 ifrs-full:SharePremiumMember 52990050T51W55KK4X45 2022-12-31 ifrs-full:SharePremiumMember 52990050T51W55KK4X45 2021-12-31 ifrs-full:MiscellaneousOtherReservesMember 52990050T51W55KK4X45 2022-12-31 ifrs-full:MiscellaneousOtherReservesMember 52990050T51W55KK4X45 2021-12-31 ifrs-full:RetainedEarningsMember 52990050T51W55KK4X45 2022-12-31 ifrs-full:RetainedEarningsMember 52990050T51W55KK4X45 2022-12-31 ifrs-full:NoncontrollingInterestsMember 52990050T51W55KK4X45 2021-12-31 ifrs-full:NoncontrollingInterestsMember 52990050T51W55KK4X45 2021-12-31 ifrs-full:EquityAttributableToOwnersOfParentMember 52990050T51W55KK4X45 2021-12-31 ifrs-full:TreasurySharesMember 52990050T51W55KK4X45 2022-12-31 ifrs-full:TreasurySharesMember 52990050T51W55KK4X45 2022-12-31 ifrs-full:ReserveOfSharebasedPaymentsMember 52990050T51W55KK4X45 2021-12-31 ifrs-full:ReserveOfSharebasedPaymentsMember 52990050T51W55KK4X45 2021-12-31 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 52990050T51W55KK4X45 2022-12-31 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 52990050T51W55KK4X45 2022-12-31 ifrs-full:EquityAttributableToOwnersOfParentMember 52990050T51W55KK4X45 2022-01-01 2022-12-31 iso4217:EUR iso4217:EUR xbrli:shares xbrli:pure iso4217:EUR xbrli:shares ANNUAL REPORT CONTENT 01 Letter from the Board of Directors 7 02 Report of the Supervisory Board 11 03 Remuneration Report 17 04 Report of the Board of Directors 23 04.1 Governance 25 Our Governance Structure 27 Comply or Explain 31 Decree Article 10 Takeover Directive (Besluit Artikel 10 Overnamerichtlijn) 33 04.2 The ad pepper Share 37 04.3 Business Activity 41 Disclaimer regarding Forward-looking Statements 43 The ad pepper Group 43 Segments of the ad pepper Group 45 Employees and Values 48 04.4 Economic Development 49 Macroeconomic Framework 51 Presentation of Earnings Position 52 Presentation of Financial and Net Asset Position 53 04.5 Risk Report 55 Foreword 57 Risk Classiﬁcation 57 Operational risk 57 Strategic risk 60 Financial risk 61 Compliance risk 64 Risk Appetite 66 Evaluation of Risk Management System Effectiveness 67 Opportunities and Outlook 68 04.6 Responsibility Statement 69 05 Consolidated Financial Statements 73 06 Notes to the Consolidated Financial Statements 85 07 Statutory Financial 127 08 Other Information 143 09 At a Glance 155 10 Glossary 161 KEY FIGURES AT A GLANCE 2022 2021 Gross sales¹ (kEUR) 98,229 111,593 Revenue 24,868 27,646 Gross proﬁt (kEUR) 23,704 26,587 Gross margin (percent) in relation to gross sales 24.1 23.8 Gross margin (percent) in relation to revenue 95.3 96.2 EBITDA² (kEUR) 1,275 4,378 EBIT³ (Operating proﬁt) (kEUR) 187 3,194 EBT4 (Income before taxes) (kEUR) 56 3,156 Net income (kEUR) -250 2,564 Earnings per share (basic, EUR) -0.04 0.08 Total assets (kEUR) 43,954 46,352 Shareholders‘ equity (kEUR) 15,666 16,756 Equity ratio5 (percent) 35.6 36.2 Liquid funds6 (kEUR) 23,084 23,761 Number of employees (as at 31 December) 249 249 1 Gross sales represent the total amount billed and billable to clients by the Group, net 3 EBIT (earnings before interest and taxes) is an alternative performance measure and of discounts, VAT and other sales-related taxes. Disclosure of gross sales information serves to present a Company’s performance while eliminating the effects of differences is not required under IFRS; however, it is voluntarily disclosed from 1 January 2018 among local taxation systems and different ﬁnancing activities. onwards in the Consolidated Income Statement since management has concluded that the information is useful for users of the ﬁnancial statements. Please refer to Note [6]. 4 Earnings before Tax. 2 EBITDA is an alternative performance measure. It is deﬁned as earnings before 5 Shareholders’ Equity/Total Assets. interest, taxes, depreciation and impairment losses/loss reversals on property, plant and equipment, impairment losses on goodwill, and amortisation and impairment 6 Liquid funds is an alternative performance measure and includes cash & cash losses/loss reversals on other intangible assets. This performance measure neutralises equivalents and listed debt and marketable securities and securities and deposits with the effects of the ﬁnancial result along with distortions of operational performance maturity over three months. that result from divergent depreciation and amortisation methods and the exercise of measurement discretion. EBITDA is EBIT plus the amortisation of intangible assets and the depreciation of property, plant and equipment, plus impairment losses and minus impairment loss reversals, recognised in proﬁt or loss during the reporting period. 2022 2021 * Restated values acc. to IAS 8. For further information please refer to Note [2] of the Cash and cash equivalents 17,008 20,704 Disclosure Notes. Listed debt and marketable securities 6,076 3,057 Liquid funds 23,084 23,761 2022 2021 EBIT 187 3,194 Depreciation & Amortisation 1,088 1,184 EBITDA 1,275 4,378 2022 2021 2022 2021 2022 2021 Gross sales EBITDA Liquid funds 01 « LETTER FROM THE BOARD OF DIRECTORS 01 LETTER FROM BOARD OF DIRECTORS DEAR STAKEHOLDERS, The past ﬁnancial year was not an easy one for us, as our Company – like many other market participants – was affected by macroeconomic headwinds, inﬂation and geopolitical tension. The sharp rise in inﬂation along with increasing interest rates have dampened consumer conﬁdence and spending in Europe throughout the year. The increase in prices, especially for energy and food, had already been evident before the war in Ukraine and had a substantial impact on consumer behaviour in 2022. This was compounded by bottlenecks due to disruptions in the supply chains, also caused by the COVID-19 pandemic, which were a further source of uncertainty and economic weakness. Despite all this, we have successfully navigated our Company through unprecedented challenges, and although we have not met our ﬁnancial targets, we have successfully sharpened our proﬁle as one of the leading performance marketing companies in Europe. Overall, despite a superb ﬁnal sprint in the fourth quarter, the Group’s ﬁnancial performance was not at the level we were aiming for: gross sales came in at EUR 98,229k, and revenue at EUR 24,868k representing a decline of 12 percent and 10 percent respectively, thus ending the past ﬁnancial year substantially lower than the previous one, which had been positively impacted by lock-downs and stay-at-home restrictions due to COVID-19. In-line with the top-line performance, our EBITDA also fell short compared to prior-year. In 2022, EBITDA amounts to EUR 1,275k (2021: EUR 4,378k). Mixed development of the three operating segments and strong Q4 If we look at the performance of the individual segments, we see a mixed picture: while the Webgains segment and the ad pepper segment generated revenues of EUR 13,227k and EUR 2,924k, which represents a year-on-year decline of 14.9 percent and 25.7 percent respectively, the ad agents segment achieved revenues of EUR 8,718k, which is equivalent to 6.7 percent growth versus the previous year and thus once again set a record in terms of revenue. The main reason for the weaker performance of Webgains and ad pepper is, as mentioned before, the high revenue level achieved in the previous year, which saw unprecedented growth in e-commerce spending due to pandemic restrictions in various jurisdictions. In addition, Webgains has its main market in the UK, which was at the centre stage of the cost-of-living crisis and the resulting decline in consumer conﬁdence and therefore in e-commerce spending as well. In contrast to this development, ad agents successfully managed to manoeuvre the company through this difﬁcult environment and – thanks to its stable client base – posted its highest revenue level since the inception of the company. However, in the ﬁnal quarter of the 2022 ﬁnancial year, the Group achieved revenue of EUR 7,184k, which is roughly in line with the revenue level achieved in the prior-year period (Q4 2021: EUR 7,242k). This is a strong result given the pandemic-driven high revenue levels in the prior year and the challenging current market environment. The positive development was driven by a robust demand in the e-commerce space during so-called Cyberweek (Webgains segment) on the one hand and the strong performance of the ad agents segment on the other, which recorded the highest quarterly revenue since inception of the Company. 9 01 LETTER FROM BOARD OF DIRECTORS Strong balance sheet and fnancial resources Our balance sheet is strong, and our ﬁnancial resources are substantial: our cash balances are at a comfortable level and still well above the EUR 20 million mark. Our equity ratio is at a solid 35.6 percent, and the Company continues to have no external debt. This sets us apart from many of our peers. We plan to continue ﬁnancing our growth from our cash reserves and operating cash ﬂow in the next ﬁnancial year. Based on the strong balance sheet and the ﬁnancial expectations for 2023, we therefore believe it is justiﬁed to assume that the Company’s continued existence as a going concern is assured. We carefully review acquisitions and are more inclined to pursue them if they offer potential synergies. In ﬁnancial year 2022, the Group’s headcount stood at 249 employees, which is the same level as per end of the previous year. While the majority of new hires can be attributed to ad agents, ad pepper and Webgains ended the year with a slightly lower headcount compared to the end of 2021. Despite all this, the health and safety of our employees was again our top priority in the past ﬁnancial year. It continued to be of paramount importance that our employees can perform their work safely and have the opportunity to work from home where possible. We would like to take this opportunity to thank you, our stakeholders and shareholders, for your perseverance and patience. A very special thank you goes to our employees and their families who have actively supported us and are highly motivated in their commitment to the future of the ad pepper Group. Our thanks also go to the Supervisory Board for the steady and constructive support provided. And despite signiﬁcantly lower proﬁtability levels compared to the previous year, we can be proud of what we have achieved, and this would not have been possible without our many long-standing and new clients, for whom we give our best every day. Thank you for the trust you have placed in us and for our excellent working relationships. Yours faithfully, The Board of Directors ad pepper media International N.V. Dr Jens Körner, CEO Nuremberg, 7 April 2023 02 « REPORT OF THE SUPERVISORY BOARD 02 REPORT OF THE SUPERVISORY BOARD DEAR SHAREHOLDERS, In the 2022 ﬁnancial year, the Supervisory Board performed its duties pursuant to the law and the Articles of Association. It advised the Board of Directors on a regular basis, monitored the Board of Directors in its management of the business, and was involved in decisions of key importance for the Company and the Group. Meetings in 2022 The Supervisory Board held four meetings in 2022. Moreover, we collectively and individually interacted with the CEO and with the senior management outside the formal Supervisory Board meetings. The Chairman of the Supervisory Board and the CEO met regularly for bilateral discussions virtually and in person about the progress of the Company on a variety of matters. The Supervisory Board meetings were well attended in 2022 with an attendance rate of 100 percent of each Supervisory Board member. Due to COVID-19, meetings were partly held virtually. On 30 November 2022 the audit committee reported to the Supervisory Board on the functioning, and the development of, the relationship with the external auditor. The Board of Directors kept the Supervisory Board informed about the status of discussions around the development and implementation of the strategy for 2022 and beyond. The Supervisory Board discussed the status of the implementation with the Board of Directors in its meetings and also discussed it with the senior management regularly, e.g. after a meeting of the Supervisory Board. The Supervisory Board discussed the manner in which the Board of Directors implemented the long-term value creation strategy, i.e. improving our ﬁnancial performance, and the principal risks associated with it and hence complied with 1.1.3 of the Dutch Corporate Governance Code (“Code”). The Supervisory Board approved the ﬁnancial plan for 2022 and discussed (potential) acquisitions and disposals with the Board of Directors. Topics discussed included annual and interim results, business implications of the COVID-19 pandemic and the normalisation of long-term trends, technological developments, the organisation of sales and marketing activities, Corporate Governance, investor relations, compensation and human resources. The Supervisory Board also met and engaged Ernst & Young Accountants LLP, appointed as independent auditor for the ﬁnancial year 2022 by the Extraordinary General Meeting of Shareholders (the “General Meeting”) held on 19 July 2022 and discussed the outcome of the 2021 audit procedures on 25 March 2022. In addition, the Supervisory Board discussed the general and ﬁnancial risks of the business and the ﬁndings of an assessment of the internal risk management and control systems. Consistent with the requirements of the Dutch Corporate Governance Code, the work of the Supervisory Board and of the Board of Directors, as well as the work of the individual members of both boards, was discussed in the absence of the members of the Board of Directors. The evaluation of the Supervisory Board is carried out by following a detailed questionnaire. The review and discussion included reviews of the composition and expertise of the Supervisory Board, its time management, its effectiveness, its dynamics and succession planning, as well as its organisation and meeting procedures, provision of information and performance of the Chairman and the individual members. The evaluation has shown that the Supervisory Board is functioning well and will continue to also regularly discuss its own effectiveness and value for the Company. The evaluation of the Board of Directors is based on an individual evaluation and discussion of its strength and weaknesses among the members of the Supervisory Board, including core abilities, risk assessment, business culture and human resources management. Also in the past ﬁnancial year, the Supervisory Board decided to be informed in greater detail by the management of each business unit (who attended the meetings of the Supervisory Board in rotating order) – among other things – about technical matters, clients, market trends and, once a year, by a Dutch law ﬁrm about the requirements of the Dutch Corporate Governance Code. Remuneration of the Board of Directors (see Remuneration Report) On the basis of the Company’s Articles of Association in their currently valid version, the compensation paid to members of the Board of Directors is determined by the General Meeting following submission of corresponding proposals by the Supervisory Board. The Board of Directors’ compensation consists of ﬁxed and variable components. Variable compensation consists of annual performance-based payments (bonus), as well as long-term incentives such as stock options. The ﬁxed compensation component is regularly determined in January/February of each year with retrospective effect 13 02 REPORT OF THE SUPERVISORY BOARD as of 1 January of the respective year. The variable compensation component is pegged to previously agreed and measurable targets which can be controlled. The target is the consolidated EBITDA budgeted for the following year. Members of the Board of Directors do not receive any guaranteed minimum bonus payments. Variable bonuses are usually paid during the ﬁrst quarter following publication of the consolidated annual results. In 2000, the ad pepper Group introduced a long-term incentive model in the form of stock option plans for employees in key positions, including members of the Board of Directors. Company stock options become exercisable once ad pepper’s share price exceeds speciﬁed threshold, but only vest one year after issue. Option plan tranches were issued to members of the Board of Directors in 2000, 2001, 2002, 2003, 2008, 2013, 2017 and 2020. The ad pepper Group has no pension obligations to members of the Board of Directors. The total sum and structure of the Board of Directors’ compensation are designed to enable the Company to attract and retain suitably qualiﬁed executives. The compensation structure, pension scheme payments, and other ﬁnancial obligations are designed to promote the Company’s medium to long-term interests. The details of the compensation structure disclosed in this Annual Report reﬂect the size of the Company and take into consideration the fact that the Board of Directors currently consists of only one member (see Note 39). Consequently, the Supervisory Board did not conduct a scenario analysis whereby different performance assumptions and corporate actions were examined. The compensation policy is expected to remain largely unchanged in 2023. Composition of the Supervisory Board The proﬁle and composition of the Supervisory Board as a whole must be aligned with the proﬁle and strategy of the Company. The Supervisory Board strives for a balanced distribution of speciﬁc expertise in relation to the business activities, strategy and long-term goals of the Company. Each member of the Supervisory Board must be capable of assessing the broad outline of the Supervisory Board’s overall policy objectives. Given the size of the Company, the proﬁle of the Supervisory Board provides, that the Supervisory Board, shall at least have three members. Since the General Meeting of Shareholders which was held on 19 May 2020, where Mrs Dagmar Bottenbruch was elected as an additional member of the Supervisory Board, the Supervisory Board consists of four members. One Supervisory Board member holds long-term share positions. The current composition of the Supervisory Board is as follows: • Michael Oschmann (male, born 1969; German citizen) Supervisory Board Chairman throughout the entire ﬁnancial year up to and including 31 December 2022 Graduate in Business Administration, Managing Director of Telefonbuchverlag Hans Müller GmbH & Co. KG, Nuremberg Supervisory Board member since 10 January 2000; appointed until General Meeting 2025 • Thomas Bauer (male, born 1963; German citizen) Supervisory Board member throughout the entire ﬁnancial year up to and including 31 December 2022 CEO of Apotheker Walter Bouhon GmbH, Managing Director of Thomas Bauer GmbH, Nuremberg Supervisory Board member since 20 March 2013; appointed until General Meeting 2023 • Dr Stephan Roppel (male, born 1964; German citizen) Supervisory Board member throughout the entire ﬁnancial year up to and including 31 December 2022 Managing Director of baby-walz GmbH, Munich Supervisory Board member since 20 March 2013; appointed until General Meeting 2024 • Dagmar Bottenbruch (female, born 1960; German and US citizen) Supervisory Board member from 19 May 2020 up to and including 31 December 2020 Managing Director of Silicon Valley Bank AG Frankfurt/Main Supervisory Board member since 19 May 2020; appointed until General Meeting 2024 The required Dutch gender diversity quota of 30 percent within the Supervisory Board is currently not met. In case of new appointments, the required quota will be taken into consideration. 14 02 REPORT OF THE SUPERVISORY BOARD The Supervisory Board is a separate corporate body that is independent of the Board of Directors. Its independent character is also reﬂected in the requirement that members of the Supervisory Board can be neither a member of the Board of Directors nor an employee of the Company. In accordance with best practice provision 2.1.10 of the Dutch Corporate Governance Code, the Supervisory Board declares that the independence requirements in best practice provisions 2.1.7 to 2.1.9 have been fulﬁlled, except that one of its members, Michael Oschmann, is not independent pursuant to best practice provision 2.1.8 vii. because he is Director of EMA Electronic Media Advertising International B.V., which holds more than 10 percent of the Company’s share capital. On 30 March 2018, the Supervisory Board formed an audit committee currently consisting of Michael Oschmann, Dr Stephan Roppel and Thomas Bauer (Chairman). The Supervisory Board is aware of the fact that the ad pepper Group does not yet have an internal audit function and has discussed this with the Board of Directors. The Supervisory Board came to the conclusion that due to the size of the Company and the size of the Supervisory Board, the Company currently does not need an internal audit function, which may change in the future, however, depending on further Company growth. The Supervisory Board annually considers the need to establish an internal audit function. Unqualifed independent auditor’s report on the Consolidated Financial Statements The independent auditor Ernst & Young Accountants LLP audited the Consolidated Financial Statements of ad pepper media International N.V. for the 2022 ﬁnancial year and issued an unqualiﬁed independent auditor’s report. The Consolidated Financial Statements, the Report of the Board of Directors and the independent auditor’s report were made available to the Supervisory Board for review. Meetings were held between the Company’s audit committee and the auditor, who presented their audit plan, key ﬁndings of their audit and answered related questions. The Supervisory Board acknowledged and approved the ﬁndings of the audit. The Supervisory Board acknowledged and approved the audit results. On 7 April 2023, the Supervisory Board discussed and approved the Consolidated Financial Statements prepared by the Board of Directors for the 2022 ﬁnancial year. 15 02 REPORT OF THE SUPERVISORY BOARD Corporate Governance ad pepper media International N.V. is a Company under Dutch law with subsidiaries in various countries. All business activities are performed in accordance with Dutch Company law and German capital market law, in particular the German Securities Trading Act (WpHG). Common shares are admitted to trading on the Prime Standard of Frankfurt Stock Exchange. The Supervisory Board is committed to increasing shareholder value in the interests of all shareholders and has always set the highest standards for the Company’s Corporate Governance principles. Although, consistent with its proprietary guidelines, the Company basically applies the requirements laid down in the Dutch Corporate Governance Code, deviations may nevertheless result on account of the legal requirements applicable to the ad pepper Group. In the Governance section of this Annual Report, the ad pepper Group reports in detail on compliance with the Dutch Corporate Governance Code. The Supervisory Board has played a key role in supporting ad pepper Group’s growth strategy during the year, as deﬁned by the Board of Directors. We have assisted in evaluating acquisitions and reﬁning the long-term value creation strategy. On behalf of the Supervisory Board, I would like to express our appreciation to all of the employees of ad pepper for their efforts and achievements throughout 2022. For the Supervisory Board Michael Oschmann, Supervisory Board Chairman Nuremberg, 7 April 2023 03 « REMUNERATION REPORT 03 REMUNERATION REPORT General The remuneration system is based on three pillars: ﬁrstly, a periodically paid remuneration designed to attract, retain and motivate the members The Supervisory Board carefully studied the Dutch Act aimed to of the Board of Directors as top-tier managers of an international implement the Shareholder Rights Directive, as adopted by the company in a fast-moving commercial environment. Secondly, a clear Dutch Senate in November 2019, to identify any potential gap in performance-based remuneration and a highly detailed assessment our remuneration policy. The current remuneration policy has been based on ambitious internal ﬁnancial targets ensure the focus is on accepted during the 2020 General Meeting. the Company’s goal of proﬁtable growth on a long-term basis. Thirdly, a stock option-based remuneration system that promotes a strong, The Supervisory Board is also mindful of the recommended changes long-term equity culture and, in this way, helps align the interests of to remuneration disclosure that form part of the Guidelines to the shareholders, management and other stakeholders. Shareholder Rights Directive. These changes are intended to drive greater transparency and consistency of reporting regarding executive The present remuneration policy also takes account of the identity, remuneration and may result in further updates to our remuneration mission and values of the Company and public support, by designing disclosure in the Remuneration Report once the Guidelines are the policy and its implementation in such a way that the members of ﬁnalised. During the 2022 General Meeting, the Remuneration Report the Board of Directors receive a remuneration that is in accordance with received a positive advisory vote of 98.98 percent. No questions were the identity of the Company, with the main focus being the creation of raised concerning its contents and none of our shareholders expressed long-term value for all stakeholders involved in the Company. In doing any concern about the clarity or transparency of the Remuneration so, an explicit focus is placed on the social context and the society Report. Based on the positive advisory vote and the absence of any of which the Company is a part, taking into account the required shareholder feedback, we have not proposed any changes to the competitiveness of the Company. structure and contents of the Remuneration Report this year. Periodically paid fxed remuneration (base salary) The 2022 remuneration report will be submitted to the 2023 General Meeting for their advisory vote. The members of the Board of Directors receive a ﬁxed base salary, In the absence of a remuneration committee, the Supervisory Board which is payable in twelve equal monthly instalments. The ﬁxed remuneration is determined by the Supervisory Board, usually within in its entirety evaluates the remuneration policy on a routine basis to review its efﬁciency and effectiveness in supporting ad pepper’s long- the ﬁrst three months of each calendar year and with retrospective term strategy compared to relevant market practices and adjusts if and effect as of 1 January of that year. The ﬁxed remuneration is typically where appropriate. On an annual basis, the Supervisory Board sets the increased in line with the inﬂation rate, but the Supervisory Board may performance targets for the members of the Board of Directors, reviews decide otherwise. their performance against these predetermined targets and determines the remuneration and beneﬁts in line with contractual terms. The Performance-based variable remuneration (bonus) structure of the remuneration package for the Board members is designed to balance incentives for short-term operating performance with incentives for long-term sustainable value creation while taking The bonus payment for the members of the Board of Directors is into account the interests of shareholders and other stakeholders. determined by the Supervisory Board. Consistent with the Board of The remuneration policy is clear and understandable, focuses on long- Directors remuneration policy, the Supervisory Board can choose from a number of ﬁnancial as well as non-ﬁnancial targets to use as measure term value creation for the Group, and takes into account the internal pay ratios within the Company. The full policy can be found on the for performance-based variable remuneration. For 2022, in-line with Company’s website. the service agreement entered into with the Board of Directors, the Supervisory Board decided to use earnings before interest, taxation, depreciation and amortisation (EBITDA) as sole measure. By using EBITDA, the Supervisory Board has now opted for a key performance indicator (KPI) that more closely reﬂects the Company’s ability to generate operating cash ﬂows. 19 03 REMUNERATION REPORT Severance payment The performance-based variable remuneration consists of two parts; a lump-sum part in the range of EUR 70k – EUR 110k based on the If the current CEO‘s service agreement is terminated by the Company Company reaching the pre-set EBITDA target and a variable part, which is a percentage of EBITDA (starting from the ﬁrst EUR). The pre- without cause, the CEO is entitled to receive 75 percent of the base set EBITDA target for 2022 was missed and, as a result, based on the salary (i.e. without any performance-related components to which performance in 2022, only the variable part was awarded, amounting to he would be entitled for the remainder of the term of his service EUR 25k (i.e. 2 percent of EBITDA). agreement). No severance payment shall be made if the service agreement is terminated early at the initiative of the CEO, or in the event The remuneration of the Board of Directors complied with the of seriously culpable or negligent behaviour on the part of the CEO. remuneration policy. In line with the Dutch Corporate Governance Code, the members of the Board of Directors are appointed for a period of four years. The CEO’s Medium- and long-term performance-related current term ends on 31 December 2026. variable remuneration (stock options) Change of control The Company aims for a business policy which takes into account the interests of the shareholders and its other stakeholders. The Company wishes to promote commitment of the members of the In the event of a change of control, the CEO has the option of Board of Directors to build the shareholders’ value on a long-term extraordinary termination of his employment contract for a period of basis. The Company may therefore introduce one or more stock option 12 months after the change of control takes effect. In the event of plans for the members of the Board of Directors, which may or may extraordinary termination of his contract, the CEO is entitled to receive not be linked to the performance of the Company. The exercise price payment of compensation amounting to his respective annual target of the stock options, the number of stock options and the other terms income through to the end of the contractually agreed term, amounting and conditions shall be laid down in the stock option plans. No stock to a minimum of 150 percent of his current annual target income. A options were granted in 2022. change of control in this respect arises when a shareholder gains control over the Company as deﬁned by Paragraph 29 of the German Securities Acquisition and Takeover Act (WpÜG), i.e. acquisition of at Other benefts least 30 percent of the voting rights in the Company. The Company shall indemnify each (former) member of the Board of Loans Directors who was or is involved, or threatens to become involved, in his/her capacity as (former) member of the Board of Directors, as a party to any past, present or anticipated future actions or proceedings Members of the Board of Directors and Supervisory Board have not of any nature whatsoever, against all conceivable ﬁnancial loss or harm been granted any loans. that he/she has in fact and in all reasonableness suffered in connection with the actions or proceedings. In addition, the Company has taken Clawback Provisions out insurance cover for them, such as personal accident insurance and directors and ofﬁcers (D&O) insurance. Performance-based variable remuneration is subject to claw back Other beneﬁts may include but are not limited to life insurance, disability provisions pursuant to Dutch law. insurance, long-term health care insurance, company vehicle (with the tax on the pecuniary beneﬁt from personal use being payable by the member concerned), cell phone usage and contributions to private pensions The ad pepper Group has no pension obligations towards members of the Board of Directors. 20 03 REMUNERATION REPORT Total Director’s remuneration, Five-Year Comparison broken down into its various components Annual change J. Körner, J. Körner, 2018 2019 2020 2021 2022 2022 CEO (2022) CEO (2021) vs vs vs vs vs 2017 2018 2019 2020 2021 kEUR kEUR kEUR Director’s Fixed remuneration remuneration Base salary 291 288 J. Körner, Fees 0 0 CEO -59% +226% +29% -18% -48% 333 Other beneﬁts¹ 17 3 Remuneration of the Variable remuneration Supervisory On-year variable 25 164 Board 0% 0% -8.33% +9.10% +0% 24 Multi-year variable² 0 183 Company's Extraordinary items 0 0 performance Pension expenses 0 0 EBITDA -39% +158% +87% -33% -71% 1,275 Total remuneration 333 638 Proportion of fxed and variable remuneration3 92%/8% 45%/55% Year 2017 2018 2019 2020 2021 2022 1 Contributions to private pension plan and health insurance. 2 Board of Directors holds SOP which are measured at the end of each reporting period at Average the fair value, see also Note [38]. 3 Lower share of 2022 variable remuneration is driven by the 71 percent decrease of employee EBITDA, see also table “Five-year comparison”. remuneration 61 56 69 66 55 54 Ratio CEO The amounts shown in the tables are those recognised in proﬁt or loss and average during the reporting period. Income resulting from the share-based employee 7.4 3.3 8.6 11.7 11.8 6.2 payments is due to the decreased fair value of the cash-settled stock option plan and the corresponding adjustment of the liability through Employees of proﬁt or loss. the company 10 11 11 13 12 15 ad pepper media International N.V. The average employee remuneration is obtained by dividing the total personnel expenses as stated in the notes of the respective Company’s Annual Report (after subtracting the CEO’s remuneration) by the reported average number of Full Time Equivalents (“FTE”) (minus one). 21 03 REMUNERATION REPORT Remuneration in Share Options to Board of Directors and members of Supervisory Board The main conditions of stock option plans Information regarding the reported ﬁnancial year Plan Grant date Share Exercise Number Number Number Number Number options price (EUR) of options of options of options of options of options granted outstanding awarded forfeited exercised outstanding 01/01/2022 2022 2022 2022 31/12/2022 Board of Directors J. Körner BoD 2020 10/2020 250,000 3.50 187,500 0 187,500 0 0 Supervisory Board S. Roppel SB 2017 04/2017 10,000 1.9751 5,000 0 0 0 5,000 The options granted under the SB 2017 and BoD 2017 plan expire 7 years after granting. The options grant the right to purchase shares at the exercise price (EUR 1.9751). These options may be exercised over a period of four years at 25 percent each year, but at the earliest one year after being granted. The options forfeit, if the holder terminates his employment contract with the Company for whatever reason, or if the employment contract is expiring and will not be prolonged by the parties. The options also forfeit, if the Company terminates the employment contract for an important reason or if a member of the Supervisory Board resigns. The options granted under the BoD 2020 plan expire 7 years after granting. The options grant the right to purchase shares at the exercise price (EUR 3.50). These options may be exercised over a period of four years at 25 percent each year, but at the earliest one year after being granted. The options forfeit if the Company terminates the employment contract for an important reason. In the ﬁnancial year 2022, a total of 233,325 shares of the Company have been repurchased (2021: 461,384) and 0 shares (2021: 32,400 shares) have been issued in relation to exercise of the aforementioned rights. Supervisory Board Compensation 2022 2021 EUR EUR Michael Oschmann 6,000 6,000 Thomas Bauer 6,000 6,000 Dr Stephan Roppel 6,000 6,000 Dagmar Bottenbruch 6,000 6,000 Total remuneration for members of the Supervisory Board amounted to EUR 24k in the past ﬁnancial year (2021: EUR 24k). 22 04 « REPORT OF THE BOARD OF DIRECTORS « GOVERNANCE 04.1 GOVERNANCE OUR GOVERNANCE STRUCTURE Members of the Board of Directors are appointed by the General Meeting, subject to the right of the Supervisory Board to make a binding nomination to appoint a Board of Directors member in accordance with the relevant best practice provisions of the Dutch Civil Code and the Corporate information articles of association (the “Articles of Association”). Since 28 February 2017, the Company’s Board of Directors consists of one “Director” ad pepper media International N.V. is a “naamloze vennootschap” (Chairman of the Board of Directors and CEO). The CEO has powers to (N.V.), a Dutch limited liability Company, and is the parent Company represent the Company. However, in addition to the cases that legally of the ad pepper Group (the “Group”). The Company’s registered ofﬁce require the approval of the Supervisory Board, certain resolutions of address is Frankenstrasse 150C, 90461 Nuremberg, Germany. Its the Board of Directors as laid out in the rules governing the internal registration number with the Dutch trade register is 27182121. organisation of the Board of Directors also require approval of the Supervisory Board. Resolutions of the Board of Directors that require The Company’s Corporate Governance structure is based on the the approval of the Supervisory Board are only adopted after the requirements of Dutch corporate law, the Dutch Act on Financial Supervisory Board has given its approval to such proposed resolution. Supervision and the Dutch Corporate Governance Code (the “Code”). Dutch law provides that a member of the Board of Directors of a Dutch The Company has a two-tier board structure consisting of a Board of public limited liability Company may not participate in the adoption Directors and a Supervisory Board. It is in the interest of the Group and of resolutions (including deliberations in respect hereof) if he or she all of its stakeholders that there is a clear division of responsibilities has a direct or indirect personal interest conﬂicting with the interests between the Board of Directors, the Supervisory Board and the General of that Company or its enterprise. Pursuant to the Board of Directors Meeting in a well-functioning system of checks and balances. by-laws, each member of the Board of Directors must immediately report any (potential) personal conﬂict of interest to the Supervisory In this section, we address our overall Corporate Governance, and Board and to the other members of the Board of Directors and must provide information on our compliance with the best practice provisions provide all information relevant to the conﬂict. The Board of Directors of the Code. Occasional deviations from the Code are explained and by-laws provide detailed rules under which circumstances a conﬂict of information on the reasons for any such deviations are provided at interest of a member of the Board of Directors exists and determines the end of this section. In the event of any substantial changes to the that the Board of Directors member may not be present at the meeting Corporate Governance structure of the Company and its compliance with discussing such matters. During 2022, no conﬂicts of interest were the Code, the shareholders shall be informed at the General Meeting. reported. There were furthermore no transactions as referred to in the best practice provisions 2.7.4 and 2.7.5. Board of Directors Supervisory Board The Board of Directors is entrusted with the management of the Company, which means that, among other responsibilities, it deﬁnes The Supervisory Board should supervise the policies carried out by the strategic direction, establishes the policies, and manages the the Board of Directors and the general affairs of the Company and its Company’s day-to-day operations under the supervision of the afﬁliated enterprise. In doing so, the Supervisory Board should also focus Supervisory Board. The members of the Board of Directors collectively on the effectiveness of the Company’s internal risk management and manage the Company and are accountable to the Supervisory Board control systems and the integrity and quality of the ﬁnancial reporting. and to the General Meeting. In performing its duties, the Board of It offers advice to the Board of Directors. In discharging its duties, the Directors is guided by the interests of the Company and its enterprise. Supervisory Board has regard for the interests of the Company and the The Board of Directors follows its own rules determined in the proﬁle business enterprise connected with it. The Supervisory Board meets at of the Board of Directors, which deﬁnes responsibilities, competencies least four times a year and whenever a majority of its board members and decision-making processes. or its Chairman considers this to be necessary. Resolutions of the Supervisory Board may, instead of at a meeting, be passed in writing The Board of Directors provides the Supervisory Board with information – including by telegram, facsimile or telex transmission, or in the form in a timely manner and, if necessary, consults with the Supervisory of a message transmitted by any accepted means of communication Board on important matters and submits certain important decisions to and received or capable of being produced in writing – provided that the Supervisory Board for approval. all Supervisory Board members are familiar with the resolution to be passed and none of them objects to this decision-making process. 