Digital Network SA (DIG) Earnings Call Transcript & Summary

Ladies and gentlemen, we warmly welcome you to the roundtable of Digital Network SA. I am very pleased to welcome Digital Network's majority shareholder and owner of Epicom Ltd, Dariusz Stokowski; CFO, Aneta Parafiniuk; and COO, Damian Rezner, who will guide us through the presentation shortly. Regarding your questions to the Management Board, please note a special format today. [Operator Instructions] And having said this, I'm handing over to you, the Board, for the presentation.

Thank you very much for the introduction, and thank you very much for the opportunity. As you say, we are Digital Network. We will show you the presentation. After the presentation, of course, and during the presentation, we are open to answer all of your questions. We will start with a short introduction to the market, then some information about us and our future plan, and, of course, the finance data. So maybe let's start with a short description about Poland and Polish market. Poland is now growing rapidly. We just overtake Belgium and Sweden in terms of economic power. EU funds drives our growth, our country growth. We are building new infrastructure. We are building new roads. We are building new railway stations, subway stations. And because of that, Polish citizens are more outside, more in outdoor, where they can spot our advertising screens and our advertising screens are used by our clients. We are selling ads. I will give you more information in a few slides about this. And thanks to that, we can reach them. As you can see on this slide, Poland is growing rapidly. Mobility is booming. Airport traffic is estimated to grow by 10%, 20% in just 2 years from now. HoReCa industry is growing. Hotel industry, railway traffic, everywhere where we are building our screens, we can assume that there will be bigger traffic. So that is one of the reason of our current situation and one of the reason of our success. And the second is the digitalization because outdoor advertising is right now reshaping traditional industry. The digital screens are appearing everywhere. The same happened in [ electromotive ] industry. The same happened in entertainment business. And right now, all over the world, location like Las Vegas, the Sphere, are popping up. Thanks to the technology, thanks to the new solution and invention, now we can spot such spectacular screens all over the world. They are in the size of the buildings in Seoul, Chengdu, Riyadh, as you can see on this slide, such screens appears and the same is happening in Europe. On this slide, you can see how expenditures are growing. According to World Out of Home Organization, global digital out-of-home revenue grew by 30% year-to-year. And digital out-of-home is right now responsible for more than 47% of total income in whole advertising -- outdoor advertising industry, and also the way how the screens are being bought is changing. The programmatic is on the rise. Programmatic is a way of buying screens dynamically from one platform. The digital ecosystem is now growing and programmatic is connected with this ecosystem. Currently, more than 20% of all DOOH revenue is now traded programmatically and growing fast. So we are taking some budgets from totally different pool from the digital one. Of course, the same situation is happening in Poland. Poland's digital advertising market is growing dynamically, and it is already worth almost PLN 9 billion. And on this slide, you can see how DOOH drives the market. If we compare the 2 quarter of 2025 to 2026, we will receive a result around 32% of growth. And now about us. We are the owner of Poland's largest network of DOOH and out-of-home advertising displays and spots. We are -- we have the most premium locations in key cities and most important transport hubs. All of those screens are connected with long-term contracts, and we are building modern infrastructure. So new tech is currently introduced to improve the way our inventory is [ bought ]. On this slide, you can see some of our locations. In our business, the most important thing is location. Location, location, location. 20,000 screens that reach more than 13 million daily audience. We are present in more than 300 cities across Poland, on railway stations, busy roads, airports, shopping centers, everywhere where we can meet our clients. We have 3 main products, premium outdoor locations based on LED technology, those biggest, bigger ones. They are starting from 10 square meter to even 800. The products on railway stations, and a lot of screens in retail media chains. And about revenue mix.

