WES Candidate variants

The following review relates to our historical financial condition and results of operations in the financial years ended December 31, 2009, 2010 and 2011, respectively. This ‘‘Operating and Financial Review’’ is based on the Financial Statements included in this Prospectus and should be read in conjunction with ‘‘Important Information—Presentation of Financial Information’’, ‘‘Industry and Market Overview’’, ‘‘Business’’ and

‘‘Financial Information’’. Prospective investors should read the entire Prospectus and not just rely on the information set out below. The financial information included this ‘‘Operating and Financial Review’’ has been extracted without material adjustment from the 2011 Financial Statements and the 2010 Financial Statements.

The following discussion of our results of operations and financial condition contains forward-looking statements. Our actual results could differ materially from those that we discuss in these forward-looking statements. Factors that could cause or contribute to such differences include those discussed below and elsewhere in this Prospectus, particularly under ‘‘Risk Factors’’ and ‘‘Important Information—Information Regarding Forward-Looking Statements’’.

Overview

We are the largest cable operator in the Netherlands, with an estimated network coverage of 56% of the country by homes passed as at December 31, 2011. We provide standard TV, digital pay TV, high-speed broadband internet and telephony services to consumers and businesses. A cornerstone of our strategy is to offer a combination of services in packages, in particular our triple-play offering, the ‘‘All-in-1’’ bundle, which offers subscribers the convenience of receiving TV, broadband internet and telephony services from a single provider at a lower price than they would pay through three individual service subscriptions.

According to OPTA, the Dutch Independent Post and Telecommunications Authority, we were the number one provider of triple-play offerings in the Netherlands as at June 2011.

As at December 31, 2011, we had 4.2 million homes passed and primary product relationships with 3.0 million standard TV subscribers. Our high penetration of homes passed with standard TV allows us to market our other services directly to our subscribers and supports our strong market positions. Based on Telecompaper statistics, we estimate that our service area market shares by subscriptions as at September 30, 2011 for standard TV, digital TV, broadband internet and telephony were 67.8%, 59.4%, 46.6% and 39.3%, respectively. We believe our leading positions are based on the strength of our network, customer focus and our ability to offer a premium combination of content, speed and functionality at attractive prices compared to our competitors.

Our services are delivered over our hybrid fiber coaxial (‘‘HFC’’) cable network, which is one of the most technically advanced in Europe. Since the start of the merger of our three predecessor businesses in 2006 (the ‘‘merger’’), we have invested more than A1 billion in our network, systems and infrastructure and we will continue to invest to maintain and strengthen our competitive position. Our network is fully bi-directional and EuroDocsis 3.0 enabled. Both its spectrum bandwidth capacity of 862 MHz and average fiber distance of within 300 meters from our subscribers’ homes and offices are better than the European industry average. These features allow us to offer download speeds of up to 120 Mbps to all our homes passed, and our technology has the potential to offer speeds of up to 400 Mbps using current EuroDocsis 3.0 modems. The spectrum bandwidth capacity and speed of our network are substantially higher for TV and broadband internet services than the networks of other operators in our service area such as KPN, Tele2 and Online. Based on plans published by KPN, we estimate that Fiber-to-the-Home (‘‘FttH’’), the only network solution currently capable of providing equivalent speeds for broadband internet, will pass approximately 21% of the homes in our service area by 2013 and that not all homes passed will be connected.

Our unique network advantage, market-leading services, customer focus and continued innovation have enabled us to achieve strong growth in the number of our standard TV subscribers who also subscribe for our digital pay TV offerings as well as the percentage of standard TV subscribers who are ‘‘triple-play subscribers’’, which has increased from 29.4% as at December 31, 2009 to 43.8% as at December 31, 2011.

These increases in turn have driven growth in revenue generating units (‘‘RGU’’) and our average monthly revenue per user (‘‘ARPU’’) in the past three years. As a result, our blended consumer ARPU has increased from A30.42 for the year ended December 31, 2009 to A37.34 for the year ended December 31, 2011. Going forward, we believe we are well positioned to capture further growth through our triple-play and digital pay TV offerings.

