Ciech S.A.

FINANCIAL STATEMENTS _______ of CIECH S.A. for 2022 KRS (National Court Register number) 0000011687 Statistical ID No (REGON): 011179878 Tax ID No (NIP): 118-00-19-377 Share capital: PLN 263,500,965.00 (paid up in full) 2022 ul. Wspólna 62, 00-684 Warsaw Tel. +48 22 639 11 00 [email protected] We are providing a courtesy English translation of our financial statements which were originally written in Polish. We take no responsibility for the accuracy of our translation. For an accurate reading of our financial statements, please refer to the Polish language version of our financial statements. FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 2 TABLE OF CONTENTS TABLE OF CONTENTS ................................................................................................................................................................................. 2 CIECH S.A. – SELECTED FINANCIAL DATA .................................................................................................................................................... 4 STATEMENT OF PROFIT OR LOSS OF CIECH S.A. .......................................................................................................................................... 5 STATEMENT OF OTHER COMPREHENSIVE INCOME OF CIECH S.A. .............................................................................................................. 6 STATEMENT OF FINANCIAL POSITION OF CIECH S.A. .................................................................................................................................. 7 STATEMENT OF CASH FLOWS OF CIECH S.A................................................................................................................................................ 8 STATEMENT OF CHANGES IN EQUITY OF CIECH S.A. ................................................................................................................................... 9 1 GENERAL INFORMATION ............................................................................................................................................................. 10 1.1 INFORMATION ON THE COMPANY’S ACTIVITIES ...................................................................................................................... 10 1.2 BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS AND ACCOUNTING PRINCIPLES .................................................... 10 1.2.1 REPRESENTATION BY THE MANAGEMENT BOARD....................................................................................................... 10 1.2.2 BASIS OF PREPARATION ............................................................................................................................................... 11 1.3 FUNCTIONAL AND REPORTING CURRENCY ............................................................................................................................... 11 1.4 ACCOUNTING POLICIES ............................................................................................................................................................. 11 1.5 CHANGES IN ACCOUNTING POLICIES AND THE SCOPE OF DISCLOSURES ................................................................................. 12 2 SEGMENT REPORTING ................................................................................................................................................................. 13 3 NOTES TO THE STATEMENT OF PROFIT OR LOSS AND STATEMENT OF OTHER COMPREHENSIVE INCOME .................................... 20 3.1 SALES REVENUES....................................................................................................................................................................... 20 3.2 COST OF SALES, SELLING COSTS, GENERAL AND ADMINISTRATIVE EXPENSES ......................................................................... 21 3.3 COSTS BY TYPE .......................................................................................................................................................................... 21 3.4 OTHER OPERATING INCOME AND EXPENSES............................................................................................................................ 22 3.5 FINANCIAL INCOME AND EXPENSES ......................................................................................................................................... 23 3.6 COMPONENTS OF OTHER COMPREHENSIVE INCOME .............................................................................................................. 25 4 INCOME TAX, DEFERRED TAX ASSETS AND LIABILITY.................................................................................................................... 26 4.1 MAIN COMPONENTS OF TAX EXPENSE ..................................................................................................................................... 26 4.2 EFFECTIVE TAX RATE ................................................................................................................................................................. 26 4.3 DEFERRED INCOME TAX ............................................................................................................................................................ 27 5 NOTES TO ASSETS REPORTED IN THE STATEMENT OF FINANCIAL POSITION ................................................................................. 29 5.1 PROPERTY, PLANT AND EQUIPMENT ........................................................................................................................................ 29 5.2 RIGHT-OF-USE ASSETS .............................................................................................................................................................. 31 5.3 INTANGIBLE ASSETS .................................................................................................................................................................. 32 5.4 LONG-TERM FINANCIAL ASSETS................................................................................................................................................ 34 5.5 INVENTORIES ............................................................................................................................................................................ 38 5.6 SHORT-TERM RECEIVABLES ...................................................................................................................................................... 38 5.7 SHORT-TERM FINANCIAL ASSETS .............................................................................................................................................. 40 5.8 CASH AND CASH EQUIVALENTS ................................................................................................................................................ 41 5.9 DISCONTINUED OPERATIONS, NON-CURRENT ASSETS AND LIABILITIES CONNECTED WITH NON-CURRENT ASSETS CLASSIFIED AS HELD FOR SALE .................................................................................................................................................. 42 6 EQUITY ........................................................................................................................................................................................ 43 6.1 CAPITAL MANAGEMENT ........................................................................................................................................................... 43 6.2 EQUITY ...................................................................................................................................................................................... 43 6.3 DIVIDENDS PAID OR DECLARED ................................................................................................................................................ 45 6.4 BUSINESS COMBINATIONS AND ACQUISITION OF INTEREST .................................................................................................... 45 6.5 EARNINGS PER SHARE ............................................................................................................................................................... 46 7 LIABILITIES, PROVISIONS, EMPLOYEE BENEFITS ............................................................................................................................ 47 7.1 INFORMATION ABOUT FINANCIAL LIABILITIES ......................................................................................................................... 47 7.2 OTHER NON-CURRENT LIABILITIES............................................................................................................................................ 48 7.3 CURRENT TRADE AND OTHER LIABILITIES ................................................................................................................................. 49 7.4 LEASES ....................................................................................................................................................................................... 50 7.5 PROVISIONS FOR EMPLOYEE BENEFITS .................................................................................................................................... 52 7.6 OTHER PROVISIONS .................................................................................................................................................................. 53 8 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT ................................................................................................. 55 8.1 FINANCIAL INSTRUMENTS ........................................................................................................................................................ 55 8.2 FINANCIAL INSTRUMENTS DESIGNATED FOR HEDGE ACCOUNTING ........................................................................................ 58 8.3 FINANCIAL RISK MANAGEMENT ............................................................................................................................................... 59 8.4 DETERMINATION OF FAIR VALUE ............................................................................................................................................. 67 9 OTHER NOTES .............................................................................................................................................................................. 69 9.1 NOTES TO THE STATEMENT OF CASH FLOWS ........................................................................................................................... 69 9.2 INFORMATION ON CHANGES IN CONTINGENT ASSETS AND LIABILITIES AND OTHER MATTERS ............................................. 70 FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 3 9.3 INFORMATION ON TRANSACTIONS WITH RELATED PARTIES ................................................................................................... 74 9.3.1 TRANSACTIONS WITH RELATED PARTIES IN TOTAL ...................................................................................................... 74 9.3.2 SIGNIFICANT TRANSACTIONS WITH RELATED PARTIES OTHER THAN ON AN ARM’S LENGTH BASIS ........................... 75 9.3.3 DESCRIPTION OF NON-ROUTINE TRANSACTIONS WITH RELATED PARTIES ................................................................. 75 9.3.4 TRANSACTIONS CONCLUDED WITH KEY MANAGERIAL PERSONNEL ............................................................................ 75 9.4 INFORMATION ABOUT AGREEMENTS CONCLUDED WITH THE ENTITY AUTHORISED TO AUDIT THE FINANCIAL STATEMENTS OF CIECH S.A. ...................................................................................................................................................... 77 9.5 EVENTS AFTER THE BALANCE SHEET DATE ............................................................................................................................... 77 9.6 INFORMATION ON THE CURRENT SITUATION IN CONNECTION WITH THE IMPACT OF THE RUSSIAN INVASION OF UKRAINE ON CIECH S.A.’S ACTIVITIES ....................................................................................................................................... 77 9.7 INFORMATION ON THE CURRENT SITUATION IN CONNECTION WITH THE IMPACT OF THE COVID-19 CORONAVIRUS PANDEMIC ON CIECH S.A.’S ACTIVITIES .................................................................................................................................... 79 9.8 INFORMATION ON THE IMPACT OF CLIMATE ISSUES ON THE OPERATIONS OF CIECH S.A. ..................................................... 80 10 REPRESENTATION BY THE MANAGEMENT BOARD ....................................................................................................................... 81 FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 4 CIECH S.A. – SELECTED FINANCIAL DATA SELECTED FINANCIAL DATA in thousand PLN in thousand EUR 12 months ended 31.12.2022 12 months ended 31.12.2021 12 months ended 31.12.2022 12 months ended 31.12.2021 Sales revenues on continued operations 2,672,503 1,618,680 570,037 353,617 Operating profit/(loss) on continued operations 184,530 (37,589) 39,360 (8,212) Profit/(loss) before tax on continued operations 623,731 77,430 133,040 16,915 Net profit for the period 612,255 133,206 130,592 29,100 Other comprehensive income net of tax (14,781) 45,726 (3,153) 9,989 Total comprehensive income 597,474 178,932 127,439 39,089 Cash flows from operating activities 210,470 39,141 44,893 8,551 Cash flows from investment activities (200,643) 289,353 (42,796) 63,212 Cash flows from financial activities (84,673) (126,523) (18,061) (27,640) Total net cash flows (74,846) 201,971 (15,964) 44,123 as at 31.12.2022 as at 31.12.2021 as at 31.12.2022 as at 31.12.2021 Total assets 5,290,147 4,612,557 1,127,987 1,002,861 Total non-current liabilities 1,808,534 1,991,470 385,623 432,985 Total current liabilities 1,348,588 1,006,486 287,552 218,830 Total equity 2,133,025 1,614,601 454,812 351,046 Share capital 287,614 287,614 61,326 62,533 The above selected financial data were converted into PLN in accordance with the following principles: • items in the statement of financial position were converted using the average exchange rate determined by the National Bank of Poland on the last day of the reporting period, • items in the statement of profit or loss, statement of other comprehensive income and statement of cash flows were converted using the exchange rate constituting the arithmetic mean of rates determined by the National Bank of Poland on the last day of each calendar month of the reporting period. as at 31.12.2022 as at 31.12.2021 12 months ended 31.12.2022 12 months ended 31.12.2021 EUR 1 = PLN 4.6899 EUR 1 = PLN 4.5994 EUR 1 = PLN 4.6883 EUR 1 = PLN 4.5775 FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 5 STATEMENT OF PROFIT OR LOSS OF CIECH S.A. Note 01.01.-31.12.2022 01.01.-31.12.2021 CONTINUING OPERATIONS Sales revenues 3.1 2,672,503 1,618,680 Cost of sales 3.2 (2,203,099) (1,429,542) Gross profit on sales 469,404 189,138 Other operating income 3.4 17,571 14,089 Selling costs 3.2 (168,948) (136,165) General and administrative expenses 3.2 (122,501) (98,333) Other operating expenses 3.4 (10,996) (6,318) Operating profit 184,530 (37,589) Financial income 3.5 587,576 330,865 Profit from financial instruments 3.5 254,341 97,329 Financial expenses 3.5 (148,375) (215,846) (Loss) from financial instruments 3.5 (121,741) (168,290) Net financial income/(expenses) 439,201 115,019 Profit before tax 623,731 77,430 Income tax 4.1, 4.2 (11,476) 14,095 Net profit on continuing operations 612,255 91,525 DISCONTINUED OPERATIONS Net profit/(loss) on discontinued operations 5.9 - 41,681 Net profit for the year 612,255 133,206 Earnings per share (in PLN): Basic 11.62 2.53 Diluted 11.62 2.53 Earnings per share (in PLN) from continuing operations: Basic 11.62 1.74 Diluted 11.62 1.74 The statement of profit or loss of CIECH S.A. should be analysed together with additional notes and explanations which constitute an integral part of the financial statements. FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 6 STATEMENT OF OTHER COMPREHENSIVE INCOME OF CIECH S.A. Note 01.01.-31.12.2022 01.01.-31.12.2021 Net profit on continuing operations 612,255 91,525 Net profit/(loss) on discontinued operations 5.9 - 41,681 Net profit for the year 612,255 133,206 Other comprehensive income before tax that may be reclassified to the statement of profit or loss 3.6 (18,304) 56,541 Cash flow hedge reserve 3.6 (18,304) 56,541 Other comprehensive income before tax that may not be reclassified to the statement of profit or loss 3.6 54 (89) Actuarial gains 3.6 54 (89) Income tax attributable to other comprehensive income 4.1 3,469 (10,726) Income tax attributable to other comprehensive income that may be reclassified to the statement of profit or loss 4.1 3,479 (10,743) Income tax attributable to other comprehensive income that may not be reclassified to the statement of profit or loss 4.1 (10) 17 Other comprehensive income net of tax (14,781) 45,726 TOTAL COMPREHENSIVE INCOME 597,474 178,932 The statement of other comprehensive income of CIECH S.A. should be analysed together with additional notes and explanations which constitute an integral part of the financial statements. FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 7 STATEMENT OF FINANCIAL POSITION OF CIECH S.A. Note 31.12.2022 31.12.2021 ASSETS Property, plant and equipment 5.1 14,735 13,287 Intangible assets 5.3 82,123 72,316 Long-term financial assets 5.4 3,463,773 3,158,160 Deferred income tax assets 4.3 - 6,990 Rights to use an asset 5.2 25,178 22,235 Total non-current assets 3,585,809 3,272,988 Inventory 5.5 11,557 5,162 Short-term financial assets 5.7 939,376 662,051 Income tax receivables 43,755 37 Trade and other receivables 5.6 318,743 204,844 Cash and cash equivalents 5.8 390,907 467,475 Total current assets 1,704,338 1,339,569 Total assets 5,290,147 4,612,557 EQUITY AND LIABILITIES Share capital 6.2 287,614 287,614 Share premium 470,846 470,846 Cash flow hedge reserve 8.2 5,260 20,085 Actuarial gains (106) (150) Other reserve capitals 6.2 422,699 422,699 Retained earnings 946,712 413,507 Total equity 2,133,025 1,614,601 Loans, borrowings and other debt instruments 7.1 1,671,280 1,854,153 Lease liabilities 7.4 21,250 18,513 Other non-current liabilities 7.2 106,685 118,070 Employee benefits reserve 7.5 823 734 Deferred income tax liability 4.3 8,496 - Total non-current liabilities 1,808,534 1,991,470 Loans, borrowings and other debt instruments 7.1 587,175 397,099 Lease liabilities 7.4 5,670 5,407 Trade and other liabilities 7.3 704,207 569,006 Income tax liabilities 3,117 - Employee benefits reserve 7.5 346 413 Other provisions 7.6 48,073 34,561 Total current liabilities 1,348,588 1,006,486 Total liabilities 3,157,122 2,997,956 Total equity and liabilities 5,290,147 4,612,557 The statement of financial position of CIECH S.A. should be analysed together with additional notes and explanations which constitute an integral part of the financial statements. FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 8 STATEMENT OF CASH FLOWS OF CIECH S.A. Note 01.01.-31.12.2022 01.01.-31.12.2021 Cash flows from operating activities Net profit for the period 612,255 133,206 Amortisation/depreciation 21,730 18,677 Recognition of impairment allowances 4,197 1,998 Foreign exchange (profit) /loss (8,453) (4,152) (Profit) / loss on investment activities 476 (43,888) (Profit) / loss on disposal of property, plant and equipment 34 (47) Dividends and interest (275,869) (202,461) Income tax 11,476 (14,095) Change in liabilities due to loan arrangement fee 2,514 (7,318) Value of derivatives (93,308) 47,750 Other 26 (89) Cash from operating activities before changes in working capital and provisions 275,078 (70,419) Change in receivables 9.1 (131,123) 33,179 Change in inventory (6,395) 1,232 Change in current liabilities 9.1 195,171 140,608 Change in provisions and employee benefits 9.1 6,338 162 Cash generated from operating activities 339,069 104,762 Interest paid (138,385) (46,032) Effect of securing interest costs 35,716 (11,389) Income tax (paid) (25,930) (8,200) Net cash from operating activities 210,470 39,141 Cash flows from investment activities Disposal of a subsidiary - 74,289 Disposal of intangible assets and property, plant and equipment 2,629 139 Dividends received 288,181 204,619 Interest received 89,957 48,761 Proceeds from repaid borrowings 958,383 1,952,358 Other inflows 19,000 80,449 Acquisition of a subsidiary (4,930) (6,105) Acquisition of intangible assets and property, plant and equipment (28,770) (28,267) Acquisition of financial assets (2,785) - Raise capital expenditures and extra charge on capital (4,500) (29,847) Borrowings paid out (1,516,101) (2,005,133) Cash pooling outflows 1 (1,707) (1,910) Net cash from investment activities (200,643) 289,353 Cash flows from financial activities Proceeds from loans and borrowings 7.1 234,500 385,493 Cash pooling inflows 1 23,516 4,046 Dividends paid to parent company (79,050) (158,099) Repayment of loans and borrowings 7.1 (255,000) (351,790) Payments of lease liabilities 7.4 (8,639) (6,173) Net cash from financial activities (84,673) (126,523) Total net cash flows (74,846) 201,971 Cash and cash equivalents as at the beginning of the period 467,475 265,287 Impact of foreign exchange differences (1,722) 217 Cash and cash equivalents as at the end of the period 5.8 390,907 467,475 1 Cash pooling – presentation in cashflow: • Investing activities – the company presents the change in receivables from cash pooling • Financing activities – the company presents the change in liabilities on account of cash pooling The statement of cash flows of CIECH S.A. should be analysed together with additional notes and explanations which constitute an integral part of the financial statements. FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 9 STATEMENT OF CHANGES IN EQUITY OF CIECH S.A. Share capital Share premium Cash flow hedge reserve Other reserve capitals Actuarial gains Retained earnings Total equity Note 6.2 8.2 6.2 01.01.2022 287,614 470,846 20,085 422,699 (150) 413,507 1,614,601 Transactions with shareholders included directly in equity - - - - - (79,050) (79,050) Dividend payment - - - - - (79,050) (79,050) Total comprehensive income for the period - - (14,825) - 44 612,255 597,474 Net profit / (loss) for the period - - - - - 612,255 612,255 Other comprehensive income - - (14,825) - 44 - (14,781) 31.12.2022 287,614 470,846 5,260 422,699 (106) 946,712 2,133,025 01.01.2021 287,614 470,846 (25,713) 422,699 (78) 438,400 1,593,768 Transactions with owners - - - - - (158,099) (158,099) Dividend payment - - - - - (158,099) (158,099) Total comprehensive income for the period - - 45,798 - (72) 133,206 178,932 Net profit / (loss) for the period - - - - - 133,206 133,206 Other comprehensive income - - 45,798 - (72) - 45,726 31.12.2021 287,614 470,846 20,085 422,699 (150) 413,507 1,614,601 The statement of changes in equity of CIECH S.A. should be analysed together with additional notes and explanations which constitute an integral part of the financial statements. FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 10 1 GENERAL INFORMATION 1.1 INFORMATION ON THE COMPANY’S ACTIVITIES Company name CIECH S.A. Legal form Joint-stock Company Registered office Warsaw, Poland Address ul. Wspólna 62, 00-684 Warsaw, Poland KRS (National Court Register number) 0000011687 (District Court for the capital city of Warsaw in Warsaw 12 th Commercial Division of the National Court Register) Country of registration Poland Statistical identification number (REGON) 011179878 Tax ID No (NIP) 118-00-19-377 BDO Registry Number 000015168 Website www.ciechgroup.com Branches held CIECH S.A.’s Branch in Romania CIECH S.A.’s Branch in Germany Parent company KI Chemistry s. à r. l (a subsidiary of Kulczyk Investments) Ultimate parent company Luglio Limited CIECH S.A. is a holding company that manages and provides support services to its subsidiaries — domestic and foreign manufacturing, trade and service companies of the CIECH Group. The CIECH Group is an international, professionally managed group with a well-established position of a leader of the chemical sector in Central and Eastern Europe. It manufactures products which are used in the production of articles necessary in everyday life of people all over the world – state-of-the-art products of the highest, world quality. Taking advantage of the support of a reliable strategic investor – Kulczyk Investments – it implements the strategy of global development. Key products manufactured by the CIECH Group include: soda ash, sodium bicarbonate, evaporated salt, agrochemical products, polyurethane foams, lanterns and jars, sodium and potassium silicates. The core sales market for the CIECH Group is the European Union, including mainly Poland, Germany and Central Eastern European countries. Products manufactured by the CIECH Group are also exported to overseas markets. 1.2 BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS AND ACCOUNTING PRINCIPLES 1.2.1 REPRESENTATION BY THE MANAGEMENT BOARD These financial statements of CIECH S.A. for the period from 1 January 2022 to 31 December 2022, including comparative data, were approved by the Management Board of CIECH S.A. on 23 March 2023. The Management Board of CIECH S.A. represents that these separate financial statements for the current and comparable period have been prepared in compliance with International Financial Reporting Standards approved by the European Union and related interpretations issued by the European Commission in the form of Regulations (IFRS). The Management Board of CIECH S.A. represents that to the best of its knowledge these separate financial statements, including corresponding figures, have been prepared in accordance with the generally acceptable accounting principles and that they represent a true, accurate and fair reflection of CIECH S.A.’s financial position and the results of operations. Furthermore, the Management Board of CIECH S.A. represents that the Directors’ report on operations of the CIECH Group and CIECH S.A. in 2022 contains a true image of the Company’s developments, achievements, and condition, including the description of major risks and threats. The Management Board of CIECH S.A. represents that BDO Spółka z ograniczoną odpowiedzialnością spółka komandytowa with its registered office in Warsaw, entered into the list of entities authorised to audit financial statements under the registry No 3 355 kept by the National FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 11 Chamber of Statutory Auditors was chosen in accordance with the binding legal regulations for the auditor of these separate financial statements. The above entity, including the certified auditors performing the audit, satisfy all the conditions required in order to issue an unbiased and independent audit report, pursuant to the applicable domestic legal regulations. 1.2.2 BASIS OF PREPARATION On 31 January 2007, the Extraordinary General Meeting of Shareholders of CIECH S.A. adopted resolution No 4, concerning the preparation of separate financial statements in accordance with International Financial Reporting Standards as approved by the European Union. Due to the adopted resolution, since 2007 the reports of CIECH S.A. have been prepared in accordance with the IFRS using the valuation of assets and liabilities and the measurement of net profit/loss. Major accounting principles applied in the preparation of these financial statements are listed in note 1.4. These principles have been applied on a continuous basis in all presented periods. The financial statements of CIECH S.A. have been prepared on the historical cost basis except for financial assets and liabilities (derivative instruments) measured at fair value through profit or loss. These financial statements were prepared under the assumption that CIECH S.A. will continue as a going concern in the foreseeable future. As at the date of approval of these financial statements, no facts or circumstances are known that would indicate any threat to the Company continuing as a going concern. The financial year for CIECH S.A is the calendar year. These financial statements, except for the separate statement of cash flows, have been prepared on the accrual basis. The statement of profit or loss of CIECH S.A. is prepared in the cost by function format. The statement of cash flows is prepared using the indirect method. Preparation of the financial statement in accordance with IFRS requires the Management Board to make own assessments and apply certain assumptions and accounting estimates as part of the application of accounting principles adopted by the Company. Issues which require significant assessments or areas where the assumptions and estimates made have a significant impact on these financial statements have been described in note 1.4. CIECH S.A. also prepares consolidated financial statements available at https://ciechgroup.com/relacje-inwestorskie/raporty/raporty- okresowe/. 