Annual Report medion ag

Transcription

1 Annual Report 2011 medion ag

2 Annual Report 2011 medion ag

3 Key Figures MEDION Group in million Jan. 1 - Dec. 31, 2011 Jan. 1 - Dec. 31, 2010 Jan. 1 - Dec. 31, 2009 Jan. 1 - Dec. 31, 2008 Jan. 1 - Dec. 31, 2007 Sales 1,432 1,639 1,408 1,604 1,659 - inside Germany 1,085 1,219 1,071 1,091 1,118 - outside Germany Sales by segment - thereof project business 897 1,160 1,025 1,264 *) - thereof direct business *) EBIT Net income Total assets Equity-to-assets ratio 51.7% 54.5% 51.3% 50.7% 44.4% Average number of employees 1,013 1,007 1,015 1,072 1,138 Personnel expenses *) segment shown since fiscal 2009 in accordance with IFRS 8 MEDION stock Subscribed capital 48,418,400 Authorized capital 24,000,000 ISIN DE WKN Listing XETRA, Frankfurt am Main Free float approx. 4% Earnings per share (in ) Average number of shares outstanding 44,665,575 44,599,210 44,495,714 45,952,956 47,973,063 Dividends per share (in )

4 2 Contents 1 Letter to Shareholders 4 2 Report of the Supervisory Board 8 3 Corporate Governance Report 14 4 Marketing and Design 26 5 Combined Management Report of MEDION Group and MEDION AG 52 6 MEDION Stock Consolidated Financial Statements Notes to the Consolidated Financial Statements Audit Opinion Separate Financial Statements of MEDION AG Financial Calendar 183 Publication Credits

5 3 1 Letter to Shareholders 4 2 Report of the Supervisory Board 8 3 Corporate Governance Report Joint Report on Corporate Governance by the Management Board and the Supervisory Board of MEDION AG 3.1 Principles 3.2 Implementation of the German Corporate Governance Code 3.3 The Management Board and the Supervisory Board 3.4 Annual Shareholders Meeting and Internet Information 3.5 Compliance 3.6 Accounting and Auditing

6 1 Letter to Shareholders 4 Dear Shareholders, Fiscal year 2011 represented a turning point in the development of the MEDION Group. No other event since the Company s founding and later initial public offering will change MEDION AG so fundamentally as the acquisition of a majority interest by the international Lenovo Group, which was announced on June 1, 2011 and has been fully implemented in the meantime. Lenovo is a global manufacturer and supplier of information technology products and services. Lenovo has been the world s second largest manufacturer of PCs and laptops since autumn Lenovo was founded as a company in China in the 1980s. The acquisition of IBM s PC business announced in 2004 made Lenovo one of the world s largest PC manufacturers. The Lenovo Group markets its products and services in more than 160 countries and maintains research centers in Yamato (Japan), Beijing, Shanghai and Shenzhen (People s Republic of China) and Raleigh (North Carolina, USA). As of December 31, 2011, the Lenovo Group employed 26,000 persons worldwide. The business combinations of Lenovo and MEDION should make it possible to benefit from global economies of scale, in particular synergies in the areas of purchasing, global supply chains, software development, distribution channels as well as joint innovations in the product and business model. A contributing factor for the business combinations with Lenovo was a review of various models and strategies as well as potential partnerships by the Management Board of MEDION AG in coordination with the Supervisory Board during the last three years. The starting point of these discussions was always the conviction of MEDION s Management Board that it would not be possible to maintain a sustained standalone position in the globalized world of consumer electronics and still remain profitable. In 2011 in particular, national competitors experienced difficulties with their business strategies in the face of global supply problems for components such as hard disks. Those without a connection to a major partner on the manufacturing side were forced to record significant losses.

7 1 Letter to Shareholders 5 In the last several years, the MEDION Management Board has been concerned with these risks and future perspectives. For instance, in connection with the establishment of its share buyback program the Management Board repeatedly emphasized as early as 2008 that the treasury shares might also be useful for a future cooperation with an international partner. The business combinations with Lenovo will also secure access to international patents, research and development capacity as well as global purchasing possibilities. The nearly complete digitalization of the products, the possibilities of many consumer electronics products to access the Internet and the demands for mobility and networking today pose significantly greater and more complex challenges for the manufacturers of consumer electronics products. The consistent goal of the various negotiations and discussions of the MEDION Management Board with potential interested parties was to maintain MEDION s business areas and to expand the platform for direct sales to end users in Western Europe. This goal can be achieved together with Lenovo, focusing on a cooperation of mutual benefit. For that reason, it has been and will continue to be critically important for MEDION to stay an independent company with its own brand. MEDION s focus will continue to be on its ability to offer key customers and consumers innovative products and a comprehensive range of marketing and service offers covering the entire retail value creation chain. MEDION will continue to design product ideas based on current needs of the market and customers. Together with its quality and logistics management, it will guarantee comprehensive after-sales service. Bearing all of this in mind and after eight months of cooperation with Lenovo, the Management Board and Supervisory Board continue to be firmly convinced that the correct decision was made on June 1, In a year that proved to be difficult for many competitors, MEDION was not able to reach its original targets for fiscal year 2011, but nonetheless achieved a respectable result.

8 1 Letter to Shareholders 6 Revenue came to 1.43 billion compared to 1.64 billion in The operating result (EBIT) in the amount of 25.8 million (previous year: 28.1 million) was burdened by special expenses of 3.8 million. The Management Board and the Supervisory Board will propose to the shareholders at the Annual Shareholders Meeting on August 31, 2012 the distribution of a dividend of 0.21 per share. After the acquisition of the majority interest by Lenovo, the possibilities for the cooperation of both companies were placed on a contractual basis. The control and profit and loss transfer agreement concluded between Lenovo and MEDION on October 25, 2011 was approved by the Extraordinary Shareholders Meeting of MEDION AG on December 14, 2011 with the necessary majorities. This agreement was recorded in the commercial register on January 3, 2012 and took effect as of that date. The agreement provides for a new cash compensation offer of per share for the MEDION shareholders. As compensation for the loss of the dividend entitlement, the shareholders who do not accept this compensation offer will receive a gross annual equalization payment of 0.82 per MEDION share minus the amount for German corporation tax and solidarity surcharge. The purpose of this agreement is to strengthen the de facto already existing group structure between Lenovo and MEDION. The conclusion of the agreement will greatly facilitate the cooperation between Lenovo and MEDION as well as the implementation of the business strategy, as it will eliminate the legal limitations existing in a de facto group relationship. The agreement will also make it possible to coordinate the interests of Lenovo and MEDION and facilitate the development of joint product ideas for the purpose of making attractive offers for consumers. The agreement changes the structure of MEDION AG as well as the opportunities and risk profile of MEDION s shareholders. After the profit transfer obligation takes effect under the agreement, MEDION AG will no longer report distributable profits. From that point in time, the shareholders of MEDION AG will not decide concerning the appropriation of profits. As compensation for the loss of the dividend entitlement, Lenovo Germany Holding GmbH will be obligated to pay an annual equalization payment to the minority shareholders of MEDION AG.

9 1 Letter to Shareholders 7 As the founder and former majority shareholder of the Company, I deliberately supported the acquisition by Lenovo and the agreement that has now been concluded. I have sold my majority shareholding and have furthermore assumed extensive personal guarantees. I feel this is the only way to ensure that the MEDION brand, which has been built up over the decades, can be continued and further developed in the interest of the Company, its customers and also its employees. As the Company s shareholders, you, ladies and gentlemen, have participated in years of growth, but also losses and significant consolidations of revenue and earnings. I thank you sincerely for the confidence you have shown, and I hope that you will have continued enthusiasm for the brand and the products of MEDION in the new business combination with Lenovo. Gerd Brachmann (Chairman of the Management Board)

10 2 Report of the Supervisory Board 8 Report of the Supervisory Board During the 2011 reporting year, the Supervisory Board took great care in fulfilling all of its duties pursuant to the statutory regulations and the Company s Articles of Incorporation. It advised the Management Board on the running of the Company and monitored executive management. The Supervisory Board was directly involved in all decisions of fundamental importance to the Company at an early stage. The Management Board reported to the Supervisory Board regularly, promptly, and comprehensively, both in writing and during meetings, on all matters pertaining to corporate planning and strategic development, business transactions, and the economic situation of the Group, including risk exposure and risk management. The cooperation with the Management Board was characterized by intensive and open exchange of information. Any deviations from budgets and targets in the course of business were discussed in detail with the Supervisory Board. The Management Board consulted with the Supervisory Board on the Company s strategic alignment. All significant business transactions were reviewed in detail by the Supervisory Board on the basis of the Management Board s reports. In fiscal 2011, the work of the MEDION AG Supervisory Board was dominated by the change in the Company s majority ownership structure. Various extraordinary meetings of the Supervisory Board in fiscal year 2011 centered on the joint decision of the Management Board and Supervisory Board to enter into negotiations with Lenovo, the subsequent common understanding of the future alignment of the Company, and the resulting takeover offer to the outside shareholders of MEDION AG. Nine Supervisory Board meetings were held in fiscal All of the meetings were attended by all members of the Supervisory Board. In addition, the members of the Supervisory Board held several internal preliminary discussions and post-meeting reviews. Between meetings, the Supervisory Board was also provided with detailed information on all projects and undertakings that were of particular significance for the Company or required swift decisions. Wherever necessary, the Supervisory Board granted its approval in writing. In addition to discussions regarding the negotiations with Lenovo, in-depth consultations concentrated on the joint position of the Management Board and Supervisory Board pursuant to Section 27 (1) of the Securities Acquisition and Takeover Act (WpÜG) in response to Lenovo s voluntary public takeover offer to the shareholders of MEDION AG. In addition, the Supervisory Board focused intensively on the financial evaluation of the Company for the voluntary takeover offer and for the conclusion of a control and profit and loss transfer agreement between MEDION AG and Lenovo Germany Holding GmbH. In the meeting on February 10, 2011, plans for 2011 and projected key figures for 2012 were discussed. The meeting on March 10, 2011, primarily served the purpose of addressing the single-entity financial statements and the consolidated financial statements for the year ended December 31, At this meeting, the Supervisory Board also adopted the agenda

11 2 Report of the Supervisory Board 9 for the Annual Shareholders Meeting of MEDION AG on May 18, 2011, including the proposed resolutions. The meeting on May 18, 2011, was used to constitute the Supervisory Board following the reelection of the Supervisory Board at the Annual Shareholders Meeting. In the meeting on May 31, 2011, the Supervisory Board gave its approval of a business combination agreement between Lenovo and MEDION. In addition to points relating to the takeover offer and its settlement, this agreement outlines Lenovo s expectations regarding the new group of companies consisting of MEDION and Lenovo and the future business alignment and subsequent integration of MEDION within the Lenovo Group. In the Supervisory Board meeting on July 4, 2011, the Management Board and Supervisory Board discussed a reasoned opinion (pursuant to Section 27 (1) WpÜG) on Lenovo s takeover offer. Lenovo s offer to the shareholders of MEDION AG had been approved for publication by the Federal Financial Supervisory Authority (BaFin) on June 27, Accordingly, the Supervisory Board carefully analyzed and evaluated the appropriateness of Lenovo s offer of for each MEDION share. To this end, the Management Board and Supervisory Board had asked Deutsche Bank to provide a fairness opinion. In the Supervisory Board meeting on July 4, 2011, Deutsche Bank explained the analyses it had conducted and the resulting fairness opinion and responded to all related questions. The Supervisory Board also reviewed an additional independent financial evaluation of MEDION AG as of June 15, 2011 (valuation date), commissioned by the Management Board. In this context, a more objective financial evaluation of MEDION was arrived at on the basis of the discounted cash flow method in accordance with IDW S 1 recognized in case law. On the basis of its own assessment of the takeover offer, the Supervisory Board acknowledged and concurred with the fairness opinion of Deutsche Bank and the additional financial evaluation. The meeting on September 15, 2011, served the purpose of preparing to conclude a control and profit and loss transfer agreement between Lenovo und MEDION and discussing the general business situation in light of deteriorating economic conditions in the European market for consumer electronics products. In the meeting on October 25, 2011, the Supervisory Board approved of a control and profit and loss transfer agreement between MEDION and Lenovo. At the same time, the joint report of the Supervisory Board of MEDION AG and the management of Lenovo Germany Holding GmbH (pursuant to Section 293a of the German Stock Corporation Act or AktG) concerning the control and profit and loss transfer agreement was discussed in detail.

12 2 Report of the Supervisory Board 10 At the meeting on December 5, 2011, the Supervisory Board reviewed the corporate governance and compliance activities in the MEDION Group. After intensive deliberation, the Supervisory Board approved of an update of the declaration pursuant to Section 161 AktG. The IT investment plan was also approved in this meeting. The purpose of the meeting on December 13, 2011, was to prepare for the Extraordinary Shareholders Meeting of MEDION AG taking place on December 14, 2011 (approval of the conclusion of a control and profit or loss transfer agreement, change in the fiscal year, and reelection of two members of the Supervisory Board) and the conclusion of new management contracts for Gerd Brachmann and Christian Eigen with effect as of January 1, The Chairman of the Supervisory Board was also in regular contact with the Management Board outside of the meetings and was briefed on the status of negotiations with Lenovo and on current business developments and all significant transactions on the basis of key figures. Furthermore, the Management Board consulted with the Supervisory Board on the interim reports to be published (quarterly reports for the first and third quarters and the half-year financial report). Regular discussions in the Supervisory Board meetings also focused on the economic development in the significant procurement and sales markets for MEDION and the Group s sales, earnings, and employment trend as well as the financial condition. The corporate governance report of the Management Board and Supervisory Board pursuant to Section 3.10 of the German Corporate Governance Code can be found in the respective Section of this annual report. Pursuant to Section 5.6 of the German Corporate Governance Code, the Supervisory Board has undertaken to regularly review the efficiency of its activities. The efficiency reviews were conducted on an ongoing basis in the reporting year, particularly at the meeting held on December 5, The reviews were facilitated by a detailed questionnaire, which all Supervisory Board members received in advance. The main elements of this self-evaluation process entailed: Workflows and the distribution of tasks among the Supervisory Board members Advisory, monitoring, and review tasks, particularly with respect to accounting and the audit of the financial statements Provision of information from the Management Board Cooperation between the Management Board and Supervisory Board and review of suggestions for improvement The Supervisory Board had discussed the results of its efficiency review. No need for any significant changes in the structure or content of the duties of the Supervisory Board has become apparent.

13 2 Report of the Supervisory Board 11 The separate financial statements of MEDION AG for the fiscal year from January 1, 2011, to December 31, 2011, prepared by the Management Board in accordance with the German Commercial Code (HGB) and the management report of MEDION AG (combined management report of the MEDION Group and MEDION AG pursuant to Section 315 (3) HGB) were audited by Märkische Revision GmbH Wirtschaftsprüfungsgesellschaft, Essen, Germany. The audit assignment was awarded by the Supervisory Board in accordance with the resolution of the Annual Shareholders Meeting of May 18, The auditors issued an unqualified audit opinion. The consolidated financial statements of MEDION AG were prepared pursuant to Section 315a HGB on the basis of the International Financial Reporting Standards (IFRS). As in the previous year, the Management Board has come to the conclusion that disclosing sales revenues per major external customer amounting to 10% or more of total Group sales revenues at MEDION, as stipulated in IFRS 8.34, could, on the basis of a prudent commercial assessment, lead to significant negative effects for MEDION. The Management Board has therefore decided, against the background of Section 131 (3) (1) AktG and the protective clause against such a detailing provided under Section 286 (2) HGB, to refrain from disclosing sales per major customer in the consolidated financial statements prepared in accordance with IFRS despite the ensuing qualification of the audit certificate as regards the missing disclosure of sales per major customer as stipulated by IFRS As in the previous year, following a thorough examination of the matter, the Supervisory Board concurred with the decision of the Management Board. The qualification of the audit certificate refers exclusively to the disclosure of key account sales in accordance with IFRS 8.34 which has purposely been omitted. Apart for this exception, the auditor has attested that the consolidated financial statements and the Group management report have been properly prepared in accordance with all applicable rules and present a true and fair view of the financial position, financial performance, and cash flows of the Group. The audit engagement between MEDION AG and the auditor complies with the requirements of the German Corporate Governance Code. The Supervisory Board engaged the auditor to audit the annual financial statements and the consolidated financial statements as well as to review of the half-year financial report. Märkische Revision GmbH Wirtschaftsprüfungsgesellschaft, Essen, Germany, has submitted a declaration of independence to the Supervisory Board confirming that it has no professional, financial, or other relations with MEDION AG or any member of its corporate bodies that could cast doubt upon its independence. The auditors also audited the risk early warning system in place at MEDION AG and confirmed that the Management Board had taken the precautions required by Section 91 (2) AktG and that the risk early warning system is suitable for identifying any risks to the Company s continued existence at an early stage.

