Supervisory Board activities in 2021

The independent members of Orange Polska Supervisory Board must satisfy the following conditions:

1. not to belong, or have belonged to the senior management for the previous 5 years, and not to be or have been either a member of the Management Board of the Company or its affiliated entity;
2. not to be, or have been for the previous three years an employee of the Company, or its associated, subsidiary or affiliated entity and not to be bound by any similar agreement with such entities;
3. not to receive, or have received, significant additional remuneration from the Company, or its affiliated entity apart from a fee received as a member of the Supervisory Board, including as a member of the Audit Committee;
4. not to exercise supervision over the Company within the meaning of the Accounting Act or to represent in any way a shareholder, persons or entities exercising control over the Company;
5. not to have, or have had within the previous year, a significant business relationship with the Company or its affiliated entity, either directly or as an owner, partner, shareholder, director, member of the Supervisory Board or other supervisory or controlling body or senior employee, including as a member of the Management Board or other governing body of an entity having such a relationship. Business relationships include the situation of a significant supplier of goods or services (including financial, legal, advisory or consulting services), of a significant customer, and of organisations that receive significant contributions from the Company or its Group;
6. not to be, or have been within the previous three years:
   1. an owner, partner (including a general partner) or a shareholder of a current or former audit firm conducting an audit of financial statements of the Company or its affiliated entity, or
   2. a member of the supervisory board or other supervisory or controlling body of a current or former audit firm conducting an audit of financial statements of the Company, or
   3. an employee or person belonging to senior management, including a member of the management board or other governing body of a current or former audit firm conducting an audit of financial statements of the Company or its affiliated entity, or
   4. another person whose services were used or supervised by a current or former audit firm or statutory auditor acting on behalf of a current or former audit firm;
7. not to be a member of a management board or other governing body in a company in which a member of the Management Board of the Company is a member of the supervisory board or other supervisory or controlling body, and not to have other significant links with members of the Management Board of the Company through involvement in other companies or bodies;
8. not to be a member of the Supervisory Board of the Company for more than 12 years; 9
9. not to be a close family member of a member of the Management Board of the Company or of persons referred to in points 1–8, in particular not to be a spouse, cohabitant, relative or in-law in a straight line, and in the collateral line to the fourth degree, of a member of the Management Board or of persons referred to in points 1–8
10. not to remain in adoption, custody or guardianship with a member of the Management Board of the Company or with persons referred to in points 1–8.

Additional remuneration, referred to in point 3 above: a. covers in particular any participation in a share option or any other performance-related pay scheme; b. does not cover the receipt of fixed amounts of compensation under a retirement plan including deferred compensation for prior service with the Company, provided that such compensation is not contingent in any way on continued service with the Company.

A relationship with a shareholder precluding the independence of a member of the Supervisory Board within the meaning of point 2 above is also an actual and significant relationship with any shareholder who holds at least 5% of the total vote in the Company. Each candidate for a member of the Supervisory Board submits a declaration that he or she meets or does not meet the above criteria of independence. After his or her appointment, such a declaration is submitted quarterly.

On May 19, 2021, Eric Debroeck resigned his position on the Supervisory Board, effective on June 25, 2021.

On June 25, 2021, the mandates of Henryka Bochniarz, Thierry Bonhomme, Ramon Fernandez, Marie-Noëlle JégoLaveissière, Maria Pasło-Wiśniewska and Jean-Marc Vignolles expired.

On the same day, the Annual General Meeting appointed the following persons: Philippe Béguin, Bénédicte David, Ramon Fernandez, Marie-Noëlle Jégo-Laveissière, Maria Pasło-Wiśniewska, Wioletta Rosołowska and Jean-Marc Vignolles for a new 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 twothirds 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).

The Supervisory Board and its Committees, in discussion with the management, closely monitored preparations of the new strategy and its plan for announcement to the market. The Strategic Committee discussed key strategic plan assumptions and scenarios, and the external environment, including the competitive and regulatory landscape. Thanks to the previous strategy, the company is on the right business track, with the right assets and customer proposals. The key objective of the .Grow strategy is to sustain healthy growth trends and to continue internal company transformation, including further simplification of business processes, reskilling employees and bringing new talent on board. A separate discussion point was related to dividend policy. The return to dividends, long awaited by investors, will underscore OPL’s turnaround and reflect management’s confidence in future growth prospects.

