Ciech S.A. — Audit Report / Information 2020

Apr 22, 2021

Sprawozdanie biegłego rewidenta z badania sprawozdania finansowego

Deloitte Audyt Spółka z ograniczoną odpowiedzialnością Sp. k.
al. Jana Pawła II 22
00-133 Warszawa
Poland
Tel.: +48 22 511 08 11
Fax.: +48 22 511 08 13
www.deloitte.com/pl

INDEPENDENT AUDITOR’S REPORT

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

Report on the Audit of the Annual Consolidated Financial Statements

Opinion

We have audited the annual consolidated financial statements of the group (the “Group”) with Ciech S.A. as the parent (the “Parent”), which comprise the consolidated statement of financial position as at 31 December 2020, and the consolidated statement of profit or loss, consolidated statement of other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies and other explanatory information (the “consolidated financial statements”).

In our opinion, the consolidated financial statements:

• give a true and fair view of the economic and financial position of the Group as at 31 December 2020, and of its financial performance and its cash flows for the year then ended in accordance with the applicable International Financial Reporting Standards, as endorsed by the European Union, and the adopted accounting policies;
• comply, as regards their form and content, with the applicable laws and the articles of association of the Parent.

Our opinion is consistent with the Additional Report to the Audit Committee, which we issued on 22 April 2021.

Basis for Opinion

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

We are independent of the Group in accordance with the principles of professional ethics set out in the International Code of Ethics for Professional Accountants (including the International Independence Standards) (“Code of Ethics”), adopted by the National Council of Statutory Auditors, which has been developed and approved by the International Ethics Standards Board for Accountants, together with the ethical requirements that are relevant to the audit of the financial statements in Poland, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code of Ethics.

Throughout the audit, both the key statutory auditor and the audit firm remained independent of the Group in accordance with the independence requirements set out in the Act on Statutory Auditors and in the EU Regulation. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/pl/onas for a more detailed description of DTTL and its member firms.

Member of Deloitte Touche Tohmatsu Limited

District Court for the capital city of Warsaw, 12th Commercial Division of the National Court Register, KRS No. 0000446833, Tax Identification Number (NIP): 527-020-07-86, REGON: 010076870

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

Emphasis of Matter

We draw attention to Note 1.5.1 to the consolidated financial statements of the Ciech Group, where the Management Board has disclosed an adjustment of prior period errors within the scope of IFRS 9, with respect to the accounting for F/X forward contracts designated for hedge accounting purposes as contracts decomposed as part of a CCIRS instrument as well as the recognition of futures contracts for purchases of CO2 emission allowances. The Note presents a retrospective recognition of the adjustment of the said errors as well as their impact on each reporting period. Our opinion is not qualified in respect of this matter.

Other Matter

The Group’s consolidated financial statements for the year ended 31 December 2019 were audited by another auditor who expressed an unqualified opinion on those statements on 31 March 2020.

Key Audit Matters

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

| Key audit matter | How we addressed the matter # Key Audit Matters

As discussed in Notes 8.1 and 8.4 to the consolidated financial statements, the value of assets and liabilities associated with measurement of derivatives is PLN 20.2 million and PLN 59.5 million, respectively. Given the significant volume of transactions and the considerable complexity of the fair value measurement of transactions in derivatives, including those designated for hedge accounting purposes, as well as the risk of uncertainty related to significant estimates made in the measurement of such instruments, we consider the measurement of derivatives to be a key audit matter.

Determination of the fair value of derivatives requires significant judgment – adoption of assumptions about future parameters for each instrument as well as the use of an appropriate measurement model. In particular, our audit procedures included:

• gaining an understanding of the process of fair value measurement of derivatives, along with the underlying assumptions, with the support of Deloitte’s experts in financial markets:
• an assessment of the model used by the Group,
• verification of the measurement of the instruments by means of independent fair value measurements of such instruments,
• an analysis of the recognition and presentation of transactions in derivatives,
• a comparison of the result of the measurement of derivatives as regards the fair value determined by Deloitte and the fair value determined by the Management Board, including an analysis of differences, considering discrepancies resulting from the use of estimates for variable measurement parameters in the model.

