Orange Polska Sa

and welcome everyone to our conference summarizing Q3 and nine months of 2020. Let me introduce speakers for today's call. I have a pleasure to introduce our new CEO, Julien Ducarot, and we also have Jacek Konicki, our CFO on the conference. Let me now hand the floor to Julien to begin the presentation.

Good morning, ladies and gentlemen. Welcome everyone on our conference summarizing third quarter and nine months of this year. It's a pleasure for me to be here for the first time and I'm looking forward to work with you. I will start with business highlight and Jacek will follow on the financial review. And then we will conclude with a conclusion and take your question. So let's start on the slide number six. which is an overview where we stand after nine months of the year against our full year guidances and expectation. Our performance in Q3 was in line with our expectation and the full plan remained unchanged. First of all, we do confirm the guidance for growth of EBITDA. It was flat in Q3 and is growing by more than 5% on a year-on-year basis after nine months despite the negative impact of the pandemic. This result from our underlying turnaround that we started, combined with exceptional effort on the cost side that we did in Q2. However, the pandemic is still around and we are cautious about our future performance. We also maintain full-year outlook for economic capex despite a visible shortfall in the sale of our real estate. The property market has not improved yet and we manage our capex spending accordingly. We have this flexibility until the end of the year. Going on the next slide 7 where we talk about the COVID and impact on our business. This is not so much different from what was presented after the Q2 results. What I can comment is that the core telecom services um are still relatively resilient to the pandemic except as it was in q2 the prepay that is impacted and our roaming as you figure out that still travel is not taking up and our roaming revenue are still impacted but as you will see later clearly the fixed broadband remains very strong As well, our sales in mobile recover after the Q2 downfall, both in consumer and business market. The trend rate, which was particularly low in Q2 when the lockdown was in place, has gone up in Q3, but still remain on pre-pandemic level. When we presented to you our Q2 results, we mentioned a weaker pipeline in the ICT area. as it was affected by the pandemic and there was a slowdown of order. And we see now that in our Q3 result, where the ICT results are lower than Q2. I will leave Jacek later on to comment on this. Another impact is on the real estate. Obviously, our disposal of our asset on the real estate market has been slower than expected. The process and cycle is taking more time to close the deal. So this is as well a negative impact on our plan. Looking forward obviously this is a daily changes in this pandemic so it's kind of difficult to predict precisely what will be the effect but as I just said there is anyway a mix of positive or strong demand and some other area that we need to mitigate. When it's about real estate, as I said, this is coupled with the CAPEX and we have the flexibility to manage in a way that we maintain our guidance. We are not yet in a lockdown, at least as of today. But we still see the last 10 days more or less a decrease in our retail. So we are very careful and monitoring and ready to apply the learning we had during the first lockdown. So now going to the fixed broadband, next slide, slide 8. We had another, as you see on those charts, very good quarter for the fixed broadband, where both value and volume are going up. Our net customer addition for fixed broadband were 24,000. This is our highest number for the last two years. And as you imagine, this is very much driven by fiber. where we have added 54,000 net addition in the quarter, which is again by far the best achievement we had so far in this area. If I comment a bit what are the main drivers for this exceptional performance on the fiber, I will mention three points. First of all, we touched it before, that there is a very high demand from the customer and that obviously this crisis and the pandemic has accelerated appetite and need for very high quality and very high speed connection to internet, which is what fiber is about. The second one is as well our capacity to deploy fiber because we had continued to massively deploy fiber according our plan. But as well, we became, after a few years of experience, more precise in choosing the good area that has the good return and the high penetration, which is namely mid and small cities. And we are as well having more single family houses in the mix of what we are deploying. And the third one, which I think is very important and promising for the future, we see as well the efficiency of the sales force getting better and better. And this is obviously a learning curve that we are on and we see as a good result on the chart you can notice. that we have increased to 14.2% the occupation on our footprint, which is very good. And the last point, equally important as the volume that you see the ARPO of fixed broadband is as well increasing by six percent quarter on quarter and this is driven by the mix of customers and that we are getting on the fiber out of the total fixed broadband. The share of a single household is as well helping to have a better ARPO. Going on the next slide, number nine, talking more precisely on convergence and mobile. So commercial performance in Q3 in these two areas also illustrate the combination of strong customer volume and improving underlying R-Power trends. That's what you see on the chart. On the net customer addition in convergence, We can report 31,000, which is the best quarter that we have for convergence. And again, this is strongly driven by our fiber result. On the mobile side, handset offer net addition in Q3 were the highest as well in a few years. This is as well a combination of strong demand after the Q2 lockdown. lockdown and as well low churn. So the result of those two is obviously helping us to deliver the net tax. As well here, it's worth to notice that the value strategy that Orange Polska started a few years ago is paying off because both on the convergence and on mobile, we see an increase of ARPO. Those results will be even better if the roaming impact will not be there. So this is what you can notice on the chart. We have restated what it would have been without the impact of roaming. And you see that for the first time on the mobile handset, we would have seen growth without the impact of roaming. So very promising for me for the future. and as well confirming that the strategy that we are pursuing now since three years in the DOT1 is the right one. On the below chart, you see about efficiency and transformation. So you can see that on the yellow box, the savings on indirect costs, which are still very strong, but as well, we continue in the Q3 with the savings. The pink box is showing that after 9 months EBITDA is up with 5%. And this is thanks to the cost of optimization, but as well including, as you remember, the exceptional Q2 measure that we had taken. So now let me hand over to Jacek.

