ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
2009 CONSOLIDATED ANNUAL REPORT
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
TABLE OF CONTENTS
ZON IN NUMBERS
SEE
1.1 Joint Message from the Chairman and CEO 9
1.2 About ZON 10
GROW
2.1 ZON Universe 2009 12
2.2 ZON’s Operations 14
2.3 Technology 20
ENTHRALL
3.1 Leadership 23
LISTEN
4.1 Employees 26
4.2 Customers 27
4.3 Community 30
DELIVER
5.1 Macroeconomic Background 34
5.2 Sector / Regulation 35
5.3 2009 Operational Performance 40
5.4 2009 Financial Performance 44
5.5 Share Performance 51
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
SURPRISE
6.1 ZON Future 54
STATEMENT UNDER THE TERMS OF ARTICLE 245, PARAGRAPH 1, C) OF THE PORTUGUESE SECURITIES CODE 55
CONSOLIDATED FINANCIAL STATEMENTS 57
DOCUMENTS OF APRECIATION OF CONSOLIDATED ACCOUNTS 143
CORPORATE GOVERNANCE REPORT 151
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
ZON IN NUMBERS
Business Indicators (in thousands):
Triple Play Customers: Triple Play Penetration in Cable Customer Base:
+17.6pp +75 .9% +17.1pp +3 .0x 484 41%
275 23%
69 6%
2007 2008 2009 2007 2008 2009
RGUs: RGUs per Subscriber [units]:
CAG R CAG R
CAG R +2 0.6% CAG R +18.0% +11.6+11.6%%%% +9 .1% 3.507 2,17 2.982 1,84
2.413 1,56 2.112 1,43 1.937 1,31
2005 2006 2007 2008 2009 2005 2006 2007 2008 2009
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Basic Subscribers: Broadband Subscribers:
CAG R CAG R CAG R +1.5% CAG R +2 3 .5% +2 .3% +7.2% 1.614 1.595 611 1.547 1.479 1.480 519
400 348 362
2005 2006 2007 2008 2009 2005 2006 2007 2008 2009
Fixed Voice Subscribers: Blended ARPU [euros]:
+5 .6% +6 8 .5% +4 .0% +3 .2x 33,8 584 32,0 30,8
347
83
2007 2008 2009 2007 2008 2009
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Pay TV Market Shares 2008: Pay TV Market Shares 2009:
2,4% 1,7% 10,4% 12,6%
13,8% 23,3%
63,9% 71,8%
ZON PT Cabovisão Others ZON PT Cabovisão Others
Source: Anacom 4Q09, ZON
Broadband Market Shares 2008: Broadband MarketShares 2009:
3,9% 2,2% 2,8% 2,5%
8,0% 9,3% 32,2% 31,3% 9,2% 12,5%
44,5% 41,6%
ZON PT Sonaecom Cabovisão Vodafone Others ZON PT Sonaecom Cabovisão Vodafone Others
Source: Anacom 4Q09
Fixed Voice Market Shares 2008: Fixed Voice Market Shares 2009:
3,9% 0,8% 2,9% 1,1% 7,0%
16,8% 7,1% 10,5%
16,0% 18,0%
60,4% 55,5%
ZON PT Sonaecom Cabovisão Vodafone Others ZON PT Sonaecom Cabovisão Vodafone Others
Source: Anacom 4Q09, ZON
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Financial Indicators * (in millions of euros) :
Operating Revenues: Pay TV, Broadband and Voice Revenues:
CAG R CAG R CAG R +7.2% CAG R +8.4% +6 .7% +6 .7% 739 823 678 766 630 716 591 666 553 628
2005 2006 2007 2008 2009 2005 2006 2007 2008 2009
EBITDA and EBITDA Margin: Net Income:
CAG R CAG R CAG R (3 3 .5.5)%)%)%)% CAG R (5 .5)% CAG R +10.1% 45,0% 300 +6 .2% 267 112 242 40,0% 250 211 220 35,0% 195 200 31,7% 31,6% 32,4% 71 30,0% 31,1% 30,8% 150 49 25,0% 48 44 100 20,0%
15,0% 50
10,0% 0 2005 2006 2007 2008 2009 2005 2006 2007 2008 2009
Total CAPEX: EBITDA - CAPEX:
+3 2 .8%
+7.2% +7.2% 81 214 78 70
161 150 53
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2007 2008 2009 2005 2006 2007 2008 2009
Note: Adjustments have been made to 2008 operating revenue and cost lines to reflect the impact of the renegotiation, in 1Q09, of the SIC content contract, whereby ZON is no longer responsible for the wholesale of the SIC Pay TV channels to other operators. The cumulative pro- forma adjustments made in 2008 resulted in a reduction in revenues of 10.6 million euros, in costs of 8 million euros and in EBITDA of 2.6 million euros.
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
SEE
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
SEE
1.1. JOINT MESSAGE FROM THE CHAIRMAN AND CEO
It is a great pleasure to be presenting another year of very strong operational and financial performance, in a market which continues to witness a significant level of competition between operators.
ZON once again achieved the goals established in the strategic plan which was outlined and approved at the beginning of 2008. We have strived to innovate in our products and services, to renew our network, to introduce significant improvements in our customer support, as well as to seek new growth opportunities. This strategy has enabled us to diversify and to significantly grow the number of services provided to our Customers.
We have reached record levels of Triple Play penetration with around 41% of our customers subscribing to our TV, Broadband and Voice services and we rank as the fastest growing triple play operator in Europe. At the end of 2009 we remained the uncontested leader in the Portuguese Pay TV market with almost 1.6 million subscribers. We were the second largest broadband operator with 611 thousand subscribers and became the second largest voice operator at the end of the year with 584 thousand subscribers. We successfully completed our mobile portfolio with the launch of mobile broadband and homezoning products, in addition to mobile voice, thus making it possible to provide triple play solutions to our satellite customers. We have also taken steps to renew our business offer with an independent team and tailor-made offer, targeting small and medium sized businesses in Portugal. In addition, our Audiovisuals and Cinema business is one of the most dynamic and creative in its peer group with more than 138 digitalized screens, 38 of which with 3D projection technology.
Supporting our strong commercial performance is our ongoing investment in our network. ZON today leads the roll-out of Next Generation Networks in Portugal, already covering 2.4 million homes with EURODOCSIS 3.0, enabling the delivery of ultra-broadband speeds to our customer base. Testimony to our ability to lead in innovation, we are the only operator in Portugal today to provide widespread broadband offers of 100 Mbps and 200 Mbps and we became the first operator in Europe and the third worldwide to launch a 1Gbps residential offer.
Our strategy to explore international growth opportunities took a significant step forward in 2009 with the development of a joint-venture to launch Pay TV services in Africa. The launch of our new operator for Angola, “ZAP” in 1Q10 represents the first stage of a broader strategy to develop operations with our Angolan partner for the African Continent. We are very excited with this area of development as it presents a very attractive avenue of future growth, leveraging upon our core skills and asset base developed in the domestic market.
The strong operational performance we continue to deliver has been achieved against a difficult backdrop of global financial and economic conditions and a very competitive domestic fixed line market. Despite this challenging environment, we have translated our strong operational performance into very positive financial results. Our Consolidated Revenues grew by 7.5% in 2009 to 823 million euros and EBITDA grew by 10.4% to 267 million euros. Cash Flow generation has been affected by the commitment to invest in the growth of our subscriber base - we are faced with a unique opportunity to achieve a leading market position in our core markets, in particular in triple play penetration.
Our performance is only possible due to the continued efforts of ZON’s highly skilled, motivated and energetic team. We strive to uphold an efficient, light and stimulating work environment capable of nurturing creativity, innovation and both personal and professional development.
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
On behalf of the management team of ZON, we extend our thanks to all our employees who work so hard every day to make our company a success.
1.2. About ZON
ZON Multimedia is one of the largest companies in the PSI-20 index, and leads the Triple Play market in Portugal. It is also the nation-wide leader of the Pay TV market, the second largest Internet Provider and the second largest Fixed Voice services provider. ZON Multimedia’s offers are marketed with the brands ZON TVCabo, ZON Fibra, ZON Phone, ZON Lusomundo Cinemas, ZON Lusomundo Audivisuais and ZON Conteúdos.
ZON TVCabo has approximately 64% of the Pay TV market, with approximately 1.6 million customers. Around 611 thousand of these customers are also subscribers of ZON’s Broadband offers, which are the technological leaders in the Portuguese market, already having launched a 1Gbps commercial offer. ZON’s portfolio was complemented in the first quarter of 2007 with a Fixed Voice service, which had more than 584 thousand customers by the end of 2009. Triple Play (TV, Broadband and Voice) became Quadruple Play in 2009, with the launch of an MVNO (Mobile Virtual Network Operator). ZON TVCabo thus acquired the dimension of a new, global telecommunications operator, with more than 3 million homes passed and a network that offers download speeds of 200Mbps to more than 2.4 million homes.
ZON Lusomundo Cinemas is the leading Cinema operator in Portugal with 213 screens, showing more than 300 thousand sessions per year. It also leads the market in terms of innovation, having pioneered the introduction of digital cinema screens and becoming the first European operator to use the 3D Digital system.
ZON Lusomundo Audiovisuais is a reference in the national market, as the leading content provider in its sector. Growth is supported by partnerships with the most prestigious brands in cinema and video distribution. Together with ZON Conteúdos, it is in charge of content wholesale, an activity which includes content negotiation, acquisition, aggregation and resale. In addition, ZON Conteúdos manages programming grids and advertising on the Pay TV platform.
The ZON Group is also a shareholder in companies which own Pay TV channels, such as SportTV (50%) and Dreamia (50%).
As disclosed during 2009, ZON is planning to expand internationally, having already taken steps to develop a Pay TV operation in Africa. ZON’s entrance in the African market will be materialized initially with the expansion to Angola through a joint venture 30% held by ZON Multimedia and 70% held by SOCIP – Sociedade de Investimentos e Participações, SA (100% owned by Ms. Isabel dos Santos), with the purpose of developing a Pay TV offer via satellite. ZON has declared its ambition to further exploit international growth opportunities and this partnership represents the first step within a broader strategy, aiming to develop other operations in the African continent.
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
GROW
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
GROW
2.1. ZON UNIVERSE 2009
JANUARY
• The ZON Brand celebrates its first anniversary
• Launch of the ZON Videoclub
FEBRUARY
• ZON Lusomundo Cinemas is present at Fantasporto, Oporto’s International Film Festival
• ZON Lusomundo Audiovisuais receives awards in countries where “Mamma Mia” set new box office records
• ZON NET passtime takes winning customers to Holland to fly in a giant wind tube
• Launch of news channel TVI24, exclusive to ZON customers for the first six months
• ZON Lusomundo nominated for Best European Distributor award by Cartoon Movie
MARCH
• Satellite offer is complemented with 4 new channel offers
• Launch of ZON NET MOBILE, a new prepaid mobile broadband service
• ZON launches new channels: AXN HD, Brava HDTV, SONY Entertainment Television, Animax and Russia Today
• Launch of the new ZON marketing claim, Could I live without ZON? I could, but it wouldn’t be the same
• Advertising campaigns for ZON Mobile’s, new tariff plan and ZON Empresas are launched
APRIL
• Launch of the Alta Definição é na ZON (High Definition at ZON ) campaign
• New ZON satellite offer with new channel offers from 9.99 euros
• Pay TV channels break ratings records (21% share) and overtake RTP1
• Upgrade to 2.0 Mbps for NET Mobile’s download speed,
• ZON launches a new High Definition channel: myZen.tv HD
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
• For the second consecutive year, ANACOM confirms the superior quality of Cable Broadband Services
• Launch of FUTEZON – the first Online National Football Championship, to demonstrate the capabilities of ZON’s 100 Mbps internet services
MAY
• Launch of ZON Kids, a new children’s area within the ZON Videoclub
• ZON TVCabo renews its ISO 27001 Certification, regarding Information Security
• ZON announces free NET Mobile, with 100 MB per month of traffic included for ZON Broadband customers
• 2nd annual “ZON Creativity in Multimedia” Awards
• Start of the 1st ZON Academy course – a training Project with over 2000 annual training hours provided for 650 trainees
JUNE
• The first Iberian Digital Cinema complex with Centralized Network Management is opened in Tavira
• MyZONcard advantages are extended to the children of ZON subscribers entitled to the card
• Launch of the ZON Phone 5 Stars campaign, with unlimited international phone calls to fixed numbers in 20 countries
• ZON’s ITIL (Information Technology Infrastructure Library) Project receives an award for excellence at itSMF’ (IT Service Management Forum) Annual Conference
JULY
• Launch of the “ZON Fibra” brand – the best entertainment offer and next generation technology are supported by the best and most widespread optic fibre network
• ZON Lusomundo strengthens the digitalization programme of its cinema screens network
AUGUST
• Launch of ZON Mobile’s post-paid tariff plans
• ZON reaches half a million Fixed Voice subscribers
SEPTEMBER
• DECO states ZON Mobile’s tariff plan to be the most competitive offer in the market
• According to ANACOM, ZON leads in Broadband Internet traffic and is the only operator to grow its Fixed Voice market share. ZON’s Cable and Satellite services are considered to be the most reliable in Portugal
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
• ZON premieres a movie channel which is 100% in HD (TVCine HD) for the first time in Portugal
• ZON launches the first residential offers of 1Gbps and 200 Mbps in Portugal
• ZON campaigns are given three Creativity Awards by CAP
OCTOBER
• ZON launches new HD channels – FOX Life HD and FOX HD – and maintains its leadership in High Definition
• Launch of new TV, Broadband and Telephone offers for satellite
• Launch of the children’s website www.zon.pt/kids
• ZON is the leading fixed Broadband operator in areas where it has network coverage, reaching 600 thousand subscribers
NOVEMBER
• Exclusive premiere of the film The Twilight Saga: New Moon, for myZONcard customers
• Inauguration of the ZON Christmas Tree
• ZON and Chello Multicanal create a joint venture (Dreamia) to produce and distribute children, series, and movie channels
DECEMBER
• MyZONcard customer benefits and partnerships extended: 230 new partners, offering discounts on a total of 350 products and services
• ZON announces its partnership with Ms. Isabel dos Santos for the launch of a satellite-based pay TV operation for the Angolan market
• Kento Holding, a company owned by Ms. Isabel dos Santos, acquires 10% of ZON’s share capital
• Launch of the Panda Biggs channel
• Opening of the first Headend with a completely autonomous infrastructure – a first step towards greater network independence
2.2. ZON’S OPERATIONS
Pay TV
ZON has positioned itself as the leading Triple Play operator, thanks to its efforts in terms of innovation, to its continuous technological superiority, to its focus on marketing and to a dedicated and flexible organization.
The strategic focus on the sale of additional services to our Pay TV customers, with the launch of Triple Play bundles, has proven to be a resounding success, with over 41% of cable customers
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
subscribing to the three services – Pay TV, Broadband and Voice. Also, 18.9% of cable customers subscribe to two services, which compares with 26.6% at the end of 2008.
The Pay TV market in Portugal has undergone considerable change in Portugal – ZON today stands out as the clear leader, with a customer base of almost 1.6 million subscribers, and a 64% market share, according to ANACOM’s most recent data.
This leadership position is due to considerable investment in equipment, new features and functionalities, as well as investment in new channels.
In terms of television experience, audience trends are reflecting the uptake of a more diverse Pay TV offer in Portugal, in comparison with free-to-air channels – at the end of 2009, Pay TV channels recorded an 18.3% share of audience, which represents growth of 30% in comparison with the 14.1% recorded in 2008.
Consumers today benefit from a vast array of new and exciting functionalities, made available since 2008, with the launch of new set top boxes. With these new set-top boxes, consumers are now able to access a number of new TV functionalities such as High Definition content, a sophisticated programming interface, videoclub offers and pause live TV, to name but a few.
ZON has offered these new functionalities for the past 2 years, the acceptance of which can be seen in the number HD boxes installed, both with and without recording capabilities.
By the end of 2009, 545.5 thousand new HD ZON Boxes had already been installed, of which 270.3 thousand had recording functionalities.
Apart from investing in equipment, ZON has paid significant attention to its content offer. Several new channels were launched during 2009, bringing the total number of channels available in the “Funtastic” pack to 114, of which 11 in High Definition.
At the end of 2009, ZON launched a new and competitive TV offer to promote its High Definition channels – “HD Digital” – whereby customers are offered 70 channels, 6 of which in HD, and can access the Videoclub at a very competitive price, including the set top box rental fee.
Premium channel subscriptions also posted a significant increase to 901.5 thousand at the end of 2009, mostly due to the launch of several new channels such as “Brava TV” (classical music and arts channel), and to the fact that the TVCine movie channels were included in one of ZON’s main Triple Play bundles – “ZON Filmes”.
In November, ZON announced a 50/50 partnership with Chello Multicanal for the production of four Pay TV non-premium channels for the Portuguese and Portuguese-speaking African markets. “Dreamia – Serviços de Televisão,S.A.”, an equal partnership to produce and broadcast the children’s channels Panda (the leading children’s channel in Portugal, with a 6.7% share) and Panda Biggs (a new channel, launched in December, which is aimed at children aged 8-14) and two series and movies channels – Hollywood (the leading cinema channel, with a 6.5% share) and MOV (a series and movies channel until recently produced by ZON).
TV viewing trends have contributed to drive the take-up of Pay TV services in Portugal. The audience shares of Pay TV channels have posted continual quarterly increases, when compared to free access channels.
ZON has the broadest High Definition offer, with 11 HD channels:
SPORT TV HD Eurosport HD TVCine HD
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
MOV HD AXN HD FOX HD FOX Life HD National Geographic HD Myzen.tv HD Disney Cinemagic HD Brava HDTV
To complement its content offer, at the beginning of 2009 ZON launched, its Videoclub service (VoD). Today, its catalogue includes over 2500 films, TV series, documentaries and concerts. Use of the Videoclub is increasing continuously, with customers accessing the service more and more as they become more familiar with the service.
Therefore, the agreement reached with Universal to sell its titles on this platform, during the third quarter of 2009, has been a very important source of additional value to the catalogue.
Broadband
The launch of new Triple Play bundles has been a major factor in ZON’s Broadband positioning. These bundles include broadband offers with download speeds of 50 Mbps and 100 Mbps, a very compelling argument when communicating the advantages of ZON’s offers.
During the first half of 2009, ZON launched a new brand for its next generation services, “ZON Fibra”, designed to convey the superior quality and functionalities of the services provided by the ZON network, which is already the largest fibre-based network in Portugal.
In its effort to further strengthen its competitive advantage in Broadband, during the third quarter of 2009, ZON became the first European operator, and the third, worldwide, to launch residential offers of 200 Mbps and 1 Gbps on its hybrid fibre coaxial network.
Given the superior capabilities of ZON’s network, and the advanced status of the rollout of EURODOCSIS 3.0, ZON is able to offer Next Generation speeds to up to 77% of its cable network. ZON’s hybrid network covers over 3 million homes in Portugal, and is capable of providing speeds of up to 200 Mbps to around 2.4 million homes. Tests are now underway with a view to providing speeds of up to 400 Mbps in 2010.
Having ended the year with 611 thousand Broadband customers, ZON posted a 17.7% growth when compared with 2008. The most recent data on the Broadband market shows that ZON has increased its subscriber market share, reaching 32.2% at the end of the year, which compares with a share of 31.3% at the end of 2008. When it comes to Broadband traffic, ZON is the clear market leader with a 40% market share.
Fixed Voice
According to the latest data by ANACOM, ZON was the only operator with relevant size to increase its Fixed Voice market share, going from 10.5% at the end of 2008 to 16.8% by the end of 2009. According to the same data, all other relevant-sized operators lost ground.
The commercial success of ZON’s Voice services is based on the continuous effort to offer the consumer better value propositions. Customers are clearly attracted to the pricing of ZON’s Voice offers’ and commercial strategy, whereby voice is sold as an integral component of Double Play and Triple Play bundles, at a comparatively low incremental cost – in particular when compared to the cost of the stand-alone service.
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
ZON has the most competitive Voice offer in the market, offering some of the most innovative functionalities available, such as anonymous and unwanted calls rejection, prefix barring and three- way conference calling. At the end of the year, international unlimited calls were also included, from 9 pm to 9 am, to 20 different countries, including the main destinations in Europe, USA and Canada. This new service has proven to be very important to stimulate the active use of Fixed Voice services, and has led to significant growth of both traffic and revenues.
In 2H09 a new number portability regulation has come into force, making the process easier for customers and significantly reducing the waiting time from 10 to 3 days.
At the end of 2009, ZON had 584.1 thousand Fixed Voice customers, which represents an increase of 237.5 thousand subscribers compared with 2008. With penetration reaching 49.2% of the cable customer base, Fixed Voice services are rapidly closing the gap to Broadband penetration of 51.7%. ZON’s Fixed Voice success is the consequence of a very clear value proposition for the consumer, with very simple flat fee tariff plans, combined with TV and Broadband bundles, designed to meet the needs of the various user groups.
Mobile
Despite still representing a relatively small part of revenues, ZON’s mobile business has been experiencing strong growth.
In 2009, the number of subscribers increased, due to the launch of a new and competitive voice tariff plan, whereby ZON Triple Play subscribers pay 8 cents per minute, with per second billing, and also due to the launch of a mobile Broadband service offering Triple Play customers 100 MB of free mobile internet traffic, thus conferring greater mobility to ZON’s value proposition.
The pace of mobile service growth was also driven by the launch, in June, of Net Mobile Zero, a new Mobile Broadband offer, whereby Broadband subscribers can purchase a Mobile Broadband card which includes 100 MB of free mobile Internet traffic per month.
During 2009, ZON launched pricing plans designed to increase convergence with fixed services becoming the first operator to develop a quadruple play offer. ZON launched a pre-paid tariff plan automatically chargeable on the monthly invoice, and providing customers with a discount of 5 euros.
The competitive pricing of ZON’s mobile offer was recognized by an independent survey (carried out by consumer associations DECO and Proteste), which compared 75 different tariff plans in the market: ZON’s Z-Super 8 offer was considered the most competitive offer in 3 out of the 5 user profiles considered in the survey.
ZON’s investment in the mobile services arena continued throughout the year. On 1 October 2009, ZON completed its MVNO, with the launch, for its satellite customer base, of homezoning based Fixed Voice services and Internet services using Vodafone’s mobile network. With these offers, ZON is now able to provide Triple Play solutions to customers anywhere in Portugal, with prices starting at 34.88 euros per month.
Corporate
At the end of 2008, “ZON Empresas” (ZON Business) outlined strategic guidelines for 2009, defining key market segments:
• Hotels: increase in penetration of the 2/3 star segments and in TER (guest houses, rural and agro tourism), with tailor made solutions for this segment;
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
• Large Companies: develop Corporate TV offers for specific market segments, as well as partnerships to complement the telecoms portfolio;
• SoHo: tailor made solutions for specific sectors and for medium-sized SoHos (less than 15 employees) with particular focus on Retail, Wholesale, Hotels and Restaurants sectors.
With the claim “Ligamos pequenas empresas a grandes negócios” (“We connect small companies to big business”), ZON Empresas’ launch campaign mainly targets Professionals, Small retailers, Micro Companies, Coffeeshops and Restaurants. The purpose of the campaign is to:
• Raise awareness of the “ZON Empresas” brand;
• Communicate “ZON Empresas’” offer “Linha Pro”, starting at 29.98 euros;
• Attract new customers, through tailor-made offers;
• Expand the SoHo segment.
The end of 2009 marked ZON’s incursion the business segment, namely targeting SoHo customers. Dedicated sales channels and teams were put in place (door-to-door, Inbound and Outbound), supported by product and behavioural training sessions (over 100 throughout the year). A dedicated support line was also created in addition to a number of bundled offers for specific sectors.
ZON’s Internet and Voice business offers are amongst the most competitive in the market with the added advantage of being a one-stop-shop capable of providing customized solutions.
ZON’s market share in the 4 and 5 star Hotels segment was consolidated at over 80% with efforts taken during the year to reinforce customer loyalty.
In the Large Companies’ segment, an important contract was signed with Rodoviária Nacional Expresso (a national bus company) to provide Corporate TV and on-board internet access in 100 buses, in addition to an exclusive TV channel.
Cinema and Audiovisuals
Cinema is still one of the most affordable forms of entertainment, despite the challenging economic environment and has therefore continued to merit customer preferences.
According to provisional data from ICA – Audiovisual and Cinema Institute, in 2009 the market generated Gross Revenues of around 73.7 million euros, corresponding to 15,670,000 spectators. Compared with the previous year, the number of spectators fell by 1.9%, however Gross Revenues increased by 5.4%.
ZON’s market share of Gross Revenues went up from 51.1% in 2008 to 51.9% in 2009, having outperformed the market with annual growth of 7.1% compared to growth of the total market of 5.4%. ZON’s share of spectators increased from 51.9% in 2008 to 52.4% in 2009.
December was a record month for ZON Lusomundo Cinemas in terms of Box Office Revenues and Ticket Sales with 1,061,697 tickets sold.
In 2009, ZON innovated with the launch of “myZONcard”, an initiative designed to increase customer loyalty and to increase cinema theatre attendance. In total, ZON registered 8.2 million spectators in 2009, and exhibited 284 movies in a total of 380 thousand movie showings, 30 thousand of which in the 3D Digital format
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
TOP 10 – Films ranked by tickets sold:
1. Ice Age 3
2. The Twilight Saga: New Moon
3. 2012
4. Angels and Demons
5. Up!
6. Harry Potter and the Half-Blood Prince
7. Avatar (still available)
8. The Strange Case of Benjamin Button
9. Slumdog Millionaire
10. Monsters vs. Aliens
ZON’s initiatives in the cinema business focused on increasing awareness and upgrading facilities and projection equipment. As such, the first phase of the Digitalization project was completed, covering 138 cinema screens, 38 of which in 3D Digital. The shift to Digital technology (enabling the mass introduction of 3D) will drive improvements in systems management, and deliver a more consistent and high quality viewing experience (35 mm film deteriorates with each projection), greater security and anti-piracy control, improvement in content offer, and greater operational flexibility, amongst other advantages.
The new website www.zonlusomundo.pt was launched in 2009, generating over 20 million visits. A mobile website was also created, m.zon.pt , which customers can access to look up cinema schedules whilst on the move.
ZON Lusomundo Audiovisuais established an agreement with Universal Pictures to be able to offer its films on the Videoclube platform, thereby completing partnerships with all the major film studios (Paramount, Warner, Sony and Disney), and that are responsible for the largest slice of box office sales.
Based on these partnerships, in 2009 ZON Lusomundo Audiovisuais launched 38 films from leading majors: 13 from Walt Disney, 10 from Paramount/Dreamworks and 15 from Universal. As for independent producers, 96 movies were premiered. From this total of 134 films, 7 were launched in 3D format, with very interesting results; 14 were children’s/young teenager movies (spoken in Portuguese) and 6 were national production films.
On the TV content front, ZON’s own-produced movie channels “TVCines” remain the stage for the most important premieres on Portuguese television. With a growing subscriber base, the four TVCine channels have continued to increase their penetration of the television market.
In 2009, more than 250 new films were premiered in Portugal, out of a total of 830 titles exhibited. Mamma Mia!, Kung Fu Panda, Iron Man, 007 – Quantum of Solace, Indiana Jones and the Kingdom of the Crystal Skull, Batman – The Dark Knight, Sex and the City, Vicky, Cristina, Barcelona, There Will Be Blood, The Chronicles of Narnia: Prince Caspian and No Country For Old Men are just a few examples to show the quality, quantity and diversity of the films that were viewed and only possible due to fact that TVCine channels have contracts with the most important cinema distributors in the world.
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International Expansion – Angola
ZON has repeatedly stated its intention to explore international growth opportunities and in 2009, took the first steps in a broader strategy to develop operations in the African continent, more specifically in Angola, where it is preparing the launch of a Pay TV operation.
ZON’s entry into Africa will materialize initially through a joint venture owned 30% by ZON Multimedia and 70% by SOCIP – Sociedade de Investimentos e Participações S.A. (100% controlled by Ms. Isabel dos Santos), with the purpose of developing a satellite based Pay TV offer.
The underlying business model will be similar to the one that ZON currently manages in its Portuguese DTH operations, primarily in terms of content offer, terminal equipment used and conditional access systems. The satellite that will broadcast to the African Market, “W7”, was successfully launched by Eutelsat on 24 November and the core management team is already working in Luanda to prepare for commercial launch in the first quarter of 2010.
Key agreements have been negotiated for a broad variety of channels that will have a strong element of Portuguese speaking content, some of which tailored specifically for Angolan Audiences. ZON Multimedia will also leverage its key position in content production and distribution in Portugal, with the sale to the Angolan market of its own production “TVCine” movie channels, as well as channels produced through joint ventures, like the ones established with Chello Media (Hollywood, Panda, Panda Biggs and MOV) and the Premium Portuguese speaking sports channels, SportTV.
2.3. TECHNOLOGY
By the end of 2009, 2.4 million homes had been upgraded, with EURODOCSIS 3.0 technology, thus enabling ZON to offer customers an even greater quality of service and products.
Important technological changes were underway since the start of the year in the residential telecommunications market. On one hand, the Government had stated the importance of Next Generation Networks (NGN); on the other, ZON was in the process of incorporating the companies it had acquired, one of which, TVTel, with the largest optic fibre NGN in Portugal.
For traditional telecommunications companies with copper-based services, only the roll-out of NGNs enables the provision of High Definition and high bandwidth services (speeds greater than 50 Mbps). This means discontinuing old networks and replacing them with investments, from the ground up, in new networks, which is a very slow and costly process due to the nature of the civil works involved.
In contrast, cable operators like ZON, whose HFC network is already a NGN, are already in an excellent position to offer these services to their customers. HD services do not require significant changes to be made to cable networks and high bandwidth services require merely incremental, non-disruptive, changes to the base technology.
By the end of 2009, ZON was the operator with the most widespread NGN coverage and with the most Next Generation Service active customers in Portugal and as a result, Portugal appears as one of the countries with the most advanced roll-out of NGN networks.
Broadband
The technologies which ZON has chosen for the incremental evolutions to its network are the same as those chosen by other international cable operators. In the case of Broadband, the upgrades consisted of installing more optic fibre and more equipment to light up optic fibre, thereby increasing the distance, capacity and capillarity of existing networks. In addition, ZON also upgraded existing DOCSIS 1.0 to EURODOCSIS 3.0.
DOCSIS (Data Over Cable System Interface Specification) is the protocol most used by cable operators to offer data services to their customers, and EURODOCSIS 3.0 enables very significant
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upgrades in terms of capacity for very high bandwidth services. In ZON’s case, the rollout of equipment supporting these protocols in almost all networks during 2009 was a differentiating innovation vis a vis its international cable peers, as it was the first time that a cable operator developed Internet and Voice terminal equipment that clearly separated between hardware and software.
The remaining cable operators have either not yet chosen to do this upgrade, done so sparsely only in selected areas of coverage, or have not done so to achieve the same level of capabilities as ZON (200 Mbps).
The upgrade from DOCSIS to EURODOCSIS 3.0 by ZON is an international case study, since we were the only operator to take the opportunity to gradually reconvert American frequencies to European ones, maintaining simultaneous use of both and obtaining an important capacity improvement on the ZON network.
Having achieved widespread high bandwidths with EURODOCSIS 3.0, in September ZON launched a 1 Gbps residential offer, entirely over optic fibre, which demonstrates ZON’s real ability for another network incremental upgrade towards future NGN services – by completing all paths to customer premises with optic fibre. This is the fastest residential Broadband offer in Europe.
In order to obtain greater cost efficiencies and guarantee greater autonomy in network management, ZON has been investing in own sites and in backbone network, reducing its dependence from other entities whose network and sites ZON has been using as a complement to its own facilities.
High Definition
In television, ZON’s HD push, in 2008, led to a renovation of TV terminal equipment. This renovation, which continued at a fast pace throughout 2009, was also used to introduce advanced digital functionalities, with ever-increasing ease of use. The programming guide, recording, programmed recording, pause live TV and alerts are now consolidated functionalities, and available to an increasing number of customers. They are more intuitive and their take-up is more widespread, which is in line with the upgrades carried out by other international cable operators.
2009 witnessed continuous improvement of ZON’s HD channel offer, and also the incremental network upgrades which enable ZON to provide NGN services to almost all of its customers.
Videoclub
The roll-out of these new equipments and the preparation of ZON’s networks also enabled the widespread take-up of Video-On-Demand services (VoD). The ZON Videoclub service is now available to 98% of the ZON network. By the end of 2009, the service had a catalogue of more than 2500 titles. For its VoD project, ZON developed and integrated the entire solution, having innovated with the creation of an own content management platform, which enables an extremely efficient content life cycle management.
ZON BOX
The continuous development of ZON Boxes, from both a hardware and software standpoint, will allow for more interactivity and more services, with more attractive interfaces. In 2010, ZON will continue the progress in this arena, in order to push further increments, both in quality and in quantity of the TV services it provides.
Fixed Voice
An important stage in the growth of Fixed Voice capacity has been completed, with ZON reaching a customer base of around 600 thousand, while reducing the cost per service acquisition. New functionalities were launched and there was a substantial improvement in the quality of service, with a direct impact in the number of pending malfunctions.
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ENTHRALL
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ENTHRALL
3.1 LEADERSHIP
On 12 December 2007, we presented our strategic plan for 2008/2010. Our ambition is to lead the Telecom and Media market in Portugal and we have established three strategic guidelines to prioritize our initiatives going forward:
• Lead in Triple Play
• Deliver excellence in customer service and operational efficiency
• Capture new growth opportunities
Each of our strategic guidelines is composed of three key initiatives:
Lead in Triple Play
• Aggressively sell bundles with the best TV, Broadband and Voice products in the market
• Lead in broadband speed and provide new services supported by an upgraded network
• Provide differentiated and competitive content
Deliver Excellence in Customer Service and Operational Efficiency
• Guarantee excellence in customer service (real and perceived)
• Optimize the cost base (operational excellence)
• Promote the personal development and involvement of our people
Capture New Growth Opportunities
• Introduce a mobile communications offer through an MVNO agreement
• Develop a specific offer for SoHos
• Evaluate non-organic growth opportunities.
Our strategy, based on these guidelines, has resulted in a good operational and financial performance, thus achieving the goals we initially set out to accomplish – some of which were attained in advance:
• 41% Triple Play Penetration at the end of 2009, ahead of the 30% target defined for 2010;
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• 611 thousand Broadband Subscribers at the end of 2009 (second operator of the national market), already ahead of the 575 to 625 thousand target set for the end of 2010;
• 584 thousand Fixed Voice subscribers at the end of 2009 (becoming the second operator in the market in 4Q09) and on track to meet the target for 2010 of 625 to 675 thousand;
• 3,506.5 thousand RGUs at the end of 2009, ahead of the 3,500-3,700 thousand target at the end of 2010; thus corresponding to 2.17 RGUs per subscriber, also ahead of the 2.10 target for 2010.
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LISTEN
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LISTEN
4.1. EMPLOYEES
Recruitment and Selection
In a dynamic company, which positions itself as one of the main players in the market, the quality of its human capital becomes a relevant factor as it allows true differentiation vis a vis the competition.
Therefore, the ZON Group’s human resources policy is focused on appropriate ways of attracting and managing talent, rewarding and encouraging merit, creativity and excellence, and betting on the progressive rejuvenation of its work team.
The ZON Group is a reference in the labour market, and positions itself as one of the best organizations to work, with truly competitive employee attraction, development, motivation and retention policies, in line with the best practices. That is why it is one of the most sought after companies by top graduates and professionals who wish to join the organization.
Given the importance of a company’s human capital in the achievement of its goals, and as often happens with many companies, the recruitment and selection process is very relevant for the Group’s strategic planning. This process aims to increase the quality of its human resources as a way of gaining a competitive advantage and creating value for the organization, with plans for hiring employees being influenced by a careful analysis of the business directives and of the talent already on board.
Average Number of Employees Training Gender Average Basic and University or Average Age 2008 2009 Annual ∆ Male Female Seniority Secondary Higher ZON TV Cabo (1) 728 824 13.2% 43% 57% 56% 44% 35 7 ZON Lusomundo Audiovisuais & ZON Conteúdos 98 101 3.1% 48% 52% 38% 62% 40 11 ZON Lusomundo Cinemas 618 595 -3.7% 97% 3% 57% 43% 27 4 Associated Companies (2) 101 102 1.0% n. d. n. d. n. d. n. d. n. d. n. d. Grupo ZON Multimédia (3) 1,545 1,622 5.0% 44% 56% 54% 46% 36 7
(1) Includes ZON Multimédia, SGPS, ZON TVCabo, ZON Madeira and ZON Açores; includes internalization of Pro-Share employees and TVTel and Parfitel operations' integration; (2) Includes Grafilme, Lusomundo Moçambique, Dreamia (50%) and Sport TV (50%); (3) Does not include ZON Lusomundo Cinemas' operational area, and the Associated Companies in the training, gender, age and average seniority indicators.
The Individual Performance Evaluation System, “ZON Talent”, is a cornerstone of the proactive management of human capital within the organization, enabling the leveling of all business units by its application to all employees in an integrated and conceptually simple manner, extracting all possible synergies and aiming to:
• Contribute to the creation of a true Business Group; • Strengthen the culture of justice, transparency, meritocracy, performance, excellence and the creation of shareholder value; • To build the best teams in the most strategic areas, identifying areas of personal and professional development, as well as to encourage and support professional mobility strategies as a clear source of enrichment and motivation; • To identify “talent” within the Group; • To support the strategic consolidation of ZON Group’s core business, through the maximization of team performance; • To make the human resources management of the ZON Group into an international reference that can be used as a sustainable source of competitive advantage and strategic differentiation;
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However, this system, which follows an annual cycle, allows for the unlimited introduction of interim evaluation periods, so as to adjust to specific business and employee mobility situations and enable the achievement of short, medium, and even long term objectives.
After the final meeting and evaluation, individual objectives to be achieved by the employee are defined, as well as the skills which should be developed during the following year. The employee’s annual performance bonus is also linked to this process.
A positive feedback culture results in communication for development.
A timely and appropriate definition of individual and team goals for all ZON employees is a key process for motivating and aligning efforts with company goals.
Understanding of the ZON Group’s skill set allows for the definition of guidelines for development and training, and is used each year for preparing Training Plans.
Within an Academy framework, and playing a critical role in the establishment, development and communication of organizational culture, the training policy of the ZON Group assumes the shape of a non-physical, virtual training centre, supported by concrete actions, partnerships with prestigious national and international universities, and on-site, remote and mixed methodologies.
The ZON Group’s training model is based on the following main guidelines:
Global Training – aims to develop core skills and others which, although not directly related with the business, contribute to the personal development of employees;
Specific Training – seeks to enhance skills associated with the specific business nature of each ZON Group company;
Strategic Training – is associated to relevant strategic shifts, such as the adoption of new corporate policies and strategies, new technologies and new processes.
The investment the ZON Group makes in the continuous development of its employees, whether on a personal or on a professional level, guarantees their employability and value in an increasingly global and competitive market.
Listening to employees, giving them an active role in the construction of the company they work at, is common practice at ZON, in order to more effectively involve employees in a common project, which is built on a daily basis.
As such, the whole organization took part in a process to define the elements which constitute ZON’s corporate identity: its Vision, Mission Statement and Values. After a number of clarification sessions and workshops, the words written by employees crystallized the collective thought which best describes the ZON project.
Another form of gauging the sentiment of the entire organization is the yearly Employee Survey, which involves all the companies within the Group. Participation is optional and anonymous. This mechanism allows ZON to faithfully measure the main concerns of its employees and to outline strategies for the future.
4.2. CUSTOMERS
Sales Channels
The main objectives of ZON’s commercial distribution strategy are designed to improve the existing structure, as well as increase the number of subscribers.
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Therefore, it is worth highlighting the following goals:
• Continue to grow sales , maintaining a diversified portfolio of partners,
• Improve the quality of interfaces between ZON and partner networks;
• Increase the quality of the sales effort supported by continuous training and loyalty programmes.
Our primary sales network is the door-to-door sales channels. We have over 30 partnership agreements in place, 12 of which dedicated to sales within ZON’s cable footprint and the remainder to satellite geographies, representing a total sales force of over 1200 people. The increased level of product diversity and complexity, with the introduction of new services such as triple play, ultra broadband “ZON Fibra” connections and homezoning, amongst others, has led to the need for an ever more skilled sales force.
During 2009 particular efforts were taken to further improve the quality of sales primarily through implementation of a new commission process, ensuring that higher rewards were secured for better sales made. This improvement, in addition to improving the quality of the process, also led to an important reduction in cost per activated customer.
Another area of development during 2009 was ZON’s network of own stores, agents and retail outlets. During the year, ZON opened an additional 10 own stores bringing the total number of own stores in key commercial areas to 44. With these openings, ZON was able to significantly improve key service metrics such as average waiting time and average response rate with the number of customers served increasing by 44%. At own stores, ZON provides a wide range of services such as sales, complaint management, customer after-sales and payments and the people employed stand out due to their level of qualification and professional skill, reflecting our organization-wide goal to improve customer experience.
ZON delivers services to all of Portugal and as such, it is necessary that the distribution network reach out as far as possible. This is possible due to the capillarity of ZON’s commercial agent network which works with more than 70 partners that in turn control over 2 thousand sales outlets.
Strategic areas of development during 2009 for this sales channel were:
• A focus on increasing sales within ZON’s cable footprint to leverage the triple play opportunity,
• Launch of ZON’s mobile operation establishing partnerships with specialized mobile distribution networks,
• Reinforcement of the ZON brand with the launch of ZON 100% stores, whereby local agents were encouraged to set-up exclusive ZON stores albeit following a “lighter” format.
Sales performance through specialized, multi-brand stores and general retail outlets also improved significantly during 2009 due primarily to the development of specific on-site training programmes and through increased visibility at large retail chains with promotional stands and campaigns. Bundled product sales are the driving force of the Pay TV and fixed communication market today and the ability to sell these offers was further boosted at general retail stores through cross promotional activity, in particular with PC and HD TV equipment suppliers.
Customer Service
Many measures were taken with the aim of improving response to ZON customers, not only in terms of speed, but also in terms of the effectiveness of the support service:
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1. The Magic Number
16990 is today the sole ZON customer support number, and was widely publicized during 2009. The introduction of a single number step, concluded a process directed at simplifying several previous access numbers, for commercial support, technical support, and billing support, among others.
2. Consolidation of the new telephone platform
- Simultaneous POP UP of customer files during the call
With the consolidation and stability of the new telephone platform, it became possible to implement a new automatic customer file activation feature, thus improving customer experience during contact.
- Madeira and Azores support
ZON Madeira and ZON Açores customer service is now supported by the same, 100% IP, ZON TVCabo telephone platform, with various synergies in terms of costs and features.
- Selfcare
ZON’s post-sale selfcare solution comprises an interactive telephone menu (16990), the zon.pt website, and the ZON Box – entering its final development and testing stages. These components are complementary and aim to make performing several tasks easier and more comfortable, without the need for customers to speak to operators.
- Telephone IVR
The consolidation of the new integrated telephone platform enabled the roll out of the second stage of the project which comprises the integration of selfcare functionalities in the interactive telephone menu, with automatic, personalized options which allow users to check their account balances, ATM references, direct debit information and scheduling of interventions/installation, among other functionalities under development.
- zon.pt
The customer public area was totally renewed, with updated content, images and navigation usability, making search functionalities easier for both customers and prospective-customers.
- myzon.pt
More functionalities were implemented on this platform, such as access to digitalized documents (contracts, for example), new fixed telephone services’ management (like call forwarding), as well as the study for a new, even more intuitive website navigation experience.
3. “myavop” Evaluation
The high number of outsourced staff in front and back office operations made the creation of integrated control and behavior induction mechanisms imperative. This was achieved with an evaluation platform, and the online, real time, availability of information, named “myavop”. With this portal, all operators, supervisors and coordinators are able to check their evaluation and that of their
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teams. Global monthly performance determines the variable prize these employees are entitled to. Functionalities for monitoring training needs, such as the mandatory online tests for knowledge certification, were also implemented.
4. ZON Experience
The customer service area is prone to attrition among employees. Therefore, in 2009, motivation and entertainment activities were intensified, within the scope of the programme named ZON Experience. Following these practices allowed for an improvement in the satisfaction index of the operators, who replied positively to an internal survey about work methods and conditions.
5. Operational Improvements
Following new legislation on call centres, several new functionalities were implemented in the 16990 options menu and in the automatic call management system, as well as to improve the call scheduling in order to reduce the waiting period for calls to be answered.
Operational improvements were also introduced, in order to increase the ratio of problems solved on the first customer contact. These improvements will continue in 2010.
6. Front and Back-Office Customer Satisfaction Improvement
Continuous monitoring of various customer weekly satisfaction indicators have posted a positive and consistent evolution, both in the interaction with employees, and in case of the service as a whole.
4.3. COMMUNITY
Social Responsibility
Throughout 2009, ZON reinforced its social involvement, contributing towards cultural and social development. Several philanthropic, citizenship and voluntary activities were undertaken throughout the year, leveraging social responsibility as a means of reinforcing business leadership.
Below we list some of the internal initiatives undertaken in 2009:
• Scholarship programme
• Access to holiday camps and leisure time activities for the children of employees with more challenging financial situations
• “e-neighbourhood” services available to employees
In terms of external initiative, we highlight the support given to several institutions for cultural, social, hospital, educational, scientific, environmental and sports development.
• Operação Nariz Vermelho – (Red Nose Project)
• Associação Sorriso Solidário – (Smile Association)
• Amnistia Internacional – (Amnisty International)
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• CADIN – Centro de Apoio ao Desenvolvimento Infantil – (CADIN – Support Centre for Child Development)
• Movimento de Defesa da Vida – (Life Protection Movement)
• Instituto dos Surdos da Imaculada Conceição – (Institute for the Deaf – Immaculate Conception)
• APECEF – Associação Portuguesa para a Educação e Formação – (Portuguese Learning and Training Association)
• APDP – Associação Portuguesa dos Diabéticos – (Portuguese Diabetic Association)
• Centro Nacional de Cultura – (National Centre for Culture)
• Liga Portuguesa de Higiene Mental – (Portuguese League for Mental Health Care)
• Associação SOL – (SOL Association)
These and several other partnerships led to a large number of initiatives which brought smiles to many a face throughout 2009:
• ZON TVCabo in Coimbra raised food and toys to help the Comunidade Juvenil S. Francisco de Assis, in Vila Nova de Poiares;
• Donations were made to the Instituto de Surdos-Mudos da Imaculada Conceição and to the Colégio de S. Tomás;
• The Centro de Medicina de Reabilitação do Alcoitão received three wheelchairs obtained by the “Árvore Amiga” Project – a partnership between ZON, TVI and Entreajuda;
• The pediatrics wing of the Portuguese Institute of Oncology in Oporto and the Bone Marrow Transplant Unit received free Cable Television services from ZON;
• Revenues from shows included in Children’s Day celebrations held at various shopping centres were donated to the Portuguese Oncology Institute;
• Monsters vs. Aliens contest, at several Santa Casa da Misericórdia homes. The prize was the complete Dreamworks catalogue, which was awarded to the home that produced the best “work of art” depicting the “Monster” theme. All participants received free tickets to watch the movie at the ZON Lusomundo cinema in the Amoreiras Shopping Centre;
• ZON Lusomundo enabled 2,500 children in need to go to the cinema to watch “The True Story of Puss N’Boots”;
• The DVD of “The Reader” was launched in Tires Prison, in the first cinema session to be held at a Portuguese prison ;
• Several ZON volunteers contributed to the construction of the new multimedia room of Cooperativa de S. Pedro;
• ZON developed a partnership with the Portuguese Blood Donation Institute in order to organize a blood donation session in Lisbon;
• In partnership with the Movimento Defesa pela Vida, once again ZON helped organize Cinema Solidário (charitable movie sessions for children in need) in Portugal;
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• In partnership with Zone Reality and Bioteca, a national campaign offering a monthly cryopreservation was launched;
• The Social Responsibility Project “Árvore Amiga”, in partnership with TVI and Banco Alimentar Contra a Fome, raised € 61,498.50;
• ZON and Entreajuda signed a protocol which allows for the optic, auditive and dental screening for 1,500 disadvantaged children;
• Aiming to donate Panda mascots to various hospitals and institutions, eight Pandas have already been delivered to the following institutions: Egas Moniz Hospitals, Amadora-Sintra Hospital, Santa Maria Hospital, Instituto de Surdos-Mudos da Imaculada Conceição, Bissaya Barreto Maternity, Coimbra Pediatric Hospital, Guarda Hospital and the Amato Lusitano Hospital in Castelo Branco;
• Within the “Listen to Your Heart” initiative, volunteers from Liga de Amigos dos Hospitais were present at ZON stores to generate greater awareness among customers, and to commercialize their products.
Environmental Responsibility
During 2009, ZON adopted a strategy of greater energetic efficiency which aims to value sustainable resources, seeking to minimize the impact of its activities on the environment. An integrated management system of all residues was developed, which enables ZON to comply with the legal requirements applicable to the activities, products and services of all Group companies. This is embodied by Project “ECO ZON”, whose primary goals are:
• To reduce costs and obtain advantages not only through more efficient residue management, but also by freeing up storage space;
• To control the environmental impact which may directly or indirectly result from the company’s activities, focusing on the creation of prevention measures;
• To optimize the management of residues generated by the company’s activity, through the continuous development of a reduction, reutilization, and recycling policy, with the involvement of all employees, partners and the community at large;
• To reduce the space required for the storage of residues and, consequently, to decrease the costs associated with said storage;
• To protect ZON Multimedia and its employees against information misuse, through the correct destruction of all company documents and information media.
A great effort was made to communicate Project ECO ZON throughout the organization, seeking to raise an “environmental awareness” in each ZON employee, so that everyone can contribute to the preservation of the environment and in order to encourage recycling practices and environmentally efficient behaviours.
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DELIVER
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DELIVER
5.1. MACROECONOMIC BACKGROUND
The impact of the world financial crisis caused by the collapse in 2007 of the high risk real estate credit market continued to be felt throughout 2009.