14 2 Report of the Supervisory Board 12 The Supervisory Board was likewise able to satisfy itself that the Management Board had taken suitable measures to identify risks at an early stage, particularly the installation of the risk monitoring system. The documentation relating to the annual financial statements and the audit reports was forwarded to all members of the Supervisory Board and discussed in detail at the Supervisory Board s financial statements meeting on March 14, This meeting was also attended by the auditors, who had already answered questions from the Supervisory Board prior to the meeting, in which they reported on the key findings of their examinations and provided supplementary information to the Supervisory Board. After having examined the separate annual financial statements of MEDION AG, the consolidated financial statements, and the combined management report, the Supervisory Board noted and concurred with the reports submitted by the auditors. No objections were raised by the Supervisory Board based on the final results of its examination. The annual financial statements of MEDION AG and the consolidated financial statements prepared by the Management Board were approved by the Supervisory Board on March 14, The annual financial statements of MEDION AG have thus been adopted. Based on its own review, the Supervisory Board concurs with the proposal of the Management Board to appropriate the profits of the parent company in the amount of 25,724, for fiscal 2011 for payment of a dividend of 0.21 per dividend-entitled share and to transfer the remaining amount of 16,341, to retained earnings. In view of the profit made in 2011 and secondly with due consideration of the continued uncertain economic environment, the Supervisory Board considers the profit distribution to be appropriate. Pursuant to Section 312 AktG, the Management Board of MEDION AG has prepared a report on relations with related companies in fiscal 2011, which it submitted to the Supervisory Board. The auditors also audited this report, set down their findings in writing, and issued the following opinion in accordance with Section 313 (3) AktG: Based on our mandatory audit and assessment, we confirm that 1. the report s actual disclosures are correct, 2. the Company s payment was not unreasonably high for the legal transactions detailed in the report. A review of the report by the Supervisory Board did not result in any objections. The Supervisory Board has concurred with the results of the audit. Based on this report as well as the final results of its own review, the Supervisory Board has raised no objections to the declaration of the Management Board at the end of the report on relations with related companies.

15 Dies Report ist of die the erste Supervisory Ebene des Board HEADERs Dies ist die zweite Ebene des Headers No changes occurred in the composition of the Management Board of MEDION AG during the year under review. After the Extraordinary Shareholders Meeting on December 14, 2011, Dr. Hans-Georg Vater and Helmut Julius resigned from the Supervisory Board. Both had been particularly involved in the development of the Company in the past five years as critical advisors. They both constructively supported Lenovo s acquisition of a majority share in MEDION in a number of negotiations, including outside of meetings, and both rendered important services to MEDION in this context. At the Extraordinary Shareholders Meeting of MEDION AG on December 14, 2011, Wai Ming Wong, Senior Vice President and CFO, Lenovo Group Ltd., and Milko Norman van Duijl, Senior Vice President and President Mature Markets, Lenovo Group Ltd., were appointed to the Supervisory Board of MEDION AG. The Supervisory Board would like to thank the Management Board, the employees of MEDION AG in Germany and abroad, as well as the employee representatives for their personal commitment and work performed in a challenging environment, in particular in consideration of Lenovo s integration of MEDION. Essen, March 2012 The Supervisory Board Dr. Rudolf Stützle Chairman

16 14 3 Corporate Governance Report Joint Report by the Management Board and the Supervisory Board 3.1 Principles Corporate governance is the responsible management and supervision of the Company with the aim of long-term value creation. The Management Board of MEDION, on its own behalf and on behalf of the Supervisory Board, reports on corporate governance pursuant to No of the German Corporate Governance Code as follows: At MEDION, good corporate governance is a standard we extend to all areas of the Company. Enhancing corporate governance and compliance at MEDION serves to justify the trust that our shareholders, business partners, employees, and the public have placed in us. We have therefore taken all organizational measures needed to not only comply with the legal requirements but also to ensure a responsible and transparent corporate management that is committed to sustained growth. 3.2 Implementation of the German Corporate Governance Code In the year 2011, the German Government s Commission on the Corporate Governance Code did not adopt any amendments to the Code. After the deliberations of the Management Board and Supervisory Board in their joint meeting on December 5, 2011, an updated declaration of compliance pursuant to Section 161 AktG was adopted and announced on the website of the Company on December 6, The exception from the Code that committees may not be formed due to the Supervisory Board s size has not changed from previous years. Earlier, on May 26, 2010, the German Government s Commission on the Corporate Governance Code adopted recommendations that supervisory boards should now name the concrete objectives for their composition. The Supervisory Board considers that the objectives of its composition are primarily focused on the specific requirements of MEDION s business model, which has no direct equivalent in this form among competitors. This is why the MEDION Supervisory Board includes an outside industry representative with extensive expertise in logistics processes, global trade, and services, an internationally recognized financial expert with more than ten years of experience as CFO of an internationally operating company, and a proven financial markets expert with more than thirty years of management experience in an international bank. Because an understanding of the processes of internationally operating retail companies and related expertise in financial transactions are decisive factors in the quickly changing international world of consumer electronics products and in MEDION s orientation toward international retail chains, the current configuration of the Supervisory Board, which was elected by the Annual Share-

17 15 3 Corporate Governance Report Joint Report by the Management Board and the Supervisory Board holders Meeting on May 12, 2006, is particularly suited to preserve the supervisory and control functions specific to MEDION s corporate situation. Accordingly, the Annual Shareholders Meeting on May 18, 2011, reelected the officiating Supervisory Board in its entirety. The Management Board structure and management structure of the Company which have remained largely unchanged since the Company s founding and IPO have taken into account the specific requirements of the business model of MEDION AG. Both members of the Management Board are responsible for operating areas including the essential business processes in purchasing, logistics, financial planning and controlling as well as the direct management of significant corporate functions, such as information technology, sales, human resources, and strategy. The top management level in the Company is directly responsible to the Management Board by way of targets and reporting duties. The management positions have been filled for years by long-term and competent employees, just under 20% of whom are women. MEDION aims to increase the proportion of women in management positions to 30% in the medium term. Implementation of Recommendations MEDION has already been following the recommendations of the German Corporate Governance Code for years. The Management Board and Supervisory Board regularly focus intensively on the fulfillment of the Code s guidelines. Based on these deliberations, the Management Board and the Supervisory Board issued a current version of the declaration of compliance in accordance with Section 161 AktG on December 5, 2011, and posted it on the Company s website. In addition to the recommendations, the Code contains a number of suggestions for sound and responsible corporate governance and corporate management, compliance with which is not required to be disclosed by law. MEDION follows all of the suggestions of the Code with the exception of Section (2) Sentence 2, according to which the compensation system for management board members is approved at the Annual Shareholders Meeting. Due to the special ownership structure of MEDION a corresponding resolution methodology has not been adopted to date. Furthermore, the performance-based compensation of Supervisory Board members (Section (2) Sentence 2 of the Code) does not at this time contain any components based on the Company s long-term success since MEDION s business model makes the determination, objectification, and quantification of long-term success parameters difficult.

18 16 3 Corporate Governance Report Joint Report by the Management Board and the Supervisory Board 3.3 The Management Board and the Supervisory Board Cooperation between the Management Board and the Supervisory Board The Management Board and the Supervisory Board work closely together in the interests of the Company with the common goal of sustained growth in shareholder value. The Management Board reports to the Supervisory Board regularly, promptly, and comprehensively on all matters pertaining to corporate planning and strategic development, the course of business, and the economic situation of the Group, including risk exposure. Significant business transactions are subject to the approval of the Supervisory Board. MEDION has taken out directors and officers liability insurance with a reasonable deductible for members of the Management Board of MEDION AG. No consulting contracts or other contracts for work and services existed between members of the Supervisory Board and the Company during the year under review. No conflicts of interest occurred with respect to any member of Management Board or Supervisory Board. Any such conflicts of interest must be disclosed to the Supervisory Board immediately. No member of the Supervisory Board of MEDION AG has been a former member of the Company s Management Board. Management and supervisory structure In accordance with German law on joint stock companies, to which MEDION AG is subject since its registered offices are in Essen, Germany, the Company has a dual management and supervisory structure. It consists of a Management Board having two members and a Supervisory Board having three members. The Management Board Since October 1, 2009, the Management Board of MEDION AG has consisted of two members. The Management Board directs the MEDION Group on its own responsibility. The members of the Management Board are jointly responsible for managing the Company. They are obligated to act in the Company s best interests and to secure sustained growth in shareholder value. The Chairman of the Management Board coordinates the work of the Management Board. The Management Board has established rules of procedure that have been approved by the Supervisory Board. The individual duties and areas of responsibility of the Management Board are set down in the Schedule of Responsibilities. Members of the Management Board may not be older than sixty years. When first appointed, they are usually not appointed for the maximum possible five-year term of office.

19 17 3 Corporate Governance Report Joint Report by the Management Board and the Supervisory Board The Supervisory Board advises on the structure of the compensation system for the Management Board and reviews it on a regular basis. Compensation for members of the Management Board is set at a reasonable level by the Supervisory Board on the basis of an assessment of their performance, taking into account any remuneration received from other Group companies. Management Board member compensation has performance-related components and non-performance-related components. Portions independent of performance consist of a fixed portion, fringe benefits, and pension commitments, while the performance-related components are broken down into variable remuneration and components with a longterm incentive effect. According to contractual provisions, variable remuneration includes a number of elements, among which is a profit-related bonus calculated on the basis on the operating result (EBIT). Furthermore, the Management Board members are entitled to a share-based payment depending on the extent to which targets for individual members have been achieved. The shares awarded are subject to blocking periods within which they may not be sold or otherwise transferred. To allow for extraordinary, unforeseeable developments, the Supervisory Board has set an individual maximum level of compensation for each member of the Management Board. The Management Board members receive additional non-cash fringe benefits, mainly comprising the use of Company cars, which is to be recognized in line with tax guidelines, for private purposes and insurance premiums. As components of compensation, these fringe benefits are taxable for individual members of the Management Board. No commitment exists for benefits due to a premature termination of executive activities resulting from a change of control. The Chairman of the Supervisory Board informs the Annual Shareholders Meeting regarding the principal features of the compensation system and any changes thereto. The Management Board s total compensation is disclosed in the notes to the consolidated financial statements. Its various components (fixed basic salary, performance-related components, and components with a long-term incentive effect) are shown separately for each member. The compensation report showing the individual remuneration for each member of the Management Board is printed on pages of the combined management report of the Company and the Group.

20 18 3 Corporate Governance Report Joint Report by the Management Board and the Supervisory Board The Supervisory Board The Supervisory Board of MEDION AG consists of three members. It advises and monitors the Management Board with respect to management of the MEDION Group. It is involved in all decisions of fundamental importance to the MEDION Group. The Supervisory Board appoints and dismisses members of the Management Board, acting jointly with it to ensure that long-term succession planning is in place. The Chairman of the Supervisory Board coordinates its work, chairs its meetings, and represents it externally. The Supervisory Board has established rules of procedure for its work. The diverse professional backgrounds of the members of the Supervisory Board ensure that collectively it has the necessary knowledge, abilities, and professional experience to perform its duties. The Supervisory Board s total compensation is disclosed in the notes to the consolidated financial statements. Its various components (fixed basic salary and performance-related component) are shown separately for each member. The compensation report showing the individual remuneration for each member of the Supervisory Board is printed on pages Members of the Supervisory Board must disclose to the entire Supervisory Board any conflicts of interest, especially those that might arise from an advisory or governance function for customers, suppliers, lenders, or other business partners. No conflicts of interest of any nature arose in the past fiscal year. If material and not merely temporary conflicts of interest arise that are attributable to the person of a Supervisory Board member, that member s appointment is terminated. In accordance with Section 5.6 of the Code, the Supervisory Board has reviewed the efficiency of its activities on the basis of various criteria, in particular at its meeting on December 5, The main elements of this self-evaluation process entailed: Workflows and the distribution of tasks among the Supervisory Board members Advisory, monitoring, and audit-related tasks, particularly with respect to accounting and the audit of the financial statements Provision of information by the Management Board Cooperation between the Management Board and the Supervisory Board

21 19 3 Corporate Governance Report Joint Report by the Management Board and the Supervisory Board In its periodic efficiency review, the Supervisory Board determined that the Supervisory Board is efficient and organized and that the interaction between the Management Board and the Supervisory Board functions very well. The Supervisory Board approved the following objectives with regard to its composition: The composition of the Supervisory Board shall reflect a special focus on the areas of retailing, internationality, and finance which are of relevance to the Company Consideration of special knowledge and experience in accounting and internal control mechanisms Independence of the Supervisory Board members Avoidance of conflicts of interest Consideration of knowledge of the company-specific themes of an internationally operating trading and services company Directors dealings Members of the Management Board and the Supervisory Board are legally obliged under Section 15a of the German Securities Trading Act (WpHG) to disclose any acquisition or disposal of MEDION AG securities if the value of transactions conducted within a calendar year by a member and persons related to him or her reaches or exceeds the sum of 5,000. The following directors dealings of members of the Supervisory Board were reported to MEDION AG in the past fiscal year: Dr. Rudolf Stützle, Dr. Hans-Georg Vater, and Helmut Julius held a total of 3,160 shares on December 31, Shares were held as follows: Dr. Rudolf Stützle, 160 shares; Dr. Hans- Georg Vater, 1,000 shares; Helmut Julius, 2,000 shares. All members of the Supervisory Board sold their respective shareholdings effective August 11, Accordingly, on December 14 or December 31, 2011, no shares were held by the Supervisory Board.

22 20 3 Corporate Governance Report Joint Report by the Management Board and the Supervisory Board The following share transactions by members of the Management Board of MEDION AG were reported in the past fiscal year: As a result of the allocation of shares to Management Board members in connection with profit-related Management Board compensation, the number of shares held by Management Board members increased by 24,205 shares in March 2011 for Gerd Brachmann and by 31,966 shares for Christian Eigen. Various conditions for sale or transfer apply to the allocated shares. On August 11, 2011, Christian Eigen sold 75,654 MEDION shares due to the agreements with Lenovo. Gerd Brachmann sold a total of 17,748,033 shares on July 29, The remaining number of shares thus amounts to 8,874,016, with the number of resulting voting rights allocated to Lenovo Germany Holding GmbH in connection with the Shareholders Agreement pursuant to Section 30 WpÜG. The Management Board held 8,874,016 shares in the Company as of December 31, Shares were held as follows: Gerd Brachmann, 8,874,016 shares; Christian Eigen, 0 shares. Transactions subject to disclosure are published in the Investor Relations section of the Company s website at

23 21 3 Corporate Governance Report Joint Report by the Management Board and the Supervisory Board 3.4 Annual Shareholders Meeting and Internet Information The shareholders of MEDION AG exercise their rights in the Company s Annual Shareholders Meeting, over which the Chairman of the Supervisory Board presides. During the Annual Shareholders Meeting, which has been transmitted via Internet since the Annual Shareholders Meeting in 2006 (although without release of the shareholders statements due to the shareholders privacy rights), shareholders have the opportunity to exercise their voting rights either directly, through a proxy of their choice, or through the Company s proxy, who is required to vote in accordance with the shareholders instructions. Instructions on exercising voting rights could be issued to the Company s proxy prior to and during the Annual Shareholders Meeting on May 18, 2011, and the Extraordinary Shareholders Meeting on December 14, 2011, until the end of the general debate. Shareholders will also have these options at the upcoming Annual Shareholders Meeting on August 31, 2012, in Essen. All documents and information on the Annual Shareholders Meeting are available on the MEDION website. Immediately following the Annual Shareholders Meeting, the attendance and voting results are published on the Internet. At MEDION AG, the application and identity verification procedure for the Annual Shareholders Meeting has been changed over to the record date, which is now international practice, and thereby simplified. For MEDION, the 21 st day before the Annual Shareholders Meeting is the record date for shareholders to register and verify their identities. This increases the incentive for our foreign shareholders in particular to participate in the Annual Shareholders Meeting and exercise their voting rights. The invitation to the Annual Shareholders Meeting outlines the requirements with respect to the granting of power of attorney and share ownership conferring voting rights. Only shareholders who have registered in good time before the Annual Shareholders Meeting are entitled to participate in the Annual Shareholders Meeting, exercise voting rights, and put forward motions. The registration must reach the Company or an address specified in the invitation to the Annual Shareholders Meeting by no later than six days before the meeting. The day of the meeting and the day of receipt are not counted. At the Annual Shareholders Meeting, shareholders have the opportunity to exercise their rights, specifically their voting rights. Voting rights may be exercised by the shareholders themselves, by proxies selected by them, or by the Company s proxy, who is required to vote in accordance with shareholders instructions. Matters decided by the Annual Shareholders Meeting include the appropriation of profits, the formal approval of the actions of the Management Board and Supervisory Board, and the selection of the statutory auditors. The Annual Shareholders Meeting also adopts resolutions on amendments to the Company s Articles of Incorporation and measures involving changes to its capital base.

