Orange Polska SA

WSE:OPL

Earnings Call Analysis

Company Mitigates Inflation; Positive Cash Flow

The company reported an indirect cost increase of 3% YoY due to inflation and rental contract indexation. Labor costs increased by 7%, reflecting pay raises and improved outlook. Cash generation was strong, amassing PLN 850 million over the past nine months and exceeding the total for 2022. Q3 cash CapEx was PLN 90 million lower than last year, and the financial leverage stayed healthy at 1.2x. Management is proactively adjusting the business model to tackle ongoing and future inflation challenges, with a strategic plan expected to drive growth through 2024. Despite rising energy distribution costs impacting negatively by PLN 40 million for the year, the company has effectively hedged energy costs, expecting insignificant cost fluctuation between 2023 and 2024. The focus expands beyond managing costs to growing direct margins and customer bases in convergence, fiber, and mobile voice, maintaining net customer additions at 40,000 to 50,000 per quarter.

Company Overview and Progress

Executives kicked off the earnings call with a sense of satisfaction regarding the company's performance, aligning with its full year objectives. There was a particular emphasis on the balance achieved between volume and value growth, exemplified by a consistently solid net customer addition and a robust Average Revenue Per User (ARPO) growth rate of 3-4%. The financial aspects were also encouraging, with notable improvements in net profit, cash generation, and resilient EBITDAaL growth. A major milestone highlighted was the successful acquisition of a license during the 5G auction, which is expected to propel the company's technological capabilities and service offerings significantly.

Financial Performance and Guidance

The third quarter exhibited sound financial metrics, with year-over-year revenue growth of more than 4%, driven by core telecom services, equipment sales, and ICT. Despite double-digit inflation impacting costs, the company was able to sustain healthy growth in EBITDAaL, owed largely to its direct margin expansion. Capital expenditure remained flat compared to the previous year, affirming the company's adherence to its annual guidance and showcasing its capability to adapt to a dynamic market environment.

Commercial Activity and Strategies

Commercially, the company maintained a dynamic growth in its customer base, particularly in convergent customers and fiber network users, despite strong competition, especially in broadband. The fiber customer base now represents nearly half of the total broadband customers. In mobile, there was a notable improvement in net additions across consumer and business segments, coupled with continued ARPO growth. The strategic focus remained on enhancing the value propositions to customers through improved service offerings.

Technological Advancements and Capital Expenditure

With the securing of the C-Band spectrum, the company is positioned to significantly advance its 5G network capabilities, offering new services and improved data traffic handling. Capital expenditure is already well distributed across the ongoing cycle, with close to 40% invested, mostly projected for completion in the next couple of years. This aligns with the company's strategic plan and affirms its commitment to technological growth.

Operational Resilience and Risk Management

In an environment marred by inflationary pressure and wage growth regulations, the company has applied a proactive approach to managing costs, leveraging long-term renewable energy contracts to stabilize electricity costs. With diligent fiscal discipline, they were able to keep overall costs comparable to the previous year's levels. The company remains vigilant, ready to mitigate potential cost pressures while continuing to grow its direct margin through its service offerings.

Future Outlook and Shareholder Returns

The company foresees the fourth quarter as a high commercial season and anticipates keeping the momentum of rolling out its 5G network. Management remains committed to adapting the business model to inflationary challenges in 2024, with a particular eye on preserving and enhancing shareholder value. While precise guidance was deferred till February, the overall tone was one of cautious optimism with a clear dividend policy indicating that the current dividend level is the absolute floor for the future.

Resilience Amidst Market Dynamics

Highlighting sound cash flow generation in the current year, the company does not foresee an immediate need to increase debt levels. Nonetheless, existing debt maturing next year might be renewed based on then-prevailing market conditions. Management noted the challenges presented by inflation, especially in the labor-intensive service sectors, but expressed confidence in the company’s ability to navigate these while preserving competitive edge in the market.