According to the Bank of Portugal’s (BdP) Winter Bulletin, domestic GDP contracted by 2.7%, further influenced by the fact that Portugal is a small, very open economy, making it highly dependent on the fate of other international markets. Some structural weaknesses also contributed to the decline in GDP, such as the work force’s comparatively low qualification, competition with emerging economies with similar export models, albeit with more competitive cost structures, all go towards explaining the lack of growth in productivity of the Portuguese economy.
Against this challenging economic and financial backdrop, investment levels also reduced significantly. Private consumption, in particular of long-lived assets, also recorded a decline and was the primary cause of lower imports. In turn, banking restrictions to retail and corporate credit, contributed to the downturn reflected above.
Various economic sectors were affected, with significant declines in demand for their products and services. Construction and Industry, for instance, are among the sectors which most felt this impact.
According to BdP’s estimates, the average national inflation rate in 2009 was approximately negative 0.9%, due to a decline in demand that originated a decrease in raw materials (energy and non- energy).
The unemployment rate also recorded a relevant increase further contributing to the decline in private consumption, and negatively affecting both demand and profit margins for many companies.
ZON’s ability to successfully deliver strong growth is therefore particularly noteworthy in light of such an adverse economic environment. The nature of the products and services provided by the ZON Group tends to make them appealing when compared to more expensive sources of entertainment. In addition, the continuous growth in penetration of Triple Play offers also reflects a trend, on the part of Portuguese families, to proactively manage their domestic budgets more efficiently.
The second half of the year brought a recovery, both in GDP growth and consumer confidence levels, after lows were reached at the end of 2008 and during the first half of 2009.
GDP and Economic Confidence, 2007-2009 3,00% 2,00 2,10% 1,90% 1,50 2,00% 1,70% 1,80% 1,10 1,30 1,00 1,20 1,10 1,00% 1,00% 0,90 0,80% 0,70 0,40% 0,50
0,00% 0,00 0,10 -0,50 -1,00% -0,80 -0,50 -1,00
-2,00% -1,50 -1,90%
-2,50% -2,00 -3,00% -1,90 -2,00 -2,50 -2,90 -4,00% -3,70% -4,00% -3,00
-5,00% -3,50 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09
GDP - annual percent change Economic Climate Indicator
Source: IMF and INE
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This improvement was in part led by measures taken in terms of monetary policy, of budget policy and to support the financial system and reinforced by the fact that the European Central Bank reduced interest rates to historical lows, of 1%. A number of stimulus measures were implemented to mitigate the decline witnessed in private and corporate investment.
Euribor Interest Rates 2009, % 3,5
3,0
2,5
2,0
1,5
1,0
0,5
0,0 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 ------01 01 01 02 02 03 03 04 04 05 05 06 06 07 07 07 08 08 09 09 10 10 11 11 12 12 12 ------01 15 29 12 26 12 26 09 23 07 21 04 18 02 16 30 13 27 10 24 08 22 05 19 03 17 31 Euribor 3M Euribor 6M Euribor 12M Source: Reuters
Despite uncertainty regarding prospects for 2010, BdP estimates point to GDP growth of 0.7%, accelerating to 1.4% in 2011. Economic growth will therefore be resumed, albeit at a lower pace compared to before the crisis and reflecting the reorganization and restructuring undergone by the economy.
The recovery of global confidence levels, investment and demand, is set to drive up prices of energy and non-energy raw materials, thus bringing inflation back to positive levels.
2010 promises to remain a challenging year for ZON in terms of macroeconomic environment, with a high unemployment rate presenting the main threat to early signs of recovery.
5.2. SECTOR / REGULATION
The development in the telecommunications sector over the past few years, in terms of number of subscribers, the level of competition, and the quality of the services provided was strongly influenced by the spin-off of ZON Multimedia from its former parent company, in November 2007.
The spin-off led to the creation of a new, integrated operator, with a fresh market strategy and new offers, namely based on Triple-Play bundles. The market began to move more and more towards Triple Play solutions, designed to stimulate subscriber growth and increase customer loyalty. Another measure which had significant impact on the market was the generalized increase in broadband Internet speeds.
ZON’s strategy to leverage its large Pay TV customer base, by upselling new services and promoting Triple Play bundles has proven to be a considerable success. ZON is the European operator with the fastest growth in Triple Play penetration of its cable subscriber base, increasing from 6% at year-end 2007 to 41% at the end of 2009.
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The Pay TV market, recorded significant growth in 2009 with a 10.6% increase in the total number of subscribers. ANACOM data shows that the penetration of Pay TV services in the total number of homes went up by 12.4 percentage points from the end of 2005.
Penetration and Number of Pay TV Customers (thousands)
50, 0% 3. 000 45,2%
45, 0% 40,9% 2. 500
40, 0% 2.528 35,3% 2.286 2. 000
35, 0% 32,8% 33,6%
1.973 1. 500
30, 0% 1.794 1856
1. 000
25, 0%
5 0 0
20, 0%
15, 0% 0 2005 2006 2007 2008 2009
Source: Anacom 4Q09
This growth was driven by the new competitive dynamics of this market, as well as by the continuous progress made in terms of functionalities – High Definition, Recording, Video on Demand, Programming Guides – which have revolutionized the television viewing experience.
As undisputed Pay TV market leader, ZON has maintained its customer base stable, and other operators have grown on the back of net growth in the market.
Pay TV Subscribers by Operator (thousands) 1.614 1.595
581 311 283 259 39 60
ZON PT Cabovisão Others
2008 2009
Source: Anacom 4Q09, ZON
During 2009, the number of Fixed Broadband subscribers grew by 14.0%, and by 60% when compared to the end of 2005, according to ANACOM data. Since 2007, Portugal has been closing the gap to the rest of the European Union in terms of Fixed and Mobile Broadband penetration, increasing to 46%, which compares with an EU average of 56%.
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Number of Fixed Broadband Subscribers (thousands) Broadband (Fixed or Mobile) Penetration per Household 1.865 56% 49% 1.635 46% 1.512 42% 1.424 39% 1.165 30% 30% 24%
2006 2007 2008 2009E
2005 2006 2007 2008 2009 Portugal European Union
Source: Anacom 4Q09, Eurostat
The growth in this market has also benefited from greater competition and from the broadband solutions incorporated in Triple Play bundles. Reference speeds are today much higher than those offered only two years ago. In fact, ZON is already able to provide its cable customers with speeds of 200 Mbps, while in selected areas of its network; the offer can go up to 1 Gbps – the fastest residential Broadband offer in Europe. ZON is the second largest Broadband, operator in Portugal, with a market share of 32.2% at the end of 2009, representing an increase of 0.9 percentage points during 2009.
In the Fixed Voice market, ZON was the operator that gained the most market share throughout the year: 6.3 percentage points. ZON has been responsible for bringing a new momentum to the fixed voice market which led to net growth of 5.5% in 2009, compared to negative growth of 0.2% in the previous year. Consumers are returning to the Fixed Voice market, attracted by strong value propositions that include voice as a part of bundled offers. These compare very favourably with mobile solutions, mostly thanks to flat fee tariff plans in fixed voice offer. ZON became the second largest fixed voice operator at the end of 2009, and significantly reduced the gap from the largest operator.
Number of Fixed Voice Subscribers (thousands)
(0.2)% +5.5% +3 .8% +0.8% 3460 3257 3284 3279 3.136
2005 2006 2007 2008 2009
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
2008 Fixed Voice Market Shares 2009 Fixed Voice Market Shares 2,9% 1,1% 3,9% 0,8% 7,1% 7,0% 10,5% 16,8%
18,0% 16,0%
60,4% 55,5%
ZON PT Sonaecom Cabovisão Vodafone Others ZON PT Sonaecom Cabovisão Vodafone Others
Source: Anacom
Regulatory Background
The main developments in terms of the telecommunications sector regulation in 2009 were the following:
1 – Changes to the reference offer for access to ducts – ORAC
In its reply to an ICP ANACOM public consultation, ZON pointed out that the ORAC should be interpreted as a transitional model towards the functional separation of the retail and wholesale businesses of PT Comunicações.
ZON also pointed out that the offer should be applied to all operators, namely PT Comunicações’ retail unit, which currently benefits from exceptional access conditions, when compared to other operators.
On an operational front, this offer’s revision should ensure the reduction of access times and the level of burocracy involved, namely through the simplification of several processes.
As for access to street posts, this model should be the object of a previous hearing by interested parties and only then should its inclusion in the ORAC be considered.
2 – Re-analysis of the retail and wholesale markets for leased lines
This consultation finally brought to the table a discussion of various aspects of the incumbent’s leased lines wholesale offer, namely the lease of capacity in the submarine cables that connect continental Portugal to the Archipelagos. ZON emphasized the large asymmetry that exists between wholesale prices being practiced on those connections and the incumbent’s retail prices in Madeira and the Azores, leading to a margin squeezing situation that is entirely unacceptable.
3 – Portability
Despite the regulatory measures taken in 2008 to address the huge barriers to number portability imposed by the incumbent operator this process continued to suffer some problems during 2009. ZON made a number of suggestions to ANACOM regarding ways to improve the process within the framework of a consultation on Portability Regulation.
Following the complaint filed by ZON, ANACOM acknowledged many of the arguments presented, and initiated proceedings against PT Comunicações. These proceedings culminated in ANACOM imposing a fine on PT Comunicações in January 2010, of half a million euros, the largest fine ever to be imposed by this regulatory body.
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
4 – Regulation Fees
ZON expressed its total disagreement about the new model for Regulation Fees despite not having been consulted on the matter. However, ANACOM chose to go ahead with its enforcement in 2009, following the decisions announced at the end of 2008.
Various operators opposed the way the fees are being calculated, namely the way relevant revenues are determined and they are likely to further contest this measure during the first quarter of 2010.
ZON views this issue very seriously: a rise in regulatory fees lacks legal basis, is disproportionate to the services provided and contains a significant element of double taxation, as the fee taxes revenues from ZON’s content business, which is already regulated and taxed by another entity – ERC.
5 – Next Generation Networks (NGN)
Following the public consultation carried out by ANACOM in 2008, the Portuguese Government promoted the signing of a protocol with four of the biggest electronic communications companies. ZON was one of the signatories of this protocol, whereby a set of commitments by the Portuguese Government were made with a view to create a set of legal and regulatory incentives for the support of NGN.
Based on this commitment, Law 123/09 of 21 May was published, together with other legislation, establishing the regime applicable to the construction of infrastructures to accommodate electronic communications networks and the construction of infrastructures in allotments, groups of buildings and stand-alone buildings.
6 – Competition Authority (AdC)
Within the context of the AdC’s supervision of the telecommunications sector, ZON was asked to intervene in matters related to some concentration processes, namely the acquisition of TVI by Ongoing and the acquisition of RETI by PTC.
It was due to complaints lodged by ZON that the AdC had already launched thorough investigations and proceedings against PT Comunicações for barriers imposed to portability processes, predatory pricing and discriminatory practices.
7 –European Commission
At the EU level, a number of new regulations were published and adopted and that must be transposed to the different legal frameworks of the Member-States until May 2011.
We highlight the possible imposition of a functional separation of the incumbent operator’s businesses as a means of overcoming competition issues.
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
5.3 OPERATIONAL PERFORMANCE IN 2009
4Q09 / 2009 / Business Indicators ('000) 4Q08 4Q09 20082009 4Q08 2008 Pay TV, Broadband and Voice
Homes Passed 3,040.03,116.8 2.5% 3,040.03,116.8 2.5% Triple Play Customers 275.4484.4 75.9% 275.4484.4 75.9% % Triple Play Cable Customers 23.4%41.0% 17.6pp 23.4%41.0% 17.6pp Basic Subscribers (1) 1,613.51,594.8 (1.2%) 1,613.51,594.8 (1.2%) of which Digital "Funtastic" 495.8648.1 30.7% 495.8648.1 30.7% Premium Pay TV 837.2901.5 7.7% 837.2901.5 7.7% Fixed Broadband 519.0610.7 17.7% 519.0610.7 17.7% Fixed Voice 346.6584.1 68.5% 346.6584.1 68.5% Mobile (2) 7.268.9 n.a. 7.268.9 n.a. RGUs (3) 2,982.23,506.5 17.6% 2,982.23,506.5 17.6% RGUs per Subscriber (units) 1.852.17 17.3% 1.852.17 17.3% Blended ARPU ( Euros ) 32.435.0 8.0% 32.033.8 5.7% Net Additions
Triple Play Customers 64.249.3 (23.2%) 206.7209.8 1.5% Basic Subscribers (14.0)0.10.10.1 n.a. (22.0)(18.7) (15.0%) Digital "Funtastic" 50.035.0 (30.0%) 113.8152.2 33.8% Premium Pay TV (4.8)(13.3) 176.9% (10.6)64.3 n.a. Fixed Broadband 28.016.3 (42.0%) 78.891.7 16.4% Fixed Voice 73.254.9 (25.0%) 243.6237.5 (2.5%) Mobile 7.215.0 107.1% 7.261.6 n.a. RGUs 144.4121.3 (16.0%) 421.4524.3 24.4% Cinema Exhibition Revenue per Ticket (Euros) 4.24.54.54.5 8.2% 4.14.44.44.4 8.2% Tickets Sold 2,234.82,300.1 2.9% 8,289.08,208.4 (1.0%) Screens (units) 213213213213 0.0% 213213213213 0.0% (1) These figures are related to the total number of Pay TV basic customers, including the cable and satellite platforms. ZON Multimedia 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 Madeira islands) and with a variable number of channels. (2) Mobile subscribers include Mobile Voice and Mobile Broadband. (3) Revenue Generating Units correspond to the sum of Pay TV basic customers, plus "Funtastic" Digital, Fixed Broadband, Fixed Voice and Mobile customers.
Leading the market with ZON Triple Play bundles
By the end of FY09, 484.4 thousand ZON customers had Triple Play bundles installed, compared with just 275.4 thousand at the end of FY08, representing 41.0% of cable customers. In addition, 18.9% of ZON cable customers subscribe to Double Play services.
ZON has been widening the gap in terms of Triple Play customers when compared to the second operator in the market.
ZON has clearly positioned itself as a leading entertainment and communications provider for Portuguese households, further strengthening that position with the launch of its signature brand “ZON Fibra” for ultra broadband Triple Play bundles at the beginning of 2H09.
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
RGU growth of 524.3 thousand in FY09, up 24.4%
Total RGUs subscribed increased by 17.6% in 2009 to 3,506.5 thousand and on average, the number of services subscribed per customer increased by 17.3% to 2.17, placing ZON at the forefront of its sector peer group in Europe.
Stabilization of Pay TV customer base with positive net adds in last two quarters of 2009
ZON continues to defend its leading position in the Portuguese Pay TV market with a 64.4% market share according to the latest data reported by the regulator, ANACOM. ZON’s Pay TV subscriber base has remained relatively stable over the past quarters, at around 1.6 million, witnessing a return to positive net adds in the second half of 2009. FY09 Negative net adds of 18.7 thousand reflect a combination of growth in higher revenue generating, multiple service cable customers and a decline in the number of Single Play satellite customers.
By the end of FY09, ZON’s total Pay TV subscriber base was 1.595 million subscribers, of which 1.180 million subscribed to cable services and 414 thousand to satellite services.
High definition content is a key differentiating factor of ZON’s pay TV offer. In December ZON launched a specific Digital HD offer including 70 TV channels, 6 of which in HD. In total, ZON has the broadest range of HD content in the market, providing 11 HD channels covering areas such as sports (SportTV HD and Eurosport HD), Films and Series (TV Cine HD, MOV HD, AXN HD, FOX HD and FOX Life HD), Documentaries (National Geographic HD and myzen.TV HD), Children’s (Disney Cinemagic HD) and Music (Brava HDTV).
Customers are subscribing more and more to ZON’s higher-end Pay TV service “Funtastic” which offers over 114 channels. By the end of 2009, 648.1 thousand Pay TV customers were subscribing to the “Funtastic” offer, 30.7% more than in FY08, representing 40.6% of the total subscriber base.
Premium subscriptions also recorded a significant increase to 901.5 thousand at the end of FY09, due primarily to the inclusion of the TVCine movie channels in one of ZON’s leading Triple Play bundles – “ZON Filmes” and also due to the launch of a number of new channels such as “Brava TV” (classical arts and music channel), or Caça e Pesca (hunting and fishing channel).
New video and programming functionalities are gaining traction amongst customers, as can be seen from the significant growth in ZON HD PVR and non PVR set-top boxes installed. By the end of FY09, 545.5 thousand ZON Boxes were installed, of which 270.3 thousand had PVR functionalities. Usage of the ZON videoclub is increasing gradually as customers become more familiar with the service, although still representing a relatively small proportion of Pay TV revenues. Customers that use the videoclub are generating additional average monthly revenue of over 5 euros per month.
Trends in TV viewing are helping to drive the further take-up of Pay TV services in Portugal. Audience of Pay TV channels has been recording a continuous quarterly increase, when compared with free-to-air channels, having achieved an 18.3% share of audience in 3Q09 and representing growth of 30% in comparison with 14.1% in 3Q08.
611 thousand Broadband customers with 51.7% penetration
ZON ended the year with 611 thousand broadband customers, up by 17.7% compared with 2008. More than half of ZON’s cable subscribers, 51.7%, were using ZON broadband services by the end of the year. Of the Broadband gross adds during 4Q09, around 17% subscribed to Next Generation services. Of the total customer base, around 9% subscribed to ZON’s Next Generation offers by the end of 2009. Due to ZON’s superior network capabilities and the advanced state of rollout of EURODOCSIS 3.0, ZON is able to offer Next Generation speeds to over 75% of its cable network. Most recent data on the broadband market from the regulator shows that ZON increased its market share of subscribers to 32.2% at the end of 4Q09, compared with 31.2% a year before.
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Over half a million Fixed Voice customers and becoming the #2 player in the market
By the end of 2009, ZON had 584.1 thousand Fixed Voice customers, representing an increase of 237.5 thousand customers in 2009. With penetration reaching 49.2% of the cable base, voice services are rapidly closing the gap to the level of Broadband penetration of 51.7%. ZON’s success in Fixed Voice has been achieved on the back of a very clear value proposition for the consumer, with simple, flat-rate phone tariffs on top of bundles with TV and Broadband packages, designed to meet the needs of various user groups. According to the most recent ANACOM report, ZON is the operator who increased its market share the most (+7.7pp) in fixed voice services, growing from 7.7% at the end of 3Q08 to 15.4% at the end of 3Q09, with all other more relevant operators losing ground.
Strong increase in Mobile subscribers
The number of Mobile subscribers has increased significantly during the course of the past few months, reaching 68.9 thousand at the end of FY09. The uptake of this service increased significantly with the launch of a new mobile broadband offer whereby fixed broadband customers can purchase a mobile broadband card that includes 100 MB of free mobile internet traffic a month.
In addition, ZON’s mobile portfolio was boosted with the launch of post-paid mobile tariff plans in August. In October ZON completed its mobile portfolio with the launch of Fixed Voice (homezoning) and Internet services targeting satellite customers, by definition in areas where there is no cable coverage, using the mobile network under its MVNO agreement with Vodafone. With these offers, ZON is now able to provide Triple Play solutions to subscribers in these areas with competitive prices starting at 34.88 euros / month.
Continued strength in ARPU driven by leading Triple Play strategy
The continued growth in Triple Play penetration of ZON’s customer base is helping to consolidate consistently higher average revenues per customer. Total blended ARPU increased by 5.7% to 33.8 euros in 2009 showing a strong quarter on quarter momentum throughout the year. In 4Q09 blended ARPU was 35.0 euros, up 8.0% from the level recorded in 4Q08.
The strength of multiple-service ARPU of cable customers was even higher over the same period, posting an increase of 9.7% in FY09 and by 12.3% in 4Q09 compared with 4Q08. This contrasts with a decline of single service satellite based ARPU which fell by 8.4% in FY09 due to competitive pressure. However, this decline was more than offset by the increasing weight of cable revenues compared with satellite revenues.
The premium between cable ARPU and satellite customers increased in 2009 to 40.2% compared with just 17.1% in 2008 and on average, a Triple Play customer is generating an ARPU over 50 euros per month.
The investment being made to roll-out Triple Play terminal equipment is reinforcing ZON’s customer perception as a key innovator in the Pay TV segment, led by the active promotion of key features such as HD channel viewing, videoclub, pause-live TV and programme recording.
ZON has the most widespread Next Generation Network in Portugal
ZON’s hybrid fibre coaxial network covers over 3 million households in Portugal and is already capable of delivering broadband speeds of up to 200Mbps to 2.4 million households with trials underway to deliver speeds of 400Mbps in 2010. In addition, in 2H09, ZON became the first operator in Europe and the third in the world to commercialize a residential 1Gbps offer. The delivery of these speeds is possible due to the architecture of ZON’s hybrid fibre coaxial network which results from a combination of various upgrade technologies, namely EURODOCSIS 3.0, cell-splitting and selective roll-out of FTTH.
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
In addition to significant upgrades to its access network, ZON is currently analysing opportunities to optimize management of its transmission network. As such, it has already signed an agreement with REFER (the Portuguese railways network) to hire backbone capacity under a contract valid for 12 years and additional investments will be made over the next couple of years to reduce network costs and increase operational flexibility.
Audiovisuals and Cinemas
Although a relatively mature business and despite the adverse economic environment recorded during 2009, cinema remains one of the most accessible sources of entertainment and preferred means of socialization with family and friends.
Revenues from the Cinema business increased by 10.4% in 2009 to 54.4 million euros. The top ten films that most contributed to box office sales in 2009 were “Ice Age 3”, “The Twilight Saga: New Moon”, “2012”, “Angels and Demons”, “UP”, “Harry Potter and the Half-Blood prince”, “Avatar”, “The Curious case of Benjamin Button”, “Slumdog Millionaire” and “Monsters vs Aliens”. Total ticket sales recorded a small decline in 2009 of 1% to 8.2 million tickets however this was compensated by an 8.2% increase in average revenue per ticket to 4.4 euros. The trend in ticket sales started to recover throughout the year, with a 2.9% increase in tickets sold in 4Q09 in comparison with 4Q08, for the most part supported by the investment in technological upgrades of cinema theatres, and increased viewing of 3D movies with premium pricing.
ZON concluded the first stage of its digitalization project with the digitalization of 138 screens, 38 of which with digital 3D technology. As a result, 65% of ZON’s projection capacity has already been fully digitalized and is ready for mass roll-out of 3D projection systems, bringing significant advantages in terms of systems management and operational processes, a consistently superior viewing experience, greater security and piracy control and an improvement in terms of content offer enabling an increased number of film premiers and alternative film viewing.
Revenues from the Audiovisuals business declined by 2.7% y.o.y. in FY09, which is explained by a combination of higher revenues from the sale of rights to TV channels (+23.1% y.o.y), which however was more than offset by a 27.5% decline in DVD distribution revenues as a result of the still challenging home-video trading environment, as explained in previous Earnings Announcements.
In terms of cinema distribution, ZON Lusomundo Audiovisuais launched 38 movies from major movie studios Walt Disney, Paramount/Dreamworks and Universal and a further 96 movies from independent producers. Of the total of 134 films launched, 7 were in 3D. Judging by the excellent consumer reception to this new format, 3D is on track to play a key role in the future. In 2009, ZON Lusomundo Audiovisuais distributed 5 out of the top 10 films of the year: “Up”, “The Twilight Saga: New Moon”, “Slumdog Millionaire”, “Monsters Vs. Aliens” and “Inglorious Basterds”.
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
5.4 FINANCIAL PERFORMANCE IN 2009
Profit and Loss Statement 4Q08 / 2009 / 4Q084Q09 20082009 (Millions of Euros) 4Q09 2008 Operating Revenues 206.2217.5 5.5% 776.6823.0 6.0% Pay TV, Broadband and Voice 180.1193.2 7.3% 688.2739.4 7.4% Audiovisuals 19.118.5 (3.4%) 63.762.0 (2.7%) Cinema 13.315.1 13.9% 49.254.4 10.4% Others and Eliminations (6.3)(9.2) 47.8% (24.6)(32.7) 33.1% Operating Costs Excluding D&A 148.0151.5 2.4% 532.1556.0 4.5% W&S 16.716.0 (4.1%) 52.758.2 10.4% Direct Costs 61.664.9 5.3% 239.2232.8 (2.7%) Commercial Costs (1) 26.322.2 (15.5%) 69.180.5 16.5% Other Operating Costs 43.348.3 11.5% 171.1184.5 7.8% EBITDA (2) 58.266.0 13.3% 244.5267.0 9.2% EBITDA Margin 28.2%30.3% 2.1pp 31.5%32.4% 1.0pp Depreciation and Amortization 48.453.2 10.0% 140.4188.6 34.3% Income From Operations (3) 9.912.8 29.6% 104.078.4 (24.6%) Other Expenses / (Income) 3.30.10.10.1 (96.3%) 4.11.71.71.7 (58.1%) Operating Profit (EBIT) (4) 6.612.7 92.8% 100.076.7 (23.2%) Financial Expenses (Income) 8.57.87.87.8 (7.7%) 25.914.9 (42.4%) Income Before Income Taxes (1.9)4.94.94.9 n.a. 74.161.8 (16.5%) Income Taxes (0.5)(1.7) 245.5% (22.5)(16.1) (28.4%) Income From Continued Operations (2.4)3.23.23.2 n.a. 51.645.7 (11.4%) o.w. Attributable to Minority Shareholders (0.6)(0.1) (0.1) (74.1%) (3.6)(1.7) (54.1%) Net Income (2.9)3.13.13.1 n.a. 47.944.0 (8.1%)
(1) Commercial costs include commissions, marketing and publicity expenses and costs of equipment sold; (2) EBITDA = Income From Operations + Depreciation and Amortization; (3) Income From Operations = Income Before Financials and Income Taxes + work force reduction programme costs + impairment of goodwill + Losses/Gains on disposal of fixed assets + Other costs/income. (4) EBIT = Income Before Financials and Income Taxes
In order to make comparisons with previous periods, the 2008 figures presented below were adjusted to better explain the ongoing performance. Therefore, adjustments have been made to 2008 operating revenue and cost lines in the table “Profit and Loss Statement – Pro-Forma”, to reflect the impact of the renegotiation, in 1Q09, of the SIC content contract, whereby ZON is no longer responsible for the wholesale of the SIC Pay TV channels to other operators. The cumulative pro-forma adjustments made in 2008 resulted in a reduction in revenues of 10.6 million euros, in costs of 8.0 million euros and in EBITDA of 2.6 million euros. An additional future impact of the renegotiation of the contract is to be expected as from January 2010 whereby ZON will no longer receive a share of the advertising revenues from SIC Pay TV channels.
As such, all comparisons and explanations were based on the 2008 pro-forma figures you will find on the table “Profit and Loss Statement – Pro-Forma”, below.
Above, you may find the table “Profit and Loss Statement”, which presents 2008 numbers without any sort of adjustment.
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Pro-Forma Profit and Loss Statement 4Q08 / 2009 / 4Q084Q09 20082009 (Millions of Euros) 4Q09 2008 Operating Revenues 202.6217.5 7.3% 766.0823.0 7.5% Pay TV, Broadband and Voice 176.5193.2 9.4% 677.6739.4 9.1% Audiovisuals 19.118.5 (3.4%) 63.762.0 (2.7%) Cinema 13.315.1 13.9% 49.254.4 10.4% Others and Eliminations (6.3)(9.2) 47.8% (24.6)(32.7) 33.1% Operating Costs Excluding D&A 145.1151.5 4.4% 524.1556.0 6.1% W&S 16.716.0 (4.1%) 52.758.2 10.4% Direct Costs 58.864.9 10.5% 231.1232.8 0.7% Commercial Costs (1) 26.322.2 (15.5%) 69.180.5 16.5% Other Operating Costs 43.348.3 11.5% 171.1184.5 7.8% EBITDA (2) 57.566.0 14.7% 241.9267.0 10.4% EBITDA Margin 28.4%30.3% 2.0pp 31.6%32.4% 0.9pp Depreciation and Amortization 48.453.2 10.0% 140.4188.6 34.3% Income From Operations (3) 9.212.8 39.7% 101.578.4 (22.7%) Other Expenses / (Income) 2.60.10.10.1 (95.3%) 1.51.71.71.7 n.a. Operating Profit (EBIT) (4) 6.612.7 92.8% 100.076.7 (23.2%) Financial Expenses (Income) 8.57.87.87.8 (7.7%) 25.914.9 (42.4%) Income Before Income Taxes (1.9)4.94.94.9 (360.0%) 74.161.8 (16.5%) Income Taxes (0.5)(1.7) 245.5% (22.5)(16.1) (28.4%) Income From Continued Operations (2.4)3.23.23.2 (236.5%) 51.645.7 (11.4%) o.w. Attributable to Minority Shareholders (0.6)(0.1) (0.1) (74.1%) (3.6)(1.7) (54.1%) Net Income (2.9)3.13.13.1 n.a. 47.944.0 (8.1%)
Note: Adjustments have been made to 2008 operating revenue and cost lines to reflect the impact of the renegotiation, in 1Q09, of the SIC content contract, whereby ZON is no longer responsible for the wholesale of the SIC Pay TV channels to other operators. The cumulative pro-forma adjustments made in 2008 resulted in a reduction in revenues of 10.6 million euros, in costs of 8.0 million euros and in EBITDA of 2.6 million euros. (1) Commercial costs include commissions, marketing and publicity expenses and costs of equipment sold; (2) EBITDA = Income From Operations + Depreciation and Amortization; (3) Income From Operations = Income Before Financials and Income Taxes + work force reduction programme costs + impairment of goodwill + Losses/Gains on disposal of fixed assets + Other costs/income. (4) EBIT = Income Before Financials and Income Taxes
Operating Revenues
Operating Revenues grew 7.5% in FY09 reflecting growth in the core Pay TV, Broadband and Voice business of +9.1% y.o.y. to 739.4 million euros, resulting from underlying growth in Triple Play penetration of +17.7pp, RGUs of 17.6% and Blended ARPU of 5.7%, well above the performance of its direct competitors in Portugal.
Cinema Revenues increased 10.4% y.o.y. to 54.4 million euros, however Audiovisuals posted a y.o.y decline in FY09 of 2.7%. Good sales performance in the sale of rights to TV channels with y.o.y. growth of 23.1% was more than offset by the continuing decline in DVD sales.
Excluding the Audiovisuals business, total consolidated revenues would have grown by 8.4% in FY09.
EBITDA
EBITDA posted a 10.4% increase in FY09 to 267.0 million euros, generating a 32.4% margin as a percentage of revenues, compared with 31.6% in FY08. Quarterly margin performance was again very positive with an improvement from 28.4% in 4Q08 to 30.3% in 4Q09, a y.o.y. increase of 2.0 percentage points.
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Consolidated Operating Costs
Wages and Salaries grew 10.4% in FY09 to 58.2 million euros, due to the higher average number of employees, which also includes the impact of employees integrated upon acquisition of TVTel and Parfitel operations, as well as the internalization of functions after the spin-off process, as disclosed in previous earnings announcements (namely personnel and administrative functions).
Direct Costs remained relatively flat at 232.8 million euros, an increase of just 0.7% in comparison with 2008, despite the strong growth recorded in operating activity. This performance is explained primarily by a decline in programming costs, positively impacted by the renegotiation of the SIC content contracts in 1Q09. An increase in fixed and mobile traffic and capacity (mainly access to ducts) related costs, due to increased operating activity, partially compensated the reduction in programming costs. An increase in advertising revenue share also contributed to the y.o.y. increase of Direct Costs, on the back of an increase in advertising revenues in 4Q09 when compared to 4Q08.
Commercial Costs grew by 16.5% in FY09 to 80.5 million euros in FY09, which, as in previous periods reflects the strong operational growth driving cost items, namely sales commissions. In addition, this line is affected by costs of goods sold which increased mainly due to the higher sales of mobile handsets to the growing base of mobile service subscribers. In 4Q09, Commercial Costs decreased in part due to a y.o.y. reduction in marketing related costs.
Other Operating Costs grew by 7.8% to 184.5 million euros in FY09. The main drivers of the increase were continued higher customer care and maintenance and repair related costs, due to the increasingly greater number and complexity of services subscribed by customers.
Net Income
Consolidated Net Income was 44.0 million euros in FY09, representing a y.o.y. decline of 8.1% caused primarily by the higher level of depreciation driven by customer related CAPEX which increased significantly with the acceleration of roll-out of Triple Play terminal equipment as from 3Q08.
Depreciation and Amortization in FY09 increased 34.3% y.o.y. to 188.6 million euros as a result of a combination of higher operational investment in customer terminal equipment, depreciation of long- term content contracts and depreciation of the fair value of assets consolidated with the acquisition in November 2008 of TVTel and Parfitel operations.
Net Financial Expenses in FY09 were 14.9 million euros, compared with 25.9 million euros in FY08. Net interest charges increased 24.4% to 26.0 million euros in FY09, driven by the strong increase in average gross debt over the year. This increase was partially offset by the lower level of losses on Financial Assets in FY09, which declined approximately 4 million euros compared to FY08, due to the cumulative negative Net Income at TVTel and Parfitel, in 2008, prior to their consolidation in ZON accounts. Net Financial Expenses also included the positive impact of a pre-tax capital gain in 1Q09 of 16.9 million euros resulting from ZON’s sale of its 40% stake in Lisboa TV, owner of SIC Notícias, the leading Portuguese news channel, as announced at the end of February.
Income Taxes were 16.1 million euros in FY09, 28.4% less than in FY08, due to a lower level of income before taxes.
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CAPEX and Cash Flow
CAPEX
4Q09 / 2009 / CAPEX (Millions of Euros) 4Q084Q09 20082009 4Q08 2008 Pay TV, Broadband and Voice Infrastructure 26.222.0 (16.0%) 76.088.5 16.4% Terminal Equipment 18.034.0 88.5% 53.1102.6 93.2% Other 4.87.47.47.4 55.1% 16.414.7 (10.5%) "Baseline" CAPEX 49.063.4 29.4% 145.5205.8 41.4% Long Term Contracts 0.06.26.26.2 n.a. 0.46.96.96.9 n.a. Other Non-Recurrent Items 4.20.00.00.0 (100.0%) 14.91.01.01.0 (93.3%)
Total CAPEX 53.269.6 30.8% 160.8213.6 32.8%
Total CAPEX in FY09 was 213.6 million euros, representing an increase of 32.8% in relation to FY08. Baseline CAPEX in FY09 increased 41.4% to 205.8 million euros, explained primarily by a significant investment of 102.6 million euros, compared with 53.1 million euros in FY08, in rental based terminal equipment, namely the new ZON boxes which are capitalized and depreciated over their average lifetime. This CAPEX is totally variable and dependent on the pace of RGU growth in the period. Although the total amount is relatively high due to the currently strong growth rates being recorded, the average cost of the ZON boxes has come down over the past year by approximately 40%. In addition, the proportion of customers that install lower cost non-PVR ZON boxes is increasing, thereby lowering the absolute level of investment. The 16.4% increase in Pay TV, Broadband and Voice Infrastructure, to 88.5 million euros is mostly explained by the upgrade of the network through implementation of EURODOCSIS 3.0 and cell splitting. In addition, Total CAPEX was impacted by the upfront capitalization of a twelve year contract with Refer, a telecoms infrastructure supplier of transmission capacity, amounting to 6.5 million euros.
4Q09 / 2009 / Cash Flow (Millions of Euros) 4Q084Q09 20082009 4Q08 2008 EBITDA minus CAPEX 5.0(3.6) (171.8%) 83.653.4 (36.2%) Adjustment made to EBITDA (0.7)0.00.00.0 (100.0%) (2.6)0.00.00.0 (100.0%) Non-Cash Items Included in EBITDA minus CAPEX (1) 0.814.8 1744.5% 10.225.0 146.0% Change in Working Capital 5.822.2 280.9% (59.0)(15.5) (73.7%) Operating Cash-Flow 11.733.5 186.2% 34.862.9 80.9% Net Interest Paid (16.6)(9.8) (41.0%) (20.6)(26.8) 29.8% Income Taxes Paid (2.7)(0.9) (68.2%) (6.1)(4.2) (30.5%) Long Term Contracts (29.4)(16.9) (42.4%) (119.9)(55.3) (53.9%) Acquisition of Financial Investments (115.7)0.00.00.0 (100.0%) (148.2)0.00.00.0 (100.0%) Acquisition of Own Shares (6.3)0.00.00.0 (100.0%) (89.6)0.00.00.0 (100.0%) Dividends 0.00.00.00.0 n.a. (153.2)(45.5) (70.3%) Disposals 0.00.00.00.0 n.a. 0.06.76.76.7 n.a. Other Cash Movements (3.5)0.10.10.1 (102.2%) 2.7(1.1) (140.6%) Free Cash-Flow (162.5)6.06.06.0 n.a. (500.1)(63.3) (87.3%) (1) This caption includes non-cash provisions included in EBITDA and non-cash CAPEX related to the upfront capitalization of long term contracts. Note: Adjustments have been made to 2008 operating revenue and cost lines to reflect the impact of the renegotiation, in 1Q09, of the SIC content contract, whereby ZON is no longer responsible for the wholesale of the SIC Pay TV channels to other operators. The cumulative pro-forma adjustments made in 2008 resulted in a reduction in revenues of 10.6 million euros, in costs of 8.0 million euros and in EBITDA of 2.6 million euros.
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Operating Cash Flow
Operating Cash Flow increased 80.9% to 63.3 million euros in FY09 as a result of the 10.4% EBITDA increase to 267.0 million euros, a reduction of investment in working capital and notwithstanding the increase in CAPEX of 32.8% to 213.6 million euros. Investment in working capital of 15.5 million euros represented a 73.7% improvement compared with FY08. Investment in working capital in 4Q09 was positively affected by the partial reversal of non-structural items in 2Q09, as explained in ZON’s 1H09 Earnings Announcement.
Free Cash Flow
Free Cash Flow was negative by 63.3 million euros, compared with negative 500.1 million euros in FY08. The items that had the greatest impact on Free Cash Flow generation in FY09, in addition to the Operating Cash Flow items discussed above, were dividend payments of 45.5 million euros in 2Q09, cash payments related to long terms contracts of 55.3 million euros and net interest payment of 26.8 million euros. In 4Q09, Free Cash Flow was positive by 6.0 million euros, compared with negative 162.5 million euros in 4Q08 - which was due to the acquisition of TVTel and Parfitel operations.
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Consolidated Balance Sheet
Balance Sheet (Millions of Euros) 20082009
Current Assets 295.6436.4 Cash and Equivalents 63.4177.0 Accounts Receivable, Net 162.8185.0 Inventories, Net 31.339.9 Taxes Receivable 25.221.6 Prepaid Expenses and Other Current Assets 12.913.0 Non-current Assets 1,027.51,042.8 Investments in Group Companies 6.01.31.31.3 Intangible Assets, Net 372.8353.8 Fixed Assets, Net 468.0554.6 Deferred Taxes 57.747.9 Other Non-current Assets 123.085.3
Total Assets 1,323.11,479.2
Current Liabilities 597.4544.5 Short Term Debt 317.1246.5 Accounts Payable 181.1175.9 Accrued Expenses 67.774.7 Deferred Income 5.03.73.73.7 Taxes Payable 14.329.8 Current Provisions and Other Liabilities 12.413.9 Non-current Liabilities 533.9745.0 Medium and Long Term Debt 510.1722.7 Non-current Provisions and Other Liabilities 23.822.3 22.3
Total Liabilities 1,131.31,289.5
Equity Before Minority Interests 182.7180.4 Share Capital 3.13.13.13.1 Own Shares (89.6)(87.2) Reserves, Retained Earnings and Other 221.3220.5 Net Income 47.944.0 Minority Interests 9.09.29.29.2
Total Shareholders' Equity 191.7189.7
Total Liabilities and Shareholders' Equity 1,323.11,479.2 1,479.2
Capital Structure
At 31 December 2009, Net Financial Debt was at 615.8 million euros, representing an increase of 11.5% compared with the end of 2008, having declined slightly when compared with 3Q09. The increase in Consolidated Net Financial Debt during the course of FY09 is a result of the negative cumulative FCF for the year of 63.3 million euros, explained in the FCF section above.
ZON’s gross bank debt is represented by commercial paper lines, by the loan from the European Investment Bank described below, and by equity swap agreements used to fund the share buyback programme, with a balance of 84 million euros at the end of FY09. The commercial paper lines are all negotiated at floating interest rates. To protect against future interest rate fluctuations, ZON has negotiated interest rate hedging operations of 480 million euros (approximately 78% of total Net
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Financial Debt) with maturities of between 2 and 3 years. The hedging operations are booked at fair value on the Balance Sheet.
Also during 2009, ZON received formal approval from the European Investment Bank of a 100 million euros long-term facility, with a 6 year maturity, to fund the development of its Next Generation Network, namely the continued development of its fibre based telecommunications infrastructure in order to offer advanced high speed broadband services. In addition, ZON recently secured two private placement bond issues, with 3 year maturities, of 70 million euros in total, to take advantage of favourable financing conditions that were offered. With these funds in place, ZON today has a very solid debt position, under very good financial terms. The funds from the European Investment Bank loan and the bond issues were drawn down in 4Q09, thereby increasing significantly the average maturity of ZON’s financial debt and eliminating any foreseeable re-financing needs until mid 2011.
ZON’s total Net Financial Debt has an average maturity of 2.65 years (excluding equity swaps) with an all-in average cost of around 3.5%.
Net Financial Gearing increased slightly to 76.5% compared with 74.2% at the end of 2008, and Net Financial Debt / EBITDA (last 4 quarters) stands at 2.3x in line with the end of 2008, well below the average of ZON’s peer group. Total Net Debt also includes commitments with Long Term contracts also recorded as liabilities on the Balance Sheet of which the most relevant are long-term telecom, transponder and content contracts.
On 5 February 2010, the sale to Kento Holding Limited (a company wholly owned by Mrs. Isabel dos Santos) of an amount of 14,006,437 own shares representing 4.53% of ZON’s share capital was executed, following the resolution of the Company’s General Shareholders Meeting of 29 January 2010, which authorized such sale.
According to information disclosed to the market, these own shares were acquired by ZON Multimédia both directly and via equity swap agreements established with financial institutions within the Share Buyback Programme.
Following the disposal of own shares due to the execution of the sale to Kento Holding Limited, all equity swaps established between ZON and respective financial institutions have been terminated.
As a result of this transaction, ZON’s Net Debt was reduced by 74 million euros in 1Q10.
2009 / Net Financial Debt (Millions of Euros) 2008 2009 2008 Short Term 287.0218.2 (24.0%) Bank and Other Loans 282.6212.8 (24.7%) Financial Leases 4.55.45.45.4 21.4% Medium and Long Term 389.4609.2 56.4% Bank Loans 385.9596.5 54.6% Financial Leases 3.512.7 258.4% Total Debt 676.4827.5 22.3% Cash, Short Term Investments and Intercompany Loans 123.9211.6 70.8% Net Financial Debt 552.5615.8 11.5%
Net Financial Gearing (1)(1)(1) 74.2%76.5% 2.2pp Net Financial Debt / EBITDA 2.3x2.3x n.a. (1) Net Financial Gearing = Net Financial Debt / (Net Financial Debt + Total Shareholders' Equity).
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Changes to Shareholder Structure
On 20 December 2009, ZON announced that it had signed a sale and purchase agreement with Kento Holding Limited (100% controlled by Ms. Isabel dos Santos who holds relevant business holdings in Telecommunications, Media, Finance, Energy and Industry in both Angola and Portugal). The agreement related to the sale of 14.006.437 own shares, representing 4.53% of ZON Multimedia’s share capital, at a price of 5.3 euros per share. This price represented a 26.4% premium over the closing price of the previous trading session and an 18.9% premium over the average closing price of the previous 3 months. ZON’s own shares were purchased within the share buyback programme and the transaction was initially approved by the Board of Directors. Conclusion of the transaction was subject to approval of the General Meeting of ZON Multimedia’s Shareholders, which voted unanimously in favour of the transaction at a Shareholders’ meeting held on 29 January 2010.
On the same date, both Caixa Geral de Depósitos and Cinveste agreed to sell 2.5% (7,727,420 shares) and 2.97% (9,175,826 shares) to Kento Holding Limited in a transaction conditional upon approval of ZON’s sale of own shares by its shareholders, obtained at the aforementioned General Meeting held on 29 January, 2010.
As a result of these transactions, which were executed on 5 February 2010, Kento Holding Limited now owns a 10% stake in ZON Multimedia’s share capital.
Subsequent Events
In February 2010, ZON announced that SportTV, (owned 50% by ZON) signed an agreement with PPTV – PUBLICIDADE DE PORTUGAL E TELEVISÃO, S. A., to extend the contract for the TV broadcasting of football matches in the Portuguese Leagues for a further year to include the 2012/2013 football season. As announced in June 2008, SportTV signed a contract with PPTV – PUBLICIDADE DE PORTUGAL E TELEVISÃO, S. A., under which it acquired the exclusive TV broadcasting rights of the football matches within the Main and Secondary Football Leagues (currently called “Liga Sagres” and “Liga Vitalis”, respectively) organized by the Portuguese Professional Football League, valid for the 2008/2009, 2009/2010, 2010/2011, 2011/2012 sports’ seasons.
In order to review its financing model and optimize its capital structure, SportTV has secured a medium-term debt facility through a banking syndicate which will be used in part to repay all outstanding shareholder loans to ZON Multimedia.
Shareholder Remuneration
Dividends : The Board of ZON has approved the proposal of a 16 euro cent ordinary dividend, per share, representing close to 112% payout ratio, clearly at a premium to its peer group. This proposal is subject to final approval of the General Assembly which is scheduled for 19 April 2010.
5.5. SHARE PERFORMANCE
ZON’s shares appreciated considerably during 2009, ending the year at € 4.338, representing a 16.9% improvement over the end of 2008. The minimum price during the year was € 3.58 and the maximum € 5.011.
In total, 173,668,349 ZON Multimedia shares were traded in 2009, which represents an average daily volume of 675,752 shares, or 0.22% of shares outstanding.
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ZON - 2009 Share Performance 5,00 € 12.000.000
4,90 € 11.000.000 4,80 € 10.000.000 4,70 € 9.000.000 4,60 €
4,50 € 8.000.000
4,40 € 7.000.000 4,30 € 6.000.000
Euros 4,20 € 5.000.000 4,10 € ofShares Number
4,00 € 4.000.000
3,90 € 3.000.000 3,80 € 2.000.000 3,70 € 1.000.000 3,60 €
3,50 € 0 2008 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 ------12 01 01 02 02 03 03 04 04 05 05 06 06 07 07 07 08 08 09 09 10 10 11 11 12 12 12 ------31 14 28 11 25 11 25 08 22 06 20 03 17 01 15 29 12 26 09 23 07 21 04 18 02 16 30 ZON Volume ZON Share Price
After the decline witnessed by the stock market in the previous year, 2009 recorded a marked recovery. The national stock exchange index, the PSI20, increased by 33.5%, which compares with the 51.9% fall in value of the previous year.
The PSI20 performed well in 2009 compared with other international reference stock market indexes, namely the IBEX (+ 29.8%), Footsie (+22.1%) or the Dow Jones Euro Stoxx50 (+ 21%).
The chart below depicts ZON’s relative stock performance compared to some of its international peers and also with some of the above-mentioned indexes.
2009 Share Performance
ZON ; 16,9%
Telenet; 62,0%
B Sky B; 17,1%
Sky Deutschland; -13,1%
Liberty Global; 37,5%
Virgin Media; 237,3%
PSI20; 33,5%
Footsie; 22,1%
IBEX; 29,8%
Dow Jones Euro Stoxx 50; 21,0%
-30% -10% 10% 30% 50% 70%
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SURPRISE
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SURPRISE
6.1 ZON FUTURE
In January 2008, ambitious growth targets for 2010 were announced. Now that 2008 and 2009 are over, we are confident that the company is on track to achieve these targets, having achieved the highest level of growth of the past 5 years.
The coming quarters present us with an opportunity to sustain our strong growth momentum, from a very solid starting point:
• A leading market position;
• A state-of-the-art network which supports all business areas and that is being upgraded thus enabling ZON to be at the forefront of Next Generation Networks worldwide, with the first European 1Gbps Broadband offer (third offer worldwide) and 200 Mbps offer already available in 77% of the homes passed. During 2010, the roll-out of EURODOCSIS 3.0 will be completed;
• First step towards internationalization: the launch of ZON’s Pay TV satellite operation in Angola took place on 1Q10, in partnership with SOCIP (which holds 70% of the joint venture). The hired capacity of satellite W7, launched by Eutelsat at the end of 2009, will allow ZON to broadcast to all Sub-Saharan Africa. This Angolan operation represents a first step in a broader internationalization strategy for the African continent, with particular focus on Portuguese Speaking Countries.
• A highly motivated team and a clearly defined plan.
In order to achieve the growth in revenues and profitability stated in the financial goals for 2010, it has been necessary to increase efforts to attract new customers in a highly competitive environment, which has subsequently led to an increase in the investment in terminal equipment.
ZON’s business has proven to be very resilient in the current adverse macroeconomic environment, marked by the national budget concerns and by high unemployment levels. Although we believe this resilience will be sustained throughout 2010, we recognize that our growth momentum may be tainted by further deterioration of the macroeconomic environment, thus impacting the financial stability of Portuguese families.