24 22 3 Corporate Governance Report Joint Report by the Management Board and the Supervisory Board Open and transparent communication The shareholders regularly receive information on important dates through a financial calendar published in the annual report, the quarterly reports, and on the Company s website. The purpose of the Company s corporate communications and investor relations activities is to provide all target groups with the same information at the same time. Maximum transparency is ensured by keeping shareholders, all capital market participants, financial analysts, shareholder associations, and the media promptly and regularly informed of the Company s performance. We make particular use of the Internet for this purpose. Material that can be downloaded from our website includes annual and quarterly reports, ad-hoc announcements, and press releases in German and English. The publication dates for regular financial reports are listed in the financial calendar. An analysts meeting takes place each year, and a telephone conference in English is generally held when quarterly reports are published. If the Management Board becomes aware that any holding of voting rights in MEDION AG has reached or moved above or below 3, 5, 10, 15, 20, 25, 30, 50, or 75% of the total by acquisition, disposal, or other means, it publishes an announcement to that effect without delay. The new thresholds standardized by the German Transparency Directive Implementation Act (TUG) have been observed since January 20, During the 2011 reporting period, MEDION AG received reports on voting rights from the fund companies Warrington LLC, New York, USA (concerning 3.05% of the voting rights), Maidenhead LLC, New York, USA (concerning 5.01% of the voting rights), and Allianz Global Investors (concerning 2.51% of the voting rights). The fund companies Orbis and Sparinvest reported the sale of their shares. Information concerning the shareholdings of the Management Board and Supervisory Board is also published in the notes to the consolidated financial statements.

25 23 3 Corporate Governance Report Joint Report by the Management Board and the Supervisory Board 3.5 Compliance Good corporate governance also includes dealing with risks in a responsible manner. The risk management of the MEDION Group is achieved by two instruments, the control system and the early warning system, under the umbrella of a Strategic Controlling unit. The internal control system is designed to safeguard assets and to assure reliability and accuracy of the accounting system, operational efficiency, and compliance with required business policy. Important elements include the segregation of functions and the dual control system. Specific rules are documented in organizational instructions. As an element of our value-focused Group management approach, systematic risk management at MEDION is intended to ensure that risks are detected at an early stage and risk exposures are optimized. A comprehensive risk report is included in the management report of this annual report. One component of the Company s risk management system involves compliance measures. For MEDION, compliance is the sum of all measures that can be taken to ensure that the actions of the Company, the members of its executive bodies, and its employees conform to all statutory obligations and prohibitions and internal corporate guidelines. Compliance is intended to protect MEDION from any misconduct based on ignorance or negligence that might damage the Company s image or result in corporate targets not being met due to improper business practices. Compliance systems are organizational measures to ensure that the actions of MEDION and its executive bodies and employees are in accordance with the law, responsible and sustainable. In doing so, they monitor and regularly assess the appropriateness and effectiveness of the measures taken to eliminate deficits. MEDION has taken precautions to ensure that insider trading laws, anticorruption laws, and antitrust regulations are observed by the Group s companies and their employees. The Compliance Committee established at MEDION consists of the CFO and the department heads of Human Resources and Investor Relations. Since fiscal 2008, MEDION has concluded supplemental agreements to the existing employment agreements with all management executives and employees from areas that can independently place orders with third parties. These supplemental agreements prohibit employees from accepting gifts of money or other non-cash benefits for personal use or for the use of third parties. They also prohibit the acceptance or payment of bribery payments from or to retail partners, manufacturers and business partners. All management executives recruited in fiscal 2011 have also signed this agreement.

26 24 3 Corporate Governance Report Joint Report by the Management Board and the Supervisory Board Compliance information On January 30, 2012, February 13/14, 2012, February 20, 2012, and March 6, 2012 all affected management executives were provided with information in five briefings concerning the new compliance requirements, the current regulations, and their practical implementation in the MEDION Group. These briefings also covered information about the insider trading laws, anticorruption laws and antitrust regulations as well as the presentation of code of conduct requirements. Furthermore, information was provided concerning the necessity of erecting Chinese walls, the handling of possible insider information in accordance with the law, the new data protection requirements and the role of management executives as models for their respective areas. The names of all persons having access to insider information (including employees and external parties), for whom the access to information is essential for the fulfillment of their responsibilities to MEDION, are recorded in insider directories which are maintained in the Human Resources department. 3.6 Accounting and Auditing The accounts of the MEDION Group are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU. In addition, the provisions of Section 315a (1) of the German Commercial Code (HGB) are applied. The single-entity financial statements of MEDION AG which are prescribed by law and authoritative for the dividend payment are prepared in accordance with the German Commercial Code. The statutory auditors are elected by the Annual Shareholders Meeting and appointed by the Supervisory Board. In order to ensure the independence of the statutory auditors, the Supervisory Board asks them for a declaration that there are no existing reasons for exclusion or partiality. Based on the recommendation of the Supervisory Board, the Annual Shareholders Meeting on May 18, 2011, selected Märkische Revision GmbH Wirtschaftsprüfungsgesellschaft, Essen, as auditor of the annual financial statements of MEDION AG and the consolidated financial statements for fiscal year 2011.

27 25 3 Corporate Governance Report Joint Report by the Management Board and the Supervisory Board When appointing the auditors, the Supervisory Board obtains their consent to inform the Chairman of the Supervisory Board without delay of any reasons for exclusion or partiality arising during the audit that are not immediately eliminated. Furthermore, the auditors must notify the Supervisory Board without undue delay of all findings and incidents material to the duties of the Supervisory Board of which they become aware in the course of the audit. The auditors must also inform the Supervisory Board or make a note in the Audit Report if they ascertain facts during the course of the audit that do not correspond with the declaration of compliance submitted by the Management Board and Supervisory Board in accordance with affiliated 161 AktG. On behalf of the Supervisory Board On behalf of the Management Board Dr. Rudolf Stützle (Chairman) Gerd Brachmann (Chairman)

28 26 4 Marketing and Design

29 Marketing Design 40

30 MEDION stands for the popularization of technology. In the realm of consumer electronics, MEDION enjoys a reputation as an innovative brand that makes high-quality, elegantly designed technical products available to a broad base of consumers at reasonable prices. MEDION also develops and markets complementary services in telecommunications and online.

31 Marketing The MEDION Brand Throughout 2011 MEDION remained true to its reputation as an innovative, service-oriented, and forward-looking brand. An extensive and diverse advertising and PR campaign saw the company joining forces with dealers in several different countries to take advantage of the entire media mix, from print through broadcast to online and social media. The focus was on generating a positive image, increasing desirability, and triggering actual buying impulses.

32 MEDION a success story Tablet PCs are the big news. According to well-respected market research firm Gartner, worldwide sales of tablet PCs increased by 261% (63 million units) in That number is expected to grow to 326 million units by MEDION contributed its own model to the tablet market in late 2011 and is already setting standards in this still-developing product category. The company has made the MEDION LIFETAB a tablet PC in a premium version at an unbeatable price. This successful concept won over not only journalists but also consumers, providing the springboard for a successful launch in the tablet PC market.

33 Marketing Flanking the international product launch in this newly created segment were cross-media marketing measures such as print, online, viral marketing and PR. For example, the company placed an unboxing video on YouTube and sent devices to selected lead media publishers for testing. The move was a complete success as the MEDION LIFETAB passed all tests and reviews with flying colors. The result was a lot of buzz in all major media such as the Sat.1 morning show, ComputerBild, c t, n-tv as well as Handelsblatt. Comprehensive marketing measures and many special elements generated awareness for MEDION and helped push sales. The mix of classic and viral marketing provided a fundamental building block for the sensation created by the product launch. The enhanced media presence in high-coverage formats paid dividends in the form of brand recognition.

34 The scene is Berlin. MEDION seized upon the motto Digital Love Story to present itself at the IFA 2011, Germany s prime consumer electronics show. The company dazzled visitors with its technical prowess at its more than 400 square-meter stand. The ties that bind MEDION offers numerous products that make life easier and more interesting. Every product is coordinated so that it can easily connect to another MEDION product. MEDION has addressed the emotional trend of networking in a creative fashion, transforming it into a digital love story.

35 Marketing

36 Digital Love Story

37 Marketing The Digital Love Story campaign employed cross-media measures aimed at arousing lots of attention. The campaign was dispersed through selected channels in the social Web so as to attract more than just visitors to the IFA. The highlight was a short film that related a digital love story to underscore MEDION products. The fair stand also reflected the love story theme, which visitors enjoyed. The campaign made use of advertising spots, print and online media as well as social Web and classic PR initiatives to raise awareness of the MEDION brand and added an emotional component to it. Through its strong presence on the social Web, plus the links to the Web shop, MEDION not only created new customer leads but also increased sales.

38 Gaming is a major branch of consumer electronics. Similar to the role that Formula 1 racing plays in the automotive industry, gaming systems are a cutting-edge platform for software development that provide users with a technological head start. The gaming community provides impulses in addition to being a trendsetter. It is in no small part responsible for components and technologies finding their way from the premium segment to a much broader popular base.

39 Marketing MEDION and mousesports - ready, set, go Gaming is a trending segment. It s a source of fascination for people of all ages and backgrounds. In order to exploit the potential inherent in this market, MEDION expanded its existing cooperation with the successful mousesports E-sports team to an international level in MEDION has positioned itself as a provider of innovative, high-end gaming products. MEDION has implemented extensive marketing campaigns in partnership with mousesports. In addition to print and online, the cooperation was extended to trade fairs and events such as the Gamers Assembly the largest gaming event in France. We have focused especially on social media activities. MEDION has used press releases, interviews, and current trends to reinforce its gaming presence, attracting a lot of attention from the online community. Thanks to this joint initiative MEDION has established a strong and lasting position in the gaming scene. MEDION notebooks and desktop PCs designed for gaming are highly popular amongst players. The acceptance of the high-end gaming products offered by MEDION by members of the gaming community has led to increased popularization of those products and made them more accessible to a wider audience.

40 Your task is not to foresee the future, but to enable it. (Antoine de Saint-Exupéry) Trendsetting innovations provide the basis for the lasting success of a business. Innovation results in progress that benefits consumers. The Plus X Award recognizes innovative products that have that Plus X factor that edge over the competition to provide more value. MEDION Winner of the Plus X Award Most Innovative Brand 2011 MEDION received the top Plus X Award for the second year in a row, earning the Most Innovative Brand 2011 seal in the IT/Gaming Hardware category. The expert jury of the world s largest technology, sport, and lifestyle awards body thus recognized MEDION s superb design and innovation. The company was proud to highlight its Most Innovative Brand title both through its advertising campaigns and online. The award inspired confidence in our products and helped build our brand image.

41 Marketing

42 More value. We design products that work at home or on the road. Besides from their technical, practical functions, our products have to appeal emotionally to buyers esthetic sensibilities. Our engineers, product managers, and design teams search for that golden mean and imbue our products with value significant value for our customers.

43 Design Design 2011 MEDION products score highly in design competitions A total of 65 national and international awards and nominations in 2011 well exceeded the record of 39 set the year before. 27 seals at the Plus X Awards laid the foundation for still another Most Innovative Brand in the IT/Gaming Hardware category. The X6812 and P1225/6 notebooks even garnered Product of the Year awards. In addition to numerous design awards in competitions such as Universal Design, red dot award and if product design award, MEDION s performance at the Good Design Award at the Chicago Athenaeum was a resounding success: 12 awards reaffirmed the leading position in consumer electronics as well as MEDION s resolve to continue to score well in worldwide competitions through good design. MEDION design has likewise amassed recognition in the design competition held by the Federal Republic of Germany. No fewer than 20 products were nominated.

44 More freedom. The elegant MEDION LIFE X63003 DECT telephone set allows you to telephone within a greater radius. The cordless headset is constantly in touch with the base station, allowing for convenient, hands-free telephoning.

45 Design DECT Telephone Set MEDION LIFE X63003 First-class design meets environmentally friendly technology. This elegant chromed mobile telephone adds a touch of glamour to your home. The combination of fine design and the great sound quality you expect from MEDION provide a feast for both the eyes and ears. The full ECO function guards against excessive signal traffic by shutting down transmission when the phone is in standby mode. The MEDION LIFE X63003 s ECO function even reduces transmission waves during phone conversations, regardless of the distance from the base station. This super slender and chic mobile phone with its compact base station makes for stylish telephoning. Naturally, an answering machine, full duplex loudspeakers, and backlit keys are built in. Slender form, clean lines, and exquisite design accented with chrome characterize the latest DECT telephone by MEDION. Recipient of the red dot design award Recipient of the Good Design Award Recipient of the Plus X Award for Design and Ease of Use

46 More fun. Creative ability arouses ideas and the need to create something new. True to the motto form follows function, we listen to our customers. They help us come up with innovations in the form of products featuring exclusive design. Because we know that function follows dreams.

47 Design MEDION ERAZER X7813 Performance Notebook MEDION ERAZER X88 Performance PC Gamers like the challenge that the Gaming Community s events present and our designers love the challenge of creating products for this group of users. The products incorporate the latest technology that points the way to a broad buyer segment. The best way to illustrate how MEDION s design differs from mainstream design is to compare race cars to mass-produced automobiles on the street. The MEDION ERAZER X88 performance PC and the MEDION ERAZER X7813 performance notebook are the ultimate game machines. Fully equipped with the latest high-tech components, their bold, dynamic appearance conveys their inner values. They are ready to face any challenge. Recipient of the Good Design Award Recipient of the Plus X Award for High Quality, Design and Ease of Use Recipient of the Plus X Award for Notebook of the Year Nominated for the German Design Award

48 More content. The classic consumer electronic device is currently undergoing a surprising transformation and 3D is not the only development occupying center stage. The continuing evolution of interactive content and information, plus data interchange with PCs, notebooks and smart phones are giving the television a new lease of life cm/55 LED Backlight TV MEDION LIFE X18105 A sensationally sharp, dynamic 100 Hz picture is framed by an extremely slim aluminum housing that makes the MEDION LIFE LED TV pleasing to the eye. The elegant glass base provides not only a stylish accent, but swivels as well. Inside, three tuners enable superb reception while the built-in MEDION media library invites you to enjoy numerous video clips and media files from the Internet. The offering is constantly being updated and is sorted according to genre and date. The MEDION portal provides access to TV-optimized apps, news, and services like video on demand, online shopping and social networks.

49 Design

50 More convenience. Although you probably want to travel lightly, you still don t want to do without the comforts of home. That s why we design notebooks that offer everything you want. Fully equipped, MEDION notebooks do it all and, they can take it. For your convenience.

