The Polish original should be referred to in matters of interpretation. Translation of auditors report originally issued in Polish.

Transcription

1 The Polish original should be referred to in matters of interpretation. Translation of auditors report originally issued in Polish. INDEPENDENT AUDITORS OPINION To the Supervisory Board of Multimedia Polska S.A. 1. We have audited the attached consolidated financial statements of Multimedia Polska S.A. Group ( the Group ), for which the holding company is Multimedia Polska S.A. ( the Company ) located in Gdynia at Tadeusza Wendy 7/9 Street, for the year ended 31 December 2012 containing, the consolidated balance sheet as at 31 December 2012, the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity, the consolidated cash flow statement for the period from 1 January 2012 to 31 December 2012 and the summary of significant accounting policies and other explanatory notes ( the attached consolidated financial statements ). 2. The truth and fairness 1 of the attached consolidated financial statements, the preparation of the attached consolidated financial statements in accordance with the required applicable accounting policies and the proper maintenance of the consolidation documentation are the responsibility of the Company s Management Board. In addition, the Company s Management Board and Members of the Supervisory Board are required to ensure that the attached consolidated financial statements and the Directors Report meet the requirements of the Accounting Act dated 29 September 1994 (2009 Journal of Laws No. 152 item 1223 with subsequent amendments the Accounting Act ). Our responsibility was to audit the attached consolidated financial statements and to express an opinion on whether, based on our audit, these financial statements comply, in all material respects, with the required applicable accounting policies and whether they truly and fairly 2 reflect, in all material respects, the financial position and results of the operations of the Group. 3. We conducted our audit of the attached consolidated financial statements in accordance with: chapter 7 of the Accounting Act, national auditing standards issued by the National Council of Statutory Auditors, in order to obtain reasonable assurance whether these financial statements are free of material misstatement. In particular, the audit included examining, to a large extent on a test basis, documentation supporting the amounts and disclosures in the attached consolidated financial statements. The audit also included assessing the accounting principles adopted and used and significant estimates made by the Company s Management Board, as well as evaluating the overall presentation of the attached consolidated financial statements. We believe our audit has provided a reasonable basis to express our opinion on the attached consolidated financial statements treated as a whole. 1 Translation of the following expression in Polish: rzetelność i jasność 2 Translation of the following expression in Polish: rzetelne i jasne

2 The Polish original should be referred to in matters of interpretation. Translation of auditors report originally issued in Polish. 4. In our opinion, the attached consolidated financial statements, in all material respects: present truly and fairly all information material for the assessment of the results of the Group s operations for the period from 1 January 2012 to 31 December 2012, as well as its financial position 3 as at 31 December 2012; have been prepared in accordance with International Financial Reporting Standards as adopted by the EU; are in respect of the form and content, in accordance with the legal regulations governing the preparation of financial statements. 5. We have read the Directors Report for the period from 1 January 2012 to 31 December 2012 ( the Directors Report ) and concluded that the information derived from the attached consolidated financial statements reconciles with these financial statements. The information included in the Directors Report corresponds with art. 49 para 2 of the Accounting Act. on behalf of Ernst & Young Audit sp. z o.o. Rondo ONZ 1, Warsaw Reg. No 130 Key Certified Auditor Robert Klimacki certified auditor No Warsaw, 28 February Translation of the following expression in Polish: sytuacja majątkowa i finansowa 2/2

3 CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 WITH AUDITOR S OPINION

4 CONSOLIDATED INCOME STATEMENT...4 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME...5 CONSOLIDATED BALANCE SHEET...6 CONSOLIDATED CASH FLOW STATEMENT...7 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY...8 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY...9 ACCOUNTING POLICIES AND NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS General information Identification of the financial statements Composition of the Group Composition of the Parent's Management Board Approval of the consolidated financial statements Material accounting estimates and judgments Professional judgment Estimation uncertainty Basis of preparation of the consolidated financial statements Compliance statement Functional currency and reporting currency of financial statements Changes in adopted accounting policies New standards and interpretations which have been issued but are not yet effective Changes in estimates Key accounting policies Basis of consolidation Currency translations Property, plant and equipment Goodwill Intangible assets Leases Impairment losses on non-financial non-current assets Borrowing costs Financial assets Impairment of financial assets Derivative financial instruments and hedges Inventories Trade and other receivables Cash and cash equivalents Interest-bearing loans, borrowings and debt securities Trade and other payables Provisions Retirement benefits Share-based payment Revenue Income tax Earnings per share Operating segments Revenue and expenses Sales revenue Other operating income Other operating expenses

