259400TOMPUOLS65II22_2021-12-31_oranp_Current_Folio_OPL_ENG_IFRS

Translation of the financial statements originally issued in Polish

ORANGE POLSKA S.A.

IFRS SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021

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February 16, 2022

Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish

Contents


INCOME STATEMENT		4

STATEMENT OF COMPREHENSIVE INCOME		4

STATEMENT OF FINANCIAL POSITION		5

STATEMENT OF CHANGES IN EQUITY		6

STATEMENT OF CASH FLOWS		7


General information


1.	Orange Polska S.A.	8

2.	Statement of compliance and basis of preparation	8

3.	Segment information	9

4.	Impact of COVID-19 pandemic	9


Operating income excluding depreciation and amortisation


5.	Revenue	10

6.	Operating expense and income	11

7.	Gains on disposal of other assets	12


Non-current assets


8.	Impairment test	12

9.	Goodwill	13

10.	Other intangible assets	13

11.	Property, plant and equipment	15


Leases


12.	Leases	16


Current assets and liabilities


13.	Assets and liabilities relating to contracts with customers	17

14.	Other assets	20

15.	Provisions	21

16.	Trade payables and other liabilities	22

17.	Employee benefits	23

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish



Financial instruments excluding trade receivables and payables


18.	Finance income and expense	28

19.	Loans from related parties	29

20.	Liabilities arising from financing activities	30

21.	Investments in subsidiaries	31

22.	Investment in joint venture	32

23.	Cash and cash equivalents	33

24.	Derivatives	33

25.	Fair value of financial instruments	36

26.	Objectives and policies of financial risk management	37


Income tax


27.	Income tax	43


Equity and management of capital


28.	Equity	44

29.	Management of capital	46


Other explanatory notes


30.	Unrecognised contractual obligations	47

31.	Litigation, claims and contingent liabilities	47

32.	Related party transactions	50

33.	Subsequent events	52

34.	Significant accounting policies	52

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish

INCOME STATEMENT


(in PLN millions, except for earnings per share)		12 months ended	12 months ended
	Note	31 December 2021	31 December 2020

Revenue	5	10,601	10,479

External purchases	6.1	(5,660)	(5,681)
Labour expense	6.2	(1,286)	(1,252)
Other operating expense	6.3	(551)	(447)
Other operating income	6.3	390	270
Impairment of receivables, contract assets and loans	18	(108)	(146)
Gain on partial disposal of investment in Światłowód Inwestycje	22	750	-
Gains on disposal of other assets	7	77	61
Employment termination expense	15	(119)	13
Depreciation and impairment of right-of-use assets	12.1	(492)	(419)
Depreciation, amortisation and impairment of property, plant and equipment and intangible assets	10,11	(2,200)	(2,496)

Operating income		1,402	382

Dividend income	18	3	14
Interest income	18	33	35
Interest expense on lease liabilities	18	(53)	(61)
Other interest expense and financial charges	18	(176)	(216)
Discounting expense	18	(66)	(43)
Foreign exchange gains/(losses)	18	5	(54)
Finance costs, net		(254)	(325)

Income tax	27.1	(232)	(10)

Net income		916	47


Earnings per share (in PLN) (basic and diluted)	34.5	0.70	0.04

Weighted average number of shares (in millions)	28.1	1,312	1,312

STATEMENT OF COMPREHENSIVE INCOME


(in PLN millions)		12 months ended	12 months ended
	Note	31 December 2021	31 December 2020
Net income		916	47

Items that will not be reclassified to profit or loss
Actuarial gains/(losses) on post-employment benefits	17	8	(3)
Income tax relating to items not to be reclassified		(2)	1
Items that may be reclassified subsequently to profit or loss
Gains/(losses) on cash flow hedges	24	376	(13)
Losses on receivables at fair value through other comprehensive income		(6)	-
Income tax relating to items that may be reclassified		(69)	2

Other comprehensive income/(loss), net of tax		307	(13)

Total comprehensive income		1,223	34

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish

STATEMENT OF FINANCIAL POSITION


(in PLN millions)		At 31 December	At 31 December
	Note	2021	2020
ASSETS

Goodwill	9	2,014	2,014
Other intangible assets	10	3,898	4,079
Property, plant and equipment	11	9,796	10,397
Right-of-use assets	12.1	2,790	2,727
Investments in subsidiaries	21	402	334
Investment in joint venture	22	555	-
Trade receivables	13.1	321	351
Contract assets	13.2	86	70
Contract costs	13.3	113	96
Loans to related parties		-	60
Derivatives	24	273	-
Other assets	14	393	38
Deferred tax asset	27.2	550	747
Total non-current assets		21,191	20,913

Inventories		217	184
Trade receivables	13.1	1,564	1,627
Contract assets	13.2	93	87
Contract costs	13.3	391	362
Loans to related parties		27	115
Derivatives	24	3	147
Income tax receivables		31	-
Other assets	14	391	139
Prepaid expenses		45	31
Cash and cash equivalents	23	885	299
Total current assets		3,647	2,991

TOTAL ASSETS		24,838	23,904

EQUITY AND LIABILITIES

Share capital	28.1	3,937	3,937
Share premium		832	832
Other reserves		170	(122)
Retained earnings		6,828	5,886
Total equity		11,767	10,533

Trade payables	16.1	99	242
Lease liabilities	20, 26.6	2,270	2,188
Loans from related parties	19	4,938	2,406
Other financial liabilities at amortised cost		26	-
Derivatives	24	3	100
Provisions	15	717	639
Contract liabilities	13.4	968	315
Employee benefits	17	57	51
Other liabilities	16.2	1	31
Total non-current liabilities		9,079	5,972

Trade payables	16.1	2,062	2,014
Lease liabilities	20, 26.6	515	475
Loans from related parties	19	153	3,682
Other financial liabilities at amortised cost		-	4
Derivatives	24	2	32
Provisions	15	244	248
Contract liabilities	13.4	566	449
Employee benefits	17	140	166
Income tax liabilities		-	16
Other liabilities	16.2	310	313
Total current liabilities		3,992	7,399

TOTAL EQUITY AND LIABILITIES		24,838	23,904

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish

STATEMENT OF CHANGES IN EQUITY


(in PLN millions)
	Share	Share	Other reserves				Retained	Total equity
	capital	premium					earnings
			Cash flow hedge	Actuarial gains/	Losses on	Deferred tax
			reserve	(losses) on post-	receivables at fair
				employment	value through other
				benefits	comprehensive income
Balance at 1 January 2021	3,937	832	(89)	(62)	-	29	5,886	10,533

Net income	-	-	-	-	-	-	916	916
Other comprehensive income	-	-	376	8	(6)	(71)	-	307
Total comprehensive income for the 12 months ended 31 December 2021	-	-	376	8	(6)	(71)	916	1,223

Share-based payments (transactions with the owner, see Note 28.3)	-	-	-	-	-	-	26	26
Transfer to inventories	-	-	(18)	-	-	3	-	(15)

Balance at 31 December 2021	3,937	832	269	(54)	(6)	(39)	6,828	11,767

Balance at 1 January 2020	3,937	832	(50)	(59)	-	21	5,809	10,490

Net income	-	-	-	-	-	-	47	47
Other comprehensive loss	-	-	(13)	(3)	-	3	-	(13)
Total comprehensive income for the 12 months ended 31 December 2020	-	-	(13)	(3)	-	3	47	34

Share-based payments (transactions with the owner, see Note 28.3)	-	-	-	-	-	-	3	3
Transfer to inventories	-	-	(26)	-	-	5	-	(21)
Other movements (see Note 28.4)	-	-	-	-	-	-	27	27

Balance at 31 December 2020	3,937	832	(89)	(62)	-	29	5,886	10,533

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish

STATEMENT OF CASH FLOWS


(in PLN millions)		12 months ended	12 months ended
	Note	31 December 2021	31 December 2020
OPERATING ACTIVITIES
Net income		916	47

Adjustments to reconcile net income to cash from operating activities
Gains on disposal of assets	7,22	(827)	(61)
Depreciation, amortisation and impairment of property, plant and equipment, intangible assets and right-of-use assets	10,11,12.1	2,692	2,915
Finance costs, net	18	254	325
Income tax	27.1	232	10
Change in provisions and allowances		32	(155)
Operating foreign exchange and derivatives (gains)/losses, net		2	(8)

Change in working capital
(Increase)/decrease in inventories, gross		(32)	3
Decrease in trade receivables, gross	13.1	135	440
(Increase)/decrease in contract assets, gross	13.2	(23)	26
Increase in contract costs	13.3	(46)	(36)
Decrease in trade payables		(4)	(139)
Increase/(decrease) in contract liabilities	13.4	70	(3)
Increase in prepaid expenses and other assets		(113)	(24)
Increase/(decrease) in other payables		66	(43)

Dividends received		3	14
Interest received		33	35
Interest paid and interest rate effect paid on derivatives, net		(341)	(370)
Exchange rate effect received on derivatives, net		4	2
Income tax paid		(28)	(1)
Net cash provided by operating activities		3,025	2,977

INVESTING ACTIVITIES
Payments for purchases of property, plant and equipment and intangible assets	10,11	(1,974)	(2,014)
Investment grants received	16.2	109	177
Investment grants paid to property, plant and equipment and intangible assets suppliers	16.2	(204)	(221)
Exchange rate effect received on derivatives economically hedging capital expenditures, net		7	10
Proceeds from sale of property, plant and equipment and intangible assets		196	60
Proceeds from sale of investment in Światłowód Inwestycje, net of transaction costs	22	893	-
Income tax paid in relation to sale of investment in Światłowód Inwestycje	22	(122)	-
VAT paid in relation to sale of investment in Światłowód Inwestycje	22	(157)	-
Cash paid for investments in subsidiaries		(45)	(5)
Receipts from/(payments on) loans to related parties and other financial instruments, net	22	186	(89)
Net cash used in investing activities		(1,111)	(2,082)

FINANCING ACTIVITIES
Proceeds from long-term debt	20	26	-
Repayment of long-term loans from related party	20	(101)	-
Repayment of lease liabilities	20	(466)	(406)
Repayment of revolving credit line and other debt, net	20	(879)	(535)
Exchange rate effect received on derivatives hedging debt, net	20	91	-
Net cash used in financing activities		(1,329)	(941)

Net change in cash and cash equivalents		585	(46)

Effects of exchange rate changes on cash and cash equivalents		1	2
Cash and cash equivalents at the beginning of the period	23	299	343

Cash and cash equivalents at the end of the period	23	885	299

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish

1. Orange Polska S.A.

Orange Polska S.A. (“Orange Polska” or “the Company” or “OPL S.A.”), a joint stock company, was incorporated and commenced its operations on 4 December 1991. Orange Polska shares are listed on the Warsaw Stock Exchange.

Orange Polska is one of the biggest providers of telecommunications services in Poland. The Company provides mobile and fixed telecommunications services, including calls, messaging, content, access to the Internet and TV. In addition, Orange Polska provides IT and integration services, leased lines and other telecommunications value added services, sells telecommunications equipment, provides data transmission and sells electrical energy.

Orange Polska’s registered office is located in Warsaw, Poland, at 160 Aleje Jerozolimskie St.

The Company’s telecommunications operations are subject to the supervision of Office of Electronic Communication (“UKE”). Under the Telecommunication Act, UKE can impose certain obligations on telecommunications companies that have a significant market power on a relevant market. Orange Polska S.A. is deemed to have a significant market power on certain relevant markets.

2. Statement of compliance and basis of preparation

These Separate Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union. IFRSs comprise standards and interpretations approved by the International Accounting Standards Board (“IASB”) and the IFRS Interpretations Committee.

These Separate Financial Statements have been prepared in millions of Polish złoty (“PLN”). Comparative amounts for the year ended 31 December 2020 have been compiled using the same basis of preparation.

The Separate Financial Statements have been prepared under the historical cost convention, except for the fair value applied to derivative financial instruments, selected trade receivables arising from sales of mobile handsets in instalments and contingent consideration receivable from the sale of 50% stake in Światłowód Inwestycje.

The Separate Financial Statements have been prepared on the going concern basis.

Orange Polska S.A. is the parent company of the Orange Polska Group (“the Group”, “OPL Group”) and prepares consolidated financial statements for the year ended 31 December 2021. The Group is a part of Orange Group, based in France.

These Separate Financial Statements were authorised for issuance by the Management Board on 16 February 2022 and are subject to approval at the General Meeting of Orange Polska S.A.

The principles applied to prepare financial data relating to the year ended 31 December 2021 are described in Note 34 and are based on all standards and interpretations endorsed by the European Union and applicable to the reporting period beginning 1 January 2021.

Adoption of standards and interpretations in 2021

There were no new standards or interpretations issued from the date when the IFRS Separate Financial Statements for the year ended 31 December 2020 were published. Changes to standards and interpretations in 2021 did not result in any changes to accounting policies applied by the Company.

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish

3. Segment information

The Orange Polska Group reports a single operating segment as decisions about resources to be allocated and assessment of performance are made on a consolidated basis. Segment information is disclosed in Note 3 to Orange Polska Group IFRS Consolidated Financial Statements for the year ended 31 December 2021.

4. Impact of COVID-19 pandemic

The situation related to the COVID-19 pandemic remained volatile, with Poland and other countries experiencing new waves of COVID-19 in 2021. The pandemic has significantly impacted the Polish economy. Poland’s GDP decreased by 2.5% in 2020, by 0.8% in the first quarter of 2021 and started to grow from the second quarter of 2021 (year-on-year). Preliminary estimations of the Polish Statistical Office indicate that GDP in Poland increased by 5.7% in 2021.

Since the beginning of the COVID-19 pandemic in the first quarter of 2020, the Management has adopted a number of counteractive measures to mitigate the negative impact of the pandemic on the Company’s business performance. The results achieved by the Company indicate that the core of the Company’s operations remain relatively immune to the impact of the pandemic. Data and voice connectivity has become more essential than ever to the needs of consumers and businesses. The majority of revenue and profits are derived from subscription-based services, which allows the Company to rely on relatively stable and predictable revenue streams.

The Company performed an impairment test of the single telecom operator Cash Generating Unit as at 31 December 2021, 30 June 2021 and 31 December 2020 (see Note 8). No impairment loss was recognised as a result of these tests.

The Company performed an analysis of available information about past events, current conditions and forecasts of future economic conditions to evaluate the impact of COVID-19 on the bad debt allowance. Based on an analysis of current conditions, a scenario analysis and the bad debt experience in 2011-2012 when a significant reduction in GDP growth last occurred, the Company recognised additional PLN 4 million of impairment of trade receivables in 2021 and PLN 26 million in 2020.

The impact of the COVID-19 pandemic on the Company (both direct and indirect), its financial position and performance in next periods depends on many factors which are beyond the control of the Company. These factors include, among others: the length and severity of the pandemic, measures taken by the government to limit the pandemic and to protect society from the effects of the crisis and in result its ultimate impact on the Polish economy including inflationary pressure, energy prices and supply disturbances. The Company will monitor the situation, its impact on the Polish economy and indicators more specific to the Company.

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish

5. Revenue

Revenue is disaggregated as follows:


Mobile only services	Revenue from mobile offers (excluding consumer market convergent offers) and Machine to Machine connectivity. Mobile only services revenue does not include equipment sales, incoming and visitor roaming revenue.
Fixed only services	Revenue from fixed offers (excluding consumer market convergent offers) including mainly (i) fixed broadband (including wireless for fixed), (ii) fixed narrowband, and (iii) data infrastructure and networks for business customers. Revenue from fixed offers includes also content element (linear TV and OTT - over-the-top).
Convergent services (consumer market)	Revenue from consumer market convergent offers. A convergent offer is defined as an offer combining at least a broadband access and a mobile voice contract with a financial benefit (excluding MVNOs - mobile virtual network operators). Convergent services revenue does not include equipment sales, incoming and visitor roaming revenue. Revenue from convergent offers includes also content element (linear TV and OTT).
Equipment sales	Revenue from all retail mobile and fixed equipment sales, excluding equipment sales associated with the supply of IT and integration services.
IT and integration services	Revenue from ICT (Information and Communications Technology) services and Internet of Things services, including licences and equipment sales associated with the supply of these services.
Wholesale	Revenue from telecom operators for (i) mobile: incoming, visitor roaming, domestic mobile interconnection (i.e. domestic roaming agreement and network sharing) and MVNO, (ii) fixed carriers services, and (iii) other (mainly data infrastructure and networks).
Other revenue	Includes (i) revenue from sale of electrical energy, (ii) other miscellaneous revenue e.g. from property rentals, research and development activity and equipment sales to brokers.


(in PLN millions)	12 months ended	12 months ended
	31 December 2021	31 December 2020

Mobile only services	2,630	2,552

Fixed only services	1,977	2,081
Narrowband	682	798
Broadband	859	856
Network solutions (business market)	436	427

Convergent services (consumer market)	2,002	1,741

Equipment sales	1,460	1,344

IT and integration services	232	199

Wholesale	2,195	2,422
Mobile wholesale	1,371	1,438
Fixed wholesale	463	654
Other	361	330

Other revenue	105	140
Total revenue	10,601	10,479

IT and integration services, wholesale and other revenue for the 12 months ended 31 December 2021 and 2020 include PLN 94 million of lease revenue that is outside the scope of IFRS 15 “Revenue from Contracts with Customers”.

Revenue is generated mainly in the territory of Poland. Approximately 3.8% and 4.5% of the total revenue for the 12 months ended 31 December 2021 and 2020, respectively, was earned from entities which are not domiciled in Poland, mostly from interconnect services.

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish

6. Operating expense and income

6.1 External purchases


(in PLN millions)	12 months ended	12 months ended
	31 December 2021	31 December 2020
Commercial expenses	(2,140)	(1,964)
− cost of handsets and other equipment sold	(1,406)	(1,320)
− commissions, advertising, sponsoring costs and other	(734)	(644)
Interconnect expenses	(1,797)	(1,992)
Network and IT expenses	(683)	(666)
Other external purchases	(1,040)	(1,059)
Total external purchases	(5,660)	(5,681)

Other external purchases include mainly costs of content, real estate operating and maintenance costs, customer support and management services, costs of temporary staff, rental costs, subcontracting fees, storage and postage costs.

