Letter from the Chairman of the Supervisory Board

Ladies and Gentlemen,

It gives me great pleasure to write to you again to overview – and I say this with immense pride – what has been yet another successful year in the operating history of Cyfrowy Polsat.

Our 2013 success was determined by strong operating and financial performance, with targets achieved in our core segments of pay TV and broadcasting, as well as by steady growth in our telecoms and online businesses. It is important to note that the Company delivered its outstanding results amid a highly demanding business environment, competing successfully with its rivals in all core segments of its operations.

Throughout this past year Cyfrowy Polsat was consistently consolidating its lead in the domestic multimedia entertainment market and new technologies. The Group currently provides LTE broadband service, the fastest Internet connection available on the home market, reaching 67% of Poland’s population, and HSPA+ broadband service, with a coverage of over 99%.

Outside our core business, the landmark event for the Company last year was acquisition of the Metelem Group, the 100% owner of Polkomtel, which was announced in November. The transaction has made Cyfrowy Polsat and Polkomtel the largest media and telecommunications group in Poland and in the wider region.

I believe that the deal will create new growth opportunities for both companies in the fast-changing and highly competitive business environment. This was a major business decision and, in my opinion, one taken at a very opportune time. Leveraging the united strengths and potential of the two companies, Cyfrowy Polsat will even more effectively and efficiently deliver its strategies and objectives.

I would like to thank our Shareholders, as well as Subscribers and Customers of the Cyfrowy Polsat Group, for their confidence in us. I would like to offer particular thanks to the Group’s Management Board and Employees for their effective work and commitment, which contributed to the achievement of our goals and objectives. I strongly believe that the Group, now including Polkomtel, will operate effectively under the direction of the Management Board, creating long-term value for the Company’s shareholders.

With kindest regards,

Zygmunt Solorz-Żak

Chairman of the Supervisory Board


Letter from the President of the Management Board

Ladies and Gentlemen,

It is with great pleasure that I present to you the 2013 Annual Report of the Cyfrowy Polsat Group.

As in previous years, in 2013 we pursued both organic growth and strategic acquisitions in consistent implementation of the Group’s strategy. We geared our operations towards three key targets: building the value of our customer base, maximising revenue in both operating segments, and effectively managing the cost base. We focused our entire effort on solidifying our leading position in multimedia entertainment in Poland and in the pay TV and television broadcasting markets, as well as on persistently expanding our telecommunications capabilities and online services.

That we turned yet another year of our operations into a success was confirmed by the Group’s excellent operating and financial results. Subscriptions to our pay television services were stable at 3.54 million, with the number of customers using our broadband Internet having increased to almost 235 thousand. Our other business segment also delivered as expected. Our flagship channel, POLSAT, maintained its high audience share of 13.51%, and the audience share of our thematic channels, including the newly acquired TV4 and TV6 channels, was 7.63%, which translated into a total market share of 21.14%. 2013 also saw our share in the TV advertising and sponsorship market rise to 24.1%, and thanks to a well-rounded programme schedule and optimum investments in programme content our TV advertising and sponsorship revenue, unlike that of the other market players’, rose. In 2013, our total consolidated revenue grew by 4.8%, to PLN 2.91bn, with an EBITDA of over PLN 1bn, and profit at PLN 525m.

Keen to achieve a steady increase in customer satisfaction levels, we have added new channels to our TV packages, including four under the Polsat brand. The customers of our LTE broadband service, with its coverage gradually expanded and now reaching almost 67% of Poland’s population, were offered attractive deals and state-of-the-art equipment. We bundled our products to make multi-service packages even more rewarding for customers, thus consistently improving our revenue per subscriber. It was also a year of new services: Mobile TV, PPV, VOD, online services, and Multiroom HD. In line with our plans, we regularly expanded our VOD Home Video Rental service and provided viewers with access to pay-per-view sporting events. Our online television service, IPLA, saw significant development of its content and functionality. As a result, its user base increased, and the share of the transaction model in the service’s revenue rose to 25%.

Our acquisition of Polkomtel, one of the three largest telecom operators in Poland, was an important and demanding project, unprecedented not only on the Polish market, but also in Europe. Jointly with Polkomtel, we will create a unique product offer to keep pace with the rapidly changing market environment and meet consumer expectations. Together, we will further leverage the business potential of the two companies and generate significant synergies. With this transaction, we have the potential to create one of the ten largest companies in Poland in terms of market capitalisation and become a leading media and telecoms group in the region.

With the strengthening of our key business areas in mind, we sold RS TV to EmiTel Sp. z o.o., and Telewizja Polsat acquired Polskie Media, the broadcaster of TV4 and TV6, which reinforced our position on the TV broadcasting market and allowed us to increase our audience share. We also further developed our set-top box manufacturing plant. In autumn, we celebrated the 5th anniversary of its operation in the Targówek district of Warsaw, as well as the manufacture of its five millionth set-top box.

Our strategic direction remains unchanged, and the acquisition of Polkomtel can only accelerate our progress in getting there. Our key objectives continue to be stable growth, remaining at the forefront of the multimedia entertainment market, becoming the number one player on the media and telecoms market, and capturing a loyal audience for the Telewizja Polsat channels, thus securing a substantial share in the TV advertising market. We intend to achieve these goals by offering high quality products and telecom services as well as superior quality programming content, delivered to Polish households and individual users. Together with Polkomtel, we plan to develop innovative content distribution channels so that consumers can freely choose between technologies and devices that can be used to receive our television services. In the long term, we expect these efforts to contribute to increasing the user base for all our services, our ARPU, and customer loyalty. Successful fulfilment of these objectives, combined with effective financial management, will go a long way toward creating value for our shareholders.

With kindest regards,

Dominik Libicki

President of the Management Board of Cyfrowy Polsat S.A.