Ciech S.A.

Audit Report / Information • Mar 31, 2020

TRANSLATORS' EXPLANATORY NOTE

This version of our report is a translation from the original, which was prepared in Polish language. All possible care has been taken to ensure that the translation is an accurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.

Independent Registered Auditor's Report

To the General Shareholders' Meeting and the Supervisory Board of CIECH S.A.

Report on the audit of financial statements

Our opinion

In our opinion, the attached annual financial statements of CIECH S.A. ("the Company"):

• give a true and fair view of the financial position of the Company as at 31 December 2019 and its financial performance and its cash flows for the year then ended in accordance with the applicable International Financial Reporting Standards as adopted by the European Union and the adopted accounting policies;
• comply in terms of form and content with the laws applicable to the Company and the Company's Articles of Association;
• have been prepared on the basis of properly maintained books of account in accordance with the provisions of Chapter 2 of the Accounting Act of 29 September 1994 ("the Accounting Act" – Consolidated text: Journal of Laws of 2019, item 351, as amended).

Our opinion is consistent with our additional report to the Audit Committee issued on the date of this report March 31st, 2020.

What we have audited

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

• the statement of financial position as at 31 December 2019;

and the following prepared for the financial year from 1 January to 31 December 2019:

• the statement of profit and loss;
• the statement of other comprehensive income;
• the statement of changes in equity;
• the statement of cash flows, and
• the notes comprising a description of the adopted accounting policies and other explanation.

Basis for opinion

Basis for opinion

We conducted our audit in accordance with the International Standards on Auditing as adopted as National Standards on Auditing by the National Council of Statutory Auditors ( "NSA") and pursuant to the Act of 11 May 2017 on Registered Auditors, Registered Audit Companies and Public Oversight ("the Act on Registered Auditors" – Journal of Laws of 2019, item 1421, as amended) and Regulation (EU) No. 537/2014 of 16 April 2014 on specific requirements regarding the statutory audit of public-interest entities ("the EU Regulation" – Journal of Laws EU L158). Our responsibilities under those NSA are further described in the "Auditor's responsibilities for the audit of the financial statements section of our report".

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

Independence and ethics

We are independent of the Company in accordance with the International Federation of Accountants' Code of Ethics for Professional Accountants ("the IFAC Code") as adopted by resolutions of the National Council of Statutory Auditors and other ethical requirements that are relevant to our audit of the financial statements in Poland. We have fulfilled our other ethical responsibilities in accordance with these requirements and the IFAC's Code. During the audit, the key registered auditor and the registered

PricewaterhouseCoopers Polska spółka z ograniczoną odpowiedzialnością Audyt sp. k., ul. Polna 11, 00-633 Warsaw, Poland, T: +48 (22) 746 4000, F:+48 (22) 742 4040 , www.pwc.pl

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

audit firm remained independent of the Company in accordance with the independence requirements

Our audit approach

Overview

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

Materiality

The scope of our audit was influenced by the adopted materiality level. Our audit was designed to obtain reasonable assurance that the financial statements as a whole are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of set out in the Act on Registered Auditors and in the EU Regulation.

• The overall materiality threshold adopted for the purposes of our audit was set at PLN 22 860 thousand, which represents 1% of total revenues from sales.
• We have audited the annual financial statements of the Company for the period ended 31 December 2019.
• Impairment of receivables in respect of loans granted and investments in subsidiaries;
• Fair value measurement of derivative instruments;
• The existence of an inherent uncertainty over income tax settlements;
• First time adoption of IFRS 16

users taken on the basis of the financial statements.

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

The concept of materiality is used by the registered auditor both in planning and conducting an audit, as well as in assessing the effect of the misstatements identified during the audit and the unadjusted misstatements (if any), on the financial statements, and also when forming the registered auditor's report. Therefore, all opinions, assertions and statements contained in the registered auditor's report have been made taking into consideration the quantitative and qualitative materiality levels determined in accordance with the audit standards and the registered auditor's professional judgement.

