tvn sa interim report for the three and nine months ended

TVN S.A.
INTERIM REPORT
FOR THE THREE AND NINE MONTHS
ENDED SEPTEMBER 30, 2008
TABLE OF CONTENTS
PART I
PART II
PART III
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ADDITIONAL INFORMATION
FINANCIAL INFORMATION
2
4
38
43
We have prepared this interim report as required by Section 4.16 of the Indenture for our Senior Notes,
dated December 2, 2003, as amended. We have also included information we are required to disclose to
our shareholders as a public company in Poland in order to ensure consistent disclosure to both
bondholders and shareholders.
In this interim report “we”, “us”, “our”, the “TVN Group” and the “Group” refer, as the context requires, to
TVN S.A. and its consolidated subsidiaries; the “Company” refers to TVN S.A.; “Grupa Onet” refers to
Grupa Onet.pl S.A., owner of the leading Polish Internet portal Onet.pl, which we acquired in July 2006;
“Mango Media” refers to Mango Media Sp. z o.o., a teleshopping company, which we acquired in May
2007; “n” platform refers to the DTH distribution platform operated by ITI Neovision Sp. z o.o., solely
owned by Neovision Holding B.V., a company in which we acquired 25% of shares plus one share in
June 2008; ”guarantors” refers collectively to the Company and Grupa Onet, and “guarantor” refers to
each of them individually; “TVN” refers to our free-to-air broadcast channel; “TVN 7” refers to our free
satellite and cable channel; “TVN 24 channel” refers to our TVN 24 news channel; “TVN Turbo” refers to
our automotive channel; “TVN Meteo” refers to our weather channel; “TVN Style” refers to our health and
beauty channel; “ITVN” refers to our Polish language channel that broadcasts to viewers of Polish origin
residing abroad; “TVN Gra” refers to our interactive call television channel which we shut down on May
30, 2008; “TVN Lingua” refers to our language teaching channel; “TVN Med” refers to our educational
channel aimed at medical professionals; “Discovery Historia” refers to the history channel which we
operate in cooperation with Discovery Networks Poland; “Telezakupy Mango 24” refers to our
teleshopping channel; “NTL Radomsko” refers to the regional channel that we purchased in 2006; “TVN
CNBC Biznes” refers to our business channel which we operate in cooperation with CNBC; “Onet.pl”
refers to our Polish Internet portal Onet.pl; “TVN24.pl” refers to our Internet news vortal launched in
March 2007; “Zumi.pl” refers to our interactive yellow pages portal, launched in April 2007; “Plejada.pl”
refers to our multimedia Internet vortal, launched in March 2008; “Senior Notes” and “notes” refer to the
9.5% senior notes that TVN Finance issued on December 2, 2003. “TVN Finance” refers to our
subsidiary, TVN Finance Corporation plc.; “PLN bonds” refers to a PLN 500,000 bond issued by TVN S.A.
on June 23, 2008. “Shares” refers to our existing ordinary shares traded on the Warsaw Stock Exchange.
This interim report contains “forward-looking statements,” as such term is defined under the U.S. federal
securities laws, relating to our business, financial condition and results of operations. You can find many
of these statements by looking for words such as “may,” “will,” “expect,” “anticipate,” “believe,” “estimate”
and similar words used in this interim report. By their nature, forward-looking statements are subject to
numerous assumptions, risks and uncertainties. Accordingly, actual results may differ materially from
those expressed or implied by the forward-looking statements. We caution readers not to place undue
reliance on such statements, which speak only as of the date of this interim report.
You should consider the cautionary statements set out above in connection with any subsequent written
or oral forward-looking statements that we or persons acting on our behalf may issue. We do not
undertake any obligation to review or confirm analysts’ expectations or estimates or to release publicly
any revisions to any forward-looking statements to reflect events or circumstances after the date of this
quarterly report.
All references to Euro or €, US Dollar or $ and Złoty or PLN are in thousands, except share and per share
data, or unless otherwise stated.
3
PART I
M ANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information concerning our results of operations and
financial condition. You should read such discussion and analysis of financial condition and results of
operations in conjunction with our accompanying interim consolidated financial statements, including
the notes thereto. The following discussion focuses on material trends, risks and uncertainties
affecting our results of operations and financial condition.
Executive summary
Impact of changes in our structure on the reported results
We purchased a 25% plus 1 share stake in ‘n’ DTH platform on June 25, 2008, and we purchased
Mango Media on May 23, 2007. As a result of these transactions, our financial results for the three and
nine months ended September 30, 2008 are not fully comparable to the financial results for the
corresponding periods of 2007. The results for the nine months ended September 30, 2008 include
the results of Mango Media, whereas the comparable period of 2007 includes results of Mango Media
for the period between May 24, 2007 and September 30, 2007. The results for the three months
ended September 30, 2008 include our share of the net loss of ‘n’ DTH platform. The results for the
nine months ended September 30, 2008 include our share of the net loss of ‘n’ DTH platform for the
period between June 25, and September 30, 2008. The results for the corresponding periods of 2007
do not include our share of the result of ‘n’ DTH platform. To make the comparison between periods
more meaningful, we have specifically identified the impact of these acquisitions, where material, in
the period to period comparison.
Three months ended September 30, 2008
We estimate that the television advertising market in Poland in the three months ended September 30,
2008 increased 14.2% compared to the corresponding period of 2007.
The principal events of the three months ended September 30, 2008, were as follows:
•
Our share in the net television advertising market increased to 32.6% from 30.7% in the
corresponding period of 2007.
•
On August 12, 2008 we announced a share buyback plan. We plan to buy a maximum of 35,000
shares or 10% of share capital, and spend a maximum amount of PLN 500,000. On October 30,
2008 our Extraordinary General Shareholders Meeting approved our buyback plan.The buyback
will start in the fourth quarter and will end no later than December 31, 2009.
•
We recorded outstanding audience share results in September 2008, which is the first month of
the key autumn season. Our TVN channel increased its peak time audience share in the basic
commercial target group to 21.3% from 20.3% in September 2007 and was the market leader. On
a nationwide basis, our TVN channel increased its peak time audience share in September to
21.6% from 20.0% in the corresponding period of 2007 which gave it a leading position in that
category.
•
Our aggregated peak time nationwide audience share in September 2008 increased to 25.8%
from 24.6% in the corresponding period of 2007.
•
Our aggregated all day basic commercial target group audience share in September 2008
increased to 24.0% from 23.8% in the corresponding period of 2007. Our aggregated peak time
basic commercial target group audience share in September 2008 increased to 25.7% from 24.9%
in the corresponding period of 2007.
•
The peak time key target group audience share of our TVN channel in September 2008 increased
to 26.4% from 26.2% in the corresponding period of 2007.
•
TVN 7 increased its all day key target group audience share in September 2008 to 2.7% from
2.5% in the corresponding period of 2007.
4
•
Our portal, Onet.pl, increased its average monthly number of real users for the two month period
ended August 31, 2008 to 9.7 million from 9.5 million in the corresponding period of 2007.
Average monthly time spent on Onet.pl in this period increased to 58.5 million hours from 57.9
million hours in the corresponding period of 2007.
•
Our net revenue increased 19.3% to PLN 353,820 from PLN 296,553 in the corresponding period
of 2007. We recorded an effective increase of 32.6% in the price of GRP’s sold on our TVN
channel which was partially offset by an 8.6% decrease in the volume of inventory sold. In
September alone we recorded an effective increase of 46.0% in the price of GRP’s sold on our
TVN channel which was partially offset by a 9.3% decrease in the volume of inventory sold. Onet’s
cash advertising revenue increased 40.7% to PLN 27,086.
•
Our operating profit increased 96.5% to PLN 74,141. Our operating margin was 21.0%.
•
Our EBITDA increased 67.9% to PLN 94,759 from PLN 56,434 in the corresponding period of
2007. Our EBITDA margin was 26.8% as compared to 19.0% in the corresponding period of 2007.
•
We recorded a net profit of PLN 5,008 compared to a net loss of PLN 78,325 in the corresponding
period of 2007.
•
Our net profit, excluding our share of the net loss of ‘n’ DTH platform and revaluation gains on our
embedded options, was PLN 35,993 compared to PLN 21,104 in the corresponding period of
2007.
•
Our Net debt to EBITDA ratio as at September 30, 2008 was 1.4. We held PLN 332,230 of cash
and cash equivalents, including cash at bank, cash in hand, short-term treasury notes and bank
deposits.
Nine months ended September 30, 2008
We estimate that the television advertising market in Poland in the nine months ended September 30,
2008 increased by 17.0% compared to the corresponding period of 2007.
The principal events of the nine months ended September 30, 2008, apart from events detailed above
were as follows:
•
Our share in the net television advertising market increased to 34.4% from 31.8% in the
corresponding period of 2007.
•
On June 25, 2008 we completed the acquisition of 25% of the share capital plus 1 share of
Neovision Holding B.V. and a pro rata proportion of intercompany loans for a total cash
consideration of EUR 95,000.
•
On June 23, 2008 we issued PLN denominated bonds with a total nominal value of PLN 500,000.
•
On June 30, 2008 we entered into a PLN 200,000 multicurrency loan facility agreement with Bank
Pekao S.A. This replaced a senior credit facilities agreement with Pekao S.A., signed on July 26,
2006, under which two facilities had been granted to us in the total amount of EUR 50,000.
•
Our aggregated all day nationwide audience share increased to 24.6% from 24.4% in the
corresponding period of 2007.
•
Our aggregated all day basic commercial target group audience share increased to 22.5% from
22.0% in the corresponding period of 2007. Our aggregated prime time basic commercial target
group audience share increased to 24.9% from 24.5% in the corresponding period of 2007.
•
Our TVN channel increased its prime time basic commercial target group audience share to
20.4% from 20.3% in the corresponding period of 2007.
5
•
Our TVN 7 channel increased its prime time key target group audience share to 3.1% from 2.5%
in the corresponding period of 2007.
•
Our Internet portal, Onet.pl, increased its average monthly number of real users for the eight
month period ended August 31, 2008 to 9.7 million from 9.6 million in the corresponding period of
2007. Average monthly time spent on Onet.pl in this period increased to 63.4 million hours from
54.3 million hours in the corresponding period of 2007.
•
Our net revenue increased 26.3% to PLN 1,305,011 from PLN 1,033,108 in the corresponding
period of 2007. We recorded an effective increase of 33.8% in the price of GRP’s sold on our TVN
channel which was partially offset by a 6.1% decrease in the volume of inventory sold. Onet’s
cash advertising revenue increased 38.2% to PLN 86,929.
•
Our operating profit increased 42.0% to PLN 409,778. Our operating margin was 31.4%.
•
Our EBITDA increased 37.4% to PLN 468,473 from PLN 340,886 in the corresponding period of
2007. Our EBITDA margin was 35.9% as compared to 33.0% in the corresponding period of 2007.
•
We recorded a net profit of PLN 276,042 compared to PLN 107,464 in the corresponding period of
2007.
•
Our net profit, excluding our share of the net loss of ‘n’ DTH platform and revaluation gains on our
embedded options, was PLN 290,498 compared to PLN 184,177 in the corresponding period of
2007.
•
On May 30, 2008, we ceased to operate TVN Gra, due to its failure to achieve profitability targets.
•
On March 27, 2008, we launched our Plejada.pl Internet vortal.
Summary historical financial data
The following table sets out our summary historical consolidated financial information for the periods
presented. You should read the information in conjunction with the interim condensed consolidated
financial statements and Management’s Discussion and Analysis and Financial Condition and Results
of Operations contained elsewhere in this interim report.
For your convenience, certain Złoty amounts as of and for the three and nine months ended
September 30, 2008 and 2007 have been converted into Euro at a rate of PLN 3.4083 per €1.00 (the
effective National Bank of Poland, or NBP, exchange rate on September 30, 2008). You should not
view such conversions as a representation that such Złoty amounts actually represent such Euro
amounts, or could be or could have been converted into Euro at the rates indicated or at any other
rate. All amounts, unless otherwise indicated, in this table and the related footnotes are shown in
thousands.
6
Three months ended September 30,
Income Statement data
Revenue, net
Operating profit
Profit before income tax
Net profit excluding
revaluation of embedded
options
Net profit
Cash Flow Data
Net cash from operating
activities
Net cash used in
investing activities
Net cash used in
financing activities
Increase/ (decrease)in
cash and cash
equivalents
Weighted average
number of ordinary
shares in issue (not in
thousands)
Weighted average
number of potential
ordinary shares in issue
(not in thousands)
Basic earnings per share
(not in thousands)
Basic earnings per share
excluding revaluation of
embedded option (not in
thousands)
Diluted earnings per
share (not in thousands)
Dividend paid or declared
(not in thousands)
Other data
EBITDA*
EBITDA margin
Operating margin
Balance Sheet data
Total assets
Non-current liabilities
Current liabilities
Shareholders equity
Share capital
Nine months ended September 30,
2007
PLN
2007
€
2008
PLN
2008
€
2007
PLN
2007
€
2008
PLN
2008
€
296,553
37,731
(103,867)
21,104
87,009
11,070
(30,475)
6,192
353,820
74,141
4,709
17,491
103,811
21,753
1,382
5,132
1,033,108
288,605
128,089
184,177
303,115
84,677
37,581
54,038
1,305,011
409,778
340,843
271,441
382,892
120,229
100,004
79,641
(78,325)
(22,981)
5,008
1,469
107,464
31,530
276,042
80,991
57,366
16,831
127,851
37,512
281,022
82,452
455,108
133,529
(51,467)
(15,100)
(125,593)
(36,849)
(150,514)
(44,161)
(549,879)
(161,335)
(5,309)
(1,558)
(37,872)
(11,112)
(143,127)
(41,994)
244,122
71,626
590
173
(35,614)
(10,449)
(12,619)
(3,702)
149,351
43,820
346,980,277 346,980,277 349,443,751 349,443,751 345,578,047 345,578,047 348,531,422 348,531,422
346,980,277 346,980,277 352,878,472 352,878,472 352,237,575 352,237,575 353,385,857 353,385,857
(0.23)
(0.07)
0.01
0.00
0.31
0.09
0.79
0.23
0.06
0.02
0.05
0.01
0.53
0.16
0.78
0.23
(0.23)
(0.07)
0.01
0.00
0.31
0.09
0.78
0.23
0.00
0.00
0.00
0.00
0.37
0.11
0.49
0.14
56,434
19.0%
12.7%
16,558
-
94,759
26.8%
21.0%
27,802
-
340,886
33.0%
27.9%
100,016
-
468,473
35.9%
31.4%
137,451
-
As at
December
31, 2007
PLN
2,744,925
As at
December
31, 2007
€
805,365
As at
As at
September September
30, 2008
30, 2008
PLN
€
3,410,249
1,000,571
As at
December
31, 2007
PLN
2,744,925
As at
December
31, 2007
€
805,365
966,096
349,068
1,429,761
69,455
283,454
102,417
419,494
20,378
966,096
349,068
1,429,761
69,455
283,454
102,417
419,494
20,378
1,386,146
437,456
1,586,647
69,899
406,697
128,350
465,524
20,508
As at
As at
September September
30, 2008
30, 2008
PLN
€
3,410,249
1,000,571
1,386,146
437,456
1,586,647
69,899
* We define EBITDA as net profit/(loss), as determined in accordance with IFRS, before depreciation and amortization (other
than for programming rights), impairment charges and reversal on property, plant and equipment and intangible assets, finance
expenses or investment income, net (including interest income and expense and foreign exchange gains and losses), income
taxes and share of net results of associates. The reconciling item between EBITDA and reported operating profit is depreciation
and amortization expense and impairment charges and reversal on property, plant and equipment and intangible assets,
included in the table above. We believe EBITDA serves as a useful supplementary financial indicator in measuring the liquidity
7
406,697
128,350
465,524
20,508
of media companies. EBITDA is not an IFRS measure and should not be considered as an alternative to IFRS measures of net
profit/(loss), as an indicator of operating performance, as a measure of cash flow from operations under IFRS, or as an indicator
of liquidity. You should note that EBITDA is not a uniform or standardized measure and the calculation of EBITDA, accordingly,
may vary significantly from company to company, and by itself our presentation and calculation of EBITDA may not be
comparable to that of other companies.
Financial reporting and accounting
Commencing January 1, 2005, public companies in Poland are required to prepare consolidated
financial statements in accordance with International Financial Reporting Standards (“IFRS”) as
adopted by the European Union. As of September 30, 2008, there were no differences as regards the
TVN Group between IFRS as adopted by the European Union and IFRS as promulgated by the
International Accounting Standards Board. However, certain standards and International Financial
Reporting Interpretations Committee (“IFRIC”) interpretations not effective as at September 30, 2008
had not been endorsed by the European Union at that date.
Our financial statements are prepared in Złoty, or “PLN”.
Our interests in TVN Finance, Grupa Onet, Grupa Onet Poland Holding BV, Dream Lab Onet.pl Sp. z
o.o., Media Entertainment Ventures International Limited, NTL Radomsko Sp. z o.o., Tivien Sp. z o.o.,
El-Trade Sp. z o.o., Mango Media and Thema Film Sp. z o.o., are fully consolidated in accordance
with IFRS. Our interest in Polski Operator Telewizyjny Sp. z o.o. and Discovery TVN Ltd are
consolidated based on the proportionate consolidation method and our interest in Polskie Badania
Internetu Sp. z o.o. and Neovision Holding B.V. are consolidated using the equity method.
Our fiscal year ends on December 31.
Overview
TVN S.A. was incorporated in Poland in 1995 as a limited liability company, TVN Sp. z o.o., and
launched its television broadcasting activities in October 1997. In 2004, TVN Sp. z o.o. was
transformed into a Polish joint-stock company (Spółka Akcyjna), TVN S.A. We are governed by the
provisions of the Polish Commercial Law, and are registered in the National Court Register maintained
by the District Court in Warsaw, XIII Economic Department of National Court Register, entry no. KRS
0000213007. Our business purpose is to conduct all activities related to the television industry as set
out in § 5 of our Articles of Association.
Our registered and principal administrative office is at ul. Wiertnicza 166, 02-952 Warsaw, Poland. Our
telephone number is +48 22 856 60 60.
We own and operate thirteen television channels, primarily in Poland: TVN, TVN 7, TVN 24, TVN
Turbo, TVN Meteo, TVN Style, ITVN, TVN Lingua, TVN Med, Discovery Historia, Telezakupy Mango
24, NTL Radomsko and TVN CNBC Biznes. In addition to our ten-year, nationwide terrestrial
broadcasting license we hold separate licenses to broadcast all of our channels by cable and satellite.
In addition we have terrestrial licenses for Radomsko and the surrounding area through our subsidiary
NTL Radomsko Sp. z o.o. We own the leading Polish Internet portal, Onet.pl, alongside a number of
smaller, thematic vortals under the Onet brand. We also own and run Plejada.pl and TVN24.pl vortals.
We own a minority stake in ‘n’ DTH platform, a recently launched new generation digital satellite
platform offering pay television services in Poland and with a subscriber base of 400,000 as of
October 31, 2008.
8
Revenue
Advertising Revenue
We derive a substantial portion of our revenue from television and online advertising. During the three
and nine months ended September 30, 2008, we derived approximately 75.5% and 77.3% of our total
net revenue from commercial television and online advertising.
Commercial Television Advertising Revenue
We sell most of our commercial television advertising through media houses and independent
agencies. In the current Polish advertising market, advertisers tend to allocate their television
advertising budgets between channels based on each channel's audience share, audience
demographic profile and pricing policy.
In order to provide flexibility to our customers, we offer advertising priced on two different bases. The
first basis is rate-card, which reflects the timing and duration of an advertisement. The second basis is
cost per “gross rating point”, which we refer to in this report as a GRP. As applied to Poland, one GRP
is equal to 358,860 inhabitants (which refers to population segment above four years of age).
Currently, the majority of our advertising is sold based on rate card.
Rate-card pricing. During the three and nine months ended September 30, 2008 we derived 68.0%
and 78.6% of our advertising revenue from sales based on rate card pricing as compared to 19.7%
and 17.5% in the corresponding period of 2007. Advertising priced on a rate-card basis is applied to
advertisements scheduled at a specific time. The cost of such advertising is based on the length of the
advertisement, the time of the day and the season during which the advertisement is shown.
Consistent with industry practice, we provide an incentive rebate on rate-card prices to a number of
advertising agencies and their clients.
Cost per GRP pricing. During the three and nine months ended September 30, 2008, we derived
32.0% and 21.4% of our advertising revenue from sales of GRP packages as compared to 80.3% and
82.5% in the corresponding period of 2007. Advertising priced on a cost per GRP basis allows an
advertiser to specify the number of gross ratings points that it wants to achieve with its advertisement
within a defined period of time. We schedule the timing of the airing of the advertisements during such
defined period of time, usually one month in advance of broadcast, in a manner that enables us both
to meet the advertiser's GRP target and to maximize the use and profitability of our available
advertising programming time. The price per GRP package varies depending on the demographic
group that the advertisement is targeting, the flexibility given to us by advertisers in scheduling their
advertisements and the rebates we offer to advertising agencies and their clients. GRP package sales
generally allow for higher inventory utilization rates than rate-card pricing and optimize the net price
per GRP achieved. Generally, we structure GRP packages to ensure higher sales of advertising spots
during the daily off-peak period (for example, for each GRP purchased during peak time, the client
must purchase at least one GRP during off-peak).
We usually schedule specific advertisements one month in advance of broadcasting them. Prices that
advertisers pay, whether they purchase advertising time on a GRP package or rate-card basis, tend to
be higher during peak viewing months such as October and November than during off-peak months
such as July and August. Consistent with television broadcasting industry practice, and in order to
optimize ratings and revenue, we do not sell all of our legally available advertising time. During peak
advertising seasons, we tend to sell over 93.0% of prime-time advertising spots on our TVN channel
and over 68.0% of non-prime-time advertising spots. During the off-peak viewing seasons, we tend to
sell approximately 93.0% of prime-time advertising spots on our TVN channel and over 65.0% of our
non-prime-time advertising spots. We record our advertising revenue at the time the relevant
advertisement is broadcast. As is common in the television broadcasting industry, we provide
advertising agencies and advertisers with an incentive rebate. We recognize advertising revenue net
of rebates.
9
Online Advertising Services
We sell the majority of our online advertising services through media houses.
We derive most of our online advertising revenue from the sale of online display advertising through
products which include, among others, the display of rich media advertisements, display of text-based
links to advertisers’ websites (search engine marketing), and e-commerce based transactions.
Display of advertisements. We generate revenue related to the display of advertisements on the
Onet.pl websites, Zumi.pl, Plejada.pl, TVN24.pl vortals and also on the websites of our business
partners, who integrate our contextual offering of OnetKontekst into their websites as “impressions”
are delivered. An “impression” is delivered when an advertisement appears in pages actually viewed
by users.
Display of text-based links to advertisers’ websites. We generate revenue from the display of textbased links to the websites of our advertisers, which are placed on the Grupa Onet websites, and
OnetKontekst websites. We recognize revenue from these arrangements as “click-throughs” occur. A
“click-through” occurs when a user clicks on an advertiser’s listing.
E-commerce based transactions. Advertising revenue also includes transaction revenue, which is
generated from facilitating e-commerce transactions through the Grupa Onet websites. We recognize
transaction revenue when there is evidence that qualifying transactions have occurred, for example,
when an order is placed through Onet.pl’s Shopping Mall.
Online directory services. Advertising revenue also includes revenue from the sale of online
directory services on Zumi.pl, including text-based links, banners, rich media and other forms of
Internet advertising. Payments for services are collected upfront. We recognize revenue over the
period when the services are provided.
In order to provide flexibility to our customers, we offer our online advertising services priced on
several models, including cost per mille, or CPM, flat (paid per period of exposure), cost per click, or
CPC, cost per action, or CPA-like, and their hybrids. The majority of our online advertising services
sales are done on a CPM basis.
Cost per mille (CPM). Advertisements purchased on a CPM basis are priced on an impressions
basis, which means the advertiser pays for the number of ad impressions ordered and delivered on
specific websites. An “impression” is delivered when an advertisement appears in pages actually
viewed by users. The minimum amount of impressions an advertiser can buy is 1,000 (mille).
Flat fee pricing. Advertisements priced on a flat fee basis are displayed for a period of time, specified
by the advertiser.
Cost per click (CPC). In the CPC model, advertisers pay based on the number of times users click on
the advertisement. Applies basically to search engine marketing.
Cost per action (CPA). In the CPA model, advertisers pay based on the nature of the action the user
takes. For example such payments could be based on whether a user orders a product or registers in
a database.
Occasionally, we enter into transactions pursuant to which we exchange advertising time for goods
and services, such as advertising in other media, Internet and television content. We record such
barter transactions at fair market value of the goods or services received. Barter transactions
represented approximately 1.7% and 1.3% of our revenue in the three and nine months ended
September 30, 2008.
10
Subscription fees from satellite and cable operators
We also generate revenue from the sale of licenses granting digital satellite platform and cable
operators the right to distribute our channels’ programming content to subscribers to their respective
services. During the three and nine months ended September 30, 2008, approximately 8.6% and 6.9%
of our total net revenue came from such distribution license fees. Generally, our agreements with
digital platform and cable television operators specify the rates at which we charge the operators for
each subscriber to a given digital platform or cable television service who paid for one of our channels
during the relevant reporting period, which we refer to as per-subscriber-rate. We calculate the
monthly license fee that a digital platform or cable operator pays us by multiplying the applicable persubscriber-rate by the average number of digital platform or cable subscribers who paid for one of our
channels during the relevant reporting period.
Other revenue
Other sources of revenue accounted for approximately 15.9% and 15.8% of our revenue in the three
and nine months ended September 30, 2008. These sources include revenue generated from
sponsorship, call television, online fee revenue, teleshopping and cinema distribution of films we
produce:
•
sponsorship accounted for 5.9% and 6.9% of our revenue in the three and nine months ended
September 30, 2008. We generate revenue from sponsors by displaying their logos either
immediately before or immediately after the show they have selected or before or after preview of
the show. We typically have no more than three sponsors per show;
•
sale of goods/teleshopping accounted for approximately 2.8% and 2.3% of our revenue in the
three and nine months ended September 30, 2008. We generate revenue from sales of products
offered in a particular show on our channels, primarily TVN and TVN 7, on our Mango Media
dedicated teleshopping channel and on the related internet site;
•
call television accounted for 2.2% of our revenue in the three and nine months ended September
30, 2008. Viewers can call in or send a text message to a live show and win prizes. We charge
the callers per call or per text message at a premium rate;
•
online fee revenue accounted for 1.8% and 1.4% of our revenue in the three and nine months
ended September 30, 2008. We generate fee revenue from our online business, which comprises
revenue generated from a variety of consumer and business fee-based services. These sources
include, among others, Internet content sales, revenue from paid thematic services (access to
premium content), sale of premium e-mail accounts, hosting services, registration and sale of
Internet domains, fees from auction services, classifieds, dating services and sale of Internet
access. Fee revenue also includes sales of telecommunications services. We recognize online
fee revenue upon performance of the applicable service;
•
sale of rights to programming content, including cinema distribution of films we produce; and
•
sale of up-link and play-out services and other technical services to ‘n’ platform.
We share revenue that we generate from text messages, call television with the corresponding service
provider, such as the telecommunications company or the supplier of merchandise.
11
Expenses
The major portion of our operating expenses, 47.5% and 48.9% in the three and nine months ended
September 30, 2008, is related to acquisition and production of television programming and Internet
content. During the three and nine months ended September 30, 2008, we produced locally
approximately 59% and 62% of our programming content on our TVN channel. We commissioned and
produced locally through third parties 16% and 14% of our programming content, and we acquired
25% and 23% of our programming content from third parties.
Our operating expenses consist primarily of:
•
amortization of television programming costs, which accounted for 65.0% and 64.8% of our cost
of revenue in the three and nine months ended September 30, 2008, and which comprises
amortization of production costs for television programs specifically produced by or for us, either
under licenses from third parties or under our own licenses, amortization of rights to television
programming content produced by third parties and licensed to us, and the cost of production of
Internet content;
Amortization is based on the estimated number of showings and the type of programming
content. For example, we use different bases of amortization for films, series, animated films and
current events. Consequently, we expense programming costs either at the time of the initial
broadcast in the case of news and current events programs or, in the case of films,
documentaries and other programs, which are typically shown up to four times, by the earlier of
the end of the third run or the end of the license. Costs related to Internet content are amortized
100% once the related services or information goes live. For further details on our amortization
policy see note 2.12 to our consolidated financial statements for the six months ended June 30,
2008;
•
costs of services and goods sold;
•
broadcasting costs, which mainly comprise rental costs for satellite and terrestrial transmission
capacity;
•
employee salaries;
•
stock option plan expenses;
•
royalties payable to unions of artists and professionals in the entertainment industry such as
ZAiKS, a union of writers, composers and performers in Poland and PISF, the Polish Film
Institute;
•
depreciation of television and broadcasting and Internet equipment;
•
marketing and research costs;
•
rent and maintenance costs for our premises;
•
consulting fees for technical, financial and legal services; and
•
a service fee payable pursuant to the Services Agreement, dated July 22, 2004, between us and
ITI Group that was extended on April 28, 2005 and further extended on December 28, 2005, June
26, 2006 and October 23, 2006.
Costs of revenue comprise primarily television programming and broadcasting expenses, royalties and
Internet content related expenses.
12
Factors affecting our revenue and costs
Characteristics of television advertising in Poland. The price at which we sell television advertising
generally depends on factors such as demand, audience share and any commercial discounts, volume
rebates and agency commissions that the buyer negotiates. Audience share represents the proportion
of television viewers watching a television channel’s program at a specific time. Demand for television
advertising in Poland depends on general business and economic conditions. As advertising in Poland
is sold through centralized media buyers who receive volume rebates and agency commissions on
sales made through them, most advertising in Poland is sold at a considerable reduction to published
rates. Commercial discounts represent the difference between rate card prices for advertising minutes
and the gross prices at which those minutes or rating points are actually sold before the deduction, if
applicable, of agency commissions and volume rebates. Although the aggregate total of these
discounts and rebates is not publicly available, we estimate that net television advertising expenditure
was close to 34% and 36% of the reported gross television advertising expenditure in the three and
nine months ended September 30, 2008. The Polish television advertising market is very competitive.
The policies and behavior of our competitors relating to pricing and scheduling may result in changes
in our own pricing and scheduling practices, and thus may affect our revenue.
Characteristics of online advertising in Poland. The price at which we sell online advertising generally
depends on factors such as demand, specific advertising format, reach, page views, time spent on the
webpage and demographics of users of respective websites, and any commercial discounts, volume
rebates and agency commissions that the buyer negotiates. Advertising formats range from simple
banners displayed on the top of the web pages, through animated rich-media advertisements
displayed on top of the page, to video-based advertisements. Reach represents the proportion of
Internet users who at least once visited a particular website during a specific time period. Page views
represent the number of page impressions created by users on a particular website. Time spent
represents the average time that a user spends on a website or the total time spent by all users
visiting this website during a specific period of time. Demographics of users represent their
characteristics, including their specific interests. As in the case of television advertising, we sell a
significant portion of online advertising through centralized media buyers at some reduction to
published rates. Commercial discounts represent the difference between the published rates for
respective online advertising services and the gross prices at which those services are actually sold
before the deduction, if applicable, of agency commissions and volume rebates. The Polish online
advertising services market is very competitive. The policies and behavior of our competitors relating
to pricing and introduction of new offerings in online advertising services may result in changes in our
own pricing and offered services, and this may affect our revenue.
Seasonality of television. Television viewing in Poland tends to be seasonal, with autumn and spring
attracting a greater number of viewers than summer months, when television competes with a large
number of other leisure activities. During the summer months, when audiences tend to decline,
advertisers significantly reduce expenditure on television advertising. Consequently, television
advertising sales in Poland tend to be at their lowest during the third quarter of each calendar year.
Conversely, advertising sales are typically at their highest during the fourth quarter of each calendar
year. During the year ended December 31, 2007, we generated approximately 20% of our television
segment advertising revenue in the first quarter, 27% in the second quarter, 18% in the third quarter
and 35% in the fourth quarter. In addition, television viewing in Poland fluctuates from month to month
and from year to year. The number of GRPs we have available for sale is partly determined by the
average number of minutes watched by the average Polish viewer, which we refer to as the ATV level.
Consequently, if the ATV level increases our GRP inventory increases, and if the ATV level falls our
GRP inventory decreases. During the three and nine months ended September 30, 2008 the ATV
level (for audience aged 16 to 49, all day) was 163 and 182 compared to 177 and 196 in the
corresponding period of 2007.
Seasonality of Internet. Internet usage in Poland is constantly growing, but, similar to television, tends
to be seasonal, with autumn and spring attracting a greater number of users than summer months,
when the Internet competes with a large number of other leisure activities. During the summer months,
when there is a relative decline in usage, advertisers reduce expenditure on media advertising,
including spending on online advertising services. Consequently, online advertising sales in Poland
tend to be at their lowest level during the third quarter of each calendar year. Conversely, online
advertising and other online marketing services sales are typically at their highest during the fourth
quarter of each calendar year. During 2007, Grupa Onet generated approximately 20% of its total
13
online revenue in the first quarter, 26% in the second quarter, 21% in the third quarter and 33% in the
fourth quarter.
Cyclicality of Polish advertising market. Advertising sales in Poland historically have responded to
changes in general business and economic conditions, generally growing at a faster rate in times of
economic expansion and at a slower rate in times of recession. While we believe that Poland will
experience further growth in gross domestic product and an increase in consumer spending levels,
there can be no assurance that such trends or developments will continue or that we will benefit from
an increase in advertising spending as a result. Apart from seasonality as discussed above, since
future levels of advertising spending are not predictable with any certainty more than one month in
advance, we cannot predict with certainty our future levels of advertising sales.
Availability and cost of attractive programming content. The continued success of our advertising sales
and the licensing of our channels to digital platform and cable television operators and our success in
generating other revenue depend on our ability to attract a large share of our target audience,
preferably during prime-time. Our ability to attract a large share of the target audience in turn depends
in large part on our ability to broadcast quality programming which appeals to our target audience.
According to AGB, together our channels captured an average of 20.9% and 21.8% of Poland’s
nationwide all-day audience, and our TVN channel achieved 19.1% and 20.4% of our key target group
prime time audience in the three and nine months ended September 30, 2008. We believe our
substantial market share of Poland’s television viewing audience results from an attractive
programming offer, which enables us to obtain a higher number of GRPs in a more efficient manner,
which in turn maximizes the use of advertising airtime. While we believe we have been successful in
producing and acquiring programming content that appeals to our target audience, we continue to
compete with other television broadcasters for programming content and to seek to air programming
that addresses evolving audience tastes and trends in television broadcasting. While we believe that
we are able to produce and source programming content at attractive cost levels, increased
competition may require higher levels of expenditure in order to maintain or grow our audience share.
Other factors affecting our results
Foreign exchange rate exposure. We generate revenue primarily in Złoty, while a substantial portion of
our operating expenses, borrowings and capital expenditures are denominated in foreign currencies,
mainly in Euro and to a lesser extent US Dollars. The estimated net profit (post-tax) impact on the
major Euro and US Dollar denominated balance sheet items of a Euro and US Dollar appreciation of
5% against the Złoty, with all other variables held constant and without taking into account derivative
financial instruments entered into for hedging purposes, is PLN 26,698. In September 2008 we
entered into collar transactions with a total notional value of Euro 225,000, a maturity date of
December 15, 2008, and a PLN/Euro corridor between 3.30 and 3.50. As a result of the above
