Orange Polska Sa

I have a pleasure to introduce the larger group of speakers. Today starting from Julien Ducaron, our CEO. Left to him Bożena Leśniewska, the deputy CEO in charge of business market and Jacek Kunicki, our CFO. Let me now hand the floor to Julien to begin the presentation.

Thank you. Good morning, ladies and gentlemen. Welcome everyone on our conference summarizing fourth quarter and full year 2020. We will also quickly summarize our Orange.1 strategy that has ended at the end of the last quarter. As usually, as it was said, we will take the opportunity to zoom on one of our key strategic activities around B2B. and at the end we will take the answer so let's move on the next slide summarizing our financial performance so in 2020 as you can see we have delivered fully our financial commitment we guided for growth of ebidal and it was almost three percent year on year Please note as well this is the third consecutive year that we have been growing our operating profitability. Thanks to a very strong Q4, we managed to achieve small growth of revenue as well, almost 1%. I'm very pleased with this because you might remember that at the beginning of the pandemic, we revised our outlook on the revenue, given the uncertain outlook and environment, and despite this, we have been able to deliver this growth of almost 1%. On the CAPEX side, We are exactly in the middle of the range despite significant difficulty to sell our real estate due to the slowdown in this market. So we have been able to adjust our spending on the technical side. So having said that, I will move to the next slide. which summarize, I will say, the environment and what we have been doing. So obviously, 2020 was not what we expected at the beginning. But I think despite those unprecedented challenges, we did good. So if I look back, when we were in March, we immediately revised our priorities. giving top focus to our employee, to our customer, and as well to the business continuity. So we had to adapt very quickly. Almost 85% of our employee went to work remotely. But we didn't stop only on those three points. We participate and answer the call of the CIO city to provide different means and support to different organizations. Let me name some of it. So we supported the hospital with better connectivity, as well as providing smartphones and data bundles for people to stay in touch with their family. We supported, as well, teacher and student with a special offer on Orange Flex. And we provided, as well, modem and tablet for those to continue and not stop education. Orange Foundation has, as well, delivered a lot of seminar to help teacher to adapt to this new environment and provide tools and techniques to keep education online. For the elderly customer, we have as well provided facilities to delay payment and as well the free delivery at home of material. So I think, you know, We did a good job for our employees, which was very important as well to continue the business, but as well to support the scarcity with all the assets that Orange Poland has. If I look now on the core subscription services, which you know this is our main margin contributor, we can say that our business has been very resilient during this period. We are as well very satisfied with the commercial performance, especially in H2, and I will come back on this one. But we have as well to mention that this crisis has put pressure on our business, and I will name some of the areas that have been affected. So obviously the reduction of mobility, whether it was internal or international, has impacted the roaming, but as well the prepaid business. One of the areas that I think was the most impacted for us, as you know, we have a plan to dispose our real estate. And this was obviously slowed down. It is not a canceled plan, but this is a postponement. And we are currently working in remodeling our offer. and we do expect that the market as soon as the crisis will go away that the market will pick up again So we had as well, given those plus and minus, do some exceptional measure. You might remember some that we named last year on the OPEX and as well on the CAPEX in order to compensate for this real estate shortfall. I think as we are still in the crisis obviously we are looking cautiously about the future evolution economically but as well in terms of customer payment. Going on the next slide showing a more deep dive on the commercial performance. Obviously this crisis has created an acceleration of the demand for fixed and fast and high quality connectivity, which we have been extremely well positioned to answer this high demand. So you can see on the graph the growth, and if I look at Q4, we had obviously a very strong quarter, both in volume, but as well on value, as you see the evolution of the ARPO. We recorded 40,000 net addition, which is the highest in the last three years. This is obviously driven by fiber where we added 63,000 customers in Q4 and we can see that our base has increased by 10% in a single quarter. The driver, as I said, is high demand, and as we commented in Q3, are still the same in the sense of we became very efficient in deployment plan, so choosing the right new household, but as well our sales is becoming more and more efficient, and we are able to increase utilization rate of our network. So this is confirming for me that our bet of investing in fiber was the right one and what we have been working on the fiber core is the right direction for the company. So we have reached an important milestone of 5 million household reach in Poland in more than 150 cities. And within this 5 million, we can say that we have already 15% utilized by the customer, which is bringing us around 750,000 fiber customer. Important to notice and you see that on the graph that in terms of value we follow this increase of volume as we have a strong increase of 5% and this is obviously driven by the technology mix inside the broadband where fiber has a higher output than the other technology. Going on the next slide where we have tried to illustrate the main driver that is delivering this good growth of EBITDA of almost 3%. So, as I said, the two main top-line drivers are conversions and mobile. So we commented on the convergence, so very strong growth of volume, but as well on ARPO for those two business segments. So for convergence, it was as well a record quarter, the best in the last two years with the underlying growth of the fiber. We are as well monetizing quite well this convergence in terms of value. And what we can say is that the total trend in revenue are sustained by those two pillars, and Jacek will comment more on it. On the lower box on this chart, you can see two of the main reasons we are able to deliver the transformation we aim for. so the first one is related you see the decrease of the headcount or the labor cost which has been consistent over the last years thanks to social plan negotiated with our partner and this is clearly as well helping us to transform and we will come back on the dot one strategy as it was an important factor for this transformation. We see as well that indirect costs are going down by 4% in 2020 versus 2019. And as well, we have to mention that that was supported with an exceptional mitigation measure that we cannot expect to see back this year. So if I look at this graph, the message for me is that we have a successful combination of growing value from the core business, thanks to volume and value, so ARPO of the customer. And at the same time, we continue to transform our cost structure. which those two result in this good growth of EBITDA. So let me now hand the floor to Jacek to go more in detail of the financial.

