table of contents part 2 part 1 INTRODUCTION Key data Mission, vision, strategy Letter from the Chairman of the Supervisory Board

Transcription

1 annual report 2011

2 2 table of contents Key data Mission, vision, strategy 4 6 part 2 Business Letter from the Chairman of the Supervisory Board Letter from the President of the Management Board Learn about the new structure of the Group 46 part 1 INTRODUCTION RETAIL BUSINESS SEGMENT Television Key events in Market environment 47 Cyfrowy Polsat in Competition 48 Our awards 28 Offering 48 Get to know Cyfrowy Polsat 30 Broadcasting centre 51 Governing bodies 31 Set-top box factory 51 Corporate governance 36 Broadband Internet The Company s history 38 Market environment 52 Cyfrowy Polsat on the capital market 39 Competition 52 Offering 53 Telephony Market environment 54 Competition 54 Offering 54 Multi-play operator Integrated services market 55 Competition 55 Offering 55 Sales and marketing 57

3 BROADCASTING AND TELEVISION PRODUCTION SEGMENT Market environment Competition Our channels Schedule and programming Distribution and coverage Technology and infrastructure Sales and revenue sources History of Telewizja Polsat part 3 STAKEHOLDERS AND ENVIRONMENT Shareholders and investors Our viewers and customers Our team part 4 financial statements Approval of the Consolidated Financial Statements Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Balance Sheet Consolidated Cash Flow Statement Consolidated Statement of Changes in Equity Supplementary Information to the Consolidated Financial Statements part 5 ADDITIONAL INFORMATION Glossary Contact Business partners The media Regulators and industry organisations Non-governmental organisations and local communities POLSAT Foundation Natural environment

4 4 CYFROWY POLSAT S.A. GROUP ANNUAL REPORT 2011 Key data PLN thousand YoY change Selected data Revenue 2,365,925 1,482, % EBITDA 735, , % EBITDA margin 31.1% 27.5% 3.6 pp Profit from operating activities 560, , % Net profit 160, ,470 (38.0%) Capital expenditures 1 65,674 45, % Capital expenditures as % of revenues 2.8% 3.1% (0.3 pp) Average number of employees 2 1, % Consolidated Cash Flow Statement Cash flow from operating activities 347, , % Cash flow from investing activities (2,426,751) (77,419) % Cash flow from financing activities 2,327,429 (191,769) - Net change in cash and cash equipments 247,724 (71,654) - 1 Capital expenditure represents our investment in fixed assets and intangible assets. It does not include expenditure on purchase of set-top boxes leased to our subscribers which are reflected in the cash flow from operating activities. 2 Excluding employees directly involved in set-top boxes manufacturing and tv production whose salaries are presented respectively in cost of equipment sold and cost of internal TV production. extreme sports channel extreme sports channel All rights reserved

5 YoY change Stock data Basic and diluted earnings per share (PLN) (49.0%) Year-end price (PLN) (18.2%) Number of shares e/y 348,352, ,325, % Bearer shares 168,935,335 88,907, % Market capitalization e/y (PLN thou.) 4,702,763 4,427, % KPI Retail business segment Number of pay TV subscribers e/y 3,551,671 3,436, % Churn rate 9.8% 10.3% (0.5 pp) Average revenue per user (ARPU), (PLN) % Subscriber average cost (SAC), (PLN) (3.8%) Number of mobile telephony service users e/y 142,651 95, % Number of Internet service users e/y 73,190 25, % Broadcasting and television production segment Audience share of TV Polsat Group 20.8% 19.3% 7.9% Advertising market share 22.6% 21.9% 3.2%

6 CYFROWY POLSAT S.A. GROUP 6 ANNUAL REPORT 2011 Mission, vision, strategy Our mission who we are? We are the Polish media market leader in both creation and broadcasting of television content, concurrently providing a range of telecommunication services.

7 Our vision who we want to be? We want to BE Poland s number one entertainment provider. We will continue to create and broadcast the most attractive content, using state-of-the-art technologies to provide superior quality multi-play services and maintain the highest levels of customer satisfaction.

8 8 CYFROWY POLSAT S.A. GROUP ANNUAL REPORT 2011 Our strategic objectives Our primary objective is to be the number one player in the Polish entertainment market. We intend to achieve this goal both by providing high quality products and services to individual customers, and by acquiring and creating the programming content of superior quality to be subsequently delivered to Polish households. The key elements of our strategy include: Building value of our individual customer base by increasing the number of subscribers, increasing the average revenue per user (ARPU), as well as by maintaining high levels of customer satisfaction. Creating value of our Broadcasting and television production segment by keeping high audience shares of our channels, upgrading the viewers profile, as well as by widespread distribution of our content. Effective management of our cost base by making use of synergy effects achieved across our integrated media group. Did you know? DISCOVERY channel DISCOVERY CHANNEL All rights reserved The satellite signal must travel a distance of 2.5 times the circumference of our planet to reach the TV-set.