Thank you Julien. Good morning everyone. Let's start the financial review on slide 11, where we present the highlights of the performance. Our Q3 results were solid and in line with our expectations. The top line contracted due to a predicted drop of ICT sales and less roaming. However, growth of our core telecom services was steady and as steady as in Q2. Our Q2 EBITDA was stable year over year. This is a tremendous effort, considering the adverse impact of the pandemic on both revenues and on our direct costs. It was possible due to an enormous effort on the cost side, compensating for the adverse impacts of the pandemic. Our e-CAPEX is much higher in Q3 versus last year. This stems from less proceeds from real estate sales. as the market is more challenging right now while we recorded record high sales a year ago. Anticipating this, we have adjusted our capex spending accordingly and we're confident to meet our full year plans and objectives in this area. The difference in real estate sales is also visible in the year-on-year dynamics of our cash flows, which were strong with the exception of this item. Let's look at the top line on slide 12. So as mentioned, our Q3 top line contracted by 2.7% year over year. This change in dynamics was expected by us, as you remember from our prior communication. It is due to the impact on the pandemic visible, especially in the marked drop of the roaming revenues, down by about 50%, as well as in the decline of our ICT sales. Now, analyzing the main components of the top line, revenues from core future proof areas grew by 1.2% in Q3, and this is after they have enjoyed almost 8% growth rate in H1. They grew at a slower pace due to the previously mentioned change in ICT revenue dynamics. ICT revenues were down by 17% year over year in Q3, after they have been growing by more than 50% in H1. This was expected since the lockdown in spring when we observed many orders being postponed or canceled by clients. In addition, the comparable base was higher in Q3 as we started to consolidate our Bluesoft subsidiary in the third quarter of 2019. On the other hand, Revenues from our core subscription services continue to grow. They grew by 2-3% in Q3, demonstrating their resilience to this situation. Revenues from conversions and broadband are the main growth engines fueled by the customer's appetite for fiber. Their growth helped us to offset less roaming traffic and more challenging trends in prepaid where we again observed a contraction of the customer base in quarter three. Finally, equipment revenues were 9% down year over year, despite growing by 5% since Q2. They have not yet fully recovered, as customers are more cautious than before in taking on additional commitments for handsets sold in installments. Let's now switch to slide 13 for overview of the EBITDA performance. Q3 EBITDA after lease was stable year-over-year. This is a strong performance as the pandemic-driven drop of our direct margin was offset by another quarter of solid savings in indirect costs. The direct margin was down 42 million year-over-year. And this was due to the pandemic impact on our revenues, on our bad debts, as well as on other provisions for future risk areas. This was then offset with a strong result in indirect cost management. These were 5% down year over year with savings coming from labor costs, advertising and lower CRM expenses. This was achieved in spite of a steep increase in energy prices observed this year, which inflates our IT and network costs. It's worth noting at this point that 2020 is a fourth consecutive year in which we generate net savings in almost every quarter and that this year costs reflect a truly exceptional effort to mitigate the impact of the lockdown. It is achieved thanks to an underlying business transformation, but also in this year, this is thanks to some non-recurring items, such as the curtailment of Jubilee provisions booked in quarter two. So any extrapolation of this very solid trend should be made with caution for the future. The EBITDA result after nine months of the year allows us to confidently reiterate our growth guidance for 2020. However, as we are observing a second wave of the pandemic and we cannot be certain as to the countermeasures that will be taken by the government, We continue to cautiously monitor the impact of the crisis on our future results. Let's quickly take a look on the bottom result on slide 14. We posted a 53 million net profit in Q3, so similar to the previous quarter, but much below Q3 of last year. The reason for the year-on-year drop were record high sales of real estate in 2019 when we sold the Nowogrodzka real estate complex in Warsaw. This transaction alone generated over 200 million of net gain last year. On the positive side, our net financial costs are 24 million down year-over-year due to negative foreign exchange differences last year. Over to cash flow on page 15, we generated almost 60 million of organic cash flow in Q3. This is significantly less than a year ago due to the already mentioned difference in real estate sales. In addition, our Q3 cash flows included around 120 million of social security payments shifted from Q2 as part of the government's anti-crisis shield. So these two items apart, the underlying cash flow performance was strong, supported by good cash collection and lower cash outflows for capex. Please also know that after nine months of the year, the organic cash flow is on a comparable level to last year, despite the gap in real estate. This is thanks to operating cash flows being supported by EBDA growth and by good working capital management. Finally, let's take a look at our net debt on slide 16. The net debt is 360 million zloty lower versus last year. It stands at two times the EBDA as compared to two times a year ago. This is important for us in the context of the upcoming 5G auction and the expenses related to the 5G rollout that are expected in the future. We are progressing with refinancing of some of our net debt as we have significant loan facilities maturing in June and May of next year. We expect to complete this refinancing by the beginning of the next year at the latest. 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 Julien for the conclusions.

