Cyfrowy Polsat S.A. Ord

Good afternoon and welcome to the earnings call of Polsat Plus Group for the second quarter of 2024. Can I have the next slide, please? Today's presentation will be delivered to you by Mr. Mirosław Błaszczyk, CEO of Cyfrowy Polsat, Mr. Maciej Stec, Vice President, Responsible for Strategy, Ms. Katarzyna Ostaptoman, CFO and Management Board Member, Responsible for ESG, and Mr. Piotr Żak, President of the Management Board at Telewizja Polsat. After the presentation, we will hold a Q&A session. I strongly encourage you to post your questions in the chat section in advance. Thank you. Mr. Błaszczuk, the floor is yours.

Good afternoon, ladies and gentlemen. Welcome to our results conference call for the second quarter of 2024. Today's presentation is divided into four sections. I will present the key highlights of the past quarter. After, Maciej will show you the operating results in our business segment and Kasia will discuss our financial results. I will end the presentation with a quick summary and we will move on to the Q&A section. Next slide, please. Let's start with the key events of 2024 second quarter. Next slide, please. The past quarter was a very good quarter for Polsat Plus Group in all our operating segments. In the B2C and B2B service segment, we consistently and effectively built value across all customer groups. In second quarter, RRPU per contract B2C customer maintained a high pace of growth at 4.7%, RRPU per B2B customer increased by 1.5%, while RPU in the prepaid segment grew by 1.1%. As a result, we recorded 2.9% growth in our retail revenue. We also increased the coverage of our fixed broadband internet access services by almost 50%. Thanks to the new wholesale access agreement with Vectra and Polski Światłowo-Dotwarty, today we can provide services to over 10 million households. This was also a busy quarter in the media segment. We are investing in attractive content and sports rights for our viewers. We acquired exclusive broadcasting rights to UEFA Europe League and UEFA Conference League for the next three seasons. We also bought broadcasting rights to the first and second divisions of Bundesliga. We have also prepared a new programming schedule for the fall with many new formats, some old favorites and a new breakfast program. Moving to the green energy segment, we started technical commissioning ahead of schedule at the Przerów wind farm with 50.4 MW capacity. This brings our generation capacity in wind up to 150 MW. We opened our third publicly accessible hydrogen refueling station under the Neso brand in Gdańsk. Three more stations in Gdynia, Wrocław and Lublin are almost completed and will be put into operation within the next weeks. We have received funding in the amount of almost 50 million euro from European Climate, Infrastructure and Environment Executive Agency for the construction of five more stations. And finally, we are shareholder, alongside ZEPAK, in the largest and very promising wind project located near Opole, with about 500 MW of capacity. This farm is going to be based on state-of-the-art, more efficient wind turbines with greater capacity. Next slide, please. These were the main events of the last quarter. Now, let's look at our operating results in detail. Please go ahead.

