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TABLE OF CONTENTS
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LETTER FROM THE CHAIRMAN OF THE BOARD AND THE CHIEF EXECUTIVE OFFICER 4
01 BUSINESSES 7 Business Indicators 8 Financial Indicators 10 Main Events in 2011 11 Triple Play Business 14 Pay TV 14 Broadband 15 Fixed Voice 16 Corporate 17 Communication Strategy 18 Technology 21 Distribution Channels 23 Logistics and Procurement 24 Other Businesses 25 Cinema 25 Audiovisuals 27 ZAP 28
02 PERFORMANCE 29 Macroeconomic Background 30 Sector / Regulation 33 2011 Operational Performance 40 2011 Financial Performance 47
03 SUSTAINABILITY 55
04 FINANCIAL STATEMENTS 97 Consolidated Financial Statements 98 Annexes 178 Documents of Appreciation of Consolidated Accounts 181
05 CORPORATE GOVERNANCE 189
STATEMENT UNDER THE TERMS OF ARTICLE 245, PARAGRAPH 1, C) OF THE PORTUGUESE SECURITIES CODE 270
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Letter from the Chairman of the Board and the Chief Executive Officer
Dear investor,
At the end of 2010, it was not possible to predict the scale of the challenges that the country and ZON were set to face.
However, despite these challenges, we are very pleased about how things turned out for us in 2011, not only due to our good operational performance, but also due to our ability to adapt to the difficult macro and micro economic environment.
We have centred our strategy on very simple concepts and priorities: Customer Service, Innovation, Leadership, Technology, Team Spirit and Financial Discipline. Underlying our strategy is a core principal, transparency, both internal and external. During the course of 2011, we are very proud to have received external recognition of our transparency and discipline when we were considered to be on the eight best performing companies in Portugal as regards corporate governance.
We have redesigned our company over the past few years, our network, our systems and processes. Our core concern is to enrich our customers’ experience by innovating all the way through the organization – the changes we introduce always have one clear purpose – to improve the value we deliver to our customers, to enthral them with our brand. We are today a reference in our sector in terms of both technological capacity and innovation, and have received numerous awards, both in Portugal and abroad, in recognition of the quality of our services and offers.
In 2011 we launched our next generation user interface, “IRIS”. This new premium service has proven a resounding success and by the end on 2011 around 100 thousand customers had already signed up. The interface has a completely new user platform developed from the outset as a platform to be rolled out to other screens beyond the TV set. Towards the end of the year we launched IRIS online for laptops, tablets and smartphones, enabling customers to benefit from a truly seamless experience, be they at home or on the move.
We grew in all our main markets. We are clear leaders in Pay TV with 1,567 customers, over 60% of which subscribing to triple play bundles (TV + Broadband + Voice). We are amongst the operators with the highest level of triple play penetration in Europe.
Innovation, quality of service and technological leadership have sustained our consistent ability to grow our broadband customer base. At the end of 2011, 63% of our cable customers had broadband and, of these, over 50% were taking offers greater than 24 Mbps.
Our voice offers continue to be a very strong value proposition and in 2011 we captured 100 thousand additional voice customers. We again launched a very innovative service at the end of 2011, “ZON Phone”, an App that can be downloaded for iPhone, Android and iPad and that enables users to make internet calls, when on the move and within Wi-Fi coverage, using their home fixed telephone number whilst benefiting from the same tariff plan.
We have been at the forefront of innovation as regards our cinema business, with all of our screens digitalized and 40% with 3D projection technology. Our leadership position in audiovisual distribution is supported by the strength of our TV and Cinema businesses and by the distribution of content to other domestic and international operators.
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We are very excited about the performance of our first initiative outside of Portugal, a joint-venture in which we hold 30%, to broadcast satellite Pay TV for the Angolan market. The Angolan pay TV market more than doubled in 2011, and ZAP, our commercial brand for Angola, took the greater part of that growth. We are confident that this market still has significant potential for future growth and that ZAP is well positioned to capture a significant proportion of it.
2011 marks a turnaround for ZON. Revenue growth slowed with the already quite high levels of triple play penetration achieved. However, we have focused in improving cost structure and processes and that has enabled us to significantly improve operating results and margins.
As we had forecast, 2011 represents an inflection point in ZON’s free cash flow generation. At the same time that we are improving operating profitability, we significantly reduced the level of CAPEX by around 100 million euros due to the completion of all the large network investments and customer equipment upgrades in 2010. As such, we generated enough cash flow in 2011 to remunerate all our sources of capital, including payment of dividends, and still reduce debt marginally.
We are very pleased with our performance in 2011 albeit prudent about the prospects for what we still expect to be a challenging 2012. We will continue to seek ways of reaching out to our customers and the market in general with even better value propositions and service quality, whilst focusing on operational excellence and financial discipline.
We would like to thank all our employees for their dedication and hard work in pursuit of the targets established for the organization. We would also like to thank our customers, commercial and technical partners and our shareholders for their continuous support throughout the year.
Daniel Proença de Carvalho Chairman of the Board of Directors of ZON Multimédia
Rodrigo Costa Chief Executive Officer of ZON Multimédia
Lisbon, 26 March 2012
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01 BUSINESSES
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Business Indicators (in thousands):
Triple Play Customers (Thousands): % Triple Play Cable Customers:
709 60% 642 55% 484 41%
2009 2010 2011 2009 2010 2011
RGUs (Thousands): RGUs per Subscriber (units):
3,315 3,147 2.25 2.36 2,858 2.01
2009 2010 2011 2009 2010 2011
Blended ARPU (Euros): Pay TV Customers (Thousands):
35.4 35.7 1,595 1,572 1,567 33.8
2009 2010 2011 2009 2010 2011
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Broadband Customers (Thousands): Fixed Voice Customers (Thousands):
739 884 690 778 611 584
2009 2010 2011 2009 2010 2011
Mobile Customers (Thousands):
125 108
69
2009 2010 2011
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Financial Indicators (Millions of Euros):
Operating Revenues: EBITDA [EBITDA Margin as % of Revenues]:
872 330 855 311 37% 813 302
280 263 36.4% 35%
230 34.7% 33%
180 32.3% 31%
130 29%
80 27%
30 25% 2009 2010 2011 2009 2010 2011
Net Income: CAPEX:
44 248 214 35 70 34 8 150 9 206 178 141
2009 2010 2011 2009 2010 2011 Recurrent CAPEX Non-Recurrent CAPEX
Net Financial Debt: Net Financial Debt / EBITDA [x]:
640 638 616 2.3x 2.1x 2.0x
2009 2010 2011 2009 2010 2011
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Main Events in 2011
January IRIS by ZON Fibra Launch ZON Lusomundo announces Home Premiere service ZON was, once again, elected as one of the best companies to work in Portugal, according to the study of EXAME magazine Excellence at Work Award (a Heidrick & Struggles, ISCTE Business School and Económico Newspaper partnership): ZON ranks first in the Technology, Media and Telecommunication sector and third in the Large Companies Top 5 ZON TVCabo is the first company in Portugal to receive the 100R certificate by Sociedade Ponto Verde for all its buildings and shops
February ZON Lusomundo Audiovisuais wins Paramount award for the movie “Shrek Forever After” Launch of TV Cine 1 and TV Cine 2 HD channels ZON launches Glooq, an exclusive and innovative marketing tool
March Broadcast of NBA games in 3D ZON launches on demand content on Rede Expressos buses ZON launches the Backup Online service and becomes the first operator in Portugal to provide a cloud storage service ZON launches ZON Digital Animation Lab at UTAustin, an advanced training session in digital animation techniques ZON and Liga Portugal present Liga ZON Kids, the first official children’s’ tournament of the Portuguese Professional Football league Warner Home Video awards ZON Lusomundo with the «Outstanding Creativity» prize for the rebranding of «Looney Tunes» and the «Memorable Films» campaign
April “Goal for your Heart” – ZON and Central de Cervejas, a Portuguese beer company, offered one hundred euros for every goal scored during match day 28th ZON implemented, in partnership with Streambow, the Xperience Care Center – a step further to a finest customer care service ZON Lusomundo Cinemas movie distribution cycle is now fully digital, through satellite or high bandwidth connection, in a virtual private network, without the need of international mail or national logistics
May ZON Empresas launches PBX 2.0 ZON launches ZON Música, the first offer in the Portuguese market to integrate sound and image Launch of Hollywood HD and AXN Black channels ZON launches ZON Street Basket, a street basketball tournament Launch of Warner TV on-demand available at ZON’s monthly subscription services
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June ZON@FON reaches 400 thousand hotspots in Portugal and over 4 million all over the world ZON ranks second in the telecommunications area, at the Best Contact Center 2011 Awards promoted by the Portuguese Contact Center Association Iris by ZON Fibra, awarded 'Most Innovative Design or User Interface' by TV of Tomorrow Show – second prize attributed to this service ZON E-mail powered by Windows Live – Offers 25 GB of cloud storage as well as access to word processing, spreadsheet and presentation applications from any browser, without the need of purchase or installation of additional software ZON launches IPv6 in line with its vision for the future of the Internet ZON establishes partnership with Sagres and the Sport Journalists Association (CNID)
July IMAX Technology at ZON Lusomundo: IMAX Corporation and ZON Lusomundo Cinemas established a joint-venture to install three IMAX movie screens ZON@FON registers 1 million accesses in July only Sustainable Development Award 2011 (Heidrick & Struggles/Diário Económico): ZON was distinguished as one of the best Portuguese companies in Sustainable Development and ranked first in its sector ZON launches ORKOS: a digital platform which allows online medical prescription by the medical community Pedro Miranda, ZON’s Head of Customer Care, was awarded Industry Champion of Portugal 2011 by Contact Center World. ZON’s Customer Care service and its project ZON Experience were also awarded in the Best Incentive Scheme category and Best Technology Innovation Internal Solution. This project involves over two thousand outsourcing workers and it was considered one of the best in all EMEA - Europe, Middle East and Africa Madeira Island leads in Wi-Fi coverage – Madeira’s archipelago currently has 13 thousand hotspots and is one of the islands with the highest Wi-Fi penetration in the World due to the ZON@FON service
August Second ECSI Portugal 2010 Study – National Customer Satisfaction Index – ZON's Pay TV service is considered the best in Portugal ZON Madeira develops its high speed telecommunications network to reach Porto Santo Island Green Boxes Project: Packaging of over 3 thousand TV, Broadband and Voice equipment, placed at customer premises on a daily basis, is now made of green materials ZON@FON reaches 450 thousand hotspots in Portugal
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September ZON launches a new version of the IRIS service The new IRIS by ZON Fibra platform launch campaign is awarded with Gold in the New Brand Launches and Rebrandings, at CAP Awards 2011 (Creative Awards Program) ZON Lusomundo Cinemas premieres 4D: «Spy Kids: All the Time in the World» in 4D is the first new 4D Aromascope experience to be presented to the community ZON@FON compatible with Nintendo: The largest Wi-Fi hotspot network in the World is now compatible with Nintendo 3DS, allowing, as of now, free download of 3D content
October ZON Online Launch - TV over the Internet: a platform which enables ZON’s customers to access TV contents over the Internet ZON Empresas increases Cloud Computing business apps offer ZON Empresas improves its small and midsize companies’ service offer with the launch of Fatura+ (invoice+) and Advancedesk ZON strengthens leadership in high definition and launches new channels: TV Séries HD, Sundance Channel HD, Food Network HD, Outdoor Channel HD, Trace Sports HD, Trace Urban HD, Travel Channel HD ZON North Canyon Show: Surfer Garrett McNamara surfed the biggest wave in the World with ZON’s sponsorship
November ZON’s Oporto Call Center at Campanhã is awarded with the Best Contact Center Facilities ZON Online is now available on iPad “The Twilight Saga: Breaking Dawn” – Exclusive début for myZONcard customers ZON improves Widgets offer on IRIS service ZON launches “BOA ZON”: a competitive bundle – € 9,99 TV + Fixed Phone – seeking to be an alternative to DTT with greater benefits ZON enters the Smart TV market: Partnership with LG enables users access to ZON channels highlights ZON Música – 20 thousand subscribers: Six months after launch, over two million contents have been downloaded ZON Mobile 8 Campaign is awarded with silver at the Telecommunications and Media category of the 2011 Effectiveness Awards
December ZON launches ZON Phone App for iPhone and iPad ZON is one of the best companies in Corporate Governance according to the AEM (Portuguese Association of Listed Companies) study ZON@FON: 500 thousand hotspots in Portugal and 4.5 million worldwide ZON offer Pay TV service to the CHLC - Hospital Dona Estefânia, children’s hospital ZON@FON is now available at the Azores Islands XL remote control: ZON launches TV remote control for the elderly Global Business Excellence Awards 2011 – ZON wins international award for the best Customer Care Initiative ZON Madeira presents Wi-Fi bus: the daily bus connecting Funchal and Machico is now enabled with free internet access
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Triple Play Business
Pay TV
In January 2011 ZON launched its new generation multi-screen TV offer, IRIS by ZON Fibra. The service, positioned has ZON’s premium triple play offer, has been a runaway success, reaching a 100.000 subscribers in less than a year.
The service features an award winning user interface that promotes content to the center stage and that was natively designed to be multi-device, being the first service ever to have the exact same experience across a Set-Top- Box, PC and Tablet.
The value proposal goes well beyond the User Interface – the service is offered to the user as a bundle of cable services (TV, Internet and Voice) with both linear and non-linear content. The exact composition of the bundle is not locked and can be customized at any time according to each person’s preferences.
User preferences are also the base for the different content that is recommended in several instances of the navigation, based on both the user’s expressed taste and the interactions with their social network friends.
One of the principles leading to the design of the service was the recognition that people want to see their favorite TV content on their own terms and not be constricted by the fixed scheduling on Live TV Channels.
To address this, a massive catalog of on-demand and subscription VoD titles is offered, (over 18.000 assets between Movies, TV Shows, Children’s Programming, Music,...), There are also advanced series recording methods that, paired with a powerful search and an automatically organized library, take recordings to a whole new level. Lastly, users are given the possibility to Start- Over any TV Show that finished in the last 2 Hours, forever eliminating the frustration of sitting in front of the TV only to realize that the program the user had planned to watch is already halfway through. In fact, Start-Over has been such a success that it is the most quickly adopted feature ever launched by ZON, with over 80% of the subscribers using it in the first 3 months after launch.
IRIS by ZON Fibra goes beyond the pure TV experience and deeply integrates the best the Internet has to offer, fully adapted to the specifics of a TV utilization. There is a seamless integration of Facebook sharing methods and feedback, access to Youtube, Vimeo, Photo-Sharing Apps, AccuWeather forecasts, and even casual games like Tetris. And these are just a few examples of a fast growing App offer.
In September the service was extended with an Over-The-Top PC service, that was followed in November by an iPad version. Both services fully replicate the TV UI, guaranteeing that the user has a consistent experience regardless of the device used to access the service.
IRIS is the foundation of ZON’s future offer, and it materializes our long term vision of the Pay TV operator as the main navigator of the users in its video content discovery and consumption process, offering services that answer both their current and future needs while shielding them from the complexity driven by the proliferation of different networks, technologies devices and even content choices.
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Broadband
Leadership in Speed
In 2011, ZON Fibra continued to strengthen its technological leadership in Broadband.
Supported by the largest national Next Generation Network (NGN), available in almost 3.1 million Portuguese homes, ZON provides Broadband services up to 200Mbps in all of its footprint and up to 1 Gbps in selected areas.
Based on data from the regulator, ZON is the undisputed leader in high-speed broadband (access speeds of 30 Mbps or higher), having reached a market share of 70% in late 2011.
According to NetIndex, ZON Fibra customers enjoy the best access speeds in the country. According to this ranking, ZON provides an average speed of 24Mbps, about 80% higher than its main competitor.
In order to improve the Quality of Experience (QoE) of its broadband customers, the company developed a set of initiatives throughout 2011, namely:
i. Introduction of ZON HUB 3.0, a high performance customer equipment, with access speeds of up to 400 Mbps download and 120 Mbps upload; ii. Capacity Expansion of Content Delivery Networks (CDN), optimizing the customer experience in accessing international content, which are now located along ZON’s optic fibre backbone; iii. Adoption of advanced diagnostic tools of Internet access quality (throughput, delay, jitter, etc..), allowing ZON to proactively diagnose and correct any network flaws; iv. The company participated in the World IPv6 Day and introduction this technology in its internet infrastructure. escalating it to support the large growth in the number of online devices.
In order to increase the level of participation of its customers, ZON broadened its range of additional services, of which we highlight two innovations in the Portuguese market for Cloud Services:
i. In March, ZON introduced its Online Backup service based on Cloud Storage high availability, becoming the first operator in Portugal to offer a safe and unlimited storage to their customers; ii. In June, ZON launched ZON Mail providing all customers with free access to 25 GB of Cloud Storage for storing documents and photographs, as well as access to Microsoft Word, Excel, PowerPoint and OneNote on SaaS model (Software as a Service).
The higher levels of performance and quality of experience in the usage of ZON Fibra were the catalyst for the growth of ZON’s customer base (739.2 thousand at the end of 2011). The company continued to strengthen its market share, which was of 33 % in late 2011.
Leadership in Wireless
In 2011 ZON consolidated its position as the undisputed leader in Wi-Fi services.
Currently, with ZON@FON, ZON’s broadband customers have free access to approximately 500 thousand Wi-Fi hotspots in Portugal and 5 million worldwide, through Fon’s partner network.
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This service recorded an exponential growth in usage throughout 2011. It is completely free and enabled with unlimited usage. In December, the ZON@FON service reached around 140 million minutes of monthly usage, having been responsible for over 250 TB of traffic.
With the increasing customer adoption of smartphones, tablets, and other mobile devices with Wi-Fi, it is expected that the use of this service continues to grow significantly, thereby increasing the competitive advantage of ZON since the alternative Wi-Fi network has a scale 200 times lower.
To maximize the impact of differentiation of ZON@FON regarding its competition, ZON developed a set of above the line communication actions (campaign "Antennas in the Air"), as well as specific coverage actions in public transports or partnerships in the launch of innovative gadgets (eg Nintendo 3DS enabled with access to hotspots).
Although free for ZON’s customers, ZON@FON service generates revenue by selling vouchers to customers of other ISP or foreigners visiting the country on business or vacation, providing an alternative to the purchase of 3G mobile data services. Revenues have registered a very expressive growth, as a result of increased coverage and greater awareness of the service.
Still in the mobile area, ZON’s Mobile Broadband offer had a modest development, as a result of a deliberately lower investment in the segment. Nonetheless, its relative performance was very interesting as ZON was able to strengthen its market share in a context in which the market as a whole decreased 11%.
The relative position of the company in this segment should not change significantly in the current context and market presence through an MVNO business model. It should be noted that, in late 2011, ZON decided not to participate in the auction for the allocation of rights to use mobile frequencies (commonly referred to as "Auction of the 4th Mobile Generation"), on the grounds of considering that, the necessary regulatory conditions to ensure the sustainable entry of a new operator in the Portuguese mobile market were not present in the rules and obligations of the auction.
Fixed Voice
ZON Phone surpassed 850 thousand customers in 2011, with a strong pace of new customers in the last two months of the year, enhanced by the switch-off effect of the analogue terrestrial television.
ZON was prepared for this unique event, given the market opportunity to reach new customer segments that it traditionally doesn’t address. The bundle including four FTA channels + Unlimited Voice had a strong take up, supported by the campaign which ran from November 25, increasing the number of new fixed voice customers.
Bundles designed to "meet" the switch-off were responsible for more than 20 thousand sales in a period of about a month and a half, with a preponderance for the main bundle of 4 channels + fixed voice with a monthly fee of € 9.99.
As regards traffic, the current economic outlook is causing a traffic migration to the fixed, an effect that was somewhat expected. The MoU of outgoing traffic (Fixed-Fixed, Fixed-Mobile and International Long Term) grew by 2.8%, not occurring the expected dilution in consumption as a result of the increase of the customer base.
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On December 15, ZON presented an innovative service, a high value proposition to customers, the ZON Phone App. ZON thus reinforced its commitment to complement its offer with over-the-top services.
Further to the FON partnership for internet access and the launch of ZON Online, ZON Phone launched a version for smartphones and tablets (IOS operating system). This application enables customers to make and receive calls using the fixed ZON Phone number and exactly the same tariff plan and the same features configured for their fixed phone. This app works on any Wi-Fi, taking advantage of over 4.5 million FON hotspots worldwide. In mid-February 2012 it was launched on Android. This service has a monthly rate of € 0.99 but its launch campaign includes 12 months free for subscriptions until March 31, 2012.
The service through the homezoning solution (for DTH areas) has been commercially discontinued, in view of the wholesale conditions to which it is subject, not allowing better levels of profitability.
Corporate
Large companies
In 2011 ZON TVCabo consolidated its offer and market presence in the large companies segment and in the circuits lease to operators market.
During 2011 ZON increased significantly its market penetration with data services (VPN, MPLS, dedicated Ethernet circuits and dedicated Internet accesses of up to 10 Gbps) and voice services (unified communications solutions, direct access in SIP, intelligent services - 800,808,707, etc.). In addition, ZON further extended its capacity to meet its customer’s needs in Managed Services.
In order to ensure national coverage of the commercial effort, ZON strengthened its sales and pre- sales teams, and reinforced partnerships with suppliers and integrators exclusively dedicated to the large companies market.
As regards customer service, ZON TVCabo conducted an upgrade of the large companies and operators platform, which is now enabled with real time viewing of the services performance (eg, latency, packet loss and VPN availability). It also allows billing monitoring, as well as opening and monitoring tickets using Network Operations Center, exclusively for the ZON Grandes Empresas customers.
ZON is today offering services to large corporate customers in various sectors such as banking, industry and construction and the public sector. Additionally, ZON continues to invest in expanding the market penetration of carrier services to other operators (eg, point to point Ethernet connections and back-hauling).
SoHo
2011 was marked by a sustained growth of the SoHo (Small Office Home Office) and SMB (Small and Medium Businesses) market, with a strengthened commitment through new ZON Office product offerings (ZON HUB integrated IP-PBX) and introduction of Cloud Apps (billing, helpdesk, medical prescription cloud applications, etc.). In the commercial area, ZON launched the partners channel as part of a mixed channel strategy, having reached, at the end of this year, nearly 10% of the professional segment total sales.
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As regards the communication strategy, ZON launched the new ZON Empresas website (http://zonempresas.pt) which allows customers to easily and intuitively look up specific business offers as well as join online. ZON Empresas strengthened its presence in entrepreneurship events and launched several actions specifically for newly established companies.
It is also worth highlighting the Hotel segment outstanding performance, where, given ZON’s presence in 4 and 5 star hotel groups of around 90%, the loyalty actions carried out registered a success rate of 100%. In addition, ZON was able to gather over 80% of the total number of new openings in 2011.
Communication Strategy
Throughout the year, ZON remained the most favoured brand for bundled offers and Pay TV, strengthening customer loyalty and preference. This has translated into clear market leadership with a considerable gap to the second brand (+20pp). Brand awareness remains very high (+80%) in both market segments. Penetration of bundles offers exceeded 60%, putting ZON at the forefront of its European peer group. 1
In 2011, ZON’s communication strategy experienced a change to become more high tech and sophisticated on the back of the launch of a pioneer new service – the IRIS system by ZON Fibra. The launch allowed ZON to strengthen the communication of ZON’s core brand values, clearly helping to improve perception of ZON’s image, in particular as regards innovation and further strengthening leadership in attributes such as Trust and Credibility, Quality of Service and Customer Support.
The new communication strategy also translated two trends in the market:
Customization/service personalization Increasing offer of product features
The advertising capitalized on the very visually attractive and easy to use IRIS user interface (UI) and focused on live demonstration of the service, bearing witness to how different target segments had customized the service.
Focus on the launch of the new service and the need to be close to all customer segments at all points of contact led to the launch of a new brand – IRIS by ZON Fibra – and a new claim – “There is a line that separates the past from the future” – a claim that alludes to the uniqueness and innovation of the service in comparison with other offers in the market. IRIS by ZON Fibra became a new paradigm in the Pay TV market.
During 2011, ZON launched a number of new functionalities and services “IRIS by ZON Fibra”, renewing its focus on innovation, amongst which the launch of Restart TV, the strengthening of ZON’s leadership in HD channels and the launch of ZON Online, a multiplatform access to TV channels and ZON services over a laptop or iPad.
At the same time we maintained the ZON@FON campaign on air for a number of months, “Antennas in the Air”. By the end of the year we had achieved 500 thousand active hotspots providing free Wi-Fi access to our customers, a feature exclusive to ZON.
1 ANACOM, GfK, company internal studies
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The telecommunications market in which ZON operates is extremely competitive and one of the markets that weighs the most in terms of advertising in Portugal. ZON’s Media strategy has been to focus on advertising investments that increase ZON’s presence in the various media and optimise the cost of advertising per consumer contact and therefore the use of available resources. As a result, in 2011 we significantly increased our advertising presence on online platforms, following general consumer trends.
Football continues to have a strong presence in ZON’s communication. After the first year as main sponsor for the Portuguese premier league – Liga ZON Sagres – ZON’s brand awareness increased threefold in terms of advertising recall. This sponsorship enabled ZON to be perceived as a more dynamic and closer brand to its customers, taking advantage of the energy and passion that football generates in the hearts of millions of Portuguese people. Moving into the second year of sponsorship, ZON has activated two initiatives also in conjunction with Sagres, the other brand that co-sponsors the league. The first was the launch of the Virtual ZON Sagres league which, for the first time, allows fans to play online using real Liga ZON Sagres game statistics. In the first year of launch, this virtual league achieved a huge success in terms of the number of online players and teams signed up, evidence of customers’ enthusiasm with these kinds of initiatives and the relevance for ZON’s business. The second launch was of the ZON VIP Sagres Tour which gave a restricted group of customers a unique tour of a stadium just moments before the start of another Liga ZON Sagres match. This is a unique and highly valued experience for customers made possible by our sponsorship of Liga ZON Sagres.
We made some other targeted bets on sport to attract different audiences such as golf (business segment), surf (youth segment) and Basketball with the organization of a street event “Street Basket”. ZON’s sponsorship of surfing events gained significant media and social network coverage when we sponsored a giant wave surfer – Garret McNamarra – who surfed the tallest wave in the world in Nazaré in October.
In addition to the bet on sports, in 2011 ZON made its first approach to the world of music in association with Universal – one of the leading representatives for the best bands and music worldwide. Through this partnership we were able to offer a highly valued service – ZON Music – available for multiple platforms (TV, laptop and smartphone). We also developed an activation platform in conjunction with our partner, which allows us to hold exclusive concerts for our customers with famous names in the Portuguese and world music scene such as Joe Jonas and Mafalda Veiga. This gave us a lot of attention on social networks such as Facebook where we promoted all the events and pastimes associated with the service.
ZON has also developed close ties to the younger segments of the market with its continuous innovation as regards the launch of new children’s channels, and by communicating through the main characters on the channels, one of the most popular being “Panda”. Promotion of “Panda” is done through sponsorship of “Panda” music festivals and also by sending Panda as a special guest to specific children’s activities and events. We also continue to promote the young teen channel ZON Kids.
Leveraging our football sponsorship, we also created and launched Liga ZON Kids, a children’s football tournament which ran over various heats, from March through to June, and in various stadiums and places around Portugal. The qualification board for the tournament is very similar to the major football leagues and, with the support of the Professional Football League and Adidas, the tournament was a resounding success. It quickly became the largest football event in the country with over 10 thousand children from ages 5 to 12.
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Increasing customer loyalty remains a key priority and to this end we continue to promote the use of myZONcard at ZON Lusomundo Cinemas benefitting from the “2 tickets for 1” offer for ZON customers. We currently have over 1,2 million active myZONcards and they have already been used 2.8 million times in ZON Lusomundo Cinemas. At the end of the year we held an exclusive and unique event for myZONcard holders whereby they were given a free ticket to see the premier of the “Twilight Saga Breaking Dawn – part 1”. Holders of myZONcard just had to participate in a questionnaire on Facebook and they would receive a double ticket for one of the premier sessions being held around Portugal. This event created a lot of hype for the ZON brand as it happened in almost all ZON Lusomundo cinemas around Portugal and given the legion of followers of the twilight saga worldwide whose films have been major box-office hits.
In 2010 we extended the benefits of myZONcard to football and last year, we surprised our customers further by giving free Champion’s League tickets to customers that had used myZONcard the most, either to buy tickets for the Portuguese premier league, Liga ZON Sagres, or to go to ZON Lusomundo cinemas.
The launch of “Johnny English” was also used as a major promotional event by ZON with the launch of a more comedy style advertisement on TV starring Rowan Atkinson in a series of irreverent, fun and surprising advertising spots which helped to promote these values of the ZON brand whilst included in more generic promotion of ZON services.
With the analogue switch off set for the first months of 2012, ZON developed a new campaign with a very simple, clear message targeting a higher age group of the market. The purpose is to position ZON as an attractive alternative to Digital Terrestrial Television and with more advantages. We used a well know celebrity actor, Nicolau Breyner, a long-standing star of many of our advertisements, with an assistant to present the advantages of ZON’s offer “BOA ZON”, targeting customers who only have the 4 free to air channels. The campaign was a huge success.
As regards the business segment, we launched and communicated a number of new features for the ZON Office Voice product, making our business offer much more competitive and further strengthening brand awareness in this segment. The campaign had a strong online presence, over the radio and specialist business press in order to optimize the cost of advertising per contact.
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Technology
Throughout the year 2011, the ZON-IN Project, which contemplated the migration from the incumbent’s sites to our own premises, was extended to encompass another 26% of our network, including the migration to 11 new hub rooms which now served approximately 735 thousand of ZON’s homes passed. The total of ZON’s own sites has moved up to 35, which correspond to a total of 3,163,408 homes 100% passed with own network. To reach this goal it was necessary to build a new optic fibre primary access network with new access equipment installed in these new hubs. These hubs were interconnected by widening ZON’s IP / MPLS backbone, through optic fibre network with great capacity using DWDM (Dense Wavelength Division Multiplexing) technology.
The ZON-IN project was designed to set up a network that, in the future, can support new services such as FTTH and corporate services, as well as simplifying future network upgrades and reducing associated costs.
ZON’s network infrastructures were improved, in order to support the corporate products designed by the Business areas. Therefore, an Ethernet transport network was implemented over DWDM, with capacity to enable the offer of the level 2 network services defined by Metro Ethernet Forum (MEF). In the first stage, 8 sites in the Greater Lisbon area were ready for service.
The protocol Business Services over DOCSIS was also implemented on 3.9% of the HFC network. This protocol enables the offer of Virtual Private Network services to the corporate segment, using the existing cable network. ZON was the first operator worldwide to implement this type of solution.
The Strategic Network Plan for 2011 was implemented. Apart from the ZON-IN project, it consisted of the upgrade of the HFC network, including cell splitting and QAM cell integration. During 2011, the FTTH network was extended, with 4 new sites becoming ready for service.
Other important events include:
In early 2011, version 1.0 of the ZON IRIS offer was launched, following the development of a commercial application based on the Snowflake technology over a year. In-house developed front and back-ends were implemented, as was the integration with self-care business support systems.
By mid-2011, an important upgrade to the ZON IRIS offer (version 1.5) was released, integrating the functionalities Dual Recording and Restart TV. There were also technical improvements on the operational caches, which enabled a decrease in response times in the set top box usage, improving the service users’ quality of the experience. ZON IRIS offer was also launched in the Azores and Madeira archipelagos;
The launch of the ZONLINE offer, which enables IRIS customers to access their ZON TV and VoD offers on their PC. The service was launched with support to 2,500 Live TV Streams and 2,500 VoD streams, with the integration of the IRIS platform services;
The ZONLINE offer was extended to the iPad platform, also integrating the IRIS platform services, taking advantage of the encoding platform in place for ZONLINE. These two services are ZON’s first cloud based services, which correspond to the dematerialization of services which were up until now available only through the set top box;
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As for Pay TV services, during 2011 16 new HD channels were launched, and the channel line-up was reformulated. With the continuous improvement of the image quality provided to customers in mind, some Transport Streams are now broadcast using the DVBS2 standard, rather than DVBS. There was also a concern with improving the zapping response time and the speed of navigation for the users of the cable digital Pay TV service;
Several widgets were launched in 2011, both for the NAGRA ZON Box service, and for the IRIS platform (HTML widgets);
During 2011, the Home Gateway ZONHUB 3.0 was launched (enabled for Eurodocsis 3.0 technology) with the ability to support 400 Mbps downstream and 120 Mbps upstream speeds and also with a Bridge mode and new customer management functionalities;
A new version of the SOHO ZONHUB was launched, a cable Home Gateway for the small and medium enterprise segment, including the integration with IP-PBX and voice service functionalities;
The Fixed Voice network capacity was expanded (860 thousand services), and 4 new interconnections with other operators’ networks were completed, namely: Telecom New Zealand, COLT, TATA and Telefónica;
The ZON PHONE APP was launched. It enables ZON customers to make and receive phone calls with the same number they have at home, anywhere in the world, through Wi-Fi. In its first version, the service was available for iPhone and iPad. It was implemented through the adoption of a client SIP, using the existing voice infrastructure (call servers);
Implementation of the non-geographic phone number for the corporate segment, by offering “green numbers” for the 800, 808 and 707 ranges;
Launch of Virtual Private Networks for the corporate segment over optic fibre, with offer of Internet services with quality of service (QOS) differentiation;
During 2011, we began to use multicast for the transport of video content destined to Head- Ends (HE), enabling an increase in flexibility and simplifying the entry in services of new HE. Simultaneously, the main Head-End (Afonso Costa) was reformulated, in order to increase the capacity to accommodate additional channels;
Activation of Quality of Service policies in the IP/MPLS backbone, for protection of the most critical applications, through the creation of 7 classes of service;
ZON’s backbone was prepared for IPv6 protocol. ZON participated in the World IPv6 Day, and is prepared to provide its customers with this service;
Integration of ZON’s IP/MPLS network with the ZON Madeira and ZON Açores networks. Interconnection of the VoD platforms (billing, video serves) of the Madeira and Azores archipelagos.
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Distribution Channels
The consolidation strategy of the distribution channels structure is aimed at the continued sales growth, improving the quality of ZON’s relationship with its network of partners and increasing the quality of the sales force, thus consolidating the increase of ZON’s subscribers.
ZON currently has 11 partners (Service Providers) in the cable business and 20 in the DTH sector. The door to door sales channel has a sales force of more than one thousand commercial and stands for around 30% of the residential segment total sales. In 2011, ZON changed its direct sales channel strategy, focusing, exclusively, on raising new customers (it was previously acquiring new customers and upgrading ZON’s customers).
ZON also has its retail sales channels – brand stores, agent network and central management stores – to publicise its services and acquire new customers, and all these channels saw healthy increases in sales over 2011.
Currently, there are 48 ZON brand stores, meaning 75% of cable network customers are located less than 5 km from one of ZON’s stores, where they can buy new products and services, pay their bills and find after sales assistance, among others.
2011 was a year of consolidation of ZON’s network of own stores. The effort to improve its look and location came to an end. In 2011, ZON opened two stores (Sintra Forum and the Loja do Cidadão at ArrábidaShopping) and relocated three stores (Aqua Portimão, Algarve Forum and Santarém). Additionally it remodeled four stores (North Shopping, Coimbra, Arena and Colombo).
There was also a strong focus on store owner training, in particular, with the creation of a national team of technical experts in order to increase the immediate resolution of complex problems and the overall experience of customers. ZON also created a team of specialists in loyalty. As a result, some performance indicators improved significantly. Customers average waiting time, decreased by approximately 30.5% regarding the previous year.
ZON’s agents network has over two thousand sales points well spread out over all the country.
In this context, the concept of Authorized Agents Stores 100% ZON, which currently has 68 stores, was consolidated in 2011, adding own stores through a concept of low investment by the operator, also allowing ZON to change its location to medium-sized cities, where ZON doesn’t hold any sales points/direct assistance. ZON also strengthened the network of technical after sale/DTH assistance, which includes more than 130 points nationwide.
In telephone sales channels, 2011 was marked by a focus on Outbound for new customers where we have increased our business results by 200% compared to 2009.
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Logistics and Procurement
In 2011, ZON consolidated much of the efforts undertaken for logistics improvements, particularly in the area of reverse logistics, which resulted in increased recovery, testing, repackaging and re- injection of customer terminal equipment, thus allowing the capture of significant savings in investment.
ZON introduced a new line of Green terminal equipment user manuals and packaging product boxes, made out of recycled materials. The packaging boxes are even smaller than the previous ones, thus optimizing the capacity of the transport container and the storage and transportation associated costs.
Control has been strengthened and regular monitoring of stocks of terminal equipment in ZON’s main distribution channels. Tools were implemented to monitor the delay between the equipment’s activation at final customers premises after its expedition from the warehouse and the return to the warehouse of equipment collected from final customers, in order to increase the efficiency of network inventory management.
In the year ended, in the Procurement sector, it is worth highlighting several measures which have resulted in actual savings for ZON. Therefore, there have been numerous efforts in the procurement area and technology and customer terminal equipment negotiation, which led to significant savings on its acquisition costs. Furthermore, ZON undertook the negotiation of new operation conditions, maintenance and management of technological infrastructures and outsourcing services, in a context of associated cost reduction and creating incentives to capture efficiency gains, productivity and service quality.
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Other Businesses
Cinema
The cinema market in Portugal has been a mature market with an average of 16 million tickets sold per year (last 5 years). The business model is based on incorporating cinema complexes in the shopping mall offer, which has been a winning combination over the past two decades. Most cinema- goers are young people living in the cities who belong to the socioeconomic class AB+C1. This audience attributes special importance to proximity, convenience and comfort, and generally buys their tickets at the box office.
The company has responded to the needs of its spectators by introducing new technologies which have enabled improvements both in the business processes and in the cinema experience, through the introduction of better sound and image quality. The company’s projection equipment is now 100% digitalized, and 40% has 3D projection technology. It is possible to hold 2 or 3D digital live performances in all of our cinema complexes. In 2011, ZON Lusomundo Cinemas started to download content (movies) via satellite, meaning the DCP (Digital Cinema Package) with end-to-end validation of the downloaded DCP content. This enabled the optimization of the logistic process and a reduction in costs.
ZON Lusomundo Cinemas has managed to considerably distinguish itself from its competition through cinema technology, customer service technology (using several tools at its disposal, such as its website, social networks, call centre, etc…), differentiated content offer (including the broadcast of sports events, concerts, operas, etc), Quality Certification ISO 22.000:2005 (which guarantees the quality of the products sold), combined with a partnership strategy which allows to stimulate and increase Cinema attendance, thereby creating a critical factor for success. These factors create more added value for the spectator and were what made the company stand out in the market.
In 2011 ZON Lusomundo Cinemas began exploring the Freeport shopping mall cinema complex, with 7 screens, bringing its total of cinema screens to 217. In May 2011 its most direct competitor inaugurated 7 new screens in the Forum Sintra shopping mall. Early in 2012, ZON Lusomundo closed 7 cinema screens, bringing its total number of screens as of this report’s date of publication to 210.
According to ICA (Portuguese Institute for Cinema and Audiovisual), in 2011 the cinema market contracted by around 867 thousand tickets when compared to 2010, representing a decline of 5.2%. ZON’s ticket sales decreased by 3.9%, therefore less than the total market. In 2011 ZON Lusomundo Cinemas gained 0.8pp market share in terms of tickets sold, climbing to 55.7%, which compares with the 54.9% posted in 2010. In terms of Gross Revenues, ZON Lusomundo Cinemas’ market share climbed to 56.5% in 2011, which compares with 54.6% in 2010, representing a 1.9pp increase in market share. ZON Lusomundo Cinemas continues to sustainably gain market share throughout the last few years both in terms of attendance and gross revenues.
In 2011 ZON Lusomundo Cinemas sold 8.74 million tickets and showed 281 movies which amounted to a total number of sessions of approximately 364 thousand, of which around 64 thousand in Digital 3D.
In terms of the number of tickets sold, the top 10 movies which contributed the most for ZON Lusomundo Cinemas’ performance were:
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# 1 The Twilight Saga: Breaking Dawn - Part 1 280.637 # 2 Harry Potter and the Deathly Hallows: Part 2 271.989 # 3 The Smurfs 271.282 # 4 Pirates of the Caribbean: On Stranger Tides 270.875 # 5 Fast Five 265.800 # 6 The Tourist 237.476 # 7 Puss in Boots 236.982 # 8 The Hangover Part II 230.392 # 9 Cars 2 222.441 # 10 Rio 220.583
Total 2.508.457
However, the difference in tickets sold in the top 2 movies in 2011 when compared to 2010 amounted to around 330 thousand tickets. In 2010, the top 2 movies were “Avatar” and “Shrek Forever After”, for which ZON Lusomundo sold over 882 thousand tickets, which compares with the approximately 552 thousand tickets sold by the two top movies of 2011 (“The Twilight Saga: Breaking Dawn – Part 1” and “Harry Potter and the Deathly Hallows: Part 2”).
Following the digitalization process and its resource optimization, ZON Lusomundo developed internal competences, creating a structure to technically support its cinema network. This group encompassed people who already performed operational tasks in cinemas and who held know how appropriate for the support actions they would develop. The goal of this group, apart from the technical support to the cinema network, is to reduce and optimize response times, contributing to cost reduction in terms of support to cinema exhibition equipment. In the near future this group will be prepared to also offer the same services to ZON Lusomundo’s competitors.
After the pilot test of ticket sales kioks in the cinema foyers (“Self Ticket Vending”) in 2010, 2011 saw the implementation of this type of equipment in all cinemas. They allow the sale and collection of tickets, menu sale suggestions, debit and credit card payment and other operations like browsing through synopses. The implementation of this type of tools will enable to offer the customers the advantage of less waiting time in lines, increasing their comfort and satisfaction. 2011 was also the year when ATM payment was introduced in cinemas, to perform debit or credit card transactions. The Mobile Ticket pilot project, which will allow the replacement of the traditional cinema ticket through the use of cell phones or other similar devices, not only as a means of access to the cinemas, but also for all the mobile ticket selection and payment processes, is complete.
In Mozambique, ZON Lusomundo Cinemas is implementing a restructuring project, aiming to monetize its assets and to open two 3D Digital cinema screens in Maputo Shopping. The management team has been strengthened with the expatriation of a ZON employee to Mozambique.
There are several projects underway which will certainly improve the levels of efficiency and service of this business area, among which we highlight:
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1. Completion of the foyer sales kiosk (Self Ticket Vending) in cinemas; 2. Completion and nation-wide launch of the Mobile Ticket project; 3. Implementation of corporate radio in cinemas, with the goal of communicating internal and externally, and to establish a musical sound identity; 4. Introduction of new technological platforms for exhibition and experience in cinema theatres; 5. Continued restructuring of the Mozambique project, opening two digital cinema screens in Maputo Shopping, and to begin negotiating new projects; 6. Continued analysis of the Angolan market with a view to eventually closing deals to explore cinema complexes; 7. To continue to bank on alternative content, namely through events, shows and French cinema.
Audiovisuals
The year 2011 was marked by a contraction of the cinema distribution market in Portugal. The ticket office gross revenues amounted to 79.9 million euros, 2.9% below 2010. Nonetheless, ZON Lusomundo Audiovisuais was able to maintain its leadership, posting a market share of 51.7% in attendance and 52.0% in terms of gross revenues.
In the cinema distribution business, the company distributed 5 of the Top 10 titles, with 127 premieres in 2011 (which compares with 95 in 2010). In 2011 ZON Lusomundo Audiovisuais undertook the World premiere of the Disney title “Tangled” under the Home Premier business model.
ZON Lusomundo Audiovisuais has continually innovated in terms of business models in the Home Video distribution business, with a series of initiatives like the launch of titles on the written press, namely the “Harry Potter”, “Clint Eastwood” and “Twilight” collections with Grupo Impresa, the Disney Books+DVD concept or the launches of high profile titles like “The King’s Speech”, “Cars 2”, “Tangled”, among others.
In the Content Rights Management business, in 2011 ZON Lusomundo Audiovisuais began to sell TV content for Angola and Mozambique, and posted a strong evolution in terms of digitalization. The company strengthened its network of partnerships in this market, through its participation in Big Picture 2 Films (20th Century Fox cinema distribution).
In the television business, despite a challenging economic context, ZON Lusomundo TV reinforced its offer with a new HD channel - TV Cine 2 HD – and a new series channel which was launched on a national level – TV Series.
Also in the television business, ZON Lusomundo TV launched 3 new SVOD services, namely “Filmes & Séries” – with a total of 450 movies and 2,700 episodes per year, “Séries” – with a total of 1,400 episodes per year, and “Infantil” – with a total of 48 children’s movies and 1,800 episodes per year.
Regarding the Dreamia channels, we highlight the leadership of the Panda channel in the children’s segment and the improvement in the ratings of the Hollywood channel throughout the year, reaching the second spot in the global cable channel ranking in the second half of the year with a 2.3% share.
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ZAP
ZAP operates in the Angola and Mozambique markets since 2010. It is a joint-venture 30% held by ZON and 70% by SOCIP – Sociedade de Investimentos e Participações, SA, an Angolan company. ZAP operates in the Pay TV markets in Angola and Mozambique supported by DTH technology through the satellite Eutelsat W7.
In 2011 the Angola and Mozambique markets experienced strong economic growth, which was reflected in the development of an expanding middle class, with an appetite and purchasing power for Pay TV services. According to the most recent estimates by the IMF (from September 2011), in 2011 the real GDP for Angola and Mozambique has grown 3.7% and 7.1%, respectively.
Pay TV naturally has accompanied the growth of these countries’ economies, with ZAP taking a major role in boosting the market during 2011, thanks to its innovative service offer, specifically designed to the various segments of these markets, to a communication suited to the local context, and to a commercial strategy focused on the growth objectives of the operation, all of which supported both by local resources and by synergies with ZON’s operation in Portugal.
Currently, ZAP offers three channel packages to its customers on these markets: “ZAP Mini”, with around 40 channels; “ZAP Max”, with around 90 channels; and “ZAP Premium”, with over 110 channels (12 of which in HD) at a price of approximately 15 USD, 30 USD and 60 USD per month, respectively.
ZAP has sought to continuously reinforce its channel offer, and in 2011 some very relevant, internationally acknowledged channels were added to its offer, including National Geographic, National Geographic Wild, Fox, Fox Life and MTV Base. This effort reflects the strategy of differentiation of the channel offer through the predominance of Portuguese Language channels and the exclusive offer of key content, namely the Portuguese Football League (through the channel Sport TV África) and the ZAP Novelas channel (produced by ZAP), which has become a clear success in terms of ratings in the Angolan market and clearly added value to ZAP’s offer.
In July 2011, ZAP started offering to its customers a simple Standard Definition (SD) decoder, with a price of around 60 USD which, combined with the “ZAP Max” and “ZAP Mini” channel packages, has enabled ZAP to address quite successfully a segment of the market with less resources.
The strong bet on TV, radio and written press advertising campaigns has enabled ZAP to be one of the brands with the best top-of-mind recognition in the market, and contributed to a greater knowledge on the part of the market as to the advantages of a Pay TV service, specifically the advantages of ZAP’s offer.
Lastly, increasing the scope of its commercial network was also one of ZAP’s priorities during 2011. In Angola, the distribution network grew to 10 own stores, 430 authorized agents and 200 door-to- door salespeople in 2011. In Mozambique, ZAP’s structure by the end of 2011 already included 3 own stores and 60 authorized agents.
During 2011, ZAP’s team grew to a total of around 280 employees, located in Angola and Mozambique, which has been one of the cornerstones of the operations success and growth.
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02 PERFORMANCE
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Macroeconomic Background
The year 2011 was marked by a continued difficult macroeconomic environment, following the impact of the international financial crisis which broke out in 2007, and the sovereign debt crisis in the Euro Zone, which intensified as the year went on, with the worsening of the already difficult situation in Greece and as this crisis spread to countries like Spain and Italy, by the end of the year.
In the specific case of Portugal, the economy’s financing conditions in international markets continued to worsen during the first months of 2011, despite the adoption of some measures by Eurosystem (liquidity injection into the banking system and the purchase of public debt securities in the secondary market). Due to this state of affairs, a request for international financial assistance was necessary in early April.
Following this request, the Economic and Financial Assistance Programme was agreed with the European Union (EU) and the International Monetary Fund (IMF). Its implementation has resulted in austerity measures, impacting both the revenue side (through an increase in the fiscal burden) and the expenditure side (decrease of public investment). These measures aim to reduce the existing economic imbalances, in order to pave the way for future economic growth. In the short term, however, they will have a recessive impact, and imply a significant reduction in the families’ disposable income and, paired with increasingly restrictive credit access conditions, private consumption.
GDP and Economic Confidence, 2009-2011 2.00% 0.50 0.10 1.70% 0.00 -0.50 -0.50 1.40% 1.30% 1.00% -0.50 -0.80 1.00% -0.60 -1.00 0.00% -1.00 -1.50 -1.50 -2.00 -0.50%
-1.00% -1.00% -2.00 -1.00% -2.90 -2.20 -2.50 -1.70% -3.00 -2.00% -2.20% -3.10 -3.50 -2.70%
-3.00% -3.10% -4.00
-3.70% -4.50 -4.40 -4.00% -5.00 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11
GDP - annual percent change Economic Climate Indicator
In 2011, Gross Domestic Product (GDP) contracted by 1.5%, according to data published by the Portuguese Statistics Institute (INE). For the year 2012 the Bank of Portugal’s Winter Bulletin estimates a GDP contraction of 3.1%, with a return to slight growth of 0.3% in 2013. The GDP contraction of 2012 will be mostly due to the decrease in domestic demand, both public (related to the reduction of investment and disposable income) and private.
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The austerity measures in place, paired with an unemployment rate (14% by the end of 2011) which is high and expected to worsen during 2012, as well as the increasingly tighter lending conditions, will contribute to the strong 6% estimated decrease of private consumption in 2012, especially in terms of durable goods.
Despite expectations for negative GDP growth in 2012, these do include a positive effect, related to the continued increase of external demand and, logically, of exports, which contributed during 2011, and will continue to contribute in 2012, to a significant reduction of the external financing requirements of the Portuguese economy, considering the previously mentioned decrease of internal demand and therefore of imports.
However, the national and international macroeconomic environment continues to be marked by a considerable degree of uncertainty. The fact that the sovereign debt crisis spread to other Euro Zone countries (namely, Spain and Italy) by the end of 2011, and the uncertainty as to an appropriate institutional response to this crisis, can contribute to external demand below estimates, which would have repercussions in terms of the level of growth of investment, consumption, and, ultimately, GDP.
According to data from INE, in 2011 the inflation rate stood at 3.6% in consequence of the impact of the increase of the normal VAT rate to 23%, as well as of the increase in the prices of specific goods and services, like transport. In 2012, these effects will more than offset the decrease of the level of production costs due to the recessive macroeconomic environment, namely due to the reclassification of the VAT rate of some goods and services to higher levels. Therefore, the Bank of Portugal’s estimate for the inflation rate in 2012 is of 3.2%. In 2013, as these effects wear off, the estimated inflation rate is 1%.
Consumer Price Index 2010-2011 (% ∆) 4.50 4.04 4.00
3.50 3.56 3.62 3.36 3.00
2.50 2.50
2.00 1.90
1.50 1.20 1.00
0.50 0.50
0.00
Jul-10 Jul-11
Apr-10 Oct-11 Oct-10 Apr-11
Jan-11 Jun-11 Jan-10 Jun-10
Mar-10 Feb-10 Feb-11 Mar-11
Dec-10 Nov-10 Nov-11 Dec-11
Aug-10 Sep-10 Sep-11 Aug-11 May-11 May-10
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Unemployment Rate 2010-2011 (%) 15%
14.0% 14%
13% 12.4% 12.1% 12% 12.4%
10.9% 11% 10.6% 10.6% 11.1%
10%
9%
2Q10 3Q10 2Q11 3Q11 4Q10 1Q11 4Q11 1Q10
Throughout 2011, the unemployment rate continued to increase, and stood at 14% by the end of the year. As previously mentioned, this growth of the unemployment rate was one of the contributing factors to a reduction in private consumption in 2011. This effect is expected to intensify during 2012.
In conclusion, the macroeconomic environment we are facing is challenging and marked by uncertainty. Considerable restrictions to credit to both companies and private individuals are in place, the unemployment rate is growing, the inflation rate is high, and a 3.2% economic recession is estimated for 2012, followed by a return to slight growth for 2013.
32 Consolidated Report and Accounts 2011 WorldReginfo - 102c94b6-b9f2-40fb-aba5-5d1c547744be ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Sector / Regulation
The electronic communications sector is governed by a European regulatory framework, based mainly on two directives - Directive 2009/140/CE (“Better Regulation” Directive) and Directive 2009/136/CE (“Citizen Rights” Directive), both aiming to ensure a single, developed, electronic communications market, with effective competition and better, more diversified services for the citizens, the Single Digital Market.
BEREC (Body of European Regulators for Electronic Communications), which started functioning early this year, encompasses the European regulators, with a view to ensure greater coherence in decision-making, enabling the existence of a true single market and contributing to achieve the goals defined in the European Commission’s (EC) political programme in this area, the European Digital Agenda which, among other goals, aims to ensure that every European citizen has access to broadband by 2013.
On a national level, Law 5/2004, reviewed and republished in Law 51/2011, transposes the European directives to national law, confirming ICP-ANACOM in the role of ex-ante regulator for the area of electronic communications. Regarding the content area of business, the sector regulator is ERC.
From an ex-post viewpoint, it is up to the Competition Authority (CA) to act as watchdog and to intervene, ex-ante, exclusively in concentration processes.
MoU with EU, IMF and ECB
The year 2011 was clearly marked by the request for economic and financial assistance from Portugal to its European partners which resulted in the signature, on 17 May, of a Memorandum of Understanding (“MoU”), also known as the Economic and Financial Assistance Programme, between the Portuguese Government, the European Union, the International Monetary Fund, and the European Central Bank.
In this MoU, special attention was paid to the electronic communications sector, establishing the following goals:
To increase competition in the market through the reduction of entry barriers; To ensure access to networks and infrastructures; To reinforce the powers of the national regulator (ICP-ANACOM);
After a first draft and following a first assessment of the Economic and Financial Assistance Programme, on 14 September 2011 a new version of the MoU was made public, which focused on the need and scope of additional measures deemed necessary to achieve the goals set. For the electronic communications sector, the following measures were listed:
5.16: Ensure more effective competition in the sector by implementing the new Directive on EU electronic communications regulatory framework (“Better Regulation Directive”), which will (among others) enhance independence of the National Regulator Authority. [Q3-2011].
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5.17: Facilitate market-entry by:
Lowering mobile termination rates [Q3-2011]; Launching the auction for the assignment of further radio frequencies (i.e. auction of spectrum) for broadband wireless access [Q4-2011]. In designing the spectrum auction rules, it will be ensured that they adhere to the legal principles of the EU framework and that potential new entrants are not placed at a competitive disadvantage. In particular, the auction tender will:
o announce the commitment to an ex-post assessment, to be carried out by the regulator, of possible competitive distortions, covering the electronic communications mobile markets for which the spectrum is to be used as well as the commitment to, where justified and proportionate, the implementation of remedies to redress any resulting situation considered anti-competitive; o include appropriate caps for strategic spectrum bands (under 1 GHz) which, while respecting the technological neutrality principle, facilitates an effective entry into the market avoiding that potential new entrants will face competitive disadvantages in terms of service quality and network costs; o as a contribution to the enhancement of market competition, conditions for potential new operators to have access to national roaming will strike an effective balance between safeguarding the interests of current operators and those of potential new entrants. The regulator will adopt the necessary measures in order to enable potential new entrants to benefit from a level playing field as to the provision of high quality mobile broadband services. This will be achieved namely by ensuring operators' obligation to negotiate fair and reasonable national roaming access, unless otherwise justified and proportionate; o Auction pricing rules such as reserve prices and potential new entrant price discounts will take full account of the objective of facilitating market entry by creating a level playing field;
5.18: The Government will ensure the existence of an adequate monitoring and enforcement mechanism to guarantee the effective implementation of the obligations to negotiate fair and reasonable access to national roaming and mobile virtual network operator (MVNO) agreements, ensuring timely access and reasonable prices. Such mechanism will be announced in the auction tender [Q4-2011].
5.19: The Government will review the current value of the fees on the use of frequencies to ensure that they are objectively justified, transparent, non-discriminatory and proportionate in relation to their intended purpose. Such review will be announced in the auction tender [Q4-2011].
5.20: Ensure that the provision on universal service designation and the incumbent’s concession contract are non-discriminatory: re-negotiate the concession contract with the undertaking currently providing the universal service and launch a new tender for designation of universal service providers. [Q4-2011].
5.21. Adopt measures to increase competition in the fixed communications market by: alleviating restrictions on mobility of consumers by reducing costs faced when deciding on provider along the lines proposed by the Competition Authority (such as standardized contracts, explicit right to free cancellation and facilitating price comparison) [Q3-2011]; reviewing barriers on entry and adopting measures to reduce them.
34 Consolidated Report and Accounts 2011 WorldReginfo - 102c94b6-b9f2-40fb-aba5-5d1c547744be ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Measure 5.16 was addressed with the publication of Law 51/2011 on 13 September, which changes the Law of Electronic Communications, which establishes the juridical system applicable to networks and related services and defines the powers of the National Regulator in this area.
As for measures 5.17 to 5.19, despite the fact that the spectrum auction took place, the conditions defined by the final version of its regulation were insufficient to ensure the entry of new operators in the market, with the frequencies being attributed to the three mobile network operators already present in the market and the projected entry of a 4th mobile operator not taking place.
The reduction in mobile termination rates has also not been put into effect, despite a glide-path proposal by the regulator made in October on which, more than 2 months after the deadline for public consultation, no final decision has been made public.
Finally, as for measures 5.20 and 5.21, with some of the deadlines already exceeded, developments are still awaited.
LTE and the electromagnetic spectrum
After defining in 2010 the frequencies eligible to be used by new electronic communications networks, in 2011 ICP-ANACOM oversaw the auction process, aiming to enable, among others, the 4th mobile generation, or LTE (Long Term Evolution). This was possibly the most relevant event in terms of regulation in 2011 and which, in our opinion, ended up as a wasted opportunity to introduce more competition in the mobile sector. However, we hope that this will be corrected in 2012.
The process began on 17 March, with a public consultation promoted by ICP-ANACOM, relative to the limitation of the attribution of the rights of usage of frequencies and to the definition of the process for their attribution, regarding the 450 MHz, 800 MHz, 900 MHz, 1800 MHz, 2.1 GHz and 2.6 GHz radio spectrum frequencies.
The type of auction which was selected, the frail conditions to promote the entry and maintenance of new players in the market, as well as the high costs of spectrum, were the main points criticized by ZON.
Following the MoU for economic and financial assistance signed by the Portuguese Government and the obligations resulting from it, namely in what concerns the increase of competition in the mobile broadband market, ICP-ANACOM launched a new public consultation on 13 July, proposing a new model for the auction regulation.
The new regulation project, despite being more aligned with the vision which would enable an increase of competition in the mobile sector, still did not make the entrance of a new operator viable, under conditions which would allow it to compete on a level playing field, as prescribed by the MoU.
Despite the efforts undertaken by ZON to have the conditions of the regulation altered, the final version proved to be insufficient to achieve the increase in competition in the mobile sector which had been hoped for. As a consequence, only the three mobile operators already present in the market ended up acquiring spectrum in the auction.
The main flaws pointed out by ZON, which we hope will be addressed and corrected by ICP- ANACOM in 2012, with a view to a new frequency attribution process (given that there was still spectrum remaining after the auction), were the following:
Consolidated Report and Accounts 2011 35 WorldReginfo - 102c94b6-b9f2-40fb-aba5-5d1c547744be ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Access through national roaming or through MVNO agreements, to all the services provided by the mobile network operators, regardless of the technology or frequency band used; Commercial conditions compatible with the retail offers by the current mobile network operators, namely:
o Origination rates equal to termination rates, with a maximum value equal to that which was stated in the last termination rate glide-path proposed by ICP-ANACOM in October 2011; o Flat-fee wholesale offers for Voice, SMS and 3G Data, based either on the retail price of mobile operators, minus a reasonable margin, or based on costs, so as to enable the replication of offers, for all addressable market segments.
DTT
The second issue which took up more resources from ICP-ANACOM, and which generated the most Press Releases from this regulator (20, out of a total of 36), was the launch of Digital Terrestrial Television. If it was not for the frequencies released, which are necessary to implement the wireless networks important for broadband access, and the DTT process would not have been particularly interesting, despite being able to provide more free or paid-for channels to citizens, in the long run.
Leased Circuit Market
In 2010 the regulator approved the final decision about the revision of the retail and wholesale market analysis for the terminal and traffic leased circuit segments, which was expected to have a significant effect in circuit prices, particularly in what concerns the circuits between the Portuguese Mainland and the Archipelagos, and the inter-island circuits of the Azores.
Over one year later, on 30 November 2011, ICP-ANACOM launched a Consultation on the changes to the Rented Circuit Reference Offer. Inexplicably, despite proposing price reductions for a significant group of circuits, there were no proposed changes in the prices of the circuits with the greatest bandwidth, which enable the offer of alternative and competitive services to the autonomous regions.
In its reply to the public consultation ZON pointed out, as it had already done, the urgency of such a price revision, which it now hopes will take place in the first quarter of 2012.
This is a very important decision, and one which can no longer be delayed, as it focuses on an essential infrastructure, currently explored in the form of a monopoly, with pricing distortion which can go as far as prevent the maintenance of a market with competition in the territory comprised by these islands.
Portability
Despite the fact that decision making on the subject of Portability was listed on its action plan, ICP- ANACOM ended up not making any changes to the current model, postponing any potential changes to 2012.
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In fact, only in October did ICP-ANACOM promote a public consultation, which was basically meant to comply with the time limit for portability set by the European Commission of 1 work day. The necessary changes, which ZON had been alerting to, were left behind, namely the ones related to the excessive bureaucratic burden and the excessive complexity of the process, which impact the simplicity and swiftness of the process. Its improvement would, ultimately, make the customers’ mobility process easier.
It should be pointed out that, with the exception of the historic operator, all other operators implemented in the beginning of 2011, a protocol aiming to simplify the portability process, which proves that it is possible to implement a more efficient process than the one prescribed by the current portability regulation.
Interconnection Prices
After concluding the mobile termination rate glide-path, imposed in 2009, in October ICP-ANACOM submitted to public consultation a new glide-path for 2012, proposing the following prices:
Current value (from August 2011) 0.0350€ 1 February 2012 0.0275€ 1 May 2012 0.0225€ 1 August 2012 0.0175€ 1 November 2012 0.0125€
The price-setting resulted from the design of a costing model (previously subject to public consultation, launched on 18 March), aiming to comply with the EC’s prescription in what concerns mobile networks’ termination rates. The public consultation ended in November, and there has been no final decision on the subject.
With these proposed reductions, the final mobile termination rates, as from November 2012, will still be around double the termination rate for fixed networks. Therefore, there will still be room for further decrease, until the necessary balance is reached.
In any case, it will still be positive for ZON as, despite its insufficiency, it will serve to mitigate the network effect of mobile operators, reducing the fixed to mobile networks subsidizing.
Furthermore, it is expectable that the Competition Authority will come to a decision, during 2012, as for the origination rates applied by mobile operators, which have shown to be completely different from termination rates, harming the interests of consumers and the development of the electronic communications market in Portugal.