5 13.4. Finance income Finance expenses Income tax Income tax expense Effective tax rate Deferred income tax Assets and liabilities of the Company Social Benefit Fund Earnings per share Dividends paid and declared Property, plant and equipment Leases Liabilities under finance leases and financing agreements Receivables under operating leases the Group as lessor Intangible assets Goodwill Impairment test Financial assets Non-current receivables Prepayments and deferred costs Employee benefits Retirement benefits and other post-employment benefits Inventories Trade and other receivables Other financial assets Cash and cash equivalents Share capital, statutory reserve funds and other capital reserves Share capital Statutory reserve funds and other capital reserves Undivided financial results and restrictions on dividend payment Non-controlling interests Interest-bearing bank borrowings and debt instruments Equity and debt securities Provisions Changes in provisions Trade and other payables, accruals Trade and other payables (current) Accruals and deferred income Liabilities under issued securities Contingent liabilities Court proceedings Tax settlements Waste electrical and electronic equipment Universal service Investment commitments Reconciliation of differences between changes in certain items of the statement of financial position and the cash flow statement Related parties Entity with significant influence on the Group Company shares held by Members of the Management and Supervisory Board Loans advanced to Management and Supervisory Board Members Other transactions with Management Board Members and related parties

6 39.5. Remuneration of the Management and Supervisory Board Remuneration of certified auditor or entity qualified to audit financial statements Goals and policies of financial risk management Interest rate risk Foreign currency risk Credit risk Liquidity risk Carrying value and fair value of financial instruments Capital management Employment structure Events subsequent to the balance-sheet date

7 CONSOLIDATED INCOME STATEMENT for the year ended 31 December 2012 Continuing operations Note Year ended 31 December 2012 Year ended 31 December 2011 Subscriber-generated and inter-operator revenue 665, ,551 Other revenue 20,477 17,764 Sales revenue , ,315 Depreciation and amortisation 198, ,562 Materials 19,600 17,746 External services 221, ,216 Taxes and charges 21,501 20,063 Payroll 74,149 63,845 Other employee benefits 9,430 7,760 Other expenses 4,974 3,746 Value of goods and materials sold Operating expenses 550, ,997 Gross profit 135, ,318 Other operating income ,727 9,144 Other operating expenses ,533 9,361 Operating profit 133, ,101 Finance income ,633 14,231 Finance expenses ,465 68,998 Share of profit of an associate 53 - Profit before tax 70,465 96,334 Income tax 14 21,431 (5,831) Net profit from continuing operations 49, ,165 Net profit for the financial year 16 49, ,165 Attributable to: Owners of the parent 49, ,163 Non-controlling interests 3 2 Earnings per share (in PLN): 16 basic earnings for the reporting period diluted earnings for the reporting period The accounting policies and additional notes, attached on pp. 10 to 66, are an integral part of these consolidated financial statements. 4

8 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 December 2012 Year ended 31 December 2012 Year ended 31 December Net profit for the period 49, ,165 Other comprehensive income - - Financial Assets Available for Sale - - Cash flow hedges - - Income tax relating to components of other comprehensive income - - Net other comprehensive income - - COMPREHENSIVE INCOME FOR THE PERIOD 49, ,165 The accounting policies and additional notes, attached on pp. 10 to 66, are an integral part of these consolidated financial statements. 5

9 CONSOLIDATED BALANCE SHEET as at 31 December 2012 Note 31 December December 2011 ASSETS Non-current assets Property, plant and equipment , ,943 Goodwill ,429 75,848 Intangible assets ,316 69,018 Financial assets , ,749 Non-current receivables Prepayments and deferred costs Deferred tax assets ,466 47,215 1,366,668 1,174,235 Current assets Inventories Trade and other receivables 27 57,314 56,164 Income tax receivables 1,059 - Prepayments and deferred costs 24 2,273 3,111 Other financial assets 28 47,399 23,519 Cash and cash equivalents 29 4,876 3, ,327 86,317 TOTAL ASSETS 1,479,995 1,260,552 EQUITY AND LIABILITIES Equity (attributable to owners of the parent) Share capital 91, ,295 Share premium - - Treasury shares - (97,518) Other reserve capital 44, ,996 Retained earnings 138, ,467 Distributions from net profit during the financial year 17 - (30,900) Non-controlling interests Total equity , ,359 Non-current liabilities Interest-bearing bank loans, borrowings and other , ,593 Liabilities under issued securities , ,527 Deferred income ,137 Provisions Deferred income tax liabilities , , ,915 Current liabilities Interest-bearing bank loans, borrowings and other , ,486 Trade and other payables ,449 88,930 Liabilities under issued securities 35 58,264 40,237 Income tax liabilities 7,138 2,384 Accruals ,656 19,173 Deferred income ,753 8,450 Provisions 33 4,045 2, , ,278 Total liabilities 1,204, ,193 TOTAL EQUITY AND LIABILITIES 1,479,995 1,260,552 The accounting policies and additional notes, attached on pp. 10 to 66, are an integral part of these consolidated financial statements. 6

