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Edited Transcript of OPL.WA earnings conference call or presentation 29-Oct-19 10:00am GMT

Q3 2019 Orange Polska SA Earnings Call

Warsaw Nov 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Orange Polska SA earnings conference call or presentation Tuesday, October 29, 2019 at 10:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Jean-François Fallacher

Orange Polska S.A. - President of the Management Board & CEO

* Leszek Iwaszko

Orange Polska S.A. - Director of IR Department

* Maciej Nowohonski

Orange Polska S.A. - CFO & Member of the Management Board

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Conference Call Participants

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* Dilya Ibragimova

Citigroup Inc, Research Division - VP

* Pawel Puchalski

Santander Brokerage Poland, Research Division - Head of Equity Research Team

* Pawel Szpigiel

Dom Maklerski mBanku S.A., Research Division - Analyst

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Presentation

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Operator [1]

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Dear, ladies and gentlemen, welcome to the conference call of Orange Polska regarding the presentation of the Third Quarter Results 2019. At our customers' request, this conference will be recorded. (Operator Instructions) May I now hand you over to Leszek Iwaszko, Head of Investor Relations, who will lead you through this conference. Please go ahead, sir.

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Leszek Iwaszko, Orange Polska S.A. - Director of IR Department [2]

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Thank you. Welcome. Good morning, everyone, to our results conference for the third quarter and 9 months of 2019. Let me introduce the speakers for today, Jean-François Fallacher, CEO; and Maciej Nowohonski, our CFO.

Let me hand the floor to Jean-François to begin the presentation.

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Jean-François Fallacher, Orange Polska S.A. - President of the Management Board & CEO [3]

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Thank you very much, Leszek. Good morning, ladies and gentlemen, those of you who are in the room and those of you who are also watching us online. So I'm happy to welcome everyone for our third quarter results, and of course, for our -- the first 9 months of the year. As usually, I will start with some highlights. I will pass the floor to Maciej Nowohonski, our CFO, which will go into more details on these results, and I will be back for the conclusion. And then we will have some time for your questions.

So let's go directly to the Page #6 of this presentation. As usually, let's start with a quick overview of our results versus the full year guidance and expectations. As you remember, we are guiding for growth in both revenues and EBITDAaL. And after 9 months, I can report that we are fully on track with these plans. Actually, the third quarter was an exceptional quarter for us. Revenues, as you can see are growing by 3% and EBITDAaL is growing by more than 8% year-on-year for the first 9 months of the year. And moreover, if we look at EBITDAaL, excluding gains on real estate assets after 9 months, is also growing by 1% to 2%.

Revenue growth accelerated due to the first time consolidation of BlueSoft, the acquisition we realized in the first half of the year. And excluding BlueSoft revenues, we are also growing actually at a steady pace of 2% to 3%, and this is driven by convergence and IT. As you can see here, EBITDAaL was up in the third quarter as much as 22% year-on-year, and this is obviously driven by first strong cost optimizations, but the sales also of Nowogrodzka real estate complex that we announced to all of you in August.

If we now look at our first 9 months investments, they are up 7% year-on-year, although the CapEx of Q3 are 10% lower than last year, and this is linked to a different repartition of our spendings within -- with giving more weight on the first semester this year.

Now let's go to the next page, Page 7. I would like to comment our fiber results. As you can see, this third quarter was very good on the front of fiber. The reach of our truly fiber-to-the-home network approach, actually 4 million households at the end of September. This number is constituting almost 30% of all households in Poland. I remind, this is a bigger footprint in fiber alone than the total footprint of our first cable competitor. So we are now present in more than 140 cities. We have entered in 20 new cities so far this year. And in half of these cities, in half of these 140 cities, we are reaching more than half of the households. So 4 million households connectables means that we are 80% for the reach of our end of 2020 target of 5 million households. And after 2020 as you know, we are planning to significantly scale down this program to make room for our 5G investments.

Now if we look at the sales in the third quarter, we have added 39,000 fiber customers. This is more than a year ago and more than the previous quarters of this year. And I think we achieved that despite the fixed market that you all know is extremely competitive, which overall is impacting our fixed broadband performance. The strong fiber results indicates that, first of all, our customers are recognizing the superiority of fiber, and this is confirming that these large investments -- this large fiber investment is giving us a long-term competitive edge.

