The Annual General Meeting took place on April 24, 2019 in Warsaw. The General Meeting, among others: - approved the Management Board’s Report on the activity of Orange Polska S.A. and the Orange Polska Group in the financial year 2018; - approved Orange Polska S.A. financial statements for the financial year 2018; - approved the consolidated financial statements for the financial year 2018; - granted approval of the performance of their duties by members of Orange Polska S.A.’s governing bodies in the financial year 2018; - adopted a resolution on distribution of Orange Polska S.A.’s profit for the financial year 2018, pursuant to which Orange Polska S.A.’s profit of PLN 1,004,149.76 disclosed in the Company’s financial statements for the financial year 2018 was allocated to the reserve capital; - adopted a resolution on distribution of Orange Polska S.A.’s profit from previous years, pursuant to which Orange Polska S.A.’s profit from previous years of PLN 598,705,137.63 disclosed in the Company’s financial statements for the financial year 2018 was allocated to the reserve capital, and the amount of PLN 598,705,137.63 allocated to the reserve capital may be distributed as a dividend; and - did not adopt a resolution on paying a dividend in 2019, prioritising investment in long-term value creation.

Supervisory Board Members

(as of 31 December 2019)

Until April 24, 2019, Orange Polska had four independent members on the Supervisory Board, namely Dr. Henryka Bochniarz, John Russell Houlden, Prof. Michał Kleiber and Dr. Maria Pasło-Wiśniewska. At present, five members of the Supervisory Board meet the independence criteria, namely Dr. Henryka Bochniarz, John Russell Houlden, Prof. Michał Kleiber, Monika Nachyła and Dr. Maria Pasło-Wiśniewska.

Profiles of the Supervisory Board Members can be found on our website at
www.orange-ir.pl/corporate-governance/supervisory-board

Changes in the composition of the Supervisory Board in 2019

On April 24, 2019, the mandates of Mr. Federico Colom Artola, Mr. Eric Debroeck, Prof. Michał Kleiber, Mr. Gervais Pellissier, Mr. Marc Ricau, Dr. Wiesław Rozłucki and Mr. Maciej Witucki expired.

On the same day, the Annual General Assembly appointed the following persons as Members of the Supervisory Board: Mr. Eric Debroeck (for another term of office), Prof. Michał Kleiber (for another term of office), Monika Nachyła, Gervais Pellissier (for another term of office), Marc Ricau (for another term of office), Jean-Michel Thibaud and Maciej Witucki (for another term of office).

Supervisory Board attendance register 2019

	SUPERVISORY BOARD	AUDIT COMMITTEE	STRATEGY COMMITTEE	REMUNERATION COMMITTEE
Maciej Witucki	5/5
Gervais Pellissier	5/5		2/3
Marc Ricau	5/5	6/6		4/4
Henryka Bochniarz	5/5		3/3
Thierry Bonhomme	5/5			4/4
Federico Colom Artola	2/2	3/3
Eric Debroeck	4/5		2/3
Ramon Fernandez	5/5
John Russell Houlden	5/5	6/6
Michał Kleiber	5/5	3/3	1/1	3/3
Patrice Lambert-de Diesbach	5/5		3/3
Monika Nachyła	3/3	3/3	2/2
Maria Pasło-Wiśniewska	5/5	6/6	3/3	4/4
Wiesław Rozłucki	2/2			1/1
Jean-Michel Thibaud	3/3	3/3
Jean-Marc Vignolles	5/5		3/3

Rules for appointing a Supervisory Board member and the term of office

Members of the Orange Polska Supervisory Board should have the relevant education, professional and practical experience and high moral standing. They should also be able to devote the time required to properly perform their role on the Supervisory Board.

Members of the Supervisory Board are appointed by the General Meeting. Each shareholder has a right to put forward potential candidates to be Supervisory Board members, and the eventual members are appointed at the General Meeting by a simple majority of votes cast.

In case the mandate of a member of the Supervisory Board expires for reasons other than end of the term of office or dismissal from the Supervisory Board, the rest of the members of the Supervisory Board may appoint, by a majority of two thirds of the votes cast, a new member of the Supervisory Board.

The mandate of any such newly appointed member expires on the date of the next General Meeting held not earlier than five weeks after the appointment. The term of office of Supervisory Board members is three years. Mandates of the Supervisory Board members expire on the day of the Annual General Meeting approving financial statements for the second full accounting year of their term in office (also as a result of death, resignation or dismissal).

Supervisory Board skills matrix

	Economics and Finance	Management and Strategy	Law and administration	Engineering and Technology	Psychology and Humanities	Sales and Marketing	Public administration	Scientific activity
Maciej Witucki
Gervais Pellissier
Marc Ricau
Henryka Bochniarz
Thierry Bonhomme
Eric Debroeck
Ramon Fernandez
John Russell Houlden
Monika Nachyła
Michał Kleiber
Patrice Lambert-de Diesbach
Maria Pasło–Wiśniewska
Jean-Michel Thibaud
Jean-Marc Vignolles

The main areas of activity of the Supervisory Board in 2019

The Supervisory Board, acting in compliance with the provisions of the Commercial Companies Code and the Company’s Articles of Association, exercised permanent supervision over the Company’s operations in all fields of its activities.

In 2019 the Supervisory Board fulfilled its duties resulting from the provisions of the Commercial Companies Code including the appraisal of the Orange Polska financial statements, the Management Board’s report on activity and the Management Board’s motion on covering the Company’s profit for the 2018 financial year and filing with the General Meeting reports presenting the results of the above mentioned appraisals.

The Supervisory Board took due care to ensure that the Management Board’s reports and the financial statements were in compliance with the law.

The Supervisory Board also executed its rights and obligations arising from the Company’s Articles of Association and the Best Practice for GPW Listed Companies, of which the following should be mentioned:

1. expressing opinions on motions addressed to the General Meeting,
2. preparing opinion on Orange Polska S.A. and Orange Polska Group budget,
3. preparing the report on the Supervisory Board’s activity in 2018 including the assessment of the Orange Polska Group’s standing. the assessment of the Group’s system of internal control, risk management, compliance and internal audit, the assessment of the compliance with disclosure obligations and the assessment of the rationality of the sponsorship and charity policy,
4. deciding on the composition of the Management Board and the evaluation of its performance.

Throughout 2019, the Supervisory Board focused on the following issues:

1. implementation of the Orange.one strategy and the budget
   In 2019, the Supervisory Board monitored implementation of the Orange.one strategic plan for 2017-2020 in its specific aspects and at each meeting it discussed current financial and operational results of Orange Polska as compared to the budget approved at the beginning of the year.
   It should be noted with satisfaction that the Company consistently implements the said plan and budget, as reflected mainly in the revenues’ increase (2.9% year to year), reported for the first time in 13 years, as well as further improvement of other financial indicators: significant cost optimisation, increased operational profitability EBITDAaL or record high profit on sale of assets (PLN 271 million).
2. sale of Orange’s offer in the context of the telecommunications market
   For a long time, the Supervisory Board has been analysing trends of consumer behaviour on the telecommunications market in detail. The year 2019 turned out to be a breakthrough for telecommunications operators. Clients accepted the new ‘more for more’ approach and the Supervisory Board believes that this fact had a positive impact on revenues’ increase. The Supervisory Board also notes this was another year of increasing customer satisfaction level and decreasing customer churn rate.
3. fibre optic network development
   The Supervisory Board recognizes the positive impact of fibre optic network development in Poland on the growth of the customer base, which is an important indicator of Orange Polska’s competitive advantage over other operators and great support in the sale of converged services. In 2019, the number of clients of fibre optic services increased by over 40% on an annual basis. The Supervisory Board welcomes the fact that the vast majority of acquired users are new customers.
4. market changes
   In connection with the announcement of the 5G frequency auction planned for 2020, the Supervisory Board closely monitored the Company’s preparations for this challenge, including tests of the 5G network in several Polish cities. The Supervisory Board is pleased with their results. The Supervisory Board holds also a positive opinion on the acquisition of BlueSoft, whose offer is part of Orange Polska’s ICT service development strategy and significantly increases our competitiveness on the market.
5. the Management Board composition
   On 19 February 2019, the Supervisory Board reappointed Jean-François Fallacher for the next term of office as the President of the Management Board. In accordance with the Best Practice for GPW Listed Companies, the renewals were made more than three months before the expiration of his term of office.

