Artnews S. A. Merger with Brant Publications media assets. 18 August 2015

Transcription

1 18 August 2015 Artnews S. A. Reuters: ATNS.WA Bloomberg: ATN:PW Rating: Buy Price: PLN 1.47 Price target: PLN 4.20 Merger with Brant Publications media assets Risk: High Artnews and US-based Brant Publications have announced terms to combine the two publishing companies' art media assets. The merger will create one of the leading art publishers in the world, both on- and offline. Impact on revenues and profitability should be significant, due to substantial cost synergies of the combined legal entity. We reiterate our Buy rating and our price target of PLN 4.20 per share. Creating one of the leading art publisher in the World Subject to approval of Artnews' shareholders (AGM will take place on September 22), Brant Publication's subsidiary BMP Media Holdings LLC will transfer its ownership interest in the renowned art magazines Art in America, The Magazine Antiques and Magazine Modern as well as their related archives and digital properties via capital increase in kind to Artnews. We expect the combined company to have a 52% market share in the US art magazines market and a digital audience in excess of 2 mn unique users per month. Therefore, Artnews is on its way to become the leading on- and offline player in the US art and design market. Substantial impact on profitability The capital increase in kind has substantial impact on Artnews top and bottom line. For 2015e, we project revenues of PLN 35.9 mn (+65.8% YoY), up from our previous forecasts of PLN 29.0 mn. Drivers of the revenue growth will be the year-round consolidation of the ARTnews magazine and Art & Business subsidiaries, acquired in the course of 2014, and the first time consolidation of BMP Media Holdings magazines effective in Q4/2015e. Our 2016e revenue forecast is PLN 59.6 mn (+65.8% YoY), up from our previous PLN 38.0, due to full year consolidation of BMP Media Holdings and ongoing digitization of the content. We expect the combined group to generate EBITDA 2015e and 2016e of EUR 3.0 mn and EUR 12.0 mn, respectively, versus our previous forecasts of PLN -1.9 mn and PLN 8.9 mn, respectively. New majority shareholder After the merger, BMP Media Holding LLC will become the majority shareholder of Artnews. According to company data, BMP Media Holding should be a 59.5% shareholder in the combined entity, whereas the old shareholders, among others management, Redline, Serius and E-Commerce Alliance AG, will own a combined 22.9%. Free float will be approximately 17.5%. ISIN/WKN: PLDAABH00013 /n/a Indices: NCIndex Stock Exchange Warsaw Transparency level: - Weighted number of shares: 24.7 mn Market cap.: PLN 78.8 mn Daily trading volume: ~500 shares Q3/2015: PLN mn (31/12) e 2016e 2017e Revenues EBITDA EBIT EBT EAT % of revenues e 2016e 2017e EBITDA -21% 8% 20% 27% EBIT -212% 5% 18% 25% EBT -211% -21% 13% 21% EAT -170% -21% 10% 16% Per share (PLN) e 2016e 2017e EPS Dividend BVPS CFPS % e 2016e 2017e Equity ratio 19% 15% 24% 36% Gearing 272% 392% 171% 56% X e 2016e 2017e P/ER n/a n/a EV/sales EV/EBITDA n/a P/BR PLN mn 2015e 2016e Guidance: Revenues - - Guidance: EBIT - - PLN Artnews Maintain Buy rating, price target PLN 4.20 Our price target of PLN 4.20 (Base Case scenario) has been derived from a standardized three-phase discounted-cashflow (DCF) entity model. Key inputs in our model are WACC of currently 8.3%, a 1.0% probability of default in the terminal phase and a terminal phase CAGR of 2.8%. Best- and worstcase scenarios result in price targets of EUR 4.50 and EUR 3.90 per share, respectively. Based on our Base Case scenario, upside versus yesterday's closing price of PLN 1.47 is approximately 185.7%. We are reiterating our Buy rating on Artnews Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 WIG (index.) SOURCE: COMPANY DATA, SPHENE CAPITAL FORECASTS Peter Thilo Hasler, CEFA + 49 (89) / +49 (152) peter-thilo.hasler@sphene-capital.de Susanne Hasler, CFA + 49 (89) / +49 (176) susanne.hasler@sphene-capital.de Apr-15 May-15 Jun-15 Jul-15 Please note the additional information and the disclaimer on the last pages of this publication.

2 One of the leading art magazine publishers in the world Subject to approval of Artnews-shareholders, Brant Publication's subsidiary BMP Media Holdings LLC will transfer its ownership interest in three art magazines Art in America, The Magazine Antiques and Magazine Modern as well as their related archives and digital properties to Artnews. We expect the combined company to have a 52% market share in the US art magazines market and a digital audience in excess of 2 mn unique users per month. Therefore, Artnews should become the dominant off- and online player for the US art and design industries and one of the leading art publishers in the world. Highly attractive print schedule Located in New York City and founded in 1984, Brant Publications publishes four magazines, three of them will be merged with Artnews: Art in America is an illustrated international magazine concentrating on the contemporary art world. It has been published since Published 11 times a year, Art in America has more than 200,000 monthly readers. The Magazine Antiques, in print since 1922, is a bi-monthly arts publication focusing on architecture, interior design and fine and decorative arts. Readers are mainly art collectors and art professionals like museum directors. Modern Magazine, launched in 2009, is a quarterly magazine devoted to furniture, design, decorative arts and architecture of the 20 th and 21 st century. Interview, founded by Andy Warhol in 1969 and taken over by Brant Publications shortly after Warhol s death in In contrast to the three previously mentioned magazines, Interview will not be merged with Artnews, but remains in direct ownership of BMP Media Holdings. Substantial operational Artnews will maintain Art in America s current publication schedule of 11 issues a year as well as The Magazine Antiques and Modern Magazine schedule of six and four issues per year, respectively. In addition, Artnews plans to launch a new bundled print subscription offer, including both Art in America and ARTnews magazine, focusing on special themed editions that have proven successful in the past. All digital media platforms will be consolidated onto artnews.com, featuring artrelated news, extensive archives, images and editorials. Skate s art market research won t be affected by the merger and will continue to provide art research, art market data, business intelligence and advisory activities. and financial consequences of the merger According to management, BMP s art media assets will be integrated and fully consolidated as of October Due to the similarity of the two business models, we do not expect a substantial impact on Artnews P&L structure, but expect a significant profitability improvement as result of the merger. Cost synergies should be expected from the following sources: Improvement in print economics through streamlining print offer and increasing both rate card and print subscriber rates; Reduction of editorial costs through combination of both editorial teams; Reduction of overhead costs through the elimination of office lease contracts and finance and reduction of HR overhead costs; Boost in digital audience through consolidation of existing digital media properties, which should allow Artnews to achieve critical mass earlier. Change in shareholder structure post-merger After the merger, BMP Media Holding LLC should become the majority shareholder in Artnews. According to company data, BMP Media Holding should be a 59.5% shareholder in the combined entity. Typical (strategic) equity investors are Redline (a financial investor specializing in European small caps), Serius (a private-equity firm established by a Polish company founder) and E-Commerce Alliance AG (German based holding company focussing on ecommerce services 2 Sphene Capital