As a complement to the .Grow strategy, the Supervisory Board has adopted a new long-term incentive plan for the Company’s executives and senior management to additionally motivate them and align with the strategic goals and interests of the shareholders. The plan is correlated with shareholder value appreciation: its success is 35%, based on the share price appreciation.

Progress on the FiberCo project (Światłowód Inwestycje), which was initiated in 2020, was of special interest to the Supervisory Board. The transaction that was concluded in April and finalised in August 2021 has a few dimensions. Firstly, the amount of proceeds demonstrates strong value that was created over the past few years attached to the FTTH rollout program. The proceeds have significantly strengthened the Company’s balance sheet. Secondly, it secures further expansion of the fibre footprint, which is a key driving force for our commercial strategy. Finally, as the rollout will take place mainly in suburban areas it will significantly contribute to the development of the country’s digital infrastructure and will fight digital exclusion. The Supervisory Board was impressed by the execution process and gives credit to all Orange Polska teams involved.

Supervisory Board closely monitored developments around a new draft of the cybersecurity law that was published by the government in October. The most discussed areas of this draft were those related to the unexpected inclusion of provisions regarding the so called #PL5G project. Based on the proposal, the 700 MHz spectrum is supposed to be operated by a wholesale company, majority owned by a government-controlled entity and minority-stake owned by telecom operators, who would win licences for this spectrum. The Supervisory Board shared Management’s concerns about the legal and governance framework behind this project and whether, in the proposed form, it will serve the best interests of Orange Polska. The Board asked the Management to be in active dialogue with lawmakers to protect the company’s interests.

The Supervisory Board constantly monitored commercial and financial results and realisation of the 2020 budget. This was especially important in light of the challenges related to the pandemic’s impact. In particular the Board analysed how the economic situation influences collection of customer receivables.

On 16 February 2021, the Supervisory Board reappointed Bożena Leśniewska, Witold Drożdż, Jolanta Dudek and Piotr Jaworski to the Management Board for the next term of office. In accordance with the Best Practice for GPW Listed Companies, the renewals were made more than four months before the expiration of their terms of office.

This section contains the Supervisory Board assessment of the Orange Polska Group’s standing on a consolidated basis in 2021 in accordance with the recommendation no. 2.11.3. of the Best Practice for GPW Listed Companies 2021, introduced by the Warsaw Stock Exchange. The assessment is based on the 2021 financial results of the Group (the Company and its subsidiaries) as well as on the information obtained by the Supervisory Board in 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 evaluating 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, risk management and compliance systems and the internal audit function.

The Group’s key goals in 2021 were:

• sustaining strong commercial momentum with special focus on fibre, convergence and B2B;
• execution of the FiberCo project;
• COVID-19 impact management including plan for a new operating model after the pandemic;
• acquisition of 5G spectrum;
• further cost transformation with special focus on automation and digital customer interactions;
• increased focus on digital and Green, including finalisation of the first projects contributing to increasing energy consumption from renewable sources;
• fulfilment of published financial forecasts and expectations regarding revenue growth and EBITDAaL;
• preparation of a new strategy for 2021-2024 and its announcement in due time.

2021 was obviously a year marked by the announcement of the new .Grow strategy that sets priorities for Orange Polska for the years 2021-2024. Naturally, the Supervisory Board was involved in its preparation process. .Grow is an evolutionary strategy conceived to stimulate and accelerate sales and profit growth, as well as laying the foundation for growth beyond 2024. One important element of the strategy is a return to dividends. The strategy was well-received by the stock market which resulted in a growing share price in the weeks following the announcement.

A landmark development of 2021 was the sale of a 50% stake in FiberCo (Światłowód Inwestycje) and establishing a joint venture with APG. It is very important in the context of implementing the .Grow strategy. It will enable the Group to simultaneously continue increasing its fibre reach and executing other projects that are important for the future, without increasing capex range.

The Group delivered on all its financial goals. Almost 6% EBITDAaL growth was at the high end of expectations (low-tomid single-digit growth), which was increased during the year. The key success factor was a successful combination of growing numbers of customers and improving trends in ARPO, in all key services. The Company pursued its ‘more for more’ value strategy in 2021, increasing mobile tariffs for B2C customers, adjusting some convergent packages and introducing changes to pre-paid plans. This was complemented by ongoing cost transformation, including automation and digitisation of business processes. The Company has also implemented a new balanced hybrid work model that will progressively result in significant savings in the office space used.

