Orange Polska Sa

Hello and welcome again. Apologies for small technical problems. I hand again the floor to Julien to begin the presentation.

Good morning, ladies and gentlemen. Sorry for this small technical problem, but welcome everyone on our conference summarizing second quarter and first half of 2022. Agenda is as usual. Me and Jacek will go through business and financial review. And at the end, we will answer to your question. Let's start on slide five with a key message for the quarter. I'm happy to tell you that Q2 was a very good start, a very good period for Orange Polska. We delivered despite the fact that the environment is increasingly challenging due to the rising inflation and energy prices. Against this backdrop, our commercial and financial results were strong. Our customer base expanded faster than last year, ARPO grew, continued to grow, After a slow start of the year, handset sales rebounded nicely in Q2. ICT had another strong quarter of revenue despite continued problems with supply chain and a slowdown in the public sector. It is because we benefit from our diversified portfolio of competencies and demand for digitalization. Financial results were excellent across the board, with remarkable growth in revenue, EBITDA, net profit and cash generation. In Q2, we continue to support Ukraine. I am very proud of our team's continued engagement here, which underscores the value of our Responsibility Strategic Pillar. They are also relevant to the progress we make in reduction of CO2 emissions. they were down as much as 15% year on year in H1. This is due to a higher share of wind energy in our mix and further optimization of our energy consumption, which was down 3% year on year. This is important both to mitigate surge of energy prices and to make our planet cleaner and to achieve our emission reduction goal. Let's look on the next slide. We present here performance of our main financial metrics after H1 versus full year guidance. I'm pleased to say that outlook for full year has improved. Our revenue were up almost 2% in H1 despite significant negative regulatory impact. Our core telecom services perform as we had planned, while ICT and energy resale outperform our expectations. However, this is made on a relatively smaller margin. Based on this, we are revising our full year guidance up. We now expect revenue to grow in 2022 by a low single digit percentage. Guidance for EBITDA remains unchanged after H1 and we are confident that we will deliver growth. ECAPEX was down 35% year-on-year in H1. However, we do expect an acceleration in H2 and leave the guidance unchanged. This result and outlook prove that our business is resilient and once again we adapt to a turbulent environment. On the next slide, we review our commercial activity. Let's start with convergence and fiber. Our commercial results in Q2 were very solid. Net customer additions were better than in Q2 of last year and also better than in Q1 of this year. Fiber customer base expanded by almost 30% year on year. It now includes 11,000 customers of the two small local fiber operators that we acquired at the end of Q1. As there are plenty of such local players in Poland, we will be pursuing such opportunities further if conditions are favorable. I remind you that this is one of our strategic directions in our DotGrow plan. Customer-based growth is supported by rapid infrastructure development, Our fiber footprint approached 6.5 million households, so we are getting close to reach 50% of households in Poland. Over the last 12 months, we increased this footprint by more than 1 million. In line with our strategy, this is now conducted mainly through wholesale partnerships. Our larger partner is obviously Fiberco, which already has a network of more than 1 million households and the rollout goes as scheduled. Regarding further footprint expansion, we will eagerly observe the development of the opportunity linked with a potential rollout of fiber networks with EU subsidy. Switching now to mobile on page 8, Mobile customer base increased strongly in Q2, both in post-pay and prepay. In post-pay, thanks to our innovative digital offer flex and our strong fundamentals on network quality customer experience, we have been able to deliver net customer addition of more than 100,000, which was higher than last year and higher than in Q1. Exceptionally strong net addition in prepay, similarly to Q1, were achieved thanks to our support for Ukrainian families. Mobile ARPO reflects our value strategy as visible in the solid underlying growth both in postpay and prepay. In postpay, it continues to grow more than 2% year on year. In order to foster it for the future, we have launched in Q2 a few additional changes to our offer, including inflationary clauses to new customer contracts, which will give us an option to use in the coming years. We are also pursuing with more for more strategy. Earlier this week, we increased our mobile tariff for small B2B customers in exchange for higher data packages. we have a pipeline of more action for Q2. This is all from me for now and I hand the floor to Jacek.

