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.

Thank you, Jean-Francois. Good morning, everyone. Let's start the financial review on slide 13, where we present the highlights of the quarter. So our Q2 results were strong, with both revenues and EBITDA posting a growth. The growth was driven by our value strategy, coupled with continued very strong cost savings. These helped to offset the first adverse impacts of the COVID crisis already visible in our results. Lower capex reflected us slowing down our investment spendings in anticipation of a potential shortfall in real estate sales. Finally, we generated particularly high level of cash this quarter. This stems from strong underlying performance and also from a significant shift of payments to the second half of the year. Let's review the top line on slide 14. So our Q2 revenues expanded by 2.5% versus the second quarter of 2019. The key underlying trends were unchanged from Q1. Revenues from core future-proof areas continued their very high pace of growth and they increased by over 8% year-over-year. There were three main reasons for this extraordinary dynamic. Firstly, core subscription services, so convergence, mobile only and fixed only. Their combined revenues expanded by 2.3%. This was less than in Q1 only due to the fact that we had a 50% drop of roaming revenues, a direct impact of the COVID crisis. On the other hand, there is strong underlying growth accelerated, driven by better ARPU trends in mobile and in fixed broadband. This benefited from the continuous implementation of our value strategy. Please note that we have a turnaround in broadband-only revenues, as they grew this quarter for the very first time in many, many quarters, thanks to the improving ARPU. The second reason for the overall revenue dynamics was ICT as these revenues were up by 46% year over year, almost by as much as in Q1. This combined the contribution of BlueSoft and an over 20% organic growth of the revenues achieved thanks to a project pipeline developed still before the start of the pandemic. Finally, similarly as in Q1, mobile wholesale revenues benefited from higher voice traffic driven by the pandemic. It's also worth mentioning that equipment revenues were down only 13% as demand for devices recovered relatively quickly after the end of the lockdown. Looking forward, despite the solid H1 figures, we do not expect to achieve revenue growth for the full year. It is due to three main reasons. Firstly, the B2B segment. Our H1 revenues benefited from exceptional growth of ICT, additionally fueled by the acquisition of Bluesoft in the middle of last year. Due to the crisis, we have a weaker sales pipeline for H2. In addition, we will have a much higher comparable base as BlueSoft was already included in our results in the second half of 2019. Furthermore, companies were shielded from the economic crisis in Q2 by the help of the government. As this will not be as much of a case in H2, they might start to optimize their purchases, both in ICT and in telco. Secondly, we will be affected by a further contraction of roaming revenues. This has already been visible in Q2, but this will especially be visible during the summer period. And lastly, we anticipate a smaller growth of wholesale revenues versus what we have seen in H1, as this was largely driven by the lockdown. Let's switch to the EBDA performance on slide 15. Our Q2 EBDA after lease grew by a solid 10% year-over-year. This included a drop of the direct margin offset by very strong savings in indirect costs. So first, our direct margin was 56 million down year-over-year, and this was due to over 40 million zloty of additional provisions that we have booked, which were driven predominantly by the COVID crisis. These combined an additional allowance for prospective bed depths as well as other provisions for other future risk areas. Lower direct margin was more than offset by very strong results in indirect costs. They fell by as much as 13% year over year. Substantial part of this was achieved thanks to the mitigating measures discussed early on. 64 million zloty from curtailment of employee benefits, but also savings in many, many other cost areas. These came on top of the ongoing cost transformation program realized over the third year in a row. Our H1 EBDA is up by 8% year-on-year. This strong performance was much needed ahead of the challenges that are expected in the second half of the year. It gives us more confidence than we had after Q1 results in our ability to deliver the EBDA growth for the full year of 2020. However, we are aware of the potential risks in H2, including more bad depths, and we will monitor the impact of the crisis on our outlook on a continuous basis. Let's now look at the bottom line discussed on slide 16. So for Q2, we posted a 52 million net profit, which was similar to the amount posted in the second quarter of last year. This combines a strong growth of the EBDA and also a number of costs elements that increased below the EBDA. Firstly, continued investments resulted in higher depreciation. This was more visible than last year because 2019 benefited from the extension of certain useful asset lives and this is not the case in 2020. Secondly, we sold less real estates due to the COVID driven tougher property market. This translated into around 40 million lower gains from disposals. Finally, on the positive side, our net financial costs were 24 million down year-on-year due to less interest costs and the strengthening of the Polish Zloty as it regained some of the value since the end of Q1. Over to CAPEX now on page 17. Our economic capex in H1 exceeded 800 million zloty and it was 14% below the H1 of last year. As reminded from this year on, we look at the capex taking into account both the investment spending and also the inflows from the sale of assets. We call it economic capex or e-capex. The pandemic adversely affected the real estate market, as mentioned before, and in result we anticipate less proceeds from the sale of these assets versus our original goals. In order to compensate that, we have slowed down some of our investments in areas including network, fibre and IT. In addition, we've experienced some difficulties to execute the investment projects due to lockdowns of some of our chemistry premises. As a result, we anticipate the e-CAPEX for 2020 in the range of 1.7 to 1.9 billion, so in line with the original projections. Turning to cash flow generation, this is visible on slide 18. Here we generated over 400 million of organic cash flow in Q2 significantly more than a year ago. The net cash from operating activities before working capital expanded by more than 100 million or 20%. This is very strong results. This was driven by strong growth of the EBDA and by lower interest payments reflecting different timing but also lower cost of debt. It was coupled with 86 million less cash outflow for CapEx. Finally, we've reported an exceptionally positive change in working capital. And here, please note that over 100 million of this resulted from a shift of social security payments from H1 to H2, which was allowed under the anti-crisis legislation. So please have that in mind when you forecast our cash flow projections for the second semester. Now finally, let's take a look at the leverage on the next slide, slide 19. Our net debt is lower by 300 million since the end of last year, reflecting our positive cash generation. Our leverage is also slightly lower with net debt now at 2.1 times the EBITDA. You will have noticed that the duration of our debt is below two years, as we have significant loan facilities maturing in May and June of 2021. And however, here, please note that these are loans from the Orange Group, and we are already in discussions about their refinancing. So summarizing, we have a solid structure of the balance sheet and a safe financing position. Thank you for your attention. I hand the floor back to Jean-Francois for the conclusion.

