CYFROWY POLSAT S.A. CAPITAL GROUP Interim Consolidated Report for the six mmonth period ended June 30, 2017 Place and date of publication: Warsaw, August 24, 2017 Place and date of approval: Warsaw, Auguust 23, 2017 WorldReginfo - 23bc6a5e-bf81-4d70-9cf0-44247419644c Report of the Management Board on the activities of Polsat Group for the six month period ended June 30, 2017 TABLE OF CONTENTS REPORT OF THE MANAGEMENT BOARD ON THE ACTIVITIES OF CYFROWY POLSAT S.AA. CAPITAL GROUP FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2017 POLSAT GROUP AT A GLANCE ........................................................................................................................................................ 4 DISCLAIMERS ................................................................................................................................................................................ 5 FINANCIAL DATA OVERVIEW ........................................................................................................................................................... 7 1. ORGANIZATION OF CYFROWY POLSAT S.A. CAPITALL GROUP ................................................................................................ 10 1.1. Composition and structure of Polsat Group ................................................................................................................ 10 1.2. Shareholders holding material bundles of shares of Cyfrowy Polsat .......................................................................... 13 1.3. Shares of Cyfrowwy Polsat owned by Management Board and Supervisory Board members .................................... 14 2. BUSINESS REVIEW OF POLSAT GROUP ................................................................................................................................. 15 2.1. Segment of services to individual and business customers ........................................................................................ 15 2.2. Broadcasting and television production segment ........................................................................................................ 18 3. SIGNIFICANT EVENTS .......................................................................................................................................................... 20 3.1. Corporate events ......................................................................................................................................................... 20 3.2. Business related events .............................................................................................................................................. 20 3.3. Events after the balance date ..................................................................................................................................... 21 4. OPERATING AND FINANCIAL REVIEW OF POLSAT GROUP ....................................................................................................... 22 4.1. Operating review of the Group .................................................................................................................................... 22 4.2. Key positions in the consolidated income statement .................................................................................................. 28 4.3. Review of the Group’s financial situation .................................................................................................................... 31 5. OTHER SIGNIFICANT INFORMATION ....................................................................................................................................... 53 5.1. Transactions concluded with related parties on conditions differing from market conditions ..................................... 53 5.2. Discussion of the difference of the Company's results to published forecasts ........................................................... 53 5.3. Material proceedings at the court, arbitration body or public authorities ..................................................................... 53 5.4. Factors that may impact our results in at leastt the following quarter .......................................................................... 54 6. RISK FACTORS .................................................................................................................................................................... 60 6.1. Risks related to our business and the sector in which we operate ............................................................................. 60 6.2. Risk factors associated with the Group’s finanncial profile ........................................................................................... 69 6.3. Risks related to market environment and economic situation ..................................................................................... 70 6.4. Risk factors associated with the legal and reguulatory environment ............................................................................ 73 GLOSSARY .................................................................................................................................................................................. 79 MANAGEMENT BOARD’S REPRESENTATIONS INDEPENDENT AUDITOR’S REVIEW REPORT ON THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2017 INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2017 INDEPENDENT AUDITOR’S REVIEW REPORT ON THE INTERIM CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2017 INTERIM CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2017 WorldReginfo - 23bc6a5e-bf81-4d70-9cf0-44247419644c 2 Report of the Management Board on the activities of Polsat Group for the six month period ended June 30, 2017 REPORT OF THE MANAGEMENT BOARD ON THE ACTIVITIES OF CYFROWY POLSAT S.A. CAPITAL GROUP FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2017 WorldReginfo - 23bc6a5e-bf81-4d70-9cf0-44247419644c 3 Report of the Management Board on the activities of Polsat Group for the six month period ended June 30, 2017 POLSAT GROUP AT A GLANCE Polsat Group is Poland’s leading multimedia group. Within the scope of our activities we provide a comprehensive array of integrated media and telecommunication services withiin the following areas: • pay digital TV services offered by Cyfrowy Polsat – the largr est pay TV provider in Poland and one of the leading satellite platforms in Europe. We offer our cuustomers access to about 180 TV channels, including over 80 channels in high definition standard, as well as additional modern OTT services (e.g. Cyfrowy Polsat GO, PPV, VOD) and Multiroom. We also provide online video seervices through IPLA, the leader on Poland’s online video market, by offering them in a subscription and transaction (PPV) model, as well as free of chargee (financed by advertising revenue); • mobile telecommunication services, includinng voice and data transmission services, as well as various added services (VASS), which we provide mainlly through our subsidiary Polkomtel – one of Poland’s leading telecommunications operators; • mobile broadband Internet, offered under two alternative brands: Cyfrowy Polsat andd Plus. We provide these services in the state-of-the-art LTE and LTE-Advanced technologies. We offer the largest LTE coveragee in Poland and our customers attain the highest data transmission speed among offef rs provided by national mobile network operators technologies; • broadcasting and television production through Telewizja Polsat, leading commercial TV broadcaster on the Polish market, offering 24 popular TV channels (17 in HD standard), including our main channel POLSAT, one of the leading FTA channels in Poland; • wholesale services to other operators, including i.a. network interconnection, transit of traffic and national and international roaming services. The Group operates in two business sege ments: the seegment of services to individual and business customers which relates to the provision of services to the general public and thhe broadcasting and television production segment. Our mission and main strategic goals Our mission is to create and deliver the most attractive TV content, telecommunication products and other services for the home for residential and business customers, using state-of-the-art technologies to provide top quality multi-playa services that match the changing needs of the market, while maintaining the highest possible level of customer satisfaction. The superior goal of our strategy is the permanent growth of the value of Cyfrowy Polsat for its shareholders. We intend to achieve this goal by implementing the major elements of our operational strategy which include: • growth of revenue from services provided to residential and business custtomers through consistent building of the customer base value by maximizing the number of users of our services as well as the number of services offered to each customer, while simultaneously increasing averagee revenue per user (ARPU) and maintaining high levels of customer satisfaction, • growth of revenue from produced and purchased content by expanding its distribution, maintaining the audience shares of our channels and improving our viewer profile, • effective management of the cost base of our integrated media and telecoms group by exploiting its inherent ssynergies and economies of scale, and • effective management of the Group’s finances, including