1.3 FUNCTIONAL AND REPORTING CURRENCY The Polish zloty (PLN) is the functional currency of CIECH S.A., and the reporting currency of these financial statements. Unless stated otherwise, all financial data in these financial statements have been presented in thousands of Polish zlotys (PLN ’000). CIECH S.A. has Branches (in Romania and Germany) whose accounting records are kept in local currencies (RON and EUR). For the purpose of preparing the financial statements of CIECH S.A., accounting records of the branches are translated at the average NBP rate for a given period. Due to an insignificant value of transactions, translation at this exchange rate does not result in a material distortion of results. 1.4 ACCOUNTING POLICIES To ensure more legible presentation and better understanding of the information disclosed in the financial statements, key accounting principles applicable in CIECH S.A. as well as judgements and estimates made have been presented in separate notes. Note Title Accounting principles Judgements and estimates 3.1. Sales revenues x 3.2. Cost of sales x 3.4.; 3.5. Other income and expenses x x 4.1. Income tax x 4.3. Deferred income tax x x 5.1. Property, plant and equipment x x 5.2. Right-of-use assets x x 5.3. Intangible assets x x FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 12 Note Title Accounting principles Judgements and estimates 5.4. Long-term financial assets x x 5.5. Inventories x x 5.6. Short-term receivables x x 5.7. Short-term financial assets x x 5.8. Cash and cash equivalents x x 5.9. Discontinued operations, assets and liabilities classified as held for sale x x 6.2. Equity x x 7.1 Information on financial liabilities x 7.2. Other long-term liabilities x x 7.3. Current trade and other liabilities x x 7.4. Leases x x 7.5. Provisions for employee benefits x x 7.6. Other provisions x x 8.1. Financial instruments x x 8.2. Financial instruments designated for hedge accounting x x 9.2. Information on changes in contingent assets and liabilities and other matters x x 1.5 CHANGES IN ACCOUNTING POLICIES AND THE SCOPE OF DISCLOSURES Amendments to IAS/IFRS and their potential impact on the Company’s financial statements are presented below: New Standards, amendments to Standards and Interpretations: Impact on the financial statements Effective year in the EU Approved by the IASB for application as at the balance sheet date Amendments to IFRS 3 “Business Combinations” – amendments to references in the Conceptual Framework along with amendments to IFRS 3 No material impact on the financial statements is estimated 2022 Amendments to IFRS 16 “Property, plant and equipment” proceeds before intended use No material impact on the financial statements is estimated 2022 Amendments to IAS 37 “Provisions, Contingent Liabilities and Contingent Assets” – onerous contracts – cost of fulfilling the contract No material impact on the financial statements is estimated 2022 Annual Improvements to IFRSs, 2018–2020 Cycle – amendments in respect of recognition and measurement: IFRS 1, IFRS 9, IAS 41 No material impact on the financial statements is estimated 2022 New standards and interpretations entering into force after the balance sheet date IFRS 17 “Insurance Contracts” No material impact on the financial statements is estimated 2023 Amendments to IAS 1 “Presentation of financial statements” – disclosures of accounting policies used in practice – the issue of materiality in relation to accounting policies No material impact on the financial statements is estimated 2023 Amendments to IAS 8 “Accounting policies, changes in accounting estimates and errors” – definition of accounting estimates No material impact on the financial statements is estimated 2023 Amendments to IAS “12 Income Tax” – deferred tax related to assets and liabilities arising from a single transaction No material impact on the financial statements is estimated 2023 Amendments to IFRS 17 “Insurance contracts” – Initial Application of IFRS 17 and IFRS 9 Financial Instruments – comparative information No material impact on the financial statements is estimated 2023 Approved by the IASB for application after 1 January 2024 FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 13 New Standards, amendments to Standards and Interpretations: Impact on the financial statements Effective year in the EU Amendments to IFRS 16 “Leases” - lease obligations in sale and leaseback transactions No material impact on the financial statements is estimated Not endorsed Amendments to IAS 1 “Presentation of financial statements” – classification of liabilities as current or non-current No material impact on the financial statements is estimated Not endorsed New standards and interpretations pending endorsement by the European Union Impact on the financial statements Effective year in the EU IFRS 14 “Regulatory deferral accounts” No material impact on the financial statements is estimated The effective date has been postponed Amendments to IFRS 10 “Consolidated Financial Statements” and IAS 28 “Investments in Associates and Joint Ventures” – sale or contribution of assets between an investor and its associate or joint venture, and further amendments No material impact on the financial statements is estimated The effective date has been postponed 1.5.1 ADJUSTMENT OF PRIOR PERIOD ERRORS AND CHANGES IN ACCOUNTING POLICY Compared to previously published comparable data as at 31 December 2021, the following changes were made: Change in the presentation of comparable data on interest on loans in the Statement of cash flows In order to improve the presentation and provide better information content for the recipient, the method of presenting interest was changed (separating the effect of hedging interest costs). After adjustment 31.12.2021 Interest presentation adjustment Previously presented as at 31.12.2021 Dividends and interest (202,461) 11,389 (213,850) Cash from operating activities before changes in working capital and provisions (70,419) 11,389 (81,808) Cash generated from operating activities (104,762) 11,389 93,373 Effect of securing interest costs (11,389) (11,389) - Net cash from operating activities (39,141) - 39,141 2 SEGMENT REPORTING CIECH S.A.’s operating segments are designated on the basis of internal reports prepared in the Company and regularly reviewed by the Management Board, which is responsible for operating decisions aimed at allocating resources to segments and assessing the subsidiaries performance. CIECH S.A. has been divided into the following operating segments: Soda segment (comprising BU Soda and BU Salt) The most important manufactured goods in the scope of the Soda segment products are: light and dense sodium carbonate, evaporated salt, sodium bicarbonate and calcium chloride. The products of this Segment are sold mainly by the parent company CIECH S.A. Production of the Soda Segment goods manufactured by the CIECH Group is implemented in CIECH Soda Polska S.A., the Romanian company CIECH Soda Romania S.A. (until September 2019) and in the German companies CIECH Soda Deutschland GmbH&Co. KG and CIECH Salz Deutschland GmbH (the German companies also sell their products on their own). Soda Segment products are used in the glass, food, detergent and pharmaceutical industries. FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 14 Agro Segment The CIECH Group is a manufacturer of crop protection products used in agriculture and produced by the companies: CIECH Sarzyna S.A. and Proplan Plant Protection Company, S.L. and CIECH S.A. was (in the corresponding period) the supplier of raw materials for production for CIECH Sarzyna S.A. and provided support services within this segment. Resins Segment (comparable figures) The CIECH Group was a producer of a variety of organic compounds manufactured by CIECH Żywice Sp. z o.o. In the first quarter of 2021, it was producing, among others, epoxy resins and polyester resins. These products are used in the following industries: automotive, paints and electronics. On 1 March 2021, CIECH Żywice Sp. z o.o. was sold to LERG S.A.The figures for discontinued operations include the result of CIECH S.A. obtained from the transactions with CIECH Żywice Sp. z o.o., and from the sale of this company. Foams Segment Within the Foams Segment, CIECH S.A. provides support services to CIECH Pianki Sp. z o.o., which is a producer of polyurethane foams. Silicates Segment CIECH S.A. sells the Silicates and Glass Segment products manufactured by CIECH Soda Romania S.A. In 2022, these were primarily the products such as glassy sodium silicate and sodium water glass. These products are used by the construction industry and in the production of detergents. Packaging Segment Within this segment, CIECH S.A. provides support services to CIECH Vitro S.A., which manufactures glass packaging - lanterns and jars, used for the production of headstone lamps and in the food industry. Other activities Segment It covers mainly services rendered outside the Group and goods sold by CIECH S.A. outside the scope of the above segments. The data concerning individual segments includes support services provided by CIECH S.A. to the CIECH Group companies, such as accounting, controlling, legal, administrative and IT services. The financing is managed (including finance expenses and incomes with the exception of interest on trade receivables and liabilities) and income tax is calculated on the Company level. The data concerning these areas is not allocated to particular segments. CIECH S.A. has been divided into the following geographical areas: Poland, European Union, Other European countries, Africa, Asia, Other regions. Information on the Company’s geographical areas is established based on the location of its assets. Revenues and costs, assets and liabilities of segments are recognised and measured in a manner consistent with the method used in the separate financial statements. FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 15 Operational segments results are assessed by the CIECH S.A’s Management Board on the basis of sales revenue, operating profit, level of EBITDA and adjusted EBITDA. No need to separate additional segments under IFRS 8 regulations has been identified. EBITDA should be viewed as a supplement not as a substitute for the business performance presented in accordance with IFRS. EBITDA is a useful ratio of the ability to incur and service debt. EBITDA and adjusted EBITDA levels are not defined by the IFRS and can be calculated in a different manner by other entities. The reconciliation and definitions applied by CIECH S.A. when determining these measures are presented below. 01.01.-31.12.2022 01.01.-31.12.2021 Net profit/(loss) on continuing operations 612,255 91,525 Income tax 11,476 (14,095) Financial expenses 148,375 215,846 Financial income (587,576) (330,865) Amortisation/depreciation 21,730 18,677 EBITDA on continued operations 206,260 (18,912) EBITDA on discontinued operations - (3,414) EBITDA on continued and discontinued operations 206,260 (22,326) 01.01.-31.12.2022 01.01.-31.12.2021 EBITDA on continued operations 206,260 (18,912) One-offs including: (4,409) (6,411) Impairment (a) - (210) Cash items (b) (4,262) (7,505) Non-cash items (without impairment) (c) (147) 1,304 Adjusted EBITDA on continued operations 201,851 (25,323) Adjusted EBITDA on discontinued operations - (3,414) Adjusted EBITDA on continued and discontinued operations 201,851 (28,737) The catalogue of items for adjusting adjusted EBITDA for the purposes of these financial statements is as follows: (a) Impairment losses associated with the recognition/reversal of impairment losses on property, plant and equipment and intangible assets. (b) Cash items: gain/loss of the sale of property, plant and equipment, fines and compensations received or paid, donations given, fortuitous events. (c) Non-cash items: costs of liquidation of inventories and property, plant and equipment, the costs of suspended investments, restructuring costs, environmental provisions, provisions for liabilities and compensation and other items (including extraordinary costs and other provisions). FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 16 OPERATING SEGMENTS Revenue and costs data as well as assets, equity and liabilities data of particular CIECH S.A.’s operating segments for periods disclosed in statements are presented in the tables below. OPERATING SEGMENTS 01.01.-31.12.2022 Soda segment Agro segment Foams segment Silicates segment Packaging segment Other operations segment Corporate functions TOTAL Total sales revenues 2,616,201 16,167 1,939 27,831 1,422 5,476 3,468 2,672,503 Cost of sales (2,150,335) (15,920) (1,846) (24,370) (1,352) (5,953) (3,325) (2,203,099) Gross profit /(loss) on sales 465,867 247 93 3,461 70 (477) 143 469,404 Selling costs (168,948) - - - - - (168,948) General and administrative expenses (15,933) - - (376) - - (106,192) (122,501) Result on management of receivables 5,290 (22) - - - (14) 187 5,441 Result on other operating activities (2,153) 6 4,740 - - 52 (1,511) 1,134 Operating profit /(loss) 284,123 231 4,833 3,085 70 (439) (107,373) 184,530 Exchange differences and interest on trade settlements (1,171) 2 - (9) - 63 418 (697) Borrowing costs - - - - - - (3,696) (3,696) Result on financial activity (non-attributable to segments) - - - - - - 443,594 443,594 Profit /(loss) before tax 282,952 233 4,833 3,076 70 (376) 332,943 623,731 Income tax - - - - - - - (11,476) Net profit /(loss) on continuing operations 612,255 Net profit /(loss) for the period - - - - - - - 612,255 Amortization/depreciation 3,023 43 - - - 692 17,972 21,730 EBITDA from continuing operations 287,146 274 4,833 3,085 70 253 (89,401) 206,260 Adjusted EBITDA from continuing operations 1 287,092 274 93 3,085 70 253 (89,016) 201,851 ASSETS 193,577 2,611 217 472 142 20,194 5,072,934 5,290,147 LIABILITIES 597,605 1,816 - 51 - 18,645 2,539,005 3,157,122 Investment outlays - - - - - - 27,744 27,744 1 Adjusted EBITDA for the 12-month period ended 31 December 2022 is calculated as EBITDA adjusted for untypical one-off events, including: net gain on restructuring: PLN 4,743 thousand; donations given: PLN -695 thousand; other: PLN 361 thousand. FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 17 OPERATING SEGMENTS 01.01.-31.12.2021 Soda segment Agro segment Foams segment Silicates segment Packaging segment Other operations segment Corporate functions TOTAL Total sales revenues 1,490,385 19,129 10,244 20,348 1,230 77,344 - 1,618,680 Cost of sales (1,313,044) (17,773) (1,438) (19,066) (1,201) (77,020) (1,429,542) Gross profit /(loss) on sales 177,341 1,356 8,806 1,282 29 324 - 189,138 Selling costs (134,956) (51) - (898) - (260) (136,165) General and administrative expenses 2,276 - (3) 20 - (8,167) (92,459) (98,333) Result on management of receivables 200 28 - 1 - 585 - 814 Result on other operating activities 4,107 4,218 - - - (71) (1,297) 6,957 Operating profit /(loss) 48,968 5,551 8,803 405 29 (7,589) (93,756) (37,589) Exchange differences and interest on trade settlements 568 (79) (1) 5 - (521) 162 134 Borrowing costs - - - - - - (10,765) (10,765) Result on financial activity (non-attributable to segments) - - - - - - 125,650 125,650 Profit /(loss) before tax 49,536 5,472 8,802 410 29 (8,110) 21,291 77,430 Income tax - - - - - - - 14,095 Net profit /(loss) on continuing operations - - - - - - 91,525 Net profit /(loss) on discontinued operations - - - - - - 41,681 Net profit /(loss) for the period - - - - - - 133,206 Amortization/depreciation 3,356 35 - - - 673 14,613 18,677 EBITDA from continuing operations 52,324 5,586 8,803 405 29 (6,916) (79,143) (18,912) Adjusted EBITDA from continuing operations 1 49,041 1,310 8,803 405 29 (6,890) (78,021) (25,323) ASSETS 90,758 3,972 1,011 4,307 315 17,948 4,494,246 4,612,557 LIABILITIES 424,241 2,177 12 1,856 - 13,745 2,555,925 2,997,956 Investment outlays - - - - - - 29,592 29,592 1 Adjusted EBITDA for the 12-month period ended 31 December 2021 is calculated as EBITDA adjusted for untypical one-off events, including: net gain on restructuring: PLN 3,263 thousand; penalty fees and compensation received: PLN 3,353 thousand; other: PLN -187 thousand. There are no significant customers outside the CIECH Group from whom the Company would earn 10% of its total revenues. FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 18 SALES REVENUES BY BUSINESS SEGMENTS At CIECH S.A., sales revenues are recognized upon the provision of services or delivery of goods. For detailed information on the recognition of sales revenue, please refer to Note 3.1 to these financial statements. 01.01.-31.12.2022 01.01.-31.12.2021 Change 2022/2021 Change % Soda segment, including: 2,616,201 1,490,385 1,125,816 75.5% Dense soda ash 1,561,058 797,947 763,111 95.6% Light soda ash 518,653 305,715 212,938 69.7% Salt 278,366 192,643 85,723 44.5% Sodium bicarbonate 167,321 111,015 56,306 50.7% Calcium chloride 34,346 33,194 1,152 3.5% Other goods and services 56,457 49,871 6,586 13.2% Agro segment, including: 16,167 19,129 (2,962) (15.5%) Raw materials for production of plant pro-tection products - 13,534 (13,534) - Other goods and services 16,167 5,595 10,572 188.9% Foam segment, including: 1,939 10,244 (8,305) (81.1%) Other goods and services 1,939 10,244 (8,305) (81.1%) Silicates segment, including: 27,831 20,348 7,483 36.8% Sodium silicates 13,947 11,007 2,940 26.7% Other goods and services 13,884 9,341 4,543 48.6% Packaging segment, including: 1,422 1,230 192 15.6% Other goods and services 1,422 1,230 192 15.6% Other segment, including: 5,476 77,344 (71,868) (92.9%) Revenues from third parties 5,476 77,344 (71,868) (92.9%) Corporate functions 3,468 - 3,468 - TOTAL 2,672,503 1,618,680 1,053,823 65.1% INFORMATION ON GEOGRAPHICAL AREAS Information on CIECH S.A.’s geographical areas is established based on the location of its assets. ASSETS Sales revenues 31.12.2022 31.12.2021 01.01.-31.12.2022 01.01.-31.12.2021 Poland 2,723,683 2,462,473 1,809,078 1,013,829 European Union (excluding Poland) 2,564,767 2,149,546 710,904 519,678 Other European countries - - 134,976 61,283 Africa - 538 10,581 8,007 Asia 1,697 - 6,964 13,616 Other regions - - - 2,267 TOTAL 5,290,147 4,612,557 2,672,503 1,618,680 The Company’s non-current assets are located in Poland and the European Union. As regards the European Union, the most significant non- current assets comprise shares in subsidiaries having their registered offices mainly in Romania (PLN 30,551 thousand), Germany (PLN 838,346 thousand) and Spain (PLN 203,866 thousand). Trade and other receivables constitute the main component of current assets presented in individual geographical areas. FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 19 SALES REVENUES – GEOGRAPHICAL STRUCTURE OF MARKETS 01.01.-31.12.2022 01.01.-31.12.2021 Poland 1,809,078 1,013,829 European Union (excluding Poland) 710,904 519,678 Germany 212,335 133,917 Romania 21,504 42,269 Czech Republic 256,030 149,894 Italy 7,469 5,946 The Netherlands 83,061 47,923 Finland 45,049 19,033 Sweden - 22,753 Belgium 8,032 22,213 Denmark 22,315 14,112 Lithuania 8,117 8,755 Other EU countries 46,992 52,863 Other European Countries 134,976 61,283 Norway 78,033 44,375 Other European countries 56,943 16,908 Africa 10,581 8,007 Asia 6,964 13,616 Other regions - 2,267 TOTAL 2,672,503 1,618,680 FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 20 3 NOTES TO THE STATEMENT OF PROFIT OR LOSS AND STATEMENT OF OTHER COMPREHENSIVE INCOME 3.1 SALES REVENUES Accounting policy The Entity recognises revenues based on the so-called 5-step model – when it satisfies a performance obligation by transferring a promised good or service (i.e. an asset) to a customer. An asset is transferred when (or as) the customer obtains control of that asset. When (or as) a performance obligation is satisfied, the Entity recognises as revenues the amount of the transaction price that is allocated to that performance obligation. At CIECH S.A., revenues from the sale of goods are recognised upon their delivery in accordance with the INCOTERMS terms and conditions contained in contracts with customers. The company usually sells using the following delivery bases: DAP, FCA, DDP. Revenues from the sale of services are recognised when the service is provided. CIECH S.A. enters into agreements with counterparties concerning the provision of CIECH S.A. products through consignment warehouses owned by the counterparties. Control of delivered products is passed to the customer when they are accepted for storage and at that point in time sales revenues are recognised along with the corresponding cost of sales. CIECH S.A. grants discounts to selected customers, and the value of these discounts reduces the value of sales revenues. Revenues from the sales of products and goods are recognised in profit or loss at the NBP’s average exchange rate from the date preceding the date of invoice, except for sales revenues earned by the Branch of CIECH S.A. in Germany whose currency translation principle is described in Note 1.3. For detailed information on sales revenues by operating segment and by geographical market, please refer to Note 2 to these financial statements. Payment terms Commercial contracts concluded by CIECH S.A. include various terms of payment of trade receivables depending on the type of transaction, market characteristics and trade conditions. The most common payment terms are: 14, 30 and 60 days. CIECH S.A. uses non-recourse factoring and detailed information is provided in Note 5.6 to these financial statements. SALES REVENUES 01.01.-31.12.2022 01.01.-31.12.2021 Revenues from sales of products and services 104,170 97,223 - services 104,170 97,223 Revenues from sales of goods and materials 2,568,333 1,521,457 - goods 2,568,333 1,521,457 Net sales of products, goods and materials 2,672,503 1,618,680 FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 21 3.2 COST OF SALES, SELLING COSTS, GENERAL AND ADMINISTRATIVE EXPENSES Accounting policy Expenses are probable decreases in economic benefits in the form of outflows or depletions of assets or increases in liabilities and provisions. Cost of sales comprises the production cost of services sold and the cost of goods and materials sold. Selling costs include, among others: costs of transport, sales commissions and the costs of advertising, promotion and distribution. General and administrative expenses are expenses associated with activities of the entity’s management or those of general functions. Provisions for liabilities to employees arising from the employment relationship (salaries, bonuses, holiday entitlements, etc.) are recognised in costs of sales, general and administrative expenses and in selling expenses. Provisions for liabilities to former key employees (compensation for termination of contracts, non-competition clauses, etc.) are recognised in general and administrative expenses or selling expenses. Provisions for length-of-service awards, retirement and disability benefits are recognised in other operating expenses. Amortisation and depreciation In this item, the Company recognises the cost of accrued depreciation charges on property, plant and equipment, amortisation charges on intangible assets, and depreciation charges on right-of-use assets. Depreciation and amortisation charges are recognised as operating expenses depending on where they arise. COST OF SALES, SELING COST AND ADMINISTRATIVE EXPENSES 01.01.-31.12.2022 01.01.-31.12.2021 Cost of manufacture of products and services sold (96,576) (81,044) Cost of sold goods and materials sold (2,106,523) (1,348,498) Cost of sales (2,203,099) (1,429,542) Selling costs (168,948) (136,165) General and administrative expenses (122,501) (98,333) 3.3 COSTS BY TYPE COST BY KIND (SELECTED) 01.01.-31.12.2022 01.01.-31.12.2021 Amortisation (21,382) (17,666) Consumption of materials and energy (8,157) (4,409) Employee benefits, including: (107,957) (74,898) - payroll (97,560) (67,097) - social security and other benefits (8,154) (6,167) - expenditure on retirement benefit and jubilee awards (including provisions) (224) (275) - other (2,019) (1,359) External services (242,207) (185,983) FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 22 3.4 OTHER OPERATING INCOME AND EXPENSES Accounting policy The reporting period’s results are also affected by other operating income and expenses indirectly related to the Company's core operations. The key items include: • recognition / reversal of provisions, such as for liabilities, employee benefits, • gains/ losses on disposal and liquidation of non-financial non-current assets, • recognition/ reversal of impairment losses (including allowances for doubtful receivables), • penalty fees and compensation paid/ received; • income from rental of investment property is recognised in profit or loss on a straight-line basis over the lease term. Any lease incentives granted are an integral part of the net consideration agreed for the use of the asset. Judgements and estimates – Impairment of non-financial assets The carrying amounts of the Company’s non-financial assets, other than inventory and deferred tax assets, are reviewed at reporting date to determine whether there is any indication of impairment. If any such indication exists, then the Company estimates the recoverable amount of the respective cash-generating unit. The recoverable amount of an asset or a cash-generating unit is the higher of its fair value less costs to sell and its value in use. The recoverable amount is determined for individual assets, unless the asset does not generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets. If the asset's carrying amount exceeds its recoverable amount, an impairment loss is recognised against the carrying amount of the asset. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessment of the time value of money and the risks specific to the asset. Impairment losses are recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the unit (group of units) and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis. Impairment losses are recognised in profit or loss. Impairment losses in respect of assets are recognised in those expense categories that correspond to the function of the asset to which they relate. OTHER OPERATING INCOME 01.01.-31.12.2022 01.01.-31.12.2021 Rents/lease income 1,375 1,216 Reversal of impairment allowances on receivables 5,641 1,976 Reversal of impairment losses on property, plant and equipment and intangible assets - 210 Reversal of provisions for liabilities – changing the base 1,276 168 Penalty fees and compensations received - 3,353 Car sale - lease 2,457 83 Revenues from sublease 428 1,333 Income from reorganization 4,743 4,271 Other 1,651 1,479 TOTAL 17,571 14,089 FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 23 OTHER OPERATING EXPENSES 01.01.-31.12.2022 01.01.-31.12.2021 Rental costs (1,470) (1,424) Recognition of impairment losses on receivables (200) (1,162) Recognition of provisions on employee benefits (154) - Recognition of provisions for liabilities (770) (85) Sublease costs (3,366) (1,629) Return to the insurer (3,028) - Other (1,962) (2,018) TOTAL (10,996) (6,318) As at 31 December 2022, CIECH S.A. made an assessment of premises, originating both from external and internal sources of information, of indicators of impairment of non-financial assets. These analyses did not indicate a need to perform impairment tests. 