Orange Polska SA
WSE:OPL
US |
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
|
US |
Berkshire Hathaway Inc
NYSE:BRK.A
|
Financial Services
|
|
US |
Bank of America Corp
NYSE:BAC
|
Banking
|
|
US |
Mastercard Inc
NYSE:MA
|
Technology
|
|
US |
UnitedHealth Group Inc
NYSE:UNH
|
Health Care
|
|
US |
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
|
US |
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
|
US |
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
|
US |
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
|
US |
Visa Inc
NYSE:V
|
Technology
|
|
CN |
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
|
US |
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
|
US |
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
|
US |
Coca-Cola Co
NYSE:KO
|
Beverages
|
|
US |
Walmart Inc
NYSE:WMT
|
Retail
|
|
US |
Verizon Communications Inc
NYSE:VZ
|
Telecommunication
|
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
52 Week Range |
7.294
8.92
|
Price Target |
|
We'll email you a reminder when the closing price reaches PLN.
Choose the stock you wish to monitor with a price alert.
Johnson & Johnson
NYSE:JNJ
|
US | |
Berkshire Hathaway Inc
NYSE:BRK.A
|
US | |
Bank of America Corp
NYSE:BAC
|
US | |
Mastercard Inc
NYSE:MA
|
US | |
UnitedHealth Group Inc
NYSE:UNH
|
US | |
Exxon Mobil Corp
NYSE:XOM
|
US | |
Pfizer Inc
NYSE:PFE
|
US | |
Palantir Technologies Inc
NYSE:PLTR
|
US | |
Nike Inc
NYSE:NKE
|
US | |
Visa Inc
NYSE:V
|
US | |
Alibaba Group Holding Ltd
NYSE:BABA
|
CN | |
3M Co
NYSE:MMM
|
US | |
JPMorgan Chase & Co
NYSE:JPM
|
US | |
Coca-Cola Co
NYSE:KO
|
US | |
Walmart Inc
NYSE:WMT
|
US | |
Verizon Communications Inc
NYSE:VZ
|
US |
This alert will be permanently deleted.
Ladies and gentlemen, welcome to Orange Polska First Quarter 2019 Results Conference Call. Today's host is Mr. Leszek Iwaszko, Head of Investor Relations. Please go ahead.
Hello. Good morning. Welcome, everyone, to our conference for the first quarter 2019. I'm Head of Investor Relations, Leszek Iwaszko. Our speakers for today will be Jean-Francois Fallacher, the CEO of Orange Polska; and Maciej Nowohonski, the CFO of Orange Polska. I hand the floor to Jean-Francois to begin the presentation. Thank you.
Thank you very much, Leszek. So welcome, everyone, to our conference. Let me start directly with the first slide of the presentation, which is Slide #6, where you can see the highlights of our Q1 results presented next to 2019 year guidance. So as you know, we are guiding for growth of both revenues and EBITDAaL, and with full confidence, we confirm this guidance even if the EBITDA in this quarter is not growing versus last year. Full year growth doesn't necessarily mean that we grow every quarter. In Q1 and Q2 last year, basically our results benefited from some nonrecurring gains, which are not repeated this year and which are weighing on the year on year comparison.
Now if we look at revenues. So revenues evolution was strong this quarter, as you can see, with more with core group revenues growing more than 3%, and they are driven by convergence and ICT. EBITDAaL, which is, if you remember, our new measure of operating performance in IFRS 16, was stable year on year, if we exclude different timing of closures of real estate transaction, and we expect the trend to improve going forward. CapEx this quarter were high, but this is only due to different phasing than last year. And for the full year, we expect our CapEx to be lower than last year.