27 04.1 GOVERNANCE The Supervisory Board passes its resolutions, inside as well as outside Furthermore, General Meetings shall be held in the event referred to in meetings, with an absolute majority of the votes of all the members Article 2:108a of the Dutch Civil Code and as often as a member of the of the Supervisory Board in ofﬁce. In the event of an equal division of Board of Directors or a Supervisory Board member considers it necessary. votes, the Chairman of the Supervisory Board has the casting vote. The resolutions proposed in the agenda were adopted at the General The Chairman of the Supervisory Board determines the agenda and Meeting of ad pepper media International N.V. held in Amsterdam on chairs the meetings of the Supervisory Board, monitors the proper 17 May 2022. In all, 10,044,579 voting rights, or 46.72 percent of the functioning of the Supervisory Board, arranges for the adequate issued share capital and 49.58 percent of all shares with voting rights provision of information to the members of the Supervisory Board and were represented at the General Meeting. acts on behalf of the Supervisory Board as the main contact for the Board of Directors. Important topics and upcoming decisions are also Alongside the presentation of the annual ﬁnancial statements for the dealt with in regular discussions and meetings between the Chairman 2021 ﬁnancial year, key agenda items also included the discharge of of the Supervisory Board and the CEO. The Chairman of the Supervisory the members of management and the Supervisory Board, the adoption Board informs the other members of the Supervisory Board regularly of the amendments to the Company’s Articles of Association Board of on the outcome of his discussions and meetings. He also initiates the Directors as well as the authorisation to buy back treasury stock. evaluation of the functioning of the Supervisory Board and the Board of Directors. All members have had sufﬁcient time available for their On 17 July 2022 an Extraordinary General Meeting (EGM) had to be duties relating to their membership of the Supervisory Board. Their held in order to re-elect Ernst & Young Accountants LLP as the auditor availability for ad hoc calls, prompt response on emails and the fact for the 2022 ﬁnancial year. A total of 10,307,216 voting rights, or 47.94 that the members prepared the meetings well, regardless of their percent of the issued share capital and 50.88 percent of all shares with attendance at the meetings, and actively participated in the meeting voting rights were represented at the EGM. discussions, demonstrate that they were all able to devote adequate attention to the Company. Proposed appropriation of the result for the fnancial year 2022 On 10 December 2019, the Supervisory Board formed an audit committee currently consisting of Michael Oschmann, Dr Stephan The Board of Directors, with the approval of the Supervisory Board, Roppel and Thomas Bauer (Chairman). No changes occurred in the year under review. proposes to allocate the result for the ﬁnancial year 2022 amounting to EUR -893k to the accumulated deﬁcit without payment of dividend. The ﬁnancial statements reﬂect this proposal. General Meeting Long-term value creation At least one General Meeting shall be held each year, at the latest six months after the close of the ﬁnancial year. The agenda and the explanatory notes to the agenda are published in advance and posted By bringing together three individual, strong segments in the area of on the Company’s corporate website. The explanatory notes to the performance marketing – each focused on advising, supporting and agenda contain all relevant information with respect to the proposed enabling its clients in their digital marketing strategy – and further resolutions. All resolutions are made on the basis of the “one share, developing these assets into relevant players, the Company focusses on one vote” principle. The General Meeting reviews the Annual Report above market average organic growth of these existing business lines and decides on adoption of the ﬁnancial statements and the dividend and expanding the footprint of new services and products offered by proposal, as well as on the discharge of the members of the Supervisory those segments. At the same time, the Company strives to strengthen its Board and the Board of Directors. The Board of Directors may add other operational and ﬁnancial position, i.e. growing both top-line revenue and items to the agenda of the General Meeting. EBITDA as well as generating positive operating cash ﬂows each year. As mentioned above, macroeconomic headwinds resulted in declining The Board of Directors shall be obliged to convene a General Meeting revenues and lower proﬁtability in the past ﬁnancial year. However, we if one or more of the persons with meeting rights who alone or jointly successfully navigated our Company through another unprecedented represent(s) at least 10 percent of the issued share capital request(s) ﬁnancial year, and although we did not meet our ﬁnancial targets, we this in writing, stating the issues to be discussed. An extraordinary successfully sharpened our proﬁle as one of the leading performance General Meeting may be convened by the Supervisory Board or the marketing companies in Europe and therefore believe that 2022 has also Board of Directors if deemed necessary. contributed to the Company´s long-term value target. 28 04.1 GOVERNANCE Diversity Insider trading policy We aim for diversity at every level. We do not see diversity as The ad pepper Group has a strict Code of Conduct on insider trading. merely a matter of gender or ethnicity but also of personality, skills The insider trading policy with regard to inside information and and knowledge. We need men and women, people from different securities trading was adopted by the Board of Directors. This policy backgrounds and cultures. The ad pepper Group values this diversity is publicly available on the Company’s website. In accordance with and believes it contributes positively to the way we evaluate situations applicable law and regulations (including the EU Market Abuse and make decisions. The more we utilise the differences between Regulation), the Company maintains insider lists and exercises controls us and the more we can cooperate and learn from each other, the around the dissemination and disclosure of potentially price-sensitive stronger we will be as a company that serves a highly diverse society information. Transactions in the Company’s shares carried out by the and stakeholders. The Supervisory Board and the Board of Directors Board of Directors and the Supervisory Board members (including their are fully aware that both boards currently lack gender diversity; we closely associated persons) are as and when required notiﬁed to the do not have an even distribution of seats between men and women Dutch Authority for the Financial Markets (AFM), in accordance with and we do not have a diversity policy. We will take greater board-level the applicable provisions of the EU Market Abuse Regulation. gender diversity into account for future appointments, as required by law, without compromising our commitment to hiring the best qualiﬁed Substantial shareholdings individuals for positions. In any future vacancies that arise, however, gender diversity will subsist to be one of the criteria in the selection process, and the Company shall continue to strive towards achieving a Shareholders owning 3 percent or more of the issued share capital of diverse composition of its boards within the coming years. a listed company (a substantial shareholding or short position) must report this to the AFM as soon as this threshold is reached or exceeded. In the Netherlands, an important milestone was reached on 1 January Subsequently, notiﬁcations to the AFM must be made as soon as a 2022. With effect from this date, new legislation became effective substantial shareholding or short position reaches, exceeds or falls to achieve a more balanced ratio of seats between men and women below set thresholds. The thresholds are 3 percent, 5 percent, 10 on the supervisory boards of publicly traded companies and large percent, 15 percent, 20 percent, 25 percent, 30 percent, 40 percent, 50 companies. While the obligations arising from the legislation applies percent, 60 percent, 75 percent and 95 percent of the company’s issued to large companies only (and the Company did not fall under the share capital. Shareholder’s disclosures can be inspected in the register respective criteria in the past ﬁnancial year) and the Supervisory Board kept by the AFM, and for the ad pepper Group the shareholdings as at had only one female member in the ﬁnancial year under review, we 31 December 2022 are also disclosed on page 34 of this Annual Report. take good note of the recent changes to the Code and aim for a higher share of female members in the Companys key roles. For instance, the Publication requirements under German law Companys so-called Executive team, which consists of employees in key positions across all segments, already today consists of 40 percent female members and we aim to hold this threshold and strive to In accordance with Section 26 (1) of the German Securities Trading Act increase it (e.g. to 50 percent) in the long-term. (“Wertpapierhandelsgesetz”), the Company, in its capacity as a so- called domestic issuer (“Inlandsemittent”) under the German Securities Trading Act, must publish any shareholding notiﬁcations under Dutch Conficts of interest law immediately, but no later than three trading days after receiving them, via qualiﬁed media outlets. The Company must also transmit the Under the criteria set out in the Dutch Corporate Governance Code, notice to the German Federal Financial Supervisory Authority (BaFin) three of the four current members of the Company’s Supervisory Board and to the German Company Register (“Unternehmensregister”). count as independent. Michael Oschmann, Supervisory Board Chairman of the Group, is not counted as independent in this respect as he is Managing Director of EMA Electronic Media Advertising International B.V., which holds more than 10 percent of the Company’s share capital. During 2022 no conﬂicts of interest were reported. 29 04.1 GOVERNANCE Internal audit function The Company has implemented a risk management and internal controls designed to provide reasonable assurance that strategic objectives The Supervisory Board annually reviews the need to establish an are met by creating focus, integrating management control over the internal audit function and following these discussions makes a Company’s operations, ensuring compliance with applicable laws and recommendation to the Board of Directors. Considering the current regulations and by safeguarding its assets and the reliability of its size of the operations of the Company and taking into account its risk ﬁnancial reporting and its disclosures. The Company’s risk management proﬁle, the Supervisory Board advised to the Board of Directors that approach is embedded in its periodic business planning and review cycle it does not yet deem it necessary to create an internal audit function. and forms an integral part of business management. With respect to ﬁnancial reporting a structured self-assessment and Auditor monitoring process is used Company-wide to assess, document, review and monitor compliance with internal control over ﬁnancial reporting. The independent auditor is appointed by the General Meeting. The Supervisory Board can nominate a candidate for this appointment, for It should be noted that the above does not imply that these systems and which purpose the Board of Directors advises the Supervisory Board. procedures provide certainty as to the realisation of operational and The compensation of the independent auditor and any commissioning ﬁnancial business objectives, nor can they prevent all misstatements, of the external auditor must be approved by the Supervisory Board inaccuracies, errors, fraud and non-compliance with rules and regulations. following consultation with the Board of Directors. The independent auditor is required to attend the General Meeting and the Supervisory Remuneration Policy Board meeting at which the independent auditor’s report on its audit of (see also chapter Remuneration Report) the ﬁnancial statements is discussed. General Statement by the Board of Directors (Dutch Corporate Governance Code) The remuneration and the contracts between the Company and the members of its Board of Directors are determined by the Supervisory For the purpose of complying with best practice provision 1.4.3 of the Board within the scope of the remuneration policy that has been Code the Board of Directors believes that, to the best of its knowledge: adopted by the General Meeting. • the Company’s internal risk management and control organisation The objective of the remuneration policy is to attract, retain and provides reasonable assurance that its ﬁnancial reporting does not motivate the members of the Board of Directors as top-tier managers contain any errors of material importance; of an international Company in a fast-moving commercial environment, • the internal risk management and control processes in relation to while protecting and promoting the objectives of the Company and ﬁnancial reporting functioned properly in 2022; shareholders’ value. • the report provides sufﬁcient insights into failings, if any (no failings in 2022), in the effectiveness of the internal risk management and The remuneration for the members of the Board of Directors may control systems; consist of the following items: • the aforementioned systems provide reasonable assurance that the ﬁnancial reporting does not contain any material inaccuracies; • Periodically paid remuneration (ﬁxed base salary) • based on the strong balance sheet it is justiﬁed that the ﬁnancial • Short-term performance-related variable remuneration (bonus) reporting is prepared on a going concern basis; and • Medium- and long-term performance-related • the report states those material risks and uncertainties that are variable remuneration (stock options) relevant to the expectation of the Company’s continuity for the • Other beneﬁts period of twelve months after the preparation of the report. The Board of Directors is responsible for the establishment and adequate functioning of a system of governance, risk management and internal controls in the Company. It reports on and is accountable for internal risk management and control systems to the Supervisory Board and its Audit Committee. 30 04.1 GOVERNANCE Periodically paid fxed remuneration (base salary) Other benefts The base salary of the members of the Board of Directors is determined The Company shall indemnify each (former) member of the Board of on an annual basis by the Supervisory Board. The ﬁxed remuneration Directors who was or is involved, or threatens to become involved, in is determined by the Supervisory Board, usually within the ﬁrst three his/her capacity as (former) member of the Board of Directors, as a months of each calendar year and with retrospective effect as of 1 party to any past, present or anticipated future actions or proceedings January of that year. The ﬁxed remuneration is typically increased in line of any nature whatsoever, against all conceivable ﬁnancial loss or harm with the inﬂation rate, but the Supervisory Board may decide otherwise. that he/she has in fact and in all reasonableness suffered in connection with the actions or proceedings. Short-term performance-related variable remuneration (bonus) Other beneﬁts may include but are not limited to life insurance, disability insurance, long-term health care insurance, Company vehicle Due to the business environment of the Company, it is difﬁcult to link the and cell phone usage. variable remuneration to previously determined and inﬂuenceable long- term targets. The short-term variable remuneration for members of the In general, the Company, its subsidiaries and the companies whose Board of Directors should in principle consist of an annual performance- ﬁnancial details are consolidated by the Company shall not grant related bonus. The bonus is determined by the Supervisory Board on the loans, advances or guarantees to members of the Board of Directors, basis of measurable and controllable targets such as the Company’s but the Supervisory Board may resolve that the Company shall do so income before taxation (i.e. EBITDA to be more precise) or other ﬁnancial if the Supervisory Board deems that the granting of loans, advances or or operational targets, as determined by the Supervisory Board. guarantees is in the interest of the Company. During 2022, the Company was in compliance with the remuneration Medium- and long-term performance-related policy. variable remuneration (stock options) The Company aims for a business policy which takes into account the interests of the shareholders and its other stakeholders. The Company COMPLY OR EXPLAIN wishes to promote commitment of the members of the Board of Directors to build the shareholders’ value on a long-term basis. The Company may therefore introduce one or more stock option plans for the members of the Board of Directors, which may or may not be Introduction linked to the performance of the Company. The exercise price of the stock options, the number of stock options and the other terms and The Corporate Governance structure and compliance with the Code is conditions shall be laid down in the stock option plans. the joint responsibility of the Board of Directors and the Supervisory Board. They are accountable for this responsibility to the General Meeting. We continue to seek ways to improve our Corporate Remuneration payable in instalments Governance by measuring it against international best practice. The Code was last amended on 8 December 2016. The new Code took The members of the Board of Directors have entered into part-time effect on 1 January 2017 and can be found at www.mccg.nl. employment contracts with the Company. Upon dismissal of a member of the Board of Directors, the Company is in principle obliged to pay Non-application of speciﬁc best practice provisions is not per se his/her ﬁxed and variable salary and other beneﬁts for the remaining considered objectionable by the Code and may well be justiﬁed because term of the contract, but the Supervisory Board is authorised to deviate of particular circumstances relevant to a company. In accordance with from this principle. Dutch law, we disclose in our Report of the Board of Directors the application of the Code’s best practice provisions. To the extent that we do not apply certain best practice provisions, we state the reasons. We take a positive view of the Code and apply most of the best practice provisions. 31 04.1 GOVERNANCE The following provides an overview of exceptions that we have identiﬁed: Principle 2.3 Organisation of the Supervisory Board and reports Principle 1.3 Internal audit function If the Supervisory Board considers it necessary, it can, according to the Company’s Articles of Association, install committees from among Given the size of the Company and its risk proﬁle, the Company does not its members, such as an audit committee, remuneration committee, have an internal audit function of its own. Nevertheless, the Board of and a selection and appointment committee and shall draw up a set Directors and the Supervisory Board may implement internal audits on a of regulations for each committee. The Supervisory Board consists case-by-case decision using internal and external resources. This has not of four members. The Company decided to not form a remuneration occurred during 2022. The Company thus does not fully comply with best committee and a selection and appointment committee, and it is instead practice provisions 1.3.1, 1.3.2, 1.3.3, 1.3.4, 1.3.5 and 1.3.6 of the Code. the collegiate responsibility of the Supervisory Board to prepare the decision-making of the Supervisory Board and perform the tasks of these committees as set out in the Code, unless stated otherwise herein. Principle 2.1 Composition and size The Company does therefore not fully comply with best practice provisions 2.3.2, 2.3.3, 2.3.4 and 2.3.5. The Supervisory Board, due to Provision 2.1.1. states that the Supervisory Board should strive for a diverse its size, did not nominate a vice-chairman and does therefore not fully composition with respect to nationality, age, gender, and educational comply with best practice provisions 2.3.6 and 2.3.7. and work background and should deﬁne speciﬁc targets to achieve this. The Supervisory Board believes that both the Board of Directors and the Supervisory Board are and will be composed in such a manner that the Principle 2.4 Decision-making and functioning combination of experience, expertise and independence of its members satisﬁes the requirements set out in its proﬁle. We believe that the Due to its size, the Supervisory Board did not nominate a vice-chairman composition of our boards allows them to properly and effectively carry and does therefore not fully comply with best practice provision 2.4.3. out their duties. Our focus for new board members is on experience and education instead of explicit gender, age or nationality diversity targets. We therefore do not comply with best practice provision 2.1.5 of the Code. Principle 2.6 Misconduct and irregularities Finally, Michael Oschmann, Chairman of the Supervisory Board of the Group, cannot be regarded as independent as he is Managing Director of The Company has no plans to establish “whistleblower” guidelines EMA Electronic Media Advertising International B.V. This company holds governing the reporting of misconduct by Company employees. Given more than 10 percent of the Company’s share capital. the Company’s small size, there are short lines of communication and the Board of Directors is highly involved in the day-to-day business and employees already have the possibility of reporting suspected Principle 2.2 Appointment, succession and evaluation irregularities at the Company on a general, operational and informal level without jeopardising their legal position. The Company Members of the Supervisory Board are appointed for a term of four therefore does not fully comply with best practice provision 2.6.1. years and can be reappointed. The Company has adopted a policy of However, a Code of Conduct, setting out business principles for our remaining open to the possibility that a Supervisory Board member will employees and rules of conduct, was adopted in 2007 which allows be reappointed after the maximum term contained in provision 2.2.2 for the possibility of anonymously reporting concerns about actual or due to his or her great knowledge of the Company and high level of suspected non-compliance with the Company’s standards stipulated involvement. In addition, the Supervisory Board will retire by rotation in its Code of Conduct. and may be reappointed in order to ensure that the lowest possible number of Supervisory Board members retire from the Board at the same time. The latter is not posted on the Company’s website. The Company therefore does not comply with best practice provisions 2.2.2 and 2.2.4. The Company does not have a selection and appointment committee and does not comply with provision 2.2.5. As the Supervisory Board currently has just four members, the number of committees must be reduced to the minimum required. 32 04.1 GOVERNANCE Principle 3.1 Remuneration policy – Board of Directors Principle 3.4. Accountability for implementation of remuneration policy In deviation of best practice provision 3.1.2 of the Code, options granted to members of the Board of Directors under stock option plan The existing contract with the Board of Directors does not contain any do not contain performance conditions and can be partly exercised after extraordinary elements; the remuneration essentially consists of ﬁxed a period of one year. Although deviating from the Code, the Company and variable remuneration. In the event of more complex contracts believes that the structure of the stock option plans serves its purpose being concluded in the future, the Company will consider publishing a to retain members of the Board of Directors and to align the interests of disclosure on its website. shareholders, management, Board of Directors and other stakeholders. In addition, the Supervisory Board did not conduct scenario analyses Principle 4.2 Provision of information whereby the impact of different performance assumptions and corporate actions on variable remuneration of the Board of Directors was examined. The Supervisory Board concluded this is not necessary While the Company focusses on the corporate calendar that covers due to the simple structure of variable compensation. all publication dates and planned conferences and will update investor presentations posted on the Company’s website whenever new information is available so that no single investor can gain an Principle 3.2.1 Remuneration committee’s proposal information advantage, due to the size of the Company and owing to the large number of meetings not every single meeting with or A remuneration policy has been implemented and approved by the presentation to analysts, investors and institutional investors can be General Meeting. However, given the size of the Company and the made available to follow in real time. The Company also does not post Supervisory Board, a remuneration committee has not been and is not a policy on bilateral contacts with the shareholders on its website. This intended to be established. is in deviation from best practice provisions 4.2.2 and 4.2.3. Principle 3.2.3 Severance payments DECREE ARTICLE 10 TAKEOVER The compensation paid in the event of dismissal of Mr Körner may exceed one year’s salary, however, severance pay will not be awarded if DIRECTIVE (BESLUIT ARTIKEL 10 the agreement is terminated early at the initiative of the Board member, OVERNAMERICHTLIJN) or in the event of seriously culpable or negligent behaviour on the part of the member of the Board of Directors. In the event of his contract being terminated without cause as deﬁned by the applicable law, the Company would remain obliged to compensate such member for the Introduction remaining term of his employment agreement. The Company believes that the contractual arrangement is well justiﬁed due to the long tenure In accordance with Article 10 of the Takeover Directive (Dertiende of this board member. The Company does therefore not comply with Richtlijn), companies with securities that are admitted to trading on best practice provision 3.2.3. See also page 35 “Payments to employees a regulated market are obliged to disclose certain information in their on termination of employment in connection with a public takeover bid”. board reports. This obligation has been implemented in Dutch law through Decree Article 10 Takeover Directive. The Group must disclose certain information that might be relevant for companies considering Principle 3.3 Remuneration Supervisory Board making a public offer with respect to the Group. The information that the Group is required to disclose, including a corresponding explanatory Supervisory Board members have been granted stock options. The section, is presented below. Company does not comply with best practice provision 3.3.2 of the Code and deems this appropriate given the size of the Group and long-term involvement of the members of the Supervisory Board. Furthermore, the grant of 10,000 SOP for two Supervisory Board members is regarded to be more symbolic rather than part of a regular remuneration. 33 04.1 GOVERNANCE Capital structure Appointment and dismissal of members of the Board of Directors The Company has only one class of shares (ordinary shares) which carry equal rights. As at 31 December 2022, the issued share capital amounts The members of the Board of Directors are appointed on the basis to EUR 1,075,000 and is divided into 21,500,000 common bearer shares of a binding nomination by the Supervisory Board. Where no binding with a nominal value of EUR 0.05 each. nominations have been made, the General Meeting is free to select. The General Meeting may at any time resolve that the list of candidates is not binding by adopting a resolution passed with an absolute Obligation of shareholders to majority of the votes cast, representing more than one-third of the disclose share ownership issued capital. If at least an absolute majority of the valid votes cast supports the resolution to render the nomination non-binding, but the The AFM has to be notiﬁed of major shareholdings in respect of the required quorum of one-third of the issued capital is not represented, Company in accordance with the Financial Market Supervision Act then this resolution may nevertheless be adopted at a second meeting (Wet op het ﬁnancieel toezicht) and the Ordinance to Disclose Major to be convened. At such meeting, the resolution may then be adopted Shareholdings and Capital Investments in Institutions Issuing Securities with at least an absolute majority of the valid votes cast, but without (Besluit melding zeggenschap en kapitaalbelang in uitgevende any quorum requirement. instellingen). The General Meeting may at any time suspend or dismiss any member Due to the listing of the shares on the German Frankfurt Stock of the Board of Directors. The Supervisory Board is entitled to suspend Exchange, the Company must also in its capacity as a so-called any member of the Board of Directors and is obliged to notify the domestic issuer (“Inlandsemittent”) under the German Securities member of the Board of Directors in writing and without delay of Trading Act publish any shareholding notiﬁcations under Dutch law this suspension, stating the reasons for such move. Furthermore, the immediately, but no later than three trading days after receiving them, Supervisory Board is then obliged to convene a General Meeting to via qualiﬁed media outlets in accordance with Section 26 (1) of the pass a resolution either on lifting the suspension of the member of the German Securities Trading Act (“Wertpapierhandelsgesetz”). The Board of Directors or on the member’s dismissal. Company must also transmit the notice to the German Federal Financial Supervisory Authority (BaFin) and to the German Company Register Shareholders’ agreement on limitations (“Unternehmensregister”). on exercise of voting rights Michael Oschmann, Supervisory Board Chairman of the Group, holds more than 10 percent of the Company’s share capital via EMA Electronic Each share issued by the Company entitles its bearer to one vote. There Media Advertising International B.V. and Euro Serve Media GmbH. are no special statutory rights attached to the shares of the Company and no restrictions on the voting rights of the Company’s shares exist. Share ownership as at 31 December 2022: There is also no employee participation in capital that does not allow employees to directly exercise their controlling rights. As far as is known to the Group, there is no agreement involving a shareholder of Shares Shares the Group that could lead to any restriction on the transferability of shares or of voting rights on shares. Number Percentage EMA Electronic Media Advertising International B.V. 9,486,402 44.12 Treasury stock 1,242,128 5.78 Euro Serve Media GmbH 556,163 2.59 Subtotal 11,284,693 52.49 Free ﬂoat 10,215,307 47.51 Total 21,500,000 100 As reported to the Company. 34 04.1 GOVERNANCE Appointment and suspension of Payments to employees on termination Supervisory Board members of employment in connection with a public takeover bid The General Meeting appoints Supervisory Board members and is entitled at any time to suspend or dismiss any Supervisory Board In the event of a change of control, there is the option of extraordinary member. The appointment, dismissal, or suspension of a Supervisory termination for Mr Körner 12 months after the change of control takes Board member is decided by the General Meeting by way of an absolute effect. In the event of extraordinary termination of his contract, Mr majority of votes cast. The Supervisory Board consists of no fewer than Körner is entitled to receive payment of compensation amounting to his respective annual target income through to the end of the contractually three members, including a Chairman, who will retire by rotation as deﬁned in writing by the Supervisory Board and may be reappointed agreed term, amounting to a minimum of 150 percent of his current in line with the respective legal requirements. In principle, the lowest annual target income. A change of control in this respect arises when possible number of Supervisory Board members should retire from the a shareholder gains control over the Company as deﬁned by Paragraph Board at the same time. 29 of the German Securities Acquisition and Takeover Act (WpÜG), i.e. acquisition of at least 30 percent of the voting rights in the Company. Amendments to Articles of Association In 2000, the ad pepper Group introduced a long-term incentive model in the form of stock option plans for employees in key positions, including The Articles of Association may only be amended by a resolution of the members of the Board of Directors. General Meeting in response to a proposal submitted by the Board of Directors with the approval of the Supervisory Board. Where the Board of Directors has not submitted any such proposal, any resolution to amend the Articles of Association may only be adopted with a majority of at least two-thirds of the votes validly cast in a meeting in which at least three quarters of the issued share capital is represented. Buyback of treasury stock by the Company On 18 May 2021, the General Meeting authorised the Board of Directors for a period of 18 months to buy back stock shares up to a maximum amount of 50 percent of the share capital outstanding at that time. The purchase price per share must amount to no less than 80 percent and no more than 120 percent of the opening share price on the date of the respective buyback. The Board of Directors has passed a resolution on 2 August 2021 to make partly use of the authorisation of the Annual General Shareholders’ Meeting by repurchasing up to a maximum of 500,000 of its own shares for a total maximum amount of up to EUR 3,000,000. The share buyback took place between 1 September 2021 and 21 February 2022. The total number of shares purchased under the share buyback program amounts to 500,000 shares (thereof 233,325 shares in 2022) at an average price of EUR 5.3638. The authorisation to buy back shares was renewed on the General Meeting which took place on 17 May 2022. As of the date of this report, the Board of Directors did not make use of this authorisation. 35 04.1 GOVERNANCE 36 « THE AD PEPPER SHARE 04.2 THE AD PEPPER SHARE THE AD PEPPER SHARE Capital structure The Company’s shares are traded on the Prime Standard of the Frankfurt Stock Exchange under the symbol “APM” and the ISIN code NL0000238145. The issued capital of ad pepper media International N.V. as at 31 December 2022 amounts to EUR 1,075,000 and is divided into 21,500,000 common bearer shares with a nominal value of EUR 0.05 each. As of 31 December 2022, the Company held 1,242,128 own shares (2021: 1,008,803). The authorised share capital of the Company amounts to EUR 4,000,000, divided into 80,000,000 shares, with a par value of EUR 0.05 each. The Board of Directors is authorised, upon approval by the Supervisory Board, to issue shares until 16 May 2027, or to grant rights to subscribe for shares until the issued share capital amounts to EUR 2,000,000. No changes in share capital occurred during the year under review. Share price performance in past 12 months (Xetra) 6.5 5.94 6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 January February March April May June Ju 39 04.2 THE AD PEPPER SHARE General Meeting 2022 2021 Key share fgures The resolutions proposed in the agenda were adopted at the General Outstanding shares 20,257,872 20,491,197 Meeting of ad pepper media International N.V. held in Amsterdam on 17 May 2022. In all, 10,044,579 voting rights, or 46.72 percent of the Market capitalisation (in EUR) 40.85m 127.7m issued share capital and 49.58 percent of all shares with voting rights Year end (in EUR) 1.90 5.94 were represented at the General Meeting. Year high (in EUR) 5.94 6.82 Alongside the presentation of the annual ﬁnancial statements for the Year low (in EUR) 1.53 4.65 2021 ﬁnancial year, key agenda items also included the discharge of the members of management and the Supervisory Board, the adoption Total number of issued shares less own shares. of the amendments to the Company’s Articles of Association as well as the authorisation to buy back treasury stock. The ad pepper share started the year with a share price of EUR 5.90 and reached an annual high of EUR 5.94 on 04.01.2022. The closing price at year end was EUR 1.90 and thus already above the annual low of EUR 1.53. 