ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
TABLE OF CONTENTS
Consolidated Management Report 1Q13 2/61
ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
01 ZON IN NUMBERS 4
02 HIGHLIGHTS – FIRST QUARTER 2012 7
03 GOVERNING BODIES 10
04 MANAGEMENT REPORT 11
4.1. Business Review 11
4.2. Consolidated Financial Review 16
05 CONSOLIDATED FINANCIAL STATEMENTS 24
3/61 Consolidated Management Report 1Q13 ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
01 ZON IN NUMBERS
Business Indicators (in thousands):
Triple Play Subscribers: 3P Penetration in Cable Customer Base (%):
+9.2% +5.2pp
64.6% 772.6 781.5 62.4% 63.9% 751.7 59.4% 60.4% 715.7 730.9
1Q12 2Q12 3Q12 4Q12 1Q13 1Q12 2Q12 3Q12 4Q12 1Q13
RGUs: RGUs per Subscriber (units):
+2.7% +4.0%
3,438.7 3,467.0 3,472.0 2.42 2.45 2.46 3,381.0 3,414.1 2.37 2.39
1Q12 2Q12 3Q12 4Q12 1Q13 1Q12 2Q12 3Q12 4Q12 1Q13
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Blended ARPU (Euros): Basic Subscribers:
(1.8)% (0.4)%
35.0 34.9 1,586.8 1,586.3 1,574.4 1,570.1 1,559.0 34.7 34.3 34.0
1Q12 2Q12 3Q12 4Q12 1Q13 1Q12 2Q12 3Q12 4Q12 1Q13
BroadBand Subscribers: Voice Subscribers:
+6.9% +7.0%
799.9 960.2 976.4 985.8 790.0 921.4 947.0 748.6 751.5 766.2
1Q12 2Q12 3Q12 4Q12 1Q13 1Q12 2Q12 3Q12 4Q12 1Q13
Mobile:
+2.5%
138.0 124.1 129.4 130.5 127.3
1Q12 2Q12 3Q12 4Q12 1Q13
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Financial Indicators (in millions of Euros):
Operating Revenues: EBITDA (EBITDA margin as % of Revenues):
+0.1% +4.4%
90 79.7 83.1 100%
90% 214.2 214.3 80
80%
70
70%
60
60%
50
50%
40
38.8% 40%
30 37.2%
30%
20
20%
10
10%
0 0% 1Q12 1Q13 1Q12 1Q13
Net Income: CAPEX:
+12.5% (13.1)%
11.6 29.6 10.3 25.7 2.0
29.6 23.7
1Q12 1Q13 1Q12 1Q13 Baseline CAPEX Non Recurrent CAPEX
Net Financial Debt: Net Financial Debt / EBITDA [x]:
(8.5)%
644.6 589.7 2.1x 1.9x
1Q12 1Q13 1Q12 1Q13
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
02 Highlights – First Quarter 2013
Highlights of 1Q13 Results 1Q12 1Q13 1Q12 / 1Q13
Operational ('000)
RGUs (1) 3,381.0 3,472.0 2.7% Basic Cable Subscribers 1,204.6 1,209.1 0.4% Triple Play Customers 715.7 781.5 9.2% % Triple Play Cable Customers 59.4% 64.6% 5.2pp IRIS Subscribers 118.9 284.4 139.2% Broadband Subscribers 748.6 799.9 6.9% Fixed Voice Subscribers 921.4 985.8 7.0% Financial (Millions of Euros)
Operating Revenues 214.2 214.3 0.1% EBITDA 79.7 83.1 4.4% EBITDA Margin 37.2% 38.8% 1.6pp Net Income 10.3 11.6 12.5% CAPEX 29.6 25.7 (13.1%) EBITDA - CAPEX 50.1 57.4 14.7% Free Cash Flow 16.3 15.6 (4.0%) Net Financial Debt 644.6 589.7 (8.5%) (1) Total RGUs reported reflect the sum of Pay TV, Fixed Broadband, Fixed Voice and M obile subscribers.
Record take-up of IRIS subscribers to 285 thousand with net adds of 50 thousand in 1Q13 IRIS voted the best TV product of the year by consumers and Timewarp the best new TV product in terms of marketing and innovation
ZON voted the best TV, Broadband and Fixed Voice provider by ECSI (European Customer Satisfaction Index)
Strengthened position in Business segment with major new corporate accounts being signed up
Sequential growth in quarterly Revenues of core Pay TV, BB and Voice revenues, up by 0.9% over the previous quarter
Highest ever quarterly EBITDA and EBITDA–CAPEX
African JV recording very strong growth with 1Q13 Revenues up by 56% yoy
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FINANCIAL HIGHLIGHTS
Consolidated Revenues reached 214.3 million euros in 1Q13, an increase of 0.1% in comparison with 1Q12;
Sequential quarterly growth of 0.9% in Pay TV, Broadband and Voice Revenues and posting a reduction in pace of yoy decline to -1.8% yoy;
Growth of 55.8% yoy in ZAP Revenues to 33.4 million euros (100%);
Best ever quarterly EBITDA of 83.1 million euros representing a consolidated EBITDA margin of 38.8%, and reaching 42.2% in the core Pay TV, Broadband and Voice business;
Net Income increased by 12.5% yoy to 11.6 million euros;
Continued strong momentum in FCF with EBITDA – CAPEX also reaching highest level ever of 57.4 million euros, +14.7% yoy, and Operating Cash Flow posting yoy growth of 42.9% to 53.4 million euros.
OPERATIONAL HIGHLIGHTS
Domestic Pay TV, BB and Voice operations:
Record net-adds in IRIS subscribers of 49.6 thousand reaching a total of 284.4 thousand, to 23.5% of the cable base. Unprecedented levels of customer recognition with Timewarp voted marketing and innovation product of the year by consumers;
Triple Play customers grew by 9.2% yoy to 781.5 thousand subscribers representing 64.6% of the cable subscriber base, amongst the highest of the sector;
Cable customers remained stable at 1,209 thousand in 1Q13 posting marginal 0.4% growth yoy, a reflection of the fact that Triple Play services have become a central part of household consumption and in spite of the austerity measures affecting consumer sentiment in general;
Broadband subscribers grew by 6.9% yoy to 799.9 thousand at the end of 1Q13, an increase of 10 thousand in the last quarter and bringing the percentage of cable subscribers that take broadband services up to 66.2%;
Voice subscribers grew a further 9.4 thousand in 1Q13 to 985.8 thousand taking penetration of the cable base to 79.9%;
Blended ARPU posted a sequential quarterly increase of 2.7% in 1Q13 to 34.9 euros, and just 0.4% down in comparison with 1Q12.
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
International
ZAP continues to post significant growth in Angola and Mozambique. Total Revenues grew by 55.8% in 1Q13 to 33.4 million euros, for 100% of the business.
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03 Governing Bodies
As at the date of this report, 8 May 2013, the Governing Bodies of ZON had the following composition:
Board of Directors
Chairman of the Board of Directors Daniel Proença de Carvalho
Chairman of the Executive Committee Rodrigo Jorge de Araújo Costa
Members of the Executive Committee José Pedro Faria Pereira da Costa Luis Miguel Gonçalves Lopes Duarte Maria de Almeida e Vasconcelos Calheiros
Members Fernando Fortuny Martorell António Domingues Luis João Bordallo da Silva László Istvan Hubay Cebrian Norberto Emílio Sequeira da Rosa Jorge Telmo Maria Freire Cardoso Joaquim Francisco Alves Ferreira de Oliveira Mário Filipe Moreira Leite da Silva Isabel dos Santos Miguel Filipe Veiga Martins Catarina Eufémia Amorim da Luz Tavira André Palmeiro Ribeiro
Chairman of the Audit Committee Vitor Fernando da Conceição Gonçalves
Members of the Audit Committee Nuno João Francisco Soares de Oliveira Sílvério Marques Paulo Cardoso Correia da Mota Pinto
Officials of the General Meeting of Shareholders
President Júlio de Castro Caldas
Secretary Maria Fernanda Carqueija Alves de Ribeirinho Beato
Statutory Auditor
In Office Oliveira, Reis & Associados, SROC, Lda., represented by José Vieira dos Reis
Alternate Fernando Marques Oliveira
Consolidated Management Report 1Q13 10/61
ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
04 Management Report
4.1. Business Review
Business Indicators ('000) 1Q12 1Q13 1Q13 / 1Q12
Pay TV, Broadband and Voice (1)
Homes Passed 3,187.4 3,257.3 2.2% RGUs (2) 3,381.0 3,472.0 2.7% Cable RGUs per Subscriber (units) (3) 2.37 2.46 4.0% Basic Subscribers (4) 1,586.8 1,559.0 (1.8%) o.w. Cable Subscribers 1,204.6 1,209.1 0.4% IRIS Subscribers 118.9 284.4 139.2% % IRIS Cable Subscribers 9.9% 23.5% 13.7pp Triple Play Customers 715.7 781.5 9.2% % Triple Play Cable Customers 59.4% 64.6% 5.2pp o.w. DTH Subscribers 382.2 349.9 (8.4%) Broadband Subscribers 748.6 799.9 6.9% Fixed Voice Subscribers 921.4 985.8 7.0% Mobile Subscribers 124.1 127.3 2.5% Blended ARPU ( Euros ) 35.0 34.9 (0.4%)
Cinema (1)
Revenue per Ticket (Euros) 4.8 4.6 (4.1%) Tickets Sold 1,724.9 1,784.5 3.5% Screens (units) 210 210 0.0% (1) Portuguese Operations (2) Total RGUs reported reflect the sum of Pay TV, Fixed Broadband, Fixed Voice and M obile subscribers. (3) Cable RGUs per Subscriber correspond to the sum of Cable Pay TV, Broadband and Voice Subscribers, divided by the number of Cable Pay TV Customers. (4) These figures are related to the total number of Pay TV basic customers, including the cable and satellite platforms. ZON M ultimedia offers several basic services, based on different technologies, directed to different market segments (residential, real estate and corporate), with a distinct geographical scope (mainland Portugal and the Azores and M adeira islands) and with a variable number of channels.
Award winning interface and services – The best offer and most satisfied customers
2013 has been an award winning period for ZON, with widespread recognition from customers and industry peers. In 2013, consumers voted IRIS the best Triple Play service of the year and Timewarp the best new TV product in terms of innovation and marketing. Customer feedback has been overwhelmingly positive and 1Q13 became another record quarter in terms of customer take up, with IRIS net adds of 49.6 thousand to 284.4 thousand, already 24% of the cable base.
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ECSI Portugal (European Customer Satisfaction Index) ranked ZON the best triple play provider in Portugal. For the past three years in a row, consumers have voted ZON the best Pay TV operator and this year, ranked ZON #1 in all three services – Pay TV, BB and Voice. ZON achieved a score of 7.78 in Pay TV, 7.43 in Fixed Internet and 7.61 in Fixed Voice which compares with an average for other operators of 7.23, 7.15 and 7.39 respectively for each service. Aware that customer service is a key driver of satisfaction and retention, these results are proof of the work undertaken to improve operational excellence and continuously innovate in terms of products and service offers.
In addition, ZON Online was voted the best TV on the move service at Industry awards TV Connect. ZON Online was launched in 2011 and enables IRIS customers to access the features from their ZON IRIS box at home, over a number of different devices such as PC, iPad and iPhone, becoming an extension of the award winning IRIS interface for mobile devices. The ZON Online platform, which replicates the IRIS interface over laptops and tablets, was extended to smartphones, with the launch of its iPhone app in May last year. It has also become a major incentive for customers to upgrade to the IRIS bundle.
Continuously striving to provide the best content for subscribers, ZON launched a number of new channels recently, some of which exclusive to ZON, namely Globo, Disney Junior and +TVI. Globo is a partnership between ZON and the Brazilian Media company Globo and this exclusive channel to ZON, aggregates a diversified line-up of series, soap-operas, and Brazilian movies amongst other general entertainment shows. +TVI is produced by the Media Capital Group (owner of the leading FTA channel in Portugal, TVI) and targets a young adult audience with a strong bias towards national and TVI produced content, and includes a number of interactive functionalities. Canal Q was launched on the ZON network in March, bringing together national entertainment and comedy shows, starring some of the most well-known and popular comedians in Portugal and also serving as a launch-pad for bright new talent.
284.4 thousand IRIS customers – record net adds in 1Q13 of 49.6 thousand
IRIS is the best Triple Play value proposition in the market, with its innovative, unique features and design and leading broadband speeds for the entire cable base. IRIS is the umbrella brand for all ZON’s communication and the launch of Timewarp in 3Q12, has sealed ZON’s position as the most innovative player in the Pay TV market.
Despite the tough economic situation in Portugal, households are holding on to their home entertainment and communication services and many are choosing to upgrade to higher-end, more sophisticated IRIS Triple Play bundles, which provide a much richer Triple Play experience.
ZON’s flat-rate product offers cover all main segments of the market, from higher-end IRIS to lower- end basic TV and voice services, thereby helping families and companies to better manage their monthly bill whilst maintaining an excellent level of service.
