CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022

SELECTED FINANCIAL DATA

in thousand PLN	in thousand EUR
12 months ended 31.12.2022	12 months ended 31.12.2021
Sales revenues on continued operations	5,415,459
Operating profit/(loss) on continued operations	590,177
Profit/(loss) before tax on continued operations	591,792
Net profit / (loss) for the period	564,701
Net profit/(loss) attributable to shareholders of the parent company	566,937
Net profit/(loss) attributed to non-controlling interest	(2,236)
Other comprehensive income net of tax	(167,670)
Total comprehensive income	397,031
Cash flows from operating activities	842,301
Cash flows from investment activities	(845,021)
Cash flows from financial activities	(109,590)
Total net cash flows	(112,310)
Earnings (loss) per ordinary share (in PLN/EUR)	10.76

as at 31.12.2022	as at 31.12.2021	as at 31.12.2022	as at 31.12.2021
Total assets	8,092,527	7,135,218	1,725,523
Non-current liabilities	2,181,430	2,542,124	465,134
Current liabilities	3,206,787	2,206,765	683,764
Total equity	2,704,310	2,386,329	576,625
Equity attributable to shareholders of the parent	2,710,221	2,390,105	577,885
Non-controlling interest	(5,911)	(3,776)	(1,260)
Share capital	287,614	287,614	61,326

The above selected financial data were converted into PLN in accordance with the following principles:
* items in the consolidated 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 consolidated statement of profit or loss, consolidated statement of other comprehensive income and consolidated 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

THE CIECH GROUP – SELECTED FINANCIAL DATA ... 2
CONSOLIDATED STATEMENT OF PROFIT OR LOSS OF THE CIECH GROUP ... 5
CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME OF THE CIECH GROUP ... 6
CONSOLIDATED STATEMENT OF FINANCIAL POSITION OF THE CIECH GROUP ... 7
CONSOLIDATED STATEMENT OF CASH FLOWS OF THE CIECH GROUP ... 8
STATEMENT OF CHANGES IN CONSOLIDATED EQUITY OF THE CIECH GROUP ... 9
1 GENERAL INFORMATION ... 10
1.1 INFORMATION ON THE GROUP’S ACTIVITIES ... 10
1.2 BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS AND ACCOUNTING PRINCIPLES ... 11
1.2.1 REPRESENTATIONS BY THE MANAGEMENT BOARD ... 11
1.2.2 BASIS OF PREPARATION ... 11
1.3 FUNCTIONAL AND REPORTING CURRENCY ... 12
1.4 ACCOUNTING POLICIES ... 13
1.5 CHANGES IN ACCOUNTING POLICIES AND THE SCOPE OF DISCLOSURES ... 13
1.5.1 ADJUSTMENT OF PRIOR PERIOD ERRORS AND CHANGES IN ACCOUNTING POLICY ... 14
2 SEGMENT REPORTING ................................................................................................................................................. 14

ciech CONSOLIDATED FINANCIAL STATEMENTS _______ of the CIECH Group 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 consolidated financial statements which were originally written in Polish. We take no responsibility for the accuracy of our translation. For an accurate reading of our consolidated financial statements, please refer to the Polish language version of our consolidated financial statements.

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022
(in PLN ‘000)
ciechgroup.com
2

THE CIECH GROUP – 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	5,415,459	3,483,713	1,155,101
Operating profit/(loss) on continued operations	590,177	340,504	125,883
Profit/(loss) before tax on continued operations	591,792	256,883	126,228
Net profit / (loss) for the period	564,701	281,085	120,449
Net profit/(loss) attributable to shareholders of the parent company	566,937	281,866	120,926
Net profit/(loss) attributed to non-controlling interest	(2,236)	(781)	(477)
Other comprehensive income net of tax	(167,670)	145,835	(35,763)
Total comprehensive income	397,031	426,920	84,686
Cash flows from operating activities	842,301	1,263,651	179,660
Cash flows from investment activities	(845,021)	(692,100)	(180,240)
Cash flows from financial activities	(109,590)	(221,542)	(23,375)
Total net cash flows	(112,310)	350,009	(23,955)
Earnings (loss) per ordinary share (in PLN/EUR)	10.76	5.35	2.30

as at 31.12.2022	as at 31.12.2021	as at 31.12.2022	as at 31.12.2021
Total assets	8,092,527	7,135,218	1,725,523
Non-current liabilities	2,181,430	2,542,124	465,134
Current liabilities	3,206,787	2,206,765	683,764
Total equity	2,704,310	2,386,329	576,625
Equity attributable to shareholders of the parent	2,710,221	2,390,105	577,885
Non-controlling interest	(5,911)	(3,776)	(1,260)
Share capital	287,614	287,614	61,326


EUR 1 = PLN 4.6899	EUR 1 = PLN 4.5994	EUR 1 = PLN 4.6883	EUR 1 = PLN 4.5775

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022
(in PLN ‘000)
ciechgroup.com
3

THE CIECH GROUP – SELECTED FINANCIAL DATA

................................................................................................................................................... 2

CONSOLIDATED STATEMENT OF PROFIT OR LOSS OF THE CIECH GROUP

............................................................................................................................................................... 5

CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME OF THE CIECH GROUP

.................................................................................................................................................. 6

CONSOLIDATED STATEMENT OF FINANCIAL POSITION OF THE CIECH GROUP

....................................................................................................................................................... 7

CONSOLIDATED STATEMENT OF CASH FLOWS OF THE CIECH GROUP

.................................................................................................................................................................... 8

STATEMENT OF CHANGES IN CONSOLIDATED EQUITY OF THE CIECH GROUP

........................................................................................................................................................ 9

1 GENERAL INFORMATION

............................................................................................................................................................. 10

1.1 INFORMATION ON THE GROUP’S ACTIVITIES

........................................................................................................................................................... 10

1.2 BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS AND ACCOUNTING PRINCIPLES

.................................................................................................................... 11

1.2.1 REPRESENTATIONS BY THE MANAGEMENT BOARD

.................................................................................................................... 11

1.2.2 BASIS OF PREPARATION

............................................................................................................................................... 11

1.3 FUNCTIONAL AND REPORTING CURRENCY

.............................................................................................................................................................. 12

1.4 ACCOUNTING POLICIES

............................................................................................................................................................ 13

1.5 CHANGES IN ACCOUNTING POLICIES AND THE SCOPE OF DISCLOSURES

................................................................................................................................................ 13

1.5.1 ADJUSTMENT OF PRIOR PERIOD ERRORS AND CHANGES IN ACCOUNTING POLICY

.................................................................................................................... 14

2 SEGMENT REPORTING

................................................................................................................................................ 14# NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

3 NOTES TO THE CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME

3.1 SALES REVENUES

3.2 COST OF SALES

3.3 COSTS BY TYPE

3.4 OTHER INCOME AND EXPENSES

3.4.1 DETAILED INFORMATION ON SIGNIFICANT IMPAIRMENT LOSSES

3.5 FINANCIAL INCOME AND EXPENSES

3.6 COMPONENTS OF OTHER COMPREHENSIVE INCOME

4 INCOME TAX, DEFERRED TAX ASSETS AND LIABILITY

4.1 MAIN COMPONENTS OF TAX EXPENSE

4.2 EFFECTIVE TAX RATE

4.3 DEFERRED INCOME TAX

5 NOTES TO ASSETS REPORTED IN THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION

5.1 PROPERTY, PLANT AND EQUIPMENT

5.2 RIGHT-OF-USE ASSETS

5.3 INTANGIBLE ASSETS – NON-CURRENT AND CURRENT

5.4 GOODWILL IMPAIRMENT TESTING

5.5 INVESTMENT PROPERTIES

5.6 LONG-TERM RECEIVABLES

5.7 LONG-TERM FINANCIAL ASSETS

5.8 SHARES IN JOINT VENTURES / INVESTMENTS IN ASSOCIATES

5.9 INVENTORIES

5.10 SHORT-TERM RECEIVABLES

5.11 SHORT-TERM FINANCIAL ASSETS

5.12 CASH AND CASH EQUIVALENTS

5.13 DISCONTINUED OPERATIONS, NON-CURRENT ASSETS AND DISPOSAL GROUPS HELD FOR SALE AND LIABILITIES RELATED THERETO

6 EQUITY

6.1 CAPITAL MANAGEMENT

6.2 CONSOLIDATED EQUITY

6.3 DIVIDENDS PAID OR DECLARED

6.4 BUSINESS COMBINATIONS

6.5 SIGNIFICANT SUBSIDIARIES WITH NON-CONTROLLING INTEREST

6.6 EARNINGS PER SHARE

7 LIABILITIES, PROVISIONS, EMPLOYEE BENEFITS

7.1 INFORMATION ABOUT SIGNIFICANT FINANCIAL LIABILITIES

7.2 OTHER NON-CURRENT LIABILITIES

7.3 CURRENT TRADE AND OTHER LIABILITIES

7.4 LEASES

7.5 PROVISIONS FOR EMPLOYEE BENEFITS

7.6 OTHER PROVISIONS

8 FINANCIAL INSTRUMENTS, FINANCIAL RISK MANAGEMENT AND IMPAIRMENT

8.1 FINANCIAL INSTRUMENTS

8.2 FINANCIAL INSTRUMENTS DESIGNATED FOR HEDGE ACCOUNTING

8.3 FINANCIAL RISK MANAGEMENT

8.4 DETERMINATION OF FAIR VALUE

9 OTHER NOTES

9.1 NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS

9.2 INFORMATION ON CHANGES IN CONTINGENT ASSETS AND LIABILITIES AND OTHER MATTERS

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000)
ciechgroup.com

9.3 INFORMATION ON TRANSACTIONS WITH RELATED PARTIES

9.3.1 TRANSACTIONS WITH RELATED PARTIES IN TOTAL

9.3.2 SIGNIFICANT TRANSACTIONS CONCLUDED BY COMPANIES OR SUBSIDIARIES WITH RELATED PARTIES OTHER THAN ON AN ARM’S LENGTH BASIS

9.3.3 DESCRIPTION OF NON-ROUTINE TRANSACTIONS WITH RELATED PARTIES

9.3.4 TRANSACTIONS CONCLUDED WITH KEY MANAGERIAL PERSONNEL

9.4 INFORMATION ABOUT AGREEMENTS CONCLUDED WITH THE ENTITY AUTHORISED TO AUDIT THE CIECH GROUP’S CONSOLIDATED FINANCIAL STATEMENTS

9.5 COMPOSITION OF THE GROUP# 9.6 INFORMATION ON THE IMPACT OF CLIMATE ISSUES ON THE OPERATIONS OF THE CIECH GROUP

9.7 INFORMATION ON THE CURRENT SITUATION IN CONNECTION WITH THE IMPACT OF THE RUSSIAN INVASION OF UKRAINE ON THE CIECH GROUP'S ACTIVITIES

9.8 INFORMATION ON THE CURRENT SITUATION IN CONNECTION WITH THE IMPACT OF THE COVID-19 CORONAVIRUS PANDEMIC ON THE CIECH GROUP'S ACTIVITIES

9.9 EVENTS AFTER THE REPORTING DATE

REPRESENTATION BY THE MANAGEMENT BOARD

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000)

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CONSOLIDATED STATEMENT OF PROFIT OR LOSS OF THE CIECH GROUP

01.01.-31.12.2022 | 01.01.-31.12.2021

Note	CONTINUING OPERATIONS restated
Sales revenues	3.1	5,415,459
Cost of sales	3.2	(4,247,230)
Gross profit/(loss) on sales		1,168,229
Other operating income	3.4	100,948
Selling costs		(294,522)
General and administrative expenses		(295,508)
Other operating expenses	3.4	(88,970)
Operating profit/(loss)		590,177
Financial income, including:	3.5	187,934
Profit from financial instruments	3.5	41,584
Financial costs, including:	3.5	(187,725)
Loss from financial instruments	3.5	(154,381)
Net financial income/(expenses)		209
Share of profit / (loss) of equity-accounted investees	5.9	1,406
Profit/(loss) before tax		591,792
Income tax	4.1	(27,091)
Net profit/(loss) on continuing operations		564,701
DISCONTINUED OPERATIONS
Net profit/(loss) on discontinued operations	5.14	-
Net profit / (loss) for the period		564,701
including:
Net profit/(loss) attributable to shareholders of the parent company	566,937	281,866
Net profit/(loss) attributed to non-controlling interest		(2,236)
Earnings per share (in PLN):
Basic	6.6	10.76
Diluted	6.6	10.76
Earnings/(loss) per share (in PLN) from continuing operations:
Basic		10.76
Diluted		10.76

The consolidated statement of profit or loss of the CIECH Group should be analysed together with the notes which constitute an integral part of the consolidated financial statements. For detailed information on the restatement of figures for the corresponding period, see Note 1.5.1 to this report.

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000)

ciechgroup.com 6

CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME OF THE CIECH GROUP

Note	01.01.-31.12.2022	01.01.-31.12.2021 restated
Net profit/(loss) on continuing operations	564,701	219,217
Net profit/(loss) on discontinued operations	-	61,868
Net profit / (loss) for the period	564,701	281,085
Other comprehensive income before tax that may be reclassified to the statement of profit or loss	3.6	(259,262)
Currency translation differences (foreign companies)		12,414
Profit (loss) from costs of hedging reserve		(57,777)
Profit (loss) from cash flow hedge reserve		(213,899)
Other components of other comprehensive income		-
Other comprehensive income before tax that may not be reclassified to the statement of profit or loss	3.6	745
Actuarial gains		745
Income tax attributable to other comprehensive income		90,847
Income tax attributable to other comprehensive income that may be reclassified to the statement of profit or loss	4.1.	90,983
Income tax attributable to other comprehensive income that may not be reclassified to the statement of profit or loss	4.1.	(136)
Other comprehensive income net of tax		(167,670)
TOTAL COMPREHENSIVE INCOME		397,031
Shareholders of the parent company		399,166
Non-controlling interest		(2,135)

The consolidated statement of other comprehensive income of the CIECH Group should be analysed together with the notes which constitute an integral part of the consolidated financial statements. For detailed information on the restatement of figures for the corresponding period, see Note 1.5.1 to this report.

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000)

ciechgroup.com 7

CONSOLIDATED STATEMENT OF FINANCIAL POSITION OF THE CIECH GROUP

	31.12.2022	31.12.2021	31.12.2020
ASSETS
Property, plant and equipment	5.1	3,933,393	3,863,321
Rights to use an asset	5.2	181,211	201,476
Intangible assets other than goodwill	5.3	394,545	369,067
Goodwill	5.4	151,852	149,270
Investment property	5.5	40,181	32,839
Non-current receivables	5.6	41,237	78,542
Investments in jointly-controlled entities measured under the equity method	5.8	7,033	5,655
Long-term financial assets	5.7	18,516	12,449
Deferred income tax assets	4.3	132,774	74,984
Total non-current assets		4,900,742	4,787,603
Inventory	5.9	771,541	459,308
Short-term intangible assets other than goodwill	5.3	515,934	403,434
Short-term financial assets	5.11	359,634	102,382
Income tax receivables	5.10	54,334	21,004
Trade and other receivables	5.10	805,005	562,096
Cash and cash equivalents	5.12	684,969	799,023
Non-current assets and groups for disposal held for sale	5.13	368	368
Total current assets		3,191,785	2,347,615
Total assets		8,092,527	7,135,218
EQUITY AND LIABILITIES
Share capital	6.2	287,614	287,614
Share premium		470,846	470,846
Cash flow hedge reserve	8.2	35,848	158,763
Profit (loss) from costs of hedging reserve		(78,108)	(20,331)
Actuarial gains		(973)	(1,582)
Other reserve capitals	6.2	425,021	425,021
Currency translation reserve		(24,065)	(36,377)
Retained earnings		1,594,038	1,106,151
Equity attributable to shareholders of the parent		2,710,221	2,390,105
Non-controlling interest	6.4	(5,911)	(3,776)
Total equity		2,704,310	2,386,329
Non-current loans, borrowings and other debt instruments	7.1	1,671,280	1,854,154
Lease liabilities	7.4	104,849	121,172
Other non-current liabilities	7.2	228,645	231,752
Employee benefits reserve	7.5	14,344	15,273
Other provisions	7.6	137,189	270,649
Deferred income tax liability	4.3	25,123	49,124
Total non-current liabilities		2,181,430	2,542,124
Current loans, borrowings and other debt instruments	7.1	193,844	5,287
Lease liabilities	7.4	30,471	30,025
Trade and other liabilities	7.3	2,793,303	1,956,407
Income tax liabilities		67,224	128,592
Employee benefits reserve	7.5	2,764	2,643
Other provisions	7.6	119,181	83,811
Liabilities related to non-current assets and groups for disposal classified as held for sale		-	-
Total current liabilities		3,206,787	2,206,765
Total liabilities		5,388,217	4,748,889
Total equity and liabilities		8,092,527	7,135,218

The consolidated statement of financial position of the CIECH Group should be analysed together with the notes which constitute an integral part of the consolidated financial statements. For detailed information on the restatement of figures as at 31 December 2021, see Note 1.5.1 to these statements.

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000)

ciechgroup.com 8

CONSOLIDATED STATEMENT OF CASH FLOWS OF THE CIECH GROUP

Note	01.01.-31.12.2022	01.01.-31.12.2021 restated
Cash flows from operating activities
Net profit/(loss) for the period	564,701	281,085
Adjustments	439,282	1,088,754
Amortisation/depreciation	431,275	374,640
Recognition of impairment allowances	(6,387)	79,115
Foreign exchange (profit) /loss	(7,943)	(3,007)
Investment property revaluation	(6,891)	202
(Profit) / loss on investment activities	7,530	(158,018)
(Profit) / loss on disposal of property, plant and equipment	28,654	(4,157)
Dividends and interest	56,977	39,741
Income tax	27,091	39,190
(Profit) / loss on the settlement of construction contracts (caverns)	(2,354)	(22,732)
Share of (profit) / loss on equity accounted investees	(1,406)	(27)
Valuation of derivatives	(7,193)	285
Other adjustments	9.1	(218,193)
Change in receivables	9.1	(221,782)
Change in inventory	9.1	(308,704)
Change in current liabilities	9.1	779,874
Change in provisions and employee benefits	9.1	(111,266)
Interest paid	(127,884)	(43,964)
Interest cost hedging effect	62,456	(13,110)
(Profit) / loss on the settlement of construction contracts (caverns)	35,495	-
Income tax (paid)/returned	(131,749)	(49,114)
Net cash from operating activities		842,301
Cash flows from investment activities
Disposal of a subsidiary		50
Disposal of intangible assets and property, plant and equipment		4,244
Disposal of investment property		-
Interest received		6,698
Subsidies received		4,140
Proceeds from repaid borrowings		95
Acquisition of a subsidiary (after deduction of acquired cash)		(4,920)
Acquisition of intangible assets and property, plant and equipment		(447,915)
Development expenditures		(29,793)
Expenditure on the purchase of emission rights		(372,348)
Other investment inflows (outflows)	9.1	(5,272)
Net cash from investment activities		(845,021)
Cash flows from financial activities
Proceeds from loans and borrowings	7.1	2,143
Dividends paid to parent company		(79,050)
Repayment of loans and borrowings	7.1	-
Payments of lease liabilities	7.4	(32,683)

ciechgroup.com 9

STATEMENT OF CHANGES IN CONSOLIDATED EQUITY OF THE CIECH GROUP

	Share capital	Equity premium	Share-based costs of hedging reserve	Other reserve	Actuarial hedging reserve	Currency translation gains	Retained earnings	Total attributable to controlling shareholders of the parent	Total equity
01.01.2022 restated	287,614	470,846	158,763	(20,331)	425,021	(1,582)	(36,377)	1,106,151	2,390,105
Transactions with the owners	-	-	-	-	-	-	-	(79,050)	(79,050)
Dividend	-	-	-	-	-	-	-	(79,050)	(79,050)
Total comprehensive income for the period	-	-	(122,915)	(57,777)	-	609	12,312	566,937	399,166
Net profit / (loss) for the period	-	-	-	-	-	-	-	566,937	566,937
Other comprehensive income	-	-	(122,915)	(57,777)	-	609	12,312	-	(167,771)
31.12.2022	287,614	470,846	35,848	(78,108)	425,021	(973)	(24,065)	1,594,038	2,710,221
01.01.2021	287,614	470,846	(9,393)	(3,659)	425,021	(495)	(31,737)	982,418	2,120,615
Transactions with the owners	-	-	-	-	-	-	-	(158,099)	(158,099)
Dividend	-	-	-	-	-	-	-	(158,099)	(158,099)
Change in the Group’s structure	-	-	-	-	-	-	-	-	(1,030)
Total comprehensive income for the period	-	-	168,156	(16,672)	-	(1,087)	(4,640)	281,832	427,589
Net profit / (loss) for the period	-	-	-	-	-	-	-	281,866	281,866
Other comprehensive income	-	-	168,156	(16,672)	-	(1,087)	(4,640)	(34)	145,723
31.12.2021	287,614	470,846	158,763	(20,331)	425,021	(1,582)	(36,377)	1,106,151	2,390,105

The consolidated statement of changes in consolidated equity of the CIECH Group should be analysed together with the notes which constitute an integral part of the consolidated financial statements. For detailed information on the restatement of figures as at 1 January 2022, see Note 1.5.1 to these statements.

ciechgroup.com 10

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000)

1 GENERAL INFORMATION

1.1 INFORMATION ON THE GROUP’S ACTIVITIES

Parent company
CIECH S.A.
Legal form
Joint-stock Company
Registered office
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
Principal place of business
European Union
Ultimate parent company
KI Chemistry s. à r. l (a subsidiary of Kulczyk Investments)
Ultimate parent company
Luglio Limited

CIECH is a diversified chemical group with a strong position on European markets. The group was founded in 1945 and currently employs approximately 3,512 people. Since 2005, the shares of CIECH S.A. are listed on the Warsaw Stock Exchange, and from August 2016 also on the Frankfurt Stock Exchange.

Products of the CIECH Group are manufactured in 9 production plants. The five largest production plants (2 in Poland, 2 in Germany and 1 in Romania) operate in the Soda Segment and manufacture soda ash, soda derivatives and salt; the plant in Romania produces glassy sodium silicate and sodium water glass. The remaining 4 plants operating in the Agro, Foams, Silicates and Packaging segments are located in Poland. Soda production at the Romanian plant was suspended in the third quarter of 2019 (for more information, see current report No 40/2019). In addition, Proplan outsources product formulation and packaging services to two plants.

CIECH Vitrosilicon
CIECH Vitro
CIECH Soda Romania
CIECH Sarzyna
Proplan
CIECH Soda Deutschland
Ciech Agro Romania
CIECH Soda Polska
CIECH Salz Deutschland
CIECH Pianki
Production
Distribution

ciechgroup.com 11

The CIECH Group consists of domestic and foreign manufacturing, distribution and trade companies operating in the chemical industry. The CIECH Group comprises CIECH S.A. as the parent company, and related companies located, inter alia, in Poland, Germany, Romania and Spain. The Parent company of the Group is CIECH S.A. It is a holding company that manages domestic and foreign manufacturing, trade and service companies of the Group. CIECH S.A. also provides support services to key subsidiaries. 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. The parent company of CIECH S.A. has a branch in Romania, a branch in Germany, and operates through its offices in Inowrocław and Janikowo. CIECH Trading Sp. z o.o. subsidiary has a branch in Bydgoszcz. A detailed description of the CIECH Group entities is provided in note 9.5 to these financial statements. There have been no changes in the name of the reporting unit or other identification data since the end of the previous reporting period.

1.2 BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS AND ACCOUNTING PRINCIPLES

1.2.1 REPRESENTATIONS BY THE MANAGEMENT BOARD

These consolidated financial statements of the CIECH Group 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 consolidated financial statements of the CIECH Group 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 consolidated 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 the CIECH Group’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 Group’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 Chamber of Statutory Auditors was chosen in accordance with the binding legal regulations for the auditor of these consolidated 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

These consolidated financial statements have been prepared on the historical cost basis except for investment property as well as financial assets and liabilities (derivative instruments) measured at fair value through profit or loss. These consolidated financial statements have been prepared based on individual financial statements of the CIECH Group’s parent company and its subsidiaries, prepared from the accounting ledgers maintained in accordance with the applicable accounting principles of their respective countries of operation. For the purpose of these consolidated financial statements, adjustments have been made to the accounting policies used in the preparation of the abovementioned individual financial statements for them to be aligned with International Financial Reporting Standards. Since 2007, the Parent Company, CIECH S.A., has been preparing separate financial statements in accordance with IFRS. Major accounting principles applied in the preparation of these consolidated financial statements are listed in Note 1.4. These principles have been applied on a continuous basis in all presented periods, except for changes described in Note 1.5.1. These consolidated financial statements were prepared under the assumption that the CIECH Group will continue as a going concern in the foreseeable future. As at the date of approval of these consolidated financial statements, no facts or circumstances are known that would indicate any threat to the Group continuing as a going concern.

ciechgroup.com 12

All entities belonging to the CIECH Group operate according to the financial year corresponding to the calendar year.# CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022

1.3 FUNCTIONAL AND REPORTING CURRENCY

The Polish zloty (PLN) is the functional currency of the parent company, CIECH S.A., and the reporting currency of these consolidated financial statements. Unless stated otherwise, all financial data in these consolidated financial statements have been presented in thousands of Polish zlotys (PLN ’000). The functional currencies for the significant foreign subsidiaries are as follows: SDC Group, Ciech Group Financing AB, Proplan Plant Protection Company S.L. and CIECH Salz Deutschland GmbH – EUR, CIECH Soda Romania S.A. – RON.

For the purpose of conversion into PLN, the following foreign exchange rates determined on the basis of quotations announced by the National Bank of Poland (“NBP”) have been applied for consolidation purposes:

	NBP exchange rate as at the end day of the reporting period
	31.12.2022¹	31.12.2021²
EUR	4.6899	4.5994
RON	0.9475	0.9293

	Average NBP rate for the reporting period 12 months ended
	31.12.2022³	31.12.2021⁴
EUR	4.6883	4.5775
RON	0.9501	0.9293

¹ NBP’s average foreign exchange rates table applicable as at 31 December 2022.
² NBP’s average foreign exchange rates table applicable as at 31 December 2021.
³ According to the exchange rate constituting the arithmetic mean of average exchange rates quoted by NBP on the last day of each month of the period from 1 January 2022 to 31 December 2022.
⁴ According to the exchange rate constituting the arithmetic mean of average exchange rates quoted by NBP on the last day of each month of the period from 1 January 2021 to 31 December 2021.

For each of the foreign operations that prepare their financial statements in a currency other than the presentation currency, their results and financial position must be translated into the presentation currency in accordance with the following procedure:

all items of revenue and expenses in the functional currency of the subsidiary are translated into the presentation currency using the mid exchange rate calculated as the arithmetic mean of mid exchange rates quoted by the National Bank of Poland on the last day of each month in the reporting period,
all assets and liabilities are translated into the presentation currency at the closing rate quoted by the National Bank of Poland for the balance sheet date,
individual components of equity are translated at historical exchange rates, e.g. share capital at the exchange rate of the date of accounting for the merger, revenues and expenses recognised directly in equity are translated at the exchange rate prevailing on the transaction date, as quoted by the National Bank of Poland, or, in a simplified manner, at the average rate for the period in question.

The difference resulting from the translation of equity at rates other than the closing rate prevailing at the balance sheet date applied to the other items of the statement of financial position is recognised in equity under "Exchange differences on translation of foreign operations".