Now with this sales number and our total fiber-based adoption rate is almost 12%, and this is keeping on increasing every quarter. And there are already 35 cities in which this penetration is exceeding 15% and 13 cities in which it is exceeding 20% penetration. We are also very pleased -- and for those of you who are living in Poland you have probably seen it that T-Mobile has started to resell our fiber network, which will obviously contribute to monetization of this investment for wholesale revenues.

Please note, on the right side of this chart that our total broadband base is rapidly evolving. The share of high-speed technologies, namely fiber and VDSL is now almost equaling ADSL, and ADSL is now less than 40% of our base, which I think is a strong evolution and a very good performance.

Before we go to the next page, let also me put your attention on an event that took place and that we attend last week. It's about the regulation -- further the regulation. We are very pleased that the regulator actually has made this announcement and is, obviously, gradually abandoning this, I would say, archaic holes and extended the BSA, the regulation, in many more municipalities. It means that now we are not regulated in more than 40% of the Polish households, which is new decision. And it means now that competition in these areas will be purely based on quality of the service and market prices, and it will obviously give us more flexibility to create retail offers and also wholesale offers and will also allow us to react more quickly on changing local market conditions. So this announce of the regulator and this decision was obviously a very good news for Orange Polska.

If you want, let's go now to Page 8. So we would like to comment on this page to focus on the commercial performance on convergence and mobile. So if you just look at the upper row charts, convergence customer base keeps on growing, even if -- as you can see there, the growth is not as high as in the past. The key reason for that is that we have now, I would say, what is normal churn. I'll remind that we have launched Orange Love 2 years ago. So this customer base is coming to the end of the 2 years contract. And also, this is due to the fact that internal migration from non-convergent offers are now drying out. Please note that already 60% of our broadband customer base is now convergence. So naturally, this hot, cold fishing pool is actually getting smaller and smaller. However, what I would like to underline and say is that the gross additions to convergence that are including a new broadband service to Orange, and the new mobile are growing double-digit year-on-year in Q3. And in Q3, they were the highest in many quarters. And of course, these are the most value-accretive customers in our convergent strategy.

Now if we go on the mobile front. So on the right green box, you can see that Q3 was a very good period for us in mobile with very strong net additions, both in postpaid and prepaid. In postpaid, we counted net additions of 88,000, which is the best results in the last 2 years. This is mainly thanks to the improving churn ratio, both mobile handset offers and mobile broadband. The total postpaid in churn ratio in Q3 was 2.4%, which is, for us, a record low level. This means that basically, customers -- our customers are more loyal, which obviously we see as very encouraging trend in our more for more strategy that we are currently executing.

Now on the prepaid front. Following the price hikes on postpaid in the second quarter, we have pursued as well our value strategy in prepaid. So we have increased prices of unlimited services by PLN 5 for newly activated cards, of course, in return for more gigabytes and free MMSs. And also since October, we have slightly increased actually the price for calls in pay as you go prepaid offer. So this is clean to execute this value strategy on this market segment as well.

Now let's focus on the lower row on this slide, where we present the results of our ongoing transformation. So in the blue box, you will see the employment evolution at Orange Polska. On the yellow chart, what you can see there is that savings in indirect costs are very, very strong in the third quarter. And if we exclude the exceptionally high gains on sales of assets this quarter, they were slightly down 5% year-on-year, and Maciej will comment much more on this in a minute. In the pink box, you can see that after 9 months EBITDAaL is growing by 1% to 2%, even if we exclude the exceptional sales of real estate assets that happened in August. So that was all for me. Maciej, please.

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Maciej Nowohonski, Orange Polska S.A. - CFO & Member of the Management Board [4]

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Thank you, Jean-François. Good morning, everyone. So we are starting the financial review on Page #10. You can see the highlights there, and I think that the results were very strong on top line, on profitability and in cash flow. We were flagging to you that in the first semester that we were expecting the improvements, and we delivered. CapEx was lower in this quarter by 10% year-over-year, and it reflects, as Jean François mentioned, the even phasing of our investment activity throughout the year. Cash was supported by the sale of the assets and installment receivables that we continued throughout the entire Q3, and by the way, we are going to continue also in the coming quarters.