The Supervisory Board met 5 times in 2019 and adopted 31 resolutions, of which 3 were in writing (by circulation). The attendance at the meetings was 98.6%.

The Supervisory Board used in its operations opinions of its Committees (the Audit Committee, the Remuneration Committee and the Strategy Committee), wherever applicable.

The Supervisory Board formulated a number of recommendations, remarks and motions to the Management Board, referring to different aspects of the Company’s operations.

The Supervisory Board was regularly monitoring the execution of its resolutions and recommendations, analysing the information presented by the Management Board.

Self-assessment of the work of the Supervisory Board

In 2019, the Supervisory Board made detailed self-appraisal.

The Supervisory Board evaluates that:

• Supervisory Board members act in the interest of Orange Polska and the Orange Polska Capital Group and follow their independent opinions and judgement,
• extensive business experience, often supported by many years of professional practice, comprehensive knowledge in various fields and personal competence of the Supervisory Board’s members as well as the diversified composition, organisation and operation of the Supervisory Board and its committees allowed for effective supervision over the activities of Orange Polska,
• in addition, the activities of the permanent Supervisory Board’s committees have significantly contributed to the efficient and effective supervision over the key areas of Orange Polska’s activities,
• properly and with due care performed its duties in 2019.

Assessment of Orange Polska Group’s Standing by the Supervisory Board

This section contains the Supervisory Board assessment of the Orange Polska Group’s performance in 2019 in accordance with the recommendation no. II.Z.10.1 of the Best Practice for GPW Listed Companies, introduced by the Warsaw Stock Exchange. The assessment is based on the 2018 financial results of the Group (the Company and its subsidiaries) as well as on the information obtained by the Supervisory Board during conducting its statutory tasks.

The Supervisory Board, through the work of its committees and all its members (including independent members), was actively engaged in the process of evaluation of the most important initiatives, having in mind the interest of all the Group’s stakeholders, including shareholders. In addition, it maintained oversight of the
Group’s operational and financial goals through management reporting at its quarterly meetings, and was able, through the Audit Committee, to oversee the accuracy of financial reporting and the functioning of the internal control and risk management system.

Group’s Operational Review

The Group’s key goals in 2019 were to:

• Follow the priorities set in Orange.one;
• Meet the forecasts and guidance for revenue and EBITDAaL growth published for the financial markets;
• Execute commercial plans which reflect focus on value generation on both mass and business markets;
• Accelerate monetisation of the fibre project;
• Continue fibre network roll-out under the Operational Programme “Digital Poland” (POPC);
• Continue business transformation, including cost-cutting initiatives to increase efficiency;
• Implement further improvements in the customer experience management to continue to increase customer satisfaction and loyalty;
• Prepare for 5G network investments;
• Maintain financial stability and monitor closely the level of debt ratios, that is net debt-to-EBITDAaL below 2.4 reported at the end of 2018.

2019 was a year when financial results of Orange Polska kept growing. The main indicator used by the Management Board to measure operating profitability (EBITDAaL from 2019) in creased for the subsequent second year. For the first time in years, revenues increase was reported, too. The Company met all forecasts announced to financial markets. The Management Board believes, and the Supervisory Board agrees with this opinion, that this success results from the correct implementation of the Orange.one strategy. Last year was the second full year of its implementation.

The Management Board kept the Supervisory Board informed on various aspects related to implementation of the strategy. A particularly important aspect of the Supervisory Board’s discussion on the strategy involved the competition on the telecommunications and implementation of a price increase in the consumer services sector on the ‘more for more’ approach. In the opinion of the Management Board, shared by the Supervisory Board, higher prices correspond to the strategy of the Company’s creating of value and they have been a major element on the path to restoring lasting growth of financial results of Orange Polska.

When discussing investment in fibre network, the Management Board presented also information on progress of construction of the network within the Digital Poland Operational Programme, partly funded by EU structural funds. These investments have a very significant social value, contributing significantly to promotion of high-speed internet in less urbanized areas and at schools.

The Supervisory Board also approved the implementation by the Company of a sales scheme of selected customer receivables from instalment contracts. The scheme is aimed to optimise working capital management and it is a pioneering programme of this type on the Polish market. One of the main criteria taken into account in its analysis was the cost of discounting receivables, which should be close to the cost of financing the Company.

It was also an important issue to discuss results of the study of employees of Orange Polska called social barometer held in November 2018. This is a cyclical, very comprehensive survey, providing knowledge of employee opinions on, among other subjects, work environment issues and projects as part of organizational culture change. Changing the organizational culture is one of the major elements of Orange. one’s strategy.

The Supervisory Board also discussed the situation on the electricity market considering legislative changes introducing price regulation mechanisms for end users and the compensation system. These changes had a significant impact on operations related to resale of electricity.

Financial standing of the Group

The Management Board kept the Supervisory Board informed about the achieved financial results. The Audit Committee of the Supervisory Board supervised the reliability of financial reporting on an ongoing basis and presented its opinions to the Supervisory Board before publication of the results for individual reporting periods.

The Group met its financial goals for 2019. The reported increase in revenues was the first in many years despite structural pressure on traditional business segments (retail and wholesale fixed telephony services). In the case of the operating profitability measure (EBITDAaL), the increase was as much as 7%. Importantly, the dynamics was also positive excluding gains on the sale of assets. The level of cash generated also improved significantly.

In the opinion of the Supervisory Board, these achievements were mainly due to the continued implementation of the convergent strategy, the first effects of the ‘more for more’ approach, further increases in ICT services and further, very large steps in cost optimization. Indirect costs (excluding profits from the sale of real estate) fell in 2019 by almost 5%. Net profit in 2019 amounted to PLN 91 million and increased from PLN 10 million in 2018 even though it was charged with provisions related to Social Agreements in the amount of PLN 181 million. The increase was due to an increase in EBITDAaL and lower depreciation.

Organic cash flow in 2019 amounted to PLN 737 million, which means a significant increase compared to PLN 411 million in 2018. The improvement was mainly due to two factors: record-high revenues from the sale of assets and an improvement in working capital, mainly due to the sale of receivables from instalment contracts for telephones.

Increased EBITDAaL on one hand and improved level of cash generated on the other (despite the purchase of Blue- Soft company) led to a decrease of the debt indicator net debt / EBITDAaL down to 2.0x, which was one of the targets the Supervisory Board set for the Management Board.

In 2019, the Group did not pay a dividend, which was positively assessed by the Supervisory Board. This decision, as in the previous two years, was dictated by the perspective of business challenges, in particular the need for maximum allocation of funds for strategic investment projects: fibre optic network and new frequencies for 5G technology.

Conclusions and recommendations for 2020

The Group has met its operational and financial goals for 2019 thanks to consistent implementation of the strategy, value orientation and comprehensive business transformation. The Group’s goal is to build a company that will be structurally better prepared for future competitive challenges and business opportunities, and which will be able to grow in a sustainable way. In 2020, Orange Polska will focus on the same strategic priorities so as to sustain growth achieved in previous years. 2020 will also be the year of development of the new strategy for 2021-2023.

The Supervisory Board shares the Management Board opinion that in 2020 the Group should focus its operations in particular on the following key aspects:

• Maintaining the priorities set out in the Orange.one strategy
• Fulfilment of published financial forecasts and expectations regarding revenue growth and EBITDAaL
• Implementation of commercial plans that reflect a value creation-based approach on both the individual and business client market
• Further monetization of investments in fibre optic network
• Further development of the fibre optic network within the Digital Poland Operational Program (POPC)
• Further business transformation, including cost reduction initiatives to increase business efficiency
• Introduction of further improvements in customer experience management to constantly increase customer satisfaction and loyalty
• Preparations to invest in the 5G network, including acquiring new frequencies that will be the subject of the auction
• Preparation of a new strategy for 2021-2023 and its announcement in due time.