1.4 ACCOUNTING POLICIES

To ensure more legible presentation and better understanding of the information disclosed in the consolidated financial statements, key accounting policies applicable in the CIECH Group 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	Other operating income and expenses	X	X
3.5	Financial income and expenses	X	X
4.1	Main components of tax expense	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
5.5	Investment properties	X	X
5.6	Long-term receivables	X	X
5.7	Long-term financial assets	X	X
5.8	Shares in joint ventures / investments in associates	X
5.9	Inventories	X	X
5.10	Short-term receivables	X	X
5.11	Short-term financial assets	X	X
5.12	Cash and cash equivalents	X	X
5.13	Discontinued operations, non-current assets and liabilities connected with non-current assets classified as held for sale	X	X
6.2	Consolidated equity	X	X
6.4	Business combinations and acquisition of non-controlling interest	X
6.6	Earnings per share	X
7.1	Information on financial liabilities	X
7.2	Other non-current 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
9.5	Composition of the Group	X

1.5 CHANGES IN ACCOUNTING POLICIES AND THE SCOPE OF DISCLOSURES

Amendments to IAS/IFRS and their potential impact on the Group’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	2022
Amendments to IFRS 16 “Property, plant and equipment” The effect of the amendment proceeds before intended use	presented in Note 1.5.1	2022	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	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	2022

New Standards, amendments to Standards and Interpretations:

	Impact on the financial statements	Effective year in the EU
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

	Impact on the financial statements
Amendments to IFRS 16 “Leases” - lease obligations in sale and leaseback transactions	No material impact on the financial statements is estimated
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

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

The following changes were made relative to the previously published comparatives as at 31 December 2021:

The change relates to the reclassification of some amounts presented as receivables to inventories of material in transit - The change relates to the reclassification of part of the amounts advanced in one of the subsidiaries previously presented as receivables to inventories of material in transit to conform to the presentation applied in 2022.
Change in the presentation of interest on loans and commission - In order to improve the presentation and ensure better information content for the recipient, the presentation of comparable data on commissions was changed (separating the interest cost hedging effect) and changes in liabilities due to the arrangement of interest on loans (moving to other adjustments).
Amendments to IAS 16 “Property, plant and equipment” - Until 31 December 2021, the value of fixed assets under construction included revenues and costs related to the sale of test production of CIECH Salz Deutschland GmbH.# CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000) ciechgroup.com 15

Following the amendment to IAS 16 effective from Plant and Equipment” – proceeds 1 January 2022, proceeds and related expenses earned before a non-current asset is placed in service are before intended use recognised in profit or loss. The above change had no impact on other presented periods and comparatives. The impact of the changes on the previously reported consolidated data as at 31 December 2021 is presented below:

	After adjustment as at 31.12.2021	Impact of amendments to IAS 16	Presentation adjustment of interest and loan arrangement fee	materials in transit	Previously presented 31.12.2021
ASSETS
Property, plant and equipment	3,878,660	(15,339)	-	-	3,863,321
Deferred tax assets	70,247	4,737	-	-	74,984
Total non-current assets	4,798,205	(10,602)	-	-	4,787,603


	After adjustment as at 31.12.2021	Impact of amendments to IAS 16	Presentation adjustment of interest and loan arrangement fee	materials in transit	Previously presented 31.12.2021
Inventories	422,506	-	-	36,802	459,308
Trade and other receivables	598,898	-	-	(36,802)	562,096
Total current assets	2,347,615	-	-	-	2,347,615
Total assets	7,145,820	(10,602)	-	-	7,135,218
EQUITY AND LIABILITIES
Currency translation differences (foreign companies)	(36,327)	(50)	-	-	(36,377)
Retained earnings	1,116,703	(10,552)	-	-	1,106,151
Equity attributable to shareholders of the parent	2,400,707	(10,602)	-	-	2,390,105
Non-controlling interest	(3,776)	-	-	-	(3,776)
Total equity	2,396,931	(10,602)	-	-	2,386,329
Total non-current liabilities	2,542,124	-	-	-	2,542,124
Total current liabilities	2,206,765	-	-	-	2,206,765
Total liabilities	4,748,889	-	-	-	4,748,889
Total equity and liabilities	7,145,820	(10,602)	-	-	7,135,218

	as at 31.12.2021	Impact of amendments to IAS 16	Presentation adjustment	materials in transit	Previously presented 31.12.2021
Net sales revenues	3,459,915	23,798	-	-	3,483,713
Cost of sales	(2,812,342)	(39,065)	-	-	(2,851,407)
Gross profit/(loss) on sales	647,573	(15,267)	-	-	632,306
Other operating income	238,395	-	-	-	238,395
Selling costs	(229,101)	-	-	-	(229,101)
General and administrative expenses	(243,319)	-	-	-	(243,319)
Other operating expenses	(57,777)	-	-	-	(57,777)
Operating profit/(loss)	355,771	(15,267)	-	-	340,504
Net financial income/(expenses)	(83,648)	-	-	-	(83,648)
Share in net profit of subordinated entities accounted for with equity method	27	-	-	-	27
Profit/(loss) before tax	272,150	(15,267)	-	-	256,883
Income tax	(42,381)	4,715	-	-	(37,666)
Net profit/(loss) from continuing operations	229,769	(10,552)	-	-	219,217
DISCONTINUED OPERATIONS
Net profit/(loss) on discontinued operations	61,868	-	-	-	61,868
Net profit/(loss) for the period	291,637	(10,552)	-	-	281,085
including:
- Net profit/(loss) attributable to shareholders of the parent	292,418	(10,552)	-	-	281,866
Net profit/(loss) attributable to non-controlling interest	(781)	-	-	-	(781)
Earnings/(loss) per share (in PLN):
- Basic	5.55	(0.2)	-	-	5.35
Diluted	5.55	(0.2)	-	-	5.35
Earnings/(loss) per share (in PLN) from continuing operations:
- Basic	4.37	(0.2)	-	-	4.17
Diluted	4.37	(0.2)	-	-	4.17

	Share capital	Currency translation differences (foreign companies)	Equity and other components	Retained earnings	attributable to shareholders of the parent	Non-controlling interest	Total equity
31.12.2021 (previously presented)	1,320,331	(36,327)	-	1,116,703	2,400,707	(3,776)	2,396,931
Change in accounting principles – IAS 16	-	(50)	-	(10,552)	(10,602)	-	(10,602)
31.12.2021 (after adjustments)	1,320,331	(36,377)	-	1,106,151	2,390,105	(3,776)	2,386,329

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000) ciechgroup.com 16

	Impact of Presentation amendments to adjustment of IAS 16 interest and loan arrangement fee	materials in transit	Previously presented 31.12.2021	After adjustment as at 31.12.2021
Net profit/(loss) for the period	(10,552)	-	291,637	281,085
Adjustments	(4,715)	13,110	1,080,358	1,088,754
Dividends and interest	-	13,110	26,631	39,741
Income tax	(4,715)	-	43,905	39,190
Change in liabilities due to loan arrangement fee	-	7,318	(7,318)	-
Other adjustments	-	(7,318)	233,302	225,985
Change in receivables	-	36,802	(189,895)	(153,093)
Change in inventory	-	(36,802)	(69,836)	(106,638)
Interest cost hedging effect	-	-	-	(13,110)
Net cash from investment activities	(15,266)	-	1,278,917	1,263,651
Acquisition of intangible assets and property, plant and equipment	15,266	-	(746,627)	(731,361)
Net cash from investment activities	15,266	-	(707,366)	(692,100)

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000) ciechgroup.com 17

2 SEGMENT REPORTING

The CIECH Group’s operating segments are designated on the basis of internal reports related to the components of the Group and are regularly reviewed by the Management Board, which is responsible for operating decisions aimed at allocating resources to segments and assessing the subsidiaries performance.

From the product perspective, the CIECH Group has been divided into the following operating segments:

Soda segment (comprising BU Soda and BU Salt)

The most important products manufactured in this Segment are: light and dense soda ash, evaporated salt, sodium bicarbonate and calcium chloride. The products of this area are sold mainly by the parent company CIECH S.A. The Segment’s goods are produced 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). These products are used in the glass, food, detergent and pharmaceutical industries. The Soda Segment (in the German company) also includes the business of producing and selling electricity. At the current stage of work on the reorganisation, performance figures for BU Soda and BU Salt are analysed jointly, and the performance of BU Soda and BU Salt are closely linked due to sharing the same raw material, i.e. brine, fed jointly to the production facilities of Soda and Salt, as well as a common power plant and combined heat and power plant providing heat and electricity, within CIECH Soda Polska S.A. For this reason, it is not possible to allocate direct costs in an unambiguous way (mainly: coal, electricity, CO2, maintenance on shared infrastructure). As a result, business decisions are made jointly for both BUs - e.g. in the case of limitations in the availability of raw material or steam, the profitability analysis of all Soda and Salt products, rather than the fact of being part of a specific BU, determines the production of particular products. A shared source of raw material, a shared infrastructure and practically indivisible costs mean that, consequently, it is also not possible to allocate these values to the BU in question as regards liabilities and certain inventories. This all makes the analysis of cash flow generating units at the BU level potentially inappropriate. Decisions on the above matters are made at the level of the Management Board of CIECH S.A.

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.

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 produced, among other things, 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., and its figures are reported as discontinued operations.

Foams Segment

The CIECH Group is a producer of polyurethane foams manufactured by CIECH Pianki Sp. z o.o. These products are mainly used in the furniture industry – for upholstered furniture and mattresses.

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000) ciechgroup.com 18

Silicates Segment

It includes mainly the products of CIECH Vitrosilicon S.A. and CIECH Soda Romania S.A. Products manufactured by Ciech Soda Romania S.A. are sold by CIECH S.A. The Segment manufactures sodium silicates (CIECH Vitrosilicon S.A. and CIECH Soda Romania S.A.) and potassium silicates (CIECH Vitrosilicon S.A.). These products are used in the automotive, cosmetics and construction chemicals industries.

Packaging Segment

It covers products of CIECH Vitro S.A. This Segment manufactures glass packaging – lanterns and jars, used in the food industry and for the production of headstone lamps.

Other activities Segment

It covers mainly services rendered outside the Group and goods sold mainly by CIECH S.A., and within the Group, Ciech Serwis i Remonty Sp. z o.o. provides maintenance services, as well as services are provided by Ciech R&D Sp. z o.o. and CIECH Services Sp. z o.o. that provides support services in various areas. As of 1 January 2022 (along with restatement of comparative data broken down by operating segments, as presented below), other activities include the operations of CIECH Cargo Sp. z o.o. which renders rail transport services, mainly to companies within the CIECH Group.

The Group financing is managed (including finance expenses and income with the exception of interest and exchange differences on trade receivables and liabilities) and income tax is calculated on the Group level and they are not allocated to particular Segments. The CIECH Group has been divided into the following geographical areas: Poland, European Union, Other European countries, Africa, Asia, Other regions. Information on the Group geographical areas is established based on the Group’s assets location. Revenues and costs, assets and liabilities of Segments are recognised and measured in a manner consistent with the method used in the consolidated financial statements. 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 the CIECH Group when determining these measures are presented below. For discontinued operations, EBITDA and adjusted EBITDA figures are as follows:

	01.01.-31.12.2022	01.01.-31.12.2021
Net profit/(loss) on continuing operations	564,701	219,217
Income tax	27,091	37,666
Share of profit / (loss) of equity-accounted investees	(1,406)	(27)
Financial expenses	187,725	110,362
Financial income	(187,934)	(26,714)
Amortisation/depreciation	431,275	374,640
EBITDA on continued operations	1,021,452	715,144
EBITDA on discontinued operations	-	6,928
EBITDA on continued and discontinued operations	1,021,452	722,072

*1 Restated data. For detailed information on the restatement, see Note 1.5.1 to this report.

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000) ciechgroup.com 19

	01.01.-31.12.2022	01.01.-31.12.2021
EBITDA on continued operations	1,021,452	715,144
One-offs including:	11,739	(3,796)
Impairment (a)	2,821	262
Cash items (b)	7,476	(4,195)
Non-cash items (without impairment) (c)	1,442	137
Adjusted EBITDA on continued operations	1,033,191	711,348
Adjusted EBITDA on discontinued operations	-	6,951
Adjusted EBITDA on continued and discontinued operations	1,033,191	718,299

	01.01.-31.12.2022	01.01.-31.12.2021
Operating profit/(loss)	-	(6,928)
Amortisation and depreciation	-	-
One-offs	23	-
EBITDA from discontinued operations	-	(6,928)
Adjusted EBITDA on discontinued operations	-	(6,951)

The catalogue of items for adjusting adjusted EBITDA for the purposes of these financial statements is as follows:

(a) Impairment losses are 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: fair value measurement of investment properties, costs of liquidation of 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).

Adjusted EBITDA may be adjusted for other untypical non-recurring events not listed above. Additional information on adjustments has been presented under tables presenting the consolidated statement of profit or loss by operating segments.

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000) ciechgroup.com 20

OPERATING SEGMENTS OF THE CIECH GROUP

Revenue and costs data as well as assets, equity and liabilities data of particular CIECH Group operating segments for periods disclosed in statements are presented in the tables below:

	Soda Segment	Agro Segment	Foams Segment	Silicates Segment	Packaging Segment	Other Segment	Corporate operations	Eliminations (consolidation adjustments)	TOTAL
01.01.-31.12.2022
Revenues from third parties	3,869,009	560,126	336,660	528,998	104,584	16,082	-	-	5,415,459
Revenue from inter-segment transactions	168,835	-	369	528	1,589	131,392	-	(302,713)	-
Total sales revenues	4,037,844	560,126	337,029	529,526	106,173	147,474	-	(302,713)	5,415,459
Cost of sales	(3,208,034)	(366,470)	(268,308)	(408,380)	(85,072)	(136,444)	-	225,478	(4,247,230)
Gross profit /(loss) on sales	829,810	193,656	68,721	121,146	21,101	11,030	-	(77,235)	1,168,229
Selling costs	(230,393)	(58,229)	(12,541)	(39,357)	(9,233)	(246)	-	55,477	(294,522)
General and administrative expenses	(136,992)	(38,515)	(5,551)	(7,450)	(4,510)	(13,183)	(107,307)	18,000	(295,508)
Result on management of receivables	8,545	(610)	69	(1)	(482)	(690)	188	(332)	6,687
Result on other operating activities	4,675	(3,002)	909	(2,559)	112	10,448	(899)	(4,393)	5,291
Operating profit /(loss)	475,645	93,300	51,607	71,779	6,988	7,359	(108,018)	(8,483)	590,177
Exchange differences and interest on trade settlements	(7,674)	(15,148)	7,869	112	81	(50)	1,827	-	(12,983)
Group borrowing costs	-	-	-	-	-	-	(35,131)	-	(35,131)
Result on financial activity (non-attributable to segments)	-	-	-	-	-	-	48,323	-	48,323
Share of profit / (loss) of equity-accounted investees	1,406	-	-	-	-	-	-	-	1,406
Profit /(loss) before tax	469,377	78,152	59,476	71,891	7,069	7,309	(92,999)	(8,483)	591,792
Income tax	-	-	-	-	-	-	-	(27,091)	(27,091)
Net profit /(loss) on continuing operations	-	-	-	-	-	-	-	-	564,701
Net profit /(loss) for the period	-	-	-	-	-	-	-	-	564,701
Amortization/depreciation	313,259	45,057	4,653	17,714	4,270	27,971	18,351	-	431,275
EBITDA from continuing operations	788,904	138,357	56,260	89,493	11,258	35,330	(89,667)	(8,482)	1,021,452
Adjusted EBITDA from continuing operations ¹	795,545	144,422	55,492	92,618	12,386	30,794	(89,281)	(8,785)	1,033,191
ASSETS	4,885,306	897,548	74,655	239,292	66,748	156,980	1,881,428	(109,430)	8,092,527
LIABILITES	785,819	123,615	65,372	69,328	13,910	32,330	4,395,189	(97,346)	5,388,217
Investment outlays	299,988	36,165	5,741	45,046	7,741	16,996	19,754	-	431,431

¹ Adjusted EBITDA for the 12-month period ended 31 December 2022 is calculated as EBITDA adjusted for untypical one-off events, including: impairment losses: PLN -2.8 million; change in provisions: PLN -6.4 million; liquidation of fixed assets: PLN -2.0 million; disposal of fixed assets: PLN 1.7 million; fines and compensation: PLN 2 million; other: PLN -0.2 million.

The value of investments in equity-accounted entities occurs only for the assets of the soda segment and amounts to PLN 7,033 thousand as at 31 December 2022 (PLN 5,655 thousand as at 31 December 2021).

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000) ciechgroup.com 21

OPERATING SEGMENTS

	Soda Segment	Agro Segment	Foams Segment	Silicates Segment	Packaging Segment	Other Segment	Corporate operations	Eliminations (consolidation adjustments)	TOTAL
01.01.-31.12.2021
Revenues from third parties	2,210,325	486,925	389,953	237,958	73,652	84,900	-	-	3,483,713
Revenue from inter-segment transactions	76,926	64	84	197	1,134	108,626	-	(187,031)	-
Total sales revenues	2,287,251	486,989	390,037	238,155	74,786	193,526	-	(187,031)	3,483,713
Cost of sales	(1,925,127)	(340,374)	(310,676)	(185,191)	(52,361)	(181,214)	-	143,536	(2,851,407)
Gross profit /(loss) on sales	362,124	146,615	79,361	52,964	22,425	12,312	-	(43,495)	632,306
Selling costs	(180,863)	(43,822)	(10,937)	(27,428)	(7,140)	(1,205)	-	42,294	(229,101)
General and administrative expenses	(84,201)	(33,876)	(6,332)	(6,412)	(3,699)	(9,094)	(103,799)	4,096	(243,317)
Result on management of receivables	(4,587)	2,536	24	(5)	(3)	996	-	54	(985)
Result on other operating activities	176,914	5,197	(555)	1,261	601	4,897	(1,161)	(5,553)	181,601
Operating profit /(loss)	269,387	76,650	61,561	20,380	12,184	7,906	(104,960)	(2,604)	340,504
Exchange differences and interest on trade settlements	(48)	(3,643)	190	1,013	29	(638)	179	-	(2,918)
Group borrowing costs	-	-	-	-	-	-	(44,294)	-	(44,294)
Result on financial activity (non-attributable to segments)	-	-	-	-	-	-	(36,436)	-	(36,436)
Share of profit / (loss) of equity-accounted investees	27	-	-	-	-	-	-	-	27
Profit /(loss) before tax	269,366	73,007	61,751	21,393	12,213	7,268	(185,511)	(2,604)	256,883
Income tax	-	-	-	-	-	-	-	(37,666)	(37,666)
Net profit /(loss) on continuing operations	-	-	-	-	-	-	-	-	219,217
Net profit /(loss) on discontinued operations	-	-	-	-	-	-	-	-	61,868
Net profit /(loss) for the period	-	-	-	-	-	-	-	-	281,085
Amortization/depreciation	278,628	39,110	3,679	9,537	5,983	22,831	14,872	-	374,640
EBITDA from continuing operations	548,015	115,760	65,240	29,917	18,167	30,737	(90,088)	(2,604)	715,144
Adjusted EBITDA from continuing operations ²	546,084	114,901	65,331	30,375	16,929	28,314	(87,986)	(2,600)	711,348
ASSETS ³	4,120,352	783,143	62,300	171,139	36,973	47,179	1,962,473	(48,341)	7,135,218
LIABILITES ³	381,282	138,122	69,371	49,100	6,819	12,164	4,135,863	(43,832)	4,748,889
Investment outlays	598,697	29,579	4,133	71,145	5,194	3,728	29,910	-	742,386

¹ Restated data. For information on the restatement of comparative data by segment, see Note 2 and Note 1.5.1 above.
² Adjusted EBITDA for the 12-month period ended 31 December 2021 is calculated as EBITDA adjusted for untypical one-off events, including: change in provisions: PLN 4.1 million; liquidation of fixed assets: PLN -1.2 million; fortuitous events: PLN -1.4 million; disposal of fixed assets: PLN 6.2 million; restructuring costs: PLN -1.8 million; costs of past operations: PLN -1.6 million, other: PLN -0.5 million.
³ Restated data. For detailed information on the restatement, see Note 1.5.1 to these statements. Also, short-term intangible assets have been allocated to individual segments accordingly. They were presented as unallocated items in the Consolidated Financial Statements for 2021.# CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000)

ciechgroup.com 22

SALES REVENUES — BUSINESS SEGMENTS

	01.01.-31.12.2022	01.01.-31.12.2021¹	Change 2022/2021	Change %
Soda segment, including:	4,037,844	2,287,251	1,750,593	76.5%
Dense soda ash	2,122,815	1,104,737	1,018,078	92.2%
Light soda ash	504,104	357,574	146,530	41.0%
Salt	385,302	207,265	178,037	85.9%
Sodium bicarbonate	329,135	219,135	110,000	50.2%
Energy	462,360	210,472	251,888	119.7%
Calcium chloride	24,171	30,889	(6,718)	(21.7%)
Other products	41,122	80,253	(39,131)	(48.8%)
Revenues from inter-segment transactions	168,835	76,926	91,909	119.5%
Agro segment, including:	560,126	486,989	73,137	15.0%
Agro products	560,126	486,925	73,201	15.0%
Revenues from inter-segment transactions	-	64	(64)	-
Foams segment, including:	337,029	390,037	(53,008)	(13.6%)
Polyurethane foams	336,660	389,953	(53,293)	(13.7%)
Revenues from inter-segment transactions	369	84	285	339.3%
Silicates segment, including:	529,526	238,155	291,371	122.3%
Sodium silicates	511,313	228,099	283,214	124.2%
Potassium silicates	17,405	9,750	7,655	78.5%
Other products	280	109	171	156.9%
Revenues from inter-segment transactions	528	197	331	168.0%
Packaging segment, including:	106,173	74,786	31,387	42.0%
Glass packaging	104,584	73,652	30,932	42.0%
Revenues from inter-segment transactions	1,589	1,134	455	40.1%
Other segment, including:	147,474	193,526	(46,052)	(23.8%)
Revenues from third parties	16,082	84,900	(68,818)	(81.1%)
Revenues from inter-segment transactions	131,392	108,626	22,766	21.0%
Consolidation adjustments	(302,713)	(187,031)	(115,682)	(61.9%)
TOTAL	5,415,459	3,483,713	1,931,746	55.5%

¹ Restated data. For information on the restatement of comparative data by segment, see Note 1.5.1 to the report. For detailed information on the recognition of sales revenue, please refer to Note 3.1 to these financial statements.

INFORMATION ON GEOGRAPHICAL AREAS

Information on the CIECH Group geographical areas is established based on the Group’s assets location.

ASSETS DIVIDED ON GEOGRAPHICAL REGIONS

	Non-current assets other than financial instruments	Deferred income tax	Other assets	Total assets
31.12.2022
Poland	2,566,831	56,923	2,129,152	4,752,906
European Union (excluding Poland)	2,196,909	75,851	1,056,375	3,329,135
Other European countries	-	-	180	180
Africa	-	-	1,693	1,693
Asia	-	-	6,257	6,257
Other regions	-	-	2,356	2,356
TOTAL	4,763,740	132,774	3,196,013	8,092,527
31.12.2021¹
Poland	2,489,645	64,707	2,019,215	4,573,567
European Union (excluding Poland)	2,223,317	10,277	307,415	2,541,009
Other European countries	-	-	2,432	2,432
Africa	-	-	2,313	2,313
Asia	-	-	7,022	7,022
Other regions	-	-	8,875	8,875
TOTAL	4,712,962	74,984	2,347,272	7,135,218

¹ Restated data. For detailed information, see Note 1.5.1 to this report.

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000)

ciechgroup.com 23

SALES REVENUES – GEOGRAPHICAL STRUCTURE OF MARKETS

	01.01.-31.12.2022	01.01.-31.12.2021¹	Change 2022/2021
Poland	2,588,860	1,748,175	48.1%
European Union (excluding Poland)	2,542,937	1,571,718	61.8%
Germany	1,365,964	805,723	69.5%
Romania	40,002	53,060	(24.6%)
Czech Republic	288,933	166,908	73.1%
Italy	42,181	27,744	52.0%
The Netherlands	258,219	139,952	84.5%
Finland	110,537	50,060	120.8%
Sweden	3,289	23,560	(86.0%)
Belgium	36,479	35,435	2.9%
Denmark	72,546	42,388	71.1%
Spain	128,772	107,588	19.7%
Austria	29,953	39,737	(24.6%)
France	21,301	21,426	(0.6%)
Luxembourg	61,730	398	15410.1%
Lithuania	19,683	16,331	20.5%
Other EU countries	63,348	41,408	53.0%
Other European Countries	166,073	77,334	114.7%
Switzerland	20,948	10,815	93.7%
Norway	78,033	44,375	75.8%
United Kingdom	4,776	4,896	(2.5%)
Russia	2	1,177	5,985
Other European countries	60,848	11,263	440.2%
Africa	16,671	17,286	(3.6%)
Asia	58,375	37,855	54.2%
China	762	4,474	(83.0%)
Singapore	1,368	6,819	(79.9%)
Turkey	39,828	6,169	545.6%
Other Asian countries	16,417	20,393	(19.5%)
Other regions	13,503	26,383	(48.8%)
Cash flow hedge adjustment	29,040	4,962	-
TOTAL	5,415,459	3,483,713	55.5%

¹ Restated data. For detailed information, see Note 1.5.1 to this report.
² Sales carried out until 24 February 2022, after 24 February 2022 the contracts have been discontinued.

Sales revenues

	01.01.-31.12.2022	01.01.-31.12.2021
Poland	47.80%	50.18%
European Union (excluding Poland)	46.96%	45.12%
Other European countries	3.07%	2.22%
Africa	0.31%	0.50%
Asia	1.08%	1.09%
Other regions and adjustments	0.79%	0.90%

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000)

ciechgroup.com 24

3 NOTES TO THE CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME

3.1 SALES REVENUES

Accounting policy

The Group 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 Group recognises as revenues the amount of the transaction price that is allocated to that performance obligation. At the CIECH Group, sales revenues are recognized upon the provision of services or delivery of products or goods in accordance with INCOTERMS terms and conditions contained in contracts with customers. The company usually sells using the following delivery bases: DAP, FCA, EXW, CPT, DDP, CIF. The CIECH Group enters into agreements with counterparties concerning the provision of the Group’s 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. Moreover, the Group, in accordance with IAS 15 Revenue from contracts with customers, attributes revenues and costs connected with contracts concerning cavern desalination to particular periods in which the works were conducted. For more detailed information, see Note 5.6 to these statements. CIECH Group companies grant discounts to selected customers, and the value of these discounts reduces the value of consolidated sales revenues. 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 the CIECH Group 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. The CIECH Group companies use non-recourse factoring and detailed information is provided in Note 5.10 to these financial statements.

SALES REVENUES

	01.01.-31.12.2022	01.01.-31.12.2021¹
Revenues from sales of products and services	5,329,436	3,424,904
- products	5,286,420	3,352,202
- services	43,016	72,702
Revenues from sales of goods and materials	86,023	58,809
- goods	83,347	57,067
- materials	2,676	1,742
Net sales of products, goods and materials	5,415,459	3,483,713

¹ Restated data. For detailed information, see Note 1.5.1 to this report.

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000)

ciechgroup.com 25

3.2 COST OF SALES

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 products and services sold and the value of sold goods and materials. Selling costs include, among others: 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/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 Group 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

	01.01.-31.12.2022	01.01.-31.12.2021¹
Cost of manufacture of products and services sold	(4,163,334)	(2,808,359)
Cost of sold goods and materials sold	(57,356)	(31,420)
Reversal of impairment losses on inventory	8,364	7,169
Recognition of impairment losses on inventory	(14,830)	(5,792)
Write off / liquidation of materials	(199)	(457)
Costs of idle assets and production capacity	(19,875)	(12,548)
TOTAL	(4,247,230)	(2,851,407)

¹ Restated data. For detailed information, see Note 1.5.1 to this report.

