PGE Polska Grupa Energetyczna S A : Quarterly financial report for the the 3- and 9-month period of 2021 containing consolidated financial statements of PGE Capital Group and standalone quarterly financial information

QUARTERLY FINANCIAL REPORT

of PGE Polska Grupa Energetyczna S.A. for the 3- and 9-month period

ended September 30, 2021

in accordance with IFRS (in PLNm)

Table of contents

1. PGE GROUP CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE 3- AND 9-MONTH PERIOD ENDED SEPTEMBER 30, 2021, IN ACCORDANCE WITH IFRS

EU	......................................................................................................................................	5
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME ..................................................	5
CONSOLIDATED STATEMENT OF FINANCIAL POSITION.........................................................	6
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY...........................................................	7
CONSOLIDATED STATEMENT OF CASH FLOWS .......................................................................	8
GENERAL INFORMATION, BASIS FOR PREPARATION OF FINANCIAL STATEMENTS
AND OTHER EXPLANATORY INFORMATION ............................................................................	9
General information ..............................................................................................................	9
1.1	Information on the parent...............................................................................................	9
1.2	Information on PGE Group ..............................................................................................	9
1.3	PGE Group's consolidated companies .............................................................................	10
Basis for preparation of financial statements..........................................................................	14
2.1	Statement of compliance ..............................................................................................	14
2.2	Presentation and functional currency..............................................................................	14
2.3	New standards and interpretations published, not yet effective .........................................	15
2.4	Professional judgement of management and estimates....................................................	16
Impairment tests on property, plant and equipment, intangible assets, right-of-use assets
and goodwill.......................................................................................................................	16
3.1	Description of assumptions for the Conventional Generation segment ...............................	17
3.2	Analysis of impairment indications in the District Heating segment....................................	19
3.3	Description of assumptions for the Renewables segment..................................................	19
Changes in accounting principles and data presentation..........................................................	21
Fair value hierarchy.............................................................................................................	21
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ..........................	23
EXPLANATORY NOTES TO OPERATING SEGMENTS ...............................................................	23
Information on operating segments ......................................................................................	23
6.1	Information on operating segments ...............................................................................	24
EXPLANATORY NOTES TO THE CONSOLIDATED STATEMENT OF COMPREHENSIVE
INCOME .................................................................................................................................	26
Revenue and costs..............................................................................................................	26
7.1	Revenue from sales......................................................................................................	26
7.2	Costs by nature and function.........................................................................................	27
7.3	Depreciation, amortisation, liquidation and impairment losses ..........................................	27
7.4	Other operating income and expenses............................................................................	28
7.5	Finance income and finance costs ..................................................................................	29
7.6	Share of profit of equity-accounted entities.....................................................................	29
Impairment losses on assets ................................................................................................	30
Income tax.........................................................................................................................	30
9.1	Tax in the statement of comprehensive income...............................................................	30
9.2	Effective tax rate..........................................................................................................	31
EXPLANATORY NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL
POSITION ..............................................................................................................................	32
Material transactions to purchase and sell property, plant and equipment, intangible assets
and right-of-use assets........................................................................................................	32
Future investment commitments ..........................................................................................	32

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Shares accounted using the equity method ...........................................................................	33
Joint operations ..................................................................................................................	33
Deferred tax in statement of financial position .......................................................................	34
14.1	Deferred income tax assets...........................................................................................	34
14.2	Deferred tax liabilities...................................................................................................	34
Inventories.........................................................................................................................	34
CO2 emission allowances for captive use ...............................................................................	35
Other current and non-current assets ...................................................................................	35
17.1	Other non-current assets ..............................................................................................	35
17.2	Other current assets.....................................................................................................	36
Selected financial assets ......................................................................................................	36
18.1	Trade and other financial receivables .............................................................................	36
18.2	Cash and cash equivalents ............................................................................................	36
Derivatives and other assets measured at fair value through profit or loss ................................	37
Equity................................................................................................................................	38
20.1	Share capital ...............................................................................................................	38
20.2	Hedging reserve...........................................................................................................	39
20.3	Dividends paid and recommended for payment...............................................................	39
Provisions ..........................................................................................................................	40
21.1	Provision for employee benefits .....................................................................................	41
21.2	Rehabilitation provision.................................................................................................	41
21.3	Provision for cost of CO2 emissions ................................................................................	42
21.4	Provision for energy origin rights held for redemption ......................................................	42
21.5	Provision for claims concerning non-contractual use of property........................................	42
21.6	Settlements with prosumers..........................................................................................	42
Financial liabilities ...............................................................................................................	43
22.1	Loans, borrowings, bonds and leases .............................................................................	43
22.2	Trade and other financial liabilities .................................................................................	44
Other non-financial liabilities ................................................................................................	44
23.1	Other non-currentnon-financial liabilities .......................................................................	44
23.2	Other current non-financial liabilities ..............................................................................	44
OTHER EXPLANATORY NOTES ...............................................................................................	45
Contingent liabilities and receivables. Legal claims .................................................................	45
24.1	Contingent liabilities .....................................................................................................	45
24.2	Other significant issues related to contingent liabilities .....................................................	45
24.3	Contingent receivables .................................................................................................	46
24.4	Other court cases and disputes......................................................................................	46
Tax settlements..................................................................................................................	47
Information on related parties..............................................................................................	49
26.1	Associates and jointly controlled entities.........................................................................	49
26.2	State Treasury-controlled companies .............................................................................	49
26.3	Management Board and Supervisory Board remuneration ................................................	50
Significant events during and after the reporting period ..........................................................	50
27.1	Impact of COVID-19 on PGE Group's business ................................................................	50
27.2	Preliminary proposal to purchase share in Fortum's assets ...............................................	51
27.3	Investment agreement with Ørsted for offshore wind farm projects ..................................	52
27.4	Czechia's complaint against Poland regarding prolongation of mining concession for
	KWB Turów .................................................................................................................	52
27.5	Planned disposal of coal assets to National Energy Security Agency...................................	53
II. PGE POLSKA GRUPA ENERGETYCZNA S.A. QUARTERLY FINANCIAL INFORMATION FOR
THE 3- AND 9-MONTH PERIOD ENDED SEPTEMBER 30, 2021, IN ACCORDANCE WITH
IFRS EU (IN PLNM) ..........................................................................................................	55

