Earnings Call: Q2 2021

Aug 18, 2021

Ladies and gentlemen, welcome to the Q2 2021 results call of the new Polsat Plus Group, as you can see in the brand new branding. As always, we will begin with a presentation followed by the Q and A session. If you have any questions, you are welcome to post them in the chat section. I will now give the floor to the CEO of the product website, Mr. Mjosur Wojciech. Please go ahead, sir. Good afternoon, ladies and gentlemen, and warm welcome to the results call of Pulsar Plus Group for the Q2 of 2021. To begin with, I will tell you about the most important events that happened in the Q2 of this year, and I will invite Maciek to talk about our key project. Then as always, Staszek will discuss the performance of the Media segment, while Macik will tell you about the operating results of our B2C and B2B Business segment. After that, Kashe will present our final results. I will conclude our presentation with a short summary, and then we will move on to the Q and A session. The key events of the Q2. In July, we have successfully finalized and the deal with Cellnex Telecom regarding the sale of our infrastructure unit. I'm convinced that this multi billion delays and will continue to be very beneficial business wise in the future. As promised before, we are dynamically building the best 5 gs network in Poland. Today, already more than 15,000,000 inhabitants of Poland are in the coverage of the best 5 gs network from PloS. We have also finalized the acquisition of the remaining stake in ITIA in order to continue building our cover brand offer in line with our business strategy. As you already know, we have also decided to share profits with our shareholders and pay a record high dividend of PLN767 1,000,000, PLN1.2 per share. And finally, a project that is a source of pride and satisfaction for us. We have introduced a new strategy concerning the portfolio of brands from Polsat Plus Group. Maciek, Could you please tell us about the details of this project? Of course, Mirek. Good afternoon, everyone. Like Mirek Said this project is a milestone in our 30 year history and we are very excited as we begin this unique and challenging rebranding project. The world is changing and we are changing with it. The needs of our customers are evolving and we believe that the strategic project is going to help us meet those needs. We want to harmonize all the brands of new Pulsar Plus Group in order to simplify communication with our customers and to enhance the clarity of our services. We have decided to single out 2 key brands, Plus representing connectivity and Pulsat representing content. The Plus brand stands for connectivity And within this brand, the most important strategy today is the development of 5 gs as we want to provide better and better services to our customers. Under the Plus logo, we are going to offer postpaid and prepaid mobile services, voice services, 5 gs Internet and fixed line broadband. The Pulsar brand combines content production and distribution. We have chosen to stick with this brand because our viewers and customers know it like it and value it very highly. There are 2 main changes here that I wanted to tell you about. I think the biggest change and the perhaps surprise is replacing the Sephora Pulseal brand with Pulseal Box. We have used that's a proper Pulse app brand for over 20 years. It was introduced at a time of Anawax Television when digital broadcasting was a brand new technology. Today, we want PostUp Box to be a magic box that is technology agnostic and which gives every customer easy access to every technology, be it satellite IPTV or OTT available via set top box, online service and application on the wide variety of devices wherever you are and whatever time you want. Pulsat Box just gives you freedom to access the world of attractive content. In this period, we have decided to harmonize the from a Pulsat Go brands with the larger Pulsat brand and joined them under one name, Pulsat Box Go. This is going to be an online service and a new application providing rich and diversified content on demand and over 100 linear channels available in a paid model, so now ads. We decided to clearly separate our pay and free of charge service. So we have also created a website, a new application Posthat Go, which is already available in App Store and Google Play. This is a free application, which means that it will be fully financed from advertising revenue. Within our TV Production business, we already have almost 40 TV channels that we produce ourselves and a large part of which already have new logotypes and graphics. As you can see on this slide, The slogans fit perfectly with the new visual concept. They are all similar and easy to identify as brands from Pulsat Plus Group, yet they all have unique features. We communicate all these changes with the marketing claim based on the slogan uniquely personal. This means that our customers are free to choose whatever they want. They can fully and completely personalize our products to suit their