Orange Polska S.A.

Audit Report / Information • Feb 16, 2022

This document is a free translation of the Polish original. Terminology current in Anglo-Saxon countries has been used where practicable for the purposes of this translation in order to aid understanding. The binding Polish original should be referred to in matters of interpretation. Independent Auditor's Report To the General Shareholders’ Meeting and Supervisory Board of Orange Polska S.A. Report on the Audit of the Annual Separate Financial Statements Opinion We have audited the accompanying annual separate financial statements of Orange Polska S.A. (the “Entity”), which comprise: — the statement of financial position as at 31 December 2021; and, for the period from 1 January to 31 December 2021: — the income statement; — the statement of comprehensive income; — the statement of changes in equity; — the statement of cash flows; and — notes comprising a summary of significant accounting policies and other explanatory information; (the “separate financial statements”). In our opinion, the accompanying separate financial statements of the Entity: — give a true and fair view of the unconsolidated financial position of the Entity as at 31 December 2021 and of its unconsolidated financial performance and its unconsolidated cash flows for the financial year then ended in accordance with International Financial Reporting Standards, as adopted by the European Union (“IFRS EU”) and the adopted accounting policy; — comply, in all material respects, with regard to form and content, with applicable laws and the provisions of the Entity's articles of association; — have been prepared, in all material respects, on the basis of properly maintained accounting records in accordance with chapter 2 of the accounting act dated 29 September 1994 (the “Accounting Act”). Our audit opinion on the separate financial statements is consistent with our report to the Audit Committee dated 16 February 2022. KPMG Audyt spółka z ograniczoną odpowiedzialnością sp.k. ul. Inflancka 4A, 00-189 Warsaw, Poland tel. +48 (22) 528 11 00, fax +48 (22) 528 10 09, kpmg@kpmg.pl © 2022 KPMG Audyt Spółka z ograniczoną odpowiedzialnością sp.k., a Polish limited partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. Company registered at the District Court for the capital city of Warsaw in Warsaw, 12th Commercial Division of the National Business Register. KRS 0000339379 NIP: 527-261-53-62 REGON: 142078130 1 Basis for Opinion We conducted our audit in accordance with: — International Standards on Auditing as adopted by the National Council of Statutory Auditors as National Standards on Auditing (the “NSA”); and — the act on statutory auditors, audit firms and public oversight dated 11 May 2017 (the “Act on statutory auditors”); and — regulation (EU) No 537/2014 of the European Parliament and of the Council of 16 April 2014 on specific requirements regarding statutory audit of public-interest entities and repealing Commission Decision 2005/909/EC (the “EU Regulation”); and — other applicable laws. Our responsibilities under those regulations are further described in the Auditor’s Responsibility for the audit of the separate financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence and Ethics We are independent of the Entity in accordance with International Ethics Standards Board for Accountants International Code of Ethics for Professional Accountants (including International Independence Standards) (“IESBA Code”) as adopted by the resolution of the National Council of Statutory Auditors, together with the ethical requirements that are relevant to our audit of the separate financial statements in Poland and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. During our audit the key statutory auditor and the audit firm remained independent of the Entity in accordance with requirements of the Act on statutory auditors and the EU Regulation. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the separate financial statements of the current period. They are the most significant assessed risks of material misstatements, including those due to fraud. Key audit matters were addressed in the context of our audit of the separate financial statements as a whole, and in forming our opinion thereon we have summarised our response to those risks. We do not provide a separate opinion on these matters. We have determined the following key audit matters: Revenue from contracts with customers Revenue from contracts with customers for the year ended 31 December 2021: PLN 10,507 million. As at 31 December 2021: trade receivables: PLN 1,885 million; contract assets: PLN 179 million; contract costs: PLN 504 million; contract liabilities: PLN 1,534 million. We refer to the separate financial statements: note 5 and 34.9 “Revenue”, note 13 “Assets and liabilities relating to contract with customers”, note 34.1 „Use of estimates and judgments”. Key audit matter Our response In the year ended 31 December 2021, the Entity’s principal revenue streams included provision of fixed, mobile and convergent telecommunication services as well as the provision of IT and integration services and sale of equipment. Our audit procedures in the area included, among other things: — Obtaining understanding of the Entity’s revenue recognition process, and assessing the appropriateness of its 2 Application of revenue recognition