Cyfrowy Polsat SA

WSE:CPS

Earnings Call Transcript 2021-Q3

[Operator]

Ladies and gentlemen, welcome to the Third Quarter 2021 Results Call of Polsat Plus Group. Our usual speakers, Mr. Mirek Blaszczyk, CEO; Maciej Stec, Vice President, responsible for strategy; Kacha Ostap-Tomann, CFO; and Staszek Janowski, President of TV Polsat, will present the results of Polsat Plus Group, and then we will hold a Q&A session. [Operator Instructions]

Mr. Blaszczyk, the floor is yours.

[Miroslaw Blaszczyk, executive]

Good afternoon, ladies and gentlemen. It is my pleasure to welcome you to the results call of Polsat Plus Group for the third quarter of 2021.

Moving on to the agenda of today's meeting. First of all, I will present the key events of the third quarter, then Staszek Janowski will discuss the operating results of our business segments. After that, as always, Kacha will present our financial results. And finally, I will conclude the presentation with a summary, and we will be ready to take your questions.

Let's take a look at the key events that took place in the third quarter of 2021. We are dynamically developing the only true 5G network in Poland, which offers transmission speed of up to 600 megabits per second and is based on a unique spectrum from the 2.6 gigahertz frequency band dedicated to 5G. Today, already over 17 million of Poland inhabitants are covered by the 5G network from Plus. As you are aware, we have finalized the sale of Polkomtel Infrastruktura to Cellnex Telecom in July this year. We are also in the process of paying out a record-high dividend to our shareholders in the amount of PLN 767 million or PLN 1.2 per share. What is more, we have implemented the new brand strategy concerning the key brands of Polsat Plus Group. You can see our new branding concept on the picture on this slide. And last but not least, together with ZEPAK Group, we launched the biggest solar power plant in Poland that generates 70 megawatts of power. As a result, green energy already flows to our customers.

And now let's move on to the operating results of our group. Staszek, please tell us about the Media segment.

[Stanislaw Janowski, executive]

Thank you, Mirek. Good afternoon, everybody. I will present the results of the Media segment: television and online. Thanks to the acquisition of Interia.pl in 2020, we are now a leading Internet publisher in Poland, alongside Wirtualna Polska and Onet. As you can clearly see on this slide, every month, our online portals are visited by about 20 million users, and we have almost 2 billion page views per month. Like I said last time, we have delivered all the synergies that we announced when acquiring Interia.pl in the areas of content monetization, advertising and editorials. I'm very happy with the outcome of this acquisition. In the next quarters, we will continue to develop this online product, as well as online advertising products.

Turning to our TV business. Let's analyze the viewership for our channels in Q3 2021. As you can see, we maintained our leading position in terms of audience shares in the commercial group. Our flagship channel, Polsat, had 8.7% of audience shares, while our portfolio of thematic channels had 15.6%. As a result, the total viewership of TV Polsat Group channels reached the level of 24.3%, almost the same as a year ago. These results are in line with our long-term strategic goals and coming top range of our target corridor. This is a solid set of results, especially since in July, we were still under some pressure from the Euro 2020 football championships aired by the public television.

Turning to our position on the advertising market in Q3 '21. Once again, the growth dynamics of our revenue from advertising and sponsorship was higher than the market. In the third quarter, the market grew by 3.7%, while our ad revenues increased by over 6% to PLN 267 million. As a result, our share in the TV advertising and sponsorship market increased to almost 29%.

It is important to look at the Media segment over a long time period. In the 9 months of 2021, we continue to record top viewership results in the commercial group. Our main channel had 9% of audience shares, while our portfolio of thematic channels gained 15.3%. The resulting viewership figures for the whole group put us in the strong position with 24.2% of audience shares. Once again, this result is in line with our long-term strategy. It has been solid, strong 9 months as far as viewership figures are concerned.

Of course, good viewership means good advertising revenues. As you can see on the chart on this slide, our advertising and sponsorship revenue grew at a dynamic pace of almost 20% in the 9 months of 2021 to the level of PLN 869 million. Again, we outperformed the broad market, which grew at 15.7%. Please remember that this year, the advertising market in Poland is experiencing a strong rebound after the 2020 breakdown caused by the COVID epidemic. So the high dynamics that you can see here result mainly from the low reference point a year ago. Nevertheless, I'm very happy with our performance on the advertising market in which we had almost 29% market share in 9 months of 2021.