10 CONSOLIDATED CASH FLOW STATEMENT for the year ended 31 December 2012 Note Year ended 31 December 2012 Year ended 31 December 2011 Cash flows from operating activities Profit(loss) before tax 70,465 96,334 Adjustments for: 272, ,892 Share of profits of associates accounted for using the equity method (53) Depreciation and amortisation 198, ,562 Interest and dividends, net 62,545 46,041 Foreign exchange (gains)/losses 42 (17) Gain/(loss) from investing activities (507) (166) Change in inventories 90 (40) Change in receivables 38 2,925 (5,555) Change in liabilities, net of loans and borrowings 38 19,363 4,399 Change in accruals and deferrals 7,455 (810) Change in provisions 256 (69) Income tax paid (23,800) (19,446) Other adjustments 4,943 8,993 - liquidation of tangible assets finance fees and commissions 2,923 8,117 - swap contracts - (55) - other 1, Net cash provided by (used in) operating activities 342, ,226 Cash flows from investing activities Proceeds from sale of property, plant and equipment and intangibles Purchase of property, plant and equipment and intangibles and acquisition of an organised part of business (183,828) ( ) Acquisition of a subsidiary undertaking, net of cash acquired 3 (173,945) (27,380) Purchase of investments in associates and joint ventures (17,025) Interest received SWAP contracts received/paid - (370) Repayment of loans advanced Loans advanced (310) (8,317) Net cash provided by (used in) investing activities (374,345) (189,921) Cash flows from financing activities Decrease in finance lease liabilities and liabilities under financing agreements (16,090) (19,580) Repayment of interest on finance lease liabilities and liabilities under financing agreements (1,595) (2,803) Proceeds from issue of bonds 250, ,000 Increase in loans and borrowings 135, ,310 Repayment of loans and borrowings (216,494) (330,306) Share buy-back (41,000) (180,900) Interest, fees and commissions paid (77,009) (60,293) Cash provided by financing agreements 19-2,968 Net cash provided by (used in) financing activities 33,397 (128,604) Net increase/(decrease) in cash and cash equivalents 1,771 (13,299) Foreign exchange gains/(losses), net Cash at beginning of period 29 3,105 16,404 Gain/loss on measurement of foreign-currency cash Cash at end of period, including: 29 4,876 3,105 The accounting policies and additional notes, presented in pp. 10 to 66, are an integral part of these consolidated financial statements 7

11 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2012 Share Capital Share premium Treasury shares Other capital reserves Retained earnings/deficit Total Non-controlling interests Total equity As at 1 January ,295 - (97,518) 131, , , ,359 Comprehensive income for the period ,031 49, ,034 Issue of shares Share issue expenses Share options Share options (implementation of the incentive scheme) Share buy-back - - (49,511) (49,129) - (49,129) Share buy-back obligation Retirement of shares (14,684) - 147,029 (132,345) Acquisition of non-controlling interests Distribution of profit brought forward ,689 (44,689) Other increases/decreases As at 31 December , , , , ,264 The accounting policies and additional notes, presented in pp. 10 to 66, are an integral part of these consolidated financial statements 8

12 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2011 Share Capital Share premium Treasury shares Other capital reserves Retained earnings/deficit Distributions from net profit during the financial year Total Non-controlling interests Total equity As at 1 January ,190 - (361,924) 417, , , ,094 Comprehensive income for the period , , ,165 Issue of shares Share issue expenses Share options Share options (implementation of the incentive scheme) Share buy-back - - (180,518) (180,518) - (180,518) Share buy-back obligation (382) - - (382) - (382) Retirement of shares (46,895) - 444,924 (398,029) Acquisition of non-controlling interests Distribution of profit brought forward ,949 (81,949) Other increases/decreases ,900 - (30,900) As at 31 December ,295 - (97,518) 131, ,467 (30,900) 275, ,359 The accounting policies and additional notes, presented in pp. 10 to 66, are an integral part of these consolidated financial statements 9

13 ACCOUNTING POLICIES AND NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. General information Multimedia Polska Group (the Group ) is composed of Multimedia Polska Spółka Akcyjna (the Parent or the Company ) and its subsidiaries (see Note 3). The Parent is registered with the National Court Register maintained by the District Court, VIII Commercial Division of the National Court Register, under entry No The Parent has been assigned industry identification No. REGON The Company s registered office is located in Gdynia, at ul. Tadeusza Wendy 7/9. The Parent and its subsidiaries have been established is for indefinite time. The Group s main activity is the provision of a wide range of telecommunication services, in particular radio, television, internet and telephony over cable television systems. During its meeting held on 18 October 2011, the Polish Financial Supervision Authority granted the Company's request to permit reconversion of the Company shares into certificated form and allowed the Company to rematerialise its shares with effect from 8 November On 3 November 2011, the Company received a Resolution of the Management Board of the Warsaw Stock Exchange to delist from the Main Market of the WSE the Company shares assigned code No. PLMLMDP00015 as of 8 November The resolution was adopted in connection with the decision of the Polish Financial Supervision Authority to allow the Company to rematerialise its shares. 2. Identification of the financial statements These consolidated financial statements of the Multimedia Group cover the year ended 31 December 2012 and contain comparative data for the year ended 31 December

