Ziggo N.V. Annual Report Connecting people

Transcription

1 Ziggo N.V. Annual Report 2013 Connecting people

2 Ziggo at a glance Performance Governance Financial statements CEO Statement 3 Ziggo at a glance 5 Products and services 6 Facts & figures 7 Mission, trends and strategy 9 Operational review 13 Financial review 19 Corporate social responsibility 28 Investor relations 31 Corporate Governance 36 Chairman s Statement 37 Supervisory Board 39 Board of Management 41 Dutch Corporate Governance Code 43 Risk Management and Internal Control 45 In Control and Compliance Statement 53 Report of the Supervisory Board 54 Consolidated statement of income 62 Consolidated statement of comprehensive income 63 Consolidated statement of financial position 64 Consolidated statement of changes in equity 65 Consolidated statement of cash flows 66 Notes to the consolidated financial statements 67 Remuneration Report 56 Corporate financial statements 102 Notes to the corporate financial statements 106 Appropriation of result 114 Independent auditor s report 115 Contact details and address 116 This pdf is interactive. The content is clickable so you can navigate through this document. Ziggo N.V. Annual Report

3 Ziggo at a glance Performance Governance Financial statements CEO Statement Focus on the customer The company s people, their motivation and their achievements impress me. René Obermann, CEO Ziggo N.V. Annual Report

4 Ziggo at a glance Performance Governance Financial statements As the new CEO of Ziggo, the Company s people, their motivation and their achievements impress me. In a competitive market, characterized by rapid technological changes, the Company managed solid growth, especially in All-in-1 bundles, broadband internet subscriptions and the segment of home offices and small and medium-sized businesses of the business market. The growth was supported by a revised marketing strategy, which was implemented early in the year. Higher investments in sales, promotions and customer retention all contributed to Ziggo s performance in This was also the year the Company took its first steps in offering mobile services and rolled out over 1 million WifiSpots, resulting in more than 300,000 unique users every week. In a converging world, these milestones are important for our future ambitions of connecting our customers anywhere, anytime. Driving innovation, together with customer satisfaction, are key to differentiate Ziggo in a competitive landscape where technology changes so rapidly. Growth in 2014 will be based on our strong network and appealing product offerings, such as superior broadband internet, Ziggo Mobile and our B2B services. As we anticipate no substantial change in the intense market competitiveness, we intend to make further investments in sales and promotions, customer retention and product development to strengthen our position. We expect that these additional investments, which will be skewed towards the first half of the year, to result in a flat EBITDA for 2014 compared to last year. Following increased network investments to stay ahead of ever-increasing customer demand for bandwidth, the investments in set top boxes to support the customer experience, and the continuation of investments to upgrade our IT systems to enable converged services, Capex will increase to around 370 million in In early 2014, the Company was presented with a potential change in ownership. This is still awaiting the acceptance of shareholders and approval by the authorities. However, given the great potential of the merger of two strong regionally operating Dutch companies, it has the full support of the Supervisory Board and the Board of Management. Until completion of the transaction, the Company has agreed not to pay or declare any further (interim) dividend or to make any distribution. Growth in 2014 will be based on our strong network and appealing product offerings such as superior broadband internet, Ziggo Mobile and our B2B services. The dedication of our employees was extremely important in driving customer satisfaction levels in Again, we were able to outperform the previous year. I would like to thank all of them. Also, I would like to thank our customers, for their appreciation and trust in Ziggo. It is my strong belief that 2014 will be a challenging, but successful year. René Obermann Chief Executive Officer Ziggo March 5, 2014 Ziggo N.V. Annual Report

5 Ziggo at a glance Performance Governance Financial statements Ziggo at a glance Ziggo is a Dutch provider of entertainment, information and communication through television, broadband internet and telephony services. We supply around 2.8 million households and small businesses with television, almost 2.3 million with digital television, about 1.9 million with broadband internet, and 1.6 million with telephony services. About 1.5 million customers are subscribers to our All-in-1 bundle. Ziggo N.V. Annual Report