Now let's look at the next slide, Slide #7. As we highlighted many times, convergence is the cornerstone of our strategy. The Orange Love convergent offer is our key commercial formula. It's unique on the market and we are, through these offers winning higher share of telco spendings of the Polish households. It is encouraging people to consolidate their media and telecom bills under one roof, which
comes both with convenience and financial benefits for them. As you know, Orange Love offers have been on the market for more than 2 years now. They are used by more than 1 million to 2 million customers and basically, we decided this year to refresh it and to enhance it.
As you can see on the charts there, the standard TV package is unchanged. And we have actually created two additional packages that you see here on the slide. These 2 packages are making it easier for customers who desire richer TV content and more abundant mobile data plans. Previously, creating these packages was also possible through upselling and now it's easier since price for customers is more attractive. And at the same time, we keep the flexibility we were having. As for customers, they can still buy additional thematic TV if they wish to. So through this offer, we clearly count on more value to be generated and it's a very concrete proof of our value strategy being implemented.
I propose we are looking now at next slide, which is about fiber. We have quite important news this time, this quarter as the reach of our fiber network in Poland has exceeded now 3.5 million Polish homes. This is 25% of all Polish households. However, if we look at the largest cities in Poland only, we were where we actually started predominantly to build, cities with population of more than 100,000 inhabitants. In these cities, our reach is close to 50%. Our fiber network [indiscernible], FTTH, network today, is already bigger than the entire foothold of the number one Polish cable company, UPC, just to make sure we understand the size of this fiber network. So this is a truly fiber to the home network, that is our big asset and competitive advantage that will last for the coming 20, 30 years in Poland.
Now talking about the customer base. In the beginning of April, we passed the 400,000 customers milestone. Our network penetration, as you can read there, has exceeded 11% and it keeps on increasing every quarter and is completely in line with our expectation. And it is important also to note that in these larger cities I was talking about, it actually exceeds 12%. It's true that it is lower in smaller
cities where we started to build a little bit later, but we wanted to report that the fiber project is absolutely on track.
Now a few words, next page, Page 9 of the presentation. Let's look here at value creation coming both from commercial performance and transformation. On the commercial performance side, you see that net customer addition of convergence continued to be solid, exceeding 40,000 in the quarter. They may be not as high as in the past, but please note that we are not anymore pushing wireless for fixed product. It's a result of our strategy. And if we exclude this wireless technology, our net additions on convergence are about the same with last year. I want to highlight here that the penetration of convergence in our fixed broadband base is approaching 60% now, which is, as you will agree, a significant number. And we have we pay a lot of attention on the proper balance between customer volume and value they are bringing, and this is why we are pleased to show on the middle on the graph in the middle on the top that ARPO trend has improved. And we count on further progress helped by the new Love packages that I was just showing you a few minutes ago.
Now on the right side. If you look at our mobile postpaid numbers, we are steadily growing the customer base, in handsets offers, net additions were better actually than last year and mainly driven by a lower churn on the B2C mono customer base. Now on the lower row of this slide, we are presenting results of our ongoing transformation, the second part of the value creation in the company. We have entered the second year of implementation of the social plan and such scale of employment optimization wouldn't be possible without major simplification and automation of our business processes. This is actually one of the main drivers of overall savings in indirect costs and we are here very consistent. You can read here that with PLN 38 million net indirect cost savings this quarter, we are continuing the savings of our indirect costs. On the right side, on the pink box, you can see that these savings almost entirely offset the decline of direct margin coming from our legacy business. So that's what I wanted to report on value creation.
And now let us go to next slide where I would like to comment an announcement that we did yesterday, which is about strengthening our B2B business. So yesterday, we have announced the acquisition of an IT company called BlueSoft. Why do we do that? In our strategy, we always underline the willingness to develop so-called adjacent businesses. And ICT, as you know, is one of them offering growth potential and significant synergies with our core B2B activities. And in the recent years, these synergies have become bigger and bigger because there is bigger and bigger appetite of large enterprises and companies, thanks to digitalization of their own processes We've been very successful, I think we can say that developing ICT in the last years in OPL through our subsidiary called Integrated Solutions, which is now among the top 5 IT integrators in Poland. And you can see on this chart, on the below graph, the yellow graph that in the past 2 years, we grew our ICT revenues by actually 50%. We were missing, in these activities, software development competencies and decided to fill this gap through this acquisition.
