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February 20, 2015 / 07:57

Agora Group financial results in 4Q 2014

Press release

In 4Q2014 the revenue of Agora Group increased by over 11%. Faster than market growth of ad revenues in Internet, Radio and Outdoor segments as well as the record high cinema attendance and revenues from the film distribution and co-production contributed to such financial result. Thanks to the intense development of the digital offer of Gazeta Wyborcza, the number of active digital subscriptions stood at almost 55 thousand at the end of 2014 and outperformed the plan.

-The last quarter of the previous year was especially successful for the Agora Group, and the entire 2014 meant efficient implementation of mid-term plans announced by the company in March 2014. In accordance with the announced objectives, all Agora's non-press businesses increase revenues and improve profitability. Higher than planned number of active digital subscriptions of "Gazeta Wyborcza" at the end of 2014 confirms the right choice of business transformation model for the press business segment. Agora's film and TV projects are also going really well - 2014 brought spectacular success of "Bogowie" movie, which we co-produced and distributed, whereas Stopklatka TV founded with Kino Polska S.A. reached the assumed 1% of audience share - says Bartosz Hojka, President of the Management Board of Agora.

Financial results and market performance of the Agora Group in 4Q2014 (yoy comparison):

The revenue of the Group was PLN 333.7 million, which represented an increase of 11.1% in comparison with the 4Q of 2013. Agora Group noted the increase in all categories of revenue. Additionally, the film activity, from which the revenue was PLN 13.7 million, contributed to the growth of the revenue from other sales to PLN 46.2 million and positively impacted the level of revenues of Agora Group. The advertising revenue increased by 5.3% and amounted to PLN 158.1 million. The Group also noted a significant increase in the revenues from the sale of cinema tickets - by 19.4% to the amount of PLN 46.7 million. The revenues from the copy sales were higher by 12.7% and amounted to PLN 37.3 million, whereas the revenues from the sale of printing services for external clients increased by 2.5% and amounted to PLN 45.4 million.

The net operating cost of Agora Group increased by 16.7% to the amount of PLN 332.6 million. An important factor influencing the level of the operating cost was the impairment loss booked on two magazines published by the Magazines and Free Press division in the amount of PLN 15.1 million. After exclusion of the influence of the impairment losses, the net operating cost of the Group amounted to PLN 317.5 million (up by 11.4% yoy). Other factors contributing to the increase of the operating cost were higher (by 24%) advertising and promotion costs related to the increased advertising activity in the Internet as well as Movies and Books segments. The staff cost grew by 7.7% due to the implementation of development projects within the Group. The cost of external services slightly went up (by 1.1%), whereas the cost of raw materials, energy and consumables decreased (by 1.9%) mainly as a result of lower yoy cost of production materials due to lower yoy volume of orders for printing services in coldset technology.

As a result of the impairment loss in the amount of PLN 15.1 million, the EBITDA of the Group decreased to PLN 25.4 million. The operating result at the EBIT level was positive and amounted to PLN 1.1 million, whereas the net profit was PLN 9.7 million.

- If we eliminated the influence of the impairment loss, Agora Group would not only note a two-digit increase in revenue, but also improve its operating result at all levels - EBIT, EBITDA and net profit. It is evident that the actions of our team executed in line with the mid-term development plans of Agora Group start bringing positive results - adds Bartosz Hojka, President of the Management Board of Agora.

After eliminating the influence of the impairment losses, EBITDA of the Group would go up by 3.8% and would amount to PLN 40.5 million. The operating result of the Group at the EBIT level would be higher by 5.9% and would amount to PLN 16.2 million. The net profit would increase to the amount of PLN 21.9 million.

ADDITIONAL INFORMATION -

Financial results and market performance of Agora's major lines of business in 4Q2014 (yoy comparison):

PRESS - increase of revenue from the copy sales and new initiatives

The results of the Press segment were under pressure of reduction in the press advertising expenditure and impairment loss on two magazines published by the Magazines and Free Press division, which burdened the financial result of the segment in the 4Q2014.

Advertising revenues^1,2 in Gazeta Wyborcza decreased by 13.7%, and the decrease in the advertising revenues in Metro was as little as 4.6%. It is worth mentioning that the magazines published by Agora maintained the flat level of advertising revenues.

