Effective implementation of the multiplay strategy – over 13 million services provided in the contract model. Polsat Group presents very good results for Q3 2016

Cyfrowy Polsat Group published very good operational and financial results for Q3 2016 for both segments, as well as for its major product lines. The good results are manifested by such items as growth of the number of contract services to over 13 million – now accounting for nearly 80% of all the services, lowest churn level in the past three years and stable ARPU growth, as well as continuation of positive trends in the operations of TV Polsat channels. Q3 was the time of consistent implementation of the Group’s multiplay strategy, resulting in growth of revenue and EBITDA, as well as a healthy increase of cash flow – to PLN 1.544 bn during the 12-month period.

Cyfrowy Polsat Group’s performance in Q3 2016

• Contract services, numbering over 13 million, account for nearly 80% of all revenue generating services. The number of contracts increased by nearly 600 thousand YoY. Meanwhile average revenue per contract customer increased to PLN 88.6.
• Successful implementation of the smartDOM program:
  • growth of the number of multiplay customers to over 1.2 million,
  • as many as 21% of the Group’s contract customers use the integrated offer, as a consequence of which the lowest churn during the past three years was recorded, with the churn ratio at 8.5% in Q3;
• The Group has seen the highest growth of mobile contract services in years, with the number increasing by 112 thousand YoY –the outcome of consistent pursuit of the strategy, partly supported by prepaid to postpaid migration.
• Mobile Internet contract customer base increased by 205 thousand YoY, reaching 1.7 million. The total number of active Internet access services was nearly 2 million.
• Thanks to both good sale of basic packages and value-added services (Multiroom and paid OTT services) the total number of pay TV contract services increased by as many as 283 thousand YoY.
• The expected, and positive for the Group, intensified migration of customers to contract services occurred in the prepaid telephony segment. Q3 ARPU in the prepaid segment was 18.7 PLN which was the result of short-term promotions associated with prepaid SIM registration.
• Channels from TV Polsat Group’s portfolio continued as the audience leaders in the commercial viewer group, both in Q3 as well as during the first 9 months of the year, with the viewership results being respectively: 24.6% (13% for the main channel and 11.6% for the thematic channels) and 24.8% (13.1% for the main channel and 11.7% for the thematic channels).
• TV Polsat Group’s revenue from TV ads and sponsoring grew by 0.7% in Q3 (with the TV advertising market growing at 0. 1% YoY) and reached PLN 222 million, which resulted in the Group’s share in TV advertising market increasing to 27.4%. During the 9 months of the year the Group recorded revenue growth of 4.9% (while the TV advertising market grew by 1% YoY), achieving PLN 757 million in revenue, with the Group’s share in the advertising market increasing to 26.8%.
• The average monthly number of users of Poland’s biggest web TV, IPLA, was ca. 3.3 million.
• The Group has demonstrated very good financial performance:

In connection with the acquisition and consolidation of Midas Group starting from February 29, 2016, in order to better illustrate Polsat Group’s business operations, the tables below present the comparison of the Group’s reported[1] results for Q3 2016 vs. the pro forma[2] results for Q3 2015 down to the EBIT level.

• revenue: PLN 2.388 billion,
• EBITDA: PLN 957 million,
• EBITDA margin: 40.1%,
• free cash flow after payment of interest on loans and bonds: PLN 1.544 billion over the 12-month period, which has exceeded the company’s existing assumptions (PLN 1.2-1.4 billion),
• net debt /EBITDA ratio, as calculated in line with the definition in the SFA (i.e. excluding debt not serviced in cash), was 2.96x, while upon including the debt of the recently acquired Litenite Group – 3.19x.

“The third quarter has been yet another period which confirmed the high effectiveness of our strategy, as during the year we increased our contract base by nearly 600 thousand services,” says Tobias Solorz, the CEO of Cyfrowy Polsat S.A. and Polkomtel Sp. z o.o. “Systematically growing ARPU and dynamic growth of the number of multiplay customers translate into the Group’s very good financial indicators, which are decisive for the stability of our business and which enable its constant growth. We are satisfied with the record low, as for the industry we operate in, churn rate which has been influenced by the growing number of customers using contract services and multiplay offer. We expect the presented positive trends to continue in the coming quarters.”

Services provided to residential and business customers

“We have achieved high growth across all major product lines. The number of mobile telephony contracts grew at the fastest pace – the base increased by 112 thousand year-on-year, which has been definitely the best result in years, partly connected with the mandatory prepaid card registration and partly driven by the multiplay strategy, as Q3 was the fourth consecutive quarter in which we recorded growth in this area. Sale of pay TV services is also increasing and, despite Q3 being the vacation season, we view Internet sales results as very good, repeating last year’s performance,” sums up Tobias Solorz.

“Thanks to the successful implementation of our strategy, which manifested itself in the growing number of contract services and the consistently developed smartDOM program, as well as owing to the effective response to the changing business environment, we have been able to increase our revenues while keeping costs under control. Thanks to this we have been able to achieve higher EBITDA on the Group level,” comments Katarzyna Ostap-Tomann, Management Board Member responsible for finance in Cyfrowy Polsat S.A., Polkomtel Sp. z o.o., and Telewizja Polsat Sp. z o.o.

Financial results for the segment of services provided to individual residential and business customers – Q3 2016

Pro forma: Cyfrowy Polsat, Telewizja Polsat, Metelem, Midas, consolidated financial statements and own analyses

* Costs exclude depreciation and amortization, impairment and liquidation

TV broadcasting and production segment

“Both in the third quarter of the year and during the entire 9-month period, Polsat Group and our main channel held the leadership position in terms of audience shares in the 16-49 commercial viewer group,” says Maciej Stec, Management Board Member of Cyfrowy Polsat S.A. and Telewizja Polsat Sp. z o.o. “Our revenue from TV advertising and sponsoring grew during the first 9 months of the year at a much faster pace than the market, i.e., at the rate of 4.9%, thanks to the favorable influence of our consistently pursued optimum programming policy as well as the sales success and the good viewership results of UEFA EURO 2016.

¹ NAM, All 16-49, all day
² TV Polsat's revenue from advertising and sponsoring, according to the definition of SMG Poland (formerly SMG Starlink)

³ Our estimates based on SMG Poland data

⁴ SMG Poland, air time and sponsorship

Financial results of the TV broadcasting and production segment in Q3 2016

* Costs exclude depreciation and amortization, impairment and liquidation

“The success associated with sale of access to UEFA EURO 2016 matches had positive influence on the results in the TV broadcasting and production segment also in the 3^rd quarter and it has been, among other things, the reason of the double-digit growth of revenue. Effective management of programming costs led to stable costs in this segment. And all of these elements have been reflected in the high EBITDA level and in the EBITDA margin of 39.9%,” comments Katarzyna Ostap-Tomann.

Financial results of Cyfrowy Polsat Group

“It has been yet another quarter during which the Group achieved very good financial results which exceeded the market consensus. Achievement of such good financial indicators was also supported by synergies. Stable and high cash flow continues to be a strong item in our Group. It not only enables us to accomplish our business goals and reduce our debt according to plan, which is our financial priority, but also to return to regular dividend payments from 2017 onwards, in accordance with the assumptions of the new dividend policy,” sums up Katarzyna Ostap-Tomann.

Financial results of Cyfrowy Polsat Group in Q3 2016

                         Pro forma: Cyfrowy Polsat, Telewizja Polsat, Metelem, Midas, consolidated financial statements and own analyses

                         * Costs exclude depreciation and amortization, impairment and liquidation