Now let's focus on the revenues, which is next slide, Slide #11. Our quarterly revenues were up 4.3% year-on-year, much more than in the previous quarters. So the key factor here is the -- for the acceleration is the contribution of BlueSoft that we consolidated for the first time. As we finalize this acquisition in June, we consolidated in Q3 BlueSoft results for the period of June to September. So this is 4 months. BlueSoft added, in general, PLN 48 million of revenues, and we are very satisfied with financial performance of the company so far in 2019 and also with the profitability of the company. We are now working on common go-to-market strategy that will allow us to realize synergies that we expect starting from 2020. If we put BlueSoft aside, our revenue dynamics were in line with previous quarters and here we see combined growth of convergence, mobile-only and broadband-only revenues at plus 1.4%, exactly the same as in the first semester. Slightly lower growth rate in convergence was offset by improving trend in mobile-only revenues. And in this category, mobile mono revenues, these declined only 4% in Q3 after 6% decline in the first semester, and improvements resulted from a lower erosion of the customer base and also lower decline in postpaid ARPO.

Overall, revenue trend also strongly benefited from the robust organic growth of ICT revenues, which increased 27% year-on-year. And after 9 months, they are up 23% and this is not counting BlueSoft, which proves that we rightly recognized the growth opportunities, and we are able to execute our ambitions in that area.

Now let's turn to profitability. Next page. EBITDA after cost of leasing amounted to almost PLN 950 million in the quarter and increased by spectacular 22% year-over-year. Significant portion of this growth obviously accounts for a gain on sale of Nowogrodzka/Barbary complex that we announced to you in August. However, if we exclude the gains on the asset sale, the EBITDAaL was up by a strong 7% year-on-year. It was driven by a solid direct margin evolution, which was supported by contribution from BlueSoft and very good result of cost optimization, just mentioned by Jean-François. A quarter ago, we flagged our expectations for a better trend here, and we delivered it.

Indirect costs, excluding sale of assets, in Q3 were down 5% year-on-year. As usual, savings came from many sources, labor, general expenses, advertising and promotion, CRM and IT and network. Optimization initiatives will top our agenda going forward, especially in the light of various inflationary cost challenges that are ahead of us for 2020.

Now let's take a look at the bottom line on the next slide. Net income in the quarter amounted to PLN 224 million. And similarly to EBITDAaL, a high figure here was driven by a record high gains on asset disposals. Bottom line again was supported by lower depreciation, which benefited from the extension of the useful life of certain fixed assets as in the previous quarters with a concrete impact for the quarter of PLN 48 million. And the financial costs were slightly affected by the negative ForEx differences impacting discount expense.

Now let's take a view on the cash generation on the next slide. So we generated in the quarter close to PLN 420 million in cash, an improvement of PLN 140 million versus last year. Obviously, the key contributor to these achievements were proceeds from the disposal of assets. So the sale of Nowogrodzka and Barbary real estate complex generated around PLN 350 million. If we exclude this factor, cash generation was below last year due to higher year-on-year working capital requirement. And here, what we see is just the phasing of the handset purchases and roaming settlements. Basically, these are different this year than the last year. We are buying right now more handsets. We have bought more in Q2. We have paid more in Q3 for that. And the phasing of the roaming discounts is basically more skewed towards the end of the year. So in Q4, we will see year-over-year upside on that front.

Working capital was also supported by the next tranche of the installment receivable sale that we continue from Q2. And as I said at the beginning, we are also going to continue in the quarters to come. That gave us in the quarter around PLN 91 million benefit. Please also note that last year in third quarter working capital strongly benefited from PLN 138 million upfront fee that we have received from T-Mobile related to the agreement that Jean-François mentioned a few minutes ago.

So I propose to conclude the financial review on the next page, which is dedicated to our leverage. And the leverage stood basically end of September at 2.2x to EBITDAaL. This is the lowest level in some time, and it reflects improving business fundamentals and balance sheet optimization initiatives that we have pursued so far, and we are going to continue in the quarters to come. Our cost of debt is lower. So it went down to around 3% for the quarter from 3.5% a year ago. And we were flagging that to you a quarter ago that these costs may go down. It went up.

So thank you for the attention, and I hand the floor back to Jean-François for conclusion.

