MARKET UPDATE

Poland | Media | 11-December-2014

Polish Media

TVN Media outlook for 2015 BUY 14% upside Polish ad market spending reached PLN 5.1bn in 9M14, +2.6% yoy. GDP, domestic demand and private consumption have all performed Fair Value PLN 17.90 relatively well since the beginning of 2014 and they are the main Bloomberg ticker TVN PW factors affecting advertisers’ confidence. As a result, we expect Share Price PLN 15.70 Polish ad market dynamics to remain positive in 4Q14E, +4% overall, Market Capitalisation PLN 5,298.27m Free Float 46%

with internet returning to a leading position, +8% yoy, followed by TV and radio (both +6% yoy). This would imply 2.9% growth for the PLN m Y/E 31-Dec 2012A 2013A 2014E 2015E whole ad market in FY2014E. When looking at 2015E, we expect the Revenues 1584.0 1586.3 1617.2 1744.7 total ad market to grow by 4.7%, with outdoor as the fastest- EBITDA 455.8 404.1 558.5 627.1 EBIT 374.0 328.9 485.1 555.4 growing segment at +10%, internet at +8%, TV at +6.5%, radio at adj. net income 227.9 (144.7) 237.7 322.7 +4%, cinema at +2% and press at -11.6%. We see some interesting Net debt 1820.2 2123.6 1891.9 1786.5 potential catalysts for the media market ahead, including: (1) the EPS (PLN) 1.4 (0.5) 0.7 1.0 DPS (PLN) 0.1 0.6 0.0 0.0

outcome of TVN’s possible sale; (2) consolidation of the internet advertising market; (3) Parliamentary & Presidential elections; and Agora (4) discussions surrounding new media and allocation of MUX. We maintain our BUY rating on TVN and increase our FV by 24% to PLN BUY 32% upside 17.9, from PLN 14.5. We also reiterate our BUY on Agora with FV of Fair Value PLN 10.30

PLN 10.3 (from PLN 10.2). Bloomberg ticker AGO PW

Share Price PLN 7.78 TV: We expect TV to remain the dominant ad channel in Poland (ca. 50% stake Market Capitalisation PLN 396.29m in the pie) despite the increasing power of the internet. We expect Free Float 61%

fragmentation (payTV and DTT thematic channels) to dilute the audience share of the biggest TV channels but so far TV groups have managed this PLN m Y/E 31-Dec 2012A 2013A 2014E 2015E Revenues 1138.6 1073.9 1081.1 1113.0 issue by launching their own thematic channels. EBITDA 80.8 103.5 88.8 81.9 EBIT (13.0) 7.4 (7.2) (12.9) Internet: We expect internet to remain the fastest-growing ad channel in Net income (8.9) 0.5 (4.0) (10.8) Poland as it enables a high degree of personalization and segmentation, Net debt (21.3) (29.3) (12.4) 22.3 EPS (0.2) 0.0 (0.1) (0.2) increasing the effectiveness of ads. We see increasing competition between the two biggest internet portals, Onet.pl and Wirtualna Polska WP.pl. as well as the beginnings of a consolidation process (WP.pl recently acquired the All share price data as at close on 9-Dec-2014 dobreprogramy.pl and money.pl thematic portals while Onet.pl acquired NK.pl). Source: BESI Research, Company Data, Bloomberg

Press: Copy sales in the press segment are on a structural downward curve that has nothing to do with cyclicality. However, we also see some signs of a slowdown related to the declining base. Agora’s copy sales declined again in October, -10% YoY.

Radio: We think radio should remain a stable ad channel, not affected by major structural changes with stable ca. 8% share in ad market.

Outdoor: The performance of outdoor advertising in 2015 should be determined by mostly by Presidential & Parliamentary elections where we expect total ad budget at PLN 80m (1% of total ad market), where historically ca. 30% pertained to outdoor adding an incremental ca. PLN 24m revenues in 2015E (ca. 5% of total outdoor) Agora, with a ca. 32% market share, should be among the biggest beneficiaries (we exp incremental PLN 9m revs and PLN 1.5m, EBITDA in 2015E).

Cinema: The performance of the cinema segment, both in terms of admissions and ad revenues, is primarily determined by the movie line-up. So far 2014 looks like a good year, with ticket sales +6.4% yoy in 9M14. Good ticket sales for “Bogowie” and the release of the 2nd part of The Hobbit bode well for 4Q14 and we expect a record-high of 39m admissions in FY14; however, given this high base, we would expect 2015 to be flat at best.

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Polish ad market outlook

Along with Poland’s GDP, the Polish ad market has been going through a recovery since the beginning of 2014. According to Starlink, a media research house, in 9M14 Polish ad market spending reached PLN 5.1bn, up by 2.6% yoy. Internet remains the fastest-growing ad channel, up 6.5% YoY in 9M14, but TV is close behind at +6.3%, followed by radio at 5.8%. Outdoor dropped by 4.2%, cinema by 9.4% and press by 14.8%, while magazines fell by 12.5% and dailies by 18.9%.

In 3Q14, TV was the fastest-growing ad channel, up by +9.6% YoY, outpacing internet with a +6.5% YoY dynamic. This is the strongest quarterly growth for these segments observed since at least 2002, when this data first started being collected. In our view this raises the question of whether this might be the first sign of an internet ad segment hiccup. However, we think the strong performance of TV in 3Q14 reflects a combination of elements. Recent sporting events like the Winter Olympics in Sochi and World Cup in Brazil are the most important, as they were broadcast exclusively on public TV with predefined ad air-time dedicated to event sponsors. Hence, TV ad budgets built up and when the Autumn TV season came around they were unlocked, increasing growth in the TV ad segment to almost a double-digit pace.

Figure 1 Polish ad market vs GDP Figure 2 Polish ad market vs domestic demand & private consumption

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Polish ad market GDP Polish ad market Private consumption Domestic demand

Source: BESI Research, GUS Source: BESI Research, GUS GDP, domestic demand and private consumption have all performed relatively well since the beginning of 2014 and they are the main elements affecting advertisers’ confidence. As a result, we expect dynamics in the Polish ad market to remain positive in 4Q14E, +4% overall, with internet returning to a leading position at +8% yoy, followed by TV and radio (both +6% yoy), cinema and outdoor (both +5%) and press at -12%. This would imply 2.9% growth for the whole ad market in FY2014E. We see internet as the fastest growing segment in FY14E at +6.9%, followed by TV at +6.2%, radio at +5.9%, outdoor at -1.6%, cinema at -2.6% and press at -13.9% (magazines -11.8% and dailies at -17.9%).

Figure 3 Polish ad market – YoY PLN m change by segment Figure 4 Polish ad market – CAGR dynamics 200 15% 150 10% 100 5% 50

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CAGR 08-13 CAGR 13-16E

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4Q14E Source: BESI Research, Company Data Source: BESI Research, Company Data

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When looking at 2015E, we expect the total ad market to grow by 4.7%, with outdoor as the fastest growing segment at +10% (thanks to Parliamentary elections), internet at +8%, TV at +6.5%, radio at +4%, cinema at +2% and press at -11.6% (magazines -10% and dailies at -15%).

Figure 5 Polish ad market, PLN m Figure 6 Polish ad market, structure

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cinema outdoor radio internet press TV cinema outdoor radio internet press TV Source: BESI Research, Company Data Source: BESI Research, Company Data In 2015, there are no big sporting events potentially boosting the ad market. On the other hand, Poland will see two major elections: Presidential and Parliamentary.

Figure 7 Media budgets in political elections in Poland

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Source: BESI Research, PKW Parliamentary elections are the most expensive of all political elections in Poland. In 2011, mass media promotion reached PLN 52m and in the prior election in 2007 it reached PLN 60m. Despite their nationwide scope, Presidential elections are less than a third as expensive as Parliamentary elections in terms of advertising spending.

Figure 8 Ad mix in Polish elections

Parliamentary - 2011 Presidential - 2010

internet internet radio 9% 14% 5% radio TV 3% 35% press press 3% 17% TV 52% outdoor 28% outdoor 34%

Source: BESI Research, PKW

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In 2015, we expect elections to add ca. PLN 80m to the ad market (+ ca. 1pp of growth), with the highest spending in the outdoor, TV, internet and press segments.

TV – 2015 outlook

Keeping in mind the high TV consumption in Poland (ca. 250 min/day), very high payTV penetration (ca. 70%+ households) and Poland’s population density and distribution (rural areas without access to many forms of entertainment), we expect TV to remain the dominant ad channel (ca. 50% stake in the pie) despite the increasing power of the internet. We maintain our view that growth in internet is and will be at the expense of falling press, not TV.

Figure 9 TV segment Figure 10 TV segment

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TV - PLN m TV - % of total ad market TV - PLN m TV - YoY change

Source: BESI Research, Company Data Source: BESI Research, Company Data We note the increasing popularity of over-the-top (OTT) services like Ipla.tv, Player.pl and VOD.pl, but for now we see OTT as an incremental service used in addition to regular payTV. A good example can be seen in the US, which is the biggest market for Netflix, one of the biggest worldwide OTT services. Despite Netflix’s rapidly growing base, payTV providers like DirecTV are also growing their client base and ARPUs.

Figure 11 TV audience of biggest TV groups Figure 12 TV audience of biggest TV groups

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Jan-10 Jan-09 Jan-11 Jan-12 Jan-13 Jan-14 Jan-08 2008 2009 2010 2011 2012 2013 2014E 2015E 2016E others TVP Group TVN Group Polsat Group others TVP Group TVN Group Polsat Group Source: BESI Research, Company Data Source: BESI Research, Company Data TV audience share is also affected by fragmentation of the market and DTT switchover (in the TV ad segment, the contribution of thematic channels increased by 19% yoy in 2013 while that of general channels dropped by 10% yoy). We expect thematic channels to gain popularity, but the biggest TV groups like Polsat and TVN have already managed this issue by launching their own thematic channels. For example, TVN closed its TVN CNBC business channel and replaced it with TVN24 Biznes I Swiat.

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Figure 13 TVN Group – TV audience share Figure 14 Polsat Group – TV audience share

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TVN - thematic channels TVN - main channel Polsat - thematic channels Polsat - main channel Source: BESI Research, Company Data Source: BESI Research, Company Data On the other hand, Polsat successfully acquired TV4 and TV6, which are gaining momentum. In 2014, TV audience share was further supported by Polsat’s volleyball channels, which were exclusively dedicated to broadcasting the Volleyball WorldCup.

Figure 15 Stopklatka TV Figure 16 Stopklatka TV

Stopklatka TV - TV audience, 4+ Stopklatka TV - TV audience, 16-49 1.00% 60,000 1.00% 25,000 0.90% 0.90% 50,000 0.80% 0.80% 20,000 0.70% 40,000 0.70% 0.60% 0.60% 15,000 0.50% 30,000 0.50% 0.40% 0.40% 10,000 20,000 0.30% 0.30% 0.20% 10,000 0.20% 5,000 0.10% 0.10% 0.00% 0 0.00% 0 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 AMR 4+ SHR 4+ AMR 16-49 SHR% 16-49 Source: BESI Research, Company Data Source: BESI Research, Company Data We see two additional factors potentially affecting the TV ad market: the distribution of remaining TV multiplexes (MUX) and a change in the media law. However, we do not expect any major decisions to be made in 2015.

Regarding MUX, some of the potential ideas under discussion are: (1) create space for more DTT thematic channels; (2) keep the existing number of channels unchanged and dedicate the remaining MUXes to existing channels to upgrade them to HD standard; (3) dedicate MUX for telecom services. Public TV is promoting the idea of dedicating MUX purely for TVP channels. Private TV companies are strongly opposed as it would monopolize the market. Private TV broadcasters are also against the idea of creating more DTT TV channels as diluting TV audience share would not cover the high cost of DTT TV transmission.

Regarding the media law, there has been a proposal to switch media monthly/yearly payments into a media tax to be paid by households together with the electricity bill. However, in light of the upcoming Parliamentary and Presidential elections, we would not expect any substantial discussion of additional taxes before early 2016.