So maybe before we go to some details regarding revenues, I would like to maybe summarize what was said and shown to you until that moment. So we are the biggest company in Poland managing the infrastructure of digital outdoor screens that are used for advertising here. So what is important, we are the leader of the transformation of that market because market is going through big change. It's like electric cars or like Netflix revolutionized the certain sector of the market. So we are doing same in Poland with the outdoor business. We are digitalizing that segment, and we are leader of that transformation. That's why we are growing so fast. That's why we are from -- we have typical history of from zero to hero. We are now bigger company than Stroer in Poland. We are bigger company than Bauer Outdoor Media. We are bigger than Clear Channel, which was sold to Bauer. So those names probably mean something to you. As originally, they also operate in Germany and in the Western Europe. So we are bigger company in Poland than they are. And we did that because from the beginning, our strategy was based on digitalization and on the digital out-of-home idea. And we, very often, we hear that question, why you did that success? Why you beaten other big players on that market? So we -- that's why we show those examples with Tesla and with Netflix because it's the same answer. They were too much holding their old business model based on traditional outdoor structure, and we are completely different. Our DNA is technology. We are also creating completely different content. We're managing sales in a completely different way. And from the beginning, we were digital. So I think this is the main element of our success. And what Damian showed you at the beginning, which is very, very important, that Poland also is going through big transformation because we are beneficiary of the big European funds. Most of that money goes for building infrastructure, building new roads, modernization of railway stations, airports, et cetera, et cetera. So it also gives us much bigger opportunity to allocate our network to get the best locations, and also the whole demographic shows that more people outside, spending their time in the restaurants, traveling. So all those elements create that path of growth for us and for our business model.

So we build the biggest network for now, and because of that, we can create the products that our clients demand based on different touchpoints. What is also important, we are not selling ads, we are selling audience. So like you can see on this example, our clients are buying packages of audience in different touchpoints, and we create the products.

What is also very important, and maybe we'll show you in the next slides that we are -- because we are digital, we also sell our products as a digital product. So our, let's say, pool, our sector that we operate is not only outdoor, not only money that the clients spend on outdoor campaigns. We're also taking over money and budgets from digital segments. We could also share with you the latest, our example, which we call cat. So this is our campaign that we created on our newest, biggest screen in Warsaw, which is actually biggest screen in -- 3D screen in Europe, which was launched in July this year. And this is the campaign with the cat that got over 60 million views over the internet, over social media, Instagram, Facebook. So we transfer the digital in outdoor advertisement into social media budgets.

This is similar like in the Sphere, Las Vegas. Most of us didn't go to Las Vegas and have opportunity to see it on their own eyes, but almost all of us saw it in the internet. And this screen is sold not by the number of people who are there, but the number of views in the internet, and that is the big advantage.

So this is completely different model, monetizing the outdoor space. So this is very important here because it gives us completely different opportunity. I mean the new opportunity for generating new margins. So our goal is to develop and grow that company, not only as an outdoor company, which, let's say, if it's digital, it's a new way of outdoor, yes, but we want to go into content which will be also generating social media reach and coverage. So this is, let's say, also one of the foundation of our strategy, and we can show the proof that we already -- it's not only theoretical. This is something that we do. This is something which actually happening. And I think this is also why we are growing so fast, and why taking that position to be the leader of the market and growing more and more. So first, location, location, location. Second, digitization. And third, content that can be also...

Move from outdoor to digital. Especially this is important for new generations, for Gen Z and the other generation.

Unfortunately, we cannot show you the video because that cat is, it's a 3D technique. So actually, it looks like he is walking out of that screen. And as I said, it was launched 10 days ago. Now it's 60 million views and growing. So it's definitely the most popular cat in Poland. It's, of course, also compared to Japan phenomenon because -- we could show you the example. This is the cat from Tokyo. Also, one of the landmark of Tokyo and also kind of hook social media culture in that country. So we also follow the best examples, best ideas that we also look at from the global market and try to introduce that in Poland. And we hope we also grow our business to the neighboring countries, Middle East, Europe.

Okay, but maybe we return to the business. As you can see, we have a lot of screens, and we divide them into 2 separate categories. One is the products that are being bought by media houses and agencies, and the second is destined to be sold to direct sales clients and programmatic because we are working with Polsat Media. And maybe some information about Polsat. Polsat is right now the biggest advertising broker in Poland. Polsat is the owner of the biggest TV station. We have exclusive partnership with them. The cooperation now lasts for 8 years. And in 2026, we renewed this.