Overall materiality	PLN 22.860 thousand (PLN 24.180 thousand in 2018)
How we determined it	1% of the Company's total revenues from sales
Rationale for the materiality benchmark applied	We have adopted total revenue as the basis for determining materiality because, in our opinion, it is an indicator commonly used by the users of financial statements to evaluate the Company's operations and is a generally adopted benchmark, especially for entities with significant level of external debt. We adopted the materiality threshold at 1% because based on our professional judgement it is within the acceptable quantitative materiality thresholds.

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above PLN 2 280 thousand, as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.

Key audit matters

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

addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon. We summarized our response to these risks and, when deemed appropriate, presented the most important observations relating to these risks. We do not provide a separate opinion on these matters.

Impairment of receivables in respect of loans granted and investments in subsidiaries

As at the balance sheet date, the impairment provision in respect of loans granted and investments in subsidiaries amounts to PLN 174 million. The impairment provision and write-offs has been described in notes 5.4 and 5.7 to the financial statements.

The correct estimation of impairment provision in respect of loans granted and investments in subsidiaries requires significant judgment to be made by the Management Board. The identification of impairment triggers and the determination of the recoverable amount for these financial assets requires from the Management Board estimation, among others, expected future cash flows and market values. Estimation of the provision in the respect to loans requires recoverability assessment and based on that, the estimation of expected credit loss. The use of various valuation techniques and various assumptions may result in significantly different

Key audit matter How our audit addressed the key audit matter

Our audit procedures included in particular:

• understanding and assessing the process of identification by the Management Board triggers for impairment of investments in subsidiaries and critical analysis of triggers identified by the Management Board and credit risk assessment used for expected credit loss estimation;
• in case of indications of impairment, analysis of the impairment tests performed by the Management Board, in particular: (a) the forecasts regarding future cash flows,(b) consideration the reasonableness of the assumptions based on our knowledge, practice and experience and comparison estimates with external evidence if available, (c) verification of the mathematical correctness of the models used to carry out the tests;
• loans impairment provision recalculation using the assumptions related to expected credit loss to compare with the Management

estimates of impairment provision in respect to loans granted and the investments in subsidiaries. The methodology for impairment provision has been described in the accounting policies in notes 5.4 and 8.1 to the financial statements.

Bearing in mind the inherent risk of uncertainty related to significant estimates made by the Management Board, we have determined that this is a key issue for our audit.

calculations and to assess the potential difference;

• assessing the completeness and correctness of disclosures about impairment provision in respect of loans granted and value of investments in subsidiaries.

Fair value measurement of derivative instruments

The Company is a party to transactions in derivative instruments based on the volatility of interest rates, exchange rates. The derivative instruments are described notes 8.1 and 8.2 to the financial statements.

In accordance with the Company's accounting policy, derivative instruments are measured at fair value as at each balance sheet date. Determining the fair value of derivative instruments is an area which requires a material estimate of the Management Board because, due to there being no active market, it requires making assumptions about movements in interest rates, exchange rates in the future, and it involves using an instrument valuation model which is appropriate in a given situation.

Bearing in mind the inherent risk of uncertainty over the material estimates made by the Management Board, we have concluded that this is a key matter for our audit.

The existence of an inherent uncertainty over income tax settlements

The Company remained a party to control proceedings and court proceedings with tax authorities in relation to Corporate Income Tax settlements. The final settlements of these proceedings and their potential impact on the income tax results are associated with inherent uncertainty. Controls regarding tax settlements are described in note 9.2 to the financial statements.

The analysis of the correctness of recognizing income tax settlements was a subject of our special attention due to the fact that it involves the Our procedures included in particular:

• gaining an understanding and assessing the process of measuring derivative instruments, including the adopted methodology and the sources of market data and unobservable parameters;
• verifying the key parameters of derivative instruments in comparison to external data independent of the Company;
• using PwC in-house valuation specialists to perform independent fair value measurements of the derivative instruments;
• comparing the fair values calculated by the Management Board to the fair values calculated by us;
• assessing the differences in the fair value measurements of derivative instruments between our valuations and the valuations prepared by the Management Board. In certain cases, we achieved results which differed from those calculated by the Company's management. However, in our opinion these differences are within an acceptable range in the light of taking into account the estimates relating to future interest rates, exchange rates in the valuation.