Internet – 2015 outlook

Internet should remain the fastest growing ad channel in Poland as it enables a high degree of personalization and segmentation, which increases the effectiveness of internet ads. We expect the internet ad market to grow by 8% in 2015E and in the following years.

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Figure 17 Internet segment Figure 18 Internet segment

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Internet - PLN m Internet - % of total ad market Internet - PLN m Internet - YoY change

Source: BESI Research, Company Data Source: BESI Research, Company Data Currently we see increasing competition between the two biggest internet portals, Onet.pl and Wirtualna Polska WP.pl as well as the beginnings of a consolidation process. WP.pl recently acquired the dobreprogramy.pl and money.pl thematic portals while Onet.pl acquired NK.pl. The main idea behind this is to increase the real user base of each internet group in order to improve the company’s negotiating position with advertisers. Adding thematic portals also allows it to develop e-commerce services based on which internet group it can monetize.

Figure 19 Real users of biggest internet portals Figure 20 Reach of biggest internet portals

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Internet Grupa Onet.pl Grupa Wirtualna Polska Grupa Onet.pl Grupa Wirtualna Polska Grupa Gazeta.pl Grupa Gazeta.pl Grupa Interia.pl Grupa O2.pl Grupa Interia.pl Grupa O2.pl Source: BESI Research, Company Data Source: BESI Research, Company Data Press – 2015 outlook

We maintain our view that copy sales in the press segment are on a structural downward curve, which has nothing to do with cyclicality. Consumers are shifting from printed to digital media.

Figure 21 Copy sales of nationwide dailies Figure 22 Copy sales of nationwide dailies, YoY

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However, we see some signs of a slowdown related to the declining base as well. Agora’s copy sales declined yet again in October, by 10% YoY.

Figure 23 Gazeta Wyborcza – copy sales, YoY dynamic

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Source: BESI Research, Company Data We expect the press ad segment to decline by 11.6% in 2015E and by -8%/-9% in the following years.

Figure 24 Press segment Figure 25 Press segment

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Press - PLN m Press - % of total ad market Press - PLN m Press - YoY change

Source: BESI Research, Company Data Source: BESI Research, Company Data Among press sub-sectors, we expect the greatest decline in dailies, at -15% in 2015E and -12% and -10% in 2016E and 2017E, respectively.

Figure 26 Dailies segment Figure 27 Dailies segment

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Dailies - PLN m Dailies - % of total ad market Dailies - PLN m Dailies - YoY change

Source: BESI Research, Company Data Source: BESI Research, Company Data We expect the magazines ad segment to decline -10% in 2015E and by -8% in both 2016E and 2017E. The main reason for the differing dynamics between dailies and magazines is that the former have a very short lifecycle and can be easily replaced with web content, whereas magazines usually include higher- quality content and photos. We think consumers still treat magazines as a form of entertainment, whereas dailies are viewed more as a commodity easily replaced by the internet.

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Figure 28 Magazines segment Figure 29 Magazines segment

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Magazines - PLN m Magazines - % of total ad market Magazines - PLN m Maagzines - YoY change

Source: BESI Research, Company Data Source: BESI Research, Company Data Outdoor – 2015 outlook

The political parties still have not commented on their ad spending in the European and Municipal elections held in 2014. Comments from media companies indicate that ad budgets for these elections were a bit lower than in previous years. During the 3Q14 results conference call, Agora’s CEO hypothesized that political parties may have refrained from heavy ad spending in 2014 so as to build up their budgets for the upcoming 2015 elections. Looking at examples from past Parliamentary and Presidential elections, we expect the 2015E ad market to be supported by ca. PLN 80m in incremental ad spending, where ca. PLN 60m should come from Parliamentary elections and ca. PLN 20m from Presidential elections. Looking at the spending mix between different ad segments shown in Figure 8, where outdoor accounted for 34% of Parliamentary and 28% of Presidential in the last election (vs its usual ad market share at 6-7%), we expect outdoor to be supported by ca. PLN 24m in incremental revenues in 2015E, which accounts for 5% of total annual outdoor ad spending.

Figure 30 Outdoor segment Figure 31 Outdoor segment

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Outdoor - PLN m Outdoor - % of total ad market Outdoor - PLN m Outdoor - YoY change

Source: BESI Research, Company Data Source: BESI Research, Company Data AMS, Agora’s outdoor advertising subsidiary, is the biggest market player in Poland, with the most outdoor media displays at almost 24k, or ca. 44% of the total outdoor market. More importantly, as of 2013 AMS is the market leader in citylights and backlights displays, with a ca. 65% market share.

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Figure 32 Outdoor market - traditional formats Figure 33 Outdoor market – citylights & lightning formats

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0 41% 0 54% 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 others AMS AMS share others AMS AMS share Source: BESI Research, Company Data Source: BESI Research, Company Data This is important because citylights and backlights are more advanced outdoor display formats located in bigger cities. AMS’ high share in the citylights format and the decreasing popularity of the traditional outdoor format mean that AMS has outperformed the broad outdoor market recently. AMS’ presence in the outdoor format should soon increase further thanks to the Warsaw Project, which entails the construction of 1580 citylight displays in bus shelters in Warsaw over 2014-2016 with total capex at PLN 80m.

Figure 34 Agora – outdoor screens Figure 35 Agora – outdoor ad market share

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Source: BESI Research, Company Data Source: BESI Research, Company Data Radio – 2015 outlook

We think radio should remain a stable ad channel, not affected by major structural changes. The clear advantages of radio are a stable audience and lower cost than TV. As can be seen in the chart below, a slight reduction in radio’s share of the Polish ad market, from ca. 8.5% in 2005 to 8% in 2014E, is not a result of a decline in absolute terms (as radio ad spending increased to PLN 575m in 2014E from PLN 480m in 2005) but rather a more rapid increase in the broader Polish ad market.

Figure 36 Radio segment Figure 37 Radio segment

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Radio - PLN m Radio - % of total ad market Radio - PLN m Radio - YoY change

Source: BESI Research, Company Data Source: BESI Research, Company Data

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Cinema – 2015 outlook

The performance of the cinema segment, both in terms of admissions and ad revenues, is primarily determined by the movie line-up. 2014 looks to be a good year in terms of cinema admissions in Poland as in 9M14 ticket sales reached 27.4mm, +6% YoY. In 3Q14 alone, ticket sales reached 8.2m, -1.1% YoY. We expect 4Q14 to be good as well, supported by very good sales for the movies “Bogowie” (so far ca. 2m tickets sold), “Miasto44” (ca. 1.7m tickets sold), “Sluzby Specjalne (ca. 0.5m tickets sold) and The Hobbit, which will launch just after Christmas. As a result, after a 5.6% ticket sales decline in 2013 to 36.3m, we expect 39m in 2014E, scoring 7.4% growth. We expect ticket sales of 11.6m in 4Q14E alone (+11.5% yoy).

Figure 38 Cinema ticket sales in Poland (mn)

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2010

2011

2012 2013 2014E Source: BESI Research, Company Data The cinema ad segment, although growing, still represents ca. 1% of the total ad market. In 4Q14, because of abovementioned good performance of Polish movies and expected good opening sales for The Hobbit, we expect the cinema ad market to grow by 10% yoy. In 2015E and the following years, we expect cinema ad revenues to grow by ca. 2%.

Figure 39 Cinema segment Figure 40 Cinema segment

140 1.8% 45 60%

1.6% 40 120 40% 1.4% 35 100 20% 1.2% 30 25 0% 80 1.0% 20 -20% 60 0.8% 15 0.6% -40% 40 10 0.4% -60% 5 20 0.2% 0 -80% 0 0.0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015E 2016E

Cinema - PLN m Cinema - % of total ad market Cinema - PLN m Cinema - YoY change

Source: BESI Research, Company Data Source: BESI Research, Company Data

Page 10 of 30

MARKET UPDATE

Poland | Media | Large Cap | 11-December-2014

TVN

Attractive TV asset BUY 14% upside Fair Value PLN 17.90 Despite strong competition and TV ad market fragmentation, TVN remains a major TV platform in Poland, defending TV audience share Bloomberg ticker TVN PW of ca. 22% and with TV ad market leadership of ca. 33% in 3Q14. Share Price PLN 15.70 Market Capitalisation PLN 5,298.27m TVN’s controlling shareholders, ITI and Canal+, are currently Free Float 46%

analysing potential exit options and Time Warner and Discovery are among the potential buyers, according to TVN’s CEO. We think PLN m Y/E 31-Dec 2012A 2013A 2014E 2015E acquiring the TVN asset could present a unique opportunity for a Revenues 1584.0 1586.3 1617.2 1744.7 EBITDA 455.8 404.1 558.5 627.1 strategic investor considering entering the media market in CEE due EBIT 374.0 328.9 485.1 555.4 to Poland’s large domestic market, TV’s position in the ad pie, and adj. net income 227.9 (144.7) 237.7 322.7 TVN’s content and market share. We would therefore expect a Net debt 1820.2 2123.6 1891.9 1786.5 EPS (PLN) 1.4 (0.5) 0.7 1.0 potential acquirer to pay a premium to current international TV DPS (PLN) 0.1 0.6 0.0 0.0

multiples (BBG 14E/15E EV/EBITDA 11.3x/9.8x), which then could be recovered by post-acquisition synergies mostly in the area of lower Y/E 31-Dec 2012A 2013A 2014E 2015E adj P/E (x) 15.1 (37.3) 21.9 15.5 TV content costs. We maintain our BUY rating and increase our FV EV / adj. EBITDA 9.3 14.0 13.5 11.5 to PLN 17.9 (from PLN 14.5) on the back of: (1) lower capex over the net debt / adj. EBITDA 3.2 4.0 3.6 3.0 forecast period; and (2) lower WACC. We have trimmed our 14E/15E Capex / Revenues 23.1% 5.3% 4.4% 4.4% ROE 34.8% (19.1%) 18.5% 21.2%

EBITDA forecasts by 8%/7% on lower exp for associates.

ITI and Canal+ consider exit option: We think the sale of TVN by ITI and Canal+ Share Price Performance 120 would offer a unique opportunity for a global media company looking to enter 115 the Polish ad market. We estimate the value of the market at ca. PLN 7.5bn pa. 110

Of this, TV accounts for ca. 50%, with payTV penetration in Poland among the 105 highest in the EU at ca. 75%. Ad spending per capita in Poland is at USD 67 vs 100 USD 146 in the Czech Rep. and USD 85 in Hungary in 2013. We think this gap is 95 very wide (probably too wide) considering Poland’s GDP growth prospects 90 85 and the strength of domestic demand. In our view, a controlling stake in TVN, Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 which would give a potential acquirer access to 22% of Poland’s TV audience TVN PW vs WIG Index share and 33% of the TV ad market, would entail a significant acquisition

premium. TV-exposed stocks in our peer group are trading at

2014E/2015E/2016E EV/EBITDA of 11.3x/9.8x/8.9x. Based on TVN’s expected All share price data as at close on 9-Dec-2014 EBITDA levels and the book value of NC+/Onet.pl associates, we think a Source: BESI Research, Company Data, Bloomberg hypothetical transaction value could reach ca. PLN 20/sh, assuming a 15-20% transaction premium.

TVN 2014-16 financial goals: TVN expects GDP to grow by 3-3.5% pa in 2014- 16, while the TV ad market should grow by mid-single digits and TVN’s revenues should grow by low-single digits in 2014E, accelerating to 5-9% growth in 2015E/16E. TVN expects adj EBITDA (incl. dividends from associates) of PLN 520m in 2014, PLN 590m in 2015 and PLN 630m in 2016, in line with our expectations for 14-15. TVN expects capex at ca. PLN 60m in 2014, PLN 70m in 2015 and PLN 60m in 2016 and plans a PLN 225-250m share buyback in 2015.