principles of the relevant financial reporting standard (IFRS 15 Revenue from contracts with customers) is complex and requires making significant judgments and assumptions. These complexities are primarily associated with the fact that: — different products and services within the above revenue streams can have different patterns of revenue recognition - these may include recognizing revenue upon delivery, or over time (on a straight-line basis or using a revenue recognition pattern linked to subscriber numbers); and — various products and services are regularly contracted within a single arrangement (primarily as it relates to (i) the sales of handsets accompanied by a subscription plan (ii) sales of IT services together with network services and equipment (iii) sales of data transfer together with voice and sms services. Given the requirement of IFRS 15 to unbundle multiple elements within complex contractual arrangements, significant judgment is required in determining separate performance obligations within such arrangements and allocating total arrangement consideration thereto. In addition, complex billing systems are used to process and record high volume of individually low-value transactions. Due to that fact, and also in view of changing pricing models and tariff structures, the existence, accuracy and completeness of revenue amounts recorded is an inherent industry risk. In view of the above-mentioned factors, satisfying ourselves as to the revenue amounts in the separate financial statements required our increased attention in the audit, and as such was considered by us to be a key audit matter. revenue recognition policy for all material products and services against the requirements of the relevant financial reporting standards; — Assisted by our own information technology specialists, testing the selected key controls over the revenue process and billing systems, including, but not limited to, those over access rights, pricing data, rate changes and segregation of duties; — For a sample of contracts with customers concluded during the audited year, inspecting contractual provisions and making inquiries of members of the Management Board in order to challenge, among other things: · Identification of performance obligations within the contracts as well as any contracts to be accounted for on a combined basis; · Allocation of the contract consideration to each of the identified performance obligations, based on their estimated stand-alone selling prices, by reference to the sales department data, whose relevance and reliability was independently assessed by us; · Determination of the timing of the transfer of control, the resulting pattern of revenue recognition and revenue amounts, by reference to sales invoices, delivery notes, and other as appropriate. — For a sample of revenue transactions during the audited year, relating to both corporate customers and individuals: · Tracing the revenue amounts to corresponding supporting customer billings and underlying contracts; · Assessing whether the revenue tested was recognized in the appropriate period by reference to the date of service; · Tracing customer billings to cash received from customers; — Inspecting high risk journal entries posted to revenue accounts and tracing those to the underlying documentation, in order to assess the accuracy of the amounts recognized as well as the rationale for the transactions; 3 — For a sample of invoices included within trade receivables with corporate customers, obtaining confirmations of the amounts due as at the reporting date and seeking explanations for any significant differences. For non-responses, performing alternative procedures, primarily by tracing the amounts outstanding to underlying invoices and subsequent cash receipts; — Examining whether the Entity’s revenue recognition-related disclosures in the separate financial statements appropriately include and describe the relevant quantitative and qualitative information required by the applicable financial reporting framework. Impairment of goodwill As at 31 December 2021: carrying amount of goodwill: PLN 2,014 million; related impairment losses for the year then ended: nil. We refer to the separate financial statements: note 8 “Impairment test”, note 34.1 „Use of estimates and judgments”, note 34.12 “Goodwill”. Key audit matter Our response In conjunction with its business acquisitions in prior years, the Entity recognized goodwill, carried at PLN 2,014 million as at 31 December 2021. Pursuant to the relevant provisions of the financial reporting standards, annual impairment testing is required for cash generating units (CGUs) to which goodwill has been allocated. As disclosed in Note 9, based on its current year’s test, the Entity did not recognize any impairment in respect of its CGU containing goodwill. Management Board uses judgment in allocating goodwill and other non-current assets to CGUs for the annual impairment test purposes. A complex model is applied in the test, relying on adjusted historical performance, and a range of internal and external sources as inputs to the assumptions. Significant judgment is required in making key forward-looking assumptions applied in the model, including: — forecast cash flows and growth rates – based on the assessment of future market developments and economic events. Particular estimation uncertainty