Cyfrowy Polsat

Transcription

Cyfrowy Polsat

pa
m
Co
ny
Tomorrow’s cash cow,
still a fast growing calf today
Analyst:
Sobiesław Pająk, CFA, [email protected], +48 (22) 489 94 70
rt
po
Cyfrowy Polsat
Re
4/2008/CR (150) June 19, 2008
pa
m
Co
ny
4/2008/CR (150) June 19, 2008
Tomorrow’s cash cow,
still a fast growing calf today
While Cyfrowy Polsat’s business model, making it at the
moment a perfect vehicle to capture the development
of consumerism and rising disposable incomes of the
society (also at the lower-part of the income scale), should
grant the Company further 2-3 years of robust growth
of profits, once the pay multichannel TV market approaches
its maturity stage, this growth is likely to come to a halt.
Hence, in a LT perspective Cyfrowy should be perceived
as a no-growth (or little-growth) cash cow, whose ultimate
value will constitute a function of the adopted dividend
policy and ability to develop a bundled offering.
aaLack of network-reach-embedded constraints constitutes
the main competitive advantage of DTH over cable and IPTV
at the moment; with large part of the population inhabiting off-largecities-areas, Poland appears now to constitute more favorable
operating environment for DTH platforms than for CATVs or IPTV
providers. However, over the LT the competitive edge may gradually
shift to telcos and CATVs unless satellite providers manage to offer
(most likely on the basis of third-party infrastructure) a bundled
service to their users.
aaThe main risk factors related to Cyfrowy Polsat are more
of broader, environment-related nature (e.g. possibility of an
acceleration of the DTT roll-out, the possible consequences
of a GDP slow-down in the context of Company’s volume-driven
DTH strategy increasingly directed recently towards the prospects
from the lower part of the income scale, more vivid competition
from DTH rivals (both existing and possible newcomers), etc.) than
of purely company-specific character.
Market Cap.: US$ 1,715 m
Reuters code: CPSM.WA
Av. daily turnover: US$ 1.42 m
Free float: 25%
12M range: PLN 12.84-15.40
Guide to adjusted profits
Adj EBITDA, adj EBIT, adj PBT and adj NI exclude IFRS2 SOCs.
Key data
IFRS consolidated
Sales:
EBITDA
Adj EBITDA:
DTH
MVNO
EBIT
Adj EBIT
Net income
Adj net income
Net debt
EV
P/E
P/CE
EV/EBITDA
EV/EBIT
EV/FCFF
Gross dividend yield
FCFF yield
No. of shares
PLN m
PLN m
PLN m
PLN m
PLN m
PLN m
PLN m
PLN m
PLN m
PLN m
PLN m
x
x
x
x
x
%
%
ths.
2007
796.7
165.9
176.1
179.1
-3.0
145.1
155.3
113.4
123.6
71.8
3,801.6
30.2
27.8
21.6
24.5
21.6
0.0
4.6
268,325
2008E
1,051.1
364.5
364.5
397.5
-33.1
335.6
335.6
263.8
263.8
-262.7
3,467.0
14.1
12.7
9.5
10.3
9.5
0.0
10.5
268,325
2009E
1,362.1
484.6
484.6
527.6
-43.0
445.9
445.9
376.2
376.2
-680.4
3,068.4
10.0
9.0
6.3
6.9
6.3
0.0
15.8
269,694
2010E
1,624.5
595.7
595.7
604.0
-8.3
548.4
548.4
471.2
471.2
-1,153.5
2,614.3
8.0
7.3
4.4
4.8
4.4
0.0
22.8
271,063
Source: Company, DM IDMSA estimates
Stock performance
Source: www.money.pl
Upcoming events
1.
2.
3.
4.
AGM to approve the dividend policy of the Company and decide upon the use of last year’s NI: July 4, 2008
Launch of MVNO: at the turn of 2Q08 and 3Q08
2Q08 financial results release: August 13, 2008
3Q08 financial results release: November 13, 2008
Catalysts
aaThe way we see it, the Company’s 2008-2010E growth outlook
is strong (sales/SOC-adjusted EBITDA CAGR forecast at c. 27%/
50%), due to (i) monetization on the 2007-2008E robust DTH volume
additions and (ii) a business model providing a boost to profits
in periods when users’ net adds decline in relation to the seasoned
subscribers’ number. Such envisaged near- to mid-term earnings
momentum coupled with subdued, due to reasons of companyspecific nature, investment sentiment towards alternative local
sectoral plays may make Cyfrowy Polsat the media & entertainment
sector equity exposure of choice in the near- to mid-term.
rt
po
Cyfrowy Polsat
Sector: Media & Entertainment Fundamental rating: Buy (-) Market relative: Overweight (-) Price: PLN 13.9
12M EFV: PLN 18.3 (-) Re
Analyst: Sobiesław Pająk, CFA, [email protected], +48 (22) 489 94 70
1. Brisk yoy profits growth in the coming quarters,
on the back of monetization on last year’s volumes
net add and business model resulting in a hike
in profitability in periods when the new subscribers
represent a lower portion of the overall subscribership
in relation to the seasoned customers
2. Adoption of a dividend policy envisaging hefty
distributions to shareholders in periods of accruing
excess cash
Risk factors
1. Acceleration of the DTT rollout: could adversely
impact Cyfrowy Polsat, due to its focus on off-largecities areas and recent clear drive towards the lowerto-average income part of the customer spectrum
2. Major GDP slowdown: could cap the affordability
of the Company’s service to lower-income prospects
and result in a down-selling effect
3. Inability to create an appealing bundled offering
in a LT: could result in an outflow of subscribers
to telcos and CATVs
4. Competitive
pressures
intensifying
(more
aggressive actions by competing DTHs, planned
launches of new satellite platforms, approaching
kick-off and roll-out of DTT): may result in thinner
volume adds, lower ARPU, growing churn and higher
content costs than we assume
5. Weakening of PLN against US$ and Euro: would
boost the FX-denominated OPEX component
6. MVNO project launch: will dilute the DTH profits
in short- to mid-term
7. Share supply overhang: lock-up on 5.8 million (>2%)
of shares (acquired at PLN 0.04 per share) expires
at the turn of November and December 2008
8. Current management stock option program: may
generate material SOCs under IFRS2
9. Lack of adoption of a clear dividend policy
Contents
1. Investment opinion . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2. Valuation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.1. Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.2. DTH. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.3. MVNO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.4. SOTP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3. Global market outlook and trends . . . . . . . . . . . . . 19
3.1. Distribution of TV programmes . . . . . . . . . . . . . . . . . . . . . . . . 19
3.2. Mobile virtual network operators (MVNO). . . . . . . . . . . . . . . . 34
4. Local market outlook and trends . . . . . . . . . . . . . . 38
4.1. Distribution of television programs . . . . . . . . . . . . . . . . . . . . . 39
4.1.1. DTT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
4.1.2.CATV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
4.1.3.DTH. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
4.1.4.IPTV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
4.1.5.Television programs distribution market forecasts . . . . 49
4.2. MVNOs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
4.2.1.Mobile and MVNO market forecasts . . . . . . . . . . . . . . . 53
5. Business model and strategy. . . . . . . . . . . . . . . . . 55
5.1. Shareholder structure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55
5.2. Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
5.3. Products. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
5.3.1.DTH. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Packages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Packages of thematic channels . . . . . . . . . . . . . . . . . . . . . . . 59
Relax Mix package . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
FTA channels. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Development of the programming offer . . . . . . . . . . . . . . . . . 59
Set-Top-Boxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
New services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
5.3.2.MVNO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
5.4. Distribution network. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
5.5. Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
5.6. Technical infrastructure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
5.7. Competitive advantages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
5.8. Risk factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
5.9. Business model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
5.10.Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
6. Financials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
6.1. Seasonality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
6.2. FX exposure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
6.3. Financial leverage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
6.4. Dividend policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
6.5. NWC and deferrals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
6.6. Capex. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
6.7. YTD results. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
7. Financial forecasts . . . . . . . . . . . . . . . . . . . . . . . . . 79
7.1. Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
7.2. Operating costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
7.3. Margins and profits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
8. Financial statements (IFRS consolidated). . . . . . 103
Cyfrowy Polsat
1.
Investment opinion
aaLack of network-reach-embedded constraints constitutes the main competitive advantage
of DTH over cable and IPTV at the moment; with large part of the population inhabiting
off-large-cities-areas, Poland appears now to constitute more favorable operating environment
for DTH platforms than for CATVs or IPTV providers. However, over the LT the competitive
edge may gradually shift to telcos and CATVs unless satellite providers manage to offer (most
likely on the basis of third-party infrastructure) a bundled service to their users.
aaCyfrowy Polsat is the largest paid DTH platform in CEE, following the low cost
leadership strategy, and offering ‘the best price for quality content’ programming. Compared
to competing DTHs, Cyfrowy focuses on broader income range of customers, which coupled
with comparable programming content offered at discount-to-peers prices proves to be the
winning card, allowing the Company to grow its volumes way ahead of local peers.
aaThe way we see it, the main risk factors related to Cyfrowy Polsat are more of broader,
environment-related nature (e.g. possibility of an acceleration of the DTT roll-out,
the possible consequences of a GDP slow-down in the context of Company’s volumedriven DTH strategy increasingly directed recently (from 4Q06, when the Mini package
was introduced) towards the lower-end of the subscriber market, more vivid competition
from DTH rivals (both existing and possible newcomers), etc.) than of purely companyspecific character (though the latter ones also exist).
aaStrong 2008-2010E profit growth outlook (despite mid-term dilutive effect of the MVNO
launch), due to (i) monetization on the 2007-2008E robust DTH volume additions and
(ii) a business model providing a boost to profits in periods when net adds decline
in relation to the seasoned subscribers’ number.
aaEnvisaged strong short- to mid-term profits’ momentum of the Company coupled
with subdued investment sentiment towards alternative local sectoral plays (due
to factors of nature related to particular companies) may make Cyfrowy Polsat the media &
entertainment sector equity exposure of choice for the near- to mid-term.
The largest DTH in CEE,
following the low cost
leadership strategy with
‘the best price for quality
content’ offering, growing
way ahead of its local peers
Compared to competing
DTHs, Cyfrowy focuses on a
broader range on the customer
income scale, which coupled
with comparable programming
content offered at discount-topeers prices proved to be
the winning card
????????????????????????
Cyfrowy Polsat is the largest – in terms of number of subscribers – paid DTH platform in CEE
(6th largest in Europe), growing rapidly on the back of its low-cost leadership generic strategy and
‘the best price for quality content’ offering (affordable entry packages with upward migration outlook,
lack of ‘killer programming’ in the offer) coming on the top of Poles’ rising incomes and entertainment
needs. The Company penetrates predominantly rural areas and smaller cities, which often lie beyond
the scope of alternative fee-based multichannel platforms (IPTV, CATV), targeting a broad income
range of the DTH customers group. With such business approach, the Company’s growth has been
to-date mainly based on soaring volumes (the share in DTH’s net adds way above those of alternative
satellite platforms), as Cyfrowy’s offering holds most appeal and affordability to the rising disposable
income inhabitants of small cities and rural areas, previously not subscribing to any kind of a paid
multichannel TV package.
Compared to competing local DTH platforms (Cyfra+, ‘n’) Cyfrowy Polsat focuses on a broader
income range of clients and off-large-city areas, which coupled with comparable programming
content offered at discount-to-peers prices proves to be a winning card during the phase of dynamic
growth of volumes on the market. Moreover, the way we see it, the Company’s TV programs’ package
strategy has been better aligned to subscribers’ needs than the peers’ strategies. Cyfrowy Polsat
is the only digital platform in Poland to offer a base family package (the ‘n’ platform is divided into
thematic channels only, while Cyfra+ offers nested series of packages, which often makes customers
purchase channels in which they have no interest). This – apart from the change in the new
subscribers acquisition strategy (switch from STB leases to STB outright sales) – helps keep the
churn reasonably low, as terminating the service would directly affect all family members.
7
Cyfrowy Polsat
Large potential users’ base
+ strong brand → the MVNO
bundle may succeed
Lack of network-reachembedded constraints
constitutes at the moment the
main competitive advantage
of DTH over cable and IPTV
However, the LT well-being
of DTH operators will depend,
in our view, on their ability
to provide a bundled service
to their users
The risk factors related
to Cyfrowy are mainly
of broader, environmentrelated nature, and include…
...possible acceleration
of the DTT roll-out (as DTT
is likely to have most appeal
for the low-to-average income
inhabitants of smaller towns
and rural areas, should its rollout be sped up Cyfrowy could
suffer as it targets also this
customer group),…
8
To further capitalize on its ample subscribers base (c. 2.2 million DTH households as of the end
of April) Cyfrowy Polsat plans to bundle its DTH service with a MVNO offering at the turn of 2Q08
and 3Q08. The MVNO service stands a chance for success, in our view, on the back of the strong
brand-name of the Company (one of key success factors in the MVNO business) and large potential
users’ base (Cyfrowy’s DTH households).
As a DTH operator (i.e. distributor of paid television program packages by way of signal transmission
via transponders at a geostationary satellite) Cyfrowy Polsat competes not only with alternative
DTH platforms, but also with providers of such service by other means (i.e. cable, IPTV). Traditional
(analog) CATVs engender less customer loyalty than DTH (as satellite subscribers, unlike CATV
viewers, have to purchase a satellite dish), but CATVs’ switchover to digital enabling them to roll out
bundled services, which - at least for now - cannot be easily deployed via most satellite platforms,
is fostering loyalty of customers, while offering them a richer range of value added services (VOD).
It should be noted, though, that the DTH service is not subject to network infrastructure reach
constraints, which are embedded both in cable and IPTV offerings; this provides the former with
a clear upper hand in rural areas and small cities, which often lie outside the non-satellite TV
distribution platforms’ reach. On the other hand, however, rural areas and small cities tend to be
inhabited by people with lower disposable income and purchasing power, which is unlikely to protect
the DTH platforms from the low-cost DTT service. Hence, from their perspective, the slower
the pace of analog terrestrial signal switch-off, the better. All in all, with large part of the population
inhabiting off-large-cities-areas (c. 60% of the population inhabiting villages and towns with less
than 50 thousand dwellers), Poland appears to constitute at the moment more favorable operating
environment for DTH platforms than for CATVs or IPTV providers. Putting another way, despite
the infringed ability to easily provide fully-blown bundled service, among the existing subscription
multichannel TV platforms it is DTH that appears to be the prime beneficiary of current economic
upswing and people’s rising incomes, due to its ability to penetrate rural areas and smaller towns,
which often lie beyond the network scope of cable and IPTV providers; by the same token, due to its
lack of network-reach-implied constraints DTH has been the main beneficiary of the delayed DTT
roll-out. It should be noted, however, that over the long term the competitive edge may gradually
shift to telcos and CATVs unless satellite providers manage to offer (most likely on the basis of thirdparty infrastructure) a bundled service to their users.
The way we see it, the main risk factors related to Cyfrowy Polsat are more of broader, environmentrelated nature (e.g. possibility of an acceleration of the DTT roll-out, the possible consequences
of a GDP slow-down in the context of Company’s volume-driven DTH strategy increasingly directed
recently (from 4Q06, when the Mini package was introduced) towards the lower-end of the subscriber
market, etc.) than of purely company-specific character (though the latter ones also exist, e.g. share
supply overhang).
First, the current plan for the introduction of DTT in Poland seems to be still reasonably favorable
for DTH providers. The reasons for this are twofold. First, Poland will be the late implementator – the
first terrestrial digital islands are to be created at the turn of this and next year, i.e. when the pay
multichannel penetration is likely – according to our forecasts – to dwell almost at the 70% level.
Second, the national roll-out is planned for completion in 2012 (with possible extension till mid-2015),
leaving pay multichannel platforms at least further 4-year grace period. Should this provisional plan,
however, become altered, with accelerated – compared to the currently binding schedule – roll-out
throughout the country and/or faster (i.e. pre-2013) launches of additional digital multiplexes, DTH
providers would likely suffer (or at least enjoy less upside), as the DTT offering would be probably
most appealing to inhabitants of small cities and rural areas and households with low-to-average
incomes. It straightforwardly follows then that Cyfrowy Polsat, targeting regions off-large-citycenters and a broader income range of clients (inclusive of lower-to-average income part of the DTH
market (the Mini package)) would suffer from such an acceleration. Please note that our market
projections and forecasts for the Company are based on the assumption that the aforementioned
current provisional plan for the introduction of DTT in Poland will be kept; while we are not able
to assess (even roughly) what is the risk of a scenario in which the plan is changed (and the DTT
roll-out is accelerated and/or the number of multiplexes becoming operational before 2013
is enlarged), it is obvious to us that such a hypothetical development would open up some downside
risk for our current forward estimates regarding: (i) DTH penetration, (ii) Cyfrowy’s DTH subcribership,
and (iii) Cyfrowy’s financial results.
????????????????????????
Cyfrowy Polsat
...possible consequences
of a GDP slow-down in
the context of Company’s
volume-driven DTH strategy
increasingly directed recently
also towards the lower-end
of the subscriber market
(though it is to some extent
mitigated by the pre-paymentbased subscriber billing safety
valve mechanism embedded
in Cyfrowy’s business model),...
...and more vivid actions
by competing DTHs
Strong 2008-2010E SOCadjusted profit growth outlook,
due to (i) monetization on the
2007-2008E robust DTH volume
additions and (ii) a business
model providing a boost
to profits in periods when net
adds decline in relation to the
seasoned subscribers’ number
We value Cyfrowy Polsat’s
equity in the PLN 16.6-19.9
per share range
Envisaged robust shortto mid-term earnings
momentum at the Company
coupled with subdued
investment sentiment towards
alternative local sectoral plays
may make Cyfrowy the media
& entertainment sector equity
exposure of choice → Buy +
Overweight
????????????????????????
Second, while Cyfrowy’s focus on the broad disposable income range of small cities and villages
inhabitants constitutes the best strategy during an expanding economy, it would be more risky
in times of economic slackness/contractions; consequently, a major slowdown of GDP (unexpected
at the moment in the foreseeable future) would most likely cap the affordability of the Company’s
service to lower-income prospects, and result in rising bad receivables from current subscribers
and/or a downselling effect. Please note that the DTH business model of the Company makes
it a pure play on consumerism and rising disposable incomes of the society (also at the lower-part
of the income scale). In such context, the adverse impact of slowing GDP on Company’s results
could be expected to be two-faceted. First, it could cap the influx of new subscribers, limiting
the affordability of the service to the prospects from the lower-income range. Second, the Company’s
current below-average income subscribers could default on their subscription payments, boosting
provisions for bad accounts receivable or at least start to migrate to cheaper program packages.
It should be, however, emphasized that the Company is (at least partially) hedged against the latter
via a pre-payment-based subscriber billing safety valve mechanism embedded in its business
model, which apart from reducing the bad receivables risk, diminishes Cyfrowy’s NWC financing
requirements and favorably impacts TV programming content costs. Nonetheless, overall we do
perceive the strategy of Cyfrowy Polsat as more aggressive than the strategies of its local DTH
peers – being more rewarding during the periods of strong economic growth, but also potentially
more risky (most likely more severe penalty during times of economic hardship). Finally it should be
noted that with the approaching saturation of the domestic DTH market (likely to be attained, in our
opinion, in c. 2-3 years from now) the competition on the domestic DTH scene seems to be on a rise.
For example, the 2H06 entrant ‘n’ presented very aggressive business targets (regarding the details,
please refer to section Local market outlook and trends; DTH) – while at the moment we remain
skeptical as far as their ultimate attainment is concerned, we have no doubts than ‘n’ intends
to more vigorously fight for its share in the sector’s volume net add – public television (TVP)
announced plans of launching its satellite platform in 2H09 and local telco incumbent (TP SA)
entered into an ageement with DTH platform Cyfra+ regarding re-distribution of its TV packages
in areas outside of the reach of the incumbent’s IPTV over DSL service. While at the current stage it
is hard to assess their chances for success (especially as TPSA seems to target the new market
segment with a mistailored product and TVP’s project will constitute a truly late entrant), they are
likely to add to the competitiveness of the local DTH market (though our gut feeling is that this risk
should not give sleepless nights to the shareholders of local DTH incumbents).
Financial-results-wise, we forecast strong (27% p.a.) growth of Cyfrowy Polsat’s 2008-2010E
revenues, mainly on the back of robust DTH volumes and launch of the MVNO project. Simultaneously,
we forecast the Company’s OPEX increases to lag top-line’s, due to (i) continued cost-consciousness,
(ii) launch of an in-house DTH STB assembly (enabling to cut the STB subsidies), (iii) less painful
initial impact from the new additions once the existing pool of subscribers is large (in volume
terms) relative to the newly added ones and (iv) material fixed-costs component. It straightforwardly
follows then that we forecast Cyfrowy Polsat’s consolidated EBITDA margin to extend its last year’s
growth from its 2006 trough, despite the launch of the MVNO business; our mid-term targets
for the entire group, DTH business and Cyfrowy’s MVNO stand, respectively, at >35%, >40% and
0% (LT (maturity stage) SOC-adjusted EBITDA margin expectancy for the MVNO endeavor rests
at >10%). Consequently, despite the mid-term profit-dilutive kick-off of the MVNO project, we forecast
impressive 2008-2010E CAGR of Cyfrowy’s SOC-adjusted consolidated EBITDA – app. 50%.
On the basis of such financial forecasts for the Company, we value its equity in the PLN 16.6-19.9
per share range, with 12M EFV of PLN 18.3 per share (mid-range of valuation).
Summing up, Cyfrowy Polsat provides an exposure to growing DTH market in Poland, which
constitutes at the moment probably one of the fastest growing segments (perhaps apart from
the Internet advertising) of the broadly defined media and entertainment sector in Poland. While
the Company’s aggressive strategy would bear some risk during the economic down-cycle,
the emergence of such adverse economic conditions appears rather unlikely in the mid-term.
Furthermore, although the competition on the DTH scene is clearly rising (more aggressive moves
by current competing players, new platforms’ launches on the horizon), we do not expect this
tendency to materially impact Cyfrowy Polsat’s supreme mid-term (2008-2009E) outlook for profits
growth, which coupled with apparent subdued investment sentiment towards alternative local media
& entertainment plays (due to company-specific reasons (execution of dear M&A deals in case
of TVN and Agora, shortening of fixed assets’ depreciable lives (depressing reported profits) in case
9
Cyfrowy Polsat
of Multimedia)) may make Cyfrowy Polsat the preferred sectoral equity exposure in the near- to midterm; on such grounds we initiate our coverage of the Company’s equities with a Buy LT fundamental
rating and an Overweight ST market-relative bias.
10
????????????????????????
Cyfrowy Polsat
2.
Valuation
aaGiven (i) start-up nature of the MVNO project and (ii) different business metrics
of the DTH and MVNO operations at their maturity stage, sum-of-the-parts (SOTP) appears
to constitute the most proper valuation approach towards Cyfrowy Polsat.
aaDCF + peer-relative exercise (based on IFRS2-SOC-adjusted profits).
aaCyfrowy’s DTH business peer-relative valuation based on forward EV/EBITDA multiples
(average P/E multiples for the closest peer group – DTH operators – appear meaninglessly
high).
aaThree peer groups for Cyfrowy’s DTH business: (i) global DTH platforms (the closest
peer group from the operating perspective), (ii) local paid TV programs distributors (CATV),
and (iii) CEE TV broadcasters.
aaCyfrowy’s DTH business equity value (DCF + peer-relative): PLN 4.4-5.4 billion
(PLN 16.4-19.6 per share).
aaMVNO does not appear to constitute a major value contributor (relative to the value
of the Company’s DTH business); we value its equity value (DCF) at PLN 60-90 million
(PLN 0.2-0.3 per share).
aaSOTP-based equity value of Cyfrowy Polsat seen in the PLN 4.5-5.4 billion range
(PLN 16.6-19.9 per share); we set our 12M forward per share EFV at PLN 18.3 – mid-point
of our fair value range.
2.1.
Digitalization + telco &
broadcasting convergence →
TV distribution market rides the
wave of change
LT SOC-adjusted margin
compression assumed at DTH,
>10% LT EBITDA margin
at MVNO
LT non-capital-intense nature
of both DTH and MVNO
operations
Approach
The way we see it, given the start-up nature of the Company’s MVNO project (bound to generate
material losses during first few years) and materially different business metrics of the DTH and
MVNO operations at their maturity stage (e.g. profitability), sum-of-the-parts (SOTP) seems
to constitute the most proper approach towards the assessment of Cyfrowy Polsat’s EFV,
with both these business lines valued separately and then added up (should we value them
all together, the peer-relative forward-multiples-based valuation of the DTH business would be
unjustifiably understated, due to the inclusion of the MVNO’s forecasted mid-term negative
contribution). Such valuation approach, however, required preparation of separate forecasts
(income statement + selected cash flow data (capex, NWC changes)) for these two endeavors,
a pre-requisite which we met, building our projections of the Company’s consolidated financial
statements on the basis of stand-alone financial forecasts for DTH and MVNO (regarding the
details, please refer to the Financial forecasts chapter of this research report).
The details regarding the assumptions underlying our forecasts of the Company’s DTH and MVNO
business lines’ financial results are discussed in depth in Chapters: 7.1 (revenues), 7.2 (operating
costs), 7.3 (margins and profits), 6.6 (capital expenditures), 6.5 (NWC-and-deferrals-related financing
needs) and 6.3 (financial leverage); to avoid undue repetition let us only briefly note that we assume
(i) all-equity capital structures, (ii) LT contraction of the Company’s DTH business profitability (SOCadjusted margins) towards the levels enjoyed by its more mature peers, and (iii) LT (maturity
stage) EBITDA margin of the MVNO operations at >10%. We would also like to note that in the
longer-run we do not perceive Cyfrowy’s DTH and MVNO businesses as capital-intensive ones,
both in terms of capital expenditures (LT capex-to-sales ratio of, respectively, 2% and 3-4%) or NWC
requirements.
As discussed in the Risk factors and Financial forecasts; operating costs sections, the Company
is likely to report significant non-cash stock option costs under IFRS2 (we tentatively roughly
????????????????????????
11
Cyfrowy Polsat
estimate them to come out at c. PLN 80 million; however, their exact size and timing of their P&L
recognition remain undetermined at the moment). While these non-cash charges will impact
the Company’s reported profit numbers (but not the SOC-adjusted profit figures, which – the way
we see it – should be used as a measure of the Company’s underlying profitability), they are irrelevant
from the valuation point of view. First, from the DCF perspective, they are of non-cash nature and
hence do not impact the free cash flows of the Company. Second, from the forward multiple-based
peer-relative valuation perspective, we invariably believe that the financial results (used as input
for the calculation of multiples) should be adjusted for the IFRS2 SOC charges in order to obtain
an unbiased assessment of fair equity value. On the other hand, however, our assessment
of Cyfrowy Polsat’s EFV is diluted (fully in case of DCF approach, on a pro-rata (as vested)
basis in peer-relative exercise) for the aforementioned prospective management stock option
issues.
All-equity betas at 1.20,
both for DTH and MVNO
1% base scenario residual
period nominal growth rates
As far as the WACC components are concerned, we assume: (i) risk-free rates at the level of current
Polish government 10-year bond yields (6.4%) for the definite period and 5.0% for the residual
period, (ii) equity market risk premium of 4.5% (in the base scenario; a standard assumption of ours),
and (iii) an unleveraged beta of 1.2, both for DTH (in line with the DTH operators’ average)
and MVNO (level higher than for established MNOs (MVNOs are lacking in the public domain),
due to start-up nature of the project).
Finally, as far as the residual period FCFFs’ nominal growth rate is concerned, we assume
it (in the base scenario) at 1.0% (i.e. below the inflation) both for DTH and MVNO, as in our view,
given the drivers of the DTH and MVNO business models, at their maturity stages they are likely
to show very little growth.
2.2.
DCF + peer-relative exercise
Three groups of peers
DTH
We value the equity value of Cyfrowy Polsat’s DTH operations via DCF (discounted cash flows) and
via comparison with the Company’s peers: (i) global DTH platforms (the closest peer group from
the operating perspective), (ii) local paid TV programs distributor peer Multimedia (CATV), and
(iii) CEE TV broadcasters (operationally the most distant peer group, in our view).
On the basis of (i) our forecasts for the Company, (ii) risk parameters adopted, and (iii) assumed
residual growth levels (both discussed in Chapter 2.1), we value (via DCF) Cyfrowy Polsat’s DTH
operations in the PLN 4.8-5.4 billion range (PLN 17.6-19.6 per share)
Peer-relative valuation based
on forward EV/EBITDA multiples
Three groups of peers: (i) global
DTHs, (ii) CEE TV broadcasters
and (iii) local paid TV program
distributors
Peer-relative exercise implies
equity value of Cyfrowy Polsat’s
DTH operations in the range
of PLN 4.4-5.0 billion (average
of mins/maxs for three peer
groups), i.e. PLN 16.4-18.8 per
share
12
We base our peer-relative valuation of Cyfrowy Polsat on forward EV/EBITDA multiples. Such
an approach values Cyfrowy’s DTH business at:
(i) PLN 5.2-6.0 billion (PLN 19.4-22.4 per share), when global DTH operators (the best, in our
view, peer group) are taken as a benchmark for comparison,
(ii)PLN 4.3-5.1 billion (PLN 16.0-20.1 per share), relative to the average of the CEE TV broadcasters
(while we are fully aware that DTH operators and TV broadcasters business models are
not tantamount, as these two groups of companies derive their revenues from different
sources (subscription sales in case of DTHs, advertising revenues in case of broadcasters),
they both ultimately depend upon the people’s TV viewerships, which makes their
comparisons justified, in our view (though of much lighter significance than in case of the
average for other DTH platforms)), and
(iii)PLN 3.8 billion (PLN 13.8 per share) relative to the only local peer - Multimedia. In this
latest context we would like to note that while we are fully aware of the differences between
the DTH (Cyfrowy Polsat) and CATV (Multimedia) business models, and are convinced
that the former should trade with a premium relative to the latter (due to, e.g., lack
of network-reach-related constraints, facilitating much faster (and significantly less capital
intense) organic growth at DTH; regarding the details of this argument, please refer,
e.g., to Chapter 5.7 (Competitive advantages) of this research report), Multimedia does
constitute a plausible valuation benchmark for Cyfrowy due to two reasons. First, both
these companies provide basically the same service (paid TV programs distribution to the
end-users), although via different modes (satellite vs. cable), competing generally for the
????????????????????????
Cyfrowy Polsat
same client pool. Second, from the local market perspective (with no other DTH platforms
being WSE-listed) Multimedia constitutes the closest peer for Cyfrowy. Notwithstanding the
above, given the network-reach-growth constraint embedded in the CATV business model
(which is lacking in DTH), we believe that the comparison of these two businesses would
be only justified for periods when the resultant growth rates differential consequences
cease to be immense; as for 2008-2009 we still forecast fairly strong growth of volumes in Polish DTH (inclusive of Cyfrowy; though much weaker compared to 2007), we believe
that the comparison to a local CATV is warranted only from 2010E onwards (i.e. when
the forecasted growth rates differential diminishes)1.
Fig. 1 Cyfrowy Polsat’s DTH operations; DCF valuation
PLN m
Sales
yoy change
EBIT margin
EBIT
yoy change
Effective CIT tax rate (T)
EBIT*(1-T)
yoy change
EBITDA
yoy change
EBITDA margin
D&A
EBIT*(1-T)+ D&A
yoy change
CAPEX: intanglibes and tangibles
Change in NWC and deferrals:
Inventories
Trading A/R
Trading A/P
STB deposits
Deferred assets and liabilities - users'
pre-payments
Non-trading A/R and A/P
Capitalized distribution commissions
Other operating flows
Equity issue proceeds
FCFF
yoy change
Cost of equity
Risk free rate
Equity market premium
Beta
Unlevered beta
Beta adjusted for level of leverage
Required rate of return
Cost of debt
Cost of debt (pre-tax)
Tax rate
After tax cost of debt
2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E > 2018E
1,041.9 1,250.7 1,395.2 1,533.1 1,660.7 1,762.1 1,839.8 1,927.1 2,029.5 2,137.7 2,251.9
31%
20%
12%
10%
8%
6%
4%
5%
5%
5%
5%
35.7% 39.8% 41.1% 41.7% 40.4% 39.7% 38.2% 36.8% 35.3% 33.7% 32.1%
371.6 498.0 572.8 639.1 671.7 699.7 703.5 708.9 716.5 721.2 723.4
135%
34%
15%
12%
5%
4%
1%
1%
1%
1%
0%
19%
19%
19%
19%
19%
19%
19%
19%
19%
19%
19%
301.0 403.4 464.0
517.6 544.1 566.7 569.8 574.2 580.3 584.2 586.0
131%
34%
15%
12%
5%
4%
1%
1%
1%
1%
0%
397.5 527.6 604.0 669.6 702.0 722.0 728.7 736.0 743.6 749.9 754.1
122%
33%
14%
11%
5%
3%
1%
1%
1%
1%
1%
38.2% 42.2% 43.3% 43.7% 42.3% 41.0% 39.6% 38.2% 36.6% 35.1% 33.5%
25.9
29.6
31.2
30.6
30.3
22.3
25.2
27.1
27.1
28.7
30.7
326.9 433.0 495.2 548.2 574.3 589.1 595.0 601.3 607.5 612.8 616.6
117%
32%
14%
11%
5%
3%
1%
1%
1%
1%
1%
-49.9
-20.0
-20.0
-10.0
-20.0 -30.2 -33.0 -34.3
-33.1
-32.7
-33.1
101.6
68.3
7.1
-15.1
-2.8
17.7
1.6
-3.7
-1.0
-0.7
-0.7
74.6
13.2
0.7
-1.1
-0.8
5.5
-1.1
-0.8
0.6
-0.6
0.1
-13.7
-11.7
-8.1
-7.7
-7.1
-5.7
-4.3
-4.9
-5.7
-6.0
-6.4
1.9
11.7
6.2
3.0
7.3
5.5
3.0
3.5
5.3
5.9
5.4
-10.0
-5.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
23.1
23.3
11.6
9.2
6.6
7.3
3.8
4.3
4.9
4.7
4.6
-6.1
31.7
0.1
0.0
378.6
449%
-5.8
42.6
0.0
0.1
481.4
27%
-4.5
1.2
0.0
0.1
482.4
0%
-3.8
-14.5
0.0
0.1
523.2
8%
-3.4
-5.3
0.0
0.1
551.6
5%
-2.8
7.8
0.0
0.0
576.6
5%
-2.1
2.4
0.0
0.0
563.7
-2%
-2.4
-3.4
0.0
0.0
563.4
0%
-2.6
-3.6
0.0
0.0
573.3
2%
-2.7
-1.9
0.0
0.0
579.4
1%
-2.8
-1.5
0.0
0.0
582.9
1%
1.0%
6.4%
4.5%
1.26
1.20
1.22
11.9%
6.4%
4.5%
6.4%
4.5%
6.4%
4.5%
6.4%
4.5%
6.4%
4.5%
6.4%
4.5%
6.4%
4.5%
6.4%
4.5%
6.4%
4.5%
6.4%
4.5%
5.0%
4.5%
1.20
1.22
11.9%
1.20
1.22
11.9%
1.20
1.22
11.9%
1.20
1.21
11.9%
1.20
1.21
11.9%
1.20
1.21
11.9%
1.20
1.21
11.8%
1.20
1.20
11.8%
1.20
1.20
11.8%
1.20
1.20
11.8%
1.20
1.20
10.4%
8.5%
19%
6.9%
8.5%
19%
6.8%
7.7%
19%
6.2%
7.1%
19%
5.8%
6.5%
19%
5.3%
6.5%
19%
5.3%
6.5%
19%
5.3%
6.5%
19%
5.3%
6.5%
19%
5.3%
6.5%
19%
5.3%
6.5%
19%
5.3%
6.5%
19%
5.3%
Note: EBITDA and EBIT are IFRS2 SOC-adjusted.
1
????????????????????????
Please note, however, that this comparison is still biased as Multimedia’s equities are, the way we see
it, grossly underpriced at the moment.
13
Cyfrowy Polsat
Fig. 2 Cyfrowy Polsat’s DTH operations; DCF valuation (continued)
PLN m
WACC
Weight of interest-bearing debt
Weight of equity
Cost of equity
After-tax cost of debt
WACC
Discount multiple
Discount factor
PV of FCFF
Sum of FCFFs PVs
Weight of interest-bearing debt in the residual period
Weight of equity in the residual period
Average cost of equity in the definite period
Average WACC in the definite period
WACC in the residual period
Residual growth of FCFFs (base case scenario)
Residual value
Present value of the residual value
Value of the Company's DTH operations
Non-operating assets
Enterprise value of DTH
Cash and equivalents, eop 2008E
Interest-bearing debt, eop 2008E
Equity value of DTH operations
No. of shares
12M EFV base-case scenario (PLN)
2008E 2009E 2010E
0%
100%
11.9%
6.9%
11.9%
1.06
0.94
0%
100%
11.9%
6.8%
11.9%
1.19
0.84
406.1
0%
100%
11.9%
6.2%
11.9%
1.33
0.75
363.7
2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E > 2018E
0%
100%
11.9%
5.8%
11.9%
1.48
0.67
352.6
0%
100%
11.9%
5.3%
11.9%
1.66
0.60
332.3
0%
100%
11.9%
5.3%
11.9%
1.86
0.54
310.5
0%
100%
11.9%
5.3%
11.9%
2.08
0.48
271.4
0%
100%
11.8%
5.3%
11.8%
2.32
0.43
242.5
0%
100%
11.8%
5.3%
11.8%
2.60
0.39
220.8
0%
100%
11.8%
5.3%
11.8%
2.90
0.34
199.6
0%
100%
11.8%
5.3%
11.8%
3.25
0.31
179.6
0%
100%
10.4%
5.3%
10.4%
2,879
0%
100%
11.8%
11.8%
10.4%
1.0%
6,266
1,931
4,810
0.0
4,810
394
132
5,073
273,801,020
18.5
Fig. 3 DFC valuation of Cyfrowy Polsat’s DTH operations; Sensitivity analysis
Equity risk premium
4.25%
4.50%
4.75%
5.00%
Residual weight of debt
0%
0%
0%
0%
0%
Residual WACC
9.8%
10.1%
10.4%
10.7%
11.0%
Implied 12M per share equity value of DTH operations (PLN/share)
18.9
18.3
17.8
17.3
16.9
19.3
18.7
18.1
17.6
17.1
19.7
19.1
18.5
18.0
17.5
20.2
19.6
18.9
18.4
17.8
20.8
20.1
19.4
18.8
18.2
4.00%
Residual growth
of FCFF
Nominal
0.0%
0.5%
1.0%
1.5%
2.0%
Real
-2.0%
-1.5%
-1.0%
-0.5%
0.0%
Source: DM IDMSA estimates
14
????????????????????????
Cyfrowy Polsat
Fig. 4 Cyfrowy Polsat’s DTH business; Valuation relative to foreign peers (DTH operators)
Company
BSkyB
Sogecable
Premiere
Echostar
Astro
Median
Average
Min
Max
Cyfrowy Polsat:
DTH EBITDA (PLN million)
Implied enterprise value (PLN million), based on median
Implied enterprise value (PLN million), based on average
Implied enterprise value (PLN million), based on min
Implied enterprise value (PLN million), based on max
Net debt/cash (PLN million)
Implied equity value (PLN million), based on median
Implied equity value (PLN million), based on average
Implied equity value (PLN million), based on min
Implied equity value (PLN million), based on max
Implied per share equity value (PLN/share), based on median
Implied per share equity value (PLN/share), based on average
Implied per share equity value (PLN/share), based on min
Implied per share equity value (PLN/share), based on max
2008E
11.0
13.2
19.1
9.0
9.7
11.0
12.4
9.0
19.1
EV/EBITDA
2009E
8.9
11.2
13.7
9.4
7.6
9.4
10.1
7.6
13.7
2010E
7.5
9.6
9.7
4.8
6.5
7.5
7.6
4.8
9.7
397.5
4,377
4,934
3,570
7,601
-262.7
4,640
5,197
3,833
7,864
17.3
19.4
14.3
29.3
527.6
4,945
5,352
4,033
7,209
-680.4
5,625
6,032
4,713
7,889
20.9
22.4
17.5
29.3
604.0
4,541
4,605
2,924
5,852
-1,153.5
5,695
5,758
4,077
7,006
21.0
21.2
15.0
25.8
2008E
10.1
11.7
12.0
6.9
10.9
10.2
6.9
12.0
EV/EBITDA
2009E
8.7
9.7
9.6
5.5
9.2
8.4
5.5
9.7
2010E
7.5
9.0
7.7
4.3
7.6
7.1
4.3
9.0
397.5
4,329
4,043
2,753
4,760
-262.7
4,592
4,306
3,016
5,022
17.1
16.0
11.2
18.7
527.6
4,832
4,422
2,884
5,140
-680.4
5,512
5,102
3,564
5,820
20.4
18.9
13.2
21.6
604.0
4,602
4,304
2,570
5,443
-1,153.5
5,756
5,458
3,723
6,597
21.2
20.1
13.7
24.3
Note: Multiples for Cyfrowy Polsat are IFRS2 SOC-adjusted. Peers’ share prices as of close of June 18.
Source: Reuters, DM IDMSA estimates
Fig. 5 Cyfrowy Polsat’s DTH business; Valuation relative to CEE TV broadcasters
Company
TVN
CME
CTC
DYH
Median
Average
Min
Max
Cyfrowy Polsat:
Implied enterprise value (PLN million), based on median
Implied enterprise value (PLN million), based on average
Implied enterprise value (PLN million), based on min
Implied enterprise value (PLN million), based on max
Implied equity value (PLN million), based on median
Implied equity value (PLN million), based on average
Implied equity value (PLN million), based on min
Implied equity value (PLN million), based on max
Implied per share equity value (PLN/share), based on median
Implied per share equity value (PLN/share), based on average
Implied per share equity value (PLN/share), based on min
Implied per share equity value (PLN/share), based on max
Note: Multiples for Cyfrowy Polsat are IFRS2 SOC-adjusted. Peers’ share prices as of close of June 18.
????????????????????????
15
Cyfrowy Polsat
Fig. 6 Cyfrowy Polsat’s DTH business; Valuation relative to local CATV peer (Multimedia)
Multimedia
Cyfrowy Polsat:
Implied enterprise value (PLN million)
Implied equity value (PLN million)
Implied per share equity value (PLN/share)
2008E
5.9
EV/EBITDA
2009E
5.1
2010E
4.3
398
2,357
-263
2,620
9.8
528
2,672
-680
3,352
12.4
604
2,600
-1,153
3,753
13.8
Note: EBITDA for Cyfrowy Polsat adjusted for IFRS2 stock option costs. Peers’ share prices as of close of June 18.
Fig. 7 Cyfrowy Polsat’s peers; EV/EBITDA vs. EBITDA’s CAGR
Fig. 8 Cyfrowy Polsat’s peers; EV/EBITDA multiples vs. EBITDA margin
Peers’ share prices as of close of June 18.
Peers’ share prices as of close of June 18.
2.3.
MVNO project valued
at PLN 60-90 million
(PLN 0.2-0.3 per share); hence,
at the moment it does not
constitute a major shareholder
MVNO
Given lack of listed MVNOs (MNOs do not constitute a plausible valuation benchmark, in our view),
we valued Cyfrowy Polsat’s MVNO project only via DCF; our absolute-value exercise values
it in the PLN 60-90 million range (PLN 0.2-0.3 per share), suggesting that given the estimated value
of the Company’s DTH operations (regarding the details, please refer to the preceding section),
the MVNO project does not constitute a meaningful equity value contributor (at least as of now).
value contributor
16
????????????????????????
Cyfrowy Polsat
Fig. 9 Cyfrowy Polsat’s MVNO operations; DCF valuation
PLN m
Sales
yoy change
EBIT margin
EBIT
yoy change
Effective CIT tax rate (T)
EBIT*(1-T)
yoy change
EBITDA
yoy change
EBITDA margin
D&A
EBIT*(1-T)+ D&A
yoy change
CAPEX: intanglibes and tangibles
Change in NWC and deferrals:
Inventories
Trading A/R
Trading A/P
STB deposits
Deferred assets and liabilities - users'
pre-payments
Non-trading A/R and A/P
Capitalized distribution commissions
Other operating flows
Equity issue proceeds
FCFF
yoy change
Cost of equity
Risk free rate
Equity market premium
Beta
Unlevered beta
Beta adjusted for the level of leverage
Required rate of return
Cost of debt
Cost of debt (pre-tax)
Tax rate
After tax cost of debt
WACC
Weight of interest-bearing debt
Weight of equity
Cost of equity
After-tax cost of debt
WACC
Discount multiple
Discount factor
PV of FCFF
2008E
9.2
n.m.
-392.7%
-36.0
n.m.
19%
-29.1
n.m.
-33.1
n.m.
-361.2%
2.9
-26.3
n.m.
-12.7
-3.0
-2.5
-0.5
3.7
0.0
0.2
2009E 2010E
111.4 229.2
1,116% 106%
-46.7% -10.6%
-52.1
-24.4
n.m.
n.m.
19%
19%
-42.2
-19.8
n.m.
n.m.
-43.0
-8.3
n.m.
n.m.
-38.6% -3.6%
9.1
16.1
-33.1
-3.6
n.m.
n.m.
-37.0
-41.0
-14.7
3.5
-10.3
1.8
-5.7
-6.6
16.9
8.0
0.0
0.0
4.2
4.2
2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E > 2018E
297.7
347.1 389.2 425.4 462.8 484.3 492.2 498.4
30%
17%
12%
9%
9%
5%
2%
1%
-7.3% -3.0% 3.3%
5.4% 6.5% 8.0% 8.3% 9.2%
-21.8
-10.4
12.7
23.1
30.0
38.7
41.0
45.9
n.m.
n.m.
n.m.
82%
30%
29%
6%
12%
19%
19%
19%
19%
19%
19%
19%
19%
-17.6
-8.4
10.3
18.7
24.3
31.3
33.2
37.2
n.m.
n.m.
n.m.
82%
30%
29%
6%
12%
-0.3
12.8
36.3
48.0
55.0
61.9
62.1
65.5
n.m.
n.m. 184%
32%
15%
12%
0%
5%
-0.1% 3.7% 9.3% 11.3% 11.9% 12.8% 12.6% 13.1%
21.5
23.2
23.6
24.9
25.0
23.2
21.1
19.6
3.8
14.8
33.9
43.6
49.3
54.5
54.3
56.8
n.m. 288% 130%
29%
13%
11%
0%
5%
-25.0
-15.0
-18.5 -20.2
-21.0 -20.3
-20.1 -20.3
13.0
4.9
-1.8
-7.9
-5.2
6.1
1.2
-1.8
-1.6
-3.1
-0.7
-1.7
-1.3
1.1
-0.8
0.1
-3.8
-2.8
-2.4
-2.0
-2.1
-1.2
-0.4
-0.3
2.7
2.9
1.4
1.0
1.3
0.7
0.3
0.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
2.0
1.1
1.2
0.8
0.8
0.5
0.1
0.1
-0.2
-3.8
0.0
0.0
-42.0
n.m.
-1.9
-17.8
0.0
0.0
-84.7
n.m.
-2.0
-2.0
0.0
0.0
-41.2
n.m.
-1.3
15.0
0.0
0.0
-8.2
n.m.
-1.0
7.7
0.0
0.0
4.6
n.m.
-0.8
-0.6
0.0
0.0
13.6
n.m.
-0.7
-5.3
0.0
0.0
15.5
13%
-0.7
-3.2
0.0
0.0
23.1
49%
-0.5
5.5
0.0
0.0
40.3
75%
-0.2
2.2
0.0
0.0
35.4
-12%
-0.1
-1.6
0.0
0.0
34.7
-2%
1.0%
6.4%
4.5%
1.20
1.20
1.20
11.8%
6.4%
4.5%
6.4%
4.5%
6.4%
4.5%
6.4%
4.5%
6.4%
4.5%
6.4%
4.5%
6.4%
4.5%
6.4%
4.5%
6.4%
4.5%
6.4%
4.5%
5.0%
4.5%
1.20
1.20
11.8%
1.20
1.20
11.8%
1.20
1.20
11.8%
1.20
1.20
11.8%
1.20
1.20
11.8%
1.20
1.20
11.8%
1.20
1.20
11.8%
1.20
1.20
11.8%
1.20
1.20
11.8%
1.20
1.20
11.8%
1.20
1.20
10.4%
8.5%
19.0%
6.9%
8.5%
19.0%
6.8%
7.7%
19.0%
6.2%
7.1%
19.0%
5.8%
6.5%
19.0%
5.3%
6.5%
19.0%
5.3%
6.5%
19.0%
5.3%
6.5%
19.0%
5.3%
6.5%
19.0%
5.3%
6.5%
19.0%
5.3%
6.5%
19.0%
5.3%
6.5%
19.0%
5.3%
0%
100%
11.8%
6.9%
11.8%
1.06
0.94
0%
100%
11.8%
6.8%
11.8%
1.18
0.84
-71.6
0%
100%
11.8%
6.2%
11.8%
1.32
0.76
-31.1
0%
100%
11.8%
5.8%
11.8%
1.48
0.68
-5.5
0%
100%
11.8%
5.3%
11.8%
1.65
0.60
2.8
0%
100%
11.8%
5.3%
11.8%
1.85
0.54
7.4
0%
100%
11.8%
5.3%
11.8%
2.07
0.48
7.5
0%
100%
11.8%
5.3%
11.8%
2.31
0.43
10.0
0%
100%
11.8%
5.3%
11.8%
2.58
0.39
15.6
0%
100%
11.8%
5.3%
11.8%
2.89
0.35
12.3
0%
100%
11.8%
5.3%
11.8%
3.23
0.31
10.8
0%
100%
10.4%
5.3%
10.4%
????????????????????????
17
Cyfrowy Polsat
Fig. 10 Cyfrowy Polsat’s MVNO operations; DCF valuation (continued)
Sum of FCFFs PVs
Weight of interest-bearing debt in the residual period
Weight of equity in the residual period
Average cost of equity in the definite period
Average WACC in the definite period
WACC in the residual period
Residual growth of FCFFs (base case scenario)
Residual value
Present value of the residual value
Value of the Company's MVNO operations
Non-operating assets
Enterprise value of MVNO
Cash and equivalents
Interest-bearing debt
Equity value of MVNO operations
No. of shares
12M EFV base-case scenario (PLN)
-42
0%
100%
11.7%
11.7%
10.4%
1.0%
373
116
74
0.0
74
0.0
0.0
74
273,801,020
0.3
Fig. 11 DFC valuation of Cyfrowy Polsat’s MVNO operations; Sensitivity analysis
Equity risk premium
4.25%
4.50%
4.75%
5.00%
Residual weight of debt
0%
0%
0%
0%
0%
Residual WACC
9.8%
10.1%
10.4%
10.7%
11.0%
Implied 12M equity value of MVNO operations (PLN m)
76
68
61
55
49
83
75
67
60
54
91
82
74
66
59
99
90
81
73
65
109
98
89
80
72
4.00%
Residual growth
of FCFF
Nominal
0.0%
0.5%
1.0%
1.5%
2.0%
Real
-2.0%
-1.5%
-1.0%
-0.5%
0.0%
SOTP: Cyfrowy’s equity value
in the PLN 16.6-19.9 per share
range
2.4.
SOTP
The results of our SOTP valuation of Cyfrowy Polsat are summarized in Figure 12; we value
the Company’s equity in the PLN 4.5-5.4 billion range (PLN 16.6-19.9 per share), with the lion share
of the overall equity value stemming from the value of the DTH operations; we set our 12M forward
per share EFV at PLN 18.3 – mid-point of our fair value range.
Fig. 12 Cyfrowy Polsat; SOTP valuation summary
Business line
Valuation method
(1) DTH
DCF
Peer-relative (average of the mins/maxs of three peer groups):
Global DTHs
Local (CATVs)
CEE TV broadcasters
(2) MVNO
DCF
Cyfrowy Polsat SOTP
Average
Equity fair value range
Equity fair value per share range
(PLN m)
(PLN)
4,419
5,358
16.4
19.6
4,828
5,358
17.6
19.6
4,419
4,963
16.4
18.8
5,197
6,032
19.4
22.4
3,753
3,753
13.8
13.8
4,306
5,102
16.0
20.1
60
90
0.2
0.3
4,479
5,448
16.6
19.9
4,963
18.3
18
????????????????????????
