Ciech S.A.

Audit Report / Information • Mar 24, 2023

tel.: +48 22 543 16 00 fax: +48 22 543 16 01 e-mail: office@bdo.pl www.bdo.pl BDO spółka z ograniczoną odpowiedzialnością spółka komandytowa ul. Postępu 12 02-676 Warszawa Poland BDO spółka z ograniczoną odpowiedzialnością spółka komandytowa [limited partnership], District Court for the capital city of Warsaw, XIII Business Division, KRS: 0000729684, REGON: 141222257, NIP: 108-000-42-12. The value of the capital contribution is PLN 10,037,500. Regional offices in Poland: Katowice 40-007, ul. Uniwersytecka 13, tel.: +48 32 661 06 00, katowice@bdo.pl; Kraków 31-548, al. Pokoju 1, tel.: +48 12 378 69 00, krakow@bdo.pl; Poznań 60-650, ul. Piątkowska 165, tel.: +48 61 622 57 00, poznan@bdo.pl; Wrocław 53-332, ul. Powstańców Śląskich 7a, tel.: +48 71 734 28 00, wroclaw@bdo.pl BDO spółka z ograniczoną odpowiedzialnością spółka komandytowa is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the worldwide network of independent legal entities, each of which provides professional services under the name “BDO”. This document is a translation. The Polish original should be referred to in matters of interpretation. Independent Auditor’s Report to the Shareholders and the Supervisory Board of CIECH S.A. Report on the Audit of the Year-end Financial Statements Opinion We have audited the year-end financial statements of CIECH S.A. (“the Company”), comprising the statement of financial position as at 31 December 2022, the statement of profit and loss, the statement of other comprehensive income, the statement of changes in equity and the statement of cash flows for the financial year from 1 January to 31 December 2022, as well as notes to the financial statements including a description of significant accounting methods and other explanations (“the financial statements”). In our opinion, the accompanying financial statements: - give a true and fair view of the Company’s financial position as at 31 December 2022, as well as of its financial result and cash flows for the financial year then ended, in accordance with the applicable International Financial Reporting Standards as adopted by the European Union, as well as the adopted accounting methods (policies); - are consistent, in content and in form, with the applicable laws and regulations and with the Company’s Statute; - have been prepared on the basis of properly kept books of account in accordance with Chapter 2 of the Accounting Act of 29 September 1994 (“the Accounting Act” – 2023 Journal of Laws, item 120 with subsequent amendments). The present opinion is consistent with the additional report to the Audit Committee, which we issued on 23 March 2023. Basis for Opinion We conducted our audit in accordance with National Standards on Auditing in the wording of International Standards on Auditing adopted by resolution of the National Council of Certified Auditors ("NSA"), and in compliance with the Act of 11 May 2017 on Certified Auditors, Audit Firms and on Public Oversight (“the Certified Auditors Act” – 2022 Journal of Laws, item 1302 with subsequent amendments) and Regulation (EU) No. 537/2014 of 16 April 2014 on specific requirements regarding statutory audit of public interest 2 entities (“Regulation EU” – OJ L 158). Our responsibilities under those standards are further described in the Responsibilities of the Auditor for the Audit of the Financial Statements section of this report. We are independent of the Company in accordance with the International Code of Ethics for Professional Accountants (including International Standards of Independence) of the International Ethics Standards Board for Accountants ("IESBA Code") adopted by resolution of the National Council of Certified Auditors, as well as with other ethical requirements relevant to the audit of financial statements in Poland. We have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. During the audit, the auditor in charge and the audit firm remained independent of the Company in accordance with the independence requirements laid down in the Certified Auditors Act and Regulation EU. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of the most significance in the audit of the financial statements for the current reporting period. They include the most significant assessed types of risks of material misstatements, including assessed types of risks of material misstatements resulting from fraud. We addressed these matters in the context of our audit of the financial statements as a whole and in forming our opinion thereon, and have summarized our response to these types of risks, and where relevant, presented our key observations relating to those risks. We do not express a separate opinion on these matters. 1 Impairment of investments in subsidiaries In its financial statements prepared as at 31 December 2022 the Company presented an involvement in subsidiaries in the form of interests, shares and loans, totaling PLN 4 288 423 thousand, or 81% of total assets. In accordance with the accounting policy adopted by the Company, interests and shares in subsidiaries and associates are measured at acquisition cost less impairment losses, whereas loans are stated at nominal value plus the value of interest, less any impairment losses, due to the small difference to measurement at amortized cost. The estimates involved in impairment testing of investments in subsidiaries are highly dependent on judgments regarding future events, and thus carry a significant risk of changes due to fluctuating market conditions. Because of inherent uncertainty with regard to the future realization of significant assumptions, as well as the materiality of these assets, we have