is associated with forecasting future Our audit procedures, performed, where applicable, with the assistance from our own valuation specialists, included, among other things: — Evaluating the appropriateness of the Entity’s value in use model applied to perform the annual impairment test, against the relevant requirements of the financial reporting standards; — Testing of selected key internal controls within the impairment testing process, including those over the data used in the test and over validation and approval of the test assumptions and outcomes; — Assessing asset grouping into CGU, based on our understanding of the Entity’s operations, product and service deliverables, and business units; — Inquiring of the Management Board members regarding the impact of the COVID-19 pandemic on the Entity and its results in the current year and going forward; — Evaluating the quality of the Entity’s forecasting by comparing historical 4 is associated with forecasting future revenue and capital expenditures within the cash flows; — discount rate – judgment is required in building up a discount rate that appropriately reflects the risks associated with the cash flows of the CGU being tested for impairment. Complex models using forward-looking assumptions tend to be prone to greater risk of management bias, error and inconsistent application. These conditions necessitate our additional attention in the audit, in particular to address the objectivity, relevance and reliability of sources used for assumptions, and their consistent application. In addition, the Entity’s impairment model is sensitive to small changes in the assumptions, which drives additional audit effort. Due to the above factors, we considered this area to be a key audit matter. projections with actual outcomes, and also tracing the forecast cash flows in the impairment model to Management Board-approved budgets and forecasts; — Using our knowledge of the Entity, its past performance, business and customers, and our industry experience, challenging significant forecast cash flow and growth assumptions. As part of the procedure we: · Applied increased skepticism to forecasts in any areas where previous year’s forecasts were not achieved; · Challenged the discount rate used by reference to publicly available market data, adjusted by risk factors specific to the Entity and its industry; · Assessed reasonableness of the assumptions relating to future revenue, operating expenses and capital expenditure, by reference to market analyses and the Entity’s internal documents, such as the approved budgets and strategic plan; · Checked the assumed growth rate by reference to the Entity’s past performance, its approved plan and strategy, and our experience regarding the feasibility of these in the economic environment in which it operates. — Considering the sensitivity of the impairment model to changes in key assumptions, such as forecast growth rates and discount rates, to identify the assumptions at higher risk of bias or inconsistency in application; — Assessing the Entity’s analysis of the market capitalisation shortfall versus the total recoverable amount of all CGU; — Assessing impairment-related disclosures in the separate financial statements against the requirements of the financial reporting standards. 5 Sale of shares in Światłowód Inwestycje As at 31 December 2021: Investment in joint venture: PLN 555 million; receivable presented within other assets: PLN 416 million; gain on partial disposal of investment in Światłowód Inwestycje for the year then ended: PLN 750 million. We refer to the separate financial statements: notes 8.2 and 22 “Investment in joint venture”, note 14 “Other assets, note 34.1 „Use of estimates and judgments”. Key audit matter Our response As discussed in Note 22, during 2021, the Entity sold 50% of shares in its then subsidiary, Światłowód Inwestycje Sp. z o.o. (“Światłowód Inwestycje”, "investee"). The transaction consideration included PLN 897 million in cash as well as contingent consideration at estimated fair value of PLN 426 million, depending on the progress of the investee’s network roll-out. Subsequent to the sale, based on its contractual arrangement with the buyer, the investment was accounted for as a joint venture in the accompanying separate financial statements. Accounting for the above transaction required significant judgment and material estimates from management. The following areas were associated with particular complexity: — Measuring fair value of the transaction consideration, including the estimated -fair value of contingent consideration; — In respect of the retained investment in Światłowód Inwestycje, assessment whether the arrangement with the buyer gave rise to joint control over the investee and classifying the joint arrangement as either a joint operation or a joint venture in the Entity’s separate financial statements. Due to the above factors, coupled with the significance and non-routine character of the transaction, we considered the area to be associated with a significant risk of material misstatement that required our increased attention and as such was a key audit matter. Our audit procedures in the area included, among other things: — Obtaining understanding of the Entity’s process of identifying and accounting for significant unusual transactions, and also testing the design and implementation