Next Generation Access Networks
After a year in 2010 with plenty of activity in this field, 2011 did not witness new developments or discussions on this subject. The regulator ICP-ANACOM did not spearhead any initiative to revise markets 4 and 5, with the few changes in the market resulting from decisions already taken in 2010 (namely the reference offer for access to posts).
Consolidated Report and Accounts 2011 37 WorldReginfo - 102c94b6-b9f2-40fb-aba5-5d1c547744be ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Despite the 2010 recommendation by the EC, that national Regulators impose unbundled access to the fibre of the historic operator, as a form of natural evolution of the unbundled copper loop access (already in force), the process did not evolve in any way in Portugal.
In what concerns the Rural Next Generation Networks, after their adjudication in 2010, it can be supposed that its building is ongoing, given that the market was informed of the unlocking of EU funds for this purpose.
Only in 2012, 4 (four) years after last Market 4 and 5 Analysis, contrary to what is recommended by EC (two years), ICP-ANACOM has launched a Public Consultation where, despite the significant Broadband market share gain by the incumbent operator, solely, there is no change in the market analysis proposed regarding new ex-ante remedies.
Universal Service
On 11 November, the Government of the Portuguese Republic, along with the sector’s regulator, launched a public consultation on the process of the designation of the Universal Service of electronic communications provider(s).
Previously, on 27 January, ICP-ANACOM had the opportunity to initiate a process of public consultation relative to the concept of Excessive Burden and the methodology which should be applied to calculate the net costs of the telecoms Universal Service, which are fundamental aspects to take into account when considering an application for Universal Service provider.
Furthermore, the sector regulator has also promoted a consultation on the offer of the service of public payphones, a service encompassed in the range of services to be provided within the scope of the Universal Service.
In its approach to Universal Service the sector regulator has opted for a traditional view, typical of markets with monopolies, whereby it proposes the payment of a certain amount for the services encompassed by the Universal Service, therefore opting to regulate the future based on models from the past, instead of analyzing the present market and the options for the provision of a universal service based on the offers which are commercially available (which could result in a solution free from additional costs for the State and the sector).
It is ZON’s belief that it is possible for the Universal Service to be provided based on services and networks which are commercially available. Therefore, in its response to the public consultation, it proposed that the regulator undertook this analysis before making a decision as to how the providers are designated.
Regulation Charge
ICP-ANACOM, by deliberation taken on 25 November, approved the value of 0.5714% as the percentual contribution for 2011, payable by network and electronic communication services providers. Based on this value, it also approved the amounts for the settlement of the annual fee for providing networks and electronic communication services to be paid by each provider present in the national market.
Like in 2010, ZON will challenge this decision by the regulator, as it considers it to be illegal, disproportionate, and that it constitutes a case of double taxation.
38 Consolidated Report and Accounts 2011 WorldReginfo - 102c94b6-b9f2-40fb-aba5-5d1c547744be ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Apart from this annual regulation charge, operators also pay rates to ICP-ANACOM for using the spectrum and rates for issuing and maintain numbers.
Service Quality and Complaints
On 9 May ICP-ANACOM published its report on industry complaints. Out of the largest operators in the market, ZON has the best results in terms of customer complaints, demonstrating that the major investments and company commitment to service quality have paid off.
BEREC and European Commission
Despite having been created recently, BEREC launched a number of very up-to-date public consultations, of which we highlight the one on “Net Neutrality and Transparency”.
As for the European Commission, it also undertook several public consultations, of which we highlight the ones on “Digital Agenda – Access to Telecom Networks” and “Copyright”.
Concentration Processes
In concentration processes nr. 56/2007 and nr. 21/2008, regarding the integration of a series of companies bought by ZON, the commitments as to the sale of assets were complied with. There were no interactions with potential buyers or with the Competition Authority.
On process nr. 47/2011, on the behest of the Competition Authority, ZON notified it had signed an agency contract with another market operator. It also lodged an administrative complaint, as it was in total disagreement with the understanding and approach of the Competition Authority in this process. On 1 March 2012 the Competition Authority adopted a decision of non-opposition to this operation.
ZON was notified of the verdict of the Lisbon Commerce Court issued on 6 October 2011, to the effect that process PRC-2003/05 had been closed due to its having prescribed.
Cinema Law
At the end of 2010 ZON had the opportunity to explain its strong opposition to the proposal for the Cinema Law, which (besides not respecting European laws) discriminatingly and disproportionately overburdened the electronic communications and pay tv sector. With the change in Government, this proposal was abandoned. However, in late 2011, the new Government announced that it would present, for public consultation, to take place in February 2012, a new proposal for the Cinema and Audiovisual Law. ZON hopes the new project does not repeat the mistakes of its predecessor.
Consolidated Report and Accounts 2011 39 WorldReginfo - 102c94b6-b9f2-40fb-aba5-5d1c547744be ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
2011 Operational Performance
Business Indicators ('000) 2010 2011 2011 / 2010
Pay TV, Broadband and Voice
Homes Passed (1) 3,190.7 3,152.6 (1.2%) RGUs (2) 3,147.4 3,315.1 5.3% Cable RGUs per Subscriber (units) (3) 2.25 2.36 5.1% Basic Subscribers (4) 1,571.6 1,567.1 (0.3%) o.w. Cable Subscribers 1,163.9 1,178.4 1.2% Triple Play Customers 642.3 708.7 10.3% % Triple Play Cable Customers 55.2% 60.1% 5.0pp o.w. DTH Subscribers 407.6 388.7 (4.6%) Broadband Subscribers 690.2 739.2 7.1% Fixed Voice Subscribers 777.6 883.9 13.7% Mobile Subscribers 107.9 125.0 15.8% Blended ARPU ( Euros ) 35.4 35.7 0.8%
Cinema
Revenue per Ticket (Euros) 4.7 4.9 4.2% Tickets Sold 9,100.6 8,742.2 (3.9%) Screens (units) 213 210* 1.9% (1) The number of homes passed was corrected in 3Q11, consisting of a database cleanup of around 86.5 thousand homes. Data for the previous quarters was not restated. (2) Total RGUs reported reflect the sum of Pay TV, 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 (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. * The number of screens presented is the current number, and not the one as of 31 December 2011.
Performance of ZON’s core Triple Play services was very strong in 2011, particularly in 4Q11, reflecting the continued resilience of communications and entertainment services despite the harsh economic backdrop. Consumers are proving more conservative in their consumption patterns and in some cases are choosing to move to lower priced bundles however this is being compensated by trading-up from other consumer groups to higher end and more sophisticated TV and next generation services. In addition, there is also a new group of customers who are joining the Pay TV market, driven by the terrestrial analogue switch-off process currently underway in Portugal. Revenues from Triple Play services are showing resilience although with some dilution in ARPUs on the back of the take-up of lower-end Pay TV and bundled services targeting customers affected by the aforementioned analogue switch-off.
Over 60% of Customers take Triple Play bundles
The number of customers at ZON that took Triple Play services by the end of 2011 was 708.7 thousand, 60.1% of cable subscribers, representing an increase in penetration of 5 percentage points in comparison with 2010.
40 Consolidated Report and Accounts 2011 WorldReginfo - 102c94b6-b9f2-40fb-aba5-5d1c547744be ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Importantly, the evolution of Basic Subscribers was very positive, posting a net increase of 12.8 thousand subscribers in 4Q11 to 1,567.1 thousand customers. The growth recorded in the quarter was driven by an increase in multiple service cable customer base of 16 thousand subscribers. In 2011, ZON posted the best performance of the last 3 years, with (4.5) thousand net adds in Pay TV, with a very positive performance from the cable customer base with 14.4 thousand net adds.
The very good performance of our basic subscriber base bears witness to the fact that, despite the difficult economic environment, consumers are not disconnecting services and consider these Triple Play services to be a core part of daily life, supporting a permanent need to remain online and with access to affordable and highly valued sources of entertainment. A significant number of new or existing customers are subscribing to our high-end TV interface and next generation bandwidth solution IRIS. By the end of 2011, ZON had around 100 thousand customers taking IRIS high-end bundles, the great majority of which receiving broadband services with speeds equal to or over 30 Mbps. The NDS developed “Snowflake” user interface behind IRIS continues to reap awards worldwide for both design and usability. The innovative features available over the IRIS TV platform are proving a big success with customers, as is the case of Restart TV. The IRIS interface was rolled out to laptops, tablets and smartphones in 4Q11 now enabling remote access to TV programming and EPG functionalities whilst on the go, such as programme recording and access to video club and archives. An additional 102 thousand next generation ZON Boxes were installed and activated during 2011 bringing the total number of ZON Boxes installed to close to 1 million and, of these, 10% are IRIS enabled.
In contrast to the take-up of ZON’s high-end IRIS solutions, for the other end of the market spectrum ZON launched a new set of products in the last quarter of 2011 targeting customers faced with the imminent analogue switch-off in the first months of 2012. These customers, previously analogue free-to-air (FTA) viewers, were faced with the need to buy DTT tuners or replace their TV sets in order to receive the existing 4 FTA Portuguese channels over the DTT platform. ZON launched a campaign targeting this segment of the market offering the 4 existing FTA channels, with multi-room distribution, and unlimited Fixed Voice calls for €9.99 a month. In addition, ZON also launched an entry level Triple Play solution including the 4 FTA channels, 12 Mbps broadband and unlimited Fixed Voice calls for €24.99. Take-up of these new offers has been very encouraging. This segment is still expected to drive some additional growth in the Pay TV and Triple Play market during 1Q12 and until the analogue switch-off process has been completed.
Premium channel revenues decreased in 2011 in comparison with 2010. Customers are showing more conservative discretionary spending behaviour and are choosing to cut back on additional premium services, namely on premium sports channels.
Solid performance in Basic ARPU
ARPU in 2011 increased by 0.8% y.o.y. to 35.7 euros compared with 35.4 euros in 2010. The solid underlying performance of multiple service bundles together with a more stable pricing environment, albeit affected by ad hoc promotional activity in the build-up to the end of the year, is reflected in a 3.5% y.o.y. increase in basic ARPU levels. However, this increase in basic ARPU levels was diluted by a 11.0% y.o.y. decline in premium ARPU due to the previously discussed weakness in more discretionary premium services, although it is worthwhile noting that 4Q11 showed some recovery vis a vis 3Q11.
Consolidated Report and Accounts 2011 41 WorldReginfo - 102c94b6-b9f2-40fb-aba5-5d1c547744be ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Basic, Premium and Blended ARPU Evolution (4Q10 = Base 1)
1.10 1.05 +4,4% 1.00 +1,2% 0.95 0.90 -13,2% 0.85 0.80 4Q10 1Q11 2Q11 3Q11 4Q11 Blended ARPU Basic ARPU Premium ARPU
63% of cable customers subscribe to Broadband services
In 2011, the number of Broadband customers increased by 7.1% y.o.y. to 739.2 thousand, representing growth of the subscriber base of 48.9 thousand customers throughout the year. We highlight the particularly strong growth in 4Q11, with net adds of 14.2 customers.
Penetration of Broadband services as a proportion of the cable base now stands at 62.7%. Of the total Broadband customer base, 29% subscribe to NGN services with speeds equal to or over 30 Mbps and over 50% take Broadband speeds of over 20 Mbps. ZON’s strong technological advantage in terms of network capacity effectively enables it to reach almost all of its footprint with very high bandwidth offers going up to 360 Mbps. The following charts provide a breakdown of ZON’s Broadband customer base according to bandwidth, showing the strong customer uptake of higher end internet solutions over the past year.
Broadband Net Adds (‘000)
14.4 14.2 10.1 10.2
1Q11 2Q11 3Q11 4Q11
42 Consolidated Report and Accounts 2011 WorldReginfo - 102c94b6-b9f2-40fb-aba5-5d1c547744be ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Broadband Customer Base Breakdown (%)
2010 2011
ZON 2 Mbps 2 Mbps Fibra 6% 3% 19% ZON Fibra 29% 6 - 15 6 - 15 Mbps Mbps 47% 24 Mbps 45% 30% 24 Mbps 22%
Usage of ZON’s free WiFi Network continues to increase significantly quarter on quarter. In 2011, the volume of minutes used over the network grew to 723 million compared with just 79 million in 2010 and representing a nine-fold increase. The vast majority of minutes being used by ZON Broadband customers, these numbers prove that there is a significant level of utilization of this WiFi feature by ZON customers. The ZON@FON network is therefore a very relevant advantage to provide free WiFi access for ZON Broadband customers, given its very high geographic coverage and density, in particular in main cities.
ZON@FON Hotspots and Usage (Thousands, Millions of Minutes)
500 488 450
450 364 400
400
350
350 298 300
300
250
250
200
200
150
150
100
100 35 50 50 16
0 0 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 Active Hotspots Usage: Minutes
Fixed Voice customers grew 13.7% to 884 thousand
ZON’s Fixed Voice customer base recorded the best quarter of the year in terms of growth with net additions of 39.9 thousand subscribers in 4Q11. The total Fixed Voice subscriber base stood at 883.9 thousand subscribers at the end of the year representing a penetration of 73.2% of the cable customer base, with net adds of 106.3 thousand during 2011. The most recent data from the regulator regarding share of the Fixed Voice market shows that ZON’s market share continues to grow quarter on quarter, standing at 23.7% at the end of 2011 compared with 21.2% at the end of 2010 in addition to the fact that ZON remains the only one of the main operators to post growth in Fixed Voice customers.
Consolidated Report and Accounts 2011 43 WorldReginfo - 102c94b6-b9f2-40fb-aba5-5d1c547744be ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Fixed Voice Net Adds (Thousands)
39.9 29.9
19.3 17.3
1Q11 2Q11 3Q11 4Q11
Fixed Voice Market Shares 2011 (%)
Others 11.0% ZON 23.7% Sonaecom 13.9%
PT 51.3%
ZON’s mobile subscriber base recorded an increase of 17.0 thousand customers to 125.0 thousand during the year 2011. Throughout the first 3 quarters of the year, net adds were positive. In 4Q11, there was a decrease in the Mobile customer base of 8.4 thousand customers, due to a reduction in mobile broadband customers of 11.7 thousand customers.
Some mobile broadband subscribers included in Triple Play bundles are recorded in the base if they have used the service in the past 3 months. In 3Q11, the number of active users increased significantly by 10.5 thousand subscribers due to the holiday period when customers tend to use their mobile broadband connections. During 4Q11, active users came back down to pre-summer levels reflecting the fact that consumers prefer to either use their fixed broadband solutions at home or WiFi solutions when available such as ZON@FON.
Audiovisuals and Cinemas
In FY11, the number of tickets sold decreased by 3.9%, which represented a better performance than the remainder of the market. As a whole, the market experienced a drop in tickets sold of 5.2%, according to recently published data from the Portuguese Institute For Cinema and Audiovisuals, ICA. Therefore, ZON’s share of tickets sold increased from 54.9% to 55.7% during 2011.
44 Consolidated Report and Accounts 2011 WorldReginfo - 102c94b6-b9f2-40fb-aba5-5d1c547744be ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
2011 – 2010 Evolution of Gross Revenues and Attendance (%)
0.6%
-2.9% -3.9% -5.2%
Gross Revenue Attendance ZON Market
In 2011, revenue per ticket climbed 4.2% to 4.9 euros from 4.7 euros in 2010. This performance is supported by ZON’s leading position in innovation, with unparalleled levels of digitalization and penetration of 3D projection technology (40% out of a total of 217 screens) in the Portuguese market.
Tickets Sold (Thousands) and Average Revenue Per Ticket (Euros)
3000 07
07 2500 2,242 2,372 2,260 2,016 2,094 06
2000
06
1500 05
5.1 05 1000 4.9 4.7 4.7 4.8 04
500
04
0 03 4Q10 1Q11 2Q11 3Q11 4Q11 Tickets Sold Avg. Revenue Per Ticket
As regards Cinema gross revenues performance, ZON’s relative performance was also stronger in comparison with the rest of the market, actually posting slight growth of 0.6% in FY11 whilst the total market’s gross revenues fell by 2.9%. As a result, ZON’s market share of gross revenues by the end of December had increased to 56.5% in 2011, an improvement on the 54.6% of 2010. The most successful films shown in 2011 were “The Twilight Saga: Breaking Dawn – Part 1”, “Harry Potter and the Deathly Hallows Part 2”; “The Smurfs”; “Pirates of the Caribbean: On Stranger Tides”, and “Fast Five”.
For the FY11, Audiovisuals revenues posted a marginal decline of 0.8% from 73.0 million euros to 72.4 million euros, having grown by 14.1% in 4Q11 when compared with the previous quarter.
ZON Lusomundo Audiovisuais maintained its leading position in the distribution of movies for cinema exhibition, VoD viewing and sale of DVD content in Portugal. Of the top 10 films shown in cinemas in 2011, ZON Lusomundo distributed 5 of them, the most successful films being “Pirates of the Caribbean: On Stranger Tides”, “The Twilight Saga: Breaking Dawn – Part 1”, “Fast Five”, “Puss in Boots”, and “Cars 2”. According to ICA, ZON’s share of gross revenues in terms of cinema distribution in 2011 stood at 52.0%, an improvement upon the 51.8% achieved last year.
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Market Share of Cinema Distribution Revenues - 2011 (%)
Others 10.7% Castello Lopes 9.2% ZON 52.0%
Columbia 28.1%
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2011 Financial Performance
Profit and Loss Statement 2010 2011 2011 / 2010 (Millions of Euros)
Operating Revenues 872.3 854.8 (2.0%) Pay TV, Broadband and Voice 785.8 772.4 (1.7%) Audiovisuals 73.0 72.4 (0.8%) Cinema 61.5 59.2 (3.7%) Others and Eliminations (48.0) (49.2) 2.5% Operating Costs Excluding D&A 570.0 543.6 (4.6%) W&S 58.3 59.3 1.7% Direct Costs 251.7 243.9 (3.1%) Commercial Costs (1) 74.8 62.1 (17.0%) Other Operating Costs 185.1 178.3 (3.7%) EBITDA (2) 302.4 311.2 2.9% EBITDA Margin 34.7% 36.4% 1.7pp Depreciation and Amortization 219.6 217.6 (0.9%) Income From Operations (3) 82.8 93.6 13.1% (Other Expenses) / Income (0.6) (1.0) 69.0% Operating Profit (EBIT) (4) 82.3 92.7 12.7% (Financial Expenses) / Income (28.2) (32.7) 15.8% Equity in Earnings of Affiliate Companies, Net (7.9) (10.3) 31.0% Income Before Income Taxes 46.1 49.6 7.6% Income Taxes (9.3) (14.8) 58.2% Income From Continued Operations 36.8 34.8 (5.3%) o.w. Attributable to Minority Shareholders (1.3) (0.6) (51.8%) Net Income 35.4 34.2 (3.5%) (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 (4) EBIT = Income Before Financials and Income Taxes.
Operating Revenues
Total Operating Revenues were 854.8 million euros in 2011, representing a decline of 2.0% in comparison with 2010. Pay TV, Broadband and Voice Revenues declined by 1.7% y.o.y. to 772.4 million euros. Excluding non-ARPU revenues and revenues from premium channel subscriptions, basic ARPU Triple Play revenues increased by 2.1% y.o.y. in 2011. Premium revenues from ZON subscribers fell by 13.9% in 4Q11 in comparison with 4Q10, showing some recovery from 3Q11 when premium revenues declined by 12.3% y.o.y.. This positive performance in Basic ARPU Triple Play revenues, reinforces the fact that basic Triple Play services are proving resilient to the economic backdrop and are part of household daily life. More cautious spending patterns are however being displayed by consumers as regards discretionary elements of their monthly bill such as add-on premium channels.
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The Audiovisuals division posted a y.o.y. marginal decrease in revenues of 0.8% in 2011 from 73.0 million euros to 72.4 million euros, supported by an improvement in revenues from cinema distribution, and from the Dreamia joint venture. Sales of DVDs continue to post a negative trend thus diluting the positive performance of this business division. Cinema revenues declined by 3.7% in 2011 y.o.y. to 59.2 million euros, due to the decrease of non-ticket related revenues.
EBITDA
In FY2011 EBITDA grew by 2.9% to 311.2 million euros, recording a y.o.y. increase in full year margin of 1.7 p.p. to 36.4%, compared with 34.7% in 2010. The q.o.q. decline in EBITDA recorded in 4Q11 was related with the normal seasonal decline in margins which is felt in the build-up to the end of the year and is explained by the higher level of commercial activity and related costs.
EBITDA (Millions of Euros) and EBITDA Margins (%)
330 302.4 311.2 37%
280 262.6 36.4% 35%
230 34.7% 33%
180 32.3% 31%
130 29%
80 27%
30 25% 2009 2010 2011
The global improvement in EBITDA y.o.y. highlights the strong focus on cost control and reduction, and is being achieved due to the efforts to achieve further efficiencies in the cost structure and a generally lower churn environment. Total Operating Costs excluding D&A decreased by 4.6% in 2011.
Quarterly Evolution of EBITDA Margins (%)
38% 37.1% 37.1% 37.2%
35.9% 36% 35.3%
34.3% 34.1% 34.1% 34% 33.3% 33.2%
32% 31.7%
30.1% 30% 1Q 2Q 3Q 4Q
EBITDA Margin 2009 EBITDA Margin 2010 EBITDA Margin 2011
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Operating Costs
Wages and Salaries remained relatively flat for full year 2011 at 59.3 million euros compared to 58.3 million euros in 2010.
Direct Costs in 2011 amounted to 243.9 million euros, 3.1% lower than in 2010. The decrease in 4Q11 is mostly a result of the lower level of programming costs, due to lower average premium channel subscriptions in the quarter and a reduction in the total costs in certain channels contracted; and also of lower interconnection and advertising shared revenue costs.
Commercial Costs also recorded a significant decline of 17% in 2011 in comparison with 2010. This continued reduction in Commercial Costs is a result of a more efficient use of available sales channels, of a less aggressive competitive and promotional environment, driving lower churn and lower sales related costs and of the lower level of commercial activity.
Other Operating Costs declined by 3.7% in 2011 to 178.3 million euros. The main drivers of the decline in this cost aggregate are a reduction of several General and Administrative areas, namely customer service, maintenance and repairs, mainly as a result of the implementation of a number of efficiency improvement measures at the contact center level.
Net Income
Net Income amounted to 34.2 million euros in FY11. Net Income was affected by the negative impact of the Angolan operations, in the amount of 10.2 million euros in FY11 and 8.0 million euros in FY10. Without this impact, Net Income would have posted growth of 2.1% in 2011.
Net Income Excluding Impact From Angolan Operation (Millions of Euros)
43.5 44.4
2010 2011
Depreciation and Amortization in FY11 amounted to 217.6 million euros, representing a decline of 0.9% in comparison with FY2010. D&A is still relatively high due to the significant accelerated CAPEX cycle of the 2008-2010 period.
Net Financial Expenses grew by 19.2% to 43.0 million euros in 2011. The y.o.y. increase is the result of a small increase in Net Interest which grew from 23.1 million euros in 2010 to 24.7 million euros in 2011. The Angolan operation, which is equity consolidated, made a more negative contribution to net financial results in 2011 of 10.2 million euros due to the very significant increase in commercial activity in the build-up to the end of the year. The operation grew its subscriber base in a very significant way in 4Q11, leading to a hike in commercial and activation related costs, fully accounted for in the quarter but whose corresponding revenues will only be reflected in full in future periods.
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Income Taxes amounted to 14.8 million euros in FY11, compared with 9.3 million euros in FY2010, representing an effective P&L tax rate of 29.8% for FY2011.
Capex
CAPEX (Millions of Euros) 2010 2011 2011 / 2010
Pay TV, Broadband and Voice Infrastructure 88.4 82.2 (7.0%) Terminal Equipment 77.3 50.2 (35.1%) Other 12.7 8.2 (35.6%) "Baseline" CAPEX 178.3 140.5 (21.2%) Long Term Contracts 10.9 0.0 (100.0%) Other Non-Recurrent Items 58.9 9.4 (84.1%) Total CAPEX 248.1 149.9 (39.6%)
As promised at the start of 2011, we have significantly reduced the level of CAPEX, having completed the accelerated investment cycle of the previous three years. All major network upgrades have been completed and most of the upgrade to next generation set-top boxes has been done. This investment is set to decline further in 2012 and following years.
Total CAPEX in 2011 was 149.9 million euros, with Baseline recurrent CAPEX amounting to 140.5 million euros. Of this amount, approximately 60% was related to investment in Triple Play infrastructure and just over 35% to customer terminal equipment related investment. Total CAPEX represented over 19% of core Triple Play revenues in 2011 representing a significant decline from the almost 32% recorded in 2010.
Total CAPEX (Millions of Euros)
248 214 70 8 150 9 206 178 141
2009 2010 2011
Recurrent CAPEX Non-Recurrent CAPEX
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Cash Flow
Cash Flow (Millions of Euros) 2010 2011 2011 / 2010
EBITDA 302.4 311.2 2.9% CAPEX (248.1) (149.9) (39.6%) Baseline CAPEX (178.3) (140.5) (21.2%) Non-Recurrent CAPEX (69.8) (9.4) (86.6%) Non-Cash Items Included in EBITDA-CAPEX(1) 8.5 (11.5) n.a. and Change in Working Capital Operating Cash Flow After Investment 62.7 149.9 139.0% Long Term Contracts (81.0) (65.3) (19.4%) Net Interest Paid and Other Financial Charges (25.9) (21.3) (17.5%) Income Taxes Paid (10.8) (16.5) 52.8% Disposals 6.7 6.7 0.0% Other Cash Movements 0.4 (1.9) n.a. Free Cash-Flow (47.8) 51.5 n.a. (1) This caption includes non-cash provisions included in EBITDA and non-cash CAPEX related to the upfront
Operational Cash Flow
EBITDA-CAPEX increased almost threefold to 161.4 million euros compared with 54.3 million euros in FY2010. Accumulated Operating Cash Flow after Investment in 2011 posted a very strong increase y.o.y. to 149.9 million euros, from 62.7 million euros in 2010.
EBITDA - CAPEX e Operational CF After Investment (Millions of Euros)
161.4 149.9
62.9 62.7 53.4 54.2
2009 2010 2011 EBITDA - CAPEX Op. CF After Investment
Free Cash Flow
Total FCF in FY11 amounted to 51.5 million euros compared with negative 47.8 million euros in 2010. This strong performance is a reflection of the change in momentum in cash generation at ZON led by the continued improvement in operating performance and the fact that we have concluded the accelerated network and customer equipment upgrades of previous years.
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Free Cash Flow (Millions of Euros)
51.5
(17.8)
(47.8) 2009 2010 2011
Further to the Operating Cash Flow increase already discussed, the other main impacts on FCF generation in 2011 were (i) cash payments of Long Term Contracts of 65.3 million euros, (ii) net interest payments of 21.3 million euros and (iii) income taxes of 16.5 million euros.
Of the 51.5 million euros of FCF generated in 2011, net dividends of 49.4 million euros were paid out to shareholders in 2Q11 and the remaining 2.1 million euros enabling ZON to reduce the level of Net Financial Debt.
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Consolidated Balance Sheet
Balance Sheet (Millions of Euros) 2010 2011
Current Assets 531.4 708.9 Cash and Equivalents 264.6 407.4 Accounts Receivable, Net 188.8 237.8 Inventories, Net 58.6 46.7 Taxes Receivable 2.8 5.1 Prepaid Expenses and Other Current Assets 16.6 11.9 Non-current Assets 1,119.3 1,076.7 Investments in Group Companies 1.1 0.5 Intangible Assets, Net 336.7 314.7 Fixed Assets, Net 645.8 646.9 Deferred Taxes 51.0 49.9 Other Non-current Assets 84.5 64.8
Total Assets 1,650.7 1,785.6
Current Liabilities 398.7 789.1 Short Term Debt 92.6 500.0 Accounts Payable 210.5 207.1 Accrued Expenses 70.4 56.5 Deferred Income 4.1 3.8 Taxes Payable 10.8 17.2 Current Provisions and Other Liabilities 10.4 4.6 Non-current Liabilities 1,001.8 761.5 Medium and Long Term Debt 973.0 729.4 Non-current Provisions and Other Liabilities 28.8 32.1
Total Liabilities 1,400.5 1,550.6
Equity Before Minority Interests 240.3 225.0 Share Capital 3.1 3.1 Own Shares (0.0) (0.6) Reserves, Retained Earnings and Other 201.8 188.3 Net Income 35.4 34.2 Minority Interests 9.9 10.0
Total Shareholders' Equity 250.2 235.0
Total Liabilities and Shareholders' Equity 1,650.7 1,785.6
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Capital Structure
At the end of December 2011, Net Financial Debt stood at 637.5 million euros, a decline of 30.8 million compared with 3Q11. The reduction in Net Debt in the quarter was possible due to the positive FCF generation previously explained.
As of FY11, ZON had in place interest rate hedging operations in the amount of 434 million euros, approximately 68% of the total Net Financial Debt.
Total financial debt at the end of 4Q11 amounted to 1,107.8 million euros which was offset with a cash and short term investments position on the balance sheet of 470.3 million euros. The all-in average cost of ZON’s Net Financial Debt was 4.07% for 2011.
In February 2012, ZON announced that it had secured a fully underwritten Commercial Paper Program with Caixa Geral de Depósitos of 100 million euros maturing in 2015. The new facility will replace an existing similar Commercial Paper Program of 125 million euros that was set to mature during 2012. The negotiation of this new credit facility will further improve the stability of ZON’s capital structure, extending the average maturity of ZON’s Net Financial Debt. This, together with a significantly improved cash-flow profile, places ZON in a very comfortable position with no additional projected refinancing needs until the end of 2013. With the new facility in place, the average maturity of ZON’s financial debt is 2.31 years.
Net Financial Gearing increased to 73.1% at the end of 2011 compared with 71.9% at the end of 2010, and Net Financial Debt / EBITDA (last 4 quarters) stands at 2.0x. Total Net Debt of 759.9 million euros also includes commitments with Long Term Contracts recorded as liabilities on the Balance Sheet, of which the most relevant are long-term transponder, telecoms and content contracts.
Net Financial Debt (Millions of Euros) 2010 2011 2011 / 2010
Short Term 45.5 467.4 n.a. Bank and Other Loans 41.4 462.4 n.a. Financial Leases 4.1 5.0 20.5% Medium and Long Term 867.4 640.4 (26.2%) Bank Loans 853.3 628.6 (26.3%) Financial Leases 14.0 11.7 (16.4%) Total Debt 912.9 1,107.8 21.4% Cash, Short Term Investments and Intercompany Loans 273.2 470.3 72.1% Net Financial Debt 639.7 637.5 (0.3%) Net Financial Gearing (1) 71.9% 73.1% 1.2pp Net Financial Debt / EBITDA 2.1x 2.0x n.a. (1) Net Financial Gearing = Net Financial Debt / (Net Financial Debt + Total Shareholders' Equity).
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03 SUSTAINABILITY
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TABLE OF CONTENTS
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01 INTRODUCTION 60 ZON and sustainability 60 The ZON Group 61 ZON Group companies’ description 61 The ZON Group’s Vision, Mission and Values 64
02 CONDUCT 65
03 IN LINE WITH THE SHAREHOLDERS (Diagram) 67
04 IN LINE WITH THE CUSTOMERS 69 The subscriber comes first: ensuring better customer service 69 Next step: more power to the subscriber 72 Perfecting communication with the customer 72 A better, broader and safer TV viewing experience 73 ZON cinema going: a rewarding experience 73 Marketing and responsible advertising 75 ZON Empresas supports entrepreneurship 75
05 IN LINE WITH THE SHAREHOLDERS 77
06 IN LINE WITH THE EMPLOYEES 78 Areas of professional development 79 Main value: Focus on the customer 79 Active talent management 80 Teleworking: total integration, higher productivity 81 New head office in Lisbon 81
07 IN LINE WITH REGULATORY AUTHORITIES AND THE MEDIA 82 Regulatory issues 82 Relations with the media 83
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08 IN LINE WITH THE SUPPLIERS 84 ZON Academy 84 Employee protection 84
09 IN LINE WITH THE ENVIRONMENT 85 Environmental management system: EcoZon 85 Digital Cinema 87 Environmental footprint of operations 88 Environmental impact of waste produced in cinemas 89 Suppliers and the environment 89 Risks resulting from climate change 90 Customers and energy savings 90
10 IN LINE WITH THE COMMUNITY 91 Television and broadband: instruments of freedom of expression and information 91 Creative communities: ZON Creativity in Multimedia Prize 91 Company-university relations 92 Social responsibility 93 Health initiatives 94
11 AWARDS, DISTINCTIONS, CERTIFICATIONS AND STANDARDS 96
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«Sustainable development is the kind of development that meets the needs of the present without compromising the ability of future generations to meet their own needs.»
Brundtland Commission, United Nations, 20 March 1987
01 Introduction
ZON and sustainability
A sustainability strategy involves measuring and demonstrating responsibility to internal and external stakeholders, meeting sustainable development objectives and providing a balanced and reasonable overview of the organisation’s performance.
Long-term business sustainability is a crucial element throughout all aspects of ZON’s activity that makes a growing number of contributions to society – more entertainment, culture and information, more freedom of expression and communication, more and better qualified employment, more levies and taxes paid to the state and to local authorities and environmental benefits that result from application of new technologies and methods within business and consumer processes.
This is the first time that ZON’s Annual Report and Accounts incorporates a chapter entitled Sustainability, demonstrating the importance that this issue has now acquired for the company.
In previous years the Annual Report and Accounts included information on measures that are now integrated within this chapter, in particular in relation to the Code of Ethics, employees and human resources policy, continuous improvement, social responsibility and environmental responsibility. A set of topics that have not been previously been addressed is also now introduced, thus complementing and expanding upon the previous information.
The EcoZON programme constituted the starting point for improving the organisation’s environmental performance, transmitting a clear signal of change to employees, customers and suppliers. Although it doesn’t yet constitute an integrated sustainability strategy, this pioneering project has been formalised and implemented across all levels of the organisation, with quantified targets and objectives, it intends to contribute to development of a corporate culture that is aware of environmental concerns and thereby ensure that ZON is an environmentally responsible company.
The activities profiled herein reveal a set of initiatives that are guided by sustainability criteria at various levels, in particular human resources, business processes and engineering and directly linked to customers, both at the level of telecommunications operations and film exhibition.
It has been possible to identify specific evolution in various activities, via internal and external studies, especially in terms of customer satisfaction. The first steps have also been taken in this report towards adopting a formalised set of measurements, that will make it possible to establish quantified objectives, in particular in terms of pollutant emissions.
In this manner, this report clearly reaffirms the principle of sustainability-orientated activity and constitutes the basis for a systematic approach towards the issue of sustainable development. The report doesn’t follow any specific established reporting model, but does take into consideration a set of guidelines, based on best practices.
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The ZON Group
ZON Group companies’ description
ZON TVCabo
ZON TVCabo is the largest Triple Play operator (TV, Broadband Internet and Fixed Telephony) in Portugal. With around 1.6 million customers, it is the leader of the Portuguese Pay TV market and one of the largest European operators.
With over 120 channels (presented in several bundles and Premium channels) the company invests on the expansion of its digital grid and its cable and satellite platforms, in high definition and in 3D technology.
The launch of the new ZON BOX, in May 2008, marks a new stage in ZON TVCabo’s growth, changing the way TV is watched. This equipment enables the viewer to Access high definition technology, a digital video recorder, pause live TV, videoclub and TV guide.
ZON currently has the broadest offer of HD channels, and leads the high definition market in Portugal. The Company also pioneers true 3D technology, having launched a 3D channel in March 2010, which broadcast the Augusta Master Final (the competition which signaled the return of golf’s number 1 player) and two friendly football matches of the Portuguese team, in preparation for the World Cup. These live transmissions are unheard of in Portuguese television, and showcase ZON’s technological leadership.
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In the area of Broadband Internet, ZON has close to 739 thousand customers, and is the leader in terms of speed and browsing experience. ZON has placed Portugal at the forefront of innovation, with the launch of its 360 Mbps and 1Gbps ZON Fibra bundles, speeds which are unparalleled in Europe.
In 2007, ZON offer was complemented with the fixed telephony service, which already has 884 thousand customers. With the launch of the mobile service (MVNO – mobile virtual network operator), which has already taken place in 4Q08, the Triple Play service has been transformed into a Quadruple Play Service.
In June 2008, ZON launched a set of tariff plans specifically oriented for SoHo, small companies (with less than 15 employees) and for the hotel and restaurant industry.
ZON continues to innovate, seeking to provide its customers with a global high quality experience of entertainment, culture and communication.
ZON Lusomundo Cinemas
ZON Lusomundo Cinemas is responsible for the management of 217 cinema theatres in 30 complexes. As the market leader in this segment, it pioneered the introduction of digital 3D platforms in movie theatres.
Following the developments and trends of the market, ZON Lusomundo has been repositioning itself. The expansion of the movie theatre functionalities, diversifying the audience, has been a strong focus at this new stage. The theatres have an increasing number of functionalities, embracing different types of events besides movies, namely, concerts and football matches in high definition.
With over 380 thousand sessions in 2010, ZON Lusomundo is taking on a very important role in a group that is increasingly entertainment oriented.
ZON Audiovisuais
ZON Audiovisuais is a reference in its domestic market. As the leader in the supply of content, it ensures the exclusive distribution of several box office hits. Its growth is supported by partnerships with the most prestigious brands of film distribution, publishing and video distribution.
This company is responsible for the purchase and management of the movies’ broadcasting rights. Its teams work directly with the major film producers, daily trading the films that enter the Portuguese market. The video distribution business (DVD) and the TV and cinema sale of movie distribution rights are also some of the skills of ZON Audiovisuais.
ZON Conteúdos
ZON Conteúdos is in charge of the content wholesale, ensuring its negotiation, acquisition, aggregation and resale. ZON Conteúdos is responsible for the investments in the area of production of TV channels in Portuguese and the Premium content distribution. Channel marketing, programming management and advertising of the Pay TV service are also some of this company’s skills.
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Sport TV
SPORT TV is a Premium sport content TV station which broadcasts, live and exclusively, a large range of the most important national and international competitions.
In football Sport TV broadcasts the main European leagues, namely the Portuguese, Spanish, English and Italian leagues, the Champions league and the Europa league, the broadcasting rights for which were, once again, secured. It also broadcasts other major competitions like the Copa America and the Libertadores Cup, featuring the best football players in the world. Other sporting events broadcast include Formula 1, MotoGP, WRC, NBA, and most of the major tennis tournaments, among others.
Currently, SPORT TV broadcasts six national channels, all in HD: SPORT.TV1, SPORT.TV2, SPORT.TV3, SPORT.TV4, SPORT.TV GOLFE, SPORT.TV PREMIER LEAGUE and two international channels: SPORT.TV AFRICA and SPORT.TV AMÉRICA.
SPORT TV is committed to deliver excellence and diversity in its programming and focuses on the quality of its content, some of which is produced in-house. Its informative programme, “ReportTV”, has been awarded various prizes by national and international entities, such as the Portuguese Olympic Committee, the National Sports Press Club, the UN, the National UNESCO Committee and the Sports Movie & TV – International Milan Festival.
Dreamia
The Dreamia – Serviços de Televisão, S.A. joint venture, formed and held in equal shares by the two partners ZON Multimédia and Chello Multicanal,is the result of a strategic partnership for the production of children’s, and movies and series channels, aimed at the Portuguese market and at Portuguese-speaking African markets. The company produces four channels: Panda Biggs, Panda, Hollywood and MOV, which are distributed in Portugal by Chello Multicanal.
ZAP
ZON’s arrival in Africa began with its expansion into Angola through a joint venture 30% owned by ZON Multimédia and 70% by SOCIP – Sociedade de Investimentos e Participações, S.A. (100% controlled by Ms. Isabel dos Santos), to develop a Pay TV service via satellite. This was ZON’s first step in a wider strategy to develop operations in Africa.
ZAP, the brand name for the new Angolan Pay TV operator, was announced on 15 February 2010.
Key-deals were negotiated to obtain a wide range of channels, many of which in Portuguese and some of which were specially designed for Angolan viewers. ZON Multimédia leveraged its position as market leader in Portugal in content production and distribution by selling the channels it produces on the Angolan market, along with channels produced by joint-ventures. The focus is centered on the extent of Portuguese channels, HD content and innovative set top box functionalities.
In August 2010, at the beginning of the football season, ZAP got exclusive distribution rights to SportTV Africa, including the exclusive rights to the Portuguese Football League, “Liga ZON Sagres”, and other important Portuguese sports competitions.
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ZAP is developing well with many new customers joining, particularly after the launch of a joint marketing campaign with the leading mobile phone operator in Angola, thus increasing the visibility of the operation.
The ZON Group’s Vision, Mission and Values
ZON has very clear objectives for the medium and long-term: to continue to be the market leader and work with complete rigour, transparency and high innovation capacity. Its mission is to offer an excellent service to its customers and build a socially responsible company.
Vision
How do we see our future?
We have an extremely clear vision of what the future holds in store for us:
We are the market leader; We will continue to be pioneers, embracing global challenges in multiple markets; We will maintain our position as customers’ first choice; We will continue to operate in the telecommunications sector on the basis of high standards of excellence, with a strong, motivated and flexible team capable of making magic happen
Mission
Why do we exist?
We are a socially responsible company, capable of creating value for our customers, shareholders, employees, suppliers, partners and society in general.
We seek to offer an excellent service to our customers, with the best and most innovative technological solutions, that stand out from the competition in terms of content, entertainment and telecommunications.
Values
Our activity is based upon the following values:
Audacity; Team work; Enthusiasm; Innovation; Transparency; Focus on Results; Proximity to the customer.
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02 Conduct
The company’s Code of Ethics also constitutes a Code of Conduct. It establishes transparency as the core principle, based on a set of rules and procedures underpinning the company’s relationship with stakeholders.
Customer relations should be based on loyal, transparent, clear, objective and professional practices that make it possible to foster and solidify the organisation’s credibility and engender trust in our products and services.
ZON requires employees to observe professional behavioural standards and attitudes based on exemplary ethical and deontological principles and values, in conformity with the rules specified in legal, regulatory and contractual provisions.
These values are rooted in the corporate structure through continuous training, creation of equal opportunities between employees and valorisation of individual efforts and teamwork, through suitable remuneration.
ZON complies with the fundamental values of non-discrimination on the basis of nationality, sex, ethnic group or religious or political belief and fully respects individual rights.
Occupational health and safety norms are observed and complied with.
Relationship with suppliers and service providers are based upon values of loyalty, good-faith transparency and professionalism, in order to ensure full observance with legal requirements and contractual obligations, based on the values established in ZON’s Code of Ethics.
ZON acts with utmost diligence in its relationships with any public authorities, in particular with the regulatory and supervisory authorities - specifically ICP - ANACOM and the Portuguese Securities Market Commission (CMVM).
ZON fosters and supports technological research, development and innovation in its products and services, in recognition of their relevance for guaranteeing sustainable development and ensuring better services to customers.
ZON’s position in the information and knowledge society - as one of the main suppliers of access and content - means that it has increased responsibility in guaranteeing uninterrupted and non- discriminatory supply to sources of information and electronic networks that form the basis for freedom of expression.
Through the pursuit of its normal business activity, ZON seeks to contribute to improving customers’ quality of life through the provision of high quality products and services.
ZON’s Code of Ethics consecrates sustainable development as a key contribution towards improving community well-being. ZON is aware of the positive environmental impact that can derive from development and fine tuning of its performance as a supplier of technologies, products and services.
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Whenever possible and appropriate, ZON will always adopt measures that will minimise the direct and indirect environmental impact of its business activity. ZON aims to raise awareness amongst its employees for adoption of ecologically appropriate behaviour and seeks to adopt and apply technological suggestions provided by its employees - as exemplified in the EcoZON programme.
In addition, at both an internal and external level, ZON fosters and supports social, cultural and educational initiatives.
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03 In line with the shareholders (Diagram)
In line with the customers 1. Contact points a. Advertising and marketing b. Responsible marketing i. ICAP ii. APAN iii. CTAM c. Electronic networks i. www.zon.pt ii. www.myzon.pt (electronic invoice) iii. www.myzoncard.pt iv. 16990 freephone number v. 16991 information line vi. 16999 business customers vii. Online opinion tool “help us improve” viii. Twitter: @zon_apoio ix. ZON Facebook 1. ZON Prize 2. ZON Lusomundo Cinemas 3. Call ZON Kids 4. Call ZON/Sagres 2011/2012 x. Blog: http://zoniris.blogspot.com/ xi. Online ticket office xii. m.ticketing d. Stores network i. Attendance e. Cinemas Network i. Ticket office f. Vendors g. Installation and maintenance technicians h. Responsible products and services 2. Safety and protection of minors
In line with the shareholders i. Corporate governance ii. Roadshows iii. Conference calls iv. Participation in international conferences v. Periodic meetings vi. Communications to the market vii. General meeting viii. Book - “ZON’s Impact on the Portuguese Economy” ix. Investor Relations Site
In line with the employees x. Annual employees meeting xi. Satisfaction surveys xii. Intranet
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In line with the suppliers xiii. Periodic meetings and contacts xiv. Service Level Agreements xv. Scorecards xvi. Conduct
In line with the regulatory authorities xvii. Obligatory reports xviii. Voluntary communications xix. Periodic meetings xx. Press releases
In line with the media xxi. Press releases xxii. Regular meetings xxiii. Briefings, interviews xxiv. Daily attendance to information requests xxv. Media Site
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04 In line with the customers
The ZON Group’s activity results from contact with the consumer via intangible elements and by the products themselves. Consumer contacts with ZON take place via numerous points along the service chain, ranging from the call center to the graphic interface. ZON follows a customer- orientated approach in each contact point with the customer, starting with the consumer’s initial contact with ZON to the moment when subscribers use their remote controls and advanced graphic interface in order to select and watch television content. Customer and subscriber satisfaction is a key objective in all these contexts.
The subscriber comes first: ensuring better customer service
Customer Care encompasses all areas of customer service (call center, stores, back office), technicians in the field and retention of customers. Until recently ZON’s Customer Care was considered to be a particularly weak service, not only in the telecommunications sector but across all areas of customer care. As a result, the Group identified the strategic imperative to overhaul all its customer care activities. ZON has now introduced better management procedures and higher quality in the services and products provided to customers and better quality of service.
The Strategic Project to Improve the Service for TV Customers includes the following initiatives:
Development of human resources via new training programmes New evaluation schemes specifically designed for customer service Development of systematic best performance recognition plans, together with talent retention plans Implementation of the Contact Center and IVR (Interactive Voice Response) integrated in a 100% IP platform Single telephone contact line, regardless of the service or type of question posed by the customer Online self-care service High emphasis on solving problems at the first call Full remodelling of existing business procedures Increasing the independence of call center operators (Customer Service Representatives or CSRs)
ZON considers that the CSRs constitute its most valuable asset, and therefore management attention is focused on these employees. For this reason, ZON seeks to help CSRs to attain their full potential by investing in their professional development. ZON has developed a corporate culture in which special care is paid to CSRs’ financial and non-financial needs and their personal objectives.
ZON’s Customer Service culture is based on four pillars:
The incentives scheme, which includes objectives that are aligned throughout the organisation, additional bonuses and the Nitro Sales project The ZON Experience programme - which includes a welcome kit and a birthday package together with a website that is dedicated to common interests and informal activities Training, based on continuous learning, workshops on topics suggested by the CSRs and a simplified non-bureaucratic management system Publicise best performances as exemplary cases and recognize best suggestions and ideas.
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The key performance indicators (KPIs) chosen for the incentive scheme guarantee a high emphasis on the customer. Evaluation of the quality of exterior employees is based on their respective individual classifications. ZON’s Incentive Scheme has been recognized by Contact Centre World as an international best practice in the Europe Middle East Africa region, while the monitoring and communication system received the Best Technology Innovation Award.
ZON’s Customer Care department is organised into various technical and non-technical front-office teams and by back office teams that handle questions that, by definition, cannot be resolved in the initial contact with the customer. All these teams are almost exclusively constituted by external staff but operations take place inside ZON’s premises.
In November 2011, ZON launched the tele-working system. This solution has reduced costs and led to greater satisfaction of CSRs and therefore greater customer satisfaction. The system is targeted in particular to CSRs of the back-office teams, and has enabled 5% of CSRs to work from home since late 2011. The system has also led to a lower staff rotation level.
The Strategic Project to Improve the Service for TV Customers has led to a significant improvement of employee and customer satisfaction. The main results are as follows:
Improvement of the relevant indicators for customers. Customers prize effective and swift resolution of their questions through an agreeable experience, i.e. with the lowest possible overall effort, while acknowledging that in an ideal situation they would have no problems whatsoever.
Reduction in the number of contacts. As a result of investments in the network, with state-of-the-art terminal equipment, micro-computing support and management of the technical attendance service, the number of contacts per 1000 services has fallen since 2008. It has fallen fourfold in the fixed telephone service and has halved in the Internet service, it has been stable in the television service with many more services, including set-top-boxes with more functions, VOD, Restart, selfcare account management, ZON Online and an iPAD application.
Accessibility. In over 80% of cases, call center lines answer customer calls within 30 seconds, in conformity with the best practices in the sector. ZON stores have also reduced average waiting times, which now stand at five minutes. Technicians working in the field have attained a level of 90% compliance with scheduled appointments, in blocks of a maximum of 1 ½ hours.
Effectiveness. In all internal indicators, resolution of customers’ requests has been achieved with greater effectiveness, i.e. with higher resolution at the first contact and reduction of repeated contacts, in stores, call centers and in the field. Customer service operators are audited, evaluated and have an incentive scheme aligned to several variables, including the level of repeated contact from the customers that they serve.
Greater efficiency level. It has been possible to reduce the global costs of customer care as a result of the investments made in the customer support infrastructures (as a 100% IP telephone service), new installations, reduction of contacts as a result of improved network quality, increased level of selfcare and a higher level of control of the operation.
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Recognition from customers. Regular studies carried out internally by ZON demonstrate that customers have experienced sustained and significant improvements. Emphasis should be placed on the independent report, the Portuguese National Customer Satisfaction Index (ECSI) prepared by the Universidade Nova de Lisboa and the Portuguese Quality Institute (IPQ). In the pay television sector, ZON was ranked in first position, with a significant level of evolution. The results of the ECSI revealed the following:
Brand satisfaction: ZON improved from 6.12 in 2007 (the sector’s worst performance), to 7.24 (on a scale of 0-10) in 2010, the sector’s best performance. Complaints Treatment Satisfaction: ZON improved from 4.5 in 2007 to 6.1 (on a scale of 0-10) in 2010. Customer Service Satisfaction: ZON improved from 5.9 in 2007 to 7.1 (on a scale of 0-10) in 2010.
Recognition from the regulatory authority. ANACOM publishes an annual overview of the complaints that it receives per 1000 services. ZON always achieves a higher score than its main competitor, even in the fixed voice service, taking into account that it is a recent service and has recorded significant growth over the last four years.
Recognition from consumer organisations. DECO has announced the amount of contacts that it receives by business sector and although it does not disclose statistics itemised per company, it has stated that ZON once again recorded a significant drop in contacts by DECO members, which means fewer situations of conflict involving ZON, even though the number of ZON’s active and billed services has increased. ZON continues to work with consumer support organisations such as DECO, in order to improve its procedures and reduce conflict situations.
Recognition from national and international external authorities. ZON’s transformation into a customer-orientated organisation has been noted and distinguished by various national and international awards and distinctions, in particular as the best call center to work for in Portugal 2011: - the second best attendance service in the telecommunications sector, excellent customer care service at the European level; - best incentive scheme; and best customer care director. (See the list of awards and distinctions in the respective section).
Customer Satisfaction Index
7.40 7.24 7.15 7.15 7.20 7.21 7.04
7.00 7.10 7.08 7.03 7.00 6.80 6.93
6.60 6.65 6.40
6.20 6.12
6.00 2007 2008 2009 2010
ZON PT
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Next step: more power to the subscriber
Improvements in quality of service are a reality, but customers’ expectations are also increasing rapidly. For this reason, ZON continues to invest in customer support technology in order to improve efficiency and reduce operating costs, improve selfcare, on the basis of a continuous improvement approach and national and international benchmarking of best practices.
In the framework of continuous improvement of business processes, a restructuring initiative has been launched aimed at transforming and simplifying business procedures and customer interaction support tools.
The ultimate objective is to provide the customer with all the tools required to easily execute the principal interactions with ZON. The goal is to design procedures that are so simple that the customer may execute them via the Internet. Processes have been reformulated and redesigned on the basis of a selfcare logic, for use by the customer in the online store and in myzon.
The first step of this initiative consists in the transformation of processes and re-engineering of procedures with simplification and design of new processes, taking into account the critical moments of customer interaction across the various contact points that mark ZON customers’ interaction with the company.
The main processes that have been subject to transformation and staggered implementation in the field, in all channels of interaction, have been sales/orders, non-technical customer care (customer requests and consultations and billing complaints), steps taken to resolve technical problems and faults and customer retention and loyalty-building.
The initiative has created a Single Attendance Portal (UFE – Unified Front End, SMSVPP – Mobile Sales Portal, PDT – Technical Resolution Portal) for execution of processes by the operation, covering all customer contact channels. The Single Portal includes the Business Process Manager (BPM), a process monitoring and design tool and the creation of a single repository of business rules and procedures. The objectives are:
To guarantee the same processes in all channels (including the Internet) To standardise rules, expressions and communications with the customer To improve working methods, alter established habits; achieve change management.
The main challenge consists in effective change management and adhesion of employees in the use of new procedures and tools. In this manner, the search for improving operating efficiency has focused on the following main objectives:
“Doing it right the first time” Reduction of errors and execution times, and thereby, Reduction of costs and increased customer satisfaction
Perfecting communication with the customer
In addition to these objectives, communication between vendors and customers is also being improved. The main grounds for customer complaints is the minimum subscription period to the service required in contracts. This situation is often generated by the fact that vendors fail to convey this information when establishing the initial contract.
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In order to resolve these situations, ZON will launch a system in 2012 in which a new customer, on the day after signing a contract, will receive an e-mail specifying all the associated conditions. The self-care tool will also contribute towards improving the relationship with the customer, by enabling greater transparency and enabling the customer to self-manage his account.
A better, broader and safer TV viewing experience
The new generation Iris television service launched by ZON Fibra in November 2010 and now available in more than 3 million homes, represents a fundamental step towards ZON offering products and services that will help improve the viewing experience.
This new interface enables subscribers to have easy access to personalised television content. With the launch of ZON Online, in October 2011, ZON transported this experience outside the home. 30 channels with the same functions and usability are now also available for computers and tablets.
Iris offers an intelligent search mechanism, recommendations, favourites, organisation of video recordings by topics, new developments and now enables access to YouTube and other Internet content and also the possibility of controlling the set-top box via a smartphone, including remote scheduling of recordings and VOD sessions. The popular Restart TV service has also been introduced - that makes it possible to begin to see a programme that has already started. It is now also possible to record two programmes simultaneously.
A parental control service has been launched, particularly important for families, which makes it possible to block channels, that will only become accessible via a password.
ZON cinema going: a rewarding experience
Mobile + Pay TV DVD / VoD (Video Production Distribution Exhibition Online (satellite Free TV BluRay On Demand) Distribution and cable)
ZON Multimédia
ZON Multimédia operates throughout almost the entire cinema exhibition and distribution value chain
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Cinemas now constitute a broader entertainment platform, with a multiple offer of content and experiences. ZON Multimédia has 30 multiplexes and 210 cinema screens distributed throughout the country which are completely digitalised and able to receive content via satellite. Screens offer comfortable viewing conditions and excellent image and sound quality.
An unparalleled set of services and other new services have been offered from 2012 onwards, that help customers and improve provision of the service: call center, mTicketing / bCode (applications for mobile devices that make it possible to purchase tickets, comparison and sale of special offers with the respective terminals in the cinemas), a corporate site with a store and use of social networks, amongst other features.
The front office has been optimised to jointly offer a bar and ticket office service in the same electronic point of sale (EPOS) and make payments via debit and credit card automatic payment terminals.
In 2011 a process was launched to endow all cinemas with kiosks that make it possible to collect, reserve and purchase tickets and concessions, via debit- and credit-based payments. The kiosk will make it possible to sell and collect tickets, suggest sale of menus, via debit- and credit-based payments (e.g. suggest a menu by type of ticket, withdrawal of menus in the cinema tills), and other operations such as consultation of synopses, etc. available in the cinema foyers.
The Mobile Ticket project was also launched in 2011 which provides access to cinema screens via mobile devices (substituting traditional tickets, thus dematerialising the ticket office), together with the possibility of accessing all information and selection and payment of cinema special offers in a mobile environment.
Internally, the layout of each cinema complex forms the basis for a set of distinct functions, and is divided into four areas. Each space offers a distinct environment: the attendance zone, foyer, access corridors to the screens, and the screens themselves where the final action takes place (exhibition of the expected content).
Each theatre has a sufficient downward slope to ensure that all spectators have good visibility, thus enabling exhibition of content on the screen itself (fixed and moving images, in 2D or 3D) synchronised with the sound (50% of the experience is sound-based) thereby generating emotions or sensations in the spectator.
Comfort is another core variable underpinning a successful cinema experience. Important factors include seat comfort and control and appropriate room temperature. In this manner, the screen is a “box” which combines a set of sensorial stimuli.
The sound used in the screens is latest generation Dolby Digital (7.1). Acoustic installation observes the international standards established for such spaces, as defined by the leading sound equipment brands (Dolby, THX and IMAX).
Projection uses digital projectors (2K resolution) with screen illumination levels in compliance with DCI rules. Around 40% of screens are equipped with 3D digital projection, using the REAL D system. 3D glasses do not have to be returned, thus reducing the operational impact. The screen dimensions are the maximum permitted in each theatre, thus ensuring a major impact on viewers.
Lighting is designed to ensure greater involvement and comfort of the viewers. Safety lighting ensures that viewers can enter or leave the room, during exhibition of the film, in the best possible conditions.
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Marketing and responsible advertising
ZON’s communications with consumers, via advertising and marketing initiatives, aim to comply with the highest standards of taste and quality, while strictly observing ethical considerations, advertising codes and other pertinent advertising legislation.
ZON has not yet introduced advertising messages aimed at raising awareness of environmental issues in its communication, but ZON’s advertising nonetheless stands in conformity with the principle of socially responsible advertising - one of the pillars of sustainability-based communication. ZON’s advertising is neither misleading nor offensive and observes the principles of fair competition.
ZON’s advertising has not been sensationalist, but instead has been direct, true and informative. For example, the campaign for Iris’ Restart function (i.e. the possibility to see the start of a programme which has already begun) constitutes product-based factual and explanatory advertising. Based on a symbolic portrait of modern urban professional life, the advertisement has made a positive contribution to the idea that working late doesn’t necessarily imply missing a program that a viewer wanted to see and that has already started.
Advertising directed towards children exemplifies the care taken in communication to this specific age group. While using language appropriate for children, the advertisements avoid exploring childish innocence or gullibility. On the contrary, the advertisements try to transmit positive ideas such as family unity, fair competition, team work and the joy of participation. A good example is the video featuring the anthem of the ZON Kids League, in which parents appear as enthusiastic fans as their children compete in the ZON Kids League, playing in football teams of the same age group. The Mother’s Day Phone campaign (the offer of two ZON Videoclub vouchers) in the purchase of a ZON Feel telephone transmits the idea of respect for the maternal figure and tightening of family ties.
Claims included in ZON’s advertising concerning the origin, nature, composition, properties and conditions of acquisition of the publicised goods or services are exact and may be proven at any time before the competent authorities. Indeed some of ZON’s advertisements related to the download and upload speeds of ZON broadband are based on comparative studies produced by the regulatory authority, Anacom. On average, ZON delivers 81% (download) and 84% (upload) of the values contracted in the Fixed Internet service and 95% in the Mobile Internet service.
ZON’s advertising has received silver and bronze awards in the last three years in the CAP Awards established by the European section of The Cable & Telecommunications Association for Marketing (CTAM). In 2011 the campaign launching ZON Iris won a gold medal in the “New Brand Launches and Rebrands” category.
ZON Empresas supports entrepreneurship
One of the objectives of ZON Empresas is to support young entrepreneurs who want to transform good ideas into new business ventures. Valorisation of entrepreneurship has been implemented via various initiatives: partnership with Coworklisboa, sponsorship of Lisbon Startup Weekend and organisation of workshops.
ZON Empresas supported Coworklisboa, a work space housed in the Lx Factory in Lisbon, shared by independent professionals. Designers, illustrators, journalists, translators and other freelancers or micro enterprises who choose to use this space have free access to the Internet, fixed telephone and television service provided by ZON Empresas.
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In 2011 the Lisbon Startup Weekend was also held in the Lx Factory, in Lisbon, sponsored by ZON Empresas - an international event that brought together young entrepreneurs from different backgrounds. The objective is to establish a connection between local development experts, creative talent and entrepreneurs, foster brainstorming and develop new ideas assisted by mentors (successful Portuguese entrepreneurs) and present them to a jury panel (professional investors) thus helping to foster the creation of new companies. Since 2007, this event has been organised in 295 cities throughout the world and helped create around 2,450 new companies.
Workshops are also planned for 2012 in various parts of the country, specifically targeted at female entrepreneurs.
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05 In line with the shareholders
ZON observes the best international practices in terms of corporate governance. The company maintains permanent dialogue with shareholders, specifically via roadshows, conference calls, participation in international conferences, periodic meetings, communications to the market, general meetings, publications (e.g. the book, “ZON’s Impacts on the Portuguese Economy”) and the institutional site.
In particular, ZON’s corporate governance observes the recommendations made by the Portuguese Securities Market Commission (CMVM) concerning Governance of Publicly-listed Companies. ZON was also recognized as one of the eight companies with the best level of compliance with corporate governance recommendations. This was the conclusion of the study produced by Universidade Católica Portuguesa, commissioned by AEM (Association of Corporate Issuers of Listed Securities in the Market), concerning the degree of compliance with corporate governance recommendations amongst 44 publicly listed companies.
The valuation of the degree of compliance resulted in the attribution of a rating for all the listed companies, on the basis of an index of 5.000 to 10.000 points, producing a rating in eight classes, from D (minimum rating) to AAA (maximum rating). ZON attained the index score of 9 745.4 and a triple-A rating, a classification above the average which places it amongst the 8 best companies and reflect its competitiveness and market solidity. The average rating of the 44 analysed companies was 8 920 points, and was 9 337 points for the companies included within the PSI 20 index. Replicating the index points in terms of ratings, 32 of the 44 companies had a rating equal to, or higher than A, and only eight attained the maximum rating of AAA.
The AEM/Universidade Católica study was based on information publicly disclosed in the companies’ annual corporate governance reports, without any direct or indirect contact with them.
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06 In line with the employees
ZON Multimédia and its subsidiaries in Portugal and Mozambique have 1,612 employees, including cinema operations, identical to the level recorded in 2010. 55 out of every 100 employees are men, but in several Group companies there is a majority of female employees. Almost two thirds of employees, whose average age is 37 years, have higher education, compared to slightly over 50% in 2010. On average, employees have worked with the Group for 8 years. There is absolute equality between men and women in terms of performance of their professional duties.
In addition to direct employment, ZON also contributes indirectly to the employment of around 7,000 people through subcontracting customer service and sales operations (door-to-door, installation engineering, call centres, assistance and technical support).
ZON’s call centres in Lisbon, Oporto and Caldas da Rainha are equipped with state-of-the-art technology and employ around 3000 people. The call centres in Lisbon and Oporto occupy 13,000 square metres with 1,750 attendance positions plus work, training and leisure zones.
