Orange Polska SA
WSE:OPL
US |
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
|
US |
Estee Lauder Companies Inc
NYSE:EL
|
Consumer products
|
|
US |
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
|
US |
Church & Dwight Co Inc
NYSE:CHD
|
Consumer products
|
|
US |
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
|
US |
American Express Co
NYSE:AXP
|
Financial Services
|
|
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 |
Target Corp
NYSE:TGT
|
Retail
|
|
US |
Walt Disney Co
NYSE:DIS
|
Media
|
|
US |
Mueller Industries Inc
NYSE:MLI
|
Machinery
|
|
US |
PayPal Holdings Inc
NASDAQ:PYPL
|
Technology
|
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 |
7.5812
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 | |
Estee Lauder Companies Inc
NYSE:EL
|
US | |
Exxon Mobil Corp
NYSE:XOM
|
US | |
Church & Dwight Co Inc
NYSE:CHD
|
US | |
Pfizer Inc
NYSE:PFE
|
US | |
American Express Co
NYSE:AXP
|
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 | |
Target Corp
NYSE:TGT
|
US | |
Walt Disney Co
NYSE:DIS
|
US | |
Mueller Industries Inc
NYSE:MLI
|
US | |
PayPal Holdings Inc
NASDAQ:PYPL
|
US |
This alert will be permanently deleted.
Ladies and gentlemen, thank you for standing by. I would like to welcome you to Orange Polska First Quarter 2023 Results Conference Call. My name is Leszek Iwaszko, and I'm in charge of Investor Relations. [Operator Instructions] The format of the call will be a presentation by the management team followed by a Q&A session. Speakers for today will be Julien Ducarroz, CEO of Orange Polska; and Jacek Kunicki, CFO. I pass the floor to Julien to begin.
Good morning, ladies and gentlemen. Welcome, everyone, on our conference summarizing first quarter of 2023. Let's start on Slide 5 with the key message of this quarter. I'm pleased to say that this year started very well for Orange Polska. It is, despite the environment continued to be challenging due to high inflation and slowing economy. Our commercial performance was solid. It reflects our focus on value in an intense market competition. ARPO continued to grow in all key services. This is our special focus, and we are working to improve this dynamic further. Our equipment revenue growth was very impressive in Q1. The key reason is shift of the demand towards higher-value handset. We don't sell more handset, but the share of the more expensive brands in the mix increased a lot. We make it easier for the customer, offering flexible installment plans.
In Q4, we introduced 36 months installment scheme, which make more expensive equipment more affordable, and it is as well in line with our green strategy to increase the lifetime of the devices used by the customer. Our financial results were excellent with strong growth of revenues, EBITDA and net profit. It was despite inflation impacting our operating costs. Q1 was also very relevant for our transformation. In that growth strategy, we talk about phasing out of legacy technology and assets to release more of our potential. Q1 was particularly strong for disposal of our real estate that we no longer need. It decreased our operating cost and release capital. We have also announced a plan to gradual switch off of 3G technology that will start this year with the goal of completion by the end of 2025. This will lead to higher efficiency and make more room for 3G 5G implementation. Let's look on the next slide. Slide #6.
Our financial results in Q1 were excellent. They illustrate well the strength of our core business. More than 5% growth of EBITDA was generated by direct margin coming from strong performance of our key business lines. Our operating cost increased, reflecting impact of inflation despite we partly mitigated in our -- with our action. This is a healthy structure of growth, especially for inflationary environment, confirming our strong fundamentals. In Q1, we have not yet seen full impact of inflation on our cost. Please also remember that last year in Q1, we had very high energy costs. We are satisfied with the results achieved in Q1, and they give us full confidence to achieve growth in the full year, something that clearly is our ambition. CapEx reflected higher year-on-year level of investment and very high proceeds from disposal of assets, which I already mentioned. We sold more than in the entire 2022.
