Orange Polska Sa

thank you for standing by, and I would like to welcome you to the Orange Polska 2Q 2020 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. So without further ado, I would like to pass the line to Mr. Leszek Iwaszko, Head of Investor Relations at Orange Polska. Please go ahead, sir.

Good morning, welcome everyone to our conference summarizing quarter two and H1 of 2020. Welcome those who are in the room, welcome those who listen to us and watch us online. Speakers for today will be Jean-Francois Fallacher, CEO of Orange Polska and Jacek Kunicki, CFO of Orange Polska. Let me hand the floor to Jean-Francois to begin the presentation. Thank you.

Thank you very much. Let's check. Good morning, ladies and gentlemen, and welcome to the courageous ones that joined us physically today. Welcome to this conference. As usual, I will start with the business highlights. Jacek Kunicki, your president, will follow with the financial review and then I will say a few words to close this presentation. So let's start immediately with the page six of this presentation with another view of where we stand after half of the year. against our full year guidance and expectations. So as you can read here, our revenues are up 1.7% in the first half. They were growing both in the first quarter and the second quarter. Our original guidance, if you remember, was the growth of revenues for the full year. However, when we presented the first expected impact of the pandemic on these results in the beginning of April, we noted that the growth of the revenues is this year unlikely and we are still maintaining that view today. However, we do confirm the guidance for the growth of our EBITDA for the full year. You see that in this H1 results, we are posting an EBITDA yield that is up 8% year on year. And this performance is combining both our underlying turnaround and the significant impact of mitigating measures that we have launched in the second quarter. Concerning the outlook of the second half, we are still cautious, but we believe that the performance that we are posting in this first half and the countermeasures that we have taken are making us more confident than before regarding the growth of this key financial parameter for the full year. So we are maintaining also the full year outlook for economic capex. although pandemics makes, as you know, the real estate market more difficult. And we are also having prepared some adjustments to offset that difficulties of the real estate market. I would like also to highlight that at the end of the first half, we have achieved the number one position in NPS. This is the Net Promoter Score, a measure of our customer satisfaction. This is meaning that we are now the most recommended operator on the Polish market. We advanced from number three position end of 2018 to number two position end of 2019 and now number one. This was clearly one of our strategic goals set three years ago and this is the evidence that our daily focus on the need of our customers pays off and I'm very proud now that customers are trusting us more. Let me now go on the page seven of this presentation. I think during this COVID pandemic period, our performance in the second quarter proved that our operations are resilient. Relatively fast reopening of the economy that started at the end of April helped us to limit some of the negative effects that we encountered. our distribution returned to normal operations early may when shopping malls were reopened here in poland and since then we observe a gradual increase of the customer traffic in june it was still down 20 versus the level before the pandemic however it is improving in the months of july again We will review the commercial results a bit more in detail, so I will now just mention a few key trends. Not surprisingly, the most resilient service was fixed broadband and fiber in particular. Sales in mobiles dropped much more, but started to quickly recover, especially in the consumer market. Recovery of the business market is a bit slower. Net customer additions in all post-pay services were helped by lower churn, especially during this lockdown. The service that suffered relatively the most was prepay. We lost more than 100,000 customers due to much lower activations of new prepay cards. This was a consequence of clearly the reduced small business activity and much lower sales to foreign residents, obviously caused by the pandemic. These were a few key impacts on our commercial results and Jacek will comment on financial impact during his financial review. Clearly, it seems that Poland is less affected by the pandemic than other countries. Nonetheless, I say it again, we are cautious about the future as today's situation is helped by various government aid programs. And we know that many sectors are going through significant slowdown. This may in particular affect our business customers, especially in the ICT area. We are obviously very closely monitoring the receivables collection and needless to say, our roaming revenues will continue to suffer during that summer period. So now let's have a look on the mitigation measures that we have launched, as I was commenting in the last meeting at the end of Q1. So I am now on page 8 of the presentation. When we presented this Q1 result, we flagged that we were working to adapt to these unprecedented challenges caused by the pandemic. So here are the measures that we have launched. They required a big effort from our entire organization and they are going to significantly help us to achieve our strong performance in Q2. Some of these measures were important enough that we reported them in separate announcements, so they won't be a surprise for you. You could read about the cancellation of the so-called Jubilee Awards and some amendments in the terms of the social agreement of the company. I would like to use the opportunity to thank our social partners because they've been engaging with us in a dialogue and agreed to make compromises that are really serving the best interests of our company and its employees. So on top of these measures we've introduced rigorous cost freeze in many business areas that generated material savings, for example in general expenses, property maintenance and marketing. We have also engaged our resources in renegotiating of certain rental contracts that we are having and we will continue this cost freeze in the second half of the year. As I already mentioned, we also adjusted some of the CAPEX, the investment projects in the light of a tougher real estate