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KDG shares slide, on an unspectacular job well done

When you see a press release entitled “XYZ remains on course,” you immediately get a picture of an ocean going tanker that cannot change direction, he


Published: 24 February, 2011


When you see a press release entitled “XYZ remains on course,” you immediately get a picture of an ocean going tanker that cannot change direction, headed for imminent disaster. The PR hack that wrote the item wants you to picture calm waters and business as usual and perhaps that’s how Kabel Deutschland management sees the picture. We choose not to.

Yes premium TV cable is up 17.6%, yes there are almost 1.3 million customers taking Internet and phone, up 23% and yes net debt has come down, and most debt has been rescheduled. Revenues are up 7% for the nine month period to date, to €1.2 billion, on track for some €1.6 billion for the year.

On the flip side of the coin, the company cash pile has gone from €359 million to around €121 million, a fall of €238 million since the beginning of the year, used for paying down debt, and total unique cable customers have fallen by 149,000 to 8.8 million, and that’s despite picking up an extra 62,000 homes in an acquisition.

Kabel Deutschland stock has grown some 70% since it went public, but so much of this news was in the price that the shares fell the day it was announced, but only around 2.5%.

Adrian Hammerstein, CEO said, “We are implementing our strategy on schedule and achieving our objectives. The trend towards Premium TV services is gaining momentum, and demand for high performance Internet and Phone products remains strong. Our attractive offerings enable us to reap the benefits of these developments."

He said that the company’s EBITDA margin was 45.4% up almost 2% on last year but said the company made a pre-tax loss of around €46.7 million. Last year it made a much smaller loss, but this year’s figure included €47 million in non-recurring expenses in connection with KDG’s refinancing of its corporate bonds.

To be fair this is more or less every bit as good as any other European Cable company, which are forced to sacrifice basic customers in order to spend capex upgrading to DOCSIS 3.0 and chase the higher yield customers, who pay for triple play services, faster broadband and better premium TV, usually with HD offerings. The usually disingenuous way of counting service – in revenue generating units – RGUs, shows KDG up 567,000 to 12.5 million but what is significant is the rise in ARPU, notoriously weak in Germany, to €13.32 a month from €12.30 this time last year. It still has a long way to go to the mid €30s experienced in other European countries. The company says that its re-scheduling of debt will bring it €50 million a year less in interest payments and said that when its full year results come in next quarter it will have between 6.5% to 7% growth in revenue and will have spent €340 to €350 million in Capex.


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