Promising outlook for the TV ad market: Despite ongoing audience pressure from TV market fragmentation (development of thematic channels also on DTT) and potential pressure from the growing popularity of OTT services, we believe TV has good prospects in Poland. This is reflected in steadily increasing daily TV consumption and high payTV penetration. We expect the TV ad market to maintain its ca. 50% share, growing by 6.2% in 2014E and 6.5% in 2015E. Analysts

Konrad Ksiezopolski Sound cash distribution: The planned buyback of PLN 225-250m in 15E implies +48 22 347 4074 [email protected] a yield of 3.8-4.8% while a payout ratio of 50% implies a DY of 3.2-3.8%. Banco Espírito Santo de Investimento, S.A. – Warsaw Branch Poland 59 Zlota Street, 00-120 Warsaw

NOT FOR DISTRIBUTION TO ANY US PERSON OR TO ANY PERSON OR ADDRESS IN THE UNITED STATES OF AMERICA (v1.0.8.0)

Summary Financial Information

TVN Valuation Metrics (Year end Dec) 2010 2011 2012 2013 2014E 2015E 2016E Rating BUY adj P/E (213.3) 20.8 15.1 (37.3) 21.9 15.5 14.5 Fair Value (PLN): 17 .9 P/E (x) 121.1 (11.0) 7.2 (29.5) 24.0 15.5 14.5 EV / Sales (x) 3.2 3.1 3.3 4.7 4.4 3.9 3.7 Share Price (09/12/2014, PLN): 15.7 EV / EBITDA (x) 13.1 11.4 11.5 18.6 12.7 10.8 10.1 Upside / Downside potential 14% EV / adj EBITDA (x) 13.1 11.0 9.3 14.0 13.5 11.5 10.5 FCF Yield (%) 3.8% 5.8% -1.2% 9.5% 8.7% 9.6% 10.2% Previous Fair Value (PLN): 14.5 Dividend yield (%) 1.8% 0.4% 1.0% 4.1% 0.0% 0.0% 3.2% % change to fair value 23% EV (PLN m) 8,093 6,173 5,259 7,522 7,095 6,793 6,564

Bloomberg TVN PW Reuters TVNN.WA Ke y Ratios 2010 2011 2012 2013 2014E 2015E 2016E

EBITDA margin 24.3% 27.7% 28.8% 25.5% 34.5% 35.9% 36.3% Shares in Issue (m) 337 Capex / Revenue (x) 11.2% 11.8% 23.1% 5.3% 4.4% 4.4% 4.4% Market Cap (PLN m) 5,298 Capex / Depreciation (x) 1.2 0.8 3.8 1.1 1.0 1.1 1.0 Net Debt, end 2013 (PLN m) 2,124 Net Debt / adj. EBITDA (x) 3.7 4.8 3.2 4.0 3.6 3.0 2.5 Adjustments for Associates & Minorities (PLN m) (1,753) EBITDA / net interest (%) -3 -2 -4 -1 -3 -4 -4 Enterprise Value (PLN m) 5,669 ROE 3.9% -34.3% 34.8% -19.1% 18.5% 21.2% 20.2% ROA 0.9% -6.2% 9.6% -4.7% 5.8% 8.5% 8.6%

Forthcoming Catalysts P&L Summary (PLN m) 2010 2011 2012 2013 2014E 2015E 2016E

Announcement of potential TVN buyer 1-2Q15 Re ve nue 2,539 1,960 1,584 1,586 1,617 1,7 45 1,7 98 4Q14 results Mar-15 % change 20.0% -22.8% -19.2% 0.1% 1.9% 7.9% 3.0% ES Equity Research Analyst EBITDA 616 543 456 404 559 627 652 Konrad Księżopolski % margin 24.3% 27.7% 28.8% 25.5% 34.5% 35.9% 36.3% +48 22 347 40 74 adj EBITDA 617 559 565 537 526 591 626 [email protected] % margin 24.3% 28.5% 35.7% 33.9% 32.5% 33.9% 34.8% Depreciation & Amortisation (247) (113) (82) (75) (73) (72) (77) EBIT 369 430 37 4 329 485 555 57 5 Revenues Breakdown (2013) % change -40% 17% -13% -12% 48% 14% 3% % margin 14.5% 22.0% 23.6% 20.7% 30.0% 31.8% 32.0% Associates 0 (0) 0 0 0 0 0 others 2% Net Financials (246) (325) (114) (575) (217) (157) (149) Other Pre-tax Income 0 0 0 0 0 0 1 Pre-Tax Profit 123 (84) 260 (246) 268 398 426 Income Tax Expense (72) 19 252 63 (51) (76) (81) Discontinued activity 0 (251) (50) 0 0 0 0 Minority Interests 0 0 0 0 0 0 1 Ne t Income 48 (317 ) 47 9 (183) 217 323 345 adj Net income (27) 169 228 (145) 238 323 345 TV adverstising EPS (PLN) 0.1 (0.9) 1.4 (0.5) 0.7 1.0 1.1 98% DPS (PLN) 0.3 0.0 0.1 0.6 0.0 0.0 0.5 Payout Ratio 29% -11% 46% 0% 0% 0% 0% Shares in Issue (Less Treasury) (m) 341.3 343.3 343.9 343.9 331.4 318.9 318.9 TVN - profitability ratios, 2009-2015E 40% Cash Flow Summary (PLN m) 2010 2011 2012 2013 2014E 2015E 2016E 30% Net income 46 (317) 470 (207) 217 323 345 20% D&A 247 284 96 75 73 72 77

10% Change in Working Capital (27) (146) (95) 95 (4) (17) (7) Other Operating Cash Flow 239 615 (145) 633 236 179 173 0% 2010 2011 2012 2013 2014E 2015E 2016E Operating Cash Flow 504 435 325 596 523 557 588 -10% Capital Expenditure (284) (231) (366) (84) (72) (77) (80) -20% Free Cash Flow 220 204 (40) 512 451 47 9 508 adj EBITDA margin adj net margin Acquisitions & Disposals 53 280 896 106 0 0 0 Shareholders structure, November 2014 Dividend Paid to Shareholders (106) (14) (34) (220) 0 0 (161) Equity Raised / Bought Back 20 16 0 28 0 0 0 Other Financing Cash Flow (88) (322) (1,066) (324) (630) (374) (118)

others, Net Cash Flow 99 164 (245) 101 (17 9) 105 229 25.6% N- Vision/PTH, 51.8% Balance Sheet Summary (PLN m) 2010 2011 2012 2013 2014E 2015E 2016E Cash & Equivalents 802 667 1,274 398 270 375 604 Tangible Fixed Assets 763 340 415 393 395 391 385 Goodwill & Intangibles 2,568 1,722 234 242 242 242 242 Aviva OFE, Associates & Financial Investments 2 1 1,866 1,730 1,704 1,666 1,629 7.2% Other Assets 215 228 432 475 484 479 471

ING OFE, Total Assets 5,191 5,112 4,966 3,899 3,7 36 3,817 3,994 7.7% Interest Bearing Debt 3,113 3,338 3,094 2,522 2,162 2,162 2,162 Other Liabilities 839 597 513 420 400 133 126 PZU OFE, 6.2% ITI Holdings, Total Liabilities 3,953 3,935 3,607 2,942 2,562 2,294 2,288 1.6% Shareholders' Equity 1,239 924 1,375 957 1,174 1,523 1,706 Minority Interests 0 (1) (16) (26) (26) (26) (26) Total Equity 1,239 924 1,37 5 957 1,17 4 1,523 1,7 06

Net Debt 2,311 2,671 1,820 2,124 1,892 1,786 1,558 Source: Company data, Reuters, Bloomberg, BESI Research for estimates.

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TVN’s Mid-Term Financial Outlook

On November 19th 2014, TVN presented its mid-term outlook with the following macro, operating and financial forecasts:

 GDP growth in Poland will amount to approx 3.0–3.5% pa in 2014- 2016;

 TV advertising market growth should remain relatively stable in the low to mid-single digits in 2014-2016, while the online advertising market is expected to post growth rates in the high-single digits over 2014-2016;

 TVN Group’s full-year consolidated revenues are likely to grow by low-single digits in 2014 and accelerate to mid- to high-single digits of between 5% and 9% in both 2015 and 2016;

 Based on the assumptions outlined above, together with continued positive developments in associate distribution expectations, TVN forecasts consolidated adjusted EBITDA of approx. PLN 520m in 2014, PLN 590m in 2015 and PLN 630m in 2016.

In addition, TVN assumes the following in terms of investing and financing activities:

 Proportionate share buyback of PLN 225-250m in 2015, with dividend paid in 2016 with a 50% payout ratio of consolidated net profit in 2015;

 Capex of approx. PLN 60m in 2014, PLN 70m in 2015 and PLN 60m in 2016, with continued low cash taxes payable;

 Operating cash flow in excess of capex, taxes, interest payments and shareholder distributions in both 2015 and 2016 will be applied primarily against debt reduction;

 No material capital market transactions are expected to occur through the end of 2016;

 No material new financings are expected, although should an opportunity arise to refinance existing bond debt as a result of favourable market conditions, and/or positive circumstances arising from a potential TVN change of control, then a refinancing could occur;

 EUR/PLN exchange rate development in line with the current financial market consensus.

Looking beyond 2016 and assuming that Poland’s GDP continues to grow at a rate of between 3% and 4%, TVN expects to achieve a 2017-2019 revenue CAGR of approx. 5%. TVN emphasized that any assessment of GDP and revenues assumes no major macroeconomic disruption (e.g. sovereign debt crisis in Europe, geopolitical instability in neighbouring countries, global economic uncertainty).

Adj EBITDA is calculated as core TV EBITDA plus dividend payments from associates. Adj EBITDA does not include proportionate net income from associates. When looking at our estimates, TVN’s adj EBITDA forecasts are either in line with or slightly above our forecasts.

Figure 1 2014-2016 Forecasts – TVN vs BESI vs Bloomberg consensus 2014E 2015E 2016E (PLN m) BESI BBG TVN BESI BBG TVN BESI BBG TVN adj. EBITDA 526 555 520 591 611 590 626 646 630 Source: BESI Research, Company Data, Bloomberg for consensus

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ITI Group and Canal+ consider selling stake in TVN

On October 18th, TVN announced that ITI Group and Groupe Canal+ would jointly review their strategic options for their combined majority stake in TVN. The announcement followed expressions of interest from strategic and financial investors in acquiring a controlling stake in the company. We note that so far there has been no decision on the potential disposal of TVN and there is no guarantee that such a decision will be made in the future.

Together, ITI and Canal+ control a 51.75% stake in TVN though N-Vision/Polish Television Holding. ITI holds an additional 1.55% stake in TVN through ITI Holdings. Canal+ entered on 30th November 2012, buying a 40% stake in N- Vision for EUR 233m. As part of the deal, TVN transferred its N platform to the newly created NC+ platform formed of N-platform and Canal+ satellite payTV entities with a 32% stake in NC+, of which 51% belongs to Canal+ and 17% to UPC. At the beginning of 2014, Canal+ acquired an additional 9% stake in N- Vision. The implied value of the stake in TVN acquired by Canal+ is PLN 21.1m, which is 35% above the current market price. Following the 3Q14 results release, the CEO communicated that 14 entities (both strategic and financial investors) have expressed interest in TVN.

Figure 2 TVN – shareholder structure

Source: BESI Research, Company Data In the last Polish Press Agency (PAP) interview from 2nd Dec 2014, the CEO stated that there are ca. 12 entities interested in the process. Time Warner and Discovery were both mentioned in the article as potential buyers of TVN. The CEO also stated that the buyer could be picked in 1Q15.

Below we present a table with a list of M&A transactions in the media and payTV business around the world announced in the last twelve months, along with the value of the deal and implied multiples.

Time Warner and Discovery Communication have been mentioned in the press as likely candidates for the stake in TVN. The former because of its presence in CEE region through CETV and the latter because of its recent appetite for expansion though M&A.

We think potential post-acquisition synergies would be primarily in the area of TV content (both internally produced and acquired). In our view, a strategic partner with a global presence and client base would increase TVN’s negotiating power with studios, enabling it to buy externally produced content at lower cost. In TVN’s opex base, external TV content costs amount to ca. PLN 150m a year. In our view, working with a strategic partner might help the company to reduce this by ca. 5-10%, or PLN 7.5-15m per year (ca. 1.5- 3% of 2014E core TV EBITDA). In addition, both Time Warner and Discovery are very big own content producers though various TV channels (HBO for Time Warner and Discovery Channels for Discovery). Optimization of own

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content production using a strategic partner’s know-how could also slightly reduce the cost of own content, on which TVN currently spends PLN 500m pa. On top of this, if a global media company with an investment grade rating were to take over, TVN might obtain investment grade as well. This could materially reduce financing costs which are currently at 7.375-7.875% for EUR denominated Senior Notes. In our view, an investment grade rating could potentially reduce the company’s financing costs by ca. 200-300bp. Current EUR Senior Notes balance is at PLN 2.3bn so this could reduce yearly financial costs by ca. PLN 50-70m, assuming a similar debt level.