ASSESSMENT OF THE GROUP’S INTERNAL CONTROL, RISK MANAGEMENT, COMPLIANCE AND INTERNAL AUDIT

The Supervisory Board is responsible for reviewing the effectiveness of the Group’s system of internal control and risk management designed and established by the Management Board, as well as the compliance system and the internal audit function.

This system of internal control and risk management facilitates the management of the risk of failure to achieve business objectives and provides reasonable assurance against material misstatement or loss (risk management does not mean the full elimination of risk, but provides for better risk identification and the implementation of adequate measures as needed). The relevant processes are designed to give reasonable, but cannot give absolute, assurance that the risks significant to the Group are identified and addressed.

The Company continuously monitors the evolution of the control environment. It ensures that all significant changes are sufficiently controlled and any identified deficiencies in the internal control system are addressed with action plans. On a quarterly basis, the internal control system is monitored in a self-assessment tool implemented by the Company and, in addition senior managers certify the effectiveness of the internal controls. On a yearly basis, the controls are subject to testing by the Internal Control team, Internal and External Auditors, and the results are reported to the Audit Committee.

The key elements of the system of internal control, including risk management, were presented in the Management Board’s Report on the Activity of the Group for 2019, published on 12 February 2020.

In 2019, the Group again completed a comprehensive assessment of its processes of internal control over financial reporting. Main deficiencies both in design and in effectiveness of internal control have been identified and corrected, or appropriate action points have been launched. As a result of the assessment, the Management concluded that there were no weaknesses that would materially impact the internal controls and financial reporting at 31 December 2019.

Both the internal and external auditors report to the Management Board and also to the Audit Committee on control deficiencies which they identified during their audit. Their recommendations are being implemented.

Most important risks are updated annually by the Management Board and presented to the Supervisory Board.

Matters related to Compliance are being reported to the Audit Committee of the Supervisory Board in following areas: ethics, general compliance with laws and regulations, anti- fraud, security and anti-corruption measures related with Anti-Corruption Policy that puts forward zero-tolerance rule towards corruption. The Compliance function carries out activities ensuring adjustment of Company’s internal regulations and mechanisms to, among others, Group’s requirements in the scope of current anti-corruption regulations.

The Anti-corruption Policy of Orange Polska, complemented with detailed internal regulations, defines the required standards for employees’ conduct. On the basis of relevant provisions of the Policy, potential consequences are determined in case of violation of anti-corruption procedures. Under the due diligence process, verification of the current and future business partners is conducted with regard to threats related to corruption, fraud, non-compliance with economic sanctions, money laundering and financing of terrorism. Compliance Management function conducts cyclic reviews of corruption risks, also taking into the account control mechanisms and appropriate preventive measures.

Orange Polska employees and stakeholders may use dedicated channels to report their concerns or to ask for advice if suspecting the conflict of interests, bribery or any infringement of internal regulations of the Group or of other regulations of the law. Persons reporting irregularities can do so without fear of negative consequences.

Thanks to comprehensive and continuous communication all of the OPL’s employees were informed about compliance rules. Additional training and meetings were also held with Top management and managers of OPL. Dedicated training sessions taking into account the exposure of individual areas of OPL to the risk of corruption and communication activities aim to constantly increase knowledge and build employees awareness. OPL also conducts regular reviews in this area, makes necessary improvements and monitors the correctness of payments made.

Activities of Compliance Management function, the results of planned inspections, as well as the results of inspections initiated by notification of irregularities (whistle -blowing) are monitored on the basis of reports submitted periodically. Applied actions and mechanisms are ensuring the effectiveness of Compliance function and maintenance of Group’s anti-corruption regulations standards.

The Supervisory Board is presented on annual basis also with information on the implementation and effectiveness of the compliance program, related to the fight against corruption including the risk map as well as the corresponding action plan for the coming year.

The internal audit function, which reports directly to the President of the Management Board, ensures objective and independent assessment of the adequacy, effectiveness and quality of the Group’s internal controls. The internal audit works in accordance with a charter approved by the Audit Committee, which also reviews annual internal audit program and analyses the Orange Polska’s Internal Audit reports.

ASSESSMENT OF THE COMPLIANCE WITH DISCLOSURE OBLIGATIONS

This section contains the Supervisory Board assessment of the Company’s performance of the obligations concerning compliance with the corporate governance principles defined in the Exchange Rules and the regulations on current and periodic reports published by issuers of securities in 2019 in accordance with the recommendation no. II.Z.10.3 of the Best Practice for GPW Listed Companies.

Orange Polska as an issuer of shares admitted to trading on a regulated market is obliged to follow the rules of the Best Practice for GPW Listed Companies. Orange Polska accomplished its information duties concerning compliance with the corporate governance principles defined in the GPW Regulations and the regulations on current and periodic reports published by issuers of securities.

The rules concerning the transfer of current reports concerning the application of the detailed rules of the Corporate Governance are defined by the Resolution of the WSE Board (no. 1309/2015) dated 17.12.2015. According to the WSE regulations when the given rule is not applied in a constant way or is broken incidentally, the Company is obliged to publish on its web site a report in the analogical way as it is applied for a transfer of current reports. Reports concerning the application of detailed rules of the corporate governance are passed by mean of EBI (Electronic Basis of Information). The decree of the Minister of Finance dated 29 March 2018 defines which information should be mentioned in the declaration on the application of the Corporate Governance constituting a separate part of the Management Board report about the activity of the Company.

The Supervisory Board analysed the declaration about the application of the Corporate Governance included in the Management Board report about the activity of Orange Polska S.A. and the Orange Group in 2019. This declaration defines in a detailed way the issues concerning the Corporate Governance and contains the information from the decree of the Minister of Finance dated 29 March 2018 on the current and periodic information passed by issuers of securities and on conditions of the consideration as equal of the information required by the law of a state which is not a member.

In the above mentioned declaration the Management Board informed about the non-application of the recommendation IV.R.2 of the Best Practice for GPW Listed Companies referring to the providing the shareholders with the possibility of using the electronic communication during the general meeting. Orange Polska assures the transmission on-line of the session in the real time, but the two side communication is not provided, nor the possibility of voting in another location than this, in which the session of General Meeting takes place. The Management Board justifies the non-application of this rule by the legal risks related to such a communication.

Apart from the non-application of the above-mentioned recommendations, the Supervisory Board welcomes that the Company complies with all the rules of the Best Practice.

Orange Poland in accordance with the principle I.Z.1. of the Best Practice runs a website in Polish and English, on which publishes all provided by law and best practice documents and information, including information on the application in the Company of principles and recommendations contained in the Best Practice for GPW Listed Companies.

In the Supervisory Board’ opinion, the information provided by Orange Polska is in line with the requirements and honestly follows the rules of the Corporate Governance and the Company duly fulfils the disclosure obligations relating to the application of Corporate Governance principles set out in the Warsaw Stock Exchange Rules and regulations on current and periodic information.

ASSESSMENT OF THE RATIONALITY OF THE SPONSORSHIP AND CHARITY POLICY

This section contains the Supervisory Board assessment of the rationality of the Group’s sponsorship and charity policy in 2019 in accordance with the recommendation no. II.Z.10.4 of the Best Practice for GPW Listed Companies.

The Supervisory Board states that the sponsoring strategy led by the Company and focused in 2019 on music as the main area supporting the brand brought the appropriate financial and marketing efficiency. According to the adopted strategy, in the strategic sponsorship area Orange Polska creates complex long term projects on the territory of the whole Poland addressed to the most extensive group of its clients (present and potential) in which OPL plays a part of a titular or main sponsor. The involvement of Orange Polska is long term and multiple.

The Supervisory Board appreciates the charity activity led by Orange Polska in both forms – this led by the Donations’ Fund and the other led by the Orange Foundation (created by the Company). The Orange Foundation acts for the modern education of children and youth. Through creative initiatives, Foundation encourages young people to acquire knowledge, participate in culture, and build communities using new technologies.

