DEAG Deutsche Entertainment AG Annual Report 2007

Transcription

1 DEAG Deutsche Entertainment AG Annual Report 2007

2 Table of Content Management Report and Group Management Report Business development and framework condition Live Entertainment a growth market Growth through classical music business and new business lines Comedy, Schlager and Show Investees and strategic partnership 3 2. Income, financial and assets position Income position Assets position Business development by Segment Financial position Income and assets position of DEAG Holding Capital market Personnel development Compensation report Explanatory report of the Executive Board in accordance with 289 para 4 HGB and 35 para 4 HGB 8 3. Supplementary Report 8 4. Risk Reports Market/competition Evaluation of goodwill Investment property Financial obligations Exchange rate risks Holding structure Opportunities Outlook 12

3 Consolidated Financial Statements Consolidated Balance Sheet 13 Consolidated Statement of Income 14 Consolidated Cash Flow Statement 15 Development of Equity within the Group 16 Notes on the Consolidated Financial Statements Independent Auditor's Report 50 Annual Financial Statements for DEAG Holding (short version) Report of the Supervisory Board 53 Imprint 54

4 Management Report and Group Management Report DEAG is one of the leading providers of live entertainment in Europe, with several subsidiaries in Germany, England and Switzerland. Apart from the organization of tours (purchasing, reselling, marketing, production, execution, quality assurance), several subsidiaries also operate as local promoters in German and Swiss cities. The event portfolio of DEAG is comprised of national and international rock and pop, classical music events, shows, comedy, the Friedrichsbau Varieté in Stuttgart and the record label/music publisher DEAG Music. DEAG has access to several venues, either through possession or exclusive lease contracts. 1. Business development and framework conditions DEAG Deutsche Entertainment AG (DEAG) pursued its profitable growth course during fiscal With sales revenues of EUR 87.2 million (prior year: EUR 82.8 million; + 5%), the EBIT increased by EUR 5.0 million or 63%. The acquired ACE Entertainment GmbH is reflected in reporting year sales at EUR 7.4 million, without the changes in the consolidation entity 2006 and 2007 an adjusted increase in sales of EUR 5.8 million versus prior year was recorded. Whereas the 2006 result was very much influenced by positive special effects, DEAG was able to prove its operational efficiency in a rapidly changing market in fiscal A Group result before minority interests of EUR 2.5 million was achieved after the books still showed a loss of EUR 0.1 million in fiscal DEAG is well positioned with a balanced portfolio of segments in an industry which continues to grow. Furthermore, DEAG has become the European market leader for classical music events following the acquisition of 75.1% in Raymond Gubbay Ltd. after the balance sheet date (see under 3. Supplementary Report). For those reasons the company anticipates an ongoing positive business development in the years to come Live Entertainment a growth market The most recent study by idkv/gfk has identified a continuation of last year's trends. Whereas the market volume for music events increased, according to the forecast by the market researchers, from EUR 2.45 billion in 1995 to EUR 2.88 billion in 2007 (+18%), the sales of recorded music fell during the same period from EUR 2.65 billion to EUR 1.61 billion. The market for non-music events amounted to EUR 0.9 billion. During the first half year million visitors attended music and non-music events; this corresponds to 39.2% of private households million tickets were sold and sales revenues of EUR 1.9 billion were generated. Music events ranked second in terms of spending for entertainment offerings with EUR 1.4 billion, after books (EUR 2 billion) and ahead of recorded music (EUR 0.8 billion). The intersection between event attendance (20.1 million people in the music area during the first half year 2007) and the purchasing of recorded music (16.7 million persons during the first half year 2007) is surprisingly low with 7.0 million people. Live attendance is homogeneously distributed across all age groups. With 28% the 60 plus age group plays the most important role. In the breakdown by genre, classical music concerts (without opera/operetta) have the same share as international rock/pop (13%). The leaders are musicals (21%) and music festivals (16%). The most important distribution channel continues to be advance booking offices (41%) followed by the Internet and the box office (22% each). The most important advertising media continue to be media coverage (55%) followed by recommendations of friends (51%), newspaper ads (46%) and posters (42%). An important share in revenues stems from incidental income: on average every visitor to an event spends, in addition to the ticket (EUR 35.26), EUR on food and beverages and EUR on merchandising. The sales revenue development in the events business is driven, inter alia, by the increase in ticket distribution via the Internet (in the age groups years with 34% now the most important distribution channel), the shift within the media budget to live entertainment, increasing ticket prices, the growing number of modern venues and in Germany the growing popularity of German artists as well as the positive overall economic development. These developments have varied impacts on the music industry which could result in new business opportunities for DEAG: The industry continues to expand. The "Craving for Live" concerns all age groups. With its balanced business portfolio DEAG is in a position to accommodate all target groups. 1

5 The live business becomes increasingly important for artists. Whereas live appearances served in the past frequently to promote a new album, a reversal of this development can increasingly be observed. With the growing importance of the live share as an income component of an artist, their fee demands are increasing, too. Furthermore, the number of events is growing. In fiscal 2007 there was an oversupply of top acts on the German market. It will continue to be important to occupy the right niches with a balanced portfolio. According to the idkv/gfk study the age structure of the customers is homogeneously distributed. In order to compensate for the declining sales of recorded music mainly due to piracy, the record companies have made diversification effort towards live entertainment and other sources of income, such as the agency business and merchandising for several years now. In 2007 the first takeovers by music majors took place in this field. The strategy of the record companies pursued under the name of the "360 degree model" opens up further opportunities for new marketing models for DEAG Growth through classical music business and new business lines Comedy, Schlager and Show The growth in sales revenues was primarily driven in fiscal 2007 by the extension of the classical music business. The highlight of the classical music season was the tour of star soprano Anna Netrebko with the tenors Rolando Villazón, Ramón Vargas and José Cura, for which more than 45,000 tickets were sold in seven German cities. Another tour staged by DEAG in five German cities with the Chinese piano star Lang Lang recorded 33,000 sold tickets. As the German market leader in the field of classical music, DEAG has set new standards for the marketing and presentation of its artists. Further DEAG Classics artists on tour included in 2007 Hilary Hahn and Joshua Bell as well as mezzosoprano Angelika Kirchschlager. In 2008 there will again be a portfolio of superstars in the classical music business line including Anna Netrebko, Placido Domingo, Rolando Villazón and Lang Lang, together with artists who are developed for the German market. These include the tenor Jonas Kaufmann, the violinist David Garrett, the sopranos Diana Damrau and Edita Gruberova as well as the pianist Gabriela Montero. In the German Rock/Pop business line a roster of superstars and established artists as well as promising young acts was presented. Justin Timberlake, Beyoncé, 50 Cent, The Who, Manowar, Amy Winehouse, Snoop Dogg, Chris de Burgh, Christina Stürmer and LaFee were among the stars appearing for subsidiaries of DEAG. Through the acquisition of the majority shareholding in ACE GmbH a new entry was made in the Show business line. Since fall 2007 the Irish dance show "Riverdance" has, for instance, been touring many German cities. Furthermore, ACE also operates in the attractive German Schlager and popular music segment. ACE staged in 2007, amongst others, the "Schürzenjäger" tour including a major open air festival in Zillertal Valley with an audience of more than 30,000. Since fall 2007 the major Howard Carpendale comeback tour 2008 has been open for advance booking. With the Rüdiger Hoffmann tour "Sex or Love" DEAG staged its entry into the Comedy business in Other DEAG artists in this field include Guido Cantz and the Popolskis. In addition to the Tour business DEAG now also operates as a local promoter in four German cities (Berlin, Munich, Hamburg and Frankfurt). In Berlin DEAG has been operating the Waldbühne venue for almost three decades. The highlight of the 2007 season was without any doubt the only appearance of Barbara Streisand in Germany for which DEAG was presented with a Live Entertainment Award (Jury Award) in Furthermore, DEAG was a co-organizer of the open air festival "Don't look away" against violence in schools at the Brandenburg Gate with more than a million spectators. It also staged a series of other concerts in Berlin. The Swiss subsidiary Good News, a market leader in Switzerland and, amongst others, the exclusive operator of the Zurich Hallenstadion for entertainment events can likewise look back on a successful Apart from open air events such as the stadium concerts of Genesis and The Police as well as the Moon and Stars Festival in Locarno (inter alia with Pink and Peter Gabriel), stars appearing at the Hallenstadion included Shakira, Joe Cocker, Bryan Adams, Bob Dylan and Lionel Ritchie. 2

6 1.3. Investees and strategic partnerships In 2007 the investee portfolio of DEAG was extended and restructured: Effective July 1, 2007 DEAG took over 51% of the shares of the promoter ACE GmbH. A preliminary contract had already been signed in July ACE supplements the DEAG portfolio firstly in the Show business line ("Riverdance"), in the German Schlager/Rock business line (Howard Carpendale, Schürzenjäger, Peter Kraus, Nana Mouskouri, Udo Lindenberg, Matthias Reim etc.) as well as in the Rock Pop line (Toto, Tom Jones etc.). Effective January 1, 2007 the remaining 25% in MPE Musicpool Europe GmbH (MPE) were acquired. The vendor was granted a buy-back option. MPE stages tours by, inter alia, Alicia Keys, Foo Fighters, Backstreet Boys and Neil Young in Effective March 31, 2007 the 100% shareholding in Varieté Wintergarten was sold. The separation, which had already been announced long before, was made within the framework of the portfolio adjustment of DEAG. The sale has no negative impact on the balance sheet for fiscal The Varieté Friedrichsbau in Stuttgart is allocated to the Entertainment Services segment. Following the partnerships entered into in previous years with the world market leader in ticketing, Ticketmaster, the worldwide leading classical music agency, IMG Artists, the second largest live entertainment group in the world, Anschutz Entertainment, and the second largest music major Warner Music for recorded music distribution/music publisher, DEAG has laid a sound foundation for the extension of its business in the years to come. 2. Income, financial and assets position DEAG Group Overview: Figures in EUR million % Revenues 87,2 82,8 5% Gross margin (%) 25% 21% Δ 4% EBITDA 6,2 4,3 43% EBIT 5,0 3,1 63% Group result * 2,5-0,1 na Earnings per share ** 0,08 0,01 700% Balance sheet total 70,3 69,7 1% Equity 34,0 31,9 7% Equity ratio 48% 46% Δ 2% * before minority interests ** from continued operations 2.1. Income position With sales revenues which rose by 5% to EUR 87.2 million (prior year: EUR 82.8 million) DEAG was able to disproportionately increase all result parameters. The gross margin rose by four percentage points to 25%. This was, more particularly, attributable to the high share of the classical music business in the gross margin. The distribution and administration costs even recorded a slight decline versus prior year: distribution costs dropped from EUR 9.5 million to EUR 9.1 million; administration costs fell from EUR 9.6 million to EUR 9.4 million. Whereas the other operating income primarily included last year (EUR 6.7 million) special income in connection with the repayment of liabilities and divestitures of investees, it amounted to EUR 3.5 million in 2007 including primarily items related to the operating business: income from letting, food and beverage income, insurance compensation payments, commission, incidental income etc. EBITDA rose by 43% to EUR 6.2 million. Following depreciations and amortizations in the amount of EUR 1.2 million (prior year: EUR 1.3 million), EBIT amounted to EUR 5.0 million (prior year: EUR 3.1 million); this corresponded to a 63% rise. 3

