“We are satisfied with the results achieved by most of our businesses in 2017. In the Film and Book segment, we closed the past year with a double-digit increase in revenues and profits. We completed many great projects in the film production, book publishing and music industry, as well as we maintained a high dynamics of Helios cinema network growth. The profits of Radio and Outdoor segments grew at a double-digit reaching the best results in history of those businesses” - comments Bartosz Hojka, CEO of Agora. “- However, I would like to draw particular attention to the progress in changing the business model of the Press segment, which has impressively improved its financial results and reached a record number of nearly 133,000 active paid subscriptions of Gazeta Wyborcza at the end of December 2017. With this result Gazeta Wyborcza grows into one of the leaders of the digital transformation of the press in Europe” - adds Hojka.

The financial performance and results achieved by Agora Group’s businesses in 4Q 2017 (yoy comparison):
The total revenue of the Agora Group amounted to PLN 330.4 million. The greatest increase was attributed to the revenue from sales of cinema tickets – by 10.3% to PLN 66.6 million and the revenue from concession sales – by 10.8% to PLN 24.7 million. In 4Q 2017, nearly 3.6 million tickets were purchased in Helios cinemas, that is 8.0% more than in 4Q 2016. In the same period, the overall number of cinema tickets sold in Polish cinemas amounted to over 16.3 million and increased by 5.0%¹. The high growth of revenue from concession sales was driven by higher cinema attendance, as well as higher average prices in cinema bars compared to 4Q 2016.

There was also an increase in the Group’s revenue from advertising services, which amounted to PLN 167.6 million. They were higher in the Internet, as well as in the Movies and Books segments. In the Outdoor Advertising segment the revenue remained at the same level yoy. However, advertising proceeds were lower in the Press and Radio segments.

Revenue from copy sales declined by 3.4% and amounted to PLN 34.5 million. This was mainly due to lower copy sales in the Press segment, with higher revenue from subscriptions to content on Wyborcza.pl and from special editions of the Gazeta Wyborcza magazines. Agora’s Publishing House also recorded higher revenue from publication sales.

The revenue from sales of Agora Group’s printing services decreased significantly and amounted to PLN 16.7 million. This resulted primarily from discontinuation of collaboration with certain customers, a lower volume of orders and a higher share of print on customer-provided paper.

The revenue from other sales remained at a similar level and amounted to PLN 20.3 million.

The Agora Group’s operating costs increased by 28.2% and amounted to PLN 404.6 million. Their level was significantly affected by impairment of assets in the amount of PLN 88.9 million that were charged to the Group’s results. Excluding the impairment, the Group’s operating costs in 4Q 2017 reached a similar level as the costs recorded in the corresponding period of 2016.

Costs of external services, which increased by 2.7% to PLN 122.4 million, were the largest cost item. This is the consequence of, inter alia, higher costs of film copy purchase at Helios cinemas, which was reflected in the increased revenue from ticket sales, higher costs of consulting and auditing services, as well as higher fees for film producers. However, costs of production services and rent of space for advertising media were lower.

In 4Q 2017, staff costs increased by 0.9% to PLN 87.2 million. The greatest increase in this cost item occurred in the Movies and Books segment, which was associated with the change of the minimum hourly wage introduced at the beginning of 2017, as well as with the increased number of employees in the Helios network as a result of opening new cinemas. At the same time, staff costs were reduced in the Press, Internet, Print and Radio segments. In the Outdoor Advertising segment, they remained at the same level as in 4Q 2016.

A decrease in the cost of materials and energy consumed, as well as goods and materials sold, recorded in 4Q 2017, results mainly from a lower volume of printing orders in the Print segment, a lower printing volume of main press titles published by Agora Group, and discontinuation of publication of selected titles.

The Group’s promotion and marketing costs decreased in 4Q 2017 by 11.4% to PLN 22.5 million. This was driven by the decrease of this cost item in the Press, Movies and Books as well as Radio segments. In the Outdoor Advertising segment they remained at the same level as in 4Q 2016. They increased only in the Internet segment.

