Table of Contents

​

ORANGE POLSKA GROUP AND ORANGE

POLSKA S.A.

​

​

MANAGEMENT BOARD’S REPORT ON
THE ACTIVITY

FOR THE YEAR ENDED 31 DECEMBER 2021

​

February 16, 2022

​

​

Table of Contents

​

​

​

2

Table of Contents

​

3

Table of Contents

​

​

​

​

4

Table of Contents

​

​

CHAPTER I

HIGHLIGHTS OF THE CONSOLIDATED FINANCIAL STATEMENTS

as of December 31, 2021 and for the twelve-month period ended thereon

​

5

Table of Contents

​

SUMMARISED FINANCIAL STATEMENTS

SUMMARISED CONSOLIDATED FINANCIAL STATEMENTS

6

Table of Contents

​

​

​

​

7

Table of Contents

​

SUMMARISED STANDALONE FINANCIAL STATEMENTS

​

​

​

8

Table of Contents

​

1.1     Comments on the Consolidated Income Statement and the Standalone Income Statement

Comments on the Consolidated Income Statement of the Group

Consolidated revenue amounted to PLN 11,928 million in 2021 and was higher by PLN 420 million compared to 2020. Firstly, combined revenues of convergence, mobile-only and fixed broadband-only (which we consider our core telecom services) were up 6.7% year-on-year. This growth rate was twice as high as in 2020, when it amounted to 2.9%. This much better performance was a consequence of a successful combination of strong growth of customer volumes and improving trends of average revenue that they generate (ARPO) for each of the aforementioned services. Improving ARPO is a consequence of our value pricing strategy, growing share of fibre and gradual recovery of roaming revenues after the pandemic in 2020. Secondly, despite disturbances in global supply chains, IT and integration services recorded another strong year with revenues growing 19% year-on-year, partially owing to the contribution of Craftware acquired at the end of 2020. Thirdly, mobile wholesale revenues were down 10% year-on-year, mainly due to regulatory cuts in mobile and fixed termination rates. Fourthly, other revenues were up 33% year-on-year, benefiting from improved market conditions for energy resale compared to 2020. Finally, top line continued to be affected by structural decline in legacy fixed-voice revenues, which were down 14% year-on-year.

EBITDAaL (EBITDA after Leases) amounted to PLN 2,963 million and was higher by PLN 166 million year-on-year. EBITDAaL benefitted mainly from strong performance of core telecom services, which was reflected in an increase of more than 4% in direct margin. Despite the continued cost transformation, indirect costs were 3% higher year-on-year, mainly as a result of curtailment of jubilee provisions in 2020 (which reduced the comparable cost base by PLN 64 million) and an increase in costs of advertising and promotion (after pandemic-related slowdown in 2020).

Operating income (EBIT) surged to PLN 2,211 million versus PLN 404 million in 2020. It was boosted by PLN 1,543 million gain related to the sale of a 50% stake in Światłowód Inwestycje. Excluding this one-off development, the improvement (by PLN 264 million yoy) resulted from growth of EBITDAaL and an 11% decrease in depreciation (mainly owing to extension of economic useful life of certain assets).

Net finance costs amounted to PLN 281 million in 2021 and were down PLN 61 million year-on-year, which mainly reflected unfavourable movements in foreign exchange rates (relating to long term lease liabilities) which increased these costs in 2020.

As a result, consolidated net income amounted to PLN 1,672 million in 2021 compared to PLN 46 million in 2020.

For more information on the operational and financial performance please see section 2 below.

Comments on the Income Statement of Orange Polska S.A.

Net income of Orange Polska S.A. amounted to PLN 916 million in 2021 and was significantly lower than that of the Group, mainly as a result of a difference between accounting for the result on the sale of a 50% stake in Światłowód Inwestycje in the standalone statements and accounting for the result on the loss of control of Światłowód Inwestycje in the consolidated statements.

1.2     Comments on the Consolidated Statement of Cash Flows and the Standalone Statement of Cash Flows

Comments on the Consolidated Statement of Cash Flows of the Group

Net cash from operating activities amounted to PLN 3,101 million in 2021 and was PLN 96 million higher year-on-year. Higher EBITDAaL and lower interest expense were partially offset by lower decrease of working capital requirement in comparison to its steep reduction in 2020.

Net cash used in investing activities amounted to PLN 1,156 million in 2021 compared to PLN 2,064 million in 2020. This change resulted mainly from cash flows related to the sale of a 50% stake in Światłowód Inwestycje and higher proceeds from real estate disposal.