Let's look on commercial activity on Slide 7. Our commercial performance in Q1 reflected continued solid customer demand, our focus on value and intensive market competition. In convergence, we are pleased with 5% year-on-year growth of the customer base. It is healthy growth, taking into account more intensive competition in this area. It confirms that customer appreciates the quality of our multiservice offer. Growth in convergence is supported by fiber, where we continue to see good customer demand. Customer base increased more than 20% year-on-year. To complement our product portfolio on selected area, we have launched fiber offer under our B brand new, which for the past 10 years, has been very successful in mobile.
Our mobile customer base growth is also solid even if the pace of its increase has slowed down a bit. It's mainly due to slower results in B2B and high comparable base for Flex offer, which had a very strong last year due to demand from Ukrainians. ARPO continued to grow in all key services, which is obviously very important in the context of inflationary challenges. Our value initiative for 2022 are gradually rolling into our customer base. Going forward, we will stick to our value approach in pricing. Thank you for now, and I hand the floor to Jacek.
Thank you, Julien. Good morning, everyone. Let's start the financial review on Slide 9, where we present the highlights of our performance. Our financial results in Q1 were excellent, with strong growth achieved in revenue, EBITDA and the net income. Our top line continues to expand strongly. Solid performance of core telco revenues was complemented by a 40% year-on-year increase in handset sales. Strong revenue expansion was a key driver of the 5.5% year-on-year growth of the EBITDA, strong underlying performance enabled us to outgrow the headwinds from a challenging inflationary environment. I am pleased that EBITDA growth has consistently translated into the bottom line. Our net income of PLN 270 million has more than doubled year-on-year. It was driven up by the growth of the EBITDA but also by a much higher gain on disposal of real estate assets. The higher proceeds from asset disposals has also allowed us to lower the economic CapEx in Q1, which was 8% down versus the comparable period of last year.
Finally, cash generation was impacted by timing of payments for CapEx and higher working capital requirements for sale of handsets in installments. Let's now review our results of Q1 in more detail, starting with the top line. We are very satisfied with the revenue performance in Q1. The key drivers of more than 7% year-on-year dynamics are largely consistent with prior quarters and based on sustainable demand for our services. Firstly, core telecom services continued the solid pace of growth, benefiting from a simultaneous expansion of their respective customer bases and ARPOs. We are monitoring the volume of KPIs while relentlessly implementing the value strategy.
Secondly, the IT and IS area had another good quarter with revenue expanding at double-digit rates. This is reached despite market slowdown that is stemming from higher [ intensity ] amongst our business clients. Wholesale revenues have increased by 15% as we continue to capitalize on the demand for our infrastructure. And finally, as Julien mentioned, equipment revenues rose by an extraordinary 40% year-on-year, reflecting a shift of customer demand to higher value handsets. The expansion of our core business was the key driver for operating profitability growth. Let's now look at this on Slide 11.
Our EBITDA in Q1 increased by a very strong 5.5% year-on-year. It was a good quality growth, resulting from excellent performance of our core business. that direct margin expanded by more than 5% year-over-year or PLN 85 million, translating the solid revenue growth into profits. I'm happy that the growth of the direct margin has accelerated versus the dynamics seen in the previous quarters. Indirect costs have increased year-on-year, but much less than the growth of the direct margin. First, as expected, our costs were affected by inflation, mainly due to indexation of rental contracts and increase of prices of various external services.
Secondly, we benefited from cost optimization and actions to mitigate the impact of the inflation. For example, we achieved extra savings in property maintenance and very effectively hedged the prices of some utilities. Third, we were able to reverse certain provisions, something which, by nature, is a nonrecurring development. We are very satisfied with the EBITDA dynamics in Q1. This results in the trends behind it, build our confidence to reach our ambition of growth in 2023. Let's now take a look at cash flow on the next slide.