Strategic Collaboration and Infrastructure Utilization

The company is actively exploring optimal solutions for the use of C-Band spectrum and is open to collaborative discussions with competitors like T-Mobile, reaffirming its cooperative approach in the industry. Any decisions concerning the sharing of the spectrum would prioritize transparency and the best utilization for customer benefit. Additionally, the idea of a mobile network monetization or spinoff is not high on the company's agenda. Instead, the focus is on the organic growth of profits and cash generation, leveraging existing infrastructural efficiencies and responding proactively to inflationary pressures.

Earnings Call Transcript 2023-Q3

[Operator]

Good morning, ladies and gentlemen. Thank you for standing by, and let me welcome you to Orange Polska Q3 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 made by the management team, followed by the Q&A session. Speakers for today will be Liudmila Climoc, the CEO of Orange Polska; and Jacek Kunicki, CFO.So without further ado, I would like to pass the line to Liudmila to begin the presentation.

[Liudmila Climoc, executive]

Thank you, Leszek. Good morning. Welcome to our conference summarizing our performance in the third quarter and 9 months of this year. It's my pleasure to welcome you for the first time in my role. Dialogue with shareholders will be important topic for me. So, I hope to be meeting you in-person in the future. The format of presentation is unchanged, and I will start with business highlights, and Jacek will follow with a financial review, and then I will come back at the end with conclusion. And at the end, of course, we are available to answer your questions.So let's start, Slide 5 with key messages for the quarter. So first of all, to say [ this ] results we achieved in the third quarter were good and in line with our full year objectives. On commercial part, our performance is very satisfactory and is reflecting a good balance between volume and value growth. Net customer additions have remained solid. And ARPO maintained a very healthy pace of 3%, 4% growth.On financial part, our results in Q3 were sound with growing [ EBITDAaL ], strong improvement in net profit and in cash generation. And we have once again demonstrated our resilience to a challenging external environment.And as you are aware, 5G auction now is over, and we are very happy that we will finally be able to use C-Band spectrum for the benefit of our customers. Obtaining the license was an important milestone for our business, but also for overall Polish economy it is well known that digitalization is an important contributor to the evolution of country GDP.Let's proceed to next slide. We present here our performance and the key financial metrics after 9 months versus our full year guidance. As you remember, presenting on Q2 results in July, we have upgraded our guidance for revenues and for EBITDAaL.Our results of the 9 months confirm that we are fully on track to reach our objectives. Looking on revenues, we increased it more than 4% and the key drivers are based on 3 components. So one is core telecom services with growth of 5% year-over-year; equipment with dynamic, which was exceeding 20% as customer demand shifted to higher-value brands; and ICT, this very healthy double-digit growth.On [ EBITDAaL ] part, the growth was generated by direct margin, while indirect costs were affected by double-digit inflation, and this is actually demonstrating the healthy structure of growth and confirming our strong fundamentals.eCapex after 9 months is broadly flat versus last year, and we are very comfortable with the full year guidance. The results confirm our growth ambition and our ability to adapt to a rapidly changing environment. And I propose to look now at our commercial activity on Page 7.Our commercial focus in Q3 benefited -- and actually, our results were coming from continuous [indiscernible] customer demand and our focus on value. And they were achieved despite intensive market competition, especially in broadband. Growth of a number of convergent customers maintained is dynamic from previous few quarters, and it confirms that customers appreciate the quality of our multiservice offer.In fiber, we continue to generate healthy growth of customer base. We benefit from strong demand for fiber and network rollout done by various fiber costs. At the same time, we compete with a growing number of retail fiber providers in those areas, and this is the natural consequence of more and more infrastructure available by fiber costs that are open for retail competition. And please note that our fiber customer base after third quarter has reached 1.3 million customers and accounts now for close to half of our total broadband customer base.In Mobile, our third quarter net additions were better than in the past. If we refer to the past few quarters, reflecting solid performance both in Consumer and in Business segments. And all these consistent volume growth is combined with a healthy growth of ARPO.In all key services, it improved by 3%, 4% year-over-year as a result of price increases and growing share of fiber in our broadband base. So our value initiatives are gradually rolling into our customer base and the value strategy is and will continue to be an important -- for us going forward.Over to the next slide. Let me reiterate that we are very happy that we have secured license for C-Band spectrum. It's a big step forward for our business. If we talk about benefits that it does give to us, first of all, as it is a capacity spectrum and give us much more resources to carry over growing data traffic and securing top service quality. Secondly, it opens the whole range of new services that we will be able to offer mainly for our business customers. If you remember, our [ .Grow ] strategy presentation 2 years ago, we were showing various opportunities related mainly to mobile private network, to IoT ecosystems, different use cases for 5G. So now we will be fully on our journey to implement them.In terms of CapEx, for the rollout, we didn't wait for auction to happen. As we had commented in July, we are already well advanced in this CapEx cycle for both 5G rollout and renewal of our radio access. By the end of this year of 2023, we have invested close to 40% of the total envisaged plan, and the remaining will be invested mainly in the next 2 years. So this is fully in line with assumptions that we have presented for .Grow strategy.So thank you as for now. And here, I will hand over to Jacek.