Intranet is the basic instrument enabling management to contact employees. In 2010, there were over 34,000 page views per day in the ZON Intranet, corresponding to a total of over 12 million page views per year. A recent survey revealed that almost all employees (98,4%) consider that the Intranet is an important internal communications vehicle.
The Annual Employees Meeting enables management to provide an overview of the previous year’s activities and present a vision of next steps, and also offers an important opportunity for employees to socialise. The opinion survey of the most recent Meeting revealed a fairly positive level of overall satisfaction (7,7 on a scale from 0 to 10), the fourth highest rating since December 2008, with 66% of respondents attributing a score between 8 and 10.
93% of respondents attended this meeting, a similar value to the previous Meeting (92,7%). 97% of respondents consider that these moments are important in order to become familiar with ZON’s operating priorities and objectives. Participants highly valued the speech made by ZON’s Chairman of the Board, Daniel Proença de Carvalho, who thanked everyone for their exceptional work.
A satisfaction survey was also organised during the year in order to evaluate employees’ satisfaction with ZON’s products and work tools.
Company # Employees
ZON Multimédia, SGPS 123
ZON TVCabo 690
ZON Madeira 51
ZON Açores 30
ZON Conteúdos 28
ZON Lusomundo Audiovisuais 57
ZON Lusomundo TV 11
ZON Lusomundo Cinemas (est) 26
Subtotal 1,016
ZON Lusomundo Cinemas (oper) 512
ZON Lusomundo Moçambique 19
Dreamia (50%) 5
Sport TV (50%) 60
Total 1,612 ZON Employees in 2011
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Areas of professional development
Working for ZON provides a wide range of opportunities for professional development and personal satisfaction. The ZON Group’s global salary policies are fairly competitive and are analysed periodically in comparison with the rest of the industry. The variable salary policies and Stock Options Plan, which cover all employees, are aligned with best international practices.
ZON’s main professional areas cover the following activities:
Audiovisual entertainment: acquisition of content and management of national and international rights; aggregation, scheduling and distribution of TV and radio channels; production of auto promotions, presentation of services and EPG; play-out operations; distribution and exhibition of films in cinema screens Business support and corporate systems: financial; corporate communication; human resources; strategy; judicial and legal; regulation; purchases and resources; information and communication technologies Sales and marketing: branding and marketing; brand management; advertising in classic and online media; special events; retail sales in stores, door-to-door and online; business sales, SoHo, and tourism; sale of commercial time for television advertising; sale of cinema tickets Customer service and installation: engineering of the customer services supply chain; technical assistance, call centres, other specialised television technical support services, broadband and voice; management of fleets and materials Technology: systems of technological integration, distribution infrastructure systems, business solutions systems (business integration, workstations network, customers and sales information systems, online business, technological infrastructure, corporate systems, CRM, billing, research and development of customer solutions and products)
Main value: Focus on the customer
The emergence of large companies that simultaneously serve millions of customers, such as ZON, with telephone attendance centres operated by thousands of people, poses a myriad range of questions related to the quality of products and services. In addition, generalisation of the Internet and its adoption as a means of information, consultation and exchange of experiences by millions of customers, expose such companies and their products and services to an unprecedented level of competition. Modern customers know a great deal – and concerning almost anything. ZON’s values constitute the foundation of the company’s culture, i.e. the manner in which it relates to its products and services, with each and every employee and between employees and customers. The impact of the transmission of values such as innovation, team spirit, enthusiasm, planning and proximity with the customer, creates a more responsible and productive work environment in the various business areas. Working for ZON requires exemplary behaviour and alignment with the customer. ZON fosters the development of team spirit in an informal and pleasant environment. The Intranet fosters intellectual growth and is the main instrument of internal communication. ZON’s values are customer-orientated. In all operating levels, the main focus of attention is always the customer, his needs and satisfaction. Various activities use state-of-the-art technologies, that are permanently undergoing innovation and require increasingly demanding levels of continuous training.
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Active talent management
The human resources policy is focused upon active talent management, compensating and encouraging merit, creativity, excellence and with a commitment to progressive rejuvenation of the workforce.
The human resources performance evaluation and strategic management model contemplates a concern with common policies spanning all employees and simultaneously policies for clearly defined groups, in function of the higher or lower degree of specificity of their duties.
ZON sees itself as a learning organization - as an organisation that is continually updating its activities, in which the employees are familiar with the company’s business, technologies, objectives and development plan.
ZON’s training model is based on three main vectors:
General training – development of common skills and other competencies, that although not directly related to the business, contribute to employees’ personal valorisation Specific training – building skills associated to the specificities of each business activity of ZON’s companies Strategic training – associated to major strategic changes - such as the adoption of new corporate policies and strategies, new technologies and new processes.
A core objective of the training activities is to create and develop a sense of mission to serve the customer as best as possible. ZON is aware that the most cost-effective means of adapting services to individual needs is through the information and knowledge obtained, in particular, by employees who deal with customers in the front line of personal or electronic attendance.
For this reason, ZON make significant investments in enhancing and retraining its employees, fostering their continuous training. For its direct employees, ZON provided around 37,000 hours of in-house training in 2011, twice as high as the level recorded in 2008, with a total cost of €38.3 million. The “b ZON” e-learning platform enabled around 18,000 hours of training to be provided to employees, in 2011.
In this framework, particular emphasis should be paid to the global innovation programme that aims to involve the entire organisation, making it possible to stimulate, provide visibility and encourage the participation of all employees, creating an outlook that is orientated towards innovation and continuous improvement. Many of the innovative ideas that have been received from employees, related to products and services, procedures, marketing, the organisation or other development vectors, are adopted and implemented.
The «New Opportunities» programme («Novas Oportunidades») includes a broad range of instruments that aim to accelerate the rate of progression to higher levels of professional and educational qualifications. This programme is intended for employees who intend to increase their school qualifications (middle and secondary school) or professional qualifications (professional certification). The average duration is six months.
The investment in technology and training boosts productivity. Notwithstanding the notable increase in the range of services commercialised by ZON (TV, fixed and mobile voice, fixed and mobile Internet), requiring additional human and technological resources, productivity per employee has been improving.
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The human resources policy of ZON Lusomundo Cinemas involves several specific aspects in terms of selection and recruitment, career plans, incentives, working conditions and performance evaluation.
Employees have continuous training, in relation to operations, customer attendance, fire safety, hygiene and food safety. They are responsible for supervising the business process and controlling the flow of spectators, in the foyer, corridors and screens, thus contributing towards customer satisfaction. Cinema staff wear a simple, practical and sportive uniform which has been adjusted to the target market.
Teleworking: total integration, higher productivity
The teleworking system used by the Customer Care area operates exactly the same IT environment that is used in ZON’s premises, thus delivering the same work experience via computer. Using an Internet connection, the Customer Service Representatives (CSR) are integrated within ZON’s telephone system - which also enables ZON to have access to all the performance evaluation and management tools, including recording of calls and screens.
New head office in Lisbon
In 2012 ZON Multimédia will change its head office to a new building located next to the Campo Grande metro station, overlooking the 2nd Circular ring road and the Campo Grande Garden. in the 14,000 square metres of the new eight storey building, ZON will concentrate its employees who are currently distributed across 30 floors of 4 buildings next to the Avenida 5 de Outubro.
The company hopes to achieve efficiency gains and improvements in the functionality conditions of working spaces, together with an annual saving in rents and costs associated to the use of premises of around 15 to 20%. The new head office will also be equipped with infrastructures that are not currently available to the company, plus a cafeteria for employees, internal and external training rooms and a 120-seater auditorium.
Various alternatives were considered and evaluation was made of their respective impacts on the everyday activities of employees - 80% of whom use public transport in order to commute between their homes and the company’s head office in Lisbon (in the company’s building located in Campanhã, Oporto, all employees use public transport).
Campo Grande - an emblematic zone of Lisbon served by the Metro and by good public bus transport and road network - was considered to be the best solution, in order to minimise the daily commuting times of employees and maximise the savings enabled by a latest generation building, located slightly further away from the centre of Lisbon.
The building will make it possible to rationalise energy consumption, while respecting environmental sustainability criteria. It will be possible to measure energy consumption with greater rigour and adopt preventive measures to reduce consumption. The phases of the electrical sockets used for computers have been insulated, in order to enable them to be completely switched off at night-time (computers left in standby are consuming energy).
The building also has notable state-of-the-art architecture and attractive urban surroundings. It will have a pedestrian square with a garden immediately in front of it, that is architecturally coherent with the Campo Grande Garden on the other side of the 2nd Circular ring-road.
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07 In line with regulatory authorities and the media
Regulatory issues
ZON is subject to general regulatory obligations, such as competition laws, consumer protection laws, amongst others, together with specific obligations for the sectors in which it pursues its activity, in particular the electronics communications sector and the audiovisual sector.
The specific regulation of the sector has two main frameworks, a European framework whose main objective is the creation of a Single Digital Market through a set of political and legislative measures and a national framework that itemises the specificities of the sector. Given that this sector involves intensive investment, ZON believes that Regulation should be based on three core principles:
Vision in defence of Innovation Equivalence and Proportionality of Measures Foreseeability of Regulation
Electronic communications assume a key role in society, representing a vital tool for social cohesion by shortening distances, dematerialising activities, simplifying procedures, increasing productivity, stimulating the economy and, above all, reducing the digital divide that exists between a wide variety of different zones.
Guided by this outlook, ZON believes that it is essential to foster permanent and constructive dialogue with the public sector and regulatory authorities, thus making it possible to present innovative solutions that are best suited to the growing sophistication of consumers.
Hence, on the basis of these principles, ZON has actively participated in public consultations organised by the regulatory authorities, at both the European and national level, together with contributions and suggestions for improvement of the public models for coordination of electronic communications.
It was also on the basis of these principles that ZON made a significant investment in improving the attendance conditions for its customers and development of its offer, wherein the excellence of the service provided to consumers is the cornerstone of its activity.
In order to ensure that the experience of using its services is unmistakable, ZON has completely renovated its electronic communications network over recent years, viewing new generation networks (NGN) as absolutely essential and endowing more than 3 million homes in Portugal with the fastest connection speeds in Europe (360 Mbps), ahead of the objectives set in the European Digital Agenda.
It has only been possible to attain the objectives achieved to date through permanent involvement with the regulatory authorities and a strong focus on the customer, while maintaining frank and constructive dialogue, sustained upon best practices of transparency, proportionality and defence of competition. ZON will continue to orientate its activities on the basis of these practices, in its obligation to create value for customers, the sector and the country.
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Relations with the media
ZON remains in contact with the media via press releases, press conferences and one-off informal contacts. ZON aims to respond swiftly, correctly, and with transparency and consistency, to all information requests presented to it. The nature of the information request determines the respective authorised internal spokesperson.
In addition, ZON also provides relevant information concerning its products and services in its sites, including information for investors and the media, and also providing an archive of communications to the market and to the media. Twitter and Facebook are also used for one-off communications initiatives, such as the ZON Prize.
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08 In line with the suppliers
ZON aims to guarantee perfect alignment between its suppliers and the company’s values through the commitments assumed by suppliers and through constant monitoring of their performance.
ZON’s suppliers constitute a key element in ZON’s relationship with its customers. The supplier is often the element of the organisation that is closest to the customer and subscriber. The group’s reputation and customer satisfaction are intimately linked to suppliers’ correct performance of the functions entrusted to them.
ZON Academy
Several thousand people are obliged to become familiar and comply with ZON’s standards of conduct and applicable legal norms. In turn, ZON aims to guarantee that its suppliers oblige employees working for ZON to observe the same values and standards of behaviour that are applied internally within ZON.
The ZON Academy programme was designed to provide training to all its employees. In 2011, around 34,000 hours of training were provided within the Academy in the areas of customer attendance, call centres, sales, installation and maintenance. In order to accelerate the training process, an e-learning platform has also been launched called “b zon” which enables personalised learning anywhere, customised to the learning pace of each individual.
Employee protection
Each ZON supplier should guarantee compliance, by itself and in relation to all its workers and employees or subcontracted persons, assigned to the provision of the contracted services, with all applicable regulatory and legal norms in terms of taxation, social security and labour issues, together with rules and good practices on the safety of premises and persons, in the framework of occupational hygiene, health and safety and has exclusive liability for non-compliance thereof.
In the event that anyone assigned to the provision of services is a foreign national, the supplier undertakes to ensure compliance with all legal and regulatory provisions in force and also undertakes to present, whenever so requested by ZON or by a competent official authority, the documents that prove compliance with the respective obligations.
The supplier must also guarantee to ZON that it has civil liability insurance, covering its business activity, vehicles and installations, together with all its employees assigned to provision of the contracted services, and that they also have insurance against work accidents and occupational illnesses. The minimum value covered by the civil liability insurance contract must be at least €200,000 per contingent event.
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09 In line with the environment
ZON’s environmental footprint results from the consumption of electricity, fuel, water, production of solid waste, use of paper and card, use of electrical equipment and batteries.
ZON strives to defend the environment through adoption of environmentally friendly behaviour by its employees and suppliers. EcoZON is the initiative with the greatest consistency and has made all employees aware of the importance of environmental issues. Application of these principles will help contribute to seeking environmentally correct solutions on a systematic basis. However, ZON has not yet established a formalised environmental policy, in particular it does not have an inventory of greenhouse gas emissions. The Group’s activity has encompassed one-off initiatives for management of the environmental impacts generated by the company and the suppliers of its services.
This is the first report, presenting an initial estimate of greenhouse gas emissions resulting from ZON’s business activity. A preliminary inventory has been drawn up of direct and indirect emissions originated by customers.
Environmental management system: EcoZon
In order to comply with environmental legislation, ZON Multimédia annually declares to Sociedade Ponto Verde the amount of its waste from non-urban containers and packaging (Decree Law no. 162/2000 – of July 27), while declaring to SIRAPA (Portuguese Environmental Agency Integrated System) the amount of urban and non-urban waste, (Decree Law 178/2006 (art. 48) from its business activity.
Accordingly, in February 2010, ZON created Eco ZON, an integrated management system for all waste produced by all ZON Group companies. EcoZON is a strategic environmental project in specific business areas. EcoZON’s core guidelines are to:
Comply with all legal requirements applicable to activities products and services of all ZON Group companies; Promote continuous improvement through the adoption of sustainable resources that reduce environmental impacts in existing processes and in the definition of products and services; Control potential environmental impacts resulting directly or indirectly from business activities, always favouring preventive measures; Optimise the management of waste generated by the company in its activities through continued development of a reduction, re-use and recycling policy; Regularly evaluate and improve the environmental performance of ZON Group companies through reliance upon best available technologies and the implementation of eco-management practices appropriate to the optimisation of natural resources; Establish and evaluate partnerships that seek to promote and manage natural wealth and the protection of biodiversity; Ensure collaboration with the Portuguese Environmental Agency and environmental bodies to develop and adopt productive processes that avoid or reduce environmental harm and which include an appropriate disposal of all types of waste regardless of its nature under the issuance of a statement for destruction of waste, pursuant to current environmental legislation; Compliance with national and European environmental legislation;
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Protect ZON against the improper use of data through application of rigorous safety measures during the process of collection, transport and destruction of paper, preventing its reconstitution.; Protecting the quality and the preservation of the environment is not only a concern but a value which ZON promotes through recycling, providing eco-stations for selective separation of any waste produced at all of its premises (in all buildings and stores); With the launch of the EcoZON project and through recourse to environmental awareness- raising activities, a business culture sensitive to environmental concerns is sought so that each employee may make a contribution to environmental preservation and guarantee quality of life for coming generations based upon sustainable development.
EcoZON’s objectives are as follows:
Integrated Waste Management System (SIGRE) in order to comply with all legal requirements applying to the activities, products and services of all ZON group companies; Foster continuous improvement through adoption of sustainable resources that minimise the environmental impact on existing processes and the definition of products and services; Introduction of a system to reduce paper consumption and encourage the almost exclusive use of recycled paper; Control any environmental impacts that are directly or indirectly caused by the activities of the company and its suppliers, in particular logistical systems, always favouring preventive measures; Optimise the management of waste generated by the company in its activities, through continued development of a reduction, re-use and recycling policy involving all employees, partners, suppliers and the general public; Regularly evaluate and improve the environmental performance of ZON Group companies; Choose a location for premises that is well served by public transport, which is used by around 75% of employees, thus minimising travel times and pollution resulting from individual transport.
In the framework of this programme, ZON has launched an Integrated Waste Management System which covers its entire business and commercial activity, and ZON was the first national company to obtain the 100R environment certification from Sociedade Ponto Verde.
In 2011 the company recycled 13.5 tons of computer material and 20 tons of waste from electrical equipment and electronic networks, in particular PCs, scanners, power boxes, routers, cable modems, etc.
In the context of recycling and elimination of waste, there was a significant increase in the reinsertion of equipment and accessories in the market, through a reverse logistics operation. Such equipment, derived from customer returns, is tested, repaired and reconditioned, thus making it possible to extend its life cycle and substantially diminish the production of associated waste.
Numerous recommendations from the EcoZON programme have been implemented with an impact on everyday activities. Printers have been programmed to print on both sides of each sheet of paper (recycled) and to automatic hold the print order that will only be printed by the person who ordered the print, thus eliminating a great amount of waste caused by print orders forgotten in the printer. This initiative has delivered a saving of 12.9%. Another example has been the substitution of plastic cups by recyclable paper cups in water dispensing machines
Another initiative resulting from EcoZON which has had an impact on consumers, has been the introduction of Green Box. ZON reformulated the cardboard boxes of over 3000 TV, net and voice equipment items that are placed every day in customers’ homes, through use of easily recyclable ecological card. The new cardboard boxes for consumer products are made of recycled card printed using recyclable aqueous inks.
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In addition to business advantages, the introduction of these boxes has generated numerous environmental advantages given that standardisation of the exterior sizes of the equipment boxes has enabled large-scale production savings (minimisation of gaseous emissions associated to production processes), efficiency in equipment distribution procedures (a higher number of equipment items transported in each trip, thus minimising gaseous emissions associated to transport) and economic and environmental savings in materials (the kits are solely constituted by essential material for installation and a user manual for the customer).
ZON is also standardising the sizes of the boxes, which enables greater savings through large-scale production, agility in distribution and simplification of logistical work. This project also encompasses rationalisation of the content of the kits, in order to reduce the time necessary for storing the kits in the boxes and the quantity of materials used. By the end of the first quarter of 2012, all of ZON’s sets of equipment and remote controls will be produced using the new format.
This activity has been recognized through the attribution of the Sustainable Development Prize awarded by Heidrick & Struggles and Diário Económico. ZON won first place in the Technology, Media and Telecommunications sector. This award aims to identify and recognize leading national practices and reflects the company’s commitment to sustainable development, covering three dimensions: Management, Social Responsibility and the Environment.
Digital Cinema
ZON’s business activity lies at the epicentre of the digital revolution. An increasing number of business sectors are dematerialising part or all of their activity. Overall dematerialisation has a beneficial impact on the environment - by eliminating pollutant elements from the value chain and substituting them by digital formats.
Digitalisation of the cinema value chain has engendered a series of ecological benefits. Although films continue to be distributed via physical formats – multiple-use hard disks with a specific working life – film based on a plastic format (polyester) has been abandoned. The next step will be the elimination of hard disks, with the entire distribution chain carried out exclusively via digital telecommunications - from the producer to the final exhibition venue.
Films were initially produced using celluloid, a pre-plastic product invented in 1862, constituted by nitrocellulose, nitrogen, camphor, colorant, ethanol, stabilisers and other agents in order to reduce the associated fire risk. In the 1990s celluloid was substituted by polyester (polyethylene terephthalate or PET) which enables greater flexibility, durability and stability.
After exhibition in the commercial circuit, films were destroyed - thus contributing to the emission of greenhouse gases. Polyester was progressively abandoned as a result of digitalisation of screens st from the beginning of the 21 century. Digitalisation of film projection has drastically reduced CO2 atmospheric emissions. Technological innovation in film exhibition has made the sector greener.
In 2011, ZON Lusomundo Cinemas used 3,641 digital copies. These copies are equivalent to around 11,199,716 metres of PET 35 mm film, with an estimated weight of 44 tons corresponding to around
260 tons of CO2. These copies would normally be eliminated at the end of the exhibition cycle. As a result of digitalisation the respective greenhouse gases are no longer released into the atmosphere.
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Environmental footprint of operations
ZON primarily uses two types of energy which generate greenhouse gas emissions: diesel and electricity. There is also some consumption of natural gas and thermal and hydric energy in cinemas. In order to calculate carbon intensity by greenhouse gas emissions, we have used the emission factor established by law associated to electricity consumption. Certain forms of consumption have not been counted - such as flights and diesel used in generators. All the statistics presented are estimates obtained through internal consultations.
Direct CO2 emissions result from the consumption of diesel by ZON’s in-house fleet (868 tCO2). Indirect emissions result from consumption of diesel by the fleet used by suppliers responsible for installation and maintenance services of the primary and secondary networks and to customers
(1,649 tCO2). The total emissions resulting from consumption of petrol and diesel are 2,517 tCO2 equivalent to 5.2% of the total.
Almost all the electricity consumed has an indirect source i.e. is acquired from third parties. Consumption takes place inside ZON’s premises or in the premises of third parties. The main form of consumption occurs in office buildings (for lighting, telecommunications and computers), cinemas,
technical buildings, in the television and Internet distribution network (26.205 tCO2) and in
customers’ digital equipment (22.248 tCO2).
It is estimated that there has been a reduction in greenhouse gases originated in fleets, as a result of
the acquisition of more efficient vehicles with lower consumption levels, thus leading to lower CO2 emissions.
The evaluation does not include emissions originated in subsidiaries.
Emissions in tons of CO2 in 2011 (estimate) Direct (framework 1) Petrol and diesel 868 Indirect (framework 2) Electricity from the national grid 26.205 Indirect (framework 3) Customer equipment 22.248 Diesel 1.649 Total 50.960
Estimated origin of CO2 emissions (%)
3% 2%
Direct - Gasoline and Diesel Indirect - Electricity
44% Indirect - Customer 51% Equipment Indirect - Diesel
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Environmental impact of waste produced in cinemas
ZON Lusomundo Cinemas has been certified by the ISO 22.000/2005 norm in relation to its Food Quality Management System (drinks and popcorn) and therefore all packages comply with food safety requirements. This measure has had a positive impact on customers’ health. Nonetheless ZON Lusomundo Cinemas is currently studying certain negative environmental impacts in order to minimise or eliminate them.
Popcorn packages are not suitable for recycling because the oil contaminates and undermines the recycling process. The cups used for soft drinks are also not recycled as a result of the manufacturing process which includes paraffin as a waterproof coating, thus making it impossible to recycle the product. Film marketing posters and leaflets are also not recycled.
Cinema complexes are the main sources of water consumption within the ZON group. Measures to reduce water consumption in wash basins in cinemas are being introduced, using more efficient taps.
Elimination of solid waste originated from cinema complexes is being undertaken by the owners of the respective shopping malls where the cinemas are located, within the framework of service provision and rental contracts.
ZON Lusomundo Cinemas aims to reduce the environmental impact from soft drinks cups, recycle wastepaper associated to DVDs and recycle marketing-related waste (leaflets, posters)
Suppliers and the environment
The contracts established between ZON and its service suppliers oblige the latter to respect ZON’s safety norms and policies, in particular those concerning its Information Security Policy, that is promptly communicated to them by ZON throughout the validity period of the contract.
Additionally, in the area of environmental sustainability, the supplier is expressly obliged to guarantee:
Compliance with prevailing community and national legislation, and with ZON’s internal technical and environmental guidelines and regulations that are communicated to it, in particular in relation to waste and packaging; Information concerning the appropriate final destination to be given to the waste generated by ZON; Recollection, after use, of the products that it supplies for subsequent treatment, if applicable (reuse, recycling or secure use), wherein these products must be accompanied by a “Waste Monitoring Guide” (prevailing standard version printed by the Imprensa Nacional Casa da Moeda); Compliance with environmental legislation, in particular that relating to dangerous waste residues, wherein ZON shall have right of recourse against the supplier for any losses that may be imputed to it, if the waste residues from the products cause environmental damages.
Inclusion of a new sustainability clause in relation to the supplier’s products and services of all kinds will be a standard practice at ZON. In accordance with this procedure, suppliers should inform ZON concerning the environmental impact resulting from manufacturing and eventually the transport of each of the products and services that are supplied to ZON. These requirements will be included in the tender specifications of supply tenders. The objective is to quantify these amounts and include them within ZON’s environmental inventory.
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Risks resulting from climate change
According to the IPCC (Intergovernmental Panel on Climate Change) the world should prepare for more frequent and more dangerous meteorological events caused by climate change. ZON’s operations may be affected by some of these events.
Climate change resulting in extreme heat waves, flooding, high winds, heavy rain, heavy snowfall, hail and extreme cold may affect the correct performance/functioning of electronic equipment and lead to interruption in the television and Internet service provided via the subterranean or airborne coaxial network.
Customers and energy savings
Digital equipment installed in the homes of ZON subscribers are basically of three types: a cable TV set-top box, DTH set-top box and Internet router/hub. These equipments produce 22,248 tons of
CO2 emissions which is equivalent to around 44% of ZON’s total environmental footprint. The equipment items are owned by ZON and therefore the estimate of the emissions originated by the use of such equipment is included when counting total greenhouse gas emissions.
The new ZON Iris set-top-boxes enable energy savings during standby periods, that are 20 times higher than the previous generation of equipment items, in line with Directive no. 2005/32 of the European Parliament and Council which establishes that the electricity consumption of decoder appliances in standby should not exceed 1W. These operations have generated savings of up to 30 euros per year in customers’ electricity bills and delivered consequent environmental benefits as a
result of reduction of CO2 emissions.
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10 In line with the community
Television and broadband: instruments of freedom of expression and information
In February 2011, ZON published the study, “ZON’s Impacts on the Portuguese Economy” whose main objective was to evaluate the economic impact of ZON’s business activity (available in a PDF format in the institutional website).
Operating within the Broadband and Information and Communication Technology (ICT) sector, together with the Cultural and Creative Sector and Leisure Sector, ZON currently exercises a substantial impact on the Portuguese economy and society and occupies a central role in the lives of millions of Portuguese citizens. ZON is a generator and facilitator of economic activity in a wide array of different sectors, making a significant contribution to GDP.
In addition to their key role in economic activity, telecommunications and information networks now constitute central pillars of democratic societies. Speed, quantity and quality are three attributes of the Internet that have transformed people’s lifestyles throughout the world since the end of the 20th century. The possibility of developing business, cultural and social networks via the Internet has opened up new horizons for people and companies. Equally important is the freedom of information and opinion provided by the Internet.
According to the report on the promotion and protection of the right to freedom of opinion and expression presented in the 17th session of the UN Human Rights Council in May 2011, Internet access now constitutes a basic human right. The report emphasises the unique and transformational nature of the Internet, not only by enabling individuals to exercise their right to freedom of opinion and expression but also by fostering overall social progress. The report specifically addresses two aspects of Internet access: access to content, and access to the physical and technical infrastructure that is necessary for Internet access.
In June 2011 UNESCO addressed the question of the relationship between the Internet and freedom of expression, in a study on legislation and the Internet. UNESCO recognized that the global diffusion of the Internet has transformed it into a core element of individual freedom, permitting users to educate themselves, express their opinions and participate in civil society.
ZON provides Internet resources that enable millions of Portuguese people to communicate, become informed and express their opinions, without restrictions, without discrimination, at competitive prices, and with the best quality permitted by available technology throughout its network. Similarly, ZON is the main supplier of information and entertainment services in Portugal, through the provision of numerous television and radio channels offering information, entertainment and culture from throughout the world.
Creative communities: ZON Creativity in Multimedia Prize
The ZON Creativity in Multimedia Prize was one of the first initiatives taken by ZON as an independent company. The objective was to create an award that would encourage and further the promotion and development of innovation in the multimedia industry in Portugal while reflecting fundamental attributes that characterise ZON. The results have exceeded expectations.
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Over the last four editions more than 700 works have been presented to the competition, produced by around 10,000 people – ranging from engineers to actors, including directors, programmers and animators. Around €1 million has been distributed so far in awards. The prize money makes a major difference to the lives of many award winners, helping foster new ideas, develop careers and provides greater visibility to works and authors that require this boost at the outset of their careers.
With support from the Science and Technology Foundation (FCT), 36 people have had the opportunity to study at the University of Texas at Austin. Of these scholarships, 15 were granted within the framework of the ZON Prize, while the other 21 were granted by two initiatives created alongside the Prize: ZON Intense Script Development Lab at UT Austin (2010) and ZON Digital Animation Advanced Lab at UT Austin (2011).
One of the cornerstones of this initiative has been strengthening the ties between the business and university communities. Within the framework of this Prize, in addition to the University of Texas, ZON has worked with around 18 higher education establishments in Portugal covering almost all the country’s university poles.
The winners of the ZON Prize 2011 were “Ginjas”, a Portuguese children’s animation series produced by Animanostra, and “GimmeDaBlues” won the Multimedia Content and Applications Category - a group work by the University of Porto / INESC Porto. “Ginjas” is a children’s animation series that explores the formal and visual resources of drawing and cinema. GimmeDaBlues is an application for iOS devices (iPod, iPhone, iPad) that makes it possible to create blues songs in various styles and in real time, for a quartet. No prizes were attributed in the Short Films category.
The winners in each category also received a study scholarship at the University of Austin in Texas.
Company-university relations
ZON’s relationship with the academic world goes well beyond the cooperation established for the ZON Prize. ZON maintains collaboration protocols with various Portuguese and international universities that contribute towards entrepreneurship and innovation.
2011 marked the third year of the ZON Chair of Innovation and Operations Management coordinated by Prof. Francisco Veloso in the Faculty of Business and Economic Sciences of the Universidade Católica Portuguesa. This is a five-year cooperation programme in which ZON is the private partner, and co-finances the initiative with the Science and Technology Foundation (FCT).
In addition to this programme ZON supports various research projects. “The Future of TV”, is an interactive television project developed by the Universidade Nova/Faculty of Sciences of the University of Lisbon and UT Austin. ZON also supports the “Interactive Technologies Development” project at the University of Madeira.
Another important project in terms of relations with the academic world, is the consortium that has been constituted for development of the CIAKL project (Cinema and Industry Alliance for Knowledge and Learning) led by the Universidade Lusófona’s Film and Multimedia Department. This pilot research and development project is co-financed by the European Commission and was one of three projects selected from more than 90 submissions to this emblematic initiative. The project includes various leading national and international companies, together with the University of Vigo, University of Tallin (HTEC) and the University of Budapest (SZFE).
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The CIAKL project focuses on innovation and knowledge transfer throughout the audiovisual and multimedia industry value chain, in particular through implementation of entrepreneurship structures that guarantee greater innovation and employability in this area in Europe.
Social responsibility
“Cá dentro” (Here at home). Developed on an annual basis, this initiative aims to foster enhancement, development and training of employees and their children. The initiatives contemplates the attribution of study scholarships and awards to the best students, plus organisation of leisure time activities programmes. These programmes normally take place during the Easter and Summer holidays and emphasise contact with Nature, open air activities and group activities.
Children of employees with less financial resources are entitled to receive study awards, school prizes, study scholarships, access to holiday camps and leisure time activities programmes. In 2011, 68 study subsidy scholarships were awarded, in the total amount of 21,900 euros, five study scholarships in the total amount of 12,033 euros and 255 exceptional scholarships in the total amount of 76,500 euros.
Also in the framework of activities involving employees’ families, the ZON Tour is organised annually, enabling employees’ children to visit ZON’s premises - in order to foster knowledge and sharing of experiences and thereby promote integration between family and professional life.
In terms of individual action, employees are encouraged to become involved in volunteer programmes and initiatives coordinated by ZON and by external bodies. On a regular basis, in-house campaigns are organised to collect foodstuffs, basic necessities, toys, books or games and then offer them to charitable institutions which help children in need, pregnant women, young mothers and their babies.
Support for institutions and volunteer initiatives. ZON supports various public or social institutions by offering its service or via donations. Key examples include support for the Dona Estefânia Paediatric Hospital, Coimbra University Hospital, Santa Maria Hospital, the Portuguese Oncology Institute, the Cruz Vermelha military home (Red Cross), the Tires Children’s Home and the Volunteer Fire Brigades in Loulé, Albufeira, Portimão and Santo Tirso.
Emphasis should also be placed on donations made to the Imaculada Conceição Deaf and Dumb Institute and support given to five children from families in need from the Portuguese Down Syndrome Association (APPT 21) which is dedicated to the provision of care to children affected by this genetic disorder.
In another charity area, ZON has signed a Protocol with Entreajuda - an association which supports other social solidarity institutions - in order to provide ophthalmic, hearing and dental scans to underprivileged children. Given that a major part of school failure in Portugal results from hearing and visual impairments, ZON has made this specific contribution in order to facilitate the learning processes of these children and increase their self esteem. The High Commissariat for Health also supports this project.
ZON Lusomundo Cinemas has collaborated with the Contacto Association – Association which supports Health Carers and Patients suffering from Dementia - through dissemination of their work and provision of space in cinema complexes for fundraising initiatives. The aim of this initiative is to create a day home that can receive and provide care for patients during the normal working hours of their family members. The Contacto Association also tries to raise the general public’s awareness in order to prevent illnesses such as strokes and Alzheimer’s or Parkinson’s disease.
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Within the framework of the provision of spaces for fundraising initiatives, initiatives have also been organised with several national charity institutions: the Aboim Ascensão Refuge which is today a leading Children’s Emergency Temporary Reception Centre; NATURA – the National Association of Humanitarian Aid, focused on professional and/or social reinsertion of children and senior citizens; and also APAD - the Portuguese Association for supporting Unprotected Persons, a non-profit non- governmental organisation, whose main fields of activity are combating hunger, poverty and social exclusion, together with its main priority which is supporting children in situations of risk.
As part of the commemorations of the 10th anniversary of the European Mobility Week in Almada, ZON Lusomundo Cinemas helped disseminate this initiative through the exhibition of a 15 second spot on the subject «Travel smarter, Live better». The initiative presented a broad range of activities whose objective was to promote and disseminate everyday mobility solutions that are more environmentally-friendly anbd enable more healthy and sustainable urban living.
ZON provides charity donations. Employees donated several Christmas gifts that were collected in a single location and purchased by employees at a predefined price. The amount earned in January 2012 from the sale of Christmas gifts donated by ZON’s employees, management and administration staff, was once again duplicated by ZON Multimédia, which contributed an identical sum for the final amount.
As a result it was possible to issue three cheques, each in the amount of €2,670.79, attributed to social solidarity institutions. Furthering the social responsibility initiatives recently developed by ZON, which encompass institutions that support children and young people, donations were made to three institutions this year: the Imaculada Conceição Deaf and Dumb Institute (ISMIC) in Lisbon; the Ninho dos Pequenitos in Coimbra; and the Casa do Caminho Association in Oporto.
World Summit Youth Award 2011. ZON supported the World Summit Youth Award (WSYA), and publicised this competition amongst young content designers, programmers, journalists and writers in order to develop digital applications and content that will contribute towards attainment of the United Nations’ Millennium Development Goals (www.objectivo2015.org). The Millennium Development Goals were defined by the UN in 2000, in order to alert member states and civil society of the need to promote health, equal opportunities, education and the environment. Six competitors in each category will be selected by an international jury. The digital or mobile project to be submitted to the competition should be initiated or executed by young people aged under 30 in any of the member states of the United Nations (UN) and be integrated within one of the following areas:
Fight Poverty, Hunger and Disease. Education for All. Power 2 Woman. Create your Culture. Go Green. Pursue Truth.
Health initiatives
Television for child patients in the Dona Estefânia Hospital. In order to offer the best possible internment conditions for children in the CHLC - Dona Estefânia Hospital in Lisbon, that opened on 17 July 1877, ZON provided its television service to this public establishment, free of charge. All parts of the central building of this paediatric hospital - in particular the emergency ward, waiting- rooms, treatment rooms, day hospital, hospital school and internment units - now have access to ZON’s television service, covering a total of 170 installations.
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Every day the hospital receives around 400 children and their respective family members and on average 150 children are hospitalised for periods that may last several months. By means of this initiative, which falls within its social responsibility policy, ZON aims to contribute to the well-being and entertainment of these children.
IPO in Lisbon. ZON Kids distributed smiles and loving care to the children hospitalised in this unit. The team formed by ZON and Panda were received in the best possible manner by the officials in charge of the Portuguese Oncology Institute (IPO) unit, who made a visit to the Lion Room, which has children waiting for consultations and treatment, and also the paediatric ward in which they are hospitalised.
ZON associates itself to the “Listen to your Heart” project. ZON is a partner of the Liga de Amigos dos Hospitais (Hospitals’ Friends League) in the framework of the initiative “Listen to your Heart” - which aims to involve the community in making contributions to hospitals throughout the country. Volunteers from the Hospitals Friends League visited ZON Stores in order to raise people’s awareness of this cause and sell products from the Association. The revenues thereby generated will be used to meet urgent hospital needs (equipment, reception, internment and treatment conditions) on behalf of various hospitals, in particular the S. João Hospital in Oporto, the Coimbra Hospital Centre, Sta. Maria and Egas Moniz Hospital, Nossa Senhora do Rosário Hospital in Barreiro and the Barlavento Algarvio Hospital Centre and the Alto Ave Hospital Centre.
Support for the Portuguese Rheumatology Institute. ZON made a donation to the Portuguese Rheumatology Institute in order to enable acquisition of new ancillary diagnostic resources. In view of the importance of the treatment and prevention of rheumatic illnesses these three companies signed a protocol with the Portuguese Rheumatology Institute, corresponding to support of around €40,000 - intended to endow this institute with new ancillary diagnostic resources. The Portuguese Rheumatology Institute is a private social solidarity institution (IPSS) that was founded 58 years ago.
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11 Awards, distinctions, certifications and standards
Over the course of 2011, ZON received various awards for its performance in various areas. Several of the most important awards are listed below:
Awards Global Business Excellence Awards for “Best Customer Service Initiative” CAP Awards from the CTAM: Gold Medal in the “New Brand Launches and Rebrands” category for ZON Iris TV of Tomorrow Show 2011: Iris by ZON Fibra won the Most Innovative Design or User Interface, at a global level, in the Interactive TV and Multiplatform Leadership Awards in the annual conference in San Francisco, USA Janus Award from the Institut Français du Design, for Iris in the Best Service category First place in terms of Sustainability in its business sector (Heidrick & Struggles and Diário Económico)
Other distinctions Corporate governance ZON was listed amongst the eight leading companies that achieved the highest degree of compliance with corporate governance recommendations. Study conducted by the Universidade Católica Portuguesa, commissioned by AEM – Association of Corporate Issuers of Listed Securities in the Market, concerning the level of compliance with corporate governance recommendations amongst 44 publicly-listed companies European Customer Satisfaction Index (ECSI) First place in the pay television sector, with best performance in terms of Customer Satisfaction, Complaints Resolution and the Personalised Advice and Support Service, with an aggregate score of 7.24 (in 2007 ZON was ranked in last place in the table with a score of 6.12).
Certifications and Standards
ISO Cinemas ISO222005 Food Safety and Hygiene TV Cabo ISO 22701 Information security for three activities: sales, installation and payment collections ISO 9001 All of ZON’s Service Providers should have this certification
Other standards Customer service APROCS 2011 of the Portuguese Customer Service Professionals Association Quality Seal 2010 from the Portuguese Contact Centers Association Company Training Certification Contact Center Professionals Certificate Campanhã: Best Contact Center Infrastructure Environmental responsibility Sociedade Ponto Verde: first company in Portugal to receive the 100R environmental certificate for the EcoZON initiative
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04 FINANCIAL STATEMENTS
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Consolidated Financial Statements
ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Consolidated Statement of Comprehensive Income for the Financial Years ended on 31 December 2010 and 2011
(Amounts stated in euros)
Notes 4º Quarter 10 12M 10 4º Quarter 11 12M 11
(Unaudit) (a) (Unaudit) (a) REVENUES: Services rendered 208 890 071 832 920 508 205 834 498 821 498 900 Sales 10 741 145 34 655 379 8 845 309 29 079 706 Other operating revenues 1 431 160 4 773 428 926 681 4 249 854 7 221 062 376 872 349 315 215 606 488 854 828 460 COSTS, LOSSES AND GAINS: Wages and salaries 8 15 545 529 58 272 849 14 895 168 59 290 951 Direct costs 9 63 841 992 251 731 908 60 767 158 243 903 774 Costs of products sold 10 4 546 635 14 510 815 3 281 091 7 351 642 Marketing and advertising 9 580 130 25 489 390 9 365 085 24 615 798 Support services 11 18 865 279 71 518 435 16 372 414 66 024 085 Supplies and external services 11 33 394 815 137 078 654 33 234 992 130 409 992 Other operational costs 12 ( 105 675) 344 489 216 777 778 177 Taxes 2 174 759 3 406 621 1 474 575 5 762 409 Provisions and adjustments 13 ( 109 569) 7 617 032 2 381 744 5 464 977 Depreciation and amortization 31 e 32 59 309 501 219 294 578 54 247 713 218 284 913 Impairment of assets 31 e 32 ( 386 316) 266 785 ( 928 105) ( 687 255) Reestructuring costs - 682 500 176 624 1 394 983 Losses/(gains) on sale of assets, net ( 384 625) ( 274 396) ( 433 238) ( 828 340) Other losses/(gains), net 12 ( 106 673) 158 876 228 844 391 751 206 165 782 790 098 536 195 280 842 762 157 857 Income before financial results and taxes 14 896 594 82 250 779 20 325 646 92 670 603
Financial costs 14 5 868 849 23 065 087 6 634 826 25 288 896 Net foreign exchange losses/(gains), net ( 73 374) ( 171 572) ( 43 139) ( 240 506) Net losses/(gains) on financial assets, net 15 ( 27 732) ( 17 990) ( 48 661) ( 49 391) Equity in earnings of affiliated companies, net 16 2 445 583 7 877 713 3 160 156 10 320 863 Net other financial expenses/(income) 14 1 345 425 5 364 342 2 083 965 7 715 038 9 558 751 36 117 580 11 787 147 43 034 900 Income before taxes 5 337 843 46 133 199 8 538 499 49 635 703
Income taxes 17 1 376 113 9 347 064 2 658 074 14 786 749
Net consolidated income 3 961 730 36 786 135 5 880 425 34 848 954 Attributable to: Non-controlled interests 18 90 069 1 347 863 210 806 649 924 Zon Multimédia Group shareholders 3 871 661 35 438 272 5 669 620 34 199 030
Earnings per share Basic 19 0,01 0,12 0,02 0,11 Diluted 19 0,01 0,12 0,02 0,11
(a) As standard practice, only the annual and half-year 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 year ended on 31 December 2011.
Accountant The Board of Directors
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Consolidated Statement of Comprehensive Income for the Financial Years ended on 31 December 2010 and 2011
(Amounts stated in euros)
12M 10 12M 11
Net income for the year 36 786 135 34 848 954
Fair value of interest rate swap (Note 41) ( 731 495) ( 296 701) Fair value of exchange rate forward (Note 41) ( 204 451) 573 087 Currency translation differences 30 194 ( 457 667) Other movements 65 117 1 515 Other comprehensive income ( 840 635) ( 179 766)
Total comprehensive income for the year 35 945 500 34 669 188
Attributable to: Share owners of the company 34 597 637 34 019 264 Non-controlling interests 1 347 863 649 924
Total comprehensive income for the year 35 945 500 34 669 188
The Notes to the Financial Statements form an integral part of the consolidated statement of comprehensive income for the year ended on 31 December 2011.
Accountant The Board of Directors
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Consolidated Statement of Financial Position at 31 December 2010 and at 31 December 2011
(Amounts stated in euros)
Notes 31-12-2010 31-12-2011 Assets Current assets: Cash and cash equivalents 22 264 645 614 407 362 404 Accounts receivable - trade 23 126 661 588 124 757 470 Accounts receivable - other 24 62 122 278 113 059 680 Inventories 25 58 628 028 46 741 084 Taxes receivable 26 2 765 914 5 081 059 Non-current assets held-for-sale 678 217 876 134 Prepaid expenses 27 15 924 543 10 529 786 Derivative financial instruments 41 - 531 882 Total current assets 531 426 182 708 939 499 Non-current assets: Accounts receivable - other 24 60 945 529 21 316 933 Investments in participated companies 28 1 137 616 470 492 Investments held-to-matutrity 29 - 20 488 677 Available-for-sale financial assets 30 21 798 211 21 823 211 Intangible assets 31 336 732 524 314 666 060 Tangible assets 32 645 848 283 647 126 417 Investment property - 883 980 Deferred income tax assets 17 51 037 647 49 895 295 Other non-current assets 33 1 786 302 - Total non-current assets 1 119 286 112 1 076 671 065
Total assets 1 650 712 294 1 785 610 564
Liabilities Current liabilities: Borrowings 34 92 577 453 499 961 096 Accounts payable-trade 35 135 399 988 153 108 029 Accounts payable-other 36 75 083 100 54 004 930 Accrued expenses 37 70 452 210 56 476 764 Deferred income 38 4 070 343 3 775 044 Taxes payable 26 10 797 273 17 155 977 Provisions for other liabilities and charges 39 10 365 327 4 233 699 Derivative financial instruments 41 - 350 214 Total current liabilities 398 745 695 789 065 753 Non-current liabilities: Borrowings 34 973 044 728 729 423 538 Accounts payable-other 36 5 331 314 785 578 Defered income 38 2 945 265 1 882 302 Provisions for other liabilities and charges 39 12 631 436 23 006 169 Deferred income tax liabilities 17 5 258 790 4 206 669 Derivative financial instruments 41 2 571 610 2 226 692 Total non-current liabilities 1 001 783 144 761 530 948 Total liabilities 1 400 528 838 1 550 596 701
Shareholder's equity Share capital 40.1 3 090 968 3 090 968 Treasury shares 40.2 ( 17 305) ( 554 401) Legal reserve 40.3 3 556 300 3 556 300 Other reserves 40.3 155 146 027 162 918 859 Retained earnings 78 516 745 56 018 625 Equity before non-controlled interests 240 292 735 225 030 351 Non-controlled interests 18 9 890 721 9 983 512 Total equity 250 183 456 235 013 863
Total liabilities and shareholder's equity 1 650 712 294 1 785 610 564
The Notes to the Financial Statements form an integral part of the consolidated statement of financial position as at 31 December 2011.
Accountant The Board of Directors
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Consolidated Statement of Changes in Shareholders’ Equity for the Financial Years ended on 31 December 2010 and 31 December 2011
(Amounts stated in euros)
Capital Non- issued Treasury Legal Other Accumulated controlled Notes Share capital premium shares reserve reserves earnings interests Total Balance as at 1 January 2010 3 090 968 ( 87 096 566) ( 140 064) 3 556 300 197 195 421 63 779 018 9 249 849 189 634 927 Dividends attributed to non-controlled interests ------( 722 606) ( 722 606) Dividends paid 20 - - - - ( 10 123 224) ( 39 332 268) - ( 49 455 492) Undistributed profit 20 - - - - ( 20 553 405) 20 553 405 - - Aquisition of treasury shares 40.3 - ( 1 681 179) ( 4 386) - - - - ( 1 685 565) Distribuition of treasury shares 40.3 - 1 917 616 4 067 - - ( 1 921 683) - - Sale of treasury shares 40.3 - 2 771 245 4 257 - ( 669 292) - - 2 106 210 Sale of treasury shares - Equity swap 40.3 - 84 071 634 136 071 - ( 11 884 145) - - 72 323 560 Share Plan 40.3 - - - - 1 994 495 - - 1 994 495 Comprehensive income for the period - - - - ( 840 635) 35 438 272 1 347 863 35 945 500 Consolidation differences - - - - 26 812 1 15 615 42 427
Balance as at 31 December 2010 3 090 968 ( 17 250) ( 55) 3 556 300 155 146 027 78 516 745 9 890 721 250 183 456
Balance as at 1 January 2011 3 090 968 ( 17 250) ( 55) 3 556 300 155 146 027 78 516 745 9 890 721 250 183 456 Dividends attributed to minority interests 20 ------( 542 381) ( 542 381) Dividends paid 20 - - - - ( 14 275 304) ( 35 178 205) - ( 49 453 509) Undistributed profit 40.3 - - - - 19 975 669 ( 19 975 669) - - Aquisition of treasury shares 40.3 - ( 1 191 912) ( 4 464) - - - - ( 1 196 376) Distribuition of treasury shares 40.3 - 657 417 1 863 - ( 659 280) - - - Share Plan 40.3 - - - - 3 125 669 ( 1 372 330) - 1 753 339 Comprehensive income for the period - - - - ( 179 766) 34 199 030 649 924 34 669 188 Consolidation differences - - - - ( 214 156) ( 170 946) ( 14 752) ( 399 854) Balance as at 31 December 2011 3 090 968 ( 551 745) ( 2 656) 3 556 300 162 918 859 56 018 625 9 983 512 235 013 863
The Notes to the Financial Statements form an integral part of the consolidated statement of changes in shareholders' equity for the year ended on 31 December 2011.
Accountant The Board of Directors
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Consolidated Statement of Cash Flows for the Financial Years ended on 31 December 2010 and 31 December 2011
(Amounts stated in euros)
Notes 12M 10 12M 11 OPERATING ACTIVITIES Collections from clients 1 028 008 991 1 070 765 517 Payments to suppliers ( 650 756 781) ( 610 209 084) Payments to employees ( 57 423 362) ( 63 311 489) Payments relating to income taxes ( 10 787 813) ( 16 516 891) Other cash receipts / payments related with operating activities 6 253 109 ( 69 113 610) Cash flow from operating activities (1) 315 294 144 311 614 443
INVESTING ACTIVITIES Cash receipts resulting from Financial investments 43.1 6 666 666 6 666 666 Tangible fixed assets 3 064 441 897 066 Loans granted 43.2 53 200 000 4 950 955 Interest and related income 6 286 068 21 433 950 Dividends 43.3 298 956 625 004 69 516 131 34 590 196 Payments resulting from Financial investments ( 88 353) ( 80 903) Tangible fixed assets ( 199 306 950) ( 169 349 510) Intangible assets ( 4 921 922) ( 3 506 345) Loans granted 43.4 ( 27 802 350) ( 37 731 225) 29 - ( 20 174 634) ( 232 119 575) ( 230 842 617) Cash flow from investing activities (2) ( 162 603 444) ( 196 252 421)
FINANCING ACTIVITIES Cash receipts resulting from Loans obtained 1 555 416 667 1 810 858 804 Sales of treasury shares 40.3 74 314 757 - 1 629 731 424 1 810 858 804 Payments resulting from Loans obtained (1 511 251 869) (1 616 125 394) Lease rentals (principal) ( 80 419 542) ( 66 107 089) Interest and related expenses ( 37 948 936) ( 49 521 133) Dividends 43.5 ( 50 177 166) ( 49 995 891) Acquisition of treasury shares 40..2 ( 1 600 296) ( 1 196 376) (1 681 397 809) (1 782 945 990) Cash flow from financing activities (3) ( 51 666 385) 27 912 814
Change in cash and cash equivalents (4)=(1)+(2)+(3) 101 024 315 143 274 836 Effect of exchange differences 393 143 ( 558 046) Cash and cash equivalents at the beginning of the period 163 228 156 264 645 614 Cash and cash equivalents at the end of the period 22 264 645 614 407 362 404
The Notes to the Financial Statements form an integral part of the consolidated statement of cash flows for the year ended on 31 December 2011.
Accountant The Board of Directors
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Notes to the Consolidated Financial Statements at 31 December 2011
Index of notes to the consolidated financial statements
1. Introductory Note 105 2. Accounting Policies 106 3. Judgements and estimates 126 4. Financial risk management policies 128 5. Changes in the consolidation perimeter 136 6. Segment Reporting 136 7. Operating Revenue 138 8. Wages and salaries 139 9. Direct costs of services 140 10. Cost of goods sold 140 11. Support services and external supplies and services 140 12. Other costs (gains) 141 13. Provisions and adjustments 141 14. Finance costs and other net financial charges 141 15. Losses/(gains) in financial assets 142 16. Losses/(gains) in associated companies 142 17. Income tax expense 143 18. Non-controlled interests 146 19. Earnings per share 146 20. Dividends 147 21. Financial assets and liabilities classified by IAS 39 categories 147 22. Cash and cash equivalents 148 23. Accounts receivable - customers 148 24. Accounts receivable - other 148 25. Inventories 149 26. Taxes payable and receivable 150 27. Prepayments 151 28. Investments in associated companies 151 29. Investments held to maturity 152 30. Financial assets available for sale 152 31. Intangible assets 153 32. Tangible assets 155 33. Other non-current assets 156
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34. Borrowings and loans 156 35. Accounts payable - suppliers 159 36. Accounts payable - others 159 37. Accrued expenses 159 38. Deferred income 160 39. Provisions 160 40. Shareholder's equity 162 41. Derivative financial instruments 164 42. Guarantees and financial undertakings 165 43. Notes to the Statement of Consolidated Cash Flows 167 44. Related Parties 168 45. Legal actions 173 46. Share incentive scheme 176 47. Subsequent events 177
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Notes to the Consolidated Financial Statements at 31 December 2011
(Amounts stated in euros)
1. Introductory Note
ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A. (“ZON Multimédia” or “the Company”) was set up by Portugal Telecom, SGPS, S.A. (“Portugal Telecom”) on 15 July 1999 with the purpose of developing its strategy for the multimedia business.
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 television service is supplied by ZON TV Cabo Portugal, S.A. (“ZON TV Cabo”) and its subsidiaries, ZON TV Cabo Açoreana, S.A. (“ZON TV Cabo Açoreana”) and ZON TV Cabo Madeirense, S.A. (“ZON TV Cabo Madeirense”). The activities of these companies include: 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 and the above associated companies is regulated by Law 5/2004 (Electronic Communications Law), which establishes the legal regime governing electronic communications networks and services.
A 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 movie, 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”).
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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.
The notes in these Notes to the Interim 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 December 2011 were approved by the Board of Directors and their issue authorised on 26 March 2012.
However, they are still subject to approval by the General Meeting of Shareholders in accordance with company law in Portugal. The Board of Directors believes that the financial statements give a true and fair view of the Company’s operations, financial performance and cash flows.
2. Accounting Policies
The principal accounting policies adopted in the preparation of the financial statements are described below. These policies were consistently applied to all the financial years presented, unless otherwise indicated.
2.1. Principles of presentation
The consolidated financial statements are presented in euros as this is the main currency of the Group's operations. The financial statements of subsidiaries located abroad were converted into euros in accordance with the accounting policies described in Note 2. 21.
The consolidated financial statements of Zon Multimédia were prepared in accordance with the International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”), as adopted in the European Union, in force as at 1 January 2011.
The consolidated financial statements were prepared on a going concern basis from the ledgers and accounting records of the companies included in the consolidation (Annex I.a) and Annex 1.c)), using the historical cost convention, adjusted where applicable for the valuation of financial assets and liabilities (including derivatives) at their fair value through profit or loss (FVPL).
In preparing the consolidated financial statements in accordance with IFRS, the Board used estimates, assumptions and critical judgments with impact on the value of assets and liabilities and the recognition of income and costs in each reporting period. Although these estimates were based on the best information available at the date of preparation of the consolidated financial statements, current and future results may differ from these estimates. The areas involving a higher element of judgment and estimates are described in Note 3.
In the preparation and presentation of the consolidated financial statements, the ZON Group declares that it complies explicitly and without reservation with IAS/IFRS reporting standards and related SIC/IFRIC interpretations as approved by the European Union.
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Changes in accounting policies and disclosures
The impacts of the adoption of the standards and interpretations that became effective as of 1 January 2011 are as follows:
IAS 32 (Amendment), ‘Financial instruments: Presentation – classification of rights issue’ (effective for annual periods beginning on or after 1 February 2010). This amendment addresses the accounting for rights issues that are denominated in a currency other than the functional currency of the issuer. If such rights are issued pro rata to an Entity’s existing shareholders for a fixed amount of any currency, it is considered a transaction with shareholders and classified as equity. Otherwise, it should be accounted for as derivative liabilities. This amendment has no impact on the Group’s financial statements as there were no rights issues in the year ended on 31 December 2011.
IFRS 1 (Amendment), 'First time adoption of IFRS' (effective for annual periods beginning on or after 1 July 2010, in the European Union): This amendment provides first-time adopters with the same transition provisions as included in the amendment to IFRS 7 - 'Financial Instruments: Disclosures', according to which, existing IFRS preparers were granted relief from presenting comparative information for fair value new three-level classification disclosures required by IFRS 7, if comparative period end before 31 December 2009. This change has no impact on the Group’s financial statements, as it is already reported in IFRS.
IAS 24 (Amendment),’Related party disclosure’ (effective for annual periods beginning on or after 1 January 2011): The amended standard removes the general disclosure requirements for government-related entities, being mandatory the disclosure of the relationship with the Government and any significant transaction occurred with the Government or other Government- related entities. Additionally, related party definition was amended to eliminate inconsistencies in identification and disclosures of related parties. This amendment has no impact on the ZON Group’s financial statements.
2010 annual improvements (generally effective for annual periods beginning on or after 1 January 2011): The 2010 annual improvements affects: IFRS 1, IFRS 3, IFRS 7, IAS 1, IAS 27, IAS 34 and IFRIC 13. These improvements have been adopted by the Group where applicable, except for the improvements to IFRS 1 as the ZON Group has already applied IFRS.
The following new standards and amendments to existing standards and interpretations have been published and are mandatory only for accounting periods beginning on or after 1 July 2011 or later periods, which the Group has decided not to early adopt:
IFRS 1 (amendment), ‘First time adoption of IFRS’ (effective for annual periods beginning on or after 1 July 2011). This amendment is still subject to endorsement by European Union. This amendment creates an additional exemption when an entity that has been subject to severe
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hyperinflation presents for the first time, financial statements in accordance with IFRSs. The exemption allows an entity to elect to measure certain assets and liabilities at fair value; and to use that fair value as the deemed cost in the opening IFRS statement of financial position. Another change refers to the replacement of references to a fixed date with “the date of transition to IFRS” for retrospective adoption exemptions.This amendment has no impact on the ZON Group’s financial statements.
IFRS 7 (amendment), ‘Financial instruments: Disclosures’ (effective for annual periods beginning on or after 1 July 2011). This amendment requires greater transparency in the reporting of asset’s transfer transactions, regarding risk exposures and the effect of those risks on an entity’s financial position, particularly those involving securitisation of financial assets. This amendment has no impact on the ZON Group’s financial statements.
IAS 12 (amendment), 'Income taxes' (effective for annual periods beginning on or after 1 January 2012). This amendment is still subject to endorsement by European Union. This amendment requires an entity to measure the deferred tax relating to an asset depending on whether the entity expects to recover the carrying amount of the asset through use or sale, except for the investment properties measured at fair value model. The amendments also incorporate into IAS 12 the guidance previously contained in SIC 21, which is accordingly withdrawn. This amendment has no impact on the ZON Group’s financial statements.
IAS 1 (amendment), ‘Presentation of financial statements’ (effective for annual periods beginning on or after 1 July 2012). This amendment is still subject to endorsement by European Union. This amendment changes the disclosure of items presented in other comprehensive income (OCI), requiring entities to separate items in OCI on whether or not they may be recycled to profit and loss in the future and the related tax amount if OCI items presented before tax. This amendment has no impact on the ZON Group’s financial statements.
IFRS 9 (new), ‘Financial instruments - classification and measurement’ (effective for annual periods beginning on or after 1 January 2013). This standard is still subject to endorsement by European Union. IFRS 9 refers to the first part of financial instruments new standard and comprises two measurement categories: amortized cost and fair value. All equity instruments are measured at fair value. Financial instrument are measured at amortized cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and interest. Otherwise it is at fair value through profit and loss. The ZON Group will apply IFRS 9 in the period in which it becomes effective.
IFRS 10 (new), ´Consolidated financial statements (effective for annual periods beginning on or after 1 January 2013). This standard is still subject to endorsement by European Union. IFRS 10 replaces all the guidance on control and consolidation in IAS 27 and SIC 12, changing the definition of control and the criteria applied to determine control. The core principal that a consolidated entity presents a parent and its subsidiaries as a single entity
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remains unchanged. The ZON Group will apply IFRS 10 in the period in which it becomes effective.
IFRS 11 (new), ‘Joint arrangements’ (effective for annual periods beginning on or after 1 January 2013): This standard is still subject to endorsement by European Union. IFRS 11, focus on the rights and obligations of the arrangements rather than its legal form. Joint arrangements can be joint operations (rights to the assets and obligations) or joint ventures (rights to net assets, applying equity method).Proportional consolidation of joint venture is no longer allowed. The ZON Group will apply IFRS 11 in the period in which it becomes effective.
IFRS 12 (new), ‘Disclosure of interest in other entities’ (effective for annual periods beginning on or after 1 January 2013): This standard is still subject to endorsement by European Union. This standard sets out the required disclosures for all forms of interests in other entities, including joint arrangements, associates and special purpose vehicles, to allow the evaluation of the nature, risks and financial effects associated with entity’s interests. An entity can provide any or all of the disclosures without having to apply IFRS 12 in its entirety or IFRS 10 or 11, or amended IAS 27 or 28. The ZON Group will apply this standard in the year in which it becomes effective.
IFRS 13 (new), ‘Fair value measurement and disclosure’ (effective for annual periods beginning on or after 1 January 2013): This standard is still subject to endorsement by European Union. IFRS 13 aims to improve consistency by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The ZON Group will apply this reporting standard in the period in which it becomes effective.
IAS 27 (revised 2011), ‘Separate financial statements’ (effective for annual periods beginning on or after 1 January 2013). This standard is still subject to endorsement by European Union. IAS 27 was revised after the issuance of IFRS 10 and contains accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates when the entity prepares separate financial statements preparation. The ZON Group will apply this reporting standard in the period in which it becomes effective.
IAS 28 (revised 2011),’Investments in associates and joint ventures’ (effective for annual periods beginning on or after 1 January 2013): This standard is still subject to endorsement by European Union. IAS 28 was revised after the issuance of IFRS 11 and prescribes the accounting for investments in associates and sets out the requirements for the application of equity method. . The ZON Group will apply this reporting standard in the period in which it becomes effective.
IAS 19 (amendment), ‘Employee benefits’ (effective for annual periods beginning on or after 1 January 2013). This amendment is still subject to endorsement by European Union. This amendment makes significant changes to the recognition and measurement of defined benefit
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pension expense and termination benefits and to the disclosures for all employee benefits. Actuarial gains and losses are recognized immediately, and only in OCI (no corridor approach allowed). Finance cost for funded benefit plans are calculated on a net funding basis. Termination benefits qualify for recognition only when the employee has no future-service obligation. The ZON Group will apply this reporting standard in the period in which it becomes effective.
IFRS 7 (amendment) ‘Disclosures - Offsetting Financial Assets and Financial Liabilities’ (effective for annual periods beginning on or after 1 January 2013). This amendment is still subject to endorsement by European Union. This amendment is part of the IASB offsetting project which introduces new disclosure requirements about entity’s right of set-off (assets and liabilities), amounts set-off, and the effects of these in the credit exposure. The ZON Group will apply this reporting standard in the period in which it becomes effective.
