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1 Annual Report 2009

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3 MISSION STATEMENT Our mission - who we are: We both lead Poland s pay dth television market, using satellite technology to deliver entertainment content to Polish households, and also provide a range of telecommunication services. Cyfrowy Polsat / Annual Report 09 / 3

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5 VISION Our vision - who we strive to be: We will maintain our leadership across a wide spectrum of entertainment (particularly television) provision, using the best and latest technologies to deliver high quality multi-play services with the highest levels of customer satisfaction. Cyfrowy Polsat / Annual Report 09 / 5

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7 Strategy Our ultimate goal is to strengthen our leading position in the pay dth television market, achieve a significant position in the broadband internet market, and build our telephone services subscriber base in line with projections. Our strategic goals are to: 1. Increase saturation of dth pay television services while maintaining share of gross additions. 2. Build customer value. 3. Build customer loyalty. 4. Introduce multi-play services. 5. Maximize saturation of our subscriber base with multi-play services. 6. Leverage brand awareness of Cyfrowy Polsat and our current subscriber base to sell telecommunication (telephone / internet) and multi-play services. 7. Extend the Cyfrowy Polsat brand into the telecommunications and multi-play services markets. 8. Increase sales of multimedia content regardless of the broadcast technology. Cyfrowy Polsat / Annual Report 09 / 7

Magda Sakowska / This was a day / Polsat News.

9 CONTENT Highlights Letter from the President of the Supervisory Board Letter from the President of the Management Board Business profile Market overview Success and failure Programming offer Marketing and sales Customer service Technology Employees Review of operating and financial situation 101 Financial statements 13. Cyfrowy Polsat as a public company Relations with the environment Financial statements Additional information 221 Cyfrowy Polsat / Annual Report 09 / 9

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11 HIGHLIGHTS 2009 Almanac January 2009 February 2009 March 2009 April 2009 We strengthen our leadership position in the satellite dth television market in Poland and Europe, beginning 2009 with 3 million customers: 2.73 million subscribers and 300,000 accessing our free to air channels. We add a new hd thematic channel Discovery HD to our offer. We launch new promotions whereby new customers pay no subscription fee for a selected programming offer for 1, 3, or 6 months. We extend the contract for the distribution of six channels broadcast by the TVN Group: TVN, TVN Siedem, TVN 24, TVN Turbo, TVN Meteo, TVN Style. February s Stock Exchange review sees us enter the wig 20 index! We sign a contract with Eutelsat Communications to lease transponder 112 on the Hot Bird 9 satellite, which will enable further development of our dth offer. We sign a contract with TVP, regulating the presence of main channels TVP 1 and TVP 2 on our platform. At the same time, we further enhance our offer by adding TVP Sport and TVP INFO. We introduce our Eastern promotions, with up to 12 months programming free of charge. Our shares are quoted for the first time in the wig 20 index, on 23 March 2009, with an opening price of pln 14.18, while turnover exceeded pln 7 million. We introduce a new digital set-top box Familijny, produced in our factory: the second model designed and built by our team of engineers and programmers. We mark the start of the new Formula 1 season with a treat for fans a mobile F1 service at wap.cyfrowypolsat.pl. We bring back our Spring Specials, including 1, 3, or 6 months free of subscription fees for new customers, and a special mobile-users promotion Starters for a penny. Cyfrowy Polsat / Annual Report 09 / 11

12 May 2009 June 2009 July 2009 August 2009 September 2009 We publish financial results for the first quarter. We are available in 2.8 million Polish homes. Our shareholders agm adopts a resolution to pay a dividend of pln 200 million, representing 74% of our net income. We launch a new channel for adults Blue Hustler replacing the Playboy TV channel. We launch Super-promotions for our subscribers, enabling them to receive up to four months of additional programming packages free of subscription fees. Our tip Entice your neighbor : this promotion offers existing subscribers the chance to receive a thank you activation of additional packages for up to six months for referring our services to acquaintances, while the acquaintance gets the use of a set-top box for pln 1 and six months of the selected package as a gift. In cooperation with Discovery World channel we announce a photo competition in the weekly Wprost for the most interesting pictures from travel in Poland. We broaden our range of equipment with another set-top box enabling receipt of high definition television Echostar dsb 7200 hd. We launch new promotions, giving our customers the ability to use the full range of the platform s offer for four months free of charge. We enrich our offer with another high definition channel Polsat HD. We make two new channels for children and youngsters Disney Channel and Disney XD available to all our viewers in a free, monthly, so called open window. We extend our thematic Sports Package with a new channel: Polsat Football broadcasting, with coverage including matches from the uefa European League. We also extend our premium package offer: Relax Mix, Relax Mix + HBO and Super Film. We launch a special website with a Masters Games contest where logged users can take part in a battle of questions to win tickets to selected games of the 2009 Women s European Volleyball Championship. We provide our viewers with a new adult channel XXX Xtreme which, together with Blue Hustler channel, comprises another thematic package Pakiet Rozrywka (Entertainment Package). 12 / Cyfrowy Polsat / Annual Report 09

13 October 2009 November 2009 December 2009 We launch a new movie channel Polsat Film giving our viewers access to selected movies from around the world consistently ranked among the best in cinema history. 6 months of television free of charge more promotional offers for new subscribers. We extend our hardware offer with another set-top box Echostar dvr-7400 hd, which can receive high definition television, and record movies and programs on its 320 gb hard drive. We launch new promotions ( Cheaper Television ) and services ( Minutes Exchange ) in Rodzinna Telefonia Komórkowa (Family Mobile Telephony). We publish financial results for the third quarter of Our subscriber base has grown to 2.9 million, with a total of 3.5 million using our set-top boxes. We launch a package of hd channels, including Polsat Sport HD, Eurosport HD, Discovery HD and MTVNHD. We expand our programming offer with Polsat Jim Jam channel for pre-school children. We add a third high definition sports channel Eurosport 2 HD offering viewers greater access to hd broadcasts from major sporting events such as the Bundesliga: exclusive to Eurosport 2 HD. We begin nationwide consumer testing of a new service broadband internet access a major new step towards building a multi-play package of services (television, internet, mobile telephony), with launch scheduled for the second quarter of A new service launch: vod Domowa Wypożyczalnia Filmowa (Home Video Rental), providing access to 320 movies a year from any of our set-top boxes on 15 satellite channels. Relax Mix Package and the Bajeczka Package (Cartoon Package) offer expanded with a new children s channel Nickelodeon. We celebrate Christmas with the launch of attractive new promotions and unique gifts for all customers interested in viewing satellite television free access to the Mini-Max Package for 29 or 13 months. Over 100,000 movies are rented through our vod Domowa Wypożyczalnia Filmowa (Home Video Rental) service. Cyfrowy Polsat / Annual Report 09 / 13

01 2009 HIGHLIGHTS 2009 Awards February 2009 Stock-exchange daily Gazeta Giełdy Parkiet gives us their Bulls and Bears award as Debut of 2008.

15 HIGHLIGHTS 2009 Awards February 2009 Stock-exchange daily Gazeta Giełdy Parkiet gives us their Bulls and Bears award as Debut of We come third overall among daily Puls Biznesu s top 100 listed companies of the year, taking first place for Management Competencies and Success in We receive Mobile Internet magazine s Virtual Phone award in the Success of the Year 2008 category, for creating a fully functional infrastructural Mobile Virtual Network Operator. Cyfrowy Polsat / Annual Report 09 / 15

16 ASP Men s Word Championship Surfing Tour 2009 / Extreme Sports Channel. Extreme Sports Channel. Wszystkie prawa zastrzeżone. 16 / Cyfrowy Polsat / Annual Report 09

March 2009 November 2009 We come 24 th in Home & Market s ranking of Poland s 100 largest and most dynamic companies, ranked 5 th for return on equity and 7 th for net gain in the financial result.

17 March 2009 November 2009 We come 24 th in Home & Market s ranking of Poland s 100 largest and most dynamic companies, ranked 5 th for return on equity and 7 th for net gain in the financial result. We receive the Golden Antenna award in the Company of the Year category during the 11 th Ceremony of Świat Telekomunikacji, accompanying 9 th Symposium. We receive the title Pearl of Great in the 7 th edition of the ranking organized by Polish Market business magazine as Poland s best company, taking first place among all companies with revenues exceeding pln 1 billion. Cyfrowy Polsat / Annual Report 09 / 17

18 photo: Judyta Papp/Polsat 18 / Cyfrowy Polsat / Annual Report 09

19 02 LETTER OF THE CHAIRMAN OF THE SUPERVISORY BOARD Ladies and Gentlemen, I m pleased to report on another very successful year in the history of Cyfrowy Polsat, a year in which we continued to acquire many new subscribers. We remain, as we have been for several years, a strong leader in Poland s satellite television market, and ended 2009 with over 3.2 million subscribers: an excellent result. In summarizing the year, I would like to pay particular attention to the consistent implementation of our core corporate strategy: giving our customers access to an ever increasing range of services. From its roots as a provider of satellite pay television, Cyfrowy Polsat is developing into a provider of multi-play services, in telecommunications as well as entertainment. One particularly noteworthy development is our introduction of access to the fastest wireless broadband currently on the market, using Poland s most modern network, employing Evolved hspa technology hspa+ (High Speed Packet Access). I am convinced that the introduction of a multi-play offer (television, internet, mobile telephony) will give us a strong competitive advantage, not only in the dth market but across the whole pay television sector. I believe that the provision of a multi-play offer will make Cyfrowy Polsat a new generation operator, resulting in increased levels of customer satisfaction, producing lower churn rates, a growing subscriber base and increased revenues. I would like to thank the shareholders and subscribers of Cyfrowy Polsat for their trust. I also thank the Management Board and all employees for their commitment, and effective implementation of the Company strategy. I am sure that the joint efforts of our shareholders, Supervisory Board, Management Board and employees will enable us to deliver ever greater levels of satisfaction to Cyfrowy Polsat customers. Yours sincerely, Zygmunt Solorz-Żak President of the Supervisory Board Cyfrowy Polsat / Annual Report 09 / 19

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21 03 LETTER FROM THE PRESIDENT OF THE MANAGEMENT BOARD Ladies and Gentlemen, I am delighted to present this Annual Report of Cyfrowy Polsat s.a. Group for 2009, a year which saw continued growth and expansion of our service portfolio. Continued interest in television services generated a 475,000 increase in our subscriber base one of the best results in our history. The operating results we achieved strengthened our position as Poland s number one in pay satellite dth television, ending the year with 3.2 million subscribers. With the launch of Polsat Film, Polsat Football, Polsat Jim Jam, Nickelodeon, Comedy Central, Nat Geo Wild, Polsat HD, Eurosport 2 HD, Discovery HD, Showcase HD and Nat Geo Wild, we have significantly increased the number of Polish-language channels we offer. We also launched a vod service on 15 satellite channels, giving our viewers access to 320 films a year. Our Polish audience gave a very warm welcome to the set-top boxes produced by Cyfrowy Polsat Technology Sp. z.o.o. We have now produced over one million modern, digital set-top boxes, and this year saw the launch of hd set-top box production, of great interest to many subscribers. In 2009, we took a number of initiatives to develop our capability as a multi-play services provider. December saw the launch of a nationwide consumer test of broadband internet access; on 1 February 2010 we began offering it commercially to 40% of our subscribers. In the second quarter of this year we plan to introduce a target product: a multi-play offer for the home television, internet and mobile telephony with one contract, one subscription fee and one invoice. Financially, the year has offered good grounds for satisfaction, despite the ongoing economic slowdown and the weakening of the zloty against the Euro and the dollar. Our consolidated revenue increased 14% to pln 1,279 million. Ebitda, or operating income plus amortization and depreciation, was pln 318 million, while net profit fell 15% to pln 230 million, mainly due to exchange rate changes. I believe that through a clear vision of future operations and accurately implemented strategy, we will build a fully functional provider of a multi-play offer while strengthening our leading position in the pay television market. In my view, this will result in a growing customer-base, increased average revenues per subscriber and ever-increasing customer-loyalty, which, combined with discipline in financial management, will contribute positively to providing value to our shareholders. Yours sincerely, Dominik Libicki President of the Management Board Cyfrowy Polsat s.a. Cyfrowy Polsat / Annual Report 09 / 21

23 04 BUSINESS PROFILE Our business We are the operator of the largest pay satellite digital platform in Poland and the fourth largest in Europe. Our core activity is providing television and radio channels via satellite in pay programming packages (dth). At the end of 2009 we had 3.2 million subscribers (2008: 2.7 million). We offer our dth subscribers access to over 80 Polish language television channels in sd and hd quality, including sports, music and entertainment, news, children, education, and film channels. We are the only digital pay satellite television platform offering its customers all of Poland s main terrestrial channels, including Polsat, TVP 1, TVP 2, and TVN. The high definition channels (HD) we offer include HD Polsat, Polsat Sport HD, Eurosport HD, Eurosport 2 HD, HBO HD, MTVN HD, Discovery HD Showcase, FOX Life HD, National Geographic Wild HD and FilmBox HD. We also give access to over 500 free to air (fta) television and radio channels via satellite on the Polish territory. All users of our set-top boxes from November 2009 have access to vod Domowa Wypoży czalnia Filmowa (Home Video Rental). We are the first digital satellite television operator to offer a set-top box with a hard drive (dvr), enabling the recording and pausing of tv programs. In November 2007, we began manufacturing our own set-top box, and in March 2008 we introduced an exceptionally compact modern, digital mini set-top box. Over 60% of the set-top boxes sold or leased to customers in 2009 were our own design. We have also begun manufacturing our own hd set-top box. Cyfrowy Polsat / Annual Report 09 / 23

24 Wild Russia / Nat Geo Wild. Copyright National Geographic Channel. 24 / Cyfrowy Polsat / Annual Report 09

25 From 8 September 2008, capitalizing on our strong brand and existing subscriber base, we began providing telecommunications services as a mobile virtual network operator. At the end of last year these services had over 29,000 customers. On 1 February 2010 we enriched our portfolio of services, starting by providing broadband internet access. Our ultimate strategic goal is to build a multi-play offer (tv, internet, mobile telephony). We sell our services via a sales network which covers the entire country, consisting of our central warehouse, 29 regional distributors and a network of over 1,100 authorized outlets. In 2010 we bought a 94%* stake in M.Punkt Holdings Ltd., owner of a mpunkt distribution network, which specializes in selling mobile telephony products and services. mpunkt has more than 2001 outlets in over 1501 cities, and a training centre. We hope this expansion of our sales network will help us sell more, more effectively both our satellite pay television and multi-play offer as we continue to expand our offer. Top Gear / BBC Knowledge. BBC Knowledge. Reproduced here with the kind permission of BBC Worldwide. All rights reserved. * As at 31 May Cyfrowy Polsat / Annual Report 09 / 25

26 / Cyfrowy Polsat / Annual Report 09 Camihno das

27 05 MARKET OVERVIEW Satellite pay television services Market environment We operate in the pay tv market in Poland. Poland in 2009 had around 38.2 million people in about 14 million households. Nearly 99% of those households have a tv; 36% have at least two. We estimate Poland s rate of pay television saturation, as of 2009, at around 62 63% (assuming 14 million households, of which approximately 13% use more than one pay dth digital satellite television service). Between the number of subscribers to satellite pay television in Poland grew rapidly, while the cable television market lost momentum. Over that period, satellite pay television subscriptions experienced a compound annual growth rate (cagr) of 41%, as against 2% for cable. Such low results for cable providers reflect market saturation in urban areas coupled with the high costs of building infrastructure in other areas. Areas with little chance of cable tv infrastructure investment whose inhabitants have access only to a few terrestrial Polish channels offer a natural target market for digital satellite pay television. We estimate that at the end of 2009, our share of the satellite pay television market by number of subscribers stood at around 57%, with over 54% of 2009 gross additions. Cyfrowy Polsat / Annual Report 09 / 27

28 Number of users of digital satellite platforms at 31 December 2009 and market shares 4% 6% 10% 23% % Source: Press publications, annual report of TVN s.a. Capital Group, Telekomunikacja Polska s.a. website Number of additions of particular digital satellite platforms in % % %* *Subscribers acquired within our speccial offering with second set-top box free are calculaded as one Source: Calculations based on data published by different operators 28 / Cyfrowy Polsat / Annual Report 09

Direct competition We see our main direct competitors as other digital satellite television providers, though we also compete to a lesser extent with cable operators.

29 Direct competition We see our main direct competitors as other digital satellite television providers, though we also compete to a lesser extent with cable operators. We believe that in future we will also face competition from terrestrial digital television and television distributed via the internet (iptv). Share of particular services in the pay television market in the years based on the number of subscribers 100% 0% 0% 0% 1% 1% Digital television via internet protocol (IPTV) Cable television operators 75% 66% 57% 50% 45% Pay digital satelite television operators 25% 0% 49% 54% 42% 33% Source: Own estimates based on the PIKE, CSO, data cable operators, revised on the basis of data published by the operators Cyfrowy Polsat / Annual Report 09 / 29

30 Pay digital satellite television Poland currently has four operators of pay digital satellite television: Cyfrowy Polsat s.a. (CPSA), Canal + Cyfrowy Sp. z.o.o. (CYFRA +), ITI Group s n platform and Telekomunikacja Polska s.a. (TP SA). At 31 December 2009, our number of subscribers stood at over 3.2 million (2008: 2.7 million). CYFRA + had over 1.5 million subscribers (2008: 1.3 million), the n platform 697,000 (2008: 500,000) and TP SA 133,000 (2008: 44,000). The share of particular satellite operators in the satellite pay television market in the years based on the number of subscribers 100% 3% 8% 12% 17% + Telewizja na Kartę (TnK) 55% 41% 31% 29% 27% 45% 56% 61% 58% 56% 0% Source: Calculations based on data published by operators 30 / Cyfrowy Polsat / Annual Report 09

31 CYFRA + (Canal + Cyfrowy Sp. z o.o.) CYFRA + was established on 6 November Its operator is Canal + Cyfrowy. Between its 2001 merger with Wizja TV and November 2006, CYFRA + was Poland s largest pay digital satellite television operator, by number of subscribers. Telewizja Nowej Generacji n - Next-generation television n' (ITI Neovision. Sp. z o.o.) n platform, owned by the ITI Group, launched in October 2006, increased its subscriber base to 697,000 subscribers by end Telekomunikacja Polska sa (TPSA) TP Group s satellite platform is an add-on to its internet service. On ordering television, the customer receives a set-top box for channel reception and a livebox tp modem providing constant, wireless internet access (Neostrada TP). To operate, the set-top box, which was launched as a loyalty tool, must be connected to both the satellite and the Livebox modem the box receives authorization via the internet. Among its additional services TPSA offers video on demand. Cyfrowy Polsat / Annual Report 09 / 31

Cable television operators Poland has around 630 cable television operators, serving over 1,100 cable networks. Current market leaders include UPC Telewizja Kablowa Sp. z o.o., Telewizja Kablowa Vectra s.

32 Cable television operators Poland has around 630 cable television operators, serving over 1,100 cable networks. Current market leaders include UPC Telewizja Kablowa Sp. z o.o., Telewizja Kablowa Vectra s.a., Multimedia Polska s.a., and Aster Sp. z o.o, which collectively account for over 60% of Poland s cable television market. Although cable operators obviously constitute competition, in some areas we have a clear advantage. Our signal reaches everywhere; cable means hardware. Cable only makes financial sense in densely populated areas such as cities, whereas we can find customers anywhere. We can also beat cable for wealth of programming and quality of broadcast. Analogue cable technology can carry only around 60 channels while we offer several hundred, including over 80 in Polish and 10 in high definition. It also limits the quality of reception to a level far lower than can be delivered via digital. Cable providers do enjoy one advantage, in their ability to run multi-play and telecommunications services over their cable television infrastructure. Some pay dth digital satellite television operators in other European countries have started providing broadband services and fixed line telephony by creating agreements or forming alliances with other companies, or by acquiring them. We plan to offer multi-play services satellite television, internet access and mobile telephony which we believe will help us compete more effectively with the cable operators. Animal Planet HD. Copyright National Geographic Channel. All rights reserved. 32 / Cyfrowy Polsat / Annual Report 09

33 Digital television via internet protocol (iptv) In the long term, we recognize a competitive threat from digital television through internet protocol providers, though iptv is currently developing relatively slowly in Poland. TPSA started providing iptv to dsl clients in 2006, and had around 110,000 subscribers as of 31 December Telefonia Dialog also offers iptv services, with around 20,000 customers. Digital terrestrial television (DTT) The threat from digital terrestrial television has increased due to the removal of limitations on the granting of licenses for broadcasting frequencies, resulting in an increased number of channels. There are currently seven analogue terrestrial channels, only four of which are available to more than 90% of households. Digitization is currently in limbo due to a lack of formal regulations. Nor is there any formal government plan for utilization of available digital frequencies. We anticipate the eventual allocation of frequencies to both: digital terrestrial television; and hd television, radio and dvb-h (the basic enabling broadcast of television channels to mobile telephones). We expect the next few years to see the business of digital terrestrial television limited to current analogue terrestrial channels. Only later do we expect to see its offer extended to new channels. Cyfrowy Polsat / Annual Report 09 / 33

34 34 / Cyfrowy Polsat / Annual Report 09 The multi-play offer (television, Internet, mobile telephony) is clearly a benefit for our current and future customers.

35 06 SUCCESS AND FAILURE Success is the progressive achievement of predetermined and planned valuable purpose, and failure makes it possible to start afresh in a more thought-out way an interview with Dominik Libicki, President of the Management Board Has the economic crisis affected Cyfrowy Polsat and the pay television industry generally? It is hard to talk about economic crisis in our country at all. The Polish economy has performed very well compared with other Central and Eastern European countries, and Poland is also the only eu country which has managed to avoid a recession in the full sense of the word. We have instead had to cope with a moderate economic slowdown; Cyfrowy Polsat has passed through these difficulties with no major problems. The pay television market in Poland has continued to do well, as customers switch from other forms of entertainment. But I would not pretend that the world s economic difficulties had no effect on our business. We were particularly impacted by exchange rate fluctuations. 50% of our costs are denominated in Euros and dollars; the weakening of the Polish currency directly affected our results. Even taking this into account, we had a good year, with a 475,000 increase in our subscriber base and revenues approaching pln 1.3 billion, producing pln 230 million profit. Cyfrowy Polsat / Annual Report 09 / 35

36 So how many paid subscribers did Cyfrowy Polsat have at the end of 2009? We crossed the three million threshold this year, consolidating our position as Poland s number one satellite platform. At the end of 2009 we had 3.2 million paid subscribers to our programming packages 475,000 up on December This represents 59% of all Polish dth subscribers and 57% of dth market users. What other success did the company enjoy in 2009? Last year saw the steady development and expansion of our service portfolio a key factor in the extension of the subscriber base, itself key to our future success. Continued interest in television, an attractive offer at affordable prices, new services all these translated into the 17% increase in our subscriber base. The set-top boxes manufactured by our subsidiary Cyfrowy Polsat Technology Sp. z o. o. were well received by our customers, and April 2010 saw production pass one million units! Both a proud moment in itself and an encouragement to begin producing more modern and more readily marketable receivers hd set-top boxes. As in every year we ve been in business, we engaged in a dialogue with television broadcasters. With the help of these discussions and with our customers in mind, we this year added 10 new channels to our programming offer: Polsat Film, Polsat Football, Polsat Jim Jam, Polsat HD, Nickelodeon, Comedy Central, Nat Geo Wild, Nat Geo Wild HD, Discovery HD Showcase and Eurosport 2 HD channels. We also, in line with previously announced plans, further expanded our portfolio with the launch of a new service vod Domowa Wypożyczalnia Filmowa (Home Video Rental). 36 / Cyfrowy Polsat / Annual Report 09

The year cannot have been all about success. Were there failures? And if so, what did you learn from them? Indeed, one disappointment of 2009 was quite a high churn rate subscribers leaving us.

37 The year cannot have been all about success. Were there failures? And if so, what did you learn from them? Indeed, one disappointment of 2009 was quite a high churn rate subscribers leaving us. Our 2008 churn rate of 7.5% rose last year to 10.7% though this still represents the best performance not just in Poland, but throughout the industry. By our estimates, the churn rates for Cyfra+ and n platform were 15% and 17.7% respectively. Nevertheless in truth I think we were slow to react to a situation that caught us by surprise. But we did respond effectively, introducing retention programs, continuously monitored for effectiveness, and subject to ongoing amendment as dictated by prevailing conditions in the marketplace. We also introduced a provision to our terms and conditions to encourage subscribers to automatically extend their contract for a fixed period of 12 months. In short, we learned our lesson, and I firmly believe that the retention program, the changes in terms and conditions and the introduction of the multi-play offer will all help minimize churn in future. Wonder Years / Vh1 Polska. Comedy Central Family Polska. All rights reserved. Cyfrowy Polsat / Annual Report 09 / 37

Cyfrowy Polsat began as a pay satellite television operator. Now it also provides access to mobile telephony and the internet. Is a multi-play offer next in the pipeline? Absolutely.

38 Cyfrowy Polsat began as a pay satellite television operator. Now it also provides access to mobile telephony and the internet. Is a multi-play offer next in the pipeline? Absolutely. This has been our main strategic objective for some time and it s one we ve been steadily implementing. We started providing mobile services in September 2008, adding broadband in February We are now preparing a multi-play offer (television, internet and mobile telephony) one contract, one charge, one bill offer a service that we think has great customer appeal and commercial potential. We believe we are Poland s first dth operator to introduce a multi-play offer. What potential growth do you anticipate by the end of next year? The future is uncertain and I m not in the businesses of making vague predictions. I can say, however, that according to our estimates, the real saturation of pay television in Poland currently stands at around 62 63%. And we expect that the market will reach saturation of 75 80% by about the end of That represents around 2 million more households opting for pay television. All current trends suggest that those new customers will go overwhelmingly for the satellite option; and we re confident that the vast majority will be to Cyfrowy Polsat. Joanna Horodyńska and Karolina Malinowska Stars on the rug / Polsat Cafe. Polsat Cafe. All rights reserved. 38 / Cyfrowy Polsat / Annual Report 09

39 Why so confident? Special deals? Special promotions? We believe that special deals and special promotions have their place, and can have real tactical value. But success over the long haul comes from steady, consistent, focused work. We have for years been steadily building all the essentials the product, service, image, marketing, and a highly professionally sales network. Put those elements together in a carefully calculated way and you have the basic ingredients of success: which in our business means more, and more satisfied, subscribers. For a decade now we have been consistently and effectively working on delivering our one key promise: the best programming offer at an attractive price. We will continue to do just that. And we believe that will continue to prove attractive to customers. If asked, how would you sum up the competitive edge of Cyfrowy Polsat? First of all, we have a highly-recognizable brand, one that enjoys a good reputation among customers. According to a last survey in December 2009 we had the highest brand recognition of Poland s three digital satellite television operators. For years, we have offered a wide range of high quality attractive programming for the whole family. Today, we offer access to more than 80 Polish-language channels, including 11 sport (3 in hd), 16 film, 7 children, 6 news, 7 education, 5 musical and 13 entertainment. As the only digital satellite platform in Poland our offer include all of the 3 most widely watched sports channels (Eurosport, Polsat Sport and Polsat Sport Extra the last of which is offered by no other platform). I believe our position as Poland s largest pay television operator, and our good relationship with licensors, give us a vital competitive advantage in our ability to attract high-quality channels on favorable terms. In addition, we are not dependent on any license for the broadcast of sporting events which may affect the growth or maintenance of the existing subscriber base. High quality programming packages at competitive prices raise the attractiveness of our services. Another key strength is our nationwide sales network: 29 distributors, cooperating with a network of over 1,000 authorized outlets, gives us full coverage throughout Poland. And very soon, our launch of multi-play offer will help us stay where we are and where we belong at the forefront of the market. Cyfrowy Polsat / Annual Report 09 / 39

41 07 PROGRAMMING OFFER SATELLITE TELEVISION We provide our pay dth satellite television services to customers in the domestic market only, giving access to over 80 Polish language television channels, including sports, music, entertainment, news / information, education and film. We are also the only pay dth satellite operator to offer all of Poland s main terrestrial channels, Polsat, TVP 1, TVP 2, TVN and TV4, and all 3 most popular sports channels: Eurosport HD, Eurosport 2 HD and Polsat Sport Extra. We also offer 11 sports channels, including 3 in hd, (Eurosport HD, Eurosport 2 HD and Polsat Sport HD); 16 film channels (including HBO, Cinemax, AXN and FilmBox); 7 children channels (including Disney Channel, Nickelodeon, and Cartoon Network); 6 news / information channels (including TVN 24, Polsat News and TVP Info); 7 education channels (including Discovery Channel, BBC Knowledge and Animal Planet); 5 music channels (including MTV Polska, VIVA and VH 1 Polska) and 13 entertainment channels. We also offer access to about 500 fta television and radio channels available via satellite in Poland, including BBC World, CNBC, Bloomberg, Super RTL, ZDF, Rai News 24, Rai Due, Fashion TV, and France 24. Our offer also features nine leading Polish radio channels, including RMF FM, Radio Zet and 3 channels of Polskie Radio. Cyfrowy Polsat / Annual Report 09 / 41

42 Last year we enriched our programming offer with following channels January March May September October November Moreover, in 2010, we added following channels to our offer November March May 42 / Cyfrowy Polsat / Annual Report 09

43 We offer 3 starting packages: Pakiet Mini (Mini Package), Pakiet Mini Max (Mini Max Package) and Pakiet Familijny (Family Package). Pakiet Familijny (Family Package) Pakiet Familijny (Family Package) is our most popular option among new subscribers. It provides access to 51 Polish language television channels and all the fta television and radio channels. We designed the Family Package to satisfy the whole family, with a wealth of sports, education, news / information, film, music, entertainment, and children channels. Subscribers of Family Package can also subscribe to any of our thematic packages. The following diagram presents television channels available in Pakiet Familijny (Family Package) Cyfrowy Polsat / Annual Report 09 / 43

44 Pakiet Mini (Mini Package) Pakiet Mini (Mini Package) provides access to 21 Polish language television and radio channels available via satellite in Poland. Subscribers can upgrade to Mini Max or Family Package at any time during the term of their agreement, gaining access to a fuller program offer. The following diagram presents television channels available in Pakiet Mini (Mini Package) Pakiet Mini Max (Mini Max Package) Pakiet Mini Max (Mini Max Package) provides access to 25 Polish channels and all the fta television and radio channels. Subscribers can upgrade to Family Package at any time during the term of their agreement, gaining access to a fuller program offer. The following diagram presents television channels available inpakiet Mini Max (Mini Max Package) 44 / Cyfrowy Polsat / Annual Report 09

