Highlights versus : Net service revenues registered solid growth of 16% The internet segment increased 34% with net additions of 308 thousand subscribers Revenues from the Corporate Segment rose 117% to Ps. 307 million Consolidated EBITDA increased 13% RGUs reached 4.2 million subscribers Guadalajara, Jalisco, Mexico, October 28, 2014 - Megacable Holdings S.A.B. de C.V. ( Megacable or the Company ) (BMV MEGA.CPO) announced today its results for the third quarter of 2014 (). Figures were prepared in accordance with International Financial Reporting Standards (IFRS). All figures are expressed in thousands of pesos (Ps.), unless otherwise indicated. Consolidated Financial Results Figures in millons of pesos vs Revenues Adjusted EBITDA for cable Operations Adjusted EBITDA Margin for Cable Operations Consolidated EBITDA Consolidated EBITDA Margin Net Income Net Debt Net Debt / Annualized consolidated EBITDA Interest Coverage 2,880 1,138 43.7% 1,203 41.8% 578 (1,555) (0.32) 37.49 2,475 1,027 38.5% 1,064 43.0% 566 (1,226) (0.29) 28.77 16% 11% 13% 2% 27% Revenue 9.6% 2,475 16.4% 2,880 RGU s 3,370,627 3,588,313 4,185,635 2,257 3Q12 3Q12 1
Megacable continues to deliver strong financial results in, mainly due to the organic growth of its subscriber base. At the end of, Megacable reported service income of Ps. 2,880 million, 16% higher than at the end of, with organic growth of 165 thousand subscribers in the video segment, 308 thousand in internet, and 124 thousand in telephony, to end the period with a total of 2.3 million subscribers in the video segment, 1.2 million in internet, and 678 thousand in telephony. It is important to highlight that the Digitalization Project continues to progress. This quarter alone, Megacable added 270 thousand subscribers for a 22% increase year-over-year. To date, the Company serves 1.5 million digital homes in the market. In addition, Megacable added 597 thousand RGUs, an increase of 17%, and closed the quarter with 208 thousand new subscribers, up 9% compared to the end of. The internet segment experienced a significant increase of 34% additional subscribers year-over-year, much higher than the market s natural growth rate of 15%. This growth was the result of the Back to School campaign, competitive rates and the fastest connection speed in the market. Our clients appreciate the stability and speed of our service. The Company continues to expand its fiber optic and coaxial network, which covers over 49 thousand kilometers and passes 6.8 million homes, reaching 98% bi-directionality. As it is well known, the Baja California Sur region s network was damaged by natural disasters. To date, the network has been completely re-established. Consolidated EBITDA grew 13% in compared to, reaching Ps. 1,203 million, at a margin equal to 42%. On a cumulative basis, EBITDA was Ps. 3,593 million, equal to a margin of 43%. Adjusted EBITDA in the cable segment increased 11% compared to, achieving a 44% margin over cable revenues during, and 45% for 9M14. With regard to its Balance Sheet, the Company continues to improve its financial ratios, increasing its liquidity by generating cash and improving its capital structure by increasing its retained earnings. In this regard, net debt at the end of the quarter was equal to negative Ps. 1,555 million. These results have contributed to improving Megacable s financial ratios, increasing its debt service coverage ratio from 28.77x in 2013 to 37.49x in 2014. Similarly, the Debt Ratio increased from 0.28x to 0.30x, Debt/Equity Ratio increased from 0.39x to 0.42x, and Net Debt/Annualized EBITDA ratio from -0.29x to -0.32x, year over year. Megacable s net income reached Ps. 578 million during, for a net margin of 20%. On an accumulated basis, net income increased 8% compared to the same period of the prior year, resulting from the tax reform, which eliminated a number of fiscal benefits that existed in prior years. The price of MEGA.CPO rose 51% year-over-year, reaching Ps. 63.73 at the close of September 30, 2014. This is the result of a healthy financial structure and solid results achieved each quarter, positioning the stock as a reliable investment option. 2