Cyfrowy Polsat
3.
Global market outlook and trends
aaGrowing subscriberships (volumes) coupled with increasing ARPU (resulting from
the proliferation of the digital technologies) will constitute the main driving forces behind
further growth of the television distribution spending by end-customers all over the word.
Simultaneously, the competition will continue to tighten, with telcos increasingly engaging
in the TV distribution domain via IPTV offerings occassionally complemented by satellite.
aaThe position of free multichannel services often explains the cross-country differences
in fee-based penetrations. Free DTT roll-outs have two opposite effects for subscriptionbased TV distributors: (i) disenfranchising effect (extraordinary influx of users at analog
shut-down dates), and (ii) carve out effect (decreased number of potential clients among
the nonsubscribing households).
aaTraditional (analog) CATVs engender less customer loyalty than DTH (as satellite
subscribers, unlike CATV viewers, have to purchase a satellite dish), but CATVs’ switchover
to digital enabling them to roll out bundled services, which – at least for now – cannot be
deployed via most satellite platforms, is fostering loyalty of customers, while offering them
a richer range of value-added services (VOD). It should be noted, though, that the DTH
service is not subject to network infrastructure reach constraints, which are embedded
both in cable and IPTV offerings; this provides the former with a clear upper hand in rural
areas and small cities, which often lie outside the non-satellite TV distribution platforms’
reach (but this starts to be mitigated by telcos complementing their IPTV offerings
by satellite). On the other hand, however, rural areas and small cities tend to be inhabited
by people with lower disposable income and purchasing power, which is unlikely
to immunize the DTH platforms from the low-cost DTT service. Hence, from their
perspective, the slower the pace of analog terrestrial signal switch-off, the better. All in
all, the DTH subscribership is expected to grow in the coming years ahead of the CATV’s,
despite the bundled service limitations of the former. However, down the road the satellite
players will need to build multi-play functionality and capabilities into their service offering
if they are to maintaine their market share in the long run.
aaGrowing competition (e.g. MVNOs entries, resulting in ARPU slides), combined with
the constantly decreasing new additions (consequence of high-to-very-high penetration
levels) hinder further dynamic growth of mobile telephony revenues.
aaMVNOs tend to target customer groups which are more difficult to reach by MNOs
or try to capitalize on the power of their company brandname. Depending on the chosen
strategy, the extent of MVNOs’ capital engagement in infrastructure development may vary.
While the timing of consolidation among the virtual operators will depend on the growth
rates of the telecommunication markets in a various countries, it does seem inescapable.
aaCompared to MNOs, MVNOs exhibit: (i) lower ARPUs, (ii) lower margins, (iii) lower
capex/sales ratios, (iv) shorter BEPs, and (v) capped FCFs. First-mover advantage seems
to constitute the key-success factor in the MVNO business, along with recognized
brandname and cross-selling capability (ample pool of potential clients), which appear much
more essential than content. On the other hand, though, the type of the MVNO business
model pursued (affinity partner, service provider, enhanced service provider, hybrid,
full MVNO) does not seem to be the best guide in segregating leaders from laggards.
3.1.
Digitalization + telco & broadcasting
convergence → TV distribution
market rides the wave of change
????????????????????????
Distribution of TV programmes
The television distribution market is undergoing major changes as the switchover from analog
to digital broadcasting progresses. People are able to receive audio-visual content through a number
of different networks (cable, satellite, terrestrial, IPTV, UMTS) on a variety of devices (including PCs
19
Cyfrowy Polsat
and mobile telephones) and the convergence of the telecommunications and broadcasting – made
possible through digitalization – resulted in a number of new commercial offerings (e.g. multiple-play
services) of both linear (i.e. traditional scheduled TV services) and non-linear (i.e. on-demand)
audio-visual services.
The television program
distribution market is expected
to continue to grow globally, as
well as in the EMEA and CEE
regions,…
The television distribution market comprises revenues received by distributors for delivery to endusers (viewers) of television packages, i.e. subscription fees (coming in basic and premium options)
charged by cable operators (CATV), satellite platforms and telephone companies (IPTV2), as well
as payments for video-on-demand services (VOD3) and pay-per-view4 services. In 2007-2011E,
the global television distribution market is expected to grow at a CAGR of approx. 11% in value
terms, with forecasts predicting the fastest growth in Asia/Pacific (approx. 19%) and Latin America
(15%). The EMEA region is expected to grow at a CAGR of c. 12% and the CEE markets (with
a predicted growth of 11.2%) should not lag far behind Western Europe (11.6%).
Fig. 13 TV distribution market in various regions of the world in terms of the end-user spending (US$ million)
USA
yoy chng
EMEA
yoy chng
Asia/Pacific
yoy chng
Latin America
yoy chng
Canada
yoy chng
World
yoy chng
2001
2002
41,316
8.7%
19,452
15.6%
9,896
8.9%
4,155
4.5%
3,117
8.0%
77,937
n.a.
45,552
9.3%
22,619
14.0%
11,494
13.9%
4,877
-14.8%
3,254
4.2%
87,796
12.7%
2003
2004
49,541 54,467
8.8%
9.9%
24,975 27,767
10.4% 11.2%
13,718 15,822
19.3% 15.3%
4,880
5,200
0.1%
6.6%
3,494
3,669
7.4%
5.0%
96,608 106,925
10.0% 10.7%
2005
2006
58,330 62,796
7.1%
7.7%
31,099 35,069
12.0% 12.8%
17,977 20,187
13.6% 12.3%
5,810
6,539
11.7% 12.5%
3,951
4,151
7.7%
5.1%
117,167 128,742
9.6%
9.9%
2007E
2008E
2009E
2010E
2011E
66,935 71,305 77,192 82,796 88,571
6.6%
6.5%
8.3%
7.3%
7.0%
39,457 44,642 50,097 56,075 62,722
12.5%
13.1% 12.2% 11.9% 11.9%
22,847 26,268 31,539 38,403 46,363
13.2% 15.0% 20.1% 21.8% 20.7%
7,508
8,632
9,942 11,362 12,883
14.8% 15.0% 15.2% 14.3% 13.4%
4,409
4,678
4,974
5,248
5,516
6.2%
6.1%
6.3%
5.5%
5.1%
141,156 155,525 173,744 193,884 216,055
9.6% 10.2%
11.7%
11.6%
11.4%
CAGR:
2007-11E
7.3%
12.3%
19.4%
14.5%
5.8%
11.2%
Source: PwC, Wilkofsky Gruen Associates
Fig. 14 TV distribution market in various parts of the EMEA region in terms of the end-user spending (US$ million)
2001
Western Europe
yoy chng
CEE
yoy chng
Middle East/Africa
yoy chng
VOD
yoy chng
Total EMEA
yoy chng
2002
2003
2004
2005
2006
2007E
2008E
2009E
2010E
2011E
17,707 20,551 22,545 24,905
13.9%
16.1%
9.7% 10.5%
1,138
1,317
1,542
1,790
n.a. 13.6%
17.1%
16.1%
601
733
808
907
n.a. 18.0% 10.2% 12.3%
6
18
80
165
n.a. 200.0% 344.4% 106.3%
19,452 22,619 24,975 27,767
15.6% 16.3% 10.4% 11.2%
27,698
11.2%
2,126
18.8%
1,017
12.1%
258
56.4%
31,099
12.0%
30,932
11.7%
2,439
14.7%
1,126
10.7%
572
121.7%
35,069
12.8%
34,495
11.5%
2,760
13.2%
1,236
9.8%
966
68.9%
39,457
12.5%
38,699
12.2%
3,076
11.4%
1,352
9.4%
1,515
56.8%
44,642
13.1%
43,145
11.5%
3,422
11.2%
1,475
9.1%
2,055
35.6%
50,097
12.2%
48,082
11.4%
3,802
11.1%
1,603
8.7%
2,588
25.9%
56,075
11.9%
53,585
11.4%
4,223
11.1%
1,741
8.6%
3,173
22.6%
62,722
11.9%
CAGR:
2007-11E
11.6%
11.2%
8.9%
34.6%
12.3%
The development of the paid television distribution market will probably be underpinned by several
main trends, which have been outlined below.
2
3
4
20
IPTV (Internet Protocol Television) is a system where a digital television signal is delivered by using
Internet Protocol over a network infrastructure, which may include delivery by a broadband connection.
IPTV is a switched service which does not deliver all channels to each home at once but allows viewers
to select the channel to be viewed (potentially, more than a thousand channels can be available).
VOD operates through a server and enables viewers to access program at any time and is not
circumscribed by a preset schedule. VOD also allows viewers to pause, rewind and fast-forward
(functions not available on pay per-view). VOD requires a single channel to access the server and,
consequently, with no limitation on channel capacity, much more programs are potentially available
on VOD than on pay-per-view at any point of time.
Pay-per-view uses dedicated channels to show films or other events at scheduled intervals.
????????????????????????
Cyfrowy Polsat
…driven by increasing
1. Competition on the rise. The competition among television distributors has been intensifying
aa
competition,…
as the new entrants have been challenging incumbents which – in turn – have been rolling out
new services to retain their customers. This trend is likely to extend in the coming years.
… as new entrants challenge
A rise in competition will be brought on by (i) market entry by new telco players (a phenomenon
observed for several years now) using the DSL infrastructure to transmit television content (IPTV offers
digital quality, allows to deliver a greater number of channels within a single package and to provide
VOD services (unavailable via most satellites)), and (ii) proliferation of free-of-charge distribution
platforms (digital terrestrial television (DTT)5, free satellite services), which do not charge subscription
fees from users (who only have to make a one-off initial investment into a decoder/satellite dish).
the market’s incumbents
In some prime TV markets (US, France, Italy, Spain) IPTV is showing strong gains; although
DTH remains an efficient way for delivering television, telco companies – which are rich in cash
– are gradually finding their feet in the TV domain. The telephone companies’ underlying
motivation for entering the television distribution market has been an urge to address the main
weakness of their core market of fixed-line telephone services, resulting from shift to wireless
and VOIP protocol, and migration of telcos’ subscribers to CATV operators (lured by triple-play
services (TV + broadband + fixed-line voice) of the latter). By matching CATV’s ability to offer
a triple-play package, telephone companies strive to limit churn among their voice subscribers;
consequently, they have been (i) investing heavily in fiber-optic-cable infrastructure enabling
them to launch the television distribution services (fiber provides more capacity than coaxial
cable does, and it allows for more high definition transmissions and enhanced VOD offerings),
and (ii) introducing Internet protocol television (IPTV) which delivers television services over
a broadband Internet connection. The outcome of these endeavors varies from region to region.
In the USA, the telephone companies are signing up around 15% of the homes to which they
are marketing their television service within the first year (virtually all of these new subscribers
take a premium service and at least one non-TV service (i.e. fixed-line voice or broadband) and
app. 80% are triple-play subscribers). As far as the EMEA goes, France, with 900 ths subscribers
as of the end of 2006, followed by Italy (at 600 ths) and Spain (at 500 ths) are the three largest
TV distribution markets for telco companies in this region (representing c. 85% of all telco
companies’ TV subscribers in the EMEA), but it should be noted that these are the countries
which either lack strong cable markets (France, Spain) or lack cable market at all (Italy), which
enabled telcos to fill the void and become more easily established – in other countries of the
Telcos increasingly present
in the TV distribution field
Some telcos look at DTH
to complement their IPTV
offering
telephone company TV households and the share of telephone companies
Fig. 15 EMEA
in the total number of TV subscription households in the EMEA region
5
????????????????????????
DTT is an implementation of digital technology to provide a greater number of channels and/or better
quality of picture and sound using aerial broadcasts to a conventional antenna (or aerial) instead of a satellite
dish or cable connection. DTT is transmitted on radio frequencies through the airwaves that are similar
to standard analog television, with the primary difference being the use of multiplex transmitters to allow
reception of multiple channels on a single frequency range (such as a UHF or VHF channel). DTT is received
via a digital set-top box, or integrated receiving device, that decodes the signal received via a standard aerial
antenna. However, due to frequency planning issues, an aerial with a different group (usually a wideband)
may be required if the DTT multiplexes lie outside the bandwidth of the originally installed aerial.
21
Cyfrowy Polsat
region their take-up rates have been much weaker thus far. Nonetheless, it is expected that in
four years TV distribution by telcos will be available in virtually every country of the EMEA
region, with forecast 21.4 million subscribers (up from 2.4 million in 2006), representing 16%
of all television subscription households in the region (up from 3% last year). Moreover, some
of the telcos (e.g., FT) are looking at satellite to complement their existing offering, taking their
IPTV offers to the next stage.6 Taking the CEE perspective, it should be noted that with several
recent service launches and others in the pipeline, IPTV is starting to emerge as some kind
of an alternative in some countries of the region; while Russia leads the region in terms of IPTV
subscribers, services such as o2TV (Czech Republic), Gala TV (Lithuania), DigiTV (Estonia)
or SiolTV (Slovenia) are also making progress.
To circumvent this inroad by the telcos in their home turf the CATV operators counteract with
the addition of wireless to create quadruple-play packages, yet telephone companies are also
in a position to add wireless as many of them control major wireless providers.
There are no ready answers to the question which of the television distribution platforms
currently dominating the market (cable TV or paid satellite platforms) will prove more vulnerable
to intensified competition from such ‘new’ distribution platforms. On the one hand, traditional (analog)
CATVs engender less customer loyalty than satellites (as satellite subscribers, unlike CATV viewers,
have to purchase a satellite dish), but then again CATVs’ switchover to digital enabling them to roll
out bundled services (double-play, triple-play, quadruple-play), which – at least for now – cannot
be directly deployed via most satellite platforms, is fostering loyalty of customers, while offering them
a richer range of value-added services (VOD). It is also evident that telcos are starting to put more
pressure on the satellite players via, e.g., taking a more proactive approach towards having their own
unique content and using satellite to bring their TV services to areas that cannot be served by their
telecom networks. The larger the TV subscriber bases are built by the telco companies, the more
likely they will be to bid agressively for attractive (unique) content which will result in an increase of the
content costs for all providers of pay TV.
It is unclear which of the two
currently dominant distribution
platforms (CATV or satellite)
proves more vulnerable to this
encroachment
It should be noted, though, that the DTH service is not subject to network infrastructure reach
constraints, which are embedded both in cable and IPTV offerings; this provides the former with
a clear upper hand in rural areas and small cities, which often lie outside the non-satellite TV distribution
platforms’ reach (but this starts to be mitigated by telcos complementing their IPTV offerings
by satellite). On the other hand, however, rural areas and small cities (i.e. regions where DTH enjoys
reach advantage over CATV and IPTV) tend to be inhabited by people with lower disposable income
and purchasing power, which is unlikely to immunize the DTH platforms from the low-cost DTT service.
Hence, from their perspective, the slower the pace of analog terrestrial signal switch off, the better.
Summing up, it appears that down the road the satellite players will need to build multi-play functionality
and capabilities into their service offering if they are to maintain market share in the long run.
DTH is not subject to infrastructure
reach constraint embedded in
the CATV and IPTV modes, which
constitutes a clear entry barrier
in rural areas and small cities;
it does not, however, provide an
immunization against DTT and
telco’s satellite services →
multi-play functionality is a LT must
for DTHs
The proliferation of the digital
2. Migration of subscribers from analog to digital, digital terrestrial and analog broadcast
aa
shutdowns. The digitalization is taking off significantly; for the OECD countries the average
of digital television households was 14.6%/20.0% excluding/including the USA in 2001 and
the EU25 average for digital television households was 17.3% in 2003 and 23.2% in 2005 (with
the UK in the lead, at 61%).
technology will be the main
theme for TV distributors
in coming years
The proliferation of the digital technology will be the main underlying theme for the TV distribution industry
all over the world in the coming years. In this context two main market tendencies need to be noted:
(i) conversion of the CATV subscribers from analog to digital, and
(ii)terrestrial analog TV shutdowns.
An integral element of cable’s multi-play roll-outs is the conversion of subscribers from analog
to digital (apart from enabling the multi-play service bundling, the digital gives subscribers more basic
channels and opens up the premium market; digital subscribers also get more pay-per-view channels
than analog subscribers do, and have access to VOD, which is not available to the analog ones).
CATV subscribers are migrated
from analog to digital…
6
22
E.g. FT will launch its DTH’s satellite service in the French market in early July this year; according to the
operator the service will be available to 98% of French households through a combination of ADSL and satellite
technology, with DTH serving those areas which currently are not reached by the IPTV service over DSL.
????????????????????????
Cyfrowy Polsat
Cable operators have been migrating their subscribers from analog to digital so as to more efficiently
use bandwidth to offer more services (there is no bundling service possibility in the analog
technology) and increase revenues per user (while the single service ARPUs of services offered as
part of the bundled offer are lower than the ARPUs of such services offered on a stand-alone basis,
the resultant average revenue per user is higher due to larger number of services per customer,
and – additionally – leads to lower churn rates, improved customer loyalty and lower unit cost
of service (single invoice for a bundle of services)). As subscribers shift to digital, they will be able
to access more channels, which will fuel demand for premium services. While digital suites cost
somewhat more than the analog ones, the per-channel cost is typically lower; consequently, digital
households tend to take more premium services that the analog ones do7. In the coming years, the
trend of viewer migration from cheaper basic packages to more expensive premium options (digital,
with extra channels added) is expected to gain momentum worldwide. It will underlie increased
potential to provide value-added services, such as VOD.
…to more efficiently use
bandwidth and increase
revenues per user
Growth in digital terrestrial services (provided by cable and telco companies) should fuel the
growth of APRU, due to the fact that access to digital tiers requires an additional (compared
to the analog service) monthly subscription fee and the provision of additional potential revenues
from pay-per-view, VOD, broadband and voice.
All OECD member countries have published their plans concerning analog switch-off, i.e. the
termination of the analog terrestrial signal. Most EU member states have followed the European
Commission’s recommendations to phase out analog terrestrial broadcasting by 2012, and
majority have already started this process. The first countries to offer DTT (digital terrestrial
television) were Germany, the UK and the USA in 1998. By 2006, with the exception of Norway,
Poland, Portugal, Ireland and Turkey, all OECD countries have started the transition to DTT.
Analog switch-off plans all-over
the OECD
Analog broadcast shutdowns in the USA and EMEA will stimulate the volumes on the subscription
market (penetration). The scheduled shutdowns of analog broadcasting (already completed for the
Netherlands, Luxemburg, Finland (2007) and Sweden (2007), 2008 in Switzerland, 2009 in the USA,
Denmark and Norway, 2010 in Austria, Germany, Spain and France, between 2010 and 2012 in the
Czech Republic, Ireland, Slovak Republic, Hungary and Belgium, 2012 in Italy and Poland (possible
extension till 2015), 2013 in the UK, and between 2012 and 2015 in Turkey and Greece) will disenfranchise
households that do not subscribe to a multichannel service and that do not purchase a digital television
receiver. In other words, the households that will lose access to terrestrial analog broadcast will either
need to subscribe to a multichannel service or to buy a set-top-box enabling the digital terrestrial
signal. While many of the non-subscribing households will not need to convert to a paid service
as they will purchase digital converters – the extent of such phenomenon is likely to be country-specific,
we believe, depending upon the locally introduced incentives or lack of thereof (e.g. in the USA the National
Telecommunications and Information Administration will support the digital set-top-box purchases
by households through the distribution of US$ 40 coupons – up to US$ 1.5 billion) – a portion of these
households will choose to subscribe to a multichannel service, which should boost the subscribership
growth rates and penetration levels around the mandated dates of the analog switch-offs.
The scheduled analog
shutdowns will disenfranchise
households that do not
subscribe to a multichannel
service or do not purchase
a STB enabling digital terrestrial
signal → expect a boost
in subscribership and
penetration levels around the
shut-down dates
Contrary to other platforms (DTH, CATV, and even IPTV), DTT roll-outs in the region of CEE have
been lingering, with no apparent incentives for a prompt conversion to a full-blown commercial
launch. The Czech Republic witnessed the region’s first digital switchover, when the Damazlice
region ceased analogue terrestrial signal in August 2007 (please note, however, that problems over
licensing have stalled the progress in the rest of the country’s territory). Elsewhere, the services are
up and running in Lithuania and Estonia, while there are tests in Poland and Hungary.
DTT roll-outs in CEE
have been slow
A related theme pertains to the high definition television (HDTV8). Tests of HDTV started already
decades ago, but the first market launches took place in the late 1990s only. Some countries
(e.g. the USA) offer terrestrial HDTV, while other use satellite or cable. While in some countries
7
8
????????????????????????
DBS (direct broadcast satellite, an all-digital service) constitutes a good example; in 2006 in the USA
an average DBS household had 2.5 premium subscriptions compared to 1.0/0.6 premium subscription
for average digital cable household/ analog cable household.
High-definition television (HDT) is a digital television broadcasting system with a significantly higher
resolution than traditional formats (NTSC, SECAM, PAL). While some early analog HDTV formats were
23
Cyfrowy Polsat
Fig. 16 DTT in CEE
Country
Bulgaria
Croatia
Czech Republic
Estonia
Hungary
Latvia
Lithuania
Poland
Romania
Russia
Slovakia
Slovenia
Ukraine
Operators
BTC
TCL, OiV
Czech Digital Group, Cra, Czech Telecom
Levira
Antenna Hungaria
DLRTC
Lithuania Telecom
yet unknown
Radiocom
Telemedium
Slovak Telecom, Telecom Group
RTV Slo
Kvant Efir
Broadcasters
BTC
HTV, HRT
Czech TV, TV Nova, Prima TV
ETV
MTV, Duna, TV2
n.a.
n.a.
TVP, Polsat, TVN
None
n.a.
n.a.
RTV Slo
n.a.
Service launch date
2009
2007
2005
2006
2008
2008
2006
2008-2009
2007
2007
2008
2007
2007
Analogue switch-off date
2012
None set
2010
2012
2012
2012
2012
2012-2015
2012
2015
2012
2012
2015
Source: TV International; Informa Telecoms & Media, DM IDMSA
(e.g. the USA, Japan, Canada, Korea, Australia, the UK, France) there are a number of full HDTV
channels, in most OECD countries HDTV productions and broadcasts are still limited. Satellite,
and to a lesser extent cable, are the most suitable platforms for transmitting the HDTV programs;
the amount of spectrum required means that HDTV may not be suitable for DTT in all countries
or xDSL networks. In combination with the availability of flat screen TV sets and HD DVDs, HDTV
can become one of the drivers behind further growth of pay television services. In the CEE region
HD is particularly active in Poland, where ITI’s DTH platform ‘n’ led the way with the HD launch
in 2H06, closely followed by rival DTH platforms of Cyfrowy Polsat and Cyfra+, as well as CATV
player Multimedia. Also several other companies in the region are making moves into HD (o2TV
(Czech Republic), Elion (Estonia), NovaTV (Croatia), NTV-Plus (Russia), Kosmos TV (Russia),
ComCor (Russia), etc).
Fig. 17 Digital (CATV, DTH, IPTV and DTT) TV households in CEE (million)
Country
Czech Republic
Hungary
Poland
Romania
Russia
Entire region
Source: Informa Telecoms & Media
The digitalization is expected
to progress rapidly in CEE
Conclusion: proliferation
of digital should drive the
growth of the TV distribution
market,…
Fig. 18 Digital penetration (CATV, DTH, IPTV and DTT) of TV households in CEE
2006
2012E
CAGR
0.3
0.4
2.3
0.7
1.7
7.8
2.8
1.9
8.2
3.2
10.3
34.8
47%
32%
24%
30%
35%
28%
Country
Czech Republic
Hungary
Poland
Romania
Russia
Entire region
2006
7.2%
9.0%
18.1%
9.0%
3.2%
5.5%
2012E
69.8%
46.7%
62.8%
41.9%
19.3%
23.7%
The number of digital households in the CEE region is forecasted to expand quickly over the next
few years; the region reported 7.8 million of digital homes at the end of 2006, a number expected
to have increased by 40% in 2007 to app. 11 million, and to soar four-folds to over 34 million
by the end of 2012E. Consequently, the digital penetration is expected to rise and exceed 23%
in four-year time, driven by a wide-spread conversion to digital in the cable access in Poland,
Czech Republic and Hungary, and further proliferation of digital satellite (penetrating regions where
the access to cable and IPTV is inhibited), which established itself as a very strong alternative
to cable.
Summing up the above, the accelerating proliferation of the digital technology – emanating
in the form of the conversion of the subscriber base from analog to digital (CATV) and acquisition
of new subscribers from the non-fee-TV-distribution domain (terrestrial analog signal shutdowns) – is expected to constitute the main driving force for the television distribution industry
in the coming years, both in terms of the prices (ARPUs; higher in digital than in analog) and
volumes (penetration; part of the current users of analog terrestrial migrating upon the nonfree-of-charge platforms rather than on the ‘free-of-charge’ digital terrestrial).
broadcast in Europe and Japan, HDTV is usually broadcast digitally, because digital television (DTV)
broadcasting requires much less bandwidth if it uses enough video compression.
24
????????????????????????
Cyfrowy Polsat
Fig. 19 Annual TV subscription spending per subscription household in the EMEA region (US$)
Western Europe
Austria
% yoy chng
Belgium
% yoy chng
Denmark
% yoy chng
Finnland
% yoy chng
France
% yoy chng
Germany
% yoy chng
Greece
% yoy chng
Ireland
% yoy chng
Italy
% yoy chng
Netherlands
% yoy chng
Norway
% yoy chng
Portugal
% yoy chng
Spain
% yoy chng
Sweden
% yoy chng
Switzerland
% yoy chng
Great Britain
% yoy chng
Total Western Europe
% yoy chng
CEE
Czech Republic
% yoy chng
Hungary
% yoy chng
Poland
% yoy chng
Romania
% yoy chng
Russia
% yoy chng
Turkey
% yoy chng
Total CEE
% yoy chng
Total EMEA
% yoy chng
2002
2003
2004
2005
2006
2007E
2008E
2009E
2010E
2011E 2007-11E
CAGR (%)
209
7.2
155
15.7
293
8.9
156
11.4
421
3.2
182
4.6
723
2.1
286
5.5
471
1.3
199
5.9
337
23.4
373
10.0
433
8.8
239
14.9
249
4.2
564
3.7
302
8.6
224
7.2
160
3.2
306
4.4
160
2.6
419
-0.5
187
2.7
727
0.6
301
5.2
474
0.6
214
7.5
371
10.1
377
1.1
438
1.2
238
-0.4
259
4.0
617
9.4
316
4.6
239
6.7
166
3.8
321
4.9
165
3.1
425
1.4
198
5.9
738
1.5
316
5.0
484
2.1
237
10.7
406
9.4
399
5.8
467
6.6
244
2.5
268
3.5
649
5.2
337
6.6
256
7.1
173
4.2
337
5.0
174
5.5
429
0.9
213
7.6
753
2.0
332
5.1
494
2.1
258
8.9
443
9.1
422
5.8
507
8.6
252
3.3
278
3.7
581
-10.5
360
6.8
271
5.9
181
4.6
355
5.3
180
3.4
435
1.4
229
7.5
768
2.0
346
4.2
510
3.2
281
8.9
483
9.0
444
5.2
512
1.0
260
3.2
287
3.2
715
23.1
383
6.4
286
5.5
188
3.9
375
5.6
188
4.4
443
1.8
246
7.4
783
2.0
361
4.3
523
2.5
301
7.1
524
8.5
466
5.0
532
3.9
268
3.1
297
3.5
751
5.0
408
6.5
301
5.2
196
4.3
396
5.6
195
3.7
452
2.0
264
7.3
799
2.0
376
4.2
537
2.7
322
7.0
561
7.1
505
8.4
553
3.9
277
3.4
306
3.0
788
4.9
433
6.1
316
5.0
203
3.6
416
5.1
203
4.1
459
1.5
283
7.2
814
1.9
392
4.3
552
2.8
345
7.1
598
6.6
542
7.3
572
3.4
285
2.9
316
3.3
828
5.1
458
5.8
331
4.7
211
3.9
436
4.8
211
3.9
467
1.7
301
6.4
828
1.7
406
3.6
566
2.5
369
7.0
636
6.4
579
6.8
590
3.1
293
2.8
325
2.8
869
5.0
483
5.5
346
4.5
218
3.3
456
4.6
218
3.3
474
1.5
316
5.0
843
1.8
421
3.7
580
2.5
394
6.8
673
5.8
617
6.6
608
3.1
301
2.7
335
3.1
912
4.9
506
4.8
127
5.8
54
12.5
142
6.8
57
1.8
108
1.9
116
7.4
99
6.5
260
8.3
133
4.7
60.0
11.1
151
6.3
59
3.5
113
4.6
124
6.9
106
7.1
271
4.2
143
7.5
65
8.3
166
9.9
61
3.4
117
3.5
133
7.3
114
7.5
288
6.3
157
9.8
71
9.2
179
7.8
63
3.3
126
7.7
141
6.0
123
7.9
305
5.9
170
8.3
77
8.5
191
6.7
65
3.2
141
11.9
150
6.4
132
7.3
324
6.2
180
5.9
82
6.5
203
6.3
67
3.1
154
9.2
158
5.3
141
6.8
344
6.2
188
4.4
88
7.3
212
4.4
70
4.5
168
9.1
166
5.1
149
5.7
365
6.1
196
4.3
94
6.8
222
4.7
72
2.9
181
7.7
175
5.4
158
6.0
386
5.8
204
4.1
100
6.4
232
4.5
74
2.8
194
7.2
183
4.6
166
5.1
406
5.2
212
3.9
105
5.0
241
3.9
75
1.4
208
7.2
191
4.4
175
5.4
426
4.9
5.0
3.8
5.1
3.9
1.7
6.6
1.9
4.0
2.6
7.0
6.8
6.7
3.5
3.0
3.1
5.0
5.7
4.5
6.4
4.7
2.8
8.0
4.9
5.8
5.6
????????????????????????
25
Cyfrowy Polsat
Fig. 20 Subscription-based TV ARPU in CEE (US$/month)
CATV
yoy chng
DTH
yoy chng
IPTV
yoy chng
Weighted average
yoy chng
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E
4.0
5.5
5.8
6.6
7.0
7.3
7.5
7.7
8.1
8.3
8.8
9.2
9.7 10.2 10.2 11.3 11.9 12.6
n.a. 38%
5% 14%
7%
3%
3%
3%
4%
4%
5%
5%
5%
5%
5%
6%
5%
6%
0.0
0.0
0.0
6.8
9.0 13.3 18.1 22.1 23.6 24.3 23.4 20.9 21.2 21.9 22.7 23.5 24.3 25.1
n.a.
n.a.
n.a.
n.a. 33% 48% 36% 22%
7%
3% -4% -11%
2%
3%
4%
4%
3%
3%
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
4.6
6.6 10.8 14.0 16.3 18.1 19.9 21.6
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a. 44% 65% 29% 16% 11% 10%
9%
4.0
5.5
5.8
6.6
7.1
7.5
8.1
8.7
9.2
9.7 10.2 10.8 11.5 12.3 13.0 13.8 14.6 15.4
n.a. 38%
5% 14%
8%
7%
8%
7%
6%
5%
6%
5%
7%
7%
6%
6%
6%
6%
Fig. 21 CATV ARPU in CEE (US$/month)
Czech Republic
yoy chng
Hungary
yoy chng
Poland
yoy chng
Romania
yoy chng
Russia
yoy chng
Entire region
yoy chng
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E
6
8
10
16
16
16
17
17
18
19
20
21
23
24
25
26
28
29
n.a. 33% 25% 60%
0%
0%
6%
0%
6%
6%
5%
5% 10%
4%
4%
4%
8%
4%
1
2
1
2
2
3
3
4
5
5
6
7
7
8
9
10
11
12
n.a. 100% -50% 100%
0% 50%
0% 33% 25%
0% 20% 17%
0% 14% 13% 11% 10%
9%
6
8
7
9
9
10
11
11
12
12
13
14
14
15
16
17
18
19
n.a. 33% -13% 29%
0% 11% 10%
0%
9%
0%
8%
8%
0%
7%
7%
6%
6%
6%
1
2
3
3
3
4
4
4
5
6
6
7
7
8
8
8
9
9
n.a. 100% 50%
0%
0% 33%
0%
0% 25% 20%
0% 17%
0% 14%
0%
0% 13%
0%
5
7
7
7
7
7
7
8
8
8
9
9
10
10
11
11
12
12
n.a. 40%
0%
0%
0%
0%
0% 14%
0%
0% 13%
0% 11%
0% 10%
0%
9%
0%
4
5
6
7
7
7
7
8
8
8
9
9
10
10
11
11
12
13
n.a. 38%
5% 14%
7%
3%
3%
3%
4%
4%
5%
5%
5%
5%
5%
6%
5%
6%
Fig. 22 DTH ARPU in CEE (US$/month)
Czech Republic
yoy chng
Hungary
yoy chng
Poland
yoy chng
Romania
yoy chng
Russia
yoy chng
Entire region
yoy chng
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E
0
0
0
0
0
14
18
22
28
33
35
36
33
32
36
37
38
39
n.a.
n.a.
n.a.
n.a.
n.a.
n.a. 29% 22% 27% 18%
6%
3% -8% -3% 13%
3%
3%
3%
0
0
0
0
0
0
13
20
21
23
25
21
22
22
22
23
25
26
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a. 54%
5% 10%
9% -16%
5%
0%
0%
5%
9%
4%
0
0
0
7
9
14
16
17
18
17
17
16
18
19
20
21
21
22
n.a.
n.a.
n.a.
n.a. 29% 56% 14%
6%
6% -6%
0% -6% 13%
6%
5%
5%
0%
5%
0
0
0
0
0
0
0
0
0
3
4
5
8
9
10
10
11
13
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a. 33% 25% 60% 13% 11%
0% 10% 18%
0
0
0
0
9
13
17
18
19
21
22
23
24
25
27
28
29
31
n.a.
n.a.
n.a.
n.a.
n.a. 44% 31%
6%
6% 11%
5%
5%
4%
4%
8%
4%
4%
7%
0
0
0
7
9
13
18
22
24
24
23
21
21
22
23
24
24
25
n.a.
n.a.
n.a.
n.a. 33% 48% 36% 22%
7%
3% -4% -11%
2%
3%
4%
4%
3%
3%
Fig. 23 IPTV ARPU in CEE (US$/month)
Czech Republic
yoy chng
Hungary
yoy chng
Poland
yoy chng
Romania
yoy chng
Russia
yoy chng
Entire region
yoy chng
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E
0
0
0
0
0
0
0
0
0
0
0
14
18
23
28
31
32
33
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a. 29% 28% 22% 11%
3%
3%
0
0
0
0
0
0
0
0
0
0
0
13
14
17
19
22
23
25
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
8% 21% 12% 16%
5%
9%
0
0
0
0
0
0
0
0
0
0
0
10
11
14
16
18
19
20
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a. 10% 27% 14% 13%
6%
5%
0
0
0
0
0
0
0
0
0
0
0
0
0
7
8
10
10
11
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a. 14% 25%
0% 10%
0
0
0
0
0
0
0
0
0
0
8
10
14
16
18
20
22
23
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a. 25% 40% 14% 13% 11% 10%
5%
0
0
0
0
0
0
0
0
0
0
5
7
11
14
16
18
20
22
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a. 44% 65% 29% 16% 11% 10%
9%
26
????????????????????????
Cyfrowy Polsat
…both in terms of prices
3. ARPUs. As signaled in the preceding section, the migration to digital (higher fees than in the
aa
(ARPUs), …
analog) should enhance the average revenue per user (ARPU) in the industry, fuelling the
subscription spending and acting as the principal revenue driver during next few years. It should
be noted, though, that while the upgrades to digital cause average fees paid by basic subscribers
to rise, the intensifying competition (e.g. telcos’ encroachment) is holding down the rate increases
(e.g. in the USA some major CATV operators introduced no rate increases in 2007, while other
announced rate hikes smaller than in the preceding years). Nonetheless, in the EMEA region
the level of spending per subscription household is expected to continue to increase, chiefly
due to higher fees commanded on expanded services (2007-2011E ARPU CAGR of <6% both
in Western Europe and CEE). While in the CEE region average spending per subscription
household dwells at c. 35% of the average for Western Europe, Poland stands out in the region
in this respect with average spending representing app. 50% of the Western European average
(no meaningful divergencies from these current proportions are expected in next few years).
…and volumes (subscribership
4. Volumes (subscribership levels and penetration). An increase in subscriber numbers will
remain, mainly thanks to IPTV and DTH, a material driver of the market growth in most regions
of the world albeit, compared to previous years, its significance will be gradually wearing off
in favour of a higher average revenue per user (ARPU; in EMEA the expected annual average
growth in subscriber numbers (>5%) is on a par with the expected annual average growth
in ARPU). The rise in volumes (i.e. subscriber population) will probably, to an increasingly large
degree, follow from proliferation of triple-play services (a package combining fixed-line voice
and penetration)
Fig. 24 Penetration of subscription-based TV in Western Europe and CEE (million)
Western Europe
yoy chng
Penetration (%)
CEE
2002
66.53
5%
43.0%
13.30
2003
69.62
5%
44.5%
14.55
2004
71.94
3%
45.7%
15.65
2005
74.77
4%
46.8%
17.26
2006
78.24
5%
48.6%
18.47
2007E
81.91
5%
50.5%
19.64
2008E
86.31
5%
52.9%
20.63
2009E
90.94
5%
55.3%
21.72
2010E
96.19
6%
58.1%
22.89
2011E CAGR: 2007-11E
102.18
6%
5.7%
61.3%
24.17
yoy chng
Penetration (%)
6%
14.3%
9%
15.5%
8%
16.6%
10%
18.2%
7%
19.4%
6%
20.5%
5%
21.4%
5%
22.5%
5%
23.5%
6%
24.7%
5.3%
Fig. 25 Penetration of subscription-based TV in various countries of Europe
Western Europe
Austria
Belgium
Denmark
2002
43.0%
84.7%
99.1%
45.5%
2003
44.5%
85.1%
99.1%
49.4%
2004
45.7%
84.9%
99.3%
51.2%
2005
46.8%
85.1%
99.4%
53.1%
2006
48.6%
85.5%
99.4%
53.7%
2007E
50.5%
86.1%
99.4%
54.3%
2008E
52.9%
87.3%
99.4%
55.6%
2009E
55.3%
88.9%
99.4%
58.2%
2010E
58.1%
91.0%
99.4%
59.6%
2011E
61.3%
94.0%
99.4%
62.2%
Finland
France
Germany
Greece
Ireland
Italy
Netherlands
Norway
Portugal
Spain
Sweden
Switzerland
UK
CEE
Czech Republic
Hungary
Romania
Russia
Turkey
Poland
54.1%
28.3%
54.0%
15.6%
58.0%
11.8%
99.3%
66.8%
50.0%
21.2%
67.9%
81.0%
38.4%
14.3%
21.0%
62.7%
48.6%
2.7%
11.0%
36.3%
55.3%
29.6%
56.5%
20.0%
61.7%
12.3%
99.3%
69.2%
52.9%
23.1%
70.7%
81.4%
39.4%
15.5%
23.2%
64.8%
50.9%
3.4%
12.2%
39.3%
55.9%
31.7%
55.6%
22.1%
65.9%
15.4%
99.3%
71.8%
57.4%
24.4%
72.3%
81.7%
41.2%
16.6%
25.3%
66.9%
53.9%
3.9%
12.9%
42.8%
56.6%
35.3%
52.9%
24.2%
67.9%
17.7%
99.3%
75.4%
60.4%
28.1%
74.3%
82.0%
42.4%
18.2%
27.4%
69.0%
56.2%
5.5%
13.6%
46.0%
56.8%
38.9%
52.0%
28.5%
69.8%
21.6%
99.3%
78.9%
63.6%
32.1%
75.1%
82.3%
44.6%
19.4%
29.6%
71.1%
60.7%
6.2%
14.6%
52.1%
57.4%
42.1%
51.2%
32.8%
70.9%
25.8%
99.4%
82.0%
66.7%
36.5%
76.7%
82.5%
46.8%
20.5%
31.9%
73.1%
64.5%
6.8%
15.6%
61.2%
58.5%
44.4%
50.9%
37.0%
72.7%
31.0%
99.5%
84.5%
69.4%
42.9%
79.3%
82.8%
49.4%
21.4%
34.5%
75.3%
66.0%
7.4%
16.6%
67.9%
59.6%
46.0%
51.1%
41.1%
74.5%
37.8%
99.5%
86.5%
71.4%
47.9%
81.6%
83.4%
52.0%
22.5%
37.3%
77.5%
67.6%
8.1%
17.5%
71.4%
60.6%
49.2%
51.5%
45.3%
76.2%
44.3%
99.6%
88.5%
73.3%
53.9%
83.1%
83.9%
54.5%
23.5%
40.4%
79.9%
69.2%
8.8%
18.5%
74.3%
62.1%
54.3%
52.3%
49.4%
78.5%
50.0%
99.6%
91.4%
74.5%
60.2%
84.2%
84.5%
57.5%
24.7%
44.0%
82.6%
71.1%
9.6%
19.4%
76.7%
Source: PwC, Wilkofsky Gruen Associates, DM IDMSA estimates (data and forecasts for Poland)
????????????????????????
27
Cyfrowy Polsat
telephony, broadband Internet and a range of TV channels offered at a price lower than the sum
of individual parts), as well as of the economic expansion and of the mandated analog terrestrial
signal shutdowns in the USA and EU materializing in the coming years (regarding the details,
please refer to the preceding paragraphs), and resulting in a forced influx of so-far-non-subscribing
households into the subscription domain in time intervals surrounding the shut-down dates.
The scale of this ‘extra-ordinary’ step-up in subscribership related to the mandated shutoff
of the analog broadcast will, however, probably widely vary from country to country, constituting
the function of current subscribed-TV penetration levels (the higher the penetration, the smaller
the population of the households using the analog terrestrial signal) and possible incentives
to switch to terrestrial digital (the stronger the incentives, the smaller – ceteris paribus – portion
of the non-subscribing population is likely to switch to a subscription-based service).
When comparing the levels of subscription-based TV penetration across the countries and
assessing further room for growth, the position of free multichannel services needs to be
inspected, as it often explains the differences in fee-based penetrations (this is especially visible
in case of Western European countries). For instance:
(i) In Germany, majority of satellite users receive their TV programs for free; if they were paid
subscribers, the overall subscription penetration would be above 90% (rather than 52%).
(ii)There are >7 million of free-satellite and free-DTT users in the UK; if they were paid
subscribers, overall subscription penetration would be above 70% (rather than 45%).
(iii)In the 2005-2006 period 17 free DTT channels were launched in France, and they attracted
over 2 million users; if these free users were subscribers, overall subscription penetration
level would stand at app. 50% (rather than actual 39%).
(iv)The DTT market is expanding also in other European countries (Spain, Italy), putting
a restraint upon the potential of subscription-based services.
The position of free
multichannel services often
explains the cross-country
differences in fee-based
penetrations
The above examples tend to imply that the wide-spread launches of DTT do suck out the potential
of the subscription-based TV programs distribution area; the LT adverse impact is more severe –
ceteris paribus – in countries where the subscription TV penetration levels are low and vice versa.
It is hence evident, that the free DTT launches have two opposite effects from the perspective
of subscription-based TV distributors: (i) they disenfranchise non-subscribing households, resulting
in an extraordinary influx of new paid users around the mandated analogue terrestrial signal shutoff dates, and (ii) decrease the pool of non-subscribing households which sooner or later could
become customers of a subscription-based service.
DTT roll-outs have two opposite
effects for subscription-based
TV programs distribution
platforms
Satellite subscribership
5. How will the cake be split (CATVs vs. satellites vs. telcos)? The coming years should see CATVs grow
aa
at a slower rate when compared to satellites (with the exception of USA) and in some parts
of the world (e.g. in Western Europe) they may even bring a decline in subscribership of the former
television distribution platform (a trend already transpiring from historical data for the last couple
of years), mainly due to fiercer competition from telcos, which are more and more aggressively
developing triple-play products (it needs to be noted that where the launch of such services does not
require any substantial expenditure on network upgrades, telephone companies are able to offer much
more competitive prices than cable operators or satellite providers, as incremental revenue from
distribution of television content represents only a fraction of their return on investment in the service
launch – the remaining portion comes from ‘retained’ (thanks to triple-play services) revenue from
Internet access and fixed-line telephony services), as well as from new free-of-charge distribution
platforms (a phenomenon particularly widespread in the largest EU countries – Germany and UK).
However, the CEE region – with a relatively low cable penetration compared to Western Europe –
should experience continued, albeit moderate, growth in CATV volumes in the years to come. Satellite
platforms are likely to fare better than CATV operators, as they normally have wider programming
offers and lower churn rates. It should be noted, though, that satellite platforms are at some disadvantage
to CATV operators and telcos, because their ability to offer directly multi-play packages is limited (while
there are some existing deals with telephone companies for voice and broadband services, telephone
companies are likely to focus more on their own networks to offer triple-play offerings9).
expected to grow in the coming
years ahead of the CATV’s, even
though the former are
at competitive disadvantage
to CATVs and telcos due
to the limitations in their ability
to directly offer multi-play
services
9
28
Telephone companies teamed up with satellite platforms largely because they had no TV; when they can
provide television distribution on their own (IPTV), they will not need satellite platforms as partners for
other than IPTV service reach increase purposes.
????????????????????????
Cyfrowy Polsat
No growth of CATV volumes
in Western Europe
During the past four years, subscription cable in Western Europe has shown very little growth,
as the declines in the UK and Germany (the territories with the largest number of free multichannel
users) held down the rates of growth (excluding these two countries, the number of CATV
households in Western Europe would show >6% cumulative growth since 2003, rather
than a mere 0.2% with their inclusion). Notwithstanding the above, CATV subscribership
is not forecasted to grow in Western Europe (2007-2011E CAGR of -0.3%), on the back
of approaching saturation, network-reach-related constraints in reaching new prospects and
IPTV proliferation.
Fig. 26 The structure of subscription-based TV distribution market in various parts of the EMEA region (million)
Western Europe:
% yoy chng
yoy chng
Penetration (%)
CATV
% yoy chng
yoy chng
Penetration (%)
% share of CATV
% share of CATV in yoy change
Satellite
% yoy chng
yoy chng
Penetration (%)
% share of satellite
% share of satellite in yoy change
Other (IPTV)
% yoy chng
yoy chng
Penetration (%)
% share of other
% share of other in yoy change
CEE
% yoy chng
yoy chng
Penetration (%)
CATV
% yoy chng
yoy chng
Penetration (%)
% share of CATV
% share of CATV in yoy change
Satellite
% yoy chng
yoy chng
Penetration (%)
% share of satellite
% share of satellite in yoy change
Other (IPTV)
% yoy chng
yoy chng
Penetration (%)
% share of other
% share of other in yoy change
2002
2003
2004
2005
2006
2007E
2008E
2009E
2010E
2011E
66.53
n.a.
n.a.
43.0%
69.62
4.6%
3.09
44.5%
71.94
3.3%
2.32
45.7%
74.77
3.9%
2.83
46.8%
78.24
4.6%
3.47
48.6%
81.91
4.7%
3.67
50.5%
86.31
5.4%
4.40
52.9%
90.94
5.4%
4.63
55.3%
96.19
5.8%
5.25
58.1%
102.18
6.2%
5.99
61.3%
49.14
49.08
48.98
48.82
0.4%
-0.1% -0.2% -0.3%
0.21
-0.06
-0.10
-0.16
30.7% 30.5% 30.2% 29.9%
65.7% 62.7% 59.8% 56.6%
7.4%
-1.7%
-2.7%
-3.6%
24.55
26.89
28.97
30.47
8.3%
9.5%
7.7%
5.2%
1.88
2.34
2.08
1.50
15.4% 16.7% 17.9% 18.7%
32.8% 34.4% 35.4% 35.3%
66.4% 67.4% 56.7% 34.1%
1.08
2.27
3.96
7.02
217.6% 110.2% 74.4% 77.3%
0.74
1.19
1.69
3.06
0.7%
1.4%
2.4%
4.3%
1.4%
2.9%
4.8%
8.1%
26.1% 34.3% 46.0% 69.5%
17.26 18.47 19.64 20.63
10.3%
7.0%
6.3%
5.0%
1.61
1.21
1.17
0.99
18.2% 19.4% 20.5% 21.4%
13.77
14.19
14.67
15.04
8.1%
3.1%
3.4%
2.5%
1.03
0.42
0.48
0.37
14.5% 14.9% 15.3% 15.6%
79.8% 76.8% 74.7% 72.9%
64.0% 34.7% 41.0% 37.4%
3.48
4.21
4.83
5.31
19.6% 21.0% 14.7%
9.9%
0.62
0.48
0.57
0.73
3.7%
4.4%
5.0%
5.5%
20.2% 22.8% 24.6% 25.7%
35.4% 60.3% 53.0% 48.5%
0.01
0.07
0.14
0.28
n.m. 600.0% 100.0% 100.0%
n.m.
0.06
0.07
0.14
0.0%
0.1%
0.2%
0.3%
0.1%
0.4%
0.7%
1.4%
0.6%
5.0%
6.0%
14.1%
48.72
-0.2%
-0.10
29.6%
53.6%
-2.2%
31.57
3.6%
1.10
19.2%
34.7%
23.8%
10.65
51.7%
3.63
6.5%
11.7%
78.4%
21.72
5.3%
1.09
22.5%
15.39
2.3%
0.35
15.9%
70.9%
32.1%
5.86
10.4%
0.55
6.1%
27.0%
50.5%
0.47
67.9%
0.19
0.5%
2.2%
17.4%
48.59
-0.3%
-0.13
29.4%
50.5%
-2.5%
32.75
3.7%
1.18
19.8%
34.0%
22.5%
14.85
39.4%
4.20
8.9%
15.4%
80.0%
22.89
5.4%
1.17
23.5%
15.73
2.2%
0.34
16.2%
68.7%
29.1%
6.42
9.6%
0.56
6.6%
28.0%
47.9%
0.74
57.4%
0.27
0.7%
3.2%
23.1%
48.43
-0.3%
-0.16
29.1%
47.4%
-2.7%
33.62
2.7%
0.87
20.2%
32.9%
14.5%
20.13
35.6%
5.28
12.0%
19.7%
88.1%
24.17
5.6%
1.28
24.7%
16.06
2.1%
0.33
16.4%
66.4%
25.8%
6.99
8.9%
0.57
7.2%
28.9%
44.5%
1.12
51.4%
0.38
1.1%
4.6%
29.7%
47.49
48.97
48.93
n.a.
3.1%
-0.1%
n.a.
1.48
-0.04
30.7% 31.3%
31.1%
71.4% 70.3% 68.0%
n.a. 47.9%
-1.7%
19.00
20.53
22.67
n.a.
8.1% 10.4%
n.a.
1.53
2.14
12.3%
13.1% 14.4%
28.6% 29.5% 31.5%
n.a. 49.5% 92.2%
0.04
0.12
0.34
n.a. 200.0% 183.3%
n.a.
0.08
0.22
0.0%
0.1%
0.2%
0.1%
0.2%
0.5%
n.a.
2.6%
9.5%
13.30 14.55 15.65
n.a.
9.4%
7.6%
n.a.
1.25
1.10
14.3% 15.5% 16.6%
11.45
12.12
12.74
n.a.
5.9%
5.1%
n.a.
0.67
0.62
12.3% 12.9% 13.5%
86.1% 83.3% 81.4%
n.a. 53.6% 56.4%
1.85
2.43
2.91
n.a. 31.4% 19.8%
n.a.
0.58
0.48
2.0%
2.6%
3.1%
13.9% 16.7% 18.6%
n.a. 46.4% 43.6%
0.00
0.00
0.00
n.m.
n.m.
n.m.
n.m.
n.m.
n.m.
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
n.a.
0.0%
0.0%
CAGR:
2007-11E
5.5%
-0.3%
4.6%
54.7%
5.5%
2.5%
10.7%
74.1%
????????????????????????