The revenues from the copy sales increased by 8.1% despite the trend of declining newspapers' copy sales. The increase results from the change of the publishing cycle of Wysokie Obcasy Extra, which as of February 2014 has become a monthly publication, as well as from the increase of the cover price of Gazeta Wyborcza and the revenues from the digital subscription of Wyborcza.

More and more people subscribe to the digital version of Gazeta Wyborcza thanks to the new offer of digital packages introduced in February last year. Nearly 55 thousand subscriptions³ are now active (as for 31 December 2014) - a group of users who pay for access to the digital content of Wyborcza increased, amongst others, thanks to the launch of institutional subscription offer.

In October 2014 Gazeta Wyborcza enriched its modern offer addressed to digital readers with the application for devices using Windows 8.1. The application supplements the digital subscription offer of the daily within the Wyborcza Premium package.

At the same time, the editorial team of Metro in collaboration with Gazeta.pl designed the lifestyle website MetroWarszawa.pl devoted to leisure time in Warsaw. The daily also launched an application for smartphones and tablets using iOS system, which provides access to texts from the current issue of the newspaper.

MOVIES AND BOOKS⁴ - increase of attendance and revenue in the segment

The revenues of the Movies and Books segment increased by 29.8% to PLN 100.2 million. It was mainly due to the revenues from the distribution and co-production activities, which generated PLN 13.7 million as well as growing cinema attendance, which contributed to the increase of the revenues from the sale of cinema tickets by 19.4% to PLN 46.7 million. The segment also noted the increase in the revenues from the concession sales by 17.6% in the amount of PLN 15.4 million as well as from the advertising sales in cinemas, which went up to PLN 9.0 million. The operating expenses of the segment grew by 37.7% mainly due to the distribution and co-production activity. However, it must be remembered that in 4Q2013, the operating result of the segment was positively affected by the net effect of the one-offs (including, writing off a reserve created in the past for intellectual property rights), which improved the result of the Helios network by PLN 3.9 million.

Therefore, the segment obtained a positive operating result at the level of EBIT⁵ in the amount of PLN 10.7 million, and at the level of EBITDA⁵- in the amount of PLN 17.7 million.

The cinema attendance in the Helios network reached 2.7 million viewers and increased by 24.9%. At this time, the number of tickets sold to all cinemas in Poland went up by 24.1%.

In the 4Q2014, the involvement of Agora in the production of the film entitled Bogowie was of crucial importance for both the level of revenues and operating expenses of the segment. NEXT FILM was the distributor of the film, which entered the cinemas on 10 October 2014. Bogowie was the most watched film in 2014 and drew 2.2 million viewers to Polish cinemas. The revenues of Agora Group from the distribution and co-production activity in the 4Q2014 were PLN 13.7 million.

In the 4Q2014, the Special Projects division offered the readers 24 new publishing projects. As a result, Agora sold 0.3 million books and books with CDs, whereas the revenues of the division reached PLN 12.8 million. It is worth remembering that the total sales of the division were influenced by the revenues from the co-production of Bogowie. The Special Projects division finished the 4Q2014 with the operating result at the level of EBIT⁵ in the amount of PLN 0.4 million.

OUTDOOR⁶ - increase of revenue and improvement of operating result

In the 4Q2014, the revenues from the advertising sales⁶ in AMS amounted to PLN 43.0 million. Additionally, thanks to consistent optimisation measures, the segment reduced its operating cost by 1.3% and improved its operating result at the level of EBIT in the amount PLN 5.7 million. The position of the company on the outdoor advertising market is strong and its share in the expenses for outdoor advertising is now ca. 36%.

In the 4th quarter of 2014, AMS officially started the work on the largest Polish investment into urban furniture, which will cover 1 580 functional and interactive bus shelters. Till February 19, 2015 over 100 bus shelters were constructed.

INTERNET⁷- faster than market revenue increase

In the 4Q2014, the segment noted the increase in the revenues^8,9to the amount of PLN 36.7 million (up by 22.3%), mainly due to the increasing advertising sales. Due to the significant increase of the operating cost to PLN 30.8 million, operating result of the segment on the EBIT⁵ level was PLN 5.9 million, whereas EBITDA⁵ stood at PLN 7.2 million.

The Internet segment of Agora continues to develop new products. In the 4Q2014, it designed the VOD Kinoplex application for Smart TV. The advertising office of Gazeta.pl established an exclusive cooperation with one of the most popular entertainment websites in Poland - Kwejk.pl. In January 2015, Gazeta.pl presented a new version of its main website and graphic layout.