Thank you Yacek. So to conclude, Q3 was a very strong commercial and solid financial performance. as we have just seen, despite still some negative impacts coming from the pandemic situation. After these nine months, we feel absolutely confident regarding delivering growth for the full year in line with what we promised. I would like as well to mention that we are extremely proud that Orange continues to be the most recommended operator on the Polish market. We maintain number one position in NPS in this quarter and this is a big tribute to all the employees in Orange which we are having an obsession for our customers and their satisfaction. At the same time, the pandemic situation is now very dynamic and we have to monitor this closely and adapt as we have done the first nine months. And we have, as well, while we are preparing 2021, to look and stay and maintain this flexibility, as no one knows how it will develop and how long it will be in 2021. We commented on the fiber core, and let me just reiterate that the process is in full track. Ten days ago, we shared an info memo with quite a significant number of interested parties, so we are pleased with the development so far of this project. and we aim to close in H1 this project which is very very important for us as it relates to our fiber and as you have seen the fiber is the core of our strategy and our result. Just a few words about what we are focused on and the big topic for the company at the moment So obviously there is a 5G auction that we are waiting for more precision and exact timing, which for the moment it's not known. Within this 5G there is as well the discussion and we are waiting the final cyber security law. And obviously this lack of clarity for us, you know, we are not in a position yet to have all the financial and their impact for the future, but we are prepared to act on it. Then there is another point which is that was commented on around the Iliad, so obviously this is quite a news for the market. On our side, from my side, this is somehow a confirmation that the convergence is the right thing to do on this market. and the fact that we have been doing it for many years and as I told you that what I believe are part of the reason of our good result is the fact that we know where and how to deploy and we know how to sell, it's clearly an advantage. Nevertheless, we are integrating and doing some scenario regarding Iliad because clearly, and they stated it publicly, they aim for convergence. But we are fully working on this. And the last point I wanted to tell you is that I'm working with the team as well to formulate the next cycle of strategy as we are completing the dot one strategy. And I will be back to present to you in during Q2 next year. And it will be the start of a new cycle. Thank you very much for your intention. We are ready to take your question now.

I suggest we receive a lot of questions electronically, but I suggest we start with those who listen to us on the call and are able to ask the questions live. Operator, please.

Thank you very much, Leszek. We will now be entering the Q&A portion of the call. If you have a question, please press star 2 on your keypad and wait for your name to be called. Once again, star 2 for the question. We'll give a minute or so. Well, thank you very much. We have a first question from Delia Bergimova from Citi. Please go ahead. Your line is open.

Hi. Thank you very much for the call. Congratulations on the strong results. I had two questions, please. First, on the cybersecurity regulation that is still in the draft form, your peer in September issued release saying that they expect the maximum impact to be just below a billion of Zloty if the restrictions were to be applied within a seven-year perspective. Maybe you could quantify what you expect the impact would be if we just set similar parameters as Play did, just to give a flavor and indication, just to have a number in mind if you have one. And second is on the FiberCore. You did mention that you have seen very significant interest. Can you share with us what exactly are the interested parties? Are they mixed? Maybe is it private equity infrastructure funds? Is it a mix of private and public companies? Any... whether you have a feel of what makes the potential investors interested in the fiber core. Yeah, any color there would be very helpful. Thank you.

