Cyfrowy Polsat S.A. (CPS) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to the Full Year 2021 Results Call of Polsat Plus Group. As usual, Mr. Miroslaw Blaszczyk, CEO; Maciej Stec, Vice President responsible for strategy; Katarzyna Ostap-Tomann, CFO; and Staszek Janowski, President of TV Polsat, will present the results of Polsat Plus Group for 2021. And then we will hold a Q&A session. [Operator Instructions] Mr. Blaszczyk, please go ahead.

Good afternoon, ladies and gentlemen. A warm welcome to the results call of Polsat Plus Group for the fourth quarter and full year of 2021. This has been a challenging year for all of us. The coronavirus pandemic caused and continues to cause serious consequences in the global economy. The war in Ukraine that has started a month ago caused us great anxiety, and we are with the Ukraine people with all our hearts. It is my greatest hope that the world will overcome these difficult situations and obstacles. The agenda of today's meeting is as follows. I will start the presentation with the key events that took place in 2021. Then Staszek and Maciej will present the operating results of our business segments, followed by Kacha, who will discuss our financial performance. I will conclude the presentation with a summary of 2021 and say a few words regarding our goals in 2022. Without further delay, let me tell you about the key events of 2021. The most important event was the announcement of the Strategy 2023+ of Polsat Plus Group. In line with the assumption of this strategy, we will continue to develop our key business segments: connectivity under the Plus brand, content under the Polsat brand and our new business segment, Clean Energy. In 2021, we have entered into the strategic long-term partnership with Cellnex Telecom. Thanks to this partnership, we will roll out our network more rapidly and more cost efficiently. A direct consequence of this partnership is the dynamic development of the only true 5G network in Poland, which offers transmission speeds 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 19 million people are covered by 5G from Plus. What is more, we have implemented the new branding strategy of the key brands of Polsat Plus Group in order to harmonize and simplify communication with our customers and to achieve synergies between our brands. And last but not least, we paid a record-high dividend to our shareholders in the amount of PLN 767 million or PLN 1.2 per share. Additionally, we have formulated a new consistent dividend policy for the next 2 years. Those were the key events in 2021. Now let's move on to the operating results of our group in 2021. Staszek, Maciej, the floor is yours.

Thank you, Mirek, and hello, everybody. Let's take a look at the performance of our Media segment. We continue to strengthen our position as a leading Internet publisher in Poland. As you can see on this chart, we achieved excellent results on the online market. With 20.5 million real users and almost 2 billion page views per month, we are quickly closing the gap to the #1 and #2 players on the market, Onet and Wirtualna Polska. This success is, of course, the effect of the acquisition of Interia.pl finalized in mid-2020. As you already know, we have delivered all the synergies in the areas of content monetization, advertising and editorials as promised during the acquisition of Interia.pl. We will continue to build our position on the market of Internet portals. Let's now move on to our TV business. On this slide, you can see the viewership results of our channels in Q4 '21. Our main channel, Polsat, had an audience of 9%, while our thematic channels had 14.3% in the commercial group. This means that the total viewership of TV Polsat group channels was 23.2%. This result is in line with our long-term strategy and fits in our target corridor of 23%, 25%. In Q4 '21, we generated over PLN 400 million of revenue from advertising and sponsorship. That is 1.6% more than a year ago. Even though the growth dynamics of our revenue from advertising and sponsorship was slightly below market dynamics in the last quarter, I'm satisfied with this result because we had a very high reference point. Please remember that Q4 2020, our advertising revenue rebounded strongly after the COVID pandemic. As a result, in Q4, our share of the TV advertising and sponsorship market was 28%. Now let's look at our results for the full year. In 2021, we successfully maintained our leading position on the market in terms of audience shares in the commercial group. Our main channel had 9% of audience shares, while our portfolio of thematic channels gained 15%, which gives us a stable total viewership of 24% over the whole group. Let me underline once again that both the results for Q4 and for the full year are very good results, which are in line with our strategy. Let's take a look at how the full year viewership results translated into advertising revenue. In 2021, our revenue from advertising and sponsorship increased by 13.2% and amounted to almost PLN 1.3 billion. We noted higher dynamics than the broad market, which grew by 11.5%. In effect, our share in the TV advertising and sponsorship market increased to 28.6%, an excellent result. To sum up the past year, I'm very pleased with the results that we have achieved in our Media segment. I am very happy with our strong performance on the online market, and we will continue to develop and strengthen our online business. We continue to record strong viewership results, which translate into excellent results in terms of advertising revenue. Actually, 2021 turned out to be pretty exceptional because we recorded a historically high EBITDA in the Media segment. But Kacha will tell you more about it in her part of the presentation. So that's all from me today. Thank you for your attention, and let's listen to Maciej, who will present the operating results of the B2C and B2B segment. Thank you.

