H1 2016 financial results presentation
30 August 2016
2 This presentation contains forward-looking statements, which include all statements other than statements of historical facts, including, without limitation, any statements preceded by, followed by or including the words “targets”, “believes”, “expects”, “aims”, “intends”, “may”, “anticipates”, “estimates”, “would”, “will”, “could”, “should” or similar expressions or the negative thereof. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond our control that could cause our actual performance or achievements to be materially different from future performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding our present and future strategies and the environment in which we will operate in the future. These forward-looking statements speak only as at the date of this presentation. We expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any of such statements are based.
This presentation contains summary unaudited condensed financial information for Adria Midco B.V. and its subsidiaries for the six months ended June 30, 2016. Both H1 2015 and H1 2016 data is based on management results, which may differ from IFRS results.
Certain financial measures and ratios related thereto in this presentation, including EBITDA, Adjusted EBITDA, Adjusted EBITDA minus capital expenditure, RGUs and ARPU (collectively, the ‘‘Non-IFRS Measures’’) are not specifically defined under IFRS or any other generally accepted accounting principles. These measures are presented here because we believe that they and similar measures are widely used in our industry as a means of evaluating a company’s operating performance and financing structure. Our management believes this information, along with comparable IFRS measures, is useful to investors because it provides a basis for measuring the operating performance in the periods presented. These measures are used in the internal management of our business, along with the most directly comparable IFRS financial measures, in evaluating the operating performance. These measures may not be comparable to other similarly titled measures of other companies and are not measurements under IFRS or other generally accepted accounting principles, and you should not consider such items as alternatives to net income (loss), operating income or any other performance measures derived in accordance with IFRS, and they may be different from similarly titled measures used by other companies.
Highlights
Financial review
Mergers & Acquisitions
Agenda
Introduction
Operational review
4
Introduction to United Group
South-East Europe’s leading provider of pay-TV and broadband services, with a strong presence in mobile telephony following the Tušmobil acquisition
2.95 million cable and satellite TV, broadband, fixed-line and mobile RGUs across the six countries of former Yugoslavia
Operating in a market characterised by growing pay-TV and broadband that is currently underpenetrated relative to other CEE and Western European markets
Broad reach via cable and direct-to-home platforms across the region, and ethnically targeted over-the-top content platforms internationally
Reputation for providing the most attractive content in our respective markets, available across all devices and formats
Group strategy leverages established proven strengths
– extensive network,
– differentiated content offerings, and
– loyal customer base
to further strengthen market leadership in the region and to target the region’s expat community with best in class local content delivered through the internet
Owned by funds affiliated with KKR, EBRD and the management
2020 Senior Notes
Issuer United Group B.V.
Listed GEM, Irish Stock Exchange
Governing Law State of New York
Outstanding notes €625 million
Coupon 7.875%
Maturity 15 November 2020
Highlights
Financial review
Mergers & Acquisitions
Agenda
Introduction
Operational review
6
H1 2016: operational highlights
Healthy year-on-year RGU growth
–
across all services
–
driven predominantly by increased multi
– play
subscribers and acquisitions in Bosnia and
Herzegovina
Homes passed up by 12% to 1,542k YoY
due to
–
expansion of and investment in our network
–
acquisition of 6 entities in Bosnia and
Herzegovina
Blended cable ARPU up by 3% to
€19.1 YoY as a
result of
–
successful execution of our strategy aimed at
selling more services to our cable subscribers
–
increased revenue from cable network-based
services
–
migration from lower-priced to higher-priced
service packages
–
Blended ARPU growth dampened by one time
negative effect of BH acquisitions, which had
lower
blended
ARPU
than
existing
BH
operations
1,377 1,542 H1 2015 H1 2016Homes passed (k)
+12% 18.5 19.1 H1 2015 H1 2016Blended cable ARPU (€)
New reporting structure
Prior to January 1 2016, results of DTH operations throughout the region were reported within SBB Serbia