mentioned transaction, a substantial portion of our net Euro exposure as at September 30, 2008 was
hedged up to December 15, 2008. On October 13, 2008 we entered into new collar transactions with a
nominal value of EUR 225,000, a PLN/EUR corridor between 3.30 and 3.60 and a maturity date of
January 15, 2009. In September 2008 we entered into collar transactions to secure our US Dollar
programming payments up till the end of 2009. The collar transactions have a PLN/USD corridor
between 2.10 and 2.45, a total notional value of USD 52,766 and maturities between December 22,
2008 and December 22, 2009.
Taxation. We are subject to corporate taxation in Poland. Deferred income taxes on our balance sheet
relate to timing differences between the recognition of income and expenses for accounting and tax
purposes as at the balance sheet date. Our deferred tax assets principally relate to Grupa Onet tax
relief on investment, and non-deductible provisions and accruals. The recognition of deferred tax
assets depends on our assessment of the likelihood of future taxable profits in respect of which
deductible temporary differences and tax-loss carry forwards can be applied.
Revaluation of embedded options. We may redeem all or part of our Senior Notes starting December
15, 2008 at a redemption price of 104.75% of nominal value, starting December 15, 2009 at 103.167%
of nominal value, starting December 15, 2010 at 101.583% of nominal value and starting December
15, 2011 and thereafter at 100.000% of nominal value. We value these early redemption options and
recognize them as an asset. The valuation is performed using the Brace-Gątarek-Musiela model, and
14
the resultant value is based primarily upon the quoted price for our Senior Notes.
On February 8, 2008 we repurchased Senior Notes with a nominal value of Euro 10,000 for an amount
of Euro 10,200 (PLN 36,587). We accounted for the repurchase as a derecognition of the
corresponding part of our Senior Notes liability. As a result, the difference between the consideration
paid and the carrying amount corresponding to the Senior Notes repurchased was recognized in the
income statement within finance expense. The nominal value of the remaining Senior Notes is Euro
225,000.
During the nine months ended September 30, 2008 the trading price of our Senior Notes decreased
from 104.5 as at December 31, 2007 to 103.6 as at September 30, 2008. We recognized a non-cash
finance gain of PLN 5,680. As at September 30, 2008, the asset carrying value is PLN 26,127.
Following the repurchase of Euro 10,000 of our Senior Notes the valuation of the embedded option as
at September 30, 2008 relates to the remaining part of the Senior Notes which has a nominal value of
Euro 225,000.
Investment in ‘n’ DTH platform. We acquired from our dominant shareholder, ITI Media Group N.V., for
a total cash consideration of EUR 95,000, 25% of the share capital plus 1 share of Neovision Holding
B.V., a company registered in Amsterdam, the Netherlands. Neovision Holding B.V. is the sole
shareholder of ITI Neovision Sp. z o.o. which owns and operates ‘n’ DTH platform in Poland. The
consideration of EUR 95,000 included a pro-rata share of shareholder loans granted to ITI Neovision
Sp. z o.o. Our investment is classified as investment in associate and accounted for using the equity
method.
PLN bond issue. On June 23, 2008 we issued PLN denominated bonds with a nominal value of PLN
500,000. We issued 5,000 bonds (not in thousands) of a nominal value of PLN 100,000 (not in
thousands), with a redemption date of June 14, 2013 and with a right for us to request early
redemption on either the third or fourth anniversary of the issue. The interest on the bond will be
calculated and paid in cash semi-annually, on the bond nominal value, at a variable interest rate equal
to 6-month WIBOR plus 2.75%.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We purchased a 25% plus 1 share stake in ‘n’ DTH platform on June 25, 2008, and we purchased
Mango Media on May 23, 2007. As a result of these transactions, our financial results for the three and
nine months ended September 30, 2008 are not fully comparable to the financial results for the
corresponding periods of 2007. The results for the nine months ended September 30, 2008 include
the results of Mango Media, whereas the comparable period of 2007 includes results of Mango Media
for the period between May 24, 2007 and September 30, 2007. The results for the three months
ended September 30, 2008 include our share of the net loss of ‘n’ DTH platform. The results for the
nine months ended September 30, 2008 include our share of the net loss of ‘n’ DTH platform for the
period between June 25, and September 30, 2008. The results for the corresponding periods of 2007
do not include our share of the result of ‘n’ DTH platform. To make the comparison between periods
more meaningful, we have specifically identified the impact of these acquisitions, where material, on
the period to period comparison.
Financial condition
Our property, plant and equipment increased 18.6% to PLN 296,688 at September 30, 2008 from
250,168 at December 31, 2007. This increase relates primarily to the purchase of television
broadcasting and other technical equipment of PLN 40,478, the purchase of vehicles of PLN 9,097,
the purchase of land of PLN 8,103 and the construction of television studios and data centre of PLN
21,352 partially offset by depreciation charge for the period of PLN 44,271.
Our other intangible assets decreased by 8.4% to PLN 46,691 at September 30, 2008 from PLN
50,969 at December 31, 2007 primarily as a result of new purchases of software being lower than the
amortization charge for the period.
15
Our investments in associates increased to PLN 193,936 at September 30, 2008 from PLN 83 at
December 31, 2007. Our loan to associate increased to PLN 130,924 at September 30, 2008 from
PLN 0 at December 31, 2007. The increases result from our investment in ‘n’ DTH platform.
Our current and non-current programming rights inventory increased by 15.9% to PLN 355,630 at
September 30, 2008 from PLN 306,956 at December 31, 2007. The increase is mainly due to a PLN
53,012 increase in our locally produced programming inventory. During the course of the second and
third quarter, we started the production of a number of new series and films planned for broadcast
either this autumn or next spring.
Our trade and barter receivables decreased by PLN 31,071 to PLN 267,919. This decrease resulted
primarily from lower revenue in the period between July and September 2008 compared with revenue
earned between October and December 2007 and partly due to the faster collection rates.
Our available for sale financial assets increased to PLN 87,529 at September 30, 2008. This amount
represents our investment in Polish government short-term treasury bills.
Our derivative financial assets increased by PLN 9,243 or 38.1% to PLN 33,510 at September 30,
2008 from 24,267 at December 31, 2007. This balance represents primarily the fair value of the
options embedded in our Senior Notes at September 30, 2008 and partly the fair value of our collar
transactions, hedging our PLN/EUR and PLN/USD foreign exchange exposure. The increase in the
value of the embedded options is primarily due to increased volatility of the price of our Senior Notes,
which is partly offset by decline in the price of our Senior Notes from Euro 104.5 at December 31,
2007 to Euro 103.6 at September 30, 2008.
Our prepayments and other assets increased by PLN 9,458 or 29.9% to PLN 41,058 at September 30,
2008 from PLN 31,600 at December 31, 2007. This increase is partly due to the expansion of our
teleshopping activities and the related purchases of merchandise held for resale and partly due to
higher balance of unamortized prepayments for the services, we made in advance for the entire 2008.
Cash and cash equivalents increased by 135.6% to PLN 260,055 at September 30, 2008 from PLN
110,372 at December 31, 2007 due to higher operating cash flows, cash flow from our PLN bonds
issue offset by the payment of dividends and the acquisition of a minority stake in ‘n’ DTH platform.
Our share premium increased by PLN 39,220 to PLN 605,547 at September 30, 2008 from PLN
566,327 at December 31, 2007 mainly due to the shares we issued to the participants of our share
option program.
Our long-term borrowings (including Senior Notes liability and the PLN Bonds liability), excluding
accrued interest, increased by PLN 429,632 or 54.4% to PLN 1,220,020 at September 30, 2008 from
PLN 790,388 at December 31, 2007, mainly because we issued PLN bonds with a total nominal value
of PLN 500,000 on June 23, 2008. This increase was partially offset by a decrease of PLN 68,963 in
our Senior Notes liability – partly as a result of a strengthening of the Złoty to Euro exchange rate in
the nine months ended September 30, 2008 and partly due to the repurchase of EUR 10,000 of Senior
Notes in the first quarter of 2008.
Our corporate income tax payable decreased by PLN 11,503 to PLN 31,720 at September 30, 2008
from PLN 43,223 at December 31, 2007, mainly because we paid the balance of our corporate income
tax for 2007 on March 31, 2008.
Our other liabilities and accruals increased by PLN 61,398 to PLN 252,804 as at September 30, 2008
from PLN 191,406 as at December 31, 2007. The increase is primarily due to settlement obligations
related to treasury notes purchased on September 30, 2008 and partly due to our strong revenue
growth.
16
Results of Operations
Three months ended September 30, 2008 compared to three months ended September 30, 2007
Revenue, net. Our net revenue increased by PLN 57,267 or 19.3% to PLN 353,820 in the three
months ended September 30, 2008 from PLN 296,553 in the corresponding period of 2007. This
increase resulted primarily from an increase in advertising revenue of 23.9%, partially offset by a PLN
3,540 or 30.9% decrease in call television revenue.
During the three months ended September 30, 2008, advertising revenue increased by PLN 51,579 or
23.9% to PLN 267,221 from PLN 215,642 in the corresponding period of 2007. This increase was
primarily due to an increase in the revenue of our TVN channel which recorded an increase of PLN
32,171 or 19.3% in net advertising revenue, primarily due to an increase in the proportion of rate card
sales to total sales to 68.0% from 19.7% in the corresponding period of 2007. Rate card prices tend to
be higher than GRP prices. In July and August, low season summer months, we sold a substantial
part of our advertising time in the form of GRP packages. We recorded an effective price increase of
32.6% in the price of GRP’s sold. This increase was partially offset by an 8.6% decrease in the volume
of inventory sold.
Other channels contributed PLN 7,435 more in advertising revenue then in the corresponding period
of 2007, primarily due to price increases. Our Internet portal, Onet.pl, increased its advertising revenue
by 36.5% or PLN 9,015.
During the three months ended September 30, 2008, non-advertising revenue increased by PLN
5,688 or 7.0% to PLN 86,599 from PLN 80,911 in the corresponding period of 2007. The increase was
primarily due to a 24.2% increase in subscription fees from satellite and cable operators and partly due
to a 62.3% increase in revenue from sale of goods through our teleshopping channel Mango Media.
These increases were partly offset by a 30.9% decrease in call television revenue.
Subscription fees from satellite and cable operators increased by PLN 5,901 or 24.2%, primarily due to
an increase in the number of subscribers for our pay channels, which on average increased by
approximately 1.0 million in the three months ended September 30, 2008 compared with the
corresponding period in 2007. This was partly offset by the lower PLN/EUR exchange rate.
Teleshopping revenue increased by PLN 3,840 or 62.3%, primarily due to increased sales volumes
resulting primarily from a wider product range and partly due to new distribution channels, including an
online shop. The decrease in our call television revenue of PLN 3,540 or 30.9% is partly due to our
decision to shut down TVN Gra, our call television channel and partly due to the replacement of call
television slots on our TVN channel with our week day morning show Dzień dobry TVN, which
however resulted in an increase in our aggregated revenue.
Cost of revenue. Cost of revenue increased by PLN 10,552 or 5.4% to PLN 204,738 in the three
months ended September 30, 2008 from PLN 194,186 in the corresponding period of 2007. The
increase results primarily from an increase of PLN 5,718 in news related expenses, a PLN 4,917
increase in programming personnel costs and partly because of a PLN 2,445 increase in Internet
production costs. These increases were partly offset by lower cost of amortization of programming
rights and lower cost of call TV activities.
Our news costs increased by PLN 5,718 or 29.8% to 24,893 from PLN 19,175 in the corresponding
period of 2007. The increase results primarily from costs of a newscopter and new regional units
supporting our daily evening news program Fakty and other news programs, new programs and an
increase in the number of live shows broadcast on our TVN 24 news channel as well as from costs of
live coverage of events such as the 2008 Olympic Games.
Our programming staff expenses increased by PLN 4,917 or 40.4% to PLN 17,087 from PLN 12,170 in
the corresponding period of 2007. The increase in programming staff expenses is partly because we
created an in-house film and series script development and production unit to produce films and series
where we own all rights. It is also due to an increase in programming related salaries of 16.5% on
average.
Our Internet production costs increased by PLN 2,445, or 20.9%, to PLN 14,156 from PLN 11,711 in
the corresponding period of 2007 due to the launch of our Plejada.pl vortal on March 27, 2008.
17
As a percentage of net revenue, our cost of revenue decreased in the three months ended September
30, 2008 to 57.9% compared to 65.5% in the corresponding period of 2007.
Selling expenses. Our selling expenses increased by PLN 6,093, or 18.2%, to PLN 39,580 for the
three months ended September 30, 2008 from PLN 33,487 in the corresponding period of 2007. This
increase was partly due to a PLN 3,882 increase in staff expenses, primarily due to an increase in the
number of employees in our sales department hired in order to sell new products such as Zumi.pl and
TVN CNBC Biznes and partly due to an increase of PLN 2,904 in marketing expenses related primarily
to the promotion of our autumn schedule. These increases were partly offset by a decrease in costs
related to the provision of set-top-boxes to our TVN Med subscribers.
As a percentage of net revenue, our selling expenses amounted to 11.2% in the three months ended
September 30, 2008 compared with 11.3% in 2007.
General and administration expenses. Our general and administration expenses increased by PLN
5,622 or 18.4% to PLN 36,117 for the three months ended September 30, 2008 compared with PLN
30,495 in the corresponding period of 2007. Excluding the impact of a favorable VAT adjustment
made in 2007, our general and administration expenses increased PLN 3,321 or 10.1%. This increase
results partly from a PLN 1,759 increase in personnel costs driven by an increase in headcount and
partly from a PLN 1,854 increase in rental costs, resulting primarily from renting new locations as well
as higher maintenance costs in our current premises.
As a percentage of net revenue, our general and administration expenses decreased to 10.2% in the
three months ended September 30, 2008 from 10.3% in 2007.
Operating profit. Operating profit increased by PLN 36,410, or 96.5%, to PLN 74,141 for the three
months ended September 30, 2008 from PLN 37,731 in the corresponding period of 2007. This
increase was primarily due to the fact that the increase in our revenue was significantly higher than the
increase in operating expenses.
Our operating margin in the three months ended September 30, 2008 increased to 21.0% from 12.7%
in the corresponding period of 2007.
Investment income, net. We recorded investment income, net of PLN 1,889 for the three months
ended September 30, 2008, compared to investment income, net of PLN 5,830 in the corresponding
period of 2007. This decrease is primarily due to foreign exchange losses of PLN 3,677 resulting from
strengthening of EUR and USD to PLN exchange rates, compared with foreign exchange gains of PLN
4,912 in the corresponding period of 2007 and partly due to losses of PLN 2,121 related to foreign
exchange option collars not designated as hedging instruments.
Finance income, net. We recorded finance expense net of PLN 52,829 for the three months ended
September 30, 2008 compared to finance expense net of PLN 147,428 in the corresponding period of
2007.
We recognized a loss on the revaluation of our embedded options of PLN 15,411 in the three months
ended September 30, 2008 compared to a loss of PLN 122,752 in the corresponding period of 2007.
Our interest expense amounted to PLN 31,969 in the three months ended September 30, 2008,
compared to PLN 22,487 in the corresponding period of 2007. The increase resulted primarily from
interest of PLN 11,960 on the PLN Bonds we issued on June 23, 2008. Additionally, we recognized
foreign exchange losses on our Senior Notes of PLN 12,346 in the three months ended September
30, 2008 compared to foreign exchange losses of PLN 2,653 in the corresponding period of 2007. We
also recorded a net gain of PLN 8,936 on valuation and early settlement of foreign exchange option
collars.
Share of loss of associate. Our share in the net loss of ‘n’ DTH platform for the three months ended
September 30, 2008 amounted to PLN 18,502.
Profit before tax. We recorded a profit before tax of PLN 4,709 for the three months ended September
30, 2008 compared to a loss of PLN 103,867 in the corresponding period of 2007. This increase
resulted primarily from a lower loss on our embedded option valuation.
18
Income tax benefit. For the three months ended September 30, 2008, we recorded a total income tax
benefit of PLN 299 compared to a benefit of PLN 25,542 in the corresponding period of 2007. This is
primarily due to a decrease in deferred tax benefit to PLN 14,857 from PLN 35,481 due to lower losses
on our embedded option valuation.
Net profit. We recorded a net profit of PLN 5,008 for the three months ended September 30, 2008
compared to a net loss of PLN 78,325 in the corresponding period of 2007. Excluding our share of the
net loss of ‘n’ DTH platform we recorded a net profit of PLN 23,510. Excluding the impact of
revaluation of embedded options, our net profit decreased by PLN 3,613 or 17.1% to PLN 17,491 in
the three months ended September 30, 2008 from PLN 21,104 in the corresponding period of 2007.
Three months ended September 30,
2008
Net profit/(loss) including revaluation of embedded options
Impact of embedded options, net of tax
Net profit excluding embedded options
Share of losses of ‘n’ DTH platform
Net profit excluding embedded options and
our share in the net loss of ‘n’ platform
19
2007
PLN
PLN
5,008
12,483
17,491
18,502
(78,325)
99,429
21,104
-
35,993
21,104
Business Segment Results
Our business comprises two distinct segments, television broadcasting and production, and new
media, and we currently report these two business segments. We rely on an internal management
reporting process that provides revenue and operating results for the period by segment for making
financial decisions and allocating resources.
Summarized information by segment:
Television
Broadcasting &
Production
Three
months
ended
September
30, 2008
Three
months
ended
September
30, 2007
309,322
263,127
New Media
Three
months
ended
September
30, 2008
Unallocated
Total
Three
months
ended
September
30, 2007
Three
months
ended
September
30, 2008
Three
months
ended
September
30, 2007
Three
months
ended
September
30, 2008
Three
months
ended
September
30, 2007
33,426
-
-
353,820
296,553
Revenue from external
customers
Inter-segment revenue
44,498
1,670
1,833
2,821
1,183
(4,491)
(3,016)
-
-
310,992
264,960
47,319
34,609
(4,491)
(3,016)
353,820
296,553
79,260
45,456
4,748
(221)
(9,867)
(7,504)
74,141
37,731
plan expenses
85,845
50,629
6,264
3,144
(8,482)
(5,814)
83,627
47,959
EBITDA*
94,650
59,918
9,976
4,020
(9,867)
(7,503)
94,759
56,434
101,235
65,091
11,492
7,384
(8,482)
(5,811)
104,245
66,664
30.4%
22.6%
21.1%
11.6%
-
-
26.8%
19.0%
32.6%
24.6%
24.3%
21.3%
-
-
29.5%
22.5%
Total revenue
Segment result
Segment result
excluding stock option
EBITDA* excluding
stock option plan
expenses
EBITDA* margin
EBITDA* margin
excluding stock option
plan expenses
* We define EBITDA as net profit/(loss), as determined in accordance with IFRS, before depreciation and amortization (other than for
programming rights), impairment charges and reversals on property, plant and equipment and intangible assets, finance expenses or
investment income, net (including interest income and expense and foreign exchange gains and losses), income taxes and share of net
results of associates . The reconciling item between EBITDA and reported operating profit is depreciation and amortization expense and
impairment charges and reversals on property, plant and equipment. We believe EBITDA serves as a useful supplementary financial
indicator in measuring the liquidity of media companies. EBITDA is not an IFRS measure and should not be considered as an alternative
to IFRS measures of net profit/(loss), as an indicator of operating performance, as a measure of cash flow from operations under IFRS,
or as an indicator of liquidity. You should note that EBITDA is not a uniform or standardized measure and the calculation of EBITDA,
accordingly, may vary significantly from company to company, and by itself our presentation and calculation of EBITDA may not be
comparable to that of other companies.
Unallocated expenses include head-office expenses that arise at the Group level and are not directly allocated to segment expenses and
elimination of intersegment expenses. Such expenses include cost of functions such as: financial reporting and budgeting, internal audit,
investor relations, legal, administration, IT and central management. Allocation is based on estimated time investment of each function
individually in non-segment activities.
20
Television broadcasting and production.
Three months ended September 30,
2008
2007
Revenue
EBITDA
EBITDA %
EBITDA %
excluding
stock option
plan
expense
Revenue
EBITDA
EBITDA %
EBITDA %
excluding
stock
option plan
expense
222,593
80,978
36.4%
39.3%
193,024
53,289
27.6%
30.6%
34,585
6,943
20.1%
23.2%
28,392
7,581
26.7%
29.5%
54,948
7,291
13.3%
13.8%
45,643
1,589
3.5%
3.9%
Total
Consolidation
adjustment (inter
and intra
segment)
312,126
95,212
30.5%
33.0%
267,059
62,459
23.4%
25.9%
(1,135)
(562)
(2,099)
(2,541)
Total segment
310,992
94,650
264,960
59,918
22.6%
24.6%
TVN channel
TVN 24
Other television
channels
30.4%
32.6%
Television broadcasting and production revenue in the three months ended September 30, 2008
increased by PLN 46,032 or 17.4% to PLN 310,992 compared to PLN 264,960 in the corresponding
period of 2007. This increase was primarily due to an increase in the revenue of our TVN channel
which recorded an increase of PLN 32,171 or 19.3% in net advertising revenue, primarily due to an
increase in the proportion of rate card sales to total sales to 68.0% from 19.7% in the corresponding
period of 2007. Rate card prices tend to be higher than GRP prices. We recorded an effective increase
of 32.6% in the price of GRP’s sold. This was partially offset by an 8.6% decrease in the volume of
inventory sold. The increase in TVN’s airtime revenue was also partly due to the excellent audience
share results in September. The peak time audience share in September in the key target group for
TVN increased to 26.4% from 26.2% in the corresponding period of 2007. TVN 24 increased its
revenue by PLN 6,193 or 21.8% partly due to increase in subscription fees from satellite and cable
operators, which increased by PLN 4,497 or 32.8% in the three months ended September 30, 2008,
primarily due to higher by 0.9 million average number of subscribers and partly due to an increase in
advertising revenue of PLN 1,824 or 16.2%. Our other channels revenue increased by PLN 9,305
primarily due to an increase of 36.2% in their advertising revenue and partly due to teleshopping
activities conducted by Mango Media, which contributed PLN 3,840 to the growth.
EBITDA increased by PLN 34,732 or 58.0% to PLN 94,650 in the three months ended September 30,
2008 from PLN 59,918 in the corresponding period of 2007. EBITDA margin increased to 30.4% from
22.6% in the corresponding period of 2007. EBITDA margin excluding stock option plan expenses
increased to 32.6% from 24.6% in the corresponding period of 2007. Our TVN channel EBITDA
excluding stock option plan expenses amounted to PLN 87,520 with an EBITDA margin, excluding
stock option plan expenses, of 39.3%. EBITDA of our TVN 24 channel amounted to PLN 6,943
compared with PLN 7,581 in the corresponding period of 2007. The decrease results primarily from
the costs of a newscopter and new regional news units, new programs and an increase in the number
of live shows and coverage related to the 2008 Olympic Games. EBITDA excluding stock option plan
expenses for TVN 24 amounted to PLN 8,011 with an EBITDA margin, excluding stock option plan
expenses, of 23.2%.
21
New media
Three months ended September 30,
2008
2007
Cash
EBITDA %
excluding
stock
option plan
EBITDA %
expense
Revenue
EBITDA
Onet.pl
42,103
12,643
30.0%
Other
Cash
EBITDA %
excluding
stock
option plan
expense
Revenue
EBITDA
EBITDA
%
33.4%
35,334
8,712
24.7%
30.9%
10.4%
25.4%
Total
Consolidation
adjustment (inter and
intra segment)
Total segment
6,165
48,268
(3,792)
8,851
18,3%
27,9%
101
35,435
(5,016)
3,696
(949)
47,319
1,125
9,976
21,1%
31,6%
(826)
34,609
323
4,020
Total segment - cash
40,372
12,757
31.6%
.
29,823
8,059
11,6%
27.0%
27.0%
New media revenue increased by PLN 12,710 or 36.7% to PLN 47,319 in the three months ended
September 30, 2008 from PLN 34,609 in the corresponding period of 2007. New media cash revenue
(revenue excluding barter revenue) increased by PLN 10,549 or 35.4% to PLN 40,372 mainly due to
an increase in cash advertising revenue in Onet.pl of 40.7% and partly due to an increase of PLN
4,488 in the cash revenue of Zumi.pl.
Segment EBITDA increased by PLN 5,956 or 148.2% to PLN 9,976 in the three months ended
September 30, 2008. EBITDA margin increased to 21.1% from 11.6% in the corresponding period of
2007. New media cash EBITDA (EBITDA excluding barters and stock option plan expenses) was PLN
12,757 compared to PLN 8,059 in the corresponding period of 2007. Segment cash EBITDA margin
was 31.6% as compared with 27.0% in the corresponding period of 2007.
Unallocated
The unallocated items consist primarily of head office expenses, the portion of stock option plan
expenses which are not allocated to television broadcasting and production and new media segments,
and elimination of intersegment revenue and costs. Unallocated loss was PLN 9,867 in the three
months ended September 30, 2008 compared to a loss of PLN 7,503 in the corresponding period of
2007. The increase is partly due to higher cost of consulting services for corporate purposes, higher
personnel costs in our support departments, primarily information technology, accounting and
controlling.
Nine months ended September 30, 2008 compared to the nine months ended September 30,
2007
Revenue, net. Our net revenue increased by PLN 271,903 or 26.3% to PLN 1,305,011 in the nine
months ended September 30, 2008 from PLN 1,033,108 in the corresponding period of 2007.
Excluding the results of Mango Media, our net revenue increased by 22.7% to PLN 1,267,682. This
increase resulted primarily from an increase in our advertising revenue of 27.9%, partially offset by a
PLN 29,828 or 40.8% decrease in call television revenue
During the nine months ended September 30, 2008, advertising revenue increased by PLN 220,259 or
27.9% to PLN 1,008,553 from PLN 788,294 in the corresponding period of 2007.This increase was
primarily due to an increase in the revenue of our TVN channel which recorded an increase of PLN
152,347 or 24.8% in net advertising revenue largely due to an increase in the proportion of rate card
sales to total sales to 78.6% from 17.5% in the corresponding period of 2007. Rate card prices tend to
be higher than GRP prices. We recorded an effective increase of 33.8% in the price of GRP’s sold.
22
This was partially offset by a 6.1% decrease in the volume of inventory sold. Other television channels
contributed PLN 34,017 more in advertising revenue than in the corresponding period of 2007,
primarily due to price increases. Onet.pl increased its advertising revenue 26.2% or PLN 21,496.
During the nine months ended September 30, 2008, non-advertising revenue increased by PLN
51,644 or 21.1% to PLN 296,458 from PLN 244,814 in the corresponding period of 2007. Excluding
the results of Mango Media, our non-advertising revenue increased 11.0% to PLN 262,768. The
increase was primarily due to a 38.6% increase in sponsoring revenue and a 27.7% increase in
subscription fees from satellite and cable. This increase was partly offset by a 40.8% decrease in call
television revenue. Sponsoring revenue increased by PLN 25,040 or 38.6% primarily due to an
increase in the number of sponsored shows and a significant price increase. Subscription fees from
satellite and cable operators increased by PLN 19,598 or 27.7%, primarily due to an increase in the
number of subscribers for our pay channels, which on average increased by approximately 1.2 million
in the nine months ended September 30, 2008 compared with the corresponding period in 2007. As
prices per subscriber are denominated in Euro and US Dollar, this increase was partly offset by the
effects of lower PLN/EUR and PLN/USD exchange rates during the period.
The decrease in call television revenue of PLN 19,828 or 40.8% is partly due to our decision to shut
down TVN Gra, our call television channel and partly due to the replacement of call television slots on
our TVN channel with our week day morning show Dzień Dobry TVN, which resulted in an increase in
our aggregated revenue.
Cost of revenue. Cost of revenue increased by PLN 109,646 or 19.4% to PLN 675,899 in the nine
months ended September 30, 2008 from PLN 566,253 in the corresponding period of 2007. Excluding
the results of Mango Media, our cost of revenue increased by 15.6% to PLN 654,408. The increase in
cost of revenue primarily reflects our decision to strengthen our TVN channel schedule to improve our
market position in terms of audience share as well as our share of the net advertising market.
Our amortization of local productions increased by PLN 51,004 or 29.7% to PLN 222,632 in the nine
months ended September 30, 2008 from PLN 171,628 in the corresponding period of 2007.This
increase primarily reflects our decision to broadcast first runs of successful shows such as Got Talent,
Who wants to be a millionaire, Clever and You can dance, and Teraz albo nigdy during the Spring and
Autumn seasons instead of second runs of locally produced shows. We also supported our schedule
with more second runs of local productions in comparison with the corresponding period in 2007. The
average cost per hour of our production has increased partly due to the fact that we now produce
relatively more big entertainment shows and drama series, which are relatively more expensive and
partly because we have started to produce in high definition.
Our news costs increased by PLN 17,535 or 32.5% to 71,512 from PLN 53,977 in the corresponding
period of 2007. The increase results primarily from a newscopter and new regional units supporting
our daily evening news program Fakty and other news programs, new programs and an increase in
the number of live shows broadcast on our TVN 24 news channel as well as from costs of live
coverage from events such as the Olympic Games or Euro 2008 football championship. This increase
was also partly due to the launch of our TVN CNBC Biznes channel in August 2007.
Our programming staff expenses increased by PLN 12,417 or 31.8% to PLN 51,519 from PLN 39,102
in the corresponding period of 2007. The increase in programming staff expenses is partly because we
created an in-house film and series script development and production unit to produce films and series
where we own all rights. It is also due to an increase in programming related salaries of 7.1% on
average.
Our Internet production costs increased by PLN 8,703 or 27.7% to PLN 40,089 from PLN 31,386 in the
corresponding period of 2007 due to the launch of our Plejada.pl vortal on March 27, 2008 and launch
of TVN 24.pl vortal in March 2007..
As a percentage of net revenue, our cost of revenue decreased in the nine months ended September
30, 2008 to 51.8% compared to 54.8% in the corresponding period of 2007.
Selling expenses. Our selling expenses increased by PLN 26,783 or 31.6% to PLN 111,673 for the
nine months ended September 30, 2007 from PLN 84,890 in the corresponding period of 2007.
Excluding the results of Mango Media, our selling expenses increased by 25.1% to PLN 106,203. This
23
increase was partly due to higher marketing cost of our TVN channel, resulting from increased effort to
promote our programming offer before spring and autumn high-seasons, and partly due to marketing
expenses related to the re-launch of our TVN 7 channel as well as increased marketing activities of
our TVN Turbo channel. This increase was also partly driven by an increase in staff expenses mainly
due to an increase in the number of employees, supporting the growth of our business, including
selling our new products such as TVN CNBC Biznes and Zumi.pl.
As a percentage of net revenue, our selling expenses increased to 8.6% in the nine months ended
September 30, 2008 compared to 8.2% in the corresponding period of 2007.
General and administration expenses. Our general and administration expenses increased by PLN
18,220 or 19.8% to PLN 110,151 in the nine months ended September 30, 2008 compared with PLN
91,931 in the corresponding period of 2007. Excluding the results of Mango Media, our general and
administration expenses increased by 16.1% to PLN 106,775. Excluding the impact of a favorable
VAT adjustment made in 2007, our general and administration expenses increased by PLN 15,919 or
16.9%. This increase results partly from a PLN 7,156 increase in personnel costs driven by an
increase in headcount Increase in general and administration expense also results partly from a PLN
2,793 increase in rental costs, resulting primarily from renting new office space as well as higher
maintenance costs in our current premises. This increase is also partly related to changes in
accounting estimates related to the calculation of retirement benefits in 2007 as well as the treatment
of certain software licenses as operating costs in 2008, when previously they had been treated as
assets capitalized in the balance sheet and amortized.
As a percentage of net revenue, our general and administration expenses decreased to 8.4% in the
nine months ended September 30, 2008 from 8.9% in the corresponding period of 2007.
Operating profit. Operating profit increased by PLN 121,173 or 42.0% to PLN 409,778 for the nine
months ended September 30, 2008 from PLN 288,605 in the corresponding period of 2007. Excluding
the results of Mango Media, our operating profit increased by 39.2% to PLN 401,645. This increase
was primarily due to the increase in revenue partially offset by higher operating expenses.
Our operating margin in the nine months ended September 30, 2008 increased to 31.4% from 27.9%
in the corresponding period of 2007.
Investment income, net. We recorded investment income, net, of PLN 14,873 for the nine months
ended September 30, 2008 compared to investment income, net, of PLN 11,579 in the corresponding
period of 2007 primarily because we recorded an increase in interest income of PLN 6,178.
Finance expense, net. We recorded finance expense, net of PLN 64,751 for the nine months ended
September 30, 2007 compared to finance expense, net of PLN 172,095 in the corresponding period of
2007.
We recognized a gain on the revaluation of embedded options of PLN 5,680 in the nine months ended
September 30, 2008 compared to a loss of PLN 94,707 in the corresponding period of 2007.
Our interest expense amounted to PLN 75,630 in the nine months ended September 30, 2008,
compared to PLN 68,448 in the corresponding period of 2007. The increase results primarily from
interest of PLN 12,870 on our PLN Bonds which we issued on June 23, 2008. Additionally, we
recognized foreign exchange gains on our Senior Notes of PLN 40,239 in the nine months ended
September 30, 2008 compared to foreign exchange gains of PLN 12,890 in the corresponding period
of 2007. We also recorded a net loss of PLN 28,315 on the valuation of foreign exchange option
collars.
Share of loss of associate. Our share in the net loss of ‘n’ DTH platform for the period between June
25, 2008 and September 30, 2008 amounted to PLN 19,057.
Profit before tax. We recorded a profit before tax of PLN 340,843 for the nine months ended
September 30, 2008 compared to PLN 128,089 in the corresponding period of 2007. Excluding the
results of Mango Media and our share of the losses of ‘n’ DTH platform, our profit before tax was PLN
352,004. This increase resulted primarily from the increase in operating profit and gains on our
embedded options.
24
Income tax charge. For the nine months ended September 30, 2008, we recorded a total income tax
charge of PLN 64,801 compared to PLN 20,625 in the corresponding period of 2007. Our effective tax
rate is 19.0% compared to 16.1% in the corresponding period of 2007. The increase in our effective
tax rate is due to proportionately lower tax deduction related to our operations in the Kraków special
economic zone.
Net profit. We recorded a net profit of PLN 276,042 for the nine months ended September 30, 2008
compared to PLN 107,464 in the corresponding period of 2007. Excluding the results of Mango Media
and our share of the net loss of ‘n’ DTH platform, we recorded a net profit of PLN 288,881. This
increase was mainly due to higher operating profit and gains on our embedded options. Excluding the
impact of revaluation of embedded options, our net profit increased by PLN 87,264 or 47.4% to PLN
271,441 in the nine months ended September 30, 2008 from PLN 184,177 in the corresponding period
of 2007.
Nine months ended September 30,
2008
Net profit including revaluation of embedded options
Impact of embedded options, net of tax
Net profit excluding embedded options
Share of losses of ‘n’ DTH Platform
Net profit excluding embedded options and
our share in the net loss of ‘n’ platform
25
2007
PLN
PLN
276,042
107,464
(4,601)
271,441
19,057
76,713
184,177
-
290,498
184,177
Business Segment Results
Our business comprises two distinct segments, television broadcasting and production and new
media, and we currently report these two business segments. We rely on an internal management
reporting process that provides revenue and operating results for the period by segment for making
financial decisions and allocating resources.
Summarized information by segment:
Television
Broadcasting &
Production
Nine
months
ended
September
30, 2008
Nine
months
ended
September
30, 2007
1,169,432
930,009
New Media
Nine
months
ended
September
30, 2008
Unallocated
Total
Nine
months
ended
September
30, 2007
Nine
months
ended
September
30, 2008
Nine
months
ended
September
30, 2007
Nine
months
ended
September
30, 2008
Nine
months
ended
September
30, 2007
103,099
-
-
1,305,011
1,033,108
Revenue from external
customers
Inter-segment revenue
135,579
1,521
4,111
6,754
5,308
(8,275)
(9,419)
-
-
1,170,953
934,120
142,333
108,407
(8,275)
(9,419)
1,305,011
1,033,108
413,823
304,663
22,084
7,357
(26,129)
(23,415)
409,778
288,605
plan expenses
433,714
320,182
28,383
20,454
(21,691)
(18,187)
440,406
322,449
EBITDA*
459,364
345,807
37,122
18,493
(28,013)
(23,415)
468,473
340,886
479,255
361,326
43,421
231,590
(23,575)
(18,185)
499,101
374,731
39.2%
37.0%
26.1%
17.1%
-
-
35.9%
33.0%
40.9%
38.7%
30.5%
29.1%
-
-
38.2%
36.3%
Total revenue
Segment result
Segment result
excluding stock option
EBITDA* excluding
stock option plan
expenses
EBITDA* margin
EBITDA* margin
excluding stock option
plan expenses
* We define EBITDA as net profit/(loss), as determined in accordance with IFRS, before depreciation and amortization (other
than for programming rights), impairment charges on property, plant and equipment and intangible assets, finance expenses or
investment income, net (including interest income and expense and foreign exchange gains and losses), income taxes and
share of net results of associates. The reconciling item between EBITDA and reported operating profit is depreciation and
amortization expense and impairment charges on property, plant and equipment and intangible assets. We believe EBITDA
serves as a useful supplementary financial indicator in measuring the liquidity of media companies. EBITDA is not an IFRS
measure and should not be considered as an alternative to IFRS measures of net profit/(loss), as an indicator of operating
performance, as a measure of cash flow from operations under IFRS, or as an indicator of liquidity. You should note that
EBITDA is not a uniform or standardized measure and the calculation of EBITDA, accordingly, may vary significantly from
company to company, and by itself our presentation and calculation of EBITDA may not be comparable to that of other
companies.
Unallocated expenses include head-office expenses that arise at the Group level and are not directly allocated to segment
expenses and elimination of intersegment expenses. Such expenses include cost of functions such as: financial reporting and
budgeting, internal audit, investor relations, legal, administration, IT and central management as well as reversal of impairment
of property, plant and equipment. Allocation is based on estimated time investment of each function individually in non-segment
activities.
26
Television broadcasting and production.
Nine months ended September 30,
2008
2007
Revenue
EBITDA
EBITDA %
EBITDA %
excluding
stock option
plan
expense
Revenue EBITDA
EBITDA %
EBITDA %
excluding
stock option
plan
expense
TVN channel
866,475
395,145
45.6%
47.9%
711,880 390,801
43.5%
45.9%
TVN 24
Other television
channels
124,687
43,039
34.5%
37.1%
92,954
27,313
29.4%
32.0%
184,780
25,471
13.8%
14.3%
135,660
10,639
7.8%
8.3%
Total
1,175,942
Consolidation
adjustment (inter
and intra
segment)
(4,990)
463,655
39.4%
41.5%
940,494 347,753