14 3. Composition of the Group The Company holds investments in the following subsidiaries: Name Address Business activity Tele Top Grupa Multimedia Polska Sp. z o.o. (TOP) Multimedia Polska-Południe S.A. (TNPD) Telewizja Kablowa Brodnica Sp. z o.o. Multimedia Polska PR Sp. z o.o. Multimedia Polska Inwestycje Sp. z o.o.*** Media Operator Sp. z o.o. Stream Communications Sp. z o.o. Stream Service Sp. z o.o. Stream Investment Sp. z o.o. Roxwell Investments Sp. z o.o. Diana Telewizja Kablowa Sp. z o.o. Transmitel Rzeszów Sp. z o.o. Stake held Gdynia, ul.t.wendy 7/9 - film and video production 99.97% 99.97% Gdynia, ul.t.wendy 7/9 - voice, data and other telecommunication services 100% 100% Gdynia, ul.t. Wendy 7/9 - cable television, other building installation 94.12%* 94.12% Gdynia, ul. T. Wendy 7/9 - public relations and communication activities 100% 100% Gdynia, ul. T. Wendy 7/9 Dębica, ul. Rzeszowska 76 Gdynia, ul. T. Wendy 7/9 Kraków, Aleja 29 Listopada 130 Warszawa, ul. Jana Pawła II 19 Warszawa, ul. Jana Pawła II 19 Stalowa Wola, ul. Ks. Jerzego Popiełuszki 17 Rzeszów, ul. Ignacego Solarza 9A - wholesale of electronic and telecommunication equipment and parts - voice, data and other telecommunication services - voice, data and other telecommunication services - services consisting in installation, repair and maintenance of radio and television transmitters - voice, data and other telecommunication services - other business and management consultancy - voice, data and other telecommunication services - voice, data and other telecommunication services 100%* 100%* 100% 100% 100% - 100%** - 100%** - 100% - merged with Multimedia Polska S.A. 100% - - *Held indirectly through a subsidiary Multimedia Polska Południe S.A. ** Held indirectly through its subsidiary Stream Communications Sp. z o.o. ***On 1 March 2011, Chicama Investment Sp. z o.o. was notified by the registry court of registration, as of 15 February 2011, of the change of the company's name to Multimedia Polska Inwestycje Sp. z o.o. and of its registered office to Gdynia, ul. Tadeusza Wendy 7/9. On 29 November 2011, the Company and MNI Telecom S.A. of Radom, as well as Stream Communications Sp. z o.o. of Kraków and Stream Communications Network and Media INC of Vancouver and Almerio Consultancy Limited of Nicosia (MNI Telecom, Stream Communications Network and Media as well as Almerio referred to individually as the "Shareholder", and collectively as the "Shareholders") executed a conditional agreement, whereby the shareholders submitted to the Company an irrevocable offer to sell a total of 136,741 shares, representing 100% of the share capital of Stream Communications, for the price of PLN 141,250,000. Multimedia, Stream Communications and the Shareholders agreed to cooperate in order to notify the President of UOKiK of an intended concentration by 20 December The transaction was concluded on the following conditions precedent: - the decision of the President of UOKiK approving the concentration becomes final, and - Stream Communications presents certificates issued by BRE Bank S.A. and BZ WBK S.A. and attesting that Stream Communications has no liabilities towards the Banks and that no security interests are created on the Shares or the property of Stream Communications; or Stream Communications provides unconditional commitment letters 11