7 The decline in the financial income from EUR 2.2 million to EUR 1.3 million is attributable, more particularly, to the drop in the cost of capital (overall EUR 0.9 million decrease). This reflects the successful reduction of liabilities by more than EUR 20 million in After taxes in the amount of EUR 0.5 million (prior year: EUR 0.4 million) the net income for the year from continued operations amounts to EUR 3.2 million, reflecting a EUR 2.7 million rise versus prior year. The result from discontinued operations (EUR -0.6 million; prior year EUR -0.6 million) was primarily burdened by an unexpected VAT payment for prior years in respect of discontinued operations. The result before minority shareholdings amounts to EUR 2.5 million (prior year: EUR 0.1 million). After minority shareholdings in the amount of EUR 1.4 million (prior year: EUR 0.3 million) the consolidated result available to the shareholders of DEAG AG amounts to EUR 1.1 million; this reflects a EUR 1.5 million improvement versus prior year Assets position Liquid assets amounted to EUR 14.1 million and remained more or less on prior year level (prior year: EUR 14.2 million). Receivables increased due to the higher business volume and advance booking receipts (EUR 2.0 million) not yet paid over from EUR 2.8 million to EUR 5.9 million. Inventories consist primarily of advance payment of artist fees and production costs; they declined by EUR 1.8 million to EUR 3.7 million. The other assets decreased because of the cancellation of a claim by a tax office from an assignment which was offset by another liability of the same amount. Goodwill increased following the acquisition of shares in ACE GmbH to EUR 24.5 million (prior year: EUR 23.8 million). This also applies to other intangible assets which rose by EUR 3.4 million to EUR 7.0 million because of the capitalization of backlogs of orders and artist relations. As far as real estate held as investment property is concerned, this relates to parts of plots of land around the Frankfurt Jahrhunderthalle, which were re-appraised as at the balance sheet date. Liabilities to banks increased, inter alia, through the utilization of a working capital line with two principal banks from EUR 0.9 million to EUR 2.7 million. The sales revenue deferrals include the advance booking monies already received and guarantees for forthcoming events. The decline in other short-term liabilities is primarily attributable to the compensation of a liability vis a vis a tax office which was offset by a claim from an assignment in the same amount. The increase in other non-current liabilities by EUR 3.5 million to EUR 3.7 million is due to the drawing on a mezzanine credit for the financing of acquisitions. Consolidated equity rose by EUR 1.0 million to EUR 34.0 million; this corresponds to an equity ratio of 48% (prior year: 46%) Business Development by Segment DEAG continues to report in a segment structure. It reflects the strategic orientation of the Group in an appropriate and transparent manner: In the segment Live Touring ("traveling business") the touring business is reported. This includes the activities of the companies DEAG Classics (Berlin), DEAG Concerts (Berlin), KBK Konzert u. Künstleragentur (Munich), Music Pool Europe (Hamburg), Balou Entertainment Konzertagentur (Cologne), creative talent (Berlin) and ACE (Hamburg). In the segment Entertainment Services ("stationery business") the regional business and the entire services business are reported. This includes the activities of Good News (Switzerland), Global Concerts (Munich), Jahrhunderthalle Kultur (Frankfurt), Concert Concept (Berlin), Friedrichsbau Varieté (Stuttgart), River Concerts (Hamburg). The activities of the Varieté Wintergarten (Berlin), which has since been sold, are reported as discontinued operations. Business development in segments to the extent as they concern continued operations 4

8 Revenues (in EUR 000) Variation versus prior year Live Touring 39,696 30, ,3 % Entertainment Services 52,176 53,583-2,6% Segment performance Operating result (EBIT) in EUR Variation versus prior year Live Touring 4, > 100,0% Entertainment Services 4,928 5,174-4,8% Live Touring Sales revenues: The increase in sales revenues is attributable, more particularly, to the classical music business line. The highlights of the classical music season were the open air concerts of the Chinese star pianist Lang Lang and the tour of star soprano Anna Netrebko with the tenors Rolando Villazón, José Cura and Ramón Vargas. Segment performance: The classical music business line contributed the largest share to the result. Margins in the Rock/Pop business line suffered slightly from the general oversupply on the German market in With a segment result of EUR 4.0 million it was nonetheless possible to achieve a substantial rise versus 2006 (EUR 0.5 million). Entertainment Services Sales revenues: Sales revenues fell slightly by 2.6% to EUR 52.2 million. The by far largest contribution to sales revenues was made, as in previous years, by Good News AG in Switzerland. Segment performance: With EUR 4.9 million the result remained slightly below the prior year level (EUR 5.2 million). In 2006 the segment result was, however, marked by high special effects. The highest contributions to the result were made, as last year, by Good News AG and Jahrhunderthalle. Discontinued operations Sales revenue in EUR Operating result (EBIT) in EUR The discontinued business lines include the activities of the divested Wintergarten Varieté, the winding up costs of Entertainment One AG, which discontinued its activities in 2005, and the subsequent burden from an unexpected VAT payment for 2000 arising from the discontinued Musical division. 5

9 2.4 Financial position Group cash flow statement (abbreviated version) in keur Cash flow before changes to net current assets Outflow of funds from current business activities Including from discontinued operations Addition/outflow from investing activities Including from discontinued operations 2-9 Addition/outflow from financing activities Including from discontinued operations Change in cash and cash equivalents with an impact on payments Exchange effects Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year The cash flow before changes to net current assets increased, inter alia, due to the improved result from continuing operations by EUR 7.3 million. Furthermore, the net income for the year 2006 still included, as opposed to 2007, high non-cash based result components. The higher receivables and the decrease of external finance resulted in an outflow of funds from current business acitvities. Because of a net cash increase on the acquisition of ACE, the repayment of granted loans and interest income an inflow of funds from financing activities was achieved. The inflow of funds from financing activities reflects the re-scheduling of current financial liabilities Income and assets position of DEAG Holding The further statements on DEAG Deutsche Entertainment AG are in conformity with the provisions under the German Commercial Code. Income position In fiscal 2007 the net income for the year of DEAG Holding amounted to EUR 0.6 million after a net loss for the year of EUR 5.8 million in fiscal The other operating income was marked in fiscal 2006 by higher special effects and was, therefore, EUR 1.1 million higher in The other operating expenses were EUR 1.1 million above prior year level in fiscal The delta results, more particularly, from an unexpected VAT payment for the year Last year the result was still burdened by write-downs of investments in the amount of EUR 5.3 million. The second major cause underlying the increase in results in 2007 was the contribution from profit and loss transfer agreements with subsidiaries. Assets position Liabilities to banks increased following the drawing on working capital credits from EUR 0.9 million to EUR 2.7 million. Liabilities to affiliated companies decreased primarily because of the positive contributions from profit and loss transfer agreements in the amount of EUR 5.2 million to EUR 1.4 million. Other liabilities increased primarily because of the drawing on a mezzanine credit for the financing of acquisitions. Equity decreased from EUR 17.5 million to EUR 16.9 million; this corresponds to an equity ratio of 60% (prior year: 64%). 6

10 2.6. Capital market Share price development In fiscal 2007 the DEAG share recorded a slightly positive performance and developed significantly above the benchmark. Whilst DEAG rose by 0.6% (Xetra) during the reporting period, the SDAX 2007 fell by around 7% and the Prime Media index even dropped by more than 16%. The Executive Board of DEAG, therefore, assesses the share price development 2007 as moderately positive but sees further upside potential for the share price because of the significantly improved operational positioning and the good perspectives for This is to be leveraged by active investor relations work. The DEAG share closed fiscal 2007 with a share price of EUR 1.70 in Xetra trading. The price was one Cent above the share price on the 2006 closing date. The annual high of the share on a closing price basis was reached on March 30, 2007 with EUR 2.29 (Xetra). Consequently, the DEAG share had less volatility than its benchmark in the course of the year. The average trading volume was about 60,000 shares per day. 75% were accounted for by Xetra trading and 22% by the Frankfurt Stock Exchange. With an average daily transaction volume of keur 116 the DEAG share was on a level that can be considered as attractive by investors for a second line share. Investor Relations DEAG engages in open and transparent communication with its investors and the capital market; this is also documented by the listing in the Prime Standard segment. Apart from information in the annual report and in the interim reports on the half year financial statements as well as the first and third quarter reports, DEAG provides information on important events, as required, by way of ad hoc disclosures or press releases. Communication is in German and English. At the General Meeting in June 2007 the attending shareholders were informed in detail about the business development; all agenda items were approved by majorities of more than 95% of the votes cast. In addition to the above-mentioned activities, the Executive Board of DEAG presented the company in 2007 at capital market conferences such as the German Equity Forum and in numerous individual talks to institutional investors. DEAG will continue and intensify its investor relations activities in fiscal With the addition of DZ Bank after the balance sheet date both in the field of research and as a designated sponsor, the coverage of DEAG is to be extended through high quality research and the liquidity of the share is to be further increased. For investors the investor relations section of the Homepage, provides a good overview of the current business development. Moreover, interested shareholders can always talk to various contact persons on the phone ( ) or communicate electronically (deag@edicto.de) Personnel development The Group headcount amounted on an annual average to 171 employees versus 221 in fiscal The decrease is mainly attributable to the deconsolidation of Varieté Wintergarten, Berlin and Marshall Arts Ltd., UK. DEAG Deutsche Entertainment AG employed 20 people on an annual average (prior year: 17). There was a change on the Supervisory Board of DEAG: on June 14, 2007 the annual general meeting elected Mrs Christine Novakovic to the Supervisory Board of DEAG. Mrs Novakovic whose maiden name was Licci established an international reputation as a top banker, for instance as CEO of Citibank Germany and as a member of the Executive Board of HypoVereinsbank. She replaces the long-standing Supervisory Board member Dr. Günther Niethammer. The Executive Board of DEAG thanks Dr. Niethammer for his many years of professional support and advice. 7

