Dear Shareholders,
2021 was the first year of implementation of our ambitious new .Grow strategy and last year’s excellent performance was a very strong first step in its execution. We delivered on all our commitments. The outlook for 2022 is more challenging due to external macroeconomic factors, but as I am confident in the strength of our assets, we are fully confirming all of our long-term strategic ambitions.
New strategy for 2021-2024: to grow faster and in a more sustainable way…
.Grow is an evolutionary strategy which means that the main pillars of our strategy does not change. Convergence remains a key growth lever helping us gain and maintain customer trust and loyalty. Further growth of our customer base will be fuelled mainly by continued fibre expansion, which also contributes to ARPU growth. In the business market, we see ICT as the key growth driver. The highest growth rate is to be achieved in the areas of cybersecurity and software & applications, based on both the expertise of the recently acquired subsidiaries and the competence developed for internal needs. As part of .Grow, we want to release our internal potential, resulting from digital transformation. We will be heading in the direction expected by our customers, while improving our internal efficiency by leveraging more on big data and artificial intelligence. Another major component is social responsibility, in which we have set ambitious environmental, social and governance (ESG) goals.
In financial terms, with .Grow we are entering a path of faster and more sustainable growth. EBITDAaL will continue to expand, with its key driver being revenue expansion fuelled by commercial activity. This will be a fundamental change from our previous strategy, in which the turnaround – after years of decline – was generated by huge savings on indirect costs, while direct margin continued to fall.
…enhanced by organisational changes
In order to align our internal structures with the priorities of the new strategy we have made changes to the organisation. In particular, the structures of our key business lines – consumer and business markets – have been entrusted with customer relations, to constitute an end-to-end customer value proposition. We have also set up a new unit dedicated to digital, reporting directly to the CEO. This marks the importance of this area to our future. In order to compete effectively and further increase our efficiency, we need to digitise our activities faster and more effectively: in sales, customer service or our internal processes.
2021 performance: a very strong first step in .Grow execution
Our performance in 2021 was excellent. We delivered on all of our commitments. In particular, EBITDAaL increased by a very strong almost 6% driven by profitable revenue expansion. Revenues from our core telecom services (convergence, mobile-only and broadband-only) increased by 6.7% year-on-year, significantly more than the 2.9% increase in 2020. This improvement resulted from constant growth of our customers, our commercial value strategy and post-pandemic roaming recovery. We continued our more-for-more pricing policy, increasing consumer tariffs in mobile post-paid and pre-paid in return for higher benefits. In B2B, we had another strong year in ICT with revenues increasing 19% supported by solid organic growth and the contribution of Craftware, acquired in December 2020. We also continued our cost transformation, generating savings in many areas including labour, subcontracting and general expenses. I am pleased that we reached consensus with our social partners regarding further employment adaptation and reskilling. We also made good progress in other strategic areas, including digital where we are growing both share of sales and customer care through online channels. Last, but definitely not least, we are continuing the cultural transformation at Orange Polska, bringing new talent onboard and encouraging our people to grow and reskill. Our people are essential to our success.
Inflationary environment makes outlook for 2022 more challenging
We expect the positive trends in our business that were driving our results last year to also support our performance in 2022. However, the outlook for EBITDAaL growth is more challenging due to external macroeconomic factors. Inflation in Poland recently hit 9% and the consensus is that it will exceed 7% for the full year. From our perspective the key challenge is the huge increase in energy prices that we have experienced over the past few months not only in Poland but all over Europe. Even though entering 2022 we have secured around half of our expected energy consumption, we expect our energy bill this year to be significantly higher than last year. We will continue to be active in our commercial value strategy having in mind that the nature of our subscription business – proven very sound during turbulent times of pandemic lockdowns in 2020-2021 – requires more effort to adapt to inflationary environment. We are confident in the