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STATEMENT UNDER THE TERMS OF ARTICLE 245, PARAGRAPH 1, C) OF THE PORTUGUESE 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 2009, 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, 22 March 2010
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)
Nuno João Francisco Soares de Oliveira Silvério Marques (Member of the Audit Committee)
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
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)
Lasló 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)
João Manuel Matos Borges de Oliveira (Member of the Board of Directors)
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CONSOLIDATED FINANCIAL STATEMENTS
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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 2009 and 2008
(Amounts stated in Euro)
4th Quarter 2009 4th Quarter 2008 Notes 31-12-2009 (unaudit) (a) 31-12-2008 (unaudit) (a) REVENUES: Services rendered 783.263.021 205.928.901 733.741.432 192.786.566 Sales 34.937.057 10.323.220 39.340.243 12.241.689 Other operating revenues 4.837.719 1.205.125 3.475.648 1.165.141 7 823.037.797 217.457.246 776.557.323 206.193.396 COSTS, EXPENSES, LOSSES AND INCOME: - - - - Wages and salaries 8 58.227.180 16.002.241 52.742.384 16.682.740 Direct costs 9 232.820.990 64.920.025 239.163.679 61.638.617 Costs of products sold 10 15.408.154 2.654.183 9.532.882 6.083.441 Marketing and advertising 25.743.324 9.254.947 26.659.435 10.567.064 Support services 11 63.087.444 16.617.366 57.365.702 15.228.440 Supplies and external services 11 139.464.466 35.198.449 130.102.623 36.425.536 Other operational costs 12 918.239 780.899 1.126.520 (3.982.417) Taxes 2.885.869 623.367 2.152.471 1.012.891 Provisions and adjustments 13 17.521.062 5.472.040 13.259.243 4.297.538 Depreciation and amortization 30, 31 180.402.489 48.806.027 139.072.398 48.137.257 Impairment of assets 30, 31 8.165.061 4.374.254 1.366.278 220.541 Reestructuring costs 1.465.224 265.000 219.616 (251.936) Losses/(gains) on sale of assets, net (41.028) (266.720) 649.834 424.325 Other losses/(gains), net 12 278.492 124.285 3.189.861 3.133.489 746.346.966 204.826.363 676.602.926 199.617.526 - - - - 76.690.831 12.630.883 99.954.397 6.575.870 Income before financial results and taxes - - - - Financial costs 14 25.985.245 5.625.775 20.885.458 5.359.573 Net foreign exchange losses/(gains), net 111.255 (71.810) 308.661 385.212 Net losses/(gains) on financial assets, net 15 389.745 320.894 4.209.729 635.829 Equity in earnings of affiliated companies, net 16 (17.258.215) (324.191) (3.290.259) (432.725) Net other financial expenses/(income) 14 5.692.702 2.248.911 3.781.887 2.505.359 14.920.732 - 7.799.579 - 25.895.476 - 8.453.248 - Income before taxes 61.770.099 - 4.831.304 - 74.058.921 - (1.877.378) - Income taxes 17 16.119.555 1.661.463 22.501.276 480.852
45.650.544 3.169.841 51.557.645 (2.358.230) Net consolidated income - - - - Attributable to: Minority interests 18 1.662.544 149.169 3.622.122 576.365 Zon Multimédia Group shareholders 43.988.001 3.020.672 47.935.523 (2.934.595)
Earnings per share Basic 20 0,15 0,01 0,16 (0,01) Diluted 20 0,15 0,01 0,16 (0,01)
(a) Only the annual accounts are audited.
The annex is an integral part of the consolidated statement of comprehensive income for the year ended on 31 December 2009.
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 2009 and 2008
(Amounts stated in Euro)
31-12-2009 31-12-2008
Net income 45.650.544 51.557.645
Fair value of interest rate swap (Note 40) (856.404) - Currency translation differences 239.587 23.839 Other movements (26.894) -
Other comprehensive income (643.711) 23.839
Total comprehensive income for the period 45.006.833 51.581.484
Attributable to: Share owners of the company 43.344.289 47.959.362 Minority interests 1.662.544 3.622.122 45.006.833 51.581.484
The annex is an integral part of the consolidated statement of comprehensive income for the year ended on 31 December 2009.
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 2009 and 2008
(Amounts stated in Euro)
Notes 31-12-2009 31-12-2008 Assets Current assets: Cash and cash equivalents 22 176.988.410 63.439.713 Accounts receivable - trade 23 114.003.190 116.308.346 Accounts receivable - other 24 70.962.521 46.474.903 Inventories 25 39.906.212 31.295.147 Taxes receivable 26 21.553.864 25.219.649 Prepaid expenses 27 12.990.976 12.896.248 Total current assets 436.405.173 295.634.006 Non-current assets: Accounts receivable - other 24 62.407.027 99.814.009 Investments in participated companies 28 1.274.970 5.967.301 Available-for-sale financial assets 29 21.777.351 22.167.427 Intangible assets 30 353.759.291 372.834.068 Tangible assets 31 554.572.281 468.007.263 Deferred income tax assets 17 47.913.336 57.654.873 Other non-current assets 32 1.073.855 1.016.232 Total non-current assets 1.042.778.111 1.027.461.173 Total assets 1.479.183.284 1.323.095.179 Liabilities Current liabilities: Borrowings 33 246.539.399 317.060.297 Accounts payable-trade 34 138.271.322 139.890.725 Accounts payable-other 35 37.638.158 41.170.217 Accrued expenses 36 74.734.297 67.674.256 Deferred income 37 3.734.642 4.958.059 Taxes payable 26 29.757.711 14.330.727 Provisions for other liabilities and charges 38 13.883.093 12.360.382 Total current liabilities 544.558.622 597.444.662 Non-current liabilities: Borrowings 33 722.717.780 510.090.534 Accounts payable-other 35 7.240.829 11.863.000 Defered income 37 3.476.745 - Provisions for other liabilities and charges 38 4.446.323 4.964.588 Deferred income tax liabilities 17 6.075.949 6.984.447 Derivative financial instruments 40 1.032.109 - Total non-current liabilities 744.989.735 533.902.569 Total liabilities 1.289.548.357 1.131.347.231 Shareholder's equity Share capital 39.1 3.090.968 3.090.968 Treasury shares 39.2 (87.236.629) (89.633.623) Legal reserve 3.556.300 3.556.300 Other reserves 39.3 197.195.421 191.236.711 Retained earnings 63.779.018 74.466.874 Equity before minority interests 180.385.078 182.717.230 Minority interests 18 9.249.849 9.030.717 Total equity 189.634.927 191.747.947 1.479.183.284 1.323.095.179 Total liabilities and shareholder's equity
The annex is an integral part of the consolidated statement of financial position as at 31 December 2009.
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 2009 and 2008
(Amounts stated in Euro)
Capital issued Accumulated Minority Notes Share capital premium Treasury shares Legal reserve Other reserves earnings interests Total Balance as at 1 January 2008 3.090.968 - - 3.556.300 278.497.173 94.239.336 9.611.370 388.995.147 Change of accounting policy - - - - - (3.658.167) - (3.658.167) Balance as at 1 January 2008 (restated) 3.090.968 - - 3.556.300 278.497.173 90.581.169 9.611.370 385.336.980 Dividends attributed to minority interests 19 ------(2.161.891) (2.161.891) Dividends paid 19 - - - - (92.729.048) (60.037.330) - (152.766.378) Undistributed profit 39.3 - - - - 4.017.172 (4.017.172) - - Acquisitions of treasury shares 39.3 - (5.503.856) (7.066) - - - - (5.510.922) Equity swaps contracts 39.3 - - (84.122.701) - - - - (84.122.701) Acquisitions of shares ------(1.463.932) (1.463.932) Comprehensive income for the period - - - - 23.839 47.935.523 3.622.122 51.581.484 Consolidation differences - - - - 1.427.575 4.685 (576.952) 855.307
Balance as at 31 December 2008 3.090.968 (5.503.856) (84.129.767) 3.556.300 191.236.711 74.466.874 9.030.717 191.747.947
Balance as at 1 January 2009 3.090.968 (5.503.856) (84.129.767) 3.556.300 191.236.711 74.466.874 9.030.717 191.747.947 Transfer - (83.986.630) 83.986.630 - - - - - Dividends attributed to minority interests 19 ------(1.430.818) (1.430.818) Dividends paid 19 - - - - - (47.217.369) - (47.217.369) Undistributed profit 39.3 - - - - 5.068.714 (5.068.714) - - Distribuition of treasury shares 39.3 - 2.393.920 3.073 - - (2.396.993) - - Share Plan 2008/2009 39.3 - - - - 1.576.453 - - 1.576.453 Comprehensive income for the period - - - - (643.711) 43.988.000 1.662.544 45.006.833 Consolidation differences - - - - (42.746) 7.221 (12.594) (48.119) Balance as at 31 December 2009 3.090.968 (87.096.566) (140.064) 3.556.300 197.195.421 63.779.018 9.249.849 189.634.927
The annex is an integral part of the consolidated statement of changes in shareholders' equity for the year ended on 31 December 2009.
Accountant The Board of Directors
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Consolidated Cash Flow Statement for the Financial Years ended on 31 December 2009 and 2008
(Amounts stated in Euro)
4th Quarter 2009 4th Quarter 2008
Notes 31-12-2009 (unaudit) (a) 31-12-2008 (unaudit)(a)
OPERATING ACTIVITIES Collections from clients 986.212.763 264.164.509 919.944.572 257.768.696 Payments to suppliers (604.522.412) (172.683.979) (681.039.869) (222.298.636) Payments to employees (56.352.585) (14.771.930) (51.371.063) (17.453.180) Payments relating to income taxes (2.808.314) (23.418) (5.208.185) (3.154.735) Payments relating to indirect taxes and other 2.329.716 15.691.327 (47.646.982) (20.744.981) Cash flow from operating activities (1) 324.859.168 92.376.509 134.678.473 (5.882.835)
INVESTING ACTIVITIES Cash receipts resulting from Financial investments 42.1 7.294.591 627.925 15.067.363 1 Tangible fixed assets 1.165.810 789.960 1.112.515 400.483 Intangible assets 9.435 9.435 - - Loans granted 42.2 27.200.000 8.300.000 47.472 47.472 Interest and related income 2.909.825 1.065.608 13.640.093 8.107.349 Dividends 42.3 2.155.893 (330) 1.737.725 - Other investing activities - - 1.282.025 1.282.025 40.735.554 10.792.597 32.887.193 9.837.330 Payments resulting from Financial investments 42.4 (204.771) (9.000) (143.446.400) (107.441.690) Tangible fixed assets (218.871.212) (64.536.484) (195.318.233) (9.364.204) Intangible assets (11.622.104) (6.477.591) (8.517.832) (1.177.150) Loans granted 42.5 (1.350.000) (1.350.000) (65.010.000) (4.510.000) Other investing activities ---- (232.048.087) (72.373.075) (412.292.465) (122.493.044) Cash flow from investing activities (2) (191.312.533) (61.580.478) (379.405.272) (112.655.714)
FINANCING ACTIVITIES Cash receipts resulting from Loans obtained 42.6 2.393.624.000 776.925.500 1.573.763.701 567.603.197 Subsidies 4.055.875 4.055.875 - - Other financing activities - - 311.258 311.258 2.397.679.874 780.981.374 1.574.074.959 567.914.455 Payments resulting from Loans obtained 42.7 (2.292.448.754) (683.650.254) (1.013.541.000) (538.235.000) Lease rentals (principal) (55.370.440) (19.707.434) (41.919.821) (31.938.550) Interest and related expenses (34.920.484) (9.421.196) (35.268.399) (12.933.243) Dividends 42.8 (48.648.187) 435.427 (154.928.270) - Acquisition of treasury shares - - (89.633.623) (6.268.197) (2.431.387.865) (712.343.457) (1.335.291.113) (589.374.990) Cash flow from financing activities (3) (33.707.991) 68.637.918 238.783.846 (21.460.535)
Change in cash and cash equivalents (4)=(1)+(2)+(3) 99.838.644 99.433.949 (5.942.951) (139.999.082) Effect of exchange differences (49.701) (238.731) (1.241) (21.747) Cash and cash equivalents at the beginning of the period 63.439.713 (1) 66.915.484 - Changes in the consolidated scope (500) - 2.468.421 2.465.701 Cash and cash equivalents at the end of the period 26 163.228.156 99.195.218 63.439.713 (137.555.128)
(a) Only the annual accounts are audited.
The annex is an integral part of the consolidated statement of cash flows for the year ended 31 December 2009.
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 2009
Index of notes to the consolidated financial statements
1. General Information ...... 65 2. Summary of Significant Accounting Policies ...... 66 3. Judgments and Estimates ...... 86 4. Financial Risk Management ...... 89 5. Changes in the Consolidation Scope ...... 95 6. Segment Reporting ...... 96 7. Operating Revenue ...... 98 8. Wages and Salaries ...... 99 9. Direct Costs of Services Rendered ...... 99 10. Cost of Goods Sold ...... 100 11. Support Services and External Supplies and Services ...... 100 12. Other Costs and (Gains) ...... 101 13. Provisions and Adjustments ...... 101 14. Finance Costs and Other Net Financial Charges ...... 102 15. Losses/(Gains) in Financial Assets ...... 102 16. Losses/(Gains) in Associated Companies ...... 103 17. Income Tax Expense ...... 103 18. Minority Interests ...... 107 19. Dividends ...... 107 20. Earnings per Share ...... 108 21. Financial Assets and Liabilities Classified According to IAS 39 Categories ...... 108 22. Cash and Cash Equivalents ...... 109 23. Accounts Receivable - Trade ...... 110 24. Accounts Receivable - Other ...... 110 25. Inventories ...... 111 26. Payable and Recoverable Taxes ...... 112 27. Prepaid Expenses ...... 113 28. Investments in Associated Companies ...... 113 29. Available-for-sale Financial Assets ...... 114 30. Intangible Assets ...... 115 31. Tangible Assets ...... 117 32. Other Non-Current Assets ...... 118 33. Borrowings and Loans ...... 119 34. Accounts Payable - Trade ...... 121
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35. Accounts Payable - Others ...... 122 36. Accrued Expenses ...... 122 37. Deferred Income...... 123 38. Provisions for Other Risks and Contingencies ...... 123 39. Shareholder's Equity ...... 124 40. Derivative Financial Instruments ...... 126 41. Guarantees and Commitments ...... 127 42. Notes to the Consolidated Cash Flow Statment ...... 129 43. Related Parties ...... 131 44. Contingencies ...... 134 45. Share Incentive Scheme ...... 137 46. Events after the Reporting Period ...... 138
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Notes to the Consolidated Financial Statements at 31 December 2009
(Amounts stated in euros)
1. General Information
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. ZON Multimédia shares are listed on the Euronext – Lisbon.
During the 2007 financial year, Portugal Telecom proceeded with the spin-off of ZON Multimédia, with the distribution of its shares in this company to its shareholders, which thus became fully independent from Portugal Telecom.
The multimedia business operated by ZON Multimédia and the subsidiaries comprising its portfolio of companies (“ZON Group” or “Group”) include cable and satellite television services, voice and internet access services, video production and sale, advertising on Pay TV channels, cinema exhibition and distribution, and the production of channels for its Pay TV platform.
The cable and satellite television service is supplied by ZON TV Cabo Portugal, S.A. (“ZON TV Cabo”) and its subsidiaries. The activities of these companies includes: a) television signal cable and satellite 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) virtual mobile operator (MNVO); 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 its subsidiaries is regulated by Law 5/2004 (Electronic Communications Law), which establishes the legal regime governing electronic communications networks and services.
ZON Conteúdos – Actividade de Televisão e de Produção de Conteúdos, S.A. (“ZON Conteúdos”) manages the television and content production business. Currently, it produces the movie and series channels which are distributed, among others, on the channels of ZON TV Cabo and its subsidiaries, and also manages the advertising space on some of those channels.
ZON Lusomundo Audiovisuais, S.A. (“ZON LM Audiovisuais”) and ZON Lusomundo Cinemas, S.A. (“LM Cinemas”) and their subsidiaries operate in the audiovisual sector, which includes video production and sale, cinema distribution and the operation of cinemas, and the acquisition/negotiation of Pay TV and VOD (video-on-demand) rights.
The notes to the Consolidated Financial Statements follow the order in which the items are shown in the consolidated financial statements.
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The consolidated financial statements for the financial year ended on 31 December 2009 were approved by the Board of Directors and their issue authorized on 23 March 2010.
2. Summary of Significant 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. Basis of preparation
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 31 December 2009.
The consolidated financial statements were prepared on the basis of continuity of operations from the ledgers and accounting records of the companies included in the consolidation (Annex I.a)), using the historical cost convention, adjusted where applicable by the valuation of financial assets and liabilities (including derivatives) at their fair value through profit or loss.
When preparing the consolidated financial statements, in accordance with IFRS, the Board used estimates, assumptions and critical judgments with significant 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.
The impacts of the adoption of the standards and interpretations that became effective as of 1 January 2009 are as follows:
• IFRS 8, ‘Operating segments’. IFRS 8 replaces IAS 14 and aligns segment reporting with the requirements of US GAAP. The new standard requires a ‘management approach’, under which segment information is presented on the same basis as that used for internal reporting purposes. This change did not lead to any change in the segments reported by the Group.
• IAS 1 (Revised), 'Presentation of financial statements'. The revised standard prohibits the presentation of items of income and expenses (that is, 'non-owner changes in equity') in the statement of changes in equity, requiring 'non-owner changes in equity' to be presented in
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the Statement of Comprehensive Income. The ZON Group adopted a new structure for the Financial Statements with effect from 1 January 2009.
• IAS 23 (Amendment), 'Borrowing costs'. The amendment to IAS 23 requires an entity to capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (assets whose acquisition, construction or production takes a substantial period of time – over one year) as part of the acquisition cost of that asset. Without impact on the financial statements of the ZON Group as it has no qualifying assets.
• IFRS 2 (Amendment), 'Share-based payment'. The amendment to IFRS 2 relates to vesting conditions and cancellations. It clarifies that vesting conditions are service conditions and performance conditions only. The cancellation of a share options plan must be recorded in the same way whether it is cancelled at the initiative of the company or that of a third party. This amendment had no impact on the Group’s financial statements.
• IAS 32 (Amendment), 'Financial instruments: Presentation', and consequent amendment to IAS 1, 'Presentation of financial statements'. The amended standard requires entities to classify some financial instruments that comply with the definition of a financial liability as equity instruments, provided the financial instruments have particular features and meet specific conditions. This amendment had no impact on the Group’s financial statements.
• IFRS 1 (Amendment) 'First time adoption of IFRS' and consequent amendment to IAS 27 'Consolidated and separate financial statements'. The amended standard allows first-time adopters to use a deemed cost of either fair value or the carrying amount under previous GAAP to measure the initial cost of investments in subsidiaries, jointly controlled entities and associates in the separate financial statements. This amendment had no impact on the Group’s financial statements.
• IFRS 7 (Amendment). The amendment increases the disclosure requirements about fair value measurement. The entity shall disclose the level of fair value hierarchy used for each financial asset and liability as well as the valuation methods and assumptions used. These disclosures have been incorporated in the notes to the financial statements.
• 2008 annual improvements (mainly effective as at 1 January 2009). As part of the process of reviewing the consistency of IAS/IFRS application in practice, the IASB has decided to make amendments to certain standards (IAS16, IAS 20, IAS 38 and IAS 40) with the aim of clarifying some of the inconsistencies identified. No significant changes resulted from the adoption of these improvements in the Group’s financial statements.
• IFRIC 9, ‘Embedded derivatives’ and IAS 39 ‘Financial instruments: recognition and measurement’. This amendment clarifies the accounting treatment of embedded derivatives
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for entities that have adopted the reclassification amendment to IAS 39, issued by the IASB in October 2008. This change had no impact on the Group’s financial statements since it has no embedded derivatives.
• IFRIC 13, 'Customer loyalty programmes'. IFRIC 13 clarifies that when goods or services are sold together with a customer loyalty incentive, the arrangement is a multiple-element arrangement and the consideration receivable from the customer is allocated between the components of the arrangement using fair values. IFRIC 13 is not relevant to the Group’s activities.
• IFRIC 14, 'IAS 19 – The limit on a defined benefit asset, minimum funding requirements and their interaction'. IFRIC 14 provides guidance on assessing the limit in IAS 19 that can be recognized as an asset. It also explains how the pension asset or liability may be affected by specific minimum funding requirements. IFRIC 14 has no impact on the Group’s financial statements, as there are no defined benefit plans.
• The following new standards, amendments to existing standards and interpretations have been published and are mandatory only for accounting periods beginning on or after 1 July 2009 or later periods, which the Group has not early adopted:
• IFRS 3 (Revised), 'Business combinations' (effective for annual periods beginning on or after 1 July 2009). The revised standard continues to apply the acquisition method to business combinations, with some significant changes. For example, all payments to purchase a business are to be recorded at fair value. There is a choice on an acquisition-by-acquisition basis to measure the “non-controlling interest” in the acquiree either at the non-controlling interest’s proportionate share of the acquiree’s net assets or at the fair value of the acquired assets and liabilities. All acquisition-related costs should be expensed. The Group will apply IAS 27 (Revised) prospectively to all business combinations from 1 January 2010.
• IFRS 27 (Revised), 'Consolidated and separate financial statements' (effective for annual periods beginning on or after 1 July 2009). The revised standard requires all transactions with “non-controlling interests” to be recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains and losses. The standard also specifies the accounting when control is lost. Any remaining interest in the entity is re- measured to fair value and a gain or loss is recognized in profit or loss. The Group will apply IAS 27 (Revised) prospectively to transactions with “non-controlling interests” from 1 January 2010.
• IFRS 5 (2008 Improvement), 'Non-current assets held for sale and discontinued operations' (effective for accounting periods beginning on or after 1 July 2009). The improvement clarifies that all of a subsidiary's assets and liabilities are classified as held for sale if a partial
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disposal sale plan results in loss of control. Relevant disclosures should be made for this subsidiary if the definition of a discontinued operation is met. The Group will apply this improvement prospectively to all partial disposals of subsidiaries from 1 January 2010.
• IFRS 39 (Revised), ‘Financial Instruments: Recognition and measurement - Eligible hedged items’ (effective for annual periods beginning on or after 1 July 2009). The amendment clarifies the principles that should be applied in particular situations to determine whether a hedged risk or portion of cash flow is eligible for designation. This amendment has no impact on the Group’s financial statements.
• 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 in any currency, it is considered a transaction with shareholders and classified as equity. Otherwise, it should be classified as derivative liabilities. This amendment has no impact on the Group’s financial statements.
• IFRS 2 (Amendments), ‘Group cash-settled share-based payment transactions’ (effective for annual periods beginning on or after 1 January 2010). This standard is still subject to endorsement by the European Union. This amendment incorporates IFRIC 8, ‘Scope of IFRS 2’, and IFRIC 11, ‘IFRS 2 – Group and treasury shares transactions’ guidance and addresses the classification of group arrangements where the entities that receive goods or services in exchange for cash-settled share-based payment transactions are not responsible for the payment. This amendment has no impact on the Group’s financial statements.
• IFRS 1 (Amendment), 'First time adoption of IFRS' (effective for annual periods beginning on or after 1 January 2010). This amendment to the standard is still subject to endorsement by the European Union. The amended standard allows first-time IFRS adopters an exemption on the retrospective application of IFRSs for oil and gas assets, if the full cost method was used in previous GAAP. The amendment also exempts entities from reassessing the classification of existing leasing contracts, in accordance with IFRIC 4, ‘Determining whether an arrangement contains a lease’ when previous GAAP accounting requirements produced the same result. This amendment has no impact on the Group’s financial statements.
• IAS 24 (Amendment), ’Related party disclosure’ (effective for annual periods beginning on or after 1 January 2011). This standard is still subject to endorsement by the European Union. The amended standard removes the general disclosure requirements for government-related entities; however, the disclosure of the relationship with the Government and any significant transaction occurred with the Government or other Government-related entities is mandatory. Additionally, the definition of related party was amended to eliminate
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inconsistencies in identification and disclosure of related parties. This amendment has no impact on the 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 the European Union. IFRS 9 has two measurement categories: amortised cost and fair value. All equity instruments are measured at fair value. A debt instrument is measured at amortised cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and interest. Otherwise, debt instruments are measured at fair value through profit and loss. The Group will apply IFRS 9 in the period in which it becomes effective.
• 2009 annual improvements, mainly effective for annual periods beginning on or after 1 January 2010. The improvements to the standards are still subject to endorsement by the European Union. As part of the process of reviewing the consistency of IAS/IFRS application in practice, the IASB has decided to make amendments to current standards with the aim of clarifying some of the inconsistencies identified. The expected most significant changes refer to IAS 17, 36 and 38. The Group will apply improvements in the financial year in which each becomes effective.
2.2. 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 govern the financial and operating policies. 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 the consolidated statement of comprehensive income, respectively, under the item “Minority 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 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 assets, liabilities and contingent liabilities of a 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
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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 initially recognised as their proportion of the fair value of the identifiable assets and liabilities. ZON Group adopts the policy of treating transactions with minority interests as transactions external to the Group. Disposals to minority interests result in the recognition of gains or losses in the statement of comprehensive income. Acquisitions from minority interests result in the recognition of the difference between the acquisition price and the percentage of equity acquired as goodwill.
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.
Significant transactions and balances between Group companies are eliminated in the consolidation process. Capital gains arising on the disposal of subsidiaries, effected within the Group, are also eliminated.
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 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.
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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 period 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 recognized 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 recognized, 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.
Non-current assets held for sale
Non-current assets (or discontinued operations), are classified as held for sale if their value is realizable 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 that the sale will be realized within 12 months. In this case, non-current assets are valued at the lower of their book value or their fair value less the sale costs.
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 30) in the case of a controlled or jointly controlled company, and in “Investments in associated companies” (Note 28) in the case of an associated company. Goodwill is not amortized and is subject to impairment tests at least once a year, on a specified date, and whenever there are changes at the date of the statement of financial position in the test’s underlying assumptions which may result in a possible loss of value. For the purposes of the test, goodwill is attributed to the cash-generating units to which it relates (Note 30). Any impairment loss is recorded immediately in the statement of comprehensive income for the period in “Impairment losses” and is not liable to subsequent reversal.
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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 unrealized gains between Group companies, and between them and the parent company, are eliminated in the consolidation. Unrealized losses are also eliminated except where the cost cannot be recovered.
The part of unrealized gains arising from transactions with associated companies or jointly controlled companies attributable to the Group is eliminated in the consolidation. Unrealized losses are similarly eliminated except where they show evidence of impairment of the transferred asset.
2.3. Segment Reporting
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.
Group ZON only presents information by business segments, since it operates mainly in a single geographical area - Portugal. Transactions by Lusomundo Moçambique and Teliz B.V. are not material to the disclosure of geographical segments.
2.4. Classification of the statement of financial position
Realizable 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, in the latter case relating 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 recognized by a deduction from the corresponding asset as a contra entry in results for the year. The costs of current maintenance and repairs are recognized as a cost when they are incurred. Significant costs incurred on renovations or improvements to the asset are
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capitalized 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 they can be measured reliably.
From the moment that certain fixed 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 recognized 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, 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 5 - 50 Technical equipment: Network installations and equipment 4 - 25 Terminal equipment 3 - 6 Other telecommunication equipment 5 Other technical equipment 3 - 10 Transportation equipment 3 - 8 Tools and dies 4 - 10 Administrative equipment 3 - 10 Other tangible assets 4 - 10 2.6. Intangible Assets
Intangible assets are stated at acquisition cost, less accumulated depreciation and impairment losses and subsidies, where applicable. Intangible assets are recognised only where they generate future economic benefits for the Group and when they can be measured reliably.
Intangible assets consist mainly of goodwill, satellite and distribution network capacity utilisation rights, customer base, software licenses and other contractual rights and sports content utilisation rights.
Goodwill
Goodwill is calculated and recorded as described in Note 2.2. 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.
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For the purposes of impairment tests, goodwill is attributed to the cash-generating units to which it is related, which may correspond to the business segments in which the ZON Multimédia operates, or a lower level.
Internally developed 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; • Clients portfolio; • Costs of broadcasting rights for sporting events; • Other contractual rights.
Amortization
These assets are amortized by the straight-line method, as from the beginning of the month in which they become available for use. The amortization 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 assessment of the impairment of non-current assets. This impairment assessment is also carried out whenever events or changes in circumstances indicate 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
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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 present value of the estimated future cash flows resulting from continued use of the asset or cash-generating unit and from its disposal at the end of its useful life. Where the amount at which the asset is recorded exceeds its recoverable value, it is recognized as an impairment loss.
The reversal of impairment losses recognized in previous years is recorded when there are indications that these losses no longer exist or have decreased. The reversal of impairment losses is recognized in the statement of comprehensive income in the period in which it occurs. However, an impairment loss can only be reversed up to the amount that would be recognized (net of amortization or depreciation) if no impairment loss had been recorded in previous years.
2.8. Financial assets
Financial assets are recognized 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 recognized at their fair value plus directly attributable transaction costs, except for assets at fair value through profit or loss where transaction costs are recognized immediately in results. These assets are derecognized 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, only when the ZON Group may offset the recognized amounts and intends to settle for the net value.
The ZON Group classifies its financial assets into the following categories: investments at fair value through profit or loss, available-for-sale financial assets, 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 through profit or loss are recognized in results in the period in which they occur under “Losses/gains on financial assets”, including the income from interest and dividends.
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• Available-for-sale financial assets
Financial assets available for sale are non-derivative financial assets which: (i) the Group intends to keep indefinitely; (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 recognized 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 available-for-sale financial investments and are recognized in the statement of financial position as non-current assets.
Investments are initially recorded at their purchase price, including transaction costs. 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 recognized directly in reserves until the financial investment is sold, received or otherwise disposed of, at which time the accumulated gain or loss previously recognized in equity is included in net profit for the year. Dividends on equity instruments classified as available for sale are recognized 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 when 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 amortized 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 recognized at fair value and subsequently valued at amortized 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 “Impairment losses on assets”, and subsequently reversed by the results, when indicators of impairment to 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 realizable 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”.
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. The financial charges, calculated as the effective rate of interest, including any premiums payable, are recognised in accordance with the accruals principle, and are added to the book value of the loan if they are not paid during the year.
• 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 2.12.
• 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.
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• Available-for-sale financial assets
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 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 recognized in results – is removed from equity and recognized in the income statement. Impairment losses on equity instruments recognized in results are not reversed through the income statement.
• Customers, 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 results 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. When an amount receivable from customers and 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 are recognized in results.
When there are receivables from customers and 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. Inventories
Inventories, which mainly include customer terminal equipment (Pay TV, internet access and voice business) and DVDs (audiovisual business), are valued at the lower of their cost or net realizable value.
Inventories are adjusted for technological obsolescence, as well as for the difference between the purchase cost and the net realizable value, whichever is the lower, and this reduction is recognized directly in the statement of comprehensive income for the year.
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2.12. 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 with regard to 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 fair value. Subsequently, the fair value of the derivative financial instruments is revalued on a regular basis, and the gains or losses resulting from this revaluation are recorded directly in results 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 cash flow hedging instruments are stated in the statement of financial position at their fair value and,
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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 operations are ineffective, they are stated directly in results. 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 fulfill the criteria required for accounting recognition of the hedge, the accumulated changes in the fair value of the derivative in reserves are shown in results when the hedged operation also affects income.
2.13. Subsidies
Subsidies are recognized 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 recognized in the statement of comprehensive income by deduction from the corresponding costs incurred.
Investment subsidies are shown in the statement of financial position either by regarding the subsidy as deferred income or by deducting the subsidy to arrive at the book value of the asset.
Where the subsidy is regarded as deferred income, it is recognized 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 recognized as income over the depreciable life of the asset by means of a depreciation debit.
2.14. Provisions and contingent liabilities
Provisions are recognized 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 recognized when 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 recognized when the assets are installed, in line with the best estimates available at that date (Note 38). The amount of the provisioned liability reflects time effect, being the corresponding financial update recognized in results as a financial cost.
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Provisions are reviewed and updated 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 all the inherent risks and benefits of assets ownership have been transferred; and (ii) operating leases, if all inherent risks and rewards of assets ownership 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 recognized in the statement of comprehensive income for the period to which they relate.
In the case of operating leases, the rentals due are recognized as costs in the statement of comprehensive income on a straight-line basis 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 set out in the above standard, deferred income tax assets are recognized 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.
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The amount of tax to be included either in current tax or in deferred tax resulting from transactions or events recognized in reserves, 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.
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. 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 service. 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 television services
Revenues from the cable and satellite television service mainly result from: (a) amounts charged as a monthly subscription for using the service; (b) amounts billed for service activation; and (c) equipment rental. Revenues from monthly subscriptions and activations are recognised in the period in which the service is provided to the customer and revenues from equipment rental are recognised in the rental period.
• Broadband Internet access services
Revenues from broadband Internet access services, delivered via the cable network, result mainly from monthly subscriptions and/or usage of the Internet service, depending on the option chosen by the customer. These revenues are recognised in the period in which the service is provided.
• Voice services
Revenues from telephone services result mainly from monthly subscription charges and/or usage of the telephone service, depending on the option chosen by the customer.
• Advertising on Pay TV channels
Revenues from advertising on Pay TV channels are recognised in the period of insertion, net of discounts.
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• 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 and distribution services
Revenues from cinema exhibition result from the sale of cinema tickets and revenues from cinema distribution derive from the sale to other cinema operators of exhibition rights acquired from distributors and film producers. These revenues are recognized in the period of exhibition or sale of rights.
• Sales of DVDs and terminal equipment
Revenues from the sale of DVDs and terminal equipment are recognized at the time of the sale, less an estimate for returns and discounts granted.
Where applicable, the income from the sale of certain products/services are assigned to each of their components according to their market value and recognized separately in line with the criteria for each of those components.
2.19. Costs of audiovisual content distribution rights
The costs associated with the audiovisual content distribution rights acquired by ZON LM Audiovisuais for sale in various exhibition formats are recorded as costs in line with their respective exhibitions and temporal effect. Advances for audiovisual content distribution rights are recorded under “Advances to suppliers” and are subject to regular realization reviews.
2.20. Accruals
The revenues and costs of the Group’s various companies are recognized in accordance with the accruals principle, under which they are recognized 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 recognized in the statement of comprehensive income for the period in which they were determined. 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 recognized in equity. Exchange rate differences on non-monetary items are classified in “Other reserves” in equity.
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The financial statements of subsidiaries denominated in foreign currencies are converted at the following exchange rates:
• The exchange rate obtained 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.
The results and the statement of financial position of the Group's foreign companies that have a functional currency different from the currency used for the presentation of the financial statements are converted as follows:
• Assets and liabilities in the statement of financial position are converted at the exchange rate at the date of the statement of financial position; • Income and expenditure in the income statements are converted at the average exchange rate; and • All exchange differences are recorded as a separate component in Equity.
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”.
At 31 December 2009 and 2008, 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:
2009 2008
US Dollar 1,4406 1,3917 Swiss Franc 1,4836 1,4850 British Pound 0,8881 0,9525 Mozambique Metical 44,1500 35,2500 Real 2,5113 3,2436 Canadian Dollar 1,5128 1,6998
In financial years 2009 and 2008, the income statements of subsidiaries expressed in foreign currencies were converted into euros at the average exchange rates of the currencies of their countries of origin against the euro, which are as follows:
2009 2008 Mozambique Metical 38,9483 35,6550
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2.22. Financial charges on borrowings
Financial charges related to borrowings are recognized 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 capitalized in the acquisition cost of that asset.
2.23. Cash flow statement
The cash flow statement 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”.
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 other payments 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.
2.24. Events after the reporting date
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 46).
3. Judgments 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
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events, and on the operations that the Company considers 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 significant risk of giving rise to a material adjustment in assets and liabilities for the year 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, many of which are beyond the ZON Group’s control, such as the availability of future financing, the cost of capital or other changes, both internal and external to the ZON Group.
The identification 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 regarding the identification and assessment of various impairment indicators, estimated cash flows, applicable discount rates, useful lives and residual values.
• Impairment of Goodwill
Goodwill is subject to impairment tests annually or whenever there are indications of a possible loss of value, in accordance with the policy described in Note 30. The recoverable amounts of the 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 amortization/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 essential in determining the amount of amortization/depreciation to be recognized 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 recognized 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
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variations 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 various formats 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 recognized 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.
• Adjustment 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 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 often are discounted cash flow models and options models, incorporating, for example, interest rate and market volatility curves.
For some 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.
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3.2. Errors, Estimates and Changes to Accounting Policies
During the financial years ended on 31 December 2009 and 2008, no material errors relating to previous years were recognized. There were no changes in accounting policies during the year ended on 31 December 2009.
4. Financial Risk Management
4.1. Financial risk factors
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) analyze the impairment of receivables on a regular basis.
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 2009 and 2008, 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.
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Maximum Risk Exposure (see Note 21) 31-12-2009 31-12-2008 Cash and cash equivalents ii) 174.615.419 61.718.520 Accounts receivable - trade i) 114.003.190 116.308.346 Accounts receivable other - current (see Note 24) 49.655.916 27.292.489 Accounts receivable other - non current (see Note 24) 6.305.117 37.450.000 Total financial assets 344.579.642 242.769.356
i) At 31 December 2009, balances receivable from customers had the following age structure by type of business:
Pay TV, broadband and voice Audiovisuals Other Total Not due 38.000.146 10.488.652 2.074 48.490.872 1 - 180 days 35.231.259 8.498.614 516 43.730.389 181 - 360 days 9.656.592 2.833.828 21.284 12.511.704 361 - 540 days 8.366.799 277.824 (1.512) 8.643.111 541 - 720 days 13.424.060 313.953 (662) 13.737.351 More than 721 days 90.551.673 2.465.122 (21.270) 92.995.525 195.230.529 24.877.993 430 220.108.952 Impairment (102.899.728) (3.206.034) - (106.105.762) Accounts receivable - trade 92.330.801 21.671.959 430 114.003.190
The Pay TV, broadband and voice segment represents around 89% of the total balance of accounts receivable and approximately 96% of the impairment of accounts receivable.
A significant part of the accounts receivable of the cable and Internet businesses relates mainly to residential customers, amounting to 149 605 thousand euros (approximately 77% of the balance for this segment). Of the total owing, only 30 366 thousand euros relates to active customers, while the remaining amount outstanding is adjusted for impairment. These customers have an average payment time (excluding impaired balances) of 16 days (2008: 15 days).
The analysis of the quality of the credit balances receivable from customers neither due nor impaired is shown below:
Pay TV, broadband and voice Audiovisuals Other Total Balance not due Income accruals 11.895.485 (776.943) - 11.118.542 Invoiced income 26.104.661 11.265.595 2.074 37.372.330
38.000.146 10.488.652 2.074 48.490.872 Impairment ---- Balance neither passed due nor impaired 38.000.146 10.488.652 2.074 48.490.872
New clients accounts receivable (less than 6 month) without default history 1.452.696 - - 1.452.696
New clients accounts receivable (less than 6 month) with default history 204.704 - - 204.704
Clients accounts receivable without default history 19.875.382 1.054.203 2.074 20.931.659
New clients accounts receivable (less than 6 month) with default history 4.571.879 10.211.392 - 14.783.271 Balance neither passed due nor impaired 26.104.661 11.265.595 2.074 37.372.330
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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 31-12-2009 1 to 180 days 43.730.389 more than 180 days 21.781.929 65.512.318
Fair value collateral -
Renegotiated assets, which would otherwise be overdue or impaired, totalled 8 760 thousand euros at 31 December 2009. Renegotiation activities include 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 Management.
ii) The Group’s credit risk ratings at 31 December 2009 for Financial Assets (Cash and cash equivalents as per Note 21, with the exception of the value of cash), for which the counterparties are financial institutions, are as follows:
Cash and cash Derivative equivalents with Other financial assets financial financial instituitions held for negotiation instruments Total
A 160.395.846 - - 160.395.846 AA 178.201 - - 178.201 AA- 10.941.032 - - 10.941.032 BBB+ 2.788.561 - - 2.788.561 BBB- 29.267 - - 29.267 Without rating 282.512 - - 282.512
Total 174.615.419 - - 174.615.419
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). b) Liquidity risk
The 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 nine commercial paper programmes with nine banks (Caixa BI, CGD, BANIF, BPI, BES, BESI, Barclays, RBS and Banco Santander Totta) with a maximum amount of 638.7 million euros, of which 543.7 million euros are being used.
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b.2) arranged the issuance of bonds for private and direct placement totalling 70 000 000 euros via two banks. b.3) A Next Generation Network Project Finance Contract totalling 100 000 000 euros with the European Investment Bank.
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, such as: Cross Default; Pari Passu ; Negative Pledge; Debt Ratio; EBITDA/Net interest ratio; Ownership- clause and clauses relating to the continuation of the Group's business; and compliance with its obligations (operational, legal and fiscal).
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.
Between 1 and 5 December 31, 2009 Less than 1 year years Over 5 years Total
Borrowings: - Financial Leases 33.703.698 80.807.747 45.374.927 159.886.372 - National Bank Loans 15.000.500 - - 15.000.500 - Bond Issue - 70.000.000 - 70.000.000 - Foreign Bank Loan - - 96.535.106 96.535.106 - Commercial Paper 113.712.500 430.000.000 - 543.712.500 - Equity Swap 84.122.701 - - 84.122.701 Accounts payable -trade 136.102.353 - - 136.102.353 Accounts payable -other 37.638.158 7.240.829 - 44.878.987 Derivatives of financial instruments - 1.032.109 - 1.032.109 Responsabilities with operating leases 19.834.998 65.487.130 65.426.059 150.748.187
Between 1 and 5 December 31, 2008 Less than 1 year years Over 5 years Total
Borrowings: - Financial Leases 34.495.297 65.936.745 58.281.088 158.713.130 - National Bank Loans 22.070.000 16.750.000 - 38.820.000 - Commercial Paper 260.000.000 285.000.000 - 545.000.000 - Group Loans 495.000 - - 495.000 - Equity Swap - 84.122.701 - 84.122.701 Accounts payable -trade 137.794.633 - - 137.794.633 Accounts payable -other 41.170.217 11.863.000 - 53.033.217 Responsabilities with operating leases 20.087.735 65.460.421 79.255.287 164.803.443
c) Market risk
Exchange rate risk
Exchange rate risk is mainly related to exposure resulting from payments made to certain 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,
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namely short-term foreign currency futures, in order to hedge the risk associated with these balances (see Note 40).
The Group has investments in foreign companies whose assets and liabilities are exposed to exchange rate variations (Lusomundo Cinemas has a branch in Mozambique, Lusomundo Moçambique, 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 2009 and 2008, based on the amounts of the Group’s financial assets and liabilities in the statement of financial position:
Mozambique US Dollar Suisse Franc British pound Real Canadian dollar Other Total Metical As at 31 December 2009
Assets Cash and cash equivalents 5.660.757 - - (202.564) - - - 5.458.193 Accounts receivable - trade 1.398.751 - 270.325 (294.771) - - - 1.374.305 Other assets 1.383 - 46.537 123.780 - - - 171.700 Total assets 7.060.891 - 316.862 (373.555) - - - 7.004.198
Liabilities Accounts payable - trade (6.801.932) (58.585) (173.174) (1.003.578) (7.925) - (4.410) (8.049.604) Other liabilities (61.984) - (61.984) (543.966) - - - (667.935) Total Liabilities (6.863.917) (58.585) (235.158) (1.547.544) (7.925) - (4.410) (8.717.539)
Net 196.974 (58.585) 81.704 (1.921.099) (7.925) - (4.410) (1.713.341)
Mozambique US Dollar Suisse Franc British pound Real Canadian dollar Other Total Metical
As at 31 December 2008
Assets Cash and cash equivalents 8.347 - 88 20.823 - - 272 29.530 Accounts receivable - trade 722.498 - 211.476 19.901 - - 32.357 986.232 Other assets 994 - 105 387.478 - - - 388.577 Total assets 731.839 - 211.669 428.202 - - 32.629 1.404.339
Liabilities Accounts payable - trade (5.312.439) - (73.118) (790.404) - - (24.335) (6.200.296) Other liabilities (1.242.724) - - (1.012.585) - - - (2.255.309) Total Liabilities (6.555.163) - (73.118) (1.802.989) - - (24.335) (8.455.605) Net (5.823.324) - 138.551 (1.374.787) - - 8.294 (7.051.266)
ZON Multimédia uses sensitivity analysis to measure estimated changes in results and equity of an immediate 10% strengthening or weakening of the Euro against other currencies in the rates applied at 31 December 2009 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.
If the currency had strengthened or weakened by 10% in all exchange rates, whit all other variables held constant, post-tax profit for the year would have increased by 27 thousand euros (2008: 706 thousand euros) or decreased by 96 thousand euros (2008: 642 thousand 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.
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Borrowings by the ZON Group mainly relate to the commercial paper programmes with variable interest rates, which exposes the Group to cash flow risk from interest rates. The ZON Group has initiated a policy of hedging risk through the use of interest rate swaps to hedge future interest payments on commercial paper issues (see Note 40). Additionally, Sport TV has negotiated loans with variable rates with financial institutions in Portugal, which are included in “Internal loans”.
ZON Multimédia Group uses sensitivity analysis to measure 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.
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 December 2009 would have resulted in an increase or decrease in profit before tax of approximately 2.3 million euros (2008: 1.1 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 would have resulted in changes in the fair value of the swaps of plus 625 thousand euros or minus 2 508 thousand euros at 31 December 2009, 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 for the parent company, ZON Multimédia, SGPS, S.A. to take out loans with financial institutions, and in turn to make loans to its subsidiaries. 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.
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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. EBITDA is calculated net of impairment losses. The internal ratio set as a target is a level of debt between 2.5 and 3 times EBITDA.
31-12-2009 31-12-2008 Total gross debt 827.472.944 676.281.291 Cash and intragoup loans (211.638.410) (123.939.713) Total net debt 615.834.534 552.341.578
EBITDA 266.961.069 244.452.385 Total net debt/EBITDA 2,3 2,3
4.3. Fair value estimation
The table below shows the financial assets and liabilities of the Group valued at fair value at 31 December 2009:
Level 1 Level 2 Level 3 Total
Available-for-sale financial assets - - 21.777.351 21.777.351 - - 21.777.351 21.777.351
Derivative financial instruments - interest rate swap (see Note 40) - 1.032.109 - 1.032.109 - 1.032.109 - 1.032.109
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).
5. Changes in the Consolidation Scope
On 20 March 2009, ZON Multimédia liquidated ZON Serviços de Gestão Partilhados, S.A. (“ZON Serviços”).
On 25 March 2009, ZON Multimédia acquired 100% of the share capital of the Dutch company Teliz Holding B.V. (“Teliz”), which owns 30% of the Angolan company FINSTAR - Sociedade de Investimentos e Participações, S.A. (“FINSTAR”).
On 12 October 2009, ZON Cinemas, SGPS, S.A. (“ZON Cinemas SGPS”) was incorporated by ZON LM Cinemas.
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On 16 October 2009, ZON Audiovisuais, SGPS, S.A. (“ZON Audiovisuais SGPS”) was incorporated by ZON Multimédia.
The impacts on the statement of comprehensive income are shown below:
Zon Audiovisuais Zon Cinemas Zon Serviços Teliz Total SGPS SGPS Revenue 493.857 - - - 493.857 Costs 5.676.296 (87.770) - - 5.588.526 Operating income/(loss) 6.170.153 (87.770) - - 6.082.383 Financial results 46.939 (75) 5.589 - 52.452 Other (13.279) - - - (13.279) Income before taxes 6.203.813 (87.845) 5.589 - 6.121.557 Income taxes 259.293 - (1.249) - 258.044 Net income 6.463.106 (87.845) 4.340 - 6.379.601
Most operating costs of Zon Serviços, mainly wages and salaries, were transferred to ZON TV Cabo and ZON Multimédia.
The impact on the statement of financial position of the changes in the consolidation scope that occurred in 2009 is not relevant.
During the third quarter, a merger by incorporation occurred on the companies TVTel, Bragatel, Pluricanal Leiria and Pluricanal Santarém by means of the total transfer of their assets to ZON TV Cabo, in accordance with the terms of Article 97, paragraph 4 a) of the Commercial legislation, with effect from 1 January 2009 inclusive.
6. Segment Reporting
6.1. Main report format – Business segments
In the financial years ended on 31 December 2009 and 2008 the ZON Group was organised into three business segments:
Pay TV, broadband and voice: relates to the supply of TV, Internet and voice (fixed and mobile) services and includes the following companies: ZON Televisão por Cabo, ZON TV Cabo Portugal, ZON TV Cabo Açoreana, S.A., ZON TV Cabo Madeirense, S.A., ZON Conteúdos, Lusomundo Editores, Lda. (“Lusomundo Editores”), Teliz and the joint venture in Sport TV – Portugal, S.A. (“Sport TV”).
Audiovisuals: relates to the supply of cinematographic, video and audio and other content distribution and production services, and includes the following companies: ZON Audiovisuais SGPS, ZON Cinemas SGPS, ZON LM Audiovisuais, ZON LM Cinemas, Lusomundo Moçambique, Lusomundo España and Grafilme – Sociedade Impressora de Legendas, Lda. (“Grafilme”).
Others: relates to non-core activities of the ZON Group not likely to report individually, and includes the following companies: ZON Multimédia, Lusomundo Imobiliária 2, S.A. (“Lusomundo Imobiliária“),
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Lusomundo Sociedade de Investimentos Imobiliários, SGPS, S.A. (“Lusomundo SII) and Empracine – Empresa Promotora de Actividades Cinematográficas, Lda. (“Empracine”).