15 issued by the Banks containing relevant unconditional approvals for the release and cancellation of all security interests created on the Shares or the property of Stream Communications. The agreement provided for an advance payment of PLN 10,000,000 to be made by Multimedia, which was to be returned in double amount if the Offer was not accepted by Multimedia following occurrence of material circumstances specified in the agreement. On 29 December 2011, Multimedia paid to MNI Telecom, in addition to the advance payment referred to above, an amount of PLN 5,000,000 as the first instalment of the price. On 16 December 2011, the agreement came into force. The parties to the agreement also agreed, in Annex 2 thereto, that the price for the shares in Stream Communications Sp. z o.o. would be increased to PLN 153,000,000 upon fulfilment by Stream Communications Sp. z o.o. of the conditions specified in the annex. On 24 January 2012, Multimedia, MNI Telecom S.A. ("MNI Telecom"), Stream Communications Sp. z o.o. ("Stream"), Stream Communications Network and Media INC, and Almerio Consultancy Limited, executed Annex No. 3 to the agreement. Under the annex, Multimedia acquired from Stream Communications Network and Media INC, and Almerio Consultancy Limited, for a price set out in the agreement, a total of 41,025 shares in the share capital of Stream, with a total par value of 41,025,000, representing 30% of the company's share capital. The acquired shares confer the right to 41,025 votes, representing 30% of the total vote, at the General Meeting of Stream. Multimedia also accepted MNI Telecom's offer provided for in the agreement, whereby MNI Telecom would acquire, for a price set out in the agreement, 95,716 shares in the share capital of Stream, conferring the right to the same number of votes at the company's General Meeting. Multimedia's representation on acceptance of MNI Telecom's offer was tantamount to conclusion of a share purchase agreement concerning the shares. On 19 April 2012, Multimedia obtained the clearance from the President of UOKiK (issued on 13 April 2012) for acquisition of control over Stream Communications Sp. z o.o. The last condition precedent for the transaction provided for in the conditional agreement was fulfilled on 22 May As of that date, Multimedia Polska S.A. became the sole shareholder of Stream Communications Sp. z o.o., entered in the Register of Entrepreneurs of the National Court Register, maintained by the District Court for Kraków Śródmieście in Kraków, XI Commercial Division of the National Court Register, under entry No Stream Communications Sp. z o.o. is the parent of Stream Investment Sp. z o.o. and Stream Service Sp. z o.o. Stream Communications Sp. z o.o. and Stream Investment Sp. z o.o. provide telecommunication services. The acquisition of shares followed from Multimedia s strategy, which provides for consolidation of the telecommunications market as one of its key objectives. On 18 June 2012, Multimedia acquired 100 shares in Roxwell Investments Sp. z o.o. of Warsaw, representing 100% of the company's share capital. Roxwell Investments Sp. z o.o. is entered in the Register of Entrepreneurs of the National Court Register, maintained by the District Court for the Capital City of Warsaw, XII Commercial Division of the National Court Register, under No. KRS The company's core business comprises business and management consulting service. On 19 June 2012, Multimedia, Tele-Top Grupa Multimedia Polska Sp. z o.o., Multimedia Polska-Południe S.A., Multimedia Polska PR Sp. z o.o., Media Operator Sp. z o.o., Roxwell Investments Sp. z o.o. and Stream Communications Sp. z o.o. executed an agreement providing for establishment of a tax group, with Multimedia Polska S.A. as its parent and representing entity. The agreement was concluded for the next three tax years, from 1 October 2012 to 31 December On 31 July 2012, Multimedia acquired from Diana Holding Limited of Cyprus 1410 shares in the share capital of Diana Telewizja Kablowa Spółka z ograniczoną odpowiedzialnością of Stalowa Wola, entered in the Register of Entrepreneurs of the National Court Register maintained by the District Court of Rzeszów, XII Commercial Division of the National Court Register, under entry No. KRS The shares are equal and indivisible and represent 100% of the share capital and 100% of the total vote at the general meeting of Diana Telewizja Kablowa Sp. z o.o. The company's core business consists in provision of fixed-line telephony, Internet access and cable television services. Diana Telewizja Kablowa Sp. z o.o. operates telecommunications networks located in Stalowa Wola, which pass 18.3 thousand households (HP). The company was acquired as part of Multimedia s strategy, which provides for consolidation of the market of cable operators as one of its priorities. On 31 October 2012, Multimedia Polska S.A. (acquiring company) and Diana Telewizja Kablowa Sp. z o.o (target company) agreed upon a merger plan, which was notified to the competent registry court. The merger will be effected in the manner provided for in Art in conjunction with Art of the Polish Commercial Companies Code, i.e. by transferring all assets and liabilities of the target company to the acquiring company. The purpose of the merger was to reduce expenses associated with the operations of subsidiaries and to streamline the managing and reporting processes within the Group. 12

16 On 31 December 2012, the District Court of Gdańsk-Północ, VIII Commercial Division of the National Court Register registered the merger of Multimedia Polska S.A. and Diana Telewizja Kablowa Sp. z o.o. The merger was effected based on Resolution no. 4 of the Extraordinary General Meeting of Multimedia Polska S.A. dated 14 December On 31 July 2012, Stream Communications Sp. z o.o. (acquiring company) and Stream Service Sp. z o.o. (target company) agreed upon a merger plan, which was notified to the competent registry court. The merger will be effected in the manner provided for in Art in conjunction with Art of the Polish Commercial Companies Code, i.e. by transferring all assets and liabilities of the target company to the acquiring company. The purpose of the merger was to reduce expenses associated with the operations of subsidiaries and to streamline the managing and reporting processes within the Group. On 25 September 2012, Multimedia Polska S.A. transferred the right to 240 shares in the share capital of Telewizja Kablowa Brodnica Sp. z o.o. to Multimedia Polska Południe S.A. via a share sale agreement. On 1 October 2012, Stream Communications Sp. z o.o. leased its enterprise to Multimedia Polska Południe S.A. The enterprise consists of movables, buildings and structures, equipment and materials that make up telecom networks, rights and obligations under lease agreements pertaining to real property and movables, rights to use property and movables following from other legal relations to the extent necessary for telecom operations, rights and obligations following from subscriber agreements, books of account, and financial documents. On 31 October 2012, Multimedia acquired from VOLTEON ENERGIA Sp. z o.o of Widełka 2672 shares in the share capital of Transmitel Rzeszów Spółka z ograniczoną odpowiedzialnością of Rzeszów, entered in the Register of Entrepreneurs of the National Court Register maintained by the District Court of Rzeszów, XII Commercial Division of the National Court Register, under entry No. KRS The shares are equal and indivisible and represent 100% of the share capital and 100% of the total vote at the general meeting of Transmitel Rzeszów Sp. z o.o. The company's core business consists in provision of fixed-line telephony, Internet access and cable television services. The company operates telecommunications networks, which pass 10.5 thousand households (HP). Transmitel Rzeszów Sp. z o.o. was acquired as part of Multimedia s strategy, which provides for consolidation of the market of cable operators as one of its priorities. 4. Composition of the Parent's Management Board As at 31 December 2012, the composition of the Parent's Management Board was as follows: Andrzej Rogowski President of the Management Board. The composition of the Management Board did not change during the reporting period nor during the period up to the date of approval of these consolidated financial statements. 5. Approval of the consolidated financial statements These consolidated financial statements were approved for publication by the Management Board on 28 February Material accounting estimates and judgments 6.1. Professional judgment The application of accounting policies to the issues specified below and in the accompanying notes was based primarily on accounting estimates as well as on the professional judgment of the Management Board. - Classification of lease agreements: The Group classifies an operating or financial lease based on an evaluation of the extent to which the risks and benefits arising from possession of the lease items are allocated to the lessor and the lessee. This evaluation is based on the economic content of each transaction. 13

