ORANGE POLSKA GROUP
IFRS CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020
February 17, 2021
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
Contents
4 | ||
5 | ||
6 | ||
7 | ||
8 | ||
General information | ||
9 | ||
10 | ||
14 | ||
Main acquisitions, disposals and changes in scope of consolidation | 16 | |
17 | ||
Operating income excluding depreciation and amortisation | ||
19 | ||
20 | ||
21 | ||
Non-current assets | ||
21 | ||
22 | ||
22 | ||
24 | ||
Leases | ||
25 | ||
Current assets and liabilities | ||
27 | ||
30 | ||
31 | ||
32 | ||
2
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
Financial instruments excluding trade receivables and payables | ||
35 | ||
36 | ||
37 | ||
37 | ||
38 | ||
38 | ||
41 | ||
42 | ||
Income tax | ||
48 | ||
Equity and management of capital | ||
49 | ||
50 | ||
Other explanatory notes | ||
50 | ||
51 | ||
53 | ||
54 | ||
55 |
3
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
CONSOLIDATED INCOME STATEMENT
(in PLN millions, except for earnings per share) | 12 months ended | 12 months ended |
| ||||
31 December 2020 | 31 December 2019 |
| |||||
Restated |
| ||||||
| Note |
|
| (see Notes 2.2, 33.4) |
| ||
Revenue |
| 6 |
| |
| | |
External purchases |
| 7.1 |
| ( |
| ( | |
Labour expense |
| 7.2 |
| ( |
| ( | |
Other operating expense |
| 7.3 |
| ( |
| ( | |
Other operating income |
| 7.3 |
| |
| | |
Impairment of receivables and contract assets |
| 7.3,18 |
| ( |
| ( | |
Gains on disposal of assets |
| 8 |
| |
| | |
Employment termination expense |
| 15 |
| |
| ( | |
Depreciation and impairment of right-of-use assets |
| 13.1 |
| ( |
| ( | |
Depreciation, amortisation and impairment of property, plant and equipment and intangible assets |
| 9,11,12 |
| ( |
| ( | |
Operating income |
| |
| | |||
Interest income |
| 18 |
| |
| | |
Interest expense on lease liabilities |
| 18 |
| ( |
| ( | |
Other interest expense and financial charges |
| 18 |
| ( |
| ( | |
Discounting expense |
| 18 |
| ( |
| ( | |
Foreign exchange gains/(losses) | ( | | |||||
Finance costs, net |
|
| ( |
| ( | ||
Income tax |
| 26.1 |
| ( |
| ( | |
Net income |
| |
| | |||
Net income attributable to owners of Orange Polska S.A. |
| |
| | |||
Net income attributable to non-controlling interests |
|
| |||||
Earnings per share (in PLN) |
| 33.4 |
| |
| | |
Weighted average number of shares (in millions) |
| 27.1 |
| |
| | |
4
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(in PLN millions) | 12 months ended | 12 months ended | |||||
31 December 2020 | 31 December 2019 | ||||||
Restated | |||||||
| Note |
| (see Note 2.2) | ||||
Net income |
| |
| | |||
Items that will not be reclassified to profit or loss |
|
|
| ||||
Actuarial losses on post-employment benefits |
| 17 |
| ( |
| ( | |
Income tax relating to items not to be reclassified |
|
|
| |
| | |
Items that may be reclassified subsequently to profit or loss |
|
|
|
|
| ||
Losses on cash flow hedges |
| 23 |
| ( |
| ( | |
Income tax relating to items that may be reclassified |
|
|
| |
| | |
Other comprehensive loss, net of tax |
|
|
| ( |
| ( | |
Total comprehensive income |
|
|
| |
| | |
|
| ||||||
Total comprehensive income attributable to owners of Orange Polska S.A. |
| |
| | |||
Total comprehensive income attributable to non-controlling interests |
|
|
|
|
5
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(in PLN millions) | At 31 December | At 31 December | At 1 January | ||||||
2020 | 2019 | 2019 | |||||||
Restated | Restated | ||||||||
| Note |
|
| (see Note 2.2) | (see Note 2.2) | ||||
ASSETS | |||||||||
Goodwill | 10 |
| | | | ||||
Other intangible assets |
| 11 |
| |
| | | ||
Property, plant and equipment |
| 12 |
| |
| | | ||
Right-of-use assets |
| 13.1 |
| |
| | | ||
Trade receivables |
| 14.1 |
| |
| | | ||
Contract assets |
| 14.2 |
| |
| | | ||
Contract costs |
| 14.3 |
| |
| | | ||
Derivatives |
| 23 |
| - |
| | | ||
Other assets |
|
|
| |
| | | ||
Deferred tax assets |
| 26.2 |
| |
| | | ||
Total non-current assets |
|
|
| |
| | | ||
|
| ||||||||
Inventories |
| |
| | | ||||
Trade receivables |
| 14.1 |
| |
| | | ||
Contract assets |
| 14.2 |
| |
| | | ||
Contract costs |
| 14.3 |
| |
| | | ||
Derivatives |
| 23 |
| |
| | | ||
Other assets |
|
|
| |
| | | ||
Prepaid expenses |
|
|
| |
| | | ||
Cash and cash equivalents |
| 22 |
| |
| | | ||
Total current assets |
|
|
| |
| | | ||
TOTAL ASSETS |
|
|
| |
| | | ||
|
|
|
|
|
| ||||
EQUITY AND LIABILITIES | |||||||||
Share capital |
| 27.1 |
| |
| | | ||
Share premium |
|
|
| |
| | | ||
Other reserves |
|
|
| ( |
| ( | ( | ||
Retained earnings |
|
|
| |
| | | ||
Equity attributable to owners of Orange Polska S.A. |
|
|
| |
| | | ||
|
| ||||||||
Non-controlling interests |
| |
| | | ||||
Total equity |
|
|
| |
| | | ||
Trade payables |
| 16.1 |
| |
| | | ||
Lease liabilities |
| 13.1 |
| |
| | | ||
Loans from related party |
| 20 |
| |
| | | ||
Other financial liabilities at amortised cost |
|
|
| |
| | | ||
Derivatives |
| 23 |
| |
| | | ||
Provisions |
| 15 |
| |
| | | ||
Contract liabilities |
| 14.4 |
| |
| | | ||
Employee benefits |
| 17 |
| |
| | | ||
Other liabilities |
| 16.2 |
| |
| | | ||
Total non-current liabilities |
|
|
| |
| | | ||
Trade payables |
| 16.1 |
| |
| | | ||
Lease liabilities |
| 13.1 |
| |
| | | ||
Loans from related party |
| 20 |
| |
| | | ||
Other financial liabilities at amortised cost |
|
|
| |
| | | ||
Derivatives |
| 23 |
| |
| | | ||
Provisions |
| 15 |
| |
| | | ||
Contract liabilities |
| 14.4 |
| |
| | | ||
Employee benefits |
| 17 |
| |
| | | ||
Income tax liabilities |
|
|
| |
| | | ||
Other liabilities |
| 16.2 |
| |
| | | ||
Total current liabilities |
|
|
| |
| | | ||
TOTAL EQUITY AND LIABILITIES |
|
|
| |
| | |
6
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(in PLN millions)
|
| Share | Share | Other reserves |
| Retained |
|
| Equity |
|
| Non- |
|
| Total equity |
| |||||||
capital | premium | earnings | attributable | Controlling | |||||||||||||||||||
to owners | interests | ||||||||||||||||||||||
of OPL S.A. | |||||||||||||||||||||||
|
|
|
| Cash flow |
| Actuarial losses |
| Deferred tax |
|
|
|
|
|
|
|
| |||||||
| hedge reserve |
| on post- | ||||||||||||||||||||
| employment | ||||||||||||||||||||||
| benefits | ||||||||||||||||||||||
Balance at 1 January 2020 (restated, see Note 2.2) | | | ( | ( | | | | | | ||||||||||||||
Total comprehensive income for the 12 months ended 31 December 2020 |
| - |
| - |
| ( |
| ( |
| |
| |
| |
| - |
| | |||||
Share-based payments (see Note 27.3) |
| - |
| - |
| - |
| - |
| - |
| |
| |
| - |
| | |||||
Transfer to inventories |
| - |
| - |
| ( |
| - |
| |
| - |
| ( |
| - |
| ( | |||||
Other movements (see Note 27.4) | - | - | - | - | - | | | - | | ||||||||||||||
Balance at 31 December 2020 |
| |
| |
| ( |
| ( |
| |
| |
| |
| |
| | |||||
Balance at 1 January 2019 |
| |
| |
| ( |
| ( |
| |
| |
| |
| |
| | |||||
Total comprehensive income for the 12 months ended 31 December 2019 (restated) |
| - |
| - |
| ( |
| ( |
| |
| |
| |
| - |
| | |||||
Share-based payments (see Note 27.3) |
| - |
| - |
| - |
| - |
| - |
| |
| |
| - |
| | |||||
Transfer to inventories |
| - |
| - |
| ( |
| - |
| - |
| - |
| ( |
| - |
| ( | |||||
Balance at 31 December 2019 (restated) |
| |
| |
| ( |
| ( |
| |
| |
| |
| |
| |
7
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
CONSOLIDATED STATEMENT OF CASH FLOWS
(in PLN millions) |
| 12 months ended | 12 months ended |
| |||
31 December 2020 | 31 December 2019 |
| |||||
Restated |
| ||||||
| Note |
|
| (see Notes 2.2, 33.4) | |||
OPERATING ACTIVITIES |
|
|
|
|
|
| |
Net income |
|
| |
| | ||
Adjustments to reconcile net income to cash from operating activities |
|
|
|
|
|
| |
Gains on disposal of assets |
| 8 |
| ( |
| ( | |
Depreciation, amortisation and impairment of property, plant and equipment, intangible assets and right-of-use assets |
| 9,11,12,13.1 |
| |
| | |
Finance costs, net |
| 18 |
| |
| | |
Income tax |
| 26.1 |
| |
| | |
Change in provisions and allowances |
|
| ( |
| | ||
Operational foreign exchange and derivatives gains, net |
|
| ( |
| ( | ||
Change in working capital |
|
|
|
|
|
| |
(Increase)/decrease in inventories, gross |
|
| ( |
| | ||
Decrease in trade receivables, gross |
| 14.1 |
| |
| | |
(Increase)/decrease in contract assets, gross |
| 14.2 |
| |
| ( | |
Increase in contract costs |
| 14.3 |
| ( |
| ( | |
Decrease in trade payables |
|
| ( |
| ( | ||
Increase/(decrease) in contract liabilities |
| 14.4 |
| ( |
| | |
Increase in prepaid expenses and other receivables |
|
| ( |
| ( | ||
Increase/(decrease) in other payables |
| 16.2 |
| ( |
| | |
Interest received |
|
| |
| | ||
Interest paid and interest rate effect paid on derivatives, net |
|
| ( |
| ( | ||
Exchange rate effect received on derivatives, net |
|
| |
| - | ||
Income tax paid |
|
| ( |
| ( | ||
Net cash provided by operating activities |
|
| |
| | ||
INVESTING ACTIVITIES |
|
|
|
|
|
| |
Payments for purchases of property, plant and equipment and intangible assets |
| 11,12 |
| ( |
| ( | |
Investment grants received |
| 16.2 |
| |
| | |
Investment grants paid to property, plant and equipment and intangible assets suppliers |
| 16.2 |
| ( |
| ( | |
Exchange rate effect received on derivatives economically hedging capital expenditures, net |
|
| |
| | ||
Proceeds from sale of property, plant and equipment and intangible assets |
|
| |
| | ||
Cash paid for subsidiaries, net of cash acquired |
| 4 |
| ( |
| ( | |
Payments on other financial instruments, net |
|
| - |
| ( | ||
Net cash used in investing activities |
|
| ( |
| ( | ||
FINANCING ACTIVITIES |
|
|
|
|
|
| |
Repayment of long-term loans from related party |
| 21 |
| - |
| ( | |
Repayment of lease liabilities |
| 21 |
| ( |
| ( | |
Decrease in revolving credit line and other debt |
| 21 |
| ( |
| ( | |
Exchange rate effect received on derivatives hedging debt, net |
| 21 |
| - |
| | |
Net cash used in financing activities |
|
| ( |
| ( | ||
Net change in cash and cash equivalents |
|
| ( |
| ( | ||
Effects of exchange rate changes on cash and cash equivalents | | - | |||||
Cash and cash equivalents at the beginning of the period |
| 22 |
| |
| | |
Cash and cash equivalents at the end of the period |
| 22 |
| |
| |
8
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
1. Corporate information
1.1. The Orange Polska Group
Orange Polska’s registered office is located in
The Group’s telecommunications operations are subject to the supervision of Office of Electronic Communication (“UKE”). Under the Telecommunication Act, UKE can impose certain obligations on telecommunications companies that have a significant market power on a relevant market. Orange Polska S.A. is deemed to have a significant market power on certain relevant markets.
1.2. Entities of the Group
The Group comprises Orange Polska and the following subsidiaries:
|
|
| Share capital | ||||||
Entity | Location | Scope of activities | owned by the Group | ||||||
31 December | 31 December | ||||||||
2020 | 2019 | ||||||||
Integrated Solutions Sp. z o.o. | Warsaw, Poland | Provision of integrated IT and network services. | 100 | % | 100 | % | |||
TP TelTech Sp. z o.o. |
| Łódź, Poland |
| Design and development of telecommunications systems, servicing telecommunications network, monitoring of alarm signals. |
| 100 | % | 100 | % |
BlueSoft Sp. z o.o. |
| Warsaw, Poland |
| Provision of IT services and solutions. |
| 100 | % | 100 | % |
Orange Energia Sp. z o.o. |
| Warsaw, Poland |
| Sale of electrical energy. |
| 100 | % | 100 | % |
Essembli Sp. z o.o. |
| Warsaw, Poland |
| Provision of IT services and solutions. |
| 100 | % | 100 | % |
Craftware Sp. z o.o. (1) | Warsaw, Poland | Provision of IT services and solutions. | 100 | % | - | ||||
Orange Szkolenia Sp. z o.o. |
| Warsaw, Poland |
| Training and hotel services, insurance agent. |
| 100 | % | 100 | % |
Telefony Podlaskie S.A. |
| Sokołów Podlaski, Poland |
| Local provider of fixed-line, internet and cable TV services. |
| 89.3 | % | 89.3 | % |
Orange Retail S.A. |
| Modlnica, Poland |
| Points of sale rental. |
| 100 | % | 100 | % |
Pracownicze Towarzystwo Emerytalne Orange Polska S.A. |
| Warsaw, Poland |
| Management of employee pension fund. |
| 100 | % | 100 | % |
Fundacja Orange |
| Warsaw, Poland |
| Charity foundation. |
| 100 | % | 100 | % |
Telekomunikacja Polska Sp. z o.o. |
| Warsaw, Poland |
| No operational activity. |
| 100 | % | 100 | % |
Światłowód Inwestycje Sp. z o.o. (2) |
| Warsaw, Poland |
| No operational activity. |
| 100 | % | - |
(1) The subsidiary was acquired in December 2020 (see Note 4).
(2) The subsidiary was acquired in October 2020.
9
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
Additionally, the Group and T-Mobile Polska S.A. hold a 50% interest each in NetWorkS! Sp. z o.o., located in Warsaw. This company was classified as a joint operation as its scope of activities comprises management, development and maintenance of networks owned by the Group and T-Mobile Polska S.A. NetWorkS! Sp. z o.o. was incorporated following the agreement on reciprocal use of mobile access networks between both operators. This agreement was signed in 2011 for 15 years with an option to extend it and is also classified as a joint operation for accounting purpose.
During the 12 months ended 31 December 2020 and 2019, the voting power held by the Group was equal to the Group’s interest in the share capital of its subsidiaries. Main acquisitions, disposals and changes in scope of consolidation are described in Note 4.
2. Statement of compliance and basis of preparation
2.1. Basis of preparation
These Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union. IFRSs comprise standards and interpretations approved by the International Accounting Standards Board (“IASB”) and the International Financial Reporting Interpretations Committee (“IFRIC”).
These Consolidated Financial Statements have been prepared in millions of Polish złoty (“PLN”). Comparative amounts for the year ended 31 December 2019 have been compiled using the same basis of preparation, except for impact of a change in the accounting policy described below.
The Consolidated Financial Statements have been prepared under the historical cost convention, except for the fair value applied to derivative financial instruments and selected trade receivables arising from sales of mobile handsets in instalments.
The Consolidated Financial Statements have been prepared on the going concern basis. As at 31 December 2020, the Group’s current liabilities exceeded current assets and unused credit facilities (excluding short term) by PLN 2,434 million (see Note 25.6). It was mainly due to current liabilities from the related party loans of PLN 3,576 million (presented in Note 20) with repayment date in May and June 2021. In order to ensure an adequate level of financial liquidity and cover the excess of current liabilities over current assets and unused credit facilities, Orange Polska and Orange Group concluded new loan agreement for PLN 2,700 million in January 2021 (see Note 32). Considering the new loan agreement, the amount of current liabilities would decrease by PLN 2,700 million to PLN 4,937 million and would be fully covered by current assets of PLN 3,363 million and unused credit facilities (excluding short term) of PLN 1,840 million. Furthermore, the Management analysed the timing, nature and scale of potential financing needs of the Group and believes that available cash as well as expected operating cash inflows will be sufficient to fund the Group’s anticipated cash requirements for working capital purposes.
The financial data of all entities constituting the Group included in these Consolidated Financial Statements were prepared using uniform group accounting policies.
These Consolidated Financial Statements were authorised for issuance by the Management Board on 17 February 2021 and are subject to approval at the General Meeting of Orange Polska S.A.
The principles applied to prepare financial data relating to the year ended 31 December 2020 are described in Note 33 and are based on:
- | all standards and interpretations endorsed by the European Union and applicable to the reporting period beginning 1 January 2020; |
- | IFRSs and related interpretations adopted for use by the European Union whose application will be compulsory for periods beginning after 1 January 2020, but for which the Group has opted for earlier application, |
10
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
- | accounting positions adopted by the Group in accordance with paragraphs 10 to 12 of International Accounting Standard (“IAS”) 8 (Use of judgements). |
Adoption of standards and interpretations in 2020
There were no new standards or interpretations issued from the date when the IFRS Consolidated Financial Statements for the year ended 31 December 2019 were published. Changes to standards and interpretations in 2020, other than described in Note 2.2 below, did not result in any changes to accounting policies applied by the Group.
2.2. Changes to accounting policies related to leases
In 2020, the Group changed its accounting policy in respect of the determination of the lease term of cancellable lease (described below) and changed presentation of foreign exchange gains/losses arising on revaluation and settlement of lease liabilities and related hedging instruments (described in Note 33.4).
IFRS Interpretation Committee’s decision on Lease Term and Useful Life of Leasehold Improvements
In December 2019 the Committee published its decision (the “Decision”) in respect to the lease term. The Committee discussed the concepts of “penalties” and “enforceable period”, which are used in the determination of the lease term and provided guidance on how they should be understood and applied when determining the lease term. The Committee concluded that the contract is enforceable as long as the lessee or the lessor would have to bear more than an insignificant penalty in case of termination of the contract. Therefore, even in the absence of option for the lessee to extend the lease at its discretion, the reasonably certain lease term shall be assessed in order to determine the lease term and, as a result, the amounts of the lease liability and of the right-of-use asset. Furthermore, according to the Committee, the concept of “penalty” should be considered as all economic disincentives and should not be limited only to contractual penalties.
As a result of the Decision and the analysis performed in 2020, the Group changed its accounting policy in respect of the determination of the lease term of cancellable leases. The change was applied retrospectively and impacted the consolidated statement of financial position as at 1 January 2019. The Group assessed the reasonably certain lease terms of cancellable lease contracts to be equal to 5 years for all lease contracts, except for 18 years for road occupancy leases where fixed network infrastructure is placed. This change in accounting policy resulted in the recognition of additional right-of-use assets and additional lease liabilities, mainly in respect of leases of premises and ground for fixed and mobile network infrastructure.
11
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
Adoption of changes described above affected the consolidated statement of financial position as at 1 January 2019 and 31 December 2019, the consolidated income statement, total comprehensive income and consolidated statement of cash flows for the 12 months ended 31 December 2019 as follows:
CONSOLIDATED INCOME STATEMENT:
(in PLN millions) | 12 months ended 31 December 2019 | ||||||
Impact of | |||||||
Before changes | changes (1) | After changes | |||||
Revenue |
| 11,406 |
| - |
| 11,406 | |
External purchases |
| (6,514) |
| 97 |
| (6,417) | |
Other operating expense | (420) | (3) | (423) | ||||
Other operating income | 238 | (3) | 235 | ||||
Depreciation and impairment of right-of-use assets | (300) | (92) | (392) | ||||
Operating income |
| 416 |
| (1) |
| 415 | |
Interest expense on lease liabilities | (50) | (16) | (66) | ||||
Other interest expense and financial charges | (240) | 4 | (236) | ||||
Foreign exchange gains/(losses) | - | 2 | 2 | ||||
Finance costs, net | (298) | (10) | (308) | ||||
Income tax | (27) | 2 | (25) | ||||
Net income |
| 91 |
| (9) |
| 82 | |
Earnings per share (in PLN) | 0.07 | (0.01) | 0.06 | ||||
Total comprehensive income |
| 63 |
| (9) |
| 54 |
(1) Includes changes related to presentation of foreign exchange gains/losses described in Note 33.4.
