Orange Polska Integrated Report 01 Introduction 4

02 About our company 8

03 Our stakeholders 12

04 Our business model and value creation 16

05 Our strategy 45

06 Outputs & outcomes 56

07 Risk management framework 82 Content 08 Corporate governance 88 09 Financial statements 136

10 Adjustments and revisions 200

11 GRI table 204

Orange Polska Integrated Report - 2 3 - Orange Polska Integrated Report 01 Introduction

Orange Polska Integrated Report - 4 5 - Orange Polska Integrated Report 1 Introduction - building relationships with suppliers, public - buildingrelationshipswith suppliers,public impact ofOrangePolskain thevaluechain port alsoincludesinformation ontheindirect different groupsofourstakeholders.There- out toaddressthemostimportanttopicsfor content isdrivenbymateriality,anditsets titative performancemeasures.Thereport’s vides bothqualitativecommentaryandquan- factors whichdetermineourstrategy.Itpro- internal environment in which we operate: all andtheexternal and our strategicpriorities, It providesinsightintoourbusinessmodel, period 1Januaryto31December2016. developments andmaterialmattersforthe The contentofthisreportaddresseskey Scope andboundaries your [email protected]. report andshareyouropinionbysendingus local societies. We encourage you toreadthe tion, customer loyalty and good relations with of valuesuchastrust,reputation,jobsatisfac- not onlyinfinancialtermsbutotherforms approach todoingbusiness.Wecreatevalue ness activities,andexplainourresponsible stakeholders thewidercontextofourbusi- demonstrate toourinvestorsaswellother We hopethatbyreportinginthiswaywecan we influencetheenvironment. our strategy,howwearegovernedand context ofouroperations,howweimplement value creationstory,theeconomicandsocial business. Itpresentsourbusinessmodel, the financialandnon-financialaspectsofour holders andotherstakeholdersthatcombines a newwayofcommunicatingwithourshare- tegrated annualreport.Thisreportintroduces Orange Polskaispleasedtopresentitsfirstin- Our newapproachtoreporting

formation. disclosures ofnon-financialanddiversityin- flects thedirectionsinEUlegislationon Global Compact Principle. The report alsore- Initiative (GRI.G4)guidelines,ISO26000and Reporting Council(IIRC)andGlobal are basedontheInternationalIntegrated The contentandthelayoutofthisreport tion. material socialandenvironmentalinforma- consolidated financialstatementsandmost purposes of this report we have includedfull local communitiesortheenvironment.For ners. Werefertoourimpactontheeconomy, administrations, businessandsocialpart- Orange Polska IntegratedReport -6

7 -Orange PolskaIntegrated Report

INTRODUCTION 02 About our company

Orange Polska Integrated Report - 8 9 - Orange Polska Integrated Report 2 About ourcompany model will ensure that we deliver healthy and sustainable returns to shareholders. our returns sustainable and healthy we that deliver willensure model operating agile alean, around efforts our Co-ordinating employees. motivated highly and infrastructure by a robust supported care, customer outstanding and force sales proactive apowerful, products, of competitive aportfolio on Polska’s founded is Orange success of Europe’s operators. one telecom S.A., leading byowned Orange is 50.67% Polska Orange networks. mobile and fixed in services data and voice rendering Poland, in infrastructure telecom largest owns the Group The market. telecoms Polish the of segments all provider, in operating Poland’s is Polska telecommunication leading Orange is essential intheirlife. society allowingeveryonetoconnectwhat and “humaninside”operatorofchoiceforPolish We wanttobetheefficient,sociallyresponsible employees andthevaluesofourOrangebrand. Polish territory,ourskilledandcustomercentric and mobilenetworks,ourwidepresenceonthe unique combinationofhighspeedbroadbandfixed digital services to the Polish society thanks to our We aimtoprovidebestinclassconnectivityand is essentialintheirlife. Orange Polskavision: sharing successes. working togetherand We look forwardto icate timeforlistening. an individualandded We treateveryoneas Friendly -

parent andhonest. We arealwaystrans sible forouractions. to hide, we are respon ised. Wehavenothing what wehaveprom intend todoandwe We talkaboutwhatwe connect everyonetowhat Honest - - - Orange brandvalues: our statements. one. We are clear in standable to every in a manner under We always try to speak Direct life. always in touch to connect what’s essential in their mobile andfibreallowingourcustomerstobe designing simpledigitalempoweredserviceson customers anunmatcheddailyexperienceby Orange aimstoprovidehomeandenterprise nectivity andanunmatchedcustomerexperience. sumers andbusinessesthebesthighspeedcon- Orange Polskamission: - - and takerisks. yond theboundaries We arereadytogobe see things in full colour. course ofaction.We to choosethebest different perspective, view theworldfroma Every timewetryto Inspiring Orange Polska IntegratedReport -10 provide toPolishcon- - timism iscontagious. people’s lives. Our op - want to actively change what we believe. We about whatwedoand We arepassionate Dynamic *active full-timepositions Orange Polskain2016numbers 11 -Orange PolskaIntegrated Report (-13.5% y-o-y) 6.5m pre-paid (+13.4% y-o-y) 9.5m post-paid (+0.6% y-o-y) 16.0m Mobile accesses market capatyearend capital expenditures 7.2 5.2 27.4% EBITDA margin revenues 11.5 EBITDA 3.2 (SIM cards)

bn bn

bn (+418% y-o-y) 88k fibre (+43.3% y-o-y) 404k VDSL (-3.3% y-o-y) 2.0m Fixed broadband accesses (retail)

bn PLN PLN PLN PLN (-6.2% y-o-y) 3.9m Fixed voicelines 662,000 the internetsafely children learnedtouse (retail) 15,880 employees volunteers among employees atyearend 3,517 shareholder structure 49.33% Other shareholders Orange S.A (+3.4% y-o-y) 766k VcsoesConvergent TV customers 77 for localcommunities digital OrangeStudios 50.67% * (+20.7% y-o-y) 879k customers

ABOUT OUR COMPANY 03 Our stakeholders

Orange Polska Integrated Report - 12 13 - Orange Polska Integrated Report 3 Our stakeholders group is high - everyday. group ishigh-everyday. individual stakeholdersandthescaleofbusinessactivity,frequencycontactswitheach interest andattitudetotheCompany'sactivities(positive,neutral,negative).Dueroleof Stakeholders havebeenidentifiedbasedonthestrengthofimpactCompanyand Dialogue withstakeholdersisaprocesswhichhelpsustobetterrespondtheirexpectations. to them What mattersmost Ways weengage engage Why itisimportantto Dividend prospects. network investment. Monetisation from and cashflow. revenue, EBITDA turnaround in financial information; Transparent website. dedicated IR meetings; conferences and in roadshows, participation investors through dialogue with engaging indirect operational results; of financialand communication and transparent Providing detailed financial community. investors andthe we takecareofour As alistedcompany Investors services. easy accessto service; excellent customer offer; good convergent offers andpricing; simple, transparent safe services; good coverage; resilient network; A reliableand including NPS. satisfaction surveys customer & Responding; customers: Listening Dialogue with we do. heart ofeverything we putthematthe of ourbusinessand vital forthesuccess Our customersare Customers Orange Polska IntegratedReport -14 possibility ofdevelopment. and motivationsystem; clear careerpath safety standards; remuneration levels; environment; competitive Friendly andmodernwork dialogue withTradeUnions. satisfaction survey; dialogue withemployees: and talentdevelopment; Employee training, generation. long-term value and increasing customer service role indeliveringexcellent employees playsacritical skilled andmotivated Engagement ofadequately Employees 15 -Orange PolskaIntegrated Report rules ofcooperation Transparent andfair cooperation. on fairrulesof agreements based business meetings; One-on-one our customers. offer portfoliofor building broader our networkand better qualityof assuring the is importantfor strategic alliances of building The possibility Suppliers Business Partners favourable terms. timely payment; cooperation; of tendersand transparent rules Fair treatment; audit. opinion surveys; group assessment: with suppliers; of long-termrelations Dialogue andbuilding services. products anddeliver our abilitytoprovide contactors impacton Suppliers and communities. disadvantaged investment in and education; partnership inhealth broadband; wider accessto performance; and network quality ofservices compliance; Licencing and conferences. in industry participating meetings; dedicated reporting; process; consultation regulator; dialogue with constructive Maintaining the regulator. relationships with constructive and maintain us toestablish is essentialfor is regulated,it As ourindustry regulators Government and communities. social investmentin infrastructure; Investment in social institutions. educational and partnership with programme communities; Cooperation with operate. context inwhichwe socioeconomic strengthens the local economies Empowering Communities

OUR STAKEHOLDERS Our business model 04 and value creation

Orange Polska Integrated Report - 16 17 - Orange Polska Integrated Report 4 Our businessmodelandvaluecreation creation for all our stakeholders. our all for creation the revenues and profits the Company needs to reinvest in the business, ensuring continued value force, outstanding customer care, and highly motivated employees. Satisfied customers provide of innovative convergent, mobile and fixed products and services,supported by a proactivesales experience. We do this by supplying unmatched connectivity, and by selling abroad portfolio Orange Polska creates value for its customers by providing afriendly customer and effortless Orange Polska IntegratedReport -18 19 -Orange PolskaIntegrated Report

ORANGE POLSKAOUR BUSINESS BUSINESS MODEL MODEL AND AND VALUE VALUE CREATION CREATION External environment 4 (Regulatory, Economic, Telecom market, Social, Environmental) Our businessmodel Outcomes resources Business Outputs model Key Strategy • •

Delivering apaletteofservicesadjustedtocustomerneeds Providing bestconnectivity & regulations • •

Licences Energy Spectrum Connectivity Natural for householdsandbusinesses Unmatched dataconnectivity Orange Polska IntegratedReport -20 • •

Equity Debt Convergence Network Financial Value creationforallstakeholders Performance measures - KPIs Risk management 21 -Orange PolskaIntegrated Report & services Products • • • • •

Making customerjourneyeasyandfriendly Optimal saleschannelmix Points ofSale Software Network infrastructure customer experience Improving Effortless andfriendly customer experience Manufactured & distribution • • •

customers andmarket Knowledge about Innovation Employees Sales our efficiency Increasing & intellectual Human • • • •

Being digitalandcaringemployer Impact onSociety Management oftheimpactonenvironment Focus onefficiency

and responsiblemanner Acting inaneffective • • • •

Social impact Business partners and financialcommunity regulator, authorities Relations withmarket Brand responsible Being & relationship Social Customer

Care

(Corporate governance, Corporate culture) Corporate governance, (Corporate Internal environment Internal

ORANGE POLSKAOUR BUSINESS BUSINESS MODEL MODEL AND AND VALUE VALUE CREATION CREATION 4.1 Our keyresources CO Energy consumption(GWh) tionalities, andsoon. systems, introductionofenergy savingfunc- gy-efficient ones, modernisation of cooling of oldertechnicaldeviceswith modernener- electricity consumptionthrough replacement mise energyconsumption.Wealsoreduce tally unfriendlytrend,wetakestepstoopti- In ordertocompensateforthisenvironmen- our operations. as wellcarbondioxideemissionsrelatedto consumption ofenergyandotherresources, natural resourcesefficiently,monitoringthe electrical energyinourindustry.Wemanage for information flow entails higher demandfor structure inresponsetothegrowingdemand Expansion ofthetelecommunicationsinfra- Energy the serviceswerender. influences thecompetitivenessandqualityof amount ofspectrumthatisatourdisposal services isattheregulator’sdiscretion.The to the spectrum required for rendering telco tional andEuropeanUnionlevel.Ouraccess tal, towhichaccessisregulatedatthena- Spectrum isascarceanduniquenaturalcapi- MHz, 2100MHzand2600frequencies. holding licencesfor800MHz,9001800 ments ofthePolishtelecommarketand munication provider,operatinginallseg- Orange PolskaisPoland’sleadingtelecom- Spectrum 2016 2015 2016 2015 2 emission(tonnes) 475,000 505,000 588 635 Natural

liquidity. liquidity. is akeymeasureoffinancialstructureand tio ofnetfinancialdebttoadjustedEBITDA Our leverageiscloselymonitoredandthera- (PLN 2billionRevolvingCreditFacility). The earliestdebt will mature in March 2018 optimal costsandstablefinancialstructure. allowing ustomaintainabalancebetween The durationofdebtis3.2yearsonaverage, rate debt. thirds ofdebtiseffectivelyswitchedintofixed tions (99.5%asof2016)andmorethantwo ted debtishedgedagainstcurrencyfluctua- Almost allofourforeigncurrencydenomina- ket benchmarks. on an‘arm’slength’basis,supportedbymar- of financingsources.Thefundingisprovided in Europewithreadyaccesstoabroadrange S.A. isoneofthelargesttelecomcompanies in processesandcostefficiencies,asOrange Orange S.A. Sucha policy allowsfor synergies are sourcedfromourmajorityshareholder Since 2014,ourexternalfundingneeds standing. of asafefinancialstructureandgoodcredit debt arebalancedtoremainwithintheframe and financecapitalexpenditures.Equity structure tosupportbusinessoperations We aimtomaintainaresponsiblecapital Debt andequity Financial Orange Polska IntegratedReport -22

land. This number included 12 Smart Stores. land. Thisnumberincluded 12 SmartStores. 2016 wehad755pointsof salealloverPo- is thefastestgrowingchannel. Attheendof and opennewmodernSmartStores.Online er preferences.Weoptimisetraditionalshops stantly evolving in line with changing custom- and services. Our distribution network is con- that everyonehasaccesstoourproducts sales. Thiswidedistributionnetworkensures tive sales,alternativechannelsandon-line traditional pointsofsale(POS),telesales,ac- ducts through various distribution channels: We reachourcustomersandsellpro- Points ofSale deliver ourproductsandservices. processes, handle customer information and internal ITsystemsenableustomanageour derpin many of the key products we offer. Our combine ournetworkandITresourcestoun- We runanumberofserviceplatformsthat Software above PLN20billioninfixedassets. vices. Overthelast10yearswehaveinvested a positiontoofferthebestconvergentser- to staycompetitiveinthemarketandbe network. Inourviewthisisnecessaryforus icant investmentsintheroll-outoffibre for example,wearecurrentlymakingsignif- and investintherightmixoftechnologies- have torespondchangesintechnologies require significantmanufacturedcapital.We critical toourbusinesssuccess.Ouractivities Maintaining areliableandfault-freenetworkis tions oftheproductsourcustomersrelyon. platforms andITsystemsarethefounda- Our mobileandfixedlinenetworks,service Network Infrastructure 23 -Orange PolskaIntegrated Report Manufactured

transfer ofknow-howtoour partners. and communities,butisalso reflectedinthe ence of our innovations on the lives of people social impactisnotlimited to thedirectinflu- the OpenInnovationmodel. Asaresult,our a majorelementofourbusiness.Wefollow R&D andco-operationwithstart-upstobe and developmentannually.Weconsider We spendaroundPLN50milliononresearch 2020 researchanddevelopmentframework. have beenactivelyinvolvedintheEUHorizon basis, informedbymarketbenchmarks.We Orange Grouparedoneonan‘arm’slength’ settlements between Orange Polska and Polska andtheOrangeGroup.Anyfinancial and undertakingR&DtasksforbothOrange involves co-operationwithexternalpartners and implementation of innovations, which tions isaprocessofdevelopment,selection ries. AmajorelementofOrangeLabsopera- a dozenOrangeR&Dcentresandlaborato- al OrangeLabsnetwork,whichincludesover tions. OrangeLabsisapartoftheinternation- velopment ofnewtechnologiesandinnova- We havecreatedOrangeLabstosupportde- Innovation number 6,675. 15,880 employees, while outsourced staff ple todelivertheirbest.OrangePolskahas serve our customers and empowers our peo- novation, helpsustobetterunderstandand tion -diverseworkforcefostersgreaterin leads tohigherskills-setandinnova- ing equalityofopportunitieswhichwebelieve to ourbusiness.Wevaluediversity,provid- they cansucceedandcontributeeffectively value generation.Weinvestinourpeopleso plays acriticalroleinincreasinglongterm Engagement of adequately skilled employees Employees Human andintellectual

ORANGE POLSKAOUR BUSINESS BUSINESS MODEL MODEL AND AND VALUE VALUE CREATION CREATION Key Knowledge about customers and market Social and relationship Relations with business partners resources Knowledge about customers and market is Orange Polska is a partner or member of a num- crucial to our success. Building trust and lo- Brand ber of industry, business and social organisa- yalty among our customers and giving them Our global and widely recognised ”Orange” tions. We want our relations with our suppliers what they want is vital to our sustainability brand is vital source of competitive advan- and business partners to be based on transpar- in an increasingly competitive industry. The tage. The Orange brand is recognised as ent long-term relations and principles to abide Natural voice of our customers has a major influence one of the most innovative and has one of by ethical standards. We co-operate with both on our business decisions. To deliver un- the highest recognition indices. In the 2016 global vendors and local market players. Our • Spectrum matched experience throughout the custom- Millward Brown BrandZ most valuable global activities include both one-off purchases and • Energy er journey, we engage in active dialogue with brands report, Orange was ranked 53rd and long-term contracts with over 4,500 suppliers. our customers on different levels. We con- valued at $18.5bn. The Orange brand is po- We follow a competitive and open procurement duct comprehensive surveys which compare werful in Poland. According to external market policy which is ensured by the Procurement our offers, products and network quality ver- research conducted in December 2016, Or- Process Rules. The document includes pro- Financial sus competitors. Our managers are engaged ange was considered the first choice brand for curement procedures which regulate supplier in a “Call Detractor & Promoter” initiative to Polish consumers with respect to both mobile selection, contracting and confidentiality, and solve customers’ problems and to better un- and fixed broadband. In 2015 we launched a address potential conflicts of interest. • Debt Equity OUR BUSINESS MODEL AND VALUE CREATION derstand our own strengths as well. They also new philosophy and visual identity for Orange • help frontline employees to understand the in Poland. The brand is now more in tune with Social impact customer perspective. the digital world and with our ambitions, which We believe that digital education, that teaches are focused on customer experience. The people how to use new technologies for both marketing slogan is “always in touch to con- their own benefit and that of the community, is nect what’s essential in your life”, and the new as important as the provision of services and Manufactured guidelines for both the Group’s internal culture technological solutions. Combating digital ex- and its external actions are based on listening clusion requires not only access to new technol- • Network infrastructure and responding to customer needs. This new ogies, but also education, particularly of young • Software approach has changed the way consumers web users as well as residents of small towns • Points of Sale experience our brand through customer care and rural areas. and sales channels. Through its initiatives the Orange Foundation has been encouraging people to gain knowledge, Relations with market regulator, local participate in culture and build communities Human authorities and the financial community with skilful use of the internet and technologies. & Intellectual Good relationships with our key stakeholders This way they can improve their digital com- are vital to the success of our business. This petence and enhance their knowledge of edu- • Employees means to us building trust, readiness for dia- cational resources on the net. This knowledge • Innovation logue, and keeping in touch on an ongoing ba- not only improves quality of life and contribu- • Knowledge about sis. In particular it is essential for us to establish tes to society as a whole, but also benefits the customers and market and maintain constructive dialogue with the long-term development of our business. telecom regulator and local authorities. As a listed company we take care of our inves- tors and the financial community by providing Social transparent communication of our financial re- & relationship sults and engaging in direct dialogue with them. • Brand • Relations with market regulator, authorities and financial community • Business partners • Social impact

Orange Polska Integrated Report - 24 25 - Orange Polska Integrated Report Business model

Licences & regulations

Network OUR BUSINESS MODEL AND VALUE CREATION

Products & services 4.2 Business model

Sales & distribution

Customer Care

Licences and regulations tomer experience. This is especially important 2015. As a result of the auction we acquired trum permissions based on the agreement To be able to render mobile telecom services in the light of huge growth in mobile data con- 10MHz spectrum in 800MHz frequency (the with T-Mobile we also use part of T-Mobile’s we require access to radio spectrum. The sumption. maximum that was allowed) and 15MHz spectrum in the 1800MHz band and 2.4MHz amount of spectrum that is at our disposal Our competitive position in radio spectrum sig- spectrum in 2600MHz frequency. Spectrum of T-Mobile’s spectrum in the 900MHz band. influences the competitiveness and quality of nificantly improved in 2016 following comple- at our disposal at the moment is used in the the services we render and ultimately the cus- tion of the relevant auction towards the end of most effective way. On top of our own spec-

Orange Polska Integrated Report - 26 27 - Orange Polska Integrated Report Total telecommunicationslicences 2600 MHz 900 MHz 2100 MHz 900 MHz 1800 MHz 1800 MHz 800 MHz (PLNm) (2) Remainingusefullifeinyearsasat31December2016. (1) LicencesheldunderagreementswithT-MobilePolskaS.A. Details oftelecommunicationslicences: The current distributionoffrequencies forthe790–2690 MHzbandsispresented below: 2600 2100 1800 900 800 (1) (1) 5 MHz Play CP Group question wasusedtoprovide wirelessbroad- million setbytheregulator. Thespectrumin The decisivefactorwasthe priceofPLN115 frequency thatexpiredat the endof2016. to extendthelicencefor4.5MHzin450MHz In March2017themanagementdecidednot in July2018. spectrum in900MHz.Itisduetoexpire will expire intherighttouse T-Mobile’s Over the next 5 years our only licence that 20 MHz 14.8 MHz Orange CP Group 19.8 MHz Orange 10 MHz CP Group 5 MHz Orange 15 MHz Acquisition CP Group 2.8 MHz 0614.1 2016 2000 0412.5 2014 9710.6 1997 0614.1 2016 0311.0 2013 2013 14.8 MHz T-Mobile date 15 MHz Play 5 MHz T-Mobile 4.4 MHz T-Mobile Play 15 MHz expiration Years to

T-Mobile 6.0 1.6 10 MHz (2) to other technologies. to othertechnologies. concentrating on migrating these customers band servicesinCDMAtechnology.Weare CP Group 6.2 MHz CP Group 14.8 MHz At 31December 20 MHz MHz Play 2.4 MHz T-Mobile 2.4 10 MHz Net bookvalue 4,060 2,880 2016 9.6 MHz T-Mobile Orange Orange Polska IntegratedReport -28 4.6 MHz 111 574 300 175 20 - 50 MHzTDD At 31December T-Mobile 7.2 MHz CP Group 14.8 MHz Play 6.8 MHz Orange CP Group 5 MHz CP Group 7.2 MHz 1,217 2015 669 324 191 33 - - - Network developmentdrivenbycustomerneeds Network 29 -Orange PolskaIntegrated Report networks). That means we can ensure the best network connectivity.networks). network the we best ensure means can That the on operator market (combined with a convergedfixed infrastructure mobile network and Tosafe. and reliable has accessible, be widely network to our are We onlythe fulfilneeds, these provider. service atelecom isakey choose customers of when criterion connectivity quality of technology. regardless speed, and optimal quality We believe that, other factors, among to the world digital access at home, the on at secure work, move, and expect increasingly with In addition, customers our services. streaming and games highvideos, resolution services, evolving are needs with along the growing These ofcustomers. mobile number devices, cloud to development of by network activities with our drivenOur are respect primarily the needs

ORANGE POLSKAOUR BUSINESS BUSINESS MODEL MODEL AND AND VALUE VALUE CREATION CREATION out based on frequencies purchased in 2016 out basedonfrequenciespurchased in2016 In themobilenetwork,thanks toLTE800roll- most 1.5millionhouseholds in37cities. the yearourfibreaccessnetwork coveredal- intensive deploymentoffibre.Attheend In thefixednetworkwesteppedupour the primarybroadbandaccesssolution. nologies, supplementedbymobileones,are densely populated areas copper-based tech- the home(FTTH)coverage,whereasinless are focusingonthedevelopmentofFibreto the specificsoflocalmarkets.Incities,we resource allocationwetakeintoaccount To ensurethebestconnectivityandoptimum demand evolution, localapproachandcustomer Access networkbasedontechnological certain networkelements(e.g.PSTNstack). years aheadwhichwillrequireeliminationof go gradualtransitiontofullyIP-basedinthe platforms. Our network isexpected to under - network layerslikecore,controlandservices mobile andfixednetworkbutalsohigher only cableinfrastructureissharedbetween connected tobackbonethroughfibre.Not 2016, 58%ofourmobilebasestationswere greater reliabilityofthenetwork.Atend sumption andontheotherhandtoensure capacity towithstandgrowingdatacon- mobile basestationsononehandtoboost Fibre isalsoincreasinglyusedtoconnectour mobile services. constitutes thebasisforrenderingfixedand with ourheavyfibreinvestmentplans.This moment, howeveritisgrowingrapidly,inline fibre accountsforaround3500kmatthe is predominantlybuiltincoppertechnologies, 000 kmofaccessnetwork.Accessnetwork in aggregation network and more than 500 km offibreinbackbone,75000 Network topologyconsistsofaround14000 the largestnetworkinfrastructureinPoland. As theformerincumbentoperatorwehave Poland The largest network infrastructure in

cost-effectiveness. vide forhigherservicequality whileimproving dynamic reconfiguration mechanisms, pro- technology, and, thankstoself-healingand We implementsolutionsthatfullysupportIP dling alltypesoftraffic:voice,dataandvideo. with aconvergednetworkcapableofhan- are mainly voice oriented are being replaced ture, legacytechnologiesandsolutionswhich To increasetheefficiencyofourinfrastruc- Network efficiency part ofthenationalcybersecurityecosystem. ska network.CERTOrangePolskaisalsoa access theinternetthroughOrangePol- cybersecurity issuesthatimpactuserswho operates around theclock,takingcareofall puter EmergencyResponseTeam(CERT) business customers.OrangePolska’sCom- services forindividuals(e.g.Cybershield)and Group affiliates.Wehaveintroducedsecurity ter (SOC),servingOrangePolskaand fore wesetupourSecurityOperationsCen- customer demandforcybersecurity.There- in theonlineeconomyresultedgrowing The significantincreaseofsecurityincidents tomers useourmobileorfixednetworks. same connectivityexperience,whethercus- network congestion.Wewanttoensurethe parameters starttodeteriorate,preventing active inourapproachandrespondbefore tive ofanindividualcustomer.Wearepro- the statisticallevelbutalso from the perspec- pable ofmonitoringservicequalitynotonlyat and constantqualitymonitoring.Weareca- adoption ofself-healingnetworkmechanisms Network reliabilityandresiliencerequiresthe multiplies availablebandwidth. Carrier Aggregationtechnology(4G+),which ing thenumberof locations supportedby LTE cess, OrangePolskaisalsosteadilyincreas- growing demandforhigh-speedinternetac- age with our 4G network. In response to the we wereabletoensurealmost100%cover- and earlierInvestmentsinthe1800MHzlayer Orange Polska IntegratedReport -30 Network architecture In areas where we are planning to upgrade In areaswhereweareplanningtoupgrade for fibrecoverageenhancement. We arealsoactivelylookingforopportunities of operationalcosts. the fastintroductionof4Gandoptimisation sources (in1800MHzband)whichenabled (over 10.000 shared sites) and frequency re- work operation.Wesharesitesinfrastructure sponsible fornetworkconstructionandnet- T-Mobile tosetupNetworks!,acompanyre- On themobileside,weco-operatedwith construction. and benefitingfromEUfundsfornetwork investment byusingthirdpartyinfrastructure best networkinPolandweleverageourown In oureffortstoservecustomerswiththe 31 -Orange PolskaIntegrated Report Access Transport Control Service PSTN Access Networks Access Common IP Transport INTERNET OF THINGS (BSS/OSS/Support functions)(BSS/OSS/Support PoP xDSL

Service Platforms Service Network FunctionsNetwork IT Applications (Core &Control) ties inlesspopulousareas. upgrade ournetworktohigh-speedcapabili- ment is not profitable. That should allow us to areas wherestandalonecommercialinvest- EU fundstosupportnetworkconstructionin Agenda objectivesinPolandandproviding 2020, POPCisimplementingEUDigital acyjny PolskaCyfrowa(POPC).From2014- We participateinthenationalProgramOper- arrangement canbemade. ty infrastructure,ifareasonablecommercial vestment wearealsousingmodernthirdpar- our networktohigh-speed,besidesin- FTTx/DLA Internet Security o PoP PoP INTERNET OF THINGS WiFi Hybrid 3rd Party Party 3rd Services API Access Mobile BI

ORANGE POLSKAOUR BUSINESS BUSINESS MODEL MODEL AND AND VALUE VALUE CREATION CREATION dard afewyearsago.Ourproducts areavail- services contractsthatwere themarketstan- entire households,asopposed tothesingle the trendtowardsfulfilling digitalneedsof An example of a change in customer needs is ers andthelargestcustomers(keyaccounts). small businesses, bigger corporate custom- a distinctionforinternalpurposesbetween group isnothomogenouseither.Wemake tomers. Furthermore,thebusinesscustomer mass consumermarketandforbusinesscus- activities inthisrespectaredifferentforthe ing therightproductsatprice.Our adjusting ittocustomers’needsandprovid- fer, we havetoconstantly develop our offer, ates avastincreaseindemandfordatatrans- the continueddigitisationofsocietygener- As customers’needsareevolvingrapidlyand Fitting customerneeds offer hastobeproperlycommunicated. ferentiate ourselvesonthemarket.Finally, er needs,arecompetitiveandallowustodif- to designapaletteofservicesthatfitcustom- nues andprofits.Toachievesuccesswehave one hand,andontheotherhandintoreve- translates intoincreasedmarketshareonthe them tofulfiltheirneedsandaspirations.This livering valuetoallourcustomers,enabling Our successasabusinessdependsonde- Products and services Products andservices offering fixed connectivity based on different technologies. on different based fixedconnectivity offering We customers. sale the are unique fixed-mobileconvergent operator in Poland for individual, whole and business telecommunication services and products of transformation. digital We portfolio abroad offer supporting for businesses, of choice for operator one the partner Polish trusted and number households to that matter them. We want services to and the be products and connectivity We by of customers delivering our to aim unmatched the data needs meet and energy resale. On the business market a and energyresale.Onthebusiness marketa folio forahousehold,like financial services complete ourbasictelecom productport- users. Wealsodevelopadjacent servicesthat reduces churnascomparedtosingleservice gence increasescustomersatisfactionand customers tobuyadditionalservices,conver- a comprehensivemannerandencouraging the household’stelecommunicationneedsin which we call convergence.Byaddressing ability toofferbothmobileandfixedservices, source ofcompetitiveadvantageforusisthe tures andprice.Thekeydifferentiatorthe portfolio and the right balance between fea- stantly lookingforinnovationsinourproduct influence onourfinancialresults.Wearecon- ics ofcompetitionhashadaverysignificant ers inallitssegments.Thelevelanddynam- competitive withasignificantnumberofplay- react appropriately.ThePolishmarketisvery monitor theactivitiesofourcompetitionand lio must becompetitive. So wevery closely In ordertobesuccessful,our service portfo- Competitiveness anddifferentiation meet therelevantneedsandrequirements. ers toensurethatourservicesandproducts conduct anactivedialoguewithourcustom- age, ability,skillsorplaceof residence. We able toallourcustomersregardlessoftheir Orange Polska IntegratedReport -32 - costs to revenue ratios. An obvious trend costs torevenueratios.An obvioustrend internal efficiency.Wecarefully monitor ving customerpurchasingpreferences and of saleschannelsisdriven mainly byevol- Our strategywithrespecttotherightmix Digitalisation andcross-channel adjusted tolocaldemand. effectively planournetworkinvestments the potential of these markets andmore needs. It also allows us to better recognise to matchlocalexpectationsandcustomer allows ustodiversifyoursalesapproach 80 districts.Thisdecentralisedstructure model, dividingsalesinto10regionsand we have implemented the ‘Macro2Micro’ ity optionsandcustomerneeds.Assuch shares inparticularsegments,connectiv- like competitiveenvironment,ourmarket zones isdifferentwithrespecttofactors cities, andruralareas.Eachofthesethree ly between big cities, small and medium nous, withhouseholdsdividedfairlyequal- The Polishtelecommarketisnothomoge- proach More effectivesellingwithalocalap- our coreservices.Ourglobalandwidelyrec- in alotofcaseshelpsustowinbusiness development ofcompetenciesinICT,which good exampleofdifferentiationstrategyisour Sales anddistribution 33 -Orange PolskaIntegrated Report we offer. competitionservices of and range the evolution, needs, customer specifics, local we themarket mix right of ensure reflecting generation distribution must channels, electronics),with consumer door-to-door. and on-line, telesales To value maximise (ourof sale own agents’), our or distribution outlets (e.g. chain independent stores with ofacustomer, contact channels We different use including: traditional points We services. and to aim products our make to for iteasy customers access our

products. products. our customerscantestallservicesand signed inlinewiththelatesttrends,where to openSmartStores,interactiveoutletsde- explore newsolutions, in 2016wecontinued and upgrades.Toencouragecustomersto itable locations,relocations,modernisations of sale.Thisincludesclosuresnon-prof- we activelymanageournetworkofpoints in theshop,orvice-versa.Atsametime ers startatransactionon-linebutfinaliseit synergy betweenthesechannels:custom- importance. Wehaveseenatrend towards expect traditionalpointsofsaletolosetheir spite the trend towards online we do not developed anomnichannelapproach.De- phone oronline.Toaddressthiswehave less of distribution channel, face-to-face, by desire tohavethesameexperienceregard- that ratioisincreasing.Anothertrendthe experience withOrangeontheinternetand ready around 25%of customers begintheir is growingimportanceofonlinesales.Al- ferentiate. ferentiate. competitive advantageandallowsustodif- ognised ”Orange”brandisavitalsourceof

ORANGE POLSKAOUR BUSINESS BUSINESS MODEL MODEL AND AND VALUE VALUE CREATION CREATION from traditional to ones modern (mobile apps, social media, chat). connectivity; user-friendly and customised care; various means of contact, ious segments. Orange customers are offered: easy to access best services; adapting our operating models to the changing of needs customers from var channels of communication with Orange. Therefore, we have constantly been task is toOur deliver primary exceptional an customer care and across all items fromthemenu. **IVR -InteractiveVoiceResponse.Systemallowingtheinteractivecaller support. Thecallingperson,after hearing therecordedmessages,selects the chosen information heneeds.Themenuisvisualized(availableonthephonescreen) *USSD -UnstructuredSupplementaryServiceData.Afterchoosingtheselectedmenuon handsetscreen,thecustomerisactivatinganothermenuthatincludes Customer Contactchannelsmix plemented the relevant global management plemented therelevantglobal management ment. Inallourcontactcentres wehaveim- highest standardsincustomer caremanage- mance Center)certificate. Itatteststothe nal COPC(CustomerOperations Perfor- in Polandtoholdtheprestigiousinternatio- Orange Polskaistheonlytelecomprovider automated, humanized) which are adjusted to customer needs: automated, humanized)whichareadjustedtocustomerneeds: We providehighlycost-effectiveandtopqualitychannelmix(digital, Friendly contactchannelsmix Customer care Humanized Automated Digital

as ofDecember2016. employees bothpermanent andoutsourced, centres, inwhichweemploy morethan 5200 velopment, etc.Wecurrently have22contact toring, quality,employeerecruitmentandde- standards, whichconcernefficiencymoni- Email Chat Community Social Media App Web Delivery Courier Delivery On field Technicans F2F Center Contact Point ofSales SMS IVR** USSD* Orange Polska IntegratedReport -34 - • • the followinggroups: implemented dedicatedcustomerservicefor their lifestylesandneeds.Inparticular,wehave We offerourcustomerssolutionstailoredto Customised Service tacts digitization(over68%). E-invoice shareasaproofofpossibilitycon- charges orpayinvoice. deactivate services,reviewdetailsoffeesand easily checktheircreditbalance,activateor our customers.It enables them to quickly and and portalisregularlyusedby2560000of Devoted Brands.The‘MyOrange’mobileapp among TOP10intheworldwidelistofSocially ing Facebookforcustomercare,andOrangeis five years we have been Poland’s leader in us- like social mediaplatforms or mobileapps. For handled throughthenewercontactchannels, Customer careatOrangePolskaisincreasingly 35 -Orange PolskaIntegrated Report • • ‘My Orange’ app and other digital channels; ‘My Orange’appandotherdigitalchannels; versation andencouragedthemtousethe offered Young people(oflessthan24years):Wehave Senior citizens (of more than 65 years): Senior citizens(ofmorethan65years): them a more casual manner of con - • • • • • • • • customer care in our sales outlets. customer careinoursalesoutlets. offer customisedsolutionsaswellexpert dling ofcasesfromthebeginningtoendand key accounts).Theyprovidededicatedhan- businesses, bigger corporate customers and designated specificallyfor3segments(small Most businesscustomers:Operationalcare TV decoder; Poland weofferfibrecustomersamodern4K solved within24hours).Asthesoleoperatorin a comprehensivebasis (95% ofcasesarere- of expertshandlesallcustomermatterson Fibre servicecustomers:Adedicatedteam sonalized customercare; seven services):Theyhavedesignatedandper Premium customers(subscribingtoatleast to assistincontactwithinfolineconsultants; language interpreter’sservicesonourwebsite Deaf persons:Wehaveprovidedthemwithsign icate forourdedicatedinfoline; Poland wehaveobtainedthe‘OKSenior’certif- As thesoletelecommunicationscompanyin -

ORANGE POLSKAOUR BUSINESS BUSINESS MODEL MODEL AND AND VALUE VALUE CREATION CREATION 4.3 External environment Regulatory the moment: the moment: be themostimportantforourbusinessat We considerthefollowingregulationsto Core regulations adequate protectionofcustomerrights. Protection (UOKiK),mainlywithrespectto by theOfficeofCompetitionandConsumer of customers,ouractivitiesaremonitored As ourservicesareprovidedtomillions other bigmarketplayers. regulations areequalforOrangePolskaand services we provide. On the mobile market, regime hassignificantimpactonsomeofthe market segments.Assuch,thisregulatory power andissubjecttoregulationsincertain is designatedanentitywithsignificantmarket on thefixedservicesmarket,OrangePolska level ofregulations.Asanincumbentoperator on thisanalysis,decidesthenecessary tion within each of these markets and, based markets”). UKE analyses the level of competi- sale andretailservices(so-called“relevant ket is divided intoseparate markets of whole- tion (UKE).Asageneralrulethetelecommar- Authority -OfficeofElectronicCommunica It is supervised by the National Regulatory level andtransposedtonationallegislation. subject to sector regulation established at EU The Polish Telecommunications market is General rules rate andwholesaleaccess conditions. most restrictiveinterms of termination market power,itsregulation isthe lations but,becauseithas themost the onlyoperatorsubjecttotheseregu- in fixednetwork–OrangePolskaisnot Regulation ofcallterminationservices

vironment has been changing dynamically. vironment has been changing dynamically. general regulations.Recently thelegalen- comply with administrative decisions and Obviously asabusinessentity wemustalso of roamingthroughthe“fairuse”policy. will beprotectedagainstabusiveuse to retaildomesticprices.Operators services inroamingwillbecomeequal Since 15June2017thepricesofretail local pricesandspecifiedsurcharges. retail prices of roaming consist of tween 30April2016and14June2017 – According to these regulations, be- ing pricesintheEuropeanUnion European regulationsregardingroam- ation. can limitpriceflexibilityinretailoffercre- already deregulated). These regulations wholesale access fees (call services are which isregulatedintermsofretailand – OrangePolskaistheonlyoperator access marketsforfixedtelephony Regulation ofretailandwholesale which arederegulated. not mandatoryinthe76municipalities Polska fibreandcopperinfrastructureis lines. Bitstreamaccess(BSA)toOrange ments, andcoversbothfibre andcopper itation and non-discrimination require- the countryundercostorientationlim- ducts, ismandatoryinthewholeareaof belonging toOrangePolska,including access tolastmileinfrastructure(LLU) services (socalledBSA)andphysical Regulation ofwholesalebroadband tors areasymmetrical. plied toOrangePolskaandotheropera- Additionally, fixed termination ratesap- Orange Polska IntegratedReport -36

ther effects in 2017 and 2018. ther effectsin2017and2018. was alreadyvisiblein2016 andwillhavefur- profitability ofOrangePolska. Thisimpact have anegativeimpactonbothrevenueand The changestotheroamingpriceregulations Polska. rial negative impact on therevenueofOrange When itisimplemented,willhaveamate- the EuropeanCommissionrecommendation. new FTRcostingmodelinordertoimplement Rate (FTR)calculation.UKEisworkingona be expectedisachangeinFixedTermination change intheregulatoryframeworkthatcould environment alreadyexists.Thepotential tions toex-postverification,ifacompetitive environment, movingfromex-anteregula- regulatory policythatfavoursaninvestment At thesametimeUKEmoreoftensupports termination services. ning of2017UKEdecidedtoderegulateSMS LLU) isexpectedthisyear.Also,atthebegin- sis ofwholesalebroadbandaccess(BSAand fixed broadbandmarket.Newmarketanaly- corresponds toaroundone-thirdofthetotal in 76municipalities(mainlybigcities),which October 2014UKEremovedBSAregulations ers inretailfixedbroadband).Forexample, gence ofcableoperatorsasimportantplay- petition inparticularsegments(e.g.emer- in Poland and a much higher degree of com- in thestructureofoveralltelecommarket intervention. Thisismainlyrelatedtochanges has beenevolvingtowardpolicyofbalanced The regulatoryregimeoverthepastfewyears Recent trendsinregulatoryenvironment SIM cardsin2016. was introductionof registration ofpre-paid which hassignificantimpactonourmarket originated outsideoftelecomsectorand For example,achangeinthelawthatwas 37 -Orange PolskaIntegrated Report

both in2017and2018. Poland's GDPisexpectedtogrow3.3% mean consensuspublishedinBloomberg in global markets. According to economists pean economiesandtheeconomicclimate depends on the condition of other Euro- the Eurozone. Poland’s economic outlook 2016, shouldreboundowingtorecoveryin slightly sloweddowninthesecondhalfof household expenditure, while export, which interest rateswillstimulateanincreasein (especially the‘500+’programme)andlow growing wages,additionalsocialtransfers years. Improvement in the labour market, port theeconomyevenbetterinsubsequent All thesethreegrowthenginesshouldsup- were reported in exports and investments. tion, whileslightlylessfavourabletrends from stable growth in private consump- tive economicconditionsresultedmainly GDP grewatarateof2.8%.Theposi- grow, thoughataslowerpacethanin2015. In 2016,thePolisheconomycontinuedto GDP Growth rates, throughourhedgingstrategies. as interestratesandforeignexchange associated withmarketmovements,such gate someofthepotentialadverseimpact outside ofourdirectcontrol,wecanmiti- influence ourabilitytocreatevalue.Whilst interest ratesorforeignexchangerates,can growth, inflation, unemploymentlevels, Changes intheeconomy,suchasGDP Economic

ORANGE POLSKAOUR BUSINESS BUSINESS MODEL MODEL AND AND VALUE VALUE CREATION CREATION due tothehighhedgingratio. fluence ontheGroup’sdebt servicecosts, interest ratesshouldnothave anymajorin- in 2017.However,apotential increasein not changefromthecurrent levelof1.5% expected thatthereferenceinterestratewill mained stable at a historically low level. It is Central Bank’spolicyandinterestratesre- 2016 didnotbringanychangesinthe Interest Rates can beexpectedin2017. Growing investmentsandinflowofEUfunds enhanced the mood in the enterprise sector. in thelabourmarket,drivenbygrowingGDP, 3.8% in nominal terms. A further improvement and December2016,thesewageswereup prise sectorwasreported.BetweenJanuary same time,anincreaseinwagestheenter- 8.3% (-1.4ppy-o-y)attheendof2016.At ment andadecreaseinunemploymentto which wasreflectedinanincreaseemploy- ed bythegeneralmacroeconomicclimate, The labour market has been positively affect- Unemployment andLabourCosts financial markets. significant increaseinriskaversionglobal preciation of the Polish zloty in case of a ed increaseininflationwillresultfromde- the targetinmediumterm.Theexpect- limited the risk of inflation remaining below that thecurrentstableeconomicgrowth (set in March 2015), upholding an opinion ence interestrateattherecordlowof1.5% the MonetaryPolicyCouncilkeptrefer- crease infuelprices.Throughouttheyear, national marketscontributedtoarapidde- products, whileaslumpinoilpricesinter- exports lowereddemandfordomesticfood nal factors.RussiansanctionsonEUfood which incanbeattributedmainlytoexter- lower food,rawmaterialsandfuelprices, the middle of 2015, resulted primarily from target (2.5%). Deflation, which took hold in 2016, whichwaswellbelowtheinflation Average annualCPIreached-0.6%in Inflation 2016. were 3.9495and4.3637,respectively,in rates ofPLNagainst the USdollar and euro Bank of Poland’s (NBP) mean exchange between 3.7193and4.2493.TheNational change rateagainsttheUSdollaroscillated in the4.2355–4.5035bracket, while itsex- the exchangerateofzlotyagainsteurowas policy seenin2016.Inthereportedperiod, uncertainty astochangesintheeconomic trend in2017.Thereisalsoconsiderable possible toclearlypredictthePolishzloty er volatilityinthecurrencymarket,itisnot of capitalfromemergingmarketsandhigh- internal and external factors. Due to outflow currency fluctuationswerecausedbyboth Euro and6.4%againsttheUSdollar.Polish 2016, thePolishzlotylost3.0%against ing instrumentsheldbyOrangePolska.In is greatly contained by a portfolio of hedg- foreign operators.However,thisinfluence in foreigncurrenciesandsettlementswith Orange Polska’sobligationsdenominated Foreign exchangeratefluctuationsaffect Foreign ExchangeRates performance intherecent years include: The keyfactorsthathaveinfluenced market share. est marketsegmentwithmorethan50% year. Retailmobileserviceisbyfarthelarg- was declining at a pace of around 2% per and 2016valueofthetotaltelecommarket According toourestimates,between2012 Declining Polishtelecommarket the marketinpast. critical impactontheoverall performance of and broadband.Thesefactorshavehada fixed to mobile substitution in both voice en by mobile services and a high degree of fragmentation ofplayers.Itismainlydriv- by highlevelsofcompetitionandrelative The Polishtelecommarketischaracterised Telecom market Orange Polska IntegratedReport -38 • • • • This wasmainlydueto: which has been reflected in falling revenue. trends relativelymorethantheoverallmarket, Orange Polska has been affected by these • • • • 39 -Orange PolskaIntegrated Report • • • • • • • • No significantexposureto pay-TV market. operators. the loss of market share in favour of cable weak infrastructure in big cities, resulting in fixed broadbanddueto Worse thanoverallmarketperformancein exposure tofixedvoice. As anincumbentoperator,verysignificant both B2CandB2Bsegments. tion onmobiletodefendmarketsharesin Necessity toadjusthighpricecompeti- restrial television. by development of strong free digital ter- Pay-TV market average. cess ismuchhigherinPolandversusEU broadband positionedashomeinternetac- mobile substitution.Penetrationof market playersresultedinpartialfixedto bile servicesandstrategiesofmobile-only combination withfastdevelopmentofmo- especially outsideofbigcities,whichin Weak fixedbroadbandinfrastructure, favourable demographictrends. 2/ partialregulationofthissegment,3/un- proliferation ofmobileataffordableprice, which wasinfluencedmainlyby1/veryfast Structural declineoffixedvoiceservices market share. pursued anaggressivestrategyofgaining taking advantageofMTRasymmetryand market, whichbytheendof2012was key disruptorwasPlay,alatecomertothe wars inbothB2CandB2Bsegments.The bile services,exacerbatedbyfewprice Very highlevelofpricecompetitioninmo- being negatively affected being negatively affected regulations and regulations and

• • •  •  • • market intheyearsahead: We seethefollowingkeytrendstodrive Expected futuremarkettrends • • • • • • tal services. offering veryfavourableratesforincremen- ingly competeforhouseholdincomes has been rather slow.Operatorsincreas- very competitive and the recovery so far ready verylowthemarketcontinuestobe However eventhoughthepricesareal- main playershavemoreorlessequalised. In additionthemarketsharesoffour tariffs havebecomeamarketstandard. ket goingforward.Unlimitedallnetvoice the overallmarketperformance. speed internet. needs willdrivethemigrationtowardshigh- infrastructure combined with growing data the governmentPOPCprogramme.Better ska butalsoothermarketplayersaswell broadband infrastructure, from Orange Pol - revolution continuesinPoland. for the nextfewyearswhilesmartphone tinue togrowatthecurrentpaceleast We foreseethatdataconsumptionwillcon- and veryfastgrowthofdatapercustomer. market by2020. we seelimitedimpactonthe smartphone on themarket,startingwith wearables,but We expectthegradualadoption ofeSIMs than asignificantsubstitutionfactor. should beratheranadd-ontolinearTV course OTTcontentisgrowingfastbutit Poland stillhasverystronglinearTV.Of Pay-TV marketshouldberatherstable. goes onthishaslessandimpact Fixed voicewillfurtherdecline,butastime Significant high spurred byproliferationofmobiledevices Data consumptionshouldfurthersurge more benignsituationonthemobilemar There arecertainargumentstoexpecta investments in high-speed investments in high-speed -

ORANGE POLSKAOUR BUSINESS BUSINESS MODEL MODEL AND AND VALUE VALUE CREATION CREATION antimonopoly authority Ongoing consolidation process -subjectto (UOKiK) approval tive trends than it was in the past. tive trendsthanitwasinthepast. Polska makesitbetterequippedtocaptureposi We believethatthestrategyadoptedbyOrange Main PlayersonPolishTeleco Market strategy sectiononpage45. More detailsonourstrategyarepresentedin old technologiesinfixedbroadband. sure fromnegativetrendsinlegacyservicesand On theotherhandwewillbeunderfurtherpres- • • There aretwokeyaspects: • • services onameaningfulscale tors, whosofarhavenotyetadoptedmobile ing thisstrategymainlyagainstcableopera- convergent operatorinPolandandispursu Convergence: OrangePolskaisaunique in fixedbroadband is intendedtoputusbackthegrowthpath technological gapwithcableoperators,and ment offibrenetworkisgraduallyclosingthe Fibre networkrollout:Oursignificantdeploy- Multimedia Polska Infrastructure Polska UPC PayTV INEA FBB MBB Fixed Voice Mobile Voice Vectra TK Telekom NETIA & P4 - -

Cyfrowy Polsat Micro ISPs Group vices, fixedbroadbandandvoice. ume andvalueleaderinretailmobileser- in allsegmentsofthemarketandvol- Orange Polskaisthelargestplayerpresent services inthefuture. which may encourage launch of convergent hold coveragewilljumpbyaround50%, If thetransactionisfinalisedUPC’shouse- for CompetitionandConsumerProtection. ly intheapprovalprocessfromOffice UPC (number1cableoperator)–iscurrent- of Multimedia(number3cableoperator)by Another majortransaction–theacquisition on bundlingpay-TVandmobileservices. ed amedia-telecomgroupfocusedmainly group CyfrowyPolsatin2013.Thiscreat- tion ofmobileoperators Polkomtel bymedia most notabletransactionwastheacquisi- place in fixed. Over the past five years the So far,mostconsolidationisonlytaking ed bothinmobileandfixedsegments. The Polishtelecommarketisfragment- market segments Orange Polska:akeymarketplayerinall Orange Polska IntegratedReport -40

uted to reducing poverty. uted toreducingpoverty. premiums anddirecttaxeshave onlyslightlycontrib European Union,andsocial benefits, socialinsurance welfare spendinghasbeenamongst thelowestin ly decreasedsince2008.However,Poland’ssocial als affectedbypovertyorsocialexclusionhassteadi equality andpovertyrecently.Thenumberofindividu There havebeenmuchprogressinaddressing Commission’s CountryReportPoland2016. 20.9% in2010to58%2050accordingEuropean ple intheentirepopulationisexpectedtogrowfrom ing-age population.Thepercentageofelderlypeo- trends arealreadyreflectedinadeclinethework and highemigration.Theunfavourabledemographic facing theproblemsofrapidageingitspopulation ing 8.6%inJanuary2017.However,Polandisstill The rateofunemploymenthascontinuedtofall,reach at 56.3%isstilllowerthantheEUaverage. considerable successes,Poland’srateofemployment erage, butthereisstillanumberofdifficulties.Despite Poland havemovedsignificantlyclosertotheEUav The standardoflivingandtherateemploymentin Social 41 -Orange PolskaIntegrated Report