The results by segment for the 2009 financial year are shown below:
Pay TV, broadband and voice Audiovisuals Other / Eliminations Group 4th Quarter 31-12-2009 4th Quarter 31-12-2009 4th Quarter 31-12-2009 4th Quarter 31-12-2009 Total segment revenue 193.158.408 739.409.344 31.164.406 107.754.660 6.854.908 25.654.664 231.177.722 872.818.668 Inter-segment revenue (1.252.269) (1.588.240) (5.726.327) (22.681.673) (6.741.880) (25.510.958) (13.720.476) (49.780.871) Sales and services rendered 191.906.139 737.821.104 25.438.079 85.072.987 113.028 143.706 217.457.246 823.037.797
Operational income by segment 10.071.155 63.089.006 1.351.422 6.184.340 1.208.306 7.417.485 12.630.883 76.690.831 Net interest expense and other 4.871.083 16.779.081 312.487 1.679.680 2.619.305 13.330.441 7.802.875 31.789.201 Gains in financial assets - - - - 320.894 389.745 320.894 389.745 Share of profit/(loss) from associates (60.324.220) (77.218.938) (350.697) (397.714) 60.350.726 60.358.437 (324.191) (17.258.215) Income before taxes 65.524.292 123.528.863 1.389.632 4.902.374 (62.082.619) (66.661.138) 4.831.305 61.770.099 Income tax expense 1.683.105 15.571.577 220.614 1.179.632 (242.256) (631.654) 1.661.463 16.119.555 Net income 63.841.187 107.957.286 1.169.018 3.722.742 (61.840.363) (66.029.484) 3.169.842 45.650.544
Other costs: Depreciation, amortisation and impairment 51.081.883 181.357.931 1.800.464 6.249.506 297.935 960.113 53.180.282 188.567.550 Provisions and adjustments 5.326.140 16.762.929 144.288 745.616 1.612 12.517 5.472.040 17.521.062 Costs / (revenues) non-recurrent (144.234) 142.118 17.141 37.586 (15.342) 57.760 (142.435) 237.464
The results by segment for the 2008 financial year are shown below:
Pay TV, broadband and voice Audiovisuals Other / Eliminations Group 4th Quarter 31-12-2008 4th Quarter 31-12-2008 4th Quarter 31-12-2008 4th Quarter 31-12-2008 Total segment revenue 180.090.458 688.232.482 30.082.156 103.501.428 18.311.762 38.635.737 228.484.376 830.369.647 Inter-segment revenue (10.754) (28.881) (3.976.054) (14.681.056) (18.304.172) (39.102.387) (22.290.980) (53.812.324) Sales and services rendered 180.079.704 688.203.601 26.106.102 88.820.372 7.590 (466.650) 206.193.396 776.557.323
Operational income by segment (4.876.805) 83.158.474 (1.226.568) 2.665.630 12.679.243 14.130.293 6.575.870 99.954.397 Net interest expense and other 6.273.472 11.432.272 1.124.528 2.946.834 852.144 10.596.900 8.250.144 24.976.006 Gains in financial assets 268.196 3.824.092 - - 367.632 385.637 635.829 4.209.729 Share of profit/(loss) from associates (398.519) (2.981.520) (147.287) (363.340) 113.081 54.601 (432.725) (3.290.259) Income before taxes (11.019.954) 70.883.630 (2.203.809) 82.136 11.346.385 3.093.155 (1.877.378) 74.058.921 Income tax expense (3.475.800) 18.889.036 (502.297) 410.178 4.458.949 3.202.062 480.852 22.501.276 Net income (7.544.154) 51.994.595 (1.701.512) (328.042) 6.887.436 (108.907) (2.358.230) 51.557.645
Other costs: Depreciation, amortisation and impairment 45.733.947 131.391.476 2.362.633 7.973.918 261.218 1.073.282 48.357.798 140.438.676 Provisions and adjustments 4.009.600 13.136.959 22.693 (482.834) 265.586 605.459 4.297.879 13.259.584 Costs / (revenues) non-recurrent 3.708.798 3.717.084 315.676 2.429.469 (466.660) (2.306.858) 3.557.814 3.839.695
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 fixed assets for the 2009 financial year are shown below:
Pay TV, broadband and Other / voice Audiovisuals Eliminations Not allocated Group Assets 1.001.558.918 101.194.727 305.136.897 70.017.772 1.477.908.314 Investment in associated companies and joint ventures 4.470 1.215.506 54.994 - 1.274.970
Total assets 1.001.563.388 102.410.233 305.191.891 70.017.772 1.479.183.284
Liabilities 375.899.154 91.894.898 (155.204.510) 976.958.815 1.289.548.357
Investment in fixed assets 195.562.038 6.368.409 684.107 - 202.614.553
Assets and liabilities not allocated to segments are reconciled with total assets and liabilities as follows:
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Assets Liabilities Not allocated: Deferred tax (Note 17) 47.913.336 6.075.949 Income tax expense (Note 26) 327.086 1.625.687 Borrowings - current (Note 33) - 246.539.399 Borrowings - non current (Note 33) - 722.717.780 Available-for-sale financial assets (Note 29) 21.777.351 - 70.017.772 976.958.815
Assets and liabilities by segment, and investments in fixed assets for the 2008 financial year are shown below:
Pay TV, broadband and Other / voice Audiovisuals Eliminations Not allocated Group Assets 888.963.445 89.881.335 251.205.319 87.077.779 1.317.127.878 Investment in associated companies and joint ventures 4.318.870 1.081.296 567.135 - 5.967.301
Total assets 893.282.315 90.962.631 251.772.454 87.077.779 1.323.095.179
Liabilities 422.095.401 86.462.935 (216.831.897) 839.620.792 1.131.347.231
Investment in fixed assets 158.373.759 5.235.923 1.049.241 - 164.658.923
Assets and liabilities not allocated to segments are reconciled with total assets and liabilities as follows:
Assets Liabilities Not allocated: Deferred tax (Note 17) 57.654.873 6.984.447 Income tax expense (Note 26) 7.255.479 5.485.515 Borrowings - current (Note 33) - 317.060.297 Borrowings - non current (Note 33) - 510.090.534 Available-for-sale financial assets (Note 29) 22.167.427 - 87.077.779 839.620.792
7. Operating Revenue
Consolidated operating revenue for the years ended on 31 December 2009 and 2008 is distributed as follows:
2009 4th Quarter 2009 2008 4th Quarter 2008 Services rendered Pay TV, Broadband and voice i) 725.685.989 189.356.495 677.483.227 177.758.725 Cinema exhibition ii) 38.568.313 10.659.637 38.557.757 10.301.273 Audiovisuals iii) 18.969.323 5.902.458 18.167.601 4.719.480 Others 39.396 10.311 (467.154) 7.088 783.263.021 205.928.901 733.741.432 192.786.566 Sales Pay TV, Broadband and voice iv) 9.561.920 1.992.153 8.083.201 1.316.256 Cinema exhibition v) 10.250.735 3.008.176 9.892.868 2.782.052 Audiovisuals vi) 15.124.402 5.322.892 21.364.174 8.143.382 Others - - - - 34.937.057 10.323.220 39.340.243 12.241.689 Other operating revenues Pay TV, Broadband and voice 2.573.195 557.492 2.637.173 1.004.723 Cinema exhibition 347.411 154.703 137.296 (229.757) Audiovisuals 1.812.803 390.213 700.676 389.672 Others 104.310 102.717 503 503 4.837.719 1.205.125 3.475.648 1.165.141
823.037.797 217.457.246 776.557.323 206.193.396
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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, including set top boxes (Pay TV) and MVNO; and (e) 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 the distribution of films to other cinema exhibitors in Portugal and the production and sale of audiovisual content.
iv) This caption 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 2009 and 2008, this item was composed as follows:
2009 4th Quarter 2009 2008 4th Quarter 2008
Remuneration 47.910.115 13.128.554 43.235.962 13.835.409 Social taxes 8.504.372 2.123.588 7.870.536 2.057.596 Social benefits 343.242 92.610 273.420 88.838 Other 1.469.451 657.489 1.362.466 700.897 58.227.180 16.002.241 52.742.384 16.682.740
In the financial years 2009 and 2008, the average number of employees of the companies included in the consolidation was 1622 and 1545, respectively.
On 9 October 2008 the Board of Directors approved an incentive plan for all employees of the Group (see Note 45).
9. Direct Costs of Services Rendered
In the years ended on 31 December 2009 and 2008, this item was composed as follows:
2009 4th Quarter 2009 2008 4th Quarter 2008
Programming and exhibition costs i) 178.894.131 48.496.960 191.948.910 47.413.097 Telecommunications costs ii) 37.733.967 11.767.101 26.121.579 8.028.224 Shared advertising revenues iii) 13.339.730 4.544.502 11.032.396 3.133.189 TV channels distribution 2.521.125 70.434 9.909.450 3.067.615 Others 332.037 41.028 151.344 (3.508) 232.820.990 64.920.025 239.163.679 61.638.617
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
i) Content costs include the costs of programming, exhibition rights and film distribution and the commercialisation of TV channels. The variation in content costs reflects a decrease in programming costs due to the renegotiation of content contracts with SIC and of other long term content contracts. ii) The variation in telecommunications costs reflects an increase in traffic costs resulting from the continued growth in the subscriber base for voice, broadband and ducts rentals associated with the acquired companies and the expansion of the network.
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 revenue attributable to content providers.
10. Cost of Goods Sold
In the years ended on 31 December 2009 and 2008, this item was composed as follows:
2009 4th Quarter 2009 2008 4th Quarter 2008
Pay TV 6.301.320 1.551.698 4.979.321 550.346 VOIP and Internet 4.523.783 63.987 4.610.444 4.163.507 MVNO 4.423.850 916.600 1.048.151 1.048.151 Other 104.081 84.290 59.546 16.511 15.353.034 2.616.575 10.697.461 5.778.515 Inventories impairment (Note 25) 55.120 37.608 (1.164.579) 304.926 15.408.154 2.654.183 9.532.882 6.083.441
The Internet is included together with VOIP as the same type of equipment is used to provide both services (EMTA). The increase in the cost of Pay TV, compared with 2008, is the result of the higher cost of new DTH set-top boxes introduced on the market, compared with the boxes sold previously. There was also a significant increase in MVNO, since this service offer was only introduced in the final quarter of 2008, so there was only a quarter’s cost of sales in that year.
11. Support Services and External Supplies and Services
In the years ended on 31 December 2009 and 2008, this item was composed as follows:
2009 4th Quarter 2009 2008 4th Quarter 2008 Support services: Call centers and customer support 29.172.472 7.318.947 26.393.416 8.088.984 Information systems 19.858.847 5.598.168 19.046.836 5.247.857 Administrative support and other 14.056.125 3.700.251 11.925.450 1.891.600 63.087.444 16.617.366 57.365.702 15.228.440 Supplies and external services: Commissions i) 39.377.003 10.305.154 32.911.923 9.632.666 Maintenance and repair 22.233.583 5.316.265 19.925.553 5.053.353 Rentals 20.638.758 5.377.950 19.105.093 5.231.376 Professional services 20.912.065 5.817.403 19.902.101 5.989.277 Communications 10.924.469 2.169.441 14.893.355 4.553.340 Installation and removal of terminal equipment 4.478.119 918.962 4.203.007 563.445 Others 20.900.469 5.293.274 19.161.591 5.402.079 139.464.466 35.198.449 130.102.623 36.425.536
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
i) The item “Commissions” mainly relates to Pay TV service commissions paid to establishments marketing TV Cabo services, such as installation/marketing service providers (SP's) and direct Agents. The increase is explained by the addition of new services offered by the Group and by the growth of the customer base in the various segments.
12. Other Costs and (Gains)
In the years ended on 31 December 2009 and 2008, this item was composed as follows:
2009 4th Quarter 2009 2008 4th Quarter 2008
Other operational losses/(gains) - net Samples/gifts 343.130 152.338 179.976 49.273 Dues and subscriptions 342.714 66.992 431.003 139.372 Other (gains) e losses net 232.395 561.569 515.540 (4.171.062) 918.239 780.899 1.126.520 (3.982.417)
Other non operational losses/(gains) - net (Gains) / losses incurred with the spin-off Grupo PT (see Note 38) (347.219) (304.970) (2.322.374) (362.745) Increases in provisions (see Note 38) (63.634) (63.634) 3.183.070 3.183.070 Increases in adjustments for doubtfull accounts receivable - - 2.208.826 560.993 Other (gains) e losses net 689.345 492.889 120.340 (247.829) 278.492 124.285 3.189.861 3.133.489
13. Provisions and Adjustments
In the years ended on 31 December 2009 and 2008, provisions and adjustments were composed as follows:
2009 4th Quarter 2009 2008 4th Quarter 2008
Provisions for other liabilities and charges (see note 38) 3.418.651 1.408.366 1.224.243 330.184 Provision for impairment of trade receivable (see note 23) 14.091.352 4.060.666 12.036.029 3.962.249 Provision for impairment of other receivable (see note 24) 24.954 12.500 (86) 5.423 Debts recovery (13.895) (9.492) (943) (318) 17.521.062 5.472.040 13.259.243 4.297.538
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
14. Finance Costs and Other Net Financial Charges
In the years ended on 31 December 2009 and 2008, finance costs were composed as follows:
2009 4th Quarter 2009 2008 4th Quarter 2008 Interest expense: Borrowings 22.173.823 5.121.903 22.746.054 6.948.553 Finance leases 6.149.088 1.571.889 5.930.791 774.466 Other (see note 38) 323.855 (250.712) 141.211 36.409 28.646.767 6.443.080 28.818.056 7.759.428 Interest earned i) (2.661.522) (817.305) (7.932.598) (2.399.855) 25.985.245 5.625.775 20.885.458 5.359.573
Other financial costs: Comissions and guarantees ii) 4.477.739 1.273.837 3.671.775 2.340.562 Prompt payment discount 16.709 5.665 14.374 2.699 Other 1.196.038 969.409 539.640 210.599 5.690.486 2.248.911 4.225.789 2.553.861 Other financial income: Prompt payment discount 2.216 - (443.902) (48.502) 5.692.702 2.248.911 3.781.887 2.505.359
i) The reduction in interest receivable compared with the previous year is mainly attributable to the fact that in 2008 interest was received from escrow accounts associated with the acquisition of associated company shares, totalling approximately 2.5 million euros. The remainder of the reduction is explained by the decrease in interest received from Sport TV, due to the reduction of the amount owed to ZON Conteúdos in 2009 and the fall in the index rates, resulting in a reduction in interest of approximately 0.6 million euros. Additionally, in 2009, due to the substantial fall in interest rates, the interest earned, both on investments and on bank deposits, also decreased significantly. ii) The increase in commissions and guarantees is attributable to charges related to new/renewed commercial paper programmes, issues of bonds loans and investment loan from EIB.
15. Losses/(Gains) in Financial Assets
In the years ended on 31 December 2009 and 2008, this item was composed as follows:
2009 4th Quarter 2009 2008 4th Quarter 2008
(Gains)/Losses of derivatives: Fair value of purchase option i) - - 3.876.813 320.917 Impairment losses of FICA Fund (Note 29) 390.076 320.894 388.323 369.632 Dividends (331) - (686) - Other - - (54.721) (54.720) 389.745 320.894 4.209.729 635.829
i) The figure of 3 877 thousand euros in 2008 corresponds to the calculated fair value of the call option of 80% which applied during the period between the contract for the acquisition of shares in TVTel and the Parfitel Group and approval by the Competition Authority (“Autoridade da Concorrência”).
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
16. Losses/(Gains) in Associated Companies
In the years ended on 31 December 2009 and 2008, this item was composed as follows:
2009 4th Quarter 2009 2008 4rd Quarter 2008
Equity accounting: Lisboa TV (581.571) - (1.907.737) (480.555) Distodo (397.714) (350.698) (363.340) (147.287) Octal TV - - (60.000) - Canal 20 TV 5.676 - 2.939 279 Empresa de Recreios Artísticos (1.226) 59 111.681 112.822 TVTel - - 824.711 98.026 Bragatel - - 21.309 (14.106) Pluricanal Leiria - - 75.979 (1.337) Pluricanal Santarém - - 49.169 (565) Upstar 29.768 26.448 - - (945.067) (324.191) (1.245.289) (432.725) Gain on sale of the additional paid in capital of Sport TV i) - - (2.044.970) - Gain on sale of Lisboa TV ii) (16.313.148) - - - (17.258.215) (324.191) (3.290.259) (432.725)
i) In 2008 there was the gain on the sale of the additional paid in capital of Sport TV to Sportinveste. ii) Gain on the disposal of 40% of the shareholding in Lisboa TV by ZON Conteúdos (see Note 28).
17. Income Tax Expense
ZON Multimédia and its associated companies are subject to Corporate Income Tax (“IRC”) 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 local tax at the maximum rate of 1.5% on taxable profit, giving an aggregate rate of approximately 26.5%. In the calculation of the taxable income to which the above tax rate applies, 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 companies in which it directly or indirectly holds at least 90% of the share capital and which fulfill the requirements of Article 63 of the Corporate Income Tax Code.
The companies which are included in the RETGS are:
• ZON Multimédia, • Lusomundo Editores, • Empracine, • Lusomundo SII, • ZON Cinemas SGPS, • ZON Audiovisuais SGPS, • ZON TV Cabo, • ZON Televisão por cabo,
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• Lusomundo Imobiliária 2, • ZON LM Audiovisuais • ZON LM Cinemas, • ZON Conteúdos.
In accordance with 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 contribution rates and contributions relating to financial years prior to 2001), except when tax losses have occurred, tax benefits have been obtained or inspections, appeals or disputes are in progress, in which cases, 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 statements as at 31 December 2009, except for the situations which were the subject of provisions (Note 38). a) Deferred tax
ZON Multimédia and its subsidiaries 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 balance sheet date.
In the years 2009 and 2008, the movements in deferred tax assets and liabilities were as follows:
Result (see note 17) Equity Deferred taxes Use of tax Deferred taxes Other 31-12-2008 of the period losses of the period movements 31-12-2009 Deferred income tax assets: Provisions and adjustments: Doubtful accounts receivable 6.738.439 (317.174) - - 217.246 6.638.511 Inventories 1.336.914 118.018 - - - 1.454.933 Other provisions and adjustments 12.780.610 3.621.912 - (76.947) (564.531) 15.761.043 Intergroup gains - 23.240.500 - - - 23.240.500 Tax losses carried forward 36.798.910 (1.581.076) (34.706.398) - 306.913 818.349 57.654.873 25.082.181 (34.706.398) (76.947) (40.372) 47.913.336
Deferred income tax liabilities: Reavaluation of fixed assets 6.984.447 (908.498) - - - 6.075.949
Net deferred tax 50.670.426 25.990.679 (34.706.398) (76.947) (40.372) 41.837.387
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
Result (see note 17) Equity Deferred taxes Use of tax Deferred taxes Other 31-12-2007 of the period losses of the period movements 31-12-2008 Deferred income tax assets: Provisions and adjustments: Doubtful accounts receivable 6.881.685 82.365 608 - (226.219) 6.738.439 Inventories 1.565.097 (228.183) - - - 1.336.914 Other 12.150.010 402.408 1.918 - 226.274 12.780.610 Tax losses carried forward 55.886.998 - (18.430.699) - (657.389) 36.798.910 76.483.790 256.590 (18.428.173) - (657.334) 57.654.873
Deferred income tax liabilities: Reavaluation of fixed assets 24.459 (942.409) - - 7.902.397 6.984.447
Net deferred tax 76.459.331 1.198.999 (18.428.173) - (8.559.731) 50.670.426
The revaluation of fixed assets at 31 December 2009 includes approximately 6 061 thousand euros (2008: 6 965 thousand euros) of deferred tax liabilities resulting from the difference on the acquisition at fair value of the assets (client portfolio and fixed network) of TVTel and of the companies of the Parfitel group (Bragatel, Pluricanal Leiria and Pluricanal Santarém).
Deferred tax assets have been recognized where it is probable that taxable profits will occur in future that can be used to absorb tax losses or deductible tax differences. This assessment was based on the business plans of Group companies, which are regularly revised and updated.
Under the terms of current legislation in Portugal, tax losses may be carried forward for a period of six years after their occurrence and may be deducted from taxable profits generated during that period.
At 31 December 2009, the carried forward tax losses of ZON Multimédia expired as follows:
31-12-2009 31-12-2008 2009 - 142.550.430 2010 - 767.177 2011 -- 2012 -- 2013 -- 2014 3.273.396 4.293.340 3.273.396 147.610.947
Sport TV recovered all its tax losses during 2009.
At 31 December 2009, the companies acquired in 2008 and those which were the object of mergers in 2009 reported tax losses of 3 273 thousand euros. 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 financial years 2009 and 2008, the reconciliation between the nominal and effective tax rates is as follows:
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
2009 2008 Income before taxes 61.770.099 74.058.921 Statutory tax rate 26,5% 26,5% Estimated tax 16.369.076 19.625.614
Permanent differences i) 652.245 4.729.615 Deferred tax assets created before the integration for consolidated purpose ii) - (852.833) Differences in tax rate of the Açores and Madeira (734.156) (1.015.685) Underestimated or Overestimated corporate tax (494.077) 179.263 Estimated corparate tax corrections 268.225 (501.185) Fiscal benefits iii) (438.210) - Others 496.452 336.488 Income tax 16.119.555 22.501.276
Effective Income tax rate for the period 26,1% 30,4%
Income tax 7.403.836 5.272.102 Deferred tax 8.715.719 17.229.174 16.119.555 22.501.276
i) At 31 December 2009 and 2008 the permanent differences were composed as follows:
2009 2008 Financial costs not accepted for fiscal purposes 3.308.357 6.656.908 Provisions 3.861.289 2.956.547 Depreciations and amortizations 2.897.289 2.311.053 Adjustments to taxable income - 1.979.327 Equity method (Note 16) (945.067) (1.245.289) Fair value of purchase option - 3.876.813 Other (6.660.568) 1.312.244 2.461.300 17.847.603 26,5% 26,5% 652.245 4.729.615
ii) Amount of deferred tax assets reported for the companies that entered the consolidation scope in 2008 generated in the period of 2008 prior to entering the consolidation scope.
iii) The reduction in tax results from the application by TV Cabo of the SIFIDE (Business Research and Development Incentives System) tax benefit introduced by Law 40/2005 of 3 August. This figure corresponds to the estimated amount of the tax benefit calculated for the years 2006 to 2009 which is expected to be deducted from taxable income in 2009.
The variation in the effective tax rate is mainly due to the decision to reinvest the capital gain arising on disposal of the shareholding in Lisboa TV, which is expected to be completed by 2011.
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
18. Minority Interests
The movements in minority interests in the 2009 financial year and the profits attributable to minority interests in the year are as follows:
31-12-2008 Net income Dividends (Note 19) Other 31-12-2009
Zon TV Cabo Madeirense 5.466.868 1.000.162 (932.844) - 5.534.186 Zon TV Cabo Açoreana 2.352.801 436.550 (380.208) 278 2.409.421 Grafilme 1.155.211 226.167 (117.766) - 1.263.612 Lusomundo SII 21.248 (149) - - 21.099 Lusomundo Imobiliária 2, SA 21.717 (187) - - 21.530 Pluricanal Santarem 12.872 - - (12.872) - 9.030.717 1.662.544 (1.430.818) (12.594) 9.249.849
The movements in minority interests in the 2008 financial year and the profits attributable to minority interests in the year are as follows:
Changes in the consolidation scope 31-12-2007 Net income Dividends (Nota 19) Other i) ii) 31-12-2008
Zon TV Cabo Madeirense 6.429.281 2.112.880 (1.596.577) (1.478.716) - 5.466.868 Zon TV Cabo Açoreana 2.055.744 701.783 (404.718) (8) - 2.352.801 Grafilme 1.083.784 232.023 (160.596) - - 1.155.211 Lusomundo SII 21.036 212 - - - 21.248 Lusomundo Imobiliária 2, SA 21.525 192 - - - 21.717 Pluricanal Santarem - (1.912) - - 14.784 12.872 Zon Serviços - 576.944 - - (576.944) - 9.611.370 3.622.122 (2.161.891) (1.478.724) (562.160) 9.030.717
i) The amounts shown under “Others” relate to the acquisition of further 6.21% of ZON TV Cabo Madeirense in November 2008. ii) The change in scope is the result of: (i) the acquisition of the remaining 50% of ZON Serviços de Gestão Partilhados from Portugal Telecom by exercising the purchase option; and (ii) acquisition of 98.75% of Pluricanal Santarém in October 2008 leading to the establishment of minority interests of 1.25% in that company.
19. Dividends
The General Meeting of Shareholders held on 28 April 2009 approved the proposal of 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 2008 of 46 749 904 Euros plus retained earnings totalling 2 705 588 Euros. The dividend attributable to own shares, totalling 2 238 123 Euros, was transferred to retained earnings.
Dividends paid 49.455.492 Dividends paid to treasury shares (2.238.123) 47.217.369
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Dividends totalling 1 430 818 euros were also paid up to June 2009 (2008: 2 161 891 Euros) to minority shareholders of the companies ZON TV Cabo Madeirense, ZON TV Cabo Açoreana and Grafilme.
The General Meeting of Shareholders held on 21 April 2008 approved the proposal of the Board of Directors for payment of an ordinary dividend per share of 0.20 euros (61 819 366 euros) relating to the net profit for the year ended on 31 December 2007 of 45 505 690 euros plus retained earnings totalling 16 313 675 euros and the distribution of an extraordinary dividend per share of 0.30 euros (92 729 048 euros), corresponding to a total overall dividend of 154 548 413 euros, of which 1 782 035 euros were attributed to own shares.
20. Earnings per Share
Earnings per share for the years 2009 and 2008 were calculated as follows:
2009 4th Quarter 2009 2008 4th Quarter 2008
Net income attributable to equity holders of the parent 43.988.001 3.020.672 47.935.523 (2.934.595)
Weighted average number of ordinary shares in issue 295.001.420 295.090.413 299.722.340 294.958.431
Basic earnings per share 0,15 0,01 0,16 (0,01) Diluted earnings per share 0,15 0,01 0,16 (0,01)
At 31 December 2009 and 2008, as there were no diluting effects on the net earnings per share, the diluted earnings per share is equal to the basic earnings per share.
21. Financial Assets and Liabilities Classified According to 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 31-12-2009 receivable financial assets Derivatives liabilities liabilities liabilities Total Assets
Cash and cash equivalents (see note 22) 176.988.410 - - - 176.988.410 - 176.988.410 Accounts receivable - trade (see note 23) 113.968.288 - - - 113.968.288 34.902 114.003.190 Accounts receivable - other (see note 24) 55.961.033 - - - 55.961.033 77.408.515 133.369.549 Available-to-sale financial assets (see note 29) - 21.777.351 - - 21.777.351 - 21.777.351
Total financial assets 346.917.731 21.777.351 - - 368.695.082 77.443.418 446.138.499
Liabilities
Loans (see note 33) - - - 969.257.179 969.257.179 - 969.257.179 Accounts payable - trade (see note 34) - - - 136.102.353 136.102.353 2.168.969 138.271.322 Accounts payable - other (see note 35) - - - 44.878.987 44.878.987 - 44.878.987 Accrued expenses (see note 36) - - - 74.734.297 74.734.297 - 74.734.297 Derivatives financial instruments (see note 40) - - 1.032.109 - 1.032.109 - 1.032.109 Total financial liabilities - - 1.032.109 1.224.972.816 1.226.004.925 2.168.969 1.228.173.894
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Loans and Total financial Non financial accounts Available-to-sale Other financial assets and assets and 31-12-2008 receivable financial assets Derivatives liabilities liabilities liabilities Total Assets
Cash and cash equivalents (see note 22) 63.439.713 - - - 63.439.713 - 63.439.713 Accounts receivable - trade (see note 23) 116.273.443 - - - 116.273.443 34.902 116.308.345 Accounts receivable - other (see note 24) 64.742.964 - - - 64.742.964 81.545.949 146.288.912 Available-to-sale financial assets (see note 29) - 22.167.427 - - 22.167.427 - 22.167.427
Total financial assets 244.456.120 22.167.427 - - 266.623.547 81.580.851 348.204.397
Liabilities
Loans (see note 33) - - - 827.150.831 827.150.831 - 827.150.831 Accounts payable - trade (see note 34) - - - 137.794.633 137.794.633 2.096.092 139.890.725 Accounts payable - other (see note 35) - - - 53.033.217 53.033.217 - 53.033.217 Accrued expenses (see note 36) - - - 67.674.256 67.674.256 - 67.674.256 Total financial liabilities - - - 1.085.652.937 1.085.652.937 2.096.092 1.087.749.029
22. Cash and Cash Equivalents
At 31 December 2009 and 2008, this item was composed as follows:
31-12-2009 31-12-2008 Cash 2.372.992 1.721.193 Deposits 24.948.642 40.693.165 Term deposits i) 149.666.776 21.025.355 176.988.410 63.439.713
i) At 31 December 2009, term deposits relate to short-term investments maturing in January and February 2010 (around 49 million euros) and July 2010 (around 100 million euros), which bear interest at normal market rates.
The difference in the amount of cash and cash equivalents in the consolidated financial statement and the cashflow statement is as follows:
Cash and cash equivalents - Cashflow statement 163.228.155
Restricted deposits - Margin call of Equity swaps (Note 41.3) 13.760.255
Cash and cash equivalents - Consolidated financial position 176.988.410
Bank deposits include approximately 13.7 million euros of restricted deposits related to the margin call on Equity Swaps (Note 41.3).
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
23. Accounts Receivable - Trade
At 31 December 2009 and 2008, this item was composed as follows:
31-12-2009 31-12-2008
Trade receivables 102.455.505 109.385.242 Doubtful accounts for trade receivables 105.036.453 90.045.585 Unbilled revenues 10.693.461 6.811.286 Receivables form related parties (Note 43) 1.923.532 1.048.654 Other - 59.161 220.108.952 207.349.928 Provision for impairment of trade receivable (106.105.762) (91.041.582) 114.003.190 116.308.346
Impairment of accounts receivable
The summary of movements in impairment adjustments is as follows:
2009 2008
As at January 1 91.041.582 76.460.479 Increases (Note 13) 14.295.041 12.842.381 Increases VOIP Clients 1.395.759 2.168.966 Decreases (Note 13) (203.689) (2.539.056) Receivables written off (422.931) (2.975.274) Change in the consolidation scope - 5.084.086 As at December 31 106.105.762 91.041.582
i) The written of in 2008 relates mainly to the debt of TV Medicina – Canal de Televisão por Cabo, totalling 2 957 607 euros. ii) The item “Changes in the consolidation scope” in 2008 relates mainly to the acquisitions of TVTEL, Bragatel, Pluricanal Leiria and Pluricanal Santarém.
24. Accounts Receivable - Other
At 31 December 2009 and 2008, this item was composed as follows:
31-12-2009 31-12-2008 Current Non current Current Non current Advances of suppliers i) 21.306.605 56.101.910 19.181.940 62.364.009 Other receivable of related parties ii) 38.672.554 - 23.064.992 37.450.000 Unbilled revenues 610.674 - 391.483 - Other 10.792.788 6.305.117 4.663.387 - 71.382.621 62.407.027 47.301.802 99.814.009 Provision for impairment of other receivable (420.100) - (826.899) - 70.962.521 62.407.027 46.474.903 99.814.009
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ZON Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A.
i) Advances to suppliers mainly relate to: (a) the total of 14 686 thousand euros and 20 540 thousand euros, current and non current respectively, mainly relating to guaranteed minimums by ZON LM Audiovisuais and (b) 5 729 thousand euros and 35 521 thousand euros, current and non-current respectively, relating to advances made under the exclusive contract with PPTV – PUBLICIDADE DE PORTUGAL E TELEVISAO, S.A. by Sport TV. ii) The item “Related parties” relates to the granting of loans to Sport TV totalling 33 300 thousand euros (Note 43).
Impairment of accounts receivable - other
2009 2008 As at January 1 826.900 693.189 Increases (Note 13) 24.954 - Decreases (Note 13) - (86) Receivables written off (431.753) - Change in the consolidation scope - 133.796 As at December 31 420.100 826.899
25. Inventories
At 31 December 2009 and 2008, this item was composed as follows:
31-12-2009 31-12-2008 Pay TV, broadband and voice: 42.543.217 34.378.553 Cable modems e EMTA´s 17.737.259 11.732.457 Set top boxes 8.180.270 7.459.215 Smart cards 6.173.517 6.083.995 Acessorie material 4.685.851 2.586.404 Transmission rights i) 2.852.917 2.402.422 Mobile phone 1.802.873 2.961.486 Other inventories 1.110.530 1.152.575 - - Audiovisuals: 3.119.990 2.322.814 DVDs 2.654.265 2.070.889 Food and beverage 465.697 251.925 Other inventories 28 - - - Other inventories 11.100 10.982 45.674.307 36.712.349 Impairment of inventories (5.768.095) (5.417.202) 39.906.212 31.295.147
iii) Television broadcasting rights for sporting events held by Sport TV.
At 31 December 2009, approximately 11 632 thousand euros (2008: 6.2 million euros) of the amount stated in inventories of the Pay TV, broadband and voice business is held by third parties, mainly direct agents.
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Impairment of inventories
2009 2008
As at January 1 5.417.202 6.542.435 Increase - Cost of goods sold (Note 10) 104.665 - Decrease - Cost of goods sold (Note 10) (49.545) (1.164.579) Increase - Direct costs (Note 9) 295.773 - Decrease - Direct costs - (1.858) Transfers and other - 41.205 As at December 31 5.768.095 5.417.202
26. Payable and Recoverable Taxes
At 31 December 2009 and 2008, this item was composed as follows:
31-12-2009 31-12-2008 Receivable Payable Receivable Payable Value-added tax 19.704.896 25.806.325 16.443.414 6.658.952 Income taxes 327.086 1.625.687 7.255.479 5.485.515 Social Security contributions - 963.502 - 957.773 Personnel income tax witholdings - 1.143.063 - 1.022.420 Taxes in foreign countries - 7.879 - 1.077 Other 1.521.882 211.255 1.520.756 204.990 21.553.864 29.757.711 25.219.649 14.330.727
At 31 December 2009, the amounts receivable and payable relating to IRC are composed as follows:
31-12-2009 31-12-2008
Receivable taxes 327.086 7.255.479 Payable taxes (1.625.687) (5.485.515) (1.298.601) 1.769.964
Current income taxes estimative i) (7.515.070) (5.485.515) Payments on account 4.007.227 4.368.614 Witholding income taxes 1.882.156 2.871.232 Income tax receivable 327.086 15.633 (1.298.601) 1.769.964
i) The amount relating to the estimated current tax on income was stated as a contra entry in the following items:
31-12-2009 31-12-2008
Income taxes (Note 17) (7.403.836) (5.272.102) Other (111.234) (213.413) (7.515.070) (5.485.515)
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27. Prepaid Expenses
At 31 December 2009 and 2008, this item was composed as follows:
31-12-2009 31-12-2008 Financial i) 2.899.618 3.125.241 Exhibition rights of audiovisual content ii) 2.780.724 3.976.837 Programming costs 2.616.616 3.190.171 Rentals 1.708.152 1.053.984 Maintenance and repair 616.604 281.243 Insurance 222.736 298.742 Communications 189.408 - Professional services 131.735 158.692 Other 1.825.383 811.338 12.990.976 12.896.248
i) This amount relates mainly to commission and interest paid of commercial paper programmes and which are recognised using the effective rate method. ii) This amount relates to exhibition rights from films on Pay TV channels and in cinemas, which at 31 December 2009 had not yet been exhibit or were still available for exhibition.
28. Investments in Associated Companies
At 31 December 2009 and 2008, this item was composed as follows:
31-12-2009 31-12-2008 Investments in group companies: Lisboa TV - 4.318.870 Distodo 1.206.506 1.081.296 Empresa de Recreios Artísticos - 476.697 Upstar Comunicações S.A. ("Upstar") 20.231 - Canal 20 TV, S.A. ("Canal 20 TV") 9.759 15.435 Dreamia B.V. 9.000 - Other 29.474 75.003 1.274.970 5.967.301
On 27 February 2009, the financial shareholding in Lisboa TV was sold by Zon Conteúdos for 20 000 thousand euros, generating a capital gain of 16 313 thousand euros (See Note 16).
Movements in “Investments in associated companies” in 2009 and 2008 were as follows:
31-12-2009 31-12-2008 As at January 1 5.967.301 6.036.130 Aquisitions i) 113.469 3.660.109 Equity method (Note 16) 945.067 1.245.289 Changes in consolidation scope - (2.687.199) Dividends received ii) (2.155.893) (1.737.725) Disposal iii) (3.067.051) (514.328) Liquidation iv) (527.923) - Other - (34.975)
As at December 31 1.274.970 5.967.301
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i) Acquisition by Teliz in the second quarter of 2009 of 30% of the share capital of Finstar for 4 thousand euros (acquisition subject to the existence of certain conditions under Angolan law); incorporation by ZON Multimédia, in the third quarter of 2009, of two new companies, both with a paid-up share capital of 50 thousand euros, Dreamia – Serviços Televisão, S.A. (“Dreamia S.A.”) and Upstar; in the fourth quarter of 2009, acquisition of Dreamia B.V. for 9 thousand euros. ii) Dividends received from Lisboa TV and Distodo, totalling 1 883 thousand euros and 273 thousand euros, respectively.
iii) Relates to the sale of Lisboa TV (3 017 thousand euros) and Dreamia SA (50 thousand euros) to Dreamia B.V.
iv) Liquidation of Empresa de Recreios Artísticos and ZON Serviços.
The Group's interest in the results and assets and liabilities of the more significant associated companies in 2009 is as follows:
Gain/ (loss) to the Entity Assets Liabilities Revenue Net income % owned Group
Upstar 4.574.007 4.553.776 - (29.769) 100,00% (29.769) Distodo 3.252.244 839.233 3.065.534 795.429 50,00% 397.714 Canal 20 TV 81.861 50.991 - (5.840) 50,00% (2.920)
365.025
The Group's interest in the results and assets and liabilities of the more significant associated companies in 2008 is as follows:
Gain/ (loss) to the Entity Assets Liabilities Revenue Net income % owned Group
Lisboa TV 15.383.408 4.586.232 24.302.436 4.769.342 40,00% 1.907.737 Distodo 3.453.789 1.291.196 3.687.045 726.680 50,00% 363.340 Empresa Recreios Artisticos 521.575 3.060 8.694 (121.472) 91,94% (111.681) Canal 20 TV 81.861 50.991 - (5.840) 50,00% (2.920)
2.156.476
29. Available-for-sale Financial Assets
At 31 December 2009 and 2008, the item “Financial assets available for sale” was composed as follows:
31-12-2009 31-12-2008
Investment fund for cinema and audiovisuals 21.716.483 22.106.558 Other 60.868 60.869 21.777.351 22.167.427
The balance of this capitation refers 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
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invest in cinematographic, audiovisual and multiplatform works, with the purpose of increasing and improving the offer and potential value of such productions. ZON Multimédia subscribed for 30.12% of the units in this fund jointly with other audiovisual companies. The item “Accounts Payable” includes the value of the contribution obligation to the fund, totalling 16 910 144 euros, corresponding to the current value of the instalments due.
Based on the reported accounts of the fund, there was a devaluation in the fund units of 390 076 euros, which ZON Multimédia recorded as a loss (Note 15).
30. Intangible Assets
During the year ended on 31 December 2009, the movements in acquisition costs and accumulated depreciation in this item were as follows:
Foreign currency translation 31-12-2008 Increases Impairment adjustments Other 31-12-2009 Cost: Industrial property and other rights 366.235.744 52.686.348 - (6.676) (1.132.056) 417.783.360 Goodwill 175.147.642 349.700 - - - 175.497.342 Other intangible assets 3.134.677 2.056.765 - - - 5.191.442 Intangible assets in-progress 379.085 306.860 - - (347.452) 338.493 544.897.148 55.399.673 - (6.676) (1.479.508) 598.810.637
Accumulated amortization: Industrial property and other rights 171.478.488 72.876.920 - (6.297) (1.387.976) 242.961.135 Other intangible assets 584.592 1.505.618 - - - 2.090.211 172.063.080 74.382.538 - (6.297) (1.387.976) 245.051.346 372.834.068 (18.982.865) - (379) (91.532) 353.759.291
During the year ended on 31 December 2008, the movements in acquisition costs and accumulated depreciation in this item were as follows:
Foreign currency translation 31-12-2007 Scoope Change Increases Impairment adjustments Other 31-12-2008 Cost: Industrial property and other rights 303.039.824 19.677 63.176.310 - (66) - 366.235.744 Goodwill 77.868.060 - 97.279.582 - - - 175.147.642 Other intangible assets - - 3.134.677 - - - 3.134.677 Intangible assets in-progress 288.895 - 90.189 - - - 379.085 381.196.779 19.677 163.680.758 - (66) - 544.897.148
Accumulated amortization: ------Industrial property and other rights 121.524.329 - 49.780.828 (1.225.582) 636 1.398.277 171.478.488 Other intangible assets - - 584.592 - - - 584.592 121.524.329 - 50.365.420 (1.225.582) 636 1.398.277 172.063.080 259.672.450 19.677 113.315.338 1.225.582 (702) (1.398.277) 372.834.068
At 31 December 2009, the item “Industrial Property and other rights” mainly includes a net amount of 104 807 thousand euros (2008: 119 712 thousand euros) relating to contracts for the exclusive acquisition of satellite capacity between ZON TV Cabo and Hispasat, which are recorded as finance leases.
The remaining 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
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professional football matches of the Liga Sagres and the Liga Vitalis (Note 24). This contract refers to the royalty and broadcasting rights for four football seasons, but only the amount which relates to the 2009/2010 season is recorded in “Intangible Assets”, as they are being depreciated over the length of the football season.
At 31 December 2009 and 2008, the Goodwill related to controlled companies was distributed as follows:
31-12-2009 31-12-2008 TVTEL 78.334.505 78.249.463 ZON LM Audiovisuais 52.164.339 52.164.339 ZON LM Cinemas 24.436.167 24.436.167 Bragatel 10.198.608 10.136.148 Pluricanal Santarém 5.065.438 4.933.201 ZON TV Cabo Madeirense 3.928.957 3.928.957 Pluricanal Leiria 1.361.828 1.299.367 Teliz 7.500 - 175.497.342 175.147.642
During 2009, the company acquired 100% of the subsidiary Teliz, including goodwill of 7.5 thousand euros. Additionally, an adjustment of approximately 342 thousand euros was made to the goodwill calculated in 2008 for TVTel and the Parfitel Group.
Impairment tests for Goodwill
Goodwill was allocated to the cash-generating units of each reportable segment, as follows:
2009 2008 Pay TV , broadband Pay TV , broadband and voice Audiovisuals Total and voice Audiovisuals Total TVTel 78.334.505 - 78.334.505 78.249.463 - 78.249.463 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 10.136.148 - 10.136.148 Pluricanal Santarém 5.065.438 - 5.065.438 4.933.201 - 4.933.201 ZON TV Cabo Madeirense 3.928.957 - 3.928.957 3.928.957 - 3.928.957 Pluricanal Leiria 1.361.828 - 1.361.828 1.299.367 - 1.299.367 Teliz 7.500 - 7.500 - - - 98.896.836 76.600.506 175.497.342 98.547.136 76.600.506 175.147.642
In 2009 impairment tests were performed based on assessments of the current value in use and in accordance with the discounted cash flow method. The amounts in these assessments are based on the historical performances and expected 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:
Perpetuity Segments Discount Rate Growth rate Assessment period Pay TV , broadband and voice 8,0% 2,0% 8 Years Audiovisuals ZON LM Audiovisuais 8,0% 2,0% 8 Years ZON LM Cinemas 8,0% 2,0% 3 Years
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The number of years specified in the impairment tests depends on the maturity of the various businesses and markets, and were determined on the basis of the most appropriate criterion in the valuation of each cash-generating unit. Where the estimated market growth, revenue and cash flow are higher than the perpetuity growth rate after 2014, the assessments are performed for periods longer than 5 years, which is normal market practice in assessing telecommunications and Pay TV businesses.
The impairment tests performed in 2009 support the recoverability of the carrying value of the goodwill. Maintaining the same assumptions of 2008 (average discount rate of 8.5%, perpetuity growth rate of 2% and assessment period between 3 and 9 years) would also not result in the identification of impairment losses in Goodwill.
31. Tangible Assets
In the year ended on 31 December 2009, the movements in acquisition costs and accumulated depreciation in this item were as follows:
Foreign currency Transfers, translation write-off and 31-12-2008 Increases Impairment adjustments other 31-12-2009 Cost Land 2.547.666 - - - - 2.547.666 Buildings and other constructions 51.974.190 1.402.736 - (91.491) 168.963 53.454.398 Basic equipment 841.459.780 162.007.385 - (12.462) (3.175.354) 1.000.279.349 Transportation equipment 8.183.004 3.222.404 - (2.376) (1.500.174) 9.902.859 Tools and dies 343.437 8.919 - (858) (376) 351.122 Administrative equipment 99.278.951 23.134.930 - (18.419) 237.197 122.632.659 Other tangible assets 23.482.948 3.230.437 - - 149.958 26.863.343 Tangible assets in-progress 9.328.857 9.607.742 - - (4.294.804) 14.641.795 1.036.598.833 202.614.553 - (125.606) (8.414.590) 1.230.673.190
Accumulated depreciation Buildings and other constructions 20.748.755 3.921.178 1.782 (18.395) 175 24.653.495 Basic equipment 459.334.522 83.343.297 8.137.519 (10.680) (3.443.787) 547.360.871 Transportation equipment 4.891.939 1.745.085 - (2.375) (1.317.007) 5.317.641 Tools and dies 298.127 24.869 - (829) (376) 321.791 Administrative equipment 62.680.016 14.565.065 16.982 (15.514) (1.791.204) 75.455.346 Other tangible assets 20.638.211 2.420.457 8.778 - (75.680) 22.991.765 568.591.570 106.019.950 8.165.061 (47.793) (6.627.879) 676.100.909 468.007.263 96.594.603 (8.165.061) (77.812) (1.786.711) 554.572.281
The 8 million euros of impairment increases relate mainly to equipment (set-top boxes and other customer terminal equipment) which is not generating revenue because of deactivation of the service by the customer.
In the year ended on 31 December 2008, the movements in acquisition costs and accumulated depreciation in this item were as follows:
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Foreign currency Transfers, translation write-off and 31-12-2007 Increases Scoope changes Impairment adjustments other 31-12-2008 Cost Land 2.546.395 1.271 - - - - 2.547.666 Buildings and other constructions 43.928.617 8.191.576 285.160 - (10.237) (420.927) 51.974.190 Basic equipment 665.208.464 119.874.900 68.061.066 - (1.266) (11.683.385) 841.459.780 Transportation equipment 6.633.435 2.757.692 367.707 - (267) (1.575.563) 8.183.004 Tools and dies 246.254 6.324 87.124 - (97) 3.832 343.437 Administrative equipment 72.144.832 22.506.531 1.309.025 - (2.022) 3.320.583 99.278.951 Other tangible assets 20.435.024 2.566.583 1.428.048 - (15) (946.692) 23.482.948 Tangible assets in-progress 6.313.023 8.754.046 5.942.414 - (222) (11.680.402) 9.328.857 Advances to suppliers of tangible assets 89.944 - - - - (89.944) - 817.545.989 164.658.923 77.480.544 - (14.126) (23.072.499) 1.036.598.833
Accumulated depreciation Buildings and other constructions 17.618.326 3.190.170 207.339 - (1.712) (265.368) 20.748.755 Basic equipment 381.326.040 67.059.722 19.075.370 2.482.656 (843) (10.608.423) 459.334.522 Transportation equipment 4.178.999 1.560.004 593.182 192 (224) (1.440.215) 4.891.939 Tools and dies 212.081 19.304 52.204 (2.250) (89) 16.877 298.127 Administrative equipment 48.959.249 13.878.915 445.880 110.586 (1.437) (713.177) 62.680.016 Other tangible assets 17.553.403 2.998.863 56.529 676 - 28.741 20.638.211 469.848.098 88.706.978 20.430.504 2.591.860 (4.305) (12.981.565) 568.591.570 347.697.891 75.951.945 57.050.040 (2.591.860) (9.821) (10.090.933) 468.007.263
Tangible assets also include basic equipment relating to customer networks and Pay TV distribution networks installed in third party property or in the public domain, representing a net value of 361 million euros (2008: 295 million euros). This equipment includes network terminal equipment which, including major investment in 2009 (109 million euros), corresponded to a net value of 181 million euros at the year end.
The increase in depreciation during the year was due mainly to the increased investment in terminal equipment, offset by the impact – of approximately 7.3 million euros – of the review of the useful lives of tangible assets.
Impairment tests of fixed assets assigned to cinema exhibition
During the year ended on 31 December 2009, as in 2008, the Company performed impairment tests on the fixed assets assigned to cinema exhibition. Due to their specific nature and form of management, 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. As a result of the impairment test, impairment was increased by approximately 257 thousand euros.
32. Other Non-Current Assets
Other non-current assets consist mainly of non-current prepaid expenses relating to commissions on commercial paper (which are being accrued using the effective rate method).
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33. Borrowings and Loans
At 31 December 2009 and 2008, the composition of borrowings and loans was as follows:
31-12-2009 31-12-2008 Current Non Current Current Non Current Bank loans: National bank loans 15.000.500 - 22.070.000 16.750.000 Foreign bank loans - 96.535.106 - - Commercial paper 113.712.500 430.000.000 260.000.000 285.000.000 Bond issue - 70.000.000 - - Equity swaps over own shares 84.122.701 - - 84.122.701 Other loans: Internal loans - related parties - - 495.000 - Financial Leases - capacity and contents utilisation rights 28.294.473 113.489.761 29.980.911 120.888.629 Financial Leases - other 5.409.224 12.692.913 4.514.386 3.329.204 246.539.399 722.717.780 317.060.297 510.090.534
33.1. National bank loans
At 31 December 2009, the currents amount relates to the Group’s share in the loan obtained by Sport TV in the amount of 15 000 000 Euros, maturing in 2010. The remaining balance relates to amounts in secured current accounts.
33.2. Foreign bank loans
In September 2009 ZON Multimédia and ZON TV Cabo signed a Next Generation Network Project Finance Contract totalling 100 000 000 euros with the European Investment Bank. This contract matures in September 2015 and is intended for investments relating to the implementation of the next generation network.
The amount of 3 465 thousand euros was deducted from this loan value, corresponding to the benefit associated with the fact that the loan is at a subsidized rate, corresponding to an investment subsidy, and it is therefore stated as deferred income.
33.3. Bond issue
Between October and November 2009, ZON Multimédia issued bonds for private and direct placement totalling 70 000 000 euros through two banks. Both bonds have maturities of 3 years, half-yearly interest payments and repayment at par at the end of the contracts.
33.4. Commercial paper
The Company has borrowings of 543 412 500 euros in the form of commercial paper contracted with nine banks, corresponding to nine programmes. All the issues to date have payment scheduled for 2010 and bear interest at market rates. Of these, the Company has contracted six grouped commercial paper programmes with maturities of over 1 year, totalling 430 000 000 Euros. 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,
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although having current maturity, has been classified as non-current for the purposes of presentation in the statement of financial position. The remaining programmes have been classified as current.
33.5. Equity Swaps on own shares
On 12 December 2007, the Company's Board of Directors approved the ZON Group's Strategic Plan to 2010 and announced its intention to implement a new share buyback plan for up to 10% of the Company's share capital by 21 October 2009, subject to the necessary authorization for ZON to purchase own shares and to market conditions.