3 and brands; they will hold approximately 22.9%. Free float including new investors, management and others sum up to 17.5% FIGURE 1: SHAREHOLDER STRUCTURE PRE (LHS) AND POST MERGER (RHS) Public Equity investor 50% Media and art investors 50% Brant Publications 59,5% Free Float 1,9% Others 1,1% Management 1,8% New investors 12,7% Public Equity investor 22,9% SOURCE: COMPANY DATA Substantial improvements in H1/2015 Last Friday, Artnews published strong H1/2015 financial figures. The company reported revenues and EBITDA of PLN 14.3 mn and PLN 2.7 mn, respectively, up from PLN 9.3 mn and PLN 0.4 mn in H1/2014, respectively. Main drivers for growth and profitability were the first time full consolidation of the US subsidiaries, growth of the digital business segments, relocation of parts of the US operations to the Warsaw headquarter, increase in subscription prices for ARTnews print magazine and FX effects. Overview of H1/2015 After six months, revenues came in at PLN 14.3 mn, up 53.5% from PLN 9.3 mn in H1/2014. Main growth drivers were the first time full consolidation of the US subsidiaries acquired during the first half of 2014, high growth of the digital business segments and FX effects. EBITDA more than sextupled to PLN 2.7 mn from PLN 0.4 mn, representing EBITDA margins of 18.5%. Next to the reported sales increase, main profit drivers were a doubling of subscription and newsstand prices for ARTnews print magazine to USD from USD and a higher share of advertising from fashion and luxury consumer brands. After the first increase in subscription prices in years, circulation was down to 50,000 from approximately 65,000 monthly copies, representing a significantly smaller circulation drop than anticipated by the management. In addition, Artnews profits benefitted from the weakening Polish Zloty and the relocation of parts of the US operations to the lower cost Warsaw headquarter. Due to substantial non-cash expenses and adjustments of PLN 7.4 mn, net loss for the period was PLN -6.7 mn. With PLN -3.0 mn, the slump in share price of German artnet.com was the biggest source of those non-cash losses. Since a complete takeover of artnet.com seems to be more unlikely than ever, management is now discussing all strategic options regarding its 8.3% stake in artnet, which Artnews acquired in early 2014 Net debt in H1/2015 was PLN 24.4 mn, up from PLN 20.1 mn at year-end Interest expenses, however, substantially declined after the completion of a bond refinancing with interest rates below 8.5%. Management indicated that it intended to continue refinancing its bond portfolio with lower interest and longerterm bonds and to further reduce its debt/ebitda ratio to below 3x, for example by means of a capital increase. Sphene Capital 3

4 With PLN 9.0 mn, equity ratio was 22.8% after six months, up from 18.7% as of year-end TABLE 1: H1/2015 VS. H1/2014 H1/2015 H1/2014 Δ Revenues PLN mn 14,3 9,3 53.5% EBITDA PLN mn 2,7 0, % EBITDA margin PLN mn 18,5% 4,4% 141bps EBIT PLN mn 1,7-34, % EBIT margin PLN mn 12,1% -365,6% 3.777bps EBT PLN mn -6,7-36,0-81.3% EPS PLN -0,27-1, % SOURCE: COMPANY DATA, SPHENE CAPITAL Strong profitability enhancement For 2015e, we project revenues of PLN 35.9 mn (+77.6% YoY) due to yearround consolidation of the ARTnews and Art & Business subsidiaries, acquired in the course of 2014, and the first time consolidation of BMP Media Holdings magazines becoming effective in Q4/2015s. For 2016e, we are pencilling in revenues of PLN 59.6 mn (+65.8% YoY) on the wings of a significant increase of digital revenues, accompanied by improvements in earnings figures at all levels and the first twelve months consolidation of the three US magazines. We expect the combined group to generate EBITDA 2015e and 2016e of EUR 3.0 mn and EUR 12.0 mn, respectively. Main profitability drivers should be cost synergies and ongoing digitization. - TABLE 2: CHANGE TO OUR ESTIMATES 2015e 2016e new Old Δ new Old Δ Revenues PLN mn % % EBITDA PLN mn n/a % EBIT PLN mn % % Net income PLN mn n/a % EPS PLN n/a % SOURCE: SPHENE CAPITAL FORECASTS 4 Sphene Capital