That's it. Let me wrap up our presentation of today. Our commercial and financial performance for Q2 and the entire H1 proved that our fundamentals are strong, our core business is resilient, and we have shown that we can adapt to unprecedented challenges. As I already mentioned in the beginning, however, we remain cautious concerning the second half. Jacek mentioned the reasons. You have them also enumerated on this slide. Nonetheless, taking into account the strong performance that we are posting today on the first half and the mitigating measures that we have initiated, we have, I would say, more confidence than previously in our ability to reach our full year growth target. Obviously, we are continuing to monitor the situation on a constant basis. Now, as you know, I am leaving Orange Polska at the end of next month. I accepted the offer from the group to take the position of the CEO of Orange Spain. I want to state here in front of you that I am very proud that I was part of the Orange Polska management team and part of this organization for the past four years and a half. I think together we managed during this time to break a multi-year negative trend and prove that in Poland the growth is possible. Now I am very pleased that my successor will be Julien Ducarot. I worked with Julien very closely in Orange Romania during five years. I'm convinced that he's the right person to continue this turnaround of our company and that he's the right person to continue bringing it back to the road of growth and value creation. I will ensure a smooth transition of my responsibilities to him during this summer and hand him over on September 1st. Thank you very much for your attention. Once again, thank you for those of you who joined us physically in the middle of the summer, and we are ready now for your questions.

Thank you. We have questions from the floor. We start as usually. Please...

Hello, Paweł Puchalski speaking, Santander. Can you hear me? Yes, very well. Well, so let's start. One of the first slides you canceled out, well, you said it earlier, but now officially you are canceling your growth for top line, but this is not enough. Well, canceling growth is, I would like to know whether it should be flat because there is one thing missing. It should be said. we are expecting flat revenues or we are expecting declining revenues. You are constantly providing us with growth, flat, and suddenly it's nothing but cancelling out growth. That would be my first question.