3 Impairment of property, plant and equipment of Ciech Soda Romania S.A. due to suspension of the plant’s manufacturing activity

| Key audit matter We also provide the Parent’s Supervisory Board with a statement that we have complied with relevant ethical requirements regarding independence, and that we will communicate with it all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the Parent’s Supervisory Board, we determined those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Other Information, Including the Report on the Activities

Other information includes a report on the activities of the Company and of the Group in the financial year ended 31 December 2020 (the “Report on the Activities”), together with a statement of compliance with corporate governance principles, which constitutes a separate part of the Report, and a separate, non-financial report of the Company and of the Group, as referred to in Article 49b.1 of the Accounting Act (together the “Other Information”).

Responsibilities of the Management Board and the Supervisory Board

The Parent’s Management Board is responsible for the preparation of the Other Information in accordance with the applicable laws. The Management Board and members of the Supervisory Board of the Parent are obliged to ensure that the Report on the Activities, along with the separate parts, as well as the separate, non-financial report of the Company and of the Group meet the requirements of the Accounting Act.

Auditor’s Responsibilities

Our opinion on the consolidated financial statements does not cover the Other Information. In connection with our audit of the consolidated financial statements, our responsibility is to read the Other Information and, in doing so, consider whether the Other Information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this Other Information, we are required to report that fact in our auditor’s report.

Additionally, under the Act on Statutory Auditors we are obliged to express an opinion on whether the Report on the Activities has been prepared in accordance with the applicable laws and whether it is consistent with the information contained in the consolidated financial statements. Furthermore, we are obliged to state whether a separate, non-financial report has been prepared by the Group and to express an opinion on whether the Group has included the necessary information in the statement of compliance with corporate governance principles.

Opinion on the Report on the Activities

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

• has been prepared in accordance with Section 49 of the Accounting Act and par. 71 of the Regulation of the Minister of Finance of 29 March 2018 on current and periodic information published by issuers of securities and the rules of equal treatment of the information required by the laws of non-member states (the “Current Information Regulation”, Journal of Laws of 2018, item 757, as amended);
• is consistent with the information contained in the consolidated financial statements.

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

Opinion on the Statement of Compliance with Corporate Governance Principles

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

Information on Non-Financial Information

In accordance with the requirements of the Act on Statutory Auditors, we confirm that the Group has prepared a separate, non-financial report of the Company and of the Group, as referred to in Article 49b.1 of the Accounting Act, as a separate report. We have not performed any assurance services relating to the non-financial information statement and we do not express any form of assurance conclusion thereon.

Report on Other Legal and Regulatory Requirements

Independent auditor’s report on the performance of an assurance engagement with regard to verification of compliance of consolidated financial statements prepared in the single electronic reporting format with the requirements of the regulation setting out technical standards on the specification of a single electronic reporting format

Scope of the Engagement

With regard to the audit of the consolidated financial statements we have performed a reasonable assurance engagement to evaluate whether or not the Group’s consolidated financial statements for the year ended 31 December 2020 were prepared in compliance with the requirements of Commission Delegated Regulation (EU) 2019/815 of 17 December 2018 supplementing Directive 2004/109/EC of the European Parliament and of the Council with regard to regulatory technical standards on the specification of a single electronic reporting format (the “ESEF Regulation”).

Identification of Criteria

In accordance with the ESEF Regulation, issuers should prepare their IFRS consolidated financial statements in the single electronic reporting format (XHTML), in addition to tagging the information contained therein in line with the IFRS taxonomy, using the Inline XBRL standard (the “ESEF format”).

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

The Management Board of the Parent is responsible for the preparation of the consolidated financial statements in the ESEF format. This responsibility includes the selection and application of appropriate XBRL tags, using the taxonomy set out in the ESEF Regulation. The Management Board is also responsible for the design, implementation and maintenance of internal controls to enable the preparation of consolidated financial statements in the ESEF format that are free from material non-compliance with the requirements of the ESEF Regulation. Members of the Supervisory Board of the Parent are responsible for overseeing the financial reporting process, which also involves the preparation of consolidated financial statements in the ESEF format.

Auditor’s Responsibilities

Our objective was to express, based on a reasonable assurance engagement, a conclusion whether the Group’s consolidated financial statements for the year ended 31 December 2020 were prepared in compliance with the requirements of the ESEF Regulation. The engagement was performed in accordance with Polish Standard on Assurance Engagements Other than Audits or Reviews 3000 (Revised) in line with the wording of International Standard on Assurance Engagements 3000 (Revised) – “Assurance Engagements Other than Audits or Reviews of Historical Financial Information”, as adopted by the National Council of Statutory Auditors (“PSAE 3000 (Revised)”). The Standard requires that we plan and perform the procedures so as to obtain information and explanations that we consider to be necessary to obtain reasonable assurance that the consolidated financial statements were prepared in the ESEF format.