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SEPARATE STATEMENT OF COMPREHENSIVE INCOME .........................................................	55
SEPARATE STATEMENT OF FINANCIAL POSITION................................................................	56
SEPARATE STATEMENT OF CHANGES IN EQUITY..................................................................	57
SEPARATE STATEMENT OF CASH FLOWS ..............................................................................	58
Changes in accounting principles and data presentation..........................................................	59
III. APPROVAL OF QUARTERLY FINANCIAL REPORT ..............................................................	60
GLOSSARY OF TERMS AND ABBREVIATIONS ........................................................................	61

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PGE Group Condensed consolidated interim financial statements for the

3-month and 9-month period ended September 30, 2021, in accordance with IFRS EU (in PLNm)

1. PGE GROUP CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE 3- AND 9-MONTH PERIOD ENDED SEPTEMBER 30, 2021, IN ACCORDANCE WITH IFRS EU

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

			3 months		9 months		3 months		9 months
			ended		ended		ended		ended
		Note	September		September 30,		September 30,		September 30,
			30, 2021		2021		2020		2020
			(unaudited)		(unaudited)		(unaudited)		(unaudited)
	STATEMENT OF PROFIT OR LOSS
	REVENUE FROM SALES	7.1	10,942		32,850	10,320	33,096
	Cost of goods sold	7.2	(11,489)		(30,281)	(9,269)	(30,162)
	GROSS PROFIT ON SALES		(547)		2,569	1,051	2,934
	Distribution and selling expenses	7.2	(367)		(1,126)	(334)	(1,072)
	General and administrative expenses	7.2	(223)		(724)	(329)	(864)
	Net other operating income / expenses	7.4	2,109		3,411	81	(258)
	OPERATING PROFIT		972		4,130	469	740
	Net finance income / costs, including:	7.5	(148)		(95)	(135)	(405)
	Interest income calculated using the effective interest		6		21	7	24
	rate method
	Share of profit/(loss) of entities accounted for using the	7.6	4		3	2	(543)
	equity method
	GROSS PROFIT/(LOSS)		828		4,038	336	(208)
	Income tax	9	(283)		(774)	(76)	(169)
	NET PROFIT/(LOSS) FOR THE REPORTING PERIOD		545		3,264	260	(377)
	OTHER COMPREHENSIVE INCOME
	Items that may be reclassified to profit or loss in
	the future:
	Valuation of debt financial instruments	20.2	8		15	(4)	(7)
	Valuation of hedging instruments	20.2	458		297	165	110
	Exchange differences from translation of foreign entities		2			1	5
	Deferred tax	9	(88)		(59)	(31)	(20)
	Items that may not be reclassified to profit or loss in
	the future:
	Actuarial gains and losses from valuation of provisions		161		243	(1)	(208)
	for employee benefits
	Deferred tax	9	(31)		(46)	1	40
	Share of profit of equity-accounted entities		2		2	-	(3)
	OTHER COMPREHENSIVE INCOME FOR THE		512		452	131	(83)
	REPORTING PERIOD, NET
	TOTAL COMPREHENSIVE INCOME		1,057		3,716	391	(460)
	NET PROFIT/(LOSS) ATTRIBUTABLE TO:
	shareholders of the parent		561		3,251	273	(415)
	non-controlling interests		(16)		13	(13)	38
	COMPREHENSIVE INCOME ATTRIBUTABLE TO:
	shareholders of the parent		1,072		3,701	404	(498)
	non-controlling interests		(15)		15	(13)	38
	EARNINGS AND DILUTED EARNINGS PER SHARE
	ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT		0.30		1.74	0.15	(0.22)
	(IN PLN)

The additional explanatory notes
to the condensed consolidated interim financial statements
constitute an integral part thereof	5