5. Impact of COVID-19 pandemic

In March 2020, COVID-19 was officially declared as a pandemic. The authorities closed the borders, introduced a lockdown on schools, some businesses and facilities and restricted movement of people to leaving home for essential reasons only. The imposed restrictions have been progressively lifted starting from end of April 2020. The situation is dynamic, Poland and other countries experience a second wave of COVID-19, some restrictions have been imposed again. The pandemic has significantly impacted the Polish economy. Preliminary estimations of the Polish Statistical Office show that Poland’s GDP fell by 2.8% in 2020. At the same time the consensus indicates that GDP in Poland could return to growth and increase by 3.7% in 2021 although the pace of the recovery is highly uncertain at the moment. The government has introduced a few sets of legislation (Anti-crisis Shields and Financial Shield) targeted mainly on micro, small and medium companies, aimed at counterbalancing the crisis impact.

Since mid-March, the Group has implemented a number of actions to adapt to the crisis situation, ensure business continuity and reduce the risks of the pandemic. The pandemic had an impact on the Group’s ability to achieve its business goals in the 12 months ended 31 December 2020. The Management has adopted a number of counteractive measures to mitigate the negative impact of the pandemic on Group’s business performance. Based on the up to date observations, the Group discloses the following major impacts of COVID-19 pandemic on its operations, financial position and performance in the 12 months ended 31 December 2020:

1. The results achieved in the 12 months ended 31 December 2020 indicate that the core of the Group’s operations remain relatively immune to the impact of the pandemic. Data and voice connectivity has become more essential than ever to the needs of consumers and businesses. The majority of revenue and profits are derived from subscription-based services, which allows the Group to rely on relatively stable and predictable revenue streams.
2. The Group observed increased voice and data traffic in its mobile and fixed networks. The networks were working without disruption and were handling the higher volumes well, benefitting from fibre infrastructure in core and access layers.
3. Despite many restrictions which are still in place our distribution network remains open, after around 45% of points of sale were closed from mid-March until beginning of May 2020. The sales volumes have recovered and significantly improved as a result of strong efforts made by the Group and high demand, mainly for mobile voice and fixed broadband services. However, sale of equipment and related accessories dropped due to clients reluctance to additional commitment. Pandemic also impacted activations of new pre-paid cards due to lower mobility and lower sales to foreign residents.
4. Restrictions for people’s mobility (Polish borders were closed from mid-March and opened on 13 June 2020, only for European Union citizens, since then some new travel restrictions appeared) and adverse attitude to travel negatively influenced revenue from international roaming, accompanied by lower roaming interconnection expenses. On the other hand, revenue from wholesale mobile incoming calls considerably increased during the lockdown, reflecting much higher traffic, in line with mobile outgoing costs.
5. The Group performed an impairment test of the single telecom operator Cash Generating Unit as at 31 December 2020 (see Note 9). No impairment loss was recognised as a result of this test.
6. The Group performed an analysis of available information about past events, current conditions and forecasts of future economic conditions to evaluate the impact of COVID-19 on the bad debt allowance. Based on an analysis of current conditions, a scenario analysis and the bad debt experience in 2011-2012 when a significant reduction in GDP growth last occurred, the Group recognised additional PLN 26 million of impairment of trade receivables in the 12 months ended 31 December 2020.
7. Significant weakening of PLN against EUR in the 12 months ended 31 December 2020 resulted in the recognition of foreign exchange losses (mainly on unhedged long-term lease liabilities), which are presented in finance costs, net. Weakening of PLN had a limited negative influence on operating costs and level of capital expenditures, as the Group uses financial instruments to hedge majority of these exposures. Currency loans from related party and bank borrowings are also hedged and the Group’s debt is effectively denominated in PLN.
8. As at 31 December 2020, the Group performed an analysis to evaluate the impact of COVID-19 on the realization of contractual commitments. The results of the analysis have been adequately recognised in the Group’s financial statements.

Impact of COVID-19 pandemic on the Group, its financial position and performance in next periods depends on many factors which are beyond the control of the Group. These factors include, among others: the length and severity of the pandemic, measures taken by the government to limit the pandemic and to protect society from the effects of the crisis and in result its ultimate impact on the Polish economy. The Group will monitor the COVID-19 situation, its impact on the Polish economy, as well as indicators more specific to the Group.