6 Ziggo at a glance Performance Governance Financial statements Products and services Ziggo owns a next-generation network capable of providing the bandwidth required for all future services currently foreseen. Today we provide 150 Mbps download speed throughout our complete service area. With the technology currently in place in the network, we can upgrade this to 400 Mbps, while higher speeds are already tested over our kind of network, proving our infrastructure is a next-generation future-proof network. Television Ziggo offers customers three digital TV packages, all of which include interactive television- and premium packages. With this offering, customers have access to high quality digital and HD TV and interactive and recording facilities depending on the set top box they have selected. In addition to our TV packages, we offer subscriptions to premium channels such as HBO, Fox Sports, Film1, Sport1 and channels with a lifestyle angle. We have also developed a TV app to enable customers to watch live TV on smartphones and tablets, in and around the house and around our 1 million WifiSpots. Internet Ziggo offers the highest internet speeds in the market. This is due to our ultramodern hybrid fibre coaxial network, with fibre very close to the home within less than 300 meters and the implementation of EuroDocsis 3.0. We are able to provide higher speeds and capacity in line with the development of the demand for broadband. Telephony Ziggo telephony subscribers can phone each other, other landlines and mobile numbers within The Netherlands for an additional fixed fee of 9.95 per month. All-in-1 bundles Over half our customers subscribe to our products in the triple-play product All-in-1. This is the best bundle in the market, with highest quality content, best HD signal quality, highest internet speeds and high quality telephony services for an attractive price. Business to business Business-to-business customers use services such as data communication, telephony, television and internet. Ziggo provides these services over the same network to business customers such as home offices, small and medium-sized businesses, hospitals, hotels, schools and student dorms. We have a range of different products and services bundled in ways particularly suited to the business sector. For home offices and small businesses, these services are provided through business bundles, such as Office Basis and Internet Plus. Introduced in 2013 Cloud User Interface On March 15, Ziggo officially introduced the first fully cloudbased interactive DVB-C TV service in the world. By combining the IP protocol with the DVB-C television standard, even set top boxes without inbuilt hardware functionality for interactivity are now able to utilize interactive services via cable. This enables customers to access interactive services like Video on Demand or TV Gemist via a simple and basic digital receiver. Ziggo WifiSpots At the end of April, we launched the roll-out of our WiFi Homezone concept in our footprint, called Ziggo WifiSpots, starting with the activation of 65,000 Ziggo WifiSpots in the city of The Hague. The wifi-hotspot concept utilizes the public channel of our wifi EuroDOCSIS 3.0 modems at the customer s premises, enabling all Ziggo internet customers to access high-speed internet in the vicinity of an activated Ziggo modem. Since its launch in April, 2013, Ziggo has activated over 1 million WifiSpots. Ziggo Mobile On September 16, Ziggo launched its mobile voice and data service: Ziggo Mobile. Ziggo Mobile has been specially created for existing Ziggo customers. Ziggo Mobile has two SIM-Only subscription options for consumers and two for business clients. The basic consumer subscription is available for 15 per month (incl. VAT). This subscription offers 300 minutes call time/text messages, 1,000 MB data and unlimited access to more than 1 million Ziggo WifiSpots. There is an introductory subscription for business clients of 20 (excl. VAT) with 400 minutes call time/text messages, 1,000 MB data and unlimited access to the Ziggo WifiSpots. Both Ziggo Mobile propositions come with one-month notice periods. CI+ 1.3 module On November 5, we introduced the CI+ 1.3 module, enabling interactive services such as on-demand movies, television series or missed TV programmes, without the use of a set top box and using the remote control of the television set. Ziggo is the first in the world to enable interactive television via such a CI+ module. Since the beginning of 2013, an increasing number of televisions have been enabled for usage of this CI+ 1.3 module. The CI+ 1.3 module makes use of the streaming graphical user interface (SGUI) which was deployed earlier in Ziggo N.V. Annual Report

7 Ziggo at a glance Performance Governance Financial statements Facts & figures Connected households and businesses Broadband internet connections Employees Serving about 2.8 million households, home offices and small businesses, Ziggo is one of the largest providers of media and communication services in the Netherlands. With over 1.9 million broadband internet customers, Ziggo is one of the leading companies in high-speed internet connections up to 150Mbps. Our dedicated employees work day in, day out to meet our customers expectations. 2.8 Mln 1.9 Mln 3,354 FTEs Digital TV customers Telephony customers Hybrid Fibre Coaxial network With over 2.3 million digital TV customers, we are the largest digital television provider, offering the best digital TV quality, in Standard Definition, 3D, High Definition and VoD. More than 1.6 million customers use Ziggo telephony. The Ziggo Hybrid Fibre Coaxial (HFC) network consists of 98% fibre, extending on average to less than 300 metres from customer homes and offices, which are connected by a high-capacity coaxial cable. 2.3 Mln 1.6 Mln 98% Ziggo N.V. Annual Report

8 Ziggo at a glance Performance Governance Financial statements Service area & locations Rijswijk Eindhoven Groningen Heerhugowaard Utrecht Zwolle Television subscriptions ,291 Analog Digital 636 Analog 2012 Digital 2,256 Service area Product overview 7,186 7,102 4,247 4,213 2,796 2,892 1,910 1,788 1,608 1,493 1,538 1, Total RGUs Homes passed Total TV customers Digital pay TV customers Internet subscribers Telephony subscribers Total triple pay Ziggo N.V. Annual Report