Our cash flow generation, organic cash flow was negative in Q1 at around minus PLN 120 million. There were 2 key factors that influenced this performance. Firstly, cash CapEx expenditures exceeded PLN 700 million. Over PLN 400 million of this accounted for payments for a high CapEx from the previous year. Last year's CapEx phasing was more back-end loaded than usual, with Q4 accounting for 45% of the full year total. And as a consequence, the Q1 payments reflect this schedule. Secondly, we have a higher need for working capital. This stems from very strong sales of handsets. We sell them in installments. So, we receive cash from customers during 2 to 3 years, while we settle our payments right after the purchase.
We are analyzing a plan to possibly extend the existing securitization facility to finance this demand, and I'm confident that we can reduce the pressure on the working capital before the year-end. Both of these factors are relating mainly to timing, our underlying cash generation remains very strong. In particular, we don't see any decrease any deterioration of quality of our receivables. And obviously, as the economy is slowing down, we are monitoring this indicator with great care.
Our balance sheet remains very sound, with financial leverage at 1.3x and effective cost of the existing financing of just over 3%. Leverage was further decreased by another tranche received as planned from APG relating to the payments for the 50% shareholding of the FiberCo. That is all from me. Thank you very much for your attention, and I hand the floor back to Julien for the conclusion.
So let me briefly summarize and present our focus for our next month. Our performance in Q1 was strong. We generated outstanding growth, especially taking into account that inflation affected our costs. We are confident on our full year objective. Our commercial result was solid. In the area where we see some slowdown, we have launched action to address it. We focus on relentless execution of our commercial strategy based on value and cost transformation, especially needed in the current high inflation environment. 5G is obviously high on our agenda. We are looking forward to C band auction, which according to the regulator should take place in Q4.
Finally, we don't forget about our green commitment. We are planning new initiatives related to circular economy. After securing CO2 emission reduction goal in scope 1 and 2, our focus is now on Scope 3, so including our value chain. That is all from us. We are now ready to take your questions.
[Operator Instructions] Question comes from Dominik Niszcz from Trigon.
Dominik here from Trigon. My question is about ARPO because we saw very stable dynamics in this quarter, like on average, it was the same as in the previous quarter. We saw plus 2% in convergence, plus 3 in fixed Internet plus 4 in mobile. So, the question is how do you see it going forward? And would you say that it's fair to assume that in 2024, it could accelerate given the construction of your contracts.
Thank you for the question. Indeed, as you know, we are rolling out and we started to increase our prices last year, but in the Polish context, this is done in a way that it's on the contractual basis. So only our new and people who extend their contract are subject to those reprice. So, there is an effect of timing, and we see it progressively on the base. But as you stated, that will impact over the time and the main effect will be next year. Now I think we should as well be careful that next year is not set the context might change. And I will not necessarily be sure that there will be an acceleration. I think if it stay as today, mechanically, it will increase -- but 2024 is still 1 year ahead of us, and there might be other factors that might impact the ARPO. But you are right to say that mechanically, the impact will be more visible next year than this year.
Okay. And one more about real estate. You had a very good quarter. So, in the second quarter, you expect to return to average or still a good one here.
Well, thanks for the question,. I guess when it comes to real estate, it's not something where we have a trend line or a clear pattern. It really depends on how many transactions do you close in a given period. I think there were about 21 transactions in Q1 -- we obviously have a good pipeline, and we will continue to sell those real estates that we don't need to be using in the long term. But when it comes to the quarterly performance, it really, really will depend on how many transactions to be closed in which quarter. But obviously, we can see that last year, 2022 was much better than 2021.
And by the way we started this year, you can see that we're aiming for much better results in '23 than we've achieved in 22, and this is definitely what is in our plans, what is in our ambitions, what is in our guidance for quite a low eCAPEX guidance that we've given for this year. Now after Q1, we can say we're confident to achieve it. But it's -- I think not that easy to tell you exactly what will be the expected amount in Q2. I don't think we will repeat the good results from Q1. As we mentioned, it's really an extraordinary effort and a big accumulation of great successes from the team.