Thank you, thank you for your question. So regarding the cyber security law, this is for now a draft, very very very draft bill, so we're obviously an active participant of the consultation progress. Regarding the figures, obviously we have some numbers in mind but we could share that with you only after the concrete conditions of the law will be known because there's too many uncertainties to speculate with a figure or a range of figures right now. So we will come back to you with this. but when we will know what are the conditions for the cyber security law. I hope you appreciate that. Regarding the the Fiber Co-interest, well, the discussions that we are and will be having is on two fronts. It's with the equity partners on one hand. It's also with the financing banks on the other hand. What we can say is that, well, there is interest right now. You will appreciate that since these are non-binding offers, that this interest is not yet fully representative. I think we will be, again, able to share more when we have some more progress and more binding offers. We hope to close this deal, as we mentioned, in H1 of next year. Thank you.

Okay, thanks very much.

Thank you very much. Our next question comes from Mr. Piotr Reciborski from Wooden Company. Please go ahead, sir. Your line is open.

Good morning, Mr. Reciborski, Wooden Company. I have two questions. First considers Iliad. Do you think that Iliad will be interested in a fiber wholesale deal with Orange? And would you be interested in such corporations?

Well, I cannot comment on their intention. I would say more on a general perspective, what we are aiming on the FibreCo is an open model, which therefore we will be interested to any player that is willing to buy from this model. But regarding their interest, I'm not going to comment their interest.

I don't mean the FiberCo deal. I meant wholesale deal, just like you had with T-Mobile. So wholesale access to your fiber network.

I think obviously we are in both the fibre co-project and our earlier project with T-Mobile demonstrate that we are open to benefit with both retail activity but also with our wholesale activity on the fibre front. I think the footprint of the future FiberCo and the footprint of the existing, this is not the same, I would say geography is not the same level of competition, so conditions will obviously vary, but well, I think on the existing footprints in a number of areas we are regulated, in a number of other areas We are non-regulated, but the cooperation with T-Mobile shows that we are open for commercial agreements. And then the fiber, which will be the main vehicle to roll out fiber in the future, obviously that is something where we are also quite open for wholesale cooperation. This will be realized on an open network.

OK. And my second question considers the plans for the mobile network. I know that you're currently focused on Fiberco, but in general, would you consider monetization of your mobile network? You know, recently we've seen the news about Iliad partnering with Selvec, considering Play Network in Poland. Play got quite attractive valuation. Would that be an argument for you to consider monetization of mobile networks as well? And from the other point of view, would you be interested in cooperation with Play Iliad Tower Co. if there was such opportunity? And in general, would anti-monopoly regulator allow for such cooperation, network sharing?

Thank you for those set of questions. I think first of all what we should remember and you should have in mind when comparing the potential I would say spheres of infrastructure projects are the main goals that we have for the Fiber Co. And these are, I would say, a bit different to what you could contemplate from any type of infrastructure projects on the mobile side. So on the FiberCo, I think the main idea is first of all to be able to continue to roll out fiber. We see still quite a lot of potential in rolling out fiber. If you take a look at the penetration of internet in Poland, it's around 62%. versus 80% in EU. So there is a lot of space for all operators to gain clients and Fiber is the way to go. We are quite convinced about that. So first is to significantly extend our reach. Second of all, What we would wish to do is to build this in an open network and to build the new infrastructure in rather medium and low competition areas from the infrastructure perspective. So here to gain both our retail or increase our retail capabilities but also to gain wholesale customers. we think that in this context using the fiber code is a smart way to finance the build of this infrastructure rather on the balance sheet of the fiber code than on our balance sheet which we think we will preserve the flexibility which is needed in front of the 5G auction, in front of the rollout of the 5G network and this is something which is one of the benefits of this infrastructure project. And in addition to that, you have the potential to monetize upon this project because, well, I would say we think that the value of this infrastructure could be worth quite a lot and it would be beneficial to us and all the stakeholders. for us to monetize on this. So there is a big rollout part and the infrastructure build part to this agreement. Now, if you compare this to any potential, I would say, mobile projects, again, keep in mind that we already have a run sharing agreement with T-Mobile, so a lot of efficiency benefits have been already explored. So this is, I would say, a part which is very different from the Fiber Co. And here we would say FiberCore is more about new build. Any transactions which I have seen on the market for any towers, it's more about the existing build. So it's a very different transaction for us. Currently not on the agenda. I would say the FiberCore project is very demanding for us. first let us work on the Fiverr project which is with a long horizon anyway because we're thinking about closing the deal somewhere in H1 of next year and then we can contemplate anything on the mobile but it's not on our agenda at the moment. Okay.