5 Price target of PLN 4.20 per share Buy Driven by rising online revenues, a broadening of the customer base and transfer of the business model to Western Europe, we expect the favourable revenue trend to continue and Artnews to achieve substantial after-tax profitability in the coming three years, which represent our detailed-planning phase. In the nine-year period that follows, which corresponds to the transition phase in our three-phase DCF model and ends with the terminal-value phase at the end of the 2027e fiscal year, we have assumed average annual growth rates of 6.6% for the company's operating profit. For the terminal value, we have modelled annual FCFF growth of 2.8%, corresponding to the current risk-free interest rate in the form of long-term Polish government bonds. For our bear-case and bull-case scenario analyses, we have used alternative revenue and earnings scenarios. On the basis of approximately 53.6 mn shares (post-merger), our DCF model results in a price target of PLN 4.20 per share in our base-case scenario. The bear-case and bull-case scenarios indicate price targets of PLN 3.90, and PLN 4.50 per share, respectively. All in all, the upside versus the most recent closing price of PLN 1.47 is 185.7%. We maintain our buy rating and our medium-term price target of PLN Our primary valuation method for Artnews is a standardized three-phase and fully integrated DCF entity model Basically, Artnews' business model is characterized by high labour intensity. Besides M&A activities, capital requirements for investments in tangible fixed assets have been negligible in the last few years, whereas working capital has been flat for a number of years. The funding of further growth should thus not require high net capex. Against this backdrop, a high cash conversion rate can, in principle, be deduced from Artnews' business model. In conjunction with our growth-scenario assumptions, a standardized three-phase DCF entity model with a long-term orientation is therefore the most suitable valuation approach for the Artnews stock (primary method). Up to and including 2018e, our model is based on our detailed income-statement and balancesheet projections for that period. Then follows a second, nine-year rough-planning phase ending in 2027e. After that, we model the terminal value. FIGURE 2: REVENUES AND REVENUE GROWTH (RS) PLN MN CAGR 4.6% 90% 80% 70% 60% The average annual revenue growth rates during our detailed and rough-planning phases are 39.5% and 4.6%, respectively % 60 40% Revenues YoY (RHS) 30% 20% 10% 0 0% 2015e 2016e 2017e 2018e 2019e 2020e 2021e 2022e 2023e 2024e 2025e 2026e 2027e Terminal year SOURCE: SPHENE CAPITAL FORECASTS Growth assumptions for the DCF model Our three-phase DCF model is based on the following growth assumptions: In phase 1 of the DCF model (detailed-planning phase), we have used our detailed segment, revenue, earnings, cash-flow and balance-sheet projections through 2018e as our basis and expect revenues to grow by an annual average rate of 39.5% in the e period. For the subsequent phase 2 (rough-planning phase), which ends in 2027e, Sphene Capital 5

6 we have assumed CAGR of 4.6% for net revenues. In accordance with the life-cycle theory, we are pencilling in declining revenue growth rates over time. A further assumption is that key performance indicators will approach sustainable long-term levels during the rough-planning phase. For phase 3, the terminal value phase in which growth can, by definition, only be achieved without taking on operating risks, the growth rate we have used in our model corresponds to the virtually risk-free interest on ten-year Polish government bonds, which currently stands at 2.8%. Our standardized three-phase DCF entity model is based on the following detailed assumptions: Generation of the anticipated revenue growth on the basis of the current organizational structures (status-quo assumption) without any unusual (M&A) expansion capex. A gradual increase in EBIT margins (in terms of revenues) from 25.2% in 2018e to 29.7% in 2027e (peak margins). An operating margin (EBIT) of 30.0% in the subsequent terminal-value phase. A fundamental beta of 1.0, derived, for lack of statistically significant stock prices, from the following macroeconomic and enterprise-specific risk factors: Our projections assume significant improvements in the earnings situation with increasing digitization of the business model. TABLE 3: FUNDAMENTAL BETA Degree of diversification 0.00 Competitive intensity 0.00 Business model maturity Regulatory risks 0.00 Financial risks 0.00 Corporate forecast risks 0.10 Market beta 1.00 Fundamental beta 1.00 SOURCE: SPHENE CAPITAL A decline in the capex-to-net-revenues ratio over time, which can be justified with increasing business model maturity, as observable in the past and expected for the future. A marginal tax rate that will correspond to the average level of 23.0% customary in Poland. A probability of default of 1.0% per annum, which is based on the BBB rating category, we have currently derived for Artnews. Discounting of free cash flows generated by Artnews in the current fiscal year with weighted average cost of capital (WACC) of 8.3%. Apart from the fundamental beta of 1.0, the company's WACC is based on a virtual risk-free interest rate of currently 2.8%, corresponding to the yield on long-term (tenyear) Polish government bonds, and an implied current equity risk premium for the broad market (assumption of the geometric mean) of 5.5%. In addition, we have included a small-cap premium of 2.0%, composed of dependence on the management team (1.0%) and an equity liquidity premium (1.0%). Given an expected rating of BBB, we regard the debt risk premium of currently approximately 5.5% as fair. Lastly, we have assumed that Artnews envisages a 50%/50% target capital structure for the equity and debt market values. 6 Sphene Capital

7 TABLE 4: WACC Cost of equity pursuant to CAPM Virtual risk-free interest rate (10-year Polish sovereign) % 2.8% Beta 1.0 Implied risk premium % 5.5% Cost of equity % 8.3% Small cap premium % 2.0% Management premium % 1.0% Liquidity premium % 1.0% Private-company premium % 0.0% Envisaged target capital structure % 50.0% Weighted cost of equity % 5.2% Cost of debt Virtual risk-free interest rate (10-year Polish sovereign) % 2.8% Debt risk premium % 5.5% Cost of debt % 8.3% Tax rate % 23.0% Cost of debt after taxes % 6.4% Envisaged target capital structure % 50.0% Weighted cost of debt % 3.2% Weighted average costs of capital % 8.3% SOURCE: SPHENE CAPITAL No discounting of negative free cash flows, but rather compounding with the weighted cost of capital to the current valuation date (investor risk aversion axiom). Cost of capital for Artnews in the terminal value phase similar to that of other mature companies; consequently, we have assumed that WACC will decline from currently 8.3% to 7.8% (which would correspond to a long-term risk premium of 5.0% in Poland on the basis of current interest rates). FIGURE 3: FCFF AND FCFF GROWTH PLN MN FCFF YoY (RS) 20% 15% % 5% 0 0% Detailed planning Transition period Period of TV -5-5% 2015e 2016e 2017e 2018e 2019e 2020e 2021e 2022e 2023e 2024e 2025e 2026e 2027e Terminal year SOURCE: SPHENE CAPITAL FORECASTS Sphene Capital 7