45 Thematic Packages Subscribers of Pakiet Familijny (Family Package) can select from eight thematic packages according to their programming preferences. C 0% M 0% Y 0% K 75% The following diagram presents television channels available in particular packages pakiet film (FILM PACKAGE) PAKIET SPORT (SPORT PACKAGE) PAKIET BAJECZKA (CARTOON PACKAGE) PAKIET MUZYKA (MUSIC PACKAGE) PAKIET hbo (HBO PACKAGE) PAKIET CINEMAX (CINEMAX PACKAGE) PAKIET ROZRYWKA (ETERTAINMENT PACKAGE) PAKIET hd (HD PACKAGE) HD Channels Cyfrowy Polsat / Annual Report 09 / 45

46 Pakiet Relax Mix (Relax Mix Package) C 0% M 0% Y 0% K 75% Pakiet Relax Mix (Relax Mix Package) gives access to 16 additional television channels grouped in 4 thematic packages including 5 sports channels (Pakiet Sport Sports Package), 7 film channels (Pakiet Film Film Package), 2 children s channels (Pakiet Bajeczka Cartoon Package) and 2 music channels (Pakiet Muzyka Music Package). The following diagram presents television channels available in Pakiet Relax Mix (Relax Mix Package) Pakiet Relax Mix + hbo (Relax Mix + HBO Package) C 0% M 0% Y 0% K 75% Pakiet Relax Mix + HBO (Relax Mix + HBO Package) includes all the channels in the Relax Mix Package plus 3 premium film channels: HBO, HBO2 and HBO Comedy. The following diagram presents television channels available in Pakiet Relax Mix + HBO (Relax Mix + HBO Package) Super Film (Super Film Package) includes all the channels available in Relax Mix + HBO Pakiet Super Film Pakiet Package plus Cinemax and Cinemax 2. (Super Film Package) C 0% M 0% Y 0% K 75% The following diagram presents television channels available in Pakiet Super Film (Super Film Package) 46 / Cyfrowy Polsat / Annual Report 09

47 Pakiet HD (HD Package) The HD Package (Pakiet HD), introduced on 16 November 2009 and available exclusively to Family Package subscribers, offers 7 high definition channels. The following diagram presents television channels available in Pakiet HD (HD Package) Channels available ' a la carte Apart from the Pakiet HD (HD Package), subscribers have access to all channels in hd technology à la carte. À la carte includes both channels available in the HD Package and Discovery HD Showcase and HBO HD. All subscribers with an hd set-top box receive free access to Polsat HD. Free to Air Channels (FTA) In addition to our paid programming packages, we give access to all free to air television and radio channels available via satellite in Poland, including BBC World, CNBC, Bloomberg, Super RTL, ZDF, Rai News 24, Rai Due, Fashion TV and France 24, and leading Polish radio channels such as Radio Zet and 3channels of Polskie Radio. After expiry of the initial subscription term, we allow customers to use their set-top box to view all fta channels free of charge. VoD Domowa Wypożyczalnia Filmowa (Home Video Rental) Vod Domowa Wypożyczalnia Filmowa (Home Video Rental) was introduced on 1 December 2009 and is available to all subscribers, whatever their set-top box. Vod Domowa Wypożyczalnia Filmowa (Home Video Rental) operates 24 hours a day and is based on 15 satellite channels showing 60 films each month in cycles. By dedicating the entire satellite transponder to support the new service, we are able to offer over 320 films. Subscribers can choose from about 15 options a day, and we make about 30 new productions available each month. Cyfrowy Polsat / Annual Report 09 / 47

48 INTERNET Maintaining our strategy of building a multi-play range of services, we are launching internet access services. The internet access service enables domestic roaming using the network infrastructure of Aero 2, licensed to use the 900 MHz radio frequency. Our service uses a technology called hspa +, or Evolved hspa (High Speed Packet Access), offering maximum speeds of up to 21 Mb/s (download) and 5.76 Mb/s (upload), as compared with the current standard for mobile networks of 7.2 Mb/s and 1.9 Mb/s respectively. This approximate three-times speed increase offers great user advantages, whether using the internet to listen to radio, watch videos, upload large files or keep in touch with friends via instant messaging. On 30 November 2009 we launched nationwide tests. Around 5,000 subscribers took part, checking the service out for a few weeks, free of charge. These tests helped ensure the quality of the product, the readiness of our it systems for its sales and service, the internal procedures of the operator and the level of customer interest. They also enabled the acquisition of data on the profile of potential subscribers internet usage data that will help us finetune the product before launch. A commercial offer of our internet access service launched on 1 February 2010 at authorized points of sale in areas with network coverage currently covering around 7,000 towns. Damien bs air / Extreme Sports Channel. Extreme Sports Channel. All rights reserved. 48 / Cyfrowy Polsat / Annual Report 09

HSPA+ Network coverage map of Cyfrowy Polsat s internet At the beginning of the second quarter of 2010, we plan to begin selling a multi-play offer consisting of dth services, internet access and

49 HSPA+ Network coverage map of Cyfrowy Polsat s internet At the beginning of the second quarter of 2010, we plan to begin selling a multi-play offer consisting of dth services, internet access and mobile services. We believe that the low penetration of internet access services in less urbanized areas, lower-quality internet services access provided by mobile operators and the lack of appropriate infrastructure from cable operators or TPSA will enable us to build an integrated services customer base at a satisfactory pace. Our service offers significant advantages over such competitors. Maximum speeds of up to 21 Mb/s (download) and 5.76 Mb/s (upload) can be matched only in a few areas by some mobile operators, and are of the order of three times faster than typical internet access services currently on the Polish market, allowing our customers to make full use even of the internet s most advanced and data-hungry multimedia services (movies, online games, Cyfrowy Polsat / Annual Report 09 / 49

50 / Cyfrowy Polsat / Annual Report 09 Morocco, MS at food

51 radio, video messaging). And unlike mobile operators, we do not limit the speed of data transmission once the package has been used up. We offer two data packages: daily (8 am 24 pm) and nightly (00 am 8 am hours). Our modems usb zte and Huawei mf668 e182 e are the most advanced available on the market today. Installation is easy, requiring neither technical knowledge or help from third parties. And of course our internet is accessible anywhere not only at home but in the garden or on the terrace, at work and at school and, more than likely, even on vacation. Our service is available in smaller towns, suburbs and rural areas, where alternatives suffer disabling infrastructure deficiencies. MOBILE TELEPHONY In building our vision of a multi-play service offering, we introduced in 2008 a telecommunications service, on the mvno (Mobile Virtual Network Operator) model. In preparation for the new market, we built our own telecommunications infrastructure (excluding the radio network) and integrated billing and customer service systems. After receiving approval from the Office of Electronic Communications, we signed interconnection agreements with other telecommunications operators, and agreed roaming terms, enabling us to introduce our own pricing and tariffs, both subscription and prepaid. We plan to build a customer base ready for migration to multi-play services, whereby customers will receive existing television promotion benefits plus a telecommunications airtime and packet data package. Packages will be designed to enable the customer to shape their offer according to their needs and maintain control over their costs. Cyfrowy Polsat / Annual Report 09 / 51

52 In formulating both marketing strategy and the company's overall objectives, we should always do it with the market and consumers in mind, so as to both maximize their satisfaction and achieve the company's goals. 52 / Cyfrowy Polsat / Annual Report 09

53 08 MARKETING AND SALES THE POWER OF MARKETING How to optimize marketing efforts to maximize sales? An interview with Beata Białkowska, Director of Marketing Department Effective marketing is about combining numerous activities to acquire satisfied, loyal customers. How do you go about creating an interesting and, above all, effective marketing strategy? An effective marketing strategy is one that delivers the key business objectives of the company. At the same time, marketing is also one of the factors involved in the process of formulating these objectives their scope, values, deadlines, etc. In formulating both marketing strategy and the company s overall objectives, we should always do it with the market and consumers in mind, so as to both maximize their satisfaction and achieve the company s goals. Since markets in are subject to continuous transformation and change, good marketing strategies must be flexible, and capable of adapting to changes in the market environment. Most importantly, an effective marketing strategy must build on the brand, helping mould a story which is coherent and compelling to consumers. Successful companies make a clear statement in the market: positioning themselves clearly in a way that aligns with customer needs while distinguishing the brand from the competition. A clear, original, unique and attractive brand image is vital for market success. Cyfrowy Polsat / Annual Report 09 / 53

54 So what is Cyfrowy Polsat's current marketing strategy? 2009 was a year of change in our marketing strategy. We introduced new services, both in television (vod Domowa Wypożyczalnia Filmowa (Home Video Rental), more hd channels, the new Pakiet HD (HD Package) and in telecommunications (broadband). And further innovative product solutions are in the pipeline, with the focus on multi-play services. In terms of our visual messaging, we worked on strengthening the brand associations of Cyfrowy Polsat with modernity and aspirational lifestyles. But we are taking care to retain the positive elements of our heritage such as closeness, warmth, universality, and the family. And throughout, we maintain a clear focus albeit reinterpreted for the modern age on our consistent core message: a wide range of high quality programming at a good price. Customer relationships are crucial, and we will continue to work on building customer satisfaction. In conclusion, our current marketing strategy aims at re-positioning Cyfrowy Polsat from a digital television company to a provider of multi-play offer, meeting its customers entertainment and communications needs across the board, with access to multimedia services at home (the Internet, telephone services and new content-delivery services), while strengthening our market leadership position in Polish pay television, and continuing to build customer satisfaction and loyalty. Who are Cyfrowy Polsat's customers? Our main customer is the Polish family. Hence the naming of our packages, and the style and manner of communication clearly based on values central to the family along with our offer, selection of channels and the construction of our packages. All of our marketing activity has its roots in that family-oriented strategy. Obviously the family is segmentable. Our segmentation is based on both customer value and a number of psycho-demographic features. We analyze individual segments in terms of their value, their potential for the company, the changes they are undergoing, and their needs both rational and emotional. We gauge their importance and potential for growth. And we estimate our competitive strengths and weaknesses in relation to each. Our analysis is based on regular research and a thorough interpretation of the customer base, conducted by our marketing team, and provides the foundation on which we plan our activities, define products and promotions, determine prices and decide on the how best to reach defined, targeted segments. Segmentation and action on segments is a great adventure for every marketer. And a treasure trove of information for each company. 54 / Cyfrowy Polsat / Annual Report 09

55 And what is the awareness of the Cyfrowy Polsat brand in the target group? As in previous years, Cyfrowy Polsat enjoys the highest spontaneous brand recognition of any digital platform in Poland, at 90%. Our lead over our nearest rivals has actually increased since earlier surveys, and potential customers, asked which provider s services they would choose, chose Cyfrowy Polsat ahead of any other. Cyfrowy Polsat has consistently pursued a strategy of building a multiplay operator. How was the multi-play offer built? Indeed, this has been at the heart of our strategy since 2008 and the launch of mobile services. The emerging market for multi-play offer (still at relatively low saturation particularly in less urbanized areas), our database of over 3 million customers, and growing customer awareness of the advantages of single-supplier sourcing, strengthened the case for sticking with our adopted strategy and putting it at the heart of the company s future ambitions. The starting point was market-analysis both internal and external. We tried to understand the rational and functional benefits of a multi-play offer to our target group, focusing on factors such as savings and cost control, simplicity, convenience and flexibility. We developed an offer, asked customers to evaluate it, and held numerous consultations with them, gaining valuable feedback which helped us fine-tune our proposal. The process also helped us formulate marketing messages which would be noticed and bought into. We also began to appreciate the scope for further extension of the offer, with elements to meet emerging broadly-defined media consumption needs. Meanwhile and in parallel, we worked on the broadband roll-out, ready for its subsequent incorporation into the integrated offer. Working on technical, it, processes, customer service and sales solutions, we were preparing for the launch of the multi-play offer. In November 2009 we launched nationwide tests of our internet service, giving 3 months free access to around 5,000 people in return for their feedback. The tests allowed us to check the readiness of our technical and it systems for sales and customer service, to test internal procedures, gauge customer interest, and gather data on the profile of service usage. The results of the testing guided the final design of the full commercial service, launched to customers on 1 February this year. The service will of course be subject to review and ongoing changes over the coming months. Cyfrowy Polsat / Annual Report 09 / 55

56 Just how important is the role of the internet in the multi-play offer? Television is the core of the offer, to which customers can add broadband and / or mobile telephony as they wish. All products will be sold under one contract with one service process and one bill. Any additional services launched will be incorporated into the same one process. Internet is probably the most important addition to television in our multi-play offer. In less urban areas even in the outskirts of large cities the telecommunications infrastructure is often simply inadequate to support the provision of internet access services. Cable operators and Telekomunikacja Polska s.a. tend to be restricted to large and medium-sized cities. For customers elsewhere, radio generally offers the only possible access to the internet. Most such customers currently use mobile providers internet services based on umts or even gsm, since they are the only available option, though quality of service tends to be quite poor. By using the latest hspa + technology, we can offer far higher speeds of up to 21 Mb/s. With demand for internet access growing steadily, the demand such quality services can only increase. For many households in small towns or villages, Cyfrowy Polsat Internet will effectively be the only option, and our multi-play offer (combining television with the Internet, and perhaps also telephone) will be an attractive proposition. For Cyfrowy Polsat, multi-play offer is the chance to build our subscription base, customer loyalty and revenues all at the same time. It s also a great marketing tool, helping us differentiate and build competitive advantage in the satellite pay television market. Are there any Marketing Department projects from 2009 that you're particularly proud of? 2009 was another good year for Cyfrowy Polsat. I am very pleased and proud of the results we achieved, particularly given the ferocity of the competition and the increasing awareness and sophistication of customers. The results we nevertheless achieved testify to the dedication and hard work of all our employees, the innovation we displayed in many areas and the skill and guts that lay behind some really tough decisions. Overall, though, I think I m proudest of our project to introduce broadband. The project, which lasted nearly six months, involved almost all the areas of the company. We had to revise a lot of processes; ask a lot of customers for guidance and feedback; work hard to learn quickly about a new market, new needs, but also the new opportunities multi-play offers our company and our customers. 56 / Cyfrowy Polsat / Annual Report 09

57 We know this is just the beginning, and we will have to see how things turn out over the coming months and years. But early feedback confirms to me that we re on the right lines, and that our decision to go down the multi-play operator route is being vindicated every day as it enhances our differentiation and builds our competitive advantage in Poland s satellite pay television market. Could you give a hint at developments planned for 2010? What challenges face the Marketing Department? 2010 will see the continuation of the changes begun in Enriching the scope of our services puts us into a new area one with great potential, but one that s also highly competitive and still new to us. We need to learn fast, about the market and what our customers ask of it, in order to develop products to meet their expectations and maximize the saturation of our subscriber base with multi-play offer. As well as offering internet access, we want to give customers access to content regardless of how. This means widening our operation into another area broadly-defined content. And we have to do all this without taking our eye off the ball. Alongside this new endeavor, we must continue to strengthen Cyfrowy Polsat s position as the leader in pay television. As our services expand, our image will inevitably change and extend to reflect the new realities. We will wish to stress some new elements, gradually play down others. We will, over time, be consciously refocusing the company, evolving its image to meet our changing needs. But throughout we will continue to focus on our customers, enhancing their satisfaction and building their loyalty. I am confident we will achieve the goals we have set ourselves for 2010 and for subsequent years and that our clearly thought-out and consistently implemented strategy will continue to deliver the results our customers and our company need. Keeping fingers crossed for us. Nat Geo Wild HD. Copyright National Geographic Channel. All rights reserved. Cyfrowy Polsat / Annual Report 09 / 57

58 58 / Cyfrowy Polsat / Annual Report 09 We invest heavily in staff training and outlet staff, having established through analysis of its effectiveness, that one zloty invested pays back two.

59 SALES AND LOGISTICS Effective cooperation is crucial an interview with Krzysztof Kruszelnicki, Director of Sales and Logistics Department. You are director of two major departments at Cyfrowy Polsat. Does the fact that Logistics Department and Sales Department are combined help in achieving set objectives? Logistics is an essential back office facility which enables sales to function. The fact that there are two departments under one umbrella definitely helps in running an efficient business. Unified supervision aids easier, faster and more efficient decision-making, and helps facilitate effective compromises. Any company is the sum not only of its resources in terms of equipment, buildings, infrastructure or software, but most importantly, of its people. If people are focused and aligned they cooperate better and it is easier for them to achieve common goals. At Cyfrowy Polsat we work hard to achieve both unity of goals and of people. Traders say: sales is the bloodstream of every business. What do sales mean for you? Everyone sells, whatever their role in life, consciously or not. It s part of life. Our whole team approaches sales with passion, and we treat each new year as a new set of sales challenges. Cyfrowy Polsat / Annual Report 09 / 59

60 Which means and channels do you use to distribute the services of Cyfrowy Polsat? We sell through four main distribution channels: a network of points of sale, direct sales (which are my responsibility), call centers and the internet. The sales network covers the entire country. At the end of 2009, we were working with 29 external distributors. 24 of these distributors group retail outlets, i.e. Authorized Points of Sales (aps): 985 outlets, 166 stalls and 32 boxes in galleries and shopping malls *. Apss are usually located in buildings on busy thoroughfares, but also increasingly in shopping malls. We equip them as necessary, supplying know-how training salespeople, stands made to our specification, equipment, positioning highlighting our own set-top boxes, and all necessary advertising and promotional materials including posters, flyers, brochures and other permanent media. The remaining five distributors run 24 direct sales offices. This channel accounts for a relatively small proportion sales, but we recognize the attraction of this medium for some customers, who prefer to take their time over a careful decision in the comfort of their own homes, and see good potential for this approach in future. As our portfolio expanded to include new se rvices, mobile telephony and internet, in 2010, we bought a 94%* stake in M.Punkt Holdings Ltd., which has more than 200 outlets in over 150* cities*, as well as a training centre. The main task of mpunkt will be sales of our satellite pay television and multi-play offer, and training for our salespeople. Sales Structure of Cyfrowy Polsat SALES DEPARTMENT A Network of Points of Sale Direct Sale Call Center The Internet 985 outlets, 166 stalls and 32 boxes in galleries and shopping malls 5 distributors 24 direct sales offices 400 specially trained consultants operates 24 hours a day, 365 days a year * As at 31 May / Cyfrowy Polsat / Annual Report 09

61 How have Cyfrowy Polsat's sales changed over recent years and how do they compare to the competition? In the early years, when our platform was very young and competitors had an edge in experience and subscriber base, sales climbed very slowly and required considerable effort. From this slow but firm base, we saw dynamic growth from , with annual increases measured in tens of percents. Since 2008 sales have remained consistently high well above the level achieved by our competitors. Number of contracts concluded in Source: Company's calculations Cyfrowy Polsat / Annual Report 09 / 61

62 How often and how do you train the team responsible for coordinating the sales network? What do such training sessions look like? Last year we strongly intensified salespeople s training in outlets provided by our regional representatives, as well as regular group training, with courses dedicated to enhancing product understanding and sales skills. We invest heavily in staff training and outlet staff, having established through analysis of its effectiveness, that one zloty invested pays back two. We also support the e-learning platform that offers specially prepared lessons and materials and quick access to knowledge. It also lets us monitor the levels of sales through tests, such as the knowledge of new promotions. We also provide additional training, especially in the area of cooperation with distributors and sub-distributors. High sales reflect cooperation of many different parts of the company. How does Logistics assist Sales at Cyfrowy Polsat? Most important is effective cooperation and mutual support. Everything works smoothly and the efficiency of our logistics high, and improving every year. In 2008, we sold a record daily number of set-top boxes 24,000 units; in 2009 that figure had near-doubled, to 42,000 units, yet departmental employees were up only 3%. Our Logistics department is highly efficient, and responds quickly and flexibly to changing expectations in the market. It has also proved highly resilient in responding to external challenges such as bad weather. Its performance is a credit to the 200 or so people who work in it during the sales season. 62 / Cyfrowy Polsat / Annual Report 09

63 Tell us about the warehouse where you store products that are available on the Cyfrowy Polsat's offer? A warehouse is at the heart of logistics. Using our own warehouses is a big benefit to Cyfrowy Polsat. These are high bay warehouses with shelves with forklifts and all the equipment needed in logistics. The central warehouse has a total area of approximately 9,500 m 2 and stores all our products: hundreds of thousands of set-top boxes, telephones and modems, as well as a wide array of promotional materials and packaging. In addition to the central warehouse, each of our distributors has their own storage space. At every level, a set buffer of set-top boxes at point of sale, the distributor and at home assures flexibility and liquidity of sales. To close, what were the biggest challenges in 2009? And what's coming in 2010? Last year we introduced significant changes and structural solutions in the Department. We created sections such as Training Section, Quality Section, Trade Marketing Department and Analysis and Settlement Section. We also signed agreements with the points of sale, including those on local marketing efforts, helping make apss more easily recognizable to customers. One major innovation beneficial to both customer and company was the introduction of the so-called flexible offer: when signing a contract for a package, customers are offered the chance to try out programs from a better package for a set time, free of charge, while they decide what works for them. In 2010 we plan to emphasize customer after-sales service, as well as devoting more attention to the sale of additional services: mobile telephony, the internet, higher packages, vod Domowa Wypożyczalnia Filmowa (Home Video Rental), HD Package and hd channels. In terms of logistics, we will be looking to further optimize processes for cost and performance. Cyfrowy Polsat / Annual Report 09 / 63

64 64 / Cyfrowy Polsat / Annual Report 09 A core target is to effectively answer any enquiry within one call.

65 09 CUSTOMER SERVICE SERVICE QUALITY With our customers in mind we continue to raise the quality of service an interview with Grzegorz Sandel, Director of Telecommunications and Customer Service Division Today the battle for the customer is not only fought with prices or products, but it is increasingly related to the service quality. Is Cyfrowy Polsat emphasizing this aspect of management? Cyfrowy Polsat provides people with entertainment. For us Poles this is particularly important: we spend more time watching television than any other Europeans nearly four hours a day. This has over recent years increased awareness among our customers considerably. They know their rights, they know the products, and they what s out there in the market. This means that we have to care: both for the quality of our services and products, and for the level of customer service. Cyfrowy Polsat / Annual Report 09 / 65

66 The average television viewing time in Europe (in minutes) September 2008 September Hungary Italy Poland Great Germany France Netherlands Finland Sweden Belgium Britain Source: Data published by warc How do you assess levels of customer-satisfaction? Each year we commission satisfaction audits from companies which specialize in this field. These have shown satisfaction rising by several percent over recent years. But we are not resting on our laurels. We take great care to analyze all research results in great detail, using them to guide further improvements in customer service processes in our company. Cyfrowy Polsat's Customer Service System was created by the company. What are the benefits? We chose this route since our business is characterized by elements specific to this type of market, and unique to our service model. Creating a tailor-made system optimized directly for our needs enabled us to continually develop and adapt to changes in our offering and market positioning. 66 / Cyfrowy Polsat / Annual Report 09

67 Can customers come back with any problem to you, anytime, day or night? Of course our customer service operates 24 hours a day, 365 days a year. Our Call Centre phone support is delivered by 400 specially trained consultants, while our Internet Consumer Assistance Centre (icok) meets the needs of those of our subscribers who prefer online self-service. Number of accounts open in ICOK (as at and ) DTH DTH MVNO MVNO Total Total Which is more popular: Call Centre, or icok? Obviously it depends on the customer and to meet the needs of all our customers, we need to offer both. Some like to speak to someone who can answer their questions and provide support; others are comfortable with the internet and like to do things for themselves in their own way. At least at the moment, the Call Centre is probably our primary support to customers, but more and more new accounts are preferring the internet option. Currently around 700,000 of our 3.2 million subscribers use icok, and we will continue to develop it and encourage more customers to use it, as an efficient, flexible and customer-friendly option. Cyfrowy Polsat / Annual Report 09 / 67

68 Are Call Centre employees specially prepared for the job? Do they need to know all of the company's offer? We don t think it s reasonable or realistic to expect any one person to be able fully to answer all questions on both television and telecommunications services. That s why we customers are directed towards the appropriate one of two specialized groups of consultants one for television, one for telecommunications i.e. mobile telephony or internet. There is overlap, of course, and our consultants are trained to know when and to whom to direct an enquiry that goes outside their scope of expertise. A core target is to effectively answer any enquiry within one call. To this end, Call Centre consultants receive extensive training not just in direct skills and knowledge but in broader aspects such as understanding how to calm a potentially angry customer and keep control of the conversation, and how to make every customer feel that they are being treated individually and with respect. Then they must pass a stringent process skills-verification assessment before they ever get to talk to a customer. We listen to their phone manner, test their verbal and written skills, interrogate their product and service knowledge thoroughly. Only after these examinations do they begin working for real. What were the biggest projects for your team in 2009? The biggest single challenge of last year was set by the introduction of internet services there was much to change and much to learn. Another important issue was amending terms and conditions for the entire customer base it required a new approach to the customer and changes in the processing of complaints. 68 / Cyfrowy Polsat / Annual Report 09

What challenges and plans do you face in 2010? First, this summer we plan to open a new Contact Centre in Torun, fully equipped with the latest technology, to support our Centre in Warsaw.

69 What challenges and plans do you face in 2010? First, this summer we plan to open a new Contact Centre in Torun, fully equipped with the latest technology, to support our Centre in Warsaw. Two Centers with independent systems should ensure continuity of service in the event of any failure, and more consultants will help assure high quality service to our ever-increasing customer base. This year we are also planning a very strong entry in the field of internet services and bundling: television and telecommunications services under one offer. There is of course the ongoing project of continuing to improve our management of customer complaints, both over the phone and online. We hope next survey will show continued improvement in the service we deliver to our customers and the extent to which they are using ever-improving online technology to better serve themselves. CSI Miami / AXN BROADCASTING INC. All rights reserved. Cyfrowy Polsat / Annual Report 09 / 69

70 We also gain a significant advantage from the fact that most of the it tools we use, we designed. We own the source code, which gives us real benefits in terms of both cost and security. 70 / Cyfrowy Polsat / Annual Report 09

71 We must do everything we can to make it a real power and support for the developing business an interview with Jarosław Chudziak, Director of Information Technology Department it is crucial to business development for every large, modern company. What's the situation at Cyfrowy Polsat? We are a fast-growing company. With a constant stream of new business ideas, new products, new clients, new needs all modern business is based on information: it systems need to be both robust and flexible enough to cope with an environment of rapid and continuous change. It s challenging, but it makes for a stimulating and highly motivational working life! My motto is a phrase from our President, Dominik Libicki at our first meeting, where he said that we must do everything to ensure that it does not inhibit the growing business. We try to act accordingly. Where, then, should advantages be sought in relation to it at Cyfrowy Polsat? I'm a supporter of the thesis that the competitive advantage of the entire company must be developed in every major element of its operation. If every element runs smoothly we can say that we are good, and maybe the best. In my view, our advantage, in relation to it, lies mainly in flexibility, i.e. the art of striking the balance between the formalization of processes (including those in it) and the speed of adaptation to changing needs and expectations. We also gain a significant advantage from the fact that most of the it tools we use, we designed. We own the source code, which gives us real benefits in terms of both cost and security. Another great advantage is our people we are fortunate enough to have a team with exceptional skills and professional competence and our staff turnover in virtually zero. It is rare for it specialists to have such an extensive knowledge of the broad mechanisms of business as those I m delighted to call my colleagues. Cyfrowy Polsat / Annual Report 09 / 71

72 The continual extension of Cyfrowy Polsat's range and scale of activities clearly has great implications for it. What major projects did your department implement last year? One key focus for 2009 was customer service particularly in terms of Customer Relationship Management (crm): a system which aims to systematize, enhance structure and make more effective the work of various departments and sections of the company, particularly telephone consultants. The system records every activity (documents, correspondence, conversations, s, sms), and also serves as an electronic database of all related documents. Success has helped make access to customer information more easy and intuitive. We also had to develop a system for online customer service. We worked on the internet Consumer Assistance Centre for over a year; initially as a relatively simple tool, subsequently adding further elements related to new services like vod Domowa Wypożyczalnia Filmowa (Home Video Rental). Customers can now access their account, see what is in their package, check out their entitlements, see charges for services, make payments, rent movies all without any need for a consultant. And of course a great deal of work continued to go on in the background, on crucial infrastructure projects like billing systems, logistics and warehouse or automation of work-flow processes. We are particularly proud of the new Central Logistics and Warehouse System and the applications we developed to support decisionmaking processes, due for implementation in May internet Customer Assistance Centre (ICOK) Television Mobile Telephony The Internet 72 / Cyfrowy Polsat / Annual Report 09

73 With regard to flexibility of operations, reporting, or operating procedures, what changed with the flotation on the Warsaw Stock Exchange? For us in it, it was a major undertaking. The new situation demanded that we look at things from a new perspective: we had to rapidly learn what needed to be done to effectively meet the expectations associated with the status of a listed company we had to modify our systems, information flow and reporting processes. It was a huge boost for us to make significant changes, including those in the area of formalizing and implementing procedures for the actions taken. In conclusion, what you would like to highlight in relation to the key tasks and projects planned in the near future? Our work is a continual process of optimization related to the clearing of those places where we as a company are being slower and less skilled, less functional or flexible than we could be. It involves careful assessment and analysis of whether our tools and processes are of adequate quality, performance and functionality and, where not, improving them until they are. Some ongoing projects are also about reducing costs and exploiting technologies to improve our competitiveness. To refer back to the motto I mentioned at the outset, I am convinced that this is the best way to be a strong support and not to inhibit the growing business. Cyfrowy Polsat / Annual Report 09 / 73

74 The market for telecommunications services will continue to grow, boosting the economic strength and prosperity of countries that are quick to recognize and seize the opportunities arising out of the development of the information society. 74 / Cyfrowy Polsat / Annual Report 09

75 10 TECHNOLOGY WHERE IS SATELLITE TELEVISION HEADED? The transition from analogue to digital technology is the biggest revolutionary change in the field of electronic media an interview with Dariusz Działkowski, Board Member for Technology Poland is still in the process of transition from analogue terrestrial television signal to a digital signal. What does it mean for viewers? Currently we can only receive 7 analogue television channels, including the three of public tv: TVN, Polsat, TV4 and TV Puls. TVN reaches about 40% of the population, Polsat reaches 98%. So, most customers can get anything from 3 to 7 channels. Digital changes everything: at a stroke, viewers will be able to access at least 30 channels, simply because the frequency demanded by one analogue channel can accommodate several digital ones. The result: more choice and a dramatic expansion of the entire television market. We will also see improvement in quality of reception, with enhanced image sharpness and color, and access to interactive services. The transition from analogue to digital is unquestionably the most revolutionary change in the field of electronic media since the switch from black-and-white television to color, and the introduction of vhf fm stereo broadcasting. Cyfrowy Polsat / Annual Report 09 / 75

High definition television is more and more appreciated and sought after by viewers. Is this what's driving the steady growth the market for digital television?