9 Discovery channel Discovery Channel All rights reserved

10 10 CYFROWY POLSAT S.A. GROUP ANNUAL REPORT 2011 Letter from the Chairman of the Supervisory Board Ladies and Gentlemen, 2011 was another important and successful year for Cyfrowy Polsat. Despite the challenging market environment, the Group pursued its development strategy as planned, delivering a strong financial and operating performance. It also asserted its unrivalled lead on the market of pay TV and TV broadcasters, and continued to dynamically expand in the field of telecommunication services and new technologies. One of the key events was the acquisition by Cyfrowy Polsat of 100% shares of Telewizja Polsat. It gives us great pleasure to see the Group benefiting from the transaction, which has brought about both revenue and cost synergies and even more importantly enabled us to secure key programming content, which can be offered through diverse distribution channels, including the rapidly growing market of new media. Last year saw a revolutionary change on the Internet market. Cyfrowy Polsat was the first company in Poland to roll out mobile Internet services based on the LTE technology, the most advanced solution yet. In the near future, the Group s development will largely be driven by Internet access services. Another major step on the path of Cyfrowy Polsat s expansion was the acquisition of shares in INFO-TV-FM and investment in mobile TV. The DVB-T mobile TV standard will broaden the Group s range of services, contributing to one of its crucial objectives, which is to diversify content distribution channels. To conclude, I would like to thank our Shareholders, as well as Subscribers and Customers of the Cyfrowy Polsat Group, for their confidence in us. I would also like to express my gratitude to the Group s Management Board and Staff for their work, which can be hard and demanding, yet bears fruit. Thanks to their efforts, the Company has been able to deliver sustainable value growth. I am convinced that in 2012 the Management Board will be as successful in implementing the Group s strategy as it has been to date, ensuring Cyfrowy Polsat s continued growth. With kindest regards, Zygmunt Solorz-Żak Chairman of the Supervisory Board fot.: Judyta Papp/Polsat

11 Letter from the President of the Management Board Ladies and Gentlemen, It is with great pleasure that I present to you the 2011 Annual Report of the Cyfrowy Polsat Group. The previous year saw many events and projects which proved to be important steps in the consistent implementation of the Group s growth strategy, designed to strengthen our leading position on the market of pay TV and television broadcasters, as well as a steady development of our competencies in the telecommunications sector. The stable growth of our business is best demonstrated by the Group s improved operating and financial performance. The pay TV subscriber base grew to 3.55 million, which represents an over 30% share in the market, whereas the number of broadband Internet and mobile phone users was 73 thousand and 143 thousand, respectively. In our second business segment, we proved to be the fastest growing broadcaster. Our main TV channel POLSAT enjoyed the largest audience share, with a 16.45% share in the market, while the thematic channels in our portfolio jointly accounted for 4.35% audience share. We estimate that in 2011 we gained a 22.6% share in the Polish TV advertising market worth approximately PLN 3.9 billion. Please note that thanks to our carefully planned programming and the expanded distribution of thematic channels, we outperformed the market in terms of advertising revenue. Another source of satisfaction is the Group s robust financial performance. Total consolidated revenue from sales of products, services, goods and materials in 2011 grew by 60%, to PLN 2.37 billion, while net profit came in at PLN 160 million. The completion of the purchase of 100% shares in Telewizja Polsat S.A. for PLN 3.75 billion will remain in our memory for a long time. This transaction positioned the Cyfrowy Polsat Group as the undisputed market leader. The formation of Poland s largest multimedia group with Telewizja Polsat has also paved the way for us to effectively capitalize on technology, marketing, product and administration synergies. The operations of both companies naturally complement each other, which has not only put us at a considerable competitive advantage, but has also strengthened our position and diversified our revenue streams now derived from subscriptions and commercials. To ensure continuing enhancement of customer satisfaction, we regularly expanded our pay TV offer to include new channels and products. To address the customers growing interest in VOD Home Movie Rental, in April 2011, as the first satellite TV operator in Poland, we launched catch-up TV services to provide customers with free-of-charge Internet access to selected programmes broadcast on channels included in their TV packages. At the beginning of 2012, in cooperation with Redefine, we rolled out VOD services for computer users. And then in August 2011, as the first operator in Poland, we proudly launched the fastest and most advanced LTE-based mobile broadband Internet, with download speeds of up to 100 MB/s. We strongly believe that over the long term, as the necessary radio infrastructure and LTE-enabled devices develop, the technology will revolutionize not only the broadband Internet market but also content distribution.

12 12 CYFROWY POLSAT S.A. GROUP ANNUAL REPORT 2011 In 2011, Cyfrowy Polsat Technology, our production facility, produced the three millionth set-top-box. So far we have launched six set-top-box models, two of which support HD TV, and a 320GB USB hard drive. The latest product of that largest maker of digital set-top-boxes in Poland is a set-top box for digital terrestrial TV reception, whose sales will be launched in the near future. Having in mind further implementation of our strategy aiming for the widest possible content distribution based on all latest technologies and devices, we bought INFO-TV-FM. The purpose of the acquisition was to enable us to launch mobile DVB-T TV using the acquired company s frequencies. DVB-T TV services are a good fit for our business plans, are in line with current market trends and meet customers needs. Our long-term objectives include stable development of the Group, maintaining our leading position on the pay TV market, successful offering of telecommunications services, improved audience ratings of Telewizja Polsat channels and, as a consequence, building our presence on the TV advertising market. We intend to develop modern content distribution channels, such as mobile TV and online services, hoping that in the longterm these initiatives will attract more customers, increase the average revenue per subscriber and enhance customer loyalty. In turn, the achievement of these goals, coupled with efficient financial management, will stimulate growth of the shareholder value. Yours sincerely, Dominik Libicki President of the Management Board, Cyfrowy Polsat S.A. Polsat NEWS POLSAT NEWS All rights reserved Did you know? Every day, 155 people prepare the 24/7 Polsat News programme.

