Team DMay 2013

Polish digital market investment strategy for private equity fund

2

Executive summary

• Polish Internet portals are strong assets but the current business models will not bring profits in the long term – portals need to find new income sources.

• WP.PL is the best acquisition target as it achievies superior results in terms of portals’ most important strengths. WP.PL should enter one of the other segments of digital market.

• E-commerce is the biggest segment of digital market with high growth potential and average EBITDA margin.

• There are 3 e-commerce categories showing the highest chance to succeed: Beauty & Clothing, Home & Garden and Kids.

• Proposed strategy is based on developing a shopping platform focused on three most promising categories supported by enhancing core activities to fully utilize userbase.

• The transaction platform will generate 635 mn revenue in 2015 growing 57% p.a. from 2012• Costs will increase along with revenue, totaling to 538 mn PLN in 2015 with logistics as the main cost driver• With EBITDA growing to 150 mn PLN in 2015, the entire investment is valued at 535 mn PLN with

23,9% IRR. For investment to merely break-even, both foundations of the strategy would have to fail with WP being significantly overvalued in 2010

Basic investment data (mn PLN)

Value of WP.PL '10 300

Value of WP.PL '15 1 092

NPV 535

IRR 23.9% 2010 2011 2012 2013 2014 2015

-400,000,000

-200,000,000

0

200,000,000

400,000,000

600,000,000

800,000,000

-300,000,0

00

-24,707,47

2

33,833,716

52,288,849

68,460,843

704,764,183

Discounted cashflows throughout the investment

mn

PL

N

3

Agenda

Portals analysis

Digital market analysis

Strategy recommendation

Financial results

Questions & Answers

4

Polish Internet portals are strong assets both in terms of reach among Internet users and time spent on browsing

• Polish portals users database varies from 7 to 13 million real users

• Portals are still the biggest aggregators of Internet users in Poland

63,96%

2010

Average reach by top 5 Polish portals

Average userbase of top 5 Polish portals

11,68 mn real users

Discussion boards

News sites

Social networks

Portals

9%

15%

17%

33%

Average time spent on browsing/reading different types of sites on the Internet

Web sites used to reach online content (% as top three answers)

Browser toolbars

Directly entering the website

Portals

Search engines

30%

39%

51%

54%

Source: iConsumer 2010, Megapanel 2010

Average monthly time spent for top 5 portals

3 hours 31 minutes

Portals still serve as start pages for many users. Internet journey begins here.

Portals are still the leading location for reading and browsing content

The top 5 consists of: onet.pl, WP.pl, gazeta.pl, interia.pl and o2.pl

5

However, the current business models will not be profitable in the long term – portals need to take advantage of their strengths and find new income sources

1,37 1,58

2008 2010

Online ads spending

32% 24%

23% 19%UK

Poland

Paid for seach Displays Other

58%

44%

Share of advertising spending for different types of ads

Source: IAB, investors reports, Team D analysis, 2010

Google Onet WP Agora Interia NK o2 Facebook0

100

200

300

400

500

600

700600

271

175114

85 72 50 45

Media groups revenue (mn PLN)

Significance of Search Engine Marketing is growing but it is dominated by Google.

Display is still the most important source of revenue for portals (80%). However, total display spending in Poland declines.

0,73 0,70Displays spending

0,3 0,52Search Engine Marketing

0,34 0,36Other

Portals still have a strong position but it is a competitive market with several big players.

Development of advertising spending (bn PLN)

6

WP.PL is a better acquisition target as it achievies superior results in terms of portals’ most important strengths

GAZETA.PL WP.PL

Real users 7,5 m 11 m

Average time spent on the website (monthly)

2 hours 10 minutes 5 hours 54 minutes

Share of e-mail accounts in Poland (%)

1,7 30,1

2010

WP is able to provide wider userbase, spending more time on the website.

WP consolidates all its sections into one, strong brand, while Gazeta separates the sections into several thematic portals.

WP is perceived as a portal active on various fields, while Gazeta is perceived as an informative portal.

WP offers much better chance to use portals’ strengths (e.g. trust).

Additional information

Assumption: WP and GAZETA are at the same price and portals’ EBITDA does not influence it.

WP offers more flexibility to undertake new ventures.

Number of page views 1 142 mn 2 430 mn

Reach 41,36% 59,09%

WP also has an advantage regarding reaching current and potential users.

WP also has an advantage in majority of the individual services, e.g. finance (1st position), while Gazeta does not have advantage in any particular theme.

WP is able to influence the whole portals’ market and act as a trendsetter.