segment - as of January 1 2016, results of DTH operations reported within the segment where these
operations occur
–
SBB Serbia includes the results of cable services in Serbia and DTH operations in Serbia, Croatia
and Macedonia, including the results of EUnet (acquired in May 2015). Absolut Solutions and
Totalna TV Croatia results are included in the SBB Serbia segment, however their results are not
reflected in the consolidated results of SBB Serbia Group. In H1 2015 SBB Serbia results also
included DTH operations in Slovenia, Bosnia and Herzegovina, and Montenegro
–
Telemach Slovenia includes the results of cable and mobile services in Slovenia and DTH
operations in Slovenia (as of January 1, 2016)
–
Telemach BH includes the results of cable and DTH services in Bosnia and Herzegovina (as of
January 1, 2016)
–
United Media Group (formerly Adria Media Group) includes the results of media and content
business including the results of N1 Info, Grand Production and Orlando Kids and Bambino
–
Other Businesses includes other operating businesses, such as NetTV and Telemach Montenegro
(renamed from Broadband Montenegro) including DTH services in Montenegro (as of January 1,
2016)
8
H1 2016: financial highlights
Revenues up 29% YoY to
€221.7 million as a result of
–
organic growth and acquisitions
–
growing number of RGUs
–
price increases
Adjusted EBITDA up 28% YoY
to €94.3 million
–
EBITDA growth in line with revenue growth despite inclusion of
mobile business in Slovenia with lower margins than the cable
business
–
Like for like margin improvements in both cable and mobile
businesses
Net leverage* down to 3.97x from 4.01x
–
Leverage decrease due to Adjusted EBITDA growth, despite
payment of interest for the bond in May 2016
* Annualised Last Two Quarter Adjusted Pro Forma EBITDA is calculated as two times the amount of Consolidated Adjusted Pro Forma L2Q EBITDA
171.4 221.7 H1 2015 H1 2016
Revenue in m (€)
+29% 73.9 94.3 H1 2015 H1 2016Adjusted EBITDA in m
(€)
28% 4.11x 4.04x 4.01x 3.97x Q1 2016 H1 2016Leverage
Highlights
Financial review
Mergers & Acquisitions
Agenda
Introduction
Operational review
10
SBB Serbia
Increase of 6% caused by organic
network expansion
Telemach Slovenia
Organic increase against H1 2015,
with 3k additional homes passed
Telemach BH
Increase
of
54%
due
to
the
acquisition of 6 cable operators in
July 2015 and organic network
expansion
Homes passed across key markets
Key developments
Network expansion
831 884 302 305 200 307 H1 2015 H1 2016 H1 2015 H1 2016 H1 2015 H1 2016 SBB Serbia Telemach Slovenia Telemach BHHomes passed (k)
6%
+1%
RGUs vs. Unique cable subscribers
Key developments
Increasing subscribers and RGUs
Increasing cable subscribers as a result of organic network growth and acquisitions
Faster growth in RGUs per unique cable subscriber driving overall performance
SBB Serbia & Telemach BH
Start of cross-selling of multi-play offers to 1-Play subscribers
Decline in Bosnia resulting from acquisition of 6 entities attributed with 144k RGUs and RGU/sub of 1.6
Telemach Slovenia
Cross-selling of 3-Play offers to 1-Play subscribers
– Mobile offering to accelerate take up of multi-play packages
Upgrading existing customers to Our 928k unique cable subscribers order on average between 1.8x and
2.6x different services
RGUs vs. Unique cable subscribers H1 2015 H1 2016
SBB Serbia 1.8x 1.9x Telemach Slovenia 2.5x 2.6x Telemach BH 2.0x 1.9x 817 928 H1 2015 H1 2016
Unique cable subs (k)
12
RGUs by service
Key developments
Increasing RGUs
Healthy YoY RGU growth across all services
DTH pay-TV RGUs increased by 4% compared to H1 2015 due to additional subscribers and lower churn rate
OTT RGUs increased by 15% driven by organic growth
Fixed line telephony RGUs up 29% YoY due to continued growth following the introduction of this service at SBB and Telemach Bosnia
Mobile services – increase due to additional organic growth atTelemach Slovenia – around 40% share of gross adds in the market
Other service RGUs increased by 11% mostly due to organic growth of B2B and MMDS subscribers
*
Following theTušmobil acquisition mobile service RGUs are no longer reported under Other services due to their increased importance.817 454 96 489 296 324 104 928 474 110 579 382 361 116 Cable pay-TV
Group
Blended cable ARPU up 3% to €19.1 in H1
2016 as a result of positive trends across all of our markets
SBB Serbia
Key drivers included migration to multi-play packages and a price increase of analogue TV service as of January 1, 2016
Telemach Slovenia
Growth in multi-play subscribers
Price increase positively affected pay-TV and internet revenues
Telemach BH
Growth in subscribers for multi-play offering
Increase in revenue from cable services
Decline as a result of the acquisition of six companies with lower blended ARPU of €12.4 in July 2015.