8 Dynamic trend in free cash flows These assumptions result in the dynamic trend in free cash flows in the 2015e- 2027e period shown in Figure 3 above. Due to the model-inherent increase in the reinvestment ratio, we have modelled a decline in free cash flows in the terminal-value phase, which, in turn, is the basis for the perpetuity computation. Our base-case scenario indicates a price target of PLN 4.20 per share over a medium-term horizon In these computations, 46.2% of total enterprise value is derived from the terminal value and 53.8% from cash flows generated in the detailed and the roughplanning phases. Basis of our calculation is the post-merger shareholder structure with a weighted number of shares of 53.6 mn. The DCF model results in a price target of PLN 4.20 per share TABLE 5: SUMMARY OF THE RESULTS PV (terminal value) PLN mn PV (sum of cash flows 2015e-27e) PLN mn Total PV PLN mn Financial debt PLN mn Cash PLN mn 2.3 Value of equity PLN mn Number of shares Mn 53.6 Price target per share PLN 4.20 SOURCE: SPHENE CAPITAL FORECASTS We have used the following scenarios and assumptions in our stress test: Bear-case scenario: In our bear-case scenario, we have revised the terminal-value EBIT margin downward by 300 basis points, from an assumed 30.0% to 27.0%, and reduced the average annual growth rate during the terminal-value phase from 2.8% to 1.9%. We would thus be assuming that competitive intensity will increase, especially in the euro zone, and that Artnews will not succeed in expanding its regional footprint to the expected extent. In this bear-case scenario, Artnews' equity value would decline by PLN 0.30 to PLN 3.90 per share. Our scenario analysis indicates a value of equity of PLN 3.90 per share in the bear case and PLN 4.50 per share in the bull case. FIGURE 4: STOCK PRICE TREND AND FORECAST PLN Artnews Over a medium-term horizon, we see a price target of PLN 4.20 per share, the prerequisite being achievement of our earnings forecasts. In our bear-case scenario (PLN 3.90), we have assumed an increase in competitive intensity. In our bull-case scenario (PLN 4.50), the company will succeed in growing and expanding its margins even faster Aug-14 Nov-14 Feb-15 May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16 SOURCE: SPHENE CAPITAL FORECASTS Bull-case scenario: A bull-case scenario would result, above all, from more pronounced expansion of operating margins due to higher-than-expected 8 Sphene Capital

9 acceptance of newly introduced products. In our bull-case scenario, we have assumed average annual growth of 3.7% (rather than 2.8%) for the free cash flows in the terminal-value phase and an improvement in operating margins to 33.0%. In this case, we would increase our price target by PLN 0.30 to PLN 4.50 per share. We regard the DCF model as the relevant price finding method: Buy Given the trend in Artnews' operating earnings, we think that a long-term DCF model is the superior valuation method. We estimate that the company will reach its price target of PLN 4.20 per share within a period of 12 to 24 months, implying price upside of 185.7% compared to the most recent closing price of PLN 1.47 per share. We are therefore reiterating our Buy rating. On the basis of our financial forecasts and upon realization of the value of equity we have calculated (base-case scenario), the Artnews stock would feature the following valuation multiples: TABLE 6: VALUATION MULTIPLES CURRENT VS. PRICE TARGET Valuation at current price Valuation at price target of PLN e 2017e 2016e 2017e P/E 13.1x 7.2x 37.3x 20.5x EV/Sales 0.88x 0.88x 3.34x 3.03x EV/EBIT 4.4x 3.3x 16.5x 11.2x P/BV 6.6x 3.4x 18.9x 9.8x SOURCE: SPHENE CAPITAL FORECASTS Stock performance catalysts In our view, the most important catalysts for Artnews' stock performance in the coming months are: (1) statements on the current status of the digitization of the business model, (2) statements on the status of the artnet.com stake, (3) a noticeable year-on-year improvement in revenue and earnings trends in 2015e and 2016e; and (4) statements on the integration of the recently acquired media assets. Weaknesses and risks Key risks for the realization of our price target are: (1) possible damage to the brand name, built up over 113 years, due to the adjustments to the business model; (2) revenue and earnings forecasts that fluctuate greatly due to the repositioning of the business model; (3) higher than expected integration costs from the merger with Brant Publications; (4) burdens that might arise from the allegation of violation of the Polish Banking Act under the previous management; and (4) a negative impact on Artnews' profitability due to a trend reversal in the current strength of the USD versus the EUR and PLN, given the large revenue share generated in the USD area. Overview of operating units Upon completion of the integration of all acquired companies, an organization initially focusing on the Polish art market has become a globally active media group encompassing the following interlinked platforms: New York City-based ARTnews Ltd., which was established in 1902, publishes the art magazine of the same name. With eleven issues per annum, 50,000 subscribers and slightly under 200,000 readers, largely in the United States and Canada, ARTnews is one of North America's leading art magazines. Art in America is an illustrated international magazine concentrating on the contemporary art world. It has been published since Published 11 times a year, Art in America has over 200,000 monthly readers. The Magazine Antiques, in print since 1922, is a bi-monthly arts publication that focuses on architecture, interior design and fine and decorative arts. Readers are mainly art collectors and art professionals such as museum directors. Modern Magazine, launched in 2009, is a quarterly magazine devoted to Catalysts for realization of the computed price target Tradition meets modernity Sphene Capital 9