11 2.8. Compensation report in accordance with 289 para 2 No. 5 HGB (German Commercial Code) and 315 para 2 No. 4 HGB The Supervisory Board fixes the compensation of the Executive Board. Some members of the Executive Board receive variable compensation in addition to fixed compensation. The bonus for the CEO is paid for every fiscal year on the basis of targets defined by the Supervisory Board of DEAG together with the Executive Board. Another member of the Executive Board is paid under a profit sharing scheme which is based firstly on the achievement of targets ("Profit sharing I") and secondly on excellent performance ("Profit sharing II"). In addition, compensation in kind is paid for instance through the provision of a company car and contributions to a sickness/care insurance. The fixed salary of the Executive Board totaled keur 974 in fiscal The compensation of the Supervisory Board is governed by the provisions of the By-laws. The corresponding provisions were reworded by the general meeting on June 14, 2007 by an amendment to the By-laws. The compensation of the Supervisory Board includes a fixed (EUR 9,500) and a variable amount. The variable amount depends on the consolidated EBIT; it corresponds to EUR 1,000 for each full amount of EUR 1 million of the consolidated EBIT exceeding 15% of the nominal capital, capped at EUR 9,500 per year. The Chairman of the Supervisory Board is paid the triple amount of the compensation and his deputies the double amount. Furthermore, all expenses of the members of the Supervisory Board are refunded, and they are reimbursed any VAT which may be payable on their compensation and expenses Explanatory report of the Executive Board in accordance with 289 para 4 HGB and 315 para 4 HGB The subscribed capital consists exclusively of no par value bearer shares with a nominal value of EUR 1 per share. There are no different share categories or shares with special rights which grant control rights. There are no restrictions under the By-laws which concern voting rights or the transfer of shares. The Executive Board is not aware of any agreements to that effect between the shareholders. The CEO, Mr Peter Schwenkow, Berlin and Nobel SA, Paris, France hold and/or control more than 10% of the shares each and hence of the voting rights of the company. Insofar as employees have a share in the capital, they exercise their voting rights directly. The Executive Board is appointed by the Supervisory Board in accordance with 84 German Stock Corporation Act (AktG). The number of members of the Executive Board is determined by the Supervisory Board which also decides on the term of the Executive Board offices. The Supervisory Board is empowered to adopt amendments to the By-laws which concern only its version. As for the rest, the Annual General Meeting decides on amendments to the By-laws. The Executive Board is empowered to issue new shares once or more than once with the consent of the Supervisory Board from the authorized capital approved by the Annual General Meeting and from the contingent capital of the company adopted by the Annual General Meeting and to increase the nominal capital of the company in this way. By resolution of the Annual General Meeting of June 14, 2007 the company is, moreover, empowered in accordance with 71 para 1 No. 8 AktG to acquire 2,308,881 treasury shares by December 13, The corresponding decision is taken by the Executive Board. Such an acquisition may only be carried out through the stock exchange or by means of a public bid addressed to all shareholders. No agreements on compensations by the company have been entered into with members of the Executive Board or employees in the event of a takeover bid. 3. Supplementary report In March and April the expansion of the classical music business line was continued through cooperations and acquisitions: In a first step DEAG Classics AG and A-Pro Just Classics! GmbH of Dr. Alard von Rohr extended their co-operation agreement concluded in Consequently, the partners continue their successful co-operation documented last year by projects such as tours with Jessye 8

12 Norman, Jonas Kaufmann, Montserrat Caballé and Leonard Bernsteins "Candide" for another five years. In Switzerland internationalization was initiated with the renowned classical music concert manager Dina Thoma through the setting up of the joint venture Switzerland Classics AG in which the Classics subsidiary DEAG Classics will hold 51%. As of April 1, 2008 DEAG finally acquired 75.1% in Raymond Gubbay Ltd. (RGL), one of the most renowned and largest promoters of classical music events in England. RGL, set up in 1966, presents around 400 opera, ballet and concert events a year in Great Britain, Europe, Asia and Australia. In the Royal Albert Hall RGL stages the annual series of Classical Spectacular concerts and the Christmas Festival. Furthermore, RGL organizes, together with the hall and other partners, events in the fields of opera, ballet and musical. This means that after the German-speaking countries DEAG has now a foothold in Europe's second largest classical music market and is now Europe's largest classical music promoter. 4. Risk reports In accordance with 91 para 2 German Stock Corporation Act, the Management Board is obliged to take appropriate measures and, more particularly, to set up a monitoring system in order to ensure early detection of any developments that could jeopardize the continued existence of the company. Risks are an integral part of entrepreneurial activities. Growth and successful actions are dependent on the identification, evaluation and notification of any strategic and operating risks. All the same, DEAG is constantly exposed to a series of general and market business risks as well as several specific risks which are, more particularly, associated with the industry which means that it is engaged in a volatile business. The company has set up a monitoring system to detect any developments that could jeopardize the continued existence of the company early on. The monitoring of business activities with a view to detecting any potential jeopardizing risks early on is mainly done by the Management Board and Corporate Controlling at the present time. The risk management system focuses on liquidity planning, project calculation and supervision of the advance booking numbers as well as the ongoing forecast of the income position. Following the transfer of Accounting to the holding and/or through a standardized exchange of information with subsidiaries, the Executive Board is regularly informed about the income and assets position. According to the German Commercial Code, we are obliged to report on the opportunities and risks of the future development. This Management Report and the further information on the fiscal year include forward-looking assumptions and estimates associated with risks which may lead to the actual results deviating from our forecasts Market/competition DEAG operates on a highly competitive market. We aim to identify and respond to changes on the market at an early stage. Nonetheless, the market environment can change in an unexpected manner which could involve risks for the business activities of DEAG. This applies, for instance, to possible changes in leisure and consumption behavior which could have an adverse impact on ticket sales in Live Entertainment. The business of DEAG is currently to a large extent dependent on ticket sales. Furthermore, the framework conditions governing the availability of artists corresponding to the public s taste, may change and new, strong providers may enter the market and become competitors of DEAG. Furthermore the business success, more particularly, in the rock/pop business line depends on to the extent DEAG subsidiaries are able to work against the rising demands of artists regarding their fees. The decline in sales from recorded music increases the promoters standing and bargaining power. The business activities of DEAG also depend on the availability of corresponding venues. Apart from Jahrhunderthalle in Frankfurt, which is owned by Concert Concept, leases were signed for Waldbühne in Berlin and through the DEAG investee Good News Productions AG for Hallenstadion in Zurich. The remaining venues are rented for the respective event. If no 9

13 performance is possible in any of these venues, the business of DEAG can be adversely affected. In addition, there is a dependence on existing business relations and the development of new business relations with artists, agents, producers and other industry players. The availability of distribution channels, more particularly advance booking systems, has a major impact on business success, too. With the shareholding in Ticketmaster Germany and close co-operation with the world market leader Ticketmaster USA, DEAG has taken an important strategic step forward in this respect. Furthermore, the development of DEAG's business is influenced by the extent to which it can recruit and keep qualified staff and industry insiders within the company. This applies, more particularly, to the entertainment industry which is heavily dependent on the relations and contacts of individual persons. In this connection the Executive Board members of the holding company and the managing directors of the subsidiaries and investees play a particularly important role. Business success in the Rock/Pop business line depends on the ongoing successful integration of the investees acquired as well as other acquisitions. In the classical music business line the further business success depends on the extent to which new promising talents can supplement the established top acts. DEAG meets this risk with a broadly based portfolio of artists. Furthermore, the success of the integration of Raymond Gubbay Ltd., acquired after the balance sheet date, which makes DEAG Europe's largest classical music promoter, will be a determining factor for the success of this business line. The DEAG group has taken out various insurances. Such insurances are to cover operating risks, more particularly with the management and cancellation of concerts and other events. The risk of having to cancel concerts and other events at short notice, as the respective artist does not or cannot perform, has to be pointed out. In case DEAG does not hold full insurance coverage in such an event or in case of other damaging events, the liabilities arising from such a damaging event can have a material impact on DEAG s assets and financial and income position Evaluation of goodwill Given the above-mentioned imponderables of DEAG's operating business, further amortization of the goodwill and/or financial assets of DEAG cannot be ruled out if the actual results of subsidiaries deviate from expectations. This applies to both existing and possibly new goodwill from further acquisitions. For the goodwill of each cash generating unit of the Group, impairment tests were carried out which did not highlight any need for impairment. Within the Group DEAG allocates part of the delta between the purchasing price and the paid off equity of the parts of companies acquired to artist relations and regularly writes-down that part Real estate held as financial investment property Under "Real estate held as financial investment property" the company shows in its balance sheet parts of plots of land around Frankfurt Jahrhunderthalle to be sold and/or to be built on. Notarized purchasing agreements have already been entered into for two parts of plots. The building permit has not yet been issued. The company assumes that the planning procedure will be successfully completed. If the planned building permit were not issued, there would be a risk of a material impairment Financial obligations For the financing of the ongoing business operations the two principal banks of DEAG have granted current account lines and/or guarantees totaling EUR 3.2 million. Moreover, within the framework of a mezzanine credit agreement for the financing of acquisitions and corporate growth DEAG has at its disposal an amount of EUR 9.5 million of which it had used EUR 4.0 million by the balance sheet date. The credit is secured by the pledging of shares of direct and indirect investees and real property. The tranches called have a term of five years but can also be repaid prematurely. The tranches not yet called by the balance sheet date were used for the acquisition of the shares in Raymond Gubbay Ltd.. The interest rate is fixed on a quarterly basis on a EURIBOR basis plus a fixed margin. In addition, there is a so-called equity kicker which depends on the share price development of the 10

14 DEAG share in the coming years. The credit can be prematurely called in if certain prerequisites and financial ratios ("Covenants") are not met. The full service in due time of all remaining liabilities as well as the financing of the operating business depends on the ability of the companies within the DEAG Group to generate sufficient cash flow in a volatile business and/or to build up external financing sources. If this did not succeed to a sufficient extent, the development of the DEAG Group would be considerably impaired Exchange rate risks Some of the fees paid by the company are billed in US Dollars (USD), British Pounds (GBP) and Swiss Francs (CHF). Furthermore, the company receives dividend payments and management fees in CHF and GBP. Fluctuations in the exchange rates with respect to these currencies and the Euro may have an impact on the business operations, the financial position and the income position. This applies, more particularly, to the operating margin of the companies that may lead to both exchange rate gains or exchange rate losses Holding structure The company itself has almost no operating business but acts as a holding of the DEAG Group. At present, the assets of the company primarily consist of the shares in the operating subsidiaries. The company is associated with the latter partly through profit and loss transfer and control agreements. The company itself is, therefore, dependent in terms of its own income on the operating companies of the DEAG Group generating profits and transferring them to it. On the other hand, the company has obligations vis a vis the investees linked to it through profit and loss transfer and control agreements to offset any losses incurred by these companies. This may lead to significant adverse effects on the assets, financial and income position of the company Opportunities DEAG continues to anticipate a successful course of business in The changing market environment and consumer behavior will open up several new development opportunities in connection with promoters, music labels and ticketing systems. Moreover, the company sees opportunities for an extremely good business development in the following areas: - With the expansion to Great Britain and the recently announced joint venture in Switzerland DEAG has tapped further growth and income potential. In future, DEAG will be in a position to offer classical music concerts on Europe's most important markets from one single source. Already in recent years the classical music business line developed very dynamically with above-average returns and is today one of the pillars of the business model. There are plans for further expansion to Austria and the Netherlands. Co-operation with the major music labels opens up new opportunities here, too. - In 2007 DEAG further extended its Sponsoring business line. In addition, further growth opportunities are seen in respect of incidental rights such as TV, DVD and merchandising. - With ACE Entertainment GmbH acquired last year DEAG has succeeded in entering the attractive German Schlager/popular music field. In 2008 ACE organizes, inter alia, the almost sold out tour of Howard Carpendale as well as the concerts of Udo Lindenberg. In 2009, DEAG will also stage the tour of Peter Maffay. DEAG anticipates that further above-average growth rates can be achieved in this field. 11

