Q3 2014 Interim report January – September

October 23 2014

Record Q3 sales drive profitable growth

Q3 2014 Highlights

■  Net sales up 12% at constant FX & up 5% on an organic basis
■  Operating income (EBIT) up 32% to SEK 215m (163) when excluding associated company income of SEK 115m (126)
■  Total EBIT up 14% to SEK 329m (289)
■  Net income up 20% to SEK 236m (196)
■  Basic earnings per share up 25% to SEK 3.76 (3.00)
■  Cash flow from operations amounted to SEK 314m (211), with net debt position of SEK 928m (373) equivalent to 0.4x trailing 12 month EBITDA (excl. non-recurring items)
■  Amendments to Russian Mass Media Law now enacted and will reduce level of permitted foreign ownership from beginning of 2016 – MTG evaluating various courses of action to comply with law and preserve stakeholder interests

Financial Overview

+——————————-+——-+——-+——-+——-+——-+
|(SEKm) | 2014| 2013| 2014| 2013| 2013|
| |Jul-Sep|Jul-Sep|Jan-Sep|Jan-Sep|Jan-Dec|
+——————————-+——-+——-+——-+——-+——-+
|Net sales | 3,669| 3,191| 11,375| 10,005| 14,073|
+——————————-+——-+——-+——-+——-+——-+
|Growth at constant FX | 12%| 9%| 13%| 5%| 8%|
+——————————-+——-+——-+——-+——-+——-+
|Organic growth at constant FX | 5%| 5%| 4%| 4%| 5%|
+——————————-+——-+——-+——-+——-+——-+
|EBIT before associated company | 215| 163| 804| 849| 1,309|
|income and non-recurring items | | | | | |
+——————————-+——-+——-+——-+——-+——-+
|Margin before associated | 5.9%| 5.1%| 7.1%| 8.5%| 9.3%|
|company income and non | | | | | |
|-recurring items | | | | | |
+——————————-+——-+——-+——-+——-+——-+
|Associated company income * | 115| 126| 415| 472| 576|
+——————————-+——-+——-+——-+——-+——-+
|EBIT before non-recurring items| 329| 289| 1,219| 1,321| 1,885|
+——————————-+——-+——-+——-+——-+——-+
|Non-recurring items (NRI) ** | 0| -| -155| -| -147|
+——————————-+——-+——-+——-+——-+——-+
|Total EBIT | 329| 289| 1,064| 1,321| 1,738|
+——————————-+——-+——-+——-+——-+——-+
|Net Income | 236| 196| 702| 907| 1,168|
+——————————-+——-+——-+——-+——-+——-+
|Basic Earnings per Share (SEK) | 3.76| 3.00| 10.40| 12.72| 16.39|
+——————————-+——-+——-+——-+——-+——-+
|Net debt | 928| 373| 928| 373| 772|
+——————————-+——-+——-+——-+——-+——-+
|Cash flow from operations | 314| 211| 999| 952| 1,348|
+——————————-+——-+——-+——-+——-+——-+

  • Including MTG’s SEK 74m (USD 11.5m) Q1 2014 participation in USD 29.9m of non-recurring charges incurred by associated company CTC Media in Q4 2013

** Comprising in 2014 the SEK 160m non-cash net impairment charge related to MTG’s interest in the Ukrainian satellite pay-TV platform; SEK 70m of organisational restructuring charges and other costs; and the SEK 76m net gain from the sale of Zitius in Sweden, and in 2013 the non-cash net impairment related to MTG’s interest in Raduga, the Russian satellite pay-TV platform

President & CEO’s comments

Profitable growth
This was another quarter of profitable growth as our organic investments and acquisitions generated not only higher sales but also increased profits. We are making significant progress across the business and delivering on our strategic plans. The combined Nordic free and pay-TV operations again delivered higher sales and profits, as continued Viaplay growth more than compensated for lower linear viewing. The combined Emerging Markets free and pay-TV businesses also grew their sales both organically and through the acquisition of Trace, but higher profits in the pay-TV operations, as well as a number of the free-TV operations, were offset by our performance in the highly competitive Czech market. Our in-house Nice Entertainment content production business has now doubled in size and we are also continuing to invest in our MTGx digital acceleration platform.