29
Cyfrowy Polsat
Fig. 27 Structure of subscription-based TV markets in various countries in Europe (2006)
Fig. 28 Structure of subscription-based TV markets in various countries in Europe; CATV penetration
Western Europe
Austria
Belgium
Denmark
2002
30.7%
35.0%
94.1%
31.4%
2003
31.3%
35.4%
93.5%
33.7%
2004
31.1%
35.4%
93.5%
34.0%
2005
30.7%
35.4%
93.2%
34.3%
2006
30.5%
35.5%
92.8%
34.1%
2007E
30.2%
35.6%
92.1%
34.0%
2008E
29.9%
35.8%
91.3%
33.9%
2009E
29.6%
36.0%
91.1%
34.1%
2010E
29.4%
36.2%
90.1%
34.0%
2011E
29.1%
36.4%
89.2%
33.5%
Finland
France
Germany
Greece
Ireland
Italy
Netherlands
Norway
Portugal
Spain
Sweden
Switzerland
UK
CEE
Czech Republic
Hungary
Romania
Russia
Turkey
Poland
45.4%
13.7%
52.0%
11.6%
38.2%
0.3%
94.5%
42.2%
40.9%
6.9%
44.9%
79.0%
15.5%
12.3%
14.8%
56.0%
48.6%
2.3%
6.9%
29.0%
46.1%
14.4%
54.5%
14.7%
38.3%
0.3%
94.4%
42.3%
42.3%
7.8%
46.3%
78.6%
14.0%
12.9%
15.9%
56.9%
50.9%
2.9%
7.1%
32.0%
46.8%
14.5%
53.5%
15.5%
40.0%
0.0%
94.3%
42.1%
45.3%
8.7%
48.2%
78.3%
13.3%
13.5%
16.9%
59.1%
53.8%
3.3%
7.3%
34.0%
47.1%
14.5%
50.7%
16.3%
40.9%
0.0%
94.2%
42.4%
46.8%
9.5%
48.8%
78.0%
13.6%
14.5%
17.9%
59.9%
55.7%
4.6%
7.5%
34.6%
47.3%
14.5%
49.6%
17.5%
41.7%
0.0%
94.0%
42.2%
48.2%
9.9%
49.2%
77.7%
13.3%
14.9%
18.8%
60.7%
56.1%
5.0%
7.6%
34.7%
48.0%
14.5%
48.7%
19.7%
42.6%
0.0%
93.5%
42.4%
49.1%
10.1%
49.3%
77.5%
12.8%
15.3%
19.8%
61.5%
56.8%
5.5%
7.8%
34.9%
48.7%
14.5%
47.8%
21.7%
42.7%
0.0%
92.8%
42.2%
49.7%
10.1%
49.2%
77.2%
12.4%
15.6%
20.7%
62.3%
57.3%
5.7%
8.0%
35.1%
49.3%
14.5%
47.2%
23.8%
42.8%
0.0%
92.2%
42.0%
50.2%
10.0%
48.9%
76.9%
11.9%
15.9%
21.6%
63.1%
57.7%
6.0%
8.1%
35.3%
49.6%
14.4%
46.6%
25.9%
42.9%
0.0%
91.5%
41.3%
50.5%
10.0%
48.5%
76.4%
11.5%
16.2%
22.5%
63.9%
57.9%
6.3%
8.3%
35.5%
49.8%
14.3%
46.0%
27.9%
43.0%
0.0%
90.9%
40.7%
50.8%
10.0%
48.2%
75.5%
11.0%
16.4%
23.3%
64.7%
58.0%
6.6%
8.4%
35.8%
30
????????????????????????
Cyfrowy Polsat
Fig. 29 Structure of subscription-based TV markets in various countries in Europe; satellite penetration
2002
2003
2004
2005
2006
2007E
2008E
2009E
2010E
2011E
Western Europe
Austria
Belgium
Denmark
12.3%
49.7%
5.0%
14.0%
13.1%
49.7%
5.6%
15.6%
14.4%
49.5%
5.9%
17.2%
15.4%
49.4%
5.7%
18.4%
16.7%
49.4%
5.8%
18.7%
17.9%
49.2%
6.1%
19.0%
18.7%
49.1%
6.3%
19.4%
19.2%
48.9%
5.8%
20.1%
19.8%
48.8%
5.9%
19.6%
20.2%
48.7%
5.6%
18.7%
Finland
France
Germany
Greece
Ireland
Italy
Netherlands
Norway
Portugal
Spain
Sweden
Switzerland
UK
CEE
Czech Republic
Hungary
Romania
Russia
Turkey
Poland
8.7%
14.6%
1.9%
4.0%
19.8%
11.3%
4.8%
24.6%
9.1%
14.2%
23.0%
2.1%
22.9%
2.0%
6.2%
6.7%
0.0%
0.4%
4.1%
5.3%
9.1%
15.2%
2.0%
5.3%
23.3%
11.5%
4.9%
26.4%
10.6%
15.3%
24.4%
2.7%
25.4%
2.6%
7.3%
7.9%
0.0%
0.5%
5.1%
7.3%
9.1%
16.7%
2.2%
6.6%
25.9%
14.6%
5.0%
28.7%
12.1%
15.7%
24.1%
3.3%
27.9%
3.1%
8.4%
7.9%
0.2%
0.6%
5.6%
8.8%
9.5%
18.6%
2.2%
7.9%
27.0%
16.4%
5.1%
31.0%
13.6%
18.0%
25.0%
3.9%
28.7%
3.7%
9.5%
9.1%
0.5%
0.9%
6.2%
11.4%
9.5%
20.7%
2.4%
11.0%
28.1%
18.9%
5.3%
33.3%
15.5%
18.9%
24.9%
4.5%
31.1%
4.4%
10.6%
10.3%
4.7%
1.1%
7.0%
17.3%
9.4%
22.3%
2.5%
13.1%
28.4%
21.3%
5.1%
33.7%
17.6%
20.1%
25.1%
5.1%
33.2%
5.0%
11.6%
11.5%
7.8%
1.1%
7.8%
26.0%
9.4%
23.2%
2.5%
15.2%
29.4%
23.3%
4.7%
34.0%
19.7%
20.5%
25.5%
5.6%
34.7%
5.5%
12.6%
12.7%
8.7%
1.2%
8.6%
31.5%
9.3%
23.6%
2.5%
17.3%
30.3%
24.8%
3.9%
33.3%
21.0%
20.9%
25.9%
6.2%
35.7%
6.1%
13.6%
13.9%
9.8%
1.4%
9.3%
34.0%
9.3%
24.1%
2.5%
19.4%
31.3%
27.1%
3.0%
32.7%
22.2%
21.3%
26.1%
7.0%
36.4%
6.6%
14.6%
15.0%
11.0%
1.6%
10.1%
35.9%
9.3%
24.6%
2.5%
21.5%
32.2%
28.7%
2.0%
31.6%
22.8%
21.6%
26.0%
8.1%
36.6%
7.2%
15.6%
16.2%
12.4%
1.8%
10.8%
37.2%
Fig. 30 Changes in the structure of subscription-based TV markets in various
countries in Europe in 2002-2011E; share of CATV in subscription-based TV
programs distribution market (measured by number of subscribers)
????????????????????????
Fig. 31 Changes in the structure of subscription-based TV markets in various
countries in Europe in 2002-2011E; share of satellite in subscription-based TV
programs distribution market (measured by number of subscribers)
31
Cyfrowy Polsat
Fig. 32 Changes in the structure of subscription-based TV markets in various countries in Europe in 2002-2011E; share of IPTV
in subscription-based TV programs distribution market (measured by number of subscribers)
Much brisker growth of DTH’s
than cable’s volumes in CEE
in next few years
Proliferation of digitalization
boosts potential for incremental
services (e.g. VOD)
However, in CEE the CATV market has been expanding (and is expected to continue so) at brisker
rates, as at lower overall paid multichannel penetration levels and with delayed (compared
to Western Europe) roll-outs of DTT, the digital services and triple-play offering help cable
operators attract and retain subscribers. It should be, however, noted that already in 2006 cable
ceased to win the largest share of non-free multichannel net additions in the CEE region (with
DTH taking the lead with app. 60% share in the new users net add), a trend which is expected
to continue in the coming years. These advances in the CEE DTH sector have been assisted
by backing from several major media companies (MTG, Liberty Global, Canal+), and the sector
generally benefited from DTH’s perception as a premium TV service – giving it advantage over
the often fragmented CATV sector, which still finds it difficult to shake off its connotation as a lowcost utility service. As with cable, the 2007-2011E growth of subscription satellite households
in CEE should outpace the growth in Western Europe (10.7% vs. 4.6%) on the back of rising
incomes, low penetration and demand for more entertainment.
6. Growing significance of value-added services (VOD). The main reason why CATVs have been
aa
investing in digital technology, apart from ensuring the ability to deploy triple-play offerings, is the
potential associated with VOD. The ability to provide VOD services is also one of the key factors
prompting investment into and development of IPTV. As VOD allows viewers a much wider choice
than pay-per-view services, in the longer term (after a sufficient number of households get used
to its novelty) video-on-demand should start to squeeze pay-per-view services out of the market.
While at the moment VOD selections tend to be quite limited, the distributors are actively securing
rights for additional programming. Please note that VOD gives cable an advantage over satellite,
as the majority of the latter cannot provide the service (two-way capability required),
yet a competitive disadvantage with respect to telcos’ IPTV offering which exhibit greater capacity
(i.e. should be potentially able to offer more VOD selections than cable does). The growth of VOD
services is likely to be driven by the two factors: (i) increases in VOD-enabled population
(i.e. IPTVs, digital cable and two-way capability satellite penetration) and (ii) increased selection,
which should boost the buy rates.
Fig. 33 VOD (video on demand) in the EMEA region
2001
2002
2003
2004
2005
2006
2007E
2008E
2009E
2010E
2011E
CAGR:
2007-11E
VOD households (million)
yoy chng
Annual VOD spending per VOD
household (US$)
0.3
n.a.
20
0.6
100%
30
2
233%
40
3.3
65%
50
4.3
30%
60
8.8
105%
65
13.8
57%
70
20.2
46%
75
27.4
36%
75
34.5
26%
75
42.3
23%
75
yoy chng
Total VOD spending by households
(US$ million)
yoy chng
n.a.
6
50%
18
33%
80
25%
165
20%
258
8%
572
8%
966
7%
1,515
0%
2,005
0%
2,588
0%
3173
2.9%
n.a.
200%
344%
106%
56%
122%
69%
57%
32%
29%
23%
40.9%
36.9%
32
????????????????????????
Cyfrowy Polsat
Fig. 34 PPV/VOD in CEE (US$ million)
Czech Republic
yoy chng
Hungary
yoy chng
Poland
1995
0
n.a.
0
n.a.
0
1996
0
n.a.
0
n.a.
0
1997
0
n.a.
0
n.a.
0
1998
0
n.a.
0
n.a.
0
n.a.
0
n.a.
0
n.a.
0
n.a.
n.a.
0
n.a.
0
n.a.
0
n.a.
n.a.
0
n.a.
0
n.a.
0
n.a.
n.a.
0
n.a.
0
n.a.
0
n.a.
yoy chng
Romania
yoy chng
Russia
yoy chng
Entire region
yoy chng
1999 2000
0
0
n.a.
n.a.
0
0
n.a.
n.a.
0
0
n.a.
0
n.a.
0
n.a.
0
n.a.
n.a.
0
n.a.
0
n.a.
0
n.a.
2001
0
n.a.
0
n.a.
11
n.a.
0
n.a.
0
n.a.
22
n.a.
2002
0
n.a.
0
n.a.
12
2003 2004
1
2
n.a. 100%
1
2
n.a. 100%
12
13
9%
0%
0
0
n.a.
n.a.
1
3
n.a. 200%
39
50
77% 28%
2005 2006 2007E 2008E 2009E 2010E 2011E 2012E
2
3
6
10
14
17
20
23
0% 50% 100% 67% 40% 21% 18% 15%
2
4
5
7
9
13
13
16
0% 100% 25% 40% 29% 44%
0% 23%
15
21
31
36
43
52
60
70
8% 15% 40% 48%
0
1
5
10
n.a.
n.a. 400% 100%
4
10
13
17
33% 150% 30% 31%
60
75
93
119
20% 25% 24% 28%
16%
14
40%
21
24%
145
22%
19%
17
21%
27
29%
176
21%
21%
20
18%
30
11%
210
19%
15%
25
25%
37
23%
245
17%
17%
31
24%
46
24%
286
17%
Fragmented CEE markets
will consolidate
????????????????????????
7. Pending consolidation of fragmented markets. A unique trait of the CEE subscription-based TV
aa
programs distribution markets is their fragmentation (on the CATV or DTH side, or both).
While there are numerous competing services in each CEE country (e.g. five DTH platforms
in Romania), the experience of a majority of developed markets have shown that the LT economic
reality is that each market is likely to be left with one dominant player for each distribution
platform. Hence, both closures of unsuccessful operations and a lot of M&A activity should
be expected in the region in next few years.
33
Cyfrowy Polsat
Fig. 35 The structure of CATV and DTH markets in CEE countries
Country
Bulgaria
Czech Republic
Hungary
Poland
CATV
Very well developed (penetration: >70%), yet heavily overbuilt and
fragmented market (over 700 operators), consolidation already
started (led by CableTel).
Market fragmented (over 100 operators), but the market leader (UPC CR)
serves more than 50% of CATV subscribers in the country.
Despite some consolidation in recent years, which has taken the
number of CATV operators from 500 to 400, the CATV industry remains
fragmented; however, top 2/5 operators control 50%/80% of the
market.
The market remains fragmented (>500 CATV operators), though the
4 largest players (UPC, Vectra, Multimedia, Aster) control more
than half of the market. Polish rules allow network overbuild, which
increases inter-CATV competition. The consolidation of the CATV
sector already started (e.g. Multimedia is active on this front), but
as of now it has been limited to acquisitions of small- to mid-sized
players.
DTH
There are 2 DTH platforms in the country (Bulsatcom and ITV Partner);
it remains unclear whether the market can support such number
of DTH players, given very high CATV penetration.
There are 3 DTT operators in the Czech Republic (UPC Direct, DigiTV,
GES Media). Country's relatively early switchover to DTT coupled
with relatively low penetration of subscription-based TV (26%
in CATV, 4% in DTH) may cap the upside for the latter.
2 DTH operators - UPC Direct and DigiTV (launched last year).
3 DTH operators (Cyfrowy Polsat, Cyfra+, n). TVP (public
television) planning to launch the 4th platform in 2H09. DTH has
a clear edge over cable and IPTV in rural areas and small towns
that are not passed by CATV infrastructure and where telephony
network may not support TV services, as well as by the fact
that only 5% of the country's population lives in the capital city. DTH
has proved popular with residents of houses, while cable is more
common in larger residential districts with apartment blocks and
multi-dwelling units.
Romania
Market dominated by 2 operators (UPC Romania and RCS-RDS),
commanding jointly >50% market share. The sector has been
consolidating in recent years with larger operators acquiring smaller
networks.
The launch of two satellite services, Boom TV and Dolce TV,
in 2006 took the number of DTH operators to 5 (the three other
more established players are DigiTV (clear market leader), MaxTV
and Focus Sat). Such number of operators in unusual, given that
most European markets struggle to support only two or three DTH
operators. Romanian DTH platforms have been benefiting from their
ability to penetrate rural areas characterized by patchy cable coverage
as well as new suburbs around the cities lacking CATV access.
Russia
The CATV sector is engaged in major upgrading and consolidation,
benefiting from entries by local strategic investors attracted by the
triple-play potential.
Slovakia
With app. 53% penetration cable dominates the pay TV market
in Slovakia. While there are c. 100 cable operators, the leading 3
(UPC, Satro and Slovakia Cable Company) control almost 50% share.
The vast majority of subscribers have analogue cable, with digital
cable still in the very early stage of development.
The CATV sector is highly fragmented (app. 300 operators); c. 80%
of the market is controlled by small local operators with less than
10 ths subscribers. The major exception is Volia, with c. 598 ths
subscribers as of the end of 2006.
While with many households inaccessible by cable, Russia constitutes
an ideal territory for DTH platforms to thrive, generating subscriber
interest has been quite difficult, due to low average household income
and strong free-to-air terrestrial services. There is only 1 national
DTH service in play (NTV-Plus), and a number of regional satellite
providers, but the latter tend to provide only free-to-air channels.
However, new service entrants (e.g. Naspers, South-African based
pay TV provider) are expected.
2 satellite platforms (UPC Direct and Digi TV) operate in the country.
Ukraine
There are 2 DTH providers in Ukraine - PSC and NTV-Plus.
3.2.
MVNO operates without radio
network
34
Mobile virtual network operators (MVNO)
Mobile virtual network operators (MVNO) provide mobile services without possessing own radio
network or infrastructure required for providing the service. They can be compared to alternative
fixed-line operators. The business model is similar: an MVNO purchases services at wholesale rates
and later resells them to retail users at a mark-up. Putting another way, instead of the mobile
communications spectrum and proprietary network, MVNO applies its brand value and customer
????????????????????????
Cyfrowy Polsat
management capabilities to create a wireless company; as a virtual operator, MVNO leases excess
network capacity from a traditional mobile operator (MNO) and sells it to its own customers.
Mobile network operator, which does not have its own radio infrastructure in a particular region
may operate as an MVNO in that region. For instance Play - a Polish MNO - develops its own radio
network only in the largest cities and densely populated areas, while in other regions Play uses
the Polkomtel network (MNO).
360 planned or operational
MVNO world-wide
4 marketing strategies…
…discount MVNO,…
…lifestyle MVNO,…
…segmentation-driven
MVNOs, and…
...network-utilization-driven
MVNO
Three MVNO business
models:…
Virgin Mobile UK was the first commercially successful MVNO. It was lunched in 1999 and now has
more than 4.5 million customers. According to Takashi Mobile, currently are there 360 planned
or operational MVNOs world-wide. Most of the MVNOs operate in Western Europe, mainly in France
and the UK. Yet as the number of players in the mobile area increases, so does the risk. It is unclear
how many MVNOs any geographic market may support, but it appears almost certain that not each
and every MVNO will manage to survive long enough to turn a profit.
There are four marketing strategies most commonly used by the MVNOs:
(i) Discount MVNOs – compete with MNOs by offering attractive pricing with basic voice and
SMS services. Discount MVNOs are companies such as Fresh Mobile, Mobile World
or Virgin Mobile.
(ii)Lifestyle MVNOs – niche players, which focus on providing its services to dedicated social
groups, e.g. Disney Mobile’s target group are families with children, while MyAvon wants
to posses users among its customers – mostly women who buy its cosmetic products.
(iii)Segmentation-driven MVNOs. Mobile operators may have problems to be successful
in all customer segments, and may try to penetrate such unchartered territories by a MVNO.
As an example, Telekomunikacja Polska has its main MNO operator – Orange – and MVNO
– WPmobi – owned by its subsidiary Wirtualna Polska, in order to target Internet users with
sales channels of the Wirtualna Polska portal.
(iv)Network-utilization-driven MVNOs. MNOs often have free capacity of their network,
especially connected with supplying the 3G services. In order to enhance utilization
of the capacity and create economies of scale MNOs may operate with MVNOs. In Poland
Play, an MNO which targets young people using multimedia services (run in 3G), has limited
own network and entered in an agreement with Polkomtel to provide Play’s services via its
network.
As far as the business models go, we may distinguish three MVNO business approaches, depending
on the extent of the possessed infrastructure.
Fig. 36 MVNO business models
Source: MobileVirtualNetwork.co.uk
…an affinity partner,…
????????????????????????
(i) Affinity partner; such business model is based on possessed sales channels. An affinity
partner may be a retail or entertainment company, which has a well known brand helpful
in marketing the new service. The business model is the lowest entry level of MVNO, which
does not require extensive capital expenditures connected with investing in network service
components, billing or CRM center.
35
Cyfrowy Polsat
...service provider/ enhanced
service provider/ hybrid, and...
,...full MVNO
Infrastructure involvement
depends on MVNO business
model
(ii) Service provider/ enhanced service provider/ hybrid; these business models are more
capital extensive’ than these of an affinity partner. Depending on the scale of the investment
we can differentiate between:
–– service provider (with its own CRM & billing center),
–– enhanced service provider (enforced with distribution of content and other applications),
and
–– hybrid (which additionally may contain some elements of the network).
It is important to mention that the more extensive capital involvement generates also higher
costs in the longer run, which are connected with the maintenance of the technical support.
For this reason MVNOs should broaden their capex on infrastructure only when such
investments could add value to their business, i.e. when the host MNO cannot outsource
such services to virtual operator or when they differ from the MVNOs demand.
(iii) Full MVNO; according to MobileVirtualNetwork.co.uk, the only difference between the full
MVNO and MNO is lack of the radio access and transmission (which is licensed). Beside
the network, all the infrastructure possessed by the MVNO allows to differentiate its product
offering independently from the host MNO capabilities.
When the three aforementioned business models of MVNOs were presented in 1999 it was claimed
that the natural way for an MVNO development is to climb on the path of the infrastructural
involvement. Nowadays it is clear that not the infrastructure but the business strategy is the key to
MVNOs development, and infrastructure should be adjusted to the requirements of the target group,
product offering, etc.
Resellers vs. brand MVNOs
While some MVNOs are simply wireless resellers focusing mainly on providing distinctive voice and
data services to particular segments of the market, brand MVNOs strive to capitalize on the value
and power of their company brandname; putting that brand on ubiquitous wireless devices
constitutes a way to reach a new customer base (e.g. a loyal customer of Virgin’s MVNO is more
likely to be a consumer of all the other products and services offered by that brand); hence,
launching an MVNO may constitute a critical part of a long-term brand and customer acquisition
strategy.
MVNO vs. MNO: (i) lower ARPU,
Lack of radio infrastructure has a number of consequences for the financial performance
of the MVNO business model compared with the business model of an MNO. Firstly, as the virtual
operators tend to focus on providing basic services at reasonable prices (more attractive than
the MNOs; please be reminded that their business model is based on buying the ‘minutes’ from
MNOs at wholesale (discount) prices and their subsequent re-sale to the users at a marked-up price
(yet lower compared with the retail prices of the MNOs)). While such an approach helps to boost
the number of new users, in a longer run, however, it becomes an obstacle to increase to company’s
profitability (hence, MVNOs exhibit lower margins than MNOs). Secondly, MVNOs may operate
at much lower capex/sales ratios than MNOs, as the expenditure on network maintenance
of the former are equal to the fee for the network rental. What follows is that due to lower capital
intensity of the MVNO business model, they tend to achieve their BEPs much faster than MNOs
(providing that the necessary scale of operations is attained, of course). On the other hand,
however, by the same token, once the BEP is reached, MVNOs’ free cash flows tend to remain fairly
flat afterwards, while in the case of MNOs they have much larger potential to improve further.
(ii) lower margins, (iii) lower
capex/ sales, (iv) shorter BEP,
and (v) capped FCF
First-mover advantage seems
to be the key-success factor
in the MVNO business,…
…equally important
as recognized brandname
or cross-selling capability,…
…and much more important
than content
36
Inspecting the characteristics of an array of MVNOs (both successful and unsuccessful)
that launched their operations in the past years, it appears that the first-mover advantage constitutes
the most important key success factor in the MVNO business; prevailing part of the successful
MVNOs (e.g. Tele2, Debitel, Virgin Mobile UK) are the early-movers on their respective markets,
which gave them an upper hand in winning large number of subscribers (due to relatively softer
competition at the stage they entered the market). On the other hand, bulk of unsuccessful (at least
as of now) MVNOs are the late market-entrants (e.g. Disney Mobile, Virgin Mobile Singapore).
The companies that succeed on the MVNO front also tend to have strong and widely recognized
brand-names (though this is not always the case – e.g. Virgin Mobile Singapore) and usually exhibit
capabilities of cross-selling their products/ services via the new channel. Content delivery capabilities
do not appear to play a major role in segregating leaders from laggards in the MVNO field (e.g. Tele2
and Tesco succeeded without content, while Virgin Mobile Singapore or Disney Mobile underperform
despite their content capabilities).
????????????????????????
Cyfrowy Polsat
Early-moving MVNOs are late
entrants compared
to the MNOs; hence, even
the best of them are unlikely
to win market shares close
to the latter’s
The type of the MVNO business
model pursued does not
seem to be the best guide
in segregating leading from
lagging MVNOs
????????????????????????
While since the inception some of the most successful European MVNOs managed to win as high
as 10% market shares (in number of subscribers’ terms) in the markets of their operations
(e.g. Telmore), the market shares of a vast majority of operational MVNOs typically do not exceed
3%, which – the way we see it – is a consequence of the late life-cycle stage at which they enter
the market (high penetrations limit the potential for winning new subscribers and necessitate luring
existing subscribers from other players). The way we see it, the statements regarding a continuously
growing market share of MVNOs constitute rather a myth and should not be automatically applied
to all national markets (market shares of some successful MVNOs – e.g. of Debitel Denmark –
have been on quite steep declines during the past year – which may, for example, constitute
a consequence of these players reaching close-to-full penetration levels in their respective niche
target customer segments). Definitely small niche players are in easier position to improve their
market share due to the low-base effect (though, on the other hand, their late entries often constitute
a major hindrance in winning market shares large enough to justify the economic viability of their
operations). On the other hand, the early movers with significant market positions have to defend
themselves against the inroads by new entrants and often face ceilings in terms of penetration
within their target groups. Finally, it appears that none of the underlying types of the MVNO business
models (affinity partner, service provider, enhanced service provider, hybrid, full MVNO) guarantees
the success; however, the majority of successful MVNOs do not operate within the simplest business
modes (of an affinity partner or service provider), though – on the other hand – some operators
running the most complex and capital-intensive full MVNO business approach also suffer hardships
(e.g. BT Mobile) from low and sliding market shares.
37
Cyfrowy Polsat
4.
Local market outlook and trends
Due to its late launch, DTT is unlikely, in our view, to become a dominant TV programs
aa
distribution platform; by the time the roll-out of DTT is completed, majority of the
viewers of ATT should have subscribed to a fee-based multichannel service. However,
given increasing level of uncertainty related to the ropes of DTT’s implementation
in Poland, there is some risk related to this assessment of ours.
Despite the inability to provide bundled service, among the existing subscription
aa
multichannel platforms it is DTH that appears to be the prime beneficiary of current
economic upswing and people’s rising incomes, due to its ability to penetrate rural
areas and smaller towns, which often lie beyond the network scope of cable and IPTV
providers; by the same token, due to its lack of network-reach-implied constraints DTH
has been the main beneficiary of the delayed DTT roll-out. However, ability to develop
a bundled offering will be crucial for DTHs’ well-being in a LT, we believe.
Each of the three DTH platforms in Poland pursues a different generic strategy: Cyfra+
aa
and ‘n’ are differentiators (premium-priced content quality approach and innovative
technology leadership, respectively), while Cyfrowy Polsat places itself as the low cost
leader. Cyfrowy’s approach proved highly successful in past two years, boosting its
subscribers number way above the competitors’, though – by the same token – its ARPU
materially lags these of its local peers.
We expect a sluggish growth of volumes in CATV, due to ‘stickiness’ of cable’s ability
aa
to pass new homes, more emphasis on monetization on the current pool of clients
(bundled offerings, digital roll-outs), and the volume growth driven by M&As rather than
extensive roll-outs of networks into new regions.
IPTV is a new service in Poland, with rather disappointing take-up rates to-date. While
aa
we forecast the IPTV penetration to grow, we believe its proliferation will be fairly slow,
due to the already high penetration of an alternative multichannel platform (CATV)
in urban areas. On the other hand, TP SA’s decision to complement its IPTV offer with
Cyfra+ DTH package re-selling will broaden its reach to prospects beyond its DSL
network.
We forecast the LT fee-based multichannel (DTT) penetration rate at c. <80% (>20%);
aa
such target levels appear plausible for countries with high subscription multichannel
penetration at the time of DTT launches. In terms of market shares, increases are
expected for DTH and IPTV, and a decline in CATV.
The television ARPUs are expected to trend upwards for all distribution platforms, and
aa
to converge with one another in a long term (implied higher LT CAGR at IPTV than
at CATV, and at CATV than at DTH).
The penetration rate in excess of 109% suggests approaching maturity of the mobile
aa
sector, which adds to the competitive pressures resulting from new players (MNO and
MVNOs) service launches; we forecast LT target mobile penetration level at c. 130%,
and app. 12% LT target market share of MVNOs.
At present, there are seven operational MVNOs on the market, but their number is likely
aa
to increase significantly in next few months, making future consolidation inevitable.
Following Western European tendencies early-mover advantage, recognized brandname
and ample pools of target clients seem to constitute the key-success factors of MVNOs.
At the moment, as we see it, Halo Polsat and Carrefour MOVA seem to have the best
chances to succeed with their MVNO endeavors.
38
????????????????????????
Cyfrowy Polsat
4.1.
Distribution of television programs
At the moment there are four main platforms of distributing television programs in Poland: three
multichannel (CATV, DTH and IPTV) and analog terrestrial; according to the governmental provisional
plan the launch of yet another platform (DTT) should take place (probably via the island method)
at the turn of this and next year.
Fig. 37 Television programs distribution platforms in Poland
Type
Number
of channels offered
5-7
Price
Description
free-of-charge
CATV
Penetration
(TV households, eop 2007)
technical coverage = 99%
(c. 39% of TV households
using analog terrestrial signal)
35%
5-65
PLN 4.99-64
DTH
26%
20-99
(plus c. 500 free-to-air
foreign language
channels)
PLN 9.9-145
DTT
0% (the first digital terrestrial
islands to be created at the turn of 2008
and 2009, the digital transformation to
be completed by the end of 2012 (with
possible extension till mid-2015))
0.3%
Initially 7;
target number remains
unknown
1st multiplex probably
free-of-charge,
remaining probably
payable, likely STB
subsidies
PLN 29.9-47.9
Average quality of signal
Free of charge
HDTV unavailable
High quality signal
STB not required for analog network (needed for digital)
Possibility of offering Internet and VoIP services (in digital)
Potentially new services (VOD, DVR, HDTV)
Possibility of offering bundled services
Service subject to network-reach-related constraints
High quality signal
Dish installation required
STB required
Limited possibility of offering Internet and VoIP services
Potentially new services (VOD, DVR, HDTV)
Bundled services potential limited
Service not subject to network-reach-related constraints
High quality signal
STB required
HDTV available
VOD, DVR available
High quality signal
STB required
HDTV available
VOD, DVR available
Service subject to network-reach-related constraints
ATT
IPTV
43-53
Source: GUS, KRRiTV, Informa, PIKE, company data, DM IDMSA estimates
While we provide an in-depth discussion of the aforementioned platforms in the following sections
of this research report, below – in a snap-shot – we present the main points determining, in our
opinion, their current market positions and possible future performance.
DTT - subdued performance
expected, due to late
introduction
CATV – strong presence,
but volume growth capped
????????????????????????
1. DTT – the late introduction. DTT is unlikely – in our opinion – to become a dominant platform, due to
aa
its late launch and roll-out completion; by the time the DTT roll-out is up and running, a large part
of viewers of analog terrestrial television is likely – the way we see it – to become subscribers of some
kind of a fee-based multichannel service. However, given increasing level of uncertainty related to the
ropes of DTT’s implementation in Poland, there is some risk related to this assessment of ours.
2. CATV – relatively high penetration with network-reach embedded constraint. While CATV
aa
penetration is reasonably high in Poland (c. 35% of the end of 2007), looking forward only slow
growth of volumes in the cable sector is expected, due to:
(i) stickiness of cable’s ability to pass new homes,
(ii) more emphasis on monetization of the current pool of clients (bundled offerings, digital rollouts) than passing new homes, and
(iii)apparent preference of the industry’s leaders toward M&A-driven volume growth (facilitated
by the declining prices in takeovers resulting from an inability of smaller networks to finance
the shift to digital) rather than extensive organic roll-outs of networks into new regions.
39
Cyfrowy Polsat
DTH - the main beneficiary
of people’s rising incomes;
strong volume growth,
due to lack of network-reachrelated constraints
IPTV – new service operating
in areas already largely passed
by a competing platform (cable)
ARPUs to grow and converge
3. DTH – soaring volumes (despite infringed ability to offer bundled service), due to rising incomes
aa
and lack of network-reach-related constraint. Among the existing platforms DTH appears
to constitute the prime beneficiary of the current economic upswing and people’s rising incomes,
due to its ability to penetrate rural territories and smaller towns, which often lie beyond
the network scope of CATV and IPTV providers. By the same token, this platform has been also
benefiting most (in net add terms) from the aforementioned delayed roll-out of DTT.
4. IPTV – a fledgling service with network-reach embedded constraint, operating in the
aa
environment with strong presence of an alternative distribution platform (cable). IPTV is a new, not
commonly recognized, service in Poland, currently provided by only six operators, with fairly
disappointing take-up rates to-date. While we forecast the IPTV penetration to grow, we believe
its proliferation will be quite slow, due to the already high penetration of an alternative multichannel
platform (CATV) in urban areas (i.e. on the IPTV front we expect Poland to follow the footsteps
of Germany and Ireland rather than of France or Italy), though TP SA is likely to broaden
the reach of its IPTV service via starting re-selling of Cyfra+ packages.
5. ARPUs. Expected to show an upward trend for all of the multichannel platforms,
aa
and to converge to one another in the long term (implied higher CAGR at IPTV than at CATV,
and at CATV than at DTH).
4.1.1.
The introduction of DTT
in Poland = the arcane of chaos
Strategic questions concerning
DTT game-plan for Poland
remaining unanswered
Provisional plan: two (or three)
multiplexes now, more
in 4-5-year time
UKE forcing its plan, despite
some uncertainties of legislative
nature
40
DTT
The process leading to the implementation of DTT in Poland could not probably be more chaotic,
erratic and progressing in a more disharmonic manner. After few years of talks, working group meetings
and consultations among various engaged central administration bodies (UKE, KRRiT, Ministry of
Infrastructure, Ministry of Culture, Parliament, etc.,) Poland remains among those few EU counties that
so far has neither appointed an institution/person clearly in charge of the co-ordination of the works
related to the digital transition nor enacted relevant legislations. Consequently, some of the most basic
questions pertaining to the switch from analogue terrestrial to digital terrestrial broadcasting
(e.g., what is the target structure of the TV broadcasting market in the DTT era?; will DTT be free-ofcharge or payable (which multiplexes are to be free-of-charge?); who’s going to pay for the STBs?; will
the current system of automatic renewal of analog terrestrial licenses be maintained in the digital
regime?; will the second multiplex be operated by an active or passive operator (i.e. who will decide
on the programming content of the second multiplex?); how many multiplexes will be earmarked
for DTT purposes?; will all multiplexes, except the first one, be put on an open tender?, etc.) remain
unanswered at the moment. In the paragraphs that follow we strive to provide an overview
of the current status of the DTT game-plan for Poland, though we would like to stress that the situation
is likely to remain ‘dynamic’.
The provisional plan regarding introduction of DTT in Poland provides for two (or three) national
multiplexes to roll-out on a region-by-region basis (the first is to cover c. 80% of the country’s
population, the second one – almost 100%, and the third one (if its launch proves feasible) – c. 40%).
The two/three multiplexes in question are capable to host 7 SD channels (or 3 HD channels) each,
and they are supposed to encompass a ‘basic’ package for the viewers. UKE intends to grant the first
multiplex to TVP (public TV), which will be obliged to host in it (by the time frequencies in the following
digital multiplexes are freed pursuant to the analogue switch-off (i.e. post 2012)) channels of
commercial FTA broadcasters which had been granted analog terrestrial licenses (i.e. Polsat, TVN,
TV4 and TV Puls coming on the top of three channels of public television – TVP1, TVP2 and TVP Info).
Simultaneously, UKE intends to launch an open tender for the operator of the second multiplex
already in September this year (all parties i.e., both broadcasters present at the moment on the Polish
market as well as the potential new entrants, may submit their bids (though the latter ones will be
preferred)), which effectively would mean partial removal of the TV broadcasting market entry barriers
prior to the analog switch-off (potentially bad news for commercial FTA broadcasters – Polsat and
TVN). Such situation (2/3 multiplexes in place, hosting jointly up to c. 20 channels (some in HD)) would
persist till the end of 2012, when further three-four multiplexes (again, capable of carrying 7/3 SD/HD
channels each) would be put on the table. The fourth multiplex is planned to be given to TVP, which
would move its three channels from the first multiplex (and fill in the available free space for additional
three channels according to its wishes), with the resultant freed frequencies in the first multiplex
granted to current analog FTA broadcasters (i.e. Polsat, TVP, TV Puls; though it is unclear on what
????????????????????????
Cyfrowy Polsat
terms). The third multiplex would be then subject to an open tender (unless it proves feasible
to launch its operations already now; in such circumstances the tender would take place earlier), with
the fifth and sixth ones earmarked either to DTT (DVB-T) TV (unclear whether via open tender or not)
or mobile TV (DVB-H), depending on the development of the DVB-H service. In the context of the
above, it should be noted that: (i) local TV broadcasters oppose the plan, (ii) the split of authority
between two bodies – UKE and KRRiT – is not completely clear (though this week the two regulators
seem to have reached some kind of a consensus over this issue), and (iii) the novelty of the media act
(likely to remove the aforementioned clash of competencies between UKE and KRRiT) is rather
unlikely, we believe, to come into force, as Sejm (lower chamber of the Parliament) will not probably
manage to overrule the veto by the President of Poland.
The island method will be
probably used for the digital
transition of terrestrial television
in Poland
Who is going to pay for the
STBs?
The terrestrial television switch to digital will be (probably) implemented in Poland via the island
method, which is based on gradual shift from analogue to digital transmission in particular areas
until the entire country is covered (first digital islands to be created at the turn of 2008 and 2009).
The method follows the German experience and – compared with the simulcasting method
(simultaneous introduction of DTT in the whole country and transmission of both analogue and
digital signal at the same time for a predetermined period (adopted, e.g., in Great Britain)) – is less
expensive in terms of infrastructure (cost spread over a number of years), does not force the
broadcasters to incur additional costs connected with simulcasting and allows for higher number
of multiplexes and broader program offering. It, however, requires a necessity to quickly provide
the selected region with STBs or digital receivers.
So how the costs of the STBs would be then financed? It is a crucial issue, as – according to the
recent polls – Poles do not appear willing to pay for them, and – even more importantly – on the back
of the fact that by the time of the DTT roll-out probably only the poorest families will not subscribe
to some form of a paid multichannel TV service, the potential viewers of DTT simply may not afford
it (average cost of a MPEG-4 STB stands at c. PLN 300 at the moment). Given such premise,
it makes no wonder that UKE sees the broadcasters as a party covering these costs (i.e. subsidizing
the STBs’ purchases by the viewers). While earmarking the funds raised from prospective sale
of multiplexes to their operators (predominantly probably new market entrants) for STB-subsidies
raises no controversies, UKE’s idea that current FTA analogue broadcasters (e.g. Polsat, TVN) should
also pay for the STBs to be given away to DTT viewers is controversial. UKE uses the mobile telco
market reference, claiming that if the GSM operators deeply subsidize the handsets sold
to the users and do not have to struggle to make ends meet, the TV broadcasters could also pay
for the STBs. However, the way we see it, such reasoning is flawed, as in return for handset subsidies
customers of mobile operators commit themselves to pay monthly fees (typically, over a 2-year
period), whereas DTT (at least as far as the first multiplex (i.e. the one to host current FTA analog
terrestrial channels) goes) is supposed to be free-of-charge for the viewers (it appears that ‘premium’
(i.e. non-free-of-charge) channels may be hosted in the following multiplexes). It is of no surprise
then, that current FTA analog terrestrial broadcasters do not express their willingness to succumb
to UKE’s proposal, unless they are granted the exclusivity in the access to the DTT multiplexes
operating in Poland till 2012-end. Such proposal was not only rejected by UKE, but the Office’s
Chairperson (Mrs. Anna Streżyńska) stated even that in such situation current commercial FTA
analogue channels broadcasters may be deprived of their frequencies in the first digital multiplex,
which would be put on an open tender (along with the entire second multiplex and possibly also the
third one). The situation is further blurred by the fact that it is not completely clear whether the DTT
plan for Poland governing the rules of the award of the digital multiplexes (whatever form it ultimately
takes) requires for its lawful enforcement an act of the Parliament (which would additionally delay
the process) or not. While representatives of majority of parties seating in the Parliament seem
to believe that enacting such a legislation is a must, UKE claims the opposite, and – according
to the statements by its Chairperson – does not intend to delay its actions related to the DTT roll-out
(e.g. announcement of a tender for the operator of the second multiplex) by the time relevant act is
enacted and comes into force.
Even though it is hard to draw any clear-cut conclusions regarding the ultimate DTT regime in Poland
(especially from the broadcasters’ stand-point), it appears that irrespective of future course of action
(excluding extreme scenarios (e.g. award of two or more multiplexes to a single new entrant now,
coupled with major acceleration of the DTT roll-out)), we will be, most likely, witnessing a ‘late’ DTT
roll-out scenario in Poland. The consequences of such a development for the pay multichannel
????????????????????????
41
Cyfrowy Polsat
TV programs distribution market are likely to be significant. By the end of 2005, a moderate
level of paid multichannel (DTH + cable + IPTV) penetration in Poland (c. 46% as at year’s end)
due to its late launch and roll-out
implied reasonably favorable premise for the DTT service prospects. However, the progress towards
completion; by the time the DTT
transition has been slow and introduction of DTT has been delayed by a mixture of administrative
roll-out is up and running, a large
and technical issues, though the government remains committed to a national roll-out starting
part of viewers of analog terrestrial at the turn of this and next year and the complete analog switch-off set for 2012 (with possible
television is likely – the way we see extension till mid-2015). During the past two years, the market situation has materially changed,
it – to become subscribers of some however, as the fee-based multichannel penetration increased significantly since then (c. 46%
kind of a paid multichannel service as at the end of 2005, app. 52% as at the end of 2006 and c. 61% at the 2007-end) – mainly on the
back of robust growth of DTH volumes – and, what is more, is expected to continue to soar
in the short- to mid-term (we forecast eop-2008 multichannel penetration at app. 68%). Against such
market backdrop, the current provisional plan providing for creation of the first digital islands
at the turn of 2008 and 2009, i.e. when the paid multichannel penetration will dwell most likely close
to the 70% level (c. 68%, according to our forecasts), appears to be probably too delayed for
the DTT to succeed. Moreover, as noted before, the DTT roll-out in Poland is likely to be extended
over at least a 4-year period, which means – the way we see it – that DTT is unlikely to fully replace
(in terms of the number of users) current analogue terrestrial service, as by the time of the former’s
roll-out completion, large part of analogue terrestrial service current viewers will most likely switch
to some form of a fee-based multichannel service (with the bulk of the multichannel’s net add
materializing probably by the end of the current year). In other words, the possible subdued
performance of DTT in Poland would constitute the consequence of poor/delayed timing
of the service roll-out; should the service roll-out have started earlier (before the end of 2005),
i.e. before the rapid take-up in paid multichannel penetration on the back of people’s improving
incomes, it could have – in our opinion – put much stronger restraint on multichannel that it will
with its launch at the turn of 2008 and 2009.
DTT is unlikely – in our opinion –
to become a dominant platform,
Fig. 38 DTT and ATT in Poland; Number of households and net additions
Fig. 39 DTT and ATT in Poland; Share of DTT and ATT households in all television
households
Source: DM IDMSA estimates on the basis of various sources
With lack of network-reachimplied constraints and
dominant position in the rural
areas and small towns, DTH
has been the main beneficiary
of the delayed DTT roll-out
Which of the paid multichannel platforms is then best positioned to benefit from DTT’s late launch?
Given that urban households are already largely subscribed to some kind of a multichannel service
(though no precise data in this respect are available, unfortunately), the likely beneficiary will thrive
on its ability to attract non-subscribers from rural areas and smaller towns. Given the networkreach-related constraints embedded both in cable and IPTV, it follows then that this beneficiary
is DTH (this is, as a matter of fact, corroborated by the market data for the past three years, with
the lion share of multichannel net add accruing to this distribution platform).
4.1.2.
>500 CATV operators,
but the largest 4 control >50%
of the market
42
Source: DM IDMSA estimates on the basis of various sources
CATV
Despite the fact that the CATV sector in Poland witnessed some consolidation in the past 24 months
(leading players acquired small- to mid-sized competing networks), the market remains excessively
fragmented with >500 operators remaining in the play. It should be noted though, that the four
largest players – UPC, Vectra, Multimedia Polska and Aster – command jointly over 50% market
share.
????????????????????????
Cyfrowy Polsat
Financing the digital network
upgrade is often beyond the
scope of smaller CATV operators
→ consolidation to speed up
With increased pressure from DTH services, thriving on their lack of network-reachrelated
constraints, and new IPTV service launches, the local market’s leading CATV operators are likely,
sooner or later, to engage in a major consolidation of the sector, which as of now is too fragmented
to effectively compete in a longer run, especially as the levels of capital expenditures that need to be
incurred in relation to the switchover from analogue to digital (c. USS 150-200 per home passed)
is often beyond the scope of the smaller operators (and without such switchover, their business
would perish), which makes them doomed unless they are bought by a player capable of financing
the digital transition (i.e. one of the ‘big four’). As of now, there have been no M&A activities
at the level of the local CATV market leaders, though in 2006 there were rumors regarding merger
talks between Vectra and Multimedia, which, however, failed. With competitive pressure from nonCATV participants of the television programs distribution market intensifying, consolidation among
the CATV market’s leaders cannot be precluded, in our view, especially as the Polish regulations
allow network overbuild, which increases the inter-cable competition also in the areas of coverage
of the market.s leaders (e.g. Multimedia starting an overbuild of Warsaw – the area historically
passed by UPC and Aster).
Sluggish volumes
Fairly slow growth of volumes in the CATV sector expected, due to ‘stickiness’ of cable’s ability to pass
new homes, and more emphasis on monetization on the current pool of clients (bundled offerings,
digital roll-outs) and M&A-driven volume growth than extensive roll-outs of networks into new regions
Network-reach constraint →
As noted in the preceding section, cable volumes are subject to the network-reach constraint,
implying that their organic growth critically hinges upon the speed of passing new homes.
Additionally, the leading operators introduced bundled services and increasingly focus on boosting
their total revenues per subscriber by offering their current TV subscribers broadband Internet
access and fixed voice, rather than on sheer organic growth of CATV users. Moreover, with
the capital-intensive digital roll-outs facing the industry, and inability of numerous small networks to
finance this challenge – implying, in our opinion, declining prices in the small- to mid-sized CATV
network takeover transactions on the local market, as the targets’ value is subject to clear time
decay at the moment – in the coming years we expect only moderate growth of CATV volumes
in Poland (lagging DTH and also possibly IPTV), as apart from the ‘stickiness’ of the cable operators
ability to pass new homes (compared, for example, with the DTH service, where there are no reach
limitations), the sector’s leaders are more likely to focus on non-organic growth of volumes. In other
words, small- to mid-sized cable operators (unable to finance the digital shift) are unlikely to increase
their volumes at all, whereas large CATVs are likely to put more emphasis on:
(i) existing networks upgrades (digitization, implying higher cable TV ARPU),
(ii) better monetization of their current customer bases by offering cable TV subscribers
bundled service, and
(iii)takeovers of smaller cable players (given likely decreases of prices in such transactions)
rather than extensive organic roll-outs of their networks to new territories.
focus on bundled services
offering and M&A-induced
growth of volumes
While such scenario could facilitate even brisk growth of the total volumes of the sector’s leaders,
the organic growth of the volumes in the entire sector is likely, in our view, to be slow. When this
is viewed against the current strong volume momentum of DTH, it follows then that in the
coming years we expect only a minor growth in the CATV penetration and further significant
decline of CATV’s share in multichannel households in Poland (already visible during last two
years).
CATV ARPU expected to rise,
though
In terms of ARPU, we expect – in line with the global experiences – a slightly upward, consistent
and long-run trend in the CATV sector in Poland, on the back of:
(i) migration of current users from cheaper to more expensive packages,
(ii) proliferation of the digital cable (service by c. 10% more expensive than the analogue),
and
(iii)growing importance of value-added services (VOD).
While as of now the CATV ARPUs tend to lie below the DTH’s ARPU (e.g. according to the Informa
estimates), with the digitization of cable networks and proliferation of the value-added services,
we expect them to converge over the long term.
????????????????????????
43
Cyfrowy Polsat
Fig. 41 CATV in Poland; Number of subscribers and net additions
Fig. 42 CATV in Poland; Penetration and share in paid multichannel TV programs
distribution market (in number of users’ terms)
Source: DM IDMSA estimates on the basis of various sources (PIKE, PwC, Informa), DM IDMSA estimates
Source: DM IDMSA estimates on the basis of various sources (GUS, KRRiTV, PIKE, Informa, PwC),
DM IDMSA estimates
Fig. 40 Television ARPU in CATV sector in Poland; Multimedia Polska
Source: Multimedia, DM IDMSA estimates
4.1.3.
Three DTH platforms at the
moment (Cyfrowy Polsat,
Cyfra+ and ‘n’), one more
to come (TVP)
Generic strategic followed:
differentiation vs. low cost
leadership
Low cost leadership strategy
boosts subscriber volumes at
Cyfrowy Polsat
44
DTH
In Poland there operate three DTH platforms: Cyfrowy Polsat, Cyfra+ and ‘n’. Public television (TVP)
intends to launch the fourth platform in 2H09. DTH has a clear edge over cable and IPTV in rural
areas and small towns that are not passed by CATV infrastructure and where telephony network
may not support TV services (though this may be partially mitigated by the telco incumbent’s
decision to complement its IPTV offering with a satellite platform). DTH has proved popular
with residents of single-family houses, while cable is more popular in larger residential districts
with apartment blocks and multi-dwelling units.
Each platform has chosen a different strategy of positioning its services on the Polish market. Cyfra+ and
‘n’ platforms use a differentiation strategy, while Cyfrowy Polsat focuses on the low cost leadership.
Cyfra+ delivers the widest range of channels, which allows it to charge more for its services and helps
attain the highest ARPU among all DTH platforms in Poland (according to our rough estimates, the 2007
ARPU of Cyfra+ was > PLN 80). The third operator – ‘n’ – is an innovative technology leader, which has
been the first DTH network to implement STBs with HDD functionality, HD channels and VOD services.
Thanks to the low cost leadership strategy, Cyfrowy Polsat has been able to improve significantly
the size of its subscriber base, particularly in 2006 and 2007 (following c. 94% growth in 2006,
the Company reached 2.07 million subscribers at the end of 2007, which means 62% yoy increase).
When disposable incomes of Polish households improve on the back of the strong GDP growth,
the number of multichannel households also grows. In such environment, in our opinion, Cyfrowy
Polsat – with its budget offering – stands good chance of winning the new marginal DTH households.
The largest (in users’ terms) DTH platform does not, however, offer innovative services (the first HD
channel launched in 4Q07, the date of launching VOD services remaining unknown as of now).
????????????????????????
Cyfrowy Polsat
Cyfra+ is the premium-priced
high quality content provider,…
...while ‘n’ positions itself
as an innovative technology
leader
Vertical structure of
programming packages =
unique feature of ‘n’
Deep losses at ‘n’ at the
moment, BEP expected in 2010
Near-term ARPU targets
of ‘n’ seem attainable…
Cyfra+, thanks to the largest channel offering, enjoys the highest ARPU among all DTH platforms,
which however does not help net addition volumes. The platform gained 128 thousands of new
subscribers in 2006 (16% up, yoy) exceeding 900 ths. of users, while as of the end of 1Q08 its client
base stood at app. 1.1 million. Given the focus on the upper part of the market, in our opinion,
in the case of Cyfra+ the GDP growth is not as important net add catalyst as for Cyfrowy Polsat.
The ‘n’ platform is the youngest DTH operator in Poland (the platform launched its services in 4Q06).
With c. 320 ths. of subscribers as of the end of April 2008 (up from 204 thousand in October 2007
and c. 50 thousand at the 2006-end) it is still far behind the other players, but – according to our
estimates – the volume of its net additions last year might have exceeded the number of subscribers
won by Cyfra+ (though accounted for a mere 25% (approximately) of Cyfrowy Polsat’s 2007
net add). Thanks to the fresh image and innovative services, coupled with the low base effect,
‘n’ has a chance to increase its market share significantly.