[Jacek Kunicki, executive]

Thank you, Liudmila. Good morning, everyone. Let's start the financial review on Slide 10 with highlights of our performance. Our financial results in Q3 were solid with good growth of [ EBITDAaL ], net profit and cash generation. The top line evolution was broadly flat as strong performance of core telecom services and equipment was offset by a drop in ICT and Energy [ recently ]. Good performance of our core business drove more than a 2% [ EBITDAaL ] increase. The profitability of revenue has more than offset the impact of inflation on our indirect costs.Our net income in Q3 improved by an impressive 23% year-over-year, thanks to higher [ EBITDAaL ] and lower depreciation. We are very pleased that we are able to convert the growth of the [ EBITDAaL ] to higher net income. After 9 months, it is already higher than it was for the entire year 2022.CapEx reflects more evenly spread investments throughout the year. Our analysis suggests that for the full year, we're likely to land closer to the lower end of our guidance, which, as a reminder, was set at PLN 1.5 billion to PLN 1.7 billion. This is an evidence that we are very disciplined with our investments and we search for the optimal rate of return.Finally, cash flow generation was very strong in Q3, thanks to robust operating activity and lower cash CapEx.Let's now review our performance in more detail, starting with the top line.The revenues in Q3 were broadly flat year-over-year. This is a change versus the previous quarters when they were growing by mid-single digits. There are few drivers of this dynamic. First and foremost, the core telecom services, which are key for value creation, maintained very strong growth dynamics, close to 5% year-over-year. They are benefiting from the simultaneous expansion of the respective customer [ bases ] and ARPOs.Second, revenues from the resell of equipment continued to grow at double-digit rates. This reflects a solid customer demand for high-end handsets and also our value strategy. Third, revenues from IT&IS dropped by 3% year-over-year in the third quarter. This follows a very strong 20% growth achieved in H1.Our Q3 dynamic reflected a slowdown in market demand resulting from a tougher macro environment.Finally, our energy resale activity, which we report as other in the category that you see. Its revenues fell by around 30%. The average output price of energy reflected a very high comparable base of last year when market prices were at their absolute peak.In addition, we have decreased the level of trading volume in 2023 as we have reduced the risk profile of this business activity, and we have focused on maximizing its profitability. To sum up, we are satisfied that we continue to deliver the expected and necessary growth of the core telecom services. They are the key driver for our operating profitability.And now let's look at this on the next slide. Our [ EBITDAaL ] in Q3 increased by a solid 2.3% year-over-year. It was a good quality growth, resulting from a positive performance of our core business. This is evidenced by a 3% expansion of the direct margin. Key factor here is the profitability delivered by our core telecom services, which benefits, as I mentioned, from a simultaneous growth of their customer basis and ARPOs.Other important contributors include higher margins generated from the sale of equipment and also from the energy trading activity. The latter has increased its profits, thanks to attractive input prices sourced by Orange Polska from renewable energy providers.The indirect costs have increased by 3% year-over-year. And here, let me mention 2 effects. First, as in the previous quarters of this year, our costs were affected by inflation, mainly linked with indexation of rental contracts and the rise of prices from various external services. Secondly, our labor cost this quarter increased by 7%. This unusually high dynamics reflected a 5% [ seller ] increase implemented in Q3.It reflected a difference to last year's timing of the recognition of a holiday pay provision, different between the particular quarters of the year, and it reflected a higher variable part of remuneration linked to a better and improved full year outlook and to an increase on the company's share price.Now over to cash flow and balance sheet on Slide 13. We are very satisfied with our cash generation over the last 9 months, which amounted to PLN 850 million. It is already higher than the cash generation for the entire year 2022. The trends that we observe today also suggests a solid cash generation for the last quarter of this year.The achievements in the third quarter strongly contributed to the accumulated organic cash flow that you see for the 9 months of the year. Looking at the quarter, first, the cash flow from operating activity was driven up by higher [ EBITDAaL ] and also by lower spectrum fees. Here, it's worth to note that since 2023 we no longer pay the annual installments for the UMTS license.Secondly, cash CapEx in Q3 was almost PLN 90 million below that of last year. Our balance sheet remains very sound, with financial leverage at 1.2x at the end of September. If we include the upcoming expected payment for the 5G spectrum, this would increase it to 1.3x, so at par with the level at the end of last year.This is a strong balance sheet. And it is our assets, giving us the necessary flexibility, much needed in the current macroeconomic context. Our effective cost of the existing financing stays at just over 3%. It is because around 90% of our debt is on fixed interest rates.Around 30% of this debt is due in Q2 of next year, but more than 50% is hedged until 2026. You can see the structure on the bottom right hand of the slide. Of course, and the new financing that we may draw will reflect the current interest rate environment upon its renewal [indiscernible].That is all for me. Thank you very much for your attention, and I hand the floor back to Liudmila.