So now a few words about BlueSoft. It's a very efficient private business with a quite long track record. It's a company existing for more than 15 years. They have proven that they grew on this market and they are providing business to blue-chip companies from multiple industries in Poland. Majorities of the revenues of BlueSoft are actually coming from development and integration of customized products, which are business application, customer-facing portal, back office systems. These are tailor-made products created for the needs of their given customers. We believe it's a perfect match with our competencies and we believe it opens to both of us much bigger business to offer basically end to end solutions. And this is what we see Polish enterprises are looking for. This move will also allow us to be more competitive versus other telecom operators on the Polish market and also versus pure ICT companies. And we expect significant revenue synergies from this combination that we'll start to be realizing in 2020 from actually mutual cross-sell. And I'm strongly convinced that this deal is value accretive for Orange Polska.
Last but not least, I want to say that I'm very pleased that the key managers of BlueSoft will stay with us after this transaction and they are motivated to further develop the business together with us. Well, I just need to mention now that this transaction still requires the formal approval of the anticompetition authority. And that's all for me. I will now hand the microphone -- hand the floor to Maciej Nowohonski, our CFO.
Thank you, Jean-Francois. Good morning, everyone. So we are starting the financial review on Page #12. Our total revenues in quarter one were up 2.6% year on year. The revenue that we regard as core to our future growth and margins generation increased even more, so they increased by 3.3%.
As you can see on the chart, this growth rate was lower than in the previous quarters and the only reason is that the previous quarters in 2018 were supported by favorable base effect from national roaming revenues that we started to recognize in 2018. The key drivers of our revenues are unchanged. We are pushing convergence, we are minimizing decline in mono mobile and broadband services and successfully develop ICT operations. Another very strong quarter here. Overall, top line trend in Q1 was also strongly was benefited from much higher energy resale revenues. Please note that this is not likely to be repeated in the quarters to come.
Now let's turn to profitability on the next page. First, a quick reminder what is EBITDAaL. Under new IFRS 16 accounting standard, EBITDA derived from the financial statements in our view is not relevant because it excludes operating expenses related to leases. EBITDAaL, so EBITDA after leases, integrates back these expenses and gives much better picture on operating performance. We also provided estimation of EBITDAaL for 2018 to allow you year on year comparison. EBITDAaL in Q1 was 2% lower than last year. This performance was impacted by timing of real estate disposal transactions. Neutralizing this factor, EBITDAaL would be almost flat. It was another good quarter for indirect cost savings. We continue to transform and optimize our business. We expect additional savings in the quarters to come. Q1 savings almost entirely offset lower direct margins, as Jean-Francois mentioned, which continues to be under pressure from our legacy business. Improving direct margin trends, savings from business transformation, and gains from real estate transactions are going to be the main drivers for EBITDAaL growth in the next quarters.
Let's look now at the bottom line on the next slide. Due to change in accounting standards, bottom line for Q1 this year is not entirely comparable for Q1 of last year. Net profit was supported by lower depreciation and lower financial costs. Depreciation benefited from the extension of useful life of certain fixed assets with the impact of PLN 48 million. This item we've been flagging to you a quarter ago. Financial costs reflected impact of lower hedging costs.
Now on the next slide, we review the cash generation. As usual, cash generation in the first quarter was lower, but better than last year. CapEx phasing this year is going to be more even in the quarters. That's what we were flagging as well. That's why we have more CapEx in Q1 than a year ago. Working capital requirement was around PLN 100 million lower than last year, mainly due to lower incremental
growth of installment receivables and higher year on year positive effects of reverse factoring transactions. Q1 cash includes the proceeds from sale of assets from transactions finalized in 2018. We've been also vocal on that point a quarter ago with the Q4 result.