Figure 3 Recent M&A in Media and Communications industry Announced Announce total value Deal Currency Target Industry Date Target Name Acquirer Name (m) TV/EBITDA Status TV/EBIT TV/Rev of Deal Cable/Satellite TV 13-Feb-14 Time Warner Cable Inc Comcast Corp 68 405 8.6 Pending 14.6 3.1 USD Cable/Satellite TV 18-May-14 DIRECTV AT&T Inc 66 044 8.3 Pending 12.9 2.1 USD Cable/Satellite TV 13-Jan-14 Time Warner Cable Inc Charter Communications Inc 61 256 7.7 Withdraw n 13.0 2.8 USD Advertising Agencies 28-Jul-13 Omnicom Group Inc Publicis Groupe SA 19 420 9.2 Terminated 10.6 1.4 USD Cable/Satellite TV 17-Mar-14 Grupo Corporativo ONO SA Vodafone Group PLC 10 026 10.5 Completed 25.2 4.5 EUR Cable/Satellite TV 7-Apr-14 Numericable-SFR Altice SA 5 483 11.3 Completed 25.4 4.9 EUR Broadcast Serv/Program 24-Sep-14 Starz Potential Buyer 5 000 11.3 Proposed 11.8 3.0 USD Television 21-Mar-14 LIN Media LLC Media General Inc 2 450 14.6 Pending 24.9 3.8 USD Cable/Satellite TV 20-Dec-13 Kabel Deutschland Holding AG Vodafone Group PLC 2 398 9.7 Pending 19.6 4.0 EUR Cable/Satellite TV 25-Jul-14 Sky Deutschland AG Sky PLC 2 385 204.9 Completed 3.6 EUR Broadcast Serv/Program 6-Nov-14 Telediffusion de France SAS Brookfield Infrastructure Partners LP 2 207 11.1 Pending 15.4 5.0 EUR Television 13-Jun-13 Belo Corp Gannett Co Inc 2 028 7.8 Completed 8.8 2.8 USD Television 3-Jan-14 Northern & Shell Television Group Ltd Potential Buyer 1 150 Proposed 26.7 2.0 GBP Television 7-May-14 DTS Distribuidora de Television Digital SATelefonica SA 1 044 Pending 18.6 1.4 EUR Advertising Services 1-Oct-14 Advanstar Communications Inc UBM PLC 972 16.6 Pending 32.0 3.0 USD Television 17-Jul-14 ITV PLC Liberty Global PLC 822 11.6 Completed 13.5 3.1 GBP Television 8-May-14 ALL3MEDIA International Ltd Discovery Communications Inc,Liberty Global PLC 736 Completed 59.1 8.8 EUR Broadcast Serv/Program 12-Aug-13 Digital Generation Inc Extreme Reach Inc 485 5.2 Completed 14.5 1.3 USD Cable/Satellite TV 18-Nov-13 Numericable-SFR Altice SAS 428 5.4 Completed 10.6 2.4 EUR Television 24-Jul-14 Mediaset Espana Comunicacion SA Mediaset Espana Comunicacion SA 414 11.4 Completed 35.1 4.2 EUR Advertising Services 17-Oct-14 Havas SA Bollore SA 351 1.0 Pending 1.3 0.2 EUR Cable/Satellite TV 1-Aug-14 NET Servicos de Comunicacao SA America Movil SAB de CV 338 4.9 Pending 15.6 1.5 BRL Advertising Agencies 14-Aug-14 Innocean Worldw ide Inc Standard Chartered PLC,Morgan Stanley Private Equity (Fund:294 Morgan Stanley18.4 PrivateCompleted Equity Asia18.9 IV LP),Isola2.8 Capital GroupKRW Broadcast Serv/Program 11-Feb-14 Eyew orks Holding BV Warner Bros Television Group 273 Completed 8.6 0.8 AUD Television 29-May-14 TV18 Broadcast Ltd Reliance Industries Ltd 229 44.8 Completed 70.3 3.1 INR Television 26-Jun-14 CSC Media Group Ltd Sony Corp 182 Pending 12.3 4.3 GBP Broadcast Serv/Program 22-Jul-14 Promotora de Informaciones SA Private Investor 135 2.8 Pending 14.1 0.2 EUR Advertising Services 13-Oct-14 Matomy Media Group Ltd Publicis Groupe SA 81 26.8 Pending 32.7 1.6 GBP Television 29-May-14 TV18 Broadcast Ltd Reliance Industries Ltd 35 24.4 Completed 33.1 2.6 INR Television 27-Feb-14 UTV Media PLC Unnamed Buyer 30 9.0 Completed 9.7 1.9 EUR Broadcast Serv/Program 13-Dec-13 Advanced Inflight Alliance AG Global Eagle Entertainment Inc 25 13.4 Pending 20.2 1.4 EUR Cable/Satellite TV 10-Sep-14 Hathw ay Cable & Datacom Ltd CITIC Securities Co Ltd 25 2.0 Pending 41.4 0.4 INR Cable/Satellite TV 6-Feb-14 Wow ow Inc Tokyo Broadcasting System Holdings Inc 22 4.4 Completed 6.3 0.7 JPY Advertising Agencies 27-May-14 mktg inc Dentsu Inc 21 6.0 Completed 7.6 0.2 USD Advertising Agencies 1-Sep-14 SEEC Media Group Ltd Private Investor 12 15.9 Completed 28.6 1.2 HKD Advertising Agencies 11-Jul-14 Fortune Indonesia Tbk PT Rajaw ali Corp PT 9 11.5 Completed 13.7 0.3 IDR Advertising Agencies 29-Oct-14 Fortune Indonesia Tbk PT Rajaw ali Corp PT 5 29.6 Pending 35.5 0.7 IDR Broadcast Serv/Program 12-Dec-13 Fujian Sanao Technology Co Ltd China Construction Bank International Asset Manage 3 Completed 9.0 1.9 CNY Advertising Agencies 13-Dec-13 Interactive Prospect Targeting Ltd Management Group 1 Completed 22.6 0.2 GBP Source: Bloomberg. Discovery among the most active in M&A recently

Discovery stepping into Eurosport

On December 21, 2012 TF1 group sold a 20% equity interest in the Eurosport group and in the TV Breizh, Ushuaïa TV, Stylía and Histoire pay-TV theme channels to the Discovery Communications group. The 20% stake in Eurosport was valued at EUR 170m, implying a EUR 850m enterprise value for 100% of Eurosport. The sale of the 20% interest in the theme channels was completed on the basis of an enterprise value of EUR 70m.

In 2012, Eurosport channels generated EUR 475m of revenues (EUR 452m in 2013) and EUR 63.6m of operating income (EUR 81.8m in 2013). TF1 group D&A is ca. 2.5% of total revenues. Using the same ratio for the Eurosport unit, hypothetical EBITDA could amount to EUR 75.5m in 2012 and EUR 93m in 2013. The deal happened in December 2012, hence its valuation needs to be based on forecasted numbers for 2012. The transaction multiple (EV/EBITDA 2012) reached 11.25x for the non-controlling 20% stake.

The Discovery Communications group has the option to acquire, during a period of one year from December 21, 2014, a further 31% interest in Eurosport SAS (the parent company of the Eurosport group), which would raise its

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equity interest in the company to 51%. If the Discovery Communications group exercises this option, TF1 could then sell the rest of its interest in Eurosport SAS (i.e. 49%) to the Discovery Communications group during a period of one year from the date on which the Discovery Communications group acquires the additional 31% interest.

The Discovery Communications group also has the option to acquire, during a period of one year from December 21, 2014, a further 29% interest in the pay- TV theme channels, which would raise its equity interest in the channels to 49%. If the Discovery Communications group acquires an additional 31% interest in Eurosport SAS (see above) but does not acquire the additional 29% interest in the pay-TV theme channels, TF1 could then sell a further 15% equity interest in those channels to the Discovery Communications group, raising the latter’s equity interest in those channels to 35%.

Exercising those two options, based on 2012 deal pricing would cost Discovery ca. EUR 263m for 31% stake in Eurosport and ca. EUR 20m for 29% stake in theme channels giving in total ca. EUR 283m cash outlay in 2015.

In 2013, Discovery Communication has generated: (1) USD 5.5bn of revenues, +23% YoY, (2) USD 2.4bn of adj OIBDA, +16% YoY, (3) USD 1.1bn of net income, +14% YoY, (4) USD 1.2bn Free Cash Flow, +14% YoY. In 2014E Discovery targets OIBDA of USD 2.5-2.55bn.

Discovery together with Liberty Global buys All3Media

On 8th May 2014 Discovery Communications and Liberty Global announced an agreement to form a 50:50 joint venture to acquire All3Media, which is the largest independent production group in the U.K. and has a strong presence in the US, Germany, the Netherlands and New Zealand and 26 creative centers in the world’s largest TV-producing markets. For the fiscal year ending in August 2013, All3Media recorded revenues of approximately GBP 505m. Discovery Communications and Liberty Global’s joint venture acquired All3Media at an enterprise value of GBP 550m which represents EV/EBITDA multiple of approx. 8.5x.

Discovery acquired The Living Channel New Zealand

In July 2014, Discovery acquired The Living Channel New Zealand, which operates pay TV channels The Living Channel and Food TV. Discovery currently distributes two channels through the Sky TV platform – Discovery Channel and Animal Planet. Terms of deals with Associates NC+ and Onet.pl

NC+

TVN holds a 32% stake in NC+, while Groupe Canal+ holds 51% and UPC 17%. Canal+ Group has a call option to acquire TVN’s 32% of NC+ at market value, which is exercisable during the three months following November 30th, 2015 and November 30th, 2016. Additionally, following the call option periods, both TVN and Canal+ Group have the right to sell their interest in NC+ (with Canal+ Group having the right to require TVN to sell its shares in NC+ at the same terms). If the option is not exercised, TVN has the right to require NC+ to undertake an initial public offering.

The book value of NC+ in 3Q14 reached PLN 1.5bn, while on the day of the deal TVN estimated the value of a 32% stake in NC+ at PLN 1.9bn. NC+’s payout ratio is set at 75%.

On the day of the deal, NC+ had 2.5m subscribers with pro-forma revenues of PLN 2.2m and pro-forma EBITDA of PLN 200m. TVN commented that benefits of scale, synergies and attractive payTV content will enable it to lift its total customer base to 3m with EBITDA at PLN 550m at end-2015. However, the merger was followed by an unsuccessful price offer that was widely criticized by customers and resulted in visible client outflows. In 3Q14, the NC+ client base reached 2.2m while 9M14 EBITDA increased to PLN 280m (+45% yoy)

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and revenues fell to PLN 1.6m (-5% yoy). During the 3Q14 results conference call, the CEO commented that TVN still targets PLN 550m full-year EBITDA, but its delivery will be delayed by one year (i.e. to 2016). Erosion of the client base has already stabilized, with ARPU in 3Q14 reaching PLN 68, up 4% yoy.

Onet.pl

TVN holds a 25% interest in Onet Holding Group while 75% is controlled by Ringer Axel Springer Media.

The shareholders’ agreement contains a swap option for TVN to exchange a number of TVN’s (its subsidiaries’) shares in Onet Holding for the shares in RAS (option valid if RAS conducts an initial public offering). Furthermore, under the shareholders’ agreement, the following options are granted: (1) the first put option for TVN (or its subsidiary) to sell all its shares in Onet Holding to RAS at any time during: (i) the 90-day period commencing on January 1, 2016; or (ii) the 20 business day period commencing after Onet Holding’s shareholders meeting has approved its financial statements for the most recently concluded financial year, whichever period ends later; and (2) the call option for RAS to acquire the shares in Onet Holding’s share capital from TVN (or its subsidiary) at any time during (i) the 90-day period commencing on January 1, 2017 or (ii) the 20 business day period commencing after Onet Holding’s shareholders meeting has approved its financial statements for the most recently concluded financial year, whichever period ends later; and, (3) the second put option for TVN (or its subsidiary) to sell all its shares in Onet Holding to RAS at any time within 60 days following the expiration of the call option period.