In 4Q 2017, the Group’s EBITDA amounted to 43.1 million and it grew by 2.5% to PLN 118.9 million in the entire 2017. Beginning from 4Q 2017, the EBITDA indicator, which was previously defined by the Company as EBIT increased by depreciation and amortization, does not include the costs of impairment of tangible fixed assets and intangible assets.

Due to impairment of assets in the amount of PLN 88.9 million that were charged to Agora Group’s results in the last quarter of 2017, the Group recorded a loss at the EBIT level of PLN 74.2 million in 4Q 2017 and of PLN 73.0 million in the entire 2017. In 4Q 2017, the Group’s net loss amounted to PLN 72.3 million, and in the entire 2017 – to PLN 79.3 million. The EBIT result excluding the impairment was positive and amounted to PLN 14.7 million in 4Q 2017 and PLN 15.9 million in the entire 2017, while the net result excluding the impairment stood at PLN 16.6 million in 4Q 2017 and PLN 9.6 million in 2017.

"Another year of dynamic growth of many enterprises in the Agora Group is behind us - it was also a time of restructuring measures in some of our businesses. The changes we have been implementing for four years bring visible results and are a good base for even faster growth of the Company's value in coming years" – Bartosz Hojka sums up.

ADDITIONAL NOTES – RESULTS OF AGORA’S SEGMENTS IN THE FOURTH QUARTER OF 2017 (yoy comparison)

MOVIES AND BOOKS² – another increase in revenue and high cinema attendance

The revenue of the Movies and Books segment increased by 10.0% to PLN 122.7 million. This is mainly due to the dynamic growth of attendance in Helios cinemas. The number of tickets sold in Helios cinemas amounted to nearly 3.6 million and increased by 8.0% compared to 4Q 2016. This, combined with a slightly higher average ticket price, translated into considerably higher revenue from ticket sales and concession sales, which amounted to PLN 66.6 million and PLN 24.7 million, respectively.

In 4Q 2017, the total revenue of the Movies and Books segment from film operations amounted to PLN 4.6 million, showing a significant increase yoy. In 4Q 2017, NEXT FILM released an Oscar nominated Polish-British animation entitled Loving Vincent. The Movies and Books segment also recorded revenue from co-production of the film Sztuka kochania. Historia Michaliny Wisłockiej (which premiered at the beginning of 2017) due to its distribution across various channels, as well as from the sales of tickets for the film Tarapaty due to its further screenings in cinemas.

In 4Q 2017, the revenue of Agora’s Publishing House amounted to PLN 12.2 million and thus increased by 11.9% yoy. This is mainly the result of higher revenue from the sales of books, music and DVD publications.

In 4Q 2017, operating costs of the Movies and Books segment increased by 14.3% and amounted to PLN 114.5 million. This stems mainly from an 11.9% increase in costs of external services and an 15.6% increase in staff costs. An increase in costs of external services is associated with higher costs of film copy purchase as a consequence of higher attendance in Helios cinemas, which translated into increased revenue from ticket sales. In addition, the increase in the cost of external services was influenced by higher fees for film producers associated with higher revenues from film operations. Higher rental costs in Helios cinemas resulted from the network’s expansion – in 4Q 2017, the Helios network increased by 3 cinemas yoy. A rise in staff costs was attributable mostly to an increase in the minimum hourly wage and a higher headcount due to an increase in the number of cinemas in the Helios network. Depreciation in this segment was noticeably higher than in the previous periods – this was i.a. the result of a one-time adaptation of the depreciation rate to the shortened period of using selected cinema projectors. Operating costs of Agora’s Publishing House were also higher - by 6.5%, which was caused by printing additional copies of popular books. However, promotion and marketing costs decreased due to less intensive promotional activities undertaken both by NEXT FILM.