The company’s unique feature is a vertical structure of programming packages (with no typical
‘broad’ basic package embedded in the competitors’ horizontal programming offerings), which
– on one hand – enables better fit to the tastes of narrowly-focused audiences (no necessity to pay
for thematic channels that are of no interest), but on the other means fairly expensive offering
for audiences with wider ranges of channels of interest.
The ‘n’ platform is running at deep losses, due to its relatively early stage of development and large
proportion of the ‘new’ subscribers (generating STB subsidy costs and sign-up fees paid to the
distributors of the service) in relation to the ‘seasoned’ ones (not generating such costs). Last year
the company’s sales reached Euro 27.9 million (c. PLN 105 million) with EBITDA loss of Euro -48.7 million
(PLN -184 million) and net loss of c. PLN -208 million. For 1Q08 ‘n’ reported revenues of Euro 16.0 million
(c. PLN 57.1 million), marking an impressive 249% yoy growth, yet its quarterly loss at the EBITDA level
widened to Euro -10.2 million (c. PLN -36.3 million) from Euro -9.3 million for 1Q07, and its bottom line
dwelled in the red by c. PLN -47 million. According to the statements of the representatives of ‘n’,
despite deeper yoy 1Q08 EBITDA loss, FY2008E losses of ‘n’ should be smaller yoy, and the platform
is expected to reach its EBITDA BEP (and become FCFF positive) in 2010.
The near term targets of ‘n’ provide for ARPU of PLN 56 and PLN 65 as of the end of 2008E
and 2009E, and the number of platform’s subscribers reaching – respectively, by the end of 2008E
and 2009E – 523 ths. (net add of c. 270 ths., implied expected share in sector’s net add of c. 33%
(may prove realistic, in our view)) and 798 ths. ((net add of 275 ths., implied expected share in
sector’s net add of c. 75% (very aggressive, the way we see it)).
…just like the LT ARPU aim
The LT targets of the ‘n’ platform provide for: (i) c. 30% market share in the DTH market by 2012E
(measured by the number of subscribers) and (ii) APRU of PLN 70/month in 2012E. As far as the
ARPU target goes, we deem its quite aggressive, yet attainable, given: (i) company’s programming
packaging strategy and (ii) potential for added services (e.g. VOD), despite the fact that the targeted
ARPU dwells materially above ARPU of the local low-cost leadership peer Cyfrowy Polsat
(PLN 37.3/month in 1Q08 (the Family Package), forecast to increase to PLN 48-49/month by 2012E).
However, post-2008E market
However, the market share target seems extremely aggressive to us, given (i) only c. 9% market share
at the moment, and (ii) the fact that the DTH market in Poland is likely – in our view – to approach its
close-to-saturation stage in c. 3-year time. Given that the total number of DTH subscribers is expected
to reach c. 5 million in 3-4-year time, down the road platform ‘n’ would need to have c. 1.5 million
of subscribers to enjoy a 30% share in the market. Given, however, the fact that at the moment there
are probably app. 3.6 million of DTH-subscribing households in Poland, ‘n’ would need to grab c. 75%
share in the net addition of volumes in the DTH sector in Poland between now and 2012E (assuming
no net influx of subscribers churning from alternative DTH operators) to reach the implied 1.5 million
subscriber target. Given that the company’s share in the sector’s volume net add last year stood probably
in the vicinity of c. 17-20% (and for 2008E we expect it to come out at c. 25-33%), we deem such
an implied hike in its forward volume net add share extremely challenging. The resultant gap might
be hence, in our view, filled only by the churning customers of other DTH operators (switching from Cyfrowy
Polsat and Cyfra+ to ‘n’); as of now we do not see clear rationale supporting the expectancy of such strong
churning behavior.
share (share in DTH sector’s
net adds) targets of ‘n’ appear
extremely aggressive
????????????????????????
45
46
1
FY2007
Source: companies, Gazeta Prawna, DM IDMSA
minimum one-off expense (dish, STB,
activation fee) - STB purchase option
maximum one-off expense (dish, STB,
activation fee) - STB purchase option
Start-up attractiveness
minimum one-off expense (dish, STB,
activation fee) - leased STB option
maximum one-off expense (dish, STB,
activation fee) - leased STB option
The most expensive subscription offer
PLN 49 (included: PLN 189 fee for STB purchase
for antenna set)
PLN 600 (included: PLN 699 for STB and for antenna set)
PLN 1 (included: PLN 1 activation fee
and antenna set)
PLN 99 (included: PLN 99 activation fee
and antenna set)
PLN 178 million1
differentiation strategy: enhanced content delivery (the
largest selection of channels)
STB PLN 10 (lease)
No of channels: 30
Price: PLN 19 (subscription)
STB PLN 10-20 (lease)
No of channels: 90
Net income
Strategy
The cheapest subscription offer
1998
controlled by Liberty and Canal+
900
PLN 926 million1
PLN 811
1.1 million in April 2008
Cyfra +
Service launch date
Ownership
Distribution (no of authorizated distributors)
Revenues
Estimated ARPU (total revenue/ average
number of subscribers)
General information
Number of subscribers
Fig. 43 DTH platforms in Poland
the Company does not offer STB in purchased option
PLN 499 (included: STB with HDD and antenna set)
PLN 169 (included: STB and antenna set)
PLN 159 (included: PLN 99 activation fee for nbox STB
and PLN 60 activation fee for nbox antenna set)
PLN 339 (included: PLN 199 activation fee for nbox
recorder and PLN 140 activation fee for nbox recorder
antenna set)
the Company does not offer STB in purchased option
320 ths in April 2008
Future targets:
523 ths. in 2008E eop
798 ths. in 2009E eop
1.5 million in 2012E eop
2006
ITI (75%) + TVN (25%)
1 500
PLN 105 million1
PLN 56 in 2008E
PLN 65 in 2009E
PLN 70 in 2012E
PLN -208 million1 (loss)
differentiation strategy: innovative technology leadership
(first to introduce VOD service and channels in HD quality)
STB PLN 99 (leasing only)
No of channels: 32
STB PLN 99 or 199 (depending on STB model, leasing only)
No of channels: 67
n
PLN 169 + leasing fee of PLN 15 for STB (available only for
HD STB)
PLN 169 + leasing fee of PLN 15 for STB (available only for
HD STB)
STB PLN 149
No of channels: 20
Price: PLN 9.9 (subscription)
STB PLN 99-499 (depending on STB model)
No of channels: 64
Price: PLN 87.8 (subscription)
PLN 113.4 million1
low cost leadership
1999
controlled by Polaris Finance
> 1,200
PLN 796.7 million1
Familijny package PLN 37.3
Mini package PLN 8.5
2.2 million in April 2008
Cyfrowy Polsat
Cyfrowy Polsat
????????????????????????
????????????????????????
1
FY2007
Source: companies, Gazeta Prawna, DM IDMSA
MVNO
HD
Additional options/services
VOD
PVR
IPTV
Unique content
Fig. 44 DTH platforms in Poland (continued)
not available
available
not available
2 exclusive sport channels, 4 BBC channels and Polsat
(one of four main universal channels in Poland)
Cyfrowy Polsat
1 exclusive sport channel, a number of thematic channels
(e.g. Owsiak.tv, Religia.tv, TVN Lingua, etc.), no Polsat
offered
n
available
available
not available at the moment (may be changed by the Netia
agreement (to be disclosed on next Monday, June 23))
available (i.e. Canal+ Film HD, Canal+ Sport HD,
available (Polsat Sport HD, Polsat Sport Extra HD, HBO HD) available (Eurosport HD, TVN HD, Discovery Histroria HD,
National Geographic HD, HBO HD, Film Box HD, Euro Sport
Film box HD, n Sport HD, MGM HD)
HD)
not available
at the turn of 2Q08 and 3Q08
not available
available
available
available (in co-operation with TPSA)
Canal+ movie and Sport channels, no Polsat offered
Cyfra +
Cyfrowy Polsat
47
Cyfrowy Polsat
Fig. 45 DTH in Poland; Number of subscribers and net additions
Fig. 46 DTH in Poland; Penetration and share in paid multichannel TV programs
Source: DM IDMSA estimates on the basis of various sources (GUS, KRRiTV, PIKE, Informa, PwC,
Company data), DM IDMSA estimates
Lack of network-reach-related
constraints makes DTH the
main fee-based multichannel
net add winner
DTH ARPU ahead of CATV’s
and IPTV, but convergence
expected in the LT
DTH has been the main beneficiary of current rise in people’s disposable incomes, as with no
network-reach-related constraints (embedded both in IPTV and CATV) it often constitutes the sole
subscription multichannel platform available in rural areas and small cities (i.e. regions where the
bulk of income-improvement-driven multichannel subscriber net add materializes). This phenomenon
has been clearly visible during past three years (lion share (70-90%) of paid multichannel net add
grabbed by DTH), and we expect it to continue at least in short- to mid-term.
According to Informa estimates, DTH’s ARPUs in Poland are higher than CATV’s and IPTV’s, which
seems justified on the ground of the digitalization argument (majority of cable is still analogue)
and the novelty of IPTV service. In a longer run, however, this gap is expected to narrow down,
due to faster price increase at the latter two platforms.
4.1.4.
IPTV is a new, not commonly
recognized, service in Poland,
currently provided by only six
operators
The take-up rates have been
so far low,…
...both at TPSA,…
...and Multimedia
IPTV
IPTV, distributed through DSL lines capable of handling 6 Mbit/s transfers (12Mbit/s for HD), constitutes
a relatively new television content distribution service in Poland (launched commercially in 2006). So far,
it has not managed to become a commonly recognized manner of receiving the television programs
(at the end of last year the number of IPTV households in Poland exceeded merely 40 thousand). At the
moment, the service is provided by only six operators (including TPSA, Multimedia, Dialog, Jumbox and
Inotel), though other players are putting up their packages or are considering the entry into this business.
In 2H06, TPSA launched its IPTV offering (provided as Videostrada TP or as a part of the Multipakiet TP
bundled offering), encompassing 46 channels of DVD quality (MPEG 4), with technical possibility of boosting
this number up to 200. Additionally, TPSA offers Cyfra+ channel offer as well as the VOD service. As of the
end of 1Q08 TPSA had app. 49 thousand of IPTV households, which is a fairly poor number, in our opinion,
given that the service has been provided already for six quarters in the largest cities of the country (Warsaw,
Poznań, Cracow, Gdańsk, Wrocław and Katowice), while in 3Q07 the service was expanded from 6
to 42 largest cities (such move helped TPSA to rise the number of homes passed from 500 thousand
to c. 1 million). TPSA has not disclosed any details concerning its targets for the IPTV subscribership.
We tentatively expect the incumbent to have 80-100 thousand IPTV households at the end of 2008.10
The second IPTV supplier is Multimedia Polska (leading CATV company), which offers 43-53
channels as well as the VOD service. Multimedia’s IPTV network coverage is limited to 50 thousand
homes (Kutno, Mielec, Brzesko and Dębica; the reach of the company’s IPTV network is not planned
to be extended); however, as at the end of 2007 only 3.286 thousand households used the service
(and only 3.5 thousand as of the end of 1Q08). With such take-up rates we expect the company
to have c. 5 thousand of IPTV subscribers of as the end of 2008.
10
48
Source: DM IDMSA estimates on the basis of various sources (GUS, KRRiTV, PIKE, Informa, PwC,
Company data), DM IDMSA estimates
Please note that the incumbent’s TV service take-up rates may be helped by the approaching launch
(2H08) of Cyfra+ DTH operator packages’ re-selling project which will complement TP SA’s IPTV
offering and grant the access to prospects out of the DSL network reach.
????????????????????????
Cyfrowy Polsat
While we expect the IPTV
penetration to grow, we believe
its proliferation will be quite
slow, due to the already high
penetration of an alternative
multichannel platform (CATV)
in urban areas
While we do expect IPVT to increase its share in paid multichannel households in Poland in the long
term (to c. 7-8% for all TV households, and app. 10% among the urban paid TV households),
we believe that the Polish scenario for IPTV is more likely to resemble the experiences of such
countries as Germany, Ireland or Portugal, i.e. countries where at the launch of IPTV services
the CATV penetration was quite high, rather than of France, Spain or Italy, i.e. countries which
at the moment of IPTV’s kick-off either entirely lacked the CATV sector or where this segment
of the television programs distribution was weak. The level of CATV penetration and the strength
of the local cable industry appear to constitute one of the most crucial determinants of the IPTV take
up rates, as both services tend to focus on urban areas (hence the lack of strong CATV presence
implies more easy-to-win room for IPTV and vice versa).
Fig. 47 IPTV in Poland; Number of subscribers and net additions
Fig. 48 IPTV in Poland; Penetration and share in paid multichannel TV programs
Source: DM IDMSA estimates on the basis of various sources (PwC, Informa, France Telecom,
Multimedia), DM IDMSA estimates
IPTV ARPU below the CATV
ARPU and DTH ARPU
at the moment, though
expected to rise in the coming
years and to converge with the
latter two over the longer term
Source: DM IDMSA estimates on the basis of various sources (PwC, Informa, France Telecom,
Multimedia), DM IDMSA estimates
According to Informa estimates, the IPTV ARPU dwells at the moment significantly below ARPUs of
the alternative available multichannel platforms’ DTH and CATV. Such pricing differential makes
sense in our view, given that IPTV still is a novelty in Poland (requiring discount prices to arouse
customers’ interest) as well as due to the fact that it is predominantly offered as a part of a bundled
offering (with depressed individual services. ARPUs, yet higher user ARPU). However, with time
the IPTV ARPU should be probably expected to trend relatively briskly upwards and to converge
with ARPUs of DTH and CATV due to three main reasons:
(i) Rising infrastructure costs (when the market in the urban areas becomes saturated, IPTV
will be forced into smaller towns where the capex per user ratio is likely to be higher),
(ii)Over time, the IPTV service will become more widely recognized among the viewers, which
should facilitate price increases, and
(iii)Assuming further growth of incomes, over time the subscribers may migrate from basic
to more expensive packages and more extensively use the value-added services (VOD).
4.1.5.
Television programs distribution market forecasts
GUS-based household data
Our forecast for the television programs distribution market in Poland have been based on GUS
(Central Statistical Office) data and projections regarding the number of households in the country.
We assumed that on the back of rising incomes the share of TV households will steadily increase
from 91% in 2005 to 95% in next few years time.
DTT’s LT penetration seen
The issue of the LT attainable level of DTT penetration (determining the size of the TV household
population outside of the paid multichannel platforms) constitutes one of the main assumptions
of our market model. Looking at the experiences of the some European countries, it appears to us
that in this respect the DTT developments in Poland may resemble those of Germany, i.e. a country,
where at the time of the DTT roll-out the paid multichannel penetration was relatively high (though
in Poland it is likely, in our view, to be even higher than in the Germany at time of the service launch),
and where the island DTT roll-out method was used (or, generalizing, a development typical
at app. >20%,…
????????????????????????
49
Cyfrowy Polsat
for countries where the launch of the DTT service was ‘late’ from the perspective of the fee-based
multichannel penetration at the time of the kick-off of the former). We assume that the LT target
share of the DTT households in all TV households in Poland will oscillate at >20% (i.e. at c. 70%
of the share of the analog terrestrial TV households at the service launch (turn of 2008
and 2009).
...with pay multichannel
at <80%
Such target levels appear
plausible for countries with
high subscription multichannel
penetration rates at the time
of DTT service launches
It follows then, that we forecast LT subscription multichannel penetration level in Poland at app.
<80%, a number which, at the first sight, may appear high from the international perspective, yet
would be in line with such countries as Ireland, Portugal, Hungary or Romania (regarding the details,
please refer to Chapter 3 - Global market outlook and trends), i.e. countries with high paid multichannel
penetration at the time of the DTT service launch.
We expect the peak of the paid multichannel penetration growth in Poland to materialize during
the 2006-2008E period; we forecast the eop penetrations at, respectively, c. 68% and 71% for 2008
and 2009 (up from 52% and 61% as of the end of 2006 and 2007, respectively), mainly on the back
of booming volumes of the DTH services (expected share in sector’s net adds of c. 60-80%
in 2008-2009E, compared to c. 90% in 2006-2007), thriving on people’s rising incomes and lack
of network-reach-related constraints, and - though in much smaller extent - due to picking up IPTV
volumes (though, from a very low base) and sluggish net adds at CATV (regarding the detailed
rationale for our assumptions on various TV programs distribution platforms, please refer to the
preceding sections of this chapter, devoted to particular distribution platforms). It then automatically
follows, that we forecast material increases of DTH’s and IPTV’s shares in the subscription
multichannel market (in number of users’ terms) at the expense of CATV.
Fig. 49 TV households in Poland; paid multichannel vs. ATT & DTT (FTA)
Fig. 50 TV penetration in Poland; Paid multichannel vs. ATT & DTT
Source: DM IDMSA estimates on the basis of various sources (GUS, KRRiTV, Informa, PwC, Company
data), DM IDMSA estimates
Source: DM IDMSA estimates on the basis of various sources (GUS, KRRiTV, Informa, PwC, Company
Fig. 51 Structure of paid multichannel TV market in Poland (in number of users’ terms)
Source: DM IDMSA estimates on the basis of various sources (GUS, KRRiTV, PIKE, Informa, PwC, Company
50
????????????????????????
Cyfrowy Polsat
Fig. 52 Television distribution in Poland; Market model
million
2003
Households:
13.54
Urban
9.08
Rural
4.46
TV households
12.38
TV households as % to total households
91%
Paid multichannel households:
4.87
yoy change
n.a.
CATV
3.97
yoy change
n.a.
DTH
0.90
yoy change
n.a.
IPTV
0.00
yoy change
n.a.
Terrestrial analogue households
7.52
yoy change
n.a.
DTT households
0.00
yoy change
n.a.
Net additions:
Paid multichannel:
0.39
CATV
0.31
DTH
0.08
IPTV
0.00
Terrestrial analogue
n.a.
DTT
0.00
Shares in paid multichannel net additions:
CATV
81%
DTH
19%
IPTV
0%
Structure of paid multichannel market:
CATV
82%
DTH
18%
IPTV
0%
Total multichannel
100%
Penetration:
Paid multichannel:
39.3%
CATV
32.0%
DTH
7.3%
IPTV
0.0%
Analogue terrestrial
60.7%
DTT
0.0%
CATV in urban areas
43.7%
IPTV in urban areas
0.0%
2004
13.70
9.16
4.53
12.53
91%
5.36
10.2%
4.26
7.3%
1.11
22.8%
0.00
n.m.
7.17
-4.6%
0.00
n.m.
2005
13.86
9.24
4.61
12.67
91%
5.83
8.7%
4.38
3.0%
1.45
30.8%
0.00
n.m.
6.85
-4.5%
0.00
n.m.
2006
14.01
9.32
4.69
12.96
92%
6.75
15.7%
4.50
2.7%
2.24
55.0%
0.01
n.m.
6.21
-9.3%
0.00
n.m.
2007
14.16
9.40
4.77
13.17
93%
8.06
19.5%
4.60
2.2%
3.42
52.6%
0.04
765.7%
5.11
-17.8%
0.00
n.m.
2008E
14.32
9.47
4.85
13.38
93%
9.08
12.7%
4.70
2.2%
4.22
23.4%
0.16
277.2%
4.30
-15.8%
0.00
n.m.
2009E
14.46
9.53
4.93
13.59
94%
9.70
6.8%
4.80
2.1%
4.62
9.5%
0.28
73.5%
3.14
-27.0%
0.75
n.m.
2010E
14.60
9.59
5.01
13.79
94%
10.25
5.7%
4.90
2.1%
4.95
7.1%
0.40
42.4%
2.04
-35.0%
1.50
100.0%
2011E
14.72
9.63
5.09
13.98
95%
10.72
4.6%
5.00
2.0%
5.20
5.1%
0.52
29.8%
1.01
-50.5%
2.25
50.0%
2012E 2013E 2014E 2015E 2016E 2017E 2018E
14.83 14.93 15.01 15.08 15.14 15.18 15.22
9.66 9.68 9.70 9.70 9.69 9.68 9.65
5.17 5.24 5.31 5.38 5.45 5.51 5.57
14.09 14.18 14.26 14.32 14.38 14.42 14.46
95% 95% 95% 95% 95% 95% 95%
11.09 11.17 11.25 11.32 11.38 11.42 11.46
3.5% 0.7% 0.7% 0.6% 0.5% 0.4% 0.4%
5.10 5.11 5.12 5.13 5.14 5.15 5.16
2.0% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2%
5.35 5.36 5.37 5.38 5.39 5.40 5.41
2.9% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2%
0.64 0.70 0.76 0.81 0.85 0.87 0.89
22.9% 9.3% 8.5% 6.6% 4.9% 2.3% 2.3%
0.00 0.00 0.00 0.00 0.00 0.00 0.00
-100% n.m. n.m. n.m. n.m. n.m. n.m.
2.99 3.00 3.00 3.00 3.00 3.00 2.99
32.9% 0.5% 0.0% -0.1% -0.1% 0.1% -0.2%
0.50
0.29
0.21
0.00
-0.35
0.00
0.47
0.13
0.34
0.00
-0.32
0.00
0.92
0.12
0.79
0.01
-0.63
0.00
1.32
0.10
1.18
0.04
-1.10
0.00
1.02
0.10
0.80
0.12
-0.81
0.00
0.62
0.10
0.40
0.12
-1.16
0.75
0.55
0.10
0.33
0.12
-1.10
0.75
0.47
0.10
0.25
0.12
-1.03
0.75
0.37
0.10
0.15
0.12
-1.01
0.74
0.08
0.01
0.01
0.06
0.00
0.01
0.08
0.01
0.01
0.06
0.00
0.00
0.07
0.01
0.01
0.05
0.00
0.00
0.06
0.01
0.01
0.04
0.00
0.00
0.04
0.01
0.01
0.02
0.00
0.00
0.04
0.01
0.01
0.02
0.00
0.00
59%
41%
0%
27%
73%
0%
13%
87%
1%
8%
89%
3%
10%
78%
12%
16%
65%
19%
18%
60%
22%
21%
53%
26%
27%
41%
32%
13%
13%
75%
13%
13%
75%
14%
14%
71%
17%
17%
67%
25%
25%
50%
25%
25%
50%
79% 75% 67% 57% 52% 49% 48% 47% 46% 46% 46% 45% 45% 45% 45%
21% 25% 33% 42% 46% 48% 48% 48% 48% 48% 48% 48% 47% 47% 47%
0%
0%
0%
1%
2%
3%
4%
5%
6%
6%
7%
7%
7%
8%
8%
100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
42.8%
34.0%
8.8%
0.0%
57.2%
0.0%
46.4%
0.0%
46.0%
34.6%
11.4%
0.0%
54.0%
0.0%
47.4%
0.0%
52.1%
34.7%
17.3%
0.0%
47.9%
0.0%
48.3%
0.1%
61.2%
34.9%
26.0%
0.3%
38.8%
0.0%
49.0%
0.5%
67.9%
35.1%
31.5%
1.2%
32.1%
0.0%
49.6%
1.7%
71.4%
35.3%
34.0%
2.1%
23.1%
5.5%
50.4%
3.0%
74.3%
35.5%
35.9%
2.9%
14.8%
10.9%
51.1%
4.2%
76.7%
35.8%
37.2%
3.7%
7.2%
16.1%
51.9%
5.4%
78.7%
36.2%
38.0%
4.6%
0.0%
21.2%
52.8%
6.7%
78.8%
36.0%
37.8%
5.0%
0.0%
21.2%
52.8%
7.3%
78.9%
35.9%
37.7%
5.4%
0.0%
21.1%
52.8%
7.9%
79.1%
35.8%
37.6%
5.7%
0.0%
20.9%
52.9%
8.4%
79.2%
35.8%
37.5%
5.9%
0.0%
20.8%
53.0%
8.8%
79.2%
35.7%
37.4%
6.1%
0.0%
20.8%
53.2%
9.0%
79.3%
35.7%
37.4%
6.2%
0.0%
20.7%
53.4%
9.3%
Source: GUS, KRRiTV, PIKE, Informa, PwC, DM IDMSA estimates.
4.2.
Seven MVNOs operational
at the moment; this number
is likely to increase significantly
by the year-end
????????????????????????
MVNOs
mBank Mobile was the first MVNO on the Polish market; it launched its services at the end of 2006,
and was followed in 2007 and 2008 by myAvon, WPmobi, MNI, Ezo Mobile (based on agreement
with MVNE – MNI), Carrefour MOVA and Mobilking. This, however, seems to constitute only the first
wave of MVNO launches, as a number of other parties – including i.a. Cyfrowy Polsat, GTS Energis,
Telefonia Dialog, Tele2, Multimedia Polska, Inteligo, Grupa Aster, Crowley Data Poland, Gadu-Gadu
or Netia have publicly confirmed their plans of starting the MVNO operations. The way we see it,
by the year-end the Polish market may see as much as several MVNOs with commercially launched
operations.
51
Cyfrowy Polsat
The business models adopted
by local MVNOs seem
to depend on the owner’s core
business exposure to the telco
market (or lack of such
an exposure)
All MVNOs want to sell
the mobile service to ‘already
possessed’ customer base
User approach strategies
may differ
It appears that the business models adopted by local MVNOs strongly correlate with the type of their
owner’s core operations (related/unrelated to the widely defined telecommunication (or ‘digital
communication’) sector)); specifically, the companies which are not engaged in the digital
communication business (e.g. cosmetics producer Avon and banking institutions PKO BP and BRE)
choose to structure their MVNO businesses within the affinity partner mode, whereas enterprises
running some kind of a digital communication business as their core operations (e.g. TPSA-owned
Wirtualna Polska horizontal Internet portal, CATV operators Aster and Multimedia, alternative fixed
line operators Tele2 and Dialog or DTH platform Cyfrowy Polsat) typically prefer more ‘advanced’
MVNO business models (ranging from service provider to full MVNO), utilizing already possessed
CRM & billing centers or investing in the network elements in order to provide their services
independently from the host MNO’s capabilities.
All MVNOs which already entered or will shortly enter the Polish market want to base their mobile
business on the customer pools of their owners’ core operations; e.g. mBank Mobile dedicates
its services predominantly to the banking clients of mBank, Multimedia Polska wants to market
the mobile service to its current CATV subscribers (turning its triple-play offering into a quadruple-play
one), etc. Via such an approach MVNOs may potentially quickly build their mobile subscriber base during
the early stages of their operations (providing, of course, that the service arouses customer interest).
It appears that the MVNOs owned by some kind of digital communication companies want to present
offers which could attract an average mobile user, whereas those operating as add-ons to unrelated
business and predominantly focusing on the customer base of the owners core non-digital communication
businesses will probably aim to propose value-added services connected with the core business
(e.g. myAvon offers its users possibility of checking the arrival date of purchased cosmetic products).
Depending upon the broader-picture fit of the MVNO’s business into the owner’s overall crosssegment business context, we are likely to witness various approaches towards winning the users
for the mobile services. For example, alternative fixed line operators Tele2 and Dialog will probably
prefer to offer the mobile service to ‘everyone willing’ in the market, whereas others may conceptually
limit their offerings to narrower customer groups (e.g. WPmobi, via its segmentation-driven marketing
strategy, intends to win only the subscribers among the Internet users, as the ‘wide market’ offer
is delivered by Orange – TPSA’s group MNO).
Cross-selling possibilities
MVNO have many potential cross-selling possibilities, which are connected with the core businesses
of their parent companies. On the one hand, the majority of MVNOs, which plan to enter the Polish
market do not disclose their plans concerning cross-selling actions, or are still in the stage of creating
the conceptual frameworks of their projects. On the other hand, it is easy to find such concepts,
i.e. companies with telecommunication background (Dialog, Multimedia, Tele2 or GTS Energis) may
deliver different services based on the multi-play offering, while companies not connected previously
with the telco market may utilize the additional channel in order to place their products or services
(i.e. in case of mBank mobile or Inteligo it could be sales of credit cards, etc.).
Marketing strategies adjusted
The marketing strategies adopted by Polish MVNOs often constitute the consequence of the target
customer group approach of the operators. Mass market operators, such as Tele2, want to win
as many mobile users as possible, targeting the broad market and using discount MVNO marketing
strategy. On the other hand, the lifestyle marketing strategy tends to be used by operators, which
are (or want to be) niche players, providing services for dedicated groups of users (e.g., mBank
treats its MVNO project as an add-on service for its banking clients).
to targeted customer groups
Future consolidation among
the MVNOs is inevitable
First MVNE already on the market
Future consolidation among
the MVNOs is inevitable
52
In our opinion, the current spree related to the MVNO operation launches will result, sooner or later,
in the consolidation of this part of the telecommunication market, as given current penetration levels
and relatively close-to-maturity life-cycle stage of the mobile sector, the market is unlikely to support
as many as several MVNOs over the longer run. The way we see it, some of the current entrants will
not manage to win sufficient number of subscribers to reach the break even points; while some
of them may merge, others may be sold to the existing MNOs.
MNI is the first MVNE (Mobile Virtual Network Enabler), which started its operations in Poland.
As of now beside its own MVNO network called Simfornia it provides network access for Ezo Mobile
– owned by Telestar. We believe that the growing number of MVNOs operating through MVNE
agreements is only a matter of time.
????????????????????????
Cyfrowy Polsat
With early-mover advantage,
strong brandname and
ample pools of target clients
constituting the key-success
factors, Halo Polsat and
Carrefour MOVA seem to have
the best chances to succeed
with their MVNO endeavors
Given the infancy of the MVNO sector in Poland, it is extremely difficult to assess which of the
operators are likely to prove successful and which may fail. However, given the Western European
experience, indicating the key-success factors in the MVNO business, one may try to tentatively
assess the chances of particular entrants on the Polish market. The way we see it, these successfactors include (i) the early market presence, (ii) recognized brandname and (iii) large potential client
pools. Looking from that perspective at the Polish scene, it appears that Halo Polsat and Carrefour
MOVA stand the highest chance for success, as these two strong brandname operators command
large target potential customers pools. Please note, however, that this is a very tentative assessment
of ours, which may be subject to a change, depending on the actual developments.
4.2.1.
We assume LT target mobile
penetration level in Poland
at c. 130%,…
…will c. 12% LT target market
share of MVNOs,…
...and MVNOs’ ARPUs lower
than MNOs
Mobile and MVNO market forecasts
With mobile penetration rate in Poland exceeding 109% as of the end of 1Q08, the question arises,
how much further this rate can go up in the years to come? While raw GDP per capita does not do
much work in explaining the cross-country differences in mobile penetration rates, the purchasing
power adjusted GDP per capita does somewhat better job (R2 = 60%). Nonetheless, we believe
that in the long run the relationship between purchasing power adjusted GDP per capita and
the level of mobile penetration should hold; hence, for our forecasts, we adopt LT target mobile
penetration broadly in line with the regression-implied results (c. 130%), yet assume different path
of reaching this target (steeper additions in next few years followed by a flattening).
The other key assumption we have to make pertains to the target level of MNVOs’ share in the
mobile market (measured in number of users. terms). Looking at the track-record of Western
European countries (e.g. 13% market share in the UK, c. 25% in Germany, c. 15% in Denmark,
app. 13% in Norway, 8% in Austria), we believe that the values in the 10-15% range constitute
a plausible LT assumption in this respect for Poland (with central assumption of ours resting
at 12% level).
Due to their business model, MVNOs tend to record lower ARPUs than MNOs; while such differences
vary from country to country, typically MVNO’s ARPU (especially in the pre-paid service) is by 10-30%
lower than ARPU of MNOs operating on a given market. We assume that similar proportions will
hold for Polish market.
Fig. 53 Mobile penetration and number of mobile users in Poland
Fig. 54 New mobile entrants (MVNOs + MNOs) in Poland; Users
Source: Companies’ data, DM IDMSA estimates
Source: Companies, DM IDMSA estimates
????????????????????????
53
Cyfrowy Polsat
Fig. 55 New mobile entrants (MVNOs + MNOs) in Poland; Market shares
(in terms of number of users)
54
????????????????????????
Cyfrowy Polsat
5.
Business model and strategy
Cyfrowy Polsat is the largest - in terms of number of subscribers – paid DTH platform
aa
in CEE (6th largest in Europe), growing rapidly on the back of its low-cost leadership
generic strategy and ‘best price for quality content’ offering (affordable entry packages
with upward migration outlook) coming on the top of Poles’ rising incomes and
entertainment needs, penetrating predominantly rural areas and smaller cities, which
often lie beyond the scope of alternative fee-based multichannel platforms (IPTV,
CATV). To further capitalize on its ample subscribers base (c. 2.19 million households
as of the end of 1Q08) the Company plans to bundle its DTH service with a MVNO
offering at the turn of 2Q08 and 3Q08.
Compared to competing local DTH platforms (Cyfra+, ‘n’) Cyfrowy Polsat focuses
aa
on a broader income range of clients and off-large-city areas, which coupled with
comparable programming content offered at discount-to-peers prices proved
to be a winning card during the phase of dynamic growth of volumes on the market.
Moreover, the way we see it, the Company’s TV programs’ package strategy has been
better aligned to subscribers’ needs than the peers’ strategies.
The alteration of Cyfrowy’s new subscribers’ acquisition approach (switch from STB leases
aa
to STB outright sales) results in low DTH churn rates (below the sector’s average).
The main risk factors are connected with the Company’s environment. As DTT is likely
aa
to have most appeal for the low-to-average income inhabitants of smaller towns and
rural areas, should its roll-out be accelerated (compared to current provisional plan)
Cyfrowy could suffer due to its focus on this customer group.
Cyfrowy’s focus on a broader disposable income range of small cities and villages
aa
inhabitants constitutes the best strategy during an expanding economy, but probably
more risky for times of economic slackness/ contractions; consequently, a major
slowdown of GDP would cap the affordability of the Company’s service to lowerincome prospects, and result in rising bad receivables from current subscribers and/or
a downselling effect.
The Company’s pre-payment-based subscriber billing approach reduces (i) NWC financing
aa
requirements, (ii) bad receivables risk and (iii) TV programming content costs.
While Cyfrowy Polsat subsidizes – in order to maximize its share in the sector’s new
aa
adds – STBs sold to its DTH subscribers, the launch of an in-house STB assembly
should bring the average subsidy down. To-date the Company has been maintaining
an OPEX-conscious stand, which we expect to continue (in 1Q08 the Company’s
revenues improved by 37% yoy, while OPEX raised only by 20% yoy).
The MVNO service stands a chance for success, on the back of the strong brand-name
aa
of the Company (one of key success factors in the MVNO business) and large potential
users’ base (Cyfrowy’s DTH households).
5.1.
Mr Solorz retaining his control
over the Company
????????????????????????
Shareholder structure
Cyfrowy Polsat’s April 2008 IPO encompassed only sale of 67,081,250 of the existing shares
(24% stake) at PLN 12.50 per share with no new equity issue placed on the market.
Mr Zygmunt Solorz-Żak retained his control over the Company (directly and via Polaris Finance B.V.),
holding a 73% stake in Cyfrowy Polsat. There is a 180-day lock up on all shares outstanding not sold
at the IPO stage.
55
Cyfrowy Polsat
Fig. 56 Cyfrowy Polsat; Shareholder structure (post-IPO)
Source: Company
5.2.
No. 1 DTH platform in CEE
(in no. of users’ terms)
Background
Cyfrowy Polsat is the largest – in terms of number of subscribers – paid DTH platform
in Poland and the CEE region (and the 6th largest in Europe), growing rapidly on the back of its cost
leadership, ‘best price for quality content’ offering and a wide distribution network coming on the top
of Poles’ rising incomes and entertainment needs, penetrating predominantly rural areas and smaller
cities (<50 ths inhabitants), which often lie beyond the scope of alternative fee-based multichannel
platforms (CATV, IPTV). The Company’s offering encompasses 64 television programs, including
all four main terrestrial channels available in Poland (TVP1, TVP2, TVN and Polsat), which constitutes
a unique feature among the Polish DTH players, as the remaining two (Cyfra+ and ‘n’) do not carry
the Polsat national channel (of Polsat SA’s free-to-air television broadcaster). The Company
complements its core DTH offering by innovative additional services and products (DVR,
HD channels), a stance which should be expected to continue in the foreseeable future
(e.g. MVNO, VOD).
Fig. 57 Milestones in history of Cyfrowy Polsat
1996
December 1999
2000
2000
2003
2003
2004
2004
2005
July 2007
October 2007
4Q07
April 2008
Turn of 2Q08
and 3Q08
Set up of Market S.A. (legal predecessor of the Company).
DTH service launched by Polsat S.A. (free-to-air television broadcaster, unrelated to the Company (controlled by Mr Solorz, owner of Cyfrowy
Polsat)).
Change of the Company's name from Market S.A. to Polsat Cyfrowy S.A.
Polsat Cyfrowy signs an agreement with Polsat S.A. under which it provides the latter with the services related to the DTH platform (winning
subscribers to the platform, collection of subscribers' payments, etc.).
Polsat Cyfrowy receives the license from the National Broadcasting Council (KRRiT in Polish abbreviation) for wireless distribution
of the satellite radio and television channels.
Polsat Cyfrowy acquires from Polsat S.A. all its DTH assets, becoming a full-blown DTH operator.
Change of the Company's name from Polsat Cyfrowy S.A. to Cyfrowy Polsat S.A.
Cyfrowy Polsat signs an agreement with Nagravision providing for lease, license and installation of conditional access system and sales
of the Nagravision access cards.
Merger of Cyfrowy Polsat with its fully owned subsidiary Polsat Sp. z o.o. (an entity leasing the STBs to the Company's DTH service
subscribers).
Divestment of the entire (75%) stake in Emarket Sp. z o.o. (electronic equipment trading company).
STBs production plant launch.
The first HD standard TV channel launched (Polsat Sport in HD).
IPO.
MVNO launch.
Source: Company
56
????????????????????????
Cyfrowy Polsat
64 Polish language TV channels
in offer
Program offering
for the entire family
‘No killer programming’
approach
5.3.
Products
5.3.1.
DTH
Cyfrowy Polsat’s DTH platform gives its subscribers access to 68 Polish language television
channels, including news, entertainment, music, sports, education and film channels. The Company
is the only DTH operator whose platform carries all major terrestrial channels available in Poland
(Polsat, TVP 1, TVP 2 and TVN). The channel portfolio of Cyfrowy Polsat comprises: (i) music and
entertainment channels, (ii) education channels, (iii) news channels, (iv) children’s channels, (v) film
channels and (vi) sports channels. In should be also noted that Cyfrowy Polsat is the only DTH
platform to carry the three most popular sports channels: Eurosport, Polsat Sport and Polsat Sport
Extra. Additionally, the Company offers its subscribers access to all FTA television and radio
channels available via satellite in the territory of Poland. In December 2007 the Company launched,
as the only digital satellite television operator in Poland, four thematic channels produced by BBC:
BBC Lifestyle, BBC Knowledge, BBC Entertainment and CBeebies. Finally, in January 2008
the Company broadened its program portfolio by adding three premium movie channels HBO, HBO2
and HBO Comedy, filling in the only apparent gap in its program offering.
Cyfrowy Polsat buys all pay-television channels from renowned content providers (e.g. TVN, Polsat,
Discovery, Disney, Turner Broadcasting, Eurosport, Cinemax or MTV). To increase the level of takeup, the Company delivers a wide choice of television channels targeted at all family members; thanks
to such approach, the channel mix of Cyfrowy Polsat appears attractive irrespective of the contents
of individual programs, e.g. the rights to transmit a single popular sporting event (no ‘killer’
programming in the offer). Please note that the payments under the license agreements between
the Company and television channel broadcasters (content providers) are in most cases settled
on a per subscriber basis or, rarely, on a flat fee basis (we discuss this issue more thoroughly
in the Operating costs section).
Packages
Two base starter program
packages, accompanied
by five thematic packages
and three promotional
packages
Comparable programming
content offered
at discount-to-peers prices
Base starter Mini package:
20 channels available
Introduced to win low-end
customers
????????????????????????
The starter packages offered by the Company come in two options: the Mini package (sundry
package) and the Familijny package (flagship package). Customers subscribing to the Familijny
package (but not to the Mini package) may additionally order five thematic packages, including
Film, Sport, Cinemax, Bajeczka, Muzyka and the Adult (Playboy TV) channel. Majority (87.5%
as of the end of 1Q08) of the Company’s customers choose the Familijny option as their starter
package. The thematic channels are bundled into three promotional packages: Relax Mix, Relax Mix
HBO and Super Film.
In our opinion, the Company’s Familijny starting package (offered at the price of PLN 37.90)
is comparable with the Cyfra+ Tematyczny package (offered at the price of PLN 40) accompanied
with additional channel AXN (at PLN 5), as it is available in Cyfrowy Polsat’s Familijny package.
Thus, Cyfrowy Polsat is able to deliver comparable programming content at the price which
is by c. 19% lower than in its main competitor’s offer. However, in the premium packages area Cyfra+
is able to offer more movie channels (Canal+, Canal+ Film (also in HD) or Filmbox (also in HD)) than
Cyfrowy Polsat (from the beginning of this year the channels of HBO are being offered at all local
DTH platforms).
The Mini package, launched in October 2006, is a starter package giving access to 20 Polish
language television channels, as well as all free-to-air television and radio channels available
via satellite in the territory of Poland. At any time during the subscription agreement period,
the subscribers of the Mini package may purchase the Familijny package and be able to access the
remaining program packages (Relax Mix, Relax Mix HBO and Super Film, or any of the thematic
packages).
The monthly subscription fee for the Mini package (having c. 273 thousand of subscribers as of the
end of 1Q08), is PLN 9.90 (gross) and the agreements with Mini package subscribers are concluded
for the initial minimum period of 24 months. Please note that when entering into a Mini package
agreement, subscribers are given a one-month access to channels available in the Familijny and
57
Cyfrowy Polsat
Relax Mix packages and when the initial minimum 24-month period ends, the agreement
is automatically extended for an indefinite period of time (and may be terminated at three-months’
notice). The Mini package was launched by the Company with the aim of winning as many new
customers as possible (also from the low-income brackets), as the Company believes (rightly, in our
view) that once a customer has subscribed to Cyfrowy Polsat, he/she will be more likely to purchase
more expensive program packages in the future (the upselling effect).
Starter Familijny package: all
channels available in the Mini
package +25 thematic channels
Familijny is a starter package allowing access to (i) all channels available in the Mini package,
(ii) all FTA television and radio channels available via satellite in the territory of Poland and
(iii) additional 25 thematic channels. The Familijny flagship package has been designed as a mix
of all categories of television channels so that every family member can find something
for themselves. As at the end of 2004, 2005, 2006 and 2007 the number of customers subscribing
to the Familijny package stood at 393 thousand, 656 thousand, 1.169 million and 1.914 million,
respectively. In the case of agreements concluded for the initial minimum period of 24 months
(previously 17 months), customers are charged a monthly subscription of PLN 37.90 (following
an 8% increase starting from January 1, 2008). When the initial minimum subscription period ends,
the agreement is automatically extended for an indefinite period of time (and may be terminated
at three-months’ notice).
Fig. 58 Cyfrowy Polsat: Structure of offered program packages
Numbers in brackets represent numbers of channels in particular package.
Source: Company
Fig. 59 Cyfrowy Polsat: Thematic channels packages
Source: Company
58
????????????????????????
Cyfrowy Polsat
Packages of thematic channels
The Company offers three larger promotional packages of thematic channels: Relax Mix, Relax
Mix HBO and Super Film (but the thematic channels are available also on an ‘a la carte’ basis for
subscribers of the Familijny package).
Relax Mix package
The Relax Mix package, which appeared in the Company’s offering in December 2005, provides
access to an extra 15 television channels clustered into four thematic packages: (i) four sports
channels (the Sport package), (ii) seven film channels (the Film package), (iii) two children’s channels
(the Bajeczka package) and (iv) two music channels (the Muzyka package). Please note that
the Relax Mix package can only be purchased by customers subscribing to the Familijny package.
Price-wise the sum of subscription fees for access to the aforementioned four packages equals
PLN 39.80. However, when signing an agreement for the Relax Mix package customers are offered
a 50% discount and thus pay only PLN 19.90 per month (in addition to the Familijny package
subscription fee). Agreements for the Relax Mix package are concluded for a 24-month period
(17-month till October 2007).
FTA channels
All available satellite FTA TV
programs included in Cyfrowy’s
packages
Receiving of FTA channels
possible even with terminated
subscription agreement
Apart from pay channel packages, Cyfrowy Polsat’s set-top box lets viewers access the whole range
of free-to-air television channels available via satellite in the territory of Poland as well as Poland’s
leading radio stations.
Please note that after the initial period of a subscription agreement expires, the Company allows its
customers who own (but not lease) Cyfrowy’s set-top box unlimited access to all FTA channels,
without the need to pay any additional subscription fees. In other words, customers who bought
a set-top box and then effectively terminated their agreements may continue to use the STB
to receive FTA channels. On the other hand, however, the Company blocks access to FTA channels
by those customers who breach the terms and conditions of a subscription agreement.
Development of the programming offer
New TV channels to further
enhance the Company’s offering
BBC’s 4 thematic channels from
December 2007
Premium film channels added
in 2008
Launch of new program packages and enhanced attractiveness of the existing ones have been
the driving force behind the Company’s growth. Cyfrowy Polsat intends to continue to expand
its program offering by launching new channels and developing new program packages.
Starting from December 2007, Cyfrowy Polsat is the only digital satellite television platform in Poland
to offer four thematic channels (BBC Knowledge, BBC Lifestyle, BBC Entertainment and CBeebies)
produced by BBC, which enhance the attractiveness of the Familijny package (and the Company’s
DTH ARPU).
The Company signed an agreement with HBO to offer three premium movie channels of HBO (HBO,
HBO2, HBO Comedy), which filled in an apparent gap in its programming offering (previously inferior
compared to the local peers’ premium movie ranges). Thanks to this agreement, Cyfrowy Polsat
significantly enriched its program offering. Please note that the introduction of the new channels did
not entail any additional technical costs, as the Company’s transponders already had the required
capacity (we discuss this issue more thoroughly in the Operating costs section).
Set-Top-Boxes
Switch from third-party
to in-house assembled STBs
????????????????????????
The bulk of set-top-boxes sold by Cyfrowy Polsat come from EIC and Samsung, two globally
recognised STB producers. However, in October 2007 the Company launched its own STB
production facility, which should help it win new customers by cutting the price of these devices
or boost the digital platform’s profitability if it decides not to decrease the price of its set-top boxes
(depending on the market’s situation).
59
Cyfrowy Polsat
New services
HD channels from
October 2007
Video on demand (VOD) still
in the stage of conceptualization
TV over Internet protocol (IPTV)
as a possible additional channel
of service distribution
Ahead of the other Polish operators, Cyfrowy Polsat successfully broadcast a test transmission
of an HD channel during the 2006 World Football Cup. In November 2007 the Company launched
Polsat Sport in HD – its first high-definition TV channel. This year, the Company intends to launch
further four HD channels in four categories: sports, entertainment, film and education (i.e. total
of five including Polsat Sport HD; at the moment Cyfrowy Polsat offers two HD channels in Sport
category (Polsat Sport, Polsat Sport Extra) with one film channel – HBO HD – being in the stage
of tests). Please note that Cyfrowy Polsat will commence to charge fees for access to HD channels
as soon as the offering is fully developed (which should favorably impact the DTH ARPU from 2H08E
onwards).
The Company is considering deployment of the video-on-demand service. Depending on which
solution is chosen, a subscriber will be able to watch a pre-selected film or program at a convenient
time. However, before deciding to roll out the VOD service, the Company will take into account
a number of factors, such as the prevailing market conditions (potential demand for the new service)
which determine the economic viability of the VOD business model, or the implementation of other
strategic objectives (e.g. impact on the churn rates or take-up levels, etc.). Putting another way,
the launch of the VOD service cannot be taken for granted yet.
Cyfrowy Polsat is also considering a roll-out of the IPTV service, which would enable it to reach
customers who for technical or administrative reasons are unable to access pay digital satellite
television. As the IPTV service consists of the delivery of television channels converted into
the Internet Protocol format over a telephone line, if the Company decides to provide this service
it will have to cooperate with a third-party telecom operator having the means to provide broadband
Internet services.
5.3.2.
MVNO to enable bundled
offering
Potential 6 million users
in the reach of the new service
from the inception
By leveraging the strength of its brand and the existing DTH subscriber base (key success factors
in the MVNO business), Cyfrowy Polsat intends to become a mobile virtual network operator (service
to be commercially launched at the turn of 2Q08 and 3Q08). The Company plans to provide
telecommunications services to its existing DTH subscribers, while prospecting for new customers.
In the Company’s opinion, its bundled offering of digital satellite TV and mobile telephony should win
the interest of a greater number of customers, due mainly to development of services and more
attractive pricing. The Company is already working with leading vendors of telecommunications
technologies to implement and put into operation the complete infrastructure (excluding radio
transmitters) necessary to launch the MVNO service (full MVNO approach). Thanks to favorable
decision of UKE, the Company received asymmetric MTR, which will help Cyfrowy Polsat
to capitalize on its business by achieving higher margin or conducting more aggressive pricing
strategy in order to lure new subscribers (consequently, the Company will probably experience
positive cost/revenues balance from the inter-operator activities, as it will pay less for the call
terminations in other networks than other networks will be obliged to pay to Cyfrowy’s MVNO).
Currently, the Company still has to sign roaming agreements with Polkomtel and Centertel in order
to launch the service.
Given the number of Cyfrowy’s DTH subscribers, it appears that at its inception the Company’s new
service will be able to potentially reach close to 6 million people from households already subscribing
to its satellite television services (and probably a number of persons who are not the Company’s
DTH customers at that time). The possibility of bundling services is expected to generate added
cost synergies and boost profitability. However, it can be – in our opinion – almost taken for granted
that in the mid-term the Company’s new business line will generate more costs than revenues.
5.4.
Five main distribution
channels:…
60
MVNO
Distribution network
The Company distributes its services through five channels: (i) specialized distribution network
focusing on the sale of digital satellite TV products and services (by far the most important sales
channel), (ii) a call center, (iii) the Internet, (iv) direct sale, and (v) mobile points of sale.
????????????????????????
Cyfrowy Polsat
...(i) more than 1,200
specialised sales points
covering the entire country,…
Cyfrowy Polsat has set up a specialised pay digital satellite TV distribution network spanning the
entire country, which comprises 25 distributors and a partnership network numbering over 1,200
points of sale, where customers can sign agreements for Cyfrowy Polsat’s DTH services, purchase
a set-top box or put in an order for a professional satellite dish installation service. In order
to encourage the sales staff to achieve higher sales of Cyfrowy Polsat’s channel packages,
the Company has introduced an incremental commission-based pay scheme (this issue is discussed
more thoroughly in the Operating costs section).
…(ii) call center,…
Call center constitutes the second sales channel of the Company’s DTH service. Via the call center
the prospective customers of Cyfrowy Polsat can place an order for a particular service and locate
the nearest point of sale. Please note that when sales are high (implied ‘bottleneck’ risk),
the Company outsources the call center services to third-party operators, which ensures high
service standard and reduces Cyfrowy Polsat’s cost base (lack of higher fixed costs during the slack
seasons).
...(iii) Internet,…
The importance of the Internet sales channel increases. At Company’s website (www.cyfrowypolsat.pl)
potential customers can find detailed information on Cyfrowy Polsat’s offering, order a receiver set,
subscribe to selected DTH package or obtain the address of the nearest point of sale, while
the existing subscribers can use this sales channel to purchase additional program packages.
...(iv) direct sales, and...
Direct sale enables the Company to effectively target well-defined narrower customer groups and
to have direct contact with customers. Cyfrowy Polsat cooperates with partners which distribute
its DTH packages and STBs on a direct sale basis. The number of such partners is expected
to be gradually increased.
...(v) mobile points of sale
Another distribution channel used by Cyfrowy Polsat are mobile point of sale stands at shopping
malls or mass event venues. Thanks to their distinct branding and display of promotional materials,
mobile points of sale serve also to advertise the Company’s DTH offering. Encouraged by good
sales performance of this channel, the Company plans its further expansion.
An in-house warehouse
The Company has established an in-house warehouse complete with its own logistics system
to handle orders placed through all the aforementioned five distribution channels. The warehouse
in question may store 300 thousand receiver sets and prepare for dispatch 15 thousand pre-activated
STBs per day.