10 furniture, design, decorative arts and architecture of the 20 th and 21 st century. the Polish Art & Business, the country's oldest art and lifestyle magazine and more broadly positioned than the other magazines, dealing not only with art in the narrow sense, but also with classical lifestyle topics such as fashion, cosmetics and accessories, movies, literature and theatre. Eleven issues of Art & Business are published every year, and are read by an average of 40,000 people. Skate s, a leading global market research institute focusing on the international art market. FIGURE 5: ORGANIZATIONAL STRUCTURE (POST MERGER) Artnews S.A. Media ARTnews Art in America The Magazine Antiques 98.3% 100.0% 100.0% 100.0% Services Skate s Modern Magazine Art & Business 100.0% 100.0% 8.3% Assets held for sale artnet.com SOURCE: COMPANY DATA, SPHENE CAPITAL 10 Sphene Capital

11 Profit and loss account, e POLISH GAAP (31.12.) e 2016e 2017e Revenues PLN mn YoY % 70.6% 77.6% 65.8% 14.6% Costs of goods PLN mn In % of sales % -29.8% -20.3% -22.1% -26.1% Gross profit PLN mn YoY % n/a 101.7% 62.0% 8.8% In % of sales % 70.2% 79.7% 77.9% 73.9% SG&A expenses PLN mn In % of sales % -53.2% -32.0% -18.6% -15.9% Personnel costs PLN mn In % of sales % -38.1% -39.1% -39.0% -31.0% Local taxes PLN mn EBITDA PLN mn YoY % n/a % 296.9% 52.8% In % of sales % -21.4% 8.4% 20.2% 26.9% Depreciation and amortisation PLN mn Thereof amortisation of goodwill PLN mn Impairment PLN mn EBIT PLN mn YoY % n/a % 481.9% 60.2% In % of sales % % 5.1% 17.7% 24.8% Income from participations PLN mn Net financial result PLN mn Interest expenses (net) PLN mn in % of total debt % -20.2% -26.2% -26.7% -28.9% Other financial result (investments) PLN mn EBT PLN mn YoY % n/a -82.1% % 84.0% In % of sales % n/a -21.3% 13.0% 20.9% Taxes PLN mn In % of EBT (implied tax rate) % -19.6% -1.2% -22.0% -23.0% Taxes PLN mn Net income PLN mn In % of sales % n/a -26.4% 13.0% 21.7% Minorities PLN mn Nr. of shares Mio Nr. of shares (diluted) Mio EPS PLN EPS (diluted) PLN SOURCE: COMPANY DATA, SPHENE CAPITAL FORECASTS Sphene Capital 11

12 Balance sheet, e POLISH GAAP (31.12.) e 2016e 2017e ASSETS Non-current assets PLN mn Intangible assets PLN mn Goodwill PLN mn Property, plant & equipment PLN mn Shares in affiliated companies PLN mn thereof participations PLN mn thereof loans PLN mn Long Term Prepayments PLN mn Current assets PLN mn Inventory PLN mn in % of gross revenues % 10.0% 6.0% 7.5% 9.5% Accounts receivables PLN mn in % of gross revenues % 35.6% 18.1% 22.4% 28.4% Receivables from affiliated companies PLN mn Deferred taxes PLN mn Other receivables PLN mn Prepayments PLN mn Cash & cash equivalents PLN mn Deferred items PLN mn Total assets PLN mn LIABILITIES AND EQUITY Total shareholder's equity PLN mn Equity ratio % 18.7% 14.9% 24.0% 35.9% Issued capital PLN mn Capital reserves PLN mn Retained earnings PLN mn Revaluation reserve PLN mn Unregistered capital PLN mn Currency adjustments PLN mn Profit/Loss of period PLN mn Minorities PLN mn Non-current liabilities PLN mn Financial Debt PLN mn Other current liabilities PLN mn Current liabilities PLN mn Financial Debt PLN mn Trade payables PLN mn in % of revenues % 29.0% 17.3% 21.3% 26.7% Other current liabilities PLN mn Other current liabilities PLN mn Liabilities to subsidiaries PLN mn Provisions PLN mn Deferred income PLN mn Deferred tax PLN mn Total liabilities PLN mn SOURCE: COMPANY DATA, SPHENE CAPITAL FORECASTS 12 Sphene Capital

13 Normalized balance sheet, e POLISH GAAP (31.12.) e 2016e 2017e ASSETS Non-current assets % 70% 75% 62% 50% Intangible assets % 32% 38% 32% 26% Goodwill % 18% 25% 14% 11% Property, plant & equipment % 0% 0% 0% 0% Shares in affiliated companies % 15% 8% 12% 9% thereof participations % 15% 8% 12% 9% thereof loans % 0% 0% 0% 0% Long Term Prepayments % 3% 3% 3% 2% Current assets % 30% 25% 38% 50% Inventory % 5% 5% 9% 10% Accounts receivables % 18% 16% 27% 30% in % of gross revenues % 1% 0% 0% 0% Receivables from affiliated companies % 0% 0% 0% 0% Deferred taxes % 0% 0% 0% 0% Other receivables % 0% 0% 0% 0% Prepayments % 1% 1% 1% 1% Cash & cash equivalents % 6% 2% 2% 9% Deferred items % 0% 0% 0% 0% Total assets % 100% 100% 100% 100% LIABILITIES AND EQUITY Total shareholder's equity % 19% 15% 24% 36% Issued capital % 6% 6% 5% 4% Capital reserves % 106% 125% 100% 78% Retained earnings % -15% -97% -93% -63% Revaluation reserve % 0% 0% 0% 0% Unregistered capital % 6% 0% 0% 0% Currency adjustments % -2% 0% 0% 0% Profit/Loss of period % -83% -19% 12% 17% Minorities % 0% 0% 0% 0% Non-current liabilities % 40% 40% 28% 19% Financial Debt % 40% 40% 28% 19% Other current liabilities % 0% 0% 0% 0% Current liabilities % 31% 36% 40% 39% Financial Debt % 16% 20% 14% 10% Trade payables % 15% 16% 25% 29% Other current liabilities % 0% 0% 0% 0% Other current liabilities % 0% 0% 0% 0% Liabilities to subsidiaries % 0% 0% 0% 0% Provisions % 0% 0% 0% 0% Deferred income % 8% 9% 8% 7% Deferred tax % 2% 0% 0% 0% Total liabilities % 100% 100% 100% 100% SOURCE: COMPANY DATA, SPHENE CAPITAL FORECASTS Sphene Capital 13