6.2 Labour expense


(in PLN millions)	12 months ended	12 months ended
	31 December 2021	31 December 2020
Average number of active employees (full time equivalent)	9,729	10,649

Wages and salaries	(1,169)	(1,231)
Social security and other charges	(280)	(296)
Long-term employee benefits (see Note 17.1)	5	61
Capitalised personnel costs ⁽¹⁾	230	234
Other employee benefits	(72)	(20)
Total labour expense	(1,286)	(1,252)

⁽¹⁾ Costs capitalised as property, plant and equipment and other intangible assets.

6.3 Other operating expense and income


(in PLN millions)	12 months ended	12 months ended
	31 December 2021	31 December 2020
Taxes other than income tax	(268)	(277)
Orange brand fee (see Note 32.2)	(135)	(116)
Expense related to sale of fibre network goods and services to joint venture	(78)	-
Other expense and changes in provisions, net	(70)	(54)
Total other operating expense	(551)	(447)
Total other operating income	390	270

Other operating income includes mainly income from sale of fibre network goods and services to joint venture, income from scrapped assets and income from related parties resulting from shared resources.

6.4 Research and development

During the 12 months ended 31 December 2021 and 2020, research and development costs expensed in the income statement mainly in labour expense and depreciation, amortisation and impairment of property, plant and equipment and intangible assets, amounted to PLN 57 million and PLN 59 million, respectively.

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish

7. Gains on disposal of other assets

During the 12 months ended 31 December 2021 and 2020, gains on disposal of other assets amounted to PLN 77 million and PLN 61 million, respectively, and included mainly gains on disposal of real estate and fibre network assets.

8. Impairment test

8.1 Telecom operator Cash Generating Unit

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

As at 31 December 2021, 30 June 2021 and 31 December 2020 the Company performed impairment tests of the CGU (including goodwill). No impairment loss was recognised in the years 2021 and 2020.

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 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 of changes in revenue on direct costs;

the level of capital expenditures which may be affected by the roll-out of necessary new technologies or regulatory decisions concerning telecommunications licences allocation;

macroeconomic environment and its impact on the CGU performance;

the length and severity of the COVID-19 pandemic and its impact on the CGU performance;

discount rate which is based on weighted average cost of capital and reflects current market assessment of the time value of money and the risks specific to activities of the CGU; and

perpetuity growth rate which reflects Management’s assessment of cash flows evolution after the last year covered by the cash flow projections.

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 or legal framework.


Telecom operator CGU
	At 31 December 2021		At 30 June 2021		At 31 December 2020
Basis of recoverable amount	Value in use		Value in use		Value in use

Sources used	Business plan		Business plan		Business plan
	5 years cash flow		5 years cash flow		5 years cash flow
	projections		projections		projections
Perpetuity growth rate	1.5	%	1.5	%	1.5	%
Post-tax discount rate	7.25	%	7.00	%	7.25	%
Pre-tax discount rate ⁽¹⁾	8.49	%	8.15	%	8.47	%

⁽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.

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish

Sensitivity of recoverable amount

The value in use of the telecom operator CGU as at 31 December 2021 exceeds its carrying value by PLN 4.7 billion. Any of the following changes in key assumptions:

- a 27% fall in projected cash flows after fifth year or

- a 1.4 p.p. decrease in growth rate to perpetuity or

- a 1.7 p.p. increase in post-tax discount rate

would bring the value in use of the telecom operator CGU to the level of its carrying value.

8.2 Investment in joint venture

The Company’s investment in joint venture (see Note 22) is not included in the telecom operator CGU as it generates cash inflows that are largely independent of those from other Company’s assets. Consequently, the investment in joint venture is analysed for impairment individually.

As at 31 December 2021, the Company has not identified any impairment indicators of the investment in joint venture. Impairment test was not performed as at 31 December 2021 and no impairment loss was recognised in 2021. Fair value of 50% stake retained in joint venture (PLN 1,323 million), observed in the sale transaction which occurred on 31 August 2021, is significantly higher than the carrying amount of the investment in joint venture amounting to PLN 555 million as at 31 December 2021.

9. Goodwill

(in PLN millions)

At 31 December 2021

At 31 December 2020

Accumulated

CGU

Cost

impairment

Net

Cost

impairment

Net

Telecom operator

3,909

(1,895)

2,014

3,909

(1,895)

2,014

Total goodwill

3,909

(1,895)

2,014

3,909

(1,895)

2,014

The goodwill of PLN 3,909 million arose in 2005 on acquisition of the remaining 34% of non-controlling interest in the mobile business controlled by OPL S.A. through its subsidiary (PTK-Centertel Sp. z o.o.). Before 2013, when the merger with PTK-Centertel Sp. z o.o. was carried out, the goodwill was recognised only in consolidated financial statements of the Orange Polska Group.

10. Other intangible assets


(in PLN millions)	At 31 December 2021
		Accumulated	Accumulated
	Cost	amortisation	impairment	Net
Telecommunications licences	5,728	(3,424)	-	2,304
Software	6,293	(4,735)	-	1,558
Other intangibles	151	(104)	(11)	36
Total other intangible assets	12,172	(8,263)	(11)	3,898


(in PLN millions)	At 31 December 2020
		Accumulated	Accumulated
	Cost	amortisation	impairment	Net
Telecommunications licences	5,760	(3,109)	-	2,651
Software	5,862	(4,496)	-	1,366
Other intangibles	177	(104)	(11)	62
Total other intangible assets	11,799	(7,709)	(11)	4,079

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish

Details of telecommunications licences are as follows:


(in PLN millions)	Acquisition	Years to	Net book value
	date	expiration ⁽²⁾	At 31 December 2021	At 31 December 2020
800 MHz	2016	9.1	1,858	2,062
900 MHz	2014	7.5	180	204
1800 MHz	1997	5.6	-	-
1800 MHz ⁽¹⁾	2013	6.0	95	111
2100 MHz	2000	1.0	100	195
2600 MHz	2016	9.1	71	79
Total telecommunications licences			2,304	2,651

(1)	Licence held under agreement with T-Mobile Polska S.A.

(2)	Remaining useful life in years as at 31 December 2021.

Movements in the net book value of other intangible assets for the 12 months ended 31 December 2021 were as follows:


(in PLN millions)	Telecommunications			Total other intangible
	licences	Software	Other intangibles	assets
Opening balance net of accumulated amortisation and impairment	2,651	1,366	62	4,079
Acquisitions of intangible assets	-	495	14	509
Amortisation	(347)	(325)	(12)	(684)
Impairment, net	-	-	(1)	(1)
Reclassifications and other, net	-	22	(27)	(5)
Closing balance	2,304	1,558	36	3,898

From 2021, as a result of an annual review of the estimated useful lives of fixed assets, the Company extended the estimated useful lives for certain items of software. Consequently, the amortisation expense was lower by PLN 116 million in the 12 months ended 31 December 2021 in comparison to 2020.

Movements in the net book value of other intangible assets for the 12 months ended 31 December 2020 were as follows:


(in PLN millions)	Telecommunications			Total other intangible
	licences	Software	Other intangibles	assets
Opening balance net of accumulated amortisation and impairment	3,010	1,405	58	4,473
Acquisitions of intangible assets	-	384	18	402
Amortisation	(359)	(440)	(13)	(812)
Impairment, net	-	-	-	-
Reclassifications and other, net	-	17	(1)	16
Closing balance	2,651	1,366	62	4,079

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish

11. Property, plant and equipment


(in PLN millions)	At 31 December 2021
		Accumulated	Accumulated
	Cost	depreciation	impairment	Net
Land and buildings	2,240	(1,755)	(11)	474
Network	40,340	(31,532)	(84)	8,724
Terminals	1,957	(1,666)	-	291
Other IT equipment	1,250	(1,016)	-	234
Other	253	(180)	-	73
Total property, plant and equipment	46,040	(36,149)	(95)	9,796


(in PLN millions)	At 31 December 2020
		Accumulated	Accumulated
	Cost	depreciation	impairment	Net
Land and buildings	2,303	(1,764)	(14)	525
Network	40,337	(31,032)	(80)	9,225
Terminals	1,987	(1,642)	-	345
Other IT equipment	1,255	(1,027)	-	228
Other	249	(175)	-	74
Total property, plant and equipment	46,131	(35,640)	(94)	10,397

As at 31 December 2021 and 2020, the amount of expenditures recognised in the carrying amount of items of property, plant and equipment in the course of their construction amounted to PLN 1,350 million and PLN 1,396 million, respectively.

Movements in the net book value of property, plant and equipment for the 12 months ended 31 December 2021 were as follows:


(in PLN millions)						Total
						property,
	Land and			Other IT		plant and
	buildings	Network	Terminals	equipment	Other	equipment
Opening balance net of accumulated depreciation and impairment	525	9,225	345	228	74	10,397
Acquisitions of property, plant and equipment	46	1,242	97	64	20	1,469
Contribution in kind to Światłowód Inwestycje (see Note 22)	-	(354)	(1)	-	-	(355)
Disposals and liquidations	(15)	(185)	(1)	-	-	(201)
Depreciation	(78)	(1,193)	(149)	(62)	(19)	(1,501)
Impairment, net	(4)	(9)	-	-	(1)	(14)
Dismantling costs, reclassifications and other, net	-	(2)	-	4	(1)	1
Closing balance	474	8,724	291	234	73	9,796

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish

Movements in the net book value of property, plant and equipment for the 12 months ended 31 December 2020 were as follows:


(in PLN millions)						Total
						property,
	Land and			Other IT		plant and
	buildings	Network	Terminals	equipment	Other	equipment
Opening balance net of accumulated depreciation and impairment	587	9,232	393	222	72	10,506
Acquisitions of property, plant and equipment	35	1,255	112	64	25	1,491
Disposals and liquidations	(12)	(1)	-	-	(1)	(14)
Depreciation	(75)	(1,347)	(160)	(60)	(18)	(1,660)
Impairment, net	2	(26)	-	-	-	(24)
Dismantling costs, reclassifications and other, net	(12)	112	-	2	(4)	98
Closing balance	525	9,225	345	228	74	10,397

12. Leases

12.1. The Company as a lessee

The Company leases mainly land and buildings. Some of the agreements are denominated in foreign currencies and some of them are indexed with price indices applicable for a given currency. Some of the agreements include extension and termination options.


(in PLN millions)	At 31 December 2021
		Accumulated	Accumulated
	Cost	depreciation	impairment	Net
Land and buildings	3,448	(1,005)	(35)	2,408
Terminals	477	(193)	-	284
Other	154	(56)	-	98
Total right-of-use assets	4,079	(1,254)	(35)	2,790


(in PLN millions)	At 31 December 2020
		Accumulated	Accumulated
	Cost	depreciation	impairment	Net
Land and buildings	3,094	(669)	(2)	2,423
Terminals	370	(133)	-	237
Other	113	(46)	-	67
Total right-of-use assets	3,577	(848)	(2)	2,727

Movements in the net book value of right-of-use assets for the 12 months ended 31 December 2021 were as follows:


(in PLN millions)				Total right-
	Land and buildings	Terminals	Other	of-use assets
Opening balance net of accumulated depreciation and impairment	2,423	237	67	2,727
Additions	145	127	62	334
Modifications, terminations and disposals	224	-	1	225
Depreciation	(353)	(79)	(27)	(459)
Impairment, net	(33)	-	-	(33)
Dismantling costs, reclassifications and other, net	2	(1)	(5)	(4)
Closing balance	2,408	284	98	2,790

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish

Movements in the net book value of right-of-use assets for the 12 months ended 31 December 2020 were as follows:


(in PLN millions)				Total right-
	Land and buildings	Terminals	Other	of-use assets
Opening balance net of accumulated depreciation and impairment	2,392	194	63	2,649
Additions	193	105	42	340
Modifications, terminations and disposals	139	-	(13)	126
Depreciation	(333)	(62)	(24)	(419)
Dismantling costs, reclassifications and other, net	32	-	(1)	31
Closing balance	2,423	237	67	2,727

Information on lease liabilities is disclosed in Notes 18, 20, 26.3 and 26.6.

12.2. The Company as a lessor

When considering the Company as a lessor, future minimum lease payments under non-cancellable operating leases as at 31 December 2021 and 2020 amounted to PLN 89 million and PLN 105 million, respectively, and related mainly to the lease of land and buildings.

13. Assets and liabilities relating to contracts with customers

13.1. Trade receivables


(in PLN millions)	At 31 December	At 31 December
	2021	2020
Trade receivables measured at amortised cost	1,652	1,767
Trade receivables measured at fair value through other comprehensive income	233	211
Total trade receivables	1,885	1,978
Current	1,564	1,627
Non-current	321	351

Vast majority of trade receivables results from contracts with customers. Invoices are typically issued on a monthly basis, with subscription fee usually invoiced in advance and usage-based fees invoiced in arrears. The payment is due 14 days after the invoice date for most retail customers and up to 30 days for most wholesale customers. Non-current trade receivables relate mainly to sales of mobile handsets in monthly instalments.

OPL S.A. considers there is no concentration of credit risk with respect to trade receivables due to its large and diverse customer base consisting of individual and business customers. The Company’s maximum exposure to credit risk at the reporting date is represented by the carrying amounts of receivables recognised in the statement of financial position.

The Company sells selected receivables arising from sales of mobile handsets in instalments on the basis of an agreement concluded with BNP Paribas S.A. Those selected trade receivables are measured at fair value through other comprehensive income as the business model is to collect contractual cash flows and sell them. Sold receivables are derecognised from the statement of financial position because the sale is without recourse. Loss on derecognition recognised in other operating expense for the 12 months ended 31 December 2021 and 2020 amounted to PLN 8 million and PLN 6 million, respectively. Part of the price paid by BNP Paribas S.A. amounting to PLN 41 million is deferred and presented as other assets as at 31 December 2021 and 2020.

The Company applies the present value valuation technique to measure selected trade receivables arising from sales of mobile handsets in instalments at fair value through other comprehensive income. The expected risk-adjusted cash flows related to the receivables are discounted using market risk-free interest rate. The nominal cash

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish

flows are decreased by the expected credit risk based on historical data. Such risk-adjusted discounted cash flows are adjusted by the margin expected to be received by the market participant buyer. The margin is determined based on the last instalment receivables sale transaction with BNP Paribas S.A.

Movements in the impairment of trade receivables during the 12 months ended 31 December 2021 and 2020 were as follows:


(in PLN millions)	12 months ended	12 months ended
	31 December 2021	31 December 2020
Beginning of period	250	257
Impairment losses, net	51	128
Utilisation of impairment for receivables sold or written-off	(98)	(135)
End of period	203	250

In the 12 months ended 31 December 2021 and 2020, the Company recognised, respectively, additional PLN 4 million and PLN 26 million of impairment of trade receivables as a result of COVID-19 pandemic (see Note 4).

Information about the credit risk exposure on the Company’s trade receivables as at 31 December 2021 was as follows:


(in PLN millions)			Days past due
			< 180		180-360		> 360
	Not past due		days		days		days		Total
Expected credit loss rate	4.9	%	17.9	%	54.5	%	78.1	%
Total trade receivables, gross	1,827		145		11		105		2,088
Accumulated impairment loss	(89)		(26)		(6)		(82)		(203)
Total trade receivables, net	1,738		119		5		23		1,885

Information about the credit risk exposure on the Company’s trade receivables as at 31 December 2020 was as follows:


(in PLN millions)			Days past due
			< 180		180-360		> 360
	Not past due		days		days		days		Total
Expected credit loss rate	4.8	%	17.4	%	72.7	%	90.3	%
Total trade receivables, gross	1,898		184		33		113		2,228
Accumulated impairment loss	(92)		(32)		(24)		(102)		(250)
Total trade receivables, net	1,806		152		9		11		1,978

13.2. Contract assets


(in PLN millions)	At 31 December	At 31 December
	2021	2020
Non-current contract assets	86	70
Current contract assets	93	87
Total contract assets	179	157

OPL S.A. considers there is no concentration of credit risk with respect to contract assets due to its large and diverse customer base consisting of individual and business customers. The Company’s maximum exposure to credit risk at the reporting date is represented by the carrying amounts of contract assets recognised in the statement of financial position.

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish

Movements in the contract assets balance for the 12 months ended 31 December 2021 and 2020 were as follows:


(in PLN millions)	12 months ended	12 months ended
	31 December 2021	31 December 2020
Beginning of period	157	182
Additions	161	127
Invoiced amounts transferred to trade receivables	(138)	(153)
Impairment, net	(1)	1
End of period	179	157

Expected credit loss rate for contract assets as at 31 December 2021 and 2020 amounted to 2.9% and 2.7%, respectively.

13.3. Contract costs


(in PLN millions)	At 31 December	At 31 December
	2021	2020
Non-current contract costs	113	96
Current contract costs	391	362
Total contract costs	504	458

Contract costs comprise mainly incremental customer acquisition and retention costs (e.g. commissions paid to retailers for acquisition or retention of contracts).

Movements in the contract costs balance for the 12 months ended 31 December 2021 and 2020 were as follows:


(in PLN millions)	12 months ended	12 months ended
	31 December 2021	31 December 2020
Beginning of period	458	422
Contract costs recognised as assets	576	538
Contract costs amortised	(531)	(500)
Impairment, net	1	(2)
End of period	504	458

13.4. Contract liabilities


(in PLN millions)	At 31 December	At 31 December
	2021	2020
Prepayment from joint venture for the lease and services (see below)	692	-
Upfront fee for wholesale access to fibre network (see below)	220	238
Subscription (including unused post-paid balances)	185	183
Unused pre-paid balances	163	151
Connection fees	101	100
Prepayment for national roaming	80	-
Other	93	92
Total contract liabilities	1,534	764
Current	566	449
Non-current	968	315

Approximately PLN 449 million of the contract liabilities balance as at 1 January 2021 was recognised as revenue in the 12 months ended 31 December 2021. Approximately PLN 444 million of the contract liabilities balance as at 1 January 2020 was recognised as revenue in the 12 months ended 31 December 2020.

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish

On 1 July 2021, Orange Polska and Światłowód Inwestycje, a fully-owned subsidiary at that time, concluded agreements for the lease and services to be rendered by the Company in the future, for which Światłowód Inwestycje paid PLN 729 million upfront. The prepayment was set off against cash contribution made by Orange Polska (see Note 22). The Company recognised the prepayment received in contract liabilities in the statement of financial position.