IAS 32 (amendment) ‘Offsetting Financial Assets and Financial Liabilities’ (effective for annual periods beginning on or after 1 January 2014). This amendment is still subject to endorsement by European Union. This amendment is part of the IASB offsetting project which clarifies the meaning of “currently has a legally enforceable right to set-off”, and clarifies that some gross settlement systems (clearing houses) may be equivalent to net settlement. The ZON Group will apply this reporting standard in the period in which it becomes effective.
IFRIC 20 (new),’Stripping costs in the production phase of a surface mine (effective for annual periods beginning on or after 1 January 2013). This interpretation is still subject to endorsement by European Union. This interpretation refers to the accounting of overburden waste removal costs in the production phase of a surface mine, as an asset, considering that the waste removal generates two potential benefits: immediate extraction of mineral resources and improved access to further quantities of mineral resources to be extracted in the future. This standard does not apply to the ZON Group.
2.2. Basis of consolidation
Controlled companies
Controlled companies were consolidated by the full consolidation method. Control is deemed to exist where the Company directly or indirectly holds a majority of the voting rights at a General Meeting of Shareholders or has the power to determine the financial and operating policies of such companies. In situations where the Company has, in substance, control of other entities created for a specific purpose, although it does not directly hold equity in them, such entities are consolidated by the full consolidation method. The entities in these situations are listed in Annex I.a).
The interest of third parties in the equity and net profit of such companies is presented separately in the consolidated statement of financial position and in the consolidated statement of comprehensive income, respectively, under the item “Non-controlled Interests” (Note 18). Where losses attributable to minority shareholders exceed their interest in the equity of the controlled company, the Company absorbs the excess and any additional losses, except where the minority shareholders have the
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obligation and ability to cover such losses. If the controlled company subsequently reports profits, the Group takes ownership of all profits until the part of the losses attributable to minority shareholders that were previously absorbed by the Group has been recovered.
The identifiable acquired assets and the liabilities and contingent liabilities assumed in a business combination are measured initially at fair value at the acquisition date, irrespective of the existence of non-controlled interests. The excess of acquisition cost over the fair value of the Group’s share of identifiable acquired assets and liabilities is stated in Goodwill. Where the acquisition cost is less than the fair value of the identified net assets, the difference is recorded as a gain in the statement of comprehensive income in the year in which the acquisition occurs.
The interests of minority shareholders are initially recognised as their proportion of the fair value of the identifiable assets and liabilities. When there is no change of control over the entity, transactions with non-controlled interests are recognised in Equity.
On the acquisition of additional equity shares in companies already controlled by the Group, the difference between the share of capital acquired and the corresponding acquisition value is recognised directly in Equity.
Where an increase in position in the capital of an associated company results in the acquisition of control, with the latter being included in the consolidated financial statements by the full consolidation method, the share of the fair values assigned to the assets and liabilities, corresponding to the percentages previously held, is stated in an Equity account.
The directly attributable transaction costs are recognised immediately in profit or loss.
The results of companies acquired or sold during the year are included in the income statements as from the date of acquisition or until the date of their disposal, respectively.
Intercompany transactions, balances, unrealised gains on transactions and dividends distributed between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction shows evidence of impairment of the transferred asset.
Where necessary, adjustments are made to the financial statements of controlled companies in order to align their accounting policies with those of the Group.
Jointly controlled companies
Shareholdings in jointly controlled companies are consolidated using the proportional consolidation method from the date on which joint control is acquired. Under this method, the assets, liabilities, income and costs of these companies are included in the consolidated financial statements, line by line, in proportion to the control attributable to the Group. The classification of financial investments in jointly controlled companies is determined on the basis of the existence of shareholder agreements that demonstrate and govern the joint control. Transactions, balances and dividends distributed between companies are eliminated in proportion to the control attributable to the Group. The entities in these situations are listed in Annex I.c).
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The assets, liabilities and contingent liabilities of a jointly controlled company are stated at their fair value at the acquisition date. Any excess of acquisition cost over the fair value of identifiable net assets is recorded as goodwill. Where the acquisition cost is less than the fair value of the identified net assets, the difference is recorded as a gain in the statement of comprehensive income in the period in which the acquisition occurs. The interests of minority shareholders are shown as their proportion of the fair value of the identifiable assets and liabilities.
Associated companies
An associated company is a company in which the Group exercises significant influence through participation in decisions about its financial and operating policies, but in which does not have control or joint control.
Any excess of the acquisition cost of a financial investment over the fair value of the identifiable net assets is recorded as goodwill and is added to the value of the financial investment and its recovery is reviewed annually or whenever there are indications of possible loss of value. Where the acquisition cost is less than the fair value of the identified net assets, the difference is recorded as a gain in the statement of comprehensive income in the year in which the acquisition occurs.
Financial investments in the majority of associated companies (Annex I.b)) are stated by the equity method. Under this method, financial investments are adjusted periodically by an amount corresponding to the share in the net profits of associated companies, as a contra entry in “Losses/(gains) in associated companies” in the statement of comprehensive income. Direct changes in the post-acquisition equity of associated companies are recognised as the value of the shareholding as a contra entry in reserves, in equity. Additionally, financial investments may also be adjusted for recognition of impairment losses.
Losses in associated companies which exceed the investment made in them are not recognised, except where the Group has entered into undertakings with that associated company.
Dividends received from these companies are recorded as a reduction in the value of the financial investments.
On disposal of a controlled company, associated company or jointly controlled company, the related goodwill is included in the calculation of the corresponding capital gain or loss.
Conversion to euros of financial statements expressed in foreign currencies
See accounting policy 2.21.
Balances and transactions between Group companies
Balances and transactions and unrealised gains between Group companies, and between them and the parent company, are eliminated in the consolidation. The parts of unrealised gains arising from transactions with associated companies or jointly controlled companies attributable to the Group are eliminated in the consolidation. Unrealised losses are similarly eliminated except where they show evidence of impairment of the transferred asset.
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2.3. Segment Reporting
As stipulated in IFRS 8, the Group presents operating segments based on internally produced management information.
Operating segments are reported consistently with the internal management information model provided to the chief operating decision maker of the entity, who is responsible for allocating resources to the segment and for assessing its performance, and for taking strategic decisions.
A business segment is a group of assets and operations involved in the supply of products or services subject to risks and benefits different from those of other business segments.
A geographical segment is a group of assets and operations engaged in the supply of products or services in a particular economic environment subject to risks and benefits different from those of other segments operating in other economic environments.
The ZON Group only presents information by business segments since it operates mainly in a single geographical area - Portugal. Transactions by Lusomundo Moçambique, MSTAR, Teliz B.V., Dreamia B.V. and ZON Finance B.V. are not material to the disclosure of geographical segments.
2.4. Classification of the statement of financial position
Realisable assets and liabilities due in less than one year from the date of the statement of financial position are classified as current in assets and liabilities, respectively.
2.5. Tangible assets
Tangible assets are stated at acquisition cost, less accumulated depreciation and impairment losses and subsidies, where applicable. Acquisition cost includes, in addition to the purchase price of the asset: (i) costs directly attributable to the purchase; and (ii) the estimated costs of decommissioning and removal of the assets and restoration of the site, which in ZON applies to the cinema operation business (Notes 2.14 and 38).
Estimated losses resulting from the replacement of equipment before the end of its useful life due to technological obsolescence are recognised by a deduction from the corresponding asset as a contra entry in profit and loss. The costs of current maintenance and repairs are recognised as a cost when they are incurred. Significant costs incurred on renovations or improvements to the asset are capitalised and depreciated over the corresponding estimated payback period when it is probable that there will be future economic benefits associated with the asset and when these can be measured reliably.
Non-current assets held for sale
Non-current assets (or discontinued operations), are classified as held for sale if their value is realisable through a sale transaction rather than through their continued use. This situation is deemed to arise only where: (i) the sale is highly probable and the asset is available for immediate sale in its present condition; (ii) the Group has given an undertaking to sell; and (iii) it is expected
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that the sale will be realised within 12 months. In this case, non-current assets are valued at the lesser of their book value or their fair value less the sale costs.
From the time that certain tangible assets become deemed as “held for sale”, the depreciation of such assets ceases and they are classified as non-current assets held for sale. Gains and losses on disposals of tangible assets, corresponding to the difference between the sale price and the net book value, are recognised in results in “Gains and losses on disposals of assets”.
Depreciation
Tangible assets are depreciated from the time they are completed or ready to be used. These assets, less their residual value, are depreciated by the straight-line method, in twelfths, from the month in which they become available for use, according to the useful life of the assets defined as their estimated utility.
The depreciation rates used correspond to the following estimated useful lives:
Years Buildings and other constructions 3 - 50 Technical equipment: Network installations and equipment 7 - 30 Terminal equipment 3 - 6 Other telecommunication equipment 3 - 10 Other technical equipment 3 - 8 Transportation equipment 3 - 4 Administrative equipment 3 - 10 Other tangible assets 4 - 8
2.6. Intangible assets
Intangible assets are stated at acquisition cost, less accumulated amortisation and impairment losses and subsidies, where applicable. Intangible assets are recognised only where they generate future economic benefits for the Group and where they can be measured reliably.
Intangible assets consist mainly of goodwill, satellite and distribution network capacity utilisation rights, customer portfolio, software licenses, sports content utilisation rights and other contractual rights.
Goodwill
Goodwill represents the excess of acquisition cost over the net fair value of the assets, liabilities and contingent liabilities of a subsidiary, jointly controlled company or associated company at the acquisition date, in accordance with IFRS 3.
Goodwill is recorded as an asset and included in “Intangible Assets” (Note 31) in the case of a controlled company or jointly controlled company and in “Investments in associated companies” (Note 28) in the case of an associated company. Goodwill is not amortised and is subject to impairment tests at least once a year, on a specified date, and whenever there are changes in the test’s underlying assumptions at the date of the statement of financial position which may result in a
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possible loss of value. Any impairment loss is recorded immediately in the statement of comprehensive income for the year in “Impairment losses” and is not liable to subsequent reversal.
Goodwill is not subject to amortisation but is subject to annual impairment tests or when, at the reporting date, there are indications of a possible impairment loss.
For the purposes of impairment tests, goodwill is attributed to the cash-generating units to which it is related (Note 31), which may correspond to the business segments in which the ZON Multimédia operates, or a lower level.
Internally generated intangible assets
Internally generated intangible assets, including expenditure on research, are expensed when they are incurred. Research and development costs are only recognised as assets where the technical capability to complete the intangible asset is demonstrated and where it is available for use or sale.
Industrial property and other rights
Assets classified under this item relate to the rights and licenses acquired under contract from third parties and used in realising the Group's activities, and include:
Satellite capacity utilisation rights;
Distribution network utilisation rights;
Software licenses;
Customer portfolios;
Costs of broadcasting rights for sporting events;
Other contractual rights.
Amortisation
These assets are amortised by the straight-line method, in twelfths, from the beginning of the month in which they become available for use. The amortisation rates used correspond to the following estimated useful lives:
Years Rights of using capacities Period of the contract Software Licenses 3 - 8
Average period of a client Clients portfolio connection (estimated in 6 years) Other intangible assets 1 - 8
2.7. Impairment of non-current assets, excluding goodwill
Group companies periodically carry out an impairment assessment of non-current assets. This impairment assessment is also carried out whenever events or changes in circumstances indicate
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that the amount at which the asset is recorded may not be recoverable. Where such indications exist, the Group calculates the recoverable value of the asset in order to determine the existence and extent of the impairment loss.
The recoverable value is estimated for each asset individually or, if that is not possible, assets are grouped at the lowest levels for which there are identifiable cash flows to the cash-generating unit to which the asset belongs. Each of the Group’s businesses is a cash-generating unit, except for the assets allocated to the cinema exhibition business which are grouped into regional cash-generating units. The recoverable amount is calculated as the higher of the net sale price and the current use value. The net sale price is the amount that would be obtained from the sale of the asset in a transaction between independent and knowledgeable entities, less the costs directly attributable to the sale. The current use value is the current value of the estimated future cash flows resulting from continued use of the asset or of the cash-generating unit. Where the amount at which the asset is recorded exceeds its recoverable value, it is recognised as an impairment loss.
The reversal of impairment losses recognised in previous years is recorded when there are indications that these losses no longer exist or have decreased. The reversal of impairment losses is recognised in the statement of comprehensive income in the year in which it occurs. However, an impairment loss can only be reversed up to the amount that would be recognised (net of amortisation or depreciation) if no impairment loss had been recorded in previous years.
2.8. Financial assets
Financial assets are recognised in the statement of financial position of the ZON Group on the trade or contract date, which is the date on which the Group undertakes to purchase or sell the asset. Initially, financial assets are recognised at their fair value plus directly attributable transaction costs, except for assets at fair value through profit or loss where transaction costs are recognised immediately in profit or loss. These assets are derecognised when: (i) the Group’s contractual rights to receive their cash flows expire; (ii) the Group has substantially transferred all the risks and benefits associated with their ownership; or (iii) although it retains part but not substantially all of the risks and benefits associated with their ownership, the Group has transferred control of the assets.
Financial assets and liabilities are offset and shown as a net value when, and only when, the ZON Group has the right to offset the recognised amounts and intends to settle for the net value.
The ZON Group classifies its financial assets into the following categories: financial investments at fair value through profit or loss, financial assets available for sale, investments held to maturity and borrowings and receivables. The classification depends on management’s intention at the time of their acquisition.
Financial assets at fair value through profit or loss
This category includes non-derivative financial assets acquired with the intention of selling them in the short term. This category also includes derivatives that do not qualify for hedge accounting purposes. Gains and losses resulting from changes in the fair value of assets measured at fair value
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through profit or loss are recognised in results in the year in which they occur under “Losses/gains on financial assets”, including the income from interest and dividends.
Financial assets available for sale
Financial assets available for sale are non-derivative financial assets which: (i) the Group intends to sell or whose sale is very probable; (ii) are designated as available for sale at the time of their initial recognition; or (iii) do not fit into the other categories of financial assets above. They are recognised as non-current assets except where there is an intention to sell them within 12 months following the date of the statement of financial position.
Shareholdings other than shares in ZON Group companies, jointly controlled companies or associated companies are classified as financial investments available for sale and are recognised in the statement of financial position as non-current assets.
Investments are initially recognised at their acquisition cost. After initial recognition, investments available for sale are revalued at their fair value by reference to their market value at the date of the statement of financial position, without any deduction for transaction costs that may occur until their sale. In situations where investments are equity instruments not listed on regulated markets and for which it is not possible to reliably estimate their fair value, they are maintained at acquisition cost less any impairment losses.
The potential resulting capital gains and losses are recognised directly in reserves until the financial investment is sold, received or otherwise disposed of, at which time the accumulated gain or loss previously recognised in equity is included in the statement of comprehensive income for the year. Dividends on equity instruments classified as available for sale are recognised in results for the year under “Losses/(gains) on financial assets”, where the right to receive the payment is established.
Investments held to maturity
Investments held to maturity are classified as non-current investments except where they mature in less than 12 months from the date of the statement of financial position. This item includes investments with defined maturities which the Group has the intention and ability to keep until that date. Investments held to maturity are valued at amortised cost, less any impairment losses.
Borrowings and receivables
The assets classified in this category are non-derivative financial assets with fixed or determinable payments not listed on an active market.
Accounts receivable are initially recognised at fair value and subsequently valued at amortised cost, less adjustments for impairment (where applicable). Impairment losses on customers and accounts receivable are recorded where there is objective evidence that they are not recoverable under the initial terms of the transaction. The identified impairment losses are recorded in the statement of comprehensive income under “Provisions and adjustments”, and subsequently reversed by results, when the impairment indicators reduce or cease to exist.
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Cash and cash equivalents
The amounts included in “Cash and cash equivalents” correspond to the amounts of cash, bank deposits, term deposits and other investments with maturities of less than three months which may be immediately realisable and with a negligible risk of change of value.
For the purposes of the statement of cash flows, “Cash and cash equivalents” also includes bank overdrafts included in the statement of financial position under “Borrowings” (where applicable).
2.9. Financial liabilities and equity instruments
Financial liabilities and equity instruments are classified according to their contractual substance irrespective of their legal form. Equity instruments are contracts that show a residual interest in the Group’s assets after deducting the liabilities. The equity instruments issued by Group companies are recorded at the amount received, net of the costs incurred in their issue.
Bank loans
Loans are stated as liabilities at their nominal value, net of the issuance costs of the loans. Financial charges, calculated in accordance with the effective rate of interest, including premiums payable, are recognised in accordance with the accruals principle.
Accounts payable
Accounts payable are recognised initially at their fair value and subsequently at amortised cost in accordance with the effective interest rate method. Accounts payable are recognised as current liabilities unless they are expected to be settled within 12 months from the date of the statement of financial position.
Derivative financial instruments
See accounting policy 2.11.
Derivatives on Own Shares
The contracting of equity swap operations by ZON Multimédia on own shares meets the requirements for them to be considered for accounting purposes as an effective acquisition of shares, with the result that they are recorded in a similar way to an acquisition of own shares, as mentioned above, giving rise to the recognition of a liability corresponding to the total value of the shares to be acquired.
2.10. Impairment of financial assets
At the date of each statement of financial position, the Group examines whether there is objective evidence that a financial asset or group of financial assets is impaired.
Financial assets available for sale
In the case of financial assets classified as available for sale, a significant or prolonged decline in the fair value of the instrument below its cost is considered as an indicator that the instrument is
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impaired. If any similar evidence exists for financial assets classified as available for sale, the accumulated loss – measured as the difference between the acquisition cost and the current fair value, less any impairment of the financial asset that has already been recognised in results – is removed from equity and recognised in the income statement. Impairment losses on equity instruments recognised in results are not reversed through the income statement.
Customers, other debtors and other financial assets
Adjustments are made for impairment losses where there are objective indications that ZON Multimédia will not receive all the amounts to which it is entitled under the original terms of the contracts. Various indicators are used to identify impairment situations, such as:
a) default analysis; b) default for more than 6 months; c) financial difficulties of the debtor; d) probability of insolvency of the debtor.
The adjustment for impairment losses is calculated as the difference between the recoverable value of the financial asset and its value in the statement of financial position and is stated as a contra entry in profit and loss for the year. The value of these assets in the statement of financial position is reduced to the recoverable amount by means of an adjustments account. Where an amount receivable from customers and other debtors is considered irrecoverable, it is written off using the adjustments account for impairment losses. The subsequent recovery of amounts that have been written off is recognised in profit and loss.
Where there are receivables from customers or other debtors that are overdue, and these are subject to renegotiation of their terms, these are no longer regarded as overdue and become treated as new loans.
2.11. Derivative financial instruments
The ZON Group has a policy of contracting derivative financial instruments with the objective of hedging the financial risks to which it is exposed, resulting from variations in exchange rates and interest rates. The Group does not contract derivative financial instruments for speculative purposes, and the use of this type of financial instruments complies with the internal policies determined by the Board.
In relation to financial derivative instruments which, although contracted in order to provide hedging in line with the Group’s risk management policies, do not meet all the requirements of IAS 39 – Financial Instruments: Recognition and Measurement’ in terms of their classification as hedge accounting or which have not been specifically assigned to a hedge relationship, the related changes in fair value are stated in the income statement for the period in which they occur.
Derivative financial instruments are recognised on the respective trade date at their fair value. Subsequently, the fair value of the derivative financial instruments is revalued on a regular basis, and
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the gains or losses resulting from this revaluation are recorded directly in profit and loss for the period, except in the case of hedge derivatives. Recognition of the changes in fair value of hedge derivatives depends on the nature of the risk hedged and the type of hedge used.
Hedge accounting
The possibility of designating a derivative financial instrument as a hedging instrument meets the requirements of IAS 39 - Financial instruments.
Derivative financial instruments used for hedging purposes can be classified as hedges for accounting purposes where they cumulatively meet the following conditions:
a) At the start date of the transaction, the hedge relationship is identified and formally documented, including the identification of the hedged item, the hedging instrument and the evaluation of effectiveness of the hedge; b) There is the expectation that the hedge relationship is highly effective at the start date of the transaction and throughout the life of the operation; c) The effectiveness of the hedge can be reliably measured at the start date of the transaction and throughout the life of the operation; d) For cash flow hedge operations, it must be highly probable that they will occur.
Exchange rate and interest rate risks
Where expectations of changes in exchange rates and interest rates so warrant, the ZON Group aims to anticipate any adverse impact through the use of derivatives. Operations that qualify as cashflow hedging instruments are stated in the statement of financial position at their fair value and, where they are considered to be effective hedges, the changes in the fair value of the instruments are initially stated as a contra entry in equity and subsequently reclassified as financial costs.
Where hedge transactions are ineffective, they are stated directly in profit and loss. Accordingly, in net terms the cash flows associated with the hedged operations are accrued at the rate applying to the contracted hedge operation.
When a hedge instrument expires or is sold, or when the hedge ceases to fulfil the criteria required for hedge accounting, the accumulated variations in the fair value of the derivative in reserves are shown in profit and loss when the operation hedged also affects profit and loss.
2.12. Inventories
Inventories, which mainly include customer terminal equipment, DVDs and rights, are valued at the lower of their cost or net realisable value.
The acquisition cost includes the invoice price, freight and insurance costs, using the weighted average cost as the method of costing goods sold.
Inventories are adjusted for technological obsolescence, as well as for the difference between the purchase cost and the net realisable value, whichever is the lower, and this reduction is recognised directly in the statement of comprehensive income for the year.
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The net realisable value corresponds to the normal sale price less restocking costs and selling costs.
The differences between the cost and the corresponding net realisable value of inventories, where this is less than the cost, are recorded as operating costs in “Cost of goods sold”.
Inventories in transit, since they are not available for consumption or sale, are separated out from other inventories and are valued at their specific acquisition cost.
2.13. Subsidies
Subsidies are recognised at their fair value where there is a reasonable assurance that they will be received and Group companies will meet the requirements for their award.
Operating subsidies, mainly for employee training, are recognised in the statement of comprehensive income by deduction from the corresponding costs incurred.
Investment subsidies are recognised in the statement of financial position, treating the subsidy as deferred income.
Where the subsidy is regarded as deferred income, it is recognised as income on a systematic and rational basis over the useful life of the asset. Where the subsidy is deducted from the book value of the asset, it is recognised as income over the depreciable life of the asset by means of a depreciation debit.
2.14. Provisions and contingent liabilities
Provisions are recognised where: (i) there is a present obligation arising from past events and it is likely that in settling that obligation the expenditure of internal resources will be necessary; and (ii) the amount or value of such obligation can be reasonably estimated. Where one of the above conditions is not met, the Group discloses the events as a contingent liability unless the likelihood of an outflow of funds resulting from this contingency is remote, in which case they are not disclosed.
Provisions for restructuring are only recognised where the Group has a detailed, formal plan identifying the main features of the restructuring programme and after these facts have been reported to the entities involved.
Provisions for decommissioning costs, removal of assets and restoration of the site are recognised when the assets are installed, in line with the best estimates available at that date (Note 39). The amount of the provisioned liability reflects the effects of the passage of time and the corresponding financial indexing is recognised in results as a financial cost.
Provisions are reviewed and brought up to date at the date of the statement of financial position to reflect the best estimate at that time of the obligation concerned.
2.15. Leases
Leasing contracts are classified as: (i) finance leases, if substantially all the risks and benefits incident to ownership of the corresponding assets concerned have been transferred; and (ii)
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operating leases, if substantially all risks and rewards incident to ownership of those assets have not been transferred.
The classification of leases as finance or operating leases is made on the basis of substance rather than contractual form.
The assets acquired under finance leases and the corresponding liabilities are recorded using the financial method, and the assets, related accumulated depreciation and pending debts are recorded in accordance with the contractual finance plan. In addition, the interest included in the rentals and the depreciation of the tangible and intangible fixed assets are recognised in the statement of comprehensive income for the period to which they relate.
In the case of operating leases, the rentals due are recognised as costs in the statement of comprehensive income over the period of the leasing contract.
2.16. Income taxes
ZON Multimédia is covered by the special tax regime for groups of companies, which covers all the companies in which it directly or indirectly owns at least 90% of the share capital and which simultaneously are resident in Portugal and subject to Corporate Income Tax (IRC).
The remaining subsidiaries not covered by the special tax regime for groups of companies are taxed individually on the basis of their respective taxable incomes and the applicable tax rates.
Income tax is stated in accordance with the IAS 12 criteria. In calculating the cost relating to income tax for the period, in addition to current tax, allowance is also made for the effect of deferred tax calculated in accordance with the liability method, taking into account the temporary differences resulting from the difference between the tax basis of assets and liabilities and their values as stated in the consolidated financial statements, and the tax losses carried forward at the date of the statement of financial position. The deferred income tax assets and liabilities were calculated on the basis of the tax legislation currently in force or of legislation already published for future application.
As stipulated in the above standard, deferred income tax assets are recognised only where there is reasonable assurance that these may be used to reduce future taxable profit, or where there are deferred income tax liabilities whose reversal is expected to occur in the same period in which the deferred income tax assets are reversed. At the end of each period an assessment is made of deferred income tax assets, and these are adjusted in line with the likelihood of their future use.
The amount of tax to be included either in current tax or in deferred tax resulting from transactions or events recognised in equity accounts is recorded directly under those items and does not affect the results for the period.
2.17. Share-based payments
The benefits granted to employees under share purchase or share option incentive plans are recorded in accordance with the requirements of IFRS 2 – Share-based payments.
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In accordance with IFRS 2, the benefits granted to be paid on the basis of own shares (equity instruments), are recognised at fair value at the date of allocation. Since it is not possible to estimate reliably the fair value of the services received from employees, their value is measured by reference to the fair value of equity instruments in accordance with their share price at the grant date.
The fair value determined at the date of allocation of the benefit is recognised as a linear cost over the period in which it is acquired by the beneficiaries as a result of their services, with the corresponding increase in equity. In turn, benefits granted on the basis of shares but paid in cash give rise to the recognition of a liability valued at fair value at the date of the statement of financial position.
2.18. Revenue
The main types of revenue of the subsidiaries of ZON Multimédia are:
Cable and satellite TV
Revenues from the cable and satellite television service mainly result from: (a) channel subscription packages; (b) equipment rental; (c) consumption of content (VOD); (d) service activation; and (e) sales of equipment.
Fixed and mobile broadband Internet access
Revenues from fixed and mobile broadband Internet access services, delivered via the cable network and the MVNO agreement, derive mainly from monthly subscriptions and/or usage of the Internet service depending on the option chosen by the customer, additional services (“internet protection” and technical support) and sales of equipment.
Fixed and mobile voice
Revenues from telephone services, delivered via the cable network and the MVNO agreement, derive mainly from monthly subscription charges and/or usage of the telephone service, depending on the option chosen by the customer.
Advertising
Advertising revenues mainly derive from the attraction of advertising for Pay TV channels and in cinemas.
Production and distribution of channels
Revenues from the production and distribution of Pay TV channels are recognised in the period of their distribution.
Cinema exhibition
Revenues relating to cinema exhibition derive mainly from: (a) sales of cinema tickets and (b) bar sales.
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Audiovisual distribution
This includes revenues from cinema distribution, sales of DVDs, and content rights for FTA channels, Pay TV channels and VOD.
2.19. Costs of audiovisual content distribution rights
The costs associated with the audiovisual content distribution rights acquired by ZON LM Audiovisuais for commercialisation in the various windows of exhibition are recognised as costs in accordance with their respective exhibitions and temporal effect. Advances for audiovisual content distribution rights are stated under “Advances to suppliers” and are subject to regular impairment reviews.
2.20. Accruals
The revenues and costs of the Group’s various companies are recognised in accordance with the accruals principle, under which they are recognised as they are generated or incurred, irrespective of when they are received or paid.
2.21. Assets, liabilities and transactions in foreign currencies
Transactions in foreign currencies are converted into the functional currency at the exchange rate on the date of the transaction. On each accounting date, outstanding balances (monetary items) are updated by applying the exchange rate prevailing on that date. These exchange rate differences are recognised in the statement of comprehensive income for the year in which they were calculated. Exchange rate variations generated on monetary items which constitute enlargement of the investment denominated in the functional currency of the Group or of the subsidiary in question are recognised in equity. Exchange rate differences on non-monetary items are classified in “Other reserves” in equity.
The financial statements of subsidiaries denominated in foreign currencies are converted at the following exchange rates:
The exchange rate obtaining on the date of the statement of financial position for the conversion of assets and liabilities;
The average exchange rate in the period for the conversion of items in the statement of comprehensive income;
The average exchange rate in the period, for the conversion of cash flows (in cases where the exchange rate approximates to the real rate, and for the remaining cash flows the rate of exchange at the date of the operations is used); and
The historical exchange rate for the conversion of equity accounts.
Exchange differences arising from the conversion into euros of the financial statements of subsidiaries denominated in foreign currencies are included in equity under “Other reserves”.
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At 31 December 2010 and 31 December 2011, assets and liabilities expressed in foreign currencies were converted into euros using the following exchange rates of such currencies against the euro, as published by the Bank of Portugal:
31-12-2010 31-12-2011 US Dollar 1,3362 1,2939 Swiss Franc 1,2504 1,2156 British Pound 0,8608 0,8353 Mozambique Metical 43,65 34,9600 Real 2,2177 2,4159 Canadian Dollar 1,3322 1,3215
In the financial years 2010 and 2011, the income statements of subsidiaries expressed in foreign currencies were converted to euros at the average exchange rates of the currencies of their countries of origin against the euro, which are as follows:
12M 10 12M 11
Mozambique Metical 45,4425 40,2783
2.22. Financial charges on borrowings
Financial charges related to borrowings are recognised as costs in accordance with the accruals principle, except in the case of loans incurred for the acquisition, construction or production of an asset that takes a substantial period of time (over one year) to be ready for use, which are capitalised in the acquisition cost of that asset.
2.23. Investment property
Investment property mainly includes buildings held to generate rents rather than for use in the production or supply of goods or services, or for administrative purposes, or for sale in the ordinary course of business. These are measured initially at cost.
Subsequently, the Group uses the cost model for the valuation of investment property since use of the fair value model would not result in material differences.
An investment property is eliminated from the statement of financial position on disposal or when the investment property is taken permanently out of use and no financial benefit is expected from its disposal.
2.24. Statement of cash flows
The statement of cash flows is prepared in accordance with the direct method. The Group classifies assets with maturities of less than three months and for which the risk of change in value is negligible under “Cash and cash equivalents”. For the purposes of the statement of cash flows, “Cash and cash equivalents” also includes bank overdrafts included in the statement of financial position under “Borrowings”.
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The statement of cash flows is divided into operating, investment and financing activities.
Operating activities include cash received from customers and payments to suppliers, staff and others related to operating activities.
The cash flows included in investment activities include acquisitions and disposals of investments in subsidiaries and cash received and payments arising from the purchase and sale of tangible and intangible assets.
Financing activities include cash received and payments relating to borrowings, finance leases, the purchase and sale of own shares and the payment of dividends.
2.25. Subsequent events
Events occurring after the date of the statement of financial position which provide additional information about conditions that existed at that date are taken into account in the preparation of financial statements for the period.
Events occurring after the date of the statement of financial position which provide information on conditions that occur after that date are disclosed in the notes to the financial statements, where they are materially relevant (Note 47).
3. Judgements and estimates
3.1. Relevant accounting estimates
The preparation of consolidated financial statements requires the Group’s management to make judgments and estimates that affect the statement of financial position and the reported results. These estimates are based on the best information and knowledge about past and/or present events, and on the operations that the Company considers may it may implement in the future. However, at the date of completion of such operations, their results may differ from these estimates.
The estimates and assumptions that imply a greater risk of giving rise to a material adjustment in assets and liabilities are described below:
Impairment of non-current assets, excluding goodwill
The determination of a possible impairment loss can be triggered by the occurrence of various events, such as the availability of future financing, the cost of capital or other market, economic and legal changes or changes with an adverse effect on the technological environment, many of which are beyond the ZON Group’s control.
The identification and assessment of impairment indicators, the estimation of future cash flows and the calculation of the recoverable value of assets involve a high degree of judgment by the Board.
Impairment of Goodwill
Goodwill is subjected to impairment tests annually or whenever there are indications of a possible loss of value, in accordance with the criteria described in Note 31. The recoverable values of the
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cash-generating units to which goodwill is allocated are determined on the basis of the calculation of current use values. These calculations require the use of estimates by management.
Intangible and tangible assets
The life of an asset is the period during which the Company expects that an asset will be available for use and this should be reviewed at least at the end of each financial year.
The determination of the useful lives of assets, the amortisation/depreciation method to be applied and the estimated losses resulting from the replacement of equipment before the end of its useful life due to technological obsolescence is crucial in determining the amount of amortisation/depreciation to be recognised in the consolidated statement of comprehensive income for each year.
These three parameters are defined using management’s best estimates for the assets and businesses concerned, and taking account of the practices adopted by companies in the sectors in which the Group operates.
Provisions
The ZON Group periodically reviews any obligations arising from past events which should be recognised or disclosed. The subjectivity involved in determining the probability and amount of internal resources required to meet obligations may give rise to significant adjustments, either due to changes in the assumptions made, or due to the future recognition of provisions previously disclosed as contingent liabilities.
Costs of audiovisual content distribution rights
The costs associated with audiovisual content distribution rights acquired for sale in the various windows of exhibition are recorded in costs as their exhibition/use occurs, weighted by the maximum period of continuous operation of the respective contracts. The determination of the costs to be recorded in each period corresponds to management’s best estimate as to the generation of the revenue underlying each exhibition. Additionally, these assets are subject to impairment tests whenever there are indications of changes in the pattern of revenue generated per exhibition.
Deferred income tax assets
Deferred income tax assets are recognised only where there is strong assurance that there will be future taxable income available to use the temporary differences or where there are deferred tax liabilities whose reversal is expected in the same period in which the deferred tax assets are reversed. The assessment of deferred income tax assets is undertaken by management at the end of each period taking account of the expected future performance of the Company.
Impairment of accounts receivable
The credit risk on the balances of accounts receivable is assessed at each reporting date, taking account of the customer’s history and their risk profile. Accounts receivable are adjusted for the
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assessment made by management and the estimated collection risks at the date of the statement of financial position, which may differ from the effective risk incurred.
Fair value of financial assets and liabilities
In determining the fair value of a financial asset or liability, where an active market exists, the market price is used. Where there is no active market, which is the case with some of the Group’s financial assets and liabilities, valuation techniques generally accepted in the market, based on market assumptions, are used.
The ZON Group uses evaluation techniques for unlisted financial instruments such as derivatives, financial instruments at fair value through profit and loss, and assets available for sale. The valuation models that are used most frequently are discounted cash flow models and options models, incorporating, for example, interest rate and market volatility curves.
For certain types of more complex derivatives, more advanced valuation models are used containing assumptions and data that are not directly observable in the market, for which the Group uses internal estimates and assumptions.
3.2. Errors, estimates and changes to accounting policies
During the financial years ended on 31 December 2010 and 31 December 2011, no material errors relating to previous years were recognised. There were no changes in accounting policies during the year ended on 31 December 2011.
4. Financial risk management policies
4.1. Financial risk management
The activities of the ZON Group are exposed to a variety of financial risk factors: credit risk, liquidity risk and market risk.
On the spin-off from the PT Group in November 2007, the Board of Directors of the ZON Group became responsible for defining risk management principles and policies covering specific areas such as: exchange rate risk, interest rate risk, credit risk, the use of derivatives and other non- derivative financial instruments, and the investment of excess liquidity.
a) Credit risk
Credit risk is mainly related to the risk of a counterparty defaulting on its contractual obligations, resulting in a financial loss to the ZON Group. The Group is exposed to credit risk in its operating and treasury activities.
The credit risk associated with operations is mainly related to amounts due from customers for services provided to them (Notes 23 and 24). This risk is monitored on a regular business basis, and the aim of management is to: i) limit the credit granted to customers, using the average payment time by each customer; ii) monitor the trend in the level of credit granted; and iii) analyse the impairment of receivables on a regular basis.
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The Group does not have any significant credit risk with a single customer in particular, in that the receivables derive from a large number of customers spread across various businesses and the Group obtains credit guarantees wherever the customer’s financial situation so requires.
The impairment adjustments to accounts receivable are calculated on the basis of: i) the customer’s risk profile, depending on whether the customer is a residential or business customer; ii) the average collection period, which differs from business to business; and iii) the customer’s financial status. In view of the dispersed nature of customers it is not necessary to consider an additional adjustment for credit risk other than the impairment that is already recorded in accounts receivable - customers.
The table below shows the Group's maximum exposure to credit risk at 31 December 2010 and 31 December 2011, without taking into account any collateral held or other credit enhancements. For assets in the statement of financial position, the defined exposure is based on their book value as stated in the statement of financial position.
Maximum Risk Exposure 31-12-2010 31-12-2011 Cash and cash equivalents i) 263 832 906 405 671 289 Investements held-to-matutrity i) - 20 488 677 Accounts receivable - current ii) 112 074 633 115 678 984 Accounts receivable other - current (see Note 24) 20 114 121 46 082 708 Total financial assets 396 021 660 587 921 658
i) The Group’s credit risk ratings at 31 December 2010 and 31 December 2011 for this type of asset (cash and cash equivalents as per Note 21, with the exception of the value of cash), the counterparties for which are financial institutions, are as follows:
2010 2011 Cash and cash Other financial Derivative Total Cash and cash Other financial Derivative Total equivalents with assets held for financial equivalents with assets held for financial financial negotiation instruments financial negotiation instruments instituitions instituitions
AA 28 011 - - 28 011 - - - - AA- 32 132 - - 32 132 138 375 - - 138 375 A+ 89 956 - - 89 956 2 227 706 - - 2 227 706 A 6 180 112 - - 6 180 112 31 623 - - 31 623 A- 222 128 858 - - 222 128 858 - - - - BBB+ 27 934 650 - - 27 934 650 19 465 881 - - 19 465 881 Baa3 2 546 - - 2 546 - - - - BBB- 7 082 761 - - 7 082 761 39 262 271 - - 39 262 271 BB+ - - - - 49 031 - - 49 031 BB - - - - 344 204 987 - - 344 204 987 sem rating 353 880 - - 353 880 291 415 - - 291 415 Total 263.832.906 - - 263.832.906 405.671.289 - - 405 671 289
The information on ratings was taken from Reuters, based on the ratings awarded by the three major rating agencies (Standard & Poor's, Moody's and Fitch). ii) Accounts receivable - customers
At 31 December 2010 and 2011, the balances receivable from customers (as per Note 23, with the exception of amounts still to be invoiced) were distributed as follows, by type of business:
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2010 2011 Pay TV, Pay TV, broadband and broadband and voice Audiovisuals TOTAL voice Audiovisuals TOTAL
Customers 199 662 657 24 370 816 224 033 473 217 608 913 22 132 839 239 741 752 Impairment ( 107 865 342) ( 4 093 498) ( 111 958 840) ( 120 136 713) ( 3 926 054) ( 124 062 767) 91 797 315 20 277 318 112 074 633 97 472 200 18 206 785 115 678 985
It can be seen from the above analysis that the Pay TV, broadband and voice segment represents approximately 84% of total net accounts receivable from customers. In terms of individual businesses, there is a company with a higher level of credit risk, TVCabo in the Pay TV, broadband and voice segment (representing approximately 78% of the segment total) and ZON Lusomundo Audiovisuais in the Audiovisual segment (representing 81% of the segment total), as shown in the table below. The whole of the credit risk analysis shown below is based solely on these two companies.
Pay TV, broadband and voice Audiovisuals 2010 2011 2010 2011
Customers 172 081 943 190 769 120 Customers 18 069 702 16 620 674 Impairment ( 103 184 423) ( 115 112 693) Impairment ( 3 298 050) ( 3 153 948) TV Cabo 68 897 520 75 656 427 Lusomundo Audiovisuais 14 771 652 13 466 726
Customers 27 580 714 26 839 793 Customers 6 301 114 5 512 165 Impairment ( 4 680 919) ( 5 024 020) Impairment ( 795 448) ( 772 106) Other 22 899 795 21 815 773 Other 5 505 666 4 740 059
Customers 199 662 657 217 608 913 Customers 24 370 816 22 132 839 Impairment ( 107 865 342) ( 120 136 713) Impairment ( 4 093 498) ( 3 926 054) Total 91 797 315 97 472 200 Total 20 277 318 18 206 785
A significant portion of the accounts receivable from customers of TVCabo relates mainly to subscribers of Pay TV, broadband and voice services, totalling 148.023 million euros (2010: 132.082 million euros). Of the total owing by subscribers, only 34.000 million euros (2010: 33.244 million euros) relates to active customers, while the remaining amount outstanding is adjusted for impairment. Active subscribers have an average payment time (excluding impaired balances) of 16 days (2010: 16 days).
In Lusomundo Audiovisuais, accounts receivable from customers relate to the business of film distribution to cinema operators and sale of DVDs to supermarkets.
At 31 December 2010 and 31 December 2011, balances receivable from customers had the following age structure:
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2010
Not due 0-30 days 30-60 days 60-90 days 90-120 days >120 days Total
TVCabo Subscribers 11 869 952 16 891 239 3 068 275 1 352 919 2 075 624 96 824 754 132 082 763 Active customers 11 869 952 16 552 947 2 607 309 951 421 824 292 437 787 33 243 709 Disconnected customers - 338 291 460 966 401 498 1 251 332 96 386 966 98 839 054 Other customers 18 909 685 2 744 673 1 046 608 914 458 488 854 15 894 903 39 999 180 Impairment - ( 338 291) ( 460 966) ( 401 498) ( 1 251 332) ( 100 732 336) ( 103 184 423) 30 779 637 19 297 620 3 653 917 1 865 879 1 313 146 11 987 321 68 897 520 Lusomundo Audiovisuais Customers 6 369 896 2 547 950 927 614 776 803 768 863 6 678 755 18 069 881 Impairment - - - - - ( 3 298 050) ( 3 298 050) 6 369 896 2 547 950 927 614 776 803 768 863 3 380 705 14 771 831
37 149 533 21 845 571 4 581 531 2 642 682 2 082 008 15 368 026 83 669 351 Total analyzed
2011
Not due 0-30 days 30-60 days 60-90 days 90-120 days >120 days Total
TVCabo Subscribers 12 158 830 15 668 377 4 353 236 2 757 211 2 938 657 111 047 053 148 923 364 Active customers 12 158 830 15 382 594 3 475 153 1 398 365 1 038 505 546 905 34 000 352 Disconnected customers - 285 783 878 083 1 358 846 1 900 152 110 500 148 114 923 012 Other customers 17 508 622 5 758 905 1 387 765 920 298 353 329 15 916 837 41 845 756 Impairment - ( 285 783) ( 878 083) ( 1 358 846) ( 1 900 152) ( 110 689 829) ( 115 112 693) 29 667 452 21 141 499 4 862 918 2 318 663 1 391 834 16 274 061 75 656 427 Lusomundo Audiovisuais Customers 6 190 246 2 168 018 736 622 476 705 528 796 6 520 289 16 620 674 Impairment - - - - - ( 3 153 948) ( 3 153 948) 6 190 246 2 168 018 736 622 476 705 528 796 3 366 341 13 466 726
Total analyzed 35 857 698 23 309 517 5 599 540 2 795 368 1 920 630 19 640 402 89 123 153
The analysis of the quality of the credit balances receivable from customers not yet due and not impaired is shown below:
2010 2011 TvCabo Audio Total TvCabo Audio Total
Accounts receivable from new customers (less than 6 months) without default history 1 346 112 - 1 346 112 2 073 641 - 2 073 641 Accounts receivable from new customers (less than 6 months) with default history 175 561 - 175 561 195 874 - 195 874 Accounts receivable from customers without default history 24 444 257 6 195 776 30 640 033 24 553 577 6 190 246 30 743 822 Accounts receivable from new customers with default history 4 813 707 174 120 4 987 827 2 844 360 - 2 844 360 Customers not yet due and not impaired 30 779 637 6 369 896 37 149 533 29 667 452 6 190 246 35 857 697
This includes customers with a history of default in the Pay TV, broadband and voice segment and customers subject to disconnection for non-payment.
The analysis of the age structure of financial assets overdue and without impairment, including the associated collateral, is shown below:
Period 31-12-2010 31-12-2011
1 to 120 days 31 151 791 33 625 055 more than 120 days 15 368 027 19 640 402 46 519 818 53.265.457
Collateral fair value - -
Consolidated Report and Accounts 2011 131 WorldReginfo - 102c94b6-b9f2-40fb-aba5-5d1c547744be ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Renegotiated assets which would otherwise be overdue or impaired totalled 7.309 million euros at 31 December 2011 (31 December 2010: 5.959 million euros). Renegotiation includes the extension of payment agreements, deferred payments or other restructuring programmes. Following renegotiation, a customer previously considered in default is considered standard and resumes being managed in the same way as other customers. Renegotiation practices and policies are based on indicators and criteria set and reviewed regularly by the Board.
b) Liquidity risk
Prudent management of liquidity risk requires the maintenance of an adequate level of cash and cash equivalents to meet the liabilities associated with the negotiation of credit facilities with financial institutions. Under the model adopted, the ZON Group has:
b.1) contracted seven commercial paper programmes with eight banks (Popular, BES, BESI, RBS, Banco Santander, Caixa BI, CGD, BANIF) with a maximum amount of 705.000 million euros, of which 100% is being used.
b.2) arranged the issuance of bonds for private and direct placement totalling 227.500 million euros via three banks.
b.3) A Next Generation Network Project Finance Contract totalling 100.000 million euros with the European Investment Bank.
b.4) A bank loan contracted by SportTV for the amount of 60.250 million euros.
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 reviews 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, 83.91% are subject to cross-default clauses, 74.26% to pari passu clauses, 53.35% to change of control clauses and retention of control of the subsidiary ZON TV Cabo, and 74.26% to negative pledge clauses.
In addition, approximately 43.7% of the total loans obtained require that the consolidated net financial debt does not exceed 4 times consolidated EBITDA, respectively, and approximately 10.72% of the total loans obtained require that net interest does not exceed 20% of consolidated EBITDA.
The table below shows the ZON Group’s liabilities by contractual residual maturity interval. The amounts shown in the table are the contractual undiscounted cash flows payable in the future, including the interest remunerating these liabilities.
132 Consolidated Report and Accounts 2011 WorldReginfo - 102c94b6-b9f2-40fb-aba5-5d1c547744be ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Less than 1 Between 1 and 31 December 2011 year 5 years Over 5 years Total Borrowings: - Financial Leases 37 555 403 93 971 770 7 591 473 139 118 646 - National Bank Loans 41 304 630 18 453 434 - 59 758 063 - Bond Issue 70 341 472 156 891 137 - 227 232 609 - Foreign Bank Loan - 97 694 457 - 97 694 457 - Commercial Paper 350 759 591 354 821 267 - 705 580 858 Accounts payable -trade 153 030 256 - - 153 030 256 Accounts payable -other 54 004 930 785 578 - 54 790 508 Derivatives of financial instruments 350 214 2 226 692 - 2 576 905 Responsabilities with operating leases 24 695 073 80 490 758 79 210 241 184 396 072
Less than 1 Between 1 and 31 December 2010 year 5 years Over 5 years Total Borrowings: - Financial Leases 51 201 235 90 282 916 30 124 401 171 608 552 - National Bank Loans 11 376 217 52 999 714 - 64 375 931 - Bond Issue - 227 500 000 - 227 500 000 - Foreign Bank Loan - 97 137 698 - 97 137 698 - Commercial Paper 30 000 000 475 000 000 - 505 000 000 Accounts payable -trade 133 314 258 - - 133 314 258 Accounts payable -other 75 083 100 5 331 314 - 80 414 414 Derivatives of financial instruments - 2 283 651 - 2 283 651 Responsabilities with operating leases 26 418 913 76 188 120 59 732 086 162 339 119 c) Market risk
Exchange rate risk
Exchange rate risk is mainly related to exposure resulting from payments made to suppliers of terminal equipment and producers of audiovisual content for the Pay TV and audiovisual businesses. 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 in a currency different from the Group’s operating currency, the ZON Group contracts or may contract financial instruments, namely short-term foreign currency futures, in order to hedge the risk associated with these balances (see Note 41).
The Group has investments in foreign companies whose assets and liabilities are exposed to exchange rate variations (the ZON Group has two subsidiaries in Mozambique, Lusomundo Moçambique and MSTAR, whose functional currency is the Metical). The ZON Group has not adopted any policy of hedging the risk of exchange rate variations on cash flows in foreign currencies, as they are insignificant in the context of the Group.
The table below shows the Group's exposure to exchange rate risk at 31 December 2010 and 31 December 2011, based on the amounts of the Group’s financial assets and liabilities in the statement of financial position (amounts stated in local currency):
Consolidated Report and Accounts 2011 133 WorldReginfo - 102c94b6-b9f2-40fb-aba5-5d1c547744be ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Mozambique As at 31 December 2010 US Dollar Suisse Franc British pound Metical Real Assets Cash and cash equivalents 6 354 740 - - 15 700 067 - Accounts receivable - trade 2 561 383 - 724 296 11 403 091 - Accounts receivable - Other - - - ( 110 399) - Total assets 8 916 123 - 724 296 26 992 759 - Liabilities Accounts payable - trade ( 10 055 977) ( 93 521) ( 770 790) ( 5 012 886) ( 7 925) Accounts payable - other - - - ( 29 796 836) - Total Liabilities ( 10 055 977) ( 93 521) ( 770 790) ( 34 809 722) ( 7 925)
Net ( 1 139 854) ( 93 521) ( 46 494) ( 7 816 963) ( 7 925)
Mozambique As at 31 December 2011 US Dollar Suisse Franc British pound Metical Real Assets Cash and cash equivalents 8 532 688 - - 16 194 913 - Accounts receivable - trade 1 455 539 - 750 2 572 773 - Accounts receivable - Other 100 - - 10 151 901 - Tax receivable - - - 7 434 267 - Total assets 9 988 327 - 750 36 353 854 - Liabilities Accounts payable - trade ( 12 166 592) ( 72 377) ( 84 279) ( 36 079 733) ( 7 925) Accounts payable - other ( 472 617) ( 123 500) - ( 3 696 565) - Tax payable - - - ( 4 858 152) - Total Liabilities ( 12 639 209) ( 195 877) ( 84 279) ( 44 634 450) ( 7 925)
Net ( 2 650 882) ( 195 877) ( 83 529) ( 8 280 596) ( 7 925)
ZON Multimédia uses a sensitivity analysis technique which measures estimated changes in results and equity of an immediate 10% strengthening or weakening of the Euro against other currencies in the rates applying at 31 December 2011 for each class of financial instrument with all other variables remaining constant. This analysis is for illustrative purposes only, since in practice exchange rates rarely change in isolation.
The sensitivity analysis was performed using a strengthening or weakening of the Euro by 10% in all exchange rates. In such case, profits before tax would have increased by 232 thousand euros (2010: 106 thousand euros) or decreased by 255 thousand euros (2010: 116 000 euros), respectively.
Interest rate risk
The risk of fluctuations in interest rates can result in a cash flow risk or a fair value risk, depending on whether variable or fixed interest rates have been negotiated.
The borrowings by the ZON Group have variable interest rates, which exposes the Group to of interest rate cash flow risk. The ZON Group has adopted a policy of hedging risk through the use of interest rate swaps to hedge future interest payments on commercial paper issues and borrowings (see Note 41).
ZON Multimédia Group uses a sensitivity analysis technique which measures the expected impacts on results and equity of an immediate increase or decrease of 0.25% (25 basis points) in market interest rates, for the rates applying at the date of the statement of financial position for each class of financial instrument, with all other variables remaining constant. This analysis is for illustrative purposes only, since in practice market rates rarely change in isolation.
134 Consolidated Report and Accounts 2011 WorldReginfo - 102c94b6-b9f2-40fb-aba5-5d1c547744be ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
The sensitivity analysis is based on the following assumptions:
Changes in market interest rates affect interest receivable or payable on financial instruments with variable rates;
Changes in market interest rates only affect interest receivable or payable on financial instruments with fixed interest rates where they are recognised at fair value;
Changes in market interest rates affect the fair value of derivatives and other financial assets and liabilities;
Changes in the fair value of derivatives and other financial assets and liabilities are estimated by discounting future cash flows from current net values using market rates at the end of the year.
Under these assumptions, an increase or decrease of 0.25% in market interest rates for loans or derivatives at 31.12.11 would have resulted in an increase or decrease in annual profit before tax of approximately 2 million euros (2010: 1.6 million euros).
In the case of the interest rate swaps contracted, the sensitivity analysis which measures the estimated impact of an immediate increase or decrease of 0.25% (25 basis points) in market interest rates results in changes in the fair value of the swaps of +1.457 million euros (2010: +1.887 million euros) and -4.613 million euros (2010: -2.740 million euros) at 31 December 2011, respectively.
4.2. Capital risk management
The objective of capital risk management is to safeguard the continuity of the Group’s operations, with an adequate return to shareholders and generating benefits for all stakeholders.
The ZON Group's policy is to contract loans with financial institutions, mainly at the level of the parent company, ZON Multimédia, which in turn makes loans to its subsidiaries and associated companies. In the case of joint ventures, which contract loans in their own name, ZON Multimedia participates in the contract process and is the guarantor for repayment of the loan. This policy is designed to optimise the capital structure with a view to greater tax efficiency and a reduction in the average cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the amounts of dividends distributed to shareholders, issue new shares, sell assets to reduce liabilities, or launch share buyback plans.
As is the practice of other companies operating in the market in which the Group operates, the Group manages capital on the basis of the net financial debt/EBITDA ratio. Net financial debt is calculated as the total of current and non-current borrowings, excluding finance leases related to contracts for the acquisition of capacity and content utilisation rights, less the amounts of cash, cash equivalents and intra-group loans. The internal ratio set as a target is a level of debt between 2.5 and 3 times EBITDA.
Consolidated Report and Accounts 2011 135 WorldReginfo - 102c94b6-b9f2-40fb-aba5-5d1c547744be ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
31-12-2010 31-12-2011 Total gross debt 912 201 634 1 106 998 693 Cash and intragoup loans ( 272 547 964) ( 469 472 762)
Total net debt 639 653 670 637 525 931
EBITDA 302 379 122 311 226 655 Total net debt/EBITDA 211,54% 204,84%
4.3. Estimated fair value
The table below shows the financial assets and liabilities of the Group valued at fair value at 31 December 2010 and 31 December 2011:
2010 2011 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Assets Available-for-sale financial assets - - 21 798 211 21 798 211 - - 21 823 211 21.823.211 Derivative financial instruments - Exchange rate forward (Note 41) - - - - - 531 882 - 531.882 - - 21 798 211 21 798 211 - 531 882 21 823 211 22 355 094
Liabilities Derivative financial instruments - Exchange rate forward (Note 41) - 287 959 - 287 959 - - - - Derivative financial instruments - Interest rate swap (Note 41) - 2 226 692 - 2 226 692 - 2 576 907 - 2.576.907 - 2.514.651 - 2.514.651 - 2.576.907 - 2 576 907
Assets available for sale were valued using the discounted cash flow method (level 3).
The calculation of the fair value of interest rate swap derivatives was based on an estimate of discounted future cash flows, using the estimated market interest rate curve (level 2).
The fair value of forward rate agreement derivatives is calculated based on the spot exchange rate (level 2).
5. Changes in the consolidation perimeter
MSTAR, SA (“MSTAR”), which is wholly owned by the Group, was not included in the fourth quarter of 2010. In the second quarter of 2011, the share capital of MSTAR was increased, reducing the Group’s holding to 30% (see ANNEX 1 c)).
In the fourth quarter of 2011, ZON FINANCE BV, 100% owned by the Group, was included in the consolidation perimeter.
The impact of the above changes on the statement of comprehensive income and on the financial position at 31 December 2011 is immaterial.
6. Segment Reporting
6.1. Main report format – business segments
The business segments are as follows:
Pay TV, broadband and voice: relates mainly to the supply of TV, Internet 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,
136 Consolidated Report and Accounts 2011 WorldReginfo - 102c94b6-b9f2-40fb-aba5-5d1c547744be ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
ZON TV Cabo Madeirense, ZON Conteúdos, ZON Lusomundo TV, ZON FINANCE B.V., Teliz Holding B.V., MSTAR and the joint venture in Sport TV.
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 Dreamia BV and Dreamia SA.
The results by segment for the years ended on 31 December 2010 and 2011 are shown below:
Pay TV, broadband and voice Audiovisuals Group 4º Quarter 10 12M 10 4º Quarter 10 12M 10 4º Quarter 10 12M 10 Total segment revenue 200 367 137 789 830 298 31 567 604 123 387 497 231 934 741 913 217 795 Inter-segment revenue ( 4 711 180) ( 16 587 389) ( 6 161 185) ( 24 281 091) ( 10 872 365) ( 40 868 480) Sales and services rendered 195 655 957 773 242 909 25 406 419 99 106 406 221 062 376 872 349 315
Operational income by segment 11 814 492 71 565 353 3 082 102 10 685 426 14 896 594 82 250 779 Net interest expense and other 6 712 080 26 181 924 428 820 2 075 933 7 140 900 28 257 857 Loss / (Gains) in financial assets ( 26 575) ( 27 245) ( 1 157) 9 255 ( 27 732) ( 17 990) Share of loss/(profit) from associates 2 515 472 8 007 977 ( 69 889) ( 130 264) 2 445 583 7 877 713 Income before taxes 2 613 515 37 402 697 2 724 328 8 730 502 5 337 843 46 133 199 Income tax expense 435 689 6 724 169 940 424 2 622 895 1 376 113 9 347 064
Net income 2 177 826 30 678 528 1 783 904 6 107 607 3 961 730 36 786 135
Other costs: Depreciation, amortisation and impairment 57 411 548 212 679 937 1 511 637 6 881 426 58 923 185 219 561 363 Provisions and adjustments ( 143 053) 6 347 281 33 484 1 269 751 ( 109 569) 7 617 032 Costs / (revenues) non-recurrent ( 567 030) 226 646 75 732 340 334 ( 491 298) 566 980
Pay TV, broadband and voice Audiovisuals Group 4º Quarter 11 12M 11 4º Quarter 11 12M 11 4º Quarter 11 12M 11 Total segment revenue 193 190 794 774 651 640 31 468 572 120 603 500 224 659 366 895 255 140 Inter-segment revenue ( 3 384 367) ( 16 744 716) ( 5 668 513) ( 23 681 965) ( 9 052 878) ( 40 426 680) Sales and services rendered 189 806 427 757 906 924 25 800 059 96 921 536 215 606 488 854 828 460
Operational income by segment 15 516 247 78 115 346 4 809 398 14 555 257 20 325 645 92 670 603 Net interest expense and other 8 256 727 31 131 027 418 925 1 632 401 8 675 652 32 763 428 Loss / (Gains) in financial assets ( 168 961) ( 169 691) 120 300 120 300 ( 48 661) ( 49 391) Share of loss/(profit) from associates 3 122 463 10 204 641 37 695 116 222 3 160 156 10 320 863 Income before taxes 4 306 018 36 949 368 4 232 480 12 686 334 8 538 500 49 635 703 Income tax expense 1 253 650 11 097 771 1 404 425 3 688 978 2 658 074 14 786 749
Net income 3 052 368 25 851 597 2 828 055 8 997 356 5 880 426 34 848 954
Other costs: Depreciation, amortisation and impairment 51 891 042 211 998 250 1 428 565 5 599 407 53 319 608 217 597 657 Provisions and adjustments 2 333 592 5 489 013 48 152 ( 24 036) 2 381 744 5 464 977 Costs / (revenues) non-recurrent ( 225 231) 78 851 197 462 879 544 ( 27 769) 958 395
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 2010, are shown below:
Consolidated Report and Accounts 2011 137 WorldReginfo - 102c94b6-b9f2-40fb-aba5-5d1c547744be ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Pay TV, broadband and voice Audiovisuals Eliminations Not allocated Group Assets 1 565 078 162 143 700 996 ( 132 770 448) 73 565 968 1 649 574 678 Investment in associated companies and joint ventures 99 132 1 038 484 - - 1 137 616
Total assets 1 565 177 294 144 739 480 ( 132 770 448) 73 565 968 1 650 712 294
Liabilities 335 511 213 124 309 961 ( 132 770 448) 1 073 478 112 1 400 528 838
Investment in tangible assets 227 476 270 4 640 512 - - 232 116 782 Investment in intangible assets 65 467 020 - - - 65 467 020
Assets and liabilities not allocated to segments are reconciled with total assets and liabilities as follows:
Assets Liabilities Not allocated: Deferred tax (Note 17) 51 037 647 5 258 790 Income tax expense (Note 26) 51 893 2 597 141 Borrowings - current (Note 34) - 92 577 453 Borrowings - non current (Note 34) - 973 044 728 Available-for-sale financial assets (Note 30) 21 798 211 - Non-current assets held-for-sale 678 217 - 73 565 968 1 073 478 112
Assets and liabilities by segment, and investments in tangible fixed assets at 31 December 2011, are shown below:
Pay TV, broadband and voice Audiovisuals Eliminations Not allocated Group Assets 1 671 101 372 148 062 416 ( 128 057 411) 94 033 695 1 785 140 072 Investment in associated companies and joint ventures 131 935 338 557 - - 470 492
Total assets 1 671 233 307 148 400 973 ( 128 057 411) 94 033 695 1 785 610 564
Liabilities 326 930 129 117 210 603 ( 128 057 411) 1 234 513 380 1 550 596 701
Investment in tangible assets 142 922 363 3 172 853 - - 146 095 208 Investment in intangible assets 54 103 432 2 442 - - 54 105 874
Assets and liabilities not allocated to segments are reconciled with total assets and liabilities as follows:
Assets Liabilities Not allocated: Deferred tax (Note 17) 49 895 295 4 206 669 Income tax expense (Note 26) 66 397 922 077 Borrowings - current (Note 34) - 499 961 096 Borrowings - non current (Note 34) - 729 423 538 Available-for-sale financial assets (Note 30) 21 823 211 - Non-current assets held-for-sale 876 134 - Investments held-to-maturity 20 488 677 - Investment property 883 981 - 94 033 695 1 234 513 380
7. Operating Revenue
Consolidated operating revenue for the years ended on 31 December 2010 and 31 December 2011 is distributed as follows:
138 Consolidated Report and Accounts 2011 WorldReginfo - 102c94b6-b9f2-40fb-aba5-5d1c547744be ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
4º Quarter 10 12M 10 4º Quarter 11 12M 11
Services rendered Pay TV, Broadband and voice i) 190 768 363 759 183 830 187 155 852 748 532 212 Cinema exhibition ii) 10 111 770 42 528 626 10 129 349 40 727 781 Audiovisuals iii) 8 009 937 31 208 052 8 549 297 32 238 907 208 890 071 832 920 508 205 834 498 821 498 900
Sales Pay TV, Broadband and voice iv) 3 822 590 10 282 917 2 122 523 6 590 784 Cinema exhibition v) 3 131 240 12 062 228 3 097 621 11 887 252 Audiovisuals vi) 3 787 314 12 310 234 3 625 165 10 601 670 10 741 145 34 655 379 8 845 309 29 079 706
Other operating revenues Pay TV, Broadband and voice 1 065 005 3 776 163 528 051 2 783 928 Cinema exhibition 48 204 189 741 37 213 189 749 Audiovisuals 317 951 807 524 361 417 1 276 177 1 431 160 4 773 428 926 681 4 249 854
221 062 376 872 349 315 215 606 488 854 828 460
These operating revenues are shown net of inter-company eliminations. i) This item mainly includes revenue relating to: (a) subscriptions to basic and premium Pay TV services (cable and satellite); (b) broadband Internet access services (Netcabo); (c) IP voice service (VOIP – Voice over Internet); (d) rental of terminal equipment; (e) MVNO; and (f) advertising on Pay TV channels. ii) This item mainly includes box office revenue at the cinemas of ZON LM Cinemas. iii) This item mainly includes revenue relating to film distribution to other cinema exhibitors in Portugal and the production and sale of audiovisual content. iv) This item mainly includes revenue relating to the sale of terminal equipment, including set top boxes (Pay TV), telephones and MVNO equipment. v) This item mainly includes sales of bar products by ZON LM Cinemas. vi) This item mainly includes DVD sales.