14 Cash flow statement, e POLISH GAAP (31.12.) e 2016e 2017e Net income PLN mn Minority Share of Losses PLN mn Depreciation & Amortisation PLN mn Interests & Dividends PLN mn Result on investing activity PLN mn Δ inventory PLN mn Δ trade receivables PLN mn Δ other receivables PLN mn Δ deferred tax assets PLN mn Δ provisions PLN mn Δ other short-term provisions PLN mn Δ trade payables PLN mn Δ deferred liabilities PLN mn Currency adjustments PLN mn Other operational adjustments PLN mn Operating cash flow PLN mn Sales of financial assets PLN mn Long-term Investments PLN mn Other operational adjustments PLN mn Cash flow from investing PLN mn Free cash flow PLN mn Δ Capital stock & reserves PLN mn Δ Loan PLN mn Δ Bonds PLN mn Interests & Dividends PLN mn Leasing PLN mn Other adjustments PLN mn Financing cash flow PLN mn Net cash inflow PLN mn Currency adjustments PLN mn Net cash opening balance PLN mn Net cash closing balance PLN mn SOURCE: COMPANY DATA, SPHENE CAPITAL FORECASTS 14 Sphene Capital

15 Segments, e POLISH GAAP (31.12.) e 2016e 2017e Revenues PLN mn Print subscription PLN mn Print advertising revenue PLN mn Digital advertising revenue PLN mn Ecommerce sales PLN mn Business Intelligence PLN mn Other revenue PLN mn YoY % n/a 77.6% 65.8% 14.6% Print subscription % n/a -50.9% 65.0% 8.3% Print advertising revenue % n/a 537.5% 47.9% 12.5% Digital advertising revenue % n/a n/a n/a n/a Ecommerce sales % n/a n/a 848.7% 45.0% Business Intelligence % n/a 111.1% 5.0% 8.0% Other revenue % n/a 38.3% 94.4% 10.0% as of total sales % 100.0% 100.0% 100.0% 100.0% Print subscription % 56.3% 15.6% 15.5% 14.6% Print advertising revenue % 15.6% 55.8% 49.8% 48.9% Digital advertising revenue % 0.0% 0.0% 0.0% 0.0% Ecommerce sales % 0.0% 1.9% 10.9% 13.8% Business Intelligence % 11.7% 13.9% 8.8% 8.3% Other revenue % 16.5% 12.8% 15.0% 14.4% Revenues PLN mn Print PLN mn Digital PLN mn YoY PLN mn n/a 77.6% 65.8% 14.6% Print PLN mn n/a 76.5% 51.6% 11.5% Digital PLN mn n/a 80.4% 101.3% 20.5% as of total sales PLN mn 100.0% 100.0% 100.0% 100.0% Print PLN mn 71.9% 71.4% 65.3% 63.5% Digital PLN mn 28.1% 28.6% 34.7% 36.5% SOURCE: COMPANY DATA, SPHENE CAPITAL FORECASTS Sphene Capital 15

16 Regions and employees, e POLISH GAAP (31.12.) e 2016e 2017e Revenues by regions PLN mn Poland PLN mn International PLN mn thereof USA PLN mn thereof Europe (excl. Poland) PLN mn YoY % n/a 77.6% 65.8% 14.6% Poland % n/a 3.0% 3.0% 3.0% Rest of Europe % n/a 229.6% 105.9% 18.3% thereof USA % n/a 226.6% 114.5% 17.9% thereof Europe (excl. Poland) % n/a 5.0% 25.0% 25.0% as of total sales % 100.0% 100.0% 100.0% 100.0% Poland % 67.1% 38.9% 24.2% 21.7% International % 32.9% 61.1% 75.8% 78.3% thereof USA % 30.0% 55.2% 71.4% 73.4% thereof Europe (excl. Poland) % 10.0% 5.9% 4.5% 4.9% Employees at year-end Poland International Employees at year-end thereof journalists thereof IT thereof sales and administration thereof board members thereof others Revenues per head PLNk 698 1,154 1,064 1,136 Poland PLNk International PLNk 476 1,425 1,738 1,869 SOURCE: COMPANY DATA, SPHENE CAPITAL FORECASTS 16 Sphene Capital

17 One view I, e POLISH GAAP (31.12.) e 2016e 2017e Key data Revenues PLN mn Gross profit PLN mn EBITDA PLN mn EBIT PLN mn EBT PLN mn Net income PLN mn Nr. of employees Per share data Price high PLN Price low PLN Price average PLN Price average/last PLN EPS PLN BVPS PLN CFPS PLN Dividend PLN Price target PLN 4.20 Performance to price target % 185.7% Profitability ratios (based on revenues) EBITDA margin % -21.4% 8.4% 20.2% 26.9% EBIT margin % % 5.1% 17.7% 24.8% Pre-tax margin % % -21.3% 13.0% 20.9% Net margin % % -21.0% 10.1% 16.1% FCF margin % % -29.7% 4.5% 11.1% ROE % % % 50.6% 47.9% NWC/Sales % 16.6% 6.8% 8.7% 11.3% Revenues per head PLNk , , ,136.2 EBIT per head PLNk -1, Capex/Sales % n/a n/a n/a n/a Gross profit premium % % % % % Growth ratios Revenues % 70.6% 77.6% 65.8% 14.6% Gross profit % n/a 101.7% 62.0% 8.8% EBITDA % n/a n/a 296.9% 52.8% EBIT % n/a n/a 481.9% 60.2% EBT % n/a -82.1% n/a 84.0% Net income % n/a -78.0% n/a 81.7% EPS % n/a -90.6% n/a 81.7% CFPS % n/a -80.0% n/a 106.5% SOURCE: COMPANY DATA, SPHENE CAPITAL FORECASTS Sphene Capital 17