Net cash outflows from financing activities amounted to PLN 1,371 million compared to PLN 989 million in 2020. This change was mainly attributable to cash flows from related party loans and bank overdrafts.

9

Table of Contents

​

Comments on the Statement of Cash Flows of Orange Polska S.A.

Net cash inflow in Orange Polska S.A. in 2021 amounted to PLN 585 million and was at a comparable level to that of the Group.

1.3    Economic Capital Expenditures (eCAPEX)

Group’s economic capital expenditures (starting from 2020, this measure includes accrued proceeds from asset disposals) in 2021 amounted to PLN 1,737 million and were lower by PLN 64 million year-on-year.

These included mainly the following:

10

Table of Contents

​

​

Split of economic CAPEX

​

1.4     Comments on the Consolidated Statement of Financial Position and the Standalone Statement of Financial Position

Comments on the Consolidated Statement of Financial Position

Total assets were higher by PLN 1,857 million than at December 31, 2020. This change resulted mainly from recognition of an investment in Światłowód Inwestycje, an increase in other receivables (mainly attributable to the sale of shares in Światłowód Inwestycje) and an increase in cash and cash equivalents, which was partially offset by a decrease in the balance-sheet value of property, plant and equipment as well as intangible assets.

Total liabilities were lower by PLN 155 million than at December 31, 2020. This change resulted mainly from a decrease in debt, which was partially offset by an increase in contract liabilities, attributable to a prepayment made by Światłowód Inwestycje for lease and services to be rendered in the future by Orange Polska S.A.

Comments on the Statement of Financial Position of Orange Polska S.A.

Total assets of Orange Polska S.A. amounted to PLN 24,838 million as at December 31, 2021 and were lower by PLN 1,319 million than total assets of the Group. This difference resulted mainly from different valuation of a 50% stake in Światłowód Inwestycje applied in the consolidated and standalone statements as well as lower goodwill and trade receivables, which was partially offset by the value of investments in subsidiaries included in the statement of financial position of Orange Polska S.A. and eliminated on consolidation.

Total liabilities of Orange Polska S.A.as at December 31, 2021 amounted to PLN 13,071 million and were lower by PLN 475 million than total liabilities of the Group, mainly owing to lower trade payables.

1.5     Related Parties Transactions

Please see Note 33 to the Consolidated Full-Year Financial Statements about Group’s transactions with related entities.

1.6     Description of Significant Agreements

Please see section 1.11.2 and 4.6 below for information on significant agreements concluded by the Group in 2021.

11

Table of Contents

​

1.7     Unrecognised Contractual Obligations

Please see Note 31 to the Consolidated Full-Year Financial Statements for information about unrecognised contractual obligations.

1.8     Subsequent Events

Please see Note 34 to the Consolidated Full-Year Financial Statements for information on subsequent events.

1.9     Scope of Consolidation within the Group

Please see Note 1.2 to the Consolidated Full-Year Financial Statements for information about the scope of consolidation within the Group.

1.10   Information about the Loan or Borrowing Collaterals or Guarantees Provided by the Issuer or Its Subsidiaries

In the twelve months ended December 31, 2021, neither the Company nor its subsidiaries granted guarantees or collateral of loans or borrowings to any entity or a subsidiary with a total value representing the equivalent of at least 10% of Orange Polska S.A.’s shareholders equity. Please see section 1.11.5 below for additional information.

1.11   Management of Financial Resources and Liquidity of the Group

In the reported period, the Group financed its activities by cash from operating activities, loans provided by the Orange S.A. Group (at market conditions), current account overdraft facilities, sale of receivables in a securitisation programme, and the sale of a 50% stake in Światłowód Inwestycje to APG.

In 2021, the Group repaid long-term bank loans of PLN 3,564 million and a revolving loan of PLN 920 million provided by the Orange S.A. Group.

In the reported period, the Group used PLN 760 million out of a revolving loan provided by the Orange S.A. Group.

As of December 31, 2021, Group’s interest-bearing liabilities (before derivatives) totalled PLN 5,011 million, which is a decrease of PLN 1,000 million compared to December 31, 2020. Debt to the Orange S.A. Group accounted for 98.8% of this amount.

In 2021, the Group continued to sell receivables related to handsets instalment sales under a programme between the Group, BNP Paribas S.A. as the buyer and Eurotitrisation as the settlement agent, which was set up in 2019 and amended in 2020. The Group raised PLN 13 million from the sale of receivables under the programme in 2021.