37.0%
39.1%
Total segment
459,364
37.0%
38.7%
1,170,952
(4,291)
(6,374)
39.2%
40.9%
(1,946)
934,120 345,807
Our television broadcasting and production revenue in the nine months ended September 30, 2008
increased by PLN 236,832 or 25.3% to PLN 1,170,952 compared to PLN 934,120 in the
corresponding period of 2007.
This resulted primarily from the increase in advertising revenue of our TVN channel of PLN 152,347 or
24.8%, mainly due to an increase in the proportion of rate card sales to total sales to 78.6% from
17.5% in the corresponding period of 2007. Rate card prices tend to be higher than GRP prices. We
recorded an effective increase of 33.8% in the price of GRP’s sold. This was partially offset by a 6.1%
decrease in the volume of inventory sold. TVN 24 increased its revenue by PLN 31,733 or 34.1%
mainly due to an increase in advertising revenue of PLN 14,724 and an increase in subscription fees
from satellite and cable operators, which increased by PLN 16,431, primarily due to an increase of 1.0
million in the average number of subscribers. Our other channels revenue increased by PLN 49,120
primarily due to teleshopping activities conducted by Mango Media which contributed PLN 30,570 to
the increase and partly due to a 34.5% increase in their advertising revenue.
EBITDA increased by PLN 113,557 or 32.8% to PLN 459,364 in the nine months ended September
30, 2008 from PLN 345,807 in the corresponding period of 2007. EBITDA margin increased to 39.2%
from 37.0% in the corresponding period of 2007. EBITDA margin excluding stock option plan
expenses increased to 40.9% from 38.7% in the corresponding period of 2007 Our TVN channel
EBITDA excluding stock option plan expenses amounted to PLN 415,100 with an EBITDA margin,
excluding stock option plan expenses, of 47.9%. Our TVN 24 channel EBITDA excluding stock option
plan expenses amounted to PLN 43,039 with an EBITDA margin, excluding stock option plan
expenses, of 37.1%.
27
New media
Nine months ended September 30,
2008
2007
Cash
EBITDA %
excluding
stock
option plan
EBITDA %
expense
Revenue EBITDA
Revenue
EBITDA
Onet.pl
128,337
40,428
31.5%
39.6%
109,205
26,789
24.5%
34.9%
Other
15.9%
30.0%
Total
Consolidation
adjustment (inter and
intra segment)
Total segment
16,738
145,075
(6,185)
34,243
23,6%
33.0%
975
110,180
(9,278)
17,511
(2,742)
142,333
2,879
37,122
26.1%
36.1%
(1,773)
108,407
982
18,493
Total segment - cash
125,233
45,206
36.1%
.
89,012
28,451
EBITDA %
Cash
EBITDA %
excluding
stock
option plan
expense
17.1%
32.0%
32.0%
New media revenue increased by PLN 33,926 or 31.3% to PLN 142,333 in the nine months ended
September 30, 2008 from PLN 108,407 in the corresponding period of 2007. New media cash revenue
(revenue excluding barter revenue) increased to PLN 125,233 from PLN 89,012 in the corresponding
period of 2007 partly due to an increase in Onet.pl cash advertising revenue of 38.2% and partly due
to an increase in the Zumi.pl cash advertising revenue of PLN 10,156.
Segment EBITDA more than doubled to PLN 37,122. New media cash EBITDA (EBITDA excluding
barters and stock option plan expenses) was PLN 45,206. Segment cash EBITDA margin was 36.1%
as compared with 32.0% in the corresponding period of 2007.
Unallocated
The unallocated items consist primarily of head office expenses, the portion of stock option plan
expenses which are not allocated to television broadcasting and production and new media segments,
and elimination of intersegment revenue and costs. Unallocated loss was PLN 26,129 in the nine
months ended September 30, 2008 compared to a loss of PLN 23,415 in the corresponding period of
2007. The increase is partly due to higher personnel costs in our support departments, primarily
information technology, accounting and controlling and partly due to a reversal of impairment of
property, plant and equipment of PLN 1,885.
28
Liquidity and capital resources
The table below summarizes our consolidated cash flows for the nine months ended September 30,
2008 and 2007.
Nine months ended September 30,
2007
2008
2008
PLN
PLN
€*
Cash generated from operations
355,248
543,812
159,555
Net cash generated from operating activities
281,022
455,108
133,529
Net cash used in investing activities
(150,514)
(549,879)
(161,335)
Net cash (used in)/generated by financing activities
(Decrease)/increase in cash and cash equivalents,
excluding effect of exchange rate changes
(143,127)
244,122
71,626
(12,619)
149,351
43,820
* For the convenience of the reader, Złoty amounts for the nine months ended September 30, 2008 have been converted into Euro at the rate of
PLN 3.4083 per €1.00 (the effective NBP exchange rate, Złoty per Euro, on September 30, 2008). You should not view such translations as a
representation that such Złoty amounts actually represent such Euro amounts, or could be or could have been converted into Euro at the rates
indicated or at any other rate.
Cash Generated from Operations
Cash generated from operations increased by PLN 188,564, or 53.1%, to PLN 543,812 in the nine
months ended September 30, 2008 from PLN 355,248 in the corresponding period of 2007. The
increase was primarily due to an increase in EBITDA of PLN 127,587, a decrease in working capital of
PLN 79,492 and a decrease in payments to acquire programming rights of PLN 17,083. These
increases were partially offset by an increase of PLN 27,497 in unaired locally produced programming
inventory.
Net Cash Generated from Operating Activities
Net cash generated from operating activities includes all cash generated from operations and also
reflects cash paid for taxes. Net cash generated from operating activities increased by PLN 174,086 or
61.9% to PLN 455,108 for the nine months ended September 30, 2008 compared to PLN 281,022 in
the corresponding period of 2007. The increase is attributable to the increase in cash generated from
operations, partially offset by higher tax paid of PLN 14,478.
Net Cash Used in Investing Activities
Net cash used in investing activities increased by PLN 399,365 to PLN 549,879 in the nine months
ended September 30, 2008 in comparison to PLN 150,514 in the corresponding period of 2007. The
increase in net cash used in investing activities mainly related to the acquisition of a minority stake in
‘n’ DTH platform for a total consideration of EUR 95,000 but was also partly due to our investment in
Polish government short-term treasury bills of PLN 87,529.
Net Cash Generated by Financing Activities
Net cash generated by financing activities amounted to PLN 244,122 in the nine months ended
September 30, 2008, compared to net cash used in financing activities of PLN 143,127 in the
corresponding period of 2007. Net cash generated by financing activities represents primarily
proceeds from the issuance of PLN bonds of PLN 498,670, partly offset by a dividend paid of PLN
171,196 and the repurchase of Senior Notes of PLN 36,587.
Total cash and cash equivalents that we held as at September 30, 2008 amounted to PLN 260,055
and as at September 30, 2007 amounted to PLN 92,365. We hold cash and cash equivalents on bank
deposits in Poland in Złoty, Euro and US Dollar and in the form of short-term Polish and Bundesbank
Federal treasury bills denominated in PLN and Euro respectively.
29
Future liquidity and capital resources
We expect that our principal future cash needs will be to finance our Share Buyback Program,
investment through loans or equity in the ‘n’ DTH platform and capital expenditures relating to
television and broadcasting facilities, Internet infrastructure and equipment, the launch or acquisition of
new channels and Internet businesses and to fund debt service on our Senior Notes and the PLN
bonds. We believe that our existing cash balances, loan facility and cash generated from our
operations will be sufficient to fund these needs.
Senior Notes (nominal value*)
PLN Bonds (nominal value)
Accrued interest on long term debt
Mango Media bank loan
Total debt
Value
Coupon/
effective interest
766,868
500,000
34,119
27
9.5%
WIBOR 6m + 2.75%
-
Maturity
2013
2013
1,301,014
Cash at bank and in the hand
EUR denominated Bundesbank Federal treasury bill
PLN denominated Polish treasury bill
212,175
34,028
13,852
Cash and cash equivalents
260,055
-
PLN denominated Polish treasury bills
24,167
29,388
9,807
24,167
(34,028)
18,673
6.30%
6.25%
6.25%
6.30%
6.30%
Consideration for treasury bills acquired but not settled
Bank deposits with maturity over 3 months
0.81%
6.02%
Total
332,230
-
Net debt
968,784
-
December 10, 2008
October 22, 2008
April 15, 2009
January 28, 2009
January 21, 2009
April 15, 2009
*This value represents outstanding nominal value of our Senior Notes, which amounts to EUR 225,000 multiplied by the rate of PLN 3.4083 per
€1.00 (the effective NBP exchange rate, Złoty per Euro, on September 30, 2008).
We have a loan facility of PLN 200,000 with Bank Pekao S.A., the purpose of which is to finance our
general corporate and working capital needs including capital investments and other capital
expenditures. The facility expires on June 30, 2011. The loan bears interest at six month WIBOR,
LIBOR or EURIBOR (depending on loan’s currency) plus margin (1% at the moment of the loan’s
initiation). The loan has been secured on TVN S.A. trade receivables up to the equivalent of EUR
25,000. The loan is also guaranteed by Grupa Onet.pl S.A. and Mango Media Sp. z o.o. – TVN’s
subsidiaries. As at September 30, 2008, Euro 2,422 was outstanding under our credit facility mainly in
the form of guarantees issued by the bank on our behalf.
The ratio of consolidated net debt (defined as total borrowings (nominal amount of principal and
accrued interest thereon) net of cash and cash equivalents (excluding restricted cash) and bank
deposits with maturity over 3 months, to consolidated shareholders’ equity was 0.6x as at September
30, 2008 and 0.5x as at December 31, 2007.
Our current liabilities amounted to PLN 437,456 at September 30, 2008 compared with PLN 349,068
at December 31, 2007. The increase is mainly due to an increase in current trade payables and other
liabilities and accruals.
30
Commitments
The following table summarizes in Złoty the contractual obligations, commercial commitments and
principal payments we were bound to make as of September 30, 2008 under our operating leases and
other agreements. The information presented below reflects the contractual maturities of our
obligations. These maturities may differ significantly from their actual maturity.
Year ending December 31
2008*
2009
2010
2011
2012
thereafter
Total
PLN
PLN
PLN
PLN
PLN
PLN
PLN
25,903
25,903
25,903
12,160
Operating leases
Satellite transponder leases
2,647
Other technical leases
6,600
6,600
6,600
6,600
6,600
Operating leases – other
9,738
36,203
31,373
28,460
26,602
71,649
204,025
53,023
72,008
58,517
127,223
24,202
88,078
12,470
73,433
4,802
50,164
1,612
73,261
154,626
484,167
127,223
88,078
73,433
50,164
73,261
488,083
127,223
88,078
73,433
50,164
73,261
492,155
Programming rights
Total operating leases
Commitments to purchase
equipment and software (2)
Total cash commitments
Barter commitments (1)
Total cash commitments and
other obligations
92,516
33,000
3,916
75,924
4,072
79,996
* Three months to December 31, 2008
(1)
(2)
As of September 30, 2008, pursuant to barter agreements, we had contractual commitments outstanding amounting to
PLN 3,916 settlement of which will be in form of advertising and is intended to be rendered on arm's-length terms and
conditions and at market prices
Additionally we have an undertaking to invest PLN 215,782 in the special economic zone in Kraków by December 31,
2017. As at September 30, 2008 the remaining commitment amounted to PLN 171,473.
Trend information
The principal trends of which we are aware that we believe will affect our revenue and profitability is
growth in the television and Internet advertising markets in Poland and growth in the pay television
market. To a lesser extent, we also believe that the continued development of paid cable and ADSL
(Asymmetric Digital Subscriber Line) will have a positive impact on our revenue and profitability.
We are exposed to fluctuations in the exchange rates of Złoty to both the Euro and the US Dollar. Our
Senior Notes due 2013 are denominated in Euro, and a large proportion of our programming costs are
denominated in US Dollar. In recent months the Złoty has both rapidly appreciated and depreciated
against the Euro and the US Dollar. We expect an increase in the volatility of Złoty exchange rates and
similarly, an increase in the volatility of prices of financial instruments.
The annual inflation rate in Poland in September 2008, was 4.5% compared with 4.8% in August.. We
do not believe that the current inflationary trends will have a material impact on our business.
We cannot predict the likelihood that these trends will continue. In particular we cannot predict what
effect, if any, the current global financial crisis and any related economic slowdown may have on the
Polish economy, and financial markets, or on us.
31
Critical accounting policies
These critical accounting policies are not intended to be a comprehensive list of all of our accounting
policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by
IFRS, with no need for management’s judgment in their application. There are also areas in which the
exercise of management’s judgment in selecting an available alternative would not produce a
materially different result.
We prepare our consolidated financial statements in accordance with IFRS as adopted for use in the
European Union.
You should refer to note 4 to our financial statements for the nine months ended September 30, 2008
for a discussion of critical accounting estimates and judgments. These critical accounting policies are
not intended to be a comprehensive list of all of our accounting policies. In many cases, the
accounting treatment of a particular transaction is specifically dictated by IFRS, with no need for
management’s judgment in their application. There are also areas in which the exercise of
management’s judgment in selecting an available alternative would not produce a materially different
result. The critical accounting polices are extracted from our consolidated financial statements for the
nine months ended September 30, 2008.
Estimates and judgments are continually evaluated and are based on historical experience and other
factors, including expectations of future events that are believed to be reasonable under the
circumstances.
Critical accounting estimates and judgements
We make estimates and assumptions concerning the future. The resulting accounting estimates will,
by definition, seldom equal the related actual results. The estimates and assumptions that have a
significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within
the next financial year are discussed below.
(i) Fair valuation of the embedded prepayment options
We calculate at each reporting date the fair value of the prepayment options embedded in the Senior
Notes using the Brace-Gątarek-Musiela model. Significant inputs into the valuation model are the
Senior Notes market price, benchmark bond yields and interest rate cap volatilities. The inputs are
based on information provided by Reuters on the valuation date. The Senior Notes market price is
quoted by Reuters based on the last value date. In the fair valuation as of September 30, 2008 we
input into the valuation model the market price of 103.57, based on the last available value date on
September 30, 2008. The last available Senior Notes market price provided by Reuters at the date
when these financial statements were prepared was 91.75 (based on value date on October 29,
2008). Should this price be input into the valuation model the fair value of the embedded prepayment
options would decrease by PLN 20,332.
(ii) Fair valuation of “n” brand as of June 30, 2008
We valued provisionally the “n” brand at the date of acquisition of Neovision Holding BV at PLN
85,120. We will recognize any adjustments to the provisional values assigned to the associate’s
identifiable assets, liabilities and the cost of the acquisition as a result of completing the initial
accounting within twelve months of the acquisition date. In the absence of applicable market
benchmarks, we fair valued the “n” brand using the ‘relief from royalty’ income method. The ‘relief from
royalty’ method assumes that the value of the brand is reflected in the present value of hypothetical
future royalty payments, which the owner of the brand would have to incur, should the brand be
licensed from another entity.
This valuation requires the use of estimates related to sales projections for the activity run under the
brand, estimation of the representative royalty rate applied on projected revenues, estimation of the
discount rate and estimation of the useful life of the brand. The royalty rate used in the valuation was
assumed at 2%.
The revenue projections were based on management’s business plan which covers the period 20082017. We assume the useful life of the “n” brand of 10 years. The discount rate used in the valuation
was 12.8%. Fair value is sensitive to changes in the revenue growth and other parameters of the
32
valuation model. Decrease of the revenue growth by 1 p.p. gives a fair value of PLN 82,000. The
royalty rate at 3% would give a fair value of PLN 128,000. The discount rate of 12% would give a fair
value of PLN 88,000.
Financial risk factors
Our activities expose us to a variety of financial risks: market risk, credit risk and liquidity risk. Our
overall risk management process focuses on the unpredictability of financial markets and aims to
minimize potential adverse effects on our financial performance. We use derivative financial
instruments to hedge certain risk exposures when hedging instruments are assessed to be cost
effective.
Financial risk management is carried out by us under policies approved by the Management Board
and Supervisory Board. The TVN Treasury Policy lays down the rules to manage financial risk and
liquidity, through determination of the financial risk factors to which we are exposed to and their
sources. Details of the duties, activities and methodologies used to identify, measure, monitor and
report risks as well as forecast cash flows, finance maturity gaps and invest free cash resources are
contained in approved supplementary written instructions.
The following organizational units within our financial department participate in the risk management
process: risk committee, liquidity management team, risk management team, financial planning and
analyzing team and accounting and reporting team. The risk committee is composed of the vicepresident of the Management Board and heads of the teams within our financial department. The risk
committee meets monthly and based on an analysis of financial risks recommends financial risk
management strategy, which is approved by the Management Board. The Supervisory Board
approves risk exposure limits and is consulted prior to the execution of hedging transactions. Financial
planning and analyzing team measure and identify financial risk exposure based on information
reported by operating units generating exposure. The liquidity management team performs analysis of
our risk factors, forecasts our cash flows and market and macroeconomic conditions and proposes on
cost-effective hedging strategies. The accounting and reporting team monitors accounting implications
of hedging strategies and verifies settlements of the transactions.
Market risk related to the Senior Notes
The price of the Senior Notes depends on the Company’s creditworthiness and on the relative strength
of the bond market as a whole. We recognize as an asset the value of early redemption options
embedded in the Senior Notes and this valuation largely depends on the market price of the Senior
Notes. The Group is therefore exposed to decreases in the market price of the Senior Notes.
The Senior Notes are listed on the Luxembourg Stock Exchange and the fair value of embedded
options recognized by us at the balance sheet date reflects the Senior Notes market price on the last
value date available from Reuters prior to the balance sheet date.
Foreign currency risk
Our revenue is primarily denominated in Polish Zloty. Foreign exchange risk arises mainly from our
liabilities in respect of the Senior Notes and related embedded prepayment options both denominated
in EUR and liabilities to suppliers of foreign programming rights, satellite costs and rental costs
denominated in USD or EUR. Other costs are predominantly denominated in PLN.
Our policy in respect of management of foreign currency risks is to cover known risks in a cost efficient
manner and that no trading in financial instruments is undertaken. Following evaluation of its
exposures we enter into derivative financial instruments to manage these exposures. Call options,
swaps and forward exchange agreements may be entered into to manage currency exposures.
Regular and frequent reporting to management is required for all transactions and exposures.
Interest rate risk
Our exposure to interest rate risk arises on interest bearing assets and liabilities. The main interest
bearing items are the Senior Notes and PLN Bonds and loans to associate. As the Senior Notes are at
a fixed interest rate, we are exposed to fair value interest rate risk in this respect. Since the Senior
Notes are carried at amortized cost, the changes in fair values of these instruments do not have direct
impact on valuation of the Senior Notes in the balance sheet.
33
PLN Bonds with a nominal value of 500,000 were issued by us on June 23, 2008 and are at a variable
interest rate linked to WIBOR and therefore expose us to interest rate risk.
Loans to associate are at a variable interest rate linked to EURIBOR and therefore expose us to cash
flow interest rate risk.
On September 30, 2008 the Group acquired 87,529 of PLN treasury notes which are exposed to fair value
interest rate risk.
Management does not consider it cost effective to use financial instruments to hedge or otherwise
seek to reduce interest rate risk.
Credit risk
Financial assets, which potentially expose us to concentration of credit risk consist principally of trade
receivables, loans to associate and related party receivables. We place our cash and cash
equivalents, bank deposits and current available for sale financial assets with financial institutions that
we believe are credit worthy which is assessed by current credit ratings We do not consider our
concentration of credit risk as significant.
We perform ongoing credit evaluations of our customers’ financial condition and generally require no
collateral from our customers. Clients with poor or no history of payments with us, with low value
committed spending or assessed by us as not credit worthy are required to prepay before the service
is rendered. Credit is granted to customers with a good history of payments and significant spending
who are assessed credit worthy based on internal or external ratings. We perform ongoing evaluations
of the market segments focusing on their liquidity and creditworthiness our credit policy is
appropriately adjusted to reflect current and expected economic conditions.
We define credit exposure as total outstanding receivables (including overdue balances) and monitor
the exposure regularly on an individual basis by paying counterparty. The majority of our sales are
made through advertising agencies (73% of the total trade receivables as of September 30, 2008) that
manage advertising campaigns for advertisers and pay us once payment has been received from the
customer. Our top ten advertisers account for 20% and the single largest advertiser accounted for 4%
of sales for the nine months ended September 30, 2008. Generally advertising agencies in Poland are
limited liability companies with little recoverable net assets in case of insolvency. The major players
amongst the advertising agencies in Poland with whom we co-operate are subsidiaries and branches
of large international companies. To the extent that it is cost-efficient, we mitigate credit exposure by
use of a trade receivable insurance facility from a leading insurance company.
Liquidity risk
We maintain sufficient cash to meet our obligations as they become due and have available additional
funding through a credit facility. Management monitors regularly expected cash flows. We expect that
our principal future cash needs will be capital expenditures relating to acquisitions, dividends, share
buyback, capital investment in television and broadcasting facilities and equipment, debt service on
the Senior Notes and PLN Bonds and the launch of new thematic channels. We believe that our cash
balances, cash generated from operations and existing credit facility will be sufficient to fund these
needs. However, if following the current liquidity crisis in the banking sector external financing is
unavailable at reasonable conditions for a longer period of time or our operating cash flows are
negatively affected by an economic slow-down or clients’ financial difficulties we will review our cash
needs to ensure that its existing obligations can be met for the foreseeable future.
34
New Accounting Standards and IFRIC pronouncements
Certain new accounting standards and IFRIC interpretations have been published by IASB since the
publication of the annual consolidated financial statements that are mandatory for accounting periods
beginning on or after October 1, 2008. Our assessment of the impact of these new standards and
interpretations is set out below.
Amendments to IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of Financial
Statements - Puttable Financial Instruments and Obligations Arising on Liquidation
The amendments were published on February 14, 2008 and are effective for annual periods beginning
on January 1, 2009 with earlier application permitted. The amendments require entities to classify as
equity puttable financial instruments and instruments or components of instruments, that impose on
the entity an obligation to deliver to another party a pro rata share of the net assets of the entity only
on liquidation. Additional disclosures are required about the instruments affected by the amendments.
The Group will apply the amendments.
Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards and IAS 27
Consolidated and Separate Financial Statements - Cost of an Investment in a Subsidiary, Jointly
Controlled Entity or Associate.
The amendments were published on May 22, 2008. The amendments to IFRS 1 allow first-time
adopters, in their separate financial statements, to use a deemed cost option for determining the cost
of an investment in a subsidiary, jointly controlled entity or associate. Additionally, when an entity
reorganizes the structure of its group by establishing a new entity as its parent (subject to specific
criteria), the amendments require the new parent to measure cost as the carrying amount of its share
of the equity items shown in the separate financial statements of the original parent at the date of the
reorganization. The new requirements will apply for annual periods beginning on 1 January 2009, with
earlier application permitted. We will apply the amendments.
IFRIC 15 – Agreements for the Construction of Real Estate
The interpretation was issued on July 3, 2008. It applies to the accounting for revenue and associated
expenses by entities that undertake the construction of real estate directly or through subcontractors.
The Interpretation provides guidance on how to determine whether an agreement for the construction
of real estate is within the scope of IAS 11 Construction Contracts or IAS 18 Revenue and when
revenue from the construction should be recognized. The interpretation is effective for annual periods
beginning on 1 January 2009 and is to be applied retrospectively. We will not be affected by the
interpretation.
IFRIC 16 - Hedges of a Net Investment in a Foreign Operation
The interpretation was issued on July 3, 2008. IFRIC 16 applies to an entity that hedges the foreign
currency risk arising from its net investments in foreign operations and wishes to qualify for hedge
accounting in accordance with IAS 39. IFRIC 16 provides guidance on (1) identifying the foreign
currency risks that qualify as a hedged risk in the hedge of a net investment in a foreign operation; (2)
where, within a group, hedging instruments that are hedges of a net investment in a foreign operation
can be held to qualify for hedge accounting; and (3) how an entity should determine the amounts to be
reclassified from equity to profit or loss for both the hedging instrument and the hedged item. IFRIC 16
is effective for annual periods commencing on or after 1 October 2008. The interpretation will not
affect our financial statements.
IFRS Improvements
The International Accounting Standards Board has issued “IFRS Improvements”, which amend 20
standards. The amendments include changes in presentation, recognition and valuation and include
terminology and editorial changes. Majority of amendments will be effective from annual periods
starting on 1 January 2009. We will adopt the changes in accordance with transition provisions. We
are currently analyzing the impact of the amended standards on our financial statements.
35
Amendments to IAS 39: Financial Instruments: Recognition and Measurement: Eligible Hedged Items
The amendment was published on July 31, 2008. It provides additional guidance on what can be
designated as a hedged item. Entities are required to apply the amendment retrospectively for annual
periods beginning on or after July 1, 2009 with earlier application permitted.
Amendments to IAS 39 Financial Instruments: Recognition and Measurement and IFRS 7 Financial
Instruments: Disclosures
The amendments were published on October 13, 2008. The amendments to IAS 39 introduce the
possibility of certain reclassifications of financial instruments for companies applying International
Financial Reporting Standards, which were already permitted under US generally accepted accounting
principles (GAAP). The amendments are applicable as of July 1, 2009.
Additionally, the following standards and IFRIC Interpretations are applicable in future and were
discussed in our annual financial statements for the year ended December 31, 2007:
•
IFRS 8 – Operating Segments – applicable on or after January 1, 2009
•
Amendments to IAS 23 – Borrowing Costs – applicable on January 1, 2009
•
Amendments to IAS 1 – Presentation of financial statements – applicable on January 1, 2009
•
Revision to IFRS 3 Business Combinations and amendment to IAS 27 Consolidated and Separate
Financial Statements - applicable on July 1, 2009
•
Amendment to IFRS 2, Share-based Payments- applicable on January 1, 2009
•
IFRIC 12 – Service Concession Arrangements
•
IFRIC 13 – Customer Loyalty Programmes
•
IFRIC 14 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their
Interaction
At the date of preparation of these financial statements the following standards and IFRIC
interpretations were not adopted by the EU:
•
Amendments to IAS 23 – Borrowing Costs
•
Amendments to IAS 1 – Presentation of financial statements
•
Revision to IFRS 3 Business Combinations and amendment to IAS 27 Consolidated and Separate
Financial Statements
•
Amendment to IFRS 2, Share-based Payments
•
IFRIC 12 – Service Concession Arrangements
•
IFRIC 13 – Customer Loyalty Programmes
•
IFRIC 14 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their
Interaction
•
Amendments to IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of Financial
Statements - Puttable Financial Instruments and Obligations Arising on Liquidation
•
Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards and IAS
27 Consolidated and Separate Financial Statements - Cost of an Investment in a Subsidiary,
Jointly Controlled Entity or Associate
•
IFRIC 15 – Agreements for the Construction of Real Estate
•
IFRIC 16 - Hedges of a Net Investment in a Foreign Operation
•
IFRS Improvements
•
Amendment to IAS 39 Financial Instruments: Recognition and Measurement: Eligible Hedged
Items
•
Amendments to IAS 39 Financial Instruments: Recognition and Measurement and IFRS 7
Financial Instruments: Disclosures
36
Dividend policy
Subject to our operating results, capital investment requirements, the terms of the Indenture and
statutory distributable reserves, we intend to recommend that between 30% and 50% of our annual
net profits, adjusted for the impact of revaluation of the embedded option in our Senior Notes, be used
to pay dividends.
We paid a dividend of PLN 171,180 (or PLN 0.49 per share) on June 12, 2008.
On August 12, 2008 we announced a share buyback plan. We plan to buy a maximum of 35,000
shares or 10% of share capital, and spend a maximum amount of PLN 500,000. The buyback will start
in the fourth quarter and will end no later than December 31, 2009.
37
PART II
ADDITIONAL INFORMATION
We present below information we are required to disclose as a public company in Poland in order to
ensure consistent disclosure to both bondholders and shareholders.
1. Discussion of the differences between our results and published forecasts
We did not publish a forecast in respect of the third quarter of 2008. On November 7, 2008 we have
revised our 2008 forecast published on February 18, 2008.
Revenue growth
EBITDA margin
Capital expenditure
Old forecast
New forecast
18%-20%
35%-37%
PLN 250,000 – PLN 282,000
20%-22%
37%
PLN 180,000
520.000
PLN 56
PLN 30,000
500.000
50.000
PLN 55
PLN 45,000
Guidance in respect to ‘n’ DTH platform
Subscribers at 2008 year end
Pre-paid subscribers at 2008 year end
Average ARPU for 2008
Our share of ‘n’ DTH platform losses
2. Description of the organization of the TVN Group
The following table lists the companies that constitute the TVN Group:
38
Company
Consolidation method
Discovery TVN Ltd
566 Chiswick High Road
London W4 5YB
United Kingdom
Proportional consolidation method
Dream Lab Onet.pl Sp. z o.o.
ul. G. Zapolskiej 44
30-126 Kraków
Poland
Full consolidation method
El-Trade Sp. z o.o.
ul. Wiertnicza 166
02-952 Warszawa
Poland
Full consolidation method
Grupa Onet Poland Holding B.V.
De Boleleaan 7
NL-1083 Amsterdam
The Netherlands
Full consolidation method
Grupa Onet.pl S.A.
ul. G. Zapolskiej 44
30-126 Kraków
Poland
Full consolidation method
Mango Media Sp. z o.o.
ul. Kościuszki 61
81-703 Sopot
Poland
Full consolidation method
Media Entertainment Ventures International Limited
Palazzo Pietro Stiges 90, Strait Street
Valetta VLT 05
Malta
Full consolidation method
Neovision Holding B.V.
De Boleleaan 7
NL-1083 Amsterdam
The Netherlands
Equity method
NTL Radomsko Sp. z o.o.
Ul. 11-go Listopada 2
97-500 Radomsko
Poland
Full consolidation method
Polskie Badania Internetu Sp. z o.o.
Al. Jerozolimskie 44
00-950 Warszawa
Poland
Equity method
Polski Operator Telewizyjny Sp. z o.o.
ul. Huculska 6
00-730 Warszawa
Poland
Proportional consolidation method
SunWeb Sp. z o.o. (set up on October 15, 2008)
ul. G. Zapolskiej 44
30-126 Kraków
Full consolidation method
Tivien Sp. z o.o.
ul. Augustówka 3
02-981 Warszawa
Poland
Full consolidation method
Thema Film Sp. z o.o.
ul. Powsińska 4
02-920 Warszawa
Poland
Full consolidation method
TVN Finance Corporation plc
One London Wall
London EC2Y 5EB
United Kingdom
Full consolidation method
39
3. Results of changes in the structure of the TVN Group
During the three months ended September 30, 2008, there were no changes in the structure of the
TVN Group.
4. Shareholders owning more than 5% of our shares as at the day of publication of the interim
report
The following table lists shareholders that own more than 5% of our shares as of the date of
publication of this report and according to our best knowledge. The information included in the table is
based on current reports filed with the Warsaw Stock Exchange which reflect information received
from the shareholders pursuant to Art. 69, sec. 1, point 2 of the Act on Public Offering, conditions
governing the introduction of financial instruments to organized trading and public companies.
Shareholder
Strateurop International B.V. (1)
N-Vision B.V. (1)
Cadizin (1)
Other shareholders
Total
Number of
Shares
% of
Share
Capital
Nominal
Value
Number of
Votes
% of Vote
180,355,430
24,907,504
10,001,400
134,232,319
349,496,653
51.60%
7.13%
2.86%
38.41%
100.00%
36,071
4,982
2,000
26,846
69,899
180,355,430
24,907,504
10,001,400
134,232,319
349,496,653
51.60%
7.13%
2.86%
38.41%
100.00%
(1) Entities controlled by ITI Group
During the nine months ended September 30, 2008, we issued 2,223,678 series C and E shares
upon the exercise of share options granted to the participants in TVN incentive schemes. Included in
the total number of shares in issue at September 30, 2008 held by other shareholders is 60,183
shares of C1, C2, E1, E2 and E3 series not registered by the Court and 38,085 shares pending
registration.
5. Changes in the number of shares owned by Supervisory and Management Board members
5.1. Management Board members
The following table presents share options (not in thousands) allocated to members of our
Management Board, under the Stock Option Plans we introduced in December 2005 and July 2006,
as of November 7, 2008 and changes in their holdings since the date of publication of our previous
quarterly report on August 12, 2008.
Board Member
Vested share options
balance as
of August 12, 2008
Increases
Decreases
Vested share
options balance as
of November 7, 2008
146,780
-
-
146,780
-
-
-
-
Edward Miszczak
34,325
-
-
34,325
Łukasz Wejchert
430,805
-
-
430,805
Tomasz Berezowski
156,015
-
-
156,015
Olgierd Dobrzyński
10,000
-
-
10,000
-
-
-
-
Adam Pieczyński
10,450
-
-
10,450
Jarosław Potasz
64,965
-
-
64,965
Piotr Tyborowicz
94,965
-
-
94,965
Piotr Walter
Karen Burgess
Waldemar Ostrowski
40
The following table presents shares (not in thousands) owned directly or indirectly by our Management
Board as of November 7, 2008 and changes in their holdings since the date of publication of our
previous quarterly report on August 12, 2008. The information included in the table is based on
information received from members of our Management Board pursuant to Art. 160 sec. 1 of the Act
on Public Trading.
Balances as
of August 12, 2008
Increases
Decreases
Balances as
of November 7, 2008
43,200
-
23,200
20,000
Karen Burgess
138,735
-
-
138,735
Edward Miszczak
Board Member
Piotr Walter
114,410
-
39,110
75,300
Łukasz Wejchert
-
515,805
-
515,805
Tomasz Berezowski
-
-
-
-
Olgierd Dobrzyński
40,939
-
40,000
939
Waldemar Ostrowski
94,965
-
49,876
45,089
-
-
-
-
Jarosław Potasz
83,050
-
-
83,050
Piotr Tyborowicz
50,200
-
50,200
Adam Pieczyński
-
•
•
•
5.2. Supervisory Board members
The following table presents shares (not in thousands) held by the Supervisory Board members as of
November 7, 2008 and changes in their holdings since the date of publication of our previous quarterly
report on August 12, 2008. The information included in the table is based on information received from
members of our Supervisory Board pursuant to Art. 160 sec. 1 of the Act on Public Trading.
Board Member
Balance as
of August 12, 2008
Increases
Decreases
Balances as
of November 7, 2008
Wojciech Kostrzewa
100,000
-
100,000
Bruno Valsangiacomo
660,417
-
660,417
Arnold Bahlmann
106,330
-
106,330
Romano Fanconi
32,000
-
32,000
Paweł Gricuk
-
-
-
-
Paweł Kosmala*
-
-
-
-
Wiesław Rozłucki
-
-
-
-
Andrzej Rybicki
-
-
-
-
Markus Tellenbach*
-
-
-
-
Aldona Wejchert
-
-
-
-
Gabriel Wujek
-
-
-
-
* Appointed to our Supervisory Board by the Annual General Meeting held on May 9, 2008.
6. Legal proceedings
In the normal course of business, we are subject to various legal proceedings and claims. We do not
believe that the ultimate amount of any such pending actions will, either individually or in aggregate,
have a material adverse effect on our business or our financial condition. There are no pending legal
proceedings where the amounts claimed against us would exceed 10% of our capital.
41
7. Related party agreements concluded during the quarter
During the three months ended September 30, 2008, we did not enter into any non-routine
transactions with related parties exceeding Euro 500.
8. Discussion on guarantees granted to third parties by TVN S.A. or any related party during
the nine months ended September 30, 2008.
Neither TVN S.A. nor any of its related entities have granted any guarantees or secured any third party
credits for an amount exceeding 10% of our capital.
42
Part III
FINANCIAL INFORMATION
The financial information of TVN S.A. presented as a part of this report is included as follows:
Interim Condensed Consolidated Financial Statements as of and for the 3 and 9 months
ended September 30, 2008
Page
TVN Information
Interim Condensed Consolidated Income Statement
Interim Condensed Consolidated Balance Sheet
F-1
F-4
F-6
Interim Condensed Consolidated Statement of Changes in Shareholders’ Equity
Interim Condensed Consolidated Cash Flow Statement
F-7
F-9
Notes to the Interim Condensed Consolidated Financial Statements
F-10
We present below TVN S.A.’s separate financial statements, which we are required to disclose as a
public company in Poland, in order to ensure consistent disclosure to both bondholders and
shareholders.
Interim Condensed Separate Financial Statements as of and for the 3 and 9 months ended
September 30, 2008
Page
TVN Information
Interim Condensed Separate Income Statement
Interim Condensed Separate Balance Sheet
Interim Condensed Separate Statement of Changes in Shareholders’ Equity
Interim Condensed Separate Cash Flow Statement
Notes to the Interim Condensed Separate Financial Statements
43
SF-1
SF-4
SF-6
SF-7
SF-9
SF-10
TVN S.A.
Interim Condensed Separate Financial Statements
As of and for the 3 and 9 months ended September 30, 2008
TVN S.A.
Contents
Page
TVN Information
SF-1
Interim Condensed Separate Income Statement
SF-4
Interim Condensed Separate Balance Sheet
SF-6
Interim Condensed Separate Statement of Changes in Shareholders’ Equity
SF-7
Interim Condensed Separate Cash Flow Statement
SF-9
Notes to the Interim Condensed Separate Financial Statements
SF-10
TVN S.A.
Interim Condensed Separate Financial Statements
TVN Information
1.
Principal activity
TVN S.A. (the “Company”) and its subsidiaries (“TVN Group”, the “Group”) operate or jointly
operate thirteen television channels in Poland: TVN, TVN 7, TVN 24, TVN Meteo, TVN
Turbo, ITVN, TVN Style, TVN Med, TVN Lingua, TVN CNBC Biznes, Discovery Historia, NTL
Radomsko and Telezakupy Mango 24. The Group’s channels broadcast news, information
and entertainment shows, serials, movies and teleshopping. The Group also operates
Onet.pl the leading internet portal in Poland operating services such as: Zumi.pl,
Sympatia.pl, OnetBlog and OnetLajt.
2.
Registered Office
TVN S.A.
ul. Wiertnicza 166
02-952 Warszawa
3.