17 The Group is a party to lease agreements which, in the Management Board s opinion, meet the criteria for being classified as financial leases. The Management Board has determined that it retains all the significant risks and rewards of ownership of these properties and so accounts for them as financial leases. The Group is also a party to lease agreements which, in the Management Board s opinion, meet the criteria for being classified as operating leases. - Classification of financing agreements: The Group classifies sale and lease back agreements as financing if the following conditions are met: 1) the Group retains all the risks and benefits arising from ownership of the assets and the transactions do not result in material changes concerning the right to use such assets, 2) optional contractual provisions applicable after the end of the financing period are subject to conditions under which execution of the option is almost certain Estimation uncertainty Presented below are key assumptions regarding the future as well as other major sources of uncertainty existing as at the balance-sheet date, which entail a material risk of considerable adjustments to the carrying value of assets and liabilities in the subsequent financial year. - Impairment of goodwill The Group tested goodwill for impairment. As at the balance-sheet date, the Group carried out an impairment test of goodwill arising on acquisitions and business combinations (Note 21.1). All operating segments of the Group were tested and the testing did not indicate any impairment. There were no indications of impairment of tangible or intangible assets. If at the date of the testing, the recoverable amount of a cash-generating unit to which goodwill was allocated is lower than its carrying value, an impairment loss is recognised. For the purpose of the test, goodwill was allocated to cash-generating units corresponding to the business segments connected with television, Internet and telephony. The test for impairment was performed based on five-year cash flow projections that may be recoverable from these assets, including a residual period with an assumed cash flow growth rate of 2.0% for cash-generating units related to television and Internet (as for the telephony unit the Group does not anticipate any growth) For the purpose of impairment testing, the Group used the after-tax discount rate of 10.1%. The implied pre-tax discount rate, calculated in accordance with IAS 36, was 11.98%. The test did not indicate any impairment of goodwill. - Impairment of property, plant and equipment and intangible assets with definite useful lives As at 31 December 2012, there were no indications of impairment of property, plant and equipment and intangible assets with definite useful lives. - Valuation of provisions Provisions for employee benefits are determined using actuarial methods. The assumptions made are presented in note Deferred tax assets and liabilities The Group recognises a deferred tax asset on the assumption that taxable income will be generated in the future, against which the asset can be used. Any deterioration in future financial performance might render the assumption invalid. - Valuation allowance for receivables The Group made a valuation allowance for receivables, assessed the probability of collecting overdue receivables and estimated the value of uncollectible receivables, for which it made valuation allowances. - Depreciation and amortisation rates Depreciation and amortisation rates are determined based on the estimated useful lives of tangible and intangible fixed assets. These rates are reviewed by the Group every year based on current assumptions. 14

18 7. Basis of preparation of the consolidated financial statements These consolidated financial statements have been prepared on a historical cost basis, except for financial instruments, which have been measured at fair value. These consolidated financial statements are presented in thousands of Polish zloty ( PLN ), except when otherwise indicated. These consolidated financial statements of the Group have been prepared on the assumption that the Group companies will continue as going concerns. As at the date of approval of these consolidated financial statements, the Management Board is not aware of any facts or circumstances that would indicate a threat to the continued operation of the Group. As at 31 December 2012, the Group's current liabilities disclosed in the statement of financial position were higher than its current assets by approximately PLN 267 million. Such tendency has been maintaining for several years and results from the specifics of the business activity. Due to ongoing consolidation of the data communications sector market, the Group incurs significant capital expenditures which in initial stage of settlement are translated into growth of the non-current assets value and intangible assets value, and then in future periods they are translated into the growth of the current assets value. On year to year basis the Group s working capital decreased by about PLN 82 million, which was primarily attributable to the following: - In the year 2012, the Group incurred expenditures on the purchase of the companies: Stream Communications Sp. z o.o., Diana Sp. z o.o. and Transmitel Sp. z o.o. for the total value of PLN 187 million. - In connection with the incurred capital expenditures in the year 2012, the Group utilised PLN 124 million worth of investment tranches under the granted credit and in the same time, the Group issued bonds with a total par value of PLN 250 million, in order to partially refinance its outstanding debt. The issue increased current liabilities by a total of PLN 53 million (as at 31 December 2012). In 2012, the Group generated significant cash flows, ensuring funds to finance its day-to-day operations. Net cash inflows from operating activities were PLN 343 million. The Group also generated a strong EBITDA of PLN 351 million. The Group defines EBITDA as operating profit adjusted for depreciation and amortisation and other costs and income resulting from a change in the value of non-current assets. In the calculation of EBITDA, the Company disregards one-off events. In the 12 months ended 31 December 2012, the Group incurred one-off expenses of PLN 17 million, chiefly on strategic audit and acquisition of subsidiaries. In the 12 months ended 31 December 2011, no one-off events occurred. In the comparative period, as at 31 December 2011 the Group's current liabilities were higher than current assets by approximately PLN 185 million. The Group's net cash provided by operating activities amounted to PLN 305 million. The Group also generated a strong EBITDA of PLN 327 million. Given the Group's ability to generate strong EBITDA and significant net cash flows from operating activities, no circumstances have been found to exist which would indicate a threat to the Group continuing as a going concern Compliance statement These consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards ( IFRS ) and IFRSs endorsed by the European Union. As at the date on which these consolidated financial statements were approved for publication, considering the process underway in the European Union of introducing IFRS standards and the operations being conducted by the Group with respect to accounting policies applied by it, there is no difference between the IFRS standards applied by the Group and the IFRS standards approved by the EU. IFRSs comprise standards and interpretations accepted by the International Accounting Standards Board ( IASB ) and the International Financial Reporting Interpretations Committee ( IFRIC ). The Group companies keep their books of account in accordance with the accounting policies specified in the Accountancy Act dated 29 September 1994 ( the Accountancy Act ) with subsequent changes, and the regulations issued based on it ( Polish Accounting Standards ). These consolidated financial statements include a number of adjustments not included in the books of account of the Group companies, which were made to bring the financial statements of those companies into conformity with IFRS. 15