12
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(in PLN millions) | At 1 January 2019 |
| |||||
Impact of |
| ||||||
Before changes | changes | After changes |
| ||||
ASSETS |
|
|
|
|
| ||
Right-of-use assets |
| 1,842 | 570 |
| 2,412 | ||
Total non-current assets |
| 20,720 | 570 |
| 21,290 | ||
Total current assets |
| 3,969 | - |
| 3,969 | ||
TOTAL ASSETS |
| 24,689 | 570 |
| 25,259 | ||
EQUITY AND LIABILITIES |
|
|
| ||||
Total equity |
| 10,503 | - |
| 10,503 | ||
Lease liabilities |
| 1,261 | 476 |
| 1,737 | ||
Total non-current liabilities |
| 7,995 | 476 |
| 8,471 | ||
Lease liabilities |
| 311 | 94 |
| 405 | ||
Total current liabilities |
| 6,191 | 94 |
| 6,285 | ||
TOTAL EQUITY AND LIABILITIES |
| 24,689 | 570 |
| 25,259 |
(in PLN millions) | At 31 December 2019 |
| |||||
Impact of |
| ||||||
Before changes | changes | After changes |
| ||||
ASSETS |
|
|
|
|
| ||
Right-of-use assets |
| 2,101 | 580 |
| 2,681 | ||
Deferred tax assets | 808 | 2 | 810 | ||||
Total non-current assets |
| 20,847 | 582 |
| 21,429 | ||
Total current assets |
| 3,493 | - |
| 3,493 | ||
TOTAL ASSETS |
| 24,340 | 582 |
| 24,922 | ||
EQUITY AND LIABILITIES |
|
|
| ||||
Retained earnings | 5,884 | (9) | 5,875 | ||||
Total equity |
| 10,566 | (9) |
| 10,557 | ||
Lease liabilities |
| 1,633 | 492 |
| 2,125 | ||
Total non-current liabilities |
| 9,682 | 492 |
| 10,174 | ||
Lease liabilities |
| 348 | 99 |
| 447 | ||
Total current liabilities |
| 4,092 | 99 |
| 4,191 | ||
TOTAL EQUITY AND LIABILITIES |
| 24,340 | 582 |
| 24,922 |
13
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
CONSOLIDATED STATEMENT OF CASH FLOWS:
(in PLN millions) | 12 months ended 31 December 2019 | ||||||
Impact of | |||||||
Before changes | changes (1) | After changes | |||||
OPERATING ACTIVITIES |
| ||||||
Net income | 91 | (9) | 82 | ||||
Adjustments to reconcile net income to cash from operating activities | |||||||
Depreciation, amortisation and impairment of property, plant and equipment, intangible assets and right-of-use assets |
| 2,748 | 92 |
| 2,840 | ||
Finance costs, net | 298 | 10 | 308 | ||||
Income tax | 27 | (2) | 25 | ||||
Operational foreign exchange and derivatives gains, net | (7) | 6 | (1) | ||||
Interest paid and interest rate effect paid on derivatives, net | (371) | (15) | (386) | ||||
Net cash provided by operating activities |
| 2,776 | 82 |
| 2,858 | ||
FINANCING ACTIVITIES | |||||||
Repayment of lease liabilities | (279) | (82) | (361) | ||||
Net cash used in financing activities |
| (1,064) | (82) |
| (1,146) | ||
Net change in cash and cash equivalents |
| (207) | - |
| (207) |
(1) Includes changes related to presentation of foreign exchange gains/losses described in Note 33.4.
Amendment to IFRS 16 COVID-19-Related Rent Concessions
On 28 May 2020, the International Accounting Standards Board has issued an amendment “COVID-19-Related Rent Concessions” to IFRS 16 Leases to make it easier for lessees to account for COVID-19-related rent concessions. The amendment exempts lessees from having to consider individual lease contracts to determine whether rent concessions occurring as a direct consequence of the COVID-19 pandemic are lease modifications and allows lessees to account for such rent concessions as if they were not lease modifications. The amendment has been endorsed by the European Union in October 2020. The adoption of the amendment did not have a significant effect on the Group’s financial statements.
3. Segment information and performance measures
The Group reports a single operating segment as decisions about resources to be allocated and assessment of performance are made on a consolidated basis. Group performance is currently evaluated by the Management Board based on revenue, EBITDAaL, net income, organic cash flows, eCapex (economic capital expenditures), net financial debt and net financial debt to EBITDAaL ratio based on cumulative EBITDAaL for the last four quarters. Starting from 2020, in order to better capture economic transformation of asset base, proceeds accrued on disposal of assets offset capital expenditures, while gains on their disposal are excluded from EBITDAaL. As a result, eCapex (economic capital expenditures) replaced Capex (capital expenditures) as the key measure of resources allocation used by the Group. Additionally, the amount of EBITDAaL in comparative period was restated to conform to new definition used in 2020.
Since the calculation of EBITDAaL, organic cash flows, eCapex and net financial debt is not defined by IFRS, these performance measures may not be comparable to similar indicators used by other entities. The methodology adopted by the Group is presented below.
14
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
EBITDAaL is the key measure of operating profitability used by the Management Board and corresponds to operating income before gains on disposal of assets, depreciation, amortisation and impairment of property, plant and equipment and intangible assets, decreased by interest expense on lease liabilities and adjusted for the impact of deconsolidation of subsidiaries, costs related to acquisition, disposal and integration of businesses, employment termination programs, restructuring costs, significant claims, litigation and other risks as well as other significant non-recurring items.
Organic cash flows are the key measure of cash flow generation used by the Management Board and correspond to net cash provided by operating activities decreased by payments for purchases of property, plant and equipment and intangible assets and repayment of lease liabilities, increased by impact of net exchange rate effect received/paid on derivatives economically hedging capital expenditures and lease liabilities and proceeds from sale of property, plant and equipment and intangible assets and adjusted for the payments for acquisition of telecommunications licences, payments for costs related to acquisition, disposal and integration of businesses not included in purchase price and payments relating to significant claims, litigation and other risks.
eCapex (economic capital expenditures) is the key measure of resources allocation used by the Management Board and represents acquisitions of property, plant and equipment and intangible assets excluding telecommunications licences, offset by the proceeds accrued on disposal of these assets (‘proceeds accrued on disposal of assets’). eCapex does not include acquisitions of right-of-use assets.
Net financial debt and net financial debt to EBITDAaL ratio are the key measures of indebtedness and liquidity used by the Management Board. The calculation of net financial debt is presented in Note 19.
Basic financial data of the operating segment is presented below:
(in PLN millions) | 12 months ended | 12 months ended |
| ||
31 December 2020 | 31 December 2019 | ||||
|
| Restated |
| ||
Revenue |
| 11,508 |
| 11,406 | |
EBITDAaL (1) |
| 2,797 |
| 2,718 | |
Net income |
| 46 |
| 82 | |
Organic cash flows |
| 642 |
| 737 | |
eCapex |
| 1,801 |
| 1,701 |
(1) The amount of EBITDAaL in comparative period was restated due to changes in accounting policies (see Notes 2.2 and 33.4) and to conform to new definition used in 2020 (see above).
| At 31 December |
| At 31 December |
| |
2020 | 2019 | ||||
Restated |
| ||||
Net financial debt (in PLN millions, see Note 19) |
| 5,549 |
| 6,087 | |
Net financial debt/EBITDAaL ratio (1) |
| 2.0 |
| 2.2 |
(1) The amount of net financial debt/EBITDAaL ratio in comparative period was restated due to changes in accounting policies (see Notes 2.2 and 33.4) and to conform to new definition of EBITDAaL used in 2020 (see above).
15
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
Calculation of performance measures of the operating segment is presented below:
(in PLN millions) |
| 12 months ended | 12 months ended |
| |
31 December 2020 | 31 December 2019 | ||||
Restated | |||||
| (see Notes 2.2, 33.4) |
| |||
Operating income |
| 404 |
| 415 | |
Less gains on disposal of assets (1) | (61) | (270) | |||
Add-back of depreciation, amortisation and impairment of property, plant and equipment and intangible assets |
| 2,511 |
| 2,448 | |
Interest expense on lease liabilities |
| (62) |
| (66) | |
Adjustment for the impact of employment termination programs |
| (22) |
| 181 | |
Adjustment for the costs related to acquisition, disposal and integration of subsidiaries (see Notes 4 and 12) |
| 27 | 10 | ||
EBITDAaL |
| 2,797 |
| 2,718 |
(1) Gains on disposal of assets in 2019 include PLN 1 million of loss on disposed subsidiary that was already excluded from EBITDAaL calculation under the previous definition and presented separately in the table above in 2019 as an adjustment for the impact of deconsolidation of subsidiaries.
(in PLN millions) | 12 months ended | 12 months ended |
| ||
31 December 2020 | 31 December 2019 | ||||
Restated | |||||
|
| (see Note 2.2) |
| ||
Net cash provided by operating activities |
| 3,005 |
| 2,858 | |
Payments for purchases of property, plant and equipment and intangible assets |
| (2,015) |
| (2,272) | |
Exchange rate effect received on derivatives economically hedging capital expenditures, net |
| 10 |
| 5 | |
Proceeds from sale of property, plant and equipment and intangible assets |
| 60 |
| 500 | |
Repayment of lease liabilities |
| (421) |
| (361) | |
Adjustment for payment for costs related to acquisition, disposal and integration of subsidiaries |
| 3 |
| 7 | |
Organic cash flows |
| 642 |
| 737 |
(in PLN millions) | 12 months ended | 12 months ended |
| ||
| 31 December 2020 |
| 31 December 2019 |
| |
Acquisitions of property, plant and equipment and intangible assets |
| 1,893 |
| 2,140 | |
Proceeds accrued on disposal of assets |
| (92) |
| (439) | |
eCapex |
| 1,801 |
| 1,701 | |
4. Main acquisitions, disposals and changes in scope of consolidation
Acquisition of Craftware in 2020
On 7 December 2020, the Group purchased 100% of shares in Craftware Sp. z o.o. (‘Craftware’). Craftware deals with analysis, design and implementation of customer relationship management (CRM) systems. Craftware customer base includes blue-chip companies from industries like pharmaceutical, FMCG, retail and finance. The acquisition is consistent with the Group’s strategy that focuses on expanding competencies to more value added ICT (Information and Communications Technology) services in order to meet growing demand of business customers in the areas of digital transformation.
According to the agreement the enterprise value of Craftware amounts to PLN 110 million. Total transaction value, consisting of the enterprise value and settlements related to cash and working capital, amounts to PLN 126 million and includes acquisition price of PLN 94 million and remuneration for post-transaction services currently estimated at PLN 32 million. Out of the acquisition price, PLN 87 million was paid upon signing of the agreement. The remaining part, currently estimated at PLN 7 million, is a contingent consideration that will be settled before the end of 2024 and will be based on achieving certain financial targets of Craftware in years 2020–2023 as well as on meeting
16
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
certain other legal conditions. Remuneration for post-transaction services will be accounted for as a cost related to integration of new subsidiary and will be recognised in the consolidated income statement in years 2020-2022 as labour expense. In the 12 months ended 31 December 2020, the Group recognised PLN 7 million of costs related to acquisition and integration of the new subsidiary.
Due to a short period of time between the acquisition and the date when these Consolidated Financial Statements were authorised for issuance, provisional accounting for a business combination was made. As a result of the transaction, the Group recognised the following assets and liabilities:
(in PLN millions) | |
(1) Customer contracts and the related customer relationships recognised at fair value.
Acquisition of BlueSoft and Essembli in 2019
On 12 June 2019, the Group purchased 100% of shares in BlueSoft Sp. z o.o. (“BlueSoft”) and Essembli Sp. z o.o. (“Essembli”) – a subsidiary of BlueSoft. Both companies provide a variety of IT services in the areas of application development and integration, system customization, analytics and cloud services. The enterprise value of BlueSoft and Essembli amounted to PLN 200 million. Total transaction value, consisting of the enterprise value and settlements related to cash and working capital, amounted to PLN 204 million and included acquisition price of PLN 182 million and remuneration for post-transaction services estimated at PLN 22 million. Out of the acquisition price, PLN 147 million was paid upon signing of the agreement and PLN 5 million was paid in 2020. The remaining part, estimated at PLN 30 million, is a contingent consideration that will be settled before the end of 2022 and will be based on achieving certain financial targets of BlueSoft and Essembli in 2019 and 2020 as well as on meeting certain other legal conditions. Remuneration for post-transaction services is accounted for as a cost related to integration of new subsidiaries and is recognised in the consolidated income statement in years 2019-2021 as labour expense. In the 12 months ended 31 December 2020 and 2019, the Group recognised, respectively, PLN 15 million and PLN 10 million of costs related to acquisition and integration of new subsidiaries.
5. Impact of COVID-19 pandemic
In March 2020, COVID-19 was officially declared as a pandemic. The authorities closed the borders, introduced a lockdown on schools, some businesses and facilities and restricted movement of people to leaving home for essential reasons only. The imposed restrictions have been progressively lifted starting from end of April 2020. The situation is dynamic, Poland and other countries experience a second wave of COVID-19, some restrictions have been imposed again. The pandemic has significantly impacted the Polish economy. Preliminary estimations of the Polish Statistical Office show that Poland’s GDP fell by 2.8% in 2020. At the same time the consensus indicates that GDP in Poland could return to growth and increase by 3.7% in 2021 although the pace of the recovery is highly
17
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
uncertain at the moment. The government has introduced a few sets of legislation (Anti-crisis Shields and Financial Shield) targeted mainly on micro, small and medium companies, aimed at counterbalancing the crisis impact.
Since mid-March, the Group has implemented a number of actions to adapt to the crisis situation, ensure business continuity and reduce the risks of the pandemic. The pandemic had an impact on the Group’s ability to achieve its business goals in the 12 months ended 31 December 2020. The Management has adopted a number of counteractive measures to mitigate the negative impact of the pandemic on Group’s business performance. Based on the up to date observations, the Group discloses the following major impacts of COVID-19 pandemic on its operations, financial position and performance in the 12 months ended 31 December 2020:
1. | The results achieved in the 12 months ended 31 December 2020 indicate that the core of the Group’s operations remain relatively immune to the impact of the pandemic. Data and voice connectivity has become more essential than ever to the needs of consumers and businesses. The majority of revenue and profits are derived from subscription-based services, which allows the Group to rely on relatively stable and predictable revenue streams. |
2. | The Group observed increased voice and data traffic in its mobile and fixed networks. The networks were working without disruption and were handling the higher volumes well, benefitting from fibre infrastructure in core and access layers. |
3. | Despite many restrictions which are still in place our distribution network remains open, after around 45% of points of sale were closed from mid-March until beginning of May 2020. The sales volumes have recovered and significantly improved as a result of strong efforts made by the Group and high demand, mainly for mobile voice and fixed broadband services. However, sale of equipment and related accessories dropped due to clients reluctance to additional commitment. Pandemic also impacted activations of new pre-paid cards due to lower mobility and lower sales to foreign residents. |
4. | Restrictions for people’s mobility (Polish borders were closed from mid-March and opened on 13 June 2020, only for European Union citizens, since then some new travel restrictions appeared) and adverse attitude to travel negatively influenced revenue from international roaming, accompanied by lower roaming interconnection expenses. On the other hand, revenue from wholesale mobile incoming calls considerably increased during the lockdown, reflecting much higher traffic, in line with mobile outgoing costs. |
5. | The Group performed an impairment test of the single telecom operator Cash Generating Unit as at 31 December 2020 (see Note 9). No impairment loss was recognised as a result of this test. |
6. | The Group performed an analysis of available information about past events, current conditions and forecasts of future economic conditions to evaluate the impact of COVID-19 on the bad debt allowance. Based on an analysis of current conditions, a scenario analysis and the bad debt experience in 2011-2012 when a significant reduction in GDP growth last occurred, the Group recognised additional PLN 26 million of impairment of trade receivables in the 12 months ended 31 December 2020. |
7. | Significant weakening of PLN against EUR in the 12 months ended 31 December 2020 resulted in the recognition of foreign exchange losses (mainly on unhedged long-term lease liabilities), which are presented in finance costs, net. Weakening of PLN had a limited negative influence on operating costs and level of capital expenditures, as the Group uses financial instruments to hedge majority of these exposures. Currency loans from related party and bank borrowings are also hedged and the Group’s debt is effectively denominated in PLN. |
8. | As at 31 December 2020, the Group performed an analysis to evaluate the impact of COVID-19 on the realization of contractual commitments. The results of the analysis have been adequately recognised in the Group’s financial statements. |
18
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
Impact of COVID-19 pandemic on the Group, its financial position and performance in next periods depends on many factors which are beyond the control of the Group. These factors include, among others: the length and severity of the pandemic, measures taken by the government to limit the pandemic and to protect society from the effects of the crisis and in result its ultimate impact on the Polish economy. The Group will monitor the COVID-19 situation, its impact on the Polish economy, as well as indicators more specific to the Group.
6. Revenue
Revenue is disaggregated as follows:
Mobile only services | Revenue from mobile offers (excluding consumer market convergent offers) and Machine to Machine connectivity. Mobile only services revenue does not include equipment sales, incoming and visitor roaming revenue. |
Fixed only services | Revenue from fixed offers (excluding consumer market convergent offers) including mainly (i) fixed broadband (including wireless for fixed), (ii) fixed narrowband, and (iii) data infrastructure and networks for business customers. |
Convergent services (consumer market) | Revenue from consumer market convergent offers. A convergent offer is defined as an offer combining at least a broadband access and a mobile voice contract with a financial benefit (excluding MVNOs). Convergent services revenue does not include equipment sales, incoming and visitor roaming revenue. |
Equipment sales | Revenue from all retail mobile and fixed equipment sales, excluding equipment sales associated with the supply of IT and integration services. |
IT and integration services | Revenue from ICT (Information and Communications Technology) services and Internet of Things services, including equipment sales associated with the supply of these services. |
Wholesale | Revenue from telecom operators for (i) mobile: incoming, visitor roaming, domestic mobile interconnection (i.e. domestic roaming agreement and network sharing) and MVNO, (ii) fixed carriers services, and (iii) other (mainly data infrastructure and networks). |
Other revenue | Include (i) equipment sales to brokers, (ii) revenue from sale of electrical energy, (iii) revenue from infrastructure projects, and (iv) other miscellaneous revenue e.g. from property rentals, research and development activity. |
(in PLN millions) | 12 months ended | 12 months ended |
| ||
| 31 December 2020 |
| 31 December 2019 |
| |
Mobile only services |
| 2,557 |
| 2,598 | |
Fixed only services |
| 2,081 |
| 2,192 | |
Narrowband |
| 798 |
| 917 | |
Broadband |
| 856 |
| 854 | |
Network solutions (business market) |
| 427 |
| 421 | |
Convergent services (consumer market) |
| 1,741 |
| 1,558 | |
Equipment sales |
| 1,344 |
| 1,555 | |
IT and integration services |
| 999 |
| 803 | |
Wholesale |
| 2,422 |
| 2,278 | |
Mobile wholesale |
| 1,438 |
| 1,287 | |
Fixed wholesale |
| 654 |
| 689 | |
Other |
| 330 |
| 302 | |
Other revenue |
| 364 |
| 422 | |
Total revenue |
| 11,508 |
| 11,406 |
19
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
Wholesale and other revenue for the 12 months ended 31 December 2020 and 2019 include, respectively, PLN 83 million and PLN 82 million of lease revenue that is outside the scope of IFRS 15 “Revenue from Contracts with Customers”.
Other revenue for the 12 months ended 31 December 2019 included PLN 37 million of compensation based on the Act on Electricity Prices that is outside the scope of IFRS 15 “Revenue from Contracts with Customers”.
Revenue is generated mainly in the territory of
7. Operating expense and income
7.1. External purchases
(in PLN millions) | 12 months ended | 12 months ended |
| ||
31 December 2020 |
| 31 December 2019 | |||
Restated | |||||
| (see Note 2.2) |
| |||
Commercial expenses | (2,380) | (2,514) | |||
- cost of handsets and other equipment sold |
| (1,737) |
| (1,862) | |
- commissions, advertising, sponsoring costs and other |
| (643) |
| (652) | |
Interconnect expenses |
| (1,991) |
| (1,826) | |
Network and IT expenses |
| (650) |
| (593) | |
Other external purchases |
| (1,514) |
| (1,484) | |
Total external purchases |
| (6,535) |
| (6,417) |
Other external purchases include mainly costs of content, real estate operating and maintenance costs, customer support and management services, costs of temporary staff, rental costs, subcontracting fees and postage costs.
7.2. Labour expense
(in PLN millions) | 12 months ended | 12 months ended |
| ||
| 31 December 2020 |
| 31 December 2019 |
| |
Average number of active employees (full time equivalent) |
| 11,720 |
| 12,881 | |
Wages and salaries |
| (1,336) |
| (1,348) | |
Social security and other charges |
| (313) |
| (311) | |
Long-term employee benefits (see Note 17.1) |
| 61 |
| (5) | |
Capitalised personnel costs |
| 252 |
| 233 | |
Other employee benefits |
| (23) |
| (57) | |
Total labour expense |
| (1,359) |
| (1,488) |
20
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
7.3. Other operating expense, income and impairment of receivables and contract assets
(in PLN millions) | 12 months ended | 12 months ended |
| ||
| 31 December 2020 |
| 31 December 2019 |
| |
Restated | |||||
(see Note 33.4) | |||||
Taxes other than income tax |
| (280) |
| (259) | |
Orange brand fee (see Note 31.2) |
| (117) |
| (112) | |
Other expense and changes in provisions, net |
| (51) |
| (52) | |
Total other operating expense |
| (448) |
| (423) | |
Total other operating income |
| 260 |
| 235 | |
Total impairment of receivables and contract assets |
| (151) |
| (138) |
Other operating income includes mainly income from scrapped assets, income from the Orange Group resulting from shared resources and income from compensation.
7.4. Research and development
During the 12 months ended 31 December 2020 and 2019, research and development costs expensed in the consolidated income statement amounted to PLN 59 million and PLN 53 million, respectively.
8. Gains on disposal of assets
During the 12 months ended 31 December 2020 and 2019, gains on disposal of assets amounted to PLN 61 million and PLN 270 million, respectively, and included mainly gains on disposal of real estate.
On 29 August 2019, the Group concluded an agreement to sell the Nowogrodzka/Św. Barbary real estate property complex located in Warsaw for EUR 81 million (approximately PLN 350 million). Gain on disposal amounted to PLN 212 million. Additionally, Orange Polska has leased back a portion of the real estate complex until 2026, in order to allow sufficient time for migration of the network equipment located in the complex. As a result of the sale and leaseback agreements, the lease liability increased by PLN 88 million.
9. Impairment test
Vast majority of the Group’s individual assets do not generate cash inflows independently from other assets due to the nature of the Group’s activities, therefore the Group identifies all telecom operations as a single telecom operator Cash Generating Unit (“CGU”).
As at 31 December 2020 and 2019 the Group performed impairment tests of the CGU (including goodwill). No impairment loss was recognised in the years 2020 and 2019.
The following key assumptions were used to determine the value in use of the telecom operator CGU:
- | value of the market, penetration rate, market share and the level of the competition, level of prices and decisions of the regulator in terms of pricing, customer base, the level of commercial expenses required to replace products and keep up with existing competitors or new market entrants, the impact of changes in revenue on direct costs; |
- | the level of capital expenditures which may be affected by the roll-out of necessary new technologies or regulatory decisions concerning telecommunications licences allocation; |
- | the length and severity of the COVID-19 pandemic and its impact on the CGU performance; |
- | discount rate which is based on weighted average cost of capital and reflects current market assessment of the time value of money and the risks specific to activities of the CGU; and |
21
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
- | perpetuity growth rate which reflects Management’s assessment of cash flows evolution after the last year covered by the cash flow projections. |
The amounts assigned to each of these parameters reflect past experience adjusted for expected changes over the timeframe of the business plan, but may also be affected by unforeseeable changes in the political, economic or legal framework.
Telecom operator CGU |
| ||||
| At 31 December 2020 |
| At 31 December 2019 |
| |
Basis of recoverable amount |
| Value in use |
| Value in use | |
Sources used |
| Business plan |
| Business plan | |
5 years cash flow | 5 years cash flow | ||||
projections | projections | ||||
Perpetuity growth rate |
| 1.5 | % | 1.5 | % |
Post-tax discount rate |
| 7.25 | % | 8.25 | % |
Pre-tax discount rate (1) |
| 8.47 | % | 9.65 | % |
(1) | Pre-tax discount rate is calculated as a post-tax discount rate adjusted to reflect the specific amount and timing of the future tax cash flows. |
Sensitivity of recoverable amount
The value in use of the telecom operator CGU as at 31 December 2020 exceeds its carrying value by PLN 3.0 billion. Any of the following changes in key assumptions:
- a 16% fall in projected cash flows after fifth year or
- a 0.9 p.p. decrease in growth rate to perpetuity or
- a 1.1 p.p. increase in post-tax discount rate
would bring the value in use of the telecom operator CGU to the level of its carrying value.