51 Design HD Entertainment Notebook MEDION AKOYA P7624 Watch films and TV while on the road. The large 43.9 cm LED backlight HD display brings colors to life. High-definition audio with two speakers and a subwoofer provide superior sound. You can watch your favorite TV shows both at home and on the road, thanks to the DVB-T tuner. The MEDION AKOYA P7624 with its brushed aluminum finish is the epitome of classic design, underlining the promise of reliability and a long life. The gradual transition from black to silver on the inside lends a pleasantly balanced appearance to the key and touch pads. Recipient of the Plus X Award for Design and Ease of Use

52 More security. And there is a lot more where that came from because NAS servers are more than just pure storage devices. Their capabilities in digital networks prove that they are real team players, protecting against loss of data, serving as hubs for home networks and promising many an exciting away game in the WWW. NAS Servers MEDION LIFE P89630 Your data center for home and travel. The MEDION P89630 NAS server is a networkbased data-storage device. Connected to a network, this small but mighty machine manages enormous amounts of data as well as entire music, picture, or film collections. The collections are then globally accessible in your home network or via your Web browser via a notebook, PC, tablet or smart phone. Thanks to the built-in DLNA server, DLNA-compatible televisions or media players can easily access your extensive media collection throughout the entire house there is no need to have a PC running in the background. The automatic save function is also extremely practical, allowing you to quickly recover lost, damaged, or older files. Go ahead you have got 2,000 GB. Recipient of the if design award Nominated for the German Design Award

53 Design

54 52 5 Combined Management Report of MEDION Group and MEDION AG 5.1 Economic Environment General Economic Trends Market for Consumer Electronics 5.2 The MEDION Group MEDION s Business Model and Takeover Offer by Lenovo Corporate Management Structure of the MEDION Group 5.3 Financial Report Business Performance Sales Trend Financial Performance Operating Result Taxes on Income Financial Position Cash Flow Statement Additional Disclosures for MEDION AG (HGB) 5.4 Human Resources Changes in Employee Numbers Personnel Structure Motivation Main Agreements 5.5 Sustainability Research and Development 83

55 Corporate Governance/Compensation Report Corporate Governance Management Board Compensation Supervisory Board Compensation 5.8 Risk Report Risk Management Risk Management Systems Sales-related Risk Position Operations Legal Financial Personnel Overall Risk Situation 5.9 Subsequent Events Outlook Economic Climate Market Trend in Consumer Electronics Corporate Development and Business Model Prospects 5.11 Further Disclosures pursuant to Section 289 (4) and Section 315 (4) HGB Corporate Declaration in Accordance with Section 289a HGB 106

56 Combined Management Report of MEDION Group and MEDION AG Economic Environment General Economic Trends The year 2010 was primarily characterized in Germany and in the eurozone by a general recovery after the downturn experienced due to the repercussions of the global financial and economic crisis. In 2011, the German economy gained not only stability but even found itself on a growth track. This was clearly evidenced by the positive income and employment trend, which resulted in particular in stimulating private consumption and the domestic economy. Germany s gross domestic product increased by 3.0% in real terms (previous year: 3.7%). In addition to the above-named factors, this growth is primarily due to the high contribution of the service sector and the positive foreign trade balance. The continued low interest rate level favored demand for capital expenditure and thus provided an important stimulus for bolstering economic performance. However, the persistent European sovereign debt crisis made serious cutbacks unavoidable. Compared to the previous year, the economy lost momentum all over Europe in The negative repercussions of the financial crisis were enduringly noticeable in the majority of the EU countries. As a result of the increase in economic risks and the consumer restraint in purchasing durable goods caused by the increased risk, demand fell short of expectations. However, the crisis had a less severe impact on the core European markets such as the Benelux countries, Austria, Switzerland, Great Britain and France than it did on the other eurozone countries such as Spain and Greece. The increased income in the above-named core MEDION markets led to an overall increase in purchasing power Market for Consumer Electronics The German consumer electronics market reported a 5.2% rise in sales to 27.2 billion in 2011 (previous year: 25.8 billion). The market performed better than the overall economy. The key stimulus was the trend toward the digitalization of products, content, and transmission lines, which continued further in Many new and innovative products with improved video and audio quality, increased energy efficiency and many new features and networking capabilities came onto the market and boosted sales. TV and audio As in previous years, devices such as high-resolution flat-screen televisions and all mobile media-enabled devices were again in particularly high demand in A sharp reduction in average prices caused the market for TV displays to decline slightly by 4.4% to 6.0 billion, while the market for home audio grew by 4.1% to 0.9 billion. 1 The figures for the trend in the German consumer electronics market come from the Consumer Electronics Market Index (CEMIX), which is published by the German Association for Consumer and Communications Electronics (gfu) together with the German Association for Consumer Research (GfK).

57 Combined Management Report of MEDION Group and MEDION AG Economic Environment In terms of 2011 television sales in Germany, LCD TVs recorded 5.4 billion (8.8 million units sold) and plasma TVs 520 million (0.6 million units sold). A total of 9.7 million television sets (+3.0%) were sold in Germany in Notebooks Sales growth in the consumer electronics market was also supported by the continued rising demand for notebooks. The information technology business achieved sales of 6.4 billion overall, an increase of 3.7%. Growth in the PC/multimedia business was driven primarily by notebooks and tablet PCs. While volume sales of notebooks improved by 6.9% to 7.1 million units with sales revenue of 3.8 billion, the market for tablet PCs saw a significant spurt of 174.1% to 0.7 billion with unit sales increasing by 229.0% to 1.4 million. Consumer demand for mobility was also the main growth driver in this segment as evidenced by the market success of tablet PCs. Unit sales of desktop PCs declined by 8.7% from 1.6 million units to 1.4 million units; sales revenue dropped by 14.7% to 0.9 billion due to a further drop in average prices. The unit sales of monitors increased by 1.1% to 2.6 million units. Navigation devices As expected, the trend that became apparent in the previous year was sustained. Unit sales of navigation devices thus continued their downward trend, falling by 11.5% to 3.1 million units. As the average unit price fell again, by 4.2% to 158, sales revenue declined by 15.2% to 487 million in this market segment. Smart phones Smart phones recorded especially strong growth. Their sales revenue almost doubled to 5.1 billion and the number of units sold rose by 88.9% from 7.7 million to 14.5 million. In our project business, MEDION has special expertise in the areas of PC/notebook and digital multimedia products.

58 Combined Management Report of MEDION Group and MEDION AG The MEDION Group MEDION s Business Model and Takeover Offer by Lenovo MEDION s business model, which has proven itself nationally and internationally over more than 25 years, is geared toward cooperating with retail partners to provide consumers with high-quality, innovative and trend-setting consumer electronics products with attractive designs based on cutting-edge technology, offering the best quality and an outstanding price-performance ratio and as a result making them accessible to broad consumer segments at an early stage in the market cycle. In addition to its traditional consumer electronics promotional business, MEDION is focusing on developing and marketing a complementary line of services, particularly in the areas of telecommunications/medionmobile, the MEDION Photo Service, software downloads, and online services. MEDION acts not only as a supplier to its customers large, internationally operating retail chains but also as a full-service provider that manages and controls the entire value chain, from the development of the product idea to manufacturing and logistics to aftersales service. High-volume sales campaigns are generally organized and implemented in cooperation with the customer, often simultaneously in several countries and occasionally even on several continents. MEDION s range of products covers the entire assortment of modern consumer electronics. Whether it involves a PC, a notebook, an LCD or LED TV, a DVD recorder, an MP3 player, a navigation system, or a special cell phone plan, MEDION provides its retail partners with the broadest range of modern consumer electronics with the best price-performance ratio from a single source. MEDION s portfolio includes complementary services, particularly in the areas of telecommunications/medionmobile, software downloads, and online services such as the photo service. In addition to offering innovative and design-oriented products and developing new offers for consumers, MEDION s core capabilities also include a very efficient IT structure, advanced logistics expertise and specialized after-sales service. Takeover offer by Lenovo Based on the realization that favorable purchasing prices are increasingly becoming the decisive factor in competition in the globalized world of consumer electronics, the MEDION Management Board had already examined a number of options for an international partnership in the last several years. These discussions led to common understanding for a future business alignment with Lenovo. Lenovo is the world s second largest PC manufacturer and markets its products in 160 countries. Its products include the well-known ThinkPad Notebooks as well as the products bearing the brands Think-Centre, ThinkStation, ThinkServer, IdeaCentre and IdeaPad.

59 Combined Management Report of MEDION Group and MEDION AG The MEDION Group On June 1, 2011, Lenovo Germany Holding GmbH, an indirect wholly-owned subsidiary of the Lenovo Group Ltd., based in Hong Kong, People s Republic of China, announced its decision to issue a voluntary public takeover offer to the shareholders of MEDION AG. The offer price was for each bearer share of MEDION AG. The Management Board and Supervisory Board of MEDION AG issued a joint statement pursuant to Section 27 (1) of the German Securities Acquisition and Takeover Act (WpÜG) on July 4, In this statement, the Management Board and Supervisory Board of MEDION AG expressed their support for the voluntary public takeover offer and recommended that the shareholders of MEDION AG accept the offer. The acceptance period for the takeover offer expired on August 1, The additional acceptance period prescribed by law based on the successful outcome of the takeover offer ended on August 18, After the voluntary public takeover offer and the execution of share purchase agreements, Lenovo Germany Holding GmbH directly holds 29,688,210 shares of MEDION AG or 61.32% of the share capital of MEDION AG. After the completion of the takeover offer and in addition to the voting rights to which Lenovo is entitled pursuant to Sections 21 and 22 of the German Securities Trading Act (WpHG), Lenovo thus holds approximately 79.64% of the share capital of MEDION AG. Lenovo Germany Holding GmbH informed MEDION AG on July 29, 2011 that it intended to conclude a control and profit and loss transfer agreement between Lenovo Germany Holding GmbH as the controlling company and MEDION AG as the controlled company. This agreement was signed on October 25, Through this agreement, MEDION AG subordinates the management of its company to Lenovo Germany Holding GmbH and agrees to transfer its entire profit to Lenovo Germany Holding GmbH as of April 1, In an Extraordinary Shareholders Meeting held on December 14, 2011, the shareholders of MEDION AG approved the conclusion of this control and profit and loss transfer agreement with the necessary majority. Furthermore, in this Extraordinary Shareholders Meeting it was decided to establish a short fiscal year for the period from January 1, 2012 to March 31, Subsequent to that date, the fiscal year of MEDION AG was to be changed to the period from April 1 of one year to March 31 of the following year. Furthermore the control and profit and loss transfer agreement specifies that Lenovo Germany Holding GmbH is obligated, at the request of a minority shareholder of MEDION AG, to purchase his or her shares in exchange for a cash compensation of per share within the meaning of Section 305 (2) No. 3 of the German Stock Corporation Act (AktG) with an arithmetical share in the share capital of Lenovo Germany Holding GmbH guarantees that an annual equalization payment will be paid to the shareholders who do not accept this cash compensation offer for the duration of the control and profit

60 Combined Management Report of MEDION Group and MEDION AG The MEDION Group and loss transfer agreement. The amount of the equalization payment is derived from a gross profit share of 0.82 per MEDION share for each full fiscal year less an amount for German corporation tax and solidarity surcharge according to the tax rate valid for these taxes for the relevant fiscal year. The annual equalization payment to be received by each minority shareholder less the corporation tax liability applicable as of the date the agreement is signed and the relevant solidarity surcharge will amount to 0.69 per share. The control and profit and loss transfer agreement and the amendments to the Articles of Incorporation were recorded in the Commercial Register on January 3, Corporate Management In the MEDION Group, strategic and operational goals are established by the Management Board at the beginning of the fiscal year. At the operations level, key account managers are responsible for the most important customers, and product managers are responsible for the main product groups, such as notebooks, PCs, LCD TVs, mobile navigation devices, and our service offerings (MEDIONmobile, MEDION Photo Service, Webshop). Purchasing, design, quality control, logistics, and marketing are cross-departmental functions that are implemented throughout the company. Administrative functions, in particular business decision-making and control functions as well as the IT organization, are largely centralized in the MEDION Group for the purpose of increased transparency, improved decision making and, as a result, increased flexibility and efficiency. The level of operating and strategic target achievement is documented in a management information system and a Balanced Scorecard and discussed on an ongoing basis on a national and international level. All businesses in the MEDION Group are subjected to a preliminary audit and a follow-up audit designed to maximize profit. The value driver for the profit orientation within the MEDION Group is the requirement that each completed project achieves an EBIT margin that equals or exceeds the goal for the Group EBIT in the current fiscal year.

61 Combined Management Report of MEDION Group and MEDION AG The MEDION Group Structure of the MEDION Group MEDION s foreign subsidiaries are predominantly companies that provide sales and aftersales services for MEDION AG in their respective countries. The actual project management and logistics are generally centrally controlled by the MEDION organization in Germany. Within the German organization, call center activities are consolidated in Allgemeine Multimedia Service GmbH, while repair and logistics services for after-sales and e-commerce business are consolidated in MEDION Service GmbH. subsidiaries of medion ag Allgemeine Multimedia Service GmbH, Essen, Germany MEDION Service GmbH, Essen, Germany MEDION FRANCE S.A.R.L., Le Mans, France MEDION ELECTRONICS LIMITED, Swindon, United Kingdom MEDION NORDIC A/S, Glostrup, Denmark MEDION AUSTRIA GmbH, Wels, Austria MEDION B.V., Panningen, Netherlands MEDION IBERIA, S.L., Madrid, Spain MEDION SCHWEIZ ELECTRONICS AG, Wettingen, Switzerland MEDION USA Inc., Delaware, USA MEDION AUSTRALIA PTY LTD., Sydney, Australia MEDION Elektronika d.o.o., Ljubljana, Slovenia MEDION International (Far East) Ltd., Hong Kong, People s Republic of China* LIFETEC International Ltd., Hong Kong, People s Republic of China* MEDION Asia Pacific Ltd., Hong Kong, People s Republic of China* *no operating business By concluding a control and profit and loss transfer agreement, MEDION AG subordinates the management of its company to Lenovo Germany Holding GmbH and agrees to transfer its entire profit to Lenovo Germany Holding GmbH as of April 1, 2012.

62 Combined Management Report of MEDION Group and MEDION AG Financial Report Business Performance Overview of Financial Performance million % million % million /- Sales 1, , Cost of materials -1, , Gross earnings Personnel expenses Other expenses and income Depreciation/amortization EBIT Financial result EBT Taxes Net income Fiscal year 2011 was in line with expectations for MEDION. The decline in sales of 207 million was at the upper end of expectations of approximately 10%. The structural drop in prices in the market for consumer electronics products, in particular notebooks, desktop PCs, mobile navigation devices and LCD TVs, and the persistent buying restraint resulted in further pressure on gross earnings in the fourth quarter 2011 which ordinarily has the best quarterly sales. While gross earnings slightly surpassed the 2010 figure in the first nine months of fiscal 2011 despite the decline in sales, the gross earnings of 180 million at year-end turned out to be slightly lower than the 2010 figure of 183 million. Against the backdrop of the decline in sales, this means that gross earnings changed only slightly but the gross margin increased from 11.2% to 12.6%. Overall MEDION generated EBIT of 25.8 million in fiscal Although EBIT thus fell short of the 2010 figure of 28.1 million by 2.3 million, at 1.8% of sales, this represents a better EBIT margin than in 2010 (1.7%). This result includes one-time expenses of 3.8 million for expenses in connection with the acquisition of shares by Lenovo and the subsequent integration. Before these one-time expenses, EBIT of 29.6 million was slightly higher than in 2010.

63 Combined Management Report of MEDION Group and MEDION AG Financial Report After an increase in the positive financial result of 1.3 million to 2.2 million, EBT of 28.0 million is roughly at the level of 2010 ( 29.0 million). At 14.1 million, net income was reduced by 4.8 million compared to 18.9 million in The increased tax expense is due to a revaluation of the capitalized deferred tax assets on tax loss carryforwards based on the profit and loss transfer agreement which took effect on April 1, The Management and Supervisory Boards will propose a dividend of 0.21 for each dividend-entitled share to the Annual Shareholders Meeting on August 31, Sales Trend As already in the financial crisis of 2009, the consumer restraint resulting from the euro crisis had a greater impact on the export markets than on the German market. While sales in Germany declined by 11%, a decline in sales totaling approximately 17% was seen in the export markets. Nonetheless, the export markets experienced a recovery in the fourth quarter. sales by region million % million % million /- Germany 1, , Europe Other foreign Sales 1, , Germany continues to be the most important market for MEDION AG, where the decline in sales was less severe due to many years of cooperation with retail partners. The success in regaining retail and end customers in 2010 could not be repeated in the export markets in 2011, particularly in the early months. A recovery did not become apparent until the second half. However, they were not enough to stabilize the export markets that were more severely affected by the general consumer restraint.

64 Combined Management Report of MEDION Group and MEDION AG Financial Report Segments sales by segment million % million % million /- Project business , Direct business Group reconciliation Sales 1, , The share of sales of our project business continued to decline in 2011 in line with company forecasts and was around 63% of total revenue in the past fiscal year (previous year: approximately 71%). Of course, the decline in sales of the project business segment is also a result of the euro crisis and the more cautious ordering behavior of retail partners associated with it. In contrast, the direct business segment increased its share of sales from approximately 29% in 2010 to approximately 37% in 2011, corresponding to an increase in sales of 57 million (+12%) to 535 million. This result is attributed to a further increase in the attractiveness of the digital services as well as the expansion of the international e-commerce business where sales were doubled in 2011 after the expansion of business in By following its business unit strategy, MEDION will continue to expand its direct business segment both in the digital business and in online sales. The direct business segment will strive to achieve growing sales.