9 Ziggo at a glance Performance Governance Financial statements Mission, trends and strategy At Ziggo, we want our customers to experience the highest level of convenience and pleasure in the field of information, communication and entertainment. We offer customers access to high-quality content and differentiating services, anywhere and at any time through our state-of-the-art network. In doing so, our mission is to be the preferred media and entertainment company. Ziggo is the largest Dutch cable operator with a network that covers approximately 56% of total homes passed in the Netherlands. Our service portfolio includes TV, broadband internet and (fixed and mobile) telephony services to consumers and businesses. Our strategy is to combine individual services in attractive packages, offering customers benefits in terms of convenience and cost while optimizing our network s utilization. Superior network and product offering Instrumental to the success of Ziggo s strategy is our fullyowned Hybrid Fibre Coaxial (HFC) network, which is very dense and brings high-capacity fibre very close (on average less than 300 metres) to the premises of our customers. As a result, we provide individual households in our service area with connections consisting for 98% out of fibre and a constant capacity of 3-4 Gbps. Our superior network enables us to offer our customers the best-value products and services now and in the foreseeable future. As DOCSIS 3.0 is completely rolled out, Ziggo chooses to deliver internet speeds up to 150 Mbps to all our homes passed today, whilst having the option to increase speeds to 400 Mbps at our discretion using our current technology. Furthermore, we focus on providing our customers with highly attractive propositions which differentiate us from our competitors in terms of content, speed, functionality and quality of service. Thanks to our network strength and differentiating service propositions, we have developed leading positions in triple-play, digital pay TV and broadband internet services within our service area. We will continue to leverage our network and proposition advantages to grow by increasing the product penetration of existing products and realizing our innovation roadmap. These topics will be discussed in the following paragraph. Innovation and growth opportunities Innovation is key to capturing new growth opportunities and strengthening our leading position in the dynamic Dutch telecom and media market. Our strategy is fully focused on providing customers access to high-quality content and services anywhere and anytime by leveraging and further improving our superior infrastructure and introducing new products and services. Our superior network enables us to offer our customers the best-value products and services now and in the foreseeable future. Ziggo continuously monitors the demand for bandwidth and increases the capacity of its network in order to deliver the best possible service to our customers. At the same time, since DOCSIS 3.1 has been defined as the next industry standard, we closely monitor the development of the next generation of corresponding hardware, so we can roll out DOCSIS 3.1 and gradually increase internet speeds to up to 10 Gbps as our customers need it. In doing so, Ziggo makes sure it maintains its superior network advantage in the longer run. Ziggo believes that ubiquitous broadband connectivity will become increasingly important for end users and we are deploying a mix of technologies and infrastructures to cater to this need. In 2013, Ziggo successfully rolled out more than 1.1 million WifiSpots, using Ziggo wifi routers at the premises of Ziggo N.V. Annual Report

10 Ziggo at a glance Performance Governance Financial statements our consumer and business customers as public hotspots for other Ziggo customers. Moreover, we have started pilots in 2013 to further expand the wifi coverage in the public space for our customers by installing public hotspots on Ziggo s existing street cabinets. The use of public hotspots using wifi routers and street cabinets implies a significant expansion of the accessibility of our high-capacity network for individual customers far beyond proximity of their homes. Finally, we further complement our fixed and wifi coverage with a range of mobile solutions and infrastructures, such as an MVNO (mobile virtual network operator) and our 2.6Ghz LTE license acquired in In September 2013, Ziggo successfully launched its first mobile propositions offering mobile voice and data to existing customers. The fact that Ziggo already has a continually expanding high-density wifi network in place means low-cost, high-speed connectivity to customers and low-cost benefits to Ziggo due to mobile data offloading. Taken together, these elements constitute important steps towards the realization of our connectivity strategy focused on providing ubiquitous broadband access to truly converged voice and video services. We continue to improve our TV proposition by offering interactive solutions. In 2013, we launched our cloud-based user interface offering an interactive TV experience through a high-end user interface on our customers non-interactive set top boxes. Furthermore, we have rolled out the Interactive CI+1.3 CAM module; combined with our cloud-base UI this enables us to offer interactive services on over 260 CI-certified television sets, which eliminates the use of set top boxes altogether. Both innovations will increase the penetration of Interactive Television amongst our customers and, combined with our ubiquitous connectivity, contribute to the realization of our TV Everywhere strategy enabling customers to watch interactive television on tablets and smartphones wherever they want, whenever they want. Customer services Increasing customer satisfaction is of crucial importance to Ziggo. About one-third of our workforce is active in direct customer service. We have invested and will continue to invest heavily in our customer services. The fact that a significant part of our employees and management performance bonuses are based on customer satisfaction criteria underscores the importance we attach to customer service. The increase of customer satisfaction and Net Promoter Score ratings exceeded our objectives in We continue to invest in improving our products and services in order to meet the highest standards of customer satisfaction. Business Clients Ziggo is traditionally a service provider to private households, but our superior network also enables us to deliver premiumquality services with attractive pricing in the business market. In recent years we have been gaining market share among home offices and small and medium-sized companies and we aim to further strengthen this position. At the same time, we aim to further grow in the business market by serving customers in the segments of medium and large companies. To this end, Ziggo acquired Esprit Telecom in 2013, providing access to their base in the medium and large segment, indirect sales channels and national DSL network. Furthermore, we continue to cater to the business market by developing tailored solutions to our business customers in selected industry verticals. Ziggo N.V. Annual Report

11 Ziggo at a glance Performance Governance Financial statements Connecting people Ziggo Mobile Providing customers with television, internet and telephone services at home was just the beginning. Ziggo Mobile now makes communication, content and information available anywhere, anytime. Already competitively priced, Ziggo Mobile is supplemented by unlimited access to our more than one million WifiSpots. Mobile telephony is an important step towards offering customers fully converged services. Ziggo N.V. Annual Report