Thank you very much, Mirek. Can I have the next slide, please? Ladies and gentlemen, it will be my pleasure to present to you the results of the second quarter and the first half of 2024 for the media and online segment. Let's move on to the next slide. The second quarter was a very good quarter for the media segment, both in terms of viewership and advertising market position. During this period, Televizia Polsat Group channels achieved a 22% audience share in the commercial group, with the main channel having 7.1% and our thematic channels 15%. Year over year, we maintain stable viewership results, which in my opinion is a very big achievement. Especially since at the turn of June and July, the public television broadcast the European Football Championships, which obviously affected all other channels. And Polish people love football, so it was a really big effect as well. In the TV advertising market, on the right hand of the slide, we maintain a very good and stable position. In the second quarter, the market grew by 5.7%, while our advertising revenues during that same time increased by 4.8% to over 360 million zlotys. This gives us a total market share of over 28% in the advertising and sponsorship markets. Let's move on to the next slide, please. When talking about the first six months of 2024, in terms of viewership and our position on the advertising market, we're still very good, still very stable. Our channel's share in viewership during the first half of the current year is 21.8%, which is a stable level year to year. The main channel's contribution to this result is 7.1%, and our thematic channels are 14.7%. These results translated into an increase in our advertising revenue by 6.2% year over year to nearly 670 million zlotys. Our share in the TV advertising and sponsorships market remains high, above 28% on a growing market. Can I have the next slide, please? Moving on to the online segment, as you can see, we are effectively building our position in the online market. We are a leading player in this market, as confirmed by the operational results that you see on the slide. In the second quarter of 2024, the average number of monthly users was 20.4 million, and the number of page views exceeded 1.8 billion. Moreover, in the first half of the year, the Pulsat Interior Group was continuously the leader in the mobile category, which from our perspective is the most prospective category in the future. And we also achieved the highest reach in the market among internet websites three times during that time period. Next slide, please. Over the past months, we've been working very hard and very intensively on the new autumn schedule, which we presented about two weeks ago during our conference. Alongside well-known, proven formats that we've done before, such as Girlfriends, Dancing with the Stars, Your Face Sounds Familiar, there will also be a lot of new and exciting additions. The autumn schedule includes two new premiere reality shows, Special Forces Poland and My Mom, Your Dad, two new TV series, Neighbors, Sins, and the second season of In-Laws. As well, we're returning with stand-up, with comedy shows, with the Detective Malinowski series, and the very old-school game show Brawl Over Cash, which our viewers should remember from over a decade ago. Additionally, we have introduced a new breakfast slot called Halo to Polsat. It will be broadcast every Friday to Sunday from 8 a.m. All in all, I believe this is a very strong schedule. It will support our viewership results and our financial results in the second half of this year. Summarizing the second quarter and the first half of this year in the media segment, I'm very pleased with the results we have achieved. Our viewership remains stable despite the European Championship Series. We have a high and stable share of over 28% in the growing advertising market. We prepared a rich and interesting autumn schedule which will support us in the future. And in the meantime, our online segment and InteA is absolutely cementing their position. at the very top of the online Polish media segment. That's all from my side. Thank you very much for your attention and I hand over the presentation to Maciek, who will tell you more about our operational results in the B2C and B2B services segment. Thank you. Thanks, Piotr.

