Orange Polska Sa

Ladies and gentlemen, thank you for standing by. Let me welcome you to Orange Polska third quarter 2024 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 the Q&A session. Speakers for today will be Ludmila Klimok, the CEO of Orange Polska and Jacek Kunicki, CFO. So let me hand the floor to Lyudmila to begin the presentation.

Thank you. Good morning and welcome to our conference summarizing third quarter of 2024. And let's begin with our slide four with key messages for the quarter. I will start with commercial performance, which was very good in the third quarter. Customer base across all our key telecom services and R4 maintained healthy pace of growth. We are pleased that our prepaid customer base has been growing this quarter. At the same time, the environment on business market remains challenging. as a result of low level of demand and intensive competition. And this is our key point for attention going forward. Financial results in Q3 were solid. Revenue were stable year on year. What is important is an acceleration of growth of our core telecom services. And this is also a key element which is contributing to 3% EBITDA growth this quarter. Switching to more strategic developments, within our DOT growth strategy, we aim to expand our wholesale activity, reinforcing it as a growth engine. And this quarter, we took an important step in this direction. fully opening the access to 2.5 million households on our fiber to other operators. These aims further monetization of our infrastructure assets and in the same time lowers risk of overbuild. As you know, this month the market regulator has launched a consultation process for 700 MHz spectrum auction. It has been long overdue, so we are pleased that it finally started. This spectrum is important for enhancing coverage and improving the quality of our services in non-urban areas. and we firmly believe that its optimal use will benefit the growth of Poland more than digital economy. However, we are concerned that the proposed starting prices, which are above benchmarks set by other countries, do not align with this objective and we intend to present this argument to the regulator during the consultation process. Let's zoom on highlights of our commercial activity on the next slide. Our commercial performance in Q3 benefited from good customer demand and our well-executed value strategy. In convergence, we are pleased to maintain 5% year-on-year growth for customer base. It's another consecutive quarter when net additions dynamic is better than a year ago, and it confirms right marketing approach to address diverse competitive landscape. Our PO growth accelerated to 5% and is reflecting our value approach in pricing, quality of our offerings, and good demand for content and for higher speed fiber. In fiber, we continue to generate the healthy growth of customer base. It now reached almost 1.5 million customers. It benefits from constant expansion of our footprint. We have just completed network rollout to the first 10,000 households in the new EU subsidized program. And this footprint will be available for commercial activity already this quarter in Q4. Fiber is a key driver for 3.5% growth of our fixed broadband-only ARPO. In mobile, our results were also very solid. Again, net customer additions were higher than a year ago, so there's better dynamics. All brands strongly contributed to the performance on the consumer market. That was offsetting a slowdown on the business market. Dynamics of mobile ARPOR was similar to what we have seen in the first half of the year. These very solid results demonstrate that we maintain a good balance between volume and value in our commercial activity despite a challenging competitive environment. And I will thank you for now and hand over to Jacek.

Thank you, Luzmila. Good morning, everyone. Let's start the financial review on slide seven with the highlights of our performance this quarter. Our Q3 results were solid with strong performance of our core telecom services and continued growth of the EBITDA that translated also into a solid net result. The year-on-year revenue dynamics improved versus the previous quarters due to higher growth of core telecom services, which are the highlight of quarter three, and also due to the year-on-year increase of the IT and IS sales. Good margin from core telecom services is the key underlying support for our EBITDA. This quarter, it increased by 3% year-over-year and was also a key driver of the 7% increase of the net income. CapEx is higher this year, reflecting the full speed of 5G network rollout. and also different phasing of real estate sales versus the one that we've seen in 2023. Finally cash generation is down year over year mostly due to growth of working capital requirements linked with business project development in the nine months of this year. Now let's review our results in Q3 in more detail starting with the top line. So total revenues for Q3 were broadly at par with last year, improving the year-on-year trajectory versus the previous quarters. Let me mention the three key elements driving this revenue evolution. First and foremost, our revenues from our core telecom services, which is the key driver of our direct margin. Their year-on-year dynamics are shown on the top chart of this slide. We are pleased with their growth as their year-on-year increase has reached 6% in Q3. It is driven by a simultaneous increase of the main customer bases and also the ARPUs across all key telecom services. Second are IT and IS revenues. They were up 8% in Q3 as compared to quite big declines in H1. However, this comparison is flattered by a low base of comparison in the quarter three of last year of just 300 million, while the same comparison, so the figure of quarter four of 2023, it's with a revenues of around 580 million. On the other hand, on the one hand, we see soft demands. for IT and ICT services, especially from the public sector. On the other hand, we experienced above average demand for bulk SMSs. Overall, it's evident that the rebound of IT and IS revenue line will take longer than initially expected, and we're working on the plans to rejuvenate this growth. Finally, energy resale. Similarly to H1, its revenues dropped due to regulatory impact and the overall energy market volatility and weakness. As you know, we are considering strategic options for this business going forward. To sum up on the top line, we're happy about the pace of growth of core telecom services. The key action is to bring ICT revenues back to profitable growth. IT and IS is an important value driver for us and we're absolutely confident in its future potential. Let's switch to profitability on slide nine. Our EBITDA increased by 3% in the third quarter as compared to the same period last year. This growth was entirely driven by the direct margin. Here, the most important driver is the consistent solid growth of margin from our core business. Its pace has accelerated versus the previous quarters, driven by the higher increase of revenues from core telecom services. Then, we've had to absorb another decrease of margin from energy resale at a similar pace as in H1. This time, however, it was more than offset by a positive accounting one-off related to capitalization of customer connectivity costs. Indirect costs have increased by 58 million zloty year-over-year, driven by three factors. First, continued inflation headwinds from 2023 exacerbated by the hike of minimum wage. Second, additional advertising and promotional costs as we supported our very good commercial activity in Q3. Third is a positive one-off that we obtained in Q3 of 2023 of roughly 16 million Zloty related to a refund of the Universal Service Obligation fees. To recap, this year is affected by several headwinds. High inflation, energy trade, as well as some one-offs, which obviously won't repeat with the same magnitude in the future. We are happy with the robust growth of profits from our underlying core business, and this gives us solid prospects for the future. Let's look at cash and balance sheet on slide 10. Year-to-date, we generated over 660 million zloty of organic cash flow. This is a solid level, even if it's below the cash generation of 2023. When we look at the year-on-year evolution, there are two main elements driving the dynamics of the OCF. First of all, higher EBITDA, which is the main building block for cash from operating activity before working capital. It increased by 160 million year-on-year or 7%. Secondly, Our working capital requirement was higher year on year. It's an effect of two factors. On the one hand, it was reduced in the three quarters of last year due to a prepayment received from our Fiberco for the network rollout project. On the other hand, we've had an increased growth of the working capital requirement this year. It's mainly linked with First of all, the capitalization of contract costs, the one I mentioned in the EBITDA analysis, as well as higher inventory for ICT projects to be realized in the fourth quarter. Our balance sheet remains very sound with a financial leverage at 1.2 times EBITDA. It's marginally increased compared to the previous quarter, as we paid 630 million zloty of dividend in July. This is all from me. Thank you for attention and I hand the floor back to Luzmila.