Our procedures included in particular:

• engaging PwC tax experts in analysing tax rulings and correspondence with the tax authorities and in assessing the tax implications of the material transactions to which the Company was a party and their impact on the recognition of provisions for tax risks;
• discussing with the Company's Management Board and making a critical assessment of a comprehensive analysis of the Company's tax postion prepared by the Management Board with respect to the identification and assessment of transactions and operations

need for material assumptions and judgments made by the Management Board. They relate, in particular, to the identification and assessment of the transactions and operations which might potentially be subject to the provisions of the General Anti-Abuse Regulation.

As disclosed in note 4.3, when assessing the inherent uncertainty associated with income tax, the Management Board took into account the provisions of the General Anti-Abuse Regulation. Changes in assumptions made by the Management Board may lead to the recognition of provisions for potential tax liability.

Bearing in mind the inherent risk of uncertainty associated with significant estimates made by the Management Board, we have determined that this is a key matter for our audit.

First time adoption of IFRS 16

On January 1, 2019, the Company adopted for use the new standard IFRS 16 "Leasing" ("IFRS 16"). Pursuant to IAS 8 "Accounting Policies, Changes in Accounting Estimates and Errors", information necessary to assess the impact of the new standards that have been published and became binding has to be disclosed in the financial statements.

The Company adopted IFRS 16 retrospectively, as of 1 January 2019, but has not transformed the comparative data for the financial year 2018. The impact of the new standard is shown in Note 1.5.1 to the financial statements. As of January 1, 2019, the Company recognized in the financial statements "Lease liabilities" in the amount of PLN 32.5 million and recognized "Rights to use an asset" in the same amount.

The qualitative and quantitative assessment of the impact of use of the new standard and the disclosures in Note 1.5.1 prepared by the Company was analysed by us due to the necessity of making material accounting assumptions and judgments in the process of their implementation by the Company's Management Board, which could result in a material misstatement in the consolidated financial statements.

which might potentially be subject to the GAAR proviosions and their effect on the proviosn for tax risk..

• reviewing the disclosures presented in the financial statements regarding significant estimates and judgments regarding tax risks arising from the provisions of the General Anti-Abuse Regulation.

Our procedures included in particular:

• gaining an understanding and the assessment of the process of identifying and assessing the impact of the new IFRS 16 on the Company's financial statements;
• a critical assessment of the key accounting assumptions and judgments adopted by the Company's Management Board (such as the discount rate, the term of the lease);
• a critical assessment of the completeness of the analysis performed by the Management Board;
• detailed tests consisting, among other things, of verifying the correctness of the declared impact of IFRS 16 (as presented in the financial statements) on the Company's financial statements as at 1 January 2019;
• an assessment of the completeness of disclosures in respect of IFRS 16 in the financial statements.

Responsibility of the Management and Supervisory Board for the financial statements

The Management Board of the Company is responsible for the preparation, of annual financial statements that give a true and fair view of the Company's financial position and results of operations, in accordance with the International Financial Reporting Standards as adopted by the European Union, the adopted accounting policies, the applicable laws and the Company's Articles of Association, and for such internal control as the Management Board determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

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

The Company's Management Board and members of its Supervisory Board are obliged to ensure that the financial statements comply with the requirements specified in the Accounting Act. Members of the Supervisory Board are responsible for overseeing the financial reporting process.

Auditor's responsibility for the audit of the financial statements

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

The scope of the audit does not cover an assurance on the Company's future profitability or the efficiency and effectiveness of the Company's Management Board conducting its affairs, now or in future.

As part of an audit in accordance with the NSA, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Company's Management Board.
• Conclude on the appropriateness of the Company's Management Board's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

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

We also provide the Audit Committee with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards

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

Other information, including the Report on the operations

Other information

Other information comprises a Combined Report on the Company's and Ciech Group ("the Group") operations for the financial year ended 31 December 2019 ("the Combined Report on the operations") and the corporate governance which is a separate part of the Combined Report on the operations, and a separate combined report on non-financial information of the Company and Group (together "Other Information").

Responsibility of the Management and Supervisory Board

The Management Board of the Company is responsible for preparing Other Information in accordance with the law.

