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August 12, 2016 / 07:34

Agora Group's financial results for 2q2016

Press release

In the second quarter of 2016 revenues of Agora Group continued an upward trend. This was the result of growing advertising revenues in the Outdoor, Internet and Radio segments, and, most of all, of growth of revenues from cinema operations due to higher than market attendance growth rate in Helios cinemas.

Financial results and market performance of Agora Group in 2Q2016 (yoy comparison):

Revenues of the Group increased to PLN 296.2 million, which was mainly the result of high attendance rates in Helios cinemas and growth of revenues of the Outdoor, Internet, Radio and Print segments.

As a result of high cinema attendance, the Group's revenues from ticket sales grew by 20% to PLN 31.2 million, whereas revenues from concession sales increased by 23.1% to PLN 12.8 million. Revenues from sales of printing services to external clients were higher by 5% and amounted to PLN 39.6 million.

Advertising revenues in the Group decreased by 0.7% to PLN 150.5 million. The decrease noted in the Press, as well as Movies and Books segments was partly compensated by higher advertising sales in the Outdoor, Internet and Radio segments. Revenues from copy sales amounted to PLN 34.2 million and were lower by 4.7%. It was mainly the result of decrease of paper copy sales, as well as lower revenues from publication sales in Agora's Publishing House. It is worth remembering, though, that lower yoy revenues of Agora's Publishing House stem from a huge commercial success of the game Witcher 3: Wild Hunt in the corresponding period of 2015 which contributed revenues of PLN 14.9 million. In 2Q2016 Agora Group noted additional revenues in the amount of PLN 6.9 million related to sales to the game Witcher 3: Wild Hunt and its extensions. What is more, revenues from Agora's film activity were slightly lower yoy.

Net operating costs of the Group grew by 2.9% to PLN 297.5 million. It is the result of higher operating costs in the Print, Internet, Outdoor, Movies and Books, and Radio segments.

Growth of external services costs by 11.2% was mainly the result of higher costs of film copy purchase and rental fees in the Movies and Books segment, advertising brokerage in the Internet and Radio segments, as well as higher campaign execution costs in the Outdoor segment. Staff costs increased by 1.8%, mainly as a result of development plans and growth of employment in selected segments. Staff costs decreased only in the Press and Print segments, mainly as a result of lower level of full-time employment. Increase of costs of energy, raw materials and consumables by 4.3% results mainly from the development of Helios cinema network and is also related to growing revenues from concession sales, as well as higher production materials. Costs of marketing and promotion of the Group increased by 6.8%, mainly as a result of increased activity in the area of film and cinema distribution.

As a result of higher operating costs of the Group and lack of projects of the Witcher 3: Wild Hunt scale, in 2Q2016 the Group's EBITDA amounted to PLN 22.9 million, whereas operating loss on the EBIT level amounted to PLN 1.3 million. Net loss of the Group accounted for PLN 5.5 million, whereas net loss attributable to the equity holders of the parent company amounted to PLN 5.1 million.

ADDITIONAL INFORMATION - RESULTS OF AGORA'S SEGMENTS IN THE SECOND QUARTER OF 2016 (yoy comparison)

PRESS - reduction of operating costs

The Press segment noted decrease of revenues, mainly as a result of lower advertising sales, which, in turn, is related to the market reduction of advertising expenditure in dailies: in 2Q2016 it dropped in Poland by 16%.

Advertising revenues^1,2 in Gazeta Wyborcza decreased by 21.3%, in Metrocafe.pl^3,4revenues dropped by 12%. In Agora's magazines advertising revenues increased by 3.1%.

Segment's revenues from copy sales were lower by 2.8% and amounted to PLN 31.7 million. This decrease is mainly the result of a downward trend of copy sales.

Operating costs of the segment⁵ were reduced by 3.7% to PLN 71.0 million. This was mainly the result of lower staff costs, noted as a result of lower variable component of remuneration and lower level of full-time employment, as well as lower costs of energy, raw materials, consumables and print services related to lower volume of print of own titles.

Since June 4th, 2016 Gazeta Wyborcza is published in a new layout, with a new content arrangement and a new logo. Information have been separated from commentaries which are now presented on a grey background. There has also been a change in sections of the daily, and Magazyn Swiateczny of Gazeta Wyborcza also has a new layout.