15 5. Outlook In 2007 DEAG was able to achieve higher result parameters versus 2006 (sales, EBIT, EBITDA, net income for the year). The company anticipates that a further rise in sales and results will result from the existing business lines versus Moreover, higher sales and results are expected from external growth and from the establishment of new business lines. Forward-looking statements In addition to past results within the framework of the financial statements, this Report also includes forward-looking statements. These statements may deviate from the actual developments. Berlin, March 31, 2008/April 29, 2008 DEAG Deutsche Entertainment AG The Management Board Peter L.H. Schwenkow Dr. Ingo Stein Christian Diekmann 12

16 Consolidated Balance Sheet TOTAL ASSETS Notes in EUR 000 in EUR 000 Liquid funds 7, Short-term investments/ marketable securities Trade receivables Inventories Other current assets Other assets directly related to operation, which are to be discontinued 3, Current Assets Goodwill 3, 12, 13, Other intangible assets 3, Tangible fixed assets Investment properties 3, Participations Loans to affiliated companies Shares in affiliated companies Other long-term assets Deferred tax assets 3, 20, Long-term assets TOTAL ASSETS Liabilities and equity Notes in EUR 000 in EUR 000 Bank loans payable 21, Trade accounts payable Accruals Sales accruals and deferrals Other current liabilities Accounts payable to associated companies with operations which are to be discontinued 3, Accruals and liabilities directly related to operations which are to be discontinued 3, Current liabilities Accruals Other long-term liabilities Deferred taxes 20, Long-term liabilities Share capital Capital reserve Accumulated deficit Accumulated other income Equity before minority interests Minority interests Equity TOTAL LIABILITIES AND EQUITY

17 Consolidated Statement of Income bis bis Notes in EUR 000 in EUR 000 Revenues Cost revenues Gross profit Distribution costs Administration costs Other operating income Other operating expenses Operating result before depreciation (EBITDA) Scheduled depreciation Amortisation of goodwill Depreciation Operating income (EBIT) Interest income and expenses Participations Earnings from associated companies Write-down of financial assets and working capital securities Foreign currency exchange gains/ losses Financial result Result before taxes Income taxes Result after taxes from continued operations Result after taxes from discontinued operations Group result thereof minority interests thereof due to DEAG shareholders Loss carried forward Accumulated deficit Earnings per share in EUR (undiluted) from continued operations 28 0,08 0,01 from continued and discontinued operations 28 0,05-0,02 Earnings per share in EUR (diluted) from continued operations 28 0,08 0,01 from continued and discontinued operations 28 0,05-0,02 Average number of shares in circulation (undiluted) Average number of shares in circulation (diluted)

18 Consolidated Cash Flow Statement in EUR Result from continued operations Depreciation and amortisation/ write-ups Non cash-effective change of the consolidation entity by divestiture Changes not affecting payments Change in other accruals Deferred taxes (net) Result from valuation of affiliated companies Cash flow before changes in net current assets Net interest income Changes to receivables, inventories and other assets Changes to other loan capital without financial debts Net cash from operating activities from continued operations Net cash from operating activities from discontinued operations Net cash from operating activities (total) Outflows for investments in......intangible assets including goodwill Tangible assets and financial investments Inflow/outflow from purchase of consolidated companies and business units Inflow from sale of consolidated companies and business units 84 - Inflow from sale of minority interests to consolidated companies Inflow from repayment of loans granted to third parties Assets disposals - 4 Interest Income Net cash from investment activities from continued operations Net cash from investment activities from discontinued operations 2-9 Net cash from financial acitvities (total) Changes to financial debts Repayment of financial debts Outflow of funds (Convertible Bond) Interest expenditures Outflow for repayments to minority partners Shares capital of minority interests Net cash from finance activities from continued operations Net cash from finance activities from discontinued operations Net cash from finance activities (total) Changes in liquidity Effects of exchange rates Liquid funds as at Liquid funds as at (1) Thereof keur 606 to be associated with discontinued operations 15

19 DEAG Deutsche Entertainment AG, Berlin Development of Equity Number of Authorized DEAG capital Accumulated Accumulated Equity before Minority shares DEAG shares reserve in deficit other income minorities shares in Equity issued in EUR 000 EUR 000 in EUR 000 in EUR 000 in EUR 000 EUR 000 in EUR 000 as at Issue of shares Consolidated net loss Changes resulting from currency translation Dividends Other changes as at Consolidated net profit Changes resulting from currency translation Dividends Purchase of stock from minorities * Change of consolidation entity as at * Purchase of the remaining 25% in shares of MPE Music Pool Europe GmbH 16

20 DEAG Deutsche Entertainment Aktiengesellschaft, Berlin 1. Accounting Principles These Consolidated Financial Statements of DEAG Deutsche Entertainment AG (DEAG) were prepared in accordance with the International Financial Reporting Standards (IFRS) of the International Accounting Standards Board (IASB), London, as applicable in the EU, in addition, in conformity with the provisions under German commercial law to be applied in accordance with 315a of the German Commercial Code (HGB). The designation IFRS also comprises the still valid International Accounting Standards (IAS) and the interpretations of the International Financial Reporting Interpretations Committee (IFRIC) formerly Standing Interpretations Committee (SIC). The initial application of the amended and new accounting regulations, referred to under 2 below, did not have any impact on the assets, financial and income position of the company. The consolidated financial statements are based on the financial statements of the companies included in the consolidation. These were prepared by application of the German Commercial Code (HGB), including the accounting standards adopted by the German Standardisation Council (DRSC) as at the closing date in accordance with 342 German Commercial Code (HGB) and the German Stock Corporation Act (AktG). The financial statements of foreign companies were prepared in accordance with their national regulations, in conformity with continuously and uniformly applied accounting and valuation principles. The single-entity financial statements of the consolidated companies were prepared effective on the closing date of the consolidated financial statements. Reported values based on tax regulations are not included in the consolidated financial statements. The reconciliation of the valuations in accordance with the IFRS standards was carried out on the level of the Group outside the single-entity financial statements prepared under German commercial law, in a so-called Handelsbilanz II. We apply, in addition to IAS 1, the Deutsche Börse AG Guidelines on Structured Quarterly Reports. In principle, these guidelines are only mandatory for interim reports. With a view to ensuring comparability and consistency of presentation, we also use the structured layout as a matter of principle for the consolidated financial statements to the extent that it does not vary significantly from IFRS. The consolidated statement of income has been prepared in conformity with the cost-of-sales format. Given the capital market requirement to report earnings before interest, taxes, amortizations and depreciations (EBITDA), amortizations and depreciations are shown separately in the statement of income. The items summarised in the consolidated balance sheet and in the consolidated statement of income are explained in the Notes. For the preparation of the consolidated financial statements, estimates and assumptions have to be made to a limited extent that affect the level and reporting of assets and liabilities, income and expenses as well as contingent liabilities. Actual figures may subsequently differ from these estimates. 17

21 2. Amendments to the accounting standards Within the framework of its projects relating to the further development of the IFRS standards and the reaching of convergence with US GAAP, IASB has amended many existing standards or adopted new ones. These were applied in the consolidated financial statements from January 1, 2007 insofar as they were already adopted by the European Commission. The application of the following standards in the consolidated financial statements has been mandatory since December 31, 2007: - Amendment to IAS 1 (Capital Disclosures), - IFRS 7 (Financial Instruments Disclosures), - IFRS 8 (Operating Segments), - IFRIC 7 (Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies), - IFRIC 8 (Scope of IFRS 2), - IFRIC 9 (Reassessment of Embedded Derivatives), - IFRIC 10 (Interim Financial Reporting and Impairment), The new standards mentioned had no impact on the group s assets, financial and income position of fiscal Furthermore the following standards passed by IASB and IFRIC have not been used in the consolidated financial statements per December 31, 2007, since they were not mandatory yet or have not yet been adopted by the European Commission: - Amendment to IAS 1 (Presentation of financial statements: a revised presentation), - Amendment to IAS 23 (Borrowing Costs), - Amendment to IFRS 4 (Revised Guidance on Implementing IFRS 4), - IFRS 8 (Operating Segments), - IFRIC 11 (IFRS 2 Group and Treasury Share Transactions), - IFRIC 12 (IFRS 2 Service Concession Arrangements), - IFRIC 13 (Customer Loyality Programmes), - IFRIC 14 (IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirement and their Interaction), These standards will only be applied by DEAG Deutsche Entertainment AG from fiscal 2008 onwards or later. IAS 1 and IFRS 8 will lead to a change in the presentation of the consolidated financial statements and the segment reporting respectively. The impact on assets, financial and income position of fiscal 2008 will be of minor significance. 18

22 3. Consolidation Principles Consolidated Entity We, DEAG Deutsche Entertainment Aktiengesellschaft, as the parent company, include in the consolidated financial statements those subsidiaries under our control. Control exists if we have the majority of voting rights at our disposal, either directly or indirectly or through agreement among shareholders. In case articles of association rule out control despite the majority of votes, the company is treated as an associated company. Companies acquired or disposed of during the financial year are included from the date of acquisition or up until the date of sale. On the balance sheet date, the consolidated entity comprised 20 fully consolidated German and foreign companies, including one company in discontinued operations. In all, two joint ventures are consolidated pro rata and one shareholding is evaluated as an associated enterprise according to the equity method as specified in IAS 28. One major shareholding is reported at cost of acquisition in view of its marginal significance. Consolidation Methods Capital consolidation involves offsetting the acquisition costs of participating interests against equity at the time of starting up or acquiring the respective subsidiary. Depreciation of value-adjusted subsidiaries was reversed for the purpose of consolidation. Interim gains and losses from intra-group sales of equity holdings were reversed. The differential amounts included in the values reported for holdings in joint ventures and associated companies are established by the same principles. The asset-side variations arising from capital consolidation were recorded as goodwill in the consolidated balance sheet, after exposure of hidden reserves or charges at the acquired company (revaluation). In the case of indirect participations, goodwill is ascertained in the context of step-bystep consolidation. Receivables, liabilities and accruals, as well as expenses and income between consolidated companies were consolidated. Any intermediate results of intra-group deliveries and services were eliminated. Any depreciation or value adjustments of intra-group receivables in the individual financial statements were reversed in favour of the group result. Tax accruals have been made on consolidation based results, as far as they have a future tax impact. Shareholdings in associated companies valued by the equity method were reported at the relevant equity percentage in accordance, if necessary by creation of provisions at group level. In the context of pro rata consolidation, the respective assets and liabilities were included in the consolidated financial statements in line with the proportion of capital held by the parent company. Consolidation was undertaken by the same methods. On the balance sheet date, along with the parent company DEAG the following companies were fully consolidated: Segment Company Shareholding Live & Touring DEAG Classics AG, Berlin 100 % DEAG Concerts GmbH, Berlin 100 % BALOU ENTERTAINMENT Konzertagentur GmbH & Co. KG, Köln 100 % coco tours Veranstaltungs GmbH, Berlin 100 % MPE Music Pool Europe GmbH, Hamburg 75 % KBK Konzert- und Künstleragentur GmbH, München 51 % ACE Entertainment GmbH, Hamburg 51 % Entertainment Services Concert Concept Veranstaltungs-GmbH, Berlin 100 % Kultur- und Kongresszentrum Jahrhunderthalle GmbH, Frankfurt a.m. 100 % Global Concerts GmbH, München 100 % Musicland Concerts GmbH, München 100 % 19