We are capturing more and more online subscribers and viewers, and our reach is increasing all the time as we further develop our product offerings. This quarter alone, we added exclusive content from Viacom’s Nickelodeon and Disney’s Maker Studios, extended our Formula One motor racing partnership, and acquired the exclusive rights for the Bulgarian football championship. These content deals demonstrate the multiple monetization opportunities that come from buying rights for multiple media windows across multiple territories.

Russian legislation
We are working with our operations, the companies in which we are invested, and with our advisers to review our options in respect of the legislative changes in Russia. The new law prohibiting the sale of advertising on pay-TV channels in Russia takes effect from the beginning of 2015, while the newly amended Russian Mass Media law will reduce the permitted level of aggregate foreign ownership of Russian mass media from 50% direct ownership to 20% direct or indirect ownership or control from the beginning of 2016. We have built up these entertainment businesses over 20 years and the channels are some of the most watched in Russia, so we will do all that we can to preserve the interests of all of our stakeholders. We are exploring potential solutions for each of the affected businesses and a range of potential outcomes, in order to ensure that we comply with the changes to the law.

Outlook
We continue to expect higher sales and a higher EBIT margin for the Nordic pay-TV business for full year 2014, when compared with full year 2013. Our Emerging Markets pay-TV operations are benefitting from the consolidation of Trace, but also experiencing material FX headwinds and already feeling the effects of the soon to be introduced Russian pay-TV channel advertising ban. The lower linear TV viewing in Scandinavia is a factor but demand for TV remains high and we do expect 2015 pricing to reflect this. The majority of our Emerging Market free-TV operations are performing well and comps will ease in the Czech Republic from the beginning of next year. The demand for our own content remains healthy and we are continuing to expand our footprint and develop our product offering. We have a number of exciting digital businesses that are being fuelled by the cash flows from our established scale operations, and our integrated operating structure positions us well for further profitable growth.

Jørgen Madsen Lindemann
President & Chief Executive Officer

“We are seeing the benefits of the investments that we have made, with sales growth translating into higher profits. At the same time, we are confronting challenges in Russia and working to find solutions.”

Conference Call
The company will host a conference call today at 09.00 Stockholm local time, 08.00 London local time and 03.00 New York local time. To participate in the conference call, please dial:

Sweden:
+46 (0) 8 5033 6538

UK:
+44 (0) 20 3427 1910

US:
+1 718 354 1357

The access pin code for the call is 5886767. To listen to the conference call online and for further information, please visit www.mtg.com.

Any questions?
www.mtg.com
Facebook: facebook.com/MTGAB
Twitter: @mtgab
press@mtg.com (or Per Lorentz +46 73 699 27 09)
investors@mtg.com (or Stefan Lycke +46 73 699 27 14)

Stockholm, 23 October 2014

Jørgen Madsen Lindemann, President & Chief Executive Officer

Modern Times Group MTG AB
Skeppsbron 18
P.O. Box 2094
SE-103 13 Stockholm, Sweden
Registration number: 556309-9158

MTG (Modern Times Group MTG AB (publ.)) is an international entertainment group. Our operations span six continents and include TV channels and platforms, online services, content production businesses and radio stations. We are also the largest shareholder in CTC Media, which is Russia’s leading independent media company. Our shares are listed on Nasdaq OMX Stockholm (‘MTGA’ and ‘MTGB’).

The information in this announcement is that which MTG is required to disclose according to the Securities Market Act and/or the Financial Instruments Trading Act, and was released at 07:30 CET on 23 October 2014..

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