65 Combined Management Report of MEDION Group and MEDION AG Financial Report Financial Performance Gross earnings Thanks to its effective product and client portfolio management and the successful implementation of its business unit strategy, MEDION increased its gross margin during the course of the fiscal year despite the generally critical economic environment. The gross margin of 12.6% in the period from January 1, 2011 to September 30, 2011 was also achieved in the fourth quarter and accordingly in the entire year. Personnel expenses Personnel expenses were 49.1 million in 2011, slightly above the previous year s level of 48.5 million by +1.2%. The MEDION Group had an average number of 1,013 employees (full-time equivalents) in 2011 (previous year: 1,007). personnel expenses Total personnel expense in thousand 49,106 48,468 Average number of employees 1,013 1,007 Personnel expense per employee in 48,476 48,131 While employee numbers in the Service and Administration areas continued to decline, headcount in our Sales Division increased further. The average personnel expense per employee rose slightly by 0.7% to 48,476.

66 Combined Management Report of MEDION Group and MEDION AG Financial Report The following table provides an overview of the development in average number of employees, subdivided by employee groups and by Germany vs. foreign employees. development of average number of employees (full-time equivalents) Germany Number 2011 Number 2010 Number +/- % +/- Sales Service Administration Foreign Sales Service Administration Total Sales Service Administration ,013 1, Depreciation and amortization Depreciation and amortization declined slightly by approximately 16% to 3.7 million in the period under review (previous year: 4.4 million). Depreciation on property, plant and equipment decreased by 0.5 million to 2.1 million (previous year: 2.6 million) as the result of divestments of operating and office equipment, and amortization of software and licenses declined by 0.2 million to 1.6 million (previous year: 1.8 million).

67 Combined Management Report of MEDION Group and MEDION AG Financial Report Other operating expenses/income million million million +/- Other operating expenses Selling expenses for marketing for customer service for miscellaneous Administrative expenses Operating expenses Other Other operating income Other operating expenses, net At million, other operating expenses and income remained overall at the level of the previous year ( million). However, within the other operating expenses there were more significant changes consistent with the change in business volume. The expenses for marketing increased by 3.3 million to 42.6 million. To cushion the expected decline in sales, significant advertising campaigns were carried out in connection with the market launch of the MEDION LIFETAB and the expansion of the international online business. The expenses for customer service decreased in line with the decline in sales by 7.7 million to 19.7 million (previous year: 27.4 million). In addition, the decline in sales also resulted in a lower allocation to warranty provisions for new products than in the year before. The increase in administrative expenses of 4.8 million to 19.0 million primarily resulted from external services associated with the acquisition of shares by Lenovo and IT expenses related to the further expansion and internationalization of the direct business. Other operating income primarily relates to compensation for damages, income from the liquidation of provisions, earnings from commissions, and income from other periods.

68 Combined Management Report of MEDION Group and MEDION AG Financial Report Operating Result (EBIT) ebit by segment million % million % million /- Project business Direct business Group reconciliation EBIT As in the previous year, the analysis of the operating result by segments underscores the successful outcomes of the strategic realignment of our business unit and product policy. Our traditional project business saw a decreased operating result similar to the sales trend. However, at 1.3% of sales, it did not change from the previous year s level of 1.4%. The decline in sales in the project business and the further expansion of the direct business caused the profit attributable to the project business to be reduced to 46.5% compared to 57.3% in As expected, our direct business increased both its absolute operating result and its share in net income. The economies of scale achieved by expanding direct business led to an improvement of the operating result to 3.0% of sales from 2.6% in the previous year. The operating result thus rose by 3.4 million to 15.9 million. The non-allocable result (Group reconciliation) primarily includes expenses for the acquisition of shares by Lenovo.

69 Combined Management Report of MEDION Group and MEDION AG Financial Report Taxes on Income million million Actual tax payments Deferred income taxes Use of deferred tax assets Remeasurement of capitalized deferred tax assets on tax loss carryforwards Other deferred taxes Income tax expense, total Notwithstanding the actual tax payments in the Group of 4.0 million, MEDION AG incurred an income tax expense of 3.3 million in 2011 (previous year: 3.3 million) due to minimum taxation regulations in Germany, despite the Company s still existing tax loss carryforwards. Based upon MEDION AG s 2011 net income, 5.1 million of the deferred tax assets on tax loss carryforwards capitalized as of December 31, 2010, were used in the year under review (use in 2010: 4.7 million). The remeasurement of capitalized deferred tax assets on loss carryforwards resulted in an additional tax expense. This was done against the backdrop of the profit and loss transfer agreement between MEDION AG and Lenovo Germany Holding GmbH, which took effect on April 1, 2012, as a result of which the tax loss carryforwards of MEDION AG are no longer usable for the life of the profit and loss transfer agreement.

70 Combined Management Report of MEDION Group and MEDION AG Financial Report Financial Position balance sheet structure million % million % million % Dec. 31, 2011 Dec. 31, /- Cash and cash equivalents Inventories Trade receivables Receivables due from affiliated companies Other current assets thereof: term deposits > Total current assets Property, plant and equipment Intangible assets Deferred taxes Other non-current assets Total non-current assets Total assets , Trade payables Liabilities due to affiliated companies Tax provisions Other provisions Other current liabilities Total current liabilities Non-current liabilities Shareholders equity less purchased treasury shares Shareholders equity as reported in the balance sheet (IFRS) Total shareholders equity and liabilities

71 Combined Management Report of MEDION Group and MEDION AG Financial Report Compared with the previous year, the Group s total assets increased by 43.6 million (6.3%) to million (previous year: million). Equity increased by 3.2 million (+0.8%) to million, reflecting an equity-to-assets ratio of 51.7%. The capital commitment was lower due to the increase in inventories by 9.3 million and the decrease in service transactions by 18.4 million. This was contrasted by an accounting increase in service transactions of 55.0 million, resulting in a total decrease in working capital in the year under review of 64.1 million to million (previous year: million). The increase in other current assets by 32.9 million resulted primarily from higher cash investments totaling 67.9 million (previous year: 30.0 million). Taking the cash investments into account, cash and cash equivalents increased by 69.8 million to million (previous year: million). Receivables due from liabilities to affiliated companies result from the service transactions between MEDION and Lenovo.

72 Combined Management Report of MEDION Group and MEDION AG Financial Report Cash Flow Statement cash flow million million million % /- Earnings before interest and taxes (EBIT) Depreciation, amortization and other non-cash expenses and income Gross cash flow Changes in net current assets >100.0 Changes in other provisions Payments for taxes Cash flow from operating activities >100.0 Cash used for investing activities Free cash flow >100.0 Proceeds from disposal of treasury shares Dividends paid Payments of financial liabilities (net) >100.0 Cash used for financing activities Change in cash and cash equivalents >100.0 Foreign exchange differences Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period

73 Combined Management Report of MEDION Group and MEDION AG Financial Report Commensurate with the change in the operating result, gross cash flow decreased slightly to 29.9 million. As a result of the lower working capital commitment and a lower use of provisions for outstanding invoices compared to the year before, cash flow from operating activities increased accordingly to 41.2 million. Cash outflow from investing activities was -1.6 million, 2.8 million lower than in the previous year ( -4.4 million); at -7.7 million, cash outflow from financing activities was at the previous year s level ( -7.9 million). Overall, the reporting period saw a net increase by 31.9 million in cash and cash equivalents to end the year at million. Liquidity on the balance sheet date As in 2010, cash and cash equivalents of million as of December 31, 2011 (previous year: million) were accompanied by only minor net liabilities of 2.0 million from asset-backed security financing (previous year: 1.9 million). As a result, liquidity on the balance sheet date was roughly the same as cash and cash equivalents. Net cash is calculated as follows: million million Dec. 31, 2011 Dec. 31, 2010 Cash and cash equivalents less: Net liabilities from ABS transactions The MEDION Group had a clearly positive net cash position throughout the entire year. There was no need to take out bank loans during the year under review, instead our cash position allowed for medium-term cash investments. On the whole, MEDION continues to enjoy very good financing conditions with its high equity of million, an equity-to-assets ratio of 51.7% (equity as reported on the balance sheet), liquidity including medium-term cash investments ( 67.9 million) of million, and a flexible and low-cost financing instrument in the form of contractually agreed asset-backed security financing options, as well as the existing syndicated loan.

74 Combined Management Report of MEDION Group and MEDION AG Financial Report Additional Disclosures for MEDION AG in Accordance with the German Commercial Code (HGB) The management report of MEDION AG and the Group management report for fiscal year 2011 have been combined pursuant to Sections 315 (3) and 298 (3) of the German Commercial Code (HGB). The financial statements of MEDION AG prepared in accordance with HGB and the combined management report are published at the same time in the electronic version of the German Federal Gazette. Financial performance of MEDION AG in accordance with HGB million % million % million /- Sales 1, , Cost of materials -1, , Gross earnings Personnel expenses Other expenses and income Depreciation/amortization EBIT Financial result EBT Taxes Net income MEDION AG In fiscal 2011, MEDION AG recognized sales of 1,423.8 million (previous year: 1,632.0 million, reflecting a decrease of million (-12.8%).

75 Combined Management Report of MEDION Group and MEDION AG Financial Report However, despite the anticipated increase in price pressure in 2011, MEDION AG increased its gross margin from 11.0% to 12.4%. Despite the decline in sales, gross earnings of million were only slightly lower than the previous year s figure of million. Personnel expenses of MEDION AG in accordance with HGB Total personnel expense in thousand 28,222 27,641 Average number of employees Personnel expense per employee in 60,303 59,315 Number of employees as of the balance sheet date Personnel expenses at MEDION AG were 28.2 million in 2011, exceeding the previous year s level of 27.7 million by +2.1%. There was for the most part no change in the average number of employees of MEDION AG. A reduction in the number of employees in Service and Administration was offset by an increase in Sales.

76 Combined Management Report of MEDION Group and MEDION AG Financial Report Other operating expenses/income of MEDION AG in accordance with HGB million million million +/- Other operating expenses Selling expenses for marketing for customer service for miscellaneous Administrative expenses Operating expenses Other Other operating income Other operating expenses, net

77 Combined Management Report of MEDION Group and MEDION AG Financial Report Other operating expenses and income at MEDION AG decreased slightly from million to million. While the decreased expenses for customer service as a portion of selling expenses reflects the development of business volume, marketing expenses were increased for the purpose of expanding our online activities and launching new products. The increase in administrative expenses by 4.7 million to 17.7 million (previous year: 13.0 million) is primarily the result of expenses in connection with the acquisition of MEDION shares by Lenovo. Divestments caused depreciation and amortization to decrease by 0.6 million to 3.6 million in the period under review (previous year: 4.2 million). Operating and office equipment accounted for depreciation of 1.4 million. Despite a 12.8% decline in sales, MEDION achieved EBIT of 23.7 million in 2011, which is only slightly (-2.9%) lower than the 2010 figure of 24.4 million. The financial result includes 3.4 million in investment income from dividends of the subsidiaries. MEDION AG received no dividends in Furthermore, the financial result in 2010 included interest expenses from expected interest on back tax payments of 0.7 million. Due to minimum taxation regulations in Germany, MEDION AG incurred an effective income tax expense of 3.3 million in 2011, the same amount as in 2010 despite the existing tax loss carryforwards of MEDION AG. The reduction in the tax rate overall is due on the one hand to the receipt of tax-exempt dividends in 2011; on the other hand, the tax expenses in 2010 included 1.1 million in tax liabilities for prior years as a result of a tax audit for the years 2003 to Net income of MEDION AG for the year 2011 thus increased by 4.4 million to 25.7 million (previous year: 21.3 million). The Management and Supervisory Boards will propose a dividend of 0.21 for each dividend-entitled share.

78 Combined Management Report of MEDION Group and MEDION AG Financial Report Balance sheet structure of MEDION AG in accordance with HGB million % million % million % Dec. 31, 2011 Dec. 31, /- Fixed assets Total fixed assets Inventories Trade accounts receivable Cash and cash equivalents Other assets thereof: term deposits Total current assets Total assets Shareholders equity Non-current liabilities Tax provisions Other provisions Trade payables Other current liabilities Total current liabilities Total shareholders equity and liabilities Compared with the previous year, the total assets of MEDION AG increased by 54.9 million (+8.1%) to million (previous year: million). The lower amount of funds tied up in inventories and trade receivables totaling 17.2 million was offset by increased trade payables of 52.1 million. This is reflected in correspondingly higher cash and cash equivalents. Apart from the increase in cash and cash equivalents by 47.8 million to million, medium-term cash investments increased by 37.9 million to 67.9 million. The equity-to-assets ratio decreased from 53.7% in the previous year to 51.9%.

79 Combined Management Report of MEDION Group and MEDION AG Financial Report Abridged cash flow statement of MEDION AG in accordance with HGB million million million % /- Net income Depreciation, amortization and other non-cash expenses and income Gross cash flow Changes in net current assets >100.0 Changes in other provisions >100.0 Cash flow from operating activities >100.0 Cash used for investing activities Free cash flow >100.0 Cash used for financing activities Change in cash and cash equivalents > Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period Consistent with the lower amount of funds tied up in working capital and the higher net income for the year, cash flow from operating activities increased to 71.7 million. While cash outflow from investing activities decreased slightly, cash outflow from financing activities increased due to a higher dividend distributed in 2011 for 2010, ( 0.23 per share; dividend distributed in 2010 for 2009: 0.20 per share). Overall, MEDION AG saw a net increase of 60.6 million in cash and cash equivalents to end the year at million.

80 Combined Management Report of MEDION Group and MEDION AG Human Resources Changes in Employee Numbers The average number of employees in the MEDION Group increased by 0.6% from 1,007 (full-time equivalents) in 2010 to 1,013 in Of these employees, 888 worked for MEDION AG and its domestic subsidiaries (previous year: 875) and 125 worked for foreign subsidiaries (previous year: 132). The modest increase in the number of employees in the year under review was accompanied by a slight rise in personnel expenses. This change is related to a higher degree of specialization and professionalism of some functions within the MEDION Group in Personnel expenses increased in the year under review by 0.6 million to 49.1 million, a 1.2% rise over 2010 ( 48.5 million). The following overview shows changes in employee numbers as of December 31, 2011, compared with the same date in development of number of employees (full-time equivalents as of dec. 31) Germany Number 2011 Number 2010 Number +/- % +/- Sales Service Administration Foreign Sales Service Administration Total Sales Service Administration ,015 1,

81 Combined Management Report of MEDION Group and MEDION AG Human Resources Personnel Structure The Company s swift growth in the years leading up to 2004 and the associated rapid build-up in personnel are reflected in the relatively young average age of our employees and the relatively short duration of employment. During the year under review, the workforce at MEDION AG and its domestic subsidiaries consisted of 40.4% women (previous year: 38.9%) and 59.6% men (previous year: 61.1%). The average age in 2011 changed only slightly compared with the previous year, rising to 37.4 years (previous year: 37.0). The following chart provides a demographic overview of the Company by gender and age. age structure in % male female less than 20 years years years years years more than 60 years The average duration of employment at MEDION AG and its domestic subsidiaries in 2011 was approximately 6.8 years (previous year: 6.1 years). duration of employment in % male female less than 2 years 2-5 years 6-10 years more than 10 years The percentage of staff sick days at MEDION AG was 3.0% (previous year: 2.7%) and thus below the national average of 3.7% (previous year: 3.7%).

82 Combined Management Report of MEDION Group and MEDION AG Human Resources Motivation The high level of motivation and dedication of our employees plays a significant role in the success of our Company. Our lean organizational structure and rapid decision-making processes allow us to actively include our employees in key decisions. It is very important to us to maintain a close relationship with our employees. A tight-knit Group makes it easier to adapt our increasingly complex and extensive operations to changing market conditions and the mounting requirements these changes bring with them. When filling vacant positions, we take great pains not only to consider our employees skills and potential, but also their personal career goals. This includes becoming personally involved in the career paths of our employees. We foster them and ensure that they are properly trained for their positions. As a result, we are able to fill many positions from within the Company, reduce training and induction periods and offer interesting career development opportunities. MEDION invests in a positive working environment. State-of-the-art workstations, stimulating responsibilities, and a wide variety of sporting activities at our on-site sports complex at the Company facility in Essen-Kray, Germany, contribute to the productive environment. New recruits receive personalized orientation plans to help them integrate quickly into our organizational structure and familiarize themselves with our processes. We also provide opportunities for interns to gain on-the-job insights into the wide variety of work we do at each link in the supply chain. We value diversity within our workforce, irrespective of nationality, religion, race, gender or ethnicity.