4.










Supervisory Board
Wojciech Kostrzewa, President
Bruno Valsangiacomo, Vice-President
Arnold Bahlmann
Romano Fanconi
Paweł Gricuk
Paweł Kosmala (appointed May 9, 2008)
Sandra Nowak (resigned January 7, 2008)
Wiesław Rozłucki
Andrzej Rybicki
Markus Tellenbach (appointed May 9, 2008)
Aldona Wejchert
Gabriel Wujek (appointed February 15, 2008)
Management Board
Piotr Walter, President
Karen Burgess, Vice-President
Edward Miszczak, Vice-President
Jan Łukasz Wejchert, Vice-President
Tomasz Berezowski
Olgierd Dobrzyński
Waldemar Ostrowski
Adam Pieczyński
Jarosław Potasz
Piotr Tyborowicz
The accompanying notes are an integral part of these interim condensed separate financial statements.
SF - 1 -
TVN S.A.
Interim Condensed Separate Financial Statements
5.
Auditors
PricewaterhouseCoopers Sp. z o.o.
Al. Armii Ludowej 14
00-638 Warszawa
6.
Principal Solicitors
Clifford Chance
ul. Lwowska 19
00-660 Warszawa
7.
Principal Bankers
Bank Polska Kasa Opieki S.A. (“Pekao S.A.”)
ul. Grzybowska 53/57
00-950 Warszawa
8.
Subsidiaries
Television Broadcasting and
Production

TVN Finance Corporation plc
One London Wall
London EC2Y 5EB
UK

El-Trade Sp. z o.o.
ul. Wiertnicza 166
02-952 Warszawa

Tivien Sp. z o.o.
ul. Augustówka 3
02-981 Warszawa

NTL Radomsko Sp. z o.o.
ul. 11 Listopada 2
97-500 Radomsko

Mango Media Sp. z o.o.
ul. Kościuszki 61
81-703 Sopot

Thema Film Sp. z o.o.
ul. Powsińska 4
02-920 Warszawa
New Media

Grupa Onet.pl S.A.
ul. G. Zapolskiej 44
30-126 Kraków

Dream Lab Onet.pl Sp. z o.o.
ul. G. Zapolskiej 44
30-126 Kraków

Grupa Onet Poland Holding B.V.
De Boelelaan 7
NL-1083 Amsterdam
The Netherlands

Media Entertainment Ventures International
Limited
Palazzo Pietro Stiges 90, Strait Street
Valetta VLT 05
Malta

SunWeb Sp. z o.o. (set up on October
15, 2008)
ul. G. Zapolskiej 44
30-126 Kraków
The accompanying notes are an integral part of these interim condensed separate financial statements.
SF - 2 -
TVN S.A.
Interim Condensed Separate Financial Statements
9.

10.

Joint ventures
Polski Operator Telewizyjny Sp. z o.o.
ul. Huculska 6
00-730 Warszawa

Discovery TVN Ltd
566 Chiswick High Road
London W4 5YB
UK

Neovision Holding B.V.
De Boelelaan 7
NL-1083 Amsterdam
The Netherlands
Associates
Polskie Badania Internetu Sp. z o.o.
Al. Jerozolimskie 44
00-950 Warszawa
The accompanying notes are an integral part of these interim condensed separate financial statements.
SF - 3 -
TVN S.A.
Interim Condensed Separate Income Statement
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
Nine months
ended
September 30,
2008
Nine months
ended
September 30,
2007
Three months
ended
September 30,
2008
Three months
ended
September 30,
2007
Note
Revenue
1,141,353
913,294
300,506
255,447
Cost of revenue
5
(606,306)
(514,298)
(180,540)
(174,571)
Selling expenses
General and
administration
expenses
5
(68,822)
(55,577)
(24,724)
(23,608)
5
(87,622)
(70,523)
(28,557)
(22,817)
Other operating
income/(expense), net
5
Operating profit
643
(777)
(105)
(215)
379,246
272,119
66,580
34,236
Investment income, net
6
18,660
13,252
10,080
6,863
Finance expense, net
6
(64,061)
(174,620)
(56,392)
(148,318)
333,845
110,751
20,268
(107,219)
(68,952)
(25,312)
(4,537)
19,013
264,893
85,439
15,731
(88,206)
Profit/(loss) before
income tax
Income tax
charge/(benefit)
18
Profit/(loss) for the
period
Earnings/(losses) per
share (not in
thousands)
- basic
7
0.76
0.25
0.05
(0.25)
- diluted
7
0.75
0.24
0.04
(0.25)
264,893
85,439
15,731
(88,206)
(5,542)
76,713
13,037
99,429
259,351
162,152
28,768
11,223
Supplementary disclosure of impact of embedded option valuation:
Profit/(loss) for the
period
Impact on profit/(loss),
net of tax of fair value
loss/(gain) gain on
embedded option
Adjusted profit for the
period
The Company presents adjusted profit to reflect the impact of non-cash fair value losses/gains arising on
prepayment options embedded in the Senior Notes issued via its subsidiary. The accounting for prepayment
options is technical, judgmental and driven by accounting interpretations. The Company believes that
presentation of net profit adjusted for this item enables a reader to better understand the Company’s operating
and financial performance.
Piotr Walter
President of the Board
Karen Burgess
Vice-President of the Board
Edward Miszczak
Vice-President of the Board
The accompanying notes are an integral part of these interim condensed separate financial statements.
SF - 4 -
TVN S.A.
Interim Condensed Separate Income Statement
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
Jan Łukasz Wejchert
Vice-President of the Board
Tomasz Berezowski
Board Member
Olgierd Dobrzyński
Board Member
Waldemar Ostrowski
Board Member
Adam Pieczyński
Board Member
Jarosław Potasz
Board Member
Piotr Tyborowicz
Board Member
Warsaw, November 6, 2008
The accompanying notes are an integral part of these interim condensed separate financial statements.
SF - 5 -
TVN S.A.
Interim Condensed Separate Balance Sheet
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
As at
September 30, 2008
As at
December 31, 2007
236,440
144,127
19,061
156,707
1,431,384
212,910
130,924
43,328
77,427
4,251
2,456,559
204,901
144,127
23,103
127,433
1,425,085
7,255
76,328
4,256
2,012,488
195,807
237,316
87,529
34,671
28,992
187,149
771,464
3,228,023
176,106
260,025
24,267
23,440
40,822
524,660
2,537,148
15
69,899
605,547
23,152
98,711
738,206
1,535,515
69,455
566,327
22,901
86,034
644,760
1,389,477
22
16
758,260
498,595
28,216
4,250
1,200
1,290,521
794,616
32,451
8,724
968
836,759
116,271
31,541
22,678
12,870
218,627
401,987
1,692,508
3,228,023
104,242
42,928
3,405
160,337
310,912
1,147,671
2,537,148
Note
ASSETS
Non-current assets
Property, plant and equipment
Goodwill
Other intangible assets
Non-current programming rights
Investments in subsidiaries and joint ventures
Investments in associates
Loan to associate
Available-for-sale financial assets
Other non-current related party loans
Other non-current assets
Current assets
Current programming rights
Trade receivables
Available-for-sale financial assets
Derivative financial assets
Prepayments and other assets
Cash and cash equivalents
8
9
10
10
11
22
8
12
11
13
14
TOTAL ASSETS
EQUITY
Shareholders’ equity
Share capital
Share premium
8% obligatory reserve
Other reserves
Accumulated profit
LIABILITIES
Non-current liabilities
Loan from related party
PLN Bonds due in 2013
Deferred tax liability
Non-current trade payables
Other non-current liabilities
Current liabilities
Current trade payables
Corporate income tax payable
Accrued interest on loan from related party
Accrued interest on PLN Bonds due in 2013
Other liabilities and accruals
22
16
17
Total liabilities
TOTAL EQUITY AND LIABILITIES
The accompanying notes are an integral part of these interim condensed separate financial statements.
SF - 6 -
TVN S.A.
Interim Condensed Separate Statement of Changes in Shareholders’ Equity
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
Balance at January 1, 2007
Profit for the period
Total recognized income for
the period
Issue of shares
Share issue cost
Charge for the period
(1)
Dividend declared and paid
Number of
shares
(not in
thousands)
Share capital
Share
Premium
8% obligatory
reserve
Employee
share option
plan reserve
Accumulated
profit
Shareholders’
equity
343,508,455
68,702
499,238
21,323
76,900
565,232
1,231,395
-
-
-
-
-
85,439
85,439
-
-
-
-
-
85,439
85,439
3,590,562
718
64,486
-
(33,499)
-
31,705
-
-
(322)
-
-
-
(322)
-
-
-
-
33,387
-
33,387
-
-
-
-
-
(128,300)
(128,300)
Appropriation of 2006 profit –
transfer to 8% obligatory reserve
-
-
-
1,578
-
(1,578)
-
Balance at September 30, 2007
347,099,017
69,420
563,402
22,901
76,788
520,793
1,253,304
The accompanying notes are an integral part of these interim condensed separate financial statements.
SF - 7 -
TVN S.A.
Interim Condensed Separate Statement of Changes in Shareholders’ Equity
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
Number of
shares
(not in
thousands)
Share
capital
Share
Premium
8%
obligatory
reserve
Other
reservesemployee
share option
plan
Other
reservesother
changes
Accumulated
Profit
Shareholders’
equity
347,272,975
69,455
566,327
22,901
86,034
-
644,760
1,389,477
Fair value gain on available for sale
financial asset, net
-
-
-
-
-
877
-
877
Deferred tax on fair value gain on
available for sale financial asset, net
-
-
-
-
-
(166)
-
(166)
Net income recognized directly in
equity
-
-
-
-
-
711
-
711
Profit for the period
-
-
-
-
-
-
264,893
264,893
Total recognized income for the
period
-
-
-
-
-
711
264,893
265,604
21,507
Balance at January 1, 2008
Issue of shares
(2)
2,223,678
444
39,315
-
(18,252)
-
-
Share issue cost
-
-
(95)
-
-
-
-
(95)
Dividend declared and paid
-
-
-
-
-
-
(171,180)
(171,180)
Dividend cost
-
-
-
-
-
-
(16)
(16)
-
-
-
-
30,218
-
-
30,218
Charge for the period
(1)
Appropriation of 2007 profit – transfer
to 8% obligatory reserve
Balance at September 30, 2008
-
-
-
251
-
-
(251)
-
349,496,653
69,899
605,547
23,152
98,000
711
738,206
1,535,515
(1)
On December 27, 2005 TVN S.A. introduced the TVN Incentive Scheme I based on C series of shares. On June 8, 2006 the Annual Shareholders’ Meeting approved a conditional share capital
increase of up to 1,974 required for the execution of the TVN Incentive Scheme I.
On July 31, 2006, as part of the acquisition of Grupa Onet .pl, TVN S.A. introduced the TVN Incentive Scheme II bas ed on E series of shares. On September 26, 2006 the Extraordinary
Shareholders’ Meeting approved a conditional share capital increase of up to 1,756 required for the execution of the TVN Incentive Scheme II (see Note 23).
(2)
During the nine months ended September 30, 2008 2,223,678 (not in thousands) of C1, C2, E1, E2 and E3 series shares were issued and fully paid as a result of the exercise of share options
granted to the participants of TVN incentive schemes. Of this number 60,183 shares were pending registration by the Court as at September 30, 2008 (see Note 15).
Included in accumulated profit is an amount of 736,376 being the accumulated profit of TVN S.A. which is distributable. The Senior Notes issued by TVN Group impose certain restrictions on
payments of dividends (see consolidated financial statements).
The accompanying notes are an integral part of these interim condensed separate financial statements.
SF - 8 -
TVN S.A.
Interim Condensed Separate Cash Flow Statement
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
Nine months
ended
September 30,
2008
Nine months
ended
September 30,
2007
Note
Operating activities
Cash generated from operations
483,383
306,236
Tax paid
19
(84,740)
(70,592)
Net cash generated from operating activities
398,643
235,644
Investing activities
Acquisition of subsidiaries net of cash acquired
19
Increase of share capital of joint ventures
Acquisition of associate
10
Payments to acquire property, plant and equipment
Proceeds from sale of property, plant & equipment
Payments to acquire intangible assets
-
(49,862)
(100)
(121)
(323,817)
-
(68,767)
(55,908)
436
593
(7,716)
(5,737)
(2,705)
Purchase of available for sale financial assets
11
(124,684)
Payments to acquire options
13
(6,987)
-
(70)
(1,701)
Loan granted to related party
Loans granted to associate
10
Loan repaid by related party
Dividend received
Interest received
(15,180)
-
-
3,950
5,661
-
9,712
(531,512)
Net cash used in investing activities
3,286
(108,205)
Financing activities
Issue of shares, net of issue cost
15, 23
Dividend paid
21,412
31,383
(171,196)
(128,300)
498,670
-
(10,371)
(3,470)
(16,642)
-
Interest paid
(43,009)
(44,051)
Net cash generated by/(used in) financing
activities
278,864
(144,438)
Increase/(Decrease) in cash and cash equivalents
145,995
(16,999)
40,822
48,666
332
373
187,149
32,040
Issue of PLN Bonds due in 2013
16
Payments to acquire options
Early settlement of options
Cash and cash equivalents at the start of the period
13
14
Effects of exchange rates changes
Cash and cash equivalents at the end of the
period
14
The accompanying notes are an integral part of these interim condensed separate financial statements.
SF - 9 -
TVN S.A.
Notes to Interim Condensed Separate Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
1. TVN
These interim condensed separate financial statements were authorized for issuance by the
Management Board and Supervisory Board of TVN S.A. on November 6, 2008.
TVN S.A. (until July 29, 2004 TVN Sp. z o.o.) was incorporated in May 1995 and is a public
media and entertainment company established under the laws of Poland and listed on the
Warsaw Stock Exchange.
The Company is part of a group of companies controlled by International Trading and
Investments Holdings S.A. Luxembourg (“ITI Holdings”) and its subsidiaries (the “ITI Group”).
ITI Group has been active in Poland since 1984 and is the largest media and entertainment
groups in Poland.
The Company wholly owns the following subsidiaries: Grupa Onet.pl S.A., Tivien Sp. z o.o.,
TVN Finance Corporation plc, Grupa Onet Poland Holding B.V., El-Trade Sp. z o.o., Thema
Film Sp. z o.o., NTL Radomsko Sp. z o.o., Mango Media Sp. z o.o. and through Grupa
Onet.pl S.A.: DreamLab Sp. z o. o. and Media Entertainment Ventures International Limited.
The Company also holds directly and through its subsidiaries in total 5.44% of the voting
interest and 6.76% of the share capital of Polskie Media S.A. The investments in subsidiaries
are recognized as non-current assets. The investment in Polskie Media is recognized as an
available-for-sale investment under non-current assets.
On June 25, 2008 the Company completed the acquisition from ITI Media Group N.V. of 25%
of the share capital plus 1 share of Neovision Holding B.V. a company registered in
Amsterdam, the sole shareholder of ITI Neovision Sp. z o.o. which owns and operates the ‘n’
direct-to-home (DTH) platform in Poland. For a total cash consideration of EUR 95 million the
Company purchased 25% of the share capital plus one share in Neovision Holding B.V. and
a corresponding pro-rata interest in shareholder loans granted to ITI Neovision Sp. z o.o.
(see Note 10).
On June 23, 2008 the Company completed a Bond Issue with a nominal value of 500,000
with Bank Pekao S.A., Bank Handlowy w Warszawie S.A. and BRE Bank S.A. (see Note
16).
On June 30, 2008 the Company entered into a 200,000 multicurrency loan facility agreement
with Bank Pekao S.A. (see Note 16).
The Company believes that all of its material operations are part of the television broadcast
service segment and it currently reports as a single business segment. Additionally, all of the
Company’s operations and assets are based in Poland. Therefore, no other geographic
information has been included.
The separate financial statements of the Company for the period beginning January 1, 2008
present in the comparatives of the income statement the operations of TVN only. As a result
of the legal merger of TVN S.A. and TVN Turbo Sp. z o.o. which took place on December 28,
2007, current period figures reflect the operations of both entities. The figures presented in
the income statement are therefore not directly comparable.
The accompanying notes are an integral part of these interim condensed separate financial statements.
SF - 10 -
TVN S.A.
Notes to Interim Condensed Separate Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
1. TVN (CONTINUED)
Advertising sales in Poland tend to be lowest during the third quarter of each calendar year,
which includes the summer holiday period, and highest during the fourth quarter of each
calendar year.
2. ACCOUNTING POLICIES
2.1.
Basis of preparation
These interim condensed separate financial statements are prepared in accordance with
International Financial Reporting Standards (“IFRS”) as adopted by the EU, issued and
effective as at the balance sheet date and IAS 34 “Interim Financial Reporting”. The
accounting policies used in the preparation of the interim condensed separate financial
statements as of and for the nine months ended September 30, 2008 are consistent with
those used in the annual separate financial statements for the year ended December 31,
2007 except for new accounting policies described below and interpretations which became
effective January 1, 2008.
In 2008 Company adopted IFRIC 11 - Group and Treasury Share Transactions, an
interpretation addresses the issue of share-based payment arrangements involving an
entity’s own equity instruments and equity instruments of the parent. This interpretation did
not impact the Company’s financial statements.
These interim separate financial statements are prepared under the historical cost
convention, as modified by the revaluation of financial assets and financial liabilities
(including derivative instruments) at fair value through profit or loss and available for sale
financial assets.
These interim condensed separate financial statements were prepared to comply with the
Warsaw Stock Exchange reporting requirements. In order to understand the overall financial
position and result of operations of TVN S.A. these interim condensed separate financial
statements should be read together with the interim consolidated financial statements as of
and for nine months ended September 30, 2008 which are published together with these
interim condensed separate financial statements on http://investor.tvn.pl.
IAS 34 requires minimum disclosures, which are based on the assumption that readers of the
interim financial statements have access to the most recent annual financial statements.
These interim condensed separate financial statements should be read in conjunction with
the audited annual separate financial statements for the year ended December 31, 2007.
The Company’s annual separate and consolidated financial statements for the year ended
December 31, 2007 prepared in accordance with IFRS as adopted by the EU are available
on http://investor.tvn.pl.
2.2.
Associates
Associates are all entities over which the Company has significant influence but not control,
generally accompanying a shareholding of between 20% and 50% of the voting rights.
Investments in associates are initially recognized at cost and subsequently accounted for at
cost less any accumulated impairment losses.
The accompanying notes are an integral part of these interim condensed separate financial statements.
SF - 11 -
TVN S.A.
Notes to Interim Condensed Separate Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
2. ACCOUNTING POLICIES (CONTINUED)
2.3.
Property, plant and equipment – changes in estimates
In accordance with the requirements of IAS 16, the Company reviewed the expected useful
lives and residual values of property, plant and equipment as at December 31, 2007. As a
result the expected remaining useful lives and residual values of some items of TV &
Broadcasting equipment and vehicles were adjusted. The changes in estimates are effective
January 1, 2008 and resulted in a reduction of depreciation during the nine months ended
September 30, 2008 of 254 and in a increase of depreciation during the three months ended
September 30, 2008 of 115.
2.4.
Borrowings
The Company recognizes its borrowings initially at fair value net of transaction costs
incurred. In subsequent periods, borrowings are stated at amortised cost; any difference
between the proceeds (net of transaction costs) and the redemption value is recognized in
the income statement over the period of the borrowings using the effective interest method.
Borrowings are classified as current liabilities unless the Company has an unconditional right
to defer settlement of liability for at least 12 months after the balance sheet date.
2.5.
Dividend distribution
Dividend distribution to the Company’s shareholders is recognized as a liability in the
Company’s financial statements in the period in which the dividends are approved by the
Company’s shareholders.
Incremental costs directly attributable to dividend distribution that otherwise would have been
avoided are accounted for as a deduction from equity. They mainly include financial services.
2.6.
Comparative financial information
Where necessary, comparative figures or figures presented in previously issued financial
statements have been adjusted to conform to changes in presentation in the current period.
No amendments have resulted in changes to previously presented net results or
shareholders’ equity.
2.7.
New Accounting Standards and IFRIC pronouncements
Certain new accounting standards and International Financial Reporting Interpretations
Committee (”IFRIC”) interpretations have been published by IASB since the publication of the
annual separate financial statements that are mandatory for accounting periods beginning on
or after October 1, 2008. The Company’s assessment of the impact of these new standards
and interpretations is set out below.
(i)
Amendments to IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of
Financial Statements - Puttable Financial Instruments and Obligations Arising on
Liquidation
The amendments were published on February 14, 2008 and are effective for annual periods
beginning on January 1, 2009 with earlier application permitted. The amendments require
entities to classify as equity puttable financial instruments and instruments or components of
instruments, that impose on the entity an obligation to deliver to another party a pro rata
share of the net assets of the entity only on liquidation. Additional disclosures are required
about the instruments affected by the amendments. The Company will apply the
amendments.
The accompanying notes are an integral part of these interim condensed separate financial statements.
SF - 12 -
TVN S.A.
Notes to Interim Condensed Separate Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
2. ACCOUNTING POLICIES (CONTINUED)
(ii)
Amendments to IFRS 1 First-time Adoption of International Financial Reporting
Standards and IAS 27 Consolidated and Separate Financial Statements - Cost of an
Investment in a Subsidiary, Jointly Controlled Entity or Associate.
The amendments were published on May 22, 2008. The amendments to IFRS 1 allow firsttime adopters, in their separate financial statements, to use a deemed cost option for
determining the cost of an investment in a subsidiary, jointly controlled entity or associate.
Additionally, when an entity reorganises the structure of its group by establishing a new entity
as its parent (subject to specific criteria), the amendments require the new parent to measure
cost as the carrying amount of its share of the equity items shown in the separate financial
statements of the original parent at the date of the reorganisation. The new requirements will
apply for annual periods beginning on January 1, 2009, with earlier application permitted.
The Company will apply the amendments.
(iii)
IFRIC 15 – Agreements for the Construction of Real Estate
The interpretation was issued on July 3, 2008. It applies to the accounting for revenue and
associated expenses by entities that undertake the construction of real estate directly or
through subcontractors. The Interpretation provides guidance on how to determine whether
an agreement for the construction of real estate is within the scope of IAS 11 Construction
Contracts or IAS 18 Revenue and when revenue from the construction should be recognised.
The interpretation is effective for annual periods beginning on January 1, 2009 and is to be
applied retrospectively. The Company will not be affected by the interpretation.
(iv)
IFRIC 16 - Hedges of a Net Investment in a Foreign Operation
The interpretation was issued on July 3, 2008. IFRIC 16 applies to an entity that hedges the
foreign currency risk arising from its net investments in foreign operations and wishes to
qualify for hedge accounting in accordance with IAS 39. IFRIC 16 provides guidance on (1)
identifying the foreign currency risks that qualify as a hedged risk in the hedge of a net
investment in a foreign operation; (2) where, within a group, hedging instruments that are
hedges of a net investment in a foreign operation can be held to qualify for hedge
accounting; and (3) how an entity should determine the amounts to be reclassified from
equity to profit or loss for both the hedging instrument and the hedged item. IFRIC 16 is
effective for annual periods commencing on October 1, 2008. The interpretation will not
affect the Company’s financial statements.
(v)
IFRS Improvements
The International Accounting Standards Board has issued “IFRS Improvements”, which
amend 20 standards. The amendments include changes in presentation, recognition and
valuation and include terminology and editorial changes. Majority of amendments will be
effective from annual periods starting on January 1, 2009. The Company will adopt the
changes in accordance with transition provisions. The Company is currently analyzing the
impact of the amended standards on the Company’s financial statements.
The accompanying notes are an integral part of these interim condensed separate financial statements.
SF - 13 -
TVN S.A.
Notes to Interim Condensed Separate Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
2. ACCOUNTING POLICIES (CONTINUED)
(vi)
Amendments to IAS 39: Financial Instruments: Recognition and Measurement:
Eligible Hedged Items
The amendment was published on July 31, 2008. It provides additional guidance on what
can be designated as a hedged item. Entities are required to apply the amendment
retrospectively for annual periods beginning on or after July 1, 2009 with earlier application
permitted.
(vii)
Amendments to IAS 39 Financial Instruments: Recognition and Measurement and
IFRS 7 Financial Instruments: Disclosures
The amendments were published on October 13, 2008. The amendments to IAS 39
introduce the possibility of certain reclassifications of financial instruments for companies
applying International Financial Reporting Standards, which were already permitted under
US generally accepted accounting principles (GAAP). The amendments are applicable as of
July 1, 2008.
Additionally, the following standards and IFRIC Interpretations are applicable in future and
were discussed in the Company’s annual financial statements for the year ended December
31, 2007:

IFRS 8 – Operating segments - applicable on or after January 1, 2009

Amendments to IAS 23 – Borrowing Costs – applicable on January 1, 2009

Amendments to IAS 1 – Presentation of financial statements – applicable on January 1,
2009

Revision to IFRS 3 Business Combinations and amendment to IAS 27 Consolidated and
Separate Financial Statements - applicable on or after July 1, 2009

Amendment to IFRS 2, Share-based Payments- applicable on January 1, 2009

IFRIC 12 – Service Concession Arrangements

IFRIC 13 – Customer Loyalty Programmes

IFRIC 14 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and
their Interaction
At the date of preparation of these financial statements the following standards and IFRIC
interpretations were not adopted by the EU:

Amendments to IAS 23 – Borrowing Costs

Amendments to IAS 1 – Presentation of financial statements

Revision to IFRS 3 Business Combinations and amendment to IAS 27 Consolidated and
Separate Financial Statements

Amendment to IFRS 2, Share-based Payments

IFRIC 12 – Service Concession Arrangements

IFRIC 13 – Customer Loyalty Programmes

IFRIC 14 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and
their Interaction
The accompanying notes are an integral part of these interim condensed separate financial statements.
SF - 14 -
TVN S.A.
Notes to Interim Condensed Separate Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
2. ACCOUNTING POLICIES (CONTINUED)

Amendments to IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of
Financial Statements - Puttable Financial Instruments and Obligations Arising on
Liquidation

Amendments to IFRS 1 First-time Adoption of International Financial Reporting
Standards and IAS 27 Consolidated and Separate Financial Statements - Cost of an
Investment in a Subsidiary, Jointly Controlled Entity or Associate

IFRIC 15 - Agreements for the Construction of Real Estate

IFRIC 16 - Hedges of a Net Investment in a Foreign Operation

IFRS Improvements

Amendment to IAS 39 Financial Instruments: Recognition and Measurement: Eligible
Hedged Items
Amendments to IAS 39 Financial Instruments: Recognition and Measurement and IFRS 7
Financial Instruments: Disclosures