Letter from the Chairman of the Audit Committee

Dear Shareholders,

I am pleased to attach my report on the activities of the Audit Committee over the past 12 months.

One of the most important considerations of the Audit Committee in 2019 was the preparation for the selection of an auditor for the next period. The Polish Act on Auditors limited the term of appointment of an auditor to five years (with certain exceptions) and 2019 was the fifth year of audit of Ernst & Young. The assessment of various options open for the Company in terms of appointment of an auditor for 2020 and the following years as well as running the tender process constituted an important part of the work of the Audit Committee in 2019.

Similarly to 2018 a significant part of the work of the Audit Committee in 2019 related to the International Financial Reporting Standard 16 (Leases). As expected, given that the standard allowed for different approaches to its implementation, practice differed across industries and jurisdictions. In light of interpretation guidance produced by the IASB in 2019 the Company decided to refine its original approach and expects to introduce further refinements in 2020. The Audit Committee thoroughly reviewed the manner of implementation proposed by Management and discussed with Management as well as with the auditor the choices which were made and reasons behind them. The Audit Committee is satisfied that the Company has implemented the standard in an appropriate way.

One of the main responsibilities of the Audit Committee is to ensure proper financial reporting by the Company and Group. As part of this, we review all significant accounting judgements and estimates proposed by Management. In addition to IFRS 16 mentioned above, the most significant areas of judgement were those regarding presentation of financial figures and disclosures related to two transactions that the Company entered into, namely the acquisition of BlueSoft and Essembli and the sale of real estate in Warsaw.

The Audit Committee also reviewed the impairment analysis results. The Audit Committee has also been involved in reviewing internal control and compliance, the risk management processes and the external audit of the Company and Group financial statements. In particular, the Committee works to ensure the independence of both the external auditor and internal audit team, and had private meetings with the external auditor and the head of the Company’s internal audit team to give them an opportunity to discuss any issues which may have arisen in their work with Management.

Last, but not least, the Independent Directors of the Audit Committee reviewed and, when necessary, challenged the terms of significant transactions with related parties including, in particular, the majority shareholder, Orange S.A.

A more detailed summary of the activities of the Audit Committee is presented below.

John Russell Houlden
Chairman of the Audit Committee

Audit Committee members

The Audit Committee is chaired by Mr. John Russell Houlden, an Independent Director of the Supervisory Board. He has relevant experience and qualifications in finance, accounting and audit. Other Independent Directors of the Committee are Dr. Maria Pasło-Wiśniewska and Monika Nachyła.

On the Audit Committee agenda in 2019

The Audit Committee held six meetings in 2019. The meetings were attended by the Chief Executive Officer, Chief Financial Officer, as well Internal Audit Director. Other members of the Management Board, Executive Directors and other managers and invited guests attended the meetings when appropriate. The meetings were also attended by representatives of the Company’s external auditor, Ernst & Young .

Our approach to monitoring the financial reporting process

As required by law, the Audit Committee monitored the process of financial reporting. The goal of the Audit Committee was to assess and provide advice to the Supervisory Board on whether the financial statements as well as the annual report, taken as a whole, secured faithful representation and relevance of the information necessary for shareholders to assess the Company’s position and performance, business model and strategy.

The Audit Committee reviewed the quarterly and annual financial statements. The Committee reviewed also Orange Polska Group’s strategic plan as well as budgets. The aim of the review was to ensure that the key messages being followed in the annual and periodic reports were aligned with the Company’s position, performance and strategy and that the narrative sections of the reports were consistent with the financial statements. In order to assess that the reports and the financial statements secured faithful representation and relevance of the information, the Audit Committee also reviewed reports on financial performance of the Company, accounting policies and procedures, accounting estimates and judgments, one-off items as well as market guidance and Orange Polska Group’s performance against the budget and other information with the aim to assess the Company’s position and performance. The Audit Committee was satisfied that all the key events and issues which had been reported by the Management Board during the year, both good and bad, had been adequately referenced or reflected within the annual report.

In 2019, as a result of significant changes in accounting standards, the Committee put special attention on Alternative Performance Measures (APMs) to make sure that the new APMs reported by the Orange Polska Group were in line with the ESMA guidelines, relevant and understandable to shareholders and reflected properly the way in which the Management Board manages the operations of the Orange Polska Group.

The auditor was regularly participating in the meetings of the Audit Committee and gave its view on issues significant from the accounting perspective as they arose during the year. Subsequently, the auditor presented, and the Audit Committee reviewed and where appropriate discussed with the auditor, the additional report prepared as required by the Regulation (EU) No 537/2014 of the European Parliament and of the Council (Audit Regulation).

Our approach to monitoring of performance of auditor

The Audit Committee is responsible for the relationship with the external auditor and that role involves examining the effectiveness of the audit process as well as the independence of the auditor. The auditor is Ernst & Young and 2019 was the fifth year of Ernst & Young being the auditor of the Orange Polska Group.

The Audit Committee reviewed the external auditors’ proposed audit plan for 2019 including key auditing matters to be focused on, the materiality level set for audit testing and schedule of planned works and reporting along with planned interactions with the Audit Committee. Subsequently, the Audit Committee reviewed and discussed the auditor’s recommendations, observations and comments on key areas requiring special consideration taking into account also the views of the Management Board on those issues. The key auditing personnel participated in the meetings of the Audit Committee to allow for discussion of all issues as they arose during the year. Also, private meetings with the auditor were held by the Audit Committee to ensure open and transparent discussion between the auditor and the Audit Committee without the presence of the Management Board. The Audit Committee monitored the progress of the audit and its quality against the audit plan throughout the year.

In addition, the Audit Committee supported by Internal Audit looked into conflict of interest issues given that Ernst & Young became a statutory auditor of a major competitor of the Company. The measures applied by Ernst & Young in order to secure confidentiality of information including but not limited to Chinese Walls were discussed with the auditor. Generally, the Audit Committee was satisfied with the procedures applied by, and assurance given by, the auditor in this respect. In order to assess the performance and independence of the auditor as well as generally the relationship with the auditor feedback was sought from all members of the Audit Committee, the Management Board, key members of the senior management team and those who have regular contact with the auditor. The feedback was collated and presented to the Audit Committee in April 2019. The Audit Committee also asked the auditor for its feedback on the co-operation with the Company. The conclusions were discussed and opportunities for significant improvement were brought to the attention of both the auditor and the Management Board and key personnel having regular contact with the auditor. Subsequently, the Audit Committee reviewed the report on progress and was satisfied with the implementation of the agreed changes.

In summary, the Audit Committee concluded that the overall external audit process and services were effective and satisfactory.

Our approach to assessing the independence of the external auditor

There are two aspects to auditor independence that the Audit Committee monitors to ensure the external auditor remains independent of the Company.

First, in assessing the independence of the auditor from the Company, the Audit Committee takes into account the information and assurances provided by the auditor. The Audit Committee received the auditor’s statement on independence made in accordance with the Polish Act on Auditors of 11 May 2017 (Polish Audit Act) and the Audit Regulation.

Second, the Audit Committee reviews the proportion of the value of non-audit services rendered by the auditor or its affiliated entities and the audit fees. As required by law, the Company has a Policy on the provision of authorised non– audit services by the audit firm and its affiliated entities. Following the Policy all authorised non-audit services should be approved in advance by the Audit Committee taking into account their potential influence on the independence of the auditor. Also, any additional audit service requires prior consent from the Audit Committee. According to the relevant law as well as the Policy, authorised non-audit services are subject to a fee cap of no more than 70 per cent of the average annual statutory audit fee for the three consecutive financial years preceding the year in which the cap will apply. The 70% rule has been applicable since 17 June 2016 under the Audit Regulation. Management provides the Audit Committee with information on the value of non-audit services compared to the average statutory audit fee presenting data for the previous three years. Non-audit services provided by the Ernst & Young were 18% of audit fee in 2019, similar to 2018.Ernst & Young provides also a regulatory audit relating to the costs of regulated services rendered by the Company. That audit is commissioned by the regulator but its costs are borne by the Company. The costs of regulatory audit are also shown in the chart below.