83 Combined Management Report of MEDION Group and MEDION AG Human Resources Main Agreements MEDION places a high priority on maintaining an open and friendly corporate culture and fostering an atmosphere of trust and collaboration with employee representatives and individual employees. In the past fiscal year, relations between Company management and the Works Council continued to be characterized by a spirit of constructive dialogue. Both the Management Board and the employee representatives are convinced that socially responsible behavior will have a sustained positive effect on the working atmosphere at MEDION, improve workflows, increase productivity and quality, and result in a variety of positive effects for the Company and its employees. For this reason, the MEDION Group has entered into a number of other important works agreements aimed at ensuring long-term employee loyalty as well as increasing flexibility within the Company to meet market requirements. In the year under review, Company management and the employee representatives agreed on a new form of employment anniversary bonus which will be paid every five years from the time an employee has worked for five years. In the relevant anniversary year the employee will be entitled to one day of special vacation. Across-the-board compensation systems were introduced for senior management. The systems consist of a fixed portion and a variable portion based on individually agreed performance targets. Individual performance targets are established based on both Company objectives and personal objectives. External training courses were also offered to employees, as were IT-related courses on SAP R/3 taught at an SAP In-house Competence Center, and Microsoft Office courses taught inhouse by the newly established MEDION Training Academy. Furthermore, a modular qualification program was offered to sales staff and other employees with related responsibilities for the support of project management knowledge as part of our WeGebAU (Training of low-skilled workers and older employees in companies in Germany) project. This program met with great success. MEDION actively supports corporate training programs for young people. In 2011, the MEDION Group employed a total of 59 (previous year: 49) trainees, reflecting a training ratio of 6.2% (previous year: 5.2%). The trainees are divided into the following training programs: 25 in commercial, 7 in technical, 23 in dialogue marketing, and 4 in digital media design. MEDION only trains new recruits to fulfill its own workforce needs. As a result, we can generally offer all trainees a position with the Company.

84 Combined Management Report of MEDION Group and MEDION AG Sustainability 5.5 Sustainability At MEDION, we are always looking for new ideas not only to keep the MEDION brand at the cutting edge of the industry as a technology leader and innovator, but also to find the best ways to use the resources at our disposal. Corporate responsibility and sustainability continue to play a key role at MEDION. These activities are bundled in our Corporate Social Responsibility unit. Our aim is to systematically and continuously improve all intracompany processes as well as those associated with our external partners. This includes strict adherence to legal requirements as well as national and international standards. Our efforts apply to all functions and processes along the Company s entire value chain from commodities to production, logistics, use and finally disposal of our products. Standard process audits performed by independent accredited auditing firms were carried out within our sphere of influence in fiscal year The subject of the 2011 audit was how to consume as little paper as necessary to preserve the forests. We assessed the need for individual workstation printers and as a result replaced unnecessary units with network printers shared by a number of staff members. Furthermore, the employees were more intensively trained in using IT equipment for maximum protection of the environment. We carried out two environmentally beneficial projects in fiscal year The introduction of an e-learning platform ensured that MEDION employees can complete online trainings without having to use hard copy documents. Moreover, various business processes were covered using E-POSTBRIEF, which reduces overall paper consumption. MEDION s applicant management system is online-based and thus saves resources. Interested candidates may apply online at MEDION s job portal a simple and paperless process. We also developed a concept for environmentally friendly, modular packaging, which calls for replacing custom-printed cardboard packaging with simple shipping boxes with labels. We made another important contribution to a sustainable environmental approach at our Company facility, by separating out paper for recycling. Occupational health and safety play a major role at MEDION. A healthy and productive workforce is very important to us. In fiscal 2011, many employees took advantage of our health examination offers. The room layout analysis completed last year showed that the workstations fully satisfy the legal requirements and are used optimally. These measures underline our efforts to identify potential for improvement, prevent accidents and minimize work-related health risks. MEDION is committed to a host of social issues in good times and in bad times. This includes, for instance, helping people in need as well as promoting culture and sports.

85 Combined Management Report of MEDION Group and MEDION AG Sustainability 5.6 Research and Development As part of a company-wide fundraising effort, MEDION joined its employees in providing financial support to the pediatric cancer ward of the Essen University Clinical Center. The income from a raffle represented a way for people to commit to this worthy project in a social way. Support was given to the project via Internet, which helps the young patients stay in contact with the outside world. In 2011, MEDION employees participated in the Essen corporate running event, and MEDION s own dragon boat team, the MEDION Dragons, was the winner in several regional regattas. All of these activities and projects are the manifestation of our commitment as citizens of the globe to paving the way for future generations through sustainable development. 5.6 Research and Development MEDION works very closely with leading manufacturers of components and products in the fields of multimedia and entertainment electronics as well as telecommunications. This has given us continuous access over many years to the latest findings from research and development projects. Our business model, however, focuses on providing rapid access to innovative technologies for a wide range of consumers. For this reason, we do not maintain our own R&D facilities for work on basic technologies. Nevertheless, MEDION is working with other partners on a number of projects to promote the integration of PC/multimedia technology into traditional entertainment electronics equipment as part of the digitalization trend. In these efforts, MEDION is valued by leading technology firms for its ability to act as a rapid technology integrator of new applications for the mass market. In 2011, the integration of digital multimedia applications and high-resolution graphics applications in notebooks and desktop PCs was developed by MEDION engineers in collaboration with international group partners and implemented in our series product offerings. Furthermore, the first MEDION tablet PC with new software applications, access to the global apps market and new, innovative integrated multimedia functions was launched on the market in December The MEDION LIFETAB won numerous awards and very good marks in tests for its user-friendliness and rapid usability of the new technologies used for tablet PCs. Last but not least, the many additional good test results and numerous awards in Germany and abroad, including Best Product of 2011, prove that MEDION products are leaders in both technology and user-friendliness.

86 Combined Management Report of MEDION Group and MEDION AG Corporate Governance / Compensation Report Corporate Governance MEDION is committed to observing the principles of transparent, responsible corporate governance aimed at maximizing value. The Management Board, Supervisory Board, and executive staff of MEDION AG identify with these principles. MEDION considers compliance with corporate governance principles to be an important means of instilling confidence on the part of present and future shareholders, creditors, employees, business partners, and the public in national and international markets. In 2011, the German Government s Commission of the German Corporate Governance Code announced no amendments to the Code. After the deliberations by the Management Board and Supervisory Board in their joint meeting on December 5, 2011, an updated declaration of compliance pursuant to Section 161 of the German Stock Corporation Act (AktG) was adopted and announced on the Company s website on December 6, The exception to the Code that committees may not be formed due to the Supervisory Board s size has not changed from previous years. Previously, the German Government s Commission of the German Corporate Governance Code had adopted recommendations on May 26, 2010, according to which the Supervisory Board was to specify concrete objectives for its configuration. The Supervisory Board considers the objectives of its configuration as a governing body to be in particular aligned with the requirements of MEDION s business model, which recognizes no directly comparable competitive company in this form. The Supervisory Board of MEDION therefore included one representative of another industry who has a high level of expertise in logistics processes, global trade and services. It also includes an internationally recognized financial expert who served as the CFO of an internationally operating company for more than ten years, and a proven expert in the financial markets with more than 30 years of experience in a management capacity in an international bank. The current configuration of the Supervisory Board, which was selected by the Annual Shareholders Meeting on May 12, 2006, is particularly suited to preserve the supervisory and control functions specific to MEDION s corporate situation, because an understanding of the processes of internationally operating retail companies and related expertise in financial transactions are decisive factors in the quickly changing international world of consumer electronics products and MEDION s orientation toward international retail chains. For that reason, the Annual Shareholders Meeting on May 18, 2011 reelected the incumbent Supervisory Board with no change. The Extraordinary Shareholders Meeting held December 14, 2011 elected two Lenovo representatives to the Supervisory Board of MEDION AG. MEDION adheres to all suggestions of the Code with the exception of Code No (2) Sentence 2, according to which the Annual Shareholders Meeting may resolve on the authorization of the compensation system for Management Board members. As a result of the particular owner structure in place at MEDION, a corresponding resolution has not been scheduled thus far. In addition, the performance-oriented compensation of Supervisory Board members (Code No (2) Sentence 2) does not yet contain any components related to long-term corporate success, because the calculation, objectification and quantification of long-term success parameters is difficult on account of MEDION s business model.

87 Combined Management Report of MEDION Group and MEDION AG Corporate Governance / Compensation Report A detailed report by the Management and Supervisory Boards on corporate governance in the MEDION Group can be found in the annual report. Pursuant to Section 312 of the German Stock Corporation Act (AktG) the Management Board of MEDION AG reported to the Supervisory Board on relations with related companies in the past fiscal year, declaring the following: The Company received appropriate compensation for all legal transactions in accordance with the conditions known to the Management Board at the time such transactions were undertaken. No measures subject to reporting requirements were either undertaken or omitted during the fiscal year Management Board Compensation The total compensation package for members of the Management Board consists of a number of components. Specifically it includes a fixed portion, variable compensation, fringe benefits, and pension commitments. The Supervisory Board is responsible for determining the appropriateness of each member s compensation and plays a role in finalizing the total compensation package. Management Board member compensation has performance-related components and non-performance-related components. The non-performance-related components are the fixed portion and fringe benefits as well as pension commitments, while the performance-related components consist of a variable compensation. The fixed basic compensation is paid as a salary on a monthly basis. Fringe benefits include non-cash compensation, which primarily involves insurance and a company car. Individual members of the Management board must pay taxes on these fringe benefits as a remuneration component. In principle, all Management Board members have equal access to these fringe benefits; the amount varies based upon each member s individual situation. No loans or advances on salary were granted to Management Board members in the year under review. The performance-related bonus for Gerd Brachmann and Christian Eigen is based on the degree to which the corporate objective was achieved. The corporate objective is based on EBIT and is agreed with the Supervisory Board in writing at the beginning of the fiscal year. In the event of certain extraordinary expenses and/or income corrections of EBIT are provided. Management Board members were also entitled to a share-based compensation as follows until December 31, 2011: The number of shares of MEDION AG was defined individually for each Management Board member for the term of their agreement. The allocation was dependent upon the degree to which the personal objectives, which were previously agreed upon in writing, have been achieved. The right to an allocation of shares accrued each year one month after the adoption of the annual financial statements for the past

88 Combined Management Report of MEDION Group and MEDION AG Corporate Governance / Compensation Report fiscal year. The number of shares was calculated based upon the closing price on the day of the press conference on financial statements. A two-year blocking period was defined along with other conditions for the allocation, sale, and/or transfer of shares. Under the provisions of the agreement between the Management Board and Supervisory Board applicable to the new Management Board agreements as of January 1, 2012, the share-based compensation previously granted for fiscal year 2012 was to be paid in cash on account of the takeover offer by Lenovo. The new Management Board agreements applicable as of January 1, 2012 again provide for share-based long-term compensation components, which now, however, relate to Lenovo shares. Total compensation for the members of the Supervisory Board amounts to 2,258 thousand in fiscal year 2011 (previous year: 2,408 thousand). The following table shows details of the compensation for the entire period of the year under review in individualized form with consideration of the contractual changes: 2011 in thousand Gerd Brachmann Christian Eigen Total Fixed portion ,045 Fringe benefits Company car Insurance Incentive compensation Bonus* Share-based compensation** Total 1,225 1,033 2,258 Addition to pension provision in thousand Fixed portion ,045 Fringe benefits Company car Insurance Incentive compensation Bonus Share-based compensation ,309 Total 1,285 1,123 2,408 Addition to pension provision * 2011 also included bonuses for the prior year (2010) for Mr. Brachmann in the amount of -11 thousand and for Mr. Eigen in the amount of 54 thousand. ** For share-based compensation, MEDION AG essentially used its holdings of treasury shares acquired in the preceding three share-buyback programs. Cash payment was agreed for the year 2011 as part of the new Management Board compensation scheme effective January 1, 2012.

89 Combined Management Report of MEDION Group and MEDION AG Corporate Governance / Compensation Report The above table also provides details on additions to the pension provision for the Management Board members. The Company is obligated to pay pension benefits based upon the following terms. As a result of non-forfeitable entitlements, each Management Board member is entitled to a lifelong pension upon leaving the Company after turning 60 or due to prolonged disability and consequently termination of the employment relationship with the Company. The monthly pension benefit is 30% of the average fixed monthly salary received during the last three years of the employment agreement prior to the beginning of retirement, and increases for each completed year of service as a Management Board member of the Company, calculated as of September 17, 1998, by 20/27% of this monthly salary up to a maximum established individually for each Management Board member. In the year under review, the total amount of pension provisions recorded for members of the Management Board was increased by 313 thousand. This amount includes service costs ( 128 thousand) and interest costs ( 185 thousand). No other payments have been promised to any Management Board member once their activities with the Company end. Moreover, no member of the Management Board has received payments or corresponding commitments from a third party during the past fiscal year with regard to his activities as a member of the Management Board Supervisory Board Compensation Compensation packages for the Supervisory Board are specified in Section 11 of the Company s Articles of Incorporation and based on the tasks and responsibilities of the Supervisory Board members as well as the Company s commercial success. The compensation paid to members of the Supervisory Board consists of a fixed component of 30 thousand per member and a variable component of 0.07% of that amount defined as the Company s distributable profit, reduced by a sum equal to 4% of contributions to share capital. The variable component is restricted to an amount resulting from the Company s distributable profit up to a maximum of 50.0 million. The Chairman s compensation is twice that of an ordinary member and the Deputy Chairman s compensation is one and one-half times the amount. The compensation is payable after the adoption of the annual financial statements. Supervisory Board members who have not belonged to the Supervisory Board for a full fiscal year will receive compensation proportional to the term of their service on the Supervisory Board.

90 Combined Management Report of MEDION Group and MEDION AG Corporate Governance / Compensation Report Total compensation for the members of the Supervisory Board amounts to 205 thousand in fiscal year 2011 (previous year: 196 thousand). The following table shows the 2011 compensation for each individual member in Dr. Stützle Chairman Dr. Vater Deputy Chairman Mr. Julius Member Total Variable compensation 16, , , , Fixed compensation 30, , , , Subtotal 46, , , , Factor x2 x1.5 x1 Total 93, , , , in Variable compensation 13, , , , Fixed compensation 30, , , , Subtotal 43, , , , Factor x2 x1.5 x1 Total 87, , , , Supervisory Board members received no other compensation and/or benefits for services rendered personally, in particular for consulting and brokerage services, in the year under review. No loans or advances on salary were granted to Supervisory Board members in the period under review. A new compensation structure adopted by the Extraordinary Shareholders Meeting of December 14, 2011 will apply as of fiscal year On account of the profit and loss transfer agreement, it will no longer include performance-oriented components.

91 Combined Management Report of MEDION Group and MEDION AG Risk Report Risk Management Risk management is a key component of MEDION s corporate strategy. It is designed to monitor significant areas of risk on an ongoing basis, to identify business risks early on, and thereby create the conditions for taking risk minimization measures as early as possible. As part of the risk management process, the responsible individuals in the various business divisions are required to monitor specific risk areas in their own areas of responsibility, to assess risks, and to avoid taking inappropriate risks. They are required to report on the risk position to the Controlling department at regular intervals, utilizing the internal Company control systems. If necessary, they may report directly to Company management on an ad hoc basis Risk Management Systems The core element of MEDION s risk management system is an integrated management information system which serves as a dynamic information and control instrument. A comprehensive early warning system is an integral component of it for every division of the Company. The integration of diverse management reports makes it possible to monitor key performance indicators used for the daily short-term control, directly under the aspect of plan achievement with regard to Group-wide operating and financial goals. In connection with this, a Balanced Scorecard serves as an instrument of the risk management system to measure the implementation of defined measures for the control of riskrelevant positions. The internal control system and internal audit are additional key pillars in the integrated MEDION risk management system. The accounting-related internal control system is used to safeguard the Company s assets, the reliability and precision of its accounting system, its operational efficiency, and compliance with business policies. Key principles are the segregation of duties and the dual control principle. Specific rules are documented in organizational instructions. Internal Audit at MEDION conducts process-independent audits in all corporate divisions based on specifically agreed projects as commissioned by the Management Board. The audit plan is discussed and agreed by the Management and Supervisory Boards. The risk assessments available at the time the plan is created are taken into account when approving the audit plan. Plan adjustments are made within each year as necessary in order to keep it up to date. Selected topics that require higher levels of task-specific technical competence are contracted to external service providers. The audit plan report is submitted directly to the Management Board, which is responsible to the Supervisory Board.