7

Advantage in selected site categories (% reach among Internet users in Poland)

Culture & Entertainment 33%

Communities 23%

Lifestyle 27%

Information 32%

WP advantages are aligned with current digital market, providing robust userbase for development in a new business segment

+ Strong potential in gaming and online video

+

+

Opportunities resulting from strengths

Strong potential in social media and personalization

Provides opportunity for broad commerce

To increase its value, WP.PL should utilize its current strengths to enter one of the other segments of digital market

To gain advantage on a digital market, WP should look for new opportunities in segments compatible with its strengths

8

Agenda

Portals analysis

Digital market analysis

Strategy recommendation

Financial results

Questions & Answers

9

E-commerce is the biggest segment of digital market with high growth potential and average EBITDA margin

E-commerce is a unique segment in terms of size and profit pool, providing more short-term growth opportunities than any other segment

Reading (incl. portals) is going to increase insignificantly

Other segments lack depth and provide few growth opportunities

 100  200  300  400  500  600 0%

5%

10%

15%

20%

25%

30% CommunicationOnline gaming

Video

Social networks

Reading

Profit pool in other segments (m PLN)

Revenue pool (m PLN)

EB

ITD

A m

arg

in

Bubble

08d328376ab04d18a3ddc385e35c6275

E-commerce

148

47

30 50

4

2 420 mn PLNProfit pool

Revenue pool 13 430 mn PLN

EBITDA margin 18%

Source: Team D analysis of publicly available data

CAGR: 24%(’10-’15)

CAGR: 12%(’10-’15)

10

Polish e-commerce market will grow at a fast pace, outperforming Western European countries

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 *20120

5,000

10,000

15,000

20,000

25,000

108 332 738 1,901 3,100 5,000

8,070

11,010

13,430

15,500

21,500

Polish e-ommerce market value (mn PLN)

Great

Brit

ain

Germ

any

Switzer

land

Denm

ark

Norway

Franc

e

Sweden

Benelu

x Cou

ntrie

sIta

lySpa

in

Poland

Avera

ge0%

4%

8%

12% 11%

8% 7% 7% 7% 6% 6%4%

3% 3% 3%

6%

Percentage of online spending in the retail market

Over 67% of Polish households and 96% of entrepreneurs have Internet access. 67% of internet users declare to have bought online (1/3 of Poles).

Polish e-commerce market is the fastest growing one in Europe (predicted to grow by 24% in 2012, compared to the European average of 16,1%).

Only 25% of the stores offer more than 5000 products. Almost 30% offer less than 500 products.

87% of the Polish online stores were profitable in 2009. Almost 70% of them increased their income in comparison to the previous year.

GR

OW

TH

CO

MP

ET

ITIO

NU

SE

RS

INC

OM

E

EE online market, unlike WE one, is reserved mainly for local players (e.g. success of Allegro or Empik vs. default of eBay).

CO

MP

ET

ITIO

N

11

Beauty & Clothing, Home & Garden and Kids are e-commerce categories showing the highest chance to succeed due to high growth, sales margins and weak competition

House & Garden and Beauty & Clothing categories are highly fragmented and characterized by promising size, growth and sales margins.

Kids & Toys is a small market but offers high potential due to its high growth, margin and fragmentation.

Foto & RTV-AGD, Computer and Books & Multimedia are big markets but offer low sales margins and are more difficult to enter due to centralized competition.

Sport & Touristics, Hobby and Grocery categories offer high margins but their size and strong competition make them less atractive.

poor/medium performance

high performance

Average

Kids

House & Garden

Beauty & Clothing

15% 16% 17% 18% 19% 20% 21% 22% 23% 24% 25%

Sales margin

AverageKids

House & GardenBeauty & Clothing

0% 3% 6% 9% 12% 15% 18% 21%

Revenue of 3 segment leaders (%)

Average

Kids

House & Garden

Beauty & Clothing

50% 60% 70% 80% 90% 100%110%120%130%140%150%

Market Growth (No. shops '10/'07; %)

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

11% 14% 1% 74%

Market Size (% of total revenue pool)

Beauty & Clothing House & Garden Kids Others

Other segments

12

Agenda

Portals analysis

Digital market analysis

Strategy recommendation

Financial results

Questions & Answers

13

• Enhancing core activities

• Addressing market trends

• Creating transaction platform targeting average WP users with products from the following categories:Beauty & ClothingHouse & GardenKids

• To take advantage of the growth potential left in the segment

• To maximize profits from the core business

• To maintain strong userbase

• The categories offer high growth potential and the highest chance to succeed

• Low share in online advertising spending for the categories ensures insignificant cannibalization effect

Proposed strategy is based on developing a shopping platform supported by enhancing core activities to fully utilize userbase

Core business Shopping platform

New business model will be based on two foundations

Establishing WP.PL as a leader in 3 proposed categories in 5 years

What? Why? What? Why?