Fig. 60 DTH distribution network of Cyfrowy Polsat
Source: Company
????????????????????????
61
Cyfrowy Polsat
5.5.
Subscribership growing
dynamically
Cyfrowy’s customers tend to be
the inhabitants of small towns
and rural areas,…
...with average-to-slightlyabove-average net incomes
Customers
The subscribership of Cyfrowy Polsat has been growing exponentially, expanding to nearly twice
its former size in each consecutive year. At the end of March 2008, the number of Cyfrowy Polsat’s
subscribers stood at app. 2.19 million. Apart from the macroeconomic factors (such as robust GDP
growth reflected in higher disposable incomes of households), other key factors driving rapid
expansion of the Company’s DTH subscriber base include, in our view, attractive TV program
offering tailored to the expectations of all family members, pricing advantage of Cyfrowy’s program
packages (very popular with households of lower incomes) over its pay TV competitors, vast
distribution network comprising more than 1,000 specialised points of sale, and launch
of the attractively priced Mini starting package (aimed at attracting the viewers from the lower-end
of the disposable income spectrum).
A summary profile of Cyfrowy Polsat’s customers has been presented below:
(i) A majority of the Company’s customers are inhabitants of rural areas and towns with
a population size of up to 50 thousand (77.5%). These areas have poorly developed cable
infrastructure, so there is a higher potential for growth of pay digital satellite TV. Large-city
dwellers make up approx. 8.6% of the Company’s subscribers.
(ii) The household incomes of the Company’s customers are slightly higher than the income
structure of Polish society would imply. Nevertheless, customers with a household income
not exceeding PLN 2,000 account for the largest share of the Company’s subscribers
(nearly 41%), which is probably attributable to their place of residence (average incomes
in rural areas are below those earned in towns and cities). The share of customers
in the income brackets above PLN 2,000 is above the national average, although such
Fig. 61 Cyfrowy Polsat: Subscribers’ age structure
Fig. 62 Cyfrowy Polsat: Disposable income of subscribers’ households
Source: Company
Source: Company
Fig. 63 Cyfrowy Polsat: Subscribers’ place of residence
Fig. 64 Cyfrowy Polsat: Size of subscribers’ households
Source: Company
Source: Company
62
????????????????????????
Cyfrowy Polsat
customers account only for 29% of the Company’s subscriber base. Compared
to competing local DTHs (Cyfra+, ‘n’) the average income of Cyfrowy’s DTH household
is probably lower.
(iii)As regards the number of persons per household, the Company’s customers are mostly
families with children (>2 persons per household), which represent c. 65% of Cyfrowy’s
DTH subscribers.
DTH churn rates below market
average
The MVNO service should
have a positive effect
on the subscriber churn rate
Cyfrowy Polsat estimates that its DTH subscriber churn rate (a percentage of terminated DTH
agreements) is lower than the sector’s average (regarding the details on the trends in this indicator,
please refer to Figure 85). The way we see it, the Company owes its low churn rate to its ‘best price
for quality content’ offering, as well as to a change in the new subscribers acquisition strategy
(switch from STB leases to STB outright sales), which makes the new subscribers (who bought
Cyfrowy’s STB) more reluctant to churn and a relatively high share of ‘new’ customers (i.e. ones
in an initial agreement term) in the overall customer number.
Low churn rates are by all means desirable. Consequently, Cyfrowy Polsat takes various steps
aimed at enhancing customer satisfaction with the offered DTH services (there is a clear negative
correlation between the customers’ satisfaction with the service and their willingness to churn),
e.g. the Company is working on enhancing its TV channels portfolio (discussed in the Products
section), maintaining its price edge and improving customer service quality. It should be noted
that the roll-out of the MVNO service can be expected to further cap (ceteris paribus) the subscriber
churn rates, as customers who purchase multi-play bundles tend to be less inclined to terminate
their agreements (such customer behavior is corroborated, e.g., by the CATVs’ experience).
5.6.
Own fully professional satellite
center and monitoring help
to optimise costs
Technical infrastructure
Cyfrowy Polsat provides its services by means of a satellite center which provides (via satellite links)
an uninterrupted transmission of the digital television signal to the Company’s subscribers.
The transmission originates from the satellite center situated on the Company’s property in Warsaw,
and is beamed to 74, 78 and 79 transponders on the Eutelsat Hotbird 8, whose geostationary
position is 13° eastern longitude. The transponders then re-transmit the signal to all subscribers
in Poland who pick it up by satellite dishes installed on the exterior of the buildings.
Fig. 65 Simplified satellite system scheme
Source: Company
????????????????????????
63
Cyfrowy Polsat
Transponder costs limited due
to external conditional access
systems
High quality of satellite service
guaranteed by Eutelsat
Satellite signal available
in 99.9% of time (including
maintenance breaks)
Company’s STBs utilise
a system of conditional access
The Company’s satellite center manages all television and radio channels available on the Cyfrowy
platform. Twenty-four television channels and nine radio channels are placed on the satellite
transponders used by the Company. The remaining twenty-four channels (transmitted directly
by broadcasters) are encrypted and managed by the Company’s satellite center through external
conditional access systems sitting at six European locations (Warsaw, London and Paris); thanks
to this solution, the Company succeeded in reducing the costs of transponder lease, which are
covered directly by broadcasters. Eighteen television channels and nine radio channels are received
from broadcasters via satellite and then re-transmitted to the transponders leased by the Company,
while six television channels are broadcast directly from the Company’s satellite center as a feebased service provided by Cyfrowy Polsat to broadcasters (regarding more details, please refer
to the Revenues section; please also note that the Company can quickly expand its satellite center
to 20 television channels if incremental demand arises). All channels available on the Cyfrowy Polsat
platform are compressed into MPEG-2 or MPEG-4 formats (HD channels), encrypted in the
Nagravision system and transmitted to the Eutelsat HotBird 8 satellite through a multiplex and
a ground station.
Cyfrowy Polsat is using three high-power transponders placed on the Eutelsat Hotbird 8 satellite
(launched into orbit in August 2006, with an anticipated service life of 15 years). Eutelsat, one of the
world’s top providers of satellite services, operates one of the largest satellite broadcasting system
in the world, which ensures high quality of the satellite service.
Historically, the subscribers of Cyfrowy Polsat have been able to receive its satellite signal in 99.9%
of time, taking into account the scheduled maintenance downtime. To ensure uninterrupted
transmission of television and radio signals, the Company has installed stand-by equipment
at critical points of its satellite center (operational switchover between the main and the stand-by
elements of the station occurs automatically, without disrupting the satellite center’s work).
To authorise subscribers’ access to the pay channels broadcast, Cyfrowy Polsat’s set-top-boxes
utilise Nagravision’s system of conditional access (the systems of this vendor are operated by more
than 100 of pay TV platforms all over the world, which makes it a global leader in digital TV broadcast
protection area). The software of the conditional access system decrypts television and radio signals
when it receives decryption instructions from the subscriber management system located
at the Company’s satellite center, mitigating the risk of an unauthorized access.
5.7.
Cyfrowy’s competitive
strengths and advantages
include:…
...(i) own fully professional
satellite center and monitoring
help to optimise costs
...(ii) good quality program
packages,…
64
Competitive advantages
Looking strategically at Cyfrowy Polsat we see a number of features constituting the competitive
strengths and advantages of the Company – such as lack of network-reach-embedded constraints
in the DTH business model, large population inhabiting villages and smaller towns in Poland, good
quality TV program packages offered at discount-to-peers prices (and resulting in below-average
churn rates), efficient distribution network, widely recognized brand or modern technical infrastructure
– which underpinned its to-date market success and which will be, as we see it, crucial
for the maintenance of the competitive edge. We discuss these issues below.
As thoroughly discussed in the Market outlook and trends section, DTH – unlike IPTV or CATV –
is not subject to any kind of network-reach-related constraints, which allows it to penetrate small
towns and rural areas practically with no competition from other paid multichannel platforms.
This, coupled with favorable – from the DTH platforms’ perspective – distribution of the population
in Poland – with c. 60% of the population inhabiting villages and towns with less than 50 thousand
dwellers – constitutes a favorable market environment, which the Company successfully explores
via its ‘best price for quality content’ offering (discussed in subsequent paragraphs).
The Company’s customers are offered access to a wide selection of quality television channels
(regarding the details, please refer to the Products section). Cyfrowy Polsat is the only digital platform
in Poland to carry Polsat, one of the four major Polish FTA channels. Additionally, as the only DTH
platform in Poland, Cyfrowy Polsat carries the three most popular sports channels: Eurosport,
Polsat Sport and Polsat Sport Extra. In December 2007 the Company launched, as the only
DTH operator in Poland, four thematic channels produced by BBC Worldwide (BBC Knowledge,
????????????????????????
Cyfrowy Polsat
BBC Lifestyle, BBC Entertainment and CBeebies), and in January 2008 the Company’s portfolio
of TV channels was enriched by premium movie packages (HBO, HBO2 and HBO Comedy).
All these are contributors to the Company’s program packages quality. On the other hand, as the
largest (in terms of number of users) pay TV operator in Poland, Cyfrowy Polsat enjoys a competitive
advantage when it comes to securing access to quality programming. It also needs to be mentioned
that the Company does not critically depend on the broadcasting rights to any sporting events, as its
offering is designed as a mix of varied programming content tailored to the interests of all family
members (‘no killer programming’ approach).
...(iii) comparable programming
content offered at discount-topeers prices,…
...(iv) vast distribution
network,…
...(v) well recognised brand
name, and…
...(vi) modern technical
infrastructure
In our opinion, Cyfrowy’s Familijny starting package (offered at the price of PLN 37.90) is comparable
with the Cyfra+ Tematyczny package (at the price of PLN 40) accompanied by additional channel
package AXN (at PLN 5) – as it is available in the Cyfrowy Polsat’s Familijny package. Thus, Cyfrowy
Polsat is able to deliver comparable programming content at the price which is by c. 19% lower than
in its main competitor’s offer. However, in the premium packages area Cyfra+ is able to offer more
movie channels (Canal+, Canal+ Film (also in HD) or Filmbox (also in HD)) than Cyfrowy Polsat
(despite recent addition of three HBO’s channels).
The significance of the Company’s DTH distribution network (25 distributors cooperating with
a country-wide partnership network of over 1,200 POSs) to Cyfrowy’s market success cannot
be underestimated; given that the Company’s growth is volume-driven at the moment, an extensive
and efficient sales network constitutes a prerequisite for market success.
Owing to its successful family-oriented marketing campaign based around an emotional connection
between the brand and the customers, Cyfrowy Polsat has built a highly recognisable brand name
on the Polish DTH market; a survey conducted by GFK Polonia shows that in January 2007
the Company’s brand name had the highest recognition among the three satellite operators present
on the Polish market (Cyfrowy Polsat, Cyfra+ and ‘n’). The significance of a recognisable brand
stems from the fact that it is probably the second most important contributory factor (apart from fast
market entry) towards success in MVNO operations, which the Company is planning to launch at the
turn of 2Q08 and 3Q08.
Last but not least comes the technical infrastructure. Striving to provide services to a high technical
standard, the Company has entered into cooperation with top technology vendors on the market,
concluding LT agreements for the provision of all technical services material from the point of view
of its operations. Cyfrowy Polsat utilises a conditional access system delivered by Nagravision, one
of the world’s largest vendors of this kind of technology. Cyfrowy’s satellite ground station and signal
transmission system were supplied by NDSatcom, while the core elements of the Company’s
transmission system consist of professional equipment of brands like as Sony or Tektronix. The bulk
of set-top boxes sold by Cyfrowy Polsat come from EIC and Samsung, leading global producers
of STBs and the Company’s signal is broadcast via Eutelsat HotBird. All these elements of technical
infrastructure enable the Company to provide services to a high technical standard, which translates
into customer satisfaction and helps to drive down the churn rates.
5.8.
The main risk factors are
connected with the Company’s
environment, though the
company-specific ones also
exist
DTT is likely to have most
appeal for the low-to-average
income inhabitants of smaller
towns and rural areas
????????????????????????
Risk factors
The way we see it, the main risk factors related to Cyfrowy Polsat are more of broader, environmentrelated nature (e.g. possibility of an acceleration of the DTT roll-out, the possible consequences
of a GDP slow-down in the context of Company’s volume-driven DTH strategy increasingly directed
recently (from 4Q06, when the Mini package was introduced) towards the lower-end of the subscriber
market, etc.) than of purely company-specific character (though the latter ones also exist).
We discuss the major, in our view, areas of risk in the paragraphs that follow.
While current plan regarding the introduction of DTT in Poland is favorable for DTH operators, should
the DTT rollout be accelerated, Cyfrowy would be hit, due to its focus on off-large-cities areas and
recent clear drive towards the lower-to-average income part of the customer spectrum (the Mini
package subscribers).
65
Cyfrowy Polsat
The current plan for the introduction of DTT in Poland seems to be favorable for DTH providers.
The reasons for this are twofold. First, Poland will be the late implementator - the first terrestrial
digital islands are to be created at the turn of this and next year, i.e. when the pay multichannel
penetration is likely – according to our forecasts – to dwell almost at the 70% level. Second,
the national roll-out is planned for completion in 2012 (with possible extension till mid-2015), leaving
pay multichannel platforms at least further 4-year grace period. Should this provisional plan,
however, become altered, with accelerated – compared to the currently binding schedule – rollout throughout the country and/or faster (i.e. pre-2013) launches of additional digital multiplexes,
DTH providers would likely suffer (or at least enjoy less upside), as the DTT offering would be
probably most appealing to inhabitants of small cities and rural areas and households with lowto-average incomes. It straightforwardly follows then that Cyfrowy Polsat, targeting regions offlarge-city-centers and a broader income range of clients (inclusive of lower-to-average income part
of the DTH market (the Mini package)) would suffer from such an acceleration. Please note
that our market projections and forecasts for the Company are based on the assumption
that the aforementioned current provisional plan for the introduction of DTT in Poland will be kept;
while we are not able to assess (even roughly) what is the risk of a scenario in which the plan
is changed (and the DTT roll-out is accelerated and/or the number of multiplexes becoming
operational before 2013 is enlarged), it is obvious to us that such a hypothetical development
would open up a downside risk for our current forward estimates regarding: (i) DTH penetration,
(ii) Cyfrowy’s DTH subcribership, and (iii) Cyfrowy’s financial results.
Major GDP slowdown would
cap the affordability of the
Company’s service to lowerincome prospects, and result
in rising bad receivables from
the current subscribers with
below-average incomes
The MVNO project
is a start-up; even if down
the road it succeeds, its impact
on Cyfrowy’s profits will be
negative in mid-term
Launch of in-house STB
assembly → what will be the
demand in the longer term?
66
While our forecasts do not envisage a major deceleration of the GDP growth in Poland in the coming
years (post 2008E mid-term forecast growth rates in the 4.5-4.9% range), such an unexpected
at the moment development would constitute a material adverse factor for Cyfrowy Polsat.
Please note that the DTH business model of the Company makes it a pure play on consumerism
and rising disposable incomes of the society (also at the lower-part of the income scale). In such
context, the adverse impact of slowing GDP on Company’s results could be expected
to be two-faceted. First, it could cap the influx of new subscribers, limiting the affordability
of the service to the prospects from the lower-income range. Second, the Company’s current
below-average income subscribers could default on their subscription payments, boosting provisions
for bad accounts receivable. Please note, that our forecasts for the Company do not incorporate
such a significant GDP slowdown scenario; hence, should GDP’s growth in the coming years
materially fell below our current expectations, our forecast of Cyfrowy Polsat’s financial results could
be subject to a downward risk.
Cyfrowy Polsat is planning to extend its service range by launching the MVNO operations
(at the turn of 2Q08 and 3Q08). Given the start-up nature of the Company’s MVNO project there
is a risk (difficult to quantify at the moment, but to some extent mitigated, in our view, by the ample
pool of target potential mobile clients – the DTH service subscribers) that the Company’s new
service will not receive a warm welcome by the market, which - in turn - could undermine the
economic viability of the MVNO endeavor. This way or another, the launch of the MVNO project
seems bound to exert a material adverse impact on the Company’s financial results in the mid term
(next few years). As a MVNO, Cyfrowy Polsat will be dependent on a number of key suppliers,
particularly PTC, a MNO’s radio network supplier, as well as suppliers of core technical infrastructure
supporting the telecommunications network (Nokia Siemens, Hewlett-Packard) and certain elements
of the billing system (Accenture). Should these suppliers terminate their agreements or fail to comply
with any contractual provisions, the Company may not be able to secure substitute agreements
for provision of the necessary services or equipment on favorable terms. Nevertheless, we do not
consider this risk to be material.
In order to reduce the costs of subsidising third-party set-top-boxes, in 4Q07 Cyfrowy Polsat launched
in-house production of those devices. If the production profitability or volume fall short of the anticipated
targets, the Company may be unable to effectively reduce the cost of set-top-boxes. In the case
of production of STBs for a local market only, there is an added risk that the market may become
saturated in a matter of 2-3 years, necessitating adjustment (reduction) of the output, which might
affect the production profitability, should the long-term output turn out to be disproportionately low
compared to the incurred expenditure. Irrespective of the Company’s LT strategy for its in-house STB
assembly (production for own needs vs. to external parties), the investment in it should pay off,
however; we expect it to pay back in less than one year since the launch.
????????????????????????
Cyfrowy Polsat
Share supply overhang risk
As noted in the Shareholder structure section, all shares of Cyfrowy Polsat that were not sold
at the IPO stage are subject to a 180-day lock up period. It cannot be precluded, in our view,
that after the expiration of the lock up their holders may be willing to sell, especially as 5,825,000
shares (2.2% of Cyfrowy’s shares outstanding; IFRS2 PLN 10 million cost fully booked in 2007) were
issued last year at price equal to the nominal value (PLN 0.04 per share) to members of the
Company’s management board (625,000 shares) and persons unrelated directly to Cyfrowy Polsat
but related to Polsat SA FTA commercial TV broadcaster (5,200,000 shares; Messrs Myszk, Birka
and Nurowski); hence, in our opinion, some share supply overhang may occur in November/
December 2008.
Management stock option
The management stock option program for the Company’s management and key employees
(approved by Cyfrowy’s AGM on December 4, 2007) may generate (if the share issue price proves
lower than the share market price at the grant date) material stock option costs under IFRS2.
The program in question provides for issuance of up to 5,476,020 (max. dilution of 2.0%) of G-series
shares, split into four equal annual tranches of up to 1,369,005 shares each (vesting in 2009-2012).
The issue price of the shares in question will be set by the Company’ supervisory board. Assuming
that (i) the market share price at the grant date will lie in the vicinity of current market price
of Cyfrowy Polsat’s equities and (ii) the G-series share issue price will be set at minimal possible
level (tantamount to the par value of PLN 0.04 per share), the maximal value of the IFRS2 SOCs
that may be booked over 2009-2012 period can be tentatively estimated at c. PLN 80 million
(i.e. on average app. PLN 20 million per annum).
program at Cyfrowy may
generate material SOCs under
IFRS2
5.9.
Paid distribution of licensed
audiovisual content through
satellite to end-users
Business model
The main feature of Cyfrowy Polsat’s business model provides for the paid distribution (by way
of signal transmission via transponders at a geostationary satellite) of audio-visual content in the
form of licensed television channels to end users using an appropriate STB and satellite aerial.
Generalizing, Cyfrowy is simply a distributor of audio-visual content (we present the visualization
of the Company’s business model on Figure 66, and provide a more in-depth discussion of its merits
in the paragraphs that follow).
Sales channels….
To be able to use the DTH services offered by Cyfrowy Polsat, a prospective customer has to order
the service (e.g. (i) directly at one of the Company’s authorised representatives, (ii) on the Company’s
web site or (iii) through the Company’s call center, etc.). Having signed a contract for provision
of the services, arranged for an installation set (an STB and satellite aerial) to be assembled
(by a customer himself or an authorised technician) and made a subscription prepayment,
the customer may start using the DTH services offered.
...and the distribution network
Depending on the selected option, payment for the installation set is made: (i) at the authorised
distributor or (ii) directly to Cyfrowy Polsat. In the former case, the Company settles the sales with its
distributors; the settlement includes payment of a one-off sales commission to a distributor for
acquiring new customers. Subscription fees for the use of services are made directly to the Company,
monthly in advance.
Pre-payment billing approach
Being a distributor of third-party audio-visual content (television programs) to end users (subscribers),
Cyfrowy Polsat is obliged to pay fees to providers of licensed TV content. The Company has
implemented a payment model where the programming offering is made available to a customer
upon payment of a subscription fee. This feature is crucial for the Company’s business model and
effectively means that the costs of TV programming are incurred exclusively for the customers who
have made the payment. Additionally, Cyfrowy Polsat is able to significantly reduce the number
of customers defaulting on their due payments, owing to a number of solutions, including a billing
system and a subscriber authorisation management system integrated with the former.
The management system enables a TV signal to be transmitted to any selected customer
(or blocked) at any time. The Company’s practice is to disconnect subscribers that do not pay.
As STBs remain with the terminated viewers, such viewers may become again subscribers
of the Company’s DTH service once they re-start their up-front monthly subscription payments
(though they may not use the STB for receipt of an alternative DTH platform).
reduces (i) NWC financing
requirements, (ii) bad
receivables risk and (iii) TV
programming content costs
????????????????????????
67
Cyfrowy Polsat
Low churn, due to the switch
from STB leases to STB outright
sales
Cyfrowy’s TV programs’
package strategy better aligned
to subscribers’ needs than
the peers’ strategies
Own satellite center and leased
transponders
STBs subsidized (to win new
adds), yet the launch of an inhouse assembly should bring
the average subsidy down
Mobile voice bundled service
scheduled for the turn of 2Q08
and 3Q08
The MVNO service stands
a chance for success, on the
back of the strong brand-name
of Cyfrowy (one of key success
factors in the MVNO business),
and large potential users’ base
(DTH subscribers)
68
In 2004, the Company decided to alter its new subscribers acquisition strategy from STB leases
to STB outright sales. Hence, the STB leases are likely to slowly perish, though are unlikely to null
out, as the most advanced (and expensive) STBs continue to be offered in the leasing mode. Since
the aforementioned change, subscribers have been less prone to switch to another paid television
operator (once the STB has been fully paid for at the start of the service use, sunken costs incurred
by the subscriber in connection with the decision to churn become materially higher than under
the leasing arrangement), bringing Cyfrowy’s DTH churn rates to a low level.
Moreover, Cyfrowy Polsat is the only digital platform in Poland to offer a base family package (the ‘n’
platform is divided into thematic channels only, while Cyfra+ offers nested series of packages, which
often makes customers purchase channels in which they have no interest). This again helps keep
the churn low, as resigning from the service would directly affect all family members.
The infrastructure which is necessary for Cyfrowy Polsat to offer its services is partially owned by
the Company and partially leased for the purposes of conducted operations. The Company-owned
infrastructure includes a satellite center from which licensed audio-visual content is transmitted
to the Hotbird geostationary satellite. Cyfrowy Polsat also owns equipment used in direct customer
support and sales: (i) a toll line, (ii) a sales management system and (iii) a CRM system. The leased
infrastructure includes: (i) three transponders on the Hotbird satellite and (ii) Nagravision’s conditional
access system (which enables the number of unauthorised service users to be efficiently reduced).
Cyfrowy Polsat uses both its own and leased infrastructure to provide signal emission and
transmission services to operators of certain television channels. This solution enables the Company
to reduce costs related to the lease of transponders and operation of the satellite center.
The Company’s business model provides for subsidising customers’ purchases of STBs bought
by the Company from vendors (in order to grab the largest share in the DTH net additions;
this is an approach which we fully subscribe to during the phase of a rapid growth of volumes
on the DTH market). Following the opening of Cyfrowy’s own STB production plant in October 2007,
the cost of subsidies should gradually fall; we expect the cost of an STB manufactured by the
Company to be by c. 30-35% lower than that of an STB purchased directly from an external STB
vendor (the producer’s margin (at least partially) would stay with Cyfrowy, rather than being paid
to a third party (STB vendor)).
The Polish integrated services market remains relatively underdeveloped, but has a potential
for a dynamic growth in the future. As a matter of fact, the bulk of the CATVs’ and telcos’ strategies
at the moment are centered on the roll-out of bundled services. The Company hopes to win
a material share in the market, exploiting Cyfrowy Polsat’s strong brand and the existing subscriber
base (key success factors in the MVNO business), through offering – to the existing paid satellite
digital television customers – a full range of mobile telephony services and products, and
by effectively leveraging synergies between these business areas with a view to strengthening
the Company’s position on both markets (Cyfrowy Polsat is also considering upgrading its offering
with broadband Internet access in the future).
The Company intends to become, at the turn of 2Q08 and 3Q08, a mobile virtual network operator
offering telecommunications services to both its existing and new customers. The way we see it, the
expertise gathered on the DTH market should help the Company to successfully enter the mobile
telephony market. Bundling services should increase customers’ interest in the Company’s offering,
mainly owing to the enhanced services portfolio and more attractive prices. While the Company’s
MVNO project is at the moment at its fledgling stage, we believe Cyfrowy stands a sound chance
to succeed in this endeavor, due to its strong and well recognized brand-name, which (looking
at Western European experiences) seems to constitute the second (after the first-mover advantage)
most important key-success factor in the MVNO business, as well as on the back of large base
of potential mobile clients (subscribers of Cyfrowy’s DTH service).
????????????????????????
????????????????????????
Source: DM IDMSA
Polish Film
Institute
royalties (1.5%
of subscription
revenues)
COSTS
REVENUES
Dish
and
STBs
Content providers
(TV broadcasters)
payment
for
TV program
content
payment
for signal
transmission
of
broadcasting
(regards
a few
content
providers)
DISTRIBUTION
NETWORK
(DTH)
MVNO business part
DTH business part
(M
V
N
O)
full
payment
for STBs
(when not
leased)
Fig. 66 Figure 92. Cyfrowy Polsat: Operating business model
STBs
DTH content
service
Eutelsat
payment
for transponder
lease
payment for STBs, Dish
STBs, Dish
SAC payments
lease
payment/
full payment
for STBs
(sale; lease)
STB
producers
payment
for STBs
Dish
and
STBs
MVNO
Nagravision
access costs &
equipment
DTH
STB
in-house
assembly
DTH
subscription
payment
handsets
MVNO
DTH subscribers
Handsets
producers
payment
for
handsets
handsets
Payment
for radio
network
usage
PTC (MNO)
Radio
network
access
technical infrastructure
Nokia,
Siemens
payment
for technical
infrastructure
SAC payments
technical infrastructure and back-up
payment for handsets
HewlettPackard
DISTRIBUTION
NETWORK
(MVNO)
Payment
for technical
infrastructure
and back-up
payment for cards and SIM cards, handsets
rechargeable cards, SIM cards, handsets
revenues from sales of cards (SIM, rechargeable)
post-paid
subcriptions
post-paid
handset
subsidy
Inhabitants of smaller cities and rural areas
(potential subscribers of MVNO)
DTH
Cyfrowy Polsat
69
Cyfrowy Polsat
Both pre-paid and post-paid
services to be offered
A full MVNO business model
approach
Multiple sales channels
for the mobile service
Full subsidy on postpaid
handsets, no subsidies
on prepaid ones
The Company is interested in providing both pre-paid and post-paid services. Prepaid services
should be significantly less capital-consuming and easier to organise for reasons including,
for instance, the settlement method (no invoices) or the structure of agreements and tariffs.
We anticipate the structure of the Company’s MVNO customer base to be dominated by pre-paid
service users (we expect them to represent approximately 80% of all MVNO users). The new service
will first be offered to the Company’s existing customers. Consequently, at its launch it should be
able to instantly reach nearly 6 million people inhabiting the households using satellite television
services of Cyfrowy Polsat.
Cyfrowy Polsat decided to follow the full infrastructure MVNO business model strategy, which offers
the largest independence and operating flexibility to the Company. The Company intends to conclude
separate roaming and interconnect settlement agreements with the domestic operators and leading
operators all over the world, thus reducing the risk of excessive dependence on the radio network
provider, PTC.
Exploiting additional sales channels - (i) the Web page and (ii) the distribution network (to this end,
Cyfrowy Polsat plans to use the existing DTH service distribution network and to build an additional
network dedicated to the provision of MVNO services) - should enable the Company to address its
offering to a very broad base of prospective customers, including those who are not currently using
Cyfrowy Polsat’s DTH service. To be able to use the Company’s new service, a prospective customer
will have to purchase (through one of the sales channels) a start kit to activate the service,
and then upload his account. To render its service standing out among the existing operators,
the Company will strive to both become the market leader in terms of the cost of services offered
and offer a number of value-added services: (i) services connected with satellite television, including
browsing television program schedules or paying for DTH services via an SMS and (ii) other services,
including distribution of audio-visual content through a mobile telephone, with use of the DVB-H
technology.
Operating expenses related to the Company’s new business line will comprise six main areas:
(i) radio infrastructure, (ii) technical infrastructure, (iii) mobile handsets, (iv) marketing, (v) distribution
and (vi) HR. The Company will obtain access to radio infrastructure from PTC, to which fees will be
paid for connection minutes settled on a wholesale basis and network access. Nokia Siemens
Networks and Hewlett-Packard are to provide necessary technical infrastructure and technical
support. Moreover, Cyfrowy Polsat has concluded agreements for the supply of mobile handsets
for its customers. As signaled above, the pre-paid mobile handsets will be sold to the users at their
cost (i.e. lack of subsidy, yet lack of any profits on handset sales), while the handsets to the postpaid subscribers will be fully subsidized by the Company (in line with the prevailing market
practice).
5.10.
Low-cost leadership strategy
follower
Soaring volumes →
the main growth driver
Affordable entry packages,
with upward migration outlook
70
Strategy
Cyfrowy Polsat is a follower of the low-cost leadership generic strategy, targeting the mid- and lower
income part of the customer spectrum (as opposed to its two local DTH rivals - Cyfra+ and ‘n’ which appear to focus on the higher income side of the market).
With such business approach, and lower than in case of local competitors ARPU, the Company’s
growth has been to-date mainly based on soaring volumes (the 2005-2007 shares in DTH’s net adds
way above those of alternative satellite platforms) as Cyfrowy’s ‘best price for quality content’
offering held most appeal and affordability to the rising disposable income inhabitants of small cities
and rural areas, previously unsubscribing to any kind of a paid multichannel TV offering.
The Company’s strategy is based on offering competitively priced packages (which refers to both
Mini and Familijny packages) and the customers’ expected migration to more sophisticated packages
(i.e., from Mini to Familijny, from Familijny to Relax Mix, from Relax Mix to Relax Mix HBO, and from
Relax MIX HBO to Super Film).
????????????????????????
Cyfrowy Polsat
Focus on the low-to-average
disposable income small towns
and villages inhabitants →
the best strategy during
an expanding economy,
but probably more risky for
times of economic slackness/
contractions
Strategy of growing DTH ARPU,
on the back of introduction
of new channels into
the Familijny package
and broadening of the
accompanying thematic
channels range; the 2007
subdued growth constituted
an exception to this rule
(for DTH blended ARPU), due
to the introduction of the Mini
package budget offering and
the introduction of (probably
non-recurring) aggressive
pricing promotion for the
new subscribers of Familijny
package
OPEX-conscious stand aimed
at profitability enhancement
to continue
????????????????????????
As a matter of fact, in the foreseeable future the Company expects to continue to briskly grow its
DTH volumes (and to win a major share in the DTH’s sector net adds) - a development which we
deem likely (e.g. on the back on the ytd results) - due to factors related both to Cyfrowy’s environment
(e.g. exploitation of the growth of Polish economy and growing disposable income of the country’s
population) and company-specific features (e.g. maintaining the ‘best price for quality content’
approach, implementation of the marketing strategy addressing all members of the family,
introduction of new products/services, etc.). In this context we would like to note that the Company’s
definition of the target customer group (the lower-to-average income off-large-cities’ dwellers)
coupled with the low-cost leadership strategy adopted by the Company appears to constitute
the winning card during the economic expansion phases. By the same token, however, it could
potentially underperform during period of economic slowdowns, with capped net adds potential and
increased risk of soaring bad receivables and/or the downselling effect. From this perspective,
we perceive the strategy of Cyfrowy Polsat as more aggressive than the strategies of its local DTH
peers, and more rewarding during the periods of strong economic growth, but also potentially more
risky (most likely more severe penalty during times of economic hardship).
The Company’s ARPU from DTH services has been consistently growing over the last three years
and amounted to: PLN 29.6 in 2004, PLN 30.2 in 2005, PLN 34.3 in 2006 and PLN 34.7 in 2007. The
way we see it, this growth is mostly attributable to the growing sales of the promotional packages of
thematic channels, as well as to the September 2005 increase of the subscription rate for the
Familijny package. Cyfrowy Polsat intends to maintain the ARPU uptrend by introducing new
program packages (as discussed in the Products section) and offering innovative services. In order
to maintain the ARPU uptrend, in December 2007 the Company launched, as the only DTH operator
in Poland, four thematic channels produced by BBC Worldwide: BBC Knowledge, BBC Lifestyle,
BBC Entertainment and CBeebies (following the integration of these channels into the Familijny
package, its gross price was increased by PLN 2.9, i.e. 8%). Additionally, in January 2008
the Company broadened its program portfolio by adding three premium movie channels HBO, HBO2
and HBO Comedy. Finally, in 4Q07, Cyfrowy Polsat launched the first high-definition channel
(Polsat Sport in HD) and this year, the Company expects to have launched a total of five highdefinition channels in four programming categories (at the moment Cyfrowy Polsat offers two HD
channels in Sport category (Polsat Sport, Polsat Sport Extra) and one film channel – HBO HD –
in the stage of tests). The Company believes that all these factors, which may be summed up
as the enhancement of the program offering of the Familijny package and broadening the range
of the accompanying thematic channel packages, will bring about a further growth of ARPU from
this package in the following years. We would like to note, however, that due to the introduction
(in 4Q06) of the Mini package budget offering (offered at PLN 9.9 per month (gross of VAT), compared
to PLN 37.90 per month for the Familijny flagship base starting package (after 8% increase beginning
from January 1, 2008) as well as of an aggressive (but transient) pricing promotion (in the NovemberDecember 2007 peak season) for the new subscribers of the Familijny package (5 free-of-charge
subscription months, instead of typically offered 1 free month), 2007 yoy growth of the Company’s
blended DTH ARPU was subdued (only 1.5% yoy; due to the influx of budget subscribers and
seasonal hike of Familijny new users in 4Q, i.e. when the aforementioned promotion was offered).
The Company has been consistently following a cost-conscious policy, aimed at enhancement
of the profitability of its operations. The cost measures implemented in the past include: use
of external conditional access systems which enable the transmission of TV programs to be secured
with use of transponders (transponder lease costs are incurred by the broadcasters), integration
of all divisions (with the exception of the MVNO back office) at one location, in a Company-owned
real estate in Warsaw, establishment of the Company’s own STB service center (which enables
repair costs to be reduced significantly), development of the in-house IT systems (which has enabled
the Company to avoid high costs of implementation), or substitution of printed invoices sent
to customers on a monthly basis with personalised payment forms sent to customers twice a year
(which significantly reduces mailing costs). While all these measures contributed to the reduction
of operating expenses per user in the period of soaring DTH volumes, they do not exhaust
the Company’s list of cost-saving initiatives; e.g. in October 2007, Cyfrowy Polsat launched its own
production of STBs, which we expect to significantly (by 30-35%) reduce the Company’s cost
of an average STB sold to customers (this, in turn, should help to improve the operating margin,
as the STB subsidy is likely to be cut).
71
Cyfrowy Polsat
Fig. 67 Cyfrowy Polsat: DTH product strategy
Source: Company
72
????????????????????????
Cyfrowy Polsat
6.
Financials
aaDTH’s net additions are strongly seasonal, peaking in 4Q. This is not the case for the
MVNO business.
aaAll revenues denominated in PLN, yet >60%/c. 50% of OPEX denominated in FX (US$ + Euro)
in 2007/2008E and beyond; strength of the domestic currency is favorable to Cyfrowy (and vice
versa).
aaThe Company should follow a residual dividend policy; the way we see it, dividend
distributions would be feasible from this year onwards.
aaFinancial leverage does not appear to constitute an issue; Cyfrowy Polsat’s 2007 eop net
debt to EBITDA declined to c. 0.4, with the Company holding a net cash position at the end
of 2008E (unless large dividend is distributed in the meantime).
aaNWC does not constitute a major issue for the Company in terms of the related financing
requirements (mainly due to adopted pre-payment customer billing policy); as a matter
of fact, in the mid-term it can – in our view – become even a source of positive cash flows
on the back of forecasted: (i) decline in inventories, (ii) decline in capitalized distribution
commissions and (iii) uninterrupted growth of deferred liabilities (users’ pre-payments).
aaCyfrowy’s business model is not capital-intensive, as opposed to CATVs’, IPTVs’ or MNOs’.
aaThe Company’s ytd (1Q08) financial posting is strong.
6.1.
DTH’s net adds are strongly
seasonal peaking in 4Q,…
...which is not the case
for the mobile business
Seasonality
Cyfrowy Polsat’s DTH business net additions exhibit strong intra-year seasonal patterns, peaking
in 4Q; historically (the 2005-2006 period), the last quarter of the year represented as much as app.
60%-70% of the full-year net addition figures. This seasonal pattern softened last year (4Q accounting for <50% of FY net add) – a tendency which we expect to further progress in 2008E and beyond.
The mobile business in Poland, unlike DTH, does not exhibit such strong seasonal intra-year net add
pattern. We do not see any reason why Cyfrowy’s planned MVNO endeavor should diverge
in this respect from the market’s trends; hence, we do not expect Halo Polsat to show strong
quarterly peaks and troughs in its net adds.
Fig. 68 Cyfrowy Polsat; Quarterly DTH net additions
????????????????????????
73
Cyfrowy Polsat
Fig. 69 Cyfrowy Polsat: DTH net additions seasonality
% of FY DTH net additions
attained in:
1Q
2Q
3Q
1-3Q
4Q
2004
2005
2006
13%
3%
16%
32%
68%
16%
9%
16%
41%
59%
12%
10%
11%
33%
67%
2007 2008E
25%
12%
17%
53%
47%
27%
14%
19%
60%
41%
6.2.
All revenues denominated
in PLN + c. 60% of OPEX
denominated in FX (US$ +
Euro)→→ strength of domestic
currency is favorable to Cyfrowy
(and vice versa)
FX-denominated interest
bearing debt swapped into local
currency debt in October 2007
While all revenues of Cyfrowy Polsat are denominated in PLN (this situation will not change following
the launch of the MVNO project), some major components of the Company’s operating costs are
FX-based. These include: (i) US$- and Euro-denominated TV programming content and STBs costs
and (ii) Euro-denominated satellite transponder leases, Nagravision’s DTH conditional access
system costs and office space rentals. We estimate that in 2006 and 2007 the FX-denominated
costs accounted for c. 63% of the Company’s OPEX, respectively, a proportion which we forecast
to decline this year and beyond to c. 50%. Moreover, following the launch of the MVNO project, the
FX-denominated costs will start to include the mobile handsets. Given that the Company does not
hedge its effective short FX position, strengthening of the local currency favorably impacts
its operating results (and vice versa). To visualize, please note that the management of the Company
estimates than a 5% weakening/strengthening of PLN against Euro and US$ would – ceteris paribus
– decrease/ increase Cyfrowy Polsat’s 2007 (2006) profits by PLN 10.0 million and PLN 22.5 million
(PLN 6.6 million and PLN 31.3 million), respectively.
Additionally, Cyfrowy Polsat used to have almost all of its interest-bearing debt denominated
in the foreign currencies, which during the 2004-2006 period resulted in large FX gains
(e.g. PLN 56 million in 2004 and PLN 25 million in 2006) and losses (e.g. PLN 22 million in 2005),
depending on the year-on-year swings of the local currency relative to US$ and Euro. In order
to eliminate the resultant FX risk, the Company decided to swap its FX interest bearing debt into
local currency (which was executed in October 2007).
6.3.
2007 eop net debt to EBITDA
at c. 0.4, net cash position
at the end of 2008E
policy, dividends seem feasible
from 2008 onwards
74
Financial leverage
As of the end of 2007 the Company’s net debt to EBITDA ratio reached c. 0.4, which constitutes very
safe level. Moreover, based on our forecast of Cyfrowy’s financial results, we envisage
that the Company will hold a net cash (rather than net debt) position at the end of 2008E (unless
a hefty dividend distribution is made from 2007 net income).
6.4.
Probably a residual dividend
FX exposure
Dividend policy
Cyfrowy Polsat should be, in our view, a residual dividend policy follower. The way we see it, given
the expected levels of the Company’s forward capital expenditures and our forecasts of its operating
cash flows, Cyfrowy Polsat becomes capable of distributing dividends to its shareholders already
this year; as there is no straightforward indication by the management that such distributions are likely
in foreseeable future, our cash flow forecasts for Cyfrowy Polsat abstract – for the time being – from
feasible dividend payments, however (the upcoming shareholders meeting of Cyfrowy Polsat
(to be held on July 4) is to approve a clear-cut dividend policy of the Company and vote on the possible
distribution from last year’s net profit; its outcome will shed some light upon the dividend outlook
at Cyfrowy).
????????????????????????
Cyfrowy Polsat
6.5.
Pre-payment customer billing
policy → NWC does not
constitute an issue in terms
of financing requirements
Standard behavior of trading
A/R and A/P
Inventories hinge on volume gross
adds; with gross adds softening
post-2007, they should be
expected to decline (unless
the in-house STB assembly starts
to supply to external parties)
Capitalized distribution
commissions constitute a
function of users’ gross adds;
with gross add peak last year,
in the short-to-mid-term they
should decline (despite the
MVNO launch)
Subscribers’ prepayments
(deferred liabilities) depend
on total number of users rather
than yoy changes in the new
adds; hence, their growth
should be uninterrupted
in the coming years
Given the Company’s pre-payment customer billing policy, net working capital (understood
as a notion including also the changes in deferred assets (capitalized distribution commissions)
and deferred liabilities (subscribers’ pre-payments)) does not constitute a major issue for Cyfrowy
Polsat in terms of the related financing requirements, and - as a matter of fact - in the mid-term can
be even expected, in our view, to become a source of financing for the Company.
While the behavior of Cyfrowy’s trading receivables and payables is standard (both directly related
to the level of Company’s revenues and pre-SG&A costs), the drivers of (i) inventories, (ii) capitalized
distribution commissions and (iii) deferred liabilities (subscribers’ pre-payments) are key for
understanding the swings in Cyfrowy Polsat’s overall NWC.
The level of Company’s inventories (STBs and – following the launch of the MVNO project – mobile
handsets) constitutes a function of the gross additions in the DTH and mobile voice areas. As our
forecasts for the Company envisage that the DTH gross add peaked in 2007, and will be followed
by much softer gross add volumes in 2008E and beyond (regarding the details, please refer
to Chapter 7.1 of this research report)11, it follows then that starting from 2008 we forecast the eop
DTH inventory levels to decline on the yoy basis in the mid-term, which – in our opinion – is likely
to more than offset the build up of the handset stocks for the MVNO purposes.
As explained in detail in Chapter 7.2 of this research report, under IFRS the Company is mandated
to capitalize the cash provisions paid to its DTH and MVNO distributors and to amortize them over
the life of base subscription agreements (24 months (previously 18 months (on average)) in DTH,
most likely 24 months in post-paid mobile voice). Such an accounting treatment overstates the
accounting profits relative to cash flows in the periods of rising new additions, and – by the same
token – understates the reported profits relative to cash flows during time spans of falling new adds.
With such conceptual background coupled with our forecasts of Cyfrowy’s volume adds (peak
of 2007 followed by softer volumes in 2008E and beyond; again, please refer to Chapter 7.1),
it follows that in the near-to-mid-term (i.e. already this year) the financing requirement related to this
category of assets is first likely to become subdued (while in 2008E the DTH newly added volumes
are likely to go down yoy, this will be largely offset by the growing (from zero) new volumes at postpaid mobile voice), and then (the 2009-2010E period) the capitalized distribution commissions
are likely to begin to significantly fall on a yoy basis (further weakening of newly added DTH volumes
coupled with stabilization of new adds in post-paid voice).
The Company’s DTH customer billing policy provides for the subscribers pre-paying for Cyfrowy’s
service (an analogous situation will, obviously, emerge in the pre-paid mobile voice), which results
in an emergence of resultant deferred liabilities in the Company’s balance sheet. Unlike the deferred
assets described above, the deferred liabilities in question constitute a function of total number
of DTH subscribers and MVNO pre-paid users, rather than their yoy changes (new adds).
It follows then, that with the growing number of users (which, according to our forecasts, will be
the case in the foreseeable future), the pre-paid-billing-policy-resultant deferred liabilities should
be uninterruptedly growing, providing positive incremental cash flows.
6.6.
Capital expenditures trending
upwards for past few years
Capex
The Company’s capital expenditures in past few years have been on a rise, mainly due to growth
of Cyfrowy Polsat’s customer base and implementation of new technologies. In 2004-2005 the main
part of Company’s capex (>40%) was earmarked to upgrade Cyfrowy’s broadcasting center, while
in 2006 the hike in capex was chiefly (in c. 70%) driven by real estate investments (acquisition of land
plots, offices and buildings hosting Cyfrowy’s current headquarters).
11
????????????????????????
NWC and deferrals
We also assume that the Company’s in-house STB assembly will produce the set-top boxes solely
for the internal purposes (i.e. for Cyfrowy Polsat’s DTH subscribers), with no spare production placed
with external parties.
75
Cyfrowy Polsat
Fig. 70 Cyfrowy Polsat; Capital expenditures
Fig. 71 Cyfrowy Polsat; Capex/Sales ratios
2007/2008E capex
at c. PLN 55 million/
PLN 63 million
MVNO’s capex will be
user-number-dependant
Cyfrowy’s business model
is not capital-intense, as
opposed to CATVs’, IPTVs’
or MNOs’
In 2007 the Company’s capex came out at app. PLN 55 million (of which c. 34% was related
to the MVNO project), with its ‘fixed’ part increasing to c. PLN 63 million in 2008E (of which app. 20%
is to be MVNO-related). Please note, however, that the MVNO’s capex will include a variable part
(upgrade of IT systems in order to carry incremental connections and data transfers), dependant
upon the number of its users. Specifically, once the number of Company’s mobile voice customers
approaches 500 thousand/ 1 million, additional PLN 12 million/ PLN 16 million of capital expenditures
will need to be incurred for the upgrades.
All in all, we do not perceive the Company’s business to be especially capital-intense (compared,
for example, to other paid multichannel TV platforms (cable or IPTV) or MNOs). Hence, in the longer
term (post-2010E) we would expect to see declines in the capital expenditures levels, with LT target
DTH (MVNO) capex/sales ratio in the vicinity of 2% (3-4%)12.
6.7.
Robust 1Q08 financial posting,
due to monetization on last
year’s strong volume net adds
and control over operating
costs, bodes well for the
financial results
for the upcoming quarters
Cyfrowy Polsat posted robust 1Q08 financial results, with top line, EBIT and NP advancing yoy by,
respectively, 37%, 91% and 100%. The strength of the Company’s quarterly posting stems from
the monetization on last year’s volume net add (partially offset by the 5-month promotion period
offered to the 4Q07 Familijny package new subscribers, which exerted its material adverse impact
on the 1Q08 ARPU of Cyfrowy), and the Company’s business model providing for a boost
to the operating profitability in times when the proportion of new subscribers to the seasoned ones
declines. Notwithstanding the aforementioned embedded mechanism, please note that in 1Q08
the Company remained firm grip over its operating costs, with (i) flat yoy DTH cash SAC, (ii) over
40% lower yoy (according to our estimates) per unit PLN-denominated STB subsidy (the first effect,
the way we see it, of the Company’s decision to launch an in-house assembly of STBs, which started
to be offered to the new subscribers of Cyfrowy in March this year (hence, full effect should be seen
from 2Q08 onwards)) and (iii) roughly flat yoy (according to our estimates) PLN-denominated
TV programming content cost per subscriber (though here the strength of the local currency evidently
helped the Company, as – according to our estimates – the value of this parameter increased yoy
by almost 30% is US$ terms). All in all, such a quarterly posting of the Company should be assessed,
in our view, as a robust one; the way we see it, Cyfrowy Polsat’s 1Q08 results provide a solid base
for the attainment of our FY projections for the Company (regarding the details, please refer
to the Financial forecasts and Financial statements sections). It should be, however, borne in mind
that (i) in 2H08E the operating profitability of Cyfrowy is likely to be negatively affected by the launch
of the MVNO endeavor and (ii) the total value of the STB subsidies in 4Q08E is likely to be larger
than during the preceding quarters of the current year (though lower yoy) – despite the probably
12
76
YTD results
Putting aside the incremental impact of possible new projects’ launches.
????????????????????????
Cyfrowy Polsat
lowered value of the unit subsidy – due to the traditional intra-year new adds seasonality of the DTH
business.
Fig. 72 Cyfrowy Polsat; 1Q08 operating statistics
Number of users of DTH eop (ths.)
Familijny (ths.)
Mini (ths.)
DTH net addition (ths.) qoq
Familijny (ths.)
Mini (ths.)
DTH net addition (ths.) yoy
Familijny (ths.)
Mini (ths.)
Number of users of DTH (ths.), period's average
Familijny (ths.)
Mini (ths.)
DTH churn
Familijny
Mini
Churning DTH users (ths.)
Familijny
Mini
Gross addition DTH (ths.)
Familijny
Mini
DTH ARPU blended (PLN)
Familijny
Mini
No. of STBs sold (ths.)
Implied average price of STB sold (PLN)
Implied average price of STB sold (US$)
Cash DTH SAC (PLN)
TV programming content cost per subscriber (PLN/month)
TV programming content cost per subscriber (US$/month)
Average price of STB sold (PLN)
Average price of STB sold (US$)
Average cost of STB sold (PLN)
Average cost of STB sold (US$)
DTH STB subsidy per STB (PLN)
DTH STB subsidy per STB (US$)
1Q08
2,187.2
1,914.3
272.9
118.9
87.3
31.6
717.7
589.2
128.5
2,135.6
1,878.0
257.6
1.8%
2.0%
0.0%
37.6
37.6
0.0
156.5
124.9
31.6
33.8
37.3
8.5
156.5
131.5
57.6
96.9
-9.0
-3.9
131.5
57.6
-203.9
-89.4
-72.4
-31.7
4Q07
2,068.3
1,827.0
241.3
372.7
316.7
56.0
794.7
658.1
136.6
1,882.0
1,668.7
213.3
1.8%
2.0%
0.0%
33.4
33.4
0.0
406.1
350.1
56.0
33.9
37.3
7.1
406.1
107.9
42.7
n.a.
-8.3
-3.3
107.9
42.7
-234.0
-92.7
-126.1
-50.0
1Q07
1,469.5
1,325.1
144.4
195.9
156.2
39.7
n.a.
n.a.
n.a.
1,387.2
1,254.5
132.8
0.9%
1.0%
0.0%
12.5
12.5
0.0
208.4
168.7
39.7
34.4
37.2
7.7
208.4
144.1
48.8
97.9
-9.1
-3.1
144.1
48.8
-274.6
-92.9
-130.5
-44.1
qoq chng
6%
5%
13%
-68%
-72%
-44%
-10%
-10%
-6%
13%
13%
21%
-1%
0%
n.m.
13%
13%
n.m.
-61%
-64%
-44%
0%
0%
19%
-61%
22%
35%
n.a.
8%
20%
22%
35%
-13%
-4%
-43%
-37%
yoy chng
49%
44%
89%
-39%
-44%
-20%
n.a.
n.a.
n.a.
54%
50%
94%
96%
100%
n.m.
201%
199%
n.m.
-25%
-26%
-20%
-2%
0%
10%
-25%
-9%
18%
-1%
-1%
28%
-9%
18%
-26%
-4%
-45%
-28%
Source: Company, DM IDMSA estimates.
????????????????????????