8. Wages and salaries
In the years ended on 31 December 2010 and 31 December 2011, this item was composed as follows:
4º Quarter 10 12M 10 4º Quarter 11 12M 11
Remuneration 12 802 825 48 130 868 12 299 234 49 237 028 Social taxes 2 124 874 8 432 442 2 089 205 8 563 369 Social benefits 222 896 851 376 312 365 922 728 Other 394 934 858 163 194 364 567 826
15 545 529 58 272 849 14 895 168 59 290 951
In the financial years 2010 and 2011, the average number of employees of the companies included in the consolidation was 1620 and 1595, respectively.
Consolidated Report and Accounts 2011 139 WorldReginfo - 102c94b6-b9f2-40fb-aba5-5d1c547744be ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
On 14 March 2011 the Board of Directors approved an incentive plan for all employees of the Group (see Note 46).
9. Direct costs of services
In the years ended on 31 December 2010 and 2011, this item was composed as follows:
4º Quarter 10 12M 10 4º Quarter 11 12M 11 Programming and exhibition costs i) 46 639 964 190 039 058 45 257 467 179 497 730 Telecommunications costs ii) 12 073 654 43 987 082 11 549 439 48 536 616 Shared advertising revenues iii) 3 858 244 12 788 770 3 360 834 12 036 850 Others 1 270 130 4 916 998 599 418 3 832 578
63 841 992 251 731 908 60 767 158 243 903 774
i) Content costs include the costs of programming, exhibition rights, film distribution and the production/commercialisation of TV channels. The reduction in the cost of content results primarily from the reduction in programming costs as a result of a smaller number of subscriptions to premium channels and a reduction in the costs of certain contracted channels. ii) The variation in telecommunications costs is mainly attributable to the growth of fixed voice and MVNO services (mobile voice and mobile broadband). iii) Revenues from advertising on Pay TV channels are shared with content producers on the basis of the contractual terms agreed with those entities. This cost item corresponds to the proportion of those revenues attributable to content providers.
10. Cost of goods sold
In the years ended on 31 December 2010 and 2011, this item was composed as follows:
4º Quarter 10 12M 10 4º Quarter 11 12M 11 Pay TV 4 228 414 11 017 754 3 212 770 5 718 856 VOIP and Internet 214 010 1 482 418 32 947 552 144 MVNO 351 284 2 505 307 134 572 1 151 217 Other ( 20 138) 434 358 ( 792 699) ( 358 123) 4 773 570 15 439 836 2 587 590 7 064 094 Inventories impairment (Note 25) ( 226 935) ( 929 021) 693 501 287 548
4 546 635 14 510 815 3 281 091 7 351 642
11. Support services and external supplies and services
In the years ended on 31 December 2010 and 2011, this item was composed as follows:
140 Consolidated Report and Accounts 2011 WorldReginfo - 102c94b6-b9f2-40fb-aba5-5d1c547744be ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
4º Quarter 10 12M 10 4º Quarter 11 12M 11
Support services: Call centers and customer support 8 510 328 33 988 634 6 703 077 27 530 313 Information systems 4 520 112 18 606 749 4 844 936 18 977 936 Administrative support and other 5 834 839 18 923 052 4 824 401 19 515 836
18 865 279 71 518 435 16 372 414 66 024 085
Supplies and external services: Commissions 8 283 447 34 835 815 8 933 415 30 115 151 Maintenance and repair 6 312 582 26 187 424 6 238 956 26 582 835 Rentals 5 798 389 22 142 848 5 567 455 22 567 767 Professional services 4 370 249 19 052 738 4 180 701 17 608 335 Communications 1 738 757 8 228 685 1 455 328 6 315 320 Electricity 1 587 896 6 150 959 1 855 092 6 885 329 Installation and removal of terminal equipment 1 491 263 5 303 146 1 497 946 5 590 346 Other 3 812 232 15 177 039 3 506 099 14 744 909
33 394 815 137 078 654 33 234 992 130 409 992
The change compared the same period last year is mainly explained by a reduction in costs of a commercial nature due to more efficient use of the Group’s sales channels and a less aggressive competitive environment in promotion terms.
12. Other costs (gains)
In the financial years ended on 31 December 2010 and 2011, this item was composed as follows:
4º Quarter 10 12M 10 4º Quarter 11 12M 11 Other operational losses/(gains) - net Samples/gifts 7 042 73 957 589 589 Dues and subscriptions 68 794 317 021 95 290 381 482 Other (gains) e losses net ( 181 511) ( 46 489) 120 897 396 106 ( 105 675) 344 489 216 777 778 177
Other non operational losses/(gains) - net Increases in provisions ( 162 575) ( 162 575) - - Other (gains) e losses net 55 902 321 451 228 844 391 751 ( 106 673) 158 876 228 844 391 751
13. Provisions and adjustments
In the financial years ended on 31 December 2010 and 2011, this item was composed as follows:
4º Quarter 10 12M 10 4º Quarter 11 12M 11
Provisions (Note 39) ( 1 138 119) ( 4 318 052) - ( 5 975 422) Provision for impairment of trade receivable (Note 23) 1 058 880 12 019 413 2 384 300 11 454 827 Provision for impairment of other receivable (Note 23) ( 29 841) ( 81 638) - - Debts recovery ( 489) ( 2 691) ( 2 556) ( 14 428) ( 109 569) 7 617 032 2 381 744 5 464 977
14. Finance costs and other net financial charges
In the years ended on 31 December 2010 and 2011, finance costs and other costs were composed as follows:
Consolidated Report and Accounts 2011 141 WorldReginfo - 102c94b6-b9f2-40fb-aba5-5d1c547744be ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
4º Quarter 10 12M 10 4º Quarter 11 12M 11
Interest expense: Borrowings 6 413 404 22 636 032 10 728 887 38 659 590 Finance leases 1 801 743 5 810 471 1 785 924 5 753 277 Other 113 633 477 219 87 267 373 880 8 328 780 28 923 722 12 602 078 44 786 747 Interest earned ( 2 459 931) ( 5 858 635) ( 5 967 251) ( 19 497 851)
5 868 849 23 065 087 6 634 826 25 288 896
Other financial costs: Comissions and guarantees 1 947 732 7 582 741 2 803 573 10 356 376 Prompt payment discount 346 3 503 1 002 6 908 Other 208 071 791 205 133 396 721 757 2 156 149 8 377 448 2 937 970 11 085 041 Other financial income: Prompt payment discount ( 810 724) ( 3 013 106) ( 854 005) ( 3 370 003)
1 345 425 5 364 342 2 083 965 7 715 038
In 2011, there was an increase in net interest as a result of the increase in the average finance cost and the level of net debt. However, this negative effect was mitigated by an increase in interest received on term deposits, due to the increase in the average value of investments.
15. Losses/(gains) in financial assets
In the years ended on 31 December 2010 and 2011, this item was composed as follows:
4º Quarter 10 12M 10 4º Quarter 11 12M 11 Dividends ( 26 576) ( 27 246) - ( 730) Other ( 1 156) 9 256 ( 48 661) ( 48 661) ( 27 732) ( 17 990) ( 48 661) ( 49 391)
16. Losses/(gains) in associated companies
In the financial years ended on 31 December 2010 and 2011, this item was composed as follows:
4º Quarter 10 12M 10 4º Quarter 11 12M 11 Equity accounting: Distodo ( 69 889) ( 130 264) 31 227 102 229 Canal 20 TV 321 2 164 1 503 2 705 Upstar ( 13 742) ( 31 314) ( 5 185) ( 9 983) Finstar 2 585 201 8 037 127 3 126 145 10 211 918 Mstar ( 56 308) - - - Big Picture 2 Films - - 6 466 13 994 2 445 583 7 877 713 3 160 156 10 320 863
The change in this item is mainly explained by the increase in the provision for the losses of Finstar - Sociedade de Investimentos e Participações, S.A., totalling 10 million euros (Note 28).
In the final quarter of 2010, MSTAR was included in the consolidation perimeter, as described in Note 5.
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17. Income tax expense
ZON Multimédia and its associated companies are subject to IRC - Corporate Income Tax - at the rate of 25% (20% in the case of ZON TV Cabo Madeirense and 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%. With the introduction of the austerity measures approved by Law 12- A/2010 of 30 September, the latter rate was increased by 2.5% on that part of a company’s taxable profit in excess of 2 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 book income and taxable income may be temporary or permanent.
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 which are covered by the RETGS 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; ten years in the case of contributions relating to financial years prior to 2001), except where tax losses have occurred (where the period is 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 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
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statements as at 31 December 2011, except for situations which were the subject of provisions (Note 39).
a) Deferred tax
ZON Multimédia and its associated companies have reported deferred tax relating to temporary differences between the taxable basis and the book amounts of assets and liabilities, and tax losses carried forward at the date of the statement of financial position.
The movements in assets and liabilities due to deferred tax in the years ended on 31 December 2010 and 2011 were as follows:
Income (note b)) Equity
Deferred taxes of Changes in the Deferred taxes of 31-12-2009 the period income tax rate the period Other movements 31-12-2010 Deferred income tax assets: Provisions and adjustments: Doubtful accounts receivable 6 638 511 ( 245 893) 426 879 - 876 985 7 696 483 Inventories 1 454 932 ( 92 382) 80 536 - - 1 443 085 Other 15 761 044 2 653 895 1 370 929 593 922 ( 489 643) 19 890 148 Intragroup gains 23 240 500 ( 2 324 050) - - ( 387 342) 20 529 108 - - - 660 473 - 660 473 Tax losses carried forward 818 349 - - - - 818 349 47 913 336 ( 8 429) 1 878 344 1 254 395 - 51 037 647 Deferred income tax liabilities: Reavaluation of fixed assets 6 075 949 ( 1 269 593) 452 434 - - 5 258 790
Net deferred tax 41 837 387 1 261 164 1 425 910 1 254 395 - 45 778 857
Income (note b)) Equity
Deferred taxes of Deferred taxes of 31-12-2010 the period the period Other movements 31-12-2011 Deferred income tax assets: Provisions and adjustments: Doubtful accounts receivable 7 696 483 ( 208 431) - ( 391 553) 7 096 499 Inventories 1 443 085 64 700 - - 1 507 785 Other provisions and adjustments 19 890 148 1 597 960 - 96 188 21 584 296 Intragroup gains 20 529 108 ( 2 324 050) - - 18 205 058 Derivatives 660 473 - 22 835 - 683 308 Tax losses carried forward 818 349 - - - 818 349 51 037 647 ( 869 821) 22 835 ( 295 365) 49 895 295 Deferred income tax liabilities: Reavaluation of fixed assets 5 258 790 ( 1 206 367) - - 4 052 423 Derivatives - - 154 246 - 154 246 5 258 790 ( 1 206 367) 154 246 - 4 206 669
Net deferred tax 45 778 857 336 546 ( 131 411) ( 295 365) 45 688 626
At 31 December 2011, the deferred tax liability relating to the revaluation of fixed assets results from the difference in the acquisition at fair value of the assets (customer portfolio and network) of TVTel and the companies of the Parfitel Group (Bragatel, Pluricanal Leiria and Pluricanal Santarém).
Deferred tax assets were recognised where it is probable that taxable profits will occur in future that may be used to absorb tax losses or deductible tax differences. This assessment was based on the business plans of the Group’s companies, which are regularly revised and updated.
144 Consolidated Report and Accounts 2011 WorldReginfo - 102c94b6-b9f2-40fb-aba5-5d1c547744be ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Under the terms of current legislation in Portugal, tax losses generated up to 2009 and from 2010 to 2011 may be carried forward for a period of six years and four years, respectively, after their occurrence and may be deducted from taxable profits generated during that period.
At 31 December 2010 and 31 December 2011, ZON Multimédia’s tax losses carried forward, totalling 3.273 million euros, expire in 2014. This amount derives from the companies acquired in 2008 or the subject of mergers in 2009.
The Company reported deferred income tax assets and requested permission from the Tax Authorities to use them in the tax consolidation.
b) Tax rate reconciliation
In the years ended on 31 December 2010 and 2011, the reconciliation between the nominal and effective rates of tax was as follows:
12M 10 12M 11
Income before taxes 46 133 199 49 635 703 Statutory tax rate 26,5% 26,50% Estimated tax 12 225 298 13 153 461
Permanent differences i) 2 361 703 2 013 088 Differences in tax rate of Açores and Madeira ( 534 903) ( 523 536) Underestimated/ (Overestimated) corporate tax ( 420 849) 273 575 Estimated corparate tax corrections ( 184 137) - Fiscal benefits ii) ( 4 343 417) ( 2 030 308) Changes in the income tax rate iii) 844 833 887 269 Changes in the deferred income tax rate iv) ( 1 425 910) - Autonomous taxation 621 958 801 002 Others 202 488 212 198
Income tax 9 347 064 14 786 749
Effective Income tax rate for the period 20,26% 29,79%
Income tax 12 034 138 15 123 295 Deferred tax ( 2 687 074) ( 336 546)
9 347 064 14 786 749
i) At 31 December 2010 and 31 December 2011 the permanent differences were composed as follows:
12M 10 12M 11 Financial costs not accepted for fiscal purposes 460 106 - Provisions ( 2 258 400) ( 5 519 381) Depreciations and amortizations 2 523 519 1 843 888 Equity method (Note 16) 7 877 713 10 320 863 Other 309 149 951 189 8 912 087 7 596 559 26,50% 26,50%
2 361 703 2 013 088
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ii) The reduction in tax results from the application by ZON TV Cabo of the SIFIDE (Business Research and Development Incentives System) tax benefit introduced by Law 40/2005 of 3 August and of the RFAI (Investment Tax Incentive Regime) introduced by Law 10/2009 of 10 March. Under the terms of the IRC (Corporate Income Tax) Code, the tax paid may not be less than 90% of the amount which would result if the Company did not benefit from tax benefits. This amount therefore corresponds to that difference, given that the amount is recorded in the controlling company under the Special Taxation Regime for Groups of Companies, and the tax benefits are recorded in the controlled companies. iii) Application of the new tax rate, including the 2.5% IRC surcharge. iv) In 2010 the application of a new rate of tax including the 2.5% IRC surcharge had a positive impact on the revaluation of deferred tax assets and liabilities.
The variation in the effective rate of tax is mainly due to the fact that in 2010 there was a larger deduction from taxable income relating to SIFIDE and RFAI, and to the positive effect of the change in the rate of tax due to the application of the IRC surcharge.
18. Non-controlled interests
The movements in non-controlled interests in the 2010 and 2011 financial years and the profits attributable to non-controlled interests in the year are as follows:
31-12-2009 Net income Dividends (Note 20) Other 31-12-2010
Zon TV Cabo Madeirense 5 534 185 893 816 ( 464 539) 14 398 5 977 860 Zon TV Cabo Açoreana 2 409 315 401 730 ( 144 745) 249 2 666 540 Grafilme 1 263 613 52 760 ( 113 322) 968 1 204 019 Lusomundo SII 5 661 ( 1) - - 5 660 Empracine 991 ( 32) - - 959 Lusomundo Imobiliária 2, SA 36 084 ( 410) - - 35 683 9 249 849 1 347 863 ( 722 606) 15 615 9 890 721
31-12-2010 Net income Dividends (Note 20) Other 31-12-2011
Zon TV Cabo Madeirense 5 977 860 697 216 ( 438 311) ( 14 752) 6 222 012 Zon TV Cabo Açoreana 2 666 540 178 775 ( 77 673) - 2 767 642 Grafilme 1 204 019 ( 226 314) ( 26 397) - 951 307 Lusomundo SII 5 660 153 - - 5 813 Empracine 959 ( 31) - - 928 Lusomundo Imobiliária 2, SA 35 683 126 - - 35 809 9 890 721 649 924 ( 542 381) ( 14 752) 9 983 512
19. Earnings per share
Earnings per share for the years ended on 31 December 2010 and 2011 were calculated taking into account the following amounts:
4º Quarter 10 12M 10 4º Quarter 11 12M 11
Net income attributable to equity holders of the parent 3 871 661 35 438 272 5 669 620 34 199 030
Weighted average number of ordinary shares in issue 309 091 342 307 901 769 308 906 528 309 040 649
Basic earnings per share 0,01 0,12 0,02 0,11 Diluted earnings per share 0,01 0,12 0,02 0,11
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In the above periods there were no diluting effects on net earnings per share, and the diluted earnings per share are equal to the basic earnings per share.
20. Dividends
The General Meeting of Shareholders held on 15 March 2011 approved a proposal by the Board of Directors for payment of an ordinary dividend per share of 0.16 euros, totalling 49 455 491 euros, relating to the net profit for the year ended on 31 December 2010 of 35 178 205 euros plus free reserves totalling 14 277 286 euros. The amount attributable to own shares, totalling 1982 euros, was transferred to free reserves.
Dividends totalling 542 381 euros were also paid in the first half of 2011 to the minority shareholders of ZON TV Cabo Madeirense, ZON TV Cabo Açoreana and Grafilme.
The General Meeting of Shareholders held on 19 April 2010 approved a proposal by the Board of Directors for payment of an ordinary dividend per share of 0.16 euros, totalling 49 455 492 euros, relating to the net profit for the year ended on 31 December 2009 of 39 332 268 euros plus free reserves totalling 10 123 224 euros.
Dividends totalling 722 606 euros were also paid in the first half of 2010 to the minority shareholders of ZON TV Cabo Madeirense, ZON TV Cabo Açoreana and Grafilme.
21. Financial assets and liabilities classified by IAS 39 categories
The accounting policies set out in IAS 39 for financial instruments were applied to the following items:
Loans and Total financial Non financial accounts Available-to-sale Other financial assets and assets and 31-12-2010 receivable financial assets Derivatives liabilities liabilities liabilities Total
Assets
Cash and cash equivalents(Note 22) 264 645 614 - - - 264 645 614 - 264 645 614 Accounts receivable - trade (Note 23) 120 203 215 - - - 120 203 215 - 120 203 215 Accounts receivable - other (Note 24) 21 922 228 - - - 21 922 228 101 145 579 123 067 807 Available-to-sale financial assets (Note 30) - 21 798 211 - - 21 798 211 - 21 798 211
Total financial assets 406 771 058 21 798 211 - - 428 569 268 101 145 579 529 714 846
Liabilities
Loans (Note 34) - - - 1 065 622 181 1 065 622 181 - 1 065 622 181 Accounts payable - trade (Note 35) - - - 133 314 258 133 314 258 2 085 730 135 399 988 Accounts payable - other (Note 36) - - - 80 414 414 80 414 414 - 80 414 414 Accrued expenses (Note 37) - - - 70 452 210 70 452 210 - 70 452 210 Derivatives financial instruments (Note 41) - - 2 571 610 - 2 571 610 - 2 571 610
Total financial liabilities - - 2 571 610 1 349 803 063 1 352 374 673 2 085 730 1 354 460 403
Loans and Total financial Non financial accounts Available-to-sale Investements held- Other financial assets and assets and 31-12-2011 receivable financial assets to-maturity Derivatives liabilities liabilities liabilities Total
Assets
Cash and cash equivalents (Note 22) 407 362 404 - - - - 407 362 404 - 407 362 404 Accounts receivable - trade (Note 23) 115 589 712 - - - - 115 589 712 - 115 589 712 Accounts receivable - other (Note 24) 46 472 044 - - - - 46 472 044 87 904 569 134 376 613 Available-to-sale financial assets (Note 30) - 21 823 211 - - - 21 823 211 - 21 823 211 Derivatives financial instruments (Note 41) - - - 531 882 - 531 882 - 531 882 Investements held-to-maturity (Note 29) - - 20 488 677 - - 20 488 677 - 20 488 677
Total financial assets 569 424 160 21 823 211 20 488 677 531 882 - 612 267 931 87 904 569 700 172 500
Liabilities
Loans (Note 34) - - - - 1 229 384 634 1 229 384 634 - 1 229 384 634 Accounts payable - trade (Note 35) - - - - 153 030 256 153 030 256 77 773 153 108 029 Accounts payable - other (Note 36) - - - - 54 790 508 54 790 508 - 54 790 508 Accrued expenses (Note 37) - - - - 56 476 764 56 476 764 - 56 476 764 Derivatives financial instruments (Note 41) - - - 2 576 906 - 2 576 906 - 2 576 906 Total financial liabilities - - - 2 576 906 1 493 682 162 1 496 259 067 77 773 1 496 336 840
Consolidated Report and Accounts 2011 147 WorldReginfo - 102c94b6-b9f2-40fb-aba5-5d1c547744be ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
22. Cash and cash equivalents
At 31 December 2010 and 31 December 2011, this item was composed as follows:
31-12-2010 31-12-2011
Cash 812 708 1 691 115 Deposits 5 558 103 77 301 218 Term deposits i) 258 274 803 328 370 071
264 645 614 407 362 404
i) At 31 December 2011, term deposits had short-term maturities and bear interest at normal market rates.
23. Accounts receivable - customers
At 31 December 2010 and 31 December 2011, this item was composed as follows:
31-12-2010 31-12-2011 Trade receivables 102 525 448 107 750 676 Doubtful accounts for trade receivables 114 255 715 126 690 102 Unbilled revenues 14 562 960 8 723 015 Receivables from related parties (Note 44) 7 252 310 5 300 974 Unbilled revenues from related parties (Note 44) 23 995 355 470 238.620.428 248 820 237 Provision for impairment of trade receivable ( 111 958 840) ( 124 062 767) 126 661 588 124 757 470
Impairment of accounts receivable
The summary of movements in impairment adjustments is as follows:
12M 10 12M 11
As at January 1 106 105 762 111 958 840 Increases (Note 13) 12 981 765 12 889 573 Increases "Fidelization period" i) - 1 214 853 Decreases (Note 13) ( 962 351) ( 1 434 746) Receivables written off ii) ( 6 166 336) ( 565 753) - As at December 31 111 958 840 124 062 767 -
i) Adjustment of penalties invoiced for breach of loyalty period which did not result in recognition of revenue. ii) The utilisation in the 2010 financial year relates mainly to the cancellation of debts owing by VOIP customers, which are fully adjusted.
24. Accounts receivable - other
At 31 December 2010 and 31 December 2011, this item was composed as follows:
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31-12-2010 31-12-2011
Current Non current Current Non current Advances of suppliers i) 40 200 050 60 945 529 66 587 636 21 316 933 Related parties (Note 44) ii) 10 746 411 - 43 494 670 - Unbilled revenues 1 236 363 - 389 336 - Unbilled revenues from related parties (Note 44) 571 744 - - - Other 9 712 925 - 2 934 932 - 62.467.493 60.945.529 113 406 574 21 316 933 Impairment of other receivable ( 345 215) - ( 346 894) - 62 122 278 60 945 529 113 059 680 21 316 933
i) Advances to current suppliers relate mainly to guarantee minimums by ZON LM Audiovisuais and the advance made under the exclusive contract with PPTV - PUBLICIDADE DE PORTUGAL E TELEVISAO, S.A. on behalf of Sport TV. ii) The item Related Parties relates mainly to the granting of loans to Upstar (see Note 44).
Impairment of other accounts receivable
12M 10 12M 11 As at January 1 420 100 345 215 Increases 6 753 - Decreases (Note 13) ( 81 638) - Receivables written off - 1 679 As at December 31 345 215 346 894
25. Inventories
At 31 December 2010 and 31 December 2011, this item was composed as follows:
31-12-2010 31-12-2011 Pay TV, broadband and voice: 58 891 750 42 464 235 Set top boxes 30 330 893 16 462 781 Acessorie material 8 480 432 7 659 226 Cable modems e EMTA´s 8 002 019 6 701 172 Smart cards 6 647 072 5 275 511 Transmission rights i) 3 070 313 3 786 679 Mobile phone 1 737 711 897 851 Other inventories 623 310 1 681 015
Audiovisuals: 4 352 375 8 132 738 DVDs 2 513 749 2 241 692 Transmission rights ii) 1 130 575 5 054 765 Food and beverage 708 051 836 281
Other inventories 763.823 1 721 191 64.007.948 52 318 164 - - Impairment of inventories ( 5 379 920) ( 5 577 080)
58 628 028 46 741 084
i) Television broadcasting rights for sporting events held by Sport TV.
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ii) Television broadcasting rights relating to the Hollywood, Panda, Panda Bigs and MOV channels of Dreamia and TVCines of the Audiovisuals business.
The reduction in the value of inventories is attributable to the consolidation of the recovery process and reinjection of terminal equipment.
At 31 December 2011, approximately 5.782 million euros of the stated value of inventories of the Pay TV, broadband and voice business is on a sale or return basis, mainly with direct agents, and 610 000 euros is held by third parties.
Impairment of inventories
12M10 12M11
As at January 1 5 768 095 5 379 920 Increase - Cost of goods sold (Note 10) 1 139 273 738 002 Decrease - Cost of goods sold (Note 10) ( 2 068 294) ( 450 454) Increase - Direct costs 540 846 ( 90 388)
As at December 31 5 379 920 5 577 080
26. Taxes payable and receivable
At 31 December 2010 and 31 December 2011, this item was composed as follows:
31-12-2010 31-12-2011 Receivable Payable Receivable Payable Value-added tax 2 516 939 5 953 725 4 817 579 13 996 360 Income taxes 51 893 2 597 141 66 397 922 077 Social Security contributions - 995 316 - 985 157 Personnel income tax witholdings - 1 059 086 - 1 087 172 Other 197 082 192 005 197 083 165 211 2 765 914 10 797 273 5 081 059 17 155 977
At 31 December 2011, the amounts of IRC (Corporate Income Tax) receivable and payable were composed as follows:
31-12-2010 31-12-2011 Receivable taxes 51 893 66 397 Payable taxes ( 2 597 141) ( 922 077)
( 2 545 248) ( 855 680)
Current income taxes estimative i) ( 12 416 378) ( 14 841 469) Payments on account 7 339 076 10 708 611 Withholding income taxes 2 480 161 3 210 781 Income tax receivable 51 893 66 397 ( 2 545 248) ( 855 680)
i) The amount relating to the estimated current tax on income was recorded as a contra entry in the following items:
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31-12-2010 31-12-2011 Income taxes (Note 17) ( 12 034 138) ( 15 123 295) Other ( 382 240) 281 826 ( 12 416 378) ( 14 841 469)
27. Prepayments
At 31 December 2010 and 31 December 2011, this item was composed as follows:
31-12-2010 31-12-2011 Rentals 1 787 592 2 344 978 Programming costs 317 657 2 135 676 Sponsorship i) 1 235 032 1 273 186 Maintenance and repair 721 385 1 220 648 Exhibition rights of audiovisual content ii) 3 560 478 1 140 629 Software Licences iii) 2 455 104 702 848 Insurance 504 590 355 111 Financial iv) 3 635 354 - Other 1 707 352 1 356 710 - 15 924 543 10 529 786
i) In July 2010, ZON TV Cabo Portugal signed a contract with the Portuguese Professional Football League as co-sponsor with Sociedade Central de Cervejas. The value of the sponsorship for 2010/2011 is recognised in costs on a linear basis by football season. ii) This amount refers to the advance invoicing of contracts for movie and series rights on Pay TV channels and in cinemas which at 31 December 2011 had not yet begun. iii) This amount relates to the recognition of the asset related to the Jungo licences to be used for the EMTAs. This amount is allocated to equipment in inventories or in tangible assets. The liability arising from this contract is stated in Accounts Payable - Other (see note 36). iv) The variation in 2011 arises from amounts relating to commission and interest paid at the time of the launch of commercial paper programmes and which are recognised using the effective rate method, and which are allocated to Borrowings.
28. Investments in associated companies
At 31 December 2010 and 31 December 2011, this item was composed as follows:
31-12-2010 31-12-2011 Investments in group companies: Distodo 1 038 484 338 557 Upstar Comunicações S.A. ("Upstar") 16 545 26 528 Canal 20 TV, S.A. ("Canal 20 TV") 7 587 4 881 ZON II 50 000 50 000
Other companies 25 000 526 1 137 616 470 492
Movements in “Investments in associated companies” in 2010 and 2011 were as follows:
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31-12-2010 31-12-2011 As at January 1 1 274 970 1 137 616 Equity method i) 154 945 ( 104 951) Changes in consolidation scope ( 9 000) - Dividends received ii) ( 298 286) ( 597 698) Formation iii) 50 000 60 000 Other ( 35 013) ( 24 475)
As at December 31 1 137 616 470 492
i) Relates to the application of the equity method of consolidation to the companies Distodo, Canal 20, Upstar and Big Picture 2 (see Note 16). ii) Dividends received from Distodo totalling 598 thousand euros. iii) Formation of ZON III - Comunicações Eletrónicas S.A. in October 2011 as a network operator and service provider of electronic communications, and the formation of Big Picture 2 Films, S.A., with the corporate object of the import, distribution, operation, sale and production of cinema films, videos, audio recordings and other audiovisual products.
The Group's interest in the results and assets and liabilities of the more significant associated companies in the financial years 2010 and 2011 is as follows:
Gain/ (loss) to the Entity Assets Liabilities Revenue Net income % owned Group Upstar 58 630 205 58 575 055 17 750 827 34 919 30,00% 10 476 Distodo 2 488 896 411 927 2 080 331 260 529 50,00% 130 264 Canal 20 TV 71 769 56 596 2 039 ( 4 690) 50,00% ( 2 345)
138 395
Gain/ (loss) to the Entity Assets Liabilities Revenue Net income % owned Group Upstar 91 057 860 90 969 434 32 457 074 33 276 30,00% 9 983 Finstar 33 294 878 93 178 592 52 709 347 ( 34 039 726) 30,00% ( 10 211 918) Distodo 877 525 200 411 1 291 531 ( 204 457) 50,00% ( 102 229) Big Picture 2 Films 1 141 347 1 161 313 944 475 ( 69 966) 20,00% ( 13 994) Canal 20 TV 66 359 56 596 9 763 ( 5 411) 50,00% ( 2 705) - ( 10 320 863)
29. Investments held to maturity
The balance relates to Bonds acquired by the Group in November 2011 totalling 20.489 million euros, maturing in September 2013.
30. Financial assets available for sale
At 31 December 2010 and 2011, the item “Financial assets available for sale” was composed as follows:
152 Consolidated Report and Accounts 2011 WorldReginfo - 102c94b6-b9f2-40fb-aba5-5d1c547744be ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
31-12-2010 31-12-2011
Investment fund for cinema and audiovisuals 21 746 485 21 746 485 Other 51 726 76 726 21 798 211 21 823 211
The balance stated in this item relates mainly to the Cinema and Audiovisual Investment Fund set up in 2007, in compliance with Article 67 of Decree-Law 227/2006 of 15 November.
The fund was established to invest in cinematographic, audiovisual and multiplatform works, with the aim of increasing and improving the supply and potential value of these productions.
ZON Multimédia subscribed for 30.12% of the units in this fund jointly with other audiovisual companies. The item “Accounts Payable” (see Note 36) includes the value of the contribution obligation to the fund, totalling 17 479 127 Euros, corresponding to the current value of the instalments due.
31. Intangible assets
During the years ended on 31 December 2010 and 31 December 2011, the movements in acquisition costs and accumulated amortisation in this item were as follows:
Foreign currency translation 31-12-2009 Increases adjustments Other 31-12-2010 Cost: Industrial property and other rights 417 783 360 63 389 383 303 ( 473 219) 480 699 827 Goodwill 175 497 342 - - - 175 497 342 Other intangible assets 5 191 442 2 072 308 - - 7 263 750 Intangible assets in-progress 338 493 5 329 - ( 338 034) 5 788
598 810 637 65 467 020 303 ( 811 253) 663 466 707
Accumulated amortization: Industrial property and other rights 242 961 135 79 408 171 286 120 522 322 490 114 Other intangible assets 2 090 211 2 153 858 - - 4 244 069
245 051 346 81 562 029 286 120 522 326 734 183
353 759 291 ( 16 095 009) 17 ( 931 776) 336 732 524
Foreign currency translation 31-12-2010 Increases adjustments Other 31-12-2011 Cost Industrial property and other rights 480 699 827 52 121 309 10 046 ( 147 797 742) 385 033 440 Goodwill 175 497 342 - - - 175 497 342 Other intangible assets 7 263 750 1 905 815 - 5 329 9 174 894 Intangible assets in-progress 5 788 78 750 - ( 5 329) 79 209
663 466 707 54 105 874 10 046 ( 147 797 742) 569 784 885 Accumulated amortization Industrial property and other rights 322 490 114 72 389 787 6 512 ( 146 229 589) 248 656 824 Other intangible assets 4 244 069 2 217 932 - - 6 462 001
326 734 183 74 607 719 6 512 ( 146 229 589) 255 118 825
336 732 524 ( 20 501 844) 3 534 ( 1 568 155) 314 666 059
Consolidated Report and Accounts 2011 153 WorldReginfo - 102c94b6-b9f2-40fb-aba5-5d1c547744be ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
At 31 December 2011, the item “Industrial Property and other rights” mainly includes a net amount of 74.995 million euros (2010: 89.901 million euros) relating to contracts for the exclusive acquisition of satellite capacity between ZON TV Cabo and Hispasat, which are recorded as finance leases.
The balance mainly relates to i) contracts for the purchase of exclusive distribution network capacity utilisation rights; ii) the contract entered into with PPTV - PUBLICIDADE DE PORTUGAL E TELEVISAO, S.A. for the acquisition of royalty and broadcasting rights for the professional football matches of the Liga ZON Sagres and the Liga Orangina (Note 24). This contract relates to the broadcasting rights for four football seasons, but only the amount which relates to the 2011/2012 season is recorded in “Intangible Assets”, as the rights are being amortised over the period in which the football season occurs.
At 31 December 2010 and 2011, the Goodwill relating to controlled companies was distributed as follows:
31-12-2010 31-12-2011 TVTEL 78.334.505 78.334.505 ZON LM Audiovisuais 52.164.339 52.164.339 ZON LM Cinemas 24.436.167 24.436.167 Bragatel 10.198.608 10.198.608 Pluricanal Santarém 5.065.438 5.065.438 ZON TV Cabo Madeirense 3.928.957 3.928.957 Pluricanal Leiria 1.361.828 1.361.828 Teliz 7.500 7.500 175.497.342 175.497.342
Impairment tests on Goodwill
Goodwill was allocated to the cash-generating units of each reportable segment, as follows:
31-01-2010 31-01-2011
Pay TV , broadband Pay TV , broadband and voice Audiovisuals Total and voice Audiovisuals Total
TVTel 78 334 505 - 78 334 505 78 334 505 - 78.334.505 ZON LM Audiovisuais - 52 164 339 52 164 339 - 52 164 339 52.164.339 ZON LM Cinemas - 24 436 167 24 436 167 - 24 436 167 24.436.167 Bragatel 10 198 608 - 10 198 608 10 198 608 - 10.198.608 Pluricanal Santarém 5 065 438 - 5 065 438 5 065 438 - 5.065.438 ZON TV Cabo Madeirense 3 928 957 - 3 928 957 3 928 957 - 3.928.957 Pluricanal Leiria 1 361 828 - 1 361 828 1 361 828 - 1.361.828 Teliz 7 500 - 7 500 7 500 - 7.500 98 896 836 76 600 506 175 497 342 98 896 836 76 600 506 175 497 342
In 2011 impairment tests were performed based on assessments of the current use value and in accordance with the discounted cash flow method, which corroborate the recoverability of the book value of the Goodwill. The amounts in these assessments are based on the historical performances and forecast growth of the businesses and their markets, incorporated in medium to long term plans approved by the Board.
These estimates are based on the following assumptions:
154 Consolidated Report and Accounts 2011 WorldReginfo - 102c94b6-b9f2-40fb-aba5-5d1c547744be ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Pay TV, broadband and voice ZON LM Audiovisuais ZON LM Cinemas Discount rate 8,8% 8,8% 8,8% Assessment period 8 years 8 years 3 years EBITDA* growth 6,3% 2,2% -2,7% Perpetuity Growth rate 2,0% 2,0% 2,0% i) EBITDA = Operational Result + Depreciation and Amortisation
The number of years specified in the impairment tests depends on the degree of maturity of the various businesses and markets, and were determined on the basis of the most appropriate criterion for the valuation of each cash-generating unit. Where the forecast market growth, revenue and cash flow are higher than the perpetuity growth rate after 2016, the assessments are performed for periods longer than 5 years, which is normal market practice in valuing telecommunications and Pay TV businesses.
Sensitivity analyses were performed on variations in discount rates of approximately 10%, from which no impairments resulted.
Sensitivity analyses were also performed for a perpetuity growth rate of 0%, from which no impairments also resulted.
32. Tangible assets
During the years ended on 31 December 2010 and 31 December 2011, the movements in acquisition costs and accumulated depreciation in this item were as follows:
Foreign currency translation 31-12-2009 Increases Impairment adjustments Other 31-12-2010 Cost Land 2 547 666 - - - ( 361 146) 2 186 520 Buildings and other constructions 53 454 398 1 273 961 - 4 605 ( 677 328) 54 055 636 Basic equipment 1 000 279 349 190 604 256 - 764 ( 5 427 387) 1 185 456 982 Transportation equipment 9 902 859 2 576 908 - ( 166) ( 1 575 740) 10 903 861 Tools and dies 351 122 3 516 - 34 ( 1 466) 353 206 Administrative equipment 122 632 659 11 945 925 - 444 203 598 134 782 626 Other tangible assets 26 863 343 1 729 190 - - 186 019 28 778 552 Tangible assets in-progress 14 641 795 23 983 027 - - ( 4 306 094) 34 318 728 1 230 673 190 232 116 783 - 5 681 ( 11 959 545) 1 450 836 111
Accumulated depreciation Buildings and other constructions 24 653 495 3 937 821 55 544 1 226 ( 554 139) 28 093 947 Basic equipment 547 360 871 112 024 796 208 262 ( 597) ( 6 005 574) 653 587 758 Transportation equipment 5 317 641 1 901 175 - ( 167) ( 1 483 947) 5 734 702 Tools and dies 321 791 16 722 - 35 ( 1 436) 337 112 Administrative equipment 75 455 346 16 747 554 2 220 448 ( 1 043 316) 91 162 252 Other tangible assets 22 991 765 3 104 482 759 - ( 24 950) 26 072 056
676 100 909 137 732 549 266 785 945 ( 9 113 362) 804 987 828 554 572 281 94 384 232 ( 266 785) 4 736 ( 2 846 183) 645 848 283
Consolidated Report and Accounts 2011 155 WorldReginfo - 102c94b6-b9f2-40fb-aba5-5d1c547744be ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Foreign currency translation 31-12-2010 Increases Impairment adjustments Other 31-12-2011 Cost Land 2 186 520 - - - ( 640 566) 1 545 954 Buildings and other constructions 54 055 636 507 475 - 93 969 ( 1 773 314) 52 883 767 Basic equipment 1 185 456 982 127 951 832 - 13 863 11 988 990 1 325 411 666 Transportation equipment 10 903 861 2 299 090 - 3 495 ( 935 753) 12 270 691 Tools and dies 353 206 734 - 290 ( 4 366) 349 862 Administrative equipment 134 782 626 7 862 151 - 21 577 2 124 887 144 791 240 Other tangible assets 28 778 552 1 788 300 - 547 219 919 30 787 317 Tangible assets in-progress 34 318 728 5 685 627 - - ( 22 014 951) 17 989 410
1 450 836 111 146 095 208 - 133 741 ( 11 035 154) 1 586 029 907
Accumulated depreciation Buildings and other constructions 28 093 947 3 544 034 6 293 22 447 ( 1 299 191) 30 367 529 Basic equipment 653 587 758 117 796 733 ( 702 948) 4 404 ( 6 280 395) 764 405 551 Transportation equipment 5 734 702 1 840 700 - 1 154 ( 850 758) 6 725 799 Tools and dies 337 112 7 700 - 811 ( 774) 344 848 Administrative equipment 91 162 252 18 291 193 8 105 15 309 ( 754 043) 108 722 817 Other tangible assets 26 072 056 2 196 834 1 294 - 66 764 28 336 947
804 987 828 143 677 194 ( 687 255) 44 125 ( 9 118 397) 938 903 490
645 848 283 2 418 015 687 255 89 616 ( 1 916 758) 647 126 417
Tangible assets also include basic equipment relating to customer networks and Pay TV distribution networks installed on third party property or in the public domain, representing a net value of 549 million euros (2010: 526 million euros). This equipment includes network terminal equipment, which at the end of the year accounted for a net total of 242 million euros.
The reduction in depreciation and impairment losses for the year arises from: i) the impact of the revision of the useful lives of tangible assets, which totalled 12 million euros; ii) the reduction in impairment losses on terminal equipment as a result of the policy of reinjection of boxes.
Impairment tests of fixed assets assigned to cinema exhibition
During the year ended on 31 December 2011, the Company performed impairment tests of the fixed assets assigned to cinema exhibition. On the basis of the catchment area of each cinema complex, cinemas were grouped as cash-generating units on a regional basis for impairment test purposes. The regional cash-generating units are Lisbon, Porto, Coimbra, Aveiro and Viseu. Cinemas scattered across other regions of the country are considered as individual cash-generating units. No impairment adjustments resulted from this analysis.
33. Other non-current assets
Other non-current assets in 2010 consist mainly of non-current prepaid expenses relating to commissions on commercial paper and debenture loans (which are accrued using the effective rate method). In 2011 these amounts were reclassified in Borrowings (Note 34).
34. Borrowings and loans
At 31 December 2010 and 31 December 2011, the composition of borrowings was as follows:
156 Consolidated Report and Accounts 2011 WorldReginfo - 102c94b6-b9f2-40fb-aba5-5d1c547744be ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
31-12-2010 31-12-2011 Current Non Current Current Non Current Loans: Internal loans 11 376 217 52 999 714 41 304 630 18 453 434 Foreign loans - 97 137 698 - 97 694 457 Commercial paper 30 000 000 475 000 000 350 759 591 354 821 267 Debenture loan - 227 500 000 70 341 472 156 891 137 Financial Leases: Long Term Contracts 45 304 812 108 115 735 32 567 918 89 818 022 Other 5 896 424 12 291 581 4 987 485 11 745 221 92 577 453 973 044 728 499 961 096 729 423 538
34.1. Internal loans
At 31 December 2011, the current and non-current parcels relate to the Group's share of the loans contracted by Sport TV, comprising 6.750 million euros relating to a loan maturing in 2012, and the balance of 53.500 million euros (35.000 million euros current and 18.500 million euros non-current) with quarterly repayments and maturing in 2013.
An amount of 492 thousand euros, corresponding to interest and commissions, was deducted from this amount.
34.2. 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 100 000 000 euros. This contract matures in September 2015 and is intended for investments relating to the implementation of the next generation network.
An amount of 2.260 million euros was deducted from this finance, corresponding to the benefit associated with the fact that the loan is at a subsidised rate and therefore constitutes an investment subsidy (Note 38).
An amount of 181 thousand euros, corresponding to interest and commissions, was deducted from this amount.
34.3. Commercial paper
The Company has borrowings of 705 million euros in the form of commercial paper contracted with eight banks, corresponding to seven programmes bearing interest at market rates. Five grouped programmes of commercial paper with maturities over 1 year totalling 355 million euros are classed as non-current. In view of the fact that the Company has the capacity to unilaterally renew the current issues on or before the programmes’ maturity dates and that they are underwritten by the organiser, the amount concerned, although having current maturity, is classified as non-current for the purposes of presentation in the statement of financial position. The remaining programmes are classified as current.
An amount of 582 thousand euros, corresponding to interest and commissions, was added to this amount.
Consolidated Report and Accounts 2011 157 WorldReginfo - 102c94b6-b9f2-40fb-aba5-5d1c547744be ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
34.4. Debenture loans
The Company has bonds issued via three banks totalling 227.500 million euros with an average maturity of 2.5 years, half-yearly payment of interest and repayment at par in the end of the contracts.
An amount of 122 thousand euros, corresponding to interest and commissions, was deducted from this amount.
34.5. Finance Leases
At 31 December 2010 and 31 December 2011, the item “Long Term Contracts” relates to contracts entered into by ZON TV Cabo for the exclusive acquisition of satellite capacity and the acquisition of distribution network capacity utilisation rights, and to the acquisition of broadcasting rights for the professional football matches of the Liga Sagres and Liga Orangina by Sport TV, and the purchase of digital equipment for the cinemas of ZON Cinemas.
Finance Leases
31-12-2010 31-12-2011 Financial leases - payments: Until 1 year 56 123 907 43 925 412 Between 1 and 5 years 102 655 297 103 561 852 Over 5 years 32 421 998 8 860 015 191 201 202 156 347 279 Future financial costs ( 19 592 650) ( 17 228 633)
Present value of finance lease liabilities 171 608 552 139 118 646
31-12-2010 31-12-2011
The present value of the finance lease liabilities: Until 1 year 51 201 236 37 555 403 Between 1 and 5 years 90 282 916 93 971 769 Over 5 years 30 124 400 7 591 473
171 608 552 139 118 645
All bank loans 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.
Maturity of loans
The maturities of the loans obtained are as follows:
31-12-2010 31-12-2011 Between 1 and 5 Between 1 and 5 Until 1 year years Over 5 years Until 1 year years Over 5 years
Internal loans 11 376 217 52 999 714 - 41 304 630 18 453 434 - Foreign loans - 97 137 698 - - 97 694 457 - Commercial paper 30 000 000 475 000 000 - 350 759 591 354 821 267 - Debenture loan - 227 500 000 - 70 341 472 156 891 137 - Financial Leases 51 201 236 90 282 916 30 124 400 37 555 403 93 971 770 7 591 473 92 577 453 942 920 328 30 124 400 499 961 096 721 832 065 7 591 473
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35. Accounts payable - suppliers
At 31 December 2010 and 2011, current accounts payable to suppliers and other entities had the following composition:
31-12-2010 31-12-2011
Accounts payable trade 128 835 670 143 997 325 Related parties (Note 44) 4 478 588 9 032 931 Advances from customers 2 085 730 77 773
135 399 988 153 108 029
36. Accounts payable - others
At 31 December 2010 and 31 December 2011, “Accounts payable – others” had the following composition:
31-12-2010 31-12-2011 Current Non current Current Non current Fixed assets suppliers 55 358 858 - 32 643 723 - Cinema and audiovisuals investment fund i) 14 827 306 2 462 477 17 479 127 - Related parties (Note 44) 688 899 675 000 - - Other ii) 4 208 037 2 193 837 3 882 080 785 578
75 083 100 5 331 314 54 004 930 785 578
i) This balance relates to the obligation to realise the subscribed units in the Cinema and Audiovisual Investment Fund, as mentioned in Note 30. The recognised liability is measured at the current value of the total obligation and the corresponding financial cost is recognised. In the year ended on 31 December 2011, the cost totalled 189 thousand euros.
At 31 December 2011, the discounted value of the obligation to realise unrealised subscribed units at the corresponding discounted value is as follows:
Discounted Notional amount amount Short-term liabilities 17 500 000 17 479 127 Long-term liabilities - -
17.500.000 17.479.127
ii) Relates mainly to the recognition of the liability related to the Jungo licences contract, as mentioned in Note 27.
37. Accrued expenses
At 31 December 2010 and 31 December 2011, these items were composed as follows:
Consolidated Report and Accounts 2011 159 WorldReginfo - 102c94b6-b9f2-40fb-aba5-5d1c547744be ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
31-12-2010 31-12-2011
Support services and comissions 13 371 252 16 276 114 Vacation pay and bonuses 13 017 625 12 789 381 Programming services i) 12 778 457 5 452 487 Exhibition rights ii) 8 340 575 4 942 103 Advertising 7 460 484 2 613 900 Other support services 6 064 613 8 305 251 Interest to be paid iii) 2 004 187 907 Other accrued expenses 7 415 017 6 096 621 70 452 210 56 476 764
i) Relates to amounts to be invoiced by companies responsible for support services and trading partners. ii) The balance at 31 December 2011 relates to the estimated costs of royalties for cinema distribution. In 2010, this item also included the cost of royalties not yet invoiced by producers, relating to films whose advance relating to the guarantee minimum is already fully utilised, and which in 2011 were reclassified to invoices pending. iii) Accrued interest on financing costs was reclassified to borrowings.
38. Deferred income
At 31 December 2010 and 31 December 2011, this item was composed as follows:
31-12-2010 31-12-2011
Current Non Current Current Non Current
Advance billing 3 361 566 - 2 860 881 - Other deferred income 708 777 - 382 680 - Investment subsidy i) - 2 945 265 531 483 1 882 302
4 070 343 2 945 265 3 775 044 1 882 302
i) Relates to the investment subsidy for the implementation of the next generation network (see Note 34.2).
39. Provisions
At 31 December 2010 and 31 December 2011, the breakdown of provisions between current and non-current was as follows:
31-12-2010 31-12-2011 Current provision Taxes 563 074 563 074 Litigation 2 257 894 2 257 894 Other 7 544 359 1 412 731 10 365 327 Non-current provision Other 12 631 436 23 006 169 22 996 763 27 239 868
160 Consolidated Report and Accounts 2011 WorldReginfo - 102c94b6-b9f2-40fb-aba5-5d1c547744be ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
During the years ended on 31 December 2010 and 31 December 2011, movements in provisions were as follows:
31-12-2009 Increases Decreases Other 31-12-2010 Taxes 579 064 - ( 15 990) - 563 074 Legal actions 137 000 - - 2 120 894 2 257 894 Other risks 17 613 353 10 796 383 ( 8 108 600) ( 125 341) 20 175 795 18 329 417 10 796 383 ( 8 124 590) 1 995 553 22 996 763
31-12-2010 Increases Decreases Other 31-12-2011 Taxes 563 074 - - - 563 074 Legal actions 2 257 894 - - - 2 257 894 Other risks 20 175 795 10 410 156 ( 5 975 422) ( 191 629) 24 418 900 22 996 763 10 410 156 ( 5 975 422) ( 191 629) 27 239 868
The net movements for the years ended on 31 December 2010 and 31 December 2011, reflected in the statement of comprehensive income under “Provisions” are broken down as follows:
12M 10 12M 11 Taxes ( 15 990) - Other liabilities and charges ( 4 302 062) ( 5 975 422) Provisions (Note 13) ( 4 318 052) ( 5 975 422) Interest paid 152 454 158 822 Investments in participated companies (Note 16) 8 032 658 10 215 911 Other ( 1 195 268) 35 423 6 989 844 10 410 156
Provision for other liabilities and charges 2 671 792 4 434 734
The balance in the item “Other risks and contingencies” at 31 December 2010 and 31 December 2011 is composed as follows:
31-12-2010 31-12-2011 Investments in participated companies i) 8 032 658 18 248 569 Asset retirement obligation 4 598 778 4 757 600 Contigencies - other ii) 6 452 204 807 481 Other risks 1 092 155 605 250 20 175 795 24 418 900
i) Amount resulting from the application of the equity method to FINSTAR and Big Picture 2 Films (see Note 16). ii) The amount shown under “Miscellaneous contingencies” relates to provisions for risks and contingencies relating to miscellaneous events/disputes, mainly of a fiscal nature with the exception of income taxes.
Consolidated Report and Accounts 2011 161 WorldReginfo - 102c94b6-b9f2-40fb-aba5-5d1c547744be ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
40. Shareholder's equity
40.1. Share capital
At 31 December 2011, 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 2010 and 31 December 2011 are:
31.12.2010 31.12.2011 % Voting % Voting Shareholder NO.Of Shares Rights NO.Of Shares Rights Caixa Geral de Depósitos, SA 33 795 931 10,93% 33 621 426 10,88% Kento Holding Limited i) 30 909 683 10,00% 30 909 683 10,00% Banco BPI, SA 23 979 874 7,76% 23 344 798 7,55% Telefónica, SA 16 879 406 5,46% 16 879 406 5,46% 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% Ongoing Strategy Investments, SGPS, SA v) 10 649 750 3,45% 10 162 250 3,29% Estêvão Neves - SGPS, SA vi) 9 075 782 2,94% 9 075 782 2,94% Cinveste, SGPS, SA 8 707 136 2,82% 8 707 136 2,82% Grupo Visabeira, SGPS, SA vii) 6 641 930 2,15% 6 641 930 2,15% Norges Bank - - 6 379 164 2,06% Banco Espírito Santo, SA 6 966 448 2,25% 11 861 240 3,84% 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% Credit Suisse Group AG 5 649 670 1,83% - - Cofina, SGPS, SA 15 190 000 4,91% - - Metalgest - Sociedade de Gestão, SGPS, SA iv) 3 985 488 1,29% 3 985 488 1,29% ZON Multimédia (Own Shares) 5 486 0,00% 265 612 0,09%
Total 234 248 561 75,79% 223 645 892 72,35%
i) Under the terms of Article 20, paragraph 1 b) and Article 21 of the Securities Code, this qualifying shareholding is attributable to Isabel José dos Santos, in her capacity as the sole shareholder of Kento. ii) The voting rights corresponding to Espírito Santo Irmãos, SGPS, SA are attributable to Espírito Santo Industrial, SA, Espírito Santo Resources Limited, and Espírito Santo Internacional, SA, companies that control 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. 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, S.A. are attributable to RS Holding, SGPS, S.A. as its majority shareholder and to Isabel Maria Alves Rocha dos Santos as the majority shareholder of RS Holding, SGPS, S.A. vi) The qualifying shareholding of Estêvão Neves – SGPS, SA is attributable to its majority shareholder, José Estêvão Fernandes Neves. vii) Visabeira Investimentos Financeiros, SGPS, SA holds 0.99% of the share capital and voting rights in ZON Multimédia, with 1.16% being directly held by Grupo Visabeira, SGPS, SA.
162 Consolidated Report and Accounts 2011 WorldReginfo - 102c94b6-b9f2-40fb-aba5-5d1c547744be ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
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 attributed to its majority shareholder, Dr. João Pereira Coutinho.
40.2. 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. In addition, the applicable accounting rules determine that gains or losses on the disposal of own shares are stated in reserves.
At 31 December 2011 there were 265 612 own shares, representing 0.08593% of the share capital (31 December 2010: 5486 own shares, representing 0.00177% of the share capital).
Movements in the years ended on 31 December 2010 and 31 December 2011 were as follows:
Quantity Value Balance as at 31 December 2009 14 006 437 87 236 630 Acquisition of treasury shares 438 499 1 685 565 Sale of treasury shares ( 14 032 765) ( 86 983 207) Distribution of treasury shares ( 406 685) ( 1 921 683)
Balance as at 31 December 2010 5 486 17 305
Balance as at 31 December 2010 5 486 17 305 Acquisition of treasury shares 462 097 1 196 376 Distribution of treasury shares ( 201 971) ( 659 280)
Balance as at 31 December 2011 265 612 554 401
40.3. Reserves
Legal reserve
Company law and ZON Multimédia’s Articles of Association establish that at least 5% of the Company’s annual net profit must be used to build up the legal reserve until it corresponds to 20% of the share 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.
Other reserves
Movements in “Other reserves” in the years ended on 31 December 2010 and 31 December 2011 were as follows:
Consolidated Report and Accounts 2011 163 WorldReginfo - 102c94b6-b9f2-40fb-aba5-5d1c547744be ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Free reserves Other reserves Total Balance as at 31 December 2009 151 434 485 45 760 936 197 195 421 Distribuition of treasury shares 1 921 683 ( 1 921 683) - Aquisition of treasury shares ( 1 685 565) 1 685 565 - Sale of treasury shares i) 2 860 506 ( 15 413 944) ( 12 553 438) Dividends (Note 20) ( 10 123 224) - ( 10 123 224) Undistributed profit - ( 20 553 405) ( 20 553 405) Share plan - 1 994 495 1 994 495 Interest rate derivatives - ( 731 495) ( 731 495) Exchange rate derivatives - ( 204 451) ( 204 451) Other - 122 124 122 124
Balance as at 31 December 2010 144 407 885 10 738 142 155 146 027
Balance as at 31 December 2010 144 407 885 10 738 142 155 146 027 Distribuition of treasury shares 659 280 ( 1 318 560) ( 659 280) Aquisition of treasury shares ( 1 196 376) 1 196 376 - Dividends (Note 20) ( 14 277 286) - ( 14 277 286) Undistributed profit - 19 975 669 19 975 669 Share plan - 3 125 670 3 125 669 Interest rate derivatives - ( 305 700) ( 305 700) Exchange rate derivatives - 573 087 573 087 Other - ( 659 327) ( 659 327) Balance as at 31 December 2011 129 593 502 33 325 358 162 918 859
i) On 29 January 2010 the General Meeting of Shareholders of ZON Multimédia approved the sale of 14 006 437 own shares, representing 4.53% of the Company’s share capital, to Kento Holding Limited at a unit price of 5.30 euros per share, giving a total price of 74 196 999 euros. These shares were registered for the amount of 86 897 940 euros (see Note 40.2).
41. Derivative financial instruments
41.1. 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, broadband and voice businesses. 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 10.724 million dollars (31 December 2010: 5.212 million dollars), the fair value of which is approximately 532 thousand euros (31 December 2010: -288 thousand euros) which is stated in liabilities as a contra entry in shareholder’s equity.
41.2. Interest rate derivatives
At 31 December 2011, ZON had contracted seven interest rate swaps to hedge future interest payments, of which four were contracted by ZON Multimédia and the remaining three by Sport TV.
164 Consolidated Report and Accounts 2011 WorldReginfo - 102c94b6-b9f2-40fb-aba5-5d1c547744be ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
The four swaps contracted by ZON Multimédia total 407.500 million euros (31 December 2010: 480.000 million euros), with maturities of 6 months to four years from the reference date. The fair value of the interest rate swaps, totalling -2.560 million euros (31 December 2010: -2.152 million euros) is stated in liabilities, with a contra entry for this amount stated in equity.
The three swaps contracted by Sport TV total 26.750 million euros (31 December 2010: 31.250 million euros), maturing in 2012. The fair value of the interest rate swaps, totalling -17 thousand euros ((31 December 2010: -132 thousand euros) is stated in liabilities, with a contra entry for this amount stated in shareholders’ equity.
31-12-2010 Asset Liability Notional Current Non Current Current Non Current
Derivative Financial instruments Interest rate swaps 511 250 000 - - - 2 283 651 Exchange rate forward 3 900 569 - - - 287 959
515 150 569 - - - 2 571 610
31-12-2011 Asset Liability Notional Current Non Current Current Non Current
Derivative Financial instruments Interest rate swaps 434 250 000 - - 350 214 2 226 692 Exchange rate forward 8 287 860 531 882 - - -
442 537 861 531 882 - 350 214 2 226 692
Movements during the year ended on 31 December 2011 were as follows:
31-12-2010 Result Equity 31-12-2011 Fair value interest rate swaps ( 2 164 862) - ( 412 044) ( 2 576 906) Fair value exchange rate forward ( 287 959) - 819 841 531 882 Interests ( 118 789) 118 789 - - Cashflow hedge derivatives ( 2 571 610) 118 789 407 797 ( 2 045 024) Deferred income tax liabilities (Note 17a)) - - ( 154 246) ( 154 246) Deferred income tax assets (Note 17a)) 660 473 - 22 835 683 308
660 473 - ( 131 411) 529 062 ( 1 911 137) 118 789 276 386 ( 1 515 962)
In the years ended on 31 December 2010 and 2011, the impact of derivatives on the statement of comprehensive income was 4.403 million euros and 1.683 million euros respectively.
42. Guarantees and financial undertakings
42.1. Guarantees
At 31 December 2010 and 31 December 2011, the Group had furnished sureties, guarantees and comfort letters in favour of third parties corresponding to the following situations:
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31-12-2010 31-12-2011 Bank guarantees given to other entities: Financial instituitions i) 100 000 000 100 492 201 Tax authorities ii) 26 611 362 23 076 101 Suppliers iii) 9 093 579 13 361 921 Other iv) 7 640 759 11 897 024
143 345 700 148 827 247
Promissories v) 20 000 000 20 000 000 Confort letters vi) 8 531 657 8 810 573
i) This amount relates mainly to guarantees furnished by ZON Multimédia in connection with the loan from the EIB. ii) Guarantees demanded by the Tax Authorities in connection with tax proceedings contested by the Company and its subsidiaries (Note 45.3). iii) This amount mainly includes 4.211 million euros relating to bank guarantees provided to cinema lessors and 5.128 million euros relating to a bank guarantee provided to Multi38 under the terms of a promissory lease for the new building. 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 in the total amount of the loan. vi) In connection with the finance obtained by FINSTAR from Banco Caixa Totta and Banco BIC, totalling 38 million USD, ZON Multimédia signed two comfort letters accepting liability for up to 30% of the total amount of the loan.
The following guarantees were furnished in connection with the finance obtained by Sport TV totalling 107 million euros: 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.
42.2. Operating leases
The rentals due on operating leases have the following maturities:
31-12-2010 31-12-2011 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 26 118 567 75 894 733 59 732 086 24 464 718 80 278 910 79 210 241 Equipment 138 637 140 449 - 142 825 146 002 - Vehicles 161 709 152 938 - 87 530 65 846 -
26 418 913 76 188 120 59 732 086 24 695 073 80 490 758 79 210 241
The increase in rents payable for shops, cinemas and other buildings is attributable to the inclusion of the lease on the new head office.
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42.3. 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 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 “LIGA ORANGINA” [ORANGINA LEAGUE] (formerly the “LIGA VITALIS”).
Sport TV has secured television broadcasting rights for sporting events in future seasons. These rights include matches of the Portuguese Football League, the major European Football Leagues, the Champions League and the UEFA Europa League, the UEFA European Football Championship 2012 and the Formula 1 World Championship.
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:
A commitment to vacate space in secondary and tertiary network infrastructures by removing or selling integrated cables in network cells that are not included in the previous commitment, or that have not been disposed of under the terms of the previous commitment;
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.