Under the share buyback programme, the Company contracted equity swaps on own shares following the rules applicable to share buyback programmes established in Regulation (EC) 2273/2003 of the European Commission of 22 December 2003 and the Portuguese Stock Exchange Commission Rules on the matter.
From 3 March 2008 to 31 December 2009, ZON Multimédia contracted equity swaps on own shares, under the terms of which, at 31 December 2009, ZON has the right to acquire 13,607,079 shares, representing 4.4% of ZON's share capital, at the total nominal value of 84 122 701 euros (exercise prices per share between 3.665 and 8.947 euros).
These contracts include only the option for the physical exercise option (acquisition of shares), therefore, in accordance with IAS 32 they were recognised as an effective acquisition of own shares (Note 39.2), as a contra entry against the recognition of a financial liability.
The maturity date of these equity swaps is 30 April 2010. However, the General Shareholders’ Meeting on 29 January 2010 approved an early exercise option as a consequence of the sale of own shares to Kento (see Note 46).
33.6. Financial Leases
At 31 December 2009 and 2008, the item “Financial leases – Capacity and Content Utilisation Rights”, relates to contracts entered into by ZON TV Cabo for the exclusive acquisition of satellite capacity, the acquisition of distribution network capacity utilisation rights and the acquisition by Sport TV of royalty and broadcasting rights for the professional football matches of the Liga Sagres and Liga Vitalis.
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Finance Leases
31-12-2009 31-12-2008 Financial leases - payments Until 1 year 38.498.705 39.283.685 Between 1 and 5 years 94.281.995 79.603.942 Over 5 years 48.166.187 62.184.703 180.946.887 181.072.330 Future financial costs (21.060.515) (22.359.200) Present value of finance lease liabilities 159.886.372 158.713.130
31-12-2009 31-12-2008 The present value of the finance lease liabilities Until 1 year 33.703.698 34.495.297 Between 1 and 5 years 80.807.747 65.936.745 Over 5 years 45.374.927 58.281.088
159.886.372 158.713.130
All bank loans obtained and finance leases contracted are negotiated at variable short term interest rates, with the result that their book value is similar to their fair value.
The maturity of the loans obtained is as follows:
31-12-2009 31-12-2008 Between 1 and 5 Between 1 and 5 Until 1 year years Over 5 years Until 1 year years Over 5 years
National bank loans 15.000.500 - - 22.070.000 16.750.000 - Foreign bank loans - - 96.535.106 - - - Commercial paper 113.712.500 430.000.000 - 260.000.000 285.000.000 - Bond issue - 70.000.000 - - - - Equity swaps over own shares 84.122.701 - - - 84.122.701 - Internal loans - related parties - - - 495.000 - - Financial Leases 33.703.698 80.807.747 45.374.927 34.495.297 65.936.745 58.281.088 246.539.399 580.807.747 141.910.033 317.060.297 451.809.446 58.281.088 ------
34. Accounts Payable - Trade
At 31 December 2009 and 2008, short-term accounts payable to suppliers and other entities had the following composition:
31-12-2009 31-12-2008
Accounts payable trade 131.661.252 119.801.854 Related parties (Note 43) 4.441.102 17.992.779 Advances from customers 2.168.968 2.096.092 138.271.322 139.890.725
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35. Accounts Payable - Others
At 31 December 2009 and 2008, “Accounts payable – others” had the following composition:
31-12-2009 31-12-2008 Current Non current Current Non current Fixed assets suppliers 25.734.457 - 30.250.498 32.838 Cinema and audiovisuals investment fund i) 9.669.315 7.240.829 4.407.792 11.830.162 Related parties (Note 43) 1.513.570 - 59.124 - Other 720.816 - 6.452.803 - 37.638.158 7.240.829 41.170.217 11.863.000
i) This balance refers to the obligation to realise the subscribed units in the Cinema and Audiovisual Investment Fund, as mentioned in Note 29. The recognised liability is measured at the current value of the total obligation. The corresponding financial cost is periodically recorded. In the year ended on 31 December 2009, the cost amounted to 672 thousand euros.
At 31 December 2009, the discounted value of the liability to invest in participating units subscribed for and corresponding nominal value is as follows:
Notional amount Discounted amount Short-term liabilities 10.000.000 9.669.315 Long-term liabilities 7.500.000 7.240.829 17.500.000 16.910.144
36. Accrued Expenses
At 31 December 2009 and 2008, these items were composed as follows:
31-12-2009 31-12-2008
Programming services 15.039.026 13.011.821 Support services and comissions i) 13.772.012 22.088.954 Vacation pay and bonuses 13.079.350 12.524.334 Exhibition rights ii) 10.554.551 4.873.367 Advertising 7.074.243 3.250.456 Other support services 6.544.394 5.203.144 Interest to be paid 1.322.910 2.469.430 Other accrued expenses 7.347.811 4.252.749 74.734.297 67.674.256
i) This caption mainly includes amounts to be invoiced by entities responsible for support services and commercial partners. There was a significant decrease compared with 2008, explained by delayed billing in the year ended on 31 December 2009. ii) The balance at 31 December 2009 relates to royalty costs not yet invoiced by producers for the films whose guaranteed minimum advance has already been fully utilised.
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37. Deferred Income
At 31 December 2009 and 2008, this item was composed as follows:
31-12-2009 31-12-2008 Current Non Current Current Non Current Advance billing 2.681.600 - 3.402.916 - Other deferred income i) 1.053.042 - 1.555.143 - Investment subsidy ii) - 3.476.745 - - 3.734.642 3.476.745 4.958.059 -
i) This caption relates mainly to the deferral of gains resulting from the smart card swap effected in 2007, which are being recognised as gains in the same depreciation period as those assets. ii) Relates to the investment subsidy for the implementation of the next generation network.
38. Provisions for Other Risks and Contingencies
At 31 December 2009 and 2008, the breakdown of provisions between current and non-current is as follows:
31-12-2009 31-12-2008 Current provision Taxes 579.064 1.537.832 Litigation 137.000 137.000 Other 13.167.029 10.685.550 13.883.093 12.360.382
Non-current provision Other 4.446.323 4.964.588 4.446.323 4.964.588 18.329.416 17.324.970
During 2009 and 2008, the movements in provisions were as follows:
31-12-2008 Increases Decreases Other 31-12-2009
Taxes 1.537.832 (2.034) - (956.734) 579.064 Legal actions 137.000 - - - 137.000 Other risks 15.650.138 3.604.045 (446.063) (1.194.768) 17.613.352 17.324.970 3.602.012 (446.063) (2.151.502) 18.329.416
31-12-2007 Increases Decreases Other 31-12-2008
Taxes 943.255 594.577 - - 1.537.832 Legal actions 137.000 - - - 137.000 Other risks 18.136.020 5.757.048 (7.174.738) (1.068.192) 15.650.138 19.216.275 6.351.624 (7.174.738) (1.068.192) 17.324.970
The increases in 2009 in “Other risks and contingencies" relate mainly to miscellaneous contingencies. The reduction of 446 thousand euros includes 347 thousand euros relating to the spin-off.
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Movements in 2009 in "Provisions for other risks and contingencies" are composed as follows:
2009
Taxes (2.034) Other liabilities and charges 3.420.685 Provisions (see Note 13) 3.418.651
Interest paid (see Note 14) 323.855 Spin off (see Note 12) (347.219) Other (see Note 12) (63.634) (86.998) Provision for other liabilities and charges 3.331.653
The balance in the caption "Provisions for other risks and contingencies" at 31 December 2009 and 2008 has the following composition:
31-12-2009 31-12-2008
Contigencies - other 10.248.967 7.680.182 Asset retirement obligation 4.446.323 4.450.530 Spin-off - 347.219 Other risks 2.918.061 3.172.207 17.613.352 15.650.138
39. Shareholder's Equity
39.1. Share capital
At 31 December 2009, 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 main shareholders at 31 December 2009 are:
2009 2008
Shareholder NO.Of Shares % Voting Rights NO.Of Shares % Voting Rights
Caixa Geral de Depósitos, SA 53.799.405 17,41% 46.643.068 15,90% Banco BPI, SA 28.106.494 9,09% 23.929.242 7,74% Cinveste, SGPS, SA 17.882.962 5,79% 17.882.962 5,79% Telefónica, SA 16.879.406 5,46% 16.879.406 5,46% Espírito Santo Irmãos, SGPS, SA i) 15.455.000 5,00% 15.455.000 5,00% Cofina, SGPS, SA 15.190.000 4,91% 15.183.844 4,91% Joaquim Alves Ferreira de Oliveira iii) 14.955.684 4,84% 11.458.280 3,71% ZON Multimédia (Own Shares) 14.006.437 4,53% 14.313.730 4,70% Fundação José Berardo ii) 13.408.982 4,34% 13.408.982 4,34% Ongoing Strategy Investments, SGPS, SA iv) 9.762.452 3,16% 9.762.452 3,16% Banco Espírito Santo, SA 9.020.171 2,92% 12.287.265 3,98% Grupo Visabeira, SGPS, SA v) 6.641.930 2,15% 6.641.930 2,15% Credit Suisse Group AG 6.210.905 2,01% n/a n/a SGC, SGPS, SA vi) 6.182.000 2,00% 6.182.000 2,00% ESAF - Espírito Santo Fundos de Investimento Mobiliário, SA 6.088.616 1,97% 6.488.219 2,10% BES Vida - Companhia de Seguros, S. A. 5.721.695 1,85% 5.886.508 1,90% Metalgest - Sociedade de Gestão, SGPS, SA ii) 3.985.488 1,29% 3.985.488 1,29% Total 243.297.627 78,72% 226.388.376 74,12%
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i) 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. ii) The position of the Fundação José Berardo is reciprocally attributed to Metalgest - Sociedade de Gestão, SGPS, S.A.
iii) 4.84% of the voting rights are attributable to Joaquim Francisco Alves Ferreira de Oliveira, as he controls GRIPCOM, SGPS, SA, and to Controlinveste International S.A.R.L., which hold, respectively, 2.26% and 2.58% of the share capital of ZON Multimédia.
iv) 99.99% of Ongoing is held by Isabel Maria Alves Rocha dos Santos, to whom its voting rights are therefore attributed.
v) 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. 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.
vi) The shareholding of SGC, SGPS, SA is attributed to its majority shareholder, Dr. João Pereira Coutinho.
39.2. Own shares
Commercial legislation regarding own shares requires the establishment of a free reserve in an amount equal to the purchase price of such shares, which is not available for distribution until the shares are disposed of. In addition, the applicable accounting rules determine that the gains or losses on the disposal of own shares are stated in reserves.
At 31 December 2009 there were 14,006,437 own shares (2008: 14,313,730 own shares), representing 4.53% of the share capital (2008: 4.7% of the share capital), of which 13,607,079 shares were stated as resulting from equity swap contracts and the remaining 399,358 shares (2008: 706,651 shares) were not included in equity swaps.
Movements in the years ended on 31 December 2009 and 2008 were as follows:
Quantity Value Balance as at 1 January 2008 -- Treasury shares acquisitions 706.651 5.510.922 Equity swaps of treasury shares 2.249.285 17.394.530 Equity swaps contracts 11.357.794 66.728.171 Balance as at 31 December 2009 14.313.730 89.633.623
Balance as at 1 January 2009 14.313.730 89.633.623 Distribuition of treasury shares (307.293) (2.396.993) Balance as at 31 December 2009 14.006.437 87.236.630
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39.3. Reserves
Legal reserve
Portuguese law and ZON Multimédia’s articles of association provide that at least 5% of each year's profits must be allocated to a legal reserve until this reserve equals the minimum requirement of 20% of share capital. This reserve is not available for distribution to shareholders, except in the case of the liquidation of the company, but may be capitalized or used to cover losses, once all other reserves and retained earnings have been fully used.
Other reserves
Movements in 2009 and 2008 and the composition of “Other reserves” are as follows:
Free reserves Other reserves Total
Balance as at 1 January 2008 247.277.461 31.219.712 278.497.173 Aquisition of treasury shares (5.510.922) 5.510.922 - Retained earnings (92.729.048) - (92.729.048) Undistributed profit - 4.017.172 4.017.172 Share plan - 1.433.878 1.433.878 Other - 17.536 17.536 Balance as at 31 December 2008 149.037.491 42.199.220 191.236.711
Balance as at 1 January 2009 149.037.491 42.199.220 191.236.711 Distribuition of treasury shares 2.396.994 (2.396.994) - Undistributed profit - 5.068.714 5.068.714 Share plan - 1.591.676 1.591.676 Share plan 2009 - deferred tax - (421.794) (421.794) Share plan 2008 - deferred tax - 406.571 406.571 Derivative financial instruments (see note 40) - (856.404) (856.404) Other - 169.946 169.946 Balance as at 31 December 2009 151.434.485 45.760.936 197.195.421
40. Derivative Financial Instruments
40.1. Exchange rate derivatives
Exchange rate risk is mainly related to exposure resulting from payments made to certain producers of audiovisual content on 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. At the balance sheet date there were 8 126 thousand dollars opened in foreign currency forwards (2008: 1 500 thousand dollars), the fair value of which is approximately 83 thousand euros (2008: 11 thousand dollars)
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40.2. Interest rate derivatives
At 31 December 2009, ZON had contracted four interest rate swaps totalling 480 000 thousand euros, three with maturity dates at 2 years and one at three years, to hedge future interest payments on commercial paper issues. The fair value of the interest rate swaps, totalling minus 856 thousand euros (see Note 39.3), is stated in liabilities as a contra entry in equity, and the amount of 998 thousand euros, relating to interest payable on this financial instrument, is stated in results.
At 31 December 2008 there were no derivative financial instruments contracted.
At 31 December 2009, the 1 032 thousand euros stated in liabilities include approximately 856 thousand euros relating to the fair value and 175 thousand euros relating to interest on past periods.
31-12-2009 Asset Liability
Nocional Current Non Current Current Non Current
Derivative Financial instruments Interest rate swaps 480.000.000 - - - 1.032.109 480.000.000 - - - 1.032.109
41. Guarantees and Commitments
41.1. Guarantees
At 31 December 2009 and 2008, the Group had furnished sureties, guarantees and comfort letters in favour of third parties corresponding to the following situations:
31-12-2009 31-12-2008 Bank guarantees given to other entities: Suppliers i) 7.019.560 7.225.504 Tax authorities ii) 20.088.473 23.506.428 Other iii) 7.958.354 8.463.936 35.066.387 39.195.868 Comfort letters given to other entities: Sport TV iv) - 35.000.000 Other - 1.625.000 - 36.625.000 - -
Promissories Sport TV v) 15.000.000 -
i) At 31 December 2009, this amount mainly includes 4 714 746 Euros relating to bank guarantees provided to lessors of movie theatres. ii) At 31 December 2009, this amount relates to guarantees demanded by the Tax Authorities in connection with tax proceedings contested by the Company and its subsidiaries.
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iii) At 31 December 2009, this amount mainly relates to guarantees provided in connection with Municipal Wayleave Tax proceedings.
iv) At 31 December 2008, this item relates to sureties and comfort letters provided by Sport TV shareholders to guarantee borrowings by that company, the shareholders' responsibility being joint and several with regard to the total amount of the loans, which totalled 35 million euros at that date. This loan was repaid, with the result that at 31 December 2009 the comfort letter is no longer extant.
v) At 31 December 2009 there was a promissory note by Sport TV relating to bank finance.
41.2. Operating leases
The rentals due on operating leases have the following maturities:
2009 2008 Less than 1 year Between 1 and 5 years More than 5 years Less than 1 year Between 1 and 5 years More than 5 years Vehicles 39.827 51.242 - 39.827 91.069 - Equipment 134.668 168.256 - 138.873 249.766 - Stores and movie theatre 19.660.503 65.267.632 65.426.059 19.909.035 65.119.587 79.255.287 19.834.998 65.487.130 65.426.059 20.087.735 65.460.421 79.255.287
41.3. Other commitments
At 31 December 2009, as collateral for the current equity swap contract, the Company has restricted deposits of approximately 13.7 million euros.
On 21 November 2008, the Competition Authority (“Autoridade da Concorrência”) 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) An commitment to encourage the entry of a competitor in cable television distribution by means of the disposal of a series of network cells and customers in geographical areas where the overlap between the ZON network and that of the companies acquired is most significant; b) An commitment to vacate the areas in secondary and tertiary network infrastructures by removing or selling integrated cables in network cells that are not included in the previous commitment, or that have not been disposed of under the terms of the previous commitment; c) An commitment to provide a wholesale national coverage satellite television offer through 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 6 years is intended exclusively to finance the new generation network investment project. This amount may not in any circumstances exceed 50% of the total cost of the project.
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42. Notes to the Consolidated Cash Flow Statement
The Cash Flow Statement was prepared in accordance with the requirements of IAS 7. The most significant aspects are as follows:
42.1. Cash received from financial investments
The item "Cash received from financial investments" is composed as follows:
2009 2008 Disposal of investment - Lisboa TV 6.666.666 - Liquidation of Empresa de Recreios Artísticos 527.925 - Disposal of investment - Dreamia S.A 50.000 Liquidation of PTMultimédia Serviços 50.000 Loans rendered to Sportinvest Sport TV (Note 14) - 14.544.971 Disposal of investment - Octal TV (Note 28) - 522.392 7.294.591 15.067.363
42.2. Cash received from loans given
2009 2008 Loans to Sport TV 27.200.000 -
27.200.000 -
42.3. Cash received from dividends
The item "Cash received from dividends" is composed as follows:
2009 2008 Lisboa TV (Note 28) 1.883.388 1.484.018 Distodo (Note 28) 272.505 253.707 2.155.893 1.737.725
42.4. Payments relating to financial investments
The item "Payments relating to financial investments" is composed as follows:
2009 2008
Acquisition/Constitution of shareholdings and other investments: Pluricanal Santarém 82.649 - Dreamia, S.A. 50.000 - Upstar 50.000 - Teliz 13.122 - Dreamia, BV 9.000 - TVTEL (Note 30) - 97.858.183 Bragatel, Pluricanal Leiria and Pluricanal Santarem (Note 30) - 35.845.965 Contribution - Fundo para o Cinema e Audiovisual (Note 35) - 5.000.000 Cabo TV Madeirense (Note 30) - 4.140.120 ZON Serviços - 602.132 204.771 143.446.400
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42.5. Payments relating to loans given
The item "Payments relating to loans given" is composed as follows:
2009 2008 Loans to Dreamia BV 1.350.000 - Loans to Sport TV - 65.000.000 Empresa Recreios Artísticos (Note 31) - 10.000 1.350.000 65.010.000
42.6. Cash received from borrowings and loans
The item "Cash received from borrowings and loans" is composed as follows:
2009 2008 Commercial paper (Note 33) 2.278.699.000 1.473.791.000 Foreign bank loans - EIB 100.000.000 - Bank loans of Sport TV (Note 33) 14.925.000 15.000.000 Equity Swaps - 84.122.701 Bank loans of TV TEL (Note 33) - 850.000 2.393.624.000 1.573.763.701
42.7. Payments relating to borrowings and loans
The item "Payments relating to borrowings and loans" is composed as follows:
2009 2008 Commercial paper (Note 33) 2.214.998.500 998.791.000 Loans of Sport TV (Note 33) 44.175.000 14.000.000 Loans of TV TEL (Note 33) 19.020.000 750.000 Secured deposits of equity swaps (Note 22) 13.760.254 - Empresa Recreios Artísticos 495.000 - 2.292.448.754 1.013.541.000
42.8. Dividends / distribution of profits
The item "Dividends" is composed as follows:
2009 2008 ZON Multimédia (Note 18) 47.217.369 152.766.378 ZON TV Cabo Madeirense (Note 18) 932.844 1.614.567 ZON TV Cabo Açoreana (Note 18) 380.208 380.030 Grafilme 117.766 167.295 48.648.187 154.928.270
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43. Related Parties
43.1. Summary list of Related Parties
Detailed summary of Related Parties as at 31 December 2009:
Related Parties
Caixa Geral de Depósitos, SA Banco BPI, SA Cinveste, SGPS, SA Telefónica, SA Espírito Santo Irmãos, SGPS, SA Cofina, SGPS, SA Joaquim Alves Ferreira de Oliveira Fundação José Berardo Ongoing Strategy Investments, SGPS, SA Banco Espírito Santo, SA BES Vida - Companhia de Seguros, S. A. Grupo Visabeira, SGPS, SA SGC, SGPS, SA ESAF - Espírito Santo Fundos de Investimento Mobiliário, SA Metalgest - Sociedade de Gestão, SGPS, SA Credit Suisse Group AG Sport TV Distodo, Lda SGPICE, SA i) Fundo Investimento para Cinema e Audiovisual Canal 20 TV Empresa Recreios Artisticos i) Dreamia Holding BV Dreamia - Serviços de Televisão, SA Expernet - Serviços Avançados de Telecomunicações Lda i) Pluricanal Gondomar - Televisão por Cabo, SA Upstar Gesgráfica - Projectos Gráficos, Lda i) Caixanet – Telecomunicações e Telemática, SA Apor - Agência para a Modernização do Porto Lusitânia Vida - Companhia de Seguros, S.A ("Lusitânia Seguros") Lusitânia - Companhia de Seguros, S.A ("Lusitânia Vida")
i) Companies sold or liquidated during financial year 2009 (Annex 1).
43.2. Balances and transactions between related parties a) Transactions and balances between ZON Multimédia and companies of the ZON Group were eliminated in the consolidation process and are not the subject of disclosure in this Note.
Balances and transactions in the year ended on 31 December 2009 between the ZON Multimédia Group and its associated companies, joint ventures and other related parties, were as follows:
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2009:
Sales and Expenses and services services Interest Transactions rendered obtained Interest income expenses
Banco Espírito Santo 231 12.654 391.675 7.256.472 Caixa Geral de Depósitos 18.180 109.732 9.268 7.613.875 Banco BPI 1.771 1.334.470 48.991 3.395.479 Fundação Colecção Berardo - 75.000 - - Sport TV 618 40.149.400 1.448.085 - Distodo 2.416 1.772.314 - - SGPICE, SA 22 - - - Fundo Investimento para Cinema e Audiovisual - - - 672.190 Canal 20 TV, SA - 3.645 - - Empresa Recreios Artisticos 385 - - 3.215 Dreamia BV 24.500 - 5.741 - Dreamia SA 1.300.458 - - - Upstar Comunicações 38.486 - - -
1.387.066 43.457.215 1.903.760 18.941.231
Accounts Accounts Accruals and receivable - receivable - Accounts Accounts Other financial Accruals and deferred Balances trade other payable - trade payable - other Loans obtained aplications deferred assets liabilities
Banco Espírito Santo - - - - 130.000.000 133.670.776 2.356.457 350.000 Caixa Geral de Depósitos - - - 115.912 125.000.000 8.817.254 694.361 222.427 Banco BPI - 147 - 178.700 90.000.000 4.943.000 223.556 376.922 Fundação Colecção Berardo - - - 75.000 - - - - Sport TV 353.725 33.300.000 4.059.239 - - - - 2.787.423 Distodo 669 - 378.055 - - - - - Fundo Investimento para Cinema e Audiovisual - - - 16.910.144 - - - - Canal 20 TV, SA - - 3.807 - - - - - Dreamia BV 30.241 1.400.000 - 1.143.958 - - - - Dreamia SA 1.538.897 93.889 ------Expernet - 2.950 ------Pluricanal Gondomar - 2.500 ------Upstar Comunicações - 3.873.067 ------1.923.532 38.672.554 4.441.102 18.423.713 345.000.000 147.431.030 3.274.374 3.736.772
2008:
Sales and Expenses and Acquisition of services services Interest Transactions Financial assets rendered obtained Interest income expenses
Banco Espírito Santo - 5.137 - 1.121.767 5.062.357 Caixa Geral de Depósitos 90.714.396 32.080 2.680.723 2.500.239 4.932.313 Banco BPI 3.090.242 2.059 1.164.595 46.279 2.842.242 Metalgest 1.594.954 - - - - Octal TV - 216.623 3.864.027 - - Lisboa TV - - 22.594.412 2.157.813 - Sport TV - 2.105.994 42.643.136 - - Distodo - - 2.209.955 - - Other - 3.026 (1.252) 48 9.132 95.399.592 2.364.918 75.155.596 5.826.146 12.846.044
Accounts Accounts Secured Other financial Balances receivable payable Loans obtained deposits aplications
Banco Espírito Santo - - 151.200.000 - 400.000 Caixa Geral de Depósitos 234 61.111 172.155.567 13.236.577 - Banco BPI - 134.974 81.217.134 7.068.000 - Lisboa TV 2.472 8.483.989 - - - Sport TV 61.507.416 9.109.020 - - - Other 53.758 521.630 495.000 - -
61.563.880 18.310.724 405.067.701 20.304.577 400.000
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The Company regularly performs transactions and enters into contracts with various entities within the ZON Group. Such transactions were performed on normal market terms for similar transactions, as part of the current business of the contracting companies.
The Company also regularly performs transactions and enters into financial contracts with various credit institutions which hold qualifying shareholdings in the Company. However, these are performed on normal market terms for similar transactions, as part of the current business of the contracting companies. b) The remuneration paid to the management of ZON Multimédia, SGPS in the years ended on 31 December 2009 and 2008 was as follows:
2009 2008 Share-based Share-based Fixed Fixed Bonus compensation Bonus compensation Remuneration Remuneration plans plans Executive management 1.855.014 1.402.460 758.905 1.855.014 694.375 - Non executive management 782.679 - - 759.699 - - 2.637.693 1.402.460 758.905 2.614.713 694.375 -
In the bonuses paid in 2008, related to 2007, it should be taken in consideration that the executive commission changed in September 21,2008, with the spin-off process, where only one member of the previous executive commission remained. This way, the bonuses paid, with the exception of this member, were in accordance with their performance evaluation on the last quarter of 2007.
The remuneration paid to top management of the Group in the years ended on 31 December 2009 and 2008 was as follows:
2009 2008
Fixed Remunerations 6.680.691 6.520.699 Bonus 2.554.776 1.738.565 Share-based compensation plans 851.404 1.514.042 10.086.871 9.773.305
The average number of top management of the Group is 40.
The variable remuneration mentioned above corresponds to performance bonuses awarded in 2009 and 2008.
All remuneration and bonuses are short term. The Share Option Plan includes medium and long term amounts of 187 212 euros and 118 594 euros in 2009 and 2008, respectively.
43.3. Joint ventures
The ZON Group has a 50% interest in the Sport TV joint venture, whose business is the televised broadcast of the Sport TV channels.
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As a result of the consolidation of this subsidiary by the proportional method, the following amounts were included in the consolidated statements of financial position at 31 December 2009 and 2008, and in the consolidated statements of comprehensive income for the years ended on 31 December 2009 and 2008.
31-12-2009 31-12-2008
Sport TV (a) Eliminations (b) Contribution (c) Sport TV (a) Eliminations (b) Contribution (c)
Current assets 25.812.066 (6.863.881) 18.948.185 36.542.871 (12.430.846) 24.112.025 Non-current assets 70.123.354 - 70.123.354 80.293.517 - 80.293.517 Tangible assets 8.521.963 - 8.521.963 7.690.610 - 7.690.610 Intangible assets 25.781.140 - 25.781.140 22.733.321 - 22.733.321 Deferred tax assets 258.017 - 258.017 2.057.086 - 2.057.086 Accounts receivable - trade 35.562.233 - - 35.562.233 - 47.812.500 - - 47.812.500 - Total assets 95.935.420 (6.863.881) 89.071.539 116.836.388 (12.430.846) 104.405.542
Current liabilities 55.832.039 (16.954.718) 38.877.321 70.191.584 (28.207.416) 41.984.168 Non- current liabilities 16.749.575 (16.700.000) 49.575 33.332.838 (33.300.000) 32.838 Loans obtained 49.576 - 49.576 - - - Accounts payable - other 16.700.000 - (16.700.000) - - 33.332.838 - (33.300.000) - 32.838 - Total liabilities 72.581.614 (33.654.718) 38.926.896 103.524.422 (61.507.416) 42.017.005
31-12-2009 31-12-2008
Sport TV (a) Eliminations(b) Contribution (c) Sport TV (a) Eliminations(b) Contribution (c) - - - Total revenue 74.072.452 (40.149.400) 33.923.052 64.776.744 (42.616.957) 22.159.787
Total expense 63.910.323 - (1.447.467) - 62.462.856 - 61.682.625 - (4.462.695) - 57.219.930 - Net income 10.162.129 (38.701.933) (28.539.804) 3.094.119 (38.154.262) (35.060.143) a) 50% of the individual accounts of Sport TV at the stated date; b) Inter-company eliminations; c) Amounts included in the consolidated statements of financial position at 31 December 2009 and 2008, and in the consolidated statements of comprehensive income for the years ended on 31 December 2009 and 2008 as a result of consolidation by the proportional method.
44. Contingencies
44.1. Municipal Wayleave Tax (“TMDP”) Proceedings
In February 2004, Law 5/2004 of 10 February (Electronic Communications Law), pursuant to Article 13 of the Authorisation Directive (Directive 2002/20/EC of 7 June), 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 electric communications networks and services to the public. The TMDP charge is levied on “each invoice issued by the companies offering electric communications networks and services to the public at a fixed location to all end clients 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
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collect Occupancy Taxes, while others have chose to maintain the latter taxes rather than approving the TMDP. The Group, based on legal advice on the matter, 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 an internal appeal, which have either subscribed to the Group's interpretation or decided that they may only choose 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 that uphold the position and understanding of ZON TV Cabo, with the result that there are good prospects that this issue will be definitively resolved in favour of ZON TV Cabo in the majority of the Courts.
44.2. Legal actions with regulators
ZON Multimédia and TV Cabo were the object of a Notification for alleged prohibited practices, under the terms of Article 4 of Law 18/2003 of 11 June, arising from alleged preference and exclusivity clauses in the "Partnership Agreement" signed between ZON Multimédia, ZON TV Cabo and SIC – Sociedade Independente da Comunicação, S.A. (SIC), on 27 June 2000 in connection with a concentration subject to prior notification relating to the acquisition of Lisboa TV – Informação e Multimédia, S.A. by SIC. Following this Notification, in August 2006 the Competition Authority decided to impose a fine on ZON Multimédia and ZON TV Cabo of 2.5 million euros. ZON Multimédia and ZON TV Cabo contested the decision in the Lisbon Commercial Court on 8 September 2006. Following this challenge, the Commercial Court, in its judgment of 10 August 2007, declared the administrative offence proceedings partially extinct in relation to the alleged preference clause due to the expiry of the limitation period. The entire proceedings were declared null and void with effect from 1 September 2005, including the Competition Authority’s decision of 8 August 2006. Appeals were lodged against this judgment in the Lisbon Appeal Court by the Competition Authority, ZON Multimédia and TV Cabo Portugal. The Lisbon Appeal Court upheld the decision of the Lisbon Commercial Court. At present, it is not known whether the Competition Authority will re-open proceedings and whether it will decide to impose some sort of fine on ZON Multimédia or ZON TV Cabo. ZON Multimédia believes, based on information from its legal advisers, that these proceedings will not result in any materially relevant impact which could affect its financial statements as at 31 December 2009. .
In a decision on 5 January 2009, the Competition Authority ordered the suspension for three months of the promotional campaign of Lusomundo cinema tickets to ZON TV Cabo customers linked to the MyZonCard. This suspension period elapsed without being renewed or extended, with the result that it has expired. ZON appealed to the Courts against the suspension decision, and the outcome of the proceedings is awaited.
Regarding the substantive issue, there has as yet been no decision by the Competition Authority.
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ZON applied through 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 June 2009 to exclude ZON's application, along with the other rival candidate, a decision against which ZON has legally appealed. The outcome of the proceedings is awaited.
By decision on 1 September 2009, the Competition Authority (“AdC”) fined ZON Multimédia and ZON TV Cabo 8 046 thousand 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 were still part of the Portugal Telecom Group.
ZON Multimédia and ZON TV Cabo appealed to the Courts against the decision; as that appeal 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.
On 8 July 2009, ZON TV Cabo was notified by the AdC in connection with administrative offence proceedings relating to the ZON triple-play offer, requesting ZON TV CABO to comment on the content of the notification, which it did in good time.
The case is still under investigation by the AdC; should it conclude that an infringement has occurred, it may levy a fine not exceeding 10% of the company’s turnover in last year of infringement.
44.3. Tax authorities
During the course of the 2005 financial year, some companies of the ZON Group were the subject of a tax inspection for the 2002 financial year. Following this inspection, 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 in June 2007 lodged an internal appeal against the corrections.
Additionally, during the course of the 2007 financial year, ZON Multimédia was the subject of a tax inspection for the 2004 and 2005 financial years. Following this inspection, ZON Multimédia was notified to pay 97 308 euros and 408 748 euros, corresponding to the corrections made by the Tax Inspection Service to the 2004 and 2005 financial years, respectively. The Company considered that the corrections were unfounded, and contested the amounts mentioned.
Also during the course of the 2007 financial year, ZON TV Cabo was the subject of a tax inspection for the 2004 and 2005 financial years. Following this inspection, ZON TV Cabo was notified of the corrections made by the Tax Inspection Service regarding Stamp Duty and Corporate Income Tax for those financial years. However, as it disagreed with the corrections made by the Tax Inspection Service, ZON TV Cabo did not pay the corrected values, and has lodged an internal appeal against
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them. Additionally, ZON TV Cabo was notified of the corresponding Tax Execution Processes. Due to the fact that there are Internal Appeals pending on these matters, ZON TV Cabo has provided a Bank Guarantee for the amount of 13 256 994 euros, to suspend such Execution Processes.
In relation to these proceedings, ZON TV Cabo was notified during 2009 of the partial annulment of the corrected amounts, and is legally contesting the remaining amounts.
During the course of the 2008 financial year, ZON TV Cabo Portugal was the subject of a tax inspection for the 2006 financial year. Following this inspection, ZON TV Cabo Portugal was notified to pay 1 875 152 euros, corresponding to corrections made by the Tax Inspection Service to the 2006 financial year. ZON TV Cabo considered that the corrections were unfounded, and in January 2009 lodged an internal appeal against the amounts mentioned.
It should also be mentioned that during the course of that inspection, other corrections were made to the Tax Group's taxable income for the financial years mentioned, specifically to the amounts of the tax losses carried forward. ZON Multimédia considers that the corrections are unfounded.
During the course of the 2009 financial year, ZON TV Cabo Portugal was the subject of a tax inspection for the 2007 financial year. Following this inspection, ZON TV Cabo Portugal was notified to pay 1 870 884 Euros, corresponding to corrections made by the Tax Inspection Service to the 2007 financial year. ZON TV Cabo considered that the corrections were unfounded, and in November 2009 lodged an internal appeal against the amounts mentioned.
Also during the course of the 2009 financial year, ZON Multimédia was the subject of tax inspections for the 2006 and 2007 financial years.
Following that inspection, ZON Multimédia, as the controlling company of the Tax Group, was notified of corrections made by the Tax Inspectorate to the Group’s tax loss. The Company considered that the corrections were unfounded, and is contesting the amounts mentioned.
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 during the period under review, as well as other contingencies of a fiscal nature, will not have a significant effect on the consolidated financial statements as at 31 December 2009, except for the situations which have been the subject of provisions.
45. Share Incentive Scheme
The Share Incentive Scheme approved by the General Meeting of Shareholders on 27 April 2008 for the period 2008/2009, 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, has been implemented in accordance with the principles approved by both the General Meeting and the Board of Directors.
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This incentives plan comprises a Standard Plan and a Senior Executive Plan. The Standard Plan is aimed at eligible members selected by the competent bodies, regardless of the roles they perform. In this plan the vesting period for the assigned shares is five years, starting twelve months after the period to which the respective assignment relates, at a rate of 20% per annum. The Senior Executive Plan is aimed at eligible members classed as Senior Executives, also selected by the respective competent bodies. Vesting requires annual authorisation from the Board of Directors.
The maximum number of shares to be assigned each year to these plans is approved by the Board of Directors and depends exclusively on fulfilment of the performance targets established for ZON and on the assessment of individual performance.
In 2008 and 2009, the separate plans established in the Share Plan Regulations approved by the General Meeting of Shareholders were implemented.
The maximum total number of share options assigned in 2008 and 2009 which may potentially be exercised under the terms of the separate plans is 1,122,794.
The number of shares already vested in 2009 under the terms of the above plans is 307,293.
The Group recognized liabilities in 2008 and 2009 resulting from these share plans, which extend until 2013, totalling 3 542 530 euros – 1 950 854 euros in 2008 and 1 591 676 euros in 2009.
In addition, in the first half of 2008 ZON implemented the Share Savings Plan, also established in the Regulations approved by the General Meeting of Shareholders. This plan is aimed at all staff, who may subscribe to it without the need for any prior assessment. Employees who meet the internal criteria may invest up to 10% of their annual salary in this plan, up to a maximum of 7 500 euros per annum, with the benefit of purchasing shares at a 10% discount.
Under the Share Savings Plan which was launched in 2009, ZON employees bought 46,959 shares.
46. Events after the Reporting Period
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 euro per share, giving a total price of 74 234 116 euros. With this resolution, the conditions precedent to the contract of purchase and sale of shares signed between ZON Multimédia and Kento Holding Limited on 20 December 2009 were deemed to be met.
At this date Kento owns 10% of the share capital of ZON following the purchase of 4.53% of ZON own shares and the shareholdings of 2.50% previously owned by CGD and 2.97% owned by Cinvest.
As a result of sales of own shares, all the equity swaps between the ZON Multimédia and their respective financial institutions were settled.
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In February 2010, Sport TV signed a contract with PPTV – PUBLICIDADE DE PORTUGAL E TELEVISÃO, S.A., securing the rights to broadcast matches of the Portuguese Football League for a further year (2012/2013).
In 2010, Sport TV reviewed its financing model and secured a medium and long term loan, part of which was used to repay the loan from the ZON Group.
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ANNEX I
a) Companies included in the consolidation
b) Associated companies
c) Jointly controlled companies
d) Companies recorded at cost
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ANNEXED TABLES
a) Companies included in the consolidation
Percentage of Ownership
Company Head Office Activity Direct Effective Effective 31.12.2009 31.12.2009 31.12.2008
ZON Multimédia - Serviços de Telecomunicações Lisbon Management of investments in the multimedia business e Multimédia, SGPS, S.A. ZON Televisão por Cabo, SGPS, S.A. Lisbon Management of investment in television by cable market. ZON Multimédia (100%) 100,00% 100,00%
ZON TV Cabo Portugal, S.A. Lisbon Distribution of television by cable and satellite, conception, realization, ZON Televisão Por Cabo (100%) 100,00% 100,00% productionand broadcasting of television and programs, operation of ZON Conteúdos - Actividade de Televisão e de Lisbon Production and sale of television programs and advertising management. ZON Televisão Por Cabo (100%) 100,00% 100,00% Produção de Conteúdos, S.A. ZON TV Cabo Açoreana, S.A. Ponta Delgada Distribution of television signals by cable and satellite in the Azores area. TV Cabo Portugal (83,82%) 83,82% 83,82%
ZON TV Cabo Madeirense, S.A. Funchal Distribution of television signals by cable and satellite in the Madeira area. TV Cabo Portugal (77,95%) 77,95% 77,95%
ZON Lusomundo Audiovisuais, S.A. Lisbon Import, distribution, commercialization and production of audiovisual ZON Multimédia (100%) 100,00% 100,00% products ZON Lusomundo Cinemas , S.A. ("ZON LM Lisbon Cinematic exhibition. ZON Multimédia (100%) 100,00% 100,00% Cinemas") Lusomundo Moçambique, Lda. ("Lusomundo Maputo Cinematic exhibition. Lusomundo Cinemas (100%) 100,00% 100,00% Moçambique") Lusomundo España, SL ("Lusomundo España") Madrid Management of investments relating to activities in Spain in the ZON Multimédia (100%) 100,00% 100,00% audiovisuals business. Grafilme - Sociedade Impressora de Legendas, Lisbon Providing services on audiovisual subtitling. Lusomundo Audiovisuais (55,56%) 55,56% 55,56% Lda. ("Grafilme") Lusomundo Editores, Lda. ("Lusomumdo Lisbon Movies distribution. ZON Multimédia (100%) 100,00% 100,00% Editores") Lusomundo - Sociedade de investimentos Lisbon Management of Real Estate. ZON Multimédia (99,87%) 99,87% 99,87% imobiliários SGPS, SA ("Lusomundo SII") Empracine - Empresa Promotora de Actividades Lisbon Developing activities on movies exhibition. Lusomundo SII (100%) 99,87% 99,87% Cinematográficas, Lda. ("Empracine") Lusomundo Imobiliária 2, S.A.("Lusomundo Lisbon Management of Real Estate. Lusomundo SII (99,80%) 99,68% 99,68% Imobiliária 2") ZON Serviços de Gestão Partilhados, S.A. (a) Lisboa Services outsourcer - - 100,00%
TVTel – Telecomunicações, S.A. (b) Porto Distribution of television signals by cable and satellite - - 100,00%
Bragatel – Televisão por Cabo, S.A. (b) Braga Distribution of television signals by cable and satellite - - 100,00%
Pluricanal Leiria – Televisão por Cabo, S.A (b) Leiria Distribution of television signals by cable and satellite - - 100,00%
Pluricanal Santarém – Televisão por Cabo, S.A. Santarém Distribution of television signals by cable and satellite - - 98,75% (b) Teliz Holding B.V. Management of investment ZON Multimédia (100%) 100,00% - Amstelveen ZON Audiovisuais, SGPS S.A. Lisbon Management of investment ZON Multimédia (100%) 100,00% - ZON Cinemas, SGPS S.A. Lisbon Management of investment Lusomundo Cinemas (100%) 100,00% -
(a) Company liquidated in 2009;
(b) Companies merged by ZON TV Cabo Portugal, S.A. in 2009.
b) Associated companies
Percentage of Ownership
Company Head Office Activity Direct Effective Effective 31.12.2009 31.12.2009 31.12.2008
Empresa de Recreios Artísticos, Lda. ("Empresa de Lisbon Cinematic exhibition - - 91,82% Recreios Artísticos") (a) Distodo - Distribuição e Logística, Lda. ("Distodo") Lisbon Stocking, sale and distribution of audiovisual material. Lusomundo Audiovisuais 50,00% 50,00% (50,00%) Canal 20 TV, S.A. Madrid Distribution of televised products ZON Multimédia (50,00%) 50,00% 50,00%
Lisboa TV – Informação e Multimédia, S.A. ("Lisboa Lisbon Television operations, notably production and commercialization of - - 40,00% TV") (b) programs and publicity. SGPICE – Sociedade de Gestão de Portais de Internet Lisbon Developing activities providing global products and services for internet ZON Multimédia (11,11%) - 11,11% e Consultoria a Empresas, S.A. ("Pme Link") (b) support. Pluricanal Gondomar - Televisão por Cabo, S.A. Gondomar Distribution of television by cable and satellite, operation of ZON TVCabo (100%) 100,00% 100,00% telecommunications services. Expernet - Serviços Avançados de Telecomunicações Gondomar Operation of telecommunications services. ZON TVCabo (99,5%) 99,50% 99,50% Lda. (a) Upstar Comunicações S.A. Vendas Electronic comunication services, production, commercialization and ZON Multimédia (100%) 100,00% - Novas distribuition of contents Dreamia - Serviços de Televisão, S.A. 0 Lisbon Conception, production, realization and commercialization of audiovisual Dreamia Holding BV (100%) 50,00% - contents and provision of publicity services Dreamia Holding BV Netherlands Management of investment ZON Audiovisuais SGPS (50%) 50,00% -
(a) Companies liquidated in 2009.
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(b) Company sold in 2009.
(c) This company was excluded from the full consolidation scope in view of ZON Multimédia's intention to liquidate the company, as it has no activity.
c) Jointly controlled companies
Percentage of Ownership
Company Head Office Activity Direct Effective Effective 31.12.2009 31.12.2009 31.12.2008
Sport TV Portugal Lisboa Conception, production, realization and commercialization of sports ZON Conteúdos (50,00%) 50,00% 50,00% programs for telebroadcasting, purchase and resale of the rights to broadcast sports programs for television and provision of publicity services
d) Companies recorded at cost
Percentage of Ownership
Company Head Office Activity Direct Effective Effective 31.12.2009 31.12.2009 31.12.2008
PT Multimédia - Serviços de Apoio à Gestão, Lisbon Provision of support services to companies or groups of companies - - 100,00% S.A. (a) Turismo da Samba (Tusal), SARL (b) Luanda n.a. ZON Multimédia (30,00%) 30,00% 30,00%
Filmes Mundáfrica, SARL (b) Luanda Cinematic exhibition ZON Multimédia (23,91%) 23,91% 23,91%
Gesgráfica - Projectos Gráficos, Lda. (a) Porto Graphic production Empresa Recreios Artísticos 18,36% 18,36% (20,00%) Companhia de Pesca e Comércio de Angola Luanda n.a. ZON Multimédia (15,78%) 15,76% 15,76% (Cosal), SARL (b) Caixanet – Telecomunicações e Telemática, Lisbon Telecommunication services ZON Multimédia (5,00%) 5,00% 5,00% S.A. Apor - Agência para a Modernização do Porto Porto Development of modernizing projects in Oporto ZON Multimédia (3,30%) 2,04% 2,04%
Lusitânia Vida - Companhia de Seguros, S.A Lisbon Insurance services ZON Multimédia (0,06%) 0,06% 0,06% ("Lusitânia Seguros") Lusitânia - Companhia de Seguros, S.A Lisbon Insurance services ZON Multimédia (0,04%) 0,04% 0,04% ("Lusitânia Vida")
(a) Companies liquidated up in 2009.
(b) The financial investments in these companies are fully provisioned.
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DOCUMENTS OF APRECIATION OF CONSOLIDATED ACCOUNTS
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REPORT AND FISCAL COUNCIL OPINION
Shareholders,
According to the Articles of Association, the supervision of the Company is the responsibility of 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 Article 423-F.g) of the Companies Code, we hereby submit our report on our supervision and our opinion on the Consolidated Annual Report and Accounts of ZON MULTIMÉDIA – Serviços de Telecomunicações e Multimédia, SGPS, SA for the financial year ended on 31 December 2009.
The Audit Committee’s activity is ruled under the Audit Committee’s Charter, which was approved by the Board of Directors.
Throughout the year, the Audit Committee regularly monitored the activities of the Company and of its main subsidiaries, ensuring that it complied with the law and its 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 and verified 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 monitored the work done by the statutory auditor and external auditors and verified their independence. We also met with the heads of the Internal Audit Department and Legal Department, the Executive Committee and the financial director 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 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 2009, which include the consolidated balance sheet, consolidated profit and loss account, consolidated statement of changes in equity, consolidated cash flow statement and their respective notes for the financial year of 2009, which express no reservations, and scrutinized the Audit Report draft from the statutory auditor.
As part of our remit, we checked that the Consolidated Annual Report and Consolidated Financial Statements for the year ended on 31 December 2009 satisfied applicable requirements of the law, accounting standards and Articles of Association.
Taking into account the information received from the Board of Directors, the Company’s departments, the Statutory Auditor and the External Auditor, we are of the opinion:
i) that the Consolidated Annual Report may be approved; and
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ii) that the Consolidated Financial Statements may be approved.
Lisbon, 22 March 2009
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 CONSOLIDATED ACCOUNTS
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CORPORATE GOVERNANCE REPORT
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TABLE OF CONTENTS
CHAPTER 0. COMPLIANCE STATEMENT...... 154
CHAPTER 1. GENERAL SHAREHOLDERS MEETING ...... 162 1. COMPOSITION AND FUNCTIONING OF THE GENERAL SHAREHOLDERS MEETING...... 162 2. PARTICIPATION IN THE GENERAL SHAREHOLDERS MEETING AND VOTING RIGHT ...... 162 3. QUORUM AND RESOLUTIONS (INCLUDING CHANGES TO THE BY-LAWS) ...... 164 4. AVAILABILITY OF INFORMATION ON THE GENERAL SHAREHOLDERS MEETING...... 165 5. ROLE OF THE GENERAL SHAREHOLDERS MEETING REGARDING: ...... 165
6. MEASURES ON CORPORATE CONTROL ...... 167 7. MEASURES THAT MAY INTERFERE WITH THE SUCCESS OF TAKEOVER BIDS ...... 168
CHAPTER 2. MANAGEMENT AND SUPERVISORY BODIES ...... 169 1. GENERAL MATTERS ...... 169 2. CHARTS ON THE DIVISION OF POWERS AND FUNCTIONS ...... 170 3. MANAGEMENT BODY: BOARD OF DIRECTORS AND EXECUTIVE COMMITTEE ...... 173 4. LIST OF SPECIFIC COMMITTEES CREATED WITHIN THE COMPANY ...... 182 5. SUPERVISION OF THE COMPANY - AUDIT COMMITTEE AND STATUTORY AUDITOR ...... 184 6. REMUNERATION COMMITTEE ...... 188 7. CODES OF CONDUCT ...... 189 8. REMUNERATION OF MEMBERS OF CORPORATE BODIES ...... 191 9. REMUNERATION OF DIRECTORS ...... 192 10. RISK MANAGEMENT SYSTEM ...... 194 11. WHISTLEBLOWING POLICY ...... 198
CHAPTER 3. INFORMATION ...... 200 1. CAPITAL STRUCTURE AND MAJOR SHAREHOLDERS ...... 200 2. LIMITS ON THE TRANSFERABILITY OF SHARES, SHAREHOLDERS’ AGREEMENTS AND SHAREHOLDINGS 203 3. SHARE PRICE EVOLUTION ...... 203 4. DIVIDEND DISTRIBUTION ...... 204 5. PLANS FOR ALLOTMENT OF SHARES OR OPTIONS ...... 205 6. RELEVANT TRANSACTIONS WITH MEMBERS OF THE CORPORATE BODIES, HOLDERS OF QUALIFIED SHAREHOLDINGS OR COMPANIES IN A GROUP OR CONTROL RELATIONSHIP ...... 208
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7. INVESTOR RELATIONS ...... 208 8. EXTERNAL AUDITORS ...... 210 9. SUSTAINABLE DEVELOPMENT AND SOCIAL RESPONSIBILITY POLICY ...... 212
ANNEX I 215
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CHAPTER 0. COMPLIANCE STATEMENT
This report is intended to comply with the annual disclosure requiring a detailed report on corporate governance structure and practices under the terms of article 245-A of the Securities Code (“Cód.VM” as abbreviated in Portuguese) applicable to share issues admitted to trading on a regulated market located or operating in Portugal.
