Being responsible

The conclusions from a dialogue with stakeholders as well as market trends and social challenges for our industry in Poland and abroad have been key elements in its development.

For us, social responsibility means an organizational culture which takes account of the expectations of employees and other stakeholders’ groups – customers, investors, suppliers, business and social partners as well as the environment – in creating and implementing our business strategy.

We believe that such an approach generates benefits for the company and its environment, leads to long-term development and contributes to the improvement of everyone’s lives. Therefore, in Orange Polska we have created a social responsibility strategy which focuses on five areas which are of key importance from the point of view of our sector and our operations on the Polish market. In 2016 we launched the new CSR strategy for 2016-2020.

A strong foundation of this strategy is responsible management – our values, ethics and compliance and our dialogue with stakeholders as a tool for understanding their expectations. On this foundation are based four pillars of our CSR strategy:

• Social and digital development – We make new technologies an ally to economic and social development.
• Safe network- for the use of the latest technologies to be easy and risk-free
• Clean environment – to pursue our business objectives with respect for ecological principles and in harmony with the environment
• Engaged team – We build culture of co-operation in which employees feel respected, work towards achieving shared goals and have an influence on functioning of the company.

Responsible management and actions within these four pillars account for our social impact, which is analysed in 6 areas: economy, innovations, customers, environment, communities and employees.

Until 2018 our financial results were in continuous decline for a number of years.

This was chiefly related to the following factors:

• Adjusting to a very high level of competition, mainly in mobile services, in order to defend market shares.
• Very high exposure to fixed-line telephony, which is being effectively substituted by affordable mobile services.
• Regulatory regime limiting flexibility in terms of shaping commercial offers.

Proper implementation of the Orange.one strategy was supposed to lead to the development of a business model that would enable us to break this negative trend and gradually return to sustainable growth. In 2018 our adjusted EBITDA increased year-on-year. This was the first growth after 12 successive years of decline. Our revenues continued to decline; however the trend visibly improved. In 2019 we sustained growth of EBITDAaL (EBITDA after leases – our new profitability measure, under new accounting standard IFRS16) and also grew our revenues, for the first time in 13 years.

We have delivered on all of our financial goals set in Orange.one in each of year of the strategy. In some cases we even exceeded the initial expectations. Our revenues have been growing for the past two years and EBITDAaL for the past three years. We have kept capex within the limits and have significantly progressed with debt reduction.

Till 2017 Orange Polska was using IAS 18 accounting standard to recognise and to measure revenue.

In 2018, Orange Polska implemented the new accounting standard, IFRS 15. This standard changes the timing of revenue recognition for mobile contracts with subsidised handsets. Under IFRS 15, Orange Polska recognises more revenue upfront (as equipment revenue reflects the full value of the handset) and less revenue throughout the contract period (as service revenue is reduced by the amount of subsidy).

From 2019, Orange Polska is reporting its financial results under the new accounting standard IFRS16. The key objective of the new standard is to provide a single accounting method for lessees applicable to all lease contracts. Under IFRS 16, lessees recognise an asset in the balance sheet representing the right to use the leased assets in correspondence with the liability related to the lease obligations.

This change has been achieved through a combination of a progressive commercial turnaround and our focus on value coupled with great cost optimisation.

We have successfully implemented our convergent strategy, which was made possible thanks to the dynamic growth of fibre as monetisation of our considerable investments in this area has begun. A key element of this success was our particular attention to value in our commercial activities including ‘more for more’ price increases in mobile, convergence and fixed broadband. We also significantly developed the ICT area, which offers high growth potential and considerable synergies with our core telecom operations. These synergies have recently become higher than ever owing to ongoing digitalisation processes in enterprises. Over the last three years, we have increased our ICT revenues by 120%, mainly through organic development supplemented by acquisitions.

Simultaneously, we achieved very high cost savings. Since 2017 we have optimised indirect costs by almost PLN 600 million or 15%. This was done despite inflationary pressures in areas such as labour or electricity costs, so the effort to achieve the savings was even greater. Savings were generated across all cost groups, including labour, outsourcing, general and administrative, energy and network maintenance costs. They resulted from the comprehensive transformation of Orange Polska’s processes at each stage of our business model: networks, products and services, distribution and customer care. The process transformation aimed at simplification, automation and digitisation.

Operating profitability has been improving despite continued structural pressure on high-margin traditional fixed-line services, the erosion of which almost fully filters through to profits. The growing operating profitability has led to an increase in cash generation and a decrease in net debt and leverage ratio.

In presenting the Orange.one strategy we also discussed our ambitions regarding development of digital relations with customers and growth in certain adjacent areas, including: Orange Finance, Orange Energy, sale of devices and Orange Smart Care. We made significant progress in these areas, but we see much more room for further improvement and we will address this in our next strategic period.

Our shops remain the most important distribution channel, but we are gradually increasing our share of online sales. We obviously benefit from digitisation of the economy accelerated by the pandemic. We have an ambition to increase our pace of digitisation – through better and more popular IT tools and simpler processes.

We have succeeded in some adjacent areas and failed in others, as should be expected when developing new areas of operations. We gave up Orange Finance a few years ago as we concluded that the model of operations was not optimal. We continue to develop Orange Energy, though it is a challenge given the complicated nature of the energy market. We have ideas on how to grow Orange Energy further, taking into account changes such as the focus on green energy. Sale of devices has grown dynamically. In 2018 we introduced the option for customers to buy equipment independently of their contract for service, which is growing every year. Nonetheless, we believe that we can and should be able to secure a greater share of this market from the retail chains. Finally, we are very pleased with Orange Smart Care as a value-added service. In Orange Smart Care, the customer pays a monthly fee insuring his smartphone against various damages. Revenue growth is very significant here. Every third smartphone we sold in 2020 included Orange Smart Care.

So even though not everything went perfectly, we easily reached the targeted combined level of revenues from these areas.

Importantly, we strive to consider the impact of our operations on both the economy and the environment, so sustainable development will be another major element. We intend to diversify our energy mix, so that a portion of it will come from renewable sources. We will assist our customers in making more eco-friendly choices, such as by enabling the recycling of broken handsets and buy-back of those no longer used.

Finally, from financial perspectives our ambition is to continue to improve our results, but unlike in the Orange.one strategy we want growth in the new plan to stem mainly from profitable revenue growth rather than from cost savings.

We also aim to better utilise our assets which should benefit our ROCE (return on capital employed) ratio. We would like also to return to shareholder remuneration.

Within this framework we have developed a climate strategy at Orange Polska of which the key goal is to become climate neutral and achieve Net Zero Carbon by 2040, ten years ahead of the EU climate goals in the Green Deal Strategy or the GSMA recommendations for telecoms operators. Neutrality will cover both direct and indirect own emissions (Scopes 1 and 2 of the GHG Protocol) and emissions in the value chain (Scope 3).