In 2021, under a cash-pooling agreement concluded by the parent company with selected subsidiaries from the Group and Bank Handlowy w Warszawie S.A., acting as the pool leader, the process of the Group’s liquidity management was continued with subsidiaries investing their surplus cash in the parent company’s account.

Group’s liquidity remained solid, owing to strong cash position, amounting to PLN 933 million at December 31, 2021, and available credit facilities totalling the equivalent of PLN 2,155 million.

Based on available cash, back-up and revolving credit facilities, as well as external sources of financing, the Group has sufficient funds to carry out its investment projects, including capital investments, scheduled for implementation in 2022.

At December 31, 2021, Group’s liquidity ratios increased as compared to the end of 2020. The Group’s higher financial liquidity reflected repayment of a loan of €190 million in May 2021 and refinancing of a loan of PLN 2,700 million in June 2021. This resulted in a decrease of PLN 3,419 million in current liabilities (less provisions and contract liabilities).

12

Table of Contents

​

The liquidity ratios for the Group at December 31, 2021 and December 31, 2020, respectively, are presented in the table below.

*Current liabilities less contractual liabilities and provisions were used to determine the ratio.

Group’s net financial debt (after valuation of derivatives) decreased to PLN 4,076 million at December 31, 2021 (from PLN 5,549 million at the end of 2020).

1.11.1   Bonds

As part of the Group’s liquidity management, in 2021 the parent company did not issue or redeem short-term bonds acquired by its subsidiaries.

The Group did not issue or redeem any external long-term debt notes in the reported period.

1.11.2   Loan and Borrowings Agreements

On January 5, 2021, Orange Polska S.A. concluded an investment financing agreement with Alior Bank S.A., which provided a broadband loan of PLN 45 million with a maturity term of 10 years for financing a part of costs of connecting end users under the Measure 1.1 of the Operational Programme Digital Poland: Eliminating territorial differences in terms of access to high-speed broadband Internet. The loan is financed in 80% (i.e. PLN 36 million) from the funds of the Operational Programme Digital Poland for 2014–2020 and in 20% (i.e. PLN 9 million) from Alior Bank S.A.’s own funds.

On January 29, 2021, the Group and Atlas Services Belgium S.A., a subsidiary of Orange S.A., concluded a loan agreement for PLN 2,700 million maturing on June 20, 2026. Its purpose was to refinance the Group’s debt under a term loan of PLN 2,700 million in June 2021.

On June 17, 2021, the Group and Atlas Services Belgium S.A., a subsidiary of Orange S.A., concluded an annex to a revolving loan agreement for PLN 1,500 million, extending its maturity to July 29, 2022.

On June 25, 2021, the Group and Orange S.A. updated a cash-pooling agreement, which extended the term of providing the backup liquidity financing limit of PLN 500 million to February 28, 2023.

In the reported period, the Group concluded annexes to current account overdraft agreements with the following banks:

On June 18, 2021, the parent company and its subsidiary Światłowód Inwestycje sp. z o.o. concluded a loan agreement for PLN 0.5 million, maturing on July 1, 2021, for the purpose of financing current activities of the latter. On the maturity date, the loan liability was set off against outstanding cash contribution to be made by the parent company on account of acquisition of shares in Światłowód Inwestycje.

On 1 July 2021, the parent company granted a loan to its subsidiary Światłowód Inwestycje sp. z o.o. in the amount of PLN 157 million with a repayment period of up to July 1, 2024. It was repaid on November 12, 2021. The loan was related to preparation of the transaction of sale of a 50% stake in Światłowód Inwestycje to APG.

13

Table of Contents

​

On July 14, 2021, Orange Polska’s subsidiary Światłowód Inwestycje sp. z o.o. concluded a loan agreement with BNP Paribas, ING Bank N.V., Santander Bank Polska S.A. and Société Générale and a financial agreement with the European Investment Bank for the rollout of the fibre network in Poland. Under these agreements, Światłowód Inwestycje will get access to debt facilities of PLN 3,150 million for the purpose of financing of the construction and wholesale of fibre-to-the-home (FTTH) network in Poland. Financing was provided for seven years. This was contingent on, inter alia, the conclusion of the final agreement for the sale of a 50% stake in Światłowód Inwestycje to APG, which took place on August 31, 2021. From that date Światłowód Inwestycje is a jointly controlled entity and not a subsidiary of Orange Polska which means that its debt is not on the balance sheet of Orange Polska. Also, financing provided to Światłowód Inwestycje is not guaranteed by Orange Polska S.A.