So, Paweł, I think what this reflects is that we have high uncertainty over the top line with a lower possibility to compensate that than on the EBTA side. And then the main uncertainty is on the top line. This is basically, first of all, roaming. Second of all, the level of revenues that we will be able to generate from ICT. This is much less of a recurring business than our standard telecommunication services. Continued, I would say, uncertainty over the level of sales of equipment. And that basically led us to decide not to guide for revenues for this year. We're not anticipating a tragedy. We're merely reflecting on the fact that this is less predictable than it was before and more driven by one-offs. You will have seen that already in Q1 and Q2. Revenues were driven up significantly by ICT. They were driven down significantly by loss of equipment revenues and also roaming. And they were again driven up by more wholesale revenues. So not wishing to be, I would say, in a position to revise or to comment this every forecast that we make. We've decided, well, not to guide for growth and not to provide a very specific guidance, but as I'm saying, we're not forecasting some kind of a steep decrease. We know that we are, the core of our revenues are very resilient, especially internet is proved to be very resilient. And so those revenues that are driving our margins, they are performing very well so far. We expect them to continue to perform well. I think the uncertainty is rather in the lower margin revenues which might be much more volatile.

Okay, so coming back, well, I've heard a lot of times repeated uncertainty, no tragedy. Well, shall I read it as we expect decline, but we don't want to say, but because we are not forced to say anything and it's better to say nothing than to say decline.

We can play on words and discuss. I think this is very clear. We just want to be cautious on what we are telling you about revenues in H2. That's all. I mean, as Yetsek is rightfully saying, there is no drama. We do not expect a sharp decline. especially after what we see in the first months after COVID. However, again, in ICT, there are some question marks. In B2B, there are a few question marks. On devices, sales, I mean, obviously, we've lost some revenues in H1. And, you know, we're still in the middle of this pandemic. So, you know, some people are talking about a potential, which we hope not, but a future lockdown. So we're just cautious. That's all.

Another question on Fiber in general. Firstly, I need to address Fiber Co. It was a very hot topic recently and you've said things today. and i want to make sure are you looking for a partner for new projects because you said a moment ago that you are looking to reduce your future capex or you are taking into consideration an option to invite partner to your current i don't know three billion worth of investments so would you potentially invite partner or sell your current fiber network or you are just looking for a partner for future investments?

So it's actually the project is something it's a mix between those two so what we are aiming to is to clearly creating a vehicle which will on one side take what we call the new build for the future. So we are looking at the upcoming five years. So that will be the role of Julien Ducaro, the new CEO, to come back to you with a new strategic plan probably in the beginning of next year with this plan. So it's about indeed the new build. But we are also looking to put in this vehicle a piece of the existing build to make this company more attractive to financial investors clearly. So it's too early to tell you exactly how much will be this new build in terms of number of household passed and how much, what share of the existing footprint we would like to put in there. That's precisely what we are fine-tuning right now and going to present to the investors actually very soon.

Okay, and the final question also on fiber. Well, for many, many quarters you've been so proud of your fiber investments. You are today so proud of your high fiber additions. And suddenly, well... I understand you are cutting capex because you do in uncertainty, but I noticed somewhere there that you are also cutting capex on your fibre investment.

We're not. Not on fibre.

I found it somewhere, I think, or maybe it's my mistake, but I think it's said somewhere there that fiber is also cut.

So fiber is not... You were saying that some of the projects were delayed, not cut.

Well, the wording between delayed and cut, so you are not cutting, you are delaying fiber.

No, just to be very clear, we are not cutting our fiber investment. We are not delaying our fiber investment. There was linked to, again, this lockdown that started mid-March. A bit of a slowdown. This is linked to that. That's all. Fiber is something we are preserving. I mean, especially after what we saw during these last months, where it's been very resilient and there is even more demand than before.

Okay, and very last, I think. Well, your results are strong. I know there is uncertainty about second half, but again, results are strong. Free cash flow was strong. I know it's one of driven, but still. Your net debt is down. Your net debt to EBITDA is 2.1. It looks like quite a healthy situation and then you are saying you are cutting capex. Is it too early to cut capex? I know that your real estate in 2020 will not go as smoothly as they were expected by you, but you are cutting capex right after, well, four months of problems. It looks like either you've got long-term visibility and the outlook is not great, or maybe you've got your internal net debt to EBITDA targets, which might limit future dividend. Which of these might be correct?