In 2018, the Company and T-Mobile Polska signed a long term contract on telecommunications access to Orange Polska’s fibre network in the form of Bitstream Access. OPL S.A. started providing services in December 2018. The fees under the contract comprise mainly a fixed upfront fee of PLN 275 million, a fixed fee for infrastructure set-up, IT systems integration and monthly fees for each customer. The revenue from the contract is recognised during 15 years which currently is the estimated term of the contract. The Company applies input method to measure revenue for the period with the application of constraint in respect to recognition of revenue to the level that is highly probable not to be reversed in the future. As a result, the fixed fee elements are evenly accounted as revenue over 15 years, while the variable fees dependent on the number of end-customers are recognised as revenue based on the actual number of customers in the period.

13.5. Performance obligations

As at 31 December 2021 and 2020, the transaction price allocated to unsatisfied performance obligations resulting from contracts with customers amounted to PLN 6,020 million and PLN 4,801 million, respectively. The following table presents the time bands in which the Company expects to satisfy those performance obligations and recognise revenue. Starting from 2021 the Company includes contract liabilities in the calculation of unsatisfied performance obligations. The comparative amounts as at 31 December 2020 were changed accordingly. More information on the nature of typical contracts with customers and related performance obligations can be found in Note 34.9.


(in PLN millions)	At 31 December	At 31 December
	2021	2020
Within one year	3,179	2,805
Between one and two years	976	822
Between two and three years	351	279
Between three and four years	301	166
Between four and five years	187	149
More than five years	1,026	580
Total unsatisfied performance obligations	6,020	4,801

14. Other assets


(in PLN millions)	At 31 December	At 31 December
	2021	2020
Contingent consideration receivable from sale of 50% stake in Światłowód Inwestycje (see Note 22)	416	-
Receivables from sale of fixed assets	127	64
Deferred purchase price receivables from BNP Paribas (see Note 13.1)	41	41
Other	200	72
Total other assets	784	177
Current	391	139
Non-current	393	38

The Company applies the expected present value technique to measure the fair value of the contingent consideration receivable from the sale of 50% stake in Światłowód Inwestycje. The expected cash flows have been calculated as the probability-weighted average of possible future cash inflows from the contingent consideration.

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish

The discount rates used in the calculation of the present value of the expected cash flows range from 2.9% in 2022 to 4.0% in 2026 and are based on the market risk-free interest rates increased by the credit risk margin estimated for the APG Group. Significant inputs to the valuation technique used by the Company to measure the fair value of the contingent consideration receivable are unobservable and include the credit risk margin estimated for the APG Group and probabilities assigned to possible future cash inflows used to calculate the expected value. The Company has performed sensitivity analysis for the impact of changes in unobservable inputs and concluded that reasonably possible change in any unobservable input would not materially change the fair value of the contingent consideration receivable.

15. Provisions

Movements of provisions for the 12 months ended 31 December 2021 were as follows:


(in PLN millions)	Provisions for claims	Provisions
	and litigation, risks	for employment	Dismantling
	and other charges	termination expense	provisions	Total provisions
At 1 January 2021	159	84	644	887
Increases	61	130	42	233
Reversals (utilisations)	(51)	(73)	(7)	(131)
Reversals (releases)	(4)	(11)	(50)	(65)
Discounting effect	3	-	34	37
At 31 December 2021	168	130	663	961
Current	167	68	9	244
Non-current	1	62	654	717

Movements of provisions for the 12 months ended 31 December 2020 were as follows:


(in PLN millions)	Provisions for claims	Provisions
	and litigation, risks	for employment	Dismantling
	and other charges	termination expense	provisions	Total provisions
At 1 January 2020	126	184	558	868
Increases	43	-	86	129
Reversals (utilisations)	(10)	(89)	(7)	(106)
Reversals (releases)	(2)	(13)	-	(15)
Discounting effect	2	2	7	11
At 31 December 2020	159	84	644	887
Current	158	84	6	248
Non-current	1	-	638	639

Provisions for claims and litigation, risks and other charges

These provisions relate mainly to claims and litigation described in Note 31. As a rule, provisions are not disclosed on a case-by-case basis, as, in the opinion of the Management Board, such disclosure could prejudice the outcome of the pending cases.

Provisions for employment termination expense

On 7 December 2021, OPL S.A. concluded with Trade Unions the Social Agreement under which up to 1,400 employees are entitled to take advantage of the voluntary departure package in years 2022-2023. The value of voluntary departure package varies depending on individual salary, employment duration, age and year of resignation. 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 2023.

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish

Increases of provisions for employment termination expense during 12 months ended 31 December 2021 included PLN 130 million of the estimated amount of termination benefits for employees scheduled to terminate employment in OPL S.A. under the 2022-2023 Social Agreement. Other movements of these provisions during the 12 months ended 31 December 2021 relate to termination benefits for employees scheduled to terminate employment under the 2020-2021 Social Agreement.

The discount rate used to calculate the present value of provisions for employment termination expense amounted to 1.07% as at 31 December 2021 and 0.11% as at 31 December 2020.

Dismantling provisions

The dismantling provisions relate to dismantling or removal of items of property, plant and equipment (mainly telecommunications poles and items of mobile access network) and restoring the site on which they are located.

Based on environmental regulations in Poland, items of property, plant and equipment which may contain hazardous materials should be dismantled and utilised by the end of their useful lives by entities licensed by the State for this purpose.

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. The discount rate used to calculate the present value of provisions for dismantling amounted to 3.17% as at 31 December 2021 and 1.40% as at 31 December 2020.

16. Trade payables and other liabilities

16.1. Trade payables


(in PLN millions)	At 31 December	At 31 December
	2021	2020
Trade payables	1,209	1,195
Fixed assets payables	695	671
Telecommunications licence payables	257	390
Total trade payables	2,161	2,256
Current	2,062	2,014
Non-current ⁽¹⁾	99	242

⁽¹⁾Includes telecommunications licence payables.

As at 31 December 2021 and 2020, trade payables subject to reverse factoring amounted to PLN 155 million and PLN 106 million, respectively. These payables are presented together with the remaining balance of trade payables, as analysis conducted by the Company indicates they have retained their trade nature.

16.2. Other liabilities


(in PLN millions)	At 31 December	At 31 December
	2021	2020
Investment grants received	102	146
VAT payable	68	40
Other taxes payables	21	18
Contingent consideration related to acquisition of subsidiaries	10	30
Other	110	110
Total other liabilities	311	344
Current	310	313
Non-current	1	31

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish

Operational Programme “Digital Poland”

OPL S.A. concluded agreements with the “Digital Poland” Project Centre for co-financing of investment projects under the Operational Programme “Digital Poland” (“the Programme”). The Programme aims to strengthen digital foundations for the national development including common access to high-speed Internet, effective and user- friendly public e-services and a continuously rising level of digital competences of the society. Under the second contest of the Programme, the Company’s own contribution to the Programme amounts to PLN 0.3 billion and the Company was granted PLN 0.7 billion from the Programme funds for the development of the broadband telecommunications network. The funds shall be used in accordance with the rules applicable to the European Union funded projects and specific conditions resulting from the state aid regulations, such as costs eligibility.

In the 12 months ended 31 December 2021 and 2020, Orange Polska received PLN 109 million and PLN 177 million of investment grants under the Programme, respectively. In the 12 months ended 31 December 2021 and 2020, PLN 161 million and PLN 194 million was deducted from the cost of related assets as a result of the Programme and PLN 204 million and PLN 221 million, respectively, was paid to fixed assets suppliers.

Investment grants are presented separately within investing activities in the statement of cash flows. Received advances for investment grants are presented as cash and cash equivalents and other liabilities in the statement of financial position.

Grants might not be paid by the financing institution or once obtained might become repayable under certain circumstances resulting from not complying with conditions of the financing. The Company assesses that it is reasonably assured that grants corresponding to the scope of investments completed will be received and they will not become repayable.

17. Employee benefits


(in PLN millions)	At 31 December	At 31 December
	2021	2020
Jubilee awards	-	18
Retirement bonuses	40	53
Salaries and other employee-related payables	157	146
Total employee benefits	197	217
Current	140	166
Non-current	57	51

On 7 December 2021, OPL S.A. concluded with Trade Unions the Social Agreement for years 2022 - 2023 (see Note 15) in which the Company, as a part of the negotiated employment optimisation programme, committed to make additional contributions in the fixed amount totalling PLN 19 million to the employee social programmes carried out by the Company. As a result, this amount was recognised as other employee-related payables as at 31 December 2021 and labour expense in the 12 months ended 31 December 2021.

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish

17.1. Jubilee awards and retirement bonuses

Certain employees of the Company are entitled to long-term employee benefits in accordance with the Company’s remuneration policy (see Note 34.22). These benefits are not funded. Changes in the present and carrying value of obligations related to long-term employee benefits for the 12 months ended 31 December 2021 and 2020 are detailed below:


(in PLN millions)	12 months ended 31 December 2021
			Retirement
	Jubilee awards		bonuses		Total
Present/carrying value of obligation at the beginning of the period	18		53		71
Current service cost ⁽¹⁾	-		3		3
Past service cost ^{(1) (4)}	-		(7)		(7)
Interest cost ⁽²⁾	-		1		1
Benefits paid	(17)		(2)		(19)
Actuarial gains for the period	(1)	⁽¹⁾	(8)	⁽³⁾	(9)
Present/carrying value of obligation at the end of the period	-		40		40
Weighted average duration (in years)	-		12		12

(1)	Recognised under labour expense in the income statement.

(2)	Recognised under discounting expense in the income statement.

(3)	Recognised under actuarial gains/(losses) on post-employment benefits in the statement of comprehensive income.

(4)	Includes mainly impact of curtailment resulting from the Social Agreement concluded on 7 December 2021 (see Note 15).


(in PLN millions)	12 months ended 31 December 2020
			Retirement
	Jubilee awards		bonuses		Total
Present/carrying value of obligation at the beginning of the period	93		48		141
Current service cost ⁽¹⁾	6		2		8
Past service cost ^{(1) (4)}	(64)		-		(64)
Interest cost ⁽²⁾	1		1		2
Benefits paid	(13)		(1)		(14)
Actuarial (gains)/losses for the period	(5)	⁽¹⁾	3	⁽³⁾	(2)
Present/carrying value of obligation at the end of the period	18		53		71
Weighted average duration (in years)	1		13		10

(1)	Recognised under labour expense in the income statement.

(2)	Recognised under discounting expense in the income statement.

(3)	Recognised under actuarial gains/(losses) on post-employment benefits in the statement of comprehensive income.

(4)	Impact of the amendment to the Collective Labour Agreement signed in 2020 and described below.

In June 2020, Orange Polska signed with Trade Unions amendments to the Collective Labour Agreement. Under the applicable provisions of the Collective Labour Agreement, employees were entitled to jubilee awards upon completion of a certain number of years of service. According to the agreed changes, these rules regarding jubilee awards were cancelled from April 2021. At the same time, in the period between April and December 2021, employees with 15-30 years of service received a one-off jubilee award at the specified amount depending on a number of years of service. As a result, negative past service cost of PLN 64 million was recognised as a decrease in labour expense in the 12 months ended 31 December 2020 with a corresponding decrease in liabilities relating to employee benefits.

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish

The valuation of obligations as at 31 December 2021 and 2020 was performed using the following assumptions:


	At 31 December		At 31 December
	2021		2020
Discount rate	3.8	%	1.6	%
Long-term wage increase rate	3.5	%	2.5	%

A change of the discount rate by 0.5 p.p. would increase or decrease the present/carrying value of obligations related to long-term employee benefits by PLN 2 million as at 31 December 2021.

17.2. Cash-settled share-based payment plans

On 23 July 2021 and 4 September 2017, the Supervisory Board of OPL S.A. adopted respectively LTI (Long Term Incentive) and Orange.One incentive programmes (“the programmes”) for the key managers of the Orange Polska Group (“the participants”), which are based on derivative instruments (“phantom shares”), whose underlying assets are the Orange Polska S.A. shares listed on the Warsaw Stock Exchange.

The purpose of the programmes is to provide additional incentives to motivate senior managers to achieve mid-term commercial and financial objectives, resulting from Orange Polska’s strategy and to lead to the increase of the value of the Company’s shares.

17.2.a. LTI Programme

The terms of the programme are as follows:

a.	Participation in the programme is voluntary.

b.	The programme is based on 3 three-year cycles, each starting in consecutive calendar years. The phantom shares shall be purchased by the programme participants at the beginning of each cycle of the programme.

c.	The participants of the first cycle of the programme for years 2021 – 2023 could purchase a total of up to 2,023,200 phantom shares for a price of PLN 0.50 per phantom share.

Phantom shares shall be bought back from the participants by the Company, at Orange Polska’s average share price in the first quarter after the end of each cycle of the programme (first quarter of 2024 for the first cycle), only when it is not lower than the average Orange Polska’s share price in the first six months of the cycle (first half of 2021 for the first cycle of the programme). Otherwise, phantom shares shall not be bought back, resulting in the loss of invested funds by the participants. The number of phantom shares bought back depends on the independent achievement of the business objectives regarding EBITDAaL, organic cash flows, reduction in CO2 emission and average price of Orange Polska shares.

The following table illustrates the number and average fair value of phantom shares granted by OPL S.A.:


(number)	Phantom shares
	CO2	EBITDAaL	OCF	share price
	condition	condition	condition	condition
Outstanding at 1 January 2021	-	-	-	-
Granted during the year	190,620	571,860	476,550	667,170
Outstanding at 31 December 2021	190,620	571,860	476,550	667,170
Average fair value per unit (in PLN) at 31 December 2021	6.64	6.64	6.64	6.33

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish

The following table illustrates the key assumptions used in the calculation of the fair value of phantom shares as at 31 December 2021:


At 31 December 2021	Phantom shares
	CO2, EBITDAaL and		share price
	OCF conditions		condition
Exercise price (in PLN)	0.50		0.50
Barrier (in PLN)	6.61		6.61 - 7.61
Expected volatility	26.95	%	26.95	%
Risk-free interest rate	4.03	%	4.03	%
Dividend yield ⁽¹⁾	2.70	%	2.70	%
Expiry date	1st quarter 2024		1st quarter 2024
Model used	Black-Scholes		Black-Scholes
Date of vesting period end	31 December 2023		31 December 2023

(1)

Dividend yield is one of the key assumptions required in the calculation of the fair value of phantom shares. Dividend yield used in the calculation model assumes dividend payment of PLN 0.25 per share from 2022, which reflects mean expectation of market consensus for 2022 and does not constitute any guidance or commitment from the Company regarding future dividend payments.

As a result of the programme, PLN 4 million was recognised as an increase in labour expense in the 12 months ended 31 December 2021. The carrying amount of liabilities recognised as employee benefits as at 31 December 2021 amounted to PLN 4 million.

17.2.b. Orange.One Motivation Programme

a.	Participation in the programme was voluntary.

b.	The participants could purchase at the beginning of the programme a total of up to 2,315,000 phantom shares from the basic pool for a price of PLN 1 per phantom share.

In case of meeting certain criteria regarding the average price of Orange Polska shares (not fulfilled) and NPS (Net Promoter Score) (fulfilled), the participants could purchase in the fourth quarter of 2020 additional packages of up to 1,438,500 and 616,500 phantom shares, respectively, for a price of PLN 1 per phantom share.

In 2021 phantom shares were bought back from the participants by the Company at Orange Polska’s average share price in the first quarter of 2021, as the criterion of the average share price in the first quarter of 2021 was met (not lower than the average of Orange Polska’s closing share prices in the third quarter of 2017).

The following table illustrates the number and average fair value of phantom shares granted by OPL S.A.:


(number)	Phantom shares
	Basic pool	Additional pool
Outstanding at 1 January 2021	1,880,000	454,500
Exercised during the year	(1,865,000)	(454,500)
Forfeited during the year	(15,000)	-
Outstanding at 31 December 2021	-	-
Average OPL’s share price at the moment of exercise (in PLN)	6.41	6.41

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish


(number)	Phantom shares			Options for additional phantom shares
				NPS		Share price
	Basic pool	Additional pool		condition		condition
Outstanding at 1 January 2020	1,950,000	-		481,500		1,123,500
Granted during the year	-	454,500	⁽¹⁾	4,500		-
Exercised during the year	-	-		(454,500)	⁽¹⁾	-
Forfeited during the year	(70,000)	-		(31,500)		(1,123,500)	⁽²⁾
Outstanding at 31 December 2020	1,880,000	454,500		-		-
Average fair value per unit (in PLN) at 31 December 2020	5.29	5.29

⁽¹⁾ As a result of meeting the criterion related to NPS additional phantom shares were granted.

⁽²⁾ The criterion related to OPL’s share price was not met.

The following table illustrates the key assumptions used in the calculation of the fair value of phantom shares as at 31 December 2020:


At 31 December 2020	Phantom shares
	Basic pool		Additional pool
Exercise price (in PLN)	1.00		1.00
Barrier (in PLN)	5.46		5.46
Expected volatility	25	%	25	%
Risk-free interest rate	0.11	%	0.11	%
Dividend yield ⁽¹⁾	0.00	%	0.00	%
Expiry date	1st quarter 2021		1st quarter 2021
Model used	Black-Scholes		Black-Scholes
	30 September		1 October
Date of vesting period end	2019		2020

⁽¹⁾Dividend yield assumed no dividend payment in the 1st quarter of 2021 which reflected mean expectation of market consensus and did not constitute any guidance or commitment from the Company regarding future dividend payments.

As a result of the programme, PLN 1 million was recognised as a decrease in labour expense in the 12 months ended 31 December 2020. The carrying amount of liabilities recognised as employee benefits as at 31 December 2020 amounted to PLN 12 million.