In a move to extend the target market of the IRIS interface, at the beginning of the year, ZON launched a new entry level IRIS bundle for €44.99, which provides subscribers with all the interactivity and functionalities of the IRIS interface however with fewer channels - 116 compared with 149 for higher end IRIS bundles - and with lower internet speeds of 30 Mbps compared with 100 Mbps for all other IRIS bundles. This new pricing point has proven to be a very successful offer to attract customers to upgrade to IRIS.
RGUs up by 2.7% yoy with very resilient cable base
The total number of RGUs grew by 2.7% yoy to 3,472.0 thousand with cable subscribers on average subscribing to 2.46 services. Basic cable subscribers remained stable at 1,209.1 thousand, (+0.4% yoy) however the single play DTH subscriber base posted a decline of 8.4% to 349.9 thousand. In the regions where ZON does not have cable coverage, it is only able to provide pure pay TV services
Consolidated Management Report 1Q13 12/61
ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
and thus, is more exposed to price based competition and to the availability of alternative double or Triple Play technologies.
The main area of pressure, although less so than in previous quarters, continues to be premium channel subscription, of which the most important package is premium sports. Given the discretionary nature of subscription to these channels, customers looking to save on their monthly bill are prone to disconnect premium add-on channels whilst preserving the value of their monthly flat- rate Triple Play bundle. The number of customers subscribing to Triple Play offers continues to grow, reaching 781.5 thousand in 1Q13, 64.6% of the cable base.
Broadband and Fixed Voice – solid net adds in 1Q13
Broadband and Fixed Voice subscribers continued to post solid yoy performance growing by 6.9% yoy to 799.9 thousand and by 7% to 985.8 thousand respectively. At the end of 1Q13, 66.2% of ZON’s cable subscribers now take Broadband and 79.9% Fixed Voice services, in addition to the Pay TV offer.
ZON has a clear network and technological advantage on this front given that it is able to provide speeds of up to 360 Mbps to the 3.2 million homes passed by its HFC footprint, by far the largest Next Generation Network coverage in Portugal. An additional and very compelling argument to be a ZON broadband customer is the free access to the largest WiFi network in Portugal with over 500 thousand hotspots, ZON@FON, in addition to 7 million hotspots worldwide through the partnerships between FON and other international operators, provides. The network has very high coverage density in the main urban centres, providing almost seamless online connectivity whilst on the go. In 2013, ZON launched a new smartphone app which, once downloaded from the APP Store, automatically identifies available ZON@FON hotspots, both in Portugal and abroad, providing a very simple and effortless login process.
Growth in Corporate and SME segment
ZON has been making relevant progress in the business segment in recent months. Having strengthened its technical offering and commercial team, ZON is now better positioned to tender for relevant contracts in the Public and Corporate sector, combining a differentiated proposition for integrated telecommunications services at very competitive costs. ZON closed an important contract in 1Q13 with one of the largest retail banks in Portugal, present both in continental Portugal and in the Madeira and Azores Islands. This deal contributes to establishing ZON’s reputation as a competitive provider of telecommunications services for the corporate sector, leveraging on the capillarity and sophistication of its network.
In 1Q13, ZON launched a partnership programme to develop a wide retail network of distribution partners for the SME and SoHo markets and further reinforcing its position as the leading provider of TV and telecommunications services for the hotel industry in Portugal, ZON also won a significant number of contracts in 1Q13 for new 5 star hotel openings.
Sequential improvement in Blended ARPU
Blended ARPU posted a 2.7% qoq increase in 1Q13 to 34.9 euros and was just 0.4% lower yoy, representing an inflexion in the trend of the past quarters. Although premium channel subscriptions, primarily the premium sports package, still weigh down on quarterly ARPU trends, the negative impact was more than offset by the price increase which came into effect in January, leading to the very positive inflexion in quarter on quarter ARPU trends.
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Basic, Premium and Blended ARPU Evolution (1Q12 = Base 1)
1.10
1.05 +1.3% 1.00 -0.4% 0.95 -10.6% 0.90 0.85 0.80 1Q12 2Q12 3Q12 4Q12 1Q13 Blended ARPU Basic ARPU Premium ARPU
Cinemas and Audiovisuals
In 1Q13, ZON’s Portuguese Cinema ticket sales increased by 3.5% to close to 1.8 million tickets, with the average revenue per ticket sold decreasing by 4.1% from 4.8 to 4.6 euros. Total Cinema revenues increased marginally by 0.2% yoy in 1Q13. The comparison with 1Q12 in terms of tickets sold was more favourable in 1Q13 due to the fact that the Easter holiday period fell in March in 2013, whereas it fell partially in April in 2012.
Revenues were also affected by comparatively lower 3D movie ticket sales. Revenues from the sale of 3D movie tickets represented close to 15% of total box-office sales in 1Q13, whereas they had represented around 21% in 1Q12 and 23% in 1Q11, which shows customers are choosing the lower- cost 2D alternatives more than in the past.
In 1Q13, ZON once again outperformed the market as a whole. As previously mentioned, the number of tickets sold by ZON during 1Q13 increased by 3.5%. As a whole, the market experienced a drop in tickets sold of 8.9% in 1Q13, according to recently published data from the Portuguese Institute for Cinema and Audiovisuals, ICA. ZON’s share of tickets sold therefore increased yoy to 62.1% in 1Q13.
As regards Cinema gross revenues performance, ZON’s relative performance was also stronger in comparison with the market as a whole, posting a 0.7% decrease in 1Q13 whilst the total market’s gross revenues decreased by 10.8%. The most successful films shown in 1Q13 were “The Impossible”, “Django Unchained”, “The Croods”, “Les Misérables” and “Lincoln”.
In 1Q13, revenues in the Audiovisuals division were stable at 17.1 million euros (+0.1% growth). ZON Audiovisuais maintained its leading position in the distribution of movies for cinema exhibition, content and VoD distribution and sale of homevideo content in Portugal.
As regards movie distribution in 1Q13, of the top 10 movies, ZON Lusomundo distributed 4, “The Impossible”, “Les Misérables”, “Silver Linings Playbook” and “Jack Reacher”. According to data from ICA, ZON’s gross revenues in terms of Cinema Distribution increased by 8.1% in 1Q13, while the market as a whole experienced a decrease of 10.8%. ZON’s market share of gross revenues in 1Q13 therefore stood at 55.8%.
International Growth - Africa
ZAP continues to exceed all expectations in terms of operational growth, with 100% of consolidated quarterly revenues and EBITDA in 1Q13 already at 33 million euros and 10 million euros respectively, generating a 29.9% EBITDA margin in this quarter. ZON’s share of revenues from its international operations amounted to 10 million euros and of EBITDA to 3 million euros, already
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representing an interesting contribution to consolidated numbers. The drivers behind this strong financial performance are the continued very strong quarterly pace of subscriber growth and support in ARPU levels.
ZAP is consistently one of the leading brands in Angola, and ranks #4 in terms of top of mind brand awareness in the most recent marketing surveys.
ZAP has been increasing its distribution network significantly in past months and is present in 10 of the largest Angolan provinces. ZAP also has a network of almost 1,000 distribution agents and 200 door-to-door sales people, ensuring a very strong representation across the whole country.
Equally important is ZAP’s continuous focus on improving its channel offer and the high proportion of Portuguese speaking and local content and, in 1Q13, ZAP further enhanced its channel line-up with the launch of a number of new channels, namely Bola TV, +TVI, ZAP Viva and the Fight Network.
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4.2. Consolidated Financial Review
Profit and Loss Statement 1Q12 1Q13 1Q13 / 1Q12 (Millions of Euros)
Operating Revenues 214.2 214.3 0.1% Pay TV, Broadband and Voice 191.9 188.4 (1.8%) Audiovisuals 17.1 17.1 0.1% Cinema 11.8 11.8 0.2% International 6.4 10.0 55.8% Others and Eliminations (13.0) (13.0) 0.0% Operating Costs Excluding D&A (134.5) (131.2) (2.5%) W&S (14.3) (13.3) (6.5%) Direct Costs (58.4) (59.6) 2.0% Commercial Costs (1) (16.2) (14.3) (11.5%) Other Operating Costs (45.7) (43.9) (3.8%) EBITDA (2) 79.7 83.1 4.4% EBITDA Margin 37.2% 38.8% 1.6pp Pay TV, Broadband and Voice 75.3 79.5 5.6% EBITDA Margin 39.2% 42.2% 3.0pp Audiovisuals and Cinema Exhibition 4.2 0.7 (84.5%) EBITDA Margin 14.6% 2.3% (12.3pp) International 0.2 3.0 n.a. EBITDA Margin 2.6% 29.9% 27.2pp Depreciation and Amortization (55.9) (54.6) (2.3%) Income From Operations (3) 23.7 28.5 20.1% (Other Expenses) / Income (0.1) (0.1) 88.2% Operating Profit (EBIT) (4) 23.7 28.4 19.9% (Financial Expenses) / Income (8.3) (12.3) 46.9% Income Before Income Taxes 15.3 16.1 5.2% Income Taxes (4.6) (4.3) (7.4%) Income From Continued Operations 10.7 11.8 10.7% o.w. Attributable to Non-Controlling Interests (0.3) (0.2) (42.5%) Net Income 10.3 11.6 12.5% (1) Commercial costs include commissions, marketing and publicity expenses and costs of equipment sold. (2) EBITDA = Income From Operations + Depreciation and Amortization. (3) Income From Operations = Income Before Financials and Income Taxes + work force reduction programme costs + impairment of goodwill + Losses/Gains on disposal of fixed assets + Other costs/income. (4) EBIT = Income Before Financials and Income Taxes.
Consolidated Management Report 1Q13 16/61
ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Operating Revenues
Consolidated Operating Revenues reached 214.3 million euros in 1Q13, 0.1% higher than in 1Q12.
Core Pay TV, BB and Voice Revenues showed an encouraging improvement in yoy trend, declining just 1.8% compared with 3.6% and 3.2% in 4Q12 and 3Q12 respectively. This was led by the inflation based price increase implemented in January, which was accommodated by customers and generated residual attrition on subscriber numbers. The price increase helped to offset the continuing pressure felt from premium channel subscription revenues, albeit the pace of quarterly decline in these revenues did reveal a deceleration in 1Q13.
The chart below reflects the stability felt in basic flat-rate ARPU revenues and the decelerating pace of decline in premium revenues. Excluding the effect of premium revenues, ARPU revenues would have posted slight growth of 0.3%.
ARPU Revenues YoY growth (%)
1.05 +0.3% 1.00 -1.5% 0.95
0.90 -11.5% 0.85
0.80 1Q12 2Q12 3Q12 4Q12 1Q13
Total Basic Premium
Revenues from the Audiovisuals business were stable yoy at 17.1 million euros reflecting a solid performance in VoD and film distribution. Cinema exhibition revenues also remained stable yoy resulting from a mix of higher ticket sales and lower average revenue per ticket, due to a lower proportion of 3D movie sales and with spectators tending to spend less on beverages and snacks. This quarter was also positively impacted by the Easter holiday period as referred before.
ZON’s 30% stake in its international Pay TV operation in Angola and Mozambique rendered revenues of 10 million euros in 1Q13, an increase of 55.8% yoy. The business continues to develop extremely well, with continued strong expansion of the subscriber base every month whilst maintaining a healthy level of ARPU.
EBITDA
Consolidated EBITDA grew by 4.4% in 1Q13 to 83.1 million euros generating an EBITDA margin of 38.8%, representing the best quarterly result ever.
Core Pay TV, BB and Voice EBITDA reached 79.5 million euros in 1Q13, representing a yoy increase of 5.6% and an EBITDA margin of 42.2%, the best quarterly level ever. Continued cost saving and efficiency measures, the aforementioned price increase and a progressively more mature market environment all contributed to this significant increase in operating profitability.
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EBITDA Margins (%)
42.2% 37.3%
37.1% 38.8%
21.5% 29.9%
12.3%
2.6%
1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13
Pay TV, BB and Voice Group Aud + Cin * International
* Adjusted for the one-off provision of 2.9 million euros in 1Q13
The African JV – “ZAP” (30%) posted EBITDA in 1Q13 of 3 million euros representing an EBITDA margin of 29.9%, and reflecting the very rapidly growing quarterly profitability of an operation that reached EBITDA breakeven just one year earlier. The Audiovisuals and Cinema business generated a lower EBITDA of 0.7 million euros in 1Q13 affected by both the challenging operating momentum the market is facing and further impacted by a one-off provision of 2.9 million euros in the Audiovisuals business to reflect the bankruptcy filing in 1Q13 of a major cinema exhibitor. Adjusting for this effect, the EBITDA of the Audiovisuals and Cinema businesses would still have decreased by approximately 16% yoy.
Consolidated Operating Costs
Consolidated Operating Costs fell by 2.5% to 131.2 million euros, a reflection of the group wide effort to contain and adjust the cost structure to the challenging macroeconomic environment. Important savings were achieved in practically all relevant cost items.
The African operation, ZAP, was consolidated proportionately as from 1Q12. Given that it was still at a very early stage of development, the increase in the cost structure during the past 5 quarters has been significant, to accommodate the very significant operational growth. As such, excluding the consolidation of ZAP, consolidated operating costs would have declined by 3% yoy.