Thank you for the answer. And my last question, you plan to publish the strategy update in the second quarter next year. Can we expect that you will declare something on the dividend payouts? Potential dividend payouts.

Well, I think as any strategy we will need to adjust this very vital point of the dividend. We are aware that our shareholders would like us to return to the dividend and we would like to return to the dividend as well someday. we want to make sure that we return to the dividend on a sustainable basis. So in this context, this is the information which we've always been sharing with you. There are a few items and checks that we need to ensure. First of all, we need to ensure that we have sustainable growth of our margins, sustainable growth of our EBITDA, sustainable growth of our free cash flows. We need to make sure that the structure of our balance sheet is safe enough. So in this context, you know, reasonable pricing of the 5G is something that is vital. Obviously, the FiberCo project would help us and could help us with both when you're taking the longer term perspective. And I'm sure we will address the question of the dividend in the upcoming 5G, in the upcoming strategy.

Thank you. Thank you very much.

Thank you. Just a reminder, start two for additional questions. We have a follow-up question from Delia Ibrahimova from Citi. Please go ahead, Delia. Your line is open.

Thanks very much. The question is on working capital. I think you mentioned that in Q3 you had to pay off the payables related to second quarter, and that looking at the working capital, it was neutral in Q3. Was there an offsetting relief elsewhere? And just if you could comment there and maybe anything to expect in the fourth quarter or fourth quarter will be more business as usual.

Okay, so no special additional non-recurring circumstances that influence the working capital, particularly in Q3. It was a part of the payment of the 120 million for the social security. I think generally when we comment on the working capital first of all we are satisfied and quite happy with the cash collection. So customers are continuing to pay and pay on time despite this economic crisis. And this is and was and will be one of the key areas which we are monitoring in terms of the potential adverse impacts of the crisis. This is not materializing, so this is obviously helpful. You will see that for the last three quarters the sales of equipment were not particularly high. And in this sense, the accounts receivable are not growing in the pace that they would have normally grown because we are not selling a lot of handsets in installments. at least in comparison to last year and obviously we've maintained a solid discipline on our inventories and our standard trade payables but nothing out of the usual that we have made or that happened to influence the Q3 results. In terms of Q4 outlook, it's the vital question that we will be asking ourselves, but this is the same for Q1 of next year or Q2 of next year. It's how will trade receivables behave and what will be the cash collection by the end of the day.

Thank you.

Thank you very much. Thank you. Our next question comes from Mr. Marcin Nowak from Ipopema Securities. Please go ahead, sir. Your line is open.

Good morning. Good morning for the presentation. It was said that at some point during the Q&A that it is smart to finance the deployment of fiber with fiber instead of balance sheet. But could you answer if you consider financing new deployments of fiber with leasing? Because in your presentation in net debt, you do not include leasing and present leverage without leasing. so also we saw we saw the examples within the orange group in spain especially that new deployments are financed with leasing so i would like to ask whether this option is on the table

Thank you for your question. I think we can do better than leasing to answer your question directly. So what we are contemplating is to set up this fiber co-vehicle which would be co-controlled by us and by the equity partner. When you're thinking co-controlled, it means we do not consolidate this entity. We rather treat it as an affiliate company rather than a subsidiary. So the balance sheet of this company is not included in our net debt. This company will have its own debt facilities which will finance vast majority of the rollout. That's why I mentioned banks, not only the equity partners as the interlocutors that we are talking with when progressing on this deal. And in such a way what we are aiming to do is not only to finance this off our balance sheet, but also through the sale of the 50% stake to monetize the value of this infrastructure, both current and future. and to try and, well, bring this value to Orange Polska. So I would say we have thought about leasing, but we think we can do a project which will be more beneficial for us than the simple use of lease in network rollout. Thank you.

Okay, so follow up to this. So if there is such value in using out-of-balance sheet finance for it, so why not to... sell entire fiber infrastructure outside the company and not to consolidate entire fixed infrastructure. Because you want to do it only with the new deployment. And some 600,000 households will be put within not the entire current infrastructure.