19 7.2. Functional currency and reporting currency of financial statements The functional currency of the Parent and other consolidated undertakings and the reporting currency used in these consolidated financial statements is the Polish złoty (PLN). 8. Changes in adopted accounting policies The accounting policies applied to prepare these consolidated financial statements are consistent with the policies followed in the preparation of the Group s consolidated financial statements for the year ended 31 December 2011, save for the effect of application of the following amendments to standards and new interpretations effective for annual periods beginning on 1 January Amendments to IFRS 7 Financial Instruments: Disclosures: transfers of financial assets effective for financial years beginning on or after 1 July Application of the amendments had no effect on the Company's financial standing or performance, or on the scope of information presented in its financial statements. The Group did not choose to use the option of early application of any standard, interpretation or amendment which has been published but has not yet become effective. 9. New standards and interpretations which have been issued but are not yet effective The International Accounting Standards Board of the International Financial Reporting Interpretation Committee issued the following standards and interpretations which have not yet become effective: The first phase of IFRS 9 Financial Instruments: Classification and Measurement effective for financial years beginning on or after 1 January 2015 not endorsed by EU till the date of approval of these financial statements. In subsequent phases, the IASB will address hedge accounting and impairment. The application of the first phase of IFRS 9 will have impact on classification and measurement of the financial assets of the Company. The Company quantify the effect in conjunction with the other phases, when issued, to present a comprehensive picture, Amendments to IAS 19 Employee Benefits - effective for financial years beginning on or after 1 January 2013, Amendments to IAS 1 Presentation of Financial Statements: Presentation of Items of Other Comprehensive Income - effective for financial years beginning on or after 1 July 2012, Amendments to IAS 12 Income Taxes: Deferred Tax: Recovery of Underlying Assets effective for financial years beginning on or after 1 January 2012 in EU effective at the latest for financial years beginning on or after 1 January 2013, Amendments to IFRS 1 First time Adoption of International Financial Reporting Standards: Severe Hyperinflation and Removal of Fixed Dates for First time Adopters effective for financial years beginning on or after 1 July 2011 in EU effective at the latest for financial years beginning on or after 1 January 2013, IFRS 10 Consolidated Financial Statements effective for financial years beginning on or after 1 January 2013, in EU effective at the latest for financial years beginning on or after 1 January 2014, IFRS 11 Joint Arrangements effective for financial years beginning on or after 1 January 2013 in EU effective at the latest for financial years beginning on or after 1 January 2014, IFRS 12 Disclosure of Interests in Other Entities effective for financial years beginning on or after 1 January 2013 in EU effective at the latest for financial years beginning on or after 1 January 2014, Amendments to IFRS 10, IFRS 11 and IFRS 12 Transition Guidance - effective for financial years beginning on or after 1 January 2013 not endorsed by EU till the date of approval of these financial statements, IFRS 13 Fair Value Measurement - effective for financial years beginning on or after 1 January 2013, IAS 27 Separate Financial Statements effective for financial years beginning on or after 1 January 2013 in EU effective at the latest for financial years beginning on or after 1 January 2014, IAS 28 Investments in Associates and Joint Ventures effective for financial years beginning on or after 1 January 2013 in EU effective at the latest for financial years beginning on or after 1 January 2014, IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine - effective for financial years beginning on or after 1 January 2013, 16