Ernst & Young costs in OPL Group

In addition the feedback questionnaire referred to in the previous section included questions relating to the independence of the audit firm and individuals in the audit staff. There was no case of auditor’s independence threat observed and reported by the respondents.

Taking into account all aspects described above the Audit Committee was satisfied that the auditor continues to be independent.

Recommendation on the appointment of the statutory auditor

The Company, similarly as the Orange SA Group, last undertook a formal tender process for statutory audit services in 2014. The tender process for the Company was separate from the tender process for the Orange SA Group. Based on the tender, Ernst & Young was selected as an auditor of the Company and independently Ernst & Young was also selected as one of two auditors of the Orange SA Group. Ernst & Young presented their first audit report of the Orange Polska Group for the year ended 31 December 2015.

In 2017, based on the Polish Audit Act and Audit Regulation, a new Policy on the audit firm’s selection was adopted by the Supervisory Board of the Company. The Policy formalised most of the requirements which were already followed by the Company but a new requirement was the time limitation for the appointment of an auditor to 5 consecutive years (with certain exceptions). The year 2019 was the fifth year of Ernst & Young acting as the statutory auditor of the Company. Ernst & Young was eligible to be reappointed for another year only in exceptional circumstances based upon consent of the Financial Supervisory Authority (“KNF”).

In 2019, the Company launched the tenders for statutory audit service for 2020 (if Ernst & Young turned out to have submitted the best offer) or 2020-2021 (if another company have submitted the best offer as it is not possible to appoint a new auditor for less than two years) and also for the following five year period. The Audit Committee Chairman monitored the process of the audit firm’s selection and actively participated in this process. The offer of Ernst & Young was assessed to be the best based on a high quality audit team, the knowledge of the Polish telecom market and also the knowledge of the Orange Polska Group. Therefore, the Company applied to the Financial Supervisory Authority for its consent for Ernst & Young being reappointed for another year explaining its special situation in the year 2020 being, among others, the last year of implementation of its long term strategic plan and number and diversity of lease contracts to be assessed in response to the December decision of IFRIC. In January 2020, the Financial Supervisory Authority issued its consent and the Audit Committee recommended to the Supervisory Board the reappointment of Ernst & Young as the statutory auditor for 2020. [The Supervisory Board followed the recommendation of the Audit Committee.]

Significant issues considered by the Audit Committee in relation to the financial statements and how these were addressed

In relation to the group’s financial statements, the Audit Committee reviewed the following principal areas of judgement:

1. The Group’s key judgments and estimates related to significant one-off transactions such as:
   1. Accounting treatment of acquisition of BlueSoft and Essembli entities operating in the IT services business. The Audit Committee focused on the valuation of the goodwill and treatment of post-transaction services which required deep knowledge of the transaction itself and understanding of the business of the acquired entities;
   2. Accounting treatment of sale transactions of real estate in Warsaw. The Audit Committee focused mainly on assessment of the moment of recognition of gain on sale and valuation of the gain on sale. As some of the real estate was partially leased back, the Committee assessed the accounting approach to the lease back and its impact on the valuation of the gain;
   3. Accounting treatment of an agreement under which OPL sells selected receivables arising from sales of mobile handsets in instalments. The Audit Committee focused on the assessment of the assets derecognition criteria and valuation of receivables;
   4. Accounting treatment of a social agreement concluded with Trade Unions and its impact on OPL’s financial statements. The Audit Committee focused on valuation of the impact of this agreement on provision for employees termination and employee-related payables and actuarial provisions;
2. New accounting standard IFRS 16 with a particular focus on:
   1. Identification of lease contracts
   2. Assessment of lease period
   3. Other assumptions used in lease assets and lease liability valuation including discount rate
   4. The Audit Committee also focused on the interpretations of IFRS 16 published in 2019 related to treatment of subsurface contracts, discount rate and lease period and their impact on OPL’s financial statements, including disclosures
3. Management’s assessment of risks related to claims and litigation as well as other matters and the level of related provisions or decisions on the lack of provisions;
4. Impairment indicators and impairment test prepared by Management as well as goodwill recognition and deferred tax recoverability;
5. Management’s assessment of the length of the economic useful life of assets;
6. Disclosures in the Financial Statements and Management Report relating to new matters
7. Distributable capital calculation.

Internal control

Management implements internal controls at various levels of the organisation. The scope of these controls includes, but is not limited to, transactional level controls, line managers’ or corporate reviews, trend analysis, reconciliation controls and entity level controls. The aim is to provide reasonable assurance in safeguarding assets, detecting errors, the accuracy and completeness of accounting records, and the overall reliability of the financial statements. The Company continuously monitors the evolution of the control environment. It ensures that all significant changes are sufficiently controlled and any identified deficiencies in the internal control system are addressed with action plans. On a quarterly basis, the internal control system is monitored in a self-assessment tool implemented by the Company and, in addition, senior managers certify the effectiveness of the internal controls in their areas of responsibility. On a yearly basis, the controls are subject to testing by the internal control team, internal and external auditors, and the results are reported to the Audit Committee.

The Audit Committee received reports from Management on the internal control system, and monitored the appropriateness of the “control culture” as well as the way risks were identified, managed and disclosed. The Committee also reviewed reports from Management on implementation of actions in response to comments on internal controls from the internal and external auditors. In addition, the Audit Committee received assurance from management after completion of a yearly comprehensive assessment of Orange Polska Group’s internal controls over financial reporting. All deficiencies identified were corrected or appropriate action points have been adopted. Management concluded that there were no weaknesses that would materially impact internal control over financial reporting in the year ended 31 December 2019.

Monitoring changes in the legal environment and changes in accounting standards

Relevant changes in the legal environment, together with updates to accounting standards and recommendations from regulatory bodies, were considered by the Audit Committee, as well as the question of how Orange Polska Group approached and implemented them.

Other areas of interest

The Committee reviewed and issued opinions on significant transactions with related parties, in line with internal regulations and best practices of corporate governance. Orange SA’s nominees are excluded from voting at Supervisory Board meetings and Audit Committee meetings on transactions involving Orange SA or its subsidiaries. The Committee reviewed other matters of interest, including but not limited to revenue assurance, hedging, insurance, tax and review of the exposure of the Company resulting from the implementation of the General Data Protection Regulation. Also the Committee issued opinions on other matters referred to the Committee by the Supervisory Board and/ or the Management Board including financing and granting bank guarantees to OPL’s subsidiaries.

Letter from the Chairman of the Strategy Committee

Dear Shareholders,

Another year of our activity has passed. It was a year full of challenges, but also a year of stabilization of Company’s financial results, which is crucial for strengthening our market position in 2020.

During three ordinary meetings the Committee focused in 2019 precisely on the most important topics from the point of view of the coming years, primarily around the groundbreaking 5G technology and its impact on the Company’s further operations. With a view to 5G launching in the perspective of the next year, the Committee carefully looked at the lessons learned from the implementation of 4G technology. As a result, the most important conclusions from a technical and marketing perspective were formulated. With widely developed Orange Polska fibre network and ongoing further rollout a lot of Committee’s attention last year was also devoted to the content services. Global and local trends regarding customer needs, as well as operators’ business expectations in terms of TV offer were being analyzed with various options for its future development.

I want to thank all Committee members and guests for their contribution to effective work for the sustainable development of the Company and its market success last year.

Jean-Marc Vignolles
Chairman of the Strategy Committee

Strategy Committee members in 2019

Mr. Maciej Witucki, Chairman of the Supervisory Board, and Mr. John Russell Houlden, Independent Board Member and Chairman of the Audit Committee, participate in the meetings of the Strategy Committee on a permanent basis. Supervisory Board members and Orange Polska Management Board actively participated in the works of the Committee, whenever appropriate.

In 2019 the Strategy Committee held three ordinary meetings.