Thank you for this follow-up question. So as we've been communicating in the past and right now, the future rollout is contemplated at around 1.7 million of households, which are mostly located in areas where there is very little alternative infrastructure. So I would say from an infrastructure perspective, This is low competition area or medium competition area. The infrastructure that we are contemplating to move to this fiber coal, the aforementioned 600,000 households, it is also this infrastructure from our current footprint which is located in mid and low competition areas, making this quite a coherent, I would say, vehicle. Now, the other parts of the infrastructure that we are using and that we have built, they are of a different nature. Some of it is in high competition areas from the infrastructure perspective such as Warsaw or other big cities. and as such their characteristics is very different and less suitable for the FiberCo vehicle. Not to mention the infrastructure that we are building as part of the EU subsidized funds, which is, well, it's more rural, it's with a subsidy, it will be an open network, it has already been financed with EU subsidies, so there is no further benefit or use to move this to the vehicle. To answer your question, it depends on the profile of the infrastructure, mid and low competition areas that we're planning to build. This will be in the fiber core. The more densely, I would say, competition areas from the infrastructure perspective will stay with us. I hope that answers your question.

Yes, partly. But let me to put the question this way. In this low competition area, what possible uptake penetration of users on this 1.7 in households do you think is possible to achieve if assuming that you would be deploying this fiber on your own? 40% and how it compares to your target penetration in high competition areas.

Well, I think first of all, when you're thinking about infrastructure, then the perspective that we have is quite a bit different from what we, at the time perspective, is quite a bit different from what we as a telecom company usually have. So while we will look at business cases and paybacks with a 10 or 20 or 25 year perspective, the infrastructure perspective is much longer. And in this case, if you're thinking about infrastructure in areas where there is no real alternative, then the internet penetration, be it current or be it future internet penetration, is your ultimate benchmark. especially if we're thinking of opening this network up, so being the only infrastructure that is there. If the infrastructure is open, there is no real rationale for somebody else to overbuild. And here you're benchmarking yourself to the future forecasted penetration of internet in Poland and in those areas. So I would say that could be above the levels that you're mentioning. You know, today when we're building that the EU subsidized infrastructure, we already see that the penetration can be strong double digit within months. We can expect something like 30, 35% within a year. So there is an uptake and there is an appetite for this type of product. I think we've found a way to deliver and finance it. And if you're taking long-term perspective, it's really high penetration rates that you can count on.

Okay, and last question from my side. How many current customers on older technologies do you already have on those 1.7 million new potential FTTH deployments?

What we estimate is that by the end of the year, this will be around 150,000 customers on the footprint that we will be moving to the Fiberco. That obviously may and will change as we are continuing to sell, but this is the rough number that we would migrate together, well, the rough number of accesses for which we would need to buy wholesale access from this FiberCo at the moment that we set it up. Okay, so because there will be no customer migration. So customers are our retail customers stay our retail customers, we will buy wholesale access from the FiberCo for those customers that are in that footprint.

Okay, so should they understand that within those 1.7 million households, there are no currently fixed broadband customers in, I don't know, GDSL or LTE for fixed?

So there would be no cannibalization of your... So I was mentioning what is the amount of fiber customers in our 600,000 footprint.

Yes, but I'm asking whether there are current existing customers within those new 1.7 million.

there will always there will obviously be a strong migration potential within the 1.7 million and the other point that we can add is that the exact location of that 1.7 is not yet finalized so but it's fair to take given our penetration on adsl vdsl that there is an overlap, but at the moment as 1.7 has not been yet frozen for different operational planning perspective, we cannot give you a precise number.

Let us now switch to two questions that we received electronically. There's a lot of them. Questions from Santander from Paweł Puchalski. The first question, can you discuss the risk of Iliad and its potential market disrupting convergent offer to your operations going forward? Is this a risk or you have some mitigants here?

Let me take the question. Obviously, Play has demonstrated that they are a strong competitor on the mobile side. The arrival at the shareholder of Iliad is as well a strong signal as Iliad as a a track record in some of the countries they are operating. So clearly, we are looking at this. But equally, I think, as I said in my presentation, we have already a few years of doing conversions. We are becoming more and more mature in execution and commercially. and I would just say that this is part of our marketing plan and we are contemplating different scenarios and when play will enter on convergence we will be ready but we are confident that What we have built so far and the result that we are showing today give us reasonable confidence that we know where we are going.

The second question is from Santander. What could be the scale of bad debt risk in coming periods? The same question, scale of risk originating from B2B segment, if I understand correctly.

Okay, so I can take this one. Thank you Paweł for your question. You've probably seen in our financial statements that we have created the prospective bad debt allowance for around 25 million zloty. This is 15 million that we've created in the second quarter of the year. It's been increased by 10 million in the third quarter of the year. Well, this reflects the current conditions that we're observing, but also the future economic outlook that is being forecasted. We are using our past experience with crises to extrapolate this based on a number of scenarios. To answer your question, each time that we publish a financial statement, we're trying to estimate the potential for the future and it's currently estimated at 25 million. This is the allowance that is in our books already. We will continue to monitor the situation. We will also continue to monitor the cash collection, the quality of our accounts receivable and we will be updating this allowance, this bad debt allowance for the prospective losses in every quarter and always you will see what is our best knowledge at the moment for the prospective future bad debts. It stands at 25 million right now.