Consequently, the operating result of the Movies and Books segment at the EBIT level amounted to PLN 8.2 million, and at the EBITDA level to PLN 18.6 million in 4Q 2017.

After the opening of another cinema in Stalowa Wola in 4Q 2017, the Helios network now has 44 cinemas with 241 screens and over 49 thousand seats, which makes it the largest cinema operator in Poland in terms of the number of facilities. In 2017, Helios also signed agreements to open new cinemas in four cities: Legionowo, Pabianice, Piła and Zabrze. Their openings are scheduled for 2018 - 2020.
In 4Q 2017, after the special screenings of the last episode of 7th season of the Game of Thrones series in 42 cinemas across Poland proved to be a commercial success, the Helios network continued to collaborate with television stations. In October 2017, Helios invited cinema-goers to watch the opening episodes of the series Belfer (season 2) and Wataha (season 2). In November, the viewers could see the opening episodes of Vikings (season 5).

In December 2017, for the fourth time the Helios cinema network joined Święto Kina [Cinema Weekend], an action organised across Poland to promote cinematography, cinema-going culture and watching films on a big screen.

In November 2017, Sztuka kochania. Historia Michaliny Wisłockiej, the movie distributed by NEXT FILM and co-produced by Agora, won the Polish Films Competition at the Camerimage International Film Festival. This is one of most important events in the global film industry that focus on cinematographers’ work. The award was collected by Michał Sobociński, the cinematographer for the winning film.

In 4Q 2017, Agora’s Publishing House issued 12 new books and 8 music albums. As a result, during the analysed period, the Publishing House sold approximately 0.5 million books and books with CDs/DVDs. One of the best-selling titles in the book publishing section was the biography of Anna Przybylska – Ania.

PRESS — significant improvement of the operating result and another digital subscription success

In 4Q 2017, the revenue of the Press segment amounted to PLN 61.9 million, decreasing yoy.

This decrease was primarily the result of lower revenue from advertising sales in the Gazeta Wyborcza daily^3,4, decision to discontinue publication of selected press titles and lower advertising proceeds in the Magazines division. However, an increase was recorded in the revenue from sales of the Gazeta Wyborcza online advertising services, from the websites of magazines and from custom publishing projects.
In 4Q 2017, the revenue of the Press segment from copy sales decreased to PLN 27.1 million. This was mainly due to reduced levels of copy sales of printed press. At the same time, the segment recorded higher revenue from subscriptions to content on the Wyborcza.pl website and from special editions of Gazeta Wyborcza magazines (including Psychologia Extra and Tylko Zdrowie Extra) as well as dual-priced products.
Operating costs of the segment were lower than in 4Q 2016, even if the costs of the impairment loss of (primarily) the Cztery Kąty magazine had not been excluded. Without the impairment the operating costs of the segment decreased by 19.1% to PLN 56.9 million.

The reduction of the operating costs of the segment can be attributed mainly to lower promotion and marketing costs. At the same time, costs of raw materials, energy, consumables and printing services decreased due to lower printing volumes of the Gazeta Wyborcza daily and Agora’s magazines as well as the discontinuation of selected press titles in 2016. This was accompanied by reduced staff costs, mainly as a result of collective redundancies in the segment in 4Q 2016.

Due to the impairment of PLN 13.2 million that was charged to the segment’s result, the Press segment recorded an operating loss at the EBIT level of PLN 8.2 million. The EBIT result excluding the impairment was positive and amounted to PLN 5.0 million*. The result at the EBITDA level was higher than in the previous year. This was mainly the positive effect of the restructuring process which the segment underwent in 2016, including changes to the publishing formula, collective redundancies, reductions in press title volumes and discontinuation of selected titles.