77
Cyfrowy Polsat
Fig. 73 Cyfrowy Polsat; 1Q08 results
IFRS consolidated
PLN m
Sales:
DTH:
Subscription fees:
Familijny
Mini
STB leases
STB sales
Satellite signal transmission
Other
MVNO
OPEX excl. D&A:
TV programming content
Signal transmission
Marketing & distribution
HR, of which:
IFRS2 SOCS
STBs, of which:
subsidy
Polish Cinema Institute royalties
Other
EBITDA
Adj EBITDA
Adj EBITDA margin
D&A
EBIT
Adj EBIT
Adj EBIT margin
Net financial income (cost)
PBT
Adj PBT
Adj PBT margin
CIT
NI
Adj NI
Adj NI margin
1Q08
248.8
248.8
216.6
210.1
6.6
0.9
20.6
4.4
6.3
0.0
-160.1
-50.7
-15.0
-38.1
-10.4
0.0
-31.9
-11.3
-3.2
-10.8
88.6
88.6
35.6%
-5.1
83.5
83.5
33.6%
-4.0
79.5
79.5
32.0%
-15.5
64.0
64.0
25.7%
4Q07
243.3
243.3
191.1
186.6
4.5
1.6
43.8
2.5
4.3
0.0
-245.2
-41.5
-14.2
-52.5
-21.8
-10.2
-95.0
-51.2
-2.9
-17.1
-1.8
8.3
3.4%
-8.4
-10.2
0.0
0.0%
-2.2
-12.4
-2.2
-0.9%
3.5
-8.9
1.3
0.5%
1Q07
181.6
181.6
143.2
140.1
3.1
1.9
30.0
3.3
3.2
0.0
-133.2
-34.3
-10.5
-19.8
-5.7
0.0
-57.2
-27.2
-2.1
-3.5
48.4
48.4
26.6%
-4.6
43.8
43.8
24.1%
-2.4
41.4
41.4
22.8%
-9.3
32.1
32.1
17.7%
qoq chng
2%
2%
13%
13%
44%
-46%
-53%
77%
46%
n.m.
-35%
22%
6%
-27%
-53%
-100%
-66%
-78%
13%
-37%
n.m.
964%
-39%
n.m.
n.m.
82%
n.m.
n.m.
n.m.
n.m.
5,009%
-
yoy chng
37%
37%
51%
50%
113%
-55%
-31%
34%
97%
n.m.
20%
48%
43%
93%
81%
n.m.
-44%
-58%
51%
203%
83%
83%
13%
91%
91%
66%
92%
92%
66%
100%
100%
-
realization of FY
number in 1Q:
2008E
2007
24%
23%
24%
23%
23%
22%
23%
22%
24%
18%
29%
32%
36%
28%
31%
28%
45%
34%
0%
n.m.
23%
21%
23%
23%
25%
22%
22%
16%
22%
14%
n.m.
0%
37%
27%
39%
27%
23%
24%
13%
7%
24%
29%
24%
27%
18%
22%
25%
30%
25%
28%
39%
48%
24%
30%
24%
28%
25%
35%
24%
28%
24%
26%
-
Source: Company, DM IDMSA estimates.
78
????????????????????????
Cyfrowy Polsat
7.
Financial forecasts
aaSOTP valuation of the Company drives separate forecasts for DTH and MVNO business
lines.
aaStrong (27% p.a.) growth of 2008-2010E revenues, mainly on the back of robust DTH
volumes and launch of the MVNO project; SOC-adjusted OPEX increases forecasted to lag
top-line’s, due to (i) Company’s continued cost-consciousness, (ii) launch of an in-house
DTH STB assembly (enabling to cut the STB subsidies), (iii) less painful initial impact from
the new additions once the existing pool of subscribers is large (in volume terms) relative
to the newly added ones and (iv) material fixed-costs component.
aaWe forecast Cyfrowy Polsat’s consolidated EBITDA margin (SOC-adjusted) to continue
to soar from its 2006 trough, despite the launch of the MVNO business; our mid-term
targets for the entire group, DTH business and Cyfrowy’s MVNO stand, respectively,
at >35%, >40% and 0%. Our LT (maturity stage) EBITDA margin expectancy for the MVNO
endeavor rests at >10%.
aaDespite mid-term profit-dilutive kick-off of the MVNO project, we forecast impressive
2008-2010E CAGR of Cyfrowy’s consolidated SOC-adjusted EBITDA – app. 50% (roughly
in line with the CAGR forecast for the DTH business).
DTH + MVNO activities included
in the forecasts
SOTP valuation of the Company
drives separate forecasts
for DTH and MVNO business
lines
Our forecasts of the Company’s financial performance cover both the DTH operations and the
MVNO activities (to be commercially launched in mid-2008, yet already generating operating costs).
We, however, abstract from the possible engagement in the broadband Internet access and IPTV
activities, because as of now these themes have neither been firmly decided upon nor have we
necessary input data for their incorporation in our projections.
As argued in the Valuation section, given the start-up nature of the Company’s MVNO project (bound
to generate sizable losses during initial few years) and materially different business metrics of the
DTH and MVNO businesses at their maturity stage (e.g. profitability), sum-of-the parts (SOTP) seems
to constitute the most proper approach towards the assessment of Cyfrowy Polsat’s EFV, with both
these business lines valued separately and then added up (should we value them together, the peerrelative forward-multiples-based valuation of the DTH business would be unjustifiably understated,
due to the inclusion of the MVNO’s forecast negative contribution). Such valuation approach,
however, requires preparation of separate forecasts (income statement + selected cash flow data
(capex, NWC changes)) for these two lines of activities, a pre-requisite which we meet, building our
projections of the Company’s consolidated financial statements on the basis of stand-alone financial
forecasts for DTH and MVNO.
7.1.
Two main revenue sources:
DTH + MVNO
DTH revenues encompass: (i)
subscription fees (by far the most
important revenue stream),…
????????????????????????
Revenues
Our forecast of Cyfrowy’s sales differentiates between two main streams of revenues: (i) revenues
related to the DTH platform, and (ii) revenues related to the MVNO activities. As far as the DTH sales
go, we further differentiate between four main revenue streams: (i) DTH subscription fees, (ii) STB
lease revenues, (iii) revenues from STB sales, and (iv) miscellaneous revenues. While below
we provide a general discussion of the characteristics of these inter-related revenue sources, with
detailed sales assumptions outlined in Figures 74-76 and the final outcome (our forecast of Cyfrowy
Polsat’s consolidated revenues) presented in Figures 77-83, it should be noted up front that among
the plethora of assumptions that need to be made, by far the most crucial are the ones pertaining
to volumes and prices (ARPUs) in (i) DTH subscriptions and (ii) MVNO.
1. Revenue from subscription fees, which comprises revenue from fees payable for access
aa
to the Company’s program offering, depends on the number of subscribers and the level
of monthly subscription fees, which differs depending on the make-up of a channel package
79
Cyfrowy Polsat
purchased by a given subscriber. We forecast a brisk growth of these revenues in the mid-term
(2008-2010E), predominantly due to strong growth of volumes and, to a lesser extent, via
the increases in the value of an average customer bill. At the moment, this revenue stream
constitutes by far the most important component of Cyfrowy’s DTH revenues, and given our
forecasts for other streams (for details see the following paragraphs and Figures 77-83),
we expect its significance to increase even further in the coming years.
...(ii) STB leases, and…
2. Revenue from STB leases, which comprises revenue from fees payable for the use
aa
by subscribers of the Company-owned receiver sets, depends on the number of leased STBs
and the level of lease installments payable to Cyfrowy Polsat. This revenue stream is accounted
for on a straight-line basis over the subscription agreement term. It is generated under subscription
agreements gained in the period when Cyfrowy Polsat made its receiver sets available primarily
under a lease arrangement. Given the Company decision to switch from STB leases to STB
sales, the STB lease revenues are likely to gradually perish, though are unlikely to null out,
as the most advanced (and expensive) STBs continue to be offered in the leasing mode. This way
or another, the STB leases constitute a revenue stream of a marginal significance to the Company
- a situation which we do not expect to change in the foreseeable future.
...(iii) STB sales,...
3. Revenue from STB sales is the sum of (i) revenue from sales of STBs purchased by subscribers
aa
at the time of concluding their subscription agreements, and (ii) revenue from sales of STBs
previously used by subscribers under operating lease agreements, in the case of which the
purchase price of an STB includes the deposit paid by the subscriber at the time of concluding
the lease agreement. This revenue is recognized at the fair value of payments received, less any
refunds, discounts or rebates, while the purchase price depends on whether the subscriber
purchases a set-top box with or without a satellite dish, as well as on the make-up of the channel
package purchased by a given subscriber.
...which are driven by the
Company’s ‘sell versus lease’
sales policy decisions and DTH
gross adds
MVNO revenues
Since 2005 revenue from STB sales has been growing rapidly on the back of the new STB
distribution strategy adopted by the Company in 2004. In line with this strategy customers are
offered receiver sets at attractive retail prices (with a significant subsidy in case of the thirdparty-assembled STBs), instead of having to lease them. This stream of revenues constitutes
a function of DTH users gross additions, mimicking the behavior of this variable; the gross adds
peaked in 2007 and are expected to decline in 2008 and beyond, and so do the Company’s
revenues from the sales of set-top-boxes (assuming, as we do, that no STBs are placed with
third-party DTHs).
4. MVNO revenues will include revenues generated by the Company from its mobile voice
aa
business (to be launched at the turn of 2Q08 and 3Q08); they will constitute a pure consequence
of the number of service users, post-paid/pre-paid mix and ARPUs (see Figures 77-83).
Miscellaneous revenue sources
(immaterial from the Company’s
perspective) include…
80
5. Miscellaneous revenue comprises: (i) revenue from sales of signal transmission services,
aa
(ii) revenue from sales of electronic office equipment, (iii) compensation for lost and damaged
equipment, (iv) revenue from investment property, and (v) other operating revenue.
????????????????????????
Cyfrowy Polsat
Fig. 74 Cyfrowy Polsat; Revenue assumptions
DTH
Paid multichannel penetration
Share of DTH in paid multichannel net
addition
Share of DTH in paid multichannel
market
DTH penetration
Share of Cyfrowy in DTH’s net addition
Share of Cyfrowy in DTH households
Number of Cyfrowy Polsat DTH
households
Share of Mini package new subscribers
in Cyfrowy Polsat’s DTH users net
addition
Share of Familijny package new
subscribers in Cyfrowy Polsat’s DTH
users net addition
Share of Mini package subscribers in all
Cyfrowy Polsat’s DTH subscribers
As scrutinized in the Local market trends and outlook chapter, we forecast LT paid multichannel penetration level at <80%,
with mid-term (2010E) target at <75%. We expect the bulk of the penetration increase to materialize by the end of 2008.
These forecasts rest upon the assumption that the current plan for the roll-out of DTT in Poland (providing for the first
digital islands being created at the turn of 2008 and 2009 and the analog signal switch-off at 2012-end) is not materially
accelerated (please refer to the Risk factors section regarding the details).
Given network-reach-related constraints in the CATV and IPTV modes, DTH is expected to continue to grab a lion share
of sector's net add; for the mid-term (2008-2010E) we forecast it in the range of 60%-80%.
A straightforward consequence of the above. We forecast it to rise from c. 42% as of the end of 2007 to c. 48% in three-year
time.
A straightforward consequence of the above. We forecast it to rise from c. 26% as of the end of 2007 to >35% in three-year time.
Given its low cost leadership DTH strategy, Cyfrowy Polsat has been winning c. 70-80% share in DTH sector’s net adds
in the 2005-2007 period. We assume that this proportion declines to c. 50% in short-to-mid-term and app. 33% in the LT.
A straightforward consequence of the above; forecasted to decline from its 2007 peak already this year, as the Company’s
forecasted share in sector’s net adds will start from 2008E to be lower than its eop market share for the directly preceding year.
A straightforward consequence of the above; we forecast 2008 eop users at c. 2.5 million level, with mid-term (eop 2010E)
target at c. 3 million.
App. 17% for the 2007 net adds; assumed to remain at that level in the mid-term. Please note that once the volume growth
slows at market’s saturation, the net add of the Mini package subscribers can be reasonably expected to become negative
(slow net adds outweighted by the upselling effect (migration from Mini to Familijny)).
App. 83% for the 2007 net adds; assumed to remain at that level in the mid-term.
Consequence of the above; forecasted to increase in the mid-term to c. 13% (consequence of the low base; the package
was introduced in 4Q06) from app. 8%/12% as of the end of 2006/2007, but in the long term should be expected to decline
from its mid-term heights (once the upselling effect prevails).
Share of Familijny package subscribers Consequence of the above; forecasted to decline in the mid-term to c. 87% (consequence of 4Q06 introduction of the Mini
in all Cyfrowy Polsat’s DTH subscribers package) from app. 92%/88% as of the end of 2006/2007, but in the long term should be expected to reverse its mid-term
declining trend (once the upselling effect starts to prevail).
Churn
5.1% for 2007. Expecting increasing competition and decreasing share of fresh customers (i.e. ones during their initial
period subscription agreements) in total customer number, we assume the DTH churn rate to steadily yet uniterruptedly
grow in the coming years with LT target of c. 10%.
ARPU (Mini package)
PLN 8.5 in perpetuity (as Mini constitutes an entry low-end package - introduced in order to attract marginal subscribers with
an aim of their later upselling into the Familijny package - we do not assume any increases of its ARPU in the years to come).
ARPU (Familijny package)
Assumed to: (i) increase by c. 4% yoy in 2008E (8% increase of the package price (starting from the beginning of this
year), due to introduction (in December 2007) of four new BBC’s channels into the Familijny portfolio, standard upselling
effects and introduction of HD channels and new thematic channels/packages (e.g. premium movie), offset partially by the
impact of the 2007’s end-of-the-year-aggressive-promotion-Familijny-new-joiners utilizing their expanded no-subscriptioncharges period, (ii) increase by c. 8% yoy in 2009E, due to the FY P&L impact of the November-December 2007 new-joiners
(benefiting in 2008E from their 5-month no-subscription fee periods), introduction of new thematic channels/packages and
standard upselling effects, and (iii) rise by c. 4-5% thereafter (mainly the upselling effect).
ARPU (blended)
A straightforward consequence of the assumed trends in the ARPUs of Mini and Familijny packages and shares of their
subscribers in the overall number of Cyfrowy’s DTH users. Generally forecasted to increase on average by 2-7% p.a.
in the mid-term (please note that 2007 was affected by the introduction of the Mini package, which diluted the blended ARPU
at an early stage, and 2008E is affected by the aforementioned November-December 2007 aggressive pricing promotion
for the Familijny new joiners).
STB lease revenues
Given the Company decision to switch from STB leases to STB sales, the STB lease revenues are likely to slowly perish,
though are unlikely to null out, as the most advanced (and expensive) STBs continue to be offered in the leasing mode.
This way or another, the STB leases constitute a revenue stream of a marginal significance to the Company - a situation
which we do not expect to alter in the foreseeable future.
In-house assembled STB sales policy
We assume that the Company’s STB assembly will produce STBs only for internal purposes (i.e. for Cyfrowy’s DTH subscribers).
Such an assumption, coupled with forecasted slacker volume additions from 2009E (inclusive) onwards, imply an emergence
of a spare STB production capacity at the Company. In such circumstances the Company may strive to place its STBs with
external parties (i.e. for the purposes of other DTH providers (both domestically and abroad)), a possible (though far from being
certain) development which - at the moment - is not incorporated in our forecasts.
Share of in-house assembled STBs
Assumed to increase from 0% in 2007 (in-house assembly launched in October) to c. 70% in the mid-term.
in all STBs sold (to the users of Cyfrowy
Polsat platform)
????????????????????????
81
Cyfrowy Polsat
Fig. 75 Cyfrowy Polsat; Revenue assumptions (continued)
Sold STBs volumes
Satellite signal transmission revenues
Electronic equipment sales
Miscellaneous revenues
MVNO
Mobile penetration
Share of new entrants (MNOs + MVNOs
in mobile users
Share of MVNOs in mobile users
Service launch date
Target customer group
Average number of people per family
in the target group
Penetration within the target customer
group
Cyfrowy’s share in MVNO mobile users
net addition
Cyfrowy’s share in the mobile market
new entrants’ (MNOs + MVNOs) users
net addition
Cyfrowy’s share in MVNO market
(in number of users’ terms)
Cyfrowy’s share in new mobile entrants’
(MNOs & MVNOs) market (in number
of users’ terms)
Cyfrowy’s share in mobile market
(in number of users’ terms)
Cyfrowy’s MVNO number of users
Share of post-paid users in Cyfrowy’s
MVNO customers
Share of pre-paid in Cyfrowy’s MVNO
customers
Post-paid users: standard agreement
duration
ARPU: post-paid
ARPU: pre-paid
ARPU: blended
Churn: post-paid
A consequence of the adopted assumptions regarding (i) the Company’s in-house assembled STB sales policy,
and (ii) Cyfrowy’s DTH gross additions (i.e. net adds and churn)). Forecasted to decline from c. <900 ths. 2007
all-time peak to c. >500 ths. in 2008E (of which <200 ths. is assumed to be in-house assembled), app. 400 ths.
in the mid-term and c. 300 ths. in the long-term (replacement demand). We expect the Company’s in-house assembly’s
investment to reach its pay-back period in 1 year since its launch.
Assumed to increase by 20% yoy this year and to stay flat in the coming years (a conservative assumption given that on the
back of the Company’s current capacity they could double, providing that an incremental demand arises).
Given the July 2007 divestiture of the non-core Emarket subsidiary (which dealt in this area), this sundry stream of revenues
dried out last year.
Assumed to increase by 50% yoy this year and to stay flat thereafter.
As scrutinized in the Local market trends and outlook chapter, we forecast LT mobile penetration in Poland at c. 130%.
Target share forecasted at >25%; regarding the detailed rationale, please refer to the Local market trends and outlook
chapter.
As scrutinized in the Local market trends and outlook chapter, we forecast target share of MVNOs in mobile users in Poland
at c. 12%, which appears reasonable given Western European experiences.
Turn of 2Q08 and 3Q08.
Narrow target: households subscribing to Cyfrowy’s Familijny DTH package. Broader target: all households subscribing
to Cyfrowy’s DTH packages (both Familijny and Mini).
The 2.84 GUS number for Poland assumed to hold also for Cyfrowy’s customer household pool and to remain constant
in time.
We assume LT penetration target at c. 18% in the narrow target customer group and in the vicinity of app. 17% in the
broader target customer group (these targets do not diverge much from each other as the populations of these two target
groups in question do not differ much, due to: (i) assumed dominance of the Familijny package in the Company’s DTH net
adds, and (ii) assumed continuous trend of upselling the Mini DTH subscribers).
30-40% (near term) – 20% (mid- to long-term).
15-20% in the near- to mid-term, 10% in the longer term.
c. 30% in mid-term, c. 25% in the longer term
<15% in mid-term, >10% in the longer term
Our assumptions regarding (i) mobile penetration in Poland, (ii) Cyfrowy’s DTH subscribership (determining the size
of the MVNO target customer group), and (iii) MVNO penetration within the target customer group imply c. 2% share
of Cyfrowy Polsat’s MVNO mobile service (measured in number of users’ terms) in the mobile market in the mid-term
(by 2010E) and c. 3% LT share.
The above assumptions imply the following forecasts of Cyfrowy’s MVNO users (eop): 2008E - 100 ths., (ii) 2010E <1 million, (iii) LT target - >1.5 million.
20% (constant).
80% (constant).
24 months (in line with the market standard).
PLN 65 per month (growing at 1% CAGR). This level implies >10% discount to current post-paid ARPUs of MNOs. Given
the ability to offer content, we view this assumption as rather conservative one.
PLN 13 per month (growing at 1% CAGR). This level implies c. 20% discount to current pre-paid ARPUs of MNOs. Given the
ability to offer content, we view this assumption as rather conservative one.
PLN 23 (growing at 1% CAGR); consequence of (i) assumed pre-paid and post-paid ARPUs and (ii) mix of pre-paid and post
paid customers in Cyfrowy’s MVNO customer population.
3.0% (constant); slightly below the current post-paid churns of local MNOs (of c. 3.3%), due to Company’s ability to bundle
its mobile offering with DTH (which should increase customers’ loyalty). Plase note that given assumed 24-month duration
of standard post-paid agreement, the churn appears two years after the service launch (zero churn for the first two years).
82
????????????????????????
Cyfrowy Polsat
Fig. 76 Cyfrowy Polsat; Revenue assumptions (continued)
Churn: pre-paid
Churn: blended
Handsets sold: volumes
Handsets sold: prices
10% (constant); at the lower bound of the current pre-paid churns of local MNOs (of 9%-16%), due to Company’s ability
to bundle its mobile offering with DTH (which should increase customers’ loyalty).
8%-9% (consequence of (i) assumed churn rates for the post-paid and the pre-paid customers, and (ii) shares of pre-paids
and post-paids in Cyfrowy’s MVNO customer pool).
Function of gross additions in the post-paid and pre-paid domains. We assume that all of post-paid (and 10% of prepaid) customers will buy their handsets with Cyfrowy, and that the average period of handset usage will be two years
(replacement handset demand calculated on a post-compounded-churn basis).
Post-paid handsets assumed to be sold - in line with market practices - at PLN 1 per unit (which given the average handset
cost in the range of Eur 50-100 means deep handset subsidy on this part of the customer spectrum). Pre-paid handsets
assumed to be sold at their cost (c. Eur 75 on average), with neither mark-up nor subsidy.
...sales of signal transmission
services,…
...sales of electronic office
equipment (till July 2007),...
...compensation for lost
and damaged equipment,
and...
...revenue from property lease
Revenue from sales of signal transmission services to TV and radio broadcasters encompasses
provision of access to portions of the transponder frequency, transmission, encryption and
distribution of signal to cable networks (services provided to broadcasters which are Cyfrowy’s
licensors). We assume these revenues to increase by c. 20% yoy this year (in 1Q08 they advanced
by 34% yoy) and then to stay flat in the coming years, which is a conservative assumption, given that
on the back of Company’s current capacity they could double (providing that an incremental demand
arises).
Revenue from sales of electronic office equipment (computers, servers, terminals, printers etc.) and
related supplies were generated by Emarket Sp z o.o. - a subsidiary of Cyfrowy Polsat sold in July
2007. Consequently, since that time the Cyfrowy Polsat Group has not recorded any revenue
(or costs) from this business line.
When terminating their subscription agreements, customers are obliged to return the leased
equipment. If the equipment is damaged, the customer is liable for the cost of its repair. If for any
reason the customer fails to return the leased set-top-box, he/she must pay the amount equal to its
price. Revenue derived from these two sources is recognized as compensation for lost and damaged
equipment.
Praga Business Park - Cyfrowy’s subsidiary - is the owner of the property located at ul. Lubinowa 4a
in Warsaw, which it leases to the Company and external tenants which do not belong to the Cyfrowy
Polsat Group. Rents received by Praga Business Park from the external tenants are recognized
(on a straight-line basis over the lease term) as revenue from investment property.
The combined value of these miscellaneous revenues is not material from the perspective of Cyfrowy
Polsat - a situation which we do not forecast to change in the foreseeable future.
Strong (c. 27% p.a.) growth
of 2008-2010E revenues,
mainly on the back of robust
DTH volumes and launch
of the MVNO project
????????????????????????
Summing up, we forecast a brisk pace of growth of Company’s revenues in the coming years
(2008-2010E CAGR of 27%), mainly due to (i) sound growth of DTH volumes (2008-2010E CAGR
of 12%), and (ii) launch of the MVNO activities. We would also like to note that the 2008E strong
growth of Cyfrowy Polsat’s consolidated sales appears to be largely secured by the 2007 hike
in DTH volumes, as the full effect of a given year’s volume performance fully shines through
the Company’s income statement only in the subsequent year.
83
84
2005
5,361 5,829
10%
9%
496
468
42.8% 46.0%
1,105
1,446
yoy change
23%
31%
205
341
41%
73%
21%
25%
8.8% 11.4%
yoy change
2004
2,998
4%
368
0%
2,631
5%
12%
88%
2,921
5%
368
3%
2,553
6%
57.7%
50%
125
0
125
0%
100%
2,873
6%
368
5%
2,506
6%
13%
87%
2,771
7%
357
9%
2,415
7%
58.1%
50%
165
17
149
10%
90%
-30
105
-40%
140%
358
-3%
2,668
5%
57.5%
50%
75
4%
338
-8%
2,736
4%
11%
89%
3,027
3,073
3%
-3
7
-100%
200%
337
-6%
2,738
3%
57.4%
33%
3
2%
335
-1%
2,742
0%
11%
89%
3,075
3,077
0%
318
-4%
2,764
1%
57.3%
33%
3
0%
295
-10%
2,788
1%
10%
90%
3,081
3,083
0%
285
-10%
2,800
1%
57.3%
33%
3
0%
262
-11%
2,825
1%
8%
92%
3,084
3,087
0%
252
-12%
2,836
1%
57.2%
33%
3
0%
229
-13%
2,861
1%
7%
93%
3,088
3,090
0%
219
-13%
2,873
1%
57.2%
33%
3
0%
196
-14%
2,897
1%
6%
94%
3,091
3,093
0%
-7
-33
-33
-33
-33
10
36
36
36
36
-200% -1,000% -1,000% -1,000% -1,000%
300% 1,100% 1,100% 1,100% 1,100%
332
-1%
2,745
0%
57.4%
33%
3
0%
328
-2%
2,752
0%
11%
89%
3,078
3,080
0%
19%
29%
20%
11%
15%
12%
13%
8%
2017E 2018E 2008-2010E
CAGR
11,322 11,382 11,422 11,462
1%
1%
0%
0%
70
60
40
40
79.1% 79.2% 79.2% 79.3%
5,378 5,388 5,398 5,408
0%
0%
0%
0%
10
10
10
10
14%
17%
25%
25%
48%
47%
47%
47%
37.6% 37.5% 37.4% 37.4%
2011E 2012E 2013E 2014E 2015E 2016E
9,082
9,702 10,252 10,722 11,092 11,172 11,252
13%
7%
6%
5%
3%
1%
1%
1,020
620
550
470
370
80
80
67.9% 71.4% 74.3% 76.7% 78.7% 78.8% 78.9%
4,218
4,618 4,948
5,198 5,348 5,358 5,368
23%
9%
7%
5%
3%
0%
0%
800
400
330
250
150
10
10
78%
65%
60%
53%
41%
13%
13%
46%
48%
48%
48%
48%
48%
48%
31.5% 34.0% 35.9% 37.2% 38.0% 37.8% 37.7%
2007 2008E 2009E 2010E
6,746 8,062
16%
20%
917
1,316
52.1% 61.2%
2,241
3,418
55%
53%
795
1,178
87%
89%
33%
42%
17.3% 26.0%
2006
DTH households net addition (ths.)
Share of DTH in paid multichannel net addition
Share of DTH in paid multichannel households, eop
DTH penetration, eop
(1.1) DTH - subscription fees
Cyfrowy Polsat DTH households (subscribers), eop (ths.)
393
657 1,274 2,068 2,508 2,708
yoy change
n.a.
67%
94%
62%
21%
8%
of which:
Mini package (ths.)
0
0
105
241
317
351
yoy change
n.a.
n.m.
n.m. 130%
31%
11%
Familijny package (ths.)
393
657
1,169
1,827
2,191
2,357
yoy change
n.a.
67%
78%
56%
20%
8%
Mini package subscribers as % of all subscribers, eop
0%
0%
8%
12%
13%
13%
Familijny package subscribers as % of all subcribers, eop
100% 100%
92%
88%
87%
87%
Cyfrowy Polsat DTH households (subscribers),
353
476
854 1,591 2,236 2,584
period's average (ths.)
yoy change
n.a.
35%
79%
86%
41%
16%
of which:
Mini package (ths.)
0
0
40
166
265
328
yoy change
n.a.
n.m.
n.m.
314%
59%
24%
353
476
814
1,424
1,970
2,257
35%
71%
75%
38%
15%
yoy change
n.a.
Share of Cyfrowy Polsat households in DTH households, eop 35.6% 45.4% 56.8% 60.5% 59.5% 58.6%
Share of Cyfrowy Polsat in DTH households net addition
27%
77%
78%
67%
55%
50%
Cyfrowy Polsat DTH households net addition (ths.)
55
264
617
795
440
200
of which:
Mini package (ths.)
0
0
105
137
76
34
n.a.
264
512
658
364
166
% of Cyfrowy's DTH total net add attributable to the Mini package
0%
0%
17%
17%
17%
17%
% of Cyfrowy's DTH total net add attributable to the Familijny
100% 100%
83%
83%
83%
83%
package
Paid multichannel net addition (ths.)
Paid multichannel penetration, eop
DTH households, eop (ths.)
(1) DTH (and related)
Paid multichannel households, eop (ths.)
Fig. 77 Cyfrowy Polsat; Sales model
Cyfrowy Polsat
????????????????????????
????????????????????????
Churn
Churning subscribers of Cyfrowy Polsat (ths.)
Cyfrowy Polsat DTH households gross (of churn) addition (ths.)
DTH subscription revenues (PLN million)
yoy change
of which:
Mini package (PLN million)
yoy change
Familijny package (PLN million)
yoy change
ARPU (PLN/month)
yoy change
of which:
Mini package (PLN/month)
yoy change
Familijny package (PLN/month)
yoy change
(1.2) DTH - STB leases
STB lease revenues (PLN million)
yoy change
(1.3) DTH - STBs sales
Estimated number of STBs sold (ths.) to Cyfrowy's users:
yoy change
in-house assembled (ths.)
yoy change
third-party (ths.)
yoy change
Share of in-house assembled STBs in all sold STBs
(to Cyfrowy's users)
Share of third-party STBs in all sold STBs (to Cyfrowy's users)
Cyfrowy's DTH service gross addition (ths.)
STBs sold/Cyfrowy's DTH service gross addition
Implied average net price per STB sold (PLN)
yoy change
Implied average net price per STB sold (US$)
yoy change
STB sales revenues (PLN million)
yoy change
Fig. 78 Cyfrowy Polsat; Sales model (continued)
23.7
6%
322
260%
0
n.a.
322
260%
0%
100%
322
100%
212
-5%
65
7%
68.3
243%
22.3
n.a.
89
n.a.
0
n.a.
89
n.a.
0%
100%
89
100%
223
n.a.
61
n.a.
19.9
n.a.
100%
660
85%
180
-16%
58
-12%
100.6
47%
560
74%
0
n.a.
560
74%
0%
16.5
-31%
100%
876
100%
122
-32%
44
-23%
107.2
7%
876
56%
0
n.a.
876
56%
0%
6.0
-64%
8.4
323%
37.8
5%
0.0
n.m.
30.2
2%
0.0
n.a.
29.6
n.a.
2.0
n.m.
35.9
19%
0.2
16.7
n.m. 6,904%
350.9 645.8
103%
84%
34.3
34.7
13%
1%
0.0
n.m.
172.8
38%
30.2
2%
5.1%
81
876
662.5
89%
2011E 2012E 2013E 2014E 2015E 2016E
67%
576
100%
100
-18%
44
0%
57.8
-46%
576
-34%
190
n.m.
386
-56%
33%
3.0
-50%
8.5
1%
39.2
4%
27.0
62%
926.1
43%
35.5
2%
40%
383
100%
99
-1%
44
0%
38.1
-34%
383
-33%
230
21%
153
-60%
60%
1.5
-50%
8.5
0%
42.5
8%
30%
389
100%
105
6%
44
0%
41.1
8%
389
2%
273
18%
117
-24%
70%
1.5
0%
8.5
0%
44.5
5%
30%
391
100%
105
0%
44
0%
41.2
0%
391
0%
274
0%
117
0%
70%
1.5
0%
8.5
0%
46.5
5%
30%
378
100%
105
0%
44
0%
39.8
-3%
378
-3%
264
-3%
113
-3%
70%
1.5
0%
8.5
0%
48.6
4%
30%
311
100%
105
0%
44
0%
32.8
-18%
311
-18%
218
-18%
93
-18%
70%
1.5
0%
8.5
0%
50.7
4%
30%
311
100%
105
0%
44
0%
32.8
0%
311
0%
218
0%
93
0%
70%
1.5
0%
8.5
0%
52.9
4%
30%
311
100%
105
0%
44
0%
32.8
0%
311
0%
218
0%
93
0%
70%
1.5
0%
8.5
0%
55.3
4%
30%
312
100%
105
0%
44
0%
32.9
0%
312
0%
218
0%
94
0%
70%
1.5
0%
8.5
0%
57.7
4%
30%
312
100%
105
0%
44
0%
32.9
0%
312
0%
218
0%
94
0%
70%
1.5
0%
8.5
0%
60.2
4%
30%
312
100%
105
0%
44
0%
32.9
0%
312
0%
219
0%
94
0%
70%
1.5
0%
8.5
0%
62.9
4%
22.3
-13%
2,167.2
6%
59.0
5%
-27%
0%
-5%
-49%
-24%
-37%
6%
0%
5%
26%
30%
2017E 2018E 2008-2010E
CAGR
10.0% 10.0%
309
309
312
312
2,075.3 2,189.5
5%
6%
26%
33.4
36.4
37.5
36.6
34.4
33.9
32.4
29.0
25.7
24%
9%
3%
-3%
-6%
-1%
-4%
-10%
-12%
1,149.7 1,288.3 1,424.9 1,554.9 1,665.5 1,743.6 1,832.4 1,938.1 2,049.6
24%
12%
11%
9%
7%
5%
5%
6%
6%
38.2
39.8
41.7
43.8
46.1
48.1
50.4
53.1
56.0
7%
4%
5%
5%
5%
4%
5%
5%
5%
6.1%
7.1%
8.1%
9.1% 10.0% 10.0% 10.0% 10.0% 10.0%
136
183
224
266
303
307
308
308
308
576
383
389
391
378
311
311
311
312
953.1 1,183.1 1,324.7 1,462.4 1,591.4 1,699.8 1,777.5 1,864.8 1,967.2
44%
24%
12%
10%
9%
7%
5%
5%
5%
2007 2008E 2009E 2010E
0.0
n.a.
125.2
n.a.
29.6
n.a.
2006
5.1%
44
660
351.1
103%
2005
9.9% 12.2%
35
58
89
322
125.2 172.8
n.a.
38%
2004
Cyfrowy Polsat
85
86
yoy change
yoy change
yoy change
yoy change
yoy change
yoy change
yoy change
yoy change
9.0
n.a.
1.1
n.a.
5.2
n.a.
15.4
n.a.
182.8
n.a.
125.2
n.a.
22.3
n.a.
19.9
n.a.
15.4
n.a.
2004
9.3
3%
3.9
236%
4.0
-23%
17.1
12%
281.9
54%
172.8
38%
23.7
6%
68.3
243%
17.1
12%
2005
10.3
11%
11.1
188%
4.2
6%
25.6
49%
493.8
75%
351.1
103%
16.5
-31%
100.6
47%
25.6
49%
2006
2011E 2012E 2013E 2014E 2015E 2016E
97%
0%
2%
1%
100%
97%
0%
1%
1%
100%
37,561 37,489 37,411
48,454 48,736 48,634
129.0% 130.0% 130.0%
27.5% 27.4% 27.4%
13,314 13,348 13,336
35
34
-12
12.0% 12.0% 12.0%
5,814 5,848 5,836
35
34
-12
3,087 3,090 3,093
3,084 3,088
3,091
2,825
2,861
2,897
97%
0%
2%
1%
100%
10%
-27%
-37%
26%
21%
10%
14%
n.m.
6%
2017E 2018E 2008-2010E
CAGR
11.6
13.9
13.9
13.9
13.9
13.9
13.9
13.9
13.9
13.9
13.9
13.9
12%
20%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
-100%
n.m.
n.m.
n.m.
n.m.
n.m.
n.m.
n.m.
n.m.
n.m.
n.m.
n.m.
9.4
14.1
14.1
14.1
14.1
14.1
14.1
14.1
14.1
14.1
14.1
14.1
123%
50%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
21.0
28.0
28.0
28.0
28.0
28.0
28.0
28.0
28.0
28.0
28.0
28.0
-18%
33%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
796.7 1,041.9 1,250.7 1,395.2 1,533.1 1,660.7 1,762.1 1,839.8 1,927.1 2,029.5 2,137.7 2,251.9
61%
31%
20%
12%
10%
8%
6%
4%
5%
5%
5%
5%
662.5
953.1 1,183.1 1,324.7 1,462.4 1,591.4 1,699.8 1,777.5 1,864.8 1,967.2 2,075.3 2,189.5
89%
44%
24%
12%
10%
9%
7%
5%
5%
5%
5%
6%
6.0
3.0
1.5
1.5
1.5
1.5
1.5
1.5
1.5
1.5
1.5
1.5
-64%
-50%
-50%
0%
0%
0%
0%
0%
0%
0%
0%
0%
107.2
57.8
38.1
41.1
41.2
39.8
32.8
32.8
32.8
32.9
32.9
32.9
7%
-46%
-34%
8%
0%
-3%
-18%
0%
0%
0%
0%
0%
21.0
28.0
28.0
28.0
28.0
28.0
28.0
28.0
28.0
28.0
28.0
28.0
-18%
33%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
2007 2008E 2009E 2010E
yoy change
DTH sales structure
Subscription fees
68%
61%
71%
83%
91%
95%
95%
95%
96%
96%
97%
97%
STB leases
12%
8%
3%
1%
0%
0%
0%
0%
0%
0%
0%
0%
STB sales
11%
24%
20%
13%
6%
3%
3%
3%
2%
2%
2%
2%
Other
8%
6%
5%
3%
3%
2%
2%
2%
2%
2%
2%
1%
Total
100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
(2) MVNO
Population, eop (ths.)
38,160 38,123 38,085 38,044 38,000 37,952 37,899 37,847 37,794 37,741 37,685 37,626
Mobile users, eop (ths.)
23,096 29,165 36,757 41,506 44,080 45,543 46,237 46,930 47,243 47,553 47,859 48,161
Mobile penetration, eop
60.5% 76.5% 96.5% 109.1% 116.0% 120.0% 122.0% 124.0% 125.0% 126.0% 127.0% 128.0%
Share of new entrants (MNOs + MVNOs) in mobile users, eop
0.0% 0.0% 0.0% 2.2% 6.0% 10.6% 14.7% 18.2% 21.7% 23.7% 25.6% 27.6%
New entrants' (MNOs + MVNOs) mobile users, eop (ths.)
0
0
0
896
2,661 4,822
6,774 8,520 10,252 11,255 12,265 13,279
New entrants' (MNOs + MVNOs) mobile users net addition (ths.)
0
0
0
896
1,765
2,161
1,953
1,746
1,732
1,003
1,009
1,015
Share of MVNOs in mobile users, eop
0.0% 0.0% 0.0%
0.1%
1.5% 4.0% 6.0%
7.5% 9.0% 10.0% 11.0% 12.0%
Number of MVNOs mobile users, eop (ths.)
0
0
0
46
661
1,822
2,774 3,520 4,252
4,755 5,265
5,779
MVNO mobile users - net addition (ths.)
0
0
0
46
615
1,161
953
746
732
503
509
515
Number of Cyfrowy Polsat's DTH subscribers, eop (ths)
393
657
1,274 2,068 2,508
2,708
2,873 2,998
3,073
3,077 3,080 3,083
Number of Cyfrowy Polsat's DTH subscribers, period's average (ths.)
353
476
854
1,591 2,236 2,584
2,771
2,921
3,027
3,075
3,078
3,081
Number of Cyfrowy Polsat's DTH Familijny package subscribers,
393
657
1,169
1,827
2,191
2,357 2,506
2,631
2,736
2,742
2,752
2,788
eop (ths.)
Other (PLN million)
STB sales (PLN million)
STB leases (PLN million)
DTH subscription fees (PLN million)
Total DTH revenues (PLN million), of which:
Total other revenues (PLN million)
(1.4.3) Miscellaneous (PLN million)
(1.4.2) Electronic equipment sales (PLN million)
(1.4) Other
(1.4.1) Satellite signal transmission (PLN million)
Cyfrowy Polsat
????????????????????????
????????????????????????
Number of Cyfrowy Polsat's DTH Familijny package
subscribers, period's average (ths.)
Average number of people per household
Potential ‘broad’ (based on households of all subscribers) target
customer group for Cyfrowy Polsat's MVNO service, eop (ths.)
yoy change
Potential ‘broad’ (based on households of all subscribers) target
customer group for Cyfrowy Polsat's MVNO service, period's
average (ths.)
yoy change
Potential ‘narrow’ (based on households of Familijny package
subscribers) target customer group for Cyfrowy Polsat's MVNO
service, eop (ths.)
yoy change
Potential ‘narrow’ (based on households of Familijny package
subscribers) target customer group for Cyfrowy Polsat's MVNO
service, period's average (ths.)
yoy change
Number of Cyfrowy's MVNO users, eop (ths.):
yoy change
Post-paid (ths)
yoy change
Pre-paid (ths.)
yoy change
Share of post-paid users in Cyfrowy's MVNO users (eop)
Share of pre-paid users in Cyfrowy's MVNO users (eop)
Net addition (ths.):
Post-paid (ths)
Pre-paid (ths.)
Share of post-paid users in Cyfrowy's MVNO net addition
Share of pre-paid users in Cyfrowy's MVNO net addition
Share in MVNO net addition
Share in mobile new entrants' (MNOs and MVNOs) net addition
Number of Cyfrowy's MVNO users, period's average (ths.):
yoy change
Post-paid (ths.)
yoy change
Pre-paid (ths.)
yoy change
476
2.8
1,865
67%
1,352
35%
1,865
67%
1,352
35%
0
n.m.
0
n.m.
0
n.m.
n.a.
n.a.
0
0
0
n.a.
n.a.
n.m.
n.m.
0
n.m.
0
n.m.
0
n.m.
2.8
1,117
n.a.
1,002
n.a.
1,117
n.a.
1,002
n.a.
0
n.a.
0
n.a.
0
n.a.
n.a.
n.a.
0
0
0
n.a.
n.a.
n.m.
n.m.
0
n.a.
0
n.a.
0
n.a.
2005
353
2004
71%
0
n.m.
0
n.m.
0
n.m.
n.a.
n.a.
0
0
0
n.a.
n.a.
n.m.
n.m.
0
n.m.
0
n.m.
0
n.m.
78%
2,312
79%
3,320
94%
2,426
2.8
3,617
814
2006
75%
0
n.m.
0
n.m.
0
n.m.
n.a.
n.a.
0
0
0
n.a.
n.a.
0%
0%
0
n.m.
0
n.m.
0
n.m.
56%
4,045
86%
5,189
62%
4,517
2.8
5,874
1,424
8%
6,409
16%
6,694
8%
7,339
2.8
7,692
2,257
38%
15%
100
600
n.m. 500%
20
120
n.m. 500%
80
480
n.m. 500%
20%
20%
80%
80%
100
500
20
100
80
400
20%
20%
80%
80%
16%
43%
6%
23%
25
350
n.m. 1,300%
5
70
n.m. 1,300%
20
280
n.m. 1,300%
20%
5,596
41%
6,224
21%
6,349
2.8
7,124
1,970
7%
900
50%
180
50%
720
50%
20%
80%
300
60
240
20%
80%
31%
15%
750
114%
150
114%
600
114%
6%
6,857
7%
7,116
6%
7,870
2.8
8,160
2,415
2007 2008E 2009E 2010E
6%
1,050
17%
210
17%
840
17%
20%
80%
150
30
120
20%
80%
20%
9%
975
30%
195
30%
780
30%
5%
7,251
5%
7,471
4%
8,295
2.8
8,515
2,553
5%
1,200
14%
240
14%
960
14%
20%
80%
150
30
120
20%
80%
20%
9%
1,125
15%
225
15%
900
15%
4%
7,578
4%
7,769
3%
8,596
2.8
8,728
2,668
3%
1,301
8%
260
8%
1,041
8%
20%
80%
101
20
81
20%
80%
20%
10%
1,250
11%
250
11%
1,000
11%
0%
7,775
2%
7,788
0%
8,732
2.8
8,738
2,738
0%
1,403
8%
281
8%
1,122
8%
20%
80%
102
20
81
20%
80%
20%
10%
1,352
8%
270
8%
1,081
8%
0%
7,797
0%
7,816
0%
8,741
2.8
8,747
2,745
1%
1,505
7%
301
7%
1,204
7%
20%
80%
103
21
82
20%
80%
20%
10%
1,454
8%
291
8%
1,163
8%
1%
7,849
0%
7,919
0%
8,751
2.8
8,756
2,764
1%
1,513
0%
303
0%
1,210
0%
20%
80%
7
1
6
20%
80%
20%
20%
1,509
4%
302
4%
1,207
4%
1%
7,952
0%
8,022
0%
8,760
2.8
8,766
2,800
2011E 2012E 2013E 2014E 2015E 2016E
1%
1,519
0%
304
0%
1,215
0%
20%
80%
7
1
5
20%
80%
20%
20%
1,516
0%
303
0%
1,213
0%
1%
8,055
0%
8,125
0%
8,769
2.8
8,775
2,836
1%
1,517
0%
303
0%
1,213
0%
20%
80%
-2
0
-2
20%
80%
20%
20%
1,518
0%
304
0%
1,214
0%
1%
8,158
0%
8,228
0%
8,779
2.8
8,784
2,873
19%
11%
20%
12%
2017E 2018E 2008-2010E
CAGR
Cyfrowy Polsat
87
88
Cyfrowy's MVNO users as % of ‘narrow’ target customer group, eop
Cyfrowy's MVNO users as % of ‘narrow’ target customer group,
period's average
Cyfrowy's MVNO users as % of ‘broad’ target customer group, eop
Cyfrowy's MVNO users as % of ‘broad’ target customer group,
period's average
Share of Cyfrowy's MVNO in the MVNO market (measured
in terms of the number of users), eop
Share of Cyfrowy's MVNO in the new entrants' (MNOs + MVNOs)
market (measured in terms of the number of users), eop
Share of Cyfrowy's MVNO in the mobile market (measured
in terms of the number of users), eop
Number of handsets sold (ths.):
yoy change
Post-paid (ths.):
New users (ths.)
Replacements for exististing users (ths.)
Pre-paid (ths.):
New users (ths.)
Replacements for exististing users (ths.)
Churn:
Post-paid
Pre-paid
Churning MVNO customers (ths.):
Post-paid
Pre-paid
Gross addition (ths):
Post-paid (ths.)
Pre-paid (ths)
Share of post-paid users in Cyfrowy's MVNO gross addition
Share of pre-paid users in Cyfrowy's MVNO gross addition
ARPU post-paid (PLN/month)
yoy change
ARPU pre-paid (PLN/month)
yoy change
Blended MVNO ARPU (PLN/month)
yoy change
0.0%
0.0%
0.0%
0.0%
n.m.
n.m.
0.0%
0
n.m.
0
0
0
0
0
0
n.a.
n.a.
n.a.
0
0
0
0
0
0
0
0
0
n.m.
0
n.m.
0
n.m.
0.0%
0.0%
n.m.
n.m.
0.0%
0
n.a.
0
0
0
0
0
0
n.a.
n.a.
n.a.
0
0
0
0
0
0
0
0
0
n.a.
0
n.a.
0
n.m.
2005
0.0%
0.0%
2004
0
n.m.
0
0
0
0
0
0
n.a.
n.a.
n.a.
0
0
0
0
0
0
0
0
0
n.m.
0
n.m.
0
n.m.
0.0%
n.m.
n.m.
0.0%
0.0%
0.0%
0.0%
2006
0
n.m.
0
0
0
0
0
0
n.a.
n.a.
n.a.
0
0
0
0
0
0
0
0
0
n.m.
0
n.m.
0
n.m.
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
7.8%
4.8%
14.1%
13.4%
11.0% 12.3%
9.5% 11.8%
9.0% 12.6%
5.5% 10.9%
13.7%
13.1%
15.4%
14.8%
28
n.m.
20
20
0
8
8
0
8.0%
0.0%
10.0%
2
0
2
102
20
82
20%
80%
65.0
n.m.
13.0
n.m.
23.4
n.m.
0.2%
3.8%
147
421%
100
100
0
47
43
4
8.0%
0.0%
10.0%
28
0
28
528
100
428
19%
81%
65.8
1%
13.2
1%
23.7
1%
1.3%
128
-13%
74
65
9
54
30
24
8.6%
3.0%
10.0%
65
5
60
365
65
300
18%
82%
66.6
1%
13.3
1%
24.0
1%
1.9%
148
16%
92
36
56
56
20
36
8.6%
3.0%
10.0%
84
6
78
234
36
198
15%
85%
67.4
1%
13.5
1%
24.3
1%
2.2%
12.4% 13.3% 12.3%
184
25%
121
37
85
63
21
42
8.6%
3.0%
10.0%
97
7
90
247
37
210
15%
85%
68.2
1%
13.6
1%
24.5
1%
2.5%
11.7%
17.9%
17.3%
17.2%
16.6%
17.3%
17.2%
19.0% 18.9%
18.5% 19.0%
17.3%
17.3%
17.3%
17.3%
2017E 2018E 2008-2010E
CAGR
18.7% 18.4%
18.8% 18.6%
192
4%
126
28
99
66
18
48
8.6%
3.0%
10.0%
108
8
100
208
28
181
13%
87%
69.0
1%
13.8
1%
24.8
1%
2.7%
11.6%
212
10%
141
28
113
71
19
52
8.6%
3.0%
10.0%
116
8
108
218
28
190
13%
87%
69.8
1%
14.0
1%
25.1
1%
2.9%
11.4%
228
7%
152
29
122
76
20
56
8.6%
3.0%
10.0%
125
9
116
228
29
199
13%
87%
70.7
1%
14.1
1%
25.4
1%
3.1%
11.3%
215
-5%
142
10
132
73
13
60
8.6%
3.0%
10.0%
130
9
121
137
10
126
8%
92%
71.5
1%
14.3
1%
25.7
1%
3.1%
11.4%
225
5%
152
10
142
73
13
61
8.6%
3.0%
10.0%
130
9
121
137
10
127
8%
92%
72.4
1%
14.5
1%
26.1
1%
3.1%
11.4%
224
-1%
151
9
142
73
12
61
8.6%
3.0%
10.0%
131
9
121
128
9
119
7%
93%
73.2
1%
14.6
1%
26.4
1%
3.1%
11.4%
27.4% 26.6% 26.0% 26.0% 26.0% 26.0%
14.9% 16.0%
14.3% 15.5%
16.7%
16.1%
2011E 2012E 2013E 2014E 2015E 2016E
15.1% 32.9% 32.4% 29.8% 28.2%
1.4%
0.4%
1.6%
0.4%
2007 2008E 2009E 2010E
Cyfrowy Polsat
????????????????????????
????????????????????????
Handsets (PLN million)
Pre-paid (PLN million)
Post-paid (PLN million)
MVNO (PLN million):
DTH - other (PLN million)
DTH - STB sales (PLN million)
DTH - STB leases (PLN million)
DTH - subscription fees (PLN million)
DTH (PLN million):
MVNO sales structure
Post-paid
Pre-paid
Handsets
Total
Total consolidated revenues (PLN million):
Handsets (PLN million)
Pre-paid (PLN million)
Post-paid (PLN million)
MVNO revenues (PLN million):
yoy change
yoy change
yoy change
yoy change
yoy change
yoy change
yoy change
yoy change
yoy change
yoy change
yoy change
yoy change
yoy change
yoy change
n.a.
182.8
n.a.
125.2
n.a.
22.3
n.a.
19.9
n.a.
15.4
n.a.
0.0
n.m.
0.0
n.m.
0.0
n.m.
0.0
n.m.
n.a.
n.a.
n.a.
182.8
0.0
n.m.
0.0
n.m.
0.0
n.m.
0.0
n.m.
2004
54%
281.9
54%
172.8
38%
23.7
6%
68.3
243%
17.1
12%
0.0
n.m.
0.0
n.m.
0.0
n.m.
0.0
n.m.
n.a.
n.a.
n.a.
281.9
0.0
n.m.
0.0
n.m.
0.0
n.m.
0.0
n.m.
2005
75%
493.8
75%
351.1
103%
16.5
-31%
100.6
47%
25.6
49%
0.0
n.m.
0.0
n.m.
0.0
n.m.
0.0
n.m.
n.a.
n.a.
n.a.
493.8
0.0
n.m.
0.0
n.m.
0.0
n.m.