The shareholders’ agreement also contains the standard “joint-exit” clauses allowing TVN and RAS to sell jointly all their shares in Grupa Onet.pl held directly or indirectly (drag-along and tag-along rights). Financial forecasts

Changes to estimates

Figure 4 TVN – changes to our estimates 2014E 2015E 2016E (PLN m) New Old Change New Old Change New Old Change Revenues 1,617 1,638 -1% 1,745 1,718 2% 1,798 1,756 2% EBIT 485 523 -7% 555 587 -5% 575 588 -2% EBITDA 559 607 -8% 627 674 -7% 652 679 -4% Net profit 217 436 -50% 323 343 -6% 345 346 0% Source: BESI Research for estimates BESI vs Bloomberg consensus

Figure 5 BESI vs BBG 2014E 2015E 2016E (PLN m) BESI BBG Change BESI BBG Change BESI BBG Change Revenues 1,617 1,619 0% 1,745 1,693 3% 1,798 1,769 2% EBITDA 559 555 1% 627 611 3% 652 646 1% EBIT 485 487 0% 555 542 3% 575 576 0% Net income 238 286 -17% 323 329 -2% 345 377 -9% Source: BESI Research for estimates, Bloomberg for consensus Valuation

DCF

We use a DCF with a 10Y forecast period; however as we are at the end of 2014, we use net debt 2014E and FCF in 2015E-2023E. We use a RFR of 2.8% (vs 3.8% before) and beta at 1.0x (vs 1.1x before) and g of 0% (unchanged).

Page 17 of 30

Figure 6 DCF DCF Valuation (PLN m) 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E RV EBIT 445 497 517 524 521 520 519 518 517 516 516 Tax rate 19% 19% 19% 19% 19% 19% 19% 19% 19% 19% 19% NOPAT 360 403 419 424 422 421 421 420 419 418 418 D&A 73 72 77 80 82 82 82 83 83 83 Capex -72 -77 -80 -82 -82 -82 -83 -83 -83 -84 Change of WC -4 -17 -7 -5 -1 -1 -1 -1 -1 -1 FCF 358 380 409 417 421 420 419 418 417 416 418 FCF change -23.1% 6.3% 7.6% 2.0% 0.8% -0.2% -0.2% -0.2% -0.2% -0.2% 0.0% WACC Calculation debt/equity 57.9% 56.6% 54.1% 51.9% 50.1% 42.4% 40.8% 39.2% 37.8% 36.6% 36.6% risk free rate 2.8% 2.8% 2.8% 2.8% 2.8% 2.8% 2.8% 2.8% 2.8% 2.8% 2.8% credit premium 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% market premium 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% beta 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 cost of debt 4.7% 4.7% 4.7% 4.7% 4.7% 4.7% 4.7% 4.7% 4.7% 4.7% 4.7% cost of equity 7.8% 7.8% 7.8% 7.8% 7.8% 7.8% 7.8% 7.8% 7.8% 7.8% 7.8% WACC 6.0% 6.0% 6.1% 6.2% 6.2% 6.5% 6.5% 6.6% 6.6% 6.7% 6.7% PV (FCF) 2,734 PV (RV) 3,493 net debt, end 2014E 1,892 Value of core business (PLN m) 4,335 Value of n/C+ & Onet.pl 1,753 Equity value (PLN m) 6,088 # of shares (m) 337 Fair value/ share (PLN) 18.0 Shares adjusted to 12.5m buyback in 2014 and share issue related with management program Source: BESI Research for estimates, Company Data Figure 7 TVN – sensitivity analysis

RV FCF y oy change

18.0 -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 0.0 -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 8.2% 15.1 15.6 16.1 16.7 17.4 18.2 8.2% -16% -13% -11% -7% -3% 1%

7.7% 15.6 16.1 16.7 17.4 18.1 19.0 7.7% -14% -11% -7% -4% 1% 6%

7.2% 16.1 16.6 17.3 18.1 19.0 20.1 7.2% -11% -8% -4% 0% 5% 11%

6.7% 16.6 17.3 18.0 18.9 20.0 21.2 6.7% -8% -4% 0% 5% 11% 18% 6.2% 17.2 18.0 18.9 19.9 21.2 22.7 6.2% -5% 0% 5% 10% 17% 26%

WACC level 5.7% 17.9 18.8 19.9 21.1 22.6 24.5 5.7% -1% 4% 10% 17% 25% 36%

5.2% 18.8 19.8 21.0 22.6 24.4 26.8 5.2% 4% 10% 17% 25% 35% 49%

Source: BESI Research for estimates

Page 18 of 30

Peer valuation

Figure 8 Peer valuation – priced as on 9/12/2014

P rice EV/EBITDA P/E EBITDA margin N ame T icker (LC) 2014E 2015E 2016E 2014E 2015E 2016E 2014E 2015E 2016E

TV TVN (BESI) TVN PW 15.7 12.7 10.8 10.1 22.3 16.4 15.4 35.7% 25.5% 34.5% Cyfrowy Polsat (BESI) CPS PW 24.7 9.8 7.4 7.1 40.8 17.0 16.1 37.3% 37.9% 39.5% CETV CETV US 2.8 14.2 9.8 8.1 -3.2 -9.5 -260.2 12.6% 17.3% 19.8% RTL RTL BB 78.2 10.6 10.3 9.8 18.7 17.1 16.4 22.3% 22.4% 22.9% Prosieben Sat1 PSM GR 33.7 11.3 10.6 10.2 17.9 15.7 14.7 29.4% 29.3% 29.2% ITV ITV LN 208.5 11.5 10.5 9.8 15.8 14.3 13.3 28.9% 29.9% 30.6% Antena3 A3TV SM 11.0 19.1 13.1 10.2 27.8 18.1 14.0 15.1% 20.4% 24.4% CBS Corp CBS US 52.4 10.3 9.8 8.9 15.4 15.1 13.5 23.7% 24.3% 25.5% CTC M edia CTCM US 4.9 2.8 3.1 3.0 5.7 6.3 6.0 29.7% 28.6% 28.8% M 6 M etropole MMT 15.6 6.5 6.2 6.1 16.8 15.8 15.1 22.0% 22.3% 22.4% M odern Times M TGB 244.0 11.4 9.7 9.0 13.6 12.1 11.2 10.1% 11.2% 11.6% TF1 TFI FP 12.3 11.2 8.8 8.0 27.8 18.4 16.1 9.4% 12.0% 12.8% T V M edian 11.3 9.8 8.9 16.3 15.4 14.1 22.3% 23.6% 25.5%

Satellite TV Cyfrowy Polsat (BESI) CPS PW 921 9.8 7.4 7.1 40.8 17.0 16.1 37.3% 37.9% 39.5% BSkyB BSY LN 83.785 8.8 7.8 7.6 15.9 14.2 14.8 19.9% 20.8% 19.6% DirecTV DTV US 71.39 7.1 6.8 6.6 15.0 13.5 12.6 25.0% 25.1% 24.5% Dish Network DISH US 6.75 13.1 12.6 12.1 45.1 41.0 37.3 19.1% 19.0% 18.9% SKY DEUTSCHLAND AG SKYD GY 20.72 71.0 28.8 17.9 -77.7 157.0 42.2 5.1% 11.3% 16.3% CABLEVISION SYSTEM S-NY CVCGRP-A US 56.14 7.6 7.5 7.3 19.0 23.4 19.2 28.5% 28.8% 29.1% COM CAST CORP-CLASS ACM CSA US 64.2 8.3 7.9 7.4 17.6 17.1 14.9 33.2% 33.3% 32.9% DISH TV INDIA LTD DITV IN 11.3 9.3 8.0 6791.5 45.7 23.7 25.2% 26.6% 26.9% D T H median 7.9 7.6 7.4 28.4 15.6 15.4 22.5% 22.9% 22.1%

Online Yahoo! YHOO US 50.5 28.3 27.9 26.5 30.0 44.9 39.5 29.5% 29.4% 30.7% Google GOOG US 533.0 11.6 9.8 8.3 20.3 17.2 14.6 49.5% 49.4% 49.6% Yandax YNDX US 20.1 16.4 13.4 10.9 24.9 20.6 16.6 42.1% 42.1% 42.4% Amazon AM ZN US 312.5 22.8 17.1 13.1 169.7 82.3 45.3 6.9% 7.8% 8.6% Baidu BIDU US 229.9 28.8 20.6 14.9 35.2 25.4 18.6 33.5% 33.0% 34.4% M ail.ru M AIL LI 17.3 10.0 8.7 7.2 0.3 0.3 0.2 51.8% 50.2% 50.8% eBay EBAY US 55.4 11.5 10.4 9.3 18.5 16.9 15.2 32.1% 31.5% 31.2% AOL AOL US 45.3 7.0 6.5 6.0 22.4 18.7 16.5 19.8% 19.7% 20.0% IAC/INTERACTIVE IACI US 64.6 10.3 9.3 7.3 24.1 17.6 13.5 17.3% 18.0% 21.4% DAUM 035720 KS 134300 38.0 21.6 17.9 97.2 27.5 26.2 22.2% 28.8% 32.2% Yahoo! Japan 4689 JP 426.0 9.0 8.4 7.8 18.5 17.5 16.3 51.5% 51.4% 51.7% Netease NTES US 99.9 11.9 9.9 8.4 16.3 13.9 12.0 44.3% 43.6% 43.4% Online M edian 11.8 10.2 8.9 23.2 18.1 16.4 32.8% 32.3% 33.3%

T VN (B ESI) TVN PW 12.7 10.8 10.1 22.3 16.4 15.4 35.7% 25.5% 34.5% TVN (BESI) - core TV 10.3 8.6 8.1 -279.0 26.9 20.0

Equity value of core TV business (PLN m) 4,228 Equity value per share (PLN) 12.5 Value of NC+ (PLN m) 1548 Value of Onet.pl (PLN m) 205

Equity value (PLN m) 5,981 Equity value per share (PLN) 17.7 Source: Company data, BESI Research for estimates

Page 19 of 30

Financials Income statement

Figure 9 TVN – P&L TVN - P&L (PLN m) 2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E Revenues 2,115 2,539 1,960 1,584 1,586 1,617 1,745 1,798 1,837 % YoY change 10% 20% -23% -19% 0% 2% 8% 3% 2% OPEX -1,780 -2,127 -1,409 -1,173 -1,128 -1,172 -1,247 -1,281 -1,314 EBITDA 795 616 543 456 404 559 627 652 660 % YoY change -23% -12% -16% -11% 38% 12% 4% 1% % EBITDA margin 37.6% 24.3% 27.7% 28.8% 25.5% 34.5% 35.9% 36.3% 35.9% adj EBITDA 600 617 559 565 537 526 591 626 635 % YoY change 3% -9% 1% -5% -2% 12% 6% 1% % adj EBITDA margin 28.4% 24.3% 28.5% 35.7% 33.9% 32.5% 33.9% 34.8% 34.6% EBIT 612 369 430 374 329 485 555 575 581 % YoY change -40% 17% -13% -12% 48% 14% 3% 1% % EBIT margin 28.9% 14.5% 22.0% 23.6% 20.7% 30.0% 31.8% 32.0% 31.6% Financial income/(expense), net -192 -246 -325 -114 -575 -217 -157 -149 -145 Share /loss of associate -39 0 0 0 0 0 0 0 0 Profit before tax 381 123 -84 260 -246 268 398 426 436 Income tax -34 -72 19 252 63 -51 -76 -81 -83 effective tax rate -9% -59% -22% 97% -26% -19% -19% -19% -19% Discontinued activity 0 0 -251 -50 0 0 0 0 0 Net income 421 48 -317 479 -183 217 323 345 353 % YoY change -257% -89% -765% -251% -138% -219% 49% 7% 2% % net margin 19.9% 1.9% -16.2% 30.2% -11.5% 13.4% 18.5% 19.2% 19.2% Recurrent Net Income 256 -27 169 228 -145 238 323 345 353 % YoY change -237% -111% -722% 35% -164% -264% 36% 7% 2% EPS (PLN) 1.2 0.1 -0.9 1.4 -0.5 0.7 1.0 1.1 1.1 % YoY change -260% -89% -761% -251% -138% -223% 54% 7% 2% Recurrent EPS (PLN) 0.7 -0.1 0.5 0.7 -0.4 0.7 1.0 1.1 1.1 % YoY change -240% -111% -719% 35% -164% -270% 41% 7% 2% Source: Company data, BESI Research for estimates Balance sheet