Operating Results by Business Segment Variation % 2Q14 Vs Vs 2Q14 Arpu (1) (Ps.) Unique Subscribers Video Internet Telephony 395.2 229.1 184.5 166.0 370.3 230.5 199.8 184.1 394.6 229.3 198.1 168.1 7% -1% -8% -10% 0% 0% -7% -1% Monthly Average Churn Rate Video Internet Telephony 2.7% 2.6% 4.2% 2.9% 3.1% 3.6% 2.6% 2.9% 4.1% Notes: (1) ARPU, or average revenue per unit for each segment, is the result of calculating total revenue per each segment for the period, divided by the average number of subscribers. Video Segment Subscribers video 2,133,712 2,036,762 2,298,783 3Q12 Video subscribers reached 2,298,783, adding more than 165 thousand subscribers when compared to, for an 8% increase with over 50 thousand net additional subscribers during the quarter. This 2% growth year-over-year was achieved as a result of aggressive promotional campaigns. As of September 30, 2014, 24% of Megacable s subscribers have a Double Play package and 23% have a Triple Play package. The Digitalization Project added approximately 270 thousand digital subscribers in, compared to and more than 88 thousand digital subscribers year-over-year, which represents 6% growth, placing 1.5 million digital boxes in the market and approximately 1.8 million additional boxes, for a total of 3.3 million boxes. 3
ARPU Video 228.6 230.5 229.1 Video ARPU remained stable at Ps. 229.1, compared to and 2Q14. This result was achieved, even taking into account bundling-related discounts, which has had a positive impact on the results, and which was reflected in an increase of RGU s and income per unique subscriber. 3T12 3T13 3T14 Internet Subscribers Internet 1,208,397 900,068 800,159 3Q12 The Broadband Internet segment reported a notable 34% increase in subscribers year-over-year, growing its subscriber base by over 308 thousand net adds, for a total of 1,208,397 subscribers. During Megacable reached approximately 109 thousand net adds, an increase of 10% when compared to 2Q14. These results are driven by the Company s offering of market speeds ranging from 10 MB to 200 MB, the outstanding service quality and product performance at the best market price. Internet ARPU 196.0 199.8 184.5 Internet ARPU decreased 8% compared to, and declined 7% when compared to 2Q13, due to high-growth promotional campaigns during the quarter, which will result in subsequent revenues, as well as lower-price bundling for low income segment consumers and a better product mix. 3Q12 4
Telephony Subscribers Telephony 678,455 554,533 533,706 The Telephony segment closed the quarter with 678,455 subscribers, which represented an increase of over 124 thousand net additions compared to the prior year, equal to 22% growth. When compared to 2Q14, this figure grew 6% with 41 thousand net additions in. Telephony ARPU declined 10% compared to and 1% compared to 2Q14 due to the more aggressive promotions and commercial campaigns. 3Q12 Unique Subscribers and Revenue Generating Units (RGU s) Subscribers Unique 2,116,963 2,241,213 2,449,526 3Q12 During RGU s reached 4,185,635, an increase of 17% compared to, driven by growth in the various segments. As a result, RGU s by unique subscriber increased to 1.71. Unique subscribers for reached 2,449,526, up 9% when compared to. ARPU per unique subscriber rose 7% compared to and remained stable compared to 2Q14 due to the increase in corporate segment revenue, for an ARPU of Ps. 395.2. Average Monthly Churn Rate 2.9% 2.7% Video 3.1% 2.6% Internet 4.2% 3.6% Telephony The average monthly churn rate for the video and internet segments declined compared to ; video went from 2.9% to 2.7%, down 20 basis points and internet went from 3.1% to 2.6%, a decrease of 50 basis points. The average monthly churn rate for telephony increased from 3.6% to 4.2%, up 60 basis points year-over-year. 5
Homes Passed and Network kilometers 6,821,278 48,756 6,515,917 46,533 6,114,823 43,573 Homes Passed kilometers Network 3Q12 Revenue Business Breakdown Variation % Vs Corporate income and carriers Metrocarrier MCM Ho1a Income 33,339 143,367 130,621 307,328 33,954 107,895-141,849-2% 33% 100% 117% Business Income for incoporation Cable operations Video Internet Telephony Income 42,299 74,922 38,108 155,329 35,404 60,371 31,892 127,668 19% 24% 19% 22% Total Income 462,657 269,516 72% 6
Corporate Segment Revenues from the corporate segment reached Ps. 463 million, an increase of 72% compared to. This segment represented 16% of Megacable s consolidated revenues. Revenues from Corporates and Carriers These are comprised of the Metrocarrier, MCM and Ho1a businesses which are focused on various segments of connectivity, equipment and managed services. Currently, this segment contributes approximately 11% of Megacable s revenues, reaching Ps. 307 million, an increase of 117% compared to. In addition, Megacable continues to take advantage of the technological advantage of the HFC network, as well as its geographic presence in over 25 Mexican states. Corporate Revenue from Cable The corporate segment for the Video, Internet and Telephony segments, which includes hotels, hospitals, schools, universities, government and others, reached Ps. 155 million, an increase of 22% compared to. This segment represented 5% of Megacable s consolidated revenues. Note: Corporate Revenue from Cable listed in this section is only for comparative purposes of the corporate segment, but they are included in each product segment as mentioned above this paragraph Additional Financial Information Income by Segment Vs In millons of pesos 2Q14 Vs 2Q14 Video Internet Telephony Corporate Other Total 1,570 647 332 307 24 2,880 1,468 528 306 142 30 2,475 7% 22% 8% 117% -21% 16% 1,527 639 318 289 19 2,791 3% 1% 4% 6% 29% 3% 7
