Orange Polska Sa

Ladies and gentlemen, thank you for standing by. I would like to welcome you to Orange Polska first quarter 2023 results conference call. My name is Leszek Iwaszko and I'm in charge of investor relations. At this time, all participant lines are in a listen-only mode. The format of the call will be a presentation by the management team followed by a Q&A session. Speakers for today will be Julien Ducaro, CEO of Orange Polska and Jacek Kunicki, CFO. I pass the floor to Julien to begin.

Good morning, ladies and gentlemen. Welcome everyone on our conference summarizing first quarter of 2023. Let's start on slide five with the key message of this quarter. I'm pleased to say that this year started very well for Orange Polska. It is, despite the environment, continued to be challenging due to high inflation and slowing economy. Our commercial performance was solid. It reflects our focus on value in an intense market competition. ARPO continued to grow in all key services. This is our special focus and we are working to improve this dynamic further. Our equipment revenue growth was very impressive in Q1. The key reason is shift of the demand toward the higher value handset. We don't sell more handset, but the share of the more expensive brands in the mix increased a lot. We make it easier for the customer offering flexible installment plans. In Q4, we introduced a 36-month installment scheme, which makes more expensive equipment more affordable. And it is as well in line with our green strategy to increase the lifetime of the devices used by the customer. Our financial results were excellent, with strong growth of revenues, EBITDA, and net profit. It was, despite inflation, impacting our operating costs. Q1 was also very relevant for our transformation. In DotGrowth's strategy, we talk about phasing out of legacy technology and assets to release more of our potential. Q1 was particularly strong for disposal of our real estate that we no longer need. It decreased our operating costs and released capital. we have also announced a plan to gradually switch off of 3G technology that will start this year with the goal of completion by the end of 2025. This will lead to higher efficiency and make more room for 5G implementation. Let's look on the next slide. Slide number six. Our financial results in Q1 were excellent. They illustrate well the strength of our core business. More than 5% growth of EBITDA was generated by direct margin coming from strong performance of our key business line. Our operating costs increased, reflecting impact of inflation despite we partly mitigated with our action. This is a healthy structure of growth, especially for inflationary environment. confirming our strong fundamentals. In Q1, we have not yet seen full impact of inflation on our costs. Please also remember that last year in Q1, we had very high energy costs. We are satisfied with the results achieved in Q1, and they give us full confidence to achieve growth in the full year, something that clearly is our ambition. Q1 e-CAPEX reflected higher year-on-year level of investment and very high proceeds from disposal of assets, which I already mentioned. We sold more than in the entire 2022. Let's look on commercial activity on slide seven. Our commercial performance in Q1 reflected continuous solid customer demand, our focus on value, and intensive market competition. In convergence, we are pleased with 5% year-on-year growth of the customer base. It is healthy growth, taking into account more intensive competition in this area. It confirms that customers appreciate the quality of our multi-service offer. Growth in convergence is supported by fiber, where we continue to see good customer demand. customer base increased more than 20% year on year. To complement our product portfolio on selected area, we have launched fiber offer under our B brand new, which for the past 10 years has been very successful in mobile. Our mobile customer base growth is also solid, even if the pace of its increase has slowed down a bit. It's mainly due to slower result in B2B and high comparable base for flex offer, which had a very strong last year due to demand from Ukrainians. ARPO continue to grow in all key services, which is obviously very important in the complex context of inflationary challenges. Our value initiative for 2022 are gradually rolling into our customer base. Going forward, we will stick to our value approach in pricing. Thank you for now, and I hand the floor to Jacek.

Thank you Julien. Good morning everyone. Let's start the financial review on slide 9, where we present the highlights of our performance. Our financial results in Q1 were excellent, with strong growth achieved in revenue, EBITDA and the net income. Our top line continued to expand strongly. Solid performance of core telco revenues was complemented by a 40% year-on-year increase in handset sales. Strong revenue expansion was the key driver of the 5.5% year-on-year growth of the EBITDA. Strong underlying performance enabled us to outgrow the headwinds from a challenging inflation environment. I am pleased that the EBITDA growth has consistently translated into the bottom line. Our net income of 270 million zloty has more than doubled year on year. It was driven up by the growth of the EBITDA but also by much higher gain on disposal of real estate assets. The higher proceeds from asset disposals had also allowed us to lower the economic capex in Q1, which was 8% down versus the comparable period of last year. Finally, cash generation was impacted by timing of payments for capex and higher working capital requirements for sale of handsets in installments. Let's now review our results of Q1 in more detail, starting with the top line. We're very satisfied with the revenue performance in Q1. The key drivers of more than 7% EURNEO Dynamics are largely consistent with prior quotas and based on sustainable demand for our services. Firstly, core telecom services continued their solid pace of growth, benefiting from a simultaneous expansion of their respective customer bases and ARPOS. We are monitoring the volume of KPIs while relentlessly implementing the value strategy. Secondly, the IT and IS area had another good quarter, with revenue expanding at double-digit rates. This is reached despite market slowdown that is stemming from higher incentives amongst our business clients. Wholesale revenues have increased by 15% as we continue to capitalize on the demand for our infrastructure. And finally, as Julien mentioned, equipment revenues rose by an extraordinary 40% year-on-year, reflecting a shift of customer demand to higher value answers the expansion of our core business was the key driver for operating profitability growth let's now look at this on slide 11. our ebda in q1 increased by a very strong five and a half percent year on year it was a good quality growth resulting from excellent performance of our core business. The direct margin expanded by more than 5% year-over-year, or 85 million, translating the solid revenue growth into profits. I'm happy that the growth of the direct margin has accelerated versus the dynamic seen in the previous quarters. Indirect costs have increased year-on-year, but much less than the growth of the direct margin. First, as expected, our costs were affected by inflation, mainly due to indexation of rental contracts and increase of prices of various external services. Secondly, we benefited from cost optimization and actions to mitigate the impact of inflation. For example, we achieved extra savings in property maintenance, and very effectively hedged the prices of some utilities. Third, we were able to reverse certain provisions, something which by nature is a non-recurring development. We are very satisfied with the EBDA dynamics in Q1. This result and the trends behind it build our confidence reach our ambition of growth in 2023 let's now take a look at cash flow on the next slide our cash flow generation organic cash flow was negative in q1 at around minus 120 million there were two key factors that influenced this performance firstly cash capex expenditures exceeded 700 million slots Over 400 million of this accounted for payments for high CapEx from the previous year. Last year's CapEx phasing was more back-end loaded than usual, with Q4 accounting for 45% of the full year total. And as consequence, the Q1 payments reflect this schedule. Secondly, we have a higher need for working capital. This stems from very strong sales of handsets. We sell them in installments, so we receive cash from customers during two to three years, while we settle our payments right after the purchase. We were analyzing a plan to possibly extend the existing securitization facility to finance this demand. I'm confident that we can reduce the pressure on the working capital before the year ends. Both of these factors are relating mainly to timing. Our underlying cash generation remains very strong. In particular, we don't see any decrease, any deterioration of quality of our receivables. And obviously, as the economy is slowing down, we are monitoring this indicator with great care. Our balance sheet remains very sound with financial leverage at 1.3 times and effective costs of the existing financing of just over 3%. Leverage was further decreased by another trend received as planned from APG relating to the payment for the 50% shareholding of the Fibercom. That is all from me. Thank you very much for your attention and I hand the floor back to Julien for the conclusions.