6.5 6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.53 1.0 uly August September October November December January 40 « BUSINESS ACTIVITY 04.3 BUSINESS ACTIVITY DISCLAIMER REGARDING The ad pepper Group focuses on long-term value creation through organic growth in its existing businesses, while also evaluating FORWARD-LOOKING inorganic growth opportunities through value-accretive acquisitions. STATEMENTS The Group is divided into three reporting segments, which work in close cooperation with the holding company and operate independently in the marketplace: ad pepper (performance marketing company), ad agents (digital marketing agency) and Webgains This report of the Board of Directors includes forward-looking (afﬁliate marketing network). The holding company assumes statements that are based on management estimations, which are responsibility for the transfer of know-how between the segments, valid at the time when this management report was prepared. Such the strategic focus, as well as ﬁnancing and liquidity as part of the statements relate to future periods, or are characterised by terms overall governance and administration of the Group. The ad pepper such as “expect”, “forecast”, “predict”, “intend”, “plan”, “estimate” Group’s overall strategy is to support and strengthen each segment and “anticipate”. Forward-looking statements can entail risks and individually, as each business has its own distinctive culture, clients, uncertainties. Many such risks and uncertainties are determined product range and regional focus. All three business segments offer by factors that cannot be inﬂuenced by the ad pepper Group. As their clients performance-based solutions. This means that the a consequence, actual results may differ signiﬁcantly from those advertiser only pays if there are measurable results (completion of described below. speciﬁc actions). The most common models in performance-based marketing are: CPM (cost-per-mile), CPC (cost-per-click), CPL (cost- per-lead) and CPA (cost-per-acquisition). The ad pepper Group also offers a broad range of services, such as THE AD PEPPER GROUP consulting and the development of strategies for the use of digital technologies, the design, implementation and execution of digital marketing and communication solutions as well as consulting on ad pepper media International N.V. is the holding company of one digital media strategies and digital media technologies and tools. The of Europe’s leading international performance marketing groups. ever-increasing importance of digital processes for businesses leads Founded in 1999, the ad pepper Group is one of the pioneers in the to an increase in the corresponding budgets, and the vast amounts online marketing business. With eleven ofﬁces in Germany, Italy, of data thus generated require thorough analysis (preferably in real France, Spain, Switzerland, the United Kingdom and the Netherlands, time). To be successful in the ﬁeld of digital marketing, companies the ad pepper Group develops performance marketing solutions for therefore need to develop competencies that go beyond an effective its customers around the world. allocation of digital media spend across multiple channels and managing the respective campaigns. And they need help to achieve The ad pepper Group operates in the highly dynamic digital commerce this. It is therefore not surprising that – in some areas of our business market, which is characterised by dynamic growth in both consumer – the ad pepper Group is competing more and more with well-known and advertising expenditure. Channels such as social media, search, strategy and IT consultancies that offer consulting services in the video and mobile – to name just a few – continue to expand their digital marketing space. market share. The ad pepper Group provides services to for large corporations and major SMEs based in Europe and abroad. Our clients operate primarily in the “Trade & Consumer Goods“, “Financial Services“, “Telecommunications & Technology“ and “Transport and Tourism“ sectors. The ad pepper Group strives for long-term client relationships and has been working with some of its clients for more than a decade. 43 04.3 BUSINESS ACTIVITY Digital performance marketing Lead generation Digital marketing agency Audience targeting Germany / Switzerland Germany / Spain Affliate network UK / Germany / France / Spain / Italy / Netherlands 44 04.3 BUSINESS ACTIVITY SEGMENTS OF THE strategies for their budget. Taking local conditions into account, ad pepper is able to optimise campaigns for the target markets. Whether AD PEPPER GROUP working with an agency or a direct client, the aim is always to deliver the best possible result. What sets ad pepper apart from its competitors? Many years of experience – and iLead. This unique platform enables the agency to generate customised campaigns that are adapted to ad pepper the speciﬁc markets of their clients in next to no time. And the iLead platform was developed in-house. With the help of iLead, over 30,000 The Group’s success story began with ad pepper in 1999. As a leading campaigns have been successfully launched and managed worldwide performance marketing company, ad pepper specialises in lead and millions of qualiﬁed leads have been generated. generation and targeting speciﬁc audiences. ad pepper works with its clients to develop online marketing strategies for over 50 countries Offces: Nuremberg / Madrid worldwide and uses the latest technologies for each project. Whether at the local, national or international level, ad pepper helps its customers meet their goals by developing the most efﬁcient online marketing Iñigo Abrisqueta Susanne Pilz Chief Executive Ofﬁcer Managing Director ad pepper Spain ad pepper Germany 45 04.3 BUSINESS ACTIVITY Webgains The current strategy focuses on a service-oriented and performance- differentiated approach. By investing in talent and technology, Webgains has been part of the ad pepper Group since 2006. Today, Webgains has created the optimum blend of human and artiﬁcial the registered and approved afﬁliate network serves over 1,800 clients intelligence. High-tech advances make it easy to quickly roll out worldwide, from start-ups to global brands, in more than 170 global scalable, international campaigns. Meanwhile, customers can count on markets. When it comes to designing local and international campaigns, outstanding data security at all times and beneﬁt from near real-time Webgains not only beneﬁts from its strong publisher network, but also performance reporting. from the extensive experience of over 100 highly motivated experts with excellent market knowledge, which they continuously develop. Offces: Nuremberg / Madrid / Munich / Bristol / London / Paris / Milan / Amsterdam Thanks to partnerships with over 250,000 publishers, Webgains’ clients have access to one of the world’s leading, performance afﬁliate marketing networks, offering the widest possible reach. Furthermore, Webgains has recently launched the Afﬁliate Discovery product to create smarter connections. Richard Dennys Ami Spencer Chief Executive Ofﬁcer Chief Operating Ofﬁcer Webgains Webgains 46 04.3 BUSINESS ACTIVITY ad agents As a full-service performance marketing agency, ad agents has a sixth sense for trends, extensive experience and transparent reporting ad agents joined the ad pepper Group in 2007. Today, it is one of structures. They advise and support national and international Germany’s most successful online and performance marketing companies from virtually every industry who partner with ad agents to agencies – and for a good reason. Their strategies are as unique create exceptional and successful performance marketing campaigns. as their personalised consulting and support services, which are always optimised to suit the situation and the speciﬁc requirements Exceptional quality always pays off: ad agents is a certiﬁed Google of ad agents’ clients. ad agents maintains an overview of the entire Premier Partner, Microsoft Advertising Elite Agency as well as a digital advertising market and adapts its comprehensive service Facebook Marketing Partner and maintains strong partnerships with portfolio accordingly, thus supporting its clients with planning leading-edge technology providers. and implementing efﬁcient and effective online and performance marketing strategies. ad agents’ digital marketing experts always ﬁnd the perfect strategy to increase our clients’ brand awareness and Offces: Herrenberg / Pontresina sales – across all digital channels and on all devices. Dirk Lajosbanyai Wolfgang Schilling Managing Director Managing Director ad agents ad agents 47 04.3 BUSINESS ACTIVITY EMPLOYEES AND VALUES In our Code of Conduct, ad pepper deﬁned a set of joined, equally important values that best express our focus on service/product leadership through innovation, long-term value creation and the creation of a fair, inspiring work environment for all our employees: As per end of 2022, the ad pepper Group kept its overall headcount stable. A total of 249 employees work in the three business segments • Respect for people. We respect people, honour diversity, and treat at December 2022 which is equal to the ﬁgure at the end of December each other fairly. These are the cornerstones of our culture and key 2021. In the course of the second half of 2022, we adjusted the to our ability to work successfully as a global team. headcount to the current revenue levels per business segment. While • Integrity. We operate with the highest standards of honesty and ad agents saw a signiﬁcant increase in headcount, the number of responsibility – as individuals and as a corporation – to be a role employees at both ad pepper and Webgains was reduced over the model through our business practices, community involvement and course of the year. Many of our employees have again opted to work environmental stewardship. remotely in 2022. • Our customers’ success. We ensure our customers’ continuous success by forging deep relationships founded on our commitment to meeting their diverse technology needs and a Number of employees 31/12/22 31/12/21 shared passion for excellence. • Initiative and accountability. We deliver on our promises to our Number Number customers, stakeholders, and to each other by taking risks, seeking ad pepper 21 27 proactive solutions, and assuming ownership of the results. Webgains 104 115 The Board of Directors promotes and applies these values thoroughly ad agents 106 91 in all personnel related processes such as hiring, promotions and the Administration 18 16 review of employee performance. To the best of our knowledge, we have not identiﬁed any incidences of ad pepper Group’s employees are the key to the Company’s success. ad non-compliance to local law. pepper strives to attract, develop and retain qualiﬁed and motivated people in a professional, safe and healthy work environment. ad pepper complies with all local laws relating to working hours, vacation laws and occupational health laws, also taking into account the psychosocial work environment. Regular team activities as well as physical activity are encouraged. 48 « ECONOMIC DEVELOPMENT 04.4 ECONOMIC DEVELOPMENT Online advertising market MACROECONOMIC FRAMEWORK The record levels in the online advertising market that we saw in 2021, when people spent a lot of time at home due to the COVID-19 pandemic, have returned to normal in 2022. As a result, growth of digital advertising The global ﬁght against inﬂation, Russia’s war in Ukraine, and a spend has slowed signiﬁcantly – and the ﬁrst three quarters of 2022 were resurgence of COVID-19 in China weighed on global economic activity very much characterised by this decline. However, the fourth quarter then in 2022, and the ﬁrst two factors will – according to the International saw a signiﬁcant upward trend. Amidst a challenging market environment Monetary Fund‘s (IMF) World Economic Outlook dated January 2023 due to Russia’s continued war in Ukraine, associated energy uncertainty (see also IMF‘s website for more details) – continue to do so in 2023. and price increases, advertisers took advantage of the Black Friday and Despite these headwinds, real GDP was surprisingly strong in the third Christmas season to run extensive digital advertising campaigns. quarter of 2022 in numerous economies, including the United States, the euro area, and major emerging market and developing economies. According to the latest data, digital ad spending in the US is expected to The sources of these surprises were in many cases domestic: stronger- reach USD 239.89 billion in 2022. This represents a 13.6 percent increase than-expected private consumption and investment amid tight labour over 2021 (US digital ad spending in 2021: USD 211.20 billion). And over markets and greater-than-anticipated ﬁscal support. Households the next few years, US ad spending on digital channels is forecast to spent more to satisfy pent-up demand, particularly on services, partly continue its upward trajectory. Despite concerns about the economy and by drawing down their stock of savings as economies reopened. thousands of layoffs at media and technology companies, ad spending Business investment rose to meet demand. On the supply side, easing in 2023 is expected to increase both in the US and globally, albeit not at bottlenecks and declining transportation costs reduced pressures the same rate as in recent years following the 2021 and 2022 pandemic. on input prices and allowed for a rebound in previously constrained sectors, such as the car industry. Energy markets have adjusted faster Globally, digital ad spend grew 8.6 percent overall in 2022, according than expected to the shock from Russia’s invasion of Ukraine. However, to a recent report by Insider Intelligence. In 2023, growth is expected to this uptick is estimated to have faded in most – though not all – major amount to 10.5 percent year-on-year. This slower new normal compared economies in the fourth quarter of 2022. to the pandemic year of 2021 will still see annual growth in the high single to double digits in the coming years. Total media ad spending is growing steadily, and the share that digital advertising has of this is 2023 outlook for the ad pepper Group’s expected to increase to above 70 percent from 2025 (see below graph). core markets: euro area and UK Source: Oberlo, eMarketer Growth in the euro area is projected by the IMF to bottom out at 0.7 percent in 2023 before rising to 1.6 percent in 2024. The 0.2 percentage Digital Ad spending Worldwide, 2021 - 2026 point upward revision to the previous IMF-forecast for 2023 reﬂects (billions, % change, and % of total media ad spending) the effects of faster rate hikes by the European Central Bank and eroding real incomes, offset by the carryover from the 2022 outturn, lower wholesale energy prices, and additional announcements of $835.82 ﬁscal purchasing power support in the form of energy price controls $765.98 $695.96 and cash transfers. $626.86 $567.49 $522.50 72.5% 71.1% Growth in the United Kingdom is projected to contract by -0.6 percent 69.2% 67.4% 65.2% 63.1% in 2023, a 0.9 percentage point downward revision from October, 29.5% reﬂecting tighter ﬁscal and monetary policies and ﬁnancial conditions and still-high energy retail prices weighing on household budgets. 11.0% 10.5% 10.1% 8.6% 9.1% 2021 2022 2023 2024 2025 2026 Digital ad spending % change % of total media ad spending Note: includes advertising that appears on desktop and laptop computers as well as mobile phones, tablets, and other internet-connected devices, and includes all the various formats of advertising on those platforms; excludes SMS, MMS and P2P messaging-based advertising. Source: eMarketer, Oct 2022 51 04.4 ECONOMIC DEVELOPMENT PRESENTATION OF Webgains on the other hand saw stagnant operating expenses while ad pepper and admin segment experienced lower operating cost EARNINGS POSITION compared to 2021, largely in-line with the development in headcount. Development in gross sales, revenue and gross proft EBIT, EBITDA and EBT The ad pepper Group achieved gross sales of EUR 98,229k in the The Group’s earnings before interest and taxes (EBIT) amounted to EUR 2022 ﬁnancial year (2021: EUR 111,593k), equivalent to year-on-year 187k in the past ﬁnancial year (2021: EUR 3,194k). Earnings before decline of -12.0 percent. Revenue amounted to EUR 24,868k in 2022 taxes (EBT) amounted to EUR 56k (2021: EUR 3,156k). Earnings before (2021: EUR 27,646k). Gross proﬁt – alongside revenue our second most interest, taxes, depreciation and amortisation (EBITDA) at the Group important key ﬁgure – showed a group-wide decline of -10.8 percent came to EUR 1,275k in the past ﬁnancial year (2021: EUR 4,378k). and amounted to EUR 23,704k in 2022 (2021: EUR 26,587k). Looking at the individual segment, ad agent’s EBITDA fell by around While ad agents could achieve positive growth rates, the decline in 21.1 percent to EUR 1,358k (2021: EUR 1,722k), largely due to the top-line is due to the Webgains and ad pepper segment: Webgains saw continued hiring during the past business year as mentioned above. revenue decline of -14.9 percent to EUR 13,227k (2021: EUR 15,542k) EBITDA margin of the ad agents segment amounted to 15.6 percent while this segments’ gross proﬁt came to EUR 12,496k in the past (2021: 21.1 percent). ﬁnancial year (2021: EUR 14,987k), equivalent to a decline of -16,6 percent. Main reason for the decline was the high level of revenue in Moving on to the next segment, Webgains achieved an EBITDA of EUR the previous year in connection with lock-down measures during the 871k and thus signiﬁcantly lower than the previous year (2021: EUR COVID-19 pandemic, as outlined earlier. 3,474k). Webgains therefore fell short of the results achieved in the previous year, which was still affected by lock-downs and COVID-19 The ad pepper segment reported a decline in revenue to EUR 2,924k restrictions. EBITDA margin of the Webgains segment for 2022 was 6.6 (2021: EUR 3,937k). Gross proﬁt was lower too compared to last year percent (in relation to revenue) (2021: 22.3 percent). with EUR 2,592k (2021: EUR 3,524k). The reduced booking volume of a major client during 2022 is the main reason for this development. In The third operating segment, ad pepper, achieved an EBITDA of EUR addition, supply-chain issues in the automotive sector dampened the -108k (2021: EUR 604k). The EBITDA achieved in 2022 is a reﬂection need for digital advertising services from this industry particularly in of a business year which saw budget cuts of companies active in the business year under review (and beyond). particular in the automotive industry, as described above. In addition, the reduced EBITDA-level is a reﬂection of the reduced booking volume ad agents, as stated above, once again positioned itself as a full-service of a major client, as outlined above. digital agency with increased business activity in all areas. Revenue increased by EUR 550k or 6.7 percent to EUR 8,717k (2021: EUR 8,167k). In terms of gross proﬁt EUR 8,375k for the 2022 ﬁnancial year is posted in the ad agents segment. This corresponds to an increase of 7.9 percent compared with the previous year (2021: EUR 7,762k) and thus once again outpaced the growth of the other segments. Development in operating expenses Operating expenses at the ad pepper Group increased by 0.5 percent to EUR 23,517k (2021: EUR 23,393k). Operating cost at ad pepper Group largely consist of employment cost typically amounting to around 75 percent of total cost. As a consequence, while operating cost could be kept more or less stable for the entire Group, on segment level it was ad agents which actually saw an increase in operating expenses due to continued hiring throughout the year. 52 04.4 ECONOMIC DEVELOPMENT Balance sheet structure PRESENTATION OF FINANCIAL AND NET ASSET POSITION Total assets decreased by EUR 2,398k to EUR 43,954k (31 December 2021: EUR 46,352k). Current assets increased by EUR 1,016k to EUR 41,769k (31 December 2021: EUR 40,753k) and non-current assets Cash fow decreased by EUR 3,414k to EUR 2,185k (31 December 2021: EUR 5,599k). Right-of-use assets for capitalised leasing contracts for ofﬁces The gross cash ﬂow amounted to EUR 545k (2021: EUR 2,581k) while and vehicles amount to EUR 1,318k (31 December 2021: EUR 1,177k). a ﬁgure of EUR 1,931k (2021: EUR 2,208k) was reported for cash ﬂow Cash and cash equivalents amount to EUR 17,008k (31 December 2021: from operations. The lower gross inﬂow of funds is particularly due to EUR 20,704k), investments in listed equity instruments amount to the decrease in net income for the period. Because of stable changes EUR 0k (31 December 2021: EUR 2,050k) and in listed debt securities in trade receivables and trade payables the operational cash ﬂow amount to EUR 991k (31 December 2021: EUR 1,007k). Trade receivables was on equal level. The net cash ﬂow from investing activities came decreased by EUR 1,751k to EUR 17,568k (31 December 2021: EUR to EUR -3,281k in the past ﬁnancial year (2021: EUR -2,241k), mainly 19,319k). Deposits with maturity over three months amount to EUR for investments made in listed marketable and debt securities as well 5,085k (31 December 2021: EUR 0k) as investments in short term deposits. The cash ﬂow from ﬁnancing activities amounted to EUR -2,356k in 2022, as against EUR -3,829k in On the equity and liabilities side, the Company’s equity showed a the 2021 ﬁnancial year. It included outgoing cash of EUR -539k (2021: decrease of EUR 1,090k to EUR 15,666k (31 December 2021: EUR EUR -583k) occurred for dividends paid to non-controlling interests, 16,756k) which corresponds to an equity ratio of 35.6 percent (2021: cash outﬂow for share buyback of EUR -1,232k (2021: EUR -2,576k) as 36.2 percent). Trade payables increased by EUR 589k to EUR 20,836k well as lease payments of EUR -585k (2021: EUR -757k). (31 December 2021: EUR 20,247k). Long-term liabilities amount to EUR 840k (31 December 2021: EUR 946k) and consists of lease liabilities for capitalised right-of-use asset. Current liabilities amount to EUR 27,449k (31 December 2021: EUR 28,650k). Of these, EUR 2,495k (2021: EUR 3,332k) relate to the written put option over the non-controlling interest in ad pepper media Spain S.A. and Webgains S.A. Further EUR 523k (31 December 2021: EUR 505k) relate to the lease liability for capitalised right-of-use assets. Liability for cash settled stock option plan amounts to EUR 0k (31 December 2021: EUR 155k). The ad pepper Group was internally ﬁnanced as of the balance sheet date. Its liquid funds (including current securities and deposits) totalled EUR 23,084k at the end of December 2022 (31 December 2021: EUR 23,761k). The Company still has no external debt. Restated values acc. to IAS 8. For further information please refer to Note [2] of the Disclosure Notes. 53 04.4 ECONOMIC DEVELOPMENT 54 « RISK REPORT 04.5 RISK REPORT FOREWORD All identiﬁed risks are evaluated based on their likelihood of occurring and their potential impact (estimated in monetary terms) in disrupting our progress toward achieving our business objectives. The overall risk management goal is to identify risks that could signiﬁcantly The German Corporate Sector Supervision and Transparency Act and threaten our success and to allow management sufﬁcient opportunity the Dutch Corporate Governance Code lay down key requirements and to successfully implement mitigation actions. The results of the risk obligations regarding risk management and control systems. In line assessment and any updates are reported to the Supervisory Board with these requirements applicable in Germany and the Netherlands, on a regular basis. A detailed review of all underlying business risks the ad pepper Group operates a comprehensive and adequate risk is completed every year. At least once a year, the Supervisory Board management system. The regulations require the Board of Directors discusses the corporate strategy and business risks as well as the to ensure that the Company complies with all applicable laws and results of an assessment by the Board of Directors of the structure requirements, and to report to the Supervisory Board regularly on the and operations of the internal risk management and control systems, internal risk management and control systems. The risk management including any signiﬁcant changes. system at the ad pepper Group identiﬁes signiﬁcant risks which could have adverse implications for the Company. These risks are quantiﬁed In addition to the dedicated risk management system outlined above, and evaluated in terms of their potential implications. Finally, suitable the following elements also serve to identify risks within the Group: measures are identiﬁed in order to counteract the identiﬁed risks. • Operational planning, including updated intra-year forecasts • Quarterly ﬁnancial statements Internal risk management and control system • Monthly and quarterly reporting by subsidiaries (comparing target and actual results) to the Group The ad pepper Group is managed by a Board of Directors and Supervisory Board appointed by the General Meeting. The Supervisory Board responsibility is the oversight of the risk management system. Consistent with the requirements of the Dutch Corporate Governance Code, the Company has established a procedure for reporting actual RISK CLASSIFICATION or suspected irregularities within the Company and its afﬁliated enterprises. In addition, the Board of Directors has developed and implemented strategies, controls and mitigation measures to identify current and developing risks as part of the risk management system. Risks are classiﬁed as operational, strategic, ﬁnancial risks, compliance Risk management policies and procedures are embodied in our and assessed according to their probability of occurrence and their Corporate Governance, Code of Conduct, and ﬁnancial reporting potential ﬁnancial impact. The major risks for each classiﬁcation are controls and procedures. A variety of functional experts evaluate described below: these business risks and aim to mitigate and manage these risks on an ongoing basis. Identiﬁed risks are divided into four types: OPERATIONAL RISK • Catastrophic (loss of ability to achieve business objectives, e.g. worst-case scenario) • Major (reduced ability to achieve business objectives) Infrastructure risk • Moderate (disruption to normal planning with a limited effect on achievement of business strategy and objectives) Our products and services are dependent on users having access to the • Low (no material impact on the achievement internet and in some cases also require substantial bandwidth. This of business strategy and objectives) access is at present made available by companies that have signiﬁcant and growing inﬂuence on the market for broadband and internet access, such as telephone companies, cable companies, and mobile communication providers. Some of these providers could start adopting measures to interrupt or impair user access to certain products, or they 57 04.5 RISK REPORT could increase the costs of user access to such products by limiting or Furthermore, ﬁnancial or other difﬁculties on the part of our providers forbidding the use of their infrastructure for our products and services, could have an adverse impact on our business. We have witnessed or they could charge us or our users higher fees. In addition, it cannot be interruptions and delays in these services and in these the availability excluded that the side effects of the war in Ukraine could impair a proper of IT infrastructure and expect these in future, too. Faults, interruptions functioning of the internet infrastructure in the European continent. or delays in conjunction with these technologies and information services could harm our relations with users, adversely affect our This could lead to a loss of members in our advertising network as well brand, and expose us to liability risks. as advertising customers, and ultimately to increasing costs. This could impair our ability to win new users and advertising customers and Finally, our systems are extremely dependent upon power supply. In the thereby adversely affect our revenues and our growth. The availability case of major power outage (which cannot be excluded also in the light of our products and services is dependent on the uninterrupted of the current energy crisis), we would have to resort to emergency operation of our IT and communication systems. Any damage to or power units. It may happen that such emergency power units do not failure in our systems could interrupt our services, which could reduce work correctly and that they are insufﬁcient in the case of a major our revenues and proﬁts, and damage our brand. Our systems could power outage. be damaged by ﬂood, ﬁre, power outage, telecommunication failure, computer viruses, terrorist attacks, attacks from cybercriminals, Technology risk attacks preventing computers from accessing services, and other forms of attack on our systems. Our data centres could become the target of intrusion, sabotage or wilful vandalism, or they could be affected It is conceivable that technologies will be developed that block or by faults occurring as a result of ﬁnancial difﬁculties on the part of suppress the display of our advertising on the internet. Most of our revenues are generated in such a manner that advertising customers operators of data centres. Not all our systems are fully redundant and our natural disaster recovery plans cannot account for all eventualities. pay for their advertising to appear on websites. Technologies designed Natural disasters of this kind or operators of facilities we use deciding to block or suppress internet advertising could thus have an adverse to shut down for ﬁnancial reasons without reasonable notice and/or effect on our operating results. For instance, major players in the market other unexpected problems at our data centres could lead to prolonged such as the mobile operators or the providers of application ecosystems interruptions to our services. such as Apple and Google may decide to introduce ad blockers to their systems or to the mostly used internet surﬁng browsers. These could In order to be successful, our network infrastructure must be efﬁcient seriously obstruct the delivery of advertisements to users and thus and reliable. The higher the user frequency and the complexity of harm the business of the ad pepper Group. our products and services, the more CPU performance we will need. We have invested heavily in acquiring and leasing data centres and In general, the market for internet advertising is characterised by equipment and updating our technology and the infrastructure of our rapid technological change, developing industry standards, frequent network in order to cope with growing trafﬁc and the launch of new introduction of new products and services, and changing customer products and services, and we expect to continue doing so. These behaviour. The introduction of new products and services, and the investments are costly and complex and can lead to efﬁciency losses emergence of new industry standards can render existing products or downtime. If we fail to expand successfully or if efﬁciency losses and services obsolete and impossible to sell or require unexpected or downtime occur, the quality of our products and services as well as investment in new technology. Our success will depend on our ability customer satisfaction could suffer. This could damage our reputation to adapt to rapid technological changes, to improve existing solutions, and result in a loss of existing and potential customers, advertising and to develop and launch a host of new solutions in order to meet our clients, and members of our network. Cost increases, a lower frequency customers’ and partners’ continuously changing demands. Advertising of use on the part of our partners in the advertising network, failure customers, for instance, are increasingly demanding online advertising to adapt to new technologies, or changed business requirements could networks and advertising that go beyond pure stills, integrating “rich adversely affect our revenue and ﬁnancial strength. media”, such as audio and video, interactivity and methods for more accurately targeted consumer contacts and behaviours. We also use other IT suppliers, including data centres and broadband providers. Any disturbance in network access or colocation services by these providers, or their inability to process current or larger data volumes could seriously damage our business. 58 04.5 RISK REPORT Our systems do not support all types of advertising formats. Equally, Cyber incidents, in general, may cause disruption and impact business certain website operators within our network do not accept all of operations, potentially resulting in ﬁnancial losses, impediments of the advertising formats offered by us. Moreover, a further increase trading, violations of applicable privacy and other laws, regulatory in fast and powerful internet access could generate new products ﬁnes, penalties, reputational damage, reimbursement of other and services which are only possible with increasing bandwidth. If compensation costs, or additional compliance cost. we fail to successfully adapt to such developments, there is a risk that we could lose customers and/or parts of the advertising space The Group may be subject to fraudulent and malicious activities marketed by us. We procure most of the software used at our Company undertaken by persons seeking to use its platforms to divert or externally and we plan to continue buying technologies from third- artiﬁcially inﬂate the buyer purchases through its platform, mainly party suppliers in future as well. We cannot deﬁnitively say whether through fraudulently generated advertising impressions, leads, and such technologies will continue to be available in future either at all other user behaviours overstating the actual performance. As we or on commercially reasonable terms. It is also possible that the trend do not own content, we rely in part on publishers for controls with towards marketing online advertising space via automated so-called respect to such activities. If fraudulent or other malicious activity is ad exchanges will intensify further. By establishing and optimising perpetrated by others, and the Group fails to detect or prevent it, the demand-side platforms (DSPs) and/or supply-side platforms (SSPs), affected advertisers may experience or perceive a reduced return on online networks such as the ad pepper Group may in future lose further their investment resulting in dissatisfaction with the Group’s solution, relevance or even lose the basis of their business operations. We refusal to pay, refund demands or loss of conﬁdence of advertisers or may also encounter problems which delay or prevent the successful publishers and ultimately withdrawal of future business. design, development, introduction, or marketing of new solutions. Any solutions or improvements newly developed by us will have to fulﬁl the Intellectual property rights risk requirements of our present customers and prospective clients, and there is a risk that these will not meet with the desired acceptance on the market. If we fail to keep pace with technological developments Our patents, trademarks, business secrets, copyrights, and other and the launch of new industry standards at a reasonable cost, there intellectual property rights constitute important assets for us. Various is a risk that our expenditure will increase and that we will lose events beyond our control constitute a potential risk for our intellectual customers and advertising space. property rights. The same applies to our products and services. The number of people accessing the internet using devices other than Effective protection of intellectual property may not be available in PCs, including mobile phones, PDAs and e-mail assistants, as well as TV every country where our products and services are distributed or receivers, has grown dramatically in recent years. If we do not succeed offered via the internet. Furthermore, the efforts which we have made in future in securing an appropriate number of users of alternative to protect our property rights may be insufﬁcient or ineffective. Any devices and gaining the loyalty of these users through our products and signiﬁcant impairment of our intellectual property rights can adversely services, or if we are too slow in developing products and technologies affect our business or our competitiveness. Moreover, the protection compatible with communication devices other than PCs, we will miss of our intellectual property rights is costly and time-consuming. Any out on an increasingly important share of the market for online services. increase in the unauthorised use of our intellectual property could lead to increased administrative costs and work, and adversely affect our results. Although we aim to obtain protection for our intellectual Cybercrime, hacking, identity theft and risk of fraud property, it is conceivable that we may not be able to adequately protect some of our innovations. In view of the often-considerable Increasing international networking and the related possibility of costs of patent and/or intellectual property protection, we may refrain IT system abuse are resulting in cybercrime risks for the ad pepper from protecting certain innovations and/or intellectual property which Group, such as the failure of central IT systems, the disclosure or loss could prove to be important at a later date. of the data integrity of conﬁdential data from business activities, the manipulation of IT systems in process control, or an increased burden It is also possible that the scope of patent and/or intellectual property or adverse impact on IT systems as a result of virus attacks. In addition, protection could turn out to be insufﬁcient or that a previously complications with the changeover of IT systems could negatively granted patent is deemed to be invalid or non-enforceable. As our impact the earnings situation. Company grows, there is a growing probability that lawsuits related to intellectual property issues will be ﬁled against us. 59 04.5 RISK REPORT Our products, services, and technologies may fail to fulﬁl the demands The ad pepper Group continues to closely monitor the development of third parties, and irrespective of their validity, defending such claims around COVID-19. The wellbeing of our employees and partners is can be time-consuming and costly, whether in or out of court. In the our highest priority in this situation. Since early March 2020 we event that claims against us are successfully upheld, we may have to have encouraged all employees to work from home and continued pay signiﬁcant damages, or discontinue services or practices, which encouraging those employees to work from home at least 2-3 days a may result in be violations of third-party rights. We may also need to week in 2022 which works out well given the nature of our business. obtain licenses to continue our existing business operations; this may For the current business year 2023, we do not expect major disruptions also involve considerable additional costs. caused by COVID-19 in that respect. Market risk STRATEGIC RISK Our offering for advertisers and web publishers on the internet covers products and services where pricing is largely based on cost per action (CPA), cost per lead (CPL), cost per download (CPD), cost per thousand impressions (CPM), or cost per click (CPC). Every ﬁeld of our business Personnel risk is exposed to strong competition, mainly from large media and/or performance (digital) agencies or other advertising and afﬁliate networks Our future success is to a signiﬁcant degree dependent on the continued offering similar online services and products. Beside this group of service of the (single) member of our Board of Directors and of the companies, we also compete with search engine providers, social media directors of our major segments. If we lose the service of such persons, channels and marketplaces, such as Google, Facebook and Amazon, we may not be able to recruit suitable or qualiﬁed replacements and as well as large ad exchanges, i.e. marketplaces in which advertising may incur additional expenses to recruit and train new staff, which space is auctioned in real time, similar to other market exchanges. Apart could severely disrupt our business and growth. from this, we also compete with traditional advertising channels, such as direct marketing, TV, radio, cable, and print media, which are all In general, highly qualiﬁed employees and management staff form striving to win a share of the total advertising budget for themselves. the basis of any company’s long-term economic success. Retaining key-employees at the Company on a long-term basis is a factor of Many existing and potential advertisers have competitive advantages the utmost importance for the ad pepper Group, as is attracting new, over our Company due to such factors as longer company histories, highly qualiﬁed employees. Any departure of large numbers of these higher public awareness levels, larger customer bases, better access employees over a short period and subsequent inability to ﬁnd adequate to popular websites and signiﬁcantly larger resources in terms of staff, replacements may inhibit the Company’s business performance. ﬁnance, equipment, sales and marketing. These companies use their Speciﬁcally, the Company cannot guarantee that it will be able to experience and resources in competition with us in different ways, such retain key top performers in the event of any further intensiﬁcation in as pursuing more active M&A strategies, investing more in research the competition for highly qualiﬁed employees, especially in the IT and and development, or competing more aggressively for advertising internet sectors. customers and websites. If our competitors succeed in offering similar or better services or more relevant advertising, this could lead to a A lack of qualiﬁed and motivated personnel could negatively impact our signiﬁcant loss of advertisers and web publishers and hence adversely development and growth, increase our costs and harm our reputation. affect our revenues. We face competition for qualiﬁed personnel, for example those in IT and marketing positions. In addition, to attract or retain qualiﬁed personnel, Likewise, there is a risk to the Group’s business (or parts thereof) if any we might have to offer more competitive compensation packages and or all of Google, Amazon, Facebook, Apple and other relevant players other beneﬁts, which could lead to higher personnel costs. (i) cease to be a market leader in the online advertising industry, (ii) were subject to adverse publicity or action impeding its provision of We try to mitigate this risk through personnel development programmes advertising services and infrastructure, (iii) were to cease to regard the in the respective segments as well as incentive systems. Supporting this Group as a preferred partner, (iv) were to expand their operations such is an established, thorough annual review process from which we derive that it competed directly with the Group, or (v) otherwise cease to be individually tailored and future-variable qualiﬁcation programmes as available as a technology provider to the Group. well as performance-related remuneration systems. 