Wages and Salaries fell to 13.3 million euros in 1Q13. Where possible ZON is making efforts to accommodate normal staff attrition levels without hiring. In the cinema business in particular, the number of employees per multiplex has been adjusted down, along with the implementation of other cost and efficiency measures.
Direct Costs increased by 2% to 59.6 million euros mainly due to an increase in the level of traffic and capacity related costs and some increased cost of programming due to the launch of some new exclusive channels and higher operating activity in comparison with 1Q12. However sequential quarterly trends reflect a decline of 6% in Direct Operating costs as a result of the efforts in recent quarters to achieve savings in these areas.
Commercial Costs recorded an 11.5% decline yoy to 14.3 million euros, explained by a continued decrease in the level of commissions and marketing costs led by cost saving initiatives and a progressively less aggressive competitive environment.
Other Operating Costs reduced by 3.8% to 43.9 million euros with continued cost discipline driving savings in areas such as support services, maintenance and repairs and other SGA.
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Net Income
Net Income increased 12.5% yoy to 11.6 million euros and by 82% compared with 4Q12.
Depreciation and Amortization posted a yoy decline of 2.3% to 54.6 million euros however in line with the previous quarter.
Net Financial Expenses were higher in 1Q13 at 12.3 million euros compared with 8.3 million euros in 1Q12, although just 6.2% higher than in 4Q12. The yoy increase is a result of a progressively higher average cost of interest as some of ZON’s older and less expensive financing lines matured and with the entrance of the new retail bonds issued in June 2012. This effect is partially compensated by the lower average level of consolidated debt.
Income Taxes amounted to 4.3 million euros, representing an effective P&L tax rate of 27% which is slightly less than the normal corporate tax rate of around 29% due to the fact that the African operation does not generate corporate tax.
CAPEX
CAPEX (Millions of Euros) 1Q12 1Q13 1Q13 / 1Q12
Pay TV, Broadband and Voice Infrastructure 19.2 12.2 (36.6%) Terminal Equipment 9.1 9.6 5.8% Other 1.3 1.9 50.0% "Baseline" CAPEX 29.6 23.7 (19.8%) Non-Recurrent CAPEX 0.0 2.0 n.a. Total CAPEX 29.6 25.7 (13.1%)
CAPEX in 1Q13 was 25.7 million euros, down 13.1% compared with 1Q12 and has now reached normalized levels of close to 14% of core Pay TV, Broadband and Voice revenues. These run rate levels reflect necessary network and maintenance investment and still accommodate some growth related CAPEX. Non-Recurrent CAPEX in the quarter of 2 million euros was due to the replacement of some customer premise set-top-boxes required by ZON’s upgrade to MPEG4 compression standards in its DTH business, following the closing of the new transponder contract already announced in 4Q12 and that will generate significant future savings. As a percentage of Total Operating Revenues, CAPEX amounted to 12%.
19/61 Consolidated Management Report 1Q13 ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Cash Flow
Cash Flow (Millions of Euros) 1Q12 1Q13 1Q13 / 1Q12
EBITDA 79.7 83.1 4.4% CAPEX (29.6) (25.7) (13.1%) Baseline CAPEX (29.6) (23.7) (19.8%) Non-Recurrent CAPEX 0.0 (2.0) n.a. EBITDA - CAPEX 50.1 57.4 14.7% Non-Cash Items Included in EBITDA-CAPEX(1) (12.7) (4.0) (68.2%) and Change in Working Capital Operating Cash Flow After Investment 37.4 53.4 42.9% Long Term Contracts (12.9) (24.9) 93.4% Net Interest Paid and Other Financial Charges (7.5) (10.2) 35.5% Income Taxes Paid (2.4) (1.5) (38.8%) Other Cash Movements 1.7 (1.2) n.a. Free Cash-Flow 16.3 15.6 (4.0%) (1) This caption includes non-cash provisions included in EBITDA.
Operating Cash Flow
EBITDA-CAPEX increased by 14.7% in 1Q13 to 57.4 million euros, a record quarterly level due to the very strong EBITDA performance and the more normalized levels of CAPEX, thus consolidating the strong cash flow momentum of the past quarters as can be seen in the chart below. Operating Cash Flow after Investment grew by 42.9% yoy from 37.4 million euros in 1Q12 to 53.4 million euros in 1Q13.
EBITDA - Total CAPEX and OCF After Investment (Millions of Euros)
70 57.4 60 50 53.4 40 30 20 10 0 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 EBITDA- Total CAPEX OCF After Investment
Consolidated Management Report 1Q13 20/61
ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Free Cash Flow
Total FCF in 1Q13 amounted to 15.6 million euros, 4% less than in 1Q12. The main reason for the decline was that, as a result of the renegotiation of the Portuguese football league contract until the end of the 2015/2016 season (as announced in 4Q12), an upfront payment was made at the SportTV level which had an impact of 20 million euros at the ZON consolidated level. Half of this payment will be offset in 4Q13 with the first quarterly payment under the new contract and the rest over the remaining years of the contract. Adjusting for this one-off payment, FCF would have been 35.6 million euros.
21/61 Consolidated Management Report 1Q13 ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Consolidated Balance Sheet
Balance Sheet (Millions of Euros) 2012 1Q13
Current Assets 542.3 602.4 Cash and Equivalents 308.3 332.4 Accounts Receivable, Net 172.4 191.1 Inventories, Net 44.3 37.9 Taxes Receivable 4.7 3.9 Prepaid Expenses and Other Current Assets 12.6 37.1 Non-current Assets 1,068.7 1,024.8 Investments in Group Companies 0.2 0.1 Intangible Assets, Net 319.2 303.1 Fixed Assets, Net 632.0 620.5 Deferred Taxes 48.1 47.2 Other Non-current Assets 69.1 53.8
Total Assets 1,611.0 1,627.2
Current Liabilities 651.8 658.7 Short Term Debt 363.3 372.1 Accounts Payable 214.1 198.8 Accrued Expenses 51.6 53.8 Deferred Income 9.5 11.4 Taxes Payable 12.8 22.6 Current Provisions and Other Liabilities 0.5 0.0 Non-current Liabilities 739.9 737.6 Medium and Long Term Debt 721.2 720.3 Non-current Provisions and Other Liabilities 18.7 17.3
Total Liabilities 1,391.7 1,396.3
Equity Before Non-Controlling Interests 209.8 221.5 Share Capital 3.1 3.1 Own Shares (0.9) (1.3) Reserves, Retained Earnings and Other 171.6 208.1 Net Income 36.0 11.6 Non-Controlling Interests 9.4 9.4
Total Shareholders' Equity 219.2 230.9
Total Liabilities and Shareholders' Equity 1,611.0 1,627.2
Consolidated Management Report 1Q13 22/61
ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Capital Structure
At the end of 1Q13, Net Financial Debt stood at 589.7 million euros, a decrease of 15.2 million euros compared with FY12.
ZON Multimedia is fully financed until the end of 2014 and the average maturity of Net Financial Debt is now 1.7 years.
The total interest rate hedging operations in place at the end of 1Q13 amounted to 257.5 million euros. Taking into account the bonds issued in June 2012 - 200 million euros bearing interest at a fixed rate of 6.85% - the proportion of ZON’s Net Financial Debt that is protected against variations in interest rates is 78%.
Total financial debt at the end of 1Q13 amounted to 967.9 million euros, which was offset with a cash and short-term investments position on the balance sheet of 378.2 million euros. The all-in average cost of ZON’s Net Financial Debt was 5.55% for 1Q13.
Net Financial Gearing decreased to 71.9% at the end of 1Q13 compared with 73.4% at the end of 2012, and Net Financial Debt / EBITDA (last 4 quarters) stands at 1.9x.
Net Financial Debt (Millions of Euros) 2012 1Q13 1Q13 / 2012
Short Term 342.2 349.7 2.2% Bank and Other Loans 334.8 342.0 2.1% Financial Leases 7.3 7.7 4.9% Medium and Long Term 615.8 618.2 0.4% Bank Loans 607.5 610.8 0.5% Financial Leases 8.3 7.4 (11.0%) Total Debt 958.0 967.9 1.0% Cash, Short Term Investments and Intercompany Loans 353.0 378.2 7.1% Net Financial Debt 605.0 589.7 (2.5%) Net Financial Gearing (1) 73.4% 71.9% (1.5pp) Net Financial Debt / EBITDA 1.9x 1.9x n.a. (1) Net Financial Gearing = Net Financial Debt / (Net Financial Debt + Total Shareholders' Equity).
23/61 Consolidated Management Report 1Q13 ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
05 Consolidated Financial Statements
Consolidated Management Report 1Q13 24/61
ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Consolidated Statement of Comprehensive Income for the quarters ended on 31 March 2012 and 2013
(Amounts stated in thousands of euros)
Notes 3M 12 3M 13
(Not audited) (a) (Not audited) (a) REVENUES: Services rendered 205 337 205 307 Sales 7 522 7 483 Other operating revenues 1 314 1 522 5 214 173 214 312 COSTS, LOSSES AND GAINS: Wages and salaries 14 260 13 332 Direct costs 58 415 59 594 Costs of products sold 4 080 3 145 Marketing and advertising 5 064 5 590 Support services 15 518 14 100 Supplies and external services 32 853 29 227 Other operational costs 442 109 Taxes 1 751 1 055 Provisions and adjustments 6 2 119 5 012 Depreciation, amortisation and impairment losses 7 55 947 54 645 Reestructuring costs 85 126 Losses/(gains) on sale of assets, net ( 73) ( 12) Other losses/(gains), net 61 23 190 522 185 947 Income before financial results and taxes 23 651 28 365
Financial costs 8 6 044 8 230 Net foreign exchange losses/(gains), net ( 108) 87 Net losses/(gains) on financial assets, net ( 592) 10 Equity in earnings of affiliated companies, net 85 87 Net other financial expenses/(income) 8 2 912 3 839 8 341 12 255 Income before taxes 15 310 16 110
Income taxes 9 4 624 4 283
Net consolidated income 10 686 11 827
Attributable to: Non-controlled interests 348 200 Zon Multimédia Group shareholders 10 338 11 627
Earnings per share Basic - euros 10 0,03 0,04 Diluted - euros 10 0,03 0,04
(a) As standard practice, only the annual accounts are audited; the quarterly results are not audited separately.
The Notes to the Financial Statements form an integral part of the consolidated statement of comprehensive income for the quarter ended on 31 March 2013.
Chartered Accountant Board of Directors
25/61 Consolidated Management Report 1Q13 ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Consolidated Statement of Comprehensive Income for the quarters ended on 31 March 2012 and 2013
(Amounts stated in thousands of euros)
3M 12 3M 13
(Not audited) (a) (Not audited) (a)
Net income for the year 10 686 11 827
Fair value of interest rate swap (Note 15) ( 922) 1 203 Deferred income tax - interest rate swap (Note 15) 304 ( 319) Fair value of exchange rate forward (Note 15) ( 560) 352 Deferred income tax -exchange rate forward (Note 15) 159 ( 101) Currency translation differences ( 98) ( 136) Other movements - - Other comprehensive income ( 1 117) 999
Total comprehensive income for the year 9 569 12 826
Attributable to: Share owners of the company 9 221 12 626 Non-controlling interests 348 200
9 569 12 826
(a) As standard practice, only the annual accounts are audited; the quarterly results are not audited separately.
The Notes to the Financial Statements form an integral part of the consolidated statement of comprehensive income for the quarter ended on 31 March 2013.
Chartered Accountant Board of Directors
Consolidated Management Report 1Q13 26/61
ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Consolidated Statement of Financial Position at 31 December 2012 and 31 March 2013
(Amounts stated in thousands of euros)
Notes 31-12-2012 31-03-2013 Assets Current assets: Cash and cash equivalents 11 308 251 332 359 Investments held-to-matutrity - 22 930 Accounts receivable - trade 130 522 134 426 Accounts receivable - other 41 901 56 646 Inventories 44 317 37 949 Taxes receivable 4 670 3 901 Non-current assets held-for-sale 678 678 Prepaid expenses 11 930 13 181 Derivative financial instruments 15 - 307 Total current assets 542 269 602 377 Non-current assets: Accounts receivable - other 25 455 32 292 Investments in participated companies 222 135 Investments held-to-matutrity 22 187 - Available-for-sale financial assets 20 629 20 629 Intangible assets 319 155 303 138 Tangible assets 632 047 620 526 Investment property 842 832 Deferred income tax assets 48 146 47 233 Total non-current assets 1 068 684 1 024 786
Total assets 1 610 953 1 627 163
Liabilities Current liabilities: Borrowings 12 363 254 372 091 Accounts payable-trade 157 052 153 675 Accounts payable-other 57 076 45 134 Accrued expenses 51 628 53 796 Deferred income 9 514 11 386 Taxes payable 12 800 22 577 Provisions for other liabilities and charges 13 420 20 Derivative financial instruments 15 45 - Total current liabilities 651 788 658 679 Non-current liabilities: Borrowings 12 721 219 720 291 Accounts payable-other 90 - Defered income 1 385 1 260 Provisions for other liabilities and charges 13 8 411 8 329 Deferred income tax liabilities 2 776 2 864 Derivative financial instruments 15 6 051 4 847 Total non-current liabilities 739 931 737 593 Total liabilities 1 391 719 1 396 272
Shareholder's equity Share capital 14.1 3 091 3 091 Treasury shares 14.2 ( 914) ( 1 253) Legal reserve 14.3 3 556 3 556 Other reserves 14.3 164 381 164 780 Retained earnings 39 723 51 350 Equity before non-controlled interests 209 838 221 524 Non-controlled interests 9 396 9 367 Total equity 219 234 230 891
Total liabilities and shareholder's equity 1 610 953 1 627 163
The Notes to the Financial Statements form an integral part of the consolidated statement of financial position as at 31 March 2013.