Thank you very much for your attention and I hand the floor back to Jean-Francois for a conclusion.
So let me quickly summarize this quarter. So quarter 1 results, both commercial and financial, are in line with our expectation and turnaround ambition. And we are confident, as you understand, to confirm our guidance for growth of revenues and EBITDAaL in 2019 as well as our CapEx range. So where will these improvements come from? We stick to our priorities. You know them well now: focus on value, continued business transformation; and we also count on better results in real estate disposals. And in Q2, stay tuned because we planned some important commercial actions that would be value accretive for us.
That's all from me. Thank you for your attention, and we are ready to take your questions.
Thank you. We'll start as usually with questions from the floor, if there are any. Yes, please, Malgosia.
[Operator Instructions]
Malgorzata Zelazko, PKO BP Securities. I have a question on the fiber uptake in Q1 because it was flattish year over year, while your coverage increased significantly. So are you satisfied with that? And should we expect the trends to improve?
Thank you for the question. So yes, the net additions were flattish if we compare them with Q1 last year. But the effect of this is mainly due to the churn because our gross adds were 10% higher this quarter than last year quarter. But as you can imagine, the base is growing and this is the explanation. And this is normal. It's not that the churn. The churn is very good on fiber, if not higher, but simply the fact that the base is growing explains this effect.
Marcin Nowak, IPOPEMA Securities. A follow up to the FTTH question. It was mentioned that the gross adds increased by 10% year on year, but your total household base increasing much more. And you're adding were adding more single-family houses, which should have higher penetration. So do you still think that these net adds may return to the more growing trend going forward?
What I have to say as well is if you compare year on year, we have built less this quarter than the quarter before. So we are relying more on the third party infrastructure. And if you look at the SFH, I mean we're just starting to build single-family households. POPC as well is starting. So this effect that you are referring to is not yet happening actually.
Okay. And with regards to yesterday's acquisition, do you plan to proceed with more purchases going forward in the ICT business or maybe any other IT related?
I mean to be clear, our strategy is, first, turn around the core business of Orange Polska, you understood it. I mean through this acquisition, we decided to go faster in the B2B area that is growing. I mean as you have seen, our ICT integration business has been growing by 50% in the last two years. So here we decided that to boost the growth, it was better to buy these competencies than recreating them ourselves. So this is why we went to this transaction. So if any other similar value accretive opportunities appear, we will be open, but to be clear, that is not a plan at this stage to go further in that direction. The plan has been executed to the B2B
area, IT and software with this acquisition.
Okay. The last question in regards to the accounting changes for related to
the IFRS 15 from the last year, which was the heavy issue last year was a decline versus the previous standards from 2017. Could you please comment about the accounting effect in first quarter of '19 on year on year basis related to IFRS 15 on EBITDA?
Thank you very much for this question. This is one of my favorite question, as you can imagine. First of all, I would like to give you a good business perspective to the accounting impacts of IFRS 15. So the company since 18 last month is consequently implementing the strategy of low subsidy, first of all. Second of all, margin on handsets that we are selling to our customers together with our services. And we have been very successful on that front. We did very good things for the company and for the value creation through limiting of the subsidy and through bringing more value through additional margin that we are able today to achieve on that part of the business.
So this is the first item and this is the business fundament of how the accounting is behaving then. So given that fact, obviously the future deltas between the old accounting system and the new accounting system will be smaller and smaller. But it's you have to know that the accounting system that you are referring to, this is like 2 generations back. We've been through last 2 years through 2 important accounting changes in the entire industry and can say all business world, so IFRS 15 and IFRS 16. Today, we are in the IFRS 16 and IFRS 15 world, so we are behind 2 important changes. So it will be better to focus on these trends. We have made an effort for you to transpose our long term strategic guidance towards the freshest view on the accounting system, how we will develop. And it is always better to look at that. The complexities of accounting implementation also are in the way that the standards are being implemented by the different companies.