Furthermore, on November 11, 2021, the parent company and its subsidiary Orange Energia sp. z o.o. concluded a loan agreement for PLN 10 million. The loan, maturing one year after the date of the agreement, will be used for financing of the current operations of Orange Energia sp. z o.o.

1.11.3   Unused Credit Facilities

As of December 31, 2021, the Group had outstanding general-purpose credit facilities amounting to the equivalent of PLN 1,655 million.

In addition, the Group had an unused limit of back-up liquidity financing of PLN 500 million, provided by Orange S.A.

1.11.4   Loan Covenants

Agreements to which the Group is a party do not impose any obligations on the Group to meet any financial ratios. For informational purposes, the ratio of net debt to EBITDAaL was 1.4 on December 31, 2021.

1.11.5   Guarantees and Collaterals

In 2021, Orange Polska S.A. requested banks to issue bank guarantees with respect to liabilities of its subsidiary TP Teltech sp. z o.o. towards its business partners, while promising to cover any claims related to payments under the guarantee. As of December 31, 2021, these guarantees totalled PLN 8.0 million.

As of the reporting date, collaterals granted by Orange Polska S.A. to Bank Handlowy w Warszawie S.A. to secure proper performance bonds issued by the latter in favour of TP Teltech sp. z o.o., Orange Polska’s wholly-owned subsidiary, with respect to its obligations towards Nokia Solutions And Networks sp. z o.o., related to the implementation of the Operational Programme Digital Poland 2, was still valid and totalled PLN 28.1 million.

As of December 31, 2021, a collateral of up to PLN 20 million granted by Orange Polska S.A. to Santander Factoring sp z o.o. to secure a facility provided by the latter to its subsidiary TP Teltech sp. z o.o. under a confirming agreement for payment management was still valid.

In 2021, Orange Polska S.A. requested banks to issue bank guarantees with respect to liabilities of its subsidiary Orange Retail S.A. on the account of lease of premises for Orange sales outlets, while promising to cover any claims related to payments under the guarantees. As of December 31, 2021, these guarantees totalled PLN 1.2 million.

In the reported period, Orange Polska S.A. requested banks to issue bank guarantees with respect to liabilities of its subsidiary Orange Energia sp. z o.o. towards its business partners, while promising to cover any claims related to payments under the guarantees. As of December 31, 2021, these guarantees totalled PLN 18.4 million.

As of December 31, 2021, a collateral of up to PLN 38 million granted by Orange Polska S.A. to Bank Handlowy w Warszawie S.A. to secure liabilities of its subsidiary Orange Energia sp. z o.o. on the account of a current account overdraft facility provided by the bank was still valid.

As of December 31, 2021, a bank guarantee of PLN 3.8 million issued by BNP Paribas Bank Polska S.A. upon request of Orange Polska S.A. with respect to liabilities of its subsidiary Fundacja Orange [Orange Foundation] on the account of an agreement concluded by the latter with the Digital Poland Project Centre was still valid.

14

Table of Contents

​

As of December 31, 2021, a collateral of up to PLN 5 million granted by Orange Polska S.A. to PKO Bank Polski S.A. to secure liabilities of its subsidiary Essembli sp z o.o. with respect to a multi-purpose credit facility dedicated to bank guarantees.

Furthermore, as of December 31, 2021, the collaterals granted by Orange Polska S.A. to BNP Paribas Bank Polska S.A. and PKO Bank Polski S.A. to secure liabilities of its subsidiary BlueSoft sp z o.o. on the account of a current account overdraft facility and a multi-purpose credit facility dedicated to bank guarantees totalled PLN 15 million.

1.11.6Hedging Transactions

In 2021, the Group continued to minimise its exposure to foreign exchange and interest rate volatility by concluding and maintaining cross currency swaps, interest rate swaps, currency options, cross currency interest rate swaps and non-deliverable forward contracts.

Furthermore, the Group hedged a portion of the exposure to foreign exchange risk generated by operating expenditures (e.g. handset purchases) and capital expenditures.

As of December 31, 2021, the Group’s proportion between fixed/floating rate debt (after hedging) was 91/9% as compared to 99/1% on December 31, 2020. Owing to such a high level of hedging, changes in interest rates in the market will have significantly limited impact on the Group’s debt cost until 2025.  