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venience, butoftenapreconditionoffullparticipation exclusion. Internetaccessisnowadaysnotonlyacon Digital exclusionisoneofthefactorsleadingtosocial to theCentralStatisticalOffice(GUS),80.4%ofPolish in thesocial,culturalandprofessionallife.According town, thoughtheroleofthis factor hasbeendeclining. of theInternetisalsorelated towealthandthesizeof jority ofyoungpeopleandvery fewseniors.Theuse age andeducation.TheInternet isusedbyagreatma- ies with social and demographic factors, especially The use of the Internet and modern technologies var- need theInternet. Finally, 15%ofhouseholdsbelievethattheydonot ture-related nature)havedecreasedinimportance. 0.5%. Thus,hardbarriers(offinancialorinfrastruc- opportunities attheplaceofresidenceiscitedbyjust by about5%ofhouseholds,whilelacktechnical indicated asthereasonforlackofInternetaccess well aslackoftherelevantskills.Financialbarriersare er inspreadingtheInternetuseislackofmotivationas According tothelatestSocialDiagnosis,keybarri broadband connection)in2016. households hadaccesstotheInternet(and75.7%

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ORANGE POLSKAOUR BUSINESS BUSINESS MODEL MODEL AND AND VALUE VALUE CREATION CREATION shopping, e-services,e-invoicesandcom- ferences, electronicdocumentflow,online documents. Thankstotele-andvideo-con- replace traditionalcommunicationsorwritten emissions throughofferingservicesthatcan tions, whichhelptoreducegreenhousegas We promoteenvironmentallyfriendlysolu- garding ecology. ations withthelawandotherregulationsre- policy wesupervisecomplianceofouroper- activities. Withinenvironmentalprotection respect fortheenvironmentintoourbusiness tives toraiseenvironmentalawarenessand on theenvironment,soweincorporateinitia- to reducingthenegativeimpactofbusiness cation serviceswecansignificantlycontribute ural resources.Asaprovideroftelecommuni- es relatedtothenatural environment and nat- Orange Polskaissensitivetoglobalchalleng- Environmental closely controlled. and telegraph poles. The disposal thereof is ment, batteriesandstoragecells,cables waste suchaselectronicandelectricalequip- environment throughgenerationofindustrial Our businessactivitiesinfluencethe natural saving 12676trees(or26hectaresofforest). 745 tonnesofpaperbyusinge-invoices,thus 5 millionofourcustomers.In2016,wesaved 2016, e-invoices had been adopted by over tection partofeverydaylife.Bytheend administration, wemakeenvironmentalpro- prehensive ICTsystemsforbusinessand Orange Polska IntegratedReport -42 4.4 Chapter ofthisreport.onpage89. nance aredescribedintheCorporateGovernance The detailsof Orange Polska’scorporate gover success. value whichisnecessarytocompany’slong-term ability toallocatefairlyandsustainablythecreated The sustainabilityofthecompanyissecuredby representation ofexperience,skillsandeducation. bodies withaproperdivisionofdutiesandoptimal ate valueisensuredbyhavingcapablegoverning igate risk.Thecapabilityofthecompanytocre which helpustooperatemoreefficientlyandmit consist of structures, processes and controls company’s strategicgoals. Those mechanisms which consistsofmechanismsthathelpachieve created strategic goalsandvalueenhancement.Wehave agement andsupervisioninordertoachievethe signed toprovideresponsiblecompanyman Corporate GovernanceinOrangePolskaisde Corporate governance 43 -Orange PolskaIntegrated Report Internal environment a strong corporate governance framework a strong corporate governance framework - - - - -

ployer” sectiononpage74. are describedinthe“Beingdigitalandcaringem- The detailsofOrangePolska’scorporateculture the differencesbetweenus. organisational culturebasedonmutualrespectfor new opportunities.Itisessentialforustofosteran skilful diversitymanagementinaworkplacecreates life situations.Wevaluediversityandbelievethat employees andofferhelpsupportindifficult tative healthcare,promotesportsactivityamong health and decent retirement. We provide preven- ly workplace.Wetakecareofemployees’safety, We createthefoundationsthathelpafriend- surveys andengagesindialoguewithtradeunions. sions. OrangePolskaconductsregularemployee freely pursuetheirprofessionalgoalsandlifepas- tion, inwhichallemployeesfeelrespectedandcan conditions. Weaimtocreateacultureofco-opera- opportunities, aswellgoodandsafeworking criteria, professionalandpersonaldevelopment ing equaltreatment,clearevaluationandpromotion Orange Polskaattachesgreatimportancetoensur- Corporate culture

ORANGE POLSKAOUR BUSINESS BUSINESS MODEL MODEL AND AND VALUE VALUE CREATION CREATION 05 Our strategy

Orange Polska Integrated Report - 44 45 - Orange Polska Integrated Report 6.1 5 Orange Polska CEO Orange PolskaCEO Q&A withJean-FrançoisFallacher Orange Polska IntegratedReport -46 47 -Orange PolskaIntegrated Report

OUR STRATEGY 5.1 Orange Polska CEO Orange PolskaCEO Q&A withJean-FrançoisFallacher Secondly, Idecidedtostrengthen thestrat- network requiresspecialcare andattention. and weheavilyinvestinfibre connectivity,the in ourmobilenetworksdoubles everyyear director inchargeofthenetwork.Asdataflow goals. Icreatedanewpositionofexecutive cation to betterserve our customers and our was toocomplexandrequiredsomesimplifi- In myopinionthestructureofcompany Could youpleasecommentonthat? changes intheorganisationalstructure. You haveintroducedsomeimportant beginning ofFebruary2017. offer OrangeLovewhichwelaunchedatthe company; andpreparingournewconvergent to ourTVoffer;organisationalchangesinthe ers take-up;pre-paidregistration;changes chiefly: improvingexecutiononfibrecustom- operational fundamentals.Theseincluded, side the company and focusing on short-term ing themarket,understandingsituationin- Through 2016Imainlyconcentratedonlearn- What wereyourfirstpriorities? sults. this isalsoreflectedinOrangePolska’sre- on theoverallperformanceofmarket,and broadband. These factors had a major impact fixed tomobilesubstitutioninbothvoiceand en bymobileservicesandahighdegreeof tive fragmentationofplayers.Itismainlydriv- far hasmainlybeenpriceoriented,andrela- There isahighlevelofcompetition,whichso technologies andquicktoadoptthelatest. lenging. Consumersareveryopentonew The Polishmarketisveryinterestingandchal- market? How doyoufindthePolishtelecom You cametoPolandalmostayearago. issues or employee care. issues oremployeecare. tion ofchildrenandteenagers, environmental wisely, safety on the web, including protec- of theyounggenerationhowtousenet communications services and the education ly accessofpeoplewithdisabilitiestotele- issues, suchasdigitalinclusion,particular- which coversanumberofimportantsocial tation, wehavedevelopedourCSRstrategy, Based on a processofbroadpublic consul- ement ofourpresenceinthePolishmarket. Corporate socialresponsibilityisamajorel- the ideaofcorporatesocialresponsibility? How hasOrangePolskabeenimplementing tion, whichisnotasfastwewouldlike. would liketochangeandimproveisexecu- solutely right:Ifullyendorsethem.Whatwe sure onourrevenues.Thesepillarsareab- environment andinthelightofconstantpres- ciency, which is a mustin such competitive competitive advantage;andincreasingeffi- which isouruniquefeatureand source of top priorityforourcustomers;convergence, both mobileandfixed,whichisabsolutelythe Our strategyisbasedon:dataconnectivity, be changed? strategy? Isthereanythingthatneedsto What isyouropinionofOrangePolska’s both customergroups. ture andimproveexecutionofourstrategyfor these changeswillsimplifyourinternalstruc- sumer andbusinessmarkets.Iamconvinced ning of2017wehaveanewstructureforcon- our transformation.Finally,sincethebegin- Piotr Muszyński,whichwillleadandenforce egy-innovation teamheadedbydeputyCEO Orange Polska IntegratedReport -48 moters’ Score(NPS). touchpoints andfurtherimprove ourNetPro- herent quality of service across all customer allow ustoprovideastandardisedandco- help) insteadofdistributionchannels.Thiswill such aspurchase,payment,terminationor tomer journeys(differenttypesofexperience, proach goingforwardwillbedrivenbycus- manage thecustomerexperience.Ourap- We aremakingbigchangesinthewaywe least doubleourfibrecustomerbasein2017. shorten servicedeliverytime.Wewanttoat extension ofournetworkandwealsowantto cerned wehaveveryambitiousplansforthe for Polishhouseholds.Asfarasfibreiscon- and whichhasbecomeourflagshipproposal Love –whichisourclearmarketdifferentiator, push ofournewconvergentofferOrange cent organisationalchangesandtheinitial Our executionshouldimprovefollowingre- stronger focusoncostsavinginitiatives. es andourcustomerproposition,show wards simplificationbothofinternalprocess- nounce laterintheyear.Weshouldmoveto- our mid-termplans,whichweintendtoan- mentioned. We areworkingonan update of our strategyandimprovingexecution,asI In 2017wewanttoconcentrateonfine-tuning What areyourprioritiesfor2017? ural environmenthasbeensignificant. market standards,localcommunitiesornat- nomic growth, development of innovations, the sizeofoperations,ourimpactoneco- the Polishmarket,typeofourindustryand long presenceandhistoryofourcompanyin social influence.Weknowthatowingtothe sponsibility ofOrangePolska,butitsactual Today, we can talk not only about social re- 49 -Orange PolskaIntegrated Report late intohighercustomerloyalty. products andcustomercarewhichwilltrans- price, operatorswillfocusmoreonqualityof low, ratherthanfurthercompetingmainlyon and converged.Asthepricesarealreadyvery probably fewerplayersbutmoreintegrated idate, as it is quite fragmented. There will be our lives.Ithinkthatitwilleventuallyconsol- by thegradualdigitalisationofallaspects ket, similarlytoothercountries,willbedriven It isquiteobviousthatthePolishtelecommar- sacrifices. tience, properexecutionandalsoshort-term believe thisisachievable,butitrequirespa- around and return to a growth path. I strongly to facilitateourgoal,whichisfinancialturn- nels, improvingcustomercare.Allthisisdone gence, transforming our distribution chan- idly improvingconnectivity,pushingconver- to amoderntelecomoperator.Wearerap- Orange Polskaisintransitionfromalegacy Orange Polskaafewyearsdowntheroad? How doyouseethePolishmarketand

OUR STRATEGY 5.2 Connectivity Demand fordata Our strategy was slower than expected and that we needed was slowerthanexpectedandthatweneeded monetisation ofcertainareasthisstrategy the nextannualstrategyreviewwenoticedthat year strategy running from 2016 to 2018. During At thebeginningof2016wepresentedathree Our key strategic goals are: Our keystrategicgoalsare: As aresultourstrategyfocuseson: Key trendstoshapeourbusiness: Convergence Growth ofshareholdervalue Return togrowthofrevenueandprofits Trend towards convergence experience Improving customer Fixed tomobile substitution ed laterin2017. The outcomeofthisprocesswillbepresent- view andanalysisofvariousnewinitiatives. We arecurrentlyconductingastrategicre- to improve execution to bring the turnaround. our efficiency Increasing Orange Polska IntegratedReport -50 of competition High level responsible Being Fixed dataconsumption(PB) Mobile dataconsumption(PB) expected tocontinueintheyearsahead. tion continuestogrowveryfastandthattrendis consequence mobile but also fixed data consump and otherconnecteddevicesisrapidlyrising.Asa needs areevolvingandthenumberofsmartphones world isbecomingmoreanddigital,customer a telecomserviceprovider.Thisisbecauseasthe nectivity that has become the key criterion in selecting important forourbusiness,itisqualityofdatacon- While voice and messaging continue to be very It’s allaboutdata Fixed andmobiledataconsumption 51 -Orange PolskaIntegrated Report 2013 2013 722 19 2G/3G for fixed and mobile for fixedandmobile Connectivity –best 4G 2014 2014 939 40 1,188 2015 2015 94 1,427 2016 2016 214 - investment is concentrated largely in big cities but back marketshareindensely populatedareas.This competitive positionandgive ustheleveragetowin (FTTH) network,whichwill structurally improveour a largescaleinthedeployment ofafibretothehome that in2015wemadeastrategicdecisiontoinveston competitors inthefixedbroadbandmarket.Tochange close thetechnologygaptocablecompanies,ourkey VDSL technology,butthisaloneisnotsufficientto itive. Forthepastfewyearswehavebeendeveloping able customerexperienceandthereforeisnotcompet- on ADSLtechnology,whichdoesnotprovideadesir The majorityofourfixedbroadbandnetworkisbased Fixed –fromlegacytofuture-prooffibre fixed andmobile. and connectivitydevelopmentisbasedonthemixof small cities,thesituationismuchlesshomogenous, EU subsidiesingovernmentPOPCprogramme.In ple willbethedeploymentoffibretechnologyusing be developedmoreopportunistically.Agoodexam- option ismobiletechnology.Fixedtechnologieswill to be offensive.In rural areas, the main connectivity eroded inthepastyearsandwhereourapproachhas trated aroundfixed,whereour marketshares have In bigcitiesourconnectivitystrategywillbeconcen- shares in particular segment and connectivity options. respect tothecompetitiveenvironment,ourmarket rural areas.Eachofthesezonesisdifferent,mainlywith split roughly equally between big cities, small cities and differences inlocalmarkets.Polishhouseholdsare Our connectivitystrategytakescarefulaccountof Local approach on mobiletechnology. business customers who specifically cannot rely only a substantialpartofouroperationsisdedicatedto customer experienceonmobilenetwork.Inaddition, streaming, andatthesametimetoprovideadesirable driven byheavierandtrafficdemandfor band isnecessarytodigestfuturedemandfordata Mobile only will not be sufficient. Fast fixed broad requires bothfirstclassmobileandfixedconnectivity. our strongly-heldopinionthatfulfillingcustomerneeds by whichtheserviceisdeliveredlessimportant.It access, andfromtheirpointofviewthetechnology Customers wantfast,reliableandsafebroadband Convergent network - -

OUR STRATEGY the fastestinPoland in2016. dent sourcespeedtest.pl,our mobilenetworkwas crease speedtocustomers.According toindepen to proliferate more spectrum aggregation and in strengthen networkcapacity, investingin2600MHz on 800MHz;selectivelydensify thenetwork;and we willfurtherinvestintheareacoverage,mainly on anoutdoorbasisand87%indoor.From2017 network reachedalmosttheentirePolishpopulation rural areas.Bytheendof2016our4G/LTEmobile able toofferacompetitiveserviceandcompetein of 800MHzwasabsolutelynecessaryforustobe Although veryexpensive,purchaseoftwoblocks spectrum auctionthat finishedinOctober 2015. significantly followingthe800MHzand2600MHz Our strategic position in the mobile market improved auction Mobile –fastdeploymentfollowingspectrum easily upgradedinthefutureifneeded. proof technology,theparametersofwhichmaybe its naturelongterm,butinourviewthisisfuture our saleseffectiveness.Investmentinfibreisby This dependsmainlyonlevelofcompetitionand i.e. numberofcustomersandvaluetheybring. closely monitored with respect to the monetisation presented laterin the year. The rollout will be very plans arebeingupdatedatthemomentandwillbe deployment forsometimebeyond2017.Exact most likely maintain this fastpaceoffibrenetwork is envisagedataroundPLN800million.Wewill 1 million new households. Total capex for 2017 In 2017 we plan to accelerate and cover more than ours thelargestfibrenetworkinPoland. million householdsin37cities.Thisalreadymakes is fibrenetworkdeployment,coveringalmost1.5 In 2015-2016weinvestedaroundPLN850million also moreselectivelyinmediumandsmallcities. Fibre householdsconnectable 2014 78 2015 716 1,471 2016 >2,500 2017 - - Fibre householdsconnectablepercity • benefits: gives us the following key Convergence fixed services. as delivering a package of both mobile and is serviceconvergence.Convergencewedefine a commondenominatorinallthezones,which takes thisintoconsideration;however,thereis of localmarkets.Ourcommercialapproach also connectivity strategywilladapttothespecifics In thesectionabovewedescribedhowour Convergence –ourkeymarketdifferentiator mobile servicesinconvergentpackages. 50% of our fibre customers were also using our fibre technology.Bytheendof2016morethan tool forcustomeracquisitionwhenitcomesto Convergence appearstohavebeenaveryeffective • • • • • hand ourmobilecompetitors vices onany meaningful scale. On the other hand cableoperatorsdonotoffermobileser even moreadvantageofinthefuture.Onone market differentiatorthatweintendtotake It constitutesourcompetitiveedge,akey also inthecaseofsmallbusinesscustomers. tage notonlyintheconsumermarketbut fixed accessnetworks.Weusethisadvan hold media and telecom budgets. hold mediaandtelecombudgets. It allowsustowinahighershareofhouse non-convergent customers. gent customerstendtochurnalotlessthan It isagoodcustomerloyaltytool.Conver- market differentiator Convergence –ourkey Orange Polska IntegratedReport -52 do not invest in do not invest in

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TV content–animportantsuccessfactor as home broadband. as homebroadband. (fibre andcopper)alsoonLTEpositioned Love is available onanybroadband technology additional TVcontent. Importantly, Orange SIM cards,higherfibrebroadbandspeedand can beextendedwithextrafeesforadditional an attractivefixedprice.Thebasicpackage mobile servicesbundledtogetherandsoldat ange Loveoffer:apredefinedsetoffixedand In February2017wereplaceditwiththeOr this conceptlargelylostitscompetitiveedge. purchased fromus.Withmarketdevelopment discount onthepriceofanyadditionalservice pick-and-mix concept.Customerscouldgeta which wecalledOrangeOpen,basedona we changed the formula.Thepreviousformula, few yearsnow.Howeveratthestartof2017 We have pursuedaconvergentstrategyfor Orange Love–anewconvergentformula any significantinvestmentsinexclusivecontent. content reseller:ourstrategydoesnotforesee watch 4KUltraHDTV.Weintendtoremaina to launchadecoderthatallowscustomers In 2017webecamethefirstoperatorinPoland flexible inthewayweshapeourofferandpriceit. and satellite technology. It allowed us to be more the way we source our TV conten tboth on IPTV choosing a service provider. In 2016 we changed is very importantforPolishconsumers when gent strategy is the quality of TV content, which An importantfactorinthesuccessofourconver 53 -Orange PolskaIntegrated Report - - tive. aimed tobetterunderstandthecustomerperspec • • • • ly involvedinadialoguewithusthrough: portfolios andprocesses.Wegetcustomersactive- the reasonsfortheirdissatisfaction.Wesimplifyour We listentoourcustomersidentifyandeliminate these adduptobettercustomerexperience. ing structures,moreconvenientinteractions:allof quality, morevalueformoneyandsimplerpric- More accesstomobileservicesandbetternetwork want ourcustomerstorecommendusothers. ferentiating ourserviceandproductsiskeyaswe ability in an increasingly competitive industry. Dif- giving themwhattheywantisvitaltooursustain- Building trustandloyaltyamongourcustomers vice, content,employee,message,callcentre). (with thequalityofnetwork,product,website,ser for everypointofcontact,customerinteraction tomer experiencealongtheentirecustomerjourney, We wanttoprovideaneffortlessandfriendlycus recommended telecomoperatorinPolandby2020. Our strategicgoalistobecomethemostfrequently more friendlyapproach Improving customerexperience–towards a • • • • debates with the Management Board Members debates withtheManagementBoardMembers post-contact satisfactionsurveys; tiative; managers’ commitmentto‘IntheFrontLine’ini- connectivity vs.ourcompetition; studies comparingourportfolio,productsand friendly approach experience –towardsamore Improving customer

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OUR STRATEGY across allcustomertouchpoints. standardised andcoherentqualityofservice tion channels. This will allow us to provide a ment, terminationorhelp)insteadofdistribu- types ofexperience,suchaspurchase,pay- will bedrivenbycustomerjourneys(different er experience.Ourapproachgoingforward changes in the way we manage the custom - tion in 2017. Right now, we are making big We wanttomakefurthergainsinthisdirec- customers, on both B2C and B2B markets. provements insatisfactionamongourmobile an all-timehighasaresultofsignificantim- score (NPS).Attheendof2016itreached big progressinimprovingournetpromoter actions. Overthepasttwoyearswemade ly ontheimplementationofnumeroussmall depends notonlyonbiginitiativesbutmost- sary pain-pointsandprocedures–agoalthat simple aspossiblebyeliminatingunneces- Our goalistomakeallcustomerjourneysas Approach drivenbycustomerjourneys Excellence. responsible forCustomerCareand Our ManagementBoardincludesamember Executive Directors)meetonaweeklybasis. (reporting directlytoManagementBoardor force thefocusoncustomers.Keydirectors committee meetson a monthlybasistorein- to Customer Experience improvement. This and ExecutiveDirectorswhichisdevoted Committee within our Management Board have adedicatedCustomerExperience on anongoingbasis.AtOrangePolskawe Customer Experience issues are discussed automation, digitisationand moreagileIT. in thenumberofprocesses and theirvariants, cesses including,amongothers,areduction will prioritisethesimplificationofinternalpro- areas ononehand.Ontheotherhand,they tion ofresourcestogrowthpillarsandpriority These initiativeswillfocusonbetterrealloca- and makeusamoreefficientorganisation. tives thatareexpectedtoboostourefficiency rently ongoingweareanalysingnewinitia- As apartofthestrategicreviewthatiscur- and marketinggeneralexpenses. maintenance, propertyexpenses,promotion we optimisespendingonITservices,network gotiate newsocialplans.Apartfromlabour, employment optimisationsandweplantone- ed toleavein2017.Weseeroomforfurther 2016 andaroughlysimilarnumberisexpect- plan wereleasedaround1000employeesin covers theyears2016-2017.Basedonthis Polska). Thesocialplancurrentlyineffect partners (thereare17tradeunionsatOrange ductions isalwaysnegotiatedwithoursocial headcount byaround20%.Thescaleofre- Over thepastthreeyearswereducedour optimise employmentonacontinuousbasis. important sourceofthesavingsislabour.We continue thisintheyearsahead.Themost costs savingsperannumandouraimisto delivering PLN200-300millionof sustainable ness. Foranumberofyearswehavebeen save operatingcostsinallpartsofourbusi- Every yearweundertakenumerousactionsto both shorttermandlongterm. ny. Themeasureswetaketoachievethisare become asimplerandmorefocusedcompa- cost andcapital expenditures side.Weaim to emphasis on improving our efficiency on the burden ofourlegacy,strategyputsalot sure onourtoplineandthestillsignificant Facing veryhighcompetition,ongoingpres- Increasing ourefficiency Orange Polska IntegratedReport -54

key importance from the point of view of our sector key importancefromthepointofviewoursector strategy which focuses on five areas which are of Orange Polska we have created a social responsibility improvement ofeveryone’slives.Therefore,in to long-termdevelopmentandcontributesthe efits for the company and its environment, leads We believethatsuchanapproachgeneratesben and implementingourbusinessstrategy. partners as well as the environment – in creating tomers, investors,suppliers, business and social employees and other stakeholder groups – cus culture which takesaccountoftheexpectations of For us,social responsibility meansanorganisational elements initsdevelopment. our industry in Poland and abroad have been key as wellmarkettrendsandsocialchallengesfor The conclusionsfromadialoguewithstakeholders objectives andfitsintotheirimplementation. CSR strategyaccountsforthecompany’sbusiness in all areas ofour business forseveral years now. Our menting apolicyofcorporatebusinessresponsibility In OrangePolska,wehavebeensuccessfullyimple Corporate socialresponsibility strategy: 55-Orange PolskaIntegrated Report strategy pillars responsible Being social impact social management responsible • •

communities in ethics and compliance inclusion vestor relations economy digital - - -

and employees. vations, customers,environment,communities which is analysed in 6 areas: economy, inno these fourpillarsaccountforoursocialimpact, Responsible managementandactionswithin • • • • CSR strategy: On thisfoundationarebasedfourpillarsofour understanding theirexpectations. and ourdialoguewithstakeholdersasatoolfor management – our values, ethics and compliance management –ourvalues,ethicsandcompliance A strongfoundationofthisstrategyisresponsible we launchedthenewCSRstrategyfor2016-2020 and ouroperationsonthePolishmarket.In2016 • • • • life passions. can freelypursuetheirprofessionalgoalsand ation, in whichallemployees feel respectedand Enquiring team-tocreateacultureofco-oper in harmonywiththeenvironment jectives with respect for ecological principles and Clean environment-topursueourbusinessob to beeasyandrisk-free Safe network-fortheuseoflatesttechnologies use oftheopportunitiesofferedbydigitalworld skills, residence, age or ability, to be able to make Digital inclusion- for everyone, regardless of their

network safe • •

innovations employees sup dia log with stakeholders ply chain environment clean environment customers • •

rep inno enquiring orting team vations - - -

OUR STRATEGY 06 Outputs & outcomes

Orange Polska Integrated Report - 56 57 - Orange Polska Integrated Report 6.1 6 Orange PolskaCFO Q&A withMaciejNowohoński Orange Polska IntegratedReport -58 59 -Orange PolskaIntegrated Report

OUTPUTSOUR & OUTCOMES STRATEGY 6.1 Q&A with Maciej Nowohoński Orange Polska CFO

What were the key achievements and main Why did the management decide to make What is the outlook for 2017? legacy business is concerned the trend is dif- OUTPUTS & OUTCOMES challenges in 2016 from your perspective? an asset impairment? 2017 will be mainly marked by acceleration of ficult to stop. We try to diminish it as much as We delivered on our 2016 commitments, During the annual review of our strategic fibre network deployment and a new conver- possible through proper pricing and bundling. which we set out a year ago, with respect to plans and analysis of market trends, we de- gence approach. In fixed broadband we suffer from a techno- the level of EBITDA, financial leverage and the cided to use more conservative assumptions We intend to extend our fibre network by logical gap between Orange Polska and cable capex. As such I can say that the year was in than previously, mainly with respect to the more than 1 million additional households operators, and that is one of the reasons we line with our expectations. future evolution of ARPU on mobile and the this year, much more than in 2016. This con- are investing heavily in fibre. We were very satisfied with our commercial development of fixed broadband based on stitutes a big investment and organisation- We also undertake numerous initiatives on performance on the mobile market. We coped ADSL technology. As a result, the difference al challenge for us. Please note that despite the costs side. We generate PLN 200-300 very well with the pre-paid registration obli- between the value of our net assets and dis- spending much more on fibre, our total capex million of sustainable cost savings every year. gation - an unexpected new development in counted future cash flows got much smaller. for 2017 is expected to be similar. This means We have high ambitions in this respect going 2016. More than 96% of our active customer Also, after discussions with our auditors, we that we are heavily optimising all other areas forward. base registered their SIM cards. In post-paid, decided to increase the discount rate to re- of investment, giving full priority to fibre. growth of the SIM card base was spectacu- flect certain business risks, like for example We launched Orange Love, our new conver- Why do you think the Orange Polska share lar owing to the great success of our family the new pre-paid market outlook following gent offer, in February 2017; it is a simple price is so low? offers, increased migration from pre-paid and registration. and attractive proposal for our customers. We do not comment on our share price. also the growing popularity of mobile broad- Convergence is our unique feature, a source However, some analysts believe that it mainly band. Why did the management recommend not of competitive advantage and at the same reflects the short-term outlook, which is not In fixed broadband, net customer losses were to pay any dividend in 2017? time a good customer loyalty tool. We made favourable, and the lack of dividend this year. much smaller than in 2015, mainly as a result We cannot deny that the monetisation of the Orange Love our flagship offer and expect it We are concentrated on long-term goals in of our expansion in fibre. High-speed broad- strategy that we announced last year is a bit to translate into improved commercial and fi- order to facilitate turnaround. This approach band already constitutes a quarter of our en- slower than we had anticipated and we have nancial results. requires us to invest. We are still at the be- tire broadband customer base. to improve execution to facilitate our strategic From a financial perspective we expect further ginning of this investment cycle when we We significantly improved connectivity for goal of financial turnaround. We decided to EBITDA erosion in 2017. We foresee it in the see mainly costs and not yet all the benefits. customers. Our fibre network has coverage of make fibre network deployment our top pri- range of PLN 2.8-3.0bn. It will mainly reflect Our key challenge is now fast commercialisa- almost 1.5 million households while our mo- ority as a necessary condition for our trans- pressure on high margin revenues, legacy tion of these investments, which will positively bile broadband network is ranked the fastest formation from legacy to a modern telecom services and roaming. Remember that from impact our margin in the mid-term. in Poland for many months. company. In addition, we have to remember June this year, roaming rates are scheduled Turning to challenges: our ongoing challenge than most likely we will have to pay a Euro- to become similar to domestic rates. We also is the legacy business, so mainly traditional pean Commission fine in 2017 which will fur- plan to keep a high level of commercial ex- fixed voice, retail and wholesale. We lose a ther stretch our balance sheet. So taking all penses. The relatively wide range of the EBIT- significant portion of revenues from these ser- this into consideration, the management has DA guidance mainly reflects some uncertainty vices every year due to substitution from mo- decided not paying any dividend in 2017. It around the pre-paid market, and risks related bile and unfavourable demographic trends. was a very tough decision for us to make as to real estate disposals. Also the Polish market is very competitive, we are aware that a lot of investors hold our which is visible in our financial results both on shares for the dividend. However in our view What are you doing to counteract negative mobile and fixed side. it is the right decision, taken for the long-term business trends? interest of our shareholders, accounting for Our main problem is the fixed business, where the circumstances that I just described. we see pressure on legacy services and the ADSL broadband customer base. As far as

Orange Polska Integrated Report - 60 61 - Orange Polska Integrated Report Unmatched data connectivity for households and businesses 6.26.1 Outputs & outcomes KPI Our commitment Performance Providing best connectivity:

Number of HH Number of HH connectable: connectable within of our 2015 0.7m

fibre network 2016 1.5m

Number of HH connectable: OUTPUTS & OUTCOMES By following our business model and fulfilling our strategic objectives we deliver unmatched Number of HH connect- To offer best connectivity, both 2015 4.7m able within of our VDSL in mobile and fixed, regardless of data connectivity for households and businesses and a palette of services adjusted to our network geography of customers 2016 4.8m customers’ needs. We aim to deliver an effortless and friendly customer experience across Outdoor: To connect up to 0.8 million of 2015 84% all customer touchpoints. Simultaneously we aim to be an agile and flexible company with a households to our fibre network in 2016 99% 4G coverage 2016 proven ability to find efficiency savings. Orange Polska is sensitive to the global challenges Indoor: 2015 65% related to the natural environment and natural resources. We implement our business goals To further develop our LTE coverage based on the newly 2016 87% with respect for the rules of ecology and in harmony with the environment. purchased spectrum and provide Outdoor: best connectivity experience on 2015 n/a LTE 2016 82% 800MHz coverage Indoor: 2015 n/a

Unmatched data connectivity Effortless and friendly Acting in an effective and 2016 42% for households customer experience responsible manner and businesses Delivering a palette of services adjusted to customer needs:

2014 539,000 Number of Convergent •• Providing best connectivity: 2015 728,000 •• Optimal sales channel mix •• Focus on efficiency Customers – reliable and resilient network – optimisation and enhancement – an agile and flexible company 2016 879,000

– best connectivity regardless of of remote sales channels with proven ability to find effi- 2014 15,629,000

the customer’s location •• Making customer journey ciency savings Number of mobile SIM 2015 15,906,000 cards •• Delivering a palette of easy and friendly – constant transformation of indi- 2016 15,990,000 services adjusted to – simplified procedures andelim - rect costs 2014 7,679,000 customer needs: ination of needless procedures – process optimisation and auto- Number of mobile 2015 8,361,000 – broad portfolio of competitive, and pain points mation post-paid SIM cards 2016 9,453,000 telco services, enriched by – problems solved during one •• Management of impact on 2014 7,950,000 non-telco products contact the environment Number of mobile To offer a full palette of services, 2015 7,545,000 – convergent services –high NPS ratio – business goals implemented pre-paid SIM cards enriched by non-telco products, 2016 6,537,000 – the right products at the right –services accessible to all with respect for the rules of to strengthen our position as the price ecology and in harmony with unique convergent player in Poland 2014 2,241,000 Number of fixed retail 2015 2,105,000 the environment broadband customers •• Impact on society 2016 2,015,000 – social investment programmes 2014 2,000 Number of fibre •• Being digital and caring 2015 17,000 customers employer 2016 88,000 – investing in employees devel- Number of LTE for Fixed 2015 39,000 opment customers 2016 191,000

2014 4,512,000 To help measure our progress on how well we are adding value for our stakeholders and delivering the outputs Number of fixed voice 2015 4,194,000 described above, we use KPIs and success measures presented in this chapter. customers 2016 3,932,000

Orange Polska Integrated Report - 62 63 - Orange Polska Integrated Report Delivery on our commitments in 2016 Fixed efficient use of the existing fibre infrastructure Delivering a palette of services In 2016, we continued massive development in the relevant locations. This is in line with the adjusted to customer needs: Providing best connectivity: of fibre lines. In effect, at the end of 2016, al- aims of the Cost Directive of the European Last year was very successful for us with re- Connectivity is a vital pillar of our strategy. most 1.5 million households in 37 Polish cit- Commission by avoiding duplication of exist- spect to commercial activity on all fronts. We Investing in the right spread of technologies ies were connectable with the fibre network. ing facilities. In 2016, Orange Polska signed continued to pursue our convergence strat- and maintaining and upgrading our network The number of households connectable to two such agreements, namely with Telefonia egy as our market differentiator. For mobile infrastructure helps to ensure that Orange can VDSL stood at approximately 4.8 million at Dialog (a wholly-owned subsidiary of Netia post-paid the year was particularly positive, continue to attract customers with the prom- the end of 2016. The VDSL range did not S.A.) and Inea. Under the agreement with on the back of family offers and migration OUTPUTS & OUTCOMES ise of fast and reliable services, as the de- change significantly in 2016, mainly because Telefonia Dialog, we will gain potential access from pre-paid. In fixed broadband, we man- mand grows for greater quantities of data and we prioritised the fibre network. to approximately 114,000 households in the aged to trim customer losses mainly due to higher speeds of transmission. In 2016 we The strategy of development of services Łódź Region of Poland, while in case of Inea, expansion in fibre. concentrated our efforts on fibre technology based on FTTH lines provides not only for it is approximately 110,000 households locat- to keep pace with the demand for high-speed the construction of the company’s own infra- ed mainly in Poznań (over 80% of the cover- Convergent services: strong commercial broadband, and we expanded our mobile 4G/ structure but also for wholesale agreements age) as well as Konin, Szamotuły and Środa momentum maintained with 151,000 net LTE network to accommodate the explosive with other fibre network operators, wherever Wielkopolska. Both agreements will be grad- additions growth of mobile data traffic. it is technically possible and economically vi- ually implemented in 2017. One of the key strategic objectives of Orange able. Such agreements were put in place in Polska is to be the convergence leader, pro- 2016. The main benefits include quicker ac- Mobile viding mobile and fixed line service bundles. cess to the FTTH access network and more The most important development in the mo- In 2016, the convergent offer push was one bile network was the assignment of radio fre- of the pillars of our marketing activity both in quencies from the 800 MHz and 2600 MHz the consumer market and among business bands by UKE following completion of the customers (small to medium enterprises). relevant auction towards the end of 2015. Major elements contributing to the scope and Thanks to these investments in spectrum, our attractiveness of convergent offers included 4G coverage for all the bands exceeded 99% fibre network rollout and development of a TV of population and more than 90% of Poland’s offer based on our own content aggregation, territory. LTE services were provided by Or- using IPTV technology. ange Polska via over 8,500 base stations. At the end of 2016 our convergent customer In an effort to optimise mobile infrastruc- base reached 879,000, which is an increase ture development, Orange Polska has been of 151,000 (or 21%) compared to the end of co-operating with T-Mobile. In 2016, the ex- December 2015. The total number of services isting co-operation was expanded to include provided in the convergence scheme was al- equipment operating on the 800 MHz and most four million. On average, each convergent 2600 MHz bands .The purchase of new spec- customer uses more than four Orange services. trum has significantly improved the market position of Orange Polska. According to an independent survey by speedtest.pl, Orange Convergent base ('000) was the fastest mobile broadband network in Poland. 879 In the fourth quarter of 2016, Orange Polska 539 728 became the first operator in Poland to launch VoLTE on its network. This enables a higher quality of voice calls on mobile networks. The service can be used with selected handset models, the list of which will be gradually ex- panded. 2014 2015 2016

Orange Polska Integrated Report - 64 65 - Orange Polska Integrated Report Post-paid mobile: the highest net additions had a net portability balance of over 150,000 platform has been based on content aggre- offer is the same regardless of the distribution in many years driven by Family offers, in 2016, a major improvement versus 2015 gated by Orange Polska. Content aggregation technology. At the end of 2016 we had 766,000 mobile broadband and increased migration (88,000). means that Orange Polska has been buying customers of our TV offering. from pre-paid In the pre-paid segment, the introduction of rights to TV channels directly from broadcast- In line with the strategic medium term action obligatory registration resulted in much lower ers. Before, our offer used to be based on Fixed line voice services continued to be plan announced in February 2016, we were new card activations. In addition, card regis- content reselling. This shift in approach, from affected by unfavourable trends very active in customer acquisition and reten- tration by customers accelerated migration to resale to independent content aggregation, Performance of PSTN continues to be affect- tion in 2016, carrying out a strong marketing post-paid. However, as the vast majority of enables greater flexibility in adjusting our TV ed by unfavourable demographic trends, partial OUTPUTS & OUTCOMES push with respect to mobile voice and data new pre-paid activations are low usage one- portfolio to the needs of customers as well as regulation and mobile substitution. Neverthe- services. time activations, the reduction, although very development of additional services, such as less, structural decline slowed down with net As at the end of 2016, we had a mobile ser- significant, did not affect our financial perfor- catch-up TV, multiroom and multiscreen. To- loss of lines at 259,000 versus 318,000 in the vices base of 16 million, which is an increase mance in a material way. wards the end of 2016, a change in our offer previous year. of 96,000 or 0.6% vs. end of 2015. The slight was introduced for the satellite technology. In growth resulted from a combination of two op- Fixed line broadband services: customer this case, however, our offer is based on part- posite trends. On the one hand, the post-paid losses trimmed due to strong fibre take-up nership with the nc+ platform. Currently, our TV base experienced spectacular growth of over In fixed retail broadband, the number of ser- 1.1 million (or over 13%), which was the high- vices continued to fall, though at a much low- est in many years. On the other hand, there er rate than in 2015: customer losses totalled Effortless and friendly customer experience was a rapid decline in pre-paid SIM cards in 68,000 in 2016 vs. 136,000 in 2015. The de- the second half of the year. This was almost cline slowdown can be attributed almost en- KPI Our commitment Performance exclusively due to the registration obligation tirely to an increase in high-speed broadband, Optimal sales channel mix 2015 794 that was introduced at the end of July 2016. where the customer base grew by more than Number of POS To make it easy for our 2016 755 The growth in post-paid (in both voice and 50%. Major investments in the fibre network all customers to access Number of POS adjusted to 2015 157 mobile broadband) was based mainly on the began to bear fruit. It is the key to revers- our products and services customers with disabilities 2016 157 offers introduced in 2015 and supported by ef- ing negative broadband trends in the future. through different channels of contact 2015 8 fective marketing. This impressive growth was High-speed internet take-up was further stim- Number of Smart Stores 2016 12 mainly fuelled by two market trends: the suc- ulated by migration from ADSL technology, Making the customer journey cess of our multi-SIM family offers, and much which is getting increasingly less competitive. easy and friendly higher popularity of mobile broadband for use As a result, the share of high-speed services To improve the customer in the home (we call it LTE for Fixed). Family grew to approximately 25% (from 15% at the experience by offering offers are a powerful market tool to win house- end of 2015). attractive products and services, accompanied by Evolution of NPS position holds who use more and more mobile devices. improvements in customer LTE for Fixed is gaining traction as a substitute In 2016, we continued the rollout of the fi- NPS position service and sales channels, 2013 2014 2015 2016 for fixed broadband, especially in suburban bre access network. As the fibre service is both traditional and online 6 4 3 3 areas, as a consequence of much better mo- a novelty in the Polish market and has low To be innovative and bile connectivity. Another contributing factor to awareness among consumers, our marketing flexible in responding to our competitors’ moves growth in post-paid was increased migration efforts were aimed at raising this awareness from pre-paid following a regulatory change and creating demand for the service. The Numbers of activations of Guarantee of security for 250,000 CyberShield our safety solutions internet users at Orange activations in 2016 that obliged users to register their pre-paid number of fibre customers at year end stood Polska network SIM cards. Net additions were well balanced at 88,000. The take-up rate improved as the between business customers, consumers year progressed: 31,000 in 4Q vs 18,000 in and machine-to-machine (M2M). Anti-churn 3Q, 12,000 in 2Q and 10,000 in 1Q. initiatives also proved successful. As a result, A major factor in competing for fixed broad- quarterly churn rate in the post-paid segment band customers is the quality of the TV offer. decreased to less than 3%, a many years’ To enhance the competitiveness of our offer in low. We performed very well in number trans- terms of TV content, since February 2016 our fers from the competition. In post-paid, we TV offer available to customers using the IPTV

Orange Polska Integrated Report - 66 67 - Orange Polska Integrated Report Delivery on our commitments in 2016 The telesales channel is also used to con- User-friendly contact channels mentation of Europe’s largest billing solution, tact customers (mainly for retention and We provide highly cost-effective and top the Oracle Billing and Revenue Management Optimal sales channel mix cross-selling), while the product and agree- quality contact channels, which are adjusted (OBRM) system. Three million customers Optimisation and enhancement of remote ment are subsequently delivered by courier to customer needs. As part of constant im- have already been migrated onto this sys- sales channels free of charge or picked up in store. However, provement of our contact channels, last year: tem. The billing system optimisation has had Our key objectives include further devel- currently telesales are used mainly to support •• We simplified and shortened IVR on all our a positive impact on quality, billing time and opment of our on-line sales channel and online sales conversion. In addition, following customer service infolines, with dedicated invoice delivery (including convergent dis- cross-channel initiatives as well as the optimi- our considerable investments in the FTTH services path for senior clients and facilities tribution) as well as the receivables turnover OUTPUTS & OUTCOMES sation and modernisation of our sales outlets network rollout we have continued to develop for clients with disabilities. ratio. The change will also reduce the system to align with market and consumer trends, as our door-to-door sales channel, which is the •• In using Facebook for customer care, for maintenance costs. this is directly reflected in customer satisfac- most effective way to compete with cable op- the fifth year in a row we remained Po- tion and further efficiency gains. erators and sell our fibre services. land’s leader and within top ten worldwide Showrooming We continued the process of closing un- (according to Socialbakers’ list of the most Try or test products der-performing points of sale last year. As a Making the customer journey easy socially devoted brands); Buy products and services result, the total number of points of sale, either and friendly •• We implemented the ‘Our Orange’ social Obtaining information our own or operated by agents, was reduced Focus on improving customer satisfaction platform based on cutting-edge technolo- Pick up order POS by 39 to 755 at the end of 2016. Furthermore, We strive to build long-standing relationships gy, and it was visited by over half a million Customer care we have been gradually modernising our with our customers. We focus on improving users in the first six months. points of sale. We continued adding Smart customer satisfaction in order to enhance •• We regularly upgraded the ‘My Orange’ Stores to provide customers with convenient, their loyalty and trust, mitigate churn and in- mobile app, which in addition to self-ser- Product reviews and comparisons friendly and innovative spaces for settling any crease revenue. Already in 2016 over 90% vice offers free contact with consultants Price and availability matters related to our telecommunication ser- of customers are satisfied with our customer with a single click (Click-2-Call and Click-2- Discover new products vices. There were 12 of them at the end of care and over 72% of customers would rec- Chat functionalities). Offers and promotions 2016. ommend our services. •• We expanded the ‘My Orange’ section of ONLINE Customer care In addition, we have invested in a new store our website, through which customers can format: Fibre Shops. These are stores located Uniform standards quickly and easily manage accounts, pay close to housing estates within the FTTH net- For another year in a row, we maintained the invoices or activate additional services Price and availability work reach, which combine image-building prestigious international COPC certificate, themselves without the need to contact an Offers and promotions and sales functions and are dedicated to our which confirmed our high efficiency and top advisor. Mobile applications fibre offer. We operated 38 such stores as of standards in customer care management. Location based services the end of 2016. Over the last three years, the implementation Modern CRM systems MOBILE Customer care The total number of traditional stores is great- of these uniform standards has brought us Our frontline sales and customer care em- ly expanded by chains of independent dis- tangible business benefits: an increase in sat- ployees have been provided with a single, tributors, such as Media Markt, Saturn and isfaction from customer service by 11 pp, and common tool for customer relationship man- Product reviews and comparisons Neonet. Through this co-operation we are an increase in first contact resolution (FCR) by agement (CRM), the Omni system. It will ulti- Price and availability present in 740 additional points of sale, offer- 15 pp. mately replace all the existing sales and cus- Discover new products ing a complementary service to consumers In our customer communications we follow the tomer service systems. When using Omni, CALL Offers and promotions interested in buying a device. “Listen & Respond” approach based on listen- sales and customer care staff can carry out CENTER Customer care In line with market trends, our on-line sales ing to and understanding the customer needs: processes in the same manner as customers are a rapidly growing channel. In connection •• we write in a more friendly manner logged to ‘My Orange’ do. The new tool will with our fibre offer, we have introduced an •• we respond in a simple language, under- facilitate and accelerate a number of cus- Product and services information option to check the network reach and short- standable to any customer tomer service operations which have hitherto Share experience ened the purchase process. Owing to grad- •• we educate customers about our services required the simultaneous use of several sys- Demand information ually implemented cross-channel solutions, and self-management tems. Ultimately, this tool will be made avail- Customer support SOCIAL the co-operation between all our contact •• we resolve problems at once: 9 out of 10 able to our customers as well. (not related with account details) MEDIA channels ensures a uniform, seamless cus- issues are resolved at first contact. Last year we completed the ‘Convergent Demand opinions tomer experience at any time and any place. Offer Tool’ project, which involved the imple-

Orange Polska Integrated Report - 68 69 - Orange Polska Integrated Report

Acting in an effective and responsible manner

KPI Our commitment Performance Being digital and caring employer

Focus on efficiency Number of Number of employees Indirect costs To be an agile and flexible company Indirect costs employees 2014 18,442 with proven ability to find efficiency (PLNm) 2015 16,967 savings; constant transformation of 2016 15,880 indirect costs 2014 4,577 2015 4,201

Share of women To create culture of co-operation in % of women among managers OUTPUTS & OUTCOMES Process optimisation and automation, 2016 4,007 among managers which all employees feel respected IT spending optimisation as well as 2014 28% and freely pursue their professional facilitation of commercial initiatives, 2015 29.2% goals and life passions especially in convergence 2016 28,5% To offer better working conditions, Management of our impact on the environment Number of training constant enhancement of the work training hours per employee Energy consumption (GWh) Energy hours per year per environment and focus on talent 2014 30,6 consumption 2014 623 employee development 2015 44,8 2015 635 2016 35,46 CO2 emission 2016 588 To continue workforce optimisation in cooperation with trade unions Employees Employees satisfaction ratio CO emission (tones) 2 satisfaction ratio 2014 26,3* 2014 493,000 (International Social 2015 33,2 2015 505,000 Barometr) 2016 26,3 To implement business goals with 2016 475,000 respect for the rules of ecology and (*on a scale from -100 to +100) Certification of in harmony with the environment: Maintaining ISO 14001 in the the ecological optimization of energy use in mobile segment management the following areas: real estate, system infrastructure and network, Data Center, supervision over Orange Polska’s impact on the environment; Number of collected and re-use recycled phones increase in number of recycled, recycled, re-use 2015 63,589 re-use and refurbished devices and refurbished 2016 77,524

devices refurbished and relaunched phones 2015 9,318 2016 11,839

refurbished and relaunched devices 2014 437,558 2015 437,629 2016 416,516

Impact on Society Number of participants To expand access to new 77 Orange Studios in villages (residents of small technologies for residents of small and small town for 600,000 towns and villages) towns - digital development of local residents in educational communities activities Number of participants 350 schools and 6,750 children (schools, children) To develop digital competencies in MegaMission Programme in educational among children and schools 35 schools and 800 children in programmes #SuperCoders program

Number of To provide and support education 662, 000 children using participants on children’s online safety in schools education materials (children and and kindergartens all around Poland 33,000 users of the on-line cours parents) in Safety with the Safety Here and There for parents Here and There programme programme

Orange Polska Integrated Report - 70 71 - Orange Polska Integrated Report Delivery on our commitments in 2016 isation of devices that are no longer wanted handsets, notebooks and tablets refurbished Digital Education and provokes us to think about eco-efficiency and reintroduced onto the market, accounts We want the youngest children to be safe and Focus on efficiency inside the company as well as relations with for ca 48% of the total distribution for Romania conscious users of multimedia and we want In Orange Polska we focus on the process of our suppliers. It also means educating cus- and Polska. 182 267 were refurbished for teachers to have access to quality materials optimising the company to adapt to a more tomers and encouraging them to return ICT OPL’s needs, which constitutes 28% of enabling them to conduct modern classes demanding telecom market. Our ambition is devices they no longer use. broadband distribution in Poland. after school. Therefore we have launched to be an agile company, digital and flexible, We try to maximise our positive impact on the Appropriate supervision over our operations MegaMission, a nationwide educational with a strong online presence and highly au- environment and minimise our negative influ- is ensured by our Environmental Manage- programme for primary schools offering af- OUTPUTS & OUTCOMES tomated processes, as well as a proven ability ence. Within environmental protection policy ment System, which is consistent with the ter-school care. It is addressed to teachers to cut indirect costs and find efficiency sav- we supervise compliance of our operations ISO 14001 standard for mobile telephony ser- and kids aged 6 to 10, who spend time in af- ings. with the law and other regulations regarding vices. ter-school facilities. Through this programme Our strategy assumes maintaining high level ecology, we control negative impact of our we expand educators’ knowledge about the of direct costs, which encompass mainly ex- processes on the environment and we plan Impact on Society ten key areas of development of media, digi- penses related to customer acquisitions and actions that enable its reduction. Universal internet access contributes to equal tal and IT competence. While analysing social retentions as well as interconnect costs relat- All our energy saving initiatives, including opportunities and helps people from dis- needs, we were looking for space in schools ed to customers activity, and a decrease in some designed by our own employees, have advantaged social groups to reach their full that would enable digital education of chil- indirect costs – that include all labour costs, been combined into a single programme, potential. But first we need to eliminate the dren in an innovative form outside regular IT, network and all sorts of general expenses. ‘Energy Optimisation’. To date, Orange Pol- social barriers that restrict people’s access lessons to supplement the core curriculum Our 2016 cost evolution reflected this ap- ska has launched almost 100 such initiatives, to knowledge, culture and education through recommended by the Ministry of National proach: our indirect costs were down 4% and which generated total energy savings of 145.0 digital technology. Education. We have identified such space in our direct costs were up 6%. The most signif- GWh between 2014 and 2016 (and will gen- after-school clubs, where kids spend time be- icant implemented cost saving initiative was erate savings of 96 GWh annually after all the Orange Studios fore and after their lessons. 350 schools and related to realisation of the Social Agreement projects are completed). It means an overall In order to facilitate access to information, 6,750 children participated in the MegaMis- for the years that was concluded in Decem- reduction of 118,802 tonnes in carbon diox- knowledge and technology among local com- sion classes in 2016. ber 2015. Pursuant to the Agreement a total ide emissions. As a result of these actions, munities, we have developed Orange Stu- In 2016 we launched a pilot of #SuperCoders, of 1,030 employees left the Group in 2016, the company’s total electricity consumption dios. Orange Studios are public multimedia an education programme to teach coding, 94% of whom under the voluntary departure decreased by 6% in 2014- 2016, despite new studios in small towns and villages, which we aimed at primary schools and students aged programme. investments related to the development of create and help to manage. The purpose is to 9-12. The pilot was conducted in 35 schools Other important efficiency initiatives intro- our services. provide members of local communities with from all over Poland. We plan a full edition of duced in 2016 include: We try to reduce the amount of materials we access to new technologies, courses and the programme in 2017 with 100 schools in- •• Energy consumption optimisation project use in our operations and to reuse them rath- workshops. Leaders of the studios are pro- volved. •• Car fleet optimisation including cars reduc- er than dispose of them. We encourage our vided with professional training and financial One of the most important issues for us is the tion, lower rental costs and lower mainte- customers to recycle old mobile devices: a aid to help them manage these modern and safety of children and young people on the in- nance costs buy-back programme for unwanted mobile attractive meeting places. 77 studios have ternet and the preparation of young people for •• Postal costs optimisation through diversifi- phones is one of our key environmental initia- been created across the country up to now. In the conscious use of new media. These ac- cation of services providers and rising e-in- tives. It is also possible to get rid of old mobile addition, we have launched an online knowl- tivities are carried out under the programme voice dispatch phones and accessories, free of charge, in edge-sharing platform for Orange Studio Safety Here and There, which combines the •• Optimisation of technical partners costs. Orange stores. users. It features a portfolio of ready-to-im- educational activities of the Orange Founda- Multimedia devices, such as modems, set- plement projects and a gamification module tion with all our services related to customer Management of the impact on the top-boxes are leased to customers for the that uses game mechanisms to foster social safety. This programme provides and sup- environment term of their telecommunication service competence and motivate residents to work ports education on children’s online safety in Use of new technologies is a huge opportunity agreements. Thanks to that, products which for the benefit of their neighborhoods. The ini- schools and kindergartens all around Poland. on the one hand, in terms of the development are not yet at the end of their life cycle, are tiatives are aimed at different target groups: Every year within the programme the Orange of social or economic life and for finding more re-launched, while avoiding the need to pur- children and youth, people with disabilities, Foundation in cooperation with Empowering eco-friendly solutions; on the other hand, it chase new ones. young mothers and senior citizens. We esti- Children Foundation offers many education- presents a challenge when it comes to the Orange Polska refurbishes returned devices mate that 600,000 people use Orange Stu- al tools and materials such as e-learning and rapid outdating of products and increased which have not reached the end of service dios per annum. In 2017 we plan to open 25 educational websites, online brochures and demand for energy. It poses a problem of util- life, putting them back on the market. 416,516 new studios.