To sum up, this was yet another very good quarter and 9 months of our Media segment. Interia.pl is now fully integrated with Polsat, and all the synergies that we have communicated during the acquisition have been achieved. Our TV channels have recorded very good viewership results which translated into excellent performance on the advertising market.

Let me now give the floor to Maciej, who will present the operating results of the B2C and B2B segments. Thank you for your attention.

[Maciej Stec, executive]

Thank you, Staszek. Well done on the very good results on the Media segment. As always, it will be my pleasure to present to you the results of the B2C and B2B segment. I will start a little differently today. To begin with, I have 2 important things to say. The first is something that I think everybody is waiting for. We are working on updating our strategy, and we would like to present it before the end of this year. So if you have any questions in this respect, I would like to ask you to save them for a later time.

The second thing is presented on this slide. Our group is developing dynamically, so we decided to introduce a new transparent and perhaps, most importantly, adequate set of key performance indicators. I think these new KPIs will offer an even better picture of the results of our strategy.

So why are we changing our KPIs? As you all know, in July 2021, we became the sole owner of Netia and of the MVNO Premium Mobile. At the moment, we are in the process of delisting Netia. And as a result, we will report the financial and operating results of these 2 companies jointly with Polsat Plus Group.

An important factor behind the new approach to our KPIs is that Netia's business relies on a significant degree on the B2B segment. The segment makes up about 50% of Netia's business. Therefore, we have decided to report separately the B2C and the B2B areas. We would like to provide a better and more transparent view of the results of our strategy.

Another factor that impacts the presentation of our results, especially our financial results, is the regulatory midterm plan to reduce MTR and FTR rates, which was initiated in Q3 by the European Union. These new regulations will affect especially our wholesale revenue and its growth dynamics over the next few years. However, they are fully neutral for EBITDA. So in order to make sure that you have a reliable picture of the results of our strategy focused on building the value of our customers, we have decided to exclude interconnect settlements from the calculation of ARPU.

Let me say once again, I think that the new set of KPIs of Polsat Plus Group offers a more transparent and proper view of our results, of our strategy, and they will let you better evaluate how our core business is performing.

So much for disclaimers. Let's now have a look at the KPIs of the B2C and B2B segment in the new formula in the third quarter.

As always, I will start with the results of our multiplay strategy. Like the past several quarters, Q3 was a very good quarter for our group. As you know, the main focus of our business strategy is the multiplay offer. Thanks to the consistent implementation of the strategy, our base of multiple customers has increased by 105,000 over the past year to the level of over 2.4 million. This represents a 4% increase year-on-year. These customers use almost 7.3 million services that we provide to them.

A natural consequence of a well-executed multiplay strategy is customer satisfaction and loyalty. I'm very happy to report that our churn remains on a consistently low level of 6.9% in Q3 despite unfavorable macroeconomic conditions. I think this clearly demonstrates that our strategy is successful.

Moving on to the next slide. Let's take a look at the total number of contract services that our customers use. Please notice that this number is lower than reported before. This is because in the new KPI structure, it includes only services provided to B2C customers. As you can see, our B2C customers use an increasing number of contract services, almost 13.5 million in Q3 '21. That means 410,000 new contract services, 3% more than a year ago. We continue to see a dynamic growth of provided mobile services, resulting from our strategy of cross-selling our products to a single customer and low churn which reflects a high level of satisfaction and loyalty of our customers. Let me point out that these results already include the results of Premium Mobile and MVNO operator focused on providing contract solutions.

Let's now take a look at ARPU evolution. We continue to record growth in ARPU from our B2C customers, thanks to the consistent implementation of our multiplay strategy but also thanks to the increasing popularity of 5G tariffs.