Additionally, this report seeks to disclose the corporate governance structure and practices adopted by the Company in order to comply with the provisions of the CMVM (Portuguese Securities Market Commission) Recommendations on the Governance of Listed Companies, in the version published in September 2007, as well as best international practices of corporate governance, prepared in accordance with article 7 of the Cód.VM and article 2(1) of CMVM Regulation no. 1/2010.
In this context and through this report, ZON Multimédia will report information on the matters set out in Annex I of CMVM Regulations no. 1/2010, which are not addressed in the said 2007 CMVM Governance Code. However, a comply or explain exercise referring to 2009 will not be conducted in relation to these matters in this report given that they will be addressed in the CMVM Governance Code for Listed Companies, in the version published in January 2010, after the end of the financial year to which this report refers.
The Company is analysing the CMVM Recommendations from the Governance Code for Listed Companies published in January 2010 with a view to assessing the impact that such recommendations have on the ZON Multimédia Group’s current governance model.
The texts mentioned are available at www.cmvm.pt .
During the 2009 financial year, the Company fully adopted the CMVM Recommendations on Corporate Governance for Listed Companies as published in September 2007 with the exception of Recommendations I.3.3 and I.6.2, which are not complied with for the reasons set out below.
The chapters of this Corporate Governance Report containing a description of the measures adopted by the Company to comply with the said CMVM Recommendations are identified below.
CMVM RECOMMENDATION COMPLIANCE REPORT
I – General Shareholders Meeting:
I.1 Board of the General Shareholders Meeting 1.1. The Chairman of the Board of the General YES Chapter 1 Shareholders Meeting has the human and logistic Number 1 resources appropriate to his needs. 1.2. The remuneration of the Chairman of the Board of the YES Chapter 1 General Shareholders Meeting shall be disclosed in the Number 1 annual corporate governance report.
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I.2 Participation in the General Shareholders Meeting 2.1. Any imposition of a prior deposit or share blocking YES Chapter 1 period set out in the by-laws shall not exceed five business Number 2 days. 2.2. In the event of suspension of the General YES Chapter 1 Shareholders Meeting, such blocking shall not be Number 2 maintained for the suspension period; the usual share blocking period for the first session shall be sufficient.
I.3 Voting and Exerc ise of the Voting Right 3.1. Companies’ by-laws shall not provide any restriction YES Chapter 1 on voting by correspondence. Number 2 3.2. The deadline established by the by-laws for the receipt YES Chapter 1 of voting declarations issued by correspondence shall not Number 2 exceed three business days. 3.3. Companies’ by-laws shall establish the one share one NO (1) Chapter 1 vote principle. Number 2
I.4 Quorum and Resolutions 4.1. Companies shall not establish a meeting or resolution YES Chapter 1 quorum exceeding those set forth by law. Number 3
I.5 Minutes and Disclosure of Passed Resolutions 5.1. Minutes shall be made available to shareholders on YES Chapter 1 the company’s website within five days and this website Number 4 shall keep a historical record of attendance lists, agendas and resolutions adopted for at least the previous three years.
I.6 Measures for Corporate Cont rol 6.1. Measures adopted to prevent the success of takeover YES Chapter 1 bids shall respect the interests of the company and its Number 7 shareholders. 6.2. By-laws providing for a limitation on the number of NO (2) Chapter 1 votes that may be held or exercised by a single Number 7 shareholder, individually or jointly with other shareholders, shall establish that (i) at least every five years the maintenance of this provision shall be subject to a resolution at the general shareholders meeting, and that (ii) upon such resolution all votes cast shall be counted without applying such limitation. 6.3. Defensive measures that have the automatic effect of YES Chapter 1 causing serious erosion of the company’s assets in the Number 6 case of change of control or change in the composition of the management body, thus hindering the free transfer of shares and assessment of members of the management body, shall not be adopted.
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II – Management and Supe rvisory Bodies: II.1. General
II.1.1. Structure and Duties 1.1.1. The management body shall assess the corporate YES Chapter 2 governance model adopted in the annual corporate Number 1 governance report, identifying any constraints on its operation and proposing the steps to be taken to overcome such constraints. 1.1.2. Companies shall create internal control systems to YES Chapter 2 identify risks related to the activities of the company. Number 10 1.1.3. Management and supervisory bodies shall YES Chapter 2 establish internal regulations which shall be disclosed on Numbers 2 and 5 the company’s website.
II.1.2. Conflicts of interest and Independence 1.2.1. The Board of Directors shall include a number of YES Chapter 2 non-executive members ensuring effective ability to Number 3 supervise, monitor and assess the activity of the executive members. 1.2.2. The non-executive members of the management YES Chapter 2 body shall include an appropriate number of independent Number 3 members, which shall never be less than a quarter of the total number of directors.
II.1.3. Eligibility and Appointment 1.3.1. Depending on the corporate model, the chairman of YES Chapter 2 the audit board or of the audit committee or of the financial Numbers 3 and 5 matters committee shall be independent and be appropriately qualified to carry out his duties.
II.1.4. Whistleblowing Policy 1.4.1. The company shall adopt a whistleblowing policy YES Chapter 2 with the following characteristics: i) indication of the means Number 11 that can be used for internal whistleblowing and the persons entitled to receive such communications, ii) indication of the processing of such communications. 1.4.2. The general guidelines of such policies shall be YES Chapter 2 disclosed in the annual corporate governance report. Number 11
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II. 1.5. Remuneration 1.5.1. The remuneration of members of the management YES Chapter 2 bodies shall be structured to allow the alignment of their Number 8 interests with the company’s. Thus: i) the remuneration of directors performing executive functions shall incorporate a performance-based component; ii) the variable component shall be consistent with the maximisation of the long-term performance of the company and dependant on the sustainability of the performance variables adopted; iii) when the law does not so require, the remuneration of non- executive members of the management body shall exclusively comprise a fixed amount. 1.5.2. The remuneration committee and management body YES Chapter 1 shall submit to the annual general shareholders meeting a Number 8 statement on the remuneration policy of the management and supervisory bodies and of all other persons discharging managerial functions as per article 248-B(3) of the Cód.VM. 1.5.3. At least one representative of the remuneration YES Chapter 1 committee shall be present at the annual general Number 5 shareholders’ meetings. 1.5.4. A proposal shall be submitted to the general YES Chapter 3 shareholders meeting on the approval of plans for the Number 5 allotment of shares, and/or share options or based on variations in share price, to members of the management and supervisory bodies and other persons discharging managerial functions as defined in article 248-B(3) of the CódVM. The proposal shall be presented together with the regulation governing the plan or the general conditions that it shall comply with. The general shareholders meeting shall also approve the main characteristics of any retirement plan that benefits members of the management and supervisory bodies and other persons discharging managerial functions according to article 248-B(3) of the CódVM. 1.5.5. The remuneration of the members of the YES Chapter 2 management and supervisory bodies shall be subject to Number 9 individual annual disclosure, with the fixed and variable remuneration being distinguished. Any other remuneration received from other companies within the group or companies controlled by holders of qualified shareholdings shall also be identified.
II.2. Board of Directors 2.1. Within the legal limits established for each YES Chapter 2 management and supervisory structure, and unless the Number 3 company has a reduced size, the board of directors shall delegate the day-to-day management of the company. 2.2. The board of directors shall ensure that the company YES Chapter 2 acts in accordance with its objectives, and shall not Number 3 delegate its responsibility namely in relation to: i) the definition of the company’s strategy and general policies; ii) the definition of the group’s corporate structure; iii) decisions that should be considered as strategic due to their value, risk or special characteristics.
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2.3. In the case of the chairman of the board of directors YES Chapter 2 carrying out executive duties, the board of directors shall Number 3 find efficient co-ordination mechanisms for work of non- executive members, ensuring that these members are able to make decisions in an independent and informed manner. 2.4. The annual management report shall include a YES Chapter 2 description of the activities carried out by non-executive Number 1 directors namely mentioning any constraints encountered. 2.5. The management body shall rotate the member YES Chapter 2 responsible for the financial area at least at the end of two Number 3 terms in office.
II.3. Deputy Director, Executive Committee and Executive Board of Directors 3.1. Directors performing executive duties shall provide any YES Chapter 2 information requested by other corporate body members in Number 3 a timely and appropriate manner. 3.2. The chairman of the executive committee shall send all YES Chapter 2 calls and minutes of such committee’s meetings to the Number 3 chairman of the board of directors and, if applicable, to the chairman of the audit board or of the audit committee. 3.3. The chairman of the executive board of directors shall N/A N/A send to the chairman of the general and supervisory board and to the chairman of the financial matters committee all calls and minutes of the respective meetings.
II.4. General and Supervisory Board , Financial Matters Committee, Audit Committee and Audit Board 4.1. In addition to performing its supervisory roles, the N/A N/A general and supervisory board shall perform an advisory role, as well as continually assessing the management of the company by the executive board of directors. The general and supervisory board shall make decisions on the following matters: i) definition of the company’s strategy and general policy; ii) the corporate structure of the group; and iii) decisions considered to be strategic due to the values, risks or special characteristics involved. 4.2. The annual reports on the activities of the general and YES Chapter 2 supervisory board, the financial matters committee, the Number 1 audit committee and the audit board shall be disclosed on the company’s website along with the financial statements. 4.3. The annual reports on the activities of (i) the general YES Chapter 2 and supervisory board, (ii) the financial matters committee, Number 1 (iii) the audit committee and (iv) the audit board shall include a description of the supervisory activity carried out and should also refer to any potential constraints. 4.4. The financial matters committee, the audit committee YES Chapter 2 and the audit board, depending on the corporate Number 3 governance model adopted, shall represent the company for all purposes before the external auditor and shall propose the services supplier, the respective remuneration and ensure that the company makes available appropriate conditions for the rendering of the services, as well as act as the point of contact, being also the first to receive the reports.
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4.5. The financial matters committee, the audit committee YES Chapter 2 and the audit board, depending on the corporate Number 3 governance model adopted, shall annually assess the external auditor and propose to the general shareholders meeting that the external auditor be discharged if justifiable grounds so warrant.
II.5. Specialised Committees 5.1. The board of directors and the general and supervisory YES Chapter 2 board, depending on the corporate governance model Number 4 adopted, shall create the necessary committees in order to: i) ensure that a competent and independent assessment of the performance of executive directors is carried out, as well as of its own overall performance and the performance of existing committees; ii) consider the corporate governance system adopted and assess its efficiency and propose to the respective bodies any measures required to improve it. 5.2. Members of the remuneration committee, or YES Chapter 2 equivalent, shall be independent from the management Number 6 bodies. 5.3. All committees shall draw up minutes of their YES Chapter 2 meetings. Numbers 4 and 6
III – Information and Auditing: III.1. General Disclosure Duties
1.1 Companies shall ensure permanent contact with the YES Chapter 3 market, respecting the principle of shareholder equality and Number 7 preventing any inequalities in investors’ access to information. For such purposes the company shall maintain an investor support office. 1.2 The following information, to be available on the YES Chapter 3 company’s website, shall be provided in English: Number 7 a) The company name and the fact it is a public company, its registered office and all other information mentioned under article 171 of the Portuguese Companies Code; b) By-laws; c) Identity of all members of corporate bodies and the representative for market relations; d) Investor Support Office, its duties and means of access; e) Financial statements; f) Bi-annual agenda of corporate events; g) Proposals submitted to discussion and voting at the general shareholders meeting: h) Calls for the general shareholders meeting
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(1) In accordance with the Company’s By-laws, each 400 shares are equivalent to one vote. This situation contradicts Recommendation 1.3.3 of the 2007 CMVM Governance Code, which establishes the “one share, one vote” principle.
There is no consensus on the “one share, one vote” principle at the international level, particularly in Europe. For instance, in the so-called EU Directive of Shareholders’ Rights 1, this principle, although under debate, has not been established. Moreover, neither was this principle considered in the Recommendation.
This shows that the idea that one share should correspond to one vote lacks justification. Despite the long and detailed discussion of this issue at the European level, there is no general consensus on the benefits it seeks to bring (namely an effective equality between shareholders and, in particular, greater balance between minority and majority shareholders). In this measure, and as defended in previous reports, ZON Multimédia reiterates its understanding that the “one share, one vote” principle does not represent an incontestable best practice, and, consequently, the Company believes that its failure to comply with this Recommendation is well-founded and acceptable.
In addition, although non-compliance with the “one share, one vote” principle is frequently seen as a defensive measure, ZON Multimédia considers that, in its own case, the 400 shares requirement to participate and exercise the voting right at the General Shareholders Meeting does not take power from shareholders (particularly minority shareholders), rather it becomes a mechanism to allow effective and orderly participation at Shareholders’ Meetings.
(2) Article 12(5) of ZON Multimédia’s By-laws contains a cap on the counting of votes of a single shareholder; the votes cast by a single shareholder of ordinary shares, directly or through a proxy on his own behalf or as a representative of another shareholder exceeding 10% of the total share capital, shall not be counted.
The initial wording of this provision of the By-laws provided for a 5% cap and dates from the incorporation of the Company within the Portugal Telecom Group. It was amended at the General Shareholders Meeting on 20 June 2007 to the current 10% cap following a proposal from the Board of Directors.
In accordance with the position it has held consistently, ZON Multimédia maintains that this provision represents a measure to expand shareholder democracy and protection of minority shareholders, reducing the voting power of larger shareholders, thereby expanding the voting power of minority shareholders. Additionally, it functions as an important mechanism to guarantee shareholder stability, avoiding shareholder movements based upon mere stock market speculation, which in no way contributes to positive results and the sustainability of companies.
1 Directive 2007/36/EC of the European Parliament and Council of Europe of June 11, 2007 on the exercise of certain rights in listed companies. Available at: http://eur-lex.europa.eu/LexUriServ/site/pt/oj/2007/l_184/l_18420070714pt00170024.pdf .
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However, it is also usually seen as a measure with potential to interfere with the success of takeover bids since higher levels of shareholder participation are required to obtain control of a company. However, in contrast with this potential effect, it should be emphasised that this measure may constitute an incentive to the improvement of the conditions that make a takeover bid attractive since only higher levels of subscription by the offerees allows the control thresholds to be reached.
It should also be highlighted that majority shareholders affected by this provision are able to propose its removal or amendment to the General Shareholders Meeting. In this regard, we believe that this issue is subject to shareholder consideration, providing shareholders with the opportunity to propose and vote in accordance with respective shareholdings. The management body is not, therefore, responsible for suppression of the statutory provision related to the voting cap. For this reason, we disagree with the proposed regulatory rule that promotes the statutory provision of the duty (of the management body) to require a shareholder vote on maintenance of the voting cap at least every five years.
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CHAPTER 1. GENERAL SHAREHOLDERS MEETING
1. COMPOSITION AND FUNCTIONING OF THE GENERAL SHAREHOLDERS MEETING
The Board of the General Shareholders Meeting is composed as follows:
• Júlio de Castro Caldas (Chairman) • Maria Fernanda Carqueija Alves de Ribeirinho Beato (Secretary)
The three-year term of office of the members of the Board of the General Shareholders Meeting began on April 24, 2007 and ended on December 31, 2009.
In 2009, the Chairman of the Board of the General Shareholders Meeting received the total remuneration of €2,500 for attendance at one meeting.
The General Shareholders Meeting, comprised of shareholders with voting rights, meets at least once a year, under article 376 of the Portuguese Companies Code (“CSC” as abbreviated in Portuguese). The General Shareholders Meeting is also held when called by the Chairman of the Board of the General Shareholders Meeting, by the Board of Directors or by the Audit Committee, or by shareholders representing at least 5% of share capital, under article 375 of the CSC, and, in turn, in special cases provided for in the applicable legislation, when called by the Audit Committee.
Under article 377 of the CSC, the call for the general shareholders meetings must be given at least one month in advance on the Ministry of Justice’s website (http://publicacoes.mj.pt ). The call is also given on the Company’s website and in the CMVM information disclosure system (www.cmvm.pt ), as well as on the Euronext Lisbon website.
All necessary resources are made available to allow the Chairman of the Board of the General Shareholders Meeting to carry out his duties, in particular with the assistance of the Company’s General Office.
2. PARTICIPATION IN THE GENERAL SHAREHOLDERS MEETING AND THE RIGHT TO VOTE
Under the Company’s By-laws, only shareholders with voting rights may attend the General Shareholders Meeting. Each set of 400 shares represents one vote. According to Portuguese law, shareholders controlling a lower number of shares can join together to achieve the required or a higher number of shares and may be represented at the meeting by one of the shareholders in the group.
Under article 12(2) of the By-laws, the holding of the right to vote shall be evidenced by the registration of the shares in a book entry securities account up to 5 business days prior to the meeting. However, if the meeting is suspended, shareholders can unblock the shares. Participation in the General Shareholders Meeting on the new date shall be evidenced by the registration of the shares in a book entry securities account with the same time constraint as the original meeting (up to 5 business days prior to the meeting).
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Shareholders with voting rights can participate directly in the General Shareholders Meeting, or be represented under the terms of the CSC, by sending a signed letter to the Chairman of the Board of the General Shareholders Meeting.
According to the terms of Article 12 of the ZON Multimédia By-laws, the votes issued by a shareholder who holds ordinary shares, by itself or through a representative, on its own behalf or as a representative of another shareholder, that exceed 10% of the total voting rights corresponding to share capital are not be counted.
The Company’s By-laws provide for the exercise of voting rights by correspondence or electronic means in regard to all matters contained in the call, under the terms and conditions established therein.
Voting by Correspondence
ZON Multimédia does not impose any restrictions on voting by correspondence, which, in compliance with the By-laws and the Company’s practice, shall be exercised in accordance with the following procedures: a) The shareholders entitled to vote may, under article 22 of the Cód.VM, exercise their voting rights by correspondence, through a signed statement where the vote on each of the items of the General Shareholders’ Meeting’s agenda must be clearly defined; b) The voting statement shall be accompanied by a legible copy of the shareholder’s identity card or citizen’s card and by the statement of the financial intermediary in charge of the registration of the respective shares. If the shareholder is a legal person, the voting statement shall be signed by its representative whose signature shall be certified by a notary; c) The voting statement and the documents referred to in the previous paragraph must be sent by registered mail in a closed envelope addressed to the Chairman of the Board of the General Shareholders Meeting; d) The Chairman of the Board of the General Shareholders meeting is responsible for ensuring the authenticity and confidentiality of the votes by correspondence until the time of the vote.
For the purposes of voting by correspondence, there are voting forms available to shareholders at the Company’s registered office, which may also be obtained through its website or by hand, post or electronic mail.
The Company’s By-laws do not specify a minimum period between receipt of the voting declaration by correspondence and the date of the General Shareholders Meeting. Nevertheless, the Company’s practice has been to establish in the call a deadline of three business days before the General Shareholders Meeting for the receipt of votes by correspondence.
Electronic Voting
As an alternative to voting by post, the holders of voting rights can choose to exercise their voting right by electronic means. However, the Chairman of the Board of the General Shareholders Meeting may make voting by electronic means subject to conditions that he may establish for the purposes of
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security and reliability.
In fact, according to the practice implemented in the Company, shareholders entitled to vote may also vote through the Internet on the Company’s website, in accordance with the requirements established there, provided that, by the time and date set out in the call for the General Shareholders Meeting, they have delivered to the Chairman of the Board of the General Shareholders Meeting a communication prepared in accordance with the form made available on the same website, which shall bear a certified signature (or, for individuals, a simple signature together with a copy of the relevant ID card or citizen’s card), and shall include the postal address to which the password to be made available by the Company should be sent.
Such shareholders may exercise their voting rights during the period established in the call for the General Shareholders Meeting. Only the votes of shareholders whose declaration of the financial intermediary, entrusted with the registration of the relevant shares, has been received during the period provided for in the call for the General Shareholders Meeting may be taken into account.
Common Provisions – Voting
Voting rights exercised by correspondence or by electronic means will be taken into account at the time of counting of the votes by being added to the voting rights exercised during the General Shareholders Meeting.
The presence at a General Shareholders Meeting of a shareholder, or a shareholder’s representative, having exercised his/her voting rights either by correspondence or by electronic means has the effect of revoking that shareholder’s vote by correspondence or electronic means.
According to article 384(9) of the CSC and to article 12(11)(f) of the Company’s By-laws, any votes cast either by correspondence or by electronic means shall be deemed as a vote against any resolution proposals that may be submitted after the date on which said votes were cast.
3. QUORUM AND RESOLUTIONS (INCLUDING CHANGES TO THE BY-LAWS)
On first call, the General Shareholders Meeting resolutions are passed by majority of votes cast, regardless of the number of shareholders present or represented.
However, to pass a resolution on an amendment to the By-laws, a merger, spin-off, transformation or dissolution of the Company or any other matter so required by law, a qualified majority of two thirds of the votes cast in the first call is necessary. In the General Shareholders Meeting on these matters, shareholders holding shares corresponding to at least one third of the share capital must be present or represented at the first call. However, a General Shareholders Meeting on a second call is able to pass a resolution on such matters regardless of the number of shareholders present or represented. At the second call, the general shareholders meeting passes resolutions on the same matters by a two-thirds majority of the votes cast, unless shareholders holding at least half the share capital are present or represented, in which case those resolutions may be taken by the majority of votes cast.
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The ZON Multimédia By-laws do not provide for any higher meeting or resolution quorum than is established by law. In effect, no statutory rules are established concerning quorums for either meetings or resolutions, or concerning the effects on the standout systems relating to asset rights.
4. AVAILABILITY OF INFORMATION ON THE GENERAL SHAREHOLDERS MEETING
The proposals to be submitted by the Board of Directors to the General Shareholders Meeting, as well as the reports that must be legally attached thereto and all other preparatory information data, are made available to shareholders at the Company’s registered office during the period established by law. This information includes the full text of any proposed alterations to the By-laws which shall be made available as from the date of the call of General Shareholders Meeting.
To facilitate access to such documents, especially by foreign shareholders, the Company will send them by post, fax or electronic mail, upon request.
In addition, the call for the General Shareholders Meeting and the proposals received by the Chairman of the Board of the General Shareholders Meeting to be discussed and decided upon at the General Shareholders Meeting are made available on the Company’s website in the period required in CMVM regulations.
Summaries of the minutes of the General Shareholders Meeting are made available on the Company website as well as through the Investor Relations Office within 5 days from execution.
ZON Multimédia also makes General Shareholder Meeting minutes available on its website containing information on resolutions taken, share capital represented and voting results after these minutes have been completed and properly signed. Such information remains available on the ZON Multimédia website for a period of at least 3 years.
5. ROLE OF THE GENERAL SHAREHOLDERS MEETING REGARDING:
Remuneration policy and evaluation of members of the Board of Directors and other persons discharging managerial functions
Under the terms of article 13(4)(e) of the Company’s By-laws, the General Shareholders Meeting is responsible for electing a Remuneration Committee which will define the policy and set fixed and variable remuneration for members of corporate bodies.
Currently, the Remuneration Committee has three members: Fernando José Guimarães Freire de Sousa, Luís Manuel Roque de Pinho Patrício and Agostinho do Nascimento Pereira Miranda, who were elected by the Annual General Shareholders Meeting on 21 April 2008.
Members of the Remuneration Committee are called to attend the Company’s Annual General Shareholders Meeting. At least one member shall always be present. At the General Shareholders Meeting on April 29, 2009, three members of the Remuneration Committee were present.
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At this General Shareholders Meeting held on 28 April 2008, a statement from the Remuneration Committee was submitted to company shareholders concerning the remuneration policy for the management and supervisory bodies of ZON Multimédia.
The evaluation of the Board of Directors has also been carried out by the Remuneration Committee, elected by the shareholders, as proposed by the Chairman of the Board of Directors. However, under the Board of Directors’ resolution of 3 March 2009 an Evaluation Committee was created with the purpose of assisting the Remuneration Committee in its duty to evaluate members of the management body. This committee began to exercise the said evaluation duties in 2009.
In relation to the evaluation of other ZON Multimédia persons discharging managerial functions as per article 248 (3) of the Cód.VM, as the same directors undertake management functions in ZON Multimédia Group subsidiaries, the respective remuneration is established by the Remuneration Committee of the respective subsidiaries (and not by the ZON Multimédia management body).
Proposal related to approval of share allotment and/or share purchase option plans for management and supervisory bodies as well as other persons discharging managerial functions
The Plan for Allotment of Shares or Options in the ZON Multimédia Group was submitted to and approved by the General Shareholders Meeting on 21 April 2008, with all elements necessary for its evaluation, including the respective regulation.
The proposed resolution related to this Plan and respective Regulation was made available for consultation during the period legally provided for on the Company website on the page specifically designated for the General Shareholders Meeting. A specific e-mail address was also provided for issues related to the General Shareholders Meeting. Furthermore, members of the Board of Directors and Remuneration Committee were available during the General Shareholders Meeting to provide any explanations for questions posed by shareholders.
The internal Regulation of the Plan for the Allotment of ZON Multimédia’s Shares or Options, approved in the General Shareholders Meeting held on 21 April 2008 is available on the Company’s website.
The terms and conditions of the ZON Multimédia Group’s Plan for Allotment of Shares or Options are detailed in Chapter 3(5) below.
ZON Multimédia Group's Plan for Allotment of Shares or Options will remain in force until the end of the mandate of the members of the Board of Directors or until it has been fully executed. At the Annual General Shareholders Meeting to be held on 19 April 2010, shareholders shall evaluate the renewal of this plan, and the same level of detail shall be made available to enable them to make an informed decision.
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Approval of the main characteristics of the retirement benefits plan by members of the management and supervisory bodies and other persons discharging managerial functions
There are no retirement benefits plans for members of the management body, supervisory body or other persons discharging managerial functions in accordance with the provisions of article 248-B(3) of the Cód VM.
6. MEASURES ON CORPORATE CONTROL
ZON Multimédia has not adopted any defensive measures that have had the effect of automatically causing a serious erosion of the Company’s assets in the case of a transfer of control or change in the composition of the Board of Directors.
In 2008, ZON TV Cabo Portugal (a Company 100% owned by the ZON Multimédia Group) entered into a contract with Vodafone Portugal for the ‘ZON Mobile’ service which provides for the possibility of Vodafone terminating in the case of (i) acquisition, by a Vodafone competitor, by itself or in partnership, directly or indirectly, of a holding or voting rights in ZON TV Cabo Portugal or the ZON Group exceeding 10% and/or of a holding, which, by itself or in association, entitles such competitor to appoint a member of the management body or General and Supervisory Board of ZON TV Cabo Portugal or (ii) ownership, by ZON TV Cabo Portugal or a ZON group company, by itself or in association, directly or indirectly, of a holding equal to or exceeding 10% of share capital or of the voting rights of a competitor of Vodafone or the Vodafone group and/or a holding which, by itself or in association, gives the right to appoint a member of the management body or the General and Supervisory Board of such competitor or, (iii) disposal by its shareholders of a stake in ZON TV Cabo Portugal’s share capital equal to or exceeding 50% to a company that is not a Vodafone competitor and/or a holding that entitles such entity to appoint half or the majority of the members of ZON TV Cabo Portugal management body. This contract is still in force.
The Company, either alone or together with other group companies, has entered into financing agreements with financial institutions and these agreements make provision for their own termination if there are significant changes in to the Company’s shareholding structure and/or to respective voting rights.
There are no other significant agreements between ZON Multimédia or its subsidiaries that include any clauses on change of control (including after a public takeover bid), i.e., which come into force, are changed or terminate upon a change of control, as well as the respective effects.
There are no agreements between the Company and its directors, or other persons discharging managerial functions in ZON Multimédia, as per article 248-B(3) of the Cód.VM that provide for compensation in cases of a request for resignation, unfair dismissal or termination of the employment relationship following a change in control of the Company.
As regards information that specifically relates to payments due as a result of early termination of directors’ contracts, such information is set out in Chapter 2 (8) below.
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7. MEASURES THAT MAY INTERFERE WITH THE SUCCESS OF TAKEOVER BIDS
Although ZON Multimédia considers that its By-laws do not contain any defensive provisions which have the effect of automatically causing a negative impact on the Company’s assets in the case of change of control or change in the composition of the management body, set out below are the existing measures that, according to the CMVM, may interfere with the success of takeover bids:
Voting caps applicable to each shareholder
According to the current wording of paragraph 5 of Article 12 of the Company’s By-laws, the votes issued by a holder of ordinary shares, by itself or through a representative, on its own behalf or as a representative of another shareholder, that exceed 10% of the total voting rights corresponding to share capital shall not be counted. ZON Multimédia By-laws do not contain a rule requiring this provision to be maintained (or eliminated) by resolution of the General Shareholders Meeting from time to time.
Historically, this provision has emerged in various European countries and intrinsically represents a measure to expand shareholder democracy by reducing the voting power of majority shareholders and, as a result, expands minority shareholders’ voting power.
Nevertheless, it is also normally understood as having the potential to interfere with the success of public takeover bids, it being certain, however, that we should not fail to balance the potential effect of reducing the frequency of public takeover bids (since assumption of control requires higher levels of shareholder participation) against the incentive effect it has on improvement of the conditions of attractiveness of public bids, since only higher levels of acceptance by offerees allow a potential bidder to reach control thresholds.
Even if it is considered that this provision acts as a possible brake on the success of public takeover bids, ZON Multimédia considers that it fully respects Company and shareholder interests. In effect, this provision is a measure for widening shareholder participation and minority shareholder protection, reducing the voting power of major shareholders and correspondingly bolstering the voting power of minor shareholders. Additionally, it functions as an important mechanism to guarantee shareholder stability, avoiding shareholder movements based upon mere stock market speculation, which in no way contributes to positive results and the sustainability of companies.
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CHAPTER 2. MANAGEMENT AND SUPERVISORY BODIES
1. GENERAL MATTERS
ZON Multimédia adopts the Anglo-Saxon governance model, in which the Board of Directors, an Audit Committee (composed exclusively of Directors) and a Statutory Auditor are responsible for the Company's management and supervision, as set out in article 278(1)(b) of the CSC.
In turn, the ZON Multimédia Board of Directors has delegated the day-to-day management of the Company to an Executive Committee.
Pursuant to the applicable legal or regulatory requirements and with the key purpose of being able to benefit from a number of considerations, recommendations and suggestions focused on and arising out of a structure specifically intended to address such issues – in all cases with functions that are merely ancillary, all decisions ultimately being taken exclusively by the management body –, the Board of Directors of ZON Multimédia has set up, in addition to the Executive Committee, a Corporate Governance Committee and an Evaluations Committee. The composition and duties of these committees are detailed below (in paragraph 4 of this Chapter). Additionally, the Executive Committee has set up a Disclosure Committee the composition and duties of which are described below (paragraph 4 below).
The bodies of ZON Multimédia as well as the committees identified above are subject to operating regulations, which may be viewed on the Company’s website.
The Internal Risk Management Control System established in ZON Multimédia is intended to ensure the Company’s appropriate monitoring of the risks affecting its activities. This control system, including the respective dictionary of risks, was approved by the Executive Committee in the exercise of powers delegated by the Board of Directors under consultation by the Audit Committee. The Audit Committee periodically reviews and evaluates the respective implementation results. The Internal Risk Management Control System of ZON Multimédia, as well as the main risks - including those of an economic, financial and legal nature - to which the Company is exposed in the exercise of its activity, are set out in paragraph 10 below.
The management regularly monitors the group's cash reserve forecasts, including unused amounts from lines of credit, cash and cash equivalents, based on estimated cash flows, and accounting for compliance with potential covenants normally existing in loans to be paid, namely: “cross default”; “pari passu”; “negative pledge”; debt-to-equity ratio; EBITDA/net interest; “ownership clause” and clauses related to maintenance of group activity; and compliance with its obligations (operational, legal and tax).
Annual reports regarding activity carried out by the Audit Committee include the description of the supervisory activity and make reference to the existence or absence of constraints. These reports are released on the Company website along with financial statements.
Evaluation of the Governance Model Adopted
The Board of Directors of ZON Multimédia considers that this model is fully and effectively implemented and rooted in the culture of the Company, with no constraints established in terms of its operation.
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In addition, the current corporate governance model has proved itself to be balanced and flexible to the adoption of domestic and international best corporate governance practices.
Finally, it is also considered that this corporate governance structure has allowed the proper operation of the Company, as well as making transparent and appropriate dialogue feasible between various corporate bodies and between the Company, its shareholders and other stakeholders.
2. CHARTS ON THE DIVISION OF POWERS AND FUNCTIONS
As previously mentioned, and due to the resolution of the General Shareholders Meeting on 20 June 2007, the Company has adopted the Anglo-Saxon corporate model. As consequence, the supervision of the Company is performed by an Audit Committee, consisting of three non-executive members of the Board of Directors, and a Statutory Auditor.
The ZON Multimédia Board of Directors is responsible for managing the Company’s business, with its powers defined by the By-laws and by its Internal Regulations. The Company’s day-to-day management is performed by the Executive Committee.
General Shareholders Meeting
Remuneration Committee
Board of Directors Audit Committee StatutoryAuditor
Executive Corporate Governance Evaluation Committee Committee Committee
Disclosure Committee
ZON Multimédia is structured by business areas corresponding to 3 large core areas: subscription TV and broadband Internet business, mobile services and audiovisual business and cinema exhibition business. The business units are coordinated by the Executive Committee, with the support of 13 corporate units. Reporting by subsidiaries is made on a functional rather than hierarchical basis, thus enabling an effective communication.
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Purchase, Logistics Corporate Finance, General Office Investor Relations Human Resources and Assets Planning and Control Management
Corporate Technological Financial and Networks and Business Development Strategy Administrative Units Systems
Regulations, Communication and Legal Services Interconnection and Internal Audit Multimedia Contents Competition
Pay TV, Broadband Internet Audiovisuals Cinema Exhibition and Fix and Mobile Voice Services Cinema Distribution Cinema Exhibition Cable TV Business Video Distribution Units Satellite TV Audiovisual Contents Broadband Internet Distribution Fixed Voice Mobile Voice Programming Management Advertising Management
The Executive Committee of ZON Multimédia is directly involved in the daily management of the various business units. The Executive Committee and/or the Board of Directors of the main companies making up the various business units are chaired by ZON Multimédia’s Chief Executive Committee. Therefore, we envisage creating a simple structure, allowing a flexible decision making procedure and a swift implementation of the defined strategy.
As mentioned above, the corporate units are oriented towards the coordination of the various businesses and report to the Executive Committee. These units and their functions are defined as follows:
• General Office: ensuring the necessary support to the General Shareholders Meeting, Board of Directors and Executive Committee meetings of ZON Multimédia and of its subsidiaries; assuring the updating and publication of the various corporate documents, the compliance and formalities of the corporate acts in view of its certification; ensuring the administrative management of support for the management bodies;
• Investor Relations: to ensure a proper relationship with the financial community (investors, shareholders and market regulators), namely through the publication of financial and business information of ZON Multimédia;
• Financial and Administrative: preparing the accounting and financial information deemed necessary to guarantee that ZON Multimédia’s information obligations are met; ensuring the uniform application of the accounting principles followed by Group’s companies, the compliance with ZON Multimédia’s tax obligations, as well as monitoring operations in terms of tax;
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• Human Resources: advising the Executive Committee on the definition of objectives and human resource policies, setting up human resources management mechanisms and ensuring the coordination, communication and harmonisation of the human resources management practices within ZON Multimédia group of companies;
• Corporate Finance, Planning and Control: developing, implementing and managing the ZON Multimédia planning and control system at the operational and financial level, as well as ensuring the study of potential non-organic growth opportunities;
• Legal Services: ensuring the legal assistance and the uniformity of the legal procedures in the ZON Multimédia group;
• Communication and Multimedia Content : advising the Executive Committee in the definition of the strategy and policies for corporate communication in all of it aspects, as well as identifying and managing content that may feed new broadcast platforms that may be adopted by ZON Multimédia; to contribute, within the scope of its duties, to the development and consolidation of a strong, sound and solid corporate culture and to an external image reflecting the values and objectives of the Company;
• Technological Strategy: advising on the technological strategy of the Company for the development of business in the best financial conditions, as well as arranging the resources for the use of technology in product planning and for the technological vision of the future of the company;
• Networks and Systems: ensuring the coordination of the departments responsible for planning, engineering, construction, operation, maintenance and management of networks and system infrastructures of ZON Multimédia Group and alignment of the departments responsible for the delivery and support to the network services and the department in charge of the delivery and support to the information systems services;
• Business Development: assisting the Executive Committee in the adoption and putting into operation of strategic decisions with high impact in Group’s performance and organisation, as well as to directing, supporting and promoting the profitable development of the companies within the ZON Multimédia group;
• Regulation, Interconnection and Competition: support and advice to ZON Multimédia and its companies on issues of competition policy and regulatory issues; communication and coordination between the relevant departments of ZON Multimédia, in relation to compliance with competition rules and regulators’ decisions as well as dealing with requests from the competition authorities and the regulators; providing support for ZON Multimédia´s relationship with the other operators in the electronic communications market, as well as with the sector’s associations;
• Internal Audit: examining and evaluating the activities of the companies of ZON Multimédia group, acting in order to ensure the proper management of business processes and submitting recommendations to the management bodies on the internal control system and efficient management of the business risks;
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• Purchasing, Logistics and Asset Management: coordinating the departments responsible for ZON Multimédia group’s purchasing, logistics and asset management, with a view to ensuring the contractual side and availability of supply of the products and services necessary for the productive activities of the group’s companies, in competitive conditions in terms of use and cost.
In 3 below, in the item referring to the Executive Committee, there is a description of the distribution of responsibilities by members of this Committee.
3. MANAGEMENT BODY: BOARD OF DIRECTORS AND EXECUTIVE COMMITTEE
Election process for members of the Board of Directors
Pursuant to article 15 of the By-laws, the Board of Directors of ZON Multimédia comprises a maximum of 19 members, elected at the General Shareholders Meeting by a majority of votes cast.
Any shareholder, regardless of capital held, can individually submit proposals for election of members to the Board of Directors.
On the other hand, under the CSC, a minimum of shareholders representing at least 10% and not more than 20% of the share capital, that voted against the winning proposal in the election of the Board of Directors may appoint a member of the management body. The Directors are appointed for a three-year term of office, the election year being deemed to be full calendar year, and there are no restrictions on the re-election of Directors.
Company law and the Company’s By-laws also state that in case of the definitive absence of a Director, he or she will be replaced by co-option by the Board of Directors. When the absent Director is the Chairman of the Board of Directors, he is replaced by election at the General Shareholders Meeting. In accordance with article 16(3) of the By-laws, a member of the Board of Directors is considered definitively absent if he misses two consecutive or five separate meetings within the same term and without a justification accepted by the Board of Directors.
Under a proposal by the shareholders and under their sole and exclusive responsibility, members of the Board of Directors of ZON Multimédia were elected in their own names without indication of any type of representation. Executive members of the Board of Directors did not therefore interfere in the selection process of non-executive members.
Composition and Characteristics of the Board of Directors
To ensure that the Company’s interests are fully pursued, the management body is composed of a number of non-executive members. This guarantees and effective ability to supervise, monitor and evaluate the executive members of ZON Multimédia. Among the non-executive members, there are a number of independent directors appropriate to the Company’s size and its shareholding structure. In effect, and in line with CMVM Recommendation II.1.2.2., independent directors represent over a quarter of the ZON Multimédia Board of Directors (see below).
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As of 31 December 2009, the Board of Directors of ZON Multimédia was composed of the 16 members identified below:
Independent, No. of First appointment Board of Executive non-executive shares and term of office Directors Committee directors held (1) Daniel Proença de 20/06/2007 chairman --- X --- Carvalho 31/12/2009 21/09/2007 Rodrigo Costa Member chairman --- 506,313 31/12/2009 José Pedro Pereira 21/09/2007 Member Member --- 48,062 da Costa 31/12/2009 21/09/2007 Luís Lopes Member Member --- 47,062 31/12/2009 14/05/2003 Duarte Calheiros Member Member --- 22,413 31/12/2009 Fernando Fortuny 07/11/2008 Member ------Martorell 31/12/2009 01/09/2004 António Domingues Member ------31/12/2009 21/09/2007 László Cebrian Member --- X --- 31/12/2009 Luís Bordalo da 17/06/2003 Member ------Silva 31/12/2009 20/06/2007 Vítor Gonçalves Member --- X --- 31/12/2009 21/04/2008 Paulo Mota Pinto Member --- X --- 31/12/2009 Nuno Silvério 20/06/2007 Member --- X --- Marques 31/12/2009 31/01/2008 Norberto Rosa Member ------31/12/2009 Jorge Telmo 31/01/2008 Member ------Cardoso 31/12/2009 31/01/2008 Joaquim Oliveira Member ------31/12/2009 João Borges de 31/01/2008 Member ------Oliveira 31/12/2009
(1) The 2007/2009 three-year term in office of corporate bodies ended on 31 December 2009. According to applicable laws, the members of the Board of Directors will continue to perform their duties until the election of new members during the Annual General Shareholders Meeting to be held on April 19, 2010.
The assessment of the independence of directors in the above table was made in light of the requirements of CMVM Regulation no. 1/2007 on Corporate Governance of Listed Companies (applicable during the period covered in this report), which refers to article 414(5) of the CSC.
According to this provision, board members are identified as independent when they are not associated to any specific interest group in the Company and their impartiality in making analysis and decisions is not in question, particularly in relation to: a) holding shares or acting in the name of
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shareholders with stakes equal to or above 2% of the Company’s share capital; b) having been re- elected to office for more than two consecutive or separate mandates.
Under the terms of ZON Multimédia’s Board of Directors Internal Regulations, evaluation by the Board of Directors of the independence of its members, with the exception of those on the Audit Committee, is based on responses to individual questionnaires sent to the Chairman of the Board of Directors at the time of his election and by 31 January of each year. The aforementioned Regulation also requires that directors shall always inform the Chairman of the Board of Directors when they face any situation liable to change their previously reported situation.
An enquiry was also made as to whether there had been any conflict of interest in relation to any of the Company’s Directors, under the terms of article 414-A (1) of the CSC. None of ZON Multimédia’s Directors were found to be in any of the situations described therein, with the exception of paragraphs b) and h).
Under the Company’s Audit Committee Regulation, members of this body, in turn, are also subject to legal requirements in force from time to time on issues of conflict of interest and independence.
To assess their independence, members of the Audit Committee shall, (i) continually assess their independence, (ii) report any situations that could influence their independence to the Audit Committee and (iii) respond to a questionnaire, approved for such purpose, on conflicts of interest and independence both at the time of their appointment and by 31 January of each year.
All members of the Company’s Audit Committee are independent, according to the criteria set out in article 414(5) of the Portuguese Companies Code. Further, no members of the Audit Committee are in any situation of conflict of interest as provided for in article 414-A(1) of the CSC (with the exception of paragraph b), which is not applicable to members of the Audit Committee).
Besides those mentioned above, ZON Multimédia has not approved any other internal regulations on independence criteria for its Board of Directors and Audit Committee, as, respectively, management and supervisory bodies. Additionally, the Company has not established any other situations that could create conflicts of interest among their members, especially in relation to the maximum number of positions held.
The Board of Directors is composed of professionals with broad management experience, particularly in the telecommunications and financial sectors. Annex 1 contains a description of the activities carried out by board members in other companies, with a distinction made for those undertaken in other companies in the group, in addition to professional qualifications and professional activities performed by these members over the past five years.
Operation and Responsibilities of the Board of Directors
Operation
Under article 18 of the Company’s By-laws and article 3 of the Board of Directors’ Internal Regulations, the Board of Directors shall meet at least once every two months, and shall meet extraordinarily whenever convened by its Chairman, by two Directors or by the Audit Committee.
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The meetings are convened with a minimum 5 business day prior written call. The agenda with the matters to be resolved and the supporting documentation is made available to the Directors on the second business day prior to the meeting.
In urgent cases, the Chairman may convene the Board of Directors without such advance call.
The Board of Directors cannot meet unless the majority of its members holding office are present. The Chairman of the Board of Directors may, in cases of recognised urgency, waive the requirement for the presence of that majority if the same is ensured through voting by correspondence or by proxy, although a Director may not represent more than one other Director.
The Board of Directors’ resolutions are passed by a majority of votes cast. The chairman has the casting vote.
Resolutions passed and voting statements are recorded in the minutes, which should be signed by all members of the Board of Directors participating in the meeting. The participants in a meeting may include a summary of their interventions in the minutes.
Article 18(5) of the Company’s By-laws also provides for the possibility of the board’s meetings taking place by remote means, and the Company must ensure the authenticity of the declarations and the security of the communications and must register its content and of its participants.
In 2009, the Board of Directors held 14 meetings with an average attendance of 94%.
The Board of Directors Internal Regulations are available on the Company’s website.
Duties
Under the applicable laws and the Company’s By-laws, and without excluding the possibility of delegating the management of the Company to the Executive Committee, the Board of Directors is responsible for managing the Company’s business, namely:
• Acquisition, disposal, leasing and encumbrance of real and personal property, commercial enterprises, shareholdings and motor vehicles; • Contracts for financing and loans whether medium or long-term, internal or external; • Active and passive representation of the Company in legal proceedings both in and out of court, with the power to abandon and settle proceedings and to make any type of admission and to enter into arbitrations agreements; • Grant powers of attorney with any necessary powers, including the power to represent the board; • Approve business activity plans and investment and development budgets; • To co-opt directors to replace board members who no longer take part in the activities of the board; • To draw up rules for the stock options to be offered to members of the Board of Directors and other of the Company’s higher level employees. These rules are to be submitted to the General Shareholders Meeting for approval. • Carry out the functions that are delegated to the board by the General Shareholders Meeting.
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Furthermore, the Board of Directors can, in accordance with the Company’s By-laws and with prior approval of the Audit Committee, decide to increase share capital on one or more occasions up to a limit of €20 000 000.00 through new cash contributions.
Under the terms of article 7(2) of the Company’s By-laws, the Board of Directors can pass a resolution on the issue of book-entry or certified bonds or other debt security instruments, or warrants over their own securities. This area of responsibility of the Board of Directors is shared by the General Shareholders Meeting.
Executive Committee
In order to ensure the performance of its duties, the ZON Multimédia Board of Directors established an Executive Committee to which it delegated day-to-day management duties, while retaining supervision and control duties.
Composition
The Executive Committee is composed by 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
Powers
The Board of Directors has delegated the Company’s day-to-day management to the Executive Committee, giving it, without prejudice to the ability to withdraw any of the delegated powers, all powers necessary to perform its role, with the exception of those relating to areas identified hereunder:
• Choice of the Chairman; • Co-opting of Directors; • Request calling the General Shareholders Meeting; • Annual reports and accounts to be submitted to the General Shareholders Meeting, as well as half-yearly and quarterly accounts; • Offer of personal or real guarantees by the Company; • Changing the Company’s registered office; • Merger, spin-off and conversion projects by the Company to be proposed to the General Shareholders Meeting; • Projects for share capital increase to be proposed to the General Shareholders Meeting; • Projects to amend by-laws to be proposed to the General Shareholders Meeting; • Definition of the general objectives and of the fundamental principles of the policies of ZON Multimédia, in addition to strategic options, namely in relation to technology to be adopted, development of networks and offer of services;
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• Important extensions or reductions in the Company’s business and important modifications to the Company’s organisation; • Shareholdings in companies; • Business plans, budgets and annual investment plans; • Definition of the amount to be annually proposed to the General Shareholders Meeting for issue of bonds or other securities that may subsequently be approved by the Executive Committee.
Accordingly, and in line with CMVM Recommendation II.2.2, ZON Multimédia Board of Directors shall retain full powers to define the Company’s strategy and general policies and the structure of the group’s companies and decisions considered as strategic due to their value, level of risk or special characteristics.
Within the corporate decision-making process relating to these business areas and the Company’s corporate governance, the members of the Executive Committee are responsible for the following areas:
Division of Responsibilities within the Executive Committee
Strategy and Global Coordination International and Institutional Relations Human Resources ZON Lusomundo Audiovisuais Rodrigo Costa Communication ZON Conteúdos Audiovisuals and Contents ZON Lusomundo Cinemas CEO Cinema Human Resources Dep. Corporate Communication Multimedia Contents Dep.
José Pedro Duarte Calheiros Luís Lopes Pereira Costa
General Office Technological Strategy Planning and Control Legal Services Networks and Systems Accounting and Financial Reporting Internal Audit and Risk Control Commercial Treasury / Tax Asset Management Product Management and Marketing Internal Control Purchases Management Organizational Development and Processes Investor Relations Logistics Management Business Development Security Policy Networks and Systems Dep. Regulation and Competition Management Fraud Control Technological Strategy Dep. Corporate Finance, Planning and Control Dep. General Office Financial and Administrative Dep. Legal Services Dep. Business Development Dep. Purchases, Logistics and Asset Management Dep. Investor Relations Dep. Internal Audit Unit Regulation, Interconnection and Competition Unit. Sport TV Portugal ZON TV Cabo ZON TV CABO Logistics Dep. CRM and Market Intelligence Dep. Purchase Dep. Sales of Residential Market Dep. Assets Management Dep. Sales of Business Market Dep. Fraud Control and Security Unit Customer Care Dep. ZON TV Cabo Açoreana Clients Installation and Maintenance Dep. ZON TV Cabo Madeirense Processes and Continuous Improvement Dep. Lusomundo, Sociedade de Investimentos TV Product Dep. Imobiliários Internet Product Dep. Voice Product Dep. Mobile Product Dep. Business Product Unit Marketing Communication Dep. Website Information Systems Dep. Planning and Engineering Dep. Access Networks Dep. Operations and Infrastructures Dep.
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Operation Method
The Executive Committee sets out the dates and frequency of its ordinary meetings and meets extraordinarily whenever convened by its Chairman or by two of its members or by the Audit Committee.
The Executive Committee cannot meet without the presence of the majority of its members holding office. The Chairman may, in cases of recognised urgency, waive the requirement for the presence of this majority if it is ensured through voting by correspondence or by proxy.
Voting by correspondence or by proxy is allowed. None of the Executive Committee members can represent more than other member.
Resolutions are passed by a majority of votes cast, with the Chairman having the casting vote. The Executive Committee met 46 times during 2009.