Chartered Accountant Board of Directors
27/61 Consolidated Management Report 1Q13 ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Consolidated Statement of Changes in Shareholders' Equity for the quarters ended on 31 March 2012 and 2013
(Amounts stated in thousands of euros)
Capital issued Treasury Legal Other Accumulated Non-controlled Notes Share capital premium shares reserve reserves earnings interests Total Balance as at 1 January 2012 3 091 ( 552) ( 3) 3 556 162 919 56 019 9 984 235 014 Aquisition of treasury shares 14.3 - ( 248) ( 1) - - - - ( 249) Distribuition of treasury shares 14.3 - 492 2 - ( 494) - - - Share Plan 14.3 - - - - 502 - - 502 Comprehensive income for the period - - - - ( 1 117) 10 338 348 9 569 Consolidation differences - - - - ( 30) ( 1) - ( 31)
Balance as at 31 March 2012 3 091 ( 308) ( 2) 3 556 161 780 66 356 10 332 244 805
Balance as at 1 January 2013 3 091 ( 910) ( 4) 3 556 164 381 39 723 9 396 219 234 Dividends attributed to minority interests ------( 229) ( 229) Aquisition of treasury shares 14.3 - ( 998) ( 3) - - - - ( 1 001) Distribuition of treasury shares 14.3 - 659 3 - ( 661) - - - Share Plan 14.3 - - - - 192 - - 192 Comprehensive income for the period - - - - 999 11 627 200 12 826 Consolidation differences - - - - ( 131) - - ( 131) Balance as at 31 March 2013 3 091 ( 1 250) ( 3) 3 556 164 780 51 350 9 367 230 891
The Notes to the Financial Statements form an integral part of the consolidated statement of changes in shareholders' equity for the quarter ended on 31 March 2013.
Chartered Accountant Board of Directors
Consolidated Management Report 1Q13 28/61
ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Consolidated Statement of Cash Flows for the quarters ended on 31 March 2012 and 2013
(Amounts stated in thousands of euros)
Notes 3M 12 3M 13 OPERATING ACTIVITIES Collections from clients 266 884 255 457 Payments to suppliers ( 159 485) ( 168 642) Payments to employees ( 12 719) ( 14 748) Payments relating to income taxes ( 2 376) ( 1 416) Other cash receipts / payments related with operating activities ( 25 682) ( 17 994) Cash flow from operating activities (1) 66 624 52 657
INVESTING ACTIVITIES Cash receipts resulting from Tangible fixed assets 1 116 362 Loans granted 1 715 - Interest and related income 4 154 1 283 Other investment activities - 4 6 985 1 649 Payments resulting from Tangible fixed assets ( 26 557) ( 19 942) Intangible assets ( 948) ( 375) Loans granted ( 6 313) - ( 33 818) ( 20 317) Cash flow from investing activities (2) ( 26 833) ( 18 668)
FINANCING ACTIVITIES Cash receipts resulting from Loans obtained 562 608 339 485 Subsidies - 26 562 608 339 511 Payments resulting from Loans obtained ( 591 552) ( 339 048) Lease rentals (principal) ( 15 314) ( 5 443) Interest and related expenses ( 13 664) ( 3 689) Acquisition of treasury shares ( 249) ( 1 001) Other financial activities - ( 239) ( 620 779) ( 349 420) Cash flow from financing activities (3) ( 58 171) ( 9 909)
Change in cash and cash equivalents (4)=(1)+(2)+(3) ( 18 380) 24 079 Effect of exchange differences ( 115) 29 Cash and cash equivalents at the beginning of the period 407 362 308 251 Changes in the consolidated scope 2 352 - Cash and cash equivalents at the end of the period 11 391 219 332 359
The Notes to the Financial Statements form an integral part of the consolidated statement of cash flows for the quarter ended on 31 March 2013.
Chartered Accountant Board of Directors
29/61 Consolidated Management Report 1Q13
ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Notes to the Consolidated Financial Statements at 31 March 2013
Index of notes to the consolidated financial statements
1. Introductory Note 31 2. Accounting Policies 32 3. Judgements and estimates 32 4. Changes in the consolidation perimeter 32 5. Segment Reporting 32 6. Provisions and adjustments 35 7. Depreciation, amortisation and impairment losses 36 8. Finance costs and other net financial charges 36 9. Income tax expense 37 10. Earnings per share 38 11. Cash and cash equivalents 38 12. Borrowings and loans 39 13. Provisions 41 14. Shareholder's equity 43 15. Derivative financial instruments 45 16. Guarantees and financial undertakings 47 17. Related Parties 49 18. Legal actions 53 19. Share incentive scheme 56 20. Subsequent events 57
Consolidated Management Report 1Q13 30/61
ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Notes to the Consolidated Financial Statements at 31 March 2013
(Amounts stated in thousands of euros)
1. Introductory Note
ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A. (“ZON Multimédia” or “Company”), with the company headquarters based at Rua Actor António Silva, nº9, Campo Grande, was established by Portugal Telecom, SGPS, S.A. (“Portugal Telecom”) on 15 July 1999 with the aim of using it to implement its multimedia business strategy.
During the 2007 financial year, Portugal Telecom proceeded with the spin-off of ZON Multimédia through the attribution of its shares in this company to its shareholders, which then became fully independent from Portugal Telecom.
The multimedia business operated by ZON Multimédia and the associated companies comprising its portfolio of companies (“ZON Group” or “Group”) includes cable and satellite television services, voice and internet access services, video production and sale, Pay TV channel advertising, cinema exhibition and distribution, and the production of channels for Pay TV.
ZON Multimédia shares are listed on the Euronext Lisbon market.
The cable and satellite service in Portugal is provided by ZON TV Cabo Portugal, S.A. (“ZON TV Cabo”), and its affiliates, ZON TV Cabo Açoreana, S.A. (“ZON TV Cabo Açoreana”), ZON TV Cabo Madeirense, S.A. (“ZON TV Cabo Madeirense”). Finstar - Sociedade de Investimentos e Participações S.A. (“Finstar”) and Mstar, SA (“Mstar”) provide television signal by satellite in both Angola and Mozambique. a) cable and satellite television distribution; b) the operation of electronic communications services, including data and multimedia communication services in general; c) IP voice services (“VOIP” – Voice over IP); d) mobile virtual network operator (MVNO); and e) the provision of consultancy and similar services directly or indirectly related to the above mentioned activities and services. The business of ZON TV Cabo, ZON TV Cabo Açoreana and ZON TV Cabo Madeirense is regulated by Law 5/2004 (Electronic Communications Law), which establishes the legal regime governing electronic communications networks and services.
ZON Conteúdos – Atividade de Televisão e de Produção de Conteúdos, S.A. (“ZON Conteúdos”), ZON Lusomundo TV, Lda. (“ZON Lusomundo TV”), Sport TV Portugal, S.A. (“Sport TV”) and Dreamia – Serviços de Televisão, S.A. (“Dreamia SA”) operate in the television and content production business, and currently produce films, series, sport and children’s channels which are distributed by ZON TV Cabo and its subsidiaries, as well as by other operators. ZON Conteúdos also manages the advertising space on Pay TV channels and in the cinemas of ZON Lusomundo Cinemas, S.A. ZON LM Cinemas.
ZON Lusomundo Audiovisuais, S.A. (“ZON LM Audiovisuais”) and ZON LM Cinemas and their subsidiaries operate in the audiovisual sector, which includes video production and sale, cinema distribution and exhibition, and the acquisition/negotiation of Pay TV and VOD (video-on-demand) rights.
31/61 Consolidated Management Report 1Q13
ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
The notes in these Notes to the Consolidated Financial Statements follow the order in which the items are shown in the consolidated financial statements.
The consolidated financial statements for the financial year ended on 31 March 2013 were approved by the Board of Directors and their issue authorised on 8 May 2013.
2. Accounting Policies
The consolidated financial statements were prepared on a going concern basis from the books and accounting records of the companies included in the consolidation (Annex I), using the historical cost convention, adjusted where applicable by the valuation of financial assets and liabilities (including derivatives) at fair value.
The accounting policies adopted, including the financial risk management policies, are consistent with those used in the preparation of the financial statements for the financial year ended on 31 December 2012.
2.1. Principles of presentation
The consolidated financial statements of ZON Multimédia were prepared using accounting policies consistent with International Financial Reporting Standards (“IAS/IFRS”), as adopted in the European Union on 01 January 2013, and in accordance with IAS 34 - Interim Financial Reporting.
3. Judgements and estimates
During the quarter ended on 31 March 2013, no significant changes occurred in the accounting estimates compared with those used in the preparation of the financial information for the year ended on 31 December 2012, nor were any material errors relating to previous financial years recognised.
4. Changes in the consolidation perimeter
On 31 October 2012, ZON Multimedia carried out the Garfilme – Sociedade Impressora de Legendas, Lda. settlement (“Grafilme”).
The impact on its statement of financial position and consolidated income statement for the consolidation perimeter is not relevant.
5. Segment Reporting
5.1. Main report format – business segments
The business segments are as follows:
Pay TV, broadband and voice relates mainly to the supply of TV, Internet (fixed and mobile) and voice (fixed and mobile) services and includes the following companies: ZON Multimédia, ZON Televisão por Cabo, SGPS, S.A. ("ZON Televisão por Cabo"), ZON TV Cabo, ZON TV Cabo Açoreana, ZON TV Cabo Madeirense, ZON Conteúdos, ZON
Consolidated Management Report 1Q13 32/61
ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Lusomundo TV, ZON Finance B.V., Teliz Holding B.V., and the joint venture in the companies Sport TV, Finstar and Mstar.
Audiovisuals relates to the supply of video production services and video sales, cinema distribution and cinema exhibition services and the acquisition/negotiation of Pay TV and VOD (video-on-demand) rights and includes the following companies: ZON Audiovisuais, SGPS, S.A., ZON Cinemas, SGPS, S.A., ZON LM Audiovisuais, ZON LM Cinemas, Lusomundo Moçambique, Lda. (“Lusomundo Moçambique”), Lusomundo España, SL (“Lusomundo España”), Grafilme – Sociedade Impressora de Legendas, Lda. (“Grafilme”), Lusomundo Imobiliária 2, S.A. (“Lusomundo Imobiliária 2“), Lusomundo Sociedade de Investimentos Imobiliários, SGPS, S.A. (“Lusomundo SII), Empracine – Empresa Promotora de Atividades Cinematográficas, Lda. (“Empracine”) and the “joint venture” in the companies Dreamia BV e Dreamia S.A.
The results by segment for the quarters ended on 31 March 2012 and 2013 are shown below:
Pay TV, broadband and voice Audiovisuals Group 3M 12 3M 12 3M 12 Total segment revenue 198 202 27 020 225 222 Inter-segment revenue ( 4 911) ( 6 137) ( 11 048) Sales and services rendered 193 291 20 882 214 173
Operational income by segment 21 330 2 321 23 651 Net interest expense and other 8 344 504 8 848 Loss / (Gains) in financial assets - ( 592) ( 592) Share of loss/(profit) from associates - 85 85 Income before taxes 12 986 2 324 15 310 Income tax expense 3 890 734 4 624
Net income 9 096 1 590 10 686
Other costs: Depreciation, amortisation and impairment 54 621 1 326 55 947 Provisions and adjustments 1 906 213 2 119 Costs / (revenues) non-recurrent 67 6 73
33/61 Consolidated Management Report 1Q13
ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Pay TV, broadband and voice Audiovisuals Group 3M 13 3M 13 3M 13 Total segment revenue 197 961 26 629 224 590 Inter-segment revenue ( 5 023) ( 5 256) ( 10 278) Sales and services rendered 192 939 21 373 214 312
Operational income by segment 29 303 ( 938) 28 365 Net interest expense and other 11 666 491 12 157 Loss / (Gains) in financial assets - 10 10 Share of loss/(profit) from associates - 87 87 Income before taxes 17 637 ( 1 527) 16 110 Income tax expense 4 283 - 4 283
Net income 13 354 ( 1 527) 11 827
Other costs: Depreciation, amortisation and impairment 53 412 1 234 54 645 Provisions and adjustments 2 147 2 865 5 012 Costs / (revenues) non-recurrent 127 10 137
Inter-segment transactions are effected on market terms and conditions in a comparable way to transactions effected with third parties.