Orange Polska Integrated Report - 72 73 - Orange Polska Integrated Report 0.5 % 0.1 %

9.7 % 19.1 % 26.3 % 40.8%

59.2% 73.1%

71.2% OUTPUTS & OUTCOMES

Total employees by: Gender: Age: Education*: Female Less than 30 years Higher Male 31-50 years Secondary More than 50 years Basic vocational Primary *(only for Orange Polska) guidelines for pupils, parents and teachers. constant enhancement of the work environ- we follow transparent rules and criteria of can- prepare their own development plans and con- In 2016 our educational materials reached ment and our focus on talent development. didate selection. Decisions to recruit particular duct classroom and e-learning training cours- 662,000 children. Adults (especially educa- Satisfaction surveys among our employees employees are based on their qualifications and es, inspiration sessions and specialist lectures tors and specialists) can participate in confer- only confirm this status. In 2016, the score for professional experience. We ensure that candi- in technology, telecommunications and project ences, seminars and workshops. We created being proud of working for Orange was 46.8 dates represent diverse communities. In terms management. a special online interactive guide for parents (on a scale from -100 to +100) and the score of leadership, the diversity requirements include We have a programme that identifies and devel- and guardians teaching them how to protect for recommending Orange as a good place to care for the diversity of decision-making bodies ops managerial talents. It supports people with their children online and better understand work was 36.9. within the Company. In complementary action initiative, concrete achievements and manage- their fascination with digital technologies. In plans to the Policy, we have assumed a require- ment potential, who develop constructive rela- 2016 it had 33,000 users. Diversity management ment for analysis of management and supervi- tions with other people, act in accordance with Adoption of clear employee evaluation crite- sory bodies in terms of diversity with respect to Orange values and who are committed and will- Being digital and caring employer ria and implementation of equal opportunities such aspects as age, gender, education or pro- ing to take on new challenges. People from the At Orange Polska we believe that the invest- principles are among the key conditions for the fessional experience. Talent Group are taken into account at the first ment we make in our people is fundamental functioning of a socially responsible company. stage of recruitment for managerial positions. to our business activity, achieving our strat- In September 2016 Orange Polska adopted Training They may be covered by dedicated develop- egy and improving our competitive edge. a Diversity Management Policy. Our Diversity We have a number of training programmes, ment programmes. They also have an opportu- Employee engagement and development is Management Policy supports the achievement which aim to develop competence and pre- nity to participate in projects that are critical for essential to ensure that we deliver the best of our business objectives, addresses changes pare employees to face strategic challenges. the company. customer experience and increase our busi- in the labour market and responds to the ex- Our employees increase their qualifications and We have launched an international development ness performance. In Orange Polska we want pectations of our employees. The key diversity language skills, and are eligible for financing programme, to promote uniform management to create a culture of co-operation in which all dimensions in Orange Polska identified in its Di- of graduate or postgraduate studies, including standards across the Orange Group. It is offered employees feel respected and freely pursue versity Management Policy are as follows: gen- MBA. We have Professional Schools in different to all managers in the Group. It has been based their professional goals and life passions. der; age; competence / expertise / experience areas that offer opportunities for professional on a development model that involves sharing / way of thinking; psychophysical skills – (dis) improvement and development. Employees are experience. Orange Campus has three inter- Orange Polska again among top employers abilities; parental status. Other diagnosed di- taught by company experts. Currently there are national training centres in Poland, France and In 2016 we focused on building Orange Pol- mensions include: religion / beliefs; workplace seven Professional Schools in areas such as Spain. 91% of Orange Polska managers have ska’s image as one of the best employers in location (HQ vs. region); type of employment; sales, operations or marketing. already participated in at least one such training Poland. We received several awards in 2016, nationality / ethnic origin. We promote knowledge sharing programmes, course. So far, Orange Campus training ses- including the Top Employers Polska certifica- With respect to administering, managing and such as Knowledge Highway, which supports sions have been attended by more than 5,500 tion and Top Employers Europe title. Our high supervising bodies, the rules specified in the the development of a know-how sharing cul- participants. ranking among Polish companies reflects our Policy include proper selection of employees ture among Orange Polska’s internal experts. commitment to better working conditions, and leadership. In the recruitment process, 80 experts are involved in the programme. They

Orange Polska Integrated Report - 74 75 - Orange Polska Integrated Report Sustainable development workforce to the realities of the telecom mar- Volunteering programme The company follows the employee Devel- ket in 2016 and beyond. opment& Assessment (D&A) process, which- combines annual evaluation results with the Volunteering programme allows socially 20.22% employee's career development plans; it al- conscious people to share their knowledge 23.67% soinvolves progress monitoring throughout and positive energy with others theyear and accounts for Orange values in th- In Orange Polska we have the biggest em- 2016 2015 eemployee assessment. ployee volunteering programme in Poland. It OUTPUTS & OUTCOMES •• 97.2 % of employees evaluated has been running for 14 years. It is organised •• 81.3 % of employees with individual devel- by Orange Foundation in cooperation with 76.33% 79.78% opment plans Orange Polska and engages about 3000 vol- •• 21,946 development activities scheduled unteers each year. The programme is based The same process also covers 3 101 of our on Competence volunteering. Our employees outsourced staff. 99.8% of them completed share their knowledge, skills and experience the process and for 75.4% of them obtained a and teach children and seniors how to use Employees engaged in volunteering programme development plan. the internet safely and wisely. Moreover, Or- A bonus is a variable remuneration compo- ange volunteers create Fairy Tale Corners for nent that depends on the work results. All children: colourful and friendly spaces to learn 3,517 employees are eligible to variable bonus. and play in places such as hospitals, hospic- 2016 Individual groups of employees, depend- es and single mothers' homes. Every year ing on their responsibility, are subject to around Christmas our volunteers play Santa 2015 3,080 the relevant rules of the bonus system. and visit kids in hospitals and orphanages. volunteers The bonus goals for the employees depend- Our employees take part in important social ing on the group they are located in are set actions and in events organised by Orange and settled in one of the following periods: Polska (e.g. Orange Warsaw Festival). Orange monthly, quarterly, semiannually. volunteers may develop their own volunteer- ing project and apply for a grant for its im- 2016 26,225 Continuing workforce optimisation plementation. Every year we award grants to through social dialogue approximately 100 local projects. 2015 22,655

We respect the employees’ right to associ- volunteers’ working hours ate and we run regular broad dialogue with our social partners. The most important issue for discussion with trade unions is the Social Agreement. This document regulates, among others, the rules for concluding and terminat- ing job contracts, working hours, holiday en- titlement, rules of remuneration and obtaining extra benefits connected with work, occupa- tional safety and health issues, training, social care and health care. 2016 was the first year of implementation of an agreement with trade unions, signed in December 2015, which allowed for 2,050 vol- untary departures in 2016–2017. We have a long track record of successfully adapting to market conditions: from over 68,000 full time employees in 2001 – the legacy of our for- mer role as the state-owned national telecom provider – we have completely realigned our

Orange Polska Integrated Report - 76 77 - Orange Polska Integrated Report Revenue evolution reflects pressure of traditional subsidised offers (in the instal- 6.3 Financial review in 2016 legacy and high competition ment scheme, a portion of revenue cor- Adjusted revenue totalled PLN 11,538 million responding to the handset is reported as in 2016 and was down PLN 288 million (or - revenue from equipment sales rather than 2.4%) year-on-year. The decline was slightly revenue from services, which is the basis Financial KPIs lower than a year before (- 2.9%). for ARPU calculation)

To illustrate Orange Polska performance we use financial and operational The decrease resulted from fixed line reve- •• discounts granted to customers subscrib- OUTPUTS & OUTCOMES KPIs. We present them in a table below. nue erosion and much lower other revenue. ing to convergent services In the fixed line segment, the decline affected •• ongoing pricing pressure, mainly in the 2016 Outlook and KPI Performance 2017 Outlook and guidance mainly voice and wholesale services, which B2B segment guidance as legacy services are influenced by nega- •• lower incoming traffic growth than in 2015 12,786 12,191 11,826 11,538 Adjusted* Revenue to (PLNm) Mobile service impacted by tive structural factors. Fixed broadband rev- However, it should be noted that a number of Revenue be under pressure new roaming regulations and – relatively benign uncertainty on pre-paid enues were also down (by nearly 7%) due to these factors have a dilutive effect on ARPU Mobile revenue 6,259 6,120 6,119 6,421 outlook for mobile Slower growth of mobile a decline in both customer base and average and do not result directly from intensified likely to be offset equipment sales revenue per user (ARPU). A 26% decrease in price competition. by ongoing nega- Legacy revenue (PSTN, other revenue was mainly a consequence of tive trends in fixed Fixed revenue 6,057 5 ,535 5,091 4,662 wholesale) in continued and lack of infra- the completion of broadband infrastructure EBITDA reflects lower margin revenue mix structural decline structure projects Other revenue 470 536 616 455 projects, which in 2015 generated revenues and high commercial costs 2013 2014 2015 2016 of PLN 127 million. Total operating costs (determined as adjust- Adjusted* PLN 3.15bn – PLN PLN 2.8-3.0bn These negatives were partially offset by an in- ed EBITDA less adjusted revenues) increased EBITDA 3.30bn Adjusted EBITDA margin 31,6% 32,1% 29,7% 27,4% crease in mobile revenues. This was support- by less than 1% in 2016. As a result, the (PLNm) ed by dynamic growth of mobile equipment EBITDA erosion slightly outpaced the revenue sales (by nearly 70%), resulting from a stra- erosion. Adjusted EBITDA margin decreased tegic decision to focus on instalment sales in Adjusted EBITDA 4,046 3,916 3,517 3,163 customer acquisition, while considerably re- ducing sales of traditional subsidised offers. Adjusted revenue evolution (PLNm) 2013 2014 2015 2016 On the one hand it stimulated rapid growth

Adjusted* Around PLN 2bn, % of revenue 15,0% 14,6% 16,9% 17,3% Around PLN 2bn, including in equipment sales, but on the other hand it CAPEX including up to around 0.8bn on fibre rollout +302 -429 negatively affected retail revenues from mo- PLN 600m on fibre (PLNm) (>1m new households 11,826 bile services (in the instalment scheme, a por- -161 rollout (excluding connectable in fibre) 11,538 any spectrum li- tion of revenue corresponding to the handset cences) Adjusted capex 1,916 1,775 1,998 2,001 is reported as revenue from equipment sales rather than revenue from services). 2015 mobile fixed other 2016 2013 2014 2015 2016 adjusted service & services equipment Adjusted* – – Blended ARPU amounted to PLN 28.4 in OCF (PLNm) 2013 1 105 2016 and was approximately 6% down year- 2014 1 149

2015 962 on-year. The erosion was higher than in 2015 (4%). The trend slightly deteriorated in both 2016 620 Adjusted EBITDA evolution (PLNm) post-paid and pre-paid services. The ARPU decline in 2016 can be attributed Not higher than 2.6x 3,517 -288 Net debt/adjusted* EBITDA Not higher 1.1 1.1 1.1 2.1 to the following factors: including potential -249 evolution than 2.2x +183 3,163 2013 2014 2015 2016 EC fine payment •• popularity of family offers, in which cus- Management has decided tomers get several SIM cards (PLN) to maximise cash allocation •• growing take-up of SIM-only offers 0.25 PLN to to strategic investment 2015 revenue direct indirect 2016 DPS 0.5 0.5 0.5 0.25 •• focus on instalment sales in customer ac- adjusted costs cists be paid in 2016 projects and therefore will 2013 2014 2015 2016 recommend not paying any quisition, while gradually reducing sales of dividend in 2017*

*please refer to adjustment table on p. 200

Orange Polska Integrated Report - 78 79 - Orange Polska Integrated Report by 2.3 percentage points year-on-year and voice, wholesale and business data services); stood at 27.4%. the decrease in these services was almost Cost evolution reflected the approach pre- entirely reflected in profit erosion. sented in the strategic action plan: an increase in direct costs (up 6%) and further optimisa- Bottom line affected by asset impairment tion with respect to indirect costs (down 4%). loss Cost evolution can be attributed mainly to the Our bottom line for 2016 stood at PLN -1,746 following factors: million versus PLN 254 million in 2015. It was OUTPUTS & OUTCOMES •• 4% decrease year-on-year in labour costs, heavily affected by PLN 1,793m non-cash as- mainly owing to workforce optimisation (in set impairment loss due to reassessment of line with the Social Plan announced in De- future projected cash flows coupled with an cember 2015) increase in the discount rate to reflect high- •• increase in interconnect costs by nearly er business risk. Lower future cash flows are 12% due to growth in retail and wholesale mainly a consequence of more conservative traffic, owing to a much higher customer assumptions regarding performance on the base and higher usage per customer (par- mobile market, uncertainty in pre-paid, con- ticularly resulting from higher popularity of tinuous deterioration in the legacy business unlimited tariffs) and falling competitiveness of ADSL. It was •• decrease of approximately 9% in network also impacted by lower EBITDA and high- Net debt evolution (PLNm)

and IT expenses, resulting from revenue er net financial costs (PLN 68 million above 3.15 -0.62 +0.01 6.78 decline and optimisation initiatives 2015), mainly as a result of higher debt. +0.33

•• increase of over 3% in commercial ex- 3.91 penses. Despite a decrease in handset Capex reflects investments in connectivity transactions (owing to growing popularity and optimisations on other areas end LTE organic dividend other end of SIM-only offers), the total costs actual- Our adjusted capital expenditures in 2016 Dec 2015 spectrum cash flow* Dec 2016

ly increased due to a more expensive mix (amounts excluding spectrum payments) 4Q’15 4Q’16 of handsets sold (a larger share of smart- amounted to PLN 2,001 million and were 4.1% effective interest rate on debt 3.3% phones and expensive smartphones). In almost the same as in 2015. The only two addition, these costs remained under slight growing capex categories are those related to Organic cash flow reflects lower EBITDA, of this, combined with lower EBITDA, we finished pressure due to PLN depreciation against investments in connectivity: mobile network high capex and working capital optimisation the year with a leverage ratio of 2.1x. Our debt EUR. and fibre network. Capex in all other areas Our adjusted organic cash flow for 2016 came was fully hedged against currency movements To a large extent, the margin decline resulted was optimised to give clear priority to the key in at PLN 620 million versus PLN 962 million in and was 70% based on the fixed interest rate. from negative structural trends in high-margin strategic projects. 2015. Net cash from operating activities (be- traditional fixed line services (mainly fixed line fore income tax and change in working capital) Management proposed not to pay dividend was down PLN 365 million, mainly as a result in 2017 of lower EBITDA. Capital expenditure cash out- We are aware how important sustainable Investment areas (PLNm) flows were higher by PLN 320 million, mainly as returns are for our shareholders and con- a consequence of payments to capex vendors, sequently we have been remunerating our Mobile Network while proceeds from asset disposals were lower shareholders for several years in a row. Fibre program (incl. CPE) 278 360 by PLN 24 million. These negatives were partly However, taking into consideration pres- 629 525 Other network (optical, offset by PLN 323 million lower requirement for sure on cash generation in 2017 and poten- convergent, core) working capital as growing receivables (due to tial payment of EC fine, Management Board 311 Customer Premise Equipment (CPE; excl. Fibre) instalment effect) were largely compensated by has decided that in the best interest of our IT Systems and Infrastructure supply chain optimisation. shareholders we should allocate all finan- 528 162 and others cial resources into our transformation plan, 242 Leverage ratio reflects payment for spectrum specifically in fibre, and therefore will recom- 538 426 Our net debt in 2016 increased by around PLN mend not paying any dividend in 2017. 2.9 billion, to PLN 6.8 billion due to the PLN 3.15 billion payment for mobile spectrum. As a result 2015 2016

Orange Polska Integrated Report - 80 81 - Orange Polska Integrated Report Risk management framework 07 in Orange Polska

Orange Polska Integrated Report - 82 83 - Orange Polska Integrated Report Orange Polska’s governance and reporting structure for risk management. Orange Polska’s governance and reporting structure for risk management. ty and human loss. Indicative heat maps are ty andhumanloss.Indicative heatmapsare of financial,reputational, businesscontinui- based ontheirprobabilityand impactinterms Event-based risksaresubject toassessment Leaders withintheGroup’sindividualbusi- based ontheISO31000:2009standard. and manage risks. This framework has been management frameworktoidentify,assess As aresult,OrangePolskamaintainstherisk can impact the achievement of its objectives. nal andinternalrisksofvaryingtypeswhich Orange Polska is exposed to a range of exter- of mitigation launched actions Management Board of risks and appropriateness Supervisory Board Supervisory reviews the completeness assurance and reporting assurance and management of risk management and development, advisory, Business Areas second line framework First lineFirst identification, Central Team Management Board Management analysis, evaluation reviews the risks reported by the reported TOP Risk TOP

pervisory Boardannually. assessment oftoprisksare reported totheSu- used toreportandevaluate risks.Resultsof business objectives. of theirpotentialimpactonthedeliveryour tiveness. Eventsareconsideredinthecontext and reportingon the risksandcontrol effec- new/emerging circumstancesandmonitoring including theidentificationandescalationof the assessment and management of risks ness areas and functions are responsible for Internal Audit Team Audit Internal Audit Committee management systems of management risk Third lineThird review and assurance reviews risk Orange Polska IntegratedReport -84

Orange Polska’sriskmanagementprocess. business activityorcontributingfactorswhereval- and 87reflectthecategoriesofrisksthatdefine risks), whicharesetoutinthetableonpages86 The TOPrisks(aggregatedclustersofevent-based TOP risks 85 -Orange PolskaIntegrated Report Monitoring &review Monitoring & communication analysis & evaluation Consultation Identification, Recording Recording & update is highlighted. extent towhichmanagementcanmitigatetherisk solvency orliquidityofthegroup.Ineachcase impact on the business model, future performance, ue canbelostorgainedandcouldhaveamaterial Treatment

RISK MANAGEMENT FRAMEWORK IN ORANGE POLSKA environment and/orframeworks Potential changesintheregulatory Regulatory environmentandframework funding, liquidityortax-relatedrisk business duetocapital,credit,market, The inabilitytoappropriatelyfinancethe Financial risk and profits. strategy thatwouldleadtolossofrevenues The inabilitytoexecuteandmonetisethe Revenues andprofits. contractors, thepublicorenvironment Potential harmtoemployees, Health, safetyandenvironmental activity and assetsfrommaliciousoraccidental The inabilitytoprotectpeople,information Security services. to customerneedstelecommunications The inabilitytoprovidesecureandadjusted Telecommunications services. obligations andresponsibilities Failure tomeetalllegalandregulatory compliance Corporate governanceandlegal Risk area

Acting ineffectiveandresponsiblemanner Acting ineffectiveandresponsiblemanner Acting ineffectiveandresponsiblemanner and businesses Unmatched dataconnectivityforhouseholds Acting ineffectiveandresponsiblemanner Effortless andfriendlycustomerexperience Acting ineffectiveandresponsiblemanner and business Unmatched dataconnectivityforhousehold Effortless andfriendlycustomerexperience Main businessobjective • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • EU GeneralDataProtectionRegulation current materiallitigation changes intaxregulations law competition andconsumerprotection infrastructure parties' landforOrangePolska'sfixed remuneration fortheuseofthird Commission relatedtonetworksharing proceedings byUOKiKandEuropean telecommunications services allocation ofthe700MHzBandto Home), retail roamingcharges(RoamLikeAt future levelofinvestments credit control foreign exchangerates interest rates implementation ofeSIMtechnology development inPoland Poland" andfibreinfrastructure Operational Programme"Digital substitution fixed/mobile voiceanddata prices, competition pressureonservicesand implementation oftheGroup'sstrategy equipment waste collection ofelectricandelectronic exposure toelectromagneticfields fraud andrevenueleakage data protection terrorism cybersecurity infrastructure andservices interruption ofOrangePolskaIT&N dependence onexternalpartners, services tocustomers, quality andtimelydeliveryofour Key risks,issuesorareasof Orange Polska IntegratedReport -86 uncertainty 87 -Orange PolskaIntegrated Report risk ofadministrativefinesimposed byPolishorEUbodies. imposed bynationalorcommunity regulations,thereisa regulatory requirementsorfailto meettherequirements If Groupcompaniesareunableto satisfytheimposed market powerofOrangePolska on therelevantmarkets. regulatory obligationsresultalso fromthesignificant relating toobtainingandrenewing licences.Certain governing theprovisionofservicesandproducts,also We mustcomplywithvariousregulatoryobligations administration, reducingincomeandmargin. performance, inparticularincreasingcostsof environment mayhaveanadverseeffectonour Regulatory decisionsandchangesintheregulatory risk. currency riskandinterestraterisk),liquiditycredit can beprincipallyclassifiedasmarketrisk(encompassing of itsoperatingandfinancingactivities.Thatexposure from financialinstrumentsthatareissuedorheldaspart Orange Polskaisexposedtofinancialrisksarisingmainly efficiency andcostbenefits. secure competitiveadvantageoroperatingperformance time, costorqualitymeasurescouldresultinafailureto Failure todeliverchangeprogrammesagainstrelevant revenues andmarginsstipulatedinourstrategicplan. by othermarketplayersmaypreventusfromachievingthe Poor customerservice,andstrongcompetitionperformed base stationsandWiFi). telecommunications equipment(primarilymobilehandsets, linked toexposureelectromagneticfieldsfrom have beenraisedregardingthepossiblehealthrisks restrictive thaninmostofothercountries,concerns effects. AlthoughthePolishEMFlimitismuchmore networks raisesconcernsaboutpossibleadversehealth Exposure toelectromagneticfields(EMF)frommobile commercial businesses. impact theprovisionofservicesand/orharmpeopleor to variousthreats(maliciousoraccidental)whichcould Our resources,assetsandinfrastructureareexposed parties andsustainreputationaldamage. be subjecttoenforcementaction,heldliablethird could alsobefinedforbreachesofstatutoryobligations, regulatory penalties.InmoreextremesituationstheGroup expenditure and/orincreasedregulatoryscrutinyand failures canleadtoadditionaloperatingorcapital Operational performanceproblemsorserviceasset Potential impact and regulatorydevelopments and weparticipateinconsultations toinfluencelegislative monitored. Risk-basedtrainingofemployeesisundertaken Legislative andregulatorydevelopmentsarecontinually risks whereappropriate. potential change,exploitingopportunitiesandmitigating all theopportunitiesandthreatsassociatedwithany to understandtheirrequirementsandproactivelyconsider sectors whereweoperate.Wealsoconsultwithcustomers consultations whichmayaffectpolicyandregulationinthe We engageinrelevantgovernmentandregulatory liquidity andflexibility. cash flowsandtoensureanadequateleveloffinancial in foreignexchangeratesandinterestrates,tostabilise with theobjectivetolimitourexposureadversechanges We managefinancialrisks efficiency gains. this isdirectlyreflectedincustomersatisfactionandfurther outlets toalignwiththemarketandconsumertrends,as initiatives. Wealsooptimiseandmoderniseoursales and developouron-linesaleschannelcross-channel As acustomer-centricorganisation,westrivetomaintain increases customersatisfactionandreduceschurn. customers tobuyadditionalservices,convergence needs inacomprehensivemannerandencouraging bundles. Byaddressingthehouseholdtelecommunication convergence leader,providingmobileandfixedlineservice One ofourkeystrategicobjectivesistobethe certification onanannualbasis. voice servicesprovided,whichissubjecttoISO14001 Environmental ManagementSystemwithrespecttomobile protection. Inaddition,OrangePolskahasimplementedan other legalrequirementsintheareaofenvironmental regulatory compliance,emissionlevels,aswelltomeet Management carriesoutongoingsupervisionregarding insurance coverforactsofterrorismandsabotage. and disasterrecoveryprocedures.Wealsomaintain We maintainrobustincidentresponse,businesscontinuity protect infrastructure,assetsandoperationalcapability. with stronggovernanceandinspectionregimesaimto Physical andtechnologicalsecuritymeasurescombined telecommunication andICTservices. Management Systeminthescopeofprovision ISO 22301:2012CertificateforitsBusinessContinuity become thefirsttelecomoperatorinPolandtoobtainan of disasterrecoverysolutions.OrangePolskahas Polska hasbeencontinuallyinvestinginthedevelopment management plansandinsuranceschemes.Orange implementation ofbusinesscontinuityandcrisis proper developmentplanning,preventivemaintenance, The riskofnetworkandITbreakdownismitigatedby Promoter Scoreonaregularbasis. customer services.TheresultsaremeasuredusingNet Orange Polskacontinuouslyinvestsinimprovingits Management approachandmitigation

RISK MANAGEMENT FRAMEWORK IN ORANGE POLSKA Corporate 08 governance

Orange Polska Integrated Report - 88 89 - Orange Polska Integrated Report GLOSSARY OF TELECOM TERMS

4G – fourth generation of mobile technology, sometimes called LTE (Long Term Evolution) Access Fee – revenues from monthly fee from New Tariff Plans (incl. Free minutes) API – Application Program Interface ARPU – Average Revenues per User AUPU – Average Usage per User BI – Business Intelligence BSA – Bitstream Access Offer CATV – Cable Television Corporate Communication and CSR CDMA – Code Division Multiple Access, second generation wireless mobile network used also as a CSR and Sponsorship Department wireless local loop for locations where cable access is not economically justified [email protected] DLA – Drop-Line Agnostic EBITDA – Operating income + depreciation and amortisation + impairment of goodwill + impairment Monika Kulik of non-current assets [email protected] F2M – Fixed to Mobile Calls FBB – Fixed Broadband FTE – Full time equivalent Investor Relations FTTH – Fibre To The Home [email protected] FVNO – Fixed Virtual Network Operator www.orange-ir.pl ICT – Information and Communication Technologies ILD – International Calls Sylwia Wojtkowska IP TV – TV over Internet Protocol [email protected] Liquidity Ratio – Cash and unused credit lines divided by debt to be repaid in the next 18 months LLU – Local Loop Unbundling LTE – Long Term Evolution, standard of data transmission on mobile networks (4G) M2M – Machine to Machine, telemetry Headquarters: MTR – Mobile Termination Rates Orange Polska S.A. MVNO – Mobile Virtual Network Operator Aleje Jerozolimskie 160 Net Gearing – net gearing after hedging ratio = net debt after hedging / (net debt after hedging + 02–326 Warsaw, Poland shareholders’ equity) www.orange.pl Organic Cash Flow – Organic Cash Flow = Net cash provided by Operating Activities – (CAPEX + www.blog.orange.pl CAPEX payables) + proceeds from sale of assets PoP – Point of Presence RAN agreement – agreement on reciprocal use of radio access networks RIO – Reference Interconnection Offer SAC – Subscriber Acquisition Costs SIMO – mobile SIM only offers without devices SMP – Significant Market Power SRC – Subscriber Retention Cost UKE – Urząd Komunikacji Elektronicznej (Office of Electronic Communications) UOKiK – Urząd Ochrony Konkurencji i Konsumentów (Office for Competition and Consumer Protec- tion) USO – Universal Service Obligation VDSL – Very-high-bit-rate Digital Subscriber Line VHBB – Very high speed broadband, above 30 Mbps VoIP – Voice over Internet Protocol WLL – Wireless Local Loop WLR – Wholesale Line Rental

Orange Polska Integrated Report - 220 221 - Orange Polska Integrated Report

8 Profiles ofManagementBoard members Corporate governance in both business andresidential sectors,gainedinvariousEuropean markets. Jean-François has an extensive professional know-how in the telecom market, as MarketingManagerB2BforEuroNet Internet. consulting company, provider andintheNetherlandsasCOOofinternet Wanadoo and Orange Group for20years,mostrecently astheCEOofSofrecom, theGroup’s international May 2016 Appointment totheboard: Responsibilities: in1967) (born Jean-François Fallacher served inkeyleadershiproles within Prior toOrangeRomania,Jean-François Romanian leadingmobiletelcocompany. Orange Romania,responsible forrunning In years 2011-2016 he was the CEO of Career experience: Business School. Business Development program at ESSEC Paris, and completed the International in Supérieure desTélécommunications École Polytechnique,Nationale He obtainedengineeringdegrees from Qualifications: Board CEO andPresident ofthe Management Orange Polska IntegratedReport -90

91-Orange PolskaIntegrated Report in Polish institutionsoperatingin the fieldofICT. In 2016,shewasrecognized bytheInstituteofInnovative EconomyasoneofTOPTENmostinfluentialwomen of Programme CouncilofPNSA. LeadershipandtheMemberofBoard ofExpertsTHINKTANK. Shealsoparticipatesin theactivities in The ChairmanoftheBoard ofSupervisorsOrangeRetailS.A,theMemberEuropean NetworkforWomen Digitisation. SinceJanuary2017BożenaLeśniewskaholdsposition ofVPincharge ofBusinessMarket. Polska and two years later she was appointed a Member of Management Board in charge of Sales and Commercial Sp. zo.o.andTelekomunikacja PolskaS.A.In2013,shebecameExecutiveDirector incharge ofSalesOrange 2008 shehasworkedasDirector incharge ofBusinessMarketandlaterasSalesDirector inbothPTKCentertel as DeputyDirector ofSalesforBusinessMarket.OneyearlatershebecameMarket SalesDirector. Since in Polkomtel S.A.,PTKCentertelSp.zo.o.andTelekomunikacja PolskaS.A.ShejoinedOrange Polskateamin2006 For over20yearsrelated tothetelecommunicationssector. Shewasperformingthemanagementfunctions Career experience: Appointment totheboard: the principles ofcorporatesocialresponsibility. 2011. AmemberofExecutiveVolunteers Coalitionsince2013,where heisactiveinvoluntaryworkandpromotes and ChairmanofthePolishSectionBusinessIndustryAdvisoryCommitteetoOECD(BIAC)since He isalsoChairmanoftheOrangePolskaEthicsCommitteesince2016,Vice President ofEmployersPoland Since January2017heisVice-President oftheOrangePolskaManagementBoard incharge ofConsumerMarket. Telekomunikacja Polskain2013.In2014-2016hewasOrangeVice President responsible forB2BMarket. (TP Group mobiletelecommunicationoperator)-apositionwhichhehelduntilthemerger ofPTKCentertelwith Director incharge ofSalesandCustomerServicePresident oftheManagementBoard ofPTKCentertel 2005 and2009hewasresponsible fortheTPGroup businessmarket.From 2009hewasTPGroup Executive as Director of Multimedia and was responsible access for the mass market. Between for the development of internet telecommunication operators, between 1995and2000.From 2001 heworkedat TP Group (Telekomunikacja Polska) He beganhisprofessional career intheElektrimGroup, where heco-created businessplansforlocal Career experience: Appointment totheboard:

Business Market of ConsumerMarket(B2C) Management Programme atINSEAD. Technology Business School, the Open Academy of Mentoring and Advanced of University, theAcademyofLeadershipPsychologyatWarsaw University Qualifications: Responsibilities: Mariusz Gaca Qualifications: Responsibilities: Bożena Leśniewska Program (AMP)atINSEAD. of IllinoisatUrbanaChampaignandisagraduatetheAdvancedManagement in BydgoszczandWarsaw University. HealsoholdsanMBAfrom theUniversity

October 2015 February 2014

She isagraduateoftheFacultyPhilologyatJagiellonian He isagraduateofAcademy of Agriculture andTechnology

Vice-President oftheManagementBoard incharge of Vice-President oftheManagementBoard incharge

(born in1973) (born

(born in1965) (born

CORPORATE GOVERNANCE of Technology BusinessSchool. at ThePolishChamberofInformationTechnology andTelecommunications (PIIT). on Electronics andTelecommunication atthePolish AcademyofSciences(PAN), aswellmemberoftheCouncil of Radiocommunication andMultimediaTechnologies atWarsaw UniversityofTechnology, memberofThe Committee He actsalsoasAdvisoryBoard President of CIONETPoland,memberCouncilFoundationfortheDevelopment development ofinformationsociety. SymposiumonTelecommunicationsduring the National and ICTin2011–forhisoutstanding contribution tothe and 2011withtheGoldenAntennaAward oftheWorld ofTelecommunication; withtheGoldCyborg award In recognition ofhiscareer achievementshewasawarded, amongothers:astheManagerofYear in2010 as Director ofSales&Services;2006-2008asTPGroup ExecutiveDirector incharge ofSales&Services. In OrangePolska(former Telekomunikacja Polska) since 2001, initially as Director of CustomerCare; 2005-2006 Career experience: Appointment totheboard: Customer Service. Since November2013,untilincorporation area CustomerService 2016intostructure OPLservedasCEOofOrange of TPGroup inthetermsofprocesses telephony. andoperationalmodelsinawiderangeofmobile, fixedandinternet responsible for the strategy, transformation and operational launch of complex customer care for B2B clients appointed Director ofMobileBusinessClientServiceinOrangeCustomerandPTK Centertel.Shewas Between 2004and2010sheservedasDirector ofBusinessClientsServiceatOrange. InOctober2010shewas to IndividualCustomersCare andtakingpartinthedevelopmentof“Idea”mobilenetwork customerservice. She beganhercareer intelecommunicationindustry2000PTKCentertelholdingmanagerial positionsrelated Career experience: Appointment totheboard: Center Excellence(COPC School. SheisalsoexperiencedLeadAuditorofQualityManagementSystemISO2002(BSI)andGlobalContact of StrategyandTransformation inOrangePolska. 2009 -Vice President incharge ofOperations.Since2016heisVice-President oftheManagementBoard incharge In September 2008 he was appointed Member of the Management Board in charge of Operations, in November ® ) Coordinator. In2015shegraduated from SchoolofMentors attheWarsaw University

of Strategy andTransformation and CustomerExcellence the AcademyofLeadershipPsychologyWarsaw UniversityofTechnology Business and Warsaw SchoolofEconomics.Sheisalsoagraduatepostgraduatestudiesat a diploma from French EcoledesHautesEtudesCommerciales (HEC),Jouy-en-Josas SilesiaandpostgraduatestudiesinEuropean EconomyManagementwith of Qualifications: Responsibilities: Jolanta Dudek Qualifications: Responsibilities: Piotr Muszyński organized byIESEBusinessSchool/UniversityofNavarra. University ofWrocław (MAdegree inlaw)andtheAdvancedManagementProgramme

October 2015 September 2008

She isagraduateoftheFacultyPhilologyatUniversity Graduated from the Faculty of Law and Administration at the

Vice-President oftheManagementBoard incharge Management Board Memberincharge ofCustomerCare

(born in1964) (born

(born in1963) (born Orange Polska IntegratedReport -92

93-Orange PolskaIntegrated Report Business Consulting. in charge ofFinance atPTKCentertel.PriortojoiningtheOrangeteam,heworkedforArthurAndersen& Andersen In 2010-2011hewastheManagementBoard MemberatEmitelandin2011-2013theManagement Board Member Controller in2006-2014. He hasbeenwithOrangePolskasince2003andheldseveralpositions infinance,includingOrangePolskaGroup Companies). Healsositsonthesupervisoryboards ofselectedsubsidiaries ofOrangePolska. Nowohoński isaSupervisoryBoard MemberofStowarzyszenieEmitentówGiełdowych (AssociationofListed Since March 2014heisMemberoftheManagementBoard incharge ofFinanceatOrangePolska.Maciej Career experience: of HumanExplorers -informalgroup. He isamemberoftheProgram Board ofPolishHumanResources ManagementAssociation,PTEandamember of training programs supportingthedevelopmentofeducationinPoland. Media Group) andDirector oftheNationalIn-ServiceTeachers Training Center, responsible forimplementation Prior tothatheworkedasaDirector oftheEntrepreneurship andHumanResources SchoolinInforTraining (Infor Resources at Telekomunikacja Polska (nowOrange Polska). He hasbeenworking at thecompanyfor over 15years. Management Branch.Before joiningthemanagementboard, JacekwasExecutiveDirector incharge ofHuman & MarketingatPTKCentertel.Between2005-2009hewasDirector ofEmployeeCompetenceandDevelopment He startedhiscareer inOrangePolskaGroup (previously TPGroup) in2001asManagerofHumanResources inSales Career experience:

of Poznan andfrom theDutchHANUniversityofAppliedSciencesinNijmegen. Organizations ManagementalsoattheUniversityofWarsaw. of Warsaw andNon-Governmental and a postgraduate studies for Local Government Appointment totheboard: Qualifications: Responsibilities: Maciej Nowohoński Appointment totheboard: Qualifications: Responsibilities: Jacek Kowalski

He isagraduateofForeign Trade attheEconomicUniversity He isagraduateoftheFacultyHistoryatUniversity

Management Board Memberincharge ofFinance Management Board Memberincharge ofHumanResources

(born in1964) (born

(born in1973) (born

March 2014 January 2011

CORPORATE GOVERNANCE He isamemberoftheBoard ofOrangeFoundation. He wasawarded Info-Star(2009),INFOSTAT (2009)andElectronic EconomyAmbassador(2008)awards. TV andRadioBroadcasting. committee inchargeand memberofthegovernment ofEnergy Safety andtheinterministerialcommitteeofDigital society,of information ICTandpublicrecords, committee“DigitalPoland”, aswell Chairman ofthegovernment In 2007-2010hewasDeputyMinisteroftheInteriorandAdministration, responsible forthedevelopment Board ofPGEEnergia Jądrowa S.A. In 2010–2012hewasVice-President ofthe ManagementBoard and thenactingPresident oftheManagement Career experience: Solutions Director inOrange(Mobile).HemovedthentoUKasWandadoo CIO. manager in1996(Creation ofWanadoo). HehasthenbeenappointedintheNetherlandsasCIOWanadoo then HestartedhiscarrierwithFrance-Telecom in1994workingarea ofR&DthenhejoinedWanadoo FranceasBilling and DeputyCIOmainlyco-leadingamassiveMainframedecommissioningprogram at3SI-OTTOgroup). in AOL France andDirector digitaltransformationinVimpelcom) ande-commerce (CIO/Board MemberinLa Redoute He hadaproven trackrecord incontinuinghisprofessional career mainlyinTelecom (CTO/Board Member managerial positionsinTelecoms, E-commerce &Media. Bruno hasover20yearsofprofessional experienceonInformationSystems&Digitaltransformationhighlevel Career experience: Profiles ofExecutiveDirectors

Affairs atOrangePolska at Stanford University. UniversityofWarsaw andhascompletedStanford ExecutiveProgram the at “Grande Ecole”). Qualifications: Responsibilities: Witold Drożdż Qualifications: Responsibilities: Bruno Chomel ensures daytoimprovement andqualityofrelated applications. schedules forOPLbusinessestoaccomplishcorporategoalsandobjectives.Healso information technology. He is responsible for strategic plans, policies, programs and

Bruno graduatedfrom ENSEEIHT(French Computerscience He is a graduate of Law and International Relations He isagraduateofLawandInternational

Since September 2016 he is Executive Director in charge of Since 2012ExecutiveDirector incharge ofCorporate

(born in1974) (born (born in1968) (born Orange Polska IntegratedReport -94

95-Orange PolskaIntegrated Report At the sametimeshesupervisedthesaleofproperty ofOrangePolska. coordinated thedevelopmentofconceptandconstructionMiasteczkoOrange(OrangeTown) facility. Organization workingwithintheFranceTelecom Group. AstheProperty Director intheyears2010-2013she Polska S.A. where, as the Sourcing Director, she was responsible for creation and development of Sourcing 1998-2001, theBudgetController fortheareas ofNetworkandIT. In2001shehadtransferred toTelekomunikacja Procedureswas theManagerforInternal andStandards attheAdministrationDivisionandthen,inyears A memberoftheOrangePolskateamsince1994.AtbeginningheremploymentatPTKCentertelshe Career experience: (2013). Sheusesherknowledgeinthisarea conductingcoachingprocesses forthemanagersofOrangePolska. CoachingFederationcertificate CoachingCommunitycertificate(2010)andInternational She hastheInternational of several projects incustomerexperiencedevelopment.Hehasbeeninvolved charity workforyears. network investments(includingVHBBFTTHroll-out) andactivenetworkmaintenance.Piotr hasbeentheleader for technicalprocesses ofserviceprovision operators), andmaintenance(forbothOrangecustomersalternative Customer ServiceDirector. Then,until2016, he workedastheServiceDeliveryandMaintenanceDirector, responsible the RegionalExecutiveDirector (forSouthandCentralRegions).Between20072013, hewastheTechnical Technical Unit,then,intheTPHeadquarters,asDirector oftheBusinessCustomerRelationsDepartmentand In OrangePolska (former Telekomunikacja Polska) since 1991, initially as the Technical Manager in the Białystok Career experience:

Effectiveness Department. Management andMarketingDepartmentfrom theWarsaw University, Musicology Qualifications: Responsibilities: Magdalena Hauptman of Strathclyde inGlasgow. University ofTechnology andinMBAfrom theUniversityofGdańskand Qualifications: Responsibilities: Piotr Jaworski as wellOrangeEthicsCommittee.ChairmanofTPTeltech SupervisoryBoard. andTechnologyof Network inOPL.MemberofOrangeNetworkExpertsCommittee

She graduated from the Warsaw School of Economics, Graduated inelectronic engineeringfrom theWarsaw

Since November2013ExecutiveDirector incharge of Since September2016ExecutiveDirector incharge

(born in1961) (born

(born in1968) (born

CORPORATE GOVERNANCE sale products portfolio. Since 2007hehasbeenengagedwithOrangeGroup asthemanagerresponsible forwholesalesalesandwhole- Capital Group PolishEnergy Networks,where hewasChairmanoftheBoard ofExatelSAandNOMSp.zo.o. Throughout hiscareer heheldanumberofexecutiveaswellsupervisorypositionsandroles, includingwiththe environment.He hasover14yearsofexperienceinworkingasamanagerfortelecomcarriersinternational Career experience:

Market ofOrangePolska. na-Champaign. Technical University. HealsoholdsanMBAfrom theUniversityofIllinoisatUrba- Qualifications: Responsibilities: Jarosław Starczewski Hegraduatedfrom Telecommunication InstituteofWarsaw

Since 2013heisExecutiveDirector incharge ofCarriers

(born in1972) (born Orange Polska IntegratedReport -96 97-Orange PolskaIntegrated Report

CORPORATE GOVERNANCE 8.1 Letter from theChairmanofSupervisoryBoard Our approach tocorporategovernance indicator. clients’ needs,helpedOrange Polskatoimprove its NPS(NetPromoter Score) performance All theseactions,aswell thecompany’s continuingefforts torespond more accurately to company’s post-paidbase. paid customersregistered their SIMcards, andtherulechangealsohelpedto increase the with andmonitored by theSupervisoryBoard. It was a great success – 96% ofouractivepre- was pre-paid card registration. OrangePolskabeganthisprocess in2016,consultation foruseinthe home.Anotherveryimportantdevelopmentforalltelcooperators mobile internet bundled familyoffers withseveralSIMcards) andnotedasignificantincrease inthepopularityof In 2016OrangePolskaproved itsefficiencyinthesalesofconvergent services(including in Poland. benefit from 4G/LTE coverage.Additionally, theOrangenetworkhasbeennamedfastest on themobilenetworkisgrowing continuously. Nowadays,almosteveryoneinPolandcan Orange Polska’s mobilenetwork.Theseimprovements are crucial,becausedatatransmission The new frequency bands purchased in 2016 were fundamental to improving the quality of Plans for2017assumethatthefibre networkwillcoveratleast2.5millionhouseholds. future investmentswillprovide afoundationforthegrowth ofOrangePolska’s marketshares. 2016 isaresponseTheSupervisoryBoard tocustomerdemandforfastinternet. believesthat The intensivephaseofconstructionwhichdoubledthevolumeGroup’s fibre networkin these were themainprioritiesforSupervisoryBoard in2016. customer satisfaction,organisational changes,andthesupervisionoffinancial results: connectivity, mobile The implementationofthemediumtermactionplan,investmentsinfixedand Dear Shareholders, the followingyears investment policyfor2017and of theOrangePolskaGroup andthe fully supportthestrategicdirection The MembersoftheSupervisoryBoard

Orange Polska IntegratedReport -98

members oftheCompany’s Management tion totheirparticipationinGeneral Meetings, Polska entitlesitsownerto one vote.Inaddi- ny’s General Meetings,eachshare inOrange and the buy-back of shares.At the Compa - increase and reduction of the share capital; to the Company’s Articlesof Association; if necessary, theirdismissal);amendments the membersofSupervisoryBoard (and, ment oftheGroup’s situation;theelectionof approval of theSupervisoryBoard Assess- ments orcoverageoflosses;thereview and Board’s recommendations ondividend pay- the review andapproval oftheManagement and ManagementBoard ReportonActivities; view and approval of the financial statements required forkeydecisions,including:there- Shareholderporate governance. consent is to playanactiverole intheCompany’s cor Orange Polskaencouragesshareholders Role ofshareholders Chairman oftheSupervisoryBoard Maciej Witucki telecommunicationservicesinPoland. as aleaderwiththemostmodern Board hopes that all these actions will result in the strengthening of Orange Polska’s position development ofthefibre networkandcontinuousimprovement ofservices.TheSupervisory the investmentpolicyplannedfor2017andfollowingyears,whichassumescontinued Directors, andManagement Board MembersfullysupporttheGroup’s strategicdirection and Finally, IwouldliketoemphasisethatSupervisoryBoard Members,includingIndependent standards ofethics,customer care andbusinessintegrity. practice referred toabove.In the Supervisory Board’s opinion Orange Polskameetsthehighest is obligedtocomply. best In2016,thecompanycompliedwithcorporategovernance (WSE) ListedCompaniescameintoforce withwhichOrangePolska,asanissuerofsecurities, prevents manyrisks.On January 1,2016,anewBestPracticeforWarsaw StockExchange We isessentialforthestabilityofbusinesspracticesand believegoodcorporategovernance capital expenditure cashoutflows. the levelweexpected.Cashflowdecreased involumeasa result oflowerEBITDAandhigher the discountratetoreflect greater economicrisk.Theprofitat EBITDAofPLN3,163millionis 1,793 million,resulting from over-calculation offuture cashflowtogetherwithanincrease to fell -2.4%vs-2.9%in2015).Thenetresult showstheimpactofawrite-downonassetsPLN PLN 11,538millionrepresented asmalldrop compared totheprevious year(adjustedrevenue The OrangePolskaGroup’s financial results in2016were inlinewithexpectations.Revenueof 99-Orange PolskaIntegrated Report

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representatives regularly meetwithinvestors Investor Relationstogether withCompany’s the existinglegalframework. OrangePolska’s performance ofdisclosure obligationsunder ation withinvestorsandanalysts aswell with capitalmarketsthrough activeco-oper transparent andproactive communication tor relations focusesprimarilyonensuring Orange Polska’s activity in the area of inves- Orange PolskaInvestorRelations financial community. sentatives ofthedomesticandinternational tations toinstitutionalinvestorsandrepre - Financial Officer–alsomake regular presen- dent oftheManagementBoard andtheChief agement Board members–ledbythePresi - view oftheCompany’s performance,Man- ensure thatinvestorsreceive abalanced To dialogue with the Company’s shareholders. Board andseniorexecutivesengageinactive -

CORPORATE GOVERNANCE governing bodieswithapropergoverning divisionofdu- create valueisensured byhavingcapable mitigate risk.Theabilityof thecompanyto the company to operate more efficiently and tures, processes andcontrols whichenable growth. Thosemechanismsconsistofstruc- consists ofmechanismsthathelpachieve framework which corporate governance enhance itsvalue. We have created a strong achieve thecompany’s strategicgoalsand ny managementandsupervisioninorder to is designedtoprovide responsible compa- in Orange Polska Corporate Governance corporate governance Orange Polska’s commitmenttoexcelin to investorsandanalystsatwww.orange-ir.pl. Orange Polskaoperatesawebsitededicated vironment. macroeconomicPolish andinternational en- in thecontextoftelecommarketand account thestrategicdevelopmentpriorities fectiveness ofitsbusinessmodel,takinginto cial standing,itsmarketpositionandtheef- reliable assessmentofthe Company’s finan- Relations towards investorsistoenablea The keypurposeofallefforts oftheInvestor tors askedtheirquestionsduringthechat. vidual Investors(SII).Over35individualinves- investor chatheldbytheAssociationofIndi- swered retail investors’questionsduringan On March 2,2016,CFOof OrangePolskaan- theCompany.concerning published their reports and recommendations current basis.In2016,21 financial institutions a financialinstitutionson ish andinternational monitored byanalystsrepresenting bothPol- Orange Polska’s activityandperformanceare countries. and analysts in Poland and a number of other tations andover200meetingswithinvestors 2016, the Company held four results presen- which are availablealsovia alivewebcast.In presented quarterlyduring conferences Orange PolskaGroup’s financial results are industry investorconferences. ticipate inthemajorityofregional andtelecom and analystsinPolandabroad andpar - tablish the roles of the key governing bodies, tablish theroles bodies, ofthekeygoverning responsibilities withinthecompanyandes- el describedaboveistoproperly distribute mod - The aim of the corporate governance Board. ning processes set up by the Management ommendations onstrategicplansandplan- Committee isresponsible fordeliveringrec- Management Board members. The Strategy tion policyandrecommends appointmentsof tion Committeedealswithgeneralremunera- nance, accountingandaudit.TheRemunera- Supervisory Board withwideexpertiseonfi- analysis. TheAuditCommitteeprovides the with adviceonissuesrequiring more detailed pertise whoprovide theSupervisoryBoard committee are expertsin their fieldofex- as advisorybodies.Themembersofeach the SupervisoryBoard usesitscommittees In order toensure qualitydecision-making, ised knowledgeorqualifications. opinion foritsuseifamatterrequires special- to commissionexpertsdrawupanexpert Board mayobligetheManagementBoard company. WhennecessarytheSupervisory and maycheckthefinancialstandingof and employeesanyreports andexplanations ny, may demand from the Management Board time examine any documents of the compa- obligations theSupervisoryBoard mayatany the GeneralAssembly. Inorder toexercise its of shareholders’ representatives, electedby ing bodies.TheSupervisoryBoard consists - rable and strictly assigned to these govern an oversightrole. Thesetwo roles are sepa- the membersofSupervisoryBoard play Management Board actas executives,while ness of the organisation. Allmembersofthe cohesive- rules formaintainingtheinternal its strategicgoals.Itintroduces policiesand ership necessarytosteerthecompany The ManagementBoard provides thelead- cess. is necessarytothecompany’s long-termsuc- fairly andsustainablythecreated valuewhich company issecured bythe abilitytoallocate skills andeducation.Thesustainabilityofthe ties andoptimalrepresentation ofexperience, Orange Polska IntegratedReport -100 porate gover In 2016,thecompanycompliedwiththiscor Practice forWSEListedCompanies2016. nance practicessetoutintheguidelines,Best obliged tocomplywiththecorporategover ties listedontheWarsaw StockExchange,is Orange PolskaS.A.,asanissuerofsecuri- Best Practice Compliance withWarsaw StockExchange stakeholders. andexternal by internal standar dar company’ ducing these rules we are demonstrating the sponsible andtransparent practices.Byintro nance system which promotes ethical, re attention toconstructingacorporategover the generalpublic.W bodiesand pliers, employees,governmental company amonginvestors,customers,sup We dothistoincrease confidenceaboutour goals andthefulfilmentofitsr nicating itspr stakeholders, andiscommittedtocommu Orange Polskaisfullyaccountabletoits parency ofkeymanagementdecisions. tionships betweenthem,guaranteethetrans process. Itsstructuralelements,andtherela - enhancethedecisionmaking which inturn 101-Orange PolskaIntegrated Report ds of governance, and ensuring that these andensuringthatthese ds ofgovernance, ds willcontinuetostandupscrutiny s commitmenttothehigheststan nance bestpractice.However, ogress towards itsbusiness e havepaidtheutmost esponsibilities.