Let's look at the operating results of the B2C and B2B services segment first. Can I have the next slide, please? In this segment, we focus on the consistent and efficient implementation of our Multiplay strategy, because it translates into higher customer value and higher customer loyalty. Thanks to our efforts in this area, already 2.5 million customers, or 43% of our total base, use our Multiplay offer. What is important, this base is stable over time, providing high, predictable revenues going forward. The number of services contracted by this group of customers is steadily growing. At the end of the second quarter, Multiplay customers had over 7.5 million services, up by 129,000 compared to last year. As I said, the successful implementation of our Multiplay strategy also results in high customer loyalty. This is reflected in a consistently low level of churn. At the end of the second quarter, churn amounted to only 7.5% per annum. Can I have the next slide, please? We provide over 13 million contract RGUs to our customers. Our RGU base is composed of 6.3 million voice services, 4.8 million pay TV services and 2 million internet access services. We are happy to see that mobile voice and internet access RGUs are improving. Mobile voice increased by almost 100,000 compared to the second quarter of last year, while internet access services grew by 50,000. Also, pressure on our pay TV arduous is visibly lower. This is because the majority of low-end E-plus services has already faded out, and we focus on bridging the gap with high-quality pay TV services provided in IPTV and OTT. As Mirek said in the introduction, we are expanding the reach of our fixed broadband internet through wholesale access agreements. This model of cooperation has become very popular over the past years and I think today it's a market standard. At present, we can offer our fixed broadband internet to over 10 million households and this creates a very good business opportunity to cross-sell and up-sell other products from our portfolio to these customers. Next slide, please. As you remember, in our Multiplay strategy, we focus on value creating and value building of our customer base. And in this quarter, average revenue per contract B2C customer grew at a very good pace of 4.7% year over year. At the end of the second quarter, it reached the level of 75.2 zlotys. And in my opinion, this is an excellent result. We were able to grow the value of our existing customer base over the past year, despite macroeconomic headwinds, mainly thanks to cross-selling and upselling our products in line with our multiplayer strategy, but also thanks to higher demand for data following the popularization of 5G. The RGU per customer ratio is steadily increasing and reached the level of 2.27 services per customer at the end of the second quarter. Moving on to the next slide, please. The performance in the prepaid segment was also good in the second quarter, considering the significant pressure coming from a highly competitive environment in the segment. We maintain a high and stable base of 2.6 million provided prepaid services. The services generated an average revenue of 18 zlotys in Q2. Up by 1.1% year over year. Let me just remind you that the numbers that you see on this slide exclude the low margin pay TV offer Polsat Box Go Start. Next slide please. In the B2B segment, we maintain a high and relatively stable customer base of 68.5 thousand. Also in this segment, we focused on building customer value, even though this is a very competitive and difficult market segment. We adjust and expand our offer address to B2B customers to meet their expectations. As a result, our B2B customer reached the level of 1,490 slots in the second quarter, recording an increase by 1.5% year-over-year. Before I move to the green energy segment, let me briefly sum up our results in the B2C and B2B services segment. The multiplayer strategy remains the core of our business activities in this area. It allows us to consistently build customer value, which is very important. We build it in all customer segments and maintain a low level of churn, which I'm proud of. Next slide, please. We are making excellent progress on the development of our green energy segment. Contribution from this business is already significant today, but will increase with time. So let's take a look at the operating performance in this business segment in Q2. Next slide, please. On this slide we have a short overview of our renewable energy and green hydrogen projects. We generate clean energy from biomass, solar power and wind power. I'm very satisfied with the progress in the development of our wind farms. At the end of June we started technical commissioning on the Przyrów wind farm with 50.4 MW. This means that we have generation capacity of already 150 MW. Currently we are developing two more wind projects with total capacity of 146 MW. In terms of the green hydrogen value chain, we have started test production of green hydrogen in our half megawatt alkaline electrolyzer. And this is going very well. I'm really proud of. We have also started designing the prototype of 2.5 megawatt electrolyzers in PEM technology. In the beginning of August, we opened our third publicly accessible hydrogen refueling station in Gdańsk. The construction of three more stations in Gdynia, Lublin and Wrocław is almost complete. And what's more, we have received funding from the European Climate Infrastructure and Environmental Executive Agency in the amount of almost 15 million euros for the construction of five more hydrogen refueling stations in Poland. As for our hydrogen-powered bus, the Neso bus, we have already produced 30 units, 20 are in Rybnik, 10 are in Gdańsk, now delivered, and we are currently working on the production of 26 units for Helm. Can I have the next slide, please? As you can see, the volumes of green energy that we produce are growing dynamically on the back of new generation capacity. In the second quarter of 2024, we generated 222 gigawatt hours of green energy, up by 53%. And in the first half of the year, we generate 421 GWh up by 43%. In both periods, almost one third of total energy production was generated by our wind farms, which we are putting into operation ahead of schedules. The results of the second quarter were driven mainly by the production of the Człuchów wind farm with 72.6 MW. We started technical commissioning in February this year. The level of production in the next quarters will be further supported by the Przerów wind farm of 50.4 MW, which started technical commissioning in late June, so its output is not really visible in the results yet. Next slide, please. I'm extremely happy with the financial results of the green energy segment. The average price at which we sold our energy was 564 zlotys per megawatt hour in the second quarter and 605 zlotys per megawatt hour in the first half. As a result, the segment generated very strong financial results. EBITDA of the segment in the second quarter was 71 million zlotys. In the first half of 2024, EBITDA of the segment amounted to 121 million zlotys. I'm very proud of the segment that we translate our investments to real money, to real EBITDA. And what is important, it is very long term. Can I have the next slide, please? So, to sum up our performance in the green energy segment, we are dynamically executing our strategy 2023+, by launching our renewable energy projects ahead of schedule, we have already achieved our goal for 2024, we have 150 MW operational in wind power, and our key focus now is on Zerzewo wind farm plant for the second half of next year, which will double our generation capacity in wind power. So, I'm very satisfied I can sustain our guidance that in 2026 the green energy segment will generate incremental EBITDA at the level of 500-600 million zlotys, what we announced when we presented the strategy 2023 plus in December 2021. Thank you very much and over to Kasia for the financial performance of the group.