MOVIES AND BOOKS⁶ - dynamic growth of revenues from ticket sales in Helios cinemas

Revenues of the Movies and Books segment amounted to PLN 70.7 million and were only slightly lower yoy - by 0.6%. It is important to note that the level of revenues in the corresponding period of 2015 was significantly influenced by revenues from co-production and distribution of the game Witcher 3: Wild Hunt which amounted to PLN 14.9 million. This year's revenues of the segment were mainly influenced by higher than the market attendance in Helios cinemas. The number of tickets sold in Poland grew by almost 10.9% yoy and accounted for almost 8.4 million tickets. The number of Helios' viewers was higher by 13.4% yoy and amounted to over 1.7 million. Combined with higher average ticket price and concession sales, it resulted in higher revenues from ticket and concession sales, by 20% and 23.1%, respectively.

Revenues of Agora's Publishing House, part of the Special Projects division, were lower yoy and accounted for PLN 16.6 million. In 2015, revenues from the rights to co-production and distribution of the game Witcher 3: Wild Hunt had a significant impact on the revenues of Agora's Publishing House. In 2016, its revenues were also positively influenced by the sales of the game Witcher 3: Wild Hunt and its extensions, which brought PLN 6.9 million in sales. The Movies and Books segment noted slightly lower revenues from film activity. In 2Q2016 NEXT FILM introduced to Polish cinemas a foreign film A Tale of Love and Darkness and a Polish film #WszystkoGra.

Operating costs of the Movies and Books segment were higher by 1.7% and amounted to PLN 76.5 million. This growth was mainly caused by the executed development plans, which, in turn, resulted in higher staff costs due to Helios cinemas expansion. This was also the reason for higher costs of energy, raw materials and consumables.

As a result, the operating result of the segment on the EBITDA⁷ level decreased to PLN 1.5 million, whereas operating loss on the EBIT⁷ level amounted to PLN 5.8 million. Comparing the financial data of the segment yoy it is worth noticing that the segment's revenues and operating results on the EBIT and EBITDA⁷ levels in 2015 were significantly affected by i.a. revenues from the game Witcher 3: Wild Hunt.

Agora's Publishing House published in 2Q2016 20 new books, 3 music albums and 1 DVD album. As a result, Agora's Publishing House sold ca. 0.2 million books and books with CDs and DVDs.

In 2016 Helios shall open 5 new cinemas: in Gdansk, Poznan, Przemysl, Tomaszow Mazowiecki and Wolomin. NEXT FILM shall introduce to cinemas: Sługi boze, Szkola uwodzenia Czeslawa M., Jestem morderca and Plac Zabaw. Slugi boze and Jestem morderca are co-produced by Agora, whereas Szkola uwodzenia Czeslawa M. is the film in which the Company is the leading producer.

OUTDOOR⁸ - significant growth of revenues and improvement of operating result

In 2Q2016 revenues from ad sales⁹ on AMS panels increased to PLN 45.1 million. This was strongly influenced by sales of campaigns on citylight panels. The dynamics of growth of advertising revenues of the segment was higher than the market and was at the level of 8.7%.

Operating costs of the segment increased by 4.8%, mainly due to higher cost of campaign execution and higher staff costs.

Due to significant growth of revenues, the Outdoor segment improved it operating results - EBIT grew by 20.2% to PLN 10.7 million, whereas EBITDA grew by 21.7% to PLN 14.6 million. The EBITDA margin increased to 31.9%. The company's position on the market is strong, and its share in the outdoor advertising expenditure pie is at the level of almost 37%.

Within the period under discussion, AMS continued on with building more bus shelters in Warsaw. There already are more than 1,000 bus shelters completed, most of them already available for ad sales.

INTERNET¹⁰ - continued growth of revenues

In 2Q2016 Agora's Internet segment noted growth of revenues^11,12 by 9.0% to PLN 43.5 million, mainly as a result of growth of advertising revenues in Gazeta.pl services, ad sales via AdTaily network, consolidation of GoldenLine, as well as growth of advertising in sport-themed services.

Operating costs of the Internet segment grew by 10.9% to PLN 35.7 million, due to higher costs of rental fees for advertising space in advertising networks (AdTaily) and consolidation of GoldenLine.

Operating result on the EBIT7 level grew to PLN 7.8 million, whereas the EBITDA7 operating result was slightly lower and was at the level of PLN 9.0 million.

