The Cyfrowy Polsat Group: excellent operating and financial performance in Q2 2014

The Cyfrowy Polsat Group has reported excellent operating and financial performance for Q2 2014. It has also been for the first time that the Cyfrowy Polsat Group’s consolidated financial results included Polkomtel, owned by Cyfrowy Polsat since its acquisition of Metelem Holding Company Limited in May 2014. The Group has won its first triumphs in selling smartDOM services, a unique offering on the Polish market, and begun delivering the planned synergies.

Key operating and financial data

In Q2 2014, the Cyfrowy Polsat Group:

•  reported a stable base of 6.2m contract customers:
• customer ARPU at PLN 85.3,
• consistent growth of RGU saturation per customer, up to 1.93x,
• churn ratio stable at 8.8%,
• excellent sales in the smartDOM programme:
• more than 300,000 subscribers using the smartDom offer,
• RGUs attributable to smartDom customers at above 1m,
• positive effect of the programme on sales of individual services under standard offers,
• enhancement of contract customer ARPUs through the programme,
• delivered robust financial performance:
• revenue: PLN 1.8bn,
• EBITDA: PLN 709m,x
• EBITDA margin: 40.6%,
• recorded an excellent audience share for Telewizja Polsat (23.6%) and a growing share in the TV advertising market, which reached 24.8%,
• continued to deliver operational synergies and delivered the planned financial synergies almost completely.

“In the second quarter of the year, we successfully closed the acquisition of Metelem Holding Company Limited, the largest such transaction in Poland and one of the largest in Europe, thus ushering in a new era in our Group’s history. We continued the operational integration of the two companies with a view to generating the projected synergies. The first effects are already visible. A stable base of contract customers is the cornerstone of our strategy as a multi-play operator, which aims to maximise our product and service sales per customer. The stellar sales performance of the smartDOM scheme reinforces our conviction that the direction we have chosen is the right one. What is also essential at the current stage of implementation of our strategy is that we operate Poland’s largest LTE network and are setting new trends in developing the technology,” says Dominik Libicki, President of the Management Board of Cyfrowy Polsat S.A. and Vice-President of the Management Board of Polkomtel Sp. z o.o.

Retail and business segment

“This quarter is the first time we have consolidated Polkomtel’s financial results, and also the first time we have implemented a new reporting methodology, which we believe is the only one to appropriately reflect our operations. Following the consolidation of Polkomtel within the Group, the strategy has concentrated primarily on saturating our common customer base with the Group’s key services: television, the Internet and telephony, and enhancing customer ARPU as a consequence. We think that only with the new financial reporting model will we be able to present a reliable picture of our performance to the market,” explains Dominik Libicki.

In Q2 2014, the Cyfrowy Polsat Group:

• had a stable base of 6.2m contract customers:
• customer ARPU at PLN 85.3,
• consistent growth of RGU saturation per customer, up to 1.93x,
• churn ratio stable at 8.8%,
• 10.6m telephone RGUs,
• 4.3m television RGUs,
• 1.4m Internet RGUs,
• Contractual services accounted for 74% (12m), and prepaid services for 26% (4.2m), of all RGUs.
• Based on the methodology which is current market practice, the Group had 6.4m prepaid customers. We believe, however, that the true condition of the market for these services is best reflected by the following definition adopted by the European Commission: number of reported RGUs of prepaid services under the mobile telephony and Internet access means the number of SIM cards which received or answered calls, sent or received SMSs/MMSs or used data transmission services within the last 90 days. In line with this definition, the number of the Group’s prepaid customers was 4.2m. ARPU per prepaid service was PLN 17.9 in Q2.

• Total RGUs stood at 16m, including:

• IPLA, Poland’s largest online TV service, had the average monthly number of users of some 4.6m.

 “The entire segment’s revenue, expenses and EBITDA increased as a result of the consolidation of the Metelem group’s financial data. What is important, however, is that organic growth could also be seen in retail revenue – from pay TV, telecommunications, and broadband Internet traffic fees, which, alongside effective cost control, allowed us to maintain high profitability,” comments Tomasz Szeląg, Member of the Management Board in charge of Finance, Cyfrowy Polsat S.A.

Retail and business segment performance in Q2 2014

* Excluding depreciation, amortisation and impairment.

 TV production and broadcasting segment

“In Q2 2014, Telewizja Polsat recorded excellent viewing figures and was able to maintain the leading position of its flagship channel despite the ongoing fragmentation of the market and the broadcasting by TVP channels of FIFA World Cup games in Brazil. Our advertising and sponsorship revenues outpaced market growth thanks to an effective sales strategy on the expanding advertising market,” says Maciej Stec, Member of the Management Board, Telewizja Polsat Sp. z o.o.

Audience share of Telewizja Polsat channels:

• In Q2 2014, both the POLSAT flagship channel and the thematic channels were in the lead in terms of viewing figures, with an audience share of 13.5% and 10.1%, respectively. In total, the Polsat Group had a 23.6% audience share.
• In H1 2014, Telewizja Polsat had the leading audience share of its flagship channel (13.3%) and thematic channels (9.7%), which corresponded to an overall audience share of 23%.

Telewizja Polsat’s position on the advertising market:

• In Q2 2014, Telewizja Polsat’s advertising and sponsorship revenue grew by more than 19%, to PLN 267m, translating into a 24.8% share in the market.
• In H1 2014, Telewizja Polsat’s advertising and sponsorship revenue was up 16.8%, to PLN 475m, chiefly as a result of improved conditions on the TV advertising market, Telewizja Polsat channels’ organic growth outpacing the market, and consolidation of TV4 and TV6 financial results, which drove the Group’s share of the market up to 24.9%.

 “The growth of Telewizja Polsat’s financial ratios was driven by balanced management of the channels’ programming and the organic growth of advertising and sponsorship revenues at a rate higher than that reported for the TV advertising market as a whole, further strengthened by the consolidation of the newly acquired TV4 and TV6 channels. It should be noted that the faster growth rate of revenue against the cost base produced a substantial increase in EBITDA and the net profit,” comments Tomasz Szeląg.

TV production and broadcasting segment performance in Q2 2014

* Excluding depreciation, amortisation and impairment.

 Performance of the Cyfrowy Polsat Group

Performance of the Cyfrowy Polsat Group in Q2 2014

* Excluding depreciation, amortisation and impairment.

“This was yet another quarter in which we delivered excellent financial performance. The increase in revenue and EBITDA was driven not only by the consolidation of the Metelem Group’s financial results, but also by stable organic business growth, while the EBITDA margin increase was additionally a result of consistent cost discipline. Since we have already delivered most of the planned financial synergies, we are raising our synergy projections up to a total of PLN 700m by the end of 2019. Thanks to debt refinancing, we were able to significantly reduce the cost of financing of the Group’s day-to-day operations, which will have a positive effect on our performance in the future,” says Tomasz Szeląg.

“The published performance data and the rate at which we are integrating our companies and exploiting synergies between Cyfrowy Polsat and Polkomtel translate into excellent growth prospects for the coming quarters and years. The wealth of assets we have in our portfolio – such as the smartDOM offer, Power LTE Internet, ‘Passport to Benefits’ loyalty scheme, IPLA online television, and many additional services – will undoubtedly be instrumental in securing our competitive advantage in the future and strengthening the Group’s position for the benefit of customers and shareholders alike,” says Dominik Libicki.

New definitions used by the Cyfrowy Polsat Group are listed below

The Cyfrowy Polsat Group’s new definitions