23 Friedrichsbau Varieté Betriebs- und Verwaltungs GmbH, Stuttgart 100 % Broadway Varieté Management GmbH, Berlin 100 % Unicorn Entertainment Services GmbH, Berlin 100 % River Concerts GmbH, Hamburg (ehemals: EMC Entertainment 100 % Media & Commerce GmbH, Berlin Good News Productions AG, Glattbrugg-Opfikon (Schweiz) 52 % B+R Event AG, Glattbrugg-Opfikon (Schweiz) 52 % EM Event Marketing AG, Wangen bei Olten (Schweiz) 52 % Fortissimo AG, Glattbrugg-Opfikon (Schweiz) 52 % Discontinued operations Entertainment One AG, Altendorf (Schweiz) 100 % At Good News DEAG holds only 40 percent of the voting rights. By virtue of an agreement among shareholders and an organisational rules of procedure it has, however, the right to appoint or dismiss the Management board as well as to approve the annual budget. This meets the requirements of the control concept according to IAS (c). The following companies are run as joint ventures and are consolidated with the respective share of capital owned directly or indirectly by DEAG Deutsche Entertainment Aktiengesellschaft in line with pro rata consolidation regulations: Segment Company Shareholding Entertainment Services Anschutz DEAG Entertainment GmbH, Berlin * 50 % Live & Touring ct creative talent GmbH, Berlin 50 % The following companies are carried in the balance sheet as associated companies: Segment Company Shareholding Entertainment Services DEAG Music GmbH, Berlin 75 % DEAG Holding EIB Entertainment Insurance Brokers GmbH, Hamburg 50 % Although DEAG holds the majority of voting rights in DEAG Music set up last year, a majority of 75 percent is necessary under the memorandum and articles of association for the appointment and dismissal of the managing directors. For that reason control of this company is not safeguarded. Since DEAG has significant control over DEAG Music GmbH, the company has to be qualified as an associate. Palast Management und Veranstaltungs GmbH, Berlin (shareholding 100%), was not consolidated for lack of operations and on grounds of immateriality. Added to the scope of consolidation through purchase was: Segment Company Divestiture Live Touring ACE Entertainment GmbH, Hamburg The change in the scope of consolidation was due to divestitures: Segment Company Divestiture Discontinued Wintergarten Varieté Theater Betriebs GmbH, Berlin operations 20

24 4. Foreign Currency Translation Principles Current receivables and liabilities and credit balances at banks that are reported in a foreign currency in the individual financial statements are translated into EUR at the average exchange rate on the balance sheet date. We regard the Good News Group companies in Switzerland as independent companies that operate in their own economic and currency area. The operative currency is the respective national currency. Currency translation of foreign financial statements into EUR is carried out in accordance with IAS 21 at the average exchange rate on the balance sheet date. Differences arising from the conversion of net assets at different exchange rates compared to the previous year are treated as neutral to earnings. These differences are reported as accumulated other income within equity. The exchange rates of currencies of significance to us changed as follows: Closing rate In EUR Average rate in EUR Swiss Franc 0,6043 0,6223 0,6083 0, Balance Sheet Accounting and Valuation Principles Notes on the Balance Sheet Intangible assets purchased are capitalised at cost of acquisition and depreciated in a straight line over an anticipated useful life of three to eight years. Goodwill obtained in connection with acquisitions is capitalised in accordance with IFRS 3 (Business Combinations). Such goodwill is subject to annual impairment tests and, if necessary, unscheduled depreciation. Fixed assets are valued at cost of acquisition or production plus incidental acquisition costs minus acquisition cost reductions and, in the case of items subject to wear and tear, less use-related depreciation. Financing costs are not capitalised. Depreciation is in a straight line over the expected useful life. Movable fixed assets with acquisition costs up to EUR 410 (low value assets) are fully depreciated in the year of acquisition. Maintenance expenditure constitutes an expense at the time it is incurred unless the result is a substantial change in or extension of potential use. Scheduled depreciation of fixed assets is based essentially on the following periods of useful life: Buildings, fixtures and fittings: Plant and machinery: Tools and equipment: 4 to 50 years 3 to 10 years 3 to 10 years If reductions in the value of intangible assets or tangible fixed assets are ascertained, unscheduled depreciation is applied. The value attributable to the intangible assets or tangible fixed assets is ascertained on the basis of future surplus revenue or net sales proceeds (impairment test). Reviews are undertaken annually unless there is reason earlier to assume that values have decreased. Shares in non-consolidated companies are reported in the balance sheet at market or acquisition cost in accordance with IAS 39. Shares in associated companies are reported at equity in accordance with IAS 28. Differential amounts resulting from initial consolidation are allocated following the same principles as for full consolidation. 21

25 Inventories are valued at acquisition or production cost. If net sales proceeds on the balance sheet date are less than the cost of acquisition, appropriate value adjustments are made. All advance payments for fees are accounted for under inventories, as are individually attributable costs for events taking place after the balance sheet date. Receivables, other assets and liquid funds are reported in the balance sheet at nominal value. Any necessary adjustments of individual values to cover probable default risks are taken into account. Deferred expenses and deferred income are built in accordance with the accrual accounting concept outlined in IAS 18. Prepaid amounts are their basis. Deferred expenses are essentially prepaid costs and other accruals. Deferred income that relates to income from sales of prepaid tickets for concerts and theatre or variety performances after the balance sheet date is reported as deferred revenue from pre-paid ticket sales. Reserves are valued at the amount sound business judgement deems necessary on the balance sheet date to cover future payment obligations, discernible risks and uncertain commitments. In accordance with IAS 12, deferred taxation is calculated on the basis of different assigned values for assets and liabilities in the commercial balance sheet and the tax balance sheet, of facts in the context of Handelsbilanz II, of consolidation processes and of realisable losses brought forward. Deferred taxes on the assets side on losses brought forward are applied to the extent deferred taxes exist on the liabilities side. Deferred tax expenses and tax income are offset in the balance sheet at the level possibilities are available for offsetting with the same tax authorities. Interest bearing liabilities are reported at the net inflow amount using the effective rate of interest method. Embedded derivatives are recorded separately and carried forward affecting net income. In accordance with IAS 1, liabilities and accruals due within one year are reported as current items. Notes on the Statement of Income Sales revenues include all income from services rendered. The service relating to a concert, a show or a tour is considered as having been rendered at the end of the concert or show run. Income is booked at the time the services have been rendered. Interest and other expenditures on loan capital are booked as current expenditure. 6. Segment Reporting In accordance with the provisions of IAS 14, individual financial statement data is segmented by areas of work and regions, with presentation being oriented to our internal reporting. Accounting by segment is intended to render transparent the profitability and prospects of success of the Group's individual business activities. In order to improve transparency and comparability of segment reporting the continued operations are shown. Data relating to discontinued operations are in each case summed up in separate items. Segment reporting does not contain the discontinued operations. These items are presented in the section for discontinued operations. Notes on the Segments DEAG Group subdivides its continued operations into two segments, which are described in the Management Report. 22

26 Segment data Live Touring Entertainment Services Total Segments in EUR' Revenues Other income thereof internal income Total earnings Depreciations and amortisation -of goodwill, non-scheduled of other fixed assets Segment result (EBIT) Book value of segment assets Investments External funding of segments Full-time employees as at Return on sales 10,1% 1,5% 9,4% 9,7% 9,7% 6,7% Net return on assets 29,0% 4,1% 97,9% 115,4% 47,4% 36,3% Internal income relates to services rendered between Group companies in different segments and DEAG as the parent company. Intra-segment services are eliminated within the segment. The exchange of output between segments and between the segments and the holding company is adjusted in the consolidation column within following reconciliation overview. The consolidation column also includes the services of the DEAG Holding company. Services are charged at standard market rates and correspond in principle to externally sourced prices. Investments consist of fixed assets, intangible assets and external shareholding values. Contrary to previous year investment property (IAS 40) are no longer reported as Entertaiment Services assets. Previous year figures were adjusted accordingly. The return on sales is derived from the segment result (EBIT) divided by the segment sales. The return on net assets is derived from the segment result (EBIT) divided by the net assets. 23

27 Reconcilation from Segment to Group Data Total of segments Consolidation (incl. Group Holding) in EUR' Revenues * Other Income thereof internal income* Total earnings Segment result (EBIT) Unallocated expenditure and income (incl. DEAG Holding and consolidation effects) Operating result (EBIT) result from associated companies other financial result Result before taxes and minority interests Taxes on income and earnings Result after tax from continued operations Result after tax from discontinued operations Group result thereof Minority interests thereof due to DEAG AG shareholders The result of associated companies of keur relates to the Entertainment Services segment (Book value EUR 0.00) and DEAG Holding (keur 8). 24

28 Other information Group in EUR' Book value od segment assets Real estate held as financial investment property Shares in affiliated companies Unallocated assets incl. Consolidation transactions (1), (2) Consolidated assets External funding of assets Unallocated external funding of segments incl. Consolidation transactions (1)(3) Consolidated external funds Net assets (incl. Minority interests) Full-time employees at Return on Sales 5,7 % 3,7 % Net return on sales 14,7 % 9,6 % (1) concerns DEAG Holding at keur 21,012 (previous year:keur 27,258) and consolidation transactions (mainly debt and capital consolidation at keur -22,800 (previous year: keur -28,873) between segments and segments and between segments and DEAG Holding respectively (2) including discontinued operations (3) concerns DEAG Holding at keur 12,539 (previous year: 9,772) and consolidation transactions (mainly debt consolidation) between segments and segments and DEAG Holding as well as accrual of deferred taxes keur 1,757 The return on sales is derived from the operating result (EBIT) divided by the income from sales. The Group's return on net assets is derived from the operating result (EBIT divided by consolidated net assets (including minority interests)). The breakdown of segment data by regional subdivision is shown below. The Group company concerned is Good News Group in Switzerland. For information purposes only the previous year sales of Marshall Arts Ltd. are shown. Group in EUR' Live Touring Segment Sales thereof Marshall Arts (UK) Entertainment Services Segment Sales thereof Good News-Group (Switzerland) Book value of Entertainment Services Segment Assets thereof Good News-Group (Switzerland) Investments of Entertainment Services Segment thereof Good News-Group (Switzerland)