market and Jacek will say a bit more when he will present our CAPEX outlook. Let's go now on the slide number nine. I want to comment on the fact that the pandemic unfortunately also affected our 5G distribution process in Poland, 5G frequencies distribution process. As you remember, the auction was suspended by the regulator in April and then canceled by the government in May. At the moment, the timing of the new process is a bit unknown and you know that there will be soon a new head of the UK, our regulatory office. Taking this into account, it seems to us not very likely that the process will conclude this year, but rather next year in 2021. so in such circumstances we decided to launch 5G on another spectrum this was launched on July 1st on the 2.1 GHz frequency that we are also using currently for 4G we are using a technology called DSS that allows dynamic allocation of these spectrum resources between these two technologies. And this is based on the user demand. So this launch of 5G on July 1st makes actually 5G available for around 6 million citizens in Poland, in some of the largest Polish cities. And in line with our value strategy, we position 5G to be available in the most expensive tariff plans, both for consumers and businesses. Obviously, the 5G that we will be able to offer in the future on the C-band will give customers even wider benefits. So that's why we are hoping for the new distribution process to be starting as quick as possible. Let's please go to the next slide on page 10, where I want to comment the fixed broadband performance in the second quarter. As I already mentioned, it was very good for fixed broadband in the second quarter. As you can read, our total customer additions net were 22,000 in Q2. This was the best results in the last six quarters for fixed broadband. All technologies contributed to that. so despite this crisis the demand stayed very strong which is not really surprising given how important internet access became for all our customers however we want to put a bit more attention on the lower chart on the left which is the evolution of the harpo so the average revenue per offer in the broadband only customer base you can see a real turnaround here made over the last 12 months thanks to our last year's price increase and the growing share of fiber in the in the base fiber is contributing as you can see in a number of ways firstly it has the highest share of tv services secondly we have more and more customers in single family houses who are actually paying a bit more to cover the higher construction cost of this type of households And thirdly, we see growing demand for higher fiber speeds, which are also helping this ARPO growth. In fiber, as you can read here, we had plus 44,000 customers net additions in this quarter too, matching Q1, which was the second best ever quarter in the history of Orange Posca for fiber. And June was the best month ever for us. As a result, our fiber penetration, as you can read here, stands now at 13.5% and continues to grow. Let me now take a few minutes to comment on our fiber plans because they were, as you have seen, some media speculations about this recently. I can reiterate that we are actively, very actively working on a project that we called FiberCo. in line with what we said in the beginning of the year because we see room in Poland for more fiber deployments and that we are looking for an optimal way to finance this further rollout that involves potential teaming up with a partner with a financial partner to optimize our future capex Let me underline that the final shape of this fiber core is not yet fully determined. The project is still at an early stage. It is likely that we will include some part of the existing footprint, but it is too early to reveal exactly how much. We are also analyzing how much fiber rollout would be optimal in the future. I mean, new built fiber rollout. These parameters are currently worked out and we will start, hopefully, talking to investors very soon. This is all I can say today about this topic. I just want to confirm that this is a top priority for the company and we expect to extract value from it. And our thinking is in value for the long term. I can also say that the ongoing management changes do not impact this. It is led by Maciej Nowonski, that you all know very well, our former CFO, which is now in charge of wholesale and kept the responsibility of this FibreCo project. Let's now go to the next page. I'm page 11 of this presentation. This is the slide, the usual slide that you know very well where we are presenting the source of value creation through our commercial activity and transformation. Now, I want on this slide to focus more on convergence and mobile. If we look at the customer net additions in both categories, they're strong in Q2, actually better than the first quarter. Obviously, the lower churn during the lockdown period is here a supportive factor, especially in mobile. And the good trend in ARPO is continuing, even if it was distorted significantly by roaming in mobile. As you know, we lost a lot of roaming during this period. If you look at the green box, you can look at the trend in mobile post-pay ARPO is deteriorating in Q2, but again, only due to the roaming effect. If we exclude that factor of the loss of roaming, we would see further improvements driven, obviously, by our value strategy. In the lower part of the slide, we are also presenting the effects of our efficiency transformation. You see that our employment is down by almost 10% year on year. In the first half of this year, around 1,100 employees left the company out of the 1,250 which were planned for the entire year, according to our social plan. The process of leaving of the remaining 150 people has been frozen as it was agreed with our trade union during the negotiation, allowing us to reach these actions that I commented a few minutes before. In the yellow box, you can see the savings in indirect costs. For Q2, they were three times as high in Q1. with around half thanks to the curtailment of the Jubilee Awards. They are also encompassing other savings generated with the framework of the mitigating measure that I presented a moment ago. Now, in the pink box bottom right, you can see the strong performance in the first half of EBITDA. You can notice that the trend in the direct margin has slightly deteriorated. This is related to only COVID increased provisioning that we took and JETSEC will comment on this in further detail. This is all for me now. I give the floor to JETSEC.