Gazeta Wyborcza successfully develops its digital subscription offer – at the end of December 2017, it reached the level of 133 thousand paid digital subscriptions, which means that the number of subscriptions grew by as much as 23 thousand in comparison to the end of September 2017. The crucial factor for the success of the project is the development of the internet competence of the entire Gazeta Wyborcza team, and an increasingly better monetization of content produced by local editors. The daily’s team is working hard not only to increase the level of digital subscription revenues, but also to increase the engagement of paying subscribers and their satisfaction with subscriptions.
In October 2017, the editorial team of Gazeta Wyborcza launched two projects developed with the support of Google’s Digital News Initiative. One of these projects is Sonar.Wyborcza.pl – a modern website that analyzes the world and politicians’ actions in the news, in numbers and on diagrams. It was developed jointly by Gazeta Wyborcza, Wyborcza.pl and Laboratorium EE. Another notable online project that received the financial support of the Digital News Initiative programme is the NewsMavens.com website, initiated by Wysokie Obcasy and Gazeta Wyborcza. NewsMavens.com is an English language news website with information selected solely by women from European newsrooms. Over a dozen journalists create a news roundup by choosing articles featured in opinion-forming titles which are most important from their perspective. Also in October 2017, a service of adding the digital Gazeta Wyborcza subscription payment to a phone bill and special offer for the users of T-Mobile network were launched. The beginning of October 2017 saw the launch of the first issue of Wyborcza Classic on the Wyborcza.pl website, an online magazine that features archived Gazeta Wyborcza texts. Moreover, a new, user-friendly online archive of Gazeta Wyborcza was launched.

In 4Q 2017, the Gazeta Wyborcza team also prepared highly popular special editions of their magazines, including Psychologia Extra, Tylko Zdrowie Extra and Duży Format. Also, new titles launched by the Gazeta Wyborcza team premiered in 4Q 2017 – Wysokie Obcasy Praca (launched in November), a magazine on work, passion, life, psychology, science and technology which is a continuation of the IT Girls issue published in May 2017, as well as the Mój Spot biweekly (launched in December), a roundup of information, trends and facts presented in a visually attractive form and intended for teenagers. The biweekly was first added to Gazeta Wyborcza and then sold separately. In addition, in 2017 Gazeta Wyborcza was intensively developing other projects with foreign media, broadening its sources of information and technological competence. In September 2017, the group of its partners – the French-German Arte television, the European news portal EURACTIV and Google – was joined by the German Rundfunk Berlin-Brandenburg television (rbb), and in October by the prestigious American The Wall Street Journal daily.

The Magazines division also prepared new titles for its readers. In October 2017, the first issue of the Opiekun magazine was published, a title for people who take care of their dependents on a daily basis. In the magazine, they can find useful information and practical advice. Additionally, special issues of Agora’s magazines were published, including Kuchnia – Kuchnia na cały rok and subsequent issues of Kolekcja dla smakosza. What is more, a supplement entitled Od.Nowa, prepared by Agora Custom Publishing, was added to the October issue of the Cztery Kąty monthly. It was a guide to the 11th edition of the Łódź Design Festival which presented the most important exhibitions, photos of works and their authors. The release of the December issue of the Avanti monthly in November 2017 was accompanied by the debut of an innovative mobile application that allows readers to scan the pages of the monthly to find items that interest them in the Internet shops of producers and then quickly and conveniently buy them online. The Avanti application, available at Google Play and App Store, is a unique solution that combines print media and online shopping.

Moreover, the seventh edition of the Co Jest Grane 24 European Music Fair took place in Warsaw on 10-12 November 2017. The three-day event for representatives of the music industry and music fans featured concerts, an exhibition area, attractions for children, a music conference, a festival cinema and meetings with artists.