0.0
n.m.
2006
9.2
n.m.
3.9
n.m.
3.1
n.m.
2.1
n.m.
111.4
1116%
55.3
1317%
44.2
1317%
11.9
458%
229.2
106%
119.8
117%
95.9
117%
13.5
13%
297.7
30%
157.6
32%
126.1
32%
13.9
3%
347.1
17%
184.1
17%
147.3
17%
15.7
13%
389.2
12%
207.0
12%
165.6
12%
16.5
5%
425.4
9%
226.5
9%
181.2
9%
17.7
7%
462.8
9%
246.6
9%
197.3
9%
19.0
7%
61%
32%
30%
19%
13%
10%
7%
5%
6%
5%
5%
5%
796.7 1,041.9 1,250.7 1,395.2 1,533.1 1,660.7 1,762.1 1,839.8 1,927.1 2,029.5 2,137.7 2,251.9
61%
31%
20%
12%
10%
8%
6%
4%
5%
5%
5%
5%
662.5
953.1 1,183.1 1,324.7 1,462.4 1,591.4 1,699.8 1,777.5 1,864.8 1,967.2 2,075.3 2,189.5
89%
44%
24%
12%
10%
9%
7%
5%
5%
5%
5%
6%
6.0
3.0
1.5
1.5
1.5
1.5
1.5
1.5
1.5
1.5
1.5
1.5
-64%
-50%
-50%
0%
0%
0%
0%
0%
0%
0%
0%
0%
107.2
57.8
38.1
41.1
41.2
39.8
32.8
32.8
32.8
32.9
32.9
32.9
7%
-46%
-34%
8%
0%
-3%
-18%
0%
0%
0%
0%
0%
21.0
28.0
28.0
28.0
28.0
28.0
28.0
28.0
28.0
28.0
28.0
28.0
0%
0%
0%
0%
0%
0%
0%
0%
-18%
33%
0%
0%
0.0
9.2
111.4 229.2
297.7
347.1 389.2
425.4 462.8 484.3 492.2 498.4
n.m.
n.m. 1116% 106%
30%
17%
12%
9%
9%
5%
2%
1%
0.0
3.9
55.3
119.8
157.6
184.1
207.0 226.5
246.6
259.0 263.3 266.8
n.m.
n.m. 1317%
117%
32%
17%
12%
9%
9%
5%
2%
1%
0.0
3.1
44.2
95.9
126.1
147.3
165.6
181.2
197.3
207.2
210.6
213.5
n.m.
n.m. 1317%
117%
32%
17%
12%
9%
9%
5%
2%
1%
0.0
2.1
11.9
13.5
13.9
15.7
16.5
17.7
19.0
18.2
18.3
18.1
n.m.
n.m. 458%
13%
3%
13%
5%
7%
7%
-4%
0%
-1%
10%
-27%
-37%
26%
21%
27%
2017E 2018E 2008-2010E
CAGR
484.3 492.2 498.4
5%
2%
1%
259.0 263.3 266.8
5%
2%
1%
207.2
210.6
213.5
5%
2%
1%
18.2
18.3
18.1
-4%
0%
-1%
2011E 2012E 2013E 2014E 2015E 2016E
n.a.
43%
50%
52%
53%
53%
53%
53%
53%
53%
53%
54%
n.a.
34%
40%
42%
42%
42%
43%
43%
43%
43%
43%
43%
n.a.
23%
11%
6%
5%
5%
4%
4%
4%
4%
4%
4%
- 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
796.7 1,051.1 1,362.1 1,624.5 1,830.8 2,007.8 2,151.2 2,265.2 2,389.9 2,513.8 2,629.9 2,750.4
0.0
n.m.
0.0
n.m.
0.0
n.m.
0.0
n.m.
2007 2008E 2009E 2010E
Cyfrowy Polsat
89
90
Consolidated sales structure
DTH
DTH - license fees
DTH - STB leases
DTH - STB sales
DTH - other
MVNO
Post-paid
Pre-paid
Handsets
Total
100%
68%
12%
11%
8%
0%
0%
0%
0%
100%
2004
100%
61%
8%
24%
6%
0%
0%
0%
0%
100%
2005
100%
71%
3%
20%
5%
0%
0%
0%
0%
100%
2006
100%
83%
1%
13%
3%
0%
0%
0%
0%
100%
99%
91%
0%
6%
3%
1%
0%
0%
0%
100%
92%
87%
0%
3%
2%
8%
4%
3%
1%
100%
86%
82%
0%
3%
2%
14%
7%
6%
1%
100%
2007 2008E 2009E 2010E
84%
80%
0%
2%
2%
16%
9%
7%
1%
100%
83%
79%
0%
2%
1%
17%
9%
7%
1%
100%
82%
79%
0%
2%
1%
18%
10%
8%
1%
100%
81%
78%
0%
1%
1%
19%
10%
8%
1%
100%
81%
78%
0%
1%
1%
19%
10%
8%
1%
100%
81%
78%
0%
1%
1%
19%
10%
8%
1%
100%
2011E 2012E 2013E 2014E 2015E 2016E
81%
79%
0%
1%
1%
19%
10%
8%
1%
100%
82%
80%
0%
1%
1%
18%
10%
8%
1%
100%
2017E 2018E 2008-2010E
CAGR
Cyfrowy Polsat
????????????????????????
Cyfrowy Polsat
Fig. 84 Cyfrowy Polsat; Volumes
Fig. 85 Cyfrowy Polsat; Churn
Fig. 86 Cyfrowy Polsat; Consolidated revenues
7.2.
A number of OPEX categories,...
...differentiation between DTHand MVNO-related components
Past few years’ downward trend
of D&A charges was driven
by a change in the Company’s
DTH new adds’ acquisition policy;
with the minor value of leased
STBs and the launch of MVNO,
we forecast its reversal
????????????????????????
Operating costs
Analysing and forecasting Cyfrowy Polsat’s OPEX we differentiate – due to their various dynamics
and drivers – between an array of operating cost components: (i) D&A, (ii) HR costs, (iii) costs
of sold STBs, (iv) costs of sold mobile handsets, (v) television programming content costs, (vi) signal
transmission costs, (vii) distribution & marketing costs (inclusive of distribution commissions),
(viii) Polish Cinema Institute royalties, (ix) provisions for bad receivables, (x) real estate rental costs,
(xi) MVNO systems and infrastructure maintenance costs, (xii) the cost of ‘minutes’ bought from
an MNO, and (xiii) miscellaneous operating costs. Additionally, due to the start-up nature
of the MVNO project, we try to differentiate between operating costs related to the DTH and MVNO
businesses, as such split is - the way we see it - required at the valuation stage, with these two
businesses valued separately and combined later via the SOPT approach. Below we discuss each
item of the costs, providing a brief overview of its chief drivers and expected future trends, with
the detailed OPEX forecasts presented in Figures 87-93.
D&A charges (7%/4% of total OPEX in 2006/2010E) constitute a straigtforward consequence
of past capex decisions. In the case of Cyfrowy, they have been on steep decline in 2005-2007,
due to a slump in STBs’ depreciation charges resulting from the management’s decision do direct
the DTH new subscribers’ acquisition strategy away from STB leases (in this case STBs remain
in the Company’s balance sheet as a component of its fixed assets, with their value depreciated over
the lease agreement life) towards the outright sale of STBs (in this model the STBs are treated
as ordinary goods, with their costs charged to COGS at the moment of sale). However, starting from
2008E, we forecast a reversal in this downward trend, for two reasons. Firstly, at the end of 2007
91
Cyfrowy Polsat
the leased STBs started to constitute such a minor component of the Company’s DTH-related fixed
assets, that further behaviour of their depreciation will not materially affect the overall level of DTH
business line’s D&A charges (which, as a matter of fact, had been continuously growing in past few
years, after removing the STBs-related component). Secondly, following the MVNO project launch
(mid-2008), the fixed assets related to this new project will start to be amortized and depreciated,
boosting the Company’s overall D&A charge. Notwithstanding the above, even after the launch
of the MVNO business, we would not perceive the business-mix of Cyfrowy Polsat as a capitalintensive one (as opposed to other models of TV programs paid distribution, such as cable
or IPTV).
2007 was a year of material
increase in Company’s
headcount (launch of in-house
STB assembly, MVNO project,
increase of the call center
capacity), from 2008E onwards
staff additions will be largely
subscriber-number-driven
The level of cash HR costs (4%/7% of total OPEX in 2006/2010E) follows directly from the employee
headcount and rising payroll. For 2008E and beyond we forecast increases in both these cost
drivers, extending the 2007-started tendency; the headcount rose materially last year (and will,
probably, continue so in the short-term), due to:
(i) launch of an in-house STB assembly,
(ii)launch of the MVNO operations, and
(iii)material extension of the in-house call center and customer service resources (forced
by the rapid growth of subscribers).
Per capita payrolls under control
In a longer term, we expect possible future increases in Cyfrowy’s headcount to be predominantly
driven by further influx of DTH and MVNO users, necessitating hiring more customer service staff.
As far as the trend in average remuneration goes, it should be noted that historically the Company
has been able to keep it well under control. The Company, however, does not operate in isolation
and current wage pressures in the economy cannot remain without impact; consequently, we
assume app. >10% yoy increase of per capita HR costs at Cyfrowy this year, followed by a singledigit increases in the coming years.
Material non-cash stock option
Please note that the management stock option program implemented at the Company may generate
material non-cash SOCs under IFRS2 (please, refer to the Risks factors section regarding the
details). Please note, however, that neither the final exact value of these non-cash accounting
charges nor the timing of their recognition in the Company’s income statement have been determined
yet. Hence, our forecasts of Cyfrowy’s profits do not include these non-cash costs (we remind
that from the valuation perspective we invariably deem IFRS2 SOC charges irrelevant).
cost charges are likely to arise
under IFRS2
STBs’ COGS mimicks the
Company’s DTH gross addition
behavior
Cyfrowy deeply subsidizes sales
of STBs in order to boost its DTH
new addition volumes
Launch of in-house assembly
of STBs…
The Company’s costs of STBs sold (40%/5% of total OPEX in 2006/2010E) are a function
of the volumes of sold set-top-boxes, i.e. effectively of Cyfrowy’s DTH service gross additions.
The price which the Company pays to STB vendors is higher than the retail price at which these
devices are offered to Cyfrowy’s subscribers. The cost of subsidising an STB differs between various
STB types. Subsidies are intended to improve price attractiveness, and thus ensure the widest
possible availability of the Company’s offering to potential customers of pay digital satellite TV.
Despite substantial short-term costs (losses on STB sales; the costs of subsidising an STB are not
amortized over time and are charged to profit and loss account at the time when the device is sold),
this approach – especially during the seasonal peaks of 4Q – contributes materially to the subscriber
base growth (especially given the Company’s target prospects’ group) and – as a result – boosts
the revenue (and profit) from subscription fees in the longer term. As our forecasts for the Company
assume that the in-house STBs are produced solely for Cyfrowy’s DTH subscribers (i.e. with no STB
production placed with third parties), the COGS of STBs in the Company’s profit and loss account
mimick the behavior of Cyfrowy’s DTH subscriber gross additions, peaking in 2007 and declining
strongly beyond that year.
In October 2007, Cyfrowy Polsat (via its 100%-owned subsidiary Cyfrowy Polsat Technology
Sp. z o.o.) launched in-house STB production (with the target monthly throughput of 90 ths units).
The STB production facility has been equipped with one of the most advanced assembly lines
available on the market (produced by Assembleon13) for fully automated large-batch production.
Cyfrowy Polsat plans to sell its own STBs and gradually replace a majority of STBs offered with
in-house production. The Company’s policy, however, is to implement only fully developed
13
92
Assembleon production lines are used by leading producers of electronic equipment worldwide.
????????????????????????
Cyfrowy Polsat
technologies; i.e. Cyfrowy will keep on using external providers – at least at the early stages –
if a new type of a STB is developed. Hence, we assume that down the road app. 70% of STBs
placed with the Company’s DTH subscribers will come from the in-house assembly, rising steadily
to that level over a three-year period (from 0% in 2007 and >30% (<200 ths. in volume terms)
in 2008E).
...provides the Company with
flexibility regarding its STB pricing
strategies (decreased subsidy
to boost profitability versus
reduction of the selling price
(i.e. subsidy maintenance)
to attract more low-end volumes)
Post-paid mobile handsets deeply
subsidized, pre-paid ones sold
at cost
costs → one of the main OPEX
components for DTHs
A variable cost, dependant upon
the subscribership levels
Cyfrowy’s TV programming
costs are bound to soar, mainly
on the back of forecast further
growth of its DTH volumes
Putting aside the effect related
to the changes in the number
of leased transponders, satellite
transponder costs are fixed in
Euro terms
????????????????????????
Thanks to the launch of its in-house STB assembly, the Company may be able to bring down the
cost of STBs sold (which would be reflected in improved profitability, assuming that the retail STB
prices are not slashed; we expect the in-house production of STBs to reduce the STB costs (per
unit) by app. 25-30%) or – alternatively – lower the selling price of receiver sets (i.e. with unaltered
size of the subsidy per STB sold to its DTH subscribers), which should further sharpen Cyfrowy’s
competitive edge leading to incremental subscribership from the lower-end of the market. The
Company’s choice among these two options will depend upon the situation on the market and may
vary in time. As far as our forecasts for the Company are concerned, given robust gross adds
enjoyed by Cyfrowy in the absence of STB slashed prices (apart from the 4Q seasonal promotion
periods), we assume that the in-house-produced STB will be priced with only moderate discount
in relation to the third-party STBs, resulting in material decline of an average subsidy per sold STB
(assuming that in the mid-term app. 70% of Cyfrowy’s DTH customers will be provided with inhouse-assembled set-top-boxes).
Following launch of the MVNO operations, the Company will start to incur costs of mobile handsets
(0%/3% of total OPEX in 2006/2010E) sold to its clients. In line with the prevailing market practices,
we assume Cyfrowy Polsat to deeply subsidize the handsets sold to its post-paid users (with average
post-paid handset subsidy around EUR 75) and to sell pre-paid handsets at cost (with neither markup nor subsidy). Hence, the value of the total handset subsidy constitutes a function of the Company’s
post-paid subscribers (for details see Revenues section).
TV programming content costs (15%/36% of total OPEX in 2006/2010E) constitute one of main
variable operating cost components for TV programs distributors (DTHs inclusive). TV programming
content costs incurred by Cyfrowy Polsat arise from payments due to TV content providers under
license agreements, which are routinely concluded for three to five years (to lower these costs
Cyfrowy Polsat tries to negotiate attractive fee rates and incentive periods). As a digital satellite
TV platform operator eager to enrich its programming mix, Cyfrowy Polsat strives to continually
expand its range of channels (maximising its take-up potential and revenue per subscriber, while
keeping down the churn rate), which is connected with incurrence of additional licensing costs.
Payments under the license agreements between the Company and TV channel providers are
in most cases settled on a per subscriber basis (usually in US$ and EUR) or, rarely, on a flat fee
basis. In the case of agreements providing for per-subscriber fees, licensing fees are calculated
by multiplying a fixed per-subscriber rate by the total number of subscribers who purchased
a channel package featuring the channel of a given broadcaster. It should be mentioned that license
agreements frequently provide that if the number of subscribers exceeds a certain threshold,
the per-subscriber fees are automatically lowered, though, on the other hand, the increases of the
per subscriber fees paid to TV content providers also occur, especially in cases of strong increases
in the viewership of a given channel (e.g. as was the case in 2006 and 2007, when TVN drastically
increased its per-socket fee rates charged to CATVs and DTHs for TVN24, TVN Turbo and TNV
Style, on the back of robust viewerships of these three thematic channels).
With such hindsight regarding the drivers of the TV programming costs, we forecast their material
growth in 2008 and beyond, mainly on the back of growing DTH volumes at Cyfrowy, and – though to
a much smaller extent – due to gradual incorporation of further channels into the Company’s
programming offering as well as forecast increasing number of upsold users of the Familijny package.
The costs of signal broadcasting and transmission (8%/6% of total OPEX in 2006/ 2010E) incurred
by Cyfrowy Polsat are the sum of:
(i) costs of transponder lease,
(ii)fees for the conditional access system from Nagravision (calculated as the product
of a monthly unit rate and the number of active smart cards), and
(iii)other costs of signal broadcasting and transmission.
93
Cyfrowy Polsat
Lease of the third transponder
drives them up in 2007-2008E
Conditional access costs are
fixed per DTH subscriber (linearly
related to the subscribership
levels)
Distribution & marketing costs:
commissions to distributors +
advertising + mailing + call center
Under IFRS distribution
commissions are capitalized
and amortized over the period
of the duration of the subscription
agreements;...
...they depend on two variables (i) DTH & MVNO gross additions
and (ii) per user (cash) SACs
DTH (MVNO) gross add peaked
in 2007 (remaining high
in 2008-2010E)
Cyfrowy’s per user cash SAC to:
(i) trend upwards in DTH, (ii) be
in line with market’s in pre-paid
mobile voice, and (iii) below the
market’s in post-paid mobile voice
We forecast Cyfrowy’s accrual
distribution commission cost
to extend its last year’s hike into
2008-2009 and then to decline
94
An increase in this cost item in 2006 can be traced to the implementation of a new conditional
access system (Nagravision) at the end of 2005, which has effectively minimized unauthorized
access to Cyfrowy’s program offering. In the coming years, we forecast increases in this cost
category, for two reasons. Firstly, starting from September 2007 Cyfrowy Polsat started to lease
(for the HDTV purposes) the third transponder (at an annual cost of EUR 3.2 million), which drives
up the Company’s transponder lease costs for 2007 and 2008E (putting aside the effects connected
with the change in the leased transponders number, these costs are practically fixed in Euro terms,
with their 2005-2006 decline attributable to the weakness of the Euro against the Polish zloty).
Secondly, while the Euro-denominated Nagravision conditional access (CA) costs are fixed on a persubscriber basis (flat rates for at least 10-year period), their growth in absolute terms will be linearly
related to the DTH subscribership levels, which in case of Cyfrowy are forecast to grow in 2008
and next few years.
Distribution & marketing costs (14%/18% of total OPEX in 2006/2010E) incurred by Cyfrowy Polsat
are the sum of:
(i) commissions to distributors,
(ii)advertising,
(iii)mailing, and
(iv)the call center costs.
Commissions to distributors (9%/7% of the Company’s total OPEX in 2006/2010E) are payments
to distributors or – through their agency – to authorized partnership points of sales as remuneration
for gaining new agreements on provision of pay digital satellite TV and mobile voice (since the turn
of 2Q08 and 3Q08). The costs of commissions for gaining new subscription agreements are
amortized over time over the initial basic agreement period (i.e. 24 months for the DTH Mini package
and for the DTH Familijny package (though until recently the latter stood at 17 months); for the
MVNO business we assume 24-month basic subscription agreement duration for the post-paid
clients (over which the postpaid distribution commissions will be amortized) and an immediate
expensing of the pre-paid users’ distribution commissions), whereas additional costs of commissions
to distributors connected with meeting sales volume targets are fully charged to profit and loss
account as incurred. Such an accounting policy (required under IFRS) with respect to the distribution
commissions (i) understates, ceteris paribus, the actual cash cost incurred during periods of hiking
new additions (e.g. 4Q) and – which follows – overstates the cash profits for such periods, and
(ii) overstates the cash costs (and understates profits) during the following quarters. This cost
category constitutes a function of two factors:
(i) DTH and MVNO gross additions (with some embedded fade mechanism, due
to aforementioned IFRS accounting treatment), and
(ii)per user (cash) SACs (subscriber acquisition cost).
As far as the new volumes (gross additions) go, our assumptions have been explained in detail
in the Revenues section; to avoid undue repetition let us only mention that we expect them to have
peaked in the DTH business last year (and to subdue from 2008E onwards), and to remain at a high
level in MVNO in next three years. As far as the per user (cash) SACs are concerned, we assume
that: (i) following strong, almost 40% yoy, increase in 2007 in DTH (due to introduced in November
seasonal extra bonus payments to distributors (a move matching the competitor’s action, unlikely –
in our view – to recur in the coming years)), followed by app. 15% yoy decline in 2008E (consequence
of the non-recurring nature of the aforementioned competitor-induced 4Q07 extra bonus payments
to distributors) and c. 3-5% yoy increases thereafter, (ii) c. PLN 12 in the pre-paid mobile voice (level
in line with current pre-paid SAC levels of local MNOs), and (iii) c. PLN 250 in the post-paid mobile
voice (c. 50% discount to the current post-paid SAC levels of local MVNOs; we believe that due to
the service bundling effect and a material overlap between the DTH and MVNO distribution networks,
an attainment of below-market post-paid SAC rates should prove feasible).
The above assumptions regarding per user cash SAC levels and our forecasts of the Company’s
DTH and MVNO gross additions imply extension of last year’s growth of the distribution commission
costs into 2008-2009, followed by decline in 2010E (yoy increase at MVNO more than offset
by significant declines at DTH).
????????????????????????
Cyfrowy Polsat
Fig. 87 Cyfrowy Polsat; DTH’s OPEX
PLN m
2004 2005 2006 2007 2008E 2009E
D&A:
-61.1 -50.1 -32.8 -20.8 -25.9 -29.6
STBs
-55.9 -43.9 -23.2
-8.0
-0.5
-0.4
Non-STBs
-5.2
-6.2
-9.6 -12.7 -25.4 -29.2
Marketing & distribution costs:
-9.7 -28.6 -65.5 -121.7 -155.2 -154.7
DTH distributors' commission
-3.0 -16.6 -42.9 -76.9 -98.7 -89.4
Mailing
-2.1
-5.4
-5.5
-9.9 -14.6 -17.6
Call center
-1.8
-2.3
-7.4 -12.8 -16.3 -18.4
Marketing and advertising
-2.8
-4.3
-9.7 -22.2 -25.5 -29.3
STBs, of which:
-21.2 -97.3 -179.7 -209.0 -86.6 -55.0
Subsidy
-1.2 -29.0 -79.0 -101.8 -28.7 -16.9
-22.7 -28.6 -68.4 -152.0 -224.2 -305.2
Satellite signal transmission:
-33.8 -30.9 -36.1 -48.4 -60.1 -63.5
Transponder capacity lease
-30.8 -27.1 -23.9 -27.0 -32.2 -31.5
Conditional access system
-0.8
-1.6
-9.7 -18.6 -23.8 -26.9
Other
-2.2
-2.2
-2.4
-2.9
-4.1
-5.1
0.0
0.0
-5.3
-9.0 -14.3 -17.7
HR:
-12.6 -16.6 -19.9 -40.3 -41.5 -52.4
IFRS2
0.0
0.0
0.0 -10.2
0.0
0.0
Normal
-12.6 -16.6 -19.9 -30.2 -41.5 -52.4
Miscellaneous:
-30.3 -33.5 -44.4 -47.2 -62.5 -74.5
Bad receivables
-6.0 -15.2 -13.2 -16.5 -23.7 -29.5
Office space rentals
-2.1
-1.7
-1.8
-1.2
-1.1
-1.1
Electric equipment COGS
-0.9
-3.7
-9.2
0.0
0.0
0.0
Other DTH-related
-21.4 -13.0 -20.2 -29.6 -37.6 -43.9
Total OPEX of DTH
-191.5 -285.6 -452.1 -648.5 -670.3 -752.8
Estimated DTH Cash SAC
39
111
105
143
116
122
(PLN/gross add)
yoy change
n.a. 186%
-5% 36% -19%
5%
Estimated STB subsidy (PLN; excess
14
90
120
116
50
44
of STBs' COGS over STBs' sales
revenues divided by the DTH gross add)
yoy change
n.a. 566% 33%
-3% -57% -12%
Estimated TV content programming
-18
-18
-27
-39
-50
-61
cost per subscriber (US$, per
Familijny package average number
of subs. (Mini's subs get only FTAs))
yoy change
n.a.
5% 47% 43% 30% 20%
2010E
-31.2
-0.4
-30.8
-124.5
-51.1
-19.6
-20.1
-33.7
-55.7
-14.6
-384.4
-65.2
-31.1
-28.4
-5.7
-19.9
-59.9
0.0
-59.9
-81.7
-33.0
-1.1
0.0
-47.6
-822.5
128
2011E
-30.6
-0.4
-30.1
-116.4
-38.1
-21.3
-21.7
-35.4
-55.8
-14.6
-447.1
-66.9
-30.8
-29.7
-6.3
-21.9
-65.4
0.0
-65.4
-89.8
-36.4
-1.1
0.0
-52.3
-894.0
135
2012E
-30.3
-0.4
-29.9
-130.8
-48.0
-22.7
-22.9
-37.2
-54.0
-14.2
-514.1
-68.5
-30.8
-30.8
-6.9
-23.9
-70.1
0.0
-70.1
-97.4
-39.6
-1.1
0.0
-56.7
-989.1
141
2013E
-22.3
-0.4
-21.9
-140.3
-53.9
-23.8
-23.6
-39.0
-44.4
-11.6
-580.2
-69.5
-30.8
-31.3
-7.3
-25.5
-76.6
0.0
-76.6
-103.6
-42.3
-1.1
0.0
-60.1
-1,062.4
148
2014E
-25.2
-0.4
-24.8
-140.7
-50.9
-24.5
-24.3
-41.0
-44.5
-11.7
-639.9
-69.8
-30.8
-31.3
-7.7
-26.7
-81.3
0.0
-81.3
-108.2
-44.3
-1.2
0.0
-62.8
-1,136.3
156
2015E
-27.1
-0.4
-26.7
-140.2
-47.6
-25.3
-25.1
-42.2
-44.5
-11.7
-708.6
-70.2
-30.8
-31.4
-8.0
-28.0
-86.2
0.0
-86.2
-113.4
-46.4
-1.2
0.0
-65.8
-1,218.2
164
2016E
-27.1
-0.4
-26.7
-145.4
-50.0
-26.0
-25.9
-43.5
-44.6
-11.7
-782.5
-73.9
-30.8
-34.5
-8.5
-29.5
-90.6
0.0
-90.6
-119.5
-49.0
-1.2
0.0
-69.3
-1,313.0
172
2017E
-28.7
-0.4
-28.3
-152.7
-54.4
-26.9
-26.7
-44.8
-44.6
-11.7
-864.0
-74.4
-30.8
-34.6
-8.9
-31.1
-95.2
0.0
-95.2
-125.9
-51.7
-1.2
0.0
-73.0
-1,416.5
180
2018E
-30.7
-0.4
-30.3
-159.0
-57.7
-27.7
-27.5
-46.1
-44.6
-11.7
-953.8
-74.9
-30.8
-34.6
-9.4
-32.8
-100.0
0.0
-100.0
-132.6
-54.5
-1.3
0.0
-76.9
-1,528.5
189
5%
37
5%
37
5%
37
5%
37
5%
37
5%
37
5%
37
5%
37
5%
37
-15%
-67
0%
-74
0%
-81
0%
-89
0%
-98
0%
-108
0%
-118
0%
-129
0%
-140
11%
10%
10%
10%
10%
10%
9%
9%
9%
Note: The size and timing of the IFRS2 non-cash SOC remain undetermined as of now; hence, the paper stock option costs are not included in the forecasts
Advertising expenses seem
bound to rise, due to inflation
of the GRP prices and launch
of the MVNO business
????????????????????????
Advertising costs (2%/6% of total OPEX in 2006/2010E) comprise outlays on TV, radio, press and
Internet advertising, costs of marketing activities and marketing materials, as well as other expenses
incurred to enhance sales and brand recognition. Their level is not directly linked to the number
of subscribers. Historically, the Company has been keeping its marketing outlays low; even last year,
following c. 150% yoy hike the Company’s advertising budget (PLN 22 million) represented only
c. 4% of the FY DTH subscription revenues. Going forward, however, we expect the Company’s
advertising expenses to exhibit a clear upward trend, even despite the assumed maintenance
of the Company’s prudence in spending money. The reasons for this are twofold. First, even though
in the foreseeable future Cyfrowy intends to keep its DTH advertising expenses flat in the GRP
(gross rating points) terms, given persistingly very high levels of advertising time limits capacity
utilizations at national commercial TV broadcasters (and CPT rates still below other advertising
medias other than the Internet), the inflation of GRP prices is likely to persist in next few years (with
feeble outlook for volume-driven growth, TV broadcasters will resort to the price-driven one,
especially as further price increases are still unlikely to deprive television of its ‘second-cheapest-interms-of-cost-of-reach’ advertising medium status in the short-to-mid-term). Second, while given
strong brand name of Cyfrowy Polsat and ample DTH clients data base (constituting the target
customer group for the Company’s MVNO service), the Company is unlikely to engage in a massive
95
Cyfrowy Polsat
mass-media advertising campaign related to its mobile voice services (as on the back of the DTHmobile voice bundling potential the cost-efficient direct advertising opportunity clearly exists here),
some advertising campaign aimed (initially) at building and (then) at the maintenance of the service
awareness among the broader group of prospects will be inescapable; with such premise,
we assume that initially the MVNO-related advertising spending by Cyfrowy Polsat will lag its DTHrelated advertising budget, and then will gradually catch up in time.
Mailing costs are linearly related
to user volumes (in DTH and
post-paid mobile voice), hence
their strong growth should be
expected this year and beyond
Call center costs are also
user-number-dependent
Polish Cinema Institute
royalties: flat function
of DTH subscription revenues
MVNO systems’ maintenance:
function of MVNO cumulative
capex
MNO’s radio network usage
costs: a variable component
moving along with user
numbers and their activity
Bad receivables: a function
of subscription revenues
and client default rates
Office space rental costs
depend on the rented area
and per square meter rates
96
Mailing costs (1%/2% of total OPEX in 2006/2010E) comprise outlays on mailings sent
to subscribers containing subscription payment forms (and post-paid mobile voice invoices, once
the MVNO service becomes operational), as well as information on changes in the program offering,
pricing and rules applicable to subscribers. Such mailings have so far been sent to all subscribers
of Cyfrowy Polsat (DTH service) at least twice a year, usually in spring and autumn. In addition,
the Company regularly posts smaller mailings to a limited group of subscribers (e.g. a welcome
information pack sent to all new subscribers, intended primarily to encourage them to purchase
a wider selection of channels). The launch of the MVNO service will contribute (apart from growing
DTH volumes of Cyfrowy) to further increases of the mailing costs, as even in the case of overlapping
DTH and post-paid mobile customers, the invoices for the mobile service will need probably
to be mailed on a more frequent (monthly) basis than subscription payment forms for DTH services
(semi-annually), though some bundling-related cost saving potential clearly exists here.
Finally, the call center costs (2%/2% of total OPEX in 2006/2010E) comprise payments to third
parties which provide Cyfrowy with on-going telephone-based customer service and sale of pay
digital satellite TV and mobile voice service. Similar to the mailing costs, the call center costs are
also related to the number of the Company’s DTH and MVNO users; with forecast growing customer
volumes they should be expected to trend upwards.
Pursuant to the Cinematography Act, starting from 2006 the Company has to pay (along with other
DTH operators, CATVs and TV broadcasters) a quarterly royalty fee to the Polish Cinema Institute
equal to 1.5% of its DTH subscription sales. The Polish Cinema Institute royalties (1%/2% of total
OPEX in 2006/2010E) constitute hence a perfectly variable component of Company’s OPEX, linked
in an unvarying manner to the most important category of Cyfrowy Polsat’s revenues.
On the back of launching the MVNO service the Company starts to incur the costs related
to the maintenance of the MVNO systems and network (0%/2% of total OPEX in 2006/2010E); these
costs will constitute a function of the Company’s cumulative MVNO capital expenditures.
The way we see it, Cyfrowy Polsat in its agreement with PTC managed to negotiate favourable for
the Company calculation method for the MNO’s network utilization. According to our understanding,
the Company will pay only for the wholesale purchase of minutes, data and SMSs, without the need
to pay any additional fixed access fee for the PTC’s network usage. We perceive such terms
favourable for Cyfrowy Polsat, as all the costs related to the wireless network usage will be variable
and will be flexibly adjusted to the current number of users of Cyfrowy’s MVNO.
Bad receivables provisions (3%/3% of Cyfrowy’s total OPEX in 2006/2010E) arise from customers’
defaults on their subscription payments. We assume them to come out in a fixed (2.5%) proportion
to the Company’s DTH and post-paid mobile voice subscription revenues. With the former forecast
to experience strong growth in the mid-term and the launch of the latter still ahead of us, it follows
automatically, that we forecast the bad receivable costs to trend upwards in the coming years.
Office space rental costs (0.4%/0.4% of Company’s total OPEX in 2006/2010E) constitute the
function of space rented and rental rates per square meter. As far as the former goes, the launch
of the MVNO project necessitated increasing the office space rented by Cyfrowy Polsat (from parties
out of its capital group) by c. 1.8 ths square meters, a cost incurred from mid-2007, which boosts
the yoy increases of this OPEX category in 2008E. As far as the rental rates per square meter go,
we assume them rise on average by 2% (in Euro terms) in the forecast horizon.
????????????????????????
Cyfrowy Polsat
Fig. 88 Cyfrowy Polsat; MVNO’s OPEX
PLN m
D&A
MVNO distributors' commissions
Mailing
Call center
Marketing & advertising
Handsets, of which:
Subsidy
HR:
IFRS2
Normal
Miscellaneous:
Bad receivables
Infrastructure maintenance
Other (lease of MNO's network,
‘minutes’ bought from MNO, etc.)
Total OPEX of MVNO
Cash MVNO post-paid SAC
(PLN/gross post-paid add)
Cash MVNO pre-paid SAC
(PLN/gross pre-paid add)
Cash MVNO blended SAC
(PLN/ gross add)
Handset subsidy: post-paid (EUR)
2004
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
2005
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
2006
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
2007 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E
0.0
-2.9
-9.1 -16.1 -21.5 -23.2 -23.6 -24.9 -25.0 -23.2 -21.1 -19.6
0.0 -18.3 -43.1 -64.3 -77.5 -75.4 -68.6 -68.7 -75.1 -79.7 -78.7 -76.4
0.0
-2.2 -13.2 -19.0 -27.4 -20.9 -10.0
-5.9
-8.7 -10.8
-7.6
-3.2
0.0
-0.2
-2.4
-5.3
-7.1
-8.4
-9.7 -10.8 -11.9 -12.7 -13.2 -13.6
0.0
-0.6
-4.1
-6.3
-7.6
-8.9 -10.0 -11.1 -12.2 -12.7 -13.1 -13.5
0.0 -15.3 -23.5 -33.7 -35.4 -37.2 -39.0 -41.0 -42.2 -43.5 -44.8 -46.1
0.0
-7.3 -37.2 -31.9 -36.7 -45.6 -47.6 -52.6 -56.3 -53.3 -55.8 -55.4
0.0
-5.2 -25.2 -18.4 -22.8 -29.9 -31.2 -34.9 -37.4 -35.1 -37.5 -37.2
-1.4
-5.8 -11.1 -16.5 -21.6 -27.0 -29.6 -31.4 -33.3 -34.9 -36.7 -38.6
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
-1.4
-5.8 -11.1 -16.5 -21.6 -27.0 -29.6 -31.4 -33.3 -34.9 -36.7 -38.6
-1.6 -10.8 -62.9 -124.8 -162.2 -186.2 -207.0 -224.8 -243.1 -254.6 -258.9 -262.6
0.0
-0.1
-1.4
-3.0
-3.9
-4.6
-5.2
-5.6
-6.1
-6.4
-6.6
-6.6
0.0
-1.9
-1.9
-1.9
-1.9
-2.0
-2.0
-2.1
-2.1
-2.1
-2.2
-2.2
-1.6
-5.5 -12.0 -16.4 -20.2 -20.6 -21.0 -21.4 -21.8 -22.3 -22.7 -23.2
0.0
-3.4 -47.7 -103.5 -136.2 -159.0 -178.9 -195.7 -213.0 -223.8 -227.5 -230.5
0.0
0.0
0.0
0.0
0.0
0.0
-3.0 -45.1 -163.5 -253.6 -319.4 -357.5 -376.5 -402.3 -432.8 -445.7 -451.1 -452.5
0.0 250.0 257.5 265.2 273.2 281.4 289.8 298.5 307.5 316.7 326.2 336.0
0.0
0.0
0.0
0.0
12.0
12.4
12.7
13.1
13.5
13.9
14.3
14.8
15.2
15.7
16.1
0.0
0.0
0.0
0.0
58.7
58.8
57.4
53.0
53.4
50.5
51.4
52.4
38.3
39.3
37.6
0.0
0.0
0.0
0.0
74.7
74.7
74.7
74.7
74.7
74.7
74.7
74.7
74.7
74.7
74.7
2014E
-50.1
-209.4
-56.8
-35.2
-35.4
-82.0
-44.5
-11.7
-52.6
-34.9
-639.9
-69.8
-30.8
-31.3
-7.7
-26.7
-112.6
0.0
2015E
-52.0
-215.2
-56.3
-37.2
-37.3
-84.4
-44.5
-11.7
-56.3
-37.4
-708.6
-70.2
-30.8
-31.4
-8.0
-28.0
-119.5
0.0
2016E
-50.3
-225.1
-60.8
-38.8
-38.5
-87.0
-44.6
-11.7
-53.3
-35.1
-782.5
-73.9
-30.8
-34.5
-8.5
-29.5
-125.5
0.0
2017E
-49.8
-231.3
-61.9
-40.0
-39.8
-89.6
-44.6
-11.7
-55.8
-37.5
-864.0
-74.4
-30.8
-34.6
-8.9
-31.1
-131.9
0.0
2018E
-50.3
-235.4
-60.9
-41.3
-41.0
-92.3
-44.6
-11.7
-55.4
-37.2
-953.8
-74.9
-30.8
-34.6
-9.4
-32.8
-138.6
0.0
-12.6 -16.6 -19.9 -31.5 -47.3 -63.5 -76.4 -87.1 -97.2 -106.2 -112.6
-30.3 -33.5 -44.4 -48.9 -73.3 -137.4 -206.5 -252.1 -283.6 -310.6 -333.0
-6.0 -15.2 -13.2 -16.5 -23.8 -30.8 -36.0 -40.3 -44.2 -47.5 -49.9
-2.1
-1.7
-1.8
-1.2
-2.9
-2.9
-3.0
-3.0
-3.1
-3.2
-3.2
-0.9
-3.7
-9.2
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
-1.6
-5.5 -12.0 -16.4 -20.2 -20.6 -21.0 -21.4
-21.4 -13.0 -20.2 -29.6 -41.0 -91.7 -151.2 -188.5 -215.7 -239.0 -258.5
-191.5 -285.6 -452.1 -651.5 -715.5 -916.2 -1,076.1 -1,213.5 -1,346.5 -1,438.8 -1,538.6
-119.5
-356.5
-52.6
-3.3
0.0
-21.8
-278.8
-1,651.0
-125.5
-374.1
-55.4
-3.3
0.0
-22.3
-293.0
-1,758.7
-131.9
-384.8
-58.2
-3.4
0.0
-22.7
-300.4
-1,867.7
-138.6
-395.2
-61.2
-3.5
0.0
-23.2
-307.4
-1,981.0
Fig. 89 Cyfrowy Polsat; Total OPEX (DTH + MVNO)
PLN m
D&A
Marketing & distribution:
Distributors' commissions
Mailing
Call center
STBs, of which:
Subsidy
Handsets, of which:
Subsidy
Other
HR:
IFRS2
Normal
Miscellaneous:
Bad receivables
Infrastructure maintence
Other
Total OPEX of Cyfrowy Polsat
2004
-61.1
-9.7
-3.0
-2.1
-1.8
-2.8
-21.2
-1.2
0.0
0.0
-22.7
-33.8
-30.8
-0.8
-2.2
0.0
-12.6
0.0
2005 2006 2007 2008E
-50.1 -32.8 -20.8 -28.8
-28.6 -65.5 -121.7 -173.5
-16.6 -42.9 -76.9 -101.0
-5.4
-5.5
-9.9 -14.8
-2.3
-7.4 -12.8 -17.0
-4.3
-9.7 -22.2 -40.8
-97.3 -179.7 -209.0 -86.6
-29.0 -79.0 -101.8 -28.7
0.0
0.0
0.0
-7.3
0.0
0.0
0.0
-5.2
-28.6 -68.4 -152.0 -224.2
-30.9 -36.1 -48.4 -60.1
-27.1 -23.9 -27.0 -32.2
-1.6
-9.7 -18.6 -23.8
-2.2
-2.4
-2.9
-4.1
0.0
-5.3
-9.0 -14.3
-16.6 -19.9 -41.7 -47.3
0.0
0.0 -10.2
0.0
2009E 2010E 2011E 2012E 2013E
-38.7 -47.3 -52.0 -53.5 -45.9
-197.9 -188.8 -193.9 -206.2 -208.9
-102.6 -70.1 -65.5 -68.9 -63.9
-20.0 -24.8 -28.4 -31.1 -33.4
-22.4 -26.4 -29.2 -31.8 -33.6
-52.8 -67.5 -70.8 -74.4 -78.1
-55.0 -55.7 -55.8 -54.0 -44.4
-16.9 -14.6 -14.6 -14.2 -11.6
-37.2 -31.9 -36.7 -45.6 -47.6
-25.2 -18.4 -22.8 -29.9 -31.2
-305.2 -384.4 -447.1 -514.1 -580.2
-63.5 -65.2 -66.9 -68.5 -69.5
-31.5 -31.1 -30.8 -30.8 -30.8
-26.9 -28.4 -29.7 -30.8 -31.3
-5.1
-5.7
-6.3
-6.9
-7.3
-17.7 -19.9 -21.9 -23.9 -25.5
-63.5 -76.4 -87.1 -97.2 -106.2
0.0
0.0
0.0
0.0
0.0
????????????????????????
97
Cyfrowy Polsat
Fig. 90 Cyfrowy Polsat; OPEX’s structure
DTH
D&A:
STBs
Non-STBs
Mailing
Call center
STBs, of which:
Subsidy
Other
HR:
IFRS2
Normal
Miscellaneous:
Bad receivables
Other DTH-related
Total OPEX of DTH
MVNO
D&A
Mailing
Call center
Handsets, of which:
Subsidy
HR:
IFRS2
normal
Miscellaneous:
Bad receivables
MVNO infrastructure maintenance
Other MVNO-related
(lease of MNO's network, ‘minutes’
bought from MNO, etc.)
Total OPEX of MVNO
2004
2005
2006
2007 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E
32%
29%
3%
5%
2%
1%
1%
1%
11%
1%
12%
18%
16%
0%
1%
0%
7%
18%
15%
2%
10%
6%
2%
1%
1%
34%
10%
10%
11%
9%
1%
1%
0%
6%
7%
5%
2%
14%
9%
1%
2%
2%
40%
17%
15%
8%
5%
2%
1%
1%
4%
3%
1%
2%
19%
12%
2%
2%
3%
32%
16%
23%
7%
4%
3%
0%
1%
6%
4%
0%
4%
23%
15%
2%
2%
4%
13%
4%
33%
9%
5%
4%
1%
2%
6%
4%
0%
4%
21%
12%
2%
2%
4%
7%
2%
41%
8%
4%
4%
1%
2%
7%
4%
0%
4%
15%
6%
2%
2%
4%
7%
2%
47%
8%
4%
3%
1%
2%
7%
3%
0%
3%
13%
4%
2%
2%
4%
6%
2%
50%
7%
3%
3%
1%
2%
7%
3%
0%
3%
13%
5%
2%
2%
4%
5%
1%
52%
7%
3%
3%
1%
2%
7%
2%
0%
2%
13%
5%
2%
2%
4%
4%
1%
55%
7%
3%
3%
1%
2%
7%
2%
0%
2%
12%
4%
2%
2%
4%
4%
1%
56%
6%
3%
3%
1%
2%
7%
2%
0%
2%
12%
4%
2%
2%
3%
4%
1%
58%
6%
3%
3%
1%
2%
7%
2%
0%
2%
11%
4%
2%
2%
3%
3%
1%
60%
6%
2%
3%
1%
2%
7%
2%
0%
2%
11%
4%
2%
2%
3%
3%
1%
61%
5%
2%
2%
1%
2%
7%
2%
0%
2%
10%
4%
2%
2%
3%
3%
1%
62%
5%
2%
2%
1%
2%
7%
0%
0%
0%
2%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
7%
6%
4%
5%
6%
7%
7%
7%
7%
7%
7%
7%
7%
7%
7%
16% 12% 10%
7%
9% 10% 10% 10% 10% 10% 10%
9%
9%
9%
9%
3%
5%
3%
3%
4%
4%
4%
4%
4%
4%
4%
4%
4%
4%
4%
1%
1%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
1%
2%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
11%
5%
4%
5%
6%
6%
6%
6%
6%
6%
6%
5%
5%
5%
5%
100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
-
-
-
0%
0%
0%
0%
0%
0%
0%
0%
46%
0%
46%
54%
0%
0%
54%
0%
6%
41%
5%
0%
1%
34%
16%
11%
13%
0%
13%
24%
0%
4%
12%
7%
6%
26%
8%
1%
2%
14%
23%
15%
7%
0%
7%
39%
1%
1%
7%
29%
6%
25%
7%
2%
2%
13%
13%
7%
7%
0%
7%
49%
1%
1%
6%
41%
7%
24%
9%
2%
2%
11%
11%
7%
7%
0%
7%
51%
1%
1%
6%
43%
6%
21%
6%
2%
2%
10%
13%
8%
8%
0%
8%
52%
1%
1%
6%
44%
6%
18%
3%
3%
3%
10%
13%
8%
8%
0%
8%
55%
1%
1%
6%
48%
6%
17%
1%
3%
3%
10%
13%
9%
8%
0%
8%
56%
1%
1%
5%
49%
6%
17%
2%
3%
3%
10%
13%
9%
8%
0%
8%
56%
1%
0%
5%
49%
5%
18%
2%
3%
3%
10%
12%
8%
8%
0%
8%
57%
1%
0%
5%
50%
5%
17%
2%
3%
3%
10%
12%
8%
8%
0%
8%
57%
1%
0%
5%
50%
4%
17%
1%
3%
3%
10%
12%
8%
9%
0%
9%
58%
1%
0%
5%
51%
-
-
- 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
98
????????????????????????
Cyfrowy Polsat
Fig. 91 Cyfrowy Polsat; OPEX’s structure
Joint (DTH + MVNO)
D&A
Mailing
Call center
STBs, of which:
Subsidy
Handsets , of which:
Subsidy
Other
HR:
IFRS2
Normal
Miscellaneous:
Bad receivables
‘minutes’ acquired from MNO, etc.)
Total OPEX of Cyfrowy Polsat,
of which:
DTH
MVNO
2004
2005
2006
2007 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E
32%
5%
2%
1%
1%
1%
11%
1%
0%
0%
12%
18%
16%
0%
1%
0%
7%
0%
7%
16%
3%
1%
0%
0%
11%
18%
10%
6%
2%
1%
1%
34%
10%
0%
0%
10%
11%
9%
1%
1%
0%
6%
0%
6%
12%
5%
1%
1%
0%
5%
7%
14%
9%
1%
2%
2%
40%
17%
0%
0%
15%
8%
5%
2%
1%
1%
4%
0%
4%
10%
3%
0%
2%
0%
4%
3%
19%
12%
2%
2%
3%
32%
16%
0%
0%
23%
7%
4%
3%
0%
1%
6%
2%
5%
8%
3%
0%
0%
0%
5%
4%
24%
14%
2%
2%
6%
12%
4%
1%
1%
31%
8%
5%
3%
1%
2%
7%
0%
7%
10%
3%
0%
0%
1%
6%
4%
22%
11%
2%
2%
6%
6%
2%
4%
3%
33%
7%
3%
3%
1%
2%
7%
0%
7%
15%
3%
0%
0%
1%
10%
4%
18%
7%
2%
2%
6%
5%
1%
3%
2%
36%
6%
3%
3%
1%
2%
7%
0%
7%
19%
3%
0%
0%
2%
14%
4%
16%
5%
2%
2%
6%
5%
1%
3%
2%
37%
6%
3%
2%
1%
2%
7%
0%
7%
21%
3%
0%
0%
2%
16%
4%
15%
5%
2%
2%
6%
4%
1%
3%
2%
38%
5%
2%
2%
1%
2%
7%
0%
7%
21%
3%
0%
0%
2%
16%
3%
15%
4%
2%
2%
5%
3%
1%
3%
2%
40%
5%
2%
2%
1%
2%
7%
0%
7%
22%
3%
0%
0%
1%
17%
3%
14%
4%
2%
2%
5%
3%
1%
3%
2%
42%
5%
2%
2%
0%
2%
7%
0%
7%
22%
3%
0%
0%
1%
17%
3%
13%
3%
2%
2%
5%
3%
1%
3%
2%
43%
4%
2%
2%
0%
2%
7%
0%
7%
22%
3%
0%
0%
1%
17%
3%
13%
3%
2%
2%
5%
3%
1%
3%
2%
44%
4%
2%
2%
0%
2%
7%
0%
7%
21%
3%
0%
0%
1%
17%
3%
12%
3%
2%
2%
5%
2%
1%
3%
2%
46%
4%
2%
2%
0%
2%
7%
0%
7%
21%
3%
0%
0%
1%
16%
3%
12%
3%
2%
2%
5%
2%
1%
3%
2%
48%
4%
2%
2%
0%
2%
7%
0%
7%
20%
3%
0%
0%
1%
16%
100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
100% 100% 100% 100%
0%
0%
0%
0%
94%
6%
82%
18%
76%
24%
74%
26%
73%
27%
74%
26%
74%
26%
74%
26%
75%
25%
76%
24%
77%
23%
COGS of electronic equipment
evaporated following
the divestment of Emarket
????????????????????????
The Company used to incur costs of electronic equipment sold (2% of Company’s total OPEX
in 2006), related to the trading activities of its Emarket subsidiary; following the divestment of this
entity (in July 2007) Cyfrowy Polsat no longer runs this sundry business and – which follows – incurs
the related COGS no more.
99
Cyfrowy Polsat
Fig. 92 Cyfrowy Polsat; Operating costs dynamics
2005
DTH - % yoy chng
D&A:
STBs
Non-STBs
Mailing
Call center
STBs, of which:
Subsidy
Other
HR:
IFRS2
Normal
Miscellaneous:
Bad receivables
Other DTH-related
Total OPEX of DTH
MVNO - % yoy chng
D&A
Marketing & distribution costs :
Mailing
Call center
Handsets , of which:
Subsidy
HR:
IFRS2
normal
Miscellaneous:
Bad receivables
Total OPEX of MVNO
-18%
-22%
19%
195%
449%
163%
26%
53%
360%
2,296%
26%
-9%
-12%
113%
-3%
n.m.
32%
2006
2007 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E
-35% -37%
-47% -65%
54% 33%
129% 86%
158% 79%
2% 79%
218% 73%
127% 129%
85% 16%
173% 29%
140% 122%
17% 34%
-12% 13%
503% 90%
11% 19%
n.m. 70%
20% 103%
25%
-93%
99%
27%
28%
48%
28%
15%
-59%
-72%
47%
24%
19%
28%
44%
60%
3%
14%
-22%
15%
0%
-9%
21%
13%
15%
-36%
-41%
36%
6%
-2%
13%
24%
24%
26%
5%
0%
6%
-20%
-43%
11%
10%
15%
1%
-14%
26%
3%
-1%
6%
12%
12%
14%
-2%
0%
-2%
-6%
-25%
9%
8%
5%
0%
0%
16%
3%
-1%
5%
10%
10%
9%
-1%
0%
-1%
12%
26%
7%
6%
5%
-3%
-3%
15%
2%
0%
4%
9%
9%
7%
-26%
0%
-27%
7%
12%
5%
3%
5%
-18%
-18%
13%
1%
0%
2%
7%
7%
9%
13%
0%
13%
0%
-6%
3%
3%
5%
0%
0%
10%
1%
0%
0%
5%
5%
6%
7%
0%
7%
0%
-6%
3%
3%
3%
0%
0%
11%
1%
0%
0%
5%
5%
6%
0%
0%
0%
4%
5%
3%
3%
3%
0%
0%
10%
5%
0%
10%
5%
5%
5%
6%
0%
6%
5%
9%
3%
3%
3%
0%
0%
10%
1%
0%
0%
5%
5%
5%
7%
0%
7%
4%
6%
3%
3%
3%
0%
0%
10%
1%
0%
0%
6%
6%
5%
n.m. n.m. n.m. -100%
32% 20% 52% 38%
11% 32%
6% 32%
155% -13% 25% 44%
-19%
5% -34%
-7%
318% 152% -100% n.m.
