Cyfrowy Polsat S.A. Ord

Ladies and gentlemen, welcome to Polsat Q3 2020 results conference call. I will now give the floor to Mr. Miroslav Blastryk, CEO of Polsat. Sir, you may begin.

Good afternoon, everyone, and welcome to Polsat Group's first quarter 2020 result call. The usual agenda of our presentation is well known to you. First, I will point out the most important events of the first quarter. Then, Sasek and Maciek will discuss the operating results of both our business segments. And Kasia will present our financial results. After I shall sum up the presentation, it will be available to answer all your questions. Key events of third quarter 2020. As you may remember from our last presentation, I told you we had many projects ahead of us, and here they are. First of all, we finalized the acquisition of Interior Group in July, and have been consistently integrating it with all subgroup structures, smoothly and successfully. We have also completed a smaller acquisition project. we took control of the two channels that we previously co-owned, Fortis TV and Nova TV. This move gives us greater flexibility in terms of management and facilitates the development of this channel. I'm proud to underline the TV Pulsar family is currently composed of as many as 36 internally produced TV channels. Moving on to a very hot topic, both on the Polish and European market recently, infrastructure sales. As you know, from our former communication, we have initiated the process of review of strategic options regarding the potential sale of our mobile telecommunication infrastructure. Anticipating your questions, I will say that the process is ongoing and it is still too early to say anything more on this subject. I want to assure you we will provide you with additional information on the topic as soon as we have anything to communicate. And the last key event concerns our decision to intensify the pace of rollout of our PLUS 5G network By the way, the only mobile network to offer transmission speeds of as much as 600 megabits per second. A big step forward into the future. Summing up, another dynamic quarter focused on new strategic initiatives. I will now let my team tell you about the details of Polsat Group's operating and financial performance. Staszek, please go ahead.

Thank you, Mirek. First of all, please note the change in the name of the segment. Following the acquisition of Niteria, we decided to rename this segment and clearly include this new and important leg of our business. So, from now on, I will present the results in the media segment, TV and online. So, let's start off with this new online business of ours. On slide number 8, I would like to give you a quick overview of our current positions. Thanks to the acquisition of Interia, we now hold a leading position in the Internet media market. As you can see on the top chart in the joint post that Interia Group jumped into the third place in terms of the average number of real users per month. In Q3, we had 18.5 million real users, almost twice as many as a year ago. We also observed a surge in the average monthly number of page views, which increased tenfold to 1.5 billion per month. Let me underline that we have significantly strengthened our position on the online market. This will of course support us in delivering the synergies that we announced when acquiring Imperia Group earlier this year. Returning to the more traditional part of the business. As soon as it was possible after the lockdown was lifted, we resumed internal production to prepare for the autumn programming schedule. As a result, in Q3, we achieved very satisfactory viewership figures in the top range of our target audience shares. Polsat group channels gained a total of 24.6% of audience shares in the commercial group, where our main channel Polsat came in top with 9.4% of audience shares, and our thematic channels retained very strong position with over 15% audience shares. Our news channels are still doing very well and maintain high viewership results. The third quarter on the advertising market saw positive sentiment and the return of ad budgets, as I guided for a quarter ago. We used this time to bridge the gap that was caused by the breakdown observed on the ad market in Q2, and I think we did it very successfully. Our revenue from advertising and sponsorship grew by almost 1% on a slightly deceiving market. Naturally, as a result, our TV market share increased to 29% in Q3. Given that this year is characterized by dynamic ups and downs, let's look at the nine-month perspective. In three quarters of 2020, we maintained overall viewership figures within our target corridor of 23 to 25%. Our flagship channel, Polsat, captured 9.5% of audience share, while our thematic channel had a little over 14%. This gave Polsat Group a total share of 23.6% in the commercial group of viewers in three quarters of 2020. In the nine-month perspective, we can see that this thin breakdown on ad markets caused by the economic lockdown was largely mitigated. The broad market declined by 15.5%. Our ad revenue dynamic was in line with the market declining by 13% year-on-year. We continue to record a high market share of 28.2%. At this point, I would like to underline that even though the epidemic situation in Poland has been developing dynamically over the last weeks, The second scrolling lockdown will not resemble the one in the context of the ad market. I can say that the beginning of Q4 supports my guidance from August of flat ad revenues in the second half of this year, which means that we are aiming for a 10-12% decrease in the full year. So much for the media segment. Maciek will now present the results of our bigger business segment.