Figure 10 TVN – balance sheet TVN - Balance sheet (PLN m) 2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E Total fixed assets 3,721 3,548 2,291 2,946 2,841 2,825 2,779 2,727 2,674 PP & E, net 799 763 340 415 393 395 391 385 377 Goodw ill 1,678 1,678 953 144 144 144 144 144 144 Brand 789 779 694 31 31 31 31 31 31 otehr intangibles 93 112 75 59 67 67 67 67 67 Investments 1 2 1 1,866 1,730 1,704 1,666 1,629 1,594 Other fixed assets 361 215 228 432 475 484 479 471 461 Total current assets 1,016 1,643 1,358 2,020 1,058 912 1,038 1,267 1,488 ST programming 231 247 241 259 245 220 214 203 190 Trade and other receivables 323 335 376 317 342 349 376 387 396 Other current assets 81 259 73 170 73 73 73 73 73 Cash and equivalents 382 802 667 1,274 398 270 375 604 829 Total assets 4,983 5,191 5,112 4,966 3,899 3,736 3,817 3,994 4,161 Total stockholders equity 1,285 1,239 924 1,375 957 1,174 1,523 1,706 1,887 Including minority interest -360 0 -1 -16 -26 -26 -26 -26 -26 Liabilities 3,698 3,953 3,935 3,607 2,942 2,562 2,294 2,288 2,275 Senior Notes (10.75%) due 2017 1,589 2,263 2,542 2,357 2,522 1,720 1,720 1,720 1,720 Senior Notes (7.875%) 0 671 752 697 0 442 442 442 442 Other debt 1,065 179 43 40 0 0 0 0 0 Trade payables 287 240 164 170 133 136 147 151 154 other 757 600 433 343 287 264 -14 -25 -41 Total equity & liabilities 4,983 5,191 5,112 4,966 3,899 3,736 3,817 3,994 4,161 Source: Company data, BESI Research for estimates

Page 20 of 30

Cash Flow

Figure 11 TVN – cash flow TVN - Cash Flow (PLN m) 2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E Net income 346 46 -317 470 -207 217 323 345 353 D&A 183 247 284 96 75 73 72 77 80 Decpreciation of programming 167 194 196 251 138 139 152 158 162 Payment for programming rights -154 -227 -225 -296 -140 -120 -130 -134 -137 Change in Net Working Capital 6 -27 -146 -95 95 -4 -17 -7 -5 Other 29 271 644 -101 555 217 157 149 145 Cash Flow from Operations 578 504 435 325 596 523 557 588 598 Capital Expenditures -329 -284 -231 -366 -84 -72 -77 -80 -82 Other -233 53 280 896 106 0 0 0 0 Cash Flow from Investing Activities -562 -231 48 530 22 -72 -77 -80 -82 Change in Debt 587 23 -470 -325 -2,807 -380 -124 -118 -119 Issue of shares 1 20 16 0 28 0 0 0 0 Dividends paid -194 -106 -14 -34 -220 0 0 -161 -172 Other -72 -112 148 -741 2,483 -250 -250 0 0 Cash Flow from Financing Activities 322 -174 -319 -1100 -516 -630 -374 -280 -292 Beginning cash 185 382 480 592 347 449 270 375 604 Increase/(decrease) in cash 343 99 112 -176 409 -179 105 229 225 Ending cash 528 480 592 347 449 270 375 604 829 DPS (PLN) 0.6 0.3 0.0 0.1 0.6 0.0 0.0 0.5 0.5 Source: Company data, BESI Research for estimates

Page 21 of 30

Page 22 of 30

MARKET UPDATE

Poland | Media | Small & Mid Cap | 11-December-2014

Agora

Easing press(ure) BUY 32% upside Fair Value PLN 10.30 We maintain BUY rating on Agora and increase our FV to PLN 10.3 (from PLN 10.2) following increases in our 2014E/15E EBITDA Bloomberg ticker AGO PW forecasts, driven mostly by the cinema segment, and lower WACC. Share Price PLN 7.78 Market Capitalisation PLN 396.29m Press exposure (27% of 14E revs) is steadily decreasing (exp 19% Free Float 61%

revs in 17E) thanks to growing contributions from other segments including cinema and internet; however the rate of decrease has PLN m Y/E 31-Dec 2012A 2013A 2014E 2015E been limited somewhat by a deceleration in the pace of copy sales Revenues 1138.6 1073.9 1081.1 1113.0 EBITDA 80.8 103.5 88.8 81.9 erosion. We expect negative FCF in 2015E–16E due to increased EBIT (13.0) 7.4 (7.2) (12.9) capex (PLN 106m/PLN 110m, respectively). However, in contrast Net income (8.9) 0.5 (4.0) (10.8) with Agora’s past spending on dotcom acquisitions (e.g. Trader.com Net debt (21.3) (29.3) (12.4) 22.3 EPS (0.2) 0.0 (0.1) (0.2)

and GoldenLine.pl), which we saw as questionable in terms of value accretion, this capex will be spent on strengthening Agora’s position Y/E 31-Dec 2012A 2013A 2014E 2015E in outdoor and cinema – stable and organically growing segments P/E (x) (57.2) 792.6 (95.3) (34.1) EV/EBITDA (x) 6.0 3.5 4.1 4.8 where Agora has a proven track record. DY (%) 0.0% 0.0% 0.0% 0.0% net debt / EBITDA (x) (0.3) (0.3) (0.1) 0.3 Good performance from cinema: The cinema market has performed well in ROA (%) (0.5%) 0.0% (0.2%) (0.7%) 9M14, with 6% yoy growth and ticket sales of 27.4m. This is mainly attributable ROE (%) (0.7%) 0.0% (0.3%) (0.9%)

to strong domestic releases, incl. “Bogowie”, “Miasto 44” and “Sluzby Specjalne”. Results in 4Q14 will also be supported by The Hobbit 2. Last year Share Price Performance 110 Part 1 brought ca. 850k admissions in Poland in the opening week. As

NextFilm (Agora’s subsidiary) is a distributor of “Bogowie”, we expect it to 100 add ca. PLN 12m of revs and ca. PLN 2m of EBIT to 4Q14 results. Agora is outpacing the market with +1.6% ticket sales in 3Q14 and +6.4% in 9M14. Given 90 the pipeline for 2015, with a total of 17 new screens being added in Jelenia 80 Gora, Bialystok and Lodz, we believe Helios will continue to outperform. 70 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Elections should support outdoor in 2015: According to the Polish outdoor 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 chamber of commerce, European and Municipal elections had a much smaller AGO PW vs WIG Index impact on outdoor ad spending than initially expected. Agora’s management believes that political parties may have decided to build up their ad budgets for the upcoming Presidential and Parliamentary elections in 2015. We expect All share price data as at close on 9-Dec-2014 the 2015E ad market to be supported by ca. PLN 80m in incremental ad Source: BESI Research, Company Data, Bloomberg spending related to elections. We expect Agora’s outdoor segment to book incremental revenues of ca. PLN 9m and EBITDA of PLN 1.5m.

Easing pressure in press segment: Although it is still too early to say for certain that the situation in the press segment is changing, since August 14 Agora has reported only single-digit yoy copy sales erosion vs ca. -15% previously. In our view, lowering the base of total press users with a higher share of frequent readers is the main reason for this. To mitigate erosion of press revenues, in Feb 14 Agora launched paywall access for press content and aims to achieve 0k subs base at end-2014 vs 21.2k in 3Q14. Based on our estimates, a 21k base could generate ca. PLN 1m in quarterly revs (1% of total press revs).

Capex will hamper FCF: Agora plans to increase capex in 2015/16 (exp PLN 106/110m). However, in contrast with the company’s past spending on dotcom acquisitions, this capex will be spent on ‘Warsaw Project’ and cinema screens development. The former will strengthen Agora’s market leadership in outdoor and will better position it in nationwide ad campaigns. The latter is capex on the organically growing cinema business. Following a few unsuccessful Analysts attempts to expand into new segments, Agora’s current strategy focuses on Konrad Ksiezopolski strengthening its position in more predictable where it has experience, which +48 22 347 4074 [email protected] should offset revenue erosion coming from the press segment. Banco Espírito Santo de Investimento, S.A. – Warsaw Branch Poland 59 Zlota Street, 00-120 Warsaw

NOT FOR DISTRIBUTION TO ANY US PERSON OR TO ANY PERSON OR ADDRESS IN THE UNITED STATES OF AMERICA (v1.0.8.0)

Summary Financial Information

Agora Valuation Metrics (Year end Dec) 2011 2012 2013 2014E 2015E 2016E Rating BUY Fair Value (PLN): 10.3 P/E (x) 12.4 (57.2) 792.6 (95.3) (34.1) (34.9) EV / Sales (x) 0.3 0.4 0.3 0.3 0.4 0.4 Share Price (09/12/2014, PLN): 7.8 EV / EBITDA (x) 2.8 6.0 3.5 4.1 4.8 4.8 Upside / Downside potential 32% FCF Yield (%) 15.2% -3.6% 10.3% 3.2% -6.3% -7.0% Dividend yield (%) 9.8% 0.0% 0.0% 0.0% 0.0% 0.0% Previous Fair Value (PLN): 10.2 EV (PLN m) 409 488 367 364 390 413 % change to fair value 1%

Bloomberg AGO PW Reuters AGOD.WA Ke y Ratios 2011 2012 2013 2014E 2015E 2016E

EBITDA margin 11.7% 7.1% 9.6% 8.2% 7.4% 7.5% Shares in Issue (m) 50.9 Capex / Revenue (x) 5.9% 9.7% 6.4% 7.5% 9.5% 9.5% Market Cap (PLN m) 396 Capex / Depreciation (x) 0.8 1.2 0.7 0.8 1.1 1.1 Net Debt, end 2013 (PLN m) -29 Net Debt / adj. EBITDA (x) (0.8) (0.3) (0.3) (0.1) 0.3 0.5 Adjustments for Associates & Minorities (PLN m) 18 EBITDA / net interest (%) 68 24 -45 24 35 52 Enterprise Value (PLN m) 385 ROE 3.4% -0.7% 0.0% -0.3% -0.9% -0.9% ROA 2.3% -0.5% 0.0% -0.2% -0.7% -0.7%

Forthcoming Catalysts P&L Summary (PLN m, unless stated) 2011 2012 2013 2014E 2015E 2016E

4Q14 results Mar-15 Re ve nue 1,235 1,139 1,07 4 1,081 1,113 1,158 % change 10.6% -7.8% -5.7% 0.7% 3.0% 4.0% ES Equity Research Analyst EBITDA 145 81 104 89 82 87 Konrad Księżopolski % margin 11.7% 7.1% 9.6% 8.2% 7.4% 7.5% +48 22 347 40 74 Depreciation & Amortisation (93) (94) (96) (96) (95) (96) [email protected] EBIT 52 (13) 7 (7 ) (13) (9) % change -39% -125% -157% -198% 77% -30% % margin 4.2% -1.1% 0.7% -0.7% -1.2% -0.8% Revenues Breakdown (2013) Associates 0 (0) (0) (2) 1 4

Other Net Financials 2 3 (2) 4 2 2 24% Other Pre-tax Income 0 0 0 0 0 0 Pre-Tax Profit 54 (10) 5 (6) (9) (4) Income Tax Expense (11) 2 (4) 1 2 1 Minority Interests 1 1 1 (0) 3 8