60 04.5 RISK REPORT Platform technology risk Moreover, Google blocked third party cookies in Chrome in 2022. As a result, third-party cookies became sometimes unusable for advertising The Group’s revenue growth depends partly on the ability to develop a measurement and many forms of third-party data already challenged by GDPR since May 2018, will cease to exist. While we expect the vast reliable, scalable, secure, high-performance technology infrastructure that majority of our services and products to be unaffected, it can therefore can efﬁciently handle increased usage globally. The platforms are scalable not be excluded, that some of our business activities will not work in principle. However, only the actual future expansion of the business beyond the coming years. Unless we adapt to these changes, these will prove whether there is enough business available and the platforms businesses will be negatively affected. scales well enough to cover the ﬁxed cost base that has been built. Inability to develop a scalable platform may have signiﬁcantly adverse The possibility of in-house handling of advertising network functions can consequences for our revenue as well as our asset and ﬁnance position. represent a possible risk for the ad pepper Group both at the level of the attractiveness of its offering vis-à-vis advertisers as well as to its negotiating power vis-à-vis the providers of online advertising inventory. FINANCIAL RISK Online advertising markets are characterised by rapid technological change, the establishment of new industry standards, regular launches of new products and services, and rapidly changing customer requirements. The introduction of new products and services based on innovative Low proftability technologies and the resultant establishment of new industry standards could mean that our existing products and services become obsolete We are exposed to risks that could prevent us from generating net and unsellable, thus forcing us to make unforeseen and unplanned proﬁts in the future. These risks depend on several factors, including investments. Insufﬁcient ﬂexibility in adapting to these changes can have our ability to: adverse effects on our revenue, ﬁnance and asset position. • maintain and expand our existing advertising space on In general, we expect our sales growth to decline over the course of websites of publishers and afﬁliates, owners of e-mail lists time as a result of base effects and increasingly tough competition. We and newsletter publishers also expect growing pressure on our operating margins as a result of • maintain and increase the number of advertising customers increasingly tough competition and a general increase in expenditure who use our products and services in other areas of our business. Furthermore, the margin could fall as a • increase the number of products and services we offer result of our Company having to pay a higher share of our advertising • adjust to changes in needs and habits of online advertising revenue to our website partners within our website portfolio and/or customers, also with a view to the technologies in demand afﬁliate network. on the market • respond to challenges resulting from the large and growing number of competitors in the industry Dependency risk • adapt to legal or regulatory changes with a view to the internet as far as these concern data privacy, use, advertising, and trade The ad pepper Group and its segments have signiﬁcant customer • achieve sales targets for partners with whom concentration, in terms of both advertisers and publishers (website we have agreed minimum guarantees owners), so economic difﬁculties or changes in the purchasing policies • generate revenue from services in which we have or patterns of its key customers could have a signiﬁcant impact on invested signiﬁcant time and resources the ad pepper Group’s business and operating results. While the • give priority to long-term goals over concentration of our business on a relatively small number of customers short-term results when necessary may provide certain beneﬁts to us, such as potentially more efﬁcient • adapt to technological changes designed to obfuscate handling/decreased cost of sales, this concentration may expose the or block online advertising on desktop PCs or mobile devices ad pepper Group to a material adverse effect if one or more of our large • adapt to changes in the competitive environment customers were to signiﬁcantly reduce their business with us for any • achieve sufﬁcient proﬁtability and reputation in the market on reason, or to favour competitors or new entrants. Customers do not the basis of our investments in new technologies and related make binding long-term commitments to the ad pepper Group regarding products/services. booking volumes and could seek to materially change the terms of their business relationship at any time. Any such change could signiﬁcantly harm the ad pepper Group’s business and operating results. 61 04.5 RISK REPORT Energy supply and infation risk Should we fail to successfully handle these risks and uncertainties, this could have signiﬁcantly adverse consequences for our revenue as well With the escalation of the Ukraine War, Europe already experiences an as our asset and ﬁnance position, see also Note [40]. interruption in the ﬂow of Russian gas supplies. It is important to note that the natural gas supply constraints will also adversely affect the Risks of our M&A strategy European electricity markets. Accordingly, a shortage of available gas will result in a loss of electricity production. Undoubtedly, some of the Historically, part of our Company’s growth has resulted from mergers loss will be replaced by bringing some coal-ﬁred generation back online and acquisitions, and we will continue to consider acquisitions in and also extending the decommissioning dates for certain nuclear future as well. Furthermore, we will continually review our portfolio plants. Nevertheless, the end result will be a tight electricity market. of shareholdings to assess whether Company acquisitions might be appropriate. Every acquisition or sale can have material consequences Our systems are hosted on servers which are powered by electricity. for our revenue and ﬁnancial position. Furthermore, the integration of We cannot exclude that rising electricity costs may erode our margins. an acquired business or technology can cause unforeseen operational Likewise, rising energy costs could further dampen consumer conﬁdence problems, expenditure, and risks. Areas in which we may face risks in and demand and therefore have a detrimental effect on e-commerce this context include: transactions and thus our revenues. In addition, power outages could result in the temporary unavailability of critical infrastructure and our • implementation or modiﬁcation of controls, ability to generate revenues via the internet which could therefore have a processes, and strategies of acquired businesses signiﬁcantly negative impact on our ﬁnancial performance and cash ﬂow. • diversion of management attention away from other business matters Inﬂation remains a major preoccupation. Even without the war in • overvaluation of businesses acquired, acceptance of the Ukraine, catch-up effects from the pandemic came and will come up acquired business‘s products and services by our customers against tight labour markets and – as can already be observed in the • cultural problems associated with the integration of the staff United States – set in motion a spiral of rising wages and prices. This of acquired businesses into our Group poses a potential risk for our ﬁnancial performance should we not be • continued employment of staff companies which we acquire able to pass on those (higher) cost to our customers. • integration of the accounting, management, and information systems as well as of the human resources administration and Currency risk other administration systems of acquired businesses. The integration of companies, products and personnel can constitute Since the ad pepper Group conducts a signiﬁcant share of its business a considerable burden to our management and our internal resources. outside the euro area, exchange rate ﬂuctuations can have a signiﬁcant impact on results. Currency risks from ﬁnancial instruments can impact Acquisitions of foreign companies, in particular, are subject to additional risks. These include risks associated with integrating companies with accounts receivable, accounts payable, as well as cash and cash different cultures and languages, exchange rate risks, and other country- equivalents in a currency other than a Company’s functional currency. speciﬁc economic, political and legal risks. In view of the number For the ad pepper Group, the currency risk from ﬁnancial instruments is of acquisitions which we have completed in past years, the different particularly relevant for GBP and, to a lesser extent, USD. No ﬁnancial customers and technological functionalities of the products and services instruments are used to hedge currency risks. acquired, future acquisitions may pose signiﬁcantly bigger challenges with respect to products, sales, marketing, customer support, research Tax risk and development, buildings, information systems, accounting, human resources and other integration aspects, and may delay or threaten the complete integration of the businesses acquired. Our future income tax payments may be adversely affected by lower- than-expected proﬁts in jurisdictions with lower tax rates and higher proﬁts in jurisdictions with higher tax rates. If the valuation of our Likewise, divestment of companies and/or businesses can lead to liability vis-à-vis the buyer, or additional expenses, for instance through deferred tax receivables and payables changes this could also mean indemnity clauses and guarantee commitments or long-term supply additional tax expenditure. contracts. 62 04.5 RISK REPORT Working capital risk The determination our tax provisions and other tax liabilities worldwide is a highly complex process, and in many instances the ﬁnal amount of The Group’s operating results and cash ﬂow vary from quarter to tax to be paid is uncertain. Although we consider our estimates to be realistic, the actual tax result can differ from the amounts shown in our quarter due to the seasonal nature of advertising spending. In contrast ﬁnancial statements and signiﬁcantly inﬂuence our ﬁnancial results in to the higher advertising budgets spent during the fourth quarter, the the period or periods to which such tax assessment applies. Our tax third quarter of the calendar year is typically the slowest in terms liability forecast can be examined by the responsible tax authorities of advertising spend (summer quarter). This affects the Group’s at any time. Any negative outcome of such an examination can have operating results, cash ﬂow and cash requirements. In addition, digital an adverse effect on our ﬁnancial, revenue, and asset situation. All advertising spend is volatile and unpredictable. In periods of lower of our tax positions are subject to changes in tax laws, regulations, advertising spending this may have a material adverse effect on the jurisdiction as well as tax-related accounting standards and their Group’s revenue. Similarly, if faced with spikes in advertising spend interpretations. and trafﬁc, the Group’s platforms must be able to support increased trafﬁc volumes and variety of advertising formats whilst maintaining a stable and effective infrastructure and reliable service to customers. New accounting standards This ﬂexibility and stability require signiﬁcant investments in both the Company’s organisation and technology, which increase the cost base. The International Accounting Standards Board (IASB) or other organisations may publish new or revised directives, interpretations, or Capital risk other guidelines which could inﬂuence International Financial Reporting Standards (IFRS). As a result, it may happen that an accounting rule is The price of our share at times experienced considerable ﬂuctuation adopted for which no rules previously existed, or that an accounting rule previously open for interpretation is declared to be generally since its initial listing and will continue remain volatile in the future. valid or is applied in a speciﬁc manner. It is also conceivable that valid The share price may move rapidly in response to factors beyond our methods may be replaced entirely. Such IFRS-related changes can control, including: have a signiﬁcant impact on our ﬁnance, revenue and asset positions. Moreover, inability to adopt new accounting standards in time may • ﬂuctuations in our quarterly results or in severely damage our reputation. the results of our competitors • announcements of Company sales and takeovers, new products, major contracts, business relationships or provision of capital Liquidity and cash fow risk • recommendations by equity analysts or changed proﬁt expectations • publication of proﬁts inconsistent with analysts’ expectations All of the Company’s liquid funds and short-term marketable securities are • number of shares outstanding essentially managed by ﬁnancial institutions. Based on the development • share sales by us or our shareholders of our business, the liquidity of ad pepper media International N.V. can • short-selling, hedging or other derivative transactions with shares at present be regarded as secure and, despite future investment in new companies, sufﬁcient to meet all future payment obligations. A decline The stock market in general and the market for technology companies in liquid funds may arise if further investments are required in the future. in particular have witnessed extreme share price and trading volume The Company is dependent upon its customers’ payment discipline. Our ﬂuctuations often unrelated or disproportionate to the operational receivables are typically unsecured and result from sales which are performance of these companies. These general market and industry predominantly generated with customers based in Europe. The Company factors can seriously damage the price of our share irrespective of our checks its customers’ creditworthiness on an ongoing basis and has actual performance. made provisions for potential cases of default. Negative developments on the capital markets can restrict our ability to obtain ﬁnancing. Past Lower (or volatile) share prices may lead to an inability to attract strong economic and ﬁnancial crisis led to certain restrictions on the availability long-term investors and limit our ability to raise new equity and attract of corporate ﬁnance and created a scenario such as that outlined above. key personnel. Looking ahead, it is not possible to completely exclude future restrictions on our liquidity situation, especially in the case of a return to a scenario described above. Should one or more ﬁnancial institution go bankrupt in such a scenario, this may have severe consequences for the Company’s assets and ﬁnancial position. 63 04.5 RISK REPORT Data risk In the past, lawsuits have been ﬁled against such companies after times of high price ﬂuctuations on the overall market or in individual Websites usually install small ﬁles with an ID to identify a user, generally shares. In the event that such lawsuits are ﬁled against us, this could lead to signiﬁcant costs and distract management time and resources. called “cookies”, on a device. Cookies usually collect information about users so that websites can adapt their contents to user needs. As of 31 December 2022, EMA Electronic Media Advertising International B.V., one of the Company’s founding shareholders, The internet user’s browser software forwards the cookie information owns shares representing around 44 percent of the share capital and to the website. Our business depends on the use of cookies to track the typically more than 80 percent of the voting rights at the General trafﬁc of internet users on the websites of our advertising customers, Meeting. For the foreseeable future, EMA Electronic Media Advertising and to monitor and prevent fraud in our networks. Most of the latest International B.V. will therefore continue to have signiﬁcant inﬂuence internet browsers enable internet users to change their browser on the management and on all matters requiring approval by the settings to prevent the storage of cookies on their hard disks. internet shareholders, including the election of board members, important users can also remove cookies from their hard disks at any time. Company transactions, such as mergers or the sale of the Company as a whole or in part. This concentration of control limits our shareholders’ According to the General Data Protection Regulation (“GDPR”), which ability to inﬂuence Company matters and affects the liquidity of the ad came into effect in May 2018 in Europe, and to the EU Privacy and pepper share traded on the stock exchange. In view of this, we may Electronic Communications Directive, consent of data subjects is implement measures that our shareholders do not deem expedient. required for storing information like cookies for tracking or targeting This in turn may have a lasting negative impact on our share price. purposes on an end-user’s device and for further processing of end user’s data. Therefore, the effectiveness of our technology may be impaired by regulations limiting or prohibiting the use of cookies and cookie consent of data subjects. On the basis of the requirements set up by data privacy regulators, software manufacturers may provide COMPLIANCE RISK new internet browsers bearing default settings where cookies are not accepted and the user has to actively change such settings to accept cookies (“privacy by default“). If the use or effect of cookies were restricted, we would have to switch to other technologies in order to Governance risk collect geographic or behaviour-related information. Besides operational and ﬁscal risks, our business activity harbours Although such technologies exist, they are far less effective than a wide range of legal risks. Legal disputes, authority ﬁnes and other cookies. We would have to develop or buy new technologies in order proceedings may cause considerable damage to our business, our to prevent fraud in our networks. Replacing cookies could become time- reputation or our brands, and entail high costs. We are subject to a consuming and requires considerable investment. Their development variety of laws and regulations, many of which are not yet ﬁrmly could turn out to be economically pointless or it may not be possible to established or are still developing. This includes wide-reaching implement them early enough in order to prevent the loss of customers legislation covering consumer protection, data protection, e-commerce or advertising space. The use of cookie technology or a comparable and competition. Antitrust and competition claims or investigations technology to collect information about internet usage patterns may may also require changes to our business operations. Any such risks lead to lawsuits or investigations in future. Many jurisdictions have are counteracted by internal and external law experts who thoroughly detailed provisions concerning both the collection of personal data and examine all contractual and regulatory matters. We endeavour to fulﬁl the use of such data for direct marketing campaigns. our obligations through constant monitoring and by avoiding conﬂicts arising from the violation of third-party rights or breach of regulatory Since 1 December 2021 the Telecommunications Telemedia Data provisions. No substantial litigation risks currently exist within the Protection Act (Telekommunikation-Telemedien-Datenschutz-Gesetz, ad pepper Group. TTDSG) is applicable replacing the data protection requirements in the Telemedia Act. The TTDSG introduces a strict cookie opt-in requirement very much in line with the preconditions in the EU Privacy and Electronic Communications Directive. Prior to this the German High Court has outlined in 2020 consent requirements for storing cookies on devices following a decision of the European Court of Justice on this issue. 64 04.5 RISK REPORT According to these decisions, companies need consent for storing Moreover, GDPR not only imposes new compliance obligations cookies on user devices irrespective whether this Cookie-ID is personal regarding the handling of personal data, it has also signiﬁcantly data or not. These verdicts are the main reason why the German increased ﬁnancial penalties for non-compliance. Failure to comply legislator has introduced a strict consent requirement for storing data with GDPR may lead to regulatory enforcement proceedings, which in an end-user’s device. All in all, this leads to stricter data protection can result in monetary penalties of up to 20 percent of worldwide requirements that may have a negative impact on our business model. revenue, orders to discontinue certain data processing operations, Namely, the upcoming European ePrivacy-Regulation may introduce private lawsuits, or reputational damage. If any person, including any stricter requirements. If adopted, such regulations would have a of our employees, negligently disregards or intentionally breaches thorough impact on our business model. our established controls with respect to client or ad pepper data, or otherwise mismanages or misappropriates that data, we could We depend on an easy way to transfer personal data from the EU to be subject to signiﬁcant litigation, monetary damages, regulatory UK. At the end of June 2021, the European Commissions adopted an enforcement proceedings, ﬁnes and/or criminal prosecution in one or adequacy decision for the United Kingdom under GDPR. This decision more jurisdictions. These monetary damages may not be subject to facilitates a data transfer between EU and UK. Otherwise, our clients contractual limit of liability or exclusion of consequential or indirect will have to agree on Standard Contractual Clauses to legalise a data damages and could be substantial. Our liability insurance may not transfer to UK. The duration of this decision is limited to four years. As cover us against claims related to security breaches, cyber-attacks or the UK-Government has already announced to review the UK-GDRP and other breaches. to lower burdens for companies it is yet unclear whether this adequacy decision has a bright future. In 2024 the European Commission will Violations of other legal requirements start reviewing UK’s laws and systems for protecting personal data and decide whether to extend the adequacy decision for another four years. The aim of compliance is to ensure irreproachable business conduct Although we abide by the applicable laws in the different jurisdictions, at all times and in all respects. Any failure to fulﬁl legal requirements we cannot rule out the possibility that changes in legislation may have and report obligations, any violation of the Corporate Governance signiﬁcant repercussions for our business models and revenues. Any Code or insufﬁcient management transparency may pose a risk to the litigation or governmental action against us could become costly and required compliance. For this reason, the ad pepper Group established time-consuming, or compel us to change our business practice and a Group-wide Code of Conduct as well as an insider trading policy, divert management attention away from other business ﬁelds. which provides for the safety and support of employees in various professional situations. Despite comprehensive measures taken within The regulatory environment in Europe is ever changing. With the the realignment of the compliance programme and our compliance GDPR, which came into effect in May 2018 in Europe, as well as organisation, it is impossible for us to protect us against all risks. the EU e-commerce Directive, compliance obligations and ﬁnancial penalties for non-compliance are increasing signiﬁcantly and could More generally, from time to time we are or may become involved in potentially harm our business. The ad pepper Group has set up working private actions, investigations and various other legal proceedings by groups in close cooperation with its external data protection ofﬁcer employees, suppliers, competitors, government agencies or others. to continuously identify adjustment needs to ensure compliance with Failure to comply with laws and regulations can damage our reputation GDPR requirements. Nevertheless, the security measures which have and have negative ﬁnancial and operational consequences. been or will be implemented may not be effective, and ad pepper’s systems may be vulnerable to theft, loss, damage or interruption from a number of potential sources or events, including unauthorised access or security breaches, cyber-attacks, computer viruses, power loss, or other disruptive events. The ad pepper Group may not have the resources or technical sophistication to anticipate or prevent rapidly evolving forms of cyber-attacks. 65 04.5 RISK REPORT RISK APPETITE The ad pepper Group has a track record of identifying market changes early and investing into winning products and services ahead of time. We will, however, not pursue growth at all costs and expect sufﬁcient margins. We will primarily pursue organic growth strategies to meet This section highlights those risks that the Group is willing to take, as our growth objectives. We aim for sufﬁcient operating margins whilst well as those that are unacceptable. It includes a series of risk assertions protecting the long-term viability of the Group. In general, management’s which are aligned to our strategy, together with the risk parameters risk appetite in this ﬁeld is moderate. within which we expect to work. The Group operates in markets with high growth potential that are subject to volatility and intense competition. In the ﬁeld of ﬁnancial risks, management addresses the low proﬁtability We will pursue ambitious growth targets and we are willing to accept risk mainly through transparency and the permanent review process in certain levels of risk to increase the likelihood of achieving or exceeding connection with monthly results, forecasting and budgeting. In the event our strategic objectives, subject to the parameters below. of M&A, a dedicated programme management team will be established for the accelerating shareholder value creation transformation. Through The Board’s appetite for risk varies depending on the risk type. The Group strong due diligence processes and closely managed integration measures risk by estimating the potential for loss of proﬁt, staff turnover processes, we seek to reduce the probability of M&A-related risk. and reputational damage. The Board has a low tolerance for ﬁnance- Currency risks, on the other hand, are sought to be minimised through and compliance-related risk. Conversely, it has a higher tolerance for natural hedging by increasing the Company’s cost base in EUR. As far as operational and strategic risk. political instability, in general, is concerned, the breadth of our service portfolio and our geographic reach help to mitigate our exposure to Operational risks are managed through the ongoing budgeting, any particular localised risk. We monitor proposed changes in taxation forecasting and reporting process as well as training activities to legislation and new accounting standards to ensure these are taken into constantly improve and update employees’ skills. Infrastructure risks account when we consider our future business plans. We try to manage are mitigated by regular backups, redundant server structures and the working capital risk by increasing and diversifying our client base in a moving to the cloud. To reduce fraud risk, anti-fraud teams are tasked way, which allows us to become less dependent on fourth quarter gross with identifying unusual patterns, ideally in the design phase of sales. While the Group continues to be independent on external funding, advertising campaigns. the risk of not ﬁnding these funds is not regarded as imminent. Matters of substantial signiﬁcance are also reviewed with the Supervisory Board The cost of these measures and control systems must be commensurate through the two-tier board structure. Management realises that the with the beneﬁts achieved. Management generally considers the expansion of the business does require some risk taking and evaluates its likelihood of risks in the operational and technology area as moderate risk appetite as medium. Management therefore estimates this overall while evaluating the ﬁnancial impact of each event depending on the ﬁnancial risk to be low. speciﬁc risk ﬁeld. Management’s risk appetite in this ﬁeld is moderate and we seek to mitigate risks through contracts, service level agreements, As far as compliance risks are concerned as the Group is growing in a insurance and cooperation with established partners. complex and rapidly changing environment and is in an ongoing process of establishing and improving its processes, regulatory violations may As far as strategic risks are concerned, we try to mitigate the personnel occur. Management’s risk appetite is generally low and matters of risk by providing attractive remuneration package, creation of a positive substantial signiﬁcance are also reviewed with the Supervisory Board working environment and structured individual development plan. We through the two-tier board structure. The ad pepper Group is committed try to manage the dependency risks and platform risks by building and to complying with the laws and regulations of the countries in which maintaining customer relationships. We develop online advertising we operate. However, with the General Data Protection Regulation and strategies and regularly monitor progress for existing clients and identify ePrivacy Regulation, compliance obligations and ﬁnancial penalties for and build relationships with new customers. noncompliance are increasing signiﬁcantly. Should the risk materialise, it would have a very high, potentially critical impact. We mitigate the In general, management addresses market risks by actively monitoring risk by working with well-established external partners such as tax, legal the developments and evaluating the actual exposure to these risks. and audit advisors in all countries we are operating, as well as building This includes participation in industry events, gaining information from in-house capabilities through training and qualiﬁcation measures for analysts and research ﬁrms as well as creating business cases for new existing staff. product developments. 66 04.5 RISK REPORT EVALUATION OF RISK The following overview table shows a summary of risk type and respective risk appetite: MANAGEMENT SYSTEM EFFECTIVENESS Risk category Risk Appetite Operational risk Infrastructure risk Moderate The ad pepper Group’s long-term strategy is focused on creating value for our shareholders and stakeholders through proﬁtable growth. In Technology risk Moderate implementing this strategy, the Company has evaluated the relevant Cybercrime, hacking, identity Low operational, strategic, ﬁnancial and compliance risks as well as the theft and risk of fraud risks and opportunities of future market trends for e-commerce in Intellectual property rights risk Low general and for digital advertising providers in particular. The Board of Directors is responsible for identifying and managing risks with Strategic risk Personnel risk Low appropriate measures. Signiﬁcant issues are also reviewed with Market risk Low the Supervisory Board through the two-tier board structure. Internal Dependency risk Moderate controls have a high priority and are continuously assessed and further improved. Separation between executive and controlling functions and Platform risk Moderate compliance with directives and operating instructions are an integral Financial risk Low proﬁtability Low part of the internal control system and no risk with a signiﬁcant impact Risks of our M&A strategy Low were identiﬁed. The risk management and internal control systems, however, do not provide absolute assurance that errors, fraud losses, Energy supply risk Low or unlawful acts will not occur. During the 2022 ﬁnancial year, no Currency risk Moderate signiﬁcant shortcomings were found in the internal risk management Tax risk Low and control system, and no risk with a signiﬁcant impact were identiﬁed. From a current perspective, we foresee no risks that, even in New accounting standards Low conjunction with other risks, could threaten the continued existence of Liquidity and cash ﬂow risks Low the ad pepper Group. Please also refer to the disclosure on page 118 in Working capital risk Moderate the Consolidated Financial Statements. Capital risk Low We are convinced that risk management has to be part of the mindset Compliance risk Governance risk Low and working methods of our staff, and retaining control is of prime Data risk Low importance to us. The Company continued to work on optimising its risk management and internal control systems in 2022 while acknowledging Violations of other legal Low requirements that such systems cannot offer absolute assurance against errors of material importance. The Board of Directors is conscious that the Company does not yet have an internal audit function and has discussed this with the Supervisory Board. After an in-depth discussion the Board of Directors and the Supervisory Board concluded that the Company does not currently require an internal audit function, although this may change in future depending on further Company growth. From its evaluations, the Board of Directors concludes that the risk management system as well as the control of the business processes and the internal control within the Company are sufﬁcient, professional, appropriate and effective. The Board of Directors is of the opinion that the risk management system with its controls and processes provides an adequate level of assurance on the reliability of ﬁnancial information and control information in accordance with relevant laws and regulations. 67 04.5 RISK REPORT In the past ﬁnancial year, the ad pepper Group and its external data privacy ofﬁcer worked closely to ensure fulﬁlment of the obligations imposed by the European legislator through the GDPR. Regular meetings were held and results presented to the Board of Directors as well as the Supervisory Board. The ad pepper Group operates an information protection management system based on ISO 27001 comprising security guidelines as well as organisational and technical measures to prevent and address IT security incidents. Also in 2022, ad pepper Group also implemented regular cyber security awareness trainings for all Group staff due to higher frequency of so-called fake-president-fraud attempts. The Group repeatedly pointed out that no employees, including Board of Directors members, are allowed to ask for payments/money transfers via email and nobody in the Group is allowed to circumvent the four-eyes- principle. As mistakes are always possible, the Company is aware that there is a risk that an employee might execute a payment within the maximum available overdraft limit. OPPORTUNITIES AND OUTLOOK In 2022, the ad pepper Group achieved revenues substantially below the previous year along with a satisfying level of proﬁtability. We generated consolidated revenue of EUR 24,868k and EBITDA of EUR 1,275k. Despite a very challenging market environment due to high inﬂation and geopolitical conﬂicts thanks to the hard work of around 250 staff members we achieved a respectable result in terms of revenue and proﬁtability, although it failed to achieve our goals we set ourselves at the beginning of the business year 2022. While forecasting is more challenging than ever, in the light of the ongoing digital transformation which is affecting all areas of our everyday lives, we are optimistic to return to a growth path for the entire group again in the business year ahead. For our organic growth strategy, no additional ﬁnancing is needed given the strong balance sheet. We will continue to hire new staff, invest in new products and technology (especially in connection with our AI strategy), services and markets. We will concentrate on lucrative customer groups, as well as on broadening and diversifying these customer groups, which was key also in the past ﬁnancial year. 68 « RESPONSIBILITY STATEMENT 04.6 RESPONSIBILITY STATEMENT RESPONSIBILITY STATEMENT In accordance with the EU Transparency Directive, as incorporated in Chapter 5.1A of the Dutch Financial Supervision Act (Wet op het ﬁnancieel toezicht), the Board of Directors declares that, to the best of its knowledge: • The Consolidated Financial Statements for the year ended 31 December 2022 give a true and fair view of the assets, liabilities, ﬁnancial position and proﬁt or loss of ad pepper media International N.V. and its consolidated companies. • The report of the Board of Directors gives a true and fair view of the position as of the balance sheet date and the state of affairs during the 2022 ﬁnancial year of ad pepper media International N.V. and its afﬁliated companies, of which the data has been included in the Consolidated Financial Statements. • The report of the Board of Directors describes the principal risks that ad pepper media International N.V. faces. Board of Directors ad pepper media International N.V. Dr Jens Körner, CEO Nuremberg, 7 April 2023 71 04.6 RESPONSIBILITY STATEMENT 72 05 « CONSOLIDATED FINANCIAL STATEMENTS 05 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED INCOME STATEMENT 1ꢀ/ꢀ1 - 1ꢀ/ꢀ1 - 31ꢀ/ꢀ12ꢀ/ꢀ2022 31ꢀ/ꢀ12ꢀ/ꢀ2021 Note kEUR kEUR Gross sales1 98,229 111,593 [6] Media cost2 -73,361 -83,947 [8] Revenue 24,868 27,646 [5] Cost of sales -1,164 -1,059 [8] Gross profit 23,704 26,587 Selling and marketing expenses -16,638 -15,739 [9] General and administrative expenses -7,164 -7,707 [10] Other operating income 937 530 [11] Other operating expenses -651 -477 [12] Operating profit 187 3,194 Financial income 62 78 [13] Financial expenses -192 -116 [13] Income before taxes 56 3,156 Income taxes -306 -592 [14] Net income -250 2,564 attributable to shareholders of the parent company -893 1,725 attributable to non-controlling interests 643 839 Basic earnings per share on net income for the year attributable to shareholders of the parent company -0.04 0.08 [15] Diluted earnings per share on net income for the year attributable to shareholders of the parent company -0.04 0.08 [15] Weighted average number of shares outstanding (basic) 20,278,249 20,735,183 [15] Weighted average number of shares outstanding (diluted) 20,278,249 20,977,243 [15] 1 Gross sales represent the total amount billed and billable to clients by the Group, net of discounts, VAT and other sales- related taxes. Disclosure of gross revenue information is not required under IFRS; however, it is voluntarily disclosed from 1 January 2018 onwards in the Consolidated Income Statement as management has concluded that the information is useful for users of the financial statements. Please refer to Note [6]. 2 Media cost relates to payments made to suppliers of ad inventory (commonly referred to as media buys and publishers). Disclosure of media cost information is not required under IFRS; however, it is voluntarily disclosed from 1 January 2018 onwards in the Consolidated Income Statement as management has concluded that the information is useful for users of the financial statements. Please refer to Note [8] CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 1ꢀ/ꢀ1 - 31ꢀ/ꢀ12ꢀ/ꢀ2022 1ꢀ/ꢀ1 - 31ꢀ/ꢀ12ꢀ/ꢀ2021 kEUR kEUR Net income -250 2,564 Other comprehensive income Items that may be reclassified subsequently to profit or loss: Currency translation differences 28 236 Revaluation of listed debt securities -15 -6 Other comprehensive income, net of tax 13 230 Total comprehensive income -237 2,794 Attributable to non-controlling interests 662 839 Attributable to shareholders of the parent company -899 1,955 CONSOLIDATED STATEMENT OF FINANCIAL POSITION – ASSETS 31ꢀ/ꢀ12ꢀ/ꢀ2022 31ꢀ/ꢀ12ꢀ/ꢀ2021 (Restated) Note kEUR kEUR Non-current assets [16], Intangible assets 374 628 [17] Property, plant and equipment 230 346 [17] Right-of-use assets 1,318 1,177 [42] Listed debt and marketable securities 0 3,057 [18] Other financial assets 184 391 [19] Deferred tax assets 79 0 Total non-current assets 2,185 5,599 Current assets Securities and deposits with maturity over three months 6,076 0 [20] Trade receivables 17,568 19,319 [21] Other receivables 309 398 [22] Income tax receivables 549 306 [23] Other financial assets 258 26 [24] Cash and cash equivalents 17,008 20,704 [25] Total current assets 41,769 40,753 Total assets 43,954 46,352 CONSOLIDATED STATEMENT OF FINANCIAL POSITION – EQUITY AND LIABILITIES 31ꢀ/ꢀ12ꢀ/ꢀ2022 31ꢀ/ꢀ12ꢀ/ꢀ2021 (Restated) Note kEUR kEUR Equity attributable to shareholders of the parent company Issued capital 1,075 1,075 [26] Share premium 63,782 63,782 [27] Reserves -50,367 -49,059 [28] Total 14,490 15,798 Non-controlling interests 1,176 958 [29] Total equity 15,666 16,756 Non-current liabilities Deferred tax liabilities 0 81 [14] Other liabilities 840 865 [30], [42] Total non-current liabilities 840 946 Current liabilities Trade payables 20,836 20,247 [31] Contract liabilities 465 446 [32] Other liabilities 2,231 2,286 [33], [41] Other financial liabilities 3,551 4,941 [34], [42] Income tax liabilities 365 730 [14] Total current liabilities 27,448 28,650 Total liabilities 28,288 29,596 Total equity and liabilities 43,954 46,352 CONSOLIDATED STATEMENT OF CASH FLOWS 1ꢀ/ꢀ1 - 31ꢀ/ꢀ12ꢀ/ꢀ2022 1ꢀ/ꢀ1 - 31ꢀ/ꢀ12ꢀ/ꢀ2021 Note kEUR kEUR Net income -250 2,564 Adjustments for: Depreciation and amortisation 1,088 1,184 [16], [17], [42] Gainꢀ/ꢀloss on sale of fixed assets 54 -10 [11], [12] Share-based compensation -76 371 [39] Gainꢀ/ꢀloss on sale of securities and other investments (after bank charges) 120 5 [13,[18],[20] Other financial income and financial expenses 11 33 Income taxes 306 592 [14] Income from the release of accrued liabilities -1,094 -982 [11], [38] Other non-cash expenses and income 386 -195 Cash settlement of stock option plans 0 -981 [39] Gross cash flow 545 2,581 Change in trade receivables 1,303 354 [12] [21] Change in other assets -21 -82 Change in trade payables 1,583 528 [31] Change in other liabilities -391 -472 Income taxes received 0 268 Income taxes paid -1,073 -931 Interest received 62 78 Interest paid -77 -116 1ꢀ/ꢀ1 - 31ꢀ/ꢀ12ꢀ/ꢀ2022 1ꢀ/ꢀ1 - 31ꢀ/ꢀ12ꢀ/ꢀ2021 Note kEUR kEUR Net cash flow fromꢀ/ꢀused in operating activities 1,931 2,208 Purchase of intangible assets and property, plant and equipment -219 -299 [16], [17] Proceeds from sale of intangible assets and property, plant and equipment 3 57 Proceeds from sale of securities 1,935 0 Purchase of securities -5,000 -1,999 Net cash flow fromꢀ/ꢀused in investing activities -3,281 -2,241 Issuance of shares 0 87 Payment of lease liabilities -585 -757 [42] Purchase of treasury shares -1,232 -2,576 Dividends to non-controlling interests -539 -583 [29] Net cash flow fromꢀ/ꢀused in financing activities -2,356 -3,829 Net decreaseꢀ/ꢀincrease in cash and cash equivalents -3,706 -3,862 Cash and cash equivalents at beginning of period 20,704 24,330 Effect of exchange rates on cash and cash equivalents 10 236 Cash and cash equivalents at end of period 17,008 20,704 [25] CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 2022 NCI Balanc Profi Other Total Share Divide Purch Cash Issua Balanc put e at t for compreh compreh - nds ase of settle nce e at liabi 1ꢀ/ꢀ1ꢀ/ꢀ2 the ensive ensive -base treas ment of 31ꢀ/ꢀ12ꢀ lity 022 peri income income d ury of share /ꢀ2022 od paym share SOP's s ent s N ot e Issued [2 capital 6] (kEUR) 1,075 0 0 0 0 0 0 0 0 0 1,075 Share premiu [2 m 7] (kEUR) 63,782 0 0 0 0 0 0 0 0 0 63,782 Reserve [2 s 8] Treasu ry reserv e (kEUR) -4,906 0 0 0 0 0 -1,232 0 0 0 -6,138 For emplo yee [39 stock ] option plans (kEUR) 2,827 0 0 0 79 0 0 0 0 0 2,906 Accum ulated deficit (kEUR) -43,017 -893 0 -893 0 0 0 0 0 0 -43,910 Curren cy transla tion basis of -1,162 0 9 9 0 0 0 0 0 0 -1,153 prepar ation differe nces (kEUR) Revalu ation of listed [20 debt ] securiti es (kEUR) 12 0 -15 -15 0 0 0 0 0 0 -3 Other reserve s -2,812 -2,070 (kEUR) 0 0 0 0 0 0 0 0 742 Subtotal reserves 0 (kEUR) -49,058 -893 -6 -899 79 -1,232 0 0 -50,367 742 Equity attribut able to sharehol ders of the parent compan y (kEUR) 15,798-893 -6 -899 79 0 -1,232 0 0 74214,490 Non- control ling [29 interes ] ts (kEUR) 958 643 19 662 0 -539 0 0 0 951,176 Total equity (kEUR) 16,756-250 13 -237 79 -539 -1,232 0 0 83715,666 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 2021 NCI Balanc Prof Other Total Share Divide Purch Cash Issua Balance put e at it comprehe comprehe - nds ase of settlem nce at liabil 1ꢀ/ꢀ1ꢀ/ꢀ2 for nsive nsive based treasu ent of of 31ꢀ/ꢀ12ꢀ/ꢀ ity 021 the income income paym ry SOP's share 2021 peri ent share s od s (Restate d) No te Issued [26 capital ] (kEUR) 1,075 0 0 0 0 0 0 0 0 0 1,075 Share [27 premium ] (kEUR) 63,782 0 0 0 0 0 0 0 0 0 63,782 [28 Reserves ] Treasury reserve (kEUR) -2,417 0 0 0 0 0 -2,576 0 87 0 -4,906 For employe e stock [39] option plans (kEUR) 2,663 0 0 0 164 0 0 0 0 0 2,827 Accumul ated deficit 1,725 (kEUR) -44,106 0 1,725 0 0 0 -636 0 0 -43,017 Currency translati on differenc es (kEUR) -1,398 0 236 236 0 0 0 0 0 0 -1,162 Revaluati [18] on of 18 0 -6 -6 0 0 0 0 0 0 12 listed debt securitie s (kEUR) Other -2,812 reserves (kEUR) -2,352 0 0 0 0 0 0 0 0 -460 Subtotal reserves (kEUR) -47,592 1,725 230 1,955 164 0 -2,576 -636 87-460 -49,058 Equity attributab le to sharehold ers of the parent company (kEUR) 17,265 1,725 230 1,955 164 0 -2,576 -636 87-460 15,798 Non- controlli ng [29] interests (kEUR) 761839 0 839 0 -583 0 0 0 -60 958 Total equity (kEUR) 18,027 2,564 230 2,794 164 -583-2,576 -636 87-520 16,756 06 NOTES TO THE CONSOLIDATED -FINANCIAL STATEMENTS CORPORATE INFORMATION [1] The Consolidated Financial Statements of ad pepper media International N.V. (the “Company”) for the year ended 31 December 2022 were authorised for issue by the Board of Directors on 7 April 2023. ad pepper media International N.V. is a public company incorporated in the Netherlands , domiciled at Frankenstrasse 150 C, 90461 Nuremberg, Germany and is the ultimate parent and controlling party of the ad pepper Group (the “Group”). The Company’s shares are publicly traded under WKN 940883 (ISIN NL0000238145) on the Prime Standard of the Frankfurt Stock Exchange. The business activities of ad pepper media International N.V. involve holding investments in other entities whose objective is to market advertising space on the internet and providing services for the subsidiaries. Since its formation, the Group has been geared towards acting flexibly to meet the requirements of a whole range of different markets as an international Group. The ad pepper Group is an international provider of interactive products and services for websites and advertisers. The Company currently markets campaigns and websites worldwide and operates from eleven offices in Europe. The ad pepper Group uses state-of-the-art technology to link thousands of small, medium and large websites to form a top-quality advertising network with global reach and a precise focus on its target groups. In addition to a regional, national and international marketing presence, website partners receive a large number of other important products and services such as traffic analysis and performance optimisation, provided by the ad pepper media Group in a localised form. ACCOUNTING PRINCIPLES [2] Basis of preparation The Consolidated Financial Statements have been prepared on a historical cost basis, except for employee benefit liabilities and current investments in securities, which have been measured at fair value. The Consolidated Financial Statements are presented in EUR. All values are rounded up or down to the nearest thousand euro (kEUR) or million euro (mEUR) except where indicated otherwise. Due to rounding, individual figures may not add up exactly to the totals stated. Based on the requirements of the Dutch Civil Code, a full Annual Report comprises reports from the Board of Directors and the Supervisory Board, Consolidated Financial Statements, Company Financial Statements and other information. This report includes the reports from the Board of Directors and the Supervisory Board, Consolidated Financial Statements, Company Financial Statements and other information. Statement of compliance The Consolidated and Company Financial Statements of ad pepper media International N.V. and its subsidiaries have been prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union (EU), in conjunction with Part 9 of Book 2 of the Dutch Civil Code. The same accounting principles may be applied in the Company’s Financial Statement and the Consolidated Financial Statements. If the accounting principles of the Company’s Financial Statements differ from the accounting principles applied in the Consolidated Financial Statements, this is disclosed. 1 Basis of consolidation The Consolidated Financial Statements comprise the financial statements of ad pepper media International N.V. and its subsidiaries as at 31 December each year. The financial statements of the subsidiaries are prepared for the same reporting year as those of the parent company, using consistent accounting policies. Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. All business combinations are accounted for under the acquisition method. In accordance with this method, the purchase price has been allocated to the fair value of the interest held in the net assets of the consolidated subsidiaries at the time of acquisition. In doing so, all identifiable assets, liabilities and contingent liabilities are recognised at fair value and measured accordingly in the consolidated balance sheet. Following adjustments to the fair values of assets acquired and liabilities assumed, any resulting positive difference is capitalised in the balance sheet as goodwill. Situations in which the fair value of net assets is greater than the purchase price paid result in a negative difference. In the event that such difference remains following reassessment of the allocation of the purchase price or determining the fair value of acquired assets, liabilities and contingent liabilities, this is recognised immediately as income. The proportion of assets, liabilities and contingent liabilities of the subsidiary applicable to non-controlling interest is also recognised at fair value. All intra-group balances, transactions, income and expenses, and profits and losses resulting from intra-group transactions that are recognised in assets are eliminated in full. Consolidated Group The subsidiaries included in consolidation are as follows: Entity 31/12/2022 31/12/2021 Share in percent Share in percent ad pepper media GmbH, Nuremberg, Germany 100 100 ad pepper media France S.A.R.L., Paris, France 100 100 ad pepper media USA LLC, New York, USA 100 100 ad pepper media Spain S.A., Madrid, Spain 65 65 Webgains S.L., Madrid, Spain 65 65 Webgains Ltd., London, United Kingdom 100 100 ad agents GmbH, Herrenberg, Germany 60 60 ad agents AG, Pontresina, Switzerland 60 60 Webgains Italy S.r.l. SB, 100 100 2 Milan, Italy Webgains GmbH, Nuremberg, Germany 100 100 Webgains B.V., Amsterdam, Netherlands 100 0 Changes in accounting policies and estimates Restatement of the Consolidated Statement of Financial Position and Consolidated Statement of Changes in Equity for the year ended 31 December 2021 and as per 1 January 2021 according to IAS 8 The Consolidated Statement of Financial Position and Consolidated Statement of Changes in Equity for the year ended 31 December 2021 and as per 1 January 2021 have been restated from the Consolidated Statements previously reported. As explained in Note [2] Accounting principles “current financial liability”, the Company’s balance sheet includes a current liability for a written put option, which was omitted from the 2021 and previous years’ financial statements. The written put/call option is part of the sale contract of the 35 % non-controlling interest in ad pepper media Spain S.A. closed in 2014, which resulted in the accounting of non-controlling interest, but not in recording of financial liability for the written option since 2017 when it was exercisable for the first time. Therefore, the restatement has the effect of a reduction of the equity by: • Reclassification of non-controlling interest considering ad pepper media S.A. and Webgains Spain S.L. into current financial liability • Reduction of other reserves by the remaining amount of the current financial liability The brought forward current liabilities as at 1 January 2021 have been increased by 2,811,580 EUR with a corresponding decrease in the brought forward non-controlling interest by EUR 459,670 and other reserves by EUR 2,351,910. The restated balance sheet for the year ended 31 December 2021 includes an increase in current financial liability of EUR 520,271 EUR, compared to the adjusted balance sheet per 1 January 2021, with a corresponding reduction of the non- controlling interest by EUR 60,295 and a reduction of other reserves by EUR 459,976. The overall effect of the above is to increase current financial liability as at 31 December 2021 by EUR 3,331,851 with a corresponding reduction in non-controlling interest by EUR 519,965 and other reserves by EUR 2,811,886. Summary of new accounting policies The accounting policies adopted in the preparation of the Group’s annual Consolidated Financial Statements are consistent with those followed in the preparation of the Group’s annual Consolidated Financial Statements for the year ended 31 December 2021 except for the adoption of new standards effective as of 1 January 2022. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective. Several amendments and interpretations apply for the first time in 2022, but do not have an impact on the Consolidated Financial Statements of the Group. The following further amendments, improvements and interpretations to existing standards require first-time application in the financial year beginning 1 January 2022: • Amendments to IFRS 16 “COVID-19-Related Rent Concessions beyond 30 June 2021“: The original amendment was issued on 28 May 2020 and was intended to apply until 30 June 2021, but the IASB extended the period of application of the practical expedient to 30 June 2022. This amendment does not have an impact on the Group. • Amendments to IFRS 3 Business Combinations (updating a reference without significant changes to its requirements); IAS 16 Property, Plant and Equipment (changes regarding proceeds from items produced), IAS 37 3 Provisions, Contingent Liabilities and Contingent Assets (changes regarding costs a company should include as the cost of fulfilling an onerous contract) and Annual Improvements 2018-2020. These amendments do not have an impact on the Group. New amendments and interpretations requiring application in financial years beginning 1 January 2023: • IFRS 17 Insurance contracts: The standard was issued on 18 May 2017 and is not expected to have an impact on the Group. • Amendments to IFRS 17 Insurance contracts: These amendments were issued on 25 June 2021 and 9 December 2021 and are not expected to have an impact on the Group. • Amendments to IAS 12 Income Taxes (Deferred Tax related to Asset and Liabilities arising from a Single Transaction): The amendment was issued on 7 May 2021 and is not expected to have an impact on the Group. • Amendments to IAS 8 Accounting policies, Changes in Accounting Estimates and Errors, Definition of Accounting Estimates: The amendments were issued on 12 February 2021 and are to replace the definition of a change in accounting estimates with a definition of accounting estimates. Under the new definition, accounting estimates are “monetary amounts in financial statements that are subject to measurement uncertainty”. The new definition is not expected to have an impact on the Group. New amendments and interpretations requiring application in financial years beginning 1 January 2024: • Amendments to IFRS 16 Leases: This amendment specifies requirements for seller-lessees to measure the lease liability in a sale & leaseback transaction. It is not expected to have an impact on the Group. • Amendment to IAS 1 Presentation of Financial Statements- Classification of Liabilities into current and non- current. This amendment should clarify the criteria for the classification of a liability as either current or non- current. The proposed amendments intend to a) Clarify that the classification is based on the entity’s rights at the end of the reporting period, and b) Make clear the link between the settlement of the liability and the outflow of resources from the entity. The Group is evaluating the impact of this amendment on the Consolidated Financial Statements. Significant accounting judgements, estimates and assumptions In the application of the Group’s accounting policies, which are described below in Note [3], the directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Judgements, estimates and assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date have been applied in particular to the assessment of revenue from contracts with customers (Note [5]), accrued liabilities for outstanding affiliate payments (Note [30]), incremental borrowing rates of right-of-use liabilities (Note [41]), the provision for expected credit losses of trade receivables (Note [40]), share based payments (Note [38]) and on the measurement of deferred tax assets on losses carried forward (Note [14]). A) Judgements Preparing the financial statements in accordance with the IFRS requires the Group management to make judgements in respect to the recognised amounts of revenue in all three operational segments. The Company assesses its revenue arrangement in its business units against specific criteria in order to determine if it is acting as principal or agent. The factors specified by IFRS 15 indicate that the Group does not control services before they are transferred to customers. Therefore, the Group determined that it is an agent in all its customer contracts and is recognising its revenue on a net basis, consequently excluding media cost owed to delivery partners from revenue and cost of sales respectively. B) Estimates and assumptions 4 The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Accrued liabilities In measuring accrued liabilities for affiliate credits not yet disbursed in the Webgains segment, reference has been made to assumptions determined with the assistance of various controlling and reporting tools. Based on various evaluations, the ad pepper Group assesses the disbursement of credits for confirmed transactions that have not been called up more than one year after the closure of the programme as well as of credits of inactive publishers as unlikely and has reduced the accrued liability by the resultant amounts. The provision for expected credit losses of trade receivables An impairment analysis is performed at each reporting date using a matrix to calculate expected credit losses (ECL) for trade receivables. The provision is initially based on the Group’s historical observed default rates and potentially adjusted with forward-looking information. At every reporting date, the historical observed default rates are updated, changes in the forward-looking estimates and evidence for impairment are analysed. Share based payments Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model, which depends on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model including the expected life of the share option or appreciation right, volatility and dividend yield, and assumptions about them. For the measurement of the fair value of equity-settled transactions with employees at the grant date, the Group uses a Monte Carlo simulation model. For cash-settled share-based payment transactions, which have been reclassified from equity-settled stock options, the liability must be remeasured at the end of each reporting period up to the date of settlement, with any changes in fair value recognised in profit or loss. The assumptions and models used for estimating fair value for share-based payment and cash-settled transactions are disclosed in Note [38]. Deferred tax assets Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profit will be available, against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based on the likely timing and level of future taxable profits together with future tax planning strategies. Further information is presented in the note on incomes taxes (Note [14]). Leases – Estimating the incremental borrowing rate The Group cannot readily determine the interest rate implicit in the lease contracts for offices and cars. Therefore, it uses its incremental borrowing rate (IBR) to measure lease liabilities. The IBR is the rate of interest that the Group would have to pay to borrow over a similar term and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The IBR therefore reflects what the Group “would have to pay”, which requires estimation when no observable rates are available. The Group estimates the IBR using the market interest rate provided by its bank. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [3] Foreign currency translation The Consolidated Financial Statements are presented in EUR, which is the Company’s functional and presentation currency. Each entity in the Group determines its own functional currency, and items included in the financial statements of each entity are measured using that functional currency. Transactions of foreign currencies are initially recorded at the functional currency rate applicable at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange applicable at the balance sheet date. All differences are applied as either profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate applicable on the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rate applicable on the date when the fair value was determined. As at the reporting date, the assets and liabilities of those subsidiaries that have a functional currency other than the EUR are translated into the presentation currency of ad pepper media International N.V. (EUR) at the rate of exchange applicable at the balance sheet date, and their income statements are translated at the weighted average exchange rates for the year. The exchange differences arising from the translation are applied directly to other comprehensive income. On 5 disposal of a foreign entity, the deferred cumulative amount recognised in other comprehensive income relating to that particular foreign operation is recognised in the income statement. The significant foreign currency exchange rates developed as follows: Foreign currency Closing Closing Average Average per EUR 1 rate rate rate rate 31/12/22 31/12/21 2022 2021 USD 1.0648 1.334 1.0527 1.1886 GBP 0.8855 0.8393 0.8514 0.8776 CHF 0.9840 1.0363 1.1901 1.2278 Property, plant and equipment Property, plant and equipment are stated at historical cost, excluding the costs of day-to-day servicing, less accumulated depreciation and accumulated impairment in value. Subsequent costs are included in the asset’s carrying value or recognised as separate asset, as appropriate, only when it is probable that future economic benefits associated with the line item will flow to the Group and the cost of the item can be reliably measured. Depreciation is calculated on a straight- line basis over the useful life of the assets. The estimated useful lives of the assets are between three and ten years. An item recorded under property, plant and equipment is derecognised on disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement in the year the asset is derecognised. Intangible assets Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is the fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. All intangible assets have finite lives and are amortised using the straight-line method over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset are reviewed at least at each financial year-end. Gains or losses arising from derecognising an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the income statement when the asset is derecognised. Leases The Group assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Group applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Group recognises lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets. Right-of-use assets The Group recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets, as follows: • Office space 1 to 5 years • Vehicles 3 years 6 If ownership of the leased asset transfers to the Group at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset. The right-of-use assets are also subject to impairment. Lease liabilities At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate. Variable lease payments that do not depend on an index or a rate are recognised as expenses (unless they are incurred to produce inventories) in the period in which the event or condition that triggers the payment occurs. In calculating the present value of lease payments, the Group uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset. The Group’s lease liabilities are included in other long-term and short-term other financial liabilities. Short-term leases and leases of low-value assets The Group applies the short-term lease recognition exemption to its short-term leases of office space and cars (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered to be of low value. Lease payments on short-term leases and leases of low value assets are recognised as expense on a straight-line basis over the lease term. Research and development costs Research costs are expensed as incurred. An intangible asset resulting from the development of an individual project is only capitalised when it cumulatively meets the criteria for recognition stipulated in IAS 38. During the period of development, the asset is tested for impairment annually. Following the initial recognition of the development expenditure, the cost model is applied requiring the asset to be carried at cost less any accumulated amortisation and accumulated impairment losses. Amortisation of the asset begins when development is complete and the asset is available for use. Impairment of non-financial assets The Group assesses at each reporting date whether there is an indication that a non-monetary asset (property, plant and equipment; intangible assets, right-of-use assets) may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of the fair value of the asset or cash-generating unit less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used. The valuation model is based on a discounted cash flow method. Impairment losses are recognised in the income statement in those expense categories consistent with the function of the impaired asset. For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group makes an estimate of the recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If this is the case, the carrying amount of the asset is increased to its recoverable amount. This increased amount shall not exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised on the asset in prior years. Such reversal is recognised in profit or loss unless the asset is carried at a revalued amount, in which case the reversal is treated as a revaluation increase. Impairment losses recognised for goodwill are not reversed for subsequent increases in its recoverable amount. 7 Other receivables Other receivables consist mainly of advance payments. Upon initial recognition, other receivables are measured at fair value. Subsequently, they are measured at amortised cost, after deduction of any write-downs. A write-down is applied when objective indications suggest that the receivable may not be fully collectible. Investments and other financial assets Financial assets within the scope of IFRS 9 Financial Instruments are classified and subsequently measured at fair value through profit or loss, amortised cost, or fair value through OCI, as appropriate. The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Group’s business model for managing them. In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give rise to cash flows that are “solely payments of principal and interest (SPPI)” on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at instrument level. The Group’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both. For purposes of subsequent measurement, financial assets are classified in four categories: • Financial assets at amortised cost (debt instruments) • Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments) • Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon derecognition (equity instruments) • Financial assets at fair value through profit or loss Currently the most relevant to the group categories are: • Financial assets at amortised cost (debt instrument), which includes trade receivables • Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments) Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired. Financial assets at fair value through other comprehensive income are carried in the statement of financial position at fair value with net changes in fair value recognised in the other comprehensive income. This category includes listed debt investments. A financial asset is primarily derecognised (i.e., removed from the Group's consolidated statement of financial position) when: • The rights to receive cash flows from the asset have expired or • The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a 'pass-through' arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the Group has transferred its rights to receive cash flows from an asset, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Group continues to recognise the transferred asset to the extent of its continuing involvement. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained. 8 Fair value The fair value of investments that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the close of business on the balance sheet date. For investments where there is no active market, fair value is determined using valuation techniques. Such techniques include using recent arm’s length market transactions; reference to the current market value of another instrument which is substantially the same; discounted cash flow analysis or other valuation models. If the fair value of an unquoted equity instrument cannot be measured reliably, it is carried at cost. Impairment of financial assets carried at amortised cost The Group recognises an allowance for expected credit losses (ECL) for all debt instruments not held at fair value through profit or loss. For trade receivables and contract assets, the Group applies a simplified approach in calculating ECL in line with IFRS 9. A default on receivables expected over the respective term (stage 2 of the impairment model) is determined for trade accounts receivable based on historical default rates for a respective customer portfolio, adjusted for forward- looking factors specific to the debtors and the economic environment, based on segment and geographic allocation. When actions such as insolvency or comparable proceedings have been initiated or other substantial indications that receivables are impaired become apparent like a deterioration of the payment behaviour, the receivables are individually tested for impairment (stage 3 of the impairment model). All receivables more than 90 days overdue are tested for impairment. Impaired debts are written off when they are deemed uncollectable. In the reporting year, bad debt allowance on trade receivables was applied at a rate of 50 percent after 120 days overdue, 75 percent after 240 days overdue, and 100 percent after one year overdue. However, in certain cases the Group may also consider a financial asset to be uncollectable when external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full, before taking into account any credit enhancements held by the Group. The carrying amount of the asset is reduced through use of an allowance account. The amount of the loss is recognised in profit or loss. If the amount of the impairment loss decreases in a subsequent period and the decrease can be related objectively to an event occurring after the recognition of impairment, the impairment loss previously recognised is reversed. Any subsequent reversal of an impairment loss is recognised in profit or loss to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date. Treasury shares The Group’s own equity instruments that are repurchased (treasury shares) are deducted from equity. No gain or loss is recognised in the income statement on the purchase, sale, issue, or cancellation of the Group’s own equity instruments. Cash and cash equivalents Cash and cash equivalents in the statement of financial position comprise cash at banks and in hand. For the purpose of the consolidated cash flow statement, cash and cash equivalents consist of cash and cash equivalents as defined above. Provisions and accrued liabilities Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation although the respective due date or amount is still uncertain. If the effect of the time value of money is material, long-term provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost. Accrued liabilities are obligations to pay for goods or services received or delivered that have neither been paid, nor invoiced by the suppliers. Even though estimates are occasionally required to determine the amount or timing of accrued liabilities, the degree of uncertainty is generally much lower than for provisions. Accrued liabilities are recognised under trade payables. Contract liabilities 9 A contract liability is recognised if a payment is received or a payment is due (whichever is earlier) from a customer before the Group transfers the related goods or services. Contract liabilities are recognised as revenue when the Group performs under the contract. Current financial liabilities Current financial liabilities are liabilities, that must be settled in cash or other financial assets. Based on their nature, financial liabilities are measured at amortised costs and are derecognised upon settlement or cancellation. The Company accounts for a written call/put option over the 35 % non-controlling interest in ad pepper media Spain S.A. by considering a financial liability with the present value of the exercise price of the option. The Company assessed that the prerequisites for the transfer of the shares are fulfilled at the balance sheet date and therefore assumes the exercise of the put option by the holder in the exercise window during the coming financial year, classifying the liability as current. The attributable changes in the value of the financial liability are recognized in the equity component “other reserves”. Share-based payment transactions Equity-settled transactions Employees (including senior executives) of the Group receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments (“equity-settled transactions”). The cost of equity-settled transactions with employees is measured by reference to the fair value at the date on which they are granted. The fair value is determined by an external value using an appropriate pricing model, further details of which are given in Note [40]. The cost of equity-settled transactions (remuneration cost) is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (the “vesting date”). The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The income statement charge or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period. The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share (further details are provided in Note [15]. Cash-settled transactions A liability is recognised for the fair value of cash-settled transactions. The fair value is measured at modification date and at each subsequent reporting date up to and including the settlement date, with changes recognised in employee benefits expense in profit or loss. Revenue from contracts with customers The Group is in the business of providing performance marketing services, in which third parties provide services to its customers. When another party provides goods or services to its customers, the Group determines whether it is a principal or an agent in these transactions by evaluating the nature of its promise to the customer. The Company has concluded that it is acting as an agent in all of its revenue arrangements, as its role is restricted to arranging a third party that supplies ad inventory to deliver the ad to the end customer. Consequently, the Group records revenue at the net amount that it retains for its services, which is limited to campaign management, while media cost for ad inventory used is excluded from the revenue definition. For further explanations, please refer to Note [2]. Revenue from contracts with customers is recognised when the service is rendered. Depending on the requirements of the specific product, this usually occurs when successful transactions result from user action (CPA), ad impressions are generated (CPC) or personal data is provided (CPL). Gross sales represent the total amount billed and billable to clients by the Group, net of discounts, VAT and other sales-related taxes. Disclosure of gross sales information is not required under IFRS, however, it is voluntarily disclosed in the Consolidated Income Statement, as management has concluded that the information is useful for users of the financial statements. As all performance obligations have an original expected duration of less than one year and meet the requirement of the right to invoice practical expedient in IFRS 15.B16, the Company does not disclose the amount of the remaining performance obligations. Rendering of services Webgains Revenue in this segment is generated by placing the merchant’s advertising on publishers’ websites (affiliate marketing). By using the Webgains technology platform, appropriate publishers are selected for placement of the advertisements on websites likely to drive traffic back to the merchant’s website and consequently enhance the merchant’s transaction values. 