3.3 COSTS BY TYPE

COST BY KIND (SELECTED)

	01.01.-31.12.2022	01.01.-31.12.2021¹
Amortisation	(416,508)	(357,319)
Consumption of materials and energy	(3,069,495)	(1,785,929)
Employee benefits, including:	(540,649)	(391,895)
- payroll	(447,153)	(323,669)
- social security and other benefits	(87,168)	(63,416)
- expenditure on retirement benefit and jubilee awards (including provisions)	(462)	(695)
- expenditure on pension schemes with defined benefits	(1,073)	(1,069)
- other	(4,794)	(3,046)
External services	(561,165)	(550,771)

¹ Restated data. For detailed information, see Note 1.5.1 to this report .# CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000) ciechgroup.com 26

3.4 OTHER INCOME AND EXPENSES

Accounting policy

The reporting period’s results are also affected by other operating income and expenses indirectly related to the Group's core operations. The key items include:
• gains/ losses on disposal and liquidation of non-financial non-current assets,
• gains/ losses on sales of emission rights,
• recognition/ reversal of impairment losses (including allowances for doubtful receivables),
• recognition / reversal of provisions, such as for liabilities, employee benefits,
• 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,
• gains/losses on valuation of fair value of investment property,

Subsidies

Government subsidies are recognised when there is reasonable assurance that the subsidy will be received and that the entity will comply with all relevant conditions of the subsidy. If the subsidy relates to an expense item, it is recognised as a reduction in the costs that the subsidy is intended to compensate. Government subsidies related to assets, including non-monetary subsidies at fair value, are presented in the balance sheet by setting up the subsidy as deferred income. It is recognised as income over the useful life of the asset. Repayment of a subsidy related to income should be applied first against any unamortised deferred credit set up in respect of the subsidy. To the extent that the repayment exceeds any such deferred credit, or where no deferred credit exists, the repayment should be recognised immediately in profit or loss. Repayment of a subsidy related to an asset should be recorded by increasing the carrying amount of the asset or reducing the deferred income balance by the amount repayable. In connection with the implementation of investment projects to improve energy efficiency, the Group companies receive energy efficiency certificates which are recognised at market value in the statement of financial position as a subsidy. If the value of certificates received exceeded the value of expenditures incurred on the implementation of projects, this amount is recognised on a one-off basis in profit or loss as other operating income.

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. For intangible assets that have indefinite lives, goodwill or intangible assets that are not yet available for use, the recoverable amount is estimated at each reporting date, irrespective of the existence of the aforesaid indications. 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.

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000)

OTHER OPERATING INCOME	01.01.-31.12.2022	01.01.-31.12.2021
Subsidies	14,095	7,500
The right to emit greenhouse gases	-	145,411
Rents/lease income	4,238	4,536
Gain on disposal of non-financial non-current assets	1,605	6,210
Reversal of impairment allowances on receivables	13,601	7,381
Reversal of impairment losses on property, plant and equipment and intangible assets	7,506	315
Reversal of provisions on employee benefits	1,210	2,037
Reversal of provisions for compensation – changing the base	772	3,229
Reversal of provisions for environmental protection – changing the base	-	3,844
Reversal of provisions for liabilities – changing the base	6,168	5,126
Penalty fees and compensations received	2,598	10,785
Refund of taxes and charges	23,128	18,273
Valuation of investment property in fair value	6,891	-
Other services	5,120	3,177
Settlement of inventory taking	4,111	1,331
Other	9,905	19,240
TOTAL	100,948	238,395

Reimbursement of costs and fees in the amount of PLN 23,128 thousand results, among others, from compensation received by CIECH Soda Polska S.A. for the costs of purchase of emission allowances in the amount of PLN 15,653 thousand (in the comparable period it was PLN 15,773 thousand), a correction of the real estate tax for the years 2017-2021 made by CIECH Soda Polska S.A. in 2022 in the amount of 3,647 thousand PLN and a reimbursement of VAT sanction in the amount of 2,632 thousand PLN received by CIECH Trading. The main item of other operating income in the corresponding period was the gain on the sale of unused CO2 emission allowances earned in the SDC Group (PLN 96,371 thousand) and CIECH Soda Romania (PLN 49,040 thousand).

Subsidies and other forms of State aid

Subsidies recognised in the statement of profit or loss in the reporting period amounted to PLN 14,095 thousand (PLN 7,500 thousand in the comparable period) settled over time in proportion to the depreciation/amortisation of non-current assets to which they relate. Subsidies included in liabilities as at 31 December 2022 amounted to PLN 120,969 thousand (compared to PLN 113,181 thousand as at 31 December 2021). The CIECH Group companies receive subsidies for research and development activities, purchase of property, plant and equipment and for adapting investment projects to environmental requirements. The subsidies are mainly received by the CIECH Group companies from the National Centre for Research and Development, the National Fund for Environmental Protection and Water Management and Ministry of Development. In 2022, the CIECH Group companies continued publicly subsidised projects launched in previous years, which made it possible to receive subsidies in the amount of:
• PLN 798 thousand by CIECH Sarzyna S.A. for the implementation of the project entitled: “Development and field verification of a more efficient and energy-saving manufacturing technology for a novel herbicide with reduced active ingredient content”.
• PLN 455 thousand by Smart Fluid S.A. as part of the project entitled: “Development and validation of real-world technology for the production of impact-absorbing smart materials by exploiting the properties of shear thickening fluids (STF)”.
• PLN 3,158 thousand by CIECH R&D Sp. z o.o. as part of the completed project entitled: Establishment of a Research and Development Center of Ciech R&D Sp. z o.o.
• PLN 526 thousand by CIECH R&D Sp. z o.o. as part of the completed project entitled: “Optimisation of the production of soda ash and soda-based products by using concentrated CO2 waste streams, together with carbon dioxide chemisorption in the post-distillation suspension, to improve the properties of lime”.
In 2022, CIECH Group companies also received de minimis aid for training and aid in the form of greenhouse gas emission allowance schemes. The CIECH Group companies also benefit from the corporate income tax exemption for projects implemented on the basis of permits to operate in Special Economic Zones or on the basis of support decisions issued within the Polish Investment Zone.

27 ciechgroup.com

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000) ciechgroup.com 28

OTHER OPERATING EXPENSES	01.01.-31.12.2022	01.01.-31.12.2021
Costs related to investment property	(5,113)	(4,442)
Recognition of impairment losses on receivables	(6,913)	(8,366)
Recognition of impairment losses on property, plant and equipment and intangible assets	(10,327)	(577)
Recognition of provisions on employee benefits	(1,774)	(3,089)
Recognition of provisions for compensation – changing the base	-	(395)
Recognition of provisions for environmental protection – changing the base	(1,608)	(828)
Recognition of provisions for liabilities and anticipated losses	(9,113)	(5,538)
Liquidation costs of property, plant and equipment	(2,047)	(1,209)
Costs of remediating the effects of fortuitous events	(1,743)	(1,494)
Valuation of investment property at fair value	-	(202)
Penalties and compensations paid	(3,216)	(1,252)
Fortuitous events	(4,355)	(5)
Inventory differences	(6,993)	(1,042)
Costs of idle assets and production capacity	(14,666)	(16,718)
Other	(21,102)	(12,620)
TOTAL	(88,970)	(57,777)

Other operating expenses in 2022 and 2021 include an amount of PLN 14,666 thousand and PLN 16,718 thousand, respectively, related to the costs of idle assets and production capacity in CIECH Soda Romania S.A. due to the hibernation of the plant as of September 2019. For the remaining CIECH Group companies engaged in production activities, these expenses are reported in the core business and affect the level of cost of sales.# 3.4.1 DETAILED INFORMATION ON SIGNIFICANT IMPAIRMENT LOSSES

In connection with the suspension of production by a subsidiary, CIECH Soda Romania S.A. in 2019, resulting from the discontinuation of supplies of process steam by its supplier, S.C. CET Govora S.A., the CIECH Group evaluated the evidence of impairment of assets, based on possible scenarios of actions. Following the analysis, the Group recognised an impairment loss on property, plant and equipment in the total amount of PLN 73,486 thousand as at 31 December 2019. The decision to recognise the impairment loss was made as a result of:
* failure to reach agreement between the CIECH Soda Romania S.A. and the sole provider of steam – S.C. CET Govora S.A. based in Romania in composition bankruptcy (“CET”), as to the level of the price of process steam, as confirmed by CET in its letter with information on the inability to supply the steam at the price agreed in the terminated contract,
* analysis of possible steam delivery options from a new source, the probability of which, as at the date of decision making, was assessed as insufficiently high.

The amount of the impairment loss on property, plant and equipment was determined in accordance with IAS 36 “Impairment of assets”. The following assumptions were adopted to determine the value of particular groups of fixed assets:
* for land – the value from market valuations was used as the selling price,
* for fixed assets and fixed assets under construction that could potentially be used by other CIECH Group companies and relocated there – the book value was used,
* for vehicles and other fixed assets – it was assumed that the book value reflected the market value,
* for other fixed assets not included above – the price of scrap less the costs of disassembly was used as the selling price.

The impairment loss was recognised for buildings, premises, civil and marine engineering structures, technical equipment and machinery, fixed assets under construction. The impairment loss (recognised as other operating expenses in the period from 1 January to 31 December 2019), calculated on the basis of the above assumptions, was PLN 73,486 thousand. The amount of the impairment loss was allocated to the profit or loss of the industry segments in which CIECH Soda Romania S.A. conducts its operations. The impact on the operating profit or loss of particular segments in 2019 was as follows:
* Soda Segment: PLN 70,986 thousand,
* Silicates Segment: PLN 2,500 thousand.

As at the balance sheet date, the analysis of the situation in CIECH Soda Romania S.A. has been performed. To date, the situation has not changed – possible scenarios are still being analysed. In addition, the Group analysed the list fixed assets and fixed assets under construction that could potentially be used by other CIECH Group companies and relocated there, and confirmed its validity. In addition, the financial statements for 2022 include a depreciation charge that takes into account the wear and tear of these fixed assets in the amount of PLN 7,364 thousand, which is presented under other operating expenses as the cost of idle capacity which, in the opinion of the Management Board, reflects the status of the above-mentioned fixed assets. The status of the Romanian plant has not changed compared to the status at the end of 2019. In 2022, the Group continues to identify the reasons for the decision to recognise an impairment loss. At the end of 2022, the fixed assets held were measured at fair value by an independent valuer to determine whether the value of the assets recognised in the Company's accounting records exceeds the value determined by the valuer. Based on the valuation it was determined that no additional impairment losses were necessary. As a result, the amount of impairment losses on fixed assets in CIECH Soda Romania S.A. did not change. The net carrying amount of the company's fixed assets is PLN 46,100 thousand as at 31 December 2022. At the same time, the Group continues analyses of the possibility of obtaining a new source of steam at a reasonable cost and long-term cooperation in the supply of other raw materials necessary for production (guaranteeing cost predictability in subsequent years). The result of these analyses may affect the amount of impairment losses recognised in the consolidated financial statements of the CIECH Group for subsequent reporting periods.

3.5 FINANCIAL INCOME AND EXPENSES

Accounting policy, judgements and estimates

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. Accordingly, key items of financing activities include:
* interest on borrowings determined based on the effective interest method,
* interest earned by the Group 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 Group’s right to receive payment is established,
* write-downs on investments,
* net foreign exchange gains or losses,
* gains/ losses on sales of financial assets,
* gains/losses on valuation of financial instruments not designated for hedge accounting and the ineffective portion relating to financial instruments designated for hedge accounting.

FINANCIAL INCOME

	01.01.-31.12.2022	01.01.-31.12.2021
Interest	36,884	1,204
Dividends and shares in profit	216	-
Net foreign exchange gains	13,105	-
Reversal of impairment losses	3,000	1,397
Decrease in provisions due to change in discount rate	99,588	1,685
Profits on financial instruments	34,969	18,064
Other	172	4,364
TOTAL	187,934	26,714

The interest item shows interest in the amount of PLN 30,797 thousand in connection with the received judgments of the Supreme Administrative Court (a detailed description of tax audits and the status of cases is presented in note 9.2.

FINANCIAL EXPENSES

	01.01.-31.12.2022	01.01.-31.12.2021
Total interest	(76,363)	(37,482)
Net foreign exchange losses	-	(1,870)
Recognition of other impairment losses	(203)	(448)
Factoring commissions	(17,582)	(2,364)
Bank fees and commissions	(5,536)	(8,569)
Recognised provisions	-	(903)
Costs of discounting of liabilities	(1,400)	(427)
Losses on financial instruments	(80,694)	(55,696)
Increase in provisions due to change in discount rates	(2,558)	(70)
Other	(3,389)	(2,533)
TOTAL	(187,725)	(110,362)

The item in the statement of profit or loss “Gains/losses on financial instruments” comprises the following values:

Finance income

	01.10.-31.12.2022	01.01.-31.12.2021
Profit on financial instruments	41,584	20,812
Interest	6,087	1,203
Profit on derivatives	34,969	19,404
Odpisy aktualizujace	528	204

Net profit/(loss) attributable to shareholders of the parent company

	01.10.-31.12.2022	01.01.-31.12.2021
Loss on financial instruments	(154,381)	(93,178)
Interest	(73,687)	(37,482)
Loss on derivatives	(80,694)	(55,696)

3.6 COMPONENTS OF OTHER COMPREHENSIVE INCOME

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
Net currency at translation differences	12,414	-
Cash flow hedge reserve	(213,899)	90,983
Profit (loss) from costs of hedging reserve	(57,777)	-
Valuation of actuarial provisions	745	(136)
Other components of other comprehensive income	-	-
TOTAL	(258,517)	90,847

*Restated data. For detailed information, see Note 1.5.1 to this report.

Income tax and reclassification adjustments in other comprehensive income

	01.01.-31.12.2022	01.01.-31.12.2021
Other comprehensive income before tax
Currency translation differences (foreign companies)	12,414	(4,370)
remeasurement for the current period	12,414	(4,370)
reclassification to profit or loss	-	-
Profit (loss) from cash flow hedge reserve	(213,899)	237,461
fair value remeasurement in the period	6,032	237,529
reclassification to profit or loss	(219,931)	(68)
Profit (loss) from costs of hedging reserve	(57,777)	(16,672)
fair value remeasurement in the period	(57,777)	(20,345)
reclassification to profit or loss	-	3,673
Valuation of actuarial provisions	745	(1,342)
remeasurement for the current period	745	(1,342)
reclassification to profit or loss	-	-
Other components of other comprehensive income	-	(34)
remeasurement for the current period	-	(34)
reclassification to profit or loss	-	-
Income tax attributable to other components of other comprehensive income	90,847	(69,208)
accrued for the current period	25,628	(67,285)
reclassification to profit or loss	65,219	(1,923)
Other comprehensive income net of tax	(167,670)	145,835

*Restated data. For detailed information, see Note 1.5.1 to this report.

4 INCOME TAX, DEFERRED TAX ASSETS AND LIABILITY

4.1 MAIN COMPONENTS OF TAX EXPENSE

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.# INCOME TAX

THE MAIN COMPONENTS OF TAX EXPENSE (TAX INCOME)

	01.01.-31.12.2022	01.01.-31.12.2021
Current income tax	(76,401)	(69,257)
Income tax for the reporting period	(136,458)	(72,496)
Adjustment to tax for previous years	60,057	3,239
Deferred income tax	53,068	31,591
Origination/reversal of temporary differences	36,876	45,178
Recognition of tax losses not recognized in previous years	16,192	(33,445)
Unrecognized deferred tax assets	-	19,858
INCOME TAX RECOGNISED IN STATEMENT OF PROFIT OR LOSS	(27,091)	(37,666)

1 Restated data. For detailed information, see Note 1.5.1 to this report. 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
Current income tax	58,992	(61,540)
Cash flow hedge	58,992	(61,540)
Deferred income tax	31,855	(7,668)
Cash flow hedge	31,991	(7,697)
Valuation of actuarial provisions	(136)	255
Net currency at translation differences	-	(226)
TOTAL	90,847	(69,208)

4.2 EFFECTIVE TAX RATE

The following represents a reconciliation of income tax calculated by applying the currently enacted statutory tax rate to the Group’s pre- tax financial result to income tax calculated based on the effective tax rate:

	01.01.-31.12.2022	01.01.-31.12.2021
Profit/(loss) before tax	591,792	256,883
Tax calculated at the applicable tax rate	(112,440)	(48,808)
Difference resulting from the application of tax rates applicable in other countries	(4,174)	(2,868)
Tax effect of revenues adjusting profit (loss) before tax (permanent difference)	15,282	(4,830)
Effect of interest in entities accounted for using the equity method	(267)	(27)
Tax effect of expenses adjusting profit (loss) before tax (permanent difference)	(25,769)	14,937
Adjustment of current income tax for previous years	60,057	(2,796)
Reversal impairment losses on deferred tax asset for tax losses carried forward	21,208	(1,197)
Tax losses for the reporting period for which a deferred tax asset has not been recognised	(3,866)	(11,446)
Special economic zone	20,831	23,170
Tax credits	401	1,151
Settlement of deferred tax asset	-	(1,048)
Other	1,646	(3,904)
Income tax recognised in statement of profit or loss	(27,091)	(37,666)
EFFECTIVE TAX RATE	4.6%	15.6%

The CIECH Group's effective tax rate in 2022 was largely driven by:
* adjustment (reduction) of current income tax for previous years in the total amount of PLN 60,057 thousand (including PLN 36,559 thousand in CIECH S.A.), comprising in particular the expected refund of overpaid income tax in connection with the judgments of the Supreme Administrative Court (for a detailed description of tax audits and the status of cases, see Note 9.2),
* inclusion of costs listed in Articles 15c and 15e of the Corporate Income Tax Act 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 the amount of PLN 18,857 thousand in tax-deductible expenses in 2022 in CIECH S.A.,
* increase in the amounts of relief for operating in the Special Economic Zone.

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
* unless 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 statement is itself recognised outside profit or loss: 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, the CIECH Group subsidiaries base their calculations on estimates related to the term and amount of future taxable income.

Deferred income tax is attributable to the following items:

	31.12.2022	31.12.2021
	Total asset	Total liability
Property, plant and equipment	9,053	174,229
Intangible assets	1,451	21,541
Rights to use an asset	-	4,551
Investment property	2,861	1,106
Long term receivables	796	1,928
Financial assets	437	83,497
Inventory	4,516	116
Trade and other receivables	4,837	387
Provisions for employee benefits	3,881	-
Other provisions	40,373	2
Tax losses carried forward	130,881	-
Foreign exchange differences	-	2,183
Liabilities	197,808	5,427
Special economic zone	56,864	-
Other	2,657	1,130
Deferred tax assets/liability	456,415	296,097
Set - off of deferred tax assets/ liability	(270,974)	(270,974)
Unrecognized deferred tax assets	(52,667)	-
Deferred tax assets/liability recognised in the statement of financial position	132,774	25,123

	01.01.-31.12.2022	01.01.-31.12.2021
Change recognized in the statement of profit or loss	49,310	31,590
Change recognized in other comprehensive income	31,855	(7,668)
Foreign exchange differences	626	266
Total change of deferred tax	81,791	24,188

The Group estimates that within more than 12 months from the period of the consolidated financial statements presentation the deferred tax asset will be utilised in the amount of PLN 146,901 thousand (this amount does not include the unrecognised amount of the deferred tax asset). In the same period, the estimated amount of settlement of the deferred tax liability will be PLN 214,962 thousand.

The Group recognises deferred tax liabilities and deferred tax assets on the basis of temporary differences between the carrying amounts of assets and liabilities and their tax bases and tax losses deductible in the future as well as other unused tax credits relating to corporate income tax. Temporary differences can be:
* taxable, resulting in taxable amounts to be included in the determination of taxable income (tax loss) in future periods when the carrying amount of the asset or liability is recovered or settled, or
* deductible, resulting in deductible amounts in the determination of taxable income (tax loss) in future periods when the carrying amount of the asset or liability is recovered or settled.

Dividend payment to the shareholders of the CIECH Group has no effect on deferred tax.# CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000)

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5 NOTES TO ASSETS REPORTED IN THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION

5.1 PROPERTY, PLANT AND EQUIPMENT

Accounting policy

Own property, plant and equipment

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.

Property, plant and equipment used under lease agreements

As of 1 January 2019, property, plant and equipment used under lease agreements are reported in the statement of financial position as right-of-use assets.

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. The Group increases the value of property, plant and equipment by the value of outlays for periodic major overhauls, necessary for the functioning of a given item of property, plant and equipment. These expenditures are treated as a separate item of property, plant and equipment and depreciated through the anticipated period to the next planned overhaul. Upon capitalisation of new costs of overhauls, the non-depreciated value of previous repairs is allocated to operating expenses. Upon the acquisition or creation of an item of property, plant and equipment, the Group separates from the cost a value equal to the expenditures that need to be made during the next overhaul of a given item of property, plant and equipment and depreciates it through the anticipated period left until the next planned overhaul.

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, with the exception of the salt caverns, which are depreciated using the method based on the quantity of products manufactured (the amount of salt extracted or the volume used, depending on their use). Land is not depreciated.

The estimated useful lives are as follows:

Fixed assets	Useful lives
Buildings	2-50 years
Machinery and equipment	2-20 years
Means of transport	2-20 years
Other	1-15 years

Borrowing costs

For qualifying assets, the borrowing costs that otherwise would have been avoided if the expenditure on the qualifying asset has not been made are included in purchase price of these assets. The amount of borrowing costs eligible for capitalisation is defined as the appropriate portion of loan interest, the cost of arranging financing and respectively foreign exchange differences on foreign currency loans.

Judgements and estimates

Amortisation rates. These 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.

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000)

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Accounting policy

	Buildings offices and land	Land and water	Machinery and equipment	Other tangible fixed assets	Means of transport	Tangible fixed assets under engineering construction	TOTAL
Gross value of property, plant and equipment at the
beginning of the period	90,153	1,412,756	3,962,341	96,890	67,740	1,185,058	6,814,938
Purchase	-	-	-	-	-	388,436	388,436
Reclassification	-	350,621	719,021	13,330	9,695	(1,081,221)	11,446
Capitalised borrowing costs	-	-	-	-	-	11,575	11,575
Exchange differences	1,746	7,520	28,433	422	313	18,948	57,382
Sales	-	(78)	(7,157)	(1,491)	(1,540)	-	(10,266)
Liquidation	-	(991)	(20,606)	(853)	(367)	(1,027)	(23,844)
Transfer to intangible assets	-	-	-	-	-	(7,400)	(7,400)
Other	-	139	(1,152)	(43)	(245)	(1,837)	(3,138)
Gross value of property, plant and equipment at the
end of the period	91,899	1,769,967	4,680,880	108,255	75,596	512,532	7,239,129
Accumulated depreciation at the beginning of the period	(16,977)	(674,901)	(2,066,890)	(68,243)	(47,247)	-	(2,874,258)
Depreciation for the period	(889)	(69,642)	(266,153)	(6,408)	(4,836)	-	(347,928)
Annual depreciation charge	(555)	(67,038)	(276,385)	(8,424)	(5,588)	-	(357,990)
Sales	-	276	3,964	1,548	278	-	6,066
Liquidation	-	590	20,397	749	356	-	22,092
Exchange differences	(334)	(3,484)	(15,099)	(325)	(229)	-	(19,471)
Reclassification	-	(58)	-	-	58	-	-
Other	-	72	970	44	289	-	1,375
Accumulated depreciation at the end of the period	(17,866)	(744,543)	(2,333,043)	(74,651)	(52,083)	-	(3,222,186)
Impairment losses at the beginning of the period	-	(43,109)	(15,979)	-	98	(18,369)	(77,359)
Recognition	-	-	-	-	-	(4,686)	(4,686)
Exchange differences	-	(845)	(315)	-	1	(346)	(1,505)
Other	-	-	99	-	(99)	-	-
Impairment losses at the end of the period	-	(43,954)	(16,195)	-	-	(23,401)	(83,550)
Carrying amount of property, plant and equipment	73,176	694,746	1,879,472	28,647	20,591	1,166,689	3,863,321
at the beginning of period
Carrying amount of property, plant and equipment	74,033	981,470	2,331,642	33,604	23,513	489,131	3,933,393
at the end of the period

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000)

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Accounting policy

	Buildings offices and land	Land and water	Machinery and equipment	Other tangible fixed assets	Means of transport	Tangible fixed assets under engineering construction	TOTAL
Gross value of property, plant and equipment at the
beginning of the period	90,702	1,320,662	3,583,261	83,462	62,698	898,999	6,039,784
Purchase	-	24,138	102,633	9,307	850	799,090	936,018
Reclassification	-	78,464	302,315	6,347	4,722	(528,777)	(136,929)
Capitalised borrowing costs	-	-	-	-	-	18,538	18,538
Exchange differences	(549)	(2,095)
(2,644)

5.2 RIGHT-OF-USE ASSETS

Accounting policy

Initial measurement of right-of-use assets

At the commencement date, the Group 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 Group 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 Group by the end of the lease term or if the cost of the right-of-use asset reflects that the Group will exercise a purchase option, the Group depreciates the right-of-use asset from the commencement date to the end of the useful life of the underlying asset. Otherwise, the Group 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 Group 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:

	Buildings offices and Land land and engineering	Machinery and Means of transport	Other tangible fixed assets	TOTAL
Gross value of rights to use an asset at the beginning of the period	72,466	56,499	32,970	147,781
Reclassifications	-	-	1,472	(1,472)
Adopted on the basis of a finance lease agreement	-	170	-	3,342
Modifications to leasing contracts	(26)	4,352	-	(4,174)
New leasing agreements	-	-	-	5,705
Closing the contract	-	-	-	(42)
Exchange differences	98	409	640	109
Other	(91)	1,383	-	(2,528)
Gross value at the end of the period	72,447	62,813	35,082	148,721
Accumulated amortisation at the beginning of the period	(12,675)	(12,419)	(21,453)	(61,851)
Amortisation for the period	(995)	(4,308)	(1,619)	(24,323)
Exchange differences	-	(34)	(421)	(41)
Other	17	451	-	1,819
Accumulated depreciation at the end of the period	(13,653)	(16,310)	(23,493)	(84,396)
Net value of rights to use an asset at the beginning of the period	59,791	44,080	11,517	85,930
Net value of rights to use an asset at the end of the period	58,794	46,503	11,589	64,325

ciechgroup.com 40

Buildings offices and Machinery Other 01.01.-31.12.2021 Land land and and Means of tangible TOTAL water equipment transport fixed assets engineering
Gross value of rights to use an asset at the beginning of the facilities period 71,428 50,404 35,110 104,199 874 262,015
Reclassifications - - (1,076) - - (1,076)
Adopted on the basis of a finance lease agreement - - 483 1,654 - 2,137
Modifications to leasing contracts 1,158 1,206 - 375 99 2,838
New leasing agreements - 4,960 - 40,206 246 45,412
Closing the contract (417) (713) - (576) - (1,706)
Exchange differences (16) (71) (109) 6 (9) (199)
Other 313 713 (1,439) 1,918 - 1,505
Gross value at the end of the period 72,466 56,499 32,969 147,782 1,210 310,926
Accumulated amortisation at the beginning of the period (11,665) (7,998) (22,697) (42,182) (785) (85,327)
Amortisation for the period (1,027) (4,423) (1,216) (19,877) (276) (26,819)
Reclassifications - - 422 - - 422
Exchange differences - 1 61 2 9 73
Closing the contract 28 321 368 32 - 749
Other (11) (320) 1,609 174 - 1,452
Accumulated depreciation at the end of the period (12,675) (12,419) (21,453) (61,851) (1,052) (109,450)
Net value of rights to use an asset at the beginning of the period 59,763 42,406 12,413 62,017 89 176,688
Net value of rights to use an asset at the end of the period 59,791 44,080 11,516 85,931 158 201,476

In 2019, the CIECH Group implemented IFRS 16 “Leases”. Under this standard, leases and rentals, leases of passenger cars, railcars and locomotives, and perpetual usufruct rights were identified in the Group as lease agreements. 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 2028.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 – NON-CURRENT AND CURRENT

Accounting policy

Goodwill

Goodwill arises on a combination of two separate entities or businesses into one reporting entity. It specifically relates to the acquisitions of subsidiaries, associates, or jointly controlled entities. All business combinations of unrelated entities are recognised using the acquisition method. The Group initially measures goodwill as the difference between the total value:
* the acquisition-date fair value of the consideration transferred,
* the amount of any non-controlling interest in the acquiree measured either at fair value or at their proportionate share in the fair value of the acquiree's net assets, and
* in a business combination achieved in stages the acquisition-date fair value of the acquirer’s previously held equity interest in the acquire and the net recognised amounts (fair value) of the identifiable assets acquired and liabilities assumed measured at the acquisition date.