Let me just remind you that the level of ARPU that you can see on this slide excludes interconnect settlements and revenue from B2B customers. So our pure B2C ARPU increased by 5.7% to PLN 68.6 in Q3 '21. It's very impressive for result that makes me very proud. This is another quarter in a row of strong ARPU growth. In my opinion, this shows that we are, in fact, very successful in cross-selling our products. This is also visible in the consistent upward trend of the ratio of RGU saturation per customer. In the third quarter, our B2C customers used an average 2.22 services.

Turning to the prepaid segment. In the third quarter of 2021, we can observe both a growing base and ARPU of our prepaid services. Also, these results are a little different under the new KPIs. So our prepaid RGU base increased to almost 2.8 million services, mostly as a result of good sales of mobile services and was additionally supported by the consolidation of Premium Mobile.

We also recorded very good results of sales of our pay TV services. On September 1, we replaced IPLA with a new service, Polsat Box Go, and we can already see very promising sales results of bundles offered on this new platform. This is very good news, especially since they will strongly contribute to ARPU because they are priced at a premium compared to previously available packages.

ARPU, in the prepaid segment, excluding interconnect settlements, increased by 3.1% year-on-year to the level of PLN 16.4. So in a word, excellent results in the prepaid segment this quarter.

Finally, we have reached our completely new slide, describing our results in the B2B area. We have almost 69,000 B2B customers, and this base is stable over the long term. ARPU from these customers is about PLN 1.4 thousand per month and also remains stable over time as we successfully expand our offer of communication and ICT services dedicated for B2B customers. And that was my last slide.

To sum up, this quarter, we are very pleased with the results we have achieved, almost 2.4 million multiplay customers; over 400,000 new contract services; ARPU from B2C customers up by almost 6%. And these results are crucial for us as our business strategy is centered around building customer value and loyalty. Also, excellent results in the prepaid segment, prepaid RGU base of almost 2.8 million and ARPU growing by over 3% to PLN 16.4. And finally, strong results in the B2B segment. This is a difficult, highly competitive market, and we successfully maintained our customer base of almost 69,000 and high B2B ARPU of 1.4 thousand per month.

And that's all from my part, and now Kacha will tell you how these very good operating results are reflected in the financial results of the third quarter of 2021. Thank you very much. Kacha, the floor is yours.

[Katarzyna Ostap-Tomann, executive]

Thank you, Maciej, and well done to both Staszek and yourself on a great operating results in the Media segment and the B2C and B2B segment. Indeed, the excellent operating results that Staszek and Maciej presented are fully reflected in very good financial results of Polsat Plus Group in the third quarter of 2021.

On the next slide, you see our key financial metrics for the third quarter of 2021. Referring to what Maciej said, at the beginning of this presentation, we decided to show you revenue dynamics, excluding interconnect settlement gap, because of its EBITDA neutral. Revenue adjusted for interconnect settlements delta increased by 2.5% year-on-year to over PLN 3 billion.

On the top right-hand side chart, we present adjusted EBITDA, which excludes the results of Polkomtel Infrastruktura, both in Q3 2020 and Q3 2021 down by about 1%. We chose this presentation in order to be able to compare apples to apples after the sale of our infra unit.

Free cash flow in the last 12 months increased to almost PLN 1.5 billion at a rate of 13.5%. This very strong free cash flow clearly demonstrates our ability to generate recurring cash, also after the disposal of Polkomtel Infrastruktura.

Finally, our net debt-to-EBITDA ratio decreased to 0.65. The main reason behind this sharp drop is the sale of our infrastructure and the cost settlement of this transaction.

Coming to the next slide, let's take a closer look at the key drivers behind the changes in revenue. In terms of revenues, in the B2C and B2B segment, you can clearly see here that Maciej was talking about earlier. Lower interconnect settlements led to a decrease in revenue by PLN 46 million. On the one hand, like I already said, this has a neutral effect on EBITDA. And on the other hand, it almost completely eliminated the increase of revenue of PLN 48 million coming from organic growth of ARPU. In the Media segment, revenue increased by PLN 18 million.