Okay. I see. And just the last one, I'm not sure if you commented. But this high other operating income in this quarter. Was it a one-off? If you could comment...
Yes. Thanks. It's a relevant question. I guess it's -- first of all, it's fair to say when you look at other operating income and expense, the line by itself, it's not that recurrent -- and also Q1 of last year was quite low with plus PLN 5 million. We had plus PLN 34 million in Q2 of last year, then PLN 17 million and then PLN 21 million in plus in quarter 4. Now it's PLN 46 million. Different reasons in difference, I would say, items that make this line go up or down every quarter. The slide includes the activities that we do for the fiber call. It includes copper sale, which usually is stronger in Q1 versus Q4. It wasn't so strong and it's a bit stronger in Q1.
Again, if you take a look at this line and if you're taking the year-on-year perspective, last year, with just plus PLN 5 million was quite low. We've been able to reverse some provisions. And this is like between PLN 12 million to PLN 15 million impact, which is nonrecurrent, but happens from time to time. So, in all honesty, it's always -- this line is usually made up of items which not all of them are recurrent. This is the situation that we've had throughout last year. We're happy every time that we do register a good results. We know that we have the inflationary environment to deal with.
And so, every time that we get a positive in this line, whether it's a one-off or recurring, we're happy to take it. I think it's important at the same time because your question is in the context of the EBITDA performance, I mean, if you think about what really, really made the 5.5%, it's a very good growth of the direct margin. If you take a look at our presentations from the previous quarters, you will find that we are growing the direct margin this quarter by PLN 85 million versus PLN 50 million in Q4 or Q3, all of it is year-on-year and versus PLN 20 million growth on average per quarter registered in H1 of last year.
So, this is really what has accelerated, and this is what inspires our confidence to be able to outgrow the inflation this year. And this is the main plan. And this is why we're happy with the structure of the EBITDA growth, not only the level of the EBITDA growth. But I hope that my answer answered your question regarding other operating income.
Our next question on the phone is coming from Marcin Nowak from IPOPEMA.
One question from me. Given that you have repaid part of the loans in the first quarter, may I ask, when do you expect to refinance the remaining part of the loans? And what is your projection for the effective cost of financing, including hedge, if you will pursue hedge after that...
Thank you very much. You see that you have been reading our balance sheet carefully. It's a very relevant question. So, I would assume that the next drawing of the increase of debt would be happening in the second half of this year. Now in all honesty, it a lot depends on how fast do we start the 5G auction and when do we finish the 5G auction because this is a material cash outlay that we will need to finance. So that will really depend on that. Obviously, we are aware that there is a dividend payment coming along, and we are happy to make this dividend payment.
At the same time, we do note that taking into account EBITDA projection, quite low CapEx. We do expect quite good organic cash flow performance in the year to go. So that will help to finance the cash outflows that I have mentioned. I would assume that if the 5G auction is finalized, we need to pay -- we will be drawing some debt in H2. When it comes down to the cost of the financing, it will really depend on market conditions at that point in time. If I was to make the best guess today, it would be probably around 7%, maybe a bit less, and this is all-in cost after hedge. So, as you will see, it's probably not going to be that relevant part of the net debt, and it will not influence the overall costs of the debt that much.
And the next question is coming from the line of Rohit Modi from Citi.
Some of them already answered. Just 2 from my side. Firstly, on your revenue guidance, you have almost 6% revenue growth on your core service revenue growth in 1Q. If you could give us more color in terms of which are the areas where you see a slowdown in for rest of the year and which are the areas where you see the growth will remain as stable as in 1Q. Secondly, on the pricing environment, given notation is almost now 18%. Are you looking for more incretion index price increases? Are you in discussions with regulator around this for any of the back book price increases...
