|What were the key achievements and main challenges in 2016 from your perspective?|
We delivered on our 2016 commitments,
which we set out a year ago, with respect to
the level of EBITDA, financial leverage and the
capex. As such I can say that the year was in
line with our expectations.
We were very satisfied with our commercial performance on the mobile market. We coped very well with the pre-paid registration obligation - an unexpected new development in 2016. More than 96% of our active customer base registered their SIM cards. In post-paid, growth of the SIM card base was spectacular owing to the great success of our family offers, increased migration from pre-paid and also the growing popularity of mobile broadband.
In fixed broadband, net customer losses were much smaller than in 2015, mainly as a result of our expansion in fibre. High-speed broadband already constitutes a quarter of our entire broadband customer base.
We significantly improved connectivity for customers. Our fibre network has coverage of almost 1.5 million households while our mobile broadband network is ranked the fastest in Poland for many months.
Turning to challenges: our ongoing challenge is the legacy business, so mainly traditional fixed voice, retail and wholesale. We lose a significant portion of revenues from these services every year due to substitution from mobile and unfavourable demographic trends. Also the Polish market is very competitive, which is visible in our financial results both on mobile and fixed side.
|Why did the management decide to make an asset impairment?|
During the annual review of our strategic plans and analysis of market trends, we decided to use more conservative assumptions than previously, mainly with respect to the future evolution of ARPU on mobile and the development of fixed broadband based on ADSL technology. As a result, the difference between the value of our net assets and discounted future cash flows got much smaller. Also, after discussions with our auditors, we decided to increase the discount rate to reflect certain business risks, like for example the new pre-paid market outlook following registration.
|Why did the management recommend not to pay any dividend in 2017?|
We cannot deny that the monetisation of the strategy that we announced last year is a bit slower than we had anticipated and we have to improve execution to facilitate our strategic goal of financial turnaround. We decided to make fibre network deployment our top priority as a necessary condition for our transformation from legacy to a modern telecom company. In addition, we have to remember than most likely we will have to pay a European Commission fine in 2017 which will further stretch our balance sheet. So taking all this into consideration, the management has decided not paying any dividend in 2017. It was a very tough decision for us to make as we are aware that a lot of investors hold our shares for the dividend. However in our view it is the right decision, taken for the long-term interest of our shareholders, accounting for the circumstances that I just described.
|What is the outlook for 2017?|
2017 will be mainly marked by acceleration of
fibre network deployment and a new convergence approach.
We intend to extend our fibre network by more than 1 million additional households this year, much more than in 2016. This constitutes a big investment and organisational challenge for us. Please note that despite spending much more on fibre, our total capex for 2017 is expected to be similar. This means that we are heavily optimising all other areas of investment, giving full priority to fibre.
We launched Orange Love, our new convergent offer, in February 2017; it is a simple and attractive proposal for our customers. Convergence is our unique feature, a source of competitive advantage and at the same time a good customer loyalty tool. We made Orange Love our flagship offer and expect it to translate into improved commercial and financial results.
From a financial perspective we expect further EBITDA erosion in 2017. We foresee it in the range of PLN 2.8-3.0bn. It will mainly reflect pressure on high margin revenues, legacy services and roaming. Remember that from June this year, roaming rates are scheduled to become similar to domestic rates. We also plan to keep a high level of commercial expenses. The relatively wide range of the EBITDA guidance mainly reflects some uncertainty around the pre-paid market, and risks related to real estate disposals.
|What are you doing to counteract negative business trends?|
Our main problem is the fixed business, where
we see pressure on legacy services and the
ADSL broadband customer base. As far as
legacy business is concerned the trend is difficult to stop. We try to diminish it as much as
possible through proper pricing and bundling.
In fixed broadband we suffer from a technological gap between Orange Polska and cable
operators, and that is one of the reasons we
are investing heavily in fibre.
We also undertake numerous initiatives on the costs side. We generate PLN 200-300 million of sustainable cost savings every year. We have high ambitions in this respect going forward.
|Why do you think the Orange Polska share price is so low?|
We do not comment on our share price. However, some analysts believe that it mainly reflects the short-term outlook, which is not favourable, and the lack of dividend this year. We are concentrated on long-term goals in order to facilitate turnaround. This approach requires us to invest. We are still at the beginning of this investment cycle when we see mainly costs and not yet all the benefits. Our key challenge is now fast commercialisation of these investments, which will positively impact our margin in the mid-term.