CYFROWY POLSAT S.A. Annual Report for the financial year ended December 31, 2017 Place and date of publication: Warsaw, March 22, 2018 Place and date of approval: Warsaw, March 21, 2018 WorldReginfo - 358d430c-33b7-4fe8-b50d-c9baa6bfdf74 Annual Report of Cyfrowy Polsat S.A. for the financial year ended December 31, 2017 CONTENT OF THE ANNUAL REPORT Letter of the President of the Management Board of Cyfrowy Polsat S.A. Letter of the Chairman of the Supervisory Board of Cyfrowy Polsat S.A. Report of the Management Board on the activities of Cyfrowy Polsat S.A. in the financial year ended December 31, 2017 Management Board’s representations Report of the independent auditor on the audit of the financial statements for the year ended December 31, 2017 Financial statements for the year ended December 31, 2017 2 WorldReginfo - 358d430c-33b7-4fe8-b50d-c9baa6bfdf74 Annual Report of Cyfrowy Polsat S.A. for the financial year ended December 31, 2017 LETTER OF THE PRESIDENT OF THE MANAGEMENT BOARD Ladies and Gentlemen, Just like every year, I would like to share with you the summary of last year’s most important developments. And this time the occasion is all the more special, as in a couple of weeks we will celebrate the 10th anniversary of our presence on the Warsaw Stock Exchange, and such anniversaries are a good opportunity for reviewing and assessing our activities. We have just ended another exceptional year which was full of developments and new projects. We continued along the development path and once again we demonstrated that we have a concept of what our Group should look like in the future, we have a very good and effective strategy as well as the competences, experience and resources required to achieve our goals. In 2017, we consistently pursued the strategy that we adopted several years ago. Following its assumptions, we not only strove to strengthen our position on the pay TV, telecommunication and TV broadcasting and production markets, but above all we actively carried out activities which strengthen our presence in the segment of multiplay services. The improvement of operating performance across individual categories is the best confirmation of how effective our efforts were, how well-targeted offers we proposed and how high was the trust that our customers put in us. Last year, we provided a total of 13.7 million diverse contract services to nearly 5.8 million customers. We observed with satisfaction the growing number of customers choosing multiplay offers and joining our loyalty scheme, the smartDOM savings program for homes – currently over 1.5 million of our customers have decided to combine the convenience of use of our services with tangible financial benefits. And now customers can enjoy even more possibilities of shaping their own service bundles, since the present smartDOM program offer includes numerous services and products that customers can choose from, including pay TV, Internet access, mobile telephony, gas and electricity supply, monitoring, banking and insurance services as well as telecommunication devices, Hi-Fi equipment and household appliances. Our programming proposals proved to be very attractive for our viewers who chose to watch Polsat TV channels, which in turn had positive influence on advertising air-time sales. All in all, in 2017 our TV channels had a 24.5% audience share and a 27.2% share in the TV advertising and sponsoring market. Apart from the systematic achievement of our current business goals, we continuously focus on further development and on assuring a strong position for our Group in the future. This was the underlying reason of our decisions regarding the acquisition of a stake in Netia and the purchase of shares in ZPR Media Group’s TV channels as well as the purchase of content that is of strategic importance for us. Upon the finalization of the first transaction we would be able to offer new services to the customers of the two companies, enrich the smartDOM program and offer an even wider choice and variety of telecommunication services in both big and small cities, as well as outside them. In line with our long-term strategy for TV broadcasting and production segment, the acquisition of the new TV channels not only substantially enhances TV Polsat’s offer of music programs, and generally increases the diversity of our rich thematic channels portfolio, but it also strengthens our group versus international and domestic competitors on the media market. Guided by our mission of providing top quality TV content which meets our 3 WorldReginfo - 358d430c-33b7-4fe8-b50d-c9baa6bfdf74 Annual Report of Cyfrowy Polsat S.A. for the financial year ended December 31, 2017 viewers’ expectations, we have acquired exclusive rights for broadcasting the UEFA Champions League and the UEFA Europa League matches in the years 2018-2021, and we have also extended our cooperation with FIVB International