Okay. So first of all, thank you for your questions. Again, both are very relevant. I think what's fair to say is when it comes to revenues, but in fact, it goes both for revenues and for EBITDA. It's a very good start to the year. Coming back to your question, which specifically target revenues. I think what is particularly satisfied -- this factor is the 5.5% growth of core telecom services. And this is really something that is key for us because this translates into the direct margin. Then we have a number of revenue lines which are less subscription based and do tend to be a little bit volatile from one quarter to another. This includes IT and IS services, and it also includes equipment sales. So, the 7% top line headline that you see, it really was influenced also by this equipment sales, which contributed in PLN 132 million expansion year-over-year or 40% increase. And this is not something which is repeatable automatically. We will need to see how fast does this category continue on its growth path.
When it comes to the question of indexation, and this is something on which we have touch base a number of times before. Obviously, in Poland, it is a bit more difficult to reprice the back book versus the Sales Act. As we have mentioned before, we have not yet decided whether we are going to execute the inflationary clauses that we have in some of the contracts, but we continue to seriously consider this. Because we are aware, inflation is weighing in on our operating costs and ARPO growth is essential to protect the profitability. So, no change on this point since February. And then when it comes to more details on exactly when and exactly how much, you will appreciate that we won't comment this specifically as this is commercially sensitive.
Maybe just to add as well on the point of where do we see a slowdown or when I commented that we are focusing on some area. Obviously, there is a B2B market that given the economical context, I will say, is a challenging not so much from, we say, the competitor, but more the general economy, we see some reduction of the fleet and cost optimization on our client side. That's one area that we are looking and we take care of our clients, helping them as well to go through those times. The same, they are difficult on our side on our cost, but the same way for our clients. So that's one area. And the other area that we reported a bit lower, but it reflects more here the competition, which is on the fixed broadband, that obviously, we see more competition on the market of our competitor going as well on the convergence business. But this is an area that we are addressing and monitoring and continue to grow.
Two questions that came online. First question is from Piotr Raciborski from Wood & Co. In Q1 '23, you have recorded strong deceleration in fiber and mobile postpaid net additions. Do you see reduced commercial activity of consumers? Is it because of macro weakness or strong competition? This is the first question. There are a couple of them, so I will repeat one by one.
Okay. So, I think I touched a little bit in my previous comment related to mainly the B2B side on the macroeconomic, I will say, situation in Poland. What we have as well to keep in mind when we are looking at the contracted base of the postpaid last year, we recorded a strong result, especially on Flex, and that was driven by the situation in Poland related to the start of the war, where there was a higher influx of Ukrainian. So, we had reported good net adds. But obviously, now where the situation is different in terms of a new customer. So, this you will understand. And regarding to the fixed broadband, I commented as well that yes, the market is obviously more competitive, more player entering the game. So, on one side for us, given our experience, this is comforting that our strategy of convergence and FTTH has been the right one that we decided almost 7 years ago or so to see competitor entering this.
I will say it's reinsuring that we bet on the right direction. But as a consequence, we see competition here and we are keeping our value strategy. But at the same time, as I commented, we have launched as well our B brand that in a certain area, we are using to be -- to answer to some of customer needs when it comes to pricing. The second question relates to FiberCo. Are you satisfied with FiberCo performance? How do you rate competition environment in Polish fiber market, which partly was already...
Okay. So, we commented on the competition of -- on the competition. With regards to fiber performance, we're satisfied with progress. The FiberCo is rolling out its fiber in accordance with the plans, and so this is giving additional footprint. We are -- as Orange Polska, both happy as a shareholder and also regarding the commercial possibilities that this gives us because this is, on one hand, additional footprint for us. And so, when we expand, it's good that we do expand. And as a shareholder, we are happy to see the network grow. We're happy to see the network of the FiberCo grow in the, I would say, very good profiled areas from the infrastructure perspective with not much of overlay of fiber overlay.