Ad revenues Ne t Income 42 (9) 1 (4) (11) (11) Ticket sales 49% 12% % margin 3.4% -0.8% 0.0% -0.4% -1.0% -0.9% EPS (PLN) 0.8 (0.2) 0.0 (0.1) (0.2) (0.2) DPS (PLN) 1.0 0.0 0.0 0.0 0.0 0.0 Special projects Payout Ratio 121% 0% 0% 0% 0% 0% 3% Copy sales 12% Shares in Issue (Less Treasury) (m) 50.9 50.9 50.9 48.4 47.3 47.3 Agora - profitability ratios, 2009-2015E 14% Cash Flow Summary (PLN m) 2011 2012 2013 2014E 2015E 2016E 12% 10% PBT 55 (10) 5 (6) (9) (4) 8% D&A 93 94 96 96 95 96 6% Change in Working Capital (11) (11) 4 (1) (3) (5) 4% Other Operating Cash Flow 18 25 1 4 1 (3) 2% Operating Cash Flow 152 92 109 93 83 84 0% Capital Expenditure (73) (110) (69) (81) (106) (110) 2011 2012 2013 2014E 2015E 2016E -2% Free Cash Flow 79 (18) 41 12 (23) (26) EBITDA margin net margin Acquisitions & Disposals (49) 168 (36) 0 0 0 Shareholders structure, August 2014 Dividend Paid to Shareholders (25) (51) 0 0 0 0 - in share capital Equity Raised / Bought Back 0 0 0 (30) (14) 0 Agora Other Financing Cash Flow (68) (61) (80) 0 0 0 Holding, 10.6% Net Cash Flow (57 ) 65 (91) (17 ) (35) (23) PZU OFE, 14.9% Balance Sheet Summary (PLN m) 2011 2012 2013 2014E 2015E 2016E

Cash & Equivalents 323 224 175 158 124 101 Others, 61.1% ING OFE, Tangible Fixed Assets 760 766 725 0 0 0 13.4% Goodwill & Intangibles 419 422 417 1,145 1,156 1,171 Associates & Financial Investments 12 12 12 10 11 15 - votes in GM Other Assets 289 280 314 316 323 334 Total Assets 1,804 1,7 03 1,643 1,629 1,614 1,620 Agora Holding, Interest Bearing Debt 213 202 146 146 146 146 33.1% Other Liabilities 327 294 289 283 276 285 Others, Total Liabilities 540 497 435 429 422 431 45.7% Shareholders' Equity 1,246 1,188 1,190 1,182 1,174 1,171 Minority Interests 17 18 18 18 18 18 Total Equity 1,263 1,206 1,208 1,200 1,192 1,189 ING OFE, PZU OFE, 11.2% 10.0% Net Debt (110) (21) (29) (12) 22 45 Source: Company data, Reuters, Bloomberg, BESI Research for estimates.

Page 24 of 30

Financial forecasts

Changes to estimates

Figure 1 Agora – changes to estimates 2014E 2015E 2016E (PLN m) New Old Change New Old Change New Old Change Revenues 1,081 1,078 0% 1,113 1,114 0% 1,158 1,162 0% EBIT -7 -22 -67% -13 -19 -32% -9 -11 -18% EBITDA 89 74 20% 89 76 17% 82 85 -4% Net profit -4 -22 -82% -11 -15 -28% -11 -7 51% Source: BESI Research for estimates BESI vs Bloomberg consensus

Figure 2 BESI vs BBG 2014E 2015E 2016E (PLN m) BESI BBG Change BESI BBG Change BESI BBG Change Revenues 1,081 1,073 1% 1,113 1,103 1% 1,158 1,128 3% EBITDA 89 82 8% 82 88 -7% 87 94 -7% EBIT -7 -9 -23% -13 -6 107% -9 -4 120% Net income -4 -12 -68% -11 -8 32% -11 -8 26% Source: BESI Research for estimates, Bloomberg for consensus Valuation

We value Agora using two methods: DCF and peer multiples. Our final fair value is an average of these two methods (each with a 50% weighting).

DCF

We use a DCF with a 10Y forecast period; however, as we are at the end of 2014, we use net debt 2014E and FCF in 2015E-2023E. We use a RFR of 2.8% (vs 3.4% previously) and beta at 1.0x (unchanged).

Figure 3 DCF DCF Valuation (PLN m) 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E >2023 EBIT -7.2 -12.9 -9.1 1.7 19.0 23.7 29.8 37.0 45.2 54.3 tax rate 24% 19% 19% 19% 19% 19% 19% 19% 19% 19% NOPAT -5.5 -10.4 -7.3 1.4 15.4 19.2 24.1 29.9 36.6 44.0 Depreciation 96.0 94.8 95.7 93.7 86.2 84.8 83.7 82.7 81.9 81.3 CAPEX -81.1 -105.7 -110.0 -71.9 -68.2 -69.4 -70.7 -72.3 -74.0 -76.0 Change of Working Capital -0.8 -3.4 -4.7 -4.3 -4.3 -2.3 -2.6 -3.0 -3.3 -3.7 FCF 8.7 -24.7 -26.4 18.9 29.1 32.4 34.4 37.3 41.1 45.7 44.0 FCF change -74% -384% 7% -172% 54% 11% 6% 9% 10% 11% 0% WACC Calculation debt/equity 10.6% 10.7% 10.7% 10.6% 10.4% 10.4% 10.3% 10.1% 9.9% 9.7% 9.9% risk free rate 2.8% 2.8% 2.8% 2.8% 2.8% 2.8% 2.8% 2.8% 2.8% 2.8% 2.8% credit premium 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% market premium 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% beta 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 cost of debt 3.6% 3.9% 3.9% 3.9% 3.9% 3.9% 3.9% 3.9% 3.9% 3.9% 4.8% cost of capital 7.8% 7.8% 7.8% 7.8% 7.8% 7.8% 7.8% 7.8% 7.8% 7.8% 7.8% WACC 7.4% 7.4% 7.4% 7.4% 7.4% 7.4% 7.4% 7.4% 7.4% 7.4% 7.5% PV (FCF) 8.7 (22.9) (22.8) 15.2 21.8 22.6 22.3 22.5 23.1 23.9 PV (FCF) 106 PV (RV) 307 net debt, end 2014E -12 Fair Value 425 # of shares 50.9 Fair Value/share 8.3 Stopklatka TV - 41% Value 53 Stopklatka TV/share 1.1 Fair Value/share incl. Stopklatka TV 9.4 Source: BESI Research for estimates, Company Data

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Figure 4 Agora – sensitivity analysis Sensivity Table WACC WACC #### 5.5% 6.0% 6.5% 7.5% 8.5% 9.5% 10.5% 5.5% 6.0% 6.5% 7.5% 8.5% 9.5% 10.5% -2% 8.2 7.8 7.5 7.0 6.5 6.2 5.9 -2% -1% -6% -10% -16% -22% -26% -30% -1% 9.2 8.7 8.3 7.6 7.0 6.6 6.2 -1% 10% 4% -1% -9% -16% -21% -26% TGR 0% 10.5 9.8 9.3 8.3 7.6 7.1 6.6 TGR 0% 26% 18% 11% 0% -8% -15% -21% 1% 12.4 11.4 10.6 9.3 8.4 7.7 7.1 1% 49% 37% 27% 12% 1% -8% -15% 2% 15.5 13.8 12.5 10.7 9.4 8.5 7.7 2% 86% 66% 51% 28% 13% 1% -7%

Source: BESI Research, Company Data Peer valuation

Figure 5 Peer valuation – priced as on 9/12/2014 Price EV/EBITDA P/E EBITDA margin CAGR 2013-16E Company Ticker LC 1YE 2YE 3YE 1YE 2YE 3YE 1YE 2YE 3YE Sales EBITDA Agora (BBG) AGO PW 7.8 5.4 5.0 4.7 -32.1 -48.5 -47.3 7.6% 8.0% 8.3% 1.6% -5.4% Axel Springer SPR GR 47.2 10.2 9.3 8.7 22.6 19.9 19.1 17.3% 18.2% 18.7% 5.0% 12.3% Daily Mail DMGT LN 810.0 10.4 9.3 8.6 14.6 12.8 11.2 18.8% 19.9% 20.3% 5.0% 2.3% New York Times NYT US 12.9 6.7 6.5 6.3 30.2 22.5 21.7 15.5% 16.0% 16.3% 0.0% 2.2% Wolters Kluw er WKL NA 23.9 10.6 10.1 9.8 15.4 14.4 13.7 24.8% 25.2% 25.5% 2.1% 1.1% Alma Media ALN1V FH 3.0 8.7 8.4 8.0 13.5 12.0 11.0 12.4% 12.6% 13.0% 0.9% -3.9% Telegraaf Media TMG NA 6.0 6.6 6.3 21.9 15.7 8.4% 9.1% 0.0% 0.0% Johnston Press JPR 156.3 5.8 5.6 5.5 8.7 5.7 5.4 22.6% 23.9% 24.3% -4.1% Fairfax Media FXJ AU 0.8 5.8 5.9 6.1 12.4 12.1 12.3 16.5% 16.8% 16.5% -3.0% 13.1% APN New s&Media APN AU 0.7 8.3 8.2 8.2 10.2 9.4 9.0 18.6% 18.9% 19.1% 0.1% 7.7% Gruppo Editoriale L'Espresso ES IM 1.0 7.2 6.3 5.3 39.3 16.1 11.4 9.7% 11.2% 13.2% -3.0% 10.6% RCS Mediagroup RCS IM 0.9 7.3 6.5 -9.7 20.6 10.9 3.1% 10.5% 11.6% 0.1% Arnold Mondadori Editore MN IM 0.8 8.3 7.0 6.3 44.7 12.6 8.5 6.0% 7.1% 7.9% -3.3% 74.8% MEDIAN 7.8 7.0 6.4 14.6 12.8 11.1 15.5% 16.0% 16.4% 0.1% 2.3% Agora 4.1 4.8 4.8 -95.3 -34.1 -34.9 8.2% 7.4% 7.5% 2.5% -5.7% Agora vs peers -47% -32% -26% -752% -367% -414% -47% -54% -54% 4594% -345% Valuation (PLN m) 567 Fair value/share (PLN) 11.1 Source: Company data, BESI Research for estimates

Financials Income statement

Figure 6 Agora – P&L Agora - P&L (PLN m) 2011 2012 2013 2014E 2015E 2016E 2017E Revenues 1,235 1,139 1,074 1,081 1,113 1,158 1,198 % YoY change 11% -8% -6% 1% 3% 4% 3% Ad revenues 706 636 544 528 522 525 527 Copy sales 186 153 134 127 111 103 95 Special projects 49 32 37 0 0 0 0 Ticket sales 146 134 129 139 149 167 188 Other 190 216 267 123 143 157 172 EBITDA 145 81 104 89 82 87 95 % YoY change -14% -44% 28% -14% -8% 6% 10% % EBITDA margin 11.7% 7.1% 9.6% 8.2% 7.4% 7.5% 8.0% Financial income/(expense), net 2 3 -2 4 2 2 2 Share /loss of associate 0 0 0 -2 1 4 4 Profit before tax 54 -10 5 -6 -9 -4 7 Income tax -11 2 -4 1 2 1 -1 effective tax rate -21% -20% -76% -24% -19% -19% -19% Net income 42 -9 1 -4 -11 -11 -7 % YoY change -42% -121% -106% -891% 173% -2% -35% % net margin 3.4% -0.8% 0.0% -0.4% -1.0% -0.9% -0.6% Recurrent Net Income 42 -9 1 -4 -11 -11 -7 % YoY change -42% -121% -106% -891% 173% -2% -35% EPS (PLN) 0.8 -0.2 0.0 -0.1 -0.2 -0.2 -0.1 % YoY change -42% -121% -106% -931% 180% -2% -35% Recurrent EPS (PLN) 0.8 -0.2 0.0 -0.1 -0.2 -0.2 -0.1 % YoY change -42% -121% -106% -931% 180% -2% -35% Source: Company data, BESI Research for estimates