-39% 55% 47% 27%
49% 58% 43%
3%
n.m.
26%
19%
24%
0%
n.m.
17%
12%
n.m.
14%
10%
12%
0%
n.m.
8%
9%
n.m.
9%
10%
10%
1%
n.m.
10%
9%
n.m.
7%
8%
9%
2%
n.m.
8%
11%
n.m.
9%
6%
7%
2%
n.m.
6%
7%
n.m.
6%
4%
5%
2%
n.m.
4%
7%
n.m.
6%
5%
5%
2%
n.m.
5%
7%
n.m.
5%
5%
5%
2%
n.m.
5%
8%
n.m.
5%
5%
5%
2%
n.m.
5%
8%
n.m.
5%
5%
6%
2%
n.m.
5%
8%
-
-
- n.m. 215%
- n.m. 135%
- n.m. 492%
- n.m. 1360%
- n.m. 526%
- n.m. 53%
- n.m. 409%
- n.m. 389%
- 321% 92%
- n.m. n.m.
- 321% 92%
- 562% 482%
- n.m. 1,317%
- n.m.
0%
- n.m. 118%
- n.m. 1317%
77%
49%
43%
121%
55%
44%
-14%
-27%
48%
n.m.
48%
98%
117%
2%
37%
117%
33%
21%
44%
34%
20%
5%
15%
24%
31%
n.m.
31%
30%
32%
2%
23%
32%
8%
-3%
-24%
19%
18%
5%
25%
32%
25%
n.m.
25%
15%
17%
2%
2%
17%
2%
-9%
-52%
14%
12%
5%
4%
4%
9%
n.m.
9%
11%
12%
2%
2%
12%
5%
0%
-41%
11%
11%
5%
10%
12%
6%
n.m.
6%
9%
9%
2%
2%
9%
0%
9%
48%
11%
11%
3%
7%
7%
6%
n.m.
6%
8%
9%
2%
2%
9%
-7%
6%
24%
7%
3%
3%
-5%
-6%
5%
n.m.
5%
5%
5%
2%
2%
5%
-9%
-1%
-30%
3%
3%
3%
5%
7%
5%
n.m.
5%
2%
2%
2%
2%
2%
-7%
-3%
-58%
3%
3%
3%
-1%
-1%
5%
n.m.
5%
1%
1%
2%
2%
1%
-
-
-
55%
26%
12%
5%
7%
8%
3%
1%
0%
n.m. 262%
100
????????????????????????
Cyfrowy Polsat
Fig. 93 Cyfrowy Polsat; Operating costs dynamics (continued)
Joint (DTH + MVNO) - % yoy chng
D&A
Mailing
Call center
STBs, of which:
Subsidy
Handsets, of which:
Subsidy
Satellite signal transmission :
Other
HR:
IFRS2
Normal
Miscellaneous:
Bad receivables
Total OPEX of Cyfrowy Polsat, of which:
DTH
MVNO
2005
2006
-18%
195%
449%
163%
26%
53%
360%
2,296%
n.m.
n.m.
26%
-9%
-12%
113%
-3%
n.m.
32%
n.m.
32%
11%
155%
-19%
318%
n.m.
-39%
-35%
129%
158%
2%
218%
127%
85%
173%
n.m.
n.m.
140%
17%
-12%
503%
11%
n.m.
20%
n.m.
20%
32%
-13%
5%
152%
n.m.
55%
49%
49%
n.m.
58%
58%
n.m.
2007 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E
-37% 39% 34%
86% 43% 14%
79% 31%
2%
79% 50% 35%
73% 33% 32%
129% 84% 29%
16% -59% -36%
29% -72% -41%
n.m. n.m. 409%
n.m. n.m. 389%
122% 47% 36%
34% 24%
6%
13% 19%
-2%
90% 28% 13%
19% 44% 24%
70% 60% 24%
110% 14% 34%
n.m. -100% n.m.
59% 50% 34%
10% 50% 88%
25% 44% 29%
-34% 154%
0%
-100% n.m. n.m.
n.m. 236% 118%
47% 39% 124%
44%
43%
n.m.
10% 28%
3% 12%
n.m. 262%
22%
-5%
-32%
24%
18%
28%
1%
-14%
-14%
-27%
26%
3%
-1%
6%
12%
12%
20%
n.m.
20%
50%
17%
1%
n.m.
37%
65%
10%
3%
-7%
14%
11%
5%
0%
0%
15%
24%
16%
3%
-1%
5%
10%
10%
14%
n.m.
14%
22%
12%
2%
n.m.
23%
25%
3%
6%
5%
10%
9%
5%
-3%
-3%
25%
32%
15%
2%
0%
4%
9%
9%
12%
n.m.
12%
13%
10%
2%
n.m.
2%
14%
-14%
1%
-7%
7%
6%
5%
-18%
-18%
4%
4%
13%
1%
0%
2%
7%
7%
9%
n.m.
9%
10%
7%
2%
n.m.
2%
11%
9%
0%
-11%
5%
5%
5%
0%
0%
10%
12%
10%
1%
0%
0%
5%
5%
6%
n.m.
6%
7%
5%
2%
n.m.
2%
8%
4%
3%
-1%
5%
5%
3%
0%
0%
7%
7%
11%
1%
0%
0%
5%
5%
6%
n.m.
6%
7%
5%
2%
n.m.
2%
8%
-3%
5%
8%
4%
3%
3%
0%
0%
-5%
-6%
10%
5%
0%
10%
5%
5%
5%
n.m.
5%
5%
5%
2%
n.m.
2%
5%
-1%
3%
2%
3%
3%
3%
0%
0%
5%
7%
10%
1%
0%
0%
5%
5%
5%
n.m.
5%
3%
5%
2%
n.m.
2%
3%
1%
2%
-2%
3%
3%
3%
0%
0%
-1%
-1%
10%
1%
0%
0%
6%
6%
5%
n.m.
5%
3%
5%
2%
n.m.
2%
2%
17%
9%
55%
13%
9%
26%
11%
11%
12%
7%
7%
5%
7%
7%
7%
7%
7%
8%
7%
8%
3%
6%
8%
1%
6%
8%
0%
7.3.
Consolidated EBITDA margin
to continue to soar from its
2006 trough, despite the launch
of the MVNO business; 20082010E SOC-adjusted EBITDA’s
CAGR forecast at app. 50%
????????????????????????
Margins and profits
Our forecasts of profits and margins of Cyfrowy Polsat constitute a straightforward consequence
of superimposition of the operating costs on revenue forecasts (both described in the preceding
two sections). In a nutshell, we believe that 2006 constituted a trough in the Company’s profitability
(with margins depressed by the cost consequences of rapid growth in net additions, and the revenue
implications of these net adds not fully visible yet); consequently, we forecast Company’s SOCadjusted EBITDA margin to extend its last year’s increase (to c. 22% level) further into 2008 and next
few years, as from the beginning of this year the revenue consequences of previous strong DTH net
adds started to shine through the Company’s income statement, and the launch of in-house STB
assembly (coupled with lower – when compared with the existing client pools – impact of new gross
adds) should cut down on the size of the STB subsidies. While we forecast mid-term SOC-adjusted
EBITDA margin target for Cyfrowy’s DTH operations at >40%, we would like to note that the
Company’s overall consolidated SOC-adjusted EBITDA profitability is likely to be materially lower
than that (we forecast >35% for the mid-term), due to the dilutive impact of the MVNO launch, whose
embedded LT (maturity stage) SOC-adjusted EBITDA profitability (app. >10%) is likely to be much
lower than DTH’s, and which is likely to be a negative contributor to the consolidated EBITDA in next
few years (we forecast Cyfrowy’s MVNO to reach SOC-adjusted EBITDA BEP in c. 3-year time,
i.e. when it wins c. 1 million of users). Notwithstanding the above, our forecasts for Cyfrowy Polsat
imply c. 50% 2008-2010E CAGRs for its consolidated SOC-adjusted EBITDA and SOC-adjusted
EBITDA of the DTH business.
101
Cyfrowy Polsat
Fig. 94 Cyfrowy Polsat; EBITDA margins (SOC-adjusted)
Fig. 95 Cyfrowy Polsat; EBITDA (SOC-adjusted)
102
????????????????????????
Cyfrowy Polsat
8.
Financial statements (IFRS consolidated)
Fig. 96 Balance sheet
PLN m
2004 2005 2006 2007 2008E 2009E 2010E 2011E 2012E
Fixed assets
153.1 88.0 103.0 163.4 189.7 205.6 220.1 198.5 177.0
Intangibles
5.2
6.7
4.4
11.5 13.2 15.8
17.3 13.8
11.4
Goodwill
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
Leased STBs
104.1
42.1
8.0
0.5
0.4
0.4
0.4
0.4
0.4
Tangible fixed assets (other than STBs)
14.7 16.2 45.7
97.3 129.9 146.1 158.7 145.6 130.1
Investment real estate
0.0
0.0 28.5 18.9 18.5 18.0
17.5
17.1 16.6
Deferred tax asset
24.7 18.6
3.5
4.1
4.1
4.1
4.1
4.1
4.1
Commissions to distributors (LT)
0.1
0.0 10.6 29.6 22.2 19.8 20.6
16.1
13.1
LT equity stakes
4.0
4.0
2.2
1.3
1.3
1.3
1.3
1.3
1.3
Other LT assets
0.3
0.3
0.0
0.0
0.0
0.0
0.0
0.0
0.0
Current assets
104.5 154.0 250.4 431.8 609.8 1,032.8 1,528.8 2,112.3 2,737.6
Inventories
21.4 30.4 58.0 130.0
57.9 55.0 52.4 55.2
59.1
Receivables:
55.2 34.2 43.3
82.1 108.4 140.4 167.5 188.7 207.0
Trade receivables
12.2 24.6 28.7 44.5 58.7
76.1 90.7 102.3 112.1
Other
43.0
9.6
14.6
37.6 49.7 64.4 76.7 86.5 94.9
Commissions to distributors (ST)
2.3 21.5
37.7
67.2 46.6 24.2 24.2 28.2 28.9
ST investments:
25.2
67.5 109.9 150.7 394.4 810.0 1,281.0 1,835.9 2,438.1
2013E
177.7
12.8
0.0
0.4
131.9
16.1
4.1
11.0
1.3
0.0
3,394.8
54.2
221.8
120.2
101.6
23.7
3,090.2
2014E
183.2
14.9
0.0
0.4
133.3
15.7
4.1
13.5
1.3
0.0
4,066.4
57.0
233.5
126.5
107.0
24.2
3,746.6
2015E
189.4
16.1
0.0
0.4
135.7
15.2
4.1
16.5
1.3
0.0
4,765.6
59.1
246.4
133.5
112.9
27.8
4,426.8
2016E
190.2
16.2
0.0
0.4
139.2
14.7
4.1
14.2
1.3
0.0
5,390.1
57.5
259.2
140.4
118.8
28.0
5,039.7
2017E
192.5
16.0
0.0
0.4
142.9
14.3
4.1
13.5
1.3
0.0
6,153.1
58.9
271.1
146.9
124.2
28.5
5,788.6
2018E
197.0
16.0
0.0
0.4
146.4
13.8
4.1
14.9
1.3
0.0
6,937.5
58.7
283.6
153.6
129.9
30.2
6,558.8
Interest bearing
Equities
Derivative financial instruments
Cash
ST deferred assets
Assets related to discontinued operations
Total assets
Equity
Minority interest
Liabilities & reserves
LT reserves:
Deferred income tax
Other
LT liabilities:
Non-interest-bearing
Interest-bearing
ST liabilities:
Interest-bearing
Non-interest-bearing:
Trading
STB deposits
ST deferred liabilities (DTH and
MVNO subscription pre-payments)
Liabilities related to discontinued
operations
Other
Total liabilities & equity
0.0
0.0
0.0
3,090.2
4.9
0.0
3,572.5
2,924.0
0.0
648.5
51.5
0.7
50.9
121.1
0.0
121.1
475.9
0.2
475.7
228.1
5.0
194.4
0.0
0.0
0.0
3,746.6
5.2
0.0
4,249.7
3,589.2
0.0
660.5
54.2
0.7
53.6
119.0
0.0
119.0
487.3
0.2
487.1
232.1
5.0
199.2
0.0
0.0
0.0
4,426.8
5.5
0.0
4,955.0
4,280.6
0.0
674.3
57.2
0.7
56.5
1.4
0.0
1.4
615.7
115.7
500.0
236.9
5.0
204.6
0.0
0.0
0.0
5,039.7
5.7
0.0
5,580.3
5,004.1
0.0
576.3
60.1
0.7
59.5
1.4
0.0
1.4
514.7
0.2
514.5
242.9
5.0
210.3
0.0
0.0
0.0
5,788.6
6.0
0.0
6,345.7
5,752.8
0.0
592.9
62.9
0.7
62.2
1.4
0.0
1.4
528.6
0.2
528.4
249.1
5.0
215.4
0.0
0.0
0.0
6,558.8
6.3
0.0
7,134.6
6,525.7
0.0
608.9
65.7
0.7
65.0
1.4
0.0
1.4
541.7
0.2
541.5
254.5
5.0
220.4
0.0
0.0
0.0
0.0
0.0
0.0
13.3
0.0
0.0
11.9
0.4
0.0
257.6
-93.9
0.3
351.3
8.6
8.5
0.0
202.3
4.0
198.3
140.4
30.4
110.1
43.0
31.5
31.8
3.0
0.0
0.0
64.5
0.5
0.0
242.0
-118.4
0.1
360.3
0.0
0.0
0.0
1.9
1.9
0.0
358.4
247.4
111.0
32.2
28.5
47.0
0.1
0.0
0.0
109.8
0.1
1.4
353.4
-62.7
0.1
416.0
0.6
0.0
0.6
30.1
0.0
30.1
385.3
208.1
177.2
73.4
21.6
66.5
0.0
0.0
0.0
150.7
1.8
0.0
595.2
61.1
0.0
534.1
19.5
0.7
18.8
133.6
0.0
133.6
380.9
88.9
292.0
156.9
20.0
97.2
0.0
0.0
1.2
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
394.4 810.0 1,281.0 1,835.9 2,438.1
2.4
3.1
3.7
4.2
4.6
0.0
0.0
0.0
0.0
0.0
799.4 1,238.4 1,748.9 2,310.8 2,914.7
324.9 699.9 1,169.8 1,706.9 2,286.4
0.0
0.0
0.0
0.0
0.0
474.5 538.6 579.1 603.9 628.2
25.5 32.9
39.1 44.0 48.2
0.7
0.7
0.7
0.7
0.7
24.9 32.2 38.4 43.3
47.5
131.5 129.5 127.4 125.3 123.2
0.0
0.0
0.0
0.0
0.0
131.5 129.5 127.4 125.3 123.2
317.4 376.2 412.7 434.7 456.9
0.2
0.2
0.2
0.2
0.2
317.2 376.0 412.5 434.5 456.7
162.5 191.1 205.3 211.0 221.2
10.0
5.0
5.0
5.0
5.0
121.2 149.4 165.8 177.5 185.5
0.0
0.0
0.0
0.0
0.0
3.8
3.3 14.5
17.8 23.5 30.5 36.4
41.0 45.0 48.2 50.7 53.5 56.3 58.9
61.6
257.7 242.0 353.4 595.2 799.4 1,238.4 1,748.9 2,310.8 2,914.7 3,572.5 4,249.7 4,955.0 5,580.3 6,345.7 7,134.6
????????????????????????
103
Cyfrowy Polsat
Fig. 97 Income statement
PLN m
Revenues:
DTH:
Subscription fees
STBs - leases
STB - sales
Other
MVNO:
Post-paid
Pre-paid
Handsets
OPEX excl. D&A:
DTH
MVNO
EBITDA
add back IFRS2 stock option costs
Adj EBITDA:
DTH
MVNO
D&A:
DTH
MVNO
EBIT
Adj EBIT
DTH
MVNO
Balance of financial operations:
Financial income:
Interest
Gains on investments' disposals
FX gains
Other
Financial costs:
Interest
Losses on investments' disposals
FX losses
Other
Equity-method affiliates
Extraordinary gains (losses)
PBT
Adj PBT
Corporate income tax
Gain (loss) on discontinued activities
Minorities
Net income
Adj net income
2004
182.8
182.8
125.2
22.3
19.9
15.4
0.0
0.0
0.0
0.0
-130.3
-130.3
0.0
52.5
0.0
52.5
52.5
0.0
-61.1
-61.1
0.0
-8.6
-8.6
-8.6
0.0
42.7
58.9
2.1
0.3
56.4
0.0
-16.2
-16.2
0.0
0.0
0.0
0.0
0.0
34.1
34.1
-7.7
0.0
0.2
26.6
26.6
2005
281.9
281.9
172.8
23.7
68.3
17.1
0.0
0.0
0.0
0.0
-235.5
-235.5
0.0
46.4
0.0
46.4
46.4
0.0
-50.1
-50.1
0.0
-3.7
-3.7
-3.7
0.0
-33.4
3.3
3.3
0.0
0.0
0.0
-36.8
-15.2
0.0
-21.5
-0.1
0.0
0.0
-37.1
-37.1
2.4
0.0
0.2
-34.5
-34.5
2006
493.8
493.8
351.1
16.5
100.6
25.6
0.0
0.0
0.0
0.0
-419.2
-419.2
0.0
74.6
0.0
74.6
74.6
0.0
-32.8
-32.8
0.0
41.7
41.7
41.7
0.0
29.1
43.2
3.0
14.7
25.4
0.1
-14.2
-14.0
0.0
0.0
-0.2
0.0
0.0
70.8
70.8
-15.1
0.0
0.0
55.7
55.7
2007
796.7
796.7
662.5
6.0
107.2
21.0
0.0
0.0
0.0
0.0
-630.7
-627.7
-3.0
165.9
10.2
176.1
179.1
-3.0
-20.8
-20.8
0.0
145.1
155.3
158.3
-3.0
-5.0
19.0
6.2
0.4
12.4
0.0
-23.9
-13.3
-0.9
0.0
-9.7
0.0
0.0
140.2
150.3
-26.8
0.0
0.0
113.4
123.6
2008E
1,051.1
1,041.9
953.1
3.0
57.8
28.0
9.2
3.9
3.1
2.1
-686.7
-644.4
-42.3
364.5
0.0
364.5
397.5
-33.1
-28.8
-25.9
-2.9
335.6
335.6
371.6
-36.0
-10.0
13.7
13.7
0.0
0.0
0.0
-23.7
-15.1
0.0
0.0
-8.6
0.0
0.0
325.7
325.7
-61.9
0.0
0.0
263.8
263.8
2009E
1,362.1
1,250.7
1,183.1
1.5
38.1
28.0
111.4
55.3
44.2
11.9
-877.5
-723.1
-154.4
484.6
0.0
484.6
527.6
-43.0
-38.7
-29.6
-9.1
445.9
445.9
498.0
-52.1
18.6
29.8
29.8
0.0
0.0
0.0
-11.2
-11.0
0.0
0.0
-0.2
0.0
0.0
464.5
464.5
-88.3
0.0
0.0
376.2
376.2
2010E
1,624.5
1,395.2
1,324.7
1.5
41.1
28.0
229.2
119.8
95.9
13.5
-1,028.7
-791.2
-237.5
595.7
0.0
595.7
604.0
-8.3
-47.3
-31.2
-16.1
548.4
548.4
572.8
-24.4
33.4
43.4
43.4
0.0
0.0
0.0
-10.0
-9.8
0.0
0.0
-0.2
0.0
0.0
581.8
581.8
-110.5
0.0
0.0
471.2
471.2
2011E
1,830.8
1,533.1
1,462.4
1.5
41.2
28.0
297.7
157.6
126.1
13.9
-1,161.5
-863.5
-298.0
669.3
0.0
669.3
669.6
-0.3
-52.0
-30.6
-21.5
617.3
617.3
639.1
-21.8
47.5
56.7
56.7
0.0
0.0
0.0
-9.2
-9.0
0.0
0.0
-0.2
0.0
0.0
664.8
664.8
-126.3
0.0
0.0
538.5
538.5
2012E
2,007.8
1,660.7
1,591.4
1.5
39.8
28.0
347.1
184.1
147.3
15.7
-1,293.0
-958.8
-334.3
714.7
0.0
714.7
702.0
12.8
-53.5
-30.3
-23.2
661.2
661.2
671.7
-10.4
55.8
64.1
64.1
0.0
0.0
0.0
-8.3
-8.1
0.0
0.0
-0.2
0.0
0.0
717.1
717.1
-136.2
0.0
0.0
580.8
580.8
2013E
2,151.2
1,762.1
1,699.8
1.5
32.8
28.0
389.2
207.0
165.6
16.5
-1,392.9
-1,040.1
-352.8
758.3
0.0
758.3
722.0
36.3
-45.9
-22.3
-23.6
712.4
712.4
699.7
12.7
74.8
82.9
82.9
0.0
0.0
0.0
-8.1
-8.0
0.0
0.0
-0.2
0.0
0.0
787.2
787.2
-149.6
0.0
0.0
637.6
637.6
2014E
2,265.2
1,839.8
1,777.5
1.5
32.8
28.0
425.4
226.5
181.2
17.7
-1,488.5
-1,111.1
-377.4
776.7
0.0
776.7
728.7
48.0
-50.1
-25.2
-24.9
726.6
726.6
703.5
23.1
94.6
102.6
102.6
0.0
0.0
0.0
-8.0
-7.8
0.0
0.0
-0.2
0.0
0.0
821.1
821.1
-156.0
0.0
0.0
665.1
665.1
2015E
2,389.9
1,927.1
1,864.8
1.5
32.8
28.0
462.8
246.6
197.3
19.0
-1,598.9
-1,191.1
-407.8
791.0
0.0
791.0
736.0
55.0
-52.0
-27.1
-25.0
738.9
738.9
708.9
30.0
114.7
122.6
122.6
0.0
0.0
0.0
-7.9
-7.7
0.0
0.0
-0.2
0.0
0.0
853.7
853.7
-162.2
0.0
0.0
691.5
691.5
2016E
2,513.8
2,029.5
1,967.2
1.5
32.9
28.0
484.3
259.0
207.2
18.2
-1,708.4
-1,285.9
-422.5
805.5
0.0
805.5
743.6
61.9
-50.3
-27.1
-23.2
755.1
755.1
716.5
38.7
138.0
142.0
142.0
0.0
0.0
0.0
-4.0
-3.9
0.0
0.0
-0.2
0.0
0.0
893.1
893.1
-169.7
0.0
0.0
723.4
723.4
2017E
2,629.9
2,137.7
2,075.3
1.5
32.9
28.0
492.2
263.3
210.6
18.3
-1,817.9
-1,387.8
-430.0
812.0
0.0
812.0
749.9
62.1
-49.8
-28.7
-21.1
762.2
762.2
721.2
41.0
162.1
162.4
162.4
0.0
0.0
0.0
-0.3
-0.1
0.0
0.0
-0.2
0.0
0.0
924.4
924.4
-175.6
0.0
0.0
748.7
748.7
2018E
2,750.4
2,251.9
2,189.5
1.5
32.9
28.0
498.4
266.8
213.5
18.1
-1,930.7
-1,497.9
-432.9
819.6
0.0
819.6
754.1
65.5
-50.3
-30.7
-19.6
769.3
769.3
723.4
45.9
184.9
185.2
185.2
0.0
0.0
0.0
-0.3
-0.1
0.0
0.0
-0.2
0.0
0.0
954.2
954.2
-181.3
0.0
0.0
772.9
772.9
104
????????????????????????
Cyfrowy Polsat
Fig. 98 Cash flow
PLN m
2004 2005 2006
Net Income (losses)
26.6 -34.5 55.7
Total corrections:
5.5 97.2 25.6
Share of minorities in net income (loss)
-0.2
-0.2
0.0
Equity-method affiliates
0.0
0.0
0.0
IFRS2 stock option costs
0.0
0.0
0.0
D&A
61.1
50.1 32.8
FX (gains) losses
-57.9 19.3 -25.5
Interests
14.1
11.9
11.0
(Gain) loss on investments
-0.3
0.0 -14.7
Change in non-CIT reserves
0.0
0.0
0.5
Change in NWC and deferrals, of which:
-8.3
-6.2
1.8
DTH-related
-8.3
-6.2
1.8
MVNO-related
0.0
0.0
0.0
Change in inventories:
-6.3
-9.0 -27.6
DTH-related
-6.3
-9.0 -27.6
MVNO-related
0.0
0.0
0.0
Change in trading A/R:
-2.0 -12.4
-4.1
DTH-related
-2.0 -12.4
-4.1
MVNO-related
0.0
0.0
0.0
Change in trading A/P:
2.0 -10.7
41.1
DTH-related
2.0 -10.7
41.1
MVNO-related
0.0
0.0
0.0
Change in STB deposits:
-1.0
-3.1
-6.8
DTH-related
-1.0
-3.1
-6.8
MVNO-related
0.0
0.0
0.0
Change in deferrals:
2.0 15.2 19.9
DTH-related
2.0 15.2 19.9
MVNO-related
0.0
0.0
0.0
Change in ST non-trading A/R and A/P:
0.0 33.0
6.1
DTH-related
0.0 33.0
6.1
MVNO-related
0.0
0.0
0.0
Change in capitalized distribution
-3.0 -19.1 -26.7
commissions:
DTH-related
-3.0 -19.1 -26.7
MVNO-related
0.0
0.0
0.0
Decrease (increase) in leased STBs
1.2
18.1
11.9
Non-cash CIT
-7.7
2.4 -15.1
Other
3.5
1.8 22.8
Operating cash flow
32.1 62.7 81.3
Capex on intangibles and tangibles:
-18.5 -13.2 -27.7
DTH-related
-18.5 -13.2 -27.7
MVNO-related
0.0
0.0
0.0
Acquisition of investment real estate
0.0
0.0 -28.8
Acquisition of subsidiaries
0.0
0.0
0.0
Other
-10.8
11.5
17.7
Investing cash flow
-29.3
-1.6 -38.8
Net equity issue proceeds
0.3 10.0
0.0
Credits, loans, bonds
-11.0
0.3 16.4
Interests
-16.9 -18.8 -13.2
Dividends
0.0
0.0
0.0
Share buy-backs
0.0
0.0
0.0
Other
0.1
0.1
-0.4
Financing cash flow
-27.5 -8.5
2.8
Total cash flow
-24.8 52.6 45.4
2007 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E
113.4 263.8 376.2 471.2 538.5 580.8 637.6 665.1 691.5 723.4 748.7 772.9
-2.2 143.3 79.8 29.4
6.0
2.5 -9.5 -48.1 -68.7 -79.6 -109.1 -134.2
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
10.2
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
20.8 28.8 38.7
47.3 52.0 53.5 45.9
50.1 52.0 50.3 49.8 50.3
-16.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
7.0
1.4 -18.8 -33.6 -47.7 -56.0 -75.0 -94.7 -114.9 -138.1 -162.3 -185.1
0.5
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
18.3
6.0
7.4
6.2
4.9
4.2
3.4
2.7
2.9
2.9
2.7
2.8
-45.0 98.5 53.7 10.6
-2.1
2.1 15.9
-6.3
-8.9
5.1
0.5
-2.5
-46.3 101.6 68.3
7.1 -15.1
-2.8
17.7
1.6
-3.7
-1.0
-0.7
-0.7
1.3
-3.0 -14.7
3.5 13.0
4.9
-1.8
-7.9
-5.2
6.1
1.2
-1.8
-72.0
72.1
2.9
2.6
-2.8
-3.9
4.8
-2.8
-2.1
1.7
-1.4
0.2
-72.0
74.6 13.2
0.7
-1.1
-0.8
5.5
-1.1
-0.8
0.6
-0.6
0.1
0.0
-2.5 -10.3
1.8
-1.6
-3.1
-0.7
-1.7
-1.3
1.1
-0.8
0.1
-15.8 -14.2 -17.4 -14.7 -11.5
-9.9
-8.0
-6.4
-7.0
-6.9
-6.5
-6.7
-15.8 -13.7 -11.7
-8.1
-7.7
-7.1
-5.7
-4.3
-4.9
-5.7
-6.0
-6.4
0.0
-0.5
-5.7
-6.6
-3.8
-2.8
-2.4
-2.0
-2.1
-1.2
-0.4
-0.3
83.5
5.6 28.6 14.2
5.7 10.2
6.9
4.0
4.8
6.0
6.2
5.4
82.3
1.9
11.7
6.2
3.0
7.3
5.5
3.0
3.5
5.3
5.9
5.4
1.3
3.7 16.9
8.0
2.7
2.9
1.4
1.0
1.3
0.7
0.3
0.1
-1.6 -10.0
-5.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
-1.6 -10.0
-5.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
29.0 23.4
27.5 15.8
11.2
7.7
8.5
4.6
5.1
5.4
4.8
4.7
29.0
23.1 23.3
11.6
9.2
6.6
7.3
3.8
4.3
4.9
4.7
4.6
0.0
0.2
4.2
4.2
2.0
1.1
1.2
0.8
0.8
0.5
0.1
0.1
-19.7
-6.3
-7.7
-6.5
-5.1
-4.4
-3.6
-2.8
-3.1
-3.1
-2.9
-3.0
-19.7
-6.1
-5.8
-4.5
-3.8
-3.4
-2.8
-2.1
-2.4
-2.6
-2.7
-2.8
0.0
-0.2
-1.9
-2.0
-1.3
-1.0
-0.8
-0.7
-0.7
-0.5
-0.2
-0.1
-48.4 28.0 24.8
-0.8
0.5
2.4
7.2
-2.9
-6.6
2.0
0.2
-3.1
-48.4
0.0
7.4
0.0
-5.4
111.2
-54.7
-36.0
-18.7
0.0
0.0
0.3
-54.4
0.2
-1.6
-11.7
0.0
0.0
-2.6
-15.7
41.2
31.7 42.6
1.2 -14.5
-5.3
7.8
2.4
-3.4
-3.6
-1.9
-3.8 -17.8
-2.0 15.0
7.7
-0.6
-5.3
-3.2
5.5
2.2
0.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
8.5
-1.2
-1.2
-1.2
-1.2
0.2
0.2
0.2
0.2
0.2
407.1 456.0 500.6 544.5 583.4 628.1 617.1 622.8 643.8 639.6
-62.6 -57.0 -61.0 -35.0 -35.0 -48.7 -53.2 -55.3 -53.4 -52.8
-49.9 -20.0 -20.0 -10.0 -20.0 -30.2 -33.0 -34.3 -33.1 -32.7
-12.7 -37.0 -41.0 -25.0 -15.0 -18.5 -20.2 -21.0 -20.3 -20.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
13.7 29.8 43.4 56.7
64.1 82.9 102.6 122.6 142.0 162.4
-48.9 -27.2 -17.6 21.7 29.1 34.3 49.4 67.3 88.6 109.6
0.0
0.1
0.1
0.1
0.1
0.0
0.0
0.0
0.0
0.0
-90.8
-2.1
-2.1
-2.1
-2.1
-2.1
-2.1
-2.1 -115.5
0.0
-15.1 -11.0
-9.8
-9.0
-8.1
-8.0
-7.8
-7.7
-3.9
-0.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
-8.6
-0.2
-0.2
-0.2
-0.2
-0.2
-0.2
-0.2
-0.2
-0.2
-114.5 -13.3 -12.1 -11.2 -10.3 -10.2 -10.1 -10.0 -119.5 -0.3
243.7 415.6 471.0 554.9 602.2 652.1 656.4 680.2 612.9 748.9
-1.5
-1.6
0.0
0.0
0.2
638.7
-53.4
-33.1
-20.3
0.0
0.0
185.2
131.8
0.0
0.0
-0.1
0.0
0.0
-0.2
-0.3
770.3
????????????????????????
105
Cyfrowy Polsat
Fig. 99 Ratios
Sales growth (yoy):
DTH (yoy):
Subscription fees (yoy)
STBs - leases (yoy)
STB - sales (yoy)
Other (%) yoy
MVNO (yoy):
Post-paid (yoy)
Pre-paid (yoy)
Handsets (yoy)
Adj EBITDA growth (yoy):
DTH (yoy):
MVNO (yoy):
Adj EBIT growth (yoy):
DTH (yoy):
MVNO (yoy):
Adj PBT growth (yoy)
Adj NI growth (yoy)
Trading A/R turnover days
Inventory turnover days
Trading A/P turnover days
Cash conversion days
(NWC + net deferrals)/Sales
Current ratio
Quick ratio
CAPEX/Sales
CAPEX/Sales: DTH
CAPEX/Sales: MVNO
Interest bearing debt/Equity
Interest bearing debt/EBITDA
Net debt/EBITDA
EBITDA/Interest costs
Adj EBITDA margin:
DTH
MVNO
Adj EBIT margin
DTH
MVNO
Adj pretax margin
Adj net margin
ROE
ROA
2005
54%
54%
38%
6%
243%
12%
n.a.
n.a.
n.a.
n.a.
-12%
-12%
n.m.
n.m.
n.m.
n.m.
n.m.
n.m.
24
40
58
6
-9%
0.4
0.3
5%
5%
n.m.
n.m.
5.3
3.9
3.1
16.5%
16.5%
n.a.
-1.3%
-1.3%
n.a.
-13.2%
-12.2%
n.m.
n.m.
2006
75%
75%
103%
-31%
47%
49%
n.a.
n.a.
n.a.
n.a.
61%
61%
n.m.
n.m.
n.m.
n.m.
n.m.
n.m.
20
38
46
12
-5%
0.6
0.5
11%
11%
n.m.
n.m.
3.2
1.7
5.3
15.1%
15.1%
n.a.
8.5%
8.5%
n.a.
14.3%
11.3%
n.m.
22.5%
2007
61%
61%
89%
-64%
7%
-18%
n.a.
n.a.
n.a.
n.a.
136%
140%
n.m.
272%
279%
n.m.
112%
122%
17
54
67
5
2%
1.1
0.8
7%
5%
n.m.
3.6
1.3
0.4
12.4
22.1%
22.5%
n.m.
19.5%
19.9%
n.m.
18.9%
15.5%
n.m.
28.5%
2008E
32%
31%
44%
-50%
-46%
33%
n.a.
n.a.
n.a.
n.a.
107%
122%
n.m.
116%
135%
n.m.
117%
113%
18
50
85
-17
-8%
1.9
1.7
6%
5%
139%
0.4
0.4
-0.7
24
34.7%
38.2%
-361.2%
31.9%
35.7%
-392.7%
31.0%
25.1%
136.7%
39.6%
2009E
30%
20%
24%
-50%
-34%
0%
1,116%
1,317%
1,317%
458%
33%
33%
n.m.
33%
34%
n.m.
43%
43%
18
23
74
-32
-10%
2.7
2.6
4%
2%
33%
0.2
0.3
-1.4
44
35.6%
42.2%
-38.6%
32.7%
39.8%
-46.7%
34.1%
27.6%
73.4%
37.8%
2010E
19%
12%
12%
0%
8%
0%
106%
117%
117%
13%
23%
14%
n.m.
23%
15%
n.m.
25%
25%
19
19
70
-33
-9%
3.7
3.6
4%
1%
18%
0.1
0.2
-1.9
61
36.7%
43.3%
-3.6%
33.8%
41.1%
-10.6%
35.8%
29.0%
50.4%
32.1%
2011E
13%
10%
10%
0%
0%
0%
30%
32%
32%
3%
12%
11%
n.m.
13%
12%
n.m.
14%
14%
19
17
65
-29
-8%
4.9
4.7
2%
1%
8%
0.1
0.2
-2.6
74
36.6%
43.7%
-0.1%
33.7%
41.7%
-7.3%
36.3%
29.4%
37.4%
26.9%
2012E
10%
8%
9%
0%
-3%
0%
17%
17%
17%
13%
7%
5%
n.m.
7%
5%
n.m.
8%
8%
19
16
61
-25
-7%
6.0
5.9
2%
1%
4%
0.1
0.2
-3.2
88
35.6%
42.3%
3.7%
32.9%
40.4%
-3.0%
35.7%
28.9%
29.1%
22.5%
2013E
7%
6%
7%
0%
-18%
0%
12%
12%
12%
5%
6%
3%
184%
8%
4%
n.m.
10%
10%
20
15
59
-24
-7%
7.1
7.0
2%
2%
5%
0.0
0.2
-3.9
95
35.3%
41.0%
9.3%
33.1%
39.7%
3.3%
36.6%
29.6%
24.5%
19.9%
2014E
5%
4%
5%
0%
0%
0%
9%
9%
9%
7%
2%
1%
32%
2%
1%
82%
4%
4%
20
14
56
-23
-7%
8.3
8.2
2%
2%
5%
0.0
0.2
-4.7
99
34.3%
39.6%
11.3%
32.1%
38.2%
5.4%
36.3%
29.4%
20.4%
17.2%
2015E
6%
5%
5%
0%
0%
0%
9%
9%
9%
7%
2%
1%
15%
2%
1%
30%
4%
4%
20
13
54
-20
-6%
7.7
7.6
2%
2%
5%
0.0
0.1
-5.4
103
33.1%
38.2%
11.9%
30.9%
36.8%
6.5%
35.7%
28.9%
17.6%
15.2%
2016E
5%
5%
5%
0%
0%
0%
5%
5%
5%
-4%
2%
1%
12%
2%
1%
29%
5%
5%
20
12
51
-19
-6%
10.5
10.4
2%
2%
4%
0.0
0.0
-6.3
209
32.0%
36.6%
12.8%
30.0%
35.3%
8.0%
35.5%
28.8%
15.6%
13.8%
2017E
5%
5%
5%
0%
0%
0%
2%
2%
2%
0%
1%
1%
0%
1%
1%
6%
3%
3%
20
12
49
-18
-6%
11.6
11.5
2%
2%
4%
0.0
0.0
-7.1
>1 000
30.9%
35.1%
12.6%
29.0%
33.7%
8.3%
35.1%
28.5%
13.9%
12.6%
2018E
5%
5%
6%
0%
0%
0%
1%
1%
1%
-1%
1%
1%
5%
1%
0%
12%
3%
3%
20
11
48
-17
-5%
12.8
12.7
2%
1%
4%
0.0
0.0
-8.0
>1 000
29.8%
33.5%
13.1%
28.0%
32.1%
9.2%
34.7%
28.1%
12.6%
11.5%
106
????????????????????????
Cyfrowy Polsat
Fig. 100Ratios (continued)
DTH blended ARPU (PLN)
yoy chng
DTH ARPU: Familijny package (PLN)
yoy chng
DTH ARPU: Mini package (PLN)
yoy chng
MVNO blended ARPU (PLN)
MVNO ARPU: post-paid (PLN)
MVNO ARPU: pre-paid (PLN)
Churn: DTH
Churn: MVNO
Churn: MVNO post-paid
Churn: MVNO pre-paid
Est. DTH cash SAC (PLN/gross add)
Est. STB subsidy (PLN; excess of STBs'
COGS over STBs' sales revenues
divided by the DTH gross add)
Estimated TV content programming
cost per subscriber (US$)
TV content programming costs/Familijny
package DTH subscription fees
Cash MVNO post-paid SAC (PLN/gross
post-paid add)
Cash MVNO pre-paid SAC (PLN/gross
pre-paid add)
Cash MVNO blended SAC (PLN/ gross
add)
Handset subsidy: post-paid (EUR)
2004 2005
29.6 30.2
n.a.
2%
29.6 30.2
n.a.
2%
0.0
0.0
n.a.
n.a.
0.0
0.0
0.0
0.0
0.0
0.0
9.9% 12.2%
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
39
111
13.5 90.1
2006 2007 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E
34.3 34.7 35.5 38.2 39.8
41.7 43.8 46.1 48.1 50.4 53.1 56.0 59.0
13%
1%
2%
7%
4%
5%
5%
5%
4%
5%
5%
5%
5%
35.9
37.8 39.2 42.5 44.5 46.5 48.6 50.7 52.9 55.3
57.7 60.2 62.9
19%
5%
4%
8%
5%
5%
4%
4%
4%
4%
4%
4%
4%
2.0
8.4
8.5
8.5
8.5
8.5
8.5
8.5
8.5
8.5
8.5
8.5
8.5
n.a. 323%
1%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0.0
0.0 23.4 23.7 24.0 24.3 24.5 24.8
25.1 25.4 25.7
26.1 26.4
0.0
0.0 65.0 65.8 66.6
67.4 68.2 69.0 69.8 70.7
71.5 72.4 73.2
0.0
0.0 13.0 13.2 13.3 13.5 13.6 13.8 14.0
14.1 14.3 14.5 14.6
5.1% 5.1% 6.1% 7.1% 8.1% 9.1% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%
n.a.
n.a. 8.0% 8.0% 8.6% 8.6% 8.6% 8.6% 8.6% 8.6% 8.6% 8.6% 8.6%
n.a.
n.a. 0.0% 0.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
n.a.
n.a. 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%
105
143
116
122
128
135
141
148
156
164
172
180
189
119.7 116.3 49.8
44.1
37.5
37.5
37.5
37.5
37.5
37.5
37.5
37.5
37.5
17.6
18.5
27.1
38.8
50.4
60.5
67.2
73.9
81.3
89.4
98.4 108.2
117.9
128.5
140.1
18%
17%
20%
24%
24%
27%
30%
31%
33%
35%
37%
39%
40%
42%
44%
0.0
0.0
0.0
0.0
250.0
281.4 289.8 298.5
307.5
316.7 326.2 336.0
0.0
0.0
0.0
0.0
12.0
12.4
12.7
13.1
13.5
13.9
14.3
14.8
15.2
15.7
16.1
0.0
0.0
0.0
0.0
58.7
58.8
57.4
53.0
53.4
50.5
51.4
52.4
38.3
39.3
37.6
0.0
0.0
0.0
0.0
74.7
74.7
74.7
74.7
74.7
74.7
74.7
74.7
74.7
74.7
74.7
257.5 265.2 273.2
????????????????????????
107
BASIC DEFINITIONS
A/R turnover (in days) = 365/(sales/average A/R))
Inventory turnover (in days) = 365/(COGS/average inventory))
A/P turnover (in days) = 365/(COGS/average A/P))
Current ratio = ((current assets – ST deferred assets)/current liabilities)
Quick ratio = ((current assets – ST deferred assets – inventory)/current liabilities)
Interest coverage = (pre-tax profit before extraordinary items + interest payable/interest payable)
Gross margin = gross profit on sales/sales
EBITDA margin = EBITDA/sales
EBIT margin = EBIT/sales
Pre-tax margin = pre-tax profit/sales
Net margin = net profit/sales
ROE = net profit/average equity
ROA = (net income + interest payable)/average assets
EV = market capitalization + interest bearing debt – cash and equivalents
EPS = net profit/ no. of shares outstanding
CE = net profit + depreciation
Dividend yield (gross) = pre-tax DPS/stock market price
Cash sales = accrual sales corrected for the change in A/R
Cash operating expenses = accrual operating expenses corrected for the changes in inventories and A/P,
depreciation, cash taxes and changes in the deferred taxes
DM IDM S.A. generally values the covered non bank companies via two methods: comparative method and
DCF method (discounted cash flows). The advantage of the former is the fact that it incorporates the current
market assessment of the value of the company’s peers. The weakness of the comparative method is the risk
that the valuation benchmark may be mispriced. The advantage of the DCF method is its independence from
the current market valuation of the comparable companies. The weakness of this method is its high sensitivity to
undertaken assumptions, especially those related to the residual value calculation. Please note that we also resort
to other valuation techniques (e.g. NAV-, DDM- or SOTP-based), should it prove appropriate in a given case.
Banks
Net Interest Margin (NIM) = net interest income/average assets
NIM Adjusted = (net interest income adjusted for SWAPs)/average assets
Non interest income = fees&commissions + result on financial operations (trading gains) + FX gains
Interest Spread = (interest income/average interest earning assets)/ (interest cost/average interest bearing liabilities)
Cost/Income = (general costs + depreciation + other operating costs)/ (profit on banking activity + other
operating income)
ROE = net profit/average equity
ROA = net income/average assets
Non performing loans (NPL) = loans in ‘substandard’, ‘doubtful’ and ‘lost’ categories
NPL coverrage ratio = loan loss provisions/NPL
Net provision charge = provisions created – provisions released
DM IDM S.A. generally values the covered banks via two methods: comparative method and fundamental target
fair P/E and target fair P/BV multiples method. The advantage of the former is the fact that it incorporates
the current market assessment of the value of the company’s peers. The weakness of the comparative
method is the risk that the valuation benchmark may be mispriced. The advantage of the fundamental target
fair P/E and target fair P/BV multiples method is its independence of the current market valuation of the comparable
companies. The weakness of this method is its high sensitivity to undertaken assumptions, especially those
related to the residual value calculation.
Assumptions used in valuation can change, influencing thereby the level of the valuation. Among the most
important assumptions are: GDP growth, forecasted level of inflation, changes in interest rates and currency
prices, employment level and change in wages, demand on the analysed company products, raw material prices,
competition, standing of the main customers and suppliers, legislation changes, etc.
Changes in the environment of the analysed company are monitored by analysts involved in the preparation
of the recommendation, estimated, incorporated in valuation and published in the recommendation whenever
needed.
KEY TO INVESTMENT RANKINGS
This is a guide to expected price performance in absolute terms over the next 12 months:
Buy – fundamentally undervalued (upside to 12M EFV in excess of the cost of equity) + catalysts which should close the valuation gap identified;
Hold – either (i) fairly priced, or (ii) fundamentally undervalued/overvalued but lacks catalysts which could close the valuation gap;
Sell – fundamentally overvalued (12M EFV < current share price + 1-year cost of equity) + catalysts which should close the valuation gap identified.
This is a guide to expected relative price performance:
Overweight – expected to perform better than the benchmark (WIG) over the next quarter in relative terms
Neutral – expected to perform in line with the benchmark (WIG) over the next quarter in relative terms
Underweight – expected to perform worse than the benchmark (WIG) over the next quarter in relative terms
The recommendation tracker presents the performance of DM IDMSA’s recommendations. A recommendation expires on the day it is altered or on the day 12 months after its issuance, whichever comes first.
Relative performance compares the rate of return on a given recommended stock in the period of the recommendation’s validity (i.e. from the date of issuance to the date of alteration or – in case of maintained
recommendations – from the date of issuance to the current date) in a relation to the rate of return on the benchmark in this time period. The WIG index constitutes the benchmark. For recommendations that expire
by an alteration or are maintained, the ending values used to calculate their absolute and relative performance are: the stock closing price on the day the recommendation expires/ is maintained and the closing value
of the benchmark on that date. For recommendations that expire via a passage of time, the ending values used to calculate their absolute and relative performance are: the average of the stock closing prices for the day the
recommendation elapses and four directly preceding sessions and the average of the benchmark’s closing values for the day the recommendation expires and four directly preceding sessions.
LT fundamental recommendation tracker
Recommendation
Cyfrowy Polsat
Buy
-
Issue date
Reiteration date
Expiry date
Performance
Relative
performance
Price at issue/
reiteration (PLN)
12M EFV
(PLN)
19.06.2008
-
Not later than
19.06.2009
-
-
13.90
18.30
Issue date
Reiteration date
Expiry date
Price at issue/
reiteration (PLN)
Relative
performance
19.06.2008
-
Not later than
19.06.2009
13.90
-
Market-relative recommendation tracker
Relative recommendation
Cyfrowy Polsat
Overweight
-
Distribution of IDM’s current recommendations
Numbers
Percentage
Buy
23
52%
Hold
16
36%
Sell
4
9%
Suspended
1
2%
Under revision
0
0%
Suspended
1
2%
Under revision
0
0%
Distribution of IDM’s current market relative recommended weightings
Numbers
Percentage
Overweight
18
41%
Neutral
17
39%
Underweight
8
18%
Distribution of IDM’s current recommendations for companies that were within the last 12M IDM
customers in investment banking
Numbers
Percentage
Buy
2
40%
Hold
2
40%
Sell
0
0%
Suspended
1
20%
Under revision
0
0%
Distribution of IDM’s current market relative recommended weightings for the companies that were
within the last 12M IDM customers in investment banking
Numbers
Percentage
Overweight
3
60%
Neutral
1
20%
Underweight
0
0%
Suspended
1
20%
Under revision
0
0%
Institutional sales
Director – Dariusz Wareluk
tel.: +48 (22) 489 94 12
[email protected]
Leszek Mackiewicz
tel.: +48 (22) 489 94 23
[email protected]
Maciej Bąk
tel.: +48 (22) 489 94 14
[email protected]
Bartosz Zieliński
tel.: +48 (22) 489 94 13
[email protected]
Research
Sobiesław Pająk, CFA
(IT, Media, Equity strategy)
tel.: +48 (22) 489 94 70
[email protected]
This report is for information purposes only. Neither the information nor the opinions expressed in the report constitute a solicitation or an offer to buy or sell any securities
referred herein. The opinions expressed in the report reflect independent, current judgement of DM IDM S.A. Securities. This report was prepared with due diligence and
scrutiny. The information used in the report is based on all public sources such as press and branch publications, company’s financial statements, current and periodic
reports, as well as meetings and telephone conversations with company’s representatives. We believe the above mentioned sources of information to be reliable, however
we do not guarantee their accuracy and completeness. All estimates and opinions included in the report represent our judgment as of the date of the issue. The legal entity
supervising DM IDM S.A. is Financial Supervision Commission in Warsaw (KNF in Polish abbreviation).
IDM does not take any responsibility for decisions taken on the basis of this report and opinions stated in it. Investors bear all responsibility for investment decisions taken
on the basis of the contents of this report. The report is intended exclusively for private use of investors – customers of IDM. No part or excerpt of the report may be
redistributed, reproduced or conveyed in any manner or form written or oral without the prior written consent of IDM. This report is released to customers the moment
it is issued and the whole report is made available to the public one month after the issuance.
The analyst(s) responsible for covering the securities in this report receives compensation based upon the overall profitability of IDM which includes profits derived from
investment banking activities, although the analyst compensation is not directly related thereto.
IDM releases analytical reports via mail or electronic mail to selected clients (professional clients).
Sobiesław Pająk and Jakub Viscardi, analysts of DM IDMSA, were involved in the preparation of a research report accompanying IPO of Cyfrowy Polsat during their
employment term with CDM Pekao SA (preceding employer of the analysts in question).
Apart from mentioned above, there are no ties of any kind between DM IDM S.A., the analyst/analysts involved in the preparation of the report and his/her relatives and the company/
companies analyzed in this publication, especially in the form of: i) offering of financial instruments in the primary market or/and Initial Public Offer within 12 months preceding
the issue of this report, ii) purchasing and selling of financial instruments for own account due to tasks connected with organization of the regulated market, iii) purchasing
and selling of financial instruments due to underwriting agreements and iv) the role of a market maker for securities analysed by IDM. The analysed company/companies
does/do not possess DM IDM S.A. shares.
IDM has not signed with the company/companies any contracts for recommendation writing. Investors should assume that DM IDM S.A. is seeking or will seek business
relationships with the company/companies described in this report. Excerpts from Chapters 4, 5 and 6 of this research report were shown to the representatives of the
analyzed Company prior to the distribution of the report to clients.
Sylwia Jaśkiewicz, CFA
(Construction materials, Retail, Mid-caps)
tel.: +48 (22) 489 94 78
[email protected]
Maciej Wewiórski
(Commodities, Construction, Real estate)
tel.: +48 (22) 489 94 62
[email protected]
Michał Sobolewski
(Banks)
tel.: +48 (22) 489 94 77
[email protected]
Jakub Viscardi
(Telco, Retail)
tel.: +48 (22) 489 94 69
[email protected]
Adrian Kyrcz
(Construction)
tel.: +48 (22) 489 94 74
[email protected]
Łukasz Prokopiuk
(Associate)
tel.: +48 (22) 489 94 72
[email protected]
Copyright © 2008 by DM IDMSA
Dom Maklerski IDMSA
Mały Rynek 7
31-041 Kraków
www.idmsa.pl
Information: (+48) 0 801 390 801

Cyfrowy Polsat

Transcription

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