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Jean-François Fallacher, Orange Polska S.A. - President of the Management Board & CEO [5]

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Thank you, Maciej. So allow me to wrap up now. So our Q3 results were exceptional, of course, thanks to the Nowogrodzka real estate complex sales. But even excluding this, they are strong. We delivered, as you have seen, a very strong and solid commercial results, especially in fiber and also mobile. Our EBITDAaL, excluding these, again, sales of real estate, increased 7% in Q3 year-on-year and 1% to 2% if we look at the first 9 months of the year. So obviously, you understood that we are confident regarding the guidance we gave you for the full year 2019.

Now as we speak, we are just before the peak commercial Christmas season, which is always very intense and very exciting. So as usually, this period will be full of very attractive offers for our customers, and we will do that by also aiming to preserve the balance between our commercial ambitions and our value strategy that we clearly add as a priority. Obviously, we are also, this Q4, working on the detailed plan in the preparation for 2020. Our priorities do not change. We will need to address now a number of cost challenges that are ahead of us linked to the inflation of a number -- right times in Poland. And we are also maintaining our focus on value generation and business transformation.

Now I want to thank you for your attention, and I will give the floor for questions.

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Questions and Answers

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Leszek Iwaszko, Orange Polska S.A. - Director of IR Department [1]

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We are waiting for questions from the floor. First, as usual, Pawel will be starting. Floor is yours, Pawel.

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Pawel Puchalski, Santander Brokerage Poland, Research Division - Head of Equity Research Team [2]

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Is it working? Yes, it is. Pawel Puchalski, Santander. Few questions. First of all, let's start with very recently Cyfrowy got the decline to the decision on surcharges. And they will be discontinued from -- as it can be seen from the decision of the regulator. Can you comment on what you expect as far as surcharges? And what is the scale of total risk in Orange Polska case? That would be the first question.

And secondly, well, I'm looking at your convergent net additions, and I remember you telling me many times that convergence is the fundament of your strategy, and those net additions have weakened substantially to 24,000 in quarter 3. What is the short-term outlook? And how you want to -- well, do you want to readdress your strategy or it still is focused on convergence?

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Jean-François Fallacher, Orange Polska S.A. - President of the Management Board & CEO [3]

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Let me take these 2 questions. On the first question, which was about the roaming surcharges that were, I would say, an exception in Poland because you know that Roam Like Home is actually the European directive is, I mean, underlying these surcharges. There was a specific topic for Poland. So we have read about the Polkomtel news. As we are concerned, Orange, I mean, the current surcharge we are applying is valid until April, so next year April 2020. So we will address that with the regulator. Meantime, this is all what I can say now. It's obviously a decision from the regulator. That's on the first topic.

On the second topic, which is a very important question that you are raising. Obviously, convergence is a key strategy of Orange Polska that we have announced actually in September 2017, together with fiber. It remains a key strategic axis together with fiber. As you have obviously seen, I mean, the ramp up of the convergent in our base was very rapid, look, showing the appetite of customers. What I have just tried to explain during the presentation is that if we look at our own customer base both on fixed broadband and mobile and in the -- more than 60% of our fixed broadband customers are now convergent. On mobile, we are approaching the same numbers. So what you see happening actually is that there are less and less in these net adds and you are right, there was a slowdown of the net adds. In these net adds, the part of migration is smaller and smaller.

So the volumes, as you rightly pointed out, are actually less than they used to be in the previous quarters. But if we now zoom in these volumes, what is happening and I was saying it, there are more and more new customers. We have an internal jargon at Orange. We call them new new. So new mobile broadband new mobile. We have more new broadband so-called old mobiles. So people having already a mobile at Orange, and this is extremely value accretive. So if -- and we have less and less what we use to call old Orange mobile, old broadband and basically, old Orange fixed broadband, new mobile.

So what we see happening is that the share of the value-accretive sales in this net adds is higher and higher. And in Q3, it was the highest ever. So although the volumes are going down actually, the mix in these volumes is favorable and very good, and it's an acquisition too. By the way, I remind that we are still having 85% of our gross adds in fiber that are coming from competition. I mean, this is still a valid KPI and stays stable. So this is really an acquisition tool. I mean. If we look back in many years, this is a win back too because we are gaining again market share in large cities, thanks to the fiber investment.

