Cyfrowy Polsat SA

WSE:CPS

Earnings Call Transcript 2018-Q1

[Operator]

Ladies and gentlemen, welcome to Cyfrowy Polsat First Quarter 2018 Results Conference Call.

I will now hand you over to your host, Mr. Tobias Solorz, CEO of Cyfrowy Polsat. Sir, please go ahead.

[Tobias Solorz, executive]

Good afternoon, and welcome to the Cyfrowy Polsat Group's Q1 2018 Results Conference Call. As usual, let's start with the key events. This quarter was very good for our TV advertising business. We recovered very strong sales of advertising airtime on our TV channels. Also the newly bought music channels are performing very well. And I can confirm that the synergies promised few months ago are realistic.

Currently, we are also involved in our new exciting project related with the Champions League. Few months from now, all Champions League and European League matches will be broadcasted on our new dedicated sports channels. We believe Polsat Sport Premium is in an attractive position for our current and new customers. In our bigger business segment, our customers responded very well to the new and simply offers that we introduced in February. Our contract services are very well, and we're glad to present it to you today. Right now, Maciej will talk about our strong results in the TV broadcasting segment.

[Maciej Stec, executive]

Thank you, Tobias. Once again, we have a very successful quarter behind us. Our Broadcasting and TV Production segment achieved very good viewership results that were fully in line with our strategic assumptions. Our main channel Polsat remained among the leading channels on the market when audience share in the commercial target group 12% to 12%. And combined with our thematic channels, Polsat Group brings almost 24%. And in terms of audience share, we are in line with our long-term strategy. Please note that starting from this quarter, we will be comparing to [ our set ] a larger Discovery Communications group after they acquired [ Krakow ] TVN business.

As I always say, good viewership results are nice to have but the most important issue is how they translate into sales over the advertising [ curve then ]. Last quarter, we saw positive market dynamics, but this quarter was even stronger. Moreover, in December 2017, we bought few additional TV stations that contribute positive into our advertising results. As Tobias mentioned earlier, we are fast on track to achieve the synergies that we have promised at the time. As a result, in Q1, our advertising revenue grew by 15% year-on-year, while at the same time advertising market grew by 9.6%, and we grew faster than the market. The strong opening of the year allows me to confirm our forecast of middle-single-digit growth dynamic of the TV ad market in the full year perspective. We are very glad of our Q1 performance, particularly 25% increase of TV segments EBITDA. And what can I say? These great numbers speak for themselves.

So Tobias, back to you.

[Tobias Solorz, executive]

Thank you very much, Maciej. We're also very happy with operating performance in our bigger business segment. Our business of multiple customers continue to grow. It reached almost 1.6 million in the first quarter, that is 27% of our total base, which means over 70% of the customers are still [ seeing player one ]. That's why we still see a lot of potential for growth in the future. Our smartDOM program, as usual, is very successful with already over 4.7 million services sold into bundles. Thanks to the success of our multiple strategy, we continue to record the lowest churn rate of the market.

As you can see on the Slide 12, our base of contract services also continues to grow, driven by the good performance of our multiple strategy. In February, this year, we decided to refresh our offer and launch new and simple tariffs, which are

[Audio Gap]

very well by our customers. As a result, this quarter saw a strong increase in the number of mobile net additions of over 200,000 year-on-year. Third, of our Pay TV services, we're also very good as the number of provided services reached 5 million. This growth is the result of systematic up-selling of our multiroom and video online products to our DTH customers. Finally, our contact mobile Internet also grew in the first quarter. We recorded almost 50,000 net additions year-on-year. As I have mentioned in the past, we continue to observe the pressure of Roam Like At Home regulation on the level of contract ARPU. Nevertheless, if reported based on new accounting standards, our ARPU was 2% up year-on-year. The steadily growing saturation rate, already 2.4 services per customer, is a proof that we are effectively executing our multiplayer strategy.

