Cyfrowy Polsat S.A. Ord

Ladies and gentlemen, good afternoon and welcome to Polsat Group's results call for the fourth quarter and the full year 2020. I will start today's meeting with an overview of the most important events in 2020. Then we will present the details of our long-term partnership with CELNEX. After that, as usual, we will present the operating results of our business segments and our financial performance in the fourth quarter and the full year. A short summary and outlook for 2021 from me will end the presentation. Okay, to the first point on today's agenda. Let me sum up the key events of 2020 for you. 2020 was an unusual year for all of us because of the worldwide coronavirus pandemic. Security of our employees and customers suddenly became an absolute priority. We decided to contribute to the fight against this pandemic and its negative impacts and we did so by donating, together with our main shareholder Mr Zygmunt Solosz, over 50 million zlotys to the Polish society and the healthcare system. Those of you who are shareholders of Cyfrowy Polsat received a record high dividend this year. We paid a total of 640 million zlotys, or one złoty per every share. This historically high level of dividend payout took place alongside all our other operating projects, which I will discuss in a moment, and despite the COVID pandemic. This proves the resilience of Polsat Group. 2020 was the year of 5G development. In Poland, this trend was accelerated by higher connectivity needs of our customers exposed by the pandemic. I'm proud to say that we were the first and so far the only operator on the Polish market to launch a true 5G network with transmission speed of up to 600 megabytes per second. We have been rolling out our 5G network intensively over the past months, and thanks to our efforts, already 7 million poles are within its footprint. And it is only the beginning of our activities in this field. 2020 was also the year when we significantly strengthened our position on the Internet market. By acquiring Interia Group in July and consistently integrating it with Polsat Group structures, we are consequently building our position in this promising market segment. And the last but probably the most interesting event that occurred recently was deal with Celnex. I believe that our approach to this deal is highly innovative because as far as I am aware this is an unprecedented transaction where both passive and active infrastructure is being sold. I'm convinced that the long-term partnership with CELNX will allow us to deploy our 5G network at an even more dynamic pace in the most cost-efficient manner. As a result, our customers will enjoy state-of-the-art connectivity services. I know that you want to know more details on this last topic, so let me give the floor to Maciek. who was the mastermind of this project, who developed the concept and who saw this project through.

Hello everyone, thank you very much Mirek. It's my pleasure to present this exciting project and promising long-term cooperation with Cellnex. So let's start with the business concept of the NETCO deal as we call it. What actually are we selling? We are selling Polkontal Infrastruktura, our 100% subsidiary. This unit is the owner of a fully equipped, nationwide, well-optimized mobile telco infrastructure, which combines all technological elements, both passive and active. This infrastructure consists of 8,000 sites, 37,000 carriers, 17,000 microwave antennas and uses over 11,000 km of fiber optic connections. What are the key financials of this business? In 2020 Polkomtel Infrastruktura generated 90,58 million zlotys of revenue and 452 million zlotys of EBITDA. It's EBITDA after leases, so under the old accounting standard, cash capex amounted to 433 million zlotys. What's important to notice here is that EBITDA was fully reinvested into capex on the network rollout. I will focus your attention on a tenancy ratio, which starts at a very low level, 1.17 times only. It means only 17% of our sites are co-shared with other operators. Such a low tenancy ratio gives the owner of this network a very sizable potential to improve its efficiency and we believe all market players can benefit from it. Please also note that key assets stay with us. Namely, all frequencies that we collected so far, the core network that is crucial for managing end-user customers' experience, as well as know-how important for supervising the cooperation process. All this stays in Polsat Group. It's very important to pay attention to this fact. Let's look at this deal in the context of the Polish 4MNO telco market, a highly competitive market, both on the commercial and on the technological side. If we look at the left side, we can see that high competition translated into very low prices, actually the lowest in Europe. A tariff with unlimited voice and messaging and small package of data can be bought in Poland for 30 zlotys, six times cheaper than the European average. In the middle of the slide, we have a snapshot of revenues and EBITDA of four MNOs in a five-year perspective. Low prices with high popularity of mobile services in Poland allow for limited top-line