3.5 FINANCIAL INCOME AND EXPENSES Accounting policy Financial income and expenses relate to an entity’s financing activities including the acquisition and disposal of equity, securities, drawing of loans and borrowings, issuance of debt securities. Key items of financing activities include: • interest on borrowings determined based on the effective interest method, • impairment losses on financial assets, • interest earned by the Company on cash and cash equivalents (bank deposits and accounts loans granted and receivables) – accounted for in the profit and loss on accrual basis using the effective interest method, • dividend income – recognised in profit or loss when the Company’s right to receive payment is established, • net foreign exchange gains or losses, • gains/(losses) on sales of financial assets, • gains/(losses) on derivative instruments. Judgements and estimates At each reporting date the Company assesses whether there is any evidence that a financial asset or a group of financial assets is impaired. Where such evidence exists, the Company tests the value of interests in subsidiaries. The recoverable value is defined as the higher of value in use and fair value less costs to sell. Value in use is determined using the discounted cash flow model. The cash flows are based on financial plans covering a period of the next five years, excluding the effects of restructuring, or significant future investments that can improve the operating results of assets being part of the tested cash-generating unit. The recoverable amount is sensitive to the discount rate used in the discounted cash flow model, as well as the expected future cash flows and growth rate adopted for the residual period. Where it is necessary to recognise impairment losses on involvement in other companies, such losses are recognised in the following order: on shares, on loans granted, on interest on loans. Accounting policy concerning financial instruments is presented in note 8.1. FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 24 NET FINANCIAL INCOME (EXPENSES) 01.01.-31.12.2022 01.01.-31.12.2021 Interest 118,712 48,866 Dividends and shares in profit 288,182 204,620 Net foreign exchange gains 19,728 5,192 Reversal of impairment losses 729 11,719 Profits from derivatives 157,612 36,794 Other 2,613 23,674 Total financial income 587,576 330,865 Interest (118,511) (51,721) Recognition of impairment losses (4,376) (13,860) Bank fees and commissions (4,594) (7,881) Recognition of provision for anticipated losses (2,172) (921) Loss due to derivatives (1,966) (105,264) Guarantees costs (9,541) (14,893) Other (7,215) (21,306) Total financial expenses (148,375) (215,846) Net Financial income (expenses) 439,201 115,019 Interest income mainly includes interest on loans advanced within the Group in the amount of PLN 91,114 thousand and interest on receivables from the budget in the amount of PLN 22,712 thousand. In 2022, CIECH S.A. received the highest dividends from the following companies: • CIECH Soda Polska S.A. – PLN 150,000 thousand, • CIECH Pianki Sp. z o.o. – PLN 41,043 thousand, • Verbis ETA Sp. z o.o. SKA – PLN 33,963 thousand, • CIECH Sarzyna S.A. – PLN 29,849 thousand, • Proplan Plant Protection Company – PLN 18,230 thousand, • CIECH Vitrosilicon S.A. – PLN 12,267 thousand, • CIECH Vitro Sp. z o.o. – PLN 2,547 thousand, Gains on derivative instruments resulting from: • positive valuation of CIRS and FX swap transactions in the amount of PLN 84,439 thousand, • proceeds from the exercise of CIRS and FX forwards in the amount of PLN 73,173 thousand. The loss on derivatives resulted from the negative valuation of FX forwards in the amount of PLN 1,966 thousand. Interest expenses primarily relate to the syndicated loan described in detail in Note 7.1 hereto. This item is also adjusted for the outflow on exercise of interest rate hedging instruments. The item in the statement of profit or loss “Gains/losses on financial instruments” comprises the following values: 01.01.-31.12.2022 01.01.-31.12.2021 Gains on financial instruments 254,341 97,329 Interest 96,000 48,866 Gains on derivative instruments 157,612 36,794 Impairment losses 729 11,669 Losses on financial instruments (121,741) (168,290) Interest (115,851) (51,721) Losses on derivative instruments (1,966) (105,264) Impairment losses (3,924) (11,305) FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 25 3.6 COMPONENTS OF OTHER COMPREHENSIVE INCOME Tax effect of each component of other comprehensive income of CIECH S.A. Tax effect of each component of other comprehensive income of the CIECH Group 01.01.-31.12.2022 01.01.-31.12.2021 Before tax Tax After tax Before tax Tax After tax Cash flow hedge (18,304) 3,479 (14,825) 56,541 (10,743) 45,798 Valuation of actuarial provisions 54 (10) 44 (89) 17 (72) TOTAL (18,250) 3,469 (14,781) 56,452 (10,726) 45,726 Income tax and reclassification adjustments in other comprehensive income Other comprehensive income before tax 01.01.-31.12.2022 01.01.-31.12.2021 Cash flow hedge (18,304) 56,541 fair value remeasurement in the period (18,304) 37,765 reclassification to profit or loss - 18,776 Valuation of actuarial provisions 54 (89) remeasurement for the current period 54 (89) reclassification to profit or loss - - Income tax attributable to other components of other comprehensive income 3,469 (10,726) accrued for the current period 3,469 (7,158) reclassification to profit or loss - (3,568) Other comprehensive income net of tax (14,781) 45,726 FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 26 4 INCOME TAX, DEFERRED TAX ASSETS AND LIABILITY Accounting policy Current tax Current tax receivables and liabilities for the current and prior periods are measured in the amount of the expected tax amount to be paid to tax authorities (recoverable from tax authorities) using tax rates and tax laws that are legally or substantively enacted at the reporting date. 4.1 MAIN COMPONENTS OF TAX EXPENSE The main components of tax expense include: THE MAIN COMPONENTS OF TAX EXPENSE (TAX INCOME) 01.01.-31.12.2022 01.01.-31.12.2021 Current income tax 7,476 (3,623) Income tax for the reporting period (29,083) (2,426) Adjustment to tax for previous years 36,559 (1,197) Deferred income tax (18,952) 17,718 Origination/reversal of temporary differences (34,898) 49,350 Unrecognized deferred tax assets 15,946 (31,632) INCOME TAX RECOGNISED IN STATEMENT OF PROFIT OR LOSS (11,476) 14,095 For a detailed description of proceedings concerning tax settlements, see note 9.2 to these financial statements. INCOME TAX RECOGNISED IN OTHER COMPREHENSIVE INCOME 01.01.-31.12.2022 01.01.-31.12.2021 Cash flow hedge 3,479 (10,743) Valuation of actuarial provisions (10) 17 TOTAL 3,469 (10,726) 4.2 EFFECTIVE TAX RATE The following represents a reconciliation of income tax calculated by applying the currently enacted statutory tax rate to the Company’s pre- tax financial result to income tax calculated based on the effective tax rate: EFFECTIVE TAX RATE 01.01.-31.12.2022 01.01.-31.12.2021 Profit/(loss) before tax 623,731 77,430 Tax calculated at the applicable tax rate (118,509) (14,712) Difference resulting from the application of tax rates applicable in other countries (355) (949) Tax effect of revenues adjusting profit (loss) before tax (permanent difference) 61,282 41,485 Tax effect of expenses adjusting profit (loss) before tax (permanent difference) (8,322) 10,417 Adjustment of current income tax for previous years 36,559 - Deferred tax asset for tax losses carried forward 20,798 (1,197) Tax losses for the reporting period for which a deferred tax asset has not been recognised (2,929) (18,532) Other - (2,417) Income tax recognised in statement of profit or loss (11,476) 14,095 EFFECTIVE TAX RATE 1.84% (18.2%) FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 27 The basic corporate tax rate for CIECH S.A. is 19%. The Branch of CIECH S.A. in Romania is subject to a tax rate of 16% and the Branch of CIECH S.A. in Germany – to a tax rate of 30.88%. The tax rates were applied continuously in both periods. CIECH S.A.'s effective tax rate in 2022 was largely driven by: • receipt of dividend income from subsidiaries in the total amount of PLN 287,990 thousand, which is exempt from income tax, • adjustment (reduction) of current income tax for previous years in the total amount of PLN 36,559 thousand, comprising provisions recognised for potential additional income tax liabilities for 2013 and 2014 in the amount of PLN 7,195 thousand and the expected return of overpaid income tax for 2012 in the amount of PLN 43,754 thousand in connection with the ruling of the Supreme Administrative Court received (for a detailed description of tax audits and the status of cases, see Note 9.3), • inclusion of costs listed in Articles 15c and 15e of the Corporate Income Tax Act in 2022 in the total amount of PLN 99,249 thousand that were not accounted for in previous years and for which no deferred tax asset was recognised in tax-deductible expenses in 2021. 4.3 DEFERRED INCOME TAX Accounting policy Deferred tax Deferred tax is recognised in respect of temporary differences between the tax values of assets and liabilities and the carrying amounts recognised in the financial statements. Deferred tax liability is recognised for all taxable temporary differences, unless: • the deferred tax liability arises from the initial recognition of goodwill or 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 profit nor taxable profit, or • the investor is able to control the timing of the reversal of temporary differences in respect of investments in subsidiaries, associates and joint ventures, and it is probable that the temporary differences will not reverse in the foreseeable future. A deferred tax asset is recognised for all deductible temporary differences and for unused tax credits and tax losses carried forward to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and losses can be utilised: • unless the deferred tax asset 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 profit nor taxable profit, and • deductible temporary differences in respect of investments in subsidiaries, associates and joint ventures are recognised in statement of financial position only to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilised. The carrying amount of a deferred tax asset is reviewed at the end of every reporting period and is reduced to the extent that it is no longer probable that sufficient taxable income will be available against which the asset can be utilised. Any previously unrecognised deferred tax asset is reassessed at each reporting date and 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 assets and liabilities are measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the tax rates and laws that have been enacted at the reporting date or whose application in the future is certain at the reporting date. Income tax related to items recognised outside profit or loss is itself recognised either in other comprehensive income, when it relates to items recognised in other comprehensive income, or directly in equity, when it relates to items recognised directly in equity. Deferred tax assets and liabilities are offset solely if there is a legally enforceable right to offset current tax assets and liabilities, and they relate to income taxes levied by the same tax authority on the same taxable entity. Judgements and estimates Deferred tax Deferred income tax asset is based on the assumption that future taxable profit will allow for its usage. In determining the amount of deferred tax assets, CIECH S.A. bases its calculations on estimates related to the term and amount of future taxable income. FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 28 Deferred income tax is attributable to the following items: DEFERRED INCOME TAX ASSETS AND DEFERRED INCOME TAX LIABILITY 31.12.2022 31.12.2021 Total asset Total liability Net value Total asset Total liability Net value Property, plant and equipment - 11,847 (11,847) - 6,046 (6,046) Financial assets 453 11,046 (10,593) 368 14,568 (14,200) Inventory - - - - 290 (290) Trade and other receivables 313 374 (61) 39 - 39 Provisions for employee benefits 157 - 157 142 - 142 Tax losses carried forward 33,510 - 33,510 52,106 - 52,106 Foreign exchange differences - 1,011 (1,011) - 1,375 (1,375) Liabilities 17,549 5,427 12,122 26,101 2,813 23,288 Other 1 - 1 46 - 46 Deferred tax assets/liability 51,983 29,705 22,278 78,802 25,092 53,710 Set - off of deferred tax assets/ liability (21,209) (21,209) - (25,092) (25,092) - Unrecognized deferred tax assets (30,774) - (30,774) (46,720) - (46,720) Deferred tax assets/liability recognised in the statement of financial position - 8,496 (8,496) 6,990 - 6,990 01.01.-31.12.2022 01.01.-31.12.2021 Change recognized in the statement of profit or loss (18,954) 17,719 Change recognized in other comprehensive income 3,468 (10,725) Total change of deferred tax (15,486) 6,994 The Company estimates that within more than 12 months from the period of the financial statements presentation the deferred tax asset will be utilised in the amount of PLN 2,893 thousand. In the same period, the estimated amount of settlement of the deferred tax liability will be PLN 11,847 thousand. The Company did not recognise a deferred tax asset in the total amount of PLN 30,774 thousand. The Company has not recognised a deferred tax asset in respect of the tax loss generated on the capital source in 2018-2022 (PLN 161,966 thousand). The Company determined that recovery of this asset over the next 5 years is less than more probable. In the light of provisions of the General Anti-Avoidance Rule (“GAAR”), applicable as of 15 July 2016 and aimed at preventing the origination and use of factitious legal structures designed to avoid payment of taxes in Poland, the Management Board of CIECH S.A. considered the impact of transactions which could potentially be subject to the GAAR regulations on the deferred tax, tax value of assets and deferred tax provisions. In the opinion of the Management Board, the analysis conducted did not demonstrate the need to adjust the reported current and deferred income tax items. However, in the opinion of the Management Board, there is an inherent uncertainty arising from GAAR that tax authorities will interpret these provisions differently, will change their approach to their interpretation or the rules themselves will change, which may affect the ability to utilise the deferred tax assets in future periods and the possible payment of an additional tax for past periods. FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 29 5 NOTES TO ASSETS REPORTED IN THE STATEMENT OF FINANCIAL POSITION 5.1 PROPERTY, PLANT AND EQUIPMENT Accounting policy Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. The cost of an item of property, plant and equipment comprises its purchase price and all other costs directly attributable to the acquisition of the asset and bringing it to a working condition for its intended use. The cost also includes the cost of replacing components of machinery and equipment when incurred if the recognition criteria are met. Subsequent expenditure The cost of replacing a part of an item of property, plant and equipment are capitalised. Other costs are capitalised only to the extent that it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. Other subsequent costs are recognised in the profit or loss statement as incurred expenses. A separate component of an item of property, plant and equipment, requiring replacement at regular intervals, is depreciated over its economic useful life. Amortisation and depreciation Items of property, plant and equipment, and also their significant and separate components, are depreciated on a straight-line basis over their respective estimated useful lives. Land is not depreciated. The estimated useful lives are as follows: Fixed assets Useful lives Buildings 5-7 years Machinery and equipment 1-10 years Other 1-10 years Judgements and estimates Depreciation rates are determined on the basis of the expected useful lives of property, plant and equipment, and are subject to annual verification. Any adjustments resulting from the verification are made prospectively as a change in estimate. Impairment losses on non-financial assets — detailed principles of estimation of impairment losses are described in accounting policies, in note 3.4. 01.01.-31.12.2022 Buildings offices and land and water engineering facilities Machinery and equipment Means of transport Other tangible fixed assets Tangible fixed assets under construction TOTAL Gross value of property, plant and equipment at the beginning of the period 547 29,807 44 1,498 3,547 35,443 Investment outlays - - - - 5,345 5,345 Reclassification 132 4,765 - 20 (4,790) 127 Sales - (824) (44) (13) - (881) Other - - - 49 - 49 Gross value of property, plant and equipment at the end of the period 679 33,748 - 1,554 4,102 40,083 Accumulated depreciation at the beginning of the period (371) (20,704) (30) (1,051) - (22,156) Depreciation for the period (139) (3,009) 30 (74) - (3,192) Annual depreciation charge (139) (3,791) (10) (87) - (4,027) Sales - 782 40 13 - 835 FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 30 01.01.-31.12.2022 Buildings offices and land and water engineering facilities Machinery and equipment Means of transport Other tangible fixed assets Tangible fixed assets under construction TOTAL Accumulated depreciation at the end of the period (510) (23,713) - (1,125) - (25,348) Impairment losses at the beginning of the period - - - - - - Impairment losses at the end of the period - - - - - - Carrying amount of property, plant and equipment at the beginning of period 176 9,103 14 447 3,547 13,287 Carrying amount of property, plant and equipment at the end of the period 169 10,035 - 429 4,102 14,735 01.01.-31.12.2021 Buildings offices and land and water engineering facilities Machinery and equipment Means of transport Other tangible fixed assets Tangible fixed assets under construction TOTAL Gross value of property, plant and equipment at the beginning of the period 543 25,073 142 1,516 4,283 31,557 Investment outlays - - - - 4,347 4,347 Reclassification 4 5,023 - 56 (5,083) - Sales - (748) - (85) - (833) Other - 459 (98) 11 - 372 Gross value of property, plant and equipment at the end of the period 547 29,807 44 1,498 3,547 35,443 Accumulated depreciation at the beginning of the period (275) (18,324) (98) (1,055) - (19,752) Depreciation for the period (96) (2,380) 68 4 - (2,404) Annual depreciation charge (96) (3,123) (15) (81) - (3,315) Sales - 743 - 85 - 828 Other - - 83 - - 83 Accumulated depreciation at the end of the period (371) (20,704) (30) (1,051) - (22,156) Impairment losses at the beginning of the period - - - - - - Impairment losses at the end of the period - - - - - - Carrying amount of property, plant and equipment at the beginning of period 268 6,749 44 461 4,283 11,805 Carrying amount of property, plant and equipment at the end of the period 176 9,103 14 447 3,547 13,287 Depreciation of property, plant and equipment was recognised in general and administrative expenses in the amount of PLN 4,027 thousand and PLN 3,315 thousand, respectively, for 2022 and the corresponding period. In the current period changes in accounting estimates did not have a material impact and it is not expected that they will have a material impact in future periods. In 2022 and 2021, CIECH S.A. did not receive from third parties for impaired property, plant and equipment. As at 31 December 2022, all items of property, plant and equipment at CIECH S.A. were pledged as collateral for financial liabilities on account of the term loan, revolving facility and overdraft facilities. As at 31 December 2022, there were no agreements for the acquisition of property, plant and equipment giving rise to future commitments (in the corresponding period, the value of future commitments amounted to PLN 24 thousand). FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 31 5.2 RIGHT-OF-USE ASSETS Accounting policy Initial measurement of right-of-use assets At the commencement date, the Company measures the right-of-use asset at cost. The cost of the right-of-use asset 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, unless those costs are incurred to produce inventories. Subsequent measurement of right-of-use assets After initial recognition, the Company measures the right-of-use asset at cost less any accumulated depreciation and any accumulated impairment losses, and adjusted for any remeasurement of the lease liability. In the case of leasehold improvements, expenditures on the purchase or production of third-party fixed assets, once incurred, do not result in the necessity to make payments in the future, and therefore do not meet the definition of lease. The recognition of these expenditures is regulated by IAS 16. If the lease transfers ownership of the underlying asset to the Company by the end of the lease term or if the cost of the right-of-use asset reflects that the Company will exercise a purchase option, the Company depreciates the right-of-use asset from the commencement date to the end of the useful life of the underlying asset. Otherwise, the Company depreciates the right-of-use asset from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The Company applies IAS 36 Impairment of Assets to determine whether the right-of-use asset is impaired and to account for any impairment loss identified. Changes in carrying amounts of right-of-use assets in the period of 12 months ended 31 December 2022 are as follows: 01.01.-31.12.2022 Buildings offices and land and water engineering facilities Machinery and equipment Means of transport TOTAL CHANGE OF RIGHTS TO USE ASSETS Gross value at the beginning of the period 30,893 483 5,995 37,371 Adopted on the basis of a financial lease contract 170 - 3,342 3,512 Modification of the leasing contract 5,143 - (483) 4,660 Gross value at the end of the period 36,206 483 8,854 45,543 Accumulated depreciation at the beginning of the period (11,302) (110) (3,724) (15,136) Depreciation for the period (3,138) (166) (1,925) (5,229) Annual depreciation charge (3,138) (166) (1,925) (5,229) Accumulated depreciation at the end of the period (14,440) (276) (5,649) (20,365) Net value of rights to use assets at the beginning of the period 19,591 373 2,271 22,235 Net value of rights to use assets at the end of the period 21,766 207 3,205 25,178 FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 32 01.01.-31.12.2021 Buildings offices and land and water engineering facilities Machinery and equipment Means of transport TOTAL CHANGE OF RIGHTS TO USE ASSETS Gross value at the beginning of the period 31,914 - 4,376 36,290 Conclusion of new lease agreements - 483 1,654 2,137 Modification of the leasing contract (1,021) - (35) (1,056) Gross value at the end of the period 30,893 483 5,995 37,371 Accumulated depreciation at the beginning of the period (8,098) - (2,135) (10,233) Depreciation for the period (3,204) (110) (1,589) (4,903) Annual depreciation charge (3,204) (110) (1,589) (4,903) Accumulated depreciation at the end of the period (11,302) (110) (3,724) (15,136) Net value of rights to use assets at the beginning of the period 23,816 - 2,241 26,057 Net value of rights to use assets at the end of the period 19,591 373 2,271 22,235 CIECH S.A. is a lessee of office and warehousing space, in which the largest item (approx. 2 thousand m 2 ) is the office in Warsaw at Wspólna Street, where the Company’s registered office is located. The term of the lease agreement expires in 2030. CIECH S.A. also leases passenger cars. Some agreements are denominated in foreign currencies and indexed to price indices. Some agreements contain an extension option. For detailed information on lease liabilities, see Note 7.4. 5.3 INTANGIBLE ASSETS Accounting policy Intangible assets acquired by the company are measured at cost less accumulated amortisation and accumulated impairment losses. Any expenditure on internally generated goodwill and brands, is recognised in the profit or loss as incurred. Subsequent expenditure Subsequent expenditure on existing intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other subsequent expenditure is expensed as incurred. Amortisation and depreciation Intangible assets are amortised on a straight-line basis over their estimated useful lives. The estimated useful lives of the following categories of intangible assets are as follows: Fixed assets Useful lives Patents and licences 2–10 years Other 2-5 years Judgements and estimates Amortisation rates are determined on the basis of the expected useful lives of intangible assets, and are subject to periodical verification. Any adjustments resulting from the verification are made prospectively as a change in estimate. Impairment losses on non-financial assets — detailed principles of estimation of impairment losses are described in accounting policies, in note 3.4. FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 33 01.01.-31.12.2022 Licences,patents, permits, etc. obtained Intangible assets under development Other intangible assets TOTAL Gross value of intangible assets at the beginning of the period 74,912 20,258 18,985 114,155 Investment outlays - 22,399 - 22,399 Reclassifications 10,385 (11,190) 678 (127) Liquidation (266) (313) - (579) Activated costs - 321 - 321 Gross value of intangible assets at the end of the period 85,031 31,475 19,663 136,169 Accumulated amortisation at the beginning of the period (25,329) - (16,510) (41,839) Amortisation for the period (9,830) - (2,377) (12,207) Annual amortisation charge (10,096) - (2,377) (12,473) Liquidation 266 - - 266 Accumulated amortisation at the end of the period (35,159) - (18,887) (54,046) Impairment losses at the beginning of the period - (210) 210 - Other - 210 (210) - Impairment losses at the end of the period - - - - Net value of intangible assets at the beginning of the period 49,583 20,048 2,685 72,316 Net value of intangible assets at the end of the period 49,872 31,475 776 82,123 01.01.-31.12.2021 Licences,patents, permits, etc. obtained Intangible assets under development Other intangible assets TOTAL Gross value of intangible assets at the beginning of the period 57,684 12,966 18,979 89,629 Investment outlays - 25,401 - 25,401 Reclassifications 17,228 (17,234) 6 - Activated costs - (875) - (875) Gross value of intangible assets at the end of the period 74,912 20,258 18,985 114,155 Accumulated amortisation at the beginning of the period (18,233) - (13,758) (31,991) Amortisation for the period (7,096) - (2,752) (9,848) Annual amortisation charge (7,096) - (2,752) (9,848) Accumulated amortisation at the end of the period (25,329) - (16,510) (41,839) Impairment losses at the beginning of the period - (210) - (210) Other - - 210 210 Impairment losses at the end of the period - (210) 210 - Net value of intangible assets at the beginning of the period 39,451 12,756 5,221 57,428 Net value of intangible assets at the end of the period 49,583 20,048 2,685 72,316 In 2022, the capitalisation rate applied to determine the amount of borrowing costs to be capitalised was approx. 3.0%, whereas in 2021 it amounted to approx. 1.9%. CIECH S.A. is the owner of all intangible assets held. The largest item in the Company’s intangible assets is the SAP accounting system with the gross carrying amount of PLN 58,968 thousand (net carrying amount: PLN 40,826 thousand). As at 31 December 2022, all intangible assets at CIECH S.A. were pledged as collateral for financial liabilities on account of the term loan, revolving facility and overdraft facilities. An increase in capital expenditure in 2022 was driven by expenditure related to the implementation of the SAP system. FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 34 Amortisation of intangible assets was included in the following line items of the statement of profit or loss: AMORTISATION CHARGES ON INTANGIBLE ASSETS 01.01.-31.12.2022 01.01.