Assets and liabilities by segment, and investments in tangible fixed assets at 31 December 2012, are shown below:
Pay TV, broadband and voice Audiovisuals Eliminations Not allocated Group Assets 1 509 087 147 213 ( 138 093) 92 552 1 610 731 Investment in associated companies 105 118 - - 222
Total assets 1 509 192 147 330 ( 138 093) 92 552 1 610 953
Liabilities 320 865 121 186 ( 138 121) 1 087 789 1 391 719
Investment in tangible assets 116 901 2 917 - - 119 817 Investment in intangible assets 77 686 1 - - 77 687
Assets and liabilities not allocated to segments are reconciled with total assets and liabilities as follows:
Assets Liabilities Not allocated: Deferred tax 48 146 2 776 Income tax expense 70 541 Borrowings - current (Note 12) - 363 254 Borrowings - non current (Note 12) - 721 219 Available-for-sale financial assets 20 629 - Non-current assets held-for-sale 678 - Investments held-to-maturity 22 187 - Investment property 842 - 92 552 1 087 789
Consolidated Management Report 1Q13 34/61
ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Assets and liabilities by segment, and investments in tangible fixed assets at 31 March 2013, are shown below:
Pay TV, broadband and voice Audiovisuals Eliminations Not allocated Group Assets 1 534 370 148 169 ( 147 875) 92 392 1 627 028 Investment in associated companies 105 30 - - 135
Total assets 1 534 475 148 199 ( 147 875) 92 392 1 627 163
Liabilities 319 403 126 692 ( 147 881) 1 098 057 1 396 272
Investment in tangible assets 24 658 790 - - 25 448 Investment in intangible assets 2 006 - - - 2 006
Assets and liabilities not allocated to segments are reconciled with total assets and liabilities as follows:
Assets Liabilities Not allocated: Deferred tax 47 233 2 864 Income tax expense 90 2 810 Borrowings - current (Note 12) - 372 091 Borrowings - non current (Note 12) - 720 291 Available-for-sale financial assets 20 629 - Non-current assets held-for-sale 678 - Investments held-to-maturity 22 930 - Investment property 832 - 92 392 1 098 057
6. Provisions and adjustments
In the quarters ended on 31 March 2012 and 2013, provisions and adjustments were composed as follows:
3M 12 3M 13 Provisions (Note 13) - ( 400) Provision for impairment of trade receivable 2 122 5 245 Provision for impairment of other receivable - 169 Debts recovery ( 3) ( 2) 2 119 5 012
35/61 Consolidated Management Report 1Q13
ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
7. Depreciation, amortisation and impairment losses
In the quarter ending on 31 March 2012 and 2013, depreciation, amortisation and impairment losses were composed as follows:
3M 12 3M 13 Intangible assets: Industrial property and other rights 19 223 17 559 Other intangible assets 498 476 19 721 18 034 Tangible assets: Buildings and other constructions 897 844 Basic equipment 29 117 28 614 Transportation equipment 460 402 Tools and dies 2 1 Administrative equipment 4 405 3 781 Other tangible assets 677 561 35 558 34 204
Depreciation and amortisation 55 279 52 238
Impairment losses 668 2 408
55 947 54 645
8. Finance costs and other net financial charges
In the quarters ended on 31 March 2012 and 2013, finance costs and other costs were composed as follows:
3M 12 3M 13
Interest expense: Borrowings 10 494 9 182 Finance leases 1 071 1 495 Other 69 22 11 634 10 699 Interest earned ( 5 590) ( 2 469)
6 044 8 230
Other financial costs: Comissions and guarantees 2 915 3 204 Other 856 856 3 771 4 060 Other financial income: Prompt payment discount ( 858) ( 221)
2 912 3 839
Consolidated Management Report 1Q13 36/61
ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
9. Income tax expense
ZON Multimédia and its associated companies are subject to IRC - Corporate Income Tax - at the rate of 25% (17.5% in the case of ZON TV Cabo Açoreana), plus IRC surcharge at the maximum rate of 1.5% on taxable profit, giving an aggregate rate of approximately 26.5%. Following the introduction of the austerity measures approved by Law 12-A/2010 of 30 September and subsequently in the 2012 State Budget, approved by Law 64-B/2011 of 30 December, this rate was raised to 3% on the amount of a company’s taxable profit between 1.5 million euros and 10 million euros, and to 5% on the amount of a company’s taxable profit exceeding 10 million euros. In the calculation of taxable income, to which the above tax rates apply, amounts which are not fiscally allowable are added to and subtracted from the book results. These differences between accounting income and taxable income may be of a temporary or permanent nature.
ZON Multimédia is taxed in accordance with the special taxation regime for groups of companies (RETGS), which covers the companies in which it directly or indirectly holds at least 90% of their share capital and which fulfil the requirements of Article 69 of the IRC Code.
The companies covered by the RETGS in 2013 are:
ZON Multimédia ZON Lusomundo TV Empracine Lusomundo SII ZON Cinemas SGPS ZON Audiovisuais SGPS ZON TV Cabo ZON Televisão por Cabo SGPS Lusomundo Imobiliária 2 ZON LM Audiovisuais ZON LM Cinemas ZON Conteúdos
Under current legislation, tax declarations are subject to review and correction by the tax authorities for a period of four years (five years in the case of Social Security), except where tax losses have occurred (where the period is five or six years) or tax benefits have been obtained or inspections, appeals or disputes are in progress, in which case, depending on the circumstances, the periods are extended or suspended.
The tax rate applied on 31 March 2012 and 31 March 2013 was 30.20% and 26.58% respectively. As stated in IAS 34 this rate corresponds to the most accurate estimate of average tax owed on expected returns for the current financial year.
The Board of Directors of ZON Multimédia, based on information from its tax advisers, believes that these and any other revisions and corrections to these tax declarations, as well as other contingencies of a fiscal nature, will not have a significant effect on the consolidated financial statements as at 31 March 2013, except for situations which were the subject of provisions (Note 13).
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10. Earnings per share
Earnings per share for the quarters ended on 31 March 2012 and 2013 were calculated as follows:
3M 12 3M 13 Net income attributable to equity holders of the parent 10 338 11 627
Weighted average number of ordinary shares in issue 308 997 670 308 774 768
Basic earnings per share - euros 0,03 0,04 Diluted earnings per share - euros 0,03 0,04
At 31 March 2012 and 2013, as there were no diluting effects on the net earnings per share, the diluted earnings per share is equal to the basic earnings per share.
11. Cash and cash equivalentes
At 31 December 2012 and 31 March 2013, this item was composed as follows:
31-12-2012 31-03-2013
Cash 1 784 2 289 Deposits 13 685 17 897 Other deposits i) 292 781 312 173
308 251 332 359
i) At 31 March 2013, term deposits had short-term maturities and bear interest at normal market rates.
Consolidated Management Report 1Q13 38/61
ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
12. Borrowings and loans
At 31 December 2012 and 31 March 2013, the composition of borrowings was as follows:
31-12-2012 31-03-2013 Current Non Current Current Non Current Loans 339 855 611 916 338 787 614 239 Internal loans 53 543 - 52 914 - Foreign loans 11 312 103 630 10 873 105 838 Commercial paper 275 000 150 000 275 000 150 000 Debenture loan - 357 500 - 357 500 Group loans - 786 - 901
Loans - Accruals anda deferrels ( 5 024) ( 4 414) 3 214 ( 3 413) Financial Leases 27 639 113 717 29 966 109 465 Long Term Contracts 20 313 105 407 22 395 102 070 Other 7 326 8 310 7 571 7 396
Financial Leases - Accruals and deferrels 784 - 125 -
363 254 721 219 372 091 720 291
12.1. Internal loans
These include the Group’s share of the loan obtained by Sport TV in the amount of 47.952 million euros, with quarterly repayments and maturing in 2013, and Upstar’s secured current account totalling 4.962 million euros.
The net amount of 589 thousand euros, corresponding to interest and commissions, was added to this amount.
12.2. Foreign loans
In September 2009 ZON Multimédia and ZON TV Cabo signed a Next Generation Network Project Finance Contract with the European Investment Bank totalling 100 million euros. This contract matures in September 2015 and is intended for investments relating to the implementation of the next generation network. The amount of 1.506 million euros was deducted from this amount, corresponding to the benefit associated with the fact that the loan is at a subsidised rate.
Finstar has bank loans totalling 18.218 million euros.
An amount of 108 thousand euros, corresponding to interest and commissions, was deducted from this amount.
12.3. Commercial paper
The Company has debt of 425 million euros in the form of commercial paper contracted with four banks, corresponding to five programmes bearing interest at market rates. Two grouped programmes of commercial paper with maturities over 1 year totalling 150 million euros are classed as non-current, since the Company has the ability to unilaterally renew the current issues on or before the programmes’ maturity dates and because they are underwritten by the organiser. The amount concerned, although it had current maturity, was classified as non-current for the purposes
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of presentation in the statement of financial position. The remaining programmes are classified as current.
An amount of 1.124 million euros, corresponding to interest and commissions, was deducted from this amount.
12.4. Debenture loans
The Company has bonds issued via three banks totalling 157.500 million euros with an average maturity of 2014 years, half-yearly payment of interest and repayment at par at the end of the contract.
In June 2012, ZON Multimédia launched a Public Offer for Subscription of Bonds for the general public, called "ZON Multimédia Bonds 2012-2015”, under which it issued 200.000 million euros with a maturity of three years and half yearly payment at a fixed rate.
The net amount of 444.5 thousand euros, corresponding to interest and commissions, was added to this amount.
12.5. Finance Leases
On 31 December 2012 and 31 March 2013, long-term contracts between ZON TV Cabo and Upstar for the acquisition of exclusive satellite use, by ZON TV Cabo, by ZON TV Cabo for the purchase of rights to use the distribution network and the acquisition of digital cinema equipment for ZON LM Cinemas.
Finance Leases 31-12-2012 31-03-2013 Financial leases - payments: Until 1 year 33 959 35 266 Between 1 and 5 years 67 200 64 531 Over 5 years 76 754 73 619 177 913 173 416 Future financial costs ( 35 772) ( 33 860)
Present value of finance lease liabilities 142 141 139 556
31-12-2012 31-03-2013
The present value of the finance lease liabilities: Until 1 year 28 423 30 091 Between 1 and 5 years 50 354 46 102 Over 5 years 63 363 63 363
142 141 139 556
All bank loans (with the exception of bonds) obtained and finance leases contracted are negotiated at variable short term interest rates and their book value is therefore broadly similar to their fair value.
Consolidated Management Report 1Q13 40/61
ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Maturity of loans
The maturities of the loans obtained are as follows:
31-12-2012 31-03-2013 Between 1 and 5 Between 1 and 5 Until 1 year years Over 5 years Until 1 year years Over 5 years
Internal loans 53 655 - - 53 503 - - Foreign loans 11 281 103 599 - 10 790 105 813 - Commercial paper 271 502 149 537 - 274 227 149 648 - Debenture loan ( 1 607) 353 579 - 3 480 354 464 - Internal loans - related parties - - 786 - - 901 Financial Leases 28 423 50 354 63 363 30 091 46 102 63 363 363 254 657 069 64 149 372 091 656 027 64 264
Management regularly monitors the forecasts of the Group’s liquidity reserves, including the amounts of unused credit lines and the amounts of cash and cash equivalents, on the basis of estimated cash flows and compliance with any covenants usually associated with borrowings.
Of the loans obtained (excluding finance leases), in addition to being subject to the Group complying with its operating, legal and fiscal obligations, 89.97% are subject to cross-default clauses, 76.58% to pari passu clauses, 31.81% to ownership clauses, and 61.48% to negative pledge clauses.
In addition, approximately 47.30% of the total loans obtained require that the consolidated net financial debt does not exceed 4 times consolidated EBITDA, and approximately 9.32% of the total loans obtained require that net interest does not exceed 20% of consolidated EBITDA.
13. Provisions
At 31 December 2012 and 31 March 2013, the breakdown of provisions between current and non- current was as follows:
31-12-2012 31-03-2013 Current provision Litigation 20 20 Other 400 - 420 20 Non-current provision Taxes 563 563 Litigation 2 130 2 130 Other 5 718 5 637 8 411 8 329 8 831 8 349
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During the quarters ended on 31 March 2012 and 31 March 2013, the movements in provisions were as follows:
31-12-2011 Increases Decreases Other 31-03-2012 Taxes 563 - - - 563 Legal actions 2 258 - - - 2 258 Other risks 24 419 70 ( 18 246) - 6 243 27 240 70 ( 18 246) - 9 064
31-12-2012 Increases Decreases Other 31-03-2013 Taxes 563 - - - 563 Legal actions 2 150 - - - 2 150 Other risks 6 118 - ( 481) - 5 637
8 831 - ( 481) - 8 349
The net movements for the quarters ended on 31 March 2012 and 31 March 2013 reflected in the statement of comprehensive income under “Provisions” are broken down as follows:
3M 12 3M 13 Other liabilities and charges - ( 400) Provisions (Note 6) - ( 400) Interest paid 41 ( 81) Investments in participated companies (Note 16) ( 18 246) - Other 29 - ( 18 176) ( 81)
Provision for other liabilities and charges ( 18 176) ( 481)
The balance in the item “Other risks and contingencies” at 31 December 2012 and 31 March 2013 is composed as follows:
31-12-2012 31-03-2013 Asset retirement obligation 4 910 4 829 Contigencies - other i) 1 207 807 6 118 5 637
i) The amount shown under “Miscellaneous contingencies” relates to provisions for risks and contingencies relating to events/disputes, mainly of a fiscal nature with the exception of income taxes, the settlement of which could result in outflows of cash.