13 DiSCOVERY channel DISCOVERY channel All rights reserved

14 14 CYFROWY POLSAT S.A. GROUP ANNUAL REPORT 2011

15 part 1 introduction

16 16 CYFROWY POLSAT S.A. GROUP ANNUAL REPORT 2011 Key events in 2011 January Following the expansion of the HSPA+ radio network to include another 44 base transceiver stations, our mobile Internet services have become available to 48% of Poland s population. February Cyfrowy Polsat becomes the largest Polish HD digital platform the number of our subscribers using high definition set-top boxes has exceeded one million. The two millionth set-top box leaves the Cyfrowy Polsat Technology manufacturing plant. March We launch consumer tests of our latest product LTE Internet. April Issue of Series H subscription warrants with a value of PLN 1.15bn *. Acquisition of Telewizja Polsat. Following the transaction, Cyfrowy Polsat and Telewizja Polsat are combined into the largest media group in Poland. We expand our offering by adding Online Programmes, a catch-up TV service, which enables 3.5 million of our subscribers to view selected content from their television packages online, free of charge. As a part of the Bądź Eko z Cyfrowym Polsatem! (Go green with Cyfrowy Polsat!) initiative, our subscribers are offered a possibility to receive invoices via electronic means. ˊ ˊ May We launch distribution of Telewizja Polsat Group channels through the n platform. Issue of 7.125% Senior Notes with a nominal value of EUR 350m *. Floatation of 80 million Series H shares on the WSE. Nearly 500 masts (covering 58.3% of Poland s population) are used by Cyfrowy Polsat to provide HSPA+ Internet services. The LTE data transfer rate increases to 100 Mb/s after the bandwidth change from 10 MHz to 20 MHz.ˊ June The first listing of 7.125% Senior Notes on the Luxembourg Stock Exchange. ˊ July Telewizja Polsat Group acquires a sub-license to broadcast T-Mobile Ekstraklasa, the most prestigious football league in Poland. ˊ August We launch mobile telephony services using Polkomtel s radio infrastructure. We start to sell LTE Internet access services at speeds up to 100 Mb/s. * To finance the acquisition of Telewizja Polsat.

17 September The fight between Tomasz Adamek and Vitali Klitschko for the title of the WBC heavyweight World Champion is the first sporting event broadcast live through pay-per-view service. ˊ October Introduction of a new product a USB hard drive with a capacity of 320 GB (DTU 320) manufactured by CPT, fully compatible with the HD5000 set-top box. Introduction of the Multiroom service, which allows subscribers to watch two different channels simultaneously on two TV sets under a single subscription fee. Introduction of new functionalities in the TV Guide available at allowing users to specifically tailor the platform to their preferences; launch of e-codziennik TV (e-tv Daily) an electronic bulletin featuring previews, distributed free of charge to customers accounts. We sign a conditional purchase agreement for shares in INFO-TV-FM Sp. z o.o. Under the agreement, in January 2012 we took over the frequencies for mobile TV services (the MHz band) along with the related reservation decisions. November The launch of new thematic channel Polsat Crime & Investigation Network 15th channel in the portfolio of the Telewizja Polsat Group. December ˊ ˊ The three millionth set-top box leaves the CPT manufacturing plant. The device number three million is our latest model MINI HD ˊ ˊ Cyfrowy Polsat has over 1,000 HSPA+ Internet masts and approx. 600 high-speed LTE Internet masts, thanks to which the HSPA+ and LTE Internet is available to 68.8% and 21%, respectively, of Poland s population. ˊ ˊ We sign an agreement with Irdeto of the Netherlands for delivery of a conditional access system with technical support, which will help us create technological infrastructure for mobile digital terrestrial pay TV services. POLSAT SPORT POLSAT SPORT All rights reserved

18 18 CYFROWY POLSAT S.A. GROUP ANNUAL REPORT 2011 Cyfrowy Polsat in 2011 Did you know? On average, 1.1 million people are watching one of our channels every minute. Last year was a landmark for the Company, as it saw numerous developments and projects following from the consistently pursued strategy to solidify our leading position on the market of pay TV and TV broadcasters, as well as to develop our expertise in the area of integrated services. Acquisition of Telewizja Polsat was a key event in Following the transaction, the Cyfrowy Polsat Group has become the undisputed leader of the domestic media market. Moreover, with the acquisition of Telewizja Polsat we have diversified our revenue sources (new revenue sources include: advertising and sponsorship, revenue from cable and satellite operator fees) and achieved synergy potential. In August 2011, we were the first operator in Poland to launch the fastest and most advanced mobile LTE-based Internet with download speeds of up to 100 Mb/s. LTE is considered to be the future of wireless broadband Internet and a successor to the now commonly used UMTS standard. After the expansion of our Internet offering at the end of August 2011, by the end of December 2011 we had won approx. 25 thousand new subscribers to our Internet offering. We believe that LTE Internet will give us a significant competitive edge, which will help us increase our base of subscribers ˊ to both standalone and integrated services. To ensure an increasingly high level of customer satisfaction, we regularly expanded our pay TV services to include new channels and products. In response to the growing interest in VOD Home Movie Rental, in April 2011 we were the first satellite TV operator ˊ in Poland to launch a catch-up TV service, allowing subscribers ˊ to view online selected content from channels included in their TV packages. In the second half of the year, we broadcast live the first sporting event on pay-per-view - the fight between Tomasz Adamek and Vitali Klitschko for the WBC heavyweight World Champion title. At the same time, we introduced the Multiroom service, which allows subscribers to watch two different channels simultaneously on two TV sets under a single subscription fee. In pursuance of our strategy, aimed at distributing programming content on a scale as large as possible with the use of all modern technologies and equipment, we acquired INFO- TV-FM. Based on the company s frequencies, in Q we launched DVB-T mobile television services. polsat cafė POLSAT All rights reserved An improvement in our operating performance, which translated into the Group s financial performance, is a proof of the consistent expansion of our business.