needs and taste. So to summarize, the core Idea of the new branding strategy is content plus connectivity, Pulsar and Plus. Following the harmonization of Pulsar Group Brands, that's from a Pulsar brand will be replaced by Pulsar Box and 2 new websites and application Pulsar Box Go and Pulsar Go will be introduced. In the long run, we expect the harmonization of brands to generate synergies between the brands and consequently reduced communication costs. Okay. Let's go to Slide number 7. With this slide, we wanted to show you what the rebranding looks like in practice. Major marketing and outdoor campaigns have already been launched. We have published flyers, branded our marketing materials, prepared special gadgets, all in order to familiarize our customers with the new group brands. As you can see, The green represents connectivity that is the Plus brand, while the yellow stands for content, the Posat brand. We have also applied flexible forms or skins, as we call them, that can be easily wrapped around any flat or dimensional shape. I believe it looks very fresh and modern. And again, every marketing element clearly fits to the new Pulsar Plus Group branding vision. I really like it and I'm really excited about it. Here, I would like to show you a short video, our new ad spot presenting our new brand concept, our group manifesto. You may not know the faces that appear in the spots. These are popular Polish celebrities. Those of you who have visited us in person may recognize our capital city, Warsaw, in the background. And I'm sure all of you will recognize the music. Enjoy. Thank you very much, Maciek. Let me just say that I have been working for this group for over 25 years, and I think that this moment is one of the most exciting in the entire history of the group. I am very proud of the direction that Pulsar Plus Group is heading, and it is a privilege to be actively involved in this transformation. And congratulations to all our employees who work on this concept over the last 2 years. Well done. And now back to more day to day matters. Let us tell you about the operating results in Q2 2021, Stafik. Please go ahead and present the results of the media segment. Thank you very much, but also with new branding of the whole group and our TV channels. This is a great and exciting thing. Let's take a look at how our media segment performed in the Q2 of 2021. It has been a year since we bought Interia PL, and I'm very happy with the changes that have been implemented, resulting in a superb performance of our online business. As you can see on this slide, we are one of the leading Internet publishers in Poland, thanks to this acquisition. We are rapidly catching up with number 1 and 2 players on the market with over 20,000,000 of users per month and over 2,000,000,000 page views. It's also my pleasure to report that we have delivered all synergies what have been announced during the acquisition of Entegra PL last year. We are enjoying synergies in terms of content monetization via online channels, and we are selling advertising based on Interiors web pages very efficiently through our media house, Pulsak Media Bureau Eklame. As We have been systematically growing EBITDA result of interior appeal according to our initial assumptions. Let's now look at our TV business. Pulsat Plus Group was yet again among audience leaders in the commercial group despite the temporary impact of Euro 2020 Football Championships, held by public television in Poland. In June, the Polish national football team was still in the championships, though unfortunately didn't make it past the group stage. As you can see on the slide, this has marginal impact on our results. In Q2 2021, Our main channel Pulsat had an 8.9% audience share, while our portfolio of thematic channels gained 15.5% of viewers. As a result, Pulsat Plus Group recorded an audience share of 24.4%, 1.4 percentage points up year on year. Analyzing the advertising market in Q2 'twenty one, you can clearly see that both Broad Market and TD post ad group have experienced a strong rebound in terms of advertising revenue. As I'm sure you remember, the first COVID-nineteen lockdown was introduced in Poland in in 2020 and resulted in a 35% breakdown of the TV advertising market. So this Quarter, we are looking at a relatively low reference point. Our revenues from advertising and sponsorship increased to PLN330,000,000 and return to the level recorded in 2019. As you can see, the growth dynamics is very strong over 55%. I have to say that this is an extremely satisfying result given that we outperformed the broader market by 6.5 percentage points. In effect, our share in the TV advertising pie increased to 28 point 6% in the Q2 of 2021. Let's now look at the same performance metrics of the media segment from our wider perspective of 6 months. As you can see, in the long run, our viewership figures invariably remain within our strategic target corridor of 23%, 25%. In the 1st 6 months of this year, TV Pulsar Group gained an audience share of 20 4.2%. This