Annual Report of Cyfrowy Polsat S.A. for the Financial Year Ended 31 December 2010
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ANNUAL REPORT OF CYFROWY POLSAT S.A. FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 Place and date of publication : Warsaw, 17 March 2011 Content of the annual report: Letter of the President of the Management Board Management Board’s report on the activities of C yfrowy Polsat S.A. in the financial year ended 31 December 2010 Management Board ’s representations Opinion of the independent auditor Financial statements for the financial year ended 31 December 2010 Report supplementing the auditor's opinion on the financial statements for the year ended 31 December 2010 Interim financial statements for the period of 3 and 12 months ended on 31 December 2010 2 Ladies and Gentlemen, With great pleasure and satisfaction I am presenting this Annual Report of Cyfrowy Polsat S.A. for 2010. Our company marked 2010 with consistent implementation of the strategy aimed at strengthening our leadership on the DTH satellite television market and development of integrated services. Last year’s landmark for our company was the announcement of the planned transaction to purchase 100% of Telewizja Polsat S.A. for PLN 3.75 billion. With this transaction, the Cyfrowy Polsat Group will become an undisputed leader in the media market, forming, together with Polsat Television, the largest media group in Poland. Activities of both companies complement each other naturally, so we will be able to gain significant competitive advantages. Our Group will become a stronger entity with diversified sales within subscription revenues, as well as television advertising. Ongoing interest in television services resulted in an increase of our subscriber base of 234 thousand, which allowed us to close the year with the figure of 3.436 subscribers. As a result of our operating results we also strengthened our leading position on the DTH satellite television market and noticed an increase in our financial results. In order to pursue our strategy of delivering sustainable development of business and increase the satisfaction of our subscribers we have enriched our programming offer, particularly with high-definition channels. The launch of the following channels: Animal Planet HD, TLC, AXN HD, Comedy Central, Orange Sport Info, Filmbox, Filmbox HD, FOX Life HD, FOX HD, Nat Geo Wild, and Nat Geo Wild HD, has significantly increased the number of our thematic channels. We were extremely pleased to see a growing interest in the VOD service - Home Video Rental, which we offered to our viewers in December 2009. Our library provides subscribers with access to the titles of some of the largest content providers - Disney, Sony, Monolith Films, and SPI. We have significantly developed the business of our Cyfrowy Polsat Technology Sp. z o.o. factory introducing new models of digital set-top boxes, including those enabling receipt of high definition channels, in response to the market expectations and changes. Over two million cutting edge technology devices, including several hundred thousand HD set-top boxes have left our factory and this year we plan to introduce a new model of HD tuner. This solution, which is innovative on the Polish market, has allowed us to reduce the cost of set-top boxes, which in turn, has a positive impact on our profitability. According to the strategy we announced during our IPO, we have worked on the development of our business in the telecommunications industry. On 1 February 2010 we offered, as the first supplier in Poland, broadband internet access in the mobile technology of HSPA+. On 1 June 2010 we introduced integrated services - namely the possibility of buying television, Internet and mobile telephony under one contract, one subscription fee and one invoice. In October, we increased the speed of our Internet offer from 21 Mb/s to 28.8 Mb/s, as a result of employing an innovative, multi-antenna MIMO technology. Today, we are the only operator of a satellite platform which in addition to television services offers its own telecommunications services. I believe that the course we set for our development, clearly defined goals for the next few years and their consistent implementation, will not only strengthen our leading position on the pay DTH satellite television market, but together with further development of telecommunication services and the control and creation of content provided by Telewizja Polsat, we will be able to successfully offer new, attractive services and products. We expect that in the long term they will contribute to an increase in the number of users of our services, average revenue per subscriber and customer loyalty. Achieving these objectives in combination with discipline in financial management, which has always been our priority, will certainly have a positive impact on building shareholder value. Yours sincerely Dominik Libicki President of the Management Board Cyfrowy Polsat S.A. 3 MANAGEMENT BOARD ’S REPORT ON ACTIVITIES OF CYFROWY POLSAT S.A. IN THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 This document is a free translation of the Polish original. Terminology current in Anglo-Saxon countries has been used where practicable for the purposes of this translation in order to aid understanding. The binding Polish original should be referred to in matters of interpretation. 4 Table of content Item 1. Introduction ................................................................................................................................ 7 Item 2. Currency presentation and exchange rate information .................................................................... 9 Item 3. Selected financial data .............................................................................................................. 10 Item 4. Key risk and threat factors ......................................................................................................... 12 Item 5. Presentation of our Company .................................................................................................... 18 Item 5.1. General information about our Company ............................................................................. 18 Item 5.2. Information on organizational or capital connections with other entities .................................. 19 Item 5.3. Changes to the principle rules of management of our Company ............................................ 21 Item 5.4. Strategy, market opportunities and comparative advantage of the Company .......................... 21 Item 5.4.1. Company strategy ........................................................................................................ 21 Item 5.4.2. Market opportunities ..................................................................................................... 22 Item 5.4.3. Competitive advantage .................................................................................................. 23 Item 5.5. Digital pay satellite services ............................................................................................... 24 Item 5.5.1. Market overview ........................................................................................................... 24 Item 5.5.2. Our direct competitors ................................................................................................... 25 Item 5.5.3. Programming offer ........................................................................................................ 28 Item 5.5.4. Development of programming offer ................................................................................ 31 Item 5.5.5. Set-top boxes ............................................................................................................... 32 Item 5.5.6. Sales Seasonality ......................................................................................................... 33 Item 5.6. Internet Service ............................................................................................................... 33 Item 5.6.1. Market environment ...................................................................................................... 33 Item 5.6.2. Competition .............................................................................................................. 34 Item 5.6.3. Our offer ..................................................................................................................... 35 Item 5.6.4. Modems ...................................................................................................................... 35 Item 5.7. Mobile telephony services ................................................................................................. 35 Item 5.7.1 Market environment ...................................................................................................... 35 Item 5.7.2 Competition .................................................................................................................. 36 Item 5.7.3. Our offer ...................................................................................................................... 37 Item 5.8. Multi-play offer .................................................................................................................. 38 5.9. Marketing and sales, customer service and maintenance ................................................................... 38 Item 5.9.1. Marketing ..................................................................................................................... 38 Item 5.9.2. Sales ..........................................................................................................................