76 High definition television is more and more appreciated and sought after by viewers. Is this what's driving the steady growth the market for digital television? Digital tv has been growing rapidly for some time; hdtv is simply one new factor in that growth albeit an important one. Hdtv offers better reception quality, especially on large screens. In order to watch it you need an hd television and access to a satellite or cable operator broadcasting in high definition. What is the current state of the hdtv market in Poland? Hd television relatively new here, but the number of channels is increasing rapidly. Most often these are sports or movie channels: hdtv s excellent image quality is particularly beneficial for watching The Big Match or the Hollywood blockbuster! In our offer we give our viewers access to ten channels in high definition (including 7 in a separate Package.) 76 / Cyfrowy Polsat / Annual Report 09

77 HD channels Cyfra + Cyfrowy Polsat n TVP HD Polsat HD TVP HD bbc HD HBO HD TVN HD Canal + Film HD Filmbox HD TVN HD +1 HBO HD Fox Life HD bbc HD Cinemax HD Polsat Sport HD nfilm HD Filmbox HD Eurosport HD nfilm hd 2 Fox Life HD Eurosport 2 HD HBO HD Canal+ Sport HD Discovery hd Showcase Cinemax HD Eurosport HD Nat Geo Wild HD Filmbox HD Eurosport 2 HD MTVNHD Fox Life HD TVP HD MGM HD National Geographic HD nsport HD Nat Geo Wild HD Eurosport HD MTVNHD Eurosport 2 HD Discovery hd Showcase Animal Planet HD Nat Geo Wild HD MTVNHD 14 channels 10 channels 18 channels As at 31 May Cyfrowy Polsat / Annual Report 09 / 77

78 What development prospects do you see in this area? Last year hdtv gained more and more customers through the deployment of programs broadcast in high definition by various broadcasters. Cyfrowy Polsat is still trying to broaden its range of new programs in hd. Such activities pose a number of benefits for all market participants from customers, to operators and manufacturers of television sets. Certainly hdtv is the future of television, but I think that more broadly, the market for telecommunications services will continue to grow, boosting the economic strength and prosperity of countries that are quick to recognize and seize the opportunities arising out of the development of the information society. One core requirement being the development of what you might call Infostradas, or a global information infrastructure. A concept that lies behind Cyfrowy Polsat s multi-play offer for current and future customers, providing them with access to all possible communication channels. What have you done and what plans do you have to help current and potential clients of Cyfrowy Polsat gain access to hdtv? In 2009, we offered hd set-top boxes at affordable prices, as low as pln 199. In addition, we enabled exchange of sd set-top boxes for hd set-top boxes. These moves helped lead to a substantial increase in our hd-subscriber base. Supporting this growth is an enhanced programming offer, with ten new hd channels. In April 2010 we began production hd set-top boxes in our own factory, making high-quality set-top boxes at much reduced cost, increasing our flexibility and competitiveness in the market, and enabling us to offer subscribers excellent equipment at highly attractive prices. Clever design of our hd 5000 set-top box helps enable production processes with maximum efficiency, while agreements with Polish component suppliers enabled us to optimize delivery of large components, minimizing inventory and the cost of storage. It also gives us far greater flexibility to respond rapidly to changes in demand. 78 / Cyfrowy Polsat / Annual Report 09

79 Television seems to be evolving rapidly. What other surprises are there in store for us? This summer saw the launch in the uk of Sky 3 d, owned by BSkyB, marking the debut of three-dimensional television. Many media experts are already calling the launch of 3 dtv the most important technological trend in television market for the foreseeable future. I think the 3 dtv revolution will have an impact at least as great, perhaps even greater, than hdtv. To watch 3 dtv you currently need a special set, along with 3 d goggles, of the kind many of us have recently come across at the cinema. Another interesting related development is stereoscopic television, with a view to delivering a 3 d image with no need for special glasses. Television sets are beginning to appear on the market which allow reception of both traditional 2 d television and 3 d. Other hardware has also been appearing, ready for the advent of 3 d: 3 d blue-ray players, game consoles and so on. In time, we will doubtless see the dvd players to go the way of vhs, being replaced by the 3 d home theatre. Manufacturers of video and digital cameras are of course keeping a close eye on the evolving 3 d story: maybe our children will one day soon be filming us in 3 d, then watching it on their mobile handset. Cyfrowy Polsat / Annual Report 09 / 79

80 80 / Cyfrowy Polsat / Annual Report 09 Our Broadcast Centre, one of Europe's most modern, is one of the largest in Poland

81 HOW DOES SATELLITE TELEVISION WORK? How satellite television works, or from the broadcaster to the recipient an interview with Marcin Bukowski, Director of Television Technology. The world's first satellite transmission took place in 1962; Poland's not until the mid- 80s. Why did pay television take so long to get here? In the 1970s, watching television in Poland was widespread, though for a long time, for most Poles that meant one channel: TVP 1 TVP 2 having a significantly smaller range. In the early 90s, the revolution began with the launch of Polsat (1992) and TVN (1997). At first, of course, such riches were available only to the very rich. With the launch of Cyfrowy Polsat on the cusp of everything changed: it was the dawn of affordable entertainment for ordinary people. How does the television signal reaches our sets? Is it a difficult process? Although the signal must travel over 100,000 km, the process itself is not complicated. All the customer needs is a digital set-top box and a satellite dish, directed at our satellite. Cyfrowy Polsat / Annual Report 09 / 81

83 Diagram of satellite platform operations hot bird 8 13deg East other satelites other broadcasters remote headends broadcaster downlink uplink Downlink Multiplex Uplink Playout Conditional Access System Signal Monitoring & Control cyfrowy polsat satelite center Source: Own materials Cyfrowy Polsat / Annual Report 09 / 83

84 How are programs uploaded to the satellite? We do this in two different ways. Either we upload programs ourselves from our broadcast Centre onto the transponders we lease parts of the satellite which receive and re-transmit the signal or our commercial partners do it for us, broadcasting their signal and adding our encrypting. How do you obtain access to programs? Generally, we acquire access to programs in three ways. The first one is called classical playout, the second one retransmission and the third one reception of channels via fiber. Can you briefly describe what is meant by each of these three ways? The first, classic playout, is the most labor-and time-consuming, but gives us maximum control over content. It involves the broadcaster our partner delivering cassettes with content and the programming schedule (the playlist) for certain days. The operator simply loads the programming schedule into the broadcast automation system, and places the tape in the dedicated cabinet, called Flexicart. The system automatically scans the bar codes from the tapes, then the cassette is removed and inserted into the vcr and pre-loaded onto the broadcast server. At the date and time designated in the programming schedule, the program will be broadcast from the server, allowing Cyfrowy Polsat viewers to watch. With the second method, retransmission, we receive the program from the broadcaster via satellite rather than on a tape, then send it to our transponder after adding our encryption. With the third, we receive programs sd and hd in a digital but uncompressed form, via a fiber link. 84 / Cyfrowy Polsat / Annual Report 09

85 Will the process still look like this in the future? Are these techniques to evolve soon? The means of signal broadcast will not change quickly; we will continue to use play-out or retransmission. But the means of delivering programs to our Broadcast Centre will change. In time, the supply of programs using tapes will give way to supply as digital files over highbandwidth links. We already know how Cyfrowy Polsat receives programming. How do you broadcast it to the subscribers? We broadcast from two upload dishes which we own, and also from seven remote transmitters, also known as headends, owned by other companies and located throughout Poland and Europe. These account for 60 channels, for which our only direct technical involvement is encoding. Dish set installation There must be no natural (mountains, trees) or artificial (high towers, buildings) barriers between the satellite and the receiving dish. WRONGLY CORRECTLY Source: Own materials Cyfrowy Polsat / Annual Report 09 / 85

86 What does the Cyfrowy Polsat Broadcast Centre look like? Our Broadcast Centre, one of Europe s most modern, is one of the largest in Poland. Built in 2006, it began broadcasting in early Packed with the latest integrated video, audio and information systems, it is equipped and ready to broadcast television channels including high definition (hd) giving our customers the highest possible quality of image and sound. What is Multiplex? Analogue television is receding into history. The number of television channels is constantly increasing, but one analogue signal / channel requires one transponder, and transponder capacity is finite. What s changed is that new technologies (compression and multiplexing), enable a single transponder to carry multiple sd or hd channels. Multiplex is where the final data stream is created, with the television channels (vision and audio), teletext and data, ensuring access control (encoding) to broadcast services, plus additional data. Technically, multiplex combines two devices: encoders and multiplexers. The encoder changes the video signal into compressed digital signals; signals from multiple encoders are connected to the multiplexer, which enriches them with additional information, combining all the digital data into a single data stream which it sends to the satellite transponder. In our Broadcast Centre we have four multiplexes, one for each transponder that we use. 86 / Cyfrowy Polsat / Annual Report 09

87 What distinguishes Cyfrowy Polsat from other televisions? We recently signed a contract to receive a digital archive which will begin the process I mentioned earlier; receiving audio-visual materials as digital files rather than on tapes. This will mean no content physically occupying valuable space. Content will come to us electronically, direct to the digital archive, for integration into all our systems. Once we ve migrated fully to digital files, manual handling will be limited to ensuring the broadcast processes run correctly. The ultimate objective is full automation: a file arrives, the system checks to see if it s on a programming schedule; if not, it is sent to the archive, if it is, it joins a queue on the server ready for broadcast at the set time. So the plan for 2010 is to build a digital archive. Is there anything else? Once we ve completed the final switch-off of the old encryption system and the exchange of nearly two million smartcards we want to build an hd multiplex, buy new encoders and launch new channels. In 2011 we plan to build a backup satellite broadcasting centre, to eliminate broadcast disruptions due to the weather. We already achieve 99.8% broadcast continuity, but overcoming weather problems is key to achieving 100%. Cyfrowy Polsat / Annual Report 09 / 87

88 88 / Cyfrowy Polsat / Annual Report 09...we are fighting for the product to be available for the largest number of users, and therefore cost as little as possible.

89 MODERN SET-TOP BOXES In 2009, Cyfrowy Polsat introduced ambitious products into the offer and undertook an intensive service organization an interview with Adam Dawidziuk, Director of Set-Top Boxes Department. In 2009, Cyfrowy Polsat expanded its set-top boxes offer. Can you tell me about the new boxes? Our greatest achievement in 2009 was the launch of a double-tuner hd set-top box with recording. The dvr-7400 hd is produced by our long-standing partner, Echostar. It allows simultaneous reception of two channels; one can be recorded and the other watched. Two independent tuners significantly increases technical complexity, demanding that we redefine its specification and devise new testing procedures. We also last year improved our range of high-definition set-top boxes, replacing the Echostar dsb 7100 hd model with the more up to date Set-top boxes offer sd set-top boxes hd set-top boxes dvr set-top boxes dvr hd set-top boxes Mini Echostar dsb-7100 hd Echostar dvr-747 Echostar dvr-7400 hd Familijny f300 Echostar dsb-7200 hd Echostar 717 Echostar hds-400 e Samsung s 305 g Samsung h 370 g hd 5000 Cyfrowy Polsat / Annual Report 09 / 89

90 How do you go about bringing a new product to market? First, we define the needs and expectations of our customers, which are then translated into technical specifications. We strive to meet these needs at the lowest possible cost, making the new solution accessible to the greatest possible number of users. Reconciling these performance /cost requirements is a big challenge, and typically results in very specific settop boxes, produced exclusively for our customers. We cooperate on production with all the major world manufacturers, who are generally happy to work closely with us to meet our customers needs. How long does this process last? From defining a new product specification to market launch can take as much as a year, though for most standard products it s more likely to be around six months. The difference is mainly due to the time needed to refine technical documentation and create stable and reliable software. Any further delays are generally down to the challenges of producing the processors and memory to our spec, and the transport of final and part-finished products, many of which are shipped to us from Asia. What benefits does Cyfrowy Polsat gain by having its own set-top boxes factory? Having our own factory can significantly reduce both the cost of new set-top boxes and the time it takes to implement changes to products particularly modifying software. The end result being better products to the customer at lower production and maintenance costs. Because we can respond in hours rather than the weeks which would be more typical for products from third parties, most customers are never even aware of most problems. The only sign of their resolution being a new software version number on the set-top box, which few would ever notice. 90 / Cyfrowy Polsat / Annual Report 09

91 What are the main set-top boxes produced in your factory? We mass-produce the Mini and the Familijny (Family), both being our own design. The enthusiastic customer response to our first model the Mini encouraged us to develop a second the Familijny (Family). The Mini is the smallest set-top box on the market, at about the size of an a 5 notebook. Like the Mini, the Family draws very little power just 13 watts. It can even be powered by a 12 V socket, in a caravan for example. In the first quarter of 2010 the factory sent out its millionth unit, and demand for both Mini and Familijny (Family) remains strong. Set-top box functionalities Mini set-top box sd set-top box hd set-top box dvr hd set-top box The smallest set-top box on the market epg Sorting and grouping of channels Parental Control Live Pause Hard drive hdtv Two tuners Cyfrowy Polsat / Annual Report 09 / 91

Is a set-top box a complex device? How many parts does it contain and what is its heart? Technically speaking, the set-top box is a computer: its heart is the processor.

92 Is a set-top box a complex device? How many parts does it contain and what is its heart? Technically speaking, the set-top box is a computer: its heart is the processor. It also needs ram and rom memory for software storage nowadays very similar to the memory used to store digital photos. Another important component is the smart-card which decrypts encrypted channels. Then there is the tuner, connected to the antenna, the power supply circuit and a set of outputs: around 200 pieces in all. How are Cyfrowy Polsat's set-top boxes serviced and what does such a service involve? The set-top box is in truth a simple technical device. Like any technical device, however, it can break down. For modern designs defects are rare probably no more than one unit in 50 per year. But given a large customer base, that s still a lot of faulty boxes. Our warranty service is designed to minimize the disappointment to the customer. Some customers choose to rent rather than purchase equipment. Such rented boxes remain our property, and we continue to maintain and update them well beyond the standard warranty period. The introduction of a large number of our own manufactured set-top boxes in 2009 meant Cyfrowy Polsat assuming warranty and after sales obligations to large numbers of customers. I believe we handled this challenge very well. Our service also covers withdrawals from circulation, and the disposal of old or worn out set-top boxes. CSI NY / AXN. AXN. All rights reserved. 92 / Cyfrowy Polsat / Annual Report 09

93 Manufacture of set-top boxes obviously involves the generation of waste. How do you seek to protect the environment? Fortunately the production of electronic devices, including decoders, does not in itself create too much waste. The main waste is the packaging in which electronic components are supplied, mainly cardboard and foil. Chemical waste, such as fluids and other substances necessary for machine operation, are created in minimal quantities, given the scale of production. Whatever the number, all are segregated, recorded, reported and disposed of in accordance with regulations. We cooperate with specialized companies in this field with appropriate authorization and capabilities in disposal or recycling. To sum up, can you tell us what was the main goal in 2009? With regards to set-top boxes, 2009 was the year of the introduction of a new, modern and ambitious double-tuner hd hard drive set-top box the Echostar dvr We also optimized production of our own set-top boxes, which demanded a major effort of the whole team responsible for production. In addition, we improved our warranty and after warranty service. And what challenge do you face in 2010? First of all, we ll be looking to offer new set-top boxes which are more user-friendly and better for the environment, with more features and greater energy efficiency. Production of our own hd set-top boxes has begun, and we aim to produce a million units exclusively for Cyfrowy Polsat by the end of 2010 nearly 60% being hd 5000s. Achieving this objective will mean using the factory s full production capacity for the first time, amounting to around 90,000 boxes per month. We also plan to introduce further organizational changes in our service, in response to the fundamental technological changes of recent years in set-top box design. Cyfrowy Polsat / Annual Report 09 / 93

94 At Cyfrowy Polsat we understand that it's people who build a company, its organizational culture and power 94 / Cyfrowy Polsat / Annual Report 09

95 11 EMPLOYEES PEOPLE ARE OF PARAMOUNT IMPORTANCE We are committed to recruiting and retaining highly motivated and effective staff who also feel well in our team an interview with Anna Roszewska, Director of Human Resources Department. The only truly valuable asset of a company are its people. Do you agree with these words of management guru Peter F. Drucker? At Cyfrowy Polsat we understand that it s people who build a company, its organizational culture and power, and we try to help our people develop their knowledge and skills and fulfil their potential. We want them to come to work gladly, with pleasure, feeling that they are pursuing their goals and that their contribution makes a difference to the company. We try to take care of them at many levels. Please describe the levels and describe the key tasks of the Personnel Department. These levels are focused on several issues directly related to the support that we try to provide both to the company and directly to employees. In addition to our core responsibility, to support the company in the areas of hr and payroll, we re primarily committed to the acquisition and retention of the best employees: i.e. targeted recruitment, and planned, broadly defined training and development. We recognize the importance of continuous improvement, so we make sure our employees have access to the latest technology, as well as every opportunity to enhance their skills. We also work constantly to improve our financial and non-financial incentive schemes. Cyfrowy Polsat / Annual Report 09 / 95

96 How many employees does Cyfrowy Polsat have? Does it employ students and graduates? There s been a strong increase in employment. In December 2008 we employed 390 workers; by the end of 2009, over 610. Today, Cyfrowy Polsat and Cyfrowy Polsat Technology employ nearly 700 people, of whom 14% have been with us for over 6 years. We also work with a further 300 people including many students and graduates, who are open to new challenges. We are lucky to have both young people, who bring fresh air to the company, great commitment and new thinking, and many experienced managers, specialists and recognized experts in the industry. In my view, it s this merger between the effective practices and expertise of experienced managers and the energy and vitality of young newcomers that s directly responsible for the success of the company. THE EMLOYMENT RATE BASED ON SEX AT CYFROWY POLSAT (AS AT 31 DECEMBER 2009) women 220 men 391 THE EMLOYMENT RATE BASED ON AGE AT CYFROWY POLSAT (AS AT 31 DECEMBER 2009) < 30 [31 40> [41 50> [51 60> 60 Total Source: Company's calculations 96 / Cyfrowy Polsat / Annual Report 09

97 How does Cyfrowy Polsat motivate its employees to succeed in the company? We try to create an atmosphere that encourages new ideas and initiatives, as the market and our competition continually set new challenges for us. We try to motivate people by investing in their development, with training courses, workshops to develop soft skills, language classes, and subsidized education. We encourage our people not to be too devoted to their specific job role, but to think broadly and live life to the full. We also offer a rich medical care package and subsidize sporting activities. BENEFITS FOR THE EMPLOYEES OF CYFROWY POLSAT GROUP (AS AT 31 DECEMBER 2009) Medical care Sport packages Source: Company's calculations So, you'd say Cyfrowy Polsat is a good employer. What else do you try to do to improve your image in this respect? The fact that our company is a great place to work is confirmed by an exceptionally low (sub-1%) churn rate i.e., people leaving the company each year and building our image as a good employer, particularly among students, is one of our priority activities planned for this year. We try to be present at major events, such as job fairs; we also cooperate with career offices of many Warsaw universities and colleges. This year we plan to run a program of paid internship. We ve never done this before, but we believe it will contribute to strengthening the company s image as somewhere that not only provides opportunities to work on interesting, innovative projects, but is also a friendly place with a really good atmosphere. Cyfrowy Polsat / Annual Report 09 / 97

98 Hot or Not / Viva Polska. 98 / Cyfrowy Polsat / Annual Report 09

99 What is the process of recruitment at Cyfrowy Polsat? Do you practice internal recruitment? We rely primarily on internal recruitment, offering employees opportunities for development and promotion. Many of our current key managers have spent their entire working lives in our company. Alongside vertical promotion, we also try to think and act horizontally, expanding employees areas of competence and accountability. When we recruit externally, we look for people whose personality and skills will fit in with our culture. Knowledge and experience are important, but not decisive. We also look to recruit and retain highly motivated and effective staff who gel with our team. It's often said that women suffer discrimination in the Polish labor market. Is this true at Cyfrowy Polsat? I ve never seen it. Cyfrowy Polsat is a modern and dynamic company that doesn t live by stereotypes. According to my data, at Cyfrowy Polsat women account for around 36% of all employees and almost 35% of managerial positions. What was the greatest challenge for Human Resources Department in 2009, and what goals have you set for 2010? Our constant challenge is to align our efforts with the real needs and expectations of the company. On one hand I have to think about the Management Board, on the other, the needs of individual departments. Currently, our efforts are focused on building an organizational culture to support the implementation of company strategy. We are working to strengthen the image of the employer, implement systems for measuring performance (annual appraisal, mbo Management By Objectives), design a training system tailored to specific needs, and develop an effective remuneration and benefits management policy. Cyfrowy Polsat / Annual Report 09 / 99

101 12 REVIEW OF OPERATING AND FINANCIAL SITUATION Review of operating and financial situation 2009 Review Operating Results This has been a year of robust growth. The number of subscribers signing a contract with us was comparable to the previous year. More customers chose more expensive programming packages, especially those who signed an agreement in the fourth quarter. We also see a lot of interest in hd channels, and demand for our new vod Domowa Wypożyczalnia Filmowa (Home Video Rental) significantly exceeded expectations. Financial results for 2009 reflect the stability of our business and our operational efficiency. Despite the development of telecommunications services and introduction of new products we reached 22% s revenue from dth subscription fees growth, ebitda growth of 12%, adjusted for currency effects and 6% growth of net profit adjusted for the impact of exchange rates. The number of our customers increased rapidly in 2009, mainly due to the quality of our programming and the value it represents for the average Pole. Annual net additions amounted to 475,000, representing a 57% market share of net additions of paid subscribers of satellite platforms in Poland. The net additions reflect slightly higher gross additions than the previous year and a slightly higher loss of subscribers. We find these results highly satisfactory, given more difficult macroeconomic conditions, increased competition, and the approaching saturation of Polish pay television services. We are trying to expand our presence in Polish households. In September 2008 we launched mobile services, and from December 2009 we conducted consumer tests of internet access services, with a view to launching commercial provision in February In addition, in December 2009, we opened a vod Domowa Wypożyczalnia Filmow (Home Video Rental) service. Expanding our offer with new channels, including those of hd quality, increased interest in premium products, and the launch of vod Domowa Wypożyczlania Filmowa (Home Video Rental) allowed us to increase the arpu of Pakiet Familijny (Family Package) to pln 40.3 (2008: pln 39.4) and the arpu of the Pakiet Mini (Mini Package) to pln 9.2 (2008: pln 8.6). Cyfrowy Polsat / Annual Report 09 / 101

102 Potential of HD technology Migration to high-definition television offers significant potential for the development of our business. Broadcasters are developing their hd channels faster than ever before. Alongside these trends we see growing awareness of hd services among customers, some even beginning to view hd as a standard. Subscribers to the HD service In 2009, we offered hd set-top boxes at more affordable prices, i.e. from pln 99. In addition, we introduced an exchange offer of set-top boxes for hd boxes and began providing hd settop boxes. This increased the number of hd subscribers. Helping drive this growth is an enhanced programming offer, which includes 10 channels in hd. Increased growth in the number of hd technology users offers development potential to our business. In April 2010 we began production of our own hd set-top boxes, which will significantly reduce the cost of purchase. We believe the hd offer, at the low costs we have incurred, will provide us with significant revenues. Internet and mobile telephony In September 2008 we launched mobile services, and from December 2009 we conducted consumer tests of internet access services, launching commercially in February In the second quarter of 2010 we plan to introduce an multi-play offer (tv, internet and mobile telephony under one contract with one invoice) because we see strong potential for this type of service. We will be the Poland s first dth operator to introduce such a service, and we believe it will give us a definite advantage over competitors and improve customer satisfaction, helping reduce the churn rate. 102 / Cyfrowy Polsat / Annual Report 09

103 Enrichment of the programming offer and vod Domowa Wypożyczalnia Filmowa (Home Video Rental) In November 2009 we launched a vod service Domowa Wypożyczalnia Filmowa (Home Video Rental) on 15 television channels, giving subscribers access to 320 movies, regardless of their set-top box. From one day, customers have access to 15 proposals, and every month we make 30 new productions available. Since the introduction of the service on 1 December 2009 we have sold 100,000 videos, significantly exceeding our expectations. Financial Overview Financial results for 2009 reflect the stability of our business and operational efficiency. The increase in subscriber base and arpu growth in each segment contributed to 14% revenue growth to over pln 1,279 million. Ebitda adjusted for foreign exchange cost increased by 12% despite our investment in developing new services. Net profit adjusted for exchange rates increased 6% to pln 287 million. Revenues Revenues of the Group increased to pln 1,279 million, 14% up on 2008 (pln 1,119 million). Dth subscription fee revenues increased 22% to pln 1,190 million (2008: pln 978 million), which reflects a growing subscriber base and increased interest in our premium packages. Dth subscription fee revenues account for over 93% of our total revenue. Revenues from sales of digital satellite reception equipments and mobile phones were down pln 47 million on the 2008 figure of pln 100 million, to pln 53 million. This fall was in large part due to customers choosing to rent a set-top box rather than buy (65% of contracts), due partly to our pricing policy. Other operating revenues, not included above, increased 4% to pln 42 million (2008: pln 41 million), largely on account of revenues from the rental of premises and equipment to a company providing us with call centre services. Cyfrowy Polsat / Annual Report 09 / 103

104 Costs Programming costs were up pln 128 million to pln 354 million (2008: pln 226 million). pln 56 million of this increase reflects the weakening of the zloty against the u.s. dollar and the Euro, with over 94% of our programming costs denominated in those currencies. The remaining increase is primarily due to the growth in our subscriber base, and enriching our programming offer with new channels, including hd channels. Transmission costs increased pln 24 million to pln 83 million (2008: pln 59 million). pln 15 million of this increase results from the weakening of the zloty against the Euro, as these costs are denominated entirely in Euro. The remaining increase is for the rental of the fourth transponder from Eutelsat (May 2009), in order to offer the vod Domowa Wypożyczalnia Filmowa (Home Video Rental) service. Marketing costs increased 25% to pln 57 million (2008: pln 46 million). The increase is mainly due to the intensity of local marketing activities, increased competition in our market, especially in the fourth quarter of 2009, and the promotion of telecommunications services. The subscriber acquisition cost increased to pln 132 million (2008: pln 116 million), partly driven by changes in the mix of programming packages sold towards premium packages, for which we pay higher commissions. Total cost of distribution and logistics grew pln 16 million to pln 124 million (2008: PLN 108 million). The customer relation management cost rose pln 29 million to pln 81 million (2008: pln 52 million), mainly due to increased investment in the Call Centre to serve the larger subscriber base, and provide better customer service. Customer relation management cost also increased due to increased competition, subscribers exiting the basic periods of contracts, and preparing to change terms and conditions. The cost of own products sold was down 35% to pln 90 million (2008: pln 138 million) following a decline in sales of set-top boxes, as over 65% of customers signing a contract in 2009 chose to rent. Other operating expenses, not included above, increased pln 48 million to pln 214 million (2008: pln 166 million), mainly due to increased depreciation and amortization and higher costs of smart- and sim cards handed over. 104 / Cyfrowy Polsat / Annual Report 09

105 ebitda Profit Ebitda adjusted for the impact of the weakening zloty amounted to pln 388 million, giving an adjusted ebitda margin of 30%. Reported ebitda was pln 318 million, giving the reported ebitda margin of 25%. Reported gross profit of pln 284 million (2008: pln 334 million) reflects the strong depreciation of the zloty against the u.s. dollar and the Euro, which we estimate increased our costs by about pln 70 million. Gross profit adjusted for the impact of the weakening of the zloty rose to pln 355 million. Income tax for the year 2009 amounted to pln 54 million (2008: pln 64 million). Effective tax rate was 19%. Adjusted net profit was pln 287 million. Reported net profit was pln 230 million (2008: pln 270 million), which translates into reported earnings per share of pln 0.86 (2008: pln 1.01). Dividend On 28 May 2010, the Supervisory Board adopted a resolution accepting the recommendation of the Management Board of the Company as to the amount and timing of dividend payment. The Management Board of the Company recommended to the General Meeting the payment of dividend of pln 0.57 per share: a total of pln 152,945,250 paid in two tranches: pln 0.38 per share (pln 101,963,500 on 11 August 2010) and pln 0.19 per share (pln 50,981,750 on November 17, 2010). Cash flow and financial position The Group s financial position has improved. The Group generated an ebitda of pln 317 million. Cash flow from operating activities decreased in comparison with 2008 to pln 183 million (2008: pln 316 million) due to a pln 91 million increase in net value of set-top boxes leased to our subscribers, and a pln 62 million increase in change of stock. The payment of pln 201 million in dividends, pln 67 million in loan repayment plus interest, pln 53 million of tax paid, and pln 37 million of capital expenditure all impacted the level of free cash flow, which amounted to pln 72 million. Our capital expenditure totaled pln 37 million. In addition, we increased the value of set-top boxes made available to customers and / or subscribers to pln 113 million. In 2009 we began the purchase of shares in M.Punkt Holdings Ltd., which cost us pln 25 million. Cyfrowy Polsat / Annual Report 09 / 105

Ultimate Survival / Discovery Channel. Discovery Channel. All rights reserved.