growth. However, what we see here are falling margins. from 8.1 billion in 2015 to 7.5 billion in 2019 during the period of rapidly growing popularization of LTE. Let's add CAPEX to this picture. On the right-hand side, you can see that according to our estimates, the four MNOs spent approximately 3.4 billion zlotys every year on their infrastructure. And it's important that consumes 46% of EBITDA. I will say this picture is pretty stable, but not very optimistic. We have very low RPU, falling margins, high capex levels, which means that the market has to be cost oriented. So we are in a situation which requires seeking for cost optimizations. And over the past years, all the MNOs have been optimizing everything. We've optimized marketing, headcount, sales networks, customers care areas. The only cost component that hasn't been optimized so far is cost of infrastructure. The sector has only one alternative to do it efficiently. And it's network sharing. Here you can see how this network optimization looks in real life at present. Obviously, network sharing is not very popular in Poland yet. You can come across similar situation as presented here pretty frequently in Poland, which means something went clearly wrong. We really believe that network sharing is the only alternative for the future because we should not be seeing such a pictures going forward, especially in the constant of the challenges that are ahead of us over the next 10 years. So what are these challenges? As you all know, each of us consumes more and more data, and the COVID situation has accelerated this demand. Analysis Mason assumes data traffic in Poland will grow five times over the next 10 years from 5 exabytes in 2020 to over 25 exabytes in 2030, and the future networks need to cope with this trend. In order to do so, we estimate that market participants will have to find almost 8,000 new sites over the next 10 years and share them far more openly than in the past. So, to sum up, the dynamically growing demand for data transmission requires faster development of the 5G network. Of course, addressing the demand of our customers for growing data transmissions through 5G is key. But 5G is also a huge business opportunity because the Polish amino market is in turning point. After 20 years of continuous price focus battle, the market participants revised an approach to pricing and 5G can accelerate this positive trend. This slide shows how we build ARPU and how we will build in the future. The basic element is our mobile offer. As I have said earlier, in Poland, we face a situation of very low prices of basic connectivity that include unlimited voice services and data packs. In order to build value, we attempt to upgrade our customers to higher tariffs step by step. The second element, which you know exactly, it's our strategy that significantly contributes to ARPU, is bundling through our SmartDOM program. As a fully convergent operator, we generate incremental value by offering all inclusive packages composed of TV, Internet and voice. Plus a package of value added services. We are very successful in executing this strategy and as I will show you in the second part of the presentation when I will present operating results. But the real game changer in this context can be 5G, a technology with many new future uses which comes in a moment when consumers understand and appreciate an importance of reliable connectivity. 5G can be the trigger that unlocks our RPO growth and this RPO growth will be generated from a higher quality of services and demand for fast data transmission. However, for 5G to be able to drive RPO growth, rapid deployment of the 5G network is a must. The 5G network is right around the corner. Look at this timeline. We have already started building 5G thanks to the unique possibility offered by our 50 MHz block in the 2.6 GHz TDD band. In May 2020 we put on air the first 100 5G sites in seven major cities in Poland. We saw how it well worked and we decided to accelerate 5G rollout and by December 2020 we already had 1,050 5G equipped sites and reach 7 million people. In 2021, we plan to go further. We want to have over 1,700 5G equipped sites this year, covering over 11 million poles jointly. I can say that if the sales of the 5G tariffs continue at the pace they are selling at the moment, we may decide to accelerate network rollout even more. Another important thing is a project called Polish 5G initiated by 4MNOs jointly with the Polish government. This project is about developing and co-sharing a countrywide 5G network based on the 700 MHz band. What's relevant is that all 4MNOs consented to sharing both active and passive infrastructures in this project. Under the condition that we build one common and short network, it will be able to provide transfers as fast as 200 megabits per second, also the rural areas. The last piece of the puzzle is the 3.5 gigahertz auction that we are still waiting for. These frequencies are crucial for building capacity of the 5G network. With those frequencies, speeds up to 1.2 gigabits per second are attainable in mobile internet. So, 5G is crucial for our business. It gives a chance to