Reasonable assurance is a high level of assurance, but is not a guarantee that an engagement conducted in accordance with PSAE 3000 (Revised) will always detect a material misstatement when it exists. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the consolidated financial statements in the ESEF format, in order to design procedures that are appropriate in the circumstances to enable the auditor to obtain sufficient appropriate evidence, but not for the purpose of expressing a conclusion on the effectiveness of the entity’s internal control.

Quality Control Requirements

We adhere to the Polish Standards on Quality Control in line with the wording of International Standard on Quality Control 1 – “Quality control for firms that perform audits and reviews of financial statements, and other assurance and related services engagements”, as adopted by the National Council of Statutory Auditors, and maintain a comprehensive system of quality control that includes documented policies and procedures with regard to compliance with ethical requirements, professional standards and applicable legal and regulatory requirements.

Ethical and Independence Requirements

We comply with independence and other ethical requirements set out in the International Code of Ethics for Professional Accountants, as adopted by the National Council of Statutory Auditors (including the International Independence Standards), which has been developed and approved by the International Ethics Standards Board for Accountants.# Summary of the Work Performed

The procedures we planned and performed included: gaining an understanding of the process of the Parent’s selection and application of XBRL tags as well as ensuring compliance with the ESEF format requirements, including an understanding of the internal controls relevant to this process; evaluation of compliance with the technical standards applicable to the specification of the ESEF format, including application of the XHTML format, with the use of specialist software; testing the correctness of arithmetical calculations for each iXBRL tagged item; reconciliation of tagged information contained in the files with the consolidated financial statements with the audited consolidated financial statements; evaluation of the completeness of XBRL tagged information in the consolidated financial statements; evaluation of whether the iXBRL tags from the taxonomy set out in the ESEF Regulation were applied properly and whether extension taxonomy elements were used in the event that the relevant elements were not identified in the core taxonomy set out in the ESEF Regulation; and evaluation of the correctness of anchoring of the extension taxonomy elements used to the core taxonomy set out in the ESEF Regulation. We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our assurance conclusion.

Conclusion

In our opinion, the consolidated financial statements were prepared, in all material respects, in compliance with the requirements of the ESEF Regulation.

Statement Concerning Provision of Non-Audit Services

To the best of our knowledge and belief, we represent that non-audit services which we have provided to the Parent and to its subsidiaries are not prohibited under Article 5.1 of the EU Regulation and Article 136 of the Act on Statutory Auditors. The key statutory auditor and the audit firm have provided the following non-audit services which have not been disclosed in the financial statements or in the Report on the Activities, to the Parent or to entities which are controlled by the Parent:

• verification of the report on remuneration of the Management Board and Supervisory Board of Ciech S.A.;
• a review of the interim financial statements of Ciech S.A. and of the Ciech Group;
• a review and an audit of IFRS consolidation packages prepared by selected Ciech Group companies for purposes of the interim review and audit of the consolidated financial statements of the Group;
• verification of the ratios set out in the loan agreement;
• an opinion on the correctness of the calculation of the factor referred to in the Excise Duty Act for Ciech Soda Polska S.A.;
• verification of the disclosures under Article 44 of the Energy Law in the financial statements of Ciech Soda Polska S.A., Ciech Sarzyna S.A. and Ciech Żywice Sp. z o.o.;
• verification of selected data, as specified in par. 64.3.1 of the German EEG Act in conjunction with par. 6.2 of the implementing regulation.

Appointment of the Auditor

We were appointed as the auditor of the Group’s consolidated financial statements by Resolution No 82 of the Parent’s Supervisory Board of 1 April 2020. This is our first year as auditor of the Group. The key statutory auditor on the audit resulting in this independent auditor’s report is Adrian Karaś.

Acting on behalf of Deloitte Audyt Spółka z ograniczoną odpowiedzialnością Sp. k. with its registered seat in Warsaw, entered under number 73 on the list of audit firms, in the name of which the consolidated financial statements have been audited by the key statutory auditor:

Adrian Karaś
Registered under number 12194
Warsaw, 22 April 2021

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The above audit opinion together with the auditor’s report is a translation from the original Polish version.In case of any discrepancies between the Polish and English version, the Polish version shall prevail.