And maybe just to add on the B2B, which on one side for sure, we will be affected in case there is a severe degradation in some of sectors that might happen. But I think as well, equally, what we did in the past by investing in ICT, with blue soft is as well making us quite resilient on the b2b side because while this crisis will certainly affect some sectors there is they will be maybe with a delay like we have seen in q3 but in the long run digital transformation that where we are more and more investing and supporting our client will drive the demand and our result on the b2b So I think, yes, obviously, depending on the economy, we will suffer. But I think as well, we have positioned quite well to benefit from some area that will see a growth independently of the crisis.

And the third question is from Santander. Should we expect the long unseen dividend to be paid out in 2021?

So I think I've tackled the dividend question already. We will obviously come back with the answer as soon as we can. I think we've discussed the main areas where we need to have more clarity on to be able to answer this question. So I will reiterate that it is important for us to reinstate the dividend. We know it's important for the shareholders to reinstate the dividend. We wish to do it on a sustainable basis and so We need a bit more time to answer your question, Papa. Thank you.

Another question comes from Paweł Szpigiel from mBank. The first question is, please give us an update on FiberGo, which I think has already been tackled. So the second question is to the CEO, to Julien. Could you please share your first impressions about Orange Polska? What are your opinion about the key points that constitute the strength of the company on the Polish market? And how do you assess the entry of Iliad into the Polish market and its plans for the development of the fixed mobile convergence offer?

I think the last one was already... Okay, thank you for the question. I will not comment on Iliad again. But regarding my first impression, so... I will say that they reflect a bit what we have presented today, which is a very strong result considering the market and the pandemic situation. Clearly the convergence has been the right bet done in the past and now it's paying off and it's even accelerated with this higher demand of high connectivity. Then there is as well the B2B as I commented I think it's a very strong as well area and we have ICT and cyber defense which you know I believe are two strong growth potential for the company. that have been accelerated with a pandemic situation but are trend that are here to stay in the long run so yeah i'm very impressed with the company very honored to have been nominated in this position And we are going to continue the convergence, which is the right strategy. Some probably more segmentation will come as well, given the market condition and the potential change of the competitive landscape. As well, you will see, and this will be part of the new strategy, we will put forward much more accent. We were doing in the past, but maybe not enough communicating about it around green and sustainable company. 5G will be part of our agenda for the future. As Jacek said, it will be as well parameters to be able to return to a dividend together with the FiberCo proceeding. And there is another chapter that most likely we are going to open in the new strategy, which is a much more data-driven company where we will invest, ICT is one of the area, but internally in our capacity to leverage big data and artificial intelligence.

We're switching to question from PKP Securities from . It's on FiberCoin related. Do you consider including more than 600,000 households in FiberCoin in case of high interest among financial investors? Is financing the future investments the only goal, or do you consider improving your balance sheet? Could you share some estimates for a scenario, this is a different topic, this is about HOA. Could you share some estimates for a scenario in which telecoms wouldn't be allowed to buy HOA equipment in the future? How did it impact your capex? I think that was already well covered, so let's concentrate on the Fiberco question.

So for the Fiberco, thank you for your question. for the Fiber Co. after analyzing the structural differences of our existing Fiber footprint. We think that really the optimal solution is the 600,000 that we're planning to move to the Fiber Co. The goal is to do both. The goal is to achieve smart financing for the future and also to help increase the flexibility of our balance sheet as we do expect to monetize on the sale of the 50% shareholding in this fiber core. So to answer your question, it's both. We want to improve our balance sheet and to smartly finance the future rollout. And we think the 600,000 is really the optimal structure for this vehicle. Thank you.

For a change, we have a set of questions from Konrad Księża-Polski from Hightalk about commercial performance, something different. About net additions in fiber, because in the past we were showing how much of the net additions were coming from outside of OPL. versus migrations from other technologies. Could you share what it was in this third quarter of this 54,000 figure? So let's maybe tackle the questions one by one because of the result of them.

So our fiber continues to bring vast majority of the clients which are new. It's around 70% that are new versus the migration.

