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.