14

Enhancing core activities and following market trends is necessary for WP.PL to maintain its current position and facilitate development in other fields

2010IMPROVE FINANCIAL

RESULTSTAKE ADVANTEGE OF GROWTH POTENTIAL

ADDRESS MARKET TRENDS

ENHANCE CORE ACTIVITIES

① Maintain current activities

② Add sections focused on the products’ reviews (e.g. cosmetics)

③ Integrate core business with newly developed WP shopping platform

① Facilitate usage of WP on mobile devices – mobile consumption faces double digit growth every year

② Improve presence in social media (Twitter, Facebook, Pinterest) – networks growing rapidly (CAGR 34%)

③ Personalize news, ads and e-mail functions

① Increase traffic and userbase at a pace at least equal to the online reading market growth (CAGR 12%)

② Generate traffic for the WP shopping platform and gradually attract customers

① Generate more revenue on advertising activities, thanks to the higher traffic and personalization

② Influence financial results of the WP shopping platform, gradually redirecting WP users to the stores

15

The shopping platform will be focused on the 3 most prospective segments

Producer WPstores Consumer④ Offer + margin

① Order

③ Offer

Get interested – consider purchase

Evaluate products

PaySeal the deal

Transaction platformWP websites, external

advertising

Receive product

Transportation & Logistics

INTERNALLY

WPstores will be introduced as an integral part of the portal to guarantee the highest possible reach of WP traffic.WP users will be able to reach the store through:• Tab and displays on the home page• References in the articles (e.g. buy the described product)• Adverts in various sections of the portal

EXTERNALLY

WPstores will also target non-WP users through advertising activities of various type.Internet users will be able to reach the store through:• Google (SEO, positioning)• Social media (presence on Facebook, Twitter, Pinterest)• Traditional ads and commercials (TV, Radio, outdoors)

② Order, Risk

WP will connect producers with consumers by creating a transaction platform

Potential customers will be attracted in two ways

Customer journey will be short and simple

Online payments

• one place, 3 products’ segments• outsourced logistics• high margin (no intermediaries)

16

Addressing key factors that influence online shoppers’ choice will ensure success of WPstores

14,3

10,8

24%

10,9

9%

Market Size (rev, %)

House & Garden

Beauty & Clothing

Competitive price

Computer

Sport & Touristics

Auto & Moto

Books & Multimedia

Due to avoidance of intermediaries (wholesalers), the platform will provide around 20% lower prices than market average.

Wirtualna Polska is a trusted content provider for 11 million users and its trust can be transferred to the e-commerce platform.

WP will provide additional services including: various payment methods (secured payment, microloans), mobile devices app (scan a barcode and find the product online),

social media app (buy through Facebook, Twitter, Pinterest) or after-sale services.

WPStores advantages E-COMMERCE CATEGORY

WP articles with full product information and reviews prepared by journalists will be linked to the most popular products. Other products will be provided with a regular

description and customer review.

Consumer journey will be short and simple – it will take just few steps to close the transaction, without participation of any intermediaries.

WP will offer wide range of products (over 300 000 products), gaining a place among the biggest online retailers in terms of offer (only 5,5% offer more than 50 000 products).

Next day delivery will be offered through outsourced transportation & logistics services. Moreover we will include free delivery thtrough InPost parcels

8%

7%

24%

9%

24%

19%

Influence(% of resp.)

Product information

Best choice

Competitive price

Trusted website

Friendly interaction

Fast delivery

Additional services

Key factors for choosing online shop

17

Agenda

Portals analysis

Digital market analysis

Strategy recommendation

Financial results

Questions & Answers

18

The shopping platform will generate 635 mn revenue in 2015 growing 57% p.a. from 2012

2012 2013 2014 20150

100,000,000

200,000,000

300,000,000

400,000,000

500,000,000

600,000,000

700,000,000

67,733,669155,301,366

266,784,015406,995,53863,694,895

109,418,097

166,924,084

40,011,668

61,040,277

105,672,323

242,288,011

416,213,779

634,959,899

Shopping platform revenue growth (mn PLN)

House & garden Beauty & clothing Products for kids

Users of the shopping platform (thousands)

The growing number of users will result from utilization of WP userbase and promotion

The revenue will grow 57% p.a. with House & Garden as the main value driver

Category 2012 2013 2014 2015

Beauty & clothing 319 672 1 058 1 479

House & garden 190 401 631 883

Products for kids 93 195 307 429

Total 602 1 267 1 997 2 791

Segment 2012 2013 2014 2015

Beauty & clothing 164 178 194 212

House & Garden 616 671 731 798

Products for kids 156 169 184 201

Average basket size across segments (PLN)

Average basket size is expected to grow at a steady pace, supporting revenue growth

19

Costs will increase along with revenue, totaling to 538 mn PLN in 2015 with logistics as the main cost driver

Substantial growth in operational costs results from logistics costs (warehousing, packaging, insurance, transport)

Capital expenditures at the begining of new business include platform development

Operating costs are the main cost driver throughout the investment.