[Liudmila Climoc, executive]

Thank you. So, let me [ refer ] our today's presentation. Results achieved so far this year are solid. They confirm resilience of our telecom business to macroenvironment. We're also coping well with intensive competition. This means that we are confidently heading to reach on our full year objectives. Three key areas which I would like to emphasize of our focus going forward. First is, of course, high commercial season in Q4. This is the time when we always aim to maximize our commercial results. Secondly, obviously, rolling out 5G network. And last but not least, we are intensively working to adapt our business model to 2024 challenges related mainly to inflation and that requires actions on many fronts.Before we jump into the Q&A, let me share with you my first impressions being in the company for almost 2 months as -- for now as the new CEO. I'm impressed with our performance in the last few years implementing [ .Grow ] strategy. Despite numerous unexpected challenges, we were able to deliver on the goals, discover the teams which are highly motivated, professional, working together and united around central objectives of Orange Polska.Strategy is working well, and it is executed well, and we have the ability to adapt to a rapidly changing environment, and it is clearly reflected in our results. Our fundamentals based on a very strong core business, superior networks and a wide range of high-quality services, which we provide. [ .Grow ] as a strategic plan has this horizon until end of 2024. I fully endorse it, and I'm here to support it and committed to ensure its execution. And I'm also confident that during this time, we will develop new levers for further growth for Orange Polska in the future.That's all from us on the results, and now we're ready to take your questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Dominik Niszcz from Trigon..

[Dominik Niszcz, analyst]

I have 2 questions, one related to your top line on the cost side. So on the top line you showed quite visible growth of your core telecom revenues in the past quarter. It was around 5% higher than your listed competitor. It's a bit different composition, but still -- so what's your expectation on the next -- regarding next quarters on this line?And the second question relates to electricity. Last year, you were showing us -- every quarter updating us with the impact on your results. So I understand this year it's smaller. But could you update us what's the impact this year, and based on your agreement -- sorry, what's to expect next year? Do you have a fixed price for the next year or a spot price component? Can you please update us on that?