Key Factors Affecting Our Businesses and Results of Operations

Our operations and the operating metrics discussed below have been, and may continue to be, affected by certain key factors as well as certain historical events and actions. The key factors affecting our business and our results of operations include, in particular, our range of products and services, including digital TV pay services and higher broadband internet access speeds, changes in our pricing, subscriber churn, our cost structure, network upgrades and maintenance and regulation, notably the upcoming market analysis decision by OPTA. Each of these factors is discussed in more detail below.

Products and Services

In May 2008, we announced our new brand ‘‘Ziggo’’ as a single unified name for the cable and telecommunications services previously marketed under the brands of the @Home Business, the Multikabel Business and the Casema Business. In connection with the launch of our new name, we also fully standardized our product offering across our business. We now offer subscribers within our service area standard TV, digital pay TV, broadband internet and telephony services. We frequently upgrade our product offerings and service quality, including by increasing the broadband internet speeds in order to stay competitive and increase RGUs and ARPUs. We expect growth to be driven primarily by our All-in-1 bundle and digital pay TV services, as described below.

All-in-1 Bundle

In May 2008, we first introduced the All-in-1 bundle for the consumer market, which became available in our entire service area towards the end of 2008. We believe that customers of media and communications services will increasingly choose bundled products because of the convenience and cost savings that result from acquiring TV, broadband internet and telephony services from a single provider for one price. As at December 31, 2011, 1,261 thousand subscribers, or 43.2% of our total subscribers, subscribed for the All-in-1 bundle, compared to 1,079 thousand subscribers, or 35.7% of our total subscribers, as at December 31, 2010. In December 2010, we converted 152,000 subscribers who had subscribed for standard TV, broadband internet and telephony on an individual service subscription basis to the All-in-1 bundle. Subscribers to our All-in-1 bundle are counted as at least three separate RGUs because All-in-1 bundle subscribers receive each of our standard TV, broadband internet and telephony services (four RGUs would be counted for All-in-1 bundle subscribers who also subscribe for one or more of our digital pay TV services). Our All-in-1 product has helped drive an increase in consumer RGUs, which increased by 232,000 RGUs, or 3.5%, between December 31, 2010 and December 31, 2011. In addition, subscribers to our bundled products generate higher ARPU on average than our other subscribers. The increase in bundle subscribers during 2011 and the increase in revenues for digital pay TV were the primary drivers of the increase in blended consumer ARPU, which increased from A33.92 for the year ended December 31, 2010 to A37.34 for the year ended December 31, 2011. In the future, we expect that our RGUs, ARPU and total revenues will increase in line with increases in the proportion of our subscribers who choose bundled products and with the uptake of digital pay TV services.

We report revenues from our All-in-1 bundle within each of standard TV, broadband internet and telephony revenues on a pro rata basis and in proportion to the subscription fees of each product charged on a standalone basis.

Digital Pay TV Services

We provide digital TV services, for no additional fee, to all of our subscribers who have activated smart cards. Subscribers who have activated smart cards have access to our digital pay TV services, which, depending on the service, can be utilized through subscriptions or on a one-off basis. The percentage of our total subscribers who have activated smart cards has steadily increased over the past several years, from 49.9% as at December 31, 2009 to 73.7% as at December 31, 2011. Over the same period, the percentage of total subscribers who have purchased digital pay TV subscriptions has increased from 25.0%

to 32.2%. Because digital pay TV subscriptions can be cancelled each month, we may see periodic changes as a result of the start and the end of the football season and as a result of campaigns in which digital pay TV packages are offered with free-view periods or discounts during the first months.

Digital pay TV is a lower gross margin business than some of our other products and services. In April 2009, we launched our interactive TV services, including our video-on-demand product, ‘‘On-Demand’’,

are available to subscribers who have activated their smart cards and have an interactive receiver. Digital pay TV ARPU increased from A11.60 in 2009 to A12.55 in the year ended December 31, 2010 and to A13.71 in the year ended December 31, 2011.

Pricing

Our All-in-1 bundle offers subscribers a discount to the aggregate price of each of our standard TV, broadband internet and telephony services if acquired on a standalone basis, which makes the proposition attractive for our subscribers. We regularly review our pricing policy and in the past have increased our subscription fees as necessary in line with inflation or in response to market conditions and content costs.

The pricing of all of our services, including our All-in-1 bundle, is dependent on market conditions and pricing by competitors with similar offerings. We do not need any formal approval for price increases.