-31.12.2021 General and administrative expenses (10,100) (7,100) Selling costs (2,373) (2,748) TOTAL (12,473) (9,848) The Company does not have intangible assets with indefinite useful life. In the current period changes in accounting estimates did not have a material impact and it is not expected that they will have a material impact in future periods. As at 31 December 2022, future commitments arising from agreements concerning acquisition of intangible assets amounted to PLN 443 thousand (in the comparable period: PLN 4,300 thousand). In the reporting period and in the presented comparable period, the Company did not incur any expenditure on development activities. 5.4 LONG-TERM FINANCIAL ASSETS Accounting policy Shares in subsidiaries and associates are stated at purchase price less any impairment losses. Loans are measured at nominal value plus interest and net of any impairment losses due to the insignificant difference compared to measurement at amortised cost. Accounting policy concerning financial instruments is presented in note 8.1. Judgements and estimates Accounting policy concerning judgements and estimates is presented in note 3.5. NON-CURRENT FINANCIAL ASSETS 31.12.2022 31.12.2021 Shares 2,072,573 2,066,181 Loans granted 1,386,967 1,091,317 Derivatives 4,233 662 TOTAL 3,463,773 3,158,160 Change in long-term stocks and shares 01.01.-31.12.2022 01.01.-31.12.2021 Gross value at the beginning of the period 2,089,442 2,237,330 Purchase 7,295 30,847 Writing-off/redemption (214) (80,449) Sales/liquidation - (98,440) Other - 154 Gross value at the end of the period 2,096,523 2,089,442 Impairment update at the beginning of the period (23,261) (99,675) Recognition (903) (2,311) Reversal/usage 214 78,725 Impairment update at the end of the period (23,950) (23,261) Net value of the shares at the beginning of the period 2,066,181 2,137,655 Net value of the shares at the end of the period 2,072,573 2,066,181 FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 35 CHANGE IN LIABILITIES DUE TO LONG-TERM LOANS 01.01.-31.12.2022 01.01.-31.12.2021 Gross value at the beginning of the period 1,098,789 403,276 Grant 544,260 1,326,132 Change of liabilities presented (189,947) - Reclassification to long-term positions (68,524) (637,695) Foreign exchange differences 11,604 7,076 Gross value at the end of the period 1,396,182 1,098,789 Impairment update at the beginning of the period (7,472) (2,863) Recognition (2,209) (7,472) Reversal 466 2,863 Closing balance (9,215) (7,472) Carrying amount of loans at the beginning of period 1,091,317 400,413 Carrying amount of loans at the end of the period 1,386,967 1,091,317 Change in the gross value of long-term shares results primarily from: • acquisition of shares in the increased share capital of CIECH Ventures Sp. z o.o. – PLN 4,500 thousand, • payment of contributions to the investment fund Emerald Industrial Innovation Fund Limited Partnership – PLN 2,785 thousand, CIECH S.A. analyses its involvement in the subsidiaries on the basis of their net assets as at the balance sheet date. If any evidence of impairment is identified, the Company estimates the recoverable amount. Due to the occurrence of premises, CIECH S.A. analysed the recoverability of involvement in subsidiaries. The recoverable value applied was the value in use estimated based on the discounted cash flows determined based on five-year financial plans of the subsidiaries. The following assumptions were applied in the impairment tests: • the weighted average cost of capital for domestic companies was: 11.9% – for cash flows in PLN, 8.8% – for cash flows in EUR and 9.8% – for cash flows in USD; • the weighted average cost of capital for SDC GmbH and CIECH Salz Deutschland GmbH for cash flows in EUR was 7.5%; • the weighted average cost of capital for Proplan Plant Protection Company, S.L. was 8.6% – for cash flows in EUR and 9.9% – for cash flows in USD; • the assumed growth rate for the residual period was 2.0% for both the domestic and foreign companies. Based on analyses conducted, the Management Board of CIECH S.A. decided to recognise impairment losses on involvement in the following companies: • CIECH Group Financing AB – impairment loss on shares in the amount of PLN 347 thousand, • CIECH Transclean Sp. z o.o. – impairment loss on shares in the amount of PLN 105 thousand; Long-term loans were advanced by CIECH S.A. to subsidiaries of the CIECH Group. As at 31 December 2022, all long-term receivables from loans at CIECH S.A. were pledged as collateral for financial liabilities on account of the term loan, revolving facility and overdraft facilities. Additionally, as at 31 December 2022, shares in CIECH Soda Polska S.A., CIECH Sarzyna S.A., CIECH Pianki Sp. z o.o., CIECH Cargo Sp. z o.o., CIECH Vitrosilicon S.A., CIECH Vitro Sp. z o.o., CIECH Soda Deutschland GmbH & Co. KG, CIECH Energy Deutschland GmbH and CIECH Salz Deutschland Gmbh, who are guarantors of the term loan, revolving credit facilities and overdraft facilities, were pledged as collateral for financial liabilities on account of the term loan, revolving facility and overdraft facilities. FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 36 CARRYING AMOUNT OF SHARES IN RELATED ENTITIES 31.12.2022 31.12.2021 The Company’s direct share in the share capital/ total number of votes as at 31 December 2022 The Company’s direct share in the share capital/ total number of votes as at 31 December 2021 Core activities Subsidiaries (registered office) SDC GmbH (Stassfurt – Germany) 797,471 797,471 100% 100% Manufacture of other basic inorganic chemicals, wholesale of chemical products, power generation and distribution. CIECH Soda Polska S.A. (Inowrocław) 553,097 553,097 100% 100% Manufacture of other basic inorganic chemicals, wholesale of chemical products, power generation and distribution. CIECH Sarzyna S.A. (Nowa Sarzyna) 266,867 266,867 100% 100% Manufacture of pesticides and other chemical products CIECH Soda Romania S.A. (Rm. Valcea , Romania) 30,551 30,551 98.74% 98.74% Manufacture of other basic inorganic chemicals, wholesale of chemical products. CIECH Trading Sp. z o.o. (Warsaw) 5,291 5,291 100% 100% The company is preparing for the liquidation process, operations are being phased out. CIECH Pianki Sp. z o.o. (Bydgoszcz) 57,451 57,451 100% 100% Manufacture of organic and other inorganic chemicals. VERBIS ETA Sp. z o.o. SKA (Warsaw) 37,971 37,971 100% 100% Financing activities, direct lending to the CIECH Group companies. CIECH R&D Sp. z o.o. (Warsaw) 47,915 47,915 100% 100% Granting licenses to the CIECH Group companies to use the trademarks: “Ciech”, “Ciech Trading” and “Sól Kujawska naturalna czysta” for business activity purposes, research and developments activities CIECH Vitrosilicon S.A. (Iłowa) 10,594 10,594 100% 100% Manufacture of other basic inorganic chemicals, manufacture of other plastic products. CIECH Vitro Sp. z o.o. (Iłowa) 2,108 2,108 39.41% 39.41% manufacture of hollow glass and technical glassware and processing of other glass, including technical glassware. CIECH Transclean Sp. z o.o. (Bydgoszcz) - 105 100% 100% International transport of liquid chemicals Gamma Finanse Sp. z o.o. (Warsaw) 2,889 2,889 100% 100% Financing activities. Ciech Group Financing AB (Stockholm, Sweden) 1,027 1,374 100% 100% Financing activities. VERBIS ETA Sp. z o.o. (Warsaw) 5 5 100% 100% Other activities. FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 37 31.12.2022 31.12.2021 The Company’s direct share in the share capital/ total number of votes as at 31 December 2022 The Company’s direct share in the share capital/ total number of votes as at 31 December 2021 Core activities CIECH Serwis i Remonty Sp. z o.o. (Warsaw) 450 450 100% 100% Repair and maintenance of machinery, electrical equipment, fabricated metal products, Installation of industrial machinery, fittings and fixtures. Ciech Nieruchomości Sp. z o.o. (Warsaw) 2,597 2,597 99.18% 99.18% Buying and selling of own real estate. Proplan Plant Protection Company S.L. (Madrid, Spain) 203,866 203,866 100% 100% Production and sales of crop protection chemicals. CIECH Salz Deutschland GmbH (Stassfurt, Germany) 40,875 40,875 100% 100% Production and sales of salt products. CIECH SERVICES Sp. z o.o. (Bydgoszcz) 2,000 2,000 100% 100% Provision of support services to CIECH Group companies. CIECH Ventrures Sp. z o.o. (Warsaw) 5,500 1,000 100% 100% Holding activities, other financial activities. CIECH Sól Sp. z o.o. (Warsaw) 5 - 100% - Production and sales of salt products. CIECH Nieruchomości Rolne Sp. z o.o. (Warsaw) 5 - 100% - Buying and selling of own real estate. Other subsidiaries 842 842 Associates 863 863 Other shares 2,334 - Carrying amount of shares in related entities 2,072,573 2,066,181 FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 38 5.5 INVENTORIES Accounting policy Raw materials and goods are measured at cost being the purchase price increased by other costs incurred in bringing the asset to its present location and condition or place on the market but not higher than the selling price possible to achieve. The cost of inventory is measured using the weighted average method. Judgements and estimates CIECH S.A. recognises inventory impairment allowances for damaged and slow moving inventory. Inventory impairment allowances are also recognised for inventory with a carrying amount that exceeds the realisable net selling price. Reversal occurs as a result of the use or sales of inventory in the course of business activities while usage is the result of inventory being scrapped. INVENTORY 31.12.2022 31.12.2021 Materials 16 15 Goods 11,541 5,147 TOTAL 11,557 5,162 In the reporting periods, no inventories were written down to their net selling prices. The value of inventories (taking into account write-downs to net selling prices) recognised as costs in 2022 amounted to PLN 2,106,522 thousand (in the comparable period: PLN 1,371,223 thousand). As at 31 December 2022, all inventories at CIECH S.A. were pledged as collateral for financial liabilities on account of the term loan, revolving facility and overdraft facilities. 5.6 SHORT-TERM RECEIVABLES Accounting policy After initial recognition, current trade and other receivables are measured at the amortised cost using the effective interest method less any impairment losses. Receivables denominated in foreign currencies are recognised at the average NBP exchange rate effective on the working day immediately preceding the date of the transaction, unless a different exchange rate was indicated in the customs declaration or another binding document. At the reporting date, receivables denominated in foreign currencies are translated at the average exchange rate established for that date by the NBP except for prepayments made for deliveries, which are translated using sell exchange rate of the bank effective on the payment date. Factoring The Company uses non-recourse factoring services. The factor transfers advance payments to the Company’s account in the full amount of invoices accepted for financing. The financing of receivables transferred is provided in various timeframes, therefore, as at the balance sheet date, there may be receivables which have not been financed yet and are reported as factoring receivables. Advance payments received are posted as factoring liabilities. In the statement of financial position, factoring receivables and liabilities are recognised on a net basis up to 95% of the value of advance payments received from the factor (the 95% limit results from the level of the receivables insurance). The remaining 5% of receivables value is reported as factoring receivables, and 5% of the value of advance payments received is reported as factoring liabilities. FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 39 Accounting policy Judgements and estimates Impairment allowances are recognised on interest receivable on late payments of receivables, in the full amount of interest accrued. These allowances are recognised upon accrual, as at the due date or balance sheet date, and deducted from finance income from interest accrued. The Entity estimates allowances always at the amount of long-term expected credit losses, regardless of whether there is an evidence of a material increase in credit risk. At each balance sheet date, the Entity estimates allowances for all receivables regardless of their repayment status. The Entity estimates impairment allowances primarily on the basis of portfolio PD ratios estimated on the basis of historical observations for debt portfolios with similar characteristics. If it is not possible to estimate portfolio ratios, the Group permits the use of individual parameters (benchmark or expert parameters). In addition, regardless of the foregoing, the Entity recognises impairment allowances in respect of receivables: • from debtors in liquidation or bankruptcy, up to the amount not guaranteed or secured in another manner, as reported to a receiver or judge-commissioner during bankruptcy proceedings; • from debtors where a bankruptcy petition has been dismissed, if the debtor's assets are not sufficient to cover the cost of bankruptcy proceedings – in full; • contested by debtors (disputed receivables) and where payments due are delayed and either the debtor’s financial standing makes the collection no longer probable – up to the amount of receivables not guaranteed or secured in another manner; • receivables claimed in court. Moreover, allowances in the full amount of receivables are recognised in relation to receivables that are more than 180 days past their maturity as at the balance sheet date. The amount established as a result of the abovementioned allowances may be decreased if the Management Board is in possession of reliable documents, indicating that the receivables were secured and their payment is highly probable. Impairment allowances on receivables are charged to other operating expenses. TRADE AND OTHER RECEIVABLES 31.12.2022 31.12.2021 Trade receivables, including: 204,883 110,720 - up to 12 months 204,397 109,409 - over 12 months 303 628 - prepayments for inventory 183 683 Prepayments for non-current assets 72 - Public and legal receivables (excluding income tax) 46,896 36,763 Factoring receivables 36,108 21,437 Assets due to continuous involvement 13,514 2,370 Receivables from cashpool 5,688 3,912 Receivables from the sale of shares and stocks 330 19,330 Other receivables 11,252 10,312 NET TRADE AND OTHER RECEIVABLES 318,743 204,844 Impairment allowances with respect to trade receivables including: (15,906) (20,422) - impairment allowance recognized in the current reporting period (199) (1,151) Impairment allowances with respect to other current receivables including: (17,500) (16,741) - impairment allowance recognized in the current reporting period (11) (11) GROSS TRADE AND OTHER RECEIVABLES 352,149 242,007 Fair value of trade receivables and other receivables does not differ significantly from their carrying value. As at the balance sheet date, continuing involvement is reported. It is calculated as a product of the financing received, interest and the period of delay in payments. As at 31 December 2022, the asset from continuing involvement amounted to PLN 13,514 thousand. FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 40 As at 31 December 2022, trade receivables assigned to the factor amounted to PLN 277,634 thousand (PLN 192,557 thousand in the corresponding period). CHANGE IN IMPAIRMENT ALLOWANCES ON SHORT-TERM RECEIVABLES 01.01.-31.12.2022 01.01.-31.12.2021 Opening balance (37,163) (36,847) Recognized (210) (1,162) Reversed 5,631 2,138 Used - 1 Exchange differences (1,664) (675) Other - (618) Closing balance (33,406) (37,163) The principles for recognising impairment allowances for short-term receivables are described above, in the “Accounting Policy” section. AGEING OF PAST DUE TRADE RECEIVABLES 31.12.2022 31.12.2021 Up to 1 month 6,456 5,438 Between 1 and 3 months 86 3,620 3 to 6 months 35 9 6 months to 1 year 24 1,354 Above 1 year 11,327 20,182 Total (gross) past due trade receivables 17,928 30,603 Impairment allowances on past due trade receivables (11,351) (20,135) Total (net) past due trade receivables 6,577 10,468 Terms of transactions with related entities have been presented in note 9.3. Commercial contracts concluded by CIECH S.A. include various terms of payment of trade receivables depending on the type of transaction, market characteristics and trade conditions. The most common payment terms are: 14, 30 and 60 days. As at 31 December 2022, all receivables (both long- and short-term) at CIECH S.A. were pledged as collateral for financial liabilities on account of the term loan, revolving facility and overdraft facilities. 5.7 SHORT-TERM FINANCIAL ASSETS Accounting policy Loans after initial recognition are measured at amortised cost using the effective interest method less any impairment losses. Accounting policy concerning financial instruments is presented in note 8.1. Judgements and estimates Accounting policy concerning judgements and estimates is presented in note 3.5. SHORT-TERM FINANCIAL ASSETS 31.12.2022 31.12.2021 Derivatives 108,159 102,220 Loans granted 831,217 559,831 Total (net) short-term financial assets 939,376 662,051 Impairment of short-term financial assets (5,523) (3,833) Total (gross) short-term financial assets 944,899 665,884 FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 41 CHANGE IN LIABILITIES DUE TO SHORT-TERM LOANS 01.01.-31.12.2022 01.01.-31.12.2021 Gross value at the beginning of the period 563,664 1,196,395 Grant 1,076,745 737,607 Change of liabilities presented (872,195) (2,001,110) Reclassification to long-term positions 68,524 637,695 Exchange differences 2 (6,923) Gross value at the end of the period 836,740 563,664 Impairment update at the beginning of the period (3,833) (8,494) Recognition (1,708) (3,832) Reversal 18 8,493 Closing balance (5,523) (3,833) Carrying amount of loans at the beginning of period 559,831 1,187,901 Carrying amount of loans at the end of the period 831,217 559,831 Short-term loans were advanced by CIECH S.A. to subsidiaries of the CIECH Group. As at 31 December 2022, all short-term receivables from loans at CIECH S.A. were pledged as collateral for financial liabilities on account of the term loan, revolving facility and overdraft facilities. 5.8 CASH AND CASH EQUIVALENTS Accounting policy Cash and cash equivalents include cash in hand and bank deposits repayable on demand. Current investments that are not subject to significant changes in value and that may be easily exchanged for a determinable amount of cash and that form an integral part of the Entity’s cash management are recognised as cash and cash equivalents for the purposes of the statement of cash flows. At the reporting date, any foreign currencies in bank accounts and on hand are measured at the average exchange rate for a given currency, quoted by the President of the NBP. For cash and cash equivalents, impairment allowances are estimated using individual parameters determined on the basis of benchmarks (using information on bank ratings). For cash and cash equivalents for which there is evidence of impairment due to credit risk, the Entity analyses recoveries using probability- weighted scenarios. CASH AND CASH EQUIVALENTS 31.12.2022 31.12.2021 Bank accounts 210,291 210,697 Short-term deposits 180,614 257,013 Cash in hand 8 9 Write-off (6) (244) Cash and cash equivalents – presented in the statement of financial position 390,907 467,475 Cash and cash equivalents – presented in the cash flow statement 390,907 467,475 The effective interest rates of short-term bank deposits are similar to the nominal interest rates, and fair value of short-term bank deposits is not significantly different from carrying value. As at 31 December 2022, all cash and cash equivalents at CIECH S.A. were pledged as collateral for financial liabilities on account of the term loan, revolving facility and overdraft facilities. Restricted cash represented the funds in the VAT account due to the introduction of "split payment" procedures. As at 31 December 2022, they amounted to PLN 28,455 thousand. As at 31 December 2021, restricted cash in CIECH S.A. amounted to PLN 2,239 thousand. Cash and cash equivalents are covered only by an allowance for expected credit losses in accordance with IFRS 9. FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 42 5.9 DISCONTINUED OPERATIONS, NON-CURRENT ASSETS AND LIABILITIES CONNECTED WITH NON-CURRENT ASSETS CLASSIFIED AS HELD FOR SALE Accounting policy Assets and liabilities classified as held for sale Non-current assets are classified as held for sale when their carrying amounts are expected to be recovered primarily through a sale transaction and when they are available for sale in their current condition with such transaction being highly probable. As at 31 December 2022 and 2021 CIECH S.A. carries no non-current assets held for sale. Discontinued operations During 2022, there were no discontinued operations at CIECH S.A. In the corresponding period, there was a discontinued operation concerning the sale of shares in CIECH Żywice Sp. z o.o, On 1 March 2021, CIECH S.A. entered into an agreement for the sale of 74,677 shares in CIECH Żywice Sp. z o.o. with LERG S.A. with its registered office in Pustków-Osiedle, accounting for 100% of shares in the share capital of CIECH Żywice Sp. z o.o. The value of the Agreement (equal to the enterprise value being sold) is PLN 157,410 thousand. The final price of the Shares being sold was determined in accordance with the rule arising from the Agreement and amounted to PLN 74,289 thousand. For details of the transaction, see current reports No 27/2020 and 4/2021. Cash received from sale of shares 74,289 Cash received from repayment of debt (including loans repaid 1 ) 83,121 TOTAL Value of the Agreement 157,410 1 The loan of PLN 27 million was repaid on 30 July 2021. The accounting principles applied in the preparation of the statement of profit or loss for discontinued operations are consistent with the Company's accounting policy. The separate results of discontinued operations include the results of CIECH S.A. obtained from transactions with the entity recognised in discontinued operations of CIECH Żywice Sp. z o.o. and the result on the sale of the company in connection with the conclusion of the agreement for the sale of 74,677 shares of CIECH Żywice Sp. z o.o. to LERG S.A. Below is the separate result on discontinued operations (in the resins area) of CIECH S.A. CIECH S.A. 01.01.-31.12.2021 Net sales revenues 30,804 Cost of sales (30,584) Gross profit/(loss) on sales 220 Selling costs (96) General and administrative expenses (3,538) Operating profit/(loss) (3,414) Financial income 821 Financial expenses - Net financial income/(expenses) 821 Profit/(loss) before tax (2,593) Income tax - Net profit/(loss) (1) (2,593) Income form the sale of CIECH Żywice Sp. z o.o. 74,289 Value of shares sold (30,015) Separate gain on disposal of CIECH Żywice Sp. z o.o. (2) 44,274 Total net profit/(loss) on discontinued operations (1+2) 41,681 Cash received from the sale of shares in CIECH Żywice amounted to PLN 74,289 thousand and was reported in the statement of cash flows of CIECH S.A. under “Disposal of a subsidiary”. FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 43 6 EQUITY 6.1 CAPITAL MANAGEMENT CAPITAL STRUCTURE MANAGEMENT CIECH S.A.’s capital structure consist of its debts, including the credit facilities presented in note 7.1, cash and cash equivalents and equity, including shares issued, reserve capital and retained earnings. CIECH S.A. manages its capital in order to ensure its ability to continue as a going concern and, at the same time, maximize returns for stakeholders by optimising the debt to equity ratio. In 2021-2022 there were no changes in aims, principles and processes of capital management. 6.2 EQUITY Accounting policy CIECH S.A.’s share capital is disclosed at nominal value, adjusted by the effects of hyperinflation in the years 1989-1996. When shares are repurchased, the amount of the consideration paid, which includes directly attributable costs, is recognised as a change in equity. The purchased shares are presented as a deduction from total equity. A liability for a dividend payable is recognised when authorised. Net profit (loss) is presented in equity under retained earnings. As at 31 December 2022, the carrying amount of the share capital of CIECH S.A. amounted to PLN 287,614 thousand and comprised the share capital from the share issues and from the hyperinflation adjustment. As at the date of adopting the IFRS, i.e. 1 January 2004, the share capital of the Company was adjusted for hyperinflation between 1989 and 1996. The hyperinflation adjustment of PLN 24,114 thousand was charged to retained earnings. The shares of CIECH S.A. are listed on Warsaw Stock Exchange and on Frankfurt Stock Exchange. The share capital of CIECH S.A. amounts to PLN 263,500,965 and is divided into 52,699,909 shares with a nominal value of PLN 5 each, including: • 20,816 A-series ordinary bearer shares, • 19,775,200 B-series ordinary bearer shares, • 8,203,984 C-series ordinary bearer shares, • 23,000,000 D-series ordinary bearer shares, • 1,699,909 E-series ordinary bearer shares. The shares of all series are ordinary shares and do not carry any additional rights, preferences or restrictions as to dividend distribution or return of capital. Share capital is fully paid up. FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 44 Shareholder structure of CIECH S.A. as at the date of approval of the report (according to the best knowledge of the Company): To the best knowledge of the Company, as at the day of approving this report, entities holding significant blocks of shares (at least 5%) are the entities listed below: Shareholder Type of shares Number of shares Number of votes at the General Meeting of Shareholders Share in the total number of votes at the General Meeting of Shareholders Stake in share capital (%) KI Chemistry s. à r. l. with its registered office in Luxembourg 1 Ordinary bearer 26,952,052 26,952,052 51.14% 51.14% Nationale-Nederlanden Otwarty Fundusz Emerytalny 2 Ordinary bearer 2,729,507 2,729,507 5.18% 5.18% PTE Allianz Polska S.A. 3 Ordinary bearer 3,389,024 3,389,024 6.43% 6.43% Other Ordinary bearer 19,629,326 19,629,326 37.25% 37.25% 1 In accordance with information dated 9 June 2014 provided by Shareholder under Article 77(7) and Article 69(1)(1) of the Act of 29 July 2005 on Public Offering and Conditions Governing the Introduction of Financial Instruments to Organised Trading, and on Public Companies (CR 26/2014). 2 On the basis of the list of shareholders holding at least 5% of votes at the Annual General Meeting of Shareholders of CIECH S.A. on 28 April 2022, Current Report 16/2022 prepared and published pursuant to Article 70(3) of the Act of 29 July 2005 on public offering and conditions governing the introduction of financial instruments to organised trading, and on public companies (Journal of Laws of 2009, No 185, item 1439). 