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functioning initsmarkets. management ofthecompanyanditsefficient can lookfrom different perspectivesatthe have adiversityofknowledgeandskills,they they come from different environments and tion andprofessional experience.Because who are diverse in terms of age, sex, educa- the ManagementBoard consistsofpeople make sure thatourSupervisoryBoard and company's development.Thatiswhywe pany’s bodiesisbeneficialtothe governing We are convincedthatdiversityofacom- bodiesdiversity Governing tices ange-ir.pl/corporate-governance/best-prac- Companies 2016isavailableathttp://or contained inBestPracticeforGPWListed recommendationsernance andprinciples pany's compliancewiththecorporategov- The fulltextofourStatementonthecom- ing suchelectronic means ofcommunication. meeting, duetolegalrisksinvolvedinprovid - meeting from alocationotherthanthe general right tovoteforshareholders takingpartina munication northepossibilitytoexercise the but itprovides neitherreal-time bilateralcom- vides a live broadcast oftheGeneralMeeting Best Practiceguidelines,thecompanypro - referring totheRecommendation IV.R.2 ofthe -

CORPORATE GOVERNANCE 8.2 Our governance structureOur governance Polska and members of the Management Management the Polska andmembersof cluding anyagreements betweenOrange sidiaries) and represents the company in con- (including theactivitiesofitscontrolled sub- supervision overthecompany'sactivities The SupervisoryBoard isresponsible for corporate-governance found onourwebsiteathttp://orange-ir.pl/ General Assembly’s decisionmakingcanbe Full detailsofthemattersreserved forthe • • • • • • • • the followingduties(amongothers): General Assemblywhichisresponsible for bodiesisthe The highestofthegoverning 3. ManagementBoard 2. SupervisoryBoard 1. GeneralAssembly Orange Polskahasthreebodies: governing • • • • • • • • bers oftheSupervisoryBoard determining theremuneration of theSupervisoryBoard appointment andremoval ofthemembers tion bonds issuance ofconvertiblebondsorfirstop- company merger orchangeofthelegalform share capital including amendments totheArticlesofAssociation, and theManagementBoard by themembersofSupervisoryBoard confirming theproper executionofduties distribution ofprofits orcoverageoflosses in theprevious financialyear ment andreport onthecompany’s activity review andappr an increase or reduction of the oval ofthefinancialstate- of themem-

• • • • • • • The maindutiesoftheSupervisoryBoard are: of theprovisions ofaccountancy law. company’s activities meet the requirements the financialstatementsand reports onthe ment Board. Itisalsoobliged toensure that Manage- the companyandmembersof the Board orin the eventofanydisputesbetween corporate-governance found onourwebsiteat http://orange-ir.pl/ Supervisory Board’s decisionmakingcanbe Full detailsofthemattersreserved forthe • • • • • • • pany’ submitting aconciseevaluationofthecom- 100,000,000 assets inexcessoftheequivalentEURO 100,000,000 aswellondisposalofthe ties inexcessoftheequivalentEURO stating anopiniononincurringliabili- budget strategies andbusinessplansannual stating an financial statements appointing anauditortoexamineorinspect important r appointing, dismissingandsuspendingfor to theGeneralAssembly results oftheabovementionedevaluations well assubmittingawrittenreport onthe tribution ofprofits orcoveringoflossesas ManagementBoard regarding dis- the of port oncompany’s activitiesandmotions evaluation oftheManagementBoard’ evaluation ofannualfinancialstatements muneration re- their remuneration and fixing their the Board aswelldeterminingthetermsof agement Board ortheentire Management s standingtotheGeneralAssembly opinion on annual and long-term opinion on annual and long-term - easons amemberof the Man Orange Polska IntegratedReport -102 s re-

listing of shares onthe regulated markets and quired bylawandregulations related tothe ments includingadditional informationre- bers are obliged to submit quarterly state- Supervisory and Management Board mem- on issuesdecidedbytheSupervisory Board. tion of themember the Supervisory Board other relationships whichmayaffect theposi- financial, family,ships. Thisconcerns and with aquarterlysummaryonsuchrelation- of thecompanyandtoprovide thecompany General Assembly than 5%ofallvotesat the holder whoholdsshares representing notless existence oftheirrelationship withanyshare- to informtheCompanyimmediatelyabout Each SupervisoryBoard memberisobliged Board member. anyfunctionofa or limithisabilityto perform conflicts ofinterests whichmakeimpossible to promptly informtheCompanyaboutall Each ManagementBoard memberisobliged • • • • • • • • • • Criteria forindependentSupervisoryBoard members 103-Orange PolskaIntegrated Report Regulating conflictsofinterest • • • • • • • • • • employee ofthecompany, oradominantshareholder not tohave,orhavehadfamilyconnectionswithamemberoftheManagementBoard ofthecompany first appointment not tohaveservedontheSupervisoryBoard ofOrangePolskaformor Orange Polskaisamemberofthesupervisoryboard not tobeamemberofmanagementboard inacompanywhichmemberof subsidiary companyoranemployeeofsuchauditor not tobe,orhavebeenwithintheprevious thr employee ofanentityhavingsucharelationship Orange Polskaoranassociatedcompany, eitherdirectly or as apartner, significantshareholder, director orsenior of goodsorservices,includingfinancial,legal,advisoryconsultingsignificantcustomer)with not tohave,orhavehadwithintheprevious year or senioremployee,adominantshareholder not tobeorrepr Polska, oritsdominantsubsidiarycompanyapartfrom a feereceived asamemberoftheSupervisoryBoard not toreceive, orhaver company not tobe,orhavebeenwithintheprevious fiveyearsanemployeeofOrangePolska,oritsdominantsubsidiary dominant orsubsidiarycompanyandnottobelongto seniormanagementofsuchentities, not to The independentmembersofOrangePolskaSupervisoryBoard satisfythefollowingconditions: be, or have been for the previous five years a member of the Management Board of Orange Polska, or its esent inanyway, particularlyasamanagementboard member, board a supervisory member eceived, significant additional remuneration oranypecuniaryperformancefrom Orange ee years an external auditor of Orange Polska, or its dominant or Polska,oritsdominant auditorof Orange ee yearsanexternal tions. voting onmattersrelating tosuchtransac- tions withtheCompanyare excludedfrom in other companies which enter into transac- the Supervisory Board performing functions SA oritssubsidiaries.Also other membersof meetings ontransactionsinvolvingOrange visory Board meetingsandAuditCommittee nominees are excludedfrom votingonSuper defined bythecorporaterules.OrangeSA’s nificant transactionswith related partiesas Board and/ortheSupervisoryBoard onsig- an opiniontothecompany’s Management The AuditCommitteereviews and provides from participationinresolving suchcases. second degree, aBoard membershallabstain his/her descendants or relatives up to the Supervisory orManagementBoard member, the Companyandpersonalinterests ofa In caseofaconflictbetweentheinterests of about potentialconflictofinterest. aimed attheCompanygettingknowledge , a significant business relationship (as a significant supplier supplier , asignificantbusiness relationship (as a significant e than twelve years from the date of the e thantwelveyearsfrom thedateof the Management Board of Board of the Management - , senior , senior

CORPORATE GOVERNANCE Orange Polska Corporate Governance structureOrange PolskaCorporateGovernance their execution. and itsownresolutions, and is responsible for Meeting and the Supervisory Board as well Board implementsresolutions oftheGeneral Board. TheManagement or the Supervisory in thecompetenceofGeneralAssembly ny’s ArticlesofAssociation,donotfallwith- Commercial CompaniesCode orthecompa- to the company’s affairs which, under the ties. Itisresponsible forany mattersrelating represents the company towards third par Polska affairs, administers itsassetsand The ManagementBoard managesOrange Management Executive Directors Organisational business units business Management Members President Board Board General Assembly General

- Organisational Regulations. ities are describedinthe Orange PolskaS.A. company. Thetaskareas oftheirresponsibil - management ofspecificfunctionswithinthe Executive Directors are responsible for corporate-governance be found on our website at http://orange-ir.pl/ Management Board’s decisionmakingcan Full detailsofthemattersreserved forthe Supervisory Board Supervisory Supervisory Board Supervisory Orange Polska IntegratedReport -104 Chairman members Audit Committee Remuneration Committee Committee Strategy

105-Orange PolskaIntegrated Report

CORPORATE GOVERNANCE 8.3 activities in2016 bodies’ Orange Polskagoverning General Assemblyactivitiesin2016 • • • • • opted, amongothers,resolutions on: April 12,2016inWarsaw. TheAssemblyad- The AnnualGeneralAssemblytookplaceon • • • • • the dividend the supplementarycapitalfordistributionof and useofpartthefinancialmeansfrom approval oftheManagementBoar statements for2015 approval oftheIFRSconsolidatedfinancial the 2015financialyear on theactivityofOrangePolska Group in approval oftheManagementBoar distribution ofthecompany’s pr statements for2015 approval ofthecompany’ port onOrangePolska’s activityin2015 s IFRS financial s IFRSfinancial ofit for 2015 ofit for2015 d report d report d’s re-

on: sembly adopted among others resolutions place onJuly21,2016inWarsaw. TheAs- An Extraordinary GeneralAssemblytook Pellissier, Marc RicauandMaciej Witucki. Culpin, EricDebroeck, MichałKleiber, Gervais • • the SupervisoryBoard membersJean-Marie the President aswellontheappointmentof and ManagementBoard members,including of dutiesbytheSupervisoryBoard members tions granting approval of the performance The General Assembly also adopted resolu • • amending the Articles of Association amending theArticlesofAssociation Invest sp. z o.o. Orange CustomerServicesp. zo.o.andTP the merger ofOrangePolska S.A.with Orange Polska IntegratedReport -106 -

• • • • • • The shareholders havethefollowingrights: quest thatparticularmattersbeincludedontheagendaofnextGeneralAssembly. The Supervisory Board or the shareholders representing at least 5% of the share capital may re- • • • An Extraordinary General Assemblyisconvenedby: the GeneralAssembly. used wheneverrequested byatleastoneoftheShareholders ortheirrepresentatives present at quidators, orcallingthemtoaccountfortheiractions,inpersonalmatters.Asecret ballotisalso is used at elections or upon motions for removal of the members of the company's Boards or li- Articles ofAssociationprovide otherwise.Voting attheGeneralAssemblyisopen.Asecret ballot are adoptedbyasimple majority ofvotescast,unlesstheCommercial CompaniesCodeorthe be presented bytheManagement Board totheSupervisoryBoard foritsopinion. Theresolutions the bodythathasconvenedit.Anymatterstoberesolved bytheGeneralAssemblyshouldfirst the numberofshares being represented. TheagendaoftheGeneralAssembly isdeterminedby within six months after the end of each financial year. The General Assembly is valid regardless of Board iftheManagement Board failstoconveneitwithintheperiodsetoutbylaw)andisheld The AnnualGeneralAssemblyisconvenedbytheManagementBoard (orbytheSupervisory General Assemblyataglance 107-Orange PolskaIntegrated Report • • • • • • • • • the closeofdiscussionsonrelevant agendaitem. are covered bytheagendaofGeneralAssembly. Suchsuggestionsmustberaisedbefore Each shareholder hastherighttosuggestamendmentsoradditionsdraftr Each shareholder hastherighttoobjectadecisionbyChairmanofGeneral Assembly Each shareholder hastherighttoaskquestionsonanymattersagenda. a reply offiveminutes. For eachpointontheagenda,shareholder hastherighttoonespeechoffiveminutesand Each shareholder hastherighttocandidatur (otherrepresentatives).attorneys-in-fact They maytakepartintheGeneralAssemblyandexercise therighttovoteinpersonorby company shareholders r the SupervisoryBoard, ifitisnecessaryinitsopinion the meeting. Management Board includesontheagendamattersindicatedbyshareholders requesting Board orshareholder(s) representing atleast5%oftheshare capital.Insuchasituationthe the ManagementBoard, uponitsowninitiativeorawrittenmotionoftheSupervisory forward onecandidateforthepositionofChairmanGeneralAssemblytominutes. or reversed. or reversed. The General Assembly decides in a resolution whether the decision of the Chairman be upheld epresenting atleasthalfoftheshare capitaloratleasthalfoftotalvotesinthe e fortheChairmanofGeneralAssemblyor to put esolutions which esolutions which . .

CORPORATE GOVERNANCE Supervisory Board Members Supervisory Board’s activitiesin2016 pl/corporate-governance/supervisory-board Profiles oftheSupervisoryBoard Memberscanbefoundonourwebsiteathttp://www.orange-ir. Russ Houlden,Prof. MichałKleiber, Dr. MariaPasło-WiśniewskaandDr. Wiesław Rozłucki. Orange PolskahasfiveindependentmembersontheSupervisoryBoard: Dr. Henryka Bochniarz, 3 r isa ołci IndependentBoard Member Valérie Thérond 14. Dr. WiesławRozłucki IndependentBoard13. Member Dr. MariaPasło-Wiśniewska 12. Board Member PatriceLambert-deDiesbach 11. Prof. MichałKleiber 10. .RussHoulden 9. RamonFernandez 8. EricDebroeck Board Member 7. Jean-MarieCulpin IndependentBoard Member 6. FedericoColomArtola 5. Dr. HenrykaBochniarz 4. Marc Ricau 3. GervaisPellissier 2. MaciejWitucki 1. and ChairmanoftheAuditCommittee Independent Board Member Board Member Board Member Board Member Board MemberandSecretary and ChairmanoftheStrategyCommittee Deputy Chairman Chairman oftheSupervisoryBoard Board Member and ChairmanoftheRemunerationCommittee Independent Board Member Orange Polska IntegratedReport -108 odvt h ierqie o properly per to devotethe timerequired to high moral standing. They should also beable professional andpracticalexperience ry Board shouldhavetherelevant education, A memberoftheOrangePolska Superviso- member andthetermofoffice Rules forappointingaSupervisoryBoard Supervisory Board asmembersinJuly2016 Lambert-de Diesbachwere appointedbythe Messrs. FedericoColomArtolaandPatrice as theMembeerofSupervisoryBoard. Board andProf. MichałKleiberwasappointed Assembly asMembersofthe Supervisory were re-appointed bytheAnnualGeneral Pellissier, Marc RicauandMaciejWitucki Jean-Marie Culpin,EricDebroeck, Gervais expired onApril12,2016.Onthesameday, Pellissier, Marc RicauandMaciejWitucki Eric Debroeck, Mirosław Gronicki, Gervais The mandatesofMessrs.Jean-MarieCulpin, Supervisory Board in2016. from theirpositionsasmembersofthe and Ms.Marie-ChristineLambertresigned Prof. AndrzejK.Koźmiński,Mr. Gérard Ries Supervisory Board in2016 Changes tothemembershipof Supervisory Board attendanceregister 109-Orange PolskaIntegrated Report Valérie Thérond Wiesław Rozłucki Gervais Pellissier Maciej Witucki Henryka Bochniarz Marc Ricau Jean-Marie Culpin Federico ColomArtola Eric Debroeck Michał Kleiber Russ Houlden Ramon Fernandez Patrice Lambert-deDiesbach Maria Pasło-Wiśniewska Maximumnumberofscheduledmeetingswhichthedirectors couldhaveattended Actualnumberofmeetingsattended SUPERVISORY BOARD 4/5 5/5 5/5 5/5 5/5 5/5 5/5 2/2 5/5 3/3 5/5 3/5 2/2 5/5 - death, resignation ordismissal). year oftheirterminoffice (also asa result of statements forthesecond full accounting Annual GeneralAssemblyapproving financial sory Board membersexpire onthedayof bers isthree years.MandatesoftheSupervi- The termofofficeSupervisoryBoard mem- the appointment. Meeting held not earlier than five weeksafter ber expires onthedateofnextGeneral mandate ofanysuchnewlyappointedmem- new member of the Supervisory Board. The a majority oftwo thirds of the votescast, a of theSupervisoryBoard mayappoint,by Supervisory Board, therest ofthemembers end ofthetermofficeordismissalfrom the pervisory Board expires forreasons otherthan In casethemandateofamemberSu- majority ofvotescast. pointed at the General Assembly by a simple members, andtheeventualmembersare ap- tential candidatestobeSupervisoryBoard shareholder has arighttoput forward po- pointed bytheGeneralAssembly. Each Members oftheSupervisoryBoard are ap- form theirrole ontheSupervisoryBoard. COMMITTEE AUDIT 7/7 3/3 7/7 7/7 COMMITTEE STRATEGY 3/3 3/3 3/3 1/3 3/3 2/2 2/2 REMUNERATION COMMITTEE 4/4 5/7 7/7 7/7

CORPORATE GOVERNANCE Supervisory Board skillsmatrix Supervisory Board diversity Age profile: Age profile: Length of tenure: Length oftenure: Valérie Thérond Wiesław Rozłucki Maria Pasło–Wiśniewska Patrice Lambert-deDiesbach Michał Kleiber Russ Houlden Ramon Fernandez Eric Debroeck Jean-Marie Culpin Federico ColomArtola Henryka Bochniarz Marc Ricau Gervais Pellissier Maciej Witucki 56-60 years 51-55 years 45-50 years 2-4 years 0-2 years 4+ years Male Female Gender: 79%                             Economics and Finance 3 persons 6 persons 5 persons 21% 15%     Management and Strategy 21% 36% International International Local Nationalities:

Law and 64% administration

Engineering     and 61-65 years 65+ years

Technology 36% Marc RICAU,HenrykaBOCHNIARZ, WiesławROZŁUCKI Eric DEBROECK,RussHOULDEN,Valérie THÉROND Maciej WITUCKI,GervaisPELLISSIER,Jean-MarieCULPIN, Maria PASŁO-WIŚNIEWSKA Michał KLEIBER,PatriceLAMBERT-de DIESBACH, Federico COLOMARTOLA, RamonFERNANDEZ,   Psychology and Humanities 64% Non-independent Independent Independence: Orange Polska IntegratedReport -110   Sales and 7% Marketing 21% 36%          Public administration

Scientific activity and leverage delivering marketguidance forEBITDA performance incomparison tothebudget; The Group’s financial results and cording toindependentsource speedtest.pl). the OrangenetworkisfastestinPoland(ac- can benefitfrom 4G/LTE coverage. Additionally, sources. Nowadays,almostallPolishresidents itive positionintermsofmobilespectrumre- and greatly improved thecompany’s compet- to improve thequalityofourmobilenetwork, was amilestoneeventinourcontinuingefforts quency bandsatthebeginningof2016year The successfulpurchase atauctionofnewfre- purchased mobilespectrum Launch ofLTE servicesonthenewly 2.5 millionhouseholds. sume thatthefibre networkwillcoveratleast of thefibre network.Plansfortheyear2017as- significantly increased investmentsinthe rollout and were almostsimilarto2015buttheGroup PLN 2billion(excludingspectrumpayments) adjusted capital expenditures in 2016 reached key tothesuccessofourstrategy. TheGroup’s Good connectivity, bothfixedandmobile,isthe network Investments intherollout ofthefibre Polish householdsofaconvergent approach. data consumptionandincreasing adoptionby mand fortelecomservices,fuelledbyasurge in the yearsaheadweexpectstrong growth inde- gence, bestcustomerexperience,andagility. In orities: leadershipinconnectivityandconver a proactive planbuiltaround fourstrategicpri- Group, focusedonincreasing marketshare. Itis Orange Polska S.A.and Orange PolskaCapital cepted thenew2016-18strategicplanfor In February2016,theSupervisoryBoard ac- plan for2016–2018 Implementation ofthemediumtermaction cused onthefollowingissues: Throughout 2016,theSupervisory Board fo- On theSupervisoryBoard’s agendafor2016 111-Orange PolskaIntegrated Report -

panies. panies. and simplifyingprocesses inthemerged com- the OrangePolskaGroup, aswellintegrating er wastoincrease operationalefficiencywithin Orange Polska.Themainpurposeofthemerg- of OrangeCustomerServiceandTPInvestto with itssubsidiariesbytransferringallassets On September30,2016,OrangePolskamerged Jean-François Fallacher. of 1May, whenBrunoDuthoitwasreplaced by proved anewManagementBoard President as On February4,2016theSupervisoryBoard ap- others Organisational changesinthecompanyand forthehome. internet a significant increase ofthepopularitymobile mily offers withseveralSIMcards) andnoted the salesofconvergent services(includingfa- In 2016OrangePolskaproved itsefficiencyin viding mobileandfixedlineservicebundles. Polska is to be the convergence leader, pro- One ofthekeystrategicobjectivesOrange Exploration ofconvergent opportunities er Score (NPS)inbothB2CandB2Bmarkets. which includedachievingthebestNetPromot- ther improvements incustomersatisfaction, The SupervisoryBoard issatisfiedwiththefur excellence programme Customer satisfaction–thecustomer cash outflows. of lowerEBITDAandhighercapitalexpenditure level. Cashflowdecreased involumeasa result EBITDA ofPLN3,163millionisattheexpected order toreflect greater economicrisk.Adjusted together withanincrease of thediscountratein sulting from over-calculation offuture cashflow on non-financialassetsofPLN1,793million, re- sult, wecanseetheimpactofwrite-down year (-2.4%vs-2.9%in2015).Onthenetre - slightly downincomparisontotheprevious in 2016.RevenueofPLN11,538millionwere results, whichwere inlinewithexpectations paid agreat dealofattention tothefinancial very strong competition,the SupervisoryBoard Considering theincrease ininvestmentand -

CORPORATE GOVERNANCE ber of customers and much higher traffic per ber of customers and much higher traffic per increased byc.130%duetothegrowing num- The volumeofdatatransferred inthenetwork more than60%ofPoland’s mobile datatraffic. age ofalmosttheentire populationandserving trum, resulting inmobile4G/LTE networkcover connectivity basedonthenewlyacquired spec- Orange Polskacontinuedtoimprove mobile Facing acontinuingsurge indataconsumption, is winningmarketshare from thecompetition. Orange Polska–evidencethat 80% ofcustomersacquired inQ4were newto every quarterandreached 31,000inQ4.Almost er awareness. Customertake-upincreased in munications through the year to build custom- company putalotofeffort intomarketingcom- As thistechnologyisstillnewinPoland,the fibre networkinPoland,available37cities. lion households.Thecompanyhasthelargest network doubledlastyeartoclose1.5mil- telecomcompany.modern Thesizeofthefibre tor initsongoingtransitionfrom alegacyto company’s offer onthemarketandisakeyfac- out. Thisstrategicprioritywilldifferentiate the significant investmentsinfibre network roll- In 2016OrangePolskacontinuedtomake proactive customeracquisitiononallfronts. year ago: investments in connectivityand very develop inlinewiththeprioritiesthatwere seta In 2016OrangePolska’s businesscontinuedto Group OperationalReview by the Management. agement andbudgetingfunctionsperformed andchallengethecontrol, riskman- to review and wasable,through the AuditCommittee, management reporting at its quarterlymeetings Group’s operationalandfinancialgoalsthrough addition,itmaintainedoversightofthe ers. In the Group’s stakeholders,includingsharehold - ant initiatives,havinginmindtheinterest ofall in theprocess ofevaluation ofthemostimport- independent members),wasactivelyengaged committees andallitsmembers(includingfive The SupervisoryBoard, through theworkofits ing bytheSupervisoryBoard Assessment ofOrangePolskaGroup’s Stand- -

• to: Orange PolskaGroup’s keygoalsin2016were Group’s FinancialOverview customers, onbothB2CandB2Bmarkets. improvements insatisfactionamongourmobile reached anall-timehighasaresult ofsignificant er Score (NPS)wasonceagainimproved and proach launchedin2015.In2016NetPromot- with thenew“listeningandresponding” ap- in activedialoguewithourcustomersline In 2016theGroup continuedefforts toengage transition well. a successandevidencethatwehandledthis had registered theirSIMcards, whichwedeem connection), around 96%ofactivecustomers for registration ofexistingcards toavoiddis- initiatives. By1February 2017 (the deadline distributors, customereducationandmarketing justing ourITsystems,redefining relations with challenge required alotofeffort intermsofad- constituted a new challenge. Handling this mandatory registration ofpre-paid SIMcards The unexpected introduction during 2016 of paid SIMcards. change thatobligeduserstoregister theirpre- migration from pre-paid followingaregulatory ing factortogrowth inpost-paidwasincreased better mobileconnectivity. Anothercontribut- suburban areas, asaconsequence ofmuch substitute forfixedbroadband, especiallyin devices. LTE forFixedisgainingtractionasa households whousemore andmore mobile Family offers are apowerfulmarkettooltowin band foruseinthehome(calledLTE forFixed). and muchhigherpopularityofmobilebroad - trends: thesuccessof multi-SIM family offers, sive growth wasmainlyfuelled bytwomarket (+152,000) thantheyearbefore. Thisimpres- bility, withamuchbetternetresult inpost-paid on themarketintermsofmobilenumberporta- years. Orange Polska held on to second place year-on-year, thebestachievementinmany cards increased bymore than1millionor13% In 2016thenumberofmobilepost-paidSIM penetration andevolvingcustomerneeds. customer, drivenbyincreasing smartphone • further extendcoverageof LTE technology Orange Polska IntegratedReport -112

10.1% year-on-year. Adjusted EBITDAmargin PLN 3,163million,downby PLN354millionor Adjusted EBITDAforthefull yearamountedto and ashifttowards instalmentoffers. driven upbypost-paidcustomer basegrowth by anincrease inmobilerevenue, whichwere revenue. Thesenegativeswere partiallyoffset PLN 127 millionrevenue in 2015), and lower ICT pletion ofinfrastructure projects (thatgenerated A decrease inotherrevenue resulted from com- quence offallingADSLbaseandlowerARPU. broadband revenue were alsodownasconse- ed fixedvoiceandwholesale revenue. Fixed tural erosion oflegacybusiness,whichimpact- lution offixedservices reflects primarilystruc- fixed servicesandlowerother revenues. Evo- year. The declineresulted mainly from afallin 2016, down-2.4%orPLN288millionyear-on- Adjusted revenue totalledPLN11,538millionin • • • • • • • • • • 113-Orange PolskaIntegrated Report • • • • • • • • • • 800,000 new households connectable 800,000 newhouseholdsconnectable ments financial structure andfuture capital require- level, takingintoconsiderationtheGroup’s remunerate nities onthemarket monitor andanalyseanyacquisitionopportu- range ofPLN3.15-3.30billion deliver adjustedEBITDAintheguidance EBITDA nottoexceed2.2) the levelofdebtratios maintain financialstabilityandmonitorclosely mitigate impactofrevenue pressure develop new further optimisetheGroup’ increase customersatisfaction and lise thebenefitsofconvergent opportunities use theGroup’ markets ofoperation strengthen thecompany’s positioninallof its mercialisation offibre networkandactionsto monetisation of new mobile spectrum, com - develop commer continue fibre networkr bile spectrum and launchservicesonnewlypurchased mo- disposal ofunusedproperties er excellenceprogram and continue implementation of the custom - shareholders atareasonable cost optimisation initiatives to cost optimisation initiatives to s uniqueresources tofullyuti- cial strategy aimed mainly at cial strategy aimed mainly at (net debt-to-adjusted (net debt-to-adjusted ollout to cover up to ollout tocoverup s assets, including s assets,including loyalty loyalty is proving slower than anticipated, mainly due is proving slower thananticipated,mainly due of thestrategythatwasannounced ayearago actions andinvestmentprocess. Monetisation more onimproving theexecution ofcommercial priorities should not changebut the focus will be sults were inlinewithobjectives.In2017key Orange servicesfurtherimproved. Financialre- fixed broadband. Customers’perception of pecially inmobilepost-paidandhigh-speed cial positiononthePolishtelecommarket,es- In 2016OrangePolskaenhanceditscommer Conclusions and2017recommendations payable in cash. million, anequivalentofPLN0.25pershare, In 2016,theGroup paidadividendofPLN328 by supplychainoptimisation. to instalmenteffect) were largely compensated for workingcapitalasgrowing receivables (due were partlyoffset bymuchlowerrequirement higher capitalexpenditure cashoutflows.These It was mainly as a result of lower EBITDA and PLN 620millionversus962in2015. Adjusted organic cashflowfor2016cameinat result ofhigherdebt. costs (PLN68millionabove2015),mainlyasa ed bylowerEBITDAandhighernetfinancial reflect higherbusinessrisk.Itwasalsoimpact- coupled with an increase in thediscount rate to to reassessment offuture projected cashflows lion non-financialassetsimpairmentlossdue 2015. Itwasheavilyaffected byPLN1,793mil- lion versusnetincomeofPLN254millionin Net lossfor2016amountedtoPLN1,746mil- tation ofthesocialplan. and aheadcountdecrease followingimplemen- ongoing optimisationinthenetwork&ITareas the improvement inindirect costs,mainlydueto These negatives were partly compensated by favourable FXimpact(weakerPLNtoEURO). part toachangeinthemixofhandsetsandun- well asgrowing commercial costs,dueinlarge mainly affected byhigher interconnect costsas million). Direct costyear-on-year evolutionwas optimisation ofindirect costs (afallbyPLN183 in direct costs (by PLN 249 million) and further Its evolutionreflects afallin revenue, anincrease stood at27.4%,downby2.3ppyear-on-year. -

CORPORATE GOVERNANCE • • • • lowing keyaspects: the Group should focus, in particular, on thefol- The SupervisoryBoard’s opinionisthatin2017 turnaround. required tofacilitatethestrategicgoal,whichis the pre-paid market.Assuch, newactionsare (PSTN andwholesale)thenewsituationon ers, continuedpressure onlegacybusinesses broadband puttingpressure onADSLcustom- of themobilemarket,highcompetitioninfixed to slowerthanpreviously expectedrecovery • • • • Union L.52/51,dated25.2.2005] companies andonthecommittees ofthe(supervisory)boardof theEuropean [OfficialJournal mendation of February 15, 2005 on the role of non-executive or supervisory directors of listed Orange Polska adheres to the rules detailed in the AnnexI to the European Commission Recom- in thecaseofatiedvote,theyhavecastingvote. appointed bytheSupervisoryBoard. TheymanagetheCommitteeswork,convene meetingsand mittees makedecisionsbyanordinary majorityofvotes.Thechairmenthe Committeesare Only amemberoftheSupervisoryBoard canbeamemberof anyofitscommittees.TheCom • • • The SupervisoryBoard hasestablishedthree committeeswhichare itsadvisorybodies: the meetingsofSupervisoryBoard. Incaseofatiedvote,theChairmanhascastingvote. The SupervisoryBoard electsfrom amongitsmemberstheChairmanwhoconvenesandchairs in thepresence ofatleastahalfallmemberstheSupervisoryBoard. the SupervisoryBoard adoptsresolutions in an open votewithasimplemajorityofvotescastand members oftheManagementBoard. Unlessotherwiseprovided forintheArticlesofAssociation quarter. TheSupervisoryBoard appointsandremoves theManagementBoard President andother should beindependentmembers.TheSupervisoryBoard shouldholdmeetingsatleastoncea The SupervisoryBoard consistsofbetweennineand16members,atleastonethird ofwhom Supervisory Board ataglance ance sheet considering initiativestodeleveragethebal- working outnewactionsthatwillimprove maximising marketopportunitiesfrom the tional changesinthecompany drawing benefitsfrom ther initiatives initiatives transformation, includingnewcostcutting monetisation ofthestrategyandbusiness Love newly launchedconvergence offer Orange • • • Strategy Committee Remuneration Committee Audit Committee

ecent organisa-

• • • • • • • • • • • • • • debt-to-adjusted EBITDAnottoexceed2.6) ly monitoringthelevelofdebtratios(net maintaining financialstabilityandclose- range ofPLN2.8-3.0billion delivering adjusted participating inthePOPCprogram loyalty tinue to increase customer satisfaction and customer managementexperiencetocon- implementing furtherimprovements inthe markets ofoperation to strengthen the company’s position in all its bre network,anddeveloping furtheractions particularly withtheaimofmonetisingfi- closely monitoringthecommercial strategy than 1millionnewhouseholdsconnectable continuing fibr ing mid-termstrategicandfinancialoutlook providing during the year an updateregard- e network rollout to cover more Orange Polska IntegratedReport -114 EBITDA in the guidance EBITDA in the guidance

- , ,

Letter from theChairmanofAuditCommittee Audit Committeeactivitiesin2016 Audit Committeemembers in audit andfinance. Supervisory Board having qualificationsinaccountingandtreasury and relevant experience The AuditCommitteeischaired byMr. RussHoulden,anindependentMemberofthe of around PLN150m. recommendation toextendcertainassetlives,resulting inareduction indepreciation in2017 longer useful economic lives than previously assumed and we therefore concurred with their review each year. This year, Management provided clear evidence that certain assets had The secondmostsignificant judgement related to assetlives.Again,thisissomethingwe circumstances. may nothavebeenexpectedbysomeshareholders, Ibelieveitwastheright decisioninthe of thegoodwillinconsolidatedfinancialstatements shouldbemade.Whilethatdecision year Managementrecommended, andweagreed, thatanimpairmentofPLN1,793million This review, technically calledanimpairmenttest,issomethingwedoeachyearbutthis account recent performance,future strategyandcurrent andexpectedmarketconditions. continued to be supported by the expected future cash flows of the business taking into The mostsignificantjudgementthisyear related tothevalueofgoodwillandwhetherit and estimatesproposed byManagement. by thecompanyandGroup. Aspartof this, wereview all significant accountingjudgements One ofthemainresponsibilities oftheAuditCommitteeistoensure proper financial reporting 12 months. I ampleasedtoattachmyreport ontheactivitiesofAuditCommitteeoverpast Dear Shareholders, 115-Orange PolskaIntegrated Report .Marc Ricau 4. Dr. MariaPasło-Wiśniewska 3. FedericoColomArtola 2. RussHoulden–Chairman 1. estimates proposed byManagement. review allsignificantaccountingjudgementsand by theCompanyandGroup. Aspartofthis,we Committee istoensure proper financial reporting One ofthemainresponsibilities oftheAudit

CORPORATE GOVERNANCE On theAuditCommittee’s agendafor2016 the Committeelookedat the Group’s per on ittotheSupervisoryBoard; inaddition, budget andaddressed recommendations The Committeealsoreviewed theGroup’s offs, estimatesandjudgments. accounting policiesandapproaches, one- the managementonfinancialperformance, nancial statementsalongwithreports from bers reviewed thequarterlyandyearlyfi- the financial reporting. Committeemem- sory Board, hasmonitored theprocess of The Committee,onbehalfoftheSupervi- its realisation process, budgetaryplanningalongwith Monitoring thefinancial reporting ticular thefollowingactivities: meetings in 2016. The AC performed in par The AuditCommitteeheldsevenregular Chairman oftheAuditCommittee Russ Houlden A more detailedsummaryoftheactivitiesAuditCommitteeispresented below. particular, themajorityshareholder, Orange S.A. necessary, challenged the terms of significant transactions with related parties including, in Last, butnotleast,theindependentmembersofAuditCommitteereviewed and,when which mayhavearisenintheirworkwithManagement. head ofthecompany’s auditteamtogivethemanopportunitydiscussanyissues internal auditorandthe auditteamandhadprivatemeetingswiththeexternal auditor andinternal statements. Inparticular, theCommitteeworkstoensure theindependenceofbothexternal the riskmanagementprocessesauditofcompanyandGroup andtheexternal financial The AuditCommitteehasalsobeeninvolvedinthereviewingcontrol internal andcompliance, implementation dates. progress madeandwassatisfiedthatthecompanywillbe ready intime forthe respective made significantprogress onpreparing forimplementationandtheCommittee reviewed the IFRS16 (Leasing)forthefirsttimeinyearending31December2019.Managementhas (Revenue) forthefirsttimeinyearending31December2018andwillprobably apply Standards whichare upcoming.We intendtoapplyIFRS9(FinancialInstruments)andIFRS15 changes inrelevant legislation. There areAccounting afewchangestotheInternational The AuditCommitteealsomonitorstheevolutionofaccountingstandards andexpected - - audit firm. vately withtheleadpartner ofthestatutory auditor. Inaddition,theCommitteemetpri- to therecommendations from theexternal also monitored the Group’s responsiveness ity levelsetforaudittesting. The Committee proposed auditplan,includingthematerial- auditors’ Committee reviewed theexternal Chairman oftheCommittee.Inaddition, auditors were approved inadvancebythe All non-auditservicesprovided byexternal Committee’s dutiesandactivities. jectivity, wasasignificantpartoftheAudit auditor,external its independenceandob- Reviewing thescopeandresults ofthe performance andindependence Monitoring ofstatutoryauditor’s in periodicalreports from themanagement. formance against the budget, aspresented Orange Polska IntegratedReport -116 aini response tocommentsoninter tation in management onactionplan’s implemen- Committee also reviewed reports from the identified, managed and disclosed. The trol culture” aswellthewayriskswere monitored theappropriateness of“con- from themanagementonsystem,and ment system.Itsmembersreceived reports controlcy oftheinternal andriskmanage- The Committeekeptreviewing theefficien- cess. Auditprothe independenceofInternal - director Auditandreviewed oftheInternal dition, theCommitteemetprivatelywith Audit findingsand recommendations. Inad- responsiveness ofmanagementtoInternal and findings. TheCommitteeobserved the periodic reportingauditactions oninternal ress reports. TheCommitteemonitored the Audit,itsbudgetandprogplan ofInternal - The AuditCommitteereviewed theannual management controlaudit, internal systemsand risk Monitoring theeffectiveness ofinternal clusions. and thematerialitylevelsetforauditcon- engagement,auditplan neration, termsof appointment included the auditor’s remu- statutory auditor for 2016. The terms of re - &Youngthe reappointment ofErnst asthe ommended to the Supervisory Board on auditorandrecformance oftheexternal - The Committeereviewed the prioryearper of the statutoryauditor Recommendation ontheappointment 117-Orange PolskaIntegrated Report - - assurance, hedgingandinsurance. interest, includingbutnotlimitedtorevenue The Committeereviewed othermattersof involving OrangeSAoritssubsidiaries. Audit Committeemeetingsontransactions voting onSupervisoryBoard meetingsand Orange SA’s nominees are excluded from best practicesofcorporategovernance. regulationsparties, inlinewithinternal and ions on significant transactions with related The Committeereviewed andissuedopin- Other areas ofinterest guidelines. measures disclosure inlinewithESMA reviewed theimprovement ofnon-GAAP implemented them.TheCommitteealso how OrangePolskaGroup approached and Audit Committee,aswellthequestionof ing financialsystems,were ofinterest ofthe recommendations from bodiessafeguard- with updatestoaccountingstandards and Changes inthelegalenvironment, together accounting standards environment, includingchanges in Monitoring changesinthelegal investigations initiatedbywhistle-blowing. Ethics Committee,aswelltheresults of ruption; andmonitored the operationsofthe lations; ethics;anti-fraud;security;anti-cor andregu - as: overallcompliancewith laws Group’s compliancesysteminareas such auditors. The Committee also reviewed the nal controls from andexternal theinternal -

CORPORATE GOVERNANCE • • • • • • • • • audit andfinance..ThekeyfunctionsoftheAuditCommitteeinclude: Supervisory Board having qualificationsinaccountingandtreasury and relevant experiencein statements TheAuditCommitteeischaired byMr. RussHoulden,anindependentMemberofthe financial The Audit Committee meetsatleaston a quarterly basisbefore thepublicationof the Audit Committeeataglance ance functionisourAnti-Corruption Pol- An importantresponsibility oftheCompli- Compliance Management Office. ka (COOPL)whoisalsothe Director ofthe of theComplianceOfficer forOrangePols- program. CCOOPLactswiththesupport Orange Polska(CCOOPL)aspartofthat appointed aChiefComplianceOfficerfor a Compliance Management Program and weintroducedour CorporateGovernance ness relationships. Therefore, aspartof of doingbusinessandmaintainingbusi- novation ofourservices,butalsoway only whenitcomes to thequality and in- that we apply high standards and rules not competitive market.Thismarketdemands Orange Polskaoperatesinanincreasingly Compliance mechanisms activity. highest standards ofconductingbusiness sures toensure overallcomplianceandthe Company undertookthefollowingmea- Audit Committee,themanagementof In additiontotherole performedbythe • • • • • • • • • reviewing theef reviewing theissuesgivingrisetor monitoring theindependenceandobjectivityofcompany’s exter auditor giving opinionontheappointmentofexternal reviewing andpr analysing reports ofthecompany’ reviewing annuallytheInter monitoring theintegrityoffinancialinformationprovided bythecompany of the Management Board torecommendationsauditor madebytheexternal remuneration of the company’s auditors presentation ofrecommendations totheSupervisoryBoard withregard toselectionand significant transactionswith related partiesasdefinedbythecorporaterules investigations r risk management systems risk managementsystems eviewing atleastannuallytheOrangePolskaCapitalGroup’ fectiveness of the external auditprocess, fectiveness oftheexternal andresponsiveness oviding anopiniontothecompany’s ManagementBoard and/or theSVBon nal Auditprogramme s Internal Audit and major findings of any other internal Auditandmajorfindingsofanyotherinternal s Internal esignation of the external auditor esignation oftheexternal Orange Polskaemployees andstakehold- offered. as thecorrect actionstotakeifabribeis Polska’s employees.Itcoversissuessuch module onanti-corruption forallofOrange pliance culture isanobligatorye-training Another toolthatactivelypromotes com- current risks and controls mechanisms. tifies andevaluatesnewrisks reviews view ofcorruptionrisks.Thisprocess iden- of the Compliance function is a cyclic re- terrorism financing.Another responsibility economic sanctions,moneylaunderingand of corruption,fraud,non-compliancewith to thoroughly screen ourpartnersforrisks lating tocomplianceandfraud.Itsgoalis harmonise theduediligenceprocedures re- That initiativewascreated tooptimiseand new risk-basedduediligenceprocess. are intheprocess ofimplementationa the ComplianceManagementProgram, we partners whoactonourbehalf.To support by allemployees,co-workersandbusiness towards corruption,andmustbefollowed icy. Ittakesazero-tolerance approach , itsscopeofworkandfees s system of internal control and control and s systemofinternal Orange Polska IntegratedReport -118 nal auditors and nal auditorsand

Auditors (IIA). of EthicsissuedbytheInstitute ofInternal Auditing andtheCode practice ofInternal mity with the Standards for the professional Auditfunction actsinconfor The Internal reviewed annuallybytheAuditCommittee. audit charter,stated in the internal which is bilities are clearlydefinedandapproved as their effectiveness.Auditresponsi Internal - suggesting changeswhichwouldincrease controlagement and internal system, and ically evaluating its processes, risk man- objectives bysystematicallyandmethod- trol. Itassiststheorganisation inreaching its con- nance, risk management and internal objective assuranceandadviceongover senior managementwithindependentand dit Committee,theManagementBoard and AuditfunctionprovidesThe Internal theAu- Audit Internal Compliance function. effectiveness of the Orange Polska Group’s plied actionsandmechanismsensure the mittee onthebasisofperiodicreports. Ap- -blowing) are monitored bytheAuditCom- ed bynotification ofirregularities (whistle as welltheresults of inspections initiat- function, theresults ofplanned inspections, activities of the Compliance Management ti-fraud, securityandanti-corruption.The compliance withlawsandregulations, an- Board inthefollowingareas: ethics,general to theAuditCommitteeofSupervisory Matters related toCompliance are reported fidential andare examined withproper care. disciplinary proceedings. Reports are con- sive measures, actsofdiscriminationor so, theyshouldnotbeafraidofanyrepres- Policy) orthelawofland.Whendoing regulations (includingthe Anti-corruption infringement ofeithertheOrangePolska pect aconflictofinterests, bribery, orany oraskforadviceiftheysus- their concerns ers may use dedicated channels to report 119-Orange PolskaIntegrated Report - - tee withoutthepresence ofmanagement. matters withthemembersofCommit- mittee, andalsohasthepowertoraiseany all scheduled meetings of the Audit Com- tion. TheDirector Auditattends ofInternal Vice President ofStrategyandTransforma- Board President andadministrativelytothe Committee, functionallytotheManagement Group‘s activities,andreports totheAudit Audit covers all of Orange Polska Internal certification from IFACI. Polska’s AuditmaintaineditsIIA Internal the assessmentcarriedoutin2016,Orange (the French Chapter of the IIA). Following Francais del’AuditetduControle Internes assessmentbyIFACIal external - l’Institut assessment activities and annu- of internal improvement program whichiscomposed monitored usingthequalityassuranceand The effectivenessAuditis oftheInternal dit Committeeandmanagement. supports theassuranceprovided totheAu- controlin internal testingwhichultimately the statutoryauditor, mainlyassistingthem Auditfunctionalsoliaiseswith the Internal Audit Committee.Inthecourseofitswork, is monitored andregularly reported tothe ress Audit plan, against the annual Internal tation bymanagement,aswellprog - processes. Progress ontheirimplemen- to address anykeyissues andimprove Auditmakesrecommendationsthe Internal and theAuditCommittee.Onceexecuted, ion totheManagementBoard President dit planissubmittedforreview andopin- throughout theyear. Au- TheannualInternal dits, andforurgent auditissuesthatarise the planforad-hoc,speciallyrequested au- approach alsobuildsreserved hoursinto findings andcyclical review planning.The by management, follow-up on prior audit changing businessneedsandissuesraised ly andtakeaccountofriskassessment, AuditplansareInternal drawnupannual-

CORPORATE GOVERNANCE tions withitsbusinesspartners andthemarketasawhole. Havingethicalbehaviouras acore elementofourculture underpinsOrange Polska’s goodrela- are conductedincompleteconfidentiality. also possibletosendaletter oremaildirectly totheChairman oftheAuditCommittee.Allinquiries electronically (*Zapytaj_etykaviatheanonymouscontactformonourintranet site) orbymail.Itis a questiononethicalbehaviourandstandards orwhentheysuspectabreach ofethics,either Orange PolskaemployeescaneasilycontacttheEthics Committeeinasituationwhere theyhave with examplesofproper ethicalbehaviour. ethical fundamentalsviae-trainingthatidentifiespossible situationsemployeesmightencounter, ciples intheworkplace.Italsoincreases employees’knowledgeandawareness oftheeveryday from daytoday, as well aseducating employees tostrengthen their understanding of ethical prin- standards inthecompany. Itanalysesanyaccusationofnon-ethicalbehaviourthatmightarise The OrangePolskaEthicsCommitteeisanadvisorybodywhichactsastheguardian ofethical Role oftheOrangePolskaEthicsCommittee Code ofEthicsshares the same ethicalstandards asothercompanieswithintheOrangeGroup. behaviour expectedbyourshareholders, customersandbusinesspartners.TheOrangePolska in the tives andbuildthebestpossiblerelationship withtheenvironment. Ethicalstandards are included tual relations (bothpersonal andbusiness),helpingthemtosupportthecompany’s businessobjec ness activity. Thestandards andvaluesimplementedwithinthecompanyguidepeopleintheirmu- Ethics inOrangePolskaarisefrom theverybasicneedtomaintainethicalstandards indailybusi Ethics inOrangePolska sufficiently controlled andanyidentified It ensures thatallsignificantchangesare the evolutionofcontrol environment. The Managementcontinuouslymonitors ability ofthefinancialstatements. of accountingrecords, andtheoverallreli- ing errors, theaccuracyandcompleteness assurance insafeguarding assets,detect - controls. Theaimistoprovide reasonable ation controls andgoesuptotheenitylevel corporate reviews, trend analysis, reconcili- actional level controls, line managers’ or trols startsfrom, butisnotlimitedto,trans- the organisation. The scope ofthesecon- controlsments internal atvariouslevelsof reporting risks,theManagement imple- As aresponse tooperational andfinancial controlInternal Orange Polska Code of Ethics, which provides our employees with a roadmap of the ethical financial reporting atDecember31,2016. control materially impactinternal over that there were noweaknessesthatwould been adopted.TheManagementconcluded corrected orappropriate actionpointshave reporting. Anydeficienciesidentifiedwere the Group’s controls internal overfinancial completed acomprehensive assessmentof In 2016, theManagementonceagain Auditors. External Controland by theInternal team,Internal basis, thecontrols are subjecttotesting in theirareas ofresponsibility. Onayearly the effectiveness controls ofthe internal On aquarterlybasis,SeniorManagerscertify are addressed withactionplans. control deficiencies intheinternal system Orange Polska IntegratedReport -120 - - Strategy Committeeactivitiesin2016 Letter from theChairmanofStrategyCommittee Chairman oftheStrategyCommittee Gervais Pellissier to theBoards. viewpoints thatcouldbeprovided alongwiththeCommittee’s recommendations andinsights guestsparticipated intheCommittee’sas external activitiestoprovide multi-faceted,holistic Members oftheSupervisoryBoard andinvitedmembersoftheManagement Board aswell with themicro- andmacro-environments oftheCompany. Warsaw StockExchangewascovered intheCommittee’s worksandanalysedinconnection Last, butnotleast,abroad arrayoffactorsinfluencingthecompany’s share valuationonthe operators. sented andexamined,especiallywithreference toitssecondphasedesignedattractmajor subsidised programme toprovide fastbroadbandaccesstohouseholds)were internet pre - The conceptandconditionsoftheDigitalPolandOperationalProgramme (agovernmental, aspects ofall-IPmigration(includingtechnologicalandfinancialaspects). proach tosecuringkeycontentwere aprominent topicforourdiscussionsaswelldifferent ing regulatory andEuropean perspectives. TheTVcontentmarketandOrangePolska’s ap- development by Orange Polska were analysed and talked over from a variety of angles, includ- were considered andbenchmarkedtootherEuropean markets.ScenariosforFTTHnetwork The current shapeandpossiblefuture developmentsofthePolishtelecommunicationmarkets ny’s image,were alsodebated. and therole ofCSRincommunicationwithstakeholders,aswellitsimpactonthecompa- petitive positioning as well as the Customer Experience Excellence roadmap. CSR strategy tance were discussedbytheCommittee.Thoseincludedcurrent andtargeted Orangecom- The keyelementsofthecustomerrelationship &care strategyaswellitscompetitiveimpor ated. three ordinary sessionsduringwhich avarietyofkeyissuesforOrangePolskawere deliber development and sustainable growth of OrangePolska.Throughout 2016 theCommittee held Boards with views and recommendations regarding strategic plans and projects related to the The role oftheStrategyCommittee istoprovide theCompany’s SupervisoryandManagement Dear Shareholders, 121-Orange PolskaIntegrated Report projects, inorder tosupportsustainablegrowth the company’s strategicdevelopmentplansand Board ofOrangePolskawithrecommendations on Providing theSupervisoryBoard andManagement - -