Occasionally, a bargain purchase may occur, i.e.# CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000)

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Accounting policy

Business combinations

a business combination in which the net recognised amounts of the identifiable assets acquired and liabilities assumed measured at the acquisition date exceed the aggregate of the acquisition-date fair value of the consideration transferred, the amount of any non-controlling interest measured at fair value or at their proportionate share in the acquiree's net assets, and in a business combination achieved in stages, the acquisition-date fair value of the acquirer’s previously held equity interest in the acquire. Before recognising a gain on a bargain purchase, the acquirer reassesses whether it has correctly identified and measured the amounts of assets acquired and liabilities assumed, non-controlling interest, consideration transferred, and in a business combination achieved in stages, the acquirer’s previously held equity interest in the acquiree. The purpose of the reassessment is to ensure that the measurements appropriately reflect consideration of all available information as of the acquisition date. Any remaining gain from a bargain purchase after completing the reassessment is recognised in profit or loss at the acquisition date (as other operating income).

At the date of an acquisition, any goodwill acquired in a business combination is allocated to the cash-generating units that are expected to benefit from the synergies of the combination. Each cash-generating unit or a group of units to which the goodwill was allocated:
* is the lowest level within the Group at which goodwill is monitored for internal management purposes,
* is not larger than an operating segment as defined in IFRS 8 “Operating Segments”.

Goodwill represents an asset with indefinite useful life and as such is subject to annual impairment tests. Goodwill is tested at a minimum at the operating segment level. Goodwill related to investments in associates is reflected in their carrying amounts in the Group’s consolidated financial statements. Consequently, any investments in associates and the related goodwill are analysed for impairment on a combined basis.

Other intangible assets

Other intangible assets that are acquired by the Group 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. The costs of registering a substance in the REACH system, such as participation in research, consulting services linked to a specific registration, costs of preparing the registration documents and Chemical Safety Reports, registration fees and authorisation, are capitalised as intangible assets.

CO 2 emission allowances

In the event of a purchase of additional allowances on the market, the allowances are measured at cost and presented as intangible assets. The acquired emission allowances are not amortised as their residual value corresponds to the purchase price. In the event of allowances purchased being used to cover a shortfall occurring at the date of the annual limit settlement, the allowances used at book value are settled against a provision recognised previously to cover the shortfall.

In 2021, the Group revised its Accounting policy in respect of recognition of emission allowances granted and the measurement principles for the disposal of rights. Following the revision, the emission allowances granted are recognised in the statement of financial position as assets when credited to the account at their fair value determined at that date. At the same time, the same amount is recognised in an accrued income account (as a subsidy for production costs, regulated in IAS 20 Government Grants and Disclosure of Government Assistance). The entity receiving the allowances accounts for them as intangible assets. When emissions covered by the allowances received occur, the corresponding value recognised in the deferred income account is deducted from the operating expenses related to the emission. If there were no emissions for which the entity received the allowances, then the part of the deferred income relating to them remains in the balance until the allowances are disposed of. If the allowances are used to cover the emission in the following year (years), the relevant part of the deferred income reduces the operating costs of the emission in the year in which the allowances are used, and if such allowances are sold, the deferred income reduces the cost of the allowances sold.

In the event of a purchase of additional allowances on the market, the allowances are measured at cost and presented as intangible assets. The entity recognises a provision for the cost of covering CO 2 emissions into the atmosphere in the amount of the product of the quantity of CO 2 emitted (in thousand tonnes, equivalent to one EUA) and the unit price of the emission allowances. The emission costs are covered by allowances held in a brokerage account at the balance sheet date in accordance with the detailed identification principle. If insufficient allowances are held, the missing portion of the provision is measured at the allowance price of the futures contracts open on the balance sheet date, in accordance with the detailed identification principle. If insufficient allowances have been contracted, the provision for the costs of covering emissions is measured at the current (as at the balance sheet date) market price of the EUA.

Until 2020, emission allowances granted were not subject to recognition on the statement of financial position when granted and in subsequent periods. The entity receiving the allowances entered them in the off-balance sheet records.

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000)

ciechgroup.com 42

Accounting policy

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 intangible assets are as follows:

Intangible assets	Useful lives
Development costs	2-5 years
Patents and licences	2–10 years
Other	2-12 years

Amortisation periods and residual values are reviewed. Any adjustments resulting from the verification are made prospectively as a change in estimate. Amortisation of intangible assets related to the costs incurred in respect of registration in the REACH system begins in the month following the month of proper registration of a given substance. The amortisation period is 12 years with amortisation charged to cost of sales.

Costs of completed development activities

Research activities represent an innovative and scheduled search for solutions, undertaken with the prospect of gaining new scientific or technical knowledge. Development activities are understood as a practical application of discoveries or achievements of other knowledge in planning and designing the production of new or considerably improved materials, devices, products, technological processes, systems or services, taking place prior to starting mass production or prior to their application.

All expenditure on research activities is recognised in profit or loss as incurred. Whenever a clear distinction between research and development activities cannot be made, the Group treats the related expenditure as though it were incurred in the research phase only.

Development expenditure is capitalised as part of intangible assets only if the Group is able to prove:
* that the product or process is technically and commercially feasible (assessed from a technical perspective),
* its intent to complete development and to use or sell the asset,
* the ability to use or sell the asset,
* the manner in which the asset will bring future economic benefits (i.e., the entity should prove the existence of a market for new products created by the asset or a market for the asset itself, or – if the asset is to be used by the Group – the usefulness of the intangible asset to the Group),
* the availability of appropriate technical, financial and other resources required to complete development activities and then use or sell the asset, and,
* its ability to reliably measure development costs attributable to the asset.

Internally generated trademarks, magazine titles, editorial titles, customer lists and other items of similar nature are not recognised in the financial statements. The amortisation periods of capitalised development costs should reflect their estimated useful lives.

Judgements and estimates

Amortisation rates.They 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.

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000)

ciechgroup.com 43

	Development costs	Goodwill	Licences,patents, permits, etc.	Other Intangible assets	TOTAL intangible assets
01.01.-31.12.2022
Gross value of intangible assets at the beginning of the period	77,141	586,868	295,945	102,334	142,038
Investment outlays	-	-	-	-	51,392
Reclassifications	5,571	-	23,290	846	(20,258)

Intangible assets

	Development costs	Licences,patents, permits, etc.	Other Intangible assets	Goodwill	Intangible assets under obtained assets	TOTAL
01.01.-31.12.2021
Gross value of intangible assets at the beginning of the period	19,855	589,940	273,617	143,783	173,821	1,201,016
Purchase	-	-	5,651	-	5,651	11,302
Investment outlays	-	-	-	-	43,882	43,882
Reclassifications	57,286	-	17,261	(31,312)	(80,248)	(37,013)
Transferred from/to assets classified as held for sale	-	-	-	-	-	-
Exchange differences	(3,072)	(538)	(409)	1	(4,018)	(4,018)
Sales	-	-	(9,728)	(194)	(9,922)	(9,922)
Liquidation	-	-	(46)	-	-	(46)
Cancellation of CO 2 emission rights	-	-	-	-	-	-
Change in the Group’s structure	-	-	-	-	-	-
Other	-	-	-	-	(875)	(875)
Gross value of intangible assets at the end of the period	77,141	586,868	295,945	102,334	142,038	1,204,326
Accumulated amortisation at the beginning of the period	(12,867)	-	(94,388)	(57,498)	-	(164,753)
Amortisation for the period	(11,773)	-	(20,434)	(84)	-	(32,291)
Annual amortisation charge	(11,773)	-	(20,532)	(264)	-	(32,569)
Transferred from/to assets classified as held for sale	-	-	-	-	-	-
Exchange differences	-	-	52	180	-	232
Sales	-	-	-	-	-	-
Liquidation	-	-	46	-	-	46
Other	-	-	-	-	-	-
Accumulated amortisation at the end of the period	(24,640)	-	(114,822)	(57,582)	-	(197,044)
Impairment losses at the beginning of the period	-	(440,231)	(3,258)	(44,452)	(3,420)	(491,361)
Recognition	-	-	-	(572)	-	(572)
Exchange differences	-	2,633	-	145	-	2,778
Other	-	-	-	210	-	210
Impairment losses at the end of the period	-	(437,598)	(3,258)	(44,669)	(3,420)	(488,945)
Net value of intangible assets at the beginning of the period	6,988	149,709	175,971	41,833	170,401	544,902
Net value of intangible assets at the end of the period	52,501	149,270	177,865	83	138,618	518,337

	Development costs	Licences,patents, permits, etc.	Other Intangible assets	Goodwill	Intangible assets under obtained assets	TOTAL
01.01.-31.12.2022
Gross value of intangible assets at the beginning of the period	77,141	586,868	295,945	102,334	142,038	1,204,326
Purchase	-	-	5,651	-	5,651	11,302
Investment outlays	-	-	-	-	43,882	43,882
Reclassifications	57,286	-	17,261	(31,312)	(80,248)	(37,013)
Transferred from/to assets classified as held for sale	-	-	-	-	-	-
Exchange differences	(3,072)	(538)	(409)	1	(4,018)	(4,018)
Sales	-	-	(9,728)	(194)	(9,922)	(9,922)
Liquidation	-	-	(46)	-	-	(46)
Cancellation of CO 2 emission rights	-	-	-	-	-	-
Change in the Group’s structure	-	-	-	-	-	-
Other	-	-	-	-	(875)	(875)
Gross value of intangible assets at the end of the period	77,141	586,868	295,945	102,334	142,038	1,204,326
Accumulated amortisation at the beginning of the period	(12,867)	-	(94,388)	(57,498)	-	(164,753)
Amortisation for the period	(11,773)	-	(20,434)	(84)	-	(32,291)
Annual amortisation charge	(11,773)	-	(20,532)	(264)	-	(32,569)
Transferred from/to assets classified as held for sale	-	-	-	-	-	-
Exchange differences	-	-	52	180	-	232
Sales	-	-	-	-	-	-
Liquidation	-	-	46	-	-	46
Other	-	-	-	-	-	-
Accumulated amortisation at the end of the period	(24,640)	-	(114,822)	(57,582)	-	(197,044)
Impairment losses at the beginning of the period	-	(440,231)	(3,258)	(44,452)	(3,420)	(491,361)
Recognition	-	-	-	(572)	-	(572)
Exchange differences	-	2,633	-	145	-	2,778
Other	-	-	-	210	-	210
Impairment losses at the end of the period	-	(437,598)	(3,258)	(44,669)	(3,420)	(488,945)
Net value of intangible assets at the beginning of the period	6,988	149,709	175,971	41,833	170,401	544,902
Net value of intangible assets at the end of the period	52,501	149,270	177,865	83	138,618	518,337

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).

In CIECH Sarzyna S.A., the most significant intangible assets under development concern product registrations (including Chwastox, Halvetic, Nikosar, Azoxar, Labrador, Faworyt), which will allow further manufacture of crop protection chemicals (PLN 113,565 thousand). In CIECH R&D Sp. z o.o., the most significant intangible assets under development concern research and development projects on optimisation of soda production and innovative technology for carbonation of brine. As at 31 December 2022, the value of these projects is PLN 16,615 thousand. In CIECH S.A., intangible assets under development concern work related to the implementation of IT systems in the amount of PLN 31,475 thousand. Other intangible assets of the CIECH Group include mainly IT systems, licences and patents, other software, development works and other intangible assets. All intangible assets belong to the CIECH Group.

Current intangible assets represent CO 2 emission allowances received and purchased to cover gas emissions for 2022. Until 2020, emission allowances granted were not subject to recognition on the statement of financial position when granted and in subsequent periods. The entity receiving the allowances entered them in the off-balance sheet records. Below are the amounts recognised in the statement of financial position.

Short-term intangible assets

	01.01.-31.12.2022	01.01.-31.12.2021
Gross value of intangible assets at the beginning of the period	403,434	185,220
Purchase	357,734	124,212
Reclassifications	-	31,362
Exchange differences	958	(935)
Sales	(188,691)	(105,051)
Cancellation of CO 2 emission rights	(615,284)	(240,382)
Received emission rights	557,783	409,008
Gross value of intangible assets at the end of the period	515,934	403,434

Amortisation of intangible assets was included in the following line items of the consolidated statement of profit or loss:

AMORTISATION CHARGES ON INTANGIBLE ASSETS

	01.01.-31.12.2022	01.01.-31.12.2021
Cost of sales	(22,302)	(18,564)
Selling costs	(7,782)	(6,495)
General and administrative expenses	(10,343)	(7,510)
TOTAL	(40,427)	(32,569)

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. 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 4,598 thousand). Apart from goodwill, the CIECH Group does not have other intangible assets with an indefinite useful life. Additional information about the goodwill is presented in Note 5.4.

Development works

Development works carried out by the CIECH Group are aimed at increasing economic potential; and are related mainly to the modernisation of technological processes, reduction of manufacturing costs and optimisation of technical and technological parameters. The Group continues the development of the R&D area to support the development of products being a response to growing needs of the market. The total amount of expenditure on research and development expensed in the period, as not meeting the capitalisation criteria, amounted to PLN 1,821 thousand (PLN 1,488 thousand in the comparable period). Research and development work in progress charged to profit or loss as impairment losses amounted to PLN 3,442 thousand.

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000) ciechgroup.com 45

5.4 GOODWILL IMPAIRMENT TESTING

In preparing the consolidated financial statements of the CIECH Group, impairment tests were carried out for goodwill recognised in the consolidated financial statements in relation to:

CIECH Sarzyna S.A.,
SDC Group, CIECH Salz Deutschland GmbH,
Proplan Plant Protection Company, S.L.,
Smart Fluid Sp. z o.o.

The recoverable amount was calculated based on the value in use. The value in use of the cash-generating units to which goodwill has been allocated has been calculated based on the Group's five-year plans. In 2022, no impairment of goodwill was identified for any of the above entities.

The following assumptions were applied in the impairment tests:

the weighted average cost of capital for CIECH Sarzyna S.A. 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 the SDC Group 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 weighted average cost of capital for Smart Fluid Sp. z o.o. for cash flows in PLN was 18.5%;
the assumed growth rate for the residual period was 2.0% for all companies.

According to the Management Board's estimates, for CIECH Sarzyna S.A., the SDC Group, Smart Fluid Sp. z o.o. and Proplan Plant Protection Company, S.L. an increase in the weighted average cost of capital of 1 p.p. for each currency without changing other factors would not lead to any change in the carrying amount of goodwill.

Goodwill is the most valuable component of intangible fixed assets and is presented at the level of the CIECH Group and on the lower tier group level – the SDC Group. Goodwill presented in consolidated financial statements was recognised as a result accounting for acquisition of companies in 2006 and 2007 and acquisition of companies in 2018.

Goodwill presented in the consolidated financial statements as at 31 December 2022 amounted to PLN 151,852 thousand:

Soda Segment PLN 52,038 thousand: SDC Group – PLN 52,022 thousand, CIECH Salz Deutschland GmbH: PLN 16 thousand,
Silicates Segment: PLN 39 thousand – CIECH Vitrosilicon S.A.,
Agro Segment PLN 96,821 thousand; CIECH Sarzyna S.A. – PLN 15,070 thousand; Proplan Plant Protection Company SL – PLN 81,751 thousand,
Other Segment: PLN 2,954 thousand – Smart Fluid Sp. z o.o.

As compared to 2021, goodwill increased by PLN 2,582 thousand as a result of:

change in the EUR exchange rate used to translate the goodwill recognised on acquisition of Proplan Plant Protection Company, S.L. in 2022 – an increase by PLN 1,578 thousand,
change in the EUR exchange rate used to translate the goodwill recognised in the statements of the lower tier group, the SDC Group, in 2022 – an increase by PLN 1,004 thousand.# 5.5 INVESTMENT PROPERTIES

Accounting policy

Investment property is held to earn rentals or for capital appreciation (or both). Investment property is remeasured at fair value. At initial recognition, investment property is accounted for in accordance with policies applicable for property, plant and equipment i.e. purchase price or cost. In subsequent reporting periods change in fair value of investment property is recognised in profit or loss in the period when change occurred and is presented in other operating expenses.

Judgements and estimates

Investment property valuation. The CIECH Group presents investment property at fair value, recognising the fair value valuation in the statement of profit or loss. Investment property valuation is performed using the comparative method based on observable market data, including the price of comparable investment properties and adjusted with the specific factors such as the capability of the property, its location and condition.

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000) ciechgroup.com 46 Accounting policy

	01.01.-31.12.2022	01.01.-31.12.2021
Carrying amount at the beginning of period	32,839	40,948
Sales	-	(7,907)
Goodwill valuation	6,891	(202)
Modernisation	451	-
Gross value at the end of the period	40,181	32,839

The item “Investment property” presented by the CIECH Group includes land, buildings and structures that have been acquired only in order to achieve economic benefits from rents or for the increase of their value. As at 31 December 2022, the CIECH Group held the following investment property:

CIECH Nieruchomości Sp. z o.o.
At CIECH Nieruchomości Sp. z o.o., as at 31 December 2022, the investment property line item for CIECH Nieruchomości S.A. included real property located in Bydgoszcz. The real property was acquired from Infrastruktura Kapuściska S.A in liquidation bankruptcy.

CIECH Soda Polska S.A.
Buildings acquired by CIECH Soda Polska S.A. as a result of a merger with Soda Med. Sp. z o.o. These are buildings leased for medical outpatient, clinics, nursing and treatment rooms as well as private doctor’s and dentist’s consulting rooms.

CIECH Sarzyna S.A.
23 buildings and structures located on the premises of CIECH Sarzyna S.A. In the past, they were used by the company for its own needs, currently they are leased to generate rental income.

	01.01.-31.12.2022	01.01.-31.12.2021
Rental income from investment property	3,827	3,175
Operating expenses relating to investment property that generated rental income during the period in question	3,264	2,758

5.6 LONG-TERM RECEIVABLES

Accounting policy

Contract assets resulting from transactions that are within the scope of IFRS 15 – receivables in relation to caverns (a salt cavern is a void in the rock most often used to store gases). If an entity performs by transferring goods or services to a customer before the customer pays consideration or before payment is due, the entity presents the contract as a contract asset, excluding any amounts presented as a receivable. A contract asset is an entity's right to consideration in exchange for goods or services that the entity has transferred to a customer. For these categories of assets, the Group chose a simplified approach to estimating impairment due to expected credit losses, whereby lifetime expected credit losses are always estimated from the moment of initial recognition of exposures, whether or not an evidence of a significant increase in credit risk exists.

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000) ciechgroup.com 47

	31.12.2022	31.12.2021
Receivables in relation to caverns	41,103	76,222
Other	134	2,320
Net non-current receivables	41,237	78,542
Write-down on receivables	(66)	(198)
Gross non-current receivables	41,303	78,740

CHANGE IN IMPAIRMENT ALLOWANCES ON LONG-TERM RECEIVABLES

	01.01.-31.12.2022	01.01.-31.12.2021
Opening balance	(198)	(1,015)
Reversed	136	810
Exchange differences	(4)	7
Closing balance	(66)	(198)

Impairment losses on long-term receivables are calculated using the default rate determined on the basis of the counterparty’s rating and the long-term receivable payment schedule.

Desalination of caverns
Pursuant to IFRS 15 Revenue from Contracts with Customers, the SDC Group recognises revenue from cavern desalination contracts over time according to the stage of completion of the work. Project 2 (Project 1 has been completed) – the Contract includes the sale of mining rights, land and preparation of four gas caverns (S113 to S116). The stage of completion is determined as a proportion between the costs incurred for work performed to date and the estimated total contract costs or completion of a physical proportion of the contract work. Revenue recognised in statement of profit or loss represent the amount of the expected sales revenues multiplied by the percentage of completion of the contract in the accounting period, less the amount of revenue recognised in prior years. In 2022, the Group’s revenues from the cavern desalination contract amounted to PLN 2,354 thousand (EUR 502 thousand). In the corresponding period, the income amounted to PLN 19,267 thousand (EUR 4,209 thousand). The receivables relating to the cavern desalination contracts (Project 2) recognised in assets as long-term receivables amounted to PLN 41,103 thousand (EUR 8,764 thousand) as at the end of 2022. As at 31 December 2021, it amounted to PLN 76,222 thousand (EUR 16,572 thousand). The total amount of costs incurred and profits recognised (less recognised losses) due to ongoing contracts for the period of duration of these contracts amounted to PLN 301,042 thousand. Due to the nature of the transaction, the long-term receivable reported in the statement of financial position will not be fully repaid until Innogy Gas Storage NWE GmbH actually fills the caverns with gas to test the density of the gas, which is planned for no earlier than 2023.

5.7 LONG-TERM FINANCIAL ASSETS

Accounting policy

Shares are stated at purchase price less any impairment losses. Accounting policy concerning derivative financial instruments is presented in Note 8.1.

	31.12.2022	31.12.2021
Shares	14,194	11,684
Derivatives	4,233	662
Other	89	103
TOTAL	18,516	12,449

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000) ciechgroup.com 48

CHANGE IN IMPAIRMENT ALLOWANCES ON LONG-TERM FINANCIAL ASSETS

	01.01.-31.12.2022	01.01.-31.12.2021
Opening balance	(2,420)	(2,415)
Recognized	-	(115)
Reversed / released	2,200	-
Used	214	110
Other	(496)	-
Closing balance	(502)	(2,420)

5.8 SHARES IN JOINT VENTURES / INVESTMENTS IN ASSOCIATES

Accounting policy

Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Joint venture is a contractual arrangement whereby two or more parties undertake an economic activity subject to joint control and have rights to the net assets of the arrangement. The consolidated financial statements include the Group's share of the income and expenses of equity accounted associates and joint ventures from the date that significant influence or joint control commences until the date that significant influence or joint control ceases. The Group also measures impairment of the share in the net assets of associates and joint ventures and creates appropriate allowance. When the Group’s share of losses exceeds the carrying amount of its interest in an associate or a joint venture, such carrying amount is reduced to nil and the recognition of further losses is discontinued if the Group is not obliged to cover them.

The CIECH Group holds a 50% share in Kaverngesellschaft Stassfurt mbH. It is a jointly-controlled company measured under the equity method at the lower-tier group level – the SDC Group (50% direct share in Kaverngesellschaft Stassfurt mbH). This company is not listed on the stock market so the fair value of this investment is not available. Balance sheet days and reporting periods of Kaverngesellschaft Stassfurt mbH are the same as those adopted by the Group.

The following table presents the carrying amounts of investments in equity-accounted jointly-controlled entities:

	31.12.2022	31.12.2021
Investments in associates and jointly-controlled entities	7,033	5,655

	01.01.-31.12.2022	01.01.-31.12.2021
Share in net profit of associated entities measured under the equity method	1,406	27

5.9 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. Finished goods and work in progress are measured at cost including direct manufacturing costs and reasonable portion of costs indirectly connected with the manufacturing process, but not higher than the selling price possible to achieve. The cost of inventory is measured using the weighted average method.

Judgements and estimates

The CIECH Group companies recognise 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.# CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000)

INVENTORY

	31.12.2022	31.12.2021
Materials	394,839	296,124
Semi-finished products and work in progress	73,954	40,515
Finished products	291,321	114,572
Goods	11,427	8,097
TOTAL	771,541	459,308

CHANGE OF INVENTORY IMPAIRMENT WRITE-DOWNS

	01.01.-31.12.2022	01.01.-31.12.2021
Opening balance	(34,932)	(38,303)
Recognized	(16,971)	(5,595)
Reversed / released	9,700	6,948
Used	-	1,856
Exchange differences	(140)	162
Closing balance	(42,343)	(34,932)

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.

5.10 SHORT-TERM RECEIVABLES

Accounting policy

Short-term trade and other receivables are measured at the amount receivable less allowance for expected credit 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 Group companies use 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 approx. 95% of the value of advance payments received from the factor (the approx. 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

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 Group 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 Group 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 Group 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:	376,319	218,284
- up to 12 months	370,982	208,603
- over 12 months	303	628
- prepayments for inventory	5,034	9,053
Prepayments for non-current assets	5,664	5,142
Public and legal receivables (excluding income tax)	215,562	163,345
Factoring receivables	55,872	33,660
Należności z tytułu instrumentów finansowych	104,116	-
Other receivables	47,472	141,665
NET TRADE AND OTHER RECEIVABLES	805,005	562,096
Impairment allowances with respect to trade receivables including	(43,700)	(46,614)
- impairment allowance recognized in the current reporting period	(5,924)	(3,844)
Impairment allowances with respect to other current receivables including	(20,852)	(22,664)
- impairment allowance recognized in the current reporting period	(1,159)	(4,592)
GROSS TRADE AND OTHER RECEIVABLES	869,557	631,374

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 maximum period of delay in payments. As at 31 December 2022, the asset from continuing involvement amounted to PLN 13,514 thousand (presented under other receivables). As at 31 December 2022, trade receivables assigned to the factor (and financed) amounted to PLN 675,158 thousand (PLN 454,816 thousand as at 31 December 2021). At the end of 2022, receivables from financial instruments represent SDC Group's receivables in the total amount of EUR 22,200 thousand (PLN 104,116 thousand) for deposits for the future settlement of hedging transactions. The other receivables item at the end of the comparable period represents SDC Group's receivables in the total amount of EUR 24,437 thousand (PLN 112,396 thousand) from the settlement of the gas supply option for 2022 in December 2021.

CHANGE IN IMPAIRMENT ALLOWANCES ON SHORT-TERM RECEIVABLES

	01.01.-31.12.2022	01.01.-31.12.2021
Opening balance	(69,278)	(66,632)
Recognized	(7,083)	(8,436)
Reversed	13,559	6,997
Used	464	456
Exchange differences	(2,221)	(1,071)
Change in the Group’s structure	-	(11)
Other	7	(581)
Closing balance	(64,552)	(69,278)

The principles for recognising impairment allowances for short-term receivables are described above, in the “Accounting Policy” section. Terms of transactions with related entities have been presented in note 9.3. Commercial contracts concluded by the CIECH Group 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 the CIECH Group were pledged as collateral for financial liabilities on account of the term loan, revolving facility and overdraft facilities. Income tax receivables related to the proceedings described in note 9.2 were estimated in accordance with IFRIC 23.

5.11 SHORT-TERM FINANCIAL ASSETS

Accounting policy

Accounting policy concerning financial instruments is presented in note 8.1.

SHORT-TERM FINANCIAL ASSETS

	31.12.2022	31.12.2021
Derivatives	359,359	102,220
Loans granted	246	133
Other	29	29
Total (net) short-term financial assets	359,634	102,382
Impairment of short-term financial assets	(28,354)	(28,354)
Total (gross) short-term financial assets	387,988	130,736

CHANGE IN IMPAIRMENT ALLOWANCES ON SHORT-TERM FINANCIAL ASSETS

	01.01.-31.12.2022	01.01.-31.12.2021
Opening balance	(28,354)	(28,343)
Recognized	-	(12)
Reversed	-	1
Closing balance	(28,354)	(28,354)

5.12 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 Group 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 Group analyses recoveries using probability-weighted scenarios.# CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000)
ciechgroup.com

CASH AND CASH EQUIVALENTS

	31.12.2022	31.12.2021
Bank accounts	492,284	541,146
Short-term deposits	192,833	258,304
Cash in hand	63	23
Impairment of cash and cash equivalents	(211)	(450)
Cash and cash equivalents	684,969	799,023
Cash and cash equivalents – presented in the cash flow statement	684,969	799,023

CHANGE IN IMPAIRMENT CASH AND CASH EQUIVALENTS

	01.01.-31.12.2022	01.01.-31.12.2021
Opening balance	(450)	(316)
Recognized	(43)	(316)
Reversed	331	182
Exchange differences	(2)	-
Other	(47)	-
Closing balance	(211)	(450)

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. Cash and cash equivalents are covered only by an allowance for expected credit losses in accordance with IFRS 9.

The value of restricted cash

As at 31 December 2022, all cash and cash equivalents in Polish companies (CIECH S.A., 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.), German companies (CIECH Soda Deutschland GmbH & Co. KG, CIECH Energy Deutschland GmbH, 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

As at 31 December 2022, the balance of cash restricted due to a deposit placed for transactions concluded with the PGE Brokerage House (futures contracts for the purchase of CO 2 certificates) amounted to PLN 92 thousand (EUR 20 thousand) (as at 31 December 2021: PLN 36,179 thousand (EUR 7,866 thousand)). In addition, restricted cash represented the funds in the VAT account due to the introduction of "split payment" procedures. As at 31 December 2022 and 31 December 2021, it amounted to PLN 36,706 thousand and PLN 16,205 thousand, respectively.