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish

18. Finance income and expense


(in PLN millions)	12 months ended 31 December 2021
		Financial assets							Derivatives
							Financial
							liabilities at				Non-
	Investments	At amortised				Lease	amortised			Held for	financial
	in subsidiaries	cost		At fair value		liabilities	cost		Hedging	trading ⁽¹⁾	items ⁽²⁾	Total
Dividend income	3	-		-		-	-		-	-	-	3
Interest income	-	28		5	⁽³⁾	-	-		-	-	-	33
Interest expense on lease liabilities	-	-		-		(53)	-		-	-	-	(53)
Other interest expense and financial charges, including:	-	-		(10)	⁽⁴⁾	-	(97)		(71)	2	-	(176)
- interest expense	-	-		-		-	(97)	⁽⁵⁾	(85)	2	-	(180)
- ineffectiveness on derivatives hedging interest rate risk	-	-		-		-	-		14	-	-	14
Discounting expense	-	-		-		-	(28)		-	-	(38)	(66)
Foreign exchange gains/(losses)	-	1		-		(1)	16		(16)	5	-	5
Total finance costs, net	3	29		(5)		(54)	(109)		(87)	7	(38)	(254)
Interest income	-	5	⁽⁶⁾	-		-	-		-	-	-	5
Impairment losses	-	(98)	⁽⁷⁾	(10)	⁽⁸⁾	-	-		-	-	-	(108)
Foreign exchange gains/(losses)	-	-		-		-	(3)		3	1	-	1
Items recognised under operating income	-	(93)		(10)		-	(3)		3	1	-	(102)

(1)	Derivatives economically hedging commercial or financial transactions.

(2)	Includes mainly provisions.

(3)	Interest income on financial assets at fair value through other comprehensive income (selected trade receivables arising from sales of mobile handsets in instalments, see Note 13.1).

(4)	Change in valuation of financial assets at fair value through profit or loss (contingent consideration receivable from sale of 50% stake in Światłowód Inwestycje, see Note 14).

(5)	Includes mainly interest expense on loans from related party.

(6)	Late payment interest on trade receivables.

(7)	Includes PLN (43) million of impairment of receivables and contract assets and PLN (55) million of impairment of a loan receivable from TP TelTech Sp. z o.o.

(8)	Impairment losses on financial assets at fair value through other comprehensive income.

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish


(in PLN millions)	12 months ended 31 December 2020
		Financial assets						Derivatives
				At fair value		Financial
				through other		liabilities at				Non-
	Investments	At amortised		comprehensive	Lease	amortised			Held for	financial
	in subsidiaries	cost		income ⁽¹⁾	liabilities	cost		Hedging	trading ⁽²⁾	items ⁽³⁾	Total
Dividend income	14	-		-	-	-		-	-	-	14
Interest income	-	31		4	-	-		-	-	-	35
Interest expense on lease liabilities	-	-		-	(61)	-		-	-	-	(61)
Other interest expense and financial charges, including:	-	-		-	-	(114)		(94)	(8)	-	(216)
- interest expense	-	-		-	-	(114)	⁽⁴⁾	(92)	(8)	-	(214)
- ineffectiveness on derivatives hedging interest rate risk	-	-		-	-	-		(2)	-	-	(2)
Discounting expense	-	-		-	-	(29)		-	-	(14)	(43)
Foreign exchange gains/(losses)	-	2		-	(53)	(86)		66	17	-	(54)
Total finance costs, net	14	33		4	(114)	(229)		(28)	9	(14)	(325)
Interest income	-	8	⁽⁵⁾	-	-	-		-	-	-	8
Impairment losses	-	(137)		(9)	-	-		-	-	-	(146)
Foreign exchange gains/(losses)	-	7		-	-	(20)		(1)	24	-	10
Labour expense	-	-		-	-	-		(2)	(2)	-	(4)
Items recognised under operating income	-	(122)		(9)	-	(20)		(3)	22	-	(132)

(1)	Selected trade receivables arising from sales of mobile handsets in instalments (see Note 13.1).

(2)	Derivatives economically hedging commercial or financial transactions

(3)	Includes mainly provisions and employee benefits.

(4)	Includes mainly interest expense on loans from related party.

(5)	Late payment interest on trade receivables.

19. Loans from related parties


(in millions of currency)		Amount outstanding at ⁽¹⁾
		31 December 2021		31 December 2020
Creditor	Repayment date	Currency	PLN	Currency	PLN
Floating rate
Atlas Services Belgium S.A. (EUR)	20 May 2021	-	-	190	876
Atlas Services Belgium S.A. (PLN)	20 June 2021	-	-	2,700	2,700
Atlas Services Belgium S.A. (PLN) ⁽²⁾	29 July 2022	-	-	159	159
Atlas Services Belgium S.A. (PLN)	20 May 2024	1,500	1,500	1,499	1,499
Atlas Services Belgium S.A. (PLN)	20 June 2026	2,693	2,693	-	-
Cash pool deposits from subsidiaries (PLN)	3 January 2022	141	141	97	97
Fixed rate
Atlas Services Belgium S.A. (PLN)	27 March 2023	757	757	756	756
Integrated Solutions Sp. z o.o. (EUR)	7 June 2021	-	-	-	1
Total loans from related parties			5,091		6,088
Current			153		3,682
Non-current			4,938		2,406

(1)	Includes accrued interest and arrangement fees.

(2)	Revolving credit line.

On 29 January 2021, the Company and Atlas Services Belgium S.A., a subsidiary of Orange S.A., concluded a Loan Agreement for PLN 2,700 million with repayment date in June 2026. The new Loan Agreement, together with the

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish

Revolving Credit Facility, provided non-cash-refinancing of loans granted by Atlas Services Belgium S.A.: EUR 190 million which expired in May 2021 and PLN 2,700 million which expired in June 2021. Additionally, on 17 June 2021, the Company and Atlas Services Belgium S.A. concluded an Annex to existing Revolving Credit Facility Agreement, extending its maturity to 29 July 2022.

The weighted average effective interest rate on loans from related parties, before and after swaps (see Note 24), amounted respectively to 3.54 and 2.90% as at 31 December 2021 (1.28% and 3.03% as at 31 December 2020). Loans from related parties are not secured.

20. Liabilities arising from financing activities

Liabilities arising from financing activities are liabilities for which cash flows were, or future cash flows will be, classified in the statement of cash flows as cash flows from financing activities.

The tables below present the reconciliation of the Company’s liabilities arising from financing activities and derivatives (liabilities less assets) hedging these liabilities:


(in PLN millions)							Derivatives
			Loans		Other financial		hedging liabilities	Total liabilities
	Lease		from related		liabilities		from financing	from financing
	liabilities		parties		at amortised cost		activities ⁽¹⁾	activities
			Note 19				Note 24
Amount outstanding as at 1 January 2021	2,663		6,088		4		22	8,777
Net cash flows provided by:	(524)		(1,078)		23		12	(1,567)
− financing activities	(466)		(978)		24		91	(1,329)
− operating activities ⁽²⁾	(58)		(100)		(1)		(79)	(238)
Non-cash changes:	646		81		(1)		(309)	417
− foreign exchange (gains)/losses	1		(16)		-		16	1
− fair value change, excluding foreign exchange losses	-		-		-		(325)	(325)
− other changes	645	⁽³⁾	97	⁽⁴⁾	(1)	⁽⁴⁾	-	741
Amount outstanding as at 31 December 2021	2,785		5,091		26		(275)	7,627

(1)	Includes derivatives economically hedging liabilities from financing activities.

(2)	Includes interest paid.

(3)	Includes mainly recognition of new contracts and modification of existing contracts.

(4)	Includes accrued interest and arrangement fees.


(in PLN millions)							Derivatives
			Loans		Other financial		hedging liabilities	Total liabilities
	Lease		from related		liabilities		from financing	from financing
	liabilities		parties		at amortised cost		activities ⁽¹⁾	activities
			Note 19				Note 24
Amount outstanding as at 1 January 2020	2,538		6,498		60		18	9,114
Net cash flows provided by:	(473)		(591)		(57)		(79)	(1,200)
− financing activities	(406)		(479)		(56)		-	(941)
− operating activities ⁽²⁾	(67)		(112)		(1)		(79)	(259)
Non-cash changes:	598		181		1		83	863
− foreign exchange (gains)/losses	53		68		-		(77)	44
− fair value change, excluding foreign exchange gains	-		-		-		160	160
− other changes	545	⁽³⁾	113	⁽⁴⁾	1	⁽⁴⁾	-	659
Amount outstanding as at 31 December 2020	2,663		6,088		4		22	8,777

(1)	Includes derivatives economically hedging liabilities from financing activities.

(2)	Includes interest paid.

(3)	Includes mainly recognition of new contracts and modification of existing contracts.

(4)	Includes accrued interest and arrangement fees.

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish

21. Investments in subsidiaries


(in PLN millions)	At 31 December 2021			At 31 December 2020
	Cost	Impairment	Net	Cost	Impairment	Net
BlueSoft Sp. z o.o.	213	-	213	168	-	168
Integrated Solutions Sp. z o.o.	20	-	20	20	-	20
TP TelTech Sp. z o.o.	107	(43)	64	41	-	41
Orange Energia Sp. z o.o.	44	-	44	44	-	44
Orange Szkolenia Sp. z o.o.	15	-	15	15	-	15
Telefony Podlaskie S.A.	20	-	20	20	-	20
Orange Retail S.A.	25	-	25	25	-	25
Other subsidiaries	1	-	1	1	-	1
Total investments in subsidiaries	445	(43)	402	334	-	334

In June 2021, the Company increased by PLN 45 million the capital of BlueSoft Sp. z o.o., a fully owned subsidiary. The capital increase was set off against the repayment of loan granted by OPL S.A. to BlueSoft.

In September 2021, the Company increased by PLN 66 million the capital of TP TelTech Sp. z o.o., a fully owned subsidiary. The capital increase was set off against the repayment of loan granted by OPL S.A. to TP TelTech. The carrying amount of investment in TP TelTech was increased by PLN 23 million net (PLN 66 million gross less PLN 43 million of accumulated impairment loss reclassified from loan receivable to investment in this subsidiary).

As at 31 December 2021 and 2020 the Company owned directly the following shares in its subsidiaries:


			Share capital				Share capital
			owned by OPL S.A.				owned by OPL S.A.
Entity	Location	Scope of activities	directly				directly and indirectly
			31 December		31 December		31 December		31 December
			2021		2020		2021		2020
Integrated Solutions Sp. z o.o.	Warsaw, Poland	Provision of integrated IT and network services.	100	%	100	%	100	%	100	%
TP TelTech Sp. z o.o.	Łódź, Poland	Design, development and servicing of telecommunications network, monitoring of alarm signals.	100	%	100	%	100	%	100	%
BlueSoft Sp. z o.o.	Warsaw, Poland	Provision of IT services and solutions.	100	%	100	%	100	%	100	%
Orange Energia Sp. z o.o.	Warsaw, Poland	Sale of electrical energy.	100	%	100	%	100	%	100	%
Orange Szkolenia Sp. z o.o.	Warsaw, Poland	Training and hotel services, insurance agent.	100	%	100	%	100	%	100	%
Telefony Podlaskie S.A.	Sokołów Podlaski, Poland	Local provider of fixed-line, internet and cable TV services.	89.3	%	89.3	%	89.3	%	89.3	%
Orange Retail S.A.	Modlnica, Poland	Points of sale rental.	100	%	100	%	100	%	100	%
Pracownicze Towarzystwo Emerytalne Orange Polska S.A.	Warsaw, Poland	Management of employee pension fund.	95.6	%	95.6	%	100	%	100	%
Fundacja Orange	Warsaw, Poland	Charity foundation.	100	%	100	%	100	%	100	%
Telekomunikacja Polska Sp. z o.o.	Warsaw, Poland	No operational activity.	100	%	100	%	100	%	100	%
Światłowód Inwestycje Sp. z o.o. ⁽¹⁾	Warsaw, Poland	Building fibre infrastructure and offering wholesale access services to other operators.	50	%	100	%	50	%	100	%

⁽¹⁾ 50% of stake was sold on 31 August 2021 and, as a result, Światłowód Inwestycje became a jointly controlled entity (see Note 22).

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish

As at 31 December 2021 and 2020, the voting power held by the Company was equal to the Company’s interest in the share capital of its subsidiaries.

Additionally, OPL S.A. and T-Mobile Polska S.A. hold a 50% interest each in NetWorkS! Sp. z o.o., located in Warsaw. This company was classified as a joint operation as its scope of activities comprises management, development and maintenance of networks owned by OPL S.A. 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. 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.

22. Investment in joint venture

On 1 July 2021, Orange Polska contributed to Światłowód Inwestycje Sp. z o.o., a fully-owned subsidiary at that time, PLN 355 million of property, plant and equipment and PLN 754 million of cash. The property, plant and equipment included connections to 672 thousand households. At the same time, the Company and Światłowód Inwestycje concluded agreements for the lease and maintenance of fibres, including lease and services to be rendered in the future, for which Światłowód Inwestycje paid PLN 729 million upfront. The prepayment was set off against cash contribution made by Orange Polska. Finally, on 1 July 2021, as part of the sale transaction preparation, the Company granted a loan to Światłowód Inwestycje in the amount of PLN 157 million with a final repayment date in July 2024. The loan was repaid by Światłowód Inwestycje in 2021.

On 31 August 2021, Orange Polska and the APG Group (APG’s subsidiary Acari Investments Holding B.V., “APG”) finalised a share sale agreement under which the Company disposed of its 50% stake in Światłowód Inwestycje Sp. z o.o., a fully-owned subsidiary whose scope of activities comprises building fibre infrastructure and offering wholesale access services to other operators. Total fair value of the consideration amounted to PLN 1,323 million and consisted of:

PLN 897 million received in cash and

PLN 426 million to be received in years 2022-2026 conditional on Orange Polska delivering on the agreed network rollout schedule (maximum contractual amount of PLN 487 million before discounting). The amount receivable from APG Group is recognised as other assets in the statement of financial position.

The Company applied the expected present value technique to measure the fair value of the contingent consideration receivable. More details on the assumptions and valuation methodology are described in the Note 14.

Gain on the sale of 50% stake in Światłowód Inwestycje recognised in the income statement amounted to PLN 750 million and consisted of:


(in PLN millions)

Sales price for the 50% stake sold	1,323
Net book value of stake sold	(555)
Transaction costs incurred	(18)
Gain on the sale of 50% stake in Światłowód Inwestycje	750

As a result of the above transaction, Światłowód Inwestycje became a jointly controlled entity presented in the statement of financial position as an investment accounted for at cost.

Światłowód Inwestycje Sp. z o.o. is structured through a separate entity and there are no contractual terms or other relevant facts and circumstances which indicate that the parties retain rights to the assets and obligations for the liabilities of the joint arrangement. As a result, the Company considers that the parties which jointly control the arrangement have rights to the net assets and the Company classifies the joint arrangement as a joint venture.

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish

Additionally, the transaction assumes equity contributions for each party of around PLN 300 million to be made in years 2023-2026. Orange Polska has an option to buy c.1% of additional stake in Światłowód Inwestycje and obtain control in years 2027-2029.

In the 12 months ended 31 December 2021, the Company paid PLN 122 million of CIT (after utilisation of tax losses from previous years) and PLN 157 million of VAT with respect to the transaction. These payments are classified as cash flows from investing activities as they can be specifically identified with the transactions resulting in sale of 50% stake in Światłowód Inwestycje. The payment occurred before the Company obtained tax ruling at the end of September 2021. Consequently, the Company recalculated the taxable gain on the sale of 50% stake in Światłowód Inwestycje and as at 31 December 2021, recognised income tax receivable of PLN 92 million related to the consideration to be received and taxed in the next years, and decreased deferred tax asset by PLN 79 million.

23. Cash and cash equivalents


(in PLN millions)	At 31 December	At 31 December
	2021	2020
Current bank accounts, overnight deposits and cash on hand	58	60
Bank accounts dedicated for investment grants (see Note 16.2)	89	184
Deposits with Orange S.A.	738	55
Total cash and cash equivalents	885	299

The Company’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 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.

The Company’s maximum exposure to credit risk at the reporting date is represented by carrying amounts of cash and cash equivalents. The Company deposits its cash and cash equivalents with Orange S.A. and leading 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 Company applies the appropriate measures mitigating the default risk.

24. Derivatives

As at 31 December 2021 and 2020, the Company’s derivatives portfolio constituted financial instruments for which there was no active market (over-the-counter derivatives), mainly interest rate swaps, currency swaps, non-deliverable forwards, commodity swaps and stock options. To price these instruments the Company applies standard valuation techniques. The fair value of swap/forward transaction represents discounted future cash flows, where the applicable market interest rate curves constitute the base for calculation of discounting factors and amounts in foreign currencies are converted into PLN at the National Bank of Poland period-end average exchange rate. Future cash flows of commodity swaps are based on commodity prices on commodity exchange. The fair value of stock options is calculated on the basis of Black-Scholes model. Valuation of derivatives is also adjusted by counterparty (credit valuation adjustment - “CVA”) or own (debit valuation adjustment - “DVA”) credit risk. CVA and DVA estimates were not material compared to the total fair value of the related derivatives.

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish

The derivative financial instruments used by the Company are presented below:


(in PLN millions)
									Fair value
Type of					Weighted average				Financial	Financial
instrument ⁽¹⁾	Hedged item	Nominal amount		Maturity	price or rate per unit				asset	liability
At 31 December 2021
Derivative instruments - cash flow hedge

Interest rate risk
IRS	Loans from related party	3,800	m PLN	2024-2026	WIBOR 3M	->	1.48	%	273	-

Currency risk
NDF	Purchase of inventories	43	m EUR	2022	4.61				-	(1)
NDF	Purchase of inventories	3	m USD	2022	4.14				-	-
FX option	Purchase of inventories	10	m EUR	2022	4.71				-	-

Commodity risk
Commodity swap	Sale of copper	980	T	2022	9,405		USD		-	(1)
Commodity swap	Purchase of energy	1,452,000	MWh	2035	299		PLN		-	(3)

Total cash flow hedges									273	(5)
Derivative instruments - held for trading ⁽²⁾

Interest rate risk
IRS	Loan from related party	500	m PLN	2022	WIBOR 1M	->	2.19	%	1	-

Currency risk
NDF	Commercial transactions	27	m EUR	2022	4.58				1	-
NDF	Lease liabilities	7	m EUR	2022	4.53				1	-
NDF	Commercial transactions	5	m USD	2022	4.14				-	-

Commodity risk
Commodity swap	Sale of copper	277	T	2022	9,390		USD		-	-

Total derivatives held for trading									3	-
Total derivative instruments									276	(5)
Current									3	(2)
Non–current									273	(3)

(1)	IRS – interest rate swap, NDF – non-deliverable forward.