Thank you, Maciek. This was a very good quarter in terms of financial as well. Can we move to the next slide, please? We saw a solid increase in revenue this quarter, up by 5%. The main driver was the consolidation of energy revenue, but also a noticeable increase in retail revenue by 50 million zlotys. EBITDA adjusted for asset disposal grew by 5.7% to 844 million zlotys, including the sale of the second tranche of IP4 addresses in Q2 for 21.1 million zlotys, EBITDA increased by 8.3% year-over-year up to 865 million zlotys. Net profit amounted to 176 million zlotys in the second quarter. This was due to a low base effect last year when we recognized a share in the loss of PAC-PCE, which was not consolidated at the time. Free cash flow for the last 12 months settled at 436 million zlotys, up by 30% compared to the end of 2023. I will discuss the key elements of our free cash flow later in the presentation. Lastly, net debt to EBITDA ratio excluding project financing was 3.3 times at the end of the second quarter. This is a temporary decrease resulting from lower spending on renewable energy projects in the first half of 2024. In line with my earlier declarations, I expect net leverage to increase until the end of the year. half of the year, we have higher capex scheduled in the green energy segment and the renewal of the reservation in the 2.6 GHz band. Can I have the next slide, please? In this slide we proceed to a breakdown of revenue and EBITDA growing drivers by segments. In terms of revenue, the key driver was of course the green energy segment, which was not present in the comparative period. The segment generated a total of 324 million zlotys, in which 125 million came from the sale of our own energy and 169 million was generated from energy resale. In the B2C and B2B services segment, revenue was under pressure from the last round of empty air cuts, which are EBITDA neutral, and lower equipment sales. Despite lower volumes, we maintain high margins from the sales of equipment. As I already mentioned, these declines were partly offset by an increase in retail revenue thanks to the solid growth in RPU, which Maciek discussed in detail. Revenue in the media segment was supported by our very good performance on the ad market. Moving to the EBITDA decomposition, again, the key driver is the green energy segment, which generated 71.4 million zlotys of EBITDA in Q2 2024. This result was supported by launching the Chłuchów Wind Farm project ahead of schedule and the lack of negative regulatory impact this year. I'm very happy that the negative trends on EBITDA and the B2C and B2B services segments are visibly slowing down. Excluding asset disposal, EBITDA in this segment recorded a decrease by about 10 million year over year. Lower EBITDA in the media segment was mainly the result of higher content costs, in particular higher internal production costs. We also saw an increase in marketing and salaries costs, which put additional pressure on the segments EBITDA. Next slide, please. On this slide we have the decomposition of free cash flow for the last 12 months which amounted to 436 million zlotys after adjustments for non-recurring events and capex in the green energy segment. Factors that were supportive to free cash flow include higher EBITDA, capex in TMT under control and lower pressure from working capital and gauge among others in connection with lower economic However, as you can see, interest payments remain high and continue to put pressure on free cash flow generation. New adjustments to free cash flow that took place in the second quarter include the payment of the second tranche of 100 million zlotys per shares in Pantanomo, a company in our real estate segment, and 21 million from the sale of the second tranche of IP addresses. We also adjust free cash flow for capex spent in the green energy segment to show you what our free cash flow would be if we didn't invest in our new business. Please remember that this represents front-loaded capex necessary for the development of renewable energy sources. Once we finalize our investments under the strategy 2023 plus in green energy projects, I expect capex in the energy segment to drop significantly as solar and wind farms have very low recurring maintenance capex. Next slide, please. Our TMT projects. In this area we have CAPEX under control and the CAPEX to revenue ratio remains low at about 6% in the second quarter and 7% in the first half of 2024. Capex in the green energy segment in Q2 amounted to 168 million zlotys. The current level of capital expenditures on our renewable energy project is mainly connected with phasing of the development of our largest wind farm, Drzezewo. I expect capex in the energy segment to accelerate in the coming quarters. Next slide, please. On my last slide, as always, I would like to summarize the group debts. Our key ratio net debt to EBITDA excluding project financing was 3.3. Including project financing, it is 3.6. As I already mentioned, the decrease in net leverage this quarter is temporary and I expect it will increase in the second half of the year in line with accelerated CAPEX spending on the Drzeżewo wind farm. Our prospective weighted average interest cost amounted to 8.3%. The maturity profile and structure of our debt, which you see on the right-hand side of this slide, remains unchanged and this is the final structure for the nearest future. Let me just remind you that in Q3 we will start repaying the capital under the Senior Facilities Agreement. That's all from me. Before I pass the floor over to Mirek, let me just say that I'm pleased to see a consecutive quarter of growth and a continuation of the positive trends we have seen in the first quarter, and I expect increasing contribution from the energy segment in the following quarters. Thank you for your attention. Next slide, please, and over to you, Mirek, for the summary.

Thank you very much. Let's go to the next slide for a short summary. In the B2C and B2B service segment, we constantly focus on our multiply strategy. Thanks to the successful implementation of this strategy, average revenue across all customer segments is growing and churn remains at a low level of only 7.5%, demonstrating the loyalty of our customer base. Looking to increase the accessibility of our services, we have expanded the coverage of our fixed broadband internet services by 50%, up to 10 million households. In the media segment, we maintain high and stable viewership results, as well as a high and stable share in the TV advertising market of about 28%. Our advertising revenue increased by 6.2% in the first half of 2024 on a strongly growing market, despite the European Champions League erred by our competition. As for green energy, we have launched the Przerów wind farm with capacity of 50.4 MW. This means that today we already have a total of 150 MW of generation capacity in wind farms and by the end of next year we will double this capacity. The green energy segment is already generating solid financial results and contributing to the group's results at a consolidated level. Ladies and gentlemen, we have reached the end of today's presentation. Thank you for your attention. And now we are ready to answer your questions.