Operating costs’ growth results from increasing number of customers and products they buy.

Group 2011 2012 2013 2014 2015

Administrative & office 2.7 2.7 5.0 5.0 5.1

Personnel costs 3.6 4.0 9.6 17.2 27.2

Advertising 21.6 10.8 5.4 5.4 5.4

Logistics 0.0 80.5 184.6 317.2 483.9

Total OPEX 27.9 98.1 204.6 344.8 521.6

Total CAPEX 33.4 2.8 6.4 10.9 16.7

Total costs 61.3 100.9 211.0 355.7 538.3

Key groups of costs (mn PLN)

1 2 3 4 50

100,000,000

200,000,000

300,000,000

400,000,000

500,000,000

600,000,000

33,372,3692,776,975

6,367,115

10,937,730

16,686,184

98,086,334204,606,669

344,757,168

521,575,710

61,272,369100,863,309

210,973,783

355,694,898

538,261,895

Growth of total costs of the shopping platform (mn PLN)

Total OPEX Total CAPEX

20

With EBITDA growing to 150 mn PLN in 2015, the entire investment is valued at 535 mn PLN with 23,9% IRR

Implementing the proposed strategy will increase EBITDA to 150 mn PLN in 2015

Shopping platform earnings will comprise 65% of EBITDA in 2015

With WP being sold at the end of 2015, the entire investment will generate 23,9% IRR

0

60,000,000

120,000,000

30,000,000 22,870,250

96,698,004149,568,255

Breakdown of EBITDA increase in 2010-2015 (mn PLN)

2010 2011 2012 2013 2014 2015

-400,000,000

-200,000,000

0

200,000,000

400,000,000

600,000,000

800,000,000

-300,000,000-24,707,472

33,833,71652,288,84968,460,843

704,764,183

Discounted cashflows throughout the investment(mn PLN)

Basic investment data (mn PLN)

Value of WP.PL '10 300

Value of WP.PL '15 1 092

NPV 535

IRR 23.9%

For investment to merely break-even, both foundations of the strategy would have to fail with WP being significantly overvalued in 2010

WP.PL would have to take twice as long to reach market leader position in selected segments

  Neutral Pessimistic

WP market share '15 21.68% 10.07%

Core business growth 12% 10%

EBITDA in 2015 149.6 73.1

WP.PL price in 2010 300.0 390.0

IRR 23.90% 0.00%

WP.PL would have to fail to grow at the same pace as the portals’segment

With WP valued at 10x EBITDA, WP would have to be acquired at 13x EBITDA

For the strategy to fail, both foundations would have to underperform significantly, halving the EBITDA to 73 mn PLN in 2015. At the same time, acquisition price would have to increase by 30%

22

Agenda

Portals analysis

Digital market analysis

Strategy recommendation

Financial results

Questions & Answers

24

Targeting average online shoppers offers the best opportunity to monetize online e-commerce business on the Polish market

Both women and men are comparatively attractive

target.

Middle age people are the biggest group of online

buyers.

Polish online shopper profile in the target segments (House&Garden, Beauty&Clothing and Kids)*

GENDER

AGE

Women 56.3%

Men43.7%

>175.9%

17-2522.7%

26-3538.2%

36-5023.5%

>509.8%

<200046.80%

2000-500040.70%

>500012.60%

INCOME

* Weighted Average of the 3 segments

Low and middle income Internet users count for

over 87% of online buyers.

The biggest part of the Polish online

e-commerce market in the target

segments belongs to middle age

customers with income up to PLN

5000, regardless of gender.

Targeting average shoppers will bring

the highest return on our investment as well as constant revenues in the

future house&garden

luxurious

kids' products

beauty&clothing

2.5

3.5

10

21

Polish consumers’ spendings (2010) mld PLN

Polish consumers on average spend over 2000 PLN a year on listed

products

25

The shopping platform will become operational in 2012 and WP.PL will be sold by the end of 2015

Acquire WP.PLDevelop the

platformOperate

Promote & advertise

Sell WP.PL

2010 2011 20152012-2015