Thanks, Tasek. Great job, both with integrating interior as well as with trading on the ad market. Switching to my part of the presentation, we used the opportunity and were for a simpler, more user-friendly name, I believe, B2C and B2B services segment. New name, but the strategy remains absolutely the same. If you look at slide 14, you will notice that our flagship multi-play program, SmartDOM, continues to grow at a stable pace of 5%. We may need pretty much resistance to the negative effects of the epidemic. Over the past year, we gained 100,000 customers of our multi-play offer, which brings the saturation of our customer base with bandwidth services up to 37%. Overall, our Multiplay customers use a total of 6.3 million RGU. We continue to reduce chain ratio which fell to 6.1% in Q3 from 6.8% a year ago. Yes, another historical record. This is proof that our Multiplay strategy is well designed and successful as it ensures our customer satisfaction and loyalty. Let's now look at the number of contracted services presented on slide 15. Newly contracted RGU grew at a solid pace of 4% year-on-year, adding over 580,000 to our base in Q3. In effect, we closed the third quarter with 15.2 million of provided contract RGU. The key driver behind this growth remains unchanged compared to previous quarters. We continue to record dynamically increasing sales of mobile telephone ERGs, up by 8% year-on-year. And I must underline, once again, that this is the result of our attractive offer that was tailored to the needs of our customers and our multiplayer program. Our pay TV and internet basis remain stable. The next slide shows that we continued to successfully build customer value on the back of our Multiplay strategy. In Q3, RPO per contracted customer grew by 2.5% year-on-year to the level of 86.9%. Two main drivers influence the level of RPO this quarter. One, higher interconnect continues to be a factor to contribute positively here, but like I said a quarter ago, this impact will shrink gradually. And two, our multiplayer strategy clearly targeted at building customer value. And the second factor is definitively the most relevant driver behind the art of dynamics as presented. 2.5% cut year on year. This organic growth is derived, among others, from the consistently growing level of RGO saturation per customer. In Q3, a customer had on average 2.72 RGU, which means that our abstaining strategy is working as expected. To finish off, let's take a look at the prepaid segment. After a temporary decline caused by the lockdown in Q2, our prepaid RGU based stabilized year-on-year, reaching 2.67 million services in Q3. This result was supported on the one hand by solid sales of mobile services after the lockdown was lifted, and on the other, by increasing interest in our online video services provided under IFLA brand. In Q3, PrePert R2 recorded a high growth rate of 3.4% and reached the level of 21.5 blottes per PrePert RGU. Please be aware that this is high dynamic is still under the positive impact from higher interconnect revenues driven by increased voice traffic. And that concludes my part of the presentation. In a nutshell, we did very well in terms of operating results. We delivered stable organic growth on all our business lines. I believe that our resilient business model and the lessons learned since March this year ensure that we are well prepared for any future disturbances that may occur in relation to second wave of the COVID pandemic. Kasia, over to you. At the end of the day, strong cooperation should be reflected in strong financials. The floor is yours.

Thank you and well done to both of you. The very good operating results that Kasia and Matek have just described to you are indeed fully reflected in strong financials in Q3. As you can see on the top of the graph, on slide 19, both top line and bottom line recorded each single digit growth dynamic. Revenue increased by almost 4% to break the level of 3 billion zlotys, whereas EBITDA grew by 6% to almost 1.1 billion zlotys. Here, I would like to remind you that in the previous quarter, we decided to adjust EBDA by costs incurred and donations related to battling the COVID epidemic. In Q3, we incurred minor expenses of about 3 million zlotys that fall into this category. So in Q3, there is basically no impact from one of COVID costs. In the nine months of 2020, this impact was equal to almost 45 million zlotys. As shown on the bottom graph, our healthy entry cash flow remained consistently above the level of 1.3 billion, and our leverage ratio was down to 285, even though the interior acquisition was fully paid in cash. Looking a little deeper into our results, please note that we recorded positive dynamics of top and bottom lines in both of our business segments. Revenue increased by 123 million zlotys year-on-year in Q3 of 2020. 75 million zlotys of this result came from the B2C and B2B segments and 41 million from the media segments. In the B2B and B2C services segments, the main growth drivers were hotel revenue supported by still quite high levels of interconnect settlements, and solid equipment fell. I would like to underline that we saw revenue growth in this segment despite continued negative pressure on retail loaning revenue as international travel has not picked up since the lockdown in spring. Also, the media segment contributed strongly to revenue growth this quarter. Record revenue growth dynamics of 9% year on year. Please remember that this is the first quarter that we consolidated the results of Interia Group, which we acquired in July this year. Moreover, we saw higher revenue from the sale of our channels to other Capsa operators. The combination of a strong supply and a prudent approach to cost control in uncertain times, particularly in the media segment, resulted in a very high ABPA result this quarter. In Q3, we posted a little under 1.1 billion zlotys of adjusted EBITDA up by 62 million year-on-year. Turning to the analysis of our cash flow on slide 21, I'm very happy with our consistently stable high free cash flows in both the third quarter and nine months of 2020. In Q3, we generated almost 300 million zlotys in free cash flow and almost 840 million zlotys in 9 months. A higher EBITDA certainly contributed positively to the high quarterly free cash flow. Additionally, solid sales of equipment during the third quarter led to the decrease of our handset inventories, releasing some working capital which also supported free cash flow. On the opposite side, as always, in the third quarter we faced approximately 120 million from the UNPS license. Looking at our cash position, we ended the third quarter of 2020 with a sizable amount of cash in our account, well over 1.1 billion zlotys. This amount gives us a high level of comfort with respect to the payout of dividend for 2019 of 640 million in total. We have already paid out the first sum of about 220 million in October and the remaining amount is scheduled to be paid in January 2021. We have cast out acquisitions on the graph to paint a clearer picture. Actually, the interior group transaction is responsible for a majority of this outflow. The capex to revenue ratio amounted to 9%. Please don't take this to mean that we are reducing capex. Let me remind you that Mirek said in the introduction that we plan to intensify 5G rollout and some payments will take place in the quarter to come. Hence, please expect that capex to revenue ratio will head towards the initially guided 11% in the full year perspective. And my last slide. That, to be honest, there's nothing new to say here. The slight drop in leverage to 2.85 EBITDA was reached despite paying for interior fully in cash. Please be aware that under our credit facility agreement, we apply adjusted EBITDA to calculate leverage. Also, just to remind you, we will resume that payment in Q2 2021 in quarterly installments of 200 million zlotys. One thing that I would like to turn your attention to is the average weighted cost of debt, which was equal to 1.8% at the end of Q3, following sharp interest rate cuts since the beginning of the year. This factor is already contributing to a significant reduction in our debt service costs, and I expect it will continue to support both bottom line and free cash flow in coming quarter. So, ladies and gentlemen, this was a very strong positive quarter, both from the operating and financial perspective. The new restrictions aimed at combating COVID that are being systematically introduced in Poland since the beginning of October create many question marks, however, and I believe that our business model is highly resilient and will manage well, as we did so far. Mirek, back to you for the summary of this quarter.