3. FINANCIAL RISK MANAGEMENT
3.1
Financial risk factors
The Company’s activities expose it to a variety of financial risks: market risk, credit risk and
liquidity risk. The Company’s overall risk management process focuses on the
unpredictability of financial markets and aims to minimize potential adverse effects on the
Company’s financial performance. The Company uses derivative financial instruments to
hedge certain risk exposures when hedging instruments are assessed to be cost effective.
Financial risk management is carried out by the Company under policies approved by the
Management Board and Supervisory Board. The TVN Treasury Policy lays down the rules to
manage financial risk and liquidity, through determination of the financial risk factors to which
the Company is exposed to and their sources. Details of the duties, activities and
methodologies used to identify, measure, monitor and report risks as well as forecast cash
flows, finance maturity gaps and invest free cash resources are contained in approved
supplementary written instructions.
The following organizational units within the Company’s financial department participate in
the risk management process: risk committee, liquidity management team, risk management
team, financial planning and analyzing team and accounting and reporting team. The risk
committee is composed of the vice-president of the Management Board and heads of the
teams within the Company’s financial department. The risk committee meets monthly and
based on an analysis of financial risks recommends financial risk management strategy,
which is approved by the Management Board. The Supervisory Board approves risk
exposure limits and is consulted prior to the execution of hedging transactions. Financial
planning and analyzing team measure and identify financial risk exposure based on
information reported by operating units generating exposure. The liquidity management team
performs analysis of the Company’s risk factors, forecasts the Company’s cash flows and
market and macroeconomic conditions and proposes on cost-effective hedging strategies.
The accounting and reporting team monitors accounting implications of hedging strategies
and verifies settlements of the transactions.
The accompanying notes are an integral part of these interim condensed separate financial statements.
SF - 15 -
TVN S.A.
Notes to Interim Condensed Separate Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
3. FINANCIAL RISK MANAGEMENT (CONTINUED)
(i) Market risk
Market risk related to bonds issued by the subsidiary
The Company is exposed to price risk in relation to the Senior Notes issued by the
subsidiary. The Senior Notes price depends on creditworthiness of the Company and on the
relative strength of the bond market as a whole. The Company recognizes as an asset the
value of early redemption options embedded in the Senior Notes (see Note 16) and this
valuation largely depends on the market price of the Senior Notes. The Company is therefore
exposed to decreases in the market price of the Senior Notes.
The Senior Notes are listed on the Luxembourg Stock Exchange and the fair value of
embedded options recognized by the Company at the balance sheet date reflects the Senior
Notes market price on the last value date available from Reuters prior to the balance sheet
date. The impact of the Senior Notes market price change on the Company’s assets and
income statement is discussed in Note 4 (i).
Foreign currency risk
The Company’s revenue is primarily denominated in Polish Zloty. Foreign exchange risk
arises mainly from the Company’s liabilities in respect of the Senior Notes and related
embedded prepayment options both denominated in EUR and liabilities to suppliers of
foreign programming rights, satellite costs and rental costs denominated in USD or EUR.
Other costs are predominantly denominated in PLN.
The Company’s policy in respect of management of foreign currency risks is to cover known
risks in a cost efficient manner and that no trading in financial instruments is undertaken.
Following evaluation of its exposures the Company enters into derivative financial
instruments to manage these exposures. Call options, swaps and forward exchange
agreements may be entered into to manage currency exposures. Regular and frequent
reporting to management is required for all transactions and exposures.
The estimated net profit/(loss) impact (post-tax) impact of a reasonably possible EUR
appreciation of 5% against the zloty, with all other variables held constant and without taking
into account derivative financial instruments entered into for hedging purposes on EUR
denominated balance sheet items is presented below:
The accompanying notes are an integral part of these interim condensed separate financial statements.
SF - 16 -
TVN S.A.
Notes to Interim Condensed Separate Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
3. FINANCIAL RISK MANAGEMENT (CONTINUED)
Nine months ended
September 30, 2008
Nine months ended
September 30, 2007
(33,550)
(37,184)
(194)
(63)
(71)
(45)
Loans to associate
5,227
-
Cash equivalents – treasury bills
1,378
-
Embedded prepayment options
1,105
1,351
Liabilities:
9.65% loan from subsidiary due 2013 including accrued
interest
Trade payables
Other
Assets:
The estimated net profit (post-tax) impact of a reasonably possible USD appreciation of 5%
against the zloty, with all other variables held constant, and without taking into account
derivative financial instruments entered to mitigate USD fluctuations, on the major USD
denominated balance sheet items is:
Trade payables
Nine months ended
September 30, 2008
Nine months ended
September 30, 2007
(2,162)
(2,496)
The net profit/(loss) impact of possible foreign currency fluctuations is mitigated by derivative
instruments entered into by the Company for hedging purposes. Details of EUR and USD
option collars which the Company had on September 30, 2008 are discussed in Note 13.
Interest rate risk
The Company’s exposure to interest rate risk arises on interest bearing assets and liabilities.
The main interest bearing items are the loan to related party and PLN Bonds (see Note 16)
and loans to associate. As the loan to related party is at a fixed interest rate, the Company is
exposed to fair value interest rate risk in this respect. Since the loan to related party is
carried at amortised cost, the changes in fair values of these instruments do not have direct
impact on valuation of the loan to related party in the balance sheet.
PLN Bonds with a nominal value of 500,000 were issued by the Company on June 23, 2008
and are at a variable interest rate linked to WIBOR and therefore expose the Company to
interest rate risk. At September 30, 2008, if WIBOR interest rates had been 0.5%
higher/lower with all other variables held constant, post-tax profit for the period would have
been by 549 lower/higher.
Loans to associate are at a variable interest rate linked to EURIBOR and therefore expose
the Company to cash flow interest rate risk. At September 30, 2008 if EURIBOR interest
rates had been 0.5% higher/lower with all other variables held constant, post tax profit for the
period would have been by 141 lower/higher.
The accompanying notes are an integral part of these interim condensed separate financial statements.
SF - 17 -
TVN S.A.
Notes to Interim Condensed Separate Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
3. FINANCIAL RISK MANAGEMENT (CONTINUED)
On September 30, 2008 the Company acquired 87,529 of PLN treasury bills which are
exposed to fair value interest rate risk. The fair value of the bills at the date when these
financial statements were prepared was 87,946. The change in value was recognized as
charge in equity of 45 and interest income in investment income of 473.
Management does not consider it cost effective to use financial instruments to hedge or
otherwise seek to reduce interest rate risk.
(ii) Credit risk
Financial assets, which potentially expose the Company to concentration of credit risk
consist principally of trade receivables, loans to associate (see Note 10) and related party
receivables. The Company places its cash and cash equivalents, bank deposits and current
available for sale financial assets with financial institutions that the Company believes are
credit worthy which is assessed by current credit ratings (see Note 14). The Company does
not consider its current concentration of credit risk as significant.
The Company performs ongoing credit evaluations of its customers’ financial condition and
generally requires no collateral from its customers. Clients with poor or no history of
payments with the Company, with low value committed spending or assessed by the
Company as not credit worthy are required to prepay before the service is rendered. Credit is
granted to customers with a good history of payments and significant spending who are
assessed credit worthy based on internal or external ratings. The Company performs
ongoing evaluations of the market segments focusing on their liquidity and creditworthiness
and the Company’s credit policy is appropriately adjusted to reflect current and expected
economic conditions.
The Company defines credit exposure as total outstanding receivables (including overdue
balances) and monitors the exposure regularly on an individual basis by paying counterparty.
The majority of the Company’s sales are made through advertising agencies (76% of the
total trade receivables as of September 30, 2008) who manage advertising campaigns for
advertisers and pay the Company once payment has been received from the customer. The
Company’s top ten advertisers account for 22% and the single largest advertiser accounted
for 4% of sales for the nine months ended September 30, 2008. Generally advertising
agencies in Poland are limited liability companies with little recoverable net assets in case of
insolvency. The major players amongst the advertising agencies in Poland with whom the
Company co-operates are subsidiaries and branches of large international companies of
good reputation. To the extent that it is cost-efficient the Company mitigates credit exposure
by use of a trade receivable insurance facility from a leading insurance company.
The table below analyses the Company’s trade receivables by category of customers:
Trade receivables (net)
September 30, 2008
December 31, 2007
Receivables from advertising agencies
76%
75%
Receivables from individual customers
17%
20%
7%
5%
100%
100%
Receivables from related parties
The accompanying notes are an integral part of these interim condensed separate financial statements.
SF - 18 -
TVN S.A.
Notes to Interim Condensed Separate Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
3. FINANCIAL RISK MANAGEMENT (CONTINUED)
Credit concentration of the five largest counterparties measured as a percentage of the
Company’s total trade receivables:
Trade receivables (net)
September 30, 2008
December 31, 2007
Agency A
11%
-
Agency B
9%
12%
Agency C
7%
6%
Agency D
6%
11%
Agency E
6%
-
Sub-total
39%
29%
Total other counterparties
61%
61%
100%
100%
Certain advertising agencies operating in Poland as separate entities are part of international
financial groups controlled by the same ultimate shareholders. Credit concentration of the
Group aggregated by international agency groups, measured as a percentage of the
Company’s total trade receivables is presented below:
Trade receivables from advertising agencies (net)
September 30, 2008
December 31, 2007
Agency Group F
20%
12%
Agency Group G
15%
12%
Agency Group H
14%
17%
Agency Group I
14%
22%
Agency Group J
Total other counterparties
5%
2%
32%
35%
100%
100%
Management does not expect any significant losses with respect to amounts included in the
trade receivables at the balance sheet date from non-performance by the respective
Company’s customers as at September 30, 2008.
The Company does not consider credit risk associated with loans to associate as significant.
(iii) Liquidity risk
The Company maintains sufficient cash to meet its obligations as they become due and has
available to it additional funding through a credit facility (see Note 16). Management monitors
regularly expected cash flows. The Company expects that its principal future cash needs will
be capital expenditures relating to acquisitions, dividends, share buyback, capital investment
in television and broadcasting facilities and equipment, debt service on the Senior Notes and
PLN Bonds and the launch of new thematic channels. The Company believes that its cash
balances, cash generated from operations and existing credit facility will be sufficient to fund
these needs. However, if following the current liquidity crisis in the banking sector external
financing is unavailable at reasonable conditions for a longer period of time or the operating
cash flows of the Company are negatively affected by an economic slow-down or clients’
financial difficulties the Company will review its cash needs to ensure that its existing
obligations can be met for the foreseeable future.
The accompanying notes are an integral part of these interim condensed separate financial statements.
SF - 19 -
TVN S.A.
Notes to Interim Condensed Separate Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
3. FINANCIAL RISK MANAGEMENT (CONTINUED)
As at September 30, 2008 the Company had cash and cash equivalents, liquid available for
sale financial instruments, bank deposits and committed unutilized credit facilities totaling
466,422 at its disposal (282,652 at December 31, 2007).
The table below analyses the Company’s financial liabilities that will be settled into relevant
maturity groupings based on the remaining period at the balance sheet to the contractual
maturity date. The balances in the table are the contractual undiscounted cash flows,
excluding the impact of early prepayment options. Balances due within 12 months equal their
carrying balances, as the impact of discounting is not significant.
Within
1 year
Between
1-2 years
Above
2 years
77,752
77,752
1,077,855
At September 30, 2008
9.65% loan from subsidiary due 2013
PLN Bonds
46,295
47,465
642,510
Trade payables
116,271
4,250
-
Other liabilities and accruals
218,627
1,200
-
Within
1 year
Between
1-2 years
Above
2 years
81,715
81,715
1,091,929
Trade payables
104,242
8,724
-
Other liabilities and accruals
160,337
968
-
At December 31, 2007
9.65% loan from subsidiary due 2013
3.2
Capital risk management
The Company’s objectives when managing capital are to safeguard the Company‘s ability to
continue as a going concern in order to provide returns for shareholders and benefits for
other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Company may adjust the amount of
dividends paid to shareholders, issue new shares, draw borrowings or sell assets to reduce
debt.
The Company monitors capital on the basis of the net debt to EBITDA ratio. Net debt
represents the nominal value of borrowings (see Note 16) payable at the balance sheet date
including accrued interest less cash and cash equivalents (excluding treasury bills purchased
and not settled), liquid available for sale financial instruments and bank deposits with
maturity over 3 months. EBITDA is calculated for the last twelve months and is defined as
net profit/(loss), before depreciation and amortization (other than programming rights),
impairment charges on property plant and equipment and intangible assets, finance
expense, investment income and income tax charge.
September 30, 2008
December 31, 2007
Net debt
1,100,620
809,368
EBITDA
613,709
502,990
1.8
1.6
Net debt/EBITDA ratio
The Company’s strategy is to maintain its net debt/EBITDA ratio at a level not exceeding 3.5.
The accompanying notes are an integral part of these interim condensed separate financial statements.
SF - 20 -
TVN S.A.
Notes to Interim Condensed Separate Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
3. FINANCIAL RISK MANAGEMENT (CONTINUED)
3.3
Fair value estimation
The fair value of financial instruments traded in active markets is based on quoted market
prices at the balance sheet date. The fair value of financial instruments that are not traded in
an active market is determined using valuation techniques. The Company uses a variety of
methods and makes assumptions that are based on market conditions existing at each
balance sheet date. The fair value of available for sale financial assets is determined using
industry multiples and the most recent available financial information about the investment.
The fair value of forward foreign exchange contracts and option collars is determined based
on the valuations performed by the Company’s bank.
The carrying value less impairment provision of trade receivables and payables are assumed
to approximate their fair values due to the short-term nature of trade receivables and
payables.
4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
(i) Fair valuation of the embedded prepayment options
The Company calculates at each reporting date the fair value of the prepayment options
embedded in the Senior Notes using the Brace-Gątarek-Musiela model. Significant inputs
into the valuation model are the Senior Notes market price, benchmark bond yields and
interest rate cap volatilities. The inputs are based on information provided by Reuters on the
valuation date. The Senior Notes market price is quoted by Reuters based on the last value
date. In the fair valuation as of September 30, 2008 the Company input into the valuation
model the market price of 103.57, based on the last available value date on September 30,
2008. The last available Senior Notes market price provided by Reuters at the date when
these financial statements were prepared was 91.75 (based on value date on October 29,
2008). Should this price be input into the valuation model the carrying value of the embedded
prepayment options would decrease by 20,327.
The accompanying notes are an integral part of these interim condensed separate financial statements.
SF - 21 -
TVN S.A.
Notes to Interim Condensed Separate Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
5. OPERATING EXPENSES
Amortization of locally
produced content
Amortization of acquired
programming rights and coproduction
Nine months
ended
September 30,
2008
Nine months
ended
September 30,
2007
Three months
ended
September 30,
2008
Three months
ended
September 30,
2007
316,671
253,950
97,725
89,434
87,343
92,116
26,870
29,651
Staff expenses
Share options granted to
board members and
employees
93,533
69,887
31,388
23,557
24,019
20,082
7,901
6,694
Broadcasting expenses
34,344
33,364
11,112
11,427
Royalties
45,856
37,940
8,382
11,169
Depreciation and
amortization
43,830
40,239
15,497
14,215
Marketing and research
36,528
26,012
13,552
12,319
Rental
16,920
12,716
5,507
3,770
Cost of services and goods
sold
10,718
5,914
2,610
2,170
Impaired accounts
receivable
Other
(742)
(111)
46
(209)
53,087
49,066
13,336
17,014
762,107
641,175
233,926
221,211
Included in the above operating expenses are operating lease expenses for the nine months
ended September 30, 2008 of 69,145 (nine months ended September 30, 2007: 56,223) and
for the three months ended September 30, 2008 of 21,711 (three months ended September
30, 2007: 18,286).
Amortization of locally produced content for the nine months ended September 30, 2008 has
been reduced by grants received in the total amount of 1,070 (nine months ended
September 30, 2007: 1,829) and for the three months ended September 30, 2008 of 90
(three months ended September 30, 2007: 0).
Included in depreciation, amortization and impairment charge is the amount of impairment
reversal of 1,885 for the nine months ended September 30, 2008 (nine months ended
September 30, 2007: 306).
The accompanying notes are an integral part of these interim condensed separate financial statements.
SF - 22 -
TVN S.A.
Notes to Interim Condensed Separate Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
6. INVESTMENT INCOME AND FINANCE EXPENSE
Investment income, net
Interest income on loans to
related parties
Interest income from
available for sale financial
assets (see Note 11)
Nine months
ended
September 30,
2008
Nine months
ended
September 30,
2007
Three months
ended
September 30,
2008
Three months
ended
September 30,
2007
7,162
4,184
3,919
1,354
1,505
-
588
-
Other interest income
6,799
2,518
3,480
404
Dividend income
5,661
-
5,661
-
(2,121)
-
(2,121)
-
Fair value losses on
financial instruments
Foreign exchange
gains/(losses), net
(346)
6,550
(1,447)
5,105
18,660
13,252
10,080
6,863
(79,091)
(69,851)
(33,249)
(22,950)
(3,316)
(3,575)
(1,273)
(1,188)
-
(5,288)
34,263
2,729
(11,673)
(11,872)
(8,685)
160
(16,642)
-
(16,642)
-
Finance expense, net
Interest expense on 9.65%
loan from related party and
PLN Bonds (see Note 16,
22 (iii))
Guarantee fees to related
party (see Note 22 (viii))
Fair value (losses)/gains on
financial instruments:
- foreign exchange option
collars – fair value hedges
(Note 11)
- foreign exchange option
collars – portion not
designated as hedging
instrument (see Note 13)
- foreign exchange option
collars – early settlement of
instrument
- embedded option (see
Note 13)
Bank charges
Foreign exchange
gains/(losses) on loan from
related party
6,841
(94,707)
(16,096)
(122,751)
(1,970)
(2,299)
(1,420)
(1,652)
41,790
12,972
(13,290)
(2,666)
(64,061)
(174,620)
(56,392)
(148,318)
The accompanying notes are an integral part of these interim condensed separate financial statements.
SF - 23 -
TVN S.A.
Notes to Interim Condensed Separate Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
7. BASIC AND DILUTED EARNINGS PER SHARE (NOT IN THOUSANDS)
(i) Earnings per share
Basic
Basic earnings per share are calculated by dividing the net profit by the weighted average
number of ordinary shares in issue during the period, excluding ordinary shares purchased
by the Company.
Profit/(loss) for the period
(in thousands)
Weighted average number
of ordinary shares in issue
Basic earnings/(losses)
per share
Nine months
ended
September 30,
2008
Nine months
ended
September 30,
2007
Three months
ended
September 30,
2008
Three months
ended
September 30,
2007
264,893
85,439
15,731
(88,206)
348,531,422
345,578,047
349,443,751
346,980,277
0.76
0.25
0.05
(0.25)
Diluted
Diluted earnings per share is calculated adjusting the weighted average number of ordinary
shares outstanding to assume conversion of all dilutive potential ordinary shares. The
Company has only one category of potential ordinary shares: share options.
For the share options a calculation was done to determine the number of shares that could
have been acquired at fair value (determined as average market price of the Company’s
shares) based on the monetary value of the subscription rights attached to outstanding share
options. The number of shares calculated as above was compared with the number of
shares that would have been issued assuming the exercise of the share options.
Nine months
ended
September 30,
2008
Nine months
ended
September 30,
2007
Three months
ended
September 30,
2008
Three months
ended
September 30,
2007
264,893
85,439
15,731
(88,206)
348,531,422
345,578,047
349,443,751
346,980,277
4,854,435
6,659,528
3,434,721
-
Weighted average number
of potential ordinary shares
for diluted earnings per
share
353,385,857
352,237,575
352,878,472
346,980,277
Diluted earnings/(losses)
per share
0.75
0.24
0.04
(0.25)
Profit/(loss) for the period
(in thousands)
Weighted average number
of ordinary shares in issue
Adjustment for share
options
The accompanying notes are an integral part of these interim condensed separate financial statements.
SF - 24 -
TVN S.A.
Notes to Interim Condensed Separate Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
7. BASIC AND DILUTED EARNINGS PER SHARE (NOT IN THOUSANDS) (CONTINUED)
(ii) Earnings per share for adjusted profit
The Company presents adjusted profit to reflect the impact of non-cash fair value
losses/gains arising on prepayment options embedded in the Senior Notes issued via its
subsidiary. The accounting for prepayment options is technical, judgmental and driven by
accounting interpretations. The Company believes that presentation of net profit adjusted for
this item enables a reader to better understand the Company’s operating and financial
performance.
Basic
Nine months
ended
September 30,
2008
Nine months
ended
September 30,
2007
Three months
ended
September 30,
2008
Three months
ended
September 30,
2007
Profit/(loss) for the period
(in thousands)
264,893
85,439
15,731
(88,206)
Impact on profit, net of tax
of fair value gain on
embedded option (in
thousands)
(5,542)
76,713
13,037
99,429
Adjusted profit for the
period (in thousands)
259,351
162,152
28,768
11,223
Weighted average number
of ordinary shares in issue
348,531,422
345,578,047
349,443,751
346,980,277
Adjusted basic earnings
per share
0.74
0.47
0.08
0.03
Nine months
ended
September 30,
2008
Nine months
ended
September 30,
2007
Three months
ended
September 30,
2008
Three months
ended
September 30,
2007
Profit/(loss) for the period
(in thousands)
264,893
85,439
15,731
(88,206)
Impact on profit/(loss), net
of tax of fair value gain on
embedded option (in
thousands)
(5,542)
76,713
13,037
99,429
259,351
162,152
28,768
11,223
348,531,422
345,578,047
349,443,751
346,980,277
4,854,435
6,659,528
3,434,721
5,240,066
353,385,857
352,237,575
352,878,472
352,220,343
0.73
0.46
0.08
0.03
Diluted
Adjusted profit for the
period (in thousands)
Weighted average number
of ordinary shares in issue
Adjustment for share
options
Weighted average number
of potential ordinary shares
for diluted earnings per
share
Adjusted diluted
earnings per share
The accompanying notes are an integral part of these interim condensed separate financial statements.
SF - 25 -
TVN S.A.
Notes to Interim Condensed Separate Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
8. PROGRAMMING RIGHTS
September 30, 2008
December 31, 2007
171,819
186,783
12,567
12,907
Acquired programming rights
News archive
Co-productions
13,479
2,273
154,649
101,576
352,514
303,539
(195,807)
(176,106)
156,707
127,433
Nine months ended
September 30, 2008
Nine months ended
September 30, 2007
186,783
198,800
Productions
Less current portion of programming rights
Non-current portion of programming rights
Changes in acquired programming rights
Net book value as at January 1
Additions
71,605
77,525
Amortization
(86,569)
(88,923)
Net book value as at September 30
171,819
187,402
September 30, 2008
December 31, 2007
1,102,500
1,102,500
269,065
262,866
49,862
49,862
TVN Finance Corporation plc
6,572
6,572
NTL Radomsko Sp. z o.o.
9. INVESTMENTS IN SUBSIDIARIES AND JOINT VENTURES
Grupa Onet Poland Holding B.V.
Grupa Onet.pl S.A.
Mango Media Sp. z o.o.
2,800
2,800
Polski Operator Telewizyjny Sp. z o.o.
325
225
El-Trade Sp. z o.o.
156
156
Tivien Sp. z o.o.
50
50
Thema Film Sp. z o.o.
48
48
6
1,431,384
6
Discovery TVN Ltd
Total
1,425,085
The increase in value of investment in Grupa Onet.pl S.A. represents fair value of options
granted to employees of subsidiary recognized during the period by the Company until
options are fully vested.
The accompanying notes are an integral part of these interim condensed separate financial statements.
SF - 26 -
TVN S.A.
Notes to Interim Condensed Separate Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
9. INVESTMENTS IN SUBSIDIARIES AND JOINT VENTURES (CONTINUED)
Country of
incorporation
Grupa Onet Poland Holding B.V.
September 30,
2008 Ownership
%
December 31, 2007
Ownership
%
The Netherlands
100
100
Grupa Onet.pl S.A. *
Poland
100
100
Mango Media Sp. z o.o.
Poland
100
100
UK
100
100
NTL Radomsko Sp. z o.o.
Poland
100
100
El-Trade Sp. z o.o.
Poland
100
100
Tivien Sp. z o.o.
Poland
100
100
Thema Film Sp. z o.o.
Poland
96
96
Polski Operator Telewizyjny Sp. z o.o.
Poland
50
50
UK
50
50
Malta
100
100
Poland
100
100
TVN Finance Corporation plc
Discovery TVN Ltd
Media Entertainment Ventures Int Ltd **
DreamLab Onet.pl Sp. z o.o. **
* Owned directly by the Company and indirectly through GOPH BV
** Owned indirectly through Grupa Onet.pl S.A.
10. INVESTMENT IN POLISH DTH “N” PLATFORM
On June 25, 2008 the Company completed the acquisition of 25% of the share capital plus 1
share of Neovision Holding B.V. (“Neovision Holding”) a company registered in Amsterdam,
the Netherlands from ITI Media Group N.V. (“ITI Media Group”), entity under common
control. Neovision Holding is the sole shareholder of ITI Neovision Sp. z o.o. (“ITI Neovision”)
which owns and operates the ‘n' DTH platform in Poland. For a the total cash consideration
of EUR 95 million (PLN 319,628) the Company purchased 25% of the share capital plus one
share in Neovision Holding and corresponding pro-rata interest in the intercompany loans
granted to ITI Neovision with a nominal value of EUR 35.3 million. As part of the transaction,
the Company has also acquired options to acquire an additional 25% of shares of Neovision
Holding. In accordance with the policy adopted by the Company these options are not
recognized as financial instruments.
The Company has significant influence on, but not control over ITI Neovision’s operations.
Accordingly, the investment is classified as an investment in an associate and was
recognized at cost. In these financial statements the total investment is split between
investment in an associate and loans receivable from an associate. The value attributed
initially to the investment in associate reflects the purchase price paid to ITI Media Group
less the fair value of loans acquired. The fair value of loans receivable was estimated based
on a valuation model with the key inputs being credit spread and market interest rates.
Nine months ended
September 30, 2008
Investment in associate
Beginning of the period
Investment in Neovision Holding *
Other direct costs incurred to September 30, 2008
End of the period
Nine months ended
September 30, 2007
-
-
210,296
-
2,614
-
212,910
-
The accompanying notes are an integral part of these interim condensed separate financial statements.
SF - 27 -
TVN S.A.
Notes to Interim Condensed Separate Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
10. INVESTMENT IN POLISH DTH “N” PLATFORM (CONTINUED)
Nine months ended
September 30, 2008
Loans receivable from associate
Beginning of the period
Nine months ended
September 30, 2007
-
-
109,332
-
Other direct costs
1,575
-
Interest accrued
2,550
-
15,180
-
2,287
-
130,924
-
Investments in Neovision Holding *
Loans extended after acquisition
Foreign exchange losses
End of the period
* value established provisionally
The loans bear interest at 8.25% p.a., have nominal values of EUR 25.1 million, EUR 4.5
million and EUR 5.7 million and are due for repayment on December 31, 2015, April 5, 2011
and July 19, 2011 respectively. Interest is accrued and payable at maturity using an effective
interest rate of 9.45% with respect to loans repayable on December 31, 2015 and 9.84% with
respect to loans repayable on April 5 and July 19, 2011.
11. AVAILABLE FOR SALE FINANCIAL ASSETS
September 30, 2008
December 31, 2007
7,255
7,255
9.5% Senior Notes due 2013
36,073
-
Treasury bills PLN
87,529
Polskie Media S.A.
Total
-
130,857
7,255
Nine months ended
September 30, 2008
Nine months ended
September 30, 2007
7,255
4,550
Acquisition of Senior Notes
37,155
-
Foreign exchange differences
(1,871)
-
1,505
-
(1,593)
-
877
-
87,529
-
-
2,705
Beginning of the period
Interest income from available for sale financial assets
Interest received
Fair value change transfer to equity
Acquisition of treasury bills
Paid-in share capital
End of the period
130,857
7,255
Less: non-current portion
(43,328)
(7,255)
87,529
-
Current portion
On February 8, 2008 the Company purchased the Senior Notes issued by its subsidiary TVN
Finance Corporation plc with a nominal value of EUR 10,000 for an amount of EUR 10,358
(PLN 37,155) including interest accrued in the amount of 158 EUR (567 PLN). Fair value of
the Senior Notes reflect its market price quoted by Reuters based on the last value date on
September 30, 2008.
The accompanying notes are an integral part of these interim condensed separate financial statements.
SF - 28 -
TVN S.A.
Notes to Interim Condensed Separate Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
11. AVAILABLE FOR SALE FINANCIAL ASSETS (CONTINUED)
The Senior Notes were issued on December 2, 2003, in the amount of EUR 235,000 with an
interest rate of 9.5%. The Notes are quoted on the Luxembourg Stock Exchange. Interest is
paid semi-annually starting June 15, 2004. The Senior Notes mature on December 15, 2013.
TVN Finance Corporation plc may redeem all or part of the remaining Senior Notes on or
after December 15, 2008 at a redemption price ranging from 104.75% to 100% of nominal
value but may not exercise this right without prior written consent from the Company. Due to
the consent referred to above the Company recognized an embedded financial instrument
with respect to these options (see Note 13).
The fair value change of the Senior Notes purchased by the Company was recognized
directly in equity (gain of 877 in the period ended September 30, 2008). There were no
amounts removed from the equity to the income statement in the period.
On September 30, 2008 the Company acquired 87,529 of PLN denominated treasury bills
issued by the National Bank of Poland maturing between January 21, 2009 and April 15,
2009.
Effective interest rate
Maturity dates
Nominal value
Purchase value
Polish T-bills
6.25%
January 21, 2009
10,000
9,807
Polish T-bills
6.25%
January 28, 2009
30,000
29,388
Polish T-bills
6.30%
April 15, 2009
25,000
24,167
Polish T-bills
6.30%
April 15, 2009
25,000
24,167
90,000
87,529
The Company does not have any significant influence over the financial and operating
policies of Polskie Media S.A. (“Polskie Media”). The Company estimated the fair value of its
investment in Polskie Media as at September 30, 2008 based on financial information
available from the annual financial statements of Polskie Media for the year ended December
31, 2007 and industry sales multiples. The Company assessed that there is no impairment of
the carrying value as of September 30, 2008. During the year the Company monitors
audience share of Polskie Media for impairment indicators.
The Company’s share in Polskie Media is 5.44% of the current voting interest and 6.76% of
the share capital.
None of the financial assets is past due or impaired.
12. TRADE RECEIVABLES
Trade receivables
Less: provision for impairment of receivables
Trade receivables – net
Receivables from related parties (Note 22 (iv))
September 30, 2008
December 31, 2007
227,250
253,780
(6,637)
(7,588)
220,613
246,192
16,703
13,833
237,316
260,025
The accompanying notes are an integral part of these interim condensed separate financial statements.
SF - 29 -
TVN S.A.
Notes to Interim Condensed Separate Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
12. TRADE RECEIVABLES (CONTINUED)
The fair values of trade receivables, because of their short-term nature, are estimated to
approximate their carrying values.
The carrying amounts of the Company’s trade receivables are denominated in the following
currencies:
September 30, 2008
December 31, 2007
PLN
231,481
251,763
USD
4,891
3,414
EUR
852
4,809
CAD
51
-
AUD
41
39
237,316
260,025
Provision for impairment of receivables was created individually for trade receivables that
were overdue more than 60 days or in relation to individual customers who are in
unexpectedly difficult financial situations.
Movements on the provision for impairment of trade receivables are as follows:
Nine months ended
September 30, 2008
Nine months ended
September 30, 2007
Beginning of the period
7,588
6,863
Provision for receivables impaired, net change
(720)
(157)
Receivables written off as uncollectible
(231)
(1,125)
End of the period
6,637
5,581
The creation and release of provision for impaired receivables have been included in selling
expenses in the income statement (Note 5).
As of September 30, 2008, trade receivables of 44,816 were past due but not impaired. The
balance relates to a number of customers with no recent history of default. The ageing
analysis of these trade receivables is as follows:
Up to 30 days
September 30, 2008
December 31, 2007
27,857
95,313
31-60 days
7,436
14,132
Over 60 days
9,523
7,349
44,816
116,794
The Company defines credit exposure as total outstanding receivables. Maximum exposure
to credit risk is the total balance of trade receivables. Maximum exposure to credit risk as of
September 30, 2008 was 237,316 (December 31, 2007: 260,025).
The accompanying notes are an integral part of these interim condensed separate financial statements.
SF - 30 -
TVN S.A.
Notes to Interim Condensed Separate Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
13. DERIVATIVE FINANCIAL ASSETS
Embedded prepayment options
September 30, 2008
December 31, 2007
27,288
20,447
Foreign exchange option collars EUR
2,518
3,820
Foreign exchange option collars USD
4,865
-
34,671
24,267
Total
The change in carrying amount of the embedded options between September 30, 2008 and
December 31, 2007 was recognized in the income statement (see Note 6). The valuation of
embedded prepayment options as of September 30, 2008 is discussed in Note 4 (i).
The fair value of foreign exchange option collars in EUR as at September 30, 2008 was
based on valuations performed by the Company’s banks. The collars had in total a notional
value of EUR 225,000, a maturity date of December 15, 2008, a PLN/EUR corridor between
3.30 and 3.50 and were entered into to limit the impact on the Company’s net results of
PLN/EUR exchange rate movements in relation to the Senior Notes balance. As long as the
PLN/EUR spot rate is within the corridor the fair value of the option collars consists of their
time value only, which reflects the possibility that the collars will create further gains in the
future. The intrinsic value of collars exists when the spot rate is outside the corridor. It
basically reflects the value of the option if exercised today and is measured based on the
difference between the spot rate and the respective corridor rate. The intrinsic value of the
collars was designated as a fair value hedge.
As of September 30, 2008 the PLN/EUR collars did not have any the intrinsic value. The
change in fair value of the collars was recognized in the income statement (see Note 6).