Just to say again what Jacek has been saying. The reason why, first of all, we are not cutting CapEx, we are delaying some of the projects that can be delayed. Not Fiverr, but other projects. So it means that instead of engaging them now, we will prefer to engage them probably next year. And the reason why we do that is because we are cautious. We want to respect our eCAPEX budget, basically. And we are worried that we will not sell as much as real estate as initially anticipated. That's the only reason. There is no long-term outlook reasoning in this. This is just being cautious, respecting our budget in terms of ICAPEX. That's it. I mean, clearly, we believe Orange Polska is on the good path to turn around. You have seen it. These results of the first half are confirming that. So if you look also at the country, Poland, compared to other European country and the macroeconomics of the country, In these complicated times, I mean, this is quite a positive outlook, actually, if we look further than this crisis, because we all hope that COVID will be gone in, we don't know exactly when, but sometime from now.

And that's why I'm surprised you are cutting your CapEx, you are delaying your CapEx right now. Well, okay.

These are very uncertain times right now. And I think this is just a response to those uncertainties.

Hello Dominik from Trigon brokerage So just if I may if you could comment a bit more and so that we could understand how flexible you are in this fiber Co project so In Portugal we had altis Extracting significant part of a BDA at very high multiples which could be understood that The infrastructure fund has lower weighted average cost of capital, so it kind of immediate value created for shareholders. So is this an option to extract a meaningful part of your EBITDA, like more than 10% into FiberCo and then sell it?

This is not the way we are building this fiber core. I would say the strategic rationale behind this fiber core is clearly one. We believe there is really still room to deploy fiber on a profitable basis and creating value in Poland. Further than the 4.6 and the 5 million households that we are planning to build at the end of the year. So what we are really looking at is a way actually to share the necessary investments in a way also that would keep our room of maneuver, Orange Polska, for actually potential future 5G investments. Because let's not forget, even if I was explaining this auction has been delayed for the frequencies, we hope that this auction will take place the sooner as possible and we will need to pay for spectrum one and second deploy a 5g network so we will need capex for that and as well you all know because this is what all our investors are requiring that at some point we should return to dividend so this is this kind of equilibrium that we are having in mind and this is the main strategic rationale of creating this fiber core

No, I think this was clearly said. I think you're right about the lower cost of capital for the infrastructure funds. But while we may benefit from this, and this is one of the factors that need to be taken into account, the idea of the project, it's not to... 100% take benefit of the financial engineering. It has a much wider strategic rationale and as from transformation it is about continuing to roll out and continuing to exploit the opportunity that we see to create really more long-term value. And I think it is important, this long-term is important in our thinking. We will be structuring this deal, this project, to extract long-term benefits. It's not just for the short term, it's for the long-term benefits and value creation of Orange Polska.

Okay, so when do you think we could hear more news flow from your side on the project, like end of this year or beginning?

Sorry, the future management will obviously keep you posted every quarter on the progress of this project, clearly.

Okay, and the second question, thank you for this, maybe if you could comment on the fiber in general, because we had this very good quarter really in ARPU. So do you think this was kind of one of COVID effects or do you see this as a new trend on the Polish market that this high-speed internet is gaining traction?

I think it's both. To me, it's quite obvious. I mean, probably most of you have been locked down with your families in your apartment or in your house. with yourself working remote, probably your wife as well, the kids doing remote learning. So basically, more than ever, it is key and important to have a very good internet connection at home. So what we have seen is that fiber, but actually more generally, as you saw it, fixed broadband was very resilient because people really badly needed it. So that's this one-off effect that you are describing, but it will stay because there is still the fear of a potential second lockdown. And there are still a lot of people still working from home. I mean, if we look at Orange Postcard, we have still a lot of employees working remote. Not everybody came back full-time to the offices, as you can imagine. So this need is still there for... a time that we're not capable to say how many months this will last now, but I think it's really going to be deeply rooted in the mind of the consumers that the fixed internet broadband at home is important. So this crisis has a positive side for us that it's really reinforcing the need of, and fiber is king in the things broadband, obviously. is the king or the queen, whatever you prefer.