Moving to the right-hand side, the reported EBITDA of almost PLN 4.6 billion was, of course, the result of the onetime gain on the disposal of our infrastructure in the amount of PLN 3.7 billion. If we look at adjusted EBITDA, excluding the effect of NetCo, we generated relatively stable EBITDA of over PLN 900 million year-on-year with EBITDA margin of 30%. The slight pressure on EBITDA that we see in this quarter is related to a large degree to higher marketing expenses connected with the rebranding of our key brands and some additional investments into content, especially sports content, that we made in Q3. Anticipating your questions, I would like to stress that these increased marketing costs are not recurring, and you should not expect them to remain at elevated levels in the following quarters.

Coming to the next slide, we consistently generate a strong stream of positive free cash flow. In the third quarter, we generated PLN 375 million. Let me just say once again, this is a very strong cash flow, and I'm very satisfied with the result. As always, we settled the UMTS fee in September. It was the before last payment for this license. More importantly, starting from this quarter, we operate in a CapEx-light business model, following the disposal of our infrastructure. As discussed before, we expect a disposal of our infrastructure unit to be broadly neutral to our recurring cash generation possibilities going forward.

On the next slide, I would like to turn your attention to several points. First of all, CapEx-to-revenue ratio in 9 months of 2021 amounted to 9.8%. Like I said, this is our first quarter as a CapEx-light company. And in a 12-month period, CapEx-to-revenue ratio will decrease to around 7%, as I have flagged before. This has already been achieved in the third quarter. However, the 9-month ratio is still under the impact of higher CapEx in the first half of the year when 5G rollout was financed by ourselves.

Secondly, you can see the proceeds from the disposal of our infrastructure of over PLN 7 billion.

Thirdly, our acquisition project consumed a little over PLN 1.4 billion. Please remember that this amount includes the acquisition of the remaining stake in Netia, a 10% stake in eobuwie and the acquisition of Premium Mobile.

Moreover, we have paid PLN 675 million dividend. As a reminder, in January 2021, we paid out the second tranche of dividend for 2019. And in October, we paid the first tranche of dividend for 2020. In the fourth quarter, we will settle the second tranche of the dividend for 2020 in the amount of about PLN 500 million.

At the end of the third quarter, we had a very strong cash position of almost PLN 7.5 billion.

As usual, my final slide concerns debt. The main change is, of course, the significant drop in net leverage, down to 0.65. This is historically the lowest level of leverage for our group. As you can see, we reported net debt of PLN 5 billion and LTM EBITDA of almost PLN 8 billion. This is, of course, a temporary situation, as I'm sure you're aware. When we present our updated strategy, we will also share with you our ideas on how to use this cash.

Let me also turn your attention to the average weighted cost of debt which increased recently despite the recent hikes of interest rates in Poland. Our debt still remains relatively cheap, in my opinion. The structure of our debt and its maturing profile remain unchanged. We still have one capital repayment of PLN 200 million to settle in December.

This concludes the financial part of the presentation. I'm very pleased with the results that we have achieved. I'm also very happy that we have introduced a new set of KPIs, and I believe that they will make analyzing our group easier for you in the future.

I will now let Mirek summarize this presentation. Thank you very much.

[Miroslaw Blaszczyk, executive]

Thank you, Kacha, Staszek and Maciej for this presentation and for the excellent operating and financial results of the third quarter. Congratulations.

Let me quickly sum up this presentation. We are dynamically moving forward with the rollout of our 5G network. Today, more than 17 million inhabitants of Poland laid within our 5G network footprint, and we are continuing the rollout. I'm very happy with the very good results of our strategy focused on customers' loyalty and value creation. We already have 2.4 million multiplay customers. We have sold 410,000 new services. ARPU grew by nearly 6% to PLN 68.6, and our churn remains consistently in the low level of 6.9%. We have implemented our new brand strategy in order to harmonize and simplify communication with our customers and to achieve synergies between our brands.

After the disposal of our infrastructure, we have migrated to a CapEx-light model at the same time reduce our net debt to a significant degree. Thanks to this, we can start working on implementing the strategy on future development of Polsat Plus Group that will be presented to you soon.

Finally, we plan to launch a share buyback program, which will constitute another element of fair remuneration for our shareholders, alongside dividend payments.

Ladies and gentlemen, thank you for your attention.

