PGE Polska Grupa Energetyczna S A : Report of independent auditor on consolidated financial statements of PGE Capital Group for 2021

Deloitte Audyt

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INDEPENDENT AUDITOR'S REPORT

To the Shareholders' Meeting and the Supervisory Board of PGE Polska Grupa Energetyczna S.A.

Report on the Audit of the Annual Consolidated Financial Statements

Opinion

We have audited the annual consolidated financial statements of the group (the "Group") with PGE Polska Grupa Energetyczna S.A. as the parent (the "Parent"), which comprise the consolidated statement of financial position as at December 31, 2021, and the consolidated statement of comprehensive income, consolidated statement

of changes in equity and	consolidated statement of	cash flows for the	year	then ended,
and notes to the consolidated	financial statements, including	general information,	basis	for preparation

of financial statements and other explanatory information (the "consolidated financial statements").

In our opinion, the accompanying consolidated financial statements:

• give a true and fair view of the economic and financial position of the Group as at December 31, 2021, and of its financial performance and its cash flows for the year then ended in accordance with the applicable International Financial Reporting Standards, as endorsed by the European Union, and the adopted accounting policies;

−	comply, as regards their form and content, with the applicable laws and the articles of association
	of the Parent.

Our opinion is consistent with the Additional Report to the Audit Committee, which we issued on 21 March 2022.

Basis for Opinion

We conducted our audit in accordance with the Polish Standards on Auditing ("PSAs") in the wording of the International Standards on Auditing adopted by the National Council of Statutory Auditors and in compliance with the Act on Statutory Auditors, Audit Firms and Public Oversight of 11 May 2017 (the "Act on Statutory Auditors", Journal of Laws of 2020, item 1415, as amended) as well as Regulation (EU) No 537/2014 of the European Parliament and of the Council of 16 April 2014 on specific requirements regarding statutory audit of public-interest entities ("EU Regulation", Official Journal of the European Union L158, as amended). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated Financial Statements section of our report.

We are independent of the Group in accordance with the principles of professional ethics specified in the International Code of Ethics for Professional Accountants (including International Independence Standards) ("Code of ethics") developed and issued by the International Ethics Standards Board for Accountants and adopted by the National Council of Statutory Auditors, together with the ethical requirements that are relevant to the audit of the financial statements in Poland, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code of ethics. Throughout the audit, both the key statutory auditor and the audit firm remained independent of the Group in accordance with the independence requirements set out in the Act on Statutory Auditors and in the EU Regulation.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

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Emphasis of Matter

We draw attention to Note 33.6.2 in the notes to the financial statements, including general information, basis for preparation of financial statements and other explanatory information, which provides a description of the Company's Management Board's assessment of the impact of the war in Ukraine on operations of the Group. Our opinion is not qualified in respect of this matter.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. They encompass the most significant assessed risks of material misstatement, including assessed risks of material misstatement due to fraud. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon. We summarized our response to those risks and, where appropriate, we presented the key findings related to those risks. We do not provide a separate opinion on these matters.

Key audit matter	How we addressed the matter

Recoverability of the carrying amount of property, plant and equipment

The value of property, plant and equipment presented in the Group's consolidated financial statements

as at 31 December 2021 was PLN 60,817 million.

In Note 9 to the consolidated financial statements, the Group presented information concerning analyses of impairment of its property, plant and equipment. As discussed in Note 3 to the consolidated financial statements, in the current reporting period the Group analyzed the indications and identified the factors which could have contributed significantly to a change in the value of its assets depending on external developments, including market parameters and internal strategic decisions as at 30 June 2021 and 31 December 2021.

Having analyzed the said indications, the Group tested its assets from the Renewable Energy

and the Conventional Energy segments for impairment as at 30 June 2021 and from the Heating segment

as at 31 December 2021. As a result of these tests, considering up-to-date forecasts as to the service potential of the assets and the current discount rates, the Management Board did not identify any grounds for recognition of impairment losses on property, plant and equipment as at 31 December 2021 and 30 June 2021. At the same time, based on the tests

as at 30 June 2021 impairment losses of PLN 40 million were reversed in the Renewable Energy segment.

The assessment of the value in use of the assets is what we consider to be the key area of audit risk due to significant judgment involved, including as regards the effect of changes in each key assumption used in the DCF models on the determination of the assets' value in use.

In particular, our audit procedures included:

• an analysis of the consistent use of judgments made by the Group with respect to asset grouping into cash-generating units;
• analysis of the impairment indications;
• a critical assessment of the Group's Management Board's assumptions and estimates associated with the calculation of future cash flows
  (with the support of Deloitte's valuation experts), including:
• • a comparison of assumptions made as to future cash flows (financial projections);
  • an analysis of the reasonableness of the key macroeconomic assumptions;
  • evaluation of the consistent application
    and reasonableness of the methodologies used in the models in relation to assumptions as to determination of cash flows and residual values after the medium-term planning period;
  • an analysis of the discount rate calculation methodology and the correctness of such calculations;
• evaluation of the correctness and completeness of impairment disclosures.

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Responsibilities of the Management Board and the Supervisory Board of the Parent for the Consolidated Financial Statements

The Parent's Management Board is responsible for the preparation of consolidated financial statements which give a true and fair view of the economic and financial position of the Group and of its financial performance in accordance with the applicable International Financial Reporting Standards, as endorsed by the European Union, the adopted accounting policies as well as the applicable laws and articles of association of the Parent, and for such internal control as the Parent's Management Board determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the Parent's Management Board is responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Parent's Management Board either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

The Management Board and members of the Supervisory Board of the Parent are obliged to ensure that the consolidated financial statements meet the requirements of the Accounting Act of 29 September 1994 (the "Accounting Act", Journal of Laws of 2021, item 217, as amended). Members of the Parent's Supervisory Board are responsible for overseeing the financial reporting process.