Blended cable ARPU
Key developments
ARPU development
14.3 16.0
31.2 32.2
16.3 15.5
Blended cable ARPU per segment (€)
+12% +3% -5% in € H1 2015 H1 2016 H1 2015 H1 2016 H1 2015 H1 2016 Cable pay-TV 8.1 8.9 16.8 17.2 7.4 7.5 Broadband internet 9.7 9.9 15.9 16.0 9.3 8.4 Fixed-line telephony 5.3 4.9 3.9 3.8 10.4 9.6
Blended cable ARPU 14.3 16.0 31.2 32.2 16.3 15.5
14
Highlights
Financial review
Mergers & Acquisitions
Agenda
Introduction
Operational review
Revenue development H1 2016
Key drivers
Revenue development by segment
Group
• H1 2016 revenues up 29% YoY to €221.7million driven by growing RGUs, overall increase in ARPU, organic growth and acquisitions
SBB Serbia
• Results affected by sale of Total TV to Telemach entities as of 1 January 2016, no effect on United Group results
• Reported revenues up by 2% to €83.6 million YoY Telemach Slovenia
• Revenue up by 55% to €94.1 million
• Acquisition of Tušmobil in April 2015 and inclusion of
Total TV Slovenia results from 1 January 2016
• Increase in the number of multi-play subscribers
Telemach BH
• Revenue up by 106% to €26.0 million
• Acquisition of 6 entities in July 2015 and inclusion of Total TV BH results from 1 January 2016
• Realization of synergies from past acquisitions
• Growth of internet and fixed-line telephony segments
United Media
• Growth of 40% due to increased sales of distribution rights to various channels and increase of price for own channels Other Businesses 171.4 221.7 H1 2015 H1 2016
Revenue (€ m)
+29% 82.3 60.7 12.6 22.6 7.7 83.6 94.1 26.0 31.7 12.2SBB Serbia Telemach Telemach BH United Media Other
Revenue by segment (€ m)
+106% +40%
16
Key drivers
Adjusted EBITDA development
Group
Adjusted EBITDA up by 28% to €94.3 million YoY as a result of:
– Increased revenues and cost discipline and successful integration of acquired companies
– Acquisition of Tušmobil and 6 Bosnian entities
SBB Serbia
• Increase of 8% YoY driven by price incease and RGU growth
• EBITDA growth dampened by sale of Total TV`s to Telemach entities
Telemach Slovenia
• Increase of 31% compared to H1 2015 due to organic growth and acquisition of Tušmobil and Total TV Slovenia
Telemach BH
• EBITDA growth of 45% YoY driven by acquisition of 6 entities and Total TV Bosnia, higher revenue and lower operating expenses
United Media
• Higher revenue (including Intercompany revenues) among key drivers of EBITDA growth
Other Businesses
• EBITDA growth of 52% YoY due organic growth of Solford and Telemach Montenegro (including Total TV Montenegro)
Adjusted EBITDA development H1 2016
73.9 94.3 H1 2015 H1 2016
Adjusted EBITDA (€ m)
28% 34.3 24.0 6.1 6.7 3.0 36.9 31.5 8.8 12.6 4.6 SBB Serbia Telemach SloveniaTelemach BH United Media Group
Other Businesses w/o
IC
Adjusted EBITDA by segment (€ m)
H1 2015 H1 2016
45% +90%
+8%
17
Capital expenditures
Capex development*
Key drivers
* Management capex data incl. capitalized inventory for H1 2016, but excl. capitalized inventory for H1 2015
Group
Capex growth as result of network expansion, acquisition of Tušmobil and Bosnian entities, and investment in SWAP MPEG 4 project in DTH countries
Capex is expected not to exceed depreciation levels on a long-term basis
SBB Serbia
H1 2016 capex impacted by lower investment in DTH end user equipment (sale of Total TV)
Telemach Slovenia
• Higher capex mainly driven by additional spending on Tušmobil’s 4G network and end-user equipment for Total TV (incl SWAP project)