There have been no price increases for our broadband internet or telephony services during the period under review. Our prices for our standard TV and All-in-1 bundle services have been as follows:

From January 1, From the dates indicated

2009 2010 2011 2012

(E)

Standard TV . . . 16.25 16.45 16.95 (from February 1) 17.20 (from April 1) Total All-in-1 bundle

subscribers

‘‘Basic’’ All-in-1 plan . . 39.95 41.50 42.00 (from March 1) 42.00

‘‘Plus’’ All-in-1 plan . . . 49.95 51.50 52.00 (from March 1) 52.00

‘‘Extra’’ All-in-1 plan . . 64.95 66.50 67.00 (from March 1) 67.00 Churn

The television, broadband internet and telephony industries exhibit churn as a result of high levels of competition. In addition to competitive alternatives, churn levels may be affected by changes in our prices or our competitors’ prices, our level of subscriber satisfaction, subscriber mortality and the relocation of subscribers, as well as from the termination of agreements in relation to third-party networks, which we also use to deliver our services. See ‘‘Risk Factors—Risks Related to Our Business, Strategy and Operations—Churn may adversely affect our business’’. Increases in churn may lead to increased costs and reduced revenues. We estimate that annual churn for our All-in-1 bundle for the years ended December 31, 2009, 2010 and 2011 was approximately 4.8%, 4.6% and 4.1%, respectively. Including subscriptions attributable to bundles, churn for the years ended December 31, 2009, 2010 and 2011 was 9.8%, 8.7% and 9.1%, respectively. During 2008 we introduced our single brand, changed our billing process, rolled out our All-in-1 bundle, migrated all of our subscriber data to one unified database and CRM-system and integrated our operations into one single organization. These changes initially placed significant pressure on our customer service functions.

In addition, due to our high level of penetration of standard TV services (we served approximately 72% of our homes passed as at December 31, 2011), increasing our revenues is dependent upon increasing our revenue per subscriber through the offer of additional and enhanced services rather than increasing penetration of standard TV. Since the beginning of 2009, our standard TV subscribers have fallen slightly from 3.2 million to 3.0 million as at December 31, 2011. The general decline in the number of total standard TV subscribers is primarily attributable to increased competition from DTT and IPTV providers, as well as our own focus on higher value services such as digital pay TV and our All-in-1 bundle.

Cost Structure

A majority of our cost elements, such as a portion of our network operations, customer care, billing and administration costs, is relatively fixed, while a portion of our marketing and content costs and customer services cost is relatively variable, and a part of cost of goods sold is variable, as these costs are related to our revenues. Our most significant costs include author rights, signal costs and royalties (distribution/

license fees which we pay to several broadcasters in order to distribute their programs), interconnection fees, costs of materials sold to customers and payroll costs. The costs associated with the growth of our business, including RGU acquisition costs, are variable. As a result of our operating leverage and operational benefits, operating expenditure (excluding integration operating expenditures) per RGU has decreased over the period from December 31, 2009 through December 31, 2011 at a compound rate of

0.5%. Over the same period, operating expenses per subscriber have increased at a compound rate of 7.3%

compared to an increase in blended ARPU of 10.8%.

RGU acquisition costs include campaign costs, sales costs and negative gross margins on set-top boxes, which are sold to subscribers as part of our campaigns to promote digital TV and All-in-1 bundles and encourage our subscribers to activate digital TV. We target to recover RGU acquisition costs within six months to one year of acquisition of a subscriber. We believe this recovery period can be achieved as a result of our operational efficiency as well as the density of our subscriber base and the fact that we have direct relationships with our subscribers, which enables us to know our customer base very well and not to rely on intermediaries to interact with our subscribers.

We do not produce our own content and are dependent on broadcasters and other content providers for programming. We pay distribution/license fees to several broadcasters in order to distribute their programs on our network. We generally pay such license fees on a per subscriber basis. Some broadcasters (local and regional commercial broadcasters and commercial radio) still pay a marginal transmission fee to Ziggo. We have signed new agreements (or in some cases are in the process of renewing existing agreements) with large commercial broadcasters in the Netherlands under which we are to pay them for the right to distribute their content and are to receive new content rights, including high definition, video-on-demand and ‘‘TV Everywhere’’ rights. For on-demand content (TVoD) that is purchased by our subscribers, we generally pay a revenue share of the retail price, subject, for certain on-demand content, to fixed minimum guarantees. For packaged on-demand content we pay on a per-subscriber basis, sometimes with minimum guarantees. We clear third-party copyrights with various copyright collection societies. We expect that our content costs (above the minimum amounts) will increase in line with increased revenues from digital pay TV and on-demand content.