CORPORATE GOVERNANCE On theStrategyCommittee’s agendafor2016 Strategy Committeemembers Committee on a permanent basis. Committee onapermanentbasis. Board MemberandChairman oftheAuditCommittee,participateinmeetingsStrategy Mr. MaciejWitucki,ChairmanoftheSupervisoryBoard, andMr. RussHoulden,Independent and concentrate on the FTTH investment as essential toworkoncompany’s strengths Poland’s macroeconomic situationanditis Orange Polska’s situationisconnectedto cluding OrangePolska’s. Itwasagreed that shares ontheWarsaw StockExchange,in- text of factorsinfluencing theprice of the The Committeediscussedthebroad con- OPL valuation company’s imagehasbeendiscussed. cation withstakeholdersanditsimpacton and discussed the role of CSR in communi- The Committee reviewed the CSRstrategy CSR strategy was alsomentioned. teractions with Orange Polska’s customers The growing share ofdigitalchannelsin- digitalisation and efficiencyimprovement. simplicity, standardisation, the company’s growing importance of suchactivities as mainly oncustomercare. Ithighlightedthe competition onthemarketwoulddepend noted asapositivedevelopment,future gy. Improvement incustomercare hasbeen of the Customer Relationship & Care Strate- The Committeediscussedthekeyelements Customer care strategy .Dr. MariaPasło-Wiśniewska 7. PatriceLambert-deDiesbach 6. Prof. MichałKleiber 5. EricDebroeck 4. Jean-MarieCulpin 3. Dr. HenrykaBochniarz 2. GervaisPellissier–Chairman 1. as wellOrangePolska’s marketposition point ofviewtheregulatory authorities tional coverageinashorter time.From the but alsoprovide OrangePolskawithaddi- not onlyacceleratethedeployment ofFTTH would ed anddiscussed.Suchalternatives FTTH networkdevelopmentwere present- scenariosforOrangePolska Alternative network development scenariosforOPL FTTH Alternative Spain). benchmarks (Belgium, cluding international the wholemarketandOrangePolska,in- tee alsodiscussedpotentialscenariosfor operators, includingOrange.TheCommit- is likelytoconsolidatedowntwomain term, themarketforfullyconvergent offers viding fullyconvergent offers; inthelonger it seestwoorthree groups ofoperatorspro- solidation. Overthenextthree tofouryears, of its view on future trends in market con- The Committeeoutlinedthekeyelements consolidation moves visiononpotentialmarket External customer experience. company mustcommittotheshifttowards it iscriticaltoOrangePolska’s success.The Orange Polska IntegratedReport -122 • • In particular tions oneachoftheseprojects totheSupervisoryBoard. involving strategicagreements forOrangePolskaGroup. Itthenreports andmakesrecommenda monitoring oftheevolutionindustrialpartnershipswithinOrangePolskaGroup and pr tee isconsultedonallstrategicprojects related tothedevelopmentofOrangePolskaGroup, the mendations totheSupervisoryBoard regarding Management’s planningprocesses. TheCommit- keystrategicdirections.particular concerning TheStrategyCommitteemayalsoprovide recom Board, aswellanyfurthersuggestionstostrategicplansmadebytheSupervisoryBoard, in recommendations totheSupervisoryBoard onthestrategicplanssetoutbyManagement The StrategyCommitteeshouldmeetatleasttwiceayear. TheCommitteegivesitsopinionsand Strategy Committeeataglance the ChairmanofSupervisory Board. Committee isentitledtoattend theStrategyCommitteemeetingsaspermanentguest, alongwith Given thepotentialimpact of theserisksonthecompany’s accounts, theChairmanofAudit for assessing therisksinvolvedintheseoperations. The issuessubmittedtotheStrategyCommitteecontain, inparticular, theinformationnecessary Polska’s customerstoVHBB. access), tosupportmigrationofOrange regardless ofwhobuildsit(inawholesale ange Polskatobeready to usethenetwork highlighted thecommercial needforOr to residential customers. The Committee tionally toprovide connections fastinternet all schoolsinwhitezoneareas andaddi- POPC. Theprogram priority istoconnect The Committeediscussedtheprogress of and OPLapproach POPC –program conditions for OrangePolska. both potentialopportunitybutalsoathreat by European fundshasbeen mentionedas of different investmentprojects co-financed tensive FTTHcoverageinPoland.Therole count thatOrangePolskahasthemostex- this couldbeapositivestep,takingintoac- • • 123-Orange PolskaIntegrated Report significant acquisitionsandsalesofassets Group including aspectsofthestrategicpartnershipbetween Orange Group andOrangePolska strategic agreements, alliances,andtechnological and industrialcooperationagreements, , theCommitteeisinvitedtoconsiderpr - grate toall-IPbasedservices. synergies; andthepaceatwhichclientsmi- vestment, migrationtoVDSL);anypotential tion from ATM oIPtechnology, FTTHin- important projects (e.g.broadband migra- situation; correlation with othersongoing nancial impactonOrangePolska’s financial discussed, withparticularemphasisonfi- Different aspectsofall-IPmigrationwere All-IP program Polska’s offer. enhancement andsimplificationofOrange with theimpactofnewpartnershipson ket. Costefficiencywasemphasized,along content from theperspective ofPolishmar cus on the strategic value of access to TV ange Polskapartnershipswithspecialfo- The Committeereviewed thedetailsofOr OPL approach toTVcontent ojects suchas: ojects ojects - - - -

CORPORATE GOVERNANCE Remuneration Committeeactivitiesin2016 Letter from theChairmanofRemunerationCommittee Chairman oftheRemuneration Committee Wiesław Rozłucki cooperation in2016. I wish to thank the executive management, key managers and all employees for the effort and year ended31December2016waspublishedon13February 2017. new modeloftheManagementBoard’s ReportontheActivityofOrangePolskaS.A.for accordance with“BestPracticeofWarsaw StockExchangeListedCompanies2016”.This model oftheManagementBoard’s Report on the Activity of Orange Polska S.A. in2016, In addition,weworkedouttheremuneration policyofOrangePolskaandapproved anew and B2Bfunctions. structure andsimplify theinternal toimprove executionofthecompany’s strategyinbothB2C consumer market,joiningsales,marketingandcommunicationunderoneleadershipto 2017. Thechangesare aimedmainlyatconsolidatingOrangePolska’s managementofthe approved theorganisational changes inOrangePolskawhichcameintoforce on1 January Orange Polskafrom thestartofMay2016,andhisemploymentcontractconditions.We also the SupervisoryBoard ofthenomination Jean-FrançoisFallacherasthenextPresident of One oftheCommittee’s activitiesin2016wastheprocess ofpositiverecommendation to Global 2016rankings. Polska 2016 certificate and was included in the Top Employer Europe 2016 and Top Employer policy includingawidespectrumofHRsolutions,OrangePolskawasawarded aTop Employer in order tofurtheroursustainabledevelopmentgoals.Thanksinparttheremuneration policy also contributes to maintaining good relations between the company and its employees managers andemployeestosupportthebusinessindigitaltransformation.Remuneration offers. Through theappropriate remuneration policy, OrangePolskamotivatesexecutives,key systems are builttoengageallemployeessellFTTHandwidelypromote convergent and otherbusinessindicators.ThemechanismssolutionsinOrangePolska’s motivation strategy, supportsOrangePolskainachievingincreases inrevenue, adjustedEBITDA,NPS Remuneration policy, asoneofthekeycomponentscompany’s humanresources on theRemunerationPolicyofOrangePolska. activity oftheRemunerationCommitteeforyearended31December2016,andreport It ismypleasure to present on behalf of the RemunerationCommittee the annualreport on the Management Board. make recommendations onappointmentstothe policy ofOrangePolskaCapitalGroup andto Management Board ongeneralremuneration is toadvisetheSupervisoryBoard and The mainremit oftheRemunerationCommittee Orange Polska IntegratedReport -124 On theRemunerationCommittee’s agendafor2016 Remuneration Committeemembers • • • • • • • • ation-related issues: sideration focusedonthefollowingremuner SupervisoryBoard con- commendations for 7 meetings and in particular developed re- In 2016,theRemunerationCommitteeheld 125-Orange PolskaIntegrated Report • • • • • • • • .Valérie Thérond 4. Dr. MariaPasło–Wiśniewska 3. Marc Ricau 2. Dr. WiesławRozłucki–Chairman 1. was informedaboutthemer tor. ditions oftheactingMarketingB2CDirec- was informedabouttheemploymentcon implemented from H22016 r positively cation. charge ofBrandandMarketingCommuni- Affairs andfortheExecutiveDirector in Executive Director incharge of Corporate accepted ther til 30.04.2016. for thePresident ofManagementBoard un- Board theemploymentcontractconditions positively Finance. Management Board Memberincharge of ry Board theremuneration changeforthe positively Annual Report2015 accepted theRemunerationCommittee’ of CustomerCare andCustomerExcel- the ManagementBoard Memberincharge employment conditionsof Jolanta Dudek, sp. zo.o.from 01.10.2016andaboutthe Polska S.A.withOrangeCustomer Service ment contractconditions. President from 01.05.2016andhis employ- Fallacher asthenextManagementBoard ry Board thenominationofJean-François eviewed the modified model MBO goals eviewed themodifiedmodelMBOgoals recommended to the Supervisory recommended to the Supervisory recommended to the Superviso- recommended to the Superviso- emuneration changes for the emuneration changesforthe ger of Orange ger ofOrange s s - -

• • • • • • • • • • • • agement Board MembersforH22016. same, andestablishedgoals fortheMan- Members forH12016and evaluatedthe lished goalsfortheManagement Board ment Board MembersforH22015,estab- evaluated theMBOgoalsforManage nies 2016. with BestPracticeforGPWListedCompa- ny’s remuneration policy, inaccordance Polska S.A.in2016includingthecompa- Board’s ReportontheActivityofOrange discussed thesectionofManagement appr of officevalidfrom April2017. Strategy andTransformation foranewterm dent oftheManagementBoard incharge of ry Board theappointmentofVice-Presi- positively Executive Director incharge ofNetwork. Executive Director incharge of ITandthe and theemploymentconditionsof positively acknowledgedthecandidatur Orange PolskaS.A.from September 2016. tion abouttheorganisational changesin positively acknowledgedtheinforma conditions. lence asaone-to-onemerge ofthepresent Business Market. of theManagementBoard incharge of Bożena LeśniewskaastheVice-president in charge ofConsumerMarketandfor Vice-president oftheManagementBoard tract conditionsforMariuszGacaasthe Supervisory Board theemploymentcon- Gaca, andpositivelyrecommended tothe roles toBożenaLeśniewskaandMariusz oved the allocation of management oved the allocation of management recommended to the Superviso- es es - -

CORPORATE GOVERNANCE Remuneration Policy of Orange Polska S.A. Remuneration PolicyofOrangePolska S.A. • • • • • Management Boar tion policyofOrangePolskaGroup andtomakerecommendations onappointmentstothe mittee istoadvisetheSupervisoryBoard andManagementBoard onthegeneralremunera The RemunerationCommitteeshouldmeetatleastfourtimesayear. ThetaskoftheCom Remuneration Committeeataglance opment andtheuseofflexible workmethods. to theCompany’s objectives,employeedevel work envir ation offavourableconditions inthedigital of theCompany, thePolicysupportscre- Recognising thatemployeesare akeyasset strategic goals.of. r ist inOrangePolskaS.A.itprovides workforce pr tion andmotivationofthebestmanagers strategy plementing theCompany’s comprehensive The RemunerationPolicycontributestoim standards ofcustomerrelationship. as offering extensive connectivity and high both householdandbusinessneeds,aswell timedia andspecialisedICTservicestosuit of tomer satisfaction,whileproviding afullrange building andmaintaininghighlevelsofcus Orange PolskaS.A’s strategyisbasedon • • • • • eady andabletoachievetheCompany’s remuneration levels to therelative positioningon the widerOrangePolskaCapitalGroup: inbothcaseshavingregard general policyfor the providing anopiniononremuneration policyformostseniorexecutives,and onthe for the membersof the ManagementBoard giving recommendations totheSupervisoryBoard regarding theamountsofbonuses if necessaryarelevant recommendation totheSupervisoryBoard or reports regarding resignations ofanymemberstheManagementBoard andmaking considering proposals madebythePresident ortheSupervisoryBoard regarding dismissal candidates process andmakingappropriate recommendations totheSupervisoryBoard about Board; takingpartinthefinalstageofinterviewing appointments to the Management considering proposals madebythePresident orthe Supervisory Board new concerning of Management Board determining theconditionsofemploymentandremuneration oftheMembers ofessionals inthespecialisedareas thatex the best quality telecommunication, mul - . Byenablingtherecruitment, reten onment. It promotes commitment onment. Itpromotes commitment d. TheCommittee’ market of Orange PolskaGroup’smarket of Orange termsofengagementand s detailedtasksinclude: - - - - -

agreement with trade unions in compliance agreement withtradeunionsincompliance for employeesare determinedinaseparate severance pay. Thetermsofseverancepay voluntary departure programme are offered Employees leavingtheCompany underthe 4. Benefits 3. Discretionary bonuses 2. Performancebonus 1. Basicsalary lowing components: The remuneration system consists of the fol- regulations. governance complies withthelabourlawandcorporate the Orange Group. OurRemunerationPolicy ensuring balanceandconsistencyacross Remunerations are determinedinamanner and performance. and ontheemployee’s individualcontribution depends ontheCompany’s financial results, panies inthemarket.Theremuneration level are compared tothoseoffered bypeercom- Remunerations within Orange Polska S.A. Orange Polska IntegratedReport -126 - - • • • • taking followingintoconsideration: Individual basicsalariesare determinedby sexual orientation. trade unionmembership,ethnicoriginand ty, race,religion, nationality, politicalopinion, larly on the grounds ofgender, age, disabili- terms basedonnon-discrimination,particu- Orange PolskaS.A.developsremuneration various partsoftheorganisation. involved aswelljobcomparabilitybetween into accountthemanagerialandexpertskills remuneration betweenjobpositionsbytaking The companyalsoensures theconsistencyof ket leaders,particularlyICTcompanies. practices tothoseadoptedbythePolishmar the Company’s salariesandremuneration tion market by comparing, at least annually, Orange PolskaS.A.monitorstheremunera- formed. as wellthemarketvalueofworkper of tasksassignedtoaparticularjobposition remuneration standards related tothescope Basic salarytermstakeintoaccountthejob 1. Basicsalary co-operation withtradeunions. lective LabourAgreement are determinedin S.A.’s employeescovered bytheGroup Col- Terms ofremuneration forOrangePolska their employmentcontracts. tled inindividualagreements andcodifiedin Group CollectiveLabour Agreement are set- pay forthosemanagersexcludedfrom the with thelaw, whereas thetermsofseverance 127-Orange PolskaIntegrated Report • • • • competition most qualifiedemployees leavingforthe management oftherisk attritionofthe area assuming theirdutiesinanewprofessional r  goals ployee’s contributiontotheachievementof various professional groups and each em- account theevolvingworkstandards of annual r promotions promotions ecruitment arrangements for candidates ecruitment arrangementsforcandidates emuneration reviews, taking into emuneration reviews, takinginto - -

managers, the bonus is related to their goals shared byall,whereas forexperts/line pends more ontheachievementofsolidarity ed totheCompany’s performance,andde- For keymanagers,thebonusismore relat- • • levels ofbonuses: particular functions,whichresults indifferent with thespecificsoftasksperformedby Orange PolskaS.A.’s bonussystemisaligned addition toindividualones. ness unitsbysettingsomesolidaritygoalsin co-operation amongemployeesandbusi- satisfaction. Thesystemofgoalsstimulates Company’s strategyandgrowth ofcustomer which supporttheimplementationof by attainingpredefined andagreed goals vate employeestoachievehighperformance The purposeofthebonussystemistomoti- 2. Performancebonus ecutive Directors. Board determinesthebasicsalaryofEx- Board Members,whiletheManagement termines thebasicsalaryofManagement recommendations, theSupervisory Board de- Based • • • • aspects: salary, whiletakingintoaccountthefollowing employment, includingtheamountofbasic pervisory Board recommends thetermsof The RemunerationCommitteeoftheSu- and Executive Directors Management Board Members • • • • • • remuneration) remuneration) vious performancereceive comparable bilities, competence,experienceandpre - muneration thanthosewithoutsuchgoals. bonus orcommissionlevelsinthetotalre- nuses intheirtotalremuneration individual contribution market competitiveness the particularjobposition Employees withsalesgoalshavehigher Senior managershaveahighshar equality (employeeswithsimilarr scope ofr on the Remuneration Committee’s esponsibilities and complexity of esponsibilities andcomplexityof esponsi- e ofbo-

CORPORATE GOVERNANCE development. development. for thisgroup ofmanagersiscurrently under 2017. Anewlong-termincentiveprogramme agers oftheGroup willbeclosedinOctober ue. TheIncentiveProgramme forSeniorMan- commitment toincreasing theCompany’s val- These programmes leadtomanagers’greater incentive toachievelong-termobjectives. dedicated toseniormanagersare aspecial The share ownershipsharingprogrammes neration CommitteeoftheSupervisoryBoard. Directors are monitored directly bytheRemu- Management Board MembersandExecutive The performanceandbonusesofindividual and managementquality. goals are related tofunctional performance satisfaction from Orangeservices.Individual segments ofitsactivityas well as customer ratios for the whole Company or particular managers are related toEBITDAandrevenue performance. Solidarity goals delegated to pany’s long-termstrategyandonfinancial the attainmentofgoalsbasedonCom- bers andExecutiveDirectors depend on Bonuses fortheManagementBoard Mem- and Executive Directors Management Board Members relevant BonusRegulations. The detailedbonustermsare definedinthe monthly basis. ceive bonuses/commissionsonaquarterlyor sales linemanagersandemployeesre - nual basis.Employeesinsupportfunctions, port functionsreceive bonuses onasemi-an- All seniormanagersandlineinsup- closely linkedtothebudgetingcycle. The goalsandbonusesare setforperiods ticular functionortheentire Company. the solidaritycomponentsshared bythepar individual performanceanddependslesson - laws. laws. ployment contractsandtheCompany’s by- muneration are regulated byindividualem- bodies.Thedetailed termsofregoverning - employees or membersof the Company’s the basisforanyclaimsbyCompany’s The RemunerationPolicyshallnotconstitute own products andservices. therefore. itprovides them withaccesstoits to betheambassadorsofOrangebrand; ence thefollowingkeyareas: Orange PolskaS.A.’s benefitschemesinflu- sion Fund). scheme (OrangePolskaS.A.EmployeePen- The programme isanemployeepension is financedbythecompany. bility fortheEmployeePensionFund,which A uniquebenefitforemployeesistheireligi- ployee recruitment andretention. building avaluableoffer whichsupportsem- ket-competitive benefitstoitsemployees, ska S.A.provides abroad packageofmar promote employee integration, Orange Pol- In order toimprove thequalityoflifeand 4. Benefits cutive Directors foroutstanding achievements. by theCEOorotherBoard MembersorExe- Discretionary bonusesare awarded twiceayear defined intheirperiodicgoals. achievements whichexceedtheexpectations this scheme,employeescanberewarded for and cross-functional co-operation. Owingto solutions, implementationofstrategicprojects to getinvolvedinthedevelopmentofinnovative Discretionary bonuses encourage employees performance. on innovation and commitment to outstanding Orange Polska S.A.’s long-term strategy relies 3. Discretionary bonuses Orange PolskaS.A.wantsallitsemployees • • • • • • employee development impr health oved qualityoflife and physical activityfinancial stability and physical activityfinancial stability Orange Polska IntegratedReport -128 -

2 Compensationuntiltheterminationdate(including post-employmentbenefits) 1 Includesbonusesaccured in2016andpaid2017,excludesbonuses accured in2015andpaid in2016. Persons thetwere MembersoftheManagementBoard ofCompanyin2016andprevious years: the merger ofOrangeCustomerServiceSp.zo.o.withPolskaS.A. 3 Mrs.JolantaDudekistheMemberofManagementBoard ofOrangePolskaS.A.andshewasalsotheMemberManagement Board ofOrange CustomerServiceSp.zo.o.until 2 from thedateofappoinmentasPresident oftheManagementBoard ofOPL 1 Includesbonusesaccured in2016andpaid2017,excludesbonusesaccured in2015andpaid2016. the merger ofOrangeCustomerServiceSp.zo.o.withPolskaS.A. 3 Mrs.JolantaDudekistheMemberofManagementBoard ofOrangePolskaS.A.andshewasalsotheMemberManagementBoard ofOrangeCustomerServiceSp.zo.o.until 2 from thedateofappoinmentasMemberManagementBoard ofOPL 1 Includesbonusesaccured in2015andpaid2016,excludesbonusesaccured in2014andpaid2015. Persons thatwere Members oftheManagementBoard oftheCompanyasat31December2015: Management Board andSupervisoryBoard Compensation Bruno Duthoit (in PLNthousands Jean-François Fallacher (in PLNthousands Bruno Duthoit (in PLNthousands Mariusz Gaca Michał Paschalis-Jakubowicz from OrangePolskaS.A. Total Maciej Nowohoński from OrangePolskaS.A. Total Mariusz Gaca Piotr Muszyński from OrangeCustomerServiceSp.zo.o. Michał Paschalis-Jakubowicz from OrangeCustomerService Sp.zo.o. Piotr Muszyński Jolanta Dudek Jacek Kowalski Jacek Kowalski Jolanta Dudek Bożena Leśniewska Bożena Leśniewska Maciej Nowohoński Total 129-Orange PolskaIntegrated Report 2 3 2, 3 2 2 2 2 expense in2016 expense in2016 expense in2015 compensation compensation compensation Fixed Fixed Fixed 2 514 2 930 2 036 1 521 1 496 6 8 2051335 12055 3387 8 668 1 099 4 966 1 550 1 708 1 778 1 234 1 192 1 031 1 230 4 2 2741381 12764 3521 9 243 899 239 226 194 572 327 98 96 expense in2016 expense in2016 expense in2015 compensation compensation compensation Variable Variable Variable 31December2016 31December2016 31December2015 12 monthsended 12 monthsended 12 monthsended 2 3140 626 7 1272 373 101 101 9 3123 193 7 2215 179 1989 468 5 2148 652 234 0 1607 508 7 5338 372 2186 636 6 2476 768 139 6 2443 665 9 1729 495 1725 533 1 1449 418 6 1696 466 98 49 49 1 1 1 expense in2016 expense in2016 expense in2015 compensation compensation compensation Total Total Total 340 327 292 806 147 466 145 expense in2015, expense in2015, expense in2014, compensation compensation compensation paid in2016 paid in2016 paid in2015 additionally: additionally: additionally: Variable Variable Variable 268 276 101 294 203 377 329 324 351 267 246 101 235 98 49 49 ------

CORPORATE GOVERNANCE in 2016orprevious periods 2 Personsthatwere notMembersoftheSupervisoryBoard oftheCompanyasat31December2016but were MembersoftheSupervisory Board ofOPLS.A. 1 PersonsappointedtotheSupervisoryBoard oftheCompanyemployedbyOrangeS.A.donotreceive remuneration forthefunctionperformed. Supervisory Board compensationwasasfollows: Valérie Thérond Dr. WiesławRozłucki Dr. MariaPasło-Wiśniewska Jean-Marie Culpin Eric Debroeck Marc Ricau Gervais Pellissier Maciej Witucki (in PLNthousands Patrice Lambert-deDiesbach Prof. MichałKleiber Russ Houlden Ramon Fernandez Federico ColomArtola Dr. HenrykaBochniarz Total Mr. Gérard Ries Marie-Christine Lambert Sławomir Lachowski Prof. AndrzejK.Koźmiński Dr. Mirosław Gronicki equal to6months’basicsalary. they are entitledtocompensationforthisban after theterminationofemployment, and from anycompetitiveactivityfor12months Management Board Membersshallrestrain ance payequalto6months’basicsalary. All In addition,theyare entitledtoone-off sever that period. months andtheyreceive basicsalaryduring period for Management Board Members is 6 nation ofemployment,theterminationnotice specific telcoindicators.As regards termi- targets forRevenues,adjustedEBITDAand component is based on the achievement of nual basicsalary. Thevariableremuneration tion componentmayexceed50%ofthean- is higher than 100%, the variable remunera- achievement. Insomecases,ifperformance their annualbasicsalaryincaseof100%goal remuneration componentequalto50%of Executive Directors are entitledtoavariable The ManagementBoard Membersand 1

1

1 1,2 1

1 1

2 2 1

1,2 2 1

-

liability, and accesstoOrangeservicesinline car, legalindemnityintheevent ofpersonal health care package,lifeinsurance,company ing non-financial remuneration components: ecutive Directors are entitled tothefollow- The ManagementBoard MembersandEx- Managers for ManagementBoard MembersandKey Non-financial RemunerationComponents French socialinsurancepremiums, etc. include housing allowance, plane tickets, one-off basisorthroughout theyear. These al MobilityPolicypackageandpayableona are includedintheOrangeGroup- Internation ed withstayinginPolandasforeigners, which expatriates are eligibleforbenefitsconnect- Members andExecutiveDirectors whoare Furthermore, thoseManagementBoard the adjustedEBITDAasafinancialtrigger. Board is entitled to a Stretch Bonus based on In addition,thePresident oftheManagement 31December2016 12 monthsended 1 933 321 210 420 139 394 218 154 77 Orange Polska IntegratedReport -130 ------31December2015 12 monthsended 2 152 314 135 419 390 209 392 216 77 ------for theEmployeePensionProgramme (PPE). at OPLformore than6months, are eligible In addition,allkeymanagers,havingworked vices inlinewiththerelevant OPL’s policies. company carandanaccesstoOrangeser rectors are entitledtohealthcare package, The keymanagersotherthanExecutiveDi- Employee PensionProgramme (PPE). for more than6months, are eligibleforthe rectors, whohaveworked atOrangePolska agement Board Members andExecutiveDi- with therelevant policies. Inaddition,Man- 131-Orange PolskaIntegrated Report - ance premiums, etc. ance premiums, etc. allowance, planetickets,French socialinsur throughout theyear. Theseincludehousing package andpayableonaone-off basisor Orange Group MobilityPolicy International land asforeigners, which are includedinthe for benefitsconnectedwithstayinginPo- In addition,French keymanagers are eligible all participantsispaidbyOrangePolskaS.A. Programme (PPE),thePPE contributionfor After enrolment tothe Employee Pension -

CORPORATE GOVERNANCE Management Board compositionasof1January2017 Management Board’s activitiesin2016 .MaciejNowohoński 7. JacekKowalski 6. JolantaDudek 5. PiotrMuszyński President oftheManagementBoard 4. BożenaLeśniewska 3. MariuszGaca 2. Jean-FrançoisFallacher 1. of the Management Board in charge charge in Board Management the of Board in charge of Business Market Vice-President of the Management of and Strategy Transformation Management Board Member in Management Board Member in in charge of Consumer Market Consumer of charge in charge of Customer Care and Management Board Member charge of Human Resources of the Management Board Board Management the of Customer Excellence in charge of Finance Bożena Leśniewska Maciej Nowohoński Vice-President Vice-President Piotr Muszyński Jacek KowalskiJacek Mariusz Gaca Mariusz Jolanta Dudek Jolanta of the Management Board Board Management the of Jean-François FallacherJean-François Management Board Member Management Board Member Management Board Member Vice-President oftheManagementBoard Vice-President oftheManagementBoard Vice-President oftheManagementBoard President President in charge of Corporate Affairs Affairs Corporate of charge in Executive Director in charge charge in Director Executive in charge of Carriers Market of Network and Technology and Network of in charge of Effectiveness Effectiveness of charge in Magdalena Hauptman Magdalena Jarosław Starczewski Executive Director Director Executive Director Executive Director Executive Director Executive in charge of IT IT of charge in Bruno Chomel Bruno Piotr Jaworski Witold Drożdż Witold Orange Polska IntegratedReport -132 Polska appointed Jean-François Fallacher as Polska appointed Jean-François Fallacher as sequently theSupervisoryBoard ofOrange Management Board forOrangePolska.Sub- from thepositionofCEOandPresident ofthe tral Europe. Therefore, BrunoDuthoitresigned tive Director forEurope responsible forCen- the positionofDeputyOrangeGroup Execu- accept theOrangeGroup’s proposal totake formed OrangePolskathathehaddecidedto of office.AtthesametimeBrunoDuthoitin- to re-appoint BrunoDuthoitforthenextterm mandate expiringon12April2016,decided agement Board President BrunoDuthoit’s The SupervisoryBoard, inviewoftheMan- Management Board Changes tothemembershipof fore theexpirationoftheirtermoffice. portant reasons bytheSupervisoryBoard be- im- at anytimeremoved orsuspendedfor Members oftheManagementBoard maybe the ManagementBoard. cial yearofhis/herserviceasamember financial statementsforthesecondfullfinan- Assemblywhichapproves the of the General members expire atthe latest onthedate The mandatesofManagementBoard opted byasimplemajorityof the votescast. members oftheManagementBoard are ad- or re-appointment of the President or other Supervisory Board regarding theappointment the SupervisoryBoard. The resolutions ofthe ment Board are appointed and removed by ident andothermembersoftheManage- Management Board is three years. The Pres - The termofofficeeachmemberthe office Management Board members’ termof 133-Orange PolskaIntegrated Report Business Market. Business Market. appointed theDeputyCEOincharge ofthe Sales andCommercial Digitisation,was Management Board Memberincharge of time, BożenaLeśniewska,whowasthe Marketing Communication.Atthesame Digitisation, B2CMarketingand Brand & managed separately:Sales&Commercial responsibility for three areas that had been charge ofConsumerMarket.Thiscombined a newly formed positionof Deputy CEO in CEO incharge oftheBusinessMarket,took 2017. MariuszGaca,whowastheDeputy changes comingintoeffect onJanuary1, Board decidedonsomeorganisational On December20,2016,theManagement Transformation. Management Board incharge of Strategyand tion ofVice-President oftheOrangePolska period of three years. He will hold the posi- statements ofOrangePolskafor2016,a General Meetingthatwillacceptthefinancial of officestartsonthedaynextAnnual of thecurrent termofoffice. Thenewterm appointment was madebefore theexpiration ment Board forthenextterm ofoffice.The re- reappointed asaMember oftheManage- On October12,2016,PiotrMuszyńskiwas ment responsibilities inthe area ofmarketing. François Fallacherhastakenovermanage- 4, 2016.DuringthetransitionperiodJean- sonal reasons withimmediate effect onJuly keting resigned from his position due to per the ManagementBoard in charge ofMar Michał Paschalis-Jakubowicz,Memberof fective asofMay1,2016. the President oftheManagement Board ef- - -

CORPORATE GOVERNANCE Age profile: Age profile: Management Board skill matrix Management Board diversity Length of tenure: Length oftenure: Maciej Nowohoński Jacek Kowalski Jolanta Dudek Piotr Muszyński Bożena Leśniewska Mariusz Gaca Jean-François Fallacher Male Female Gender: 51-55 years 46-50 years 40-45 years 71% 3-6 years 0-3 years 6+ years 29% 2 persons 2 persons 3 persons 14% 29% International International Local Nationalities:     Economics and

Finance 57% 14%        Management 86% and Strategy Jacek Kowalski Piotr Muszyński, Maciej Nowohoński Mariusz Gaca, Bożena Leśniewska Jean-François Fallacher, JolantaDudek, Law and administration

Orange Polska IntegratedReport -134 Engineering   and Technology      Psychology and Humanities    Sales and Marketing but only if all the members sign it. but onlyifallthememberssignit. votes of all members present. A resolution can also be adopted outside the meeting by circulation, presides atmeetings.ResolutionsoftheManagementBoard are adoptedbyabsolutemajorityof of otherpersonsinmeetingsisatthediscretion ofthePresident oftheManagementBoard, who each ManagementBoard Membermayplacemattersontheagendaofmeeting.Participation on aweeklybasis.ParticipationoftheManagementBoard Membersinmeetingsisobligatoryand vision ofdutiesdefinedinOrganisational RegulationsofOrangePolska.TheManagementmeets Members oftheManagementBoard managethecompany’s affairs directly, according tothedi- while hemonitorsandevaluatestheresults oftheirwork. and otherBoard Members.Board Membersreport tothePresident ontheexecution oftheirduties, The President oftheManagementBoard actsaschairmanandmanagestheactivitiesofBoard Management board ataglance objectives wastoincrease customersatisfac- In 2016,oneofOrangePolska’s keystrategic activities, takingdecisionsoncriticalmatters. ordinated and managedthemostimportant policies foritsoperationalactivities.Italsoco- objectives aswellapplyingprinciplesand company’s strategyandfulfilleditslong-term The ManagementBoard implementedthe opment andmarketgrowth. that mightaffect thecompany’s proper devel- itored environment theexternal andfactors management,italsomon- Besides internal Customer ExcellenceandHumanResources. egy andTransformation, CustomerCare and as ConsumerMarket,BusinessStrat- the company’s objectivesincore areas such and strategicpointofview, andtoimplement pany’s businessfrom internal anoperational The ManagementBoard managed thecom- for 2016 On theManagementBoard’s agenda 135-Orange PolskaIntegrated Report land’s “digitalsociety”. and raisingthelevelofcompetencePo- enabling"e-publicservices", speed internet, country through providing accesstohigh- foundations ofdigitaldevelopmentour This programme aimsat strengthening the gramme DigitalPoland2014-2020(POPC). ment’s projects, suchasOperationalPro - - continuing partnershipinthePolishGovern agement Board for2016was thecompany’s The secondveryimportantfocusfortheMan- inPoland. fastest mobileinternet the 4G/LTE mobilenetworkandproviding the and qualityoffibre opticnetworks, expanding quality ofservice,improving thecoverage on providing our customers with the highest communications market.We were focused to maintaintheleadingpositionintele- tion byimproving customer experienceand

CORPORATE GOVERNANCE Financial 09 statements

Orange Polska Integrated Report - 136 137 - Orange Polska Integrated Report ORANGE POLSKA GROUP

IFRS CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016

Contents

CONSOLIDATED INCOME STATEMENT...... 140 Financial instruments excluding trade receivables and payables FINANCIAL STATEMENTS CONSOLIDATED CONSOLIDATED STATEMENT OF FINANCIAL POSITION...... 141 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY...... 142 16. Finance income and expense...... 159 CONSOLIDATED STATEMENT OF CASH FLOWS...... 143 17. Net financial debt...... 160 18. Financial liabilities at amortised cost excluding trade payables...... 160 General information 19. Cash and cash equivalents...... 161 20. Derivatives...... 162 1. Corporate information...... 144 21. Fair value of financial instruments...... 164 2. Statement of compliance and basis of preparation...... 146 22. Objectives and policies of financial risk management...... 164 3. Segment information...... 147 4. Main acquisitions, disposals and changes in scope of consolidation...... 148 Income tax

Operating income/loss excluding depreciation and amortisation 23. Income tax...... 170

5. Revenue...... 149 Equity and management of capital 6. Operating expense and income...... 149 7. Gains on disposal of assets...... 150 24. Equity...... 171 25. Management of capital...... 172 Non-current assets Other explanatory notes 8. Impairment...... 150 9. Goodwill...... 152 26. Unrecognised contractual obligations...... 172 10. Other intangible assets...... 152 27. Litigation, claims and contingent liabilities...... 173 11. Property, plant and equipment...... 154 28. Related party transactions...... 176 29. Subsequent events...... 178 Current assets and liabilities 30. Significant accounting policies...... 178

12. Trade receivables...... 155 13. Provisions...... 156 14. Trade payables, other liabilities and deferred income...... 157 15. Employee benefits...... 157

Orange Polska Integrated Report - 138 139 - Orange Polska Integrated Report 9 CONSOLIDATED INCOME STATEMENT CONSOLIDATED STATEMENT OF FINANCIAL POSITION (in PLN millions, except for earnings/loss per share) (in PLN millions) 12 months ended At 31 December At 31 December 2016 2015 31 December 31 December Note Note (see Note 30.5) 2016 2015 Revenue 5 11,538 11,840 ASSETS

External purchases 6.1 (6,432) (6,271) Goodwill 9 2,147 3,940 Labour expense 6.2 (1,636) (1,713) Other intangible assets 10 5,722 3,010 Other operating expense 6.3 (587) (613) Property, plant and equipment 11 10,678 11,025 Other operating income 6.3 210 246 Trade receivables 12 433 215 Gains on disposal of assets 7 70 71 Derivatives 20 206 89 Employment termination expense 13 – (129) Other assets 55 52 Depreciation and amortisation 10,11 (2,725) (2,871) Deferred tax assets 23.2 929 991 (Impairment)/reversal of impairment of non-current assets 8.1,8.2 (1,792) 12 Total non-current assets 20,170 19,322

Operating income/(loss) (1,354) 572 Inventories 163 228 FINANCIAL STATEMENTS CONSOLIDATED Trade receivables 12 1,827 1,600 Interest income 16 22 17 Derivatives 20 36 33 Interest expense and other financial charges 16 (282) (216) Income tax assets 5 2 Discounting expense 16 (99) (92) Other assets 45 117 Finance costs, net (359) (291) Prepaid expenses 80 84 Cash and cash equivalents 19 262 266 Income tax 23.1 (33) (27) Total current assets 2,418 2,330

Consolidated net income/(loss) (1,746) 254 TOTAL ASSETS 22,588 21,652

Net income/(loss) attributable to owners of Orange Polska S.A. (1,746) 254 EQUITY AND LIABILITIES Net income/(loss) attributable to non-controlling interests – – Earnings/(loss) per share (in PLN) (basic and diluted) 30.5 (1.33) 0.19 Share capital 24.1 3,937 3,937 Share premium 832 832 Weighted average number of shares (in millions) (basic and diluted) 30.5 1,312 1,312 Other reserves (29) (103) Retained earnings 5,267 7,309 Equity attributable to owners of Orange Polska S.A. 10,007 11,975

CONSOLIDATED STATEMENT OF COMPREHENSIVE Non-controlling interests 2 2 Total equity 10,009 11,977

INCOME Trade payables 14.1 682 767 Loans from related party 18.1 7,087 2,849 (in PLN millions) Other financial liabilities at amortised cost 18.2 66 81 12 months ended Derivatives 20 76 125 31 December 31 December Note Employee benefits 15 144 251 2016 2015 Provisions 13 280 358 Consolidated net income/(loss) (1,746) 254 Other liabilities 14.2 15 - Deferred income 14.3 81 59 Items that will not be reclassified to profit or loss Total non-current liabilities 8,431 4,490 Actuarial gains/(losses) on post-employment benefits 15 (1) 9 Income tax relating to items not to be reclassified – (2) Trade payables 14.1 2,433 2,130 Items that may be reclassified subsequently to profit or loss Loans from related party 18.1 5 1,273 Gains on cash flow hedges 20 92 23 Other financial liabilities at amortised cost 18.2 36 45 Income tax relating to items that may be reclassified (17) (4) Derivatives 20 - 9 Employee benefits 15 188 188 Other comprehensive income, net of tax 74 26 Provisions 13 850 803 Income tax liabilities 24 60 Total comprehensive income/(loss) (1,672) 280 Other liabilities 14.2 132 191 Deferred income 14.3 480 486 Total comprehensive income/(loss) attributable to owners of Orange Total current liabilities 4,148 5,185 (1,672) 280 Polska S.A. Total comprehensive income/(loss) attributable to non-controlling – – TOTAL EQUITY AND LIABILITIES 22,588 21,652 interests

Orange Polska Integrated Report - 140 141 - Orange Polska Integrated Report - 32 CONSOLIDATED STATEMENT OF CASH FLOWS Total equity - - (1,672) - (328) - (45) -- 280 - (656) 2 10,009 2 12,398 2 11,977 2 11,977 (in PLN millions) 12 months ended 31 December 31 December Note 2016 2015 Non-

interests (see Note 30.5) controlling

- OPERATING ACTIVITIES Consolidated net income/(loss) (1,746) 254 Equity

to owners Adjustments to reconcile net income/(loss) to cash from operating activities attributable of OPL S.A. Gains on disposal of assets 7 (70) (71) Depreciation and amortisation 10,11 2,725 2,871 Impairment/(reversal of impairment) of non-current assets 8 1,792 (12) earnings Retained Finance costs, net 359 291 Income tax 23.1 33 27 - 32 32 - (1,746)- (1,672) (328) (328) - (45) (45) -- 254 (656) 280 (656) - 5,267 10,007 - 7,309 11,975 - 7,309 11,975

79 7,746 12,396 Change in provisions and allowances (126) (88) Operational foreign exchange and derivatives gains, net (10) (3) CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED payments

Share-based Change in working capital - - - - 6 (6) 45 23 23 (Increase)/decrease in inventories, gross 54 (21) Increase in trade receivables, gross (430) (288)

tax Increase/(decrease) in trade payables 292 (154) Deferred (Increase)/decrease in prepaid expenses and other receivables 58 (49) - - - -

9 Increase/(decrease) in deferred income and other payables (29) 134 (1) (17) 85 (16) (79) 10

Other reserves Interest received 22 17 post- benefits Actuarial losses on Interest paid and interest rate effect paid on derivatives, net (353) (289) employment Exchange rate effect received on derivatives, net 10 4 - - - - - 9 (44) 92 23 Income tax paid (32) (76) Gains/

hedges Net cash provided by operating activities 2,549 2,547 cash flow (losses) on ------INVESTING ACTIVITIES Purchases of property, plant and equipment and intangible assets 10,11 (5,169) (1,998) Increase/(decrease) in amounts due to fixed assets suppliers (42) 262 Share

premium Exchange rate effect received on derivatives economically hedging capital 15 8 expenditures, net ------Proceeds from sale of property, plant and equipment and intangible assets 119 143 Share capital Proceeds from sale of subsidiaries, net of cash and transaction costs 4 - 8 (Increase)/decrease in other financial instruments 3 (3)

Net cash used in investing activities (5,074) (1,580)

FINANCING ACTIVITIES Issuance of long-term debt 2,702 775 Repayment of long-term debt (1,225) (62) Increase/(decrease) in revolving credit line and short-term debt 1,355 (1,011) Dividend (see Note 24.2) Dividend (see Note 24.2) Exchange rate effect received on derivatives hedging debt, net 17 5 Balance at 1 January 2015 3,937 832 (106) (137) Balance at 1 January 2016 3,937 832 (83) (43) Dividend paid 24.2 (328) (656) Balance at 31 December 2016 3,937 832 Balance at 31 December 2015 3,937 832 (83) (43) Other movements (see Note 24.3) Other movements (see Note 24.3) Net cash provided by/(used in) financing activities 2,521 (949)

Net change in cash and cash equivalents (4) 18 Transfer to retained earnings (see Note 24.3) to retained Transfer

Cash and cash equivalents at the beginning of the period 266 248

Cash and cash equivalents at the end of the period 262 266 Total comprehensive loss for the 12 months ended 31 December 2016 comprehensive Total Total comprehensive income for the 12 months ended 31 December 2015 comprehensive Total (in PLN millions) CONSOLIDATED STATEMENT OF CHANGES IN EQUITY STATEMENT CONSOLIDATED

142 Orange Polska Integrated Report - 142 143 - Orange Polska Integrated Report 143 1. Corporate information This agreement was signed in 2011 for 15 years with an option to extend it and is also classified as a joint operation for accounting purpose. 1.1. The Orange Polska Group During the 12 months ended 31 December 2016 and 2015, the voting power held by the Group was equal Orange Polska S.A. (“Orange Polska” or “the Company” or “OPL S.A.”), a joint stock company, was incorporated to the Group’s interest in the share capital of its subsidiaries. Main acquisitions, disposals and changes in scope and commenced its operations on 4 December 1991. The Orange Polska Group (“the Group”) comprises Orange Polska and its of consolidation are described in Note 4. subsidiaries. Orange Polska shares are listed on the Warsaw Stock Exchange. 1.3. The Management Board and the Supervisory Board of the Company The Group is the principal provider of telecommunications services in Poland. The Group provides mobile and fixed telecommunications services, including calls, messaging, content, access to the Internet and TV. In addition, the Group The Management Board of the Company at the date of the authorisation of these Consolidated Financial Statements was as follows: provides ICT (Information and Communications Technology) services, leased lines and other telecommunications value added services, sells telecommunications equipment, provides data transmission, constructs telecommunications Jean-François Fallacher – President of the Management Board, infrastructure, sells electrical energy and financial services. Mariusz Gaca – Vice President in charge of Consumer Market, Bożena Leśniewska – Vice President in charge of Business Market, CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED Orange Polska’s registered office is located in Warsaw at 160 Aleje Jerozolimskie St. Piotr Muszyński – Vice President in charge of Strategy and Transformation, Jolanta Dudek – Board Member in charge of Customer Care and Customer Excellence, The Group’s telecommunications operations are subject to the supervision of Office of Electronic Communication (“UKE”). Under Jacek Kowalski – Board Member in charge of Human Resources, the Telecommunication Act, UKE can impose certain obligations on telecommunications companies that have a significant market Maciej Nowohoński – Board Member in charge of Finance. power on a relevant market. Orange Polska S.A. is deemed to have a significant market power on certain relevant markets. The Supervisory Board of the Company at the date of the authorisation of these Consolidated Financial Statements was as follows: 1.2. Entities of the Group Maciej Witucki – Chairman of the Supervisory Board, The Group comprises Orange Polska and the following subsidiaries: Gervais Pellissier – Deputy Chairman of the Supervisory Board,

Share capital Marc Ricau – Secretary of the Supervisory Board, Entity Location Scope of activities owned by the Group Dr. Henryka Bochniarz – Independent Member of the Supervisory Board, 31 December 31 December 2016 2015 Federico Colom Artola – Member of the Supervisory Board, Integrated Solutions Provision of integrated IT and network Warsaw, Poland 100% 100% Jean-Marie Culpin – Member of the Supervisory Board, Sp. z o.o. services. Design and development of Eric Debroeck – Member of the Supervisory Board, telecommunications systems, TP TelTech Sp. z o.o. Łódź, Poland 100% 100% servicing telecommunications Ramon Fernandez – Member of the Supervisory Board, network, monitoring of alarm signals. Russ Houlden – Independent Member of the Supervisory Board, Sokołów Podlaski, Local provider of fixed-line, internet Telefony Podlaskie S.A. 89.27% 89.27% Poland and cable TV services. prof. Michał Kleiber – Independent Member of the Supervisory Board, Distributor of OPL S.A. products on Orange Retail S.A. Modlnica, Poland 100% 100% Patrice Lambert – Member of the Supervisory Board, mass and business market. Orange Real Estate Facilities management and Warsaw, Poland 100% 100% Maria Pasło-Wiśniewska – Independent Member of the Supervisory Board, Sp. z o.o. maintenance. Orange Szkolenia Training and hotel services, insurance Dr. Wiesław Rozłucki – Independent Member of the Supervisory Board, Warsaw, Poland 100% 100% Sp. z o.o. agent. Valérie Thérond – Member of the Supervisory Board. Pracownicze Management of employee pension Towarzystwo Emerytalne Warsaw, Poland 100% 100% fund. Orange Polska S.A. The following changes occurred in the Management Board of the Company in the year ended 31 December 2016 and in the year Fundacja Orange Warsaw, Poland Charity foundation. 100% 100% 2017 until the date of the authorisation of these Consolidated Financial Statements: Telekomunikacja Polska Warsaw, Poland No operational activity. 100% 100% Sp. z o.o. Orange Customer Post-sale services for OPL S.A. On 4 February 2016, Mr Bruno Duthoit submitted his resignation as the President and Member of the Management Board Service Warsaw, Poland - 100% customers. Sp. z o.o.(1) of OPL S.A. with effect on 30 April 2016. On the same day, the Supervisory Board of OPL S.A. appointed Mr Jean-François Corporate governance over non-core TP Invest Sp. z o.o.(1) Warsaw, Poland - 100% subsidiaries of Orange Polska. Fallacher as the President of the Management Board of OPL S.A. with effect on 1 May 2016. TPSA Eurofinance Paris, France No operational activity. - 99.99% France S.A.(2)

(1) Companies merged with Orange Polska S.A. in 2016 (see Note 4). On 4 July 2016, Mr Michał Paschalis-Jakubowicz submitted his resignation as the Member of the Management Board of OPL (2) The company was liquidated in 2016. S.A. with immediate effect. Additionally, the Group and T-Mobile Polska S.A. hold a 50% interest each in NetWorkS! Sp. z o.o., located The following changes occurred in the Supervisory Board of the Company in the year ended 31 December 2016 and in the year in Warsaw. This company was classified as a joint operation as its scope of activities comprises management, 2017 until the date of the authorisation of these Consolidated Financial Statements: development and maintenance of networks owned by the Group and T-Mobile Polska S.A. NetWorkS! Sp. z o.o. was incorporated following the agreement on reciprocal use of mobile access networks between both operators.