[Jacek Kunicki, executive]

Thanks for those 2 questions. Maybe starting with the cost of electricity. Well, we've put a lot of focus on this, especially in 2022 when the electricity energy costs have grown by [ 2 ] -- and this was by far the biggest impact that we had to deal with. We have since then not spoke about it as frequently because that topic has been, to a large extent, addressed by us, and we have addressed it by signing long-term agreements, mostly alternative [indiscernible] for the purchase of renewable energy. This has kept costs broadly flat this year.I would say the impact that we have seen this particular year in 2023 was an increase of the distribution fee. You could call it the tax, which for the full year, it will impact us by about PLN 40 million negative in comparison to last year. But to be honest, the total costs are comparable this year to the one we've seen last year.And then, while we will guide more precisely for next year when we will need to, and speak with you in February. I don't expect the major movement in our electricity or energy costs between this year and next year, while we do not control all of the variables on the market and we're not 100% hedged.We are sufficiently hedged not to expect the material impact or change of the energy costs between 2023 and 2024. Therefore, we've just put less attention on this as this has stopped being such a critical area of focus, and we rather have different challenges to address. And the main challenges, they continue to stem from high inflation.And while we can see month-after-month that the inflation is reduced, the year-over-year inflation rate has started to be single-digit, and this is definitely positive. A lot of our costs depend on the inflation from the prior year. So still the inflation, which is going to be double-digits for the full year 2023, will be something that we will need to deal with in 2024.And I get the second factor is the minimum wage. It's partly also linked with inflation, but it is driven by regulations as the minimum wage has been significantly increased this year and will again be increased next year. It puts some pressure on the cost side, and we will need to deal with that.We will need to mitigate it through cost optimization measures, but also through continued growth of our direct margin. So this is now much greater area of our focus. As you can see, after the 3 quarters, we are dealing with this quite well, mitigating part of the impact and outgrowing the inflation by good dynamics, especially of the core telecom services.Now, you were referring to those in your first question. So regarding the expectations, we will always try to drive those to grow as fast as we can. It really depends on 2 items and 2 key dynamics. What we know is that these services, they depend, first of all, on the pace at which we can grow our key customer [ bases ]. And here, mostly what I'm referring to is the customer base of convergence, which is growing at around 5% year-over-year, the customer base of fiber, which is growing at around 16% year-on-year, and then mobile voice, this is around 2% year-over-year.Regarding the expectations on these, we are not [ seizing ] in our efforts to grow. I would expect that as we have seen this year, the percentage growth of fiber is slightly decelerating because we cannot keep 16% or 18% or 20% forever. But we are maintaining the quarterly pace of net additions at around 40,000 to 50,000 per quarter. So this is a trend that we definitely need to try and sustain. As for convergence and for mobile voice, these are low or mid-single digits, and here, the key factor for us is to make sure that we continue to implement our value strategy on those.When I mean value strategy, it means first, we are continuing to focus on expanding the customer bases to the number of customers that we address, but we keep an equally watchful eye on the evolution of the ARPO, average revenue per user. And this is definitely something that has created a lot of value for us. Even in Q3, you can see that convergence ARPO is growing by almost 4%.Fixed broadband is growing by 4% and Mobile alone is growing by 3.5% year-over-year. This is -- these ARPO dynamics are benefiting both from the value strategy and the more-for-more upgrades that we have done, which give customers more value, but which also increased the prices of the bundles that we sell and also of the different features that we include in our products.So more people than before are taking high speeds and higher speed options of fiber. They are taking fiber with television, with content. Likewise, there are more people opting for higher-end packages in Mobile. And this is definitely a trend that is complementary to the customer base growth. It should never be a substitute. And on one hand, growth of the core telecom services will really depend on the pace at which we can grow both the volumes and the ARPOs.And here, the focus is definitely to maximize the pace of this growth going forward. And we have launched, I believe, sufficient measures last year and this year to make sure that we are fueling this growth in terms of the ARPOs, and we are continuing to expand the reach of our fiber to make sure that we increase the fishing pool for our retail services to have more fiber clients and then to convert this into also higher growth of convergence and mobile.So we are optimistic in terms of the potential for future growth of core telecom services and this will remain our key engine for value creation and the key driver for [ EBITDAaL ] expansion.