10 The merchant pays us on a cost-per-action basis (CPA), which means that the merchant only pays when successful transactions result from the traffic. The price billed to the merchant consists of an override and a commission. The override is considered the amount the Group is entitled to for its services. The commission is the amount paid to our publishers and is excluded under IFRS 15 from the revenue definition. Consequently, commission to publishers is also not included in the Group’s cost of sales. The contractual agreement provides the customer with a recall period, where every occurred transaction can be cancelled within a certain period. Depending on the industry the transaction occurred in, the recall periods range from 30 days in the fashion and beauty industry up to 360 days for insurance, travel and mobile sales. Based on historical data, the Group calculates at year-end the amount to be recognised as return assets and refund liabilities for transactions in the recall period. ad pepper Revenue in the ad pepper segment is generated by marketing internet advertising space. Advertising customers book units (ad impressions, ad clicks, registrations, mail-outs, transactions) via the Company, and these are then supplied over a period defined by the customer. ad pepper customers pay us on the basis of cost per click (CPC), cost per lead (CPL) or cost per impression (CPM). All of the three billing methods consist of media costs owed to ad pepper’s delivery partners and a service charge as an amount levied by the Group for its services. The media cost is the amount paid to the delivery partners and is excluded under IFRS 15 from the revenue definition. Consequently, media costs are also not included in the Group’s cost of sales. In cases in which the campaign starts before the balance sheet date and lasts beyond this date, revenue is accounted proportionately based on the stage of completion at the end of the reporting period. Stage of completion is determined as the proportion of the costs incurred until the end of the reporting period in the total costs of the campaign, which can be reliably estimated. ad agents Revenue in the ad agents segment is mainly generated by providing search engine advertising. In these contractual agreements with clients where search engine providers are contracted by ad agents, and on its behalf the amounts billed to customers consist of media costs owed by ad agents to the search engine providers and a fee as a percentage of the media cost, the Group levies for its services. In other contractual arrangements, the search engine provider enters a direct contractual agreement with ad agents’ client, so that media costs are not invoiced by ad agents but are charged from search engine provider to client directly. In this case, the amount billed to the customer consists only of the fee as a percentage of the media cost. In both cases, the Group is only entitled to the service charge as a percentage of the media budget. Media costs billed to clients and owed to search engine providers for indirect billing agreements do not constitute revenue according to IFRS 15 and are consequently excluded from cost of sales. Interest income Interest income is recognised as it accrues using the effective interest rate method. Current income tax Current taxes are determined on the basis of annual earnings with due reference to national tax rates and tax legislation in the various tax jurisdictions valid as of the balance sheet date. Current income tax relating to items recognised directly in other comprehensive income is only recognised there and not in the income statement. Deferred income tax Deferred income tax is provided using the liability method on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences, except for goodwill, whereon the recognition is not permitted. Deferred income tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry forward of unused tax credits and unused tax losses can be utilised. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the 11 liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Deferred income tax relating to items recognised directly in other comprehensive income is only recognised there and not in the income statement. Deferred income tax assets and deferred income tax liabilities are offset if there is a legally enforceable right to set off current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority. BUSINESS COMBINATIONS [4] As in 2021, no business combinations occurred in the 2022 financial year. REVENUE FROM CONTRACTS WITH CUSTOMERS [5] Disaggregated revenue information The following is a breakdown of the Group’s revenue from contracts with customers, which is based on the invoicing country: For the year ended 31 December 2022 Segments ad pepper Webgains ad agents Total kEUR kEUR kEUR kEUR Geographical markets Germany 1,546 2,815 7,044 11,405 United Kingdom 0 7,824 0 7,824 Spain 1,378 1,714 0 3,092 Other 0 874 1,673 2,547 Revenue 2,924 13,227 8,717 24,868 12 For the year ended 31 December 2021 Segments ad pepper Webgains ad agents Total kEUR kEUR kEUR kEUR Geographical markets Germany 2,262 2,648 7,197 12,107 United Kingdom 0 10,480 0 10,480 Spain 1,675 1,775 0 3,450 Other 0 639 970 1,609 Revenue 3,937 15,542 8,167 27,646 includes Switzerland, France, Italy and the Netherlands. Contract balances 31/12/22 31/12/21 kEUR kEUR Contract liabilities 465 446 Contract liabilities include short-term advances received from customers during 2022 to render SEA (Search Engine Advertising) services in the ad agents segment. Performance obligations Information about the Group’s performance obligations is summarised below: ad pepper Service orders received from clients in accordance with framework agreements are generally short term in nature. The performance obligation is satisfied over time and usually occurs when the user provides personal data or when an impression is generated on the user’s device. Revenue therefore accrues each time the ad is displayed or personal data is entered by the user. Clients are invoiced monthly for the service delivered during the month based on the agreed transaction price multiplied by the delivered amounts. Payment is generally due within 14 days of invoicing. As all ads are placed on third-party ad inventory properties, the Group has no control over the advertising inventory before it is transferred to its customers, with the Group acting as an agent in all contractual arrangements. ad agents Service orders received from clients in accordance with annual framework agreements are generally short term in nature. The performance obligation resulting from each service order is satisfied over time and occurs when the user clicks on the phrase created and placed by ad agents on search engines. The customer pays on a CPC basis, which means that the customer pays ad agents only when a user clicks on the ad in the search engine. Clients are invoiced monthly for the services provided during the month as a percentage fee of the media budget used during the month or in case of indirect billing contracts as media budget used for third-party delivery partners plus a percentage fee of the media budget. The payments are due within 0 to 90 days from invoicing. 13 As all ads are placed on third-party ad inventory properties, the Group has no control over the advertising inventory before it is transferred to our customers, with the Group acting as an agent in all contractual arrangements. Webgains The performance obligation is satisfied over time and occurs when successful transactions result from traffic. Contracts with clients are generally concluded for periods of 12 months or less. The invoicing is transaction-based and is carried out monthly. The contract provides the customer with a recall period, in which any transaction can be cancelled within a certain period. Depending on the industry, the recall periods range from 30 days in the fashion and beauty industry and up to 360 days for insurance, travel and mobile sales. Based on historical data, at year-end the Group calculates the amount to be recognised as return assets and refund liabilities for transactions in the recall period. As at 31 December 2022 and 31 December 2021, the Group’s calculation resulted in amounts that have no material impact on the revenue recognised in the financial year. As all performance obligations have an original expected duration of less than one year and meet the requirement of the right to invoice practical expedient in IFRS 15.B16, the Company does not disclose the amount of the remaining performance obligations. SEGMENT REPORTING [6] IFRS 8 requires entities to report financial and descriptive information on their reportable segments. Reportable segments are operating segments or aggregations of operating segments that meet specific criteria. Operating segments are components of an entity for which separate financial information is available that is evaluated regularly by the chief operating decision-maker in deciding how to allocate resources and in assessing performance. Generally, financial information must be reported on the same basis as it is used internally for evaluating operating segment performance and deciding how to allocate resources to operating segments. Financial information reported to the Group’s chief operating decision-maker for the purposes of resource allocation and assessment of segment performance is focused on the category Segment profit, reflecting the EBIT (Earnings before interest and taxes) or EBITDA (Earnings before interest, taxes, depreciation and amortisation) earned by each segment as stipulated by the IFRS. This is the measure reported to the chief operating decision-maker for the purposes of resource allocation and assessment of segment performance. The basis of accounting for intersegment transactions is the “dealing at arm’s length” principle. 14 Financial year 2022 ad Webgains ad Admin Intersegment Group pepper agents elimination kEUR kEUR kEUR kEUR kEUR kEUR Gross sales 6,066 64,009 28,155 243 -244 98,229 Thereof external 6,066 64,009 28,154 0 0 98,229 Thereof intersegment 0 0 1 243 -244 0 Revenue 2,924 13,227 8,718 243 -244 24,868 Thereof external 2,924 13,227 8,717 0 0 24,868 Thereof intersegment 0 0 1 243 -244 0 Gross profit 2,592 12,496 8,375 243 -1 23,704 Expenses (including cost of sales) and other income -3,172 -12,801 -7,634 -1,317 243 -24,681 Thereof amortisation and depreciation -140 -445 -273 -230 0 -1,088 Thereof other non-cash expenses -7 -483 0 -55 0 -545 Thereof other non-cash income 209 984 7 53 0 1,254 EBITDA -108 871 1,358 -845 -1 1,275 Operating profit -248 425 1,085 -1,074 -1 187 Financial income 0 16 0 60 -15 62 Financial expenses -7 -31 -17 -152 15 -192 Income taxes -99 -27 -180 0 0 -306 Net income for the year -355 386 888 -1,166 -1 -250 15 Financial year 2021 ad pepper Webgains ad agents Admin Intersegment Group elimination kEUR kEUR kEUR kEUR kEUR kEUR Gross sales 7,983 77,723 25,893 319 -325 111,593 Thereof external 7,979 77,722 25,892 0 0 111,593 Thereof intersegment 4 1 1 319 -325 0 Revenue 3,941 15,542 8,168 319 -324 27,646 Thereof external 3,937 15,542 8,167 0 0 27,646 Thereof intersegment 4 0 1 319 -324 0 Gross profit 3,524 14,987 7,762 319 -5 26,587 Expenses (including cost of sales) and other income -3,473 -12,615 -6,693 -1,990 319 -24,452 Thereof amortisation and depreciation -136 -547 -247 -254 0 -1,184 Thereof other non-cash expenses -5 -222 0 0 0 -227 Thereof other non-cash income 475 857 9 64 0 1,405 EBITDA 604 3,474 1,722 -1,417 -5 4,378 Operating profit 468 2,927 1,475 -1,671 -5 3,194 Financial income 0 6 0 74 -2 78 Financial expenses -8 -28 -17 -65 2 -116 Income taxes -155 -111 -326 0 0 -592 Net income for the year 305 2,794 1,132 -1,662 -5 2,564 Gross sales represent the total amount billed and billable to clients by the Group, net of discounts, VAT and other sales- related taxes. Disclosure of gross revenue information is not required under IFRS; however, it is voluntarily disclosed from 1 January 2018 onwards in the Consolidated Income Statement since management has concluded that the information is useful for users of the financial statements 16 Geographical information The Group operates in three principal geographical areas – the United Kingdom, Germany and Spain. The Group also operates in Switzerland, France, Italy and the Netherlands, which are grouped in the table below under “other”. The Group’s revenue from continuing operations from external customers and information about its non-current assets by geographical location are detailed below whereby non-current assets are shown exclusive of financial instruments: Revenue from Non-current assets external customers Year Year 2022 2021 ended ended 2022 2021 kEUR kEUR kEUR kEUR Germany 11,405 12,107 775 1,161 United Kingdom 7,824 10,480 795 600 Spain 3,092 3,450 244 302 Other 2,547 1,609 108 88 24,868 27,646 1,922 2,151 Total NOTES TO THE INCOME STATEMENT [7] The income statement was prepared using the function of expense method. The expenses include personnel expenses of EUR 17,533k (2021: EUR 16,553k) as well as depreciation and amortisation of EUR 1,088k (2021: EUR 1,184k), thereof EUR 570k (2021: EUR 698k) depreciation on right-of-use assets. Amortisation of intangible assets is included in selling expenses EUR 312k (2021: EUR 287k) and administration expenses EUR 35k (2021: EUR 26k). The personnel expenses include the employer’s contribution to state pension schemes amounting to EUR 1,003k (2021: EUR 955k), which must be disclosed as employer’s contribution to a defined contribution plan. MEDIA COST AND COST OF SALES [8] Media cost 2022 2021 kEUR kEUR ad pepper 3,142 4,043 ad agents 19,437 17,725 Webgains 50,782 62,179 Total media cost 73,361 83,947 COS 1,164 1,059 Total 74,525 85,006 17 Cost of sales predominantly comprises third-party data centre services, professional fees and other purchased services. SELLING AND MARKETING EXPENSES [9] This item comprises all costs associated with attracting customers and orders. The expenses are broken down as follows: 2022 2021 kEUR kEUR Personnel costs 13,165 11,869 Facility costs 96 85 Advertising and sales promotion 337 370 Professional and other services 1,236 1,809 General operating costs (communication, travel, other supplies) 1,475 1,319 Other 329 287 16,638 15,739 Total 18 GENERAL AND ADMINISTRATIVE EXPENSES [10] The expenses are broken down as follows: 2022 2021 kEUR kEUR Personnel costs 4,369 4,684 Depreciation on right-of-use assets 548 674 Other facility costs 559 714 Professional and other services 947 938 General operating costs (communication, travel, other supplies) 689 657 Other 52 40 7,164 7,707 Total OTHER OPERATING INCOME [11] Other operating income consists of the following: 2022 2021 kEUR kEUR Gains on sale of property, plant and equipment 0 57 Income from the release of accrued liabilities 894 449 Other 42 24 937 530 Total Income from the release of accrued liabilities includes an amount of EUR 735k (2021: EUR 276k) relating to reversals of non-disbursed affiliate credits in the Webgains segment that the ad pepper Group believes are unlikely to be paid out and reversals of EUR 159k in connection with time-barred claims (2021: EUR 173k). 19 OTHER OPERATING EXPENSES [12] Other operating expenses consist of the following: 2022 2021 kEUR kEUR Losses on sale of property, plant 54 0 and equipment Foreign exchange losses 35 189 Expected credit losses on trade receivables 448 227 Other 114 61 Total 651 477 FINANCIAL RESULT, NET [13] Net financial result consists of the following: 2022 2021 kEUR kEUR Interest income 62 27 Unrealized gains from securities measured at” fair value through profit or loss“ 0 51 62 78 Interest expenses -40 -81 Interest on lease liabilities -33 -35 Losses from sale of securities -115 0 Other -4 0 -192 -116 -130 -38 Financial income Financial expenses Net financial result 20 INCOME TAXES [14] Income tax expenses 2022 2021 kEUR kEUR Current income tax expenses -464 -545 Deferred income tax income/(expense) 158 -47 Total -306 -592 The current income taxes reported relate to the taxes paid or payable by individual local entities. The calculation of the deferred taxes was based on the country-specific tax rates. Due to the existing unused tax losses in ad pepper media International N.V., ad pepper media France S.A.R.L. and ad pepper media USA LLC, deferred tax assets of EUR 10,551k (2021: EUR 9,925k) were calculated on the basis of the unused tax losses of EUR 34,416k (2021: EUR 32,301k). Deferred tax assets from unused tax losses were recorded to the extent that it is probable that future taxable profit is available against which they can be utilised within a foreseeable planning period. Thus, an amount of deferred tax assets of EUR 76k (2021: EUR 0k) has been recognised for the tax loss carry forwards. All of the available tax loss carry forwards are non-expiring. The deferred tax asset for the tax loss carry forward is calculated with the local substantially enacted future tax rate on the budgeted taxable income for the following financial year. In addition to the unused tax losses, the following significant deferred tax liabilities result from temporary differences: Deferred tax liabilities 2022 2021 kEUR kEUR Other 0 81 Total 0 81 Changes in deferred tax liabilities on temporary differences recognised in profit or loss amount to EUR 79k (2021: EUR 47k). The change in deferred tax assets on temporary differences recognised in profit or loss amounts to EUR 3k (2021: EUR 0k). Deferred tax assets and liabilities are netted if the Company has the legally enforceable right to set off current tax assets against current tax liabilities and if they relate to the same tax authorities and the same taxable entity. As a result, deferred tax assets of EUR 79k (2021: EUR 0k) and deferred tax liabilities of EUR 0k (2021: EUR 81k) were recognised in the statement of financial position. Deferred tax assets and liabilities are classified as non-current. Deferred tax assets of EUR 0k (2021: EUR 0k) on tax losses are recognised for companies with a history of losses. No deferred tax liabilities were recognised as of 31 December 2022 (2021: EUR 0k) for taxes on non-distributed profits of subsidiaries. If deferred taxes were to be recognised for these temporary differences, only the source tax rates applicable in each case, where appropriate taking into account the German tax of 5 percent on the distributed dividends, would have to be applied for the computation. ad pepper media International N.V. has its tax domicile in Germany and forms a fiscal unity with ad pepper media GmbH and Webgains GmbH. The reconciliation between expected income tax expense and actual income tax expense based on the German statutory tax rate (combined corporate income tax and trade tax on income) of 32.17 percent (2021: 32.17 percent) is as follows: 2022 2021 21 kEUR kEUR Expected income tax 28 -1,015 Effect of lower tax rate in other jurisdiction 184 373 Tax-free gains 4 5 Prior year income tax -7 178 Gains on databases sold intercompany -53 0 Amortization on databases sold intercompany 18 0 Utilisation of previously unrecognised tax losses 48 86 Current year tax losses not recognised -524 -337 Non-taxable stock option income/(expense) -27 135 Deferred taxes on losses prior year 76 0 Non-tax-deductible expenses and other -53 -17 -306 -592 Actual income tax expenses EARNINGS PER SHARE [15] Basic earnings per share are calculated by dividing net profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share are calculated by dividing the net profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares. 22 The income and share data used in the computations of basic and diluted earnings per share are as follows: 2022 2021 Net income/(loss) attributable to shareholders of the parent company in kEUR -893 1,725 Number of shares at the beginning of the period 20,491,197 20,920,181 Number of shares at the end of the period 20,257,872 20,491,197 Weighted average number of shares outstanding (basic) 20,278,249 20,735,183 Basic earnings per share in EUR -0.04 0.08 Weighted average number of shares outstanding (diluted) 20,278,249 20,977,243 Diluted earnings per share in EUR -0.04 0.08 The weighted average number of shares outstanding in 2022 was calculated on a daily basis. In 2022, the options granted resulted in no dilution (2021: 242,060 shares). No new shares in ad pepper media International N.V. were admitted for trading on the Frankfurt Stock Exchange in 2022 (2021: 0 shares). In September 2021, the Company started a share repurchase programme, which was concluded on 21 February 2022. During this time 500,000 shares with a value of EUR 2,682k were acquired (2021: 461,384 shares). No treasury shares (2021: 32,400 shares) were sold in connection with the exercise of employee stock options. Diluted earnings per share are computed based on the weighted average number of ordinary shares outstanding, including the dilutive effect of shares to be issued in the future under certain arrangements such as option plans. NON-CURRENT ASSETS INTANGIBLE ASSETS [16] In 2022 and 2021, no software IT solutions were developed in-house for the Company’s own use, and therefore none were capitalised. Expenses were related to maintenance. Additions mainly relate to an amount of EUR 68k in connection with the purchase of additional software for operational and administrative purposes. Software and databases are amortised over a useful life of three to five years. Trademarks are amortised over a useful life of 12 years. 23 MOVEMENT SCHEDULE OF INTANGIBLE ASSETS AND PROPERTY, PLANT AND EQUIPMENT [17] Accumulated Historical cost depreciation/amortisation/impairment Book value Financia Balan Addit Dispo Excha Balance Balanc Deprecia Dispo Excha Balance Financi Previou l year ce at ions sals nge at e at tion/ sals nge at al year s 2022 1/1/ differe 31/12/ 1/1/ amortisa differe 31/12/ 31/12/ year 2022 nces 2022 2022 tion nces 2022 2022 31/12/ 2021 kEUR kEUR kEUR kEUR kEUR kEUR kEUR kEUR kEUR kEUR kEUR kEUR Intangib le assets Softwa re 3,030 108 0 -57 3,081 -2,404 -347 0 42 -2,709 372 626 Brands and custo mer bases 644 0 0 0 644 -642 0 0 0 -642 2 2 Total 3,674 108 0 -57 3,725 -3,046 -347 0 42 -3,351 374 628 Propert y, plant and equipm ent Other equip ment, operat ional and office equip ment 1,562 111 -512 -33 1,128 -1,216 -168 459 27 -898 230 346 Total 5,236 219 -512 -90 4,853 -4,262 -515 459 69 -4,249 604 974 24 Accumulated Historical cost depreciation/amortisation/impairment Book value Financia Balan Addit Dispo Excha Balance Balanc Deprecia Dispo Excha Balance Financi Previou l year ce at ions sals nge at e at tion/ sals nge at al year s 2021 1/1/ differe 31/12/ 1/1/ amortisa differe 31/12/ 31/12/ year 2021 nces 2021 2021 tion nces 2021 2021 31/12/ 2020 kEUR kEUR kEUR kEUR kEUR kEUR kEUR kEUR kEUR kEUR kEUR kEUR Intangib le assets Softwa re 2,786 178 0 66 3,030 -2,052 -312 0 -40 -2,404 626 734 Brands and custo mer bases 644 0 0 0 644 -641 -1 0 0 -642 2 3 Total 3,430 178 0 66 3,674 -2,693 -313 0 -40 -3,046 628 737 Propert y, plant and equipm ent Other equip ment, operat ional and office equip ment 1,441 121 -39 39 1,562 -1,029 -176 0 -11 -1,216 346 412 Total 4,871 299 -39 105 5,236 -3,722 -489 0 -51 -4,262 974 1,149 25 NON-CURRENT SECURITIES [18] Overview about debt and marketable securities: 2022 Debt Marketable Total securities securities kEUR kEUR kEUR Book value 1/1 1,007 2,050 3,057 Reclassification into current securities -1,007 0 -1,007 Purchase 0 0 0 Sale 0 -1,935 -1,935 Realised gains / losses (- ) 0 -115 -115 Unrealised gains/losses (-) 0 0 0 Book value 31/12 0 0 0 2021 Debt Marketable Total securities securities kEUR kEUR kEUR Book value 1/1 1,012 0 1,012 Purchase 0 1,999 1,999 Unrealised gains/losses (-) -5 51 46 Book value 31/12 1,007 2,050 3,057 26 Securities classified at “fair value through profit or loss” 2022 2021 kEUR kEUR Book value 1/1 2,050 0 Purchase 0 1,999 Sale -1,935 0 Realized gains / /losses (-) recognised in profit or loss -115 51 0 2,050 Book value 31/12 OTHER FINANCIAL ASSETS [19] Other financial assets consist of the following and are measured at amortised cost: 31/12/22 31/12/21 kEUR kEUR Deposits 184 391 184 391 Total The maturities of the other financial assets as at the end of the period are as follows: 31/12/22 31/12/21 kEUR kEUR Due in between one and five years 184 391 Due in more than five years 0 0 184 391 Total 27 CURRENT ASSETS CURRENT SECURITIES [20] Overview about current securities: 2022 Debt Deposits Total securities kEUR kEUR kEUR Book value 1/1 0 0 0 Reclassification into current securities 1,007 85 1,092 Purchase 0 5,000 5,000 Sale 0 0 0 Realised gains / losses (- ) 0 0 0 Unrealised gains/losses (-) -16 0 -16 Book value 31/12 991 5,085 6,076 Securities classified at “fair value through other comprehensive income” 2022 2021 kEUR kEUR Book value 1/1 0 0 Reclassification into current securities 1,007 Purchase 0 0 Unrealised gains/losses (-) recognised in other comprehensive income -16 0 28 Book value 31/12 991 0 TRADE RECEIVABLES [21] Trade receivables are initially measured at fair value and subsequently carried at amortised cost. Trade receivables consist of the following: 31/12/22 31/12/21 kEUR kEUR Trade receivables, gross 18,481 19,851 Provision -913 -532 Trade receivables, net 17,568 19,319 Trade receivables are only due from third-party customers, are non-interest bearing and generally have a term of 0 to 90 days. The provision is calculated on the basis of all information available to the Company and includes all expected credit losses on receivables as of 31 December 2022. For further information, please refer to Notes [3] and [41]. As at 31 December 2022, all campaigns were billed to the extent that revenue was recognised. Consequently, the amount of contract assets is nil. OTHER RECEIVABLES [22] Other receivables consist of the following: 31/12/22 31/12/21 kEUR kEUR Value-added tax receivables 67 129 Prepayments 242 269 309 398 Total INCOME TAX RECEIVABLES [23] Income tax receivables include tax prepayments on capital gains of EUR 549k (2021: EUR 306k). 29 OTHER CURRENT FINANCIAL ASSETS [24] Other current financial assets consist of the following: 31/12/22 31/12/21 kEUR kEUR Bonus payments from delivery partners 109 0 Rental deposits 98 0 Other 51 26 Total 258 26 reclassified from non-current into current financial assets CASH AND CASH EQUIVALENTS [25] This item includes cash at banks and cash in hand. For the purpose of the consolidated cash flow statement, cash and cash equivalents comprise cash at banks and on hand of EUR 17,008k (2021: EUR 20,704k). EQUITY ISSUED CAPITAL [26] No new shares in ad pepper media International N.V. were admitted for trading on the Frankfurt Stock Exchange in 2022 (2021: 0 shares). The issued capital of ad pepper media International N.V. comprises 21,500,000 (2021: 21,500,000) bearer shares each with a nominal value of EUR 0.05 and is fully paid in. SHARE PREMIUM [27] The capital reserve mainly comprises the premium paid upon share issues. RESERVES [28] Reserves include treasury reserves with a value of EUR -6,138k (2021: EUR -4,906k). Under the shareholder resolution of 18 May 2021, the ad pepper Group was authorised to repurchase treasury stock of up to 50 percent of the issued capital within the following 18 months. The Company made partial use of this authorisation on 2 August 2021 to repurchase up to a maximum of 500,000 of its own shares for a total maximum amount of up to EUR 3,000,000. The share buy-back took place between 1 September 2021 and 21 February 2022. As a consequence, as of 31 December 2022, 500,000 shares with a value of EUR 2,681,816 were repurchased under this buy-back programme. As of 31 December 2022, the Company held 1,242,128 treasury shares (2021: 1,008,803) at a nominal value of EUR 0.05 each, which equals 5.78 percent (2021: 4.69 percent) of the share capital. According to a shareholder resolution, those shares can only be used for a stock option plan (“SOP”) or the cancellation of shares. No shares were sold under the 30 employee stock option plan (2021: 32,400 shares), no cash settlements of equity settled stock option plans occurred (2021: 135,000 shares). The number of shares issued and outstanding as at 31 December 2022 totalled 20,257,872 (2021: 20,491,197). Each share has a nominal value of EUR 0.05. Reserves include also the expenses incurred for stock option plans amounting to EUR 2,906k (2021: EUR 2,827k) and the currency translation reserve amounting to EUR -1,153k (2021: EUR -1,162k). The authorised share capital of the Company amounts to EUR 4,000,000, divided into 80,000,000 shares with a par value of EUR 0.05 each. The Board of Directors is authorised, upon approval by the Supervisory Board, to issue shares until 16 May 2027, or to grant rights to subscribe for shares until the issued share capital amounts to EUR 2,000,000. Other comprehensive income The total other comprehensive income recognised directly in equity and the corresponding income taxes are as follows: 2022 Before Income After income taxes income taxes taxes Currency translation differences 28 0 28 Revaluation of listed debt securities -15 0 -15 Total other comprehensive income 13 0 13 2021 Before Income After income taxes income taxes taxes Currency translation differences 236 0 236 Revaluation of listed debt securities -6 0 -6 Total other comprehensive income 230 0 230 31 NON-CONTROLLING INTERESTS [29] Non-controlling interests comprise non-controlling interests in the following subsidiaries as at 31 December 2022 and 2021. Location non-controlling interest in percent ad pepper media Spain S.A. Madrid / Spain 35 Webgains S.L. Madrid / Spain 35 Ad agents GmbH Herrenberg / Germany 40 Pontresina / Ad agents AG Switzerland 40 These result from the acquisition of 60 percent of the shares in ad agents GmbH and from the sale of a 35 percent share in ad pepper media Spain S.A. in recent years. Webgains S.L. and ad agents AG has been incorporated in 2020. The net income/loss for the year is allocated proportionately to the non-controlling interests. In 2022, non-controlling interests in ad pepper media Spain S.A. received a dividend payment of EUR 379k (2021: EUR 323k), while non-controlling interests of ad agents GmbH received a dividend in 2022 of EUR 160k (2021: EUR 260k). Summarised financial information in respect of ad pepper media’s subsidiaries that have material non-controlling interest as at 31 December 2022, reflecting 100 percent of the underlying subsidiary’s relevant figures, is set out on the following page: 32 ad agents GmbH ad agents AG ad pepper media Spain Webgains S.L S.A. 31/12/22 31/12/21 31/12/22 31/12/21 31/12/22 31/12/21 31/12/22 31/12/21 kEUR kEUR kEUR kEUR kEUR kEUR kEUR kEUR Non-current assets 395 515 136 4 80 74 207 276 Current assets 6,861 4,557 2,135 1,115 1,098 1,465 1,816 2,139 7,255 5,072 2,271 1,119 1,178 1,539 2,023 2,415 Non-current liabilities 788 120 0 0 2 2 130 197 Current liabilities 5,095 3,280 703 396 542 712 1,313 1,556 5,883 3,400 703 396 544 714 1,443 1,754 1,372 1,672 1,567 722 635 825 579 661 Equity attributable to owners of the Company 823 1,003 940 433 635 825 579 661 Non- controlling interests after reclassification into current liabilities in conjunction with put option 549 668 627 289 0 0 0 0 Non- controlling 40 35 interests in 40 35 percent 40 40 35 35 Total assets Total liabilities Net assets after reclassification into current financial liabilities. For further information on the written put option please refer to Note [2] and Note [34]. 33 ad agents GmbH ad agents AG ad pepper media Spain Webgains S.L S.A. 2022 2021 2022 2021 2022 2021 2022 2021 kEUR kEUR kEUR kEUR kEUR kEUR kEUR kEUR Revenue 7,046 7,197 1,673 970 1,378 1,675 1,175 1,265 Expenses 6,945 6,667 897 336 1,110 1,211 632 633 Net profit/(loss) for the year 101 529 776 634 268 464 543 631 Profit attributable to owners of the Company 61 318 465 380 173 302 353 410 Profit attributable to non-controlling interests 40 211 310 254 93 162 190 221 Other comprehensive income attributable to owners of the Company 0 0 0 0 0 0 0 0 Other comprehensive income attributable to non-controlling interests 0 0 0 0 0 0 0 0 Total comprehensive income/loss for the year 101 529 776 634 268 464 543 631 Net cash inflow/(outflow) from operating activities 1,731 884 1,023 738 328 585 508 1,000 Net cash inflow/(outflow) from investing activities -50 -41 -2 0 -40 -3 0 0 34 Net cash inflow/(outflow) from financing activities -561 -814 0 0 -467 -935 -692 -108 Total net cash inflow/(outflow) 1,120 29 1,021 738 -179 -353 -184 892 NON-CURRENT LIABILITIES OTHER LONG-TERM LIABILITIES [30] Other long-term liabilities consist of the following: 31/12/22 31/12/21 kEUR kEUR Employee benefits liability 0 157 Lease liability 840 708 840 865 Total The employee benefits liability relates to the obligation resulting from the cash-settled stock option plans. The decrease was a non-cash change due to a cancellation of the stock option plan. For further details on cash-settled stock option plans, please refer to Note [39]. During the year, lease liabilities including interests were paid for an amount of EUR 585k (2021: EUR 792k). Please refer to Note [42] for cash flow and non-cash-flow changes. Reductions in other long-term liabilities resulted in cash-flow changes. The maturities of the other long-term liabilities as of the end of the period are as follows: 31/12/22 31/12/21 kEUR kEUR Due in between one and five years 840 865 Due in more than five years 0 0 840 865 Total CURRENT LIABILITIES TRADE PAYABLES [31] Trade payables include accrued liabilities and are recognised at amortised cost. Accrued liabilities for affiliate credits not yet disbursed in the Webgains segment amount to EUR 15,207k (2021: EUR 16,015k). 35 CONTRACT LIABILITIES [32] Contract liabilities consist of short-term advances for search engine advertising services from clients in the ad agents segment. 2022 2021 kEUR kEUR At 1 January 446 273 Deferred during the year 519 613 Recognised as revenue during the year -509 -440 Exchange differences 9 0 465 446 At 31 December OTHER LIABILITIES [33] Other liabilities consist of the following: 31/12/22 31/12/21 kEUR kEUR Value-added tax liabilities 1,416 1,725 Liabilities for payroll tax and social security contributions 377 392 Employee holiday accrual 178 169 Other 260 0 2,231 2,286 Total OTHER FINANCIAL LIABILITIES [34] Other financial liabilities consist of the following: 31/12/22 31/12/21 Restated 36 kEUR kEUR Liability for written put option 2,495 3,332 Bonuses and commissions 317 618 Accrued liabilities for outstanding invoices 213 474 Current lease liabilities 523 505 Other 3 12 3,551 4,941 Total * For further details on the restatement please refer to Note [2} Accounting Principles RELATED PARTY DISCLOSURES [35] Pursuant to the IAS 24 definition, the Board of Directors and members of the Supervisory Board have been identified as related parties. The compensation paid to all members of these boards is based exclusively on their functions as individuals in key positions. Further information about the compensation paid to these individuals can be found in Note [40]. All entities over which the Supervisory Board Chairman Michael Oschmann has significant influence are considered as related parties to the Company. Sales to Amounts owed related parties by related parties Entity with significant 2022 2021 2022 2021 influence over the Group: Sellwerk GmbH & Co. KG 144 0 79 0 The amounts are classified as trade receivables (Note [21]). Terms and conditions of transactions with related parties The sales to related parties are made on terms equivalent to those that prevail in at arm’s length transactions. Outstanding balances at the year-end are unsecured and interest free, and settlement occurs in cash. As at 31 December 2022, the Group recognised no provision for expected credit losses in respect of amounts owed by related parties. LITIGATION AND CLAIMS [36] Neither the ultimate parent nor any of its subsidiaries are involved in any material litigation with third parties. CONTINGENT LIABILITIES AND OTHER FINANCIAL OBLIGATIONS [37] ad pepper media International N.V. has provided guarantees for all outstanding liabilities of its subsidiary, ad pepper media GmbH (register number: HRB 16494) as at 31 December 2022, until these are satisfied in full. As a result, the individual local statutory accounts of ad pepper media GmbH are exempt from audit under the requirements of Section. 