3 In accordance with information provided by Shareholder (CR 1/2023). On 10 January 2023, CIECH S.A. announced that it had received notification of the merger of Polskie Towarzystwo Emerytalne Allianz Polska S.A. with Aviva Powszechne Towarzystwo Emerytalne Aviva Santander S.A., as a result of which the total shareholding in the Allianz OFE, Allianz DFE and Drugi Allianz OFE managed by them increased to 3,389,024 shares representing 6.43% of the Company's share capital. Treasury shares In 2022 and in the comparable period, CIECH S.A. did not purchase or hold treasury shares. Share premium The share premium arose from the surplus in excess of nominal value achieved upon the issue of C, D and E series shares. KI Chemistry s. a r.l. 51,14% PTE Allianz Polska 6,43% Nationale-Nederlanden OFE 5,18% Other 37,25% FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 45 Other reserve capital The table below presents the balances of other reserve capital, consisting of the following items: OTHER RESERVE CAPITAL BY PURPOSE 31.12.2022 31.12.2021 Commercial risk fund 3,330 3,330 Fund for purchasing soda companies 15,200 15,200 Development fund 57,669 57,669 Fund for the purchase of treasury shares 346,500 346,500 TOTAL 422,699 422,699 Cash flow hedge reserve The cash flow hedge reserve reflects the valuation and settlement of hedging instruments to which the hedge accounting applies. Detailed information is presented in note 8.2. Actuarial gains Actuarial valuation reserve comprises actuarial gains or losses, i.e. the effects of differences between the previous assumptions made in the valuation of employee benefit provisions and what has actually occurred and the effects of changes in assumptions for these provisions, including change in discount rate. 6.3 DIVIDENDS PAID OR DECLARED Until the date of approval of the financial statements for publication, the Management Board of CIECH SA has not adopted a resolution on the proposed distribution of net profit for 2022. The Management Board of CIECH S.A. decided on the distribution an interim dividend for 2022, in accordance with Article 349 § 1 of the Commercial Companies Code, out of the net profit reported for the period from 1 January to 30 September 2022. The interim dividend for 2022 amounted to a total of PLN 79,050 thousand, representing an amount of PLN 1.50 per share. The Interim dividend record date was 22 December 2022, and the interim dividend was paid on 29 December 2022. For details, see current reports No 32/2022 and 40/2022. On 28 April 2022, the Ordinary General Meeting resolved to distribute CIECH S.A.’s net profit for the financial year 2021, amounting to PLN 133,206 thousand, and to allocate the entire profit to CIECH S.A.’s supplementary capital. 6.4 BUSINESS COMBINATIONS AND ACQUISITION OF INTEREST There were no business combinations in the presented periods. In 2022, changes in the CIECH Group’s structure that occurred in relation to the companies in which CIECH S.A. held shares, either directly or indirectly, were related to, among others: CIECH Transclean Sp. z o.o. The Court, in its decision of 3 February 2022, registered the reduction in the share capital of CIECH Transclean Sp. z o.o. resulting from the cancellation of shares, which was carried out on 21 July 2021 at the Extraordinary Shareholders' Meeting of CIECH Transclean Sp. z o.o. by deciding on the cancellation of shares against consideration and amending the Articles of Association of the Company: • 8,548 shares in the Company's share capital with a total nominal value of PLN 4,274 thousand were cancelled in exchange for consideration of PLN 506.56 per canceled share, i.e. for total consideration amounting to PLN 4,330 thousand by way of purchase of the above shares on the basis of an agreement to sell the shares by the Company against the above consideration, • The Management Board of the Company was authorised to purchase the shares (conclude an agreement) in order to cancel them, The agreement for the purchase of shares for cancellation against consideration was concluded on 10 November 2021; according to this agreement, the consideration was transferred within 14 days from the date on which the reduction of capital was registered by the court, FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 46 • following the cancellation of shares, the share capital was reduced from PLN 4,322 thousand (by PLN 4,274 thousand) to PLN 48 thousand through the cancellation of 8,548 shares with a total value of PLN 4,274 thousand. As a result of the decrease, the share capital of CIECH Transclean Sp. z o.o. is divided into 96 shares, with a total nominal value of PLN 48 thousand (the nominal value for 1 share is PLN 500). CIECH Sól Sp. z o.o. On 13 December 2021, the Deed of Incorporation of CIECH Sól sp. z o.o., with a share capital of PLN 5 thousand, divided into 100 shares with a nominal value of PLN 50 each, was drawn up. The share capital was fully covered with cash, all shares were taken up by CIECH S.A. The court, by decision of 7 February 2022, registered CIECH Sól Sp. z o.o. CIECH S.A. is the sole shareholder of the Company. CIECH Soda Romania S.A. As of 1 March 2022, a reduction in the share capital resulting from the cancellation of 26,819 treasury shares of CIECH Soda Romania S.A. effected by resolution of the General Meeting held on 7 December 2022 became effective. Following the cancellation, the share capital amounts to RON 111,573 thousand and is divided into 796,951,188 shares with a nominal value of RON 0.14 each. The number of shares held by CIECH S.A. remains unchanged - 786,912,905 shares; their proportion in the share capital changes from 98.737% to 98.740%. CIECH Nieruchomości Rolne Sp. z o.o. The court, in its decision of 22 August 2022, registered CIECH Nieruchomości Rolne Sp. z o.o., established on 26 May 2022 with a share capital of PLN 5 thousand, which is divided into 100 shares, with a nominal value of PLN 50 each. The Company’s share capital was paid in full in cash. CIECH S.A. is the sole shareholder of the Company. CIECH Ventures Sp. z o.o. On 27 October 2022 and 23 November 2022, the Extraordinary Shareholders' Meeting of CIECH Ventures Sp. z o.o. adopted resolutions to make additional contributions to the share capital by the sole shareholder of the company, i.e. CIECH S.A., in the total amount of PLN 4,500 thousand. 6.5 EARNINGS PER SHARE Accounting policy Basic earnings per share is the net profit for the year attributable to ordinary shareholders of the company divided by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share is the net profit for the year attributable to ordinary shareholders of the company divided by the weighted average number of ordinary shares outstanding during the year adjusted for the effects of all dilutive potential ordinary shares. The table below presents profit and shares data used in the calculation of the basic and diluted earnings per share: 01.01.-31.12.2022 01.01.-31.12.2021 Net profit (loss) from continuing operations attributable to the shareholders of the parent 612,255 91,525 Net profit (loss) from discontinued operations attributable to the shareholders of the parent - 41,681 Basic and diluted earnings per share (continuing operations) 11.62 1.74 Basic and diluted earnings per share (discontinuing operations) - 0.79 Weighted average number of issued ordinary shares used in calculation of basic and diluted earnings per share 52,699,909 52,699,909 FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 47 7 LIABILITIES, PROVISIONS, EMPLOYEE BENEFITS 7.1 INFORMATION ABOUT FINANCIAL LIABILITIES Accounting policy Financial liabilities are an entity’s liabilities to deliver financial assets to another entity or to exchange a financial instrument with another entity under conditions that are unfavourable. When a financial liability is recognised initially, an entity shall measure it at its fair value plus, in the case of a financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial liability. Interest accrued is recognised under finance costs or, if it is subject to capitalisation, to property, plant and equipment or intangible assets. LOANS, BORROWINGS AND OTHER DEBT INSTRUMENTS 31.12.2022 31.12.2021 LONG-TERM 1,671,280 1,854,153 Loans and borrowings 1,671,280 1,854,153 SHORT-TERM 587,175 397,099 Loans and borrowings 421,313 255,396 Cash pooling liabilities 165,862 141,703 TOTAL 2,258,455 2,251,252 Reconciliation of changes in liabilities resulting from financing activities – liabilities in respect of credits and loans: 01.01.-31.12.2022 01.01.-31.12.2021 Opening balance 2,109,549 2,095,105 Proceeds from debt incurred 234,500 385,493 financing received 1 234,500 385,493 Accrual of interest 137,814 38,196 Repayment of debt (393,064) (397,822) repayment of principal 1 (255,000) (351,790) interest paid (138,064) (46,032) Realised exchange differences on foreign currency debt 6 18,998 Foreign exchange differences on measurement of liabilities 1,274 (22,880) Other 2,514 (7,540) Closing balance 2,092,593 2,109,549 1 The loan repayment in 2021 in the amount of PLN 1,669,403 thousand was settled without any flow through the accounts of CIECH S.A. (refinancing of the loan). DEBT FINANCING CIECH S.A.’s debt financing is secured mainly through facilities made available to CIECH S.A. under facilities agreements: • The Facilities Agreement signed with a banking syndicate dated 16 March 2021 with the total value of approx. PLN 2,116,810 thousand: • amortised term facility in tranches in PLN and EUR in the amount of PLN 540,700 thousand and EUR 4,231 thousand (the facility is fully drawn down), • non-amortised term facility in tranches in PLN and EUR in the amount of PLN 1,260,100 thousand and EUR 9,844 thousand (the facility is fully drawn down), • revolving credit facility in the amount of up to PLN 250,000 thousand (the amount of used credit as at 31 December 2022 was PLN 0), • Overdraft facilities up to PLN 100,000 thousand and EUR 10,000 thousand under agreements dated 28 and 29 August 2018 (as at 31 December 2021, the amount used was PLN 0 thousand), The total value of facilities available under the aforesaid agreements is PLN 2,263,709 thousand; the limits are drown down in the amount of PLN 1,866,810 thousand. FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 48 Detailed information about loan liabilities is disclosed in the Directors’ Report for the CIECH Group and CIECH S.A. for 2022, in Section 4.6. As at 31 December 2022, CIECH S.A. has a short-term liability on account of intercompany loans received in the amount of PLN 234,665 thousand, including: • a loan from Gamma Finanse Sp. z o.o. in the amount of PLN 105,000 thousand, • a loan from Verbis Eta Sp. z o.o. SKA in the amount of PLN 84,500 thousand, • a loan from CIECH Pianki Sp. z o.o. in the amount of PLN 45,000 thousand, and interest accrued in the amount of PLN 165 thousand. Interest rate: The Loans bear interest at a floating rate determined on the basis of the WIBOR / EURIBOR base rate, plus margin, the level of which depends on the level of the net debt to EBITDA, such that if the level of the ratio is lower, the margin applied will also be lower. The financial terms of the Facilities Agreement do not differ from those commonly used for this type of agreements. Information about the financial covenants included in loan agreements During the period covered by these financial statements, no loan agreement was called to maturity and there were no violations of payment terms for repayment of principal or interest due in relation to financial liabilities recognised in the statement of financial position. Under the Facilities Agreement dated 16 March 2021, CIECH S.A. and its selected subsidiaries were obliged to, among others, maintain a certain level of: • net leverage ratio for the Group specified in the Facilities Agreement (the ratio of the CIECH Group’s consolidated net debt to consolidated EBITDA of the CIECH Group calculated according to the guidelines) in the amount of at least 4.0x,, measured at the end of a year and first six months of a year. As at the balance sheet date, i.e. 31 December 2022, this ratio was maintained and amounted to 1,2. • the guarantor coverage ratio (share of subsidiaries being guarantors in the consolidated EBITDA of the CIECH Group, calculated according to the guidelines) at a level of at least 80%; this ratio was met as at the balance sheet date and amounted to 93,0%. 7.2 OTHER NON-CURRENT LIABILITIES Accounting policy, judgements and estimates Accounting policy concerning financial instruments is presented in note 8.1. OTHER NON-CURRENT LIABILITIES 31.12.2022 31.12.2021 Derivatives 86,207 91,857 Other 20,478 26,213 TOTAL 106,685 118,070 Other long-term liabilities primarily include the value of liabilities under the CIECH Group's three-year Long-Term Incentive Plans for 2019- 2021 and 2022-2024 for the key management personnel of the CIECH Group (the short-term portion of the Plans is presented in Note 7.3 under other short-term liabilities). The intention behind the introduction of the Plans is to harmonise the activities of key managers of the CIECH Group with the achievement of the objectives set out in the CIECH Group Strategy. The main criterion is the achievement by the CIECH Group in a given three-year period of the specified increase in value in relation to the reference year (for the 2019-2021 Programme at the level of not less than 11% in relation to 2018 – this has been met, and for the 2022-2024 Programme at the level of not less than 20.5% in relation to 2021). The increase in value is measured using the TSR (Total Shareholder Return) ratio, with an additional 10% of the pool for the 2022-2024 Plan subject to meeting 4 ESG targets. The discounted value of the liabilities of the 2019-2022 Plan amounted to PLN 12,086 thousand for the long-term portion and PLN 14,202 thousand for the short-term portion, while for the 2022-2024 Plan the long-term portion stood at PLN 8,378 thousand. FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 49 7.3 CURRENT TRADE AND OTHER LIABILITIES Accounting policy Trade and other liabilities are classified as current or non-current based on the following principles: • trade liabilities are reported as current liabilities, regardless of maturity, • other liabilities due to be settled within 12 months of the balance sheet date are classified as current liabilities, • other payables, which do not meet the current liability conditions, are classified as non-current liabilities. Liabilities denominated in foreign currencies are recognised at the NBP’s average exchange rate effective on the last working day before the date of transaction. At the reporting date foreign currency denominated liabilities are translated at the average exchange rate announced for that day by the NBP except for received prepayments. Currency translation differences arising upon the repayment of a liability (realised) or its valuation (unrealised) are presented within financial income or expense. Prepayments for deliveries denominated in foreign currencies are recognised at the exchange rate applicable as at the transaction day. Factoring The Company uses non-recourse factoring services. The factor transfers advance payments to the Company’s account in the full amount of invoices accepted for financing. The financing of receivables transferred is provided in various timeframes, therefore, as at the balance sheet date, there may be receivables which have not been financed yet and are reported as factoring receivables. Advance payments received are posted as factoring liabilities. In the statement of financial position, factoring receivables and liabilities are recognised on a net basis up to 95% of the value of advance payments received from the factor (the 95% limit results from the level of the receivables insurance). The remaining 5% of receivables value is reported as factoring receivables, and 5% of the value of advance payments received is reported as factoring liabilities. Judgements and estimates At the reporting date trade payables are measured at amortised cost (i.e. they are discounted using the effective interest method) and increased by any applicable late interest accrued. Late interest is not accrued when a formal waiver is received from the counterparty. In all other cases such interest is accrued and recognised in accordance with the following principles: • on an ongoing basis, based on interest notes received; • in estimated amounts, with such estimates based on comparison of interest charged in the past by a counterparty to the related amounts owed. CURRENT TRADE AND OTHER LIABILITIES 31.12.2022 31.12.2021 Trade liabilities and advances taken 618,112 442,031 Liabilities for purchase of property, plant and equipment 9,079 9,526 Financial instruments liabilities - 59,843 Liabilities to employees 3,932 3,284 Payroll liabilities 20,626 25,402 Holiday leave accrual 3,327 4,904 Social security and other employee benefits 2,972 1,992 Liabilities due to continuous involvement 13,514 2,370 Factoring liabilites 14,612 8,244 Liabilities due to the purchase of shares, stocks and other financial assets - 4,921 Other 18,033 6,489 TOTAL 704,207 569,006 Trade liabilities do not bear interest. Commercial contracts concluded by CIECH S.A. include various terms of payment of trade liabilities depending on the type of transaction, market characteristics and trade conditions. The standard payment term is 60 days. FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 50 7.4 LEASES Accounting policy On 1 January 2019, CIECH S.A. adopted a new financial reporting standard, IFRS 16 Leases. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Company combines two or more contracts entered into at or near the same time with the same counterparty (or related parties of the counterparty), and account for the contracts as a single contract if one or more of the following criteria are met: • the contracts are negotiated as a package with an overall commercial objective that cannot be understood without considering the contracts together; • the amount of consideration to be paid in one contract depends on the price or performance of the other contract; or • the rights to use underlying assets conveyed in the contracts (or some rights to use underlying assets conveyed in each of the contracts) form a single lease component. A contract contains a lease if: • it concerns an identified asset that is explicitly specified in the contract (e.g. using an inventory number, address (for premises), etc.) or implicitly specified at the time that the asset is made available for use by the customer, and the supplier does not have the substantive right to substitute the asset throughout the period of use and • the lessee receives essential all of the economic benefits from such assets during the period of use, i.e. both basic benefits and the benefits derived from it (if any); and • the lessee has the right to specify the method in which it uses the identified asset. Initial measurement of the lease liability The lease payments included in the measurement of the lease liability comprise the following payments that are not paid: • 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; and • payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease and it is highly likely that this option will be exercised. Subsequent measurement of the lease liability After the commencement date, the Company measures the lease liability by: • increasing the carrying amount to reflect interest on the lease liability; • reducing the carrying amount to reflect the lease payments made; and • remeasuring the carrying amount to reflect any reassessment or lease modifications. The Company, as a lessee, recognises in profit or loss of the current period both: • interest on the lease liability; and • variable lease payments not included in the measurement of the lease liability in the period in which the event or condition that triggers those payments occurs, unless these costs are included in the carrying amount of another asset in accordance with the accounting policy for property, plant and equipment. Fixed lease payments In-substance fixed lease payments are payments that may, in form, contain variability but that, in substance, are unavoidable. Fixed lease payments exist, for example, if: • payments are structured as variable lease payments, but there is no genuine variability in those payments. Those payments contain variable clauses that do not have real economic substance. Examples of those types of payments include: • payments that must be made only if an asset is proven to be capable of operating during the lease, or only if an event occurs that has no genuine possibility of not occurring; or FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 51 Accounting policy • payments that are initially structured as variable lease payments linked to the use of the underlying asset but for which the variability will be resolved at some point after the commencement date so that the payments become fixed for the remainder of the lease term. Those payments become in-substance fixed payments when the variability is resolved, • there is more than one set of payments that a lessee could make, but only one of those sets of payments is realistic. In this case, an entity considers the realistic set of payments to be lease payments. • there is more than one realistic set of payments that a lessee could make, but it must make at least one of those sets of payments. In this case, an entity considers the set of payments that aggregates to the lowest amount (on a discounted basis) to be lease payments. Variable lease payments Variable lease payments that depend on an index or a rate include, for example, payments linked to a consumer price index, payments linked to a benchmark interest rate (such as WIBOR) or payments that vary to reflect changes in market rental rates (e.g. periodical changes in perpetual usufruct rates, in connection with the revision of a valuation report). Variable lease payments that do not depend on an index or a rate, i.e. depend on the use, are not included in the measurement of lease liabilities (e.g. fees for exceeding the mileage limit). Exemptions/ simplifications applied The Company applies the simplifications for short-term leases and low-value asset leases provided for in the standard. It is assumed that assets whose unit value does not exceed approximately PLN 20 thousand, which corresponds to approximately USD 5 thousand, are low- value assets. Short-term leases are those whose term is shorter than 12 months. Judgements and estimates Adoption of IFRS 16 entailed also the need to make estimates and judgments which are reflected in the measurement of lease liabilities and right-of-use assets, including: • assessing whether a contract contains a lease in accordance with IFRS 16, • determining the duration of contracts (including contracts with an indefinite term or with an extension option): With respect to contracts for an indefinite term, the Company, when estimating the irrevocable lease term, assumed the period in which it intends to use the underlying assets, also taking into account the rights of termination of the parties and the existence of significant penalties in the contracts. The lease term over which the lease liability is recognised also includes any periods resulting from an extension or early termination if any of the above scenarios is sufficiently certain in the entity's judgement. In the case of contracts with an extension option, the lease liability would be respectively higher, while termination options resulted in a reduction in the liability amount. • assessing lease payments as either fixed or variable, • determining depreciation and amortisation rates. • determining the interest rate to be used in discounting future cash flows: Discount rate The present value of future lease payments is calculated using the lease rate. If the lease rate is not known, the Company applies the incremental borrowing rate for a given lease agreement, i.e. the rate of interest that the Company would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. Assets used in CIECH S.A. under lease agreements include passenger cars and premises – mainly office and warehouse space. The lease agreement for cars is a renewable agreement, making it possible to acquire an asset at its estimated market value at the end of its use. The Company is not obliged to purchase the leased assets. To calculate discount rates for the purposes of IFRS 16, the Company assumes that the discount rate should reflect the cost that it would have to pay to borrow the funds necessary to purchase the leased asset. The calculation of interest rates took account of credit risk (reflected in the margin assumed), economic conditions in which the transactions took place (country, currency of the contract) and the duration of the contract (preparation of calculations for the relevant periods within which the Company holds lease contracts). Interest rates range from 2.34% to 9.39% (for PLN 2.34%-9.39%; for EUR 2.56%-4.88%). A single discount rate was applied to the entire contract portfolio. FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 52 The nominal value and the value lease interest are as follows: LEASE LIABILITIES Nominal payments Effective interest Discounted lease liability 31.12.2022 0–6 months 2,795 99 2,696 Up to 1 year 2,945 112 2 833 1–2 years 8,393 890 7,503 2–5 years 10,281 2,210 8,071 More than 5 years 8,430 2,613 5,817 TOTAL 32,844 5,924 26,920 31.12.2021 0–6 months 2,783 225 2,558 Up to 1 year 3,049 200 2,849 1–2 years 8,117 573 7,544 2–5 years 6,061 331 5,730 More than 5 years 5,343 104 5,239 TOTAL 25,353 1,433 23,920 Reconciliation of changes in liabilities resulting from financing activities – lease liabilities 01.01.-31.12.2022 01.01.-31.12.2021 Opening balance 23,920 28,124 Modifications of agreements 4,287 (1,030) Signing new agreements 3,477 2,680 Interest accrued 715 532 Repayment of liability (6,260) (6,387) Foreign exchange differences 780 1 Closing balance 26,920 23,920 The total lease cash outflow is as follows: 01.01-31.12.2022 01.01-31.12.2021 Payment of liabilities, including: 9,063 9,267 Principal amount 5,606 5,821 Interest 654 566 Variable payments other than those linked to an index/rate 2,097 2,074 Low-value leases 706 806 The following table presents lease costs not included in the calculation of carrying amounts in accordance with IFRS 16 for the period: 01.01-31.12.2022 01.01-31.12.2021 Costs of lease of low-value assets (706) (806) Costs related to variable lease payments not included in the measurement of lease liabilities (2,097) (2,074) For details of the right-of-use assets resulting from leases see Note 5.2 7.5 PROVISIONS FOR EMPLOYEE BENEFITS Accounting policy Provisions for retirement and disability benefits Based on the Company’s remuneration plan, the employees of CIECH S.A. are entitled to retirement and disability benefits. The Company’s obligations in respect of the above benefits is the amount of benefit entitlement that employees have earned as a result of their service in the current and prior years. Net defined benefit liabilities are calculated separately for each plan by estimation of future payments required to settle the obligation resulting from employee service in the current and prior periods (discounted to its present value). The discount rate is the rate of return FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 53 Accounting policy for low-risk debt securities with similar maturity date as the Company’s liabilities as at the end of the reporting period. An appropriate estimation is made by an authorised actuary with the application of forecast discounted unit right method. The use of such provisions results in a decrease in the provision, while the reversal of the said provision increases other operating income. The increase in the provision for employment costs is recognised respectively in other operating expenses. Changes in provisions resulting from the passage of time (i.e. the unwinding of the discount) and the effect resulting from changes in discount rates are always presented in financing activities. The Company recognises in other comprehensive income actuarial gains and losses – changes in provisions for retirement benefits resulting differences between the previous actuarial assumptions and what has actually occurred and the effects of changes in actuarial assumptions and change in discount rate. Judgements and estimates The amount of the provision for employee benefits is determined based on actuarial valuations performed by independent professional firms. By actuarial valuation estimates are made regarding the rotation in employment, wage growth, discount rates and inflation. PROVISIONS FOR EMPLOYEE BENEFITS LONG-TERM SHORT-TERM 01.01.-31.12.2022 01.01.-31.12.2021 01.01.-31.12.2022 01.01.-31.12.2021 Opening balance 734 979 413 826 Recognition 75 - 79 - Use and reversal (28) (58) (86) (339) Foreign exchange differences - - 7 - Other 42 (187) (67) (74) Closing balance 823 734 346 413 In 2022, an amount of PLN -54 thousand (PLN 89 thousand in the corresponding period) was recognised in other comprehensive income. This is a change in provisions for retirement benefits resulting from differences between the previous actuarial assumptions and what has actually occurred as well as from changes in the parameters and assumptions used in the calculations, such as the discount rate, the salary growth rate, and assumptions concerning the future mobility of employees. Employee benefits are measured on the basis of actuarial valuations and including provision for retirement and disability benefits. A discount rate of 6.61% p.a. was applied in order to determine the current value of future liabilities due to employee benefits. The discount rate applied is established in nominal value. The remuneration growth rates of 5.0% were applied for 2023 and subsequent years. Staff turnover ratio is established based on historic data, adjusted for employment restructuring plans. According to the Company’s estimations, a change in actuarial assumptions will not have a significant impact on financial results. 