18 One view II, e POLISH GAAP (31.12.) e 2016e 2017e Balance sheet ratios Fixed assets PLN mn Current assets PLN mn Equity PLN mn Liabilities PLN mn Equity ratio % 18.7% 14.9% 24.0% 35.9% Gearing % 271.7% 392.0% 171.2% 56.0% Working Capital PLN mn Asset Turnover x EBITDA-ICR x Enterprise Value Nr. of shares 1,000 21,807 53,627 53,627 53,627 Market cap. high PLN mn Market cap. low PLN mn Market cap. average PLN mn Market cap. last PLN mn Net debt PLN mn Pension reserves PLN mn Minorities PLN mn Excess Cash PLN mn Enterprise Value high PLN mn Enterprise Value low PLN mn Enterprise Value average PLN mn Enterprise Value last PLN mn Valuation ratios EV/sales high x n/a n/a EV/sales low x n/a 0.99 n/a n/a EV/sales average x n/a n/a EV/sales last x EV/EBITDA high x n/a 62.9 n/a n/a EV/EBITDA low x n/a 11.7 n/a n/a EV/EBITDA average x n/a 30.1 n/a n/a EV/EBITDA last x n/a EV/EBIT high x n/a n/a n/a EV/EBIT low x n/a 19.6 n/a n/a EV/EBIT average x n/a 50.3 n/a n/a EV/EBIT last x n/a P/E high x n/a n/a n/a n/a P/E low x n/a n/a n/a n/a P/E average x n/a n/a n/a n/a P/E last x n/a n/a P/BV last x FCF yield % -47.5% -13.5% 3.4% 9.7% Dividend-yield % 0.0% 0.0% 0.0% 0.0% Cash flow Cash flow from Operations PLN mn Cash flow from Investments PLN mn Free Cash flow PLN mn Cash flow from Financing PLN mn SOURCE: COMPANY DATA, SPHENE CAPITAL FORECASTS 18 Sphene Capital

19 DCF model POLISH GAAP (31.12.) 2015e 2016e 2017e 2018e 2019e 2020e 2021e 2022e 2023e 2024e 2025e 2026e 2027e TV Revenues PLN mn Sales growth % 77.6% 65.8% 14.6% 12.2% 9.9% 7.5% 5.6% 4.2% 3.4% 3.0% 2.8% 2.8% 2.8% 2.8% EBIT PLN mn EBIT margin % 5.1% 17.7% 24.8% 25.2% 25.7% 26.2% 26.7% 27.2% 27.7% 28.2% 28.7% 29.2% 29.7% 30.0% Taxes PLN mn Tax rate (τ) % -1.2% -22.0% -23.0% -23.0% -23.0% -23.0% -23.0% -23.0% -23.0% -23.0% -23.0% -23.0% -23.0% -23.0% EBIT(1-τ) PLN mn Reinvestment PLN mn FCFF PLN mn WACC % 8.3% 8.3% 8.3% 8.3% 8.3% 8.2% 8.2% 8.1% 8.0% 8.0% 7.9% 7.9% 7.8% 7.8% Discount rate % 100.0% 92.3% 85.2% 78.6% 72.6% 67.1% 62.0% 57.4% 53.1% 49.2% 45.6% 42.3% 39.2% 0.0% PV(FCFF) PLN mn Terminal cash flow PLN mn 17.5 Terminal Cost of capital % 7.8% Insolvency risk % 1.0% Terminal value PLN mn PV(Terminal value) PLN mn Long term growth rates PV (CF over next 10 years) PLN mn PLN 1.9% 2.2% 2.5% 2.8% 3.1% 3.4% 3.7% Sum of present values PLN mn % % Financial debt (12/2014e) PLN mn TV 29.0% Cash (12/2014e) PLN mn 2.3 EBIT 30.0% Value of equity PLN mn margin 31.0% Number of shares mn % Estimated value per share PLN % SOURCE: SPHENE CAPITAL FORECASTS 19 Sphene Capital