After the balance sheet date, on October 13, 2008 the Company restructured the foreign
exchange option collars from the PLN/EUR corridor between 3.30 and 3.50 and maturity date
of December 15, 2008 to a PLN/EUR corridor between 3.30 and 3.60 and maturity date of
January 15, 2009. As a result, the Company received a net premium of 5,271.
The fair value of foreign exchange option collars in USD as at September 30, 2008 was
based on valuations performed by the Company’s banks. The collars had in total a notional
value of USD 52,766, maturity dates between December 22, 2008 and December 22, 2009 a
PLN/USD corridor between 2.10 and 2.45 and were entered into to limit the impact on the
Company’s net results of PLN/USD exchange rate movements in relation to payments for
programming rights. The Company has not designated the collars for hedge accounting.
The change in fair value of the collars was recognized in the income statement (see Note 6).
14. CASH AND CASH EQUIVALENTS
Cash at bank and in hand
Short-term treasury bills
September 30, 2008
December 31, 2007
153,121
40,822
34,028
-
187,149
40,822
The accompanying notes are an integral part of these interim condensed separate financial statements.
SF - 31 -
TVN S.A.
Notes to Interim Condensed Separate Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
14. CASH AND CASH EQUIVALENTS (CONTINUED)
(i) Cash at bank (external credit rating – Standard and Poor’s):
September 30, 2008
December 31, 2007
152,762 (*)
37,594
Bank rated A
* 50,000 of this amount was transferred to a bank rated AAA on October 1, 2008. The balance was
used in October for the purchase of treasury bills (see Note 25).
(ii) Short term treasury bills:
Effective interest
rate
Bundesbank
Federal treasury
bills
Nominal value
0.81%
EUR 10,000
Maturity date
December 10, 2008
Purchase value
34,028
15. SHARE CAPITAL (NOT IN THOUSANDS)
The total authorized number of ordinary shares is 413,499,585 with a par value of 0.20 per
share. The total number of ordinary shares in issue as at September 30, 2008 was
349,496,653 with a par value of 0.2 per share. All issued shares are fully paid and include
also shares issued on exercise of share options granted under incentive schemes (C and E
series of shares) as soon as cash consideration becomes receivable. The shareholders
structure as at September 30, 2008:
Shareholder
Number of
shares
% of share
capital
Number of
votes
% of votes
180,355,430
51.60%
180,355,430
51.60%
24,907,504
7.13%
24,907,504
7.13%
10,001,400
2.86%
10,001,400
2.86%
Other shareholders
134,232,319
38.41%
134,232,319
38.41%
Total
349,496,653
100.00%
349,496,653
100.00%
Strateurop International B.V.
N-Vision B.V.
Cadizin Trading&Investment
(1)
(1)
(1)
(1)
Entities controlled by ITI Group.
Included in the total number of shares in issue as at September 30, 2008 held by other
shareholders is 60,183 shares of C1, C2 and E3 series not registered by the Court. Of this
amount, at the date when these financial statements were prepared, 38,085 shares were
pending registration.
Shares issued on exercise of share options (C and E series) included in the share capital at
the balance sheet date were registered by the National Depository of Securities (Krajowy
Depozyt Papierów Wartościowych) and are tradable on the Warsaw Stock Exchange and
qualify for dividends.
During the nine months ended September 30, 2008, 2,223,678 shares of C and E series
were issued for an amount of 21,507 (in thousands).
The accompanying notes are an integral part of these interim condensed separate financial statements.
SF - 32 -
TVN S.A.
Notes to Interim Condensed Separate Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
16. BORROWINGS
September 30, 2008
December 31, 2007
498,595
-
12,870
-
511,465
-
Less: current portion of borrowings
(12,870)
-
Non-current potion of borrowings
498,595
-
PLN Bonds
Interest accrued on PLN Bonds
PLN Bonds
On May 26, 2008 the Company entered into an agreement with Bank Pekao S.A., Bank
Handlowy w Warszawie S.A. and BRE Bank S.A. to conduct a Bond Issue Program
(“Program”). The Program enables the Company to issue bearer, unsubordinated and
unsecured bonds (“PLN Bonds”) with a maximum total nominal value of PLN 1 billion at any
time. The Program can be extended up to the nominal value of PLN 2 billion.
On June 23, 2008 the Company completed the first issue of the PLN Bonds with a total
nominal value of 500,000 and with a variable interest rate of 6 month WIBOR plus 2.75% per
annum. The interest is payable semi-annually starting December 14, 2008. The PLN Bonds
are due for repayment on June 14, 2013. The PLN Bonds are unsecured obligations and are
governed by a number of covenants including restrictions on disposal or inadequate use of
assets. The total transaction costs of the issue amounted to 1,330 and mainly related to
dealers commission and legal services. The PLN Bonds are carried at amortized cost using
an effective interest rate of 9.79%.
The Company has a one time option to redeem all or 50% of the PLN Bonds on June 14,
2011 or on June 14, 2012 at a redemption price of 102% or 101% of the nominal value
respectively. The Company assessed that the early prepayment options are closely related
to the economic characteristics of the host contract (PLN Bonds) as the option exercise price
is close on each exercise date to the amortized cost of the PLN Bonds. Consequently, the
Company did not separate the embedded derivative.
The fair value of the PLN Bonds, excluding accrued interest, as at September 30, 2008 was
estimated to be PLN 512,086. The PLN Bonds are non-public and their fair value was
estimated using an internal valuation model with the key inputs being market interest rate,
payment dates and credit spread.
Loan facility
Until June 30, 2008 the Company had a EUR 50,000 loan facility with Bank Pekao S.A. The
facility was secured over trade receivables, other intangible assets, television and
broadcasting equipment and programming rights.
On June 30, 2008 the Company entered into a PLN 200,000 multicurrency loan facility with
Bank Pekao SA. The facility is available for a three year period. The facility bears interest at
6-month WIBOR, EURIBOR or LIBOR (depending on loan currency) plus margin which
depends on the ratio of consolidated net debt to consolidated EBITDA of the Group and at
the date of the agreement was 1%. The facility is secured over trade receivables of TVN S.A.
up to the equivalent of EUR 25,000. The loan facility is guaranteed by Grupa Onet.pl S.A.
and Mango Media Sp. z o.o., wholly owned subsidiaries of TVN S.A. As of September 30,
2008 the facility had been used to cover guarantees to the extent of EUR 2,422 (PLN 8,256).
The accompanying notes are an integral part of these interim condensed separate financial statements.
SF - 33 -
TVN S.A.
Notes to Interim Condensed Separate Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
17. OTHER LIABILITIES AND ACCRUALS
September 30, 2008
December 31, 2007
VAT and other taxes payable
34,808
27,257
Employee benefits
36,808
30,777
Consideration for treasury bills acquired but not settled *
34,028
-
Deferred income
16,560
20,325
Satellites
Other liabilities and accrued costs
3,773
6,690
92,650
75,288
218,627
160,337
Nine months ended
September 30, 2008
Nine months ended
September 30, 2007
* The amount was settled on October 2, 2008
18. TAXATION
Reconciliation of accounting profit to tax charge
Profit before income tax
333,845
110,751
Income tax charge at the enacted statutory rate of 19%
(63,431)
(21,043)
(4,564)
(3,816)
Tax impact of employee share option plan costs not
deductible for tax purposes
Net tax impact of other expenses not deductible for tax
purposes and revenue not taxable
Tax for the period
(957)
(453)
(68,952)
(25,312)
The accompanying notes are an integral part of these interim condensed separate financial statements.
SF - 34 -
TVN S.A.
Notes to Interim Condensed Separate Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
19. NOTE TO THE CASH FLOW STATEMENT
Reconciliation of net profit to cash generated from operations
Note
Nine months ended
September 30, 2008
Nine months ended
September 30, 2007
264,893
85,439
68,952
25,312
Net profit
Tax charge
Share options granted to board members and
employees
5
24,019
20,082
Depreciation, amortization and impairment
5
43,830
40,239
Amortization of program rights and co-production
5
87,343
92,116
(80,711)
(98,677)
(742)
(111)
86
(96)
161,368
Payments to acquire programming rights
Impaired accounts receivable
5
Loss/(Gain) on disposal of property, plant &
equipment
Investment income and finance expense, net
6
45,401
Guarantee fee paid
6
(2,726)
(3,869)
(53,073)
(25,320)
Trade receivables
23,452
(23,539)
Other receivables
(5,031)
(987)
8,238
(6,899)
59,452
41,178
Change in local production balance
Changes in working capital:
Trade payables
Other short term liabilities and accruals
86,111
9,753
483,383
306,236
Nine months ended
September 30, 2008
Nine months ended
September 30, 2007
Cash generated from operations
Acquisition of subsidiaries and associates net of cash acquired
Note
Neovision Holdind B.V.
10
Mango Media
323,817
-
-
49,862
323,817
49,862
2,486
(1,578)
30,628
33,845
Non-cash transactions
Barter revenue/(cost), net
Share options granted to board members and
employees
5
The accompanying notes are an integral part of these interim condensed separate financial statements.
SF - 35 -
TVN S.A.
Notes to Interim Condensed Separate Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
20. CONTINGENCIES
The Company has a contingent asset of 18,228 in a respect of VAT, penalties and interest
due from the tax authorities. A court ruling in favour of the Company was announced on April
13, 2006. On June 12, 2006 the tax authorities appealed to the Supreme Administrative
Court. On October 9, 2007 the Supreme Administrative Court decided to return the case to
the Administrative Court in Krakow for further review. On July 23, 2008 the Administrative
Court overrode penalties imposed by the tax authorities (in the amount of 1,078 plus interest)
but overruled the Company’s claim with respect to the base VAT amount (in the amount of
3,594). On October 10, once the court ruling became final and valid, the Company applied to
the tax authorities for the return of the penalty of 1,078 plus interest of 1,030 as at
September 30, 2008. In addition the Company appealed to the Supreme Administrative
Court as far as the base VAT amount is concerned.
21. COMMITMENTS
The Company has entered into a number of operating lease and other agreements. The
commitments derived from these agreements are presented below.
(i)
Commitments to acquire programming
The Company has outstanding contractual payment commitments in relation to programming
as of September 30, 2008. These commitments are scheduled to be paid as follows:
Total
Due in 2008
53,023
Due in 2009
58,517
Due in 2010
24,202
Due in 2011
12,470
Due in 2012
4,802
Due in 2013 and thereafter
1,612
154,626
(ii)
Total future minimum payments relating to operating lease agreements signed as at
September 30, 2008:
Related
parties
Non-related
parties
Total
Due in 2008
3,574
3,932
7,506
Due in 2009
14,296
14,718
29,014
Due in 2010
14,296
12,558
26,854
Due in 2011
13,492
11,513
25,005
Due in 2012
13,492
9,995
23,487
Due in 2013 and thereafter
48,533
15,130
63,663
107,683
67,846
175,529
Contracts signed with related parties relate to lease of office space and television studios
from Poland Media Properties S.A. (“Poland Media Properties”, previously ITI Poland S.A.)
and Diverti Sp. z o.o. (“Diverti”). Commitments in foreign currencies were calculated using
exchange rates as at September 30, 2008.
Contracts signed with non-related parties relate to lease of office space and television
studios.
The accompanying notes are an integral part of these interim condensed separate financial statements.
SF - 36 -
TVN S.A.
Notes to Interim Condensed Separate Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
21. COMMITMENTS (CONTINUED)
In addition to the lease agreements disclosed above, the Company has agreements with
third parties for the provision of satellite capacity. Under these agreements the Company is
obliged to pay annual fees. These commitments are scheduled to be paid as follows:
Total
Due in 2008
2,647
Due in 2009
25,903
Due in 2010
25,903
Due in 2011
25,903
Due in 2012
12,160
92,516
Additionally, the Company leases transmission sites and related services for an annual
amount of 6,600.
(iii)
Barter commitments
The Company has an outstanding commitment of service to broadcast advertising of 755 to
settle sundry amounts payable recorded as of September 30, 2008 (459 at December 31,
2007). The service to broadcast advertising will be rendered under commercial terms and
conditions and at market prices.
(iv)
Other commitments
At September 30, 2008, the Company assumed contractual commitments of 3,916 to acquire
property, plant and equipment and intangible assets (5,334 at December 31, 2007).
22. RELATED PARTY TRANSACTIONS
(i)
Revenue:
Nine months
ended
September
30, 2008
ITI Group
ITI Neovision *
TVN Turbo **
Nine months
ended
September
30, 2007
Three months
ended
September
30, 2008
Three
months
ended
September
30, 2007
4,547
6,137
1,158
391
26,161
17,364
8,722
5,771
-
5,893
-
1,744
Grupa Onet Poland Holding Group
2,245
4,501
1,862
2,022
Discovery TVN Ltd
2,660
3,693
406
1,561
Mango Media
4,266
1,456
1,097
989
El-Trade
91
73
30
41
Poland Media Properties
20
29
6
10
39,990
39,146
13,281
12,529
* ITI Neovision is an associate of the Company.
** On December 28, 2007 TVN S.A. merged with its wholly owned subsidiary TVN Turbo Sp. z o.o.
The accompanying notes are an integral part of these interim condensed separate financial statements.
SF - 37 -
TVN S.A.
Notes to Interim Condensed Separate Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
22. RELATED PARTY TRANSACTIONS (CONTINUED)
Revenue from ITI Group includes mainly revenue from the exploitation of film rights, license
fees, production and technical services rendered and services of broadcasting advertising,
net of commissions. Poland Media Properties is controlled by certain shareholders and
executive directors of the ITI Group.
Revenue from Grupa Onet Holding Group includes mainly revenue from sale of airtime,
production and technical services.
Revenue from TVN Turbo in 2007 includes mainly revenue from production services.
Revenue from Discovery TVN Ltd. includes mainly revenue from television format license
fees.
(ii)
Operating expenses:
Nine months
ended
September
30, 2008
Nine months
ended
September
30, 2007
Three months
ended
September
30, 2008
Three months
ended
September
30, 2007
ITI Group
25,036
16,682
7,615
4,963
ITI Neovision
3,684
3,194
1,048
261
Grupa Onet Poland Holding Group
6,106
5,338
2,662
1,054
-
1,300
-
831
1,055
502
353
171
Poland Media Properties
396
443
127
146
El-Trade
440
207
182
122
-
90
-
90
36,717
27,756
11,987
7,638
TVN Turbo *
NTL Radomsko
Polski Operator Telewizyjny
* On December 28, 2007 TVN S.A. merged with its wholly owned subsidiary TVN Turbo Sp. z o.o.
Operating expenses from Grupa Onet Poland Holding Group include mainly marketing and
production services.
Operating expenses from TVN Turbo in 2007 include mainly television format license fees.
Operating expenses from ITI Group comprise rent of office premises and the provision of
certain management, sales, financial advisory and other services.
Operating expenses from Poland Media Properties comprise rent of office premises. Poland
Media Properties is controlled by certain shareholders and executive directors of the ITI
Group.
(iii)
Loan from related party
Loan from TVN Finance Corporation plc.
Interest accrued
September 30, 2008
December 31, 2007
758,260
794,616
22,678
3,405
780,938
798,021
The loan bears interest at 9.65% p.a. and is due for repayment December 15, 2013. Interest
is paid semi-annually.
The accompanying notes are an integral part of these interim condensed separate financial statements.
SF - 38 -
TVN S.A.
Notes to Interim Condensed Separate Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
22. RELATED PARTY TRANSACTIONS (CONTINUED)
(iv)
Outstanding balances arising from sale/purchase of goods and services:
September 30, 2008
December 31, 2007
ITI Group
2,615
1,453
ITI Neovision
8,217
6,091
Discovery TVN Ltd
3,666
2,751
Grupa Onet Poland Holding Group
1,995
2,790
Receivables:
Mango Media
202
687
NTL-Radomsko
8
59
TVN Finance Corporation plc
-
2
16,703
13,833
ITI Group
6,545
4,895
Grupa Onet Poland Holding Group
4,526
1,379
Payables:
Tivien
342
178
El-Trade
65
33
Polski Operator Telewizyjny
37
25
Poland Media Properties
(v)
77
97
11,592
6,607
September 30, 2008
December 31, 2007
Non-current related party loans
Grupa Onet Poland Holding
71,296
70,422
Mango Media
4,343
4,049
Discovery TVN Ltd
1,196
1,292
Thema Film
441
420
El-Trade
151
145
77,427
76,328
The loans to Grupa Onet Poland Holding are: (1) for a principal amount of EUR 16,886,
bears interest of 8.25% per annum, due for repayment on December 31, 2016; (2) for a
principal amount of EUR 20, bears interest of 8.25% per annum, due for repayment on
December 31, 2009.
The loan to Mango Media is for a principal amount of 4,000, bears interest of 9,65% per
annum and is due for repayment on December 31, 2010.
The loan to Discovery TVN Ltd is for a principal amount of GBP 250, bears interest at LIBOR
6 months rate plus 1 p.p. per annum and is due for repayment on February 19, 2012.
(vi)
Other non-current assets
Other non current assets include a rental deposit paid to ITI Group in the amount of 1,981.
The accompanying notes are an integral part of these interim condensed separate financial statements.
SF - 39 -
TVN S.A.
Notes to Interim Condensed Separate Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
22. RELATED PARTY TRANSACTIONS (CONTINUED)
(vii)
Lease commitments with related parties
See Note 21 (ii) for further details.
(viii)
Other
ITI Holdings has provided guarantees in the amount of US$ 25,000 to Warner Bros.
International Television Distribution and US$ 8,000 to DreamWorks in respect of
programming rights purchased and broadcast by TVN. During the nine months ended
September 30, 2008, the Company recorded finance costs of 1,819 relating to these
guarantees (during the nine months ended September 30, 2007: 2,221).
Additionally in the nine months ended September 30, 2008 the Company recorded the cost
of 1,362 from Grupa Onet and 135 from Mango Media relating to the guarantees provided
(during the nine months ended September 30, 2007: Grupa Onet 1,354, Mango Media 0).
On June 25, 2008 the Company completed the acquisition of 25% of the share capital plus 1
share of Neovision Holding from ITI Media Group (see Note 10).
23. SHARE-BASED PAYMENTS
Share options are granted to certain Management Board members, employees and coworkers who are of key importance to the Group. Share options are granted under two share
option schemes:
(i)
(ii)
TVN Incentive Scheme I introduced on December 27, 2005, based on C series of
shares
TVN Incentive Scheme II introduced on July 31, 2006 as part of the acquisition of
Grupa Onet.pl, based on E series of shares.
The Company has no legal or constructive obligation to repurchase or settle the options in
cash.
Movements in the number of share options outstanding and their related weighted average
exercise prices are as follows (not in thousands):
Nine months ended
September 30, 2008
Average
Outstanding
exercise price
options
Nine months ended
September 30, 2007
Average
Outstanding
exercise price
options
At 1 January
PLN 10.62
14,887,155
PLN 10.01
15,818,005
Exercised
PLN 9.67
(2,223,678)
PLN 8.83
(3,590,562)
At 30 September
PLN 10.79
12,663,477
PLN 10.35
12,227,443
Weighted average market share price during the nine months ended September 30, 2008
was 21.00 (not in thousands) per share.
The total fair value of the options granted was estimated using a trinomial tree model and
amounted to 74,124 with respect to C series and 110,101 with respect to E series.
The accompanying notes are an integral part of these interim condensed separate financial statements.
SF - 40 -
TVN S.A.
Notes to Interim Condensed Separate Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
23. SHARE-BASED PAYMENTS (CONTINUED)
The model assumes that dividends would be paid in the future in accordance with the
Company’s dividend policy. Fair valuation of options granted before January 1, 2007
assumed that no dividends would be paid in the future. The stock option plan is service
related.
The remaining options are exercisable at the prices indicated below and vest after the
specified period (not in thousands):
Series
Number of options
Exercise price
Service vesting period
C1
397,060
PLN 8.66
Vested
C2
1,675,091
PLN 9.58
Vested
C3
3,479,210
PLN 10.58
until January 1, 2009
5,551,361
Series
Number of options
Exercise price
Service vesting period
E1
217,730
PLN 8.66
Vested
E2
282,135
PLN 9.58
Vested
E3
1,337,516
PLN 10.58
Vested
E4
2,441,065
PLN 11.68
until April 1, 2009
E4
2,833,670
PLN 11.68
until January 1, 2010
7,112,116
All options can be exercised no later than December 31, 2011.
Between October 1, 2008 and the date when these financial statements were prepared,
13,000 of C1 series options were exercised and as a result 13,000 new ordinary shares were
issued.
24. EXCHANGE RATES AND INFLATION
September 30, 2008
December 31, 2007
September 30, 2007
PLN Exchange Rate
to U.S. Dollar
2.3708
2.4350
2.6647
PLN Exchange Rate
to Euro
3.4083
3.5820
3.7775
The movement in the consumer price index for the nine months ended September 30, 2008
amounted to 2.8% (2.3% for the nine months ended September 30, 2007).
25. POST BALANCE SHEET EVENTS
(i) Between October 1, 2008 and the date when these financial statements were prepared
the Company acquired 214,136 of PLN denominated Polish treasury bills maturing
between October 22, 2008 and May 27, 2009. The treasury bills, which have a nominal
value of 195,000, were classified as available for sale financial assets. The details of the
bills acquired are presented below:
The accompanying notes are an integral part of these interim condensed separate financial statements.
SF - 41 -
TVN S.A.
Notes to Interim Condensed Separate Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
25. POST BALANCE SHEET EVENTS (CONTINUED)
Effective interest rate
Maturity dates
Nominal value
Purchase value
Polish T-bills
6.05%
October 22, 2008
25,000
24,912
Polish T-bills
6.20%
February 18, 2009
25,000
24,411
Polish T-bills
6.15%
February 11, 2009
70,000
68,514
Polish T-bills
6.05%
May 27, 2009
100,000
96,299
220,000
214,136
(ii) On October 24, 2008 the Company purchased Senior Notes issued by its subsidiary TVN
Finance Corporation plc with a nominal value of EUR 10,000 for an amount of EUR
9,754 (PLN 35,303) including interest accrued of 354 EUR (1,280 PLN). The nominal
value of the remaining Senior Notes is EUR 215,000.
The accompanying notes are an integral part of these interim condensed separate financial statements.
SF - 42 -
TVN S.A.
Interim Condensed Consolidated Financial Statements
As of and for the 3 and 9 months ended September 30, 2008
TVN S.A.
Contents
Page
TVN Information
F-1
Interim Condensed Consolidated Income Statement
F-4
Interim Condensed Consolidated Balance Sheet
F-6
Interim Condensed Consolidated Statement of Changes in Shareholders’ Equity F-7
Interim Condensed Consolidated Cash Flow Statement
F-9
Notes to the Interim Condensed Consolidated Financial Statements
F-10
TVN S.A.
Interim Condensed Consolidated Financial Statements
TVN Information
1.
Principal activity
TVN S.A. (the “Company”) and its subsidiaries (“TVN Group”, the “Group”) operate or jointly
operate thirteen television channels in Poland: TVN, TVN 7, TVN 24, TVN Meteo, TVN
Turbo, ITVN, TVN Style, TVN Med, TVN Lingua, TVN CNBC Biznes, Discovery Historia, NTL
Radomsko and Telezakupy Mango 24. The Group’s channels broadcast news, information
and entertainment shows, serials, movies and teleshopping. The Group also operates
Onet.pl the leading internet portal in Poland operating services such as: Zumi.pl,
Sympatia.pl, OnetBlog and OnetLajt.
2.
Registered Office
TVN S.A.
ul. Wiertnicza 166
02-952 Warszawa
3.
Supervisory Board
• Wojciech Kostrzewa, President
•
Bruno Valsangiacomo, Vice-President
•
Arnold Bahlmann
•
Romano Fanconi
•
Paweł Gricuk
•
Paweł Kosmala (appointed May 9, 2008)
•
Sandra Nowak (resigned January 7, 2008)
•
Wiesław Rozłucki
•
Andrzej Rybicki
•
Markus Tellenbach (appointed May 9, 2008)
•
Aldona Wejchert
•
Gabriel Wujek (appointed February 15, 2008)
4.
Management Board
• Piotr Walter, President
•
Karen Burgess, Vice-President
•
Edward Miszczak, Vice-President
•
Jan Łukasz Wejchert, Vice-President
•
Tomasz Berezowski
•
Olgierd Dobrzyński
•
Waldemar Ostrowski
•
Adam Pieczyński
•
Jarosław Potasz
•
Piotr Tyborowicz
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F- 1 -
TVN S.A.
Interim Condensed Consolidated Financial Statements
5.
Auditors
PricewaterhouseCoopers Sp. z o.o.
Al. Armii Ludowej 14
00-638 Warszawa
6.
Principal Solicitors
Clifford Chance
ul. Lwowska 19
00-660 Warszawa
7.
Principal Bankers
Bank Polska Kasa Opieki S.A. (“Pekao SA”)
ul. Grzybowska 53/57
00-950 Warszawa
8.
Subsidiaries
Television Broadcasting and Production
•
TVN Finance Corporation plc
One London Wall
London EC2Y 5EB
UK
•
El-Trade Sp. z o.o.
ul. Wiertnicza 166
02-952 Warszawa
•
Tivien Sp. z o.o.
ul. Augustówka 3
02-981 Warszawa
•
NTL Radomsko Sp. z o.o.
ul. 11 Listopada 2
97-500 Radomsko
•
Mango Media Sp. z o.o.
ul. Kościuszki 61
81-703 Sopot
•
Thema Film Sp. z o.o.
ul. Powsińska 4
02-920 Warszawa
New Media
•
Grupa Onet.pl S.A.
ul. G. Zapolskiej 44
30-126 Kraków
•
Dream Lab Onet.pl Sp. z o.o.
ul. G. Zapolskiej 44
30-126 Kraków
•
Grupa Onet Poland Holding B.V.
De Boelelaan 7
NL-1083 Amsterdam
The Netherlands
•
Media Entertainment Ventures International Limited
Palazzo Pietro Stiges 90, Strait Street
Valetta VLT 05
Malta
•
SunWeb Sp. z o.o. (set up on October 15, 2008)
ul. G. Zapolskiej 44
30-126 Kraków
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F- 2 -
TVN S.A.
Interim Condensed Consolidated Financial Statements
9.
Joint ventures
Polski Operator Telewizyjny Sp. z o.o.
ul. Huculska 6
00-730 Warszawa
•
10.
•
•
Discovery TVN Ltd
566 Chiswick High Road
London W4 5YB
UK
•
Neovision Holding B.V.
De Boelelaan 7
NL-1083 Amsterdam
The Netherlands
Associates
Polskie Badania Internetu Sp. z o.o.
Al. Jerozolimskie 44
00-950 Warszawa
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F- 3 -
TVN S.A.
Interim Condensed Consolidated Income Statement
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
Nine months
ended
September 30,
2008
Nine months
ended
September 30,
2007
Three months
ended
September 30,
2008
Three months
ended
September 30,
2007
1,305,011
1,033,108
353,820
296,553
Note
Revenue
Cost of revenue
6
(675,899)
(566,253)
(204,738)
(194,186)
Selling expenses
6
(111,673)
(84,890)
(39,580)
(33,487)
6
(110,151)
(91,931)
(36,117)
(30,495)
6
2,490
(1,429)
756
(654)
409,778
288,605
74,141
37,731
General and
administration expenses
Other operating
income /(expense), net
Operating profit
Investment income, net
7
14,873
11,579
1,899
5,830
Finance expense, net
7
(64,751)
(172,095)
(52,829)
(147,428)
Share of loss of associate
10
(19,057)
-
(18,502)
-
340,843
128,089
4,709
(103,867)
(64,801)
(20,625)
299
25,542
276,042
107,464
5,008
(78,325)
0.79
0.78
0.31
0.31
0.01
0.01
(0.23)
(0.23)
276,042
107,464
5,008
(78,325)
Impact on profit/(loss), net of tax, of fair
value loss/(gain) on embedded option
(4,601)
76,713
12,483
99,429
Adjusted profit/(loss) attributable to
the equity holders of TVN S.A.
271,441
184,177
17,491
21,104
Profit/(loss)
before income tax
Income tax (charge)/benefit
18
Profit/(loss) attributable to the
equity holders of TVN S.A.
Earnings/(losses) per share
for profit/(loss) attributable to
the equity holders of TVN S.A.
(not in thousands)
- basic
- diluted
8
8
Supplementary disclosure of impact of
embedded option valuation:
Profit/(loss) attributable to the equity
holders of TVN S.A.
The Group presents adjusted profit to reflect the impact of non-cash fair value losses/gains arising on prepayment
options embedded in its Senior Notes. The accounting for prepayment options is technical, judgmental and driven by
accounting interpretations. The Group believes that presentation of net profit adjusted for this item enables a reader
to better understand the Group’s operating and financial performance.
Piotr Walter
President of the Board
Karen Burgess
Vice-President of the Board
Edward Miszczak
Vice-President of the Board
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F- 4 -
TVN S.A.
Interim Condensed Consolidated Income Statement
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
Jan Łukasz Wejchert
Vice-President of the Board
Tomasz Berezowski
Board Member
Olgierd Dobrzyński
Board Member
Waldemar Ostrowski
Board Member
Adam Pieczyński
Board Member
Jarosław Potasz
Board Member
Piotr Tyborowicz
Board Member
Warsaw, November 6, 2008
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F- 5 -
TVN S.A.
Interim Condensed Consolidated Balance Sheet
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
As at
As at
September 30, 2008
December 31, 2007
296,688
952,657
693,688
46,691
156,707
193,936
130,924
7,588
18,191
4,689
2,501,759
250,168
952,657
693,688
50,969
127,433
83
7,588
12,637
4,256
2,099,479
198,923
267,919
87,529
33,510
41,058
823
18,673
260,055
908,490
179,523
299,590
24,267
31,600
94
110,372
645,446
3,410,249
2,744,925
69,899
605,547
23,152
99,209
788,840
69,455
566,327
22,901
86,833
684,245
1,586,647
1,429,761
721,425
498,595
160,553
4,250
1,323
1,386,146
790,388
166,578
8,724
406
966,096
118,786
31,720
21,249
12,870
27
252,804
437,456
111,107
43,223
3,332
191,406
349,068
Total liabilities
1,823,602
1,315,164
TOTAL EQUITY AND LIABILITIES
3,410,249
2,744,925
Note
ASSETS
Non-current assets
Property, plant and equipment
Goodwill
Brand
Other intangible assets
Non-current programming rights
Investments in associates
Loan to associate
Available-for-sale financial assets
Deferred tax asset
Other non current assets
Current assets
Current programming rights
Trade receivables
Available-for-sale financial assets
Derivative financial assets
Prepayments and other assets
Corporate income tax receivable
Bank deposits with maturity over 3 months
Cash and cash equivalents
9
10
10
11
9
12
11
13
14
14
TOTAL ASSETS
EQUITY
Shareholders’ equity
Share capital
Share premium
8% obligatory reserve
Other reserves
Accumulated profit
LIABILITIES
Non-current liabilities
9.5% Senior Notes due 2013
PLN Bonds due 2013
Deferred tax liability
Non-current trade payables
Other non-current liabilities
Current liabilities
Current trade payables
Corporate income tax payable
Accrued interest on 9.5% Senior Notes due 2013
Accrued interest on PLN Bonds
Short term bank loans
Other liabilities and accruals
15
16
16
16
16
17
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F- 6 -
TVN S.A.
Interim Condensed Consolidated Statement of Changes in Shareholders’ Equity
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
Number of
shares
(not in thousands)
Share capital
Share
Premium
8% obligatory
reserve
Employee share
option plan
reserve
Accumulated
profit
Shareholders’
equity
343,508,455
68,702
499,238
21,323
77,087
570,815
1,237,165
Profit for the period
-
-
-
-
-
107,464
107,464
Total recognized income for the
period
-
-
-
-
-
107,464
107,464
3,590,562
718
64,486
-
(33,499)
-
31,705
Share issue cost
-
-
(322)
-
-
-
(322)
Charge for the period (1)
-
-
-
-
33,845
-
33,845
Dividend declared and paid
-
-
-
-
-
(128,300)
(128,300)
Appropriation of 2006 profit – transfer to
8% obligatory reserve
-
-
-
1,578
-
(1,578)
-
347,099,017
69,420
563,402
22,901
77,433
548,401
1,281,557
Balance at January 1, 2007
Issue of shares
Balance at September 30, 2007
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F- 7 -
TVN S.A.
Interim Condensed Consolidated Statement of Changes in Shareholders’ Equity
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
Number of
shares
(not in thousands)
Share capital
Share
Premium
8% obligatory
reserve
Employee share
option plan
reserve
Accumulated
Profit
Shareholders’
equity
347,272,975
69,455
566,327
22,901
86,833
684,245
1,429,761
Profit for the period
-
-
-
-
-
276,042
276,042
Total recognized income for the
period
-
-
-
-
-
276,042
276,042
2,223,678
444
39,315
-
(18,252)
-
21,507
Share issue cost
-
-
(95)
-
-
-
(95)
Dividend declared and paid
-
-
-
-
-
(171,180)
(171,180)
Dividend cost
-
-
-
-
-
(16)
(16)
Charge for the period (1)
-
-
-
-
30,628
-
30,628
Appropriation of 2007 profit – transfer to
8% obligatory reserve
-
-
-
251
-
(251)
-
349,496,653
69,899
605,547
23,152
99,209
788,840
1,586,647
Balance at January 1, 2008
Issue of shares (2)
Balance at September 30, 2008
(1)
On December 27, 2005 TVN S.A. introduced the TVN Incentive Scheme I based on C series of shares. On June 8, 2006 the Annual Shareholders’ Meeting approved a conditional share
capital increase of up to 1,974 required for the execution of the TVN Incentive Scheme I.
On July 31, 2006, as part of the acquisition of Grupa Onet.pl, TVN S.A. introduced the TVN Incentive Scheme II based on E series of shares. On September 26, 2006 the Extraordinary
Shareholders’ Meeting approved a conditional share capital increase of up to 1,756 required for the execution of the TVN Incentive Scheme II .
(2)
During the nine months ended September 30, 2008, 2,223,678 (not in thousands) of C1, C2, E1, E2 and E3 series shares were issued and fully paid as a result of the exercise of share
options granted to the participants of TVN incentive schemes. Of this number, 60,183 shares were pending registration by the Court as at September 30, 2008 (see Note 15).
Included in accumulated profit is an amount of 736,376 being the accumulated profit of TVN S.A. on a stand-alone basis which is distributable. The Senior Notes (see Note 16) impose certain
restrictions on payment of dividends.
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F- 8 -
TVN S.A.
Interim Condensed Consolidated Cash Flow Statement
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
Nine months ended
September 30, 2008
Nine months ended
September 30, 2007
543,812
(88,704)
455,108
355,248
(74,226)
281,022
Note
Operating activities
Cash generated from operations
Tax paid
Net cash generated from operating activities
19
Investing activities
Acquisition of subsidiaries net of cash acquired
19
-
(49,561)
Acquisition of associate
10
(323,817)
-
(96,237)
(89,196)
Payments to acquire property, plant and equipment
Proceeds from sale of property, plant and equipment
Payments to acquire intangible assets
447
773
(12,441)
(14,150)
Purchase of available for sale financial assets
11
(87,529)
(2,745)
Payments to acquire options
13
(6,987)
-
Loans granted to associate
10
(15,180)
-
Bank deposits with maturity over three months
14
(18,360)
-
10,225
4,365
(549,879)
(150,514)
21,412
(171,196)
(36,587)
(10,370)
(16,642)
498,670
(41,165)
-
31,383
(128,300)
(3,470)
(43,136)
396
Net cash generated by/ (used in) financing activities
244,122
(143,127)
Increase/(decrease) in cash and cash equivalents
149,351
(12,619)
110,372
104,611
Interest received
Net cash used in investing activities
Financing activities
Issue of shares, net of issue cost
Dividend paid
Repurchase of Senior Notes due 2013
Payments to acquire options
Early settlement of options
Issue of PLN Bonds
Interest paid
Bank loan
Cash and cash equivalents at the start of the period
15,24
16
13
13
16
14
Effects of exchange rate changes
Cash and cash equivalents at the end of the period
14
332
373
260,055
92,365
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F- 9 -
TVN S.A.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
1. TVN
These interim condensed consolidated financial statements were authorized for issuance by
the Management Board and Supervisory Board of TVN S.A. on November 6, 2008.
TVN S.A. (until July 29, 2004 TVN Sp. z o. o.) was incorporated in May 1995 and is a public
media and entertainment company established under the laws of Poland and listed on the
Warsaw Stock Exchange.
The Company is part of a group of companies controlled by International Trading and
Investments Holdings S.A. Luxembourg (“ITI Holdings”) and its subsidiaries (the “ITI Group”).
ITI Group has been active in Poland since 1984 and is the largest media and entertainment
group in Poland.
The structure of TVN Group is described in Note 22.
On June 25, 2008 the Group completed the acquisition from ITI Media Group N.V. of 25% of
the share capital plus 1 share of Neovision Holding B.V. a company registered in
Amsterdam, the sole shareholder of ITI Neovision Sp. z o.o. which owns and operates the ‘n’
direct-to-home (‘DTH’) platform in Poland. For a total cash consideration of EUR 95 million
the Group purchased 25% of the share capital plus one share in Neovision Holding B.V. and
a corresponding pro-rata interest in shareholder loans granted to ITI Neovision Sp. z o.o.
(see Note 10).
On June 23, 2008 the Group completed a Bond Issue with a nominal value of 500,000 with
Bank Pekao S.A., Bank Handlowy w Warszawie S.A. and BRE Bank S.A. (see Note 16).
On June 30, 2008 the Group entered into a PLN 200,000 multicurrency loan facility
agreement with Bank Pekao S.A. (see Note 16).
The Group believes that all of its material operations are either part of the television
broadcast service segment or the new media segment, and it currently reports these two
business segments.
The majority of the Group’s operations and assets are based in Poland. Assets and revenues
from outside Poland constitute less than 10% of the total assets of all segments. Therefore,
no geographic information has been included.
Advertising sales in Poland tend to be lowest during the third quarter of each calendar year,
which includes the summer holiday period, and highest during the fourth quarter of each
calendar year.
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F- 10 -
TVN S.A.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
2. ACCOUNTING POLICIES
2.1.
Basis of preparation
These interim condensed consolidated financial statements are prepared in accordance with
the International Financial Reporting Standards (“IFRS”) as adopted by the EU, issued and
effective as at the balance sheet date and IAS 34 “Interim Financial Reporting”. The