10. Goodwill
(in PLN millions) | At 31 December 2020 | At 31 December 2019 |
| |||||||||||
|
| Accumulated |
|
|
|
| Accumulated |
|
| |||||
CGU | Cost | impairment | Net | Cost | impairment | Net |
| |||||||
Telecom operator |
| 4,078 |
| (1,793) |
| 2,285 |
|
| 4,056 |
| (1,793) |
| 2,263 | |
Total goodwill |
| 4,078 |
| (1,793) |
| 2,285 |
|
| 4,056 |
| (1,793) |
| 2,263 |
The goodwill of PLN 3,909 million arose in 2005 on acquisition of the remaining 34% of non-controlling interest in the mobile business controlled by OPL S.A. The remaining balance of goodwill of PLN 169 million arose on acquisition of certain subsidiaries, mainly BlueSoft and Essembli (see Note 4).
11. Other intangible assets
(in PLN millions) | At 31 December 2020 |
| |||||||
|
| Accumulated |
| Accumulated |
|
| |||
Cost | amortisation | impairment | Net |
| |||||
Telecommunications licences |
| 5,760 |
| (3,109) |
| - |
| 2,651 | |
Software |
| 5,859 |
| (4,487) |
| - |
| 1,372 | |
Other intangibles |
| 298 |
| (126) |
| (11) |
| 161 | |
Total other intangible assets |
| 11,917 |
| (7,722) |
| (11) |
| 4,184 |
22
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
(in PLN millions) | At 31 December 2019 |
| |||||||
|
| Accumulated |
| Accumulated |
|
| |||
Cost | amortisation | impairment | Net |
| |||||
Telecommunications licences |
| 5,760 |
| (2,750) |
| - |
| 3,010 | |
Software |
| 5,887 |
| (4,474) |
| - |
| 1,413 | |
Other intangibles |
| 258 |
| (125) |
| (11) |
| 122 | |
Total other intangible assets |
| 11,905 |
| (7,349) |
| (11) |
| 4,545 |
Details of telecommunications licences are as follows:
(in PLN millions) |
| Acquisition |
| Years to |
| Net book value |
| ||
date | expiration (2) | At 31 December 2020 |
| At 31 December 2019 |
| ||||
800 MHz |
| 2016 |
| 10.1 |
| 2,062 |
| 2,266 | |
900 MHz |
| 2014 |
| 8.5 |
| 204 |
| 228 | |
900 MHz (1) |
| 2018 |
| - |
| - |
| 12 | |
1800 MHz (1) |
| 2013 |
| 7.0 |
| 111 |
| 127 | |
1800 MHz | 1997 | 6.6 | - | - | |||||
2100 MHz |
| 2000 |
| 2.0 |
| 195 |
| 290 | |
2600 MHz |
| 2016 |
| 10.1 |
| 79 |
| 87 | |
Total telecommunications licences |
|
|
|
|
| 2,651 |
| 3,010 |
(1) | Licences held under agreements with T-Mobile Polska S.A. |
(2) | Remaining useful life in years as at 31 December 2020. |
Movements in the net book value of other intangible assets for the 12 months ended 31 December 2020 were as follows:
(in PLN millions) |
| Telecommunications |
|
|
| Total other intangible |
| ||
licences | Software | Other intangibles | assets | ||||||
Opening balance net of accumulated amortisation and impairment |
| 3,010 |
| 1,413 |
| 122 |
| 4,545 |
|
Acquisitions of intangible assets |
| - |
| 378 |
| 19 |
| 397 |
|
Recognition of customer contracts and related customer relationships of Craftware (see Note 4) | - | - | 54 | 54 | |||||
Amortisation |
| (359) |
| (438) |
| (24) |
| (821) |
|
Impairment | - | - | (7) | (7) | |||||
Reclassifications and other, net |
| - |
| 19 |
| (3) |
| 16 |
|
Closing balance |
| 2,651 |
| 1,372 |
| 161 |
| 4,184 |
|
Movements in the net book value of other intangible assets for the 12 months ended 31 December 2019 were as follows:
(in PLN millions) |
| Telecommunications |
|
|
| Total other intangible | |||
licences | Software | Other intangibles | assets | ||||||
Opening balance net of accumulated amortisation and impairment |
| 3,369 |
| 1,418 |
| 84 |
| 4,871 | |
Acquisitions of intangible assets |
| - |
| 412 |
| 12 |
| 424 | |
Recognition of customer contracts and related customer relationships of BlueSoft and Essembli (see Note 4) | - | - | 47 | 47 | |||||
Amortisation |
| (359) |
| (418) |
| (20) |
| (797) | |
Reclassifications and other, net |
| - |
| 1 |
| (1) |
| - | |
Closing balance |
| 3,010 |
| 1,413 |
| 122 |
| 4,545 |
23
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
12. Property, plant and equipment
(in PLN millions) | At 31 December 2020 | ||||||||
Accumulated | Accumulated | ||||||||
Cost | depreciation | impairment | Net | ||||||
Land and buildings |
| 2,311 |
| (1,772) |
| (14) |
| 525 |
|
Network |
| 40,204 |
| (31,012) |
| (80) |
| 9,112 |
|
Terminals |
| 1,986 |
| (1,640) |
| - |
| 346 |
|
Other IT equipment |
| 1,272 |
| (1,039) |
| - |
| 233 |
|
Other |
| 294 |
| (207) |
| (2) |
| 85 |
|
Total property, plant and equipment |
| 46,067 |
| (35,670) |
| (96) |
| 10,301 |
|
(in PLN millions) | At 31 December 2019 | ||||||||
Accumulated | Accumulated | ||||||||
Cost | depreciation | impairment | Net | ||||||
Land and buildings |
| 2,349 |
| (1,745) |
| (17) |
| 587 |
|
Network |
| 39,583 |
| (30,414) |
| (58) |
| 9,111 |
|
Terminals |
| 1,936 |
| (1,542) |
| - |
| 394 |
|
Other IT equipment |
| 1,254 |
| (1,026) |
| - |
| 228 |
|
Other |
| 286 |
| (202) |
| (2) |
| 82 |
|
Total property, plant and equipment |
| 45,408 |
| (34,929) |
| (77) |
| 10,402 |
|
As at 31 December 2020 and 2019, the amount of expenditures recognised in the carrying amount of items of property, plant and equipment in the course of their construction amounted to PLN 1,393 million and PLN 1,316 million, respectively.
Movements in the net book value of property, plant and equipment for the 12 months ended 31 December 2020 were as follows:
(in PLN millions) |
|
|
|
|
|
| Total |
| |||||
property, | |||||||||||||
Land and | Other IT | plant and | |||||||||||
buildings | Network | Terminals | equipment | Other | equipment | ||||||||
Opening balance net of accumulated amortisation and impairment |
| 587 |
| 9,111 |
| 394 |
| 228 |
| 82 |
| 10,402 |
|
Acquisitions of property, plant and equipment |
| 35 |
| 1,256 |
| 112 |
| 64 |
| 29 |
| 1,496 |
|
Disposals and liquidations |
| (12) |
| (1) |
| - |
| - |
| (1) |
| (14) |
|
Depreciation |
| (75) |
| (1,340) |
| (160) |
| (62) |
| (21) |
| (1,658) |
|
Impairment, net |
| 2 |
| (27) |
| - |
| - |
| - |
| (25) |
|
Dismantling costs, reclassifications and other, net |
| (12) |
| 113 |
| - |
| 3 |
| (4) |
| 100 |
|
Closing balance |
| 525 | 9,112 | 346 | 233 | 85 |
| 10,301 |
|
24
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
Movements in the net book value of property, plant and equipment for the 12 months ended 31 December 2019 were as follows:
(in PLN millions) |
|
|
|
|
|
| Total |
| |||||
property, | |||||||||||||
Land and | Other IT | plant and | |||||||||||
buildings | Network | Terminals | equipment | Other | equipment | ||||||||
Opening balance net of accumulated amortisation and impairment | 676 | 8,916 | 414 | 213 | 71 | 10,290 | |||||||
Acquisitions of property, plant and equipment |
| 46 |
| 1,425 |
| 144 | 63 |
| 38 |
| 1,716 |
| |
Disposals and liquidations |
| (48) |
| (1) |
| - |
| - |
| - |
| (49) |
|
Depreciation |
| (92) |
| (1,255) |
| (163) |
| (65) |
| (23) |
| (1,598) |
|
Impairment, net |
| 5 |
| (58) |
| - |
| - |
| - |
| (53) |
|
Dismantling costs, reclassifications and other, net |
| - |
| 84 |
| (1) |
| 17 |
| (4) |
| 96 |
|
Closing balance |
| 587 | 9,111 | 394 | 228 | 82 |
| 10,402 |
|
Potential contribution of network assets to jointly controlled vehicle
In 2020, Orange Polska initiated a review of options for potential partnership into further development of fibre-to-the-home (‘FTTH’) network through a jointly controlled vehicle (‘FiberCo’). These options assume contribution by Orange Polska of certain existing fibre infrastructure with about 0.7 million of households connectable.
Based on the analysis conducted by the Management Board and taking into account the process of preparation of assets to be sold, the assets planned to be contributed to FiberCo are not assets held for sale as defined in IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations”. The assets are not ready to be sold at their present condition. Significant noncustomary organizational and operational changes (such as preparation of IT systems and other processes) still have to be made in 2021 to prepare these assets for sale. The sale of assets, if any, will be preceded by negotiations with investors and the outcome of negotiations cannot be reasonably assessed and significant changes to the sale plan might be needed in 2021. Furthermore, the Management Board and the Supervisory Board have not been yet presented with a concrete proposal and they have formed no judgement yet on whether they would approve such a proposal.
In 2020, OPL incurred costs to prepare FiberCo for potential disposal, mainly legal and advisory costs in the amount of PLN 5 million, which are presented within external purchases in the consolidated income statement. These costs are excluded from the calculation of EBITDAaL as these costs are directly attributable to the planned disposal of FiberCo.
13. Leases
13.1. Group as a lessee
The Group leases mainly land and buildings. Some of the agreements are denominated in foreign currencies and some of them are indexed with price indices applicable for a given currency. Some of the agreements include extension and termination options.
(in PLN millions) | At 31 December 2020 | ||||||||
|
| Accumulated |
| Accumulated |
| ||||
Cost | depreciation | impairment | Net | ||||||
Land and buildings |
| 3,139 |
| (684) |
| (2) |
| 2,453 |
|
Terminals |
| 370 |
| (133) |
| - |
| 237 | |
Other |
| 135 |
| (57) |
| - |
| 78 | |
Total right-of-use assets |
| 3,644 |
| (874) |
| (2) |
| 2,768 |
25
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
In 2020, as part of the change in accounting policy in respect to leases, the Group changed the presentation of the right-of-use assets resulting from administrative decisions for road occupation. It is presented as land and buildings to better reflect the nature of the underlying assets, previously in 2019 it was presented as other. As at 31 December 2020 and 2019, the net book value of right-of-use assets described above amounted respectively to PLN 328 million and PLN 281 million (PLN 78 million before the restatement, see Note 2.2).
(in PLN millions) | At 31 December 2019 (restated, see Note 2.2) | ||||||||
|
| Accumulated |
| Accumulated |
| ||||
Cost | depreciation | impairment | Net | ||||||
Land and buildings |
| 2,788 |
| (369) |
| (2) |
| 2,417 |
|
Terminals |
| 265 |
| (71) |
| - |
| 194 | |
Other |
| 124 |
| (54) |
| - |
| 70 | |
Total right-of-use assets |
| 3,177 |
| (494) |
| (2) |
| 2,681 |
Movements in the net book value of right-of-use assets for the 12 months ended 31 December 2020 were as follows:
(in PLN millions) |
|
|
|
| Total right- |
| |||
Land and buildings | Terminals | Other | of-use assets | ||||||
Opening balance net of accumulated depreciation and impairment (restated, see Note 2.2) |
| 2,417 |
| 194 |
| 70 |
| 2,681 | |
Additions |
| 196 |
| 105 |
| 52 |
| 353 | |
Modifications, terminations and disposals |
| 143 |
| - |
| (13) |
| 130 | |
Depreciation |
| (342) |
| (62) |
| (30) |
| (434) | |
Dismantling costs, reclassifications and other, net |
| 39 |
| - |
| (1) |
| 38 | |
Closing balance |
| 2,453 |
| 237 |
| 78 |
| 2,768 |
Movements in the net book value of right-of-use assets for the 12 months ended 31 December 2019 were as follows:
(in PLN millions) |
|
|
|
| Total right- |
| |||
Land and buildings | Terminals | Other | of-use assets | ||||||
Opening balance net of accumulated depreciation and impairment (restated, see Note 2.2) |
| 2,207 |
| 124 |
| 81 |
| 2,412 | |
Additions |
| 248 |
| 115 |
| 24 |
| 387 | |
Modifications, terminations and disposals |
| 268 |
| - |
| 1 |
| 269 | |
Depreciation |
| (316) |
| (45) |
| (31) |
| (392) | |
Dismantling costs, reclassifications and other, net |
| 10 |
| - |
| (5) |
| 5 | |
Closing balance (restated) |
| 2,417 |
| 194 |
| 70 |
| 2,681 |
In the 12 months ended 31 December 2019, the Group amended terms of the lease of its headquarters. As a result, the lease liability and right-of-use assets increased by PLN 211 million.
Gains arising from sale and leaseback transactions are disclosed in Note 8.
Information on lease liabilities is disclosed in Notes 18, 21, 25.3 and 25.6.
13.2. Group as a lessor
When considering the Group as a lessor, future minimum lease payments under non-cancellable operating leases as at 31 December 2020 and 2019 amounted to PLN 61 million and PLN 67 million, respectively, and related mainly to the lease of land and buildings.
26
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
14. Assets and liabilities relating to contracts with customers
14.1. Trade receivables
(in PLN millions) |
| At 31 December |
| At 31 December |
|
2020 | 2019 | ||||
Trade receivables measured at amortised cost |
| 2,021 |
| 2,369 | |
Trade receivables measured at fair value through other comprehensive income |
| 211 |
| 218 | |
Total trade receivables |
| 2,232 |
| 2,587 | |
Current |
| 1,850 |
| 2,132 | |
Non-current |
| 382 |
| 455 |
Vast majority of trade receivables results from contracts with customers. Invoices are typically issued on a monthly basis, with subscription fee usually invoiced in advance and usage-based fees invoiced in arrears. The payment is due 14 days after the invoice date for most retail customers and up to 30 days for most wholesale customers. Non-current trade receivables relate mainly to sales of mobile handsets in monthly instalments.
The Group considers there is no concentration of credit risk with respect to trade receivables due to its large and diverse customer base consisting of individual and business customers. The Group’s maximum exposure to credit risk at the reporting date is represented by the carrying amounts of receivables recognised in the consolidated statement of financial position.
On 11 September 2020, the Group and BNP Paribas S.A. extended an agreement (concluded on 20 June 2019) under which OPL S.A. sells selected receivables arising from sales of mobile handsets in instalments, based on which sold receivables are derecognised from the consolidated statement of financial position. The impact on cash flows from operating activities for the 12 months ended 31 December 2020 and 2019 amounted to PLN 67 million and PLN 291 million, respectively, and loss on derecognition recognised in other operating expense for the same periods amounted to PLN 6 million and PLN 4 million, respectively. As a result of the agreement, PLN 202 million of trade receivables held at 20 June 2019 were reclassified out of the measured at amortised cost into the measured at fair value through other comprehensive income category, as the business model for those receivables is to collect contractual cash flows and sell them. Part of the price paid by BNP Paribas S.A. amounting to PLN 41 million and PLN 24 million, respectively, is deferred and presented as other assets as at 31 December 2020 and 2019.
The Group applies the present value valuation technique to measure receivables at fair value through other comprehensive income. The expected risk-adjusted cash flows related to the receivables are discounted using market risk-free interest rate. The nominal cash flows are decreased by the expected credit risk based on historical data. Such risk-adjusted discounted cash flows are adjusted by the margin expected to be received by the market participant buyer. The margin is determined based on the last instalment receivables sale transaction with BNP Paribas S.A.
Movements in the impairment of trade receivables during the 12 months ended 31 December 2020 and 2019 were as follows:
(in PLN millions) | 12 months ended | 12 months ended |
| ||
| 31 December 2020 |
| 31 December 2019 |
| |
Beginning of period |
| 280 |
| 285 | |
Impairment losses, net |
| 134 |
| 134 | |
Utilisation of impairment for receivables sold or written-off |
| (137) |
| (139) | |
End of period |
| 277 |
| 280 |
As a result of COVID-19 pandemic the Group recognised additional PLN 26 million of impairment of trade receivables in the 12 months ended 31 December 2020 (see Note 5).
27
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
Information about the credit risk exposure on the Group’s trade receivables as at 31 December 2020 was as follows:
(in PLN millions) | Days past due |
| |||||||||
< 180 | 180-360 | >360 |
| ||||||||
| Not past due |
| days |
| days |
| days |
| Total |
| |
Expected credit loss rate |
| 4.7 | % | 16.3 | % | 74.3 | % | 91.5 | % |
| |
Total trade receivables, gross |
| 2,149 |
| 196 |
| 35 |
| 129 |
| 2,509 | |
Accumulated impairment loss |
| (101) |
| (32) |
| (26) |
| (118) |
| (277) | |
Total trade receivables, net |
| 2,048 |
| 164 |
| 9 |
| 11 |
| 2,232 |
Information about the credit risk exposure on the Group’s trade receivables as at 31 December 2019 was as follows:
(in PLN millions) | Days past due |
| |||||||||
< 180 | 180-360 | >360 |
| ||||||||
| Not past due |
| days |
| days |
| days |
| Total |
| |
Expected credit loss rate |
| 5.1 | % | 13.2 | % | 50.0 | % | 87.5 | % |
| |
Total trade receivables, gross |
| 2,426 |
| 289 |
| 40 |
| 112 |
| 2,867 | |
Accumulated impairment loss |
| (124) |
| (38) |
| (20) |
| (98) |
| (280) | |
Total trade receivables, net |
| 2,302 |
| 251 |
| 20 |
| 14 |
| 2,587 |
14.2. Contract assets
(in PLN millions) |
| At 31 December |
| At 31 December |
|
2020 | 2019 |
| |||
Non-current contract assets |
| 70 |
| 65 | |
Current contract assets |
| 87 |
| 117 | |
Total contract assets |
| 157 |
| 182 |
The Group considers there is no concentration of credit risk with respect to contract assets due to its large and diverse customer base consisting of individual and business customers. The Group’s maximum exposure to credit risk at the reporting date is represented by the carrying amounts of contract assets recognised in the consolidated statement of financial position.
Movements in the contract assets balance for the 12 months ended 31 December 2020 and 2019 were as follows:
(in PLN millions) | 12 months ended | 12 months ended |
| ||
31 December 2020 | 31 December 2019 |
| |||
Beginning of period |
| 182 |
| 165 | |
Additions |
| 127 |
| 189 | |
Invoiced amounts transferred to trade receivables |
| (153) |
| (171) | |
Impairment, net |
| 1 |
| (1) | |
End of period |
| 157 |
| 182 |
Expected credit loss rate for contract assets as at 31 December 2020 and 2019 amounted to 2.7% and 2.3%, respectively.
14.3. Contract costs
(in PLN millions) |
| At 31 December |
| At 31 December |
|
2020 | 2019 |
| |||
Non-current contract costs |
| 106 |
| 99 | |
Current contract costs |
| 368 |
| 329 | |
Total contract costs |
| 474 |
| 428 |
Contract costs comprise mainly incremental customer acquisition and retention costs.
28
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
Movements in the contract costs balance for the 12 months ended 31 December 2020 and 2019 were as follows:
(in PLN millions) | 12 months ended | 12 months ended | ||
31 December 2020 | 31 December 2019 | |||
Beginning of period |
| 428 |
| 353 |
Contract costs recognised as assets |
| 551 |
| 568 |
Contract costs expensed |
| (503) |
| (488) |
Impairment, net |
| (2) |
| (5) |
End of period |
| 474 |
| 428 |
14.4. Contract liabilities
(in PLN millions) |
| At 31 December |
| At 31 December |
|
2020 | 2019 |
| |||
Upfront fee for wholesale access to fibre network (see below) |
| 238 |
| 257 | |
Subscription (including unused post-paid balances) |
| 183 |
| 173 | |
Unused pre-paid balances |
| 151 |
| 165 | |
Connection fees |
| 100 |
| 86 | |
Other |
| 142 |
| 134 | |
Total contract liabilities |
| 814 |
| 815 | |
Current |
| 476 |
| 471 | |
Non-current |
| 338 |
| 344 |
Approximately PLN 471 million of the contract liabilities balance as at 1 January 2020 was recognised as revenue in the 12 months ended 31 December 2020. Approximately PLN 460 million of the contract liabilities balance as at 1 January 2019 was recognised as revenue in the 12 months ended 31 December 2019.
In 2018, the Company and T-Mobile Polska signed a long term contract on telecommunications access to Orange Polska’s fiber network in the form of Bitstream Access. OPL S.A. started providing services in December 2018. The fees under the contract comprise mainly a fixed upfront fee of PLN 275 million, a fixed fee for infrastructure set-up, IT systems integration and monthly fees for each customer. The revenue from the contract is recognised during 15 years which currently is the estimated period of the contract. The Group applies input method to measure revenue for the period with the application of constraint in respect to recognition of revenue to the level that is highly probable not to be reversed in the future. As a result, the fixed fee elements will be evenly accounted as revenue over 15 years, while the variable fees dependent on the number of end-customers will be recognised as revenue based on the actual number of customers in the period.
14.5. Performance obligations
As at 31 December 2020 and 2019, the transaction price allocated to unsatisfied performance obligations resulting from contracts with customers amounted to PLN 4,196 million and PLN 4,115 million, respectively. The following table presents the time bands in which the Group expects to satisfy those performance obligations and recognise revenue. More information on the nature of typical contracts with customers and related performance obligations can be found in Note 33.8.