107 During 2009 we repaid pln 63 million of the principal amount of our loan. The remaining debt is pln 47 million and will be repaid up to 9 October Cash balance at year end was pln 73 million. In addition, the escrow account held pln 27 million, intended to finalize the purchase of shares in M.Punkt Holdings Ltd. In 2009, we signed a credit line agreement for pln 100 million, to expire on 29 October Balance sheet As at 31 December 2009, our total assets stood at pln 775 million. Non-current assets were pln 341 million; current assets pln 434 million. Total equity reached pln 322 million, non-current liabilities were pln 29 million and current liabilities were pln 424 million. Non-current assets were up pln 140 million to pln 341 million as at 31 December 2009, mainly due to a pln 101 million increase in the value digital satellite reception equipment and modems, due to the increase in set-top boxes over previous years, resulting from changing customer preferences away from purchase toward rental, and from recognizing the value of internet access sets, which were made available to customers taking part in our broadband tests. Current assets were down pln 122 million to pln 434 million as at 31 December 2009, mainly due to decline in cash balances as a result of dividend payment, the start of the transaction with M.Punkt Holdings Ltd., payment of the tax, capital expenditure, and the partial repayment of the loan with interest. The decline in the cash balance was partially offset by two factors: 1) a pln 27 million increase in change of stock, resulting mainly from a pln 23 million increase in set-top boxes (both purchased and produced) and pln 3 million worth of smart and sim cards, 2) an increase in restricted cash due to deposit cash in the escrow account relating to the option to buy M.Punkt Holdings Ltd. shares. Non-current liabilities were down pln 29 million to pln 29 million as at 31 December 2009, as a result of a fall in liabilities from loans and borrowings. In view of the fact that the final repayment of this debt falls on 9 October 2010, the debt has been fully recognized as a current debt. Current liabilities increased by pln 17 million to pln 424 million as at 31 December Cyfrowy Polsat / Annual Report 09 / 107

108 Our financial performance largely depends on how well we retain existing customers and attract new ones, and migrate subscribers onto higher programming packages 108 / Cyfrowy Polsat / Annual Report 09

109 Key financial results Despite the economic slowdown and a weakening of the zloty against the dollar and the Euro, we definitely have grounds for satisfaction an interview with Tomasz Szeląg, Member of the Management Board for Finance. How was 2009 for the company? The first half of the year was difficult. Recession in other countries and the economic slowdown in Poland decreased Poles willingness to spend money. However, the Polish economy performed well by comparison with other countries of Central and Eastern Europe. Ours is the only European Union economy which managed to avoid a recession in the full sense of the word. Gdp growth for 2009 and presented data on Polish economic growth in the fourth quarter of 2009 (3.1%, as against forecasts of 3%) puts us among the best performing European states. Though Poles wisely kept a tight grip on their cash, television remains one of the few kinds of entertainment available at your fingertips. This has helped drive a significant increase in our number of subscribers. In the first half of the year most were lower package subscribers, paying lower subscription fees. But in the second half of the year customers increasingly chose more expensive packages especially those signing up in the fourth quarter. We also noticed a lot of interest in hd, and strong demand for our newly introduced vod category service Domowa Wypożyczalnia Filmowa (Home Video Rental) significantly exceeding our expectations. Can you offer a brief summary of the financial results for 2009? Financial results for 2009 reflect the stability of our business and operational efficiency. Despite the aforementioned economic slowdown and the weakening of the zloty against the dollar and the Euro, we definitely have grounds for satisfaction. Consolidated revenues increased 14% to nearly pln 1.3 billion. Despite costs relating to our investment in the development of telecommunications services and introduction of new products, we achieved a 12% increase in ebitda adjusted for the impact of exchange rates, and a 6% growth in net profit adjusted for the impact of the exchange rate. Cyfrowy Polsat / Annual Report 09 / 109

110 And in terms of operating results - are they are satisfactory? The number of our customers increased rapidly in 2009, mainly due to quality programming and the value it offers the average Pole. Annual net additions amounted to 475,000 a 57% market share of net subscriber additions, making it one of the best results in our 10 year history. The results we achieved are very satisfactory for us given the already cited more difficult macroeconomic conditions, increased competition and a nearly saturated pay television services market in Poland. Enhancing the attractiveness of our programming offer by introducing new channels, including hd channels, increased interest in premium products, and the introduction of vod Domowa Wypożyczalnia Filmowa (Home Video Rental) service, helped us increase our Pakiet Familijny (Family Package) arpu to pln 40.3 (2008: pln 39.4) and the arpu of Pakiet Mini (Mini Package) to pln 9.2 (2008: pln 8.6). What had greatest impact on the 2009 results? Our financial performance largely depends on how well we retain existing customers and attract new ones, and migrate subscribers onto higher programming packages. The 323,000 increase in Pakiet Familijny (Family Package) subscriber base was achieved through skilful changes in the structure of promotion. We are now thinking of offering customers a flexible offer, with the opportunity to try out channels from higher packages free of charge. On expiry of the trial period, we believe a significant proportion will then opt to continue with the channels as a paid option. Innovations such as these have helped boost our subscriber base at year-end to over 3.2 million, representing almost 23% of Polish households. In other words, we have a set-top box in almost a quarter of Polish households. Another factor that significantly affected our 2009 financial results was changes in exchange rates. Approximately 50% of our costs are denominated in Euros and u.s. dollars the weakening of the zloty against these currencies in 2009 increased our costs by about pln 70 million. 110 / Cyfrowy Polsat / Annual Report 09

111 Are you going to enrich the programming offer in 2010? How will it affect the results of 2010? We know from experience how crucial to growth is the introduction of new channels, enhancement of the attractiveness of our programming offer and the development of new technological solutions. We believe that enriching our programming offer will have a positive impact on our financial results. Inevitably there is an increase in programming costs, which also grow as the subscriber base increases, or migrates to higher programming packages; but such cost increases are outweighed by the consequent increases in dth subscription revenues and arpu. Should we expect arpu to increase further? Yes. Promotional initiatives implemented in the fourth quarter of 2009, as well as changes in terms and conditions should result in further steady growth in arpu. In addition, to maintain this process we plan to continue expanding our programming offer, focusing primarily on acquiring new high-quality channels including hd channels and on enlarging the range of services in the video on demand category. We believe arpu for the Family Package will show an upward trend, mainly due to increases in the number of subscribers to premium programming packages (Relax Mix Package, Relax Mix & HBO Package, Super Film Package). We are also counting on higher revenue per subscriber due to a wider choice of channels and the introduction of high-definition hd Package (October 2009), and the introduction of new services to our portfolio (broadband and vod Domowa Wypożyczalnia Filmowa (Home Video Rental). arpu will also rise as subscribers emerge from the base period during which they receive promotional terms of payment of service fees, boosting monthly average net income per subscriber. Cyfrowy Polsat / Annual Report 09 / 111

113 What may have the greatest, positive or negative, impact on the company in 2010? First of all exchange rates. Please note that about 50% of our operating costs depend on them. What are the most important task facing you and the entire finance department? Our activities are aimed at supporting business development. We have begun implementing our strategy of becoming a provider of multi-play services. Becoming a multi-player operator will make us the only provider offering converged services to people living in small towns and rural areas all over Poland. For many of these households we will be the only provider of internet access. Even where we face competition from mobile operators, our broadband will generally offer real and tangible advantages, particularly in speed, thanks to its employment of the very latest technology. We believe that the low market saturation of multi-play offer and the poor quality of internet access in less-urbanized areas will make our offer irresistible to many of our existing satellite pay television subscribers as well as large numbers of potential multi-play offer customers. We all have a lot to learn, and we in the finance department will be expected to help ensure that the learning doesn t come at a high price. We want to be at the heart of the business, exploiting our expertise and knowledge to help our company achieve the rapid growth of which we know it is capable. Cyfrowy Polsat / Annual Report 09 / 113

Hamlet / Zone Europa. Zone Europa. All rights reserved.

115 13 CYFROWY POLSAT AS A PUBLIC COMPANY AUTHORITIES OF THE COMPANY Supervisory Board The Supervisory Board comprises five members. Throughout 2009 the composition of the Supervisory Board remained unchanged. Composition of the Supervisory Board Name and surname Zygmunt Solorz-Żak Robert Gwiazdowski Position President of the Supervisory Board Independent 1 member of the Supervisory Board Year of first appoint-ment Year of appointment to current term Year of term expiry Andrzej Papis Member of the Supervisory Board Leszek Reksa Heronim Ruta Independent 1 member of the Supervisory Member of the Audit Committee Member of the Supervisory Board Member of the Audit Committee Member of the Remunerations Committee 1 Complies with independence criteria listed In Best Practices of wse listed Companies In Chapter iii item six Cyfrowy Polsat / Annual Report 09 / 115

116 Committees of the Supervisory Board According to the by-laws of the Supervisory Board, it may appoint permanent committees, in particular the Audit Committee and the Remuneration Committee. The Supervisory Board is entitled to appoint ad hoc committees to investigate particular issues that remain within the competence of the Supervisory Board or to act as advisory or opinion-making bodies of the Supervisory Board. The Supervisory Board of Cyfrowy Polsat appointed the Audit Committee and the Remuneration Committee. The Audit Committee as at 31 December 2009 comprised the following members of the Supervisory Board: Heronim Ruta Robert Gwiazdowski Leszek Reksa The Remuneration Committee as at 31 December 2009 comprised the following members of the Supervisory Board: Zygmunt Solorz Żak Heronim Ruta 116 / Cyfrowy Polsat / Annual Report 09

Management Board of Cyfrowy Polsat Currently, our Management Board comprises three members. Its composition changed in 2009 and at the beginning of January 2010.

117 Management Board of Cyfrowy Polsat Currently, our Management Board comprises three members. Its composition changed in 2009 and at the beginning of January In May 2009, Maciej Gruber, Member of the Management Board for Finance resigned and was replaced by Tomasz Szeląg. In January 2010, Andrzej Matuszyński, Member of the Management Board for Marketing and Customer Service resigned from his position and Dominik Libicki, President of the Management Board, assumed his responsibilities. Composition of the Management Board (as at the date of report publication) Name and surname Position Year of first appoint-ment Year of appointment to current term Year of term expiry Dominik Libicki President of the Management Dariusz Działkowski Member of the Management Board Tomasz Szeląg Member of the Management Board Power Snowmobile Tour / Extreme Sports Channel. Extreme Sports Channel. All rights reserved. Cyfrowy Polsat / Annual Report 09 / 117

Dominik Libicki Dominik Libicki has been the President of the Management Board of Cyfrowy Polsat s.a. since March 2001. Mr.

z o.o., which is involved in the project of implementation of terrestrial digital television in Poland. Since February 2005 Mr.

118 Dominik Libicki Dominik Libicki has been the President of the Management Board of Cyfrowy Polsat s.a. since March Mr. Libicki is also President of the Management Board of Cyfrowy Polsat Technology Sp. z o.o. Mr. Libicki also sits on the Supervisory Board of Polskie Media s.a., the broadcaster of the TV4 channel. Mr. Libicki is also on the Supervisory Board of POT Sp. z o.o., which is involved in the project of implementation of terrestrial digital television in Poland. Since February 2005 Mr. Libicki has been the Vice-President of the Association of Private Media Employers, incorporated into Polish Confederation of Private Employers Lewiatan. Mr. Libicki s previous professional experience is mainly related to the television production industry. He held the position of Managing Director at PAI Film. He also ran his own company Studio Meg, which produced television advertising spots and television programs. Between 2005 and 2006 he was a member, and between 2006 and 2008 the Vice-President of the Supervisory Board, of Polska Telefonia Cyfrowa Sp. z o.o., Poland s largest mobile telephony provider (the Era network). Mr. Libicki graduated from the Sanitary Engineering Faculty of the Polytechnic School of Wrocław. He attended training for members of Supervisory Boards of State-owned Companies conducted by the Ministry of Economy. Dariusz Działkowski Dariusz Działkowski has been the Member of the Management Board of Cyfrowy Polsat s.a. for Technology since August Mr. Dzialkowski also sits on the Management Board of Cyfrowy Polsat Technology Sp. z o.o. From November 2001 he was the Director of Technology for Cyfrowy Polsat s.a. He gained his previous professional experience with Canal + and Ericsson, as Director of Technology and Services Sales Department Manager respectively. He is one of the founders of Centrum Telemarketingowe Sp. z o.o. Mr. Działkowski graduated from the Electronics Faculty of the Polytechnic School of Warsaw with major in Radio and Television. Mr. Działkowski also participated in the MBA Program at the University of Maryland. 118 / Cyfrowy Polsat / Annual Report 09

Tomasz Szeląg Mr. Tomasz Szeląg has been the Member of the Management Board for Finance since 2009. Between 2002 and 2003 Mr.

119 Tomasz Szeląg Mr. Tomasz Szeląg has been the Member of the Management Board for Finance since Between 2002 and 2003 Mr. Szelag was an assistant at the Foreign Trade Faculty of the Economic Academy of Wrocław. In May 2003 Mr. Szeląg received a PhD for his thesis on hedging transaction used by world copper producers and went on to become a lecturer at the Faculty of International Economic Relations of the Economic Academy of Wrocław. Between 2003 and 2004 he also held a position of a lecturer at Wrocław School of Banking at the Faculty of International Economic Relations. At the same time, Mr. Szeląg also held the post of Chief Specialist in the Currency Risk Department of kghm Polska Miedź s.a. and then of the Market Risk and Analysis Department, whose Director he became in September In December 2004 he become Director of Hedging Department of kghm, a position he held until March From April 2007 to June 2008 he worked as Director of Brach of Société Générale Bank in Wrocław. In July 2008, Mr. Szeląg took the post of Vice-President for Finance with Telefonia Dialog s.a., which he held until March Mr. Szeląg graduated from the National Economy Faculty at the Economic Academy of Wrocław, with major in International Economic and Political Relations, specializing in Foreign Trade. SHAREHOLDERS STRUCTURE Shareholders Structure No. Shareholder Number of shares % of shares Number of votes % of votes 1 Polaris Finance b.v. 175,025, % 341,967, % 2 Others 93,300, % 105,775, % Total 268,325, % 447,742, % As at 31 may 2010 Cyfrowy Polsat / Annual Report 09 / 119

120 Effectively conducted investor relations definitely represent an opportunity for the company, and investment in investor relations always pays. 120 / Cyfrowy Polsat / Annual Report 09

121 CORPORATE GOVERNANCE AND EFFECTIVE COMMUNICATION WITH STAKEHOLDERS The condition of the company s success is to provide reliable information through investor relations an interview with Małgorzata Czaplicka, Director of Investor Relations and Corporate Communication. Appropriate communication translates into good business reputation; a key intangible asset to any company. How do you build a good image of the company in business? It s true, the reputation of a company is a vital intangible asset, created by its employees, investors, customers and other groups of stakeholders. Our reputation is one of the most important values we strive to protect, mainly through ethical behavior among our employees, partners and contractors. Building a good reputation is a long and delicate process, but a very important one for the company. A key factor, we believe, is consistent, strategic and multifaceted communication with every aspect of the environment in which we operate. Every company that aspires to a strong market position needs a clear, individual identity that differentiates it from competitors. We build ours through intensive work in two important areas: Public Relations (pr) which aims to communicate with the world at large and Investor Relations (ir) which focuses on defining the image of the company within the investment community primarily current and potential shareholders. Cyfrowy Polsat / Annual Report 09 / 121

122 Building identity requires transparent communication, both inside and outside the company. How do you achieve that? Building identity is one of three main objectives along with gaining acceptance and nurturing trust which we pursue by nurturing a positive image in society. We build it primarily through transparent communication (including among other things applicable law, common purpose and the scope of cooperation within and outside the company) with our entire environment. Effective communication helps develop strong bilateral relationships with customers and other key stakeholders. Our efforts in this area began by developing a coherent information strategy for the company (rooted in company strategy) and by hiring and establishing appropriate people and teams a spokesperson, a Department of Investor Relations, and Corporate Communication. Our spokesperson handles broad media relations, including development of the media coverage, identifying and working with key journalists, preparing press releases and organizing media events. Transparent, continuous communications within ir means enabling efficient access to data, to oversee the company s financial position and its prospects for development. Internal communication is also among our responsibilities: it is also an important element in the company s financial performance, and a key component in employee involvement. Our Corporate Communication Department also works to build positive relationships with local communities and with charitable organizations. Alias / AXN Crime. AXN Crime. All rights reserved. 122 / Cyfrowy Polsat / Annual Report 09

123 How does Polish ir compare globally? How does Cyfrowy Polsat's compare with other companies? Investor relations market in Poland is in its infancy. Too often in Poland, ir is confused with public relations or even with promotion and advertising. But the situation is improving, as Polish practitioners learn from their global peers. Trends in global markets clearly influence the direction Polish companies are taking. Some have been exposed to international capital markets long enough to have adapted their ir departments to better meet investors expectations. And there is an increasing demand for ir specialists due to the ever-increasing demands of investors. Investor relations demands a combination of skills understanding of business strategy, a firm grounding in finance and controlling, the ability to communicate and build relationships. It s not easy, and genuine experts are few. As a wig 20 company, Cyfrowy Polsat clearly needs a higher level of investor relations than smaller companies. But I think our prizes and awards in investor relations clearly demonstrate our ability to meet market expectations. And I think in Poland overall, levels of skill and understanding in ir have risen considerably over recent years, and the general level of competence is now satisfactory. Cyfrowy Polsat / Annual Report 09 / 123

124 Being a listed company you participate in the shaping of appropriate economic and social relations. What channels of communication does the company use in dealings with investors, press and employees? We use a range of ir tools and techniques from the traditional through marketing to the most modern technological tools. The more traditional channels include regular reports (annual, semi-annual, quarterly), shareholders meetings, investor conferences, road shows and face to face meetings. The more advanced technological tools include our web site aimed at investors (http: / / periodic newsletters and teleconferences with the Management Board. As part of marketing communications, we organize press conferences to announce our quarterly or half-year results. We also produce corporate brochures and other communications materials, including a marketing annual report (last year we received an award in The Best Annual Report contest from Stowarzyszenie Inwestorów Indywidualnych (Association of Individual Investors). For our media relations we use the press office on our website, press releases, interviews with experts (in both in the general and trade press), tv coverage of the stock exchange, press conferences and special events, radio programs sometimes with the participation of Board Members meetings with journalists, and direct participation in conferences. For our internal communications, we use media including our Intranet and its integrated internal newsletter, bulletin boards, contact box, posters, occasional meetings with the Management Board, and meetings in teams or small workgroups. Does the company meet the criteria of Best Practices of WSE Listed Companies? Cyfrowy Polsat Company is subject to a set of corporate governance rules contained in the Best Practices of WSE Listed Companies document, an Annex to Resolution No. 12 / 1170 / 2007 of the Stock Exchange Council of 4 July To implement a transparent and effective information policy we primarily provide fast and secure access to information to shareholders, analysts and investors, using both traditional and modern technologies. Our investor web site contains all necessary information, and in September 2009 reached the third and final stage of the Issuer s Golden Website Competition 2009 (Złota Strona Emitenta zse). To help assure effective implementation of Best Practice, and in accordance with our Articles of Association, our Supervisory Board includes two independent members: people with no direct ties to the Company, or its employees or shareholders, which clearly aids their ability to provide a degree of impartiality in the decision-making process. 124 / Cyfrowy Polsat / Annual Report 09

125 How does the company comply with the principles of good supervision and management? As a listed company we are constantly working to increase the value of Cyfrowy Polsat s.a. With a view to meeting our obligations to our shareholders and investors, we have adopted the Principles of Corporate Governance. This is a document which deals with corporate supervision and the creation of standards governing the management of the company i.e., all activities and regulations which aim to maintain a balance between the interests of all of the company s stakeholders (investors, managers, employees and suppliers). Are ir activities an opportunity or an obligation for the company? Ir is not an obligation. But any company neglects its investors at its peril. Effectively conducted investor relations definitely represent an opportunity for the company, and investment in investor relations always pays. Informed, transparent and credible communications help any listed company develop good relations with the capital markets, achieve a fair valuation of the company, and raise capital when necessary. What challenges do you foresee in the area of investor relations? Does Cyfrowy Polsat intend to improve its communications with the market? How? Modern communication tools are becoming ever more popular and ubiquitous: forums, chat, webcasts, twitter, blip, virtual voting and meetings of the Management Board, and so on. As I have mentioned, we use both traditional and more modern communications media. There will always be a place and a role for direct contact and exchange of ideas and experience. But we keep a close eye on technological developments, looking to identify and rapidly exploit any new techniques and tools that could benefit our stakeholder relations in the future. Cyfrowy Polsat / Annual Report 09 / 125

Lost / AXN. American Broadcasting Companies INC.

127 14 RELATIONS WITH THE ENVIRONMENT Being a listed company we participate in the shaping of appropriate economic and social relations. We undertake all activities in accordance with prevailing applicable law and regulation, including those relating to the protection of the environment. Our daily work is rooted in universal principles of best manners and best practice. Our shareholders and investors Our environment Being a commercial organization we take full responsibility before our shareholders, customers, contractors, business partners and other concerned entities and stakeholders: we are a socially committed company, we know our social responsibilities, and we strive to meet them. Our continuous growth and development steadily raises our potential for impacting the environment. That s why we try to conduct all our business in accordance with environmental protection and safety in mind, and work with specialized companies which have appropriate licenses and expertise in these areas. Cyfrowy Polsat / Annual Report 09 / 127

Our local societes More broadly, we try in our activities to go beyond the purely commercial: as an integral part of the communities in which we operate, we strive to promote the public interest.

128 Our local societes More broadly, we try in our activities to go beyond the purely commercial: as an integral part of the communities in which we operate, we strive to promote the public interest. For just two examples, proceeds from our 2009 charity Christmas cards supported the Child Health Centre, while we also donated the budget for Christmas gifts from the Management Board to the Fundacja POLSAT (POLSAT Foundation). Our staff is also involved in various initiatives for those in need. Since 2009 we have cooperated with the Stowarzyszenie DOM RODZINA CZŁOWIEK (Association HOUSE FAMILY MAN) as part of the Twisted cap. We organize collections of urgently needed items for children from orphanages. And we strongly encourage our employees to make a 1% donation to public benefit organizations. We work regularly with the Stowarzyszenie Sygnał (Signal Association), combating piracy and promoting integrity in the satellite television industry, on various fronts: preventing television signal theft, phishing, and the counterfeiting of original equipment, and marketing of counterfeit smart-cards and set-top boxes. We would hope over time to help move public perceptions towards a recognition that television piracy constitutes theft, and should be seen as socially unacceptable, and rigorously pursued in law. Dexter s Laboratory / Boomerang. TM & 2008 Cartoon Network. All rights reserved. 128 / Cyfrowy Polsat / Annual Report 09

Our personnel As an employer we comply with all legal obligations to our employees. We try our best to ensure their safety and health at work and to control risks, and prevent accidents and diseases.

129 Our personnel As an employer we comply with all legal obligations to our employees. We try our best to ensure their safety and health at work and to control risks, and prevent accidents and diseases. We invest in our employees because it is their abilities above all that will determine our future development. This is why, we support their efforts to increase their knowledge and improve their skills. They know they can count on our help in learning English, postgraduate studies, professional training, courses, skills training, expert workshops, thematic conferences and trade fairs. Our employees are of the highest value for the company: we look always to provide them with everything they need to do their job, from computers and mobile phones to subsidized sports packages and health care. Whatever they need to deliver for themselves and for the company. We apply a strict equality policy for all employees and job applicants, regardless of gender, age, political or religious beliefs, nationality, citizenship and physical fitness. We are fair towards all, employ strictly according to capability and appropriate skills, and treat all with consideration. The Penguins of Madagascar / Nickelodeon Polska. Cyfrowy Polsat / Annual Report 09 / 129

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131 24 Consolidated financial statements Management Board s representations Pursuant to the requirements of the Regulation of the Council of Ministers of 19 February 2009 on ongoing and periodical information reported by issuers of securities and conditions of recognising as equivalent information required by the law of a country not being a member state the Management Board of Cyfrowy Polsat s.a. represented by: Dominik Libicki, President of the Management Board, Dariusz Działkowski, Member of the Management Board, Tomasz Szeląg, Member of the Management Board hereby represents that: to the best of its knowledge the annual consolidated financial statements and the comparable data were prepared in accordance with the prevailing accounting principles, and they truly, reliably, and clearly reflect the asset and financial standing of the Group and its financial result, and the Management Board s activity report contains a true image of the Group s development and achievements and its standing, including the description of basic risks and threats; the entity authorised to audit the financial statements, which has audited the annual consolidated financial statements, was selected in accordance with the regulations of law. That entity as well as the registered auditor who has carried out the audit fulfilled the conditions for expressing an unbiased and independent opinion about the consolidated financial statements pursuant to relevant provisions of the national law and industry norms. Warsaw, 14 May 2010

132 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 Prepared in accordance with International Accounting Standards as adopted by the European Union This document is a free translation of the Polish original. Terminology current in Anglo-Saxon countries has been used where practicable for the purposes of this translation in order to aid understanding. The binding Polish original should be referred to in matters of interpretation.

133 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) Approval of the Consolidated Financial Statements On 14 May 2010, the Management Board of Cyfrowy Polsat s.a. approved the consolidated financial statements of the Cyfrowy Polsat s.a. Group prepared in accordance with International Financial Reporting Standards as adopted by the European Union which include: 1. Consolidated Income Statement for the period from 1 January 2009 to 31 December 2009 showing a net profit of: pln 230,319 thousand 2. Consolidated Statement of Comprehensive Income for the period from 1 January 2009 to 31 December 2009 showing a total comprehensive income of: pln 230,319 thousand 3. Consolidated Balance Sheet as at 31 December 2009 showing total assets and total equity and liabilities of: pln 774,846 thousand 4. Consolidated Cash Flow Statement for the period from 1 January 2009 to 31 December 2009 showing a decrease in net cash amounting to: pln 146,867 thousand 5. Consolidated Statement of Changes in Equity for the period from 1 January 2009 to 31 December 2009 showing an increase in equity of: pln 29,075 thousand 6. Accompanying notes The consolidated financial statements are prepared in pln thousand unless otherwise indicated. Dominik Libicki Tomasz Szeląg Dariusz Działkowski President of the Management Board Member of the Management Board Member of the Management Board Warsaw, 14 May 2010 The accompanying notes to the consolidated financial statements are an integral part thereof. f 2

134 Consolidated Income Statement Consolidated Income Statement Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) Note 31 December 2009 for the year ended 31 December 2008 restated * Revenue from services, products, goods and materials sold 11 1,266,137 1,098,474 Cost of services, products, goods and materials sold 12 (690,984) (531,776) Cost of sales 12 (205,263) (169,216) General and administration costs 12 (82,111) (74,817) Other operating revenue 13 12,541 20,206 Other operating costs 14 (24,270) (18,577) Profit from operating activities 276, ,294 Financial income 15 14,319 33,309 Financial expenses 16 (5,963) (23,949) Share of loss of an associate 23 (69) Profit before tax 284, ,654 Income tax 17 (54,018) (63,891) Net profit 230, ,763 * In order to reflect presentational changes introduced in the current period amount in 2008 were changed (see note 10). Basic and diluted earnings per share Statement of Comprehensive Income Statement of Comprehensive Income for the year ended 31 December December 2008 Net profit 230, ,763 Other comprehensive income Income tax relating to components of other comprehensive income Other comprehensive income, net of tax Total comprehensive income 230, ,763 The accompanying notes to the consolidated financial statements are an integral part thereof f 3

135 Consolidated Balance Sheet Assets Consolidated Balance Sheet Assets Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) Note 31 December December 2008 Digital satellite reception equipment and modems ,457 20,785 Other property, plant and equipment , ,970 Intangible assets 21 14,165 11,876 Investment property 22 16,998 Shares in associates 23 24,732 Other long-term assets 24 31,138 24,264 Deferred tax assets 17 2,190 1,223 Total non-current assets 340, ,116 Inventories ,091 94,999 Trade and other receivables , ,515 Income tax receivable 21,265 9,410 Other current assets 27 59,290 85,669 Cash and cash equivalents 28 72, ,422 Restricted cash 29 26,738 Total current assets 433, ,015 Total assets 774, ,131 The accompanying notes to the consolidated financial statements are an integral part thereof f 4

136 Consolidated Balance Sheet Equity and Liabilities Consolidated Balance Sheet Equity and Liabilities Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) Note 31 December December 2008 Share capital 30 10,733 10,733 Reserve capital 30 73,997 3,964 Statutory reserve funds 30 10,174 10,174 Retained earnings 227, ,467 Total equity 322, ,338 Long-term loans and borrowings 31 44,135 Long-term finance lease liabilities 32 1,151 1,407 Deferred tax liability 17 26,060 11,536 Other long-term liabilities and provisions 1, Total non-current liabilities 28,754 57,347 Current loans and borrowings 31 47,370 66,571 Current finance lease liabilities Trade and other payables , ,525 Income tax liabilities 400 Deposits for equipment 34 18,800 22,447 Deferred income , ,265 Total current liabilities 423, ,446 Total liabilities 452, ,793 Total equity and liabilities 774, ,131 The accompanying notes to the consolidated financial statements are an integral part thereof f 5

137 Consolidated Cash Flow Statement Consolidated Cash Flow Statement Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) for the year ended Note 31 December December 2008 Net profit 230, ,763 Adjustments: (186) 94,040 Depreciation and amortization 41,948 23,547 Profit on investing activity (55) (11) Interest expense / (income) (1,908) 3,789 (Increase) / decrease in inventories (27,092) 35,033 Increase in receivables and other assets (6,680) (35,394) Decrease in liabilities, provisions, accruals and deferred income 37,314 38,540 Foreign exchange losses / (gains) 14,112 (13,944) Income tax 17 54,018 63,891 Increase in set-top boxes under operating lease (112,637) (21,348) Other adjustments 794 (63) Net cash flow from operating activities 230, ,803 Income tax paid (52,709) (56,069) Interest received from operating activity 6,018 8,442 Cash flow from operating activities 183, ,176 Purchases of intangible assets (10,530) (7,484) Purchases of tangible assets (26,524) (48,109) Purchases of financial assets 40 (53,396) Proceeds from sale of financial assets 40 53,726 Purchase of shares in associates 23 (24,801) Proceeds from sale of non-financial tangible assets Cash flow from investing activities (61,483) (55,495) The accompanying notes to the consolidated financial statements are an integral part thereof f 6

138 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) Consolidated Cash Flow Statement cont. Settlement of IPO related costs 7,223 Repayment of loans (63,035) (107,928) Interest on loans and borrowings (4,212) (13,533) Finance lease principal repayments (237) (237) Dividends paid (201,244) (37,565) Other financial outflows, net (98) (13,350) Cash flow from financing activities (268,826) (165,390) Net increase / (decrease) in cash and cash equivalents (146,867) 95,291 Cash and cash equivalents at the beginning of the year 246, ,726 Foreign exchange rate differences (165) 405 Cash and cash equivalents at the end of the year * 99, ,422 * The amount in 2009 includes pln 26,738 thousand of restricted cash (see note 29). The accompanying notes to the consolidated financial statements are an integral part thereof f 7