Thanks, Staszek, and congratulations on the results on the Media segment. Record-high EBITDA of this segment is indeed very impressive. So let's move on the performance of our B2C and B2B segment. We have recorded another good quarter and another good year. We continue to implement our multiplay strategy consistently and with success. As you all know very well, the main focus of our strategy is to build customer value by cross-selling and upselling various products from our portfolio to our customer base. We have over 2.4 million customers who use our multiplay products. In 2021, we increased our base by 88,000 multiplay customers, which represents a growth of 4%. These customers used a total of 7.34 million RGUs. As always, I'm extremely satisfied with the consistently low level of churn, which was 6.9% at the end of 2021. I'm convinced that the low churn ratio is a reflection of customer loyalty and satisfaction and by extension, of the successful execution of our multiplay strategy. Our B2C customers use more and more contract services each year. In 2021, we provided almost 13.5 million contract services, which is almost 300,000 more than in 2020. The continued growth of this parameter is the effect of our multiplay strategy. We actively cross-sell our products to every individual customer, and we take great care to maintain customer satisfaction at a high level. In Q4, the acquisition of Premium Mobile is an additional factor that contributes to the growth dynamics of the number of contract services in our base. Let me also turn your attention to the fact that some pressure is possible on the number of pay TV RGUs in the coming months. This is a consequence of our decision to change the positioning and pricing of our online streaming platform after its rebranding to Polsat Box Go in September 2021. And we'll have a minor, if any, impact on our retail revenue. Let's now turn to ARPU, which is the core and foundation of our multiplay strategy. As you can see on this slide, we continue to note strong growth in ARPU from our B2C customers. Year-on-year, ARPU increased by 4.4% to a very high level of PLN 69.1 in Q4 '21. The main driver behind this dynamic growth is, of course, the consistent implementation of our multiplay strategy. But we also see solid support of ARPU growth from our 5G tariffs and gradual customer migration towards mid- and high-end plans. The slide also illustrates another positive effect of cross-selling our products, in line with our multiplay strategy. As you can see, the ratio of RGU saturation per customer continues to grow. And at the end of 2021, each of our customers had on average 2.23 services from the portfolio of Polsat Plus Group. I'm also very happy with the results of the prepaid segment in 2021. The top chart on this slide shows that our prepaid base is stable at the level of about 2.7 million. The number of prepaid RGUs is supported by very good sales of mobile telephony services as well as the consolidation of Premium Mobile. If you turn your attention to the bottom chart, you will see that ARPU in the prepaid segment remains in a strong upward trend, which reflects the changes in price plans that we keep implementing. As a result, in Q4 '21, we recorded dynamic growth ARPU up to PLN 16.6, up by 5.1% year-on-year. Now let's take a look at the last area in this segment. That is, the B2B area. We have about 69,000 B2B customers, and this base trends to be stable over the long run. We offer our B2B customers a comprehensive set of communication and ICT services that we regularly improve and expand. Thanks to this, we are able to generate a stable monthly revenue from our B2B customers at the level of about PLN 1,400. And in my opinion, this is a very good and satisfying result. As far as operating results go, this is my last slide. Let me briefly sum up. We had a very good quarter and a very good year, focused on building customer value. We continue to implement successfully our multiplay strategy, which is reflected in solid operating KPIs. We have over 2.4 million multiplay customers. We provide 13.5 million B2C contract services, which translates into strong, predictable revenues. I'm especially pleased with the low level of churn, only 6.9%. And I'm really happy with the building of customer value, both in subscription and prepaid segment. Our ARPU grew by 4.4% and almost PLN 3 in subscription segment to the level of more than PLN 69 and 5.1% in prepaid segment. These KPIs clearly show that we have a loyal and satisfied customer base. Not only do our customers want to stay with us, but they also want to buy additional products from our portfolio or improve the services they have by migrating to higher tariffs. Normally, at this point, I would say thank you, and I would give the floor to Kacha, but not today. I would like to take this opportunity and talk to you a little about our Strategy 2023+ and the new Clean Energy segment. As you remember very well on December 20, 2021, we announced our Strategy 2023+. The strategy is based on 3 pillars: connectivity under the Plus brand, content under the Polsat brand and the new kid on the block, Clean Energy. Our aim is to support and accelerate the green transformation that ZEPAK Group has already initiated. ZEPAK has 2 strategic goals. The first is the transition to clean green energy from renewable sources and to move away from lignite. The assumption is to switch off all coal-based assets by 2030. The second strategic goal is not as obvious. Together with ZEPAK, we focused on developing the first in Europe nationwide, complete value chain of an economy based on green hydrogen. We believe that hydrogen is the new zero-emission fuel of the future, which will help reduce CO2 emissions and improve air quality. In December, we presented our assumption under goal #1. Together with ZEPAK, we want to become the leading producer of clean green energy, in particular, in the first 4 basic areas. That is biomass, solar, onshore wind and thermal waste treatment. We have set specific measurable targets in these areas, and now I would like to present you where we are. We want to produce 100 megawatts from biomass. First 50 megawatts was already operational in December. And now it's my pleasure to inform you that in the beginning of March, we initiated production in the second 50 megawatts block. So in fact, this goal has already been achieved. Why is this so important? Biomass is not only a source of green energy. It's a stable source of green energy independent of external conditions such as the weather, for example. In the area of solar power, in October 2021, we launched the largest solar power plant in Poland, the 70-megawatt plant in Brudzew. We are also in the process of preparing a project of an even larger solar farm. We want to install 180 megawatts in Przykona on land belonging to ZEPAK. In terms of onshore wind, we have already started working on 3 projects with a total capacity of 70 megawatts. Once finished, these 3 wind farms will account for a little under 1/3 of our target capacity in the area of onshore wind. We are also active in the last area. We have signed a letter of intent with the City of Rybnik to construct our first thermal waste treatment. Actually, this is quite special because Rybnik wants to create a circular economy with respect to waste treatment, and our installation is going to play a significant role in the implementation of this project. Though we are not directly involved in offshore wind project, we support them. So I just wanted to give you a quick update. ZEPAK signed a JV agreement with Orsted, the global leader on the offshore wind market. Together, the 2 companies will apply for location permits to construct offshore wind farms on the Baltic Sea. And finally, SMR, small modular reactors. This area remains in the phase of analysis at the moment. Moving on to the second goal. Together with ZEPAK, we want to become the leading producers of green hydrogen in Poland. Like I said before, our goal is to construct the first complete value chain of a hydrogen-based economy. And how are we going to do that? First of all, in order to be able to produce green hydrogen, you need green energy. This is where goal #1 comes into the picture. We will produce green energy from biomass, solar and wind plants. The second step is to produce the hydrogen. We want to install electrolyzers with a total capacity of 100 megawatts, which means that we will be able to produce 40 tons of green hydrogen daily. We already have the first permit for the installation of 50 megawatts of electrolyzers, and we have confirmation that the first 2.5 megawatts electrolyzers will be delivered in Q3 of this year. In the scope of storage and transportation, we use mobile hydrogen storage systems with fourth-generation tanks. More importantly, we have already ordered more and larger mobile storage systems. In order to distribute our hydrogen, we plan to build a network of 30 refueling stations. And we are now awaiting for our first permit to construct such a station in Warsaw. We also want to stimulate demand for green hydrogen, and to do so, we are working on the end-user products. As you may recall, I told you in December that we are focusing on hydrogen fuel buses and cars. We have completed the prototype of the bus, and it's currently in the process of homologation, which is doing very well. We are also in the face of preparing the construction of a bus manufacturing plant, which will produce at least 100 buses yearly. We also aim to popularize, I can say, hydrogen fueled cars in Poland. Today, the car fleet of Polsat Plus Group already has 100 cars, Toyota Mirai and Hyundai Nexo. So as you can see, we take ESG seriously, and we already initiated the change within our own car fleet. We believe other ESG-focused companies will follow soon. So to sum up the activities in the Clean Energy, as you can see, we are already actively engaged in projects aimed at achieving the goals outlined in our Strategy 2023+ as fast as possible. Okay. Now finally, you can see how our good operating results translate to the financials. Finally, I'll give floor to Kacha. Thank you very much.