Orange Polska Integrated Report - 144 145 - Orange Polska Integrated Report On 3 February 2016, prof. Andrzej K. Koźmiński submitted his resignation as the Deputy Chairman and Member 3. Segment information of the Supervisory Board of OPL S.A. with effect on 12 April 2016. The Group reports a single operating segment as decisions about resources to be allocated and assessment On 7 April 2016, Mr Gérard Ries submitted his resignation as the Member of the Supervisory Board of OPL S.A. with effect of performance are made on consolidated basis. Segment performance is evaluated by the Management Board on the same day. mainly based on consolidated revenue, consolidated EBITDA, consolidated net income/loss, consolidated organic cash flows, consolidated capital expenditures and consolidated net financial debt / adjusted EBITDA ratio based On 12 April 2016, OPL S.A. Supervisory Board Member’s mandate of dr. Mirosław Gronicki expired and was on cumulative adjusted EBITDA for the last four quarters. To give a better representation of underlying performance, the above not renewed. On the same day the General Meeting of OPL S.A. appointed prof. Michał Kleiber as the Member measures are adjusted as specified below. Previously, the term “restated” was used in this context. of the Supervisory Board of OPL S.A. Revenue from the Group’s activities is adjusted for the impact of changes in the scope of consolidation. Adjustments for the 12 months On 28 June 2016, Ms Marie-Christine Lambert submitted her resignation as the Member of the Supervisory Board of OPL S.A. ended 31 December 2016 and 2015 are presented in the table below. with effect on 30 June 2016. EBITDA is the key measure of operating profitability used by the Management Board and corresponds to operating On 13 July 2016, the Supervisory Board of OPL S.A. appointed Mr Patrice Lambert and Mr Federico Colom Artola as the Members income/loss before depreciation and amortisation expense and impairment of non-current assets. To give a CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED of the Supervisory Board of OPL S.A. better representation of underlying performance, EBITDA is adjusted for the impact of changes in the scope of consolidation, employment termination programs, restructuring costs, significant claims, litigation and other risks as well as other significant non-recurring items. Adjustments for the 12 months ended 31 December 2016 and 2015 are presented in the table below. 2. Statement of compliance and basis of preparation Organic cash flows are the key measure of cash flow generation used by the Management Board and correspond to net cash These Consolidated Financial Statements have been prepared in accordance with International Financial Reporting provided by operating activities decreased by purchases of property, plant and equipment and intangible assets, changes Standards (“IFRS”) as adopted by the European Union. IFRSs comprise standards and interpretations approved in amounts due to fixed assets suppliers, impact of net exchange rate effect paid/received on derivatives economically by the International Accounting Standards Board (“IASB”) and the International Financial Reporting Interpretations Committee hedging capital expenditures and increased by proceeds from sale of property, plant and equipment and intangible assets. (“IFRIC”). To give a better representation of underlying performance, organic cash flows are adjusted for the payments for acquisition of telecommunications licences and payments relating to significant claims, litigation and other risks. Adjustments These Consolidated Financial Statements are prepared in millions of Polish złoty (“PLN”). Comparative amounts for the 12 months ended 31 December 2016 and 2015 are presented in the table below. for the year ended 31 December 2015 have been compiled using the same basis of preparation. Capital expenditures are the key measure of resources allocation used by the Management Board and represent acquisitions of The Consolidated Financial Statements have been prepared under the historical cost convention, except for the fair value applied property, plant and equipment and intangible assets. To give a better representation of underlying performance, capital expenditures to derivative financial instruments. are adjusted for the impact of acquisition of telecommunications licences. Adjustments for the 12 months ended 31 December 2016 and 2015 are presented in the table below. The Consolidated Financial Statements have been prepared on the going concern basis. Net financial debt / adjusted EBITDA ratio is the key measure of financial structure and liquidity used by the Management Board. The financial data of all entities constituting the Group included in these Consolidated Financial Statements were prepared using The Management Board believes that this ratio is the most relevant measure and therefore net gearing ratio is no longer used. uniform group accounting policies. The calculation of net financial debt is presented in the Note 17.

These Consolidated Financial Statements were authorised for issuance by the Management Board on 13 February 2017 and are Basic financial data of the operating segment is presented below: subject to approval at the General Meeting of Orange Polska S.A. (in PLN millions) 12 months ended 12 months ended 31 December 2016 31 December 2015 The principles applied to prepare financial data relating to the year ended 31 December 2016 are described Adjusted revenue 11,538 11,826 Adjusted EBITDA 3,163 3,517 in Note 30 and are based on: Net income/(loss) as per consolidated income statement (1,746) 254 – all standards and interpretations endorsed by the European Union and applicable to the reporting period beginning Adjusted organic cash flows 620 962 1 January 2016, Adjusted capital expenditures 2,001 1,998 – IFRSs and related interpretations adopted for use by the European Union whose application will be compulsory At 31 December At 31 December for periods beginning after 1 January 2016 but for which the Group has opted for earlier application, 2016 2015 – accounting positions adopted by the Group in accordance with paragraphs 10 to 12 of International Accounting Standard Net financial debt / adjusted EBITDA ratio 2.1 1.1 (“IAS”) 8 (Use of judgements).

Orange Polska Integrated Report - 146 147 - Orange Polska Integrated Report Adjustments made to financial data of the operating segment are presented below: 5. Revenue

(in PLN millions) 12 months ended 12 months ended (in PLN millions) 12 months ended 12 months ended 31 December 2016 31 December 2015 31 December 2016 31 December 2015 Revenue 11,538 11,840 Mobile revenue 6,421 6,141 – adjustment for data of Contact Center Sp. z o.o.(1) - (14) Retail revenue 4,296 4,589 Wholesale revenue (including interconnect) 1,037 909 Adjusted revenue 11,538 11,826 Mobile equipment sales 1,088 643

Fixed services 4,662 5,083 EBITDA 3,163 3,431 Fixed narrowband 1,527 1,746 Fixed broadband, TV and VoIP (Voice over Internet Protocol) 1,490 1,601 – adjustment for data of Contact Center Sp. z o.o.(1) - (4) Enterprise solutions and networks 892 916 – adjustment for employment termination expense (see Note 13) net - 90 Wholesale revenue (including interconnect) 753 820 of related curtailment of long-term employee benefits (see Note 15) Adjusted EBITDA 3,163 3,517 Other revenue 455 616 Total revenue 11,538 11,840 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED Organic cash flows (2,528) 962 – adjustment for payments for acquisition of telecommunications 3,148 - Other revenue includes mainly sales of equipment used in ICT (Information and Communications Technology) projects, property licences (see Note 10) Adjusted organic cash flows 620 962 rental and research and development services.

Revenue is generated mainly in the territory of Poland. Approximately 3.2% and 2.8% of the total revenue Capital expenditures 5,169 1,998 for the 12 months ended 31 December 2016 and 2015, respectively, was earned from entities which are not domiciled in Poland, – adjustment for expenditures on acquisition of telecommunications (3,168) - licences (see Note 10) mostly from interconnect services. Adjusted capital expenditures 2,001 1,998 From 2016, mobile voice traffic revenue and revenue from data, messaging, content and M2M (machine-to-machine) are presented (1) Adjusted revenue and adjusted EBITDA for the 12 months ended 31 December 2015 do not include data of Contact Center Sp. z o.o. (a subsidiary disposed of in August 2015). Additionally, adjusted EBITDA does not include the gain on disposal of this subsidiary amounting to PLN 3 million. together as retail revenue. Additionally, revenue from mobile equipment sales is included in mobile revenue line.

4. Main acquisitions, disposals and changes in scope 6. Operating expense and income of consolidation 6.1. External purchases

(in PLN millions) 12 months ended 12 months ended On 30 September 2016, the merger of Orange Polska S.A. and its fully owned subsidiaries – Orange Customer 31 December 2016 31 December 2015 Service Sp. z o.o. and TP Invest Sp. z o.o. – was registered in the Commercial Court. The merger was effected Commercial expenses (2,839) (2,745) – cost of handsets and other equipment sold (1,901) (1,829) by transferring all assets and liabilities of these subsidiaries to OPL S.A. – commissions, advertising, sponsoring costs and other (938) (916) Interconnect expenses (1,513) (1,345) On 17 June 2016, the Group liquidated TPSA Eurofinance France S.A., a fully owned subsidiary. Network and IT expenses (670) (734) Other external purchases (1,410) (1,447) Total external purchases (6,432) (6,271) On 30 November 2015, TP Edukacja i Wypoczynek Sp. z o.o. merged with Orange Szkolenia Sp. z o.o. Other external purchases include mainly rental costs, real estate operating and maintenance costs, customer support and management On 25 August 2015, the Group finalised a share sale agreement concluded on 6 July 2015 under which the 100% services, costs of content, costs of temporary staff, subcontracting fees and postage costs. shareholding in Contact Center Sp. z o.o. was disposed for a total consideration amounting to PLN 9 million. Gain on the disposal amounted to PLN 3 million and is included in gains on disposal of assets.

On 29 May 2015, the Group liquidated Telefon 2000 Sp. z o.o., a fully owned subsidiary.

Orange Polska Integrated Report - 148 149 - Orange Polska Integrated Report 6.2. Labour expense In the year 2016 impairment loss amounting to PLN 1,793 million was recognised in the consolidated income (in PLN millions) 12 months ended 12 months ended 31 December 2016 31 December 2015 statement and allocated solely to goodwill, as required by International Accounting Standard 36. The impairment Average number of active employees (full time equivalent) 16,424 17,703 loss was driven by lower projected cash flows within the business plan resulting from the reassessment of expected further business performance in light of current market conditions and technological advancements coupled Wages and salaries (1,528) (1,580) Social security and other charges (350) (362) with an increase in the post-tax discount rate. Long-term employee benefits (see Note 15) 82 74 Capitalised personnel costs 205 199 No impairment loss was recognised in the year 2015. Other employee benefits (45) (44) Total labour expense (1,636) (1,713) The following key assumptions were used to determine the value in use of the telecom operator CGU: – value of the market, penetration rate, market share and the level of the competition, level of prices 6.3. Other operating expense and income and decisions of the regulator in terms of pricing, customer base, the level of commercial expenses required to replace products and keep up with existing competitors or new market entrants, the impact (in PLN millions) 12 months ended 12 months ended of changes in revenue on direct costs, 31 December 2016 31 December 2015 FINANCIAL STATEMENTS CONSOLIDATED Taxes other than income tax (304) (301) – the level of capital expenditures which may be affected by the roll-out of necessary new technologies Orange brand fee (see Note 28.2) (127) (134) or regulatory decisions concerning telecommunications licences allocation, Impairment losses on trade and other receivables, net (89) (98) – discount rate which is based on weighted average cost of capital and reflects current market assessment Other expense and changes in provisions, net (67) (80) Total other operating expense (587) (613) of the time value of money and the risks specific to activities of the CGU and Total other operating income 210 246 – perpetuity growth rate which reflects Management’s assessment of cash flows evolution after the last year covered by the cash flow projections. Other operating income includes mainly income from the Orange Group resulting from shared resources, income from compensation, late payment interest on trade receivables and scrapped assets. The amounts assigned to each of these parameters reflect past experience adjusted for expected changes over the timeframe of the business plan, but may also be affected by unforeseeable changes in the political, economic 6.4. Research and development or legal framework.

Telecom operator CGU During the 12 months ended 31 December 2016 and 2015, research and development costs expensed At 31 December At 31 December in the consolidated income statement amounted to PLN 48 million and PLN 52 million, respectively. 2016 2015 Basis of recoverable amount Value in use Value in use Sources used Business plan Business plan 5 years cash flow 5 years cash flow projections projections 7. Gains on disposal of assets Perpetuity growth rate 1% 1% Post-tax discount rate 9.25% 8.5% Pre-tax discount rate(1) 10.7% 9.9% During the 12 months ended 31 December 2016 and 2015, gains on disposal of assets amounted (1) Pre-tax discount rate is calculated as a post-tax discount rate adjusted to reflect the specific amount and timing of the future tax cash flows. to PLN 70 million and PLN 71 million, respectively, and included mainly gains on disposal of properties.

Sensitivity of recoverable amount

8. Impairment Recognition of impairment loss of PLN 1.8 billion decreased the carrying value of the telecom operator CGU to its value in use amounting to PLN 17 billion as at 31 December 2016. 8.1. Cash Generating Unit

Vast majority of the Group’s individual assets do not generate cash flows independently from other assets due to the nature of the Group’s activities, therefore the Group identifies all telecom operations as a single telecom operator Cash Generating Unit (“CGU”).

The Group considers certain indicators, including regulatory and economic changes in the Polish telecommunications market, in assessing whether there is any indication that an asset may be impaired. As at 31 December 2016 and 2015 the Group performed impairment tests of the CGU (including goodwill).

Orange Polska Integrated Report - 150 151 - Orange Polska Integrated Report Details of telecommunications licences are as follows: The table below shows impact of hypothetical changes in key assumptions on the telecom operator CGU value (in PLN millions) Net book value in use: Years to Acquisition date expiration(3) At 31 December At 31 December 2016 2015 (in PLN billions) Sensitivity as at 31 December 2016 450 MHz(1) 1991 - - - Projected cash flows after Perpetuity growth rate Post-tax discount rate fifth year 800 MHz 2016 14.1 2,880 - +10% -10% +0.5 p.p. -0.5 p.p. +0.5 p.p. -0.5 p.p. 900 MHz 2014 12.5 300 324 (2) Telecom operator CGU value in use 1.6 (1.6) 0.8 (0.7) (1.0) 1.1 900 MHz 2013 1.6 20 33 1800 MHz(2) 2013 11.0 175 191 1800 MHz 1997 10.6 - - 8.2. Other property, plant and equipment and intangible assets 2100 MHz 2000 6.0 574 669 2600 MHz 2016 14.1 111 - Total telecommunications licences 4,060 1,217

During the 12 months ended 31 December 2016 and 2015, the reversal of impairment loss on property, plant (1) The 450 MHz telecommunication licence expired at the end of 2016. Upon Orange Polska’s application for renewal, on 13 January 2017, the President of UKE issued a decision assigning the spectrum for further fifteen years. Based on an expert appraisal, the President of UKE set the assignment fee at PLN 115 million. Orange Polska has appealed and equipment and intangible assets included in the consolidated income statement amounted to PLN 1 million against the frequency assignment decision. (2) Licences held under agreements with T-Mobile Polska S.A. and PLN 12 million, respectively, primarily as a result of a review of certain of the Group’s properties. (3) Remaining useful life in years as at 31 December 2016. CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED On 25 January 2016, the Group received decisions in which the President of UKE granted Orange Polska 9. Goodwill the frequencies in the 800 MHz and 2600 MHz bands for a total amount of PLN 3,168 million declared in the auction. On the basis of these decisions, Orange Polska received the licenses for two blocks of 2x5 MHz each in the 800 MHz

(in PLN millions) At 31 December 2016 At 31 December 2015 band and licenses for three blocks of 2x5 MHz each in the 2600 MHz band. The licenses are valid for 15 years from Accumulated Accumulated the date of receipt of the decisions. In February 2016, Orange Polska paid the whole amount less PLN 20 million of CGU Cost Net Cost Net impairment(1) impairment deposit paid in 2014 before the auction. The amortisation of the above-mentioned frequencies began on 1 March 2016 Telecom operator 3,940 (1,793) 2,147 3,940 - 3,940 Total goodwill 3,940 (1,793) 2,147 3,940 - 3,940 and the amortisation charge amounted to PLN 177 million in the 12 months ended 31 December 2016.

(1) See Note 8.1.

Movements in the net book value of other intangible assets for the 12 months ended 31 December 2016 were The goodwill of PLN 3,909 million arose in 2005 on acquisition of the remaining 34% of non-controlling interest as follows: in the mobile business controlled by OPL S.A. and corresponds to the difference between the cost of acquisition Telecommunica- Other Total other of the non-controlling interest and the non-controlling interest in the net book value of the underlying net assets. (in PLN millions) Software tions licences intangibles intangible assets This approach was allowed under IAS 27 effective in 2005 (i.e. before the effective date of IAS 27 Revised which Opening balance net of accumulated 1,217 1,729 64 3,010 requires treating the acquisition of non-controlling interest as an equity transaction). The remaining balance amortisation and impairment of goodwill of PLN 31 million arose on acquisition of certain subsidiaries. Acquisitions of intangible assets 3,168 438 15 3,621 Amortisation (325) (568) (15) (908) Reclassifications and other, net - - (1) (1) Closing balance 4,060 1,599 63 5,722

10. Other intangible assets Movements in the net book value of other intangible assets for the 12 months ended 31 December 2015 were as follows: (in PLN millions) At 31 December 2016 Telecommunica- Other Total other (in PLN millions) Software tions licences intangibles intangible assets Accumulated Accumulated Cost Net Opening balance net of accumulated amortisation impairment 1,365 1,778 72 3,215 amortisation and impairment Telecommunications licences 5,785 (1,725) - 4,060 Acquisitions of intangible assets - 455 21 476 Software 5,521 (3,922) - 1,599 Amortisation (148) (501) (24) (673) Other intangibles 217 (142) (12) 63 Reclassifications and other, net - (3) (5) (8) Total other intangible assets 11,523 (5,789) (12) 5,722 Closing balance 1,217 1,729 64 3,010

(in PLN millions) At 31 December 2015 Accumulated Accumulated Cost Net amortisation impairment Telecommunications licences 2,617 (1,400) - 1,217 Software 7,052 (5,323) - 1,729 Other intangibles 207 (131) (12) 64 Total other intangible assets 9,876 (6,854) (12) 3,010

Orange Polska Integrated Report - 152 153 - Orange Polska Integrated Report 11. Property, plant and equipment The carrying value of equipment held under finance leases as at 31 December 2016 and 2015 amounted to PLN 58 million and PLN 64 million, respectively. Leased assets cannot be sold, donated, transferred by title or pledged and are a collateral (in PLN millions) At 31 December 2016 for the related finance lease liability. Accumulated Accumulated Cost Net depreciation impairment Land and buildings 3,060 (1,833) (31) 1,196 Network 37,499 (29,025) - 8,474 Terminals 2,126 (1,552) - 574 Other IT equipment 1,486 (1,149) - 337 12. Trade receivables Other 277 (178) (2) 97 (in PLN millions) At 31 December At 31 December Total property, plant and equipment 44,448 (33,737) (33) 10,678 2016 2015 (see Note 30.5) Non-current trade receivables, net 433 215 (in PLN millions) At 31 December 2015 Current trade receivables, net 1,827 1,600 Accumulated Accumulated Cost Net depreciation impairment Trade receivables, net 2,260 1,815

Land and buildings 3,133 (1,775) (36) 1,322 Network 37,737 (29,089) - 8,648 The Group considers there is no concentration of credit risk with respect to trade receivables due to its CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED Terminals 2,108 (1,536) - 572 large and diverse customer base consisting of individual and business customers. The Group’s maximum Other IT equipment 1,525 (1,151) - 374 Other 289 (178) (2) 109 exposure to credit risk at the reporting date is represented by the carrying amounts of receivables recognised Total property, plant and equipment 44,792 (33,729) (38) 11,025 in the statement of financial position. Non-current trade receivables relate mainly to sales of mobile handsets in instalments.

Movement in the impairment of trade receivables during the 12 months ended 31 December 2016 and 2015 is presented below: As at 31 December 2016 and 2015, the amount of expenditures recognised in the carrying amount of items (in PLN millions) of property, plant and equipment in the course of their construction amounted to PLN 1,061 million and PLN 937 million, respectively. 12 months ended 12 months ended 31 December 2016 31 December 2015

Movements in the net book value of property, plant and equipment for the 12 months ended 31 December 2016 Beginning of period 138 143 were as follows: Impairment losses, net 87 92 Utilisation of impairment for receivables sold or written-off (66) (97) Total (in PLN millions) End of period 159 138 Land and Other IT property, Network Terminals Other buildings equipment plant and equipment The analysis of the age of net trade receivables is as follows: Opening balance net of accumulated 1,322 8,648 572 374 109 11,025 amortisation and impairment (in PLN millions) At 31 December At 31 December Acquisitions of property, plant and equipment 41 1,161 231 88 27 1,548 2016 2015 (see Note 30.5) Disposals and liquidations (48) (5) - - - (53) Trade receivables collectively analysed for impairment, net: Depreciation (120) (1,309) (233) (123) (32) (1,817) Not past due 1,501 1,058 Impairment 1 - - - - 1 Dismantling costs, reclassifications Past due less than 180 days 281 282 - (21) 4 (2) (7) (26) and other, net Past due between 180 and 360 days 8 34 Closing balance 1,196 8,474 574 337 97 10,678 Past due more than 360 days 7 4 Total trade receivables collectively analysed for impairment, net 1,797 1,378 Trade receivables individually analysed for impairment, net:(1) On the basis of an annual review of estimated useful lives of fixed assets, the Group decided to extend useful lives for cables and Not past due 374 303 ducts used in fixed line network from 2016. Lives of these assets were verified in light of the launchof FTTH (Fiber To The Home) Past due 89 134 project and other forecasted technological developments. As a result of the extension of the estimated useful lives, the depreciation Total trade receivables individually analysed for impairment, net 463 437 Total trade receivables, net 2,260 1,815 expense was lower by PLN 301 million in the 12 months ended 31 December 2016. (1) Mainly includes receivables from related parties (see Note 28.2), telecommunications companies and disputed receivables.

Movements in the net book value of property, plant and equipment for the 12 months ended 31 December 2015 were as follows:

(in PLN millions) Total Land and Other IT property, Network Terminals Other buildings equipment plant and equipment Opening balance net of accumulated 1,441 9,279 525 359 111 11,715 amortisation and impairment Acquisitions of property, plant and equipment 61 1,043 249 129 40 1,522 Disposals and liquidations (65) (11) - - - (76) Depreciation (127) (1,674) (244) (123) (30) (2,198) Impairment 12 - - - - 12 Dismantling costs, reclassifications and other, net - 11 42 9 (12) 50 Closing balance 1,322 8,648 572 374 109 11,025

Orange Polska Integrated Report - 154 155 - Orange Polska Integrated Report 13. Provisions The amount of dismantling provisions is based on the estimated number of items that should be utilised/sites to be restored, time to their liquidation/restoration, current utilisation/restoration cost and inflation.

Movements of provisions for the 12 months ended 31 December 2016 were as follows:

Provisions for (in PLN millions) Provisions for claims employment Dismantling Total and litigation, risks termination provisions provisions and other charges expense 14. Trade payables, other liabilities and deferred income At 1 January 2016 728 132 301 1,161 Increases 43 - 5 48 14.1. Trade payables Reversals (utilisations) (10) (71) (10) (91) Reversals (releases) (7) - (32) (39) (in PLN millions) At 31 December At 31 December Foreign exchange effect 21 - - 21 2016 2015 Discounting effect 18 1 11 30 Trade payables 1,437 1,138 At 31 December 2016 793 62 275 1,130 Fixed assets payables 841 841 Current 780 62 8 850 Telecommunications licence payables 837 918 Non-current 13 - 267 280 Total trade payables 3,115 2,897 Current 2,433 2,130 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED Non-current(1) 682 767 Movements of provisions for the 12 months ended 31 December 2015 were as follows: (1) Includes telecommunications licence payables only. Provisions for (in PLN millions) Provisions for claims and employment Dismantling Total As at 31 December 2016 and 2015, trade payables subject to reverse factoring amounted to PLN 132 million and PLN 15 million, litigation, risks and other termination provisions charges provisions respectively. These payables are presented together with the remaining balance of trade payables, as analysis conducted expense At 1 January 2015 697 89 307 1,093 by the Group indicates they have retained their trade nature. Increases 28 132 7 167 Reversals (utilisations) (2) (87) (22) (111) 14.2. Other liabilities Reversals (releases) (11) (3) - (14) Discounting effect 16 1 9 26 (in PLN millions) At 31 December At 31 December At 31 December 2015 728 132 301 1,161 2016 2015 Current 728 68 7 803 VAT payables 53 113 Non-current - 64 294 358 Other taxes payables 22 20 Other 72 58 Total other liabilities 147 191 The discount rate used to calculate the present value of provisions amounted to 1.75% - 3.73% as at 31 December 2016 Current 132 191 and 1.72% - 2.98% as at 31 December 2015. Non-current 15 -

Provisions for claims and litigation, risks and other charges 14.3. Deferred income These provisions relate mainly to claims and litigation described in the Note 27. As a rule, provisions are not disclosed (in PLN millions) At 31 December At 31 December on a case-by-case basis, as, in the opinion of the Management, such disclosure could prejudice the outcome of the pending cases. 2016 2015 Subscription (including unused balances in post-paid system) 194 189 Provisions for employment termination expense Unused balances in pre-paid system 206 221 Connection fees 62 47 Provisions for employment termination expense as at 31 December 2016 and 2015 consisted of the estimated amount of termination Other 99 88 benefits for Group employees scheduled to terminate employment under the 2016 - 2017 Social Agreement. Other movements Total deferred income 561 545 of these provisions during the 12 months ended 31 December 2015 related mainly to the 2014 - 2015 Social Agreement. Current 480 486 Non-current 81 59

On 2 December 2015, OPL S.A. and Orange Customer Service Sp. z o.o. concluded with Trade Unions the Social Agreement under which up to 2,050 employees were entitled to take advantage of the voluntary departure package in years 2016 – 2017. The value of voluntary departure package varies depending on individual salary, employment duration and year of resignation. 15. Employee benefits The basis for calculation of the provision for employment termination expense is the estimated number, remuneration and service period of employees who will accept the voluntary termination until the end of 2017. (in PLN millions) At 31 December At 31 December 2016 2015 Jubilee awards 104 131 Dismantling provisions Retirement bonuses and other post-employment benefits 52 118 The dismantling provisions relate to dismantling or removal of items of property, plant and equipment (mainly telecommunications Salaries and other employee-related payables 176 190 Total employee benefits 332 439 poles and items of mobile access network) and restoring the site on which they are located. Based on environmental regulations Current 188 188 in Poland, items of property, plant and equipment which may contain hazardous materials should be dismantled and utilised Non-current 144 251 by the end of their useful lives by entities licensed by the State for this purpose.

Orange Polska Integrated Report - 156 157 - Orange Polska Integrated Report Certain employees of the Group are entitled to long-term employee benefits in accordance with the Group’s remuneration policy The valuation of obligations as at 31 December 2016 and 2015 was performed using the following assumptions: (see Note 30.21). These benefits are not funded. At 31 December At 31 December 2016 2015 Changes in the present and carrying value of obligations related to long-term employee benefits for the 12 months ended Discount rate 3.5% 3.1% – 3.5% Wage increase rate 2.5% 2.0% – 2.5% 31 December 2016 and 2015 are detailed below:

(in PLN millions) 12 months ended 31 December 2016 A change of the discount rate by 0.5 p.p. would increase or decrease by PLN 6 million the present/carrying value Other post- of obligations related to long-term employee benefits as at 31 December 2016. Jubilee Retirement employment Total awards bonuses benefits Present/carrying value of obligation at the beginning of the period 131 115 3 249 Current service cost(1) 7 3 - 10 16. Finance income and expense Past service cost(1) (28)(2) (66)(2) (3) (97) Interest cost(3) 3 1 - 4 12 months ended 31 December 2016 Benefits paid (14) (2) - (16) (in PLN millions) Finance costs, net Operating loss Actuarial losses for the period 5(1) 1(4) - 6 Interest expense and

Present/carrying value of obligation at the end of the period 104 52 - 156 FINANCIAL STATEMENTS CONSOLIDATED other financial charges Weighted average duration (in years) 7 11 - 8 Foreign Finance Foreign (1) Interest Interest Discounting Interest Impairment Recognised under labour expense in the consolidated income statement. exchange income / exchange (2) Impact of agreements with Trade Unions (see below). income expense expense income losses (3) Recognised under discounting expense in the consolidated income statement. gains / (losses) (costs), net gains / (losses) (4) Recognised under actuarial gains/losses on post-employment benefits in the consolidated statement of comprehensive income. Loans 22 - 1 - 23 11 (89) 2 and receivables In the first quarter of 2016, the Group signed with Trade Unions agreements that amended the value of retirement bonuses and – including trade 18 - - - 18 11(1) (87) 2 jubilee awards paid to employees. Employees are no longer entitled to retirement bonuses higher than those set out in the Polish receivables Financial liabilities labour law if the retirement takes place after 31 December 2017. The agreements reduce also an average value of a jubilee award - (134)(2) (106) (68) (308) - - (12) at amortised cost paid to employees upon completion of a certain number of years of service – for payments due after 2020. As a result, a credit of Derivatives - (150) 107 5 (38) - - 41 – hedging PLN 94 million was recognised in labour expense in the first quarter of 2016 with a corresponding release of the liabilities relating - (117) 105 - (12) - - - derivatives to long-term employee benefits. – derivatives held for - (33) 2 5 (26) - - 41 trading(3) (in PLN millions) 12 months ended 31 December 2015 Non-financial -- - (36) (36) - - (21) Other post- (4) Jubilee Retirement items employment Total awards bonuses Total 22 (284) 2 (99) (359) 11 (89) 10 benefits (1) Late payment interest on trade receivables. Present/carrying value of obligation at the beginning of the period 145 135 86 366 (2) Includes mainly interest expense on loans from related party. (3) Current service cost(1) 11 7 - 18 Derivatives economically hedging commercial or financial transactions. (4) Includes mainly provisions and employee benefits. Past service cost(1) (18)(2) (21)(2) (58)(3) (97) Interest cost(4) 3 4 - 7 (in PLN millions) 12 months ended 31 December 2015 Benefits paid (15) (2) - (17) Finance costs, net Operating income Settlement(3) - - (24) (24) Interest expense and Actuarial (gains)/losses for the period 5(1) (8)(5) (1)(5) (4) other financial charges Present/carrying value of obligation at the end of the period 131 115 3 249 Foreign Finance Foreign Interest Interest Discounting Interest Impairment exchange income / exchange Weighted average duration (in years) 8 17 27 12 income expense expense income losses gains / (losses) (costs), net gains / (losses) (1) Recognised under labour expense in the consolidated income statement. (2) Loans Curtailment resulting from the Social Agreement concluded on 2 December 2015 (see Note 13). 17 - - - 17 14 (92) (1) (3) Impact of agreements with Trade Unions (see below). and receivables (4) Recognised under discounting expense in the consolidated income statement. (5) Recognised under actuarial gains/losses on post-employment benefits in the consolidated statement of comprehensive income. – including trade 10 - - - 10 14(1) (92) (1) receivables Financial liabilities - (77)(2) (44) (59) (180) - - 3 In the first quarter of 2015, the Group signed with Trade Unions agreements which curtailed other post-employment benefits at amortised cost for retirees of the Group and agreed additional contributions totalling PLN 24 million to the social fund for the years 2015-2017. Derivatives - (139) 44 - (95) - - 1 – hedging As a result, in the first quarter of 2015, a credit of PLN 58 million was recognised in labour expense as the net effect of PLN - (99) 28 - (71) - - - derivatives 82 million of released provision for post-employment benefits and PLN 24 million of the recognised liability relating to the additional – derivatives contributions to the social fund. held for - (40) 16 - (24) - - 1 trading(3) Non-financial -- - (33) (33) - - - items(4) Total 17 (216) - (92) (291) 14 (92) 3

(1) Late payment interest on trade receivables. (2) Includes mainly interest expense on loans from related party and bank borrowings. (3) Derivatives economically hedging commercial or financial transactions. (4) Includes mainly provisions and employee benefits. During the 12 months ended 31 December 2016 and 2015, there was no significant ineffectiveness on cash flow hedges.

Orange Polska Integrated Report - 158 159 - Orange Polska Integrated Report 18.2. Other financial debt 17. Net financial debt (in PLN millions) At 31 December At 31 December 2016 2015 Net financial debt corresponds to the total gross financial debt (converted at the period-end exchange rate), Finance lease liabilities 58 64 after net derivative instruments (liabilities less assets), less cash and cash equivalents and including the impact Bank borrowings and other 44 62 Total other financial debt 102 126 of the effective portion of cash flow hedges. Current 36 45 Non-current 66 81 The table below provides an analysis of net financial debt:

(in PLN millions) At 31 December At 31 December Note 2016 2015 Loans from related party 18.1 7,092 4,122 19. Cash and cash equivalents Other financial debt 18.2 102 126 Derivatives – net (liabilities less assets) 20 (166) 12 (in PLN millions) At 31 December At 31 December 2016 2015 Gross financial debt after derivatives 7,028 4,260 Cash and cash equivalents 19 (262) (266) Current bank accounts, overnight deposits and cash on hand 151 178 Deposits with Orange S.A. 106 87 Effective portion of cash flow hedges 9 (83) FINANCIAL STATEMENTS CONSOLIDATED Net financial debt 6,775 3,911 Bank deposits up to 3 months 5 1 Total cash and cash equivalents 262 266

The Group’s cash surplus is invested into short-term highly-liquid financial instruments - mainly bank deposits and deposits with Orange S.A. under the Cash Management Treasury Agreement. Short-term deposits are made 18. Financial liabilities at amortised cost excluding for varying periods of between one day and three months. The instruments earn interest which depends on the current money market rates and the term of investment. trade payables The Group’s maximum exposure to credit risk at the reporting date is represented by carrying amounts of cash and cash equivalents. The Group deposits its cash and cash equivalents with Orange S.A. and leading 18.1. Loans from related party financial institutions with investment grade. Limits are applied to monitor the level of exposure to credit risk on the counterparties. In case the counterparty’s financial soundness is deteriorating, the Group applies (in millions of currency) Amount outstanding at(1) the appropriate measures mitigating the default risk. 31 December 2016 31 December 2015 Creditor Repayment date Currency PLN Currency PLN Floating rate Atlas Services Belgium S.A. (EUR) 31 March 2016 - - 280 1,193 Atlas Services Belgium S.A. (EUR) 20 May 2019 480 2,119 480 2,043 Atlas Services Belgium S.A. (EUR) 20 May 2021 190 840 190 809 Atlas Services Belgium S.A. (PLN) 20 June 2021 2,695 2,695 - - Atlas Services Belgium S.A. (PLN)(2) 30 March 2018 1,438 1,438 77 77 Total loans from related party 7,092 4,122 Current 5 1,273 Non-current 7,087 2,849

(1) Includes accrued interest and arrangement fees. (2) Revolving credit line is presented in long-term loans from related party as at 31 December 2016 (as at 31 December 2015 it was presented as short-term).

The weighted average effective interest rate on loans from related party, before and after swaps, amounted respectively to 1.87% and 3.36% as at 31 December 2016 (1.21% and 4.16% as at 31 December 2015).

Orange Polska Integrated Report - 160 161 - Orange Polska Integrated Report 20. Derivatives (in PLN millions) Fair value Nominal amount Type of Financial Hedged risk Hedged item (in millions of Maturity Financial Asset instrument(1) Liability As at 31 December 2016 and 2015, the Group’s derivatives portfolio constituted financial instruments for which currency) there was no active market (over-the-counter derivatives), mainly interest rate swaps, currency swaps and non- At 31 December 2015 Derivative instruments - cash flow hedge deliverable forwards. To price these instruments the Group applies standard valuation techniques, where Currency and Loans from CCIRS 867 EUR 2016-2021 107 - the applicable market interest rate curves constitute the base for calculation of discounting factors. The fair value interest rate risk related party Loans from of swap/forward transaction represents discounted future cash flows, converted into PLN at the National Bank IRS Interest rate risk 3,550 PLN 2016-2021 - (126) related party of Poland period-end average exchange rate and adjusted by counterparty (credit valuation adjustment - “CVA”) Commercial NDF Currency risk 102 EUR 2016 1 (3) or own (debit valuation adjustment - “DVA”) credit risk. CVA and DVA estimates were not material compared transactions Commercial NDF Currency risk 3 USD 2016 - - to the total fair value of the related derivatives. transactions Commercial Option strategy Currency risk 8 EUR 2016 - - transactions The derivative financial instruments used by the Group are presented below: Total cash flow hedges 108 (129) Derivative instruments - held for trading(2)

(in PLN millions) Fair value Currency and Loans from

CCIRS 83 EUR 2016-2021 1 - FINANCIAL STATEMENTS CONSOLIDATED interest rate risk related party Nominal amount Type of Financial Hedged risk Hedged item (in millions of Maturity Financial Asset Forecast loan instrument(1) Liability currency) IRS Interest rate risk from related 800 PLN 2021 2 (2) party At 31 December 2016 2100 MHz NDF Currency risk 76 EUR 2016 5 (1) Derivative instruments - cash flow hedge licence payable Currency and Loans from Commercial CCIRS 667 EUR 2019-2021 193 - NDF Currency risk 35 EUR 2016 1 - interest rate risk related party transactions Loans from EC proceedings IRS Interest rate risk 4,750 PLN 2019-2021 12 (76) NDF Currency risk 105 EUR 2016 3 (1) related party provision Commercial NDF Currency risk 121 EUR 2017 10 - NDF Currency risk Bank borrowing 9 USD 2016 1 - transactions Commercial Commercial NDF Currency risk 19 USD 2016 1 (1) NDF Currency risk 6 USD 2017 2 - transactions transactions Commercial Option strategy Currency risk 3 EUR 2016 - - Total cash flow hedges 217 (76) transactions Derivative instruments - held for trading(2) Total derivatives held for trading 14 (5) Currency and Loans from CCIRS 3 EUR 2021 1 - Total derivative instruments 122 (134) interest rate risk related party Current 33 (9) 2100 MHz NDF Currency risk 73 EUR 2017 7 - Non–current 89 (125) licence payable (1) Commercial CCIRS – cross currency interest rate swap, IRS – interest rate swap, NDF – non-deliverable forward, Option strategy – purchased call options and written put options. NDF Currency risk 35 EUR 2017 3 - (2) Derivatives economically hedging commercial or financial transactions. transactions EC proceedings NDF Currency risk 120 EUR 2017 11 - provision The Group’s maximum exposure to credit risk is represented by the carrying amounts of derivatives. The Group NDF Currency risk Bank borrowing 6 USD 2017 1 - enters into derivatives contracts with Orange S.A. and leading financial institutions. Limits are applied to monitor Commercial NDF Currency risk 6 USD 2017 2 - transactions the level of exposure to credit risk on the counterparties. Limits are based on each institution's rating. In case Total derivatives held for trading 25 - the counterparty’s financial soundness is deteriorating, the Group applies the appropriate measures mitigating Total derivative instruments 242 (76) the default risk. Current 36 - Non–current 206 (76)

(1) CCIRS – cross currency interest rate swap, IRS – interest rate swap, NDF – non-deliverable forward. The change in fair value of cash flow hedges recognised in other comprehensive income is presented below: (2) Derivatives economically hedging commercial or financial transactions. (in PLN millions) 12 months ended 31 December 2016 12 months ended 31 December 2015

Before tax Tax After tax Before tax Tax After tax Effective part of gains/(losses) on hedging 109 (21) 88 (46) 9 (37) instrument Reclassification to the income statement, (7) 2 (5) 71 (13) 58 adjusting: – interest expense presented in finance 97 (18) 79 100 (19) 81 costs, net – foreign exchange differences (105) 20 (85) (28) 6 (22) presented in finance costs, net – external purchases 1 - 1 (1) - (1) Transfer to the initial carrying amount (10) 2 (8) (2) - (2) of the hedged item Total gains on cash flow hedges 92 (17) 75 23 (4) 19

Gains on cash flow hedges cumulated in other reserves as at 31 December 2016 are expected to mature and affect the income statement in years 2017 - 2021.

Orange Polska Integrated Report - 162 163 - Orange Polska Integrated Report 21. Fair value of financial instruments The principles of the Group Financial Risk Management Policy have been approved by the Management Board. Financial risk management is conducted according to developed strategies confirmed by the Treasury Committee under the direct control of 21.1. Fair value measurements the Board Member in charge of Finance.

For the financial instruments measured subsequent to their initial recognition at fair value, the Group classifies Financial Risk Management Policy defines principles and responsibilities within the context of an overall financial risk management fair value measurements using the following fair value hierarchy that reflects the significance of the inputs used and covers the following areas: in making the measurements: – risk measures used to identify and evaluate the exposure to financial risks, – Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities, – selection of appropriate instruments to hedge against identified risks, – Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly – valuation methodology used to determine the fair value of financial instruments, (that is, as prices) or indirectly (that is, derived from prices), – transaction limits for and credit ratings of counterparties with which the Group concludes hedging transactions. – Level 3: inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs). 22.2. Hedge accounting The Group’s financial assets and liabilities that are measured subsequent to their initial recognition at fair value comprise derivative instruments presented in Note 20. The Group classifies derivatives to Level 2 fair value measurements. The Group has entered into numerous derivative transactions to hedge exposure to currency risk and interest rate risk. The CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED derivatives used by the Group include: cross currency interest rate swaps, cross currency swaps, interest rate swaps, currency 21.2. Comparison of fair values and carrying amounts of financial instruments options, currency forwards and non-deliverable forwards.

As at 31 December 2016 and 2015, the carrying amount of cash and cash equivalents, trade receivables, current trade payables and Certain derivative instruments are classified as cash flow hedges and the Group applies hedge accounting principles as stated in current financial liabilities at amortised cost approximated their fair value due to relatively short term maturity of those instruments, IAS 39 (see Note 30.17). The cash flow hedges are used to hedge the variability of future cash flows that is attributable to particular cash nature or immaterial difference between the original effective interest rates and current market rates. risk and could affect the income statement.

As at 31 December 2016 and 2015, the carrying amount of financial liabilities at amortised cost which bear variable interest rates Derivatives are used for hedging activities and it is the Group’s policy that derivative financial instruments approximated their fair value. are not used for trading (speculative) purposes. However, certain derivatives held by the Group are not designated as hedging instruments as set out in IAS 39 and hedge accounting principles are not applied to those instruments. The Group considers A comparison by classes of carrying amounts and fair values of those Group's financial instruments, for which those derivatives as economic hedges because they, in substance, protect the Group against currency risk and interest rate risk. the estimated fair value differs from the book value due to significant change between the original effective interest rates and current market rates, is presented below: Detailed information on derivative financial instruments, including hedging relationship, that are used by the Group is presented in Note 20. (in PLN millions) At 31 December 2016 At 31 December 2015 Estimated Estimated Carrying Carrying Note fair value fair value amount amount 22.3. Currency risk Level 2 Level 2 Telecommunications licence payables 14.1 837 989 918 1,100 The Group is exposed to foreign exchange risk arising from financial assets and liabilities denominated in foreign currencies, mainly loans from related party, bank borrowing (see Note 18), 2100 MHz licence payable and provision for the proceedings by The fair value of financial instruments is calculated by discounting expected future cash flows at the prevailing the European Commission (see Note 27.b). market interest rates for a given currency. Fair value amounts are translated to PLN at the National Bank of Poland period-end average exchange rate and adjusted by own credit risk. DVA estimates were not material compared to the The Group’s hedging strategy, minimising the impact of fluctuations in exchange rates, is reviewed on a regular total fair value of the related financial instruments. basis. The acceptable exposure to a selected currency is a result of the risk analysis in relation to an open position in that currency, given the financial markets’ expectations of foreign exchange rates movements during a specific time horizon.

Within the scope of the hedging policy, the Group hedges its exposure entering mainly into cross currency 22. Objectives and policies of financial risk management interest rate swaps, cross currency swaps and forward currency contracts, under which the Group agrees to exchange a notional amount denominated in a foreign currency into PLN. As a result, the gains/losses generated 22.1. Principles of financial risk management by derivative instruments compensate the foreign exchange losses/gains on the hedged items. Therefore, the variability of the foreign exchange rates has a limited impact on the consolidated income statement. The Group is exposed to financial risks arising mainly from financial instruments that are issued or held as part of its operating and financing activities. That exposure can be principally classified as market risk (encompassing The table below presents the hedge ratio of the Group’s major currency exposures. The ratio compares the hedged value of a currency risk and interest rate risk), liquidity risk and credit risk. The Group manages the financial risks currency exposure to the total value of the exposure. with the objective to limit its exposure to adverse changes in foreign exchange rates and interest rates, to stabilise cash flows and to ensure an adequate level of financial liquidity and flexibility.

Orange Polska Integrated Report - 164 165 - Orange Polska Integrated Report As at 31 December 2016 and 2015, the Group’s proportion between fixed/floating rate debt (after hedging activities) was 69/31% Hedge ratio Currency exposure At 31 December 2016 At 31 December 2015 and 88/12%, respectively. Loans from related party and bank borrowing 99.5% 99.7% 2100 MHz licence payable 51.5% 47.3% The Group uses the sensitivity analysis described below to measure interest rate risk. EC proceedings provision (see Note 27.b) 82.2% 73.7%

The Group is also actively hedging the exposure to foreign exchange risk generated by operating and capital expenditures. The table below provides the Group’s sensitivity analysis for interest rate risk (net of hedging activities) assuming a hypothetical increase/decrease in the interest rates by 1 p.p. The Group uses the sensitivity analysis described below to measure currency risk. (in PLN millions) Sensitivity to 1 p.p. change of interest rates At 31 December 2016 At 31 December 2015 The Group’s major exposures to foreign exchange risk (net of hedging activities) and potential foreign exchange gains/losses on WIBOR EURIBOR WIBOR EURIBOR these exposures resulting from a hypothetical 10% appreciation/depreciation of the PLN against other currencies are presented +1 p.p. -1 p.p. +1 p.p. -1 p.p. +1 p.p. -1 p.p. +1 p.p. -1 p.p. in the following table. Finance costs, net (20) 20 (2) 2 37 (39) (3) 4 Other reserves 156 (161) (14) 13 107 (110) (15) 17

(in millions of currency) Sensitivity to a change of the PLN against The sensitivity analysis presented above is based on the following principles: Effective exposure after hedging other currencies impacting consolidated FINANCIAL STATEMENTS CONSOLIDATED income statement – finance costs, net include the following items exposed to interest rate risk: a) interest cost on financial debt based on At 31 December At 31 December At 31 December At 31 December floating rate (after hedging), b) the change in the fair value of derivatives not designated as hedging instruments and 2016 2015 2016 2015 classified as held for trading (see Note 20), +10% -10% +10% -10% Currency exposure Currency PLN Currency PLN PLN PLN – other reserves include the change in the fair value of derivatives that is determined as effective cash flow hedge (see Note 20), 2100 MHz licence payable 69 304 85 361 30 (30) 36 (36) – as at 31 December 2016, the gross financial debt based on floating rate (after hedging) amounted (EUR) EC proceedings provision (EUR) to PLN 2,172 million (as at 31 December 2015, PLN 487 million). 26 115 38 160 12 (12) 16 (16) (see Note 27.b) Bank borrowing (USD) 3 14 3 13 1 (1) 1 (1) 22.5. Liquidity risk Total 433 534 43 (43) 53 (53)

The liquidity risk is a risk of encountering difficulties in meeting obligations associated with financial liabilities. The sensitivity analysis presented above is based on the following principles: The Group’s liquidity risk management involves forecasting future cash flows, analysing the level of liquid assets – unhedged portion of the discounted amount of liabilities is exposed to foreign exchange risk (effective exposure), in relation to cash flows, monitoring statement of financial position liquidity and maintaining a diverse range – derivatives designated as hedging instruments and those classified as economic hedges are treated of funding sources and back-up facilities. as risk-mitigation transactions, – cash and cash equivalents are excluded from the analysis. In order to increase efficiency, the liquidity management process is optimised through a centralised treasury function of the Group, as liquid asset surpluses generated by the Group entities are invested and managed by the central treasury. The The changes in fair value of derivatives classified as cash flow hedges of forecast transactions affect other reserves. Group’s cash surplus is invested into short-term highly-liquid financial instruments – mainly bank deposits. Additionally, in 2013 The sensitivity analysis prepared by the Group indicated that the potential gains/(losses) impacting other reserves the Group concluded a Cash Management Treasury Agreement with Orange S.A. enabling the Group to deposit its cash surpluses resulting from a hypothetical 10% depreciation/appreciation of the PLN against other currencies would amount with Orange S.A. to PLN 56/(56) million and PLN 45/(45) million as at 31 December 2016 and 2015, respectively. The Group also manages liquidity risk by maintaining committed, unused credit facilities, which create a liquidity 22.4. Interest rate risk reserve to secure solvency and financial flexibility. The above-mentioned Cash Management Treasury Agreement with Orange S.A. gives the Group access to back-up liquidity funding with headroom of up to PLN 1,750 million. The interest rate risk is a risk that the fair value or future cash flows of the financial instrument will change No drawdown was made on this facility as at 31 December 2016. The Group also has a revolving credit line due to interest rates changes. The Group has interest bearing financial liabilities consisting mainly of loans from related party and from the Orange Group for up to EUR 480 million and other credit lines for up to PLN 8 million, of which bank borrowings (see Note 18). PLN 1,442 million was used as at 31 December 2016.

The Group’s interest rate hedging strategy, limiting exposure to unfavourable movements of interest rates, Therefore, as at 31 December 2016, the Group had unused credit facilities amounting to PLN 2,435 million is reviewed on a regular basis. The preferable split between fixed and floating rate debt is the result of the analysis indicating the (as at 31 December 2015, PLN 3,717 million). These credit lines are sufficient to cover the excess of current liabilities over current impact of the potential interest rates evolution on the financial costs. assets of PLN 1,730 million as at 31 December 2016.

According to the hedging strategy, the Group uses interest rate swaps and cross currency interest rate swaps Liquidity risk is measured by applying following ratios calculated and monitored by the Group regularly: to hedge its interest rate risk. As a result of the hedge the structure of the liabilities changes to the desired one, – liquidity ratios, as liabilities based on the floating/fixed interest rates are effectively converted into fixed/floating obligations. – maturity analysis of undiscounted contractual cash flows resulting from the Group’s financial liabilities, – average debt duration.

Orange Polska Integrated Report - 166 167 - Orange Polska Integrated Report At 31 December 2015 The liquidity ratio (representing the relation between available financing sources, i.e. cash and credit facilities, and debt repayments (in PLN millions) (1) during next 12 and 18 months) and current liquidity ratio (representing the relation between unused credit facilities, current assets Undiscounted contractual cash flows and current liabilities) are presented in the following table: Non-current More Total Carying Within 1 1-2 2-3 3-4 4-5 Note than 5 non- Total (in PLN millions) Liquidity ratios amount year years years years years At 31 December At 31 December years current Loans from related 2016 2015 18.1 4,122 1,301 26 33 2,069 9 815 2,952 4,253 Liquidity ratio (incl. derivatives) - next 12 months 1.332% 288% party Unused credit facilities 2,435 3,717 Other financial debt 18.2 126 48 31 27 16 7 3 84132 – including finance Cash and cash equivalents 262 266 64 22 18 17 10 1 - 46 68 lease liabilities Debt repayments(1) 134 1,313 Derivative assets 20 (122) 23 47 47 (7) 11 (36) 62 85 Derivatives repayments(2) 69 71 Derivative liabilities 20 134 48 37 29 12 (3) (2) 73 121 Liquidity ratio (incl. derivatives) - next 18 months 154% 276% Gross financial debt 4,260 1,420 141 136 2,090 24 780 3,171 4,591 Unused credit facilities 2,435 3,717 after derivatives Cash and cash equivalents 262 266 Trade payables 14.1 2,897 2,136 157 151 143 143 417 1,011 3,147 Debt repayments(1) 1,633 1,329 Total financial Derivatives repayments(2) 115 113 liabilities (including 7,157 3,556 298 287 2,233 167 1,197 4,182 7,738 derivative assets) Current liquidity ratio (incl. unused credit facilities) 117% 117% FINANCIAL STATEMENTS CONSOLIDATED (1) Unused credit facilities 2,435 3,717 Includes both nominal and interest payments. Total current assets 2,418 2,330 Total current liabilities 4,148 5,185 The average duration for the existing debt portfolio as at 31 December 2016 was 3.2 years (2.8 years as at (1) Undiscounted contractual cash flows on loans from related party and bank borrowings. (2) Undiscounted contractual cash flows on derivatives. 31 December 2015).

