Zespól Elektrowni Patnów Adamów Konin S A : Report of audit firm on the audit of the Company's annual financial statements for 2021 (download)

TRANSLATORS' EXPLANATORY NOTE

The English content of this report is a free translation of the registered auditor's report of the below- mentioned Polish Company. In Poland statutory accounts as well as the auditor's report should be prepared and presented in Polish and in accordance with Polish legislation and the accounting principles and practices generally adopted in Poland.

The accompanying translation has not been reclassified or adjusted in any way to conform to the accounting principles generally accepted in countries other than Poland, but certain terminology current in Anglo-Saxon countries has been adopted to the extent practicable. In the event of any discrepancies in interpreting the terminology, the Polish language version is binding.

Independent Registered Auditor's Report

To the General Shareholders' Meeting and the Supervisory Board of ZE PAK Spółka Akcyjna (previously: Zespół Elektrowni Pątnów-Adamów-Konin Spółka Akcyjna)

Report on the audit of financial statements

Our opinion

In our opinion, the accompanying annual financial statements:

• give a true and fair view of the financial position of ZE PAK S.A. (the "Company") as at 31 December 2021 and the Company's financial performance and the cash flows for the year then ended in accordance with the applicable provisions of the Accounting Law of 29 September 1994 (the "Accounting Law") and the adopted accounting policies;
• comply in terms of form and content with the laws applicable to the Company and the Company's
  Articles of Association;
• have been prepared on the basis of properly maintained books of account in accordance with the provisions of Chapter 2 of the Accounting Law of 29 September 1994 (the "Accounting Act").

Our opinion is consistent with our additional report to the Audit Committee issued on the date of this report.

What we have audited

We have audited the annual financial statements of ZE PAK S.A. which comprise:

• the balance sheet as at 31 December 2021;

and the following prepared for the financial year from 1 January to 31 December 2021:

• the income statement;
• the statement of changes in equity;
• the cash flows statement, and
• the introduction to the financial statements and additional notes and explanations.

Basis for opinion

Basis for opinion

We conducted our audit in accordance with the National Standards on Auditing in the wording of the International Standards on Auditing as adopted by the resolution of the National Council of Statutory Auditors ("NSA") and pursuant to the Law of 11 May 2017 on Registered Auditors, Registered Audit Companies and Public Oversight (the "Law on Registered Auditors").and the Regulation (EU) No.

PricewaterhouseCoopers Polska spółka z ograniczoną odpowiedzialnością Audyt sp. k., ul. Polna 11, 00-633 Warsaw, Poland, T: [phone], F:[phone] , www.pwc.pl

PricewaterhouseCoopers Polska spółka z ograniczoną odpowiedzialnością Audyt sp. k. is entered into the National Court Register maintained by the District Court for the Capital City of Warsaw, under KRS number 0000741448, NIP 113-23-99-979. The seat of the Company is in Warsaw at Polna 11.

537/2014 of 16 April 2014 on specific requirements regarding the statutory audit of public-interest entities (the "EU Regulation"). Our responsibilities under NSA are further described in the Auditor's responsibilities for the audit of the financial statements section of our report.

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

Independence

We are independent of the Company in accordance with the International Code of Ethics for Professional Accountants (including International Independence Standards) issued by the International Ethics Standards Board for Accountants (IESBA Code) as adopted by resolution of the National Council of Statutory Auditors and other ethical requirements that are relevant to our audit of the financial statements in Poland. We have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. During the audit, the key registered auditor and the registered audit firm remained independent of the Company in accordance with the independence requirements set out in the Act on Registered Auditors and in the EU Regulation.

Our audit approach

Overview

Materiality

Group scoping

Key audit

matters

• The overall materiality threshold adopted for the purposes of our audit was set at PLN20 million, which represents 0,9% of the net sales of finished goods, goods for resale and raw materials sold.
• We have audited the annual financial statement of the Company for the period ended 31 December 2021.
• Impairment of property, plant and equipment
• Provision for decommissioning cost

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As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we considered where the Company's Management Board made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits we also addressed the risk of management override of internal controls, including among other matters, consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.

Materiality

The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.

Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall materiality for the financial statements as a whole, as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, if any, both individually and in aggregate on the financial statements as a whole.

Overall Company	PLN 20 million
materiality
How we determined it	0,9% of the net sales of finished goods, goods for resale and raw
	materials sold
Rationale for the	We have adopted net sales of finished goods, goods for resale and raw
materiality benchmark	materials sold as the basis for determining materiality because, in our
applied	opinion, this measure best reflects the scale of the Company's
	operations and it is free from fluctuations in market prices of cost
	components as well, which significantly affected the Company's
	profitability in the recent period.
	We adopted the materiality threshold at 0,9% because based on our
	professional judgement it is within the acceptable quantitative
	materiality thresholds.

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above PLN 2 million, as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.

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Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period. They include the most significant identified risks of material misstatements, including the identified risks of material misstatement resulting from fraud. These matters were addressed in the context of our audit of the financial statements as

a whole, and in forming our opinion thereon,. We do not provide a separate opinion on these matters.

Key audit matter	How our audit addressed the key audit matter

Impairment of tangible fixed assets

Pursuant to the Accounting Act and the National Accounting Standard No. 4 "Impairment of Assets", the Management Board of the Company at the end of the reporting period conducts an analysis of indications of impairment, and for assets with indications of impairment or reduction of a previously recognized impairment loss tests are carried out for impairment on a given reporting date.

In point 7 of Additional information and explanations to the financial statements, the Company presented the required analysis of the premises for conducting impairment tests as at 31 December 2021 of two identifiable cash flow generating units (CGU), which analysis showed the need to conduct impairment tests as at balance sheet for one of the CGU.

As a result of the impairment tests performed as at the balance sheet date, the necessity to write down the value of assets related to CGU Elektrownia Pątnów was identified and the impairment of property, plant and equipment in the amount of PLN 690,3 million was recognized.

For the assets related to CGU Elektrownia Konin, there were no indications to conduct impairment tests.

Calculation of the recoverable amount is related to the need to adopt a number of assumptions and make judgments by the Management Board of the Company regarding, inter alia, the adopted strategy of the Company (changes in the strategy

Our procedures included in particular:

• understanding and evaluating the process of identifying impairment indicators of assets and the correctness of grouping assets into cash-generating units in accordance with the relevant financial reporting standards;
• evaluation of the mathematical correctness and methodological consistency (with the use of PwC's internal valuation specialists) of the valuation models prepared by the Management Board of the Company based on discounted cash flows;
• a critical assessment of the assumptions and estimates made by the Management Board of the Company used to determine the value in use of non-current assets, including:

1. the period of future cash flow projection and the assumed level of revenues, operating margin and outlays necessary to maintain the activity in an unchanged scope

• 1. the applied discount rate (based on the weighted average cost of capital),
• assessment of the sensitivity analysis on the assumptions made by the Management Board of the Company,

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