On the Strategy Committee’s agenda for 2019

Orange Polska spectrum strategy and approach towards 5G

Current spectrum situation in Poland has been presented as well as OPL’s challenges, including existing spectrum optimization and 5G requirements. Discussion also covered possible timeline of 5G spectrum distribution in Poland and harmonization of EMF level.

During the last Committee meeting of 2019 the updated information on 5G spectrum acquisition timeline has been discussed, 5G spectrum international price benchmark, results of 5G field tests in OPL, as well as illustrative 5G rollout schedule for OPL.

OPL strategy concerning financial services

The Committee discussed OPL experience gained in previous years with the Orange Finanse offer as well as plans for future financial services business model for Orange Polska.

Content strategy

Considering global and local trends regarding customer needs, as well as operators’ business expectations in terms of content and Company’s ambitions in convergence, various options for further development of TV offer were discussed.

Cash perspectives and dividend policy

Bearing in mind investors’ expectations regarding the prospects of further business development of the Group, the Committee analyzed current financial situation and the most probable cash scenarios for the coming years.

4G lessons learned

The Committee analyzed the most important conclusions from the implementation of the previous technology (4G), especially in the phase of the 4G frequency auction, marketing strategy and the LTE commercial offers launch. Business assumptions from 2015 were compared with actual results.

Letter from the Chairwoman of the Remuneration Committee

Dear Shareholders,

In April 2019, after the end of the term of office of Wiesław Rozłucki I had the honour of taking the position of Chairperson of the Remuneration Committee. I would like to thank very much my predecessor for his commitment and creating the good practices in chairing the Remuneration Committee.

I would like to welcome Professor Michał Kleiber who joined the Remuneration Committee in April 2019.

In 2019 the Remuneration Committee was composed of five members. I would like to express my thanks to all of them for their work, readiness to share their best knowledge and experience and their support in taking over my duties as new chairperson.

Making all the Remuneration Committee’s recommendations and decisions we tried to contribute to implementation of Orange Polska strategy. Keeping in mind that employees are a key asset of the Company we looked for solutions enabling recruitment, retention, development and motivation of the best managers and professionals in the Company.

The Remuneration Committee fulfilled all its duties, including:

• considering and recommending to the Supervisory Board appointment of Jean-François Fallacher as CEO for the next 3 years term of office,
• reviewing and adjusting some of the employment conditions of the Management Board Members as well as the Executive Directors,
• evaluating the performance of the Management Board Members and recommending to the Supervisory Board the amounts of their bonuses.

With a view of keeping talented people in the Company as the best way to deliver the Orange Polska strategy, focused on dynamic development of fibre optics and 5G technology tests which may strengthen the Orange Polska business position in the coming years, Remuneration Committee gave its positive recommendation to the Supervisory Board on the Orange SA Group Long Term Incentive Program for 2019 – 2021.

All details about Remuneration Committee activities in 2019 you will find below.

At the end let me thank our colleagues from HR Department for their professional support which allowed us to meet all our obligations.

Maria Pasło-Wiśniewska
Chairwoman of the Remuneration Committee

Remuneration Committee members

On the Remuneration Committee’s agenda for 2019

In 2019 the Remuneration Committee gave a positive recommendation to the Supervisory Board of the appointment of Jean-François Fallacher to the position of the President of the Management Board of Orange Polska for the next 3 year term of office starting from 24th April 2019.

The Remuneration Committee reviewed the employment conditions of the Management Board Members and gave its positive recommendation to the Supervisory Board on:

• the employment conditions and the non-competition agreement after the expiry of employment with Jean- François Fallacher as the President of the Management Board of Orange Polska,
• the award of the Stretch Bonus for Jean-François Fallacher for 2018,
• the conditions of the Stretch Bonus for Jean-François Fallacher for 2019,
• an inclusion of the life insurance into the Management Board Members’ contracts as the last element of the employment contract standardization,
• the change in the remuneration of the Vice-President of the Management Board in charge of the Business Market, from 1st January 2019.

The Remuneration Committee was involved in matters related to all top management of Orange Polska and the Committee:

• acknowledged major employment conditions of the Executive Director in charge of IT from 1st July 2019,
• accepted the evaluation of the MBO goals for H2 2018, establishment and evaluation of the MBO goals for H1 2019 and establishment of the MBO goals for H2 2019 (with positive recommendation to the Supervisory Board for the evaluation of the Management Board Members’ goals for H2 2018 and for H1 2019),
• accepted and positively recommended to the Supervisory Board the Orange SA Group Long Term Incentive Program for 2019 – 2021.

The Remuneration Committee accepted and gave a positive recommendation to the Supervisory Board on:

• the Annual Report on the activities of the Remuneration Committee in 2018,
• the part of the Management Board’s Report on the Activity of Orange Polska S.A. in 2018, and of the Orange Polska Integrated Report 2018, including the remuneration policy of the Company, in accordance with Best Practice for GPW Listed Companies 2016.

The Remuneration Committee also reviewed the Group Leader Tool for self-evaluation by SVB Members.

The Remuneration Committee took note of the analysis of human capital in Orange Polska and of the new model of bonus system in the Company that will be implemented in the Company starting from January 2020.

The Remuneration Committee accepted working plan of the Committee for 2020.

The Remuneration Committee took note of the new legislation concerning the remuneration policy of Management Board and Supervisory Board’s Members – Polish Act of 16 October 2019 – Amending the Polish Act on Public Offering, Conditions of Governing the Introduction of Financial Instruments to Organized Trading and Public Limited Companies, and Amending Certain Other Acts.

The strategy of Orange Polska S.A. is based on building and maintaining high customer satisfaction, while providing a full range of the best quality telecommunication, multimedia and specialised ICT services fitting both household and business needs, as well as offering extensive connectivity and high customer relationship standards.

The Remuneration Policy contributes to implementing the Company’s comprehensive strategy. By enabling the recruitment, retention and motivation of the best managers and professionals in the specialised areas existing in Orange Polska S.A. it provides people prepared to achieve the strategic goals of the Company.

While recognising that employees are a key asset of the Company, the Policy supports the creation of favourable conditions in the digital work environment by stimulating the commitment to the Company’s objectives, employee development and use of flexible work methods.

Remunerations within Orange Polska S.A. are compared to those offered by peer companies in the market. The remuneration level depends on the Company’s financial results, and on the employee’s individual contribution and performance.

Remunerations are determined in a manner ensuring balance and consistency across the Orange Group. Our Remuneration Policy complies with the labour law and corporate governance regulations.

The remuneration system consists of the following components:

1. Basic salary;
2. Performance bonus;
3. Discretionary bonuses;
4. Benefits.

Employees leaving the Company under the voluntary departure programme are offered severance pay. The terms of severance pay for employees are determined in a separate agreement with trade unions in compliance with the law, whereas the terms of severance pay for the managers excluded from the Intragroup Collective Labour Agreement are settled in individual agreements and codified in their employment contracts.

Terms of remuneration for Orange Polska S.A.’s employees covered by the Intragroup Collective Labour Agreement are determined in co-operation with trade unions.

1. Basic salary

Basic salary terms take into account the job remuneration standards related to the scope of tasks assigned to a particular job position as well as the market value of the work performed. Orange Polska S.A. monitors the remuneration market by comparing, at least annually, the Company’s salaries and remuneration practices to those adopted by the Polish market leaders, particularly ICT companies.

Orange Polska S.A. ensures the consistency of remuneration between job positions by taking into account the managerial and expert skills involved as well as job comparability between various parts of the organisation.

Orange Polska S.A. develops remuneration terms based on non-discrimination, particularly on the grounds of gender, age, disability, race, religion, nationality, political opinion, trade union membership, ethnic origin and sexual orientation.

Individual basic salaries are determined in the following process:

• Annual remuneration reviews, taking into account the evolving work standards of various professional groups and each employee’s contribution to the achievement of goals;
• Promotions;
• Recruitment arrangements for candidates assuming their duties in a new professional area;
• Management of the risk of attrition of the most qualified employees leaving for the competition.