So to your question, strategy remains the same because it's working. And by the way, it's interesting to see that all our competitors, including now cable companies in last quarters, are following this path.

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Pawel Puchalski, Santander Brokerage Poland, Research Division - Head of Equity Research Team [4]

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May I ask 2 more questions? Well, TV segment because, well, the slowdown is observed in convergence, but slowdown in TV segment is, well, quite striking to me, and we've just heard that Cyfrowy and...

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Jean-François Fallacher, Orange Polska S.A. - President of the Management Board & CEO [5]

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Discovery Group.

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Pawel Puchalski, Santander Brokerage Poland, Research Division - Head of Equity Research Team [6]

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And Discovery Group are thinking of kicking off their own OTT platform. And well, you are not strong in TV right now. And do you see such an OTT new platform as opportunity or as a risk? That would be my first question. And the second one, I remember the guidance for years 2019 and '20, and there was a growth in EBITDA in 2019 and in 2020. And well, I know it's too early, but I wanted to know if you would expect a consecutive growth after growth? Or you will refer to 2020 growth in relation to 2018? And well, if 2019 result was exceptionally strong, would you admit any decline in EBITDA in 2020, which would be still higher than 2019? I hope you understand what I'm asking.

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Jean-François Fallacher, Orange Polska S.A. - President of the Management Board & CEO [7]

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I do understand you very good. As usual, thank you for your questions, Pawel. So on the last question, the answer is we are guiding for growth versus 2019 on EBITDA, full stop. That's my first answer.

On the previous question. So we have, as all of you read the press and the announcement that was 2 days ago if my memory is good about this creation of common entity between Discovery and Polsat. Obviously, it's a bit fresh for us to have any opinion on this move. However, this move has happened in other countries. Well, actually I've seen the same move happening in my home country in France. It was a platform called [Cell2] between 2 content providers. It is obvious that this business of content and entertainment is moving. We obviously see the direction in which it is moving. So it is moving towards more and more OTT, and Poland is not excluding from these trends, which are happening everywhere. You know that there are also new big players coming into this OTT world. I'm just quoting Disney, Apple. So I guess, this is natural reaction of the local content owners and big content companies.

So the way we see that this stage, again it's a little bit difficult to have an opinion because the announcement that was made was pretty generic. But the way we see it is very positively because we believe it's going to be yet an additional reason why you should go for fiber and very high throughput basically because what you want is the highest quality. So we see it as an opportunity, basically.

On TV, well I've heard your statement. Allow me to disagree slightly because if you look at our TV lineup in our Love offers, we have the best lineup in Poland. So there is not one channel that you would not find in Orange TV. So there was maybe a bit of a slowdown in our TV sales, but simply because our fiber offers, as you have seen, are becoming more and more attractive in certain geographies, so -- which is sometimes having the tendency to push people to buy a little bit more pure fiber. But this customer base -- this fiber customer base that we are gaining is also upgrading later to TV. So I mean, this is a pool of customers we are creating that is a pool to whom we can upsell in the future. So the overall movement is good, basically.

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Leszek Iwaszko, Orange Polska S.A. - Director of IR Department [8]

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Do we have any more questions from the floor? If not, then I would suggest to switch to our teleconference listeners. Operator, please?

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Operator [9]

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(Operator Instructions) The first question received is from Ibragimova from Citi.

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Dilya Ibragimova, Citigroup Inc, Research Division - VP [10]

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This is Dilya Ibragimova from Citi. I have a couple of questions, if I may. First, on your comment that you want to continue to focus on cost optimization going forward to address, for example, the inflationary pressures. Looking at the labor cost, which has been, in fact, very impressive cost of optimization so far. What are your plans? Or maybe how do you see the timing of the next program? Would you consider doing something opportunistically, whenever you see -- when you can reach an agreement? Or would you consider doing something more actively after fiber rollout has been done so from 2021? So maybe on timing. And if you have -- if you could comment a bit on the degree of the labor cost optimization or a headcount optimization, if possible, that would be great.

Second question is on the recent announcement on the memorandum of understanding that has been announced between different players on 5G. If you could give us a bit more details what this is about? Is it only to do with the 700 megahertz? And how do you see -- what's your thinking in term of -- on 5G overall in Poland? Is it going to be 700 that -- built over 700 megahertz only? Or is it the common network on 700 and then other spectrum will be maybe pooled or any comments and what your expectations are out of this memorandum or cooperation that would be very helpful.