5.13 DISCONTINUED OPERATIONS, NON-CURRENT ASSETS AND DISPOSAL GROUPS HELD FOR SALE AND LIABILITIES RELATED THERETO

Assets and liabilities classified as held for sale

Accounting policy

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 31 December 2021, the CIECH Group presented the following assets under the item “Non-current assets and groups held for sale”:

CIECH Vitrosilicon S.A. presented property, plant and equipment in the amount of PLN 368 thousand (land located in the town of Iłowa) redundant from the point of view of the enterprise; a potential buyer of the land is now being sought. These assets are included in the Silicates Segment.

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000)

ciechgroup.com

Discontinued operations

In 2022, there were no discontinued operations at the CIECH Group.

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	157,410
Value of the Agreement	157,410
¹ Loan previously disclosed as intercompany loan and eliminated at the level of the consolidated statements; following the sale, disclosed in the consolidated figures as a loan to a third party. 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 Group's accounting policy.

The results of discontinued operations include (for the period from 1 January to 31 December 2021):

results of CIECH Żywice Sp. z o.o. for the period of being in a subsidiary of the Group – in connection with the planned sale of the company and the conclusion of the agreement for the sale of 74,677 shares in CIECH Żywice Sp. z o.o. to LERG S.A. – activities presented in the Resins Segment,
elimination of results on transactions between consolidated entities of the CIECH Group and the entity reported under discontinued operations,
results of the CIECH Group companies (including CIECH S.A.) generated from transactions with the entity reported under discontinued operations.

Below is the consolidated result on discontinued operations ( in the resins area) for 2021, which includes the figures of CIECH Żywice Sp. z o.o. and CIECH S.A.

CIECH Group	01.01.-31.12.2021
Net sales revenues	69,898
Cost of sales	(56,858)
Gross profit/(loss) on sales	13,040
Other operating income	385
Selling costs	(1,130)
General and administrative expenses	(4,945)
Other operating expenses	(422)
Operating profit/(loss)	6,928
Financial income	1,864
Financial expenses	(319)
Net financial income/(expenses)	1,545
Profit/(loss) before tax	8,473
Income tax	(1,524)
Net profit/(loss) (1)	6,949
Income form the sale of CIECH Żywice Sp. z o.o.	74,289
Net assets (19,370)
Tax - Gain on the sale of CIECH Żywice Sp. z o.o. (2)	54,919
Total net profit/(loss) on discontinued operations (1+2)	61,868

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000)

ciechgroup.com

Analysis of assets and liabilities over which control was lost – CIECH Żywice Sp. z o.o. ¹ : in thousand PLN

	01.03.2021
ASSETS
Property, plant and equipment	62,787
Right-of-use assets	894
Intangible assets	14,611
Investment properties	199
Deferred tax assets	1,508
Total non-current assets	79,999
Inventories	30,174
Trade and other receivables	54,392
Cash and cash equivalents	7,335
Total current assets	91,901
Total assets	171,900
LIABILITIES
Lease liabilities	47
Provisions for employee benefits	457
Total non-current liabilities	504
Loans, borrowings and other debt instruments	57,373
Lease liabilities	72
Trade and other liabilities	91,356
Income tax liabilities	1,575
Provisions for employee benefits	1,620
Other provisions	30
Total short-term liabilities	152,026
Total liabilities	152,530
NET ASSETS	19,370

¹ Assets and liabilities of the company prior to the date of sale were reported under assets held for sale.

Cash flows from discontinued operations for CIECH Żywice Sp. z o.o.:

	01.01.-01.03.2021
Cash as at 01.01.2021	4,913
Net cash from operating activities	1,445
Net cash from investing activities	(704)
Net cash from financing activities	1,681
Total net cash flows	2,422
Cash over which control was lost at the time of sale	7,335

The following table presents information about the consideration received for the sale of discontinued operations (in PLN ‘000):


Cash received from sale of shares	74,289
Cash over which control was lost	(7,335)
Consideration received (value reported in cash flows as “Disposal of a subsidiary”)	66,954

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000)

ciechgroup.com

6 EQUITY

6.1 CAPITAL MANAGEMENT

Capital structure management

The capital structure of the Group consists of debt comprising the credit facilities, cash and cash equivalents and equity attributable to shareholders of the parent, including shares issued, reserve capital and retained earnings. The Group manages its capital in order to ensure that subsidiaries are able to continue their activity and at the same time maximise 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.

The Group monitors the effectiveness and stability of capitals using the debt ratio calculated based on the net debt value in relation to EBITDA. The consolidated net debt of the Group calculated as the sum of non-current and current liabilities for credits, loans and other debt instruments (lease liabilities + liabilities for net loss on derivatives calculated separately for each instrument + factoring liabilities) less cash. EBITDA is calculated as operating profit plus amortisation and depreciation.

	31.12.2022	31.12.2021
Loans, borrowings and other debt instruments	1,865,124	1,859,441
Lease liabilities	135,320	151,197
Factoring liabilities	28,769	23,078
Net measurement of derivative financial liabilities	20,597	66,093
Gross financial liabilities	2,049,810	2,099,809
Cash and cash equivalents	684,969	799,023
Net financial liabilities	1,364,841	1,300,786

	01.01.- 31.12.2022	01.01. - 31.12.2021
Operating profit for continuing operations	590,177	340,504
Depreciation and amortisation for continuing operations	431,275	374,640
EBITDA for continuing operations	1,021,452	715,144
Debt ratio	1.3	1.8

As at 31 December 2022, net debt to EBITDA stood at 1.3 and was lower than as at the end of 2021 by 0.5. The improvement in this ratio was driven by a significant increase in operating profit. Detailed information on the operating results achieved presented in the Directors’ Report for the CIECH Group and CIECH S.A. for 2022 published on 23 March 2023 in Section 4.

6.2 CONSOLIDATED EQUITY

Accounting policy

The total consolidated shareholders’ equity includes equity attributable to shareholders of the parent company and non-controlling interest.# CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000) ciechgroup.com 56

Accounting policy

The Group’s share capital is represented by the share capital of the parent company and is accounted for at its nominal value adjusted by the effects of hyperinflation in the years 1989–1996. Post-acquisition changes in the equity of subsidiaries are recognised in the Group’s equity to the extent of the parent company’s interest in those subsidiaries. The remaining equity of the consolidated entities is recognised in non-controlling interest, described below. When a foreign operation is disposed of, the relevant amounts in the currency translation differences are transferred to profit or loss. When shares are repurchased by the parent company or a consolidated subsidiary, 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. Dividends payable from pre-acquisition profits do not reduce the acquisition price of the shares, however, they may provide evidence of impairment. The consolidated net profit (loss) attributable to shareholders of the parent company is presented in shareholders’ equity within retained earnings and represents the sum of the net profit (loss) of the parent company, its share in net profit (loss) of equity accounted investees, net profit (loss) of fully-consolidated subsidiaries.

Non-controlling interest

Non-controlling interest represents interest in a subsidiary’s equity which is not directly or indirectly attributable to the parent company. Non-controlling interest is measured:
• at the amount of proportionate interest in subsidiary's net assets, or
• at fair value, for each business combination separately at the time of initial recognition.

The carrying amount of non-controlling interest should correspond to the amount calculated by adding changes in the current period to the carrying amount of non-controlling interest at the end of the preceding period. These changes may result from:
• changes in the percentage share of interest held by non-controlling shareholders – e.g. purchase, sale, increase or decrease of share capital;
• changes in equity not related to the changes in the interest held – e.g. increase or decrease of equity with no effect on shareholding, additional equity contributions made by non-controlling shareholders, net result of the current year, transactions recognised directly in other comprehensive income, dividends paid.

Profit or loss as well as any component of other comprehensive income are attributable to the shareholders of the parent company and to non-controlling interest even where the attribution results in a negative carrying amount of non-controlling interest.

As at 31 December 2022, the carrying amount of the share capital of the parent company CIECH S.A. amounted to PLN 287,614 thousand and comprised the share capital from the share issues and from the hyperinflation adjustment. 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.

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000) ciechgroup.com 57

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	Number of shares	Share in capital (%)	Number of General votes at the Meeting of Shareholders	Stake in the votes at General Meeting of Shareholders (%)	Type of shares
KI Chemistry s. à r. l. with its registered office in Luxembourg 1	26,952,052	51.14%	26,952,052	51.14%	Ordinary bearer
Nationale-Nederlanden Otwarty Fundusz Emerytalny 2	2,729,507	5.18%	2,729,507	5.18%	Ordinary bearer
Allianz Polska Otwarty Fundusz Emerytalny 3	3,389,024	6.43%	3,389,024	6.43%	Ordinary bearer
Other	19,629,326	37.25%	19,629,326	37.25%	Ordinary bearer

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.

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
Other	2,322	2,322
TOTAL	425,021	425,021

KI Chemistry s. a r.l. 51,14%
PTE Allianz Polska 6,43%
Nationale-Nederlanden OFE 5,18%
Other 37,25%

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000) ciechgroup.com 58

Treasury shares

In 2022 and in the comparable period, CIECH S.A. did not purchase 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.

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.

Hedge cost reserve

The hedge cost reserve includes the value of the basis currency spread for the CIRS transaction (PLN 78,108 thousand as at the end of 2022 and PLN 5,475 thousand as at the end of 2021) which was excluded from hedge accounting. As at the end of 2021, this item also comprises the time value of the gas and energy purchase option which, in accordance with IFRS 9, has been left outside hedge accounting by the Group (PLN 14,856 thousand).

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.

Currency translation differences (foreign companies)

The balance of this equity item is adjusted by exchange differences on the translation of the financial statements of foreign subsidiaries, i.e. CIECH Soda Romania S.A., SDC Group, Ciech Group Financing AB, Proplan Plant Protection Company, S.L., CIECH Salz Deutschland GmbH and CIECH Agro Romania S.R.L. The balance of this item of equity also represents accumulated exchange differences on the measurement of net investments in a foreign entity and effective part of profit and losses from measurement of an instrument used for hedging shares in net assets of foreign companies.

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.

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000) ciechgroup.com 59

6.4 BUSINESS COMBINATIONS

Basis of consolidation

The subsidiaries’ net equity in the amount as at the acquisition date, in the part corresponding to Group’s share in the share capital, is compensated with acquisition value of the shares included in statement of financial position of the parent company at the date of acquisition. Consolidation adjustments, depending on their nature, are recorded against appropriate items of equity. Changes in the parent company's ownership interest that do not result in a loss of control of the subsidiary are accounted for as equity transactions.# CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000)

Subsidiaries of the CIECH Group are fully consolidated from the date on which control is transferred to the Group, and cease to be consolidated from the date such control ends. Balances, revenues and costs, unrealized profits or losses from transactions between the Group subsidiaries are eliminated in the process consolidation. There were no significant business combinations in the presented periods. In 2022, the following changes occurred in relation to the companies in which CIECH S.A. held shares, either directly or indirectly. These changes translated into changes in the structure of the CIECH Group.

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,
* 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 2021 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 SIGNIFICANT SUBSIDIARIES WITH NON-CONTROLLING INTEREST

In 2022 and 2021, there was no significant non-controlling interest in any of the significant subsidiaries of the CIECH Group.

6.6 EARNINGS PER SHARE

Accounting policy

Basic earnings per share is the net profit for the year attributable to ordinary shareholders of the parent entity 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 parent entity 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
Basic and diluted earnings per share (continuing operations)	10.76	4.17
Basic and diluted earnings per share (discontinuing operations)	0.00	1.18
Net profit (loss) from continuing operations attributable to the shareholders of the parent	566,937	219,998
Net profit (loss) from discontinued operations attributable to the shareholders of the parent	-	61,868
Weighted average number of issued ordinary shares used in calculation of basic and diluted earnings per share	52,699,909	52,699,909
Dividends recognised as distributions to owners per share	1.5	3.0

7 LIABILITIES, PROVISIONS, EMPLOYEE BENEFITS

7.1 INFORMATION ABOUT SIGNIFICANT 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.

	31.12.2022	31.12.2021
LONG-TERM	1,671,280	1,854,154
Loans and borrowings	1,671,280	1,854,154
SHORT-TERM	193,844	5,287
Loans and borrowings	193,844	5,287
TOTAL	1,865,124	1,859,441

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	1,859,441	1,911,475
Proceeds from debt incurred	2,143	195,493
Accrual of interest	119,916	32,771
Repayment of debt, including:	(120,236)	(268,829)
repayment of principal	-	(231,801)
interest paid	(120,236)	(37,028)
Realised exchange differences	3	18,998
Foreign exchange differences on measurement of liabilities	1,374	(22,927)
Other	2,483	(7,540)
Closing balance	1,865,124	1,859,441

Debt financing of the Group

As at the end of 2022, the CIECH Group's debt financing was 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 granted under agreements dated 28 and 29 August 2018 (as at 31 December 2022, the amount used was PLN 0 thousand).

The total value of facilities available under the aforesaid agreements is PLN 2,236,709 thousand; the limits are drown down in the amount of PLN 1,866,810 thousand. at CIECH S.A. (PLN 1,874,009 thousand at the CIECH Group – Proplan Plant Protection Company, S.L. has also external debt on account of loans). Detailed information about loan liabilities is disclosed in the Directors’ Report for the CIECH Group and CIECH S.A. for 2022 published on 23 March 2023 in Section 4.6.

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.# 7.2 OTHER NON-CURRENT LIABILITIES

Accounting policy

Accounting policy concerning financial instruments is presented in note 8.1. The accounting policy for grants received is presented in Note 3.4.

OTHER NON-CURRENT LIABILITIES

	31.12.2022	31.12.2021
Subsidies	116,496	108,525
Derivatives	86,207	91,857
Other	25,942	31,370
TOTAL	228,645	231,752

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 2019-2021 Plan amounted to PLN 15,318 thousand for the long-term portion and PLN 18,205 thousand for the short-term portion, while for the 2022-2024 Plan the long-term portion stood at PLN 10,636 thousand.

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000) ciechgroup.com 63

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.

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	993,942	615,770
- in up to 12 months	992,968	612,643
- above 12 months	747	1,953
- prepayments received for supplies	227	1,174
Public and legal liabilities (excluding income tax)	47,807	52,936
Liabilities for purchase of property, plant and equipment	102,573	143,427
Financial instruments liabilities	375,890	59,843
Liabilities due to settlement of futures contracts	-	138,861
Liabilities to employees	20,779	21,145
Payroll liabilities	46,251	45,634
Holiday leave accrual	13,400	12,920
Taxes and charges	925,301	647,621
Materials and energy consumption	69,650	34,327
Subsidies	4,473	4,656
Environmental charges	9,054	-
Factoring liabilites	28,769	23,078
Liabilities due to the purchase of CO 2 emission rights	21,635	35,553
Received CO 2 emission rights	53,830	50,940
Other	79,949	69,696
TOTAL	2,793,303	1,956,407

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000) ciechgroup.com 64

Terms of transactions with related entities have been presented in note 9.3. Trade liabilities do not bear interest. Commercial contracts concluded by the CIECH Group 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. The largest year-on-year increases in current liabilities were recorded in the following items:
* trade liabilities due to an increase in the level of reverse factoring and higher purchase costs for raw materials,
* taxes and fees in connection with the presentation under this item of provisions for CO2 emission costs,
* valuations of financial instruments, mainly on account of gas and electricity price index swaps in the SDC Group.

7.4 LEASES

Accounting policy

On 1 January 2019, the CIECH Group 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 Group 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 Group 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 Group, 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.

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000) ciechgroup.com 65

Accounting policy

In-substance fixed lease payments

In-substance fixed lease payments are payments that may, in form, contain variability but that, in substance, are unavoidable. In-substance 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
* 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.# CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000)

ciechgroup.com 66

• 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 Group 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. The Group also benefits from the practical exemption regarding the lack of separation of non-lease components.

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 Group, 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. 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, that is:
• 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 Group applies the incremental borrowing rate for a given lease agreement, i.e. the rate of interest that the Group 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.

The largest leased asset in the CIECH Group is the right of perpetual usufruct of land obtained by administrative decision. No conditions for extending lease agreements or purchasing the subject of lease have been included in administrative decisions concerning the right of perpetual usufruct of land. Price indexation may occur in relation to land revaluation. Furthermore, the SDC Group recognises a long-term sewage system agreement effective until 2095 as a lease. Group companies also report liabilities under property lease agreements (office and warehouse space). The CIECH Group also uses property, plant and equipment (mainly means of transport, including railcars and locomotives, and various types of machinery and equipment) pursuant to lease agreements. Some of the agreements include the return option, extension of the agreement or the option to buy all or a part of the equipment after the lease period.

To calculate discount rates for the purposes of IFRS 16, the Group 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 0.81% to 9.39% (for PLN 2.34%-9.39%; for EUR 0.81%-5.48% for RON 4.00%-5.00%). A single discount rate was applied to the entire contract portfolio.

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	17,944	612	17,332
Up to 1 year	13,796	657	13,139
1–2 years	34,454	2,755	31,699
2–5 years	24,003	3,377	20,626
More than 5 years	169,199	116,675	52,524
TOTAL	259,396	124,076	135,320
31.12.2021
0–6 months	16,371	393	15,978
Up to 1 year	14,416	369	14,047
1–2 years	45,177	1,887	43,290
2–5 years	29,363	2,751	26,612
More than 5 years	166,914	115,644	51,270
TOTAL	272,241	121,044	151,197

Reconciliation of changes in liabilities resulting from financing activities – lease liabilities

	01.01.-31.12.2022	01.01.-31.12.2021
Opening balance	151,197	129,258
Modifications of agreements	(416)	6,165
Signing new agreements	10,062	40,820
Interest accrued	5,248	3,951
Repayment of liability	(32,542)	(29,633)
Foreign exchange differences	-	634
Other	1,771	2
Closing balance	135,320	151,197

The total outflow of funds related to lease liabilities is respectively:

	01.01-31.12.2022	01.01.-31.12.2021
Payment of liabilities, including:	38,287	40,693
Principal amount	27,412	25,669
Interest	5,129	4,192
Variable payments other than those linked to an index/rate	2,248	8,153
Short-term leases	2,552	1,801
Low-value leases	945	879

ciechgroup.com 67

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 short-term leases (concluded for a period of up to 12 months)	1,857	1,411
Costs of lease of low-value assets	829	832
Costs related to variable lease payments not included in the measurement of lease liabilities	2,248	8,123

For details of the right-of-use assets resulting from leases see Note 5.2.

7.5 PROVISIONS FOR EMPLOYEE BENEFITS

Accounting policy

Jubilee awards, retirement benefits pays and disability pay

Based on the Group’s remuneration plan, the employees of its companies are entitled to retirement benefits. The Group’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 for low-risk debt securities with similar maturity date as the Group’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 01.01.-31.12.2022	LONG-TERM 01.01.-31.12.2021	SHORT-TERM 01.01.-31.12.2022	SHORT-TERM 01.01.-31.12.2021
Opening balance	15,273	12,958	2,643	3,100
Recognition	1,886	2,832	636	1,117
Use and reversal	(1,352)	(1,635)	(1,040)	(1,473)
Foreign exchange differences	100	(18)	35	(27)
Other	(1,563)	1,136	490	(74)
Closing balance	14,344	15,273	2,764	2,643

In 2022, a change in provision for retirement benefits in the amount of PLN 745 thousand was recognised in other comprehensive income (PLN -1,342 thousand in the comparable period). This is a change 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.# 7.6 OTHER PROVISIONS

Accounting policy

A provision is recognised if, as a result of a past event, the Group 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.

Provision for environmental protection

In accordance with the Group’s published and currently enforced environmental policy and applicable legal requirements, a provision for site restoration in respect of contaminated land, and the related expense, is recognised. The provision is recognised in the amount of the expected future restoration costs discounted to present value.

Judgements and estimates

For measurement of the provisions, the Group is required to make estimates, assumptions regarding discount rates, expected costs and payment terms.

Provision for liabilities

Provision for bonuses

CHANGE IN OTHER LONG-TERM PROVISIONS (costs)

	environmental protection	Provision for bonuses	TOTAL
01.01.-31.12.2022
Opening balance	42,406	226,972	1,271
Recognition	3,497	185	52
Use and reversal	(21,113)	-	(14)
Foreign exchange differences	-	4,334	-
Change in discount rate	-	(97,848)	-
Reclassification to) short-term provisions	(25,632)	-	(49)
Other	1,084	2,018	26
Closing balance	242	135,661	1,286
01.01.-31.12.2021
Opening balance	40,776	112,485	-
Recognition	2,029	-	1,271
Use and reversal	(2,030)	(3,696)	-
Foreign exchange differences	-	225	-
Change in discount rate	-	(1,685)	-
Reclassification from (to) long-term provisions	1,631	(1,838)	-
Update of the amount of the provision for environmental protection	1	-	121,481
Closing balance	42,406	226,972	1,271

1 Relates to the provision for environmental protection in the SDC Group. The value of the provision was included in the value of fixed assets.

CHANGE IN OTHER SHORT-TERM PROVISIONS

	Provision for restructuring	Provision for liabilities (costs)	Provision for environmental protection	Provision for bonuses	TOTAL
01.01.-31.12.2022
Opening balance	111	82,003	1,663	34	83,811
Recognition	-	20,914	1,529	-	22,443
Use and reversal	-	(11,456)	(2,361)	(59)	(13,876)
Foreign exchange differences	-	566	(2)	-	564
Reclassification from (to) long-term provisions	-	25,632	-	49	25,681
Other	-	773	(215)	-	558
Closing balance	111	118,432	614	24	119,181
01.01.-31.12.2021
Opening balance	111	94,199	889	38	95,237
Recognition	-	7,207	827	-	8,034
Use and reversal	-	(17,642)	(1,891)	(4)	(19,537)
Foreign exchange differences	-	(130)	-	-	(130)
Reclassification from (to) long-term provisions	-	(1,631)	1,838	-	207
Closing balance	111	82,003	1,663	34	83,811

Material items of provisions for expected losses and liabilities in the CIECH Group

CIECH S.A.
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.

CIECH Sarzyna S.A.
Provision for potential tax liability and related interest in the amount of PLN 9,879 thousand. In 2022, PLN 4,971 thousand of the provision was utilised through payment of the liability.

CIECH Vitrosilicon S.A.
Recognition of a provision for interest in relation to a potential tax liability in the amount of PLN 1,896 thousand (the total balance of provisions for tax liabilities is PLN 20,117 thousand).

CIECH Pianki Sp. z o.o.
Reversal of a provision in relation to a potential tax liability in the amount of PLN 9,809 thousand (the total balance of provisions for tax liabilities is PLN 0 thousand).

CIECH Cargo Sp. z o.o.
Reversal of a provision in relation to a potential tax liability in the amount of PLN 10,780 thousand (the total balance of provisions for tax liabilities is PLN 0 thousand).

SDC Group
Short-term provision of PLN 14,895 thousand (EUR 3,176 thousand) related to a potential claim from the water management authority and a provision of PLN 15,008 thousand (EUR 3,200 thousand) related to a potential tax liability.

CIECH Trading Sp. z o.o.
A provision for VAT and interest in relation to a potential tax liability in the amount of PLN 3,906 thousand.

CIECH Soda Polska S.A.
Long-term provision in the amount of PLN 242 thousand for potential environmental fees resulting from exceeded emission limits. In addition, provisions of PLN 482 thousand, related to customers' claims in connection with defective deliveries of products and the resulting losses, were recognised. During 2020, a provision for possible penalties in the amount of PLN 3,985 thousand relating to the termination of the agreement with a counterparty was recognised. In 2022, a cross-claims agreement was signed and at the end of 2022 a provision of PLN 3,985 thousand was reversed.

CIECH Soda Romania S.A.
Short-term provision in the amount of PLN 7,477 thousand. PLN, are related to potential claims (principal amount plus interest liabilities) due to disputes with employees. Detailed information on pending tax proceedings in CIECH Group companies is provided in note 9.2 to this report, Section “Audits of tax settlements at the CIECH Group and related contingent liabilities”.

Provisions for environmental protection

SDC Group
A long-term provision for environmental protection in the amount of PLN 130,340 thousand (EUR 27,804 thousand), covering, among others:
* reclamation of tailing ponds in Unseburg – provision of EUR 5,980 thousand (PLN 28,046 thousand) as at 31 December 2022 and EUR 8,379 thousand (PLN 35,538 thousand) as at 31 December 2021 – the schedule provides for work for a maximum of 17 years from 2008 (ponds 1-6) and a maximum of 14 years from 2015 (pond 7),
* restoration activities in the limestone mine – provision of EUR 2,079 thousand (PLN 9,748 thousand) at 31 December 2022 and EUR 2,995 thousand (PLN 13,775 thousand) at 31 December 2021 – the schedule provides for work until 2052 starting in 2015,
* restoration of the remains of old limestone quarries – provision of EUR 1,534 thousand (PLN 7,194 thousand) as at 31 December 2022 and EUR 3,278 thousand (PLN 15,077 thousand) as at 31 December 2021 – the schedule provides for work over a period of 4 years,
* closure of caverns – provision of EUR 17,493 thousand (PLN 82,040 thousand) as at 31 December 2022 and EUR 29,453 thousand (PLN 135,466 thousand) as at 31 December 2021 – the schedule provides for work in the period from 10 to 75 years.
The provisions were calculated based on reports from independent environmental engineering advisors.

CIECH Soda Polska S.A.
Provision for land reclamation costs, calculated in accordance with expenditure planned until 2042, in line with the expected inflation rate: 10.2% in 2023, 5.7% in 2024 and 5.3% thereafter, adjusted by a discount factor, calculated as the average of the discount factor at the beginning and end of every annual period. The amount of the respective provision recognised in the statements amounts to PLN 4,847 thousand;

CIECH Sarzyna S.A.
A provision for the costs of water and soil reclamation in the amount of PLN 1,027 thousand. The provision was estimated based on a technical and financial project including a schedule of works for the years 2022- 2026 of expenses to be incurred.

8 FINANCIAL INSTRUMENTS, FINANCIAL RISK MANAGEMENT AND IMPAIRMENT

8.1 FINANCIAL INSTRUMENTS

Accounting policy

Category of assets or liabilities	Measurement	Remeasurement changes adjust the carrying amount of the asset and are recognised in current period profit or loss.
Assets at fair value through profit or loss	At fair value
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	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.
Liabilities measured at amortised cost	At amortised cost using the effective interest rate (EIR)	Remeasurement changes adjust the carrying amount of the liability 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.

At each balance sheet date, the Group 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). The Group 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 Group 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 Group 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;
* 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 Group 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.

For trade receivables and contract assets arising from transactions that fall within the scope of IFRS 15, the Group has opted for a simplified approach whereby impairment losses are estimated over the lifetime of the asset, already from the initial recognition of the exposure in the accounting records.

The main financial instruments disclosed in the statement of financial position of the CIECH Group as at 31 December 2022 include:

Financial assets:
* financial instruments with positive valuation,
* trade receivables and factoring receivables,
* cash and cash equivalents.

Financial liabilities:
* term loan liabilities, revolving facility liabilities and overdraft liabilities,
* trade liabilities and factoring liabilities,
* lease agreements,
* financial instruments with negative valuation.

Carrying amount of financial instruments

Classes of financial instruments	note	31.12.2022	31.12.2021
ASSETS
Cash and cash equivalents	5.12	684,969	799,023
Loans granted	5.11	246	133
Trade receivables	5.10	371,285	209,231
Factoring receivables	5.10	55,872	33,660
Hedging derivatives with positive value	5.7;5.11	354,070	101,672
Derivatives with positive value	5.7;5.11	9,522	1,210
TOTAL		1,475,964	1,144,929
LIABILITIES
Trade liabilities	7.3	(993,715)	(614,596)
Credits and loans	7.1	(1,865,124)	(1,859,441)
Factoring liabilities	7.3	(28,769)	(23,078)
Lease liabilities	7.4	(135,320)	(151,197)
Hedging derivatives with negative value	7.2;7.3	(462,097)	(138,485)
Derivatives with negative value	7.2;7.3	-	(13,215)
TOTAL		(3,485,025)	(2,800,012)

In the CIECH Group selected trade receivables 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.

The CIECH Group also uses reverse factoring. Due to the terms of the agreements, these liabilities are reported as trade liabilities or investment liabilities, depending on which liabilities the factoring relates to.