Thank you Julien. Good morning everyone. Let's start the financial review on slide 10 with highlights of our performance. Our financial results in Q2 were outstanding, with strong growth of revenues, profitability and cash generation. We are diligently executing the growth strategy and we're pleased with the solid underlying developments of our business in this challenging environment. It starts with the expanding top line. It grew by 3.4% in Q2, mostly due to higher revenues from core telecom services and from ICT. This drove the EBITDA to plus 5.5% in the second quarter. We benefited from the high operating leverage, ongoing cost savings and higher non-Telco income, including margin from network rollouts for the Fibrecom. Finally, I'm very pleased that this is another quarter when expanding operating profits translates into robust growth of the net income and cash generation. These have both increased by over 100% in the second quarter, and their dynamics for H1 are equally impressive. Following the second quarter results, we are now much more confident to achieve our objectives for the full year. Let's now review our performance in more detail, starting with the top line. were happy with a strong revenue performance. It expanded by 3.4% in Q2, looking at this year-on-year. Excluding the regulated decrease of wholesale termination rates, revenues would have grown by 7%. We are on a better trajectory than we originally anticipated. Let me mention the key factors contributing to this good performance. First, our core telecom services continued their high pace of growth benefiting from a simultaneous growth of the customer base and ARPUs. These are key to our results as they generate the highest variable margin. Secondly, IT and IS revenues increased by almost 30%. This is a remarkable achievement given the challenges of the supply chain and the slowdown in orders coming from the public sector. We have once again demonstrated our ability to adapt to a rapidly changing environment. Finally, equipment revenues were up 10% after a slow start of the year and other revenues were boosted by higher output prices in the energy resale business. Let's switch to operating profitability on slide 12. Our EBITDA increased by 5.6% year on year in the second quarter. We're now even more confident to achieve our full year objectives and we aim for growth. This very strong Q2 performance was achieved due to solid growth of the direct margin and lower indirect costs. The sustainable expansion of direct margin is absolutely key to EBITDA growth due to the high operating leverage which we have. We generate most of this uplift through growth of the core telecom revenues, while the value strategy bolsters their profitability. This is coupled with our rigorous stance towards indirect costs. In Q2, we kept indirect costs down year over year. This is a particular achievement in the current context of inflation and energy price increases, and it was possible due to three factors. First, the ongoing savings due to our transformation. This is mainly concerning the cost of labour, network, G&A and property. Second, while energy costs have increased year-over-year due to the surging prices, their impact was lower in the second quarter than the one visible in Q1. Third, we've gained profits from a number of initiatives, including the network rollouts for the FiberCo, as we have cumulatively delivered over 300,000 of new FTTH coverage to Światłowódz Inwestycja. Looking forward, we aim to grow the EBITDA. At the same time, we are mindful that energy costs, energy prices are again increasing and we will monitor for any adverse impact of the macro on customer behaviors in the second half of the year. Let's now turn to net profits on slide 13. We have significantly increased our net profits and return on capital. The net income more than doubled in H1, expanding both in Q1 and in Q2. It came close to 370 million zloty in H1, growing by almost 140%. There were three main drivers of this excellent performance. First, the growth of the EBITDA, which we've already analyzed. Secondly, our property sales have rebounded and gain on sale of assets increased by 83 million. Third, depreciation decreased by 100 million zloty. This reflects lower capex for mobile network in the previous two years and longer than anticipated, more efficient usage of some of our assets. Let's switch to capex on slide 14. capital expenses have decreased in H1 by 35% year over year. The key reason for this is the benefit stemming from our FiberCo joint venture. It is visible in much lower capex for fiber rollouts. The main part of our fibre footprint expansion is now realised by the FibreCo and we focus our own CAPEX resources on customer connections, rollout of the EU subsidised fibre in rural areas and some B2B projects. Investments in the mobile network, which were low in the past two years, have already started to increase in H1 as we prepare our network for the requirements of the future. We have commenced the modernization of our radio access network and we expect this capex to grow visibly significantly in H2. Lower e-CAPEX was also supported by higher proceeds from real estate disposals, which have finally rebounded after the end of the pandemic. Finally, over to cash flow on the next slide. We have generated around 650 million zloty of organic cash flow in H1. It was almost 300 million or 80% more than last year. This strong increase stemmed from two factors. First, higher EBITDA translated into 120 million zloty more cash from operating activities before working capital. This is a key lever which we intend to sustainably grow in the future. Secondly, around 200 million lower net cash capex, including the sale of assets to the FibreCo JV. Here we expect capex to increase starting from H2 when we accelerate the mobile network modernization. Good cash generation further strengthens our balance sheet, which is very solid. The financial leverage stood at 1.2 times at the end of H1. However, please note that there are significant cash outflows ahead. They include, firstly, the payment of the dividend, which has already been done in July, Secondly, the cash outlay for the renewal of the existing 2.1 GHz spectrum, expected still this year. And finally, the 5G spectrum auction, which has still not been announced and which is eagerly anticipated by all mobile operators. This is all from me. Thank you very much. And I hand the floor back to Julien for the conclusions.