92 Combined Management Report of MEDION Group and MEDION AG Risk Report Sales-related Risk Position The MEDION business model is directed at selling consumer electronics products and complementary services with an attractive price-performance ratio in large quantities to the consumer market. The largest share of sales is with customers in the discount retailer segment. Another area of focus, with a significantly lower share of sales, is distribution through consumer electronics specialty stores. We also offer direct sales via the MEDIONshop website. In the consumer electronics sector, first and especially fourth quarter sales are typically strong, while second and third quarters produce lower sales volumes. Like any company operating in the consumer goods sector, MEDION s success hinges greatly on the purchasing power and buying behavior of consumers. While purchasing power is influenced by general economic parameters such as economic growth, inflation, interest rates, and unemployment, buying behavior is shaped by soft factors such as overall economic sentiment and consumer confidence. Because of its emphasis on sales via large retail chains, MEDION is heavily dependent upon the buying behavior of consumers and the sales expectations of its key customers in this market segment. To the extent that recessionary tendencies impact the overall economy with declines in orders, consumer sentiment may also worsen, which in an extreme case could lead to short-term changes in customer buying behavior. This could well have significant effects on MEDION s sales and earnings. MEDION customers are among the leading retailers in the international retail market. Given the project nature of the business, high sales volumes are achieved with individual customers in short periods of time. As part of this business model, which has been successful for years, MEDION s distribution focuses on those few partners in the retail market that are able to place large product volumes in short time periods. As a result, MEDION maintains customer relationships with key accounts having a material significance for its business. In the case of termination of any such business relationship, significant changes to sales revenue and additional negative impacts on the further development of MEDION might result. Likewise, of course, winning new customers or projects can result in significant positive changes in sales revenue. MEDION is an attractive partner for its customers both nationally and internationally due to its leading competitive position and the good relationship between product quality, design, and price, and enjoys stable relations with its customers. At the present time no key customers are expected to suspend their business relationships with MEDION. MEDION strictly applies the build-to-order principle to mitigate the inherent inventory risks of technological obsolescence and associated write-down risks typical in the realm of high-quality consumer electronics products because of dynamic technological developments. Inventories therefore chiefly involve goods already scheduled for project business or service goods for repair and exchange as part of the after-sales service. Goods provided for direct sales are based on rolling requirements planning, adapted to purchases calculated

93 Combined Management Report of MEDION Group and MEDION AG Risk Report on a daily basis, with short product cycles. This allows for a short time interval between procurement and sale and greater flexibility in the product mix geared to current sales opportunities; inventory risks are thus kept to a minimum. Inventory planning and valuation is monitored and controlled by process-independent inventory control. MEDION s retailer customers run a general sell-off risk on goods ordered. MEDION keeps this risk faced by our retail partners within strict limits by means of targeted market research, test campaigns for new product launches, and careful volume planning. The money-back guarantees common among many retailers allow customers to return even flawless goods to the retail store within a limited time period. These returned goods are usually sent back to the manufacturer, who directs them to alternative marketing channels. Such inventories are subject to a particularly high sell-off risk. In collaboration and consultation with the retailing customers, MEDION has developed and agreed upon processes to prevent abuse of the returns process and to limit risks from the return of unobjectionable goods. With regard to the secondary marketing of returned goods, MEDION has optimized process control and sales channels via third parties through selective returns management, and has created its own distribution channels for secondary marketing via the MEDION outlet store and the MEDIONshop on the Internet. This package of measures improved the risk position. The future cooperation with Lenovo will have no negative impact on MEDION s risk profile, although Lenovo s consumer business to date has had less of a project character than MEDION s core business. The strategy is to use the most secure and efficient processes for the different distribution channels. Customer receivables MEDION limits the risk of default by concentrating mainly on sales to internationally operating retail groups with Class A credit ratings. Customers not falling into this category are less important to MEDION and are supplied only if their orders are backed by credit insurance or guarantees, or if payment is made in advance. This procedure will also apply to the future cooperation with Lenovo. Furthermore, the occasional use of external sales partners will avoid potential risk.

94 Combined Management Report of MEDION Group and MEDION AG Risk Report Operations Product idea The core of the MEDION business model is the marketing of appealing and increasingly design-oriented, trend-setting products with an attractive price-performance ratio to broad consumer segments. New products create new sales opportunities, but they mature and become affordable for the mass market only after a certain period of time depending on the individual product life cycle. Older products run the risk of technological obsolescence due to rapid technological change, quickly lose their appeal, and are subject to sharp price deterioration. The challenge lies in launching the right product idea at the right time. MEDION has a solid sourcing network built up over many years. A number of ideas are generated and transmitted to customers via this channel. In addition, the newest market research findings are constantly being analyzed, and new and attractive product ideas actively sought by means of MEDION s presence at important trade fairs, as well as direct contacts with innovative and very capable manufacturers. MEDION s product management division has a competent staff with many years of experience in the sector. They have direct access to the innovations and trends generated in the market and work in creative teams to systematically assess these developments and their suitability for mass marketing. Using this systematic approach, MEDION has achieved an excellent reputation in the market among both customers and suppliers as a swift and efficient technology integrator for the mass market. The ideas behind our successfully launched services were also generated and implemented using this same approach. Sourcing MEDION relies upon external partners for significant portions of the value chain. This is particularly true for the manufacture of products and components, the handling of logistical processes, and increasingly also for after-sales service processes. MEDION is therefore dependent upon a large number of partners with regard to both quality and pricing. Procurement markets for PC components and logistics services in particular can be volatile in terms of availability and prices. Structurally, the market is characterized by high price volatility in important parts and components (such as memory components and CPUs), which is intensified in part by the appreciation of foreign currencies against the dollar and the British pound. Since price developments in the procurement market directly affect sales prices, this development is resulting in a trend toward decreasing unit prices in many key MEDION product areas, and corresponding price-related pressure on sales growth.

95 Combined Management Report of MEDION Group and MEDION AG Risk Report MEDION is subject to potential risks in the event of bankruptcy by suppliers, which would result in failure to complete the customer project or a loss of after-sales service in the event of bankruptcy after the products are sold. MEDION counters this risk by concentrating on large, internationally known manufacturers. Potential risks can arise due to supply bottle-necks with main suppliers, which could lead to price risks and possibly lost sales. MEDION possesses very stable relationships with its suppliers, however, as a result of its large purchasing network built up over many years. Since its high purchasing volumes generally classify it as an A-list customer, MEDION is supplied on a preferential basis in the event of capacity bottle-necks. Other potential risks may stem from quality defects in products and lead to higher expenses, particularly in the area of service and after-sales costs, as well as entail damage to the Company s image. MEDION purchases its goods from leading international manufacturers with high quality standards. These companies generally bear the quality risk. In order to guarantee the greatest possible degree of certainty for product quality, identify problems as early as possible in the project, and take any necessary countervailing measures, MEDION conducts its own quality checks before, during, and after production, usually on the supplier s premises. However, the above-named potential risks can be minimized to a large degree through the cooperation with Lenovo. In addition to professional handling of sales and procurement projects, highly efficient and reliable after-sales service is the key factor for sustained success in the market. Deterioration in the quality of service can damage the Company s image and create negative consequences for MEDION s customer relations, its reputation and its brand acceptance. In order to guarantee a high level of quality, MEDION utilizes only experienced service providers for after-sales processes. Order processing is documented continuously, and the results and effectiveness of the work are monitored and optimized with the help of a quality management system that accompanies the process. By employing this method over many years, MEDION has been able to achieve a high degree of confidence among its retail partners and consumers in the performance capabilities of MEDION products and services. The cooperation with Lenovo will in the future further optimize the purchasing possibilities and make them even more flexible through access to a large procurement network.

96 Combined Management Report of MEDION Group and MEDION AG Risk Report Data processing Efficient and secure IT solutions are indispensable for project business and after-sales service to function as they should. If IT processes fail to function, the timely processing of project could be jeopardized and other workflows could be significantly impaired. Integrating systems and interfaces to suppliers, service providers and customers are becoming especially important as part of increasing IT process integration. The information technology utilized at MEDION and its partners in the value chain is tested and updated on an ongoing basis by in-house and external IT experts. Information security systems are continuously refined. External audit organizations also conduct reviews of IT process quality and security. This guarantees the greatest possible degree of security in carrying out IT-supported business processes. Logistics Since MEDION focuses on project business in key sales areas, the ability to deliver products to customers within a contractually agreed timeframe is particularly important. Delays can result in contractual penalties for non-performance or can generate additional costs due to the need for alternative modes of transportation. MEDION works with a limited number of international logistics companies who are known for their excellent quality standards and reliability. The logistics processes at these companies have been integrated into MEDION s own IT process control system, ensuring a high level of process security in logistics. Outside of the project business, goods are distributed by nationally and internationally experienced logistics partners. MEDION has individual contractual relationships with these partners. These agreements stipulate elements including standards for service quality and security. Service quality, the security of the logistics processes, and adherence to the contractually stipulated standards are continuously monitored by means of the risk management system. In the future, the control and security measures will also be applied to the business performed by MEDION for Lenovo.

97 Combined Management Report of MEDION Group and MEDION AG Risk Report Legal The copyright reform of January 1, 2008, has resulted in the fact that agreements between industry and collecting societies concerning the basis for and amount of copyright levies on devices are becoming increasingly more difficult. If an agreement is not reached, arbitration is generally attempted, and failing that, the matter is taken to court. Such cases generally go as far as the German Federal High Court (Bundesgerichtshof) and on appeal are then often referred to the European Court of Justice, meaning that years can sometimes pass between the point when a copyright levy for a particular device is issued and the point when a ruling is made as to whether the claim is justified. This means that provisions that cannot be concretely quantified may have to be made for devices that might potentially be subjected to copyright levies. However, appropriate provisions for these risks are recognized as liabilities in the financial statements. There is also a noteworthy increase in assertions of claims by various parties for alleged infringement of licenses and industrial property rights, particularly patents. In some cases these claims originate from the property right holder, while in other cases they are asserted commercially via third parties out of court, particularly by attorneys who specialize in this field. In this context, it is becoming increasingly common to assert infringement claims against the owner of the respective trademark shown on the devices, and consequently only those licenses that are given by the respective trademark owner are accepted as valid. It is generally the case that alleged copyright violations and claims can frequently be ruled unjustified. To the extent that existing risks, including copyright violations, can be calculated, appropriate provisions are recognized as liabilities in the annual financial statements in order to cover them. MEDION limits these risks to the extent possible by signing, where possible, supplier agreements that stipulate sole responsibility to the suppliers for any possible infringement of thirdparty property rights for the delivered/manufactured goods, and that exempt MEDION from any related claims. If it should be found during litigation and settlement negotiations that the copyright fees and license fees that may need to be paid retroactively should deviate from amounts set aside as provisions, this would have a corresponding impact on net income. In accordance with IAS 37.92, a quantification of the risk in terms of amount is waived. Beyond the foregoing, no court or arbitration proceedings are pending against MEDION that could materially affect the Group s net income.

98 Combined Management Report of MEDION Group and MEDION AG Risk Report Financial The focus on project business typical for MEDION requires the availability of considerable funds for short periods in order to pre-finance high-volume orders. A lack of financing options could otherwise slow corporate growth. In MEDION s business model, many of the links in the value chain requiring major capital outlays, such as R&D, production, logistics, and POS sales, are covered by our partner companies. MEDION is able to make substantial use of trade terms based on long-standing business relations as well as our solid capital and financial structures. Given the Company s good equity and liquidity situation, MEDION s possible requirements for financial credit are limited exclusively to short-term coverage of peak financing needs in high-volume projects during the traditional seasonal business. MEDION has adequate, flexible, and affordable financing instruments at its disposal in the form of financing via receivables based assetbacked security programs, as well as additional third-party lines of credit with banks through a syndicated loan. MEDION does not depend on individual banks. Thanks to its efficient management systems, MEDION made only limited use of its asset-backed security programs and no use of third-party lines of credit at all during the past fiscal year. As a globally operating company, MEDION is subject to risks from currency fluctuations. Payment flows in foreign currency are especially incurred during procurement, since the majority of our suppliers are located in Asia and transactions are therefore denominated in US dollars, or in some cases British pounds. MEDION hedges against the risk of foreign currency fluctuations by using derivative financial instruments in the form of typical forward currency contracts and occasionally supplemental swap transactions. Financial instruments are used exclusively for hedging purposes. The most efficient and safest methods for business financing will also be used in the business cooperation with Lenovo in the future Personnel Competition for highly qualified management and technical staff continues to be very intense in the consumer electronics business. Project-based business is highly reliant on experienced, well-trained employees, and such employees constitute our single most important business resource. Special importance must therefore be placed on appropriate measures to retain skilled and experienced individuals in the Company. Only well-trained and qualified staff can manage and prevent risks. For this reason, MEDION promotes employees training and continued education.

99 Combined Management Report of MEDION Group and MEDION AG Risk Report In order to facilitate new employee orientation in the event of staffing changes and to prevent to the extent possible problems from the loss of know-how, all company processes are documented in a work-flow management system, so that they can be performed independent of specific individuals. A motivated and highly professional team works at MEDION. Our staff is made up of a healthy mix of experienced employees who have spent a good deal of time with the Company, young staffers starting their professional careers at MEDION, and new recruits joining MEDION from other companies, using their experience to contribute to the Company s success Overall Risk Situation In 2011 we focused on two themes. One of these was the necessity of cushioning the impacts of the decline in consumption resulting from the euro crisis as much as possible. The second theme was that the business combination with Lenovo created important conditions for being able to respond to future market changes more flexibly. As in previous years, MEDION systematically followed the path of continuing to improve significant income and cost items by deliberately implementing business segment strategies and internationalization. Despite the increased pressure on the gross margin in all areas relevant to MEDION owing to the euro crisis, the gross margin was increased to 12.6% in 2011 from 11.2% in The systematic expansion of the direct business compensated for the declines in income in the project business. The restructuring of capacities among producers and logistics providers initiated in the last few years, especially in the core sourcing market of Asia and intensified by the recent natural disasters, did have impacts on MEDION s core business. However, the cooperation with Lenovo was able to minimize the resulting risk by creating efficient structures common to both companies. As it did during the financial crisis, MEDION generally considers itself to be safely positioned even in the euro crisis. This is because its many years of close relations with its business partners have enabled the Company to recognize critical trends in good time and reduce risks by initiating suitable measures.

100 Combined Management Report of MEDION Group and MEDION AG Subsequent Events 5.10 Outlook 5.9 Subsequent Events Events after the balance sheet date No events occurred after the balance sheet date which could have a material impact on MEDION s financial position and financial performance with the following exception: The control and profit and loss transfer agreement with Lenovo Germany Holding GmbH and the amendments to the Articles of Incorporation based on the resolutions of the Extraordinary Shareholders Meeting of December 14, 2011 were recorded in the Commercial Register on January 3, Outlook Economic Climate The robust growth of the German economy throughout 2011 was followed by a calmer trend already in the final quarter of This trend will continue in the first half of However, we continue to expect growth stimuli from the consumer spending by private households. The sustained growth in employment, increasing income and slightly lower pressure on prices are conditions suitable for higher consumer spending. On the other hand, the prospects for the development of the overall economy in MEDION s core European markets have not improved. The persistent sovereign debt crisis in the eurozone and the associated strains in the government bond markets as well as increasing uncertainties relating to investments and consumption continue to strain economic development. Added to this is a seasonally adjusted unemployment rate exceeding 10% in the eurozone (Germany: just under 7%). While a decline in the real gross domestic product in the order of 0.2% does not appear to be ruled out for 2012 in the eurozone, growth of approximately 0.6% (OECD estimation, December 5, 2011) is forecast for Germany Market Trend in Consumer Electronics Overview While average prices for consumer electronics products will continue to decline, sales in the order of more than 28 billion are nonetheless expected for the overall market in Germany, as the good employment situation and improved incomes will have a positive impact on consumer behavior. Although the EU market as a whole expects stimuli from the UEFA European Football Championship as a major sporting event, this market for consumer electronics products will not grow or will even decline slightly in many countries due to the uncertain economic situation and persistent sovereign debt crisis.