So in the retail business, you think this pace of client additions could be maintained for the second half?

That we will see, but...

Okay, and the final one, if we could address the mobile business, the mobile market. We saw Play adding extra promotion for mobile number portability clients. So could you comment on how is the situation? and if you will see in the second half of the year still this RPO effect from previous year's price hikes.

Yes, we believe we will see this effect from previous price hikes, because as you know, we have been doing it in such a way that it's not an immediate effect on all the bays, but it's through retention and acquisition that... These price hikes are taking effect. So the more time is going on, the more these effects are actually benefiting us. That's one. Concerning mobile, it's quite interesting what happened. I mean, there was a complete freeze of the mobile network portability during this lockdown period. So because half of our retail network, not only ours, but our competitors was closed. People had something else in mind than switching providers, so churn was almost zero during this month and a half of lockdown. Now we are back to normal. What we can see on the mobile network portability is that everybody is, first of all, it's quite a reasonable number of people that are porting between different operators, even if it's back to normal. So, I will not comment what our competitors' moves are on this, but what we see happening on the market is still, I would say, very reasonable and value-driven moves from, I would say, the main key competitors.

Okay, thank you. Thank you very much. Let's now switch to our teleconference listeners. Operator, please.

Thank you very much. We will be now moving to the Q&A part of the poll. If you have a question, please press star 2 on your keypad. That's star 2 on your keypad for any questions and wait for a name to be called. We'll give a minute or so for the questions to come in. Thank you. Our first question comes from Mr. Marcin Nowak from Ipopema. Please go ahead, sir.

Good morning. Thank you for the presentation. Just two questions from my side. I would like to clarify, because it was said that you just considered the part of the existing fiber network may be moved to the FiberCo. Could you comment how large part of existing network and what would be the possible decision, parameters for such a decision, or what are the restrictions for not moving part of the network to the fiber code?

Thank you for the question. So as we mentioned, we are quite early on in the process. And to be honest, we are fine tuning the answers to your question as we speak. So I will not be able to deliberate on that extensively. What we can say is we're not ruling out to put some of the existing network into this vehicle. Regarding the parameters, this would obviously be long-term consideration of which potentially part of the network moving which part of the network could give us the the the the good benefits um obviously fiber is critical for us fiber is a strategic asset um that's why all we can say right now it's we are considering to move parts of the existing footprint this part which will create the most value for us in the in the long term sure and regarding the monetization model

Do you plan for the FiberCo to work as a wholesale operator for all operators in Poland or only for Orange Polska purposes?

No, I think realistically if we're saying that we want to extract value, this would need to be value extracted through an open access network. This is probably the only model which enables you to extract reasonable value.

Okay. And the second item, I just saw that on the Orange France call, the CEO of Orange said that the share of oil in Europe will shrink, and that the decision regarding free oil presence in 5G in Poland and Belgium could be decided. Could you comment on your plan regarding possible decrease of or reservations from from use of huawei in fact general in poland maybe in 4g and what would be the possible cost for it because i also remember that just this week uh the cost for poland in general from revisions from huawei will be uh quite large and uh what are your thoughts about

So first of all, the question of Huawei, the risk concerning Huawei is obviously in what you see happening in many geographies is the question of what we as equipment supplier for 5G. So what we are clearly stated and I was recently having an interview in the Polish press and reiterated the fact that obviously you're limiting the number of suppliers in this field. whatever the reason this would be for, would limit the competition and therefore might have implications on the future prices of 5G equipment and therefore our capacity to roll out as fast as it could the 5G network. So that's, I believe, still valid. Well, at this stage, I think we are analyzing different scenarios, but it's much too early to have any statement concerning this matter. as regards Poland, because we are, as you know, first of all, waiting for the nomination of the new regulator. His name has been published by the press recently, so he must still be nominated. Then, together with the government, they will add some, let's say, security considerations in the future 5D frequency tender. which are, as we speak, in discussion. So at this stage, it's too early to have a very firm, let's say, standpoint on this matter concerning Poland and therefore concerning Orange Poland. On the other side, I'm also reiterating what I'm saying to the press is that we are a citizen of Poland and we will obviously comply to any rules or regulation that would be decided by the Polish authorities. That's very clear. Thank you.