So, this does really give us a shareholding in an entity that will profit from the wholesale margin over a very long time. And so yes, we're happy with the way that things are going. And what I commented during our discussion of the results is that we've received another tranche of the payment that was still relating to the sale of shares in FiberCo. And this is, again, underscoring that the company is progressing as planned and the rollout is progressing as planned. So yes, we're very happy and we're very happy with both timing that we had with our ability to draw and secure the debt financing and to hedge it when the time was right for this kind of operations, and we do feel that this is a good, robust engine for fiber deployment going forward.
The last question from Piotr is related to 5G auction. Oise regulator increased size of the 5G frequency blocks from 80 megahertz to 100 megahertz. If my understanding is correct, this increases capacity of the network utilizing 3.6 gigahertz spectrum and might imply lower CapEx related to 5G rollout. Do you have any estimates what can the impact of this decision on 5G rollout CapEx?
So first of all, we will not comment on the ongoing consultation and option proceedings in detail, I think increasing the capacity that is offered is always a good thing and operators are satisfied with the fact that now the blocks are a bit bigger than they were. This will enable better utilization of the spectrum. This would enable better speeds. It should enable us as the entire market to offer better services, faster services with less congestion to our customers over the long term. And this is the comments that I would have as of today, I think more comments regarding the 5G auction and the plans are possible when the auction will be when the conditions will be finalized and then when the auction will be done, overall, we have clearly stated within the logos strategy, how much do we expect to spend on CapEx for mobile network, both renewable and the 5G rollout. And these plans have not changed. They have shifted in time, but they have not changed. So, nothing major to be added here.
The last question from [indiscernible]. You have pointed out that rentals and external services were the main drivers of indirect cost expansion in the first quarter. What growth do you expect in this OpEx lines in full year 2023?
Well, as we've mentioned, where we were guiding for this year, we do expect quite an important impact of inflation. I think we see it in some of the numbers of Q1. It's not something which is, I would say, very different from our initial expectations. I think we did mention that this could be potentially comparable to the headwinds that we faced from the energy last year, so in and around PLN 200 million plus or minus Q1 doesn't change our position on this point. We're happy that for the first quarter despite receiving the fair portion of those.
I'm speaking about all the inflationary inflation pressures. We have been able to offset them partly with the cost mitigation actions, and these were quite important and partly with the super growth of the direct margin. The way that we will approach it going forward is every quarter, we will have new and additional mitigation actions to limit the impact of this to the extent that is possible, but we are aware that it is really, really key for us is to outgrow inflation, which means achieving robust growth of the direct margin driven predominantly by simultaneous growth of the customer bases and of the ARPUs in the key revenue lines. And this is what the commercial strategy is all about. This is why the value strategy that we are implementing is so vital for us.
We have the last question that came from [indiscernible] from Bosch on the equipment revenue. Equipment sales were exceptionally strong in Q1. Could you please explain the key factors standing behind such strong performance, especially given weak consumer spending and high inflation? Did you launch some aggressive promotional offers?
Yes. Thank you for the question. So first of all, obviously, to achieve this growth of revenue, it's not on the back of aggressive promotion. I stated that the volume were constant. So obviously, the answer is that the average price of the handset has increased, and this is driven by customer choosing higher handset type in terms of specification and the price. We have to say as well that on the overall market, we see that the telco are taking back some shares to the open market. So, this is as well for us a transfer of value.
But if you look at the total handset market, you might see a different picture than the result that we published. We are as well as I commented, we came last year with the possibility for the customer to have a 36-month installment, which obviously, this is helping the customer to pay less per month. So, there is some customers that have decided to take a higher value handset thanks to this facility. So, this is, I would say, the main comment. And regarding macroeconomic or I would say, purchasing power, I'm not in a position to comment.
This closes Q&A session and discloses over today's conference. So, thank you very much for your attention. If you would like to have any follow-up with us, you can know how to reach us. Otherwise, have a good day and see you in July. Bye.
Thank you very much.
Thank you. Have a nice day.