PGE Polska Grupa Energetyczna S A : Financial report for the first half of 2021 containing consolidated half-year financial statements of PGE Capital Group and standalone half-year financial statements

PGE Polska Grupa

Energetyczna S.A. Semi-annual financial report for the 6-month period

ended June 30, 2021

in accordance with IFRS EU (in PLN million)

TABLE OF CONTENTS

1. PGE GROUP CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE 6-MONTH PERIOD ENDED JUNE 30,

	2021, IN ACCORDANCE WITH IFRS EU ........................................................................................................................................	4
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME....................................................................................................................	4
CONSOLIDATED STATEMENT OF FINANCIAL POSITION.............................................................................................................................	5
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY..............................................................................................................................	6
CONSOLIDATED STATEMENT OF CASH FLOWS..........................................................................................................................................	7
GENERAL INFORMATION, BASIS FOR PREPARATION OF FINANCIAL STATEMENTS AND OTHER EXPLANATORY INFORMATION...........	8
1.	General information....................................................................................................................................................................	8
1.1	Information on the parent ................................................................................................................................................................................................	8
1.2	Information on PGE Group................................................................................................................................................................................................	8
1.3	PGE Group's consolidated companies..............................................................................................................................................................................	9
2.	Basis for preparation of financial statements...........................................................................................................................	13
2.1	Statement of compliance................................................................................................................................................................................................	13
2.2	Presentation and functional currency ............................................................................................................................................................................	13
2.3	New standards and interpretations published, not yet effective..................................................................................................................................	13
2.4	Professional judgement of management and estimates..............................................................................................................................................	14
3.	Impairment tests on property, plant and equipment, intangible assets, right-of-use assets and goodwill.............................	14
3.1	Description of assumptions for the Conventional Generation segment.......................................................................................................................	15
3.2	Analysis of impairment indications in the District Heating segment............................................................................................................................	16
3.3	Description of assumptions for the Renewables segment ............................................................................................................................................	16
4.	Changes in accounting principles and data presentation .........................................................................................................	18
5.	Fair value hierarchy...................................................................................................................................................................	19
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS..............................................................................................	20
EXPLANATORY NOTES TO OPERATING SEGMENTS .................................................................................................................................	20
6.	Information on operating segments.........................................................................................................................................	20
6.1	Information on business segments.................................................................................................................................................................................	21
EXPLANATORY NOTES TO THE CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME ................................................................	23
7.	Revenue and costs ....................................................................................................................................................................	23
7.1	Sales revenue...................................................................................................................................................................................................................	23
7.2	Costs by nature and function..........................................................................................................................................................................................	24
7.3	Other operating income and expenses ..........................................................................................................................................................................	25
7.4	Finance income and finance costs..................................................................................................................................................................................	25
7.5	Share of profit of equity-accounted entities...................................................................................................................................................................	26
8.	Impairment losses on assets.....................................................................................................................................................	26
9.	Income tax.................................................................................................................................................................................	27
9.1	Tax in the statement of comprehensive income............................................................................................................................................................	27
9.2	Effective tax rate..............................................................................................................................................................................................................	27
EXPLANATORY NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION .........................................................................	28
10.	Material transactions to purchase and sell property, plant and equipment, intangible assets and right-of-use assets..........	28
11.	Future investment commitments.............................................................................................................................................	28
12.	Shares accounted for using the equity method........................................................................................................................	28
13.	Joint operations.........................................................................................................................................................................	29
14.	Deferred tax in statement of financial position........................................................................................................................	30
14.1	Deferred income tax assets.............................................................................................................................................................................................	30
14.2	Deferred tax liabilities .....................................................................................................................................................................................................	30
15.	Inventories ................................................................................................................................................................................	30
16.	CO2 emission allowances for captive use .................................................................................................................................	31
17.	Other current and non-current assets ......................................................................................................................................	31
17.1	Other non-current assets ................................................................................................................................................................................................	31
17.2	Other current assets........................................................................................................................................................................................................	31
18.	Selected financial assets............................................................................................................................................................	32
18.1	Trade and other financial receivables ............................................................................................................................................................................	32
18.2	Cash and cash equivalents..............................................................................................................................................................................................	32
19.	Derivatives and other assets measured at fair value through profit or loss.............................................................................	33
20.	Equity ........................................................................................................................................................................................	34
20.1	Share capital....................................................................................................................................................................................................................	34
20.2	Hedging reserve...............................................................................................................................................................................................................	35
20.3	Dividends paid and recommended for payment ...........................................................................................................................................................	35

