Q&A with Jacek Kunicki, Orange Polska CFO

Q: Almost 6% EBITDAaL growth in 2021 is a really strong achievement. What made this growth rate that high?

Indeed, our results for 2021 were strong across the board and almost 6% EBITDAaL growth is a remarkable achievement. However, please note that 2021 was already the fourth consecutive year in which we reported growth of our operating profitability. This means that we are consistent in delivering growth. In 2019 our growth amounted to almost 4%, so last year is in line with the trend. It was also slightly enhanced by the low comparable base of 2020, during which we had to incur certain COVID-related provisions.

This dynamic is a natural consequence of many of the strategic initiatives that we conducted over the previous years that now bear fruit. I will mention large-scale fibre rollout, value-driven strategy in convergence and mobile, smart expansion of competencies to value-added ICT services on the B2B market and huge cost transformation. I am particularly pleased that growth last year for the first time was driven by profitable revenue expansion and not only by cost savings, as was the case in previous years.

Our strong 2021 performance makes me confident about our ability to achieve financial ambitions embedded in the .Grow strategy, despite the obvious challenges that we are dealing with in 2022.

Q: Speaking of 2022 challenges. How is inflation impacting your costs in 2022?

Inflation in Poland is on a more than 20-year high and the situation continues to be dynamic due to the war in Ukraine. So naturally, this environment will significantly affect our operating expenses this year.

In 2022 this important impact is predominantly seen in electricity prices. Current spot energy prices are more than two times higher than those realised by us in 2021. By the end of 2021, we had secured about 50% of our energy consumption for 2022 at much higher prices than realised in 2021, yet much lower than in the spot market at the end of the year. The average energy price we pay is positively affected by much cheaper energy from renewable sources, which we expect to provide about 10% of our energy mix in 2022.

The majority of our contracts of leased telecommunication infrastructure, sales outlets and office space are indexed to the previous year’s inflation rate, which will further contribute to higher costs in 2023. Similarly, the costs of outsourced consulting, technical assistance and customer care services are subject to inflationary pressure.

Another area of inflation is obviously related to salary pressures in our Company. Together with our social partners we agreed on the level of salary increases for 2022-2023. Salary levels in Orange Polska are on a market level, which we are systematically monitoring. For many years we have been consistently increasing them, sometimes above the rate of inflation. So, the agreed 4% annual increases lie in the context of this long-term remuneration policy and constructive dialogue with our social partners.

Q: What are your options to pass this inflation on to your customers?

For years, we have focused on value generation in our commercial strategy, changing the tariffs for our core services in the ‘more for more’ formula. We will continue to be active in our commercial value strategy, keeping in mind that the nature of our subscription business – proven very sound during the turbulent times of pandemic lockdowns in 2020-2021 – requires more effort to adapt to an inflationary environment. Inflation coupled with weakening of the Polish zloty also results in the higher price of mobile handsets. However in this case we are able to quickly react and adjust our prices to pass higher costs to our customers. We also have higher price elasticity in some of our ICT services. This is particularly important as in the ICT area we experience particularly high pressure on the cost of our workforce.

Annual Report 2021

CSR Strategy: Being responsible

Excellent 2021 performance is a strong first step of the .Grow strategy execution

Q&A with Jacek Kunicki, Orange Polska CFO

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