Cyfrowy Polsat SA

WSE:CPS

Earnings Call Transcript 2021-Q2

[Operator]

Ladies and gentlemen, welcome to the Second Quarter 2021 Results Call of new Polsat Plus group, as you can see in the brand new branding. [Operator Instructions]

I will now give the floor to the CEO of the Cyfrowy Polsat, Mr. Miroslaw Blaszczyk. Please go ahead, sir.

[Miroslaw Blaszczyk, executive]

Good afternoon, ladies and gentlemen, and warm welcome to the results call of Polsat Plus Group for the second quarter of 2021. To begin with, I will tell you about the most important events that happened in the second quarter of this year and I will invite Maciej to talk about our key projects. Then as always, Staszek will discuss the performance of the media segment, while Maciej tell you about the operating results of our B2C and B2B business segment. After that, Kacha will present our financial results. I will conclude our presentation with a short summary and then we will move on to the Q&A session.

The key events of the second quarter. In July, we have successfully finalized the deal with Cellnex Telecom regarding the sale of our Infrastruktura unit. I'm convinced that this multibillion deal will continue to be a very beneficial business-wise in the future. As promised before, we are dynamically building the best 5G network in Poland. Today, already more than 15 million inhabitants of Poland are in the coverage of the best 5G network from Plus. We have also finalized the acquisition of the remaining stake in Netia in order to continue building our co-branded offer in line with our business strategy. As you already know, we have also decided to share profits with our shareholders and pay a record high dividend of PLN 767 million, PLN 1.2 per share. And finally, a project that is a source of pride and satisfaction for us. We have introduced a new strategy concerning the portfolio of brands from Polsat Plus Group. Maciej, could you please tell us about the details of this project?

[Maciej Stec, executive]

Of course, Mirek. Good afternoon, everyone. Like Mirek said, this project is a milestone in our 30-year history, and we are very excited as we begin this unique and challenging rebranding project. The world is changing, and we are changing with it. The needs of our customers are evolving, and we believe that this strategic project is going to help us meet those needs. We want to harmonize all the brands of new Polsat Plus Group in order to simplify communication with our customers and to enhance the clarity of our services. We have decided to single out 2 key brands, Plus representing connectivity and Polsat representing content. The Plus brand stands for connectivity. And within this brand, the most important strategy today is the development of 5G as we want to provide better and better services to our customers. Under the Plus logo, we are going to offer postpaid and prepaid mobile services, voice services, 5G Internet and fixed-line broadband. The Polsat brand combines content production and distribution. We have chosen to stick with this brand because our viewers and customers know it and liked it and value it very highly.

There are 2 main changes here that I wanted to tell you about. I think the biggest change and perhaps surprise is replacing the Cyfrowy Polsat brand with Polsat Box. We have used the Cyfrowy Polsat brand for over 20 years. It was introduced at a time of analogue television when digital broadcasting was a brand new technology. Today, we want Polsat Box to be a magic box that is technology agnostic and which gives every customer easy access to every technology, be it satellite, IPTV or OTT available via set-top box, online service and application on a wide variety of devices wherever you are and whatever time you want.

Polsat Box just gives you freedom to access the world of attractive content. In this period, we have decided to harmonize the IPLA to Cyfrowy Polsat Go brand with the larger Polsat brand and join them under 1 name, Polsat Box Go. This is going to be an online service and a new application providing reach and diversified content on demand and over 100 TV channels available in a paid model, so now ads. We decided to clearly separate our pay and free-of-charge service. So we have also created a website, a new application Polsat Go, which is already available in Aster and Google Play. This is a free application, which means that it will be fully financed from advertising revenue.

Within our TV production business, we already have almost 40 TV channels that we produce ourselves and a large part of which already have new logotypes and graphics. As you can see on this slide, the logos fit perfectly with the new visual concept. They are all similar and easy to identify as brands from Polsat Plus Group, yet they all have unique features. We communicate all these changes with the marketing claim based on the slogan, uniquely personnel. This means that our customers are free to choose whatever they want, they can fully and completely personalize our products to fulfill their needs and taste. So to summarize, the core idea of the new branding strategy is content plus connectivity, Polsat and Plus. Following the harmonization of Polsat Group brands, that's the Cyfrowy Polsat brand will be replaced by Polsat Box and 2 new websites and applications Polsat Box Go and Polsat Go will be introduced. In the long run, we expect the harmonization of brands to generate synergies between the brands and consequently reduce communication costs.