Telemach BH
Higher capex in H1 2016 due to Coax network expansion and end-user equipment for Total TV (incl SWAP project)
United Media
Higher capex due to variations in timing of content investments
Other businesses
Increase due to end user equipment for Total TV Montenegro and Telemach Pogorica growth capex 44.2 59.8 H1 2015 H1 2016
Capex Group (€ m)
+35% 27.7 11.7 3.7 0.8 0.4 23.0 19.3 9.5 5.7 2.3 SBB Serbia Telemach Slovenia18
Adjusted EBITDA-CAPEX and leverage development
Key drivers
Adjusted EBITDA-Capex growth due
to EBITDA growth exceeding capex
growth
Growth in capex mainly at Telemach
Slovenia, resulting from investments
in 4G network, and at Telemach BH
Capex growth in UM segment will be
lower in 2H 2016 compared to 2H
2015 due to earlier payment of
content rights
Both gross and net leverage down
compared to Q1 2016
High and stable EBITDA growth
driving positive trend
Annualised Last Two Quarter Adjusted Pro Forma EBITDA is calculated as two times the amount of Consolidated Adjusted Pro Forma L2Q EBITDA
Leverage
Adjusted EBITDA-CAPEX
29.6 34.5 H1 2015 H1 2016Adjusted EBITDA - Capex
(€ m)
+17% 4.11x 4.04x 4.01x 3.97x Q1 2016 H1 2016Leverage
Highlights
Financial review
Appendices
Agenda
Introduction
Operational review
20
Mergers & Acquisitions
In July 2015, we completed the acquisition of a majority interest in BHB Cable TV d.o.o, a cable pay-TV
operator in Bosnia and Herzegovina, and five relatively small cable TV operators in Bosnia and
Herzegovina. The consideration for these acquisitions consists of an initial cash consideration of
€20
million, and an additional €10 million which has been deposited in an escrow account. Current balance of
the escrow account is
€1.8m, this amount will be paid out until the end of 2016 if certain conditions are
met.
In July 2016, we closed the acquisition of M-Kabl, a cable operator in Montenegro with 20k subscribers, for
a total consideration of
€12.7 million, of which €11.2 has been paid with the remaining deferred
consideration subject to certain conditions being met
In Q1 2016, we signed an SPA for the acquisition of Maxtel, a Dark fibre B2B operator in Slovenia, for a
total consideration of €4 million. Still waiting on Regulatory approval
On August 29 we signed an SPA for the acquisition of Ikom, a cable operator in Serbia with almost 100
thousand unique cable subscribers. The total consideration is €45m
The Group continually monitors M&A opportunities and is currently in early stages of evaluating multiple
potential opportunities
In line with its stated strategy, the Group is looking for acquisitions that are value accretive and offer
Highlights
Financial review
Appendices
Agenda
Introduction
Operational review
22
Income statement
in €000 H1 2015 H1 2016 Revenue 171,406 221,694 Other income 518 1,128 Content cost (29,901) (30,358) Satellite capacity cost (3,652) (4,012) Interconnection link cost (1,131) (18,996) Materials cost (3,512) (19,327) Staff costs (17,874) (23,728) Other operating expenses (48,098) (37,889) IFRS EBITDA 67,756 88,512
Depreciation (33,060) (35,700) Amortisation of intangible assets (11,169) (23,276) Results from operating activities 23,527 29,536
Finance income 5,823 757 Finance costs (29,565) (32,971) Net finance costs (23,742) (32,214)
Profit/(loss) before tax (215) (2,678)
Statement of financial position