Thank you Julien. Good morning everyone. Let's start the financial review on slide 11 where we present the highlights of our performance. We're pleased with the solid financial results for 2020. We delivered on our goals. Our revenues expanded strongly in Q4, with rebound driven by the ICT business. This allowed us to finally report a small top-line increase for the full year. Our EBITDA for 2020 increased by almost 3% year-on-year, thanks to an exceptional effort on the cost side. Q4 standalone was down 4% due to around 35 million impact of claims and litigations accrued in the fourth quarter of the year. Economic capex in 2020 increased slightly year over year, reflecting much lower real estate disposals due to a very challenging market environment. In order to mitigate this, we adjusted our capex spending accordingly. Lower real estate sales also marked the year-on-year dynamics of cash flows. We should note, however, that these were relatively strong with the exception of this item. Let's review the top line on slide 12. So as mentioned, our Q4 revenues expanded by 2.8%. in Q4 year-on-year, driving the full year dynamics into the positive. The key factor behind it were IT and IS revenues, which grew by 27% year-on-year in the fourth quarter. Towards the year-end, we benefited from a surge of demand for software licenses and solutions to digitalize our business customers. We're pleased with the ICT performance in Q4. However, it's not a repetitive subscription-based service, so please do not extrapolate this growth rate directly into the future. What is even more important is the performance of our core telco services, so convergence, mobile, and fixed broadband, as these build the vast majority of our profits. These continue to increase, and they have even accelerated their growth rate. They were up 3.6% year-on-year in Q4 as compared to an annual growth rate of 2.3% in Q3 or 1.4% registered one year ago. Going forward, we expect to further benefit from customers' appetite for fibre and for mobile connectivity. Mobile prepaid revenues will, however, be slightly affected by new regulation in 2021. It allows prepaid users to claim unused top-ups when they churn, which will decrease the revenue recognition for us. Switching now to EBDA performance on slide 13. Our Q4 EBDA contracted by 4% year-over-year. This was driven by 35 million of provisions for claims and litigations. These type of provisions are not new for us. However, they do influence the growth rate of this particular quarter. So that's why we are mentioning them separately. The evolution of indirect costs also reflects a very low comparable base in Q4 of 2019, which was then boosted by a backward correction. What's particularly important in a Q4 performance is that dynamic of the direct margin. So the effect of our commercial activity on our profits. In Q4, It expanded by 2% year on year, thanks to the growth of core telco services and despite COVID impact on roaming. This is a very positive sign for the future. We are progressively transforming the way in which we achieve EBDA growth, striving to grow through profitable increase of revenues. Achieving this will make our EBDA growth much more sustainable. Our full year EBITDA increased by 3% year-on-year and we are pleased with this performance. It was achieved thanks to a solid 4% year-on-year drop of indirect costs. This reflects the underlying business transformation, but also an exceptional effort made in 2020 in the face of the COVID crisis. It included some non-recurrent items, such as the curtailment of employee benefits in the second quarter. So further extrapolation should be made with caution. Finally, throughout 2020, we've closely monitored the quality of our accounts receivable. As of today, cash collection continues to be solid. Nonetheless, we're all aware that the COVID crisis is far from over. So this area remains one of our key concern and risk areas for the future. Let's now look at the bottom line at slide 14. We posted a 46 million net profit in 2020, which was 36 million down versus the previous year. There were two reasons for this. First of all, much lower gains from real estate disposal. As in 2019, we sold a very valuable real estate complex in Warsaw, which enabled us to generate record high results. While in 2020, obviously, this activity was hampered by the pandemic. Secondly, our finance costs were 34 million up year over year. This was due to non-cash foreign exchange losses on long-term lease liabilities for rental of our offices. Now over to CAPEX on slide 15. Our economic capex amounted to 1.8 billion in 2020, roughly 100 million more than in 2019. It was pushed up by less proceeds from real estate sales. In order to mitigate this, we've been more selective in our capex spending. and as a result our gross capex spend was around 250 million lower than in the previous year. That affected most areas of spending, including mobile, where 5G rollout was obviously postponed versus the original plans, also including fibre, albeit this was made without slowing down the expansion of our reach. We have invested slightly less into our backbone for new cities and relied more on expanding our reach through access to third-party networks. Let's now look at cash flows on the next slide. Slide 16. We generated 640 million of organic cash flow in 2020. This was 95 million less than in 2019 due to less sales from real estate. Excluding this factor, cash generation would have been higher than the year before. This resulted from two items. Firstly, the growth of our EBITDA and lower working capital requirements translated into 147 million higher cash from operating activities. Secondly, cash out for capital expenses was 260 million lower than a year ago due to less investments. Growing EBITDA and solid cash generation translated into a decrease of our financial leverage, with net debt now standing at two times the EBITDA. Finally, just as a reminder, in January, we've concluded an agreement to refinance 2.7 billion loan of our debt. And in consequence, our average cost of debt will fall to around 2.8% from Q2 of 2021. Thank you very much. That's all for me for the financial review. And I hand the floor back to Julien.