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Balance sheet

Figure 7 Agora – balance sheet Agora - Balance sheet (PLN m) 2011 2012 2013 2014E 2015E 2016E 2017E Total fixed assets 1,203 1,209 1,204 1,205 1,218 1,236 1,218 PP & E, net 1,179 1,188 1,142 1,145 1,156 1,171 1,149 Investments 20 17 57 55 56 59 63 Other fixed assets 4 4 5 5 5 5 5 Total current assets 600 494 439 424 397 385 418 Inventory 29 22 26 26 27 28 29 Trade and other receivables 246 243 234 236 242 252 261 Other current assets 199 37 80 80 80 80 80 Cash and equivalents 126 191 100 83 48 25 49 Total assets 1,804 1,703 1,643 1,629 1,614 1,620 1,636 Total stockholders equity 1,263 1,206 1,208 1,200 1,192 1,189 1,195 Including minority interest 17 18 18 18 18 18 18 Liabilities 540 497 435 429 422 431 441 Debt 213 202 146 146 146 146 146 Trade payables 183 147 147 148 152 158 164 other 145 148 143 135 124 127 131 Total equity & liabilities 1,804 1,703 1,643 1,629 1,614 1,620 1,636 Source: Company data, BESI Research for estimates Cash Flow

Figure 8 Agora – cash flow Agora - Cash Flow (PLN m) 2011 2012 2013 2014E 2015E 2016E 2017E Gross income 55 -10 5 -6 -9 -4 7 D&A 93 94 96 96 95 96 94 WC change -11 -11 4 -1 -3 -5 -4 others 28 26 12 2 -1 -4 -4 tax paid -13 -7 -7 1 2 1 -1 Cash Flow from Operations 152 92 109 93 83 84 91 Capital Expenditures -52 -73 -110 -69 -81 -106 -110 Other -64 159 -11 -11 -23 -1 42 Cash Flow from Investing Activities -116 85 -121 -80 -104 -107 -68 Change in Debt -57 -46 -63 0 0 0 0 Issue of shares /Buyback 0 0 0 -30 -14 0 0 Dividends paid -25 -51 0 0 0 0 0 Other -11 -15 -17 0 0 0 0 Cash Flow from Financing Activities -94 -112 -80 -30 -14 0 0 Beginning cash 182 126 191 100 83 48 25 Increase/(decrease) in cash -57 65 -91 -17 -35 -23 23 Ending cash 126 191 100 83 48 25 49 DPS (PLN) 1.0 0.0 0.0 0.0 0.0 0.0 0.0 Source: Company data, BESI Research for estimates

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Valuation Methodology

TVN:

We value all media stocks using two methods: DCF and peer valuation. The final fair value is a weighted average of these two methods, where each has a 50% weighting. Using DCF we arrive to PLN 18.0/share while using a peer multiple valuation we reach of PLN 17.7. Our final value is at PLN 17.9/sh, implying 14% upside potential.

Agora:

We value Agora using two methods: DCF and peer multiples. Our final fair value is an average of these two methods (each with a 50% weighting). We also add to Agora’s fair value the value of the 41% stake in Stopklatka TV. Using DCF we arrive to PLN 9.4/sh while our peer valuation yields PLN 11.1/sh. Our final fair value is PLN 10.3/sh, implying 32% potential upside.

Risks to Fair Value

TVN:

Weaker than expected performance of TV ad market in the future,

Stronger than expected dilution of TVN audience share coming from DTT and market fragmentation

Lower than expected synergies from N-platform & Canal+ merger

Agora:

Stronger than expected erosion in press circulation,

Slower than expected development of cinema screens, triggering lower admission,

Weak movie line up resulting in lower admission,

Outdoor not a segment of best choice in upcoming elections,

Reducing popularity of Gazeta.pl internet portal triggering dilution of internet ad market share,

Value destructive acquisitions in the internet segment

TVN TVN PW Agora AGO PW

Buy Trading Buy Neutral Trading Sell Sell Restricted Dropped Coverage Buy Trading Buy Neutral Trading Sell Sell Restricted Dropped Coverage

19 13

17 12

15 11

B 13 10

11 9

N B 9 8 N N

7 7

5 6 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14

Report date Recommendation Fair value Share price Report date Recommendation Fair value Share price 2013 September 2 Buy PLN 14.50 PLN 12.00 2014 September 18 Buy PLN 10.20 PLN 8.00 2012 November 26 Neutral PLN 8.10 PLN 7.70 2013 September 2 Neutral PLN 8.50 PLN 8.25 August 20 Neutral PLN 8.00 PLN 8.00 Source: Bloomberg, BESI Research Source: Bloomberg, BESI Research

Please visit our website at www.EspiritoSantoIB.co.uk for up to date recommendation charts.

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IMPORTANT DISCLOSURES 091214 This report was prepared by BESI Research, a global brand name for the equity research teams of Banco Espírito Santo de Investimento, S.A., with headquarters in Lisbon, Portugal, of its Branches in Spain and Poland and of its affiliates BES Securities do Brasil, S.A – Corretora de Câmbio e Valores Mobiliários, in Brazil, Execution Noble Limited, in the United Kingdom, and Espirito Santo Securities India Private Limited, in India, all authorized to engage in securities activities according to each domestic legislation. All of these entities are included within the perimeter of the financial group controlled by Novo Banco, S.A., a Portuguese bank authorised and regulated by Banco de Portugal (Portuguese Banking Regulator) and Comissão do Mercado de Valores Mobiliários (the Portuguese Securities Market Authority), which was incorporated on the 3rd of August 2014 in the context of the resolution action taken on the former financial institution Banco Espírito Santo, S.A..

Analyst Certification Each research analyst primarily responsible for the content of this research report, in whole or in part, certifies that with respect to each security or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about those securities or issuers; the issuers were not previously informed about the content of the recommendation included in this research report and the assumptions were not validated by the issuers; (2) no part of his or her compensation is directly or indirectly related to: (a) the specific recommendations or views expressed by that research analyst in the research report; and/or (b) any services provided or to be provided by Banco Espírito Santo de Investimento, S.A. and/or by any of its affiliates to the issuer of the securities under recommendation. Moreover, each of the analysts hereby certifies that he or she has no economic or financial interest whatsoever in the companies subject to his or her opinion and does not own or trade any securities issued by the latter. Ratings Distribution BESI Research hereby provides the distribution of the equity research ratings in relation to the total issuers covered and to the investment banking clients as of end of September 2014.

Explanation of Rating System Ratings Distribution

12-MONTH RATING DEFINITION Total Investment Banking Clients As at end September 2014 Total BESI Research (IBC) BUY Analyst expects at least 10% upside potential to fair value, which should be realized in the next 12 months Recommendation Count % of Total Count % of IBC % of Total 12 Month Rating: NEUTRAL Analyst expects upside/downside potential of between +10% and -10% to fair value, which should be realized in Buy 205 46.8% 31 86.1% 7.1% the next 12 months Neutral 141 32.2% 4 11.1% 0.9% SELL Analyst expects at least 10% downside potential to fair value, which should be realized in the next 12 months Sell 90 20.5% 0 0.0% 0.0%

Restricted 1 0.2% 1 2.8% 0.2% Under Review 1 0.2% 0 0.0% 0.0%

TRADING RATING DEFINITION Trading Rating:

TRADING BUY Analyst expects a positive short-term movement in the Trading Buy 0 0.0% 0 0.0% 0.0% share price (max duration 3 months from the time Trading Buy is announced) and may move out of line with the fair Trading Sell 0 0.0% 0 0.0% 0.0% value estimate during that period

TRADING SELL Analyst expects a negative short-term movement in the share price (max duration 3 months from time Trading Total recommendations 438 100% 36 100% 8.2%

Sell is announced) and may move out of line with the fair value estimate during that period

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However, the research analysts may not purchase or sell securities or have any interest whatsoever in companies subject to their opinion. Banco Espírito Santo de Investimento, S.A. and/or its Affiliates have a qualified shareholding (1% or more) in Oi. Bradesco has a direct qualified shareholding (20%) in BES Investimento do Brasil, S.A., the parent company of BES Securities do Brasil S.A. CCVM. Pursuant to Polish Ministry of Finance regulations, we inform that neither does Banco Espírito Santo de Investimento, S.A. nor its Affiliates have any qualified shareholding in the Polish Securities Issuers mentioned in this report in excess of 5% of its total share capital. Mr. Rafael Valverde, a member of the board of Banco Espírito Santo de Investimento, S.A., is a non-executive board member of EDP Renováveis. Banco Espírito Santo de Investimento, S.A and/or its subsidiaries are liquidity providers or market makers for Altri, Usiminas and Vale. Banco Espírito Santo de Investimento, S.A. and/or its subsidiaries participate or have participated in the last 12 months as a syndicate member in share offerings of 4imprint, Alumetal, Capital Park, CTT, EDP, Klabin, Liberbank, Mota-Engil, Mota-Engil Africa, NAHL Group, NOS, Oi, PGE, Prime Car Management, REN and SKS Microfinance. Banco Espírito Santo de Investimento, S.A. and/or its subsidiaries participate or have participated in the last 12 months as a syndicate member in the bond issues of the following companies: Abengoa, Altri, Bematech, EDP, Globe Trade Centre, Kredyt Inkaso, Mota-Engil and Sonae.

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Banco Espírito Santo de Investimento, S.A. and/or its subsidiaries provided in the last 12 months investment banking services to the following companies: 4imprint, Abengoa, Altri, Alumetal, Bematech, Burford Capital, Capital Park, Casino Guichard, EDP, EDP Renovaveis, Galp Energia, Globe Trade Centre, Inditex, IQE, Kcom Group, Klabin, Kredyt Inkaso, Kruk, Laird, Liberbank, Mota-Engil, Mota-Engil Africa, NAHL Group, NOS, Oi, Prime Car Management, REN, Semapa, SKS Microfinance, Sonae, Sonaecom, Sports Direct, SVG Capital and Ted Baker. Affiliates of Banco Espírito Santo de Investimento, S.A. are partners to Mota-Engil in the infrastructure business in Portugal and other countries. Mota-Engil jointly with ES Concessões, S.G.P.S., S.A. (held by an Affiliate of Banco Espírito Santo de Investimento, S.A.) has created a joint holding company – Ascendi – for all stakes in transportation infrastructure concessions in Portugal and abroad. Banco Espírito Santo de Investimento, S.A. provided, or continues to provide, investment banking services to Ascendi. Banco Espírito Santo de Investimento, S.A. and/or its subsidiaries do and seek to provide investment banking or other services to the companies referred to in this research report. As a result, investors should be aware that a conflict of interest may exist. Market Making UK Execution Noble Limited is a Market Maker in companies covered and may sell to or buy from customers as principal in certain financial instruments listed or admitted to listing on the London Stock Exchange. For information on Companies to which Execution Noble Limited is a Market Maker please see “Execution Noble Limited UK Market Making” on http://www.espiritosantoib-research.com. Confidentiality This report cannot be reproduced, in whole or in part, in any form or by any means, without BESI Research’s specific written authorization. This report is confidential and is intended solely for the designated addressee. Therefore any disclosure, replication, distribution or any action taken in reliance on it, is prohibited and unlawful. Receipt and/or review of this research report constitutes your agreement not to redistribute, retransmit, or disclose to others the contents, opinions, conclusion, or information contained in this report (including any investment recommendations, estimates or price targets without first obtaining express permission from an authorized officer of Banco Espírito Santo de Investimento, S.A. Regulatory Authorities Portugal: Banco Espírito Santo de Investimento, S.A. is regulated by the Comissão do Mercado de Valores Mobiliários (the Portuguese Securities Market Authority); Spain: the branch in Madrid is regulated by the Comisión Nacional del Mercado de Valores (the Spanish Securities Market Authority); Poland: the branch in Warsaw is regulated by the Komisja Nadzoru Finansowego (the Polish Financial Supervision Authority); Brazil: BES Securities do Brasil, S.A. - Corretora de Câmbio e Valores Mobiliários is regulated by the Comissão de Valores Mobiliários (the Brazilian Securities Market Authority); United Kingdom: Execution Noble Limited is authorised and regulated by the Financial Conduct Authority; India: Espirito Santo Securities India Private Limited is regulated by the Securities and Exchange Board of India.

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