29 7. Liquid Funds Cash in hand and credit balances at banks are shown as liquid funds. Of the credit balances shown, EUR million relates to pledged trust funds with restraint on disposal. The corresponding liability, for which the credit is pledged as collateral, is mainly reported under other liabilities as tax liabilities. DEAG cannot dispose of liquid funds of keur 8,015 and depends on dividend payments. 8. Marketable Securities The item concerns the stock of marketable securities valued below acquisition costs at fair value, after a writedown of keur 155 due to the decreased stock exchange price. 9. Trade Receivables Trade receivables comprise of the following: in EUR' accounts receivables adjustment accounts receivables Accounts Rreceivables Trade receivables include receivables with a maturity of more than one year of keur 135 (previous year: keur 206). The increase in trade receivables in fiscal 2007 is mainly due to the enlarged scope of consolidation. Provisions changed predominantly through inward flow from first consolidation (keur -130) and consumption (keur 174). The following non value debased trade receivables were overdue at balance sheet date: Amount in keur less than 3 months 3 to 6 months Inventories This item is made up as follows: In EUR` Advance Payments 3,663 5,508 Finished Product Inventories 3,690 5,526 26

30 11. Other Current Assets Other current assets consist of the following: in EUR' Loans Tax Claims (1) Accruals and deferrals Other Other current assets (1) therof ceded artists withholding tax keur 229 (previous year keur 3,299) The following non value debased Other Current Assets were overdue at balance sheet date: Amount in keur less than 3 months 3 to 6 months 6 to 12 months Acquisitions Acquisitions in the sense of IFRS (Business Combinations) are recorded using the purchase method. ACE Entertainment GmbH (ACE) Share of assets 51% Date of first consolidation Acquisition costs (keur) Purchase price (fixed) 700 Purchase price (variable) 158 Incidental acquisition cost 62 Payment capital reserve

31 Acquired assets and debts in EUR'000 Assets Goodwill 705 Long-term intangible assets Deferred taxes on the assets side 767 Other long-term assets 40 Liquid funds Short-term assets Debts Short-term debts Deferred taxes on the liabilities side Net assets Minority interests 877 Since the first-time consolidation ACE has contributed keur 7,446 to the sales revenues, keur 743 to the EBIT and keur 438 to the consolidated result. For the full fiscal year keur 11,389 of sales revenues and a result of keur 115 were generated. The stated contribution to the result was burdened by effects under the purchase price allocation required in accordance with IFRS 3 (amortization of artist relationships and backlog of orders). The goodwill includes opportunities to which no tangible or intangible assets can be allocated. In the capital flow statement the acquisition of ACE leads to an inflow of liquid assets in the amount of keur 857 (purchase price of keur 1,620 minus liquid assets taken over in the amount of keur 2,477). Music Pool Europe GmbH (MPE) The acquisition of the remaining 25% in MPE for keur 371 on April 27, 2007 was directly offset in the equity capital with keur 343 after the outflow of the third-party shares (keur 28). 28

32 13. Goodwill and Intangible Assets The development of this item during fiscal 2006 and 2007: Acquisition or production costs Orders at Artist and agency other Softother intangible in EUR'000 Goodwill hand elationships rights ware assets January 1, Reposting (discontinued operations) Additions from first consolidation Additions Disposals Change in consolidation scope December 31, Depreciation in EUR'000 January 1, Reposting (discontinued operations) Additions Disposals Change in consolidation scope December 31, Balance sheet values January 1, Additions from first consolidation Additions Disposals Change in consolidation scope December 31, Depreciation in EUR'000 January 1, Additions Disposals Change in consolidation scope December 31, Balance sheet values Goodwill Goodwill shown is accounted for by the Live Touring segment with group companies without external shareholder per December 31, 2007 at keur 5,700, by keur 2,153 to Music Pool Europe GmbH, by keur to KBK Konzert- und Künstleragentur GmbH, by keur 705 to ACE Entertainment GmbH and by keur 450 to ct creative talent GmbH. Accounted for by the Entertainment Services segment are keur 2,638 to the domestic companies of this segment and keur 11,560 to the Good News group. This break down also applies to the identification of cash generating units. 29

33 Additions from first consolidation relate to ACE Entertainment GmbH. An impairment test was made for the goodwill of each cash generating unit (CGU) and did not result in any need for writedowns. Impairment tests are based on the utility value of the CGUs, which was derived from the anticipated surplus income taken from a three year plan. Target figures were calculated considering current and future probabilities, the expected economic development as well as other factors. Target figures of the last budget year were used to determine the standard year (perpetuity). A discounting rate of 9% was applied, while for reasons of caution no deduction for growth was used for the standard year. 15. Other intangible assets The other intangible assets reported in the balance sheet have a limited useful life. The capitalization of the backlog of orders as well as of the artist and agent relationships is based on business combinations. The additions from the first-time consolidation concern the company ACE Entertainment GmbH which was added during the reporting year to the consolidated entity. The artist and agent relationships are amortized on a straight-line basis over a period of 10 years. The amortization of the backlog of orders is based on usage. The other rights include above all a first offering obligation of Anschutz for all Anschutz tours in Germany and a so-called first option last matching right for these tours by DEAG. By deviation from the original planning during the previous year (straight-line amortization over a period of 6 years), the amortization method was switched to amortization according to the utility inflow to be expected in future under the right. Since no utility inflow was planned for 2007, there was no need for amortization. Compared to the original amortization method, this improved the result by keur 267. The carrying value as at December 31, 2007 amounts to EUR 1.6 million. Additions also include subsequent acquisition costs for other rights in the amount of keur Tangible Fixed Assets Investments in fixed assets totalled EUR 0.3 million in 2007 (2006: EUR 0.2 million) and consist of the following: In EUR Land and buildings 98 Technical plant and machinery 122 Other fixtures and fittings, tools and 106 equipment Total

34 The development of tangible fixed assets during fiscal 2006 and 2007 consists of the following: Other fixtures Land Technical and Total Acquisition or and plant and fittings, tangible production costs in EUR'000 Buildings machinery equipment assets January 1, Reposting (discontinued operations) Additions from first consolidation Additions Disposals Change in consolidation scope Currency adjustments December 31, Depreciation in EUR'000 January 1, Reposting (discontinued operations) Additions Disposals Change in consolidation scope Currency adjustments December 31, Balance sheet values January 1, Additions from first consolidation Additions Disposals Currency adjustments Dezember 31, Depreciation in EUR'000 January 1, Additions from first consolidation Additions Disposals December 31, Balance sheet values Investment property Already in 2001 DEAG valued the plots of land held as financial investment and not used within the DEAG Group in accordance with the fair value model on the basis of sufficiently objectifiable market prices, and a corresponding write-up was made. An appointed surveyor came to a value indication of EUR 8.2 million (previous year EUR 7.8 million) for the plot areas around Jahrhunderthalle including safety margins deducted on grounds of uncertain development capacity. The company followed the value indication within the fair value model. The appraisal was based on indicative land values. During fiscal 2007 operating expenses in the amount of keur 20 were incurred which were directly attributable to the real property; no rental income was generated. The fair value adjustment of the plots of land resulted in profits of keur 402 being added to Other operating income. 31

35 The investment property was pledged against Other long-term liabilities. Property used within operating leases was not classified as financial investment. 18. Financial Assets The item associates concerns our 50 percent shareholding in EIB Entertainment Insurance Brokers GmbH, Hamburg. A breakdown of assets and liabilities as well as expenditure and income (IAS 28.37) is not made on grounds of immateriality. The profit for the year amounted to keur 8. Furthermore, DEAG Music GmbH is reported as an associate with a book value of EUR 0. The pro rata result of the company was included with an amount of keur because of a loss transfer to DEAG expected in this amount in the result from associates. DEAG Music owns assets of keur 687 and liabilities of keur 2,259. Sales amounted to keur in 2007, the net loss for the year according to IFRS was keur Other long-term assets Other long-term assets have a maturity of more than one year and comprise of the following: in EUR' Loans Others Other long-term assets A loan given with a maximum maturity of 2015 (keur 1.063) is collateralised through a cash-value life insurance. The remaining assets predominantly include advance payments, mainly clearable, from long term cooperation agreements in the amount of keur Deferred Taxes The deferred tax assets concern in the amount of EUR 2.1 million (2006: EUR 1.8 million) mainly deferred taxes on losses carried forward against deferred tax liabilities of EUR 2.1 million (same tax authority). 21. Bank Loans Payable Bank loans payable essentially relate to short-term loan liablilites to the amount of keur Trade Accounts Payable These liabilities are due within one year. There are no collaterals. 32

36 23. Accruals This item has developed as shown below: Changes as at Use Dis- Addit- Currency C as at in EUR' posal ion differencenti o Taxes for assessment period Taxes for previous years Outstanding balances Personnel obligations Consulting and audit costs Other accruals TOTAL Changes as at Reposting Use Dis- Addit- Currency Consolidation as at in EUR' (1) posal ion difference entity Taxes for assessment period Taxes for previous years Outstanding balances Personnel obligations Consulting and audit costs Repurchase agreement Other accruals TOTAL ) Accruals of discontinued operations as at Except for keur 72 (Previous Year: keur 62) in personnel obligations as well as other accruals from current operation of keur 18 - these liabilities are in principle payable within one year. 24. Sales Accruals and Deferrals This item includes customers' takings for concert and theatre tickets as well as guarantee payments for events after the balance sheet date. Payments received enter revenues on the date of each event. 25. Other Current Liabilities Other current liabilities are as follows: In EUR Tax liabilities ,508 Finance liabilities 173 2,200 Accruals and deferrals Social security liabilities Miscellaneous 1,164 1,257 Other current liabilities 5,262 10,000 Tax liabilities include keur 1,181 in artists' withholding tax for previous years. The artist has appealed to the fiscal court. Credit balances held in trust have been pledged as security. Further tax liabilities have been recorded. These are off-set by assigned claims for keur 229. (compare item 11). These liabilities are payable within one year. 33

37 26. Other long-term liabilities in EUR' Loan (nominal) less transaction costs -301 less embedded derivative -288 Principle debt at first inclusion Addition of accrued interest 28 add embedded derivative (Fair Value) 230 Other long-term liabilities Collateralisation To secure other short-term liabilities totalling keur 3,669 a not yet due payment of keur 5,850 for the sale of commercial land adjoining the Jahrhunderthalle in Frankfurt has been ceded. Furthermore a land charge of keur 7,000 plus interest and incidentals on the Jahrhunderthalle site set aside for commercial development has been granted and shares in Concert Concept Veranstaltungs-GmbH have been pledged.moreover, the creditor was provided with collaterals of the affiliated companies DEAG Classics AG, Concert Concept Veranstaltungs-GmbH as well as Global Concerts GmbH if DEAG and DEAG Concerts as the borrowers do not compensate a due claim of the creditor by repayment. To secure liabilities to financial institutions (keur 2.239) a land charge at the amount of keur 3,000 on the Jahrhunderthalle of Concert Concept Veranstaltungs-GmbH has been registered. Of the liquid funds, keur 1,627 in trust funds are pledged, mainly as collateral for tax liabilities and carried as other short-term liabilities. Loans to invested-in companies (keur 250) collateralise liabilities from a tour financing. 28. Equity The Company's capital stock amounts to EUR 23,088, less EUR 1, own shares. It is divided into 23,088,812 ordinary registered shares in the form of no-par-value individual share certificates each with a book share of EUR 1 in capital stock. The Company's capital is fully paid up. The capital reserve contains the additional funds raised from DEAG's share issue less the capital increase from company funds to adjust subscribed capital following the change-over to the Euro. The balance sheet loss includes past results of companies included in the consolidated financial statements and consolidated net earnings for the current financial year. Earnings per share are calculated by dividing group profit by the weighted number of shares outstanding. Diluted and undiluted earnings per share are calculated according to IAS 33 on the basis of 23,087,582 shares (23,088,812 shares issued less 1,230 own shares). Weighted average of shares for 2007 amounted to 23,087,

