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Ladies and gentlemen, welcome to Cyfrowy Polsat Third Quarter 2018 Results Conference Call.
I will now hand you over to your host, Mr. Tobias Solorz, CEO of Cyfrowy Polsat. Sir, the floor is yours.
Good afternoon, and welcome to Cyfrowy Polsat Group Q3 Results Call. As usually, I will start with the key events. It was a relatively calm quarter, with Polsat Group focused on implementing its strategy and working on the product initiative before. At the outcome, we can present today good operation results, with us returning to a strong growth, and churn declining to a record low level.
I am also proud to highlight that Polsat Group of companies provide already over 14 million contracted services. This is an important milestone and a motivator for our future development. As usually, good operational result translate into a very strong financial. Additionally, in the section relating to our operational results, you would also see how full quarter consolidation of Netia and Eleven Sports Network was reflected to our revenues.
And finally, in our good result selling our Polsat Sport Premium offer focused around top-quality football. I'm happy to mention that the positive result is a very successful one, boosting our content rating revenues, which Maciej will refer to.
So Maciej, the floor is yours.
Thank you, Tobias. Indeed, Polsat Sport Premium is an exciting project, however, let's start with our standard business. The first slide shows you our viewership performance in Q3 2018. 25.1% audience share is a very strong result, especially given the quarter was still affected by the Russian Football World Cup. In Poland, this event was broadcasted on the open channels of the public broadcaster, TVP, and naturally attracted both viewers as well as advertisers.
In case of viewership, our strong performance in August and September has compensated for a more challenging July. As a result, our quarterly viewership went up by 1.3 percentage point, which we find again as a very strong result in this particular quarter.
If we turn the page to TV advertising slide, it needs to be underlined the Polish TV advertising and sponsoring market enjoyed the third consecutive quarter of a very healthy growth. 6% up is a good result, and the local TV broadcaster take advantage of this positive market momentum.
As mentioned earlier, the sizable part of this growth was naturally allocated to the public channels broadcasting football World Cup event. Nevertheless, TV Polsat also successfully grew its TV advertising and sponsorship revenue by over 4%, which I find as a sound achievement in this particular situation. As a result, our market share reached 27.6%.
But as I keep underlining, the performance of a TV broadcasting business needs to be monitored in a longer-term perspective in order to get rid of the short-term events. Therefore, let's turn the page.
On the Slide #10, you will see our 9-month viewership is very resilient to short-term challenges. 11.5% of viewership proves that TV Polsat channel continues to be among the most popular TV station in Poland, while our growing number of thematic channels allows us to reach the combined viewership of 24.4% level. It's just in line with our long-term strategy, which targets at 23% to 25% corridor.
And just to conclude, let's have a look at the financial aspect of our TV advertising and sponsoring business. On a very solid market, Polsat Group grew its 9-month revenue by 7.6% year-on-year, a very strong result supported by our investment in the new thematic channels and the fast generated synergies. As a result, our ad market share amounted to 27%, which clearly supports the financial performance of the entire group.
However, ad revenues are only a part of TV business. And in this quarter, I need to provide you with an additional commentary. If you remember on our last call in August, I informed you that TV Polsat started monetizing a new mid-term project related to UEFA Champions League. In August, we have launched 2 new Polsat Sport Premium channels fully dedicated to top-quality football. In order to prepare ourselves to this special project, we have invested in a state-of-the-art 700-square-meter TV studio with a huge LED wall and augmented reality features. It looks really impressive and allows our sports team to provide our viewers with a truly unique experience.
All in all, after acquiring the Polish branch of Eleven Sports Networks and launching Polsat Sport Premium project, the portfolio of our sport channels grew significantly, and I believe, we can claim Polsat is by far the biggest provider of interactive sports content in Poland at the moment. Sports is naturally a very desired content amongst Polish TV viewers. Therefore, the new channels produced by Polsat are positioned as premium ones and should contribute positively to our retail revenue in the future. Moreover, they prove to be very attractive also for other local Pay TV providers who decided to buy this product from us on a wholesale basis. The outcome can be seen on the next chart.
As you can see, a consolidation of Eleven Sports Network combined with sharing of Polsat Sports Premium channels with other providers and a healthy development of the TV ad market, resulted in a dynamic growth of our TV broadcasting segment in this quarter. 23% up is definitively a very strong result and shows that the content business of the Cyfrowy Polsat Group is a truly unique asset.
The other side of the story is the fact that sports content is a relatively expensive one as well, which has been naturally reflected in our operating costs. Nevertheless, at the end of the day, the growing EBITDA result proves our decision to grow stronger into sports was well thought out. Moreover, the execution of this plan was also very fast and effective.