Revenues, costs, profit and loss recognised in the income statement by the category of financial instruments for continuing operations

Categories of financial instruments	01.01.-31.12.2022	01.01.- 31.12.2021
Interest income/(expenses), including calculated using the effective interest rate method	6,087	1,203
Financial assets measured at amortised cost	(130,057)	(22,026)
Financial liabilities measured at amortised cost	(131,079)	(19,774)
Financial liabilities excluded from IFRS 9	(5,064)	(3,456)
Foreign exchange gains/(losses)	13,105	13,612
Financial assets /(liabilities) measured at amortised cost	(1,870)	(1,823)
Financial liabilities excluded from IFRS 9	(507)	(47)
Recognition of impairment losses	(7,065)	(8,804)
Financial assets measured at amortised cost
Reversal of impairment losses	14,390	7,802
Financial assets measured at amortised cost
Income/expenses from use of derivative financial instruments	45,771	(45,725)
Financial assets/liabilities measured at fair value through profit or loss	(44,439)	(36,291)
Hedging instruments	91,496	(8,148)
TOTAL	(63,856)	(69,337)

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 Group 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.# CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022

Accounting policy

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.

Hedges of a net investment in a foreign operation

Hedges of a net investments in a foreign operation shall be accounted for as follows:
• It is a hedge of a net investment in foreign operations with functional currency different than the one of the parent entity, by foreign currency liabilities.
• revaluation of foreign currency liabilities designated for hedge accounting is recognised in other comprehensive income and offset with the opposite revaluation of net investments in foreign operation in consolidated financial statements. Accumulated amount in other comprehensive income is transferred to the profit or loss statement in the case of partial or overall sale of shares in a foreign entity.

The table below presents a summary of specific groups of relationships existing in 2022, designated for hedge accounting:

Type of instrument	Hedged item	Volume contract (outstanding transactions as at 31.12.2022)	Maturity (as at 31.12.2022)	Average price obtained on the 31.12.2022
		Assets	Liability	Assets
Derivative instruments – cash flow hedge
Currency risk and interest rate risk	Interest payments on debt in PLN bearing interest at WIBOR 6M with semi-annual interest periods until March 2026.	EUR 343 million		96,376
Currency and interest swap (CIRS)	EURPLN exchange rate: 4.49 Weighted average (by initial nominal weighting) conversion rate of WIBOR 6M to a fixed rate in EUR: -0.09%		Weighted average hedged 2026	85,607
Currency risk	Future cash flows from realisation of sales revenues denominated in EUR or indexed to EUR exchange rate	EUR 14 million	2023 – 2027	-
Currency forwards EUR/PLN	Sales revenues of the CIECH Group in EUR		n.a.	-
Currency forwards EUR/PLN	Exchange Rate for purchase of EUA units in EUR		2023	-
Interest rate risk	Interest payments on term loan contracted by CIECH S.A. with initial nominal amount of PLN 1,212,520 thousand	PLN 1,212,520 thousand	2022	-
Interest rate swaps – 6M WIBOR to fixed rate			n.a.	-
	Interest payments on debt in EUR with a maximum nominal amount of EUR 14,075 thousand	EUR 14 million	2026	6,494
Interest rate swap – 6M EURIBOR to fixed rate	Fixed rate paid in EUR for EURIBOR 6M: -0.28%			-
Raw material price risk
Gas and electricity price index swaps	Natural gas purchased at the spot market price	985 GWh of natural gas	2023	251,200
	Electricity sold at the spot market price by CIECH Energy Deutschland GmbH	187 GWh of electricity	n.a.	-
Collar option structures for gas	Gas supplied according to the option contract after elimination of the intrinsic value of the supply option or gas purchased at the month-ahead market price if the option is not exercised		2021	-

	01.01.-31.12.2022	01.01.-31.12.2021
Opening balance	158,763	(9,393)
Change in fair value of the hedging instrument recognised in other comprehensive income	5,995	237,529
Income tax on the effective portion	25,764	(67,314)
Reclassification of hedge effect to profit or loss	(219,930)	(135)
Transfer to income tax result	65,219	(1,923)
Ineffectiveness	37	-
Closing balance	35,848	158,763

The aim of the Group when taking the decision concerning the implementation of the principles of cash flow hedging was to reduce the influence of interest rate and exchange rate movements, exchange rates differences due to incurred liabilities, (e.g. loans, bonds) and the impact of changes in raw material prices (gas, CO 2 , energy) on the statement of profit or loss by reflecting their hedging nature in the financial statements. The result of the settlement of the effective portion of hedging instruments is reclassified from equity to the statement of profit or loss upon the realisation of the hedged item and recognition of its effect in the statement of profit or loss. Sales revenues designated to hedge accounting are considered as highly probable. Their occurrence is anticipated in the Group’s long-term financial forecast. Additionally, to a large extent, these transactions are concluded with regular customers of the Group Companies, which supports the probability of their occurrence. The effect of the cash flow hedge accounting and the net investment hedges in foreign entities was presented in the consolidated statement of other comprehensive income of the Group. 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. In the CIRS transaction, in order to identify sources of ineffectiveness of the hedge, key parameters of the hedged currency cash flows and the hedging transaction were compared: nominal amount, timing of cash flows. The ineffectiveness of the hedge is influenced by: • differences in the settlement dates of forward hedges and the timing of realisation of the hedged currency cash flows, • differences in individual forward rates within a forward series vs. hypothetical forward transactions in which the individual transactions have market levels at the time the transaction is designated. Credit risk is considered negligible given the financial status of the counterparty.

8.3 FINANCIAL RISK MANAGEMENT

Risk management principles

The CIECH Group actively manages operational and financial risk, striving to reduce the fluctuation of cash flows and maximise the companies’ market value. The CIECH Group's policy is to use natural hedging (net exposure is taken into account) and to hedge of up to 90% of the projected annual net exposure to risk of changes in exchange rates, CO 2 emission allowance prices, natural gas prices and electricity prices by using derivatives and 100% exposure to interest rate risk. The following types of transactions were concluded (or continued but concluded in previous years) in the Group in 2022 : contracts to hedge currency risk and interest rate risk (IRSs and CIRSs), contracts to hedge the risk of prices of CO 2 emission certificates (forwards, futures), contracts to hedge the risk of gas prices (forwards, options, commodity swap), and contracts to hedge the risk of electricity prices (forwards, commodity swap).

Cash management

The CIECH Group 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 to the Group companies is performed through the use of intra-group loans, dividends payout by subsidiaries, participation in a cash management system (cashpooling) and increase of share capital in the subsidiaries.

Quantitative and qualitative information on financial risks

The CIECH Group 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, the Group 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 CIECH Group debt. When assessing risk, the Group 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

The Group finances its activity mainly through term loans and bonds. The amount of the costs of interest-bearing debt held by the Group 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 Group 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 Group financial result. The risk is partially reduced by:
* assets owned by the CIECH Group companies (bank deposits), earning interest at variable interest rate,
* hedging transactions concluded.

In 2022, the CIECH Group 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 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 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:

	31.12.2022	31.12.2021
Fixed interest rate instruments	-	-
Floating interest rate instruments	(1,344,244)	(1,234,693)
Financial assets	684,969	799,023
Financial liabilities	(2,029,213)	(2,033,716)

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 (impact of profit/loss on equity is not included)	statement of Equity (impact of profit/loss on equity is not included)
	Increase by 100 bp	Decrease by 100 bp
31.12.2022
Floating interest rate instruments	13,442	(13,442)
Interest rate swaps	45,794	(47,697)
Sensitivity of cash flows (net)	13,442	(13,442)
31.12.2021
Floating interest rate instruments	12,347	(12,347)
Interest rate swaps	1,166	(1,182)
Sensitivity of cash flows (net)	13,513	(13,529)

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000) ciechgroup.com 78

Currency risk

Currency risk is an inevitable component of commercial activity denominated in foreign currencies. Due to the nature of conducted trading operations, the CIECH Group is subject to currency exposure related to the significant lead of export over import. The exposure value is also affected by investment projects implemented in foreign currencies and the structure of external financing.

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 CIECH Group's financial results.

Foreign exchange risk analysis is focused on the level of operating cash flows. The SDC Group, CIECH Salz Deutschland GmbH and Proplan were excluded from the analysis since their functional currency is EUR and all reported operating cash flows of these companies are performed in this currency.

In 2022, the CIECH Group used hedging contracts, such as forward options, to partially cover currency risk. The CIECH Group 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 the CIECH Group in EUR (excluding figures concerning the SDC Group, CIECH Salz Deutschland GmbH and Proplan) and in USD as at 31 December 2022 and 2021 due to financial instruments:

Exposure to currency risk in EUR (figures in '000 EUR)

	31.12.2022	31.12.2021	Impact on the statement of profit or loss
Assets
Loans granted sensitive to FX rate changes	297,700	224,000	x
Trade and other receivables	4,307	3,168	x
Cash including bank deposits	43,829	12,076	x
Liabilities
Trade and other liabilities	(22,078)	(18,568)	x
Term loan liabilities	(14,075)	(14,075)	x
Hedging instruments: Forward	-	(73,900)	x
Forward (not designated to hedge accounting)	(257,713)	(119,013)	x
CIRS (not designated to hedge accounting)	-	(60,000)	x
Hedging instruments: CIRS (forward transactions isolated as part of decomposition of CIRS)	(342,249)	(343,590)	x
Total exposure	(290,278)	(389,902)

Exposure to currency risk in USD (figures in '000 USD)

	31.12.2022	31.12.2021	Impact on the statement of profit or loss
Assets
Trade and other receivables	1,175	1,426	x
Cash including bank deposits	2,285	1,957	x
Liabilities
Trade and other liabilities	(11,098)	(1,916)	x
Total exposure	(7,638)	1,467

Measurement of financial instruments designated for hedge accounting is referred to other comprehensive income while ineffectiveness is recognised in the profit or loss statement.

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000) ciechgroup.com 79

Analysis of sensitivity to currency risk – EUR ('000 EUR)

(Increase of EUR/PLN exchange rate by 1 grosz)

	Impact on the statement of profit or loss	Impact on the statement of other comprehensive income
31.12.2022
Foreign-currency balance sheet items	3,097	3,097
Hedging instruments: Forward and CIRS	(6,000)	(6,000)
31.12.2021
Foreign-currency balance sheet items	2,066	2,066
Hedging instruments: Forward and CIRS	(5,965)	(1,790)
		(4,175)

Analysis of sensitivity to currency risk – USD ('000 USD)

(Increase of USD/PLN exchange rate by 1 grosz)

	Impact on the statement of profit or loss	Impact on the statement of other comprehensive income
31.12.2022
Foreign-currency balance sheet items	(76)	(76)
31.12.2021
Foreign-currency balance sheet items	15	15

Raw material price risk

In the course of its operations, the CIECH Group is exposed to the risk of changes in prices of energy commodities (e.g. coal, natural gas, CO 2 emission certificates) and the risk of changes in electricity prices. The CIECH Group reduces market risk related to raw materials through concluding agreements with suppliers and customers containing appropriate price formulas or through forward transactions. In addition, due to the occurrence of significant changes in the prices of energy raw materials, resulting in significant changes in manufacturing costs, the Group actively reacted to fluctuating raw material prices and renegotiated sales prices with its customers as they increased.

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 Group's point of view, credit risk is linked to:
* trade receivables from customers,
* cash and bank deposits.

The CIECH Group 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 Group uses securities in the form of a letter of credit, bank guarantees, mortgages, receivables insurance and non-recourse factoring; approx. 8% of receivables is not insured). Customers’ creditworthiness is assessed and appropriate collateral is obtained from the customers, allowing for a reduction of potential 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 Group’s companies make use of services provided by companies specialising in insuring receivables.

Credit risk connected with cash in bank and bank deposits is low as the CIECH Group 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	684,969	799,023
Loans and receivables	427,403	243,024
Financial assets from valuation of derivatives	363,592	102,882
TOTAL	1,475,964	1,144,929

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000) ciechgroup.com 80

The CIECH Group has no material items which would be uncollectible as at the reporting date and not covered by an impairment allowance.

	Trade receivables	Loans advanced
	31.12.2022	31.12.2021
Soda segment	360,237	187,203
Agro Segment	45,558	38,118
Foams Segment	3,300	3,635
Silicates Segment	20,897	19,923
Packaging Segment	940	2145
Other Segment	39,039	21
Consolidation adjustments	(98,686)	(63,289)
TOTAL	371,285	209,231

Below is a reconciliation of impairment allowances for trade receivables in accordance with IFRS 9.# CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000) ciechgroup.com 81

Calculation of impairment allowances for trade receivables

The following tables present the reconciliation of impairment allowances for financial assets in accordance with IFRS 9. Default rates and calculation of impairment allowances as at 31 December 2021 and 31 December 2021 are presented in the following tables.

	ECL – not impaired	Lifetime ECL – impaired	TOTAL
Trade receivables, gross, as at 01.01.2022	209,501	46,344	255,845
Recognised	2,658,302	13,978	2,672,280
Repaid	(2,503,150)	(9,990)	(2,513,140)
Gross carrying amount as at 31.12.2022	364,653	50,332	414,985
	01.01.2022
	6,622	39,992	46,614
Recognition of impairment losses	1,385	4,539	5,924
Reversal of unused allowances	(3,717)	(6,543)	(10,260)
Utilisation	(36)	(9)	(45)
Foreign exchange differences	507	964	1,471
Other	-	(4)	(4)
31.12.2022	4,761	38,939	43,700
Trade receivables, net, as at 31.12.2022	359,892	11,392	371,285

	ECL – not impaired	Lifetime ECL – impaired	TOTAL
Trade receivables, gross, as at 01.01.2021	175,408	48,804	224,212
Recognised	2,688,465	4,465	2,692,930
Repaid	(2,654,372)	(6,925)	(2,661,297)
Gross carrying amount as at 31.12.2021	209,501	46,344	255,845
	01.01.2021
	4,861	43,654	48,515
Recognition of impairment losses	1,902	1,942	3,844
Reversal of unused allowances	(141)	(6,583)	(6,724)
Utilisation	-	(26)	(26)
Foreign exchange differences	-	413	413
Other	-	592	592
31.12.2021	6,622	39,992	46,614
Trade receivables, net, as at 31.12.2021	202,879	6,352	209,231

	Total	Non past due	Not past due, 0-30 days	30-90 days	90-180 days	> 180 days
Trade receivables, gross, as at 31.12.2022	414,985	367,800	7,077	634	1,020	38,454
Default rate	0.28%	0.59%	40.06%	46.86%	97.21%
Expected credit losses in accordance with IFRS 9	4,761	1,045	42	254	478	2,942
Total expected losses	43,700	5,542	42	254	478	37,384
from collective analysis	4,761	1,045	42	254	478	2,942
from case-by-case analysis	38,939	4,497	-	-	-	34,442

	Total	Non past due	Not past due, 0-30 days	30-90 days	90-180 days	> 180 days
Trade receivables, gross, as at 31.12.2021	255,845	183,260	11,096	4,239	702	56,548
Default rate	0.35%	0.27%	9.17%	82.89%	79.47%
Expected credit losses in accordance with IFRS 9	6,622	634	29	389	582	4,988
Total expected losses	46,613	664	38	389	582	44,941
from collective analysis	6,622	634	29	389	582	4,988
from case-by-case analysis	39,992	30	9	-	-	39,953

Liquidity risk

The CIECH Group is exposed to risk connected with maintaining liquidity due to the considerable value of external financing (due to the term loans, working capital facilities and lease and factoring agreements), the limited ability to obtain new financing in the event of a deterioration in market conditions and 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 and net debt of the CIECH Group,
• cash flow planning in the short and medium term, taking into account debt maturities
• diversification of external funding sources
• monitoring and optimisation of the level of working capital,
• adjusting the level and schedule of capital expenditure,
• intragroup borrowings and sureties for the liabilities of the Group’s companies,
• current monitoring of the settlement of liabilities under the loan agreements conditions.

The Group’s debt financing is ensured primarily by the term loans. 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 in the total amount of PLN 159 million (as at the end of 2022, they were drown down in the amount of PLN 7 million) have been made available to the Group.

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:	(2,887,608)	(3,330,761)	(1,194,766)	(169,245)	(326,012)	(1,640,739)	-
Trade liabilities	(993,715)	(993,715)	(993,715)	-	-	-	-
Credits and loans	(1,865,124)	(2,308,277)	(172,282)	(169,245)	(326,012)	(1,640,739)	-
Factoring	(28,769)	(28,769)	(28,769)	-	-	-	-
Lease liabilities	(135,320)	(259,396)	(17,944)	(13,796)	(34,454)	(24,003)	(169,199)
Hedging derivatives with negative value	(462,097)	(630,567)	(291,429)	(84,463)	-	(254,675)	-
TOTAL	(3,485,025)	(3,025,958)	(1,504,139)	(267,504)	(360,466)	(1,919,416)	(169,199)

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:	(2,497,115)	(2,428,894)	(657,082)	(19,623)	(112,782)	(1,639,406)	-
Trade liabilities	(614,596)	(614,596)	(614,596)	-	-	-	-
Credits and loans	(1,859,441)	(1,791,220)	(19,408)	(19,623)	(112,782)	(1,639,406)	-
Factoring	(23,078)	(23,078)	(23,078)	-	-	-	-
Lease liabilities	(151,197)	(272,241)	(16,371)	(14,416)	(45,177)	(29,363)	(166,914)
Hedging derivatives with negative value	(138,485)	(255,399)	(39)	(30)	(15)	(255,315)	-
Derivatives with negative value	(13,215)	(16,215)	(16,215)	-	-	-	-
TOTAL	(2,800,012)	(2,972,748)	(689,707)	(34,069)	(157,974)	(1,924,084)	(166,914)

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000) ciechgroup.com 82

Liquidity of the CIECH Group

Liquidity ratios as at 31 December 2022 decreased slightly 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 1.00 as at 31 December 2022, while the quick liquidity ratio amounted to 0,76.

	31.12.2022	31.12.2021
Current ratio	1,00	1,06
Quick ratio	0,76	0,86

8.4 DETERMINATION OF FAIR VALUE

The following list presents the fair value of financial instruments.

	31.12.2022 Carrying amount	31.12.2022 Fair value	31.12.2021 Carrying amount	31.12.2021 Fair value
ASSETS
Cash and cash equivalents	684,969	684,969	799,023	799,023
Loans granted	246	246	133	133
Trade receivables	371,285	371,285	209,231	209,231
Hedging derivatives with positive value	354,070	354,070	101,672	101,672
Derivatives with positive value	9,522	9,522	1,210	1,210
Factoring receivables	55,872	55,872	33,660	33,660
ASSETS	1,475,964	1,475,964	1,144,929	1,144,929
Credits and loans	(1,865,124)	(1,873,993)	(1,859,441)	(1,870,822)
Trade liabilities	(993,715)	(993,715)	(614,596)	(614,596)
Hedging derivatives with negative value	(462,097)	(462,097)	(138,485)	(138,485)
Derivatives with negative value	-	-	(13,215)	(13,215)
Factoring liabilities	(28,769)	(28,769)	(23,078)	(23,078)
LIABILITIES	(3,349,705)	(3,358,574)	(2,648,815)	(2,660,196)

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.

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.
• Level 2 – the CIECH Group values derivatives at fair value by using measurement models for financial instruments and applying generally available interest rates, currency exchange rates and adjusting for estimated own credit risk.
• Level 3 – fair value estimated on the basis of various evaluation techniques which are not based on observable market inputs.

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000) ciechgroup.com 83

Assets and liabilities measured at fair value

	31.12.2022 Level 2	31.12.2022 Level 3	31.12.2021 Level 2	31.12.2021 Level 3
ASSETS
Investment properties	-	40,181	-	32,839
Hedging instruments	354,070	-	101,672	-
Derivative instruments with positive valuation	9,522	-	1,210	-
ASSETS	363,592	40,181	102,882	32,839
LIABILITIES
Hedging instruments	(462,097)	-	(138,485)	-
Derivative instruments with negative valuation	-	-	(13,215)	-
LIABILITIES	(462,097)	-	(151,700)	-
TOTAL	(98,505)	40,181	(48,818)	32,839

CIECH Soda Polska S.A. holds futures contracts for the purchase of emission allowances, which represent a financial instruments but are not measured at fair value. This is because futures contracts on CO 2 emission allowances purchased for own use (surrender in connection with the release of CO 2 into the atmosphere) are excluded from the scope of IFRS 9. Due to the specific nature of futures contracts (transactions concluded on regulated markets), cash flows are generated from the current market valuation. Notwithstanding the exclusion or inclusion of the instrument within the scope of IFRS 9, these cash flows are accounted for, in corresponding records, as settlement with the Clearing House. As at 31 December 2022, the balance of settlements on this account amounted to PLN 4.4 million (receivable), which resulted from negative market valuation of the contracts and debiting the account of CIECH Soda Polska S.A.; as at 31 December 2021, the balance amounted to PLN 138.9 million (liability).As at 31 December 2022, the CIECH Group held the following types of financial instruments measured at fair value:

concluded by the parent company, CIECH S.A.: interest rate swap contracts, currency and interest rate swaps EUR/PLN — Level 2, according to the fair value hierarchy,
currency forwards concluded by CIECH S.A. — Level 2, according to the fair value hierarchy,
gas and electricity price index swaps concluded by CIECH Energy Deutschland GmbH to hedge the risk of rising gas and energy prices – Level 2, according to the fair value hierarchy,
EUR/PLN currency forwards concluded by CIECH Soda Polska S.A. to hedge changes in the purchase value of CO2 emission allowances depending on the EUR/PLN exchange rate - Level 2, according to the fair value hierarchy,

In 2022, there were no transfers within the fair value hierarchy of instruments measured at fair value. There were no changes in the classification of financial instruments, or in business conditions that could affect the fair value of financial assets or liabilities.

The fair value of instruments concluded is determined in the following manner:

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.
Futures contracts for the purchases of CO2 certificates are settled on a daily basis according to quotations published on ICE Endex and EEX’s stock exchange.
the fair value of commodity swaps for natural gas and electricity is determined as the difference between the fixed transaction price in the exchange period and the forward market price for a given exchange period, as at the valuation date, multiplied by the commodity swap volume and the appropriate discount factor. The input data for the valuation are market data on forward prices of natural gas and electricity from Reuters.

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000)

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	Long-term financial instruments	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	-	(2,832)	6,690
Gas/energy SWAP	-	251,200	-	(373,058)	(121,858)
TOTAL	4,233	359,359	(86,207)	(375,890)	(98,505)
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)

Investment properties are also measured at the fair value in the financial statements. According to the fair value hierarchy, it is Level 3. Investment real estate portfolio is evaluated by an external, independent property appraiser or based on a preliminary sale agreement.

In measuring the fair value of land used under the perpetual usufruct in Bydgoszcz, a comparative method was applied. The comparative approach means measuring the value through an analysis of recent sales or listings of comparable assets. These transactions or offers are adjusted in order to take into account differences of the valuated assets and comparable assets on the day of their sale, for example date of sale, location, area, technical status and other.

According to the method of average price adjustments, estimating the property value that is the subject of valuation is based on the average price adjustment of similar properties, that form the base for the comparison creating adjustment coefficients corresponding to different characteristics of these properties. The calculations are based on comparative properties, described by attributes influencing the level of properties prices and transaction prices of these properties.

Valuation of buildings located in Bydgoszcz and tangible assets identified as technical infrastructure (including assets that are necessary to keep properties operational but which are not traded on the secondary market) is synthetically included in the total value of land valuated under the comparative approach method. Buildings and structures located on plots of land in Bydgoszcz have no impact on the market value of this land, therefore, for accounting purposes, the value of this group of assets was determined based on their book value. Finally, in the statement of financial position, the value of buildings and structures was deducted from the value of land.

The measurement of the fair value of investment property does not include transaction costs, which the entity might additionally bear, future capital expenditures regarding development or improvement of the investment property, as well as future benefits regarding those expenditures. The verification of the fair value of investment properties is conducted at least once a year at the balance sheet date ending the financial year.

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000)

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9 OTHER NOTES

9.1 NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS

The tables below present the reasons for the differences between the changes of particular items of the consolidated statement of financial position and changes resulting from the consolidated cash flows statement

	01.01.-31.12.2022	01.01.-31.12.2021
Other adjustments to operating activities	(218,193)	225,985
Change in liabilities due to the arrangement fee	2,514	(7,318)
Early settlement in 2021 of financial instruments (options)	(221,522)	216,287
securing revenues in 2022
Other	815	17,016
Inventory change presented in consolidated statement of financial position	312,233	110,319
Currency translation reserve	(2,582)	940
Change in Group’s composition	-	(4,621)
Other	(947)	-
Inventory change in consolidated statement of cash flows	(308,704)	(106,638)
Provision change presented in consolidated statement of financial position	(98,908)	107,820
Income tax provision	(7,196)	-
Currency translation reserve	(5,060)	(48)
Change in Group’s composition	-	985
Change in reserves related to caverns	-	(118,745)
Other	(102)	824
Provisions change in consolidated statement of cash flows	(111,266)	(9,164)
Receivables change presented in consolidated statement of financial position	238,395	71,381
Change in investment receivables	(3,200)	4,046
Change in income tax receivables	(33,329)	15,165
Change in receivables from caverns	35,119	(4,965)
Change in Group’s composition	-	62,762
Currency translation reserve	(15,160)	(3,928)
Other	582	8,633
Receivables change presented in consolidated statement of cash flows	(221,782)	(153,093)
Change of liabilities presented in consolidated statement of financial position	762,225	845,080
Change in investment liabilities	45,767	84,894
Change in financial liabilities	(310,397)	(69,994)
Change in income tax liabilities	61,368	(80,673)
Currency translation reserve	2,383	(8,838)
Change in Group’s composition	-	88,817
Change in lease liabilities and loans	10,192	30,097
Donations	(2,505)	(51,751)
Emission rights	210,841	(51,531)
Liabilities change presented in consolidated statement of cash flows	779,874	786,432

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000)

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	01.01.-31.12.2022	01.01.-31.12.2021
Other investment inflows (outflows)	(5,272)	(54)
Acquisition of financial assets	(4,785)	-
Acquisition of investment properties	(605)	-
Borrowings paid out	(239)	-
Disposal of financial assets	-	86
Dividends received	357	-
Other	-	(140)

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 Group. An example is a claim that the Group is pursuing through legal processes, where the outcome is uncertain. Contingent assets are not recognised in the statement of financial position since this could 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 Group’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 the CIECH Group

As at 31 December 2022, the CIECH Group did not have any significant disputed liabilities of CIECH S.A. and CIECH S.A.’s subsidiaries, pursued in all types of proceedings before court, body appropriate for arbitration proceedings or public administration bodies, except for the cases described below, in “Audits of tax settlements at the CIECH Group and related contingent liabilities”.# CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000)

Significant disputed receivables of the CIECH Group

As at 31 December 2022, the CIECH Group did not hold any significant disputed receivables of CIECH S.A. and CIECH S.A.’s subsidiaries, pursued in all types of proceedings before court, body appropriate for arbitration proceedings or public administration bodies, except for the case described in “Contingent assets and liabilities including guarantees and sureties, excluding liabilities related to proceedings before administrative authorities”.

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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”.

	31.12.2022	31.12.2021
Contingent assets	38,283	21,933
Other contingent receivables	38,283	21,933
Contingent liabilities	428,823	427,034
Tax liabilities (including interest)	68,822	89,299
Letters of support	254,662	214,792
Emission allowances	50,000	48,905
Promissory notes	22,610	42,859
Other	32,730	31,179

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 17,914 thousand related to the value of potential interest to be returned from the tax office in relation to the payment by CIECH S.A., CIECH Soda Polska S.A, CIECH Cargo Sp. z o.o. and CIECH Pianki Sp. z o.o. of the additional income tax liability with interest for 2012 and 2015 following the decision of the 2nd instance authority. The contingent asset relates to interest for the period from the date of payment of tax plus interest to 31 December 2022.
a contingent asset in the amount of PLN 1,504 thousand – it is the value of energy efficiency certificates received by CIECH Soda Polska S.A. from the President of the Energy Regulatory Office in previous years that have not been recorded yet in the account kept by the Polish Power Exchange.