Moving on to the Prepaid segment. There has been no significant changes here. Our Prepaid RGU base remains stable at the level of about 2.8 million services and generates a solid ARPU of about PLN 20. Now Kacha will you how our very strong operating results translated into our solid financial performance.

[Katarzyna Ostap-Tomann, executive]

Good afternoon, everyone. Today, I have the pleasure to present you with Q1 2019 (sic) [ 2018 ] results that basically reflect financial wise what Maciej and Tobias have already revealed in the operating results. Please note that as of 2018, we report our financial results according to a new standard, IFRS 15, that is supposed to make financial statements more comparable in the financial statements 2017 data is presented according to the old standard, IAS 18. And so far for your convenience, we have estimated for you how the results would have looked like apples to apples, and we present them both according to IFRS 15 on one slide and according to IAS 18, for transparency, on the next slide.

So passing to the results. In line with IFRS 15, our revenue in Q1 grew by 0.6%, and EBITDA by 2%. If we excluded Roam Like At Home, we influence EBITDA would have increased by 5%. Free cash flow of PLN 1.5 billion should not have been a surprise to you, as I have mentioned, I'm expecting to reach this level in Q1. And the leverage has decreased to 2.87.

And now let's pass to the old standard. You can see on Slide #17. You can see how our results would have looked if they were presented according to the old standard. Passing to the segment results, according to IFRS 15, you can see the reflection of what Maciej and Tobias were saying. The B2C segment is slightly affected by Roam Like At Home regulation. If you look at the EBITDA, you can see that adjusted by Roam Like at Home, [ you would ] have grown by 15 million. TVN broadcasting segment results reflect both acquisition and organic growth of our channels.

If we look on the next slide, you have the presentation according to IAS 18 standard.

And now passing to the cash flow statement. Luckily, cash is cash and escapes all the accounting standard changes. In Q1 2018, we have spent some cash on investment. CapEx is 7.5% to revenue. If you have doubts or questions, our network investments, however, are according to the schedule. Payment of interest of PLN 138 million. Please remember that we start to repay our credit facility only as of 2019. So in cash flow statement of 2018, you will not see the repayment of that. And as I mentioned, last time in Q1, we have repaid the large portion of our revolving facility. You can see here, PLN 550 million.

Free cash flow on the next slide. Result is in line with my expectations mentioned to you last time. As you could have expected, the reversal of short-term liabilities position in Q1. And we have paid the coupon of our bonds.

And in our last, but not least, the group's debt, our net debt is PLN 10.2 million leverage 2.87, decreasing from last quarter. And weighted average interest cost of 3.3%. As you know in March, we have signed an amendment to our financial documentation and have a new debt maturity profile with bullet repayment in 2022.

To summarize, quite a good quarter and absolutely marvelous 10 years of growth. Let's go on like that. Thank you very much. And I pass to Tobias for summary.

[Tobias Solorz, executive]

Thank you, Kacha. To conclude our presentation, I am happy to say that quarter 1 was another successful quarter for Polsat group. Both our business segment performing very well on the operating and financial level. The business was supported by our effective multiple strategy and the synergies generated from the new TV channels. At the moment, we're focused on preparing special attractive offer space on UEFA Champions League content. All football fans will have many reasons to watch Polsat Sport Premium channels in the upcoming season.

And finally, I'm glad to mention that few days ago, Cyfrowy Polsat celebrated its tenth birthday on the Warsaw Stock Exchange. Over this decade, our market cap grew almost 5x, our revenue grew 9x while the EBITDA is 10x bigger than in 2008. I believe it shows a great success of the positive and make me really proud of it.

Thank you very much for your attention. We will not move to the Q&A session. Operator?

[Operator]

[Operator Instructions] We have a question from [ Sarah Suteja ].