38 Conditional Capital The company's capital stock was increased, as resolved by the General Meeting of Shareholders on 17 June 2003, by EUR 4,583, (Conditional Capital 2003/1) and, as resolved by the General Meeting of Shareholders on 17 June 2004, by up to a further EUR 2,291, (Conditional Capital 2004/II). 2003/I The company made full use of Conditional Capital 2003/1 with the 2003/2006 convertible bond issue on the basis of the 17 June 2003 General Meeting resolution by issuing 4,583,350 convertible bonds with a total nominal value of up to EUR 6,783,358 entitling the holders to convert them into up to 4,583,350 shares in the company. This conditional capital increase was fully conducted following the expiration of the convertible bond 2003/2006 except for a residue of EUR 52, /II The conditional capital increase from the remaining Conditional Capital 2004/II by EUR 2,291, will be implemented only to the extent that the holders of option and conversion rights attached to the bonds and/or options issued by the Company up until June, on the basis of the Management Board's authorisation dated June, exercise those conversion or option rights, or that holders of convertible bonds who are obliged to convert fulfil their obligation to do so. New shares will share in profits from the beginning of the financial year in which they come into being by exercise of conversion or option rights or by fulfilment of conversion obligations. The Management Board is authorised with the Supervisory Board's approval to specify the further details as to how the capital increase is implemented. DEAG Deutsche Entertainment AG has not subscribed to any shares in the context of the Company's conditional capital increase. Authorised Capital One June 16, 2006 the General Meeting created under revocation of the previously conditional capital to the extent it hadn t been made use of, a new conditional capital. The Management Board was authorised, subject to the Supervisory Board's approval, to increase the capital stock once or repeatedly by up to EUR 9,289,391,00 (Conditional capital 2006) until June 15, The Management Board was further authorised, subject to the Supervisory Board's approval the Management Board is in certain instances also authorised to rule out a rights entitlement on the part of existing shareholders: a)as compensation for fractions b)to issue shares as employee shares to company staff c)recovery of investments in kind, most particular in the form of companies or parts of companies or other assets d)if the issue amount of the new shares is not materially lower than the stock exchange price and the shares issued to the exclusion of the subscription right in accordance with 186 para 3 sentence 4 AktG (German Stock Corporation Act) do not exceed a total of 10 percent of the current share capital. Shares which were issued or have to be issued to service bonds with warrants or convertible bonds, insofar as the bonds were issued by corresponding application of 186 para 3 sentence 4 AktG to the exclusion of the subscription right and treasury shares which were acquired by virtue of an empowerment in accordance with 71 para 1 no 8 AktG and were sold to the exclusion of the subscription right of the shareholders in accordance with 186 para 2 sentence 4 AktG, must be counted towards this number; e) insofar as it is necessary to grant the holders of convertible bonds/bonds cum warrants, which were issued by the company, a subscription right in respect of new shares in the range that they would be entitled to after the exercise of their conversion and/or option right following the fulfilment of conversion obligations, but only insofar as the shares cannot already be granted by virtue of contingent capital. The authorized capital approved by the Annual General Meeting on June 16, 2006 was entered in the Commercial Register together with the corresponding amendments to the Byelaws on September 5, At the end of business year 2007 the authorized capital continued to amount to EUR 9,289,

39 Purchase of own shares ( 71 Para 1 Number 8 AktG) As resolved by the General Meeting of Shareholders on 14 June 2007, Management Board is authorised to purchase up to 10 % of the company's shares. It must do so by 13 December 2008 and only via the stock exchange or a public offer to buy from shareholders. As of 31 December 2007 the company held 1,230 own shares. Minority Interests Minority interests are shown in the form of shares in paid up and earned equity that DEAG holds neither directly nor indirectly. They are carried in the books under equity. 29. Discontinued Operations In particular the result from discontinued operations are made up as follows: in EUR' Revenues Costs of revenues Gross Profit Distribution costs Administration costs Other operating income/expenses Operating result before depreciation (EBITDA) Scheduled depreciation Amortisation of goodwill - - Operating income (EBIT) Financial result Result before taxes Income taxes 64-2 Result after tax for discontinued operations The result after tax from discontinued business lines is burdened in other operating expenses with keur -477 and in the financial income with keur -154, i.e. a total of keur -631 because of a claim following a field audit by the tax authorities at Stella Entertainment AG for fiscal The other figures are attributable to Wintergarten Varieté Betriebs GmbH, Berlin, divested on March 31, 2007 and Entertainment One AG i.l. By contract dated April 18, 2007 Wintergarten Varieté Betriebs GmbH, Berlin, was sold within the framework of an MBO. The sale of this subsidiary impacts the capital flow statement with the inflow of cash and cash equivalents in the amount of keur Information on Relationships with Related Parties in Accordance with IAS 24 According to IAS 24, the Management Board of DEAG Deutsche Entertainment AG, its shareholders and the Supervisory Board come into consideration as related parties. In the reporting year legal relationships existed with Mr Peter Schwenkow within his employment contract (reimbursement of travel and entertainment expenses and other out-of- pocket expenses) and loans granted. 36

40 In the business year he was granted a short-term loan of keur 110 at 6% interest with supervisory board approval. The loan was repaid by the date of balance. In the reporting year financial services of around keur 111 were rendered by Open Air Classics Concert Veranstaltungs GmbH, a company controlled by Mr Schwenkow. Annual emoluments received in 2007 by the members of the executive board totalled keur (2006:kEUR 994). Board Member Fixed Variable Other Total Compensation Compensation benefits emoluments Peter L.H. Schwenkow Dr. Ingo Stein Christian Diekmann GRAND TOTAL Supervisory Board Members of the Supervisory Board are remunerated in line with the articles of incorporation. In the year under review, remuneration totalled keur 60 (2006: keur 55). The Company also reimbursed travel costs of keur 2 incurred in connection with Supervisory Board meetings (2006: keur 3). Remuneration Agreement with Hogan Hartson & Raue Between the Company and the law firm of Hogan Hartson & Raue LLP, Berlin, of which the Chairman of the Supervisory Board is a partner, a remuneration agreement has been concluded, which is applied when legal services are provided by that law firm. DEAG Group is not obliged to actually make use of the consulting services offered. In the financial year 2007 keur 97 (2006: keur 55) were invoiced for consulting services rendered. 31. Revenues The segment account shows the breakdown of revenues by lines of business and geographical markets. 32. Cost of Revenues The cost of materials, purchased services, especially fees, personnel expenses, event-related hire and rental charges and other material costs incurred to achieve sales revenue are booked as revenue costs. 33. Distribution Costs Distribution costs include personnel expenses, advertising and travel costs, cost of premises and other distribution-related material costs. 34. Administration Costs Administration costs include personnel expenses, legal and consulting costs, cost of premises and other administration-related material costs. 37

41 35. Other Operating Income Other operating income consists primarily of the following: in EUR' Income unrelated to the accounting period Compensations One-time-effect from Fair Value Evaluation (IAS 40) Rental Income Consulting and agency services Compensation of Damages Income from other accounting periods Income from written-off liabilities and receipt of written-off receivables Asset disposals 1 6 Income from retransfer of reserves Other Total Other Operating Expenses Other operating expenditure consists of the following: in EUR' Itemised allowances / risk provisioning Other taxes Damages Losses from fixed asset disposals 1 12 Other Total Depreciation/Amortisation Depreciation /amortisation for continued operations relate to: in EUR' Amortisation of consolidation-related goodwill (unscheduled) Depreciation of other intangibles Depreciation of fixed assets Total depreciations Interest Income and Expenses Net interest income was as follows: in EUR' Other interest and similar income Other interest and similar expenditure Net interest income

42 39. Result From Investments and Participations This income from participations relates to a payout of dividends from a silent partnership. 40. Income Taxes Actual tax liabilities for the current financial year and previous years are calculated on the basis of the amounts expected to be payable to the tax authorities. Deferred tax claims and tax liabilities are calculated on the basis of the rates that were valid on the balance sheet date. in EUR' Tax expenditure: accounting period previous years tax refund previous years 67 - Deferrered tax revenue Temporary differences Changing tax rate Tax expenditure: Thereof from discontinued operations 64-2 Income tax includes all income tax paid or payable in the respective countries and all deferred taxes. Income tax includes corporate income tax, trade tax on earnings, solidarity surcharge and the corresponding foreign taxes. Deferred taxes are formed in order to record all substantial temporary variances between the individual financial statement and the tax balance sheet and temporary variances due to consolidation adjustments. Deferred tax claims are applied as far as they can be settled against deferred taxes on the liabilities side. The rate of corporate income tax in Germany until December 31, 2007 was 25 % plus a 5.5 % solidarity surcharge. Trade tax deductible when establishing income for corporate income tax purposes varies between 17% and 19.7%, depending on the local authority. By decision of the Bundesrat (Federal Council) of July 6, 2007 the Corporation Tax Reform Act 2008 was adopted. The Act essentially provides for a reduction of tax rates as well as for the purpose of counter financing a broadening of the assessment basis; the deductibility of interest expenses is, for instance, limited to 30% of the tax EBITDA; trade tax will in future no longer constitute a fiscally deductible expense. The income tax rate anticipated for the holding company of the Group in 2008 will amount to a nominal 30%. This tax rate was already used as a basis for the calculation of deferred taxes as at December 31, Income tax rate in Switzerland is approximately 19.5 %. Tax expenses resulting from application of the DEAG tax rate can be translated into actual tax expenses as follows: 39

43 in EUR' Result before taxes on income and minority interests Tax expenditure / income at the DEAG Holding's tax rate Tax expenditure / income as per profit and loss statement Carryover figure Amortisation of goodwill Changing tax rate Taxes previous year Tax-free earnings and non-deductible expenses Different tax rates Write-up / value adjustment of tax accruals Others Deferred tax assets are made up as follows: in EUR' Tax accruals on losses carried forward and temporary variances Deferred tax assets that can be set off against deferred tax liabilities Deferred tax assets (net) - - Deferred tax assets were only applied to the extent that they can be settled against deferred taxes on the liabilities side. DEAG s tax losses carried forward amounted to around EUR 54 million per December 31, 2007.The calculation of net tax claims is based on the level, offsetting is possible with the same tax authority. Deferred tax liabilities are made up as follows: in EUR' Deferred income from the value write-up on the Jahrhunderthalle Frankfurt Deferred income on intangible assets Other temporary variances Deferred taxes on the liabilities side To be settled against deferred tax assets Balance Shown Personnel Expenses in TEUR Salaries and wages Social security contribution Total personnel expenses

