UPDATE 2-Cyfrowy mulls dividend return after strong quarter

Wed Nov 14, 2012 8:20am EST

* Q3 net profit 172 mln zlotys, vs 132 mln forecast

* May pay dividend when net debt/EBITDA ratio falls to 2

* Ratio down to 2.18 at end-Q3

* To fare better than Polish TV ad market this year

* Shares up 2.2 percent (Releads on dividend, adds company comment)

By Adrian Krajewski

WARSAW, Nov 14 (Reuters) - Cyfrowy Polsat said it was closer to resuming dividend payments after lower costs and a stronger zloty helped Poland's biggest media group beat quarterly earnings expectations.

Cyfrowy, controlled by Zygmunt Solorz-Zak - one of Poland's richest men, has not paid a dividend since 2010, partly because of debt taken on to buy TV Polsat.

The group took on 350 million euros ($445 million) debt at the time, leaving its vulnerable to zloty/euro fluctuations.

"Cutting our net-debt-to-EBITDA ratio to 2 is a key benchmark, which would allow us to pay dividends," chief executive Dominik Libicki told reporters. "Theoretically, we could pay a dividend from our 2012 profit."

With Cyfrowy paying back 200 million zlotys ($61 million) debt in August, the ratio stood at 2.18 at end-September after third-quarter EBITDA rose 31 percent to 258 million zlotys, compared with a forecast for 222 million.

"We want to reach the level of 2 as soon as possible," chief financial officer Tomasz Szelag said.

Zloty strength helped Cyfrowy cut debt costs and swing to a net profit of 172 million zlotys, above a forecast for 132 million.

Sales rose 4.7 percent to 644.5 million zlotys, compared with a forecast for 640 million, after growth at the pay-TV unit outpaced a drop in advertising revenue at Polsat, which controls 23.1 percent of the local television advertising market.

"We expect the Polish TV advertising market to shrink by 6-7 percent this year, with the fourth-quarter decline at around 8 percent," TV Polsat board member Maciej Stec said.

"On the annual basis, we want to fare better than the market and at least in line with the market in the fourth quarter."

Cyfrowy, with a stable base of almost 3.56 million clients, faces stronger competition at home after broadcaster TVN and French group Vivendi agreed to combine their Polish pay-TV operations as part of a wider partnership.

TVN and Vivendi have struggled in a crowded Polish market to catch up with Cyfrowy, which has more clients than its two smaller rivals combined and controls a third of the local pay-TV market thanks to focusing on customers outside larger cities.

Analysts expected Cyfrowy to be helped by possible synergies after Solorz-Zak completed the buyout of mobile operator Polkomtel last year, and by the group's focus on a fast wireless internet offer.

Cyfrowy shares were up 2.2 percent at 1315 GMT. ($1 = 3.2857 zlotys = 0.7867 euro) (Editing by Dan Lalor and Jeremy Laurence)