43. Notes to the Statement of Consolidated Cash Flows
The Statement of Cash Flows was prepared in accordance with the requirements of IAS 7. The most significant aspects are as follows:
43.1. Cash received from financial investments
The item "Cash received from financial investments" is composed as follows:
12M2010 12M2011 Disposal of investment - Lisboa TV 6.666.666 6.666.666 6.666.666 6.666.666
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43.2. Cash received from loans granted
12M2010 12M2011
Loans to Upstar 19.900.000 4.950.955 Loans to Sport TV 33.300.000 - 53.200.000 4.950.955
43.3. Cash received from dividends
The item "Cash received from dividends" is composed as follows:
12M2010 12M2011 Distodo 298.956 597.698 Outros 27.306 298.956 625.004
43.4. Payments relating to loans granted
The item "Payments relating to loans given" is composed as follows:
12M2010 01-07-1905 Loans to Upstar 27.802.350 37.731.225 27.802.350 37.731.225
43.5. Dividends / distribution of earnings
The item "Dividends" is composed as follows:
12M2010 12M2011 ZON Multimédia 49.454.560 49.453.510 ZON TV Cabo Madeirense 464.539 438.311 ZON TV Cabo Açoreana 144.745 77.673 Grafilme 113.322 26.397 50.177.166 49.995.891
44. Related Parties
44.1. Summary list of Related Parties
Detailed summary of Related Parties as at 31 December 2011:
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Related Parties Caixa Geral de Depósitos, SA Kento Holding Limited 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 Banco Espírito Santo, SA Grupo Visabeira, SGPS, SA Norges Bank SGC, SGPS, SA ESAF - Espírito Santo Fundos de Investimento Mobiliário, SA BES Vida - Companhia de Seguros, SA Credit Suisse Group AG 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 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
44.2. Balances and transactions between related parties i) 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 2010 and 31 December 2010 and transactions in the years ended on 31 December 2010 and 31 December 2011 between the ZON Multimédia Group and its associated companies, joint ventures and other related parties were as follows:
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2010:
Sales and Expenses and services services Interest Transactions rendered obtained Interest income expenses Caixa Geral de Depósitos 18 400 82 754 7 809 6 942 834 Banco BPI 2 493 1 092 573 2 937 108 5 714 030 Banco Espírito Santo 1 476 868 015 413 122 4 088 835 Sport TV - 39 083 444 90 937 - Dreamia Holding BV 184 147 - 38 804 - Dreamia SA 2 360 999 231 903 - - Upstar Comunicações 4 502 927 - 494 130 - Distodo 682 275 - - - Fundo Investimento para Cinema e Audiovisual 2 230 1 161 293 - - Canal 20 TV, SA - - - 379 639
7 754 947 42 519 982 3 981 910 17 125 338
Accounts Accounts Accruals and receivable - receivable - Accounts Accounts Accruals and deferred Balances trade other payable - trade payable - other deferred assets liabilities Banco Espírito Santo - - 1 146 - 769 817 213 408 Caixa Geral de Depósitos - 321 - - 2 911 880 11 381 Banco BPI - 149 1 483 - 1 338 366 570 206 Metalgest - 450 741 - - - - Sport TV - - 3 946 662 - - 2 526 479 Dreamia Holding BV 137 661 775 411 - 675 000 - - Dreamia SA 1 044 856 821 907 231 055 - - 68 812 Upstar Comunicações 2 407 498 9 267 018 96 370 688 899 - 352 298 Finstar 3 685 615 2 608 - - - - Distodo 675 - 201 283 - - - Fundo Investimento para Cinema e Audiovisual - - - 17 289 783 - - Canal 20 TV, SA - - 589 - - -
7 276 305 11 318 155 4 478 588 18 653 682 5 020 063 3 742 584
Other financial Derivatives Derivative Balances Loan obtained aplications assets Liabilities Financial leases Banco Espírito Santo 125 200 322 - - 1 376 581 12 023 Caixa Geral de Depósitos 150 200 322 140 066 150 - 347 985 7 258 738 Banco BPI 140 000 000 80 308 652 - 321 317 1 095 114 415 400 645 220 374 803 - 2 045 883 8 365 875
2011:
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Sales and Expenses and services services Interest Transactions rendered obtained Interest income expenses Caixa Geral de Depósitos 15 000 - 3 675 6 421 052 Banco Espírito Santo - 1 720 450 11 800 702 17 110 243 Banco BPI 1 492 639 831 1 569 551 8 358 780 Fundação Colecção Berardo - 63 750 - - Sport TV 104 899 34 779 193 - - Dreamia Holding BV 144 096 - 72 578 - Dreamia SA 2 225 005 539 538 - - Mstar SA - - ( 1 271) - Upstar Comunicações 8 549 191 132 322 1 269 622 - Finstar 1 616 715 - - - Distodo 2 230 777 165 - - Canal 20 TV, SA - 642 - - Big Picture 2 Films, SA 100 542 260 - - Fundo Investimento para Cinema e Audiovisual - - - 189 344
12 658 728 39 195 151 14 714 857 32 079 419
Accounts Accounts Accruals and receivable - receivable - Accounts Accounts Accruals and deferred Balances trade other payable - trade payable - other deferred assets liabilities Caixa Geral de Depósitos - - 863 - - - Banco Espírito Santo ------Banco BPI 153 - - - - - Metalgest 450 741 - - - - - Sport TV 3 173 176 272 7 477 150 - 17 521 2 445 433 Dreamia Holding BV 292 310 807 500 - - - - Dreamia SA 387 412 269 052 265 776 - 7 500 11 871 Mstar SA 95 829 598 796 - - - - Upstar Comunicações 1 403 371 41 643 050 1 091 304 - - 315 416 Finstar 3 022 769 - 32 572 - - - Distodo 686 - 19 685 - - - Big Picture 2 Films, SA - - 144 309 - - 333 308 Fundo Investimento para Cinema e Audiovisual - - - 17 479 127 - - Canal 20 TV, SA - - 1 272 - - -
5 656 444 43 494 670 9 032 931 17 479 127 25 021 3 106 028
Other financial Derivatives Derivative Financial Balances Loan obtained aplications assets Liabilities Leases Caixa Geral de Depósitos 145 584 887 - - 585 836 3 383 Banco Espírito Santo 372 662 951 256 362 143 332 424 5 996 5 183 072 Banco BPI 139 950 930 1 050 128 - 221 991 569 427 658 198 768 257 412 271 332 424 813 823 5 755 882
The Company regularly performs transactions and enters into contracts with various companies 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. ii) The remuneration paid to the directors of ZON Multimédia, SGPS in the years ended on 31 December 2010 and 2011 was as follows:
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12M 10 12M 11
Share-based Share-based Fixed Fixed Bonus compensation Bonus compensation Remuneration Remuneration plans plans
Executive management 1 855 014 900 000 264 214 1 855 014 810 000 478 795 Non executive management 819 770 - - 808 473 - -
2 674 784 900 000 264 214 2 663 487 810 000 478 795
The remuneration paid to senior executives of the Group in the years ended on 31 December 2010 and 2011 was as follows:
12M 10 12M 11 Fixed Remunerations 6 128 420 6 163 087 Bonus 1 854 473 1 512 240 Share-based compensation plans 547 085 963 450
8 529 978 8 638 777
The remuneration paid to senior executives of the Group in 2010, is different from the reported last year because does not include social taxes.
The average number of senior executives of the Group is 39 (12M2010:41).
The variable remuneration stated above corresponds to the value of accrued performance bonuses in 2011 which are payable in 2012.
All remuneration and bonuses are short term. The share incentive scheme includes a medium and long term amount of 786 thousand euros.
44.3. 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; Dreamia BV, a holding company; and Dreamia SA, whose business is the television broadcasting of the MOV, Hollywood, Panda and Panda Biggs channels. It also has a 30% interest in MSTAR, whose business is the distribution of satellite TV and the operation and supply of telecommunications services.
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 December 2010 and 31 December 2011, and in the consolidated statement of comprehensive income for the years ended on 31 December 2010 and 31 December 2011.
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31-12-2010 31-12-2011
Company (a) Eliminations (b) Contribution (c) Company (a) Eliminations(b) Contribution (c) Current assets 60 418 140 ( 7 790 501) 52 627 639 82 973 309 ( 11 064 181) 71 909 128 Non-current assets 79 369 835 ( 1 430 982) 77 938 853 39 947 678 ( 1 441 743) 38 505 935 Accounts receivable - trade 40 153 167 - 40 153 167 ( 6 655) - ( 6 655) Accounts receivable - other 1 405 982 ( 1 405 982) - 1 416 743 ( 1 416 743) - Investments in group companies: 25 000 ( 25 000) - 25 000 ( 25 000) - Intangible assets 29 050 459 - 29 050 459 29 847 643 - 29 847 643 Tangible assets 8 376 411 - 8 376 411 8 524 313 - 8 524 313 Deferred tax assets 358 816 - 358 816 140 634 - 140 634
Total assets 139 787 975 ( 9 221 483) 130 566 492 122 920 987 ( 12 505 924) 110 415 063
Current liabilities 52 389 371 ( 3 026 620) 49 362 751 66 704 761 ( 2 175 902) 64 528 859 Non- current liabilities 56 767 075 ( 2 122 657) 54 644 419 22 202 475 ( 2 203 392) 19 999 083 Borrowings 53 928 519 - 53 928 519 19 213 504 - 19 213 504 Accounts payable-other 2 755 982 ( 2 080 982) 675 000 2 918 996 ( 2 133 417) 785 579 Accrued expenses 82 374 ( 41 674) 40 700 69 975 ( 69 975) - Derivative financial instruments 200 - 200 - - -
Total liabilities 109 156 445 ( 5 149 276) 104 007 170 88 907 236 ( 4 379 294) 84 527 942
31-12-2010 31-12-2011
Company (a) Eliminations(b) Contribution (c) Company (a) Eliminations(b) Contribution (c) Total revenue 86 848 474 ( 40 267 777) 46 580 697 83 543 477 ( 36 443 840) 47 099 637 Total expense 79 592 912 ( 3 239 867) 76 353 045 79 824 067 ( 3 356 763) 76 467 304
7 255 562 ( 37 027 910) ( 29 772 348) 3 719 410 ( 33 087 077) ( 29 367 667) Net income i) Percentage interest in the individual accounts of the companies at the date stated; ii) Inter-company eliminations; iii) Amounts included in the consolidated statements of financial position at 31 December 2010 and 31 December 2011 and in the consolidated statements of comprehensive income for the years ended on 31 December 2010 and 2011 as a result of consolidation by the proportional method.
45. Legal actions
45.1. 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.
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 should be added that a decision has already been made by some municipalities in connection with internal appeals, which have either subscribed to the
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Group's interpretation or decided that they may only opt for one tax or the other, accepting that it is not possible to levy both the TMDP and the public highway Occupancy Tax.
Meanwhile, various judicial judgments 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.
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 and usufruct of property 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.
45.2. Legal actions with regulators
By decision notified on 1 September 2009, the Competition Authority (“AdC”) fined ZON Multimédia and ZON TV Cabo Portugal 8 046 243 euros, corresponding to 2% of turnover in 2003 for the alleged commission of the administrative offence of “abuse of dominant position” in a case which also involves Portugal Telecom, SGPS and PT Comunicações, SA and which relates to events that occurred while ZON Multimédia and ZON TV Cabo Portugal were part of the Portugal Telecom Group. ZON Multimédia and ZON TV Cabo Portugal have applied for judicial review of the decision. As that application has been lodged, there is no need to pay the fine until there is a final court ruling on the legality of the AdC’s decision. By decision of the Commercial Court in October 2011, the administrative offence proceedings were declared statute-barred.
On 8 July 2009, ZON TV Cabo was notified by the Competition Authority 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 Portugal, as it did against the majority of Portuguese electronic communications operators, for infringement of the portability regulations. No final decisions have been made in these proceedings.
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 and 2010) for carrying on the business of Electronic Communications Services Networks Supplier in the amounts of 1 086 705 euros and 2 325 245 euros, 41 966
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euros and 78 526 euros, and 55 160 euros and 109 367 euros, respectively, and seeking reimbursement of the amounts meanwhile paid in connection with the enforcement proceedings. This fee is a percentage decided annually by ANACOM (in 2009 it was 0.5826%) of operators’ electronic communications revenues. The scheme is being introduced gradually: 1/3rd in the first year, 2/3rds in the second year and 100% in the third year. ZON TV Cabo Portugal, 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 purposes of the application of the percentage and the calculation of the fee payable, and revenues from television content should be excluded.
ZON submitted a bid, via a company to be set up, in a public tender for the licensing of a nationwide freeview general programme service, to be broadcast via terrestrial Hertzian channels. 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.
45.3. Tax authorities
During the course of the 2005 to 2010 financial years, certain companies of the ZON Group were the subject of tax inspections for the 2002 and 2005 to 2009 financial years. Following these inspections, ZON Multimédia, as the controlling company of the Tax Group, was notified of the corrections made to the Group's tax losses by the Tax Inspection Service. The Company considered that the corrections were unfounded, and appealed against the amounts mentioned. In December 2011, ZON Multimédia brought an action for judicial review of these corrections.
During the course of the 2007 to 2011 financial years, ZON Multimédia, ZON TV Cabo, ZON Conteúdos and ZON TV Cabo SGPS were the subject of tax inspections for the 2004 to 2010 financial years. Following these inspections, the companies were notified to make payments corresponding to the corrections made by the Tax Inspection Service to those financial years. 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 42.
The following proceedings are in progress:
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Year Company Revised years Value 2007 ZON Multimédia 2004 109 216 2007 ZON Multimédia 2005 445 735 2010 ZON Multimédia 2008 660 070 2011 ZON Multimédia 2009 851 936 2007 ZON TV Cabo 2004 2 023 946 2007 ZON TV Cabo 2005 1 694 428 2008 ZON TV Cabo 2006 2 047 890 2009 ZON TV Cabo 2007 4 011 882 2010 ZON TV Cabo 2008 2 061 835 2010 ZON TV Cabo 2009 2 076 981 2011 ZON Conteúdos 2009 145 672 2011 ZON TV Cabo SGPS 2009 407 222 2011 ZON TV Cabo SGPS 2010 970 994 17 507 807
The Board of Directors of ZON Multimédia, based on information from its tax advisers, believes that these and any other revisions and corrections to the tax declarations for the financial years in the period under review, as well as any other contingencies of a fiscal nature, will not have a significant effect on the consolidated financial statements as at 31 December 2011, except for those situations which have been the subject of provisions (Note 39).
45.4. Actions by PT against ZON
PT brought two actions in Funchal Judicial Court and Ponta Delgada Judicial Court, one against ZON TV Cabo Madeirense and the other against ZON TV Cabo Açoreana, claiming payment of 1 608 464 euros and 924 641 euros, respectively, plus accrued interest until the date of full settlement, for the alleged use of ducts, supply of the MID service and supply of video and audio channels. In the case of ZON TV Cabo Madeirense, the suit also involves the operating, maintenance and management costs of the Madeira/Porto Santo undersea cable and the use of two fibre optic circuits.
The two companies contested the action, in particular the prices concerned, the services and PT’s legal capacity in respect of the ducts. The outcome of the proceedings is awaited.
In a decision handed down on 19 July, the court found for ZON TV Cabo Açoreana. PT has not appealed the decision.
The action against ZON TV Cabo Madeirense is currently at the judgment stage.
46. 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 2011 under the Share Plans approved in 2008, 2009 and 2010 was 201 971 shares.
In addition, the Group recognised liabilities in respect of the 2008, 2009 and 2010 Plans, which extend until 2015, totalling 6 804 855 euros – 1 950 854 euros in 2008, 1 591 669 euros in 2009, 1 400 571 euros in 2010 and 1 753 339 euros in 2011.
As stated in Note 2.17, the fair value on the allocation date was determined based on the listed price of the equity instruments at the grant date.
In addition, in the first half of 2011 ZON implemented the Share Savings Plan, also established in the By-Law approved by the General Meeting of Shareholders. This plan is open to all employees who, if they meet internally decided criteria, may invest up to 10% of their annual salary in this plan, up to a maximum of €7500 per annum, with the benefit of purchasing shares at a 10% discount.
Under the Share Savings Plan, which was launched in 2011, ZON employees bought 20 044 shares.
47. Subsequent events
In February 2012, the Group launched a fully subscribed commercial paper programme with Caixa Geral de Depósitos totalling 100 million euros maturing in 2015. This new credit facility replaces the similar, previous commercial paper programme totalling 125 million euros, which will mature during 2012.
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Annexes
ANNEX I
a) Companies included in the consolidation by the full consolidation method
b) Associated companies
c) Jointly controlled companies
d) Companies stated 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 31-12-2010 31-12-2011 31-12-2011 ZON Multimédia - Serviços de Lisbon Management of investments in the multimedia business Telecomunicações e Multimédia, SGPS, ZONS.A. 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 investment in television by cable market 100,00% ZON TV Cabo (100%) 100,00%
ZON Conteúdos - Actividade de Televisão Lisbon Production and sale of television programs and advertising management 100,00% ZON Televisão por Cabo 100,00% e de Produção de Conteúdos, S.A. (100%) ZON Lusomundo Audiovisuais, S.A. Lisbon Import, distribution, commercialization and production of audiovisual 100,00% ZON Multimédia (100%) 100,00% products Grafilme - Sociedade Impressora de Lisbon Providing services on audiovisual subtitling 55,56% ZON LM Audiovisuais 55,56% Legendas, Lda. (55,56%) ZON Audiovisuais, SGPS S.A. Lisbon Management of investment 100,00% ZON LM Audiovisuais 100,00% (100%) ZON Lusomundo TV, Lda. Lisbon Movies distribution, editing, distribution, commercialization and 100,00% ZON Audiovisuais SGPS 100,00% production of audiovisual products S.A. (100%) ZON Lusomundo Cinemas , S.A. Lisbon Cinematic exhibition 100,00% ZON Multimédia (100%) 100,00%
Lusomundo Moçambique, Lda. Maputo Cinematic exhibition 100,00% ZON LM Cinemas (100%) 100,00%
ZON Cinemas, SGPS S.A. Lisbon Management of investment 100,00% ZON LM Cinemas (100%) 100,00%
Lusomundo - Sociedade de Lisbon Management of Real Estate 99,87% ZON Multimédia (99,87%) 99,87% investimentos imobiliários SGPS, SA Empracine - Empresa Promotora de Lisbon Developing activities on movies exhibition 99,87% Lusomundo SII (100%) 99,87% Atividades 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 100,00% ZON Multimédia (100%) 100,00% audiovisuals business Teliz Holding B.V. Amstelveen Management of investment 100,00% ZON Multimédia (100%) 100,00%
ZON FINANCE BV Amsterdam Management of group financial activities - ZON Multimédia (50%); 100,00% ZON TV Cabo (50%)
b) Associated companies
Percentage of Ownership Effective Direct Effective Company Head Office Activity 31-12-2010 31-12-2011 31-12-2011 Upstar Comunicações S.A. Vendas Electronic comunication services, production, commercialization and 30,00% ZON Multimédia (30%) 30,00% Novas distribuition of 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 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 Distribution of televised products 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 - ZON Audiovisuais SGPS 20,00% products S.A. (20%) ZON III - Comunicações electrónicas S.A. Lisbon Network operator and provider of electronic communications services - ZON Multimédia (100%) 100,00% (b)
(a) Company incorporated in 2010 and which is not material as at this date.
(b) Company incorporated in 2011 and which is not material as at this date.
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c) Jointly controlled companies
Percentage of Ownership Effective Direct Effective Company Head Office Activity 31-12-2010 31-12-2011 31-12-2011 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 investment 50,00% ZON Audiovisuais SGPS 50,00% S.A. (50%) MSTAR, SA Maputo Distribution of television by satellite, operation of telecommunications 100,00% ZON Multimédia (30%) 30,00% services
d) Companies stated at cost
Percentage of Ownership Effective Direct Effective Company Head Office Activity 31-12-2010 31-12-2011 31-12-2011 Turismo da Samba (Tusal), SARL (a) Luanda n.a. 30,00% ZON Multimédia (30%) 30,00%
Filmes Mundáfrica, SARL (a) Luanda Cinematic 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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Documents of Appreciation of Consolidated Accounts
Report and Audit Committee Opinion
Shareholders,
According to the articles of association, the supervision of the Company is committed to an Audit Committee, composed of three non-executive members of the Board of Directors, appointed by the General Meeting. A Statutory Auditor will also be responsible for examining the Company’s accounts.
In these circumstances, as set forth in sub-paragraph g) of Article 423-F of the Companies Code, we hereby submit our report on our supervision activity and our Opinion on the Consolidated Annual Report and Accounts of ZON MULTIMÉDIA – Serviços de Telecomunicações e Multimédia, SGPS, S.A. for the financial year ended on 31 December 2011.
The Audit Committee’s activity fits into the Procedures Internal Regulations, approved by the Board of Directors.
Throughout the year, the Audit Committee has regularly accompanied the activities of the Company and of its main subsidiaries, monitoring the compliance with the law and with the articles of association, supervising the Company’s management, the effectiveness of its risk management systems, internal control and internal auditing and the preparation and disclosure of consolidated financial information as well as verifying the regularity of its accounting records, the accuracy of the consolidated financial statements, accounting policies and valuation criteria adopted by the Company in order to ensure that they led to a correct appraisal of its consolidated assets and consolidated profits.
As part of our duties, we participated in all the meetings of the Board of Directors and met with the Statutory Auditor and External Auditors in order to monitor their audits and learn their conclusions. We supervised the works performed by the Statutory Auditor and External Auditors and their independence. We also met with the heads of the Internal Audit Department and Legal Department, the Executive Committee and the Director responsible for the financial area whenever we deemed fit and appropriate. We received full cooperation from all.
The Audit Committee monitored the whistleblowing system. This system is available to all shareholders, employees and to the general public. All reports received were duly analyzed.
OPINION:
The Audit Committee was informed about the conclusions of the work of the examination of the Company´s accounts and external auditing on the Consolidated Financial Statements for the financial year of 2011, which include the consolidated balance sheet, consolidated profit and loss account, consolidated statement of changes in equity, consolidated cash flow statement and its respective Annex, which express no reservations, and scrutinized the Audit Report draft from the Statutory Auditor.
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Within our powers, we verified that the Consolidated Annual Report and Consolidated Financial Statements for the financial year ended on 31 December 2011 faithfully state the businesses evolution, and the performance and position of the Group. It also complies with the applicable legal requirements and accounting standards as well as with the articles of association. We have verified that the Company’s Corporate Governance Report includes the elements referred to in Article 245-A of the Portuguese Securities Code.
As so, taking into account the opinion and the information received from the Board of Directors, the Company’s departments, the Statutory Auditor and the External Auditor, we are of the opinion that:
i)The Consolidated Annual Report may be approved; and
ii) The Consolidated Financial Statements may be approved.
Lisbon, 26 March 2012
The Audit Committee
______Vítor Fernando da Conceição Gonçalves
______Nuno João Francisco Soares de Oliveira Silvério Marques
______Paulo Cardoso Correia da Mota Pinto
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Legal Certification of Consolidated Accounts
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Audit Report of Consolidated Accounts
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05 CORPORATE GOVERNANCE
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TABLE OF CONTENTS
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00 DECLARATION OF COMPLIANCE 192
01 GENERAL MEETING 202 1. Composition and workings of the general meeting 202 2. Participating in the general meeting and exercising voting rights 202 3. Quorum and decisions (including changes to the articles of association) 204 4. Information made available about the general meeting 205 5. General meeting intervention regarding: 205 6. Measures regarding company control 206 7. Measures that may interfere with the success of takeover bids 207
02 ADMINISTRATIVE AND SUPERVISION BODIES 209 1. General topics 209 2. Organisational diagrams showing the division of liabilities 210 3. Administrative body: Board of directors and executive committee 212 4. Specific commissions set up by the company 224 5. Corporate supervision – Audit commission and chartered accountant 226 6. Remuneration commission 231 7. Internal regulations and code of conduct 232 8. Board and audit committee member remuneration policy 234 9. Directors’ remuneration 237 10. Risk control system 238 11. Irregularity communication policy 243
03 INFORMATION 244 1. Capital structure and main shareholders 244 2. Limits on the transmission of shares, shareholder agreements and share ownership 246 3. Share quotations 247 4. Distribution of dividends 248 5. Share or option distribution plan 248 6. Relevant dealings with members of the company committees, qualified shareholders or with group companies or others under the control of the company 251 7. Investor Relations 252 8. External auditors 254
ANNEX I 256
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00 Declaration of Compliance
ZON Multimédia is firmly committed to creating sustainable value for its shareholders.
It is aware of the growing importance of corporate governance for the day to day life of any company and society in general. Zon Multimédia intends to be a benchmark in terms of governance and how it informs stakeholders about the company, constantly and actively improving this practice.
This report complies with the obligation to publish a detailed annual report into the structure and practice of corporate governance pursuant to article 245-A of the Securities Code (SC) that applies to companies, which are located or working in Portugal, that issue shares that are traded on the regulated market.
The report also gives the structure and workings of the corporate governance adopted by the company in compliance with the Portuguese Stock Exchange Commission (CMVM) into the governance of quoted companies as published in January 2010 along with best international practice in corporate governance. It has been drawn up in accordance with the provisions contained in article 7 of the SC and article 2 point 1 of CMVM regulation 1/2010.
These texts are available from www.cmvm.pt.
The company has adopted the CMVM recommendations on the governance of quoted companies, published in January 2010.
Note that unlike in the previous governance report, ZON now complies with recommendation I.6.1 since on 23 December 2011 the shareholders requested a general meeting, which was held on 30 January 2012, where they decided to "eliminate article 12 points 6, 7 and 8 of the company articles of association and renumber points 9 to 14 in that article.” This decision eliminated the precept that limited voting rights by not counting the votes issued by a shareholder of ordinary shares personally of through a representative in their own name or representing another shareholder that exceeded 10% of all he votes corresponding to the share capital, and consequently ZON adopted recommendation I.6.1.
Likewise, ZON Multimédia now considers that having removed the statutory precept referred to above, it can consider adopting recommendation I.3.3 regardless of the fact that the ZON Multimédia articles of association do not establish the principle that each share corresponds to one vote, this does not stop that recommendation from being adopted inasmuch as:
(i) that principle is merely preferential, so not following it does not necessarily mean not complying with the recommendation;
(ii) the fact that the articles of association attribute one vote to every 400 shares does not breach the proportionality between the number of shares held and the voting rights.
Below are the chapters of this Corporate Governance Report where they describe the measures taken by the company to comply with the CMVM recommendations.
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CMVM RECOMMENDATION COMPLIANCE REPORT
I – General Meeting:
I.1 Presiding Board of the General Meeting 1.1. The chairperson of the presiding board of the YES Chapter 1 general meeting has the proper human and logistic Point 1 resources as required. 1.2. The remuneration of the chairperson of the YES Chapter 1 presiding board of the general meeting must be Point 1 published in the annual corporate governance report.
I.2 Participation in the General Meeting 2.1. The notice imposed for the presiding board to NOT APPLICABLE Chapter 1 receive declarations of deposit or blockage of the Point 2 shares to participate in the general meeting must not be longer than five working days 2.2. If the general meeting is suspended, the company NOT APPLICABLE Chapter 1 shall not require blocking during the period of time Point 2 until the session is resumed, or with the advance notice required for the first session.
I.3 Voting and exercising voting rights 3.1. Companies should not foresee any statutory YES Chapter 1 restrictions to voting by mail or, when adopted and Point 2 admissible, voting by email. 3.2. The statutory time limit for receiving voting YES Chapter 1 declarations by mail must not be more than three Point 2 working days before the general meeting. 3.3. Companies must ensure proportionality between YES Chapter 1 voting rights and shareholdings, preferably through Point 2 a statutory provision where one vote is attributed to each share. Companies do not comply with this proportionality in cases where: i) there are shares without voting rights; ii) they decide that voting rights are not counted above a certain number, when issued by a single shareholder or shareholders related to them.
I.4 Quorum and decisions 4.1. Companies must not set a quorum to take decisions YES Chapter 1 that is higher than foreseen by law. Point 3
I.5 Minutes and information on the decisions taken 5.1. Summaries of the minutes of general meetings or equivalent documents must be made available to YES Chapter 1 shareholders on the company's Internet site within Point 4 five days of the general meeting, though it does not have to include privileged information. The information must include the decisions that were taken, the capital represented and the results of the votes. This information must remain on the Internet
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site for at least three years.
I.6 Measures regarding company control 6.1. Any measures adopted to hinder the success of YES Chapter 1 takeover bids must comply with the interests of the Point 7 company and its shareholders. A company’s articles of association that foresee a limit on the number of votes that can be held or exercised by a single shareholder individually or together with other shareholders must also foresee that at least once every five years the general meeting must decide whether to maintain this provision - without quorum requirements that are more demanding than those legally required - and this decision will be taken by all the votes issued without that limitation being used. 6.2. No defensive measures shall be adopted that would YES Chapter 1 automatically degrade the company 's assets in the Point 6 case of a change of control or membership of the board of directors, which would hinder the free transmission of shares and free assessment of board member performance by the shareholders.
II – Board and supervisory bodies: II.1 General topics
II.1.1. Structure and liability 1.1.1. The management body must assess the annual YES Chapter 2 report on the model of corporate governance that Point 1 was adopted, identifying any constraints in the workings and proposing ways to overcome them. 1.1.2. Companies must establish internal control and YES Chapter 2 management systems to safeguard their value and Point 10 improve the transparency of their corporate governance that let them identify and manage risk. These systems must contain, at least the following components: i) the strategic aims of the company regarding accepting risks; ii) identification of the main risks connected with the specific activity they conduct and events that could cause risks; iii) assessment and measurement of the probability of each of the potential risks occurring; iv) risk management to align the risks actually incurred with the strategic option of the company regarding the assumption of risks; v) control mechanisms to follow the risk management measures that were adopted and how effective they are; vi) adoption of internal information and communication mechanisms regarding the various system components and risk alerts; vii) periodical assessment of the system and adoption of modifications that appear necessary. YES Chapter 2 1.1.3. The management body must ensure the internal Points 5 and control systems and risk management are set up 10 and work properly, while the supervisory body is
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responsible for assessing these systems and proposing any adjustments that would benefit the company. 1.1.4. In their annual corporate governance reports, YES Chapter 2 companies shall: i) identify the main economic, Point 10 financial and legal risks the company is exposed to in its activity; ii) describe the workings and effectiveness of the risk management system. YES Chapter 2 1.1.5. The management body and supervisory body Points 1 and 5 must have regulations and these must be published on the company’s Internet site.
II.1.2. Incompatibilities and independence 1.2.1. The board of directors must include a number of YES Chapter 2 non-executive members to ensure proper Point 3 supervision and assessment of the activity of the executive members. 1.2.2. Among the non-executive directors, there must be YES Chapter 2 an adequate number of independent directors Point 3 bearing in mind the size of the company and its shareholder structure, but which under no circumstances must be less than a quarter of all the directors. 1.2.3. The management body's assessment of the independence of its non-executive members must YES Chapter 2 take into account the legal rules and regulations in Point 3 force regarding the requirements of independence and incompatibilities system that apply to the members of the other company committees, ensuring consistency over time in applying the independence criteria to the whole company. A director will not be considered to be independent if they are not considered as such, due to applicable standards, in another company committee.
II.1.3. Eligibility and appointment 1.3.1 Depending on which model is applied, the YES Chapter 2 chairperson of the audit committee or financial Points 3 and 5 matters commission must be independent and be properly qualified for the job. 1.3.2 The process to select non-administrative directors YES Chapter 2 must be designed to avoid interference by the Point 3 executive directors.
II.1.4. Irregularity communication policy 1.4.1 The company must adopt a policy to communicate YES Chapter 2 any irregularities that are allegedly committed with Point 11 the following details: i) the ways irregular practice can be communicated internally and the people who can receive the communications; ii) what is to be done with the communications, including confidential handling if the informant so wishes. 1.4.2 The outlines of this policy must be published in the YES Chapter 2
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corporate governance report. Point 11
II. 1.5. Remuneration 1.5.1 The remuneration of the management body YES Chapter 2 members must be structured so their interests are Point 8 aligned with the long-term interests of the company, based on performance assessment and discouraging excessive risk-taking. The remunerations must, therefore, be structured as follows: (i) The remuneration of executive directors must include a variable component that will depend on a performance assessment, conducted by the proper company bodies according to measurable, predetermined criteria that consider the real growth of the company and wealth effectively created for the shareholders, its long-term sustainability and the risks that were taken as well as compliance with the rules that apply to the company’s activity. (ii) The variable component of the remuneration must be reasonable in comparison with the fixed component and upper limits must be set for all the components. (iii) A significant part of the variable component must be deferred for at least three years and its payment depend on the continuing positive performance of the company over that period. (iv) Management body members must not sign contracts either with the company or third parties that would mitigate the inherent risk in the variability of the remuneration set by the company. (v) Until the end of their term of office, executive directors must keep company shares they have received through variable remuneration schemes, up to twice the amount of the total annual remuneration, except for those shares they need to sell to pay taxes arising from the benefit of these shares. (vi) When the variable remuneration includes options, the beginning of the period of exercise the option must be deferred for at least three years. (vii) Proper legal instruments must be drawn up so that the compensation to a director for any kind of dismissal without fair cause is not paid is the dismissal or mutual agreement for termination is due to poor performance by the director. (viii) Management body non-executive member remuneration must not have any component that depends on the performance or value of the company. 1.5.2 The declaration on the remuneration policy of YES Chapter 2 management and supervisory bodies, referred to in Point 8 article 2 of Law 28/2009 of 19 June must, apart from what is contained therein, contain sufficient information on: i) which company groups were used as a benchmark to set the remuneration; ii)
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payments related with dismissal or mutual agreement to terminate the appointment by directors. 1.5.3 The declaration about the remuneration policy YES Chapter 2 referred to in article 2 of Law 28/2009 must also Point 8 cover director's pay as covered by article 248-B point 3 of the Securities Code where the remuneration has a significant variable component. The declaration must be detailed and the policy that is presented must take into account the long- term performance of the company, compliance with standards that apply to the company activity and containment of risks. 1.5.4 A proposal to approve share distribution plans YES Chapter 3 and/or share options or those based on share Point 5 price variations for management or supervision body members or other managers covered by article 248-B point 3 of the Securities Code, must be submitted to the general meeting. The proposal must contain all the details needed for a proper assessment of the plan. The proposal must have attached the regulations for the plan or, if they have not yet been drawn up, the general conditions they have to follow. The general meeting must also approve the main guidelines of the retirement benefit system for members of the management and supervision bodies or other managers covered by article 248-B point 3 of the Securities Code. 1.5.6 At least one member of the remuneration YES Chapter 1 commission must be present at the general Point 5 meeting of shareholders. 1.5.7 The annual corporate governance report must YES Chapter 2 include the overall and individual amounts Point 9 received from other group companies and the pension rights acquired in the year in question.
II.2. The Board of Directors 2.1. Within the limits established by law for each YES Chapter 2 management and supervision body, and unless Point 3 impractical due to the small size of the company, the board of directors should delegate the day to day running of the company and the delegated powers should be published in the annual corporate governance report. 2.2. The board of directors must ensure the company YES Chapter 2 acts in accordance with its objectives, and must not Point 3 delegate its duties with regards to: i) defining the company's general strategy and policy; ii) defining the business structure of the group; iii) decisions that can be considered to be strategic due to their amount, risk or special characteristics. 2.3. If the chairperson of the board of directors exercises YES Chapter 2 executive functions, the board of directors must find Point 3 effective mechanisms to coordinate the work of non-
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executive members ensuring they take independent, informed decisions and these mechanisms must be explained properly to the shareholders in the corporate governance report. 2.4. The annual management report must include a NOT APPLICABLE Chapter 2 description of the non-executive directors' activity Point 1 with reference to any constraints. 2.5. The company must explain its policy on rotating YES Chapter 2 officers in the board of directors, particularly the Point 3 financial officer and include information on this in the annual corporate governance report.
II.3. CEO, executive committee and executive board 3.1. Executive directors must supply the requested YES Chapter 2 information in a timely manner when so requested to Point 3 do so by other company committee members. 3.2. The chairperson of the executive commission must YES Chapter 2 send the chairperson of the board of directors and if Point 3 applicable, the chairperson of the audit committee or audit commission notice of the meetings and copies of the minutes. 3.3. The chairperson of the executive board must send YES NOT the chairperson of the general board and APPLICABLE supervisory board and the chairperson of the financial matters commission notice of the meetings and copies of the minutes.
II.4. General and supervisory council, financial matters commission and audit committee and commission 4.1. The general and supervisory council, apart from NOT APPLICABLE NOT performing the supervisory tasks they are liable for, APPLICABLE must play an advisory role, following the continual assessment of the company's management by the executive board. The general and supervisory council must give their opinion on matters such as: i) defining the company’s general policy and strategy; ii) the business structure of the group; and iii) decisions that are considered strategic due to their amounts, risk or special conditions. 4.2. The annual reports into the activities of the general NOT APPLICABLE Chapter 2 and supervisory council, financial matters council, Point 1 audit committee and commission must be published on the company's Internet site along with the financial statements 4.3. The annual reports into the activities of the general YES Chapter 2 and supervisory council, financial matters council, Point 1 audit committee and commission must include a description of the supervisory activity and any constraints that were discovered. 4.4. The general and supervisory council, the audit YES Chapter 2 committee and the audit council, depending on the Point 5 applicable method, must represent the company for all effects and purposes in communications with the external auditor and shall be responsible for proposing the respective remuneration for these
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services and ensure that there are proper conditions in the company for these services to be provided and serve as the first interlocutor between the company and the first addressee of these reports. YES Chapter 2 4.5. The general and supervisory council, the audit Point 3 committee and the audit council, depending on the applicable method, must assess the external auditor every year and propose their removal to the general meeting whenever there is just cause to do so. 4.6. The internal auditing services and company YES Chapter 2 compliance services must report functionally to the Point 5 audit committee and the general and supervisory council, or in the case of companies that have adopted the Latin model, to an independent director or audit committee, regardless of the hierarchical relationship that these services have with the company's executive board.
II.5. Specialised commissions 5.1. Unless the company is too small, the board of YES Chapter 2 directors and the general and supervisory council, Point 4 depending on the model that is adopted, must set up commissions to: i) assure a competent and independent assessment of the executive directors' performance and assess their own overall performance and that of any other commissions; ii) issue an opinion on the governance system that was adopted, checking its effectiveness and proposing improvement measures to the proper bodies; iii) identifying potential candidates with the necessary profile to act as directors, in a timely fashion. 5.2. The members of the remuneration commission or YES Chapter 2 equivalent must be independent from the boards Point 6 and include at least one member with knowledge and experience in remuneration policy matters. 5.3. No individual or company must be contracted to YES Chapter 2 support the remuneration commission with their Point 6 tasks that provides, or has provided, services to any structure that answers to the board of directors, the board of directors itself or worked as a company consultant in the last three years. This recommendation also applies to any person or company that has a work contract or service provision contract with them. 5.4. All commissions must draw up minutes of their YES Chapter 2 meetings. Points 4 and 6
III – Information and auditing: III.1 General information duties
1.1. Companies must ensure there is constant contact YES Chapter 3 with the market, respecting the principle of avoiding Point 7 differences in access to information by investors. Companies must, therefore, have an investor support
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office. 1.2. The following information on the Internet site must be YES Chapter 3 published in English: Point 7 a) The name of the company, the kind of open company, headquarters and other details given in article 171 of the Portuguese Companies Code: b) Articles of association; c) Name of committee and board members and market relations representative; d) Investor support office, tasks and how to reach it; e) Financial statements; f) Half-yearly schedule of company events; g) Proposals presented for discussion and voting at general meetings; h) General meeting notice 1.3. Companies must ensure auditors are changed every YES Chapter 3 two or three terms of office, depending on whether Point 8 these last for four or three years. Keeping the auditors longer than this must be based on a specific opinion from the supervisory body that expressly weighs the auditor's independence and the advantages and costs of their replacement. 1.4. The external auditor must, as part of their YES Chapter 3 responsibilities, check the application of Point 8 remuneration systems and policies, the effectiveness and workings of the internal control mechanisms and report any deficiencies to the company’s supervisory body. 1.5. The company should not hire any other services YES Chapter 3 except auditing services from the external auditor or Point 8 any parties related to the external auditor. If there are any reasons to hire such services - which must be approved by the audit body and explained in their annual report on corporate governance - these must not exceed 20% of the total amount of services provided to the company.
IV Conflicts of interest IV.1 Shareholder relations 1.1. The company's dealings with qualified shareholders, YES Chapter 3 or with entities that have any relationship with them, Point 6 pursuant to article 20 of the Securities Code, must be conducted under normal market conditions. 1.2. Any significant dealings with qualified shareholders, YES Chapter 3 or with entities that have any relationship with them, Point 6 pursuant to article 20 of the Securities Code, must be submitted for an opinion by the supervisory body. This body must establish the procedures and necessary criteria to define the significance of these dealings and any other terms.
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(*) Recommendations I.2.1 and I.2.2 do not apply because of alterations following decree law 49/2010, of 19 May coming in to force that eliminates the share blocking system to be able attand general meetingsfrom our laws. (**) Recommendation II.2.3 does not apply to the company as the chairman of the board of directors plays no executive role. (***) Recommendations II.3.3 and II.4.1 do not apply to the company because of its governance model (known as the Angol-saxon governance mode, pursuant to Securities Code article 278 point 1 paragraph b)).
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01 General meeting
1. Composition and workings of the general meeting
The members of the presiding board of the general meeting are:
Júlio de Castro Caldas (Chairman) Maria Fernanda Carqueija Alves de Ribeirinho Beato (Secretary)
The members of the presiding board of the general meeting have a three-year term of office. The current term of office began on 19 April 2010 and will end on 31 December 2012. The current members of the presiding board of the general meeting were elected for the first time on 24 April 2007 for a three-year term of office between 2007 and 2009.
In 2011, the chairman of the presiding board of the general meeting was paid €2,500, corresponding to one presence voucher for one meeting.
The general meeting of shareholders with voting rights is held at least once a year pursuant to article 376 of the Companies Code (CC). Pursuant to articles 23 of the SC and 375 of the CC, a general meeting is convened whenever so requested by the chairman of the presiding board of the general meeting, by the board of directors or the audit commission or by shareholders that represent at least 2% of the share capital or in special cases when convened by the audit commission.
Pursuant to the provisions in article 21-B of the SC, the notice of general meetings must be published at least 21 days beforehand on the Justice Ministry website (http://publicacoes.mj.pt). The notice must also be published on the company's website, the CMVM information system (www.cmvm.pt) and the Euronext Lisbon website.
The person chairing the presiding board of the general meeting must have all the resources needed to perform their job, particularly the assistance of the company’s general secretary.
2. Participating in the general meeting and exercising voting rights
In accordance with the company’s articles of association, only shareholders with voting rights can be present at the general meeting and every 400 shares corresponds to one vote. Shareholders with fewer shares can legally join together to make up the required number or a higher number and be represented by one of their own.
When decree law 49/2009 of 19 May came into force and the consequent alterations to the articles of association of ZON Multimédia on 15 April 2011, shareholders that own shares at 0 hours on the 5th dealing day before the general meeting that grant them at least one vote in accordance with the law and company contract can attend the general meeting and discuss and vote on proposals.
The rights to participate, discuss and vote at the general meeting are not prejudiced by transmission of the shares after the registration date nor do they depend on any blockage between that date and the date of the general meeting.
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Shareholders who intend to participate in the general meeting must declare that intention in writing to the chairperson of the presiding board of the general meeting and the financial intermediary where they have opened the relevant individual registration account until one day prior to the registration date and may do so by email.
The financial intermediary referred to in the previous paragraph will send the chairperson of the presiding board by the end of the day on the registration date, information about the number of shared registered in the name of their client as at that date. This information may be sent by email.
Shareholders with voting rights may participate directly in the general meeting or be represented, pursuant to the provisions in article 23 of the SC and article 380 of the CC, by sending a signed letter to the chairperson of the presiding board of the general meeting.
Following the general meeting decision of 30 January 2012 and the subsequent removal of the former article 12 point 6 from the ZON Multimédia articles of association, the limitation to voting rights according to which through a representative in their own name or representing another shareholder with more than 10% of the total votes corresponding to the share capital no longer apply.
The company’s articles of association state that votes by mail or email may cover all matters listed in the agenda pursuant to the terms and conditions therein.
Proxy voting
ZON Multimédia does not impose any restrictions whatsoever on proxy voting which, according to the articles of association and current practice in ZON Multimédia, must be made pursuant to the following procedure: a) Shareholders with voting rights may, in accordance with article 22 of the SC, use a proxy vote, by signing a declaration where they clearly state how they wish to vote on each of the items on the general meeting agenda. b) The proxy vote must be accompanied by a legible photocopy of the shareholder's identification document. If the shareholder is a company, the proxy vote must be signed by the company’s legal representative and the signature must be recognised by a notary for this purpose. c) The proxy votes and other documents referred to above must be sent in a sealed envelope addressed to the chairperson of the presiding board of the general meeting via registered mail; d) The chairperson of the presiding board must ensure the authenticity and confidentiality of the proxy votes until the time of voting.
Shareholders can get proxy vote bulletins from the company headquarters, from the company website or may be hand-delivered, sent by post or by email.
The company articles of association do not demand a minimum period between receiving the proxy vote and the date of the general meeting. The company has, however, tended to set a three-day period in the general meeting notice (in accordance with article 12 point 9 paragraph c) of the articles of association), before the general meeting for reception of proxy votes.
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Electronic voting
Shareholders with voting rights may opt to exercise their voting rights via email, but email votes may be subject to security and reliability conditions set by the chairman of the presiding board of the general meeting.
Actually, shareholders with voting rights, according to practice in the company, may also vote through the company website in accordance with the requirements established therein, so long as at the date and time set on the general meeting notice, they send the chairman of the presiding board of the general meeting a communiqué drawn up in accordance with the model available on the website along with a recognised signature (or, in the case of private individuals, a simple signature and a photocopy of their ID document) giving a postal address where the password issued by the company is to be sent to.
These shareholders may exercise their voting rights in the period set in the general meeting notice.
Common provisions - Ballots
Votes cast by mail or email will be considered in the ballots by adding them to those cast in person in the general meeting.
Pursuant to the provisions of article 12, previous point 13, current point 10 (updated version of the articles of association) any votes cast by mail or email will be annulled if the shareholder or their representative is present in the general meeting when voting takes place.
In accordance with article 384 point 9 of the CC and the previous article 12 point 14, current point 11 (updated version of the articles of association) votes cast by mail or email will be considered as being against any proposals that are presented after they have been cast.
3. Quorum and decisions (including changes to the articles of association)
The general meeting may take decisions, when first convened, by a majority of the votes cast, regardless of the number of shareholders that are present or represented.
However, legally, to decide on any alterations to the articles of association, merger, spin-off, transformation or dissolution of the company, or any other issues foreseen in the law, a qualified majority of two-thirds of the votes cast in the first meeting. In the first general meeting that discusses these issues, there must be shareholders present or represented that hold at least one third of the share capital, but at a second general meeting they can take a decision regardless of the number of shareholders that are present or represented. At the second general meeting decisions on these issues can be taken by two-thirds of the votes cast unless there are shareholders present or represented that hold at least half the share capital, in which case these decisions can be taken by a simple majority of the votes cast.
Under these terms, the ZON Multimédia articles of association do not set any quorums higher than those set by law. Actually, no statutory rules are foreseen regarding any shareholders' meeting quorum, quorum for adopting resolutions or systems with special rights regarding assets.
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4. Information made available about the general meeting
Proposals to be submitted by the board of directors to the general meeting and all records that must accompany them along with other background information as foreseen in articles 289 of the CC and 21-C of the SC must be made available to shareholders at the company headquarters and on the company website within the legal time limit.
In order to make access to these documents easier, especially for foreign shareholders, they may, upon request, be sent by mail, fax or email.
The company must publish on its website and through the Investor Relations Department extracts from the minutes of the general meetings within five days of the meeting being held with information about the decisions that were taken, the capital represented and the results of the ballots.
ZON Multimédia must also publish on its website the minutes of the general meetings once they have been concluded and properly signed.
This information must remain available on the ZON Multimédia website for at least three years.
5. General meeting intervention regarding:
Remuneration policy and assessment of the board of directors and other senior officers
Pursuant to article 13 point 4 paragraph e) of the company’s articles of association, the general meeting elects a remuneration committee, which will set policy and determine board members’ fixed and variable remuneration.
Currently, there are three members on the remuneration committee: Fernando José Guimarães Freire de Sousa, Luis Manuel Roque de Pinho Patrício and Agostinho do Nascimento Pereira Miranda, who were elected by the AGM of 19 April 2010.
The members of the remuneration committee are invited to attend the company’s general meeting and at least two of its members always attend. The AGM on 15 April 2011 was attended by two of the three members of the remuneration committee.
The company shareholders were given a statement by the remuneration committee on the ZON Multimédia remuneration policy of the board and audit committee pursuant to article 2 of Law 28/2009 of 19 June at the last general meeting.
The appointments and assessment committee, made up of members of the board of directors, assesses the executive committee members and issues an appraisal of the overall performance of the board of directors, which coordinates with the remuneration committee that is elected by the company shareholders.
The remuneration policy and evaluation of other ZON Multimédia company officers, as given in article 248-B of the SC, and as they are officers at ZON Multimédia Group subsidiaries, is established by the remuneration committees of the individual subsidiaries (and not by the board of ZON Multimédia). The board of directors of ZON Multimédia does not submit these figures to the general meeting as these directors do not receive any remuneration paid by ZON Multimédia.
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Proposal to allocate shares and/or options to acquire shares to members of the board and audit committee and other company officers
The first plan to allocate ZON Multimédia Group shares or options was approved at the general meeting of 21 April 2008. The second plan was approved at the general meeting of 19 April 2010, mentioning all the necessary details and its regulations.
The proposal and decision regarding the current plan and regulations were made available for consultation within the statutory period on the company’s website dedicated to the general meeting. An e-mail address was also set up for issues specifically related to the general meeting. Members of the board of directors and remuneration committee also offered to provide any clarifications requested by shareholders at the general meeting.
The ZON Multimédia option or shares allocation plan rules, approved at the 19 April 2010 general meeting can be seen on the Company’s website.
The ZON Multimédia option or shares allocation plan terms and are detailed in Chapter 3, point 5 below.
Approval of the main features of the retirement benefits system for board and audit committee members and other senior officers
There are no systems of retirement benefits for board and audit committee members and other senior officers, as covered by SC article 248-B point 3.
6. Measures regarding company control
ZON Multimédia has not adopted any defensive measures that would automatically degrade company assets if there was a change in control or a change in the composition of the board of directors.
ZON TV Cabo Portugal (100% owned by Grupo ZON Multimédia) signed a contract with Vodafone Portugal in 2008 regarding the ZON Mobile service, which foresees the possibility of Vodafone terminating the agreement if (i) a Vodafone competitor, individually or in conjunction, directly or indirectly holds more than 10% of the share capital of ZON TV Cabo Portugal or Grupo ZON and/or a shareholding that individually or in conjunction gives that entity the right to appoint a members of the management body, or the general and supervisory council of ZON TV, Cabo Portugal or (ii) if ZON TV Cabo Portugal or a Grupo ZON company, individually or in conjunction, directly or indirectly holds more than 10% of the share capital or voters or a Vodafone or Grupo Vodafone competitor and or a shareholding that individually or in conjunction grants the right to appoint a member of the management body or the general and supervision council of this entity or, (iii) the sale by its shareholders of a shareholding in ZON TV Cabo Portugal equal or greater than 50% to an entity that is not a competitor of Vodafone and or a shareholding that grants this entity the right to appoint half or more of the members of the management body of ZON TV Cabo Portugal. This contract is still in force.
The company, independently, or in conjunction with other group companies have signed financing agreements with financing entities that will be terminated if there are significant alterations to the company shareholder structure and/or the respective voting rights.
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There are no other significant agreements signed by ZON Multimédia or its affiliates that include change of control provisions (including following a public takeover) i.e. that come into force, are altered of cease in the case of a change of control as well as the respective effects.
There are no agreements between the company and board members or other ZON Multimédia company officers, in the sense of article 248-B point 3 of the SC that foresee compensation in the case of resignation, dismissal with fair cause or termination of the labour relation following a change to the control of the company.
Note, notwithstanding, that pursuant to article 7 point 3 and article 2 paragraph n) of the ZON Multimédia Action Plan regulations, approved in the general meeting on 19 April 2010, in case of merger, spin-off or alteration to the direct or indirect shareholder control of ZON Multimédia following a successful takeover bid for ZON or any alteration to the direct or indirect shareholder control of any of the group companies, there will be an automatic investiture of all shares and/or options that have been attributed with reference to the moment of receiving notification from the board of directors to this effect, unless if the board of directors decides otherwise, notwithstanding compliance with individual agreements that govern these matters. If the company cannot comply with the obligations arising from the exceptional anticipation of the investiture of the shares and options and the right to exercise these options, these will be complied with as soon as possible or legally allowed.
Information about the payments due in case of early termination of directors' contracts is described in chapter 2 point 8 below.
7. Measures that may interfere with the success of takeover bids
Although ZON Multimédia continues to believe its articles of association do not contain any defensive provisions that may automatically degrade its assets in case of a change of control or the composition of the management body, it has described and noted the measure that until now, according to the CMVM, could influence the success of takeover bids.
For instance
Limits on each shareholder's voting rights (eliminated by general meeting decision on 30 January 2012)
According to the previous wording of article 12 point 6 of the articles of association, ordinary share votes cast by a shareholder personally or by a representative in their own name or representing another shareholder that exceeded 10% of all the votes corresponding to the share capital would not be counted. The ZON Multimédia articles of association did not contain any rule for the periodic maintenance or elimination of this provision to be decided by the general meeting.
This provision, that has come up over the years in various European countries, expands shareholder democracy as it reduces the power of the larger shareholders and increases the power of minority votes.
Nevertheless, it is also commonly seen as likely to interfere with the success of any takeover bids and will certainly have the effect of reducing the frequency of takeover bids (since getting control requires higher levels of shareholder participation) reducing the attractiveness of public offerings, since only higher levels of membership allow the bidders to achieve control thresholds.
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Even if it was considered that this provision constituted an impediment to takeover bids, ZON Multimédia is of the opinion that these comply fully with the interests of the company and its shareholders. In fact, this statutory provision expanded minority shareholder democracy, reduces the power of larger shareholders and boosts the power of the smaller ones. Additionally, it also works as an important mechanism to ensure shareholder stability by avoiding merely speculative stock market movements that add nothing to companies' results or sustainability.
Further note that, following the transposition of shareholder rights by Decree-Law 49/2010 of 19 May, shareholders who hold shares representing at least 2% of the capital could, in legal terms, if they wanted, propose the removal or alteration of the statutory provision in question to the general meeting.
Therefore, ZON Multimédia considered that this issue was subject to shareholder scrutiny, and the shareholders should have the possibility of proposing and voting decisions in line with their shareholding.
It should be noted that this is what actually happened on 23 December 2011, when shareholders asked to convene a general meeting of ZON Multimédia, which was held on 30 January 2012 with the sole purpose of deciding on whether to eliminate the voting limitations.
With the approval of the proposed resolution, the company also adopted CMVM Recommendation I.6.1 and Recommendation I.3.3. on corporate governance, as published in January 2010. Thus, ZON believes that after this statutory change, there is no reason to disagree with its longstanding understanding, according to which there are no defensive clauses are automatically cause an erosion in the company's assets in case of change of control or change the composition of the board.
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02 Administrative and Supervision bodies
1. General topics
ZON Multimédia has adopted the "Anglo-Saxon" model of government i.e. a model where the administration and supervision of the company are the liability of the board of directors and an audit commission (composed exclusively of non-executive directors) and a certified accountant respectively, as provided in CSC article 278 point 1 paragraph b).
The ZON Multimédia board of directors in turn delegated the current management of the company to an executive committee.
In compliance with the applicable legal or regulatory requirements and particularly being able to take advantage of reflections, recommendations and suggestions focused on and emanating from a structure specifically aimed to discuss on them - only with auxiliary functions and decisions can only be taken by the administrative bodies - the ZON Multimédia board of directors created, in addition to the executive committee, a corporate governance committee and an appointments and assessment commission, whose composition and duties are detailed below (Chapter 2 point 4).
The ZON bodies and the corporate governance committee and the appointments and assessment commission have operating regulations, which can be found on the company website.
The ZON Multimédia internal control and risk management system is designed to ensure the situation of the company is appropriate for the risks that affect the activities it carries out. This control system, including the respective risks dictionary, was approved by the executive committee using the powers delegated by the board, upon the advice of the audit commission. The audit commission reviewed and assessed the results of its implementation. The ZON Multimédia internal control and risk management system and the main risks, including economic, financial and legal risks, to which the company is exposed in the course of their activity, are described in point 10 below.
Management monitors the group's projected liquidity reserve, including the amounts of unused credit lines, the amounts of cash and cash equivalents, based on estimated cash flows, and takes into account compliance with any covenants on loans payable, namely: "cross default" "pari passu", "negative pledge"; debt ratio; EBITDA/net interest; "ownership-clause" and clauses relating to the maintenance of the group’s activity and compliance with their obligations (operational, legal and tax) on a regular basis.
The annual reports on the work of the audit commission include a description of the inspections and refer to the existence or absence of constraints. These reports are disclosed on the company's website together with the financial statements.
Assessment of current governance model
The ZON Multimédia board of directors believes that this model is fully and effectively implemented and is an integral part of the company culture without any constraints on its operation.
Furthermore, the current governance model has proven to be balanced and capable of adopting best international practices in matters of corporate governance.
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Finally, it is also understood that this structure of government has allowed the company to operate smoothly, enabling proper, transparent dialogue between the various bodies and, between the company, its shareholders and other stakeholders.
2. Organisational diagrams showing the division of liabilities
As mentioned above, the company has adopted the Anglo-Saxon model, where it is supervised by an audit commission composed of three non-executive members of the board of directors and a certified accountant.
The ZON board of directors is responsible for managing company business, as defined in the articles of association and their regulations. The company's current management is ensured by an executive committee.
General Shareholders
Meeting Remuneration Committee
Board of Directors Audit Committee Statutory Auditor
Executive Corporate Governance Nomination and Evaluation Committee Committee Committee
ZON Multimédia is structured along business lines with three major centres: Pay TV Business, Broadband Internet, Landline and Mobile Service, Audio-visual Business and Film Exhibition Business. The business units are overseen by the executive committee with support from 12 corporate units. ZON Multimédia subsidiary reporting is functional and not hierarchical, which ensures effective articulation.
Investor Relations Corporate Finance, Purchase, Logistics General Office Human Resources Planning and Control and Asset Management
Corporate Networks and Business Development Operators, Regulation Financial and Administrative Units Systems and Competition
Communication and Legal Services Internal Audit Multimedia Contents
Pay TV, Broadband Internet Audiovisuals Cinema Exhibition and Fix and Mobile Voice Services
.Cable TV .Cinema Distribution .Cinema Exhibition Business .Satellite TV .Video Distribution Units .Broadband Internet .Audiovisual Contents .Fixed Voice Distribution .Mobile Voice .Programming Management .Advertising Management
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The ZON Multimédia executive committee is directly involved in the day-to-day management of the various business units, and the executive committee and/or the board of directors of the leading companies in different business units are chaired by the ZON Multimédia CEO. The aim is a simple structure that allows flexible decision making and quick execution of the strategy.
The business units are, as already mentioned, aimed at coordinating the various businesses and report to the executive committee. These units and their respective powers are described in more detail below:
General Secretary: ensures backup support for the ZON Multimédia and affiliate company general meetings, board of directors’ meetings and executive committee meetings; making sure corporate documents are updated and published and all minutes are properly drawn up and senior management has all the administrative support it requires;
Investor relations: ensure good relationships with the financial community (investors, shareholders and market regulators), including the provision of ZON Multimédia financial and business information;
Financial and Administrative: prepares the accounting and financial information needed to ensure compliance with the ZON Multimédia reporting obligations, ensures uniformity of accounting principles used by the group, ensures ZON Multimédia tax compliance monitors of tax operations;
Human Resources: advises the executive board in defining the human resources objectives and policies, develops tools for human resource management and coordinates, articulates and harmonises human resource management practices in ZON Multimédia enterprises;
Corporate Finance, Planning and Control: develops, implements and manages the ZON Multimédia planning and control, operational and financial system and ensures the study of potential non-organic growth opportunities;
Legal services: ensure the uniformity of legal aid and legal procedures in ZON Multimédia companies;
Communication and Multimedia Content: advises the executive committee in setting the various forms of corporate communication strategy and policies and identifies and manages content that can feed new delivery platforms that will be adopted by ZON Multimédia; contributes towards the development and consolidation of a strong, healthy and cohesive corporate culture projecting an external image that reflects the company’s values and aspirations;
Networks and systems: ensure coordination among departments responsible for planning, engineering, construction, operation, maintenance and management of ZON Multimédia Group infrastructure networks and systems and the alignment between the departments responsible for delivering and supporting network services and the department responsible for delivering and supporting system information services;
Business development: supports the executive committee in making and implementing strategic decisions with a high-impact on performance and organization of the group as well as directing, supporting and promoting the future profitability of ZON Multimédia;
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Operators, regulation and competition: monitors and advises ZON and its companies on issues of competition policy and regulatory issues, liaises and coordinates with the different ZON Multimédia departments regarding compliance with competition rules and regulators’ decisions and helps with requests from competition authorities and regulators, monitoring ZON relations with other operators on the electronic communications’ market and industry associations;
Internal auditing: examines and assesses Grupo ZON Multimédia company activities so as to ensure that business processes are being properly managed and presents recommendations to senior management regarding the internal control system and efficient management of business risks;
Purchases, logistics and asset management: coordinates the department responsible for ZON Multimédia Group purchases, logistics and asset management, in order to ensure the contracting and provision of the goods and services required for group companies’ productive activities under competitive conditions of use and cost.
In point 3 below about the executive committee, there is a description of commission member responsibilities.
3. Administrative body: Board of directors and executive committee
Process of electing board members
In accordance with the provisions of Article 15 of the articles of association, the ZON Multimédia board of directors is composed of up to 19 members, elected by the shareholders at a general meeting by a majority of votes cast.
According to corporate law, shareholders representing at least 10% and not more than 20% of the capital, who lost the election to appoint the board of directors may appoint a member of the board.
The directors have a three-year term of office and the election year is considered as a full calendar year and there are no restrictions on the re-election of directors.
Under the law and articles of association, if any director can no longer attend, they will be replaced by someone else appointed at a board meeting. When the director who is always missing is the chairman of the board of directors, they shall be replaced by election at a general meeting. In accordance with Article 16 point 3 of the articles, "a director is considered to be definitively absent when they miss two consecutive meetings or five meetings in all without justification accepted by the board in the one term of office."
Members of the current ZON Multimédia board of directors were elected at the general meeting on 19 April 2010, individually with no indication of any type of representation, following a proposal endorsed by the shareholders and solely their responsibility. The executive members of the board did not interfere in any way in the selection of non-executive members.
Following the 19 April 2010 decision, the board of directors began a new three-year term between 2010/2012 and, in line with best corporate governance practices and compliance with the CMVM Recommendations on the matter, set up a appointment and assessment commission that is responsible for assisting the board in selecting directors to co-opt and issuing, upon request, a reasoned opinion, identifying people with the best profile to fill any vacancies on the board of directors.
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The appointments and assessment commission is comprised of non-executive directors and the Chief Executive Officer (CEO), Rodrigo Jorge de Araujo Costa. However, the participation of the CEO in the appointments and assessment meetings will depend on request by the chairman and shall be advisory, without any voting rights, except in the meetings that are being considered to fill vacancies on the executive commission, a matter in which the CEO shall be entitled to vote.
This way, the executive members of the board of directors cannot interfere in the selection of non- executive members.
The responsibilities and composition of this commission are detailed in point 4 below.
Composition and characteristics of the board of directors
In order to maximize the interests of the company, the board consists of a number of non-executive members to ensure effective supervision, monitoring and evaluation of the activity of the executive members of ZON Multimédia. Among the non-executive directors, there are an adequate number of independent directors, taking into account the size of the company and its shareholder structure. In line with CMVM recommendation II.1.2.2, the ZON Multimédia board of directors has more than a quarter of independent directors (as shown below).