Okay. Let's go to Slide #7. With this slide, we wanted to show you what the rebranding looks like in practice. Major marketing and other campaigns have already been launched. We have published flyers, branded our marketing materials, prepared special gadgets, all in order to familiarize our customers with the new group brands. As you can see, the green represents connectivity that is the Plus brand; while the yellow stands for content, the Polsat brand. We have also applied flexible forms or schemes as we call them that can be easily wrapped around any flat or dimensional shape. I believe it looks very fresh and modern.

And again, every marketing element clearly fits to the new Polsat Plus Group branding vision. I really like it, and I'm really excited about that. Here, I would like to show you a short video, our new ad spot presenting our new brand concept, our group manifesto. You may not know the faces that appear in the spot. These are popular Polish celebrities. Those of you who have visited us in person may recognize our capital city Warsaw in the background. And I'm sure all of you will recognize the music. Enjoy.

[Presentation]

[Miroslaw Blaszczyk, executive]

Thank you very much, Maciej. Let me just say that I have been working for this group for over 25 years. And I think that this moment is one of the most exciting in the entire history of the group. I am very proud of the direction that Polsat Plus Group is heading and it is a privilege to be actively involved in this transformation. And congratulations to all our employees who worked on this concept over the last 2 years. Well done. And now back to more day-to-day matters.

Let us tell you about the operating results in quarter 2, 2021. Staszek, please go ahead and present the results of the Media segment.

[Stanislaw Janowski, executive]

Thank you very much, Mirek. Hello, and welcome, everyone. First, let me just say that I'm very happy to be entering the autumn not only with new scheduling with new content, but also with new branding of the whole group and our TV channels. And this is a great and exciting thing. Let's take a look at how our Media segment performed in the second quarter of 2021. It has been a year since we bought Interia.pl, and I'm very happy with the changes that have been implemented, resulting in a super performance of our online business. As you can see on this slide, we are one of the leading Internet publishers in Poland, thanks to this acquisition. We are rapidly catching up with #1 and 2 players on the market with over 20 million of users per month and over 2 billion paid views. It's also my pleasure to report that we have delivered all synergies, what have announced during the acquisition of Interia.pl last year. We are enjoying synergies in terms of content monetization via online channels, and we are selling advertising space on Interia's areas web pages very efficiently through our media house Polsat Media Biuro

Reklamy. As the outcome, we have been systematically growing EBITDA result of Interia.pl according to our initial assumptions.

Let's now look at our TV business. Polsat Plus Group was yet again among audience leaders in the commercial group despite the temporary impact of EURO 2020 football championships held by public television in Poland. In June, the Polish national football team was still in the championships, though unfortunately didn't make it past the group stage. As you can see on the slide, this has marginal impact on our results. In Q2 2021, our main channel Polsat had an 8.9% audience share, while our portfolio of thematic channels gained 15.5% of the audience. As a result, Polsat Plus Group recorded an audience share of 24.4%, 1.4 percentage points up year-on-year. Analyzing the advertising market in Q2 '21, you can clearly see that both the broad market and TV Polsat Group have experienced a strong rebound in terms of advertising revenue. As I am sure you remember, the first COVID-19 lockdown was introduced in Poland in spring 2020 and resulted in a 35% breakdown of the TV advertising market. So this quarter, we are looking at a relatively low reference point. Our revenues from advertising and sponsorship increased to PLN 330 million and return to the level recorded in 2019.

As you can see, the growth dynamics is very strong, over 55%. I have to say that this is an extremely satisfying result given that we outperformed the broader market by 6.5 percentage points. In effect, our share in the TV advertising pie increased to 28.6% in the second quarter of 2021. Let's now look at the same performance metrics of the Media segment from our wider perspective of 6 months. As you can see in the long run, our viewership figures invariably remained within our strategic target corridor of 23% to 25%. In the first 6 months of this year, TV Polsat group gained an audience share of 24.2%. This result was driven by the excellent viewership figures of our main channel, which was a market leader with an audience share of 9.1% and our automatic channels portfolio with a 15.1% audience in the commercial group. How did our performance in terms of viewership translate into advertising revenue? Obviously, the rebound in the advertising market is also visible in the 6-month figures.