19 Retail business segment The number of subscribers to pay TV services increased by 115 thousand year on year, to 3.55 million, representing 30% of the Polish market for pay TV. The number of Internet subscribers increased by 48 thousand year on year, to 73 thousand. The number of mobile telephone users increased by 47 thousand year-on-year, to 143 thousand. ARPU of the Family Package increased by 5.0% year on year, to PLN 44.2, while ARPU of the Mini Package went ˊ up by 14.4%, to PLN The churn ratio was low and stable, at 9.8%. broadcasting and TELEVISION production segment The Telewizja Polsat Group was the only broadcaster to report a year-on-year increase in audience share - up by 7.9%, to 20.8%. POLSAT, our flagship channel, was at the top of the ratings with a 16.5% audience share (up by 2.6% year on year), Polsat s share of the thematic channels audience grew by 34.3%, to 4.4%. According to our estimates, in 2011 we had a 22.6% share in the Polish TV advertising market, worth approx. PLN 3.9bn. It is worth noting that thanks to our careful programming and expanded distribution of thematic channels, we outperformed the market in terms of advertising and sponsorship revenue (a year-on-year increase of 3.4% against 0.6%). KPI YoY change Retail business segment Number of pay TV subscribers e/y 3,551,671 3,436, % Churn rate 9.8% 10.3% (0.5pp) Average revenue per user (ARPU), (PLN) % Subscriber average cost (SAC), (PLN) (3.8%) Number of mobile telephony service users e/y 142,651 95, % Number of Internet service users e/y 73,190 25, % Broadcasting and television production segment Audience share of TV Polsat Group, incl.: 20.8% 19.3% 7.9% main channel 16.5% 16.0% 2.6% thematic channels 4.4% 3.2% 34.3% Advertising market share 22.6% 21.9% 3.2%

20 20 CYFROWY POLSAT S.A. GROUP ANNUAL REPORT 2011 The effect of the acquisition of Telewizja Polsat on the Group s reporting and performance Following the acquisition of the Telewizja Polsat Group, its results have been consolidated as of April 20th Consequently, the results of the Cyfrowy Polsat Group are not comparable with corresponding periods of Our business has been divided into two segments: the existing business of Cyfrowy Polsat has become the retail business segment, while the business of Telewizja Polsat has become the broadcasting and television production segment. The acquisition of Telewizja Polsat was financed chiefly with a Term Loan Facility and a Bridge Loan Facility, repaid with proceeds from the issue of Notes. We have incurred significant interest expense on debt financing. Valuation of Notes, which are denominated in EUR, also affects our financial results. Group s revenue Group s revenue in 2011 PLN m YoY change Retail sales 1,595 1, % Advertising and sponsorship revenue >100% Revenue from cable and satellite operator fees ˊ 61 0 Sale of equipmentˊ ˊ Other revenues, incl.: sales of licenses, sublicenses ˊ and property rights; the lease of premises and facilities; transmission services; other sales revenue % >100% Total: 2011 PLN 2,366 m 2010 PLN 1,482 m +60%

21 Revenue breakdown 26.8% 2.6% 0.7% 2.5% % shareˊ ˊ Retail sales Advertising and sponsorship revenue Revenue from cable and satelite operator fees Sale of equipment Other revenues 67.4% Revenue saw a year-on-year increase of 59.6%, to PLN 2,366m. Excluding the broadcasting and TELEVISION production segment, our revenue grew by 10.8%, to PLN 1,643m. Revenue improved on the back of the factors presented below. Revenue from retail sales went up by 12.6% year on year, to PLN 1,595m, mostly due to higher revenue from subscription fees for DTH services (attributable to higher year-on-year average number of subscribers and improved ARPU), as well as telecommunication services. Advertising and sponsorship revenue reached PLN 634m. The increase is attributable to the consolidation of advertising and sponsorship revenue of the Telewizja Polsat Group in the amount of PLN 630m. Revenue from satellite and cable operator fees of PLN 61m was generated solely by the Telewizja Polsat Group. Revenue from sale of equipment decreased to PLN 17m, down by 53.7% year on year, on the back of several factors, the most important of them being a significant drop in revenue from sale of set-top boxes, as the majority of our customers prefer to lease rather than purchase them. Other revenue went up by 134.9% year on year, to PLN 59m. The increase was a result of the consolidation of the Telewizja Polsat Group s revenue, including mainly revenue from sale of broadcasting and signal transmission services and sale of licenses, sub-licenses and property rights. Excluding the effect of the consolidation of the Telewizja Polsat Group, other revenue increased by 5.5%, to PLN 27m. travel channel travel channel All rights reserved

22 22 CYFROWY POLSAT S.A. GROUP ANNUAL REPORT 2011 Operating costs Operating costs in 2011 PLN m YoY change Programming costs % Distribution, marketing, customer relation management and retention costs % Cost of internal and external TV production and amortization of sport rights Depreciation, amortization and impairment >100% Salaries and employee-related costs % Amortization of purchased film licensesˊ ˊ 93 0 Other costs, incl.: broadcasting and signal transmission costs; cost of equipment sold; % other costs Total: 2011 PLN 1,734 m 2010 PLN 1,122 m +55% Operating costs breakdown 17.9% 5.4% 8.6% 10.1% 23.9% 15.6% 18.5% Programming costs Distribution, marketing, customer relation management and retention costs Cost of internal and external TV production and amortization of sport rights Depreciation, amortization and impairment Salaries and employee-related costs Amortization of purchased film licenses Other costs