139 Consolidated Statement of Changes in Equity Consolidated Statement of Changes in Equity Note Share capital Reserve capital Statutory reserve funds Retained earnings Total equity Balance as of 1 January ,733 3,964 10, , ,338 Dividend declared and paid (201,244) (201,244) Appropriation of 2008 profit transfer to reserve capital 30 70,033 (70,033) Total comprehensive income 230, ,319 Balance as of 31 December 2009 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) 10,733 73,997 10, , ,413 Consolidated Statement of Changes in Equity Note Share capital Reserve capital Statutory reserve funds Retained earnings Total equity Balance as of 1 January ,733 3,500 10,174 36,733 61,140 Dividend declared and paid (37,565) (37,565) Appropriation of 2007 profit transfer to reserve capital 464 (464) Total comprehensive income 269, ,763 Balance as of 31 December ,733 3,964 10, , ,338 The accompanying notes to the consolidated financial statements are an integral part thereof f 8

140 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) Notes to the consolidated financial statements 1. The Parent Cyfrowy Polsat s.a. ( the Company, Cyfrowy Polsat, the Parent ) is incorporated in Poland as a joint stock company whose shares are listed on the Warsaw Stock Exchange. The Company is domiciled at 4a Łubinowa Street, Warsaw. The Parent operates a paid digital satellite platform called Cyfrowy Polsat and provides services in Poland. The Parent is also a Mobile Virtual Network Operator and provides Internet access services. The Company was incorporated under the Notary Deed dated 30 October The principal activities of the Parent and its subsidiaries include: television and radio operations, telecommunication services, rental of real estate, real estate management, set-top boxes designing and manufacturing. The consolidated financial statements include the financial statements of the Parent and its subsidiaries (jointly, the Group ). 2. Composition of the Management Board of the Parent Dominik Libicki President of the Management Board Dariusz Działkowski Member of the Management Board Maciej Gruber Member of the Management Board (until 14 May 2009) Andrzej Matuszyński Member of the Management Board (until 6 January 2010) Tomasz Szeląg Member of the Management Board (from 15 May 2009) 3. Composition of the Supervisory Board of the Parent Zygmunt Solorz-Żak President of the Supervisory Board Robert Gwiazdowski Member of the Supervisory Board Andrzej Papis Member of the Supervisory Board Leszek Reksa Member of the Supervisory Board Heronim Ruta Member of the Supervisory Board The accompanying notes to the consolidated financial statements are an integral part thereof f 9

141 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) 4. Basis of preparation of the consolidated financial statements Statement of compliance The consolidated financial statements for the year ended 31 December 2009 have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ( eu ifrs ) and in effect as of 1 January In the year 2009 the following changes entered into force: (i) revised ifrs 1 First-time Adoption of International Financial Reporting Standards The changes concern the possibility of application of transitional regulations of ifric 18 by a company which adopts ifrs for the first time. Changes do not impact the consolidated financial statements. (ii) amendments to ifrs 2 Share-Based Payment The amendments specify conditions of acquiring the rights to share-based payment and impose the same accounting treatment no matter if they are related to the length of employment period or performance. The amendments do not impact the consolidated financial statements. (iii) amendments to ifrs 4 Insurance contracts The amendments change the requirement of credit, liquidity and market risk presentation by insurers. The amendments do not impact the consolidated financial statements. (iv) amendments to ifrs 7 Financial instruments disclosure The amendments require additional disclosures concerning the method of fair value calculation according to three-step hierarchy and disclosures of other assumptions concerning liquidity risk and fair value calculation. The only effect of introduction of the amendments are additional disclosures in the financial instruments note. (v) revised ias 1 Presentation of Financial Statements Changes require presentation of Statement of Comprehensive Income and presentation of opening balance of the earliest comparative period if an entity corrects the comparative data in connection with reclassification, error correction or accounting policy alteration. The only effect of introduction of changes is the Statement of Comprehensive Income. (vi) revised ias 23 Borrowing Costs Revised standard introduces requirement of capitalization of borrowing costs connected with certain assets. The only effect of introduction of changes is a change of Group s accounting policy which currently requires that the interest paid on bank credits be activated in line with the provision of revised ias 23. (vii) amendments to ias 32 Classification of Rights Issues The amendments concern rights issues classification. Changes do not impact the consolidated financial statements. (viii) amendments to ias 32 Financial Instruments: Presentation and ias 1 Presentation of Financial Statements Puttable Financial Instruments and Obligations Arising from Liquidation The amendments require classification of puttable financial instruments and instruments or components of instruments as equity, only if on liquidation they impose on the company an obligation to deliver to another party a share of the net assets of the company. Additional disclosures are required concerning these instruments. The amendments do not impact the consolidated financial statements. (ix) amendments to ifric 9 Reassessment of Embedded Derivatives and ias 39 Financial Instruments: Recognition and Measurement The amendments specify the accounting treatment of embedded derivatives when reclassifying financial instruments. The amendments do not impact the consolidated financial statements. The accompanying notes to the consolidated financial statements are an integral part thereof f 10

142 (x) (xi) (xii) Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) amendments to ias 39 Financial Instruments: Recognition and Measurement and Reclassification of Financial Assets Effective Date and Transition The amendments concern the effective date and transition connected with reclassification of financial instruments. Changes are effective for the annual periods beginning after 1 July 2008; according to Commission Regulation (ec) No 824 / 2009 companies that already presented their financial statements in accordance with ec No / 2008 are not obliged to present them again. The amendments do not impact the consolidated financial statements. ifric 12 Service Concession Arrangements The interpretation gives guidance on the accounting treatment by operators for public-to-private service concession arrangements. The interpretation does not impact the consolidated financial statements. ifric 13 Customer Loyalty Programmes The interpretation concerns revenue recognition by companies granting customers loyalty programs. The interpretation does not impact the consolidated financial statements. (xiii) ifric 14 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction The interpretation specifies the issue when the refunds or reductions in future contributions should be regarded as available, particularly when a minimum funding requirement exists. The interpretation does not impact the consolidated financial statements. (xiv) ifric 15 Agreements for the Construction of Real Estate The interpretation concerns accounting treatment of revenue and expenses of companies that undertake the construction of real estate. The interpretation does not impact the consolidated financial statements. (xv) ifric 16 Hedges of a Net Investment in a Foreign Operation The interpretation applies to a company that hedges the foreign currency risk arising from its net investments in foreign operations. The interpretation does not impact the consolidated financial statements. (xvi) ifric 18 Transfers of Assets from Customers The interpretation specifies accounting treatment of assets received from customers. The interpretation does not impact consolidated financial statements. (xvii) amendments to International Financial Reporting Standards a set of amendments to International Financial Reporting Standards (2008) The amendments concern terminology and editorial changes and include changes in presentation, recognition and valuation. The majority of the amendments are effective from annual periods beginning after 31 December The Group exercised the right of early adoption of the amendments effective from not later than the first accounting period beginning after 30 June All the amendments have an insignificant effect on the consolidated financial statements. 5. Published International Financial Reporting Standards and Interpretations whose application is not mandatory The International Financial Reporting Standards as adopted by the European Union ( eu ifrs ) include all International Accounting Standards, International Financial Reporting Standards and Interpretations excluding standards and interpretations which have not been yet adopted by the European Union or which have already been adopted by eu but not effective yet. The Group did not early adopt standards which have already been published and adopted by the European Union and which should be applied for annual periods beginning after 1 January 2009 (presented below). The accompanying notes to the consolidated financial statements are an integral part thereof f 11

143 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) New International Financial Reporting Standards adopted by the eu which become effective after the balance sheet date and were not adopted by the Group (i) ifric 17 Distributions of Non-cash Assets to Owners, amendments to ifrs 5 Non-Current Assets Held for Sale and Discontinued Operations and amendment to ias 10 Events After The Reporting Period are effective for annual periods beginning after 31 October 2009 ifric 17 describes the accounting treatment of distribution of non-cash assets to owners whereas ifrs 5 introduces the definition of assets held for distribution to owners. Amendment to ias 10 specifies how to present dividend declared after the balance sheet date but before publication of financial statements. Changes do not impact the consolidated financial statements. (ii) revised ifrs 3 Business Combinations is effective for annual periods beginning after 30 June 2009 Revised ifrs 3 describes accounting treatment of business combinations. Changes do not impact the consolidated financial statements. (iii) revised ias 27 Consolidated and Separate Financial Statements is effective for annual periods beginning after 30 June 2009 Revised ias 27 describes how to present subsidiaries in consolidated financial statements and investments in subsidiaries, jointly controlled entities and associates. Changes do not impact the consolidated financial statements. (iv) amendments to ifrs 2 Group Cash-settled Share-based Payment Transactions are effective for annual periods beginning after 31 December 2009 The amendments specify the scope of transactions treated as share-based payments. Changes do not impact the Group s financial statements. (v) improvements to ifrss (2009) changed standards have different effective dates; all changes are effective no later than for annual periods beginning after 31 December 2009 Most important changes include: amendments to ifrs 8 Operating Segments the amendments limit segment reporting requirements concerning assets. An entity shall report a measure of total assets for each reportable segment if such amounts are regularly provided to the chief operating decision maker. amendments to ias 27 Statement of Cash Flows On the basis of the amendments, only expenditures that result in a recognized asset in the statement of financial position are eligible for classification as investing activities. All amendments do not impact significantly the Group s financial statements. New International Financial Reporting Standards and Interpretations yet to be adopted by the eu amendments to ifrs 1 Additional Exemptions for First-time Adopters; ifrs 9 Financial Instruments; amendment to ifric 14 Prepayments of a Minimum Funding Requirement; ifric 19 Extinguishing Financial Liabilities with Equity Instruments; revised ias 24 Related Party Disclosures; amendment to ifrs 1 Limited Exemption from Comparative ifrs 7 Disclosures for First-time Adopters. As at the date of the approval of these consolidated financial statements the Group did not assess the impact of above-mentioned changes on future consolidated financial statements. The accompanying notes to the consolidated financial statements are an integral part thereof f 12

144 6. Group of consolidated companies Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) The consolidated financial statements for 2009 include the following entities: Group of consolidated companies Parent Company Cyfrowy Polsat s.a. Subsidiaries Cyfrowy Polsat Technology Sp. z o.o. * * consolidation using full method Company s registered office Łubinowa 4a, Warszawa Activity radio, tv and telecommunication activities Voting rights percentage (%) 31 December December 2008 Łubinowa 4a, Warszawa production of set-top boxes 100% 100% Additionally, shares in following entities were presented in the consolidated financial statements: Karpacka Telewizja Kablowa Sp. z o.o. * mpunkt Holdings Ltd. ** Voting rights percentage (%) Company s registered office Activity 31 December December 2008 ul. Chorzowska 3, Radom no activity 85% 85% 3 Themistokli Dervi Street, Nicosia (Cyprus) * Shares valued at cost less any accumulated impairment losses ** Shares valued using equity method 7. Accounting and consolidation policies owner of mpunkt Polska s.a. and mtel Sp. z o.o. 45% The accounting policies set out below have been applied consistently to all periods presented in the consolidated financial statements by all entities within the Group. a) Basis of valuation The consolidated financial statements have been prepared on a historical cost basis, except for derivative financial instruments and available-for-sale financial assets, which are valued at fair value. b) Going concern assumption The 2009 consolidated financial statements have been prepared assuming that the Group will continue as a going concern in the foreseeable future, not shorter than 12 months from 31 December The accompanying notes to the consolidated financial statements are an integral part thereof f 13

145 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) c) Functional currency and presentation currency The financial data presented in the consolidated financial statements is presented in Polish zloty, rounded to the nearest thousand. The functional currency of the Parent is the Polish zloty. d) Judgments and estimates The preparation of consolidated financial statements in accordance with eu ifrs requires the Management Board to make judgments, estimates and assumptions that affect the adopted methods and presented value of assets, liabilities, revenues and costs. The estimates and related assumptions are based on historical data and other factors regarded as reliable under the circumstances and their effects provide grounds for an accurate assessment of the carrying amount of assets and liabilities which are not based directly on any other factors. Actual results may differ from the estimated values. The estimates and related assumptions are reviewed on a regular basis. Changes in accounting estimates are recognised in the period when they are made only if they refer to that period or in the present and future periods if they concern both the present and future periods. Note 46 contains information about the key sources of uncertainty and management judgments. e) Comparative financial information Comparative data or data presented in previously published financial statements are corrected if necessary in order to reflect presentational changes introduced in the current period. None of the introduced alterations have influenced previously presented net profit, ebitda nor equity. In 2009 the Group changed presentation and classification of data in the income statement. Hitherto the Group presented the income statement using the classification of expenses based on their nature. Since 2009 the Group has been presenting the income statement using the classification of expenses based on their function. Data for the comparative period has been restated in order to reflect the new presentation of data. The change in presentation of data did not have any influence on the presentation of the Group s balance sheet and did not diminish the scope of information presented in the financial statements. Details regarding the change in data presentation are accessible in note 10. f) Principles of consolidation (i) Subsidiaries Subsidiaries are entities controlled by the Parent. Control exists when the Parent has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that are exercisable or convertible as at the balance sheet date are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The financial statements of subsidiaries are prepared for the same period as the financial statements of the Parent under accounting policies that are consistent with the Parent s accounting policies for transactions and economic events of a similar character. The accompanying notes to the consolidated financial statements are an integral part thereof f 14

146 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) (ii) Associates Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for under the equity method and are initially recognized at cost. The Group s investment in associates includes goodwill identified on acquisition, net of any accumulated impairment loss. Group s share in associate s profit or loss from the purchase date is taken to the income statement and its share in changes of other equity from the purchase date is presented in equity. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group s share in associate s loss is equal to or higher than the Group s interest in that associate, taking the share in unsecured receivables into account, the Group does not recognize further losses, unless it is obliged to cover losses or make payments on behalf of the associate. Unrealized gains on transactions between the Group and its associates are eliminated to the extent of the Group s interest in the associates. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the assets transferred. Contracts between an acquirer and a vendor in a business combination to buy or sell an acquire at a future date, including options to increase the Group s shareholding in associates that would result in business combinations, are not recognized by the Group as financial instruments. (iii) Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealized gains and losses or income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealized gains arising from transactions with associates and jointly controlled entities are eliminated to the extent of the Group s interest in the entity. Unrealised losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment. g) Foreign currency Transactions in foreign currencies are translated to Polish zloty at exchange rates in effect one day before the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated as at the balance sheet date into Polish zloty at the average exchange rate quoted by the National Bank of Poland ( nbp ) for that date. Foreign exchange differences arising on translation of transactions denominated in foreign currencies and from the balance sheet valuation of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the average nbp exchange rate in effect at the date of the valuation. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated at the average nbp foreign exchange rate in effect at the date the fair value was determined. The accompanying notes to the consolidated financial statements are an integral part thereof f 15

147 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) h) Financial instruments (i) Non-derivative financial instruments Non-derivative financial instruments comprise investments in equity and debt securities, trade and other receivables, cash and cash equivalents, loans and borrowings, trade payables and other liabilities. Non-derivative financial instruments are recognised initially at fair value increased by except for investments valued at fair value through profit or loss directly attributable transaction costs (except as described below). A financial instrument is recognised if the Group becomes a party to the contractual obligations of the instrument. Financial assets are derecognised if the Group s contractual rights to the cash flows from the financial assets expire or if the Group transfers the financial asset to another party without retaining control or substantially all the risks and rewards of the asset. Standardised sale and purchase transactions of financial assets are recognised at the transaction date i.e. on the date the Group is obliged to purchase or sell the asset. Financial liabilities are derecognised if the Group s obligations specified in the contract expire (are discharged or cancelled). Cash and cash equivalents comprise cash on hand and on-call deposits. The cash and cash equivalents balance presented in the cash flow statement comprises the above mentioned cash and cash equivalents. Principles for recognition of financial income and financial costs are presented in note 7 (w). Loans and receivables and other financial liabilities Loans and receivables which are not derivative financial instruments are measured at amortized cost using the effective interest method, less any impairment losses. Other financial liabilities which are not derivative financial instruments are measured at amortized cost using the effective interest method. Available-for-sale financial assets Investments in equity securities and certain debt securities are classified as available-for-sale financial assets. Subsequent to initial recognition, available-for-sale financial assets are measured at fair value and changes in fair value other than impairment losses and in the case of monetary assets, such as bonds, other than gains or losses on foreign exchange differences are recognised directly in equity. When an investment is derecognised, the cumulative gain or loss in equity is transferred to profit or loss. If such investments are interest-bearing, interest, calculated using the effective interest method, is recognised in the income statement. (ii) Derivative financial instruments Derivative financial instruments are initially recognised at fair value, related transaction costs are recognised in the income statement accounts when incurred. Subsequent to initial recognition, the Group measures derivative financial instruments at fair value and changes in the fair value are recognised directly in the income statement. The accompanying notes to the consolidated financial statements are an integral part thereof f 16

148 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) i) Equity Ordinary shares Costs directly attributable to the issue of ordinary shares reduce equity. Preferred shares Preferred shares are classified as equity, if they are not redeemable or only redeemable at the Company s option and the dividend payment is not obligatory. Dividend payments are recognised as distributions within equity. Costs attributable to the issue of new shares and the public offer of existing shares Costs relating to a new issue of shares are recognised in equity while costs relating to the public offering of existing shares are recognised directly in finance expenses. Costs relating to both new issue and the sale of existing shares are allocated proportionally and recognised in equity or expensed as financial expense, as appropriate. Reserve capital Joint-stock companies, in accordance with the Commercial Code, are obliged to transfer at least 8% of annual net profit to reserve capital until it reaches one third of total share capital. Supplementary capital cannot be distributed but can be transferred to cover accumulated losses. Statutory reserve funds Statutory reserve funds include the difference between the fair value of the shares purchased by Members of the Management Board and their issue price. j) Property, plant and equipment i) Property, plant and equipment owned by the Group Items of property, plant and equipment are measured at cost less accumulated depreciation and impairment losses. Cost includes purchase price of the asset and expenditures that are directly attributable to the acquisition and bringing the asset to working condition including initial delivery and handling costs. Discounts, rebates and other similar reductions decrease the cost. The cost of self-constructed assets and construction in progress includes all costs incurred for their construction, installation, adoption, and improvement incurred till the date they are available for use (or until the balance sheet date if an asset has not been made available for use). This cost includes also, if required, initially estimated costs of dismantling and removing the items and restoring the site on which they are located. Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. (ii) Subsequent costs Subsequent cost of replacing parts of an item of property, plant and equipment is capitalised if it is probable that the future economic benefits embodied within the part will flow to the Group and the amount of the cost can be measured reliably. Other expenditures are expensed in the income statement as incurred. The accompanying notes to the consolidated financial statements are an integral part thereof f 17

149 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) (iii) Depreciation Items of property, plant and equipment as well as their major components are depreciated using the straight-line method over their useful life, taking into account their residual value. Land is not depreciated. The estimated useful life of property, plant and equipment, by significant class of asset, is as follows: Buildings 60 years Digital satellite reception equipment and modems 5 years Other technical equipment and machinery 3 15 years Vehicles 5 years Furniture and equipment 3 10 years The estimated useful life of property, plant and equipment, depreciation methods and residual values (if material) are reviewed by the Group every year. (iv) Leased assets Assets used under lease, tenancy, rental or similar contracts which meet finance lease criteria, are classified as non-current assets and recognised at the lower of fair value of the leased asset and the present value of the minimum lease payments. Set-top boxes that are provided to customers under operational leases are accounted for as property, plant and equipment. Set-top boxes that are provided to customers under financial leases are not recognized as non-current assets. Depreciation policies for leased assets are consistent with the depreciation policies applied for similar Group-owned assets. Depreciation is calculated in accordance with ias 16 Property, plant and equipment. If it is not certain that the lessee will obtain title to the asset before the end of the lease term, the asset is depreciated over the shorter of the lease term and the asset s economic useful life. Where there is uncertainty that set-top boxes and other property, plant and equipment will create revenue or continue to be used in the operating activity of the Group, the Group creates an impairment allowance. k) Intangible assets (i) Goodwill Goodwill arises on the acquisition of subsidiaries, jointly controlled entities and associates. Acquisition before 1 January 2004 For acquisitions made before 1 January 2004, goodwill was measured based on the deemed costs, whose amount represents the value recorded in the books in accordance with the Accounting Act dated 29 September Acquisition after 1 January 2004 In relation to acquisitions after January 1, 2004, goodwill is measured as the excess of the cost of the business combination over the acquirer s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. If the acquirer s interest exceeds the net fair value the acquirer s identifiable assets, the acquirer recognises any excess immediately in the profit or loss. The accompanying notes to the consolidated financial statements are an integral part thereof f 18

150 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) Acquisition of minority interest Goodwill arising on acquisition of minority interests in subsidiaries is stated as the excess of the purchase price over the value of the subsidiaries net assets acquired at the date of acquisition. Valuation after initial recognition After initial recognition, goodwill acquired in a business combination is measured at cost less any accumulated impairment losses. In the case of investments in associates or jointly controlled entities, goodwill is included in the carrying value of the investment. Goodwill is allocated to cash-generating units and is not amortized, but is annually tested for impairment. (ii) Internally generated software The Group capitalizes costs of internally generated software, only if development costs can be reliably measured and the beginning and the end of the software development process can be reliably determined. (iii) Other intangible assets Other intangible assets purchased by the Group are stated at cost less accumulated amortization and impairment losses. (iv) Subsequent expenditure Subsequent expenditure on existing intangible assets is capitalized only when it increases future economic benefits to be generated by the asset. Other expenditure is recognised in the profit or loss as incurred. (v) Amortization Intangible assets with a definite useful life are amortized over their useful life on a straight-line basis. Goodwill and intangible assets with an indefinite useful life are not amortized but instead are subject to an impairment test at each balance sheet date. Other intangibles are amortized from the date they are available for use. The estimated useful life is 2 years. l) Investment property Investment properties are properties which are held either to earn rental income or for capital appreciation or both. Investment property is measured at historical cost. If there is a change in the use of real estate from investment property to owner occupied property, the real estate is transferred to property, plant and equipment and its value on the transfer date becomes its deemed costs for the purpose of future recognition. Buildings representing investment property are depreciated over a period of 60 years. Land which is considered investment property is not depreciated. m) Inventories Inventories are measured at the lower of cost or net realizable value. The cost of inventories is determined based on the first-in first-out principle. The cost of inventories includes purchase price, costs relating directly to the purchase and the costs related to preparing the inventory for use or sale. Cost of finished goods and work in progress include an appropriate share of production overheads determined based on normal operating capacity. The accompanying notes to the consolidated financial statements are an integral part thereof f 19

151 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. In the case of set-top boxes, which under the business model applied by the Group are sold below cost, the loss on the sale is recorded when the set-top box is transferred to the customer. The Group creates an allowance for slow-moving or obsolete inventories. n) Impairment of assets (i) Financial assets A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. An impairment loss in respect of an available-for-sale financial asset is calculated by reference to its current fair value. Individually significant financial assets are tested for impairment on an individual basis at balance sheet date. The remaining financial assets are assessed for impairment collectively in groups that share similar credit risk characteristics. Receivables are reduced by an allowance based on the likelihood of future debt collection. The allowance is charged to other operating costs. An allowance for receivables from individuals is estimated based on the historical recoverability of overdue receivables and recovery efficiency. All impairment losses are recognised in the income statement. Impairment losses are reversed if a subsequent increase in recoverable value of a financial asset can be related objectively to an event occurring after the impairment losses were recognized. (ii) Non-financial assets The carrying amounts of non-financial assets, other than investment property, inventories and deferred tax assets, are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, then the asset s recoverable amount is estimated. The recoverable amount of goodwill, intangible assets with an indefinite useful life and intangible assets which are not yet ready for use is assessed at each balance sheet date. An impairment loss is recognized when the carrying amount of an asset or a cash-generating unit is greater than its recoverable amount. A cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Impairment losses are recognized in the income statement. An impairment loss for a cash-generating unit is initially recognized as a decrease of goodwill assigned to this unit (group of units), then it proportionally reduces the carrying amount of other assets from this unit (group of units). The recoverable amount of an asset or a cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In the case of assets that do not generate independent cash flows, the value in use is estimated for the smallest identifiable cash-generating unit to which the asset belongs. The accompanying notes to the consolidated financial statements are an integral part thereof f 20

152 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) An impairment loss for goodwill cannot be reversed. As for other assets, impairment losses recorded in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss other than that in respect of goodwill is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. o) Non-current assets held for sale Non-current assets (or groups comprising assets and liabilities held for sale) that are expected to be recovered primarily through sale rather than through continuing use are classified as held for sale. Immediately before classification as held for sale, assets (or components of a disposal group) are measured in accordance with the Group s accounting policies. Thereafter, at the date the assets (or a disposal group) are classified as held for sale, they are measured at the lower of their carrying amount or fair value less cost to sell. An impairment loss for a group of assets held for sale is initially recognised as a decrease of goodwill, then it proportionally reduces the carrying amounts of other assets from this group, except for inventories, financial assets, deferred tax assets and investment properties, which are valued in accordance with the Group s accounting policies. Impairment losses on initial classification as held for sale and subsequent gains or losses on re-measurement are recognized through the income statement. Gains on re-measurement are recorded only to the level of previously recognized impairment losses. p) Restricted cash Restricted cash comprises cash deposited in Group s bank accounts which according to signed agreements may only be expensed for strictly defined purposes or cash deposited in escrow bank accounts. Restricted cash is presented as current or non-current assets according to the terms of agreements relating to the period for which the restrictions are valid. q) Employee benefits (i) Defined contribution program All Group entities which have employees are obliged, under applicable regulations, to collect and pay the contribution for the state pension. These benefits, according to ias 19 Employee Benefits are state plans and are characterised as defined contribution. Therefore, the Group s liabilities for each period are estimated on the basis of contributions to be paid for a given period. (ii) Defined benefit program retirement benefits The Group companies are obliged to pay retirement benefits calculated in accordance with the relevant provisions of the Polish labour code. The minimum retirement benefit is as per the labour code provisions at the moment of payment. The calculation is carried out using the Projected Unit Credit Method. Employee turnover is estimated based on historical experience and forecasts of future employment levels. Changes in the value of the retirement benefit provision are recognised in the income statement. The accompanying notes to the consolidated financial statements are an integral part thereof f 21

153 (iii) Redundancy benefits Redundancy costs are recorded as an expense when the Group has a uncancellable detailed formal plan for the redundancy before the normal retirement date. Employee benefits relating to voluntary redundancy are recognized in profit and loss account, in case an offer is made to encourage voluntary redundancy, it is probable that the offer will be accepted and the number of voluntary redundancies can be reliably estimated. (iv) Short-term employee benefits Short-term employee benefit obligations are measured on an undiscounted basis and are recognized as an expense as the related service is provided. The Group creates a provision and charges the income statement for estimated short-term bonuses and profit sharing plans, if the Group has a legal or constructive obligation to make such payments as a result of past services provided by the employees and the obligation can be estimated reliably. (v) Share-based payments If shares are issued to employees unconditionally at an issue price lower than their fair value, the difference between the fair value and issue price is recorded as a salary expense with a corresponding increase in equity on the date the offer to purchase the shares is accepted by the employees. r) Provisions Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) A provision is recognised when the Group has a present obligation as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation. Where the effect of the time value of money is material, the Group discounts the provision, using a pre-tax discount rate that reflects current market assessments of the time value of money and those risks specific to the component of the liability. (i) Warranty provision A warranty provision is recognized when products or goods, for which the warranty was granted, are sold or rented to the clients under operational leases. The amount of the provision is based on historical experience and on a weighted average of all possible outflows connected with warranty claims. (ii) Onerous contracts A provision for an onerous contract is recognized when the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received by it. A provision for an onerous contract is created at the lower of the cost of fulfilling the contract or the cost related to any compensation or penalties arising from failure to fulfill it. Before recognition of a provision for an onerous contract, the Group recognises the impairment of the assets connected with such contracts. s) Contingent liabilities A contingent liability is a possible obligation that arises from past events and whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group or a present obligation that arises from the past events but is not recognized in the consolidated financial statements because it is not possible that the outflow of resources embodying economic benefits will be required to settle the obligations or the amount of the obligation cannot be measured with sufficient reliability. The accompanying notes to the consolidated financial statements are an integral part thereof f 22

154 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) t) Deposits Deposits received from subscribers and distributors, regardless of the minimum term of the agreements, are presented as current liabilities due to the possibility of early termination of the agreements by clients. u) Revenue (i) Multi-element agreements The Group enters into multi-element agreements which include the following components: sales of merchandise (satellite reception equipment, set-top boxes, cam) and services. Revenues are allocated to particular elements of the multi-element agreements in proportion to their fair value. (ii) Rendering of services Revenue from the rendering of services is recognized in the income statement as the services are rendered. (iia) Subscription fees Revenue from subscription fees is recognised on a straight-line basis over the minimum basic period of the subscription contract. (iib) Activation fees Activation fees, concerning both rental and sales of satellite digital reception equipment, are recognized on a straight-line basis over the minimum basic period of the subscription contract. Activation fees are included in profit and loss statement with subscription fees. (iic) Revenue from vod services Revenue from vod services is recognized once the program was broadcasted and presented in the income statement together with subscription fees. (iid) Rental of set-top boxes Revenue from the rental of set-top boxes is recognized on a straight-line basis over the minimum basic period of the subscription contract, except for finance lease agreements, which are recognized as sale with deferred payment date. Special promotional offers are recognized in the income statement together with the related lease costs. (iie) Transmission services Revenue from transmission services is recognised as the services are rendered. (iif ) Subscription fees and interconnection revenue Revenue from subscription fees from post-paid services and interconnection revenues is recognized in the income statement in the reporting periods in which the service is rendered. (iig) Revenue from prepaid services Revenues from services under prepaid offer are recognized in the income statement once the credit is utilized or forfeited. (iih) Revenue from settlements with mobile network operators Revenue from settlements with mobile network operators in the period in which the service was rendered. The accompanying notes to the consolidated financial statements are an integral part thereof f 23