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with PSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

The scope of an audit does not include an assurance about the future profitability of the Group or the effectiveness or efficiency of the Parent's Management Board in managing the Group's affairs at present or in the future.

As part of an audit in accordance with PSAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;
• obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control;
• evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Parent's Management Board;
• conclude on the appropriateness of the Parent's Management Board's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern;
• evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation;

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• obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.

We communicate with the Parent's Supervisory Board regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the Parent's Supervisory Board with a statement that we have complied with relevant ethical requirements regarding independence, and that we will communicate with it all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with the Parent's Supervisory Board, we determined those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Other Information, Including the Report on the Activities

Other information includes a report on the Group's activities in the financial year ended December 31, 2021 (the "Report on the Activities"), together with a statement of compliance with corporate governance principles and a non-financial information statement, as referred to in Article 49b.1 of the Accounting Act, which constitute separate parts of the Report (together: the "Other Information").

Report on the Company's activities of PGE Polska Grupa Energetyczna S.A. and the PGE Capital Group for 2021, was prepared in accordance with Article 55.2 of the Accounting Act as combined.

Responsibilities of the Management Board and the Supervisory Board

The Parent's Management Board is responsible for the preparation of the Other Information in accordance with the applicable laws.

The Management Board and members of the Supervisory Board of the Parent are obliged to ensure that the Report on the Activities, along with the separate parts, meet the requirements of the Accounting Act.

Auditor's Responsibilities

Our opinion on the consolidated financial statements does not cover the Other Information. In connection with our audit of the consolidated financial statements, our responsibility is to read the Other Information and, in doing so, consider whether the Other Information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this Other Information, we are required to report that fact in our auditor's report. Additionally, under the Act on Statutory Auditors we are obliged to express an opinion on whether the Report on the Activities has been prepared in accordance with the applicable laws and whether it is consistent with the information contained in the consolidated financial statements. Furthermore, we are obliged to state whether a non-financial information statement has been prepared by the Group and to express an opinion on whether the Group has included the necessary information in the statement of compliance with corporate governance principles.

Opinion on the Report on the Activities

Based on our work performed during the audit, we are of the opinion that the Report on the Activities:

• has been prepared in accordance with Article 49 of the Accounting Act and par. 71 of the Regulation

of the Minister of Finance of 29 March 2018 on current and periodic information published by issuers of securities and the rules of equal treatment of the information required by the laws of non-member states (the "Current Information Regulation", Journal of Laws of 2018, item 757, as amended);

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• is consistent with the information contained in the consolidated financial statements.

Furthermore, in the light of the knowledge and understanding of the Group and its environment obtained in the course of the audit, we have not identified any material misstatements of the Report on the Activities.

Opinion on the Statement of Compliance with Corporate Governance Principles

In our opinion, the statement of compliance with corporate governance principles contains the information referred to in par. 70.6.5 of the Current Information Regulation. We are also of the opinion that the information referred to in par. 70.6.5(c)-(f), (h) and (i) of the Regulation, as contained in the statement of compliance with corporate governance principles, is in accordance with the applicable laws and consistent with the information included in the consolidated financial statements.

Information on Non-Financial Information

In accordance with the requirements of the Act on Statutory Auditors, we would like to inform you that the Group does not prepare a non-financial information statement, relying on the exemption under Article 55.2c of the Accounting Act. In the Report on the Activities, the Group included information concerning the preparation of a separate non-financial report and its publication on the Group's website within six months of the balance sheet date. By the date of this report, the Group had prepared a separate non-financial report and published it on its website.

We have not performed any assurance services relating to the separate non-financial report and we do not express any form of assurance conclusion thereon.

Report on Other Legal and Regulatory Requirements

Opinion on the compliance of tags in consolidated financial statements prepared in the single electronic reporting format with the requirements of the regulation setting out technical standards on the specification of a single electronic reporting format

Scope of the Engagement

With regard to the audit of the consolidated financial statements we have performed a reasonable assurance engagement to evaluate whether or not the Group's consolidated financial statements for the year ended 31 December 2021, prepared in the European Single Electronic Format and included in the file named PGE-2021-12-31 ("consolidated ESEF financial statements") were tagged in compliance with the requirements of Commission Delegated Regulation (EU) 2019/815 of 17 December 2018 supplementing Directive 2004/109/EC of the European Parliament and of the Council with regard to regulatory technical standards on the specification of a single electronic reporting format ("ESEF Regulation").

Identification of Criteria

The consolidated ESEF financial statements were prepared by the Management Board of the parent in order to satisfy the tagging and technical requirements regarding the single electronic format specification, as determined in the ESEF Regulation.

The scope of our assurance service includes checking compliance of the tagging used in the consolidated ESEF financial statements with the requirements of the ESEF Regulation which, in our view, constitute appropriate criteria for us to express an opinion.

Responsibilities of the Management Board and the Supervisory Board of the Parent

The Management Board is responsible for the preparation of the consolidated ESEF financial statements in line with the tagging requirements and with the technical requirements related to the specification of the single electronic format as determined in the ESEF Regulation. This responsibility includes the selection and application of appropriate XBRL tags, using the taxonomy set out in ESEF Regulation.

The Management Board is also responsible for the design, implementation and maintenance of internal controls to enable the preparation of consolidated ESEF financial statements that are free from material non-compliance with the requirements of ESEF Regulation.

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