One of the Company’s goals in 2021 was to sustain strong commercial momentum from 2020. Commercial results were very solid in most areas taking into account lower customer activity following a pandemic-related spike in demand in the second half of 2020. Results in fibre were particularly strong with the retail fibre customer base increasing by 30% in 2021. Orange fibre services were available for 6 million Polish households, making the Company by far the largest fibre player in Poland.

The Supervisory Board was interested in the Management Board’s view regarding potential changes in the competitive environment in Poland following an announced acquisition of UPC, the country’s largest cable company, by Iliad, the owner of Play. If finalised, the transaction will result in the creation of a significant new convergent player.

One of the key topics for the Supervisory Board in 2021 was the situation regarding both the auction for 5G C-band spectrum, and cybersecurity regulations. After the auction was annulled in 2020, a new auction has not yet been announced, due to prolonged government work on the cybersecurity law. A new published draft of the law included unexpected provisions regarding the so-called #PL5G project. Based on the proposal, 700 MHz spectrum is supposed to be operated by a wholesale company majority owned by a government-controlled entity, and minority stake owned by telecom operators who would win licences for this spectrum.

Supervisory Board shares Management’s view that last year was very successful for Orange Polska and constitutes a very good start for the implementation of the .Grow strategy.

The Management Board kept the Supervisory Board informed of the 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 all its financial goals for 2021 delivering strong results across the board. The EBITDAaL growth rate accelerated to almost 6% as profitable revenue expansion translated into profits through the Company’s high operating leverage. 2021 was the fourth consecutive year of growth in operating profitability, which demonstrates that Orange Polska is consistent in delivering growth, while its business is predictable and defensive. The Group also successfully continued its cost transformation with savings in many areas including labour, subcontracting and general expenses.

Revenue increased 3.6% year-on-year in 2021 with all key lines contributing to this growth. In the opinion of the Supervisory Board it is especially worth noting that revenues from key telecom services, which are essential to margin generation (combining convergence, mobile and fixed broadband), were up 6.7%. This growth rate further accelerated versus 2020 when it amounted to 2.9%. This was truly a very high pace of growth, which benefitted from strong growth of customer volumes and improving trends in ARPO. ICT business had another remarkable year with revenues advancing 18% as the Group further strengthened its position as integrator and digital-services provider to Polish corporates.

Net profit was exceptionally high and amounted to almost PLN 1.7 billion. It was boosted by a gain of PLN 1.4 billion related to the sale of a 50% stake in Światłowód Inwestycje. Excluding this extraordinary item, net income was still much higher versus 2020, mainly as a result of higher EBITDAaL and lower depreciation. It is very positive that the turnaround in the EBITDAaL level has started to filter through to the bottom line.

Organic cash flow grew by a remarkable 35% in 2021 as a result of growing EBITDAaL, decreasing capex and increased cash flow from disposal of real estate. Capex already benefitted from the Światłowód Inwestycje joint venture.

Over the course of last year, the Group reduced its net debt by around PLN 1.5 billion as a result of solid cash-flow generation and proceeds received on closing of the transaction related to Światłowód Inwestycje. As a consequence financial leverage decreased to 1.4x, which illustrates strong balance-sheet structure. This was a strong argument behind the expected return to dividends in 2022.

In 2021 the Group did not pay a dividend, which the Supervisory Board assessed as a positive decision. The decision considered both the transaction related to Światłowód Inwestycje, which was still not finalised, and uncertainties related to the 5G auction and cybersecurity law. However, at the same time, the Management committed to a return to dividends from 2022. Indeed, in February 2022 it recommended payment of PLN 0.25 per share in 2022 from 2021 profits.

For many reasons, 2021 was a very successful year for Orange Polska. Last year’s performance was a first and very strong step to fulfil the .Grow strategy. The Group confirmed all its strategic goals. It is quite obvious that 2022 will be a much more challenging year due to the extremely volatile macro environment and the war on Poland’s eastern border – it is impossible today to judge further developments and ultimate consequences. The Supervisory Board is convinced that the Group has the strategy best suited to make the most of its assets and values.