(2)	Derivatives economically hedging commercial or financial transactions.

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish


(in PLN millions)
									Fair value
Type of					Weighted average				Financial	Financial
instrument ⁽¹⁾	Hedged item	Nominal amount		Maturity	price or rate				asset	liability
At 31 December 2020
Derivative instruments - cash flow hedge

Currency and interest rate risk
CCIRS	Loan from related party	187	m EUR	2021	4.05				104	-
					EURIB 6M	+	0.28	%->
					WIBOR 6M	+	0.54	%
Interest rate risk
IRS	Loans from related party	5,450	m PLN	2021-2024	WIBOR 1/3/6M	->	2.13	%	-	(132)

Currency risk
NDF	Purchase of inventories	141	m EUR	2021	4.44				26	-
NDF	Purchase of inventories	12	m USD	2021	3.74				-	-

Share price risk
Stock option	Share-based payment plan	2	m shares	2021	5.22				3	-
	(see Note 17.2.b)
Total cash flow hedges									133	(132)
Derivative instruments - held for trading ⁽²⁾

Currency and interest rate risk
CCIRS	Loan from related party	3	m EUR	2021	4.05				2	-
					EURIB 6M	+	0.28	%->
					WIBOR 6M	+	0.53	%
Currency risk
NDF	2100 MHz licence payable	14	m EUR	2021	4.52				1	-
NDF	Commercial transactions	27	m EUR	2021	4.44				5	-
NDF	Lease liabilities	22	m EUR	2021	4.42				4	-
FX Swap	Cash	3	m EUR	2021	4.61				-	-
NDF	Commercial transactions	11	m USD	2021	3.71				1	-

Share price risk
Stock option	Share-based payment plan	1	m shares	2021	5.02				1	-
	(see Note 17.2.b)
Total derivatives held for trading									14	-
Total derivative instruments									147	(132)
Current									147	(32)
Non–current									-	(100)

(1)	CCIRS – cross currency interest rate swap, IRS – interest rate swap, NDF – non-deliverable forward.

(2)	Derivatives economically hedging commercial or financial transactions.

The Company’s maximum exposure to credit risk is represented by the carrying amounts of derivatives. The Company enters into derivatives contracts with Orange S.A. and leading financial institutions. Limits are applied to monitor the level of exposure to credit risk on the counterparties. Limits are based on each institution’s rating. In case the counterparty’s financial soundness is deteriorating, the Company applies the appropriate measures mitigating the default risk.

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish

The change in cash flow hedge reserve is presented below:


(in PLN millions)	12 months ended 31 December 2021			12 months ended 31 December 2020
	Before tax	Tax	After tax	Before tax	Tax	After tax
Total cash flow hedge reserve – beginning of period	(89)	16	(73)	(50)	9	(41)
- interest rate risk	(117)	22	(95)	(43)	8	(35)
- currency risk	28	(6)	22	(7)	1	(6)
- share price risk	-	-	-	-	-	-
Effective part of gains/(losses) on hedging instrument: ⁽¹⁾	282	(53)	229	(33)	6	(27)
- interest rate risk	308	(59)	249	(157)	30	(127)
- currency risk	(23)	5	(18)	126	(24)	102
- share price risk	-	-	-	(2)	-	(2)
- other market risk	(3)	1	(2)	-	-	-
Reclassification to the income statement, adjusting: ⁽¹⁾	94	(17)	77	20	(4)	16
- interest expense presented in finance costs, net	81	(15)	66	83	(16)	67
- foreign exchange (gains)/losses presented in finance costs, net	16	(3)	13	(65)	12	(53)
- foreign exchange gains presented in operating income	(3)	1	(2)	-	-	-
- labour expenses	-	-	-	2	-	2
Foreign exchange gains transferred to inventories	(18)	3	(15)	(26)	5	(21)
Total cash flow hedge reserve – end of period	269	(51)	218	(89)	16	(73)
- interest rate risk	272	(52)	220	(117)	22	(95)
- currency risk	-	-	-	28	(6)	22
- share price risk	-	-	-	-	-	-
- other market risk	(3)	1	(2)	-	-	-

(1)	Recognised under gains/losses on cash flow hedges in the statement of comprehensive income.

Gains/losses on cash flow hedges cumulated in cash flow hedge reserve as at 31 December 2021 are expected to mature and affect the income statement in years 2022 – 2035.

25. Fair value of financial instruments

25.1. Fair value measurements

For the financial instruments measured subsequent to their initial recognition at fair value, the Company classifies fair value measurements using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements:

− Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities,

− Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices),

− Level 3: inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).

The Company’s financial assets and liabilities that are measured subsequent to their initial recognition at fair value comprise derivative instruments presented in Note 24, selected trade receivables arising from sales of mobile handsets in instalments described in Note 13.1 and the contingent consideration receivable arising from the sale of 50% stake in Światłowód Inwestycje described in Note 14. The Company classifies derivative instruments and selected trade receivables arising from sales of mobile handsets in instalments to Level 2 fair value measurements and the contingent consideration receivable to Level 3 fair value measurements.

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish

25.2. Comparison of fair values and carrying amounts of financial instruments

As at 31 December 2021 and 2020, the carrying amount of the Company’s financial instruments excluding lease liabilities, except for telecommunications licence payables and a loan from related party based on fixed interest rate, approximated their fair value, due to relatively short term maturity of those instruments, cash nature, variable interest rates or immaterial difference between the original effective interest rates and current market rates.

A comparison of carrying amounts and fair value of telecommunications licence payables and a loan from related party based on fixed interest rate, for which 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:


(in PLN millions)	At 31 December 2021			At 31 December 2020
			Estimated		Estimated
		Carrying	fair value	Carrying	fair value
	Note	amount	Level 2	amount	Level 2
Telecommunications licence payables	16.1	257	272	390	437
Loan from related party	19	757	750	756	801

The fair value of financial instruments is calculated by discounting contractual future cash flows at the prevailing 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 total fair value of the related financial instruments.

26. Objectives and policies of financial risk management

26.1. Principles of financial risk management

The Company 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 mainly currency risk and interest rate risk), liquidity risk and credit risk. The Company manages the financial risks with the objective to limit its exposure to adverse changes mainly in foreign exchange rates and interest rates, to stabilise cash flows and to ensure an adequate level of financial liquidity and flexibility.

The principles of the Company Financial Risk Management Policy have been approved by the Management Board. Financial risk management is conducted according to strategies developed by the Treasury Committee under the direct control of the Board Member in charge of Finance.

Financial Risk Management Policy defines principles and responsibilities within the context of an overall financial risk management and covers the following areas:

− risk measures used to identify and evaluate the exposure to financial risks,

− selection of appropriate instruments to hedge against identified risks,

− valuation methodology used to determine the fair value of financial instruments,

− transaction limits for and credit ratings of counterparties with which the Company concludes hedging transactions.

26.2. Hedge accounting

The Company has entered into numerous derivative transactions to hedge exposure to currency risk, interest rate risk and other market risk. The derivatives used by the Company include: interest rate swaps, cross currency interest rate swaps, cross currency swaps, non-deliverable forwards, currency options, currency forwards, commodity swaps and stock options.

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish

Certain derivative instruments are classified as cash flow hedges and the Company applies hedge accounting principles as stated in IFRS 9 (see Note 34.18). The cash flow hedges are used to hedge the variability of future cash flows that is attributable to a particular risk and could affect the income statement. The terms of the hedging instruments match the terms of the hedged items. The Company has established hedge ratios at the level of 1:1 as the underlying risks of the hedging instruments are identical to the hedged risks. Hedge effectiveness is determined at the inception of the hedge relationship and through periodic prospective assessment to ensure that hedge effectiveness requirements are met.

Derivatives are used for hedging activities and it is the Company’s policy that derivative financial instruments are not used for trading (speculative) purposes. However, certain derivatives held by the Company are not designated as hedging instruments as set out in IFRS 9 and hedge accounting principles are not applied to those instruments. The Company considers those derivatives as economic hedges because they, in substance, protect the Company against currency risk, interest rate risk and other market risk.

Detailed information on derivative financial instruments, including hedging relationship, that are used by the Company is presented in Note 24.

26.3. Currency risk

The Company is exposed to foreign exchange risk arising from financial assets and liabilities denominated in foreign currencies, mainly lease liabilities, 2100 MHz licence payable, loans from related parties (see Note 19) and bank borrowing.

The Company’s hedging strategy, minimising the impact of fluctuations in exchange rates, is reviewed on a regular 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 Company hedges its currency exposure entering mainly into cross currency interest rate swaps, cross currency swaps and forward currency contracts, under which the Company agrees to exchange a notional amount denominated in a foreign currency into PLN or to settle in cash the difference between the contracted price and the prevailing spot price. As a result, the gains/losses generated 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 income statement.

Hedge ineffectiveness may arise from currency basis spread included in the hedging instrument that does not occur in the hedged instrument, a difference between the counterparty credit risk and the own credit risk and changes to the forecasted amount of cash flows of hedged items.

The table below presents the hedge rate of the Company’s major currency exposures. The rate compares the hedged value of a currency exposure to the total value of the exposure.


	Hedge rate
Currency exposure	At 31 December 2021		At 31 December 2020
Loans from related parties and bank borrowing	Not applicable		99.6	%
2100 MHz licence payable	0.0	%	25.6	%
Lease liabilities	4.7	%	14.2	%

The Company is also actively hedging the exposure to foreign exchange risk generated by future operating and capital expenditures.

The Company uses the sensitivity analysis described below to measure currency risk.

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish

The Company’s major exposures to foreign exchange risk (net of hedging activities) and potential foreign exchange gains/losses on these exposures resulting from a hypothetical 1% appreciation/depreciation of the PLN against other currencies are presented in the following table:


(in millions of currency)					Sensitivity to a change of the PLN against other
	Effective exposure after hedging				currencies impacting income statement
	At 31 December 2021		At 31 December 2020		At 31 December 2021		At 31 December 2020
					+1%	-1%	+1%	-1%
Currency exposure	Currency	PLN	Currency	PLN	PLN	PLN	PLN	PLN
2100 MHz licence payable (EUR)	30	136	41	188	1	(1)	2	(2)
Lease liabilities (EUR)	129	592	123	569	6	(6)	6	(6)
Lease liabilities (USD)	7	26	7	25	-	-	-	-
Total		754		782	7	(7)	8	(8)

The sensitivity analysis presented above is based on the following principles:

− unhedged portion of the discounted amount of liabilities is exposed to foreign exchange risk (effective exposure),

− derivatives designated as hedging instruments and those classified as economic hedges are treated as risk-mitigation transactions,

− cash and cash equivalents are excluded from the analysis.

The changes in fair value of derivatives classified as cash flow hedges of forecast transactions affect other reserves. The sensitivity analysis prepared by the Company indicated that the potential gains/(losses) impacting cash flow hedge reserve resulting from a hypothetical 1% depreciation/appreciation of the PLN against other currencies would amount to PLN 2/(2) million and PLN 7/(7) million as at 31 December 2021 and 2020, respectively

26.4. Interest rate risk

The interest rate risk is a risk that future cash flows of the financial instrument will change due to interest rates changes. The Company has interest bearing financial liabilities and assets consisting mainly of loans from and to related parties and bank borrowings (see Notes 19 and 32.2).

The Company’s interest rate hedging strategy, limiting exposure to unfavourable movements of interest rates, is reviewed on a regular basis. The preferable split between fixed and floating rate debt is the result of the analysis indicating the impact of the potential interest rates evolution on the financial costs.

According to the hedging strategy, the Company uses interest rate swaps and cross currency interest rate swaps to hedge its interest rate risk. As a result of the hedge, the structure of the liabilities changes to the desired one, as liabilities based on the floating/fixed interest rates are effectively converted into fixed/floating obligations.

As at 31 December 2021 and 2020, the Company’s proportion between fixed/floating rate debt (after hedging activities) was 89/11% and 98/2% respectively.

Hedge ineffectiveness may arise from designation of non-zero fair value derivatives in hedge relationships and a difference between the counterparty credit risk and the own credit risk.

The Company uses the sensitivity analysis described below to measure interest rate risk.

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish

The table below provides the Company’s sensitivity analysis for interest rate risk (net of hedging activities) assuming a hypothetical increase/decrease in the interest rates by 1 p.p.:


(in PLN millions)	Sensitivity to 1 p.p. change of interest rates
	At 31 December 2021				At 31 December 2020
	WIBOR		EURIBOR		WIBOR		EURIBOR
	+1 p.p.	-1 p.p.	+1 p.p.	-1 p.p.	+1 p.p.	-1 p.p.	+1 p.p.	-1 p.p.
Finance costs, net	(4)	4	-	-	2	(2)	(3)	3
Other reserves	113	(118)	-	-	63	(65)	(3)	3

The sensitivity analysis presented above is based on the following principles:

- finance costs, net include the following items exposed to interest rate risk: a) interest cost on financial debt based on floating rate (after hedging), b) the change in the fair value of derivatives not designated as hedging instruments and classified as held for trading (see Note 24),

- other reserves include the change in the fair value of derivatives that is determined as effective cash flow hedge (see Note 24),

- as at 31 December 2021, the gross financial debt based on floating rate (after hedging) amounted to PLN 546 million (as at 31 December 2020, PLN 117 million).

26.5. Other market risks

The Company is exposed to other market risks including commodity risk (energy price risk and copper price risk arising from sale of copper) and share price risk arising from cash-settled share-based payment plans (see Note 17.2). The Company hedges its exposure entering into commodity swaps and stock options, under which the Company sets the price of energy and copper and has right to receive cash if OPL S.A. share price exceeds certain level. As a result, the gains/losses generated by derivative instruments compensate the losses/gains on the hedged item.

There are no sources of hedge ineffectiveness that are expected to affect significantly hedging relationships.

The sensitivity analysis prepared by the Company indicated that a hypothetical increase/decrease of 10% in the base energy prices used in the valuation of commodity swaps would change the fair value of these instruments and affect other reserves respectively by PLN 34/(34) million as at 31 December 2021. The potential gains/losses resulting from a reasonably possible change of copper price and OPL S.A. share price would have an insignificant impact on the income statement and other reserves as at 31 December 2021 and 2020.

26.6. Liquidity risk

The liquidity risk is a risk of encountering difficulties in meeting obligations associated with financial liabilities. The Company’s liquidity risk management involves forecasting future cash flows, analysing the level of liquid assets in relation to cash flows, monitoring liquidity ratios and maintaining a diverse range of funding sources including back-up credit facilities.

In order to increase efficiency, the liquidity management process is optimised through a centralised treasury function of the Company, as liquid asset surpluses generated by the Company and its subsidiaries are invested and managed by the central treasury. The Cash Management Treasury Agreement with Orange S.A. enables the Company to deposit its cash surpluses with Orange S.A. The Company’s cash surplus is also invested into short-term highly-liquid financial instruments – bank deposits.

The Company also manages liquidity risk by maintaining committed, unused credit facilities, which create a liquidity reserve to secure solvency and financial flexibility. The above-mentioned Cash Management Treasury Agreement with Orange S.A. gives the Company access to back-up liquidity funding with headroom of up to PLN 500 million. In 2021, the Company and Orange S.A. updated the Cash Management Treasury Agreement, extending access

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish

to back-up liquidity funding to 28 February 2023. No drawdown was made on this facility as at 31 December 2021. The Company also has a revolving credit line from the Orange Group for up to PLN 1,500 million and other credit lines for up to PLN 160 million, of which PLN 26 million was used as at 31 December 2021. Therefore, as at 31 December 2021, the Company had unused credit facilities amounting to PLN 2,134 million (as at 31 December 2020, PLN 1,955 million).

Liquidity risk is measured by applying following ratios calculated and monitored by the Company regularly:

− liquidity ratios,

− maturity analysis of undiscounted contractual cash flows resulting from the Company’s financial liabilities,

− average debt duration.

The liquidity ratio (representing the relation between available financing sources, i.e. cash and cash equivalents and credit facilities, and debt repayments during next 12 and 18 months) and current liquidity ratio (representing the relation between unused credit facilities, current assets and current liabilities) are presented in the following table:


(in PLN millions)	Liquidity ratios
	At 31 December		At 31 December
	2021		2020
Liquidity ratio (incl. derivatives) - next 12 months ⁽¹⁾	486	%	59	%
Unused credit facilities (excluding short term)	519		1,840
Cash and cash equivalents	885		299
Debt repayments ⁽²⁾	368		3,733
Derivatives repayments ⁽³⁾	(79)		(79)
Liquidity ratio (incl. derivatives) - next 18 months ⁽¹⁾	126	%	56	%
Unused credit facilities (excluding short term)	519		1,840
Cash and cash equivalents	885		299
Debt repayments ⁽²⁾	1,241		3,914
Derivatives repayments ⁽³⁾	(130)		(60)
Current liquidity ratio (incl. unused credit facilities)	104	%	65	%
Unused credit facilities (excluding short term)	519		1,840
Total current assets	3,647		2,991
Total current liabilities	3,992		7,399
Current liquidity ratio (incl. unused credit facilities and new loan agreement) ⁽⁴⁾	Not applicable		103	%
Unused credit facilities (excluding short term)	Not applicable		1,840
Total current assets	Not applicable		2,991
Total current liabilities ⁽⁴⁾	Not applicable		4,699

(1)	The ratio does not include future cash flows from operating or investing activities, nor debt refinancing.

(2)	Undiscounted contractual cash flows on loans from related party, cash pool deposits from subsidiaries and bank borrowings.

(3)	Undiscounted contractual cash flows on derivatives.

(4)	As a result of the new loan agreement concluded on 29 January 2021, the amount of current liabilities would decrease to PLN 4,699 million and current liquidity ratio would increase to 103%.

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish

The maturity analysis for the contractual undiscounted cash flows resulting from the Company’s financial liabilities as at 31 December 2021 and 2020 is presented below.

As at 31 December 2021 and 2020, amounts in foreign currency were translated at the National Bank of Poland period-end average exchange rates. The variable interest payments arising from the financial instruments were calculated using the interest rates applicable as at 31 December 2021 and 2020, respectively.