Thank you, Maciej. Welcome, everyone. I would like to show you how our operating results discussed by Staszek and Maciej are reflected in our financial results. Before I start, I just wanted to say that I expect that the projects presented by Maciej in the last few slides will have a positive impact on our financials already in the midterm. Our key financial results for Q4 2021 are presented on this slide. Solid growth of revenue by 2.7% but with EBITDA erosion by 6.2%. Please remember that in Q4, especially in November and December, we saw strong inflationary pressure and certain disruptions on the market. And this level of EBITDA is the reflection of my decision to approach our cost base conservatively this quarter. I wanted to be prudent this time as the inflation will definitely stay with us for some time going forward. Nevertheless, please note that our ability to produce cash flow generation remains strong. In 2021, free cash flow increased well over PLN 1.4 billion, up by 13.2% year-on-year. Please note that this free cash flow stream includes 6 months of cooperation with Towerlink Poland for the use of the mobile network. And as you can see, this cooperation was broadly neutral for our recurring cash generation, as I have guided a few months ago. Net debt-to-EBITDA at the very low level of 1.01x EBITDA. The main reason behind this drop is the accounting effect of the sale of our infrastructure and the cost settlement of this transaction. Let's take a look at the same metrics but in the full year perspective. In 2021, total revenue increased by 5% to PLN 12.4 billion on the back of the strong RPO dynamics and excellent performance on the advertising market that Maciej and Staszek talked about before. I want to highlight here that in a full year perspective, our retail revenue went up by almost PLN 300 million, which reflects our focus on building customer value on the saturated markets we operate on. Like-for-like EBITDA in the full year increased by 2.4% to over PLN 3.6 billion. If you recall our conversations during the past year, you will remember me guiding for a single-digit EBITDA, so I delivered my promise. Staszek mentioned the record-high EBITDA in the Media segment. And indeed, it was over PLN 600 million. So big applause for you, Staszek, for this phenomenal result. Free cash flow and the net debt to EBITDA are the same for the year as for the quarter. Going a little deeper into the composition of revenue and EBITDA. You can see on the chart presented on this slide that both segments contributed positively to both revenue and EBITDA growth in 2021. On this slide, EBITDA is presented on a like-for-like basis, that is, excluding the NetCo transaction. Coming back to free cash flow, over PLN 1.4 billion in 2021. This is a very strong result, and I'm really pleased with it. Let me turn your attention on this slide to the fact that over the past 3 quarters, we have been building inventory, which puts negative pressure on free cash flow. Please remember, however, that we are functioning not only in a state of pandemic and economic disruptions worldwide but also in a very complicated geopolitical situation. In this slide, I think that increasing inventory should be perceived as a security measure as it allows us to continue operations as usual despite logistical challenges. This inventory con -- includes not only telco equipment but also equipment for solar farms, which will enable us to develop our business according to plan. Cash flow evolution in 2021 presented on this slide reflects the inflow of proceeds from the NetCo sale, over PLN 7.1 billion, and our outflows on M&A projects in the amount of PLN 1.4 billion. We acquired, among others, the remaining stake in Netia and a 10% stake in eObuwie.pl and Premium Mobile. In 2021, we also paid out PLN 1.2 billion in dividends. I would like to stop here for a moment to remind you that in 2021, we paid the dividend for 2020 as well as the second tranche of the dividend for 2019, hence the accumulated sum of PLN 1.2 billion. Going forward, we acquired treasury shares for PLN 2.5 billion and repaid our indebtedness under the revolving credit facility in full. The CapEx-to-revenue ratio in 2021 was 9.3% and is a blended ratio that includes 6 months of CapEx-intensive rollout of our 5G network and 6 months of operations in the CapEx-light model after the disposal of our infrastructure. In 2022, CapEx-to-revenue ratio referring to our TMT segment will continue to decline, as I guided before, towards approximately 7%. Please note that this guided 7% ratio excludes any investment in the Clean Energy segment. Despite all uses as presented, we ended 2021 with a very strong cash position amounting to over PLN 3.6 billion. And to my last slide, the debt of our group, I would like to stress 2 points on this slide. One is the very low leverage, only 1.01x net debt to EBITDA. The other is the significantly higher cost of debt service, 5.1% based on the most recent interest rates in Poland. I cannot exclude that this parameter will go further up, given potential further local interest rate hikes as expected. The structure of our debt and its maturing profile remain unchanged. This concludes the financial part of the presentation. I think that we have delivered a very solid set of financial results this year despite the pandemic. Strong organic growth of revenue, single-digit growth of EBITDA, very strong recurring free cash flow. I'm very happy with these results. And I can only congratulate my colleagues on their success in the operating area. Thank you very much, Mirek. Back to you for the summary.