12 Ziggo at a glance Performance Governance Financial statements Performance Operational review Over the full year, Ziggo added 27,000 new subscriptions in the consumer market. At the end of December 2013, total consumer RGUs reached 6.94 million, an increase of 0.4% year on year. The number of subscribers to the All-in-1 bundle grew by 100,000 or 7.1% to million. The number of internet subscribers grew by 104,000 to a total of 1.86 million at year-end 2013 and by 6.0% compared to last year, driven by the growth in All-in-1 and the increase of the internet speeds and the roll-out of Ziggo WifiSpots. The number of digital TV subscribers increased to 2.25 million, representing a penetration of over 84.7% of our customer base. The number of TV-only subscribers decreased to a total of 747,000 at December 31, The decrease was mainly due to the upsell of the dual play and triple play bundle to our TV-only subscribers as well as churn. Among TV-only subscribers, churn came down compared to the end of last year and the first half of 2013, following higher investments in customer retention, the upsell to dual play and triple play and the investment in improved product propositions, like the increase of the internet speeds and the roll-out of Ziggo WifiSpots. However, we expect to continue to experience churn among our TV-only customers as a result of a market moving towards triple-play and a competitive environment. Churn on all other product lines, and for the All-in-1 bundle in particular, is significantly lower than churn among TV-only subscribers. Therefore, we will continue to focus on upgrading customers to our dual play and triple play bundles. The total number of consumer telephony subscribers rose to 1.56 million at year-end 2013, an increase of 6.9% compared to a year ago. This increase is mainly the result of the increase in All-in-1 subscriptions, partly mitigated by a number of customers who churn their fixed-line telephony subscription and switched from triple play to dual play. RGUs per customer grew to 2.56, up 4.6% compared to last year, following a growth in RGUs combined with a lower number of customers. Excluding digital Pay TV as a separate RGU, Ziggo recorded an average of 2.24 RGUs per customer or a 5.8% growth compared to the previous year. Ziggo N.V. Annual Report

13 Ziggo at a glance Performance Governance Financial statements Marketing & Sales At the start of January, a campaign was launched to counter local FttH (Fiber to the Home) activities. The initiative emphasized the future-proof network of Ziggo, delivering high-speed internet (up to 150Mbps today), superb High Definition television channels and the best quality telephony, combined with a special offer. These targeted retention and win-back campaigns were supported by special retention offers granting a free interactive receiver or recorder, in combination with a twelve- or twenty-four month contract, respectively. The campaign was launched in areas where FttH initiatives are about to set off, and continued to run throughout In February we started several new sales and promotional campaigns focusing on triple play, dual play and upsell to interactive TV services. New subscribers to our All-in-1 bundle with a minimum twelve-month contract period were invited to choose their own special offer : either an introduction discount on their monthly subscription fee or a free set top box. The Android tablet was added in the second quarter. During the second quarter we also launched a number of new campaigns focusing on customer loyalty and customer retention, whereby existing customers can purchase an interactive HD receiver or an interactive HD recorder at an attractive discount. In addition to the sales and retention campaigns that continued from the second quarter onwards, several new campaigns were launched in the third quarter. The successful sales campaign Overstapweken (switching weeks) ran throughout the summer period and invited new All-in-1 customers to choose their own promotional offer, varying from a discount on the subscription for the first six months, a free Android tablet, or a free interactive HD receiver to a one-off discount for an interactive HD recorder. In August, our new branding campaign was introduced, emphasizing the new Ziggo pay-off: connected for ever. Maintaining close contact plays an important role with the five characters in the campaign. In different settings, this new line of TV commercials focuses on the emotional connection people have. In September the HBO Series Nights and sales campaign started. The campaign had a two-phased approach. The first phase kicked off with a loyalty campaign for the existing Ziggo customers. On the free accessible Ziggo TV channel, several high-quality HBO series were broadcast for a full week. In the second phase of the campaign, a discount of 50% for four months was offered to new HBO subscribers. On September 16, the introduction of Ziggo Mobile was supported by a brand and promotional campaign through TV commercials, advertisements in daily newspapers and several direct mail campaigns, emphasizing the special offer for existing Ziggo customers and the additional access to our Ziggo WifiSpots for subscribers to Ziggo Mobile. The launch of Ziggo Mobile in the 2nd half of September was followed up by promotions through TV and radio commercials, online banners and direct mail campaigns. The two SIM-Only subscriptions for consumers and the two for business clients were well received. In December of 2013, a special campaign was launched called the Ziggo Decemberdagen. Besides the typical bundle promotional offers for new customers, existing customers were offered several free movies on our event channel and a live cooking workshop with Rudolf van Veen in cooperation with the 24Kitchen channel. During the broadcast, participants had the opportunity to ask advice and share photos of their home cooked meals via social media. Products & Services On March 15, Ziggo officially introduced the first fully cloudbased interactive DVB-C TV service in the world, as announced in the fourth quarter of By combining the IP protocol with the DVB-C television standard, even set top boxes without built-in hardware functionality for interactivity, are now able to utilize interactive services via cable. Part of this innovation is the migration of the new streaming graphical user interface (SGUI). The user-friendly GUI, which is based on HTML5, is streamed to the user over the DVB-C network using a temporary personal connection. This enables customers to access interactive services like Video on Demand or TV Gemist via a simple and basic digital receiver. By December 31, the number of activated decoders with this new SGUI had grown to over 310,000 (excl. CI+ 1.3). On December 31, we had over 566,000 customers with an interactive device, while those devices with streaming graphical user interface were already accounting for 40-50% of total VOD activity. At the end of April, we launched the roll-out of our WiFi Homezone concept in our footprint, called Ziggo WifiSpots, starting with the activation of 65,000 Ziggo WifiSpots in the city of The Hague. The wifi-hotspot concept utilizes the public channel of our wifi EuroDOCSIS 3.0 modems at the customer s premises, enabling all Ziggo internet customers to access high-speed internet in the vicinity of an activated Ziggo modem. The introduction was supported by a special communication campaign through television commercials, advertising and mailings to explain the concept and communicate the benefits for Ziggo customers: mobility and high-quality internet access on any device, anywhere in our footprint. Since its launch in April, 2013, Ziggo has activated over 1 million WifiSpots. Ziggo N.V. Annual Report