23 Operating costs grew by 54.5% year on year, and reached PLN 1,734m. Excluding the effect of the consolidation of the Telewizja Polsat Group, our total operating costs increased by 9.9%, to PLN 1,233m. The growth in operating costs was driven by factors presented below. Programming costs increased by 5.8% year on year, to PLN 415m. Excluding the effect of the consolidation of the Telewizja Polsat Group, programming costs increased by 10.8%, to PLN 434m, on the back of several factors, including a higher average number of DTH subscribers and lower content acquisition costs. Distribution, marketing, customer relation management and retention costs reached PLN 321m, up by 8.0% year on year. Excluding the effect of consolidation of Telewizja Polsat Group, these costs increased by 6.3%, to PLN 316m. The increase followed from the higher number of subscribers, which in turn generated higher costs of customer relation management, and introduction of retention schemes. Costs of internal and external TV production and amortisation of sports rights in the amount of PLN 271m were incurred solely by the Telewizja Polsat Group. Depreciation, amortization and impairment costs were PLN 175m, up by 115.4% year on year. Excluding the effect of consolidation of Telewizja Polsat Group, these costs increased by 71.4%, to PLN 139m. The increase was primarily attributable to: ˊ higher depreciation charges on set-top boxes leased to subscribers, resulting from an increase in the number of leased devices, which are recognised as property, plant and equipment,ˊ recognition of impairment losses on property, plant and equipment (mostly set-top boxes) in Salaries and employee-related costs increased by 68.4% year on-year, to PLN 149m. Excluding the effect of the consolidation of the Telewizja Polsat Group, these costs were PLN 100m, up by 12.9%, mostly on the back of higher headcount related to the expansion of our business as well as the merger with mpunkt. Amortization of purchased film licenses of PLN 93m related solely to the Telewizja Polsat Group. Other costs were PLN 310m, up by 18.1%. The increase was attributable to a number of factors, the most important of them being: ˊ a 43.7% increase (to PLN 115m) in signal transmission costs, following from the consolidation of broadcasting and signal transmission costs incurred by Telewizja Polsat (broadcasting costs, including mainly costs of transponder capacity rental and analogue terrestrial broadcasting) and currency fluctuations (depreciation of the zloty),ˊ a 43.7% decrease (to PLN 34m) in cost of equipment sold, mainly on the back of lower cost of sales of set-top boxes, attributable to the fact that a majority of our customers prefer to lease rather than purchase set-top boxes. Excluding the effect of the consolidation of the Telewizja Polsat Group, other costs decreased by 7.6%, to PLN 243m. Net profit ˊ Net profit fell by 38.0% year on year, to PLN 160m, on the back of high finance expenses, including costs related to currency fluctuations (chiefly foreign exchange differences on valuation of EUR-denominated Senior Notes) and interest expense on the Term Loan Facility, as well as repayment of interest on notes issued to finance the acquisition of Telewizja Polsat. POLSAT CAFĖ POLSAT All rights reserved

24 24 CYFROWY POLSAT S.A. GROUP ANNUAL REPORT 2011 EBITDA and EBITDA margin EBITDA went up by 80.7% year on year, to PLN 735m. Excluding the effect of the consolidation of the Telewizja Polsat Group, EBITDA increased by 18.4%, to PLN 482m. EBITDA margin rose from 27.5% in 2010 to 31.1% in Excluding the effect of the consolidation of the Telewizja Polsat Group, EBITDA margin increased from 27.5% in 2010 to 29.3% in The improvement reflects partial synergies with Telewizja Polsat. Capital expenditure In 2011 and 2010, we incurred capital expenditure of PLN 66m and PLN 46m, respectively. Capital expenditure to revenue ratio was 2.8% in 2011 and 3.1% in In 2011, capital expenditure related chiefly to the settlement of investment commitments recognised as at December 31st 2010 and purchase of transmission and compression equipment, vehicles, computers and other equipment, as well as modernisation of property and extension of IT systems. CASH FLOWS PLN million YoY change Cash flow from operating activities % Cash flow used in investing activities (2,427) (77) % Cash flow from financing activities 2,327 (192) - Net change in cash and cash equivalents 248 (72) - Cash flows from operating activities totalled PLN 347m, mostly on the back of net profit of PLN 160m, adjusted for a number of factors, the most important of them being: (i) amortization, depreciation and impairment, interest expense and income tax, (ii) net increase in reception equipment provided under operating lease, (iii) net foreign exchange losses, (iv) change in liabilities, provisions and deferred income, (v) higher receivables and other assets, (vi) payments for film licenses and sport rights, (vii) amortization of film licenses and sport rights. Net cash from financing activities of PLN 2,327m consisted mainly of PLN 2,800m under the Term Loan Facility and the Bridge Loan Facility, and PLN 1,372m under Notes in issue. The figure was partially offset by repayment of loans in the amount of PLN 1,539m, payment of interest on loans, borrowings and finance lease of PLN 290m, as well as repayment of overdraft facility PLN 18m. Cash used in investing activities totalled PLN 2,427m, mostly attributable to the acquisition of 100% of the shares in Telewizja Polsat. Other expenses included acquisition of property, plant and equipment, intangible assets and NFI Magna Polonia S.A. bonds, as well as advance payments for shares in INFO-TV-FM. Did you know? Polsat News broadcasts from one of the largest and most advanced news studios in Europe.

25 POLSAT news POLSAT/ studio69 All rights reserved

26 26 CYFROWY POLSAT S.A. GROUP ANNUAL REPORT 2011 Balance sheet Main changes Assets Equity & Liabilities PLN million 31 December December 2010 Change PLN million 31 December December 2010 Change Non-current assets 4, ,680 Equity 1, ,468 Goodwill 2, ,360 Share capital Brands Reserve capital Non-current programming assets Other reserves 1, ,295 Current assets 1, Retained earnings (116) Current programming assets Cash and cash equivalents Non-current liabilities 2, ,408 Loans and borrowings Senior Notes payable 1, ,418 Current liabilities Loans and borrowings Senior Notes payable Assets 5,325 1,015 4,310 Total equity & liabilities 5,325 1,015 4,310 Did you know? The first Polish experimental broadcast took place in 1939, just before World War II broke out. It featured... Mieczysław Fogg, a famous singer.