Thank you very much. So we'll just once again star two for questions. Please press star two if you have a question.

Let me maybe now follow up with the questions that I received online from Konrad Księża-Polski from Hightalk. There are four questions. First question. If EU or Poland force telecoms to switch from Huawei network equipment on already installed 3G or 4G, what would be the cost for Orange Polska? This is the first question. Maybe I will go one by one.

At this moment in time there is no such questions or discussions in Poland. The impact of that, not only on Orange Polska, on the sector would obviously, if such discussion would take place, be major and that would have a major impact on obviously the capacity of all the operators in this country to deploy 5G. Again, I think the potential risk is around 5G.

The second question is again on FiberCo. So just to clarify, OPL plans, what the plan is, is not to cash out on fiber, but to invite business partner to finance further fiber outlook, so thus OPL future FTTH capex will be lower. An idea to invite business partner to FiberCo means that you consider speeding up or rolling out more than you expected a year ago?

So the question is not to speed up, but the question is rather to find the right equation, which I believe we can, to continue rolling out indeed.

The third question is, do you expect any speed up in real estate sales in the next quarters? Current situation on real estate market apparently shows some revival.

So we do not, unfortunately, expect a speed up, but rather, as you say, revival. And we see this also happening. So we have restarted discussions.

so we hope the market will basically recover and that we will be able to start selling again just back to school period the final question is do you expect receivables impairment to maintain to be maintained at around 50 million level in the coming quarters well i think what we how we stand versus the accounts receivable

First of all, the payment pattern that we have observed in quarter two was nothing out of the ordinary. Our customers continue to pay on time, and the aging of receivables did not deteriorate versus the historical patterns. So from the, I would say, lag indicators, we do not see anything bad happening to the quality of our accounts receivable. Having said that, what we did provide for was the prospective, so future risk. And this is something which all companies must assess. And we have made simulations as to what could be the future risk on our accounts receivable taking into account the consensus for the macroeconomic impacts of the COVID. Hence, the provisions that we took. The over 40 million which I mentioned, this was not just bad debt allowance, this was bad debt allowance as well as some cost provisions for other areas or commitments that we might not meet or it looks like we will not meet due to the slowdown of activity linked with the crisis. This is one of the most volatile areas and one of the areas which carries the most uncertainty for the future. So obviously we will continue to monitor every quarter both the quality of the accounts receivable that we observe every single month and also the prospects, so the prospective approach for risk and we will reflect that in the provisions. That's what we can say right now. We will need to observe more data, both our own data as well as the macroeconomic outlook, how that will change in time.

We have one more question from the teleconference.

Yes, please. The next question comes from Ms. Ibrahimova from Citi. Please go ahead, ma'am. Your line is open.

Kai, thanks very much for the opportunity and congratulations on a good set of results. Just a quick follow-up on FiberCore. Just maybe if you could share your thoughts and I know a lot of questions have been asked on your approach to what include, I think you did mention earlier this year or in today that you're now considering including some of the existing footprint into the FibroCo in addition to the new rollout. Could you maybe give a bit of a color why you have reconsidered what to put or you're thinking of potentially changing or adding existing footprint into the FibroCo? driven by the appetite demand from investors? Or are you thinking that it will make the package overall more interesting to an investor?

Thank you very much, first of all, for your congratulations. And then just clearly, I mean, the reason why we are considering to put a bit of the existing footprint is indeed what you were just quoting, is to make the package more interesting for investors, because we would like this vehicle to start actually operating with some, let's say, existing revenues and EBITDA in order to make it more attractive, not only for the investors, but also for the potential financing banks. So that's the reasoning behind that, indeed.

Yeah, and then in just looking at, if you could give a bit more color on how you're thinking about how much of the existing footprint to add into the package, what would be, from your side, key considerations? Is it the location or whether or not the fiber has been taken up? At this stage, that would be premature.

This is precisely what we are discussing with our council at this moment and fine-tuning. So that's premature.

Okay. That's very clear. Thanks very much.

You're welcome.

Thank you very much. We have a follow-up question from Martin Novak from Ipopema. Please go ahead, sir.