And last question is on your comment that you see that the -- every customer that -- sorry, existing customers taking an additional contract is being highly value accretive. So for example, you mentioned that both on customers that taking mobile. So from 1 P to second P, could you give us a bit more details on economics? Is it where -- when you -- when the comment that the customer is highly value accretive, is it versus any additional external customer? And is it on subscriber acquisition cost? Or how do you think in terms of value accretion, when you think customer takes additional play?

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Maciej Nowohonski, Orange Polska S.A. - CFO & Member of the Management Board [11]

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Thank you very much for the questions. I will take the first and the last question. So in terms of the labor cost, you were asking about the further potential that we have. I would like to make a small introduction with a little bit bigger picture for the Polish market. On the market since many years, we are observing quite a dynamic evolution of the labor costs, and these dynamics in the past were at the level of around 7% for the entire country. Part of these dynamics were also visible in Orange Polska. We have a yearly pay rise increases, which are basically part of the social plan that we agree with trade unions. Right now, we are, I would say, pending social plan that has been agreed 2 years ago. And it's very consequently implemented by the company. Today, we, I would say, cannot give more color about any other future potential social plans that may happen. We would like to come back to more concrete news when they appear, when they are negotiated in due time, which normally is around end of the year. So I think it will be more talkative on that topic in the quarters to come. But what we can say is that given the fact that the labor cost is an inflationary element, we have initiated a couple of years ago, quite comprehensive program of automation and digitization in the company. And these projects are, I would say, substantially contributing to our needs in that respect. And we are going to continue those projects in the future as well. So these will be the first items to, I would say, turn to having such dynamics on the labor market as we have in Poland.

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Jean-François Fallacher, Orange Polska S.A. - President of the Management Board & CEO [12]

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Okay. As concerned your second question around 5G developments in Poland and this MoU that was signed yesterday with the Ministry of Digital Affairs. I can tell you the following. So there are actually 2 things that are being announced by the government and the regulator. One is obviously an auction that should actually start in the beginning of 2020 to allocate the so-called C band frequencies in Poland. So there will be -- as far as we know now, there would be 4 blocks of 80 megahertz in this band of 3 to 5, 3 to 7 gigahertz that will be actually put in an auction, again in the first semester 2020 with the aim to distribute these frequencies for 5G to the operators in the summer 2020. So that's one.

The second thing that actually is happening on the Polish market is the, let's say, the potential wish or at least for sure the wish to study from the government to have a potential, let's say, common network on the 700 megahertz frequency. So if you remember well, there was a meeting actually last winter, winter 2018. We had a meeting with the Prime Minister and the 4 operators where the Prime Minister has announced his wish for us together to study the possibility of mutualizing this frequency. So actually, the memorandum of understanding that was signed yesterday is exactly about this. In this memorandum of understanding, the operators are actually agreeing with the state that we will together study the possibility and the feasibility of such a scheme.

I will remind that the situation of Poland has concerned 700 megahertz is a bit specific because as you know, we have at our Eastern borders, Russia, Belorussia and Ukraine, which are currently using actually actively these frequencies, and they need to free them up before we, in Poland, can use them. And at this moment, discussions have been engaged by the Polish government that the deadlines are not yet -- at least for us operator, deadlines are not extremely clear. So this spectrum is, of course, a bit more remote than the C band spectrum. So this is what I can actually comment on this second question of yours.

Now on your third question about the value creation in our convergence. Again, what I can tell you is that this is not new. Since the beginning, when we started convergence, we are looking at our -- actually net add, gross adds and -- very much in detail. And we have 4 categories of customers. So again, sorry for this ugly words and jargon. We call them new, new. So this is a customer taking convergence bundle from scratch. So new broadband and new mobile, sometimes also new TV, but I will simplify it by calling them -- only talking about mobile and fixed broadband. So we have new, new. We have new broadband, old mobile, new mobile, old broadband, and we have old mobile, old broadband.

