United Group Annual Report to Noteholders for Financial Year 2019 29 April 2020
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United Group Annual Report to Noteholders for Financial Year 2019 29 April 2020 FY 2019 HIGH YIELD REPORT CONTENTS Page 2019 Summary ....................................................................................................... 3 Business ................................................................................................................. 6 Key Operating Measures ...................................................................................... 54 Results of Operations ........................................................................................... 57 Liquidity and Capital Resources ........................................................................... 65 Subsequent (Material Recent) Events .................................................................. 70 Mergers & Acquisitions ....................................................................................... 73 Group Background ............................................................................................... 74 Appendices ........................................................................................................... 76 Appendix 1 - Financial statements ............................................................................................ 77 Appendix 2 - Key Factors Affecting Our Business and Results of Operations ..................... 81 Appendix 3 - Definitions of Key Operating Measures ............................................................. 91 Appendix 4 - Description of Key Line Items ............................................................................ 93 Appendix 5 - Quantitative and Qualitative Disclosures about Market Risk ......................... 95 Appendix 6 – Critical Accounting Policies ............................................................................... 96 Appendix 7 – Adria Midco BV Group Consolidated Financial Statements .......................... 97 Appendix 8 – Related parties transactions ............................................................................... 98 Appendix 9 – Risk factors ........................................................................................................ 100 Appendix 10 – Material Debt Instruments (Other than the Notes) ...................................... 134 FY 2019 HIGH YIELD REPORT Disclaimer THIS REPORT (THIS “REPORT”) IS NOT AN OFFER OR SOLICITATION OF AN OFFER TO BUY OR SELL SECURITIES. IT IS SOLELY FOR INFORMATION PURPOSES. BY READING THIS REPORT, ATTENDING A PRESENTATION OF THIS REPORT (THE “PRESENTATION”) AND/OR READING THE SLIDES USED FOR THE PRESENTATION (THE “PRESENTATION SLIDES”) YOU AGREE TO BE BOUND AS FOLLOWS: This Report, the Presentation and/or the Presentation slides, contains forward-looking statements, which include all statements other than statements of historical facts, including, without limitation, any statements preceded by, followed by or including the words “targets”, “believes”, “expects”, “aims”, “intends”, “may”, “anticipates”, “estimates”, “would”, “will”, “could”, “should” or similar expressions or the negative thereof. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond our control that could cause our actual performance or achievements to be materially different from future performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding our present and future strategies and the environment in which we will operate in the future. These forward-looking statements speak only as at the date of this presentation. We expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any of such statements are based. This Report contains summary audited financial information for Adria Midco B.V. and its subsidiaries for the twelve months ended December 31, 2019, unless another source, such as management accounts, is specifically mentioned. Certain financial measures and ratios related thereto in this presentation, including EBITDA, Adjusted EBITDA, Adjusted EBITDA minus capital expenditure, RGUs and ARPU (collectively, the ‘‘Non-IFRS Measures’’) are not specifically defined under IFRS or any other generally accepted accounting principles. These measures are presented here because we believe that they and similar measures are widely used in our industry as a means of evaluating a company’s operating performance and financing structure. Our management believes this information, along with comparable IFRS measures, is useful to investors because it provides a basis for measuring the operating performance in the periods presented. These measures are used in the internal management of our business, along with the most directly comparable IFRS financial measures, in evaluating the operating performance. These measures may not be comparable to other similarly titled measures of other companies and are not measurements under IFRS or other generally accepted accounting principles, and you should not consider such items as alternatives to net income (loss), operating income or any other performance measures derived in accordance with IFRS, and they may be different from similarly titled measures used by other companies. 2 FY 2019 HIGH YIELD REPORT 2019 Summary 29 April 2019 – United Group, the leading cable and media player in South Eastern Europe, today reports its financial results for 2019. Operational Highlights Homes passed grew by 1% to 1,852 thousand compared to FY 2018, primarily as a result of organic growth Number of unique cable subscribers increased to 1,168 thousand (FY 2018: 1,166 thousand), primarily as a result of organic growth Revenue Generating Units (“RGUs”)1 up by 3% year-on-year to 3,917 thousand, driven by organic growth Blended Cable Average Revenue Per User (“ARPU”) for FY 2019 up by 4% year-on- year to €22.8 (FY 2018: €22.0), driven by migration from lower-priced to higher-priced service packages, subscriber growth for the Group’s multi-play offering, and price increases in Serbia, Slovenia and Bosnia and Herzegovina Financial Highlights Consolidated Group revenue for FY 2019 up 17% year-on-year to €741.8 million (FY 2018: €635.6 million) Consolidated Group adjusted EBITDA up by 13%2 in FY 2019 to €295.4 million (FY 2018: €260.6 million) Net cash inflow of €206.6 million versus an inflow of €10.9 million in FY 2018 As at December 31, 2019, net leverage for United Group alone (ratio of Group Net Debt to Annualized Last Two Quarters Adjusted Pro Forma EBITDA3) and including Vivacom (ratio of Group Net Debt to Annualized Last Two Quarters Adjusted Pro Forma EBITDA4) decreased to 4.84x and 4.86x, respectively (December 31, 2018: 4.88x) 1 2018 restated – Following a change in RGU classification methodology at the start of 2019, we have restated 2018 figures to facilitate like-for-like comparison. As a result of this new approach, OTT users on our network are now classified as Cable and Cable services users on other networks, which are in turn reported under Other Services. Besides RGU and subscriber figures, this change also had an immaterial effect on ARPU. All 2018 operational figures presented herein have been restated in line with this new approach. 2 Year-on-year comparison affected by positive effect of acquisitions realized during 2018 and 2019, as well as changes in FX rates. 3 Annualized Adjusted Pro Forma EBITDA is calculated as two times Q3 2019 + Q4 2019 Adjusted EBITDA plus €4.2 million of expected synergies with Nova Croatia and €12.4 million of expected synergies with DM & PINK plus Tele2 annualized Q3 2019 + Q4 2019 Adjusted EBITDA (€53.5 million). 4 Annualized Adjusted Pro Forma EBITDA is calculated as two times Q3 2019 + Q4 2019 Adjusted EBITDA plus €4.2 million of expected synergies with Nova Croatia and €12.4 million of expected synergies with DM & PINK plus Tele2 annualized Q3 2019 + Q4 2019 Adjusted EBITDA (€53.5 million) plus Vivacom annualized Q3 2019 + Q4 2019 Adjusted EBITDA (€202.1 million). 3 FY 2019 HIGH YIELD REPORT The following summary describes the operations in each of the Group’s reportable segments or subgroups: SBB Serbia includes the results of cable services in Serbia and direct-to-home (“DTH” or Satellite) operations in Serbia and North Macedonia. Absolut Solutions results are also included in the SBB Serbia segment, however their results are not reflected in the statutory consolidated results of the SBB Serbia Group. Telemach Slovenia includes the results of the Group’s cable, mobile and DTH services in Slovenia. Telemach BH includes the results of the Group’s cable and DTH services in Bosnia and Herzegovina. Telemach Montenegro includes the results of the Group’s cable and DTH services in Montenegro. United Media Group includes the results of the Group’s media and content business in the former Yugoslav region including the results of N1, Sport Klub, Grand Production, Orlando Kids, IDJ and entities acquired during 2018 (Nova TV and Direct Media Group). Other Businesses includes the results of the Group’s other operating businesses (such as NetTV) and its Holding companies. United Group generated consolidated revenues of €741.8 million during FY 2019. The 17% increase in revenue resulted from organic growth of the subscriber base, migration of subscribers