(in PLN millions)	At 31 December 2021
			Undiscounted contractual cash flows ⁽¹⁾
				Non-current
								More
		Carrying	Within	1-2	2-3	3-4	4-5	than 5	Total non-
	Note	amount	1 year	years	years	years	years	years	current	Total
Loans from related parties	19	5,091	368	977	1,661	108	2,758	-	5,504	5,872
Other financial liabilities at amortised cost		26	1	4	4	4	4	14	30	31
Derivative assets	24	(276)	(84)	(93)	(69)	(58)	(29)	-	(249)	(333)
Derivative liabilities	24	5	5	-	(20)	(26)	(5)	10	(41)	(36)
Gross financial debt after derivatives		4,846	290	888	1,576	28	2,728	24	5,244	5,534
Trade payables	16.1	2,161	2,069	24	24	24	24	26	122	2,191
Lease liabilities	20	2,785	524	412	360	300	247	1,684	3,003	3,527
Financial guarantees	30.2	-	87	-	-	-	-	-	-	87
Total financial liabilities (including derivative assets)		9,792	2,970	1,324	1,960	352	2,999	1,734	8,369	11,339

(1)	Includes both nominal and interest payments.


(in PLN millions)	At 31 December 2020
			Undiscounted contractual cash flows ⁽¹⁾
				Non-current
								More
		Carrying	Within	1-2	2-3	3-4	4-5	than 5	Total non-
	Note	amount	1 year	years	years	years	years	years	current	Total
Loans from related parties	19	6,088	3,731	203	784	1,510	-	-	2,497	6,228
Other financial liabilities at amortised cost		4	4	-	-	-	-	-	-	4
Derivative assets	24	(147)	(143)	-	-	-	-	-	-	(143)
Derivative liabilities	24	132	64	31	25	8	-	-	64	128
Gross financial debt after derivatives		6,077	3,656	234	809	1,518	-	-	2,561	6,217
Trade payables	16.1	2,256	2,020	166	24	24	24	49	287	2,307
Lease liabilities	20	2,663	482	425	333	289	234	1,718	2,999	3,481
Financial guarantees	30.2	-	68	-	-	-	-	-	-	68
Total financial liabilities (including derivative assets)		10,996	6,226	825	1,166	1,831	258	1,767	5,847	12,073

⁽¹⁾Includes both nominal and interest payments.

The average duration for the existing debt portfolio as at 31 December 2021 was 3.2 years (1.4 years as at 31 December 2020).

26.7. Credit risk

The Company’s credit risk management objective is defined as supporting business growth while minimising financial risks by ensuring that customers and partners are always in a position to pay amounts due to the Company.

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish

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 OPL Group, which involve:

− clients’ risk assessment,

− monitoring clients’ business and financial standing,

− managing accounts receivable and bad debts.

The policies and rules regarding consolidated credit risk management for the Group were approved by the Credit Committee.

There is no significant concentration of credit risk within the Company. Further information on credit risk is discussed in Notes 13.1, 13.2, 23 and 24.

27. Income tax

27.1. Income tax


(in PLN millions)	12 months ended	12 months ended
	31 December 2021	31 December 2020
Current income tax	(103)	5
Deferred tax	(129)	(15)
Total income tax	(232)	(10)

The reconciliation between the income tax expense and the theoretical tax calculated based on the Polish statutory tax rate was as follows:


(in PLN millions)	12 months ended		12 months ended
	31 December 2021		31 December 2020
Income before tax	1,148		57
Statutory tax rate	19	%	19	%
Theoretical tax	(218)		(11)
Impairment of a loan granted to a subsidiary	(11)		-
Tax relief on research and development	6		5
Dividend income	-		3
Unrecognised deferred tax asset	11		(1)
Expenses of share-based payment plans	(5)		-
Other expenses not deductible for tax purposes	(15)		(6)
Total income tax	(232)		(10)

Expenses not deductible for tax purposes consist of cost items, which, under Polish tax law, are specifically determined as non-deductible.

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish

27.2. Deferred tax


(in PLN millions)	Statement of financial position		Income statement
	At 31 December	At 31 December	12 months ended	12 months ended
	2021	2020	31 December 2021	31 December 2020
Property, plant and equipment, intangible assets and right-of-use assets, net	362	383	(21)	7
Unused tax losses	5	28	(23)	(9)
Receivables and payables	35	138	(104)	14
Contract assets and contract costs	(130)	(117)	(13)	(2)
Contract liabilities	127	111	16	(2)
Employee benefits	35	34	2	(19)
Provisions	170	153	17	-
Net financial debt	(51)	20	(3)	(4)
Other	(3)	(3)	-	-
Deferred tax asset, net ⁽¹⁾	550	747
Total deferred tax			(129)	(15)

(1)

During the 12 months ended 31 December 2021 and 2020, PLN (71) million and PLN 3 million of change in deferred tax asset was recognised in the statement of comprehensive income, respectively. During the 12 months ended 31 December 2021 and 2020, PLN 3 million and PLN (1) million of change in deferred tax asset was recognised directly in equity, respectively.

Deferred tax asset is recognised in the amount which is 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 to determine the value in use of the telecom operator CGU (key assumptions are described in Note 8), which are considered as a positive evidence supporting the recognition of deferred tax asset.

Significant amount of the Company’s deferred tax asset relates to property, plant and equipment and intangible assets and has been recognised on temporary differences arising mainly from different tax and accounting depreciation rates used by the Company. As a result, the estimated period required to utilise this deferred tax asset is dependent on useful lives of items of property, plant and equipment and intangible assets estimated for accounting and tax purposes. The majority of deferred tax asset relating to property, plant and equipment and intangible assets is expected to be utilised after year 2025.

Unrecognised deferred tax assets relate to those incurred tax losses on capital activities, which are expected to expire rather than to be realised. As at 31 December 2020, incurred tax losses, for which no deferred tax asset was recognised, amounted to PLN 56 million gross. As at 31 December 2021, there were no tax losses for which no deferred tax asset was recognised.

28. Equity

28.1. Share capital

As at 31 December 2021 and 2020, the share capital of the Company amounted to PLN 3,937 million and was divided into 1,312 million fully paid ordinary bearer shares of nominal value of PLN 3 each.

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish

The ownership structure of the share capital as at 31 December 2021 and 2020 was as follows:

(in PLN millions)

At 31 December 2021

At 31 December 2020

Nominal

% of votes

% of shares

value

% of votes

% of shares

value

Orange S.A.

50.67

1,995

50.67

1,995

Nationale-Nederlanden Open Pension Fund

5.01

⁽¹⁾

5.01

⁽¹⁾

197

n/a

Other shareholders

44.32

1,745

49.33

1,942

Total

100.00

3,937

100.00

3,937

⁽¹⁾ To the best of the Company’s knowledge as at 31 December 2021, i.e. according to the notice from Nationale-Nederlanden Open Pension Fund of 3 August 2021.

On 3 August 2021 the Company received from Nationale-Nederlanden Open Pension Fund a notice on increasing its ownership of Orange Polska shares from 4.96% to 5.01%. Before that day, Nationale-Nederlanden Open Pension Fund owned less than 5% of Orange Polska shares and according to the Polish law was not obliged to notify the Company of the number of shares held. Consequently, any shares held by Nationale-Nederlanden Open Pension Fund as at 31 December 2020 are included in “other shareholders”. Between 3 August 2021 and 31 December 2021 Nationale-Nederlanden Open Pension Fund did not notify the Company of any changes in its ownership of Orange Polska shares.

28.2. Dividend

In accordance with the recommendation of the Management Board of the Company there was no dividend paid in 2021.

Retained earnings available for dividend payments amounted to PLN 5.0 billion as at 31 December 2021. The remaining balance of the Company’s retained earnings is unavailable for dividend payments due to restrictions of the Polish commercial law.

28.3. Equity-settled share-based payment plans

28.3.a. Together 2021 plan

On 21 April 2021, Orange S.A. approved the implementation of a share ownership plan for the Orange Group’s employees: Together 2021. The plan was launched on 15 September 2021 in 37 countries, including Poland. The purpose of Together 2021 is to increase employee shareholding and the involvement of all employees in the growth of the Orange Group.

The terms of Together 2021 are as follows:

a.	Participation in the plan was voluntary.

b.	All employees of the Orange Group with at least 3 months of employment as at 8 November 2021 (the grant date) could subscribe to the plan.

Under the plan employees were entitled to acquire Orange S.A.’s shares under preferential terms, i.e. with a 30% discount on the reference price of the shares. The reference price was calculated as the average of daily Orange S.A. share prices on the Euronext Paris market over the 20 trading sessions from 5 October to 1 November 2021 and amounted to EUR 9.48.

d.	In addition to shares subscribed, employees received also a contribution from Orange S.A. in the form of bonus shares in the amount of up to EUR 2,600 depending on the amount of personal investment of each employee.

e.	The subscription price was set at EUR 6.64 per share (EUR 9.48 after 30% discount).

f.	The maximum amount of a participant’s investment could not exceed 25% of their 2021 gross annual remuneration.

g.	The shares were delivered on 1 December 2021 and are locked-up until 1 June 2026.

h.	Participants of the plan are entitled to dividends paid by Orange S.A.

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish

Orange Polska’s employees purchased 360,765 shares and received free of charge additional 468,491 bonus shares, making a total of 829,256 shares.

The value of the benefits granted to employees under Together 2021 plan in exchange for their work for Orange Polska, amounted to PLN 24 million and was recognised in labour expense and equity in 2021.

The following table illustrates the key assumptions used in calculation of the value of the benefits granted by Orange S.A. to the Company’s employees:


Key assumptions	Together 2021 plan

Reference price at the grant date (in EUR)	9.48
Subscription price for shares purchased (in EUR)	6.64
Subscription price for bonus shares (in EUR)	0.00
Risk-free interest rate	(0.425)	%
Lending borrowing rate ⁽¹⁾	4.7	%
Lock-up period	4.5 years
Date of lock-up period end	1 June 2026

⁽¹⁾ Corresponds to Orange S.A. lending-borrowing rate used to calculate the non-transferability costs.

28.3.b. Long term incentive plan of Orange S.A.

Orange S.A. operates a long term incentive plan (“LTIP”), under which key managers of Orange Polska are awarded a defined number of free shares of Orange S.A., subject to performance conditions and continuous service in the Orange Group. The value of services rendered by managers for granting equity instruments of Orange S.A. recognised in labour expense in 2021 and 2020 amounted to PLN 2 million and PLN 3 million, respectively.

28.4. Other movements in retained earnings

Corrections resulting from immaterial errors in prior periods were recognised by the Company directly in retained earnings and presented as other movements in the statement of changes in equity for the 12 months ended 31 December 2020. The corrections of PLN 27 million, net (after PLN (6) million of tax impact) relate to capitalisation of some indirect employee benefits as property, plant and equipment and other intangible assets (PLN 48 million) and write-off of other non-current assets (PLN (21) million).

29. Management of capital

Capital management strategy is developed at the Group level. Capital management policy is described in Note 30 to Orange Polska Group IFRS Consolidated Financial Statements for the year ended 31 December 2021.

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish

30. Unrecognised contractual obligations

30.1. Investment commitments

Investment commitments contracted for at the end of the reporting period but not recognised in the financial statements were as follows:


(in PLN millions)	At 31 December	At 31 December
	2021	2020
Property, plant and equipment	463	827
Intangibles	99	88
Total investment commitments	562	915
Amounts contracted to be payable within 12 months after the end of the reporting period	505	828

Investment commitments relate mainly to development of telecommunications network, purchases of telecommunications network equipment, IT systems and other software.

As at 31 December 2021 and 2020, the Company’s commitments for the purchase of property, plant and equipment and intangible assets under the Operational Programme “Digital Poland” (see Note 16.2), contracted for at the end of the reporting period but not recognised in the financial statements amounted to PLN 182 million and PLN 440 million, respectively.

30.2. Guarantees

As at 31 December 2021 and 2020, OPL S.A. granted to its subsidiaries guarantees in the amount of PLN 138 million and PLN 113 million, respectively, of which PLN 87 million and PLN 68 million constituted financial guarantee contracts.

31. Litigation, claims and contingent liabilities

As at 31 December 2021, the Company recognised provisions for known and quantifiable risks related to various current or potential claims and proceedings, which represent the Company’s best estimate of the amounts, which are more likely than not to be paid. As a rule, provisions are not disclosed on a case-by-case basis, as, in the opinion of the Management Board, such disclosure could prejudice the outcome of the pending cases.

a. Proceedings by UOKiK and UKE and claims connected with them

According to the Act on Competition and Consumer Protection, in case of non-compliance with its 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. According to the Telecommunications Act, the President of UKE may impose on a telecommunications operator 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 of the Telecommunications Act.

Proceedings by UOKiK related to retail prices of calls to Play

In 2013, UOKiK commenced competition proceedings against Orange Polska, Polkomtel Sp. z o.o. and T-Mobile Polska S.A. UOKiK alleged that they abused collective dominant position and the abuse consisted in the fact that the retail prices of calls made by individual users from the network of each of the three operators to the network of P4 Sp. z o.o. (“P4”), operator Play, were relatively higher than the prices for such calls to the networks of the three operators.

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish

On 2 January 2018, UOKiK discontinued the competition proceedings. UOKiK stated that there was no basis to determine that Orange Polska, Polkomtel Sp. z o.o. and T-Mobile Polska S.A. acted in breach of the competition law.

In September 2015, Orange Polska received a lawsuit filed by P4 with the Court under which P4 claims for damages, in the amount of PLN 316 million (PLN 231 million and PLN 85 million of interest) relating to the retail mobile prices for a period between July 2009 and March 2012. P4 originally claimed jointly and severally towards Orange Polska, Polkomtel Sp. z o.o. and T-Mobile Polska S.A. but subsequently the proceedings against T-Mobile was discontinued due to a settlement concluded by the latter with P4.

On 2 July 2018, P4 extended its claim by the amount of PLN 314 million (PLN 258 million and PLN 56 million of capitalised interest). The factual basis for both claims is the same (retail price difference) but as regards the claim extension the period for which damages are calculated is different i.e. from April 2012 to December 2014.

On 29 November 2018 the court excluded P4’s claim for PLN 314 million to separate court proceedings.

On 27 December 2018 the court of first instance dismissed P4’s claim for PLN 316 million in its entirety as time barred. P4 appealed that verdict to the Appeal Court and, on 28 December 2020, the Appeal Court repealed the verdict and remanded the case back to the court of first instance on the basis that the court did not sufficiently explain the reasons for the claim being time barred. No other arguments were assessed by the Court of Appeal.

Proceedings by UOKiK related to activation of certain additional services

On 14 May and 23 July 2021, UOKiK instituted proceedings regarding practices violating collective interests of consumers in the provision of certain additional services by Orange Polska alleging, among others, insufficient information for consumers in activating the service, lack of information on a durable medium and insufficient replies to customer complaints. On 14 December 2021, UOKiK issued a commitment decision (without imposing a fine) concluding the proceedings instituted on 14 May 2021.

Other proceedings by UOKiK and UKE

As at 31 December 2021, the Company recognised provisions for known and quantifiable risks related to proceedings against OPL S.A. initiated by UOKiK and UKE, which represent the Company’s best estimate of the amounts, which are more likely than not to be paid. The actual amounts of penalties, if any, are dependent on future events the outcome of which is uncertain, and, as a consequence, the amount of the provision may change at a future date.

b. Tax settlements

Tax settlements are subject to review and investigation by a number of authorities, which are entitled to impose fines, penalties and interest charges. Value added tax, corporate income tax, personal income tax, real estate tax, other taxes and the general anti-avoidance rules or social security regulations are subject to frequent changes. These changes contribute to the lack of system stability and tax disputes. Frequent contradictions and inconsistencies in legal interpretations both within government bodies and between companies and government bodies create uncertainties and conflicts. These uncertainties result in higher risk in the area of tax settlements, which may require recognition of liabilities for uncertain tax positions and provisions resulting from differences of interpretation of the tax law.

Tax authorities may examine accounting records up to five years following the end of the year in which the tax becomes due. Consequently, the Company may be subject to additional tax liabilities, which may arise as a result of additional tax audits.

In 2018, the Tax Office finalised a tax audit relating to OPL S.A.’s corporate income tax settlements for the fiscal year ended 31 December 2016. Based on the findings of the audit, tax proceedings were launched against the Company in 2019. The Company does not agree with the findings and believes that the issues raised in the tax

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish

audit protocol are without merit and the possibility of ultimate outflow of resources in the ongoing proceedings is low.

The Company is also involved in other proceedings and litigations in respect to various taxes, including PIT, CIT, VAT, real estate tax and other taxes. Some of these proceedings and litigations may result in future cash outflows. The possible outcomes of these proceedings and litigations are assessed by OPL on a regular basis and quantifiable risks related to them that are probable to result in future cash outflows are adequately reflected as income tax liabilities or provisions in the statement of financial position.

c. Issues related to the incorporation of Orange Polska

Orange Polska was established as a result of the transformation of the state-owned organisation Poczta Polska Telegraf i Telefon (“PPTiT”) into two entities – the Polish Post Office and Orange Polska S.A. The share premium in the equity of Orange Polska 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 of ownership rights to the new entities, certain properties and other assets that are currently under Orange Polska’s control were omitted from the documentation recording the transfer and the documentation relating to the transformation process is incomplete in this respect. This means that Orange Polska’s rights to certain properties and other non-current assets may be questioned and, as a result, the share premium balance may be subject to changes.

d. Other contingent liabilities and provisions

Operational activities of the Company are subject to legal, social and administrative regulations a breach of which, even unintentional, may result in sanctions imposed on the Company. In addition to fines which may be imposed by UOKiK and UKE described in Note 31.a also the President of Energy Regulatory Office may impose a penalty of up to a maximum amount of 15% of the revenues gained in the previous tax year among others for an infringement of certain provisions of Energy Law, a failure in fulfilment of obligations determined by the concession, a refusal to provide information.

The Company is a party to a number of legal proceedings and commercial contracts related to its operational activities. Some regulatory decisions can be detrimental to the Company and court verdicts within appeal proceedings against such decisions can have negative consequences for the Company. Also, there are claims including claims for damages, contractual penalties or remuneration raised by counterparties to commercial contracts, or claims for other payments resulting from breach of law which may result in cash outflows.