​

15

Table of Contents

​

​

CHAPTER II

MANAGEMENT BOARD’S REPORT ON OPERATING AND FINANCIAL PERFORMANCE OF THE GROUP

​

in 2021

​

16

Table of Contents

​

2    OPERATING AND FINANCIAL PERFORMANCE OF THE GROUP

The Group reports a single operating segment as decisions about resources to be allocated and assessment of performance are made on a consolidated basis. Group performance is currently evaluated by the Management Board based on revenue, EBITDAaL, net income, eCapex (economic capital expenditures), organic cash flows, net financial debt and net financial debt to EBITDAaL ratio based on cumulative EBITDAaL for the last four quarters.

​

Since the calculation of EBITDAaL, eCapex, organic cash flows, and net financial debt is not defined by IFRS, these performance measures may not be comparable to similar indicators used by other entities. The methodology adopted by the Group is presented below.

​

Starting from 2021, the Group has a joint venture accounted for using the equity method and definitions of performance measures have been supplemented taking into account the impact of the joint venture on the Group performance: share of profits/losses of joint venture and elimination of margin earned on asset related transactions with joint venture are excluded from EBITDAaL calculation.

​

Additionally, the Group has clarified a treatment of the rights of perpetual usufruct of land in calculation of performance measures. The rights of perpetual usufruct of land which on initial recognition were classified as property, plant and equipment and were subsequently, on adoption of IFRS 16, reclassified to right-of-use assets, are treated similarly to property, plant and equipment in business decisions made by the Management Board. Consequently, impairment and result on disposal of these rights is excluded from EBITDAaL calculation, while proceeds accrued on their disposal offset capital expenditures. The clarifications of definitions described above do not require any restatements in calculation of performance measures for the comparative period.

​

EBITDAaL is the key measure of operating profitability used by the Management Board and corresponds to operating income before gains on disposal of assets, depreciation, amortisation and impairment of property, plant and equipment and intangible assets, impairment of the rights of perpetual usufruct of land historically recognised as property, plant and equipment and subsequently reclassified to right-of-use assets and share of profits/losses of associates and joint ventures, decreased by interest expense on lease liabilities and adjusted for the impact of deconsolidation of subsidiaries, costs related to acquisition, disposal and integration of businesses, employment termination programs, restructuring costs, elimination of margin earned on asset related transactions with joint ventures and associates accounted for using the equity method, significant claims, litigation and other risks as well as other significant non-recurring items.

​

eCapex (economic capital expenditures) is the key measure of resources allocation used by the Management Board and represents acquisitions of property, plant and equipment and intangible assets excluding telecommunications licences, decreased by the proceeds accrued on disposal of these assets as well as on disposal of the rights of perpetual usufruct of land historically recognised as property, plant and equipment (‘proceeds accrued on disposal of assets’). eCapex does not include acquisitions of right-of-use assets.

​

Organic cash flows are the key measure of cash flow generation used by the Management Board and correspond to net cash provided by operating activities decreased by payments for purchases of property, plant and equipment and intangible assets and repayment of lease liabilities, increased/decreased by impact of net exchange rate effect received/paid on derivatives economically hedging capital expenditures and lease liabilities and proceeds from sale of property, plant and equipment and intangible assets and adjusted for the payments for acquisition of telecommunications licences, payments for costs related to acquisition, disposal and integration of businesses not included in purchase price and payments relating to significant claims, litigation and other risks. Cash flows arising from obtaining or losing control of subsidiaries or other businesses, including significant tax cash flows specifically identified with these transactions, are classified as investing activities and by definition are not included in organic cash flows.

17

Table of Contents

​

​

Net financial debt and net financial debt to EBITDAaL ratio are the key measures of indebtedness and liquidity used by the Management Board.

​

Reconciliation of operating performance measure to financial statements

⁽¹⁾ Includes impairment of rights of perpetual usufruct of land historically recognised as property, plant and equipment, subsequently reclassified to right-of-use assets (PLN 34 million in 2021).

​

* Disclosures on performance measures are presented in the Note 3 to IFRS Consolidated Financial Statements of the Orange Polska Group for the 12 months ended 31 December 2021.

In 2018, we changed the layout of our revenue reporting to better reflect our commercial strategy, which is focused on convergent offer sales. Consequently, we now report convergent revenues separately from revenues from mobile-only and fixed-only services (i.e. sales to non-convergent customers).