14 Ziggo at a glance Performance Governance Financial statements Since the launch, we saw an anticipated strong increase in the number of active users of WifiSpots as well as in the size of data offloaded every day. In the municipality of The Hague we started with a pilot of adding 120 public, high-quality WifiSpots in the public domain as part of a project between the city council of The Hague and Ziggo. On top of this public wifi initiative, we expect to expand the number of Ziggo WifiSpots in The Hague on streetcabinets (non-public) to 450 by the end of December, enabling Ziggo customers to access the internet in the streets and city centre of The Hague. The implementation of WifiSpots, together with the internet speed increase, led to a significant increase in our Net Promoter Score in the third quarter. By the end of July, we finalized the internet speed increase for approximately 800,000 internet subscribers. The internet speed for basic internet subscriptions was raised from 8/1 MBit/s to 20/2 MBit/s and for All-in-1 Basis from 10/1 MBit/s to 20/2 MBit/s. The increase further widens the gap with DSLbased offerings, particularly when the actual speed delivered is considered. In addition, the highest internet speed for internet Z3 and All-in-1 Extra increased to 150/15 MBit/s and are on a par with FttH offered internet speeds. On September 15, Ziggo received an award from the International Broadcast Convention (IBC) in the Content Delivery category with the first fully cloud-based interactive DVB-C TV service in the world. By combining the IP protocol with the DVB-C television standard, even set top boxes without built-in hardware functionality for interactivity are able to provide interactive services via a cable. On September 16, Ziggo launched its mobile voice and data service on the back of the roll-out of our Ziggo WifiSpots: Ziggo Mobile. Ziggo Mobile has been specially created for existing Ziggo customers. Ziggo strives to offer the best possible access to its services everywhere, connecting customers wherever they are, at attractive rates. Ziggo Mobile plays an essential role in this respect. Ziggo Mobile has two SIM-Only subscription options for consumers and two for business clients. The basic consumer subscription is available for 15 per month (incl. VAT). This subscription offers 300 minutes call time/text messages, 1,000 MB data and unlimited access to more than 1 million Ziggo WifiSpots, a number that will continue to grow. There is an introductory subscription for business clients of 20 (excl. VAT) with 400 minutes call time/ text messages, 1,000 MB data and unlimited access to the Ziggo WifiSpots. Both Ziggo Mobile propositions come with one-month notice periods, rather than the 1 or 2 years that is currently common in the market. The introduction of Ziggo Mobile was very well received by the media and customers. On November 5, we introduced the CI+ 1.3 module, enabling interactive services such as on-demand movies, television series or missed TV programmes, without the use of a set top box and using the remote control of the television set. Ziggo is the first in the world to enable interactive television via such a CI+ module. Since the beginning of 2013, an increasing number of televisions have been enabled for usage of this CI+ 1.3 module. Many Samsung, LG and Philips televisions have already been certified by Ziggo for this service and many more brands are to be expected in The CI+ 1.3 module makes use of the streaming graphical user interface (SGUI) which was deployed earlier in Other On March 2, the dance event Energy was held in the Ziggo Dome. A live broadcast was made available to all Ziggo customers via the Ziggo event channel, enabling them to experience the dance event live at home through our digital TV service. On June 16, a very popular live concert from the Ziggo Dome ( Holland Zingt Hazes ) was broadcasted for our customers via the Ziggo TV App and via the Ziggo Event Channel. The event was viewed by approximately 300,000 Ziggo customers. Later that month, the Ziggo Dome celebrated its first anniversary with a contest in which Ziggo customers could win golden seats, enabling them to attend all concerts in the Ziggo Dome for a whole year. Approximately one million people have attended a concert or event since the Ziggo Dome was opened in June On June 30, the ParkPop concert was broadcasted live via the Ziggo Event Channel. During this music festival in The Hague, Ziggo WifiSpots were placed in the concert area for the concertgoers, and a social media campaign was launched offering participants the chance to win backstage passes for the event. In early November we presented the Ziggo MTV Music Week. In the week prior to the MTV EMA Awards ceremony, which was held in the Ziggo Dome, several artists gave small concerts which were broadcasted through our own Ziggo Event TV channel. In addition to this Music Week, Ziggo sponsored the MTV EMA Awards and live broadcasted the ceremony to its customers. At the Ziggo Congress of November 7, it was announced that Bits of Freedom had won the Ziggo Open Society Award Bits of Freedom is the Dutch digital rights organization focusing on privacy and communications freedom in the digital age. Bernard Dijkhuizen Ziggo s former CEO presented the Ziggo N.V. Annual Report