Thank you. We have one question in the chat section coming from Nora from Erste. Good afternoon. Thank you for the presentation. One question from my side, please. What is the outlook for expenses in the second half of 2024? In which areas can we expect inflationary pressure? Thank you.

Thanks, I will answer those questions. As you know, first of all, we're very cautious about the cost and we're trying to keep the cost under control. That said, some of our cost items are under the inflationary pressure. Mostly that would be technical cost, content production costs and wages. Just please remember that the regulatory minimum wage also puts pressure on our costs, other costs that are not related directly to wages like, I don't know, security costs or cleaning costs where the companies are employing people with the minimum wage and are increasing costs. the cost ones, there is a pressure on wages as well.

Thank you. I don't have any more questions in the chat section.

As there aren't any more questions, I will pass the floor over to Mr. Błaszczuk. Oh, hold on. What is the strategy for hedging electricity generation? The question is coming from Peter from Avaron.

Peter, could you clarify your question? Because unfortunately, I don't understand it.

Hello, can you hear me?

Yes.

I just wanted to understand whether you do any forward hedging for your electricity generation, especially in the renewable energy side, kind of, let's say, maybe you forward fix 60% of your generation or anything like that, or you sell everything on spot and plan to do that also in the future, just to understand what is your strategy in this regard.

Okay. Okay, that said, Maciek, you want to answer this? Yes?

Yes, we just sell the energy based on PPAs or long-term contracts like we did, for example, with Przerów Wind Farm. So we sold the whole energy to Google Cloud for 10 years contract. So we just make the contracts, long-term contracts, sometimes on spot. So we do not hedge energy. We try to sell it on different business models.

So this is about the sales. I understand. Did it answer your question?

In general, yes, but kind of, do you have then... like fixed price and whatever is coming from the, from the wind farms, for example, is going fully to Google or, or you guarantee certain level of energy at every minute. And if a wind is not blowing, then you need to buy the missing part from the market or how does it work?

That's why our energy strategy is like we've presented. So we have like stable sources of energy like biomass and this is green source of energy and we have like unstable sources like wind farms and solar panels. So then we can sell in every model because all the time we can secure the energy. So we can deliver the energy, the same amount of energy every hour. So we can sell long-term contracts. But for example, like with Google, we can just settle the price with some regulations or like PPA. So then price is pre-indicated in the contract. and then there are different models so in fact we have like very compact energy companies so that's why we have invested in biomass because this is stabilizing the system and then we can sell for example yearly contracts on the energy like for example to sell next just just to get the same amount of energy in every hour 24 hours. So that's how it works. Then we can generate a higher price of the energy when we sell the profile to the customers. So we can balance the energy system in terms of renewables like solar panels and wind farms with the biomass so then we can sell every model on the market and of course long-term contracts for example yearly contract b2b contracts are more effective one because then the price is higher

Yeah, this is perfect that you have this stable source of generation, which can balance the inefficiencies of the unstable ones. But it also means that you are not selling or you are not 100% hedged going forward, because at some point you have... Or you are scaling down the biomass generation in the hours when wind is very strong and photovoltaics are generating a lot. So typically it implies that you have like, I don't know, 60-70% hedging level or something like that, because otherwise you cannot provide electricity at kind of guaranteed level at every moment?

We can. That's what we do. So we are doing balancing of the energy on our own and this is our work. So that's why we can generate higher prices. that's the strategy so it depends on the market and of course of course it depends on the spot so we are more flexible because finally this is like it influences return on investment so we know the biomass prices we know the The solar panel places, we know the wind farms, and that's what we try to predict and deliver this energy. So just to take money for balancing. So that's why we have company inside just to trade the energy. And this is pack vaults. So that's how we do it. Then we can earn just more money and make return on investment more attractive.

Okay, thank you. If there aren't any more questions, I will pass the floor over to Mr. Błaszczyk.

Thank you. Thank you for your participating in today's Polsat Group Results Conference for the second quarter of 2024. I hope that we have answered all your questions. I wish you a good day and I hope to hear from you at the next conference for the third quarter of 2024. Thank you and goodbye.

Thank you. Bye-bye. Thank you.

Thank you. Bye.