Old mobile, old broadband is obviously a customer that was migrating from 2 different offers from our base. In terms of value creation, it's pretty simple. What is happening is that the old mobile, old actually broadband were quite neutral, sometimes even destroying a bit value in exchange of actually more loyalty because you can see on our figures. The beauty of convergence is that it reduces the churn. Whereas, there was real value creation for those customers which were migrating from a broadband to convergence, bringing a new mobile or migrating from a mobile customer, bringing a new broadband, and the value creation was about equal from these 2 type of customers.

And of course, there are the brand-new customers, buying a brand-new package. And here, the value creation is much higher. When I talk about value creation, it's obviously the revenues, the future revenues minus the acquisition cost and commissions we are paying for these customers. I will not tell you exactly what the amounts are, but this is the mechanic of convergence basically. And what I was just saying is that in the last quarter, the amounts of actually net additions of the 2 categories, which are new broadband, so new broadband, new mobile, new broadband, old mobile is the highest we've seen so far. So despite the volumes are going down, this value-accretive part of the composition of our volumes is extremely good. So again, this is confirming that our strategy -- convergence strategy is the right one, and we want to pursue it.

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Maciej Nowohonski, Orange Polska S.A. - CFO & Member of the Management Board [13]

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I would just add that when you take a look at our offer structure, you will notice that our convergent offer is having a very high potential for the upsell. For example, in the TV component, customers can go to different options, which obviously cost a little bit more for customers, but give us more ARPU like, going from standard to x rates, PLN 40 and more for TV going from extra to premium is PLN 70 more revenue for the TV component. And it's also worth mentioning the mobile component because customers can upsell also SIM cards. And for each SIM card a customer gets, obviously, a nice benefit that this SIM card is cheaper than on the stand-alone front, but it means that for us, it is an incremental revenue of PLN 25 for 7 gigs option or PLN 35 for 15 gigs option or PLN 55 for 30 gigs option. So these are the basic mechanics, which are basically embedded in the construction of our convergent offer.

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Operator [14]

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The next question received is from Pawel Szpigiel from mBank Securities.

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Pawel Szpigiel, Dom Maklerski mBanku S.A., Research Division - Analyst [15]

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Congratulations on the results. I have a couple of questions. I will ask them one by one, if you don't mind. So the first is to Jean-François. In the press release, you said that you are satisfied with the first results of more for more commercial actions which is for me a clear signal that the recent price increase were accepted by the company's clients. Is that correct? What is the reaction of the clients and potential clients to the price increase you introduced this year?

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Jean-François Fallacher, Orange Polska S.A. - President of the Management Board & CEO [16]

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Well, I think the commercial results are saying it all. I mean, highest net adds on mobile for the last 2 years, one and lowest churn, we've broken the record. That's it.

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Pawel Szpigiel, Dom Maklerski mBanku S.A., Research Division - Analyst [17]

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Okay. The second question is about what you mentioned in the presentation. You said that you want to scale down the FTTH program. Could you please us -- could you please give us more details on this reduction of investments in fiber?

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Jean-François Fallacher, Orange Polska S.A. - President of the Management Board & CEO [18]

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Yes, of course, I mean -- and this is no news because this is something we've always -- actually, when I say always it's during our strategic announcement in 2017. This is the plan we have announced. So it's not about scaling down our actually fiber footprint obviously because we are aiming to reach 5 million households in Poland. Obviously, the more you go in a country like Poland, but this is very dynamic country, I guess, the more you go into expensive households to build. And there is obviously a stage by which the price level in the country cannot allow you to have, let's say, profitable investments. So obviously, what we have done in this program is going first to the most profitable areas of the country. And usually, this means connecting building with a lot of households. And then you are going to build in with less and less households and single-family households. So this is what's happening.

So we have targeted in the first tranche of this fiber program, the first 5 million households in the country, which are obviously the most profitable ones. The difficulty is that usually this is where the competition is, and this is exactly what happened. And also one of the reason why we are having so good -- I want -- new customers in our gross adds, 85% of our customers are coming from competition for that reason. So basically, this is the main reason why we want to actually slow down the investments in fiber. That's one.

The second reason is obviously, is that we want to monetize this investment because although we are happy with the 12% penetration, still it means that 88% of the network is there, but customers are to be connected. So we will focus more on sales in the future.

Third is that we have 5G coming, and we want to create some room for 5G because we will need to invest in this new mobile network generation, which is also going to be key because it's going to bring obviously, more cohort to our mobile customers and more possibilities in the future.