(in PLN millions) |
| At 31 December |
| At 31 December |
2020 | 2019 | |||
Within one year |
| 2,419 |
| 2,482 |
Between one and two years |
| 814 |
| 729 |
Between two and three years |
| 276 |
| 173 |
Between three and four years |
| 166 |
| 181 |
Between four and five years |
| 124 |
| 155 |
More than five years |
| 397 |
| 395 |
Total unsatisfied performance obligations |
| 4,196 |
| 4,115 |
29
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
15. Provisions
Movements of provisions for the 12 months ended 31 December 2020 were as follows:
(in PLN millions) |
| Provisions for claims |
| Provisions |
|
|
| ||
and litigation, risks | for employment | Dismantling |
| ||||||
and other charges | termination expense | provisions | Total provisions |
| |||||
At 1 January 2020 |
| 149 |
| 184 |
| 558 |
| 891 | |
Increases |
| 44 |
| - |
| 86 |
| 130 | |
Reversals (utilisations) |
| (10) |
| (89) |
| (7) |
| (106) | |
Reversals (releases) |
| (2) |
| (13) |
| - |
| (15) | |
Discounting effect |
| 2 |
| 2 |
| 7 |
| 11 | |
At 31 December 2020 |
| 183 |
| 84 |
| 644 |
| 911 | |
Current |
| 164 |
| 84 |
| 6 |
| 254 | |
Non-current |
| 19 |
| - |
| 638 |
| 657 |
Movements of provisions for the 12 months ended 31 December 2019 were as follows:
(in PLN millions) |
| Provisions for claims |
| Provisions |
|
|
| ||
and litigation, risks | for employment | Dismantling |
| ||||||
and other charges | termination expense | provisions | Total provisions |
| |||||
At 1 January 2019 |
| 132 |
| 97 |
| 456 |
| 685 | |
Increases |
| 21 |
| 190 |
| 105 |
| 316 | |
Reversals (utilisations) |
| (3) |
| (104) |
| (8) |
| (115) | |
Reversals (releases) |
| (2) |
| - |
| (4) |
| (6) | |
Discounting effect |
| 1 |
| 1 |
| 9 |
| 11 | |
At 31 December 2019 |
| 149 |
| 184 |
| 558 |
| 891 | |
Current |
| 128 |
| 107 |
| 7 |
| 242 | |
Non-current |
| 21 |
| 77 |
| 551 |
| 649 |
Provisions for claims and litigation, risks and other charges
These provisions relate mainly to claims and litigation described in Note 30. As a rule, provisions are not disclosed on a case-by-case basis, as, in the opinion of the Management Board, such disclosure could prejudice the outcome of the pending cases.
Provisions for employment termination expense
On 12 December 2019, OPL S.A. concluded with Trade Unions the Social Agreement under which up to 2,100 employees are entitled to take advantage of the voluntary departure package in years 2020-2021. The value of voluntary departure package varies depending on individual salary, employment duration, age and year of resignation. The basis for calculation of the provision for employment termination expense is the estimated number, remuneration and service period of employees who will accept the voluntary termination until the end of 2021.
Increases of provisions for employment termination expense during 12 months ended 31 December 2019 included PLN 184 million of the estimated amount of termination benefits for employees scheduled to terminate employment in OPL S.A. under the 2020-2021 Social Agreement. Other movements of these provisions during the 12 months ended 31 December 2019 relate to termination benefits for employees scheduled to terminate employment under the 2018-2019 Social Agreement.
The discount rate used to calculate the present value of provisions for employment termination expense amounted to 0.11% as at 31 December 2020 and 1.49% as at 31 December 2019.
30
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
Dismantling provisions
The dismantling provisions relate to dismantling or removal of items of property, plant and equipment (mainly telecommunications poles and items of mobile access network) and restoring the site on which they are located.
Based on environmental regulations in Poland, items of property, plant and equipment which may contain hazardous materials should be dismantled and utilised by the end of their useful lives by entities licensed by the State for this purpose.
The amount of dismantling provisions is based on the estimated number of items that should be utilised/sites to be restored, time to their liquidation/restoration, current utilisation/restoration cost and inflation. The discount rate used to calculate the present value of provisions for dismantling amounted to 1.4% as at 31 December 2020 and 2.01% as at 31 December 2019.
16. Trade payables and other liabilities
16.1. Trade payables
(in PLN millions) |
| At 31 December |
| At 31 December |
|
2020 | 2019 |
| |||
Trade payables |
| 1,417 |
| 1,466 | |
Fixed assets payables |
| 671 |
| 751 | |
Telecommunications licence payables |
| 390 |
| 498 | |
Total trade payables |
| 2,478 |
| 2,715 | |
Current |
| 2,236 |
| 2,367 | |
Non-current (1) |
| 242 |
| 348 |
(1) | Includes telecommunications licence payables only. |
As at 31 December 2020 and 2019, trade payables subject to reverse factoring amounted to PLN 117 million and PLN 147 million, respectively. These payables are presented together with the remaining balance of trade payables, as analysis conducted by the Group indicates they have retained their trade nature.
16.2. Other liabilities
(in PLN millions) |
| At 31 December |
| At 31 December |
|
2020 | 2019 |
| |||
Investment grants received |
| 146 |
| 169 | |
VAT payables |
| 46 |
| 73 | |
Other taxes payables |
| 20 |
| 19 | |
Contingent consideration related to acquisition of subsidiaries (see Note 4) |
| 37 |
| 35 | |
Other |
| 127 |
| 113 | |
Total other liabilities |
| 376 |
| 409 | |
Current |
| 326 |
| 359 | |
Non-current |
| 50 |
| 50 |
Operational Programme “Digital Poland”
The Group concluded agreements with the “Digital Poland” Project Centre for co-financing of investment projects under the Operational Programme “Digital Poland” (“the Programme”). The Programme aims to strengthen digital foundations for the national development including common access to high-speed Internet, effective and user- friendly public e-services and a continuously rising level of digital competences of the society. Under the second contest of the Programme, the Group was granted PLN 0.7 billion from the Programme funds for the development of the broadband telecommunications network.
31
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
In the 12 months ended 31 December 2020 and 2019, Orange Polska received PLN 177 million and PLN 136 million of investment grants under the Programme, respectively. In the 12 months ended 31 December 2020 and 2019, PLN 194 million and PLN 171 million was deducted from the cost of related assets as a result of the Programme and PLN 221 million and PLN 153 million, respectively, was paid to fixed assets suppliers.
Investment grants are presented separately within investing activities in the consolidated statement of cash flows. Received advances for investment grants are presented as cash and cash equivalents and other liabilities in the consolidated statement of financial position.
Grants might not be paid by the financing institution or once obtained might become repayable under certain circumstances resulting from not complying with conditions of the financing. The Group assesses that it is reasonably assured that grants corresponding to the scope of investments completed will be received and they will not become repayable.
17. Employee benefits
(in PLN millions) |
| At 31 December |
| At 31 December |
|
2020 | 2019 |
| |||
Jubilee awards |
| 19 |
| 95 | |
Retirement bonuses |
| 55 |
| 50 | |
Salaries and other employee-related payables |
| 183 |
| 204 | |
Total employee benefits |
| 257 |
| 349 | |
Current |
| 204 |
| 185 | |
Non-current |
| 53 |
| 164 |
In June 2020, Orange Polska signed with Trade Unions amendments to the Collective Labour Agreement. Under the current provisions of the Collective Labour Agreement, employees are entitled to jubilee awards upon completion of a certain number of years of service. According to the agreed changes, these current rules regarding jubilee awards will be cancelled from April 2021. At the same time, in the period between April and December 2021, employees with 15-30 years of service will receive a one-off jubilee award at the specified amount depending on a number of years of service. As a result, negative past service cost of PLN 64 million was recognised as a decrease in labour expense in the 12 months ended 31 December 2020 with a corresponding decrease in liabilities relating to employee benefits.
On 12 December 2019, OPL S.A. concluded with Trade Unions the Social Agreement for years 2020 - 2021 (see Note 15) in which the Company, as a part of the negotiated employment optimisation programme, committed to make additional contributions in the fixed amount totalling PLN 19 million to the employee social programmes carried out by the Company. As a result, this amount was recognised as other employee-related payables as at 31 December 2019 and labour expense in the 12 months ended 31 December 2019. As at 31 December 2020, the liability amounted to PLN 7 million.
32
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
17.1. Jubilee awards and retirement bonuses
Certain employees of the Group are entitled to long-term employee benefits in accordance with the Group’s remuneration policy (see Note 33.21). These benefits are not funded. Changes in the present and carrying value of obligations related to long-term employee benefits for the 12 months ended 31 December 2020 and 2019 are detailed below:
(in PLN millions) | 12 months ended 31 December 2020 | ||||||
Retirement | |||||||
Jubilee awards | bonuses | Total | |||||
Present/carrying value of obligation at the beginning of the period |
| 95 |
| 50 |
| 145 |
|
Current service cost (1) |
| 6 |
| 2 |
| 8 | |
Past service cost (1) (4) |
| (64) |
| - |
| (64) | |
Interest cost (2) |
| 1 |
| 1 |
| 2 | |
Benefits paid |
| (14) |
| (1) |
| (15) | |
Actuarial losses for the period |
| (5) | (1) | 3 | (3) | (2) | |
Present/carrying value of obligation at the end of the period |
| 19 |
| 55 |
| 74 | |
Weighted average duration (in years) |
| 1 |
| 13 |
| 10 |
(1) | Recognised under labour expense in the consolidated income statement. |
(2) | Recognised under discounting expense in the consolidated income statement. |
(3) | Recognised under actuarial losses on post-employment benefits in the consolidated statement of comprehensive income. |
(4) | Impact of the amendment to the Collective Labour Agreement signed in 2020 and described above. |
(in PLN millions) | 12 months ended 31 December 2019 |
| |||||
|
| Retirement |
|
| |||
| Jubilee awards |
| bonuses |
| Total |
| |
Present/carrying value of obligation at the beginning of the period | 95 | 49 | 144 |
| |||
Current service cost (1) |
| 8 | 2 | 10 | |||
Past service cost (1) (4) |
| (7) |
| (10) |
| (17) | |
Interest cost (2) |
| 2 | 2 | 4 | |||
Benefits paid |
| (15) | (1) | (16) | |||
Actuarial losses for the period |
| 12 | (1) | 8 | (3) | 20 | |
Present/carrying value of obligation at the end of the period |
| 95 | 50 | 145 | |||
Weighted average duration (in years) |
| 7 | 13 | 9 |
(1) | Recognised under labour expense in the consolidated income statement. |
(2) | Recognised under discounting expense in the consolidated income statement. |
(3) | Recognised under actuarial losses on post-employment benefits in the consolidated statement of comprehensive income. |
(4) | Includes a PLN 24 million impact of curtailment resulting from the Social Agreement concluded on 12 December 2019 (see Note 15). |
The valuation of obligations as at 31 December 2020 and 2019 was performed using the following assumptions:
| At 31 December |
| At 31 December |
| |
| 2020 |
| 2019 |
| |
Discount rate | 1.6 | % | 1.9 | % | |
Long-term wage increase rate |
| 2.5 | % | 2.5 | % |
A change of the discount rate by 0.5 p.p. would increase or decrease the present/carrying value of obligations related to long-term employee benefits by PLN 3 million as at 31 December 2020.
17.2. Cash-settled share-based payment plan
On 4 September 2017, the Supervisory Board of OPL S.A. adopted the incentive programme (“the programme”) for the key managers of the Orange Polska Group (“the participants”), which is based on derivative instruments (“phantom shares”), whose underlying assets are the Orange Polska S.A. shares listed on the Warsaw Stock Exchange.
33
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
The purpose of the programme is to provide additional incentives to motivate senior managers to achieve mid-term commercial and financial objectives, resulting from Orange Polska’s strategy and to lead to the increase of the value of the Company’s shares.
The terms of the programme are as follows:
a. | Participation in the programme was voluntary. |
b. | The participants could purchase at the beginning of the programme a total of up to 2,315,000 phantom shares from the basic pool for a price of PLN 1 per phantom share. |
c. | In case of meeting certain criteria regarding the average price of Orange Polska shares (not fulfilled) and NPS (Net Promoter Score) (fulfilled), the participants could purchase in the fourth quarter of 2020 additional packages of up to 1,438,500 and 616,500 phantom shares, respectively, for a price of PLN 1 per phantom share. |
d. | Phantom shares shall be bought back from the participants by the Company, at Orange Polska’s average share price in the first quarter of 2021, only when it is not lower than the average of Orange Polska’s closing share prices in the third quarter of 2017. Otherwise, phantom shares shall not be bought back, resulting in the loss of invested funds by the participants. |
The following tables illustrate the number and average fair value of phantom shares and options for phantom shares granted by OPL S.A.:
(number) | Phantom shares | Options for additional phantom shares | |||||||
| NPS |
| Share price | ||||||
| Basic pool | Additional pool |
| condition |
| condition | |||
Outstanding at 1 January 2020 |
| 1,950,000 | - |
| 481,500 |
| 1,123,500 | ||
Granted during the year | - | 454,500 | (1) | 4,500 |
| - | |||
Exercised during the year | - | - | (454,500) | (1) | - | ||||
Forfeited during the year |
| (70,000) | - |
| (31,500) |
| (1,123,500) | (2) | |
Outstanding at 31 December 2020 |
| 1,880,000 | 454,500 |
| - |
| - | ||
Average fair value per unit (in PLN) at 31 December 2020 |
| 5.29 | 5.29 |
|
|
(1) As a result of meeting the criterion related to NPS additional phantom shares were granted.
(2) The criterion related to OPL’s share price was not met.
(number) | Options for additional phantom shares | ||||||
| Phantom shares |
| NPS |
| Share price |
| |
| - basic pool |
| condition |
| condition | ||
Outstanding at 1 January 2019 | 1,980,000 | 513,000 | 1,197,000 | ||||
Forfeited during the year |
| (30,000) |
| (31,500) |
| (73,500) | |
Outstanding at 31 December 2019 |
| 1,950,000 |
| 481,500 |
| 1,123,500 | |
Average fair value per unit (in PLN) at 31 December 2019 |
| 5.19 |
| 5.19 |
| 1.55 |
The following tables illustrate the key assumptions used in calculation of the fair value of phantom shares and options for phantom shares granted by OPL S.A. as at 31 December 2020 and 2019:
At 31 December 2020 | Phantom shares | ||||
Basic pool | Additional pool | ||||
Exercise price (in PLN) |
| 1.00 |
| 1.00 |
|
Barrier (in PLN) |
| 5.46 |
| 5.46 |
|
Expected volatility |
| 25 | % | 25 | % |
Risk-free interest rate |
| 0.11 | % | 0.11 | % |
Dividend yield (1) |
| 0.00 | % | 0.00 | % |
Expiry date |
| 1st quarter 2021 |
| 1st quarter 2021 |
|
Model used |
| Black-Scholes |
| Black-Scholes |
|
30 September | 1 October | ||||
Date of vesting period end | 2019 | 2020 |
(1) | Dividend yield assumes no dividend payment in the 1st quarter of 2021 which reflects mean expectation of market consensus and does not constitute any guidance or commitment from the Company regarding future dividend payments. |
34
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
At 31 December 2019 |
| Options for additional phantom shares |
| ||||||
| Phantom shares |
| NPS |
| Share price | ||||
- basic pool | condition | condition | |||||||
Exercise price (in PLN) | 1.00 | 1.00 | 1.00 |
| |||||
Barrier (in PLN) | 5.46 |
| 5.46 |
| 7.50 - 13.00 |
| |||
Expected volatility | 34 | % | 34 | % | 34 | % | |||
Risk-free interest rate | 1.69 | % | 1.69 | % | 1.69 | % | |||
Dividend yield (1) | 0.00 | % | 0.00 | % | 0.00 | % | |||
Expiry date | 1st quarter 2021 |
| 4th quarter 2020 |
| 4th quarter 2020 |
| |||
Model used | Black-Scholes |
| Black-Scholes |
| Black-Scholes |
| |||
30 September | 1 October | 1 October | |||||||
Date of vesting period end | 2019 | 2020 | 2020 |
|
(1) | Dividend yield assumes no dividend payment in 2020, which reflects mean expectation of market consensus and does not constitute any guidance or commitment from the Company regarding future dividend payments. |
As a result of the programme, PLN 1 million was recognised as a decrease in labour expense in the 12 months ended 31 December 2020 (PLN 10 million was recognised as an increase in labour expense in the 12 months ended 31 December 2019). The carrying amount of liabilities recognised as employee benefits as at 31 December 2020 and 2019 amounted to PLN 12 million and PLN 13 million, respectively.
18. Finance income and expense
(in PLN millions) | 12 months ended 31 December 2020 |
| |||||||||||||||
Financial assets | Derivatives |
| |||||||||||||||
|
| At fair value |
|
| Financial |
|
|
|
|
| |||||||
through other | liabilities at | Non- |
| ||||||||||||||
At amortised | comprehensive | Lease | amortised | Held for | financial |
| |||||||||||
cost |
| income (1) |
| liabilities |
| cost | Hedging | trading (2) | items (3) | Total | |||||||
Interest income |
| 29 |
| 4 |
| - |
| - | - |
| - |
| - |
| 33 | ||
Interest expense on lease liabilities |
| - |
| - |
| (62) |
| - | - |
| - |
| - |
| (62) | ||
Other interest expense and financial charges, including: |
| - |
| - |
| - |
| (114) | (94) |
| (8) |
| - |
| (216) | ||
− interest expense |
| - |
| - |
| - |
| (114) | (4) | (92) |
| (8) |
| - |
| (214) | |
− ineffectiveness on derivatives hedging interest rate risk |
| - |
| - |
| - |
| - | (2) |
| - |
| - |
| (2) | ||
Discounting expense |
| - |
| - |
| - |
| (29) | - |
| - |
| (14) |
| (43) | ||
Foreign exchange gains/(losses) | 2 |
| - |
| (54) |
| (85) | 66 |
| 17 |
| - |
| (54) | |||
Total finance costs, net |
| 31 |
| 4 |
| (116) |
| (228) | (28) |
| 9 |
| (14) |
| (342) | ||
Interest income |
| 11 | (5) | - |
| - |
| - | - |
| - |
| - |
| 11 | ||
Impairment losses |
| (142) |
| (9) |
| - |
| - | - |
| - |
| - |
| (151) | ||
Foreign exchange gains/(losses) |
| 7 |
| - |
| - |
| (18) | (1) |
| 24 |
| - |
| 12 | ||
Labour expense |
| - |
| - |
| - |
| - | (2) |
| (2) |
| - |
| (4) | ||
Items recognised under operating income |
| (124) |
| (9) |
| - |
| (18) | (3) |
| 22 |
| - |
| (132) |
(1) | Selected trade receivables arising from sales of mobile handsets in instalments (see Note 14.1). |
(2) | Derivatives economically hedging commercial or financial transactions. |
(3) | Includes mainly provisions and employee benefits. |
(4) | Includes mainly interest expense on loans from related party. |
(5) | Late payment interest on trade receivables. |
35
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
(in PLN millions) | 12 months ended 31 December 2019 (restated, see Notes 2.2, 33.4) |
| |||||||||||||||
Financial assets | Derivatives |
| |||||||||||||||
At fair value | Financial |
| |||||||||||||||
through other | liabilities at | Non- |
| ||||||||||||||
At amortised | comprehensive | Lease | amortised | Held for | financial | ||||||||||||
cost |
| income (1) |
| liabilities |
| cost | Hedging | trading (2) | items (3) | Total | |||||||
Interest income |
| 37 |
| 3 |
| - |
| - | - |
| - |
| - |
| 40 | ||
Interest expense on lease liabilities |
| - |
| - |
| (66) |
| - | - |
| - |
| - |
| (66) | ||
Other interest expense and financial charges, including: |
| - |
| - |
| - |
| (162) | (67) |
| (7) |
| - |
| (236) | ||
− interest expense |
| - |
| - |
| - |
| (162) | (4) | (76) |
| (7) |
| - |
| (245) | |
− ineffectiveness on derivatives hedging interest rate risk (5) |
| - |
| - |
| - |
| - | 9 |
| - |
| - |
| 9 | ||
Discounting expense |
| - |
| - |
| - |
| (33) | - |
| 1 |
| (16) |
| (48) | ||
Foreign exchange gains/(losses) | (1) |
| - |
| 7 |
| 4 | (4) |
| (4) |
| - |
| 2 | |||
Total finance costs, net |
| 36 |
| 3 |
| (59) |
| (191) | (71) |
| (10) |
| (16) |
| (308) | ||
Interest income/(expense) |
| 12 | (6) | - |
| - |
| (1) | - |
| - |
| - |
| 11 | ||
Impairment losses |
| (131) |
| (7) |
| - |
| - | - |
| - |
| - |
| (138) | ||
Foreign exchange losses |
| (1) |
| - |
| - |
| (1) | - |
| (1) |
| - |
| (3) | ||
Labour expense |
| - |
| - |
| - |
| - | 3 |
| 2 |
| - |
| 5 | ||
Items recognised under operating income |
| (120) |
| (7) |
| - |
| (2) | 3 |
| 1 |
| - |
| (125) |
(1) | Selected trade receivables arising from sales of mobile handsets in instalments (see Note 14.1). |
(2) | Derivatives economically hedging commercial or financial transactions. |
(3) | Includes mainly provisions and employee benefits. |
(4) | Includes mainly interest expense on loans from related party. |
(5) | Hedging ineffectiveness results mainly from designation of non-zero fair value derivatives in hedge relationships. |
(6) | Late payment interest on trade receivables. |
19. Net financial debt
Net financial debt is a measure of indebtedness used by the Management Board. Since the calculation of this aggregate is not defined by IFRS, the methodology adopted by the Group is presented below.
(in PLN millions) |
|
| At 31 December |
| At 31 December |
| |
Note | 2020 | 2019 |
| ||||
Loans from related party |
| 20 |
| 5,990 |
| 6,442 | |
Other financial liabilities at amortised cost |
|
|
| 21 |
| 69 | |
Derivatives – net (liabilities less assets) |
| 23 |
| (15) |
| 30 | |
Gross financial debt after derivatives |
|
|
| 5,996 |
| 6,541 | |
Cash and cash equivalents |
| 22 |
| (358) |
| (404) | |
Cash flow hedge reserve |
|
|
| (89) |
| (50) | |
Net financial debt |
|
|
| 5,549 |
| 6,087 |
36
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
20. Loans from related party
(in millions of currency) | Amount outstanding at (1) |
| |||||||||
31 December 2020 | 31 December 2019 |
| |||||||||
Creditor |
| Repayment date |
| Currency |
| PLN |
| Currency |
| PLN |
|
Floating rate |
|
|
|
|
|
|
|
|
|
| |
Atlas Services Belgium S.A. (EUR) | 20 May 2021 |
| 190 |
| 876 |
| 190 |
| 809 | ||
Atlas Services Belgium S.A. (PLN) | 20 June 2021 |
| 2,700 |
| 2,700 |
| 2,700 |
| 2,700 | ||
Atlas Services Belgium S.A. (PLN) (2) | 25 March 2022 |
| 159 |
| 159 |
| 678 |
| 678 | ||
Atlas Services Belgium S.A. (PLN) | 20 May 2024 |
| 1,499 |
| 1,499 |
| 1,499 |
| 1,499 | ||
Fixed rate |
|
|
|
|
|
|
|
|
| ||
Atlas Services Belgium S.A. (PLN) | 27 March 2023 |
| 756 |
| 756 |
| 756 |
| 756 | ||
Total loans from related party |
|
|
|
| 5,990 |
|
|
| 6,442 | ||
Current |
|
|
|
| 3,584 |
|
|
| 11 | ||
Non-current |
|
|
|
| 2,406 |
|
|
| 6,431 |
(1) | Includes accrued interest and arrangement fees. |
(2) | Revolving credit line. |
The weighted average effective interest rate on loans from related party, before and after swaps, amounted respectively to 1.30% and 3.08% as at 31 December 2020 (2.47% and 3.12% as at 31 December 2019).