Revenues totalled PLN 11,928 million in 2021, up PLN 420 million or 3.6% year-on-year. Revenue growth considerably accelerated over 2020, when it was 0.9% year-on-year.

Our core telecom services, that is convergence and mobile-only and fixed broadband-only services, remain the key growth engine. Combined revenues of these three categories were up 6.7% year-on-year (versus a 2.9% increase in 2020), improving in each category. The main growth driver was convergence with revenue growth of 15%, fuelled by steadily growing customer base and ARPO improvement, mainly as a result of price increases and a growing share of fibre customers, who generate the highest revenue. Mobile-only revenues achieved growth for the first time as a category in this reporting layout and were up 3.1%. This resulted mainly from a growing post-paid customer base and an increase in ARPO. The customer base is expanding, despite partial migration from mobile-only to convergent services, owing to B2B customers as well as Nju and Flex brands. Post-paid ARPO increased by more than 1%, following its earlier decline, under the positive influence of our value strategy and partial recovery of roaming revenues following a slump amid the COVID-19 pandemic.

18

Table of Contents

​

Revenues from IT and integration services maintained their very strong growth rate (up 19% year-on-year), benefitting from both organic growth and the consolidation of Craftware acquired at the end of 2020.

In the second half of the year, revenue evolution was negatively impacted by regulatory cuts in both fixed and mobile termination rates (FTR and MTR). A decrease of approximately 60% and 30% in FTR and MTR, respectively led to revenue erosion of approximately PLN 170 million, which contributed to a 10% decrease in all-year wholesale revenue.

Revenue evolution in 2021 was also influenced by the following factors:

EBITDAaL for 2021 was PLN 2,963 million and increased PLN 166 million or 5.9% year-on-year. Operating margin (ratio of EBITDAaL to revenues) increased to 24.8% (from 24.3% in 2020). EBITDAaL growth accelerated from 2020, when it was 2.9%, and, what is equally important, its structure changed. Last year, EBITDAaL growth was generated by improving direct margin, that is revenue growth fuelled mainly by the successful implementation of our value strategy in core telecommunication services (especially convergence) and the ICT sector. In previous years, the turnaround after years of decline was driven by cost savings. This change, aligned with the goals of our new strategy, makes our growth structure healthier and based on solid foundations.

Cost evolution can be attributed mainly to the following factors:

Revenue evolution

(yoy change in PLN m)

19

Table of Contents

​

EBITDAaL evolution

(yoy change in PLN m)

​

2.1     Convergent Services

One of the key strategic objectives of Orange Polska is to be the leader in telecommunication services sales to households. Convergence, or sales of mobile and fixed-line service bundles, addresses household telecommunication needs in a comprehensive manner, increasing customer satisfaction and reducing churn (as churn rate is significantly lower than among single service users). It also contributes to revenue growth and increased efficiency of IT and marketing spending. Through our convergent offer we are able to enter new households with our services as well as upsell additional services to households where we are already present, displacing competitors that cannot provide such a comprehensive offer.

In 2021, there were no significant changes in our flagship convergent offer, Orange Love. After a surge in sales in the second half of 2020 as a result of the pandemic, customer additions slowed down in 2021. Our B2C convergent customer base increased by 69 thousand (or almost 5%), reaching 1.55 million. It needs to be noted that saturation of our broadband customer base with convergent services has already reached a significant level (67%). The majority of new mobile and fixed broadband acquisitions are still effected in the convergent bundle formula. Our convergent offer is a major competitive advantage over CATV operators, as they provide no or very limited mobile services. The total number of services provided in the convergence scheme among B2C customers reached 6.2 million, which means that, on average, each convergent residential customer uses more than four Orange services.

Our convergence strategy has been reflected in a new layout of revenues. Since the beginning of 2018, we have been separately reporting revenues from this group of customers.

​

In 2021, revenues from convergent services totalled PLN 2,002 million and were up 15% year-on-year. The growth accelerated over 2020, which resulted from high customer additions in 2021 and higher dynamics in ARPO. Convergent ARPO grew by over 5% year-on-year, mainly as a result of price increases and a growing share of fibre customers, who generate the highest revenue.

20

Table of Contents

​

​

​

2.2     Mobile-only Services

​

​

​

As at the end of 2021, Orange Polska had a mobile services base of almost 16.8 million, which is an increase of 6.7% year-on-year. The growth was generated mainly in the post-paid segment, while the number of pre-paid services increased slightly.