27 As of December 31st 2011 and December 31, 2010, our balance sheet amount was PLN 5,325m and PLN 1,015m respectively. As at December 31st 2011, the value of our non-current assets was PLN 4,225m, which represented 79.3% of total assets. Excluding the effect of consolidation of TV Polsat Group, as of December 31st, 2011 our non-current assets were PLN 4,591m and accounted for 88.6% of total assets. Following the acquisition of Telewizja Polsat, goodwill increased by 2,360m year on year, to PLN 2,412m. In addition, the Company recognised PLN 840m under noncurrent assets as the value of the Polsat brand. The value of non-current programming assets was PLN 131m, whereas current programming assets amounted to PLN 137m. These new items of assets, recognised following the consolidation of the Telewizja Polsat Group, comprise purchased film licenses, capitalised costs of external TV production, sports broadcasting rights, coproductions and advance payments. Current assets totalled PLN 1,100m, representing 20.7% of total assets. Excluding the effect of the consolidation of the Telewizja Polsat Group, our current assets were PLN 588m, or 11.4% of total assets. Cash and cash equivalents increased by PLN 250m year on year, to PLN 278m, following the recognition of the Telewizja Polsat Group s cash and cash equivalents in the amount of PLN 257m. Excluding the effect of the consolidation of the Telewizja Polsat Group, cash and cash equivalents fell by PLN 7m, to PLN 20m. Equity was PLN 1,896m, up by PLN 1,468m year on year. The increase followed chiefly from: (i) a PLN 3m increase in the Company s share capital related to the issue of Series H shares, (ii) recognition of share premium of PLN 1,147m (net of transaction costs of PLN 0.5m) under capital reserves, (iii) recognition of fair value measurement of the payment for Telewizja Polsat shares (PLN 149m) under capital reserves, (iv) recognition of valuation of hedging instruments (PLN 5m), (v) 2011 profit of PLN 160m. Liabilities under (current and non-current) loans and borrowings increased to PLN 1,205m in connection with the Term Loan Facility contracted to finance the acquisition of Telewizja Polsat. Liabilities under (short- and long-term) notes and bonds were PLN 1,523m and followed from the issue of Senior Notes with a nominal value of EUR 350m, maturing in The Company applied the net proceeds from the Notes to repay the Bridge Loan Facility, which had been used to partially finance the acquisition of Telewizja Polsat. National Geographic channel NATIONAL GEOGRAPHIC channel All rights reserved

28 CYFROWY POLSAT S.A. GROUP 28 ANNUAL REPORT 2011 Our awards February 2011 Listed Company of the Year The Company won the first place in the 12th edition of the prestigious Listed Company of the Year ranking, organised by the Puls Biznesu daily, and ranked first in the Investor relations and Growth prospects categories. Moreover, the Company came second in the 2010 Success category and third in the Management expertise and Quality of products and services categories. November 2011 Pearl of Polish Economy The Company won the first place in the infrastructure category and came second in the Large Pearls category of the 9th edition of the prestigious ranking organised by the Polish Market monthly, with expert support provided by the Institute of Economics of the Polish Academy of Sciences. March 2011 The Golden Antenna The prize was presented during the 13th Grand Gala of the Golden and Cristal Antennas, which accompanied the 11th Telecommunication and Media Industry Conference.

29 December 2011 Businesswoman 2011 Aneta Jaskólska, Member of the Management Board, was awarded the second place in the prestigious 100 Businesswomen ranking of the Puls Biznesu daily. Best TV broadcaster of 2011 POLSAT, our flagship channel, was named the Best TV Broadcaster of 2011 in the Best Broadcasters and Advertising Agencies 2011 ranking, compiled by the industry monthly Media & Marketing Polska. Grand Press 2011 Radosław Kietliński and Agata Kaźmierska from Polsat News received the Grand Press 2011 award in the TV documentary category for Taliban the other side of war, a film exploring the mechanism behind the transformation of the Taliban a religious, peace-loving people into a political force that even the US cannot defeat. Most Valuable Polish Brands in 2011 POLSAT ranked third in the Media and publishing houses category of the ranking of Most Valuable Polish Brands in 2011, compiled by the Rzeczpospolita daily. Golden Eagles Trendy 2011 Cyfrowy Polsat was awarded a distinction and the Trendy Award 2011 statuette in the Media category for creating the most recognisable media brand in Poland Product of the Year This distinction is granted by the influential PC World monthly to award the most interesting products, technologies and services placed on the market in the last 12 months. The high-speed mobile LTE Internet, which was a major gamechanger on the IT consumer market, was named product of the year. January April 2012 for 2011 ˊ ˊ Tele Tydzień TV Cameras Following a viewer survey, one of our channels, Polsat Sport, received a 2012 Tele Tydzień TV Camera award for 2011 in the Sports channel category, while Mateusz Borek from Polsat Sport was chosen the best sports commentator. ˊ ˊ 2011 Listed Company of the Year The Company came second in the 13th edition of the general ranking prepared by the Puls Biznesu daily, ranked second in the Investor relations and Quality of products and services, and fifth in the Management expertise categories. ˊ ˊ Top Global TV Broadcasters According to the Global Television Broadcasting Industry Analysis published in April 2012 by Plimsoll, a firm specialising in global industry analyses, Telewizja Polsat Sp. z o.o. ranks 141st among the world s 750 largest TV broadcasters. Moreover, it secured a very strong 53rd place on the list of the most profitable broadcasters. Tele Tydzień TV Cameras 2012 for Polsat Sport channel in the Sports channel category and Mateusz Borek the best sports commentator (from the left Mateusz Borek, the winner of TV Cameras and Marian Kmita, Head of Polsat Sport channel) POLSAT sport AKPA All rights reserved

