Orange Polska Sa

Ladies and gentlemen, thank you for standing by and let me welcome you to Orange Polska Results conference summarizing second quarter and the first semester of 2024. My name is Leszek Iwaszko. 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 presentation by the management team followed by a Q&A session. Speakers for today would be Ludmila Klimov, the CEO of Orange Polska and Jacek Kunicki, CFO. So, without any further ado, I would like to pass the floor to Ludmila to begin the presentation.

Thank you, Leszek. Good morning, ladies and gentlemen, and welcome to our conference summarizing second quarter of 2024. I will guide you through our slides, so let's start with slide four. these key messages of this quarter. I'm pleased to say that the performance of our core telecom business maintained its good momentum in the second quarter. Our commercial results were strong. Customer base across all our key telecom services and also ARPO maintained healthy pace of growth. Our commercial success is also underpinned by our continuous investment in mobile and SIX infrastructure, which we develop for retail and wholesale customers. Our fiber core that we co-own just finished its third year of operations, and we are very satisfied with its performance so far. On the other hand, Our results continued to reflect a cyclical slowdown in the demand for ICT services and lower revenue from energy trade. Our financial results were solid, even if the headline revenue figure is down year on year. Revenues from core telecom services did very well. that is key element for almost 4% EBITDA growth in the second quarter. Headwinds coming from inflationary pressure on cost and energy resale were compensated by our business transformation and improved efficiency initiatives. Our growth is also increasingly supported by use of digital tools The share of sales done through digital channels in the first half of 2024 reached 24%, so we are very close to reaching our strategic ambition of 25% share, which we set in dot grow strategy. The key driver here is the performance of our mobile app, which is which we constantly develop to bring best digital experience at hand of our customers. I am also very happy that in May we launched Orange Business Metaverse. We will use it to market our smart city services and benefits of this technology to our customers. This is an investment into our future. and demonstrate how innovation can be useful and how it can be applied in operations for our business customers. Let's zoom now on highlights of our commercial activities on the next slide. Our commercial performance in Q2 was strong across all key telecom services with growing customer base and ARPO. and dynamics is improving. In the convergence, we maintained 5% year-on-year growth of customer base. We've improved the dynamic for net additions versus a year ago. It confirms right marketing approach to address diverse competitive landscape. Very solid ARPA growth of 4% reflected reflecting our value to approach the pricing, good demand for TZ content, and higher options for fiber packages that have been chosen by customers. A higher range of packages is already constituting 35% of the fiber customer base. Growth in convergence is supported by fiber. Customer base here increased 15% versus last year. It includes as well 16,000 customers coming from acquisitions of local fiber operators that we have completed in the second quarter. Coming to mobile, our mobile customer base exceeded 9 million and continuous growth of around 3% year-on-year. Net customer additions in this quarter were the highest in many quarters, reflecting quite good contribution from all brands and markets. Dynamics of mobile RPO was similar to what we have seen in first quarter. These solid results illustrate that we find right balance between volume and value in our commercial activity despite sometimes very aggressive offers from our competitors. A new tool for us to support the perception of quality of our services and brands is the new orange brand signature, which we have introduced in April. We already leveraged on it in second quarter and we are optimistic about elaborating and leveraging on it further. Our commercial success would not be possible without best quality connectivity. and best infrastructure. And I would like us to zoom on that on the next slide. So there are several reasons why it is worth to talk about our infrastructure. A lot is happening in both mobile and SIX as we aim to provide the best network experience to our customers. Starting with mobile, which is in the spotlight as we are building 5G network on a newly acquired C-band spectrum. A few days ago, we already passed 2000 sites where new reinforced 5G is available. This translates into 28% of Polish population covered by this service in 280 cities. Quality and performance of our mobile network is essential to answer to the demand of data consumption growth, which is not slowing down. We actually see customers using more data where new spectrum is becoming available, while