So just to conclude my short presentation, another very strong quarter in TV Polsat with our viewership exceeding 25% threshold and continued dynamic growth of TV advertising revenues. On top of that, we have initiated new prospective project, boosting our top line growth. And as usually, a strict control of the cost allowed us to build our EBITDA result despite recognizing much higher content costs relating to our newly launched sports channels. I can sum up Q3 2018 was a very successful quarter for TV Polsat channel.
Thank you for your time. And let me return the presentation to Tobias, who has also a lot of good news for you relating to the second, still bigger, part of our business.
Thank you, Maciej, and congratulations on the excellent performance of the TV broadcasting business. Good job. However, I can say that the operating performance of our biggest business segment was also excellent in this quarter. Our base of multiplay goes up smoothly with 20% year-on-year growth rate as a result in September as many as 30% of our customers benefited from our multiplay programs. These customers used our 5 million services jointly.
Why it is important? Because our internal data shows the churn ratio among our multiplay customers is basically lower than the one amongst new players. And the evidence can be seen on the data chart. In quarter 3 2018, our blended churn declined below 8% per annum, definitely the lowest ratio reported by Cyfrowy Polsat ever, and I believe, one of the lowest ratio to date. It is a really strength of our business model. If the churn is low, the total number of services gets a strong support towards further growth, and that is what you will see in the next slide.
14 million services provided makes our team really satisfied. Over the recent 12 months, our RGU base went up by well over 500,000. We did perform very well in voice segment recently, which is a combination of our successful strategy, simple and attractive tariffs and a very low churn. Moreover, our B2B segment is also successful in upselling our customers additional services.
And the Pay TV services also enjoyed a good momentum, with the number of services provided over 5 million. This growth is a result of continued upselling of our multi-room and video online products to our DTH and mobile customers.
Finally, our contract mobile Internet, with 1.8 million RGUs provided. Even so this segment seems to be more and more saturated, we were successful in growing also in this quarter.
If you switch to ARPU slide, I'm happy to report to you a strong improvement in our ARPU dynamics. As a result, this reporting phase and currently well its accounting standards, our ARPU went up by over 4% year-on-year. This is naturally an effect of executing our multiplay strategy. As you can see, our customer used an average 2.46 services each and the saturation continues growing smoothly.
However, our ARPU is also supported by Polsat Sport Premium project that was commented by Maciej before. The demand of these premium packages amongst our retail customers is currently very strong, which should lead to positive for ARPU in the future.
Moving on to the prepaid segment. Q3 is a summer holiday period, which is usually supported for prepaid services. Hence, you can see both the subscribers and the ARPU growing slightly quarter-to-quarter. However, I would rather suggest it is a seasonal effect. Anyway, I believe we can claim that the performance of our prepaid segment was also strong in this quarter anyway.
And last but not least, a short comment relating to Netia. The results of Netia were published a few days ago, so you probably know everything you need about it. I won't go deeply into operation details today. Anyway, I'm happy to conclude the strategic initiatives that we have commented in August focused around products, content and communication of Netia gives first results. Improvement is seen in the services provided through the Netia's own network, and we are happy to serve Netia in our operational turnaround going forward. We also do support the ongoing efforts of Netia team to modernize their fixed network as fast as possible.
That's my presentation. A very good operation performance in each part of our business. I think I'm really not surprised that it will translate into very solid financial results. Kacha will tell you more about that.
Good afternoon, everyone. Today, I have the pleasure of presenting you with a very good Q3 2019 (sic) [ 2018 ] results. These quarter results are mainly the outcome of the consequent execution of multiplay strategy and the monetization of Champions League.
Passing to the slides on the results. According to IFRS 15 and including full Q3 Netia results, our revenues increased by 16.3% and EBITDA by 13.4%. The effect of Netia consolidation of EBITDA is PLN 94 million. Free cash flow has dropped to PLN 1.5 billion annually, which corresponds to my guidance from the last quarter result. Net debt to EBITDA has decreased to 2.83x from previous quarter when it was 2.91x.
On the next slide, you can see how the segments have contributed to revenues and EBITDA. If we exclude the consolidation of Netia, we would also see the increases in this slide in both segments, and both on revenues and EBITDA.
Now let's pass to the cash flow. I would like to stress 3 points here. First, CapEx to revenue ratio increased from 7.1% last quarter to 8.2% this quarter. By the end of the year, we'll probably not reach 10%, but shall be at least close to 9%. We have further outflow of cash for Netia acquisition in Q3. We bought part of the shares from Karswell, and the remaining shares from Karswell were acquired on the beginning of October, so in Q4. And now we possess 66% stake in Netia as Cyfrowy Polsat. Additionally, as you can see, we refinanced Netia debt of approximately PLN 300 million by our own RCF.