In June, 2016, the total reach of Gazeta.pl services among Polish Internet users stood at 61.8%, while the number of users reached 15.8 million. They have done 690.3 million page views and spent an average of 1 hour at Gazeta.pl's sites. The number of page views generated by mobile devices totalled 265.1 million, and the percentage of page views in the mobile services from Gazeta.pl group reached 38.4% and was the highest among Polish horizontal portals.

In the 2Q2016, Agora's Internet team carried out activities focused on strengthening the position of its brands. In April, 2016, it launched a nationwide image campaign for the Sport.pl brand, promoting the service and the most popular Polish sports application Sport.pl LIVE. Ads with the slogan Sport.pl is your live appeared in online media, press, radio, cinema and outdoor advertising before the Euro 2016 tournament in France. In addition, on the occasion of Euro 2016 Sport.pl launched a new, faster version of its mobile service.

The Internet segment also strengthened its position in the market of mobile applications. Since June, 2016, Gazeta.pl LIVE, the best Polish news application for Android devices (the highest-ranked in its category by the users of Google Play) is available in a brand new version. It gained even more modern design for easy use and a number of features that allow its users to get the information quicker.

RADIO¹³ - growth of revenues and improvement of operating result

Revenues of the Radio segment grew by 8.8% to PLN 29.6 million, whereas advertising revenues¹⁴ grew by 1.6%. It was most strongly influenced by higher revenues from ad sales in Helios cinemas. Operating costs of the Radio segment grew to PLN 24.3 million. It was mainly the result of higher costs of advertising brokerage and costs of marketing research, noted as 'external services'.

The segment noted an improvement of operating results due to yet another growth of revenues. EBIT and EBITDA grew to PLN 5.3 million and PLN 6.0 million, respectively.

Agora's radio stations improved their audience results: 0.1pp for music radio stations to the level of 4.0%, and Radio TOK FM by 0.3pp to the level of 1.8%.

The Radio segment develops current activity and solicits new frequencies. In the middle of March, 2016 Agora Radio Group started broadcasting in Sieradz on 105,4 FM (the transmitter is located in Zdunska Wola). On the 22nd of July 2016, Radio TOK FM started broadcasting in Bydgoszcz and Rzeszow, and the station is present now in 22 cities, total. Since the second half of 2016, Radio Zlote Przeboje is broadcasting on 94,00 MHz from Skomielna Czarna in the Malopolskie voivodeship.

PRINT¹⁵- growth of revenues

Revenues from sales of print services to external clients grew by 5.0% to PLN 39.6 million. Operating costs of the segment increased to PLN 43.6 million, mainly as a result of strengthening of the Euro to PLN exchange rate, which significantly influenced the price of materials and change in transport rates. The delivery destinations also changed. As a result, the Print segment noted an operating loss on the EBIT level⁷.

Notes:

¹ the amounts do not include revenues and total cost of cross-promotion of different media between the Agora Group segments (only direct variable cost of campaigns carried out on advertising panels) if such promotion is executed without prior reservation.

² in 2015 the presented amounts refer to only 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. Since 2016 total revenues from dual media offers are presented in the advertising revenues of Gazeta Wyborcza. Additionally, since the first quarter of 2016 the sales from copy sales of Gazeta Wyborcza include the revenues from the sales of digital subscriptions of the daily. The data for previous periods was adjusted accordingly. In previous reporting periods the revenues from the sales of digital subscriptions were presented in other revenues.

³ in 2016 custom publishing activities, which till the end of 2015 were reported together with the results of Metrocafe.pl, were offered by the Magazines division. The data for 2015 was not corrected in this respect.

⁴ the amounts refer to total revenues of the Free Press including revenues from Metrocafe.pl's display advertising (previously Metro), classifieds and inserts as well as from metroBTL services and Metrocafe.pl's special activities.

⁵ segment operating costs associated with the production of the Group's own titles are settled on the basis of allocation of direct and indirect cost associated with their production from the Print segment.

⁶ 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 comprising, i.a, the Publishing House division and film production division.

⁷EBIT 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.

⁸ the Outdoor segment consists of the pro-forma consolidated data of companies constituting the AMS group (AMS S.A., Adpol Sp. z o.o.).

⁹ the amounts do not include revenues, direct and variable cost of cross-promotion of Agora's other media on AMS panels if such promotion was executed without prior reservation.

