Annual Report 2016-2017

ANNUAL REPORT 2016 017

1. Fundamentals of the Group 20

   1. Business model and methodological expertise 20

   2. Service and customer structure 20

   3. Consultation and service portfolio 20

   4. Research and development 20

   5. Group structure and branch offices 20

   6. Group controlling system 21

2. Business report of the KPS Group 21

   1. Macroeconomic development 21

   2. Sector-specific framework conditions 22

   3. Business performance 24

   4. Results of operations, capital structure and asset situation 26

   5. Financial and non-financial performance indicators 29

   6. Overall assessment of the Executive Board

      and comparison with the previous year 30

3. Opportunities and risk report 30

   1. Risk management targets and methods of the KPS Group 30

   2. Individual opportunities and risks 31

   3. Overall assessment of opportunities and risks 33

   4. Important features of the internal controlling and risk

      management system 33

4. Outlook report 34

   1. Macroeconomic forecast 34

   2. Sector-specific forecast 35

   3. Forecast for the KPS Group 36

      
      
      
5. Compensation report 36

   1. Compensation payments to the Members of the Executive Board 36

   2. Compensation payments to the Members of the Supervisory Board 37

6. Disclosures relevant to takeovers 37

   1. Composition of the subscribed capital 37

   2. Restrictions on voting rights 37

   3. Capital shares greater than 10 percent 37

   4. Special rights which confer rights of control 37

   5. Control of voting rights through employee shareholdings 38

   6. Appointment and dismissal of members of the Executive Board

      and amendments to the statutes of the company 38

   7. Powers of the Executive Board regarding

      the issue or buyback of shares 38

   8. Important agreements subject to a change

      of control following a takeover offer 38

7. Legal disclosures 39

   1. Declaration on Corporate Governance pursuant to

      Article 289a German Commercial Code (HGB) 39

   2. Compliance Declaration 39

Leonardo Musso CEO

5

TO SHAREHOLDERS

EXECUTIVE BOARD INTERVIEW

Interview partner: Leonardo Musso (CEO)

To what extent have the business results for the business year 2016/2017 met the original expectations that you started the year with?

Leonardo Musso: Once again, KPS has grown faster than the market with growth in sales of 10.6 percent to 160.3 million euros.

How long can you maintain this pace?

Leonardo Musso: The high level of dynamic growth really is impressive and we are extremely proud of our achievements. The profit of other market shares confirms us in the strategy that we have adopted and underpins our leading market position within Europe for the area of business transformation and process implementation in retail. Nevertheless, the result cannot detract from two fundamental principles. Firstly, the success of KPS AG is the result of tough and concentrated teamwork. We have to deliver this performance day in and day out in the interests of our customers, our shareholders, and naturally also ourselves. Secondly, growth is not an end in itself. In a nutshell, our mission is not growth at any price. The fact is that we need to carefully consider our strategic measures and act with sound judgement. This is the only way we can ensure that we will enjoy success over the long term.

What measures have you taken in order to ensure the success of the company?

Leonardo Musso: We have adopted a comprehensive bundle of measures that on the one hand addresses the capital market and on the other hand our operational growth. We have expanded the Recruiting Department in order to counter the fraught situation in the market for specialist staff. Responsibility for this area and for Human Resources has been anchored directly with the Vice President Board. Our objective is to attract highly qualified male and female consultants in order to support the planned growth but we

also want to invest in our existing personnel. Our staff are our capital - in other words, each individual employee. We create new career paths and empower staff to develop and keep abreast of the large number of new technological developments alongside their routine activities every day. The staff at our internal training center in the KPS Academy are continuously providing advanced training for our team.

In parallel with this, we continue to drive forward digitalization both for the benefit of our customers and to provide support for our staff here in the company itself. In the middle of the year, we launched a mobile app live as a communications platform so that each employee is kept up to date about new technological developments, new products and services, and our projects and customers, irrespective of the location or region where they happen to be.

Our Innovation Centers make use of digital collaboration platforms to engage intensively with issues such as how artificial intelligence and machine learning will influence the future. They also assess the impacts on our customers. One example of the major advances made last year was in the area of voice recognition. This is where our team is continually building new showcases for our customers which they can incorporate into their processes. The Innovation Centers are also an executive management issue in our company. Each center has an Executive Sponsor who is represented on the Board. We are currently implementing a structured process for this in order to ensure that successful ideas are supported and promoted on their journey toward implementation as they become reality. Last year, we were also very active on the capital-market side. The objective was to familiarize a larger circle of investors with our share and this continues to be our aim. Trust-building measures are necessary to achieve this. Toward the end of 2016, an additional important foundation stone was laid when we moved to a listing on the Prime Standard of the Frankfurt Stock Exchange. The higher