And now passing to free cash flow, it has reached the level of PLN 1.5 billion annually. Please note that by the end of the year, you can expect a slight decrease in free cash flow to the level of PLN 1.3 billion, PLN 1.4 billion.
And now to the group debt. Our debt has dropped in the last quarter to the level of less than PLN 10.3 billion. As I mentioned, by Q2 results, we have refinanced Netia's debt fully with our revolving facility, and Netia is now the part of Cyfrowy Polsat financing scheme. Our weighted average cost of financing is stable at the level of 3.3%. 100% of our debt is still in Polish zloty, and our debt maturing profile remains the same.
Concluding, I can only confirm that these good financial results show how our multiplay strategy and monetization of Champions League work.
And now to Tobias for concluding remarks.
Thank you, Kacha. To conclude our presentation, I am happy to say that quarter 3 was a quarter of a very strong operational performance. 14 million of use, high growth of ARPU and a record-low churn ratio. We have a well-diversified business model and a successful strategy that provides a substantial development for our company.
On the financial front, a very satisfactory result of the strong legacy business and a further growth resulting from the recent acquisition. I think it also needs to be underlined that there is still a lot to be done in order to take full advantage of the Netia assets acquired by us this year.
We are also do successfully invest into new projects as described by Maciej. All these premium projects proves there is currently a strong demand for premium content among Polish customers and we are perfectly in time to take advantage of this market opportunity.
And even so, we are in the very beginning of November. Our marketing team are already a few steps ahead, so they are really put into Christmas season. As usually, our seasonal promotions have been prepared in order to prove that Polsat customer always enjoy the most attractive offers.
Thank you very much for your attention. We will now move to the Q&A session. Operator?
[Operator Instructions] Our first question is from Vera Sutedja, Erste Bank.
I have several questions, please. My first question is related to the postpaid Pay TV net adds. I thought that it would be much stronger than the prepaid Pay TV net adds. So is this actually -- I mean, considering you have your premium content, that sports content -- just a second. Is this -- actually, this much higher prepaid Pay TV net adds is only temporary? More a seasonality? Or what is our -- what is your expectation in terms of the Pay TV net adds going forward? That's the first question. The second question was related to Page 13 on your slide. It was mentioned that the EBITDA, the growth is 3%, while the revenue is up by 23%, due to mainly the content cost. May I ask, is this actually just for the current quarters? Or will we expect a much stronger EBITDA growth in the coming quarters? Or this is pretty much an EBITDA neutral for the monetization of the sports content? That is my second question. And the third question is related to Netia. What is your plan related to Netia's free floats? Should we expect that you will buy out minority stake in the near future? How about Netia's fiber to the x rollout because as far as we know that they intend to roll out or to upgrade 100% of their network to fiber by 2020. Is this the same vision as yours? Or you're going to look at it on a case-by-case basis? So that will be the first set of my questions, please. Thank you.
So Vera, just to start with the Pay TV adds here actually. Our post-paid adds here was driven by 2, 3 factors: The stable base of DTH customers, and we can confirm that it got bigger steadily. The growing number of multi, which could affect also in the start of the third quarter. And there is a growing number of OTTs. OTT is understood mostly of the E class subscription up-sold to mobile customers. And referring particularly to this quarter, in this quarter, we -- during the summer period, during the 2-month period, we decided to test our music value-added service, which was temporarily replacing upsell of Ipla, that's why you saw this flattish Pay TV performance. However, it has nothing in common with the said result, it was just a temporary replacement of Ipla into music value-added service. If you're asking us about prepaid, yes, in case of prepaid, indeed, was more volatile. It's mostly related to particular sports events. So while there is public interest in our Pay TV video-on-demand service, then the customers are buying it. Therefore, it may be volatile amongst the quarters.
Okay. Hello, everyone. The second question about TV EBITDA. Yes, this was indeed a strong quarter and we expect the fourth quarter to be strong as well. As far as the Netia case is concerned, in the Netia investment, we're going to cooperate with Netia and spot -- on a spot-by-spot basis and determine which investments shall be done by Netia and that should be -- I mean -- and all these investments should be done with -- for the mutual benefit of 2 companies.
But if you're asking whether we support the modernization of Netia's network, absolutely, yes.
But is this related to the 100% FTTx upgrade? Basically, you're going to look at that on a case-by-case basis, right, as you just mentioned?
We're going to look at that on the case-by-case basis.
Okay. And related to your previous answer, the EBITDA, from the broadcasting and TV production, because the growth is -- the 3% growth and the margin is declining by 4 percentage points, should we expect this is going forward to be applicable? Or is actually just in the quarter and we expect EBITDA growth to accelerate in the coming quarters?
In TV, we do not expect the EBITDA growth to accelerate very quickly because it's also the cost of programming that we're having.
But it's also important that -- for coming quarters, there will be different structure of our income and cost because we just invested in premium Pay TV segment as Eleven Sports Network channels and Polsat Sports Premium. So with Polsat Sports Premium channels, there is like -- there are the cost of Champions League and the Europa League rights? And we have 11 also premium content because there is like Spanish league, Italy league, so Serie A and other sports. So the structure will be different. So EBITDA margin in percentage points can be different. But in terms of volume, we expect a very strong EBITDA for fourth quarter.
Okay. Related to the Netia question, the plan on the free float, please?
As far as the Netia free float is concerned, we did not -- - I mean, we do not have decision about the buyout of the 34% of Netia, but we do not exclude as a possibility. So we haven't made the decision yet.
Is there any timeline by when you would decide?
No.
No. Okay. And in my -- I have further set of questions, please. Is now related more general. Do you mind to update us on the competitive landscape? How do you see the current competition landscape, especially in the fixed-mobile convergence area? I mean, Orange is upgrading the fiber -- to fiber and also actively pushing bundled products. I mean, you have definitely content, which is different compared to Orange, but how do you see the current competition landscape? Is it getting more intensive? Or do you see things differently? And related to this is also the potential consolidation in the market. I saw today's news release that said Multimedia Polska canceled the merger plans. And do you see further consolidation? Will you take part in it? And what's your view on this respect, please?
Okay. So to be honest, as we mentioned, quarter-by-quarter, even if we -- when we acquired Netia, to be honest, we focus on our multiplay strategy. This is the most important part because that's what we believe. We control -- we have control over all key assets just to execute multiplay strategy. So in fact, when we acquired Netia, it was our missing puzzle in fiberoptic Internet arm, and that's what we bought, and that's what -- fulfill our long-term strategy. In fact, we as TV Polsat, we control a variety of contents, which we believe is very important for selling all the services. We have like the DTH operations with Cyfrowy Polsat with 3.5 million customers. We have Ipla operation, which is OTT service, and it's dynamically growing in terms of TV, VOD and live transmission. Then we have high-speed Internet based on Polkomtel frequency, so LTE, which we deliver in -- as a mobile Internet and high-speed home Internet based on radio. And now we execute the strategy -- fulfilling the strategy was that station or with Internet, fiberoptic Netia. So in fact, to be honest, we focus on our multiplay strategy, with our smartDOM offering, so with smart house offering. And as you can observe on our KPIs, which we presented today and Tobias has presented today, they're great KPIs. So we grow in every segment. Our multiplay services grew quarter-to-quarter almost 300,000 customers. So that's what we would like to organically develop for the future. And we believe that we have under one roof, so in Cyfrowy Polsat company, all the key assets just to build effective strategy. So to be honest, competition is for us important, but we focus on ourselves and our strategy just to execute it and communicate with customers because our offer, as a complex offer, we believe is the best one on the market.
Thank you for the explanations. If I have my -- I have further question, please. And this time it's actually related to CapEx and 5G. I mean, of course, in Poland, we still have some years to come because still the 700 MHz is not really free and the harmonization with other neighboring countries are not yet finalized. But if you could have, maybe give a bit of an update what is your expectations regarding the spectrum investment. Are you committed to invest in spectrum? And how about the network deployments? Are your 4G base stations are already 5G upgradeable? And we are basically looking potential cash flow compression because of this 5G transition.
Okay. As far as 5G is concerned, first of all, we do not have one say to our commitment from the regulator. They sent -- they comment differently on that. We know they have problems with clearing this technically with Russia. We know they haven't even started preparing technically for 5G. So once there will be something that is more concrete, then we'll be talking about any plans we could have had.
And is your 4G base station are 5G upgradeable generally? Or...
This is the technical aspect. Depending on which frequency is to be 5G, you need different density of the stations. So we're not talking about -- only about technical equipment being upgradable, we're also talking about the density of the network. So we -- at the moment, we're very far from these technical discussions because we haven't even -- we don't have the legal problems. I mean, we are -- I'm talking the country and the regulator doesn't even have the first legal problem solved out.
And if I may ask regarding Sferia, this 800 MHz. What is the latest status on this one?
At the moment, we're not commenting on Sferia and on the 800 MHz because whatever answer we would have given, it could have been cost [ to gurney], so we don't comment on Sferia and the 800 MHz.
Is there any deadline when do you complete the negotiations? By the end of this year, I assume? Or...
There is not fixed deadline to decide on that.
[Operator Instructions] We have no other question at this moment. Dear speakers, back to you for the conclusion.
Okay. So if there is nobody now in question, so thank you very much and see you next time into new year. Bye-bye.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participating. You may now disconnect.