Consolidated Management Report 1Q13 42/61
ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
14. Shareholder's equity
14.1. Share capital
At 31 March 2013, the share capital of ZON Multimédia was 3 090 968 euros, represented by 309 096 828 registered book-entry shares with a nominal value of 1 Euro cent per share.
The principal shareholders at 31 December 2012 and 31 March 2013 are:
31.12.2012 31.03.2013 % Voting % Voting Shareholder NO.Of Shares Rights NO.Of Shares Rights Unitel International Holdings, B.V. i) 58 147 094 18,81% 58 147 094 18,81% Kento Holding Limited i) 30 909 683 10,00% 30 909 683 10,00% Banco BPI, SA 23 344 798 7,55% 23 428 598 7,58% Espírito Santo Irmãos, SGPS, SA ii) 15 455 000 5,00% 15 455 000 5,00% Joaquim Alves Ferreira de Oliveira iii) 14 955 684 4,84% 14 955 684 4,84% Fundação José Berardo iv) 13 408 982 4,34% 13 408 982 4,34% Banco Espírito Santo, SA 10 661 737 3,45% 10 661 737 3,45% Ongoing Strategy Investments, SGPS, SA v) 10 162 250 3,29% 10 162 250 3,29% Estêvão Neves - SGPS, SA vi) 9 075 782 2,94% 9 075 782 2,94% Blackrock, Inc. - - 6 861 380 2,22% Grupo Visabeira, SGPS, SA vii) 6 641 930 2,15% 6 641 930 2,15% Norges Bank 6 379 164 2,06% 6 379 164 2,06% Zadig Gestion (Luxembourg) S.A. 6 300 000 2,04% 6 300 000 2,04% SGC, SGPS, SA viii) 6 182 000 2,00% 6 182 000 2,00% ESAF - Espírito Santo Fundos de Investimento Mobiliário, SA 6 088 616 1,97% 6 088 616 1,97% BES Vida - Companhia de Seguros, S. A. 5 721 695 1,85% 5 721 695 1,85% Metalgest - Sociedade de Gestão, SGPS, SA iv) 3 985 488 1,29% 3 985 488 1,29% ZON Multimédia (Own Shares) 401 523 0,13% 421 704 0,14%
Total 227 821 426 73,71% 234 786 787 75,96%
i) Under the terms of Article 20, paragraph 1 b) and Article 21 of the Securities Code, the qualifying shareholding is attributable to Isabel dos Santos, in her capacity as a sole shareholder of KENTO and controlling shareholder of Unitel International Holdings, B.V. In accordance with the agreement between Sonaecom, Kento Holding Limited and Jadeium BV, currently known as Unitel Internacional Holdings, BV (Grupo KJ) and the subsequent unanimous approval , by the Boards of Directors at ZON MULTIMÉDIA - Serviços de Telecomunicações e Multimédia, SGPS, S.A. and OPTIMUS, SGPS, S.A., of the Merger Project, both published in notices on 14 December 2012 and 21 January 2013 respectively, the participation of Grupo KJ, corresponding to 28.81% of ZON share capital, was transferred on the latter date, to be attributable to Sonaecom, under the terms and effects of article 20., n. 1, paragraph h) of the CVM. The holding to Sonaecom is also attributable, under article 20, n.1, paragraph b) of the CVM, to all bodies in a controlling relationship, namely, SONTEL, BV, Sonae Investments, BV, SONAE, SGPS, S.A., EFANOR INVESTIMENTOS, SGPS, S.A. and Belmiro Mendes de Azevedo. ii) The voting rights corresponding to Espírito Santo Irmãos, SGPS, SA are allocated to Espírito Santo Industrial, SA, Espírito Santo Resources Limited, and to Espírito Santo Internacional, SA, companies that dominate Espírito Santo Irmãos in that order. iii) The voting rights corresponding to 4.84% of the share capital are attributed to Joaquim Francisco Alves Ferreira de Oliveira, as he controls GRIPCOM, SGPS, SA, and Controlinveste International SARL, which own, respectively, 2.26% and 2.58% of the share capital of ZON Multimédia.
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iv) The position of the Fundação José Berardo is reciprocally attributed to Metalgest - Sociedade de Gestão, SGPS, S.A. v) The voting rights of Ongoing Strategy Investments, SGPS, SA are attributable to RS Holding, SGPS, SA, as its majority shareholder and to Isabel Maria Alves Rocha dos Santos, as majority shareholder in RS Holding, SGPS, S.A. vi) The qualifying shareholding of Estêvão Neves – SGPS, SA is attributable to its majority shareholder, Mr José Estêvão Fernandes Neves. vii) Visabeira Investimentos Financeiros, SGPS, SA, holds 0.99% of the share capital and voting rights of ZON Multimédia, in that 1.16% is directly held by Grupo Visabeira, SGPS, SA. Visabeira Investimentos Financeiros, SGPS, SA is 100% owned by Visabeira Estudos e Investimentos, SA, which is 100% owned by Visabeira Serviços, SGPS, SA, which in turn is owned by Grupo Visabeira, SGPS, SA. 74.0104% of the latter is held by Fernando Campos Nunes. viii) The shareholding of SGC, SGPS, SA is allocated to its major shareholder, Dr. João Pereira Coutinho.
14.2. Own shares
Company law regarding own shares requires the establishment of a non-distributable reserve in an amount equal to the purchase price of such shares, which becomes frozen until the shares are disposed of. Furthermore, applicable accounting rules determine that the gains or losses in the disposal of own shares are registered in reserves.
At 31 March 2013 there were 421,704 own shares, representing 0.1364% of the share capital (31 March 2012: 124,844 own shares, representing 0.004039% of the share capital).
Movements in the quarters ended on 31 March 2012 and 2013 were as follows:
Quantity Value Balance as at 1 January 2012 265 612 555 Acquisition of treasury shares 94 000 249 Distribution of treasury shares ( 234 768) ( 494)
Balance as at 31 March 2012 124 844 310
Balance as at 1 January 2013 401 523 914 Acquisition of treasury shares 307 465 1 001 Distribution of treasury shares ( 287 284) ( 661)
Balance as at 31 March 2013 421 704 1 253
14.3. Reserves
Legal reserve
Commercial legislation and ZON Multimédia statues determine that at least 5% of annual net income must be for the reinforcement of the legal reserve, until it represents 20% of the capital. This reserve cannot be distributed except in the event of liquidation of the company, but it may be used to absorb losses after all other reserves have been exhausted, or for incorporation in the share capital.
Consolidated Management Report 1Q13 44/61
ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Other reserves
Movements in the quarters ended on 31 March 2012 and 2013 and the composition of “Other reserves” are as follows:
Free reserves Other reserves Total Balance as at 1 January 2012 134 621 28 298 162 919 Distribuition of treasury shares 494 ( 989) ( 494) Aquisition of treasury shares ( 249) 249 - Share plan - 502 502 Interest rate derivatives (Note 15) - ( 401) ( 401) Exchange rate derivatives (Note 15) - ( 618) ( 618) Other - ( 128) ( 128)
Balance as at 31 March 2012 134 866 26 913 161 780
Balance as at 1 January 2013 114 504 49 877 164 381 Distribuition of treasury shares 661 ( 1 323) ( 661) Aquisition of treasury shares ( 1 001) 1 001 - Share plan - 192 192 Interest rate derivatives (Note 15) - 885 885 Exchange rate derivatives (Note 15) - 251 251 Other - ( 268) ( 268) Balance as at 31 March 2013 114 163 50 616 164 780
15. Derivative financial instruments
15.1. Exchange rate derivatives
Exchange rate risk is mainly related to exposure resulting from payments made to certain producers of audiovisual content and equipment for the Pay TV business. Business transactions between the ZON Group and these producers are mainly denominated in US dollars.
Depending on the balance of accounts payable resulting from transactions denominated in a currency different from the Group’s operating currency, the ZON Group may contract financial instruments, namely short-term foreign currency futures, in order to hedge the risk associated with these balances. At the date of the statement of financial position there were foreign currency forwards open for 17.350 million (31 December 2012: 2.288 million Dollars), whose fair value amounts to a gain of about 307 thousand euros (31 December 2012: a negative amount of 45 thousand euros) which was recorded in a contra asset equity.
15.2. Interest rate derivatives
At 31 March 2013, ZON had contracted three interest rate swaps totalling 257.500 million euros (31 December 2012: 257.500 million euros), with maturities at two years from the reference date. The fair value of interest rate swaps, the negative amount of 4.847 million euros (31 December 2012: negative amount of 6.051 million euros) was recorded in liabilities, while equity in counterpart to this amount has been registered.
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31-12-2012 Asset Liability Notional Current Non Current Current Non Current
Derivative Financial instruments Interest rate swaps 257 500 - - - 6 051 Exchange rate forward 1 734 - - 45 - 259 234 - - 45 6 051
31-03-2013 Asset Liability Notional Current Non Current Current Non Current
Derivative Financial instruments Interest rate swaps 257 500 - - - 4 847 Exchange rate forward 15 694 307 - - - 273 194 307 - - 4 847
Movements during the first quarter of 2013 were as follows:
31-12-2012 Result Equity 31-03-2013 Fair value interest rate swaps ( 6 051) - 1 203 ( 4 847) Fair value exchange rate forward ( 45) - 352 307 Cashflow hedge derivatives ( 6 095) - 1 556 ( 4 540) Deferred income tax liabilities - - ( 88) ( 88) Deferred income tax assets 1 616 - ( 332) 1 285
1 616 - ( 420) 1 196 ( 4 479) - 1 135 ( 3 344)
31-12-2011 Result Equity 31-03-2012 Fair value interest rate swaps ( 2 577) - ( 923) ( 3 500) Fair value exchange rate forward 532 - ( 565) ( 33) Interests - ( 226) - ( 226) Cashflow hedge derivatives ( 2 045) ( 226) ( 1 488) ( 3 760) Deferred income tax liabilities ( 154) - 154 - Deferred income tax assets 683 - 314 997
529 - 468 997 ( 1 516) ( 226) ( 1 019) ( 2 763)
Consolidated Management Report 1Q13 46/61
ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
16. Guarantees and financial undertakings
16.1. Guarantees
At 31 December 2012 and 31 March 2013, the Group had furnished sureties, guarantees and comfort letters in favour of third parties corresponding to the following situations:
31-12-2012 31-03-2013 Bank guarantees given to other entities: Financial instituitions i) 100 164 100 180 Tax authorities ii) 23 779 23 779 Suppliers iii) 11 330 11 005 Other iv) 10 216 10 271
145 488 145 236
Promissories v) 24 599 23 566 Confort letters vi) 11 392 14 652
i) This amount relates mainly to guarantees furnished by ZON Multimédia in connection with the loan from the EIB (Note 12). ii) Guarantees demanded by the Tax Authorities in connection with tax proceedings contested by the Company and its subsidiaries (Note 18). iii) This amount mostly includes 3.632 million euros from bank guarantees provided to cinema owners, 2.101 million euros in bank guarantees provided to the company Multi38 in accordance with the contract agreeing to lease a new building and 3.975 million euros for two bank guarantees for companies providing the service of leasing out satellite use. iv) This amount mainly relates to guarantees provided in connection with Municipal Wayleave Tax proceedings. v) In connection with the finance obtained by Upstar from BES, totalling 20 million euros, ZON Multimédia signed a promissory note for the full amount of the loan. Furthermore, it includes a promissory note signed by ZON Multimédia, responsible for up to 30% of Finstar's financing along with BFA to the sum of 1.5 billion AKZ. vi) In connection with the finance obtained by Finstar from Banco Caixa Totta and Banco BNI, totalling 2,430 billion AKZ, 1,849 billion AKZ, 980 billion AKZ and 1000 billion AKZ respectively, ZON Multimédia signed four comfort letters accepting liability for up to 30% of the total amount of the loan. The comfort letter from the Banco Caixa Totta also covers 30% of 7.5 million USD of back to back letters of credit for importing goods.
In connection with the finance obtained by Sport TV, totalling 76 million euros, the following guarantees were signed: a security financial collateral arrangement in respect of the shares and new shares held by ZON Multimédia and Sportinveste, SGPS, S.A., a mortgage on the Sport TV building, a lien on rights arising from Sport TV contracts, 5 promissory notes and assignment of credits in guarantee.
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16.2. Operating leases
The rentals due on operating leases have the following maturities:
31-12-2012 31-03-2013 Less than 1 Between 1 and More than 5 Less than 1 Between 1 and More than 5 year 5 years years year 5 years years
Stores, movie theatre and other buildings 27 388 79 176 63 832 26 673 77 463 59 943 Equipment 72 82 - 80 94 - Vehicles 51 35 - 64 29 - 27 512 79 294 63 832 26 819 77 587 59 943
16.3. Other undertakings
In July 2010, ZON TV Cabo Portugal signed a contract with the Portuguese Professional Football League as co-sponsor with the brewing company Sociedade Central de Cervejas, covering four football seasons (2010/2011 to 2013/2014) of the first and second division competitions, to be known henceforth as the “LIGA ZON SAGRES” [ZON SAGRES LEAGUE] (formerly the “LIGA SAGRES”) and the “Segunda LIGA” (formerly the “LIGA VITALIS”).