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21.	Provisions ..................................................................................................................................................................................	35
21.1	Provision for employee benefits......................................................................................................................................................................................	36
21.2	Rehabilitation provision ..................................................................................................................................................................................................	36
21.3	Provision for cost of CO2 emissions................................................................................................................................................................................	37
21.4	Provision for energy origin rights held for redemption..................................................................................................................................................	37
21.5	Provision for claims concerning non-contractual use of property.................................................................................................................................	37
21.6	Settlements with prosumers...........................................................................................................................................................................................	37
22.	Financial liabilities .....................................................................................................................................................................	37
22.1	Loans, borrowings, bonds and leases.............................................................................................................................................................................	37
22.2	Trade and other financial liabilities ................................................................................................................................................................................	39
23.	Other non-financial liabilities....................................................................................................................................................	39
23.1	Other non-currentnon-financial liabilities .....................................................................................................................................................................	39
23.2	Other current non-financial liabilities.............................................................................................................................................................................	39
OTHER EXPLANATORY NOTES..................................................................................................................................................................	40
24.	Contingent liabilities and receivables. Legal claims ..................................................................................................................	40
24.1	Contingent liabilities........................................................................................................................................................................................................	40
24.2	Other significant issues related to contingent liabilities................................................................................................................................................	40
24.3	Contingent receivables....................................................................................................................................................................................................	41
24.4	Other court cases and disputes.......................................................................................................................................................................................	41
25.	Tax settlements.........................................................................................................................................................................	42
26.	Information on related parties..................................................................................................................................................	44
26.1	Associates and jointly controlled entities .......................................................................................................................................................................	44
26.2	State Treasury-controlled companies.............................................................................................................................................................................	44
26.3	Management Board and Supervisory Board remuneration .........................................................................................................................................	45
27.	Significant events during and after the reporting period..........................................................................................................	45
27.1	Impact of COVID-19 on PGE Group's business...............................................................................................................................................................	45
27.2	Preliminary proposal to purchase stake in Fortum's assets ..........................................................................................................................................	46
27.3	Investment agreement with Ørsted for offshore wind farm projects...........................................................................................................................	46
27.4	Czechia's complaint against Poland regarding prolongation of mining concession for KWB Turów .........................................................................	47
27.5	Planned disposal of coal assets to National Energy Security Agency ...........................................................................................................................	48

1. PGE Polska Grupa Energetyczna S.A. Condensed separate interim financial statements for the 6-month period ended June

	30, 2021, in accordance with IFRS EU (in PLNm).......................................................................................................................	49
SEPARATE STATEMENT OF COMPREHENSIVE INCOME...........................................................................................................................	49
SEPARATE STATEMENT OF FINANCIAL POSITION ....................................................................................................................................	50
SEPARATE STATEMENT OF CHANGES IN EQUITY.....................................................................................................................................	51
SEPARATE STATEMENT OF CASH FLOWS .................................................................................................................................................	52
1.	General information..................................................................................................................................................................	53
2.	Professional judgement of management and estimates..........................................................................................................	53
3.	Impact of new regulations on the Company's future financial statements..............................................................................	54
4.	Changes in accounting principles and data presentation .........................................................................................................	54
5.	Fair value hierarchy...................................................................................................................................................................	54
6.	Sales revenue ............................................................................................................................................................................	54
7.	Costs by nature and function ....................................................................................................................................................	55
8.	Finance income and finance costs.............................................................................................................................................	55
9.	Shares in subsidiaries ................................................................................................................................................................	56
10.	Selected financial assets............................................................................................................................................................	58
11.	Derivatives and other receivables at fair value through profit or loss......................................................................................	60
12.	Other current assets..................................................................................................................................................................	60
13.	Loans, borrowings, bonds, cash pooling, leases .......................................................................................................................	61
14.	Contingent liabilities .................................................................................................................................................................	62
15.	Information on related parties..................................................................................................................................................	62
16.	PGE Group subsidiaries .............................................................................................................................................................	62
17.	State Treasury subsidiaries .......................................................................................................................................................	63
18.	Management Board and Supervisory Board remuneration.....................................................................................................	64
19.	Significant events during and after the reporting period..........................................................................................................	64
III.	Approval of the semi-annual financial report...........................................................................................................................	65
Glossary of terms and abbreviations........................................................................................................................................................	66

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PGE Group Condensed consolidated interim financial statements for the

6-month period ended June 30, 2021, in accordance with IFRS EU (in PLNm)

1. PGE GROUP CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2021, IN ACCORDANCE WITH IFRS EU

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

		Period ended	Period ended
	Note	June 30, 2021	June 30, 2020
		(unaudited)	(unaudited)
STATEMENT OF PROFIT OR LOSS
SALES REVENUE	7.1	21,908	22,776
Cost of goods sold	7.2	(18,792)	(20,893)
GROSS PROFIT ON SALES		3,116	1,883