30 30 CYFROWY POLSAT S.A. GROUP ANNUAL REPORT 2011 Get to know Cyfrowy Polsat We are a leading media group in Poland, comprising the following companies: Cyfrowy Polsat Poland s largest and Europe s fourth largest satellite platform and Telewizja Polsat a leading commercial broadcaster in Poland, ranking among the 150 largest and 60 most profitable TV broadcasters in the world (according to Plimsoll, Global Television Broadcasting Industry Analysis, April 2012). ˊ The Telewizja Polsat Group has: 15 popular TV channels, three of which are HD channels, including entertainment, sports, news, business, lifestyle, film and children s channels, 20.8% audience share (16-49 age group), 22.6% share of the TV advertising market. The Cyfrowy Polsat platform has: 3.55 million subscribers over 100 channels in Polish, including 28 HD channels, PPV/VOD Home Movie Rental and catch-up TV services, Multiroom HD. We own a set-top box manufacturing plant. Since September 2008, we have provided mobile telephony services as an infrastructural MVNO. In April 2012, we included Polkomtel s mobile telephony services (Plus) in our offering under a strategic partnership. We have provided integrated services under a single agreement, subscription fee and invoice since June In April 2012, we acquired the ipla Internet TV. Ipla is the leader of the Polish video online streaming market, both in terms of its compatibility with electronic devices (computers/ notebooks, tablets, smartphones, TV sets with Internet connections, set-top boxes, game consoles) and in terms of content volume. Ipla also has one of the largest user bases, with the highest average time spent by a single user on watching streamed content. In Q2 2012, we launched TV MOBILNA (MOBILE TV), a service based on Digital Video Broadcasting Terrestrial technology (DVB-T). Cyfrowy Polsat s TV MOBILNA is available for viewing on the most popular portable devices, and can be accessed using the newest DVB-T set-top box manufactured by Cyfrowy Polsat Technology. In May 2008, Cyfrowy Polsat floated its shares on the Warsaw Stock Exchange. We operate in two segments: the retail business segment, which provides digital TV, broadband Internet and mobile ˊ telephony services, and the broadcasting and television production segment. In February 2010, we rolled out wireless broadband Internet access services based on the HSPA+ technology, and on August 30th 2011 the service was launched in the cutting-edge LTE technology.

31 Governing bodies Did you know? In the 1940s, TV-sets were called tele-superheterodynes with an electric eye. Management Board The current Management Board, composed of four members, was appointed in 2010 for a joint three-year term of office. Composition of the Management Board Name and surname Function Year of first appointment Year of appointment for the current term Year of expiry of term Dominik Libicki President of the Management Board Dariusz Działkowski Member of the Management Board Aneta Jaskólska Member of the Management Board Tomasz Szeląg Member of the Management Board DISCOVERY channel DISCOVERY CHANNEL All rights reserved

32 32 CYFROWY POLSAT S.A. GROUP ANNUAL REPORT 2011 Dominik Libicki Dominik Libicki has been the President and Chief Executive Officer of Cyfrowy Polsat S.A. since March Mr. Libicki is also the President of the Management Board of Cyfrowy Polsat Technology Sp. z o.o. and a member of the Supervisory Board of Telewizja Polsat Sp. z o.o. Since February 2005, Mr. Libicki has also been Vice President of the Union of Private Media Employers of the Polish Confederation of Private Employers Lewiatan (Zwiazek Mediow przy Polskiej Konfederacji Pracodawcow Prywatnych Lewiatan). His previous professional experience is related mainly to the television production industry. He was the Managing Director of PAI Film. He also ran his own company Studio Meg which produced television advertising spots and television programs. Between 2005 and 2006 he was a member and between 2006 and 2008 the Vice-Chairman of the Supervisory Board of Polska Telefonia Cyfrowa Sp. z o.o., a mobile network in Poland. From May 1999 to March 2011, Mr Libicki was member of the Supervisory Board of Polskie Media S.A. Mr. Libicki graduated from the Department of Environmental Studies at the Wroclaw Technical University and completed a training course for supervisory board members organized by the Polish Ministry ˊ of Economy. ˊ ˊ Dariusz Działkowski Dariusz Działkowski has been a Member of the Management Board responsible for technology since August Mr. Działkowski is also a Member of the Management Board of Cyfrowy Polsat Technology Sp. z o.o. From November 2001 Działkowski was the Technical Director of Cyfrowy Polsat S.A.. Mr. Działkowski got his previous professional experience with Canal+ and Ericsson where he held the positions of Technical Director and Services Sales Department Manager respectively. He is one of the founders of Centrum Telemarketingowe Sp. z o.o. Mr. Działkowski graduated from the Faculty of Electronics at the Warsaw University of Technology at the radio and television specialization and has an MBA degree from the University of Maryland.

33 Tomasz Szeląg Tomasz Szeląg is a Member of the Management Board and Chief Financial Officer since May Mr. Szeląg is also a Member of Management Board of Cyfrowy Polsat Technology Sp. z o.o., President of the Management Board of Cyfrowy Polsat Trade Marks Sp. z o.o., Member of the Management Board of Cyfrowy Polsat Finance AB and a Member of the Management Board of Telewizja Polsat Sp. z o.o. In the years he was an assistant at the University of Economics in Wroclaw (Department of Foreign Trade). In May 2003 he defended his doctorate on the hedge transaction used by the world s copper producers, and was an assistant professor of Department of International Economic Relations. In the years he also held the position of assistant professor in the School of Banking in Wroclaw - Department of International Economic Relations. In parallel, since 2003, he served as Chief Specialist in the Foreign Exchange Risk Division at KGHM Polska Miedź SA, and then at the Department of Analysis and Market Risk. In September 2004 he was made director of the department. In December 2004 he was made Director of the Hedging Department at KGHM and he performed his function until March From April 2007 to May 2008 he worked as Director of the Branch of Société Générale Bank in Wroclaw. In July 2008 he became Vice-President for Finance at Telefonia Dialog S.A., which position he held until March He graduated from Wroclaw University of Economics in the Faculty of National Economy, the branch of International Economic and Political Relations, specialization in Foreign Trade. ˊ ˊ Aneta Jaskólska Aneta Jaskólska has been a Member of the Management Board of Cyfrowy Polsat S.A. since July She is responsible for Legal Department, Administration Department, Personal Department and Safety Department. Mrs. Jaskólska is also a Member of the Management Board of Cyfrowy Polsat Technology Sp. z o.o. and a Member of the Management Board of Cyfrowy Polsat Trade Marks Sp. z o.o. Aneta Jaskólska graduated from the Faculty of Law and Administration of Warsaw University and completed legal internship with the District Chamber of Legal Advisers in Warsaw, receiving the title of a solicitor. She also graduated from Copyright, Publishing and Press Law Faculty at the Department of Management and Social Communication of Jagiellonian University. Since 2007 Mrs. Jaskólska has been Director of Legal and Regulatory Department of Cyfrowy Polsat S.A. Between 2004 and 2007 Aneta Jaskólska held the position of Proxy and Director of Legal Department of UPC Polska Sp. z o.o. Mrs. Jaskólska has 14 years of experience in the legal advisory and services to large business entities.