15 Ziggo at a glance Performance Governance Financial statements award, a trophy and 15,000. The other finalists were NoXqs and Internet Protection Lab. According to the jury, both organizations fulfill an important role in Dutch (open) society. On November 21, Ziggo and the Ziggo Dome won a prestigious award at the SponsorRing event. The SponsorRing is a yearly event where the best sponsor promotions are rewarded in several categories. Ziggo and the Ziggo Dome were praised for the successful partnership and won the award in the innovation and entertainment categories. Business Market During 2013, almost 18,000 new subscribers signed up to our Office Basis, Office Plus and Internet Plus business bundles, bringing the total to more than 54,800 subscribers for our business bundles targeted at home offices and SME (Small and medium-sized) businesses. Relative growth in B2B was particularly strong with a total of 251,400 RGUs as at year-end compared to 193,800 RGUs in In the first quarter of 2013 Ziggo Zakelijk focused on specific sectors like social health care, educational institutes and recreation and several larger new contracts were won. In addition, new product innovations, including IP-VPN services with Quality of Service over both fiber and hybrid fiber coax (HFC), supporting multi-site services at cost efficient and attractive rates for our subscribers, were introduced, offering new areas of future growth for our business operations. On March 14, Ziggo announced the acquisition of Esprit Telecom, a leading provider of voice and data services for the SME market in the Netherlands, through which it can further expand its services to these segments. Esprit Telecom has an active sales channel of dealers across the country. The acquisition includes Zoranet, an ICT service provider that focuses on the retail sector. In 2012, Esprit Telecom generated revenues of 35 million. With this acquisition we have strengthened our propositions and services for the mid-market. We expect that Esprit Telecom, together with our state-of-the-art infrastructure, will bring new growth opportunities. Following the go-ahead from the Dutch Authority for Consumers and Markets (ACM), we finalized the acquisition of Esprit Telecom, which was consolidated as of May 1, Ziggo N.V. Annual Report

16 Ziggo at a glance Performance Governance Financial statements Connecting people Digital & Interactive TV Television is a mass medium, but the way people use it has become very personal. Ziggo caters to all tastes and requirements. Whether a customer only wants to watch public service programmes on a conventional television, or requires an interactive HD experience: we can provide the right solution. And it doesn t end there. Tablets can be used as a second screen or for taking your favourite programme with you, to be watched anywhere in or around the house and around 1.1 million Ziggo WifiSpots. Ziggo N.V. Annual Report

17 Ziggo at a glance Performance Governance Financial statements Financial review Financial performance Revenues We generated revenues of 1,564.8 million, an increase of 1.8% compared to 2012 ( 1,536.9 million). Excluding Other Revenues, revenues increased by 2.9% and by 1.2% excluding the revenue contribution from Esprit Telecom. Esprit Telecom was consolidated as of May 1, 2013 and has contributed 25.2 million in revenues since its consolidation. The main drivers of growth in revenues were continued growth in RGUs for internet and telephony, driven by a further uptake of our All-in-1 bundle, and revenues from business services. Revenues from business services were spurred by organic growth of 10.3% in the business market which, combined with a 25.2 million revenue contribution from Esprit Telecom, reported total revenue growth of 34.2%. Revenues from digital pay TV, including video on demand (VOD), declined by 0.4%, driven by a decline in the number of subscribers to digital pay TV from 917,000 at the end of 2012 to 853,000 at the end of 2013, which was partly offset by an increase in ARPU for digital pay TV by 7.1%, from in 2012 to in The ARPU increase was driven by a strong increase in the number of VOD transactions by 48%. The decline in RGUs for digital pay TV was driven by (a) depressed consumer confidence given the macro environment, (b) the growing popularity of VOD which does not count as an RGU, and (c) our marketing focus on customer retention and All-in-1, and the launch of Ziggo Mobile instead of premium pay TV. The growth in VOD transactions was negatively impacted by the price increase for watching live football per match from 6.95 to in the second half of Consumer market revenues declined by 0.6% to 1,423.1 million in 2013 (2012: 1,431.3 million). Excluding Other revenues, consumer revenues increased by 0.5%. This was driven primarily by a further uptake of our All-in-1 bundle during the year, with 100,000 net additions, or 7.1% year-on-year growth. This resulted in growth in both internet and telephony RGUs by 6.0% and 6.9%, respectively. In addition, the price increase effective February 1, 2013 contributed to the revenue growth by approximately 1.7%. Revenue growth was partly offset by a decline in revenues from digital pay TV by 0.4% and revenues from telephony usage by 2.8%. Revenues generated through our All-in-1 bundle increased by 8.3% from million in 2012 to million in 2013, representing 52.3% of total revenues from subscriptions and usage in the consumer market, versus 48.6% in In addition to the growing popularity of VOD, growth was also supported by the rise in the number of customers with an interactive set top box to 566,000 at the end of 2013, compared to 359,000 at the end of Revenues from telephony usage decreased by 2.8% from million in 2012 to million in Excluding interconnection revenues, revenues from telephony usage were flat. Interconnection rates were approximately 20.0% lower as at September 1, negatively affecting revenue by approximately 5 million. A 6.9% increase in the number of telephony subscribers was more than offset by a lower ARPU for telephony usage, as more subscribers selected a flat-fee subscription for calls within the Netherlands and several foreign countries. The lower ARPU for telephony was also Ziggo N.V. Annual Report