264 para. 3 of the 37 German Commercial Code (HGB). As at 31 December 2022, ad pepper media GmbH’s outstanding liabilities amounted to EUR 613k (2021: EUR 1,860k). ad pepper media International N.V. has provided guarantees for all outstanding liabilities of its subsidiary, ad agents GmbH (register number: HRB 16494) as at 31 December 2022, until these are satisfied in full. As a result, the individual local statutory accounts of ad agents GmbH are exempt from audit under the requirements of Section 264 para. 3 of the German Commercial Code (HGB). As at 31 December 2022, ad agents GmbH’s outstanding liabilities amounted to EUR 6,432k (2021: EUR 4,069k). ad pepper media International N.V. has provided guarantees for all outstanding liabilities of its subsidiary Webgains GmbH (registered number: HRB 37198) that existed as at 31 December 2022, until these are satisfied in full. As a result, the individual local statutory accounts of Webgains GmbH are exempt from audit under the requirements of Section 264 Para. 3 German Commercial Code (HGB). As at 31 December 2022, the outstanding liabilities of Webgains GmbH amount to EUR 4,261k (2021: EUR 4,407k). Other financial obligations mainly result from short-term office leases and office equipment. The future minimum payment obligations resulting from the contracts in place as at 31 December 2022 are as follows: < 1 year > 1 year > 5 years Total to 5 years kEUR kEUR kEUR kEUR Other financial obligations 411 6 0 417 ADDITIONAL CASH FLOW INFORMATION [38] The following information is provided to supplement the statement of cash flows: Other non-cash expenses and income comprises expenses for allocation to and income from the release of valuation allowances on trade receivables and expenses from writing down receivables. This item also includes write-downs of affiliate credits not yet disbursed and reversals of time-barred claims. STOCK OPTION PROGRAMMES [39] Options granted under the Ongoing SOP are subject to the following provisions: An employee equity-participation programme involving 30,000 options was launched for Supervisory Board members (“Executive SOP 2017 SB”). The plan retains the Company the right to fulfil its commitment to transfer shares by paying to the beneficiary a cash amount equal to the difference between the issue price and the average closing price on Xetra during the last ten trading days before exercising the option. The valuation was carried out by simulation (Monte Carlo method). The volatility was calculated from the development of the Company's share price between 1 February 2011 and 28 February 2017. The shares may be exercised over a period of four years, but at the earliest one year after being granted. The fair value of the individual tranches at the time of granting is between EUR 0.390 and EUR 0.654 per issued option. The maximum cost of the programme over the entire period is EUR 16k. An employee equity-participation programme involving 250,000 options was launched for the members of the Board of Directors in 2020 (“SOP 2020 BoD”). The plan retains the Company the right to fulfil its commitment to transfer shares by paying to the beneficiary a cash amount equal to the difference between the issue price and the average closing price on Xetra during the last ten trading days before exercising the option. The valuation was carried out by simulation (Monte Carlo method). The volatility was calculated from the development of the Company's share price between 1 October 2014 and 30 September 2020. The options may be exercised over a period of four years at 25 percent each year, but at the earliest one year after being granted. The fair value of the individual tranches at the time of granting is between EUR 0.735 and EUR 1,223 per issued option. The maximum cost of the programme over the entire period is EUR 250k. 38 In October 2021 after the first vested tranche was settled in cash, this plan was reclassified from an equity-settled into a cash- settled option plan. At modification date the Company recognised a liability for employee benefits based on the fair value of the cash-settled award, posting the corresponding debit of EUR 155k as equity. The liability for the cash-settled SOP is measured at the end of each reporting period until settled, at the fair value. The original terms and conditions of Executive SOP 2020 BoD have not changed. At 1 December 2022 the remaining 187,500 options have been waived by the holder for no consideration. The carrying amount of the liability relating to the cash-settled SOP 2020 BoD has been released and amounts at 31 December 2022 to EUR 0k (2021: EUR -155k). An employee equity-participation programme involving 440,000 options was launched for executive employees in 2020 (“SOP 2020 BoD”). The plan retains the Company the right to fulfil its commitment to transfer shares by paying to the beneficiary a cash amount equal to the difference between the issue price and the average closing price on Xetra during the last ten trading days before exercising the option. The valuation was carried out by simulation (Monte Carlo method). The volatility was calculated from the development of the Company's share price between 1 October 2014 and 30 September 2020. The options may be exercised over a period of four years at 25 percent each year, but at the earliest one year after being granted. The fair value of the individual tranches at the time of granting is between EUR 0.735 and EUR 1,223 per issued option. The maximum cost of the programme over the entire period is EUR 441k. SOP SOP SOP 2017 2020 2020 (BoD, (BoD) (MD) MD, SB) Share price when granted, in EUR 1.94 3.56 3.56 Date of grant 11/4/17 2/10/20 2/10/20 Exercise price, in EUR 1.9751 3.50 3.50 Risk-free interest rate, in percent -0.36 -0.72 -0.72 Estimated term, in years 7 7 7 Future dividend, in EUR 0.05 0.05 0.05 Estimated volatility, in percent 51 48 48 The average share price during 2022 was EUR 2.90 (2021: EUR 5.74). The personnel expense recognised for employee services received during the year is shown in the following table: 2022 2021 Expense arising from equity-settled share-based payment transactions 174 165 Expense/(income) arising from the measurement of the liability for cash-settled share- based payment transactions -250 206 39 Total expense/(income) arising from share-based payment transactions -76 371 The following table shows the changes in the options during the financial year 2022: 2022 2021 Weighted Weighted average average exercise price exercise price 2022 2021 Options outstanding at the beginning of the financial year 617,500 922,400 3.49 3.14 Options granted during the financial year 0 0 0 0 Options forfeited during the financial year 0 0 0 0 Options exercised during the financial year 0 -304,900 0 2.42 Options cancelled during the financial year -187,500 0 3.50 0 Options outstanding at the end of the financial year 430,000 617,500 3.48 3.49 Exercisable options as of 31 December 0 100,000 0 3.42 Range of exercise prices of outstanding options as of 31 December 1.9751-3.50 1.9751-3.50 0 0 The weighted exercise price of stock options exercised during 2022 amounts to EUR 0 (2021: EUR 2.42). All outstanding stock option programmes have an expiration date. For the remaining stock option programme, the average remaining contractual life amounts to 4 years. TOTAL REMUNERATION OF KEY MANAGEMENT [40] 2022 2021 kEUR kEUR Short-term employee benefits 316 452 Post-employment benefits (pensions and health insurance) 17 3 Stock options 0 183 333 638 Total remuneration of key management The amounts shown in the table above are recognised as expenses during the reporting period. Income resulting from the share-based payments is due to the decreased fair value of the cash settled stock option plan and the corresponding 40 adjustment of the liability through profit or loss. Options to purchase shares of the Company held by the members of the Board of Directors have the following expiration dates and exercise prices: 41 Expiration Exercise 31/12/22 31/12/21 price EUR Number Number SOP 2020 BoD 0 187,500 FINANCIAL INSTRUMENTS [41] The classes of financial instruments within the meaning of IFRS 7.6 are defined in accordance with the categories of financial instruments in IFRS 9. IFRS 9 contains three categories for classifying financial assets: “measured at amortised cost”, “measured at fair value through profit or loss” and “measured at fair value through other comprehensive income.” 1. Capital risk management The Group manages its capital with the aim of optimising returns on investments in business entities by optimising the debt equity ratio and maximising its shareholder value by maintaining a high credit rating and a good equity ratio. At the same time, the Group ensures that entities can operate under the going concern assumption. The capital structure of the Group consists of liabilities other than borrowings, cash and cash equivalents, securities measured at fair value through other comprehensive income and marketable instruments at fair value through profit or loss, and the equity attributable to the parent company’s shareholders, consisting of issued shares in circulation, the capital reserve, retained earnings brought forward and other equity items. Net indebtedness The Group manages its capital structure and makes adjustments to it that take into account changes in the general economic environment. In order to maintain or adjust the capital structure, the Group can make dividend payments or pay back capital to the shareholders, issue new shares or buy back its own shares. No changes in the objectives, guidelines and procedures were made as at 31 December 2022 compared to 31 December 2021. Negative net indebtedness means that the Group is debt-free. Net indebtedness at the end of the year was as follows: 31/12/22 31/12/21 Restated kEUR kEUR Current and non-current financial liabilities 25,227 25,896 Cash and cash equivalents -17,008 -20,704 Listed debt and marketable securities -6,076 -3,057 2,144 2,135 Equity per balance sheet including non-controlling interest 15,666 16,756 14 13 Net liabilities Net indebtedness, in percent * For further details on the restatement please refer to Note [2] Accounting Principles 42 2. Significant accounting policies The rent and similar deposits referred to in Note [19], carried at their nominal amount of EUR 80k (2021: EUR 165k), are pledged as collateral for bank guarantees. The Group does not hold any collateral for credit facilities. Detailed information on the main accounting policies applied, including the recognition criteria, the measurement bases and the bases for the recognition of income and expenses, are presented separately for each category of financial assets, financial liabilities and equity instruments in the following section 3. 3. Categories of financial instruments Carrying amount per category of financial instruments: Financial assets 31/12/22 31/12/21 kEUR kEUR Debt instruments at amortised cost 40,102 40,440 Debt instruments at fair value through other comprehensive income and marketable instruments at fair value through profit or loss 991 3,057 Total 41,093 43,497 Debt instruments at amortised cost include trade receivables (Note [20]), other non-current financial assets (Note [19]), deposits presented in current financial assets (Note [24]) and cash and cash equivalents (Note [25]). Debt instruments at fair value through other comprehensive income include current investments in listed debt instruments (Note [20]). Fair values of these instruments were determined by reference to published price quotations in an active market. Financial liabilities 31/12/22 31/12/21 Restated kEUR kEUR Other financial liabilities measured at amortised cost 25,227 25,896 Total 25,227 25,896 * For further details on the restatement please refer to Note [2] Accounting Principles Other financial liabilities measured at amortised cost include lease liabilities (Note [42], trade payables (Note [31]) and other financial liabilities (Note [34]). 43 Due to the short-term maturities of cash and cash equivalents, trade receivables and payables, current financial assets and liabilities, their respective fair values approximate their carrying amounts. The fair values of non-current financial liabilities consisting exclusively of lease liabilities are based on carrying amounts, which are a reasonable approximation of fair value. Hierarchical classification of fair values of financial instruments pursuant to IFRS 7 as at 31 December 2022: Fair Value Level 1 Level 2 Level 3 31/12/22 Financial assets at fair value through other comprehensive income 991 991 0 0 Net gains and losses per category of financial instruments (IFRS 7.20 (a)): Financial assets 31/12/22 31/12/21 kEUR kEUR At fair value through profit and loss Unrealised gains 0 51 Realized losses -115 0 Total -115 51 At fair value through other comprehensive income Unrealised gains/losses (-) -16 -5 Total -16 -5 Unrealised losses result from the fair value changes of debt securities classified at fair value through other comprehensive income and realized losses result from the sale of debt securities classified at fair value through profit and loss. Interest income and expenses per category of financial instruments (IFRS 7.20 (b)): Financial assets 31/12/22 31/12/21 kEUR kEUR Measured at amortised cost 1 -76 Measured at fair value through other comprehensive income 3 2 44 Measured at fair value through profit or loss 18 65 4. Objectives of financial risk management The main financial liabilities used by the Group comprise trade payables and lease liabilities. The primary purpose of these financial liabilities is to finance the Group’s business activities. The Group has various financial assets, such as trade receivables, cash and securities. Group management monitors and manages the financial risks of the Group. These risks include the market risk (including exchange rate risks, interest rate-related fair value risks and price risks), the credit risk, the liquidity risk and interest rate- related cash flow risks. In addition, the management decides on the utilisation of derivative and non-derivative financial transactions and the investment of surplus liquidity in securities. The Group does not enter into any contracts with or deal in financial instruments, including derivative financial instruments, for speculative purposes. 5. Market risk The Group’s activities expose it primarily to financial risks from changes in exchange rates (see 6. below) and interest rates (see 7. below). Market risk positions are determined by means of sensitivity analysis. As no further investments in listed debt instruments are held by the Group, the market risk exposure in conjunction with interest rate risk of the Group decreased significantly. The nature and means of risk management and assessment, however, remain unchanged. 6. Foreign currency risk management Certain transactions in the Group are denominated in foreign currencies. This can result in risk from fluctuations in exchange rate. The carrying amounts of the monetary assets and liabilities of the Group denominated in foreign currencies are as follows: Financial assets 31/12/22 31/12/21 kEUR kEUR USD 326 316 GBP 10,599 14,032 CHF 2,135 0 Total 13,060 14,348 Financial liabilities 31/12/22 31/12/21 kEUR kEUR USD 0 13 GBP 1,835 11,358 CHF 882 0 Total 2,717 11,371 45 Foreign currency sensitivity analysis The Group is primarily exposed to exchange rate risk from the currencies USD and GBP. The following table shows the sensitivity from the point of view of the Group, assuming a 10 percent rise or fall in the EUR against the respective foreign currency. The 10 percent shift represents management’s assessment with regards to a reasonable possible change in the exchange rate. The sensitivity analysis only includes outstanding monetary positions denominated in foreign currency and adjusts their translation at the end of the period to reflect a 10 percent change in the exchange rates. Effect of USD Effect of USD Effect of GBP Effect of GBP Total Total +10% +10% +10% +10% 31/12/22 31/12/21 31/12/22 31/12/21 31/12/22 31/12/21 kEUR kEUR kEUR kEUR kEUR kEUR Net income for the year -98 -64 0 -90 -98 -154 Effect of USD - Effect of USD - Effect of GBP Effect of GBP Total Total 10% 10% -10% -10% 31/12/22 31/12/21 31/12/22 31/12/21 31/12/22 31/12/21 kEUR kEUR kEUR kEUR kEUR kEUR Net income for the year 119 78 0 109 119 187 7. Interest rate risk management Interest rate sensitivity analysis The sensitivity analyses described below were determined on the basis of the interest rate risk exposure for non-derivative financial instruments on the balance sheet date. In 2022, an increase or decrease in the interest rate of 50 basis points, which was assumed by the management for the interest rate risk, would have increased/decreased the other comprehensive income of the Group by EUR 2k (2021: EUR 7k). 8. Credit risk management Credit risk is the risk of loss for the Group should contractual parties not meet their contractual obligations. Business relationships are only entered into with creditworthy counterparties, and, where appropriate, the Group obtains collateral to reduce the risk of loss due to the non-fulfilment of obligations. The Group only enters into business relationships with entities that are rated “investment grade” or above. If such information is not available, the Group makes use of other available financial information and its own trading records in order to evaluate its major customers. The risk exposure of the Group and the credit ratings are continuously monitored. The Group has trade receivables with a large number of customers spread over various sectors and geographical territories. Continuous credit assessments are carried out with regard to the financial condition of the receivables. An impairment analysis is performed at each reporting date to measure expected credit losses. The provision rates are based on days past due for every single customer, reflecting reasonable and supportable information that is available at the reporting date about past events and current conditions and customer-specific, forward-looking information from the client-facing account manager. If a customer defaults, all outstanding amounts relating to that counterparty are subject to an allowance calculation. The default is primarily determined on the basis of individual assessment – prompted by noticeable changes in payment behaviour, or application for bankruptcy. Individual assessment is generally supported by the information provided by the client-facing account manager. 46 Generally, trade receivables are considered at 100 percent in the credit loss allowance if they are past due for more than one year. Trade receivables are written off and derecognised if there is good reason to assume that the outstanding amount is unrecoverable in part or in whole, for example after completion of insolvency proceedings. The Group is not exposed to any significant credit risks relating to a single contractual party or group of contractual parties with similar characteristics. The reported carrying amount reflects the maximum credit risk of the Group. The Group defines contractual parties as those with similar characteristics if they are related parties. The concentration of credit risk from customer relationships did not exceed 6.3 percent (2021: 3.3 percent) of the financial gross asset values at any time during the reporting period. The carrying amount of the financial assets included in the Consolidated Financial Statements less any impairment losses represents the Group’s maximum credit risk. Any collateral is ignored. There are no credit derivatives for hedging outstanding amounts from customers, nor have there been. The expected loss rates (stage 2 of the impairment model) amount to 0 percent for the segments ad agents and ad pepper media. The expected loss rate for the Webgains segment is 0.5 percent. The Company abstains from disclosing an ECL table, as the application of the expected loss rates results in immaterial amounts for the Group. The Company tests for impairment (stage 3 of the impairment model) if there are substantial indications that receivables may be uncollectable, e.g. deterioration of payment behaviour or initiation of insolvency proceedings. An account of individual value adjustments is only maintained for trade receivables. The reconciliation of changes in the loss allowance is as follows: Loss allowance 2022 2021 kEUR kEUR Balance at beginning of year 532 501 Allowances in the period Additions 764 428 Reversals -349 -181 Consumption -34 -216 Balance at end of period 913 532 The analysis shows that allowances were set up on a gross receivables amount of EUR 1,127k (2021: EUR 655k). For all other financial assets, no material credit losses are anticipated despite trade receivables that are subject to the impairment model acc. to IFRS 9.5.5. 9. Liquidity risk management The Group monitors the risk of liquidity shortage on a continuous basis with the help of a liquidity planning tool. This tool takes into account the maturities of financial investments and financial assets (e.g., receivables, other financial assets) and expected cash flow from operating activities. The Group’s aim is to maintain a balance between continuous coverage of funding needs and the necessity of flexibility. The maturities of the financial liabilities of the Group as at 31 December 2022 are presented below. The information is based on contractual, undiscounted payments. Financial liabilities 31/12/22 < 1 mth. > 1 mth., 3 mth. to 1 1 to 5 years > 5 years Total < 3 mth. year kEUR kEUR kEUR kEUR kEUR kEUR 47 Lease liabilities 45 83 395 720 0 1,243 Trade payables 20,570 267 0 0 0 20,836 Other financial liabilities measured at amortised cost 299 157 2,571 0 0 3,028 20,914 507 2,966 720 0 25,107 Total The lease liabilities disclosed in the above table are the gross amounts. Financial liabilities 31/12/21 < 1 mth. > 1 mth., 3 mth. to 1 1 to 5 years > 5 years Total Restated < 3 mth. year kEUR kEUR kEUR kEUR kEUR kEUR Lease payables 42 85 369 741 0 1,237 Trade payables 19,737 510 0 0 0 20,247 Other financial liabilities measured at amortised cost 823 565 3,332 221 0 4,941 Total 20,602 1,160 3,701 962 0 26,425 * For further details on the restatement please refer to Note [2] Accounting Principles LEASES [42] The Group has lease contracts for office space (lease terms between 1 and 5 years) and cars (3 years). The Group’s obligations under its leases are secured by the lessor’s title to the leased assets. There are several lease contracts that include extension and termination options, which are further discussed below. The Group also has certain leases with terms of 12 months or less. The Group applies the “short-term lease” recognition exemptions. 48 Set out below are the carrying amounts of right-of-use assets recognised and the movements during the period: Right-of-use assets Lease liabilitie s Office Cars Total space kEUR kEUR kEUR kEUR As at 1 January 2022 2,937 238 3,175 1,213 Additions 882 101 983 983 Disposal -1,601 -86 -1,687 -280 Exchange rate difference 0 0 0 -3 Subtotal 2,218 253 2,471 1,913 Depreciation expense as at 1 January 2022 -1,840 -158 -1,998 Depreciation expense -506 -65 -571 Disposal 1,331 84 1,415 Exchange rate difference 0 0 0 Depreciation expense as at 31 December 2022 -1,015 -138 -1,153 Payments -585 Interest expense 33 As at 31 December 2022 1,204 114 1,318 1,361 49 The amounts recognised in profit or loss, are as follows: 2022 2021 kEUR kEUR Depreciation expenses of right-of-use assets 570 698 Interest expense on lease liabilities 33 35 Expense relating to short-term leases (included in administrative expense) 263 63 866 796 Total amount recognised in profit or loss Rental agreements for the office leases in Nuremberg, Herrenberg and Madrid contain extension options on automatic annual renewal terms. Due to uncertainties these options have not been executed so far. Therefore, these options are not considered in the valuation process. There are no purchase options or restrictions imposed by lease arrangements. EVENTS AFTER THE BALANCE SHEET DATE [43] Up until the day of authorisation for issuance, there were no events that would have exerted substantial influence on the financial position or results of operations as at 31 December 2022. APPLICATION OF SEC 264 PARA. 3 OF GERMAN COMMERCIAL CODE (HBG) [44] The following German subsidiaries in the legal form of capital corporation as defined in Section. 264a made use of the exemption clause included in Section 264 para. 3 of the German Commercial Code: • ad pepper media GmbH, Nuremberg • Webgains GmbH, Nuremberg • ad agents GmbH, Herrenberg Nuremberg, 7 April 2023 The Board of Directors of ad pepper media International N.V. comprised the following members in the financial year 2022: Dr Jens Körner, CEO Nuremberg, Germany The Supervisory Board of ad pepper media International N.V. in the financial year 2022 consisted of: Michael Oschmann (Chairman) Thomas Bauer Dr Stephan Roppel Dagmar Bottenbruch 50 « STATUTORY FINANCIAL 07 STATUTORY FINANCIAL STATEMENTS AND NOTES OF THE HOLDING COMPANY AD PEPPER MEDIA INTERNATIONAL N.V. (THE “HOLDING COMPANY”) BALANCE SHEET OF THE HOLDING COMPANY (AFTER PROFIT APPRIOPRIATION) – ASSETS 31/12/22 31/12/21 (Restated) Note kEUR kEUR Non-current assets Intangible ﬁxed assets 67 136 [3] Tangible ﬁxed assets 289 373 [4] Financial ﬁxed assets 6,588 9,525 [5] Total non-current assets 6,944 10,035 Current assets Marketable securities 991 0 [6] Receivables due from subsidiaries 1,107 2,482 [7] Prepaid expenses and other current assets 305 253 [8] Cash and cash equivalents 8,691 7,951 [9] Total current assets 11,094 10,686 Total assets 18,038 20,721 129 07 STATUTORY FINANCIAL BALANCE SHEET OF THE HOLDING COMPANY (AFTER PROFIT APPRIOPRIATION) – EQUITY AND LIABILITIES 31/12/22 31/12/21 (Restated) Note kEUR kEUR Equity attributable to shareholders of the parent company Issued capital 1,075 1,075 [10] Share premium 63,782 63,782 [10] Other reserves -50,368 -49,059 [10] Total equity 14,490 15,798 Non-current liabilities 120 360 [11] Provisions 315 269 [12] Current liabilities 3,114 4,294 [13] Total liabilities 3,549 4,923 Total equity and liabilities 18,038 20,721 130 07 STATUTORY FINANCIAL PROFIT OR LOSS ACCOUNT OF THE HOLDING COMPANY 1/1 - 31/12/22 1/1 - 31/12/21 Note kEUR kEUR Revenue 243 319 Other operating income 1,013 1,846 [15] Selling and marketing expenses -787 -824 General and administrative expenses -1,682 -1,740 Other operating expenses -20 -37 Earnings before interest and tax (EBIT) -1,233 -436 Interest income 60 73 Interest expenses -152 -65 Loss before taxes -1,325 -427 Share in result of subsidiaries and participations 432 2,153 Net result for the year -893 1,725 *Revenue relates solely to license fee charged to subsidiaries. 131 07 STATUTORY FINANCIAL NOTES TO THE STATUTORY Current ﬁnancial liabilities have been accounted for a written put option over the non-controlling interest in ad pepper media Spain FINANCIAL STATEMENTS OF S.A. and reﬂect in analogy to the consolidated ﬁnancial statements an THE HOLDING COMPANY increase of the net asset value of the subsidiary to 100 %. Unrealised gains on transactions between the Holding Company and its investments in consolidated subsidiaries are eliminated in full, based on [1] Basis of preparation and the consolidation principles. The Holding Company Financial Statements signifcant accounting policies are presented in EUR, which is the Holding Company’s functional currency. The amounts are in thousands of EUR (rounded to the nearest The Company Financial Statements for ad pepper media International thousand), unless otherwise stated. There have been no changes to N.V. (Commercial Register No. 27182121) have been prepared in the accounting policies of the Holding Company. Due to rounding up or accordance with the statutory provisions of Part 9, Book 2 of the Dutch down, individual ﬁgures may not add up exactly to the totals stated. Civil Code. In accordance with subsection 8 of section 362, Book 2 of the Dutch Civil Code, the same accounting principles may be applied in the Company’s ﬁnancial statement and the consolidated ﬁnancial [2] Changes in Accounting policies statements. The Holding Company’s ﬁnancial data is included in the Consolidated Financial Statements. The notes to the Company’s Restatement of the Balance Sheet of the Holding Company and balance sheet and income statement are limited to items that differ Shareholder’s Equity in Note [10] for the year ended 31 December from the corresponding items in the Consolidated Financial Statements 2021 and as per 1 January 2021 according to IAS 8 and that are of material signiﬁcance. The Balance Sheet of the Holding Company and the Shareholder’s Equity The Holding Company applies the acquisition method to account for in Note [10] for the year ended 31 December 2021 and as per 1 January acquiring subsidiaries, consistent with the approach identiﬁed in the 2021 have been restated from the previously reported. As stated in Note Consolidated Financial Statements. The consideration transferred for [1], Company’s balance sheet includes a current liability for a written put the acquisition of a subsidiary is the fair value of assets transferred option, which was omitted from the 2021 and previous years’ ﬁnancial to the Holding Company, liabilities incurred to the former owners of statements. The written put/call option is part of the sale contract of the acquired company, and the equity interests issued by the Holding the 35 percent non-controlling interest in ad pepper media Spain S.A. Company. The consideration transferred includes the fair value of any closed in 2014, which did not result in recording of ﬁnancial liability for asset or liability resulting from a contingent consideration arrangement. the written option since 2017, when the option was exercisable for the Identiﬁable assets acquired and liabilities and contingent liabilities ﬁrst time. assumed in an acquisition are measured initially at their fair values at the acquisition date, and are subsumed in the net asset value of the Therefore, the restatement has the effect of: investment in consolidated subsidiaries. Acquisition-related costs are expensed as incurred. a) Increase in the net asset value considering ad pepper media Spain S.A. and Webgains S.L. to 100 percent with a corresponding increase Investments in consolidated subsidiaries are measured at net asset in current ﬁnancial liability value. Net asset value is based on the measurement of assets, provisions b) Decrease in other reserves and a corresponding increase in current and liabilities, and determination of proﬁt based on the principles applied ﬁnancial liability by the remaining amount. in the Consolidated Financial Statements. If the valuation of a subsidiary based on the net asset value is negative, it will be stated at nil. If and The brought forward current liabilities as at 1 January 2021 have been insofar as the Holding Company has the ﬁrm intention of enabling the increased by EUR 2,811,580 with a corresponding increase in the participation to settle its debts, a provision is recognised for this. When brought forward net asset value of the subsidiary by EUR 459,670 and a the Holding Company ceases to have control over a subsidiary, any decrease in other reserves by EUR 2,351,910. retained interest is remeasured to fair value, with the change in carrying amount to be accounted for in the income statement. When parts of The restated balance sheet for the year ended 31 December 2021 investments in consolidated subsidiaries are bought or sold, and such includes an increase in current ﬁnancial liability of EUR 520,271 transaction does not result in the loss of control, the difference between compared to the adjusted balance sheet per 1 January 2021, with a the consideration paid or received and the carrying amount of the net corresponding increase of the net asset value of the subsidiary by EUR assets acquired or sold is directly recognised in equity. 60,295 and a reduction of other reserves by EUR 459,976. 132 07 STATUTORY FINANCIAL [4] Tangible fxed assets The overall effect of the above is to increase current ﬁnancial liability as at 31 December 2021 by EUR 3,331,851 with a corresponding increase in the net asset value of the subsidiary by EUR 519,965 and decrease in Tangible ﬁxed assets can be speciﬁed as follows: other reserves by EUR 2,811,886. 31/12/22 31/12/21 [3] Intangible fxed assets kEUR kEUR Tangible ﬁxed assets 52 60 Trade- Software Total Right-of-use assets 237 313 marks Total 289 373 kEUR kEUR kEUR Book value at 1/1/21 3 240 243 Additions 0 0 0 Disposals 0 0 0 Tangible fxed assets 2022 2021 Amortisation -1 -106 -107 kEUR kEUR Book value at 31/12/21 3 133 136 Book value at 1/1 60 79 Purchase value 644 1,726 2,370 Additions 13 4 Accumulated amortisation -641 -1,593 -2,234 Disposals 0 0 Book value at 1/1/22 3 133 136 Depreciation -21 -23 Additions 0 12 12 Book value at 31/12 52 60 Disposals 0 0 0 Purchase value 293 280 Amortisation -1 -80 -81 Accumulated depreciation -241 -220 Book value at 31/12/22 2 65 67 Book value at 31/12 52 60 Purchase value 643 1,738 2,381 Accumulated amortisation -641 -1,673 -2,314 Book value at 31/12/22 2 65 67 Right-of-use assets 2022 2021 Intangible assets are amortised over a useful life of three years. kEUR kEUR Book value at 1/1 313 424 Additions 198 6 Disposals -158 0 Depreciation -116 -117 Book value at 31/12 237 313 Purchase value 342 658 Accumulated depreciation -105 -345 Book value at 31/12 237 313 133 07 STATUTORY FINANCIAL The Group recognises right-of-use assets at the commencement date of The movements during the year are as follows: the lease (i.e., the date the underlying asset is available for use). Right- of-use assets are measured at cost, less any accumulated depreciation Subsidiary companies and impairment losses, and adjusted for any re-measurement of lease liabilities. The cost of right-of-use assets includes the amount of lease Invest- Loans Financial Total ments assets liabilities recognised, initial direct costs incurred and lease payments including made at or before the commencement date, less any lease incentives invest- ments received. Unless the Group is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the capitalised right-of- kEUR kEUR kEUR kEUR use assets are depreciated on a straight-line basis over the shorter of Book value at their estimated useful lives and the lease term. Right-of-use assets are 1/1/21 (Restated) 6,875 100 119 7,094 subject to impairment. Additions 0 400 0 400 The depreciation percentages used for tangible assets range from 12.5 Written put option percent to 33.3 percent. over the 35 % non-controlling in- terest in ad pepper [5] Financial fxed assets media Spain S.A. and Webgains S.L. 56 0 0 56 Dividends and 31/12/22 31/12/21 repayments -3,552 0 0 -3,552 (Restated) Share of net proﬁt 1,990 0 0 1,990 kEUR kEUR Investments in Subsidiaries at net asset value 5,344 5,849 subsidiaries 20 0 0 20 Listed debt and marketable securities 0 3,057 Translation Loans 1,210 500 adjustments 256 0 0 256 Other 34 119 Book value at 1/1/22 (Restated) 5,645 500 119 6,264 Total 6,588 9,525 Written put option over the 35 % non- controlling interest Investments in subsidiary companies consist of the following: in ad pepper media Spain and 31/12/22 31/12/21 Webgains S.L. -95 0 0 -95 Additions 0 1,000 0 1,000 kEUR kEUR Subsidiaries at net asset value 5,344 5,849 Dividends and repayments -949 -290 -85 -1,324 Provisions for subsidiaries -315 -269 Share of net proﬁt 116 0 0 116 Total 5,029 5,580 Investments in subsidiaries 296 0 0 296 Translation adjustments 16 0 0 16 Book value at 31/12/22 5,029 1,210 34 6,273 134 07 STATUTORY FINANCIAL [6] Marketable securities [7] Group companies The receivables from Group companies mature within one year. 31/12/22 31/12/21 kEUR kEUR [8] Prepaid expenses and other current assets Due within one year 991 0 Due within one and ﬁve years 0 1,007 31/12/22 31/12/21 Due in more than ﬁve years 0 0 Total 991 1,007 kEUR kEUR Income tax receivables 192 128 Other receivables 113 125 Securities measured at fair value Total 305 253 through other comprehensive income In the reporting period, no securities measured at fair value through other comprehensive income were acquired (2021: EUR 0k). Unrealised losses [9] Cash and cash equivalents of EUR 15k (2021: unrealised gains of EUR 6k) were recognised in other comprehensive income. No restrictions on cash exist at balance sheet date. Securities measured at fair value through proft or loss In the reporting period, securities measured at fair value through proﬁt or loss were acquired for EUR 0k (2021: EUR 1,999k) and sold for EUR 1,935k. Realised losses of EUR 115k (2021: realised gains EUR 51k) were recognised in proﬁt or loss. For further information on investments made please refer to Note [20] of the Consolidated Financial Statements. 