Thank you, Kasia, Maciek and Staszek. Indeed, it was a very strong quarter. On the operating side, we reported solid stable growth resulting from the successful implementation of our Multiply strategy. Let me repeat. Over 2 million Multiply customers. Over 580,000 new services. ARPU of 86.9% and growing. And finally, historically low churn of 6.1%. Excellent operating results translate into strong financial results. We have generated over 3 billion zlotys of revenue and recorded an impressive 6% year-on-year increase of EBITDA while maintaining a low stable leverage of 2.85 times EBITDA. So, great job everyone and keep up the good work. In October, we have begun paying out dividends for 2019, an issue of high interest to all investors, I believe. This payout of 640 million W is the highest level of dividends that we have paid to our shareholders so far, and our balance sheet is well prepared for this operation. End to end on a positive note for the future. we will continue to invest dynamically in the development of our Plus 5G network based on our 2.6 GHz CDD spectrum, as I have already said at the beginning of this presentation. We plan to cover over 11 million poles living in 150 towns and cities with our top-quality 5G network footprint already in 2021. Ladies and gentlemen, thank you for your attention. This brings us to the end of the presentation, and you are now ready for your questions. Operator.

Dear ladies and gentlemen, we will now begin our question and answer session. If you have a question for our speakers, please dial 01 on the telephone keypad now to enter the queue. Once the name has been announced, you can ask a question. If you find your questions answered before you turn to speak, you can dial 02 to cancel your question. If you are using speaker equipment today, please lift the headset before making your selection. One moment, please, for the first question. The first question we received is from Nadia Hoda of Erste Group. Your line is now open. Please go ahead.

Thank you for the presentation and taking my questions. I would have to, if I may. The first is on interior. How much did the interior contribute to the revenue growth in Q3? And also, could you detail a line, if you can share that information with us? And the second is on the portfolio offer. How was it perceived by the market and how high margins are you able to generate in this segment? Thank you.

Thank you for this question. Interia has contributed 26 million to the top line and 8 million to EBITDA in Q3 2020. As far as photovoltaics, I think Maciek would like to answer.

Yeah, I can answer. So, the offer has perceived very well. We have significant number of leads, but of course, pandemic times don't help us, because this is high quality product and this is a very important life decision for people. So, the cost of simple installation is 4,000 or 5,000 euros, so it's just important. And it, in my opinion, just requires seller assistance, so our assistance, and client attention, which is difficult at this time. But the margin is visibly lower than in our telcomedia, but still we can generate healthy double-digit margin. And what is important for us with our strategy, help people to live cheaper and eco-friendly. And I believe this is, you know, like some kind of line extension of our multi-place strategy. Particularly, we have more or less 2 million houses in our database. So it's a very nice product for us.

Thank you for the answers.

Ladies and gentlemen, again, as a reminder, if you would like to ask a question, please press 01 on your telephone speaker. Actually, we received no further questions, so I am back to the speakers.

Hello again. Thank you for participating in today's presentation. I wish you and your families and friends good health. Thank you again and see you at the next presentation. Thank you.

Ladies and gentlemen, thank you for your attendance. The call has been concluded. You may disconnect.