20 This page has been left blank intentionally. 20 Sphene Capital

21 This page has been left blank intentionally. Sphene Capital 21

22 This page has been left blank intentionally. 22 Sphene Capital

23 This publication is issued by Großhesseloher Strasse 15c Munich - Germany - Phone +49 (89) Fax +49 (89) Disclaimer This publication is issued by Sphene Capital GmbH and is for distribution in the Federal Republic of Germany only to persons who purchase or sell transferable securities for their own account or for the account of others in the context of their trade, profession or occupation. This publication is for the use of the addressees only. It may not be copied to or distributed to any other person in whole or in part without the written consent of Sphene Capital GmbH. This publication is provided for general information purposes only and is furnished to you on a confidential basis. Any investment possibilities discussed in this publication may not be suitable for certain investors depending on their specific investment target or time horizon or in the context of their overall financial situation. It cannot be a substitute for obtaining independent advice. Please contact your bank s investment advisor. The distribution of this publication in certain jurisdictions may be restricted by law and persons into whose possession this publication comes should inform themselves about, and observe such restrictions. In the United Kingdom this publication or a copy of it is being distributed only to, and is directed at (a) persons who have professional experience in matters relating to investments falling within article 19(1) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001 (the Order ) or (b) high network entities falling within article 49(2) (A) to (D) of the Order, and other persons to whom it may be lawfully be communicated, falling within article 49(1) of the Order (all such persons together referred to as Relevant Persons ). Any person who is not a Relevant Person should not act or rely on this publication or any of its contents. This publication does not constitute a solicitation to buy or an offer to sell any securities and shall not be construed as constituting an offer to enter into a consulting agreement. Neither this publication nor any part of it establishes a basis for any agreement or other obligations of any kind. Sphene Capital GmbH and its subsidiaries/affiliates do not accept any responsibility for liabilities arising from the publication and/or use of this publication or its contents. Neither Sphene Capital GmbH nor its subsidiaries/affiliates guarantee the accuracy or completeness of information used for this publication and nothing in this publication shall be construed to be a representation of such a guarantee. Used information has not independently been verified. Any opinions expressed reflect the current judgment of the analyst who prepared this publication in conjunction with his/her occupational activity and may be changed pursuant to future events and developments. Views expressed do not necessarily reflect the opinion of Sphene Capital GmbH or any of its subsidiaries/affiliates. Sphene Capital GmbH reserves the right to change the views expressed in this publication at any time and without advance notice. Sphene Capital GmbH may have issued other publications that are inconsistent with and reach different conclusions from the information presented in this publication. Those publications may reflect the different assumptions, views and analytical methods of the analysts who prepared them. Past performance should not be taken as an indication or guarantee for further performance, and no representation or warranty, expressed or implied, is made regarding future performance. This publication is being distributed by electronic and ordinary mail to professional investors, who are expected to make their own investment decisions without undue reliance on this publication. All share prices mentioned in this publication are closing prices of the XETRA Electronic Trading System, or where unavailable local stock exchange, as of the trading day preceding the day of the publication. Investment Recommendations (12 months investment period) Buy: We expect a stock to rise by at least 10%. Hold: We expect a stock to move within 10% of the benchmark. Sell: We expect a stock to fall by at least 10% and underperform the benchmark. Risk Assessment (12 months investment period) Estimated probability that the result of the analyzed company differs from our forecast earnings by more than 20% due to company-or market-specific reasons: Risk Estimated probability Very high >80% High 50-80% Medium 20-50% Low <20% Statements according to Section 34b of the German Securities Trading Act and Ordinance on the Analysis of Financial Instruments Section 34b of the German Securities Trading Act in combination with the Ordinance on the Analysis of Financial Instruments requires a company preparing a securities analysis to point out potential conflicts of interest with respect to the issuer that is the subject of the analysis. A conflict of interest is presumed to exist, in particular, if a company is preparing a securities analysis. holds a more than 5% interest in the capital stock of the issuer that is the subject of the analysis, has been a member of a syndicate that has underwritten the issuer s securities in the previous 12 months, is serving as a liquidity provider for the issuer s securities on the basis of an existing designated sponsorship contract, has been providing investment banking services for the issuer analyzed during the last 12 months for which a compensation has been or will be paid, is party to an agreement with the issuer that is the subject of the analysis relating to the production of the recommendation, or any of its affiliates are regularly trading securities issued by the issuer analyzed or securities based on these issues, or the analyst covering the issue has other significant financial interests with respect to the issuer that is the subject of this analysis, for example holding a seat on the company's boards. Sphene Capital GmbH uses the following keys: Key 1: The analyzed company actively provided information material for preparation of this publication. Key 2: This publication has been customized to the issuer and has been modified afterwards before publication. Thereby the analyzed company has not been provided with a publication or draft of publication which provided for an investment recommendation. Key 3: The analyzed company owns more than 5% of the capital stock of Sphene Capital GmbH and/or a company affiliated with Sphene Capital GmbH. Key 4: Sphene Capital GmbH and/or a company affiliated with it and/or the analyst having prepared this publication owns more than 5% of the capital stock of the analyzed company. Key 5: Sphene Capital GmbH and/or a company affiliated with it and/or the author of this publication acquired shares of the analyzed company free of charge or for a consideration below the stated target price and before the shares public offering. Key 6: Sphene Capital GmbH and/or a company affiliated with it serve as a liquidity provider for the issuer s shares on the basis of an existing market maker or liquidity provider contract. Key 7: Sphene Capital GmbH and/or a company affiliated with it and/or a related person/related company and/or the author of this publication was subject to an agreement on services in connection with investment banking transactions with the analyzed company in the last 12 months or within the same period received consideration on basis of such an agreement. Key 8: Sphene Capital GmbH and/or a company affiliated with it have concluded an agreement on the preparation of this publication with the analyzed company. Sphene Capital GmbH has received an advanced flat fee that corresponds with usual market practices. Sphene Capital 23

24 Key 9: Sphene Capital GmbH and/or a company affiliated with it receive commission earnings arising from commercial activities from the analyzed company. Key 10: A member of the managing board of Sphene Capital GmbH and/or the author of this publication is member of the supervisory board of the analyzed company. Investment Recommendations (12 months period): Date: Price target: Rating: Conflict of Interest (key) 18/08/2015 EUR 4.20 Buy 1; 8 28/04/2015 EUR 4.20 Buy 1; 2; 8 09/04/2015 EUR 4.20 Buy 1; 2; 8 An overview on the allocation of Sphene Capital s investment recommendations is available under Statements according to Section 34b of the German Securities Trading Act and Ordinance on the Analysis of Financial Instruments Sources of information: This publication is based on information obtained from carefully selected public sources, especially suppliers of financial data, the publications of the analyzed company and other publicly available media. Rating principles/methodology/risks For the preparation of the publication, company-specific methods from the fundamental stock analysis were used, such as quantitative statistical methods and models, and practices used in technical analysis (inter alia, historical valuation models, net asset value models or sum-of-the-parts valuation models, discounted cash flow models, economic profit models, multiplier models or peer-group comparisons). Valuation models are dependent on macroeconomic factors such as currencies, interest rates, commodities and on assumptions about the economy. In addition to that, market sentiment and political developments may impact the valuation of companies. Selected approaches are also based on expectations, which may change depending on the industry-specific developments without warning. Consequently, recommendations and price targets based on these models may change accordingly. Investment recommendations cover a period of twelve months and may be subject to market conditions. The expected price developments can be achieved faster or slower, or be revised upwards or downwards. Analyst certification: The author(s) of this publication certify that their views about the companies and their securities discussed in this report are accurately expressed and that they have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this publication. 24 Sphene Capital