The maturity analysis for the contractual undiscounted cash flows resulting from the Group’s financial liabilities 22.6. Credit risk as at 31 December 2016 and 2015 is presented below. The Group’s credit risk management objective is defined as supporting business growth while minimising financial risks by ensuring As at 31 December 2016 and 2015, amounts in foreign currency were translated at the National Bank of Poland period-end that customers and partners are always in a position to pay amounts due to the Group. average exchange rates. The variable interest payments arising from the financial instruments were calculated using the interest rates applicable as at 31 December 2016 and 2015, respectively. The main function of the Credit Committee under the control of the Board Member in charge of Finance is to coordinate and consolidate credit risk management activities across the Group, which involve: (in PLN millions) At 31 December 2016 – clients’ risk assessment,

Undiscounted contractual cash flows (1) – monitoring clients’ business and financial standing, Non-current – managing accounts receivable and bad debts. More Total Carrying Within 1 1-2 2-3 3-4 4-5 The policies and rules regarding consolidated credit risk management for the Group were approved by the Credit Committee. Note than 5 non- Total amount year years years years years years current Loans from related There is no significant concentration of credit risk within the Group. 18.1 7,092 125 1,546 2,224 102 3,594 - 7,466 7,591 party Further information on credit risk is discussed in Notes 12, 19, 20. Other financial debt 18.2 102 39 32 20 10 4 - 66105 – including finance 58 21 20 14 4 1 - 39 60 lease liabilities Derivative assets 20 (242) 31 59 (78) 10 (70) - (79) (48) Derivative liabilities 20 76 38 33 13 (3) (2) - 41 79 Gross financial debt 7,028 233 1,670 2,179 119 3,526 - 7,494 7,727 after derivatives Trade payables 14.1 3,115 2,439 157 148 148 148 281 882 3,321 Total financial liabilities (including 10,143 2,672 1,827 2,327 267 3,674 281 8,376 11,048 derivative assets)

(1) Includes both nominal and interest payments.

Orange Polska Integrated Report - 168 169 - Orange Polska Integrated Report 23. Income tax Deferred tax assets are recognised in the amounts which are expected to be utilised using future taxable profits estimated on the basis of the business plan approved by the Management Board of Orange Polska and used 23.1. Income tax to determine the value in use of the telecom operator CGU (key assumptions are described in Note 8.1).

(in PLN millions) 12 months ended 12 months ended 31 December 2016 31 December 2015 Unrecognised deferred tax assets relate mainly to those tax losses, which are expected to expire rather than to be realised. Current income tax 12 (80) As at 31 December 2016 there were no tax losses, for which no deferred tax asset was recognised. As at 31 December 2015, Deferred tax (45) 53 tax losses, for which no deferred tax asset was recognised, amounted to PLN 20 million gross. Total income tax (33) (27)

The reconciliation between the income tax expense and the theoretical tax calculated based on the Polish statutory tax rate is as follows: 24. Equity

(in PLN millions) 12 months ended 12 months ended 31 December 2016 31 December 2015 24.1. Share capital Consolidated net income/(loss) before tax (1,713) 281 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED Less: Impairment of goodwill(1) 1,793 - As at 31 December 2016 and 2015, the share capital of the Company amounted to PLN 3,937 million Net income before tax, adjusted 80 281 Statutory tax rate 19% 19% and was divided into 1,312 million fully paid ordinary bearer shares of nominal value of PLN 3 each. Theoretical tax (15) (53) Tax relief on new technologies 6 39 The ownership structure of the share capital as at 31 December 2016 and 2015 was as follows: Not deductible interest expense on intragroup loan (22) (2) Other expense not deductible for tax purposes (2) (11) (in PLN millions) At 31 December 2016 At 31 December 2015 Total income tax (33) (27) Nominal Nominal (1) % of votes % of shares % of votes % of shares See Note 8.1. value value Orange S.A. 50.67 50.67 1,995 50.67 50.67 1,995 Other shareholders 49.33 49.33 1,942 49.33 49.33 1,942 Expenses not deductible for tax purposes consist of cost items, which, under Polish tax law, are specifically determined as non- Total 100.00 100.00 3,937 100.00 100.00 3,937 deductible.

During the 12 months ended 31 December 2015, OPL S.A., TP Invest Sp. z o.o. and Orange Customer Service Sp. z o.o. 24.2. Dividend comprised the Tax Capital Group. On 12 April 2016, the General Meeting of Orange Polska S.A. adopted a resolution on the payment of an ordinary dividend of PLN 23.2. Deferred tax 0.25 per share from the 2015 profit and retained earnings from previous years. The total dividend, paid on 7 July 2016, amounted to PLN 328 million. Consolidated statement of financial (in PLN millions) Consolidated income statement position At 31 December At 31 December 12 months ended 12 months ended On 9 April 2015, the General Meeting of Orange Polska S.A. adopted a resolution on the payment of an ordinary dividend of PLN 2016 2015 31 December 2016 31 December 2015 0.50 per share from the 2014 profit and retained earnings from previous years. The total dividend, paid on 9 July 2015, amounted Property, plant and equipment 464 537 (73) 24 to PLN 656 million. and intangible assets Unused tax losses 124 4 120 3 Receivables and payables OPL S.A.'s retained earnings available for dividend payments to the Group’s shareholders amounted to PLN 2.8 billion 80 150 (70) 28 recognised on accrual basis as at 31 December 2016. The remaining balance of the Company’s retained earnings is unavailable for dividend payments Deferred income 94 90 4 3 Employee benefit plans 53 72 (19) (16) due to restrictions of the Polish commercial law. Additionally, PLN 0.1 billion of OPL S.A.’s subsidiaries retained earnings Provisions 84 96 (12) 11 as at 31 December 2016 was available for dividend payments by subsidiaries to OPL S.A. Net financial debt 5 22 - 4 Accumulated impairment losses 34 29 5 (1) on financial assets On 13 February 2017, the Management Board of Orange Polska S.A. adopted a resolution not to recommend payment of any Other (9) (9) - (3) dividend in 2017. Deferred tax assets, net(1) 929 991 Total deferred tax (45) 53 24.3. Other changes in retained earnings Amount expected to be recovered within 12 months after the end of 248 311 the reporting period Certain corrections resulting from immaterial errors in prior periods were recognised by the Group directly (1) During the 12 months ended 31 December 2016 and 2015, PLN (17) million and PLN (6) million of change in deferred tax assets was recognised in the consolidated statement of comprehensive income, respectively. Additionally, during the 12 months ended 31 December 2015, PLN 10 million of change in deferred tax asset was recognised directly in retained earnings and presented as other movements in the consolidated statement of changes in equity. in retained earnings (see Note 24.3). The correction of PLN 32 million (net of PLN (2) million of current income tax) in 2016 relates to recognition of trade receivables. The correction of PLN (45) million (net of PLN 10 million of deferred tax) in 2015 relates to pre-paid revenue recognised in prior periods.

Orange Polska Integrated Report - 170 171 - Orange Polska Integrated Report Additionally, PLN 10 million of other reserves was transferred to retained earnings in 2015. This amount consisted of PLN 79 million Future minimum lease payments under non-cancellable operating leases, as at 31 December 2016 and 2015, were of share-based payments recognised in previous years, PLN (85) million of accumulated actuarial losses on other post-employment as follows: benefits for retirees of the Group curtailed in 2015 and PLN 16 million of related deferred tax. (in PLN millions) At 31 December At 31 December 2016 2015 Within one year 218 205 After one year but not more than five years 474 419 More than five years 145 199 25. Management of capital Total minimum future lease payments 837 823

The Group manages its capital through a balanced financial policy, which aims at providing both relevant funding capabilities for When considering the Group as a lessor, future minimum lease payments under non-cancellable operating leases business development and at securing a relevant financial structure and liquidity. as at 31 December 2016 and 2015 amounted to PLN 81 million.

The Group’s capital management policy takes into consideration the following key elements: 26.2. Investment commitments – business performance together with applicable investments and development plans, CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED – debt repayment schedule, Investment commitments contracted for at the end of the reporting period but not recognised in the financial statements were – financial market environment, as follows: – distribution policy to the Group’s shareholders. (in PLN millions) At 31 December At 31 December 2016 2015 In order to combine these factors the Group periodically establishes a framework for the financial structure. Property, plant and equipment 152 102 Intangibles 100 161 The Group believes that net financial debt to adjusted EBITDA ratio is the most relevant measure of financial structure and therefore Total investment commitments 252 263 net gearing ratio is no longer used. Management expects that net financial debt to adjusted EBITDA ratio will not exceed 2.6 for Amounts contracted to be payable within 12 months 231 190 after the end of the reporting period the full year 2017.

The Group regards capital as the total of equity and net financial debt. The table below presents the sources Investment commitments represent mainly purchases of telecommunications network equipment, IT systems and other software. of capital and provides net financial debt to adjusted EBITDA ratio monitored by the Group.

(in PLN millions) At 31 December At 31 December Note 2016 2015 Net financial debt 17 6,775 3,911 27. Litigation, claims and contingent liabilities Total equity 10,009 11,977 Total equity and Net financial debt 16,784 15,888 a. Proceedings by UOKiK and claims connected with them Adjusted EBITDA 3 3,163 3,517 Net financial debt / adjusted EBITDA ratio 2.1 1.1 According to the Telecommunications Act, the President of UKE may impose on a telecommunications operator The above policy imposes financial discipline, providing appropriate flexibility needed to sustain profitable a penalty of up to a maximum amount of 3% of the operator’s prior year’s tax revenue, if the operator does not fulfil certain requirements development and the Group’s cash distribution policy as set on an annual basis with a focus on delivering of the Telecommunications Act. According to the Act on Competition and Consumer Protection, in case of non-compliance with its a reasonable remuneration to the Group’s shareholders. regulations, the President of the Office of Competition and Consumer Protection (“UOKiK”) is empowered to impose on an entity penalties of up to a maximum amount of EUR 50 million for refusal to provide requested information or up to a maximum amount of 10% of an entity’s revenue for the year prior to the year of fine imposition for a breach of the law.

26. Unrecognised contractual obligations Proceedings by UOKiK related to pre-paid offers In September 2016, UOKiK commenced proceedings against Orange Polska, T-Mobile Polska S.A., Polkomtel 26.1. Commitments related to operating leases Sp. z o.o. and P4 Sp. z o.o. claiming that rules on the Polish market applied to pre-paid offers, according to which top-ups are annulled in so-called “passive period”, may violate consumers rights. When considering the Group as a lessee, operating lease commitments relate mainly to the lease of buildings In the opinion of the Management, Orange Polska did not violate the law and offers are in line with rules which and land. Lease costs recognised in the consolidated income statement for the years ended 31 December 2016 are applied also by other sectors having pre-paid offers. and 2015 amounted to PLN 374 million and PLN 372 million, respectively. Most of the agreements are denominated in foreign currencies and some of them are indexed with price indices applicable for a given currency. Some Proceedings by UOKiK related to retail prices of calls to Play of the agreements can be extended. On 18 March 2013, UOKiK commenced competition proceedings against Orange Polska, Polkomtel Sp. z o.o. and T-Mobile Polska S.A. claiming that they abused collective dominant position in the domestic retail market of mobile telephony. UOKiK alleges that the retail prices of calls made by individual users from the network of each

Orange Polska Integrated Report - 172 173 - Orange Polska Integrated Report of the three operators to the network of P4 Sp. z o.o. (“P4”), operator Play, were relatively higher than the not to be paid. The actual amounts of penalties, if any, are dependent on a number of future events the outcome of which is prices for such calls to the networks of the three operators and determined without sufficient consideration of uncertain, and, as a consequence, the amount of the provision may change at a future date. Information regarding the amount of the differentiation of the asymmetric wholesale termination rates determined by UKE. In the view of UOKiK, the provisions has not been separately disclosed as, in the opinion of the Company’s Management, such disclosure could prejudice the applied prices could result in restricting the development of competition on the retail domestic mobile telephony market. the outcome of the pending cases. Orange Polska, on request of UOKiK, provided detailed data relating to its offers and retail prices. UOKiK informed the Company that it further prolonged the proceedings. The indicated date of prolongation is 31 March 2017. b. Proceedings by the European Commission related to broadband access In addition, in May 2015, Orange Polska received a request for settlement filed by P4 with the Court under which P4 raised claims in the amount of PLN 258 million relating to the retail mobile prices for a period between April 2012 and 31 December 2014. On 22 June 2011, the European Commission imposed on Orange Polska a EUR 127.6 million fine (approximately On 2 July 2015, at the court session, the parties did not reach an agreement. In September 2015, Orange Polska also received PLN 508 million) for abuse of dominant position on the wholesale broadband access market, before October a lawsuit filed by P4 with the Court under which P4 claims for damages, in the amount of PLN 316 million including interest 2009. Orange Polska has recorded a provision for the whole amount of the fine and accrued interest. in the amount of PLN 85 million, relating to the retail mobile prices for a period between July 2009 and March 2012. P4 raised both In accordance with the decision the fine could have been provisionally paid or secured by a bank guarantee. claims jointly and severally towards Orange Polska, Polkomtel Sp. z o.o. and T-Mobile Polska S.A. On 27 September 2011, Orange Polska provided the bank guarantee to the European Commission. In the opinion of the Management, Orange Polska has not performed activities that would restrict competition and, in the period covered by the proceedings, the level of the competition on the retail domestic mobile telephony market had been The Company strongly disagrees with the decision and the disproportionate level of the fine, particularly as it believes that the CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED constantly increasing. European Commission did not take into account several important factors. The situation on the wholesale broadband market has been systematically improving since 2007. By constructing and providing fixed broadband infrastructure, the Company has been Proceedings by UOKiK related to tenders for mobile services effectively remedying the difficulties on the Polish broadband market and it has been increasing the penetration rate On 20 December 2013, UOKiK commenced competition proceedings against Orange Polska and two other of the broadband services. The irregularities pointed out by the European Commission were voluntarily removed by the Company in offerers in tenders for mobile services of data transmission conducted in 2012. UOKiK’s proceedings relate the past. to the assertion that the offerers agreed the terms of offers they made. UOKiK informed the Company that it further prolonged the proceedings. The indicated date of prolongation is 28 February 2017. Orange Polska appealed against the decision of the European Commission to the General Court of the European Union on 2 September The Management Board of Orange Polska notes that they did not agree the terms of offers with the other companies. 2011. On 17 December 2015, the General Court issued a verdict dismissing Orange Polska’s appeal from the decision of the European Commission. On 27 February 2016, Orange Polska appealed that verdict of the General Court to the Court of Justice. Magna Polonia S.A. claim towards Orange Polska, T-Mobile Polska, Polkomtel and P4 In 2011, UOKiK determined that Orange Polska, T-Mobile Polska S.A., Polkomtel Sp. z o.o. and P4 Sp. z o.o. concluded an agreement c. Tax contingent liability restricting competition on the domestic retail and wholesale market for mobile television based on DVB-H technology. By its decision, UOKiK also imposed fines on the four companies (on Orange Polska PLN 35 million). Orange Polska appealed the decision of UOKiK. Tax settlements are subject to review and investigation by a number of authorities, which are entitled to impose SOKiK repealed the decision, UOKiK appealed SOKiK verdict and the case is currently examined by the Appeal Court. In connection fines, penalties and interest charges. Value added tax, corporate income tax, personal income tax and other taxes with the decision of UOKiK, Magna Polonia S.A. filed, in December 2013, a motion with a court for calling the four operators to or social security regulations are subject to frequent changes, such as the introduction of the General Anti-Abuse Rule in 2016. These conclude amicable settlements. Magna Polonia S.A. is the former owner of Info TV FM Sp. z o.o., a telecommunications operator changes often lead to the lack of system stability. Frequent contradictions in legal interpretations both within government bodies and that offered provision of wholesale services of mobile television DVB-H to Orange Polska, T-Mobile Polska S.A., Polkomtel Sp. z o.o. between companies and government bodies create uncertainties and conflicts. and P4 Sp. z o.o. None of them decided to introduce mobile television services to its customers. Magna Polonia demanded that Orange Polska, T-Mobile Polska S.A., Polkomtel Sp. z o.o. and P4 Sp. z o.o. Tax authorities may examine accounting records up to five years after the end of the year in which the tax becomes due. Consequently, pay jointly and severally PLN 618 million to it. Magna Polonia asserted that its claim resulted from lost profits the Group may be subject to additional tax liabilities, which may arise as a result of additional tax audits. Orange Polska and certain of of Magna because DVB-H television was not launched (including lower value of its shares in Info TV FM) its subsidiaries were subject to audits by the tax office in respect of taxes paid. Certain of these audits have not yet been finalised. The and costs of financing Info TV FM. In the Orange Polska Management's opinion, Magna Polonia’s motion did Group believes that adequate provisions have been recorded for known and quantifiable risks in this regard. not constitute any reasonable grounds on which to assess whether or not Magna Polonia suffered any damage. On 11 December 2013, at the session held at the Court the parties did not reach an agreement. d. Proceedings by the tax authorities On 26 November 2016, Magna Polonia filed with the court a statement of claim against the four operators based in principle on the same grounds as the action of 2013 and for payment of the same amount. Magna Polonia The Fiscal Audit Office completed control proceedings relating to OPL S.A.’s year 2009 and, on 31 March 2014, delivered results of the applied to the court for staying of the proceedings until the proceedings regarding PLN 35 million fine imposed control. Results of the control ended the audit proceedings in front of the Fiscal Audit Office and confirmed the correctness of the Company’s by UOKiK are concluded (the Appeal Court scheduled a hearing in those proceedings for 15 March 2017). VAT tax settlements. The results also raised certain questions concerning other tax settlements made, but did not decide on the obligations of the Company. The Company believes that the issues raised by the Fiscal Audit Office as regards these tax settlements are without merit The Management Board of Orange Polska did not agree on common actions with the other companies aimed at restricting and the possibility of ultimate outflows of resources is low. This opinion is supported by external tax advisors. the introduction of DVB-H service based on the offer of Info TV FM Sp. z o.o. It decided not to introduce mobile television services due to the market situation and for commercial reasons.

As at 31 December 2016, the Group recognised provisions for known and quantifiable risks related to proceedings against the Group initiated by UKE and UOKiK, which represent the Group’s best estimate of the amounts, which are more likely than

Orange Polska Integrated Report - 174 175 - Orange Polska Integrated Report e. Issues related to the incorporation of Orange Polska The increase of compensation expense in 2016 in comparison to 2015 results from an increase of the number of the Members of the Management Board of OPL S.A. and payment of post-employment benefits to Mr Bruno Orange Polska was established as a result of the transformation of the state-owned organisation Poczta Polska Telegraf i Duthoit and Mr Michał Paschalis-Jakubowicz after their resignation as Members of the Management Board Telefon (“PPTiT”) into two entities – the Polish Post Office and Orange Polska. The share premium in the equity of Orange Polska of OPL S.A. includes an amount of PLN 713 million which, in accordance with the Notary Deed dated 4 December 1991, relates to the contribution of the telecommunication business of PPTiT to the Company. During the transformation process and transfer From 2016, section 10.3 of the Management Board's Report on the Activity of the Orange Polska Group and Orange of ownership rights to the new entities, certain properties and other assets that are currently under Orange Polska's control Polska S.A. includes the Remuneration Report, where more details on Management Board and Supervisory Board were omitted from the documentation recording the transfer and the documentation relating to the transformation process compensation can be found. As a result, the compensation of individuals is no longer presented in the IFRS financial is incomplete in this respect. This means that Orange Polska's rights to certain properties and other non-current statements. Additionally, from 2016 bonuses are included in compensation in the period when they are accrued assets may be questioned and, as a result, the share premium balance may be subject to changes. only. Consequently, total compensation in comparative data for 2015 was amended to exclude PLN 1,335 thousand of bonuses accrued in 2014 and paid in 2015. f. Other contingent liabilities and provisions 28.2. Related party transactions Apart from the above-mentioned, operational activities of the Group are subject to legal, social and administrative regulations a breach CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED of which, even unintentional, may result in sanctions imposed on the Group. In addition to fines which may be imposed by UOKiK As at 31 December 2016, Orange S.A. owned 50.67% of shares of the Company and had the power to appoint and UKE described in the note 27.a also the President of Energy Regulatory Office may impose a penalty of up to a maximum amount the majority of OPL S.A.’s Supervisory Board Members. The Supervisory Board decides about the composition of 15% of the revenues gained in the previous tax year among others for an infringement of certain provisions of Energy Law, a failure of the Management Board. in fulfilment of obligations determined by the concession, a refusal to provide information. The Group is a party to a number of legal proceedings and commercial contracts related to its operational activities. Some regulatory The Group’s income earned from the Orange Group comprises mainly data transmission, research and development services and decisions can be detrimental to the Group and court verdicts within appeal proceedings against such decisions can have potential interconnect. The purchases from the Orange Group comprise mainly brand fees, costs of interconnect and data transmission. negative consequences for the Group. The Group monitors the risks on a regular basis and the Management believes that adequate provisions have been recorded for known and quantifiable risks. Orange Polska S.A. operates under the Orange brand pursuant to a licence agreement concluded with Orange S.A. and Orange Brand Services Limited (hereinafter referred to as “OBSL”). The brand licence agreement provides that OBSL receives a fee of up to 1.6% of the Company’s operating revenue earned under the Orange brand. The agreement is valid until 24 July 2018 with the possibility of renewal. 28. Related party transactions The Group and Atlas Services Belgium S.A., a subsidiary of Orange S.A., concluded loan agreements 28.1. Management Board and Supervisory Board compensation for EUR 670 million, PLN 2,700 million and Revolving Credit Facility Agreement for up to EUR 480 million (see Note 18.1). Additionally, the Group concluded an agreement with Orange S.A. concerning derivative transactions to hedge Compensation (remuneration, bonuses, post-employment and other long-term benefits and termination indemnities - cash and exposure to foreign currency risk and interest rate risk related to the financing from Atlas Services Belgium S.A. non-monetary benefits) of OPL S.A.’s Management Board and Supervisory Board Members is presented below. The nominal amount of cross currency interest rate swaps and interest rate swaps outstanding under the agreement as at 31 December 2016 was EUR 670 million and PLN 4,750 million with a total fair value of PLN 130 million (in PLN thousands) 12 months ended 31 December 2016 Variable (as at 31 December 2015, nominal amount of EUR 950 million and PLN 4,350 million with a total negative fair value of PLN 18 million). Fixed compensation Total compensation compensation expense expense expense(1) Short-term benefits excluding employer social security 11,887 3,893 15,780 payments Post-employment benefits 4,255 - 4,255 Total 16,142 3,893 20,035

(1) Includes bonuses accrued in 2016 to be paid in 2017, excludes bonuses accrued in 2015 and paid in 2016.

(in PLN thousands) 12 months ended 31 December 2015 Variable Fixed compensation Total compensation compensation expense expense expense(1) Short-term benefits excluding employer social security 10,820 3,387 14,207 payments Post-employment benefits - - - Total 10,820 3,387 14,207

(1) Includes bonuses accrued in 2015 and paid in 2016, excludes bonuses accrued in 2014 and paid in 2015.

Orange Polska Integrated Report - 176 177 - Orange Polska Integrated Report Financial receivables, payables, financial costs, net and other comprehensive income concerning transactions 30.1. Use of estimates and judgement with the Orange Group relate mainly to the above-mentioned agreements. Cash and cash equivalents deposited with Orange S.A. relate to the Cash Management Treasury Agreement (see Note 22.5). In preparing the Group’s accounts, the Company’s management is required to make estimates, because many elements included in the financial statements cannot be measured with precision. Management reviews these (in PLN millions) 12 months ended 12 months ended estimates if the circumstances on which they were based evolve, or in the light of new information or experience. 31 December 31 December 2016 2015 Consequently, estimates made as at 31 December 2016 may be subsequently changed. The main estimates Sales of goods and services and other income: 208 205 and judgements made are described in the following notes: Orange S.A. (parent) 124 113 Orange Group (excluding parent) 84 92 Note Estimates and judgements Purchases of goods (including inventories, tangible and intangible assets) and services: (258) (265) Orange S.A. (parent) (91) (84) Allocation of revenue between each separable component Orange Group (excluding parent) (167) (181) of a packaged offer based on its relative fair value. – including Orange Brand Services Limited (brand licence agreement) (127) (134) Estimating fair value of components. Financial costs, net: (246) (185) 5, 14.3, 30.9 Revenue Straight-line recognition of revenue relating to service connection fees. Orange S.A. (parent) (11) (72) Orange Group (excluding parent) (235) (113) Reporting revenue on a net versus gross basis (analysis of Group’s FINANCIAL STATEMENTS CONSOLIDATED Other comprehensive income: 76 30 involvement acting as principal versus agent). Orange S.A. (parent) 76 30 Fair value of early termination fees charged to customers. Dividend paid: 166 332 Orange S.A. (parent) 166 332 Impairment of cash generating Key assumptions used to determine recoverable amounts: impairment 8, 30.16 unit and individual tangible and (in PLN millions) At 31 December At 31 December indicators, models, discount rates, growth rates. 2016 2015 intangible assets Receivables: 47 44 10, 11, 30.13, Useful lives of tangible and Orange S.A. (parent) 29 29 The useful lives and the method of depreciation and amortisation. Orange Group (excluding parent) 18 15 30.14 intangible assets Payables: 68 81 Impairment of loans and Orange S.A. (parent) 32 32 12, 30.17 Methodology used to determine recoverable amounts. receivables Orange Group (excluding parent) 36 49 Financial receivables: 206 110 The assumptions underlying the measurement of provisions for claims Orange S.A. (parent) 206 110 and litigation. Provisions for employment termination expense: discount Cash and cash equivalents deposited with: 106 87 13, 27, 30.20 Provisions Orange S.A. (parent) 106 87 rates, number of employees, employment duration, individual salary Financial payables: 7,168 4,250 and other assumptions. Orange S.A. (parent) 76 128 Orange Group (excluding parent) 7,092 4,122 The assumptions underlying the measurement of provision for the 13 Dismantling costs estimated costs for dismantling and removing the asset and restoring the site on which it is located.

Discount rates, salary increases, retirement age, staff turnover rates 15, 30.21 Employee benefits 29. Subsequent events and other. Fair value of derivatives and 20, 21, 30.17 Model and assumptions underlying the measurement of fair values. On the basis of an annual review of estimated useful lives of fixed assets, the Group decided to extend from 2017 other financial instruments the estimated useful lives for certain terminals, network assets and items of software. As a result, depreciation 23, 30.19 Income tax Assumptions used for recognition of deferred tax assets. and amortisation expense in 2017 relating to these assets is expected to be lower by approximately PLN 150 million. Allowance for slow moving and 30.18 Methodology used to determine net realisable value of inventories. obsolete inventories

30. Significant accounting policies The Group considers that the most significant adjustments to the carrying amounts of assets and liabilities could result from changes in estimates and judgements relating to impairment (see Note 8) and provisions for claims, litigation and risks (see Notes 13 and 27). In addition to the statement of compliance included in Note 2, this note describes the accounting principles applied to prepare the Consolidated Financial Statements for the year ended 31 December 2016. Where a specific transaction is not dealt with in any standard or interpretation, management uses its judgment in developing and applying an accounting policy that results in information that is relevant and reliable, in that the financial statements: − represent faithfully the Group's financial position, financial performance and cash flows, − reflect the economic substance of transactions,

Orange Polska Integrated Report - 178 179 - Orange Polska Integrated Report − are neutral, expense) and the statement of cash flows (interest expense will only impact the operating cash flows whereas the − are prudent and debt repayment will affect the financing cash flows in accordance with Group’s policy). In the statement of financial − are complete in all material respects. position, the net equity will be reduced at the beginning of the arrangement (due to the acceleration of expenses attributable to the interest component) and the intangible and tangible assets as well as the lease liability will increase. 30.2. Application of new standards and interpretations The effects of implementation of IFRS 16 is being analysed as part of the project implementing this new standard.

Adoption of standards or interpretations in 2016 ­−IFRIC Interpretation 22 „Foreign Currency Transactions and Advance Consideration”. This interpretation was issued on 8 December 2016 and will be effective for annual periods beginning on or after 1 January 2018. . No new standards or interpretations were adopted by the Group since 1 January 2016. The interpretation has not yet been endorsed by the European Union. . IFRIC 22 clarifies that in the case of receipt or payment of advance consideration in a foreign currency the date of Standards and interpretations issued but not yet adopted the transaction, for the purpose of determining the exchange rate, is the date of initial recognition of the non- monetary prepayment asset or deferred income liability. The impact of interpretation is currently being analysed − IFRS 9 “Financial Instruments”. The aim of IFRS 9 is to supersede IAS 39 “Financial Instruments: Recognition by the Management. and Measurement”. The standard was issued on 24 July 2014 and will be effective for annual periods beginning CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED on or after 1 January 2018. This standard has been endorsed by the European Union on 22 November 2016. 30.3. Accounting positions adopted by the Group in accordance with paragraphs In general (besides some limited exemptions), the standard is applicable on a retrospective basis in case of classification, 10 to 12 of IAS 8 ”Accounting Policies, Changes in Accounting Estimates measurement and impairment and prospectively in case of hedge accounting. IFRS 9 modifies the recognition criteria and Errors” for hedging transactions and main financial assets and liabilities categories: given the nature of the Group’s transactions, no major change is expected. IFRS 9 requires also the change in the credit risk recognition using the expected losses The accounting position described below is not specifically (or is only partially) dealt with by any IFRS standards approach versus the incurred losses one. For the Group, this would imply impairment of non-matured receivables. or interpretations endorsed by the European Union. The Group has adopted accounting policies which it believes best reflect the The Management estimates that the application of the standard will have no material impact on the financial statements. substance of the transactions concerned.

­− IFRS 15 “Revenue from Contracts with Customers”. This standard was issued on 28 May 2014 and will Multiple-elements arrangements be effective for annual periods beginning on or after 1 January 2018. This standard has been endorsed by the European Union on 22 September 2016. . When accounting for multiple-elements arrangements (bundled offers) the Group has adopted the provisions This standard relates to revenue recognition and is applicable on a retrospective basis either limited to the cumulative of Generally Accepted Accounting Principles in the United States, Accounting Standards Codification 605- effect of the new method at the opening date of the annual reporting period that includes the date of initial application 25 „Revenue Recognition – Multiple Element Agreements” (see Note 30.9 Separable components of packaged (1 January 2018) or by adjusting the reported comparative periods. . and bundled offers). For the Group, this standard would mainly impact the accounting for bundled offers which include a handset component with a discounted price and a communication service component: the cumulative revenue during the contract with customer 30.4. Options available under IFRSs and used by the Group will not change but its allocation between the handset sold and the communication service will change (more equipment revenue and less service revenue). The acceleration of the revenue recognition would lead to the recognition of a contract Certain IFRSs offer alternative methods of measuring and recognising assets and liabilities. In this respect, asset in the statement of financial position which would be settled against an asset receivable as the communication the Group has chosen: service is provided. . Standards Option used In addition, some incremental subscriber acquisition and retention costs (i.e. payments to distributors directly Recognition of inventories at their original cost determined by the weighted IAS 2 Inventories attributable to a contract, excluding subsidies) will be recognized over the duration of the bundled offer. average unit cost method. Property, plant and equipment are measured at cost less any accumulated The effects of implementation of IFRS 15 is being analysed as part of the project implementing the new standard. IAS 16 Property, plant and equipment depreciation and any accumulated impairment losses. Government grants and dis- Non-repayable government grants related to assets decrease the carrying −IFRS 16 “Leases” was issued on 13 January 2016 and has not yet been endorsed by the European Union. This standard IAS 20 closure of government assis- amount of the assets. Government grants related to income are deducted tance from the related expenses. relates to the accounting for leases and will be compulsory applicable from 1 January 2019 or on a retrospective basis from 1 January 2018 together with IFRS 15. It is retrospective either at the first application date or at the opening date of the reported comparative period. Assuming that the standard will be endorsed by the European Union, the Group 30.5. Presentation of the financial statements is going to apply this standard from 1 January 2019 and is still analysing the retrospective application provisions. The standard introduces a new basis for splitting supplier arrangements based on a new accounting definition Presentation of the statement of financial position of a lease and a service arrangement. . It will mainly change the lease accounting for lessees with the recognition of an asset which represents In accordance with IAS 1 “Presentation of financial statements”, assets and liabilities are presented in the statement the right of use at the delivery date granted by the lessor against a financial liability. . of financial position as current and non-current. It will also impact the presentation of the income statement (depreciation and interest expense instead of operating

Orange Polska Integrated Report - 180 181 - Orange Polska Integrated Report Presentation of the income statement Transactions in foreign currencies are converted into Polish złoty at the spot exchange rate prevailing as at the transaction date. Monetary assets and liabilities which are denominated in foreign currencies As allowed by IAS 1 “Presentation of financial statements”, expenses are presented by nature in the consolidated income statement. are re-measured at the end of the reporting period using the period-end exchange rate quoted by National Bank of Poland and the resulting translation differences are recorded in the income statement: Earnings/loss per share — in other operating income and expense for commercial transactions, — in financial income or finance costs for financial transactions. The net income/loss per share for each period is calculated by dividing the net income/loss for the period attributable to the equity holders of the Company by the weighted average number of shares outstanding during that period. The weighted average number 30.9. Revenue of shares outstanding is after taking account of treasury shares. Revenue from the Group’s activities is recognised and presented in accordance with IAS 18 “Revenue”. Revenue Changes in presentation of the statement of financial position and the statement of cash flows comprises the fair value of the consideration received or receivable for the sale of services and goods in the ordinary course of the Group’s activities. When the inflow of cash and cash equivalents is deferred the fair value From the second quarter of 2016, the Group classifies finance lease receivables as trade receivables and cash inflows from of the consideration may be less than the nominal amount of cash received or receivable. The fair value finance lease are presented as net cash provided by operating activities. As a result, PLN 14 million was reclassified from other of the consideration is determined by discounting all future receipts using an imputed rate of interest. The difference between the CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED assets to trade receivables in the consolidated statement of financial position as at 31 December 2015. The comparative amounts fair value and the nominal amount of the consideration is recognised as interest revenue in accordance with IAS 39. Revenue is in the consolidated statement of cash flows were adjusted accordingly: cash inflows from finance lease repaid by a lessee were recorded net of value-added tax and discounts. reclassified from net cash used in investing activities to the line presenting increase/decrease in trade receivables, gross in net cash provided by operating activities. Separable components of packaged and bundled offers

30.6. Consolidation rules For the sale of multiple products or services, the Group evaluates all deliverables in the arrangement to determine whether they represent separate units of accounting. A delivered item is considered a separate unit of accounting Subsidiaries that are controlled by Orange Polska, directly or indirectly, are fully consolidated. Control is deemed if (i) it has value to the customer on a standalone basis and (ii) there is objective and reliable evidence of the fair to exist when Orange Polska or its subsidiary is exposed, or has rights, to variable returns from the involvement value of the undelivered item(s). The total fixed or determinable amount of the arrangement is allocated to the with the investee and has the ability to affect those returns through its power over the investee. separate units of accounting based on its relative fair value. However, when an amount allocated to a delivered item is contingent upon the delivery of additional items or meeting specified performance conditions, the amount In order to have control over an investee, all the following criteria must be met: allocated to that delivered item is limited to the non contingent amount. This case arises e.g. in the mobile — the Group has the power over the investee; business for sales of bundled offers including a handset and a telecommunications service contract. The handset — the Group has exposure, or rights, to variable returns from its involvement with the investee; is considered to have value on a standalone basis to the customer, and there is objective and reliable evidence — the Group has the ability to use its power over the investee to affect the amount of the investor’s returns. of fair value for the telecommunications service to be delivered. As the amount allocable to the handset generally exceeds the amount received from the customer at the date the handset is delivered, revenue recognised Subsidiaries are consolidated from the date on which control is obtained by the Group and cease to be consolidated from the for the handset sale is generally limited to the amount that is not contingent upon the rendering date on which the Group loses control over the subsidiary. of telecommunication services, i.e. the amount paid by the customer for the handset.

Intercompany transactions and balances are eliminated on consolidation. For offers that cannot be separated into identifiable components, revenues are recognised in full over the life of the contract. The main example is connection to the service: this does not represent a separately identifiable 30.7. Investments in joint arrangements transaction from the subscription and communications, and connection fees are therefore recognised over the average expected life of the contractual relationship. A joint arrangement is either a joint venture or a joint operation. The Group is involved in a joint operation. The Group recognises in relation to its interests in a joint operation its assets, liabilities, revenue and expenses, including Equipment sales its respective shares in the above. Revenue from equipment sales is recognised when the significant risks and rewards of ownership are transferred 30.8. Effect of changes in foreign exchange rates to the buyer (see also paragraph “Separable components of packaged and bundled offers”). When equipment is sold in instalments the Group accounts for revenue in the amount of future instalments discounted by imputed interest rate. The functional currency of Orange Polska is the Polish złoty. When equipment associated with the subscription of telecommunication services is sold by a third-party retailer Transactions in foreign currencies who purchases it from the Group, the related revenue is recognised when the equipment is sold to the end-customer.

Orange Polska Integrated Report - 182 183 - Orange Polska Integrated Report Equipment leases 30.10. Subscriber acquisition costs, advertising and related costs

Equipment lease revenue is recognised on a straight-line basis over the life of the lease agreement, except Subscriber acquisition and retention costs are recognised as an expense for the period in which they are incurred. Advertising, for finance leases, in case of which revenue from sale of fixed assets, equal to the net investment in lease, promotion, sponsoring, communication and brand marketing costs are also expensed as incurred. is recognised at the commencement of lease and finance income is recognised over the lease term. 30.11. Borrowing costs Revenues from the sale or supply of content Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset The accounting for revenue from the sale or supply of content (audio, video, games, etc.) depends on the analysis are capitalised as part of the cost of that asset. Qualifying assets are assets that necessarily take a substantial of the facts and circumstances surrounding these transactions. To determine if the revenue must be recognised period of time to get ready for their intended use or sale. In the Group’s assessment, the network roll-out does on a gross or a net basis, an analysis is performed using the following criteria: not generally require a substantial period of time. — if the Group has the primary responsibility for providing services desired by the customer; — if the Group has inventory risk (the Group purchases content in advance); 30.12. Goodwill — if the Group has discretion in establishing prices directly or indirectly, such as by providing additional services; CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED — if the Group has credit risk. Goodwill recognised as an asset in the statement of financial position for business combination before 1 January 2010 comprises: Revenue is recognised when the content is delivered to the customer. — goodwill as the excess of the cost of the business combination over the acquirer's interest in the acquiree's identifiable net assets measured at fair value at the acquisition-date; and Service revenue — goodwill relating to any additional purchase of non-controlling interests with no purchase price allocation.

Telephone service and Internet access subscription fees are recognised in revenue on a straight-line basis over For business combination after 1 January 2010 goodwill recognised as an asset in the statement of financial position is the excess the service period. of (a) over (b) below:

Charges for incoming and outgoing telephone calls are recognised in revenue when the service is rendered. (a) the aggregate of: Revenue from the sale of phone cards in fixed and mobile telephony systems is recognised when they are used (i) the consideration transferred, measured at acquisition-date fair value; or expire. (ii) the amount of any non-controlling interest in the acquiree, measured either at its fair value or at its proportionate interest in the net identifiable assets; Promotional offers (iii) in a business combination achieved in stages, the acquisition-date fair value of the acquirer's previously held equity interest in the acquire. For certain commercial offers where customers do not pay for service over a certain period in exchange for signing up for a fixed period (time-based incentives), the total revenue generated under the contract is spread over the fixed, non-cancellable period. (b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured at fair value, apart from limited exceptions provided in IFRS 3. Discounts for poor quality of services or for breaks in service rendering Goodwill represents a payment made in anticipation of future economic benefits from assets that are not capable The Group's commercial contracts may contain service level commitments (such as delivery time, service reinstatement of being individually identified and separately recognised. time). If the Group fails to comply with these commitments, it is obliged to grant a discount to the end-customer. Such discounts reduce revenue. Discounts are recorded when it becomes probable that they will be due based 30.13. Intangible assets (excluding goodwill) on the non-achievement of contractual terms. Intangible assets, consisting mainly of telecommunications licences, software and development costs, are initially Barter transactions stated at acquisition or production cost comprising its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates, any directly attributable costs of preparing the assets When goods or services are exchanged for goods or services which are of a similar nature and value, the exchange is not for their intended use, and, if applicable, attributable borrowing costs. regarded as a transaction which generates revenue. When goods are sold or services are rendered in exchange for dissimilar goods or services, the revenue is measured at the fair value of the goods or services received, adjusted by the amount of Internally developed trademarks and subscriber bases are not recognised as intangible assets. any cash or cash equivalents transferred. When the fair value of the goods or services received cannot be measured reliably, the revenue is measured at the fair value of the goods or services given up, adjusted by the amount of any cash or cash Telecommunications licences equivalents transferred. The revenue from barter transactions involving advertising is measured in accordance with Interpretation 31 of the Standing Interpretations Committee “Revenue – Barter Transactions Involving Advertising Services”. Expenditures regarding telecommunications licences are amortised on a straight-line basis over the reservation period from the date when the network is technically ready and the service can be marketed.

Orange Polska Integrated Report - 184 185 - Orange Polska Integrated Report Research and development costs Finance leases

Development costs are recognised as an intangible asset if and only if the following can be demonstrated: Assets acquired under leases that transfer substantially all risks and rewards of ownership to the Group are —the technical feasibility of completing the intangible asset so that it will be available for use, recorded as assets and an obligation in the same amount is recorded in liabilities. Normally, the risks and rewards —the intention to complete the intangible asset and use or sell it and the availability of adequate technical, financial of ownership are considered as having been transferred to the Group when at least one condition is met: and other resources for this purpose, —the lease transfers ownership of the asset to the lessee by the end of the lease term, —the ability to use or sell the intangible asset, —the Group has the option to purchase the asset at a price that is expected to be sufficiently lower than fair value at the —how the intangible asset will generate probable future economic benefits for the Group, date the option becomes exercisable for it to be reasonably certain, at the inception of the lease, that the option will —the Group's ability to measure reliably the expenditure attributable to the intangible asset during be exercised, its development. —the lease term is for the major part of the estimated economic life of the leased asset, —at the inception of the lease, the present value of the minimum lease payments amounts to at least substantially all of Development costs not fulfilling the above criteria and research costs are expensed as incurred. The Group's research the fair value of the leased asset, and development projects mainly concern: —the leased assets are of such a specialised nature that only the lessee can use them without major modifications. —upgrading the network architecture or functionality; CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED —developing service platforms aimed at offering new services to the Group's customers. Assets leased by the Group as lessor under leases that transfer substantially risks and rewards of ownership to the lessee are treated as having been sold. Development costs recognised as an intangible asset are amortised on a straight-line basis over their estimated useful life, generally not exceeding four years. Derecognition

Software An item of property, plant and equipment is derecognised on its disposal or when no future economic benefits are expected from its use or disposal. The gain or loss arising from the derecognition of an item of property, plant Software is amortised on a straight-line basis over the expected useful life, not exceeding five years. and equipment is recognised in operating income/loss and equals the difference between the net disposal proceeds, if any, and the carrying amount of the item. Useful lives of intangible assets are reviewed annually and are adjusted if current estimated useful lives are different from previous estimates. These changes in accounting estimates are recognised prospectively. Depreciation

30.14. Property, plant and equipment Items of property, plant and equipment are depreciated to write off their cost, less any estimated residual value on a basis that reflects the pattern in which their future economic benefits are expected to be consumed. Therefore, the straight- The cost of tangible assets corresponds to their purchase or production cost or price, including import duties line basis is usually applied over the following estimated useful lives: and non-refundable purchase taxes, after deducting trade discounts and rebates, as well as including costs Buildings 10 to 30 years directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating Network 3 to 40 years in the manner intended by management, including labour costs, and, if applicable, attributable borrowing costs. Terminals 2 to 10 years Other IT equipment 3 to 5 years Other 2 to 10 years The cost includes the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, representing the obligation incurred by the Group. Land is not depreciated. Perpetual usufruct rights are amortised over the period for which the right was granted, The cost of network includes design and construction costs, as well as capacity improvement costs. The total cost not exceeding 99 years. of an asset is allocated among its different components and each component is accounted for separately when the components have different useful lives or when the pattern in which their future economic benefits are expected These useful lives are reviewed annually and are adjusted if current estimated useful lives are different from previous estimates. to be consumed by the entity varies. Depreciation is established for each component accordingly. These changes in accounting estimates are recognised prospectively.

Maintenance and repair costs (day to day costs of servicing) are expensed as incurred. 30.15. Non-current assets held for sale

Investment grants Non-current assets held for sale are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than continuing use. Those assets are available for immediate sale in their present condition subject only to The Group may receive grants from the government or the European Union for funding of capital projects. These terms that are usual and customary for sales of such assets and the sale is highly probable. grants are deducted from the cost of the related assets and recognised in the income statement, as a reduction of depreciation, based on the pattern in which the related asset’s expected future economic benefits are consumed. Non-current assets held for sale are measured at the lower of carrying amount and estimated fair value less costs to sell and are presented in a separate line in the statement of financial position if IFRS 5 requirements are met.

Orange Polska Integrated Report - 186 187 - Orange Polska Integrated Report Recognition and measurement of financial assets Those assets are no longer depreciated. If fair value less costs to sell is less than its carrying amount, an impairment loss is recognised in the amount of the difference. In subsequent periods, if fair value less costs to sell increases When financial assets are recognised initially, they are measured at fair value plus, in the case of investments the impairment loss is reversed up to the amount of losses previously recognised. not at fair value through profit or loss, directly attributable transaction costs.

30.16. Impairment tests and Cash Generating Units A regular way purchase or sale of financial assets is recognised using settlement date accounting.

Given the nature of Group’s assets and operations, most of its individual assets do not generate cash inflows independently from Loans and receivables other assets. As at 31 December 2016 the Group identified a single major CGU (see Note 8.1). For the purpose of impairment Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted testing the Group allocates the whole goodwill to this CGU. in an active market and include trade receivables and cash and cash equivalents. They are carried in the statement of financial position under “Trade receivables” and “Cash and cash equivalents”. In accordance with IFRS 3 “Business Combinations”, goodwill is not amortised but is tested for impairment at least once a year or more frequently when there is an indication that it may be impaired. IAS 36 “Impairment of Assets” requires these tests to be Cash and cash equivalents consist of cash in bank and on hand, cash deposits with Orange S.A. under the Cash Management performed at the level of the cash generating unit (CGU). Treasury Agreement and other highly-liquid instruments that are readily convertible into known amounts of cash and are subject CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED to insignificant changes in value. Recoverable amount Loans and receivables are recognised initially at fair value plus directly attributable transaction costs and are subsequently To determine whether an impairment loss should be recognised, the carrying value of the assets and liabilities measured at amortised cost using the effective interest method. of the CGU, including allocated goodwill, is compared to its recoverable amount. The recoverable amount of a CGU is the higher of its fair value less costs to sell and its value in use. At the end of the reporting period, the Group assesses whether there is any objective evidence that loans or receivables are impaired. If any such evidence exists, the asset's recoverable amount is calculated. Fair value less costs to sell is the best estimate of the amount realisable from the sale of a CGU in an arm’s length If the recoverable amount is less than the asset's book value, an impairment loss is recognised in the income statement. transaction between knowledgeable, willing parties, less the costs of disposal. This estimate is determined Trade receivables that are homogenous and share similar credit risk characteristics are tested for impairment on the basis of available market information taking into account specific circumstances. collectively. When estimating the expected credit risk the Group uses historical data as a measure for a decrease in the estimated future cash flows from the group of assets since the initial recognition. In calculating the Value in use is the present value of the future cash flows expected to be derived from the CGU, including goodwill. Cash flow recoverable amount of receivables that are individually material and not homogenous, significant financial difficulties projections are based on economic and regulatory assumptions, telecommunications licences renewal assumptions and forecast of the debtor or probability that the debtor will enter bankruptcy or financial reorganisation are taken into account. trading conditions drawn up by the Group management, as follows: —cash flow projections are based on the business plan and its extrapolation to perpetuity by applying a growth rate Financial assets at fair value through profit or loss reflecting the expected long-term trend in the market, Financial assets at fair value through profit or loss include derivative assets not designated as hedging instruments as set out in —the cash flows obtained are discounted using appropriate rates for the type of business concerned. IAS 39. Financial assets classified in this category are measured at fair value.

If the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognised Recognition and measurement of financial liabilities in the amount of the difference. The impairment loss is firstly allocated to reduce the carrying amount of goodwill and then to the other assets of CGUs. Financial liabilities at amortised cost Financial liabilities measured at amortised cost include borrowings, trade payables and fixed assets payables, including the Goodwill impairment losses are recorded in the income statement as a deduction from operating income/loss telecommunications licence payables and are carried in the statement of financial position under “Trade payables”, “Loans from and are not reversed. related party” and “Other financial liabilities at amortised cost”.

30.17. Financial assets and liabilities Borrowings and other financial liabilities are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method. Financial assets are classified as assets at fair value through profit or loss, hedging derivative instruments and loans and receivables. Certain borrowings may be designated as being hedged by fair value hedges. Gain or loss on hedged borrowing attributable to a Financial liabilities are classified as financial liabilities at amortised cost, liabilities at fair value through profit or loss hedged risk adjusts the carrying amount of a borrowing and is recognised in the income statement. and hedging derivative instruments. Financial liabilities at fair value through profit or loss Financial assets and liabilities are recognised and measured in accordance with IAS 39 “Financial Instruments: Recognition and Financial liabilities at fair value through profit or loss include derivative liabilities not designated as hedging instruments as set out Measurement”. in IAS 39. Financial liabilities classified in this category are measured at fair value.

Recognition and measurement of derivative instruments

Orange Polska Integrated Report - 188 189 - Orange Polska Integrated Report 30.19. Income tax Derivative instruments are measured at fair value and presented in the statement of financial position as current or non-current according to their maturity. Derivatives are classified as financial assets and liabilities at fair value through profit The tax expense comprises current and deferred tax. or loss or as hedging derivatives. Current tax Derivatives classified as financial assets and liabilities at fair value through profit or loss Except for gains and losses on hedging instruments (as explained below), gains and losses arising from changes The current income tax charge is determined in accordance with the relevant tax law regulations in respect in fair value of derivatives are immediately recognised in the income statement. The interest rate component of the taxable profit. Income tax liabilities/assets represent the amounts expected to be paid to/received from and credit risk adjustment of derivatives held for trading are presented under interest expense and other financial charges within the tax authorities at the end of the reporting period. finance costs. The foreign exchange component of derivatives held for trading that economically hedge commercial or financial transactions is presented under foreign exchange gains or losses within other operating income / expense or finance costs, Deferred taxes respectively, depending on the nature of the underlying transaction. Deferred taxes are recognised for all temporary differences, as well as for unused tax losses. Deferred tax assets Hedging derivatives are recognised only when their recovery is considered probable. At the end of the reporting period unrecognised CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED Derivative instruments may be designated as fair value hedges or cash flow hedges: deferred tax assets are re-assessed. A previously unrecognised deferred tax asset is recognised to the extent that — a fair value hedge is a hedge of the exposure to changes in fair value of a recognised asset or liability it has become probable that future taxable profit will allow the deferred tax asset to be recovered. or an identified portion of the asset or liability, that is attributable to a particular risk – notably interest rate and currency risks – and could affect profit or loss, Deferred tax is not accounted for if it arises from the initial recognition of an asset or liability in a transaction that — a cash flow hedge is a hedge of the exposure to variability in cash flows that is attributable to a particular risk associated is not a business combination and at the time of the transaction, affects neither accounting nor taxable profit nor loss. with a recognised asset or liability or a highly probable forecast transaction (such as a future purchase or sale) and could affect profit or loss. Deferred tax assets and liabilities are not discounted. Deferred income tax is calculated using the enacted or substantially enacted tax rates at the end of the reporting period. The effects of applying hedge accounting are as follows: — for fair value hedges of existing assets and liabilities, the change in fair value of the hedged portion 30.20. Provisions of the asset or liability attributable to the hedged risk adjusts the carrying amount of the asset or liability in the statement of financial position. The gain or loss from the changes in fair value of the hedged item A provision is recognised when the Group has a present obligation towards a third party, which amount can and loss or gain from re-measuring the hedging instrument at fair value are recognised in profit or loss. be reliably estimated and it is probable that an outflow of resources embodying economic benefits will be required The adjustment to the hedged item is amortised fully by maturity of the hedged item starting from the date when a to settle the obligation. The obligation may be legal, regulatory or contractual or it may represent a constructive obligation deriving hedged item ceases to be adjusted by a change in fair value of the hedged portion of liability attributable to the risk from the Group's actions. hedged, — for cash flow hedges, the portion of the gain or loss on the hedging instrument that is determined The estimate of the amount of the provision corresponds to the expenditure likely to be incurred by the Group to be an effective hedge is recognised directly in other comprehensive income and the ineffective portion to settle its obligation. If a reliable estimate cannot be made of the amount of the obligation, no provision is recorded of the gain or loss on the hedging instrument is recognised in profit or loss. Amounts recognised directly and the obligation is deemed to be a “contingent liability”. in other comprehensive income are subsequently recognised in profit or loss in the same period or periods during which the hedged item affects profit or loss. If a hedge of a forecast transaction results Contingent liabilities – corresponding to (i) possible obligations that arise from past events and whose existence will in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously deferred in other be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within comprehensive income are transferred from other comprehensive income and included in the initial measurement of the Group's control, or (ii) to present obligations arising from past events that for which it is not probable the cost of the asset or liability. that an outflow of resources embodying economic benefits will be required to settle the obligation or because the amount of the obligation cannot be measured with sufficient reliability – are not recognised but disclosed where appropriate 30.18. Inventories in the notes to the Consolidated Financial Statements.