34 34 CYFROWY POLSAT S.A. GROUP ANNUAL REPORT 2011 Supervisory Board The Supervisory Board is composed of five members. The composition of the Supervisory Board remained unchanged throughout The Composition of the Supervisory Board Name and Surname Function Year of first appointment Year of appointment to the current term Year of term expiry Zygmunt Solorz-Żak Chairman of the Supervisory Board Member of the Remuneration Committee Robert Gwiazdowski Independent* Member of the Supervisory Board Member of the Audit Committee Andrzej Papis Member of the Supervisory Board Leszek Reksa Independent* Member of the Supervisory Board Member of the Audit Committee Heronim Ruta Member of the Supervisory Board Member of the Audit Committee Member of the Remuneration Committee * Conforms with the independence criteria listed in the Best Practices of WSE listed Companies in Chapter III point 6. Did you know? The Polsat News studio boasts the largest video wall used by a news channel in Poland.

35 Zygmunt Solorz-Żak is one of the greatest private entrepreneurs in Poland, conducting business in various areas of the Polish economy. Currently, Mr. Solorz-Żak focuses his business activities in the media and telecommunications sector, in particular through entities like Cyfrowy Polsat S.A. (being also its founder), Telewizja Polsat Sp. z o.o., Polkomtel Sp. z.o.o. and Midas Group. Mr. Solorz-Żak s investment interest also includes companies from the following sectors: energy (ZE PAK S.A), finance and banking (Invest-Bank S.A., PTE Polsat S.A.), project development and construction (Port Praski Sp. z o.o.) and sports (WKS Śląsk Wrocław S.A.). Robert Gwiazdowski has a senior post-doctoral qualifications in law. Mr. Gwiazdowski is also an arbiter in arbitrary proceedings at the Stock Exchange Court within the Warsaw Stock Exchange S.A. He is the President of Adam Smith Centre. Mr. Gwiazdowski is the Supervisory Board member of Gemius S.A., MNI S.A. and DGA S.A. Andrzej Papis, is a Legal Advisor. Since 2000 he has been the lawyer of Telewizja Polsat Sp. z o.o. and since 2001 of Inwestycje Polskie Sp z.o.o. He has been a member of the Board of TFP Sp. z o.o., a member of the Supervisory Board of Elektrim S.A. and also of the Supervisory Board of Polkomtel Sp. z o.o. Leszek Reksa for over 15 years has been employed on managerial positions in the banking sector (large banking institution). He also has a great work experience in statutory bodies of commercial code companies he was President of the Management Board of PHU BIMOT S.A., member of the Supervisory Board of Bankowy Fundusz Leasingowy S.A. and member of the Supervisory Board of Zaklady Azotowe Kedzierzyn S.A. Heronim Ruta is employed by Ster Sp. z o.o. He sits on the Supervisory Boards of Polkomtel Sp. z o.o. (as the President), Invest Bank S.A., PAI Media S.A., Gurex S.A., Telewizja Polsat Sp. z o.o. and also on the Management Board of Diasen Ltd. Polsat NEWS POLSAT/ studio69 All rights reserved

36 36 CYFROWY POLSAT S.A. GROUP ANNUAL REPORT 2011 Corporate governance Did you know? The first stock exchange in Poland was the Warsaw Mercantile Exchange, which was established on May 12th, Trading sessions were held between noon and 1:00 pm. Corporate governance refers to the overall management and supervision of the Company, including its organisation, values, principles and business guidelines, and to all the internal and external regulations and monitoring of mechanisms in place at the Company. The effective and transparent corporate governance guarantees that Cyfrowy Polsat is managed and controlled in the responsible manner, focused on value creation. It fosters confidence among our Polish and foreign investors, financial markets, customers and business partners, as well as Group employees. In Poland, the principles of corporate governance are compiled in the Code of Best Practice for WSE Listed Companies. Its objective is to enhance the transparency of listed companies, improve the quality of their communication with investors and strengthen the protection of shareholder rights, also in areas which are not regulated by law. The Code of Best Practice relates to areas in which its application may have a positive effect on the market valuation of companies and, consequently, reduce costs of raising capital. More information on corporate governance can be found on the dedicated web page at Every year, together with the annual report, we publish a statement of compliance with corporate governance rules in a given year. Moreover, should we fail to comply with any of the principles of the Code of Best Practice, we release a current report concerning such non-compliance. The statement of compliance with the Code of Best Practice in 2011 was published on March 12th, 2012 together with the annual report, and can be found in the Corporate governance section of our website at Manner of operation and key powers of the governing bodies of Cyfrowy Polsat General Shareholders Meeting The General Shareholders Meeting (GM) is the Company s supreme governing body, empowered to make decisions on the most important matters related to the Company s existence and operation. The powers and rules of procedure of the General Shareholders Meeting are defined in the Polish Commercial Companies Code, the Company s Articles of Association, and the Rules of the General Shareholders Meeting. The powers of the General Shareholders Meeting include: review and approval of the Directors Report on the Company s Operations, Report of the Supervisory Board and financial statements for the previous financial year, decisions on profit distribution or coverage of loss, appointment and removal from office of members of the Supervisory Board and determining their remuneration, amendments to the Company s Articles of Association and change of the Company s business profile, increase or reduction of the Company s share capital, merger, transformation, dissolution or liquidation of the Company, issue of bonds/notes, as well as other matters stipulated in the Polish Commercial Companies Code. The General Shareholders Meeting may be held as an annual or extraordinary meeting. The Annual General Shareholders Meeting is held within six months of the end of each financial year, while the Extraordinary General Shareholders Meeting is convened in circumstances specified in the Company s Articles of Association and whenever the authorised persons deem it advisable.