RADIO - increase of revenue and improvement of operating result

The revenues of the Radio segment^10,11 reached PLN 28.6 million (up by 9.6%). The operating cost of the segment grew by 6.4%, mainly due to the higher staff cost. Thanks to the dynamic increase of the revenues, the EBIT operating result of the Radio segment improved and amounted to PLN 5.4 million, whereas EBITDA - to PLN 6.0 million.

The radio stations of Agora Group obtained good audience share ratio: the music radio stations - 3.6% (down by 0.3pp), and Radio TOK FM - 1.2% (up by 0.1pp).

The segment continues to develop its current activity and pursues new frequencies. In December 2014, Radio Zlote Przeboje 93,2 FM started broadcasting in Jędrzejów - it's already the 24th local radio station under the brand of Zlote Przeboje. Radiowe Doradztwo Reklamowe operating within the segment expanded its offer with the cinema advertising and - acting as the Tandem Media team - became an exclusive broker offering advertising space in the network of Helios cinemas.

PRINT¹² - increase of revenue and improvement of operating result

The revenues of the segment from the sale of printing services for external clients were PLN 45.4 million and increased by 2.5% in comparison with the 4Q2013. Thanks to the reduction of operating expenses, the segment noted the improvement of operating results. EBITDA^{5 significantly improved and amounted to PLN 5.4 million. The segment also noted the profit at the level of EBIT⁵ in the amount of PLN 1.5 million.

>NOTICE: Since the first quarter of 2014, as a result of organizational changes, Agora Group ("The Group") has changed the reporting method of selected operating segments. The most important changes concern separating printing services from hitherto Daily Press segment and turning it into an independent business line. The second change relates to including magazine publishing activities in a new Press segment and transferring hitherto Special Projects division into a new Movies and Books segment (hitherto Cinema segment). Detailed description of changes in the reporting of particular business lines of the Agora Group can be found in respective sections of the Management discussion and analysis of the Group's results. The comparable data for 2013 were restated adequately. The Management Board would like to point out that the amounts concerning major business lines presented in the quarterly reports for previous reporting periods may not be comparable in full with the present data prepared under the current management approach.

Notes:

¹ the amounts do not include revenues and total cost of cross-promotion of Agora's different media (only direct variable cost of outdoor panels) if such promotion is executed without prior reservation between segments of the Agora Group.}

²the amounts refer only to a portion of total revenues from dual media offers (published both in Gazeta Wyborcza, as well as on GazetaPraca.pl, Domiporta.pl, Komunikaty.pl verticals and Nekrologi.Wyborcza.pl website), which is allocated to the print edition of Gazeta Wyborcza.

³total number of active subscriptions comprises monthly, quarterly and annual subscriptions purchased on the websites of "Gazeta Wyborcza", in Piano National system, in Publio.pl and in the form of mobile applications for tablets and smartphones with iOS, Windows 8 and Android operating systems.

⁴ the Movies and Books segment includes the pro-forma consolidated financials of Helios S.A. and Next Film Sp. z o.o., which form the Helios group and Agora's Special Projects division.

⁵EBIT and EBITDA of Press, Movies and Films, Internet as well as Print segments are calculated on the basis of cost directly attributable to the appropriate operating segment of the Agora Group and excludes allocations of all Company's overheads (such as: cost of Agora's Management Board and a majority of cost of the Company`s supporting divisions), which are included in reconciling positions.

⁶the Outdoor segment consists of the pro-forma consolidated data of companies constituting the AMS group (AMS S.A., Adpol Sp. z o.o.).

⁷ the Internet segment includes the pro-forma consolidated financials of Agora's Internet Department, LLC Agora Ukraine, Trader.com (Polska) Sp. z o.o., AdTaily Sp. z o.o. and Sport4People Sp. z o.o. and Sir Local Sp. z o.o.

⁸ data include inter-company sales between Agora's Internet Department, LLC Agora Ukraine, Trader.com (Polska) Sp. z o.o., AdTaily Sp. z o.o., Sport4People Sp. z o.o. and Sir Local Sp. z o.o.

⁹ including, among others, allocated revenues from the dual media offer (i.e. published both in Gazeta Wyborcza, as well as on GazetaPraca.pl, Domiporta.pl, Komunikaty.pl verticals and Nekrologi.Wyborcza.pl website).