Furthermore, the Company uses fixed assets of other parties in order to provide telecommunications services. Terms of use of these assets are not always formalised and as such, the Company is subject to claims and might be subject to future claims in this respect, which will probably result in a cash outflows in the future. The amount of the potential obligations or future commitments cannot yet be measured with sufficient reliability due to legal complexities involved.

Some of the above determined matters may be complex in nature and there are many scenarios for final settlement and potential financial impact for the Company. The Company monitors the risks on a regular basis and the Management Board believes that adequate provisions have been recorded for known and quantifiable risks. Information regarding the range of potential outcomes has not been separately disclosed as, in the opinion of the Company’s Management, such disclosure could prejudice the outcome of the pending cases.

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish

32. Related party transactions

32.1. Management Board and Supervisory Board compensation

Compensation (remuneration, bonuses, post-employment and other long-term benefits, termination indemnities and share-based payment plans - cash and non-monetary benefits) of OPL S.A.’s Management Board and Supervisory Board Members is presented below. Additionally, the President of OPL S.A.’s Management Board is employed by Orange Global International Mobility S.A., a subsidiary of Orange S.A., and posted to Orange Polska since September 2020. The amount incurred by Orange Polska S.A. for the reimbursement of key management personnel costs from the Orange Group is presented separately in the table below.


(in PLN thousands)	12 months ended	12 months ended
	31 December 2021	31 December 2020
Short-term benefits excluding employer social security payments	15,040	17,005
Post-employment benefits	1,060	5,378
Share-based payment plans	1,243	57
Total compensation	17,343	22,440
Reimbursement of the key management personnel costs	5,382	1,339
Total	22,725	23,779

Additionally, Section 9.3 of the Management Board’s Report on the Activity of the Orange Polska Group and Orange Polska S.A. for the year ended 31 December 2021 includes the information on the Remuneration Policy of Orange Polska, where more details on Management Board and Supervisory Board compensation can be found.

32.2. Related party transactions

As at 31 December 2021, Orange S.A. owned 50.67% of shares of the Company. Orange S.A. has majority of the total number of votes at the General Meeting of OPL S.A. which appoints OPL S.A.’s Supervisory Board Members. The Supervisory Board decides about the composition of the Management Board. According to the Company’s Articles of Association, at least 4 Members of the Supervisory Board must be independent. The majority of Members of the Audit Committee of the Supervisory Board are independent.

OPL S.A.’s income earned from its subsidiaries comprises mainly sale of fixed assets, telecommunications equipment sales and IT services. The purchases from the subsidiaries comprise mainly network development and maintenance. Costs incurred by the Company in transactions with its subsidiaries also comprise donations to Fundacja Orange and impairment of loan (see Note 18).

Income earned from the Orange Group comprises mainly wholesale telecommunications services and research and development income. The purchases from the Orange Group comprise mainly brand fees and wholesale telecommunications services.

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.

In 2021, Orange S.A. granted benefits to OPL S.A.’s employees under Together 2021 share ownership plan in exchange for their work for the Company in the amount of PLN 24 million (see Note 28.3).

OPL S.A.’s financial income earned from its subsidiaries comprises dividends and interest on the loans granted to the subsidiaries. Financial receivables from the subsidiaries relate to the loans granted to the subsidiaries. Financial payables to the subsidiaries comprise mainly cash pool deposits from subsidiaries.

Until 31 December 2021, the Company and Atlas Services Belgium S.A., a subsidiary of Orange S.A., concluded loan agreements for PLN 4,950 million and Revolving Credit Facility Agreement for up to PLN 1,500 million

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish

(see Note 19). Additionally, the Company concluded an agreement with Orange S.A. concerning derivative transactions to hedge exposure to interest rate risk and foreign currency risk related to the financing from Atlas Services Belgium S.A. The nominal amount of derivative transactions outstanding under the agreement as at 31 December 2021 was PLN 4,300 million with a total fair value of PLN 274 million (as at 31 December 2020, nominal amount of PLN 5,450 million and EUR 190 million, respectively, with a total negative fair value of PLN 26 million).

Financial receivables, payables, financial expense and other comprehensive income/loss concerning transactions with the Orange Group relate to the above-mentioned agreements. Financial income from Orange S.A. and cash and cash equivalents deposited with Orange S.A. relate to the Cash Management Treasury Agreement (see Note 26.6).

The Company’s transactions with joint venture relate to transactions with Światłowód Inwestycje Sp. z o.o. (see Note 22). OPL S.A.’s income and receivables from joint venture relate mainly to sale of fibre network assets. Liabilities to joint venture relate mainly to agreements for the lease and services to be rendered in the future, for which joint venture paid upfront.


(in PLN millions)	12 months ended	12 months ended
	31 December 2021	31 December 2020
Sales of goods and services and other income:	756	324
Orange Polska Group (subsidiaries)	173	109
Orange Group	242	215
- Orange S.A. (parent)	166	138
- Orange Group (excluding parent)	76	77
Joint venture	341	-
Purchases of goods (including inventories, tangible and intangible assets), services and other costs:	(674)	(510)
Orange Polska Group (subsidiaries)	(383)	(292)
Orange Group	(260)	(218)
- Orange S.A. (parent)	(78)	(58)
- Orange Group (excluding parent)	(182)	(160)
- including Orange Brand Services Limited (brand licence agreement)	(135)	(116)
Joint venture	(31)	-
Financial income:	8	16
Orange Polska Group (subsidiaries)	6	16
Orange S.A. (parent)	2	-
Financial expense, net:	(158)	(198)
Orange Group	(158)	(198)
- Orange S.A. (parent)	(78)	(17)
- Orange Group (excluding parent)	(80)	(181)
Other comprehensive income/(loss):	389	(74)
Orange S.A. (parent)	389	(74)

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish


(in PLN millions)	At 31 December	At 31 December
	2021	2020
Receivables and contract costs:	378	118
Orange Polska Group (subsidiaries)	22	33
Orange Group	97	85
- Orange S.A. (parent)	67	51
- Orange Group (excluding parent)	30	34
Joint venture	259	-
Liabilities:	900	182
Orange Polska Group (subsidiaries)	100	98
Orange Group	105	84
- Orange S.A. (parent)	44	31
- Orange Group (excluding parent)	61	53
Joint venture	695	-
Financial receivables:	301	281
Orange Polska Group (subsidiaries)	27	175
Orange S.A. (parent)	274	106
Cash and cash equivalents deposited with:	738	55
Orange S.A. (parent)	738	55
Financial liabilities:	5,091	6,220
Orange Polska Group (subsidiaries) (see Note 19)	141	98
Orange Group	4,950	6,122
- Orange S.A. (parent)	-	132
- Orange Group (excluding parent) (see Note 19)	4,950	5,990
Guarantees granted:	138	113
Orange Polska Group (subsidiaries)	138	113

33. Subsequent events

On the basis of an annual review of estimated useful lives of fixed assets, the Company decided to extend useful lives for certain network assets and items of software from 2022. As a result, depreciation and amortisation expense in 2022 relating to these assets is expected to be lower by approximately PLN 38 million.

34. Significant accounting policies

In addition to the statement of compliance included in Note 2, this note describes the accounting principles applied to prepare the Separate Financial Statements for the year ended 31 December 2021.

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

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34.1. Use of estimates and judgement

In preparing the Company’s accounts, the Company’s Management Board is required to make estimates Management Board reviews these estimates if the circumstances on which they were based evolve or in the light of new information or experience. Consequently, estimates made as at 31 December 2021 may be subsequently changed. The main estimates and judgements made are described in the following notes:

Note		Estimates and judgements
5, 34.9	Revenue	Allocation of transaction price to each performance obligation based on stand-alone selling price. Estimating stand-alone selling prices of performance obligations. Straight-line recognition of revenue relating to service connection fees. Reporting revenue on a net versus gross basis (analysis of Company’s involvement acting as principal versus agent). Estimation of early termination fees charged to customers.
8, 34.17	Impairment of cash generating unit and individual tangible and intangible assets	Key assumptions used to determine CGU and recoverable amounts: impairment indicators, models, discount rates, growth rates.
12, 34.15	Leases	Key assumptions used to measure the lease liability and the right of use assets: lease term, discount rate and usage of options. Application of portfolio approach to certain leases.
10, 11, 34.13, 34.14	Useful lives of tangible and intangible assets (excluding goodwill)	The useful lives and the method of depreciation and amortisation.
11, 16.2, 34.14	Property, plant and equipment - investment grants	The assumptions underlying the measurement and recognition of investment grants obtained, i.e. when meeting grant criteria is considered reasonably assured.
13.1, 13.2, 34.18	Impairment of financial assets	Key assumptions used to determine impairment of financial assets: expected credit loss rate (including incorporation of forward looking information), grouping of financial assets.
15, 31, 34.21	Provisions	The assumptions underlying the measurement of provisions for claims and litigation. Provisions for employment termination expense: discount rates, number of employees, employment duration, individual salary and other assumptions.
15	Dismantling costs	The assumptions underlying the measurement of provision for the estimated costs for dismantling and removing the asset and restoring the site on which it is located.
16	Reverse factoring	Reverse factoring: distinguishing operating debt and financial debt
17, 34.22, 34.23	Employee benefits	Discount rates, salary increases, retirement age, staff turnover rates and other. Model and assumptions underlying the measurement of fair values of share-based payment plan.
22	Co-control	Judgment with respect to the existence or not of the co-control.
24, 25, 34.18	Fair value of derivatives and other financial instruments	Model and assumptions underlying the measurement of fair values.
27, 34.20	Income tax	Assumptions used for recognition of deferred tax assets. Assumptions used to determine taxable results and tax bases for uncertain tax treatments.
34.19	Allowance for slow moving and obsolete inventories	Methodology used to determine net realisable value of inventories.

The Company 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), provisions for claims, litigation and risks (see Notes 15 and 31), leases (see Note 12), useful lives of tangible and intangible assets (see Notes 10, 11, 34.13 and 34.14) and co-control over Światłowód Inwestycje (see Note 22).

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Orange Polska S.A.

IFRS Separate Financial Statements – 31 December 2021

Translation of the financial statements originally issued in Polish

Where a specific transaction is not dealt with in any standard or interpretation, Management Board 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 Company’s financial position, financial performance and cash flows,

− reflect the economic substance of transactions,

− are neutral and

− are complete in all material respects.

Consideration of climate change

The Company has analysed the impact of climate change on the Separate Financial Statements and concluded that there is no impact on the carrying amounts of assets and liabilities as at 31 December 2021. The Company has specifically considered the impact of climate change on the estimates and judgments made, including impairment assessment of the telecom operator cash generating unit as well as useful lives of tangible and intangible assets.

34.2. Standards and interpretations issued but not yet adopted

IFRS 17 “Insurance Contracts”. This standard was issued on 18 May 2017 and will be effective for annual periods beginning on or after 1 January 2023. This standard has not yet been endorsed by the European Union. IFRS 17 establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts. The Company does not act as a principal in case of insurance contracts and this standard will have no impact on financial statements.

34.3. Accounting positions adopted by the Company in accordance with paragraphs 10 to 12 of IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors”

The accounting position described below is not specifically (or is only partially) dealt with by any IFRS standards or interpretations endorsed by the European Union. The Company has adopted accounting policies which it believes best reflect the substance of the transactions concerned.

Business Combination under Common Control

When accounting for merger of the parent with its subsidiary (i.e. business combination under common control) the Company has adopted in 2013 the provisions of the Generally Accepted Accounting Principles in the United States, Accounting Standards Codifications 805-50 “Business Combinations – Related Issues” (see Note 34.7 “Legal merger of the parent with its subsidiary”).

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IFRS Separate Financial Statements – 31 December 2021

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34.4. Options available under IFRSs and used by the Company

Certain IFRSs offer alternative methods of measuring and recognising assets and liabilities. In this respect, the Company has chosen:


Standards		Option used
IAS 2	Inventories	The cost of inventories is determined by the weighted average unit cost method.
IAS 16	Property, plant and equipment	Property, plant and equipment are measured at cost less any accumulated depreciation and any accumulated impairment losses.
IAS 20	Government grants and disclosure of government assistance	Non-repayable government grants related to assets decrease the carrying amount of the assets. Government grants related to income are deducted from the related expenses.
IAS 27	Separate financial statements	Investments in subsidiaries, associates and joint venture are accounted at cost.
IFRS 9	Financial Instruments	Recognition of the loss allowance at an amount equal to lifetime expected credit losses for trade receivables and contract assets that contain a significant financing component.
IFRS 16	Leases	Right of use assets are measured at cost less any accumulated depreciation and any accumulated impairment losses and adjusted for any remeasurement of the lease liability. Right of use assets are presented separately from other assets in the statement of financial position. The Company elected to apply the short term exemption and the exemption for low value leases, as described in IFRS 16. The Company does not apply IFRS 16 to leases of intangible assets.

34.5. Presentation of the financial statements

Presentation of the statement of financial position

In accordance with IAS 1 “Presentation of financial statements”, assets and liabilities are presented in the statement of financial position as current and non-current.

Presentation of the income statement

As allowed by IAS 1 “Presentation of financial statements” expenses are presented by nature in the income statement.

Earnings/loss per share

The net income/loss per share for each period is calculated by dividing the net income/loss for the period by the weighted average number of shares outstanding during that period. The weighted average number of shares outstanding is after taking account of treasury shares, if any.

34.6. Investments in joint arrangements

A joint arrangement is either a joint venture or a joint operation. The Company is involved in both a joint operation (NetWorkS! Sp. z o.o., see Note 21) and a joint venture (Światłowód Inwestycje Sp. z o.o., see Note 22).

The Company recognises in relation to its interests in a joint operation its assets, liabilities, revenue and expenses, including its respective shares in the above.

The Company recognises its interest in a joint venture at cost.

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IFRS Separate Financial Statements – 31 December 2021

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34.7. Legal merger of the parent with its subsidiary

The legal merger of the parent with its subsidiary is accounted for using the subsidiary’s values from the consolidated financial statements of the parent entity (‘predecessor value method’); these amounts include any goodwill recognised in the consolidated financial statements of the parent on acquisition of the subsidiary.

The subsidiary’s results and statement of financial position are incorporated prospectively from the date on which the legal merger occurred.

34.8. Effect of changes in foreign exchange rates

The functional currency of Orange Polska is the Polish złoty.

Transactions in foreign currencies

Transactions in foreign currencies are translated into Polish złoty at the spot exchange rate prevailing as at the transaction date. Monetary assets and liabilities which are denominated in foreign currencies are translated 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:

− in other operating income and expense for commercial transactions,

− in financial income or finance costs for financial transactions and lease contracts.

34.9. Revenue

Separable components of bundled offers

For the sale of multiple products or services (e.g. offers including a handset and a telecommunications service contract), the Company evaluates all promises in the arrangement to determine whether they represent distinct performance obligations i.e. obligations not dependent on each other. Sale of mobile handsets and sale of services in bundled offers are distinct goods or services.

The consideration for the bundled package (i.e. transaction price) is allocated to the distinct performance obligations (e.g. sale of a handset and sale of a service) and recognised as revenue when the performance obligation is satisfied (i.e. when the control over good or service is transferred to a customer).

In general, the transaction price is the amount of consideration (usually the cash) to which the Company expects to be entitled during the contract term, including up-front fees. The contract term is the period that is made enforceable through contractual terms or business practices i.e. the enforceable period length is impacted by practices e.g. when the Company creates or accepts a valid expectation to free the customer from certain commitments before the end of the contract by allowing commencement of a new contract. The transaction price does not include the effect of time value of money (except payments by instalments models which, by nature, meet the definition of a financial receivable) unless the effect of financing component, in comparison to the transaction price, is significant at a contract level.

The allocation of the transaction price between various performance obligations is made to estimate the amount to which the Company is expected to be entitled in exchange for transferring a promised good or service to the customer.

The Company is a service company and achieves the vast majority of its margin by selling telecommunication services. The sale of subsidised handsets (i.e. when an invoice amount for a handset is lower than the cost of a handset) is a tool to promote the Company’s services and to attract customers. Therefore, in case of services sold with subsidised handsets, the Company allocates the subsidy to the service revenues. The Company estimates the amount of revenue that it expects to earn while pricing the service offer. Based on rationale described above, the stand-alone selling price (i.e. the price at which the Company would sell a promised good or service separately

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to the customer) of subsidised handsets is estimated by their cost plus margin to cover additional costs connected with the sale of handsets, such as e.g. transport costs or logistic costs. The estimated margin is insignificant. Therefore, it is disregarded from the cost plus margin formula for the sake of the practicality.

If the Company is able to sell a handset with a profit (i.e. when an invoice amount for a handset is higher than the cost of a handset in bundled offer), it allocates the handset profit to the handset revenue.

While defining the stand-alone selling price of any performance obligation, firstly, the Company’s observable price should be identified i.e. the price of good or service when the Company sells that good or service separately in similar circumstances and to similar customers. In case of the lack of an entity observable price, other methods of valuation of an obligation should be used. The stand-alone selling prices of a service are defined per different categories of customers, they are dependent on the service content, commitment period and consumption profile. Therefore, the SIMO price (the price of a service sold stand-alone i.e. not in a bundle with a handset) is not treated as a good proxy of the stand-alone selling price of a specific service sold in a bundled offer. Consequently, the stand-alone selling price of the telecommunication service sold in a bundled offer is determined by using an adjusted-market assessment approach and corresponds to the service price in the bundle adjusted by the handset subsidy recovered over the enforceable period.

The Company accounts for contract balances if the right to a payment differs from timing when performance obligation is satisfied. A contract asset corresponds to OPL S.A.’s right to a payment in exchange for goods or services that have been transferred to OPL S.A.’s customers. A contract asset, if any, is recognised at inception of the contract. It is typically measured as the sum of the monthly subsidy recovery over the remaining enforceable period of the contract. Contract liabilities represent amounts billed to customers by OPL S.A. before receiving the goods and/or services promised in the contract. This is typically the case for advances received from customers or amounts invoiced for goods or services not yet transferred, such as contracts payable in advance or prepaid packages.

Equipment sales

Revenue from an equipment sales is recognised when the control over the equipment is transferred to the buyer (see also paragraph “Separable components of bundled offers”).

Equipment/dark fibres’ leases

Equipment/dark fibres’ lease revenue is recognised on a straight-line basis over the life of the lease agreement in case of an operating lease. In case of a finance lease revenue/income from sale of equipment/dark fibres is considered as a sale on credit.