accounting policies used in the preparation of the interim condensed consolidated financial
statements as of and for the three and nine months ended September 30, 2008 are
consistent with those used in the annual consolidated financial statements for the year ended
December 31, 2007 except for new accounting policies described below and interpretations
which became effective January 1, 2008.
In 2008 the Group adopted IFRIC 11- Group and Treasury Share Transactions, an
interpretation addresses the issue of share-based payment arrangements involving an
entity’s own equity instruments and equity instruments of the parent. This interpretation did
not impact the Group’s financial statements.
These interim condensed consolidated financial statements are prepared under the historical
cost convention, as modified by the revaluation of financial assets and financial liabilities
(including derivative instruments) at fair value through profit or loss and available for sale
financial assets.
These interim condensed consolidated financial statements should be read in conjunction
with the audited annual consolidated financial statements for the year ended December 31,
2007.
The Group’s consolidated financial statements for the year ended December 31, 2007
prepared in accordance with IFRS as adopted by the EU are available on
http://investor.tvn.pl.
2.2.
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.
The Group’s share of post-acquisition profits or losses is recognized in the income
statement, and its share of post-acquisition movements in reserves is recognized in
reserves. The cumulative post-acquisition movements are adjusted against the carrying
amount of the investment.
When the Group’s share of losses in an associate equals or exceeds its interest in the
associate, including any other unsecured receivables, 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. Unrealised losses are also eliminated unless
the transaction provides evidence of an impairment of the assets transferred.
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F- 11 -
TVN S.A.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
2. ACCOUNTING POLICIES (CONTINUED)
Contracts between an acquirer and a vendor in a business combination to buy or sell an
acquiree 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.
2.3.
Property, plant and equipment – changes in estimates
In accordance with the requirements of IAS 16, the Group reviewed the expected useful lives
and residual values of property, plant and equipment as at December 31, 2007. As a result,
the expected remaining useful lives and residual values of some items of TV & Broadcasting
equipment and vehicles were adjusted. The changes in estimates are effective January 1,
2008 and resulted in a reduction of depreciation during the three and nine months ended
September 30, 2008 of 1,370 and 257 respectively.
2.4.
Revenue recognition
Revenue comprises the fair value of the consideration received or receivable for the sale of
services and goods in the ordinary course of the Group’s activities. Revenue is shown net of
value-added tax, returns, rebates and discounts and after eliminating sales within the Group.
The Group recognizes revenue when the amount of revenue can be reliably measured, it is
probable that future economic benefits will flow to the entity and when specific criteria have
been met for each of the Group’s activities as described below. The amount of revenue is not
considered to be reliably measurable until all contingencies relating to the sale have been
resolved.
(i)
Sales of services
Revenue primarily results from the sale of television and internet advertising and is
recognised in the period in which the advertising is broadcast. Other revenues from sales of
services primarily result from cable and satellite television subscription fees, internet users’
fees and call television and are recognised generally upon the performance of service.
(ii)
Sales of goods
The Group operates a teleshopping business selling goods to individual customers. Sales of
goods are recognized when the goods are sent to the customer. It is the Group’s policy to
sell the goods to the individual customers with a right to return within 10 days. Accumulated
experience is used to estimate and provide for such returns at the time of sale.
2.5.
Comparative financial information
Where necessary, comparative figures or figures presented in previously issued financial
statements have been adjusted to conform to changes in presentation in the current period.
No amendments have resulted in changes to previously presented net results or
shareholders’ equity.
2.6.
New Accounting Standards and IFRIC pronouncements
Certain new accounting standards and International Financial Reporting Interpretations
Committee (”IFRIC”) interpretations have been published by IASB since the publication of the
annual consolidated financial statements that are mandatory for accounting periods
beginning on or after October 1, 2008. The Group’s assessment of the impact of these new
standards and interpretations is set out below.
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F- 12 -
TVN S.A.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
2. ACCOUNTING POLICIES (CONTINUED)
(i) Amendments to IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of
Financial Statements - Puttable Financial Instruments and Obligations Arising on Liquidation
The amendments were published on February 14, 2008 and are effective for annual periods
beginning on January 1, 2009 with earlier application permitted. The amendments require
entities to classify as equity puttable financial instruments and instruments or components of
instruments, that impose on the entity an obligation to deliver to another party a pro rata
share of the net assets of the entity only on liquidation. Additional disclosures are required
about the instruments affected by the amendments. The Group will apply the amendments.
(ii) Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards
and IAS 27 Consolidated and Separate Financial Statements - Cost of an Investment in a
Subsidiary, Jointly Controlled Entity or Associate.
The amendments were published on May 22, 2008. The amendments to IFRS 1 allow firsttime adopters, in their separate financial statements, to use a deemed cost option for
determining the cost of an investment in a subsidiary, jointly controlled entity or associate.
Additionally, when an entity reorganises the structure of its group by establishing a new entity
as its parent (subject to specific criteria), the amendments require the new parent to measure
cost as the carrying amount of its share of the equity items shown in the separate financial
statements of the original parent at the date of the reorganisation. The new requirements will
apply for annual periods beginning on 1 January 2009, with earlier application permitted. The
Group will apply the amendments.
(iii) IFRIC 15 – Agreements for the Construction of Real Estate
The interpretation was issued on July 3, 2008. It applies to the accounting for revenue and
associated expenses by entities that undertake the construction of real estate directly or
through subcontractors. The Interpretation provides guidance on how to determine whether
an agreement for the construction of real estate is within the scope of IAS 11 Construction
Contracts or IAS 18 Revenue and when revenue from the construction should be recognised.
The interpretation is effective for annual periods beginning on 1 January 2009 and is to be
applied retrospectively. The Group will not be affected by the interpretation.
(iv) IFRIC 16 - Hedges of a Net Investment in a Foreign Operation
The interpretation was issued on July 3, 2008. IFRIC 16 applies to an entity that hedges the
foreign currency risk arising from its net investments in foreign operations and wishes to
qualify for hedge accounting in accordance with IAS 39. IFRIC 16 provides guidance on (1)
identifying the foreign currency risks that qualify as a hedged risk in the hedge of a net
investment in a foreign operation; (2) where, within a group, hedging instruments that are
hedges of a net investment in a foreign operation can be held to qualify for hedge
accounting; and (3) how an entity should determine the amounts to be reclassified from
equity to profit or loss for both the hedging instrument and the hedged item. IFRIC 16 is
effective for annual periods commencing on or after 1 October 2008. The interpretation will
not affect the Group financial statements.
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F- 13 -
TVN S.A.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
2. ACCOUNTING POLICIES (CONTINUED)
(v) IFRS Improvements
The International Accounting Standards Board has issued “IFRS Improvements”, which
amend 20 standards. The amendments include changes in presentation, recognition and
valuation and include terminology and editorial changes. Majority of amendments will be
effective from annual periods starting on 1 January 2009. The Group will adopt the changes
in accordance with transition provisions. The Group is currently analyzing the impact of the
amended standards on the Group’s financial statements.
(vi) Amendments to IAS 39: Financial Instruments: Recognition and Measurement: Eligible
Hedged Items
The amendment was published on July 31, 2008. It provides additional guidance on what
can be designated as a hedged item. Entities are required to apply the amendment
retrospectively for annual periods beginning on or after July 1, 2009 with earlier application
permitted.
(vii) Amendments to IAS 39 Financial Instruments: Recognition and Measurement and IFRS
7 Financial Instruments: Disclosures
The amendments were published on October 13, 2008. The amendments to IAS 39
introduce the possibility of certain reclassifications of financial instruments for companies
applying International Financial Reporting Standards, which were already permitted under
US generally accepted accounting principles (GAAP). The amendments are applicable as of
July 1, 2008.
Additionally, the following standards and IFRIC Interpretations are applicable in future and
were discussed in the Group’s annual financial statements for the year ended December 31,
2007:
• IFRS 8 – Operating Segments – applicable on or after January 1, 2009
• Amendments to IAS 23 – Borrowing Costs – applicable on January 1, 2009
• Amendments to IAS 1 – Presentation of financial statements – applicable on January 1,
2009
• Revision to IFRS 3 Business Combinations and amendment to IAS 27 Consolidated and
Separate Financial Statements - applicable on or after July 1, 2009
• Amendment to IFRS 2, Share-based Payments- applicable on January 1, 2009
• IFRIC 12 – Service Concession Arrangements
• IFRIC 13 – Customer Loyalty Programmes
• IFRIC 14 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and
their Interaction
At the date of preparation of these financial statements the following standards and IFRIC
interpretations were not adopted by the EU:
•
•
•
•
Amendments to IAS 23 – Borrowing Costs
Amendments to IAS 1 – Presentation of financial statements
Revision to IFRS 3 Business Combinations and amendment to IAS 27 Consolidated and
Separate Financial Statements
Amendment to IFRS 2, Share-based Payments
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F- 14 -
TVN S.A.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
2. ACCOUNTING POLICIES (CONTINUED)
•
•
•
•
•
•
•
•
•
IFRIC 12 – Service Concession Arrangements
IFRIC 13 – Customer Loyalty Programmes
IFRIC 14 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and
their Interaction
Amendments to IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of
Financial Statements - Puttable Financial Instruments and Obligations Arising on
Liquidation
Amendments to IFRS 1 First-time Adoption of International Financial Reporting
Standards and IAS 27 Consolidated and Separate Financial Statements - Cost of an
Investment in a Subsidiary, Jointly Controlled Entity or Associate
IFRIC 15 – Agreements for the Construction of Real Estate
IFRIC 16 - Hedges of a Net Investment in a Foreign Operation
IFRS Improvements
Amendment to IAS 39 Financial Instruments: Recognition and Measurement: Eligible
Hedged Items
3. FINANCIAL RISK MANAGEMENT
3.1
Financial risk factors
The Group’s activities expose it to a variety of financial risks: market risk, credit risk and
liquidity risk. The Group’s overall risk management process focuses on the unpredictability of
financial markets and aims to minimize potential adverse effects on the Group’s financial
performance. The Group uses derivative financial instruments to hedge certain risk
exposures when hedging instruments are assessed to be cost effective.
Financial risk management is carried out by the Group under policies approved by the
Management Board and Supervisory Board. The TVN Treasury Policy lays down the rules to
manage financial risk and liquidity, through determination of the financial risk factors to which
the Group is exposed to and their sources. Details of the duties, activities and methodologies
used to identify, measure, monitor and report risks as well as forecast cash flows, finance
maturity gaps and invest free cash resources are contained in approved supplementary
written instructions.
The following organizational units within the Group’s financial department participate in the
risk management process: risk committee, liquidity management team, risk management
team, financial planning and analyzing team and accounting and reporting team. The risk
committee is composed of the vice-president of the Management Board and heads of the
teams within the Group’s financial department. The risk committee meets monthly and based
on an analysis of financial risks recommends financial risk management strategy, which is
approved by the Management Board. The Supervisory Board approves risk exposure limits
and is consulted prior to the execution of hedging transactions. Financial planning and
analyzing team measure and identify financial risk exposure based on information reported
by operating units generating exposure. The liquidity management team performs analysis of
the Group’s risk factors, forecasts the Group’s cash flows and market and macroeconomic
conditions and proposes on cost-effective hedging strategies. The accounting and reporting
team monitors accounting implications of hedging strategies and verifies settlements of the
transactions.
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F- 15 -
TVN S.A.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
3. FINANCIAL RISK MANAGEMENT (CONTINUED)
(i) Market risk
Market risk related to the Senior Notes
The price of the Senior Notes depends on the Company’s creditworthiness and on the
relative strength of the bond market as a whole. The Group recognizes as an asset the value
of early redemption options embedded in the Senior Notes (see Note 16) and this valuation
largely depends on the market price of the Senior Notes. The Group is therefore exposed to
decreases in the market price of the Senior Notes.
The Senior Notes are listed on the Luxembourg Stock Exchange and the fair value of
embedded options recognized by the Group at the balance sheet date reflects the Senior
Notes market price on the last value date available from Reuters prior to the balance sheet
date. The impact of the Senior Notes market price change on the Group’s assets and income
statement is discussed in Note 4(i).
Foreign currency risk
The Group’s revenue is primarily denominated in Polish Zloty. Foreign exchange risk arises
mainly from the Group’s liabilities in respect of the Senior Notes and related embedded
prepayment options both denominated in EUR and liabilities to suppliers of foreign
programming rights, satellite costs and rental costs denominated in USD or EUR. Other
costs are predominantly denominated in PLN.
The Group’s policy in respect of management of foreign currency risks is to cover known
risks in a cost efficient manner and that no trading in financial instruments is undertaken.
Following evaluation of its exposures the Group enters into derivative financial instruments to
manage these exposures. Call options, swaps and forward exchange agreements may be
entered into to manage currency exposures. Regular and frequent reporting to management
is required for all transactions and exposures.
The estimated net profit/(loss) impact (post-tax) impact of a reasonably possible EUR
appreciation of 5% against the zloty, with all other variables held constant and without taking
into account derivative financial instruments entered into for hedging purposes on EUR
denominated balance sheet items is presented below:
9 months ended
September 30, 2008
9 months ended
September 30, 2007
(31,919)
(36,949)
(194)
(63)
(71)
(45)
Loans to associate
5,227
-
Cash equivalents – treasury bills
1,378
-
Embedded prepayment options
1,058
1,351
Liabilities:
9.5% Senior Notes due 2013 including accrued interest
Trade payables
Other
Assets:
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F- 16 -
TVN S.A.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
3. FINANCIAL RISK MANAGEMENT (CONTINUED)
The estimated net profit (post-tax) impact of a reasonably possible USD appreciation of 5%
against the zloty, with all other variables held constant and without taking into account
derivative financial instruments entered to mitigate USD fluctuations, on the major USD
denominated balance sheet items is:
Trade payables
9 months ended
September 30, 2008
9 months ended
September 30, 2007
(2,177)
(2,496)
The net profit/(loss) impact of possible foreign currency fluctuations is mitigated by derivative
instruments entered into by the Group. Details of EUR and USD option collars which the
Group had on September 30, 2008 are discussed in Note 13.
Interest rate risk
The Group’s exposure to interest rate risk arises on interest bearing assets and liabilities.
The main interest bearing items are the Senior Notes and PLN Bonds (see Note 16) and
loans to associate. As the Senior Notes are at a fixed interest rate, the Group is exposed to
fair value interest rate risk in this respect. Since the Senior Notes are carried at amortised
cost, the changes in fair values of these instruments do not have direct impact on valuation
of the Senior Notes in the balance sheet.
PLN Bonds with a nominal value of 500,000 were issued by the Group on June 23, 2008 and
are at a variable interest rate linked to WIBOR and therefore expose the Group to interest
rate risk. At September 30, 2008, if WIBOR interest rates had been 0.5% higher/lower with
all other variables held constant, post-tax profit for the period would have been by 549
lower/higher.
Loans to associate are at a variable interest rate linked to EURIBOR and therefore expose
the Group to cash flow interest rate risk. At September 30, 2008 if EURIBOR interest rates
had been 0.5% higher/lower with all other variables held constant, post tax profit for the
period would have been by 141 lower/higher.
On September 30, 2008 the Group acquired 87,529 of PLN treasury bills which are exposed
to fair value interest rate risk. The fair value of the bills at the date when these financial
statements were prepared was 87,946. The change in value was recognized charge in equity
of 45 and interest income in investment income of 473.
Management does not consider it cost effective to use financial instruments to hedge or
otherwise seek to reduce interest rate risk.
(ii) Credit risk
Financial assets, which potentially expose the Group to concentration of credit risk consist
principally of trade receivables, loans to associate (see Note 10) and related party
receivables. The Group places its cash and cash equivalents, bank deposits and current
available for sale financial assets with financial institutions that the Group believes are credit
worthy which is assessed by current credit ratings (see Note 14). The Group does not
consider its current concentration of credit risk as significant.
The Group performs ongoing credit evaluations of its customers’ financial condition and
generally requires no collateral from its customers. Clients with poor or no history of
payments with the Group, with low value committed spending or assessed by the Group as
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F- 17 -
TVN S.A.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
3. FINANCIAL RISK MANAGEMENT (CONTINUED)
not credit worthy are required to prepay before the service is rendered. Credit is granted to
customers with a good history of payments and significant spending who are assessed credit
worthy based on internal or external ratings. The Group performs ongoing evaluations of the
market segments focusing on their liquidity and creditworthiness and the Group’s credit
policy is appropriately adjusted to reflect current and expected economic conditions.
The Group defines credit exposure as total outstanding receivables (including overdue
balances) and monitors the exposure regularly on an individual basis by paying counterparty.
The majority of the Group’s sales are made through advertising agencies (73% of the total
trade receivables as of September 30, 2008) who manage advertising campaigns for
advertisers and pay the Group once payment has been received from the customer. The
Group’s top ten advertisers account for 20% and the single largest advertiser accounted for
4% of sales for the nine months ended September 30, 2008. Generally advertising agencies
in Poland are limited liability companies with little recoverable net assets in case of
insolvency. The major players amongst the advertising agencies in Poland with whom the
Group co-operates are subsidiaries and branches of large international companies of good
reputation. To the extent that it is cost-efficient the Group mitigates credit exposure by use of
a trade receivable insurance facility from a leading insurance company.
The table below analyses the Group’s trade receivables by category of customers:
Trade receivables (net)
Receivables from advertising agencies
Receivables from individual customers
Receivables from related parties
September 30, 2008
December 31, 2007
73%
22%
5%
100%
73%
24%
3%
100%
Credit concentration of the five largest counterparties measured as a percentage of the
Group’s total trade receivables:
Trade receivables (net)
Agency A
Agency B
Agency C
Agency D
Agency E
Sub-total
Total other counterparties
September 30, 2008
December 31, 2007
11%
8%
7%
6%
6%
38%
62%
100%
5%
11%
6%
10%
3%
35%
65%
100%
Certain advertising agencies operating in Poland as separate entities are part of international
financial groups controlled by the same ultimate shareholders. Credit concentration of the
Group aggregated by international agency groups, measured as a percentage of the
Group’s total trade receivables is presented below:
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F- 18 -
TVN S.A.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
3. FINANCIAL RISK MANAGEMENT (CONTINUED)
Trade receivables from advertising agencies (net)
September 30, 2008
December 31, 2007
19%
13%
13%
13%
4%
38%
100%
13%
12%
16%
20%
2%
37%
100%
Agency Group F
Agency Group G
Agency Group H
Agency Group I
Agency Group J
Total other counterparties
Management does not expect any significant losses with respect to amounts included in the
trade receivables at the balance sheet date from non-performance by the respective Group’s
customers as at September 30, 2008.
The Group does not consider credit risk associated with loans to associate as significant.
(iii) Liquidity risk
The Group maintains sufficient cash to meet its obligations as they become due and has
available to it additional funding through a credit facility (see Note 16). Management monitors
regularly expected cash flows. The Group expects that its principal future cash needs will be
capital expenditures relating to acquisitions, dividends, share buyback, capital investment in
television and broadcasting facilities and equipment, debt service on the Senior Notes and
PLN Bonds and the launch of new thematic channels. The Group believes that its cash
balances, cash generated from operations and existing credit facility will be sufficient to fund
these needs. However, if following the current liquidity crisis in the banking sector external
financing is unavailable at reasonable conditions for a longer period of time or the operating
cash flows of the Group are negatively affected by an economic slow-down or clients’
financial difficulties the Group will review its cash needs to ensure that its existing obligations
can be met for the foreseeable future. As at September 30, 2008 the Group had cash and
cash equivalents, liquid available for sale financial instruments, bank deposits and
committed unutilized credit facilities totaling 539,328 at its disposal (282,652 at December
31, 2007).
The table below analyses the Group’s financial liabilities that will be settled into relevant
maturity groupings based on the remaining period at the balance sheet to the contractual
maturity date. The balances in the table are the contractual undiscounted cash flows,
excluding the impact of early prepayment options. Balances due within 12 months equal their
carrying balances, as the impact of discounting is not significant.
Within
1 year
Between
1-2 years
Above
2 years
9.5% Senior Notes due 2013
72,852
72,852
1,021,851
PLN Bonds
46,295
47,465
642,510
Trade payables
118,786
4,250
-
Other liabilities and accruals
252,804
1,323
-
At September 30, 2008
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F- 19 -
TVN S.A.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
3. FINANCIAL RISK MANAGEMENT (CONTINUED)
Within
1 year
Between
1-2 years
Above
2 years
At December 31, 2007
9.5% Senior Notes due 2013
79,968
79,968
1,081,674
Trade payables
111,107
8,724
-
Other liabilities and accruals
191,406
406
-
3.2
Capital risk management
The Group’s objectives when managing capital are to safeguard the Group’s ability to
continue as a going concern in order to provide returns for shareholders and benefits for
other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the amount of
dividends paid to shareholders, issue new shares, draw borrowings or sell assets to reduce
debt.
The Group monitors capital on the basis of the net debt to EBITDA ratio. Net debt represents
the nominal value of borrowings (see Note 16) payable at the balance sheet date including
accrued interest less cash and cash equivalents (excluding treasury bills purchased and not
settled), liquid available for sale financial instruments and bank deposits with maturity over 3
months. EBITDA is calculated for the last twelve months and is defined as net profit/(loss),
before depreciation and amortization (other than programming rights), impairment charges
on property plant and equipment and intangible assets, finance expense, investment income,
share of loss of associate and income tax charge.
Net debt
EBITDA
Net debt/EBITDA ratio
September 30, 2008
December 31, 2007
968.784
681,689
1.4
734,730
554,102
1.3
The Group’s strategy is to maintain its net debt/EBITDA ratio at a level not exceeding 3.5.
3.3
Fair value estimation
The fair value of financial instruments traded in active markets is based on quoted market
prices at the balance sheet date. The fair value of financial instruments that are not traded in
an active market is determined using valuation techniques. The Group uses a variety of
methods and makes assumptions that are based on market conditions existing at each
balance sheet date. The fair value of available for sale financial assets is determined using
industry multiples and the most recent available financial information about the investment.
The fair value of forward foreign exchange contracts and option collars is determined based
on the valuations performed by the Group’s bank.
The carrying value less impairment provision of trade receivables and payables are assumed
to approximate their fair values due to the short-term nature of trade receivables and
payables.
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F- 20 -
TVN S.A.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Estimates and judgments are continually evaluated and are based on historical experience
and other factors, including expectations of future events that are believed to be reasonable
under the circumstances.
Critical accounting estimates and assumptions
The Group makes estimates and assumptions concerning the future. The resulting
accounting estimates will, by definition, seldom equal the related actual results. The
estimates and assumptions that have a significant risk of causing a material adjustment to
the carrying amounts of assets and liabilities within the next financial year are discussed
below.
(i) Fair valuation of the embedded prepayment options
The Group calculates at each reporting date the fair value of the prepayment options
embedded in the Senior Notes using the Brace-Gątarek-Musiela model. Significant inputs
into the valuation model are the Senior Notes market price, benchmark bond yields and
interest rate cap volatilities. The inputs are based on information provided by Reuters on the
valuation date. The Senior Notes market price is quoted by Reuters based on the last value
date. In the fair valuation as of September 30, 2008 the Group input into the valuation model
the market price of 103.57, based on the last available value date on September 30, 2008.
The last available Senior Notes market price provided by Reuters at the date when these
financial statements were prepared was 91.75 (based on value date on October 29, 2008).
Should this price be input into the valuation model the carrying value of the embedded
prepayment options would decrease by 20,332.
(ii) Fair valuation of “n” brand as of June 30, 2008
The Group valued provisionally the “n” brand at the date of acquisition of Neovision Holding
BV at 85,120. The Group will recognize any adjustments to the provisional values assigned
to the associate’s identifiable assets, liabilities and the cost of the acquisition as a result of
completing the initial accounting within twelve months of the acquisition date. In the absence
of applicable market benchmarks, the Group fair valued the “n” brand using the ‘relief from
royalty’ income method. The ‘relief from royalty’ method assumes that the value of the brand
is reflected in the present value of hypothetical future royalty payments, which the owner of
the brand would have to incur, should the brand be licensed from another entity.
This valuation requires the use of estimates related to sales projections for the activity run
under the brand, estimation of the representative royalty rate applied on projected revenues,
estimation of the discount rate and estimation of the useful life of the brand. The royalty rate
used in the valuation was assumed at 2%.
The revenue projections were based on management’s business plan which covers the
period 2008-2017. The Group assumed the useful life of the “n” brand to be 10 years. The
discount rate used in the valuation was 12.8%. Fair value is sensitive to changes in the
revenue growth and other parameters of the valuation model. Decrease of the revenue
growth by 1 p.p. gives a fair value of 82 million. A royalty rate at 3% would give a fair value of
128 million. A discount rate of 12% would give a fair value of 88 million.
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F- 21 -
TVN S.A.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
5. SEGMENT REPORTING
The Group’s principal activities are television broadcasting and production, and new media.
A business segment is a distinguishable component of an enterprise that is engaged in
providing an individual product or service or a group of related products or services and that
is subject to risks and returns that are different from those of other business segments.
The television broadcasting and production segment is mainly involved in the broadcasting of
news, information and entertainment shows, series and movies and comprises television
channels operated in Poland. The new media segment primarily comprises mainly Onet.pl,
Poland’s leading portal.
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F- 22 -
TVN S.A.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
5. SEGMENT REPORTING (CONTINUED)
Television Broadcasting &
Production
Nine months
Nine months
ended
ended
September 30,
September 30,
2008
2007
New Media
Nine months
ended
September 30,
2008
Unallocated
Nine months
ended
September 30,
2007
Nine months
ended
September 30,
2008
Total
Nine months
ended
September 30,
2007
Nine months
ended
September 30,
2008
Nine months
ended
September 30,
2007
-
1,305,011
1,033,108
Revenue from external
customers
Inter-segment revenue
Total revenue
Segment result
1,169,432
1,521
1,170,953
413,823
930,009
4,111
934,120
304,663
135,579
103,099
6,754
-
5,308
(8,275)
(9,419)
-
-
142,333
108,407
(8,275)
(9,419)
1,305,011
1,033,108
22,084
7,357
(26,129)
(23,415)
409,778
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F- 23 -
288,605
TVN S.A.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
6. OPERATING EXPENSES
Nine months
ended
September 30,
2008
Nine months
ended
September 30,
2007
Three months
ended
September 30,
2008
Three months
ended
September 30,
2007
349,995
282,472
106,871
98,896
87,799
93,030
26,116
29,575
119,922
86,951
41,121
29,820
Share options granted to board
members and employees
30,628
33,845
9,486
10,229
Depreciation, amortization and
impairment charges
58,695
52,281
20,618
18,703
Marketing and research
51,653
37,811
18,253
15,349
Royalties
45,937
38,283
11,772
11,269
Broadcasting expenses
37,283
35,851
12,096
13,180
Cost of services and goods sold
21,887
8,443
8,498
4,087
Rental
20,059
14,713
6,527
4,734
85
454
538
11
71,290
60,369
17,783
22,969
895,233
744,503
279,679
258,822
Amortization of locally produced
content
Amortization of acquired
programming rights and coproduction
Staff expenses
Impaired accounts receivable
Other
Included in the above operating expenses are operating lease expenses for the nine months
ended September 30, 2008 of 73,837 (nine months ended September 30, 2007: 58,548) and
for the three months ended September 30, 2008 of 23,614 (three months ended September
30, 2007: 19,225).
Amortization of locally produced content for the nine months ended September 30, 2008 has
been reduced by grants received in the total amount of 1,317 (nine months ended
September 30, 2007: 1,829) and for the three months ended September 30, 2008 of 90
(three months ended September 30, 2007: 0).
Included in the above operating expenses is an aggregate amount of research and
development expenditure of 1,131 recognized as an expense in the nine months ended
September 30, 2008 (nine months ended September 30, 2007: 854) and for the three
months ended September 30, 2008 of 448 (three months ended September 30, 2007: 447).
Included in depreciation, amortization and impairment charges is the amount of impairment
reversal of 1,885 for the period ended September 30, 2008 (charge of 306 for the period
ended September 30, 2007).
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F- 24 -
TVN S.A.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
7. INVESTMENT INCOME AND FINANCE EXPENSE
Nine months
ended
September 30,
2008
Nine months
ended
September 30,
2007
Three months
ended
September 30,
2008
Three months
ended
September 30,
2007
10,310
4,132
5,283
918
4,134
7,447
(3,677)
4,912
2,550
-
2,414
-
(2,121)
14,873
11,579
(2,121)
1,899
5,830
(75,630)
(68,448)
(31,969)
(22,487)
(1,819)
(2,221)
(606)
(740)
- foreign exchange option collars –
fair value hedges (Note 13)
-
(5,288)
34,263
2,729
- foreign exchange option collars –
portion not designated as hedging
instrument (see Note 13)
(11,673)
(11,872)
(8,685)
160
- foreign exchange option collars –
early settlement of instrument
(16,642)
-
(16,642)
-
5,680
(94,707)
(15,411)
(122,752)
Investment income, net
Interest income
Foreign exchange gains/(losses),
net
Accrued interest income on loan
to associate
Foreign exchange option collars
not designated as hedging
instruments
Finance expense, net
Interest expense on 9.5% Senior
Notes and PLN Bonds (see Note
16)
Guarantee fees to related party
(see Note 23(vi))
Fair value (losses)/gains on
financial instruments:
- embedded option (see Note
13,16)
Cost of repurchase of Senior
Notes (including pre- issuance
costs written off)*
Bank charges
(2,910)
-
-
-
(1,996)
(2,449)
(1,433)
(1,685)
Foreign exchange gains/(losses)
on Senior Notes
40,239
12,890
(12,346)
(2,653)
(64,751)
(172,095)
(52,829)
(147,428)
* The cost reflects the premium paid on repurchase and the derecognized amount of the remaining
unamortized debt issuance costs relating to the repurchased Senior Notes (see Note 16).
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F- 25 -
TVN S.A.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
8. BASIC AND DILUTED EARNINGS PER SHARE (NOT IN THOUSANDS)
(i)
Earnings per share for profit attributable to the equity holders of TVN S.A.
Basic
Basic earnings per share are calculated by dividing the net profit attributable to equity
holders of TVN S.A. by the weighted average number of ordinary shares in issue during the
period, excluding ordinary shares purchased by the Company.
Profit/(loss) attributable to equity
holders of TVN S.A. (in
thousands)
Weighted average number of
ordinary shares in issue
Basic earnings/(losses)
per share
Nine months
ended
September 30,
2008
Nine months
ended
September 30,
2007
Three months
ended
September 30,
2008
Three months
ended
September 30,
2007
276,042
107,464
5,008
(78,325)
348,531,422
345,578,047
349,443,751
346,980,277
0.79
0.31
0.01
(0.23)
Diluted
Diluted earnings per share is calculated by adjusting the weighted average number of
ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares.
The Company has only one category of potential ordinary shares: share options.
For the share options a calculation was done to determine the number of shares that could
have been acquired at fair value (determined as average market price of the Company’s
shares) based on the monetary value of the subscription rights attached to outstanding share
options. The number of shares calculated as above was compared with the number of