[Unknown Analyst]

It's [ Sarah Sutega ] from S-Bank. I have a question related to the acquisition of Netia. Is there any new news regarding this transaction? Where are we at the moment, especially regarding the regulatory approval? The second question is related to the Champions League and Europa League, which you said that this will start in August 2018. And in which platform you will actually provide this? Is this only for your Pay TV channels? Or is this going to also your mobile network? And is it specifically also only for the contract? Or is it also can be enjoyed by the prepaid customers?

[Katarzyna Ostap-Tomann, executive]

It's Kacha for speaking this year for us. As far as the Netia approval -- Netia transaction is concerned, we still are waiting for the approval of the regulatory body. So at the moment, everything is on hold until we receive the consent from the antimonopoly office.

[Unknown Analyst]

Any timing expectation by second quarter still or?

[Katarzyna Ostap-Tomann, executive]

Well, looking at the timings right now, the antimonopoly office shall one way or another respond by mid-June. The 15th of June is the last date, given the Polish law, they should respond provided that in the meantime they don't have any other additional questions. They stopped questioning us in April, so now we quietly waiting and patiently waiting for the office to issue the decision.

[Maciej Stec, executive]

[ Maciej Stec here ]. So concerning the Champions League wise. So we just presented how we will broadcast the Champions League. So we will create like 2 channels, Polsat Sport Premium 1 and Polsat Sport Premium 2 is a 24-hours channel. And this is like for Champions League and the Europa League. And additionally, we will create 4 service VOD channels, just to present all Champions League games live. So probably this is -- I don't know exactly, but probably this is the first time when we can watch every game in live transmission. In terms of distribution, of course, we will create a package for DTH. Of course, this will be presented in our mobile offer also. And of course, OTT, which is very important for us, which is Ipla. All the channel -- 2 channels, Polsat Sport Premium 1 and Polsat Sport Premium 2 will be broadcasted in super HD. So this is like higher-quality for the viewers with no advertising inside. So pure games. So that's how it operates nowadays. And in couple of weeks, we will present the offer to the market.

[Unknown Analyst]

Sounds very good. And you mentioned in the beginning of the conference call that you were expecting advertising revenue to grow by mid-single-digit growth. Did I hear that correctly? If so, then why should we expect a slowdown? You already grow by, in the first quarter, 18%, and we don't even have Champions League and European League yet for the next season?

[Maciej Stec, executive]

Yes -- correctly. So we expect like mid-single-digit increase of advertising and also big market increase. And to be honest, first quarter is not representative. So it's close to 10% increase, but we don't think it's representative for the whole year. As all the time when I talk about TV, I don't like to talk about the quarter, but at least half a year or the full year, because then the data are representative. And in terms of Champions League, Champions League doesn't influence our TV business because it's more -- it's product more created for Pay TV.

[Operator]

[Operator Instructions] We have a question from [ Peter Pilson ].

[Unknown Analyst]

Can you hear me?

[Unknown Executive]

Yes, I can hear you.

[Unknown Analyst]

Maybe you can give an update how to see kind of the market positioning of different players now, who is the most aggressive? And what strategies are being pushed the most actively?

[Maciej Stec, executive]

Okay. Maciej Stec speaking. So I believe that there's like some kind of stabilization on the market. So everyone -- there is no like players, no regulative players on the market with different offerings. So I believe we just get to the point -- got to the point when market is more stabilized. So -- and because everyone is careful probably about the profit and loss statement.

[Unknown Analyst]

Okay. And maybe you can also comment, how do you see the deal between Liberty Global and Vodafone. Although it currently did not affect Poland, but do you see any increased pressure for consolidation also in Poland going forward?

[Tobias Solorz, executive]

To be honest, you wouldn't like to speculate around this subject.

[Operator]

[Operator Instructions] We have no other questions at this moment. Dear speakers, back to you for the conclusion.

[Unknown Executive]

Okay, thank you very much and see you next time in the next quarter. Bye, everybody.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for your participating. You may now disconnect.