Revenues from the sale or supply of content and third party licences

Depending on the substance of a transaction and the Company’s role in the transaction, the Company can act as a principal and recognise revenue at the gross amount, separately from costs, or as an agent and recognise revenue in the amount net of costs. The assessment of the role of the Company is based on the notion of the control and the indicators of the control. The Company is treated as a principal if it controls a good or a service before the good or service is transferred to a customer.

The Company is considered as an agent if the Company’s performance obligation is to arrange for the provision of a good or a service to the client by another party, i.e. when it does not control the specified good or service provided by another party before that good or service is transferred to the customer.

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Service revenue

Telephone service and Internet access subscription fees are recognised in revenue on a straight-line basis over the service period because of the continuous transfer of control over the service to the customer. Charges for incoming and outgoing telephone calls are recognised in revenue when the service is rendered. Revenue from the sale of phone cards in mobile telephony systems is recognised when they are used or expire.

Installation fees are recognised when the service is rendered.

Promotional offers

For certain commercial offers where customers do not pay for services 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 enforceable period.

Material rights

Material right is an option to purchase additional goods or services with a discount that is incremental to discounts typically given for those goods or services. The Company has not identified any material rights in the contracts with customers which would need to be treated as separate performance obligations.

34.10. Subscriber acquisition costs, costs to fulfil a contract, advertising and related costs

Incremental acquisition and retention costs (e.g. commissions paid to retailers for acquisition or retention of contracts), as well as costs that are directly incurred for the purpose to fulfil a certain contract are expensed as costs over the enforceable period of contracts on a straight-line basis as these costs are directly associated with the contracts with customers and are expected to be recoverable. Advertising, promotion, sponsoring, communication and brand marketing costs are expensed as incurred.

34.11. Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset are capitalised as part of the cost of that asset. Qualifying assets are assets that necessarily take a substantial period of time to get ready for their intended use or sale. In the Company’s assessment, the network roll-out does not generally require a substantial period of time.

34.12. Goodwill

Goodwill equals to the difference between the cost of acquisition of the non-controlling interest in the mobile business in 2005 and the non-controlling interest in the net book value of the underlying net assets.

Goodwill represents a payment made in anticipation of future economic benefits from assets that are not capable of being individually identified and separately recognised.

34.13. Intangible assets (excluding goodwill)

Intangible assets, consisting mainly of telecommunications licences, software and development costs, are initially 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 for their intended use and, if applicable, attributable borrowing costs.

Internally developed trademarks and subscriber bases are not recognised as intangible assets.

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Telecommunications licences

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.

Research and development costs

Development costs are recognised as an intangible asset if and only if the following can be demonstrated:

- the technical feasibility of completing the intangible asset so that it will be available for use,

- the intention to complete the intangible asset and use or sell it and the availability of adequate technical, financial and other resources for this purpose,

- the ability to use or sell the intangible asset,

- how the intangible asset will generate probable future economic benefits for the Company,

- the Company’s ability to measure reliably the expenditure attributable to the intangible asset during its development.

Development costs not fulfilling the above criteria and research costs are expensed as incurred. The Company’s research and development projects mainly concern:

- upgrading the network architecture or functionality;

- developing service platforms aimed at offering new services to the Company’s customers.

Development costs recognised as an intangible asset are amortised on a straight-line basis over their estimated useful life, generally not exceeding three years.

Software

Software is amortised on a straight-line basis over the expected useful life (approx. 9 years).

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.

34.14. Property, plant and equipment

The cost of tangible assets corresponds to their purchase or production cost or price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates, as well as including costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management, including labour costs, and, if applicable, attributable borrowing costs.

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 Company.

The cost of network includes design and construction costs, as well as capacity improvement costs. The total cost 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 to be consumed by the entity varies. Depreciation is established for each component accordingly.

Maintenance and repair costs (day to day costs of servicing) are expensed as incurred.

Investment grants

The Company may receive grants from the government or the European Union for funding of capital projects. These 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. Grants are not recognised until there is a reasonable assurance that the Company will comply

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with the conditions attached to them and that the grant will be received. Grants received before the conditions are met are presented as other liabilities.

Derecognition

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 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.

Depreciation

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-line basis is usually applied over the following estimated useful lives:


Buildings	10	to	30	years
Network	3	to	40	years
Terminals	2	to	10	years
Other IT equipment	3	to	5	years
Other	2	to	10	years

Land is not depreciated.

These useful lives are reviewed annually and are adjusted if current estimated useful lives are different from previous estimates. These changes in accounting estimates are recognised prospectively.

34.15. Leases

IFRS 16 “Leases” establishes the principles for recognition, measurement, presentation and disclosure of lease contracts. A single lease accounting model was adopted if the Company acts as a lessee. If the Company acts as a lessor then it continues to classify its leases as operating leases or finance leases, and accounts for those two types of leases differently.

The Company qualifies a contract as a lease as long as it gives the lessee the right to control the use of a particular asset. In order to qualify a contract as a lease, three main conditions shall be met:

- the contract shall convey the right to use an identified asset;

- the lessee shall obtain the economic benefits from use of this asset;

- the lessee obtains the right to direct the use of this asset throughout the period of the contract.

The Company has defined four major categories of lease contracts:

- real estate: points of sale, offices, perpetual usufruct of land;

- mobile network: land, technical premises, space on towers, chimneys, rooftops;

- fixed network: technical premises, limited property rights, access to the local loop, collocation, dark fibre contracts, subsurface rights, ground easements;

- other rentals: vehicles, technical equipment, data centre.

The accounting presentation of lease contracts in the statement of financial position depends mainly on:

- the scope of contracts qualified as leases,

- the duration adopted for certain types of contracts,

which require significant judgment from the Company’s Management Board. The Management Board reviews these estimates if the circumstances on which they were based evolve or in the light of new information or established market practice.

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Company as a lessee

On the lessee’s side the Company uses a single accounting model, in which the lessee is required to recognise a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments.

The Company has chosen to apply two exemptions proposed by the standard and expense as external purchases the following contracts:

- all contracts, except for contracts for vehicles, whose lease term is less than 12 months;

- contracts where the value of the underlying asset is less than USD 5,000.

The lease duration corresponds to the non-cancellable period of the lease, periods covered by extension options that the Company is reasonably certain to exercise and termination options that the Company is reasonably certain not to exercise. In case of indefinite period leases the Company estimates the reasonably certain lease term to determine the lease term. The Company assessed the reasonably certain lease terms of cancellable lease contracts to be equal to 5 years for all lease contracts, except for 18 years for road occupancy leases where fixed network infrastructure is placed. For easements in buildings, where the Company located its telecommunication infrastructure, a lease duration is assessed as an average useful life of buildings in the Company. Subsurface contracts and land easements are measured basing on the portfolio approach due to significant number of homogenous contracts.

At the lease commencement date, the Company recognises a right-of-use asset and a lease liability.

The right-of-use asset is measured at cost which comprises:

- the amount of the initial measurement of the lease liability;

- any lease payments made at or before the commencement date, less any lease incentives received;

- any initial direct costs incurred by the lessee; and

- an estimate of costs to be incurred by the lessee in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease.

After the commencement date, the Company measures the right-of-use asset applying a cost model, less any accumulated depreciation and any accumulated impairment losses, as well as any adjustments resulting from remeasurement of the lease liability.

The lease liability is measured at the present value of the lease payments that are not paid at the commencement date. The lease payments are discounted using the incremental borrowing rates as the rates implicit in the lease are not easily determinable. Discount rates adopted are based on Polish state bond yield, adjusted by credit spread observable for entities with similar credit rating. Discount rates are differentiated by duration and by currency, and not by class of assets.

The lease liability comprises the following payments:

- fixed payments (including in-substance fixed payments), less any lease incentives receivable;

- variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;

- amounts expected to be payable by the lessee under residual value guarantees;

- the exercise price of a purchase option if the lessee is reasonably certain to exercise that option;

- payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease.

After the commencement date, the lease liability is increased to reflect interest on the lease liability and reduced to reflect the lease payments made, as well remeasured to reflect any reassessment or lease modification. Only the lease component is taken into account in the measurement of the right-of-use asset and of the lease liability.

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Other non-lease components, like payments for utilities, are accounted for separately in accordance with other applicable accounting standards.

Company as a lessor

The Company continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently.

A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership of an underlying asset. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership of an underlying asset.

Examples of situations that individually or in combination would lead to a lease being classified as a finance lease are as follows:

- the lease transfers ownership of the underlying asset to the lessee by the end of the lease term;

- the lessee has the option to purchase the underlying asset at a price significantly lower than the fair value;

- the lease term is for the major part of the economic life of the underlying asset;

- at the inception date, the present value of the lease payments amounts to at least substantially all of the fair value of the underlying asset; and

- the underlying asset is of such a specialised nature that only the lessee can use it without major modifications.

34.16. Non-current assets held for sale

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 terms that are usual and customary for sales of such assets and the sale is highly probable.

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.

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 the impairment loss is reversed up to the amount of losses previously recognised.

34.17. Impairment tests of non-financial assets and Cash Generating Units

Given the nature of Company’s assets and operations, most of its individual assets do not generate cash inflows independently from other assets. The Company identifies a single major CGU (see Note 8). For the purpose of impairment testing the Company allocates the whole goodwill to this CGU.

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 performed at the level of the cash generating unit (CGU).

Recoverable amount

To determine whether an impairment loss should be recognised, the carrying value of the assets and liabilities 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.

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 transaction between knowledgeable, willing parties, less the costs of disposal. This estimate is determined on the basis of available market information taking into account specific circumstances.

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Value in use is the present value of the future cash flows expected to be derived from the CGU, including goodwill. Cash flow projections are based on economic and regulatory assumptions, telecommunications licences renewal assumptions and forecast trading conditions drawn up by the Company management, as follows:

- cash flow projections are based on the business plan and its extrapolation to perpetuity by applying a growth rate reflecting the expected long-term trend in the market,

- the cash flows obtained are discounted using appropriate rates for the type of business concerned.

If the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognised 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.

Goodwill impairment losses are recorded in the income statement as a deduction from operating income/loss and are not reversed.

34.18. Financial assets and liabilities

Financial assets are classified in the following measurement categories – depending on the business model in which assets are managed and their cash flow characteristics:

- assets subsequently measured at amortised cost - if the financial assets are held within a business model whose objective is to collect contractual cash flows, and the contractual terms of these financial assets give rise to cash flows that are solely payments of principal and interest;

- assets subsequently measured at fair value through other comprehensive income - if the financial assets are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and the contractual terms of these financial assets give rise to cash flows that are solely payments of principal and interest;

- hedging derivative instruments;

- assets at fair value through profit or loss - all other financial assets.

Financial liabilities are classified as financial liabilities at amortised cost, liabilities at fair value through profit or loss and hedging derivative instruments.

Recognition and measurement of financial assets

When financial assets are recognised initially, they are measured at fair value plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. Trade receivables that do not have a significant financial component are initially measured at their transaction price.

A regular way purchase or sale of financial assets is recognised using settlement date accounting.

Assets subsequently measured at amortised cost

Assets subsequently measured at amortised cost include “Trade receivables” (excluding trade receivables measured at fair value through other comprehensive income), “Loans to related parties” and “Cash and cash equivalents”. Interest income from these financial assets is calculated using the effective interest rate method and is presented within finance costs, net.

Cash and cash equivalents consist of cash in bank, cash deposits with Orange S.A. under the Cash Management Treasury Agreement and other highly-liquid instruments that are readily convertible into known amounts of cash and are subject to insignificant changes in value.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss include derivative assets not designated as hedging instruments as set out in IFRS 9 and contingent consideration receivable related to sale of 50% stake in Światłowód Inwestycje.

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Financial assets at fair value through other comprehensive income

Financial assets at fair value through other comprehensive income include selected receivables arising from sales of mobile handsets in instalments which are subject to the factoring agreement.

Impairment

The Company measures the loss allowance at an amount equal to lifetime expected credit losses for trade receivables, lease receivables, other financial receivables, cash and cash equivalents and contract assets.

Trade receivables that are homogenous and share similar credit risk characteristics (e.g. separately for B2C and B2B) are tested for impairment collectively. When estimating the lifetime expected credit loss the Company uses historical data as a measure for expected credit losses.

In calculating the recoverable amount of receivables that are individually material and not homogenous, the Company assess expected credit losses on individual basis taking into account significant financial difficulties of the debtor or probability that the debtor will enter bankruptcy or financial reorganisation. This method is mainly used for carrier customers (national and international), administrations and public authorities.

As soon as information about deteriorating standing of the customer is available (e.g. clients in bankruptcy or subject to equivalent judicial proceedings), these receivables are excluded from the statistical impairment database and individually impaired.

IFRS 9 requires recognition of expected losses on receivables immediately upon recognition of the financial instruments. The Company applies a simplified approach of anticipated impairment at the time the asset is recognised. The approach establishes the rate of expected losses by comparing bad debt to revenue.The Company considers a financial asset to be credit-impaired when events that have a detrimental impact on the estimated future cash flows of that financial asset have occurred, for example significant financial difficulty of the debtor or a breach of contract, such as a default or past due event.

The Company considers a financial asset to be in default when internal or external information indicates that the Company is unlikely to receive the outstanding contractual amounts in full.

A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.

Recognition and measurement of financial liabilities

Financial liabilities at amortised cost

Financial liabilities measured at amortised cost include borrowings, trade payables and fixed assets payables including the telecommunications licence payables and are presented in the statement of financial position as “Trade payables”, “Loans from related parties” and “Other financial liabilities at amortised cost”.

Trade payables include those that are subject to reverse factoring. OPL S.A. considers that these financial liabilities carry the characteristics of trade payables, in particular as the payment schedules are within the range of ordinary payment terms for a telecommunications operator and as no additional collateral was required.

Borrowings and other financial liabilities are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method.

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include derivative liabilities not designated as hedging instruments as set out in IFRS 9.

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Recognition and measurement of derivative instruments

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 or loss or as hedging derivatives.

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 in fair value of derivatives are immediately recognised in the income statement. The change in fair value (excluding interest rate component and credit risk adjustment) of derivatives held for trading is presented in operating income/loss or finance costs, net, depending on the nature of the economically hedged transaction. The interest rate component and credit risk adjustment of derivatives held for trading are presented under other interest expense and financial charges within finance costs, net.

Hedging derivatives

Derivative instruments may be designated as cash flow hedges. A cash flow hedge is a hedge of the exposure to variability in cash flows that is attributable to a particular risk associated 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.

The effects of applying hedge accounting are as follows: the portion of the gain or loss on the hedging instrument that is determined to be an effective cash flow hedge is recognised directly in other comprehensive income and the ineffective portion of the gain or loss on the hedging instrument is recognised in profit or loss. Amounts recognised in cash flow hedge reserve 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 in the recognition of a non-financial asset or a non-financial liability, the gains and losses accumulated in equity are removed from the cash flow hedge reserve and included in the initial measurement of the cost of the asset or liability. This is not a reclassification adjustment and is not recognised in other comprehensive income.

34.19. Inventories

Inventories, mainly handsets, are stated at the lower of cost and net realisable value. The Company provides allowance for slow-moving or obsolete inventories based on inventory turnover ratios and current marketing plans. Change in allowance is presented in the income statement in “External purchases”.

Cost corresponds to purchase or production cost determined by the weighted average cost method. Net realisable value is the estimated selling price in the ordinary course of business, less selling expenses.

34.20. Income tax

The tax expense comprises current and deferred tax.

Current tax

The current income tax charge is determined in accordance with the relevant tax law regulations in respect of the taxable profit. Income tax liabilities/assets represent the amounts expected to be paid to/received from the tax authorities at the end of the reporting period.

Deferred taxes

Deferred taxes are recognised for temporary differences, as well as for unused tax losses. Deferred tax assets are recognised only when their recovery is considered probable. At the end of the reporting period unrecognised deferred tax assets are re-assessed. A previously unrecognised deferred tax asset is recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

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Deferred tax is not accounted for if it arises from the initial recognition of an asset or liability in a transaction that is not a business combination and at the time of the transaction, affects neither accounting nor taxable profit nor 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.

34.21. Provisions

A provision is recognised when the Company has a present obligation towards a third party, which amount can be reliably estimated and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation. The obligation may be legal, regulatory or contractual or it may represent a constructive obligation deriving from the Company’s actions.

The estimate of the amount of the provision corresponds to the expenditure likely to be incurred by the Company to settle its obligation. If a reliable estimate cannot be made of the amount of the obligation, no provision is recorded and the obligation is deemed to be a “contingent liability”.

Contingent liabilities – corresponding to (i) possible obligations that arise from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the Company’s control or (ii) to present obligations arising from past events that for which it is not probable 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 in the notes to the Separate Financial Statements.

Provisions for dismantling and restoring sites

The Company is required to dismantle equipment and restore sites. In accordance with paragraphs 36 and 37 of IAS 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 and the risk specific to the liability. The amount of the provision is revised periodically and adjusted where appropriate, with a corresponding entry to the asset to which it relates.

34.22. Pensions and other employee benefits

Certain employees of the Company 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 Company’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 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).

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. The 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.

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The Company recognises termination benefits, which are provided in exchange for the termination of an employee’s employment as a result of either:

- the Company’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 Company terminates the employment or when the Company 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. Provision for employment termination benefits is presented in the statement of financial position in “Provisions”.

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

34.23. Share-based payments

In 2017 and 2021 OPL S.A. launched a cash-settled share-based payment plan under which employees render services to the Company in exchange for its obligation to transfer cash for amount that is based on the price of equity instruments of the Company. The value of the services rendered by employees (determined with reference to fair value of Orange Polska shares) for granting share appreciation rights is recognised as an expense with a corresponding entry to employee benefits liabilities over the vesting period. At the end of the reporting period the liability is re-measured until the date of settlement with any changes in value recognised in profit or loss for the period.

In years 2017-2021 Orange S.A. launched equity-settled share-based payment plans under which employees render services to the Company in exchange for equity instruments of Orange S.A. The value of the services rendered by employees (determined with reference to fair value of Orange S.A. shares) for granting equity instruments of Orange S.A. is recognised as an expense with a corresponding increase in equity over the vesting period.