¹⁰ the Radio segment includes the pro-forma consolidated financials of Agora's Radio Department, all local radio stations and a super-regional TOK FM Radio, being parts of the Agora Group. This includes: 24 Golden Hits (Zlote Przeboje) local radio stations, 7 Rock Radio local radio stations, one CHR format (Contemporary Hit Radio) local station and a super-regional news radio TOK FM broadcasting in 17 metropolitan areas.

¹¹ advertising revenues include revenues from brokerage services of proprietary and third-party air time.

¹² The Print segment includes the pro-forma financials of Agora's Print division and Agora Poligrafia Sp. z o.o.

Sources:

Advertising market: the data refer to advertising expenditures in six media (print, radio, TV, outdoor, Internet, cinema). Agora has corrected the numbers for TV and Internet advertising market in the fourth quarter of 2013 and the data for cinema advertising in the fourth quarter of 2013 and the first quarter of 2014. Additionally, the value of the advertising expenditure in dailies and in magazines in the first, second and the third quarter of 2014 was corrected.

Unless explicitly stated otherwise, print and radio advertising market data are based on Agora's estimates adjusted for average discount rate and are stated in current prices. Given the discount pressure and advertising time and space sell-offs, these figures may not be fully reliable and will be adjusted in the consecutive reporting periods. The data for print exclude classifieds, inserts and obituaries. The estimates are based on rate card data obtained from Kantar Media monitoring and Agora S.A. monitoring. TV, Internet and cinema figures are based on Starlink media house estimates. TV estimates include regular ad emissions and sponsoring, but exclude teleshopping, product placement and other advertising forms. Internet ad spend estimates include display, search engines (Search Engine Marketing), e-mail marketing and video (since 1Q2012). Outdoor advertising figures are based on Izba Gospodarcza Reklamy Zewnetrznej (IGRZ) estimates.

Outdoor: the data based on the report on sales of outdoor prepared by IGRZ, which include: AMS S.A., Business Consulting, Cityboard Media, Clear Channel Poland, Defi Poland, Gigaboard Polska, JETline, Megaboard, Mini Media, Ströer Out of home and Warexpo. The report is prepared on the basis of the financials provided by those companies to IGRZ. The reports for the outdoor market (defined by IGRZ as 'the out-of-home market') include immovable, mobile and digital outdoor advertising.

The Internet offer reach: data regarding real users, page views and mobile page views is based on Megapanel PBI/Gemius, which covers Internet users age 7 years and above, connecting to Internet from the territory of Poland, and include only Internet domains registered on Agora S.A. in Gemius S.A. Registry of Service Providers. Real users data of the Gazeta.pl group services are audited by Gemius SA. From April 2013 new rules apply combining sites in a group of publishers. According to the new rules Gazeta.pl Group covers only websites assigned to Agora S.A. by the Gemius S.A. in the Registry of Service Providers and thus the results are not comparable with previous periods. From April 2013 changed the method of calculating the rate of users (real users) - the cookies from the mobile devices have been deducted from the basis of estimation. New User Index (real users) correspond to new page views indicators and new spent time indicators (from non-mobile devices), not found in the study prior to April 2013.

Cinema tickets sales: the data on ticket sales in the cinemas comprising Helios group come from the accounting data of Helios reported in accordance with full calendar periods. The data on cinema ticket sales are estimates of Helios group prepared on the basis of data received from Boxoffice.pl (based on reports submitted by distributors of film copies). Cinema ticket sales are reported for periods, which do not cover a calendar month, quarter or year. The number of tickets sold in the given period is calculated from the first Friday of a given month, quarter or year until the first Thursday of the next reporting month, quarter or year.

Radio audience share: the data based on Radio Track surveys carried out by MillwardBrown SMG/KRC (all places, all days and all quarters): for Agora Group music radio stations: in cities of broadcasting of Agora's radio stations and in the age group of 15+, from October to December (sample for 2013: 21,069; sample for 2014: 21,079); from January to December (sample for 2013: 84,194; sample for 2014: 84,290).

Advertising in monthlies: rate card data on magazines obtained from Kantar Media monitoring; commercial brand advertising, excluding specialized monthlies; accounted for 114 monthlies and 77 magazines - total of 191 magazines for the period of October-December 2014.

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Agora Group financial results in 4Q 2014

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