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ATM publishes its financial report for the third quarter of 2014

ATM S.A. has presented its financial statement for the third quarter of 2014. The cumulative figures for the first three quarters of the year show total sales of 91.8m PLN (down by 4% year-on-year, excluding OST 112), a profit on sales of 53.3m PLN (down by 6%), an EBITDA figure of 31.2m PLN (down by 6%) and an operating profit of 15.1m PLN (down by 18%). The company has announced the action it is taking to restore the desired rate of growth in its results.

Warsaw, 13 November 2014 Following a first half of 2014 which did not meet the expectations of the Management Board, in the third quarter the results unfortunately dropped off further. With sales down by 7% year-on-year (excluding OST 112), the profit on sales was down by 10% and EBITDA by 16%, giving a 40% fall in the operating profit (partly as a result of a noticeably higher level of depreciation, which is a consequence of the ongoing investment process).

The most important reason for the deterioration in the companys results was the very significant fall in revenue from transmission services since the start of the year, and in particular a decrease in non-subscription revenue from the sale of new transmission connections (2.3m PLN in the first three quarters of 2014, against 6.6m PLN in the same period of 2013). Also unsatisfactory, in the light of the potential offered by the nature of the market and ATMs competitive position, was the rate of growth in sales of data center services.

A good result the best for many quarters was nonetheless returned by ATM S.A.s affiliated company Linx Telecommunications B.V. (in which ATM holds approximately 21% of the shares). Its share of that companys profit in the last quarter amounted to around 1.5m PLN (making 1.6m PLN cumulatively since the start of the year), which partly offset the negative impact of the aforementioned falls in operating results seen on the bottom lines of ATMs income statement.

A positive feature was the continued high rate of growth in the number of customers in the third quarter their number increased to more than 1750 (a rise of approximately 20% year-on-year).

Data center services

In the most important category of services data center services which generate the greatest part of ATMs income, revenue recorded in the third quarter of 2014 was approximately 16.1m PLN (the cumulative figure since the start of the year being more than 46.8m PLN, which is about 80% of the revenue recorded for the whole of 2013). The year-on-year growth rate was thus approximately 6.5% for the third quarter and 9.5% for the total for the first three quarters. This rate of growth in revenue from data center services appears not entirely satisfactory, and did not compensate for the decrease in income from transmission services. The main factors behind the lower than expected growth in sales were:

  • the loss of one of the largest colocation customers at the start of 2014 (due to a merger) and the reduction, continuing over a number of quarters, in the scale of service provided to two significant customers in the Internet sector (reduced scale of customers business);
  • the insufficient and lower than expected number of new large customers with requirements for dedicated server rooms.

Along with the data on results for data center services in the third quarter, mention should be made of the rise by almost 30% year-on-year in the number of customers, the traditionally high percentage (98%) of total revenue coming from subscriptions, and the constantly growing significance of this category of services within ATMs business as a whole: in the period under analysis they accounted for around 54% of the Companys revenue and 70% of its profit on sales (excluding OST 112).

Data transmission

The main reason for the fall in revenue from transmission services compared with the previous year is the absence of significant revenue from the sale of new connections (of a non-cyclic nature) in the third quarter of this year.

Moreover, in the area of transmission services, it has unfortunately still not been possible to reverse the downward trend in subscription revenue, which has lasted since the start of 2013. In the third quarter alone this amounted to 8.5m PLN, which represents a year-on-year fall of 9.5% (the cumulative figure for the first three quarters was 26.6m PLN, a year-on-year fall of 8%). The main cause of this negative trend is the continued pressure in the telecommunications market to reduce unit prices, which is becoming increasingly difficult to counterbalance by increased volumes of transmitted data. ATM is making intense efforts to broaden its customer base, including among firms other than operators such as by connecting successive business locations to the ATMAN network (every location represents a potential to win new customers). By the end of the last quarter the number of such locations had increased by more than 25% year-on-year, contributing to a year-on-year rise by around 13% in the number of billed customers.

As a consequence of the circumstances described above, in the period from the start of 2014 the percentage of total data transmission revenue coming from subscriptions was at an above-average level (more than 90%). The contribution of data transmission to ATMs total revenue in the last quarter was 29%, while its contribution to the profit on sales was 20% (figures excluding OST 112).

Internet access

In the Internet access services category, as in the case of data transmission services, the Company continues to face strong market pressure to reduce its unit prices. At the same time, in accordance with the strategy adopted by ATM, the degree of concentration of revenue from that category of services is being systematically reduced (decreased importance of large customers from the telecommunications industry, in favor of smaller customers from other sectors). Consequently, ARPU is consistently decreasing, while the number of customers is increasing at a rapid rate (it rose by 20% year-on-year in the third quarter). As a result of these circumstances, revenue from Internet access in the third quarter amounted to 4.3m PLN (down by 5.5% year-on-year and by 3% since the previous quarter), and almost 100% of that figure came from subscription revenue. In the third quarter revenue from Internet access accounted for 14% of ATMs total revenue and 10% of its profit on sales (figures exclude OST 112).

Remedial action

In the first week of November, the Companys Supervisory Board changed the make-up of ATM S.A. Management Board. The new President is Tadeusz Czichon, who was formerly Vice President. The position of Vice President was filled by Jacek Krupa, previously a head of department in ATMs sales division.

We are the leader in the extremely dynamic and promising data center services market. We have a huge sales potential which is capable of satisfying the rapidly increasing demand. We would like to put that potential to use even more effectively, Tadeusz Czichon said.

In order to restore the desired rate of growth in sales of services, matching the Companys potential as the leader in the colocation market and a leading provider of transmission services in Poland, action has been taken in the following areas among others:

  • to increase the overall effectiveness of sales departments (including by restructuring the sales division, making the motivation program for sales representatives more attractive, and developing analytical tools supporting sales and the evaluation of sales results);
  • to improve the effectiveness of sales to large customers, including financial institutions (including through a press campaign coinciding with the publication of Recommendation D by the Financial Supervisory Commission);
  • to increase customer retention, including through more precise monitoring of the level of customer satisfaction, and appropriate anticipatory actions addressed to customers whose subscription contracts will soon be ending;
  • to reorganize and expand the products department, whose responsibilities include price policy (promotional offers, packaging of services) and the design of an optimum service portfolio;
  • to offer new services, including higher-order services (such as the ATMAN Private Cloud service currently being launched), in response to customers increasing needs and the seeking of new market segments;
  • to actively seek possibilities of increasing sales of services outside Poland, including through partner sales channels.

ATM possesses a superb team, skills acquired over many years, and expert knowledge. It has carried out investment projects which give it a practically unlimited sales potential for data center services in the coming years. It holds all the cards that will enable it to dynamically increase its sales both domestically and abroad, Jacek Krupa predicted.

is a Polish public company (WSE: ATM) providing innovative ICT solutions for business since 1991. Under the brands of ATMAN and Thinx Poland the company offers telecommunications services based on its own fiber networks and three data centers in Poland, with 10,600 sq m (ca. 114,100 sq ft) of state-of-the-art colocation space. Key elements of ATMs offer include: colocation and hosting, broadband data transmission and Internet access. In particular, carriers, Internet portals, traditional media and financial institutions may be found among the receivers of ATM services.

The company is the only Polish operator present in four of Europe's largest interconnect nodes: AMS-IX Amsterdam, DE-CIX Frankfurt LINX London and MSK-IX Moscow.
More information at www.atman.pl and www.thinx.pl.

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