21. Liabilities arising from financing activities
Liabilities arising from financing activities are liabilities for which cash flows were, or future cash flows will be, classified in the consolidated statement of cash flows as cash flows from financing activities.
The tables below present the reconciliation of the Group’s liabilities arising from financing activities and derivatives (liabilities less assets) hedging these liabilities:
(in PLN millions) |
|
|
| Other financial |
| Derivatives |
| Total |
| ||
liabilities | hedging liabilities | liabilities from |
| ||||||||
Lease | Loans from | at amortised | from financing | financing |
| ||||||
liabilities | related party | cost | activities (1) | activities |
| ||||||
| Note 20 |
| Note 23 | ||||||||
Amount outstanding as at 1 January 2020 (restated, see Note 2.2) |
| 2,572 |
| 6,442 |
| 69 |
| 18 |
| 9,101 | |
Net cash flows provided by: |
| (489) |
| (632) |
| (49) |
| (79) |
| (1,249) | |
− financing activities |
| (421) |
| (520) |
| (48) |
| - |
| (989) | |
− operating activities (2) |
| (68) |
| (112) |
| (1) |
| (79) |
| (260) | |
Non-cash changes: |
| 621 |
| 180 |
| 1 |
| 83 |
| 885 | |
− foreign exchange (gains)/losses |
| 54 |
| 68 |
| - |
| (77) |
| 45 | |
− fair value change, excluding foreign exchange gains |
| - |
| - |
| - |
| 160 |
| 160 | |
− other changes |
| 567 | (3) | 112 | (4) | 1 | (4) | - |
| 680 | |
Amount outstanding as at 31 December 2020 |
| 2,704 |
| 5,990 |
| 21 |
| 22 |
| 8,737 |
(1) | Includes derivatives economically hedging liabilities from financing activities. |
(2) | Includes interest paid. |
(3) | Includes mainly recognition of new contracts and modification of existing contracts. |
(4) | Includes accrued interest and arrangement fees. |
37
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
(in PLN millions) |
|
|
| Other financial |
| Derivatives |
| Total |
| ||
liabilities | hedging liabilities | liabilities from |
| ||||||||
Lease | Loans from | at amortised | from financing | financing |
| ||||||
liabilities | related party | cost | activities (1) | activities |
| ||||||
| Note 20 |
| Note 23 | ||||||||
Amount outstanding as at 1 January 2019 (restated, see Note 2.2) |
| 2,142 |
| 7,332 |
| 21 |
| (50) |
| 9,445 | |
Net cash flows provided by: |
| (407) |
| (1,046) |
| 43 |
| (16) |
| (1,426) | |
− financing activities |
| (361) |
| (887) | 44 |
| 58 |
| (1,146) | ||
− operating activities (2) |
| (46) |
| (159) |
| (1) |
| (74) |
| (280) | |
Non-cash changes: |
| 837 |
| 156 |
| 5 |
| 84 |
| 1,082 | |
− foreign exchange (gains)/losses |
| (7) |
| (4) |
| - |
| 4 |
| (7) | |
− fair value change, excluding foreign exchange losses |
| - |
| - |
| - |
| 80 |
| 80 | |
− other changes |
| 844 | (3) | 160 | (4) | 5 | (4) | - |
| 1,009 | |
Amount outstanding as at 31 December 2019 (restated) |
| 2,572 |
| 6,442 |
| 69 |
| 18 |
| 9,101 |
(1) | Includes derivatives economically hedging liabilities from financing activities. |
(2) | Includes interest paid. |
(3) | Includes mainly recognition of new contracts and modification of existing contracts. |
(4) | Includes accrued interest and arrangement fees. |
22. Cash and cash equivalents
(in PLN millions) |
| At 31 December |
| At 31 December |
|
2020 | 2019 |
| |||
Current bank accounts, overnight deposits and cash on hand |
| 115 |
| 146 | |
Bank accounts dedicated for investment grants (see Note 16.2) |
| 184 |
| 228 | |
Deposits with Orange S.A. |
| 55 |
| 29 | |
Bank deposits up to 3 months |
| 4 |
| 1 | |
Total cash and cash equivalents |
| 358 |
| 404 |
The Group’s cash surplus is invested into short-term highly-liquid financial instruments - mainly bank deposits and deposits with Orange S.A. under the Cash Management Treasury Agreement. Short-term deposits are made for varying periods of between one day and three months. The instruments earn interest which depends on the current money market rates and the term of investment.
The Group’s maximum exposure to credit risk at the reporting date is represented by carrying amounts of cash and cash equivalents. The Group deposits its cash and cash equivalents with Orange S.A. and leading financial institutions with investment grade. Limits are applied to monitor the level of exposure to credit risk on the counterparties. In case the counterparty’s financial soundness is deteriorating, the Group applies the appropriate measures mitigating the default risk.
23. Derivatives
As at 31 December 2020 and 2019, the Group’s derivatives portfolio constituted financial instruments for which there was no active market (over-the-counter derivatives), mainly interest rate swaps, currency swaps, non-deliverable forwards and stock options. To price these instruments the Group applies standard valuation techniques. The fair value of swap/forward transaction represents discounted future cash flows, where the applicable market interest rate curves constitute the base for calculation of discounting factors and amounts in foreign currencies are converted into PLN at the National Bank of Poland period-end average exchange rate. The fair value of stock options is calculated on the basis of Black-Scholes model. Valuation of derivatives is also adjusted by counterparty (credit valuation adjustment - “CVA”) or own (debit valuation adjustment - “DVA”) credit risk. CVA and DVA estimates were not material compared to the total fair value of the related derivatives.
38
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
The derivative financial instruments used by the Group are presented below:
(in PLN millions) | |||||||||||||||||
Fair value |
| ||||||||||||||||
Type of | Nominal amount | Weighted average | Financial | Financial |
| ||||||||||||
instrument (1) |
| Hedged item |
| (in millions) |
| Maturity |
| price or rate |
| asset |
| liability |
| ||||
At 31 December 2020 |
| ||||||||||||||||
Derivative instruments - cash flow hedge | |||||||||||||||||
Currency and interest rate risk | |||||||||||||||||
CCIRS |
| Loan from related party |
| 187 | EUR |
| 2021 |
| 4.05 |
| 104 |
| - | ||||
| EURIB 6M | + | 0.28 | %-> | |||||||||||||
WIBOR 6M | + | 0.54 | % | ||||||||||||||
Interest rate risk |
| ||||||||||||||||
IRS |
| Loans from related party |
| 5,450 | PLN |
| 2021-2024 |
| WIBOR 1/3/6M | -> | 2.13 | % |
| - |
| (132) | |
| |||||||||||||||||
Currency risk | |||||||||||||||||
NDF |
| Purchase of inventories |
| 141 | EUR |
| 2021 |
| 4.44 |
| 26 |
| - | ||||
NDF |
| Purchase of inventories |
| 12 | USD |
| 2021 |
| 3.74 |
| - |
| - | ||||
Share price risk | |||||||||||||||||
Stock option |
| Share-based payment plan |
| 2 | shares |
| 2021 |
| 5.22 |
| 3 |
| - | ||||
| (see Note 17.2) | ||||||||||||||||
Total cash flow hedges |
| 133 |
| (132) | |||||||||||||
Derivative instruments - held for trading (2) | |||||||||||||||||
Currency and interest rate risk | |||||||||||||||||
CCIRS |
| Loan from related party |
| 3 | EUR |
| 2021 |
| 4.05 |
| 2 |
| - | ||||
| EURIB 6M | + | 0.28 | %-> | |||||||||||||
| WIBOR 6M | + | 0.53 | % | |||||||||||||
Currency risk | |||||||||||||||||
NDF |
| 2100 MHz licence payable |
| 14 | EUR |
| 2021 |
| 4.52 |
| 1 |
| - | ||||
NDF |
| Commercial transactions |
| 27 | EUR |
| 2021 |
| 4.44 |
| 5 |
| - | ||||
NDF |
| Lease liabilities |
| 22 | EUR |
| 2021 |
| 4.42 |
| 4 |
| - | ||||
FX Swap |
| Cash |
| 3 | EUR |
| 2021 |
| 4.61 |
| - |
| - | ||||
NDF |
| Commercial transactions |
| 11 | USD |
| 2021 |
| 3.71 |
| 1 |
| - | ||||
Share price risk | |||||||||||||||||
Stock option |
| Share-based payment plan |
| 1 | shares |
| 2021 |
| 5.02 |
| 1 |
| - | ||||
| (see Note 17.2) | ||||||||||||||||
Total derivatives held for trading |
| 14 |
| - | |||||||||||||
Total derivative instruments |
| 147 |
| (132) | |||||||||||||
Current |
| 147 |
| (32) | |||||||||||||
Non–current |
| - |
| (100) |
(1) | CCIRS – cross currency interest rate swap, IRS – interest rate swap, NDF – non-deliverable forward. |
(2) | Derivatives economically hedging commercial or financial transactions. |
39
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
(in PLN millions) |
| ||||||||||||||||
Fair value |
| ||||||||||||||||
Type of | Nominal amount | Weighted average | Financial | Financial |
| ||||||||||||
instrument (1) |
| Hedged item |
| (in millions) |
| Maturity |
| price or rate |
| asset |
| liability |
| ||||
At 31 December 2019 |
| ||||||||||||||||
Derivative instruments - cash flow hedge | |||||||||||||||||
Currency and interest rate risk | |||||||||||||||||
CCIRS |
| Loan from related party |
| 187 | EUR |
| 2021 |
| 4.05 |
| 37 |
| - | ||||
| EURIB 6M | + | 0.28 | %-> | |||||||||||||
WIBOR 6M | + | 0.54 | % | ||||||||||||||
Interest rate risk |
| ||||||||||||||||
IRS |
| Loans from related party |
| 5,450 | PLN |
| 2021-2024 |
| WIBOR 1/3/6M | -> | 2.13 | % |
| - |
| (55) | |
| |||||||||||||||||
Currency risk | |||||||||||||||||
NDF |
| Purchase of inventories |
| 158 | EUR |
| 2020 |
| 4.36 |
| - |
| (10) | ||||
NDF |
| Purchase of inventories |
| 1 | USD |
| 2020 |
| 3.90 |
| - |
| - | ||||
Share price risk | |||||||||||||||||
Stock option |
| Share-based payment plan |
| 2 | shares |
| 2021 |
| 5.22 |
| 4 |
| - | ||||
| (see Note 17.2) | ||||||||||||||||
Total cash flow hedges |
| 41 |
| (65) | |||||||||||||
Derivative instruments - held for trading (2) | |||||||||||||||||
Currency and interest rate risk | |||||||||||||||||
CCIRS |
| Loan from related party |
| 3 | EUR |
| 2021 |
| 4.05 |
| 1 |
| - | ||||
| EURIB 6M | + | 0.28 | %-> | |||||||||||||
| WIBOR 6M | + | 0.53 | % | |||||||||||||
Currency risk | |||||||||||||||||
NDF |
| 2100 MHz licence payable |
| 35 | EUR |
| 2020 |
| 4.40 |
| - |
| (4) | ||||
NDF |
| Commercial transactions |
| 46 | EUR |
| 2020 |
| 4.35 |
| - |
| (3) | ||||
NDF |
| Lease liabilities |
| 21 | EUR |
| 2020 |
| 4.34 |
| - |
| (1) | ||||
NDF |
| Bank borrowing |
| 2 | USD |
| 2020 |
| 3.73 |
| - |
| - | ||||
NDF |
| Commercial transactions |
| 34 | USD |
| 2020 |
| 3.86 |
| - |
| (2) | ||||
NDF |
| Lease liabilities |
| 1 | USD |
| 2020 |
| 3.85 |
| - |
| - | ||||
Share price risk | |||||||||||||||||
Stock option |
| Share-based payment plan |
| 2 | shares |
| 2020-2021 |
| 5.13 |
| 3 |
| - | ||||
| (see Note 17.2) | ||||||||||||||||
Total derivatives held for trading |
| 4 |
| (10) | |||||||||||||
Total derivative instruments |
| 45 |
| (75) | |||||||||||||
Current |
| 1 |
| (20) | |||||||||||||
Non–current |
| 44 |
| (55) |
(1) | CCIRS – cross currency interest rate swap, IRS – interest rate swap, NDF – non-deliverable forward. |
(2) | Derivatives economically hedging commercial or financial transactions. |
The Group’s maximum exposure to credit risk is represented by the carrying amounts of derivatives. The Group enters into derivatives contracts with Orange S.A. and leading financial institutions. Limits are applied to monitor the level of exposure to credit risk on the counterparties. Limits are based on each institution’s rating. In case the counterparty’s financial soundness is deteriorating, the Group applies the appropriate measures mitigating the default risk.
40
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
The change in cash flow hedge reserve is presented below:
(in PLN millions) | 12 months ended 31 December 2020 |
|
| 12 months ended 31 December 2019 |
| |||||||||
| Before tax |
| Tax |
| After tax |
| Before tax |
| Tax |
| After tax |
| ||
Total cash flow hedge reserve – beginning of period |
| (50) |
| 9 |
| (41) |
| (20) |
| 4 |
| (16) | ||
- interest rate risk |
| (43) |
| 8 |
| (35) |
| (20) |
| 4 |
| (16) | ||
- currency risk |
| (7) |
| 1 |
| (6) |
| 1 |
| - |
| 1 | ||
- share price risk |
| - |
| - |
| - |
| (1) |
| - |
| (1) | ||
Effective part of gains/(losses) on hedging instrument: (1) |
| (33) |
| 6 |
| (27) |
| (94) |
| 18 |
| (76) | ||
- interest rate risk |
| (157) |
| 30 |
| (127) |
| (89) |
| 17 |
| (72) | ||
- currency risk |
| 126 |
| (24) |
| 102 |
| (9) |
| 2 |
| (7) | ||
- share price risk |
| (2) |
| - |
| (2) |
| 4 |
| (1) |
| 3 | ||
Reclassification to the income statement, adjusting: (1) |
| 20 |
| (4) |
| 16 |
| 67 |
| (13) |
| 54 | ||
- interest expense presented in finance costs, net |
| 83 |
| (16) |
| 67 |
| 66 |
| (13) |
| 53 | ||
- foreign exchange (gains)/losses presented in finance costs, net |
| (65) |
| 12 |
| (53) |
| 4 |
| (1) |
| 3 | ||
- labour expenses |
| 2 |
| - |
| 2 |
| (3) |
| 1 |
| (2) | ||
Foreign exchange gains transferred to inventories |
| (26) |
| 5 |
| (21) |
| (3) |
| - |
| (3) | ||
Total cash flow hedge reserve – end of period |
| (89) |
| 16 |
| (73) |
| (50) |
| 9 |
| (41) | ||
- interest rate risk |
| (117) |
| 22 |
| (95) |
| (43) |
| 8 |
| (35) | ||
- currency risk |
| 28 |
| (6) |
| 22 |
| (7) |
| 1 |
| (6) | ||
- share price risk |
| - |
| - |
| - |
| - |
| - |
| - |
(1) | Recognised under gains/losses on cash flow hedges in the consolidated statement of comprehensive income. |
Gains/losses on cash flow hedges cumulated in cash flow hedge reserve as at 31 December 2020 are expected to mature and affect the consolidated income statement in years 2021-2024.
24. Fair value of financial instruments
24.1. Fair value measurements
For the financial instruments measured subsequent to their initial recognition at fair value, the Group classifies fair value measurements using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements:
- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities,
- Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices),
- Level 3: inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).
The Group’s financial assets and liabilities that are measured subsequent to their initial recognition at fair value comprise derivative instruments presented in Note 23 and selected trade receivables arising from sales of mobile handsets in instalments described in Note 14.1. The Group classifies these financial assets and liabilities to Level 2 fair value measurements.
24.2. Comparison of fair values and carrying amounts of financial instruments
As at 31 December 2020 and 2019, the carrying amount of the Group financial instruments excluding lease liabilities, except for telecommunications licence payables and a loan from related party based on fixed interest rate, approximated their fair value due to relatively short term maturity of those instruments, cash nature, variable interest rates or immaterial difference between the original effective interest rates and current market rates.
41
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
A comparison of carrying amounts and fair value of telecommunications licence payables and a loan from related party based on fixed interest rate, for which the estimated fair value differs from the book value due to significant change between the original effective interest rates and current market rates, is presented below:
(in PLN millions) | At 31 December 2020 | At 31 December 2019 |
| ||||||||
Estimated | Estimated |
| |||||||||
Carrying | fair value | Carrying | fair value |
| |||||||
Note | amount | Level 2 | amount | Level 2 |
| ||||||
Telecommunications licence payables | 16.1 | 390 | 437 | 498 | 563 | ||||||
Loan from related party |
| 20 |
| 756 |
| 801 |
| 756 |
| 791 |
The fair value of financial instruments is calculated by discounting contractual future cash flows at the prevailing market interest rates for a given currency. Fair value amounts are translated to PLN at the National Bank of Poland period-end average exchange rate and adjusted by own credit risk. DVA estimates were not material compared to the total fair value of the related financial instruments.
25. Objectives and policies of financial risk management
25.1. Principles of financial risk management
The Group is exposed to financial risks arising mainly from financial instruments that are issued or held as part of its operating and financing activities. That exposure can be principally classified as market risk (encompassing currency risk, interest rate risk and OPL S.A. share price risk), liquidity risk and credit risk. The Group manages the financial risks with the objective to limit its exposure to adverse changes in foreign exchange rates, interest rates and share price, to stabilise cash flows and to ensure an adequate level of financial liquidity and flexibility.
The principles of the Group Financial Risk Management Policy have been approved by the Management Board. Financial risk management is conducted according to strategies developed by the Treasury Committee under the direct control of the Board Member in charge of Finance.
Financial Risk Management Policy defines principles and responsibilities within the context of an overall financial risk management and covers the following areas:
- risk measures used to identify and evaluate the exposure to financial risks,
- selection of appropriate instruments to hedge against identified risks,
- valuation methodology used to determine the fair value of financial instruments,
- transaction limits for and credit ratings of counterparties with which the Group concludes hedging transactions.
25.2. Hedge accounting
The Group has entered into numerous derivative transactions to hedge exposure to currency risk, interest rate risk and OPL S.A. share price risk. The derivatives used by the Group include: cross currency interest rate swaps, cross currency swaps, interest rate swaps, currency options, currency forwards, non-deliverable forwards and stock options.
Certain derivative instruments are classified as cash flow hedges and the Group applies hedge accounting principles as stated in IFRS 9 (see Note 33.17). The cash flow hedges are used to hedge the variability of future cash flows that is attributable to a particular risk and could affect the consolidated income statement. The terms of the hedging instruments match the terms of the hedged items. The Group has established hedge ratios at the level of 1:1 as the underlying risks of the hedging instruments are identical to the hedged risks. Hedge effectiveness is determined at the inception of the hedge relationship and through periodic prospective effectiveness assessment to ensure that an economic relationship exists between the hedged item and the hedging instrument.
42
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
Derivatives are used for hedging activities and it is the Group’s policy that derivative financial instruments are not used for trading (speculative) purposes. However, certain derivatives held by the Group are not designated as hedging instruments as set out in IFRS 9 and hedge accounting principles are not applied to those instruments. The Group considers those derivatives as economic hedges because they, in substance, protect the Group against currency risk, interest rate risk and OPL S.A. share price risk.
Detailed information on derivative financial instruments, including hedging relationship, that are used by the Group is presented in Note 23.
25.3. Currency risk
The Group is exposed to foreign exchange risk arising from financial assets and liabilities denominated in foreign currencies, mainly loan from related party (see Note 20), lease liabilities, bank borrowings and 2100 MHz licence payable.
The Group’s hedging strategy, minimising the impact of fluctuations in exchange rates, is reviewed on a regular basis. The acceptable exposure to a selected currency is a result of the risk analysis in relation to an open position in that currency, given the financial markets’ expectations of foreign exchange rates movements during a specific time horizon.
Within the scope of the hedging policy, the Group hedges its currency exposure entering mainly into cross currency interest rate swaps, cross currency swaps and forward currency contracts, under which the Group agrees to exchange a notional amount denominated in a foreign currency into PLN. As a result, the gains/losses generated by derivative instruments compensate the foreign exchange losses/gains on the hedged items. Therefore, the variability of the foreign exchange rates has a limited impact on the consolidated income statement.
Hedge ineffectiveness may arise from currency basis spread included in the hedging instrument that does not occur in the hedged instrument, a difference between the counterparty credit risk and the own credit risk and changes to the forecasted amount of cash flows of hedged items.
The table below presents the hedge rate of the Group’s major currency exposures. The rate compares the hedged value of a currency exposure to the total value of the exposure.
Hedge rate | |||||
Currency exposure | At 31 December 2020 |
| At 31 December 2019 | ||
Loan from related party and bank borrowings |
| 99.6 | % | 99.7 | % |
2100 MHz licence payable |
| 25.6 | % | 44.6 | % |
Lease liabilities (restated, see Note 2.2) |
| 13.8 | % | 13.1 | % |
The Group is also actively hedging the exposure to foreign exchange risk generated by operating and capital expenditures.
The Group uses the sensitivity analysis described below to measure currency risk.
43
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
The Group’s major exposures to foreign exchange risk (net of hedging activities) and potential foreign exchange gains/losses on these exposures resulting from a hypothetical 1% appreciation/depreciation of the PLN against other currencies are presented in the following table:
(in millions of currency) | Sensitivity to a change of the PLN against other |
| |||||||||||||||
Effective exposure after hedging | currencies impacting consolidated income statement |
| |||||||||||||||
At 31 December 2020 | At 31 December 2019 | At 31 December 2020 | At 31 December 2019 |
| |||||||||||||
+1% | -1% | +1% | -1% | ||||||||||||||
Currency exposure |
| Currency |
| PLN |
| Currency |
| PLN |
| PLN | PLN |
| PLN | PLN |
| ||
2100 MHz licence payable (EUR) |
| 41 |
| 188 |
| 43 |
| 185 |
| 2 |
| (2) |
| 2 |
| (2) | |
Lease liabilities (EUR) (restated, see Note 2.2) |
| 127 |
| 587 |
| 141 |
| 600 |
| 6 |
| (6) |
| 6 |
| (6) | |
Lease liabilities (USD) (restated) |
| 7 |
| 25 |
| 6 |
| 22 |
| - |
| - |
| - |
| - | |
Total |
|
|
| 800 |
|
|
| 807 |
| 8 |
| (8) |
| 8 |
| (8) |
The sensitivity analysis presented above is based on the following principles:
- unhedged portion of the discounted amount of liabilities is exposed to foreign exchange risk (effective exposure),
- derivatives designated as hedging instruments and those classified as economic hedges are treated as risk-mitigation transactions,
- cash and cash equivalents are excluded from the analysis.