The Supervisory Board shares the Management Board’s opinion that in 2022 the Group should focus its operations in particular on the following key aspects:

• Further development of key value drivers including convergence, mobile, fibre and ICT, while also taking into account possible changes in the competitive landscape following the acquisition of UPC by Play;
• Take measures in an attempt to pass high inflationary pressures to customers to protect profitability;
• Weather risks related to an unprecedented rise in energy prices among other things through new Power Purchase Agreements (PPA);
• Assess risks related to the war in Ukraine and take on necessary mitigating actions;
• Acquisition of 5G spectrum;
• Pursue transformation of corporate culture to be more agile and cost effective and implement a post-pandemic workplace model;
• Fulfill published financial forecasts and expectations regarding revenue growth and EBITDAaL.

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 facilitates 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 assurance that the risks significant to the Group are identified and addressed, but such assurances can never be absolute.

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 2021, published on 16 February 2022.

In 2021, the Company 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 2021.

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.

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

Orange Polska anti-corruption policy, complemented with detailed internal regulations, defines the required standards for employees’ conduct. On the basis of the relevant provisions of the policy, potential consequences are determined in cases of violation of anti-corruption procedures. Under the due diligence process, verification of 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. The Compliance Management function conducts cyclic reviews of corruption risks, also taking into 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 they suspect a 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.

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 (whistleblowing) 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 anticorruption 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.

This section contains the Supervisory Board assessment of the Company’s performance of its obligations concerning compliance with the corporate governance principles as defined in the Exchange Rules, and with the regulations on current and periodic reports published by issuers of securities in 2021 in accordance with recommendation no. 2.11.4 of the Best Practice for GPW Listed Companies 2021.

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 publication of current reports regarding the application of detailed Corporate Governance rules is governed by the Resolution of the WSE Board 692/2021 dated 1 July 2021. According to the WSE regulations when a given rule is not applied in a consistent way or is broken incidentally, the Company is obliged to publish a report on its website in the analogical way as it is applied for a publication of current reports. Reports concerning the application of detailed rules of corporate governance are passed by means 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 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 Corporate Governance included in the Management Board report about the activity of Orange Polska S.A. and the Orange Polska Group in 2021. This declaration defines in a detailed way the issues concerning 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 non-member state.

Orange Polska intends to develop and adopt a Diversity Policy for the Supervisory Board at the nearest General Meeting.

Furthermore, pursuant to the Diversity Management Policy applicable to the Management Board adopted by the Supervisory Board on 3 November 2021, with regard to gender diversity, in the process of appointment of the Members of the Management Board of Orange Polska the Supervisory Board will strive to achieve the minimum participation of women of at least 30%. As of December 31, 2021, the participation of women in the Supervisory Board and the Management Board is 36% and 25%, respectively.

According to the principle 1.1. of the Best Practice, Orange Polska runs a website in Polish and English, on which the Company publishes all documents and information required by law and best practice, including information on the Company’s application of principles and recommendations contained in the Best Practice for GPW Listed Companies.

In the Supervisory Board’s opinion, the information provided by Orange Polska is in line with the requirements and honestly follows the rules of Corporate Governance and the Company duly fulfils its 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.

This section contains the Supervisory Board assessment of the compliance and rationality of the Group’s policy of supporting culture, sport, charities, media, social organisations and others in 2021 with recommendation no. 2.11.5 of Best Practice for GPW Listed Companies 2021.

The Supervisory Board analysed the amounts expensed by Orange Polska Group in support of culture, sports, charities, the media, social organisations, trade unions, etc. in 2021.

The Supervisory Board states that the sponsorship strategy led by the Company and focused in 2021 on music as the main area supporting the brand brought the appropriate financial and marketing efficiency, although it was curtailed by the COVID-19 pandemic. According to the adopted strategy, in the strategic sponsorship area Orange Polska creates complex long-term projects across the whole of Poland. The projects, in which Orange Polska acts as titular or main sponsor, address the largest possible group of its customers (present and potential).

The Supervisory Board appreciates the charity activity led by Orange Polska in both forms – one 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, the Foundation encourages young people to acquire knowledge, participate in culture, and build communities using new technologies.