And last but not least, there is a topic that all of you are very sensible to, which is our dividend policy. And we are well aware that at some point, we need to reached with our shareholders. So for all these reasons, our plan is to actually scale down our fiber investment after end of 2020.

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Pawel Szpigiel, Dom Maklerski mBanku S.A., Research Division - Analyst [19]

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Could you please now comment on B2C fixed market evolution in the third quarter? You probably feel more competitive pressure from the -- in this part of the market. And I want to know what would be your answer to new offers of your competitors.

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Jean-François Fallacher, Orange Polska S.A. - President of the Management Board & CEO [20]

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Yes, I can comment on that. So indeed, what we see happening on the mobile front is very positive because all of you have been seeing that market repair is well underway on the mobile front. This is why also we have made some movements on the prepaid front to really push that forward. As far as the fixed broadband market is concerned, the -- rather the opposite is happening. So especially in big cities, there I mean, our competitors -- our cable competitors have been more aggressive. So our answer has been clearly that, for instance, in the capital city in Warsaw and those of you living here, being near to -- living in Warsaw I've seen it. I mean we have came out with more aggressive offers also on fiber.

So it is true that on the fixed broadband front, the market situation is not exactly the same. It's becoming a bit more aggressive with more promotions and prices being more aggressive. The good news is that fortunately, this is the -- let's say, these large cities are the part where we have actually the lowest market share at this moment. So if we look at, let's say, the rural places where we are really the strong leader and far, far from our cable competitors, if we look at the middle-sized city, which the market shares are quite calibrated, in the large city in the past 10 years, we have lost so much market share that actually, despite our fiber investment, we are still, I would say, the challenger. So here, we have no state of mind, and we have no state of mind to became more aggressive in the first half. That's what we did in Warsaw basically.

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Pawel Szpigiel, Dom Maklerski mBanku S.A., Research Division - Analyst [21]

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Okay. And the last question, you said that the current plan of the government is that C band will be distributed in the form of auction in 4 blocks -- in 4 equal blocks. Is that correct?

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Jean-François Fallacher, Orange Polska S.A. - President of the Management Board & CEO [22]

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Correct. Correct. This is right. Correct. This is right. Just when you say 4 equal blocks, it depends how far you are looking at this block from because if you zoom in these blocks, they're not equal. So this is precisely the current discussions that are going to happen with the regulator because the regulator, like in any auction of this type, will issue the rules and regulation of this action to the market. So the market will have the possibility to comment this. So we understood that this is going to be published in the mid of November and operators will have one month to comment. So we are expecting to see these rules and regulation before commenting them because at this stage, there -- we don't know more than this. The only thing we know is that if you look in detail, those blocks are not completely equal.

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Pawel Szpigiel, Dom Maklerski mBanku S.A., Research Division - Analyst [23]

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What that means, actually?

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Jean-François Fallacher, Orange Polska S.A. - President of the Management Board & CEO [24]

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Well, I could go much more in detail if you want, but for instance, 2 of these blocks do not include Warsaw for the first 2 years, but at the end of the 15 years are completely covering the entire country. And 2 other blocks are actually including Warsaw from the start, but there are some, let's say, black zones for the full duration of the license. So this is what I mean by -- they are equal in size and frequency position, but if you zoom in, they're not exactly equal. So there will be some kind of dilemmas, which ones to bid or not to bid.

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Pawel Szpigiel, Dom Maklerski mBanku S.A., Research Division - Analyst [25]

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Okay. But the differences between them are not material, let's say?

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Jean-François Fallacher, Orange Polska S.A. - President of the Management Board & CEO [26]

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Well, there are differences. This is all I can say. I cannot comment further obviously because this is extremely delicate topics, as you can imagine. So that's all I can say.

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Operator [27]

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(Operator Instructions) If there are no further questions, I hand back to Leszek Iwaszko.

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Leszek Iwaszko, Orange Polska S.A. - Director of IR Department [28]

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Do we have any follow-up questions from the floor? I cannot see. If not then, I would like to thank all -- thank everyone for the participation, for listening to us and see you in 2020.

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Jean-François Fallacher, Orange Polska S.A. - President of the Management Board & CEO [29]

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Hopefully, before. Thank you very much. Have a good day. Thank you, Leszek.

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Operator [30]

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Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.