Revenues Total revenues rose 16%, year-over-year, reaching a total of Ps. 2,880 million, as a result of the wide acceptance of our internet product, which registered significant growth of 22% from to. In addition, revenues by segment grew 7% in Video, 8% Telephony and 117% corporate. 60% of the increase stems from the residencial segment, while 40% comes from the corporate segment. EBITDA Consolidated Cost of Service 914,693 3Q12 1,064,078 1,203,159 Cost of service increased 17% year-over-year, mainly due to the integration of results for Ho1a, which was acquired during 4Q13 and represents 12% of the cost increase. The remaining 5% is explained by higher technical labor, advertising and promotional costs, with the added benefit of lower programming costs. Operating and General Expenses EBITDA Adjusted 1,137,821 1,027,297 898,695 3Q12 3T14 Operating and general expenses increased 21% compared to, due to higher labor costs, commissions as well as other expenses related to marketing and operating efforts. EBITDA Adjusted EBITDA for the cable operations reached Ps. 1,138 million during, up 11% when compared to, with an adjusted EBITDA margin of 43.7%. Consolidated EBITDA margin was 41.8% in, reaching Ps. 1,203 million, which represents a 13% increase compared to. In thousands of pesos Vs Consolidated Consolidated operating profit Plus consolidated depreciation and amortization Consolidated EBITDA(1) Consolidated EBITDA margin 778,603 424,556 1,203,159 41.8% 672,924 391,153 1,064,078 43.0% 16% 9% 13% Notes: (1) Adjusted EBITDA is calculated by adding net income/loss to the following: depreciation and amortization, net comprehensive financing income, other net income, non-recurring expenses (income), total income tax, workers profit sharing, equity in income of associated companies and minority interest, less MCM EBITDA. Cable Operations Non Cable Operations Cable Adjusted EBITDA(2) EBITDA Margin of Cable 65,338 1,137,821 43.7% 36,781 1,027,297 43.4% 78% 11% (2) Adjusted Consolidated EBITDA is calculated by adding to the net income/loss the following: depreciation and amortization, net comprehensive financing income, other net income, non-recurring expenses (income), total income tax, workers profit sharing, equity in income of associated companies and minority interest. 8
Liquidity, Leverage, and Capital Structure Liquidity Total current assets increased 17% from to to Ps. 5,538 million. This is mainly explained by an 8% increase in cash and short term investments, as well as an increase in deferred taxes due to a greater accelerated deduction as a result of the tax reforms. Net Comprehensive Financing In thousands of pesos Net Exchange Gain Interest Income Net Exchange Loss Interest Expense Net Comprehensive Financing 9M14 1,906,451 119,000 1,909,260 95,834-20,356 9M13 3,186,949 125,316 3,198,067 109,888-4,310 Property, Systems and Equipment, Net Property, Systems and Equipment reached Ps. 13,706 million in, up 14% or Ps. 1,643 million, compared to. This was mainly due to the Company s organic growth via the construction of new network kilometers, as well as the purchase of CTC/subscriber equipment for the digitalization project, internet and telephony, the purchase of vehicles, computer and office equipment 9
Debt The Company closed the quarter with a Net Debt / Annualized EBITDA ratio of -0.32x with an interest coverage of 37.49x. Additionally, the Company contracted three bank loans totaling Ps. 102 million in, for Ho1a working capital As of september 30 Debt Ratios Debt Ratio Debt to Equity Ratio Net Debt / Annualized EBITDA EBITDA / Interest Expenses 2014 0.30 0.42 (0.32) 37.49 2013 0.28 0.39 (0.29) 28.77 In terms of Net Debt, Megacable closed the quarter with excess cash of Ps. 1,555 million over the Company s total financial debt, despite the dividend payments and acquisitions made during the last year. Debt Ratios Short Term Debt One year maturity of long term bank loans Long Term Debt Bank Loans Accounts Payable Total Debt Cash and Short Term Investments Net Debt 146,938 146,938 2,240,106 2,142,743 97,364 2,387,045 3,942,435 (1,555,390) 286,252 286,252 2,122,761 2,120,437 2,325 2,409,013 3,635,352 (1,226,339) Shareholders Equity Shareholders equity rose 8% from Ps. 16,030 million in to Ps. 17,343 million in, mainly as a result of the 10% increase in the Company s retained earnings, as well as an increase of 47% in minority interest, which includes the company located in the state of Michoacán and Ho1a. 10