Thank you, Kacha, Staszek and Maciej, for the presentation. And congratulations on the excellent operating performance and financial results. Well done. Ladies and gentlemen, in 2021, we have achieved all the goals that we have set for ourselves. We have built the coverage of our 5G network, and today, already 19 million people can use our 5G services. Let me just remind you that the original goal was to cover 11 million people. We introduced new 5G tariffs, which support the consistent building of RPU in the mobile service segment, as presented by Maciej before. Already 2.4 million customers use our multiplay services provided in line with our motto: for everyone, everywhere. We invest all the time in attractive content for our viewers, and we have launched 2 new streaming platforms and applications: Polsat Box Go and Polsat Go. We dynamically developed the scale of activities of new companies in Polsat Plus Group: Netia in fiber optic networks, Interia.pl on the online market and Esoleo on the solar panels market. Together with Asseco, we continue to implement IT solutions that support the day-to-day functioning of our group. And finally, we maintain high margins and generated a high level of cash, which allowed us to pay a record high dividend to our shareholders. In 2021, we also launched some additional initiatives which will have crucial impact on the development of our group in the future. First of all, by entering into the strategic partnership with Cellnex Telecom, we switched to the CapEx-light [ TMT ] business model. And at the same time, we gained funds to develop new business segments. We acquired full control over Netia, and we are continuing the process of expanding the coverage of our optic fiber offer. We have implemented our new brand strategy in order to harmonize and simplify communication with our customers and to achieve synergies between our brands. We have announced the Strategy 2023+ of Polsat Plus Group, which assumes further development of our key business segments: connectivity under the Plus brand, content under the Polsat brand and the new strategic segment, Clean Energy. At present, we are in the process of acquiring assets that will allow us to implement the goals of the new Strategy 2023+. Finally, I would like to say a few words on our priorities in 2022. First and foremost, we will concentrate on implementing the Strategy 2023+. This means that we will continue to roll out the best and the fastest 5G network in Poland, together with our partner, Cellnex. We will offer the best possible 5G services with transmission speed of up to 600 megabits per second. And we will expand the reach of our fiber optic offer for everyone, everywhere. Our focus will remain on consistently building customer value. We will invest in attractive content in order to enhance the programming offer of our IPTV and DTH platforms. And we will develop the unique offer of Polsat Box Go. We are going to acquire PAK PCE, which will allow us to rapidly construct assets that produce clean energy and green hydrogen. We'll work on concept of the development of the Port Praski project in the following years. We will arrange financing agreements, which will support the execution of our Strategy 2023+. We will aim to maintain high margins and strong cash flow generation from the TMT business in order to continue paying attractive dividends to our shareholders. Thank you very much for your attention.