This agreement for another 3 plus, plus 1 year. So that cooperation also give us some advantage, especially that we sell most of our, let's say, product, I mean, advertising, we sell basically as data as we sell the viewership. So we don't sell location like traditional outdoor does. We sell that together with packages with TV and with internet packages. So this is very, very important part of our, let's say, strength and the business strategy. That cooperation is, as Damian said, lasts already 8 years, and it's renewed for another 3 plus, plus 1 year. So it also gives us big advantage over our competitors, but also give us stable access to the biggest budgets on the market. And we, every year, at the end of the year, we enter the negotiations with the media houses together with the biggest player -- advertising player in Poland with Polsat, which gives us also much stable -- much more stable budgets, and also, help us to plan our development in a more accurate way. Polsat is not only TV. It's also big internet portal, Interia, but also this is part of the group that holds also one of the biggest mobile operator in Poland and some other businesses. So this is important partnership. As Damian said, it's exclusive. It goes both ways, exclusive. Polsat cannot work with any other outdoor company, and we also cannot work with any other media broker. So it's around 50%, 55% of our revenues is based on media houses and Polsat, and around 45%, 50% of our revenues comes from direct sales and from our direct relationship with the rest of the market.

In 2025, we bought Braughman Media Group, and it was very transformational acquisition because we bought a bigger company than ours. Braughman is the leader of premium out-of-home advertising, but not digital, this normal, traditional print.

But big format, which is the most premium part of outdoor market. So that acquisition, as Damian said, we acquired bigger company than us. But secondly, we proved that we can grow through acquisition. And third, the most important, that Braughman holds the best premium locations in Poland. So as you see, this is one of them. It's at very center of Warsaw. But also, what is very important, we are in the process of digitalization of those locations. So the best example is we already showed you, the biggest screen -- the biggest 3D screen in Europe. Two months ago, it was traditional outdoor.

Like you see.

This location, Braughman location. So like 8 months after acquisition, we already did the digitalization of that place. This is important because this is flagship for us, and this is biggest screen, for sure, in Poland, but one of the biggest in Europe. Bigger than Piccadilly Lights in London. And that only one screen will bring us next year around 8% more revenues. So this is the example how we proceed with that acquisition, with that acquired company. We acquired, of course, revenues, and we acquired our competitor. But the most important is that we acquired a fantastic base -- database of the best locations in Poland. Now we are just at the end of the process of digitalization. Another location, which is also the most traffic...

Location in Poland. Yes, yes, very city center.

So it will be launched in maybe 2 weeks. So it also shows that the acquisition is not work -- doesn't work only on numbers -- in numbers, which we show you in a moment, because we have -- we see the fantastic growth. It's proven after first half of that year, but also gives us opportunity to grow our Digital Network for the next 3, 4 years. And this is also one of biggest advantage of our position on the market. And we hope that next year, we'll continue our dynamic growth in the profits and the revenues.

So right now we are building muscles. We are building new locations. We already launch new super screens. That is our most premium digital out-of-home locations. We sign agreement with BP petrol stations to build a network of 18 square meters LED screens. We signed an agreement with Costa Coffee to build more than 300 locations. We just launched new screens in Szczecin and Warszawa on railway stations. This month, we will launch airport, Krakow Balice, that will also be a very premium location that reach those clients that we show you on the beginning of the slide that's connected with this Polish boom of mobility. The next big location will be in Katowice. It's Supersam, more than 100 square meters. We also sign a new agreement with Wroclaw Glowny, Lodz Fabryczna, Kielce Glowne, that are very important railway stations, and we are still building new places based on traditional out-of-home advertising. It's one of the important points in our strategy because, as we said earlier, the most important thing is to secure location in this business.

Location and earn money because some of the locations are not from sometimes technical reasons, sometimes administration reasons, they are not able to be transferred into digital. So we keep them, and we sell them as a traditional outdoor, but big format, which is premium. And there's also big demand on the market for that product. But first of all, we generate additional revenues and profits. And secondly, we lock that locations from our competitors. So it works both ways.

And now one of the most important slides in our presentation about how those investments will affect our results in 2027. Polish advertising markets have these important dates in the calendar. The most important period is between November and December because in those months there is a budget negotiations for the next year. We already built those screens, those locations that we have shown you, but they are -- for now, they do not show its -- their full power.

Full potential in sales because they were not -- they didn't exist last year, November, December, so they were not be able to be placed in a budget for that year. So the true potential we will see next year, as we put all those new locations and the new products, new packages, November, December this year, and it will generate incomes in 2007 (sic) [ 2027 ]. So that slide shows its -- I mean the growth of the incomes. It's a little bit postponed versus growth of the network. It's like 1 year what we built this year, it will generate incomes, mostly in the full potential, next year. So that slide shows how it works and why.

So this is about our network development. Now I will give a voice to Aneta to show some financial slides, but also to show you our strategy, how we are thinking and why we believe that our business will be still growing.

Yes. Let's move to financial slides. As mentioned before, Digital Network has been growing across all key financial metrics for many years. Last year, the company generated revenue of PLN 113 million and net profit of PLN 40 million. The company acquired Braughman at the end of October, which contributed PLN 27 million in revenue and PLN 7 million in net profit to consolidated result. The chart on the right show the profitability margins of our business, which are really very high. Over the past 4 years, our EBIT margin has exceeded 30%. Our EBITDA margin has been above 50%, and our net margin has exceeded 13%. Our goal is to maintain these high margins in the future. The next slide presents our pro forma financial results. These figures show the full year of potential of the group after the acquisition of Braughman. They are based on simply adding Braughman's revenue and results to the group's figures. They do not include any consolidation adjustments. So if Braughman had been consolidated from the 1st January 2025, the group would have reported pro forma revenue of PLN 215 million and pro forma net profit of PLN 52 million. A few days ago, we published our first half financial results, which are really great. Revenue increased by almost 190%, while operating profit grew by 150%. The first half revenue is already close to the full year revenue generated in 2025. The next slide presents our first half financial results compared with the corresponding periods in previous years. The growth trends, as you can see, continues. And I would like to highlight the net profit in the final table. Net profit grew less than the other financial metrics because of higher finance costs this year, yes. So 60% increase is lower than the other parameters. These costs mainly include interest and bank fees for Braughman acquisition and as well interest on lease under IFRS 16. And Digital Network Group has a very strong liquidity position. Our average cash balance over the last 3 quarters was over PLN 20 million. The company borrowed PLN 90 million to pay for the acquisition of Braughman. After 10 months, by the end of August, we had reduced the debt to PLN 50 million. This means that we repaid PLN 40 million just in 10 months. And Digital Network is growing company, and we intend to continue this growth. Firstly, we plan to grow by increasing the number of new advertising screens. Secondly, we plan to digitalize the screens we acquired in the past, and Warsaw Stage is the example. Thirdly, we benefit from the market growth and higher prices. We increase our prices every year. And finally, we plan to increase our level of sellout of the screens we already have. And as I mentioned before, we plan to grow by increasing the number of new advertising screens. In recent years, we have invested several million zloty in new screens. In the first half of 2026 alone, our capital expenditure reached PLN 14 million, and we plan to invest a total PLN 26 million this year. I would like...

Which is more than 4x more than the last year. So it shows the dynamic also on the investment side of our business.

I would like also to draw your attention to return on investment. The payback period is around 2 years. This shows that our investment in new screens have strong economics. And the slide here shows how we've grown so far and how we plan to continue growing in the coming years. So far, our growth has been mainly organic through the addition of new advertising media. In 2025, we added another source of growth through the acquisition of Braughman. In 2026 and '27, we'll continue to operate together with the acquired company. At the same time, we will add another source of revenue through the digitalization of traditional outdoor advertising media. By 2027, we expect that 9% of our revenue to come from the digitalization of traditional outdoor advertising media, while another 13% will come from new media launched in 2026. And at the end, we want to be a dividend-paying company. We have...

And we are. Actually, the last 4 years, we pay -- every year, we pay dividend...

Yes, but we want also in the future. It's our strategy. We have enough cash, both for investments and for dividends. This year, we paid PLN 22 million in dividends. And next year, we plan to pay at least PLN 30 million in dividend. And our dividend policy is to pay at least 60% of net profit as dividend.

We have first question from [ Sebastian ].

The hand was lowered again, but I can still try to...

Sorry. We didn't notice it during the presentation.

Okay. Okay. So we want to be dividend paying company. It was our...

And we want to stay that way because also, the part of our strong, solid business model is that we -- whatever we do, we do -- the main reason is to generate cash, to generate profits. So whatever investment we proceed, whatever location we develop, it's always calculated in a way to create profits. And this is also DNA of our business.