OUTDOOR ADVERTISING⁵ – significant improvement of profitability

In the 4Q 2017, the revenue from sales of advertising⁶ on AMS panels was similar to that recorded for 4Q 2016, while the amount of market expenditure on outdoor advertising increased by 5.5% on the market. The dynamics of the advertising sales generated by AMS was adversely affected by the discontinuation of advertising on panels in Warsaw metro cars. However, the value of the segment’s revenue was positively affected by the advertisers’ spending on campaigns on Premium Citylight panels as well as on municipal transport vehicles.
The segment’s operating costs decreased by as much as 6.5% to PLN 39.1 million, mostly as a result of reduced system maintenance costs – i.a. terminating the collaboration with the Warsaw metro operator with regard to advertising panels on the metro’s cars and changes in the structure of the panels portfolio. However, there was an increase in the costs of launching campaigns, connected with higher revenue from advertising campaigns on municipal transport vehicles. Costs of amortization also increased as a consequence of purchasing new advertising panels. Staff costs as well as promotion and marketing costs remained at the same level as in 4Q 2016.

The segment’s result at the EBITDA level increased by 33.9% to PLN 15.4 million, and at the EBIT level by 39.4% to PLN 9.2 million, through significant reduction in operating costs.

In 2017, AMS continued to develop Premium Citylight panels integrated with bus/tram shelters. In 4Q 2017, over 180 shelters were put into operation in Warsaw and in Krakow, including newly developed designer shelters in the very centre of Krakow. In November 2017, a new model of bus/tram shelters for Poznań was officially presented. It was developed by AMS in cooperation with the city authorities.

AMS also continued to use bus/tram shelters in innovative ways and launched further unique advertising campaigns. During the Przystanek: Wyspiański [Wyspiański bus/tram stop] campaign organised in December 2017, the bus/tram shelters had various special features: the passengers could connect to WiFi to download information materials, use mp3 devices installed in the shelters to listen to interesting content and even smell a floral scent reminiscent of the frequent motives in the works of Stanisław Wyspiański. Thanks to innovative solutions and quality of the services provided by AMS, for the eighth time in a row the company topped the prestigious ranking of sales offices, prepared by the Media i Marketing Polska trade magazine, published in November 2017.

INTERNET⁷ – increase of revenue from the sales of online advertisements

In 4Q 2017, the total revenue^8,9 of the Internet segment increased by 6.3% and amounted to PLN 52.6 million. The level of revenue in this segment was primarily affected by higher proceeds from Internet advertisements, recorded mainly by Yieldbird, a company that specialises in programmatic advertising, and by the affiliation marketing network.

In 4Q 2017, an impairment of PLN 21.8 million on i.a. Trader.com (Polska) Sp. z o.o. was charged to the operating costs of the Internet segment. Excluding the impairment, they increased only by 4.1% and amounted to PLN 42.9 million*. The increase in the costs of this segment was significantly impacted by higher expenditure on promotion and marketing, mostly linked to marketing expenses of the Gazeta.pl websites and Domiporta.pl advertising website. Costs of external services also increased, which was associated with higher costs of renting advertising space by Yieldbird and by the affiliation marketing network. However, staff costs were slightly reduced.

Due to the impairment, the segment recorded an operating loss at the EBIT level of PLN 12.1 million. The EBIT result, excluding the impairment, amounted to PLN 9.7 million and thus was higher than the result recorded in 4Q 2016*. The result of the segment at the EBITDA level increased by 14.9% and amounted to PLN 10.8 million.

In December 2017, the reach of Gazeta.pl group websites among Polish Internet users stood at 57.8%, and the number of users reached 15.9 million. The total number of page views of Gazeta.pl group websites reached 633 million, with an average viewing time of 53 minutes per user. The number of mobile page views amounted to 360.4 million, and the share of mobile page views on the websites of Gazeta.pl group stood at 56.9% and was the highest among Polish horizontal portals.

The websites of Gazeta.pl group are ranked among the top thematic market players. According to Gemius PBI data for December 2017, the websites of Gazeta.pl are the vice-leaders in the local and regional information category and occupy the third places in such categories as Sport (i.a. Sport.pl), Children, family (eDziecko.pl), as well as Diets, slimming, fitness (Myfitness.pl).

In addition, in November 2017, a new way of displaying photo stories was introduced on the websites of the Gazeta.pl group. Photo stories are short articles with a large number of pictures that were previously published as slides. This change has increased users' comfort and the visibility of ads.