result was driven by the excellent viewership figures of our main channel, which was a market leader with an audience share of 9.1 percent and our automatic channels portfolio with a 15.1 audience share in the commercial group. How did our performance in terms of viewership translate into advertising revenue? Obviously, The rebound in the advertising market is also visible in the 6 month figures. As a result, we grew our advertising revenue by 26 0.6% to over PLN 600,000,000. And once again, strongly beat the broad which grew by 21.3% in the first half of twenty twenty one. Consequently, we increased our share in the TV advertising and sponsorship market to 29%. Even though this quarter We are benchmarking against a low base. In my opinion, our media segment has performed very well. Our advertising figures exceeded market trends both in the Q2 and in the 6 months of 2021. We are doing very well in our online segment. INTERIOR PL is developing and gaining momentum. I'm very happy with the results of this quarter, and I hope to do as well in the second half of the year. That's All from my side for today. Thank you for your attention. Maciek, over to you for B2C and B2B Services segment. Thank you, Stashek, and congrats to you and your team on the impressive results in the media segment and all the work you guys in terms of rebranding the several dozen of PV channels and launching the post hat go application. And now let's see how we did in our B2C and B2B segment. I'm very happy to say that Q2 was yet another very good quarter for our group. We continue to consequently execute our business strategy centered around our multiplay offer. Over the past year, we have gained 67,000 new Multiplay customers. As a result, in Q2, we already had 2,100,000 customers who are subscribed to our bundled services. This means that Almost 40% of our customer base is saturated with Multiplay products. Naturally, these customers tend to use more and more services. Let us now look at one of my favorite metrics, churn. In Q2 2021, the level of churn invariably remained at a very low level of only 7% per annum. I believe this is not only a reflection of the successful implementation of our multiplay strategy, but more importantly, of our customer satisfaction translated into high loyalty. Next to growing our multiplay customer base, we are also successful at increasing the number of services that these customers use. As you can see on this chart in Q2 2021, we provided a total of 15,400,000 RGUs. This number grew by 447,000 RGUs, that is 3% year on year, mainly on the back of higher sales of mobile telephony services supported by demand for end to end services among our B2B customers. I'm going to repeat myself. This is the effect of the successful execution of our multi play strategy of upselling of services to an individual customer as well as high level of satisfaction and loyalty of our customers. This strategy has another very important effect. It strongly supports ARPU growth. As you can see on this chart, We have once again posted a very dynamic ARPU increase of 5.7% year on year. Every customer from our base generate on average PLN91.4 every month. That is filed Zlotsis more than a year ago. I have to say that this is a very impressive result and Very happy with the execution of our strategy and the rate of growth of ARPU, especially since we've been observing this dynamic upward trend for a few quarters already. The momentum is there and we want to maintain it in the quarters to come. Finally, we have reached my last slide on the performance of our prepaid segment. Our prepaid Services base remains at a stable level of around 2,600,000 services, most of which are telephony services. ARPU in the prepaid segment increased by 2.8% year on year to the level of PLN 22. The draw was supported by high revenues both from content and telecommunication services. A few words just to summarize. This is very good quarter in the B2C and B2B Services segment. I'm very happy with our operating results both in the contract and in the prepaid segments. These results are the reflection of the success of our value oriented strategy. We have 2,100,000 Multiplay customers who use nearly 15,500,000 services, almost 450,000 more than a year ago. Our customers are very loyal and systematically purchase additional services from our portfolio. What makes me especially happy and what is the core of our strategy is the successful build the value of our customers. We posted very high growth of ARPU by PLN5 to PLN91.4. So in a word, excellent results. I will now hand you over to Kasia, who will present to have our excellent operational results translate to our financials. Thank you. Kasia, the floor is yours. Thank you, Maciek. Our operating results in the media segment at the B2C and B2B segment are indeed excellent, and I would like to congratulate the whole Pawsat Plus Group team on this performance. Well done. As you will See on the following slide the excellent operating results translated once again into very strong financials in Q2 2021. As you can see, all our key financial metrics grew at dazzling rates. Revenue increased by 10% to almost PLN 3,200,000,000 and adjusted EBITDA grew by 14% to well over PLN 1,100,000,000. Of course, these results are benchmarked against a relatively low base as Q2 last year was impacted by the first COVID-nineteen lockdown, especially the media segment. Moreover, please Recall that in Q2 2020, we made significant donations for combating the effects of the pandemic in Poland. Our LTM free cash flow increased to PLN 1,370,000,000 at a rate of 7 0.6% in the first half of twenty twenty one. We also systematically reduced our leverage to to 77 in Q2 2021 despite substantial cash outflows on our acquisition project and dividend payout. If we move to the next slide and analyze the drivers behind the solid growth of revenue and EBITDA, you will find that both our business segments contributed strongly. In the B2C and B2B segment, the main growth drivers were primarily strong RPU growth, which Maciek talked about as well as our activities on the photovoltaic market, which is gaining momentum. This segment contributed $142,000,000 to revenue and $72,000,000 to EBITDA. As for the media segment, it strongly benefited from the dynamic rebound on the advertising market that Staszek told you about earlier and the consolidation of Inter Yapel results contributing 100 and €58,000,000 to revenue and €67,000,000 to EBITDA. We continue to generate a strong stream of positive Free cash flow, EUR282,000,000 in Q2 2021. This quarter, free cash flow generation was again supported by solid growth of EBITDA as well as dividend received from Aseco. Thanks to our high free cash flows, we were able to continue our strategic project of fast 5 gs network rollout, which, by the way, already reaches almost 40% of Puls. Here, I would like to flag that this is the last quarter of consolidation of Polcontentlia Infrastructura. Starting from the next quarter, we will transform into CapEx light business model, which means expenditures of 5 gs will not be visible in CapEx anymore. However, please remember OpEx will go up. In Q2 2021, we also settled some late income tax for the previous year and decided to increase equipment inventory for our customers. Let's take a quick Look at our cash position. As you can see, the amount of cash at the end of the period is a little lower as a result of our acquisition projects and the payout of the dividend in Q1, let me remind you that we have acquired 10% stake in successful e commerce platform and continued acquisition of NETYA shares in Q2. Let me also say that the lower amount of Cash that you see on the slide is only temporary because as you are aware, we have finalized the sale of our infrastructure unit to Cellnex. As a result, we have received a payment of about PLN 7,100,000,000 at the beginning of July. So going forward, you should expect to see a very strong cash position on our balance sheet. Let me also Turn your attention to CapEx. You can see on this slide that our CapEx to revenue ratio went up to 11%, which mainly reflects our investments in the 5 gs network. In the future, you should expect to see lower CapEx of about 7% per annum. As I have signaled on the previous slide, starting from Q3 this year, we are becoming a CapEx Light Company. My last slide concerns the debt of Pusat Plus Group. The structure of our indebtedness remains unchanged. 82% of our debt are bank loans and 18% are bonds. The entire debt is denominated in Polish lotties. As I have already mentioned, we have reduced net leverage to 2 77, despite quite high cash outflows. Let me also turn your attention to the average weighted cost of debt, which amounts to 1.6% at the moment. This is the result of the margin reconstruction of our SFA, which links credit margins to leverage. As I have mentioned during our last meeting, we have resumed capital repayments of our debt, PLN 200,000,000 per quarter, as you can see on the chart in the bottom right hand corner. That's all for me. Let me just say that these are exceptionally strong results, the best I have reported for this group, and it is always a pleasure to share such good news with you. Mirak, back to you for the summary of the presentation. Thank Tim? Thank you, Kasia. Thank you, Staszak and Maciek. It is indeed a pleasure to present such excellent operating and financial results. And I would like to congratulate all 3 of you on this exceptional quarter. Naturally, the success belongs also to all our employees. Let me quickly sum up this presentation. I am extremely happy with the excellent results of the strategy focused on improving loyalty and building customer value. We already have 2,100,000 multi play customers. We have sold 447,000 new services. We have recorded ARPU growth by PLN 5 to the level of PLN 91.4. And finally, our churn remains invariably at the low level of 7%. These operating results translate into a very strong financial results. We have post dynamic growth rates of revenues, up by 10% and EBITDA up by 14%. This allow us to carry out all the investments and projects that we have planned and at the same time prepared to pay a record breaking dividend in the amount of PLN767 1,000,000. One of our biggest successes, which makes me very proud, is the development of our 5 gs network. Today, coverage of 5 gs network from PloS already extends to over 15,000,000 poles and we will continue the rollout. I'm very happy to say that the finalization of the unique and innovative transaction with Cellnex Telecom enables us to build the 5 gs network in Poland even faster and more cost efficiently. And finally, we are implementing our new brand strategy. We are harmonizing our brands, which will facilitate communication with our customers and enable us to achieve synergies between our brands. We focus on our 2 key brands, Plus representing connectivity and Pulsar representing content. Ladies and gentlemen, this brings us to the end of our presentation today. Thank you for your attention. Thank you. We will now begin our question and answer session. We've got first question coming from Nora Maggi from Erste Bank. Nora's got 2 questions to us. The first question In terms of how the decrease in equipment sales year on year, what are the results from? Is it due to the high base of the previous year? Or is it rather Lower commercial activity on the market and in our shops. Hi, hello. Machistez here. So just to answer the question, so we still observe lower traffic. So in fact, so we didn't return just to pre COVID traffic in our shops. So that's more or less the explanation for this equipment sales. Thank you. Thank you. The second question concerns our expectation concerning the second half of the year. Nora, I would like to know whether we keep our full year 2021 EBITDA growth expectation, excluding Netco transaction at single digit rate after a strong first half of the year. So Nora, I would like to consider to know whether we can maintain this expectation for the quarter what for the quarters to come? Hello, good afternoon. Yes, indeed, I do keep the growth Thank you very much. We do not see any questions anymore. If you please Any other question to us? Or I can see Rohit Modi from Citibank asking the question. Rohit, the floor is yours. Hi. Thanks a lot for the opportunity. Just two questions from my side. 1, in terms of general market environment given the recent M and A transaction and followed by aggressive drop in pricing from one of your peers. What do you think in terms of current market environment? What do you expect for next year? Do you think it's going to be more you're getting more aggressive in terms of particularly on the convergence side? Secondly, On your investment strategy, I know you already mentioned that you won't be there won't be big dividends. You can't expect big dividends from the proceeds from Cellnex. If you can give more color in terms of the investment areas, particular investment areas where you will be keen to invest, maybe broadband or ICT or e commerce, That will be great. Thank you. Hello. First of all, maybe I will answer you about the proceeds from the Cernex transactions. As you will know, on the beginning of July, we received over PLN 7,000,000,000 from these transactions. And we do not anticipate any increased dividend that would have appear as a result of this transaction. That's the first thing. The second thing is we rather expected these transactions to happen more in beginning on the Q4. So it happens now, and we would like to ask you to give us a few more months to come up with the plan of how we're going to proceed with the future of our group that includes the EUR 7,000,000,000 zlotysine proceeds. And now I Pass the floor to Matti on the question on the convergence market. So hello once again. So To be honest, we focused on our strategy. We execute consequently our multi play strategy, as you can observe, during last couple of years. So it's quarter by quarter, we try to build the value of the customers. And you can see In today's presentation that we've built the ARPU year by year, we've increased ARPU by 5.7%, PLN 90 1 PLN 0.4 PLN. So we really believe that Customers are satisfied from our offers. So that's what we can observe quarter by quarter that we have Still very low level of churn, 7% only whatever happened on the market. So we really believe that satisfaction Our customers and loyalty is key for us. So that's how we build our strategy. And now the project of rebranding should help us also. So we really focus on our strategy of selling multiplay offers. Thank you very much. I do not see any other questions on the chat at the moment. If anybody else is interested in asking a question directly, please raise your hand. If not, I will give thank you for the meeting, and I will give the floor to the President, Mr. Wachuk. Hi, everyone again. Thank you for your participation in today's presentation of Polsat Group's financial results. We meet at the next performance presentation of our group in November this year, and I wish you all the best. Thank you very much,