135 07 STATUTORY FINANCIAL 136 07 STATUTORY FINANCIAL [10] Shareholders’ equity Balance at 1/1/2022 Proﬁt for the period Other comprehensive Total comprehensive income income kEUR kEUR kEUR kEUR Issued capital 1,075 0 0 0 Share premium 63,782 0 0 0 Reserves 0 0 0 0 Treasury reserve -4,906 0 0 0 For employee stock option plans 2,827 0 0 0 Accumulated deﬁcit -43,018 -893 0 -893 Currency translation basis of preparation difference -1,162 0 9 9 Revaluation of listed debt securities 12 0 -15 -15 Other reserves -2,812 0 0 0 Subtotal reserves -49,059 -893 -6 -899 Total Equity 15,798 -893 -6 -899 Balance at 1/1/2021 Proﬁt for the period Other comprehensive Total comprehensive (Restated) income income kEUR kEUR kEUR kEUR Issued capital 1,075 0 0 0 Share premium 63,782 0 0 0 Reserves 0 0 0 Treasury reserve -2,417 0 0 0 For employee stock option plans 2,663 0 0 0 Accumulated deﬁcit -44,107 1,725 0 1,725 Currency translation basis of preparation differences -1,398 0 236 236 Revaluation of listed debt securities 18 0 -6 -6 Other reserves -2,352 0 0 0 Subtotal reserves -47,593 1,725 230 1,955 Total Equity 17,264 1,725 230 1,955 137 07 STATUTORY FINANCIAL Share-based payment Purchase of treasury Cash settlement of SOP's Issuance of shares NCI put liability Balance at 31/12/2022 shares kEUR kEUR kEUR kEUR kEUR kEUR 0 0 0 0 0 1,075 0 0 0 0 0 63,782 0 0 0 0 0 0 0 -1,232 0 0 0 -6,138 79 0 0 0 2,906 0 0 0 0 0 -43,911 0 0 0 0 0 -1,153 0 0 0 0 0 -3 0 0 0 0 742 -2,070 79 -1,232 0 0 742 -50,368 79 -1,232 0 0 742 14,489 Share-based payment Purchase of treasury Cash settlement of SOP‘s Issuance of shares NCI put liability Balance at 31/12/2021 shares (Restated) kEUR kEUR kEUR kEUR kEUR kEUR 0 0 0 0 0 1,075 0 0 0 0 0 63,782 0 0 0 0 0 0 0 -2,576 87 0 -4,906 164 0 0 0 0 2,827 0 0 -636 0 0 -43,018 0 0 0 0 0 -1,162 0 0 0 0 0 12 0 0 0 0 -460 -2,812 164 -2,576 -636 87 -460 -49,059 164 -2,576 -636 87 -460 15,798 138 07 STATUTORY FINANCIAL Issued capital Proposed appropriation of the result for the fnancial year 2022 At the end of 2022, the issued capital of ad pepper media International N.V. comprises 21,500,000 (2021: 21,500,000) bearer shares with a The Board of Directors, with the approval of the Supervisory Board, nominal value of EUR 0.05 each. proposes to allocate the result for the ﬁnancial year 2022 amounting to EUR -893k to the accumulated deﬁcit without payment of dividend. The ﬁnancial statements reﬂect this proposal. Additional paid-in capital [11] Non-current liabilities Proceeds from the issuance of shares increased the additional paid in capital by the amount by which they exceeded the par value of the shares. Furthermore, it also includes expenses incurred for stock 31/12/22 31/12/21 option plans. kEUR kEUR Employee beneﬁts liability 0 155 Treasury reserves Lease liability 120 205 Purchase of treasury shares Total 120 360 By a shareholders’ resolution dated 18 May 2021, the Board of Directors was authorised to repurchase treasury stock of up to 50 percent of the issued capital within the following 18 months. The Board The employee beneﬁts liability relates to the obligation resulting from of Directors made partial use of this authorisation on 2 August 2021 to the cash-settled option plan. For further details on cash-settled stock repurchase up to a maximum of 500,000 of its own shares for a total option plans, please refer to Note [39] of the consolidated ﬁnancial maximum amount of up to EUR 3,000,000. The share buy-back took statements. place between 1 September 2021 and 21 February 2022. During this time 500,000 shares with a value of EUR 2,681,816 were repurchased [12] Provisions under this buy-back programme. Number of shares outstanding 31/12/22 31/12/21 The numbers of shares issued and outstanding as at 31 December 2022 totalled 20,257,872 (2021: 20,491,197). Each share has a nominal value kEUR kEUR of EUR 0.05. Subsidiaries 315 269 Total 315 269 Authorised capital The authorised share capital of the Holding Company amounts to EUR Provisions for subsidiaries relate to subsidiaries with a negative net 4,000,000, divided into 80,000,000 shares, with a par value of EUR asset value. For further information please refer to Note [5]. 0.05 each. The Board of Directors is authorised, upon approval by the Supervisory Board, to issue shares until 16 May 2027, or to grant rights to subscribe for shares until the issued share capital amounts to EUR 2,000,000. 139 07 STATUTORY FINANCIAL [13] Current liabilities ad pepper media International N.V. has provided guarantees for all outstanding liabilities of its subsidiary Webgains GmbH (registered number: HRB 37198) that existed as at 31 December 2022, until these 31/12/22 31/12/21 are satisﬁed in full. As a result, the individual local statutory accounts (Restated) of Webgains GmbH are exempt from audit under the requirements of Art. 264 Par. 3 German Commercial Code (HGB). As at 31 December kEUR kEUR 2022, the outstanding liabilities of Webgains GmbH amount to EUR Written put option 2,496 3,332 4,261k (2021: EUR 4,407k). Accrued expenses 9 234 The future minimum payment obligations resulting from the contracts Other current liabilities 490 609 for short-term rent and other agreements in place as at 31 December Lease liabilities 119 119 2022 are as follows: Total 3,114 4,294 2022 2021 The put option liability relates to the obligation resulting from the kEUR kEUR written put/call option over the 35 percent non-controlling interest No later than 1 year 92 87 in ad pepper media Spain S.A with no termination date. The amount Later than 1 year and no later of the ﬁnancial liability is the exercise price of the option based on a than 5 years 0 4 contractually agreed EBIT multiple. Later than 5 years 0 0 Other current liabilities comprise mainly VAT payables and bonus accruals. [15] Other operating income [14] Contingent liabilities Other operating income mainly includes management and shared Contingent liabilities mainly result from rented ofﬁces and ofﬁce services charged to subsidiaries of EUR 926k (2021: EUR 1,103k) and equipment. The rent deposit for the ofﬁce facilities in Nuremberg, other income resulting from the proﬁt distribution agreement with the which is carried at its nominal value of EUR 33k (2021: EUR 119k), is subsidiary ad pepper media GmbH of EUR -631k (2021: EUR -163k) and pledged as collateral for bank guarantees. Webgains GmbH of EUR 568k (2021: EUR 906k). ad pepper media International N.V. has provided guarantees for all outstanding liabilities of its subsidiary ad pepper media GmbH (registered number: HRB 16494) that existed as at 31 December 2022, until these are satisﬁed in full. As a result, the individual local statutory accounts of ad pepper media GmbH are exempt from audit under the requirements of Section 264 Par. 3 German Commercial Code (HGB). As at 31 December 2022, the outstanding liabilities of ad pepper media GmbH amount to EUR 614k (2021: EUR 1,860k). ad pepper media International N.V. has provided guarantees for all outstanding liabilities of its subsidiary ad agents GmbH (registered number: HRB 16494) that existed as at 31 December 2022, until these are satisﬁed in full. As a result, the individual local statutory accounts of ad agents GmbH are exempt from audit under the requirements of Section 264 Par. 3 German Commercial Code (HGB). As at 31 December 2022, the outstanding liabilities of ad agents GmbH amount to EUR 6,432k (2021: EUR 4,069k). 140 07 STATUTORY FINANCIAL [16] Employee information [17] Information relating to the Board of Directors and Supervisory Board At the end of the ﬁnancial year, the Holding Company employed 19 people (2021: 17). All employees are employed outside the Netherlands. Associated Shares Stock Shares Stock options options companies 2022 2021 2022 2022 2021 2021 kEUR kEUR EMA Electronic Wages and salaries 1,094 1,116 Media Advertising Int. B.V. 9,486,402 0 9,486,402 0 Stock option expenses/income 85 371 Euro Serve Media Social security costs 212 196 GmbH 556,163 0 556,163 0 Other employment expenses 0 13 Total 1,391 1,696 The ultimate shareholders of both associated companies are Michael and Constanze Oschmann. These costs are included in the cost of sales, selling expenses, and general and administrative expenses. Pension costs included in social [18] Independent auditor’s fees security costs amount to EUR 73k (2021: EUR 70k). The average number of personnel employed during the year was: Fee Ernst & Young Accountants LLP 2022 2021 2022 2021 kEUR kEUR Audit of ﬁnancial statements 250 215 FTEs FTEs Other services 0 0 IT 4 2 Total 250 215 Marketing 1 1 Administration 14 14 Total 19 17 [19] Events after the balance sheet date Up until the day of authorisation for issuance, there were no events that would have exerted substantial inﬂuence on the net assets, ﬁnancial position or results of operations as at 31 December 2022. 141 07 STATUTORY FINANCIAL The Board Dr Jens Körner (Chief Executive Ofﬁcer) Nuremberg, 7 April 2023 The Supervisory Board Michael Oschmann Thomas Bauer Dr Stephan Roppel Dagmar Bottenbruch 142 « OTHER INFORMATION 08 OTHER INFORMATION OTHER INFORMATION Statutory arrangements for appropriation of results According to Article 15 of the Holding Company‘s articles of association, the Annual General Meeting of shareholders determines the appropriation of the Holding Company‘s net result for the year and the previous year. Independent auditor’s report The independent auditor’s report on these ﬁnancial statements is included on the following pages. 145 08 OTHER INFORMATION 146 08 OTHER INFORMATION INDEPENDENT AUDITOR’S REPORT To: the shareholders and supervisory board of ad pepper media International N.V. REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS 2022 INCLUDED IN THE ANNUAL REPORT Our opinion We have audited the ﬁnancial statements 2022 of ad pepper media International N.V. based in Amsterdam. The ﬁnancial statements comprise the consolidated and statutory ﬁnancial statements. In our opinion: • the accompanying consolidated ﬁnancial statements give a true and fair view of the ﬁnancial position of ad pepper media International N.V. as at 31 December 2022 and of its result and its cash ﬂows for 2022 in accordance with International Financial Reporting Standards as adopted by the European Union (EU-IFRS) and with Part 9 of Book 2 of the Dutch Civil Code • the accompanying statutory ﬁnancial statements give a true and fair view of the ﬁnancial position of ad pepper media International N.V. as at 31 December 2022 and of its result 2022 in accordance with Part 9 of Book 2 of the Dutch Civil Code The consolidated ﬁnancial statements comprise: • the consolidated statement of ﬁnancial position as at 31 December 2022 • the following statements for 2022: the consolidated income statement, the consolidated statements of comprehensive income, changes in equity and cash ﬂows • the notes comprising a summary of the signiﬁcant accounting policies and other explanatory information. The statutory ﬁnancial statements comprise: • the statutory balance sheet as at 31 December 2022 • the statutory proﬁt and loss account for 2022 • the notes comprising a summary of the accounting policies and other explanatory information. Basis for our opinion We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. Our responsibilities under those standards are further described in the Our responsibilities for the audit of the ﬁnancial statements section of our report. We are independent of ad pepper media International N.V. in accordance with the EU Regulation on speciﬁc requirements regarding statutory audit of public-interest entities, the “Wet toezicht accountantsorganisaties” (Wta, Audit ﬁrms supervision act), the “Verordening inzake de onafhankelijkheid van accountants bij assurance-opdrachten” (ViO, Code of Ethics for Professional Accountants, a regulation with respect to independence) and other relevant independence regulations in the Netherlands. Furthermore we have complied with the “Verordening gedrags- en beroepsregels accountants” (VGBA, Dutch Code of Ethics). We believe the audit evidence we have obtained is sufﬁcient and appropriate to provide a basis for our opinion. 147 08 OTHER INFORMATION Information in support of our opinion We designed our audit procedures in the context of our audit of the ﬁnancial statements as a whole and in forming our opinion thereon. The following information in support of our opinion and any ﬁndings were addressed in this context, and we do not provide a separate opinion or conclusion on these matters. Our understanding of the business ad pepper media International N.V. is the head of a group of companies that provides online marketing services. We paid speciﬁc attention in our audit to a number of areas driven by the operations of the group and our risk assessment. We determined materiality and identiﬁed and assessed the risks of material misstatement of the ﬁnancial statements, whether due to fraud or error in order to design audit procedures responsive to those risks and to obtain audit evidence that is sufﬁcient and appropriate to provide a basis for our opinion. Materiality Materiality € 240,000 (2021: € 276,000) Benchmark applied Approximately 1% of revenue Explanation We have applied this benchmark based on our professional judgement and taking into account the expectations of users of the ﬁnancial statements. Revenue was concluded to be the most appropriate measure as it is considered to be reﬂective of the growth in, and development of, the company’s activities. We have also taken into account misstatements and/or possible misstatements that in our opinion are material for the users of the ﬁnancial statements for qualitative reasons. We agreed with the supervisory board that misstatements in excess of € 12,000, which are identiﬁed during the audit, would be reported to them, as well as smaller misstatements that in our view must be reported on qualitative grounds. Scope of the group audit ad pepper media International N.V. is at the head of a group of entities. The ﬁnancial information of this group is included in the consolidated ﬁnancial statements. While the entities in the group operate in various countries, their ﬁnancial information is managed centrally. We have performed our audit procedures over the ﬁnancial information of all entities in the group on a consolidated basis. Because we are ultimately responsible for the opinion, we are also responsible for directing, supervising and performing the group audit. In this respect we have determined the nature and extent of the audit procedures to be carried out for group entities. Decisive were the size and/or the risk proﬁle of the group entities or operations. We have allocated all group entities a full scope audit. By performing the procedures mentioned above, we have been able to obtain sufﬁcient and appropriate audit evidence about the group’s ﬁnancial information to provide an opinion on the consolidated ﬁnancial statements Teaming and use of specialists We ensured that the audit team included the appropriate skills and competences which are needed for the audit of a listed client. We included specialists in the areas of information technology and income tax. 148 08 OTHER INFORMATION Our focus on fraud and non-compliance with laws and regulations Our responsibility Although we are not responsible for preventing fraud or non-compliance and we cannot be expected to detect non-compliance with all laws and regulations, it is our responsibility to obtain reasonable assurance that the ﬁnancial statements, taken as a whole, are free from material misstatement, whether caused by fraud or error. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Our audit response related to fraud risks We identiﬁed and assessed the risks of material misstatements of the ﬁnancial statements due to fraud. During our audit we obtained an understanding of the entity and its environment and the components of the system of internal control, including the risk assessment process and management’s process for responding to the risks of fraud and monitoring the system of internal control and how the supervisory board exercises oversight, as well as the outcomes. We refer to section ‘04.5 Risk report’ for management’s risk assessment and section ‘02 Report of the supervisory board’ in which the supervisory board reﬂects on this risk assessment. We evaluated the design and relevant aspects of the system of internal control and in particular the fraud risk assessment, as well as the code of conduct, whistle blower procedures and incident registration. We evaluated the design and the implementation of internal controls designed to mitigate fraud risks. As part of our process of identifying fraud risks, we evaluated fraud risk factors with respect to ﬁnancial reporting fraud, misappropriation of assets and bribery and corruption in close co-operation with our forensic specialists. We evaluated whether these factors indicate that a risk of material misstatement due to fraud is present. We incorporated elements of unpredictability in our audit. We also considered the outcome of our other audit procedures and evaluated whether any ﬁndings were indicative of fraud or non-compliance. As in all of our audits, we addressed the risks related to management override of controls. For these risks we have performed procedures among others to evaluate key accounting estimates for management bias that may represent a risk of material misstatement due to fraud, in particular relating to important judgment areas and signiﬁcant accounting estimates as disclosed in note Signiﬁcant accounting judgements, estimates and assumptions to the ﬁnancial statements. We have also used data analysis to identify and address high-risk journal entries and evaluated the business rationale (or the lack thereof) of signiﬁcant extraordinary transactions, including those with related parties. The following fraud risks identiﬁed did require signiﬁcant attention during our audit. Presumed risks of fraud in revenue recognition Fraud risk We presumed that there are risks of fraud in revenue recognition. We evaluated that revenue for segments ad pepper, Webgains and ad agents in particular give rise to such risks. These revenues are disclosed in note 5 ‘Revenue from contracts with customers’. Management discusses the risks in section ‘04.5 Risk report’. Our audit We describe the audit procedures responsive to the presumed risk of fraud in revenue recognition in the description of approach our audit approach for the key audit matter ‘Risk of inappropriate revenue recognition, including the risk of management overriding revenue recognition controls’. We considered available information and made enquiries of relevant executives, directors and the supervisory board. The fraud risks we identiﬁed, enquiries and other available information did not lead to speciﬁc indications for fraud or suspected fraud potentially materially impacting the view of the ﬁnancial statements. 149 08 OTHER INFORMATION Our audit response related to risks of non-compliance with laws and regulations We performed appropriate audit procedures regarding compliance with the provisions of those laws and regulations that have a direct effect on the determination of material amounts and disclosures in the ﬁnancial statements. Furthermore, we assessed factors related to the risks of non- compliance with laws and regulations that could reasonably be expected to have a material effect on the ﬁnancial statements from our general industry experience, through discussions with the Board of Directors, reading minutes and inspection of other relevant documents regarding compliance with laws and regulations and performing substantive tests of details of classes of transactions, account balances or disclosures. We also inspected lawyers’ letters and correspondence with regulatory authorities and remained alert to any indication of (suspected) non- compliance throughout the audit. Finally, we obtained written representations that all known instances of non-compliance with laws and regulations have been disclosed to us. Our audit response related to going concern As disclosed in section ’01 Letter from the Board of Directors’ and in the management statements in section ‘04.1 Governance’ to the ﬁnancial statements, the ﬁnancial statements have been prepared on a going concern basis. When preparing the ﬁnancial statements, management made a speciﬁc assessment of the company’s ability to continue as a going concern and to continue its operations for the foreseeable future. We discussed and evaluated the speciﬁc assessment with management exercising professional judgment and maintaining professional skepticism. We considered whether management’s going concern assessment, based on our knowledge and understanding obtained through our audit of the ﬁnancial statements or otherwise, contains all events or conditions that may cast signiﬁcant doubt on the company’s ability to continue as a going concern. Based on our procedures performed, we did not identify material uncertainties about going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the ﬁnancial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause a company to cease to continue as a going concern. 150 08 OTHER INFORMATION Our key audit matter Key audit matters are those matters that, in our professional judgment, were of most signiﬁcance in our audit of the ﬁnancial statements. We have communicated the key audit matter to the supervisory board. The key audit matter is not a comprehensive reﬂection of all matters discussed. In comparison with previous year, our key audit matter did not change. Risk of inappropriate revenue recognition, including the risk of management overriding revenue recognition controls (see note 5 to the consolidated fnancial statements) Risk Recognizing revenue is a routine process for the company, with a high number of transactions during the year. Revenue is an important performance indicator to the Board of Directors, the supervisory board as well as to other stakeholders and, therefore, we believe it to be subject to a higher risk of manipulation. As a result, we consider this a key audit matter. Our audit We have analyzed the company’s revenue recognition policies and procedures for the various sources of revenue. We evaluat- approach ed the design and implementation of internal controls embedded in revenue recognition processes, including internal controls related to IT processes relevant to revenue recognition for Webgains. In the latter IT specialists were involved as well. We discussed with and challenged management in their evaluation of revenue arrangements and the related analysis of recognizing revenue as principal or agent. We validated management’s analysis based on inspection and interpretation of agreements with both customers and suppliers. We applied a data-analytics driven audit approach to revenue in which we veriﬁed that revenue recognized during the year subsequently resulted in cash receipt. We also performed testing of revenue related accounts such as trade receivables and we tested appropriate cut-off of revenue between 2022 and 2023. Finally, we used data analysis to identify and address high-risk journal entries and we performed procedures to evaluate key accounting estimates for management bias in respect of revenue recognition. Key observations We conclude that the revenue for 2022 has been appropriately recognized and disclosed in the ﬁnancial statements. 151 08 OTHER INFORMATION REPORT ON OTHER INFORMATION INCLUDED IN THE ANNUAL REPORT The annual report contains other information in addition to the ﬁnancial statements and our auditor’s report thereon. The other information also includes the letter from the Board of Directors, the Report of the Supervisory Board, the Remuneration Report, the Report of the Board of Directors, and other information. Based on the following procedures performed, we conclude that the other information: • Is consistent with the ﬁnancial statements and does not contain material misstatements • Contains the information as required by Part 9 of Book 2 of the Dutch Civil Code for the Board of Directors report and the other information as required by Part 9 of Book 2 of the Dutch Civil Code and as required by Sections 2:135b and 2:145 sub section 2 of the Dutch Civil Code for the remuneration report. We have read the other information. Based on our knowledge and understanding obtained through our audit of the ﬁnancial statements or otherwise, we have considered whether the other information contains material misstatements. By performing these procedures, we comply with the requirements of Part 9 of Book 2 and Section 2:135b sub-Section 7 of the Dutch Civil Code and the Dutch Standard 720. The scope of the procedures performed is substantially less than the scope of those performed in our audit of the ﬁnancial statements. Management is responsible for the preparation of the other information, including the Board of Directors report in accordance with Part 9 of Book 2 of the Dutch Civil Code and other information required by Part 9 of Book 2 of the Dutch Civil Code. Management and the supervisory board are responsible for ensuring that the remuneration report is drawn up and published in accordance with Sections 2:135b and 2:145 sub section 2 of the Dutch Civil Code. REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS AND ESEF Engagement We were engaged by the supervisory board as auditor of ad pepper media International N.V. on 27 July 2018, as of the audit for the year 2018 and have operated as statutory auditor since. No prohibited non-audit services We have not provided prohibited non-audit services as referred to in Article 5(1) of the EU Regulation on speciﬁc requirements regarding statutory audit of public-interest entities. Other non-prohibited services provided Our services are only related to the audit of the ﬁnancial statements. 152 08 OTHER INFORMATION European Single Electronic Reporting Format (ESEF) ad pepper media International N.V. has prepared the annual report in ESEF. The requirements for this are set out in the Delegated Regulation (EU) 2019/815 with regard to regulatory technical standards on the speciﬁcation of a single electronic reporting format (hereinafter: the RTS on ESEF). In our opinion, the annual report, prepared in the XHTML format, including the partially marked-up consolidated ﬁnancial statements, as included in the reporting package by ad pepper media International N.V., complies in all material respects with the RTS on ESEF. Management is responsible for preparing the annual report, including the ﬁnancial statements, in accordance with the RTS on ESEF, whereby management combines the various components into a single reporting package. Our responsibility is to obtain reasonable assurance for our opinion whether the annual report in this reporting package complies with the RTS on ESEF. We performed our examination in accordance with Dutch law, including Dutch Standard 3950N ’Assurance-opdrachten inzake het voldoen aan de criteria voor het opstellen van een digitaal verantwoordingsdocument’ (assurance engagements relating to compliance with criteria for digital reporting). Our examination included amongst others: • obtaining an understanding of the company’s ﬁnancial reporting process, including the preparation of the reporting package • identifying and assessing the risks that the annual report does not comply in all material respects with the RTS on ESEF and designing and performing further assurance procedures responsive to those risks to provide a basis for our opinion, including: • obtaining the reporting package and performing validations to determine whether the reporting package containing the Inline XBRL instance document and the XBRL extension taxonomy ﬁles, has been prepared in accordance with the technical speciﬁcations as included in the RTS on ESEF • examining the information related to the consolidated ﬁnancial statements in the reporting package to determine whether all required mark- ups have been applied and whether these are in accordance with the RTS on ESEF. DESCRIPTION OF RESPONSIBILITIES REGARDING THE FINANCIAL STATEMENTS Responsibilities of management and the supervisory board for the fnancial statements Management is responsible for the preparation and fair presentation of the ﬁnancial statements in accordance with EU-IFRS and Part 9 of Book 2 of the Dutch Civil Code. Furthermore, management is responsible for such internal control as management determines is necessary to enable the preparation of the ﬁnancial statements that are free from material misstatement, whether due to fraud or error. As part of the preparation of the ﬁnancial statements, management is responsible for assessing the company’s ability to continue as a going concern. Based on the ﬁnancial reporting frameworks mentioned, management should prepare the ﬁnancial statements using the going concern basis of accounting unless management either intends to liquidate the company or to cease operations, or has no realistic alternative but to do so. Management should disclose events and circumstances that may cast signiﬁcant doubt on the company’s ability to continue as a going concern in the ﬁnancial statements. The supervisory board is responsible for overseeing the company’s ﬁnancial reporting process. 153 08 OTHER INFORMATION Our responsibilities for the audit of the fnancial statements Our objective is to plan and perform the audit engagement in a manner that allows us to obtain sufﬁcient and appropriate audit evidence for our opinion. Our audit has been performed with a high, but not absolute, level of assurance, which means we may not detect all material errors and fraud during our audit. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to inﬂuence the economic decisions of users taken on the basis of these ﬁnancial statements. The materiality affects the nature, timing and extent of our audit procedures and the evaluation of the effect of identiﬁed misstatements on our opinion. We have exercised professional judgment and have maintained professional skepticism throughout the audit, in accordance with Dutch Standards on Auditing, ethical requirements and independence requirements. The ‘Information in support of our opinion’ section above includes an informative summary of our responsibilities and the work performed as the basis for our opinion. Our audit further included among others: • Performing audit procedures responsive to the risks identiﬁed, and obtaining audit evidence that is sufﬁcient and appropriate to provide a basis for our opinion • Obtaining an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control • Evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management • Evaluating the overall presentation, structure and content of the ﬁnancial statements, including the disclosures • Evaluating whether the ﬁnancial statements represent the underlying transactions and events in a manner that achieves fair presentation Communication We communicate with the supervisory board regarding, among other matters, the planned scope and timing of the audit and signiﬁcant audit ﬁndings, including any signiﬁcant ﬁndings in internal control that we identify during our audit. In this respect we also submit an additional report to the audit committee in accordance with Article 11 of the EU Regulation on speciﬁc requirements regarding statutory audit of public-interest entities. The information included in this additional report is consistent with our audit opinion in this auditor’s report. We provide the supervisory board with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the supervisory board, we determine the key audit matters: those matters that were of most signiﬁcance in the audit of the ﬁnancial statements. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, not communicating the matter is in the public interest. Amsterdam, 7 April 2023 Ernst & Young Accountants LLP G.M.J. Bloetjes 154 « AT A GLANCE 09 AT A GLANCE ADDRESSES The ad pepper Group subsidiaries operate in the following countries: ad pepper media International N.V. France Group headquarters Nuremberg Webgains France SARL Frankenstrasse 150 C 21 Boulevard Haussmann 90461 Nuremberg 75009 Paris GERMANY FRANCE Phone +49 (0) 911 929057-0 Germany ad pepper media GmbH Frankenstrasse 150 D 90461 Nuremberg GERMANY ad agents GmbH Am Joachimsberg 10-12 71083 Herrenberg GERMANY Webgains GmbH Frankenstrasse 150 C 90461 Nuremberg GERMANY Webgains GmbH Frauenstraße 17 80469 München GERMANY 157 09 AT A GLANCE Spain Netherlands ad pepper media Spain S.A. Webgains B.V. Avenida Alberto Alcocer 46A, 1ºA Concertgebouwplein 15 H, 28016 Madrid 1071LL SPAIN Amsterdam NETHERLANDS Webgains S.L. Avenida Alberto Alcocer 46A, 4ºB UK 28016 Madrid SPAIN Webgains Ltd 70 Colombo Street Italy London SE1 8DP UNITED KINGDOM Webgains Italy S.r.l. SB Via San Giovanni Sul Muro, 18 Webgains Ltd 20121 Milan The Quorum ITALY Bond Street South Bristol BS1 3AE UNITED KINGDOM Switzerland ad agents AG Europaallee 41 8021 Zürich SWITZERLAND ad agents AG Via Maistra 100 7504 Pontresina SWITZERLAND 158 09 AT A GLANCE DATES AND CONTACTS Company calendar All ﬁnancial and press data relevant for the capital market at a glance: Annual Report 2022 10 April 2023 Annual General Meeting (Amsterdam, The Netherlands) 13 June 2023 Quarterly Report I/2023 26 May 2023 Quarterly Report II/2023 18 August 2023 Quarterly Report III/2023 17 November 2023 159 09 AT A GLANCE Contact for investors Disclaimer Dr Jens Körner (CEO) This Annual Report contains forward-looking statements which are ad pepper media International N.V. based on current assumptions and assessments made by the manage- Frankenstrasse 150 C ment of ad pepper media International N.V. These statements are not 90461 Nuremberg to be understood as a guarantee that such expectations will in fact GERMANY materialise. Future developments and the results actually achieved by ad pepper media International N.V. and its afﬁliated companies depend Phone: +49 (0) 911 929057-0 upon a number of risks and uncertainties and may therefore deviate Fax: +49 (0) 911 929057-157 signiﬁcantly from the forward-looking statements. Several of these E-mail: [email protected] factors are beyond ad pepper media’s control and cannot be precisely www.adpeppergroup.com estimated in advance, such as the future economic environment and the actions of competitors and other market players. There are no plans to update the forward-looking statements nor does ad pepper media Imprint International N.V. undertake any separate obligation to do so. Editorial responsibility: Headquarters Nuremberg, Germany ad pepper media International N.V. Frankenstrasse 150 C 90461 Nuremberg GERMANY Phone: +49 (0) 911 929057-0 Fax: +49 (0) 911 929057-157 E-mail: [email protected] www.adpeppergroup.com Prime Standard, Frankfurt Stock Exchange Our 2022 Annual Report as well as the Interim Financial Reports for 2022 are available at www.adpeppergroup.com under: ISIN: NL0000238145 HRB Nuremberg 17591 Investor relations / Publications / Financial reports. VAT-ID-No.: DE 210757424 Board of Directors: Dr Jens Körner, CEO 160 « GLOSSARY 10 GLOSSARY GLOSSARY Affliate: Website that adds banners/buttons/text links that link through to merchant sites, in order to earn commission based on leads/sales generated. Non-IFRS fnancial measures Affliate marketing: EBIT: Afﬁliate marketing is a form of internet advertising where-by online Income before Interest and Tax. vendors (merchants) place advertising banners on partner websites (afﬁliates) in order to reach more customers. Whenever a user clicks EBITDA: on the banner and buys the product or carries out a pre-deﬁned action, Income before Interest, Tax, Depreciation and Amortisation. the website operator who displayed the ad receives a commission. This commission is based on the sales rate of the products and services EBT: referred by the afﬁliate. Income before Tax. Affliate network: Equity ratio: Afﬁliate networks facilitate cooperation between merchants and Shareholders’ Equity/Total Assets. afﬁliates, act as providers of technological and/or other services who take over tracking and invoicing on behalf of afﬁliates and merchants. Gross sales: Also frequently known as afﬁliate platform. Gross sales represent the total amount billed and billable to clients by the Group, net of discounts, VAT and other sales-related taxes. Audience targeting: Disclosure of gross sales information is not required under IFRS; Audience targeting is the ability to take your full audience of prospective however, it is voluntarily disclosed from 1 January 2018 onwards in the customers and segment it into groups based on different criteria, Consolidated Income Statement since management has concluded that including online behavioural characteristics, demographics, interests, and the information is useful for users of the ﬁnancial statements. intent. Audience targeting helps more effectively deliver personalised and optimised experiences based on customer needs and interests. Liquid funds: Cash & cash equivalents including listed debt securities. Cookie: Small text ﬁle used to enhance the user experience of websites by Media cost: storing settings entered on site, for instance a country selection on an Media cost relate to payments made to suppliers of ad inventory entry page. Used on most programs for tracking sales. (commonly referred to as media buys and publishers). Disclosure of media cost information is not required under IFRS; however, it is CPA: voluntarily disclosed from 1 January 2018 onwards in the Consolidated Cost per acquisition – a billing method whereby the advertising Income Statement as management has concluded that the information customer only pays for their online ad when a user carries out a is useful for users of the ﬁnancial statements. particular action that has been pre-deﬁned by the advertiser (user makes purchase or registers for a newsletter, for example). Also known as pay per action. Business terms CPC: Ad: Cost per click – billing unit for online advertising. Costs are calculated Short for advertisement in print or on TV or otherwise. according to the number of times a user clicks on an ad (website banner). Also known as pay per click. Ad spending: The amount of money spent on advertising for a product or activity. CPL: Cost per lead – fee per dataset. Also known as PPL (pay per lead). Advertiser: Advertisers/Merchants (providers and operators of the program) CPM: advertise their products and services on the afﬁliates’ websites and Cost per mile – shows the costs per 1,000 ad views (see ad impression) pay them a commission on sales generated. for an advertising booking. 163 10 GLOSSARY Display advertising: Delivery of ads to the target group, avoidance of waste coverage, and the efﬁcient management of digital advertising activities in accordance with customer-deﬁned KPIs. e-commerce: The electronic commerce describes every type of transaction on the internet. The most well-known type of e-commerce is online shopping, although it is much more than marketing and sales online; various online services, service and management of business transaction processes are also part of e-commerce. Lead: A successfully established contact between a product or service provider and a potential customer. Lead generation: A successfully established contact between a product or service provider and a potential customer. A ‘qualiﬁed lead’ signiﬁes that the customer has conﬁrmed interest, for example through registering for a newsletter or submitting a contact form. Performance marketing: Online marketing tools used to calculate success rates. Search engine marketing, afﬁliate marketing, and e-mail marketing all fall under the category of performance marketing, as do banner ads, which are delivered in a targeted manner with fees based on success rates (‘cost per click,’ ‘cost per sale,’ ‘cost per lead’). Publisher: Website operators are generally known as publishers. They play a particular role in afﬁliate marketing. This is where the publishers take on the functions of distribution partners (afﬁliates). ganisation being subject to fraudulent activity. SEA: Search Engine Advertising – Search engine marketing covers all marketing activities related to search engines. This includes paid keyword advertising, improved ranking within the search results, and afﬁliate marketing. SEO: Includes all measures designed to feature websites as high as possible on the result pages of search engines. 164 ad pepper media International N.V. Frankenstrasse 150 C 90461 Nuremberg GERMANY www.adpeppergroup.com

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