of selected related internal controls, such as those over validation and approval of the terms and conditions of the significant transactions and related accounting treatment; — Analysis of the underlying contractual terms in respect of the sale of shares; — Through inquiries of the Management Board members and inspection of underlying documentary evidence, independent assessment of the transaction consideration, including: · Challenging the appropriateness of the Entity’s model applied in measurement of the fair value of contingent consideration and of the key assumptions therein, such as those in respect of alternative scenarios of future network roll-out; · Evaluating key judgements and assumptions by the Management Board in measuring fair value of contingent consideration for indicators of possible bias; — Challenging the Entity’s joint control conclusion and the classification of the joint arrangement as a joint venture, by reference to our analysis of the joint arrangement’s governance and decision-making set-up, legal form, and rights and obligations of the shareholders, among other things; — Evaluation of the completeness, accuracy and relevance of the disclosures in the separate financial statements related to the share sale transaction and the joint arrangement. 6 Other Matter The separate financial statements of the Entity as at and for the year ended 31 December 2020 were audited by another auditor who expressed an unqualified opinion on those financial statements on 17 February 2021. Responsibility of the Management Board and Supervisory Board of the Entity for the Separate Financial Statements The Management Board of the Entity is responsible for the preparation, on the basis of properly maintained accounting records, of separate financial statements that give a true and fair view in accordance with International Financial Reporting Standards, as adopted by the European Union, the adopted accounting policy, the applicable laws and the provisions of the Entity's articles of association and for such internal control as the Management Board of the Entity determines is necessary to enable the preparation of separate financial statements that are free from material misstatement, whether due to fraud or error. In preparing the separate financial statements, the Management Board of the Entity is responsible for assessing the Entity's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Management Board of the Entity either intends to liquidate the Entity or to cease operations, or has no realistic alternative but to do so. According to the Accounting Act, the Management Board and members of the Supervisory Board of the Entity are required to ensure that the separate financial statements are in compliance with the requirements set forth in the Accounting Act. Members of the Supervisory Board of the Entity are responsible for overseeing the Entity’s financial reporting process. Auditor’s Responsibility for the Audit of the Separate Financial Statements Our objectives are to obtain reasonable assurance about whether the separate financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with NSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these separate financial statements. The scope of audit does not include assurance on the future viability of the Entity or on the efficiency or effectiveness with which the Management Board of the Entity has conducted or will conduct the affairs of the Entity. As part of an audit in accordance with NSAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: — identify and assess the risks of material misstatement of the separate financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control; — obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Entity's internal control; — evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Management Board of the Entity; — conclude on the appropriateness of the Management Board of the Entity’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Entity’s ability to continue as a going concern. If we 7 conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report on the audit of the separate financial statements to the related disclosures in the separate financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report on the audit of the separate financial statements. However, future events or conditions may cause the Entity to cease to continue as a going concern; — evaluate the overall presentation, structure and content of the separate financial statements, including the disclosures, and whether the separate financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with the Audit Committee of the Entity regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We provide the Audit Committee of the Entity with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated with the Audit Committee of the Entity, we determine those matters that were of most significance in the audit of the separate financial statements of the current reporting period and are therefore the key audit matters. We describe these matters in our auditors’ report on the audit of the separate financial statements unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Other Information The other information comprise: — the letter of the President of the Management Board; — the selected financial data; — the Report on the Activity of the Orange Polska