Yeah, sure. Just one more follow-up, because a lot was said about this Fiberco project and your plans, and I just want to ask a question in regards if it turns out that after the careful deliberation about the potential benefits from value creation from Fiberco, it turns out that the more value will be created if you leave the network on your own balance sheet. Will you prefer, will you decide, you know, just not to create Fiberco and not to invite an investor to it? Or the promise of the return to the dividend at some point will be, you know, more, will wait more in the decision process?

No, I mean, to be very precise and very clear, if we are working very seriously and we, believe me, we engage a lot of efforts and energy into creating this fiber core, is that we want to do it. So we do not want to continue rolling out on our balance sheet. I mean, else we would not speak about that. We would not actively do all this work, all this preparatory work. So now we are beyond this point. I mean, we really want to pursue this direction.

and obviously we're convinced that creation of this will create value for us in the long term because this will mean that there is further rollout. There is further rollout for a number of years and it means that we have more opportunity to reap the benefits both of the retail and wholesale sales from this further rollout. I think we were quite convinced today that there are significant future benefits from continuing this project and continuing rollout in such a way.

Yes, sure. But you said that it seems that the most reasonable model for extracting value in the long term will be the wholesale operator. And the wholesale will mean that you will simply invite all of your competitors who currently have not such a large exposure on the fixed-border market to this project. And I'm just wondering if this part of the equation is also considered in it.

Yes, this is absolutely considered. As Jacek was saying, clearly this vehicle will be an open access vehicle. Like some of the fiber in Poland is already today, because the fiber we are deploying under POPC is under an open access regime. so some other operators which are having fiber in poland are opening their fiber so this is definitely something that we have more than taken in consideration in the i would say the models and the equation of this fiber core clearly i remind that basically t-mobile is already having access to a big chunk of our fiber infrastructure And I remind that all other operators went into this convergent field with different type of agreements. Obviously, you will remember that our competitor Paul Comtel bought Netia to be a convergent operator and Play made a deal with a cable operator. So we are not fearing this. On the contrary, this is something we are quite confident with. We are not fearing competition. On the contrary, We believe that this is quite interesting to see that all our competitors are coming to the field we have chosen, to the battlefield we have chosen. So clearly this is something we had in mind, we have in mind, and we have taken obviously into account before we took this decision to go in that FIBOCO direction.

Sure, just one more thing. It seems that you are convinced that you will proceed with this project, but you still haven't talked with investors, possible investors, at this officially. And what if it turns out that the financing parameters are not attractive enough? Would it make you cancel the project entirely at that point?

Well, I think we are at a very early start of the process. And as you have mentioned, we haven't gone through speaking with the investors. So I think these are the very good questions. And I'm sure we will be in a better position to answer those in a quarter time. But they are not the kind of questions that I can answer today. Clearly, what we are saying is that We believe that there is a value, there is a long-term value. This is a project which has an aim to create this long-term value. We're not a distressed company, so this is not about lowering the leverage. This is about creating long-term value for the company. Really, we are in an early stage of this project, so we will inform you. whenever we have meaningful progress in it and we are equipped with more information, more discussions, so that we can share this information with you. But not yet today. This is quite early. We are discussing about the ideas. We are discussing about our goals. And, well, you need to let us work on developing this project further. Okay, thank you.

And I think we have last question that was asked online from an investor. The question is about roaming. What is the impact of roaming on revenues and on profitability resulting from the pandemic?

So I think we've lost about 50% of roaming revenues. The impact of this on quarter two was not yet hugely significant because this is not a quarter which is peak season. So I would say small tens of millions in terms of revenues and dozens of millions in terms of the EBDA. The main risk for the roaming, the main impacts that we do in a visit, this is quarter three, which is a holiday period, and we will need to see how many visitors we do have into Poland, which generates visitors roaming, and then how many Poles will go abroad so that we will have extra roaming. revenues and costs from this. We do expect this sharp contraction year-on-year to stay, to be in place in Q3, and hence the impact in absolute terms that I would expect for Q3 would be more than we observed in Q2.

I think we have no further questions. So I think we can conclude today's presentation. Thank you very much for coming for you. Thank you very much for listening to us. If you have any follow up questions, you know how to reach us. So again, thanks and see you back in October. Thank you.