total traffic on our network more than doubled in the past three years. On the fiber front, we are consistently expanding our footprint. You know very well that under DotGrowth strategy, we do it mainly through third-party infrastructure. Our largest partner is obviously our fiber core, Svetlovods Investitie, GV, which we own in 50% share. We are very pleased with its performance after three years of operation. FiberCore network is available today for 1.9 million households in Poland, which means that FiberCore has advanced at 70% of target rollout. And recently, Svetlovot Investita announced exceeding half a million of customer lines connected to its network. meaning that infrastructure usage is already achieving 28% despite constant growth and constant network expansion. On our own build, we are focusing on specific projects which are supported by EU subsidies. The new program is now in the execution phase. By mid-2026, we will build fiber connection to 155,000 households in 125 municipalities. And thanks to all these investments, our customers are getting the best connectivity regardless of the network they're using, fixed or mobile. Moreover, quality of our networks is confirmed now by independent speedtest.pl ranking. We were ranked number one in download speed for 5G in five out of first six months of this year. And for fiber broadband, FTTH, we were number one for all first six months of this year. This gives us a tangible evidence that our investments and efforts are reflected in better customer experience and that orange is here as our new brand positioning is saying orange to us in Polish. Thank you for now and I hand over to the floor to Jacek.

Thank you, Luzmila. Good morning, everyone. Let's start the financial review on slide eight with highlights of our performance this quarter. We're satisfied with our financial results in Q2, especially with a healthy growth of the EBITDA, a solid net profit and solid cash generation. As in the previous quarter, our headline revenue figure reflected a decrease in energy sales and a temporary year-on-year decline in ICT revenues. However, we are pleased with a strong growth of revenues from core telecom services, which are key to our value creation. Good performance of the core business was a major driver of the EBDA growth at almost It also supported the net income to a solid 230 million zloty in the second quarter, broadly similar to its level a year ago. Finally, solid cash generation in the first six months of the year reflected the higher EBITDA, offset by different change in working capital requirements between the both years. Let's now review our results in more detail, starting with the top line. So, total revenues decreased in Q2 by 3.1% year over year, despite a solid growth of core telecom services. There are two main reasons for this decline. First, energy sales. Its decrease is mainly a consequence of the market volatility, and price regulations, both implemented last year and changed in the first semester of this year. We expect a lower pace of decline in the second half of the year, as the year-on-year evolution will be on a more comparable base versus last year than in the first half of the year. The second reason of revenue decline is IT and IS revenues. These revenues exceeded 400 million zloty in Q2 and grew by over 20% versus the first quarter of the year. However, this was not enough versus very high comparable base of Q2 2023 when we realized a large public order for e-health in Poland. We continue to observe soft demand in the public sector and we're confident to benefit from the pickup of this activity in the future. The most important takeaway, however, from Q2 regarding revenues is that core telecom services grew at a solid 4.7% year-on-year. Their growth rate has actually improved versus the previous quarters. This increase is driven by a simultaneous growth of the main customer basis, so 3% in mobile, 5% in convergence, and 15% in fiber, and by a simultaneous growth of the main outputs, with almost 2% year-on-year growth in mobile, 3% in broadband, and 4% in convergence. Revenues from the core telecom services are the key to our margin creation. And so we're happy with a solid pace of their growth in both quarters of this year. Let's now take a look at profitability on slide 10. Our EBITDA increased by a solid 3.8% year-on-year in the second quarter. It was driven up both by the growth of the direct margin and by lower indirect costs. Let's look at this in more detail to give you the visibility on the key drivers of this evolution. On the bottom chart on the slide, we divided the direct margin evolution into two distinctively different elements. First, the green bar showing the increase of direct margin from all services except energy trade. Its growth is robust, driven mainly by the core telecom services revenues that I spoke about a second ago. The second bar shows an 18 million zloty drop of the direct margin from energy resale. It is affected by price regulations and by a high base of last year as