Stroer: Astounding AGM Transcript via Muddy Waters

General meeting of Stroer SE & Co. KGaA on June 22, 2016 in Cologne

Vilanek, chairman: I hereby declare this year’s ordinary general meeting open [………]

Muller: Thank you very much. – Good morning, ladies and gentlemen, good morning, shareholders. On behalf of our colleagues in the board of management I extend a warm welcome to you at the general meeting of Stroer SE & Co. KGaA. I would also like to welcome the shareholders’ representatives, our business partners from banks and our guests. I’m glad you were able to come today.

You have all been following the latest developments. Our last year’s results, which I would like to describe to you in detail in a minute, speak for themselves. Today we can look back on the most successful 12 months in our company’s history. At the same time, we are facing our next record year: in 2016 we will exceed the psychologically significant revenue mark of one billion euros for the first time. At the same time, we expect a new record for cash flow and our annual result.

Special mention should be made of this given already considerably higher results in 2015. Last year we very considerably increased the adjusted profit per share by 74% and our cash flow before M&A activities by about 46%. But more details on that in a minute, too.

The strategic addition to our traditional out-of-home business in order to open up new digital business models, the related establishment of a networked digital eco-system and the numerous growth initiatives of past years are already proving correct decisions and we’re pleased about that.

Typically for a family-owned company, we have taken calculated risks – which some critics have repeatedly questioned – in order to ensure the long-term, positive value of our company. And precisely these risks are beginning to pay off as expected.

In our out-of-home business, we have a longterm, structurally growing core business in which we are continuing to invest unchanged. We are also supporting this with new, also growing and many kinds of profitable digital business models. This is precisely what distinguishes us from many competitors in the media industry at the moment. We are in the fortunate situation of not having to make up for any shrinking business models due to digital growth. On the contrary, we can secure and further accelerate our structural growth in the out-of-home market through targeted investments in new digital business models.

This fact puts us in an excellent starting position for the next few years. With our very commercial management approach and as a major founder-managed media company on the capital market, we are currently also able to obtain some of the most talented digital business heads in the industry and thereby lay major foundations for successful development over the coming decades.

We aligned our business with digitalization – which will determine life in future – early on and have built up a strong, cooperative digital company DNA over the last three years. Stroer is increasingly becoming an interactive digital platform. It creates all the necessary basic conditions so that our management team and our equity partners can further develop and successfully manage their innovative and long-term value growth-oriented digital business models.

In the course of progressive digitalization, the market continues to change quickly. The key questions for every company are: what are the key differences in the digital future compared to the analog past, and: how should management react to them? One basic difference must be the reduction of market entry barriers of all kinds.

When people wanted to manufacture gym shoes a few years ago, you had to build a gym shoe factory. Today you only need a 3D printer you can get in any shop. Digitalization makes everything that used to be highly complex a short time ago, suddenly very simple or reduces it to a commodity, changes entire markets from scratch and reduces market entry barriers for many companies.

In the digital future, the often unsuccessful strategy in analog times of the vertical integration of value chains is appearing on the agenda again with great enthusiasm under new conditions and perspectives. New and innovative, often tech-based and mostly intermediate business models may be very successful in the short term in these times of the transition to digitalization but, in the long term there is, of course a very great risk of being forced out of business by vertically-integrated business models.

On a global and hence very large scale, Amazon is the blueprint for a successful digital model in its segment which is essentially transferrable to many sectors these days. Initially a solely sales platform for offers from third parties with a horizontal approach, it is vertically integrated backwards and forwards on the basis of the data already generated as a first step with unique consistency. For example, those dealers who know on the basis of the right data what their customers want to buy can produce these goods themselves in the digital future without any major risks. If the volume is large enough, dealers can also deliver goods, thereby ultimately controlling an end-to-end, completely integrated digital value chain.

In this example, logistics companies – categorized to date as safe success models due to ecommerce – will suddenly have only an intermediate business model with the risk of being forced out of the market, permanently and unexpectedly.

After an initial phase of horizontal consolidation, we are also seeing corresponding developments in the field of digital media offers. In an increasing number of cases, vertically integrated companies are today forcing newly-started intermediate business models off the market again with much premature praise.

Our strategic response to the challenges of digital transformation is crystal-clear: we will not be investing in intermediate business models such as ad-tech companies, we will be concentrating on integrating our various digital out-of-home and content platforms in the desktop, mobile and public fields and have become a genuine multichannel media company.

We are expanding and integrating our value chains vertically in order to create long-term value for our shareholders by establishing a fullyintegrated digital eco-system. The continually improving results over the past 14 consecutive quarters prove, quarter by quarter, the strength and robustness of our continuously developing integrated portfolio approach, which is based on synergies between the segments.

Our coverage platforms are both location-based, i.e. our traditional out-of-home business, and content-based. The digital out-of-home platforms in railroad stations, shopping centers and on the street benefit from the contents of the content area. The various desktop, mobile and social platforms in the content area are significantly increasing their range by expanding their content on our national public-display infrastructure. Both will benefit from each other over the long term and will merge successively as part of digitalization, supported by our competence in data and technology.

Our concept of an optimized monetization of our out-of-home and content-based ranges is based on three mutually complementary target group approaches in a structured waterfall approach. As one of the leading German advertising marketing companies, we are simultaneously the clear leader in our core segment and, because of our advantages of size, can thus ensure an optimal marketing result in our marketing in Germany.

At local level, we are the only German supplier of local advertising products and are continuing

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