7.6 OTHER PROVISIONS Accounting policy A provision is recognised if, as a result of a past event, the Company has a present obligation and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. A provision for restructuring is recognised when the Management Board has approved a detailed and formal restructuring plan, and the restructuring either has commenced or has been announced publicly and a reliable estimate can be made. Judgements and estimates For measurement of the provisions, the Company is required to make estimates, assumptions regarding discount rates, expected costs and payment terms. FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 54 CHANGE IN OTHER SHORT-TERM PROVISIONS Provisions for liabilities TOTAL 01.01.-31.12.2022 Opening balance 34,561 34,561 Recognition 14,040 14,040 Use and reversal (528) (528) Closing balance 48,073 48,073 01.01.-31.12.2021 Opening balance 33,741 33,741 Recognition 988 988 Use and reversal (168) (168) Closing balance 34,561 34,561 The amount of provisions is an estimated value and may be subject to change during utilisation.Short-term provisions of PLN 48,073 thousand are related to potential claims (principal liability plus interest payable) resulting from litigation. The increase in provisions during 2022 is mainly associated with the tax settlement audits pending at the company. FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 55 8 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT 8.1 FINANCIAL INSTRUMENTS Accounting policy Principles of measurement after initial recognition/at the end of reporting period and presentation of financial instruments in financial statements Category of assets or liabilities Measurement Recognition Assets at fair value through profit or loss At fair value Remeasurement changes adjust the carrying amount of the asset and are recognised in current period profit or loss. Financial assets measured at amortised cost At amortised cost using the effective interest rate (EIR) Remeasurement changes adjust the carrying amount of the asset and are recognised in current period profit or loss. Financial assets at fair value through other comprehensive income At fair value Changes from remeasurement at fair value are recognised in other comprehensive income. For debt instruments interest is recognised directly in profit or loss under finance income. Liabilities at fair value through profit or loss At fair value Remeasurement changes adjust the carrying amount of the asset and are recognised in current period profit or loss. Financial liabilities at fair value through other comprehensive income At fair value Changes from remeasurement at fair value are recognised in other comprehensive income. Impairment of financial assets At each balance sheet date, the Entity assesses whether there has been a significant increase in credit risk for a single financial asset (financial instrument) since its initial recognition (not applicable to assets measured through profit or loss or equity investments designated as measured at fair value through other comprehensive income). If such a significant increase has taken place, the Entity estimates allowances in the amount of long-term expected credit losses. Otherwise, the Entity estimates allowances in the amount of 12-month expected credit losses, even if in previous periods allowances were recognised in the amount of long-term expected credit losses. The Entity assumes that in the case of financial instruments that meet the definition of a low credit risk instrument as at a given balance sheet date, there has been no significant increase in credit risk and therefore the allowance is estimated at the amount of 12-month expected credit losses. The credit risk on a financial instrument is considered low for these purposes, if: • the financial instrument has a low risk of default, • the borrower has a strong capacity to meet its contractual cash flow obligations in the near term and • adverse changes in economic and business conditions in the longer term may, but will not necessarily, reduce the ability of the borrower to fulfil its contractual cash flow obligations. The Entity considers that there has been a significant increase in credit risk for a given financial instrument, if there has been a delay in contractual payments of more than 30 days. For a financial asset that is credit-impaired at the reporting date, but that is not a purchased or originated credit-impaired financial (POCI) asset, the Entity measures the expected credit losses as the difference between the asset's gross carrying amount and the present value of estimated future cash flows discounted at the financial asset's original effective interest rate. Any adjustment is recognised in profit or loss as an impairment gain or loss. A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of that financial asset have occurred. Evidence that a financial asset is credit-impaired include observable data about the following events: • significant financial difficulty of the issuer or the borrower; • a breach of contract, such as a default or past due event; FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 56 Accounting policy • the lender(s) of the borrower, for economic or contractual reasons relating to the borrower's financial difficulty, having granted to the borrower a concession(s) that the lender(s) would not otherwise consider; • it is becoming probable that the borrower will enter bankruptcy or other financial reorganisation; • the disappearance of an active market for that financial asset because of financial difficulties; or • the purchase or origination of a financial asset at a deep discount that reflects the incurred credit losses. It may not be possible to identify a single discrete event—instead, the combined effect of several events may have caused financial assets to become credit-impaired. Regardless of the above criteria, the Entity considers that there has been an impairment loss in the event of a delay in payment of more than 180 days, as it believes that the risk of default by counterparties increases significantly after that date. The amount established as a result of the abovementioned allowances may be decreased if the Management Board is in possession of reliable documents, indicating that the receivables were secured and their payment is highly probable. Impairment allowances are estimated using individual parameters determined on the basis of benchmarks (using information on bank ratings) or values provided by experts, scaled down to the horizon for estimating expected credit losses. For trade receivables, the Entity chose a simplified approach whereby lifetime expected credit losses are estimated from the moment of initial recognition of exposures. The main financial instruments disclosed in the statement of financial position of CIECH S.A. as at 31 December 2022 include: Financial assets: • cash and cash equivalents, • loans granted, • financial instruments with positive valuation, • trade receivables, • factoring receivables, • cash pooling receivables. Financial liabilities: • term loan liabilities, revolving facility liabilities and overdraft liabilities, • trade payables, • financial instruments with negative valuation, • lease liabilities, • loan liabilities, • cash pooling liabilities, • factoring liabilities. FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 57 Carrying amount of financial instruments Class of financial instruments note 31.12.2022 31.12.2021 Categories of financial instruments Cash and cash equivalents 5.8 390,907 467,475 Measured at amortised cost Loans granted 5.4;5.7 2,218,184 1,651,148 Measured at amortised cost Trade receivables 5.6 204,700 110,037 Measured at amortised cost Factoring receivables 5.6 36,108 21,437 Measured at amortised cost Derivatives with positive value 5.4;5.7 105,898 88,783 Measured at fair value through profit or loss Hedging derivatives with positive value 5.4;5.7 6,494 14,099 Financial assets at fair value through other comprehensive income Cash pooling receivables 5.6 5,688 3,912 Measured at amortised cost ASSETS 2,967,979 2,356,891 Trade liabilities 7.3 (618,022) (442,025) Measured at amortised cost Credits and loans 7.1 (2,092,593) (2,109,549) Measured at amortised cost Lease liabilities 7.4 (26,920) (23,920) Measured at amortised cost Factoring liabilities 7.3 (14,612) (8,244) Measured at amortised cost Derivatives with negative value 7.2;7.3 (86,207) (151,564) Measured at fair value through profit or loss Hedging derivatives with negative value 7.2;7.3 - (136) Financial liabilities measured at fair value through profit or loss. Cash pooling liabilities 7.3 (165,862) (141,703) Measured at amortised cost LIABILITIES (3,004,216) (2,877,141) Selected trade receivables in CIECH S.A. are subject to factoring. This is factoring with the assumption of insolvency risk whereby the factor assumes the risk in the amount specified in the insurance policy. CIECH S.A. also uses reverse factoring. Due to the terms of the agreements, these liabilities are reported as trade liabilities. Revenues, costs, profit and loss recognised in the income statement by the category of financial instruments. Revenues, costs, profit and loss recognised in the income statement– for continuing and discontinued operations 01.01.-31.12.2022 01.01.- 31.12.2021 Categories of financial instruments Interest income/(expenses), including calculated using the effective interest rate method (55,567) (143) 96,000 48,844 Financial assets measured at amortised cost (150,915) (48,479) Financial liabilities measured at amortised cost (652) (508) Financial liabilities excluded from IFRS 9 Foreign exchange gains/(losses) 19,728 5,863 19,728 5,863 Financial liabilities measured at amortised cost - - Financial liabilities excluded from IFRS 9 Recognition of impairment losses (4,570) (1,167) Financial assets measured at amortised cost Reversal of impairment losses 6,126 2,138 Financial assets measured at amortised cost Income/expenses from use of derivative financial instruments 191,362 (79,859) 155,646 (68,470) Financial assets/liabilities measured at fair value through profit or loss 35,716 (11,389) Hedging instruments - 44,274 Financial assets/liabilities measured at fair value through profit or loss TOTAL 157,079 (28,894) FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 58 8.2 FINANCIAL INSTRUMENTS DESIGNATED FOR HEDGE ACCOUNTING Accounting policy Hedge accounting recognises the offsetting effects on profit or loss of changes in the fair values of the hedging instrument and the hedged item. Derivatives such as options, forwards, swaps are held to hedge the fair value of assets or liabilities or expected future cash flows. For the hedging instruments, the Entity may apply hedge accounting if, and only if, all the following conditions are met: • the hedging relationship consists only of eligible hedging instruments and eligible hedged items. • at the inception of the hedging relationship there is formal designation and documentation of the hedging relationship and the entity's risk management objective and strategy for entity the hedge. That documentation shall include identification of the hedging instrument, the hedged item, the nature of the risk being hedged and how the entity will assess whether the hedging relationship meets the hedge effectiveness requirements (including its analysis of the sources of hedge ineffectiveness and how it determines the hedge ratio). • the hedging relationship meets all of the following hedge effectiveness requirements: • there is an economic relationship between the hedged item and the hedging instrument; • the effect of credit risk does not dominate the value changes that result from that economic relationship; and • the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the entity actually hedges and the quantity of the hedging instrument that the entity actually uses to hedge that quantity of hedged item. However, that designation shall not reflect an imbalance between the weightings of the hedged item and the hedging instrument that would create hedge ineffectiveness (irrespective of whether recognised or not) that could result in an accounting outcome that would be inconsistent with the purpose of hedge accounting. Cash flow hedge: A cash flow hedge is a hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with all, or a component of, a recognised asset or liability (such as all or some future interest payments on variable-rate debt) or a highly probable forecast transaction, and could affect profit or loss. Cash flow hedge shall be accounted for as follows: a) the separate component of equity associated with the hedged item (cash flow hedge reserve) is adjusted to the lower of the following (in absolute amounts): o the cumulative gain or loss on the hedging instrument from inception of the hedge; and o the cumulative change in fair value (present value) of the hedged item (i.e. the present value of the cumulative change in the hedged expected future cash flows) from inception of the hedge. b) the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge (i.e. the portion that is offset by the change in the cash flow hedge reserve calculated in accordance with (a)) shall be recognised in other comprehensive income. c) any remaining gain or loss on the hedging instrument (or any gain or loss required to balance the change in the cash flow hedge reserve calculated in accordance with (a)) is hedge ineffectiveness that shall be recognised in profit or loss. The effective portion of the hedge is transferred to profit or loss as a reclassification adjustment in the period or periods when the hedged expected future cash flows affect profit or loss. FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 59 The table below presents a summary of specific groups of relationships existing in 2022, designated for hedge accounting: Type of instrument Hedged item Nominal value/ Volume as at 31.12.2022 Maturity 31.12.2022 31.12.2021 Value in financial assets Value in financial liabilities Value in financial assets Value in financial liabilities Interest rate swap – 6M EURIBOR to fixed rate Interest payments on debt in EUR with a maximum nominal amount of EUR 14,075 thousand EUR 14,075 thousand 2026 6,494 - 526 - Interest rate swaps – 6M WIBOR to fixed rate Interest payments on term loan contracted by CIECH S.A. with initial nominal amount of PLN 1,212,520 thousand - 2022 - - 13,437 - 31.12.2022 31.12.2021 Before tax Tax After tax Before tax Tax After tax Cash flow hedge reserve as at the beginning of the period 24,797 (4,711) 20,085 (31,744) 6,032 (25,713) Effective portion of gains/(losses) on hedging instruments: - interest rate risk (18,304) 3,479 (14,825) 37,765 (7,175) 30,590 Reclassification to profit or loss: - interest rate risk (interest expense) - - - 18,776 (3,568) 15,208 Cash flow hedge reserve as at the end of the period 6,493 (1,232) 5,260 24,797 (4,711) 20,085 The aim of CIECH S.A. when taking the decision concerning the implementation of the principles of cash flow hedging was to reduce the influence of interest rate movements and exchange rates differences from valuation of financial instruments on the statement of profit or loss by reflecting their hedging nature in the financial statements. In the reporting period, there were no instances of identifying the inability to realise a future transaction in respect of which the cash flow hedge accounting was applied. Sales revenues designated to hedge accounting are considered as highly probable. Their occurrence is anticipated in the Company’s long- term financial forecast. Additionally, majority of these transactions are concluded with regular customers of CIECH S.A., which supports the probability of their occurrence. In IRS transactions, in order to identify sources of ineffectiveness of the hedge, key parameters of the hedged credit and IRS transactions (nominal amount, interest rate, interest periods) were compared. Credit risk is considered negligible. No sources of ineffectiveness were identified. 8.3 FINANCIAL RISK MANAGEMENT Risk management principles CIECH S.A. actively manages operational and financial risk, striving to reduce the fluctuation of cash flows and maximise the companies’ market value. CIECH S.A.’s policy assumes natural hedging (for net exposure) and hedging of up to 90% of projected annual net exposure to currencies exchange rate change by using derivative instruments and 100% exposure to interest rate risk. In 2022, forward currency and interest rate risk hedging transactions (forwards, IRSs and CIRSs) were entered into (or continued to exist after being entered into in previous years) at the company. FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 60 Cash management CIECH S.A. cooperates with bank service providers of high credit rating. Surplus cash is held in the form of deposits with short maturities with banks with investment grade credit ratings. Allocation of financial resources is performed through the use of intra-group loans, dividends payout by subsidiaries, participation in a cash management system (cash pooling) and increase of share capital in the subsidiaries. Quantitative and qualitative information on financial risks CIECH S.A. manages financial risks based on, among others, the developed and adopted market risk hedging strategy. The aim of the financial risk management policy is to identify areas requiring risk analysis to determine methods to identify and measure it, to determine activities undertaken in relation to identified risk areas and to define organisational solutions in the risk management process. In fulfilling its strategic goals, CIECH S.A. aims to avoid excessive market risk. This goal is realised by identifying, monitoring and hedging cash flow fluctuation risk and monitoring the size and costs of the Company’s debt. When assessing risk, the Company takes into account the risk portfolio effect resulting from the variety of conducted business activities. Risk effects are materialised in the cash flow statement, statement of financial position and the statement of profit or loss. Interest rate risk CIECH S.A. finances its activity mainly through term loans. The amount of the costs of interest-bearing debt held by the Company depends on the reference rate. This refers to term loans made available under a facilities agreement dated 16 March 2021 in the amount of PLN 1,801 million and EUR 14 million, a revolving credit facility in the amount of up to PLN 250 million (as at the end of 2022, the debt amounted to PLN 0), overdraft facilities (as at the end: PLN 0 thousand) and a part of lease and factoring contracts. Therefore, the Company is exposed to risk of change in finance costs due to changing interest rates on existing debt. This may result in increased financial costs and, consequently, deterioration of the Company’s financial performance. The risk is reduced by: • assets owned by CIECH S.A. (bank deposits), earning interest at variable interest rate, • hedging transactions concluded. In 2022, CIECH S.A. used the following interest rate hedging transactions: • interest rate swap transaction to hedge the variable interest rate levels applicable to the calculation of interest on the term loan made available in March 2021. The transaction hedges indebtedness in the amount of EUR 14 million (as at 31 December 2022), amortised in accordance with the schedule of the IRS transaction; • currency and interest rate swap transactions to hedge the variable interest rate levels applicable to the calculation of interest on the term loan made available in March 2021. The transaction hedges indebtedness in the nominal amount of 1,538 million (as at 31 December 2022), amortised in accordance with the schedule of the CIRS transaction. The table below presents the consolidated statement of financial position items (without derivative instruments) exposed to interest rate risk: Total carrying amount 31.12.2022 31.12.2021 Fixed interest rate instruments 1,388,923 1,024,037 Financial assets 1,388,923 1,024,037 Financial liabilities - - Floating interest rate instruments (1,074,131) (1,184,918) Financial assets 1,225,856 1,098,498 Financial liabilities (2,299,987) (2,283,416) FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 61 The table below shows the effects of a change in the interest rate by 100 basis points in relation to the floating interest rate instruments presented in the statement of financial position. Statement of profit or loss Equity (impact of profit/loss on equity is not included) increase by 100 bp decrease by 100 bp increase by 100 bp decrease by 100 bp 31.12.2022 Floating interest rate instruments (10,741) 10,741 - - Interest rate swaps (IRS) 44,137 (45,971) 1,658 (1,726) Sensitivity of cash flows (net) 33,396 (35,230) 1,658 (1,726) 31.12.2021 Floating interest rate instruments (11,849) 11,849 - - Interest rate swaps (IRS) 52,085 (55,141) 5,439 (5,638) Sensitivity of cash flows (net) 40,236 (43,292) 5,439 (5,638) Currency risk Currency risk is an inevitable component of commercial activity denominated in foreign currencies. Due to the nature of conducted import and export operations, CIECH S.A. is subject to currency exposure related to the significant lead of export over import. Sources of currency risk which exposed companies within the CIECH Group in 2022 included: sales of products, purchases (raw materials, expenditure related to investment projects), loans taken out and cash in foreign currencies. Unfavourable changes in currency exchange rates may worsen the Company’s financial results. In 2022, CIECH S.A. used hedging contracts, such as forward options, to partially cover currency risk. CIECH S.A. tries to naturally hedge the foreign currency exposure, including matching of currency flows arising from sales and purchases as well as strategic debt denominated in EUR, in order to fit it to the expected exposure to currency risk in operations. The table below presents the estimated currency exposure of CIECH S.A. in EUR and USD as at 31 December 2022 and 2021 due to financial instruments: Exposure to currency risk in EUR (figures in EUR) 31.12.2022 31.12.2021 Impact on the statement of profit or loss Impact on the statement of other comprehensive income Assets Loans granted sensitive to FX rate changes 297,700 224,000 x - Trade and other receivables 2,921 2,681 x - Cash including bank deposits 35,005 2,475 x - Equity and liabilities Trade and other liabilities (3,228) (172) x - Term loan liabilities (14,075) (14,075) x - Other liabilities in respect of credits and loans (112) (3,577) x - Forward not designated to hedge accounting) (257,713) (192,913) x - CIRS (342,249) (403,590) x - Total exposure (281,752) (385,171) FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 62 Exposure to currency risk in USD (figures in USD) 31.12.2022 31.12.2021 Impact on the statement of profit or loss Impact on the statement of other comprehensive income Assets Trade and other receivables 245 127 x - Cash including bank deposits 1,242 77 x - Equity and liabilities Trade and other liabilities (445) (33) x - Total exposure 1,042 171 Measurement of financial instruments designated for hedge accounting is referred to other comprehensive income while ineffectiveness is recognised in the profit or loss statement. The table contains an analysis of the sensitivity of individual statement of financial position items to exchange rate changes as at 31 December 2022. Figures in EUR (Increase of EUR/PLN exchange rate by 1 grosz) TOTAL Impact on the statement of profit or loss Impact on the statement of other comprehensive income Analysis of sensitivity to currency risk – EUR, 2022 Foreign-currency balance sheet items (2,818) (2,818) - Analysis of sensitivity to currency risk – EUR, 2021 Foreign-currency balance sheet items (3,852) (3,852) - Figures in USD (Increase of USD/PLN exchange rate by 1 grosz) TOTAL Impact on the statement of profit or loss Impact on the statement of other comprehensive income Analysis of sensitivity to currency risk – EUR, 2022 Foreign-currency balance sheet items 10 10 - Analysis of sensitivity to currency risk – EUR, 2021 Foreign-currency balance sheet items 2 2 - Raw material price risk A significant portion of CIECH S.A.’s activity is the import and export of chemical raw materials. The raw materials markets are characterised by a cyclical nature related to fluctuations of the global economy. The growing prices of raw materials cause a decrease in margins of trade intermediaries and a decrease of demand generated by recipients. On the other hand, the falling prices are usually a symptom of a decreasing demand and the beginning of an economic downturn. On the domestic market, raw materials are subject to similar tendencies. The maintenance of a stable pace of economic growth and stable prices of chemical raw materials will have a positive impact on the commercial activity of CIECH S.A. Considerable fluctuations of demand and prices caused either by fast economic growth or economic stagnation will have a negative influence on the activity related to trading in chemical raw materials by the Company. CIECH S.A. reduces price risk through concluding agreements with suppliers with appropriate price formula. Credit risk Credit risk means a threat of the counterparty not fulfilling the obligations stipulated in the agreement, exposing the lender to financial loss. From the CIECH S.A.'s point of view, credit risk is linked to: • trade receivables from customers, • loans granted, • cash and bank deposits, • guarantees and sureties granted. CIECH S.A. is exposed to credit risk connected with the credit rating of customers being parties to products and goods sales transactions. That risk is limited by using internal procedures to establish amounts of credit limits for customers and to manage trade receivables (the Company uses securities in the form of a letter of credit, bank guarantees, mortgages, receivables insurance and non-recourse factoring). Customers’ creditworthiness is assessed and appropriate collateral is obtained from the borrowers, allowing for a reduction of potential FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 63 losses in the case of failure to repay the debt. Credit risk assessment for customers is performed prior to concluding an agreement and periodically at subsequent deliveries of goods in accordance with the binding procedures. On selected markets, where more risky payment deadlines are applied, the Company makes use of services provided by companies specialising in insuring receivables. Credit risk connected with cash in bank and bank deposits is low as CIECH S.A. enters into transactions with high-rating banks with stable market position. The table below presents the maximum exposure of financial assets to credit risk as at the end of reporting period. 31.12.2022 31.12.2021 Cash and cash equivalents 390,907 467,475 Loans granted 2,218,184 1,651,148 Trade receivables 204,700 110,037 Factoring receivables 36,108 21,437 Cash pooling receivables 5,688 3,912 Financial assets from valuation of derivatives 112,392 102,882 TOTAL 2,967,979 2,356,891 The fair value of financial assets exposed to credit risk is similar to their carrying amount. The Company has no material items which would be uncollectible as at the reporting date and not covered by an impairment allowance. Information on guarantees and sureties granted is provided in note 9.2 to these statements. Trade receivables and net factoring receivables (net amount) Loans granted (net amount) 31.12.2022 31.12.2021 31.12.2022 31.12.2021 Poland 163,379 103,197 829,260 627,110 European Union 75,783 27,641 1,388,923 1,024,038 Other European countries - 98 - - Africa - 538 - - Asia 1,646 - - - TOTAL 240,808 131,474 2,218,183 1,651,148 Trade receivables and net factoring receivables (net amount) Loans granted (net amount) 31.12.2022 31.12.2021 31.12.2022 31.12.2021 Soda segment 217,371 104,619 - - Agro Segment 2,611 3,972 - - Foams Segment 217 1,011 - - Silicates Segment 472 4,307 - - Packaging Segment 142 315 - - Other activities (including corporate functions) 19,995 17,250 2,218,183 1,651,148 TOTAL 240,808 131,474 2,218,183 1,651,148 FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 64 Impairment of financial assets Changes in the gross carrying amounts of trade receivables and loans with reconciliation of write-downs as at 31 December 2022 and as at 31 December 2021 to opening balances are presented in the table below: Trade receivables Loans Stage 2 Stage 3 TOTAL Stage 1 Stage 3 Stage 3 TOTAL Lifetime ECL – not impaired Lifetime ECL – impaired 12-month ECL Lifetime ECL Lifetime ECL Gross carrying amount as at 01.01.2022 110,233 20,226 130,459 1,659,652 - 2,801 1,662,453 Recognised 889,731 754 890,485 1,516,102 - - 1,516,102 Interest accrued - - - 104,904 - - 104,904 Written-down - (10) (10) - - - - Repaid (799,805) (5,435) (805,240) (1,062,144) - - (1,062,144) Foreign exchange differences 4,718 193 4,911 11,606 - - 11,606 Gross carrying amount as at 31.12.2022 204,877 15,728 220,605 2,230,120 - 2,801 2,232,921 Opening balance of write-downs as at 01.01.2022 (196) (20,226) (20,422) (8,504) - (2,801) (11,305) Change in write-downs 19 4,498 4,517 (3,432) - - (3,432) Closing balance of write- downs as at 31.12.2022 (177) (15,728) (15,905) (11,936) - (2,801) (14,737) Net carrying amount as at 31.12.2022 204,700 - 204,700 2,218,184 - - 2,218,184 Trade receivables Loans Stage 2 Stage 3 TOTAL Stage 1 Stage 3 Stage 3 TOTAL Lifetime ECL – not impaired Lifetime ECL – impaired 12-month ECL Lifetime ECL Lifetime ECL Gross carrying amount as at 01.01.2021 169,867 20,530 190,397 1,596,870 - 2,801 1,599,671 Recognised 808,575 910 809,485 2,015,131 - - 2,015,131 Interest accrued 151 151 48,615 - - 48,615 Written-down - 1 1 - - - Repaid (878,925) (1,941) (880,866) (2,001,117) - - (2,001,117) Foreign exchange differences 10,565 726 11,291 153 - - 153 Gross carrying amount as at 31.12.2021 110,233 20,226 130,459 1,659,652 - 2,801 1,662,453 Opening balance of write-downs as at 01.01.2021 (203) (20,530) (20,733) (8,556) - (2,801) (11,357) Change in write-downs 7 304 311 52 - - 52 Closing balance of write- downs as at 31.12.2021 (196) (20,226) (20,422) (8,504) - (2,801) (11,305) Net carrying amount as at 31.12.2021 110,037 - 110,037 1,651,148 - - 1,651,048 The net carrying amount of trade receivables and loans reflects the maximum exposure to credit risk. Calculation of impairment losses on loans granted As at the date of initial application of IFRS 9, the Company, in accordance with the three-stage expected credit loss model, calculated the expected credit loss on the basis of the probability of default (calculated based on the assessment of credit risk, i.e. the Company's rating). All loans were classified by the Company in Stage 1 (loans for which no significant deterioration in credit quality was observed and expected credit losses are estimated in the period of 12 months after the reporting date). As at 31 December 2021 and 31 December 2022, loans were not reclassified to Stage 2 or Stage 3. FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 65 The following table presents an analysis of the credit risk stages of loans measured at amortised cost. 31.12.2022 31.12.2021 Estimated Rating Stage 1 Stage 3 TOTAL Stage 1 Stage 3 TOTAL 12-month ECL Lifetime ECL 12-month ECL Lifetime ECL Rating CIECH S.A. (Ba2 Moody’s) 1 2,232,921 - 2,232,921 1,662,453 - 1,662,453 Gross carrying amount 2,232,921 - 2,232,921 1,662,453 - 1,662,453 Impairment losses (14,737) - (14,737) (11,305) - (11,305) Net carrying amount 2,218,184 - 2,218,184 1,651,148 - 1,651,148 1 CIECH S.A.'s rating was estimated on the basis of Moody's methodology (Rating Scorecard) and the most recent financial data of CIECH S.A., according to which the calculated rating of CIECH S.A. is Ba2. Calculation of impairment allowances for trade receivables The following tables present the reconciliation of impairment allowances for financial assets in accordance with IFRS 9. TOTAL Non past due receivables Non past due 0-30 days 30-60 days > 90 days > 180 days Gross carrying amount of receivables as at 31.12.2022 220,606 202,375 6,456 86 35 11,654 Default rate 0.03% 0.02% 0.00% 20.00% 97.33% Total expected losses 145 58 1 - 7 79 from collective analysis 15,906 4,555 1 - 7 11,343 from case-by-case analysis 145 58 1 - 7 79 TOTAL Non past due receivables Non past due 0-30 days 30-60 days > 90 days > 180 days Gross carrying amount of receivables as at 31.12.2021 130,459 99,856 5,438 3,620 9 21,536 Default rate 0.13% 0.03% 0.26% 0.18% 94% Total expected losses 20,422 228 3 9 - 20,182 from collective analysis 195 130 3 9 - 53 from case-by-case analysis 20,227 98 - - - 20,129 Liquidity risk CIECH S.A. is exposed to risk connected with maintaining liquidity due to the considerable share of external financing (due to the term loan, working capital facility and lease agreements) in relation to operating results, the limited ability to obtain new financing due to the existing high level of indebtedness and the risk of losing the existing long-term financing as a result of violating covenants stipulated in the bond issue terms and loan agreements. The following measures are applied to reduce liquidity risk: • current monitoring of liquidity of CIECH S.A., • monitoring and optimisation of the level of working capital, • adjusting the level and schedule of capital expenditure, • intragroup borrowings and sureties for the liabilities from the CIECH Group’s companies, • current monitoring of the settlement of liabilities under the loan agreements conditions. The CIECH S.A.’s debt financing is ensured by a term loan. In addition, a revolving credit facility in the amount of PLN 250 million, constituting an additional source of current liquidity and working capital financing (as at 31 December 2022, the facility was drawn down in the amount of PLN 0 million), and overdraft facilities (as at the end of 2022, they were drown down in the amount of PLN 0 thousand) have been made available to the Company. FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 66 The table below presents financial liabilities at face value grouped by maturity. 31.12.2022 Carrying amount Contractual cash flows Less than 6 months up to 12 months 1-2 years 3-5 years More than 5 years Other financial liabilities: (2,891,089) (3,364,348) (982,316) (415,282) (326,012) (1,640,739) - Trade liabilities (618,022) (618,022) (618,022) - - - - Credits and loans (2,092,593) (2,565,852) (183,820) (415,282) (326,012) (1,640,739) - Factoring liabilities (14,612) (14,612) (14,612) - - - - Cash pooling liabilities (165,862) (165,862) (165,862) - - - - Lease liabilities (26,920) (32,844) (2,795) (2,945) (8,393) (10,281) (8,430) Derivatives with negative value (86,207) (254,675) - - - (254,675) - Hedging derivatives with negative value - - - - - - - Total financial liabilities (3,004,216) (3,651,867) (985,111) (418,227) (334,405) (1,905,694) (8,430) 31.12.2021 Carrying amount Contractual cash flows Less than 6 months up to 12 months 1-2 years 3-5 years More than 5 years Other financial liabilities: (2,701,521) (2,875,356) (611,380) (288,750) (112,782) (1,862,444) - Trade liabilities (442,025) (442,025) (442,025) - - - - Credits and loans (2,109,549) (2,283,384) (19,408) (288,750) (112,782) (1,862,444) - Factoring liabilities (8,244) (8,244) (8,244) - - - - Cash pooling liabilities (141,703) (141,703) (141,703) - - - - Lease liabilities (23,920) (25,353) (2,571) (2,894) (7,843) (9,270) (2,775) Derivatives with negative value (151,564) (271,530) (16,215) - - (255,315) - Hedging derivatives with negative value (136) (84) (39) (30) (15) - - Total financial liabilities (2,877,141) (3,172,323) (630,205) (291,674) (120,640) (2,127,029) (2,775) Detailed information concerning revenues and costs pertaining to financial instruments, recognised in the statement of profit or loss has been presented in note 8.1. CIECH S.A.’s liquidity Liquidity ratios as at 31 December 2022 remained relatively flat as compared to their level as at 31 December 2021. The current ratio, calculated as the ratio of total current assets to total current liabilities, amounted to 1.26 as at 31 December 2022. 31.12.2022 31.12.2021 Current ratio 1.26 1.33 Quick ratio 1.26 1.33 FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 67 8.4 DETERMINATION OF FAIR VALUE The following list presents the fair value of financial instruments. 31.12.2022 31.12.2021 Carrying amount Fair value Carrying amount Fair value Cash and cash equivalents 390,907 390,907 467,475 467,475 Loans granted 2,218,184 2,218,184 1,651,148 1,651,148 Trade receivables 204,700 204,700 110,037 110,037 Derivatives with positive value 105,898 105,898 88,783 88,783 Hedging derivatives with positive value 6,494 6,494 14,099 14,099 Cash pooling receivables 5,688 5,688 3,912 3,912 Factoring receivables 36,108 36,108 21,437 21,437 ASSETS 2,967,979 2,967,979 2,356,891 2,356,891 Credits and loans (2,092,593) (2,101,462) (2,109,549) (2,120,932) Trade liabilities (618,022) (618,022) (442,025) (442,025) Derivatives with negative value (86,207) (86,207) (151,564) (151,564) Hedging derivatives with negative value - - (136) (136) Cash pooling liabilities (165,862) (165,862) (141,703) (141,703) Factoring liabilities (14,612) (14,612) (8,244) (8,244) LIABILITIES (2,977,296) (2,986,165) (2,853,221) (2,864,604) The fair value of financial assets and liabilities corresponds with the amounts for which these instruments may be exchanged in a market transaction between well informed parties. The following assumptions were made in establishing the fair value: • cash, trade receivables and liabilities are not measured at fair value – it is assumed that the carrying amount is the closest to fair value due to the short maturities of these instruments, • fair value of financial assets and liabilities recognised in the statement of financial position at amortised cost for which no active market exists was established as the present value of future cash flows discounted at market interest rate. The carrying amount is the net amount, loans are based on a variable rate, commissions and fees are not amortised. Measurement at fair value is grouped according to three-level hierarchy: • Level 1 – fair value based on market listing stock exchange prices (unadjusted) offered for identical assets or liabilities on active markets – did not occur. • Level 2 – CIECH S.A. measures derivatives at fair value by using measurement models for financial instruments and applying generally available interest rates, currency exchange rates etc. • Level 3 – fair value estimated on the basis of various valuation techniques which are not based on observable market inputs - did not occur. Assets and liabilities measured at fair value 31.12.2022 31.12.2021 Level 2 Level 2 ASSETS 112,392 102,882 Hedging instruments 6,494 14,099 Derivative instruments measured at fair value through profit or loss 105,898 88,783 LIABILITIES (86,207) (151,700) Hedging instruments - (136) Derivative instruments measured at fair value through profit or loss (86,207) (151,564) TOTAL 26,185 (48,818) FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 68 As at 31 December 2022, CIECH S.A. held the following types of financial instruments measured at fair value: interest rate swap contracts, currency forward contracts EUR/PLN and CIRS (currency and interest rate swap) contract EUR/PLN. The IRS contracts hedging the interest rate are designated for hedge accounting. The fair value of the interest rate swap contract is determined as a difference in the discounted interest rate cash flow (cash flow based on a floating rate, the so-called floating leg, and a fixed rate, the so-called fixed leg). The input data for the method is the market data for interest rates provided by Reuters. The fair value of the CIRS contract is determined as a difference in discounted interest and capital cash flows. The input data for the method is the market data for interest rates and cross currency basis-swaps quotations provided by Reuters. The fair value of the currency forward is determined as a difference between the transaction rate and the forward rate at the valuation date multiplied by the nominal value of the contract in the foreign currency. The input data for the method is the market data for interest rates and cross currency basis-swaps quotations provided by Reuters. Fair value of financial instruments Long-term financial assets Short-term financial assets Other long-term liabilities Trade and other liabilities TOTAL 31.12.2022 IRS EUR 4,233 2,261 - - 6,494 CIRS - 96,376 (86,207) - 10,169 Forward EUR/PLN - 9,522 - - 9,522 TOTAL 4,233 108,159 (86,207) - 26,185 31.12.2021 IRS EUR 662 - - (136) 526 IRS PLN - 13,437 - - 13,437 CIRS - 85,607 (91,857) (59,707) (65,957) Forward EUR/PLN - 3,176 - - 3,176 TOTAL 662 102,220 (91,857) (59,843) (48,818) The above financial instruments were classified at level 2 of the fair value hierarchy. In 2022, there were no transfers within the fair value hierarchy of instruments measured at fair value. FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 69 9 OTHER NOTES 9.1 NOTES TO THE STATEMENT OF CASH FLOWS The tables below present the reasons for the differences between the changes of particular items of the statement of financial position and changes resulting from the cash flows statement 31.12.2022 31.12.2021 Change in receivables reported in the statement of financial position (157,617) 28,014 Receivables from the purchase of shares (19,000) 19,175 Reclassification of cash pooling receivables 1,776 (4,047) Offsetting loan receivables against loan liabilities - (10,000) Reclassification of income tax receivables 43,718 37 Change in receivables in the statement of cash flows (131,123) 33,179 31.12.2022 31.12.2021 Change in liabilities reported in the statement of financial position 137,136 312,211 Change in financial liabilities 16,925 (14,444) Change in income tax liabilities (3,117) 4,539 Change in liabilities relating to non-current assets 970 (1,125) Reclassification of cash pooling liabilities (24,159) 1,811 Measurement of financial instruments 65,493 (170,534) Change in lease liabilities (3,000) 4,204 Change in liabilities on account of purchase of financial assets 4,921 3,871 Other 2 75 Change in liabilities in the statement of cash flows 195,171 140,608 31.12.2022 31.12.2021 Change in provisions and employee benefits reported in the statement of financial position 13,534 162 Change in provision for income tax liability (7,196) - Change in provisions and employee benefits reported in the statement of cash flows 6,338 162 FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 70 9.2 INFORMATION ON CHANGES IN CONTINGENT ASSETS AND LIABILITIES AND OTHER MATTERS Accounting policy Contingent assets usually arise from unplanned or other unexpected events that give rise to the possibility of an inflow of economic benefits to the Company. Contingent assets are not recognised in the statement of financial position since this may result in the recognition of income that may never be realised. A contingent liability is a possible future obligation, whose existence will be confirmed by the occurrence or non-occurrence of uncertain future events not wholly within the Company’s control. These are also liabilities that arose from past events but were not recognised in the financial statements because it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation, or the amount of obligation cannot be measured with sufficient reliability. Contingent liabilities are not recognised in the statement of financial position. Significant disputed liabilities of CIECH S.A. As at 31 December 2022, CIECH S.A. did not have any significant disputed liabilities pursued in all types of proceedings before court, body appropriate for arbitration proceedings or public administration bodies, except for the cases described in section “Audits of tax settlements at CIECH S.A.” in this chapter. Significant disputed receivables of the CIECH Group As at 31 December 2022, CIECH S.A. did not hold any significant disputed receivables pursued in all types of proceedings before court, body appropriate for arbitration proceedings or public administration bodies, apart from the case disclosed below in section “Contingent assets and contingent liabilities including guarantees and sureties”. Contingent assets and liabilities including guarantees and sureties, excluding liabilities related to proceedings before administrative authorities The amounts of contingent liabilities related to proceedings before administrative authorities and changes therein in 2022 are described in the note below under the heading: “Audits of tax settlements at the CIECH Group and related contingent liabilities”. Contingent assets and contingent liabilities including guarantees and sureties 31.12.2022 31.12.2021 Contingent assets 34,153 18,864 Other contingent receivables 34,153 18,864 Contingent liabilities 2,278,195 1,764,507 Guarantees granted 2,021,130 1,539,555 Tax liabilities (including interest) 2,404 10,160 Letters of support 254,662 214,792 The value of contingent assets comprises: • contingent asset in the amount of PLN 18,864 thousand related to the action against GZNF “FOSFORY” Sp. z o.o. for the payment of compensation for making an alleged untrue declaration by GZNF “FOSFORY” Sp. z o.o. to CIECH S.A. about the condition of Agrochem Człuchów Sp. z o.o. with its registered office in Człuchów. • contingent asset in the amount of PLN 15,289 thousand related to the value of potential interest to be returned from the tax office in relation to the payment of the additional income tax liability with interest for 2012 following the decision of the 2 nd instance authority in 2019. The contingent asset relates to interest for the period from the date of payment of tax plus interest to 31 December 2022. As at 31 December 2022, contingent liabilities amounted to PLN 2,278,195 thousand and increased as compared to 31 December 2021 by PLN 513,688 thousand. The change was mainly attributable to changes in the value of the guarantees granted for the liabilities of subsidiaries described in the table below. FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 71 Sureties granted as at 31 December 2022 Beneficiary’s name Principal Financial terms, including surety fee due to the company; surety period Total amount of liabilities covered by surety in whole or in specific part currency PLN CIECH S.A. Landesamt fuer Geologie und Bergwesen Sachsen-Anhalt CIECH Soda Deutschland GmbH&Co. KG. (subsidiary) Commission of 0.97% p.a. of the guaranteed liability; collateral pertaining to liability; no time limit EUR 8,403 thousand 39,411 thousand Axpo Solutions AG CIECH Energy Deutschland GmbH (subsidiary) Commission of 0.57% p.a. of the guaranteed liability; collateral pertaining to claims related to the agreement; until 31 December 2023 EUR 46,000 thousand 215,735 thousand Investitionsbank_Sachsen-Anhalt (IBSA) CIECH Salz Deutschland GmbH (subsidiary) Commission of 0.97% p.a. of the guaranteed liability; collateral pertaining to claims related to the subsidy; EUR 11,250 thousand 52,761 thousand Evatherm AG CIECH Salz Deutschland GmbH (subsidiary) Commission of 0.97% p.a. of the guaranteed liability; collateral pertaining to liability; until the liabilities arising from the agreement between Evatherm AG and CIECH Salz Deutschland GmbH have been settled EUR 21,900 thousand 102,709 thousand BNP Paribas S.A. CIECH Soda Deutschland GmbH & Co. KG; CIECH Energy Deutschland GmbH (subsidiaries) Commission of 0.97% p.a. of the guaranteed liability; ISDA agreement – liabilities under the agreement; indefinite term EUR 200,000 thousand 937,980 thousand BNP Paribas S.A. CIECH Soda Deutschland GmbH & Co. KG; CIECH Energy Deutschland GmbH (subsidiaries) Commission of 0.55% p.a. of the guaranteed liability; supplier financing agreement; until all obligations have been repaid no later than 36 months after the date of termination PLN 62,500 thousand 62,500 thousand BNP Paribas Faktoring Sp. z o.o. CIECH S.A., CIECH Sarzyna S.A., CIECH Pianki Sp. z o.o., CIECH Soda Polska S.A., CIECH Vitrosilicon S.A. (subsidiaries) Commission of 0.55% p.a. of the guaranteed liability; supplier financing agreement; indefinite term PLN 150,000 thousand 150,000 thousand mBank S.A. CIECH Sarzyna S.A. (subsidiary) Commission of 0.57% p.a. of the guaranteed liability; collateral pertaining to claims under the Guarantee agreement; until 30 June 2023 PLN 3,000 thousand 3,000 thousand CITI Handlowy (reverse factoring) CIECH S.A., CIECH Sarzyna S.A., CIECH Pianki Sp. z o.o., CIECH Soda Polska S.A., CIECH Vitrosilicon S.A. (subsidiaries) Commission of 0.55% p.a. of the guaranteed liability; 12 March 2022 (automatically extended) PLN 162,422 thousand 162,422 thousand SEFE Marketing & Trading Ltd. (formerly: Gazprom Marketing & Trading Limited) CIECH Energy Deutschland GmbH (subsidiary) Commission 0.97%p.a. of the average outstanding balance; open-ended EUR 9,475 thousand 44,435 thousand Vitol S.A. CIECH Soda Polska S.A. (subsidiary) Commission of 0.18% p.a. of the guaranteed liability; until 31 May 2023 PLN 20,000 thousand 20,000 thousand IKS Solino S.A. CIECH Soda Polska S.A. (subsidiary) Commission of 0.57% p.a. of the guaranteed liability; until 31 December 2028 PLN 220,000 thousand 220,000 thousand PGNiG Obrót Detaliczny Sp. z o.o. CIECH Vitro Sp. z o.o. (subsidiary) Commission of 0.57% p.a. of the guaranteed liability; until 30 June 2024 PLN 10,176 thousand 10,176 thousand Total nominal amount of contractual commitments for which sureties were granted PLN 2,021,130 thousand FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 72 Letters of support As at 31 December 2022, CIECH S.A. was the obliged party in the letter of support (Patronatserklärung) regarding CIECH Soda Deutschland GmbH&Co. KG seated in Staßfurt (CSD) granted to Innogy Gas Storage NWE GmbH (“Innogy”) relating to liabilities of CSD resulting from the agreement dated 5 May 2009 on salt caverns construction for the purpose of natural gas storage on the Staßfurt mining field according to which CSD received payments of EUR 54.3 million from Innogy by 31 December 2022. In the letter of support, CIECH S.A. has committed, among other things, to ensure that CSD will have sufficient funds to fulfil its financial commitments against Innogy resulting from the above- mentioned agreement. Audits of tax settlements and related contingent liabilities In 2022, the following audits and proceedings were carried out at CIECH S.A.: • audit concerning Corporate Income Tax settlements for 2012 (CIT 2012) – awaiting the Director of the Tax Administration Chamber decision in line with the Supreme Administrative Court judgment, • audit concerning Corporate Income Tax settlements for 2013 (CIT 2013) – court stage • a customs and fiscal audit concerning Corporate Income Tax settlements for 2014 (CIT 2014). • a customs and fiscal audit concerning Corporate Income Tax settlements for 2016 (CIT 2016). CIT audit for 2012 at CIECH S.A. Was initiated by the Head of the Małopolskie Province Customs and Tax Office in Kraków on 5 April 2018. CIECH S.A. received the outcome of the audit on 4 July 2018. The tax authority challenged the transaction concerning the capital increase in the former subsidiary. In the opinion of the authority, making a cash contribution by means of a contractual set-off of mutual receivables gives rise to income on the part of the Company for which, according to the auditors, the company cannot recognise a cost. The company's management board and its tax advisors do not agree with the findings made by the auditors. In December 2018, the company received a decision of the Head of the Małopolskie Province Customs and Tax Office in Kraków, upholding the previous position of the authority. The Company contested the position and filed an appeal. In April 2019, the Company received a decision of the second instance, upholding the decision of the first instance. In April and May 2019, the Company paid up the outstanding tax along with interest in three tranches in the total amount of PLN 66.4 million (tax: PLN 43.7 million, interest: PLN 22.7 million). The disputed amount of tax and interest were covered by the provision recognised in 2018, which was used as a result of their payment. CIECH S.A. appealed against the decision of the second instance to the Provincial Administrative Court (“PAC”) in Kraków. On 9 October 2019, the Provincial Administrative Court issued a ruling in which it confirmed the approach presented by the authority. The court indicated that the company was obliged to recognise the income and did not have the right to recognise the tax deductible cost. After receipt of a written statement of reasons, the company lodged a cassation complaint with the Supreme Administrative Court on 23 December 2019. On 8 December 2022, the Supreme Administrative Court issued a judgement in which it overturned the judgment of the Provincial Administrative Court. The Supreme Administrative Court also overturned the decision of the Second Instance Authority and the case was referred back to that Authority for reconsideration. On 8 February 2023, the Company received a written statement of reasons for the SAC's judgement. In its statement of reasons, the Supreme Administrative Court indicated that the Authority, when re-examining the case, would be obliged to follow the court's interpretation of the law. The attached ruling is final and not subject to appeal. Currently, the Company is waiting for the decision of the tax authorities in accordance with the judgment of the Supreme Administrative Court, after which it should receive a refund of the overpaid tax liability, interest paid for late payment, interest for the period when the paid funds were at the disposal of the tax authority and reimbursement of court costs. CIT audit for 2013 at CIECH S.A. It was initiated by the Tax Audit Office in Warsaw on 30 November 2016. The tax audit report was issued on 16 May 2017. The authority claims that the Company has overestimated the tax deductible cost of interest on cash obtained as a result of the issue of bonds and allocated to the reserve capital of CIECH Soda Deutschland GmbH & Co. KG. Moreover, the authority is of the opinion that the fee for the “CIECH” trademark should not be recognised by CIECH S.A. as a tax deductible cost. FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 73 The tax base challenged by the authority is PLN 9.4 million (after taking into account the tax loss incurred in the audited year), which translates into a tax of PLN 1.8 million. The company and its advisors did not agree with the findings of the auditors and as a result of the tax proceedings, the Decision of the First Instance was issued, against which the company filed an appeal in 2017. On 14 March 2018 CIECH S.A. received the decision of the Second Instance in which the auditors upheld their findings contained in the Decision of the First Instance. The company appealed to the Provincial Administrative Court against this decision. Despite this, the company decided to pay tax in the amount of PLN 1.8 million and interest (PLN 0.3 million) on 10 April 2018. The Court made its decision on 6 June 2019. The Court complied with the CIECH S.A. appeal as regards the costs of trademark fees, repealing the decision of the second instance. However, as regards the costs of consulting and financing of Soda Deutschland, the Court adjudicated that said costs could not constitute tax costs. After receipt of a written statement of reasons, the company lodged a cassation complaint with the Supreme Administrative Court (hereinafter referred to as the “SAC”) in September 2019. On 6 July 2022, the SAC rendered a judgement in which it dismissed the Company's cassation complaint. The court upheld the auditors’ position and denied the Company the right to recognise interest on external financing earmarked for the reserve capital in CIECH Soda Deutschland GmbH & Co. KG and the expense in relation to tax consultancy as tax costs. As far as the fee for the use of the CIECH trademark is concerned, the SAC found that the office that had carried out the audit did not clarify the matter in depth and, therefore, the SAC referred the matter for reconsideration by the office. On 26 July 2022, the Company received a written statement of reasons for the SAC's judgement. In view of the content of the aforementioned statement of reasons, the Company intends to reiterate and expand on the arguments supporting its position. The case was returned to the Director of the Tax Administration Chamber in Warsaw. On 27 February 2023, the Company received the Decision of DIAS in Warsaw of February 14, 2023. In the decision, DIAS will determine the amount of the tax liability at PLN 1.4 million. The Office refrained from questioning trademark fees as tax deductible costs. The Office, however, did not take into account the additional evidence submitted by the Company regarding interest on external financing allocated to the reserve capital of CIECH Soda Deutschland GmbH & Co. KG. and expenses related to tax consultancy and refused to recognize them as tax costs. The Company and its advisors do not agree with the issued Decision and intend to sue it in court. CIT audit for 2014 at CIECH S.A. It was initiated by the Head of the Małopolskie Province Customs and Tax Office in Kraków (hereinafter: Head of the Małopolskie Province Customs and Tax Office in Kraków) on 13 November 2019. The Company received the outcome of the audit on 22 May 2020. The authority claims that the Company has overestimated the tax deductible cost by including interest on external financing contributed to the capital reserves of Soda Deutschland CIECH GmbH (hereinafter: SDC) and the costs of obtaining this financing in tax deductible costs. Moreover, the authority is of the opinion that expenses incurred on account of trade mark fees paid to the CIECH Group company should not be recognised by CIECH S.A. as a tax deductible cost. The taxable amount challenged by the authority is PLN 32.5 million which translates into a potential tax liability of PLN 6.2 million. The Company does not agree with the findings made by the auditors As a result, the customs and fiscal audit was converted into tax proceedings. On 15 October 2020, the Company received a report on the audit of the books in which the Head of the Małopolskie Province Customs and Tax Office leaves only the charge that the company overestimated the tax deductible cost by including interest on external financing contributed to the capital reserves of SDC and the costs of obtaining this financing in tax deductible costs (the taxable amount is PLN 22.6 million which translates into a potential tax liability of PLN 4.3 million). Thus, the office has refrained from questioning the expenses incurred for trade mark fees as a tax deductible cost. In the same month, the company submitted objections to the report on the audit of the books. In addition, on 6 October 2020 the company received from the Head of the Małopolskie Province Customs and Tax Office a notice of suspension, as of 1 September 2020, of the statute of limitations for tax liabilities for 2014 due to initiation of proceedings for fiscal offences. On 28 February 2022, the Company received the Order of the Head of the Małopolskie Province Customs and Tax Office to suspend the Tax proceedings, in which the Auditing Authority indicates that the consideration of the case and the issue of the decision depends on the resolution of the preliminary issue by another authority or court, and the proceedings before the Supreme Administrative Court regarding FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 74 the dispute on the settlement of the corporate income tax for 2013 is directly related to the correct settlement of corporate income tax for 2014. CIT audit for 2016 at CIECH S.A. On 25 May 2021, CIECH S.A. received an authorisation from the Head of the Małopolskie Province Customs and Tax Office in Kraków to carry out a customs and fiscal audit with regard to corporate income tax (CIT) for 2016. On 25 July 2022, the Company received a decision of the Head of the Małopolskie Province Customs and Tax Office to suspend the tax proceedings, in which the Auditing Authority indicates that the dispute between CIECH S.A. and the Head of the Tax Administration Chamber in Warsaw regarding the settlement of corporate income tax for 2013 is directly related to the correct settlement of corporate income tax for 2016. In view of the above, the Head of the Małopolskie Province Customs and Tax Office in Kraków suspended the customs and fiscal audit. In addition, on 2 September 2022 the company received from the Head of the Małopolskie Province Customs and Tax Office a notice of suspension, as of 19 August 2022, of the statute of limitations for tax liabilities for 2016 due to the initiation of proceedings for a fiscal offence. The Company estimated that the potential impact on income tax expense (in the form of additional tax liabilities), in connection with the above events which are or may continue to be challenged, would amount to PLN 8.6 million if it were no longer probable that the Company would be able to uphold its tax interpretations before the tax authorities. From the above-mentioned amount of PLN 8.6 million due to the audits conducted, despite the continued dispute with the tax authorities, the Company has paid PLN 1.8 million in tax (of which PLN 0.4 million should be returned by the Tax Office after issuing a new decision specifying a lower tax liability) and an amount of PLN 7.2 million is covered by the provision. The entire amount of tax paid of PLN 1.8 million is reported as a receivable from the Tax Office. The company has recognised an impairment loss on this amount receivable. In addition, the Company paid PLN 0.3 million in interest. After winning the CIT case for 2012 before the Supreme Administrative Court, the Company should receive a refund of the overpaid tax liability in the amount of PLN 43.7 million and a refund of the interest paid in the amount of PLN 22.7 million. 9.3 INFORMATION ON TRANSACTIONS WITH RELATED PARTIES 9.3.1 TRANSACTIONS WITH RELATED PARTIES IN TOTAL Detailed information about transactions between CIECH S.A. and other related entities (i.e. companies controlled by the parent company at the higher level in relation to CIECH S.A. — Kulczyk Investments S.A. and non-consolidated companies of the CIECH Group, and with the Polenergia Group companies - linked via a personal relationship with the ultimate parent company of CIECH S.A.) is presented below: CIECH S.A.’S TRANSACTIONS WITH RELATED ENTITIES Subsidiaries Associates Other related parties TOTAL 01.01.-31.12.2022 Sales revenues 282,971 14,143 - 297,114 Financial income, including: 413,349 215 8 413,572 Dividend 297,966 215 - 288,181 Purchases of products, goods, materials and services, including: 2,170,271 6,309 2,755 2,179,335 KI One SA - - 104 104 Financial expenses 59,717 - - 59,717 31.12.2022 Receivables 75,586 4,949 - 80,535 Loans granted 2,218,183 - - 2,218,183 Trade and other liabilities 746,341 825 13 747,179 Loans received 234,665 - - 234,665 01.01.-31.12.2021 Sales revenues 223,598 16,976 - 240,574 Financial income, including: 316,009 - - 316,009 Dividend 204,620 - - 204,620 Purchases of products, goods, materials and services, including: 1,310,969 25,546 5,828 1,342,343 KI One SA - - 199 199 FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 75 CIECH S.A.’S TRANSACTIONS WITH RELATED ENTITIES Subsidiaries Associates Other related parties TOTAL Financial expenses 76,889 - - 76,889 31.12.2021 Receivables 74,873 609 - 75,482 Loans granted 1,651,026 - - 1,651,026 Trade and other liabilities 548,277 2,098 45 550,420 Loans received 255,219 - - 255,219 Terms of transactions with related entities Material sales to and purchases from related entities are carried out on terms which do not differ from arm’s length terms. Overdue liabilities and receivables are not secured and are settled through bank transfers. No material non-standard or non-routine transactions were concluded with related entities in 2022 except for the ones presented in section 9.3.3. In the presented period, the key management personnel of CIECH S.A. did not conclude any material transactions with members of the CIECH Group. 9.3.2 SIGNIFICANT TRANSACTIONS WITH RELATED PARTIES OTHER THAN ON AN ARM’S LENGTH BASIS To the best of the Company’s judgement, there were no transactions with related entities in CIECH S.A. on other than market conditions in 2022. 9.3.3 DESCRIPTION OF NON-ROUTINE TRANSACTIONS WITH RELATED PARTIES Information on significant transactions with related parties is provided in note 6.4 to these financial statements. 9.3.4 TRANSACTIONS CONCLUDED WITH KEY MANAGERIAL PERSONNEL Key managerial personnel comprises persons who are authorised to and are responsible for direct and indirect planning, managing and controlling the activities of CIECH S.A. Remuneration of the Management Board of CIECH S.A. The following table presents the amount of remuneration and additional benefits payable to particular Members of the Management Board in 2022 and in the comparable period. In the years 2021-2022, members of the Management Board of CIECH S.A. did not receive any remuneration for holding a position in the Supervisory Boards or any other functions performed in the subsidiaries of the CIECH Group, except for Mr Mirosław Skowron, who served on the Management Board of Ciech Salz Deutschland GmbH, and Mr Kamil Majczak, who serves on the Management Board of CIECH Ventures Sp. z o.o. Short-term employee benefits Long-term Incentive Plan Post-employment benefits Termination benefits TOTAL 31.12.2022 Management Board 13,485 8,808 - - 22,293 Former members of the Management Board - - - - - TOTAL 13,485 8,808 - - 22,293 31.12.2021 Management Board 9,368 - - - 9,368 Former members of the Management Board - - 524 - 524 TOTAL 9,368 - 524 - 9,892 FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 76 Members of the Management Board are employed based on employment contracts. Remuneration of the Management Board Members are set out in individual employment contracts. Members of the Management Board are also entitled to: • discretionary bonus in the amount determined by the Supervisory Board of CIECH S.A.; • annual bonus determined in individual employment contracts • payments from the Long-Term Incentive Plan for three subsequent years, adopted on the basis of a decision of the Supervisory Board, with payments in three consecutive years after the end of the reference period. Remuneration of the Managing Director The following table presents the amount of remuneration and additional benefits payable to the Managing Director in 2022. During this period, the Managing Director received remuneration for serving on the Supervisory Boards of: Polsin Overseas Shipping Ltd. Sp. z o.o. and Proplan Plant Protection Company S.L. Managing Director 01.01 – 31.12.2022 01.06 – 31.12.2021 Short-term employee benefits 817 1,019 Long-term Incentive Plan 1,807 - TOTAL 2,624 1,019 The Managing Director is employed under an employment contract which specifies the basic remuneration and the applicable rules of the bonus system. Remuneration of the Supervisory Board of CIECH S.A. Short-term employee benefits Remuneration due from CIECH S.A. in 2022 Remuneration due from CIECH S.A. in 2021 Sebastian Kulczyk - 1 - 1 Natalia Scherbakoff 2 510 39 Artur Olech 1,607 447 Marek Kośnik 1,554 476 Łukasz Rędziniak 1,168 368 Martin Laudenbach 1,003 209 Piotr Augustyniak 3 - 108 TOTAL 5,842 1,647 1 From 1 April 2016, Chairman of the Supervisory Board, Mr. Sebastian Kulczyk does not receive any remuneration due to the waiver of the claim for remuneration for the position of the Chairman of the Supervisory Board. 2 Appointed to the Supervisory Board on 26 October 2021. 3 On 16 March 2021, Mr Piotr Augustyniak resigned as Member of the Supervisory Board of CIECH S.A. Members of the Supervisory Board are entitled to the gross monthly remuneration specified in the Resolution of the Annual General Meeting of CIECH S.A. of 28 April 2022. The Chairman of the Supervisory Board Committee is entitled to an additional gross monthly remuneration of 10% of the amount set out in the aforementioned Resolution. Members of the Supervisory Board committee are entitled to an additional gross monthly remuneration of 5% of the amount set out in the aforementioned Resolution. In 2022, the Supervisory Board Members additionally received individual awards based on the Resolution of the Annual General Meeting of CIECH S.A. of 28 April 2022. FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 77 9.4 INFORMATION ABOUT AGREEMENTS CONCLUDED WITH THE ENTITY AUTHORISED TO AUDIT THE FINANCIAL STATEMENTS OF CIECH S.A. The entity authorised to audit financial statements for the period from 1 January 2022 to 31 December 2022 was BDO Spółka z ograniczoną odpowiedzialnością spółka komandytowa with its registered office in Warsaw. On 8 June 2022, CIECH S.A. signed an agreement with BDO Spółka z ograniczoną odpowiedzialnością spółka komandytowa on the review of semi-annual and audit of annual financial statements for the years 2022 and 2023. Value of agreements concluded with BDO Spółka z ograniczoną odpowiedzialnością spółka komandytowa is presented below: 31.12.20221 31.12.20211/2 Audit and review of the annual and semi-annual financial statements 682 623 Audit of the financial statements as at 30 September 2022 185 - Other attestation services 20 45 TOTAL 1 887 668 1 The above amounts do not include additional costs, such as travel, accommodation and nourishment costs – additional costs may amount to a maximum of approx. 10% of the agreement value. 2 The figures for the comparable period refer to agreements with Deloitte Audyt Sp. z o.o. Sp. k. who provided audit services in 2020-2021. 9.5 EVENTS AFTER THE BALANCE SHEET DATE • On 19 January 2023, the Extraordinary Shareholders’ Meeting of CIECH Nieruchomości Rolne Sp. z o.o. increased the Company's share capital by PLN 200 thousand, i.e. from PLN 5 thousand to PLN 205 thousand through creation of 40,000 new, equal and indivisible shares with a nominal value of PLN 50 per share. The right to subscribe for all 40,000 shares was granted to CIECH S.A., the sole shareholder of the Company. Registration of the increase of the share capital by the court is pending. • On 31 January 2023, Mr Mirosław Skowron tendered his resignation as Member of the Management Board of CIECH S.A. • On 13 February 2023, a notice of intention to announce a tender offer to subscribe for the shares in CIECH S.A. issued by Santander Bank Polska S.A. – Santander Brokerage Office on behalf of KI Chemistry SARL, the main shareholder of CIECH S.A., was published. • On March 3 2023, a tender offer to subscribe for the shares in CIECH S.A was published. Subscriptions for shares under the Tender offer will be accepted from March 10, 2023 to April 12, 2023. The expected date of settlement of the share purchase transaction in the Tender Offer is April 19, 2023. 9.6 INFORMATION ON THE CURRENT SITUATION IN CONNECTION WITH THE IMPACT OF THE RUSSIAN INVASION OF UKRAINE ON CIECH S.A.’S ACTIVITIES The Russian invasion of Ukraine in February 2022 was an event that shattered the existing order of life in Europe known up to the outbreak of the conflict. Russia's aggression against Ukraine has led to a collapse in Europe's energy order and stability, and consequently also to force previously unplanned measures aimed at making European Union countries independent of the monopoly of Russian energy supplies. The conflict in Ukraine resulted in a worsening of the adverse phenomena related to price fluctuations and availability of raw materials. Below is a description of the potential impact of the invasion of Ukraine on the operations of CIECH S.A. – mainly from the perspective of the company as the parent company in the CIECH Group. Soda Segment Soda segment suffered the greatest impact of the conflict in the Group, through an increase in the price of energy inputs and a deterioration in their availability. The inability to import anthracite from Russia, as a result of the economic sanctions in place since April 2022, resulted in the soda plants switching to the use of more expensive coke from Polish manufacturers. Coal deliveries continue and FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 78 Soda Segment are sourced from the existing suppliers, PGG and Węglokoks, however the terms of cooperation and deliveries have been renegotiated due to the unprecedented increase in global market prices. The price of coal purchased has increased, but in view of the need to secure the continuity of production of soda plants and ensure the availability of soda products to customers, the aspect of increased coal costs has faded into the background. For gas, the level of risk increased too high for the Stassfurt plant. It was assumed that there would be limitations in gas supply or even a stoppage of supply, which could have resulted in the soda plant and salt brewing plants in Stassfurt halting production. However, by the end of 2022, the situation with raw materials had stabilised slightly and the risk of reduced gas supplies and thus the need for the Stassfurt plant to reduce or suspend production had not materialised. Following significant increases in the prices of energy inputs, resulting in an increase in production costs, the Group decided to react proactively to the fluctuating prices of raw materials and renegotiated the prices of soda products with its customers along with the increase in the prices of these raw materials (despite the fact that contracts were binding for the whole of 2022 and the commercial terms were set). Owing to the favourable situation in demand, the Group was able to pass on to its customers the rising costs of soda products. As a result, the Soda Segment delivered the highest revenues in the Group's history. Agro Segment For the Agro Segment, the impact of the Russian invasion of Ukraine was significantly lower than for the soda segment. The countries involved in the ongoing conflict, i.e. Russia, Belarus and Ukraine, did not represent large markets for the products of the Nowa Sarzyna plant. Also, raw materials (mainly active substances) and inputs necessary for the production of CIECH Sarzyna's crop protection products were not sourced from these countries (the main purchase market for raw materials is Asia and manufacturers from India and China). The unfavourable impact of the conflict in Ukraine for the company materialised due to the occurrence of an oversupply of cereals on the Polish market in 2022. Large quantities of cereals from Ukraine entered the market, resulting in Polish farmers reducing the acreage of their own crops and thus decreasing the demand for crop protection products from Nowa Sarzyna. An additional risk factor that weakened the demand for crop protection products in the Agro Segment was unfavourable weather conditions (prolonged drought in the spring in Poland and drought in Spain at the turn of spring and summer). However, the segment met its targets, owing to high demand at the beginning of the year, even before the onset of Russia's invasion of Ukraine, and later at the end of the year when weather conditions improved. Foams Segment The impact of the armed conflict in Ukraine on the Foams segment materialised in the form of uncertainty and fear of economic recession for individual upholstered furniture manufacturers' customers. The segment experienced a decline in demand for upholstered furniture and lower than expected demand for foams during 2022. The challenging demand situation was further exacerbated by high price pressure from other foam manufacturers and price reductions. The Bydgoszcz plant took measures to maintain the level of margins earned and meet the financial targets set for the segment. Silicates Segment and Packaging Segment For both of these segments, the detrimental phenomenon caused by Russia's invasion of Ukraine was a significant and unpredictable increase in gas prices. In addition, both segments also saw increases in soda prices. As a result of increased prices for two key raw materials, both segments experienced significant increases in production costs. The Silicates Segment was in a better position than the Packaging Segment in the realities that occurred, as it was possible to raise prices for silicate customers in response to rising production costs. Owing to such measures, CIECH Vitrosilicon has minimised the effects of rising production costs and passed them on to its customers. Such measures were also supported by the level of demand in the silicate market. For the Packaging Segment, the ability to pass the effects of rising raw material prices on to customers was very limited. The purchasing capacity of individual customers has also been further reduced by the high level of inflation in 2022 - a decline in purchases of headstone lamps and lanterns by end customers, which had already been ongoing in previous years, was observed. Given the situation, the Packaging Segment focused its efforts on the FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 79 Silicates Segment and Packaging Segment most efficient use of raw materials and sought to optimise their use at every stage of the production process. The segment was unable to avoid, like other segments, price increases for its products, which offset, to a limited extent, the effects of rising raw material prices. Strengthening IT infrastructure Another threat that has emerged following the outbreak of conflict in Ukraine has been the increase in the risk of cyber-attacks. In this area, the Company has, since the beginning of the conflict, when increased activity of hacker groups and attacks on information systems and resources was observed, strengthened the security measures in place and performs continuous monitoring of unusual events, logs and operations. These measures have been implemented as part of the IT security policy and information security policy. Addressing financial risks Another significant issue that affected the Company and Group in connection with Russia's invasion of Ukraine is that prices in the financial markets, including commodity prices, exchange rates and interest rates, become highly volatile. In the wake of the ongoing conflict, prices of assets perceived as more risky also weakened, which translated into the depreciation of PLN against, among others, EUR and USD. The Company has a significant exposure to the EUR/PLN exchange rate (total position of EUR -281.7 million) and a relatively low exposure to USD/PLN (total position of USD -1.0 million). In the short term, the weakening of the PLN against the EUR led to an increase in negative valuations of derivatives contracted that are sensitive to the EUR/PLN exchange rate (forward and CCIRS transactions), foreign currency credit facilities in EUR and trade payables in EUR, which was offset by an increase in the valuation of loans granted in foreign currency, receivables and cash held in foreign currency and an increase in the expected value of future revenues in foreign currency. Taking into account the hedging relationships regarding future revenues in foreign currencies, the impact of changes in the EUR/PLN rate on the Company’s profit/loss is limited (the position affecting the current profit/loss is EUR 60.5 million). The valuation of derivatives contracted did not involve any cash margin and an increase in the negative valuation of transactions did not have a negative impact on the Company's current liquidity. Market interest rate risk in respect of the Company's term loans has been fully hedged with PLN IRS and CCIRS transactions entered into in May 2021 following the refinancing of the loan, therefore an increase in market interest rates had a limited impact on the Company's cash flows. The increase in interest rates drove up the cost of servicing short-term working capital funding (factoring and credit facilities) and lease funding. As at the date of these statements, the Company's analyses did not reveal any indications of a materially higher risk of impairment of property, plant and equipment and intangible assets in use or investments in progress was found. However, due to the uncertainty associated with the conflict and its further development and subsequent impact on the global economy, the measurement of individual balance sheet items, including: fixed assets and intangible assets, inventories, receivables, measurement of financial instruments, provisions and liabilities, will be closely monitored and it is not excluded that they may change in subsequent reporting periods. It should be reiterated that the Management Board of CIECH S.A. monitors the situation related to the conflict on an ongoing basis and takes measures to ensure the continuity of the Group's and its individual companies' operations and to maintain the assumed margin levels. 9.7 INFORMATION ON THE CURRENT SITUATION IN CONNECTION WITH THE IMPACT OF THE COVID-19 CORONAVIRUS PANDEMIC ON CIECH S.A.’S ACTIVITIES Throughout 2022, CIECH S.A. did not experience any negative impact of the COVID-19 coronavirus on its ongoing operating activity and operated without interruptions. None of the CIECH S.A.'s business segments recorded negative events or incidents caused by the ongoing pandemic. As far as other areas of the CIECH S.A.'s operations are concerned, also no adverse effects of the ongoing COVID-19 pandemic were recorded during 2022. FINANCIAL STATEMENTS OF CIECH S.A. FOR 2022 (in PLN thousand) ciechgroup.com 80 9.8 INFORMATION ON THE IMPACT OF CLIMATE ISSUES ON THE OPERATIONS OF CIECH S.A. The impact of climate issues has been determined in accordance with management's current, obtainable and best estimates of the economic conditions likely to occur in the foreseeable future. These estimates take into account the current knowledge of the potential wide-ranging impacts of climate change (risks described in, amongst others, the Directors’ Report for the CIECH Group and CIECH S.A. for 2022, in Section 3.4). Operational plans and impairment tests take into account mitigating measures. Mitigating the threats associated with the effects of climate change includes, among others Initiatives aimed at geographical and product diversification in the Agro segment, especially exposed to the effects of drought. In addition, the Ciech Group invests in energy transformation, both in terms of improving the effectiveness of currently used technologies and diversification of sources of energy acquisition in low and zero-emission solutions. These expenditures fall within the Group's and the Company's long-term strategy of, among other things, achieving climate neutrality by 2040. The first stage assumes a 33% reduction in CO 2 emissions from Scopes 1 and 2 by the end of 2026 compared to the baseline year of 2019 (https://ciechgroup.com/relacje-inwestorskie/o-ciech/strategia-grupy/). There were no significant impairment losses on non- current/operating assets during 2022 (see Section 5 of these financial statements for details). There was also no need to recognise additional provisions other than allowances and provisions which are recognised in the course of the Company's ordinary activities. REPRESENTATION BY THE MANAGEMENT BOARD ciechgroup.com 81 10 REPRESENTATION BY THE MANAGEMENT BOARD These financial statements of CIECH S.A. for the financial year ended 31 December 2022 were approved by the Company’s Management Board on 23 March 2023. Warsaw, 23 March 2023 (signed on the polish original) (signed on the polish original) Dawid Jakubowicz President of the Management Board of CIECH Spółka Akcyjna Kamil Majczak Member of the Management Board of CIECH Spółka Akcyjna (signed on the polish original) Jarosław Romanowski Member of the Management Board of CIECH Spółka Akcyjna Signature of person responsible for the preparation of the financial statements (signed on the polish original) Katarzyna Rybacka Chief Accountant of CIECH Spółka Akcyjna

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