At 31 March 2013, Sport TV had secured television broadcasting rights for various sporting events in future seasons. These rights include matches of the major European Football Leagues, the UEFA Champions League and Europa League, and the Formula 1 World Championship. A contract renewal was also agreed with PPTV - Publicidade de Portugal e Televisão, S.A., for the television broadcast of Portuguese League football games for over 3 years, until the end of the 2015/2016 season.
On 21 November 2008, the Competition Authority approved the acquisition by ZON TV Cabo of exclusive control of TVTel, Bragatel, Pluricanal Leiria and Pluricanal Santarém, subject to a series of undertakings, of which the following are the most significant:
An undertaking to vacate the areas in secondary and tertiary network infrastructures by removing or selling integrated cables in network cells that are not included in the previous undertaking, or that have not been disposed of under the terms of the previous undertaking;
An undertaking to provide a wholesale national coverage satellite television offer by means of which any third party can offer Pay TV services nationwide via satellite platforms without the need for network infrastructures.
The EIB loan totalling 100 million euros with a maturity of 5 years is intended exclusively to finance the next generation network investment project. This amount may not in any circumstances exceed 50% of the total cost of the project.
Consolidated Management Report 1Q13 48/61
ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
17. Related Parties
17.1. Summary list of Related Parties
Detailed summary of Related Parties as at 31 March 2013:
Related Parties Caixa Geral de Depósitos, SA Kento Holding Limited Unitel International Holdings, B.V. Banco BPI, SA Telefónica, SA Espírito Santo Irmãos, SGPS, SA Joaquim Alves Ferreira de Oliveira Fundação José Berardo Ongoing Strategy Investments, SGPS, SA Estêvão Neves - SGPS, SA Cinveste, SGPS, SA Grupo Visabeira, SGPS, SA Norges Bank Banco Espírito Santo, SA SGC, SGPS, SA ESAF - Espírito Santo Fundos de Investimento Mobiliário, SA BES Vida - Companhia de Seguros, S. A. Metalgest - Sociedade de Gestão, SGPS, SA Sport TV Dreamia Holding BV Dreamia - Serviços de Televisão, SA Mstar, SA Upstar Comunicações SA FINSTAR - Sociedade de Investimentos e Participações, SA ZON II - Serviços de Televisão SA ZON III - Comunicações electrónicas S.A. Big Picture 2 Films, SA Distodo, Lda Canal 20 TV Fundo Investimento para Cinema e Audiovisual Gesgráfica - Projectos Gráficos, Lda Caixanet – Telecomunicações e Telemática, SA Apor - Agência para a Modernização do Porto Lusitânia Vida - Companhia de Seguros, SA Lusitânia - Companhia de Seguros, SA Turismo da Samba (Tusal), SARL Filmes Mundáfrica, SARL Companhia de Pesca e Comércio de Angola (Cosal), SARL
49/61 Consolidated Management Report 1Q13
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17.2. Balances and transactions between related parties
a) Transactions and balances between ZON Multimédia and companies of the ZON Group were eliminated in the consolidation process and are not the subject of disclosure in this Note.
The balances at 31 December 2012 and 31 March 2013 and transactions in the years ended on 31 December 2011 and 31 March 2013 between the ZON Multimédia Group and its associated companies, joint ventures and other related parties were as follows:
2012: Sales and Expenses and services services Interest Transactions rendered obtained Interest income expenses Caixa Geral de Depósitos 15 - 13 1 727 Banco BPI - 178 12 1 855 Banco Espírito Santo - 485 2 949 5 309 Sport TV 12 8 341 - - Dreamia Holding BV 58 - 23 - Dreamia SA 388 16 - - Upstar 1 403 4 510 - Distodo 1 153 - - Fundo Investimento para Cinema e Audiovisual - - - 17 Big Picture 2 Films 5 644 - -
1 882 9 821 3 507 8 908
Accounts Accounts Accruals and receivable - receivable - Accounts Accounts Accruals and deferred Balances trade other payable - trade payable - other deferred assets liabilities Sport TV 26 ( 149) 13 240 - 15 1 629 Dreamia Holding BV 471 928 - - - - Dreamia SA 949 753 1 074 - - 96 Upstar 2 879 21 809 448 - - 1 268 Finstar 4 520 - - - - - Distodo 1 - - - - - Fundo Investimento para Cinema e Audiovisual - - - 17 500 - - Mstar 78 553 - - - - Big Picture 2 Films 2 - 7 - - 164 Canal 20 TV - - 1 - - -
8 926 23 895 14 812 17 500 15 3 156
Other financial Derivatives Derivative Balances Loan obtained aplications assets Liabilities Financial leases Banco Espírito Santo 267 830 203 387 - - 3 185 Banco BPI 95 482 - - 994 78
363 312 203 387 - 994 3 263
Consolidated Management Report 1Q13 50/61
ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
2013: Sales and Expenses and services services Interest Transactions rendered obtained Interest income expenses Banco BPI - - 3 1 618 Banco Espírito Santo - 10 542 3 274 Sport TV 20 7 754 - - Dreamia Holding BV 42 - 25 - Dreamia SA 573 192 - - Upstar Comunicações 1 839 4 305 - Finstar 123 - - - Distodo 1 135 - - Canal 20 TV, SA 2 949 - - 2 599 9 046 874 4 892
Accounts Accounts Accruals and Accruals and receivable - receivable - Accounts Accounts deferred deferred Balances trade other payable - trade payable - other asDezs liabilities Sport TV 29 - 13 173 - 30 1 613 Dreamia Holding BV 471 784 - - - - Dreamia SA 1 237 692 1 332 - - 99 Upstar Comunicações 2 874 22 307 448 - - - Finstar 4 643 - - - - - Distodo 1 54 - - - - Fundo Investimento para Cinema e Audiovisual - - - 17 500 - -
Canal 20 TV, SA - - 1 - - -
9 333 24 393 15 490 17 500 30 2 077
Other financial Derivatives Derivative Balances Loan obtained aplications assets Liabilities Financial leases Banco Espírito Santo 268 021 183 206 - - 2 711 Banco BPI 96 713 1 163 - 781 68
364 734 184 369 - 781 2 779
The Company regularly performs transactions and signs contracts with several parties within the ZON Group. Such transactions were performed on normal market terms for similar transactions, as part of the current business of the contracting companies.
The Company also regularly performs transactions and enters into financial contracts with various credit institutions which hold qualifying shareholdings in the Company. However, these are performed on normal market terms for similar transactions, as part of the current business of the contracting companies.
b) The remuneration paid to the directors of ZON Multimédia, SGPS in the years ended on 31 March 2012 and 2013 was as follows:
03M12 03M13
Share-based Share-based Fixed Fixed Bonus compensation Bonus compensation Remuneration Remuneration plans plans
Executive management 464 203 148 464 203 155 Non executive management 196 - - 211 - -
659 203 148 674 203 155
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The remuneration paid to senior executives of the Group in the half years ended on 31 March 2012 and 2013 was as follows:
03M12 03M13 Fixed Remunerations 1 451 1 381 Bonus 327 379 Share-based compensation plans 291 203
2 069 1 964
The average number of senior executives of the Group is 39 (03M2012:39).
The variable remuneration stated above corresponds to the value of accrued performance bonuses for 2013 which are payable in 2014.
All remuneration and bonuses are short term. The share incentive scheme includes a medium and long term amount of 414 thousand euros.
17.3. Joint Ventures
The ZON Group has a 50% interest in the following joint ventures: Sport TV, whose business is the television broadcasting of the Sport TV channels and ii) Dreamia (Dreamia BV and Dreamia SA) whose business is the television broadcasting of the MOV, Hollywood, Panda and Panda Biggs channels. It also has a 30% stake in Mstar and Finstar whose business is the distribution of satellite TV and the operation and supply of telecommunications services, and 30% in Upstar whose business is electronic communications services and the production, commercialisation, broadcasting and distribution of audiovisual content and consultancy.
As a result of the consolidation of those subsidiaries by the proportional method, the following amounts were included in the consolidated statements of financial position at 31 March 2013, and in the consolidated statement of comprehensive income for the years ended on 31 March 2013.
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31-03-2013
Company (a) Eliminations(b) Contribution (c) Current assets 104 270 ( 50 066) 54 203 Non-current assets 43 640 ( 1 625) 42 015 Accounts receivable - trade 7 300 - 7 300 Accounts receivable - other 1 625 ( 1 625) - Intangible assets 20 367 - 20 367 Tangible assets 13 641 - 13 641 Deferred tax assets 707 - 707
Total assets 147 910 ( 51 691) 96 219
Current liabilities 120 001 ( 50 023) 69 979 Non- current liabilities 13 315 ( 2 534) 10 781 Borrowings 9 880 - 9 880 Accounts payable-other 3 410 ( 2 509) 901 Accrued expenses 25 ( 25) -
Total liabilities 133 316 ( 52 557) 80 759
31-03-2013
Company (a) Eliminations(b) Contribution (c) Total revenue 33 336 ( 13 613) 19 723 Total expense 31 950 ( 13 613) 18 337
Net income 1 385 - 1 385
a) Percentage interest in the individual accounts of the companies at the date stated; b) Inter-company eliminations; c) Amounts included in the consolidated statement of financial position at 31 March 2013, and in the consolidated statement of comprehensive income for the quarter ended on 31 March 2013 as a result of consolidation by the proportional method.
18. Legal actions
18.1. Municipal Wayleave Tax (TMDP) Proceedings
In February 2004, pursuant to Article 13 of the Authorisation Directive (Directive 2002/20/EC of 7 June), Law 5/2004 of 10 February (Electronic Communications Law) established in its Article 106 the Municipal Wayleave Tax (TMDP) as consideration for the “rights and costs of the installation, passage and crossing, in a determined area, of the public and private municipal domain" by the systems, equipment and other resources of companies offering public electronic communications networks and services. The TMDP charge is levied on “each invoice issued by the companies offering public electronic communications networks and services at a fixed location to all end customers within the respective municipality", and is calculated as a maximum percentage of 0.25% of the amount of each invoice. Some municipalities, despite approving the TMDP, have continued to collect Occupancy Taxes, while others have opted to maintain the latter taxes rather than approving the TMDP.
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In the light of legal advice on the matter, the Group is of the view that the TMDP is the only tax that should be collected as consideration for the above mentioned rights, namely the right of installation, for which reason it has challenged the public highway Occupancy Taxes charged to it by municipalities, since it deems such taxes illegal. It must also be highlighted that under the scope of an administrative complaint, a decision has been made by some municipalities, which have either subscribed to the Group's interpretation or decided that they may only opt for one rate or the other, as it is not possible for the TMDP and public road Occupancy Rates to overlap.
Meanwhile, various judicial decisions have been issued on the substantive issue, including by the Supreme Administrative Court, that uphold the position and understanding of ZON TV Cabo, with the result that there are good prospects that this dispute will be definitively resolved in favour of ZON TV Cabo by the majority of municipalities. Two appeals were made to the Constitutional Court in two proceedings by Lisbon Town Hall, it was decided that one of them did not have the right to appeal. With the entry into force of Decree-Law 123/2009, this matter has been definitively resolved for the future. This law clearly states (in line with ZON’s interpretation of the previous legislation) that the TMDP is payable for the use of goods in the public or private municipal domain which involves the construction or installation, by companies that offer public electronic communications networks and services, of infrastructures for housing electronic communications in accordance with the terms of the Electronic Communications Law, and that no other taxes, official fees or consideration are due.
18.2. Legal actions with regulators
On 8 July 2009, ZON TV Cabo was notified by the Competition Authority (AdC) in connection with administrative offence proceedings relating to the ZON triple-play offer, requesting ZON TV Cabo to comment on the content of the notification, which it did in good time. The case is currently at the fact-finding stage in AdC and various information has been requested, to which ZON has responded. If it is concluded that an infringement has occurred, the AdC may levy a fine not exceeding 10% of the company’s turnover in last year of infringement.
ICP-ANACOM instituted regulatory infringement proceedings against ZON TV Cabo, as it did against the majority of Portuguese electronic communications operators, for infringement of the portability regulations. ZON TV Cabo brought an action for judicial review of a decision by Anacom ordering it to pay a fine, and the court ruled that Anacom’s decision was null and void, there having been no further developments to date. ZON TV Cabo, ZON TV Cabo Açoreana and ZON TV Cabo Madeirense appealed against Anacom's decision to demand payment of fines for breach of number portability rules, these proceedings are still under way.