The changes in fair value of derivatives classified as cash flow hedges of forecast transactions affect other reserves. The sensitivity analysis prepared by the Group indicated that the potential gains/(losses) impacting cash flow hedge reserve resulting from a hypothetical 1% depreciation/appreciation of the PLN against other currencies would amount to PLN 7/(7) million as at 31 December 2020 and 2019.
25.4. Interest rate risk
The interest rate risk is a risk that the fair value or future cash flows of the financial instrument will change due to interest rates changes. The Group has interest bearing financial liabilities consisting mainly of loans from related party and bank borrowings (see Notes 20 and 31.2).
The Group’s interest rate hedging strategy, limiting exposure to unfavourable movements of interest rates, is reviewed on a regular basis. The preferable split between fixed and floating rate debt is the result of the analysis indicating the impact of the potential interest rates evolution on the financial costs.
According to the hedging strategy, the Group uses interest rate swaps and cross currency interest rate swaps to hedge its interest rate risk. As a result of the hedge, the structure of the liabilities changes to the desired one, as liabilities based on the floating/fixed interest rates are effectively converted into fixed/floating obligations.
As at 31 December 2020 and 2019, the Group’s proportion between fixed/floating rate debt (after hedging activities) was 99/1% and 96/4%, respectively.
Hedge ineffectiveness may arise from designation of non-zero fair value derivatives in hedge relationships and a difference between the counterparty credit risk and the own credit risk.
The Group uses the sensitivity analysis described below to measure interest rate risk.
44
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
The table below provides the Group’s sensitivity analysis for interest rate risk (net of hedging activities) assuming a hypothetical increase/decrease in the interest rates by 1 p.p.:
(in PLN millions) | Sensitivity to 1 p.p. change of interest rates |
| ||||||||||||||||
At 31 December 2020 | At 31 December 2019 |
| ||||||||||||||||
WIBOR | EURIBOR | WIBOR | EURIBOR |
| ||||||||||||||
| +1 p.p. |
| -1 p.p. |
| +1 p.p. |
| -1 p.p. |
|
| +1 p.p. |
| -1 p.p. |
| +1 p.p. |
| -1 p.p. |
| |
Finance costs, net |
| 2 |
| (2) |
| (3) |
| 3 | 2 |
| (2) |
| (4) |
| 4 | |||
Other reserves |
| 63 |
| (65) |
| (3) |
| 3 | 113 |
| (117) |
| (4) |
| 4 |
The sensitivity analysis presented above is based on the following principles:
- finance costs, net include the following items exposed to interest rate risk: a) interest cost on financial debt based on floating rate (after hedging), b) the change in the fair value of derivatives not designated as hedging instruments and classified as held for trading (see Note 23),
- other reserves include the change in the fair value of derivatives that is determined as effective cash flow hedge (see Note 23),
- as at 31 December 2020, the gross financial debt based on floating rate (after hedging) amounted to PLN 31 million (as at 31 December 2019, PLN 251 million).
Following the recommendations of the Financial Stability Board to reform some major interest rate benchmarks, the European Union issued Benchmarks Regulation setting out certain criteria and conditions for benchmark rates to ensure that they are reliable and robust. The Group‘s financial instruments based on IBORs consist mainly of loans from related party, interest rate swaps and cross currency interest rate swaps, which are based on EURIBOR and WIBOR. As both benchmarks are considered compliant with the Benchmark Regulation, the interest rate benchmark reform will not impact the Group’s financial statements.
25.5. Share price risk
The Group is exposed to share price risk arising from cash-settled share-based payment plan (see Note 17.2). The Group hedges its exposure entering into stock options, under which the Group has right to receive cash if OPL S.A. share price exceeds certain level. As a result, the gains/losses generated by derivative instruments compensate the losses/gains on the hedged item. As at 31 December 2020 and 2019, 100% of cash-settled share-based payment plan was hedged.
Hedge ineffectiveness may arise from a difference in the strike price of the hedged and hedging items, various types of hedged and hedging instruments and a difference between counterparty credit risk and own credit risk.
The sensitivity analysis prepared by the Group indicated that the potential gains/losses resulting from a reasonably possible change of OPL S.A. share price would have an insignificant impact on the consolidated income statement and other reserves as at 31 December 2020 and 2019.
25.6. Liquidity risk
The liquidity risk is a risk of encountering difficulties in meeting obligations associated with financial liabilities. The Group’s liquidity risk management involves forecasting future cash flows, analysing the level of liquid assets in relation to cash flows, monitoring liquidity ratios and maintaining a diverse range of funding sources including back-up credit facilities.
In order to increase efficiency, the liquidity management process is optimised through a centralised treasury function of the Group, as liquid asset surpluses generated by the Group entities are invested and managed by the central treasury. The Group’s cash surplus is invested into short-term highly-liquid financial instruments – mainly bank deposits. Additionally, the Cash Management Treasury Agreement with Orange S.A. enables the Group to deposit its cash surpluses with Orange S.A.
45
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
The Group also manages liquidity risk by maintaining committed, unused credit facilities, which create a liquidity reserve to secure solvency and financial flexibility. The above-mentioned Cash Management Treasury Agreement with Orange S.A. gives the Group access to back-up liquidity funding with headroom of up to PLN 500 million. No drawdown was made on this facility as at 31 December 2020. The Group also has a revolving credit line from the Orange Group for up to PLN 1,500 million and other credit lines for up to PLN 150 million, of which PLN 172 million was used as at 31 December 2020. Therefore, as at 31 December 2020, the Group had unused credit facilities amounting to PLN 1,978 million (as at 31 December 2019, PLN 1,516 million).
Liquidity risk is measured by applying following ratios calculated and monitored by the Group regularly:
- liquidity ratios,
- maturity analysis of undiscounted contractual cash flows resulting from the Group’s financial liabilities,
- average debt duration.
The liquidity ratio (representing the relation between available financing sources, i.e. cash and cash equivalents and credit facilities, and debt repayments during next 12 and 18 months) and current liquidity ratio (representing the relation between unused credit facilities, current assets and current liabilities) are presented in the following table:
(in PLN millions) | Liquidity ratios | ||||
At 31 December | At 31 December | ||||
| 2020 |
| 2019 | ||
Liquidity ratio (incl. derivatives) - next 12 months (1) |
| 62 | % | 609 | % |
Unused credit facilities (excluding short term) |
| 1,840 |
| 1,320 | |
Cash and cash equivalents |
| 358 |
| 404 | |
Debt repayments (2) |
| 3,648 |
| 212 | |
Derivatives repayments (3) |
| (79) |
| 71 | |
Liquidity ratio (incl. derivatives) - next 18 months (1) |
| 58 | % | 45 | % |
Unused credit facilities (excluding short term) |
| 1,840 |
| 1,320 | |
Cash and cash equivalents |
| 358 |
| 404 | |
Debt repayments (2) |
| 3,829 |
| 3,800 | |
Derivatives repayments (3) |
| (60) |
| 52 | |
Current liquidity ratio (incl. unused credit facilities) |
| 68 | % | 115 | % |
Unused credit facilities (excluding short term) |
| 1,840 |
| 1,320 | |
Total current assets |
| 3,363 |
| 3,493 | |
Total current liabilities |
| 7,637 |
| 4,191 | |
Current liquidity ratio (incl. unused credit facilities and new loan agreement) (4) |
| 105 | % | Not applicable | |
Unused credit facilities (excluding short term) |
| 1,840 |
| Not applicable | |
Total current assets |
| 3,363 |
| Not applicable | |
Total current liabilities (4) |
| 4,937 |
| Not applicable |
(1) | The ratio does not include future cash flows from operating or investing activities, nor debt refinancing. |
(2) | Undiscounted contractual cash flows on loans from related party and bank borrowings. |
(3) | Undiscounted contractual cash flows on derivatives. |
(4) | As a result of the new loan agreement concluded on 29 January 2021 (see Note 32), the amount of current liabilities would decrease to PLN 4,937 million and current liquidity ratio would increase to 105%. |
The maturity analysis for the contractual undiscounted cash flows resulting from the Group’s financial liabilities as at 31 December 2020 and 2019 is presented below.
46
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
As at 31 December 2020 and 2019, amounts in foreign currency were translated at the National Bank of Poland period-end average exchange rates. The variable interest payments arising from the financial instruments were calculated using the interest rates applicable as at 31 December 2020 and 2019, respectively.
(in PLN millions) | At 31 December 2020 | |||||||||||||||||||
Undiscounted contractual cash flows (1) | ||||||||||||||||||||
Non-current | ||||||||||||||||||||
More | ||||||||||||||||||||
Carrying | Within | `1-2 | `2-3 | `3-4 | `4-5 | than 5 | Total non- | |||||||||||||
Note | amount | 1 year | years | years | years | years | years | current | Total | |||||||||||
Loans from related party |
| 20 |
| 5,990 |
| 3,633 |
| 203 |
| 784 |
| 1,510 |
| - |
| - |
| 2,497 |
| 6,130 |
Other financial liabilities at amortised cost |
|
|
| 21 |
| 19 |
| 2 |
| - |
| - |
| - |
| - |
| 2 |
| 21 |
Derivative assets |
| 23 |
| (147) |
| (143) |
| - |
| - |
| - |
| - |
| - |
| - |
| (143) |
Derivative liabilities |
| 23 |
| 132 |
| 64 |
| 31 |
| 25 |
| 8 |
| - |
| - |
| 64 |
| 128 |
Gross financial debt after derivatives |
|
|
| 5,996 |
| 3,573 |
| 236 |
| 809 |
| 1,518 |
| - |
| - |
| 2,563 |
| 6,136 |
Trade payables |
| 16.1 |
| 2,478 |
| 2,242 |
| 166 |
| 24 |
| 24 |
| 24 |
| 49 |
| 287 |
| 2,529 |
Lease liabilities |
| 21 |
| 2,704 |
| 495 |
| 435 |
| 342 |
| 296 |
| 237 |
| 1,719 |
| 3,029 |
| 3,524 |
Total financial liabilities (including derivative assets) |
|
|
| 11,178 |
| 6,310 |
| 837 |
| 1,175 |
| 1,838 |
| 261 |
| 1,768 |
| 5,879 |
| 12,189 |
(1) | Includes both nominal and interest payments. |
(in PLN millions) | At 31 December 2019 (restated, see Note 2.2) | |||||||||||||||||||
Undiscounted contractual cash flows (1) | ||||||||||||||||||||
Non-current | ||||||||||||||||||||
More | ||||||||||||||||||||
Carrying | Within | `1-2 | `2-3 | `3-4 | `4-5 | than 5 | Total non- | |||||||||||||
Note |
| amount |
| 1 year |
| years |
| years |
| years |
| years |
| years |
| current |
| Total | ||
Loans from related party |
| 20 |
| 6,442 |
| 154 |
| 3,623 |
| 748 |
| 802 |
| 1,518 |
| - |
| 6,691 |
| 6,845 |
Other financial liabilities at amortised cost |
|
|
| 69 |
| 60 |
| 10 |
| - |
| - |
| - |
| - |
| 10 |
| 70 |
Derivative assets |
| 23 |
| (45) |
| 18 |
| (32) |
| - |
| - |
| - |
| - |
| (32) |
| (14) |
Derivative liabilities |
| 23 |
| 75 |
| 53 |
| 18 |
| 7 |
| 5 |
| 2 |
| - |
| 32 |
| 85 |
Gross financial debt after derivatives |
|
|
| 6,541 |
| 285 |
| 3,619 |
| 755 |
| 807 |
| 1,520 |
| - |
| 6,701 |
| 6,986 |
Trade payables |
| 16.1 |
| 2,715 |
| 2,373 |
| 144 |
| 156 |
| 24 |
| 24 |
| 72 |
| 420 |
| 2,793 |
Lease liabilities |
| 21 |
| 2,572 |
| 456 |
| 417 |
| 368 |
| 286 |
| 239 |
| 1,664 |
| 2,974 |
| 3,430 |
Total financial liabilities (including derivative assets) |
|
|
| 11,828 |
| 3,114 |
| 4,180 |
| 1,279 |
| 1,117 |
| 1,783 |
| 1,736 |
| 10,095 |
| 13,209 |
(1) | Includes both nominal and interest payments. |
The average duration for the existing debt portfolio as at 31 December 2020 was 1.4 years (2.4 years as at 31 December 2019).
25.7. Credit risk
The Group’s credit risk management objective is defined as supporting business growth while minimising financial risks by ensuring that customers and partners are always in a position to pay amounts due to the Group.
The main function of the Credit Committee under the control of the Board Member in charge of Finance is to coordinate and consolidate credit risk management activities across the Group, which involve:
- clients’ risk assessment,
- monitoring clients’ business and financial standing,
- managing accounts receivable and bad debts.
The policies and rules regarding consolidated credit risk management for the Group were approved by the Credit Committee.
47
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
There is no significant concentration of credit risk within the Group.
Further information on credit risk is discussed in Notes 14.1, 14.2, 22, 23.
26. Income tax
26.1. Income tax
(in PLN millions) | 12 months ended | 12 months ended | ||
31 December 2020 | 31 December 2019 | |||
Restated | ||||
(see Note 2.2) | ||||
Current income tax |
| (14) |
| (2) |
Deferred tax |
| (2) |
| (23) |
Total income tax |
| (16) |
| (25) |
The reconciliation between the income tax expense and the theoretical tax calculated based on the Polish statutory tax rate was as follows:
(in PLN millions) | 12 months ended | 12 months ended |
| ||
31 December 2020 | 31 December 2019 | ||||
Restated | |||||
| (see Note 2.2) |
| |||
Net income before tax |
| 62 |
| 107 | |
Statutory tax rate |
| 19 | % | 19 | % |
Theoretical tax |
| (12) |
| (20) | |
Tax relief on research and development |
| 6 |
| 9 | |
Unrecognised deferred tax asset on tax capital losses |
| (1) |
| (5) | |
Expenses not deductible for tax purposes |
| (9) |
| (9) | |
Total income tax |
| (16) |
| (25) |
Expenses not deductible for tax purposes consist of cost items, which, under Polish tax law, are specifically determined as non-deductible.
26.2. Deferred tax
(in PLN millions) | Consolidated statement of financial position | Consolidated income statement | ||||||
| At 31 December |
| At 31 December |
| 12 months ended | 12 months ended | ||
2020 | 2019 | 31 December 2020 | 31 December 2019 | |||||
Restated | Restated | |||||||
|
| (see Note 2.2) | (see Note 2.2) | |||||
Property, plant and equipment, intangible assets and right-of-use assets, net |
| 388 |
| 400 |
| 9 |
| (14) |
Unused tax losses |
| 44 |
| 48 |
| (4) |
| (39) |
Receivables and payables |
| 158 |
| 132 |
| 21 |
| 29 |
Contract assets and contract costs |
| (120) |
| (116) |
| (4) |
| (20) |
Contract liabilities |
| 121 |
| 122 |
| (1) |
| (16) |
Employee benefits |
| 35 |
| 54 |
| (19) |
| - |
Provisions |
| 157 |
| 157 |
| - |
| 38 |
Net financial debt |
| 20 |
| 16 |
| (4) |
| (2) |
Other |
| (3) |
| (3) |
| - |
| 1 |
Deferred tax assets, net (1) |
| 800 |
| 810 |
|
|
|
|
Total deferred tax |
|
|
|
|
| (2) |
| (23) |
(1) During the 12 months ended 31 December 2020, deferred tax assets, net were decreased by PLN 10 million as the effect of the acquisition of Craftware Sp. z o.o. (see Note 4). During the 12 months ended 31 December 2020 and 2019, PLN 3 million and PLN 7 million of change in deferred tax assets was recognised in the consolidated statement of comprehensive income, respectively. During the 12 months ended 31 December 2020, PLN (1) million of change in deferred tax was recognised directly in equity.
48
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
Deferred tax assets are recognised in the amounts which are expected to be utilised using future taxable profits estimated on the basis of the business plan approved by the Management Board of Orange Polska and used to determine the value in use of the telecom operator CGU (key assumptions are described in Note 9), which are considered as a positive evidence supporting the recognition of deferred tax assets.
Deferred tax assets as at 31 December 2020 include PLN 747 million of deferred tax asset in OPL S.A., of which PLN 28 million is recognised on tax losses incurred in 2016 and 2017. In years 2018 - 2020 OPL S.A. had tax profits on operating activities and utilised PLN 722 million of its tax losses from previous years, which is an additional positive evidence supporting the Company’s assessment of its ability to generate future taxable profits to utilise the recognised deferred tax assets, including deferred tax asset on tax losses from prior years before they expire in 2021 and 2022.
Significant amount of the Group’s deferred tax assets relates to property, plant and equipment and intangible assets and has been recognised on temporary differences arising mainly from different tax and accounting depreciation rates used by the Group. As a result, the estimated period required to utilise this deferred tax asset is dependent on useful lives of items of property, plant and equipment and intangible assets estimated for accounting and tax purposes. The majority of deferred tax asset relating to property, plant and equipment and intangible assets is expected to be utilised after year 2023.
Unrecognised deferred tax assets relate to temporary differences, which based on the Group’s Management assessment could not be utilised for tax purposes. As at 31 December 2020 and 2019, deductible temporary differences, for which no deferred tax asset was recognised, amounted to PLN 88 million and PLN 85 million gross, of which PLN 86 million and PLN 81 million, respectively, are related to incurred tax losses, which are expected to expire rather than to be realised.
27. Equity
27.1. Share capital
As at 31 December 2020 and 2019 the share capital of the Company amounted to PLN 3,937 million and was divided into 1,312 million fully paid ordinary bearer shares of nominal value of PLN 3 each.
The ownership structure of the share capital as at 31 December 2020 and 2019 was as follows:
(in PLN millions) | At 31 December 2020 | At 31 December 2019 |
| |||||||||||
|
|
| Nominal |
|
| Nominal |
| |||||||
% of votes | % of shares | value |
|
| % of votes | % of shares | value |
| ||||||
Orange S.A. |
| 50.67 |
| 50.67 |
| 1,995 |
| 50.67 |
| 50.67 |
| 1,995 | ||
Other shareholders |
| 49.33 |
| 49.33 |
| 1,942 |
| 49.33 |
| 49.33 |
| 1,942 | ||
Total |
| 100.00 |
| 100.00 |
| 3,937 |
| 100.00 |
| 100.00 |
| 3,937 |
27.2. Dividend
In accordance with the recommendation of the Management Board of the Company there was no dividend paid in 2020.
OPL S.A.’s retained earnings available for dividend payments to the Group’s shareholders amounted to PLN 4.1 billion as at 31 December 2020. The remaining balance of the Company’s retained earnings is unavailable for dividend payments due to restrictions of the Polish commercial law. Additionally, PLN 0.1 billion of OPL S.A.’s subsidiaries retained earnings as at 31 December 2020 was available for dividend payments by subsidiaries to OPL S.A.
49
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
27.3. Equity-settled share-based payment plan
Orange S.A. operates a long term incentive plan (“LTIP”), under which key managers of the Orange Polska Group were awarded a defined number of free shares of Orange S.A., subject to performance conditions and continuous service in the Orange Group. The fair value of services rendered by managers for granting equity instruments of Orange S.A. recognised in labour expense in 2020 and 2019 amounted to PLN 3 million. More information on LTIP can be found in the Remuneration Report contained in Section 9.3 of the Management Board’s Report on the Activity of the Orange Polska Group and Orange Polska S.A. for the year ended 31 December 2020.
27.4. Other movements in retained earnings
Corrections resulting from immaterial errors in prior periods were recognised by the Group directly in retained earnings and presented as other movements in the consolidated statement of changes in equity. The corrections of PLN 27 million, net (after PLN (6) million of tax impact) relate to capitalization of some indirect employee benefits as property, plant and equipment and other intangible assets (PLN 48 million) and write-off of other non-current assets (PLN (21) million).
28. Management of capital
The Group manages its capital through a balanced financial policy, which aims at providing both relevant funding capabilities for business development and securing a relevant financial structure and liquidity.
The Group’s capital management policy takes into consideration the following key elements:
- business performance together with applicable investments and development plans,
- debt repayment schedule,
- financial market environment,
- distribution policy to the Group’s shareholders.
In order to combine these factors the Group periodically establishes a framework for the financial structure. The Group regards capital as the total of equity and net financial debt. The Group monitors capital on the basis of net financial debt and net financial debt to EBITDAaL ratio (see Note 3).
29. Investment commitments
Investment commitments contracted for at the end of the reporting period but not recognised in the consolidated financial statements were as follows:
(in PLN millions) |
| At 31 December |
| At 31 December |
|
2020 | 2019 |
| |||
Property, plant and equipment |
| 642 |
| 810 | |
Intangibles |
| 88 |
| 68 | |
Total investment commitments |
| 730 |
| 878 | |
Amounts contracted to be payable within 12 months after the end of the reporting period |
| 645 |
| 543 |
Investment commitments relate mainly to development of telecommunications network, purchases of telecommunications network equipment, IT systems and other software.
As at 31 December 2020 and 2019, the Group’s commitments for the purchase of property, plant and equipment and intangible assets under the Operational Programme “Digital Poland” (see Note 16.2), contracted for at the end of the reporting period but not recognised in the consolidated financial statements amounted to PLN 310 million and PLN 449 million, respectively.
50
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
30. Litigation, claims and contingent liabilities
As at 31 December 2020, the Group recognised provisions for known and quantifiable risks related to various current or potential claims and proceedings, which represent the Group’s best estimate of the amounts, which are more likely than not to be paid. As a rule, provisions are not disclosed on a case-by-case basis, as, in the opinion of the Management Board, such disclosure could prejudice the outcome of the pending cases.
a. | Proceedings by UOKiK and UKE and claims connected with them |
According to the Act on Competition and Consumer Protection, in case of non-compliance with its regulations, the President of the Office of Competition and Consumer Protection (“UOKiK”) is empowered to impose on an entity penalties of up to a maximum amount of EUR 50 million for refusal to provide requested information or up to a maximum amount of 10% of an entity’s revenue for the year prior to the year of fine imposition for a breach of the law. According to the Telecommunications Act, the President of UKE may impose on a telecommunications operator a penalty of up to a maximum amount of 3% of the operator’s prior year’s tax revenue, if the operator does not fulfil certain requirements of the Telecommunications Act.
Proceedings by UOKiK related to retail prices of calls to Play
In 2013, UOKiK commenced competition proceedings against Orange Polska, Polkomtel Sp. z o.o. and T-Mobile Polska S.A. UOKiK alleged that they abused collective dominant position and the abuse consisted in the fact that the retail prices of calls made by individual users from the network of each of the three operators to the network of P4 Sp. z o.o. (“P4”), operator Play, were relatively higher than the prices for such calls to the networks of the three operators. On 2 January 2018, UOKiK discontinued the competition proceedings. UOKiK stated that there was no basis to determine that Orange Polska, Polkomtel Sp. z o.o. and T-Mobile Polska S.A. acted in breach of the competition law.