18 Ziggo at a glance Performance Governance Financial statements Financial highlights As per December 31 Amounts in million Change Subscriptions + usage 1, , % Other revenues (33.0%) Total consumer revenues 1, ,431.3 (0.6%) Business services revenues % Total revenues 1, , % Cost of goods sold (1.8%) Gross margin 1, , % % of total revenues 81.5% 80.8% Operating expenses % Marketing & Sales % Total operating expenses % % of total revenues 24.9% 23.6% Adjusted EBITDA % % of total revenues 56.7% 57.3% IPO-related costs EBITDA % Depreciation and amortization (0.7%) Operating income % Share-based payments (97.5%) Movement in provisions (4.1) (1.0) 305.4% Change in net working capital (46.1) 61.1 (175.4%) Cash flow from operating activities (9.1%) Capital expenditure (Capex) % % of total revenues 21.9% 18.2% Acquisition Interest received 0.0 (0.4) Change in financial assets Funding joint venture (38.6%) Free cash flow (25.1%) % of total revenues 30.1% 40.9% Adjusted EBITDA - Capex (9.4%) % of total revenues 34.8% 39.1% Net result % Outstanding shares (in # million) Earnings per share (in ) % Ziggo N.V. Annual Report

19 Ziggo at a glance Performance Governance Financial statements attributable to a higher share of free on-net calls following growth in the number of telephony subscribers. When a Ziggo telephony customer makes a fixed-line call to another Ziggo telephony customer, the call qualifies as on-net, with no costs being charged as a result. Both trends resulted in a higher percentage of non-billable calling minutes compared with the previous year, as well as an overall decline in average usage per fixed-line telephony subscriber. Total call minutes excluding interconnection decreased by 1.0% compared to On-net calling grew by 4.5%, with the number of billable minutes declining by almost 9.4% as a result of growth in on-net calling and growth in the number of flat-fee subscriptions by 13%. Average call minutes per subscriber declined by 8.4%. The gross margin on telephony usage improved by over 2.3%, supported by reduced FTA rates. Blended ARPU for consumers in 2013 was 42.10, up 2.36 (+5.9%) from This increase was driven by growth in the number of subscribers to our All-in-1 bundle and internet, which, combined with churn in TV-only subscribers, resulted in a 4.6% increase in RGUs per customer to 2.56 (based on a maximum of four RGUs per customer). Excluding digital pay TV as a separate RGU, Ziggo recorded an average of 2.24 RGUs per customer. Additionally, blended ARPU was positively affected by the price increase which became effective on February 1, Revenue from other sources, predominantly consisting of set top box sales, collection fees and revenues from service numbers, declined by 33.0% y-o-y to 31.8 million in Part of this decline was the result of accounting for costs of tablets, which are provided to new subscribers to All-in-1 or our dual-play proposition TV plus internet with a one-year contract. The costs of these tablets are deferred and allocated as a discount for the contract period to other revenues, rather than being expensed. This resulted in a discount as a result of deferred tablet costs of 3.2 million during Excluding this adjustment, revenues from other sources decreased by 12.5 million, or 26.2%. Although we shipped a higher number of set top boxes, we recorded a decline in revenues due to a lower average sales price per set top box and the capitalization of set top boxes covered by a subscription period of 12 months for which the ownership of the set top boxes remains with Ziggo Change Expensed Interactive recorders 140, ,742 (48,913) Interactive receivers 91,938-91,938 HD decoders - 89,024 (89,024) CI+ modules 16,374 25,138 (8,764) 249, ,904 (54,763) Capitalized Interactive recorders 82,380-82,380 Interactive receivers 34,106-34, , ,486 Total 365, ,904 61,723 Our business services activities generated revenues of million in 2013, up 34.2% from million in This was the result of strong growth in revenues from subscriptions to business bundles and the acquisition and consolidation of Esprit Telecom effective May 1, Excluding Esprit Telecom, revenues grew organically by 10.3%. In 2013, Ziggo added almost 18,000 new subscribers to its main B2B bundles products Internet Plus, Office Basis and Office Plus bundle, reaching a total of over 54,800 subscribers by December 31, Total revenues from coaxial products TOM and TOMi, our collective TV contracts, and business bundles for the year grew by over 37% compared to 2012 to 48.9 million, representing 42.0% of total B2B revenues ( %), excluding revenues from Esprit Telecom. Cost of goods sold and gross margin Cost of goods sold includes the costs of materials and services directly related to revenues. It consists of copyrights, signal costs and royalties paid to procure our content, interconnection fees paid to other network operators, materials and logistics costs and costs of guarantees relating to the sale of set top boxes and other products and materials used to connect customers to our network. In 2013 cost of goods sold decreased slightly to million, down 1.8% from The gross margin for 2013 was 81.5% of revenue versus 80.8% in Excluding the acquisition of Esprit Telecom (2013 COGS of 15.5 million), which has been consolidated since May 1, cost of goods sold would have declined by 7.1% and the gross margin would have been 82.2%. Ziggo N.V. Annual Report