Accordingly, on 31 December 2011, the ZON board of directors of was composed of 16 members as shown below:
No. Of First Independent, shares Board of Executive appointment non-executive each Directors Commission and term of directors owned on office 31.12.2011 Daniel Proença de 20/06/2007 Chairman --- X --- Carvalho 31/12/2012 21/09/2007 Rodrigo Costa Member Chairman --- 590.428 31/12/2012 José Pedro Pereira 21/09/2007 Member Member --- 93.372 da Costa 31/12/2012 21/09/2007 Luís Lopes Member Member --- 92.372 31/12/2012 14/05/2003 Duarte Calheiros Member Member --- 44.503 31/12/2012 Fernando Fortuny 07/11/2008 Member ------Martorell 31/12/2012 01/09/2004 António Domingues Member ------31/12/2012 21/09/2007 László Cebrian Member --- X --- 31/12/2012 Luís Bordallo da 17/06/2003 Member ------Silva 31/12/2012 20/06/2007 Vítor Gonçalves Member --- X --- 31/12/2012 21/04/2008 Paulo Mota Pinto Member --- X --- 31/12/2012
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No. Of First Independent, shares Board of Executive appointment non-executive each Directors Commission and term of directors owned on office 31.12.2011 Nuno Silvério 20/06/2007 Member --- X --- Marques 31/12/2012 31/01/2008 Norberto Rosa Member ------31/12/2012 Jorge Telmo 31/01/2008 Member ------Cardoso 31/12/2012 31/01/2008 Joaquim Oliveira Member ------31/12/2012 19/04/2010 Mário Silva Member ------31/12/2012
The independence of the directors in the above table was assessed under the provisions of CMVM regulation No. 1/2010 on corporate governance and CMVM recommendation II.1.2.3, which refer to the requirements of independence and incompatibilities applicable to members of the supervisory board, pursuant to article 414 point 1 thereof, except for paragraph b), and article 414, point 5 thereof, from the CC.
Pursuant to CC article 414 point 5, members are considered independent if they are not associated with any specific interest group in the company or are in any circumstance likely to impartially assess or decide on any points in particular due to: i) holding or acting on behalf of anyone owning more than 2% of the company's capital, ii) having been re-elected for more than two terms, continuously or otherwise.
Under the ZON Multimédia board of directors’ rules, the board’s assessment of the independence of its members who are not members of the audit commission is based on individual questionnaires submitted by them to the chairman of the board, on its election and by 31 January each year. The rules also state that the directors must inform the chairman of the board whenever there is any situation that might change the situation reported previously.
The questionnaire also asks if there is any inconsistency in relation to any of the company directors pursuant to CC article 414-A point 1 and it was found that none of ZON Multimédia’s non-executive, independent directors is in any of the conditions set forth therein, except as regards paragraph b).
Among the other non-executive company directors, none is in any of the situations listed in CC article 414-A point 1 except as regards paragraphs b) and h).
In accordance with the provisions of the company audit committee regulations, all members of the audit commission are subject to the legal and regulatory requirements in force at any moment, in terms of incompatibilities and independence.
They must, therefore, in order to measure their independence, (i) assess their independence at all times, (ii) report any situation likely to affect their independence to the audit commission and (iii) complete, when they are appointed and on 31 January each year, the approved questionnaire about incompatibilities and independence.
All the members of the company’s audit commission are independent under the criteria set out in CC article 414 point 5 as mentioned above. Furthermore, no member of the audit commission is in any incompatibility situation referred to in CC article 414 point 1 (except paragraph b, which is naturally inapplicable to members of the audit commission).
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In addition to the above, ZON Multimédia has not internally approved any other rules governing the independence criteria applicable to the board of directors or the audit commission as administrative and supervisory bodies and cannot foresee any other situations that could generate incompatibility among the members, in particular as regards the maximum number of accumulated positions.
The board consists of professionals with extensive management experience, particularly in the telecommunications and finance sectors. Annex I describes the jobs performed by board members in other companies, listing those undertaken in the other group companies, their professional qualifications and professional activities performed by those members over the past 5 years.
Finally, board members João Manuel Matos Borges de Oliveira and António Henriques da Silva, advised the chairman of the board in 2011 that they were resigning their posts and jobs before the end of their terms of office. These post have not been re-filled by co-option, appointment or election.
Number of Independent, First term of shares Board of Executive Non-executive office and term of owned as directors committee directors office at date of of date of resignation resignation João Borges de 31/01/2008 Member ------Oliveira 21/07/2011 António Henriques 19/04/2010 Member --- X --- Da Silva 30/09/2011
Board of directors’ tasks and operating methods
Operating methods
Under Article 18 of the company’s articles of association and article 3 of the board of directors’ regulations, the board shall meet at least once every two months and extraordinarily whenever convened by the chairman, by two directors or by the audit commission.
The meetings are convened in writing with least 5 working days’ notice. The agenda with the main points and documents to help reaching any decisions shall be available to directors on the second working day before the meeting.
The chairman may call a board meeting the without the above-mentioned notice in an emergency.
The board cannot function without the presence of a majority of its members in office, although the chairman of the board of directors can, in cases of recognized urgency, waive the presence of a majority if this is ensured through voting by mail or by proxy, but no director can represent more than one other director.
Board decisions are taken by majority vote and, the chairman has the casting vote.
Decisions and explanations of votes are recorded in the minutes, which must be signed by all members of the board who attend the meeting. The participants may give a summary of their interventions in the minutes.
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Pursuant to article 18 point 5 of the articles of association, board meetings may be conducted by electronic means, and the company shall ensure the authenticity of the statements and security of all communications, recording the content and all those involved.
There were 15 board meetings recorded in the minutes in 2011.
The rules regarding the board of directors can be seen on the company website.
Responsibilities
Under the law and articles of association, and notwithstanding the possibility of delegating the day- to-day management of the company to an executive committee, the board of directors is generally responsible for managing the affairs of the company, including:
The purchase, sale, lease or encumbrance of movable and immovable assets, premises, shares and vehicles. The signing of financing and loan contracts including medium and long term, internal or external ones; Representing the company actively or passively in or outside court and may give up, compromise and acknowledge any legal proceedings and arbitration agreements; Granting powers of attorney to those it deems appropriate, including sub-powers; Approving business plans and investment and operating budgets; Co-opting replacements for permanently absent directors; Preparing and submitting stock option regulations for members of the board, as senior workers in the company for approval by the general meeting; Performing other duties as assigned by law, the articles of association or the general meeting.
According to the articles of association, the board may to decide to increase the capital, by one or more times, up to €20 million by new cash injections, with the prior agreement of the audit committee.
Pursuant to article 7 point 2 of the articles of association, the board of directors must also decide whether to issue bearer or ordinary bonds or other securities and warrants on securities. This responsibility of the board of directors is shared with the general meeting.
Executive committee
The ZON Multimédia board of directors of has created an executive committee, to which it has delegated daily management, while retaining supervision and control functions within the limits established by law to ensure the best performance of its duties.
Composition
The executive committee is composed of the following directors:
Chairman: Rodrigo Jorge de Araújo Costa Members: José Pedro Faria Pereira da Costa Luís Miguel Gonçalves Lopes Duarte Maria de Almeida e Vasconcelos Calheiros
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Rodrigo Jorge de Araújo Costa
Chairman of the ZON Multimédia SGPS executive committee and chairman of the board of directors of various ZON companies since September 2007.
Began his career as a programmer and system analyst in 1979.
Was invited to join Microsoft in 1980 and led the launch of the company in Portugal. After 11 years as general director, he was appointed general director at Microsoft Brazil in August 2001. Promoted to corporate vice-president for Microsoft’s OEM area based in Seattle in 2005.
After 15 years with Microsoft, Rodrigo Costa returned to Portugal where he joined the Portugal Telecom, SGPS board of directors in late 2005.
As an executive board member, his main responsibilities are: Executive vice-chairman of Grupo PT, Landline business executive chairman, group-wide leadership of human resources, innovation and IT.
He was also vice-president of the Luso-American chamber of commerce and was invited by the Portuguese government to be a member of the Technology Plan Consulting Council in 2005.
He was awarded the “Grande Oficial da Ordem do Infante D. Henrique” by Portugal’s president in 2006.
José Pedro Faria Pereira da Costa
He has been ZON Multimédia, SGPS executive director since September 2007 and is chairman of the board of directors and director of several ZON companies.
He was a Grupo Portugal Telecom director and CFO of PT Comunicações, PT.COM and PT Prime from September 2002 to September 2007.
The has been a manager of DCSI and non-executive director of PT ACS; Previsão, PT Prestações, PT SI, PT PRO, Páginas Amarelas, Tradecom and Banco Best.
Vice-chairman of a joint venture between PT/Telefónica from June 2001 to September 2002, responsible for M&A, strategic planning and regulations, on the joint executive committee for mobile operations for Portugal Telecom and Telefónica in Brazil. He was also executive vice-chairman of Telesp Celular Participações.
Board member of PT Móveis, SGPS, responsible for the financial area between June 2000 and June 2001. He assisted on take-overs of mobile companies, mainly in Brazil and led the acquisition of Global Telecom.
CFO of Jazztel plc between February and June 2000, running the financial/business development area for Portuguese operations.
From January 1997 to January 2000, he was a member for the Banco Santander de Negócios Portugal executive committee between January 1997 and January 2000, responsible for Corporate Finance.
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Began his Professional career in 1990 at McKinsey & Company where he was project head and led several strategic consulting projects for companies in Portugal and Spain in the banking and telecommunications sectors.
José Pedro Pereira da Costa graduated in business administration from Universidade Católica Portuguesa and finished an MBA from INSEAD in 1992.
Luís Miguel Gonçalves Lopes
ZON Multimédia, SGPS executive director and director at several ZON companies since September 2007.
Executive director at PT Comunicações and PT.com, responsible for residential business and for launching a television project. Non-executive director of Páginas Amarelas (Yellow pages).
Associate Principal at McKinsey & Company (Lisbon and Warsaw) from 1998 to 2004, working on several projects in many European countries in the retail banking, energy, pulp and paper and consumer goods sector. Co-leader on European retail banking practice.
Worked at Procter & Gamble (Lisbon and London) as Senior Analyst responsible for Haircare in Europe and global Product Supply Finance in the Haircare sector between 1995 and 1998.
INETI (Instituto Nacional de Engenharia Tecnologia e Inovação) researcher between 1994 and 1995 and assistant at the Instituto Superior Técnico de Lisboa Physics department.
Luis Lopes graduated in technological physics engineering from Instituto Superior Técnico de Lisboa. He finished his MBA at Alpine University, Austria in 1999 and has a course in industrial management from Trondheim University in Norway.
Duarte Maria de Almeida e Vasconcelos Calheiros
ZON Multimédia, SGPS executive director since 2003, he is also chairman of the board and board director at several ZON companies.
Director of PT Compras, a PT group company from 2005 to 2006 and chairman of the board of directors of Lusomundo Audiovisuais S.A and Lusomundo Cinemas S.A. from 2003 to 2006.
Director at SEAT – Sociedade Hispânica de Automóveis S.A., SEAT importer for Portugal from 1989 to 1998 and director at HERTZ HR Aluguer de Automóveis S.A from 1998 to 2003.
Director responsible for finance at Indústria de Fundição de Aços Especiais in Rio de Janeiro – Brazil from 1976 to 1989
Duarte Calheiros graduated in business management and administration from Universidade do Rio de Janeiro, with equivalence from Universidade Católica de Lisboa.
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Responsibilities
The board has delegated day-to-day management of the company to the executive committee giving it, notwithstanding to the right to take back any of the delegated responsibilities, all powers necessary for this purpose, including:
Setting up companies and to subscribe, purchase, encumber or dispose of shares, whose value does not exceed €5 million and do not constitute a strategic asset for the activity of the group;
Purchase, sell and encumber rights, movable and immovable property, including any kind of securities, financial instruments, shares and bonds, notwithstanding the limits specified in paragraph a) above in respect of shares;
Open and operate bank accounts;
Negotiate and enter into contracts intended to pursue the purpose of the company;
Appoint trustees, with or without power of attorney to perform certain acts, or categories of acts and define the extent of their mandates;
Establish or terminate consortia or any lasting association or cooperation agreements with other individuals or companies, particularly joint ventures, consortia and partnerships;
Represent the company in and out of court as plaintiff or defendant, including the filing and defence of any legal or arbitration proceedings, as well as confession, withdrawal or transaction in any cases and assumption of arbitration agreements;
Issue binding instructions to companies that are totally controlled by the group;
Exercise disciplinary power and decide on any penalties for the company 's employees;
Decide, in accordance with law and the articles of association, on the issuance of bonds and commercial paper and the taking out of borrowings on the domestic and foreign financial market, one or more times, up to an amount corresponding to three times the company's net financial debt over EBITDA Decide on providing technical and financial support to subsidiaries;
Designate the company representatives in general meetings of its subsidiaries and indicate the persons to be appointed to the respective governing bodies;
Propose strategic guidelines for the group, key policies for the companies involved and control the implementation of these guidelines and policies in the companies to the group's board;
Decide on opening or closing establishments or important parts thereof;
Set standards of organization and operation for the company and its subsidiaries, including those regarding employees and their contracts, definition of categories and pay conditions and other employee benefits;
Control group companies in terms of finance and accounting.
The powers delegated to the executive committee may be sub-delegated, in whole or in part to any of the members or company employees. The executive committee or any two of its members can issue powers of attorney as deemed convenient and in the case of a legal mandate, the signature of one of its members is all that is required.
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The delegation of powers mentioned in the point above cannot include the matters given below, including, among others, matters which, under Article 407 of the CC, cannot be delegated to the executive committee:
Definition of overall objectives and founding principles of the company 's policies, and the options that are considered strategic because of their size, risk or special characteristics, notably regarding any technology to be adopted and the development of networks and services;
Expansion or significant reduction in the activity or the internal organization of the company or the group;
Approval of company activities, budgets and annual investment plans;
Convening general meetings;
Approval of annual reports and accounts to be submitted for approval by the general meeting, as well as half yearly and quarterly reports and accounts and results to be announced to the market;
Provision of personal or real guarantees by the company;
Change of company headquarters;
Approval of merger, division or transformation of the company or that involve group companies, unless, in these cases, they are just internal restructuring operations that are part of the general objectives and principles that have been adopted;
Adoption of resolutions on the increase of the company’s capital;
Appointment of company directors;
Appointment of the company secretary and an alternate.
Accordingly and in line with the CMVM recommendation II.2.2, the ZON Multimédia board of directors has full powers to define the company strategy and general policies and the group's business structure and strategic decisions due to their amount, risk or special characteristics.
The executive committee defines, on recommendation from its chairperson, the assignment of specific responsibilities or portfolios to each of its members so the committee can supervise and coordinate the different group areas. Executive board members are currently responsible for the following areas regarding business lines and corporate governance:
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Division of Responsibilities within the Executive Committee
Strategy and Global Coordination International and Institutional Relations ZON Lusomundo Audiovisuais Human Resources ZON Conteúdos Rodrigo Costa Communication ZON Lusomundo TV Audiovisuals and Contents Dreamia CEO Cinema ZON Lusomundo Cinemas Human Resouces Dep. Communication Multimedia Contents Dep.
José Pedro Duarte Calheiros Luís Lopes Pereira Costa
Planning and Control General Office Networks and systems Accounting and Financial Reporting Commercial Treasury / Tax Legal Services Internal Audit and Risk Control Product Management and Marketing Internal Control Organizational Development and Processes Investor Relations Asset Management Business Development Purchases Management Networks and Systems Departments Regulation and Competition Management Logistic Management Security Police Fraud Control Corporate Finance, Planning and Control Dep. Financial and Administrative Dep. General Office Business Development Dep. Legal Services Dep. Investor Relations Dep. Purchases, Logistics and Asset Management Dep. Regulation, Operation and Competition Unit Internal Audit Unit Sport TV Portugal ZON TV Cabo ZON TV Cabo Logistics Dep. Sales of Residential Market Dep. Purchase Dep. Sales of Business Market Dep. Assets Management Dep. Large Companies Dep. Fraud Control and Security Unit Costumer Care Dep. ZON TV Cabo Açoreana Clients Insatallation and Maintenance Dep. ZON TV Cabo Madeirense CRM and Market Intelligence Dep. Lusomundo, Sociedade de Investimentos Processes and Continuous Improvement Dep. Imobiliários TV Product Dep. Internet Product Dep. Voice Product Dep. Business Product and SOHO Dep. Service Platforms Management Dep. Market Communications Dep. Information Systems Dep. Planning and Engineering Dep. Access Networks Dep. Operations and Infrastructures Management Dep.
Operations
The executive committee sets the dates and frequency of its ordinary meetings and meets extraordinarily whenever convened by its chairperson, any two of its members or by the audit commission.
The executive committee cannot function without the presence of a majority of its members, the chairperson may, in cases of recognized urgency, waive the need for the majority, if this is ensured through postal or proxy voting, by videoconference or a conference call.
Postal and proxy voting is allowed but no member of the executive committee can represent more than one other member.
Decisions are taken by majority vote and the chairperson has a casting vote.
The executive committee held 30 meetings in 2011, which were recorded in the minutes.
The decisions taken at executive committee meetings and explanations of the votes are recorded in minutes drawn up by the company secretary. The participants can dictate a summary of their interventions for the minutes.
Any delegation of powers to the executive committee, including rules on the functioning of the committee, is available for inspection on the company's website.
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According to the internal rules of the company (namely, in accordance with the board of directors’ and the audit commission regulations and the delegation of powers to the executive committee) and common practice, the executive directors have provided adequate and timely information as requested by the other members of the governing bodies of ZON Multimédia, particularly, and whenever required, the chairman of the board of directors and members of the audit commission are sent the minutes of any executive committee meetings.
Responsibilities of the chairperson of the board of directors and the chairperson of the executive committee
The responsibilities of running the board of directors and assuming the executive management of the group have been separate since 31 December 2011. Under the internal rules on the matter, particularly the board rules and the executive committee standards, the CEO is the leader of the ZON Multimédia management team, and as such responsible for its operational management.
The CEO shall:
Coordinate the activities of the executive committee and propose the allocation of responsibilities by its members for executive committee approval; Convene and chair executive committee meetings; Ensure the correct implementation of the board and executive committee resolutions; Ensure compliance with the limits of any delegation of powers, the company 's strategy and loyalty towards the chairperson and other members of the board and other company committees; Ensure that the board is informed of all relevant actions and decisions taken by the executive committee and that all clarifications requested by the board of directors are provided timely and properly.
Similarly, the chairperson of the board is assigned important duties under the law, the articles of association and its rules, namely:
Represent the board of directors in and out of court; Coordinate board activities and ensure for distribution of materials to the directors when necessary; Convene and chair board meetings; Ensure board resolutions are properly implemented.
Policy of rotating board of director responsibilities
The distribution of executive board member responsibilities is currently defined as detailed in the table above.
The current executive committee was appointed for the first time on 21 September 2007, and reappointed on 19 April 2010. Most of its members, except for Mr Duarte Calheiros, were also elected for the first time on 21September 2007, by being co-opted. Mr Duarte Calheiros was first elected, also by being co-opted on 14 May 2003.
The executive committee member responsible for finances, Jose Pedro Pereira da Costa, was first elected on 21 September 2007, to complete the term of office in progress in the 2007/2009 triennium. Jose Pedro Pereira da Costa was re-elected on 19 April 2010 for a new term, for the three years 2010/2012, keeping his post in charge of the financial area, and this is his second term of office in ZON Multimédia.
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With regards to CMVM recommendation II.2.5 of the Code of Corporate Governance, 2010, and the company’s clarification of its policy to rotate board responsibilities, including the those of the financial officer, ZON Multimédia, encourages where necessary or appropriate in light of developments in the activity and strategy of the company, a reflection on the distribution of responsibilities within the executive committee. Moreover, some changes have occurred in the distribution of responsibilities, particularly in terms of areas of technology and information systems, since the current executive committee mas appointed.
Bearing this recommendation in mind and despite the existing practice in ZON in this regard, the board looked into adopting a rotation policy and decided to establish a policy that essentially allows it: (i) to maintain flexibility of this committee in the appointment of its executive committee and internal committee members and the co-opting of directors, and (ii) to avoid instability, waste of knowledge and the loss of key assets which could arise from a strict rotation policy. Thus, the board of directors approved the following principles concerning the allocation and rotation of responsibilities:
1. In distributing responsibilities to the company’s directors, the board will consider, among other things that it may consider relevant (i) their profile, their expertise and professional experience and (ii) the diversity of knowledge and experience within the board of directors; 2. The board will also reflect, where necessary or appropriate in view of developments in the company’s business and strategy, on the rotation of responsibilities within the executive committee; 3. However, with respect to executive responsibilities characterized by a high level of technical or specific knowledge, such as highly technological or financial matters, it is not considered appropriate to adopt the principles of rotation, whilst safeguarding the properly justified interest of the company; 4. The distribution of the responsibilities mentioned in point 3 above will be guided primarily by maximizing the benefits of experience and knowledge, stability in the company's management and retention of key assets; 5. The board will also reflect on the rotation of its internal committees members, where necessary or appropriate for the efficient performance of this body and the non-executive directors’’ tasks; 6. The rotation of company directors’ responsibilities mentioned in points 2 and 5 above is not mandatory nor is it subject to fixed time limits. It is up to the board to judge whether it is relevant and appropriate in order to contribute to the repute of the management and further the interests of the company and its shareholders
Information to members of the board of directors and audit commission
Under the terms defined in the company’s board of directors’ regulations and the audit commission regulations, the directors will obtain information about the company activity in the exercise of their duties and functions and will have to request information necessary or convenient for the performance of their jobs and for the company’s best interest.
Except in urgent situations, the directors who, jointly or separately, wish to access information covered by the powers delegated to the executive committee may request it directly from the committee’s chairperson or through the board chairperson.
Under the audit commission regulations, the CEO is required to send the audit commission a copy of all executive committee notices and minutes of their meetings, whenever requested to do so. It is an established procedure to send these documents to the members of the audit committee as well.
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Activity of the non-executive directors
The non-executive company directors have been expanding and performing the tasks that they are legally responsible for and which generally consist of supervising, monitoring and evaluating the activity of the executive members. The non-executive directors have not encountered any constraints in performing these duties.
Pursuant to applicable laws and regulations, particularly article 407 point 8 of the SC, ZON Multimédia non-executive directors have complied with their duties to supervise the actions of the executive committee members. According to that provision, non-executive directors shall carry out the "general surveillance (...) of the executive committee," and are responsible "for any losses caused by acts or omissions, when, aware of such acts or omissions or the intention the practice them, do not call on the council to take appropriate action.”
As the chairman of the ZON Multimédia board of directors does not have any executive duties in the company, and is an independent member of the board, the duties of non-executive directors are particularly easy, since the chairman can coordinate the activities of non-executive directors as a link, strengthening and facilitating dialogue with the executive committee.
It should be noted the effort that has been made to update the non-executive directors in the different areas, and their assiduous presence and active participation in the meetings of that body, which definitely contributes to the performance of their duties.
The ZON Multimédia non-executive directors have also made an important contribution to the company through their efforts on internal board committees of the (see Chapter 2, point 4).
Finally, since this report is an annex to the company’s annual report, we resorted to the cross- references regarding the description of the activity (and any constraints) found by non-executive directors. In other words, in order to avoid unnecessary duplication of information the annual report refers to this chapter of the report, which describes the activity of non-executive directors (and any constraints they encountered).
4. Specific commissions set up by the company
In compliance with legal or regulatory provisions, and in order to reflect upon, recommend and suggest ideas, the ZON Multimédia Board of directors has appointed a corporate governance committee and an appointments and assessment committee, as detailed below. These two committees are purely for advisory purposes and the decisions are always taken by the board.
The committees have operating regulations that can be seen on the company's website.
As regards CMVM recommendation II.5.1, of the Corporate Governance Code concerning the election of governing bodies for a new mandate as of 19 April 2010, ZON Multimédia examined its corporate governance model to assess the impact of any new recommendations make any necessary alterations. Following this discussion, the ZON Multimédia board of directors approved a new appointments and assessments committee1 on 19 April, replacing the existing assessment commission while maintaining most of the structure of the corporate governance commission in from previous mandate.
1 The regulations of this commission were approved by the board of directors on 19 April 2010, then altered by a further board decision on 22 February 2011
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Corporate governance committee
The corporate governance committee is composed of the following members:
Daniel Proença de Carvalho (Chairman) Vítor Fernando da Conceição Gonçalves László Istvan Hubay Cebrian
In accordance with the best applicable practice, the members of this committee are wholly independent, both pursuant to article 414 point 5 of the CSC and under the provisions of article 414- A of the CSC on incompatibilities, that are applicable due to the provisions of CMVM Regulation 1/2010 and CMVM Recommendation II.1.2.3.
The mission of the Corporate Governance Committee is:
To assist and support the board in overseeing of company activity in the area of corporate governance, rules of conduct and social responsibility; To study, propose and recommend the board adopts policies, rules and procedures necessary for compliance with its internal rules, laws, regulations and statutory provisions, as well as national and international recommendations, standards and best practices on matters referred to above; To perform any other tasks or responsibilities that the board of directors may delegate to the corporate governance committee.
The corporate governance committee can only work if the majority of its members are present or duly represented.
The corporate governance committee takes decisions by majority vote. Where the corporate governance committee is composed of an even number of members, its chairperson has the casting vote.
The corporate governance committee held one meeting in 2011 to assess any incompatibilities and the independence of board members and to approve the 2010 corporate governance report.
The meetings of the corporate governance committee are recorded in the minutes.
Appointment and assessment committee
The appointments and assessment committee is composed of the following members:
Daniel Proença de Carvalho (Chairman) Vítor Fernando da Conceição Gonçalves António Domingues Fernando Fortuny Martorell Norberto Emílio Sequeira da Rosa Mário Filipe Moreira Leite da Silva
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The committee may also include the CEO, Rodrigo Jorge de Araujo Costa, whose attendance will depend on a request from the chairman and shall be advisory in nature, without any voting rights, except in meetings discussing executive committee vacancies, a matter on which the chairman of the executive committee shall be entitled to vote.
The participation of the chairman of the executive committee is to follow up matters related to filling executive committee vacancies. In all other matters, in particular board member assessment and filling non-executive vacancies, the chairman of the executive committee is not called and can only be present at the request of the commission chairman to provide any clarification as requested and will never have any voting rights in these matters.
Two of members of this committee must be independent directors, according to the criteria defined in article 414 point 5 or article 414-A of the CSC on incompatibilities, applicable provisions under CMVM regulation 1/2010 or CMVM recommendation II.1.2.3.
The appointments and assessment committee shall:
Assist the board in selecting directors to serve on the company’s board of directors, pursuant to CSC article 393 point 3 paragraph b); Should any vacancy arise in the governing bodies or the executive committee, they shall prepare, when requested, a well-founded opinion, identifying people who, in their view, are better suited to fill this vacancy, given the skills, knowledge and experience required to perform the tasks; Conduct the annual assessment of executive board members and later coordinate with the compensation committee on the next point; Propose, as part of the annual evaluation of executive committee members, the criteria used for setting the variable remuneration, including the objectives of individual performance, to the compensation committee; Assess the overall performance of the board of directors and any specialized committees under the board of directors; Advise on the executive committee general remuneration policy and the variable compensation programs based on allocation of ZON Multimédia shares or share options, whenever requested by the board of directors or the compensation committee
The appointments and assessments committee deems itself to be validly constituted and able to take decisions so long as a majority of its members are present or represented.
The decisions of the appointments and assessments commission shall be taken by majority vote of the members present or represented, and the chairman has a casting vote in case of a tie.
The appointments and assessments committee held two meetings in 2011. These meetings assessed issues related to company performance, human resource systems linked to the objectives and control, the legal and regulatory framework and CMVM recommendations on remuneration to help the salaries commission evaluate executive committee posts and define criteria for setting objectives.
The appointments and assessment committee meetings were recorded in the minutes.
5. Corporate supervision – Audit commission and chartered accountant
The company is supervised by an audit commission and a chartered accountant ("ROC").
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The ZON Multimédia audit commission is composed of:
Vítor Fernando da Conceição Gonçalves (Chairman) Paulo Cardoso Correia Mota Pinto Nuno João Francisco Soares de Oliveira Silvério Marques
All audit commission members are independent in accordance with SC article 414 point 5 and have the necessary skills to fulfil their duties.
Annex I describes the tasks of audit committee members in other companies, particularly in the other group companies, as well as their professional qualifications and any professional activities they have performed in the last five years.
According to the company’s articles of association and applicable law, members of the audit commission are appointed at the same time as other members of the board and the proposed lists for the latter body shall name those members who are intended to join the audit commission and its chairman.
CSC article 423-H states that the rules applicable to the replacement of audit commission members are the same as for board members.
Responsibilities
Pursuant to the articles of association and audit commission regulations, this commission is responsible for and must comply with the duties stated in CSC article 423- F and 423-G, including the following tasks:
Regarding financial information:
Issue an opinion on the annual report and accounts and the proposals submitted by the company’s board of directors; Review, monitor and advise on the following matters::
a) The company’s annual, quarterly and half-yearly financial information, including the scope, process, development, dissemination and accuracy of the accounting documents; b) Relevant issues related to accounting issues, audit and reporting of financial information, including the following:
i. Adequacy of the policies, practices, accounting procedures and valuation criteria adopted by the Company; ii. Regularity and quality of accounting information and supporting documentation of the company in light of accounting standards and principles; iii. Any relevant changes to policies, practices, procedures or criteria referred to in b) i) above or any changes to accounting standards; iv. Location of any property or securities owned by the company; v. Impact on accounting documents of the changes described in b) iii) above, of unusual transactions and respective accounting methods and other transactions
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The chartered accountant towards the external auditor shall:
Propose the appointment of the company’s chartered accountant and replacement, monitor and assess their independence, the scope of their services and the statutory audit of company accounts and statements to the general meeting; Assess the content of the annual certification of accounts prepared by the chartered accountant and discuss any reservations; Represent the company towards the external auditors; Propose the board hires, renews or dismisses the respective contract and remuneration of the company’s external auditors at the general meeting, whenever there is just cause, and give an opinion on the possible renewal of the contract or replacement of the company’s external auditor, as appropriate, at the end of three consecutive contracts, focusing specifically on the benefits and costs of their rotation and their independence; Ensure that within the company and the companies within or dominated by ZON Multimédia group, the company’s chartered accountant and external auditors are provided adequate conditions to conduct their services; Review the scope, planning and resources to be used in providing the respective services with the chartered accountant and the external auditors; Assess the content of the audit reports and the company’s external auditors annually. The auditors shall report and be subject to audit commission supervision, in terms of their qualifications, independence and performance; Get an annual basis report on the substantive issues arising in the context of services provided directly from the external auditors, as well as any relationship between the company and its external auditors, including the amounts paid for audit services and additional services; Discuss separately with the external auditors aspects and problems related to the company’s audit process of accountability documents, including the responses from the executive committee, and Approve the hiring of the auditor or the chartered accountant for the provision of services other than audit services in advance
Internal control, risk management and internal auditing shall:
Monitor the effectiveness of the company’s internal control mechanisms, risk management and internal audit whenever required and propose to the board of directors and/or the executive committee, to the extent of its delegation of powers, the adjustments to those mechanisms as may be appropriate to the needs of the company; Discuss and revise, as necessary or appropriate, with the executive committee and the external auditors any matters relating to compliance with legal or regulatory obligations which may have a material impact on the company’s financial information, auditing or accounting policies and other companies that consolidate their accounts with ZON Multimédia; Discuss and review the adequacy, reliability and effectiveness of the company's internal control procedures and evaluate matters relating to accounting and auditing, financial reporting, risk detection and protection of the company’s assets with the executive committee and the external auditors annually; Evaluate internal control and risk management and propose any adjustments as required by the company; Review the scope and planning of activities and financial, human, technological and organizational resource requirements for adequate and effective internal audits with the executive committee annually;
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Discuss the internal control reports with the heads of internal auditing and external auditors and review the of internal audit reports, which, notwithstanding the relevant technical hierarchical dependence, are subject to the functional coordination of the audit commission; Issue an opinion on the appointment, replacement or dismissal of internal audit unit officers, and
Oversee the tasks and the implementation of the measures, recommendations and plans proposed in the context of the internal control and risk management systems and the internal audit tasks within the company.
Compliance and irregularities shall:
Oversee compliance with legal and statutory provisions applicable to the company and receive communications regarding any illegalities or irregularities from shareholders, company employees or others; Issue a prior opinion on any significantly relevant business to be concluded between qualified shareholders or entities with whom they are in any of the situations listed in SC article 20 in force at the time and ZON Multimédia or companies dominated by the group; Discuss and review any relevant matters related with the conformity of the company's business activity, with the laws, regulations and statutory provisions and with the instructions, recommendations and guidelines issued by the competent authorities with the board and/or executive committee; Implement an irregularity reporting policy, including any confidential and anonymous procedures needed to receive, record and process complaints received by the company, particularly those aspects related to accounting, internal control procedures for accounting matters and audit issues relating to the company. Ensure, within their legal and statutory powers, the functional reporting of the company services which ensure compliance with the rules applicable to the company (compliance), notwithstanding their need to report to the executive committee.
Other liabilities and tasks:
Approve and disseminate an annual report on its supervisory activity, including a description of the activities performed in the previous year, and mentioning, in particular, any constraints that the audit commission encountered in carrying out its powers and performing their duties on the company's website along with the accounting documents; Approve a report on the following aspects every year advising the board of the contents i) Performance evaluation of the audit commission in accordance with its powers, duties, responsibilities and functions; ii) Action plan for the current year to carry out its responsibilities and fulfil its duties, responsibilities and functions; Review and reassess the respective regulations and, where appropriate, propose any changes deemed necessary or convenient to the board every year Establish procedures and criteria required to define the level of significant relevance of business inked between owners of qualifying holding or entities with whom they are in any of the situations listed in SC article 20 and ZON Multimédia or companies dominated by the group.
In carrying out its powers, functions and responsibilities and to comply with their duties, the activity of the audit commission, as applicable and within legal limits, includes the companies dominated by the group and ZON Multimédia and other direct or indirect subsidiaries.
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Mode of operation
Notwithstanding any compliance with legal and statutory requirements, the audit commission, on its own initiative and as part of its responsibilities and legal and statutory duties and whenever deemed necessary to fulfil their responsibilities and respective duties under the regulation shall:
i. Meet at least once a month; ii. Meet at least once every quarter, with members of the executive committee, the head of internal auditing, the chartered accountant and the company’s external auditors and, whenever it deems appropriate, at least once per year, separately or jointly with members of the executive committee, the administration and supervision bodies, responsible for internal auditing, the chartered accountant and the company’s external auditors; iii. Attend executive committee meetings that appraise the financial statements, and in any case, the CEO is required to send to the chairman of the audit committee copies of the minutes of the meetings of that committee, when requested for this purpose; iv. Be entitled to summon the persons referred to in b) above and any directors or employees of the company and/or companies in dominated by the group: i) participate, wholly or in part in any audit commission meetings or to meet individually with any of its Members, and ii) conduct any investigations and provide any information the audit commission deems necessary, including operations, activities or business of the company and/or companies in dominated by the group with ZON Multimédia v. Be entitled to request the ZON Multimédia executive committee and/or board of directors to take any the steps necessary to obtain the information about the course of operations, business activities or subsidiaries, directly or indirectly, by ZON Multimédia. The committee or board should ensure the necessary collaboration and coordination with the boards of those companies; vi. Be entitled to hire the services of experts to assist one or more of its members in conducting their tasks, and the hiring and remuneration of these experts must take into account the importance of the subjects committed to them and the economic situation of company and vii. Be generally entitled to obtain all information and financial, technical, human and material resources necessary, including a support secretariat, from the company’s board of directors.
Meetings shall be convened by the chairman or at the request of any of its other members. The notice of each meeting shall be sent to the audit commission members, with at least 3 working days’ notice before the date of each meeting and include the agenda and, where applicable, any supporting documentation.
The decisions of the audit commission are taken by majority of votes cast as long as most of the members in office are present, and its chairman has a casting vote.
The audit commission held 20 meetings in 2011. Minutes were taken of the meetings.
Pursuant to the ZON Multimédia regulations and applicable law, the company’s accounts must be examined by a chartered accountant or a firm of accountants, appointed by the general meeting as proposed by the audit commission.
The audit provided for in SC article 446, is ensured by Oliveira, Kings & Associates, SROC, Lda, represented by Jose Vieira dos Reis and Fernando Marques Oliveira as statutory effective and alternate auditors respectively, for the current term of office.
The audit commission regulations are available for inspection at the company’s website.
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6. Remuneration commission
The remuneration commission is elected by the shareholders at their annual meeting and its purpose, in accordance with the articles of association article 13 point 4 paragraph e), to set the remuneration of the members of the ZON Multimédia governing bodies and it is exclusively composed of members who are independent of the board of directors, according to the criteria set out in chapter II, paragraph 14 in the annex to CMVM regulation 1/2010.
The remuneration commission has three members with great experience, especially in business, who have the knowledge necessary to deal with and decide on all matters within the jurisdiction of the remuneration commission, including remuneration policy.
In order to perform their task, the remuneration commission constantly monitors and assesses, with the support of the appointments and assessment committee, the directors’ performance, verifying the extent to which their objectives were achieved, and meets whenever necessary . It should be noted that the appointments and assessment committee merely assists and does not have any power of decision, within the remit of the remuneration commission.
The members of the remuneration commission as at 31 December 2011 were:
Fernando José Guimarães Freire de Sousa; Luís Manuel Roque de Pinho Patrício; Agostinho do Nascimento Pereira de Miranda.
The proposal and choice of remuneration commission members are carefully considered in order to guarantee impartiality and the best interests of the company, which is why none of the members have any family connection with any member of the board by marriage, blood or affinity to the third degree, making sure, by this means, the strict observance of the criteria for independence.
The company provides remuneration commission members permanent access at company expense to external consultants who specialize in various areas where the commission needs it. The remuneration commission did not contract any services to support the fulfilment of its mission in 2011.
Tasks
This commission was created, under the articles of association, to set the remuneration of ZON Multimédia company officers. It is also responsible for monitoring and evaluating, with the support of the appointments and assessments committee, the performance of the members according to the defined objectives.
The remuneration commission met two times in 2011 and decided on issues of executive committee assessment, goal setting and compensation.
Minutes were taken of the meetings.
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7. Internal regulations and code of conduct
Code of ethics
The ZON Multimédia board of directors has adopted a code of ethics, which applies to all employees of all group companies, to ensure a common set of ethical standards. Its updating and implementation is permanently monitored by the company’s corporate governance commission. The code of ethics formalizes and explains standards of behaviour in line with the principles and values of ZON Multimédia and is a commitment towards collective responsibility of ZON Multimédia and an individual responsibility of each employee, consolidating the foundations that support the growing relations of trust between workers, other employees shareholders, customers and suppliers and service providers, as well as with regulatory authorities and the public in general.
ZON Multimédia, in meeting its ethical values:
Establishes rules and procedures it considers most appropriate at any moment to ensure strict adherence to the legal and regulatory rules applicable to group companies and its activity, and the foundations of his conduct set out in its code of ethics; Welcomes the mechanisms designed to ensure that all shareholders are treated equally and assumes a transparent conduct before the shareholders, as investors, stakeholders and the market, fostering the value, credibility and good governance of the group; Encourages the dissemination of complete, true, current, transparent, objective and licit market information, particularly by establishing mechanisms to ensure the disclosure of financial information that accurately reflects its financial position, results and business, as well as adopting of market abuse prevention measures Rejects and penalizes the use of illegal methods in achieving its business objectives, which should always be pursued in an atmosphere of healthy competition, using a policy of excellence for its products and services; Strives to provide its customers with products and services of the highest quality that best suit their needs and preferences and focuses on continuous innovation; Contributes to the motivation and remuneration of its employees, promoting equality of opportunity, human dignity and individual responsibility in its relations with employees; Collaborates with supervisory authorities, answering any requests they may make; Encourages respect for competition and labour rules while safeguarding property rights (in particular, intellectual property) and group resources; Creates appropriate mechanisms to ensure their suppliers and service providers respect the group’s principles and values, as enshrined in the code of ethics and to comply with their legal and contractual obligations, in line with the principle of good faith; Imposes internally a principle of impartiality in decision-making, mechanisms for preventing and resolving conflicts of interest and a duty to cooperate and encourage effective internal control system; Has adopted a company policy that enshrines and promotes the idea of contributing to socio- economic welfare, social responsibility and sustainable development.
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The ZON Multimédia code of ethics also includes specific rules for financial officers, reinforcing the importance of specific ethical standards applicable to all group employees who are directly or indirectly involved in the preparation, analysis and dissemination of financial statements, press releases or any other management information related to ZON Multimédia. These rules aim to strengthen specific duties of confidentiality, competence and professionalism by the financial officers, as well as transparency and compliance with laws applicable to the group and the responsibility for disseminating information.
The code of ethics establishes principles of honesty and accountability, transparency and equal treatment of shareholders and regulatory aspects such as competition, intellectual property and property protection in general, prevention of conflicts of interest and impartiality, internal control system and illegitimate advantages as well as social accountability and sustainable development.
The ZON Multimédia code of ethics can be seen on the company’s website.
Other codes of conduct and internal regulations
ZON Multimédia has adopted internal rules and other regulations for itself and group companies, as applicable. These codes of conduct and internal regulations are as follows:
Rules on transactions by group directors
A regulation on transactions by group directors, which regulates matters relating to the prevention of market abuse and establishes the concepts regarding "inside information", "market manipulation" and "relevant transactions" among other associated companies was approved in 2007 and revised in June 2010
This regulation was issued in line with the SC standards and applicable CMVM regulations, namely, with the following objectives: (i) to establish rules and procedures relating to disclosure requirements regarding shares and voting rights held and any relevant transactions carried out by company officers in shares issued by ZON Multimédia and related financial instruments, and (ii) to consolidate good practice already in place at the company to improve prevention of market abuse.
Regulation on transactions with qualified shareholders
In order to accommodate the new CMVM recommendations relating to transactions with qualified shareholders, arising from the version of those recommendations published in January 2010, and as a result of internal reflection on the matter, the audit commission and the board approved a regulation on transactions with qualified shareholders on 29 July 2010, which establishes the general principle that transactions concluded between the company or any subsidiary and any qualified shareholder or entity with which it is in one of the situations referred to in SC article 20 (related entity) should be carried out under normal market conditions.
This regulation also establishes internal procedures for monitoring transactions with qualified shareholders that are considered to be appropriate for the transparency of decision making and defines the terms of the audit commission's intervention in this process.
The contents of the internal regulation are described in Chapter 3, Section 6 below.
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Regulation on the provision of services by external auditors
The audit commission approved a regulation in 2008 laying down the rules that apply to non-audit services ("Non Audit") or audit services ("Audit Related") provided by the external auditor and/or related companies to ZON Multimédia and/or its affiliated companies included in the respective perimeter of consolidation.
According to the regulation, the provision of non-audit services or not related to audits by the company’s external auditor, requires prior approval and authorization of the audit committee and should be considered as an exception or complementarity, respectively.
Regulation on procedures to adopt regarding irregularity communication (“Whistleblowing”)
The contents of the rules on reporting irregularities, approved by ZON Multimédia on 20 December 2007, is described in point 11 below, and are available for inspection on the company's website.
8. Board and audit committee member remuneration policy
A remuneration committee statement on the remuneration policy of the ZON Multimédia board and audit committee, pursuant to article 2 of law 28/2009 of 19 June was submitted to the company’s shareholders at the ZON Multimédia general meeting on 15 April 2011, the general ideas of which are detailed below.
As regards the remuneration policy of the other ZON Multimédia senior officers as described in SC article 248-B article 3, as they hold senior positions at ZON Multimédia group subsidiaries, their remuneration is established by the remuneration committee of the respective subsidiaries (and not by the ZON Multimédia board), so no statements need to be sent by their boards to the general meeting on the remuneration policy of the other directors.
Remuneration policy for executive and non-executive directors
The reward systems are a strategic element of an organization's ability to attract, retain and motivate the best professionals.
The good practices of the award systems, in terms of listed companies, advise using models that are composed of different components: a fixed component, functioning as "base" pay and a variable one, which may involve the distribution of an annual bonus and/or the implementation of shares distribution plans.
The components of the ZON Multimédia compensation system for executive board members should be in line with other comparable companies, according to the benchmarking carried out in relation to market values of these awards.
The variable remuneration linked to the achievement of management objectives uses two components: the annual bonus and a share distribution plan.
The annual bonus, ensuring alignment with the results, also seeks to ensure the maximization of the company’s long-term performance.
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The share plans and options, approved by the general meeting, aimed at ensuring the alignment of individual interests with business objectives and the interests of ZON Multimédia shareholders, reward the achievement of objectives, which require the creation of sustainable value.
The non-executive board members, as they are not responsible in the operationalization of the strategies, have a compensation system that does not contain any variable compensation component, just a fixed component.
Alignment of directors’ interests and company interests
The compensation system is also designed to ensure alignment of executive directors’ interests with business objectives. For this strategy to succeed, it is critical that the alignment is achieved through clear objectives that are coherent with the strategy, rigorous metrics to evaluate individual performance and the right to performance incentives that also bolster ethical principles.
The creation of value therefore needs excellent professionals and a framework of incentives that suit the size and complexity of the challenges.
The remuneration committee and the appointments and assessment committee, define the major variables to be evaluated and their respective every year.
The calculation of the variable remuneration was based on the performance of the ZON Multimédia measure by previously defined business indicators. The overall revenue, EBITDA ("Earnings Before Interest, Taxes, Depreciation and Amortization"), Operational Cash Flow, Net Income and RGU's ("Revenue Generating Unit") were all taken into account in 2011.
On the other hand, the component associated with the share distribution plan intends, apart from meeting the goals mentioned above for the annual bonus, to ensure alignment with shareholder value creation and stronger loyalty mechanisms. Two plans are in place, one called senior executive and the other, standard.
The assessment of whether the objectives were fulfilled or not, lies with the remuneration committee, supported by a report from the appointments and assessments committee.
The variable remuneration, using the components mentioned above, seeks to consolidate a proper goal setting policy with systems to properly reward the capacity to implement and achieve ambitious performance that discourages short-term policies, while encouraging the development of sustainable medium and long term policies. It should be noted that the share distribution plan approved at the general meeting of 19 April 2010, imposed a three-year deferral period for the senior executive plan, in accordance with the laws and regulations regarding the deferral of variable pay, and a five-year period for the standard plan.
It should be noted that although the current share plans are deferred in time, the remuneration committee set conditions on transforming the rights granted under the senior executive share plan into shares at the end of the three-year period, that depend on positive company results, which requires compliance with the following extra condition:
The consolidated equity in year n +3, excluding any extraordinary movements occurred after the end of year n, minus a value corresponding to a 40% payout on net income in each year’s consolidated accounts over the deferral (regardless of the actual payout) must be higher than that calculated at the end of year n.
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Capital increases, purchase or sale of own shares, extraordinary dividend payments, annual payout other than 40% of the consolidated results for the respective year or other movements that affect the net worth does not derive from the company 's operating results are considered as extraordinary movements in the period between years n and n +3.
The net position in year n +3 should be calculated using the accounting rules applied in year n, to ensure comparability.
The allocation of shares under the approved plans, which are totally dependent on group and individual performance, primarily seeks to ensure the maximization of medium and long term value creation, thus encouraging the pursuit of sustainable policies over time.
Note that variable compensation awarded through the share plans, is not only deferred, but most will be received after the end of the officer’s term of office and is subject to the above condition of the company’s future positive performance.
These plans are described in further detail in Chapter 3 point 5 below.
The assessed objectives correspond generally to profitability and growth variables that ensure the company’s development and therefore indirectly also the entire national economy and its stakeholders.
In the event of future allocation of options a deferral of three years is guaranteed after the date of the respective distribution.
Deferral of the variable remuneration
Half of the variable compensation awarded, i.e. the bonus components and shares allocated under the respective plans, has been deferred over three years and its payment depends on future positive performance. The definition of this future access condition for the variable remuneration has already been explained in the previous point
Maximum limits on variable remuneration
The value of the variable components (including the share plans) at the time the remuneration committee decides to allocate them, is limited to a maximum of 1.5 times the value of the fixed remuneration.
Guaranteed minimum variable remuneration
There are no contracts guaranteeing any minimums for the variable remuneration regardless of the company’s performance or contracts to mitigate the risk inherent in variable compensation.
Removal of directors without fair cause
Any dismissal members of ZON executive directors without fair cause, gives them the right to receive the amount of the fixed remuneration plus the annual variable remuneration (excluding allocation of new shares rights) that would have been entitled to earn by the end of the mandate as compensation. The annual variable remuneration they would be eligible to until the end of their term of office will be calculated based on the average annual value of the variable remuneration (excluding the share component) that was paid in the last two years.
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Payments linked to the termination of director’s contracts
In order to align the company with best international corporate governance, the non-reappointment after the expiry of the term of office of ZON’s executive directors imply, in terms of individual agreements, compensation worth two years the average annual fixed remuneration and bonuses (excluding share allocation plans). However, these directs are prohibited from performing any duties for two years in any competing companies in Portugal.
These directors have no labour contract with ZON Multimédia
Remuneration policy for audit commission members
Audit commission members, like the other non-executive directors, only receive a fixed salary.
The statutory auditor is paid according to the legal conditions set out in their contract.
9. Directors’ remuneration
Fixed and variable remuneration of executive and non-executive directors
The fixed and variable remuneration earned by executive and non-executive directors in 2011 are shown below:
Remuneration Remuneration paid UNIT: EUR Fixed Variable TOTAL paid in 2011 in 2012
Chairman of the Board of Directors DANIEL PROENÇA DE CARVALHO 250.000 0 250.000 214.286 35.714 Executive Committee RODRIGO JORGE DE ARAÚJO COSTA 695.002 270.000 965.002 595.716 369.286 JOSÉ PEDRO FARIA PEREIRA DA COSTA 405.006 225.000 630.006 347.148 282.858 LUÍS MIGUEL GONÇALVES LOPES 405.006 225.000 630.006 347.148 282.858 DUARTE MARIA DE ALMEIDA E VASCONCELOS CALHEIROS 350.000 90.000 440.000 300.000 140.000 1.855.014 810.000 2.665.014 1.590.012 1.075.002 Non-executive Members of the Audit Committee VITOR FERNANDO DA CONCEICAO GONCALVES 120.000 0 120.000 102.857 17.143 NUNO JOAO FRANCISCO SOARES OLIVEIRA SILVERIO MARQUES 110.000 0 110.000 94.286 15.714 PAULO CARDOSO CORREIA DA MOTA PINTO 110.000 0 110.000 94.286 15.714 340.000 0 340.000 291.429 48.571 Non-executive Members ANTÓNIO DOMINGUES 21.409 0 21.409 18.350 3.058 FERNANDO FORTUNY MARTORELL 21.409 0 21.409 18.350 3.058 JOÃO MANUEL MATOS BORGES DE OLIVEIRA 12.030 0 12.030 12.030 0 JOAQUIM FRANCISCO ALVES FERREIRA DE OLIVEIRA 21.409 0 21.409 18.350 3.058 JORGE TELMO MARIA FREIRE CARDOSO 21.409 0 21.409 18.350 3.058 LASZLO HUBAY CEBRIAN 42.818 0 42.818 36.701 6.117 LUIS JOÃO BORDALLO DA SILVA 42.818 0 42.818 36.701 6.117 MÁRIO FILIPE MOREIRA LEITE DA SILVA 21.409 0 21.409 18.350 3.058 NORBERTO EMILIO SEQUEIRA DA ROSA (a) 0 0 0 0 0 ANTÓNIO DA R. S. HENRIQUES DA SILVA (NÃO RESIDENTE) 13.763 0 13.763 13.763 0 218.472 0 218.472 190.947 27.526
(a) without remuneration
The remuneration payable in 2012 for the variable component, one month of holidays and holiday bonus.
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The variable compensation refers to the performance of executive directors in the year ended 31 December 2011.
ZON Multimédia executive directors who also perform other duties in ZON Multimédia group companies do not receive any additional remuneration or other amounts on any account.
Allocation of shares or options to acquire shares or other incentive system with shares - Premiums, non-cash benefits and profit sharing
The general meeting approved the share allocation or options plan, which authorized two ZON plans to be set up, one called the senior executive plan and the other the standard plan. Executive board members are covered by both plans.
Following the implementation of the above plans, rights to shares through the senior executive plan and the standard plan were awarded to executive board members in 2011.
Number of Shares allocated in 2011 under Number of Shares allocated in 2011 under the Senior Executive Plan (these shares will the Standard Plan (these shares will be be vested in 2014, subject to the future vested between 2012 and 2016 subject to a positive performance of the Company) rate of 20% per year) RODRIGO JORGE DE ARAUJO COSTA 75.000 9.115 JOSE PEDRO FARIA PEREIRA DA COSTA 40.000 5.311 LUIS MIGUEL GONCALVES LOPES 40.000 5.311 DUARTE MARIA DE ALMEIDA E VASCONCELOS CALHEIROS 17.500 4.590 172.500 24.327
These plans are described in greater detail in chapter 3 point 5 below
Compensation paid or payable for termination of service
No compensation was paid or became payable to former directors upon termination of their service.
Estimate of other non-cash benefits
In addition to what is above described, no other significant non-cash benefits were allocated.
There are no supplementary pension or early retirement schemes for directors.
10. Risk control system
Main risk factors
ZON Multimédia's business is affected by several risk factors, which are grouped into risk categories, namely: Governance, strategy and planning, operations and infrastructure, compliance and reporting. The risk factors are reviewed and prioritized twice a year, updating them and subjecting them to a voting process to classify them according to their likelihood and impacts in terms of processes, people and technology. ZON Multimédia has been implementing control activities that to mitigate risks to a level set by management (level of acceptance of risk) to manage its risks.
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The main risk factors identified in the last assessment were:
Regulation: to monitor regulatory changes, given the threats and opportunities posed to the competitive position of ZON Multimédia in its business areas. The regulation risk management is the liability of the central legal department, with support from the operators, regulation and competition department, which should be aware of any new regulations issued by national and international entities that apply to business sectors where ZON Multimédia is present.
Competition: potential reduction in the prices of products and services, reduction of market share, loss of customers, increasing difficulty in obtaining and retaining customers. This management of this risk is a constant concern of the ZON Multimédia executive committee. Competition risk management has become a strategy of investing in the continuous improvement of quality of service before the competition (Cable TV and Digital Television), launching innovative channels and services (increased broadband Internet service speed), diversification of supply and the quality and diversity of the content.
Technological developments: the need for investments in increasingly competitive business services (Multimedia, Internet and fixed and mobile voice) subjected to accelerated and sometimes unpredictable changes in technology.
ZON Multimédia sees innovation management as critical, despite the fact that you cannot accurately predict the effect of technological change on one’s business or your ability to offer competitive products and services. ZON Multimédia activity and earnings may be impacted if: the group (1) does not effectively compete in new businesses and markets, (2) cannot attract and retain employees with the necessary skills to develop new business, and (3) does not increase the use of new services by customers, if it decreases or if its evolution is in a different direction from the technologies and businesses that ZON Multimédia is investing in.
The management of risk regarding technological change is the responsibility of the technology management and information systems units.
Loss of Customers: the inability to retain customers, either through inappropriate business practices or difficulty in monitoring its effectiveness. This risk management is a constant concern of the ZON Multimédia executive committee. Managing the risk of losing customers has gone through a strategy of diversifying products and services and constantly monitoring of their preferences.
Retaining talent: the ability to ensure people have the skills and knowledge required to develop the business, are properly motivated, and positioned in the right places. Managing this risk is the responsibility of the central human resource department which, given the aggressive competition, has developed strategies for retaining resident skills and focuses on opportunities for strengthening them. The main components of these strategies have been the focus on training, outlining plans for professional development, attracting highly qualified skills and implementation of progressive reward systems increasingly focusing on merit and results.
Tax: The changes in tax laws and possible interpretations of applying different forms of fiscal and parafiscal regulations. This risk management is the responsibility of the central financial and administrative department, which tracks all tax legislation and seeks to take advantage of tax planning opportunities. This department can request tax advice whenever issues under consideration may be more critical and, therefore, need interpretation by an independent entity.
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Revenue: Implementation and enforcement of revenue controls, regarding invoicing quality. These controls are applied in the billing area, where ZON wants to present a better quality to reach a level of excellence.
The revenue assurance & fraud area applies procedures for monitoring revenue loss (underbilling) and cost control that allow us to present a coherent chain of revenue between the moment it enters our systems to invoicing and collection. ZON applies fraud control procedures to prevent abnormal fraudulent situations or piracy with a direct impact on revenue.
Collection: Reduced income from customers by ineffective or inadequate charging rules and/or amendments to legislation governing the provision of essential services and that have an impact on the recovery of debts from customers. These risks are managed by setting a monthly action plan for collecting bills where the results are monitored, validated and assessed. Where appropriate the rule and the action timings are adjusted to ensure the collection of end customer debts.
Risk management strategies
Risk management is ensured by various ZON Multimédia business units based on identifying and prioritizing critical risks and developing risk management strategies to implement any control procedures considered appropriate to reduce risk to an acceptable level.
The risk management strategies that have been adopted seek to ensure that:
The control systems and procedures and the policies in place allow us to meet the expectations of management, shareholders and the general public The control systems and procedures and policies are established pursuant to all applicable laws and regulations; The financial and operational information is complete, reliable, safe and reported regularly and on time; The ZON Multimédia resources are used efficiently and rationally; The shareholder value is maximized; operational management takes the necessary steps to correct any aspects that are reported.
Internal procedures to control risk
Bearing in mind the regulatory requirements ZON Multimédia is subject to, it has implemented an internal control and risk management post, approved by the executive committee, upon advice from the audit commission, which is intended primarily to ensure compliance with the objectives, policies and procedures to ensure the reliability of financial reporting, to minimize any fraud and identify the main risks related to company activity and events that could generate risks and ensure that critical risks are controlled and reduced to an acceptable level.
This task is being performed in the main ZON Multimédia subsidiaries. The programme provides for the introduction of internal control procedures and their revision, verification and continuous improvement.
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Corrective actions were made to the control procedures deemed ineffective in 2011 as a result of assessments undertaken by internal and external auditing, and risk control procedures, associated with areas not yet covered by the ZON Multimédia internal group control manual, were implemented and revised.
The evaluation methodology that was adopted took into account the references provided by the bodies responsible for encouraging the existence of internal control mechanisms in the capital markets, in particular by the CMVM, SEC and PCAOB that were based on an assessment of the internal control system in the light of the framework of COSO II - Enterprise Risk Management, regarding the Entity Level Controls and Process Level Controls, in accordance with the COBIT framework for Information Systems and Information Technology.
As regards the implementation of an internal control system and as a result of using the references mentioned above, a set of initiatives were developed that helped maintain an excellent internal control and risk management environment in ZON Multimédia, including:
The monitoring and periodic review of the risk management process to ensure that the planning remains relevant in terms of costs and treatment options of the risks and that any changes that occur, are included in the factors that affect the likelihood and impact of the risks ensuring their level of risk is acceptable as defined by management;
Maintaining the ZON Multimédia " Risk Dictionary”, adjusting it to the reality of the ZON Multimédia Group every moment and the political and economic environment of global recession and financial market instability;
Actions to assess the risks identified in the "Risk Dictionary" in terms of i) the likelihood of occurrence and ii) potential impacts in terms of people, processes and technology, identifying priority areas for auditing the internal control manual and risk mitigation actions;
The monitoring risk control procedure assessment, using them as warnings to: i) permanently update residual risk, ii) generate and maintain updated risk matrices and, consequently, iii) adjust priorities and actions to develop, maintain, among others, an alignment of risk actually incurred with the company’s strategic option in assuming risk, and monitoring the implementation of risk management measures that were adopted and how effective they are;
Maintaining the association between the risks and the items in the financial statements in order to assess their impact as a result of fluctuations in the levels of risk and the production of various assessment reports;
Periodic assessment of the internal control and risk management system, including a review of the internal control manual used in the main ZON Multimédia businesses and ensuring it is continuously updated
Maintaining the alignment between the information systems/information technology internal control manual and the controls stated in the information security certificate (ISO 27001);
Publication of ZON Multimédia Group internal control manual on the corporate intranet to ensure most employees are aware of it, allowing for internal communication and information about the internal control and risk management system;
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Defining, monitoring and reporting the assessment of control procedures, required remediation plans to correct any identified deficiencies and any impacts of the corporate risk management model to the ZON Multimédia audit committee.
These actions assured that as at 31 December 2011, a 98% implementation of the ZON Group internal control manual, which was the percentage of the controls considered as effective in comparison with all the controls defined in the internal control manual. "Effective controls" was considered as meaning the results of the assessment actions undertaken by internal and external auditors.
Control by ZON Multimédia, business units and instrumental companies
ZON Multimédia’s internal control is structured according to the following functional responsibilities:
Entity Level Controls are defined in business terms by ZON Multimédia and apply uniformly to all group companies including ZON Multimédia and are intended to establish guidelines for the internal control of ZON Multimédia subsidiaries;
Process Level Controls and IS/IT controls are defined corporately and are applied to ZON Multimédia subsidiaries, tailored to their specific nature, organization and accountability processes. Given this distribution, the controls related to the collection of information needed to prepare the financial statements are located in the companies while the controls related to processing, recording and archiving accounting information is in the central financial and administrative department.
ZON Multimédia, after completing the revalidation of the model, began a systematic process to validate the controls that had been implemented and maintained by the ZON Multimédia corporate units and business units in 2011, ensuring the commitment of key reporting financial stakeholders and the permanent monitoring of the effectiveness of the design and adequacy of those controls.
Business continuity management
ZON Multimédia believes business continuity management is an essential tool to ensure that their goals can be achieved even when the organization is exposed to a transient event that may disrupt its operations.
The business continuity management implemented by ZON recognizes the strategic importance of the various stakeholders in the business and has developed a resistant structure that can respond to emergencies using a methodology based on risk assessment.
The definition and maintenance of the business continuity plan framework is the responsibility of the corporate safety committee, which must ensure the process, responsibilities, resources and methodology to develop, implement and test the business continuity plans.
This ZON Multimédia committee is also responsible for overseeing the updating of the business continuity plans for the different areas, for scheduling these tests and monitoring the implementation of improvements and changes to the various plans.
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11. Irregularity communication policy
ZON has a policy for reporting irregularities within the company, and has had regulations on procedures to adopt regarding the communication of irregularities ("Whistleblowing"), since 2007.
Under these regulations, "irregularities" are all wilful or negligent acts or omissions that occur as part of the group's activity, that are against laws or ZON Multimédia regulations, statutory provisions, rules or ethical principles attributable to ZON Multimédia Group board members or other officers, directors, staff and other workers and employees (regardless of their rank or their contractual relationship). These irregularities may include, among others, breach of rules and ethical principles in ZON Multimédia’s Code of Ethics, in particular breaches related to the integrity of financial reporting and accounting practices, the rules of conflict of interest, the internal control system or competition policies.
After being implemented, these regulations were sent to all employees by email and they were published on ZON Multimédia’s intranet. These regulations are also sent to all group employees by email once a year.
Any irregularity can be transmitted through the procedures and mechanisms given in the regulations. The communication of any signs of irregularities should be made in writing stamped "confidential" and addressed to the audit commission at PO Box 14026 EC, 5 de Outubro, 1064-001 Lisbon, which was opened for this sole purpose, or by e-mail to [email protected] also created exclusively for reporting irregularities.
Irregularity reports are received and processed by the audit commission, which is assisted throughout the various stages of this process by the secretary general or the deputy secretary general and the internal audit unit. The audit commission is empowered to take the necessary decisions and send a copy of these to the ZON Multimédia CEO and CFO, as well as other domestic or foreign entities, whose involvement is required or justified.
In any case, the identity of the authors of the irregularities reports is kept confidential (when known), unless they unequivocally wish to declare otherwise. Under no circumstances will any retribution or retaliation be tolerated against those who send the communications.