[Operator]

Next voice question is coming from Alexander [indiscernible] from [indiscernible]. [Technical Difficulty] Maybe there's some problems. So let's switch to different caller. Next question will be coming from the line of Pawel Puchalski from Santander.

[Pawel Puchalski, analyst]

Two questions. With 5G auction finalized at low level, can you confirm you will increase your dividend per share in 2024? That will be the first one. And the second one, please guide for the scale of positive one-offs at working capital and ICT sales in fourth quarter 2023?

[Jacek Kunicki, executive]

Thank you very much, Pawel. I guess I will start with the second question. And if it was so easy we would, but one-offs have a tendency of not being as predictable as we might find it having the hindsight benefit. And so, this is something which is particularly difficult for us to forecast precisely. As I was mentioning during one of the previous conferences, we did expect second half of the year to be better in terms of cash flow, and it is materializing. We have been working on making sure that our working capital is on an optimal level. We will continue to do so in the fourth quarter. And while I will not guide precisely as to what kind of cash flow we expect in the fourth quarter, as I mentioned, I do expect it to be quite positive. And therefore, we are heading for quite a nice organic cash flow results for the entire year.Regarding the ICT, it's one of those revenue lines, Pawel, that on the one hand, brings us some volatility because it's not subscription based, it's not automatically recurrent. And so it's a bit more difficult to predict, and we have found ourselves a few times before predicting it in a wrong way. But we need to keep in mind that this has given us tremendous growth come -- In the past, it has created a lot of value. It has got a lot of [ EBITDAaL ]. And it simply doesn't depend on recurrent synergy, but quite often on which particular deal we closed in a given quarter or which one slips to the next.So this is something that we will simply need to observe. It's more meaningful to the contribution of our revenues than to the contribution towards the [ EBITDAaL ]. Yes, it is less predictable, but it has an immense growth potential. And I do believe that this is something that will significantly boost our results going forward from today's level.Going into your first question, I think there is -- it's absolutely clear what our dividend policy is. And here, first of all, we have a clear policy that -- the level that you have seen -- [ paid ] this year is an absolute floor for the future. You are aware of our guided leverage corridor and the items that we review each year before making the dividend decision, and this includes both the outlook on the key financial metrics, so operating profitability, cash generation going forward, and also looking at the leverage. We will do that also between now and February. So we will come back to you with the final decision in February. This obviously will take into account the leveraged opportunities that we have for investments and all the other considerations.We are happy to have been able to increase the dividend in the past. We are not sitting in our efforts to maximize the returns and then to be able to share those returns with our shareholders in the future. And I think that's all that I can say right now. We will come back with the final decision in February together with the full year results and also with the guidance that we will have for next year.

[Operator]

Our next question is coming from the line of Nora Nagy from Erste Bank.

[Nora Nagy, analyst]

Two questions from my side, please. Firstly, what's your expectation in terms of tariff increases in 2024? And secondly, even that -- after the elections, EU funds might be freed up in Poland. Do you have some expectations that you can share with us, how much new funds would contribute to your IT project?

[Jacek Kunicki, executive]

Thanks, Nora. I guess, in terms of [indiscernible] increases, I will not be explicit going forward. This is commercially sensitive. What I can say is that we continue to work and to implement the value strategy. It does entail giving our customers more benefits, but also for higher fee. We don't stop with the last -- more-for-more tariff increase that we have done was in the third quarter where we increased the prices for convergence and fixed broadband by PLN 5. So it is very fresh. We continue to work on options to give our customers a fuller package for a higher fee. And this is what I will stop at. I will not guide going forward.In terms of the EU funds, you are aware that we are participating in the contest that has been started and some of them already resolved by the Polish government, and this relates to the EU subsidies. We have won few of those already, and we are now assessing a few others, looking at the expected rate of returns. This is normally relating to areas which -- it relates to fiber rollout in areas that are remote enough that they would not be profitable under a normal commercial circumstances. They are profitable when we have enough EU subsidies for this.And this is something which gives us an attractive rate of return, much, much about the cost of capital. It's involving high level of EU subsidies. So there is a very high level of subsidies that can obtained. It means that there is a big leverage over the CapEx that we invest from ourselves.We don't expect that it will be a game changer for our CapEx going forward. But it's definitely an opportunity to roll out fiber in areas that are very attractive from the infrastructure perspective, and it will be -- they will be very attractive, both as a retail increase of the footprint but also as a wholesaler who will open up this network to all the other operators.And when it comes to the EU funds, this is what is on the table today as an immediate aftermath. Of course, we can have more funds being freed up for IT projects. I do believe that this is an opportunity for our ICT activity to benefit from. It will really depend on how quickly these funds are freed up and at which level of the administration are they available and how are they structured. But we are always interested. We are eager and we are active on the front of projects that are financed with EU funds with public money.We've done a lot of smart city projects before and a lot of projects for the local municipalities. And so I do believe that we will benefit from this once again. It's not precise today. I think it will be much, much clearer in the quarter or 2 from now, but there's definitely an opportunity to be back here.

[Operator]

Our next question is coming from the line of Dawid Gorzynski from PKO.

[Dawid Gorzynski, analyst]

Congrats on solid results. I have 2 questions. First in -- on the fact that -- on last call, you guided that you may take additional debt to finance the acquisition of the 5G spectrum. So I wonder if this is still necessary after solid cash flow generation so far this year? This is the first question.And the second question is about your risk perception in the telecom industry in Poland. So actually, as you said, like [ inflation ] is being down. What's still challenging, there is war in Ukraine ongoing, but it like looks a little bit less volatile recently. Competition also stabilize [ simply ]. So the question is, if you think the risk is lower or higher or similar to what you observed at the beginning of this year?

[Jacek Kunicki, executive]

You're right to note that the cash flow generation this year has been very good. And as I mentioned, we are with the same level of net debt/[ EBITDAaL ] as we are at the beginning of the year, even including the payment for the 5G [ option ]. So we don't have an immediate need to increase the level of debt right now. As we did mention, there is a portion of our debt that is coming due next year. So depending on next year's cash generation and also alternative, I would say, investment opportunities, that may need to be renewed. And then this will be renewed at the current market conditions at that time.And this is -- I guess, around 30% of this debt is during the second quarter, [ other ] time that is during the second quarter of next year. So you will need to take your own assumption on how much of this has to be rolled over at which rate this will be the market rate. So that's point one. And I do confirm cash generation this year is very good.Then when it comes to risk perception, I guess inflation continues to be the main area of concern. As you know, telecoms are not the best suited models to combat inflation, at least not in the short term. So it has been a challenge for us this year. I do believe it would be a challenge for us next year because we will still have the double-digit inflation of 2023 that is influencing the indexation of rental contracts. We have the big growth. I think it's a 25% growth of the minimum wage.It's [ 20% ] this year and another [ 25% ] next year, so it's sequential. And that will influence a lot of the -- many prices of services that we [ buy ] because they are labor-intensive and this labor is quite often employed by our subcontractors, not so, I would say, far from the minimum wage. So that will still be a challenge that we [ met ] and we will overcome.I think what we need to observe and we are very keen to observe is for the inflation to go down to single-digit levels and to stay there -- to stay at single-digit levels next year. This would already be a very welcome sign that the inflation pressure is easing.And that would give us the much needed breather because, as you know, we have been increasing prices. We have been adjusting our offers, but it takes 2 to 3 years for the front book prices to flow through to the customer base. And so there is a lag time between when the inflation will slow down and when those prices will flow through to the customer base, which is needed for us to catch up with the prices in the -- to flow through to the ARPO for us to catch up with this inflation. So this remains being, I would say, the -- today, the main area of concern is, can inflation go further down from the current high single-digits and can it stay down at single-digits level.In terms of competition, it's always a very competitive market whenever you have 4 players. So that doesn't change. It's always fierce. I would say it's particularly fierce on fiber. We have quite aggressive offers of our competitors. We are challenging the market. As you can see, we are managing with this quite well. And I do believe that we have good assets to fight in the market, which is very competitive. This includes the brand. This includes the fiber reach. I think it includes a lot of credibility that we've built with the customers for the ability to deliver convergence services and for those services to work with a satisfactory quality.And it's also the quality of our networks, which offer really good experience when combined with a good customer care and product design. So we have all the tools. The competition is intense, fierce at some times, but we are quite well prepared to compete in this market.

[Operator]

We have no more voice questions, but we have 2 text questions. Let me take the first question coming from [indiscernible] from Bosch. Do you plan to share C-Band spectrum with T-Mobile? Would 200 megahertz wide band give you competitive advantage versus peers, i.e., Polkomtel and Play?

[Jacek Kunicki, executive]

Thank you. Good question, as always [indiscernible]. To lead you in on the status -- because this is what I'd like to do with -- We have -- we are waiting for the reservation decisions, and this is the phase that we are at right now. The regulator has initiated those proceedings yesterday. So your question is very well timed. I would expect that if we may have those decisions somewhere in December, and then we would have the formal steps completed for us to start operating the spectrum to the benefit of our customers.Now every time always we are looking for optimal solutions to use our assets in the best possible way to the benefit of our customers, of course, with the -- I would say, respect for the full market transparency of any discussions and any actions that we take. We are usually cooperating with all the competitors and all the operators on searching for our ability to find the best solutions.It relates to the cooperation that we have now for years with T-Mobile regarding the reciprocal use of each other's networks and spectrum. In regards with our cooperation with various fiber costs, when we acquired access to other parties' fixed infrastructure, we also let other parties use our infrastructure, both Orange Polska but also [straightforward] [indiscernible]. So this is nothing new.In this particular circumstance, it's natural that we will also look for the best possible solution to have the best use for this spectrum. It is an asset that we must convert to the best possible use for our customers. We have nothing to share this moment today. But as we are open, it's natural that we will also speak with T-Mobile regarding the possibilities of using this.

[Operator]

The next text question comes from Piotr Raciborski from Wood. The question is, what is your current view on mobile infrastructure monetization project? What is the view of the new Orange Polska CEO on mobile infrastructure spinoff in January?

[Liudmila Climoc, executive]

Maybe just to start to give my flavor on what I discovered at Orange Polska there, sharing of mobile infrastructure is there, and it is fully embarked in results of Orange Polska as a benefit. So the tenancy ratio, which we have sharing our mobile networks with T-Mobile is more than 2. So obviously, subject is on agenda of industry. But I think it's rather a question of balance sheet need versus best efficiency, which company is already embarking in our P&L. So on balance sheet, I would let Jacek to comment, but thought what I can say is that I do see already significant benefits and synergies, which are embarked in our cost structure by the fact that Orange Polska's sharing network and doing it for quite a number of years and permanently improving on the cost structure.

[Jacek Kunicki, executive]

Yes. And if I may add on to that, we've been speaking about the willingness, the possibilities, the potential benefit and the drawbacks of mobile network monetization for some time. [indiscernible] is not a project that is high on our agenda right now. We are with a very sound balance sheet situation as we speak, having net debt/[ EBITDAaL ] at 1.3x. As Liudmila Climoc rightly mentioned, we are using the radio access network sharing to maximize the efficiency of the existing passive and active infrastructure with the passive and active infrastructure usage.So I do believe that the network is already being used very, very efficiently. And therefore, there is no change since our stance a quarter or 2 quarters ago. We're not actively pursuing a project of [ towers ] spin-off. It's not high on our agenda. We are really focusing on achieving the organic growth of our profits of the return on capital employed, of cash generation by keeping costs down by offsetting the inflationary pressures, by outgrowing inflation through the positive dynamics of our core business. And this is with the aim to be able to generate more profit and cash and to be able to share the benefit of our activities with our shareholders.And this is really what is on top of our agenda, much rather than serious considerations about carve out or spinoff of this type of infrastructure.

[Operator]

Thank you. It appears to have no further questions. Thank you very much to everyone for participation for the questions. And see you back in February of next year. Thank you. Bye-bye.

[Jacek Kunicki, executive]

Thank you very much.

[Liudmila Climoc, executive]

Thank you.