In the post-paid segment, there were no significant changes in SIM card trends:

21

Table of Contents

​

In order to better reflect our commercial strategy, since the beginning of 2018 we have been presenting separately convergent mobile customers and those who use mobile services only. Notably, volume growth was achieved in both groups. The growth in the former category is driven by convergent customer base expansion and upsales of additional SIM cards to Orange Love customers, whereas the rebound in the number of non-convergent services (excluding M2M) was driven mainly by growing business customer base and take-up of the Orange Flex and Nju Mobile brands.

The number of pre-paid services was up 1.4% in 2021, after a decline throughout 2020, which had resulted mainly from lower activations of new pre-paid cards as a consequence of pandemic-related factors, including a decrease in the activity of small businesses, much lower sales to foreign residents and reduced tourism during the summer season.

Blended ARPO (from mobile-only services) amounted to PLN 20.2 in 2021 and was up 3.1% year-on-year. The growth was generated by both post-paid and pre-paid services.

The post-paid ARPO grew 1.6% after a decrease of over 4% in 2020. The improvement resulted from the following factors:

2.2.1   Market and Competition¹

The estimated number of SIM cards (58.3 million) increased by 4.5% compared to the end of December 2020, driving the mobile penetration rate (among population) to 153% at the end of 2021. Despite high saturation, mobile voice still maintained a positive growth rate. In the post-paid segment, sales of M2M cards also rapidly increased year-on-year, whereas sales of mobile broadband SIM cards decreased (largely due to migration to fixed broadband services and usage of data pools embedded in voice tariffs).

In 2021, Poland’s mobile market was still partially impacted by the COVID-19 pandemic, though some negative trends from 2020 gradually reversed. In particular, fewer mobility restrictions were reflected in recovery of international roaming, especially in the summer season, though it remained below the level of 2019. Equipment sales also rebounded despite temporary supply problems due to disturbances in global supply chains. The pre-paid segment also markedly rebounded year-on-year.

The mature mobile market in Poland is characterised by low prices compared to other EU countries. Operators maintained the ‘more-for-more’ approach in their pricing strategies. This approach leads to offers with value-added services and larger data packages (GB) embedded in subscription, to address current customer expectations resulting from increased data consumption within mobile plans, in return for a higher price. Due to high inflationary pressure, this strategy is likely to be continued by mobile operators in the future. A powerful driver for data consumption growth was the outbreak of the COVID-19 pandemic and the resulting need for remote working and learning, higher consumption of digital services (e.g. content streaming and gaming) and a shift in daily activities from offline to online. Increased data consumption is thus inextricably linked to digital acceleration. We also expect the trend of enlarging data packages within mobile plans to continue, as mobile service bundles will be expanded to include value-added services and 5G tariffs will gain a growing share of the sales mix. Our strategy of selling convergent packages (bundling mobile and fixed services), followed by Orange Polska for years, has been imitated by market followers. All MNOs have decided to expand their product portfolio to include fixed line services, while increasing the reach of fixed networks through acquisitions (e.g. of UPC by Play), wholesale agreements or partnerships.

22

Table of Contents

​

The pre-paid segment has seen continued migration of some customers to post-paid services. The segment is highly competitive also in the MVNO market. However, due to differences among operators in reporting pre-paid SIM cards, their comparative analysis remains difficult.

According to Orange Polska’s own estimates, the four leading operators’ aggregated market share remained at 98% as of the end of December 2021, with Orange Polska’s estimated market share of 28.8%.

¹ Analysis of the mobile market, excluding wireless for fixed offers.

2.2.2    Mobile Voice and Data Services

We continue to focus on our convergent offer in customer acquisitions, as it enables upsales of additional services and contributes to higher loyalty of customers. Despite significant saturation of our customer base with convergent services, the majority of new mobile voice acquisitions are still effected in the convergent bundle formula. Our strategy is still focused on value, which involves maintaining a proper balance between customer base expansion and efforts to increase ARPO. ARPO improvement results from monetisation of the price increases introduced in the ‘more for more’ formula as well as incentives for customers to choose more expensive tariff plans.

In 2021 we continued our policy of price increases in the ‘more for more’ formula. In each post-paid tariff plan for B2C customers we raised the price by PLN 5, while simultaneously increasing data pools. These pools can be expanded with My Orange application, which is to encourage customers to use digital sales and customer care channels. Furthermore, customers subscribing to two high-end plans have access to 5G technology and can buy the HBO GO service at a reduced price. In our pre-paid portfolio, in June we increased prices of calls and text messages again for customers charged per price lists.