As at 31 December 2022, contingent liabilities amounted to PLN 428,823 thousand and increased by PLN 1,789 thousand compared to the level recorded on 31 December 2021. The change was mainly as a result of payments received for the caverns covered by the Letter of support. Other contingent liabilities mainly include the amount of potential environmental penalties in CIECH Soda Polska S.A. in the amount of PLN 26,605 thousand.

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Sureties granted as at 31 December 2022

Beneficiary’s name	Financial terms, including surety fee due to the company; surety period	Total amount of liabilities covered by surety in whole or in specific part (PLN)	Total amount of liabilities covered by surety in whole or in specific part (currency)
CIECH S.A. Landesamt fuer Geologie und Bergwesen Sachsen-Anhalt (subsidiary)	Commission of 0.97% p.a. of the guaranteed liability; collateral pertaining to liability; no time limit	39,411 thousand	EUR 8,403 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	215,735 thousand	EUR 46,000 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;	52,761 thousand	EUR 11,250 thousand
CIECH Salz Deutschland GmbH Evatherm AG (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	102,709 thousand	EUR 21,900 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	937,980 thousand	EUR 200,000 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	62,500 thousand	PLN 62,500 thousand
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	150,000 thousand	PLN 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	3,000 thousand	PLN 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)	162,422 thousand	PLN 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	44,435 thousand	EUR 9,475 thousand
Vitol S.A. CIECH Soda Polska S.A. (subsidiary)	Commission of 0.18% p.a. of the guaranteed liability; until 31 May 2023	20,000 thousand	PLN 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	220,000 thousand	PLN 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	10,176 thousand	PLN 10,176 thousand
Total nominal amount of contractual commitments for which sureties were granted		2,021,130 thousand

In 2022, the CIECH Group companies did not receive any guarantees from third parties.

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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 at the CIECH Group and related contingent liabilities

In 2022, the CIECH Group companies were at various stages of proceedings, including inspections, tax proceedings or administrative court cases concerning the settlement of corporate income tax (CIT) and value added tax (VAT). The CIECH Group companies were subject to CIT proceedings concerning the following years:

Year	Company
2012	CIECH S.A.
2013	CIECH S.A.
2014	CIECH S.A.
2015	CIECH S.A., CIECH Soda Polska S.A., CIECH Pianki Sp. z o.o., CIECH Cargo Sp. z o.o., CIECH Sarzyna S.A., CIECH Vitrosilicon S.A.
2016	CIECH Sarzyna S.A., CIECH S.A.

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 CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000) ciechgroup.com 90 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. 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 CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000) ciechgroup.com 91 by another authority or court, and the proceedings before the Supreme Administrative Court regarding 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 2015 at CIECH Soda Polska S.A.

It was initiated by the Head of the Kujawsko-Pomorskie Province Tax Office in Bydgoszcz on 10 October 2016. On 7 March 2017, the tax office issued the tax audit report. The irregularities found result primarily from the fact that the auditors challenged the company's right to settle the loss from participation in a partnership – as was the case for CIECH Pianki Sp. z o.o., CIECH Cargo Sp. z o.o., CIECH Vitrosilicon S.A., CIECH Sarzyna S.A. The Company and its tax advisors do not agree with the position of the auditors.

In June 2019, CIECH Soda Polska S.A. received a decision of the Kujawsko-Pomorskie Tax Office Head in Bydgoszcz (decision of the First instance), according to which the company had understated - due to its participation in a partnership - its tax obligations in the amount of PLN 3.9 million. The Company appealed against said decision. On 9 September 2019, the company received a decision (decision of the Second instance) issued by the Head of the Tax Administration Chamber in Bydgoszcz, in which the latter upheld the findings of the decision of the First instance. The decision issued by the second instance authority is enforceable. Therefore, the company was obliged to pay the overdue tax (as per the tax auditors) in the amount of PLN 3.9 million (the tax base challenged by the tax authorities was PLN 20.4 million) plus the interest due in the amount of PLN 1 million.

On 9 October 2019, the company appealed to the Provincial Administrative Court in Bydgoszcz against the decision of the Second Instance. At a hearing on 11 December 2019, after considering the appeal filed by the Company, the Provincial Administrative Court issued a ruling annulling the decision issued by the Head of the Tax Administration Chamber in Bydgoszcz in its entirety. In February 2020, Head of the Tax Administration Chamber in Bydgoszcz lodged a cassation complaint with the Supreme Administrative Court in Warsaw.

On 14 December 2022, the Supreme Administrative Court announced a judgment dismissing the cassation complaint of the Head of the Tax Administration Chamber and thus, upheld the judgment of the Provincial Administrative Court. The ruling is final and not subject to appeal. On 30 January 2023, the Company received a written statement of reasons for the judgment of the Supreme Administrative Court. The Company is currently awaiting a decision from the Head of the Tax Administration Chamber in line with the ruling of the Supreme Administrative Court, after which it should receive a refund of the overpaid tax liability, interest paid on arrears, interest for the period when the funds paid were at the disposal of the tax authority and reimbursement of court costs.

CIT audit for 2015 at CIECH Pianki Sp. z o.o.# CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000)

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CIT audit for 2015 at CIECH Cargo Sp. z o.o.

It was initiated by the Head of the Kujawsko-Pomorskie Province Tax Office in Bydgoszcz on 23 January 2017. On 14 June 2017, the tax office issued the tax audit report. As was the case for CIECH Pianki Sp. z o.o., CIECH Soda Polska S.A., CIECH Vitrosilicon S.A., CIECH Sarzyna S.A., the authority challenged the company's right to settle the loss from participation in a partnership. The Company and its tax advisors do not agree with the position of the auditors. In June 2019, CIECH Cargo Sp. o.o. received a decision of the Kujawsko-Pomorskie Tax Office Head in Bydgoszcz (decision of the First instance), according to which the company had understated - due to its participation in a partnership - its tax obligations in the amount of PLN 1.7 million. The Company appealed against said decision. On 9 September 2019, the company received a decision (decision of the Second instance) issued by the Head of the Tax Administration Chamber in Bydgoszcz, in which the latter upheld the findings of the decision of the First instance. The decision issued by the second instance authority is enforceable. Therefore, the company was obliged to pay the overdue tax (as per the tax auditors) in the amount of PLN 1.7 million (the tax base challenged by the tax authorities was PLN 8.8 million) plus the interest due in the amount of PLN 0.5 million. On 9 October 2019, the Company appealed to the Provincial Administrative Court in Bydgoszcz against the decision of the Second Instance. At a hearing on 11 December 2019, after considering the appeal filed by the Company, the Provincial Administrative Court issued a ruling annulling the decision issued by the Head of the Tax Administration Chamber in Bydgoszcz in its entirety. In February 2020, Head of the Tax Administration Chamber in Bydgoszcz lodged a cassation appeal with the Supreme Administrative Court. On 14 December 2022, the Supreme Administrative Court announced a judgment dismissing the cassation complaint of the Head of the Tax Administration Chamber and thus, upheld the judgment of the Provincial Administrative Court. The ruling is final and not subject to appeal. On 30 January 2023, the Company received a written statement of reasons for the judgment of the Supreme Administrative Court. The Company is currently awaiting a decision from the Head of the Tax Administration Chamber in line with the ruling of the Supreme Administrative Court, after which it should receive a refund of the overpaid tax liability, interest paid on arrears, interest for the period when the funds paid were at the disposal of the tax authority and reimbursement of court costs.

CIT audit for 2015 at CIECH Vitrosilicon S.A.

It was initiated by the Head of the Lubuskie Province Customs and Tax Office in Gorzów Wielkopolski on 19 April 2018. The company received the outcome of the audit on 4 January 2019. As was the case for CIECH Soda Polska S.A., CIECH Cargo Sp. z o.o., CIECH Pianki Sp. z o.o., CIECH Sarzyna S.A., the authority challenged the company's right to settle the loss from participation in a partnership. The Company and its tax advisors do not agree with the position of the auditors. If the unfavourable position of the authority is upheld, an obligation may arise to pay tax arrears in the amount of PLN 2.7 million (the tax base challenged by the authority is PLN 14.4 million) plus with interest due. Tax proceedings are currently underway. In addition, on 12 March 2021 the company received from the Head of the Lubuskie Province Customs and Tax Office a notice of suspension, as of 01 February 2021, of the statute of limitations for tax liabilities for 2015 due to the initiation of proceedings for a fiscal offence. On 1 June 2022, the Company received a Decision of the Head of the Lubuskie Province Customs and Tax Office in Gorzów Wielkopolski dated 31 May 2022, in which the authority determined the amount of corporate income tax liability for 2015, namely PLN 2.7 million. On 15 June 2022, the Company sent an appeal against the decision of the Head of the Lubuskie Province Customs and Tax Office. The company is currently awaiting the decision of the second instance authority.

CIT audit for 2015 at CIECH Sarzyna S.A.

It was initiated by the Head of the Podkarpackie Province Tax Office in Reszów on 6 February 2017. On 7 November 2017, the tax office issued the audit report. As was the case for CIECH Pianki Sp. z o.o., CIECH Soda Polska S.A., CIECH Vitrosilicon S.A., CIECH Cargo Sp. z o.o., the authority challenged the company's right to settle the loss from participation in a partnership. In addition, the authority challenged the company's right to include the fee for the trademark and interest on loans paid in advance in tax deductible costs. The Company and its tax advisors do not agree with the position of the auditors. On 2 December 2021, the Company received the Decision of the Head of the Podkarpackie Province Tax Office in Reszów of 19 November 2021. In the Decision issued, the Office further questions the company's right to settle the loss from participation in a partnership and the right to include the trademark fee as a tax deductible cost. The Office, on the other hand, upheld the Company's arguments and abandoned the questioning of loan interest as a tax deductible cost. Although the Decision is not due, on 2 December 2021 the company paid tax and interest (tax in the amount of PLN 6.4 million, interest of PLN 1 million). On 16 December 2021 ,

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the Company filed an appeal against the Decision of the Head of the Podkarpackie Province Tax Office in Reszów. The company is currently awaiting the decision of the second instance authority. In addition, on 21 December 2021 the company received from the Head of the Podkarpackie Province Tax Office in Rzeszów a notice of suspension, as of 3 December 2021, of the statute of limitations for tax liabilities for 2015 due to the initiation of penal-fiscal proceedings (Penal Fiscal Code).

CIT audit for 2016 at CIECH Sarzyna S.A.

It was initiated by the Head of the Podkarpackie Province Tax Office in Reszów on 26 February 2018. On 11 January 2019, the tax office issued the audit report. According to the authority, the expenses incurred by the company in 2016 for the use of Chwastox trademarks cannot be classified as tax deductible costs. Additionally, the authority claims that the company may not offset the loss for 2015 in the annual return for 2016. On 17 November 2022, the Company received the Decision of the Head of the Podkarpackie Province Tax Office in Reszów of 4 November 2022. In the Decision, the Office questioned the settlements concerning the Chwastox trademark between Algete Sp. z o.o. and Ciech Sarzyna, the settlement of the loss on the sale of shares in Ciech Cerium Sp. z o.o. SK and the inclusion of the settlement of the tax loss arising in 2015 in connection with the Decision of the Head of the Podkarpackie Province Tax Office in Rzeszów issued on 19 November 2021. Although the Decision is not due, on 18 November 2022 the company paid tax and interest (tax in the amount of PLN 4.7 million, interest of PLN 0.8 million).The Company and its tax advisors do not agree with the position of the auditors and appealed against the Decision received. The company is currently awaiting the decision of the second instance authority. In addition, on 7 December 2022 the company received from the Head of the Podkarpackie Province Tax Office in Rzeszów a notice of 23 November 2022 of suspension, as of 26 October 2022, of the statute of limitations for CIT 2016 due to the initiation of penal-fiscal proceedings (Penal Fiscal Code).

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 total amount of possible tax burden is PLN 41.9 million. From which, following the decision of the second instance regarding CIT 2013 in CIECH S.A., as well as in the case of CIECH Sarzyna S.A. following the decision of the first instance regarding CIT 2015 and CIT 2016, a total tax amount of PLN 12.8 million was paid despite further litigation (of which an amount of PLN -0.4 million should be returned by the Tax Office after issuing a new decision in which a smaller tax liability was determined) and interest in the total amount of PLN 2.1 million. A provision has been recognised to cover a potential tax liability in the amount of PLN 28.4 million. The remaining amount, i.e. PLN 1.1 million and potential interest thereon is not covered by a provision and constitutes a contingent liability. On the other hand, of the PLN 12.8 million paid, PLN 1.8 million is reported as a receivable from the Tax Office, an impairment loss was recognised for the entire amount.

After the case is won before the Supreme Administrative Court by CIECH S.A. (in the CIT 2012 case) and CIECH Soda Polska S.A, CIECH Cargo Sp. o.o. and CIECH Pianki Sp. z o.o. (in the CIT 2015 case), the companies should receive a refund of the overpaid tax liability in the amount of PLN 51.9 million and a refund of the interest paid in the amount of PLN 24.9 million.

The CIECH Group companies were subject to VAT audits/proceedings concerning the following years:

Year	Company
Fourth quarter of 2013	Verbis KAPPA Sp. z o.o. S.K.A.
Fourth quarter of 2013	Verbis ETA Sp. z o.o. S.K.A.
December 2014	Cerium Finance Sp. z o.o.
January-June 2018	CIECH Trading Sp. z o.o.
September 2022	CIECH Cargo Sp. z o.o.

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VAT audit for the fourth quarter of 2013 at Verbis Kappa Sp. z o.o. S.K.A.

It was initiated by the Head of the Małopolskie Province Customs and Tax Office in Kraków on 6 April 2018. The company received the outcome of the audit on 11 June 2018. The authority challenged the right to deduct VAT on part of the contribution in kind made to the share premium. According to the authority, the taxable amount of the contribution received is the amount equal to the nominal value of the shares acquired. The market value of the in-kind contribution less the amount of VAT was recognised as the taxable amount in the invoice received by the company. Consequently, according to the authority, the company deducted the input tax in the amount to which it was not entitled. The taxable amount challenged by the authority is PLN 35.7 million which translates into a tax of PLN 8.2 million.

The Company and the other party to the transaction, i.e. CIECH Sarzyna S.A., filed motions for tax rulings. The Director of the National Revenue Information agreed with the position of CIECH Sarzyna S.A. presented in the motion that the taxable amount of the in-kind contribution made in 2013 was the value of the contribution, i.e. the market value of the in-kind contribution less the amount of VAT. Taking into account the positive interpretation concerning the taxable amount (an interpretation received after the event that is the subject of the dispute) and the case-law line that existed until the end of 2013, the issuer of the invoice, i.e. CIECH Sarzyna S.A., and its advisors believe that the taxable amount should be the market value of the in-kind contribution less the amount of VAT. Therefore, the company did not make a VAT correction, considering that the tax treatment of the in-kind contribution made in 2013 was correct.

On 7 August 2019, the company received the decision of the Head of the Małopolskie Province Customs and Tax Office in Kraków, upholding the previous position of the authority, that the company had no right to deduct VAT in the amount of PLN 8.2 million. The Company and its advisors do not agree with the findings set forth in the Decision and have appealed against it. On 14 November 2019, the company received the Decision of the second instance, where the Head of the Małopolskie Province Customs and Tax Office upheld the decision of the first instance in its entirety. The decision issued by the second instance authority is enforceable. Therefore, the company was obliged to pay the overdue VAT (as per the tax auditors) in the amount of PLN 8.2 million plus the interest due in the amount of approx. PLN 3.9 million. On 13 December 2019, the Company appealed against the decision of the second instance to the Provincial Administrative Court in Kraków. At a hearing on 22 July 2020, after considering the appeal filed by the Company, the Provincial Administrative Court issued a ruling dismissing the complaint filed by the Company, accepting the position of the Małopolskie Province Customs and Tax Office in Kraków. The company received a written statement of reasons for the judgment and lodged a cassation complaint with the Supreme Administrative Court in November 2020. At present, the company is waiting for the date of the hearing to be set.

VAT audit for the fourth quarter of 2013 at Verbis ETA Sp. z o.o. S.K.A.

It was initiated by the Head of the Małopolskie Province Customs and Tax Office in Kraków on 5 April 2018. The company received the outcome of the audit on 16 June 2018. The authority challenged the right to deduct VAT on part of the contribution in kind made to the share premium. According to the authority, the taxable amount of the contribution received is the amount equal to the nominal value of the shares acquired. The market value of the in-kind contribution less the amount of VAT was recognised as the taxable amount in the invoice received by the company. Consequently, according to the authority, the company deducted the input tax in the amount to which it was not entitled. The taxable amount challenged by the authority is PLN 133.5 million which translates into a tax of PLN 30.8 million.

The Company and the other party to the transaction, i.e. CIECH S.A., filed motions for tax rulings. The Director of the National Revenue Information agreed with the CIECH S.A.’s position that the company had determined the taxable amount in a correct manner, i.e. the taxable amount of the in-kind contribution made in 2013 should have been the value of the contribution, i.e. the market value of the in-kind contribution less the amount of VAT. Taking into account the positive interpretation concerning the taxable amount (an interpretation received after the event that is the subject of the dispute) and the case-law line that existed until the end of 2013, the Company and its advisors believe that the taxable amount should be the market value of the in-kind contribution less the amount of VAT. Therefore, the company and, accordingly, the other party to the transaction complied with the ruling.

On 17 July 2019, the company received the decision of the Head of the Małopolskie Province Customs and Tax Office in Kraków, upholding the previous position of the authority, that the Company had no right to CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000) ciechgroup.com 95 deduct VAT in the amount of PLN 30.8 million. The Company and its advisors do not agree with the findings set forth in the Decision and have appealed against it. On 6 August 2019, the company received an order of the Head of the Third Tax Office for Warszawa-Śródmieście to make the Decision of the Head of the Małopolskie Province Customs and Tax Office in Krakow, issued in connection with the tax proceedings conducted against the company, immediately enforceable. The Company filed a complaint against said decision. Irrespective of the complaint, the company applied to the Head of the Third Tax Office for crediting the overpaid VAT in the amount of PLN 30.8 million resulting from the correction of the VAT settlement for July 2018 towards the arrears indicated in the Decision of the Małopolskie Province Customs and Tax Office in Krakow, and repaid interest in the amount of PLN 12.4 million. In its decision, the Head of the Third Tax Office agreed to the company's request. Thus, no enforcement proceedings were initiated. On 24 October 2019, the company received the Decision of the second instance, where the Head of the Małopolskie Province Customs and Tax Office upheld the decision of the first instance in its entirety.# CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022

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On 13 November 2019, the company received the decision issued by the Head of the Tax Administration Chamber in Warsaw concerning the upholding of the decision of the Third Tax Office to make the non-final decision of the first-instance authority immediately enforceable. Due to the fact that the company had received the decision of the second instance earlier, it did not file a complaint to the Provincial Administrative Court in Warsaw against the decision received. On 25 November 2019, however, the Company appealed against the decision of the second instance to the Provincial Administrative Court in Kraków. At a hearing on 29 July 2020, after considering the appeal filed by the Company, the Provincial Administrative Court issued a ruling dismissing the complaint filed by the Company, accepting the position of the Małopolskie Province Customs and Tax Office in Kraków. The company received a written statement of reasons for the judgment and lodged a cassation complaint with the Supreme Administrative Court on 20 January 2021. At present, the company is waiting for the date of the hearing to be set. In total, in the two aforementioned disputes concerning VAT in Verbis Kappa Sp. z o.o. and Verbis ETA Sp. z o.o. S.K.A., despite the continuation of the dispute, PLN 39 million of VAT and PLN 16.3 million of interest were paid after the decisions of the second instance. These amounts are reported as public-law receivables in the financial statements. The companies did not create provisions for the above tax cases, because the companies and their tax advisors estimate the chances of final winning these disputes at over 50%. At the same time, due to the continuing uncertainty as to the direction of the dispute resolution by the Supreme Administrative Court, these amounts are also reported as contingent liabilities.

VAT audit for December 2014 at Cerium Finance Sp. z o.o. It was initiated by the Head of the Małopolskie Province Customs and Tax Office in Kraków on 5 April 2018. The company received the outcome of the audit on 19 June 2018. The authority challenged the right to deduct VAT on part of the contribution in kind made to the share premium. According to the authority, the taxable amount of the contribution received is the amount equal to the nominal value of the shares acquired. The market value of the in-kind contribution less the amount of VAT was recognised as the taxable amount in the invoice received by the company. Consequently, according to the authority, the company deducted the input tax in the amount to which it was not entitled. The taxable amount challenged by the authority is PLN 110 million which translates into a tax of PLN 25.3 million. Guided by the outcome of the audit, the other party to the in-kind contribution transaction, i.e. CIECH Soda Polska S.A., issued a correction to the invoice, specifying the taxable amount of the in-kind contribution as the nominal value of the shares acquired. Cerium Finance Sp. z o.o. included the correction of the invoice in the current tax return and paid the tax. CIECH Soda Polska S.A. received a refund of overpaid VAT. The Company and CIECH Soda Polska S.A. filed motions for tax rulings. The Director of the National Revenue Information agreed with the position of the companies with respect to the recognition of a VAT correction in the current period – the companies had already received the interpretations after the event that is the subject of the dispute. Additionally, in turn, CIECH Soda Polska S.A. received a reply that the taxable amount of the in-kind contribution made in 2014 was the nominal value of the shares acquired. Taking into account the ruling concerning the taxable amount and the regulations, as amended in 2014, according to which the taxable amount should be the value contributed to the share capital, the company is of the opinion that the correction made (included in the current period) is correct. On 17 July 2019, CIECH Soda Polska S.A. (CSP), as the legal successor of Cerium Finance Sp. z o.o., received the Accounting Books’ Audit Report, in which the auditors upheld their position, that the Company had no right to deduct VAT in the amount of PLN 25.3 million, without referring to the correction of VAT submitted by the Company in the current period and payment of this tax.

On 11 September 2019, the CSP received the decision of the Head of the Małopolskie Province Customs and Tax Office in Kraków, upholding the previous position of the authority, that Cerium Finance Sp. z o.o. had no right to deduct VAT in the amount of PLN 25.3 million. CSP appealed against the decision of the first instance. On 7 January 2020, the company received the Decision of the second instance, where the Head of the Małopolskie Province Customs and Tax Office in Kraków upheld the decision of the first instance in its entirety. The decision issued by the second instance authority was enforceable. Therefore, despite the fact that the amount of VAT has already been paid to the relevant tax office in connection with the correction of VAT settlement submitted in the current period, according to the received individual ruling, the company decided to pay again the same amount of VAT of PLN 25.3 million and interest of PLN 10 million. The VAT paid again will be recovered by CSP at the latest after the completion of the court and administrative proceedings (for December 2014), if any, or after the completion of the overpayment proceedings for July 2018. On 6 February 2020, the Company appealed against the decision of the second instance to the Provincial Administrative Court in Kraków. At a hearing on 22 September 2020, after considering the appeal filed by the Company, the Provincial Administrative Court issued a ruling dismissing the complaint filed by the Company, accepting the position of the Małopolskie Province Customs and Tax Office in Kraków. The company received a written statement of reasons for the judgment and lodged a cassation complaint with the Supreme Administrative Court on 13 January 2021. At present, the company is waiting for the date of the hearing to be set. The amount of interest paid, i.e. PLN 10 million, is reported in the financial statements as public-law receivables. The company did not create provisions for above mentioned vale of interests as company and its tax advisors estimate the chances of final winning the dispute to be above 50%. At the same time, due to the continuing uncertainty as to the direction of the dispute resolution by the Supreme Administrative Court, this amount is also reported as a contingent liability.

VAT audit for the period from January to June 2018 at CIECH Trading S.A. It was commenced by the Head of the Kujawsko-Pomorskie Province Customs and Tax Office in Toruń (for the period from January to April 2018) – commenced on 20 June 2018, and by the Head of the Śląskie Province Customs and Tax Office in Katowice (for the period from May to June 2018) – commenced on 19 September 2018. On 13 September 2019, the Company received a report on the audit of the books and the outcome of the audit from the Kujawsko-Pomorskie Province Customs and Tax Office in Toruń. According to the auditors, the company overstated the input tax by PLN 1.4 million, deducting the tax resulting from invoices issued by two contractors who, according to the authority, committed tax fraud at an earlier stage of trade. According to the authority, the company failed to exercise due diligence when entering into transactions with these entities. The Company does not agree with the position of the auditors. However, given the lack of clear legal guidelines as to the scope of due diligence and following the prudence principle, the company decided to correct the VAT return for the period from January to April 2018 in the amount indicated by the authority, i.e. PLN 1.4 million. In addition, following the prudence principle in order to prevent a possible additional tax liability in the form of VAT sanctions, the company corrected its VAT settlements for 2017 and for the period from July to November 2018, excluding from its settlements the input VAT on invoices issued by the same two counterparties for whom the authority refuses to deduct input VAT for the period from January to June 2018. The amount of the corrected VAT is PLN 7.5 million. As a result of corrections made to VAT returns and their settlement with the tax office, the company paid PLN 0.5 million in interest.