101 Combined Management Report of MEDION Group and MEDION AG Outlook Product innovations The market for consumer electronics products will continue to be shaped by digitalization of content and transmission lines as well as by convergence. In this case, convergence implies the consolidation of the entertainment electronics, media, information technology, and telecommunications markets, which thus far had remained separate. The basis for this convergence is digital technology, which both facilitates the networking of different product groups and permits digital components to be used in a variety of products (e.g. camera functions for cell phones, mobile navigation devices with MP3 player functions, notebooks as HD televisions, and smart phones for making telephone calls and surfing the Internet as well as tablet PCs). New especially wireless networking solutions open up additional possibilities for using high-resolution content. The fusion of Internet and TV as well as home networks will also hold consumer interest in Furthermore, the triumphant success of the tablet PC will continue with no letup in 2012 in the German and European market. Digital technology is opening up and bringing to market new product worlds with increasingly short product life cycles, because advancements in technology produce more powerful products and systems in even shorter time intervals. The comprehensive structural change caused by increasing digitalization now encompasses all segments of the economy and society. More than 99% of all German households are now connected to broadband networks with a transmission rate of 1 Mbit/s and higher. The critical thing now is how fast it will be possible to expand to high-speed networks of 50 Mbit/s and more. In forms of distribution, the Internet is continually gaining market significance as a place to shop. In addition to the purchase of goods, the Internet is especially important as a current and transparent platform of product information for consumers purchasing decisions. In the many product categories, multichannel shoppers place a higher value on performance and quality features than on a pure price comparison. Notebooks and desktop PCs BITKOM estimates that 60% of all PCs are sold to private consumers and 40% to companies and public authorities. Roughly 13.7 million PCs were sold overall in 2011 according to these estimates, a 13% increase. Published in January 2012, the industry association forecast sees PC sales rising again by 12.3% to 15.4 million units. BITKOM further predicts sales of nearly 10 million mobile computers (notebooks, netbooks, tablet PCs in the business and end-consumer segment) in Germany in 2012, which would be an increase of some 11%. It is evident that in the coming years a growing number of more traditional entertainment electronics products will have Internet access. This will place new demands on manufacturers of entertainment electronics to integrate high-performance processors into their

102 Combined Management Report of MEDION Group and MEDION AG Outlook devices. The trend toward compact high-performance notebooks will intensify as the wireless broadband Internet infrastructure continues to expand. High-performance processors for desktop PCs are in demand in order to display 1080p video formats in 7.1 surround sound, high-resolution 3D graphic elements and networked online games, and also to enable parallel applications in audio and video processing. In addition to very powerful notebooks with innovative power-saving processor technology and smart phones, solid markets are forming for electronic reading devices (e-book readers) and tablet PCs with touch-screens for running software and navigating the Internet. These devices generally have WLAN or UMTS Internet connections. Because of the high equipment saturation level in households, the market for PCs and notebooks is determined by technological innovations and replacement requirements. Consumer electronics growth fields in markets relevant to MEDION include: mobile notebooks weighing less than 1 kg with Internet access via integrated online modules HDTV devices with 1080x1920 pixel resolution (full HD) mobile multimedia products and gamer notebooks with large storage capacity and high-resolution graphic cards as well as state-of-the-art processor technology smart phones with access to mobile Internet tablet PCs Mobile telecommunications Rising unit sales of smart phones and portable computers is generating further sustained growth in mobile Internet usage. BITKOM makes this assumption based on the current figures of the European Information Technology Observatory (EITO). According to these figures, sales with mobile data services in Germany are likely to rise by 16% to 8 billion in BITKOM s forecast sees an increase in smart phone unit sales of 36% to 10.1 million in 2012 in Germany, with sales climbing 24% to 2.1 billion. In the mobile telecommunications industry, between 8 billion and 10 billion will be put toward expanding the new LTE mobile network technology in the coming years. The successor technology to UMTS reaches speeds of up to 100 Mbit/s. The principal concerns of mobile telecommunications customers include the need for social networking and the desire for end-to-end-cross-media offers as well as the constant Internet access at flat rate prices. Some 550,000 mobile applications (apps) currently exist around the world for the various smart phone operating systems. These apps range from games to news and information services to navigation assistance and e-book readers.

103 Combined Management Report of MEDION Group and MEDION AG Outlook In addition, mobile communications offers have long since ceased to be tied to the operation of an independent network, but instead have increasingly come from mobile virtual network operators (MVNO). Growth in UMTS users is also being generated by the new generations of smart phones and especially tablet PCs. With these new devices and attractive prices, private consumers are also increasingly using mobile data services Corporate Development and Business Model As a new member of the Lenovo Group, MEDION will develop further as a leading European supplier of consumer electronics products. In marketing consumer electronics products, the distribution channels will continue to diversify in the traditional specialist consumer electronics retail outlets, self-service and discount markets as well as e-commerce via the Internet. As one of the very few companies with a comprehensive range of traditional entertainment electronics and information technology products, MEDION is in a position to meet the demands of a digital and networked global market with its user-friendly products in the project business. MEDION s business model remains geared toward making high-quality, innovative and trend-setting consumer electronics products with outstanding, attractive designs available to broad consumer segments at reasonable prices. In addition to its traditional European consumer electronics promotional business, MEDION is focusing on developing and marketing a complementary line of services, particularly in the areas of telecommunications/medionmobile, downloads, and online services.

104 Combined Management Report of MEDION Group and MEDION AG Outlook Prospects Economic development of MEDION in 2012 Through disciplined cost management and a consistent focus on products with an attractive price-performance ratio as well as successful refinement of our direct business in the past fiscal year 2011, MEDION maintained its profitability despite a significant decline in sales and strengthened its balance sheet structures at a very high level with an equity-toassets ratio of more than 50%. The share of sales of our project business continued to decline in 2011 in line with company forecasts and was 62.6% of total revenue in the past fiscal year (previous year: 70.8%). The fact that the project business clearly remained profitable despite the lower business share, underscores MEDION s high flexibility and its ability to adapt quickly to trends as well as the success of MEDION s strategy to expand our direct business with end customers in the area of services and online services. Following our business unit strategy, our direct business will continue to grow stronger than our project business in 2012 and increase its business share. A key factor on the road to continued development was and remains the further strengthening of the MEDION brand as a symbol of high-quality products and services with the best price-performance ratio and excellent design a factor that is also in the interests of our customers and partners. MEDION products and services win over customers both domestically and abroad by achieving top test results, and the MEDION brand has gained in importance and improved its reputation. Besides in Germany, MEDION is also positioned well throughout the eurozone, including Scandinavia and the United Kingdom, and has well-organized and professional sales and service units in conjunction with its retail and other cooperation partners. These are excellent conditions for developing and fostering business both domestically and abroad. Over the medium term, MEDION is pursuing its goal of growth in the European markets that we have already penetrated. In addition to efficient Company structures and products geared to customer and consumer requirements, MEDION s future growth as a leading provider of consumer electronics products and services in the mass market will depend to a great extent on economic trends and on consumer behavior in Germany and key European countries. Other factors to consider are the expectations of our retail partners with regard to the sales opportunities of consumer electronics products and the resulting purchasing behavior.

105 Combined Management Report of MEDION Group and MEDION AG Outlook Structural changes After the end of the short fiscal year 2012 MEDION will begin a new full fiscal year. This is based on the resolution passed by the Extraordinary Shareholders Meeting held on December 14, 2011, in which the shareholders also agreed to change the fiscal year to the period from April 1 of one year to March 31 of the following year. Furthermore, the conclusion of a control and profit and loss transfer agreement between MEDION AG and Lenovo Germany Holding GmbH was approved by this Extraordinary Shareholders Meeting. This control and profit and loss transfer agreement has in the meantime been recorded in the Commercial Register. Based on this agreement, MEDION AG is obligated to pay all of its profit determined according to the provisions of the German Commercial Code (HGB) to Lenovo Germany Holding GmbH during the life of the agreement. After the obligation of profit and loss transfer takes effect, a profit/loss for the year of 0.00 will be reported in the annual financial statements of MEDION AG prepared in accordance with HGB accounting. Starting with fiscal year 2012/2013, the shareholders of MEDION AG will no longer decide on the appropriation of profits. As compensation for the loss of the dividend entitlement, the control and profit and loss transfer agreement provides that Lenovo Germany Holding GmbH will be obligated to pay an annual equalization amount to the minority shareholders of MEDION AG. This equalization payment is derived from a gross profit share of 0.82 per MEDION share for each full fiscal year less an amount for German corporation tax and solidarity surcharge according to the tax rate valid for these taxes for the relevant fiscal year. The tax deduction is only to be taken for profits of MEDION AG which are subject to German corporation tax. Thus the compensation payment under the currently valid corporation tax burden corresponds to an amount of 0.69 per MEDION share. Gross earnings Gross margins will continue to be under pressure because of sustained intense competition. The Management Board of MEDION assumes that, based on MEDION s good market position and a further improved sales structure, a gross margin at a level of 11% continues to be possible.

106 Combined Management Report of MEDION Group and MEDION AG Outlook Sales and earnings in the short fiscal year (January 1, 2012 March 31, 2012) Despite the expansion of the range of services in the direct business and sustained growth in this area, the start of 2012 was influenced throughout the Group by the reduced project business due to lower average prices and the buying restraint of European consumers against the backdrop of the still unsolved sovereign debt crisis. Accordingly, for the short fiscal year (January 1, 2012 March 31, 2012) both sales (at million) and earnings are expected to remain at the same level as in the prior-year quarter. Sales and earnings in the next fiscal year (April 1, 2012 March 31, 2013) As is typical of this sector, the development in the second half of 2012 in particular and in the period until March 2013 cannot be forecast with adequate probability. Therefore, due to the unchanged economic uncertainty in the eurozone; however, with positive development in Germany due to the high level of employment and rising available income of consumers, the MEDION Group expects sales to be unchanged at the level of approximately 1.4 billion. Despite an expected decline in the margin, the improved sales structure should have the result that EBIT will not change from approximately 26 million. This forecast does not include the potential of planned, profitable revenues from the future Europe-wide responsibility of MEDION for the sales and service of Lenovo Idea products. Although planned, it is not yet possible to quantify their scope and sales volume. Liquidity and balance sheet structure In 2012 and 2013, MEDION will likely continue not to require outside funds to finance high-volume projects. If at all, funds will only be needed for a short time. The balance sheet ratios will hardly change from 2011, so that the equity-to-assets ratio will remain at above 50% of total assets.

107 Combined Management Report of MEDION Group and MEDION AG Further Disclosures pursuant to Section 289 (4) and Section 315 (4) of the German Commercial Code (HGB) 1. The share capital of MEDION AG amounting to 48,418, is divided into a corresponding number of no-par-value bearer shares. 2. The Company s Articles of Incorporation do not stipulate any restrictions affecting voting rights or transfer of shares, nor are any such restrictions known to the Company. 3. Lenovo holds a majority share in the capital of MEDION AG. In addition, an 18.8% share is held by the Gerd Brachmann, the Chairman of the Management Board, and the American fund company Elliot holds 8.06%. 4. The shareholders have not been granted any special rights that would entail powers of control. 5. There are no arrangements that deviate from the law regarding the supervision of voting rights in the event that employees hold a share in the Company s capital. 6. The Articles of Incorporation of MEDION AG specify in Section 6 (1 and 2) that the Management Board of the Company must consist of at least two persons, and that the Supervisory Board appoints ordinary Management Board members as well as any substitute Management Board members, signs employment agreements, revokes the appointment and designates a Management Board chairman. The Company s Articles of Incorporation do not contain any other rules on the appointment and revocation of appointment of Management Board members or the signing and termination of employment agreements, and therefore the provisions of Sections 84 and 85 of the Stock Corporation Act (AktG) apply. The provisions of Section 10 (7) and Section 15 (4 and 5) of the Company s Articles of Incorporation in connection with Section 179 et seq. of the Stock Corporation Act (AktG) are relevant for amendments to the Articles of Incorporation of MEDION AG. 7. The Management Board of MEDION AG is authorized to increase the share capital by up to 24.0 million with the consent of the Supervisory Board until May 17, 2016 through issues of new common bearer shares, on one or more occasions, in return for cash contributions or contributions in kind. Details are set forth in Section 3 (7) of the Company s Articles of Incorporation. The Company owned 3,805,958 treasury shares on Saturday, December 31, Following a resolution of the Annual Shareholders Meeting on May 26, 2010, the Management Board was authorized to acquire additional treasury shares in the Company up to a total of 10% of the share capital, and until May 25, No use was made of this authorization in MEDION AG has not entered into any agreements that are subject to a change in control in the event of a takeover offer. 9. Similarly, no compensation agreements have been made with members of the Management Board or the employees in the event of a takeover offer.

108 Combined Management Report of MEDION Group and MEDION AG Corporate Declaration in Accordance with Section 289a of the German Commercial Code (HGB) The management of MEDION, a listed German corporation, is primarily governed by the German Stock Corporation Act (AktG) and also by the rules set forth in the latest version of the German Corporate Governance Code. At MEDION, good corporate governance is a standard we extend to all areas of the Company. Enhancing corporate governance and compliance at MEDION serves to justify the trust that our shareholders, business partners, employees, and the public have placed in us. We have therefore taken all organizational measures needed to not only comply with the legal requirements but also to ensure a responsible and transparent corporate management that is committed to sustained growth. In accordance with legal provisions, MEDION is subject to a so-called dual management system. This is characterized by a strict personnel division between the Management Board as a management body and the Supervisory Board as a supervisory body. The Management Board and the Supervisory Board work closely together in the interests of the Company. The Management Board manages the Company, aiming to create lasting added value, for which it assumes responsibility. In this regard, the principle of overall responsibility applies, i.e. the members of the Management Board share the overall responsibility for managing the Company. They develop the corporate strategy and coordinate efforts with the Supervisory Board to see that it is implemented. The principles of the MEDION Management Board s cooperation have been summarized in the rules of procedure for the Management Board. In particular, they establish the areas for which the individual Management Board members are responsible, the matters reserved for the consent of the Supervisory Board, the required majorities for passing resolutions, and the rights and duties of the Chairman of the Management Board. The Management Board of MEDION consists of two members. The Management Board regularly, promptly and comprehensively informs the Supervisory Board concerning all issues related to business performance that are material to the MEDION Group, major transactions as well as the current earnings situation along with the Company s risk position and risk management. Deviations in the business trend from preceding forecasts and targets are commented and reasoned in detail. Furthermore, the Management Board regularly reports on compliance, i.e. actions taken to adhere to statutory regulations and internal Company policies, an issue for which the Management Board is also responsible. The Supervisory Board advises the Management Board in managing the Company and monitors its activity. It appoints and dismisses the members of the Management Board, determines the compensation system for Management Board members, and establishes the total compensation for each of them. It is involved in all decisions that are of fundamental importance to MEDION. The Supervisory Board of MEDION consists of three members. The principles of the MEDION Supervisory Board s cooperation have been summarized in the rules of procedure for the Supervisory Board.

109 Combined Management Report of MEDION Group and MEDION AG Corporate Declaration in Accordance with Section 289a of the German Commercial Code (HGB) Finally, the Company s Articles of Incorporation and the rules of procedure of the Supervisory Board contain a catalog of transactions for which the Management Board needs the consent of the Supervisory Board. No consulting contracts or other contracts for work and services existed between members of the Supervisory Board and the Company during the year under review. No conflicts of interest occurred with respect to any member of the Management Board or Supervisory Board. Any such conflicts of interest must be disclosed to the Supervisory Board immediately. No member of the Supervisory Board of MEDION AG has been a member of the Company s Management Board. In 2011, the German Government s Commission of the German Corporate Governance Code announced no amendments to the Code. After the deliberations by the Management Board and Supervisory Board in their joint meeting on December 5, 2011, an updated declaration of compliance pursuant to Section 161 of the German Stock Corporation Act (AktG) was adopted and announced on the Company s website on December 6, The exception to the Code that committees may not be formed due to the Supervisory Board s size has not changed from previous years. Earlier declarations of compliance issued by MEDION that are no longer valid are available on the Company s website. Further details concerning MEDION s corporate governance practice are provided in the latest Corporate Governance Report, which also forms part of this Corporate Declaration and is included in this annual report. Essen, February 29, 2012 Gerd Brachmann Chairman of the Management Board Christian Eigen Deputy Chairman of the Management Board

110 Dies ist die erste Ebene des HEADERs Dies ist die zweite Ebene des Headers MEDION AG Bearer Shares 2011 * Lenovo takeover offer of per MEDION share June 1, 2011* HIER KURS-CHART Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec