Orange Polska Sa

Ladies and gentlemen, thank you for standing by, and I would like to welcome you to the Q1 2020 Orange Polska results call. At this time, all participant lines are in listen-only mode. The format of the call will be a presentation by the management team, followed by a question and answer session. You can also follow the flow of the presentation using the online link. So without further ado, I would like to pass the line to Mr. Leszek Iwaszko, the head of investor relations at Orange Polska. Please go ahead, sir.

Good morning, welcome everyone to our results conference for the first quarter 2020. Speakers in today's conference will be Jean-Francois Fallacher, CEO of Orange Polska and Jacek Kunicki, CFO. There will be also on the line to answer your questions two other Benachmed Board members, Witold Groszcz, who is responsible for corporate affairs and strategy, and Jacek Kowalski, responsible for HR. Let me now hand the floor to Jean-Francois to begin the presentation.

Thank you very much. Let's check. Let me start with a quick snapshot on our first quarter results and on our prospects going forward. I will be on page six on the presentation now. First of all, I have the pleasure to say that our first quarter results were strong, both commercially and financially. Number of customers in key services continued to grow. Fiber performance was outstanding. As you can see and read here, our revenues increased by almost 1% year-on-year, driven by key subscription-based services and ICT business. Good core revenues and continued cost savings translated into 6% growth of our EBITDA. These results clearly underscore the strength of our fundamentals and the success of our strategy that we have been implementing for the last three years. In normal circumstances, these achievements would have placed us on a very solid track to reach our full year goals. However, as you know, circumstances are very far from normal. These Q1 results that we are posting today were largely unaffected by COVID-19 crisis and there are now unprecedented challenges in front of us. The Polish economy will be affected for sure in this second quarter and we will see how it develops further so on one hand we believe that our business is more immune to this crisis than many other industries but on the other hand this economic crisis creates for us a lot of risks and uncertainties and for sure we will be affected by it so to address these risks We are internally at Orange Polska launching counteractive measures and taking additional efforts to deal with this situation. Therefore, despite this uncertainty, as of today, we do not change our plan to achieve the growth of our profitability this year and we will closely monitor the situation. It will not be trivial, but I am confident in our ability to act swiftly. I think throughout the recent years, we've proved that we can deliver in a very challenging environment. I will now go to the next slide, page seven. This slide is presenting the key points on how the pandemic crisis is impacting the business of Orange Polska. This is obviously as we see today. Let me spend a bit of time to explain you how the situation looks like in Poland at the moment, especially for those of you who are not based in Poland. For around 10 days, Poland has been progressively relaxing the lockdown. Government has set four stages for this process without giving precise dates when each stage will start and decisions will be based on trends in the infection rates and the health system capacity. We are still in the first phase of this plan when it is allowed to leave all, but everybody must wear masks. Practically all consumer facilities like restaurants or shopping malls are supposed to be open only in the third stage the relaxation so few weeks from now at earliest however I have very hot news as a few minutes ago the Prime Minister of Poland Mr. Morawiecki has been announcing that shopping malls should reopen on May 4th but for now around half of our point of sales remain closed traffic in the open shops in the still open shops is lower by around 60% versus the times before the pandemic. So we are pushing online and telesales channels. And for example, hundreds of employees that used to work in these closed shops are now working remotely as telesales consultants. Despite these moves, that we have taken, we are not able to achieve our commercial goals with respect to customer volumes and equipment sales. This means obviously slower monetization of our more for more strategy implemented last year. Churn on the positive side is obviously also much lower. This is very positive. But so far, and especially in mobile, it is falling less than gross customer additions. Therefore, it is likely to put on hold the growth of our mobile customer base, which has been so far constantly increasing. Over the past months, the government has announced two anti-crisis legislations. I will not go into the details, but for us, the key issue is how they will be helpful to our customers, mainly small businesses that we have quite a big exposure to. One of the key uncertainties is how the pandemic would impact solvency situation of our customers. This crucial unknown factor here is how long will the lockdown last and will these businesses will be able to return to their operation. And this is why the news that was just announced this morning by the prime minister is a very good one for us. Now, let me speak about our networks. This crisis particularly validates the investments in network quality that we have always been in the center of our strategy. Broadband access has never been as essential as today. On this slide on the right side, we are presenting the scale of the traffic growth in March versus February in mobile voice, mobile data, and fixed data. Growth in the fixed network is higher than in the mobile network, which is logical given that people are locked down into their homes. This clearly underlines the advantage of having a fixed network, not just relying on mobile network. And we currently see fiber as a very resilient service and product. One remark I would like to have is that this spike in traffic does not automatically mean that we are making more money. As a vast majority of our mobile customers enjoy unlimited voice plans, all post-pay and important part of prepay are actually on cap data bundles. Fixed internet obviously does not come with data caps. Talking about fiber, I propose that we are going on the next slide. So I'm going to slide number eight. As I already mentioned, the first quarter was very good for our fiber. We counted 44,000 net customer additions. This is the second best quarter ever. We are not far actually from the level we reached in the fourth quarter of last year in the peak commercial season. If we look now at customer adoption rate, it continues to grow. We are now approaching 13%. I would like to mention here that there are already 20 cities in which this adoption rate is higher than 20%. We continue to see a great demand in single-family homes. Adoption rate amongst this customer group exceeds 20%, despite the fact that the price is 15 zloty higher than in multifamily homes, and this is to cover, obviously, a much higher construction cost. In this first quarter, we continue to roll out fiber network in line with our goals. At the end of March, we've reached almost 4.4 million Polish households. The rollout in the first quarter was not affected by the pandemic, but in Q2, it might be. The key bottleneck here is that the investment process requires various approvals and agreements from local authorities, which are usually given in a paper form. In the technology mix, the share of fiber is already higher than VDSL and almost as high as wireless fixed broadband. Q1 performance does not yet reflect the disruption in our distribution network, which I remind is half closed. And a lot of service installation in March were actually a consequence of orders made earlier. From mid-March, customer orders are obviously down, but this drop is much lower in proportion to other services, and pandemic crisis is actually creating additional demand. We even see some revival of demand for our ADSL technology. I would like now to go to the next slide, so slide number nine. the usual slide on which we are presenting sources of value creation through commercial activity and transformation on the previous slide we zoomed on fiber and fixed broadband here we focused on convergence and mobile in both areas we significantly improved the trend in ARPO average revenues as a result of our pricing strategy focused on value As you can see there, Convergint's ARPO is up more than 3% year on year. This is a result of price hikes and the increasing share of fiber and TV in our Convergint base. Customers that we gain and retain generate now higher ARPO than customers that are churning. In mobile, ARPO is still down, but the rate of decline is much lower than it used to be. The key drivers are last year's price increase. In February this year, we launched a new offer for small businesses customers, also in a more formal approach, but as you can imagine, the pandemic and related freeze of commercial activity makes the marketing of this offer a bit more difficult. These better output trends, resulting in our mobile-only revenues being practically flat year-on-year, and Jacek will comment on this more in a moment. Net customers addition in mobile was strong in the first quarter, mainly thanks to our activity in January and February, while March was already affected by disruptions in our distribution network. As I remind, half of our shops are closed as we speak. Looking at the green chart, you notice much lower customer losses in mobile broadband category. These services have been losing appeal for many quarters, but in the first quarter, we saw higher demand from some large business customers. Now, in the lower part of the slide, we are presenting the results of our efficiency transformation. As you can see, we have started the implementation of the new social plan. which we signed in December last year, and we are on schedule with this first quarter. We are still very consistent in our indirect cost savings. They were marginally better than last year, despite the fact that energy prices are higher, and that basically impacted us at the beginning of the year. On the right bottom side, the pink box, you can see a strong performance of our EBITDA in Q1, which has been driven both by almost a stable direct margin. It's, again, the results of the strong performance of our core services and good cost-saving results. Jacek will comment this much more in detail. That's all for me now. I hand him over the floor.