He would like to also know fiber net ads breakdown. What is the percentage coming from big cities and what percentage coming from less dense areas where you mostly develop fiber network? Right now we don't provide such detailed information, but obviously one of the factors behind such strong net ads is the fact that we are developing more in the less dense areas in single family houses in particular. The third question is about mobile. Of course, part of the reason of decent net adds in M2M, the strong overall net additions, but I would like to ask about mobile handset net adds which grew to above 100,000 from 60 to 70,000 in the past three quarters. Are there any special commercial story behind that growth?

There is no, I think this is just the consistent execution of our plan, the quality of our services and network, especially when it comes to data quality. we were rewarded over the quarter for our performance of download and obviously in the current since seven months the appetite both on fiber but as well on mobile internet to have access as a rise so and we have as well to say when we are talking gross ads net ads the churn is still at a good level which is as well linked with our effort related in the customer experience and customer satisfaction that as I stated we are number one so this translates in obviously the very good result that we are pleased with on the mobile maybe one comment we didn't touch is about the handset where if you will relate the good growth ads and our performance of handset which are as well explaining a bit why the revenue don't grow as much as last year is the last year we had an exceptional q3 quarter when it was it came to a handset because we were running a promotion with voucher so again you know i think this indirectly answer your question on a specific action

That was exactly the next question of Konrad. So your friend ran the question not even knowing it. And the next question is, when do you expect equipment sales to come back to previous levels seen before COVID-19 pandemic?

Well this is a difficult question I would say Q4 should be a bit better due to iPhone and I think this is a usual cycle iPhone has launched a bit later so when we will do the comparison we might benefit as well from on the q4 again a bit penalizing on the q3 year-on-year basis due to the the shift of iphone launch date but yeah this is an area we are working on as well we have to say that there has been an increase of the open market People as well are moving more on digital to buy independently of the closing or not closing of the shop. So this is something we are working on, we adapt and we are confident that we will not lose ground on this front.

Next question is about ICT. Could you elaborate more on outlook on ICT revenues, especially as you see ICT among short-term challenges? Do you think Q4 ICT dynamics could be under pressure as well? How do you see ICT clients in their budgets? How your ICT clients see their budgets in 2021?

Thank you for your question. Well, ICT is one of the most volatile categories since the pandemic has started. We expect Q4 to pick up versus Q3, definitely. However, we must remember that there is a different phasing of sales between the different years. I think we've had an amazing H2 of last year. We had a very, very good H1 of this year where we have benefited from projects that were started in the second part of last year and revenue growth in H1 of this year was 50% in ICT. The year-on-year dynamics will obviously be still under pressure for ICT for quarter four. It will be better than Q3 where it will be under pressure year-on-year. And as for next year, I think we should have a pickup because some of these delays are just delays and we will have customers going back to the digital adventure and we will assist them with doing that. Now, how soon will this pick up, I would say, take place? That really depends on the severity of the economic crisis. Short term, we know that it will be there, we know that long-term trends are very positive for ICT and we are confident to that respect. Now it's difficult for me to tell you if this will be Q1, Q2 or Q3. The situation is moving very dynamically at the moment.

Final question from Konrad is about the real estate. How do you see real estate market in Q4 and coming quarters? Do you expect some rebound to come?

Well, we do expect a rebound in the sense of we have some very attractive assets that we have put on the disposal list. Now, I think it's a bit not exactly the same as ICT, but there has been a slowdown, which we understand. from the people i think what is different from ict which is just the generic landscape and probably the process of approval are a bit longer there is as well for some of the real estate we have that were planned to be office investment that obviously the potential buyer is waiting a bit as well to better understand whether you know the post covid in terms of office will be the same so here again for me it's not a question whether it will happen or not because those assets are there they are good quality good location But still, the question that is very difficult to answer is when they will enter into a proceed, because some of the investors obviously are waiting to have more clarity about the post-pandemic. But again, the quality of the assets are there. They are not getting down due to the crisis. And I'm confident that in the midterm, we will dispose of them.

The last question electronically that I will ask is, again, it's a follow-up from Paweł Puchalski. On the basis of pandemic risk, do you see that the risk that 2021 will be dull coming in lower year-on-year?

We will comment on that in February, Paweł, traditionally, when we will issue the guidance for next year. Thank you.

I think we have one space. We have a follow-up from Delia Ibrahimova from Citi. Let's give her the opportunity to ask the follow-up.

You've been placed on hold. Please wait. OK, Leszek, we'll just pass the line back to you.

Okay. Thank you. Thank you very much. There was a lot of questions. Interesting conference. Thank you. Thank you a lot. And see you back in February for the summary of the full year results. Thank you. Bye-bye.

Thank you very much. Thank you. Have a nice day.