On 10 February 2020, the Company received the decision of the Head of the Kujawsko-Pomorskie Province Customs and Tax Office in Toruń concerning the determination of an additional VAT liability in relation to the audit for the period from January to April 2018. The amount of sanctions indicated in the Decision is PLN 1.4 million. The Company lodged an appeal against the Decision received with the Head of the Kujawsko-Pomorskie Province Customs and Tax Office. Regardless of the appeal filed, in order to avoid further accrual of interest, on 5 June 2020 the Company paid the amount of this additional tax liability together with interest. On 21 July 2020, the Company received the decision of the Head of the Kujawsko-Pomorskie Province Customs and Tax Office in Toruń (appeal body). The decision upholds the decision of the first instance authority to set the additional VAT liability in CIECH Trading Sp. z o.o. at 100%, i.e. in the amount of PLN 1.4 million. This Decision is final. On 19 August 2020, the Company appealed against the decision of the second instance to the Provincial Administrative Court in Bydgoszcz. At a hearing on 18 November 2020, after considering the appeal filed by the Company, the Provincial Administrative Court issued a ruling dismissing the complaint filed by the Company, accepting the position of the Head of the Kujawsko-Pomorskie Province Customs and Tax Office.The company received a written statement of reasons for the judgment and lodged a cassation complaint with the Supreme Administrative Court on 28 January 2021. On 22 October 2021 the Supreme Administrative Court CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000) ciechgroup.com 97 overturned the appealed verdict of the Provincial Administrative Court in its entirety and overturned the appealed decision of the Head of the Kujawsko-Pomorskie Province Customs and Tax Office in Toruń (2 nd instance authority) on the additional tax liability in VAT at the rate of 100%. The case will now be referred back to the Head of the Kujawsko-Pomorskie Province Customs and Tax Office in Toruń who will reconsider it, taking into account the statement of reasons of the Supreme Administrative Court. In the statement of reasons for the judgment, the Supreme Administrative Court ruled on the non-applicability of the sanction at the 100% rate in the present case. However, there is no guidance on setting the sanction at a different amount or not setting it at all. Ciech Trading Sp. z o.o. will be entitled to appeal against the new decision of the Customs and Tax Office. On 29 March 2022, the Company's attorney received the decision of the Head of the Kujawsko-Pomorskie Province Customs and Tax Office in Toruń concluding once again the appeal proceedings for the period from January to April 2018 (after CIECH Trading Sp. z o.o. won before the Supreme Administrative Court). The decision in question revokes the previous decision in its entirety (both in the part concerning the determination of the sanction of 100% and 15%) and determines a new amount of additional VAT liability for this period, i.e. 20% (instead of 100%) in the amount of PLN 0.29 million and additional VAT liability for the period from January to February 2018 and April 04.2018 at the rate of 15% in the same amount as in the previous decision, i.e. PLN thousand (the appeal filed did not cover this part of the decision). Thus, the case was closed and the company received a refund of PLN 1.1 million (80% of the 100% sanction amount) together with interest accrued over nearly 2 years. In case of the audit of VAT settlements for the period of May and June 2018 carried out by the Head of the Silesian Customs and Tax Office in Katowice, in September 2020 the company received the results of the audit relating to each of the months audited, in which the office refused the company the right to deduct input tax in the amount of PLN 1.5 million. In October 2020, the company paid the disputed amount of tax plus interest. The company recognised a provision for possible VAT arrears, interest and a sanction for the period of May-June 2018 in the amount of PLN 3.8 million. In December 2020, the Company received two Decisions issued by the Head of the Silesian Customs and Tax Office on the transformation of the customs and fiscal audit into tax proceedings on the determination of the additional VAT tax liability for May and June 2018. On 13 January 2021, the Head of the Silesian Customs and Tax Office in Katowice issued a decision on determining the additional VAT liability in the amount of PLN 1.5 million. The Company lodged an appeal against the Decision received with the Head of the Silesian Customs and Tax Office. Regardless of the appeal filed, in order to avoid further accrual of interest, on 11 February 2021 the Company paid the amount of this additional tax liability together with interest. On 25 February 2022, the Company received two Decisions of the Head of the Silesian Customs and Tax Office in Katowice concluding the appeal proceedings for May and June 2018. The decisions in question revoke previous decisions setting a sanction of 100% and set a new sanction of 20%. As Ciech Trading Sp. z o.o. made a sanction payment of 100%, it was eligible for a refund of PLN 1.2 million, which it received (80% of the amount paid) together with interest. Ciech Trading Sp. z o.o. will not appeal against the decisions issued. This concluded the dispute concerning the period from May to June 2018. VAT audit for September 2022 at CIECH Cargo Sp. z o.o. It was initiated by the Kujawsko-Pomorskie Province Tax Office on 28 October 2022. The audit is pending. On 9 December 2022, the Company received the Tax Audit Report. The Kujawsko- Pomorskie Tax Office in Bydgoszcz stated in the Report that CIECH Cargo Sp. z.o.o. fulfilled its obligation under the VAT Act and submitted its tax return on time, and paid the amount in respect of the liability resulting from the return on 25 October 2022. Therefore, despite the error made in the return submitted, in the auditors' opinion, this cannot be treated as a deliberate fraud resulting in the loss of a budget receivable. In the opinion of the auditors, the accounts were kept fairly and without defect and were therefore accepted as evidence. Audit at the Ciech Group in Germany It concerns income tax and VAT settlements at the following companies: Sodawerk Staßfurt Verwaltungs GmbH (hereinafter: “SWS”), CIECH Soda Deutschland GmbH & Co. KG, Sodawerk Holding Staßfurt GmbH, SDC GmbH (hereinafter: “SDC”), CIECH Energy Deutschland GmbH, Kaverngesellschaft Stassfurt mbH and a branch of CIECH SA, Zweigniederlassung Deutschland. The audits, initiated in previous years, cover settlements for 2007-2009 and 2010-2015 and concern various factual and legal matters. In addition, on 28 October 2021, the the audit for the period 2016-2019 was initiated. As regards the audit for 2007-2009, the Staßfurt Tax Office issued decisions for SWS on 9 September 2022 and for SDC on 12 January 2023 following a tax audit carried out against the German companies of the CIECH Group with regard to the audit of corporate income tax settlements. In the decisions, the Office questioned, among other things, the manner in which the shareholding in the capital of the SWS subsidiary CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000) ciechgroup.com 98 was reduced, which took place in 2007, and, in the case of SDC, the possibility of including financial costs exceeding the so-called thin capitalisation limits in tax costs. Decisions in respect of the amount of the tax liability plus interest of EUR 8.8 million (PLN 41.3 million) are not final. SWS, SDC and their advisers do not agree with the decisions made – the appeals are pending. Both companies requested a deferral of payment of the amount of the tax liability pending a final ruling and received a positive decision in this regard. As at the balance sheet date, the outcome of the audit for 2010-2019 is not known. In case of a different assessment of economic events (occurring during the aforementioned periods for which audits are pending) by audit authorities, an obligation may arise to recalculate and potentially increase the tax liability and to pay interest on tax arrears. Guided by the prudence principle, the companies recognised provisions for potential tax liabilities and interest in the total amount of EUR 15.5 million (after conversion into PLN according to the exchange rate quoted on the balance sheet date – about PLN 72.6 million) Of the reported EUR 15.5 million, the provision recognised in previous years is EUR 14.1 million (about PLN 66.1 million).

9.3 INFORMATION ON TRANSACTIONS WITH RELATED PARTIES

9.3.1 TRANSACTIONS WITH RELATED PARTIES IN TOTAL

Transactions between the parent, CIECH S.A., and its subsidiaries were eliminated during consolidation and have not been presented in this note. Detailed information about transactions between the CIECH Group and other related entities (i.e. companies controlled by the parent company at the high 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:

TRANSACTIONS BETWEEN CONSOLIDATED ENTITIES AND OTHER RELATED PARTIES

	01.01.-31.12.2022	01.01.-31.12.2021
Revenues from sales of products and services, including:	730	3,125
associates	-	2,291
Revenues from sales of goods and materials, including:	47,910	34,729
associates	42,599	16,976
Other operating income, including:	-	15
associates	-	15
Financial income, including:	254	-
associates	246	-
Purchase of services, including:	44,891	49,353
KI One S.A.	200	199
associates	26,708	32,465
Purchases of products, goods and materials, including:	155,410	58,202
associates	-	-
Other operating expenses	-	-
Financial expenses, including:	2,532	223
associates	139	2

TRANSACTIONS BETWEEN CONSOLIDATED ENTITIES AND OTHER RELATED PARTIES

	31.12.2022	31.12.2021
Trade receivables, including:	14,428	5,834
associates	13,481	1,206
Trade liabilities, including:	36,294	45,919
associates	4,930	3,094

Terms of transactions with related entities CIECH Group‘s companies, to the best of their knowledge and belief, did not conclude significant transactions on the terms other than market ones. 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. Receivables from related entities have not been secured by any guarantees granted or received besides those described in note 9.2. CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000) ciechgroup.com 99 In the presented period, the key management personnel of CIECH S.A. did not conclude any material transactions with related parties within the CIECH Group.

9.3.2 SIGNIFICANT TRANSACTIONS CONCLUDED BY COMPANIES OR SUBSIDIARIES WITH RELATED PARTIES OTHER THAN ON AN ARM’S LENGTH BASIS

To the best of the Group’s judgement, there were no transactions with related entities in the CIECH Group 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 Deutchland 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 benefits	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

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.

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000) ciechgroup.com 100

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.

	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.

	Remuneration due from CIECH S.A. in 2022	Remuneration due from CIECH S.A. in 2021
Sebastian Kulczyk	-	1
Natalia Scherbakoff	2	510
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.

9.4 INFORMATION ABOUT AGREEMENTS CONCLUDED WITH THE ENTITY AUTHORISED TO AUDIT THE CIECH GROUP’S CONSOLIDATED FINANCIAL STATEMENTS

The entity authorised to audit financial statements for the period from 1 January 2022 to 31 December 2022 was BDO Spółka z ograniczoną odpowiedzialnością Sp. k. with its registered office in Warsaw. On 8 June 2022, CIECH S.A. signed an agreement with BDO Spółka z ograniczoną odpowiedzialnością sp. k. on the review of semi-annual and audit of annual financial statements for the years 2022 and 2023. In 2022, BDO z ograniczoną odpowiedzialnością Sp. k. with its registered office in Warsaw and foreign members of the BDO network were also the auditors of the largest consolidated companies/subsidiaries of CIECH S.A., including CIECH Soda Polska S.A., SDC Group, Ciech Salz Deutschland GmbH, CIECH Soda Romania S.A., CIECH Sarzyna S.A., CIECH Vitrosilicon S.A., CIECH Pianki Sp. z o.o.

The entity authorised to audit financial statements for the period from 1 January 2021 to 31 December 2021 was Deloitte Audyt Spółka z ograniczoną odpowiedzialnością Sp. k. with its registered office in Warsaw. On 14 May 2020, CIECH S.A. signed an agreement with Deloitte Audyt Spółka z ograniczoną odpowiedzialnością Sp. k. on the review of semi-annual and audit of annual financial statements for the years 2020 and 2021. Value of agreements concluded with BDO Spółka z ograniczoną odpowiedzialnością Sp. k (2022) and Deloitte Audyt Spółka z ograniczoną odpowiedzialnością Sp. k. (corresponding period) is presented below:

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000) ciechgroup.com 101

	31.12.2022 1	31.12.2021 1/2
CIECH S.A.
Audit of the annual financial statements and review of the semi-annual financial statements	682	623
Audit of the financial statements as at 30 September 2022	185	-
Other attestation services	20	45
TOTAL	887	668
Consolidated subsidiaries of the CIECH Group
Audit of the annual financial statements and review of the semi-annual financial statements	1,848	2,347
Audit of the annual financial statements for 2021	281	-
Other attestation services	6	158
TOTAL	2,167	2,505

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 COMPOSITION OF THE GROUP

Accounting policy – Basis of consolidation

Subsidiaries are entities controlled by the Parent Company. An investor, regardless of the nature of its involvement with an entity (the investee), determines whether it is a parent by assessing whether it controls the investee. An investor controls an investee if and only if the investor has all the following:
a) power over the investee;
b) exposure, or rights, to variable returns from its involvement with the investee, and
c) the ability to use its power over the investee to affect the amount of the investor’s returns.

An investor considers all facts and circumstances when assessing whether it controls an investee. The investor reassesses whether it controls an investee if facts and circumstances indicate that there are changes to one or more of the aforesaid elements. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

When selecting entities for consolidation, the Management Board was guided by the criteria of significance of their financial data (according to the concept assumptions of IFRS), for executing the obligation of an actual and reliable image of the material and financial situation, and the financial result of the Group. The total share of data of subsidiaries not covered by consolidation under the full method, due to their irrelevance, in relation to the total values of the CIECH Group for the period from 1 January 2022 to 31 December 2022 does not exceed 1% of total consolidated assets of the Group and 0.5% of consolidated net revenues from sales of goods and products and financial operations. The non-consolidated subsidiary is Nordiska Unipol AB. Aggregated data of associates and jointly-controlled companies which were not measured under the equity method for the period from 1 January 2022 to 31 December 2022 did not exceed 1% of the total consolidated equity of the CIECH Group.

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000) ciechgroup.com 102

A list of fully consolidated companies and companies accounted for under the equity method is provided below:

Company name	Registered office	Segment	Business	Share in equity as at 31.12.2022 / % of votes at the GMS	Share in equity as at 31.12.2021 / % of votes at the GMS
Parent company
CIECH S.A.	Warsaw	Soda, Agro, Foams, Silicates, Packaging, Other, (Resins – discontinued operations)	Sales of chemical products manufactured by the CIECH Group companies, sales of chemical products and semi-finished products purchased from third-party producers, holding activities, managing a portfolio of the Group's subsidiaries, provision of support services (including in the area of sales, purchases, finance, HR and the legal area) for the Group's companies, financial service activities not elsewhere classified (so-called intercompany loans) for the benefit of the Group's companies.	-	-
Fully consolidated direct and indirect subsidiaries
CIECH Trading Sp. z o.o.	Warsaw	Other	The company is preparing for the liquidation process, operations are being phased out.	100%	100%
CIECH Soda Romania S.A.	Ramnicu Valcea, Romania	Soda, Silicates	Manufacture of other basic inorganic chemicals, wholesale of chemical products. Production suspended in the Soda Segment.

## Company name	Registered office	Segment	Business	Share in equity as at 31.12.2022 / % of votes at the GMS	Share in equity as at 31.12.2021 / % of votes at the GMS
CIECH Vitrosilicon S.A.	Iłowa	Silicates	Manufacture of other basic inorganic chemicals, manufacture of other chemical products.	98.74%	98.74%
CIECH Vitro Sp. z o.o.	Iłowa	Packaging	Manufacture of hollow glass, manufacture and processing of other glass.	100%	100%
CIECH Transclean Sp. z o.o.	Bydgoszcz	Other	Since 2017, the Company has not carried out any operating activities.	100%	100%
CIECH Pianki Sp. z o.o.	Bydgoszcz	Foams	Manufacture of plastics in primary forms and other plastic products.	100%	100%
Ciech Group Financing AB	Stockholm, Sweden	Other	Financing activities.	100%	100%
Verbis ETA Sp. z o.o.	Warsaw	Other	General partner of Verbis ETA Sp. z o.o. SKA.	100%	100%
Verbis ETA Sp. z o.o. SKA	Warsaw	Other	Financing activities, direct lending to the CIECH Group companies.	100%	100%
CIECH Serwis i Remonty Sp. z o.o.	Warsaw	Other	Provision of repair and maintenance services, repair and maintenance of machinery.	100%	100%
CIECH Nieruchomości Sp. z o.o. 2	Warsaw	Other	Buying and selling of own real estate, estate agency, real estate management.	100%	100%
Proplan Plant Protection Company S.L.	Madrid, Spain	Agro	Production of crop protection chemicals.	100%	100%
CIECH Salz Deutschland GmbH	Stassfurt, Germany	Soda	Production and sales of salt products.	100%	100%
CIECH SERVICES Sp. z o.o.	Bydgoszcz	Soda, Agro, Foams, Silicates, Packaging, Other	Provision of support services for companies of the CIECH Group.	100%	100%
CIECH Ventures Sp. z o.o.	Warsaw	Other	Holding activities, other financial activities.	100%	-
CIECH Sól Sp. z o.o.	Warsaw	Soda	Production and sales of salt products.	100%	-
CIECH Nieruchomości Rolne Sp. z o.o.	Warsaw	Other	Support activities for crop production, property management.	100%	-
CIECH Finance Sp. z o.o.	Warsaw	Other	Implementing divestment projects concerning obsolete fixed assets (property) and financial assets (shares in companies).	100%	100%
CIECH R&D Group CIECH R&D Sp. z o.o.	Warsaw	Soda, Agro, Foams, Silicates, Packaging, Other	Research and developments activities, granting licenses to the CIECH Group companies to use the trademarks: “Ciech”, “Ciech Trading” and “Sól Kujawska naturalna czysta”.	100%	100%
Smart Fluid S.A.	Warsaw	Other	Research & Development.	52.83%	52.83%

CIECH Soda Polska Group

### Company name	Registered office	Segment	Business	Share in equity as at 31.12.2022 / % of votes at the GMS	Share in equity as at 31.12.2021 / % of votes at the GMS
CIECH Soda Polska S.A.	Inowrocław	Soda	Manufacture of other basic inorganic chemicals, wholesale of chemical products, power generation and distribution.	100%	100%
CIECH Cargo Sp. z o.o.	Inowrocław	Soda	Freight transport services.	100%	100%
Cerium Sp. z o.o. w likwidacji (in liquidation)	Warsaw	Other	The company was liquidated on 31 August 2021.	-	100%
Gamma Finanse Sp. z o.o. 3	Warsaw	Other	Financing activities.	100%	100%
El-Pomiar Sp. z o.o.	Inowrocław	Other	Repair and maintenance of electrical equipment.	94.23%	92.31%

CIECH Sarzyna Group

### Company name	Registered office	Segment	Business	Share in equity as at 31.12.2022 / % of votes at the GMS	Share in equity as at 31.12.2021 / % of votes at the GMS
CIECH Sarzyna S.A.	Nowa Sarzyna	Agro	Manufacture of resins, manufacture of pesticides and other chemical products.	100%	100%
Verbis KAPPA Sp. z o.o.	Nowa Sarzyna	Agro	General partner of Verbis KAPPA Sp. z o.o. SKA, other financial intermediation.	100%	100%
Verbis KAPPA Sp. z o.o. SKA	Nowa Sarzyna	Agro	Other financial intermediation.	100%	100%
Algete Sp. z o.o.	Nowa Sarzyna	Agro	Granting CIECH Sarzyna Group companies the license for using the trademark of “Chwastox” for the purpose of business.	100%	100%
CIECH Agro Romania S.R.L.	Ramnicu Valcea, Romania	Agro	Wholesale of chemical products.	100%	100%

SDC Group

### Company name	Registered office	Segment	Business	Share in equity as at 31.12.2022 / % of votes at the GMS	Share in equity as at 31.12.2021 / % of votes at the GMS
SDC GmbH	Stassfurt, Germany	Soda	Holding company for all SDC Group entities.	100%	100%
CIECH Soda Deutschland GmbH&Co. KG	Stassfurt, Germany	Soda	Manufacture of other basic inorganic chemicals, wholesale of chemical products.	100%	100%
Sodawerk Holding Stassfurt GmbH	Stassfurt, Germany	Soda	Holding activities.	100%	100%
Sodawerk Stassfurt Verwaltungs GmbH	Stassfurt, Germany	Soda	Management and financial activities.	100%	100%
CIECH Energy Deutschland GmbH	Stassfurt, Germany	Soda	Power generation and distribution.	100%	100%
Kaverngesellschaft Stassfurt GbmH 4	Stassfurt, Germany	Soda	Management and maintenance of gas caverns.	50%	50%

1 Number of shares / votes at the GMS attributable directly to CIECH S.A. — 39.41%, indirect share through CIECH Soda Polska S.A. — the remaining 60.59%.

2 Shares in the share capital acquired by CIECH S.A. – 99.18% and CIECH Soda Polska S.A. – 0.82%.

3 Shares in the share capital acquired by CIECH S.A. – 1.4% and CIECH Soda Polska S.A. – 98.6%.

4 Jointly-controlled company accounted for under the equity method.

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.

9.6 INFORMATION ON THE IMPACT OF CLIMATE ISSUES ON THE OPERATIONS OF THE CIECH GROUP

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.

9.7 INFORMATION ON THE CURRENT SITUATION IN CONNECTION WITH THE IMPACT OF THE RUSSIAN INVASION OF UKRAINE ON THE CIECH GROUP'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 to 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 fluctuations and availability of raw materials. In the first weeks after the outbreak of the conflict, the CIECH Group was confronted with unprecedented and unpredictable risks that had a high impact on ensuring the operational continuity of individual production plants due to supply chain disruptions and the availability of energy raw materials. In particular, this risk affected the Soda segment. Over time, the Group, through the crisis measures taken, has contained the risk of shock and uncertainty due to the deterioration of availability and the increase in raw material prices. Looking ahead to the past 2022, it became apparent that the armed conflict in Ukraine had an impact on all business segments of the Group, but that the effects of the conflict on each segment varied. Before a detailed analysis of the impact of the conflict in Ukraine on the individual segments is presented, it should be noted that, from the very beginning of the conflict, the Management Board of CIECH S.A. has been monitoring the situation in detail and on an ongoing basis and analysing various scenarios for the markets' reactions and administrative decisions and their impact on the Group. The Group seeks to respond to developments on an ongoing basis. The impact of Russia's invasion of Ukraine from the perspective of the operations of individual business segments of the CIECH Group is presented below:

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 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 to high for the Stassfurt plant.# CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000)

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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 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 Group 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 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 Group has a significant exposure to the EUR/PLN exchange rate (total position of EUR -290.3 million) and a relatively low exposure to USD/PLN (total position of USD -7.6 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 Group’s profit/loss is limited (the position affecting the current profit/loss is EUR 52.0 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 Group's current liquidity.

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022 (in PLN ‘000)

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Market interest rate risk in respect of the Group'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 would had a limited impact on the Group'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.

In addition, the CIECH Group enters into derivative transactions to hedge commodity risks, including regarding the sale of electricity, the purchase of natural gas and CO 2 emission allowance units (EUAs). Due to significant changes in the prices of these raw materials, there were significant changes in valuations of hedging transactions concluded. Due to the very high volatility in the pricing of commodity contracts for gas and electricity and CO 2 , resulting in exceeding transaction limits, it was necessary to use cash collateral for some of the transactions, which had a negative impact on the Group's current liquidity in the short term – at the end of December 2022, the amount of margin provided in connection with open derivatives amounted to PLN 104.1 million.

Maintaining a secure financial position

The CIECH Group's liquidity situation was and continues to be stable, and the CIECH Group companies have sufficient cash and available sources of financing to be able to meet their obligations on time, even if current cash flows deteriorate and access to new sources of financing becomes limited.

As at 31 December 2022, the Group held cash of PLN 685 million and limits available under committed credit facilities of PLN 402 million. The Group had access to funds made available under committed facility agreements (syndicated facility agreement with a total value of PLN 2,115 million) and additional sources of financing in the form of receivables factoring agreements, reverse factoring agreements and overdraft facilities.

The risk of default on repayment liabilities under the loan agreements or risk of loans being called in due to failure to meet the level of ratios tested under the loan agreements has not materialised. In the case of the syndicated facility agreement, the majority of the debt is of a long-term nature, with the short-term portion representing principal repayment due on the end of June and December 2023 in the amount of PLN 187 million.

No indication of impairment

As at the date of these statements, the Group'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.# 9.8 INFORMATION ON THE CURRENT SITUATION IN CONNECTION WITH THE IMPACT OF THE COVID-19 CORONAVIRUS PANDEMIC ON THE CIECH GROUP'S ACTIVITIES

Throughout 2022, the CIECH Group did not experience any negative impact of the COVID-19 coronavirus on its ongoing operating activity. The CIECH Group, individual Group companies and production plants operated smoothly. None of the CIECH Group's business segments recorded negative events or incidents caused by the ongoing pandemic. There were no instances of reduced or lost business continuity due to infections or employee absence at any of the CIECH Group’s production plants. As far as other areas of the CIECH Group's operations are concerned, also no adverse effects of the ongoing COVID-19 pandemic were recorded during 2022.

9.9 EVENTS AFTER THE REPORTING 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 31 January 2023, CIECH Salz Deutschland GmbH filed a lawsuit against EVATHERM AG at the Magdeburg District Court for the payment of approximately EUR 20 million (including interest and legal costs). The lawsuit was filed due to improper performance of the contract, delayed commissioning of the installation and problems with the operation of the installation and the production process at the CSD evaporated salt plant located in Staßfurt, launched in 2021. For details, see current report No 4/2023.
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 9 March 2023, a notice was published on the announcement of a tender offer for the sale of shares in CIECH S.A. The acceptance of subscriptions for shares under the Tender Offer will start on 10 March 2023 and will last until 12 April 2023. The expected date of settlement of the share purchase transaction in the Tender Offer is 19 April 2023.
On 10 March 2023 public aid in the amount of PLN 18,734.4 thousand PLN was granted to CIECH Soda Polska S.A. under the program "Aid for energy-intensive sectors related to sudden increases in natural gas and electricity prices in 2022".

REPRESENTATION BY THE MANAGEMENT BOARD

These consolidated financial statements of the CIECH Group 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

AI assistant

Ciech S.A. — Annual Report (ESEF) 2022

CONSOLIDATED FINANCIAL STATEMENTS OF THE CIECH GROUP FOR 2022

SELECTED FINANCIAL DATA

TABLE OF CONTENTS

THE CIECH GROUP – SELECTED FINANCIAL DATA

THE CIECH GROUP – SELECTED FINANCIAL DATA

CONSOLIDATED STATEMENT OF PROFIT OR LOSS OF THE CIECH GROUP

CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME OF THE CIECH GROUP

CONSOLIDATED STATEMENT OF FINANCIAL POSITION OF THE CIECH GROUP

CONSOLIDATED STATEMENT OF CASH FLOWS OF THE CIECH GROUP

STATEMENT OF CHANGES IN CONSOLIDATED EQUITY OF THE CIECH GROUP

1 GENERAL INFORMATION

1.1 INFORMATION ON THE GROUP’S ACTIVITIES

1.2 BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS AND ACCOUNTING PRINCIPLES

1.2.1 REPRESENTATIONS BY THE MANAGEMENT BOARD

1.2.2 BASIS OF PREPARATION

1.3 FUNCTIONAL AND REPORTING CURRENCY

1.4 ACCOUNTING POLICIES

1.5 CHANGES IN ACCOUNTING POLICIES AND THE SCOPE OF DISCLOSURES

1.5.1 ADJUSTMENT OF PRIOR PERIOD ERRORS AND CHANGES IN ACCOUNTING POLICY

2 SEGMENT REPORTING

3 NOTES TO THE CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME

3.1 SALES REVENUES

3.2 COST OF SALES

3.3 COSTS BY TYPE

3.4 OTHER INCOME AND EXPENSES

3.4.1 DETAILED INFORMATION ON SIGNIFICANT IMPAIRMENT LOSSES

3.5 FINANCIAL INCOME AND EXPENSES

3.6 COMPONENTS OF OTHER COMPREHENSIVE INCOME

4 INCOME TAX, DEFERRED TAX ASSETS AND LIABILITY

4.1 MAIN COMPONENTS OF TAX EXPENSE

4.2 EFFECTIVE TAX RATE

4.3 DEFERRED INCOME TAX

5 NOTES TO ASSETS REPORTED IN THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION

5.1 PROPERTY, PLANT AND EQUIPMENT

5.2 RIGHT-OF-USE ASSETS

5.3 INTANGIBLE ASSETS – NON-CURRENT AND CURRENT

5.4 GOODWILL IMPAIRMENT TESTING

5.5 INVESTMENT PROPERTIES

5.6 LONG-TERM RECEIVABLES

5.7 LONG-TERM FINANCIAL ASSETS

5.8 SHARES IN JOINT VENTURES / INVESTMENTS IN ASSOCIATES

5.9 INVENTORIES

5.10 SHORT-TERM RECEIVABLES

5.11 SHORT-TERM FINANCIAL ASSETS

5.12 CASH AND CASH EQUIVALENTS

5.13 DISCONTINUED OPERATIONS, NON-CURRENT ASSETS AND DISPOSAL GROUPS HELD FOR SALE AND LIABILITIES RELATED THERETO

6 EQUITY

6.1 CAPITAL MANAGEMENT

6.2 CONSOLIDATED EQUITY

6.3 DIVIDENDS PAID OR DECLARED

6.4 BUSINESS COMBINATIONS

6.5 SIGNIFICANT SUBSIDIARIES WITH NON-CONTROLLING INTEREST

6.6 EARNINGS PER SHARE

7 LIABILITIES, PROVISIONS, EMPLOYEE BENEFITS

7.1 INFORMATION ABOUT SIGNIFICANT FINANCIAL LIABILITIES

7.2 OTHER NON-CURRENT LIABILITIES

7.3 CURRENT TRADE AND OTHER LIABILITIES

7.4 LEASES

7.5 PROVISIONS FOR EMPLOYEE BENEFITS

7.6 OTHER PROVISIONS

8 FINANCIAL INSTRUMENTS, FINANCIAL RISK MANAGEMENT AND IMPAIRMENT

8.1 FINANCIAL INSTRUMENTS

8.2 FINANCIAL INSTRUMENTS DESIGNATED FOR HEDGE ACCOUNTING

8.3 FINANCIAL RISK MANAGEMENT

8.4 DETERMINATION OF FAIR VALUE

9 OTHER NOTES

9.1 NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS

9.2 INFORMATION ON CHANGES IN CONTINGENT ASSETS AND LIABILITIES AND OTHER MATTERS

9.3 INFORMATION ON TRANSACTIONS WITH RELATED PARTIES

9.3.1 TRANSACTIONS WITH RELATED PARTIES IN TOTAL

9.3.2 SIGNIFICANT TRANSACTIONS CONCLUDED BY COMPANIES OR SUBSIDIARIES WITH RELATED PARTIES OTHER THAN ON AN ARM’S LENGTH BASIS

9.3.3 DESCRIPTION OF NON-ROUTINE TRANSACTIONS WITH RELATED PARTIES

9.3.4 TRANSACTIONS CONCLUDED WITH KEY MANAGERIAL PERSONNEL

9.4 INFORMATION ABOUT AGREEMENTS CONCLUDED WITH THE ENTITY AUTHORISED TO AUDIT THE CIECH GROUP’S CONSOLIDATED FINANCIAL STATEMENTS

9.5 COMPOSITION OF THE GROUP# 9.6 INFORMATION ON THE IMPACT OF CLIMATE ISSUES ON THE OPERATIONS OF THE CIECH GROUP

9.7 INFORMATION ON THE CURRENT SITUATION IN CONNECTION WITH THE IMPACT OF THE RUSSIAN INVASION OF UKRAINE ON THE CIECH GROUP'S ACTIVITIES

9.8 INFORMATION ON THE CURRENT SITUATION IN CONNECTION WITH THE IMPACT OF THE COVID-19 CORONAVIRUS PANDEMIC ON THE CIECH GROUP'S ACTIVITIES

9.9 EVENTS AFTER THE REPORTING DATE

Ciech S.A. Annual Report (ESEF) 2022