[Operator]

[Operator Instructions]

[Grzegorz Para, executive]

We've got first questions coming from Nora Nagy, Erste Group. Two questions. I will read them and forward them to the Board. The first question is should the buyback program -- should the share buyback program be treated as a part of shareholder remuneration going forward? Other -- any details which you are ready to share in terms of price, amount and timing of such transaction?

[Katarzyna Ostap-Tomann, executive]

Thank you, Grzegorz. First of all, I think this is an international group, and I owe you some kind of explanation of, first of all, why we did the tender offer at all. That's the first thing. It's the specifics of Polish law. Our main shareholder is close to 66%. And in Polish law, if anyone might be going over 66%, it must be the tender offer up to 100% at once. So basically, this is why we did the tender offer on the first place.

Of course, the tender offer is some kind of offer that is strictly limited in time, usually 2 weeks, so we decided to propose, as a Board of this company, some kind of buyback program that will be stretched to 5 years. It will allow the Board to buy back the shares within the 5 years time span with, of course, this up to PLN 35 price, which we go in -- which we're proposing at the moment. So that would be -- I mean, we, as the Board, will be allowed to buy such shares -- buy back them from the investors.

I don't know if this is as far as the details are concerned. This is what you were asking about, Nora. If it's not addressing your question, please kindly post another one when I could -- if you would like me to go into more detail.

[Grzegorz Para, executive]

Okay. In the meantime, I will ask the second question coming from Nora. And the question is, can you disclose the amount of rebranding costs that you booked as one of your marketing expenses in this quarter, please? Shall we expect further rebranding-related expenses going forward? Have you booked the full whole intended amount of rebranding costs in this quarter?

[Katarzyna Ostap-Tomann, executive]

Okay. As far as the rebranding cost is concerned, these were a few thousand million. I mean, not only were, but this, in total, will be few dozen million in the whole year of 2021. This is one-off increased cost because in the following years, we go into be -- to stay within the cost we are normally bearing for the marketing purposes. So whatever we will do for the new brands for -- I mean, for the new logos, for rebranding, whatever, will not be the increased cost in the following years.

[Grzegorz Para, executive]

Thank you very much, Kacha. Nora would like to continue with his first question. Or is it sufficient what has been provided for you?

[Nora Nagy, analyst]

Yes.

[Katarzyna Ostap-Tomann, executive]

Okay. Thank you.

[Grzegorz Para, executive]

Thank you. At the moment, I do not see any other question in the chat section. So if any one of you has any question, I can see somebody raising hands, Mr. Rohit Modi from Citi is raising hand. Hence, Rohit, the floor is yours.

[Rohit Modi, analyst]

Just one question from my side. Given the cost inflation situation right now, how well placed you are for next year? And do you think you need to take any step in terms of pricing or how well placed in terms of your hedging on energy, as well as wages, specifically?

[Maciej Stec, executive]

Maciej Stec, here. So we've just announced the new tariffs like on September. So with the new branding, so this is like higher price but better-quality tariffs, so we are very satisfied from the results. As you can see in our results, our ARPU grew by 5.7% year-to-year. And this is like more important it's PLN 3.7, which is important.

And in terms of cost of energy, so we've -- 2 weeks ago, on Thursday, we've just executed a new project with ZEPAK, so energy company next year. So we'll build a photovoltaic farm, 70 megawatts, which gives us half of energy needed to service our network, which is also good. So there is like half of the cost of energy is hedged, so we will deal with that as usual.

So in terms of inflation, we see it as like couple of months or -- but not long-term vision in terms of inflation. So we believe that this is like for a short while.

[Grzegorz Para, executive]

Thank you very much. At the moment, I do not see any other questions. If there are no more questions, I will give the floor to Mr. Blaszczyk.

[Miroslaw Blaszczyk, executive]

Thank you, Grzegorz. Thank you for participating in today's presentation of the financial and operating results of Polsat Plus Group, and I hope we meet at the next presentation in March next year. Goodbye, and have a nice day. Thank you.

[Grzegorz Para, executive]

Thank you very much.

[Stanislaw Janowski, executive]

Thank you very much.

[Maciej Stec, executive]

Thank you.