Volleyball Federation by acquiring further rights to volleyball events. By virtue of the contract with FIVB, over the next 7 years TV Polsat will broadcast major international volleyball events, including Volleyball Nations League, the matches of Polish men’s and women’s national teams in the FIVB Volleyball World Championship in 2022, as well as the qualifying tournaments for the 2020 and 2024 Olympics. Last year we continued to develop the LTE technology, which can now be enjoyed by nearly 100% of Poland’s population. More than half of the country’s inhabitants already have access to the faster state-of-the-art LTE Advanced technology. We used bandwidth aggregation in three carrier frequencies, i.e. 1800 MHz, 2100 MHz and 2600 MHz, providing 50 MHz of bandwidth in total, which in combination with launching the 256 QAM has offered the possibility of increasing the maximum download rates in our LTE network to 500 Mbps. At the same time, during the past year we have worked on refarming the 900 MHz spectrum – a move that we informed of earlier – and today we can boast about having provided access to the LTE technology using this bandwidth to our customers. The year 2017 also saw our debut on the movie market – two feature films, produced as part of the program Cyfrowa Strefa Twórców (Digital Filmmakers’ Zone), namely Łukasz Palkowski’s “Najlepszy” (“The Best”) and “Narzeczony na niby” (“Make- Believe Fiancé”) were shown in cinemas across Poland and quickly became box-office hits. Recently, we have also launched a new WWW service of our IPLA web TV – in a new graphical layout and containing new content and features. Very good financial results, in spite of the occurrence of some unfavorable market events, confirm the successful completion of another year of our operations. The Group’s revenue exceeded PLN 9.8 billion, EBITDA reached PLN 3.6 billion and our net profit was nearly PLN 1 billion. Not only were we able to regularly repay our debt, pay out dividends for 2016, continue the roll-out of our telecommunication network as planned and pursue further acquisitions on the market, but we also maintained high margins and increased free cash flow to nearly PLN 1.7 billion. Our priorities for this year remain unchanged – we will strive to continuously increase the number of services that we offer, assure the best possible environment for further development of our smartDOM program, give the viewers of our channels top quality entertainment and thrills, as well as achieve superior financial results and consistently build the value of our Group. I would like to thank all those who have contributed to the achievement of such fine results for last year as well as to the effective completion of the projects that we have embarked upon. My special thanks go to our customers and shareholders – for the appreciation of our day-to-day efforts, to the Supervisory Board – for the trust and support they demonstrated, and to the Group’s employees – for their professionalism, involvement and efficiency, all of which undoubtedly contributed to the success we achieved last year. Yours faithfully, Tobias Solorz President of the Management Board, Cyfrowy Polsat S.A. 4 WorldReginfo - 358d430c-33b7-4fe8-b50d-c9baa6bfdf74 Annual Report of Cyfrowy Polsat S.A. for the financial year ended December 31, 2017 LETTER OF THE CHAIRMAN OF THE SUPERVISORY BOARD Ladies and Gentlemen, For Cyfrowy Polsat Group 2017 was a year of further consistent pursuit of our mission of the leader on entertainment and telecommunication markets in Poland. In accordance with this mission, we continue to create and deliver the most attractive TV content, telecommunication products as well as other services for homes, residential and business customers using the best available and the most advanced technologies. In 2017, we fully stood up to the challenge by responding to the changing needs of our customers and keeping their satisfaction at a top level. Sustainable growth of Cyfrowy Polsat’s value for its shareholders is the superior goal of our business strategy. We try to accomplish this goal through the consistent implementation of assumptions underlying our operating strategy. Its main elements include: growth of revenue from the services that we provide to residential and business customers, maximization of the revenue we obtain from the content we offer, as well as effective management of our cost base and the Group’s finances. Last year’s investment in Netia’s shares and the acquisition of ZPR Group TV channels were undoubtedly events of utmost importance from the point of view of our mission and our growth strategy. By acquiring a stake in Netia, Cyfrowy Polsat Group, the biggest Polish private firm which has been developed on the basis of Polish capital, pursues yet another strategic investment project with a view to continue developing its multiplay offer and broaden its portfolio of services.