Resolutions passed at the Executive Committee meetings and voting declarations are recorded in the minutes.
The Executive Committee’s Internal Regulations are available on the Company’s website.
In accordance with the Company’s rules (specifically, according to the Board of Directors and Audit Committee Internal Regulations and to the delegation of powers to the Executive Committee), and with the practices it follows, executive Directors have made available in a timely manner full information as requested by members of ZON Mutlimédia corporate bodies. In particular, whenever requested, the calls and minutes of the Executive Committee meetings have been sent to the Chairman of the Board of Directors and to the Audit Committee members.
Duties of the Chairman of the Board of Directors and the Chief Executive Officer
As at 31 December 2009, the roles of chairing the Board of Directors and of exercising the functions of executive management of the group are distinct. Under the By-laws, the Board of Directors Internal Regulations and the Executive Committee’s rules of operation, the Chair of the Executive Committee is the leader of the managing team of ZON Multimédia, and is thus responsible for its operational management.
The Chief Executive Officer is, in particular, responsible for:
• Coordinating the Executive Committee’s activity and distributing the relevant matters among their members, whenever appropriate to the Company’s proper management;
• Calling and conducting the Executive Committee meetings;
• Ensuring that the resolutions of the Executive Committee are put into effect properly;
• Ensuring that all information regarding the Executive Committee’s activity and resolutions is provided to the other members of the Board of Directors;
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• Ensuring compliance with the Company’s strategy and assuring the limits on the delegation of powers and cooperation duty vis-à-vis the Chairman of the Board of Directors.
In turn, the Chairman of the Board of Directors is entrusted with important functions, under the relevant laws, By-laws, and its Internal Regulations, including inter alia :
• Representing the Board of Directors in and out of court;
• Co-ordinating the activity of the Board of Directors and distributing the relevant matters among its members, whenever appropriate to the Company’s proper management;
• Calling and conducting the Board of Directors meetings;
• Ensuring that the resolutions of the Board of Directors are put into effect properly.
Board of Directors responsibility rotation policy
In reference to the Executive Committee’s powers, allocation of responsibilities to members of the Executive Committee is currently defined according to the table above.
The Executive Committee was designated to perform its duties as from 21 September 2007 and the majority of its members, with the exception of Director Duarte Calheiros, were elected for the first time on the same date. Director Duarte Calheiros was elected for the first time, also by co-option, on 14 May 2003.
The Executive Committee member with responsibility for the financial area, José Pedro Pereira da Costa, was elected for the first time, by co-option, on 21 September 2007, being the recently ended mandate, corresponding to the term of office of 2007/2009, his first one at ZON Multimédia.
ZON Multimédia, therefore, currently complies with the CMVM Recommendation from the Corporate Governance Code, in the 2007 version, on the rotation of the member with financial responsibility after two mandates (Recommendation II.2.5). This recommendation, furthermore, has been fulfilled throughout the history of ZON Multimédia during various vicissitudes resulting from substantial changes in the composition of the Board of Directors, the most recent resulting from the spin-off from the PT Group in 2007.
In relation to CMVM Corporate Governance Code Recommendation II.2.5, in the January 2010 version, on the explanation by the Company of its rotation policy of responsibilities within the Board of Directors, specifically in relation to the member with financial responsibility, ZON Multimédia promotes a reflection on the distribution of responsibilities for the Executive Committee whenever necessary or appropriate in the development of the Company's activity and strategy. Furthermore, duties of the Executive Committee under its current composition began nearly two and a half years ago, and since then, some changes have been made in relation to distribution of responsibilities, specifically in the technology and information systems areas.
However, ZON Multimédia has not defined a general fixed policy for rotation of responsibilities among members of the Board of Directors. In spite of the fact that the said CMVM recommendation does not need to be taken into account for purposes of this report, ZON Multimédia currently disagrees with such recommendation, as it is not clear in what way this can contribute to good
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management and the pursuit of the interests of the Company and its shareholders, having the downside of promoting instability and waste of know-how. It is emphasised that the application of mandatory rotation criteria to executive members necessarily leads to the loss of key assets by issuers, since such individuals will be excused precisely as they reach the height of their specific know-how. It does not make sense, then, for an issuer to invest in the training of a key asset to then, over time, surrender it to another issuer, potentially his or her competitor, which will benefit from the experience acquired by the director without bearing the investment costs.
Information to members of the Board of Directors and Audit Committee
Under the Regulations for the Company’s Board of Directors and those for the Audit Committee, within the exercise of their duties and functions, Directors will obtain information on the course of the Company’s activity, requesting the information whenever necessary or convenient for the proper performance of their duties and pursuit of the corporate interest.
Except in cases of urgency, the directors that, solely or jointly, intend to access information within the scope of the powers delegated in the Executive Committee, may request it directly to its Chairman or through the Chairman of the Board of Directors.
Under Audit Committee Internal Regulations, the Chief Executive Officer shall send copies of all calls and minutes for meetings of the Executive Committee to the Audit Committee whenever these are requested. In this context, a procedure has been implemented for the monthly sending of these documents to members of the Audit Committee.
Activities carried out by non-executive board members
The Company’s non-executive Board members regularly and effectively perform duties that have been legally assigned to them and which largely consist of supervision, monitoring and evaluation of the activities of executive board members. In carrying out the aforesaid functions, the non-executive Directors have not encountered any type of obstacle.
In line with applicable laws and regulations, in particular with article 407(8) of the CSC, ZON Multimédia non-executive Directors have performed their functions to fulfil their monitoring duties over the performance of the Executive Commission. According to the abovementioned provision non-executive board members shall, practice ‘ general oversight (…) of the Executive Committee ’ being responsible ‘ for damages caused by their acts or omissions, when, being aware of such acts or omissions or of the intention to practice them, do not cause the intervention by the board to take appropriate measures. ’
As the Chairman of the Board of Directors of ZON Multimédia does not perform executive duties in the Company, being an independent member within the Board of Directors, the role of non-executive Directors is especially facilitated, because the Chairman thus co-ordinates the non-executive board members’ activities, and acts as a link to facilitate closer dialogue with the Executive Committee.
Additionally, it is worth mentioning the efforts made by the non-executive Directors in order to be updated in the different matters, in each single moment, under the analysis of the Board of Directors,
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as well as their regular attendance and active intervention in the meetings of that corporate body, which enhances the proper performance of their duties.
Similarly, non-executive Directors of ZON Multimédia have also played an important role within the Company through the performance of their activities on internal committees of the Board of Directors, consisting exclusively of non-executive members. (See no. 4 of Chapter 2).
Finally, since this Report represents an annex to the Company Management Report, use was made of the technique of inserting information by reference was used for the description of activity (and any potential constraints encountered) carried out by the non-executive Directors. In other words, to avoid unnecessary duplication of information, reference may be made in the Company Management Report to the chapter of this report in which the activity carried out by the non-executive Directors (and any potential constraints encountered) is described.
4. SPECIFIC COMMITTEES CREATED WITHIN THE COMPANY
Under the applicable legal or regulatory requirements and with the key purpose of being able to benefit from a number of considerations, recommendations and suggestions focused on and arising out of a structure specifically intended to address such issues – in all cases with functions that are merely ancillary, all decisions ultimately being taken exclusively by the management body –, the Board of Directors of ZON Multimédia has set up, in addition the Executive Committee, a Corporate Governance Committee and an Evaluation Committee, whose composition and duties are detailed below.
Additionally, the Executive Committee has set up a Disclosure Committee, whose composition and duties are described below.
All committees have operating regulations which are available for consultation the on Company’s website.
In the light of Recommendation II.5.1, in the 2010 version of the Code of Governance of Listed Companies, none of the currently established committees have the power to identify potential candidates with the profile for the role of Director. However, as stated above, ZON Multimédia is analysing its corporate governance model in order to determine the impact of the new recommendations on the company and make the changes it deems appropriate as a result of such analysis. Furthermore, the terms in office for the corporate bodies of ZON Multimédia are coming to an end, with members of new corporate bodies to be elected to a new term in office, namely the 2010/2012 three-year term, which is scheduled for the General Shareholders Meeting on 19 April 2010. Therefore, it is not considered timely to proceed with changes to the committees currently performing their duties, nor is it reasonable to proceed with the establishment of new committees before the election of corporate bodies to a new term in office.
Corporate Governance Committee
• Daniel Proença de Carvalho (Chairman) • Vítor Fernando da Conceição Gonçalves • László Istvan Hubay Cebrian
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The Corporate Governance Committee’s duties are the following:
• Assisting and supporting the Board of Directors in the performance of its role of supervising the corporate activity in the area of corporate governance, conduct of business rules and social responsibility; • Studying, proposing and recommending to the Board of Directors the adoption of the policies, rules and proceedings deemed necessary for the compliance with its Internal Regulations, the applicable legal, regulatory and by-law provisions, as well as the recommendations, standards and national and international best practices regarding the matters referred to in the previous paragraph; • Performing any other duties or responsibilities that the Board of Directors may delegate in the Corporate Governance Committee.
In accordance with the applicable best practices, all members of the Corporate Governance Committee are independent Directors under the criteria laid down in CMVM Regulation no. 1/2007 and in article 414(5) of the CSC.
In 2009, the Corporate Governance Committee held 2 meetings in which it evaluated the frameworks of conflicts of interest and independence of members of the corporate bodies and the corporate governance model of ZON Multimédia Group, and it approved the 2008 Corporate Governance Report. Furthermore, the bill to amend CMVM Regulation no. 1/2007 and the 2007 CMVM Code of Governance for Listed Companies was analysed. Meetings of the Corporate Governance Committee are recorded in minutes.
Evaluation Committee
• Daniel Proença de Carvalho (Chairman) • Rodrigo Jorge de Araújo Costa (Chairman of the Board of Directors – consultative participation with no voting rights) • Vítor Fernando da Conceição Gonçalves • António Domingues • Fernando Fortuny Martorell • Norberto Emílio Sequeira da Rosa • Luís João Bordalho da Silva
The powers of the Evaluation Committee are as follows:
• Conducting an annual evaluation process of the Executive Committee members, ensuring subsequent co-ordination with the Remuneration Committee for the purposes described in the following paragraph, as well as evaluating overall performance of the Board of Directors; • Under the scope of the annual evaluation of members of the Executive Commission, the Evaluation Committee proposes to the Remuneration Committee the criteria to be used to establish the variable remuneration, especially the individual performance objectives; • Whenever requested by the Board of Directors or by the Remuneration Committee, the Evaluation Committee gives its opinion on the general remuneration policy of the Executive
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Committee, in addition to variable remuneration programmes based on the allotment of shares or share options of ZON Multimédia.
Two members of the Evaluation Committee are independent Directors in light of the criteria defined in CMVM Regulation no. 1/2007 and in article 414(5) of the CSC.
The Evaluation Commission began performing its evaluation duties for 2009, for which meetings have already been held in 2010.
Disclosure Committee
Gonçalo João Figueira Morais Soares – Central director of Planning and Control (Chairman) Maria João Hewitt Garcia Carrapato Moura Landau – Director of Investor Relations Isabel Maria de Macedo Correia – General secretary and Company secretary Filipe da Conceição Homen Rodrigues – Director of the Central of Finance and Administration
The Disclosure Committee’s objectives are the following:
• Assisting and supporting the Board of Directors and, to the extent of its delegated powers, the Executive Committee in the preparation and disclosure to the market and/or to the supervisory authorities of the financial markets of the following:
a) Complete, true, actual, clear, objective and licit information related to the Company and/or to the securities admitted to trading on regulated market; b) Financial information reflecting truthfully and appropriately the financial situation, assets and results of ZON Multimédia Group, as well as a faithful and objective description of its activity and business;
• Promoting compliance with the Company’s duties in respect of the preparation and timely disclosure of information, through the adequate means, in accordance with the applicable legal, regulatory, by-laws and accounting rules; • Studying, proposing and recommending the adoption by the Board of Directors and/or Executive Committee of the policies, rules and proceedings deemed necessary to the compliance with its internal regulations and with the applicable legal, regulatory, by-laws and accounting rules in force at each moment.
In 2009, the Disclosure Committee held 4 meetings. These meetings were recorded in minutes.
5. SUPERVISION OF THE COMPANY - AUDIT COMMITTEE AND STATUTORY AUDITOR
The supervision of the Company is performed by an Audit Committee and by a Statutory Auditor.
The following are members of the ZON Multimédia Audit Committee:
• Vitor Fernando da Conceição Gonçalves (Chairman)
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• Paulo Cardoso Correia Mota Pinto • Nuno João Francisco Soares de Oliveira Silvério Marques
All Audit Committee members are independent pursuant to article 414(5) of the CSC and have the appropriate skills to carry out the respective functions.
Annex 1 contains a description of the activities carried out by members of the Audit Committee of other companies, with a distinction made for those undertaken in other companies in the Group, in addition to professional qualifications and activities performed by these members over the past five years.
In accordance with the Company’s by-laws and with the applicable laws, the members of the Audit Committee are appointed jointly with other members of the Board of Directors. The lists proposed for the appointment of the members of the Board of Directors shall specify the members to serve on the Audit Committee and its respective Chairman.
Under the conditions of article 423-H of the CSC, provision on the substitution of the members iof the Board of Directors apply to the Audit Committtee, mutatis mutandis .
Powers
In accordance with the Company’s By-laws and with the Audit Committee’s Internal Regulations, the Audit Committee performs the powers and duties set out in articles 423.º-F and 423.º-G of the CSC, including the following attributions:
Financial information:
• Issuing an opinion on the financial statements and proposals submitted by the Board of Directors of the Company; • Evaluating, supervising and issuing an opinion on the following matters:
a) The annual, half-year and quarterly financial information of the Company, including, namely, the scope, the preparation and disclosure process and the accuracy of the financial statements; b) Relevant matters related with accounting aspects of auditing and report of financial information, namely the following:
i) Adequacy of the policies, practices, accounting proceedings and value-metrical criteria adopted by the Company; ii) Regularity and quality of the accounting information and supporting documents of the Company in accordance with the applicable principles and accounting rules; iii) Any relevant amendments to the policies, practices, proceedings or criteria referred in b) i) above or any amendments to the applicable accounting rules; iv) Status of any assets or values held by the Company; and v) Impact on the financial statements of the amendments referred in b) iii) above, of unusual transactions and respective accounting methods and other relevant transactions with related parties.
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Statutory and External Auditing :
• Proposing to the General Shareholders Meeting the appointment of the effective and alternate Statutory Auditor, supervising and assessing their independence, the scope of their services and the revision of the Company’s financial statements; • Reviewing the content of the annual legal certification prepared by the Statutory Auditor and discuss possible expressed reservations; • To represent the Company in all matters before the External Auditors; • Proposing the engagement, renewal of their agreement and remuneration of the Company’s External Auditors to the Board of Directors and propose their dismissal to the General Shareholders Meeting, based on reasonable grounds; • Promoting that the Company’s Statutory Auditor and External Auditors have adequate conditions to render their services within the Company and the companies in a control or group relationship with ZON Multimédia; • Reviewing, with the Statutory Auditor and External Auditors, the scope, planning and resources to be used in their services; • Examining the contents of the audit reports and examine the Company’s External Auditors, annually, who should report and be subject to the supervision of the Audit Committee, considering their qualifications, independence and performance; • Obtain an annual report directly from the External Auditors on substantial issues which may emerge during the services rendered, as well as on any other relationship existing between the Company and its external auditors, including the amount of fees paid for auditing and additional services; • Discuss separately with the External Auditors aspects and problems connected to the auditing process of the Company’s financial statements, including the Executive Committee’s responses; and • Prior approval of the engagement of External Auditors and of the Statutory Auditor for rendering of any additional services.
Internal Control, Risk Management and Internal Audit :
• Monitoring the efficiency of the mechanisms of internal control, risk management and internal audit of the Company established in each moment; • Discussing and reviewing with the Executive Committee and with the External Auditors, whenever deemed necessary or convenient, any matters concerning the compliance with legal or regulatory obligations, which may have a relevant impact over the financial information, auditing or accounting policies of the Company and other companies within the ZON Multimédia’s accounts consolidation perimeter; • Discussing and reviewing annually with the Executive Committee and with the External Auditors, the adequacy, faithfulness and efficiency of the Company’s internal control system and evaluating the internal proceedings related to accounting and auditing matters, financial information disclosure, risks detection and safeguard of the Company’s assets; • Reviewing periodically the principles and the risk management policies of the Company in financial and operational matters or other matters related to the Company’s activity, as well as the measures adopted by the Company in order to monitor, control and adequately and timely disclose said risks;
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• Reviewing annually with the Executive Committee the scope and planning of the activities and of the financial, human, technological and organisational resources required for the performance, in an adequate and efficient manner, of the internal audit function; • Discussing the internal control reports with the responsible persons for the internal audit function and with the External Auditors, as well as analysing the reports of the internal audit unit, that, without prejudice of the respective hierarchical dependence, is subject to the functional coordination of the Audit Committee; • Issuing prior opinion on the appointment, substitution or dismissal of the responsible persons for the internal audit unit; and • Supervising the execution of the functions and implementation of the measures, recommendations and plans proposed within the Company’s internal control and risk management systems and internal audit function.
Compliance and Irregularities :
• Supervising the compliance with the legal provisions and By-laws applicable to the Company, as well as to receiving the communications of the illegalities and irregularities submitted by shareholders, employees of the Company or others; • Discussing and reviewing with the Board of Directors and/or Executive Committee any relevant matters concerning the Company’s activity and business’ compliance with applicable legal and regulatory provisions and By-laws, as well as with instructions, recommendations and orientations issued by the competent entities; • Implementing a policy for the communication of irregularities, including confidential and anonymous proceedings, necessary for the receipt, registry and treatment of claims and/or complaints received by the Company, in particular, those related with accounting matters, internal control proceedings for accounting matters and questions related to the Company’s audit.
Other Responsibilities and Duties :
• Approving and disclosing on the Company’s website jointly with the financial statements, an annual report on its supervisory activity, including the description of the activities performed on the previous financial year and mentioning, namely, the potential constraints found by the Audit Committee in the performance of its functions and discharge of its duties; • Approving annually a report, whose content shall be disclosed to the Board of Directors, on the following aspects: i) Evaluation of Audit Committee’s performance, attending to its attributions, duties, responsibilities and functions; and ii) Establishing the action plan for the current financial year, in order to fulfil its attributions and duties, responsibilities and functions; • Reviewing and re-evaluating annually its Internal Regulations and, if applicable, proposing the necessary and convenient amendments to the Board of Directors.
In 2009, the Audit Committee held 19 meetings. Audit Committee resolutions are made by a majority vote with the majority of current members present, while its Chairman has the casting vote. Minutes of the meetings were drawn up.
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Under the terms of ZON Multimédia By-laws and applicable legal provisions, the Company’s accounts are examined by a Statutory Auditor or a Statutory Audit Firm appointed by the General Shareholders Meeting under the Audit Committee proposal.
The auditing functions set out in article 446 of the CSC, are performed by Oliveira, Reis & Associados, SROC, Lda., represented by José Vieira dos Reis and Fernando Marques Oliveira as, respectively, Effective and Deputy Statutory Auditors, for the current term of office.
The Audit Committee Internal Regulations is available on the Company’s website.
6. REMUNERATION COMMITTEE
The Remuneration Committee, elected by shareholders at the General Shareholders Meeting, is charged under the terms of article 13(4)(e) of the By-laws with establishing the remuneration of members of ZON Multimédia corporate bodies. It is solely composed of members independent of the Board of Directors, in line with criteria laid out in no. 14 of Chapter II of Annex to CMVM Regulation no. 1/2010.
To undertake this, the Remuneration Committee constantly monitors and evaluates Directors’ performances and checks that the aims proposed are in general achieved, meeting whenever necessary.
The composition of the Remuneration Committee as of December 31, 2009 was as follows:
• Fernando José Guimarães Freire de Sousa; • Luís Manuel Roque de Pinho Patrício; • Agostinho do Nascimento Pereira de Miranda.
Members of the Remuneration Committee are carefully chosen to ensure exemption and the best pursuit of the Company’s interests. Thus no member has a family connection with a member of the corporate bodies by virtue of marriage, relationship or kinship to the third degree to ensure strict observance with the independence criteria.
The Company grants members of the Remuneration Committee permanent access to external consultants specialised in several areas whenever the committee so requests, funded by the Company.
Powers
This committee was created under the terms permitted by the By-laws to establish the remuneration of ZON Multimédia corporate bodies. It is also mandated to monitor and evaluate Directors’ performance measured against the defined objectives.
The Remuneration Committee held 5 meetings in 2009 and passed a resolution on the definition of the fixed and variable remunerations of the corporate bodies. It drew up meeting minutes.
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7. CODES OF CONDUCT
Code of Ethics
ZON Multimédia Board of Directors approved a Code of Ethics which applies to all employees of all Group companies to ensure a set of common ethical standards. The Company’s Corporate Governance Committee performs permanent updating and monitoring of these standards.
The Code of Ethics states and formalises behaviour standards aligned with ZON Multimédia’s principles and values, the ZON Multimédia commitment to collective responsibility and the individual responsibility of each employee, consolidating the bases which sustain the growing trust between employees, other staff, shareholders, clients, suppliers, service providers and regulatory authorities and public entities in general.
In defining its structural ethical principles, ZON Multimédia:
• Establish rules and procedures considered from time to time to be the best to ensure scrupulous compliance with the legal rules and regulations applicable to the Group and its business activity and its bedrock principles of behaviour as stated in its Code of Ethics; • Put into place mechanisms aimed at ensuring equal treatment for all shareholders and displaying transparency of conduct before shareholders, investors, stakeholders and the market, fostering added value, credibility and sound governance of the Group; • Promote the disclosure of information which is complete, true, up to date, clear, objective and lawful to the market, in particular, establishing mechanisms to ensure the disclosure of financial information which faithfully reflects the Company’ financial and proprietary situation, its profits and business, and adopt measures for the prevention of market abuse; • Reject and penalise recourse to illegal means to pursue commercial aims. These aims must always be pursued in an atmosphere of healthy competition, with recourse to a policy of excellence of products and services; • Strive to provide clients with the highest quality products and services which better adapt to clients’ needs and preferences, investing in their continued innovation; • Contribute to employees’ motivation and remuneration, promoting equal opportunities, human dignity and individual responsibility in employee relations; • Collaborate with the supervisory authorities, answering any requests made; • Foster respect for rules of competition and work and the safeguarding of Group property rights (namely intellectual) and resources; • Create appropriate mechanisms to lead suppliers and service providers to respect Group principles and values, such as those in the Code of Ethics, and observe legal and contractual obligations, in line with the principle of good faith; • Impose an in-house principle of impartiality in the decision making processes, prevention mechanisms and resolution of conflict of interests and a duty of collaboration aiming to promote the efficacy of the internal control system; • Adopt a corporate policy which enshrines and fosters the idea of contributing to socio-economic well-being, social responsibility and sustainable development.
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ZON Multimédia’s Code of Ethics also includes specific rules for Financial Officers, stressing the importance of specific ethics rules applicable to all Group employees who are directly or indirectly involved in the preparation, analysis and disclosure of financial results, press releases or any other management information related with ZON Multimédia. These specific rules seek to reinforce Financial Officers’ duties of confidentiality, skill and professionalism, along with the transparency and compliance with the laws applicable to the Group and the responsibility for the disclosure of information.
The Code of Ethics enshrines principles of honesty, responsibility, transparency and equal treatment of shareholders. It also regulates aspects such as competition, intellectual property and protection of ownership in general, prevention of conflicts of interests and impartiality, internal control system and unlawful advantages as well as social responsibility and sustainable growth.
ZON Multimédia Code of Ethics is available on the Company’s website.
Other Codes of Conduct and Internal Regulations
ZON Multimédia has adopted other internal regulations and rules to govern ZON Multimédia and ZON Multimédia Group companies, as applicable. These internal Codes of Conduct and rules are as follows:
Internal Regulation on Transactions by the persons discharging managerial functions within the Group
An Internal Regulation on Transactions by the persons discharging managerial functions within the Group was approved in 2007, which governs matters related to the prevention of market abuse and details the relevant concepts of “privileged information”, “market manipulation” and “relevant transactions”, among other related issues.
This Internal Regulation was issued precisely in line with the provisions of the Cód.VM and relevant CMVM regulations, in particular with the following purposes: (i) definition of rules and procedures on the duties of information over shares and voting rights held as well as relevant transactions made by persons discharging managerial functions on shares issued by ZON Multimedia and related financial instruments; and, also, (ii) the consolidation of the best practices already implemented in the Company to reinforce prevention of market abuse.
Transactions with Related Parties
In order to comply with the rules on the identification and disclosure of transactions with related parties applicable to the Company, the ZON Multimédia Board of Directors has resolved in 2007 that, due to the proximity between the definitions of persons discharging managerial functions (established in article 248.º-B of the Cód.VM) and key management personnel (as defined in the International Accounting Standard 24) such latter definition shall correspond in each moment, at least, to the scope of the Company’s persons discharging managerial functions.
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Whistleblowing Regulation
The internal regulations describing the whistleblowing policy approved by ZON Multimédia on December 20 2007, is described in no. 11 below. It is also available on the Company’s website.
8. REMUNERATION POLICY OF MEMBERS OF THE MANAGEMENT AND SUPERVISORY BODIES
Executive and non-executive Directors’ remuneration policy
Remuneration systems are a strategic way for an organisation to attract, retain and motivate the best professionals on the market.
Good practices on remuneration systems of listed companies are increasingly recommending models with different components: a fixed component, functioning as “base” remuneration and another variable component, which may also include an annual bonus and/or implementation of plans and share allotment.
In breaking down the details of the ZON Multimédia remuneration system for executive Directors, note that the fixed component took into account the benchmarking of market amounts adopted by comparable companies.
The variable component is linked to fulfilment of management objectives and is exercised via two components: the Annual Bonus and the Share Allotment Plan.
The Annual Bonus, ensuring alignment with the Company’s results, also aims to maximise the long term performance of the Company.
The overall objectives are profitability and growth, ensuring effective Company development and then, indirectly, plus contributing to an achievement of the stakeholders’ objectives as a whole.
The 21 April 2008 General Shareholders Meeting approved the Plan for Allotment of Shares or Options aimed at ensuring the alignment of employees’ interests with Company’s objectives and ZON Multimédia shareholders’ interest, rewarding performance in terms of creating value for the Company.
As non-executive members of the Board of Directors are not in charge of running the strategies defined, their remuneration system has no variable component but only a fixed one.
Aligning Directors’ interests with Company’s interests
The remuneration system has also the purpose of ensuring the alignment between the interests of the executive Directors and the Company’s objectives. For this to succeed it is vital that the alignment is carried out via clear objectives, coherent with the strategy, scrupulously assessed to evaluate individual performance, in addition to the correct performance incentives which simultaneously foster ethical principles.
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Consequently, to create value it is necessary to have not only excellent professionals, but also an adequate set of incentives considering the size and complexity of the challenges.
The variable remuneration component was calculated based on ZON Multimédia’s performance in terms of the previously defined business indicators, which during the year under analysis were profit variation, EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation) variation, and RGUs (Revenue Generating Unit) in addition to CAPEX (Capital Expenditure).
In turn, the component linked to the Share and Options Allotment Plan aims at not only to comply with the objectives stated above for the annual bonus, but also to ensure alignment with the creation of shareholder value and strengthening loyalty mechanisms. Two plans are in force, the ‘Senior Executive’ and the ‘Standard’.
Through the components detailed above, variable remuneration seeks to consolidate a correct policy for setting objectives with systems which duly reward the ability to execute, achieve ambitious performances, do not promote short term policies, rather instead promoting the development of medium and long term sustainable policies.
Payments related to the early termination of Directors’ agreements
In order to align the Company’s practice with the international Corporate Governance best practices, should a executive Director not be re-elected upon the termination of his mandate, under the relevant individual agreement, a compensation will be due, corresponding to two years of the average of the fixed and variable annual remuneration (excluding share and/or options allocation plans). As a consideration, these executive members will not be allowed to perform any functions, during 2 years, in Portugal, in any competing companies. Additionally, in case of termination of the management agreements, unless in case of a termination based on reasonable grounds (“ justa causa ”), the value of the compensation will be equivalent to the amount the board members would receive until the end of the mandate (excluding non-attributed share and/or options allocation plans).
These Directors do not have an employment bond with ZON Multimédia.
Remuneration Policy of the supervisory bodies’ members
Audit Committee members, as is the case for other non-executive Directors, only receive a fixed remuneration.
The Statutory Auditor is remunerated as contractually agreed, in accordance with the applicable legal provisions.
9. REMUNERATION OF DIRECTORS
Executive and non-executive Directors’ fixed and variable remuneration
In 2009, the executive and non-executive Directors’ fixed and variable remuneration was paid out as follows:
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Fixed Variable Total
Unit: € Chairman of the board of directors Daniel Proença de Carvalho 250,000
Executive Committee Rodrigo Costa (chairman) 695,002 300.000 995,002 José Pedro Pereira da Costa 405,006 250,000 655,006 Luís Lopes 405,006 250,000 655,006 Duarte Calheiros 350,000 100,000 450,000 1,855,014 900,000 2,755,014
Non-executive Members of the audit committee Vitor Gonçalves (chairman) 120,000 Nuno Silvério Marques 110,000 Paulo Mota Pinto 110,000 340,000 Non-executive members António Domingues 21,409 Fernando Martorell 21,409 Norberto Rosa (a) Jorge Cardoso 21,409 João Borges Oliveira 21,409 Luís Bordallo Silva 42,818 Laszlo Cebrian 42,818 Joaquim Oliveira 21,409 192,679 a) without remuneration
The variable amount paid refers to the performance of executive Directors in the financial year which ended 31 December 2008.
Furthermore, Rodrigo Costa and José Pedro Pereira da Costa were paid one-off extraordinary bonuses of €347,253 and €155,207, respectively, corresponding to fulfilment of past commitments in previous financial years.
ZON Multimédia executive Directors who also perform functions in other ZON Multimédia Group companies receive no additional remuneration or any other sums whatsoever.
Plan for Allotment of Shares or Options or other Share incentive options - bonuses, non- monetary benefits and profit sharing
The 21 April 2008 General Shareholders Meeting passed the Plan for Allotment of Shares or Options, which authorised the implementation of two plans in ZON Multimédia: the ‘Senior Executive’ and the ‘Standard’. Executive members of the Board of Directors benefit from both plans.
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Following approval of this Share or Option Plan, Senior Executive and standard plan shares were allotted in 2008 to Executive Committee members, the first vesting of which was verified in 2009. The share price considered for the individually allotted value was €4,268. .
Value of Shares vested under the Plans approved at the General Shareholders Unit: € Meeting
Executive Committee Rodrigo Costa (chairman) 328,835 José Pedro Pereira da Costa 175,253 Luís Lopes 175,253 Duarte Calheiros 79,563 758,905
These plans are described in detail in no. 5 of Chapter 3 below.
Compensation paid or due on early termination
No compensation to ex-Directors for early termination of their agreements was paid or is due.
Other non-pecuniary benefits
No other significant non-pecuniary benefits other than those described above were granted.
There are no early or supplementary retirement schemes for Directors in place.
10. RISK MANAGEMENT SYSTEM
The Risk Control System established in ZON Multimedia is intended to ensure the Company’s proper monitoring of the risks affecting its activities.
Therefore, we shall briefly describe the risk factors to which ZON Multimedia is subject, in order to understand the Risk Control System that has been set up more easily.
Main risk factors
ZON Multimedia's businesses are affected by a large number of risk factors, some beyond management control, and others that shall be pro-actively managed in order to have a positive influence on the performance of the Group. These affect the operations, revenues, results, assets, liquidity and resources of the Group and, therefore, the shareholder value of the Company. Among them the following risk factors should be highlighted:
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• Regulation : ensuring that regulatory changes are monitored, given the threats and opportunities that those changes represent for the competitive position of ZON Multimedia within its businesses. The Legal Main Office is responsible for the management of the regulatory risk, supported by the Regulation, Interconnection and Competition Unit, both of which shall be updated on new business regulatory environment applicable to ZON Multimedia’s activities’ sectors, as issued by national and international entities.
• Competition : potential reduction of the goods and services’ prices, reduction of market share, loss of customers, increasing difficulties in obtaining and retaining customers. Managing this risk is a constant concern of the ZON Multimédia Executive Committee. The management of the competition risk has been relying on a strategy focused on the quality improvement of the services provided, on our anticipation to competitors (Cable TV and Digital Television), on the launching of innovative channels and services (increase the speed of broadband internet service), on the diversification of the supply (availability of the VoiP service - Voice over IP and Mobile Voice Service) and on the quality and diversity of contents distributed.
• Technological evolution : need for investments in ever more competitive businesses (multimedia, Internet and fixed and mobile phone services) and subject to fast and sometimes unpredictable technological changes.
ZON Multimedia sees the management of innovation as a pivotal driver, taking into account that it is not possible to accurately predict the effect of technological changes on its businesses or on its ability to offer competitive products and services. The activity and the results of ZON Multimedia may suffer negative consequences if: the Group (1) does not effectively compete in new businesses and markets; (2) fails to attract and retain employees with the adequate skills for the development of new businesses; and (3) does not increase the use of new services by customers, if it decreases or if its evolution follows a different pattern from the technologies and businesses where ZON Multimedia is investing.
The risk management of technological evolution is under the responsibility of the technological management and information systems units.
• Loss of clients : the inability to retain clients, whether due to out-of-touch commercial practices or those whose efficacy is hard to manage. Managing this risk is a constant concern of the ZON Multimédia Executive Committee. Loss of clients risk management is achieved through diversifying the products and services offered and constantly monitoring clients’ preferences.
• Retaining talent : ensuring the availability of staff with adequate skills for the business development, duly motivated and in charge of suitable functions. The Company’s Human Resources Main Office is in charge of managing this risk which, given the aggressive competition, has developed strategies for retaining existing skills and be attentive to the opportunities of enhancing them. The main aspects of such strategies have been focused on training, drawing up professional development plans, capturing of highly qualified skills and on implementing reward systems increasingly driven by the merit and results.
• Taxation : evolution of tax legislation and possible interpretations of the application of tax and para-tax regulation in different manners. The Financial and Administrative Main Office is responsible for managing this risk, by monitoring all tax regulations and use of tax planning
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opportunities. This office may be assisted by tax consulting whenever the issues under analysis are more critical, and therefore require the interpretation of an independent entity.
• Profits : Implementation and execution of profit controls concerning quality of billing. These controls are applied by the Billing area in order for ZON to present a better quality to achieve a certain level of excellence. In the area of under-billing/fraud, the Revenue Assurance & Fraud area applies revenue loss control processes (under-billing) and cost controls which allow us to present a revenue chain from the moment in which records enter our systems through billing and collection. ZON applies fraud control processes in order to avoid irregular situations of fraudulent use or cases or pirating with a direct impact on profits.
• Collections : Reduction of receivables from customers due to ineffective or deficient functioning of the recovery of collections and/or changes to legislation which governs the rendering of essential services and which may have an impact on the debt recovery from customers. The management of these risks is performed through definition of a monthly plan of collections actions, monitoring and validation, as well as evaluation of results. Whenever justified, collections and timing of actions are adjusted in order to guarantee the recovery of debts from end customers
Risk management strategies
Risk management is performed by several ZON Multimédia corporate and business units, based on identification and advance prioritising of critical risks and developing risk management strategies seeking to put into place the control measures deemed suitable for reducing risk to an acceptable level.
The risk management strategies adopted seek to ensure that:
• The control systems and procedures and the implemented policies allow response to management body, shareholders and general public expectations; • The control systems and procedures and the implemented policies are in line with all applicable laws and regulations; • Financial and operational information is complete, reliable, safe and reported on a regular and timely basis; • ZON Multimédia’s resources are efficiently and rationally used; • Share value is maximised and the operational management adopts all measures necessary to correct reported aspects.
Internal risk management procedure
Bearing in mind the regulatory requirements to which it is subject, ZON Multimédia has implemented an Internal Control function, which mainly intends to ensure the compliance with the Company’s purposes, policies and procedures in place, to ensure the quality of the financial information, to minimize any fraud, and to ensure that critical risks are controlled and reduced to an acceptable level.
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This function has been performed in the major subsidiaries of ZON Multimédia. The program provides not only for the introduction of Internal Control procedures, but also for its review, verification and continuous improvement.
In 2009, corrective actions were implemented for control procedures deemed ineffective as a result of evaluations carried out by Internal and External Auditors. Likewise, control procedures related to risk areas not yet covered by the Grupo ZON Multimédia Internal Control Manual were implemented and reviewed.
The methodology for evaluation that was followed took into consideration the references supplied by those organisations responsible for promoting the existence of internal control mechanisms in the capital markets, namely by the CMVM, the Securities and Exchange Commission ("SEC") and PCAOB, and that were based on an analysis of the Internal Control System according to the COSO II - Enterprise Risk Management framework concerning Entity Level Controls and Process Level Controls, and according to the COBIT framework concerning Information Systems/Information Technology.
With regard to the implementation of the Internal Control System, and following the use of the abovementioned referrals, a set of initiatives were developed to allow a substantial reinforcement of ZON Multimédia’s Internal Control and Risk Management environment including:
• Use of the ZON Multimédia “Dictionary of Risks” and its prioritisation in terms of i) probability of occurrence and ii) potential impacts in the context of people, processes and technology for the definition of priority areas in terms of auditing actions concerning the Internal Control Manual and risk mitigation actions;
• Use of results from control procedure evaluation actions indexed to risks, as a permanent update factor of risk evaluation results, permitting the generation and maintenance of updated risk matrices, and, consequently, the adjustment of priorities and actions to be developed;
• Maintenance of association between the risks and items from financial statements, in order to evaluate the impact on such items as a result of shifts in risk levels and the creation of various analysis reports;
• Review of Internal Control Manuals implemented in the main business units of ZON Multimédia, ensuring their permanent updating;
• Maintenance of alignment between the IS/IT Internal Control Manual and controls identified within the scope of Information Security Certification (ISO 27001);
• Disclosure of the ZON Multimédia Group Corporate Intranet Internal Control Manual in order to ensure knowledge among all employees;
• Definition, monitoring, and report to the ZON Multimédia Auditing Committee on results from steps taken to evaluate control procedures, remediation plans necessary for the correction of identified deficiencies and impacts upon the Corporate Risk Management model.
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The result of these actions up to 31 December 2009 ensured a degree of implementation of the ZON Group Internal Control Manual of 95%. This percentage corresponds to the relationship between the controls deemed effective and the overall controls defined in the Internal Control Manual. The results of evaluation actions performed by internal and external auditors and considered for the definition of “effective controls”.
Control by ZON Multimédia, Business Units and Support Companies
The Internal Control of ZON Multimedia is structured according to the following distribution of functional responsibilities:
• The Entity Level Controls are defined by ZON Multimedia on a corporate basis and are applicable to all the Group’s companies, including ZON Multimedia, and aim to establish internal control guidelines for the subsidiaries;
• The Process Level Controls and IS/IT Controls are defined at the corporate level and are applied to subsidiaries of ZON Multimédia, adjusted to their specifications, organisation and responsibility for processes. Given this distribution, the controls which are related with the collection of the information included in the preparation of the Financial Statements are implemented in such companies; the controls connected with accounting processing and recording of such information are implemented in the Financial and Administrative Central Office.
After revalidating the model, ZON Multimedia intends to implement a sequential (cascade) certification model aiming to ensure the involvement of the main intervenients to the annual financial reporting process.
11. WHISTLEBLOWING POLICY
ZON Multimédia has a Company whistleblowing policy and an internal regulation describing the procedures to adopt in case of whistleblowing.
For the purpose of this internal regulation, “irregularities” are considered to be any acts or omissions, wilful or negligent, occurred within the activities of the Group, which contravene legal or regulatory provisions, the By-laws or ZON Multimedia’s ethical rules and principles, attributable to corporate body members and other persons discharging managerial functions, officers, staff and remaining employees and collaborators of ZON Multimedia Group (irrespectively of their hierarchical position or relationship). These irregularities include, among others, breach of the ethical rules and principles foreseen in the ZON Multimedia’s Code of Ethics, in particular related to the integrity of the financial information, accounting practices, conflicts of interests rules, internal control system or competition policies.
After its implementation, the existence of this Regulation was disclosed via e-mail distribution to all employees of the ZON Multimédia Group and was also published on the internal website of ZON Multimédia.
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Any irregularity may be communicated through the proceedings and mechanisms provided for in the said Internal Regulation. Communication of any signs of irregularity must be submitted in writing and marked as "confidential", addressed to the Audit Committee, along with postal address of Apartado 14026 EC, 5 de Outubro, 1064-001 Lisboa, designated exclusively for this purpose, or submitted to the e-mail address [email protected], also created exclusively for purposes of communicating irregularities.
The communications of irregularities are received and processed by the Audit Committee, which is assisted, through the several stages of such process, by the General Officer or by the Deputy General Officer and by the Internal Audit Unit. The Audit Committee is responsible for taking the necessary decisions, disclosing those to the CEO and to the CFO of ZON Multimedia, as well as to other internal or external entities whose involvement is required or justified.
In any case, the identity of the persons communicating irregularities is confidential (when known), unless otherwise clearly intended and requested by those. No retaliation towards whom has made said communications is in any case permitted.
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CHAPTER 3. INFORMATION
1. CAPITAL STRUCTURE AND MAJOR SHAREHOLDERS
ZON Multimédia share capital is EUR 3,090,968.28 and is fully subscribed and paid up. It is represented by 309,096,828 ordinary shares.
All ZON Multimédia shares are admitted to trading on Eurolist by Euronext Lisbon.
Based upon the communications submitted to the Company up to 31 December 2009 by issuing companies and by their manages under the provisions of article 447 of CSC, article 16 of the Cód. VM and article 11 of CMVM Regulation no. 5/2008, the structure of ZON Multimédia Qualified Shareholdings, calculated according to the terms of no. 1 of article 20 of the Cód.VM, is the following in reference to that date:
Accionistas Número de Acções % Direitos de Voto
Caixa Geral de Depósitos, SA 53,799,405 17.41% Banco BPI, SA 28,106,494 9.09% Cinveste, SGPS, SA 17,882,962 5.79% Telefónica, SA 16,879,406 5.46% Espírito Santo Irmãos, SGPS, SA (1) 15,455,000 5.00% Cofina, SGPS, SA 15,190,000 4.91% Joaquim Alves Ferreira de Oliveira (3) 14,955,684 4.84% Fundação José Berardo (2) 13,408,982 4.34% Ongoing Strategy Investments, SGPS, SA (4) 9,762,452 3.16% Banco Espírito Santo, SA 9,020,171 2.92% Grupo Visabeira, SGPS, SA (5) 6,641,930 2.15% Credit Suisse Group AG 6,210,905 2.01% SGC, SGPS, SA (6) 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 (2) 3,985,488 1.29%
Total Identificado 229,291,190 74.18%
(1)Os direitos de voto correspondentes à Espírito Santo Irmãos,SGPS, SA são imputáveis à Espírito Santo Industrial,SA, à Espírito Santo Resources Limited, e à Espírito Santo Internacional, SA, sociedades que dominam por essa ordem a Espírito Santo Irmãos. (2) A posição da Fundação José Berardo é reciprocamente imputada à M etalgest - Sociedade de Gestão, SGPS, SA.
(3) São imputados 3,71%dos direitos devoto ao Sr. Joaquim Francisco Alves Ferreira de Oliveira, uma vez que controla a GRIPCOM , SGPS, SA, e a e a Controlinveste International S.à.r.l., que detém respectivamente 2.24% e 1,46% do capital social da ZON M ultimédia. (4) A Ongoing é detida a 99,99% pela Srª D. Isabel M aria Alves Rocha dos Santos, sendo-lhe assim imputáveis os seus direitos de voto. (5) A Visabeira Investimentos Financeiros, SGPS, SA, é detentora de 0,99%do capital social e direitos de voto da ZON Multimédia, sendo 1,16%directamente detidos pelo Grupo Visabeira,SGPS,SA.A Visabeira Investimentos Financeiros,SGPS,SA,é detida em 100% pela Visabeira Estudos e Investimentos, SA,a qual é detida em 100%pelaVisabeira Serviços,SGPS, SA,que por sua vezé detida pelo Grupo Visabeira, SGPS, SA. Este último é detido em 74,0104% pelo Engº Fernando Campos Nunes. (6) A participação da SGC, SGPS, SA é imputável ao seu accionista maioritário, Dr. João Pereira Coutinho.
The table below shows the shareholding of Caixa Geral de Depósitos, SA calculated in accordance with article 20 (1) of the Cód.VM.
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Accionistas Número de Acções % Direitos de Voto
Caixa Geral de Depósitos, SA 41,033,551 13.28% Caixa - Banco de Investimento, SA 9,892,135 3.20% Companhia de Seguros Fidelidade-Mundial, SA 2,451,688 0.79% Fundo de Pensões da CGD e Outras Empresas do Grupo 333,901 0.11% Império Bonança - Companhia de Seguros, SA 77,934 0.03% Via Directa - Companhia de Seguros, SA 5,282 0.00% Multicare - Seguros de Saúde, SA 4,914 0.00%
Total 53,799,405 17.41%
The table below shows the shareholding of BPI calculated in accordance with article 20 (1) of the Cód.VM.
Accionistas Número de Acções % Direitos de Voto
Fundo de Pensões do Banco BPI 23,287,499 7.53% BPI Vida - Companhia de Seguros de Vida, SA 1,103,111 0.36% Banco Português de Investimento, SA 940 0.00% Banco BPI, SA 3,714,944 1.20% Total 28,106,494 9.09%
The table below shows the shareholding of Telefónica, SA calculated in accordance with article 20 (1) of the Cód.VM.
Accionistas Número de Acções % Direitos de Voto
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%
Banco Espírito Santo, SA holds 3.98% of ZON Multimédia share capital and voting rights, represented by 12,287.265 shares, directly and through its pension fund. The table below shows the shareholding calculated in accordance with article 20 (1) of the Cód.VM.
Accionistas Número de Acções % Direitos de Voto
Fundo de Pensões do BES 8,421,807 2.72% Banco Espírito Santo, SA 590,000 0.19% Elementos dos Órgãos Sociais 7,144 0.00% Sociedades em relação de domínio ou de grupo com o BES 1,220 0.00% Total 9,020,171 2.92%
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The table below shows the shareholding of Joaquim Alves Ferreira de Oliveira, calculated in accordance with article 20 (1) of the Cód.VM.
Accionistas Número de Acções % Direitos de Voto
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 table below shows the shareholding of Ongoing Strategy Investments, SGPS, SA, calculated in accordance with article 20 (1) of the Cód.VM.
Accionistas Número de Acções % Direitos de Voto
Insight Strategic Investments, SGPS, SA 5,688,106 1.84% Ongoing Strategy Investments, SGPS, SA 3,979,513 1.29% Investoffice - Investimentos e Consultoria Financeira, SA 87,258 0.03% Administradores das Sociedades Supra Indicadas 7,575 0.00% Total 9,762,452 3.16%
The table below shows the shareholding of Visabeira, SGPS, SA, calculated in accordance with article 20 (1) of the Cód.VM.
Accionistas Número de Acções % Direitos de Voto
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%
The table below shows the shareholding of Credit Suisse Group AG, calculated in accordance with article 20 (1) of the Cód.VM.
Accionistas Número de Acções % Direitos de Voto
Credit Suisse AG (on behalf of clients) 5,702,049 1.84% Neue Aargauer Bank (on behalf of clients) 715 0.00% Clariden Leu AG(on behalf of clients) 1,118 0.00% Credit Suisse AG 185,141 0.06% Credit Suisse International 188 0.00% Credit Suisse Securities (USA) LLC 75,000 0.02% CS Securities (Europe) Ltd 246,694 0.08% Total 6,210,905 2.01%
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2. LIMITS ON THE TRANSFERABILITY OF SHARES, SHAREHOLDERS’ AGREEMENTS AND SHAREHOLDINGS
There are no limitations or restrictions to the transferability of shares representing the share capital of ZON Multimédia, and the Company is not aware of any existing shareholders’ agreements.
According to article 11(1) (b) of the by-laws, shareholders are obliged to inform the board of directors of the content of any shareholders’ agreements entered into in respect to the Company.
Similarly, under the by-laws, shareholders who are, either directly or indirectly, engaged on a competing activity vis-à-vis the ones performed by companies within a control or group relationship with ZON Multimedia may not hold more than ten per cent of ordinary shares representing the Company’s share capital without the prior authorisation of the general shareholders meeting.
There are neither shareholders holding special rights nor rules regarding employees’ participation in the Company’s share capital.
3. SHARE PRICE EVOLUTION
At the end of 2009, the ZON Multimédia share price closed at €4.338, which represents a gain of 16.9% compared to the end of 2008.
ZON stock performance and the daily volume of shares traded are shown on the graph below, which also identifies the year's main events, such as presentation of results and dividend payments.
ZON - Desempenho Bolsista em 2009 5,00 € 12.000.000
4,90 € 18 Novembro: 11.000.000 Divulgação Resultados 4,80 € 9M09 10.000.000 4,70 € 9.000.000 4,60 €
4,50 € 8.000.000 06 Maio: Divulgação Resultados 1T09 4,40 € 04 Março: 27 Maio: Pagamento Divulgação de Dividendos 7.000.000 4,30 € Resultados 2008 6.000.000
Euros 4,20 € 31 Julho: Divulgação 5.000.000 4,10 € Resultados 1S09 Número de Acções de Número
4,00 € 4.000.000
3,90 € 3.000.000 3,80 € 2.000.000 3,70 € 1.000.000 3,60 €
3,50 € 0 2008 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 ------12 01 01 02 02 03 03 04 04 05 05 06 06 07 07 07 08 08 09 09 10 10 11 11 12 12 12 ------31 14 28 11 25 11 25 08 22 06 20 03 17 01 15 29 12 26 09 23 07 21 04 18 02 16 30 Volume ZON Cotação ZON
In 2009, ZON shares were traded between €3.58 and €5.011.
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A total of 173,668,349 ZON shares were traded in 2009, a daily average of 675,752 or 0.22% of issued shares.
Following the declines of 2008, 2009 was marked by stock market recovery. PSI20, the national stock market's most important index, grew by 33.5% compared to a decline of 51.29% during the previous year.