The Company's Management Board and the members of the Supervisory Board are obliged to ensure that the Combined Report on the Company's and Group's operations including its separate parts and a separate combined report on non-financial information complies with the requirements of the Accounting Act.

Registered auditor's responsibility

Our opinion on the audit of the financial statements does not cover Other Information.

In connection with our audit of the financial statements, our responsibility is to read Other Information and, in doing so, consider whether it is materially inconsistent with the information in the financial statements, our knowledge obtained in our audit, or otherwise appears to be materially misstated. If, based on the work performed, we identified a material misstatement in Other Information, we are obliged to inform about it in our audit report. In accordance with the requirements of the Act on the Registered Auditors, we are also obliged to issue an opinion on whether the

Combined Report in the operations has been prepared in accordance with the law and is consistent with information included in annual financial statements.

Moreover, we are obliged to issue an opinion on whether the Company and the Group provided the required information in its corporate governance statement and to inform whether the Company prepared a separate combined report on nonfinancial information.

Opinion on the Report on the operations

Based on the work we carried out during the audit, in our opinion, the Combined Report:

• has been prepared in accordance with the requirements of Article 49 of the Accounting Act and para. 70 and para. 71 of the Regulation of the Minister of Finance dated 29 March 2018 on current and periodical information submitted by issuers of securities and conditions for considering as equivalent the information required under the legislation of a non-Member State ("Regulation on current information" – Journal of Laws 2018, item 757)
• is consistent with the information in the financial statements and in consolidated financial statements.

Moreover, based on the knowledge of the Company and the Group and its environment obtained during our audit, we have not identified any material misstatements in the Combined Report on the operations.

Opinion on the corporate governance statement

In our opinion, in its corporate governance statement, the Company and the Group included information set out in para. 70.6 (5) of the Regulation on current information. In addition, in

our opinion, information specified in paragraph 70.6 (5)(c)–(f), (h) and (i) of the said Regulation included in the corporate governance statement are consistent with the applicable provisions of the law and with information included in the financial statements and in consolidated financial statements.

Information on non-financial information

In accordance with the requirements of the Act on the Registered Auditors, we confirm that the Company and the Group has included in its Combined Report on the operations, information

on the preparation of a separate report on nonfinancial information referred to in Article 49b(9) and Article 55(2c) of the Accounting Act and that the Company and the Group has prepared such a separate combined report on non-financial information.

We have not performed any assurance work relating to the statement on non-financial information and we do not provide any assurance with regard to it.

Report on other legal and regulatory requirements

Statement on the provision of non-audit services

To the best of our knowledge and belief, we declare that the non-audit services we have provided to the Company are in accordance with the laws and regulations applicable in Poland and that we have not provided any non-audit services prohibited under Article 5(1) of the EU regulation and Article 136 of the Act on Registered Auditors.

The non-audit services which we have provided to the Company and its subsidiaries in the audited period are disclosed in an Appendix to this report.

Appointment

We have been appointed to audit the annual financial statements of the Company by Resolution of the Supervisory Board of 26 May 2015 and again by Resolution of the Supervisory Board of 16 April 2018. We have been auditing the Company's financial statements without interruption since the financial year ended 31 December 2015, i.e. for 5 consecutive years.

The Key Registered Auditor responsible for the audit on behalf of PricewaterhouseCoopers Polska spółka z ograniczoną odpowiedzialnością Audyt sp.k., a company entered on the list of Registered Audit Companies with the number 144., is Piotr Wyszogrodzki.

Piotr Wyszogrodzki Key Registered Auditor No. 90091

Warsaw, 31 March 2020

Appendix to the report of the Independent Registered Auditor's Report on the audit of the annual financial statements of CIECH S.A. for the period ended December 31, 2019.

The list of the non-audit services which we have provided to the Parent Company and its subsidiaries in the audited period:

• Review of the interim condensed consolidated financial statements of the Group and the financial statements of the Parent Company;
• Confirmation of the conditions contained in the credit agreement on the basis of the financial information analysis derived from the audited consolidated financial statements of the Group;
• Verification of the excise coefficient in relation to CIECH Soda Polska S.A.;
• Verification of the coefficient of the intensity of energy consumption for companies CIECH Soda Polska S.A. and CIECH Vitrosilicon S.A