Management Board Members and Executive Directors

The Remuneration Committee of the Supervisory Board recommends the terms of employment, including the amount of basic salary, while taking into account the following aspects:

• scope of responsibilities and complexity of the particular job position;
• equality (employees with similar responsibilities, competence, experience and previous performance receive comparable remuneration);
• market competitiveness;
• individual contribution.

Based on the Remuneration Committee’s recommendations, the Supervisory Board determines the basic salary of the Management Board Members, while the Management Board determines the basic salary of the Executive Directors.

2. Performance bonus

The purpose of the bonus system is to motivate employees to achieve high performance by attaining the predefined and agreed goals which support the implementation of the Company’s strategy and growth of customer satisfaction. The system of goals stimulates co-operation among employees and business units by setting some solidarity goals in addition to individual ones.

Orange Polska S.A.’s bonus system is aligned with the specifics of the tasks performed by particular functions, which results in different levels of bonuses:

• Senior managers have a high share of bonuses in their total remuneration;
• Employees with sales goals have higher bonus or commission levels in the total remuneration than those without such goals.

For key managers, bonus is more related to the Company’s performance, and depends more on the achievement of solidarity goals shared by all, whereas for experts/line managers, bonus is related to their individual performance and depends less on the solidarity components shared by the particular function or the entire Company.

The goals and bonuses are set for periods closely linked to the budgeting cycle.

All senior managers and line managers in the support functions receive bonuses on a semi-annual basis. Employees in the support functions, sales line managers and sales employees receive bonuses/commissions on a quarterly or monthly basis.

The detailed bonus terms are defined in the relevant Bonus Regulations.

Management Board Members and Executive Directors

Bonuses of the Management Board Members and Executive Directors depend on the attainment of goals based on the Company’s long-term strategy and on financial performance. Solidarity goals delegated to managers are related to EBITDA and revenue ratios for the whole Company or particular segments of its activity as well as customer satisfaction from Orange services. Individual goals are related to functional performance and management quality.

The performance and bonuses of individual Management Board Members and Executive Directors are monitored directly by the Remuneration Committee of the Supervisory Board.

A new element that was introduced in 2017 is a long-term incentive program dedicated to key managers, including the Management Board Members and Executive Directors. The success in the programme is measured as an increase in the Company’s value and customer satisfaction. Participation in the programme is voluntary and requires managers to contribute their own resources. The programme will be settled in the first half of 2021.

3. Discretionary bonuses

The Company’s long-term strategy is based on innovation and commitment to outstanding performance.

Discretionary bonuses encourage employees to get involved in the development of innovative solutions, implementation of strategic projects and cross-functional co-operation. Owing to this scheme, employees can be rewarded for achievements which exceed the expectations defined in their periodic goals.

Discretionary bonuses are awarded twice a year by the CEO or other Board Members or Executive Directors for outstanding achievements.

4. Benefits

In order to improve the quality of life and promote employee integration, Orange Polska S.A. provides a broad package of market-competitive benefits to its employees, building a valuable offer which supports employee recruitment and retention.

A unique benefit for employees is their eligibility for the Employee Pension Fund, which is financed by Orange Polska S.A.

The programme is an employee pension scheme (Orange Polska Employee Pension Fund).

The key areas influenced by Orange Polska S.A. through benefit schemes are as follows:

• health and physical activity;
• financial stability;
• improved quality of life;
• employee development.

Orange Polska S.A. wants all its employees to be the ambassadors of the Orange brand; therefore. it provides them with access to its own products and services.

The Remuneration Policy shall not constitute the basis for any claims by the Company’s employees or members of the Company’s governing bodies. The detailed terms of remuneration are regulated by individual employment contracts and the Company’s by-laws.

Management Board and Supervisory Board Compensation

Persons that were Members of the Management Board of the Company as at 31 December 2019:

(PLN ‘000)	12 months ended 31 December 2019
	Fixed compensation expense in 2019	Variable compensation expense in 20191	Total compensation expense in 2019	Additionally: Variable compensation expense in 2018, paid in 2019
Jean-François Fallacher	3111	1271	4382	681
Mariusz Gaca	1699	830	2529	443
Jolanta Dudek	1023	505	1528	252
Jacek Kowalski	1189	578	1767	314
Bożena Leśniewska	1486	747	2233	365
Maciej Nowohoński	1226	595	1821	323
Witold Drożdż	975	478	1453	86
Piotr Jaworski	1005	493	1498	85
Total	11714	5497	17211	2549

Persons that were Members of the Management Board of the Company as at 31 December 2018.

(PLN ‘000)	12 months ended 31 December 2018
	Fixed compensation expense in 2018	Variable compensation expense in 20181	Total compensation expense in 2018	Additionally: Variable compensation expense in 2017, paid in 2018
Jean-François Fallacher	2849	923	3772	631
Mariusz Gaca	1683	739	2422	395
Jolanta Dudek	962	415	1377	210
Jacek Kowalski	1183	529	1712	274
Bożena Leśniewska	1348	612	1960	287
Maciej Nowohoński	1260	511	1771	248
Witold Drożdż2	156	86	242	-
Piotr Jaworski2	159	85	244	-
Total	9600	3900	13500	2045

The Supervisory Board compensation was as follows.

(PLN ‘000)	12 months ended 31 December 2019	12 months ended 31 December 2018
Maciej Witucki	432	431
Gervais Pellissier(1)	-	-
Marc Ricau(1)	-	-
Dr. Henryka Bochniarz	221	220
Thierry Bonhomme(3)	210	18
Federico Colom Artola(1) (2)	-	-
Eric Debroeck(1)	-	-
Ramon Fernandez(1)	-	-
John Russell Houlden	394	394
Prof. Michał Kleiber	214	215
Patrice Lambert-de Diesbach(1)	-	-
Monika Nachyła	155	-
Dr. Maria Pasło-Wiśniewska	287	212
Dr. Wiesław Rozłucki(2)	104	321
Jean-Michel Thibaud(1)	-	-
Jean-Marc Vignolles(1)	-	-
Total	2017	1811

The Management Board Members and Executive Directors are entitled to a variable remuneration component equal to 50% of their annual basic salary in case of 100% goal achievement. In some cases, if performance is higher than 100%, the variable remuneration component may exceed 50% of the annual basic salary. The variable remuneration component is based on the achievement of Orange Polska’s Revenues, EBITDAaL (in 2019 the EBITDA ratio was replaced by EBITDAaL) and specific telco indicators. As regards termination of employment, the termination notice period for Management Board Members is 6 months and they receive basic salary during that period.

In addition, they are entitled to one-off severance pay equal to 6 monthly basic salaries. All Management Board Members shall restrain from any competitive activity for 12 months after the termination of employment, and they are entitled to compensation for this ban equal to 6 monthly basic salaries.

In addition, the President of the Management Board is entitled to the Stretch Bonus based on the EBITDAaL as a financial trigger.

Furthermore, those Management Board Members and Executive Directors who are expatriates are eligible for benefits connected with staying in Poland as foreigners, which are included in the Orange Group International Mobility Policy package and payable on a one-off basis or throughout the year. These include housing allowance, plane tickets, French social insurance premiums, etc.

Orange Polska S.A. Incentive Programme in the form of phantom shares settled in cash

On September 4, 2017, the Supervisory Board of Orange Polska S.A. adopted the Orange.one Incentive Programme for the key executives of Orange Polska S.A., including the Management Board Members, based on derivatives (phantom shares), where the underlying instrument is the price of shares of Orange Polska S.A. on the regulated market maintained by the Warsaw Stock Exchange.

According to the Programme Regulations, Members of the Management Board are eligible to voluntary purchase of a total of 370,000 phantom shares of PLN 1 each from the initial pool, and they will acquire additional blocks of phantom shares after meeting the conditions for the average price of the shares of Orange Polska S.A. and the NPS ranking. A total maximum number of phantom shares in additional pools will be 126,000 and 54,000, respectively.