Importantly, Yieldbird, an Agora Group’s company, was developing fast in 2017. The company specialises in optimising the programmatic advertising revenue and works in over 30 countries across the world. In October 2017, Yieldbird implemented the ads.txt standard on Agora’s websites, ensuring a greater transparency of using the publisher’s advertising inventory. This is a response to issues occurring in the programmatic ecosystem, related to advertising fraud, and implementation of IAB recommendations in this area. In November 2017, Yieldbird established cooperation with Brainly, one of the world’s largest educational startups, which offers a unique platform for sharing knowledge among students from 35 countries. Also since November 2017, Yieldbird has been providing its customers with opportunities for monetizing their advertising inventories by using video formats.
A growing scale of international business and the subsequent increase in Yieldbird’s revenue were recognised by experts of the 18th edition of Deloitte’s Technology Fast 50 Central Europe ranking, published in October 2017. The company debuted in the ranking on the 21st place.

RADIO¹⁰ – a significant improvement in operating result

In 4Q 2017, the revenue of the Radio segment¹¹ decreased by 3.0% and amounted to PLN 36.1 million. The decrease in revenue resulted mainly from lower air time sales in the radio stations of the Agora Radio Group as well as from lower video production proceeds. However, higher revenue was recorded from advertising brokerage services provided for Helios cinemas.

In 4Q 2017, the segment’s operating costs decreased by 7.8%. This results mainly from reduced costs of marketing and promotion, as well as external services. The latter costs were lower due to decreased spending on marketing research, accompanied by higher costs of advertising brokerage services for Helios cinemas. The staff costs also decreased.

As a result of essential reduction in operating costs in 4Q 2017, the results of the Radio segment at the EBIT and EBITDA levels improved significantly, amounting to PLN 9.0 million and PLN 9.8 million, respectively.

The stations belonging to the Agora Radio Group are very popular among the listeners, thus their shares in the audience were growing in 2017. In addition, the stations of Agora increase their technical coverage – in the last year, the Agora Radio Group won the National Broadcasting Council’s tender for a radio frequency in Gdańsk. After the Group received the concession in December 2017, it is planning to launch Radio Pogoda in that city in the 1Q 2018.

An innovative digital project of the Radio TOK FM, Search the Radio, was also granted financial support by Google in December 2017, in the fourth round of the Digital News Initiative programme. This prototype solution should allow for digitalization of radio content with the use of a self-optimizing transcription system.

PRINT¹² – a reduction in the segment’s costs

The total revenue of the Print segment decreased to PLN 18.7 million, mainly due to a lower volume of production that resulted, inter alia, from discontinuation of collaboration with certain customers and a higher share of print on customer-provided paper. This was also reflected in the reduction of most cost items of this segment.

In 4Q 2017, operating costs of the Print segment were impacted by the impairment of fixed assets in the amount of PLN 51.6 million. As a result, the segment’s operating costs increased to PLN 74.5 million. However, excluding the impairment, the costs of the Print segment were significantly lower than in 4Q 2016 and amounted to PLN 22.9 million – a decrease by as much as 42.3%*.

As a result, the operating result of the segment at the EBITDA level amounted to PLN 0.5 million and thus was lower than in 4Q 2016. The segment’s loss at the EBIT level amounted to PLN 55.8 million, and the operating loss at the EBIT level excluding the impairment amounted to PLN 4.2 million.

On February 7, 2018, the Agora Group concluded an agreement with trade unions and the employees’ council regarding the reduction of employment in the Print segment by up to 53 FTEs, or 16.3% of all employees in this segment, until March 16, 2018. The Group is also planning to optimize its operational processes and expand the range of its services. The estimated amount of provision for collective redundancies shall amount to approximately PLN 1.6 million and will be charged to the Agora Group’s result in 1Q 2018. The estimated annual savings from restructuring process may amount to PLN 2.0 - 2.5 million annually.

Notes