shares that would have been issued assuming the exercise of the share options.
Nine months
ended
September 30,
2008
Nine months
ended
September 30,
2007
Three months
ended
September 30,
2008
Three months
ended
September 30,
2007
276,042
107,464
5,008
(78,325)
Weighted average number of
ordinary shares in issue
348,531,422
345,578,047
349,443,751
346,980,277
Adjustment for share options
4,854,435
6,659,528
3,434,721
-
Weighted average number of
potential ordinary shares for
diluted earnings per share
353,385,857
352,237,575
352,878,472
346,980,277
0.78
0.31
0.01
(0.23)
Profit/(loss) attributable to equity
holders of TVN S.A. (in
thousands)
Diluted earnings/(losses)
per share
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F- 26 -
TVN S.A.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
8. BASIC AND DILUTED EARNINGS PER SHARE (NOT IN THOUSANDS) (CONTINUED)
(ii)
Earnings per share for adjusted profit attributable to the equity holders of TVN S.A.
The Group presents adjusted profit to reflect the impact of non-cash fair value losses/gains
arising on prepayment options embedded in its Senior Notes. The accounting for prepayment
options is technical, judgmental and driven by accounting interpretations. The Group believes
that presentation of net profit adjusted for this item enables a reader to better understand the
Group’s operating and financial performance.
Basic
Nine months
ended
September 30,
2008
Nine months
ended
September 30,
2007
Three months
ended
September 30,
2008
Three months
ended
September 30,
2007
276,042
107,464
5,008
(78,325)
(4,601)
76,713
12,483
99,429
Adjusted profit attributable to
equity holders of TVN S.A. (in
thousands)
271,441
184,177
17,491
21,104
Weighted average number of
ordinary shares in issue
348,531,422
345,578,047
349,443,751
346,980,277
0.78
0.53
0.05
0.06
Nine months
ended
September 30,
2008
Nine months
ended
September 30,
2007
Three months
ended
September 30,
2008
Three months
ended
September 30,
2007
Profit/(loss) attributable to equity
holders of TVN S.A. (in
thousands)
276,042
107,464
5,008
(78,325)
Impact on profit/(loss), net of tax
of fair value gain on embedded
option (in thousands)
(4,601)
76,713
12,483
99,429
Adjusted profit attributable to
equity holders of TVN S.A. (in
thousands)
271,441
184,177
17,491
21,104
Weighted average number of
ordinary shares in issue
348,531,422
345,578,047
349,443,751
346,980,277
Adjustment for share options
4,854,435
6,659,528
3,434,721
5,240,066
Weighted average number of
potential ordinary shares for
diluted earnings per share
353,385,857
352,237,575
352,878,472
352,220,343
0.77
0.52
0.05
0.06
Profit attributable to equity
holders of TVN S.A. (in
thousands)
Impact on profit, net of tax of fair
value gain on embedded option
(in thousands)
Adjusted basic earnings
per share
Diluted
Adjusted diluted earnings
per share
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F- 27 -
TVN S.A.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
9. PROGRAMMING RIGHTS
September 30, 2008
December 31, 2007
172,059
187,263
News archive
12,567
12,907
Co-productions
13,479
2,273
157,525
104,513
355,630
306,956
Less current portion of programming rights
(198,923)
(179,523)
Non-current portion of programming rights
156,707
127,433
Nine months ended
September 30, 2008
Nine months ended
September 30, 2007
187,263
199,247
Acquired programming rights
Productions
Changes in acquired programming rights
Net book value as at January 1
71,605
78,994
Amortization
(86,809)
(89,794)
Net book value as at September 30
172,059
188,447
Additions
10. INVESTMENT IN POLISH DTH “N” PLATFORM
On June 25, 2008 the Group completed the acquisition of 25% of the share capital plus 1
share of Neovision Holding B.V. (“Neovision Holding”) a company registered in Amsterdam,
the Netherlands from ITI Media Group N.V. (“ITI Media Group”), entity under common
control. Neovision Holding is the sole shareholder of ITI Neovision Sp. z o.o. (“ITI Neovision”)
which owns and operates the ‘n’ DTH platform in Poland. For a total cash consideration of
EUR 95 million (PLN 319,628) the Group purchased 25% of the share capital plus one share
in Neovision Holding and a corresponding pro-rata interest in the loans granted to ITI
Neovision with a nominal value of EUR 35.3 million. As part of the transaction, the Group has
also acquired options to acquire an additional 25% of shares of Neovision Holding. In
accordance with the policy adopted by the Group these options are not recognized as
financial instruments.
The Group has significant influence on, but not control over ITI Neovision’s operations.
Accordingly, the investment is classified as an investment in an associate and accounted for
using the equity method. In these consolidated financial statements the total investment is
split between investment in an associate and loans receivable from an associate. The value
attributed initially to the investment in associate reflects the purchase price paid to ITI Media
Group less the fair value of loans acquired. The fair value of loans receivable was estimated
based on a valuation model with the key inputs being credit spread and market interest rates.
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F- 28 -
TVN S.A.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
10. INVESTMENT IN POLISH DTH “N” PLATFORM (CONTINUED)
Nine months ended
September 30, 2008
Investment in associate
Beginning of the period
Investment in Neovision Holding *
Other direct costs
Nine months ended
September 30, 2007
83
83
210,296
-
2,614
-
Share of loss of Neovision Holding
(19,057)
-
End of the period
193,936
83
Nine months ended
September 30, 2008
Loans receivable from associate
Beginning of the period
Nine months ended
September 30, 2007
-
-
109,332
-
Other direct costs
1,575
-
Interest accrued *
2,550
-
15,180
-
2,287
-
130,924
-
Investment in Neovision Holding *
Loans extended after acquisition
Foreign exchange gains
End of the period
* value established provisionally
The loans bear interest at 8.25% p.a., have nominal values of EUR 25.1 million, EUR 4.5
million and EUR 5.7 million and are due for repayment on December 31, 2015, April 5, 2011
and July 19, 2011 respectively. Interest is accrued and payable at maturity using an effective
interest rate of 9.45% with respect to loans repayable on December 31, 2015 and 9.84% with
respect to loans repayable on April 5 and July 19, 2011.
The Group’s share of the results of Neovision Holding and its aggregated assets and
liabilities at book values as at September 30, 2008 are as follows:
Name
Neovision Holding B.V.
Country of
incorporation
Netherlands
Assets
Liabilities
Revenues
Net result
%
interest
held
450,867
(823,089)
60,464
(76,228)*
25
* since the date of investment (June 25, 2008)
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F- 29 -
TVN S.A.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
10. INVESTMENT IN POLISH DTH “N” PLATFORM (CONTINUED)
The fair value of aggregated assets and aggregated liabilities arising from the acquisition,
provisionally determined based on a valuation as of June 30, 2008, are as follows:
Fair value
Acquiree’s carrying
amount
Brand
Deferred tax liability on brand
Other assets
Other liabilities
85,120
(16,173)
433,671
(723,720)
433,671
(723,720)
Provisional value of net liabilities assumed
(221,102)
(290,049)
The Group’s share
25%
Provisional value of the Group’s share of
net liabilities assumed
(55,276)
In the preliminary purchase price allocation process the Group identified and valued
marketing related intangible assets such as the “n” brand. The fair value of the brand was
estimated using the relief from royalty method. In the valuation process the Group assumed
a royalty rate of 2%, weighted average cost of capital of 12.8%, brand beta of 1.2 and an
estimated useful life of 10 years.
The Group did not identify other intangible assets with respect to investment in DTH “n”
platform with a potential impact on net asset value.
11. AVAILABLE FOR SALE FINANCIAL ASSETS
September 30, 2008
December 31, 2007
7,588
4,650
87,529
-
Beginning of the period
Additions
Consolidation of subsidiary
Paid-in share capital
-
193
-
2,745
End of the period
95,117
7,588
Less: non-current portion
(7,588)
(7,588)
Current portion
87,529
-
September 30, 2008
December 31, 2007
87,529
-
7,588
7,588
95,117
7,588
Available for sale financial assets include the following:
Securities quoted on active markets:
- Treasury bills PLN
Securities not quoted on active markets:
- Polskie Media S.A.
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F- 30 -
TVN S.A.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
11. AVAILABLE FOR SALE FINANCIAL ASSETS (CONTINUED)
On September 30, 2008 the Group acquired 87,529 of PLN denominated treasury bills
maturing between January 21, 2009 and April 15, 2009.
Effective
interest rate
Maturity dates
Nominal value
Purchase value
Polish T-bills
6.25%
January 21, 2009
10,000
9,807
Polish T-bills
6.25%
January 28, 2009
30,000
29,388
Polish T-bills
6.25%
April 15, 2009
25,000
24,167
Polish T-bills
6.25%
April 15, 2009
25,000
24,167
90,000
87,529
The Group does not have any significant influence over the financial and operating policies of
Polskie Media S.A. (“Polskie Media”). The Group estimated the fair value of its investment in
Polskie Media as at June 30, 2008 based on financial information available from the annual
financial statements of Polskie Media for the year ended December 31, 2007 and industry
sales multiples. The Group assessed that there is no impairment of the carrying value as of
June 30, 2008. During the year the Group monitors audience share of Polskie Media for
impairment indicators.
The Group’s share in Polskie Media is 5.59% of the current voting interest and 6.95% of the
share capital.
None of the financial assets is past due or impaired.
12. TRADE RECEIVABLES
Trade receivables
Less: provision for impairment of receivables
Trade receivables – net
Receivables from related parties (Note 23 (iii))
September 30, 2008
December 31, 2007
262,996
297,865
(7,944)
(8,238)
255,052
289,627
12,867
9,963
267,919
299,590
The fair values of trade receivables, because of their short-term nature, are estimated to
approximate their carrying values.
The carrying amounts of the Group’s trade receivables are denominated in the following
currencies:
September 30, 2008
December 31, 2007
PLN
258,625
285,539
USD
7,359
7,471
EUR
1,764
6,343
GBP
130
198
AUD
41
39
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F- 31 -
TVN S.A.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
12. TRADE RECEIVABLES (CONTINUED)
Provision for impairment of receivables was created individually for trade receivables that
were overdue more than 60 days or in relation to individual customers who are in
unexpectedly difficult financial situations.
Movements on the provision for impairment of trade receivables are as follows:
Beginning of the period
Provision for receivables impaired, net change
Nine months ended
September 30, 2008
Nine months ended
September 30, 2007
8,238
7,765
(63)
847
Receivables written off as uncollectible
(231)
(1,988)
End of the period
7,944
6,624
The creation and release of provision for impaired receivables have been included in selling
expenses in the income statement (see Note 6).
As of September 30, 2008, trade receivables of 49,966 were past due but not impaired. The
balance relates to a number of customers with no recent history of default. The ageing
analysis of these trade receivables is as follows:
Up to 30 days
September 30, 2008
December 31, 2007
34,904
102,850
31-60 days
7,790
20,412
Over 60 days
7,272
3,293
49,966
126,555
The Group defines credit exposure as total outstanding receivables. Maximum exposure to
credit risk is the total balance of trade receivables. Maximum exposure to credit risk as of
September 30, 2008 was 267,919 (December 31, 2007: 299,590).
13. DERIVATIVE FINANCIAL ASSETS
September 30, 2008
December 31, 2007
26,127
20,447
Foreign exchange option collars EUR
2,518
3,820
Foreign exchange option collars USD
4,865
-
33,510
24,267
Embedded prepayment options (see Note 16)
Following the repurchase by the Group of the Senior Notes in 2008 (see Note 16) the
valuation of the embedded prepayment options as at September 30, 2008 reflects only the
remaining Senior Notes with a nominal amount of EUR 225,000.The change in carrying
amounts of the prepayment options between September 30, 2008 and December 31, 2007
was recognized in the income statement (see Note 7). The valuation of embedded
prepayment options as of September 30, 2008 is discussed in Note 4 (i).
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F- 32 -
TVN S.A.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
13. DERIVATIVE FINANCIAL ASSETS (CONTINUED)
The fair value of foreign exchange option collars in EUR as at September 30, 2008 was
based on valuations performed by the Group’s banks. The collars had in total a notional
value of EUR 225,000, a maturity date of December 15, 2008, a PLN/EUR corridor between
3.30 and 3.50 and were entered into to limit the impact on the Group’s net results of
PLN/EUR exchange rate movements in relation to the Senior Notes balance. As long as the
PLN/EUR spot rate is within the corridor the fair value of the option collars consists of their
time value only, which reflects the possibility that the collars will create further gains in the
future. The intrinsic value of collars exists when the spot rate is outside the corridor. It
basically reflects the value of the option if exercised today and is measured based on the
difference between the spot rate and the respective corridor rate. The intrinsic value of the
collars was designated as a fair value hedge.
As of September 30, 2008 the PLN/EUR collars did not have any intrinsic value. The change
in fair value of the collars was recognized in the income statement (see Note 7).
After the balance sheet date, on October 13, 2008 the Group restructured the foreign
exchange option collars from the PLN/EUR corridor between 3.30 and 3.50 and maturity date
of December 15, 2008 to a PLN/EUR corridor between 3.30 and 3.60 and maturity date of
January 15, 2009. As a result, the Group received a net premium of 5,271.
The fair value of foreign exchange option collars in USD as at September 30, 2008 was
based on valuations performed by the Group’s banks. The collars had in total a notional
value of USD 52,766, maturity dates between December 22, 2008 and December 22, 2009 a
PLN/USD corridor between 2.10 and 2.45 and were entered into to limit the impact on the
Group’s net results of PLN/USD exchange rate movements in relation to payments for
programming rights. The Group has not designated the collars for hedge accounting.
The change in fair value of the collars was recognized in the income statement (see Note 7).
14. CASH AND CASH EQUIVALENTS
Cash at bank and in hand
Short-term treasury bills
September 30, 2008
December 31, 2007
212,175
110,372
47,880
-
260,055
110,372
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F- 33 -
TVN S.A.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
14. CASH AND CASH EQUIVALENTS (CONTINUED)
(i) Cash at bank (external credit rating – Standard and Poor’s):
Bank rated A
September 30, 2008
December 31, 2007
211,670 (*)
110,288
* 50,000 of this amount was transferred to a bank rated AAA on October 1, 2008. The balance was
used in October for the purchase of treasury bills (see Note 26).
(ii) Short term treasury bills:
Effective
interest rate
Maturity dates
Nominal value
Purchase value
Polish treasury bills
6.02%
October 22, 2008
PLN 14,000
13,852
Bundesbank Federal
treasury bills
0.81%
December 10, 2008
EUR 10,000
34,028
47,880
Cash and cash equivalents do not include call deposits with banks with maturity of more than
three months from the date of investment. As at September 30, 2008 the Group had the
following bank deposits denominated in Polish zloty with maturity over three months:
Effective
interest rate
Maturity dates
Nominal value
Accrued interest
Bank rated A
6.30%
October 27, 2008
8,360
85
Bank rated A
6.30%
October 27, 2008
5,000
85
Bank rated A
6.30%
October 27, 2008
5,000
143
18,360
313
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F- 34 -
TVN S.A.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
15. SHARE CAPITAL (NOT IN THOUSANDS)
The total authorized number of ordinary shares is 413,499,585 with a par value of 0.20 per
share. The total number of ordinary shares in issue as at September 30, 2008 was
349,496,653 with a par value of 0.2 per share. All issued shares are fully paid and include
also shares issued on exercise of share options granted under incentive schemes (C and E
series of shares) as soon as cash consideration is received. The shareholders structure as at
September 30, 2008:
Number of
shares
% of share
capital
Number of
votes
% of votes
180,355,430
51.60%
180,355,430
51.60%
24,907,504
7.13%
24,907,504
7.13%
10,001,400
2.86%
10,001,400
2.86%
Other shareholders
134,232,319
38.41%
134,232,319
38.41%
Total
349,496,653
100.00%
349,496,653
100.00%
Shareholder
Strateurop International B.V.
N-Vision B.V.
(1)
Cadizin Trading&Investment
(1)
(1)
(1)
Entities controlled by ITI Group.
Included in the total number of shares in issue as at September 30, 2008 held by other
shareholders is 60,183 shares of C1, C2 and E3 series not registered by the Court. Of this
amount, at the date when these financial statements were prepared, 38,085 shares were
pending registration.
Shares issued on exercise of share options (C and E series) included in the share capital at
the balance sheet date were registered by the National Depository of Securities (Krajowy
Depozyt Papierów Wartościowych) and are tradable on the Warsaw Stock Exchange and
qualify for dividends.
During the nine months ended September 30, 2008, 2,223,678 shares of C and E series
were issued for an amount of PLN 21,507 (in thousands).
16. BORROWINGS
9.5 Senior Notes due 2013
Interest accrued on Senior Notes due 2013
PLN Bonds
Interest accrued on PLN Bonds
Less: current portion of borrowings
Non-current portion of borrowings
September 30, 2008
December 31, 2007
721,425
790,388
21,249
3,332
498,595
-
12,870
-
1,254,139
793,720
34,119
3,332
1,220,020
790,388
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F- 35 -
TVN S.A.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
16. BORROWINGS (CONTINUED)
Senior Notes
On December 2, 2003 the Group via its subsidiary, TVN Finance Corporation plc, issued
EUR 235,000 Senior Notes with an interest rate of 9.5%. The Notes are quoted on the
Luxembourg Stock Exchange. Interest is paid semi-annually starting June 15, 2004. The
Senior Notes mature on December 15, 2013. The Senior Notes are senior unsecured
obligations and are governed by a number of covenants including, but not limited to,
restrictions on the level of additional indebtedness, payment of dividends, sale of assets and
transactions with affiliated companies. The Senior Notes are fully and unconditionally
guaranteed by the Company and its principal subsidiary Grupa Onet.pl S.A. The Senior
Notes are carried at amortized cost using an effective interest rate of 10.88%.
On February 8, 2008 the Group repurchased Senior Notes with a nominal value of EUR
10,000 for an amount of EUR 10,200 (PLN 36,587). The Group has accounted for the
repurchase as a de-recognition of the corresponding part of the Senior Notes liability. As a
result, the difference between the consideration paid and the carrying amount corresponding
to the Notes repurchased was recognized in the income statement within finance expense
(see Note 7). The nominal value of the remaining Senior Notes is EUR 225,000.
The fair value of the Senior Notes, excluding accrued interest, as at September 30, 2008 is
estimated to be PLN 794,245 or EUR 233,033 (PLN 879,650 or EUR 245,575 as at
December 31, 2007). Fair value of the Senior Notes reflect its market price quoted by
Reuters based on the last value date on September 30, 2008.
The Group may redeem all or part of the Senior Notes on or after December 15, 2008 at a
redemption price ranging from 104.75% to 100% of nominal value.
The Group recognized an embedded financial instrument with respect to these options (see
Note 4(i) and 13).
The Senior Notes also have a put option, which may be exercised by the holders of the
Senior Notes at a purchase price of 101% of the nominal value if a change of control takes
place. Change of control means:
i)
a person other than Permitted Holders become the beneficial owner of more than 35% of
the voting power of the voting stock of the Company, and the Permitted Holders own a
lesser % than such other person
ii) Approved directors cease to constitute a majority of the Supervisory Board,
iii) The Company sells substantially all of its assets,
iv) A plan is adopted relating to the liquidation or dissolution of the Company,
v) The Company ceases to own 100% of the shares of TVN Finance Corporation plc.
PLN Bonds
On May 26, 2008 the Group entered into an agreement with Bank Pekao S.A., Bank
Handlowy w Warszawie S.A. and BRE Bank S.A. to conduct a Bond Issue Program
(“Program”). The Program enables the Group to issue bearer, unsubordinated and
unsecured bonds (“PLN Bonds”) with a maximum total nominal value of PLN 1 billion at any
time. The Program can be extended up to a nominal value of PLN 2 billion.
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F- 36 -
TVN S.A.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
16. BORROWINGS (CONTINUED)
On June 23, 2008 the Group completed the first issue of PLN Bonds with a total nominal
value of 500,000 and with a variable interest rate of 6 month WIBOR plus 2.75% per annum.
The interest is payable semi-annually starting December 14, 2008. The PLN Bonds are due
for repayment on June 14, 2013. The PLN Bonds are unsecured obligations and are
governed by a number of covenants including restrictions on disposal or inadequate use of
assets. The total transaction costs of the issue amounted to 1,330 and mainly related to
dealers commission and legal services. The PLN Bonds are carried at amortized cost using
an effective interest rate of 9.79%.
The Group has a time option to redeem all or 50% of the PLN Bonds on June 14, 2011 or on
June 14, 2012 at a redemption price of 102% or 101% of the nominal value respectively. The
Group assessed that the early prepayment options are closely related to the economic
characteristics of the host contract (PLN Bonds) as the option exercise price is close on each
exercise date to the amortized cost of the PLN Bonds. Consequently, the Group did not
separate the embedded derivative.
The fair value of the PLN Bonds, excluding accrued interest, as at September 30, 2008 was
estimated to be PLN 512,086. The PLN Bonds are non-public and their fair value was
estimated using an internal valuation model with the key inputs being market interest rate,
payment dates and credit spread.
Loan facility
Until June 30, 2008 the Group had a EUR 50,000 loan facility with Bank Pekao S.A. The
facility was secured over trade receivables, other intangible assets, television and
broadcasting equipment and programming rights.
On June 30, 2008 the Group entered into a PLN 200,000 multicurrency loan facility with
Bank Pekao SA. The facility is available for a three year period. The facility bears interest at
six-month WIBOR, EURIBOR or LIBOR (depending on loan currency) plus a margin which
depends on the ratio of consolidated net debt to consolidated EBITDA of the Group and at
the date of the agreement was 1%. The facility is secured over trade receivables of TVN S.A.
up to the equivalent of EUR 25 million. The loan facility is guaranteed by Grupa Onet.pl S.A.
and Mango Media Sp. z o.o., wholly owned subsidiaries of TVN S.A. As of September 30,
2008 the facility had been used to cover guarantees to the extent of EUR 2,422 (PLN 8,256).
17. OTHER LIABILITIES AND ACCRUALS
September 30, 2008
December 31, 2007
VAT and other taxes payable
39,729
32,675
Employee benefits
41,437
36,488
Consideration for treasury bills acquired but not settled*
34,028
-
Deferred income
26,661
27,909
3,821
6,761
107,128
87,573
252,804
191,406
Satellites
Other liabilities and accrued costs
* The amount was settled on October 2, 2008
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F- 37 -
TVN S.A.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
18. TAXATION
Reconciliation of accounting profit to tax charge
Nine months ended
September 30, 2008
Nine months ended
September 30, 2007
Profit before income tax
340,843
128,089
Income tax charge at the enacted statutory rate of 19%
Tax impact of employee share option plan costs not
deductible for tax purposes
(64,760)
(24,337)
(5,819)
(6,431)
11,782
12,303
(6,004)
(2,160)
(64,801)
(20,625)
Nine months ended
September 30, 2008
Nine months ended
September 30, 2007
276,042
107,464
64,801
20,625
Impact of tax deduction claimed and deferred in relation
to investments in special economic zone
Net tax impact of other expenses not deductible for tax
purposes and revenue not taxable
Tax for the period
19. NOTE TO THE CONSOLIDATED CASH FLOW STATEMENT
Reconciliation of net profit to cash generated from operations
Note
Net profit
Tax charge
Share options granted to board members
and employees
6
30,628
33,845
Depreciation, amortization and impairment
charges
6
58,695
52,281
Amortization of acquired programming rights
and co-production
6
87,799
93,030
Impaired accounts receivable
6
85
454
76
(105)
49,878
160,516
19,057
-
(2,426)
(2,961)
Payments to acquire programming rights
(81,594)
(98,677)
Change in local production balance
(53,011)
(25,514)
Trade receivables
31,586
(22,924)
Prepayments and other assets
(9,375)
(3,529)
7,259
(5,837)
64,312
46,580
Loss on sale of property, plant and equipment
Investment income and finance expense, net
7
Share of loss of associate
Guarantee fee
7
Changes in working capital:
Trade payables
Other short term liabilities and accruals
Cash generated from operations
93,782
14,290
543,812
355,248
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F- 38 -
TVN S.A.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
19. NOTE TO THE CONSOLIDATED CASH FLOW STATEMENT (CONTINUED)
Acquisition of subsidiaries and associates net of cash acquired
Note
Neovision Holding B.V.
Mango Media
10
Nine months ended
September 30, 2008
Nine months ended
September 30, 2007
323,817
-
-
49,561
323,817
49,561
6,879
1,429
30,628
33,845
Non-cash transactions
Barter revenue, net
Share options granted to board members and
employees
6
20. CONTINGENCIES
The Group has a contingent asset of 18,228 in a respect of VAT, penalties and interest due
from the tax authorities. A court ruling in favour of the Group was announced on April 13,
2006. On June 12, 2006 the tax authorities appealed to the Supreme Administrative Court.
On October 9, 2007 the Supreme Administrative Court decided to return the case to the
Administrative Court in Krakow for further review. On July 23, 2008 the Administrative Court
overrode penalties imposed by the tax authorities (in the amount of 1,078 plus interest) but
overruled the Group’s claim with respect to the base VAT amount (in the amount of 3,594).
On October 10, once the court ruling became final and valid, the Group applied to the tax
authorities for the return of the penalty of 1,078 plus interest of 1,030 as at September 30,
2008. In addition the Group appealed to the Supreme Administrative Court as far as the base
VAT amount is concerned.
21. COMMITMENTS
The Group has entered into a number of operating lease and other agreements. The
commitments derived from these agreements are presented below.
(i)
Commitments to acquire programming
The Group has outstanding contractual payment commitments in relation to programming as
of September 30, 2008. These commitments are scheduled to be paid as follows:
Due in 2008
53,023
Due in 2009
58,517
Due in 2010
24,202
Due in 2011
12,470
Due in 2012
4,802
Due in 2013 and thereafter
1,612
154,626
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F- 39 -
TVN S.A.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
21. COMMITMENTS (CONTINUED)
(ii)
Total future minimum payments relating to operating lease agreements signed
as at September 30, 2008:
Related
parties
Non-related
parties
Total
Due in 2008
4,085
5,653
9,738
Due in 2009
16,333
19,870
36,203
Due in 2010
16,321
15,052
31,373
Due in 2011
15,517
12,943
28,460
Due in 2012
15,517
11,085
26,602
Due in 2013 and thereafter
55,959
15,690
71,649
123,732
80,293
204,025
Contracts signed with related parties relate to lease of office space and television studios
from Poland Media Properties S.A. (“Poland Media Properties”, previously ITI Poland S.A.)
and Diverti Sp. z o.o. (“Diverti”). Diverti is a subsidiary of ITI Group. Commitments in foreign
currencies were calculated using exchange rates as at September 30, 2008.
Contracts signed with non-related parties relate to lease of office space and television
studios.
In addition to the lease agreements disclosed above, the Group has agreements with third
parties for the provision of satellite capacity. Under these agreements the Group is obliged to
pay annual fees. These commitments are scheduled to be paid as follows:
Due in 2008
2,647
Due in 2009
25,903
Due in 2010
25,903
Due in 2011
25,903
Due in 2012
12,160
92,516
Additionally, the Group leases transmission sites and related services for an annual amount
of 6,600.
(iii)
Barter commitments
The Group has an outstanding commitment of service to broadcast advertising of 4,072 to
settle sundry amounts payable recorded as of September 30, 2008 (4,598 at December 31,
2007). The service to broadcast advertising will be rendered under commercial terms and
conditions and at market prices.
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F- 40 -
TVN S.A.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
21. COMMITMENTS (CONTINUED)
(iv)
Other commitments
As at September 30, 2008, the Group assumed contractual commitments of 3,916 to acquire
property, plant and equipment and intangible assets (5,334 at December 31, 2007).
Additionally the Group has undertaken to invest 215,782 in the special economic zone in
Kraków by December 31, 2017. As at September 30, 2008 the remaining commitment
amounted to 171,473.
22. GROUP COMPANIES
These consolidated financial statements as at September 30, 2008 comprise the parent
company and the following subsidiaries (‘the Group‘), joint ventures and associates:
Country of
incorporation
September 30, 2008
Ownership
%
December 31, 2007
Ownership
%
Grupa Onet.pl S.A.
Poland
100
100
Dream Lab Onet Sp. z o.o.
Poland
100
100
Tivien Sp. z o.o.
Poland
100
100
El-Trade Sp. z o.o.
Poland
100
100
NTL Radomsko Sp. z o.o.
Poland
100
100
Mango Media Sp. z o.o.
Poland
100
100
UK
100
100
The Netherlands
100
100
Malta
100
100
Thema Film Sp. z o.o.
Poland
96
96
Polski Operator Telewizyjny Sp. z o.o.
Poland
50
50
UK
50
50
The Netherlands
25
-
Poland
20
20
TVN Finance Corporation plc
Grupa Onet Poland Holding B.V.
Media Entertainment Ventures Int Ltd
Discovery TVN Ltd
Neovision Holding B.V.*
Polskie Badania Internetu Sp. z o.o.
* Neovision Holding B.V. wholly owns ITI Neovision Sp. z o.o. (Poland), Neovision UK Ltd. (UK) and has 45 %
joint venture in MGM Channel Poland Ltd.
The share capital percentage owned by the Group equals the percentage of voting rights in
each of the above entities.
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F- 41 -
TVN S.A.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
23. RELATED PARTY TRANSACTIONS
(i)
Revenue:
Nine months
ended
September 30,
2008
Nine months
ended
September 30,
2007
Three months
ended
September 30,
2008
Three months
ended
September 30,
2007
5,354
7,534
1,639
699
30,889
23,669
10,543
7,425
20
29
6
10
36,263
31,232
12,188
8,134
ITI Group
ITI Neovision *
Poland Media Properties
* ITI Neovision is an associate of the Group.
Revenue from the ITI Group includes mainly revenue from the exploitation of film rights,
license fees, production and technical services rendered and services of broadcasting
advertising, net of commissions. Poland Media Properties is controlled by certain
shareholders and executive directors of the ITI Group.
(ii)
Operating expenses:
ITI Group
ITI Neovision
Poland Media Properties
Nine months
ended
September 30,
2008
Nine months
ended
September 30,
2007
Three months
ended
September 30,
2008
Three months
ended
September 30,
2007
20,515
20,407
6,109
6,680
4,077
4,708
1,228
1,651
396
443
127
146
24,988
25,558
7,464
8,477
Operating expenses from ITI Group comprise rent of office premises and the provision of
certain management, sales, financial advisory and other services.
Operating expenses from Poland Media Properties comprise rent of office premises.
(iii)
Outstanding balances arising from sale/purchase of goods and services:
September 30, 2008
December 31, 2007
2,691
1,518
10,176
8,445
12,867
9,963
Receivables:
ITI Group
ITI Neovision
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F- 42 -
TVN S.A.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
23. RELATED PARTY TRANSACTIONS (CONTINUED)
September 30, 2008
December 31, 2007
6,606
5,038
Payables:
ITI Group
ITI Neovision
Poland Media Properties
(iv)
164
15
77
133
6,847
5,186
Other non current assets
Other non current assets include a rental deposit paid to ITI Group by TVN in the amount of
1,981.
(v)
Lease commitments with related parties
See Note 21 for further details.
(vi)
Other
ITI Holdings has provided guarantees in the amount of US$ 25,000 to Warner Bros.
International Television Distribution and US$ 8,000 to DreamWorks in respect of
programming rights purchased and broadcast by the Group. During the nine months ended
September 30, 2008, the Group recorded finance costs of 1,819 relating to these guarantees
(during the nine months ended September 30, 2007: 2,221).
On June 25, 2008 the Group completed the acquisition of 25% of the share capital plus 1
share of Neovision Holding from ITI Media Group (see Note 10).
24. SHARE-BASED PAYMENTS
Share options are granted to certain Management Board members, employees and coworkers who are of key importance to the Group. Share options are granted under two share
option schemes:
(i)
TVN Incentive Scheme I introduced on December 27, 2005, based on C series of
shares
(ii) TVN Incentive Scheme II introduced on July 31, 2006 as part of the acquisition of
Grupa Onet.pl, based on E series of shares.
The Group has no legal or constructive obligation to repurchase or settle the options in cash.
Movements in the number of share options outstanding and their related weighted average
exercise prices are as follows (not in thousands):
Nine months ended
September 30, 2008
Average Outstanding options
exercise price
At 1 January
Exercised
At 30 September
Nine months ended
September 30, 2007
Average Outstanding options
exercise price
PLN 10.62
14,887,155
PLN 10.01
15,818,005
PLN 9.67
(2,223,678)
PLN 8.83
(3,590,562)
PLN 10.79
12,663,477
PLN 10.35
12,227,443
Weighted average market share price during the nine months ended September 30, 2008
was 21.00.
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F- 43 -
TVN S.A.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
24. SHARE-BASED PAYMENTS (CONTINUED)
The total fair value of the options granted was estimated using a trinomial tree model and
amounted to 74,124 with respect to C series and 110,101 with respect to E series.
The model assumes that dividends would be paid in the future in accordance with the
Group’s dividend policy. Fair valuation of options granted before January 1, 2007 assumed
that no dividends would be paid in the future. The stock option plan is service related.
The remaining options are exercisable at the prices indicated below and vest after the
specified period (not in thousands):
Series
Number of options
Exercise price
Service vesting period
C1
397,060
PLN 8.66
Vested
C2
1,675,091
PLN 9.58
Vested
C3
3,479,210
PLN 10.58
until January 1, 2009
5,551,361
Series
Number of options
Exercise price
Service vesting period
E1
217,730
PLN 8.66
Vested
E2
282,135
PLN 9.58
Vested
E3
1,337,516
PLN 10.58
Vested
E4
2,441,065
PLN 11.68
until April 1, 2009
E4
2,833,670
PLN 11.68
until January 1, 2010
7,112,116
All options can be exercised no later than December 31, 2011.
Between October 1, 2008 and the date when these financial statements were prepared,
13,000 of C1 series options were exercised and as a result 13,000 new ordinary shares were
issued.
25. EXCHANGE RATES AND INFLATION
September 30, 2008
December 31, 2007
September 30, 2007
PLN Exchange Rate
to U.S. Dollar
2.3708
2.4350
2.6647
PLN Exchange Rate
to Euro
3.4083
3.5820
3.7775
The movement in the consumer price index for the nine months ended September 30, 2008
amounted to 2.8% (2.3% for the nine months ended September 30, 2007).
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F- 44 -
TVN S.A.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in PLN, all amounts in thousands, except as otherwise stated)
26. POST BALANCE SHEET EVENTS
(i) On October 15, 2008 the Group set up SunWeb Sp. z o.o., a wholly owned subsidiary of
Grupa Onet.pl S.A., developing software for internet merchandising.
(ii) Between October 1, 2008 and the date when these financial statements were prepared
the Group acquired 250,307 of PLN denominated polish treasury bills maturing between
October 22, 2008 and May 27, 2009. The treasury bills, which have the nominal value of
232,000, were classified as available for sale financial assets. The details of the bills
acquired are presented below:
Effective
interest rate
Maturity dates
Nominal value
Purchase value
Polish T-bills
6.05%
October 22, 2008
25,000
24,912
Polish T-bills
6.15%
February 11, 2009
37,000
36,171
Polish T-bills
6.15%
February 11, 2009
70,000
68,514
Polish T-bills
6.20%
February 18, 2009
25,000
24,411
Polish T-bills
6.05%
May 27, 2009
100,000
96,299
257,000
250,307
(iii) On October 24, 2008 the Group repurchased Senior Notes with a nominal value of EUR
10,000 for an amount of EUR 9,400 (PLN 34,023). The Group has accounted for the
repurchase as a de-recognition of the corresponding part of the Senior Notes liability.
The nominal value of the remaining Senior Notes is EUR 215,000.
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F- 45 -