20 Ziggo at a glance Performance Governance Financial statements Margin improvement was mainly the result of higher gross margins on internet, telephony and business services (excluding Esprit Telecom) and a lower negative margin contribution realized on the sale of set top boxes. The lower negative margin contribution from the sales of set top boxes is the result of a lower volume of set top boxes recognized as sales (233,000 in 2013 versus 279,000 in 2012, and 16,000 CI+ modules versus 25,000 in 2012) at a lower negative margin contribution per set top box. A lower average sales price during the year compared to 2012 was more than offset by a lower average purchase price. In addition, 116,000 set top boxes were capitalized, as these boxes were provided to customers as part of our sales and retention promotions covered by a one-year contract, with the ownership of the set top boxes remaining with Ziggo. These capitalized set top boxes represented a total value of 14.5 million in Our business services activities generated revenues of million in 2013, up 34.2% from million in Operating expenses (opex) Operating expenses increased by 26.9 million (excluding IPO costs in 2012), or 7.4%, to million in 2013, from million in As a percentage of revenue, operating expenses increased from 23.6% to 24.9%, mainly as a result of a 27.0% increase in marketing and sales expenses from 60.5 million in 2012 to 76.9 million in The majority of marketing and sales expenses were spent on sales and customer retention campaigns, the Ziggo branding campaign and the launch of Ziggo Mobile. Excluding marketing and sales, operating expenses increased by 3.5%, or 10.5 million, compared to Excluding the acquisition of Esprit Telecom ( 5.4 million), operating expenses amounted to million, up 1.8% compared to This was mainly due to higher costs of contracted work driven by higher costs of our external call centres and costs of customer maintenance & visits. Personnel costs increased by 1.6% (excluding IPO costs in 2012) compared to Excluding Esprit Telecom ( 4.3 million), personnel costs decreased by 0.6%, or 1.2 million. Although headcount increased by 7.7%, excluding Esprit Telecom, and average salary costs by 3.3%, the resulting increase in personnel expenses was offset by higher capitalized personnel costs and a reduction of accrued bonuses by approximately 4.8 million as company targets were only partially achieved. The increase in average salary costs was driven by both discretionary individual salary increases and a general salary increase in line with the collective labour agreement, including an increased employer s contribution to the pension premium, which was partly offset by a decrease in employer charges for social securities. The increase in headcount was predominantly the result of an increase in the number of external resources, an increase that was more than offset by an increase in capitalized personnel costs of approximately 29.5 million, or 52%. The increased headcount is the result of an increase in external personnel hired for projects relating to investments in innovation and in our core infrastructure and service platforms, facilitating the addition of new services such as mobility and converged services and TV Everywhere. At the end of 2013, our workforce totalled 3,354 FTEs. Excluding Esprit Telecom, we recorded 3,248 FTEs, compared to 3,018 FTEs at the end of Excluding external and temporary employees, we had 2,500 employees versus 2,502 in the previous year. The number of external resources increased from 278 FTEs at the end of 2012 to 521 at the end of The number of temporary call centre agents decreased slightly from 238 FTEs at the end of 2012 to 226 at the end of Costs of contracted work, excluding Esprit Telecom, increased by 12.8% compared to 2012 (excluding IPO costs in 2012). This increase was mainly driven by higher costs of our external call centres and costs of customer maintenance & visits. As a result of a strong growth in RGUs in the second half of 2013 and the roll-out of Ziggo WifiSpots, call volumes rose by approximately 5% compared to In combination with an increase in the average handling time of approximately 23% and a relatively higher percentage of the call volume being outsourced, external call centre costs and costs of customer maintenance & visits rose by almost 30%. Consultancy costs and costs of maintenance of network and technology were stable. The higher costs of our external call centres and customer maintenance & visits was partly offset by lower consultancy costs. Costs of maintenance of our network and technology rose slightly compared to 2012 as a result of an increase in the capacity of our infrastructure, as well as rising maintenance costs following investments in our core infrastructure and systems facilitating the addition of new services, such as mobility and TV Everywhere. Office expenses, excluding Esprit Telecom, decreased by 2.0% compared to 2012 (excluding IPO costs in 2012) to 52.8 million. Costs of housing and sites increased by almost 1.6% as the result of the opening of a new data centre in the third quarter to support the new IT infrastructure and service platforms, facilitating the addition of new services such as mobility and converged services and TV Everywhere. Investments in innovations for our converged platform and Ziggo N.V. Annual Report