As a result, we grew our advertising revenue by 26.6% to over PLN 600 million. And once again, strongly beat the broad market, which grew by 21.3% in the first half of 2021. Consequently, we increased our share in the TV advertising and sponsorship market to 29%. Even though in this quarter, we are benchmarking against a low base, in my opinion, our Media segment has performed very well. Our advertising figures exceeded the market trend both in the second quarter and in the 6 months of 2021. We are doing very well in our online segment. Interia.pl is developing and gaining momentum. I'm very happy with the results of this quarter, and I hope to do as well in the second half of the year. That's all from my side for today. Thank you for your attention. Maciej, over to you for B2C and B2B Services segment.

[Maciej Stec, executive]

Thank you, Staszek. And congrats to you and your team on the impressive results in the Media segment and all the work you guys did in terms of rebranding the several dozen of TV channels and launching the Polsat Go application. And now let's see how we did in our B2C and B2B segment. I'm very happy to say that Q2 was yet another very good quarter for our group. We continue to consequently execute our business strategy centered around our multi-play offer. Over the past year, we have gained 67,000 new multi-play customers. As a result, in Q2, we already had 2.1 million customers who are subscribed to our bundled services. This means that almost 40% of our customer base is saturated with multi-play products. Naturally, these customers tend to use more and more services.

Let us now look at one of my favorite metrics, churn. In Q2 '21, the level of churn invariably remained at a very low level of only 7% per annum. I believe this is not only a reflection of the successful implementation of our multi-play strategy, but more importantly, of our customer satisfaction translated into high loyalty. Next to growing our multi-play customer base. We are also successful at increasing the number of services that these customers use. As you can see on this chart, in Q2 '21, we provided a total of 15.4 million RGUs. This number grew by 447,000 RGUs. That is 3% year-on-year, mainly on the back of higher sales of mobile telephony services supported by demand for m2m services among our B2B customers. I'm going to repeat myself, this is the effect of the successful execution of our multi-play strategy of upselling of services to an individual customer as well as high level of satisfaction and loyalty of our customers.

This strategy has another very important effect. It strongly supports ARPU growth. As you can see on this chart, we have once again posted a very dynamic ARPU increase of 5.7% year-on-year. Every customer from our base generates on average PLN 91.4 every month. That is PLN 5 more than a year ago. I have to say that this is a very impressive result, and I'm very happy with the execution of our strategy and the rate of growth of ARPU, especially since we've been observing this dynamic upward trend for a few quarters already. The momentum is there, and we want to maintain it in the quarters to come.

Finally, we have reached to my last slide on the performance of our prepaid segment. Our prepaid services base remains at a stable level of around 2.6 million services, most of which are telephony services. ARPU in the prepaid segment increased by 2.8% year-on-year to the level of PLN 22. This growth was supported by higher revenues both from content and telecommunication services.

A few words just to summarize. This is a very good quarter in the B2C and B2B services segment. I'm very happy with our operating results, both in the contract and in the prepaid segments. These results are the reflection of the success of our value-oriented strategy. We have 2.1 million multi-play customers who use nearly 15.5 million services, almost 450,000 more than a year ago. Our customers are very loyal and systematically purchase additional services from our portfolio. What makes me especially happy and what is the core of our strategy is the successful build value of our customers. We posted a very high growth of ARPU by PLN 5 to PLN 91.4. So in a word, excellent results. I will now hand you over to Kacha, who will present to you how our excellent operational results translate to our financials. Thank You. Kacha, the floor is yours.

[Katarzyna Ostap-Tomann, executive]

Thank you, Maciej. Our operating results in the Media segment and B2C and B2B segment are indeed excellent, and I would like to congratulate the whole Polsat Plus Group team on this performance, well done. As you will see on the following slide, excellent operating results translated once again into very strong financials in Q2 2021. As you can see, all our key financial metrics grew at dazzling rates. Revenue increased by 10% to almost PLN 3.2 billion and adjusted EBITDA grew by 14% to well over PLN 1.1 billion. Of course, these results are benchmarked against a relatively low base as Q2 last year was impacted by the first COVID-19 lockdown, especially the Media segment. Moreover, please recall that in Q2 2020, we made significant donations for combating the effects of the pandemic in Poland. Our LTM free cash flow increased to PLN 1.37 billion at a rate of 7.6% in the first half of 2021. We also systematically reduced our leverage to 2.77x in Q2 2021 despite substantial cash outflows on our acquisition project and dividend payout.

If we move to the next slide and analyze the drivers behind the solid growth of revenue and EBITDA, you will find that both our business segments contributed strongly. In the B2C and B2B segment, the main growth drivers were primarily strong RPO growth, which Maciej about, as well as our activities on the photovoltaic market, which is gaining momentum. This segment contributed PLN 142 million to revenue and PLN 72 million to EBITDA. As for the Media segment, it strongly benefited from the dynamic rebound on the advertising market that Staszek told you about earlier and the consolidation of Interia.pl results contributing PLN 158 million to revenue and PLN 67 million to EBITDA. We continue to generate a strong stream of positive free cash flow, PLN 282 million in Q2 2021. This quarter, free cash flow generation was again supported by solid growth of EBITDA as well as dividends received from Asseco. Thanks to our high free cash flows, we were able to continue our strategic project of fast 5G network rollout, which, by the way, already reaches almost 40% of Poles. Here, I would like to flag that this is the last quarter of consolidation of Polkomtel Infrastruktura.

Starting from the next quarter, we will transform into CapEx-light business model, which means expenditures of 5G will not be visible in CapEx anymore. However, please remember, OpEx will go up. In Q2 2021, we also settled some late income tax for the previous year and decided to increase equipment inventory for our customers. Let's take a quick look at our cash position. As you can see, the amount of cash at the end of the period is a little lower as a result of our acquisition project and the payout of the dividend in Q1. Let me remind you that we have acquired 10% stake in eobuwie.pl, a very successful e-commerce platform and continued the acquisition of Netia shares in Q2.

Let me also say that the lower amount of cash that you see on the slide is only temporary because as you are aware, we have finalized the sale of our infrastructure unit to Cellnex, as a result, we have received a payment of about PLN 7.1 billion at the beginning of July. So going forward, you should expect to see a very strong cash position on our balance sheet. Let me also turn your attention to CapEx. You can see on this slide that our CapEx to revenue ratio went up to 11%, which mainly reflects our investments in the 5G network. In the future, you should expect to see lower CapEx of about 7% per annum. As I have signaled on the previous slide, starting from Q3 this year, we are becoming a CapEx-light company.

My last slide concerns with that of Polsat Plus Group. The structure of our indebtedness remains unchanged. 82% of our debt are bank loans and 18% are bonds. The entire debt is denominated in Polish zlotys. As I have already mentioned, we have reduced net leverage to 2.77x despite quite high cash outflows. Let me also turn your attention to the average weighted cost of debt, which amounts to 1.6% at the moment. This is the result of the margin with construction of our SFA, which links credit margins to leverage.

As I have mentioned during our last meeting, we have resumed capital repayments of our debt PLN 200 million per quarter, as you can see on the chart in the bottom right-hand corner. That's all for me. Let me just say that these are exceptionally strong results, the best I have reported for this group, and it is always a pleasure to share such good news with you. Mirek, back to you for the summary of the presentation. Thank you.

[Miroslaw Blaszczyk, executive]

Thank you, Kacha. Thank you, Staszek and Maciej. It is indeed a pleasure to present such excellent operating and financial results, and I would like to congratulate all 3 of you on this exceptional quarter. Naturally, the success belongs also to all our employees. Let me quickly sum up this presentation. I am extremely happy with excellent results of the strategy focused on improving loyalty and building customer value. We already have 2.1 million multi-play customers. We have sold 447,000 new services. We have recorded ARPU growth by PLN 5 to the level of PLN 91.4. And finally, our churn remains invariably at a low level of 7%. These operating results translate into very strong financial results. We have posted dynamic growth rates of revenues, up by 10% and EBITDA up by 14%. This allow us to carry out all the investments in projects that we have planned. And at the same time, prepared to pay a record-breaking dividend in the amount of PLN 767 million. One of our biggest successes which makes me very proud is the development of our 5G network.