¹⁰ the Internet segment includes the pro-forma consolidated financials of Agora's Internet Department, Trader.com (Polska) Sp. z o.o., AdTaily Sp. z o.o., Sport4People Sp. z o.o. and Sir Local Sp. z o.o., since January 2016 - GoldenLine Sp. z o.o. Since March 2016 SearchLab agency operates as a subsidiary company - Optimizers Sp. z o.o. (earlier SearchLab Sp. z o.o.).

¹¹ the amounts do not include total revenues and cost of cross-promotion of Agora's different media (only direct variable cost of campaigns carried out on advertising panels) if such promotion is executed without prior reservation, as well as inter-company sales between Agora's Internet Department, Trader.com (Polska) Sp. z o.o., AdTaily Sp. z o.o., Sport4People Sp. z o.o., Sir Local Sp. z o.o. GoldenLine Sp. z o.o. and Optimizers Sp. z o.o.

¹²in 2015 presented amounts include, 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). Since 2016 the revenues from dual media offers, as well as revenues from listings in verticals Komunikaty.pl and NekrologiWyborcza.pl are not allocated to Internet division.

¹³ the Radio segment includes the pro-forma consolidated financials of Agora's Radio Department, all local radio stations and a super-regional radio TOK FM, which are parts of the Agora Group. These include: 23 Golden Hits (Zlote Przeboje) local radio stations, 4 local radio stations (since March 2016; in 2015 and in January-February 2016 7 local radio stations broadcasted under the name Rock Radio), 7 local stations broadcasting under the brand Radio Pogoda (3 stations since June 12, 2015, 4 stations since July 31, 2015, 7 stations since March 1, 2016) and a super-regional news radio TOK FM broadcasting in 22 metropolitan areas (on July 22, 2016 Radio TOK FM started broadcasting in Bydgoszcz i Rzeszow).

¹⁴ advertising revenues include revenues from brokerage services of proprietary and third-party air time. The amounts do not include revenues and total cost of cross-promotion of Agora's different media (only the direct variable cost of campaigns carried out on advertising panels) if such a promotion was executed without prior reservation.

¹⁵ the Print segment includes the pro-forma financials of Agora's Print division and Agora Poligrafia Sp. z o.o.

Sources:

The data refer to advertising expenditures in six media (print, radio, TV, outdoor, Internet, cinema). In this MD&A Agora has corrected the numbers for dailies and outdoor in the second quarter of 2015 and in dailies and Internet in the first quarter of 2016.

Unless explicitly stated otherwise, press and radio advertising market data referred to herein are based on Agora's estimates adjusted for average discount rate and are stated in current prices. Given the discount pressure as well as advertising time and space sell-offs, these figures may not be fully reliable and will be adjusted in the consecutive reporting periods. In case of press, the data include only display advertising, excluding classifieds, inserts and obituaries. The estimates are based on rate card data obtained from the following sources: Kantar Media monitoring, Agora S.A. monitoring.

Presented TV, Internet and cinema figures are based on Starlink media house estimates; TV estimates include regular ad broadcast and sponsoring with product placement, exclude teleshopping and other advertising forms.

Internet ad spend estimates include display, search engines (Search Engine Marketing), e-mail marketing and video advertising.

Outdoor advertising figures are based on Izba Gospodarcza Reklamy Zewnetrznej estimates

The data on cinema ticket sales in the cinemas comprising Helios group: 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.

Real users, page views and spent time on the basis of Megapanel PBI/Gemius, cover 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 SA's Registry of Service Providers. Real users data of the Gazeta.pl group services are audited by Gemius SA.

Since May 2016 a new methodology of Gemius PBI research has been introduced and the data for previous audited periods is not comparable. According to the new methodology the data is presented jointly for PCs and mobile platforms, and the reach of websites is reported accordingly. The way of weighing data and the definitions of indices also changed.

The data for mobile platforms present the traffic through www, however it does not include the users of mobile applications and the pageviews generated through mobile applications (Gazeta.pl LIVE, Sport.PL LIVE, Moje Dziecko, Moja Ciaza, Tuba.fm).

The data on outdoor market share: report prepared by Izba Gospodarcza Reklamy Zewnetrznej (IGRZ) in cooperation with Starlink company

Audience market data referred herein are based on Radio Track surveys, carried out by MillwardBrown SMG/KRC (all places, all days and all quarter) in whole population and in the age group of 15+, from April to June (sample for 2015: 21,048; sample for 2016: 20,970) and from January to June (sample for 2015: 41,955; sample for 2016: 41,977).

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