Kabel Deutschland: Investments in Internet and telephony show success

• Annual financial results document rapid growth of triple play products
• 20 to 30 percent of all new broadband customers decide in favour of Kabel Internet
• Wider digital free-to-air TV offer and successful pay TV packages push digitization
• Strong rise in EBITDA expected for the current fiscal year

Kabel Deutschland, Germany’s largest cable network operator, has enjoyed a successful fiscal year 2006/2007 (to March 31, 2007). The results according to IFRS (International Financial Reporting Standards) published today reveal clear growth in RGUs (revenue generating units) and revenues.

Along with the Kabel Internet business, the high-speed internet access via TV cable, as well as Kabel Phone, Kabel Deutschland’s telephony product, the number of RGUs during the reporting period has more than tripled to 331,000 (previous year: 101,000). At the same time, the marketable base has grown remarkably. In the 2006/2007 fiscal year alone, Kabel Deutschland increased the number of households upgraded for Internet and telephony by 4.6 million, primarily in Northern Germany and Bavaria. As of March 31, 2007 Kabel Deutschland has upgraded over 8.6 million homes passed for its triple play products – television, Internet and telephony all from one source – representing a share of 56 percent of homes passed. By upgrading the cable networks in Lower Saxony, another two million households will be added to that figure in September of this year. By the end of fiscal year 2008/2009 (March 31, 2009) Kabel Internet and Kabel Phone will be available for 90 percent of Kabel Deutschland’s homes passed.

“Business with broadband Internet and telephone connections has the highest priority for Kabel Deutschland”, comments Dr. Adrian v. Hammerstein, Chief Executive Officer of Kabel Deutschland, while speaking about the development in the sector. “We have positioned ourselves as the clear price leader with our package of double flat rate and 6 Mbit/s download speed for only EUR 29.90. Added to this is a new marketing offensive with a whole set of attractive measures. This way we gain 20 to 30 percent of customers in the flow in the marketable base. This leads us to believe that we have a realistic chance of gaining a market share of up to 20 percent of our marketable households within three to four years.”

Kabel Deutschland has also achieved strong growth in marketing the digital pay TV packages Kabel Digital Home and Kabel Digital International. The number of RGUs in this sector rose to 692,000 by March 31, 2007 compared to 479,000 on March 31, 2006. That corresponds to a growth rate of 44 percent. As expected, the number of basic cable access RGUs dropped slightly in the 2006/2007 fiscal year to 9.320 million by 31 March 2007 (previous year: 9.597 million). Nevertheless, revenues for the cable access business increased by approximately one percent.

Due to the good marketing success of new products, total revenues of Kabel Deutschland increased by 8 percent from EUR 1.012 billion last year to EUR 1.093 billion in the fiscal year 2006/2007. Subscription based revenues rose during the same period from EUR 871.3 million to EUR 949.5 million. Average monthly revenue per unit (ARPU) rose from EUR 7.30 in 2005/2006 by 5 percent to EUR 7.64 in 2006/2007.

Kabel Deutschland made massive investments during the past fiscal year to upgrade its networks for Internet and telephony and for customer acquisition. Investments increased from EUR 152 million in the 2005/2006 fiscal year to EUR 281 million in 2006/2007. Despite this high level of investment and the start up losses from the Internet and telephony business, EBITDA as adjusted1 only dropped slightly to EUR 382.5 million (previous year: EUR 401.3 million). That corresponds to an EBITDA margin of 35.0 percent (previous year: 39.7 percent). The net income with EUR -99.2 million (previous year: EUR -68.5 million) was once again negative.

“The good customer and revenue growth is a clear indication that our strategy is on the right track. After the start up losses in the past two years, this will also have an effect on the business results in the current fiscal year. As a consequence, we expect an EBITDA of EUR 430 to EUR 440 million for this year. As of the beginning of 2008 we are counting on positive quarterly net results,” says Adrian v. Hammerstein about the future development of the business.

Furthermore, Kabel Deutschland was successful in expanding and digitizing its TV offerings during the last fiscal year. It increased the number of digital programs available in addition to the 33 analog channels to over 200, including up to 100 free to air programs. The attractiveness of Kabel Deutschland’s digital programs and the provision of digital receivers at no charge for direct customers of Kabel Deutschland have contributed to gaining approximately 600,000 RGUs for digital cable access up to now. Along with the customers of Kabel Digital Home and Kabel Digital International as well as Premiere’s pay TV customers in Kabel Deutschland’s footprint, this means a share of about 20 percent of digitized households in Kabel Deutschland’s franchise area, with an increasing trend.