The audit commission, within its remit, carries out an annual review of the adequacy of the procedure established by the regulation.
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03 Information
1. Capital structure and main shareholders
The share capital of ZON Multimédia is €3,090,968.28 which is fully subscribed and paid up. The share capital is represented by 309,096,828 ordinary shares.
All ZON Multimédia shares can be traded on Eurolist by Euronext Lisbon.
With reference to communications made to the company until 31 December 2011, by issuers and their directors under CC article 447, SC article 16 or article 11 of CMVM regulation 5/2008, the structure of qualified shareholdings in ZON Multimédia, calculated pursuant to SC article 20 point 1, as at that date, is shown below:
Shareholders Nr. Of Shares % Voting Rights
Caixa Geral de Depósitos, SA 33,621,426 10.88% Kento Holding Limited (1) 30,909,683 10.00% Banco BPI, SA 23,344,798 7.55% Telefónica, SA 16,879,406 5.46% Espírito Santo Irmãos, SGPS, SA (2) 15,455,000 5.00% Joaquim Alves Ferreira de Oliveira (3) 14,955,684 4.84% Fundação José Berardo (4) 13,408,982 4.34% Ongoing Strategy Investments, SGPS, SA (5) 10,162,250 3.29% Estêvão Neves - SGPS, SA (6) 9,075,782 2.94% Cinveste, SGPS, SA 8,707,136 2.82% Grupo Visabeira, SGPS, SA (7) 6,641,930 2.15% Norges Bank 6,379,164 2.06% Banco Espírito Santo, SA 11,861,240 3.84% SGC, SGPS, SA (8) 6,182,000 2.00% ESAF - Espírito Santo Fundos de Investimento Mobiliário, SA 6,088,616 1.97% BES Vida - Companhia de Seguros, S. A. 5,721,695 1.85% Metalgest - Sociedade de Gestão, SGPS, SA (4) 3,985,488 1.29% Total Identified 223,380,280 72.27%
(1) According to Articles 20(1)(b) and 21of the Cód.VM the qualified holding is attributable to M s. Isabel dos Santos, in her capacity of shareholder of KENTO. (2) Espírito Santo Irmãos, SGPS, SA's voting rights are attributed to Espírito Santo Industrial, SA, Espírito Santo Resources Limited, and Espírito Santo Internacional, SA, companies which dominate Espírito Santo Irmãos, in that order. (3) M r. Joaquim Francisco Alves Ferreira de Oliveira is attributed the voting rights corresponding to 4.84% of the share capital since he controls GRIPCOM , SGPS, SA, and Controlinveste International S.à.r.l., who hold respectively 2.26% and 2.58% of ZON M ultimedia's share capital. (4) Fundação José Berardo's shareholding and voting rights are reciprocal with the shareholding and voting rights of M etalgest - Sociedade de Gestão, SGPS, SA. (5) The voting rights of Ongoing Strategy Investments, SGPS S.A., are attributable to RS Holding, SGPS, S.A., as its majority shareholder, and to M rs. Isabel M aria Alves Rocha dos Santos, as majority shareholder of RS Holding, SGPS, S.A. (6) The Qualified Shareholding of Estêvão Neves - SGPS, SA is attributable to M r. José Estêvão Fernandes Neves, who owns the majority of the company. (7) Visabeira Investimentos Financeiros,SGPS,SA holds 0.99% of ZON M ultimedia's share capital. 1.16% are held directly by Grupo Visabeira, SGPS, SA. Visabeira Investimentos Financeiros,SGPS,SA is 100% held by Visabeira Estudos e Investimentos,SA, which is 100% held by Visabeira Serviços,SGPS,SA, which is owned by Grupo Visabeira,SGPS,SA. The latter is 74.0104% held by M r. Fernando Campos Nunes. (8) SGC, SGPS, SA's holding is attributed to its majority shareholder, M r. João Pereira Coutinho. Note: The Qualified Shareholdings of Caixa Geral de Depósitos, S.A., Banco BPI, S.A. and Banco Espírito Santo, S.A. were updated as of 31 December 2011, based on information they have provided for the purposes of this Report.
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The following table shows the holdings of Caixa Geral de Depósitos, SA, calculated pursuant to Securities Code (SC) article 20 point 1.
Shareholders Nr. Of Shares % Voting Rights
Caixa Geral de Depósitos, SA 33,206,473 10.74% Companhia de Seguros Fidelidade-Mundial, SA 218,295 0.07% Fundo de Pensões da CGD 196,518 0.06% Império Bonança - Companhia de Seguros, SA 140 0.00% Total 33,621,426 10.88%
The following table shows the holdings of BPI calculated pursuant to Securities Code (SC) article 20 point 1.
Shareholders Nr. Of Shares % Voting Rights
Fundo de Pensões do Banco BPI 23,287,499 7.53% BPI Vida - Companhia de Seguros de Vida, SA 57,299 0.02% Total 23,344,798 7.55%
The following table shows the holdings of Telefónica, SA, calculated pursuant to Securities Code (SC) article 20 point 1.
Shareholders Nr. Of Shares % Voting Rights
Telefónica, SA 14,838,497 4.80% Telesp, SA 1,196,395 0.39% Aliança Atlântica Holding BV 844,514 0.27% Total 16,879,406 5.46%
The following table shows the holdings of Joaquim Alves Ferreira de Oliveira, calculated pursuant to Securities Code (SC) article 20 point 1.
Shareholders Nr. Of Shares % Voting Rights
Gripcom, SGPS, SA 6,989,704 2.26% Controlinveste International, S.à.r.l. 7,965,980 2.58% Total 14,955,684 4.84%
The following table shows the holdings of Ongoing Strategy Investments, SGPS, SA, calculated pursuant to Securities Code (SC) article 20 point 1.
Shareholders Nr. Of Shares % Voting Rights
Insight Strategic Investments, SGPS, SA 5,688,106 1.84% Ongoing Strategy Investments, SGPS, SA 4,419,513 1.43% Investoffice - Investimentos e Consultoria Financeira, SA 50,000 0.02% Nuno Vasconcellos 4,631 0.00% Total 10,162,250 3.29%
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The following table shows the holdings of Estêvão Neves - SGPS, SA, calculated pursuant to Securities Code (SC) article 20 point 1.
Shareholders Nr. Of Shares % Voting Rights
Estêvão Neves - SGPS, SA 6,991,113 2.26% Enotel - SGPS, SA 1,785,580 0.58% José Estêvão Fernandes Neves 299,089 0.10% Total 9,075,782 2.94%
The following table shows the holdings of Banco Espírito Santo, SA, calculated pursuant to Securities Code (SC) article 20 point 1.
Shareholders Nr. Of Shares % Voting Rights
Fundo de Pensões do BES 5,764,364 1.86% Banco Espírito Santo, SA 1,220 0.00% Board Members 1,671 0.00% Companies with a Group relationship with BES 6,093,985 1.97% Total 11,861,240 3.84%
The following table shows the holdings of Grupo Visabeira, SGPS, SA, calculated pursuant to Securities Code (SC) article 20 point 1.
Shareholders Nr. Of Shares % Voting Rights
Grupo Visabeira, SGPS, SA 3,574,575 1.16% Visabeira Investimentos Financeiros, SGPS, SA 3,067,355 0.99% Total 6,641,930 2.15%
2. Limits on the transmission of shares, shareholder agreements and share ownership
There are no limits or restrictions on transferring shares that represent the capital of ZON Multimédia, and the company is not aware of the existence of any shareholder agreements.
In accordance with the provisions of article 11, point 1 paragraph a) of the articles of association, shareholders are obliged to inform the board of directors of the full content of any agreements they sign regarding the company.
Also, according to the articles, shareholders who directly or indirectly exercise any activity that compete with the activities undertaken by ZON Multimédia controlled companies may not hold of shares representing more than ten percent of the company’s capital without the prior authorization of the general meeting.
No special rules apply to amending the ZON Multimédia articles of association and any alterations are governed by the law in force at the time.
Equally, there are no shareholders with special rights or rules for the workers to participate in the company’s capital.
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3. Share quotations
The share price of ZON Multimédia closed 2011 at € 2.322, representing a devaluation of 31.5% in comparison with the end of 2010.
The share price of ZON during the year and the volume of shares traded each day, are shown in the following chart, which are also highlights major events of the year, such as the presentation of results and dividend payments:
The closing price of ZON shares reached a maximum value of € 3.924 and a minimum value of € 1.779 in 2011.
A total of 108,361,122 ZON shares were traded in 2011, which corresponds to an average of 420,004 shares per session - accounting for 0.14% of the issued shares.
The stock performance of ZON should be compared with the performance of major stock markets. Actually, all major international indices were affected by the macroeconomic environment in the euro zone as special attention was paid to the budgetary issues faced primarily by Greece, Ireland, Portugal, Italy and Spain, which led to economic austerity measures with a direct impact on consumption.
The main Portuguese index, PSI 20, fell 27.61% in 2011, while the Spanish IBEX35, fell 13.65% compared to the end of 2010. Other international indices were also pressured and the FTSE100 (UK), CAC40 (France) and Dax (Germany) recorded drops of 5.65%, 16.95% and 14.69% respectively. The Dow Jones EuroStoxx 50 fell 17.05% during 2011.
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4. Distribution of dividends
Dividend distribution policy
ZON Multimédia has adopted a dividend policy that considers the net profit for the year, cash flow generation, opportunities for non-organic growth and investors’ expectations, given the opportunity cost of capital and foreseen funding needs.
The dividend policy is set out in the articles of association, in terms of minimum percentage, and publicly announced in advance by management
According to the articles of association, at least 40% of annual net profits shall be distributed to the shareholders as dividends, although the general meeting, by a majority of two thirds of the votes cast, may reduce or not distribute dividends at all.
ZON Multimédia’s board of directors ruled on 26 March 2012, to propose to the next shareholders’ AGM the distribution of a 2011 cash dividend of 0,16 euros per share.
Dividends distributed over the last three years
As mentioned above, ZON Multimédia’s board of directors will submit a proposal, at the next shareholders’ AGM, to distribute an ordinary cash dividend of 0,16 euros per share for the year 2011.
The gross dividend per share for the last three financial years is as follows:
2010 – €0.16 2009 – €0.16 2008 – €0.16
5. Share or option distribution plan
The shares or option distribution plan in force in ZON Multimédia Group, submitted and approved at the general meeting on 19 April 2010, with all the necessary details for its discussion (including its regulations), aims to:
. Retain employees in various group companies; . Encourage employees creativity and productivity, thereby improving business results . Create favourable conditions for recruiting managers and high strategic value workers . The alignment of employees interests with corporate objectives and shareholder interests ZON, rewarding their performance in relation to value creation for ZON shareholders, reflected in the valuation of its shares on the stock exchange
This plan, which applies to most employees (including executive directors and other company officers as described in SC article 248-B point 3), is one of the pillars to make ZON Multimédia a benchmark company in the field of professional and personal development and encourage the development and mobilization of employees around a common project.
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The ZON Multimédia share or option distribution plan, approved at the general meeting on 19 April 2010, can be seen on the company’s website.
ZON Multimédia defined three types of plans, which are detailed below, under which a maximum number of shares can be distributed. This number is approved annually by the board of directors and depends exclusively on meeting the objectives established for ZON Multimédia and an assessment of individual performance.
This compensation philosophy, including the programme of actions listed below, apart from helping align employees with the creation of shareholder value, is an important loyalty mechanism and savings incentive, as well as helping to strengthening the ZON Group performance culture since the award depends on achieving specific goals.
The major objective of these plans are aimed at three main vectors: aligning with sustainable, winning strategies, motivating employees and sharing created value, making ZON a benchmark in terms of international compensation practices, as it has adopted the best models found in leading companies.
“Standard” share plan
Share distribution plan aimed at employees, regardless of whatever job they perform, which are selected by the executive committee (or the remuneration committee, following a proposal from the chairman of the board, if the beneficiary is a member of the ZON Multimédia executive committee.)
The assignment period of the shares in this plan lasts five years, the first investiture is twelve months after the period referred to in the relevant distribution at a rate of 20% per year.
Senior executive share plan
Share and/or option distribution plan aimed at senior executives, who are selected by the executive committee (or the remuneration committee, following a proposal from the chairman of the board, if the beneficiary is a member of the ZON Multimédia executive committee.)
The assignment period in this plan is three years from the date of distribution, i.e., their effective delivery, and the consequent availability, will only occur three years after they are assigned.
The assignment of the shares allocated to the ZON senior managers under this plan, and the deferral of three years, is conditional on the company’s positive future performance as referred to in chapter 2, point 8.
Share saving plan
Stock investment plan aimed at group employees in general, regardless of their job, which they can join without any prior assessment.
All employees, meeting the internal requirements defined in the plan may use up to 10% of their annual salary, up to a maximum of €7,500 per year, to invest in a share savings plan buying the shares at a 10% discount.
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Distribution conditions
The board of directors shall approve the number of shares and/or options that may be awarded in each respective plan provided for in the regulations, based on ZON Multimédia’s annual performance assessment.
The executive committee shall select the beneficiaries of each plan and decide case by case on the allocation of shares to eligible employees. This power belongs to the remuneration committee for members of the executive committee.
The allocation of shares to the beneficiaries is totally dependent on individual or group performance criteria.
Calculating the number of shares to distribute to the beneficiaries
The number of shares to be allocated depends on values set in reference to rates of remuneration paid to the beneficiaries in view of ZON’s annual assessment of the goals and an individual performance assessment.
Share transfer restrictions
Rights to shares that are awarded can only be sold after the respective assignment period which differs according to the share plan, and 3-year plan for senior executives and 5 years in the standard plan (with annual assignments of 20%), under the conditions explained above. In the case of the senior managers who benefit from the senior executive plan transmission is still dependent on an extra condition related with positive future company earnings.
Board jurisdiction to modify the plans
The power to amend the share plans lies with the general meeting, notwithstanding this having authorized the board to make any adjustment to the respective regulations which are necessary or convenient to its correct interpretation, integration or application, provided that such adjustments do not affect the essential conditions laid down therein. However, no changes been made so far.
Stock options
The allocation of options, apart from the senior executive plan, consists of the right to buy a certain number of ZON Multimédia shares, at a price set in advance, on or before the end of a period of time. Beneficiaries of senior executive plan are allowed to select the balance of the plan between shares and options in order to adapt it to their risk profile. They can choose the following compositions: (i) 50% shares and 50% options (ii) 75% shares and 25% options and (iii) 100% shares. The options may be exercised up to three years after their allocation.
The economic value of the options corresponds to the market price of that option or, failing that, to the value determined by the Black-Scholes mathematical model.
The exercise price of options corresponds to the weighted average of closing prices of ZON shares in the 15 days prior to their assignment.
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The board of directors has so far not decided whether to consider granting or exercising options under the senior executives plan.
6. Relevant dealings with members of the company committees, qualified shareholders or with group companies or others under the control of the company
ZON Multimédia did not conduct any economically significant business or operation with any of the parties involved with members of management or supervisory bodies or companies that are related or controlled by the group, that were not carried out under normal market conditions for similar operations and that are not part of the on-going activity of the Company.
ZON Multimédia did not conduct any business or transaction with qualified shareholders or entities with which they are related, pursuant to SC article, outside normal market conditions.
The company had regular operations and contracts with various entities within the ZON Group. These operations were conducted under normal market conditions for similar transactions as part of the on-going activity of the companies involved.
The company also regularly conducts financial operations and contracts with several credit institutions that own qualified holdings in its capital, which are, however, carried out under normal market conditions for similar transactions, as part of the on-going activity of the companies involved.
Procedures and criteria for the audit commission to make a decision regarding the business to conduct with qualified shareholders
In accordance with the CMVM 2010 Corporate Governance Code, ZON Multimédia approved a regulation on transactions with qualified shareholders and/or entities with which they are one of the situations referred to in the SC article 20 (related entities) in July 2010.
This regulation establishes the procedures to control transactions with qualified shareholders that are considered to be appropriate to the transparency of decision making and defines the terms of the audit commission's involvement in this process.
In accordance with this regulation, the executive committee shall inform the audit commission of all transactions in the previous quarter with each qualified shareholder and/or related entity by the end of the month following the end of each quarter.
Transactions with qualified shareholders and/or related entities requires the prior opinion of the audit commission in the following cases: (i) transactions where the value per transaction exceeds a threshold given in the regulations as shown in the table below, (ii) transactions with a significant impact on the ZON Multimédia’s activity and/or that of its subsidiaries according to their nature or strategic importance, regardless of their value, (iii) exceptional transactions conducted outside normal market conditions, regardless of the respective value.
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Types and amounts of transactions to be considered for the purposes of point (i) above:
KINDS AMOUNT
Transactions – Sales, services, purchases and Over €1,000,000 services obtained
Loans and other financing received and granted Over €10,000,000
Financial investments Over €10,000,000
No prior opinion of the audit commission is required for the transactions referred to in points (i) and (ii) above regarding: (i) interest rate hedges and/or foreign exchange hedges on the market or in auctions or (ii) financial investments on the market or in auctions.
Notwithstanding any other transactions subject to board of directors’ approval, pursuant to the law and company articles of association, the board must authorize transactions between qualified shareholders and/or related entities if the audit commission opinion referred to in above is not in favour.
The executive committee shall provide the audit commission with all necessary information and a reasoned justification, so the latter can assess the transaction and issue its opinion.
The assessment to authorize and issue a prior opinion on transactions with qualified shareholders and/or related entities should take into account, among other relevant aspects, the principle of equal treatment of shareholders and other stakeholders, the interest of the company and the impact, materiality, nature and justification for each transaction.
The following table shows the values of the deals subject to the prior opinion by the audit commission in 2011 between ZON Multimédia or a company in which it has holdings of over 50% and/or management control and any qualified shareholder in accordance with SC article 16 and/or any entity that this is one of the situations referred to in SC article 20.
Number Average value Maximum value
2 €175,000,000 €200,000,000
7. Investor Relations
The company has had an Investor Relations Department since it was first set up, to ensure proper relations with shareholders, investors and analysts, in compliance with the principle of equal treatment, as well as the financial markets in general and the regulated market in particular where the shares representing the capital of ZON Multimédia are admitted for trading and the regulator, the CMVM.
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The investor relations director publishes an annual report and accounts and annual, semiannual and quarterly information in accordance with the rules of corporate law and the laws of national capital markets. The company immediately and publicly publishes any inside information in relation to their activity or the securities it has issued and the shareholders may access it through the website (www.zon.pt/ir/). All information is available on the company website in Portuguese and English.
The investor relations director also ensures constant, updated information to the financial community about ZON Multimédia through regular press releases, presentations and communiqués on the quarterly and annual results, as well as any relevant facts that occur. It also gives all kinds of clarification to the financial community in general - shareholders, investors (private and institutional) and analysts that help the shareholders in exercising their rights. The investor relations director sets up regular meetings between the executive management team and the financial community through specialized conferences, holding roadshows in Portugal and in major financial centres and frequently meets with investors who visit Portugal. The main investor relations events in 2011 were:
DATE FORMAT LOCATION
11 and 12 January Roadshow France / Holland 25 and 26 January Roadshow United Kingdom 2 February Santander Small & Midcap Conference Madrid 2 March Roadshow United Kingdom 4 March Roadshow Portugal 16, 17 and 18 March Roadshow Canada & USA 22 and 23 March Citigroup 11th Annual Telecom Conference London 24 March Roadshow Germany 31 March Roadshow Portugal 5 April Roadshow Spain 19 May Santander Portuguese Conference Lisbon 23 May NYSE/BPI Portuguese Day NY 24 and 25 May Roadshow USA 16 June Goldman Sachs European Cable Conference London 22 June XVIII Santander Annual Telecom Conference Toledo 20 September CSFB European Telecoms Conference London 22 September VIII BPI Small & Midcap Iberian Conference Lisbon 26 September Reverse Road Show ZON headquarters 27 September 3rd Espirito Santo/ Rothschild Cable Conference London 30 September Roadshow Germany 1, 2, 7, 8 and 9 Roadshow USA November 14 November Roadshow United Kingdom 15 November Roadshow France 16 November Morgan Stanley 11th Annual TMT Conference Barcelona 13 December ESN Small & MidCap Conference London
The market relations representative is Maria João Carrapato.
Anyone who is interested may ask the investor relations department for further details through the following contacts:
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Avenida 5 de Outubro, n.º 208 1069 - 203 Lisbon (Portugal) Tel. / Fax: +(351) 21 7824725 / +(351) 21 7824735 E-mail: [email protected]
The investor relations department members and their contacts can be found on the company website.
8. External auditors
The annual external auditors’ fees in 2011 were €759,013, broken down as follows:
31 December 2011
Amount % Statutory audit and auditing services 722,513 95% Other reliability guarantee services 36,500 5% Tax consulting and other services other than statutory and other auditing 0 0% TOTAL 759,013 100%
ZON Multimédia’s external auditors are independent and internationally renowned, and their actions are closely monitored and supervised by the company’s audit commission. ZON Multimédia does not give the external auditors any protection against damages.
The external auditor verifies the implementation of remuneration policies and systems as well as the efficiency and effectiveness of internal control mechanisms within their competencies, reporting any deficiencies or improvement opportunities they may find to the audit commission.
In order to safeguard the independence of external auditors, the company’s audit commission shall have the following powers and duties regarding the external audit:
To represent the company for all purposes towards the external auditors; To propose to the board the hiring, renewing of the respective contract and remuneration of the company’s external auditors and propose to the general meeting the respective dismissal, where there is just cause, and to advise on the possible renewal of the contract or replacement of the company’s external auditor, as appropriate, when they have been hired by three consecutive terms of the governing bodies, paying special attention to the benefits and costs of changing them as well as their independence; To ensure that within the company and the companies it or ZON Multimédia controls, the company’s external auditors are given adequate conditions to provide their services; To review the scope, planning and resources to be used in providing their services, with the external auditors; To assess the content of the audit reports and annually assess the company’s external auditors, who shall report to and be subject to audit commission supervision, regarding their qualifications, independence and performance; To get an annual report on the main issues arising from the services provided directly from the external auditors, as well as any relationship between the company and its external auditors, including the amounts paid for auditing and additional services;
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To discuss any aspects and problems related with the auditing of the company’s accounting documents with the external auditors, including the executive committee’s response, and To give prior approval of hiring the external auditors to provide any services other than audit services.
The audit commission also adopted a regulation for the provision of services by external auditors, which defines the rules applicable to non-audit ("Non Audit") or audit related services ("Audit Related") provided by the external auditor to ZON Multimédia and its subsidiaries included in consolidation. This regulation applies to services provided by the external auditor and related companies.
Under that regulation, the hiring of non-audit or audit related services should be viewed as exceptional or complementary, respectively, pursuant to the rules laid down therein.
The assessment of whether the services are admissible depends on the audit commission, which will follow the following principles: (i) an auditor cannot audit their own work, (ii) an auditor cannot perform a task or job that is the responsibility of management, (iii) an auditor cannot act directly or indirectly on behalf of their client.
Moreover, pursuant to that regulation, the annual fees of non-audit or audit related services cannot generally exceed 30% of the total audit services fees.
The provision of services by the external auditor requires audit commission approval and authorization.
The audit commission performs an overall annual assessment of the external auditor’s performance and independence. The audit commission also reflects on the adequacy of the external auditor to carry out their job, whenever necessary or appropriate in light of developments in the company’s activity or the market in general, As such, ZON Multimédia changed its accounting firm in 2008 so the company’s current external auditor has performed their duties for four years and has not reached the limit of three board terms of office as set out in CMVM recommendation III 1.3.
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ANNEX I
Tasks performed by members of the company’s administrative bodies in other companies
Daniel Proença de Carvalho
Positions held in ZON Multimédia group companies:
Not applicable.
Positions held in other companies:
Member of the Banco Espírito Santo, S.A. remuneration commission Vice-Chairman of the presiding board of the shareholder’s meeting of Caixa Geral de Depósitos, S.A. Chairman of the presiding board of the shareholder's meeting of Galp Energia, SGPS, S.A. Chairman of the presiding board of the shareholder's meeting of Socitel – Sociedade Industrial de Trefilaria, S.A. Chairman of the presiding board of the shareholder's meeting of Edifer – Investimentos, Sociedade Gestora de Participações Sociais, S.A. Chairman of the presiding board of the shareholder's meeting of Edifer – Sociedade Gestora de Participações Sociais, S.A. Chairman of the presiding board of the shareholder's meeting of Portugália – Administração de Patrimónios, S.A. Chairman of the presiding board of the shareholder's meeting of Mague – SGPS, S.A. Chairman of the presiding board of the shareholder's meeting of Almonda – Sociedade Gestora de Participações Sociais, S.A. Chairman of the presiding board of the shareholder's meeting of Renova – Fábrica de Papel do Almonda, S.A. Chairman of the presiding board of the shareholder’s meeting of Celulose do Caima, SGPS, S.A. Chairman of the presiding board of the shareholder’s meeting of Estoril Sol, SGPS, S.A. Chairman of the presiding board of the shareholder’s meeting of Panatlântica – Holding, Sociedade Gestora de Participações Sociais, S.A. Chairman of the presiding board of the shareholder's meeting of G.A. – Estudos e Investimentos, S.A. Chairman of the presiding board of the shareholder's meeting of Vila Sol II – Empreendimentos Turísticos, S.A. Chairman of the presiding board of the shareholder's meeting of Vila Sol - SGPS, S.A. Chairman of the presiding board of the shareholder's meeting of Cabo Raso – Empreendimentos Turísticos, S.A. Chairman of the presiding board of the shareholder's meeting of SOGEB – Sociedade de Gestão de Bens, S.A. Chairman of the presiding board of the shareholder's meeting of Sociedade Agrícola Belo de Mértola, S.A. Chairman of the presiding board of the shareholder's meeting of Sociedade Agrícola dos Namorados, S.A.
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Chairman of the presiding board of the shareholder's meeting of Coaltejo – Criador de Ovinos Algarve e Alentejo, S.A. Chairman of the presiding board of the shareholder's meeting of Sogesfin – Sociedade Gestora de Participações Sociais, S.A. Chairman of the presiding board of the shareholder's meeting of 3 Z – Administração de Imóveis, S.A. Chairman of the presiding board of the shareholder’s meeting of Sétimos - Participações, SGPS, S.A. Chairman of the presiding board of the shareholder’s meeting of Euroatlântica – Investimentos e Comércio, S.A. Chairman of the presiding board of the shareholder’s meeting of Confiança Participações, SGPS, S.A. Chairman of the presiding board of the shareholder’s meeting of Sociedade Agrícola da Serra Branca, S.A. Chairman of the presiding board of the shareholder’s meeting of Gotan, SGPS, S.A. Chairman of the presiding board of the shareholder’s meeting of Companhia Agrícola da Apariça, S.A. Chairman of the presiding board of the shareholder’s meeting of Companhia Agrícola das Polvorosas, S.A. Chairman of the presiding board of the shareholder’s meeting of Companhia Agrícola de Corona, S.A. Chairman of the presiding board of the shareholder’s meeting of Herdade do Monte da Pedra, S.A. Chairman of the presiding board of the shareholder’s meeting of TRABELIBEX - Investimentos Imobiliários, S.A. Chairman of the presiding board of the shareholder’s meeting of FREIXAGRO - Empresa Agrícola do Freixo, S.A.
Rodrigo Jorge Araújo Costa
Positions held in ZON Multimédia group companies:
Chairman of the board of directors of ZON Televisão por Cabo, SGPS, S.A. Chairman of the board of directors of ZON – TV Cabo Portugal, S.A. Chairman of the board of directors of ZON TV Cabo Açoreana, S.A. Chairman of the board of directors of ZON TV Cabo Madeirense, S.A. Chairman of the board of directors of ZON Conteúdos, Actividade de Televisão e de Produção de Conteúdos, S.A. Chairman of the board of directors of ZON Audiovisuais, SGPS, S.A.. Chairman of the board of directors of ZON Lusomundo Audiovisuais, S.A. Chairman of the board of directors of ZON Cinemas, SGPS, S.A. Chairman of the board of directors of ZON Lusomundo Cinemas, S.A. Chairman of the board of directors of mSTAR, S.A. Chairman of the board of directors of ZON Lusomundo TV, S.A. Vice-Chairman of the board of directors of Finstar – Sociedade de Investimentos e Participações, S.A.
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Positions held in other companies:
Director of Omnivalor, Lda.
José Pedro Faria Pereira da Costa
Positions held in ZON Multimédia group companies:
Chairman of the board of directors of ZON II – Serviços de Televisão, S.A. Chairman of the board of directors of Upstar Comunicações, S.A Chairman of the board of directors of ZON III – Comunicações, S.A Vice-chairman of ZON – TV Cabo Portugal, S.A. Director of ZON Conteúdos, Actividade de Televisão e de Produção de Conteúdos, S.A. Director of ZON Televisão por Cabo, SGPS, S.A Director of ZON Lusomundo TV, S.A. Director of ZON Audiovisuais, SGPS, S.A. Director of ZON Lusomundo Audiovisuais, S.A. Director of ZON Cinemas, SGPS, S.A. Director of ZON Lusomundo Cinemas, S.A. Director of Lusomundo, Sociedade de Investimentos Imobiliários, S.A. Director of Lusomundo Imobiliária 2, S.A. Director of Sport TV, S.A. Director of Teliz Holding, B.V. Director of Dreamia Holdings, B.V. Director of Dreamia – Serviços de Televisão, S.A. Director of Finstar – Sociedade de Investimentos e Participações, S.A. Director of mSTAR, S.A. Director of ZON Finance BV Manager of Lusomundo España, SL
Positions held in other companies:
Not applicable.
Luís Miguel Gonçalves Lopes
Positions held in ZON Multimédia group companies:
Director of ZON Televisão por Cabo, SGPS, S.A. Vice chairman of ZON – TV Cabo Portugal, S.A. Director of ZON Lusomundo TV, S.A. Director of ZON TV Cabo Açoreana, S.A. Director of ZON TV Cabo Madeirense, S.A. Director of ZON Conteúdos, Actividade de Televisão e de Produção de Conteúdos, S.A. Director of ZON Audiovisuais, SGPS, S.A. Director of ZON Lusomundo Audiovisuais, S.A.
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Director of ZON Cinemas, SGPS, S.A. Director of ZON Lusomundo Cinemas, S.A. Director of ZON III – Comunicações Eletrónicas, S.A.
Positions held in other companies:
Not applicable.
Duarte Maria de Almeida e Vasconcelos Calheiros
Positions held in ZON Multimédia group companies:
Director of ZON Televisão por Cabo, SGPS, S.A. Director of ZON TV Cabo Portugal, S.A. Director of ZON TV Cabo Madeirense, S.A. Director of ZON TV Cabo Açoreana, S.A. Director of ZON Conteúdos – Actividade de Televisão e de Produção de Conteúdos, S.A. Director of ZON Lusomundo TV, S.A. Director of ZON Audiovisuais, SGPS, S.A. Director of ZON Lusomundo Audiovisuais, S.A. Director of ZON Cinemas, SGPS, S.A Director of ZON Lusomundo Cinemas, S.A. Director of ZON II – Serviços de Televisão, S.A. Director of ZON III – Comunicações Eletrónicas, S.A. Chairman of the board of directors of Lusomundo Sociedade de Investimentos Imobiliários, S.A. Chairman of the board of directors of Lusomundo Imobiliária 2, S.A. Director of Teliz Holding, B.V. Director of Dreamia Holding, B.V. Manager of Distodo, Distribuição e Logística, Lda. Manager of Lusomundo Moçambique, S.A. Manager of Lusomundo España, SL. Manager of Empracine, Lda.
Positions held in other companies:
Not applicable.
Fernando Fortuny Martorell
Positions held in ZON Multimédia group companies:
Not applicable.
Positions held in other companies:
Director of Espírito Santo Ventures – Sociedade Capital de Risco, S.A.
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CEO of Espírito Santo Resources Limited Director of Opway, SGPS, S.A. Vice-chairman of Rio Forte Investments, S.A. Vice-chairman of Euroamerican Finance, S.A. Director of Herdade da Comporta – Actividades Agro Silvícolas e Turísticas, S.A. Non-executive director of Espírito Santo Property (Brazil) S.A. Director of Maló Clinic Group, SGPS, S.A. Director of IMOSPEL –Soc. Operações Imobiliárias,S.A. Director of GO WELL – Promoção de Eventos Catering e Consultoria, S.A. Director of Santogal, SGPS, S.A. Director of Rioforte (Portugal), S.A. Managing director of GO Restauração, Lda.
António Domingues
Positions held in ZON Multimédia group companies:
Not applicable.
Positions held in other companies:
Vice-chairman of the board of directors of Banco Português de Investimento, S.A. Vice-chairman of the board of directors of BCI - Banco Comercial e de Investimentos, S.A. Vice-chairman of the board of directors of Banco de Fomento Angola, S.A. Vice-chairman of the Executive Committee of Banco BPI, S.A. Member of the board of directors of BPI Madeira, SGPS, Unipessoal, S.A. Member of the board of directors of Companhia de Seguros Allianz Portugal, S.A.
László Istvan Hubay Cebrian
Positions held in ZON Multimédia group companies:
Not applicable.
Positions held in other companies:
Chairman of the board of directors of Fundação Cascais Chairman of the Luso-Hungarian chamber of commerce
Luís João Bordalo da Silva
Positions held in ZON Multimédia group companies:
Not applicable.
Positions held in other companies: Director of Cinveste, SGPS, S.A.
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Director of Cinveste Investimentos, Lda. Manager of Cinveste Finance, SGPS, Lda. Manager of Cinveste Finance, Gestão de Valores Mobiliários, Lda. Director of M&C Colecção de Arte S.A Director of Guemonte - Sociedade Civil Imobiliária e de Investimentos S.A. Director of Ecomar S.A. - Angola Director of Ecomar SGPS SA.
Vítor Fernando da Conceição Gonçalves
Positions held in ZON Multimédia group companies:
Not applicable.
Positions held in other companies:
Member of the general and supervisory council of EDP – Energias de Portugal S.A. Chairman of the commission for financial matters at EDP – Energias de Portugal, S.A. Chairman of the audit committee of Fundação EDP Members of the economic and social council Assistant dean of Universidade Técnica de Lisboa
Paulo Cardoso Correia da Mota Pinto
Positions held in ZON Multimédia group companies:
Not applicable.
Positions held in other companies:
Portuguese member of parliament Professor at Universidade de Coimbra Managing director of Paulo Mota Pinto, Lda
Nuno João Francisco Soares de Oliveira Silvério Marques
Positions held in ZON Multimédia group companies:
Not applicable.
Positions held in other companies:
Vice-Chairman of the board of directors of CIDOT – Estúdio de Comunicação, S.A. Non-executive director and member of the Audit Commission of TIM W.E., SGPS. S.A.
Norberto Emílio Sequeira da Rosa
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Positions held in ZON Multimédia group companies:
Not applicable.
Positions held in other companies:
Chairman of the board of directors of Caixa – Participações, SGPS, S.A. Chairman of the board of directors of Caixatec – Tecnologias de Comunicações, S.A. Chairman of the board of directors of Sogrupo – Sistemas de Informação, ACE Vice Chairman of BPN – Banco Português de Negócios, S.A. Director of Caixa Geral de Depósitos, S.A. Director of SIBS – Sociedade Interbancária de Serviços, S.A. Vice-chairman of Banco Efisa, S.A. Member of the directive council of Caixa Geral de Aposentações. Director of Fundação Económica. Member of CISP – Comissão Interbancária para o Sistema de Pagamentos.
Jorge Telmo Maria Freire Cardoso
Positions held in ZON Multimédia group companies:
Not applicable.
Positions held in other companies:
Member of the board of directors and member of the executive committee of Caixa – Banco de Investimento, S.A. Member of the board of directors of Empark Portugal – Empreendimentos e Exploração de Parqueamentos, S.A. Member of the board of directors of Dornier, S.A.
Joaquim Francisco Alves Ferreira de Oliveira
Positions held in ZON Multimédia group companies:
Not applicable.
Positions held in other companies:
Chairman of the board of directors of Controlinveste, SGPS, S.A. Chairman of the board of directors of Sportinveste, SGPS, S.A. Chairman of the board of directors of PPTV – Publicidade de Portugal e Televisão, S.A. Chairman of the board of directors of Sport TV Portugal, S.A. Chairman of the board of directors of Sportinveste Multimédia, SGPS, S.A. Chairman of the board of directors of Olivedesportos – Publicidade, Televisão e Media, S.A. Chairman of the board of directors of Controlinveste Media, SGPS, S.A.
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Chairman of the board of directors of Global Noticias Publicações, S.A. Chairman of the board of directors of Rádio Noticias, S.A. Chairman of the board of directors of Naveprinter – Indústria Gráfica do Norte, S.A. Chairman of the board of directors of Açormedia, S.A. Chairman of the board of directors of Gripcom, SGPS, S.A.
João Manuel Matos Borges de Oliveira
Told the chairman of the board of directors he would be resigning as of 21 July 2011.
Positions held in ZON Multimédia group companies:
Not applicable.
Positions held in other companies:
Director of Cofina, SGPS, S.A. Director of Altri, SGPS, S.A. Director of F. Ramada Investimentos, SGPS, S.A. Director of F. Ramada, Aços e Indústrias, S.A. Director of Caima – Indústria de Celulose, S.A. Director of Celbi – Celulose da Beira Industrial, S.A. Director of Celtejo – Empresa de Celulose do Tejo, S.A. Director of Celulose do Caima, SGPS, S.A. Director of Cofina Media, SGPS, S.A. Director of Edisport – Sociedade de Publicações, S.A. Director of F. Ramada – Produção e Com. Estruturas Metálicas de Armazenagem, S.A. Director of F. Ramada II Imobiliária, S.A. Director of Invescaima, SGPS, S.A. Director of Presselivre – Imprensa Livre, S.A.
Mário Filipe Moreira Leite da Silva
Positions held in ZON Multimédia group companies:
Not applicable.
Positions held in other companies:
Chairman of the board of directors of Santoro, Financial Holding, SGPS, S.A. Chairman of the board of directors of Santoro Finance S.A. Chairman of the board of directors of Fidequity – Serviços de Gestão, S.A. Chairman of the board of directors of Grisogono, S.A. Member of the board of directors of Kento Holding Limited Member of the board of directors of Banco BPI, S.A.
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Member of the board of directors of BFA – Banco de Fomento Angola, S.A. Member of the board of directors of Socip – Sociedade de Investimentos e Participações, S.A.. Member of the board of directors of Esperaza Holding, B.V. Member of the board of directors of Nova Cimangola, S.A. Member of the board of directors of Ciminvest – Sociedade de Investimentos e Participações, S.A. Member of the board of directors of Finstar – Sociedade de Investimentos e Participações, S.A.
António R. S. Henriques da Silva
Told the chairman of the board of directors he would be resigning as of 30 September 2011.
Positions held in ZON Multimédia group companies:
Not applicable.
Positions held in other companies:
Chairman of the board of directors of TPA, EP Member of the board of directors of ANGOLACABLES Member of the board of directors of FINSTAR
Professional qualifications and professional activities over the past five years
Executive board members
Rodrigo Jorge Araújo Costa. Portuguese citizen (52). Appointed for the first time by being co-opted in 2007. His term of office ends on 31 December 2012. Chairman of the board of directors of ZON Televisão por Cabo, SGPS, S.A., since September 2007; Chairman of the board of directors of ZON – TV Cabo Portugal, S.A., since September 2007; Chairman of the board of directors of ZON TV Cabo Açoreana, S.A., since November 2007; Chairman of the board of directors of ZON TV Cabo Madeirense, S.A., since November 2007; Chairman of the board of directors of ZON Conteúdos, Actividade de Televisão e de Produção de Conteúdos, S.A., since September 2007; Chairman of the board of directors of ZON Lusomundo Audiovisuais, S.A., since September 2007; Chairman of the board of directors of ZON Lusomundo Cinemas, S.A., since September 2007; Chairman of the board of directors of ZON Audiovisuais, SGPS, S.A., since 2009; Chairman of the board of directors of ZON Cinemas, SGPS, S.A., since 2009; Vice-Chairman of the board of directors of Finstar – Sociedade de Investimentos e Participações, S.A., since 2009; Chairman of the board of directors of ZON Lusomundo TV, S.A. since 2010, Chairman of the board of directors of mSTAR, S.A. since 2010, Corporate Vice Chairman OEM – Microsoft Corporation from 2002 to 2005; member of the high council for foreign investment since 2004; member of the technology plan advisory board since 2005; Executive vice-chairman of Portugal Telecom, SGPS, S.A. (with overall command of innovation, information systems and human resources; Chairman of PT Comunicações from 2006 to 2007; Chairman of the board of directors of PT Inovação and PT Sistemas de Informação.
José Pedro Faria Pereira da Costa. Portuguese citizen (44). Appointed for the first time by being co-opted in 2007. His term of office ends on 31 December 2012. Chairman of the board of directors of ZON II – Serviços de Televisão, S.A., since 2010; Chairman of the board of directors of ZON III – Comunicações eletrónicas, S.A., since 2011; Member of the board of directors of ZON Finance BV,
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since 2011; Member of the board of directors of mSTAR, S.A., since 2010; Member of the board of directors of ZON Lusomundo TV, S.A:, since 2010; Member of the board of directors of ZON Televisão por Cabo, SGPS, S.A., since September 2007; Vice-Chairman of the board of directors of ZON TV Cabo Portugal, S.A., since March 2008; Member of the board of directors of ZON Conteúdos, Actividade de Televisão e de Produção de Conteúdos, S.A., since September 2007; Member of the board of directors of ZON Lusomundo Audiovisuais, S.A., since September 2007; Member of the board of directors of ZON Lusomundo Cinemas, S.A., since September 2007; Member of the board of directors of Lusomundo, Sociedade de Investimentos Imobiliários, S.A., since December 2007; Member of the board of directors of Lusomundo Imobiliária 2, S.A., since December 2007; Member of the board of directors of Sport TV Portugal, S.A., since October 2007; Member of the board of directors of ZON Audiovisuais, SGPS, S.A, since 2009; Member of the board of directors of ZON Cinemas, SGPS, S.A, since 2009; Member of the board of directors of Teliz Holding, B.V., since 2009; Member of the board of directors of Dreamia Holdings, B.V., since 2009; Member of the board of directors of Dreamia – Serviços de Televisão, S.A, since 2009; Member of the board of directors of Finstar – Sociedade de Investimentos e Participações, S.A, since 2009; Chairman of the board of directors of Upstar Comunicações, S.A, since 2009; Worked in Portugal Telecom group at board level and was CFO of PT Comunicações, PT.COM and PT Prime between September 2002 and September 2007. Non-executive director of PT ACS, Previsão, PT Prestações, PT Sistemas de Informação, PT PRO, Páginas Amarelas, Tradecom and Banco Best, and Manager at DCSI.
Luís Miguel Gonçalves Lopes. Portuguese citizen (39). Appointed for the first time by being co- opted in 2007. His term of office ends on 31 December 2012. Member of the board of directors of ZON Televisão por Cabo, SGPS, S.A., since September de 2007; Vice - Chairman of ZON – TV Cabo Portugal, S.A., since March 2008; Member of the board os directors of ZON III – Comunicações Eletrónicas, S.A., since 2011; Member of the board of directors of ZON TV Cabo Açoreana, S.A., since September 2007; Member of the board of directors of ZON Conteúdos, Actividade de Televisão e de Produção de Conteúdos, S.A., since September 2007; Member of the board of directors of ZON Lusomundo Audiovisuais, S.A., since September 2007; Member of the board of directors of ZON Lusomundo Cinemas, S.A., since September 2007; Member of the board of directors of ZON TV Cabo Madeirense, S.A., since 2009; Member of the board of directors of ZON Audiovisuais, SGPS, S.A, since 2009; Member of the board of directors of ZON Cinemas, SGPS, S.A, since 2009; Member of the executive committee of PT Comunicações, S.A., from 2006 to September 2007; Member of the executive committee of PT.Com – Comunicações Interactivas, S.A., from 2006 to September 2007; Member of the board of directors of Páginas Amarelas, S.A., from 2006 to September 2007; Director of PT Comunicações, S.A., from 2004 to 2006; Associate Principal at McKinsey&Com from 1998 to 2004.
Duarte Maria de Almeida e Vasconcelos Calheiros. Portuguese citizen (63). Appointed for the first time in 2003. His term of office ends on 31 December 2012. Chairman of the board of directors of Lusomundo Imobiliária 2, S.A., since 2004; Chairman of the board of directors of Lusomundo Sociedade de Investimentos Imobiliários, S.A., since 2004; Member of the board of directors of ZON III – Comunicações Eletrónicas, S.A., since 2011; Member of the board of directors of ZON Lusomundo TV, S.A., since 2010; Member of the board of directors of ZON II – Serviços de Televisão, S.A., since 2010; Member of the board of directors of ZON Audiovisuais, SGPS, S.A, since 2009; Member of the board of directors of ZON Cinemas, SGPS, S.A, since 2009; Member of the board of directors of Teliz Holding, B.V., since 2009; Member of the board of directors of Dreamia Holdings, B.V., since 2009; Member of the board of directors of ZON TV Cabo Açoreana, S.A., since 2008; Member of the board of directors of ZON TV Cabo Madeirense, S.A., since 2007; Member of the board of directors of ZON Lusomundo Cinemas, S.A., since 2004; Member of the board of directors of ZON Lusomundo Audiovisuais, S.A., since 2004; Member of the board of
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directors of ZON Conteúdos, S.A., since 2004; Member of the board of directors of ZON TV Cabo Portugal, S.A., since 2004; Member of the board of directors of ZON Televisão por Cabo, SGPS, S.A., since 2004; Manager of Lusomundo Moçambique, Lda., since 2004; Manager of Lusomundo España, SL, since 2004; Manager of Distodo, Distribuição e Logística, Lda., since 2004; Manager of Empracine, Empresa Promotora de Actividades Cinematográficas, Lda., since 2004; Member of the audit committee of Fundação Cultursintra since 2006; Member of the General Council of Portuguese Corporate Governance Institute.
Non-executive directors
Daniel Proença de Carvalho. Portuguese citizen (69). Appointed for the first time in 2007. His term of office ends on 31 December 2012. Chairman of the general meeting of AEM - Empresas Emitentes de Valores Cotados em Mercado, representing ZON MULTIMÉDIA - Serviços de Telecomunicações e Multimédia, SGPS, S.A., since 15 December 2010; Chairman of the general meeting of Instituto Português de Corporate Governance, since 21 June 2010: Member of the advisory board to Fundação Galp Energia, since September 2009, Chairman of the council of curators of Fundação D. Anna de Sommer Champalimaud e Dr. Carlos Montez Champalimaud, since 2005; Chairman of the general meeting of Liga de Amigos da Casa-Museu João Soares, since 1998; member of the council of curators of Fundação Batalha de Aljubarrota, since 2002; Member of the advisory council of Fundação Renascer, since May 2005; professor at Instituto Jurídico da Comunicação (Coimbra university law school), since 2005; member of the advisory board of Fórum para a Competitividade since June 2008; Member of the remunerations committee at Banco Espírito Santo since 30 March 2008; Member of the council of patrons of Fundação Arpad-Szenes – Vieira da Silva since February 2009; Chairman of the presiding board of the shareholder’s meeting of GALP ENERGIA, SGPS, S.A. since April 2008; Chairman of the presiding board of the shareholder’s meeting of CELULOSE DO CAIMA – SGPS, S.A., since 2002; Chairman of the presiding board of the shareholder’s meeting of SOCITEL – Sociedade Industrial de Trefilaria, S.A., since 2005; Chairman of the presiding board of the shareholder’s meeting of Confiança Participações, SGPS, S.A., since 2004; Chairman of the presiding board of the shareholder’s meeting of EDIFER – INVESTIMENTOS, Sociedade Gestora de Participações Sociais, S.A., since 2003; Chairman of the presiding board of the shareholder’s meeting of EDIFER – Sociedade Gestora de Participações Sociais, S.A., since 2003; Chairman of the presiding board of the shareholder’s meeting of PORTUGÁLIA – Administração de Patrimónios, S.A., since 1980; Chairman of the presiding board of the shareholder’s meeting of MAGUE - SGPS, S.A., since 1998; Chairman of the presiding board of the shareholder’s meeting of Euroatlântica – Investimentos e Comércio, S.A., since 1998; Chairman of the presiding board of the shareholder’s meeting of ALMONDA – Sociedade Gestora de Participações Sociais, S.A., since 1996; Chairman of the presiding board of the shareholder’s meeting of RENOVA – Fábrica de Papel do Almonda, S.A., since 1997; Chairman of the presiding board of the shareholder’s meeting of PANATLÂNTICA – HOLDING, Sociedade Gestora de Participações Sociais, S.A., since 1995; Chairman of the presiding board of the shareholder’s meeting of G.A. – Estudos e Investimentos, S.A., since 1996; Chairman of the presiding board of the shareholder’s meeting of VILA SOL II – Empreendimentos Turísticos, S.A., since 1997; Chairman of the presiding board of the shareholder’s meeting of VILA SOL, SGPS, S.A., since 1999; Chairman of the presiding board of the shareholder’s meeting of CABO RASO – Empreendimentos Turísticos, S.A., since 1998; Chairman of the presiding board of the shareholder’s meeting of Sociedade Agrícola Belo de Mértola, S.A., since 1978; Chairman of the presiding board of the shareholder’s meeting of Sociedade Agrícola SERRA BRANCA, S.A., since 1975; Chairman of the presiding board of the shareholder’s meeting of Sociedade Agrícola dos NAMORADOS, S.A., since 1978; Chairman of the presiding board of the shareholder’s meeting of COALTEJO – Criador de Ovinos Algarve e Alentejo, S.A., since 2005; Chairman of the presiding board of the shareholder’s meeting of SOTAC – Sociedade de Turismo e Agricultura, S.A., since 1991; Chairman of the presiding board of the shareholder’s meeting of SOGESFIN – Sociedade Gestora de Participações Sociais, S.A., since 1998; Chairman of the presiding board of the shareholder’s meeting of SOGEB – Sociedade de
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Gestão de Bens, S.A. since 26 May 2000; Chairman of the presiding board of the shareholder’s meeting of 3 Z – Administração de Imóveis, S.A., since 2001; Chairman of the presiding board of the shareholder’s meeting of SÉTIMOS–PARTICIPAÇÕES, SGPS, S.A., since 2005; Chairman of the presiding board of the shareholder’s meeting of GOTAN SGPS, S.A., since 2004; Chairman of the presiding board of the shareholder’s meeting of ESTORIL SOL, SGPS, S.A., since 2007; Chairman of the presiding board of the shareholder’s meeting of Companhia Agrícola da Apariça, S.A., since June 2008; Chairman of the presiding board of the shareholder’s meeting of Companhia Agrícola das Polvorosas, S.A., since June 2008; Chairman of the presiding board of the shareholder’s meeting of Companhia Agrícola de Corona, S.A., since June 2008; Chairman of the presiding board of the shareholder’s meeting of Herdade do Monte da Pedra, S.A., since June 2008; Chairman of the presiding board of the shareholder’s meeting of TARBELIBEX - Investimentos Imobiliários, S.A., since June 2008; Chairman of the presiding board of the shareholder’s meeting of FREIXAGRO - empresa Agrícola do Freixo, S.A., Vice-Chairman of the presiding board of the shareholder’s meeting of Caixa Geral de Depósitos, S.A., since 2007; Director of Círculo Voltaire from 1993 to 2006; Chairman of the board of directors of Fundação Arpad Szénes-Vieira da Silva, from 1993 to 2007; Chairman of the strategic council of Hospital Amadora-Sintra Sociedade Gestora, S.A., from 2007 to 2008, Chairman of the advisory board of Explorer Investments - Sociedade de Capital de Risco, S.A., until 2010; Member of the board of directors of SINDCOM - Sociedade de Investimento na Indústria e Comércio, SGPS, S.A., from 2005 to 2010.
Fernando Fortuny Martorell. Portuguese citizen (64). Appointed by being co-opted in 2008. His term of office ends on 31 December 2012. Director of RioForte (Portugal), S.A., since 2010. Director of GO WELL – Promoção de Eventos Catering e Consultoria, S.A, since 2004; Director of Espírito Santo Ventures – Sociedade Capital de Risco, S.A. since 2005; CEO of Espírito Santo Resources, Limited, since 2006; Director of Opway, SGPS, S.A., since 2006; Director of IMOSPEL – Soc. Operações Imobiliárias, S.A, since 2007; Director of Maló Clinic Group, SGPS. S.A, since 2008; Director of Herdade da Comporta, since 2008; Vice-chairman of Rio Forte Investments, S.A, since 2009; Director of Santogal, SGPS, S.A; Non-executive director of Espírito Santo Property (Brasil), S.A.; Managing director of GO Restauração, Lda, since 2004; Director of Espírito Santo Resources (Portugal), S.A., from 2006 to 2007; Director of Espírito Santo Resources, S.A., from 2008 to 2009.
António Domigues. Portuguese citizen (54). Appointed for the first time in 2004. His term of office ends on 31 December 2012. Vice-chairman of the board of directors of Banco Português de Investimento, S.A., since 2007; Vice-chairman of the board of directors of BCI - Banco Comercial e de Investimentos, SA, since 2007; Vice-chairman of the board of directors of Banco de Fomento Angola, S.A., since 2005; Member of the board of directors of Banco BPI, S.A., since 1996; Member of the board of directors of BCI - Banco Comercial e de Investimentos, S.A., since 2004; Member of the board of directors of BPI Madeira, SGPS, Unipessoal, S.A., since 2001; Member of the board of directors of Allianz Portugal, S.A., since 2004; Member of the board of directors of SIBS – Sociedade Interbancária de Serviços, S.A., from 2000 to 2009.
László Istvan Hubay Cebrian. Portuguese citizen (65). Appointed by being co-opted in 2007. His term of office ends on 31 December 2012. Chairman of the board of directors of Fundação Cascais since 2009; Chairman of the Luso-Hungarian chamber of commerce since 2007; Chairman of The Walt Disney Company Iberia from 1988 to 2005; Chairman of Disney Store Spain from 1999 to 2005; Chairman of The Walt Disney Company Portugal from 1982 to 2005; The Disney Country Managing Director from 1999 to 2005; Consultant at The Disney Company from 2005 to 2007; Consultant to Stage Entertainment from 2005 to 2007.
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Luís João Bordalo da Silva. Portuguese citizen (53). Appointed for the first time in 2003. His term of office ends on 31 December 2012. Member of the board of directors of Cinveste, SGPS, S.A. since 2006; Member of the board of directors of Guemonte – Sociedade Civil Imobiliária e de Investimento, S.A. since 2006; Member of the board of directors of M&C Colecção de Arte, S.A. since 2007; Manager of Cinveste Finance, SGPS, Lda. since 2007; Manager of Cinveste Finance, Gestão de Valores Mobiliários, Lda., since 2007; Manager of Cinveste Investimentos, Lda. since 2008; Member of the board of directors of Ecomar S.A. Angola, since 2010; Member of the board of directors of Ecomar, SGPS, S.A., since 2010.
Vítor Fernando da Conceição Gonçalves. Portuguese citizen (56). Appointed for the first time in 2007. His term of office ends on 31 December 2012. Senior lecturer in management at ISEG since 1994; Assistant dean at Universidade Técnica de Lisboa since 2007; member of the Conselho Económico e Social since 2007; Member of the “Panel of Experts on World Competitiveness“ of the IMD World Competitiveness Centre since 2005; Member of the general and supervisory council and chairman of the financial matters commission at EDP- Energias de Portugal S A. since 2006; Chairman of the audit committee of Fundação EDP since 2007; Chairman of Gaptec / UTL since 2007; Chairman of the advisory board of ISEG (2003-2006); Director of the PhD in management programme from 2001 to 2005; Chairman of IDEFE- Instituto para o Desenvolvimento e Estudos Económicos Financeiros e Empresariais from 2003 to 2007. Guest lecturer at various Portuguese and foreign universities. Author of dozens of articles in Portuguese and foreign scientific magazines.
Paulo Cardoso Correia Mota Pinto. Portuguese citizen (45). Appointed for the first time in 2008. His term of office ends on 31 December 2012. Master’s and PhD in law (Ciências Jurídico- Civilísticas); Lecturer at Coimbra university since 1991; Legal advisor since 2007 and constitutional court judge until 2007; Portuguese MP since October 2009.
Nuno João Francisco Soares de Oliveira Silvério Marques. Portuguese citizen (55). Appointed for the first time in 2007. His term of office ends on 31 December 2012. Vice-Chairman of the board of directors of CIDOT – Estúdio de Comunicação, S.A. since 2004; Non-executive director and member of the Audit Commission of TIM W.E., SGPS. S.A, since 2011; Member of the audit committee of Banco Privado Atlântico – Europa, S.A. since 2009; Chairman of the board of directors of AGILLE – Serviços e Consultoria de Gestão, S.A. from 2009 to 2010; Director da AGILLE – Serviços e Consultoria de Gestão, S.A., from 2006 to 2009; member of the board of directors and audit committee of Portugal Telecom, SGPS, S.A., from 2003 to 2005.
Norberto Emílio Sequeira da Rosa. Portuguese citizen (55). Appointed for the first time to the ZON board of directors in 2008. His term of office ends on 31 December 2012. Chairman of the board of directors of Caixa – Participações, SGPS, S.A. since 2008; Chairman of the board of directors of Caixatec – Tecnologias de Comunicação, S.A. since 2008; Chairman of the board of directors of Sogrupo – Sistemas de Informação, ACE since January 2008; Vice-chairman of Banco Efisa since 13 November 2009; Vice – chairman of the board of directors of BPN – Banco Português de Negócios, S.A. since 2008; Director of Caixa Geral de Depósitos, S.A. since 2008; Director of SIBS – Sociedade Interbancária de Serviços, S.A. since 2004; Member of the board of directors of Caixa Geral de Aposentações since 2008;
Jorge Telmo Maria Freire Cardoso. Portuguese citizen (40). Appointed for the first time in 2008. His term of office ends on 31 December 2012. Member of the board of directors and member of the executive committee of Caixa – Banco de Investimento, S.A. since 2008; Member of the board of directors of Empark Portugal – Empreendimentos e Exploração de Parqueamentos, S.A and
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Dornier, S.A. since 2010; Assistant guest lecturer at Universidade Nova de Lisboa school of economics since 2010. Member of the board of directors of Fomentinvest, SGPS, S.A. from 2007 to 2008. Coordinating director of the corporate finance department at Caixa – Banco de Investimento, S.A. from 2000 to 2008.
Joaquim Francisco Alves Ferreira de Oliveira. Portuguese citizen (63). Appointed for the first time in 2001, ended a term of office in May 2005 and was then reappointed in January 2008. His term of office ends on 31 December 2012. Since 1984, when he founded Olivedesportos (market leader and pioneer in the areas of TV and advertising rights related to sports events) he has been chairman of the board of several companies in the business group called Controlinveste. He bought sports paper "O Jogo" in 1994, and set up PPTV in 1996, through which he founded the first cable TV sports channel in conjunction with RTP and PT Multimédia (now ZON) - Sport TV, which he is currently chairman of. he has also been chairman of the boards of directors Sportinveste Multimédia SGPS and Sportinveste Multimédia – a joint venture set up to explore multimedia content connected with sports events since they were founded in 2001. In 2005 he purchased what was then called Grupo Lusomundo Media (now Controlinveste Media), and chairs the various companies within the group.
Mário Filipe Moreira Leite da Silva. Portuguese citizen (39). Appointed for the first time in 2010. His term of office ends on 31 December 2012. Chairman of the board of directors of Fidequity – Serviços de Gestão, S.A. since 2006.
João Manuel Matos Borges de Oliveira. Portuguese (52). Elected for the first time in 2008. Told the chairman of the board of directors he would be resigning as of 21 July 2011. Board member of Cofina, S.G.P.S., S.A. since 1991; Board member of Altri, S.G.P.S., S.A. since 2005; Board member of Celbi - Celulose da Beira Industrial, S.A. since 2006; Chairman of the board of directors of F. Ramada, Aços e Indústrias, S.A. since 1997; Board member of Companhia Portuguesa de Celulose do Caima, S.G.P.S., S.A. since 1998; Board member of Cofina Media, S.A. since 2000; Board member of Cofihold, S.G.P.S., S.A. since 1997; Board member of Edisport – Sociedade de Publicações, S.A. since 2007; Board member of Celtejo - Empresa de Celulose do Tejo, S.A. since 2008; Board member of Caima - Indústria de Celulose, S.A. since 2006; Board member of Invescaima, S.G.P.S.,S.A. since 2005; Board member of Presselivre - Imprensa Livre, S.A. since 2006; Chairman of the board of directors of F. RAMADA - Produção e Comercialização de Estruturas Metálicas de Armazenagem, S.A. since 2003; Chairman of the board of directors of F. Ramada II Imobiliária, S.A. since 2005; Chairman of the board of directors of F. Ramada Investimentos, S.G.P.S., S.A. since 2008.
António da R. S. Henriques da Silva. Angolan (44). Elected for the first time in 2010. Told the chairman of the board of directors he would be resigning as of 30 September 2011. Chairman of the board of directors of TPA, EP, Board member of ANGOLACABLES, Board member of FINSTAR, Sales and Marketing director of Unitel, S. A. until 2006.
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STATEMENT UNDER THE TERMS OF ARTICLE 245, PARAGRAPH 1, C) OF THEPORTUGUESE SECURITIES CODE
In accordance with Article 245, paragraph 1, c) of the Securities Code, the Board of Directors of ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, SA, whose name and roles are listed below, declare that, to their knowledge:
a) The management report, the annual accounts, the legal certification of accounts and other accounting documents, required by law or regulation, relative to the year ended 31 December 2011, were elaborated in compliance with the applicable accounting standards, accurately and truthfully portraying the assets and liabilities, the company’s financial situation and results, as well as those of the companies included in its consolidation perimeter;
b) The management report faithfully portrays the evolution of the company’s business, performance and position, as well as those of the companies included in its consolidation perimeter and, when applicable, contains a description of the main risks and uncertainties that they face.
Lisbon, 26 March 2012
The Board of Directors,
Daniel Proença de Carvalho (Chairman of the Board of Directors)
Rodrigo Jorge de Araújo Costa (Chief Executive Officer)
José Pedro Faria Pereira da Costa (Executive Member of the Board of Directors)
Luís Miguel Gonçalves Lopes (Executive Member of the Board of Directors)
Duarte Maria de Almeida e Vasconcelos Calheiros (Executive Member of the Board of Directors)
Vítor Fernando da Conceição Gonçalves (Chairman of the Audit Committee)
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Nuno João Francisco Soares de Oliveira Silvério Marques (Member of the Audit Committee)
Paulo Cardoso Correia da Mota Pinto (Member of the Audit Committee)
Fernando Fortuny Martorell (Member of the Board of Directors)
António Domingues (Member of the Board of Directors)
Luís João Bordallo da Silva (Member of the Board of Directors)
László Istvan Hubay Cebrian (Member of the Board of Directors)
Norberto Emílio Sequeira da Rosa (Member of the Board of Directors)
Jorge Telmo Maria Freire Cardoso (Member of the Board of Directors)
Joaquim Francisco Alves Ferreira de Oliveira (Member of the Board of Directors)
Mário Filipe Moreira Leite da Silva (Member of the Board of Directors)
Consolidated Report and Accounts 2011 271 WorldReginfo - 102c94b6-b9f2-40fb-aba5-5d1c547744be ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
272 Consolidated Report and Accounts 2011 WorldReginfo - 102c94b6-b9f2-40fb-aba5-5d1c547744be