Unconsolidated Annual Report for 2012

ANNUAL REPORT OF CYFROWY POLSAT S.A. FOR THE FINANCIAL YEAR ENDED DECEMBER 31, 2012 Place and date of publication : Warsaw, March 12, 2013 Content of the annual report: Letter of the President of the Management Board Management Board’s report on the activities of Cyfrowy Polsat S.A. in the financial year ended December 31, 2012 Management Board’s representations Opinion of the independent auditor Financial Statements for the year ended December 31, 2012 Interim Condensed Financial Statements for the 3 and 12 months ended December 31, 2012 (unaudited) 2 Ladies and Gentlemen, It is my great pleasure to present to you the 2012 Annual Report of the Cyfrowy Polsat. This past year, we pursued both organic growth and strategic acquisitions, while progressing a number of projects that helped us consistently implement Group growth strategy. We focused our entire effort on solidifying our leading position in multimedia entertainment in Poland and in the market for pay television and television broadcasting, as well as on persistently expanding our capabilities in telecommunications and online services. That we turned yet another year of our operations into a success was confirmed by the Group's operating and financial results. Subscriptions to pay television rose to 3.57 million, with the number of broadband internet and mobile telephony users increasing to 150 and 145 thousand, respectively. We are also very satisfied with the Company's financial performance. In 2012, our total revenue grew by 9.3%, to PLN x billion, with net profit standing at PLN 530 million. To ensure an increasingly high level of customer satisfaction, we regularly expanded our pay TV services to include new channels and products. Effectively bundling our products and services we give our subscribers even more value for money. We provided viewers with access to pay-per-view sporting events, contributing to the increased popularity of the service on the domestic market. Building on the success of our VOD Home Video Rental and catch-up TV services, our Online Entertainment zone was significantly expanded to offer viewers a one-stop-shop for programme re-runs, online channels, and ipla, HBO GO and FilmBox live services. We launched a cross-promotion programme with the Plus mobile network, as part of which we cross-sell services to multiply benefits for subscribers of both operators. In 2012, we also achieved expected synergies in the areas of technology, marketing, products and back-office between Cyfrowy Polsat and Telewizja Polsat. It was also the year that our new TV Mobilna, PPV, VOD, Multiroom HD and ipla services gained in importance. In the past year, Cyfrowy Polsat also managed to considerably bolster its presence in the market for online services. We acquired a 100% interest in the companies that run ipla, Poland's leading online video service. Ipla provides linear access to tens of TV channels, HD live broadcasts, and the largest TV-on-demand library in Poland, containing thousands of TV series episodes, programmes and major sporting events. Ipla television services are brought to users of PCs, smartphones, tablets, Smart TV-supporting television sets, pay TV, set-top boxes and consoles, via dedicated applications. According to the latest research, ipla has an average of 2.3 million active users. Another advance towards growth in the online segment was the launch of muzo, a digital music streaming service. Soon, muzo library will comprise five million audio tracks appealing to the music tastes of nearly 90% of Poland's population. The current muzo offering features the most popular tracks across all music genres, which have been licensed from EMI, Magic Records, SONY Music, Universal Music, and other music publishers. To ensure that our services can be delivered through any new technology and device, we launched the DVB-T-based TV Mobilna. We paved the way for its launch a year earlier when we acquired INFO-TV-FM, a company allocated frequencies that are appropriate to supporting mobile TV services based on terrestrial digital broadcasting technology. This new service is available to users of traditional set-top boxes and television sets, as well as mobile devices, which are gaining in popularity. In October last year our wireless broadband service, supported by LTE, the world's fastest and most advanced technology, saw a speed increase of up to 150 Mb/s. We also managed to extend LTE coverage to 50% of the country's population. To cater to changing consumer needs and market trends, we also broadened our internet offering to include new mobile devices – computers, tablets, modems and routers. We also launched HALO, a proprietary instant messenger. Our set-top box manufacturing plant was subject to continuous improvement. In 2012, three new types of set-top boxes rolled off the production line, including the HD-3000 and HD-6000 for satellite television services and T-HD 1000 for terrestrial digital television services. To date, we have manufactured more than four million set-top boxes. Our long-term objectives continue to be stable growth, remaining at the forefront of the multimedia entertainment and pay TV markets, improved performance in the telecommunications segment, capturing a loyal audience for the Telewizja Polsat channels, and as a result, securing an ample share in the TV advertising market. As was previously announced, we plan to develop innovative content distribution channels for consumers to freely choose between the technologies and devices that can be used to receive our television services. In the long term, we expect the channels to contribute to increasing the number of our service users, our ARPU and customer loyalty. Successful delivery of said objectives, combined with effective financial management, will go a long way toward creating value for our shareholders. Yours sincerely Dominik Libicki President of the Management Board, Cyfrowy Polsat S.A. 3 MANAGEMENT BOARD ’S REPORT ON ACTIVITIES OF CYFROWY POLSAT S.A. IN THE FINANCIAL YEAR ENDED DECEMBER 31, 2012 4 Management Board report on activities of Cyfrowy Polsat S.A. in the financial year ended December 31, 2012 (all financial data presented in PLN thousands, unless otherwise stated) Table of content Item 1. Introduction .............................................................................................................................................................. 7 Item 2. Currency presentation and exchange rate information ............................................................................................ 9 Item 3. Selected financial data ........................................................................................................................................... 10 Item 4. Presentation of Cyfrowy Polsat S.A. ...................................................................................................................... 12 Item 4.1. General information ..................................................................................................................................... 12 Item 4.2. Information on organizational or capital connections with other entities ..................................................... 13 Item 4.3. Changes to the principle rules of management of our Company ................................................................ 14 Item 4.4. Strategy, market opportunities and comparative advantage ....................................................................... 14 Item 4.4.1. Group strategy ........................................................................................................................................ 14 Item 4.4.2. Market opportunities ............................................................................................................................... 16 Item 4.4.3. Competitive advantage ........................................................................................................................... 17 Item 4.5. Market overview .......................................................................................................................................... 18 Item 4.5.1. Pay-TV market ........................................................................................................................................ 18 Item 4.5.2. Internet access market ........................................................................................................................... 20 Item 4.5.3. Mobile telephony market ........................................................................................................................ 22 Item 4.5.4. Bundled services market ........................................................................................................................ 22 Item 4.6. Offer............................................................................................................................................................. 23 Item 4.6.1. DTH offer ................................................................................................................................................ 23 Item 4.6.2. Mobile pay TV offer provided in DVB-T technology ................................................................................ 26 Item 4.6.3. Internet access offer ............................................................................................................................... 26 Item 4.6.4. Mobile telephony offer ...........................................................................................................................

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