Group, including Orange Polska S.A. for the year ended 31 December 2021 (the “Report on activity”), including: · the corporate governance statement and the statement on non-financial information referred to in art. 49b paragraph 1 of the Accounting Act, which are separate parts of the Report on activity; · the statement of the Management Board of the Parent Entity regarding the preparation of the separate financial statements and Report on activity; · the Management Board’s information regarding the appointment of the audit firm; — the statement of the Supervisory Board regarding the Audit Committee; and — the Supervisory Board’s assessment of the separate financial statements and the Report on activity; (together the “Other information”). Responsibility of the Management Board and Supervisory Board The Management Board of the Entity is responsible for the Other information in accordance with applicable laws. The Management Board and members of the Supervisory Board of the Entity are required to ensure that the Report on activity and the individual parts thereof, is in compliance with the requirements set forth in the Accounting Act. 8 Auditor’s Responsibility Our opinion on the separate financial statements does not cover the Other information. In connection with our audit of the separate financial statements, our responsibility was to read the Other information and, in doing so, consider whether the Other information is materially inconsistent with the separate financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement in the Other information, we are required to report that fact. In accordance with the Act on statutory auditors our responsibility was to report if the Report on activity was prepared in accordance with applicable laws and the information given in the Report on activity is consistent with the separate financial statements. Also, in accordance with the requirements of the Act on statutory auditors our responsibility was to report whether the Entity included in the statement on corporate governance information required by the applicable laws and regulations, and in relation to specific information indicated in these laws or regulations, to determine whether it complies with the applicable laws and whether it is consistent with the separate financial statements and to inform whether the Entity prepared a statement on non-financial information. Opinion on the Report on Activity Based on the work undertaken in the course of our audit of the separate financial statements, in our opinion, the accompanying Report on activity, in all material respects: — has been prepared in accordance with applicable laws, and — is consistent with the separate financial statements. Opinion on the Statement on Corporate Governance In our opinion, the corporate governance statement, which is a separate part of the Report on activity, includes the information required by paragraph 70 subparagraph 6 point 5 of the Decree of the Ministry of Finance dated 29 March 2018 on current and periodic information provided by issuers of securities and the conditions for recognition as equivalent of information required by the laws of a non-member state (the “decree”). Furthermore, in our opinion, the information identified in paragraph 70 subparagraph 6 point 5 letter c-f, h and letter i of the decree, included in the corporate governance statement, in all material respects: — has been prepared in accordance with applicable laws; and — is consistent with the separate financial statements. Information about the Statement on Non-financial Information In accordance with the requirements of the Act on statutory auditors, we report that the Entity has prepared a statement on non-financial information referred to in art. 49b paragraph 1 of the Accounting Act as a separate part of the Report on activity. We have not performed any assurance procedures in relation to the statement on non-financial information and, accordingly, we do not express any assurance conclusion thereon. Statement on Other Information Furthermore, based on our knowledge about the Entity and its environment obtained in the audit of the separate financial statements, we have not identified material misstatements in the Other information, including the Report on activity. 9 Report on Other Legal and Regulatory Requirements Statement on Services Other than Audit of the Financial Statements To the best of our knowledge and belief, we did not provide prohibited non-audit services referred to in Art. 5 paragraph 1 second subparagraph of the EU Regulation and Art. 136 of the act on statutory auditors. Services other than audit of the financial statements, which were provided to the Entity in the audited period are listed in in point 8.2 of the Report on activity. Appointment of the Audit Firm We have been appointed for the first time to audit the annual separate financial statements of the Entity by resolution of Supervisory Board dated 19 March 2020. Our period of total uninterrupted engagement is 1 year. On behalf of audit firm KPMG Audyt Spółka z ograniczoną odpowiedzialnością sp.k. Registration No. 3546 Signed on the Polish original Marek Gajdziński Key Statutory Auditor Registration No. 90061 Member of the Management Board of KPMG Audyt Sp. z o.o., entity which is the General Partner of KPMG Audyt Spółka z ograniczoną odpowiedzialnością sp.k. Warsaw, 16 February 2022 10