In September 2015, Orange Polska received a lawsuit filed by P4 with the Court under which P4 claims for damages, in the amount of PLN 316 million (PLN 231 million and PLN 85 million of interest) relating to the retail mobile prices for a period between July 2009 and March 2012. P4 originally claimed jointly and severally towards Orange Polska, Polkomtel Sp. z o.o. and T-Mobile Polska S.A. but subsequently the proceedings against T-Mobile was discontinued due to a settlement concluded by the latter with P4.
On 2 July 2018, P4 extended its claim by the amount of PLN 314 million (PLN 258 million and PLN 56 million of capitalised interest). The factual basis for both claims is the same (retail price difference) but as regards the claim extension the period for which damages are calculated is different i.e. from April 2012 to December 2014.
On 29 November 2018 the court excluded P4’s claim for PLN 314 million to separate court proceedings.
On 27 December 2018 the court of first instance dismissed P4’s claim for PLN 316 million in its entirety as time barred. P4 appealed that verdict to the Appeal Court and, on 28 December 2020, the Appeal Court repealed the verdict and remanded the case back to the court of first instance on the basis that the court did not sufficiently explain the reasons for the claim being time barred. No other arguments were assessed by the Court of Appeal.
Proceedings by UOKiK related to pre-paid offers
In September 2016, UOKiK commenced proceedings against Orange Polska, T-Mobile Polska S.A., Polkomtel Sp. z o.o. and P4 Sp. z o.o. claiming that rules on the Polish market applied to pre-paid offers, according to which top-ups are annulled in so-called “passive period”, may violate consumers rights. On 15 December 2020, UOKiK issued a decision concluding the proceedings. The decision does not impose a fine but obliges Orange Polska to change the practice and report on those actions after a period specified by the decision.
Other proceedings by UOKiK and UKE
As at 31 December 2020, the Group recognised provisions for known and quantifiable risks related to proceedings against the Group initiated by UOKiK and UKE, which represent the Group’s best estimate of the amounts, which are more likely than not to be paid. The actual amounts of penalties, if any, are dependent on future events
51
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
the outcome of which is uncertain, and, as a consequence, the amount of the provision may change at a future date.
b.Tax settlements
Tax settlements are subject to review and investigation by a number of authorities, which are entitled to impose fines, penalties and interest charges. Value added tax, corporate income tax, personal income tax, real estate tax, other taxes and the general anti-avoidance rules or social security regulations are subject to frequent changes. These changes contribute to the lack of system stability and tax disputes. Frequent contradictions and inconsistencies in legal interpretations both within government bodies and between companies and government bodies create uncertainties and conflicts. These uncertainties result in higher risk in the area of tax settlements, which may require recognition of liabilities for uncertain tax positions and provisions resulting from differences of interpretation of the tax law.
Tax authorities may examine accounting records up to five years following the end of the year in which the tax becomes due. Consequently, the Group may be subject to additional tax liabilities, which may arise as a result of additional tax audits.
In 2018, the Tax Office finalised a tax audit relating to OPL S.A.’s corporate income tax settlements for the fiscal year ended 31 December 2016. Based on the findings of the audit, tax proceedings were launched against the Company in 2019. The Company does not agree with the findings and believes that the issues raised in the tax audit protocol are without merit and the possibility of ultimate outflow of resources in the ongoing proceedings is low.
The Group is also involved in other proceedings and litigations in respect to various taxes, including PIT, CIT, VAT, real estate tax and other taxes. Some of these proceedings and litigations may result in future cash outflows. The possible outcomes of these proceedings and litigations are assessed by the Group on a regular basis and quantifiable risks related to them that are probable to result in future cash outflows are adequately reflected as income tax liabilities or provisions in the statement of financial position.
c.Issues related to the incorporation of Orange Polska
Orange Polska was established as a result of the transformation of the state-owned organisation Poczta Polska Telegraf i Telefon (“PPTiT”) into two entities – the Polish Post Office and Orange Polska S.A. The share premium in the equity of Orange Polska includes an amount of PLN 713 million which, in accordance with the Notary Deed dated 4 December 1991, relates to the contribution of the telecommunication business of PPTiT to the Company. During the transformation process and transfer of ownership rights to the new entities, certain properties and other assets that are currently under Orange Polska’s control were omitted from the documentation recording the transfer and the documentation relating to the transformation process is incomplete in this respect. This means that Orange Polska’s rights to certain properties and other non-current assets may be questioned and, as a result, the share premium balance may be subject to changes.
d.Other contingent liabilities and provisions
Apart from the above-mentioned, operational activities of the Group are subject to legal, social and administrative regulations a breach of which, even unintentional, may result in sanctions imposed on the Group. In addition to fines which may be imposed by UOKiK and UKE described in Note 30.a also the President of Energy Regulatory Office may impose a penalty of up to a maximum amount of 15% of the revenues gained in the previous tax year among others for an infringement of certain provisions of Energy Law, a failure in fulfilment of obligations determined by the concession, a refusal to provide information.
The Group is a party to a number of legal proceedings and commercial contracts related to its operational activities. Some regulatory decisions can be detrimental to the Group and court verdicts within appeal proceedings against such decisions can have negative consequences for the Group. Also, there are claims including claims for damages
52
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
or contractual penalties raised by counterparties to commercial contracts , or claims for other payments resulting from breach of law which may result in cash outflows.
Furthermore, the Group uses fixed assets of other parties in order to provide telecommunications services. Terms of use of these assets are not always formalised and as such, the Group is subject to claims and might be subject to future claims in this respect, which could result in a cash outflow in the future. The amount of the potential obligations or future commitments cannot be measured with sufficient reliability due to legal complexities involved.
The Group monitors the risks on a regular basis and the Management Board believes that adequate provisions have been recorded for known and quantifiable risks.
31. Related party transactions
31.1. Management Board and Supervisory Board compensation
Compensation (remuneration, bonuses, post-employment and other long-term benefits, termination indemnities and share-based payment plans – cash and non-monetary benefits) of OPL S.A.’s Management Board and Supervisory Board Members is presented below. Additionally, the President of OPL S.A.’s Management Board is employed by Orange Global International Mobility S.A., a subsidiary of Orange S.A., and delegated to Orange Polska. The amounts incurred by the Orange Polska Group for the reimbursement of key management personnel costs from the Orange Group are presented separately in the table below.
(in PLN thousands) | 12 months ended | 12 months ended | |||
31 December 2020 | 31 December 2019 | ||||
Short-term benefits excluding employer social security payments |
| 17,005 | 17,440 | ||
Post-employment benefits |
| 5,378 | 1,788 |
| |
Share-based payment plans | 57 | 2,574 | |||
Total compensation | 22,440 | 21,802 | |||
Key management personnel costs |
| 1,339 | - |
| |
Total |
| 23,779 |
| 21,802 |
|
Additionally, Section 9.3 of the Management Board’s Report on the Activity of the Orange Polska Group and Orange Polska S.A. for the year ended 31 December 2020 includes the Remuneration Report, where more details on Management Board and Supervisory Board compensation can be found.
31.2. Related party transactions
As at 31 December 2020,
The Group’s income earned from the Orange Group comprises mainly wholesale telecommunications services and research and development income. The purchases from the Orange Group comprise mainly brand fees and wholesale telecommunications services.
Orange Polska S.A. operates under the Orange brand pursuant to a licence agreement concluded with Orange S.A. and Orange Brand Services Limited (hereinafter referred to as “OBSL”). The brand licence agreement provides that OBSL receives a fee of up to 1.6% of the Company’s operating revenue earned under the Orange brand.
Until 31 December 2020, the Group and Atlas Services Belgium S.A., a subsidiary of Orange S.A., concluded loan agreements for EUR 190 million, PLN 4,950 million and Revolving Credit Facility Agreement for up to PLN 1,500
53
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
million (see Note 20). Additionally, the Group concluded an agreement with Orange S.A. concerning derivative transactions to hedge exposure to foreign currency risk and interest rate risk related to the financing from Atlas Services Belgium S.A. The nominal amount of cross currency interest rate swaps and interest rate swaps outstanding under the agreement as at 31 December 2020 was EUR 190 million and PLN 5,450 million, respectively, with a total negative fair value of PLN 26 million (as at 31 December 2019, nominal amount of EUR 190 million and PLN 5,450 million with a total negative fair value of PLN 17 million).
Financial receivables, payables, financial costs, net and other comprehensive loss concerning transactions with the Orange Group relate mainly to the above-mentioned agreements. Cash and cash equivalents deposited with Orange S.A. relate to the Cash Management Treasury Agreement (see Note 25.6).
(in PLN millions) | 12 months ended | 12 months ended |
| ||
| 31 December 2020 |
| 31 December 2019 |
| |
Sales of goods and services and other income: |
| 217 |
| 229 | |
Orange S.A. (parent) |
| 138 |
| 146 | |
Orange Group (excluding parent) |
| 79 |
| 83 | |
Purchases of goods (including inventories, tangible and intangible assets) and services: |
| (219) |
| (236) | |
Orange S.A. (parent) |
| (58) |
| (62) | |
Orange Group (excluding parent) |
| (161) |
| (174) | |
- including Orange Brand Services Limited (brand licence agreement) |
| (117) |
| (112) | |
Financial costs, net: |
| (198) |
| (216) | |
Orange S.A. (parent) |
| (17) |
| (61) | |
Orange Group (excluding parent) |
| (181) |
| (155) | |
Other comprehensive loss: |
| (74) |
| (23) | |
Orange S.A. (parent) |
| (74) |
| (23) |
(in PLN millions) | At 31 December | At 31 December |
| ||
| 2020 |
| 2019 |
| |
Receivables: |
| 85 |
| 97 | |
Orange S.A. (parent) |
| 51 |
| 64 | |
Orange Group (excluding parent) |
| 34 |
| 33 | |
Liabilities: |
| 84 |
| 100 | |
Orange S.A. (parent) |
| 31 |
| 49 | |
Orange Group (excluding parent) |
| 53 |
| 51 | |
Financial receivables: |
| 106 |
| 38 | |
Orange S.A. (parent) |
| 106 |
| 38 | |
Cash and cash equivalents deposited with: |
| 55 |
| 29 | |
Orange S.A. (parent) |
| 55 |
| 29 | |
Financial liabilities: |
| 6,122 |
| 6,497 | |
Orange S.A. (parent) |
| 132 |
| 55 | |
Orange Group (excluding parent) |
| 5,990 |
| 6,442 |
32. Subsequent events
On the basis of an annual review of estimated useful lives of fixed assets, the Group decided to extend useful lives for certain items of software from 2021. As a result, amortisation expense in 2021 relating to these assets is expected to be lower by approximately PLN 117 million.
On 29 January 2021, the Group and Atlas Services Belgium S.A., a subsidiary of Orange S.A., concluded a Loan Agreement for PLN 2,700 million with repayment date in June 2026, which will refinance the Loan Agreement for PLN 2,700 million expiring in June 2021.
54
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
33. Significant accounting policies
In addition to the statement of compliance included in Note 2, this note describes the accounting principles applied to prepare the Consolidated Financial Statements for the year ended 31 December 2020.
33.1. Use of estimates and judgement
In preparing the Group’s accounts, the Company’s Management Board is required to make estimates, because many elements included in the financial statements cannot be measured with precision. Management Board reviews these estimates if the circumstances on which they were based evolve or in the light of new information or experience. Consequently, estimates made as at 31 December 2020 may be subsequently changed. The main estimates and judgements made are described in the following notes:
Note | Estimates and judgements | |
6, 33.8 | Revenue | Allocation of transaction price to each performance obligation based on stand-alone selling price. Estimating stand-alone selling prices of performance obligations. Straight-line recognition of revenue relating to service connection fees. Reporting revenue on a net versus gross basis (analysis of Group’s involvement acting as principal versus agent). Estimation of early termination fees charged to customers. |
9, 33.16 | Impairment of cash generating unit and individual tangible and intangible assets | Key assumptions used to determine recoverable amounts: impairment indicators, models, discount rates, growth rates. |
13, 33.14 | Leases | Key assumptions used to measure the lease liability and the right of use assets: lease term, discount rate and usage of options. Application of portfolio approach to certain leases. |
11, 12, 33.12, 33.13 | Useful lives of tangible and intangible assets (excluding goodwill) | The useful lives and the method of depreciation and amortisation. |
12, 16.2, 33.13 | Property, plant and equipment – investment grants | The assumptions underlying the measurement and recognition of investment grants obtained. |
14.1, 14.2, 33.17 | Impairment of financial assets | Key assumptions used to determine impairment of financial assets: expected credit loss rate (including incorporation of forward looking information), grouping of financial assets. |
15, 30, 33.20 | Provisions | The assumptions underlying the measurement of provisions for claims and litigation. Provisions for employment termination expense: discount rates, number of employees, employment duration, individual salary and other assumptions. |
15 | Dismantling costs | The assumptions underlying the measurement of provision for the estimated costs for dismantling and removing the asset and restoring the site on which it is located. |
17, 33.21, 33.22 | Employee benefits | Discount rates, salary increases, retirement age, staff turnover rates and other. Model and assumptions underlying the measurement of fair values of share-based payment plan. |
23, 24, 33.17 | Fair value of derivatives and other financial instruments | Model and assumptions underlying the measurement of fair values. |
26, 33.19 | Income tax | Assumptions used for recognition of deferred tax assets. Assumptions used to determine taxable results and tax bases for uncertain tax treatments. |
33.18 | Allowance for slow moving and obsolete inventories | Methodology used to determine net realizable value of inventories. |
The Group considers that the most significant adjustments to the carrying amounts of assets and liabilities could result from changes in estimates and judgements relating to impairment (see Note 9), provisions for claims, litigation and risks (see Notes 15 and 30), leases (see Note 13) and useful lives of tangible and intangible assets (see Notes 11, 12, 33.12 and 33.13).
55
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
Where a specific transaction is not dealt with in any standard or interpretation, Management Board uses its judgment in developing and applying an accounting policy that results in information that is relevant and reliable, in that the financial statements:
− represent faithfully the Group’s financial position, financial performance and cash flows,
− reflect the economic substance of transactions,
− are neutral and
− are complete in all material respects.
33.2. Standards and interpretations issued but not yet adopted
– IFRS 17 “Insurance Contracts”. This standard was issued on 18 May 2017 and will be effective for annual periods beginning on or after 1 January 2023. This standard has not yet been endorsed by the European Union.
IFRS 17 establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts. The Group does not act as a principal in case of insurance contracts and this standard will have no impact on financial statements.
33.3. Options available under IFRSs and used by the Group
Certain IFRSs offer alternative methods of measuring and recognizing assets and liabilities. In this respect, the Group has chosen:
Standards | Option used | |
IAS 2 | Inventories | Recognition of inventories at their original cost determined by the weighted average unit cost method. |
IAS 16 | Property, plant and equipment | Property, plant and equipment are measured at cost less any accumulated depreciation and any accumulated impairment losses. |
IAS 20 | Government grants and disclosure of government assistance | Non-repayable government grants related to assets decrease the carrying amount of the assets. Government grants related to income are deducted from the related expenses. |
IFRS 9 | Financial instruments | Recognition of the loss allowance at an amount equal to lifetime expected credit losses for trade receivables and contract assets that contain a significant financing component. |
33.4. Presentation of the financial statements
Presentation of the statement of financial position
In accordance with IAS 1 “Presentation of financial statements”, assets and liabilities are presented in the statement of financial position as current and non-current.
Presentation of the income statement
As allowed by IAS 1 “Presentation of financial statements”, expenses are presented by nature in the income statement.
56
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
Earnings/loss per share
The net income/loss per share for each period is calculated by dividing the net income/loss for the period attributable to the equity holders of the Company by the weighted average number of shares outstanding during that period. The weighted average number of shares outstanding is after taking account of treasury shares.
Changes in presentation of the consolidated income statement and the consolidated statement of cash flows
Starting from 2020, the Group changed its accounting policy relating to presentation of foreign exchange gains/losses arising on revaluation and settlement of lease liabilities and related hedging instruments as follows:
Lease liabilities denominated in foreign currencies and related hedging instruments are re-measured at the end of the reporting period and the resulting translation differences are recorded in the consolidated income statement in finance costs, net (previously in other operating income/expense).
As a result, the comparative amounts for the 12 months ended 31 December 2019 were adjusted to conform to the new accounting policy and PLN 6 million of foreign exchange gains were reclassified from other operating income/expense to finance costs, net. Additionally, foreign exchange gains/losses for the 12 months ended 31 December 2019 amounting to PLN (4) million presented within finance costs, net, were separated from other interest expense and financial charges to new line item.
The Group believes that the new presentation better reflects the economic nature of lease contracts which are long-term financial liabilities used for financing purpose and their impact should be presented in the consolidated income statement in finance costs, net.
Other changes are described in Note 2.2.
33.5. Consolidation rules
Subsidiaries that are controlled by Orange Polska, directly or indirectly, are fully consolidated. Control is deemed to exist when Orange Polska or its subsidiary is exposed, or has rights, to variable returns from the involvement with the investee and has the ability to affect those returns through its power over the investee.
In order to have control over an investee, all the following criteria must be met:
- the Group has the power over the investee;
- the Group has exposure, or rights, to variable returns from its involvement with the investee;
- the Group has the ability to use its power over the investee to affect the amount of the investor’s returns.
Subsidiaries are consolidated from the date on which control is obtained by the Group and cease to be consolidated from the date on which the Group loses control over the subsidiary.
Intercompany transactions and balances are eliminated on consolidation.
33.6. Investments in joint arrangements
A joint arrangement is either a joint venture or a joint operation. The Group is involved in a joint operation. The Group recognises in relation to its interests in a joint operation its assets, liabilities, revenue and expenses, including its respective shares in the above.
33.7. Effect of changes in foreign exchange rates
The functional currency of Orange Polska is the Polish złoty.
57
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
Transactions in foreign currencies
Transactions in foreign currencies are converted into Polish złoty at the spot exchange rate prevailing as at the transaction date. Monetary assets and liabilities which are denominated in foreign currencies are re-measured at the end of the reporting period using the period-end exchange rate quoted by National Bank of Poland and the resulting translation differences are recorded in the income statement:
- in other operating income and expense for commercial transactions,
- in financial income or finance costs for financial transactions and lease contracts.
33.8. Revenue
Separable components of bundled offers
For the sale of multiple products or services (e.g. offers including a handset and a telecommunications service contract), the Group evaluates all promises in the arrangement to determine whether they represent distinct performance obligations i.e. obligations not dependent on each other. Sale of mobile handsets and sale of services in bundled offers are distinct performance obligations.
The consideration for the bundled package (i.e. transaction price) is allocated to the distinct performance obligations (e.g. sale of a handset and sale of a service) and recognised as revenue when the performance obligation is satisfied (i.e. when the control over good or service is transferred to a customer).
In general, the transaction price is the amount of consideration (usually the cash) to which the Group expects to be entitled during the enforceable period. The enforceable period is the period that is made enforceable through contractual terms or business practices i.e. the enforceable period length is impacted by practices e.g. when the Group creates or accepts a valid expectation to free the customer from certain commitments before the end of the contract by allowing commencement of a new contract. The transaction price does not include the effect of time value of money (except payments by instalments models which, by nature, meet the definition of a financial receivable) because the effect of financing component, in comparison to the transaction price, is not significant at a contract level.
The allocation of the transaction price between various performance obligations is made to estimate the amount to which the Group is expected to be entitled in exchange for transferring a promised good or service to the customer.
The Group is a service company and achieves the vast majority of its margin by selling telecommunication services. The sale of subsidised handsets (i.e. when an invoice amount for a handset is lower than the cost of a handset) is a tool to promote the Group’s services and to attract customers. Therefore, in case of services sold with subsidised handsets, the Group allocates the subsidy to the service revenues. The Group estimates the amount of revenue that it expects to earn while pricing the service offer. Based on rationale described above, the stand- alone selling price (i.e. the price at which the Group would sell a promised good or service separately to the customer) of subsidised handsets is estimated by their cost plus margin to cover additional costs connected with the sale of handsets, such as e.g. transport costs or logistic costs. The estimated margin is insignificant. Therefore, it is disregarded from the cost plus margin formula for the sake of the practicality.
If the Group is able to sell a handset with a profit (i.e. when an invoice amount for a handset is higher than the cost of a handset in bundled offer), it allocates the handset profit to the handset revenue.
While defining the stand-alone selling price of any performance obligation, firstly, the Group’s observable price should be identified i.e. the price of good or service when the Group sells that good or service separately in similar circumstances and to similar customers. In case of the lack of an entity observable price, other methods of valuation of an obligation should be used. The stand-alone selling prices of a service are defined per different categories of customers, they are dependent on the service content, commitment period and consumption profile. Therefore, the SIMO price (the price of a service sold stand-alone i.e. not in a bundle with a handset) cannot be treated
58
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
as a good proxy of the stand-alone selling price of a specific service sold in a bundled offer. Consequently, the stand-alone selling price of the telecommunication service sold in a bundled offer is determined by using an adjusted-market assessment approach and corresponds to the service price in the bundle adjusted by the handset subsidy recovered over the enforceable period.
The Group accounts for contract balances if the right to a payment differs from timing when performance obligation is satisfied. A contract asset corresponds to Group’s right to a payment in exchange for goods or services that have been transferred to Group’s customers. A contract asset, if any, is recognised at inception of the contract. It is typically measured as the sum of the monthly subsidy recovery over the remaining enforceable period of the contract. Contract liabilities represent amounts billed to customers by Group before receiving the goods and/or services promised in the contract. This is typically the case for advances received from customers or amounts invoiced for goods or services not yet transferred, such as contracts payable in advance or prepaid packages.
Equipment sales
Revenue from an equipment sales is recognised when the control over the equipment is transferred to the buyer (see also paragraph “Separable components of bundled offers”). When an equipment is sold by a third-party retailer who purchases it from the Group, the related revenue is recognised when the equipment is sold to the end-customer because the Group acts as a principal in this process.
Equipment leases
Equipment lease revenue is recognised on a straight-line basis over the life of the lease agreement, except for finance leases, in case of which revenue from sale of fixed assets, equal to the net investment in lease, is recognised at the commencement of the lease and finance income is recognised over the lease term.
Revenues from the sale or supply of content
Depending on the substance of a transaction and the Group’s role in the transaction, the Group can act as a principal and recognise revenue at the gross amount, separately from costs, or as an agent and recognise revenue in the amount net of costs. The assessment of the role of the Group is based on the notion of the control and the indicators of the control. The Group is treated as a principal if it controls a good or a service before the good or service is transferred to a customer.
The Group is considered as an agent if the Group’s performance obligation is to arrange for the provision of a good or a service to the client by another party, i.e. when it does not control the specified good or service provided by another party before that good or service is transferred to the customer.
Service revenue
Telephone service and Internet access subscription fees are recognised in revenue on a straight-line basis over the service period because of the continuous transfer of control over the service to the customer.
Charges for incoming and outgoing telephone calls are recognised in revenue when the service is rendered. Revenue from the sale of phone cards in mobile telephony systems is recognised when they are used or expire.
Promotional offers
For certain commercial offers where customers do not pay for services over a certain period in exchange for signing up for a fixed period (time-based incentives), the total revenue generated under the contract is spread over the enforceable period.