155 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) (iii) Sale of digital satellite reception equipment, electronic equipment and other goods Revenue from sale of digital satellite reception equipment, electronic equipment and other goods is recognised at the fair value of the payment received or due, decreased by discounts, rebates and the value of returned equipment. Revenue from the sale of goods is recognized in the income statement when the significant risks and rewards of ownership have been transferred to the buyer. (iv) Revenue from the rental of real estate Revenue from the rental of investment property is recognized in the income statement on a straight-line basis over the period of the contract. Special promotional offers made as an incentive to conclude a lease contract, are recognized together with the related revenues from the rental of investment property. v) Distribution fees Commissions for distributors for registering new subscribers and for retention existing subscribers are recognized during the minimum basic period of the subscription agreement. Turnover commissions for concluding a certain number of subscription contracts are recognized in the income statement as they are incurred. Commissions for distributors which will be settled within the period of 12 months after the balance sheet date are presented as other current assets, however, the commissions, which will be settled after the 12-month period from the balance sheet date, are presented as other long-term assets. w) Finance income and finance expenses Finance income includes interest income resulting from invested cash, dividends receivable, gains on sale of financial instruments available for sale, from changes in the fair value of financial instruments at fair value through the income statement, from completed forward exchange contracts and net foreign exchange rate gains. Interest received is presented in the income statement on an accrual basis using the effective interest method. Dividends received are recognized in the income statement at the moment the Group obtains the right to the dividend. Finance expenses include interest on debt, reversal of the discount on provisions, dividends from preference shares classified as liabilities, losses from completed forward exchange contracts, net foreign exchange losses, losses resulting from changes in the fair value of financial instruments at fair value through the income statement, and financial assets impairment. Interest payable is calculated using the effective interest rate method. Due to a revision to ias 23 Borrowing Costs described in point 4 of these consolidated financial statements the Group amended its accounting policies and capitalizes interest on loans and borrowings relating to the purchase of property, plant and equipment from 1 January x) Taxation Income tax in the profit or loss for the year comprises current and deferred tax. Income tax is recognised in profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. The accompanying notes to the consolidated financial statements are an integral part thereof f 24

156 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) Current tax is the tax payable on the taxable income for the year, using tax rates enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet method on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be partly or wholly realized. Deferred tax asset reductions are adjusted to the extent that realization of sufficient taxable profits becomes probable. Deferred tax assets and liabilities in the Group are offset by the Group companies, provided that they are entitled to compensate current tax assets and liabilities when calculating their tax liabilities. An entity has the entitlement to offset deferred tax assets and liabilities when calculating its tax liability if: a) the entity has a legally enforceable right to offset current tax assets against current tax liabilities and b) the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority on either: the same taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously. y) Earnings per share The Group presents basic and diluted earnings per share for its ordinary shares. Basic earnings per share are calculated by dividing the net profit or loss for the period by the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share is calculated by dividing the profit or loss on the continued operations attributable to ordinary shareholders and the weighted average number of ordinary shares adjusted for all potentially dilutive ordinary shares. z) Segment reporting An operating segment is a component of the Group that is engaged in economic activities that involve achieving revenue and incurring costs, including revenue and costs from transactions with other components of the Group. The Group presents operating segments according to internal management accounting principles applied in preparation of periodical management reports which are regularly analyzed by the Management Board of Cyfrowy Polsat s.a. The activities of the Group are grouped using branch criterion, i.e. distinguishable scope of operations where services are rendered and merchandise delivered in a specific economic environment. Activities of defined segments are characterised by different risk levels and different investment returns. Digital television segment comprises Group s activities connected with providing digital television transmission signal to individual clients and set-top boxes manufacturing by a subsidiary company Cyfrowy Polsat Technology Sp. z o.o. Telecommunication services segment comprises Group s activities connected with providing mobile phone services and planned Internet access services to the clients. The accompanying notes to the consolidated financial statements are an integral part thereof f 25

157 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) ź) Cash flow statement Cash and cash equivalents in the cash flow statement are equal to cash and cash equivalents presented in the balance sheet. The purchase of set-top boxes provided to clients under operating lease contracts are classified in the cash flow statement in operating activities. The purchase, disposal and impairment of these set-top boxes are classified in the cash flow statement in operating activities and presented as Net decrease / (increase) of set-top boxes provided under operating lease. Purchases of property, plant and equipment or intangible assets are presented in their net amount (net of vat). Changes in impairment allowances for property, plant and equipment, excluding allowances for set-top boxes, are presented as Other adjustments in cash flows from operating activities. Costs attributable to the public offering of shares are presented as Other adjustments in cash flows from operating activities. Cash outflows related to these expenses are classified as Other financing outflows in cash flows from financing activities. 8. Determination of fair values Accounting principles and disclosures require the determination of fair value for both financial and non-financial assets and liabilities. The methods for determining fair values are described below. In justified cases, further information on methods of fair values measurement are described in the appropriate notes specific to that asset or liability. (i) Property, plant and equipment and investment property The fair value of property, plant and equipment acquired in business combinations, including investment property, is based on market value. The market value of real estate is the amount for which it could be exchanged between knowledgeable and willing parties in an arm s length transaction, after carrying out appropriate marketing activities, with both parties acting in a conscious and prudent manner. The fair value of other tangible non-current assets is based on prices of comparative market transactions. (ii) Intangible assets The fair value of trademarks and patents acquired in business combinations is based on estimated discounted payments of royalties that were not incurred as a result of the acquisition of the trademarks and patents. The fair value of other intangibles is based on discounted cash flows forecasted from their usage and ultimate disposal. (iii) Inventories The fair value of inventories acquired in business combinations is based on net realisable market value, net of selling and finishing costs as well as a margin based on a reasonable estimate of expenditures incurred for finishing products and executing sales. (iv) Investments in equity and debt instruments The fair value of financial assets valued at fair value through the income statement, investments held to maturity and financial assets available for sale is calculated based on a market quotation as at the balance sheet date. The fair value of investments held to maturity is calculated only for disclosure purposes. The accompanying notes to the consolidated financial statements are an integral part thereof f 26

158 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) (v) Trade and other receivables The fair value of trade and other receivables is estimated as the present value of future cash flows discounted using a market interest rate as at the balance sheet date. (vi) Non-derivative financial liabilities The fair value for disclosure purposes is based on the present value of future cash flows from repayment of capital and interest, discounted using a market interest rate as at the balance sheet date. A market interest rate for a finance lease contract is estimated based on interest rates for similar types of lease contracts. (vii) Derivatives The fair value of forward exchange contracts is estimated by discounting the difference between the contractual forward price and the current value of the contract calculated using market interest rates and spot exchange rate. (viii) Shares subscribed for by the Members of the Management Board The fair value of shares subscribed for by the Management Board was established at the date of their subscription based on an appropriate Group valuation model. 9. Summary of changes to the financial statements Consolidated financial statements for the year ended 31 December 2009 with independent auditor s opinion were originally published on 18 March Due to Supervisory Board s resolution dated 5 May 2010 granting bonuses for 2009, the Management Board of the Parent decided to correct the financial statements for the year ended 31 December The hereby consolidated financial statements replace entirely the previous version of consolidated financial statements published on 18 March Change in presentation of the income statement In these consolidated financial statements the Group presents the income statement using the classification of expenses based on their function. In previous periods the Group presented the income statement using the classification of expenses based on their nature. The purpose of this change is to provide users of the financial statements with greater scope of information and to give the possibility to compare the Group s results with other entities easier. None of the introduced alterations have influenced previously presented net profit, ebitda nor equity. The scope and details of information presented in the financial statements remained at unchanged level. Information about revenue and costs classified by nature is available in notes 11, 12, 13,14. The below presented table reflects the restatement of the income statement for the year 2008 and information where to find particular information presented hitherto directly in the income statement. The range of reclassification of certain elements of the income statement is also presented below. Elimination of change in the balance of products The Group chose the method of cost presentation under which period costs are automatically diminished by costs incurred to manufacture products which were not sold during the reporting period. Therefore, the reader of the financial statements will have information about the period costs by nature corresponding with the revenue. The accompanying notes to the consolidated financial statements are an integral part thereof f 27

159 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) Compensation of operating revenue and operating costs After the analysis of economic substance of several transactions regarding the Group s operating revenue it has been decided to reclassify this revenue and compensate with appropriate costs in order to give the user of the financial statement information reflecting the actual economic substance of the transaction. Compensation of revenue and costs diminishes at the same time the Group s revenue from operating activity and cost of services, products, goods and materials sold. Revenue the analysis of revenue by its nature is presented in note 11 and 13 of the hereby financial statements. Depreciation and amortization has been divided and allocated according to appropriate functions. Full depreciation and amortization, as it was presented hitherto is presented in note 12. Programming costs are presented in Cost of services, products, goods and materials sold the amount of these costs is presented in note 12. Transmission costs are presented in Cost of services, products, goods and materials sold the amount of these costs is presented in note 12. Distribution and marketing costs are presented in Cost of sales and in Cost of services, products, goods and materials sold the amount of these costs is presented in note 12. Salaries and employee-related expenses after having been diminished by costs allocated to cost of equipment sold, have been divided and allocated according to appropriate functions. The total of salaries and employee-related expenses is presented in note 12. Cost of digital satellite reception equipment and mobile phones sold is presented in Cost of services, products, goods and materials sold. This position also consists the cost of sold products (previously in the classification of expenses based on their nature this cost was presented in salaries and employee-related expenses and other operating costs. Full cost of equipment sold is presented in note 12. Other operating costs have been allocated according to appropriate functions (after the reclassification of change in the balance of products and cost of sold products). The analysis of other operating costs by their nature is presented in note 12 and 14 of hereby financial statements. Following figures presented in the table below stand for: 1 elimination of change in the balance of products; 2 reclassification of revenue from services, products, goods and materials sold and financial income; 3 compensation of operating revenue and operating costs; 4 reclassification of cost of services, products, goods and materials sold; 5 reclassification of cost of sales; 6 reclassification of general and administration costs; 7 reclassification of other operating revenue; 8 reclassification of other operating costs. The particular columns of the table represent transferring of described amounts from the income statement by nature (titles presented in column a) to the income statement by function (titles presented in column b). Reclassifications of revenue and costs presented in particular columns do not affect the operating profit. The accompanying notes to the consolidated financial statements are an integral part thereof f 28

160 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) A- Revenue and costs by nature for the year ,107,806 (9,332) Subscription fees 977,678 (977,678) Rental of digital satellite reception equipment 6,842 (6,842) Sale of digital satellite reception equipment and mobile phones 100,180 (100,180) Transmission services 16,440 (16,440) Other operating revenue 35,141 (5,561) (6,666) (2,708) Total revenues from operating activities 1,136,281 (5,561) (12,040) (9,968) 541,744 Depreciation and amortization 23,547 (10,986) Programming costs 221,443 (221,443) Transmission costs 59,006 (59,006) Distribution and marketing costs 202,465 (49,215) Salaries and employee-related expenses 64,589 (501) (16,716) Cost of digital satellite reception equipment and mobile phones sold 132,122 (132,122) Other operating costs 108,815 (5,060) (2,072) (52,256) Total costs of operating activities 811,987 (5,561) (12,040) Profit from operating activities 324,294 Financial income 19,359 13,950 Finance income from valuation of forward exchange contracts Financial expenses 23,949 13,950 (13,950) Gross profit for the year 333,654 Income tax 63,891 Net profit for the year 269,763 The accompanying notes to the consolidated financial statements are an integral part thereof f 29

161 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) for the year 2008 Note 1,098, B Revenue and costs by function Revenue from services, products, goods and materials sold (20,206) 13 (20,206) , , , Cost of sales Cost of services, products, goods and materials sold 74,817 74, General and administration costs (2,470) (10,091) 12 (153,191) (59) 12 (9,011) (38,361) 12 (4,544) (26,306) (18,577) 14 (18,577) 20,206 20, Other operating revenue ,577 18, Other operating costs 324,294 Profit from operating activities 33, Financial income 23, Financial expenses 333,654 Profit before tax 63, Income tax 269,763 Net profit The accompanying notes to the consolidated financial statements are an integral part thereof f 30

162 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) 11. Revenue from services, products, goods and materials sold Revenue from services, products, goods and materials sold for the year ended 31 December December 2008 dth subscription fees (Mini and MiniMax Package) 58,146 31,786 dth subscription fees (other packages) 1,131, ,892 Sale of digital satellite reception equipment and mobile phones 46, ,180 Rental of digital satellite reception equipment 644 6,842 Transmission services 3,593 1,953 Subscription fees, interconnection revenues and settlements with mobile network operators 5,550 1,005 Other operating revenue 19,948 10,816 Total 1,266,137 1,098,474 Other operating revenue consist of revenue from marketing and advertising services, revenue from lease of property (including investment property) and appliances, other mvno revenue, revenue from servicing and installation and other. 12. Operating costs Operating costs Note for the year ended 31 December December 2008 Depreciation and amortization 41,948 23,547 Programming costs 354, ,231 Transmission costs a 82,570 59,006 Cost of equipment sold 89, ,547 Distribution, marketing, customer relation management and retention costs b 262, ,935 Salaries and employee-related expenses c 72,787 61,769 Other operating costs d 74,575 61,774 Total costs by kind 978, ,809 The accompanying notes to the consolidated financial statements are an integral part thereof f 31

163 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) for the year ended 31 December December 2008 Cost of services, products goods and materials sold 690, ,776 Cost of sales 205, ,216 General and administration costs 82,111 74,817 Total costs by function 978, ,809 a) Transmission costs Transmission costs for the year ended 31 December December 2008 Transponders rental 47,986 32,320 Conditional Access System rental 30,051 22,351 Other 4,533 4,335 Total 82,570 59,006 b) Distribution, marketing, customer relation management and retention costs Distribution, marketing, customer relation management and retention costs for the year ended 31 December December 2008 Distibution and logistics costs 123, ,509 Marketing costs 57,468 46,035 Customer relation management costs 81,284 52,391 Total 262, ,935 The accompanying notes to the consolidated financial statements are an integral part thereof f 32

164 c) Salaries and employee-related expenses Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) Salaries and employee-related expenses for the year ended 31 December December 2008 Salaries 63,535 54,441 Social security contributions 6,988 5,078 Other employee-related costs 2,264 2,250 Total 72,787 61,769 Salaries and social security contributions of employees directly involved in set-top boxes manufacturing are presented in cost of equipment sold. Average number of employees Average number of employees for the year ended 31 December December 2008 Number of employees employment contracts* Total * Including employess directly involved in set-top boxes manufacturing whose salaries are part of cost of equipment sold. The accompanying notes to the consolidated financial statements are an integral part thereof f 33

165 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) d) Other operating costs Other operating costs for the year ended 31 December December 2008 Cost of smart and sim cards handed over 21,657 17,090 IT services 16,468 15,155 Legal, advisory and consulting costs 7,875 9,264 Property maintenance costs 6,030 4,579 Taxes and other charges 1,771 1,882 Costs of settlements with mobile network operators and interconnection charges (mvno) 2,882 1,012 Other 17,892 12,792 Total 74,575 61, Other operating revenues Other operating revenues Contractual remedy covering the costs of encryption card and digital satellite reception equipment replacement (swap) for the year ended 31 December December ,794 17,070 Other compensations 2, Reversal of fixed assets impairment and stock provision 427 Other 1,764 1,762 Total 12,541 20,206 The accompanying notes to the consolidated financial statements are an integral part thereof f 34

166 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) 14. Other operating costs Other operating costs for the year ended 31 December December 2008 Bad debt provision and the cost of receivables written off 19,512 15,008 Fixed assets impairment and stock provision 1,835 3,026 Other 2, Total 24,270 18, Financial income Financial income for the year ended 31 December December 2008 Foreign exchange differences from forward exchange contracts 7,540 17,643 Interest income 6,018 8,443 Profit from sale of shares 330 Settlement of ipo related costs (see note 44) 7,223 Other 431 Total 14,319 33,309 Interest revenue Breakdown of interest income by type of financial instruments is presented below: Interest revenue for the year ended 31 December December 2008 Bank accounts and deposits 6,018 8,335 Other 108 Total 6,018 8,443 The accompanying notes to the consolidated financial statements are an integral part thereof f 35

167 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) Financial expenses Financial expenses for the year ended 31 December December 2008 Interest 4,109 12,231 Costs attributable to public offering of shares 6,691 Foreign exchange rate differences, net 1,665 4,703 Realized forward exchange contracts 6 Other Total 5,963 23,949 Interest expense Breakdown of interest costs by type of financial instrument is presented below: Interest expense for the year ended 31 December December 2008 Borrowings and loans 3,911 12,002 Other Total 4,109 12, Income tax (i) Income tax in the income statement Income tax for the year ended 31 December December 2008 Corporate income tax 57,298 50,224 Change in deferred income tax 13,597 13,667 Correction of 2007 income tax statement (16,877) Income tax expense in the income statement 54,018 63,891 The accompanying notes to the consolidated financial statements are an integral part thereof f 36

168 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) CHANGE IN DEFERRED INCOME TAX for the year ended Change in deferred income tax 31 December December 2008 Tax losses carried forward 216 8,105 Receivables and other assets (4,967) 11,705 Liabilities (12,704) (4,996) Deferred distribution fees 15,330 (1,044) Tangible and intangible non-current assets 15,717 (103) Change in deferred income tax total 13,597 13,667 (ii) Effective tax rate reconciliation Effective tax rate reconciliation for the year ended 31 December December 2008 Profit before income tax 284, ,654 Profit before tax multiplied by statutory tax rate in Poland of 19% 54,024 63,394 Praga Business Park Sp. z o.o. profit before tax multiplied by statutory tax rate in Poland of 19% 322 Deductible temporary differences of Praga Business Park Sp. z o.o. (prior to the merger) (663) Non-tax deductible, stock-taking differences at 19% tax rate Non-tax deductible interest cost at 19% tax rate Correction of 2007 income tax statement of Cyfrowy Polsat s.a. (1,277) Other non-taxable revenue and non-tax deductible costs, net at 19% tax rate Tax charge for the year 54,018 63,891 Effective tax rate 19.0% 19.1% The accompanying notes to the consolidated financial statements are an integral part thereof f 37

169 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) (iii) Deferred tax assets Deferred tax assets 31 December December 2008 Tax losses carried forward 216 Liabilities 24,636 12,597 Tangible non-current assets 270 1,375 Receivables and other assets 16,034 13,011 Total deferred tax assets 40,940 27,199 Offsetting of deferred tax liabilities and deferred tax assets (38,750) (25,976) Deferred tax assets in the balance sheet 2,190 1,223 (iv) Tax losses Tax losses 31 December December 2008 Tax loss 2006 carried forward 3 Tax loss 2007 carried forward 1,132 Tax losses carried forward total 1,135 (v) Tax losses recognised Tax losses recognised 31 December December 2008 Tax loss 2006 carried forward 3 Tax loss 2007 carried forward 1,132 Tax losses carried forward total 1,135 At each balance sheet date, the Group recognises tax losses that are likely to be utilized in the future. In 2009 the Group utilized tax losses for years in the total amount of pln 1,135 thousand. According to Art. 7 of the Corporate Income Tax Act dated 15 February 1992, tax losses incurred in a given financial year can be utilized in the following five tax years. However, tax loss utilized in a tax year cannot exceed 50% of the original tax loss for a given year. The accompanying notes to the consolidated financial statements are an integral part thereof f 38

170 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) (vi) Deferred tax liabilities Deferred tax liabilities 31 December December 2008 Receivables and other assets 32,552 34,491 Liabilities Deferred distribution fees 16, Tangible non-current assets 15,835 1,257 Total deferred tax liabilities 64,810 37,512 Offsetting of deferred tax liabilities and deferred tax assets (38,750) (25,976) Deferred tax liabilities in the balance sheet 26,060 11,536 On 21 December 2009 Cyfrowy Polsat s.a. filed a correction of taxable income for the year 2007 under the Corporate Income Tax Act presenting an additional amount due to the total of pln 16,877 thousand (the surcharge resulting from the statement totalled pln 20,041 thousand). The correction was filed mainly as a result of receiving two individual tax law interpretations concerning qualifying expenses as tax-deductible costs. 18. EBITDA The key measure of earnings in the Group is ebitda. Ebitda measures the Group s ability to generate cash from recurring operations. The Group defines ebitda as operating profit adjusted by depreciation and amortization. ebitda is not defined by the eu ifrs and can be calculated differently by other entities. EBITDA for the year ended 31 December December 2008 Profit from operating activities 276, ,294 Depreciation and amortization 41,948 23,547 EBITDA 317, ,841 The accompanying notes to the consolidated financial statements are an integral part thereof f 39

171 19. Basic and diluted earnings per share Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) Basic earnings per share are calculated by dividing the net profit for the period attributable to ordinary shareholders of the Parent by the weighted average number of ordinary shares outstanding during the period. As at the balance sheet date, the Group did not have financial instruments that could have a dilutive effect, therefore the Group does not present diluted earnings per share. As a result, basic earnings per share equals diluted earnings per share. Basic and diluted earnings per share for the year ended 31 December December 2008 Net profit (in pln thousand) 230, ,763 Weighted average number of ordinary shares used to calculate earnings per share 268,325, ,325,000 Earnings per share in PLN The accompanying notes to the consolidated financial statements are an integral part thereof f 40

172 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) 20. Property, plant and equipment Property, plant and equipment Land Buildings, premises and civil engineering structures Technical equipment and machinery Digital satellite reception equipment Cost Cost as at 1 January ,038 30,704 54, ,672 Additions 7,184 35,786 21,626 Transfers from investment property 310 1,396 Disposals (171) (473) (3,854) Cost as at 31 December ,348 39,113 89, ,444 Impairment provision as at 1 January 2008 (994) (22,856) Additions (275) Diminutions 36 Impairment provision as at 31 December 2008 (958) (23,131) Accumulated depreciation Accumulated depreciation as at 1 January ,789 18, ,267 Additions 1,870 10,958 1,096 Transfers from investment property 27 Disposals (56) (437) (3,835) Accumulated depreciation as at 31 December ,630 29, ,528 Carrying amounts As at 1 January ,038 28,915 34, As at 31 December ,348 35,483 59,642 20,785 The Group recognized an impairment provision for property, plant and equipment whose carrying amount exceeded recoverable amount. The accompanying notes to the consolidated financial statements are an integral part thereof f 41

173 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) Vehicles Other tangible non-current assets Total Non-current tangible assets under construction Prepayments for assets under construction 3,370 5, ,893 22, ,226 6,379 72,201 32,861 1,706 (226) (56) (4,780) (39,845) (446) 4,370 11, ,020 15, (23,850) (275) 36 (24,089) 729 1, , ,349 17, (139) (47) (4,514) 1,382 3, ,854 2,641 3,810 74,767 22, ,988 7, ,077 15, The accompanying notes to the consolidated financial statements are an integral part thereof f 42

174 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) Property, plant and equipment Land Buildings, premises and civil engineering structures Technical equipment and machinery Digital satellite reception equipment Cost Cost as at 1 January ,348 39,113 89, ,444 Additions 16,422 14, ,703 Transfers from investment property 2,518 15,058 Disposals (477) (3,811) (36,587) Cost as at 31 December ,866 70, , ,560 Impairment provision as at 1 January 2009 (958) (23,131) Additions (8) (152) (854) Diminutions 35 Utilization 22,935 Impairment provision as at 31 December 2009 (8) (1,075) (1,050) Accumulated depreciation Accumulated depreciation as at 1 January ,630 29, ,528 Additions 3,180 14,760 10,965 Transfers from investment property 621 Disposals (141) (3,195) (13,440) Accumulated depreciation as at 31 December ,290 40,937 98,053 Carrying amount As at 1 January ,348 35,483 59,642 20,785 As at 31 December ,866 62,818 58, ,457 The Group recognized an impairment provision for property, plant and equipment whose carrying amount exceeded recoverable amount. The accompanying notes to the consolidated financial statements are an integral part thereof f 43

175 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) Vehicles Other tangible non-current assets Total Non-current tangible assets under construction Prepayments for assets under construction 4,370 11, ,020 15, ,542 3, ,345 4,324 1,332 17,576 (308) (117) (41,300) (15,319) (1,285) 6,604 15, ,641 4, (24,089) (56) (1,070) 35 22,935 (56) (2,189) 1,382 3, ,854 1,076 3,174 33, (250) (107) (17,133) 2,208 7, ,497 2,988 7, ,077 15, ,396 8, ,955 4, The accompanying notes to the consolidated financial statements are an integral part thereof f 44

176 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) 21. Intangible assets Intangible assets Software and licences Other In progress Total Cost Cost as at 1 January , ,933 23,446 Additions 10,683 1,496 6,726 18,905 Disposals (341) (932) (11,791) (13,064) Cost as at 31 December , ,287 Impairment provision as at 1 January 2008 Additions (476) (278) (754) Dimunitions Impairment provision as at 31 December 2008 Accumulated amortization Accumulated amortization as at 1 January , ,981 Additions 5, ,227 Disposals (341) (456) (797) Accumulated amortization as at 31 December , ,411 Carrying amount As at 1 January , ,933 11,465 As at 31 December , ,876 The accompanying notes to the consolidated financial statements are an integral part thereof f 45

177 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) Intangible assets Software and licences Other In progress Total Cost Cost as at 1 January , ,287 Additions 6, ,460 11,277 Disposals (84) (220) (304) Cost as at 31 December ,072 1,080 5,108 40,260 Impairment provision as at 1 January 2009 Additions (18) (18) Diminutions Impairment provision as at 31 December 2009 (18) (18) Accumulated amortization Accumulated amortization as at 1 January , ,411 Additions 8, ,750 Disposals (84) (84) Accumulated amortization as at 31 December , ,077 Carrying amounts As at 1 January , ,876 As at 31 December , ,108 14,165 The accompanying notes to the consolidated financial statements are an integral part thereof f 46

178 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) 22. Investment property Investment property Cost Cost as at 1 January ,282 Transfers to property, plant and equipment (1,706) Buildings (1,396) Land (310) Cost as at 31 December ,576 Accumulated depreciation Accumulated depreciation as at 1 January Additions 255 Transfers to property, plant and equipment (27) Accumulated depreciation as at 31 December Carrying amounts As at 1 January ,932 As at 31 December ,998 The accompanying notes to the consolidated financial statements are an integral part thereof f 47

179 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) Investment property Cost Cost as at 1 January ,576 Transfers to property, plant and equipment (17,576) Buildings (15,058) Land (2,518) Cost as at 31 December 2009 Accumulated depreciation Accumulated depreciation as at 1 January Additions 43 Transfers to property, plant and equipment (621) Accumulated depreciation as at 31 December 2009 Carrying amounts As at 1 January ,998 As at 31 December 2009 Revenues from the rental of investment property amounted to pln 331 thousand in the 12 months of The related costs amounted to pln 117 thousand. In 2008 revenues and costs amounted to pln 1,587 thousand and pln 1,030 thousand, respectively. The accompanying notes to the consolidated financial statements are an integral part thereof f 48

180 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) 23. Shares in associates Investment in mpunkt Holdings Ltd. On 31 October 2009 the Group purchased 45% shares in mpunkt Holdings Ltd. ( mpunkt Holdings ) for pln 24,8 million. mpunkt Holdings owns mpunkt Polska s.a. ( mpunkt Polska ) and mtel Sp. z o.o. ( mtel ). mpunkt Polska operates as a country-wide sales network of telecommunication services, mobile phones, accessories and maintenance services which are offered to individual customers. mtel renders agency services under the agreement with mpunkt Polska. The Group intends to purchase a controlling stake in mpunkt Holdings. According to the agreement the eventuality to purchase a controlling stake was dependent, inter alia, on the approval of the President of the Polish Competition and Consumer Protection Office ( uokik ). On 3 March 2010 the President of uokik issued decision dkk-12 / 2010 approving the takeover of mpunkt Holdings by Cyfrowy Polsat s.a. Other conditions determining the possibility of the purchase were not met as at the release date of these consolidated financial statements. The Group transferred pln 51,294 thousand to escrow bank account. From that amount pln 24,556 thousand is presented at the balance sheet date as shares, while pln 26,738 thousand is presented as restricted cash as at 31 December 2009 the Company did not purchase all of the planned shares. On a balance sheet date the Group has a substantial influence on the activities of mpunkt Holdings, but does not exercise control. In consequence, the investment is classified as investment in associates and accounted for using the equity method. The book value of the investment in associate is presented in the table below: The book value of the investment for the year ended 31 December December 2008 Balance as at 1 January Purchase of shares 24,556 Other capitalized costs related to the transaction 245 Share of loss of mpunkt Holdings for a period from 1 November to 31 December 2009 (69) Balance as at 31 December 24,732 The accompanying notes to the consolidated financial statements are an integral part thereof f 49

181 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) The revenue and net loss of mpunkt Holdings for a period from 1 November to 31 December 2009 and aggregated assets and equity and liabilities on 31 December 2009 are presented below: The revenue and net loss of mpunkt Holdings Assets* Equity and liabilities * Revenue ** Net loss ** % of share capital held 81,754 71,892 27, % * amounts from audited consolidated financial statements of mpunkt Holdings for the year 2009 ** amounts from unaudited consolidated financial statements of mpunkt Holdings for a period from 1 November to 31 December 2009 The value of aggregated assets and equity and liabilities, established as a result of purchase transaction, based on unaudited consolidated financial statements of mpunkt Holdings on 31 October 2009 is presented below: The value of aggregated assets and equity and liabilities Assets 63,145 Equity and liabilities 52,789 Estimated value of purchased net assets 10,356 % of share capital held by the Group 45% Estimated value of purchased net assets owned by the Group 4,660 The carrying amount of the purchased shares on 31 December 2009 is equal to the purchase price diminished by the share of loss of mpunkt Holdings attributable to the Group for the period from 1 November to 31 December Value 24. Other long-term assets Other long-term assets 31 December December 2008 Shares 1,454 1,335 Deferred distribution fees 29,684 22,924 Other long-term receivables 5 Total 31,138 24,264 Deferred distribution fees include commissions for distributors for contracts effectively concluded with subscribers. These costs are amortized by the Group over the minimum basic period of the subscription contracts. The accompanying notes to the consolidated financial statements are an integral part thereof f 50