This growth in the PSI20 outpaced international indexes such as IBEX (+29.8%), Footsie (+22.1%) and Dow Jones Euro Stoxx50 (+21%).
The graph below summarises the performance of ZON stock in 2009, compared to some of its national and international peers, as well as the PSI20 and some international indexes:
Valorização Bolsista em 2009
ZON ; 16,9%
Portugal Telecom; 40,4%
Sonaecom; 92,2%
Telenet; 62,0%
B Sky B; 17,1%
Sky Deutschland; -13,1%
Liberty Global; 37,5%
Virgin Media; 237,3%
PSI20; 33,5%
Footsie; 22,1%
IBEX; 29,8%
Dow Jones Euro Stoxx 50; 21,0%
-50% -25% 0% 25% 50% 75% 100% 125% 150% 175% 200% 225% 250%
4. DIVIDEND DISTRIBUTION
Dividend distribution policy
ZON Multimédia has been adopting a dividend distribution policy taking into consideration generation of cash flow, non-organic growth opportunities and investors’ expectations, as well as the capital structure optimisation plan and the estimated need for funds.
The dividend policy is outlined in the by-laws, in terms of minimum percentage, and is publicly announced in advance by the Company’s management.
In fact, according to the by-laws, a percentage of at least 40% of the annual net profits shall be distributed to the shareholders, as a dividend, although the general shareholders meeting may
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resolve, by a qualified majority of two thirds of votes cast, on the reduction or non-distribution of dividends.
ZON Multimédia’s board of directors passed a resolution on 1 March 2010, to propose to the next general shareholders meeting an ordinary distribution of dividend for 2009 of an estimated €0.16 per share in line with the dividend distribution policy of the preceding year.
Dividend distribution over the last three financial years
As mentioned above, ZON Multimédia’s board of directors shall submit a proposal to distribute an ordinary dividend for 2009 of 0.16 Euros per share for appreciation by the general shareholders meeting.
The gross dividend per share for the last three financial years was as follows:
• 2008 – €0.16 • 2007 – €0.20, plus €0.30 of extraordinary dividend • 2006 – €0.30
5. PLANS FOR ALLOTMENT OF SHARES OR OPTIONS
The Shares or Options Allotment Plan currently in force in the ZON Multimédia Group, submitted to and approved by the general shareholders meeting on the 21st of April 2008, containing all the necessary elements for its assessment (including its regulation), is aimed at achieving the following objectives:
• The loyalty of the officers and employees of several companies within the Group; • The incentive Stimulus to their creative and productive skills, so promoting the consistent creation of corporate results; • The creation of favourable conditions for recruiting senior officers conditions for managing and employees of high strategic value; • The alignment of the employees’ interests with the corporate goals and ZON shareholders’ interests, rewarding their performance, depending on value creation to ZON’s shareholders value, reflected on the valorisation of their shares on Stock Exchange.
This Plan, groundbreaking in Portugal, applicable to all employees (including the Executive directors of the Company and other Company’s Directors, as per article 248-B(3) of the Cód.VM), appears as a result of one of the pillars of the Strategic Plan approved for the 2008/2010 triennium, with a view of turning ZON Multimédia into a corporate model in matters of professional and personal development and stimulating the development and mobilization of the employees and officers to focus around a shared project.
The Internal Regulation of the ZON Multimédia’s Shares or Options Allocation Plan for the of , approved in the general shareholders meeting held on April 21, 2008 is available for consulting on the Company’s website.
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ZON Multimédia has established three types of plans, to which a maximum number of shares shall be allocated. This number is yearly approved by the board of directors and depends solely on the fulfilment of the goals set for ZON Multimédia and of the individual performance assessment.
“Standard” Shares Plan
Shares Allocation Plan addressed to the employees, irrespectively of the functions they perform, selected by the Executive Committee (or by the Remuneration Committee further the Proposal of the chairman of the board of directors, should the beneficiary be a member of the Executive Committee of ZON Multimédia).
The vesting period for the shares is of five years, beginning twelve months after the date on which the shares are allocated, at a rate of 20% a year.
This new remuneration policy, comprising the Shares programs referred to below, not only allows the alignment of the employees and officers with the creation of shareholder value, and constitutes an important mechanism for enhancing loyalty and savings incentive, but will also reinforce ZON Group’s performance culture, insofar as its attribution depends on the achievement of its objectives.
Turning ZON Multimédia into a reference in matters of international remuneration best practices, by adopting the best models adopted by leading companies, is the main objective of this project that is split into three core areas: alignment with winning and sustainable strategies, motivation of employees and sharing of the added value.
“Senior Executive” Share Plan
Share and/or Option allocation Plan addressed to employees and officers qualified as Senior Executives, selected by the Executive Committee (or by the Remuneration Committee under the Proposal of the chairman of the board of directors, should the beneficiary be a member of the Executive Committee of ZON Multimédia).
Under this Plan, the vesting period is usually of three years, beginning 12 months after the date on which the Shares are allocated, at 1/3 a year.
Share Savings Plan
The Shares Investment Plan is addressed to all the employees of the Group, irrespective of the functions they perform, and which may be subscribed without the need of a prior assessment.
Employees and officers who fulfil the requirements set out internally may invest in the “Shares” Savings Plan up to 10% of their annual salary, up to the maximum amount of €7,500 per year, acquiring the shares at a 10% discount.
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Conditions for the allotment
The board of directors shall approve the number of Shares and/or Options to be allocated under each Plan set out in their Internal Regulation, in accordance with the annual assessment of ZON Multimédia performance.
The Executive Committee shall select the beneficiaries of each Plan and decide on a case by case basis on the allocation of Shares to eligible employees and officers. With regard to the members of the Executive Committee, these powers are performed by the Remuneration Committee.
Restrictions on the transfer of Shares
The rights to the allocated shares allotted may only be disposed of after their vesting, which period varies according to the respective Shares Plan, being of 3 years for the Senior Executive Share Plan and of 5 years for the Standard Plan, in accordance with the above described conditions.
Powers of the management body to make amendments to the Plans
The general shareholders meeting has the power to amend the Shares Plans, without prejudice of authorising the board of directors to introduce the necessary or convenient adjustments for the interpretation, integration and application of the Plans Regulations, insofar as such adjustments do not affect the essential conditions therewith established.
Allocation of Options
The Options allocation, restricted to the Senior Executives Option Plan, consists in the right to acquire a given number of ZON Multimédia’s shares for a previously established consideration, over a period of time or at the end of such period. The beneficiaries of the Senior Executive Option Plan may choose to have shares or options in their portfolios, in order to adapt it to their risk profile. In this Plan, the following combinations may be selected: (i) 50% of shares and 50% of options (ii) 75% of shares and 25% options and (iii) 100% of shares. Options may be exercised after their vesting and within a period of 5 years.
The economic value of the Options corresponds to the market price for that given Option or, if inexistent, to the value determined through Black-Scholes mathematical model.
The exercise price for the Options corresponds to the weighted average of the closing prices for ZON Multimédia’s shares in the 15 business days prior to their allocation.
The board of directors, resolved not to grant the possibility of exercising Options under the Senior Executive Option Plan in 2008/2009.
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6. RELEVANT TRANSACTIONS WITH MEMBERS OF THE CORPORATE BODIES, HOLDERS OF QUALIFIED SHAREHOLDINGS OR COMPANIES IN A GROUP OR CONTROL RELATIONSHIP
The Company has entered into agreements and conducted transactions with several ZON Group entities on a regular basis. Such transactions have been conducted on an arm’s length basis and under normal market conditions for similar transactions, and are comprised in the ordinary contracting parties’ business activities.
The Company also regularly enters into agreements and transactions of a financial nature with several credit institutions holding qualified shareholdings of its share capital; however, these transactions are entered into at arm’s length and under normal market conditions for similar transactions and are comprised in the ordinary business activities of the contracting parties.
ZON Multimédia did not execute any significant transaction or operation in economic terms for any of the parties involved with members of the management and or supervisory bodies, holders of qualified shareholdings or companies with which it is in a control or group relationship which were not under normal market conditions for similar operations and which were not part of the Company's day-to-day activity. In accordance with the Corporate Governance Code for Listed Companies, approved in January 2010, ZON Multimédia is analysing new recommendations arising from the said code, namely Recommendation IV.1.2 on the involvement of the supervisory body in the approval process for transactions with shareholders having a qualified holding.
7. INVESTOR RELATIONS
Since the Company’s incorporation the Investor Relations Office was created, with the purpose of ensuring adequate relationship with shareholders, investors and analysts in accordance with the equal treatment principle, as well as with the financial markets in general and, in particular, with the regulated market where the shares representing its share capital is admitted to trading and its regulatory entity, CMVM.
The Investor Relations Office publishes, on an annual basis, the management report and accounts, disclosing, in addition to the annual and half-year information, detailed quarterly information, in accordance with the Portuguese corporate and securities market laws. The Company immediately discloses to the public all privileged information regarding its business or securities, which shareholders can access through its website (www.zon.pt/ir/). All the information is available in the company’s website both in Portuguese and English versions.
The activity developed by the Investor Relations Office also provides permanent and updated information to the financial community about the activities of ZON Multimedia, through regular press releases, presentations and communications on the quarterly, half-yearly and annual results, as well as any other relevant events that may occur. It also provides all clarifications to the financial community in general - shareholders, investors (both institutional and retail) and analysts, also assisting and supporting the exercise of the shareholders rights. The Investor Relations Office promotes regular meetings of the executive management team with the financial community through the participation in specialized conferences, roadshows, both in Portugal or in major international
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financial centres, and often meets with investors who visit Portugal. In 2009, the main Investor Relations events were:
DATE EVENT LOCATION 21Jan Espírito Santo Investment Iberian Event Madrid 6 Feb Santander Midcap Event Madrid 5 Feb Lisbon 11Feb Trading Statement Roadshow London 12 Feb Madrid 17-18 Paris Mar Roadshow 19 Mar Amsterdam Citigroup 9th Annual European and Emerging Telecom 25 Mar London Conference 26 Mar Santander Portuguese Conference Lisbon 14 May Lisbon 18-19 Roadshow London May 20 May NY 21 May Roadshow Boston 19 May Millennium BCP Equities Forum London 26 May ESN Conference London 27 May Copenhagen 28 May Stockholm 3 Jun Roadshow Lisbon 8 Jun Geneva 9Jun Zurich Jun 4 Credit Suisse European Cable Seminar London 16Jun Nomura Conference London 18-19 Sintra Penha 16th Annual Santander Telecoms Conference Jun Longa 16 Jul ZON FIBRA DAY Lisbon 17Jul ZON FIBRA DAY London 2 Jul UBS Iberian Telecoms Conference Madrid 8 Sept Execution Cable Conference London 10 Sept VI BPI Iberian Small & Mid Caps Conference Cascais 14 Sept S. Francisco LA 15 Sept Roadshow S. Diego 17 Sept NY 13-14 INFOVALOR - Fórum de Poupança e Investimento Lisbon Nov 19 Nov 9th Annual Technology Media & Telecoms Conference Barcelona
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30 Nov Roadshow Lisbon 2 Dec Zurich Amsterdam 3 Dec Roadshow The Hague Brussels 4 Dec London
ZON Multimédia’s representative for Market Relationship is Maria João Carrapato.
Any interested parties are invited to request information to the Investor Relations Office, using the following contacts:
Avenida 5 de Outubro, 208 1069 - 203 Lisbon (Portugal) Tel. / Fax: + (351) 21 7824725 / + (351) 21 7824735 E-mail: [email protected]
8. EXTERNAL AUDITORS
The annual remuneration spent on external auditors in 2009 was €525,870 in return for the following services rendered:
31 de Dezembro de 2009 Valor % Serviços de revisão legal de contas e auditoria 469.868 69% Outros serviços de garantia de fiabilidade 113.550 17% Outros serviços que não de revisão legal de contas e auditoria 94.500 14%
TOTAL 677.918 100%
ZON Multimédia external auditors are independent internationally recognised entities whose work is tightly monitored and supervised by the Company’s audit committee. ZON Multimédia does not grant any indemnity protection to the external auditors.
In order to safeguard the external auditors’ independence, the Company’s audit committee has the following powers and functions in regards to the external auditors:
• To represent the Company, for all purposes in all matters before the external auditors; • To propose to the board of directors the hiring, renewal of agreement and remuneration of the Company’s external auditors and propose their dismissal to the general shareholders meeting based on reasonable grounds; • Ensure the Company and the companies with which ZON Multimédia it is in a control or group relationship provide suitable conditions for the Company’s external auditors to render their services;
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• Review with the external auditors the scope, planning and resources to be use when rendering their services; • Examining the contents of the audit reports and annually examine the Company’s external auditors, annually, who should report and be subject to the supervision of the audit committee, considering their qualifications, independence and performance; • Obtain an annual report directly from the external auditors on substantial issues which may arise in the scope of the services rendered, as well as on any other relationship existing between the Company and its external auditors, including the amount of fees paid for auditing and additional services; • Discuss separately with the external auditors aspects and problems connected to the auditing process of the Company’s financial statements, including the Executive Committee’s responses; and • Granting prior approval for engaging the external auditors for the rendering of additional services.
Additionally, the audit committee approved a regulation for the external auditors’ rendering of services, which defines the framework governing the ‘Non-Audit’ or ‘Audit-Related’ services rendered by the external auditor to ZON Multimédia and its participated companies included in the respective consolidation permiter. This regulation applies to the services rendered by the external auditors and related companies.
Under the terms of this regulation, hiring ‘Non-Audit’ or ‘Audit-Related’ services should be considered on an exceptional or complementarily basis respectively, and in agreement with the rules set down in this regulation.
The evaluation of the services rendering admissibility depends on the audit committee, which considers the following principles: (i) an auditor cannot audit his own work; (ii) an auditor cannot undertake a function or perform a task which is a management responsibility; (iii) an auditor cannot act directly or indirectly on behalf of his client.
The annual fees for non-audit or audit-related services cannot exceed the total amount of audit services fees except for the specific case of audit-related services whenever the exceeding of such limit has been approved by the audit committee.
The approval and permission of the audit committee is needed for the rendering of services by the external auditor.
The Company is analysing the appropriateness of reviewing this Regulation in the light of the CMVM’s new recommendations on the Corporate Governance of listed companies in the version published in January 2010.
Regarding the rotation period for the external auditor and Recommendation III.1.3 of the CMVM Corporate Governance Code in the version published in January 2010, which states that the Company promotes the rotation of the auditor at the end of three terms in office (in the case of ZON Multimédia, since the term of office are of 3 years), it is hereby reported that the Company has not defined a general fixed policy of external auditor rotation.
The audit committee, in the exercise of its functions, annually conducts a global evaluation of the external auditor’s performance and well as of its independence. Furthermore, the audit committee promotes, whenever necessary or appropriate to the performance of Company’s activity or the configuration of the market in general, a reflection on the appropriateness of the external auditor’s performance of its funcrions. In this context, ZON Multimédia changed the auditing company for the financial year of 2008, and the Company's current external auditor has performed its duties for two years.
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Despite the said CMVM recommendation not having been taken into account for purposes of this report, ZON Multimédia believes that it is currently in compliance with the recommendation .
9. SUSTAINABLE DEVELOPMENT AND SOCIAL RESPONSIBILITY POLICY
ZON Multimédia is becomingly an increasingly socially responsible company in the corporate citizenship area. Its sustainability strategy is based on practices and procedures on three main areas: economic, social and environmental, which it consolidates and renews systematically.
It undertakes social responsibility work each year through its ‘Cá Dentro’ programme, which aims to promote employee and employees’ children’s qualification, development and training. Initiatives include the allocation of study grants and scholarships to the best students and the extracurricular programs – these normally take place during Holy Week and Christmas holidays and are preferably held in a natural environment, involving outdoor and group activities.
On another hand, in terms of community relations, ZON Multimédia sponsors several institutions, either via free provision of its services or through donations or charity initiatives. Support provided over the past year came from various sources, including donations to S. Tomás High Schools and Instituto de Surdos-Mudos da Imaculada Conceição (Immaculate Conception Deaf-Mute Institute), with which a Partnership Agreement was signed.
The Árvore Amiga (Adopt a Tree) project, related to the ZON Christmas Tree – was transformed into an icon in the City of Lisbon – it was returned to the Banco Alimentar contra a Fome (Anti-Hunger Food Bank) for the Ajuda Vale (Assistance Voucher) campaign. This initiative includes food in the form of vouchers that represent their basic food products and which are allocated to families in need.
In another solidarity initiative, ZON signed an Agreement with Entreajuda (association that helps other charity institutions) in order to provide 1,500 disadvantaged kids with vision, hearing and dental screening. Considering that in Portugal many cases of academic underperformance are due to hearing or vision impairment, ZON also contributes to the learning process of these children and also towards increasing their self-esteem. This Project also relies upon the support of the Alto Comissariado da Saúde (High Commission on Health).
In an unprecedented and very well-received initiative, ZON and its employees combined efforts in the Presentes Solidários (Charity Gifts) programme, proceeds from which were donated to Instituto de Surdos-Mudos da Imaculada Conceição (ISMIC). Employees, managers and directors donate all offerings received during the Christmas holidays to this initiative. These lots were then purchased by ZON employees for a symbolic amount, which was matched by the Company in order to reach a final amount. Instituto de Surdos-Mudos da Imaculada Conceição is a boarding school founded 76 years ago and currently has 60 students, 22 of whom are boarders and all of whom have special needs.
The magic of cinema allows ZON Lusomundo to carry out various Social Responsibility initiatives: Cinema Solidário (“Charity Cinema”) was one such initiative. Cinema Solidário is a unique and innovatory initiative, undertaken jointly with the ‘ Movimento de Defesa da Vida’ , and which uses the cinema and solidarity to help children at risk and their families, aiming at a sustained change in social behaviour.
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Additionally, every year on June 1 (International Children’s Day) cinemas show films for disadvantaged children, with the ticket costing a reduced nominal amount. In addition, at Christmas, cinemas show films exclusively for schools at a reduced price.
Using the movie Monsters vs. Aliens as a theme, 80 children from Santa Casa de Misericórdia de Lisboa children’s homes took part in an outing. Inspired by the famous film by the DreamWorks Studios, all of these children were able to create their own “Monsters” with art materials. The home with the best piece of art was awarded the complete DreamWorks collection.
The children’s efforts were also rewarded with a trip to the movies to watch a film that has been an inspiration to them. They were very surprised to see their works on exhibit there. One of this program’s main objectives is to promote equality of access to culture and offer unique moments of magic and entertainment to all of these children.
Also within the context of social responsibility and in partnership with the General Management of Prison Institutions, ZON Lusomundo presented a DVD of The Reader , which was the first movie showing at a Portuguese prison. The launch was made with members of the media present in the female wing of the Tires Prison and shown in simulcast at all of the country's prisons. The event also involved a fashion show with pieces made by inmates using only recycled materials. This initiative includes a project called DVD - Dinamizar (Stimulate), Visualizar (View), Discutir (Discuss). The objective is for films to be shown regularly in prisons, to encourage group debates about the subject matter of their arguments.
ZON Multimédia’s involvement in social inclusion initiatives is mainly achieved through creating conditions of access for all to ZON TV Cabo channels, ZON Lusomundo Audiovisuais video products and showings in ZON Lusomundo Cinemas. The audio-description service for the blind and partially sighted is the first service for those with special needs diffused by a digital television operator at national level, simultaneously with the sign language and subtitling service for the deaf developed as part of ‘ Igualdade de Oportunidades para Todos ’.
It is through the development of these programmes that ZON Multimédia seeks to position itself as a socially responsible company, able to create for all those with which it establishes partnership relationships, and society as a whole. Precisely towards this final point and with the aim of rewarding creativity, entrepreneurship and boldness, ZON created a monetary prize awarded (200,000 euros and scholarships in Austin, USA). Works with the greatest economic viability way be supported by IAPMEI (Institute for the Support of Small and Medium-sized Enterprises).
As a socially responsible company, ZON Multimédia has prioritised the creation of a waste management system which contributes to natural preservation, in addition to complying with legal requirements and promoting continuous improvement through adoption of sustainable resources that reduce environmental impacts from existing processes and from products and services provided.
Environmental stewardship and building everyone's awareness of environmental preservation are increasingly a priority for all companies.
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From a strategic point of view, environmental issues are of utmost importance to companies since they are becoming more attractive to shareholders, consumers, suppliers and public officials in general.
In order to comply with environmental legislation, ZON Multimédia is obligated on an annual basis to declare 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 business activity.
Accordingly, ZON TV Cabo created ECO ZON, an integrated management system for all waste produced by all ZON Group companies. EcoZON is a strategic environmental project for our business activity and represents a differentiating factor relative to competing companies. This project represents the point of departure for improvement of the organisation’s environmental performance, sending a clear signal of change to its employees, customers and suppliers and which is based on the following assumptions:
• 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 prevention 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 to 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 (urban and non- urban waste, REEE's, etc.), under the issuance of a statement for destruction of waste, pursuant to current environmental legislation. • Compliance with national and European environmental legislation. • Protect ZON MULTIMEDIA against the improper use of data through application of rigorous safety measures during the collection 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 Multimédia promotes through recycling, providing eco-stations for selective separation of any waste produced at all of its premises.
With the launch of this project and emphasizing environmental awareness 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.
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ANNEX I
Positions held by members of the Board of Directors in other companies
Daniel Proença de Carvalho
Positions held in companies of ZON Multimédia Group
Not applicable.
Positions held in other companies:
• Chairman of the Advisory Board of Explorer Investments – Sociedade de Capital de Risco, S.A. • Member of the Directors of SINDCOM – Sociedade de Investimentos na Indústria e Comércio, SGPS, S.A. • Member of the Remuneration Committee of Banco Espírito Santo, S.A. • Vice-chairman of the Board of the General Shareholders Meeting of Caixa Geral de Depósitos, S.A. • Chairman of the Board of the General Shareholders Meeting of Galp Energia, SGPS, S.A. • Chairman of the Board of the General Shareholders Meeting of Socitel – Sociedade Industrial de Trefilaria, S.A. • Chairman of the Board of the General Shareholders Meeting of Edifer – Investimentos, Sociedade Gestora de Participações Sociais, S.A. • Chairman of the Board of The General Shareholders Meeting of Edifer – Sociedade Gestora de Participações Sociais, S.A. • Chairman of the Board of General Shareholders Meeting of Portugália – Administração de Patrimónios, S.A. • Chairman of the Board of the General Shareholders Meeting of Mague – SGPS, S.A. • Chairman of the Board of the General Shareholders Meeting, Almonda – Sociedade Gestora de Participações Sociais, S.A. • Chairman of the Board of the General Shareholders Meeting of Renova – Fábrica de Papel do Almonda, S.A. • Chairman of the Board of the General Shareholders Meeting of Celulose do Caima, SGPS, S.A. • Chairman of the Board of the General Shareholders Meeting of Estoril Sol, SGPS, S.A. • Chairman of the Board of the General Shareholders Meeting of Panatlântica – Holding, Sociedade Gestora de Participações Sociais, S.A. • Chairman of the Board of the General Shareholders Meeting of G.A. – Estudos e Investimentos, S.A. • Chairman of the Board of the General Shareholders Meeting of Vila Sol II – Empreendimentos Touristic, S.A. • Chairman of the Board of the General Shareholders Meeting of Vila Sol - SGPS, S.A. • Chairman of the Board of the General Shareholders Meeting of Cabo Raso – Empreendimentos Turísticos, S.A. • Chairman of the Board of the General Shareholders Meeting of SOGEB – Sociedade de Gestão de Bens, S.A. • Chairman of the Board of the General Shareholders Meeting of Sociedade Agrícola Belo de Mértola, S.A. • Chairman of the Board of the General Shareholders Meeting of Sociedade Agrícola dos Namorados, S.A. • Chairman of the Board of the General Shareholders Meeting of Coaltejo – Criador de Ovinos Algarve e Alentejo, S.A. • Chairman of the Board of the General Shareholders Meeting of Sotac – Sociedade de Turismo e Agricultura, S.A.
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• Chairman of the Board of the General Shareholders Meeting of Sogesfin – Sociedade Gestora de Participações Sociais, S.A. • Chairman of the Board of the General Shareholders Meeting of 3 Z – Administração de Imóveis, S.A. • Chairman of the Board of the General Shareholders Meeting of Sétimos - Participações, SGPS, S.A. • Chairman of the Board of the General Shareholders Meeting of Euroatlântica – Investimentos e Comércio, S.A. • Chairman of the Board of the General Shareholders Meeting of Confiança Participações, SGPS, S.A. • Chairman of the Board of the General Shareholders Meeting of Sociedade Agrícola da Serra Branca, S.A. • Chairman of the Board of the General Shareholders Meeting of Gotan, SGPS, S.A.
Rodrigo Jorge Araújo Costa Positions held in companies of ZON Multimédia group
• 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, SGPR, S.A. • Chairman of the Board of Directors of ZON Lusomundo Cinemas, S.A. • Vice-chairman the Board of Directors of Finstar – Sociedade de Investimentos e Participações, S.A
Positions held in other companies:
Not applicable.
José Pedro Faria Pereira da Costa Positions held in companies of ZON Multimédia group
• Director of ZON Televisão por Cabo, SGPS, 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 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. • Chairman of the board of directors of Upstar Comunicações, S.A. • Director of Dreamia Holdings, B.V. • Director of Dreamia – Serviços de Televisão, S.A.
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• Director of Finstar – Sociedade de Investimentos e Participações, S.A. • Manager of Lusomundo España, SL
Positions held in other companies:
Not applicable.
Luís Miguel Gonçalves Lopes Positions held in companies of ZON Multimédia Group
• Director of ZON Televisão por Cabo, SGPS, S.A. • Vice-Chairman of ZON – TV Cabo Portugal, 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. • Director of ZON Cinemas, SGPS, S.A. • Director of ZON Lusomundo Cinemas, S.A.
Positions held in other companies:
Not applicable.
Duarte Maria de Almeida e Vasconcelos Calheiros Positions held in companies of ZON Multimédia Group
• Director of ZON Televisão por Cabo, SGPS, S.A. • Director of ZON TV Cabo Portugal, S.A. • Director 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 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. • 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 Holdings, B.V. • Manager of Lusomundo Editores, Lda. • Manager of Distodo, Distribuição e Logística, Lda. • Manager of Lusomundo Moçambique, S.A. • Manager of Lusomundo España, SL. • Manager of Empracine, Lda. • Manager of Empresa de Recreios Artísticos, Lda.
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Positions held in other companies:
Not applicable.
Fernando Fortuny Martorell Positions held in companies of ZON Multimédia Group
Not applicable.
Positions held in other companies:
• Director of Espírito Santo Ventures – Sociedade Capital de Risco, S.A. • Deputy Director of Espírito Santo Resources Limited • Director of Opway, SGPS, S.A. • Vice Chairman of Rio Forte Investments, S.A. • Director of Herdade da Comporta • Non-executive Director of Espírito Santo Property (Brasil) 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. • Managing shareholder of GO Restauração, Lda.
António Domingues Positions held in companies of ZON Multimédia Group
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 Banco Comercial e de Investimentos, S.A.R.L. (Moçambique) • Vice-chairman of the Board of Directors of Banco de Fomento de Angola, S.A.R.L. • Member of the Board of Directors 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 companies of ZON Multimédia Group
Not applicable.
Positions held in other companies:
• Chairman of the Board of Directors of Fundação Cascais • Chairman of the Portuguese-Hungarian Chamber of Commerce
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Luís João Bordalo da Silva Positions held in companies of ZON Multimédia Group
Not applicable.
Positions held in other companies:
• Director of Cinveste, SGPS, S.A. • 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 HSF Engenharia, S.A.
Vítor Fernando da Conceição Gonçalves Positions held in companies of ZON Multimédia Group
Not applicable.
Positions held in other entities:
• Member of the General Supervisory Board of EDP – Energias de Portugal S.A. • Chairman of the Committee for the Financial Matters of EDP – Energias de Portugal, S.A. • Chairman of the Audit Board of Fundação EDP • Member of the Economic and Social Council • Vice-Chancellor of Universidade Técnica de Lisboa
Paulo Cardoso Correia da Mota Pinto Positions held in companies of ZON Multimédia Group
Not applicable.
Positions held in other entities:
• Deputy to the Assembly of the Republic • Professor at Universidade de Coimbra • Managing Shareholder of Paulo Mota Pinto, Lda.
Nuno João Francisco Soares de Oliveira Silvério Marques Positions held in companies of ZON Multimédia Group
Not applicable.
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Positions held in other companies:
• Vice-chairman of the Board of Directors of CIDOT – Estúdio de Comunicação, S.A. • President of the Board of Directors of AGILLE – Serviços e Consultoria de Gestão, S.A. • Member of the Audit Board of Banco Privado Atlântico – Europa, S.A.
Norberto Emílio Sequeira da Rosa Positions held in companies of ZON Multimédia Group
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. • Director of Fundação Económica • Vice-chairman of Banco Efisa, S.A. • Member of the Managing Council of Caixa Geral de Aposentações. • Member of CISP – Comissão Interbancária para o Sistema de Pagamentos (Interbank Payment System Committee).
Jorge Telmo Maria Freire Cardoso Positions held in companies of ZON Multimédia Group
Not applicable.
Positions held in other companies:
• Director of Caixa – Banco de Investimento, S.A..
Joaquim Francisco Alves Ferreira de Oliveira Positions held in companies of ZON Multimédia group
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 Controlinveste Comunicações, 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.
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• 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. • 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 Jornalinveste – Comunicação, 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
Positions held in companies of ZON Multimédia Group
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 Cofihold, 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. • Chairman of the Board of Directors of F. Ramada II Imobiliária, S.A. • Director of Invescaima, SGPS, S.A. • Director of Presselivre – Imprensa Livre, S.A.
Professional qualifications and activities undertaken over the last 5 years
• Members of the Executive Committee
Rodrigo Jorge Araújo Costa . Portuguese. 50 years old. First appointed - co-opted in 2007. Term ended 31 December 2009. Chairman of the Board of Directors, ZON Televisão por Cabo, SGPS, S.A., since September 2007; Chairman of the Board of Directors, ZON – TV Cabo Portugal, S.A., since September 2007; Chairman of the Board of Directors, ZON TV Cabo Açoreana, S.A., since November 2007; Chairman of the Board of Directors, ZON TV Cabo Madeirense, S.A., since November 2007; Chairman of the Board of Directors, ZON Conteúdos, Actividade de Televisão e de Produção de Conteúdos, S.A., since September 2007; Chairman of the Board of Directors, ZON Lusomundo Audiovisuais, S.A., since September 2007; Chairman of the Board of Directors, 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; Corporate Vice President OEM – Microsoft Corporation 2002 - 2005; since 2004, Member of the High Level Counsel for Foreign Investment; since 2005, Member of the Advisory Board, Plano Tecnológico; 2006 - 2007, Executive Vice-chairman, Portugal Telecom, SGPS,
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S.A. (cross-sectional leadership, Innovation, IT Systems and Human Resources); President, PT Comunicações; Chairman of the Board of Directors, PT Inovação and PT Sistemas de Informação.
José Pedro Faria Pereira da Costa . Portuguese. 42 years old . First appointed - co-opted in 2007. The term ended on 31 December 2009. Member of the Board of Directors, ZON Televisão por Cabo, SGPS, S.A., since September 2007; Vice-Chairman of the Board of Directors, ZON TV Cabo Portugal, S.A., since March 2008; ZON Conteúdos, Actividade de Televisão e de Produção de Conteúdos, S.A., since September 2007; Member of the Board of Directors, ZON Lusomundo Audiovisuais, S.A., since September 2007; Member of the Board of Directors, ZON Lusomundo Cinemas, S.A., since September 2007; Member of the Board of Directors, Lusomundo, Sociedade de Investimentos Imobiliários, S.A., since December 2007; Member of the Board of Directors, Lusomundo Imobiliária 2, S.A., since December 2007; Member of the Board of Directors, Sport TV Portugal, S.A., since October 2007; Member of the Board of Directors, ZON Audiovisuais, SGPS, S.A, since 2009; Member of the Board of Directors, ZON Cinemas, SGPS, S.A, since 2009; Member of the Board of Directors, Teliz Holding, B.V., since 2009; Member of the Board of Directors, Dreamia Holdings, B.V., since 2009; Member of the Board of Directors, Dreamia – Serviços de Televisão, S.A, since 2009; Member of the Board of Directors, Finstar – Sociedade de Investimentos e Participações, S.A, since 2009; Chairman of the Board of Directors, Upstar Comunicações, S.A, since 2009; Between September 2002 and September 2007 joined Portugal Telecom’s Group as member of the board of directors and CFO of the companies PT Comunicações, PT.COM e PT Prime. He was also non-executive Board Member of the companies PT ACS, Previsão, PT Prestações, PT Sistemas de Informação, PT PRO, Páginas Amarelas, Tradecom e Banco Best and Manager of DCSI. Between June 2000 and September 2002, Vice-President of the PT/Telefónica joint-venture in Brasil, as a Board Member of PT Móveis, SGPS, responsible for the financial area. Between 1997 and 2000, Executive Board Member of Banco Santander de Negócios Portugal, responsible for Corporate Finance. José Pedro began his career at McKinsey&Company.
Luís Miguel Gonçalves Lopes. Portuguese, 37 years old. First appointed - co-opted in 2007. Term ended 31 December 2009. Member of the Board of Directors, ZON Televisão por Cabo, SGPS, S.A., since September 2007; Vice-chairman, ZON – TV Cabo Portugal, S.A., since March 2008; Member of the Board of Directors, ZON TV Cabo Açoreana, S.A., since September 2007; Member of the Board of Directors, ZON Conteúdos, Actividade de Televisão e de Produção de Conteúdos, S.A since September 2007; Member of the Board of Directors, ZON Lusomundo Audiovisuais, S.A., since September 2007; Member of the Board of Directors, ZON Lusomundo Cinemas, S.A., since September 2007; Member of the board of directors, ZON TV Cabo Madeirense, S.A., since 2009; Member of the Board of Directors, ZON Audiovisuais, SGPS, since 2009; Member of the board of directors of ZON Cinemas, SGPS, S.A., since 2009; Member of the Executive Committee, PT Comunicações, S.A., 2006 - September 2007; Member of the Executive Committee, PT.Com – Comunicações Interactivas, S.A., 2006 - September 2007; Member of the Board of Directors, Páginas Amarelas, S.A., 2006 – September 2007; Manager, PT Comunicações, S.A., 2004 - 2006; Associate Principal, McKinsey&Com 1998 - 2004.
Duarte Maria de Almeida e Vasconcelos Calheiros . Portuguese, 61 years old. First appointed in 2003. The mandate ended on 31 December 2009; chairman of the Board of Directors, Lusomundo Imobiliária 2, S.A., since 2004; chairman of the Board of Directors, Lusomundo Sociedade de Investimentos Imobiliários, S.A., since 2004; Member of the board of directors, ZON Lusomundo Cinemas, S.A., since 2004; Member of the Board of Directors, ZON Lusomundo Audiovisuais, S.A., since 2004; Member of the Board of Directors, ZON Conteúdos, S.A., since 2004; Member of the Board of Directors, ZON TV Cabo Portugal, S.A., since 2004; Member of the Board of Directors, ZON Televisão por Cabo, SGPS, S.A., since 2004; Member of the Board of Directors, ZON TV Cabo Madeirense, S.A., since 2007; Member of the Board of Directors, ZON TV Cabo Açoreana, S.A., since 2008; Member of the board of directors, ZON Audiovisuais, SGPS, S.A, since 2009; Member of the Board of Directors, ZON Cinemas, SGPS, S.A, since 2009; Member of the Board of Directors, Teliz Holding, B.V., since 2009; Member of the Board of Directors, Dreamia Holdings, B.V., since 2009; Manager, Lusomundo Moçambique, Lda., since 2004; Manager, Lusomundo Editores, Lda., since 2004; Manager, Lusomundo España, SL, since 2004; Manager, Distodo, Distribuição e Logística, Lda.,
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since 2004; Manager, Empracine, Empresa Promotora de Actividades Cinematográficas, Lda., since 2004; Manager, Empresa de Recreios Artísticos, Lda., since 2004; Member of the Audit Committee, Fundação Cultursintra since 2006. chairman of the Board of Directors, ZON Serviços de Gestão Partilhados, S.A., 2008 – 2009.
• Non-executive directors
Daniel Proença de Carvalho . Portuguese, 68 years old. First appointed in 2007. The term in office ended on 31 December 2009. chairman of the Advisory Council of Explorer Investments – Sociedade de Capital de Risco, SA; Membro do Conselho de Administração da SINDCOM – Sociedade de Investimentos na Indústria e Comércio, SGPS, SA, since 2005; chairman of the Board of Curators, Fundação D. Anna de Sommer Champalimaud e Dr. Carlos Montez Champalimaud, since 2005; chairman of the Board of the General Shareholders Meeting, Liga de Amigos da Casa-Museu João Soares, since 1998; Member of the board of Curators, Fundação Batalha de Aljubarrota, since 2002; Member of the Advisory Board, Fundação Renascer, since May 2005; Professor, Instituto Jurídico da Comunicação (Universidade de Coimbra Law School), since 2005; Member of the Advisory board, Fórum para a Competitividade since June 2008; Member of the Remuneration Committee, Banco Espírito Santo, since March 30 2008; Member of the board of Sponsors, Fundação Arpad-Szenes – Vieira da Silva since February 2009; chairman of the Board of the General Shareholders Meeting, GALP ENERGIA, SGPS, S.A. since April 2008; chairman of the Board of the General Shareholders Meeting, CELULOSE DO CAIMA – SGPS, S.A., since 2002; chairman of the Board of the General Shareholders Meeting, SOCITEL – Sociedade Industrial de Trefilaria, S.A., since 2005; chairman of the Board of the General Shareholders Meeting, Confiança Participações, SGPS, S.A., since 2004; chairman of the Board of the General Shareholders Meeting, EDIFER – INVESTIMENTOS, Sociedade Gestora de Participações Sociais, S.A., since 2003; chairman of the Board of the General Shareholders meeting, EDIFER – Sociedade Gestora de Participações Sociais, S.A., since 2003; chairman of the Board of the General Shareholders Meeting, PORTUGÁLIA – Administração de Patrimónios, S.A., since 1980; chairman of the General board of the general shareholders meeting, MAGUE - SGPS, S.A., since 1998; chairman of the Board of the General Shareholders Meeting, Euroatlântica – Investimentos e Comércio, S.A., since 1998; chairman of the Board of the General Shareholders Meeting, ALMONDA – Sociedade Gestora de Participações Sociais, S.A., since 1996; chairman of the board of the general shareholders meeting, RENOVA – Fábrica de Papel do Almonda, S.A., since 1997; chairman of the Board of the General Shareholders Meeting, PANATLÂNTICA – HOLDING, Sociedade Gestora de Participações Sociais, S.A., since 1995; chairman of the Board of the General Shareholders Meeting, G.A. – Estudos e Investimentos, S.A., since 1996; chairman of the Board of the General Shareholders Meeting, VILA SOL II – Empreendimentos Turísticos, S.A., since 1997; chairman of the General Board of the General Shareholders Meeting, VILA SOL, SGPS, S.A., since 1999; chairman of the Board of the General Shareholders Meeting, CABO RASO – Empreendimentos Turísticos, S.A., since 1998; chairman of the Board of the General Shareholders Meeting, Sociedade Agrícola Belo de Mértola, S.A., since 1978; Chairman of the Board of the General Shareholders Meeting, Sociedade Agrícola SERRA BRANCA, S.A., since 1975; chairman of the Board of the General Shareholders Meeting, SOCIEDADE Agrícola dos NAMORADOS, S.A., since 1978; Chairman of the General Shareholders Meeting, COALTEJO – Criador de Ovinos Algarve e Alentejo, S.A., since 2005; chairman of the Board of the General Shareholders Meeting, SOTAC – Sociedade de Turismo e Agricultura, S.A., since 1991; chairman of the Board of the General Shareholders Meeting, SOGESFIN – Sociedade Gestora de Participações Sociais, S.A., since 1998; Chairman of The Board of the General Shareholders Meeting, SOGEB – Sociedade de Gestão de Bens, S.A. since May 26 2000; Chairman of the Board of the General Shareholders Meeting, 3 Z – Administração de Imóveis, S.A., since 2001; Chairman of the Board of the General Shareholders Meeting, SÉTIMOS–PARTICIPAÇÕES, SGPS, S.A., since 2005; chairman of the Board of the General Shareholders Meeting, GOTAN SGPS, S.A., since 2004; Chairman of the Board of the General Shareholders Meeting, ESTORIL SOL, SGPS, S.A., since 2007; Vice-chairman of the board of the General Shareholders Meeting, Caixa Geral de Depósitos, S.A., since 2007; director, Círculo Voltaire 1993 - 2006; chairman of the Board, Fundação Arpad Szénes-Vieira da Silva, 1993 - 2007; chairman of the Strategic board, Hospital Amadora-Sintra Sociedade Gestora, S.A., 2007 – 2008; Member of the Advisory Board, Fundação Galp Energia, since September 2009.
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Fernando Fortuny Martorell . Portuguese, 64 years old. First appointed – co-opted in 2008. The term ended on 31 December 2009. Member of the Board of Directors, GO WELL – Promoção de Eventos Catering e Consultoria, S.A, since 2004; Member of the Board of Directors, Espírito Santo Ventures – Sociedade Capital de Risco, S.A. since 2005; Delegate Director, Espírito Santo Resources, Limited, since 2006; Member of the Board of Directors, Opway, SGPS, S.A., since 2006; Member of the Board of Directors, IMOSPEL – Soc. Operações Imobiliárias, S.A, since 2007; Member of the Board of Directors, Maló Clinic Group, SGPS. S.A, since 2008; Member of the Board of Directors, Herdade da Comporta, since 2008; Vice-chairman, Rio Forte Investments, S.A, since 2009; Member of the Board of Directors Santogal, SGPS, S.A; Non-executive Member of the Board of Directors, Espírito Santo Property (Brasil), S.A.; Managing shareholder, GO Restauração, Lda, since 2004; Member of the Board of Directors, Espírito Santo Resources (Portugal), S.A., 2006- 2007; Member of the Board of Directors, Espírito Santo Resources, S.A., 2008-2009;
António Domigues . Portuguese, 53 years old. First appointed in 2004. Term ended on 31 December 2009. Vice-chairman of the Board of Directors, Banco Português de Investimento, S.A., since 2007; Vice- chairman of the Board of Directors, Banco Comercial e de Investimentos, SARL (Moçambique), since 2007; Vice-chairman of the Board of the Directors, Banco de Fomento, SARL (Angola), since 2005; Member of the Board of Directors, Banco BPI, S.A., since 1999; Member of the Board of Directors, Banco de Fomento, SARL (Angola), 2002 – 2005; Member of the Board of Directors, Banco Comercial e de Investimentos, SARL (Moçambique), 2004 - 2007; Member of the Board of Directors, BPI Madeira, SGPS, Unipessoal, S.A., since 2001; Member of the Board of Directors, Allianz Portugal, S.A., since 2004; Member of the board of directors, SIBS – Sociedade Interbancária de Serviços, S.A., 2000-2009.
László Istvan Hubay Cebrian . Portuguese, 63 years old. Appointed – co-opted in 2007. Term ended December 31 2009. Chairman of the Board of Directors, Fundação Cascais, since 2009; Chairman, Portuguese-Hungarian Chamber of Commerce, since 2007; Chairman, The Walt Disney Company Iberia, 1988-2005; Chairman, Disney Store Spain, 1999-2005; President, The Walt Disney Company Portugal, 1982-2005; The Disney Country Managing Director, 1999-2005; Consultant, The Disney Company, 2005-2007; Consultant, Stage Entertainment, 2005-2007.
Luís João Bordalo da Silva . Portuguese. 51 years old. First appointed in 2003. Term ended on 31 December 2009. Member of the Board of Directors, Cinveste, SGPS, S.A., since 2006; Member of the Board of Directors, HSF Engenharia, S.A., since 2005; Member of the Board of Directors, Guemonte – Sociedade Civil Imobiliária e de Investimento, S.A. since 2006; Member of the Board of Directors, M&C Colecção de Arte, S.A., since 2007; Manager, Cinveste Finance, SGPS, Lda., since 2007; Manager, Cinveste Finance, Gestão de Valores Mobiliários, Lda., since 2007; Manager, Cinveste Investimentos, Lda., since 2008.
Vítor Fernando da Conceição Gonçalves . Portuguese. 54 years old. First appointed in 2007. Term ended 31 December 2009. Professor, Business Administration, ISEG, since 1994; Vice-Chancellor, Universidade Técnica de Lisboa, since 2007; Member, Economic and Social Board, since 2007; Member, “Panel of Experts on World Competitiveness“ IMD World Competitiveness Centre, since 2005; Member, PhD, post-PhD and Guest Scientists Candidate Evaluation Committee, Fundação para a Ciência e Tecnologia, since 1997; Member, General and Supervisory board and chairman Committee for the Financial Matters, EDP- Energias de Portugal S A., since 2006; chairman, Audit Board, Fundação EDP, since 2007; chairman of the board, Gaptec / UTL since 2007; chairman of the Advisory Council, ISEG (2003-2006); director, Doctoral Programme in Business Administration, 2001 - 2005; Chairman, IDEFE- Instituto para o Desenvolvimento e Estudos Económicos Financeiros e Empresariais 2003 - 2007.
Paulo Cardoso Correia Mota Pinto . Portuguese. 43 years old. First appointed in 2008. Term ended on 31 December 2009. Master and PhD in Law, (Legal-Civil Sciences); University Professor,
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Universidade de Coimbra since 1991; Legal consultant since 2007 and Constitutional Court Judge – 2007; Deputy to the Assembly of the Republic since October 2009.
Nuno João Francisco Soares de Oliveira Silvério Marques . Portuguese. 53 years old. Appointed for the first time in 2007. The term ended on December 31 2009. Vice-chairman of the Board of Directors, CIDOT – Estúdio de Comunicação, S.A., since 2004; Chairman of the Board of Directors, AGILLE – Serviços e Consultoria de Gestão, S.A., since 2009; Member of the Audit Board, Banco Privado Atlântico – Europa, S.A., since 2009; director, AGILLE – Serviços e Consultoria de Gestão, S.A., 2006 - 2009; Member of the board of Directors and Audit Committee, Portugal Telecom, SGPS, S.A., 2003 - 2005.
Norberto Emílio Sequeira da Rosa . Portuguese. 54 years old. First appointed in 2008. Term ended on 31 December 2009. Chairman of the Board of Directors, Caixa – Participações, SGPS, S.A., since 2008; Chairman of the Board of Directors, Caixatec – Tecnologias de Comunicação, S.A., since 2008; Chairman of the Board of Directors, Sogrupo – Sistemas de Informação, ACE, since January 2008; Vice-chairman of the Board of Directors, Banco Efisa, since 13 November 2009; vice-chairman of the Board of Directors of BPN – Banco Português de Negócios, S.A., since 2008; Member of the Board of Directors, Caixa Geral de Depósitos, S.A., since 2008; Member of the Board of Directors, SIBS – Sociedade Interbancária de Serviços, S.A., since 2007; Member of the Board of Directors, Caixa Geral de Aposentações, since 2008; director, Fundação Económica, since 2005; Member of CISP – Comissão Interbancária para o Sistema de Pagamentos, since 2005.
Jorge Telmo Maria Freire Cardoso . Portuguese. 38 years old. First appointed in 2008. Term ended on 31 December 2009. Member of the Board of Directors, and Member of the Executive Committee Caixa – Banco de Investimento, S.A., since 2008. Member of the Board of Directors, Fomentinvest, SGPS, S.A., 2007 - 2008. Member of the Board of Directors, Co-ordinator of the Board of Directors of Corporate Finance do Caixa – Banco de Investimento, S.A., 2000-2008.
Joaquim Francisco Alves Ferreira de Oliveira . Portuguese, 62 years old. First appointed in 2001, term ended May 2005, re-elected January 2008. Term finishes December 31 2009. Since 1984, year in which he founded Olivedesportos (leader and pioneer in the area of sports-related television and advertising rights) has been chairman of the Board of Directors of several companies the comprise the business group in question (Controlinveste). In 1994 acquired the sports newspaper "O Jogo", formed PPTV in 1996 through which he founded jointly with RTP and PT Multimédia (today ZON), the first sports cable channel - a Sport TV, currently chairman of the board of directors. Has also presided since their founding in 2001, the boards of directors of Sportinveste Multimédia SGPS and Sportinveste Multimédia - joint venture formed to run sports event-linked multimedia content. In 2005 acquired the then Grupo Lusomundo Media (today Controlinveste Media), and presides the Boards of Directors of the several companies which compose it.
João Manuel Matos Borges de Oliveira . Portuguese, 50 years old. First appointed in 2008. Term ended on 31 December 2009. Deputy chairman of the Board of Directors, Cofina, S.G.P.S., S.A., since 1991; Deputy chairman of the board of directors, Altri, S.G.P.S., S.A., since 2005; Member of the Board of Directors, Celbi-Celulose da Beira Industrial, S.A., since 2006; chairman of the Board of Directors, F.Ramada, Aços e Indústrias, S.A., since 1997; Member of the Board of Directors, Companhia Portuguesa de Celulose do Caima, S.G.P.S., S.A., since 1998; Member of the Board of Directors, Cofina Media, S.A., since 2000; Member of the Board of Directors, Cofihold, S.G.P.S., S.A. since 1997; Member of the Board of Directors, Edisport – Sociedade de Publicações, S.A., since 2007; Member of the Board of Directors, Celtejo-Empresa de Celulose do Tejo, S.A., since 2008; Member of the Board of Directors, Caima-Indústria de Celulose, S.A. since 2006; Member of the Board of Directors, Invescaima, S.G.P.S.,S.A., since 2005; Member of the Board of Directors, Presselivre-Imprensa Livre, S.A., since 2006; chairman of the Board of Directors, F.Ramada- Produção e Comercialização de Estruturas Metálicas de Armazenagem, S.A., since 2003; chairman of the Board of Directors, F.Ramada II Imobiliária, S.A., since 2005; chairman of the Board of Directors, F.Ramada Investimentos, S.G.P.S., S.A., since 2008.
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