Some companies implement standards prospectively, the other ones retrospectively. So it does have an effect on the corrections that we have been reporting to you last year because if we have reported if we have implemented the IFRS 15 retrospectively, the level of the correction would not be negative last year but would be positive year on year 2018 versus 2017. So it is very important not to get into a trap of reconciling between the different accounting standards, which is, I must admit, a big complexity, a big complexity. So what we have decided is to cut short on these complexities towards you, towards the market and to transpose our long term objective into the newest accounting system. So that's the easiest way, we believe, and this is with the benefit of concentrating on the business factors rather than accounting changes.
So if we have no more questions from the floor, I suggest we switch to the teleconference listeners. Operator, please?
[Operator Instructions ] Our first question comes from Pawel Szpigiel for mBank.
My first question is about wireless for fixed services. You said
that you are not pushing the sale of that services, but you're actually in possession of 2 blocks from 800 megahertz range. So it's difficult to understand why you decided not to push the sale of the services.
Let me answer this question. Simply because we have quite a large base of LTE for fixed customers at this stage, more than 400,000 customers of this technology. And what we are seeing is that even if this base is representing a few percent of our total customer base, they are eating a very large amount of resources on our mobile network. So basically, as we are both obviously a fixed and a mobile operator, but also a fixed operator and because we are having quite a dense DSL, VDSL infrastructure and also fiber infrastructure now, we are obviously pushing customers, which are buying fixed Internet access to go to our fixed products because they are more suited for them. So that is the reason basically why we are not pushing the sales of fixed wireless Internet. I mean we are providing this service, but in our sales network, we are privileging putting customers on the fiber and VDSL rather than on fixed LTE.
Okay. And my second question is could you please quantify additional savings that you mentioned during the presentation to come in next quarters?
Thank you very much for the question. I just would like to remind you that in the strategy that we have announced in September 2017, we have set the target for ourselves to cut the cost base by 12% to 15%. At that time, this was supposed to be achieved by end of 2020. And we are in April 2019 and we are well in advance of the objective that we have set. So we have achieved what we have promised already at the end of 2018. And with this quarter, we are bringing to the company additional PLN 45 million to PLN 50 million savings that you have seen in the report. I can assure you that we have a vast number of initiatives, which are ongoing in the company which will bring additional savings. We will probably not quantify them today, but you can be assured that this is a tangible and significant figure for 2019 and for 2020. So no reason not to continue with the trend that we have seen in the past.
Okay. And when we can expect any details about that?
We will be glad to report to you the results of these initiatives in the quarters to come and take my point about the continuation of the trends as a valid one.
[Operator Instructions] We have no further question. Dear speaker, back to you.
Yes. We have one question that was asked online from Raiffeisen analyst. The question is on BlueSoft acquisition. Would you treat an EBITDA of PLN 25 million in 2018 at BlueSoft as a recurring figure? Do you expect that BlueSoft generates at least as good EBITDA results this year?
I can say yes for the second question and for the first one?
Of course, we count on the growth of EBITDA in the future. So it's not only a recurring item, but it's going to be a growing number.
To add on what Maciej is saying, I mean the BlueSoft acquisition is representing 1% of our EBITDA. So this is not for the EBITDA of this year. We are doing that really for the growth. We are expecting through this acquisition and not only to growth of BlueSoft itself, but the growth of both of our businesses. This is where the synergies are and this why we did this acquisition basically. So we see this really as a catalyst of our B2B, ICT and integration business. And again, there is a lot of appetite because all the businesses in Poland are running through this digital transformation.
Do we have any follow up questions from the floor? I cannot see. So if there are no questions from the teleconference, I would like to thank you for the participation, for your attention, and see you back in July for the second quarter results. Thank you. Goodbye.
Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect.