Orange Polska S.A. (OPL) Earnings Call Transcript & Summary

Good morning. Thank you for standing by. Let me welcome you to Orange Polska conference call in which we will present our results in the third quarter of 2026. My name is Leszek Iwaszko, and I'm in charge of Investor Relations. The format of the call will be presentation made by the management team followed by a Q&A session. Speakers for today will be our CEO, Liudmila Climoc; and CFO, Jacek Kunicki. Let me now pass the floor to Liudmila to start.

Thank you, Leszek. Good morning, and welcome to our conference on summarizing on our achievements for third quarter of this year. And I would like to start with Slide 4. Being very pleased to say that the first quarter was very successful for Orange Polska. Our results illustrate a perfect combination of excellent commercial growth and the increased efficiency. Performance of all our business lines was strong. In core telco services, we are consistently growing customer bases and ARPO. In B2B, growth of IT&IS revenues was robust as we have captured numerous opportunities on the market. And finally, in Wholesale, we delivered another very solid quarter, boosting momentum of monetization of our infrastructure. These commercial achievements were combined with progress in our transformation program as we strive towards higher efficiency, and that is visible through indirect costs, which were lower if we look year-on-year. A perfect mix of these two components resulted in a truly remarkable financial results with revenues growing at 8% and EBITDA at almost 16%. In a single quarter, our EBITDA has increased by PLN 140 million. This is even slightly more than in the entire year 2025. Clearly, we are well positioned to deliver a very strong 2026. Also, a few weeks ago, we finalized the acquisition of Nexera, one of the major FiberCos in Poland, and this underlines our commitment to invest in fiber infrastructure and to strengthen our fiber core joint venture. Let's review now the achievements starting from commercial activity on next slide. So our commercial strategy delivered strong results in both volume and value and across all key services. I will start with mobile. Net customer additions exceeded 80,000, which is very consistent with previous quarters in 2026. For the consumer market, this was the best quarter in more than five years, thanks to excellent contribution from all brands and all offers. This again demonstrates the strength of our offering and our execution, along the entire customer journey. Mobile ARPO growth improved to 2.6% as we monetize our value strategy. We now have reached a very well-balanced volume value growth in mobile, which was not that evident in the preceding previous quarters. In fiber, net adds stands out. They reached 48,000 this quarter, the highest in almost three years. It is an outcome of consistent marketing efforts and also our ability to adjust to high competition through local approach through geo-targeting activities and effectively responding to the needs for higher speeds for Internet and for content, both linear content and OTT. And important element of this success is also our footprint expansion into HFC, Hybrid Fibre Coaxial infrastructure of a third-party player, which we started in second quarter, and it was further increased in the third quarter. And over time, this footprint will be upgraded to fiber FTTH standard. Strong mobile and finance and fiber were accompanied by further growth in convergence with the pace of growth in line with our Lead the Future approach. We are now focusing more on reaching new households, where we don't have yet customers using our services, if we're speaking about fiber or mobile and further cross-selling to the household convergence services. In both fixed broadband, if we speak fixed broadband-only and in convergence, ARPO growth accelerated. It is now above 5%, and we are persistent in applying our value strategy. These trends are key for today's value creation and also, they give us confidence for the future. Moving forward and talking about our fiber infrastructure. I will start with Swiatlowod Inwestycje, who just finished its fifth year of operations, and we are very satisfied with its performance. If we benchmark versus other European fiber core players, its development is exemplary on the European scale. The footprint rollout is on track and Swiatlowod Inwestycje is very efficiently converting the home pass into the active services. There are already close to 900,000 active customers on its network, which implies 34% of take-up. This translates into the dynamic growth of financial results after nine months of this year, EBITDA of Swiatlowod Inwestycje exceeded PLN 150 million, growing 40% year-on-year. Acquisition of Nexera will open a new chapter in our operations. Both networks of Nexera and of Swiatlowod Inwestycje are highly complementary, fully built in FTTH technology, and located in attractive regions with very limited overlap between different infrastructure players. Now we are very much focused on integration, aligning the processes between companies, transferring best practices to be able to monetize this infrastructure effectively via more efficient use of resources. This will enable Nexera to grow faster than it was demonstrating in the past. So, we are very happy with Nexera acquisition. It was a model process in M&A. We received approval of the transaction from European Commission, and we managed to keep their entire debt of Nexera on its balance sheet. We are also very happy with our cooperation with our partner, APG, our partner in this venture. And together, we are committed to invest into digital infrastructure to the benefit of Polish digital economy. At this moment, thank you, and I'm passing the floor to Jacek to give insights into our financials.

Thank you, Liudmila. Good morning, everyone. Let's start the financial review on Slide 8 with the highlights of our performance. I am very pleased with the financial results of Q3. We have achieved outstanding growth of revenues, profits and cash generation. Revenues were up 8% year-over-year as all business engines delivered very strong performance. Excellent revenue growth, especially from the core telco business was coupled with strong cost savings. This combination drove the EBITDA to an impressive 16% growth in the third quarter. This translated into a 44% growth of the net income in Q3 stand-alone or plus 30% on the year-to-date basis, as our value creation model combined top line growth with strong operating leverage. Our year-to-date CapEx was broadly stable year-on-year and in line with our full year plans. This further translated the growing profits into the higher cash flow. And the year-to-date organic cash flow is up by 30% year-on-year. My takeaway from the year-to-date achievement is that our value creation model is working very well, and we're creating a lot of value for shareholders. Let's now review the sources of these achievements, starting from revenues. Q3 revenues grew by almost 8% year-on-year. This reflected a very consistent performance of core telecom services and a strong growth in more project-driven areas such as IT&IS and Wholesale. First, revenues from core telecom services. They increased by 5.5% year-on-year. This dynamic has accelerated in comparison to the previous quarters as we are consistently growing our customer bases and improving the ARPO dynamics. Core telecom services stood behind almost 2/3 of the direct margin growth that you will see on the next slide. Then IT&IS revenue rose by 24% year-on-year, marking another super strong quarter for this area of business. It reflected numerous big wins, especially for IT infrastructure in both commercial and public sectors. This demonstrates that we are able to grab market opportunities due to our large portfolio of competencies. 2026 looks to be a tremendous year for IT&IS. Finally, Wholesale revenues grew by 13% year-on-year, driven both by the fiber access sold in an open model and also by higher revenue from the fiber backhaul contract signed still last year. To sum up, first, we achieved very strong revenue dynamic from all business engines with consistent development of the core telco complemented by the big contracts. This is the driving wheel of our business model. So we are very pleased with both the speed and the sources of revenue growth. For Q4, we expect even stronger growth of core telco service revenues, while we note that the comparable base for Wholesale will be more challenging than in Q3 due to the fact that we had an accumulation of big contracts in the last quarter of 2025. Let's now look at how we turned higher revenues into profitability on Slide 10. Our Q3 EBITDA exceeded PLN 1 billion for the first time ever on a quarterly basis, increasing by as much as 15.6% year-over-year. This outstanding dynamic was enabled by perfect execution, both in commercial growth and in cost transformation. Direct margin increased by over PLN 100 million or 6%, an outstanding dynamic that followed strong revenue dynamics across all business lines. It reflected growth of the high-margin areas such as core telco services and Wholesale, coupled with exceptional increase of IT&IS revenues. This was coupled with a very good dynamic of indirect costs, which were PLN 35 million down year-on-year in Q3. We gained a lot from the cost transformation program and achieved efficiency gains in network operations, workforce, property costs and G&A. We also benefited from higher sale of copper as we stepped up copper decommissioning of the copper network this year and from about PLN 20 million higher margin from the fiber network rollout as we are becoming ever more efficient in this continued program to roll out the FTTH. This excellent Q3 enabled us to reach over 9% EBITDA growth over the nine months. We are obviously very happy about this achievement. It is in line with our full year guidance following Q2 results we guided for above 6% EBITDA growth, and we said that perfect execution could lead us to achieve 1% or 2% higher growth, meaning even 7% or 8% on an annual basis. And perfect execution in Q3 has evidently put us on track to reach this kind of excess. Now let's look at the cash generation on the next page. We generated close to PLN 900 million of organic cash flow in the nine months of the year. It was PLN 200 million or 30% more than in the comparable period of last year. This was a very strong result, driven by the outstanding EBITDA growth and coupled with higher cash from real estate disposal. It was partly offset by higher working capital as we sold more handsets in installments, and we increased inventory levels ahead of the Q4 peak commercial season. The main takeaway today from cash analysis is that commercial growth coupled with high operating leverage drove the 30% growth of cash flows, and we are perfectly positioned to achieve cash generation well above PLN 1.2 billion. That is all from me, and I hand the floor back to Liudmila.

Thank you, Jacek. Moving to conclusions on Slide 13. The results we achieved over nine months of this year are truly rewarding for us and reflecting our commitment to lead the future strategy execution. In Consumer segment, we reached new heights, executing very balanced volume value strategy even more successfully than before. In Business, we reversed negative trends and came back to profitable growth, both in telco services and in IT&IS. It was accompanied by great performance in Wholesale, which supplements our achievements in retail. And this excellent commercial growth is supported by cost discipline and IRR return-driven investments. This is exactly what we aim to achieve in our value creation model in Lead the Future strategy. This year clearly illustrates how well this model works and how much value for shareholders it can create. Please note that in a single quarter, we have generated the growth higher than in many full years before. So in the same time, we remain intensively focused on performance in Q4. We expect it to be very active as it is the most demanding commercial period in the year. In the context of 2026, and we are confident that fourth quarter will be a strong quarter for us and even more in the context of 2027 next year as our landing for 2026 will be a starting point for value generation for periods in front of us. So that's all on our side. And now we are opening the floor to your questions.

[Operator Instructions] We have the first question coming from the line of Dominik Niszcz from Trigon.

I would like to ask about ICT, where you show another quarter of very high growth in revenues. The question is what margin are you targeting in IT and integration services over the next two to three years? Do you expect much improvement from the revenue mix, shifting towards higher-margin services. What's your outlook on this part of the business, which is high in scale, but I guess, not yet high in margins?

Yes, you are well noticed that we have a very strong performance in IT&IS both in Q2 and Q3. And we are happy about it because it is not only revenue growth, but it is combined with nice uplift of the margin and which was our strategic priority this year. It was coming from multiple sources like different projects, which we were able to win, like contracts for digital transformation, infrastructure upgrades for public and for private sector. We also benefited from, we can say we benefited from the memory chip crisis as customers were hiring to buy their infrastructure in anticipation of even higher increases on the prices. So there is a big portion of our revenues are also linked with this IT equipment, which is, by definition, not very high on margins. But also, we had uplift in our soft business. So our subsidiaries, all subsidiaries, Craftware, BlueSoft was showing quite a nice growth. So this being said, if you look on margin, it's quite a balanced growth coming from integration and cybersecurity services, which are given higher margins with infrastructure projects, which I have mentioned, which are by definition quite low margin. Also, if we think about licenses, we had another continuation of sales of Microsoft licenses, which are very lowest margin, but helped by some other projects like Polish Railway Information System, which we have managed to implement. So all in all, profitability of business to this business line is not changing. And we are remaining in the same level of between 10% and 12%, which is quite healthy balanced margin for this type of business line. And we are targeting to continue in the same, I would say, same level.

Okay. Clear. And one more from me about the cost side. You showed the reduction of indirect costs by 4%. What was the outlook for the next year? Do you still expect further improvement on this side? And maybe in particular, you mentioned earlier this new energy contracts. So is there a big reduction of cost also on this side?

Thank you very much. I think when it comes to indirect costs, what we are targeting as part of our business model is to at least keep indirect costs flat year-over-year. And then to make sure that whatever we generate in terms of revenues and it's reflected in the direct margin that it gets translated into the EBITDA. And then by keeping CapEx flat, also it gets translated to organic cash flow. And this remains the objective for us going forward. If you will see this year, you have seen some quarters where the costs were increasing slightly. This quarter was really good for us and costs were decreasing slightly. I think we are fighting to make sure that we are on the decreasing side, not an increasing side. But taking into account some of the pay pressure, the CPI, inflationary pressures on some of the costs and also increasing, I would say, also increasing the cost of growing networks, both on the fixed and the mobile side, I would say the ambition is to keep it at least flat.

Okay. And this contract for PPA Energy, did it have impact already this year or still something for next year?

It did start to have the impact this year. It obviously helps. It is part of the cost transformation that we have, which is basically going through all the processes through all the functions. We have a few hundred of initiatives that we are monitoring on a very recurrent basis. This energy contract is one thing, but also we are working intensively on reducing the energy consumption. We were working and we had a very big success with optimization of the cost of field maintenance. Obviously, we are decreasing our headcount, but also we are increasing the level of remote and digital sales, so making the cost to sell and the cost to serve a little cheaper each time. And this is where the energy contract is one of the initiatives that is aimed exactly at this. So it is keeping the costs flat or even slightly going down on a consistent basis.

Next question comes from Ali Naqvi from HSBC.

Congrats on the great quarter. Can I just ask, given how strong the quarter was and expectations for EBITDA and revenues for Q4, is there any reasons you don't expect an even stronger performance or you wouldn't give a slightly more explicit increase in the guidance for the full year and the Q4 outturn after Q3 strong results? And then secondly, just on Nexera, I mean, can you just talk about the short and longer-term impacts on where you think you could get more revenue synergies? I appreciate it's not really sort of added any more detail in terms of where the additional benefits could come from? And then finally, on Equipment sales. Can you just talk about whether Equipment sales for this quarter or for the end of this year, is that being a positive customer acquisition tool? Or is it sort of any change in dynamics versus previous years?

Okay. Thank you very much for your questions. I think on the EBITDA and the guidance, basically, the way we view this is that already back in July when we disclosed the Q2 numbers, and we guided for more than 6% of year-on-year growth, we said that perfect execution could take us even 1% or 2% higher above this level, meaning 7% or 8% year-on-year on a full year basis. We have evidently achieved this perfect execution in Q3, and this puts us on the right track to reach this excess growth, well above 6%. I would say, simultaneously, as we are able to generate a high EBITDA to cash flow conversion rate, this will also result in high cash flows and good value creation for shareholders. So we view this as exactly within the guidance and the comments that we had issued back in July. Regarding Q4 alone, but having in mind that it is small figures change the dynamics on a given quarter. We expect a very solid EBITDA increase in Q4 as well, possibly even reaching mid-single digits for Q4 stand-alone. This reflects an expected consistent strong margin increase from core telco services, but also a much higher comparable base in Wholesale. So an area where the performance was really exceptional in Q4 of last year as we had an overlap of still having the national roaming agreement with Play and already benefiting from the new fiber contract. So yes, we do expect good Q4, even reaching mid-single digits. We do think that we are on a good track to reach this 2% excess above the 6% floor. So the way that we do this is we are really where we wanted to be, where we had the ambition to be back in July. Then on Nexera case, so what you need to know about Nexera is that this is a JV that will be consolidated by Swiatlowod Inwestycje. And basically, we will continue to consolidate Swiatlowod Inwestycje. It will simply include also the impact of Nexera. The way that you see us consolidating since this is a JV accounting, we do not consolidate the revenues, the costs and the EBITDA, but we consolidate our share of the net income of Swiatlowod Inwestycje. So starting already from Q4, it will include also the net result of Nexera. And short term, I think this will be the one impact that you will see. Obviously, we will reflect the increased assets on the balance sheet. But this is the short-term impact that you will see is including of the 50% of the net result of Nexera in the numbers that we consolidate. On the midterm, I guess we will have some services that we will render to Nexera with an arm's length margin, just like we do for Swiatlowod Inwestycje. this is not really a game changer for the operating profit of Orange Polska. The main reasons for acquisition of Nexera were long term and strategic. We do believe that over the longer term, Swiatlowod Inwestycje and Nexera have a lot of synergies that we can extract both on the cost side, well, mostly on the cost side. So it's got to do with the cost at which we maintain and manage the combined operations. If we take a look at a very long term, like a 30-year term or even longer, then the value of synergies were really considerable. I think we mentioned up to 30% of the EV. But it is the type of acquisition that you do not make in order to have immediate gains here and now. It is rather the long term that will show v being strengthened with a lot more network with a bigger network with a lot more Wholesale customers, while the cost of operations essentially will increase a lot of synergies. And then on equipment.

Yes. On Equipment performance, particularly for third quarter, we have sold slightly less handsets as volume versus a year ago, but at much better unitary price, which is helping us also in supporting our postpaid business. Obviously, this is one of the main engine for us to attract our customers to our postpaid offers. And particularly, we see it in the sales of top brands for hard smartphones and also thanks to much better availability. If look on the benchmark, which we see on the market, it's GfK report, which was published for the first eight months, which we have access to this data, we can notice that we are performing much better than market, both on volume and on value, while market was challenged, and we see overall in volume decreasing 13% also due to the challenge of increased price tags following memory chipset crisis. And then value decreasing just 3%. So I would say, roughly flat. While for Orange Polska, we are growing both in volume and in value at a level of 12%, 10%. So it's organically improved performance, which you can see in quarter-over-quarter in our handsets performance, and we expect this to continue.

The next question will be coming from the line of Dawid Gorzynski from PKO BP.

I have 3. The first one on, so maybe it will be easier to make it one by one. The first one on ICT segment and how I see this third quarter, strong third quarter is that it was a mix of good trends in demand for digitalization. Secondly, some large contracts, potentially one-off impact and also like this impact that the clients were hurrying up to buy some services in wake of memory prices, so on. So, given that, I wonder how confident you are about the growth in coming quarters and which parts of these factors may still support dynamics?

IT&IS business line, I would say it's by definition, built by one-offs because it's the IT business, which is composed by projects. And basically, the way how we are delivering it is to work permanently on ongoing pipe of projects, which are then realized implementing this like, and we are trying to maximizing our chances to win it. So results, which you see now it's working on this pipe on some of them started even a year ago. This year, we managed to deliver them even with some anticipation. So we saw some projects landed in anticipation in Q2 versus we were looking for them more close in the second part of the year. So looking for Q4, the pipe is looking strong, even despite the fact that we have very high denominator of very good result of Q4 of 2025, but still pipe is very strong. Maybe like a level of 24%, 25%, we will not be able to repeat it, but still, we expect that performance will be strong. And then going forward, we said this area as our strategic priority in our plan because we believe that we can increasingly capture bigger share in the market, in the IT&IS market, and we are demonstrating it like growing our competencies, growing our legitimacy as a much stronger IT&IS player. And which is giving us confidence for future as well. But if you ask me whether it is very, very predictable, I can tell you no. It's everyday fight and winning new customers and working on the, but just to give you an illustration based on recent reports, which were published market analysis in Poland as a group of companies, we are now #3 IT company in Poland, working on Polish market, noticing that we are working only for Polish customers. If you will have a look on #1 or #2, a big portion of revenues of these customers are also directed to customers abroad, not in Poland. So we have strong track of records, but it will be still not, it will be a challenging path. We cannot say that we will be granted projects just automatically. We are fighting.