20 Amendments to IFRS 7 Financial Instruments Disclosures: Offsetting Financial Assets and Financial Liabilities - effective for financial years beginning on or after 1 January 2013, Amendments to IAS 32 Financial Instruments Presentation: Offsetting Financial Assets and Financial Liabilities- effective for financial years beginning on or after 1 January 2014, Amendments to IFRS 1 First time Adoption of International Financial Reporting Standards: Government Loans effective for financial years beginning on or after 1 January 2013 not endorsed by EU till the date of approval of these financial statements, Improvements to IFRSs (issued in May 2012) effective for financial years beginning on or after 1 January 2013 not endorsed by EU till the date of approval of these financial statements, Amendments to IFRS 10, IFRS 12 and IAS 27 Investment Entities (issued on 31 October 2012) effective for financial years beginning on or after 1 January 2014 not endorsed by EU till the date of approval of these financial statements. The Management Board plans to implement new standards and interpretations as they become effective. It does not expect the adoption of the above standards and interpretations to have any material impact on the accounting policies followed by the Group. In the Management Board s opinion, the implementation of the New Standards and Interpretations will have no material effect on the accounting policies followed by the Group. 10. Changes in estimates The Group reviewed and changed as of 1 January 2012 the estimated expected useful lives of tangible assets. This change increased net profit by PLN 2,421.1 thousand. In 2012, there were no other changes in estimates that would affect the current or future periods. 11. Key accounting policies Basis of consolidation These consolidated financial statements include the financial statements of Multimedia Polska S.A. and the consolidation packages of its subsidiaries, in each case prepared for the period of 12 months ended 31 December The financial statements of subsidiaries, restated to ensure compliance with IFRS, are prepared for the same reporting period as the statements of the Parent, using consistent accounting policies and based on uniform principles applicable to business transactions and events of a similar nature. Adjustments are made in order to eliminate any discrepancies in the application of accounting policies. All significant balances and transactions between the Group companies, including unrealized profits and losses on intra-group transactions, have been eliminated in their entirety. Subsidiaries are consolidated starting from the date when the Group assumes control over them and cease to be consolidated when the control is lost. The Parent is deemed to exert control when it holds, directly or indirectly, through its subsidiaries, more than 50% of votes in a given company unless it is possible to prove that the ownership of over 50% of votes is not tantamount to exerting control. The Group s ability to influence a given company s financial and operational policies is also deemed as control Currency translations Transactions denominated in currencies other than the Polish zloty are translated into zloty at the rate effective on the transaction date. As at the balance-sheet date, monetary assets and liabilities denominated in currencies other than the Polish zloty are translated into zloty at the mid exchange rate quoted for a given currency by the National Bank of Poland (NBP) at the end of the reporting period. The resulting foreign exchange gains and losses are carried as finance income/expenses or, where the accounting policies so provide, capitalized in the value of assets. Non-monetary assets and liabilities recognised at historical cost expressed in a foreign currency are disclosed at the exchange rate effective on the transaction date. Non-monetary assets and liabilities carried at fair value expressed in a foreign currency are translated at the exchange rate effective on the date of the fair value measurement. Exchange rates applied for balance-sheet valuation purposes: 17

21 31 December December 2011 USD EUR CHF GBP Property, plant and equipment Property, plant and equipment are disclosed at acquisition or production cost less depreciation and impairment losses. Items of property, plant and equipment are initially disclosed at acquisition cost plus any costs directly related to the purchase of the assets and bringing them to working condition for their intended use. This cost also includes the cost of replacing component parts of plant and equipment, which is recognised as incurred if relevant recognition criteria are met. Costs incurred after an asset is placed in service, such as costs of maintenance and repair, are charged to profit or loss as incurred. At the time of their acquisition, property, plant and equipment are divided into components that are items of significant value, for which different economically useful lives are applied. The costs of major overhauls are also a component part. The Group generates property, plant and equipment internally. The manufacturing cost of property, plant and equipment consists of direct expenditures and indirect costs, in particular personnel costs and other costs of employees and associates participating in the process of construction and modernization of those assets. Property, plant and equipment are depreciated on a straight-line basis over their estimated economic useful lives, as detailed in the following table: Type Buildings and structures Plant and equipment Office equipment Vehicles Computers Investments in third-party property, plant and equipment Period 9-40 years 2-25 years 1-10 years years 3-10 years 10 years An item of property, plant and equipment may be derecognised if it is sold or if the company does not expect to realize any economic benefits from its further use. Gains or losses on derecognition of an asset (calculated as the difference between net proceeds from its sale, if any, and the carrying value of the asset) are disclosed in the income statement in the period when the asset was derecognised. Assets under construction comprise property, plant and equipment which are under construction or assembly. They are recognised at acquisition or production cost, less any possible impairment. Assets under construction are not depreciated until completed and placed in service. The adopted residual values, useful economic lives and depreciation methods are reviewed annually and adjusted if required with effect from the beginning of the reporting period just ended. Adjustments involve determination of further useful economic lives and computation of the annual depreciation rate in relation to the net value. Then the established depreciation rate is applied to the gross value of a given item of property, plant and equipment. The costs of each major overhaul are included in the carrying value of property, plant and equipment if relevant recognition criteria are met. 18