59
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
Material rights
Material right is an option to purchase additional goods or services with a discount that is incremental to discounts typically given for those goods or services. The Group has not identified any material rights in the contracts with customers which would need to be treated as separate performance obligations.
33.9. Subscriber acquisition costs, costs to fulfil a contract, advertising and related costs
Incremental acquisition and retention costs (e.g. commissions paid to retailers for acquisition or retention of contracts), as well as costs that are directly incurred for the purpose to fulfil a certain contract are expensed as costs over the enforceable period of contracts on a straight-line basis as these costs are directly associated with the contracts with customers and are expected to be recoverable. Advertising, promotion, sponsoring, communication and brand marketing costs are expensed as incurred.
33.10. Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset are capitalised as part of the cost of that asset. Qualifying assets are assets that necessarily take a substantial period of time to get ready for their intended use or sale. In the Group’s assessment, the network roll-out does not generally require a substantial period of time.
33.11. Goodwill
Goodwill recognised as an asset in the statement of financial position for business combination before 1 January 2010 comprises:
- goodwill as the excess of the cost of the business combination over the acquirer’s interest in the acquire’s identifiable net assets measured at fair value at the acquisition-date; and
- goodwill relating to any additional purchase of non-controlling interests with no purchase price allocation.
For business combination after 1 January 2010 goodwill recognised as an asset in the statement of financial position is the excess of (a) over (b) below:
(a) the aggregate of:
(i) the consideration transferred, measured at acquisition-date fair value;
(ii) the amount of any non-controlling interest in the acquire, measured either at its fair value or at its proportionate interest in the net identifiable assets;
(iii) in a business combination achieved in stages, the acquisition-date fair value of the acquirer’s previously held equity interest in the acquire.
(b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured at fair value, apart from limited exceptions provided in IFRS 3.
Goodwill represents a payment made in anticipation of future economic benefits from assets that are not capable of being individually identified and separately recognised.
33.12. Intangible assets (excluding goodwill)
Intangible assets, consisting mainly of telecommunications licences, software and development costs, are initially stated at acquisition or production cost comprising its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates, any directly attributable costs of preparing the assets for their intended use, and, if applicable, attributable borrowing costs.
60
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
Identifiable intangible assets acquired in a business combination are recognised separately from goodwill at their acquisition date fair values. An intangible asset is identifiable if it is either separable, i.e. capable of being separated or divided from the acquired entity, or arises from contractual or other legal rights. Fair value of an intangible asset is measured using valuation techniques appropriate in the circumstances.
Internally developed trademarks and subscriber bases are not recognised as intangible assets.
Telecommunications licences
Expenditures regarding telecommunications licences are amortised on a straight-line basis over the reservation period from the date when the network is technically ready and the service can be marketed.
Research and development costs
Development costs are recognised as an intangible asset if and only if the following can be demonstrated:
- the technical feasibility of completing the intangible asset so that it will be available for use,
- the intention to complete the intangible asset and use or sell it and the availability of adequate technical, financial and other resources for this purpose,
- the ability to use or sell the intangible asset,
- how the intangible asset will generate probable future economic benefits for the Group,
- the Group’s ability to measure reliably the expenditure attributable to the intangible asset during its development.
Development costs not fulfilling the above criteria and research costs are expensed as incurred. The Group’s research and development projects mainly concern:
- upgrading the network architecture or functionality;
- developing service platforms aimed at offering new services to the Group’s customers.
Development costs recognised as an intangible asset are amortised on a straight-line basis over their estimated useful life, generally not exceeding three years.
Software
Software is amortised on a straight-line basis over the expected useful life, where standard useful life is up to five years unless revised.
Useful lives of intangible assets are reviewed annually and are adjusted if current estimated useful lives are different from previous estimates. These changes in accounting estimates are recognised prospectively.
33.13. Property, plant and equipment
The cost of tangible assets corresponds to their purchase or production cost or price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates, as well as including costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management, including labour costs, and, if applicable, attributable borrowing costs.
The cost includes the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, representing the obligation incurred by the Group.
The cost of network includes design and construction costs, as well as capacity improvement costs. The total cost of an asset is allocated among its different components and each component is accounted for separately when the components have different useful lives or when the pattern in which their future economic benefits are expected to be consumed by the entity varies. Depreciation is established for each component accordingly.
61
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
Maintenance and repair costs (day to day costs of servicing) are expensed as incurred.
Investment grants
The Group may receive grants from the government or the European Union for funding of capital projects. These grants are deducted from the cost of the related assets and recognised in the income statement, as a reduction of depreciation, based on the pattern in which the related asset’s expected future economic benefits are consumed. Grants are not recognised until there is a reasonable assurance that the Group will comply with the conditions attached to them and that the grant will be received.
Derecognition
An item of property, plant and equipment is derecognised on its disposal or when no future economic benefits are expected from its use or disposal. The gain or loss arising from the derecognition of an item of property, plant and equipment is recognised in operating income/loss and equals the difference between the net disposal proceeds, if any, and the carrying amount of the item.
Depreciation
Items of property, plant and equipment are depreciated to write-off their cost, less any estimated residual value on a basis that reflects the pattern in which their future economic benefits are expected to be consumed. Therefore, the straight-line basis is usually applied over the following estimated useful lives:
Buildings |
| 10 | to | 30 | years |
Network |
| 3 | to | 40 | years |
Terminals |
| 2 | to | 10 | years |
Other IT equipment |
| 3 | to | 5 | years |
Other |
| 2 | to | 10 | years |
Land is not depreciated.
These useful lives are reviewed annually and are adjusted if current estimated useful lives are different from previous estimates. These changes in accounting estimates are recognised prospectively.
33.14. Leases
IFRS 16 “Leases” establishes the principles for recognition, measurement, presentation and disclosure of lease contracts. A single lease accounting model was adopted if the Group acts as a lessee. If the Group acts as a lessor then it continues to classify its leases as operating leases or finance leases, and accounts for those two types of leases differently.
The Group qualifies a contract as a lease as long as it gives the lessee the right to control the use of a particular asset. In order to qualify a contract as a lease, three main conditions shall be met:
– the contract shall convey the right to use an identified asset;
– the lessee shall obtain the economic benefits from use of this asset;
– the lessee obtains the right to direct the use of this asset throughout the period of the contract.
As at 1 January 2019 the Group has defined four major categories of lease contracts:
– real estate: points of sale, offices, perpetual usufruct of land;
– mobile network: land, technical premises, space on towers, chimneys, rooftops;
– fixed network: technical premises, limited property rights, access to the local loop, collocation, dark fiber contracts, subsurface rights, ground easements;
– other rentals: vehicles, technical equipment, data center.
62
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
The accounting presentation of lease contracts in the statement of financial position depends mainly on:
– the scope of contracts qualified as leases,
– the duration adopted for certain types of contracts,
which require significant judgment from the Company’s Management Board. The Management Board reviews these estimates if the circumstances on which they were based evolve or in the light of new information or established market practice.
Group as a lessee
On the lessee’s side the Group uses a single accounting model, in which the lessee is required to recognise a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments.
The Group has chosen to apply two exemptions proposed by the standard and expense as external purchases the following contracts:
– all contracts, except for contracts for vehicles, whose duration is less than 12 months;
– contracts where the value of the underlying asset is less than USD 5,000.
The lease duration corresponds to the non-cancellable period of the lease, periods covered by extension options that the Group is reasonably certain to exercise and termination options that the Group is reasonably certain not to exercise. In case of indefinite period leases the Group estimates the reasonably certain lease term to determine the lease term. The Group assessed the reasonably certain lease terms of cancellable lease contracts to be equal to 5 years for all lease contracts, except for 18 years for road occupancy leases where fixed network infrastructure is placed. For easements in buildings, where the Group located its telecommunication infrastructure, a lease duration is assessed as an average useful life of buildings in the Group. Subsurface contracts and land easements are measured basing on the portfolio approach due to significant number of homogenous contracts.
At the lease commencement date, the Group recognises a right-of-use asset and a lease liability.
The right-of-use asset is measured at cost which comprises:
– the amount of the initial measurement of the lease liability;
– any lease payments made at or before the commencement date, less any lease incentives received;
– any initial direct costs incurred by the lessee; and
– an estimate of costs to be incurred by the lessee in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease.
After the commencement date, the Group measures the right-of-use asset applying a cost model, less any accumulated depreciation and any accumulated impairment losses, as well as any adjustments resulting from remeasurement of the lease liability.
The lease liability is measured at the present value of the lease payments that are not paid at the commencement date. The lease payments are discounted using the incremental borrowing rates as the rates implicit in the lease are not easily determinable. Discount rates adopted are based on Polish state bond yield, adjusted by credit spread observable for entities with similar credit rating. Discount rates are differentiated by duration and by currency, and not by class of assets.
The lease liability comprises the following payments:
– fixed payments (including in-substance fixed payments), less any lease incentives receivable;
– variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;
– amounts expected to be payable by the lessee under residual value guarantees;
– the exercise price of a purchase option if the lessee is reasonably certain to exercise that option;
63
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
– payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease.
After the commencement date, the lease liability is increased to reflect interest on the lease liability and reduced to reflect the lease payments made, as well remeasured to reflect any reassessment or lease modification. Only the lease component is taken into account in the measurement of the right-of-use asset and of the lease liability. Other non-lease components, like payments for utilities, are accounted for separately in accordance with other applicable accounting standards.
Group as a lessor
The Group continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently.
A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership of an underlying asset. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership of an underlying asset.
Examples of situations that individually or in combination would lead to a lease being classified as a finance lease are as follows:
– the lease transfers ownership of the underlying asset to the lessee by the end of the lease term;
– the lessee has the option to purchase the underlying asset at a price significantly lower than the fair value;
– the lease term is for the major part of the economic life of the underlying asset;
– at the inception date, the present value of the lease payments amounts to at least substantially all of the fair value of the underlying asset; and
– the underlying asset is of such a specialised nature that only the lessee can use it without major modifications.
33.15. Non-current assets held for sale
Non-current assets held for sale are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than continuing use. Those assets are available for immediate sale in their present condition subject only to terms that are usual and customary for sales of such assets and the sale is highly probable.
Non-current assets held for sale are measured at the lower of carrying amount and estimated fair value less costs to sell and are presented in a separate line in the statement of financial position if IFRS 5 requirements are met.
Those assets are no longer depreciated. If fair value less costs to sell is less than its carrying amount, an impairment loss is recognised in the amount of the difference. In subsequent periods, if fair value less costs to sell increases the impairment loss is reversed up to the amount of losses previously recognised.
33.16. Impairment tests and Cash Generating Units
Given the nature of Group’s assets and operations, most of its individual assets do not generate cash inflows independently from other assets. The Group identifies a single major CGU (see Note 9). For the purpose of impairment testing the Group allocates the whole goodwill to this CGU.
In accordance with IFRS 3 “Business Combinations”, goodwill is not amortised but is tested for impairment at least once a year or more frequently when there is an indication that it may be impaired. IAS 36 “Impairment of Assets” requires these tests to be performed at the level of the cash generating unit (CGU).
64
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
Recoverable amount
To determine whether an impairment loss should be recognised, the carrying value of the assets and liabilities of the CGU, including allocated goodwill, is compared to its recoverable amount. The recoverable amount of a CGU is the higher of its fair value less costs to sell and its value in use.
Fair value less costs to sell is the best estimate of the amount realisable from the sale of a CGU in an arm’s length transaction between knowledgeable, willing parties, less the costs of disposal. This estimate is determined on the basis of available market information taking into account specific circumstances.
Value in use is the present value of the future cash flows expected to be derived from the CGU, including goodwill. Cash flow projections are based on economic and regulatory assumptions, telecommunications licences renewal assumptions and forecast trading conditions drawn up by the Group management, as follows:
- cash flow projections are based on the business plan and its extrapolation to perpetuity by applying a growth rate reflecting the expected long-term trend in the market,
- the cash flows obtained are discounted using appropriate rates for the type of business concerned.
If the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognised in the amount of the difference. The impairment loss is firstly allocated to reduce the carrying amount of goodwill and then to the other assets of CGUs.
Goodwill impairment losses are recorded in the income statement as a deduction from operating income/loss and are not reversed.
33.17. Financial assets and liabilities
Financial assets are classified in the following measurement categories – depending on the business model in which assets are managed and their cash flow characteristics:
- assets subsequently measured at amortised cost – if the financial assets are held within a business model whose objective is to collect contractual cash flows, and the contractual terms of these financial assets give rise to cash flows that are solely payments of principal and interest;
- assets subsequently measured at fair value through other comprehensive income – if the financial assets are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and the contractual terms of these financial assets give rise to cash flows that are solely payments of principal and interest;
- hedging derivative instruments;
- assets at fair value through profit or loss – all other financial assets.
Financial liabilities are classified as financial liabilities at amortised cost, liabilities at fair value through profit or loss and hedging derivative instruments.
Recognition and measurement of financial assets
When financial assets are recognised initially, they are measured at fair value plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. Trade receivables that do not have a significant financial component are initially measured at their transaction price.
A regular way purchase or sale of financial assets is recognised using settlement date accounting.
- | Assets subsequently measured at amortised cost |
Assets subsequently measured at amortised cost include “Trade receivables” (excluding trade receivables measured at fair value through other comprehensive income) and “Cash and cash equivalents”. Interest income from these financial assets is calculated using the effective interest rate method and is presented within finance costs, net.
65
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
Cash and cash equivalents consist of cash in bank and on hand, cash deposits with Orange S.A. under the Cash Management Treasury Agreement and other highly-liquid instruments that are readily convertible into known amounts of cash and are subject to insignificant changes in value.
- | Financial assets at fair value through profit or loss |
Financial assets at fair value through profit or loss include derivative assets not designated as hedging instruments as set out in IFRS 9.
- | Financial assets at fair value through other comprehensive income |
Financial assets at fair value through other comprehensive income include selected receivables arising from sales of mobile handsets in instalments which are subject to the factoring agreement.
- | Impairment |
The Group measures the loss allowance at an amount equal to lifetime expected credit losses for trade receivables, lease receivables, cash and cash equivalents and contract assets.
Trade receivables that are homogenous and share similar credit risk characteristics are tested for impairment collectively. When estimating the lifetime expected credit loss the Group uses historical data as a measure for expected credit losses.
In calculating the recoverable amount of receivables that are individually material and not homogenous, the Group assess expected credit losses on individual basis taking into account significant financial difficulties of the debtor or probability that the debtor will enter bankruptcy or financial reorganisation.
The Group considers a financial asset to be credit-impaired when events that have a detrimental impact on the estimated future cash flows of that financial asset have occurred, for example significant financial difficulty of the debtor or a breach of contract, such as a default or past due event.
The Group considers a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full.
A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.
Recognition and measurement of financial liabilities
- | Financial liabilities at amortised cost |
Financial liabilities measured at amortised cost include borrowings, trade payables and fixed assets payables, including the telecommunications licence payables and are presented in the statement of financial position as “Trade payables”, “Loans from related party” and “Other financial liabilities at amortised cost”.
Trade payables include those that are subject to reverse factoring. The Group considers that these financial liabilities carry the characteristics of trade payables, in particular as the payment schedules are within the range of ordinary payment terms for a telecommunications operator.
Borrowings and other financial liabilities are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method.
Certain borrowings may be designated as being hedged by fair value hedges. Gain or loss on hedged borrowing attributable to a hedged risk adjusts the carrying amount of a borrowing and is recognised in the income statement.
- | Financial liabilities at fair value through profit or loss |
Financial liabilities at fair value through profit or loss include derivative liabilities not designated as hedging instruments as set out in IFRS 9.
66
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
Recognition and measurement of derivative instruments
Derivative instruments are measured at fair value and presented in the statement of financial position as current or non-current according to their maturity. Derivatives are classified as financial assets and liabilities at fair value through profit or loss or as hedging derivatives.
- | Derivatives classified as financial assets and liabilities at fair value through profit or loss |
Except for gains and losses on hedging instruments (as explained below), gains and losses arising from changes in fair value of derivatives are immediately recognised in the income statement. The change in fair value (excluding interest rate component and credit risk adjustment) of derivatives held for trading is presented in operating income/loss or finance costs, net, depending on the nature of the economically hedged transaction. The interest rate component and credit risk adjustment of derivatives held for trading are presented under other interest expense and financial charges within finance costs, net.
- | Hedging derivatives |
Derivative instruments may be designated as fair value hedges or cash flow hedges:
- a fair value hedge is a hedge of the exposure to changes in fair value of a recognised asset or liability or an identified portion of the asset or liability, that is attributable to a particular risk and could affect profit or loss,
- a cash flow hedge is a hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction (such as a future purchase or sale) and could affect profit or loss.
The effects of applying hedge accounting are as follows:
- for fair value hedges of existing assets and liabilities, the change in fair value of the hedged portion of the asset or liability attributable to the hedged risk adjusts the carrying amount of the asset or liability in the statement of financial position. The gain or loss from the changes in fair value of the hedged item and loss or gain from re-measuring the hedging instrument at fair value are recognised in profit or loss. The adjustment to the hedged item is amortised fully by maturity of the hedged item starting from the date when a hedged item ceases to be adjusted by a change in fair value of the hedged portion of liability attributable to the risk hedged,
- for cash flow hedges, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in other comprehensive income and the ineffective portion of the gain or loss on the hedging instrument is recognised in profit or loss. Amounts recognised in cash flow hedge reserve are subsequently recognised in profit or loss in the same period or periods during which the hedged item affects profit or loss. If a hedge of a forecast transaction results in the recognition of a non-financial asset or a non-financial liability, the gains and losses accumulated in equity are removed from the cash flow hedge reserve and included in the initial measurement of the cost of the asset or liability. This is not a reclassification adjustment and is not recognised in other comprehensive income.
33.18. Inventories
Inventories are stated at the lower of cost and net realizable value. The Group provides allowance for slow-moving or obsolete inventories based on inventory turnover ratios and current marketing plans. Change in allowance is presented in the consolidated income statement in “External purchases”.
Cost corresponds to purchase or production cost determined by the weighted average cost method. Net realizable value is the estimated selling price in the ordinary course of business, less selling expenses.
33.19. Income tax
The tax expense comprises current and deferred tax.
67
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
Current tax
The current income tax charge is determined in accordance with the relevant tax law regulations in respect of the taxable profit. Income tax liabilities/assets represent the amounts expected to be paid to/received from the tax authorities at the end of the reporting period.
Deferred taxes
Deferred taxes are recognised for temporary differences, as well as for unused tax losses. Deferred tax assets are recognised only when their recovery is considered probable. At the end of the reporting period unrecognized deferred tax assets are re-assessed. A previously unrecognized deferred tax asset is recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.
Deferred tax is not accounted for if it arises from the initial recognition of an asset or liability in a transaction that is not a business combination and at the time of the transaction, affects neither accounting nor taxable profit nor loss.
Deferred tax assets and liabilities are not discounted. Deferred income tax is calculated using the enacted or substantially enacted tax rates at the end of the reporting period.
33.20. Provisions
A provision is recognised when the Group has a present obligation towards a third party, which amount can be reliably estimated and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation. The obligation may be legal, regulatory or contractual or it may represent a constructive obligation deriving from the Group’s actions.
The estimate of the amount of the provision corresponds to the expenditure likely to be incurred by the Group to settle its obligation. If a reliable estimate cannot be made of the amount of the obligation, no provision is recorded and the obligation is deemed to be a “contingent liability”.
Contingent liabilities – corresponding to (i) possible obligations that arise from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the Group’s control or (ii) to present obligations arising from past events that for which it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation or because the amount of the obligation cannot be measured with sufficient reliability – are not recognised but disclosed where appropriate in the notes to the Consolidated Financial Statements.
Provisions for dismantling and restoring sites
The Group is required to dismantle equipment and restore sites. In accordance with paragraphs 36 and 37 of IAS 37 “Provisions, Contingent Liabilities and Contingent Assets”, the provision is based on the best estimate of the amount required to settle the obligation. It is discounted by applying a discount rate that reflects the passage of time and the risk specific to the liability. The amount of the provision is revised periodically and adjusted where appropriate, with a corresponding entry to the asset to which it relates.
33.21. Pensions and other employee benefits
Certain employees of the Group are entitled to jubilee awards and retirement bonuses. Jubilee awards are paid to employees upon completion of a certain number of years of service whereas retirement bonuses represent one-off payments paid upon retirement in accordance with the Group’s remuneration policies. Both items vary according to the employee’s average remuneration and length of service. Jubilee awards and retirement bonuses are not funded.
68
Orange Polska Group |
IFRS Consolidated Financial Statements – 31 December 2020 |
Translation of the financial statements originally issued in Polish |
The cost of providing benefits mentioned above is determined separately for each plan using the projected unit credit actuarial valuation method. This method sees each period of service as giving rise to an additional unit of benefit entitlement and measures each unit separately to build up the final obligation which is then discounted. The calculation is based on demographic assumptions concerning retirement age, staff turnover rates and financial assumptions concerning rates of future salary increases, future interest rates (to determine the discount rate).
Actuarial gains and losses on jubilee awards plans are recognised as income or expense when they occur. Actuarial gains and losses on post-employment benefits are recognised immediately in their total amount in the other comprehensive income. The present value of the defined benefit obligations is verified at least annually by an independent actuary. The demographic and attrition profiles are based on historical data.
Benefits falling due more than 12 months after the end of the reporting period are discounted using a discount rate determined by reference to market yields on Polish government bonds.
The Group recognises termination benefits, which are provided in exchange for the termination of an employee’s employment as a result of either:
- the Group’s decision to terminate an employee’s employment before the normal retirement date; or
- an employee’s decision to accept an offer of benefits in exchange for the voluntary termination of employment.
Termination benefits are provided for when the Group terminates the employment or when the Group has offered to its employees benefits in exchange for voluntary termination of employment. Based on the past practice such offers are considered as constructive obligations and accounted for if it is probable that benefits will be paid out and they might be reliably measured. The basis for calculation of the provision for voluntary employment termination is expected payment dates and the estimated number, remuneration and service period of employees who will accept the voluntary termination. Provision for employment termination benefits is presented in the consolidated statement of financial position in “Provisions”.
In addition to post-employment and other long-term employee benefits, the Group also provides to its current and retired employees certain non-monetary benefits, including subsidised telecommunication services. In absence of specific guidance under IFRS, the Group’s policy is to value such employee benefits at their incremental cost net of related revenue generated from the service.
33.22. Share-based payments
In 2017 OPL S.A. launched a cash-settled share-based payment plan under which employees render services to the Company in exchange for its obligation to transfer cash for amount that is based on the price of equity instruments of the Company. The fair value of services rendered by employees for granting share appreciation rights is recognised as an expense with a corresponding entry to employee benefits liabilities over the vesting period. The liability is re-measured until the date of settlement with any changes in fair value recognised in profit or loss for the period.
In years 2017-2020 Orange S.A. launched equity-settled share-based payment plans under which employees render services to the Company in exchange for equity instruments of Orange S.A. The fair value of the services rendered by employees for granting equity instruments of Orange S.A. is recognised as an expense with a corresponding increase in equity over the vesting period.
69