we made unrepeatable profits in 2023 from resale of cheap energy acquired by Orange Polska from renewables. Moving to indirect costs, we show headwinds from inflationary pressure stemming from the double-digit growth of inflation in 2023 and from an almost 20% hike of the minimum wage last year. Energy and inflation constitute material headwinds for us in 2024, yet they are unlikely to be repeated with the same magnitude in the future, as energy decline is versus a very high comparable base of last year, and the CPI growth has already slowed down in 2024. In H1, we compensated these headwinds by lower indirect costs, including ongoing cost transformation and also efficiency gains in the network rollout project for our Fibercom. Margin from the latter is presented in other operating income. In H1, it includes a catch-up of margin upon the reassessment of the entire project's profitability. So, while this isn't fully recurring, it reflects better expectations for the entire project and also it will result in slightly higher margin to be gradually recognized in the future until the contract ends at the end of 2025. As a result, lower indirect costs offset the adverse impacts of inflation and lower margin from energy trade. And therefore, they allow the increase of the margin from core business to convert into the EBITDA growth. This demonstrates two things. First, our ability to adapt to adverse environment and achieve our business objectives. And second, a robust growth of profits coming out of our core business giving us solid prospects for the future. Please note that you might find a similar chart for the entire H1 in the appendix section, so showing a very similar picture to the one that I've just described for the second quarter. Okay, now let's look at net income on slide 11. Our net income has exceeded 450 million zloty in H1. As you can see on the top chart, It is a solid result as compared to historical levels. Its year-on-year evolution was driven by the underlying growth of the BDA offset by a high comparable base in H1 of two items. First, the gain on real estate. Our results were solid this semester with gains of 64 million zloty. However, last year, they were exceptionally focused in H1, with 85% of the full-year results achieved during the first six months of the year. Secondly, the evolution of net finance costs reflects high forex gains made in the first semester of last year, when the PLN strengthened significantly against the euro. I'm satisfied with the performance of our net results as H1 confirms that the underlying trends are positive and we're looking at another year of solid net income. Let's now switch to CapEx on page 12. Our economic CapEx in H1 was in line with our full year plans. CapEx spending amounted to 800 million zloty and consisted of three main blocks. First, we are investing considerable amounts in mobile as we are rolling out the 5G network and modernizing our radio access network infrastructure. Ludmila was presenting our programs and progress in this key investment area earlier on. This is coupled by investments into the core and fixed network as we're expanding the capacity of our networks, as well as by further investments in the transformation of our IT environment to support the agile product development and linear processes. Proceeds from sale of real estate amounted to 120 million zloty in H1. This is a very solid inflow, one of the best in the past two years, as we are progressing with the transformation of our assets from legacy copper infrastructure to a modern network. supported by the Agile IT environment. Let's now finally take a look at cash flow and net debt on page 13. We're happy with the level of cash generated in H1, just over 400 million zloty. This was broadly similar to the OCF level in the first half of last year. There are three main elements explaining the year-on-year evolution. higher EBITDA, which is the main building block of cash from operating activity. Secondly, lower cash capex, which reflected lower payments made this year for prior years capex than we had made in Q1 of 2023. Finally, change in working capital requirements was quite different this year in comparison to last year, working capital requirements increased in H1 of this year by $130 million, mainly due to higher purchases and payments for handsets that we need for our H2 activity. In contrast to this, the working capital requirement was reduced by $90 million in the first six months of last year, as back then, you remember, we have enlarged the factoring receivables from the sales of handsets in installments. Finally, looking down to the liabilities, the effective cost of financing increased to 4% in line with what we have flagged before. And this is, you know, the consequence of the fact that we refinanced an important part of our debt in May. And our balance sheet remains very sound with financial leverage at roughly 1.1 times net debt to EBITDA. That is all from me. Thank you for your attention, and I hand the floor back to Lyudmila for the conclusion.