In the mobile market, 2021 saw operators increase prices of tariff plans (Play, Plus) on the one hand, and launch promotions, particularly for post-paid customers porting their numbers (e.g. doubling data pools or offering free subscription periods), on the other. Owing to the latter, tariff plans of various operators have become considerably more extensive. The majority of operators offer 5G technology in high-end tariff plans only.  

2.3    Fixed-only Services

​

​

​

23

Table of Contents

​

​

Total fixed broadband customer base increased by 44 thousand (or almost 2%) in 2021. It was slower growth than in 2020, particularly its second half, which saw an explosion of demand, as the pandemic and the resulting remote work and learning made high-speed Internet access a basic necessity for a great number of households. Fixed broadband growth was driven exclusively by fibre, and our fibre customer base increased by over 220,000, that is more than in 2020.

The strong growth in fibre is driving the technological transformation of our broadband customer base. The share of fibre in the total broadband customer base increased to 34% at the end of 2021 from 27% a year earlier, leaving behind the share of mostly non-competitive ADSL technology, which fell from 30% to 25%.

In line with the revenue reporting layout introduced in 2018, we separate convergent broadband customers (their number equals to that of convergent customers) from non-convergent broadband customers. Our non-convergent broadband customer base has continued to shrink as a result of migration to convergence but also due to churn, though at a relatively slow pace since the beginning of 2020. This can be attributed mainly to the roll-out of our fibre network and higher demand for fixed broadband during the COVID-19 pandemic.

Despite a slight decline in customer base, revenues from fixed broadband-only services remained almost flat year-on-year. It is a consequence of an increase of over 2% in broadband ARPO, which rebounded in 2020 after years of decline. This can be attributed to the following factors:

​

Erosion of the fixed voice customer base (excluding VoIP) totalled 248 thousand in 2021 and was similar to that in 2020. The decline in these services can be attributed mainly to structural demographic factors and the popularity of mobile services with unlimited calls to all networks. It is also a result of our convergence strategy, which stimulates partial migration of customers to VoIP. Average revenue per user was flat at about PLN 37.

24

Table of Contents

​

2.3.1    Market and Competition

Fixed Voice Market

The Group estimates that the fixed line penetration rate was at 15% of Poland’s population at the end of December 2021, as compared to 16% at the end of 2020. The decline is still attributable mainly to growing popularity of mobile technologies. In countries like Poland, where the fixed line penetration was low at the time of introduction of mobile technology, mobile telephony is largely a substitute to fixed line telephony. The aforementioned downward trend has been also affecting regulated fixed wholesale products based on traditional infrastructure (WLR and LLU).

Fixed Broadband Market

According to Group’s estimates, the total number of fixed broadband accesses, including wireless for fixed technology, increased in 2021 by 0.3 million versus the end of December2020. This can be attributed mainly to intensive roll-out of fibre infrastructure. After the breakdown of the COVID-19 pandemic, access to high-speed broadband became even more necessary for both businesses, owing to the need to quickly shift a significant portion of operations from offline to online, and households, as for many people their homes became a working or learning place (as a result of remote work or education).

The high-speed fixed broadband market has been constantly expanding and growing in Poland, especially in urban areas, with Orange Polska contributing greatly to the growth.

Orange Polska’s increased activity in the high-speed broadband segment has stimulated the already highly competitive market environment and forced CATV operators to upgrade and enhance their offer even more quickly. As a result of such efforts, the position of CATV operators remains strong. According to our estimates, CATV operators’ aggregate share in Poland’s fixed broadband market stood at 32% by volume or 22% by value at the end of December 2021.

Another factor increasing the competitiveness of cable fixed broadband is the expansion of service portfolio by mobile operators (Play, T-Mobile and Plus) pursuant to wholesale agreements with infrastructure-based operators. This commercial co-operation extends to both networks developed with EU funding and the own networks of fixed-line operators, such as Inea, Vectra, Nexera (offering wholesale services only) as well as the FTTH infrastructure of non-telecom companies, such as Tauron. A new player in the wholesale infrastructure-based broadband market is Światłowód Inwestycje, a joint venture of Orange Polska and APG, which aims to provide fibre to 2.4 million households by 2025.

According to internal estimates, Orange Polska had the following share in the fixed broadband market:

Fixed broadband market – key performance indicators

​

Orange Polska’s fixed voice market share