44 42. Information on obligations under retirement benefit plans (IAS 19) Under defined contribution plans in Germany the Group contributes by virtue of statutory provisions to state pension insurance schemes. The ongoing payments of contributions are reported as social contributions in personnel expenses and amounted to keur 350 in 2007 (prior year: keur 339). The companies of the DEAG Group which are resident in Switzerland have joined a collective foundation for compliance with their retirement benefit obligations under the Swiss Federal Act on professional retirement, surviving dependents and disabled provision schemes (BVG). Apart from the payment of ongoing contributions to this pension scheme they are also obliged to compensate any under coverage of this pension scheme if necessary (see Article 65d BVG). For this reason this retirement benefit scheme has to be classified as a defined multi-employer benefit plan within the meaning of IAS The pension scheme has not made any valuation of the scheme based on IAS 19. For that reason DEAG has no sufficient information available in order to report this pension scheme as a defined benefit plan. It is reported in the same way as a defined contribution plan. The contributions of the DEAG companies to the above-mentioned collective foundation amounted in 2007 to keur 106 (prior year: keur 110). The collective foundation has a coverage ratio of 107.2% (prior year: 107.7%) as at November 30, This coverage ratio was determined in accordance with Article 44 BVV Average Number of Employees During the Year Head count Live Touring Entertainment Services DEAG Holding Total for continued operations Discontinued operations Total On annual average the companies included pro rata employed 3 staff (previous year: 7 staff). On December, the Group employed 174 (2006: 175) full-time staff in continued operations. 44. Off Balance Sheet Contingencies On the balance sheet date the following contingencies relating to securities and guarantees provided for third parties exist: Off balance sheet contingencies in EUR' Securities Other guarantees Total Other Financial Commitments In addition to the accruals and liabilities in the balance sheet and the contingencies, the following financial commitments exist: 41

45 in EUR'000 Artist Guarantees Rent and Leasing Other Total Total Other financial commitments mainly concern contractual consulting services 46. Companies Included Pro Rata According to IAS companies that have been included pro rata are shown in the consolidated financial statements as follows: in EUR' Assets: Short-term assets Long-term assets Total assets Liabilities: Short-term debts Long-term debts 18 Total liabilities Statement of income: Revenues Costs of revenues Other operating expenses Result from interest Income tax Annual result Audit fees The auditor s fees in the financial year 2007 are made up as follows: EUR Audit costs 235 Other services rendered The audit fee contains compensation for services rendered in connection with the FREP enforcement panel 48. Statement of Conformity in accordance with 161 AktG The Management Board and Supervisory Board have issued a statement of conformity with the recommendations of the government commission on a German Corporate Governance Code in 42

46 accordance with 161 AktG on December 19, 2007 and made it permanently accessible to shareholders on the Internet at Legal Disputes Various DEAG Group companies are involved in legal or out-of-court disputes in respect of substantial claims. Adequate provision was made to cover all risks. 50. Capital control In addition to the provisions under the German Stock Corporation Act DEAG is not subject to any more extensive obligations for the purpose of capital preservation under By-laws or contracts. The financial ratios which are used for the internal control of the company are performance-based and serve for the appreciation of the shareholders assets. In the project business the gross margin and the break even ticket number are used as important control parameters. For the overall corporate control the EBIT, the net income for the year and the corresponding profit to sales ratios constitute the decisive parameters. In the event of acquisitions of companies the duration of amortization of the purchase price constitutes an important decision criterion in addition to the corporate parameters. 51. Reporting on financial instruments The carrying values and the fair values of the individual financial assets and liabilities are represented below in accordance with the categories of IAS 39 and reconciled with the corresponding balance sheet positions. Liquid assets, accounts receivable as well as other receivables have above all short residual terms. For that reason their carrying values on the balance sheet date correspond more or less to the fair value. The fair values of lendings and other non-current receivables correspond to the present value of the payments associated with the assets taking into account current interest parameters. Current financial liabilities, accounts payable as well as other liabilities have regularly short residual terms; the reported values reflect more or less the fair values. The non-current financial liabilities are identified as present values of the payments related to the debts on the basis of the current interest parameters. The appreciation premium included in a non-current financing contract was recognized separately from the basic agreement as embedded derivative and was recognized as income at fair value. The fair value of the embedded derivative was determined in accordance with the binomial model taking into account the fair value and volatility of the underlying instrument, matching maturities in respect of the interest rate and the term of the agreement. The change in fair value between the date of first time recognition of the derivative and the balance sheet date results in a profit of keur 58 for the reporting period. 43

47 Financial instruments Valuation according to IAS 39 No in EUR'000 Continued Affecting valuation Book value book fair criteria Assets value value as per IAS 39 Liquid funds (loans and receivables) Stocks / marketable securities Trade receivables (loans and receivables) Other current assets (loans and receivables) Shareholdings (available for sale) Loans to affiliated companies (loans and receivables) Other long-term receivables (loans and receivables) Valuation according to IAS 39 No Continued Affecting valuation Book value book fair criteria Liabilities value value as per IAS 39 Bank loans payable Trade accounts payable Accruals Other short-term liabilities Other long-term liabilities Valuation according to IAS 39 No Continued Affecting valuation Book value book fair criteria Aggregate as valuation categories IAS value value as per IAS 39 Financial assets loans and receivables available for sale Financial liabilities

48 Financial instruments Valuation according to IAS 39 No in EUR'000 Continued Affecting valuation Book value book fair value criteria Aktiva value as per IAS 39 Liquid funds (loans and receivables) Stocks / marketable securities (evaluated at fair value) Trade receivables (loans and receivables) Other current assets (loans and receivables) Shareholdings (available for sale) Loans to affiliated companies (loans and receivables) Other long-term receivables (loans and receivables) Valuation according to IAS 39 no continued Fair Value valuation book value book affecting criteria Liabilities value as per IAS 39 Bank loans payable Trade accounts payable Accruals Other short-term liabilities Other long-term liabilities Valuation according to IAS 39 no continued Fair Value valuation book value book affecting criteria Aggregate as valuation categories IAS value as per IAS 39 Financial assets loans and receivables available for sale Financial liabilities

49 Expense, income, loss and profit from financial instruments can be allocated to the following categories: in EUR' Financial assets loans and receivables affecting Fair Value Available for sale Financial liabilities evaluated with book value affecting Fair Value 58 0 Total Risk management DEAG is exposed to interest, exchange rate, currency and solvency risks in respect of its assets, liabilities and operating business. Part of the interest payments in connection with the loans raised by DEAG are made on a EURIBOR basis. The capital costs of DEAG are hence partly subject to an interest rate risk. One of the financings includes an equity kicker based on the DEAG share price. Fee payments for artists, orchestras, show productions etc. are partly made on a USD basis and are hence subject to the currency risk vis à vis the Euro. The same applies to dividend payments of foreign subsidiaries which are made in CHF and GBP. Concerning receivables from business partners DEAG is dependent on their continued existence as well as their solvency and hence their ability to pay. The task of risk management consists in countering these risks by accurate market observation, risk assessment, reduction of the net exposure and targeted collateralization measures, e.g. through financial derivatives. Concerning the selection of business partners the latter's credit standing is strictly monitored. 53. Events after the balance sheet date By notarized purchase agreement of April 3, 2008, DEAG Classics AG acquired 75.1% of the shares in Raymond Gubbay Ltd., London. The purchase price was paid in cash in the amount of GBP 5 million, in addition to the issuing of approximately 1.7 million new shares of DEAG. The purchase price allocation to individual assets has not yet been completed. For that reason it is not possible to provide full information on the business combination under IFRS 3.67ff. 54. Exemption from publication in accordance with 264 HGB The following companies make use of the waiver in accordance with 264 HGB relating to the publication of the financial statements and management reports: DEAG Classics AG, Berlin DEAG Concerts GmbH, Berlin MPE Music Pool Europe GmbH, Hamburg Concert Concept Veranstaltungs-GmbH, Berlin Kultur- und Kongresszentrum Jahrhunderthalle GmbH, Frankfurt am Main Broadway Varieté Management GmbH, Berlin Friedrichsbau Varieté Betriebs- und Verwaltungs GmbH, Stuttgart 46

50 55. Personal Data Management Board Peter Schwenkow Place of residence Profession Responsibility within the Group Group retainers Berlin CEO, Businessman Strategic Business Development and Operations, Sales, Marketing, Investor Relations Administrative Board Member of Good News Productions AG, Glattbrugg-Opfikon (CH) Shares held as at ,802,531 Dr. Ingo Stein Place of residence Profession Responsibility within the Group Group retainers Shares held as at Berlin Board Member, Businessman Finance and Human Resources Member of the Supervisory Board of DEAG Classics AG - Christian Diekmann Place of residence Profession Responsibility within the Group Berlin Board Member, Businessman Operations, Marketing Group retainers - Shares held as at

51 Supervisory Board Prof. Dr. Peter Raue Place of residence Berlin Position on Supervisory Chairman Board Profession Lawyer and Notary Public at Hogan Hartson & Raue LLP, Berlin Retainers on other boards Supervisory Board Member of Hebbel Theater GmbH, Berlin Group retainers - Shares held as at Wolf-D. Gramatke Place of residence Position on Supervisory Board Profession Retainers on other boards Group retainers Shares held as at Hamburg Vice-Chairman Freelance Media Consultant Supervisory Board Chairman of Pixelpark AG, Berlin Supervisory Board Vice-Chairman of Senator Entertainment AG, Berlin Other: Member of Supervisory Board of Jetix Europe N.V., Netherlands Member of the media business committee of the Hamburg Chamber Of Commerce Supervisory Board Member of DEAG Classics AG - Dr. Günther R. Niethammer Place of residence Position on Supervisory Board Profession Retainers on other boards Shares held as at Nuremberg Supervisory board member (until Managing Partner, Odewald & Cie GmbH Supervisory Board Member of ad pepper media International N.V, Amsterdam (NL) - Christine Novakovic Place of residence Position on Supervisory Board Profession Shares held as at Zurich (Switzerland) Supervisory board member (since Arts Dealer - 48

52 The consolidated financial statements were released by the Management Board for publication on April 29, To the best of our knowledge, and in accordance with the applicable reporting principles, the consolidated financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the group, and the group management report includes a fair review of the development and performance of the business and the position of the group, together with a description of the principal opportunities and risks associated with the expected development of the group. Berlin, 31 March/ 29 April 2008 DEAG Deutsche Entertainment Aktiengesellschaft Management Board Peter L. H. Schwenkow Dr. Ingo Stein Christian Diekmann 49