Phantom shares will be bought back at the average price of the shares of Orange Polska S.A. in the first quarter of 2021, provided that it is not less than the average price of the shares of Orange Polska S.A. in the third quarter of 2017, which amounted to PLN 5.46.

If the conditions for additional blocks of phantom shares are not met, the phantom shares will not be bought back and the participant will lose the invested funds. The table below presents the number and payment cost based on the phantom shares granted by Orange Polska S.A. to the Management Board Members (included in the Orange Polska’s costs).

	Options for additional phantom shares			The cost of share-based payments for 12 months till December 31, 2019 (PLN ‘000) 1	The cost of share-based payments for 12 months till December 31, 2018 (PLN ‘000) 1
	Phantom shares - initial pool (number)	Condition of the share price (number)	Condition of NPS (number)
Jean-François Fallacher	70000	21000	9000	324	84
Mariusz Gaca	50000	21000	9000	246	63
Jolanta Dudek	50000	21000	9000	246	63
Jacek Kowalski	50000	21000	9000	246	63
Bożena Leśniewska	50000	21000	9000	246	63
Maciej Nowohoński	50000	21000	9000	246	63
Witold Drożdż2	50000	21000	9000	246	30
Piotr Jaworski2	50000	21000	9000	246	30
Total	420000	168000	72000	2046	459

Long Term Incentive Plan (LTIP) of the Orange Group

The table below presents the number of shares granted by Orange S.A. to the Management Board Members under LTIP. The Long Term Incentive Plan is a 3-year plan from 2017 to 2019.

	Shares (number)	The cost of share-based payments for 12 months till December 31, 2019 (PLN ‘000)	The cost of share-based payments for 12 months till December 31, 2018 (PLN ‘000)
Jean-François Fallacher	2000	24	37
Mariusz Gaca	2000	24	37
Jolanta Dudek	2000	24	37
Jacek Kowalski	2000	24	37
Bożena Leśniewska	2000	24	37
Maciej Nowohoński	2000	24	37
Witold Drożdż1	2000	24	6
Piotr Jaworski1	2000	24	6
Total	16000	192	234

Currently, LTIP includes key managers who occupy key positions in the Orange Group and is conjuncted with the Essentials 2020 strategic plan.

Selected Executives and Leaders are awarded a defined number of free shares of Orange S.A. under the following conditions: continuous service in the Orange Group throughout the plan until 31 December 2019 and performance conditions.

The aim of the Programme is to recognise the engagement of the Group’s key Executives and Leaders, to share the value created by the Essentials 2020 strategic plan, to achieve a balance between short-term and long-term remuneration and to rely on well-known, monitored performance indicators.

In July 2018 the next edition of the Long-term Incentive Plan of the Orange Group for 2018-2020 was made available. Number of shares granted by Orange S.A. as part of the program, to the Management Board Members are specified in the table below.

	Shares (number)	The cost of share-based payments for 12 months till December 31, 2019 (PLN ‘000)	The cost of share-based payments for 12 months till December 31, 2018 (PLN ‘000)
Jean-François Fallacher	2000	30	17
Mariusz Gaca	2000	30	17
Jolanta Dudek	2000	30	17
Jacek Kowalski	2000	30	17
Bożena Leśniewska	2000	30	17
Maciej Nowohoński	2000	30	17
Witold Drożdż1	2000	30	7
Piotr Jaworski1	2000	30	7
Total	16000	240	116

In October 2019 the next edition of the Long-term Incentive Plan of the Orange Group for 2019-2021 was made available.

Number of shares granted by Orange S.A. as part of the program,to the Management Board Members are specified in the table below.

	Shares (number)	The cost of share-based payments for 12 months till December 31, 2019 (PLN ‘000)
Jean-François Fallacher	2000	12
Mariusz Gaca	2000	12
Jolanta Dudek	2000	12
Jacek Kowalski	2000	12
Bożena Leśniewska	2000	12
Maciej Nowohoński	2000	12
Witold Drożdż	2000	12
Piotr Jaworski	2000	12
Total	16000	96

Non-financial Remuneration Components for Management Board Members and Key Managers

The Management Board Members and Executive Directors are entitled to the following non-financial remuneration components: health care package, life insurance in Orange Polska, company car, legal indemnity in the event of personal liability, and access to Orange services in line with the relevant Company’s policies. In addition, the Management Board Members and Executive Directors, having worked at Orange Polska for more than 6 months, are eligible for the Employee Pension Programme (PPE).

The key managers other than Executive Directors are entitled to health care package, company car and an access to Orange services in line with the relevant Company’s policies. In addition, all key managers, having worked at Orange Polska for more than 6 months, are eligible for the Employee Pension Programme (PPE).

After enrolment to the Employee Pension Programme (PPE), the PPE contribution for all participants is paid by Orange Polska S.A.

In addition, French key managers are eligible for benefits connected with staying in Poland as foreigners, which are included in the Orange Group International Mobility Policy package and payable on a one-off basis or throughout the year. These include housing allowance, plane tickets, French social insurance premiums, etc.

Assessment of Remuneration Policy in 2019

Like in previous years, our bonus systems support directly execution of: EBITDAaL, NPS, transformation projects, sales targets for convergent offers and fibre services. In 2019, bonuses for all people are stronger connected with EBITDAaL. Bonuses for first managerial line (the Board and Executive Directors) depend on EBITDAaL in 50%. All employees in non-sales teams received diverge level of bonus even in case of 100% individual performance, depending on the Company’s EBITDAaL. The adopted bonus model focuses engagement of all people on EBITDAaL improvement.

In our opinion there is need to enhance culture change in the Company, therefore we opened in 2019 possiblitity to award employees for exemplary attitude which suport high level performance, co-operation and building friendly work environment.

The Company offers a competitive level of remuneration in relation to the market; as a result, the level of staff turnover at the initiative of employees remains relatively low.

At the same time, we note a growing pressure on remuneration growth related to an increase in demand for labour on the market, especially in new technology professions and direct contact with the customer. Systematic salary reviews are based on setting remunerations in the Company against the market and allow us to respond flexibly according to market changes. Therefore, our annual salary review is supplemented by additional microreviews and a salary rise process in the first and fourth quarters for selected professional groups that see dynamic wage growth in the market, which might lead to higher employee turnover in these groups.

Management Board composition as of 1 January 2020

Executive structure

Management Board members’ term of office

The term of office of each member of the Management Board is three years. The President and other members of the Management Board are appointed and removed by the Supervisory Board. The resolutions of the Supervisory Board regarding the appointment or re-appointment of the President or other members of the Management Board are adopted by a simple majority of the votes cast. The mandates of Management Board members expire at the latest on the date of the General Meeting which approves the financial statements for the second full financial year of his/ her service as a member of the Management Board.

Members of the Management Board may be at any time removed or suspended for important reasons by the Supervisory Board before the expiration of their term of office.

Changes in the Management Board and Executive Directors structure

On 19 March 2020 the CEO of Orange Polska, Jean-François Fallacher, took the following decisions regarding changes in the Executive Committee of the Company:

• Jacek Kunicki was appointed Executive Director in charge of Finance
• Maciej Nowohoński will evolve in his responsibilities as the Management Board Member. He will now be in charge of Carriers Market and Real Estate Sales (previously he was in charge of Finance and since 6 February 2020 also in charge of Carriers Market)

These changes are effective as of 31 March 2020.

The decision to appoint Jacek Kunicki as an Executive Director followed the meeting of the Supervisory Board of Orange Polska which due to COVID-19 epidemic threat was held entirely remotely. The agenda of the meeting included voting on nomination of Jacek Kunicki as Management Board member. However, according to Polish law this vote could not take place, given the physical absence of the Supervisory Board members. The Supervisory Board intends to approve this nomination at the next in-person meeting.

Management Board skills matrix

	Economics and Finance	Management and Strategy	Law and administration	Engineering and Technology	Psychology and Humanities	Sales and Marketing
Jean François Fallacher
Mariusz Gaca
Bożena Leśniewska
Witold Drożdż
Jolanta Dudek
Piotr Jaworski
Jacek Kowalski
Maciej Nowohoński