ZON TV Cabo Portugal, ZON TV Cabo Açoreana and ZON TV Cabo Madeirense brought actions for judicial review of ICP-ANACOM’s decisions in respect of the payment of the Annual Fee (for 2009, 2010 and 2011) for carrying on the business of Electronic Communications Services Networks Supplier in the amounts, respectively, of 1.087 million euros, 2.325 million euros, and 3.580 million euros; 42 thousand euros, 79 thousand euros, and 123 thousand euros; 55 thousand euros, 109 thousand euros and 169 thousand euros, and seeking reimbursement of the amounts meanwhile paid in connection with the enforcement proceedings. This fee is a percentage decided annually by ANACOM of operators’ electronic communications revenues. The scheme is being introduced gradually: ⅓ in the first year, ⅔ in the second year and 100% in the third year. ZON TV Cabo, ZON TV Cabo Açoreana and ZON TV Cabo Madeirense claim, in addition to defects of unconstitutionality and illegality, that only revenues from the electronic communications business per se, subject to regulation by ANACOM, should be considered for the
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purposes of the application of the percentage and the calculation of the fee payable, and that revenues from television content should be excluded. On 18 December 2012 a ruling was passed on the proceedings instigated by ZON TV Cabo Portugal for 2009, for which the appeal was upheld, with no prior hearing, condemning ICP- ANACOM to pay the costs, with the decision still subject to appeal by ICP-Anacom.
ZON tendered in an auction for licences for a nationwide freeview generalist programme service, to be broadcast via terrestrial television. The Regulator of Social Communication decided on 23 March 2009 to disqualify ZON’s bid, along with that of another bidder. ZON has applied for judicial review of the decision. The outcome of these proceedings is awaited.
18.3. Tax authorities
During the years 2005 to 2012, some ZON Group companies were subject to Tax Inspection for the years 2002, 2005 and 2010. Following those inspections, ZON Multimédia, as the controlling company of the Tax Group, was notified of corrections made by the Tax Inspectorate to the Group’s tax loss. The Company considered that the corrections were unfounded, and appealed against the amounts mentioned. ZON Multimédia brought an action for judicial review of those corrections.
During the years 2007 to 2012, ZON Multimedia, ZON TV Cabo, ZON Conteúdos and ZON TV Cabo SGPS were subject to Tax Inspections for the financial years 2004 to 2010. Following these inspections, the companies were notified to make payments corresponding to the corrections made by the Tax Inspection Services for the tax years above. The Company considered that the corrections were unfounded, and contested the amounts mentioned. The Group provided the bank guarantees demanded by the Tax Authorities in connection with these proceedings, as stated in Note 16.
The following proceedings are in progress:
Year Company Revised years Value
2007 ZON Multimédia 2004 109 2007 ZON Multimédia 2005 446 2010 ZON Multimédia 2008 352 2011 ZON Multimédia 2009 264 2012 ZON Multimédia 2010 142 2007 ZON TV Cabo 2004 2 024 2007 ZON TV Cabo 2005 1 694 2008 ZON TV Cabo 2006 2 048 2009 ZON TV Cabo 2007 4 012 2010 ZON TV Cabo 2008 1 735 2010 ZON TV Cabo 2009 1 799 2012 ZON TV Cabo 2010 24 2011 ZON Conteúdos 2009 141 2012 ZON Conteúdos 2010 267 2011 ZON TV Cabo SGPS 2009 407 2011 ZON TV Cabo SGPS 2010 1 022 16 487
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18.4. Actions brought by PT against ZON TV Cabo Madeirense and ZON TV Cabo Açoreana
PT tried to bring a case against ZON TV Cabo Madeirense at the Funchal Criminal Court, claiming payment of 1.608 million euros, plus accrued interest until the date of full settlement, for the alleged use of ducts, supply of the MID service, supply of video and audio channels, the operation, maintenance and management costs of the Madeira/Porto Santo submarine cable and the use of two fibre optic circuits.
The company contested the action, in particular the prices concerned, the services and PT’s legal capacity with regard to the ducts. The proceedings are currently under trial.
However, following the decision made on 19 July 2011 in which ZON TV Cabo Açoreana was acquitted, in April 2012 PT brought two new actions against ZON TV Cabo Açoreana, one relating to the MID service and the other to the supply of video and audio channels, claiming payment of 222 thousand euros and 316 thousand euros respectively, plus interest. The time limit for contesting the claim in both actions has not yet expired.
18.5. Cinema Law
Law 55/2012, which establishes the principles of state action under the promotion, development and protection of cinema and cinematographic and audiovisual activities in Portugal, was published on 6 September 2012. This Law was enacted in 2013 (DL 9/2013) just for liquidating and charging publicity rates for showing films and charging television distribution operators.
ZON Multimédia is currently analysing this issue, as well as its impact on the financial statements and potential actions which it may result in, namely a legal appeal, based, amongst other reasons, on (i) the illegal and unconstitutional nature of the rate, namely, due to violating the principles of tax equality and fair taxation and not on back-dated taxation and on (ii) violation of the European directives that cover the virtual communication services and networks.
This process is also being carried out by APRITEL.
18.6. Contractual Penalties
The general conditions that affect the agreement and termination of this contract between ZON and its clients, establish that if the products and services provided by the client can no longer be used prior to the end of the binding period, the client is obliged to immediately pay damages to ZON TV CABO. In the 2013 year, damages were charged to a total of 13.833 million euros, of which only 150 thousand euros were received and recorded under 'Other invoices'.
19. Share incentive scheme
The Share Incentive Schemes approved by the General Meetings of Shareholders on 27 April 2008 and 19 April 2010 with the aim of promoting employee loyalty, aligning their interests with the Company’s objectives and creating more favourable conditions for the recruitment of staff of high strategic value, have been implemented in accordance with the principles agreed at those meetings. These incentives plans comprise a Standard Plan and a Senior Executive Plan. The Standard Plan is aimed at eligible members selected by the responsible bodies, regardless of the roles they perform. In this plan the vesting period for the assigned shares is five years, starting twelve months
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after the period to which the respective assignment relates, at a rate of 20% a year. The Senior Executive Plan is aimed at eligible members classed as Senior Executives, also selected by the responsible bodies. The Senior Executive Plan, implemented following approval by the General Meeting of Shareholders in April 2010, has a vesting period of 3 years following the attribution of the shares.
The maximum number of shares assigned each year to these plans is approved by the Board of Directors and depends exclusively on fulfilment of the performance objectives established for ZON and on the assessment of the individual’s performance.
The number of shares vested in 2013 under the Share Plans approved in 2008, 2009, 2010, 2011 and 2012 was 287,284 shares.
In addition, the Group recognised liabilities in respect of the 2008, 2009, 2010, 2011, 2012 and 2013 Plans, which extend until 2017, totalling 9.050 million euros – 1.951 million euros in 2008, 1.592 million euros in 2009, 1.401 million euros in 2010, 1.862 million euros in 2011, 2.052 million euros in 2012 and 192 thousand euros in 2013.
20. Subsequent events
As at the date of issue of the Report and consolidated financial statements for the quarter ended on 31 March 2013 there are no subsequent events to report.
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ANNEX I
a) Companies included in the consolidation by the full consolidation method
b) Associated companies
c) Jointly controlled companies
d) Companies recorded at cost
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ANNEXED TABLES
a) Companies included in the consolidation by the full consolidation method
Percentage of Ownership Effective Direct Effective Company Head Office Activity 31-12-2012 31-03-2013 31-03-2013 ZON Multimédia - Serviços de Lisbon Management of investments Telecomunicações e Multimédia, SGPS, S.A. ZON TV Cabo Portugal, S.A. Lisbon Distribution of television by cable and satellite and operation of 100,00% ZON Multimédia (100%) 100,00% telecommunications services ZON TV Cabo Açoreana, S.A. Ponta Distribution of television by cable and satellite and operation of 83,82% ZON TV Cabo (83,82%) 83,82% Delgada telecommunications services in the Azores area ZON TV Cabo Madeirense, S.A. Funchal Distribution of television by cable and satellite and operation of 77,95% ZON TV Cabo (77,95%) 77,95% telecommunications services in the Madeira area ZON Televisão por Cabo, SGPS, S.A. Lisbon Management of investments 100,00% ZON TV Cabo (100%) 100,00%
ZON Conteúdos - Actividade de Televisão e de Lisbon Comercialization of cable tv contents 100,00% ZON Televisão por Cabo 100,00% Produção de Conteúdos, S.A. (100%) ZON Lusomundo Audiovisuais, S.A. Lisbon Import, distribution, commercialization and production of audiovisual products 100,00% ZON Multimédia (100%) 100,00%
Grafilme - Sociedade Impressora de Legendas, Lisbon Providing services on audiovisual subtitling 55,56% ZON LM Audiovisuais - Lda. (a) (55,56%) ZON Audiovisuais, SGPS S.A. Lisbon Management of investments 100,00% ZON LM Audiovisuais 100,00% (100%) ZON Lusomundo TV, Lda. Lisbon Movies distribution, editing, distribution, commercialization and production of 100,00% ZON Audiovisuais SGPS 100,00% audiovisual products S.A. (100%) ZON Lusomundo Cinemas , S.A. Lisbon Movies exhibition and commercialization of other public events 100,00% ZON Multimédia (100%) 100,00%
Lusomundo Moçambique, Lda. Maputo Movies exhibition and commercialization of other public events 100,00% ZON LM Cinemas (100%) 100,00%
ZON Cinemas, SGPS S.A. Lisbon Management of investments 100,00% ZON LM Cinemas (100%) 100,00%
Lusomundo - Sociedade de investimentos Lisbon Management of Real Estate 99,87% ZON Multimédia (99,87%) 99,87% imobiliários SGPS, SA Empracine - Empresa Promotora de Atividades Lisbon Movies exhibition 99,87% Lusomundo SII (100%) 99,87% Cinematográficas, Lda. Lusomundo Imobiliária 2, S.A. Lisbon Management of Real Estate 99,68% Lusomundo SII (99,8%) 99,68%
Lusomundo España, SL Madrid Management of investments relating to activities in Spain in the audiovisuals 100,00% ZON Multimédia (100%) 100,00% business Teliz Holding B.V. Amstelveen Management of investments 100,00% ZON Multimédia (100%) 100,00%
ZON FINANCE B.V. Amsterdam Management of group financing activities 100,00% ZON Multimédia (50%); 100,00% ZON TV Cabo (50%)
(a) Company sold in October 2012.
b) Associated companies Percentage of Ownership Effective Direct Effective Company Head Office Activity 31-12-2012 31-03-2013 31-03-2013 Distodo - Distribuição e Logística, Lda. Lisbon Stocking, sale and distribution of audiovisual material 50,00% ZON LM Audiovisuais (50%) 50,00% ("Distodo") Canal 20 TV, S.A. Madrid Production, distribution and sale of contens rights for television films 50,00% ZON Multimédia (50%) 50,00%
ZON II - Serviços de Televisão S.A. (a) Lisbon Conception, production, realization and commercialization of audiovisual 100,00% ZON Multimédia (100%) 100,00% contents and provision of publicity services Big Picture 2 Films, S.A. Lisbon Import, distribution, commercialization and production of audiovisual 20,00% ZON Audiovisuais SGPS 20,00% products S.A. (20%) ZON III - Comunicações electrónicas S.A. Lisbon Network operator and provider of electronic communications services 100,00% ZON Multimédia (100%) 100,00% (a) (a) Inactive company.
c) Jointly controlled companies Percentage of Ownership Effective Direct Effective Company Head Office Activity 31-12-2012 31-03-2013 31-03-2013 Sport TV Portugal Lisbon Conception, production, realization and commercialization of sports 50,00% ZON Multimédia (50%) 50,00% programs for telebroadcasting, purchase and resale of the rights to broadcast sports programs for television and provision of publicity Dreamia - Serviços de Televisão, S.A. Lisbon Conception,services production, realization and commercialization of audiovisual 50,00% Dreamia Holding BV 50,00% contents and provision of publicity services (100%) Dreamia Holding B.V. Amsterdam Management of investments 50,00% ZON Audiovisuais SGPS 50,00% S.A. (50%) MSTAR, SA Maputo Distribution of television by satellite, operation of telecommunications 30,00% ZON Multimédia (30%) 30,00% services Upstar Comunicações S.A. Vendas Electronic communications services provider, production, 30,00% ZON Multimédia (30%) 30,00% Novas commercialization, broadcasting and distribution of audiovisual contents
FINSTAR - Sociedade de Investimentos e Luanda Distribution of television by satellite, operation of telecommunications 30,00% Teliz Holding B.V. (30%) 30,00% Participações, S.A. services
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d) Companies recorded at cost Percentage of Ownership Effective Direct Effective Company Head Office Activity 31-12-2012 31-03-2013 31-03-2013 Turismo da Samba (Tusal), SARL (a) Luanda n.a. 30,00% ZON Multimédia (30%) 30,00%
Filmes Mundáfrica, SARL (a) Luanda Movies exhibition 23,91% ZON Multimédia (23,91%) 23,91%
Companhia de Pesca e Comércio de Luanda n.a. 15,76% ZON Multimédia (15,76%) 15,76% Angola (Cosal), SARL (a) Caixanet – Telecomunicações e Lisbon Telecommunication services 5,00% ZON Multimédia (5%) 5,00% Telemática, S.A. Apor - Agência para a Modernização do Porto Development of modernizing projects in Oporto 3,98% ZON Multimédia (3,98%) 3,98% Porto Lusitânia Vida - Companhia de Seguros, Lisbon Insurance services 0,03% ZON Multimédia (0,03%) 0,03% S.A ("Lusitânia Vida") Lusitânia - Companhia de Seguros, S.A Lisbon Insurance services 0,04% ZON Multimédia (0,04%) 0,04% ("Lusitânia Seguros")
(a) The financial investments in these companies are fully provisioned.
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