build ARPU and answers to demands of our customers. The fivefold increase in data transmission I told you about. The rapid expansion of 5G network and sharing is crucial for our customers and the whole telecom market, which we believe truly. Now, perhaps the most interesting part, let me tell you about the business model behind our long-term partnership with Celnex Telecom. What was our rationale behind offering both passive and active components of our network? Considering that we have secured the key assets, the frequencies, the core network, and the know-how, then a similar logic applies to both passive and active. Looking from the left, I'm pretty sure you know a lot about passive and network sharing. Many transactions took place so far both in Europe as well as globally. They don't differ much from real estate ones with tower sales and long-term straightforward contracts attached. But in our opinion, it's only a halfway there approach and real value can be unlocked if the active component is added to the passive one. Actually, both layers are highly complementary and go hand in hand. The major difference refers to capex renewal cycles that are more frequent in the active layer. Roughly speaking, the active technology needs to be replaced once in a decade with the commercial launch of new G. And in this context, We are perfectly placed in time because the current deployment of 5G technology will, in our opinion, accelerate active network sharing processes. What needs to be emphasized here is the fact that we worked out a very safe MSA, so Master Service Agreement, which is supported by guaranteed SLA, Service Level Agreement, providing comfort for us and our customers. We strongly believe passive and active network sharing will become a new form of cooperation between MNOs, as this is the only alternative to optimize our cost of investment while deploying 5G. This is a unique concept. As far as I know, there hasn't been such a transaction worldwide, so probably this is the first transaction of this kind. We would be very proud if we are trendsetters here. How will this business work on a daily basis? For this to work, there has to be an interest alignment. Of course, demand for connectivity is going to be the key driver for this cooperation. And looking from the left, the first step is that we observe increased demand for connectivity from our customers and we see that they are willing to pay for this so there is positive impact on our top line so we move to step two we place an order with netco to provide us with additional services such as sites carriers or transmission Then we go to step three, is to sit down at the table and agree on mark to market price for the services that we need. Then we go to step four, NETCO delivers the new services. What's important, we control network quality and user experience because we control the core network. This brings us to step five. Our customers can enjoy higher capacity and or coverage of an even faster network. In a word, both Polsat Group and Cellnext are highly interested in monetizing 5G efficiently. Let me underline that we will be paying for the infrastructure ordered, not the volume of transmitted data. Let's look at our safety tools. We are fully aware we need to secure the interests of our customers in the future and ensure safe rules of cooperation between ourselves and Celnex. We have negotiated detailed MSA and SLA agreements which regulate the procedures for service provision for Polsat Group on an order basis. The deal will be concluded for 25 years with an option to renew for another 15 years. We are obliged to place orders for specified numbers of new sites and carriers. But given that we want to deploy our 5G network at a rapid pace, this is not an issue for us. As regards corporate governance, there are three key elements in place. The golden share and non-competitive clauses and the right to buy back. We retain the golden share, which means that NETCO shareholders have to be anonymous to take any key decisions relating to the NETCO assets. The non-competition clause ensures that we have to approve any sale of NETCO share and obviously competitive buyers are restricted. And the final element, something I hope we will never have to use, is the option to buy back NETCO shares under certain specified circumstances for a fair price, including a discount agreed between the parties. I think that at governance level, this deal is highly transparent and reflects a natural partnership. And now my last slide. This is a truly exciting transaction because we strongly believe that NETCO is the future. This is the best possible answer to market challenges, opportunities and expectations, not only in Poland, but also globally. I can summarize it shortly. An independent, passive and active multi-tenant operator is a real game changer reduces times to market, saves capex and brings benefits to all tenants. It's really exciting time for us. Thank you very much.

Thank you Maciek for this comprehensive and interesting summary of this exciting deal with Telnex. My congratulations. Kasia, can you please explain the expected impact of the final shot of Polsat Group?