182 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) 25. Inventories Inventories Types of inventories 31 December December 2008 Set-top boxes goods 56,849 42,762 Set-top boxes products 19,539 10,145 Antennas and converters 8,281 12,434 SMART and SIM cards 11,021 7,583 Other inventories 20,663 18,071 Prepayments for inventory 10,521 7,771 Total gross value 126,874 98,766 Provision (4,783) (3,767) Total net value 122,091 94,999 Prepayments as at both presented balance sheet dates comprised mainly prepayments advanced to unrelated parties for set-top boxes and smart cards. Prepayments Provision for inventories 31 December December 2008 Opening balance 3,767 1,836 Increase 2,928 1,931 Decrease (1,912) Closing balance 4,783 3,767 There are no restrictions on the Group s rights to dispose its inventories. 26. Trade and other receivables Trade and other receivables 31 December December 2008 Trade receivables from related entities 5, Trade receivables from non-related entities 81,791 84,654 Tax and social security receivables 43,429 33,587 Other receivables 1, Total 131, ,515 Trade receivables from non-related entities include mainly receivables from individual clients, distributors and others. The accompanying notes to the consolidated financial statements are an integral part thereof f 51

183 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) Trade receivables in currency Trade receivables in currency Currency 31 December December 2008 PLN 82,774 77,476 eur 4,253 6,545 usd 122 1,024 Total 87,149 85,045 Movements in bad debt allowance Movements in bad debt allowance 31 December December 2008 Opening balance 60,811 46,484 Increase 19,199 15,802 Reversal (314) (1,141) Utilization (2,919) (334) Closing balance 76,777 60, Other current assets Other current assets 31 December December 2008 Deferred distribution fees 56,042 68,234 Current assets from valuation of exchange forward contracts 13,950 Other deferred costs 2,343 2,444 Other deferred income 905 1,041 Total 59,290 85,669 Deferred distribution fees comprise commissions for distributors for contracts effectively concluded with subscribers. These costs are amortized over the minimum basic period of the subscription contracts. The accompanying notes to the consolidated financial statements are an integral part thereof f 52

184 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) 28. Cash and cash equivalents Cash and cash equivalents 31 December December 2008 Cash in hand Current accounts 1,708 8,341 Deposits 70, ,045 Total 72, ,422 Cash and cash equivalents Currency 31 December December 2008 PLN 68, ,568 eur 2,820 2,297 usd 1, Total 72, ,422 On 30 October 2009 Cyfrowy Polsat s.a. conducted an overdraft facility agreement with Pekao s.a. for the total amount of pln 10,000 thousand with the repayment date set at 29 October The total amount of credit available under the agreement is automatically increased to pln 50,000 thousand after submitting all corporate approvals required by our statute to the bank. The interest paid on the overdraft is the sum of reference rate of wibor o/n and a margin of 1.25%. An execution statement of up to pln 75,000 thousand is the collateral for the overdraft facilities. As at the date of approval of these consolidated financial statemtnts the Parent did not utilize the overdraft facilities. As the Group cooperates with well-established Polish and international banks, the risk relating to deposited cash is considerably limited. 29. Restricted cash Restricted cash amounted to pln 26,738 thousand as at 31 December 2009 and concerned cash deposited on the escrow bank account for which the Group plans to purchase a majority stake in mpunkt Holdings s.a., as described in note 23. The accompanying notes to the consolidated financial statements are an integral part thereof f 53

185 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) 30. Shareholders equity (i) Share capital In accordance with the National Court Register, share capital of Cyfrowy Polsat s.a. as at 31 December 2009 amounted to pln 10,733 thousand. Share capital is divided into 268,325,000 shares with a nominal value of pln 0.04 each. All shares were fully paid. Share capital was not covered by contributions in kind in the period covered by these consolidated financial statements. The table below presents the shareholders equity structrure as at 31 December 2009: shareholders equity Share series Number od shares Nominal value of shares Type Series A 2,500, preference shares (2 voting rights) Series B 2,500, preference shares (2 voting rights) Series C 7,500, preference shares (2 voting rights) Series D 175,000,000 7,000 preference shares (2 voting rights) Series E 75,000,000 3,000 ordinary bearer shares Series F 5,825, ordinary bearer shares Total 268,325,000 10,733 In Poland, each issue of shares is given a consecutive serial number. As at 31 December 2009, Series a, b, c and d are preference shares (2 voting rights per share). Series e and f are not preference shares. During the year 2009 there were no changes in the share capital structure and number of issued shares. On 8 March 2010 Extraordinary General Meeting of Cyfrowy Polsat s.a. resolved to change the Company s statute in the following manner: 8,082,499 registered series d shares privileged as to the voting rights (2 votes per share) belonging to Polaris Finance b.v. were transformed into ordinary bearer shares. It was additionally resolved that these shares shall be the subject of application for admission to trading on a regulated market maintained by the Warsaw Stock Exchange and shall be subject to dematerialization. The accompanying notes to the consolidated financial statements are an integral part thereof f 54

186 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) After the above mentioned change, the share structure is as follows: share structure Share series Number of shares Nominal value of shares Type Series A 2,500, preference shares (2 voting rights) Series B 2,500, preference shares (2 voting rights) Series C 7,500, preference shares (2 voting rights) Series D 166,917,501 6,677 preference shares (2 voting rights) Series D 8,082, ordinary bearer shares Series E 75,000,000 3,000 ordinary bearer shares Series F 5,825, ordinary bearer shares Total 268,325,000 10,733 On 13 April 2010 The Management Board of Cyfrowy Polsat s.a. became aware of sales of 7,918,750 dematerialized registered shares of Cyfrowy Polsat s.a. by Polaris Finance b.v. After completing the aforementioned transaction Polaris Finance b.v. holds 175,025,000 shares of Cyfrowy Polsat s.a. which account for 65.23% of the share capital of the Company entitling to 341,967,501 votes in the General Meeting of Shareholders of the Company which accounts for 76.38% of the total number of votes in the General Meeting of Shareholders of the Company. The shareholders structure as at 31 December 2009 was as follows: shareholders structure as at 31 December 2009 Number of shares Nominal value of shares % of share capital held Number of votes % of voting rights Polaris Finance b.v ,943,750 7, % 357,968, % Zygmunt Solorz-Żak 10,603, % 21,207, % Other 2 74,777,500 2, % 76,648, % Total 268,325,000 10, % 455,825, % 1 Zygmunt Solorz-Żak indirectly holds 155,502,188 of the Company shares (57.95% of the share capital and 66.75% of votes) and Heronim Ruta indirectly holds 27,441,562 of the Company shares (10.23% of the share capital and 11.78% of votes) through Polaris Finance b.v. 2 Heronim Ruta directly holds 1,871,250 of the Company shares (0.70% share in capital and 0.82% of voting rights). On 16 April 2009, Polaris Finance b.v. withdrew from a share sale agreement with Zygmunt Solorz-Żak dated 18 December On 16 April 2009 a return transfer of 20,000,000 dematerialised registered shares of Cyfrowy Polsat s.a., privileged as to the number of votes in the ratio of 2 to 1 took place. Prior to the aforementioned transaction Polaris Finance b.v. held 162,943,750 shares of the Company which accounted for 60.73% of the share capital of the Company entitling to 317,968,750 votes in the General Meeting of Shareholders of the Company which accounted for 69.76% of the total number of votes in the General Meeting of Shareholders of Cyfrowy Polsat s.a. After completing the aforementioned transaction Polaris Finance b.v. holds 182,943,750 shares of the Company which account for 68.18% of the share The accompanying notes to the consolidated financial statements are an integral part thereof f 55

187 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) capital of the Company entitling to 357,968,750 votes in the General Meeting of Shareholders of the Company which accounts for 78.53% of the total number of votes in the General Meeting of Shareholders of Cyfrowy Polsat s.a. Prior to the aforementioned transaction Zygmunt Solorz-Żak directly held 30,603,750 shares of the Company which accounted for 11.41% of the share capital of the Company entitling to 61,207,500 votes in the General Meeting of Shareholders of the Company which accounted for 13.43% of the total number of votes in the General Meeting of Shareholders of Cyfrowy Polsat s.a. After completing the aforementioned transaction Mr. Zygmunt Solorz-Żak directly holds 10,603,750 shares of the Company which account for 3.96% of the share capital of the Company entitling to 21,207,500 votes in the General Meeting of Shareholders of the Company which accounts for 4.66% of the total number of votes in the General Meeting of Shareholders of Cyfrowy Polsat s.a. Moreover, Polaris Finance b.v. informed the Company about lack of intention of further increasing the share in the total number of votes in the General Meeting of Shareholders of Cyfrowy Polsat s.a. within 12 months from 17 April The shareholders structure as at 31 December 2008 was as follows: shareholders structure as at 31 December 2008 Number of shares Nominal value of shares % of share capital held Number of votes % of voting rights Polaris Finance b.v ,943,750 6, % 317,968, % Zygmunt Solorz-Żak 30,603,750 1, % 61,207, % Other 2 74,777,500 2, % 76,648, % Total 268,325,000 10, % 455,825, % 1 Zygmunt Solorz-Żak indirectly holds 138,502,188 of the Company shares (51.62% of the share capital and 59.30% of votes) and Heronim Ruta indirectly holds 24,441,562 of the Company shares (9.11% of the share capital and 10.46% of votes) through Polaris Finance b.v. 2 Heronim Ruta directly holds 1,871,250 of the Company shares (0.70% share in capital and 0.82% of voting rights). Initial public offering On 30 April 2008 the public offering of the E series shares was completed 67,081,250 shares owned as at 31 December 2007 by Polaris Finance BV were sold and all of them are listed as at 31 December (ii) Reserve capital In accordance with art. 396 of the Commercial Companies Code, joint-stock companies are obliged to transfer 8% of annual net profit to reserve capital until it reaches at least one third of total share capital. Reserve capital cannot be distributed. General Shareholders Meeting adopted following resolutions regarding transfer from net profit to reserve capital: on 5 September 2007 a resolution transferring part of the 2006 profit in the amount of pln 3,500 thousand to reserve capital, on 4 July 2008 a resolution transferring part of the 2007 profit in the amount of pln 464 thousand to reserve capital, on 14 May 2009 a resolution transferring part of the 2008 profit in the amount of pln 70,033 thousand to reserve capital. The accompanying notes to the consolidated financial statements are an integral part thereof f 56

188 (iii) Statutory reserve funds Statutory reserve funds of pln 10,174 thousand include the difference between the fair value of shares purchased by the Members of the Management Board and their issue price. (iv) Retained earnings The net profit for the year is presented under retained earnings. Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) (v) Dividends paid On 14 May 2009 a resolution regarding the distribution of 2008 profit was adopted. The General Shareholders Meeting of Cyfrowy Polsat s.a. resolved to pay dividend in the amount of pln 201,244 thousand. The dividend was paid in two tranches pln 134,163 thousand on 16 June 2009 and pln 67,081 thousand on 21 October Borrowings and loans Borrowings and loans 31 December 2009 Long-term Short-term Total Borrowings and loans 47,370 47,370 Total 47,370 47,370 Borrowings and loans 31 December 2008 Long-term Short-term Total Borrowings and loans 44,135 66, ,706 Total 44,135 66, ,706 Borrowings and loans by currency Currency 31 December December 2008 PLN 47, ,706 Total 47, ,706 The accompanying notes to the consolidated financial statements are an integral part thereof f 57

189 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) Borrowings and loans As at 31 December 2009 Borrowings and loans as at 31 December 2009 Lender Currency Amount in currency Principal outstanding Carrying amount Repayment term Interest Bank Pekao s.a. PLN 191,830 47,277 47,370 9 October 2010 * Total 47,370 1 m wibor % As at 31 December 2008 Borrowings and loans as at 31 December 2008 Lender Currency Amount in currency Principal outstanding Carrying amount Repayment term Interest Bank Pekao s.a. PLN 191, , ,706 9 October 2010 * Total 110,706 1 m wibor % * During the period the Company, according to the payment schedule, repaid part of the principal, in the amount of pln 144,553 thousand (pln 63,035 thousand in 2009 and pln 81,518 thousand in 2008). The remaining amount will be paid in equal installments at the end of each quarter. The final loan repayment should be made not later than 3 years after signing of the loan agreement. Collateral Financial covenants: the ratio of Net Financial Debt to ebitda calculated for an Accounting Period (calendar year) must be lower than or equal to 2.2 : 1. At all times during the loan agreement term, the ratio of ebitda to Debt Service must be higher than or equal to 1.2 : 1. If any of the above ratios is not maintained at the required level and Polsat Cyfrowy s.a., within 10 business days from the receipt of a relevant notice from the agent, prepays the loan in an amount sufficient to restore the ratios to the required levels, then such a breach will not represent an Event of Default. Moreover, the Company is prohibited from: creating security over its assets for amounts in excess of pln 100 thousand, disposing of its assets in order to incur financial debt or finance purchase of assets, selling, transferring or leasing its assets if the market value of the subject of the transaction exceeds pln 30,000 thousand and the transaction has not been executed in the ordinary course of business, merging with another legal entity without the consent of the agent (i.e. Bank Pekao s.a. acting on behalf and for the creditors as the pledge administrator or on behalf and for itself ), purchasing shares in other corporations or establishing companies or partnerships without the consent of the agent, entering into transactions on terms less advantageous than arm s length terms, The accompanying notes to the consolidated financial statements are an integral part thereof f 58

190 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) granting loans without the consent of the agent, with the exception of loans for Cyfrowy Polsat Technology Sp. z o.o., in a total amount exceeding pln 40,000 thousand, providing guarantees without the consent of the agent, distributing dividends before the public offering, incurring financial debt otherwise than as part of day-to-day business activities, for a total amount exceeding pln 10,000 thousand, acquiring its shares for retirement without the consent of the agent, materially changing its business scope, transferring its receivables, opening any bank accounts without providing security for the agent and obliged to: provide the agent with any material documents and information concerning the financial standing of the Group, make monthly payments to Bank Pekao s.a. accounts in the amount of at least pln 30,000 thousand (but no more than 50% of the funds held in the Company s accounts), make any transfers of funds abroad through the agent if the transfers exceed pln 50 thousand, use, for the purpose of financial statements audit, only the services of the auditors specified in the agreement or the services of other auditors if approved by the agent. 32. Group as a lessor and as a lessee a) Group as a lessor Operating lease The Group entered into a significant number of contracts with third parties, which are classified as operating leases due to their economic substance. The contracts relate to rental of digital satellite reception equipment. Assets connected with such contracts are presented as property, plant and equipment. Lease contracts for set-top boxes are concluded for a basic contractual period ranging from 12 to 36 months. After the basic period, the contracts are converted into contracts with indefinite or definite terms, unless terminated by subscribers. Future minimimum lease payments concerning set-top boxes under operating lease are as follows: Future minimimum lease payments 31 December December 2008 within 1 year between 1 and 5 years Total 1, Finance lease The Group entered into a significant number of contracts with third parties, which are classified as finance leases due to their economic substance. The contracts relate to the rental of digital satellite reception equipment. The accompanying notes to the consolidated financial statements are an integral part thereof f 59

191 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) The Group does not record assets related to these contracts in the financial statements. Future minimum lease payments under finance leases are as follows: Future minimimum lease payments 31 December December 2008 within 1 year 161 2,199 Total 161 2,199 The present value of minimum lease payments amounted to pln 160 thousand as at 31 December 2009 and pln 2,154 thousand as at 31 December b) Group as a lessee Operating leases The Group entered into a significant number of agreements, which are classified as operating lease contracts due to their economic substance. Assets leased under these contracts are not recorded in the financial statements. The assets comprise rental of transponder capacity, rental of office and warehouse space, and rental of equipment. Future minimum lease payments under operating leases are as follows: Future minimum lease payments 31 December December 2008 within 1 year 97,001 74,407 between 1 and 5 years 383, ,131 in more than 5 years 274,576 30,760 Total 755, ,298 In 2009 the Group incurred costs related to operating lease agreements amounting to pln 83,535 thousand. Finance leases The carrying value of devices used on the basis of finance lease contracts amounted to pln 1,670 thousand as at 31 December 2009 and pln 1,956 thousand as at 31 December The lease period is 10 years. The accompanying notes to the consolidated financial statements are an integral part thereof f 60

192 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) Future minimum lease payments under finance leases are as follows: Future minimum lease payments 31 December December 2008 within 1 year between 1 and 5 years in more than 5 years Total 1,385 1,645 The present value of minimum lease payments amounted to pln 1,243 thousand as at 31 December 2009 and pln 1,367 thousand as at 31 December Trade and other payables Trade and other payables 31 December December 2008 Trade payables to related parties 915 2,352 Trade payables to non-related parties 86, ,956 Taxation and social security payables 7,769 8,088 Payables relating to purchases of fixed assets 6,361 4,844 Accruals 107,534 48,942 Short term provisions 10,235 4,032 Other 2,849 1,311 Total 222, ,525 Accruals 31 December December 2008 Salaries 16,402 17,324 Royalties for copyright management organisations 2,463 1,977 Licence fees 36,045 18,567 Cost attributable to public offering of shares 338 Distribution costs 37,491 1,345 Other 15,133 9,391 Total 107,534 48,942 The accompanying notes to the consolidated financial statements are an integral part thereof f 61

193 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) Trade payables and payables relating to purchases of fixed assets by currency Currency 31 December December 2008 PLN 30,549 86,646 eur 15,636 24,341 usd 47,642 24,165 Total 93, ,152 Accruals by currency Currency 31 December December 2008 PLN 75,780 31,941 eur 18,988 10,225 usd 12,766 6,776 Total 107,534 48, Deposits for equipment Deposits for equipment 31 December December 2008 Subscribers 10,568 14,206 Distributors 8,215 8,224 Other Total 18,800 22,447 Deposits received comprise amounts paid by subscribers under agreements for rental of set-top boxes and deposits paid by distributors for digital satellite reception equipment and mobile phones. Deposits are returned to customers or offset against receivables from subscribers upon contract termination. All deposits are presented as short-term liabilities as the notice period is less than 12 months. The accompanying notes to the consolidated financial statements are an integral part thereof f 62

194 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) 35. Deferred income Deferred income 31 December December 2008 Deferred income 135, ,265 Deferred income comprises mainly subscription fees paid in advance and rental fees for set-top boxes. These fees mainly relate to services to be rendered within 12 months from the balance sheet date. 36. Operating segments The Management Board of Cyfrowy Polsat s.a. identified operating segments in the basis of regularly reviewed management reports. The Group identified following operating segments: 1) Digital television segment comprises activities connected with providing digital television transmission signal to individual clients by Cyfrowy Polsat s.a. and set-top boxes manufacturing by its subsidiary company Cyfrowy Polsat Technology Sp. z o.o. Segment revenue comprises particularly: dth subscription fees; activation fees; sale of digital satellite reception equipment and transmission services. 2) Telecommunication services segment comprises Group s activities connected with providing mobile phone and Internet access services to the clients. Segment revenue comprises particularly: subscription fees related to mobile phone and Internet access services; interconnection revenues; settlements with mobile network operators and sale of mobile phones and modems. 3) Other operations comprise most notably managing costs, financial activities (including interest revenue and costs), tax burden and other unallocated costs. Revenue presented comprises mainly revenue from real estate rental. The Group aggregated mvno and Internet operating segments presenting them jointly as telecommunication services segment. Aggregation was done due to the similarity of services and comparable economic characteristics. In addition, Internet segment did not achieve the quantitative criteria justifying the necessity of separate presentation until 31 December The accompanying notes to the consolidated financial statements are an integral part thereof f 63

195 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) The table below presents Group's segment revenue and costs for the year ended 31 December 2009: Group's segment revenue and costs Digital television Telecommunication services Other Eliminations Consolidated amount External revenue 1,255,852 9, ,266,137 Inter-segment revenue 534 (534) Revenue from services, products, goods and materials sold Operating expenses, including: Depreciation and amortization Other operating revenue and costs, net including: 1,255,852 9, (534) 1,266,137 (865,075) (49,563) (64,254) 534 (978,358) (21,965) (8,805) (11,448) (41,948) (5,995) (5,173) (561) (11,729) Fixed assets impairment (819) (819) Stock provision (483) (533) (1.016) Bad debt provision (14,952) (4,516) (44) (19,512) Profit / (loss) from operating activities 384,782 (44,831) (63,901) 276,050 EBITDA * 406,477 (36,026) (52,453) 317,998 * The key measure of earnings in the Group is ebitda. ebitda measures the Group's ability to generate cash from recurring operations. The Group defines ebitda as operating profit adjusted by depreciation and amortization. ebitda is not defined by the eu ifrs and can be calculated differently by other entities. The accompanying notes to the consolidated financial statements are an integral part thereof f 64

196 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) The table below presents Group's segment revenue and costs for the year ended 31 December 2008: Group's segment revenue and costs Digital television Telecommunication services Other Eliminations Consolidated amount External revenue 1,093,907 2,767 1,800 1,098,474 Inter segment revenue 332 (332) Revenue from services, products, goods and materials sold Operating expenses, including: Depreciation and amortization Other operating revenue and costs, net including: 1,093,907 2,767 2,132 (332) 1,098,474 (676,158) (45,101) (54,882) 332 (775,809) (10,134) (3,859) (9,374) (23,547) 1, ,629 Fixed assets impairment (1,029) (7) (1,036) Stock provision (1,990) (1,990) Bad debt provision (14,684) (324) (15,008) Profit / (loss) from operating activities 419,348 (42,334) (52,720) 324,294 EBITDA* 429,662 (38,475) (43,346) 347,841 * The key measure of earnings in the Group is ebitda. ebitda measures the Group's ability to generate cash from recurring operations. The Group defines ebitda as operating profit adjusted by depreciation and amortization. ebitda is not defined by the eu ifrs and can be calculated differently by other entities. The table below presents Group's investment expenditures by segments for the year ended 31 December Group's investment expenditures by segments Investment expenditures: Digital television Telecommunication services intangible assets 6,137 1,457 2,936 10,530 tangible assets and investment property Other Total 8,459 1,920 16,145 26,524 Total investment expenditures 14,596 3,377 19,081 37,054 The accompanying notes to the consolidated financial statements are an integral part thereof f 65

197 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) The table below presents Group's investment expenditures by segments for the year ended 31 December Group's investment expenditures by segments Investment expenditures: Digital television Telecommunication services intangible assets 4,111 2, ,484 tangible assets and investment property Other Total 5,696 16,110 26,303 48,109 Total investment expenditures 9,807 18,536 27,250 55,593 The table below presents Group's assets by segments as at 31 December Group's investment expenditures by segments Investment expenditures: Digital television Telecommunication services Non-current assets 187,454 24, , ,910 Current assets 262,292 5, , ,936 Total assets 449,746 29, , ,846 Non-current assets classified as other comprise mainly property at Łubinowa street, shares in subsidiaries and associates, set-top boxes production line and Company s car fleet. Current assets classified as other comprise mainly cash and cash equivalents, restricted cash and public receivables. Other Total The table below presents Groups assets by segments as at 31 December Groups assets by segments Digital television Telecommunication services Non-current assets 76,125 29,598 95, ,116 Current assets 240,683 9, , ,015 Total assets 316,808 38, , ,131 Non-current assets classified as other comprise mainly property at Łubinowa street, Group s car fleet and set-top boxes production line. Current assets classified as other comprise mainly cash and cash equivalents, public receivables and forward exchange contracts. Group s liabilities by segments are not analyzed by the Management Board in monthly management reports. Other Total The accompanying notes to the consolidated financial statements are an integral part thereof f 66

198 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) 37. Financial instruments Overview Cyfrowy Polsat s.a. Group is exposed to the following financial risks: credit risk, liquidity risk, market risk: (i) currency risk, (ii) interest rate risk, capital risk. The Group s risk management policies are designed to reduce the impact of adverse conditions on the Group s results. The Management Board is responsible for oversight and management of each of the risks faced by the Group. Therefore, the Management Board has established an overall risk management framework as well as risk management policies on credit risks and capital risk. This note presents information about the Group s exposure to each of the above risks, the Group s objectives, policies and processes for measuring and managing risk, and management of capital. Further quantitative disclosures are included also in other notes to these consolidated financial statements. Loans and borrowings, cash, forward exchange contracts and short-term bank deposits are the main financial instruments used by the Group. They are intended to secure the financing for the Group s activities. The Group uses also other financial instruments such as trade receivables and trade payables which arise in the course of business activities. Financial assets Carrying amount 31 December December 2008 Financial assets at fair value through profit or loss, including: 13,950 Forward exchange contracts * 13,950 Loans and receivables, including: 88,471 85,933 Trade and other receivables from related parties 5, Trade and other receivables from non-related parties 83,113 85,542 Financial assets held to maturity Financial assets available for sale Hedging derivative instruments * Cash and cash equivalents 72, ,422 Restricted cash 26,738 * The Group does not adopt hedge accounting, therefore forward exchange contracts are being presented at fair value through profit or loss. The accompanying notes to the consolidated financial statements are an integral part thereof f 67

199 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) Financial liabilities Carrying amount 31 December December 2008 Financial liabilities at fair value through profit or loss Other financial liabilities valued at amortised cost, including: 164, ,261 Financial lease liabilities 1,385 1,645 Borrowings and loans 47, ,706 Trade payables and other payables to third parties 114, ,558 Trade and other payables to related parties 915 2,352 Hedging derivative instruments Credit risk Credit risk arises mainly on trade receivables. In the financial year ended 31 December 2009, the Group was not materially exposed to credit risk arising from sales on credit. The Parent s customer base includes a large number of individual subscribers dispersed geographically over the country who prepay subscription fees. Receivables from subscribers are constantly monitored and recovery actions are taken, including blocking of the signal transferred to subscribers or termination of services to a mvno client. The Group analyses the creditworthiness of distributors as well as tv and radio broadcasters on an ongoing basis. Credit risk related to other financial assets of the Group, such as receivables and cash and cash equivalents arises when a counterparty fails to make due payments. The maximum exposure to credit risk related to the financial assets equals the carrying amount of the assets. The maximum exposure to credit risk as at the balance sheet dates was as follows: Maximum exposure to credit risk Maximum exposure to credit risk Carrying amount 31 December December 2008 Trade and other receivables from non-related parties 83,113 85,542 Trade and other receivables from related parties 5, Cash and cash equivalents 72, ,422 Restricted cash 26,738 Total 187, ,355 The accompanying notes to the consolidated financial statements are an integral part thereof f 68

200 The table below presents receivables credit risk concentration: Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) receivables credit risk concentration Carrying amount 31 December December 2008 Receivables from subscribers 61,664 59,550 Receivables from distributors 11,333 12,841 Receivables from media companies 5,205 4,582 Receivables from related parties 5, Receivables from other non-related parties 4,911 8,569 Total 88,471 85,933 The table below presents the ageing of receivables: ageing of receivables 31 December December 2008 Gross Impairment Net Gross Impairment Net Not past due 72,073 1,446 70,627 68,968 1,453 67,515 Past due 0 30 days 5,394 1,195 4,199 5,560 1,317 4,243 Past due days 3,713 1,486 2,227 4,128 2,480 1,648 More than 60 days 84,068 72,650 11,418 68,088 55,561 12,527 Total 165,248 76,777 88, ,744 60,811 85,933 Liquidity risk The Group s objective in liquidity management is to ensure that it always has sufficient funds to meet its liabilities when due. Surplus cash is invested in bank deposits. The Group prepares, on an ongoing basis, analyses and forecasts of cash requirements based on budgeted cash flows. The accompanying notes to the consolidated financial statements are an integral part thereof f 69

201 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) The table below presents the contractual maturities of the Group s financial liabilities. contractual maturities of the Group s financial liabilities Carrying amount Contractual cash flows 6 months and less 31 December months 1 2 years 2 5 years more than 5 years Loans 47,370 48,257 32,337 15,920 Finance lease liabilities 1,385 1, Trade and other payables to non-related parties Trade and other payables to related parties 114, , , , , ,929 16, contractual maturities of the Group s financial liabilities Carrying amount Contractual cash flows 6 months and less 31 December months 1 2 years 2 5 years more than 5 years Loans 110, ,188 35,165 34,074 48,949 Finance lease liabilities 1,645 1, Trade and other payables to non-related parties Trade and other payables to related parties 156, , ,558 2,352 2,352 2, , , ,194 34,193 49, Market risk Currency risk One of the main risks to which the Group is exposed is currency risk related to fluctuations in the exchange rate between the Polish zloty and other currencies. The revenues generated by the Group are denominated mainly in Polish zloty, however, a significant portion of operating costs and capital expenditures are incurred in foreign currencies. The Group s currency risk is related to royalties for tv and radio broadcasters (usd and eur), transponder capacity leases (eur), fees for conditional access system (eur) and purchasing digital satellite reception equipment and accessories for digital satellite reception equipment (usd and eur). The accompanying notes to the consolidated financial statements are an integral part thereof f 70

202 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) Currency risk related to licence fees and transponder capacity leases is partly hedged against through actions aiming at the natural reduction of the exposure due to denominating receivables from transmission and marketing services in foreign currencies. In order to hedge against the currency risk related to royalties for tv and radio broadcasters, costs of conditional access system and costs of digital satellite reception equipment purchases the Group entered into a number of forward exchange contracts. In 2008, the Parent concluded 11 usd purchase agreement in the amount of usd 2,000 thousand each and 6 eur purchase agreements in the amount of eur 1,500 thousand each. As at 31 December 2009 all contracts were settled. The Group does not hold any assets available for sale denominated in foreign currencies. The Group holds equity interest a foreign entity whose functional currency is American dollar. As this asset is not available for sale, the Group classifies the asset as shares in associates. The Group does not apply hedge accounting. The table below presents the Group s foreign currency risk exposure in foreign currencies: Group s foreign currency risk 31 December December 2008 (in thousands) eur usd eur usd Trade receivables 1, , Cash and cash equivalents Loans and borrowings Trade payables (3,806) (16,715) (5,834) (8,159) Gross balance sheet exposure (2,085) (16,307) (3,714) (7,625) Estimated sales revenue * 545 5, Estimated purchases * (58,946) (54,902) (56,873) (129,060) Gross exposure (60,486) (71,209) (55,044) (136,445) Forward exchange contracts 4,500 16,000 Net exposure (60,486) (71,209) (50,544) (120,445) * During the 12-month period from the balance sheet date. The accompanying notes to the consolidated financial statements are an integral part thereof f 71