Today, coverage of 5G network from Plus already extends to over 15 million Poles, and we will continue the rollout. I'm very happy to say that the finalization of the unique and innovative transaction with Cellnex Telecom enables to build the 5G network in Poland even faster and more cost efficiently. And finally, we are implementing our new brand strategy. We are harmonizing our brands, which will facilitate communication with our customers and enable us to achieve synergies between our brands. We focus on our 2 key brands, Plus representing connectivity and Polsat representing content.

Ladies and gentlemen, this brings us to the end of our presentation today. Thank you for your attention.

[Operator]

[Operator Instructions]

We've got first question coming from Nora Nagy from Erste Bank. Nora has got 2 questions to us. The first question concerns our view how the decrease in equipment sales year-on-year? What are the results from? Is it due to the high base of the previous year? Or is it rather a lower commercial activity on the market in our shops?

[Maciej Stec, executive]

Hello. Maciej, here. So just to answer the question. So we still observe lower traffic. So in fact, so we didn't return just to pre-COVID traffic in our shops. So that's more or less the explanation for this equipment sales. Thank you.

[Operator]

The second question concerns our expectation concerning the second half of the year. Nora would like to know whether we keep our full year 2021 EBITDA growth expectation, excluding NetCo transaction, a single-digit rate after a strong first half of the year. So Nora would like to know whether we can maintain this expectation for the -- for the quarters to come.

[Katarzyna Ostap-Tomann, executive]

Yes, indeed, I do keep the growth expectation for EBITDA at single-digit growth till the end of the year.

[Operator]

Thank you very much. We do not see any questions anymore. I can see Rohit Modi from Citibank asking the question.

[Rohit Modi, analyst]

Just 2 questions from my side. One, in terms of general market environment, given recent M&A transaction and followed by aggressive broadband pricing from one of your peers, what do you think in terms of current market environment? What do we expect for next year? Do you think it's going to be getting more aggressive in terms of particularly on the convergence side. Secondly, on your investment strategy. I know you already mentioned that you won't be -- there won't be a big dividend, you can't expect big dividends from the proceeds from Cellnex. If you can give more color in terms of the investment areas, particularly investment areas where it will be keen to invest maybe broadband, ICT or e-commerce, that would be great.

[Katarzyna Ostap-Tomann, executive]

Hello, First of all, maybe I will answer you about the proceeds from the Cellnex transactions. As you will know, on the beginning of July, we received over PLN 7 billion from these transactions, and we do not anticipate any increase dividend that would have appear as a result of this transaction. That's the first thing. The second thing is we rather expected these transactions to happen more in -- beginning on the fourth quarter. So it happened now, and we would like to ask you to give us a few more months to come up with the plan of how we're going to proceed with the future of our group that includes the PLN 7 billion in proceeds. And now I pass the floor to Maciej on the question on the convergence market.

[Maciej Stec, executive]

Hello, once again. So to be honest, we focus on our strategy. We executed consequently our multi-play strategy, as you can observe, during the last couple of years. So quarter-by-quarter, we try to build the value of the customers. And you can see in today's presentation that we've built ARPU year by year, we've increased ARPU by 5.7%, PLN 5 to PLN 91.4. So we really believe that the customers are satisfied from our offers. So that's what we can observe quarter-by-quarter that we have still very low level of churn, 7% only, whatever happened on the market. So we really believe that satisfaction of our customers and loyalty is key for us. So that's how we built our strategy. And now the project of rebranding should help us also. So we really focus on our strategy of selling multi-play offers.

[Operator]

Thank you very much. I do not see any other questions on the chart at the moment. [Operator Instructions] If not, I will give -- I thank you for the meeting, and I will give the floor to the President, Mr. Blaszczyk.

[Miroslaw Blaszczyk, executive]

Hello, again. Thank you for your participation in today's presentation of Polsat Group's financial results. We meet at the next performance presentation of our group in November this year, and I wish you all the best. Thank you very much, and goodbye.

[Maciej Stec, executive]

Thank you very much.

[Katarzyna Ostap-Tomann, executive]

Thank you.

[Stanislaw Janowski, executive]

Thank you.