[Operator Instructions] I can see questions coming from Nora Nagy from Erste Bank. Two questions from my side, please. The first one, what would be a realistic EBITDA margin range to expect in 2022? And the second, is there a target in place for 5G coverage by 2022 year-end?

As far as EBITDA is concerned for 2022, realistically speaking, we would be happy if it would be flat because we think that at least the increase in the revenues might be a bit suppressed by the pressure on cost. So flat EBITDA would be the realistic one for us this year. Of course, excluding the new businesses that we're going to acquire that Mirek and Maciej were talking about.

Maciej Stec. And in terms of second question about 5G coverage, so in terms of 5G coverage, 2021 was cherry picking period for us. We cover the most dense areas. Hence, 19 million posting coverage of our 4,000 sites. It was very quick, as you can observe. In fact, in 2022, increase in coverage will not be as dynamic. Our focus will mostly be in densifying the network. So we will be looking for the areas where the usage in the most intensive -- is the most intensive, and customers may soon need more capacity. And we will be looking for specific spots where our 5G is still unavailable even though neighbors already have it. And we still wait for 3.5 gigahertz band auction as it would help us in building capacity of the already existing network, but there is no clarity as of now on the timing of the potential process. So that's more or less the answer.

[Operator Instructions] I do not see further questions as of now. So I'm passing the floor to Mr. Blaszczyk.

Thank you for your participation in today's presentation, the financial operating results of Polsat Plus Group, and have a nice day. Thank you very much.

Thank you.

Bye.

Thank you.

Thank you very much.