We pay interconnection fees to other network operators when we connect to their networks in order to provide our voice and data services. Voice interconnection fees in the Netherlands are regulated, and the amount we pay in interconnection fees in any period will depend on the level of usage of our services.

We also incur costs in procuring set-top boxes and other products, such as telephones and routers, that we sell or provide to our customers. Through various sales channels, we sell set-top boxes and other products directly to our subscribers. We account for the costs of set-top boxes and other products as cost of goods sold. These costs were A59.1 million, A46.4 million and A56.4 million for the years ended December 31, 2009, 2010 and 2011, respectively. As a result, our cost of goods sold is affected by the percentage of our subscribers that choose to purchase set-top boxes and other products directly from us rather than from independent retailers. Our cost of goods sold may increase in the future in case of an increase in sales of interactive set-top boxes, which are more expensive than standard digital or high definition set-top boxes.

Because we typically sell the set-top boxes at a discount as part of marketing campaigns to promote digital and interactive TV, increased sales of, and the sale of more expensive, set-top boxes have a positive impact on revenues but a negative impact on gross margin.

We also outsource a majority of the calls (in the year ended December 31, 2011, approximately 69%) to our call center customer care functions and all of our call center sales functions. The associated costs generally depend on the level of our customer care call volume and any investments we may make to improve customer service and satisfaction as part of our growth strategy. This fluctuates during any given period as a result of, among other things, the number of new subscriptions, the introduction of new products and services that are unfamiliar to our customers or difficult to install, the quality and reliability of our services and the quality of our alternative customer support options, such as the automated customer care functions on our website.

Network

Our ability to provide new high definition and on-demand digital TV services, broadband internet access at higher speeds and telephony services to subscribers depends in large part on our ability to upgrade and maintain our network and to reduce the number of analog channels to free up capacity. During 2008 and 2009, we fully upgraded our network to EuroDocsis 3.0 technology, which allows us to offer our customers higher broadband internet access speeds and additional premium digital video and voice services. In 2010, we introduced broadband internet service with top download speeds of 120 Mbps and upload speeds of 10 Mbps in our entire service area. We started with the roll-out of high-speed modems to our customers in 2009. In 2011, we rolled out approximately 617,000 high-speed modems to existing and new customers of

three years. In total, approximately 995,000 high speed modems were activated in our network of which 423,000 were WiFi enabled as at December 31, 2011.

We carefully monitor success-based capital expenditure by applying strict investment return and payback criteria. For the year ended December 31, 2011, we incurred non-integration and non-acquisition capital expenditure of A242.9 million, compared to non-integration, non-acquisition capital expenditure of A175.2 million and A209.5 million during the years ended December 31, 2010 and 2009, respectively. The capital expenditure for 2010 was relatively low compared to prior years. This was due to our decision to expend a portion of our budgeted 2010 capital expenditures during the latter months of 2009 on the completion of the network upgrade to EuroDocsis 3.0 and the finalization of the integration and harmonization of our predecessor businesses and infrastructures in the course of 2010. Low capital expenditures during 2010 also resulted from the late availability of the type of EuroDocsis 3.0 modems which we are using to replace modems at customer premises in order to supply our subscribers with

We carefully monitor success-based capital expenditure by applying strict investment return and payback criteria. For the year ended December 31, 2011, we incurred non-integration and non-acquisition capital expenditure of A242.9 million, compared to non-integration, non-acquisition capital expenditure of A175.2 million and A209.5 million during the years ended December 31, 2010 and 2009, respectively. The capital expenditure for 2010 was relatively low compared to prior years. This was due to our decision to expend a portion of our budgeted 2010 capital expenditures during the latter months of 2009 on the completion of the network upgrade to EuroDocsis 3.0 and the finalization of the integration and harmonization of our predecessor businesses and infrastructures in the course of 2010. Low capital expenditures during 2010 also resulted from the late availability of the type of EuroDocsis 3.0 modems which we are using to replace modems at customer premises in order to supply our subscribers with