Distribution and selling expenses	7.2
General and administrative expenses	7.2
Net other operating income / expenses	7.3

(759)(738)

(501)(535)

1,302(339)

OPERATING PROFIT

3,158

271

Net finance income / costs, including:	7.4
Interest income calculated using
effective interest rate method
Share of profit/(loss) of entities accounted for using the equity method	7.5
GROSS PROFIT/(LOSS)
Income tax	9

53(270)

1517

(1)(545)

3,210(544)

(491)(93)

NET PROFIT/(LOSS) FOR THE REPORTING PERIOD			2,719		(637)
OTHER COMPREHENSIVE INCOME
Items that may be reclassified to profit or loss in the future:
Valuation of debt financial instruments			7		(3)
Valuation of hedging instruments			(161)		(55)
Foreign exchange differences from translation of foreign entities			(2)		4
Deferred tax	9		29		11
Items that may not be reclassified to profit or loss in the future:
Actuarial gains and losses from valuation of provisions for employee benefits			82		(207)
Deferred tax	9		(15)		39
Share of profit of equity-accounted entities			-		(3)
OTHER COMPREHENSIVE INCOME FOR THE REPORTING PERIOD, NET			(60)		(214)
TOTAL COMPREHENSIVE INCOME			2,659		(851)
NET PROFIT/(LOSS) ATTRIBUTABLE TO:
- shareholders of the parent company			2,690		(688)
- non-controlling interests			29		51
COMPREHENSIVE INCOME ATTRIBUTABLE TO:
- shareholders of the parent company			2,629		(902)
- non-controlling interests			30		51
EARNINGS AND DILUTED EARNINGS PER SHARE ATTRIBUTABLE TO EQUITY			1.44		(0.37)
HOLDERS OF THE PARENT COMPANY (IN PLN)

The additional explanatory notes constitute an integral part of the consolidated financial statements.

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PGE Group Condensed consolidated interim financial statements for the

6-month period ended June 30, 2021, in accordance with IFRS EU (in PLNm)

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

		As at		As at
Note		June 30, 2021		31 December 2020
	(unaudited)		(audited)

NON-CURRENT ASSETS

Property, plant and equipment
Investment property
Intangible assets
Right-of-use assets
Financial receivables	18.1
Derivatives and other assets measured at fair value through profit or loss	19
Shares and other equity instruments
Shares accounted for using the equity method	12
Other non-current assets
CO2 emission allowances for captive use	16
Deferred income tax assets	14.2

60,938	61,741
40	41
714	646
1,271	1,309
205	191
90	132
87	57
161	152
776	839

1. 39

1. 1,351

65,18266,498

CURRENT ASSETS

Inventories	15
CO2 emission allowances for captive use	16
Income tax receivables
Derivatives and other assets measured at fair value through profit or loss	19
Trade and other financial receivables	18.1
Other current assets
Cash and cash equivalents	18.2

2,568	3,123
38	1,735
203	8
364	423
5,199	4,812

603799

5,3964,189

		14,371	15,089
ASSETS CLASSIFIED AS HELD FOR SALE		2		7
TOTAL ASSETS		79,555		81,594

EQUITY
Share capital	20.1
Reserve capital
Hedging reserve	20.2

Foreign exchange differences from translation

Retained earnings

EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT COMPANY

Equity attributable to non-controlling interests

19,16519,165

20,15418,410

1. (13)

15

5,9434,951

45,12542,518

856983

TOTAL EQUITY		45,981		43,501

NON-CURRENT LIABILITIES

Non-current provisions	21
Loans, borrowings, bonds and lease	22.1
Derivatives	19
Deferred income tax liabilities	14.2
Deferred income and government grants
Other financial liabilities	22.2
Other non-financial liabilities	23.1

9,72511,207

9,20110,025

193385

329345

590600

1. 448

1. 65

20,56323,075

CURRENT LIABILITIES

Current provisions	21
Loans, borrowings, bonds and leases	22.1
Derivatives	19
Trade and other financial liabilities	22.2
Income tax liabilities
Deferred income and government grants
Other non-financial liabilities	23.2

4,9427,311

2,0391,384

13663

3,7943,504

8476

7777

2,0152,203

		13,011	15,018
TOTAL LIABILITIES		33,574		38,093
TOTAL EQUITY AND LIABILITIES		79,555		81,594

The additional explanatory notes constitute an integral part of the consolidated financial statements.

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