203 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) Following foreign exchange rates were applied in the presented periods: foreign exchange rates Average rate Rates at the balance sheet date (in PLN) December December eur usd A 5% weakening of the Polish zloty against the euro and US dollar would have decreased the gross profit by the amount presented below. This analysis assumes that all other variables, in particular interest rates, remain constant. The sensitivity analysis below is performed on the same basis for For the purposes of exchange rate volatility sensitivity analysis as at 31 December 2009 and 31 December 2008 it was assumed that probable volatility will be in the ± 5% band. Trade receivables As at 31 December 2009 Estimated in currency (in thousand) in pln (in thousand) change in exchange rate in % Estimated change in profit in pln (in thousand) As at 31 December 2008 Estimated in currency (in thousand) in pln (in thousand) change in exchange rate in % Estimated change in profit in pln (in thousand) eur 1,035 4,253 5% 213 1,569 6,545 5% 327 usd % ,024 5% 51 Cash and cash equivalents eur 686 2,820 5% ,297 5% 115 usd 365 1,041 5% % 28 Loans eur 5% 5% usd 5% 5% Trade payables eur (3,806) (15,636) 5% (782) (5,834) (24,341) 5% (1,217) usd (16,715) (47,642) 5% (2,382) (8,159) (24,165) 5% (1,208) The accompanying notes to the consolidated financial statements are an integral part thereof f 72

204 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) Change in operating profit Forward exchange contracts (2,752) (1,904) eur 5% 4,500 18,776 5% 939 usd 5% 16,000 47,389 5% 2,369 Income tax (523) 267 Change in net profit (2,229) 1,137 Had the exchange rate of euro and American dollar against the Polish zloty as at 31 December 2009 and 31 December 2008 been higher by 5%, the Group s net profit would have correspondingly decreased by pln 2,229 thousand and increased by pln 1,137 thousand. Strengthening of the Polish zloty against the above currencies by the given percentage would have the opposite effect on the net profit, assuming that all other variables remain constant. Estimated future revenue and cost denominated in foreign currency is not taken into consideration. Interest rate risk Fluctuations in market interest rates have no direct effect on the Group s revenues, however, they do have an effect on cash flow from operating activities through interest earned on overnight deposits and current accounts and cash flow from financing activities through the cost of interest paid on bank credits and interest earned on overnight and current deposits. The Group analyses the level of interest rate risk, including refinancing scenarios as well as hedging policies against interest rate risk on a regular basis. Based on the analyses, the Group estimates the effect of given changes in interest rates on its results. The table below presents the interest rate risk profile for interest-bearing financial instruments as at the balance sheet date: Fixed rate instruments Carrying amount 31 December December 2008 Financial assets 46, ,161 Financial liabilities Total 46, ,161 The accompanying notes to the consolidated financial statements are an integral part thereof f 73

205 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) Variable rate instruments Carrying amount 31 December December 2007 Financial assets 26,585 88,111 Financial liabilities (47,277) (110,312) Total (20,692) (22,201) Cash flow sensitivity analysis for variable rate instruments: Cash flow sensitivity Income statement Increase by 100 bp Decrease by 100 bp 31 December 2009 Variable rate instruments (207) 207 Cash flow sensitivity (net) (207) December 2008 Variable rate instruments (222) 222 Cash flow sensitivity (net) (222) 222 The Group does not adopt hedge accounting, therefore change in the level of interest rates has no effect on Group s equity. Fair value versus carrying amount The fair value of forward currency contracts is estimated by discounting the difference between the amount resulting from the contractual exchange rate and the amount resulting from the theoretical exchange rate calculated on the basis of market interest rates and the official exchange rate as per National Bank of Poland at the balance sheet date. The fair value of other financial instruments is based on estimated discounted cash flows. It is assumed that the carrying amount of trade receivables (less impairment losses) and of trade payables due within 12 months approximates their fair value. The accompanying notes to the consolidated financial statements are an integral part thereof f 74

206 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) The table below presents the fair values and carrying amounts of financial assets and liabilities. fair values 31 December December 2008 Fair value Carrying amount Fair value Carrying amount Trade and other receivables 88,471 88,471 85,933 85,933 Forward exchange contracts 13,950 13,950 Cash and cash equivalents 72,652 72, , ,422 Restricted cash 26,738 26,738 Loans and borrowings (47,275) (47,370) (109,308) (110,706) Finance lease liabilities (1,385) (1,385) (1,645) (1,645) Trade and other payables (115,475) (115,475) (158,910) (158,910) Total 23,726 23,631 76,442 75,044 Unrecognised gain 95 1,398 It is assumed that the fair value of cash and cash equivalents and restricted cash is equal to their nominal value, therefore no evaluation methods were used in order to calculate their fair value. Due to immateriality of the amount in question the fair value of finance lease liabilities was determined as equal to their nominal value. Trade and other receivables and trade and other payables comprise mainly receivables and payables which will be settled no later than at the end of the first month after the balance sheet date. It was therefore assumed that the effect of their valuation, taking the effect of time value of money into account, would approximately be equal to their nominal value. Evaluation methods used to calculate fair values of loans and borrowings were based on observable market data wibor interest rates. When determinining the fair value of loans and borrowings, forecasted cash flows from the balance sheet date to September 2010 (assumed date of repayment of the bank loan) were analyzed. The discount rate for each month was calculated as a sum of implied wibor 1 m interest rate (calculated on the basis of wibor interest rates structure as at 31 December 2009) and a margin of 1.20% (the Parent estimates that this is a margin which would be applicable if the the Parent decided to take a comparable bank loan at present time). The fair value of forward exchange contracts was calculated using methods basing exclusively on observable market data, therefore these contracts were classified as priced according to the second category of fair value appraisal methods. The Group did not have any financial instruments valued at fair value as at 31 December Capital management The goal of capital management is to maintain the Group s ability to operate as a going concern in order to provide the shareholders return on investment as well as benefits for other stakeholders. The Group might issue shares, increase debt or sell assets in order to maintain or improve the equity structure. The accompanying notes to the consolidated financial statements are an integral part thereof f 75

207 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) 38. Barter transactions The Group is a party to barter transactions. The table below presents revenues and costs of barter transactions executed on an arm slength basis. Barter transactions for the year ended 31 December December 2008 Revenues from barter transactions 2,803 2,215 Cost of barter transactions 2,721 3,062 Barter transactions 31 December December 2008 Barter receivables 1, Barter payables Litigation and public administration proceedings As at the date of preparation of these consolidated financial statements for the period ended 31 December 2009 following material public administration proceedings and claims before the court against the consolidated entities were pending. Public administration proceedings The proceeding before Competition and Consumer Protection Office ( uokik ) due to abuse of the dominant position on the domestic market of sale of rights for public broadcasting of Euro 2008 event On 14 April 2009 Cyfrowy Polsat s.a. received a notification about ex-officio initiation of antimonopoly proceedings against the Parent due to abuse of the dominant position on the domestic market of sale of rights for public broadcasting of Euro 2008 event involving imposing onerous agreement conditions, resulting in unjustified benefits through dependence of sale of rights to public broadcast of Euro 2008 event on the purchase of a set-top box and technical support, which, according to the uokik may constitute a breach of article 9 section 2 point 6 of the Law of 16 February 2007 on competition and customer protection. Cyfrowy Polsat s.a. received decision No. dok 1 / 2010 dated 12 February 2010 stating that the President of uokik obliged the Parent to buy back set-top boxes (which were previously sold to entrepreneurs together with the rights to the public broadcast of Euro 2008 event and technical support) from those entrepreneurs who decided to resell this equipment. The Parent is obliged to pay for these set-top boxes an amount equal to the sum of the price paid by the entrepreneurs for set-top boxes and the value of the technical support. The Parent is also obliged to cover all costs related to transport of these set-top boxes. The accompanying notes to the consolidated financial statements are an integral part thereof f 76

208 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) The Group did not create provisions for costs related to set-top boxes buyback from entrepreneurs due to the fact that current experience and analyses indicate that the potential amount would be immaterial. Proceedings before the President of uokik regarding an application of practices breaching collective interests of consumers. Cyfrowy Polsat s.a. received on 13 August 2009 a notification of initiation of proceedings with regard to application of practices breaching collective interest of consumers as set out by the provisions of article 24 clause 2 point 1 of the Law of 16 February 2007 on competition and consumer protection by the Parent, relating to statements in the service provision rules, whose content, in the view of the President of the Office of Competition and Consumer Protection, may be tantamount to the content of provisions entered into the registry of templates that have been deemed forbidden. The Parent had been in the course of works, in cooperation with uokik and the Office of Electronic Communications, to change the rules. The amended rules entered into force on 1 November The Parent received decision No. 11 / 2009 dated 31 December 2009 stating that the President of uokik recognizes the statements in the service provision rules (which were in force until 1 November 2009) as practice breaching the collective interests of consumers. Simultaneously the President of uokik stated that these provisions were ceased in the amended rules. The President of uokik ordered, once the decision becomes legally binding, its publication on the website and in a daily nationwide newspaper. Moreover, pursuant to article 106 clause 1 point 4 of the Law of 16 February 2007 on competition and consumer protection the President imposed a cash fine of pln 994 thousand, payable to the state budget, due to the breach of the interdiction set out in article 24 clause 1 and 2 point 1 of the Law of 16 February 2007 on competition and consumer protection within the scope described in the decision, which constitutes 0.09% of the Parent s revenue in The Parent submitted appeal against the decision to the Competition and Consumer Protection Court. On 14 April 2010 the President of uokik called for dismissing the appeal. The Group created a provision for potential costs resulting from the final settlement of the above-mentioned proceedings. Other litigations Action brought by SkyMedia Sp. z o.o. A lawsuit filed by SkyMedia Sp. z o.o. with registered office in Katowice for compensation and indemnity claims. On 2 April 2010 the District Court for Warszawa Praga in Warsaw X Entrepreneurs Division delivered a judgment which provides that the Parent is obliged to pay SkyMedia Sp. z o.o. a total amount of pln 545 thousand with statutory interest accrued from and pln 30 thousand as a return of legal costs. Cyfrowy Polsat s.a. intends to submit an appeal against the judgment. Due to uncertainty as to the amount and timing of the outflow of cash the Parent classifies the liability in the total amount of pln 758 thousand described above as a contingent liability and therefore did not create provision for potential costs resulting from the final settlement of the proceedings. As at the date of preparation of these financial statements the consolidated entities are parties to other litigations which are not material. The accompanying notes to the consolidated financial statements are an integral part thereof f 77

209 40. Important agreements and events Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) On 26 February 2009 a long-term agreement between Cyfrowy Polsat s.a. and Eutelsat s.a. on renting of the satellite capacity on the transponder HotBird 9 was signed. Conditions of the agreement are not different from market standards applied to agreements of this type. The total value of this agreement amounts to eur 26.6 million. In the period covered by these financial statements, the Parent continued replacement process of the encryption cards and digital satellite reception equipment incompatible with the conditional access system. Pursuant to the agreement concluded between Cyfrowy Polsat s.a. and Nagravision s.a. on 2 November 2004, Nagravision s.a. is obliged to pay a contractual penalty covering the costs of card replacement resulting from a breach of the encryption system. In the period covered by these financial statements Cyfrowy Polsat s.a. issued debit notes in the amount of pln 7,794 thousand, the entire amount is recognized as revenue in the current period. By 31 December 2009 Nagravision s.a. paid the entire amount of compensation for the costs incurred by the Parent. On 11 March 2009 Cyfrowy Polsat s.a. accepted an offer to purchase 350,000 privileged shares of a new issue of Sferia s.a. ( Sferia ) of nominal value of pln 100 each. The shares were acquired at the issue price of pln per share. Before the acquisition of shares, Cyfrowy Polsat s.a. concluded an option agreement with Zygmunt Solorz-Żak, which was exercised on 13 March On 21 April 2009 Cyfrowy Polsat s.a. sold shares in Sferia s.a. to Polaris Finance b.v., an entity appointed by Zygmunt Solorz-Żak as an executer of the option agreement. Shares were sold for the price of PLN 53,726 thousand (the price of acquisition of pln 53,396 thousand increased by an interest of 5.5% calculated from 11 March 2009 to 21 April 2009). On 1 October 2009 three long-term agreements were signed between the Parent and Eutelsat s.a.. The object of the agreements is the continuation of renting transponders on HotBird 8 satellite. As a result of the signed agreements and an agreement dated 26 February 2009 Cyfrowy Polsat s.a. continues to have on its hand satellite capacity on four transponder HotBird 8 and 9. The value of the signed agreements during the period it shall be in force is eur 79.7 million. 41. Non-balance sheet liabilities Security relating to borrowings and loans Security relating to borrowings and loans is described in note 31. Liabilities relating to operating leases Liabilities relating to operating leases are described in note 32. Contractual liabilities related to purchase of non-currents assets The Group entered into several agreements on refurbishment of the property. Amount of unbilled purchases of goods and services regarding refurbishment totaled pln 2,788 thousand as at 31 December In addition, the Group entered into agreements for purchase of licences and software as at 31 December 2009 the value of deliveries and services yet to be provided under the agreements amounted to pln 700 thousand. Contractual liabilities related to contracted services The Group entered into several agreements concerning maintenance of the mvno billing system and other services. The annual cost of services (the amounts expressed in euro were translated to Polish złoty using the exchange rate as per National Bank of Poland as at 31 December 2009) amounts to pln 2,243 thousand. The accompanying notes to the consolidated financial statements are an integral part thereof f 78

210 42. Remuneration of the Management Board Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) The table below presents the Management Board s remuneration (excluding value of share-based payments and bonuses) from both the Parent and the subsidiaries. Management Board s remuneration Name Function Dominik Libicki President of the Management Board 1, Maciej Gruber Member of the Management Board Dariusz Działkowski Member of the Management Board Andrzej Matuszyński Member of the Management Board Tomasz Szeląg Member of the Management Board 417 n / a Total 3,116 2,268 The bonuses payable to each member of the Management Board for years 2009 and 2008 are presented below: The bonuses payable to member's of the Management Board Name Function Dominik Libicki President of the Management Board 3,200 4,000 Maciej Gruber Member of the Management Board 400 1,500 Dariusz Działkowski Member of the Management Board 800 1,000 Andrzej Matuszyński Member of the Management Board 1,000 Tomasz Szeląg Member of the Management Board 500 n / a Total 4,900 7,500 The accompanying notes to the consolidated financial statements are an integral part thereof f 79

211 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) The remuneration of Management Board members of subsidiaries, who are not Members of the Management Board of the Parent is presented below: The remuneration of Management Board members of subsidiaries Name Function Piotr Jarosz President of the Management Board n / a 640 Total 640 The remuneration of Piotr Jarosz for the year 2008 included remuneration under management contract, contract of employment and bonus paid for the year The bonus amounts to pln 300 thousand. Management Stock Option Plan On 4 December 2007, the Extraordinary General Shareholders Meeting of Cyfrowy Polsat s.a. adopted a resolution on the introduction of a incentive plan for the management staff. Under the plan, managers will be granted options for the Company shares. The persons entitled to acquire the shares will be holders of subscription warrants who acquired the warrants in line with the incentive plan rules and on the basis of resolution of the Extraordinary General Shareholders Meeting on issue of subscription warrants. Holders of the subscription warrants should exercise their right to receive shares issued pursuant to the resolution on the conditional share capital increase within six months following the day on which the General Shareholders Meeting approves the financial statements of the Company for the year Notwithstanding the foregoing, for individual series of shares, the following dates are the first day of the period for filing statements on subscription of relevant shares: (i) Series G1 shares the date on which the 2008 financial statements are approved by the General Shareholders Meeting, (ii) Series G2 shares the date on which the 2009 financial statements are approved by the General Shareholders Meeting, (iii) Series G3 shares the date on which the 2010 financial statements are approved by the General Shareholders Meeting, (iv) Series G4 shares the date on which the 2011 financial statements are approved by the General Shareholders Meeting. By the date of approval of these financial statements, the incentive plan had not been accepted. According to the resolution described above, should not all shares of a given series be distributed, in line with the goal of the resolution, the Supervisory Board may transfer the remaining undistributed shares to other series, effectively increasing the number of shares in this series. On no account may the overall number of shares issued on the grounds of the resolution be changed. The accompanying notes to the consolidated financial statements are an integral part thereof f 80

212 43. The Supervisory Board remuneration Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) The Supervisory Board receives remuneration based on the resolution of the Extraordinary General Shareholders Meeting of Cyfrowy Polsat s.a. dated 5 September The table below presents the total remuneration payable to the Supervisory Board members in 2009 and 2008: total remuneration payable to the Supervisory Board members Name Function Zygmunt Solorz-Żak Heronim Ruta President of the Supervisory Board (from 4 August 2008), Member of the Supervisory Board (from 4 July 2008) Member of the Supervisory Board (from 4 August 2008), President of the Supervisory Board (until 4 August 2008) Mariola Gaca Member of the Supervisory Board (until 4 July 2008) n / a 61 Zdzisław Gaca Member of the Supervisory Board (until 4 July 2008) n / a 61 Anna Kwaśnik Member of the Supervisory Board (until 4 July 2008) n / a 61 Andrzej Papis Member of the Supervisory Board Robert Gwiazdowski Leszek Reksa Independent Member of the Supervisory Board (from 4 July 2008) Independent Member of the Supervisory Board (from 4 July 2008) Total Transactions with related parties Receivables 31 December December 2008 Dom Sprzedaży Radia pin Sp. z o.o. 61 Media Biznes Sp. z o.o Polsat Media Sp. z o.o. 1 1 Polskie Media s.a. 37 Sferia s.a Superstacja Sp. z o.o Teleaudio Sp. z o.o. 2 2 Telewizja Polsat s.a. 4, Total 5, The accompanying notes to the consolidated financial statements are an integral part thereof f 81

213 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) Liabilities 31 December December 2008 Alpatran 31 Elektrim s.a. 2 Invest Bank s.a. 4 Media Biznes Sp. z o.o. 31 Polskie Media s.a. 34 Radio pin s.a. 28 Teleaudio Sp. z o.o Telewizja Polsat s.a. 2,085 Total 915 2,352 Receivables from related parties and liabilities to related parties do not serve as security. Significant transactions with related parties are presented below: Revenues from operating activities Revenues from operating activities for the year ended 31 December December 2008 Dom Sprzedaży Radia pin Sp. z o.o. 150 Media Biznes Sp. z o.o Polsat Media Sp. z o.o. 1 Polska Telefonia Cyfrowa Sp. z o.o. * n / a 5 Polskie Media s.a Radio pin s.a. 75 Sferia s.a. 11 Superstacja Sp. z o.o Teleaudio Sp. z o.o Telewizja Polsat s.a ,613 Total 1,246 1,943 * Polska Telefonia Cyfrowa Sp. z o.o. was a related party until 30 June The accompanying notes to the consolidated financial statements are an integral part thereof f 82

214 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) Cost of operating activities Cost of operating activities for the year ended 31 December December 2008 Alpatran 355 Elektrim s.a. 1,633 1,356 EMarket Sp. z o.o. * n / a 167 Invest Bank s.a. 1 1 Media Biznes Sp. z o.o PAI Media s.a. 48 Polsat Media Sp. z o.o. 124 Polska Telefonia Cyfrowa Sp. z o.o. ** n / a 198 Polskie Media s.a. 150 Radio pin s.a Sferia s.a. 64 Teleaudio Sp. z o.o. 11,874 6,981 Telewizja Polsat s.a. 50,119 17,554 Total 64,282 26,902 * EMarket Sp. z o.o. was a related party until 17 June ** Polska Telefonia Cyfrowa Sp. z o.o. was a related party until 30 June The most significant transactions include license fees to Telewizja Polsat s.a. for broadcasting programs Polsat Sport, Polsat Sport Extra, Polsat Film, Polsat Futbol, Polsat News, Polsat Play, Polsat Cafe and Polsat SportHD. Teleaudio Sp. z o.o. provides mainly telecommunication services related to the customer relation management. The Company leases office space at Chałubińskiego Street in Warsaw from Elektrim s.a. Transactions with related parties are being concluded on terms that are not materially different from market terms. The accompanying notes to the consolidated financial statements are an integral part thereof f 83

215 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) Financial income Financial income Polaris Finance b.v. for the year ended 31 December December ,223 Total 7,223 The table above does not include purchasing shares of Sferia s.a. by Cyfrowy Polsat s.a. from Zygmunt Solorz-Żak and their further sale to Polaris Finance b.v. described in note 40. The cost of acquiring shares by Cyfrowy Polsat s.a. amounted to pln 53,396 thousand and the amount paid by Polaris Finance b.v. amounted to pln 53,726 thousand. The resulting finance income totaled pln 330 thousand. Financial income from Polaris Finance b.v. for the year 2008 in the amount of pln 7,223 thousand concerns the reimbursement of part of the costs incurred by the Parent related with introducing Cyfrowy Polsat s.a. shares to the regulated market. Invest Bank is the main banking partner of the Group and therefore the Group pays banking fees and bears the costs of mass payment reconciliation. At the same time, the Group earns interest income from term deposits. In 2009 the Company paid the dividend for 2008 in amount of pln 201,244 thousand (pln 0.75 per share). 45. Subsequent events On 31 March 2010 annex to the agreement dated 2 November 2004 between Cyfrowy Polsat s.a. and Nagravision s.a. ( Nagravision ) on rent, license and installation of the Nagravision conditional access system and the sales of Nagravision smartcards was signed. It is estimated that the value of the annex, for the duration of the contract until 31 December 2020, will be approximately pln 356 million. The agreement was concluded on an arm s length basis as applied in agreements of this sort. Completion of shares purchase transaction in mpunkt Holdings Ltd. On 4 May 2010 the Group has completed the purchase of 94% shares in mpunkt Holdings Ltd. mpunkt Holdings for the total initial amount of pln 51,294 thousand. mpunkt Holdings owns mpunkt Polska S.A mpunkt Polska and mtel Sp. z o.o. mtel. mpunkt Polska operates as a country-wide sales network of telecommunication services, mobile phones, accessories and maintenance services which are offered to individual customers. mtel renders agency services under the agreement with mpunkt Polska. The accompanying notes to the consolidated financial statements are an integral part thereof f 84

216 Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) The Group became the legal owner of 45% shares in mpunkt Holdings in October 2009, however, due to the character of the transaction and agreement terms regarding conclusion of the transaction (inter alia, the option to resale the purchased shares if the President of the Polish Competition and Consumer Protection Office ( uokik ) does not approve the takeover of mpunkt Holdings), the Group decide that purchasing 45% of shares did not constitute a separate transaction but should rather be settled with the purchase of another 49% shares, which occurred on 4 May On 3 March 2010 the President of uokik issued decision dkk-12 / 2010 approving the takeover of mpunkt Holdings by Cyfrowy Polsat s.a. which enabled the completion of the purchase transaction. Due to the very short period of time between the conclusion of purchase of mpunkt Holdings shares and the date of preparing and publication financial data of Cyfrowy Polsat s.a. Group for 2009, valuation of purchased assets, liabilities and contingent liabilities to fair value in accordance with ifrs 3 was unfeasible. The Company is currently identifying and valuing the fair value of acquired assets, liabilities and contingent liabilities of mpunkt Holdings Ltd as required by ifrs 3. Due to the fact that: the most recent available financial data of mpunkt Holdings were prepared as at 31 March 2010 and the Group s process of identification and assets and liabilities valuation to fair value may result in significant adjustments compared with carrying value presented by mpunkt Holdings as at 31 March 2010 the Group will not present estimated values of purchased net assets of mpunkt Holdings and goodwill in this consolidated financial statements. In accordance with ifrs 3, the Group should settle the purchase transaction of shares in mpunkt Holdings Ltd. and ultimately calculate the difference between the purchase price and fair value of identified assets, liabilities and contingent liabilities within 12 months from the transaction date. The transaction results in the purchase of the following related entities: The transaction results Country % of voting rights mpunkt Polska s.a. Poland 94% mtel Polska Sp. z o.o. Poland 94% The accompanying notes to the consolidated financial statements are an integral part thereof f 85

217 46. Accounting estimates and assumptions Cyfrowy Polsat s.a. Group Consolidated financial statements for the year ended 31 December 2009 (all amounts in pln thousand) In the preparation of financial statements in accordance with eu ifrs the Management Board is required to make judgments, assumptions and estimates which influence the adopted policies and the presented values of assets, liabilities, revenues and expenses. Estimates and related assumptions are based on historical experience and other factors, which are deemed reasonable under given circumstances. The result of these estimates should be a basis for measuring the carrying values of assets and liabilities which cannot be established based on other sources. The actual values may differ from the estimated values. Accounting estimates and related assumptions are reviewed on a regular basis. Changes in accounting estimates are accounted for in the period when the change is made or in the current or future period, should the change concerns both periods. The key accounting estimates made by the Management Board of the Parent concern provision for impairment of set-top boxes, the bad debt allowance relating to receivables from individual customers, the depreciation period of set-top boxes rented to subscribers under operating leases, as well as valuation of exchange forward contracts. The accompanying notes to the consolidated financial statements are an integral part thereof f 86

219 16 ADDITIONAL INFORMATION Glossary of terms Subscriber A person who entered into an agreement for provision of dth pay digital satellite television and who takes on an obligation of making payments in exchange for access to a package or packages of television and radio channels, or a person who uses the packages after making a monthly payment without concluding an agreement. APS (Authorised Point of Sale) Cyfrowy Polsat s retail points of sale sell the services of digital dth satellite television and Cyfrowy Polsat s mobile telephony. At these retail points of sale, our customers can sign an agreement to purchase our services, purchase a set-top box and order the installation of a satellite dish. In addition, our retail points of sale provide customers with technical assistance, act as intermediaries in servicing set-top boxes and supply replacement set-top boxes when customers set-top boxes are being repaired. ARPU (Average Revenue Per User) The average monthly net revenue (excluding value-added tax) per subscriber calculated by dividing revenues due from subscription fees, considering the promotional periods according to International Financial Reporting Standards (ifrs), by the average number of subscribers in such period and the number of months in the period. CAM (Conditional Access System) Conditional access module. A device enabling access to the dth service. A dvb-ci standard compatible decoder is necessary to use the module. Cyfrowy Polsat / Annual Report 09 / 221

220 CAST (Conditional Access System Technology) Conditional Access System Interface. Satellite broadcasting centre The satellite transmission and reception centre of Cyfrowy Polsat located on the Company s premises at 4 a Łubinowa Street. CRM (Customer Relationship Management) It is a set of tools and procedures relevant in contacts with customers, management of relations with customers or customer relations system. Crm is not only a tool, it is a whole strategy and philosophy of business where we build perfect relations with a client using the tools of good work organization. Decoder A device processing an encoded digital signal in a manner enabling the signal s reception by means of a tv receiver, commonly used for the reception of paid digital satellite tv. DTH (Direct-To-Home) A service consisting of the distribution of satellite radio and tv channels directly to the home as part of paid channel packages. DTTV or DTT (Digital Terrestrial Television) Digital Terrestrial Television is an implementation of digital technology to provide a greater number of channels and / or better quality of picture and sound using aerial broadcasts to a conventional antenna (or aerial) instead of a satellite dish or cable connection. 222 / Cyfrowy Polsat / Annual Report 09

221 DVR (Digital Video Recorder) Dvr decoder or digital video recorder. A device connected to a television set and signal source capable of recording and playing back broadcast transmissions by use of an internal storage device, such as a hard disk drive. FTA (Free-To-Air) A term denoting tv and radio channels which are unencoded and freely available. GSM (Global System for Mobile) Global System for Mobile communications. Its ubiquity makes international roaming very common between mobile phone operators, enabling subscribers to use their phones in many parts of the world. Gsm differs from its predecessors in that both signalling and speech channels are digital call quality, and so is considered a second generation (2 g) mobile phone system. HDTV Premium channel Access card Programming license High-definition television. A general designation of a tv signal format with a resolution higher than the standard one. A general designation of a television channel offering particularly attractive, high-quality content. By design, it is a relatively more expensive product addressed to more affluent customers. A card which together with a decoder enables access to paid dth satellite television services. The right to use (dispose of ) television or radio programs in precisely defined manner. Cyfrowy Polsat / Annual Report 09 / 223

222 MPEG-2, MPEG-4 Encoding and compression standards for digital audio and video signals. Multiplexer A device for combining multiple digital streams, including video, audio and data. MVNO (Mobile Virtual Network Operator) Mobile Virtual Network Operator. A reseller of wireless services. mvnos do not own licensed spectrum and typically do not have any of their own wireless network infrastructure. Like fixed-line telephone resellers, they sell service under their own brand name but use the facilities of existing carriers. However, mvnos that do have network service centres can add value to their offerings. Theme package An additional channel package comprising tv channels from a given theme category available to Family Package subscribers. Theme packages include: the Film Package (Pakiet Film), the Sport Package (Pakiet Sport), the Cartoon Package (Pakiet Bajeczka), the Music Package (Pakiet Muzyka), the HBO and Cinemax Movie Packages (Pakiet HBO and Pakiet Cinemax). SMS (Short Message Service) It is a short text message which may be set to another user of a mobile network directly from one s own mobile phone, or the Internet (from a website). A text message may contain up to 160 characters. Analogue transmission /signal A transmission mode in which the initial signal (e.g., voice) is converted into and transmitted as an electric signal. Signals are conveyed by continuously varying, for example, the frequency, amplitude or phase of the transmission. Analogue signals typically require higher amounts of capacity to transfer data than is possible using digital transmissions and are more susceptible to attenuation. 224 / Cyfrowy Polsat / Annual Report 09

223 Transponder A separate part of a telecommunications satellite enabling reception of terrestrial signals and retransmission to a specific area. TTS (Text-To-Speech) An ivr function enabling automatic voice playback of previously prepared text information. Integrated service Churn rate EBITDA VOD A service offering more than one product as part of a single offering, usually at more advantageous prices. The percentage of terminated agreements calculated as a ratio of the number of terminated agreements in a given period to the average number of agreements in the period. (The churn rate for a period shorter than one year relates only to such period and is not annualized). Earnings before interest, taxes, amortisation and depreciation. Video on demand. A service enabling the customer to watch a particular program at any time of their choice. Cyfrowy Polsat / Annual Report 09 / 225

CONTACT Investor Relations Press Office Małgorzata Czaplicka phone: +48 22 356 6004 fax: +48 22 356 6003 e-mail: mczaplicka@cyfrowypolsat.

224 CONTACT Investor Relations Press Office Małgorzata Czaplicka phone: fax: Olga Zomer Spokesperson phone: fax: Cyfrowy Polsat s.a. 4 a Łubinowa Street Warsaw Reception: ; recepcja@cyfrowypolsat.pl

Acquisition of shares in Sferia S.A. 11 March 2009, Warsaw

Acquisition of shares in Sferia S.A. 11 March 2009, Warsaw Forward looking statements This presentation includes 'forward-looking statements'. These statements contain the words anticipate", "believe",