CAPEX During, Megacable invested Ps. 675 million, which was mainly allocated towards the construction of new network kilometers, purchase of CTC/subscriber equipment, both for the digitalization project, as well as for Internet/Telephony subscriber growth and the modernization of the Company s cable network. Shares Outstanding As of September 30, 2014, the Company had 1,719 million total shares outstanding, while the number of outstanding CPOs reached 299 million, with 1.2 million CPOs held in Treasury. The remaining resources at the end of were 257 million shares with a free float of 35%. 60 55 50 45 40 35 30 25 20 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 3Q2012 4Q2012 1Q2013 2Q2013 3Q2013 4Q2013 1Q2014 2Q2014 3Q2014 About the Company Megacable is one of the main high-speed Internet services provider s by cable, and digital telephony over cable network according to the National Chamber of Cable Telecommunications (CANITEC). The Company is present in 25 states in Mexico and over 300 municipalities. As of June 30, 2014, the Company had 13,794 employees. 11
Balance Sheet In thousands of pesos As of september 30 2014 2013 ASSETS CURRENT ASSETS Cash and short term investments Accounts receivable and other, net Recoverable taxes Inventories Total Current Assets Investment in associated companies Property, systems and equipment, net Net goodwill Deferred taxes Other assets Associated companies and joint venture Total Assets LIABILITIES AND STOCKHOLDERS 'EQUITY LIABILITIES Due within one year of long- term Suppliers Associated companies and joint venture Sundry creditors and accrued expenses Total Short-Term Liabilities LONG- TERM Bank Loans Labor obligations Accounts payable Deferred taxes Associated companies and joint venture Sum of Long Term Liabilities Sum of Total Liabilities EQUITY Capital Stock Net Premium on the placement of shares Net premium in capital Retained earnings Minority Interest Legal reserve Total stockholders' equity Total Liabilities and Stockholders' Equity 3,942,435 901,591 553,009 140,691 5,537,726 161,209 13,706,009 4,349,709 166,954 162,151 582,761 24,666,518 146,938 618,982 62,791 1,331,905 2,160,616 2,142,743 153,702 97,364 2,128,716 640,132 5,162,656 7,323,272 910,244 4,999 2,112,561 13,130,784 695,827 488,832 17,343,246 24,666,518 3,635,352 758,218 108,761 217,557 4,719,888 106,504 12,063,243 4,345,891 122,471 322,620 648,610 22,329,226 286,252 471,205 659,604 1,130,744 2,547,805 2,120,437 157,404 2,325 1,471,417-3,751,582 6,299,387 910,244 4,999 2,098,957 11,940,190 472,746 602,703 16,029,839 22,329,226 12
Quarterly Income Statement In thousands of pesos Variation % Vs Revenue Cost of services $2,880,465 847,238 $2,474,889 723,803 16% 17% Gross profit $2,033,227 $1,751,085 16% Operating expenses and general 830,068 687,008 21% EBITDA $1,203,159 $1,064,078 13% Depreciation and amortization 424,556 391,153 9% Operating Income $778,603 $672,924 16% Other income (expense), net Comprehensive financing, net Equity in income of associated companies Income before taxes and minority interest 7,869-1,913 753 $787,632 31,138-21,484 2,510 $723,037 (75%) (91%) (70%) 9% Income taxes 186,726 149,049 25% Net income for the period $600,906 $573,987 5% Net income attributed to: Minority Interest Majority interest 23,105 577,801 8,347 565,640 177% 2% $600,906 $573,987 5% 13
Accumulated Income Statement In thousands of pesos Variation % 9M14 9M13 9M14 Vs 9M13 Revenue Cost of services $8,367,309 2,427,424 $7,320,365 2,169,873 14% 12% Gross profit $5,939,885 $5,150,493 15% Operating expenses and general 2,346,940 1,989,169 18% EBITDA $3,592,945 $3,161,324 14% Depreciation and amortization 1,275,924 1,136,995 12% Operating Income $2,317,021 $2,024,328 14% Other income (expense), net Comprehensive financing, net Equity in income of associated companies Income before taxes and minority interest 76,163-20,356-3,368 $2,416,908 63,689-4,310-17,889 $2,110,216 20% 372% (81%) 15% Income taxes 590,072 433,996 36% Net income for the period $1,826,836 $1,676,220 9% Net income attributed to: Minority Interest Majority interest 87,779 1,739,057 62,383 1,613,837 41% 8% $1,826,836 $1,676,220 9% 14
Other related information Disclaimer This press release contains forward-looking statements regarding the company s results and future prospects which are subject to risk and uncertainty. Therefore, these results and statements may differ due to various factors. Moreover, figures in this report may vary due to rounding. For more information please visit: http://inversionistas.megacable.com.mx Investor Relations: Saul Alonso Gil Peña Investor Relations Officer Megacable Holdings, S.A.B. de C.V. Tel: 52 (33) 3750-0042 ext. 61091 investor.relations@megacable.com.mx 15