in €000 H1 2015 H1 2016
Assets
Property, plant and equipment 275,606 334,048 Goodwill 663,318 649,094 Intangible assets 217,736 243,626 Investment property 612 459
Deferred costs 321 131
Other financial assets 1,571 2,016 Deferred tax assets 5,563 7,850
Long term loans 491
24
Statement of financial position - continued
Equity
Issued and fully paid share capital 125 125 Share premium 564,591 570,592
Preferred equity
Other capital reserves Translation and other reserves (7,298) (11,010) Accumulated losses (78,086) (112,922) Equity attributable to owners of the Company 479,332 446,785 Non-controlling interests 10,117 14,454 Total equity 489,449 461,239
Liabilities
Loans and borrowings 27,299 107,376 Bond loan 625,000 625,000 Amortization of bond related fees (14,678) (6,379) Long term liabilities 3,175 Long term provisions 3,336 1,621 Deferred revenue 7,413 8,324 Finance lease liabilities 12,264 9,811 Deferred tax liabilities 28,447 32,014 Employee benefits 929 507 Non-current liabilities 690,010 781,449
Consolidated statement of cash flows
in €000 H1 2015 H1 2016
Cash flows from operating activities
Profit/(Loss) for the year (1,148) (7,626)
Adjustments for:
Depreciation 33,060 35,700 Amortisation 11,169 23,276 Impairment of trade and other receivables 920 Impairment of property, plant and equipment 836 Provisions (27) Tax (income)/expense 51 3,789 Minority interest 879 1,159 Net foreign exchange (gain) / loss 817 5,048 Net finance cost 22,927 27,083 Operating cash flows before WC changes 67,755 90,158
Changes in working capital: (Increase)/Decrease in accounts receivables and
prepayments 8,207 (9,655) Increase/(Decrease) in deferred income 1,453 6,239 (Increase)/Decrease in deferred cost (321) 636 (Increase)/Decrease in inventories 1,276 592 (Increase)/Decrease of programming rights - (Increase)/Decrease in escrow account (5,824) Increase/(Decrease) in trade and other payables (4,183) (26,729) Cash generated from operations 68,364 61,241
Interest paid, net (18,917) (25,071) Income tax paid (2,827) (2,091) Net cash from operating activities 46,620 34,078
Cash flows from investing activities
Purchase of property, plant and equipment (46,994) (47,476) Purchase of intangible assets (4,080) (14,226) Change in other financial assets (338) Acquisition of subsidiaries, net of cash acquired (68,764) (Increase)/decrease in non-current financial asset (586) Net cash used in investing activities (120,424) (62,040)
Cash flows from financing activities Proceeds from borrowings 277,393 66,625 Repayment of borrowings (175,014) (15,200) Proceeds from finance lease 9,645 6,021 Repayment of finance lease (6,198) (10,395) Distribution of share premium (20,000) Net cash used in financing activities 105,825 27,052
26
Revenue, EBITDA and Capex development by segment*
Revenue development H1 2016
* comparisons of revenue, adjusted EBITDA and capital expenditures for H1 2016 vs. Restated H1 2015 as per the new reporting structure.
76.9 63.4 17.1 22.6 10.6 83.6 94.1 26.0 31.7 12.2 SBB Serbia Telemach Slovenia
Telemach BH United Media Group Other Businesses w/o IC Revenue by segment (€ m) H1 2015 H1 2016 +52% +40% +9% +48% +15%
EBITDA development H1 2016
31.2 25.0 7.0 6.7 3.9 36.9 31.5 8.8 12.6 4.6 SBB Serbia Telemach SloveniaTelemach BH United Media Group
Other Businesses w/o IC
Adjusted EBITDA by segment (€ m)
H1 2015 H1 2016 +26% +90% +18% +26% +19%