Inventories are stated at the lower of cost and net realisable value, except for mobile handsets or other terminals Provisions for dismantling and restoring sites sold in promotional offers. Inventories sold in promotional offers are stated at the lower of cost or net realisable value, taking into account future revenue expected from subscriptions. The Group provides for slow-moving The Group is required to dismantle equipment and restore sites. In accordance with paragraphs 36 and 37 of IAS or obsolete inventories based on inventory turnover ratios and current marketing plans. 37 “Provisions, Contingent Liabilities and Contingent Assets”, the provision is based on the best estimate of the amount required to settle the obligation. It is discounted by applying a discount rate that reflects the passage of time Cost corresponds to purchase or production cost determined by the weighted average cost method. Net realisable value is the and the risk specific to the liability. The amount of the provision is revised periodically and adjusted where appropriate, with a estimated selling price in the ordinary course of business, less selling expenses. corresponding entry to the asset to which it relates.

Orange Polska Integrated Report - 190 191 - Orange Polska Integrated Report 30.21. Pensions and other employee benefits Notes Certain employees of the Group are entitled to jubilee awards and retirement bonuses. Jubilee awards are paid to employees upon completion of a certain number of years of service whereas retirement bonuses represent one- off payments paid upon retirement in accordance with the Group’s remuneration policies. Both items vary according to the employee’s average remuneration and length of service. Jubilee awards and retirement bonuses are not funded. The Group is also obliged to provide certain post-employment benefits to some of its retired employees.

The cost of providing benefits mentioned above is determined separately for each plan using the projected unit credit actuarial valuation method. This method sees each period of service as giving rise to an additional unit of benefit entitlement and measures each unit separately to build up the final obligation which is then discounted. The calculation is based on demographic assumptions concerning retirement age, staff turnover rates, and financial assumptions concerning rates of future salary increases, future interest rates (to determine the discount rate). CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED Actuarial gains and losses on jubilee awards plans are recognised as income or expense when they occur. Actuarial gains and losses on post-employment benefits are recognised immediately in their total amount in the other comprehensive income. The present value of the defined benefit obligations is verified at least annually by an independent actuary. Demographic and attrition profiles are based on historical data.

Benefits falling due more than 12 months after the end of the reporting period are discounted using a discount rate determined by reference to market yields on Polish government bonds.

The Group recognises termination benefits, which are provided in exchange for the termination of an employee’s employment as a result of either: — the Group’s decision to terminate an employee’s employment before the normal retirement date; or — an employee’s decision to accept an offer of benefits in exchange for the voluntary termination of employment.

Termination benefits are provided for when the Group terminates the employment or when the Group has offered to its employees benefits in exchange for voluntary termination of employment. Based on the past practice such offers are considered as constructive obligations and accounted for if it is probable that benefits will be paid out and they might be reliably measured. The basis for calculation of the provision for voluntary employment termination is expected payment dates and the estimated number, remuneration and service period of employees who will accept the voluntary termination.

In addition to post-employment and other long-term employee benefits, the Group also provides to its current and retired employees certain non-monetary benefits, including subsidised telecommunication services. In absence of specific guidance under IFRS, the Group’s policy is to value such employee benefits at their incremental cost net of related revenue generated from the service.

30.22. Share-based payments

OPL S.A. and Orange S.A. used to operate an equity-settled, share-based compensation plans under which employees rendered services to the Company and its subsidiaries as consideration for equity instruments of OPL S.A. or Orange S.A. The fair value of the employee services received in exchange for the grant of the equity instruments was recognised as an expense in prior periods, with a corresponding increase in equity, over the period in which the service conditions were fulfilled (vesting period).

The fair value of the employee services received was measured by reference to the fair value of the equity instruments at the grant date.

Orange Polska Integrated Report - 192 193 - Orange Polska Integrated Report 1. Goodwill impairment analysis INDEPENDENT AUDITOR’S REPORT Why the matter was determined to be a key audit matter How the key audit matter was addressed in the audit To the General Meeting and Supervisory Board of Orange Polska S.A. Under IFRS, the Group is required to annually test the We have gained understanding of the goodwill impairment amount of goodwill for impairment. calculation process, performed a walkthrough of the process and we evaluated the management’s identification Opinion This annual impairment test was significant to our audit of the CGU and reviewed the impairment test. We have audited the accompanying consolidated financial statements of Orange Polska Group (the “Group”) for because of the balance of goodwill, which is significant to the financial statements. Management assessment Our procedures included challenging management on the the year ended 31 December 2016, in which the parent company is Orange Polska S.A. (the “Company”) located process is based on significant judgments, assumptions suitability of the impairment model and its assumptions, in Warsaw at Al. Jerozolimskie 160, containing the consolidated statement of financial position as at 31 December and estimates such as those underlying Group’s strategy, with particular attention paid to the following: . 2016, the consolidated income statement, the consolidated statement of comprehensive income, consolidated future revenue streams, costs and operating cash • benchmarking key assumptions in management’s statement of changes in equity and consolidated statement of cash flows for the period from 1 January 2016 flows, WACC and perpetuity growth rate (PGR), which valuation models with industry range and market to 31 December 2016 and additional information to the consolidated financial statements, including a summary of significant are affected by expected future market or economic expectations including revenue, cost and margin trends, accounting policies (the “accompanying consolidated financial statements”). conditions. capital expenditure on network assets and spectrum, market share and customer churn and discount rates, In 2016, the Group has updated its strategic plan and against external data, where available; FINANCIAL STATEMENTS CONSOLIDATED In our opinion, the accompanying consolidated financial statements: its financial forecasts. As a result of the decrease of • testing the mathematical accuracy of the cash flow – give a true and fair view of the financial position of the Group as at 31 December 2016 and its financial performance the planned future cash flows and the adoption of a higher discount rate, an impairment charge of 1.8 billion models and agreeing relevant data to Board approved and its cash flows for the year from 1 January 2016 to 31 December 2016 in accordance with International zlotys was recognized. The impairment charge was fully forecasts; Accounting Standards, International Financial Reporting Standards and related interpretations announced allocated towards goodwill, which decreased its value as • assessing the reliability of management’s forecast in the form of regulations of the European Commission (“International Financial Reporting Standards as adopted by the EU”, presented in the statement of financial position from 3.9 through a review of actual performance against previous “IFRS”), and other applicable laws and the adopted accounting policies, billion zlotys to 2.1 billion zlotys. forecasts; – are in respect of the form and content in accordance with legal regulations governing the preparation • comparing both the WACC and PGR applied to the of consolidated financial statements. Reference to related disclosures in the financial statements market range and discussing those with our valuation specialists; The Group’s disclosures about identification of CGU Basis for Opinion and goodwill impairment test are included in Note 8. • assessing the sufficiency of the sensitivity analysis We conducted our audit in accordance with chapter 7 of the Accounting Act dated 29 September 1994 “Impairment”, which specifically explains the main performed by the management and performing further (the “Accounting Act”), National Auditing Standards in the form of the International Standards on Auditing assumptions and results of the test together with a sensitivity analyses, primarily focused on changes in as adopted by Resolution no 2783/52/2015 of the National Council of Statutory Auditors dated 10 February sensitivity analysis. operating cash flows; 2015 with subsequent amendments and International Standards on Auditing (jointly: the “Standards”). Our • assessing the sufficiency of the disclosures made in the responsibilities under these standards are further described in the Auditor’s Responsibilities section of our report. financial statements describing the impairment test and We are independent of the Group in accordance with article 56 paragraph 3 and 4 of Act on statutory auditors sensitivity analysis. and their self-governance, audit firms authorized to audit financial statements and public oversight dated 7 May 2009 and Code of Ethics for Professional Accountants (the “IFAC Code”) as stated in Communique no 4249/60/2011 of National Council of Statutory Auditors dated 13 June 2011 regarding the rules of professional ethics for Statutory Auditors, 2. Deferred tax assets and we have fulfilled our other ethical responsibilities in accordance with the IFAC Code. Why the matter was determined to be a key audit matter How the key audit matter was addressed in the audit We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. The Group performed detailed analysis of the deferred We have gained understanding of the deferred tax tax assets (“DTA”) recoverability as at 31 December calculation process, performed a walkthrough of the Key Audit Matters 2016. This matter was significant to our audit because process and evaluated the design of, and tested the Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated the balance of the DTA of PLN 929 million as of 31 controls over, the process relating to deferred tax financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial December 2016 is significant to the financial statements. calculation. statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition, management’s assessment process is based We have analyzed the assumptions underlying the on assumptions, specifically the timing and amount of the recognition and measurement of deferred tax assets. future taxable profits, against which deductible temporary Our procedures included the review of the deferred tax differences and tax losses carried forward can be utilized. assets utilization model and have been aligned with our analysis of impairment test, as the deferred tax assets Reference to related disclosures in the financial statements recoverability depends mainly on successful realization of the Board approved forecasts. The Group’s disclosures on deferred tax and related significant assumptions are included in Note 23.2 “Deferred tax”.

Orange Polska Integrated Report - 194 195 - Orange Polska Integrated Report 3. Litigations, claims and contingent 5. Estimated economic useful life for liabilities certain network assets

Why the matter was determined to be a key audit matter How the key audit matter was addressed in the audit Why the matter was determined to be a key audit matter How the key audit matter was addressed in the audit The Group is subject to number of significant claims and We have performed the following audit procedures to be The useful lives are reviewed annually and are adjusted if We have gained an understanding of the intangible and litigations. Major risk identified by the Group in that area responsive to this area: current estimated useful lives are different from previous tangible fixed assets process, performed a walkthrough estimates. The Group extended the estimated useful of the process and evaluated the design of, and tested relate to anti-monopoly proceedings, compliance with • we have gained understanding of the litigation, lives for certain network assets in 2016. As a result, the controls over the process relating to intangible and regulatory requirements or customer protection. The claims and contingent liabilities process, performed a depreciation expense in 2016 relating to these assets is tangible fixed assets. amounts of claims may be significant and estimates of the walkthrough of the process and evaluated the design lower by PLN 301 million than in 2015. amounts of provisions or contingent liabilities are subject of, and tested the controls over the process relating to We have discussed and evaluated the change in EUL to significant management judgement. provisions; These matters were significant to our audit since they and confirmed with the Company’s Management that the involve material amounts and significant management analysis and the assessment of extended useful lives for • we have analysed with the Company’s Legal Department judgement. certain items of fixed assets represents the Management’s Reference to related disclosures in the financial statements material legal cases; best estimate in that respect and that based on the The Group’s disclosures on the status of claims and • circularisation of legal letters to relevant third party legal analysis, the technical condition of fixed assets justifies proceedings are included in Note 27. “Litigations, claims representatives and an analysis of obtained responses Reference to related disclosures in the financial statements the extension of their economic useful lives. FINANCIAL STATEMENTS CONSOLIDATED and contingent liabilities”. to the inquiries; The Group’s disclosures on the EUL change made is We also found that the revised asset lives are consistent • discussing with EY independent legal specialist included in Note 11 “Property, plant and equipment”. with those commonly used in the industry and that the regarding selected legal cases; economic circumstances, including the impact of the • our audit procedures included analysis of assessment forecasted technological developments, exist that justify of contingent liabilities and changes in provisions for their current economic useful life by considering our claims and litigations which are on a quarterly basis knowledge of the business and practice in the wider submitted to the Audit Committee for review. telecoms industry. We also tested whether approved EUL were appropriately recognised in the fixed asset register. 4. Accuracy of revenue recognition

Why the matter was determined to be a key audit matter How the key audit matter was addressed in the audit The accuracy of revenue amounts recorded is an inherent We have gained an understanding of the revenue industry risk. This is because telecoms billing systems recognition process, performed a walkthrough of the Responsibilities of the Company’s Management and members of the Supervisory Board for the consolidated financial statements are complex and process large volumes of data with a process and evaluated the design of, and tested the The Company’s Management is responsible, in accordance with the Accounting Act and regulations issued on the basis of the combination of different products sold and price changes controls over the process relating to revenue recognition Accounting Act, for the preparation and fair presentation of the consolidated financial statements in accordance with International in the year, through a number of different systems. process. Financial Reporting Standards as adopted by the EU and other applicable laws, and for such internal control as management Furthermore, the application of revenue recognition Our approach included both controls testing and determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, accounting standards is complex and involves a number substantive procedures covering, among others: whether due to fraud or error. In addition, the Company’s Management and the members of the Supervisory Board are required of key judgements and estimates. • review of the revenue recognition accounting policies, to ensure that the accompanying consolidated financial statements meet the requirements of the Accounting Act. significant judgments and estimates;

Reference to related disclosures in the financial statements • evaluation of relevant IT systems; In preparing the consolidated financial statements, the Company’s Management is responsible for assessing of the Group’s ability The Group’s disclosures on revenue are included in Note • capture and recording of revenue transactions; to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis 5 “Revenue”. • authorisation of rate changes and the input of this of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative information to the billing systems; but to do so. • comparing revenue to the billing data; The members of the Supervisory Board are responsible for overseeing the Group’s financial reporting process. • comparing the revenue accruals to actual data traffic available after month closing; Auditor’s Responsibilities We are responsible for the expressing of an opinion on the accompanying consolidated financial statements based on the • we also tested a sample of customer bills and checked these to cash received from customers. performed audit. Our testing included customer bills for consumers, corporate and wholesale customers. Our objective is to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

Orange Polska Integrated Report - 196 197 - Orange Polska Integrated Report As part of an audit in accordance with the Standards, we exercise professional judgment and maintain professional skepticism Report on Other Legal and Regulatory Requirements throughout the audit. We also:  Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and Opinion on the Directors’ Report perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a Our opinion on the consolidated financial statements does not include the Directors’ Report. basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. The Company’s Management is responsible for preparation of the Directors’ Report in accordance with the Accounting Act and  Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the other applicable laws. In addition, the Company’s Management and members of the Supervisory Board are required to ensure that circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. the Directors’ Report of the Orange Polska Capital Group and of the Company (the “Director’s Report”) meets the requirements  Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures of the Accounting Act. made by the Company’s Management.  Conclude on the appropriateness of the Company’s Management’s use of the going concern basis of accounting and, based In connection with the audit of the consolidated financial statements, our responsibility was to read the content of the Directors’ on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant Report and consider whether the information contained in it take into account the provisions of art. 49 of the Accounting Act and doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to the Decree of the Minister of Finance dated 19 February 2009 on current and periodic information published by issuers of securities CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, and conditions for recognition as equivalent the information required by laws of non-EU member states (the “decree on current to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, and periodic information”), and whether they are consistent with the information contained in the accompanying consolidated future events or conditions may cause the Group to cease to continue as a going concern. financial statements. Our responsibility was also to consider, based on our knowledge of the Group and its environment obtained  Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the during the audit of the consolidated financial statements, whether the Directors’ Report does not include material misstatements. financial statements represent the underlying transactions and events in a manner that achieves fair presentation.  Obtain sufficient and appropriate audit evidence in relation to the financial information of the entities comprising the Group in We have concluded that the information included in the Directors’ Report corresponds with the relevant regulations of art. 49 of order to express an opinion on the consolidated financial statements. We are responsible for the management, oversight and the Accounting Act and the decree on current and periodic information and that the information derived from the accompanying execution of the audit of the Group. We are fully responsible for our audit opinion. financial statements reconciles with the Directors’ Report. Based on our knowledge of the Group and its environment obtained during the audit of the financial statements, we have not identified material misstatements in the Directors’ Report. We communicate with the members of the Supervisory Board regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. In connection with the conducted audit of the consolidated financial statements, our responsibility was also to read the Company’s representation on application of corporate governance which constitutes a separate part of the Directors’ Report. We concluded We also provide the members of the Supervisory Board with a statement that we have complied with relevant ethical requirements that in the representation the Company included information required by implementing rules issued under art. 60 para. 2 of the Act regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to of 29 July 2005 on public offering and on the terms of introducing financial instruments into an organised trading system and on bear on our independence, and where applicable, related safeguards. public companies or in the regulations issued based on art. 61 of this act. This information is, in all material respects, in accordance with applicable regulations and with the information included in the consolidated financial statements. From the matters communicated with the members of the Supervisory Board, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely on behalf of: rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences Ernst & Young Audyt Polska spółka of doing so would reasonably be expected to outweigh the public interest benefits of such communication. z ograniczoną odpowiedzialnością sp. k. Rondo ONZ 1, 00-124 Warsaw Reg. No 130 In accordance with ISA 320.5 the concept of materiality is applied by the auditor both in planning and performing the audit, and in evaluating the effect of identified misstatements on the audit and of uncorrected misstatements, if any, on the consolidated Key Certified Auditor Partner financial statements and in forming the opinion in the auditor’s report. Hence all auditor’s assertions/statements contained in the auditor’s report, including those on other information or regulatory requirements, are made with the contemplation of the qualitative and quantitative materiality levels established in accordance with ISAs and auditor’s professional judgement. Łukasz Piotrowski Mikołaj Rytel certified auditor No. 12390

Warsaw, 13 February 2017

Orange Polska Integrated Report - 198 199 - Orange Polska Integrated Report Adjustments 10 and revisions

Orange Polska Integrated Report - 200 201 - Orange Polska Integrated Report 10 Adjustments and revisions

Adjustments and revisions

(in PLN millions) FY’15 FY’16 Revenue 11,840 11,538 – Revenue of Contact Center -14 - Adjusted revenue 11,826 11,538

EBITDA 3,431 3,163 ADJUSTMENTS AND REVISIONS – EBITDA of Contact Center -4 - – Employment termination expense net of related 90 - curtailment of long-term employee benefits Adjusted EBITDA 3,517 3,163 Capital expenditures 1,998 5,169 – acquisition of telecommunications licences - -3,168 Adjusted capital expenditures 1,998 2,001 Organic cash flow 962 -2,528 – LTE auction deposits / Acquisition of LTE spectrum - 3,148 Adjusted organic cash flow 962 620

Impact of customer base revision (as reported along with 3Q 2016 results)

Customer base revision resulted from internal audit of the accuracy of the reporting processes. These processes have been amended to ensure the correctness of the reporting going forward. This revision has no impact on revenues.

effect of net change customer base (in thousands) 2Q2016 base of customers 3Q2016 revision in 3Q Convergent customers 799 0 38 837

Fixed telephony accesses POTS, ISDN & WLL 3,415 -1 -77 3,337 VoIP 644 -2 9 651 Total retail main lines 4,059 -3 -68 3,988

Fixed broadband access ADSL 1,613 -5 -46 1,562 VHBB (VDSL+Fibre) 409 -17 44 436 o/w VDSL 370 -17 26 379 o/w Fibre 39 0 18 57 CDMA 35 0 -8 27 Retail broadband - total 2,057 -22 -10 2,025

TV client base IPTV 213 -15 16 214 DTH (TV over Satellite) 590 -32 -10 548 TV client base - total 803 -46 4 761 -o/w 'nc+' packages 194 0 0 194

3P services (TV+FBB+VoIP) 547 -34 14 527

Mobile accesses Post-paid 8,798 -22 309 9,085 -o/w B2B 2,817 0 76 2,893 Pre-paid 7,898 11 -600 7,309 Total 16,696 -12 -290 16,394 – of which dedicated mobile broadband 2,473 0 142 2,615 accesses

Orange Polska Integrated Report - 202 11 GRI table

Orange Polska Integrated Report - 204 205 - Orange Polska Integrated Report 11 GRI INDEX TABLE GRI Index Table GRI Index Table GRI TABLE

Reference to other External Reference to other External Disclosure Title of the disclosure Reference Disclosure Title of the disclosure Reference CSR indicators assurance CSR indicators assurance

Strategy and Analysis The list memberships of associations (such as industry A statement from the most senior decision-maker G4-16 associations) and national or international advocacy of the organization about the relevance of sustainability organizations G4-1 pp. 48-49 to the organization and the organization’s strategy Domestic organisations: - Employers of the Republic of Poland - Polish Confederation Lewiatan - The Polish Chamber for addressing sustainability of Information Technology and Telecommunications - French-Polish Chamber of Commerce - American Chamber of Commerce - Responsible Business Forum - Business Centre Club - Foundation for the Development of Radiocommunications and Multimedia G4-2 A description of key impacts, risks, and opportunities pp. 84-87 Technologies - Association of Stock-Exchange Issuers Organizational Profile Foreign organisations: - Baltic Sea Cable Maintenance Agreement (BSCMA) - Civil Communications Planning Committee North Atlantic Treaty Organization (CCPC NATO) - Clearcom - European Network Planning Meeting (ENPM) - European Telecommunications G4-3 The name of the organization p. 10 Network Operators' Association (ETNO) - Forum for International Irregular Network Access (FIINA) - Global Compact - Global Settlements Carrier Group (GSCG) - Global Signaling and Inter-working Forum - International Cable Protection Committee G4-4 The primary brands, products, and services pp. 23, 32 (ICPC) - International Inbound Services Forum (IISF) - International Telecommunication Union (ITU) - RIPE Network Coordination G4-5 The location of the organization’s headquarters p. 144 Centre (RIPE NCC) - TeleManagement Forum (TM Forum) - Forum of Incidents Response and Secutiry Teams (FIRST) – One Stop The number of countries where the organization operates, Shopping/Inter – Carrier Data Services Forum - GSM Association (GSMA) - European Internet Exchange Association (Euro-IX) ), and names of countries where either the organization has Trans-European Research and Education Networking Association (TERENA) G4-6 p. 10 significant operations or that are specifically relevant Identified Material Aspects and Boundaries to the sustainability topics covered in the report List all entities included in the organization’s consolidated G4-17 p. 6 G4-7 The nature of ownership and legal form p. 10-11 financial statements or equivalent documents The markets served (including geographic breakdown, Explain the process for defining the report content G4-8 p. 11 G4-18 p. 6 sectors served, and types of customers and beneficiaries) and the Aspect Boundaries List all the material Aspects identified in the process G4-9 The scale of the organization p. 11 G4-19 p. 22-25 The total number of employees by employment contract for defining report content and gender, the total number of permanent employees For each material Aspect, report the Aspect Boundary within Attachment A. G4-20 p. 43 G4-10 by employment type and gender, the total workforce UNGC the organization Social Data by employees and supervised workers and by gender, For each material Aspect, report the Aspect Boundary G4-21 p. 36-42 the total workforce by region and gender outside the organization The percentage of total employees covered by collective G4-11 OECD/UNGC 97.7% There were no bargaining agreements The effect of any restatements of information provided restatements of G4-22 G4-12 The organization’s supply chain in previous reports, and the reasons for such restatements. information in pre- vious reports. We want our relations with suppliers and business partners to be based on transparent principles and mutual obligation to abide The significant changes from previous reporting periods No significant by ethical standards. We want to build good and long-term relations with our suppliers. G4-23 in the Scope and Aspect Boundaries changes Supplier Assessment Stakeholder Engagement We take active part in the implementation of the Orange Group’s global supplier assessment programme, QREDIC. The results Provide a list of stakeholder groups engaged of the assessment are used in a process of negotiations and selection of suppliers on the global level, e.g. for subscriber devices G4-24 pp. 14-15 or network equipment purchases. A definitely negative assessment with respect to compliance with ethical and environmental by the organization standards disqualifies the supplier. Report the basis for identification and selection G4-25 pp. 14-15 On the global level, Orange has also joined the Joint Audit Cooperation (JAC) with other operators. The initiative aims at ensuring of stakeholders with whom to engage compliance with ethical, environmental and health & safety standards as well as ban on child labour across common suppliers. Report the organization’s approach to stakeholder In 2016, a total of 69 audits were conducted within the JAC framework. engagement, including frequency of engagement by type Local suppliers are required to comply with the compliance clause, which is included in agreements with our company. G4-26 and bystakeholder group, and an indication of whether any pp. 14-15 The clause includes an obligation to comply with ethical and responsible conduct rules, particularly concerning human rights, of the engagement was undertaken specifically as part environmental protection, sustainable development and anti-corruption. In addition, the anti-corruption clause is included of the reportpreparation process in all purchase agreements. Report key topics and concerns that have been raised Building long-standing relations with suppliers through stakeholder engagement, and how the organization G4-27 hasresponded to those key topics and concerns, including pp. 14-15 In 2016, we co-operated with 4,500 suppliers in Poland, mainly, by value of purchases, subscriber and network equipment through its reporting. Report the stakeholder groups that suppliers, network contractors, IT equipment suppliers, personnel outsourcing agencies and media houses. We strive to build raised eachof the key topics and concerns our relations with suppliers on the basis of long-term contracts providing for transparent terms of co-operation. Over 97.9% of purchases (by value) are effected under long-term agreements. We gradually work on effecting all payments to suppliers Report Profile in due time. The timely payment rate is 89% (up 3 pp. vs. 2015). The standard term of payment to suppliers is up to 30 days. Period (such as fiscal or calendar year) for information G4-28 p. 6 Transparent supplier selection process provided We follow a competitive and open procurement policy, which provides for direct electronic placement of orders with suppliers. G4-29 Date of most recent previous report (if any) p. 6 Currently, over 80% of orders (by volume) are placed in the electronic form. Suppliers who want to co-operate with Orange can G4-30 Reporting cycle (such as annual, biennial) p. 6 register in a database of potential suppliers and thus participate in the procurement processes initiated by Orange. Provide the contact point for questions regarding the report G4-31 p. 221 Transparency of the supplier selection process is ensured by the Procurement Process Code. It is a set of rules, which should or its contents be followed by all procurement organisation employees in their direct and indirect contacts with suppliers. The Code includes G4-32 Report the GRI Content Index p. 206-212 procurement procedures which transparently regulate supplier selection, contracting and confidentiality. Report the organization’s policy and current practice In 2016, we held training for the purchase organisation employees in corporate social responsibility in the procurement process. G4-33 p. 216-217 with regard to seeking external assurance for the report. Any significant changes during the reporting period No significant G4-13 regarding the organization’s size, structure, ownership, changes Governance or its supply chain in reporting. The governance structure of the organization, including committees of the highest governance body. Identify pp. 108, 112, The list externally developed economic, environmental G4-34 G4-15 and social charters, principles, or other initiatives to which anycommittees responsible for decision-making 119, 126 the organization subscribes or which it endorses on economic, environmental and social impacts. Broad Alliance on Digital Skills in Poland, Memorandum of Co-operation for Improving Service Quality in the Telecommunications The highest governance body’s role in reviewing Market, Cell Phone Safety Good Practises, Alliance for Child Safety On-line (www.orange.pl/kodeksy.phtml), Global Compact G4-46 the effectiveness of the organization’s risk management pp. 119, 125, 128 (www.ungc.org.pl/o-nas/obszary-dzialan/), Partnership for Environment (www.gridw.pl/partnerstwo) processes foreconomic, environmental and social topics.

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Reference to other External Reference to other External Disclosure Title of the disclosure Reference Disclosure Title of the disclosure Reference CSR indicators assurance CSR indicators assurance

The frequency of the highest governance body’s review Extent of impact mitigation of environmental impacts pp. 114, 115, G4-EN27 pp. 70, 72 G4-47 of economic, environmental and social impacts, risks, of products and services 120, 126 andopportunities. Percentage of products sold and their packaging materials G4-EN28 pp. 70, 72 Ethics and Integrity that are reclaimed by category The organization’s values, principles, standards and norms Aspect: Compliance G4-56 p. 10 of behavior such as codes of conduct and codes of ethics. DMA: Compliance The internal and external mechanisms for seeking advice Monetary value of significant fines and total number of non- G4-57 on ethical and lawful behavior, and matters related p. 120 G4-EN29 monetary sanctions for non-compliance with environmental to organizational integrity, such as helplines or advice lines. laws and regulations The internal and external mechanisms for reporting No fines for non-compliance with environmental laws and regulations were imposed in 2016. concerns about unethical or unlawful behavior, and matters G4-58 p. 120 relatedto organizational integrity, such as escalation through Aspect: Environmental Grievance Mechanisms line management, whistleblowing mechanisms or hotlines. DMA: Environmental Grievance Mechanism CATEGORY: ECONOMIC Number of grievances about environmental impacts filed, Aspect: Economic Performance OECD G4-EN34 addressed, and resolved through formal grievance mechanisms DMA: Economic Performance In 2016 no complaints about environmental impact were received by Orange Polska. G4-EC1 Direct economic value generated and distributed CATEGORY: SOCIAL In 2016, Orange Polska donated a total of PLN 13.31m for social initiatives. For Information about sponsoring policy see LABOR PRACTICES AND DECENT WORK OECD/UNGC the Management Board's Report 2016, p. Aspect: Employment Aspect: Market Presence DMA: Employment DMA: Market Presence Total number and rates of new employee hires Attachment Ratios of standard entry level wage compared to local G4-LA1 G4 - EC5 147% * and employee turnover by age group, gender, and region A. Social Data minimum wage at significant locations of operation Benefits provided to full-time employees that are not * For Orange Polska alone G4-LA2 provided to temporary or part-time employees, Aspect: Indirect Economic Impacts by significant locations of operation DMA: Indirect Economic Impacts Orange Polska ensures safe and friendly working conditions for its employees: • Orange Polska employees are offered broad medical services at Lux Med Group and CM LIM clinics and partner medical Development and impact of infrastructure investments G4-EC7 pp. 72-73 facilities. and services supported Significant indirect economic impacts, including the extent • Orange Polska’s employees are eligible for participation in the Employee Retirement Plan. G4-EC8 pp. 72-73 of impacts • Orange Polska has the Company Social Benefits Fund as a means of social welfare addressed to employees and retired CATEGORY: ENVIRONMENTAL OECD/UNGC employees in need. • Employees can use the Central Housing/Welfare/Sports, Tourism and Culture Funds. Aspect: Materials • If the company’s aid is insufficient, Orange Polska’s employees are eligible for assistance by the Orange Foundation under DMA: Materials the ‘Support One Another’ programme. Attachment • Orange Polska’s employees and their families are offered discounts by the company’s partners as well as discounts for Orange G4-EN1 Materials used by weight or volume B. Environmental products and services in the ‘Offer for You’ programme. Data • Employees are also eligible for financing of sports, tourist and cultural events from the Central Sports, Tourism and Culture Aspect: Energy Fund They can also use FitProfit cards. DMA: Energy Both full-time and part-time employees are eligible for all the aforementioned benefits. Employees working under a fixed-term employment contract are eligible for health care and promotional offers, but are not eligible for benefits that require long-term Attachment commitments, such as the Central Welfare Fund or the Employee Retirement Plan. G4-EN3 Energy consumption within the organization B. Environmental Data Aspect: Occupational Health and Safety OECD Attachment DMA: Occupational Health and Safety G4-EN6 Reduction of energy consumption B. Environmental Percentage of total workforce represented in formal joint Data management–worker health and safety committees that G4-LA5 100% G4-EN7 Reductions in energy requirements of products and services p. 72 help monitor and advise on occupational health and safety Aspect: Emissions programs Type of injury and rates of injury, occupational diseases, lost DMA: Emissions Attachment G4-LA6 days, and absenteeism, and total number of work-related A. Social Data Attachment fatalities, by region and by gender G4-EN16 Energy indirect greenhouse gas (GHG) emissions B. Environmental Workers with high incidence or high risk of diseases related G4-LA7 Data to their occupation G4-EN19 Reduction of greenhouse gas (GHG) emissions p. 72 There are no positions involving high incidence or high risk of occupation-related diseases. Aspect: Effluents and Waste Health and safety topics covered in formal agreements G4-LA8 DMA: Effluents and Waste with trade unions Attachment Health and safety topics have been covered in the Group Collective Labour Agreement. G4-EN23 Total weight of waste by type and disposal method B. Environmental Aspect: Training and Education OECD Data DMA:Training and Education Aspect: Products and Services Average hours of training per year per employee by gender, Attachment G4-LA9 and by employee category A. Social Data

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Reference to other External Reference to other External Disclosure Title of the disclosure Reference Disclosure Title of the disclosure Reference CSR indicators assurance CSR indicators assurance

Percentage of employees receiving regular performance Aspect: Anti-competitive Behavior OECD G4-LA11 and career development reviews, by gender and by employee p. 76 DMA:Anti-competitive Behavior category Total number of legal actions for anti-competitive behavior, Aspect: Equal Remuneration for Women and Men G4-SO7 anti-trust, and monopoly practices and their outcomes DMA: Equal Remuneration for Women and Men No legal actions for anti-competitive behaviour or anti-trust or monopoly practices were instituted against Orange Polska in 2016. Ratio of basic salary and remuneration of women to men Attachment G4-LA13 Aspect: Compliance OECD by employee category, by significant locations of operation A. Social Data DMA: Compliance HUMAN RIGHTS OECD/UNGC Monetary value of significant fines and total number Aspect: Investment G4-SO8 of non-monetary sanctions for non-compliance with laws DMA: Investment (as related to human rights) and regulations Total hours of employee training on human rights policies No fines were imposed or final and binding rulings concerning significant fines were made in 2016. or procedures concerning aspects of human rights that are G4-HR2 PRODUCT RESPONSIBILITY OECD relevant to operations, including the percentage of employ- ees trained Aspect: Customer Health and Safety OECD In 2016, a total of 280 of Orange Polska’s employees, or 1.82% of the total workforce, completed ethical training: “Orange ethics: DMA: Customer Health and Safety do you know how to act?” (241 hrs), which included information of human rights policies. Percentage of significant product and service categories G4-PR1 for which health and safety impacts are assessed Aspect: Non-discrimination OECD/UNGC 100% for improvement DMA: Non-discrimination All mobile phones in Orange Polska’s portfolio meet the emission standards specified by the International Commission on Non-Ion- No such incidents izing Radiation Protection (ICNIRP). We ensure they are thoroughly tested and the safety of their use is verified in the process of were reported Total number of incidents of discrimination and corrective examining their conformity with essential requirements. All mobile devices in Orange Polska’s portfolio are safe for users’ health and G4-HR3 to the Ethics actions are accompanied by information on the Specific Absorption Rate (SAR), which is always lower than the official limits (below 2 W/kg). Committee SAR for mobile phones refers to the maximum level of radio waves that the user can be exposed to during a call. SAR values can in 2016. be found in the user manual (technical specifications), which is provided by the manufacturer, or in handset descriptions at www. Aspect: Child Labor OECD/UNGC orange.pl. Operations and suppliers identified as having significant Base stations No such risk was G4-HR5 risk for incidents of child labor, and measures taken identified. Orange Polska uses proven wireless communication technologies that are safe to all users. The company complies with all Euro- to contribute to the effective abolition of child labor pean and, much stricter, Polish standards regarding electromagnetic field (EMF) emissions. EMF exposure around all of our base Aspect: Human Rights Grievance Mechanisms transceiver stations (BTSs) and broadcasting stations does not exceed the limit set forth in Polish regulations, that is 0.1 W/m2 in Number of grievances about human rights impacts filed, No human rights areas accessible to the public. G4-HR12 addressed, and resolved through formal grievance greviances were We comply with All the strictest standards on EMF values around all our base and broadcasting stations. As a result of technical ef- mechanisms filed. forts related to protection against EMF emissions by BTSs of radio communication facilities developed or operated on our networks, we can ensure compliance with the standards specified in the Regulation of the Minister of Environment regarding permissible EMF SOCIETY values in the environment and methods of verification thereof (Journal of Law No. 192 of 2003, item 1882/83). Aspect: Local Communities OECD/UNGC This is ensured through the following: DMA: Local Communities • Development of the relevant estimates of EMF impact on the environment at the planning stage of BTS construction or moderni- Operations with significant actual or potential negative sation projects; G4-SO2 impacts on local communities • EMF measurements vs. permissible limits, which are subsequently reported to the environmental protection bodies, which decide In case of a telecommunications company, issues related to the safe use of services mean not only the utmost care for meeting whether to carry out public consultation or not (public consultation and dialogue concerning network facilities are carried out as security requirements, but also reliable information on the devices and technologies used. In response to inquiries regarding part of administrative proceedings and initiated and supervised by the relevant government agencies). potential negative influence of radio waves emitted by telecommunication devices and other devices that use new technologies, Total number of incidents of non-compliance with regulations we have prepared a global Orange portal on radio waves, which explains in simple terms how mobile telephony works. It includes and voluntary codes concerning the health and safety G4-PR2 sections presenting latest scientific reports and recommendations for use of mobile devices to reduce exposure to radio waves. impacts of products and services during their life cycle, The portal has been also translated to Polish and it is available at www.ondes-radio.orange.com/pl/. by type of outcomes Aspect: Anti-corruption OECD/UNGC No incidents of non-compliance with regulations and voluntary codes concerning the health and safety impacts of products and DMA: Anti-corruption services during their life cycle were reported in 2016. A total of 1,022 Aspect: Product and Service Labeling employees of DMA: Product and Service Labeling Communication and training on anti-corruption policies Orange Polska G4-SO4 Type of product and service information required by the and procedures completed an- organization’s procedures for product and service information ti-corruption train- G4-PR3 and labeling, and percentage of significant product and ing in 2016. service categories subject to suchinformation requirements Aspect: Public Policy OECD/UNGC All products in Orange Polska’s portfolio have the relevant labelling, namely: DMA: Public Policy - name and address of the manufacturer and operation manual in Polish; Total value of political contributions by country G4-SO6 - CE marking pursuant to the Regulation of the Minister of Infrastructure of 15 April 2004 on the assessment of compliance and recipient/beneficiary of telecommunication terminal devices to be connected to public network terminating segments and radio devices with The company does not finance political parties, politicians or related institutions. Any departures from this rule require specific con- the essential requirements and on marking thereof; sent in line with the obligation referred to in the Chapters 8 and 9 of the Orange Polska Anti-corruption Guidelines. In the period from - the ‘basket’ icon pursuant to the Act of 29 July 2005 on waste electrical and electronic equipment; 1 January to 31 December 2016, no consent for financial contributions to political parties or organisations and no consent for offer- ing or granting donations to public officers were granted under Chapters 8 and 9 of the Guidelines. - Declaration of Conformity (DoC) pursuant to the Regulation of the Minister of Transport and Construction of 3 February 2006; - Specific Absorption Rate (SAR) information pursuant to the Regulation of the Minister of Transport and Construction of 3 February 2006.

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GRI Index Table 2014 2015 2016 GRI TABLE GRI Employment Reference to other External Total workforce 18 582.5 16 997 Disclosure Title of the disclosure Reference 15 915.5 CSR indicators assurance gender Total number of incidents of non-compliance with men 10 736 9 990 9 521 G4-PR4 regulations and voluntary codes concerning product women 7 847 7 007 6 395 and service information and labeling, by type of outcomes % of women in the workforce 42.2% 41.2% No incidents of non-compliance with regulations and voluntary codes concerning product and service information and labelling 40.2% were reported in 2016. age G4-PR5 Results of surveys measuring customer satisfaction p. 67 up to 30 years of age 1 848 1 814 1 544 Aspect: Marketing Communications 31-50 years of age 13 015 12 059 11 326 DMA: Marketing Communications over 50 years of age 3 720 3 124 3 046 Total number of incidents of non-compliance with Regular employees (active full-time positions) 18 442 16 955 15 880 regulations and voluntary codes concerning marketing G4-PR7 men 10 703 9 974 communications, including advertising, promotion, 9 507 and sponsorship, by type of outcomes women 7 739 6 981 6 373 No fines were imposed on Orange Polska for non-compliance with regulations and voluntary codes concerning marketing commu- G4-10 Full-time employees 18 214 16 866 15 798 nications, including advertising, promotion, and sponsorship, in 2016. In 2016, the Advertising Ethics Committee decided that one of our advertisements violated the Advertising Code of Ethics; the advertisement was changed or withdrawn. men 10 660 9 953 9 491 Aspect: Customer Privacy women 7 554 6 913 6 307 DMA: Aspect: Customer Privacy Part-time employees 396 131 118 Total number of substantiated complaints regarding men 75 36 30 G4-PR8 breaches of customer privacy and losses of customer data women 294 95 88 Our customers filed 22 complaints with the Inspector General for Personal Data Protection (GIODO) in 2016. All GIODO’s decisions made with respect to these complaints in the reported period confirmed the compliance of personal data processing by Orange Outsourced employees (full-time positions)* 6 552.21 6 813.49 6 678 Polska with the relevant requirements. No fines were imposed on the company for breach of personal data protection regulations in men Indicator reported from 4 000 2016. At each stage of data collecting and processing, we ensure that customers are informed about the purpose and scope of data women 2016 processing, as well as the right to access and rectify their personal data. 2 678 Aspect: Compliance Employees in managerial positions 3 560 3 369 3 245 Monetary value of significant fines for non-compliance with men 2 563 2 386 2 319 G4-PR9 laws and regulations concerning the provision and use of women 997 983 926 products and services % of women in managerial positions 28.0% 29.2% 28.5% In 2016, the Office for Competition and Consumer Protection (UOKiK) imposed a fine of PLN 28.6 mn on the company. Final and binding rulings were made with respect to two fines totalling PLN 8.9 mn. Ratio of basic salary of women to men by employee position (men's salary = 100%)* general 77,4% 77,9% 79% G4-LA13 non-managerial positions 84.7% 83.9% 85% managerial positions 95.2% 94.2% 95% * For Orange Polska alone Development and education total employees trained (in ‘000) 17.4 16.24 15.29 total hours of training (in ‘000) 533.6 727.64 542.36 average number of training hours per employee per year 30.6 44.8 35.46 gender G4-LA9 men 29 41.6 35.07 women 33 45.7 35.39 position managers 38 54.91 36.26 non-managers 29 39.71 35.21 Professional mobility Total number of new employee hires 616 623 548 G4-LA 1 gender men Indicator reported from 315 women 2016 233

Orange Polska Integrated Report - 212 213 - Orange Polska Integrated Report ATTACHMENT B: ENVIRONMENTAL DATA*

Social Data 2014 2015 2016 GRI TABLE age GRI Energy unit 2014 2015 2016 up to 30 years of age 308 Energy electricity consumption/customer kWh/customer 26.42 27.42 31-50 years of age Indicator reported from 2016 232 25.92 Direct energy consumption by primary energy sources over 50 years of age 8 fuel (all buildings, all uses) ‘000 m3 1.5 1.8 2.1 Departures – total* 1 798 1 578 1 261 gas ‘000 m3 3 109 3 803,3 gender G4-EN3 3 648,9 coal tonnes 97.2 80.7 men 834 886 699 51.6 energy produced during combustion, primary sources GWh 33.9 47.2 women 964 692 562 78.5 age Indirect energy consumption by primary energy sources electricity GWh 623 635 up to 30 years of age 328 196 155 588 Emissions 31-50 years of age 1 039 912 G4-LA 1 766 CO² emissions excluding transport ‘000 tonnes 479.4 491.7 462.7 over 50 years of age 431 470 340 total CO emissions during transport ‘000 tonnes 13.8 13.3 12.3 Turnover* 3.26% 3.53% 2.35% G4-EN16 2 total CO emissions ‘000 tonnes 493 505 475 gender 2 CO emissions during electricity consumption/customer kg/customer 19.98 20.7 19.6 men 2.99% 3.2% 2.73% 2 CO emissions (all energies)/customer kg/customer 21.2 21.9 21 women 3.65% 4.01% 1.77% 2 Materials age G4-EN1 waste paper, cardboard boxes: internally and externally ‘000 tonnes 1.7 1.5 up to 30 years of age 13.55% 17.02% 9.73% 1.3 Waste 31-50 years of age 2.45% 2.61% 2.09% industrial waste tonnes n/a n/a n/a over 50 years of age 0.61% 0.64% 0.32% internal WEEE (network & tertiary) tonnes 991.6 44.6 * Total number of employees leaving, excluding voluntary departures (at employee's initiative) and departures 20.31 at the employer's initiative as well as intra-group transfers (e.g. an Orange Polska employee departing for OCS) wooden poles tonnes 31.4 23.6 43.44 Occupational health and safety cables tonnes 544.8 259.1 345.1 Number of accidents batteries tonnes 334.7 227.2 138.81 Orange Polska 52 54 32 paper / cardboard tonnes 55.3 93.4 45.42 Accident severity G4-EN23 other hazardous waste (including PCB) tonnes 101.4 8 4.64 fatal accidents 0 0 1 other non-hazardous waste tonnes 980.8 1446.2 834.07 serious accidents 1 0 0 waste recycled internally tonnes 3039.9 2102.1 1431.79 other accidents 51 54 31 Waste electrical and electronic equipment Accident frequency rate* G4-LA6 WEEE collected from customers tonnes 0 0.3 0.06 Orange Polska 2.9 3.5 2.3 kg/1000 WEEE collected from customers 0 0.01 0 OCS 2.66 4.16 0.3*** customers Days off work due to work-related accidents KPI EMS: ISO 14001 % 29.6 23.7 26.7 Orange Polska 1 573 1 776 1 026 OCS 526 426 39*** * The environmental data presented in the Orange Polska Report may differ from the data in the Orange Group report. Due to the date of gathering information in the Group's report, the data from the 3 quarters and estimation for 4Q are presented. Orange Polska Report presents the data from 4 quarters of 2016. Accident severity rate** Orange Polska 37.5 38 33.1 OCS 52.6 60.68 39***

* Number of persons injured in work-related accidents per 1,000 employees ** Number of days off per accident *** OCS merged with Orange Polska in 2016. All indices have been aggregated since October 2016.

All indices for the Orange Polska Group undless indicated otherwise

Orange Polska Integrated Report - 214 215 - Orange Polska Integrated Report Orange Polska Integrated Report - 216 217 - Orange Polska Integrated Report Notes methodological note for non-financial indicators GRI TABLE workforce data The workforce data presented in this Report have been collected using the HR-Info system, which accounts for variables such as employee’s gender or position. The data fed to HR-Info are based on the data contained in the HR systems of the member companies of Orange Polska and are reported in line with FT’s standards. managers (employed under employment contracts as at the end of the reported period) The management rate refers to middle to top managers employed under employment contracts. Employees are classified as “managers” on the basis of their employment groups, according to their competence profile, in line with FT’s standards. accidents at work This rate corresponds to the number of occurrences that were classified as accidents at work during the reported period. Under Polish regulations, this is ultimately determined by the date of the employer’s decision to recognise an occurrence as a work-related accident rather than the date of accident itself (e.g. if an accident occurs in December, but the accident report is not approved before January, it will not be accounted for in the given year, but rather in the following year. In statistical terms, until the accident investigation procedure is completed and the report is approved, an occurrence is not considered an accident at work). environmental data Environmental data are based on reporting to the INDICIA database. In 2016, Orange Polska reported about 100 environmental indicators on a quarterly basis. energy Electricity consumption in Orange Polska’s buildings is determined using a statistical method devised by an Orange Labs’ statistician and approved by both Orange Group and external auditors. Fuel consumption refers to the total consumption of all fuels (heating oil, diesel oil, petrol and heavy fuel oil), excluding motor vehicles.

CO2 emissions For electricity consumption, the emissions are calculated according to the GHG Protocol (2009) with the most recent update (2012). Emission factors for fuels (gas, fuel oil, coal, petrol, diesel oil and LPG) are derived from the GHG Protocol (2007). electronic and electrical waste collection The “E-waste collected from customers” corresponds to the total amount of handsets, desktop telephones and multimedia devices delivered to sale outlets, sent by mail or collected by service providers. This also accounts for waste mobile phones of Orange Polska’s employees as well as batteries and chargers collected. This indicator is not used in the Group companies which do not have the relevant channel for e-waste collection and recycling.

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4G – fourth generation of mobile technology, sometimes called LTE (Long Term Evolution) Access Fee – revenues from monthly fee from New Tariff Plans (incl. Free minutes) API – Application Program Interface ARPU – Average Revenues per User AUPU – Average Usage per User BI – Business Intelligence BSA – Bitstream Access Offer CATV – Cable Television Corporate Communication and CSR CDMA – Code Division Multiple Access, second generation wireless mobile network used also as a CSR and Sponsorship Department wireless local loop for locations where cable access is not economically justified [email protected] DLA – Drop-Line Agnostic EBITDA – Operating income + depreciation and amortisation + impairment of goodwill + impairment Monika Kulik of non-current assets [email protected] F2M – Fixed to Mobile Calls FBB – Fixed Broadband FTE – Full time equivalent Investor Relations FTTH – Fibre To The Home [email protected] FVNO – Fixed Virtual Network Operator www.orange-ir.pl ICT – Information and Communication Technologies ILD – International Calls Sylwia Wojtkowska IP TV – TV over Internet Protocol [email protected] Liquidity Ratio – Cash and unused credit lines divided by debt to be repaid in the next 18 months LLU – Local Loop Unbundling LTE – Long Term Evolution, standard of data transmission on mobile networks (4G) M2M – Machine to Machine, telemetry Headquarters: MTR – Mobile Termination Rates Orange Polska S.A. MVNO – Mobile Virtual Network Operator Aleje Jerozolimskie 160 Net Gearing – net gearing after hedging ratio = net debt after hedging / (net debt after hedging + 02–326 Warsaw, Poland shareholders’ equity) www.orange.pl Organic Cash Flow – Organic Cash Flow = Net cash provided by Operating Activities – (CAPEX + www.blog.orange.pl CAPEX payables) + proceeds from sale of assets PoP – Point of Presence RAN agreement – agreement on reciprocal use of radio access networks RIO – Reference Interconnection Offer SAC – Subscriber Acquisition Costs SIMO – mobile SIM only offers without devices SMP – Significant Market Power SRC – Subscriber Retention Cost UKE – Urząd Komunikacji Elektronicznej (Office of Electronic Communications) UOKiK – Urząd Ochrony Konkurencji i Konsumentów (Office for Competition and Consumer Pro- tec-tion) USO – Universal Service Obligation VDSL – Very-high-bit-rate Digital Subscriber Line VHBB – Very high speed broadband, above 30 Mbps VoIP – Voice over Internet Protocol WLL – Wireless Local Loop WLR – Wholesale Line Rental

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