classified the impairment analysis of investments in subsidiaries as a key audit matter. Disclosures in the financial statements Presented in notes 5.4 and 5.7 Audit procedures performed in response to the risk Our audit procedures in response to the described key audit matter included: − assessing the consistency of the Company’s accounting policy on the measurement of investments in subsidiaries with the methods arising out of relevant financial reporting standards; − identifying, obtaining an understanding of and evaluating the process of impairment testing of investments in subsidiaries and of the relevant internal controls; 3 − analyzing the financial statements of subsidiaries, including their financial results, comparing the net investment values in the Company’s books of account to the net asset values of the subsidiaries for indications of impairment; − evaluating the Management’s analysis of indications of impairment of investments in subsidiaries; − with the support of our valuation experts, evaluating the Management’s assumptions and estimates used in discounted cash flow models, including: analyzing the assumptions and reasonableness of business projections used in future cash flows, analyzing the reasonableness of key macroeconomic assumptions, assessing the continuity of application and reasonableness of the methodology applied to the models used to determine cash flows and residual values, analyzing the correctness of discount rate calculations and the consistency of those calculations with generally available information; − verifying the realization of budgets prepared in prior years; − evaluating the Management’s analysis of subsequent events on prudent valuation; − evaluating the adequacy of disclosures relating to impairment testing of investments in subsidiaries. 2 Inherent uncertainty associated with tax settlements In the audited period the Company was a party to tax audits and court proceedings with the tax authorities regarding corporate income tax. In accordance with the Company’s accounting policy, provisions for possible future tax liabilities resulting from tax audits are formed when the likelihood that tax will be paid is high. In addition, considered to be contingent liabilities are those obligations that arose from past events, but have not been recognized in the consolidated 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 the obligation cannot be measured with sufficient reliability. Ongoing proceedings require the Management to exercise judgment and assess the risk associated with recognizing income tax liabilities and tax provisions in the financial statements, or disclosing the related contingent liabilities. Because of material uncertainty associated with the existence of the present obligation at the end of the reporting period, we have classified the Company’s tax settlements as a key audit matter. Disclosures in the financial statements Presented in notes 7.6 and 9.2. Additionally in note 4.3 the existence of an inherent uncertainty related to taxes in connection with the General Anti-Avoidance Rules (GAAR) was described. Audit procedures performed in response to the risk Our audit procedures in response to the described key audit matter included: − assessing the consistency of the Company’s accounting policy on the recognition of receivables, income tax liabilities, provisions and contingent liabilities with the methods arising out of relevant financial reporting standards; − identifying, obtaining an understanding of and evaluating the process of assessing risk and making decisions regarding the recognition of tax provisions in the financial statements, and of the relevant internal controls; − analyzing documentation on ongoing tax cases and proceedings; − evaluating the judgement and assumptions adopted by the Management in assessing the risk associated with ongoing tax proceedings; − with the support of our tax experts, analyzing existing rulings in similar cases; − evaluating the Management’s documentation of subsequent events with respect to ongoing tax proceedings; 4 − verifying the amount of income tax provisions and liabilities and evaluating the adequacy of disclosures relating to ongoing tax proceedings 3 Fair value measurement of derivative instruments In its financial statements prepared as at 31 December 2022 the Company presented assets and liabilities on the measurement of derivative instruments, amounting to PLN 112 392 thousand and PLN 86 207 thousand respectively. In accordance with the accounting policy adopted by the Company, derivative instruments are measured at fair value by applying financial instrument valuation models using generally available interest rates and currency exchange rates. The estimates involved in determining the fair value of derivative instruments have a high degree of complexity and as such are subject to an increased risk of uncertainty. Due to the high volume of transactions and the increased risk of uncertainty associated with significant judgements, we have classified the measurement of derivative instruments as a key audit matter. Disclosures in the financial statements Presented in notes 8.1 and 8.4 Audit procedures performed in response to the risk Our audit procedures in response to the described key audit matter included: − assessing the consistency of the Company’s accounting policy on the measurement of derivative instruments with the methods arising out of relevant financial reporting standards; − identifying, obtaining an understanding of and evaluating the process of measuring derivative instruments and of the relevant internal controls; − analyzing the measurements performed by the Company; − with the support of our valuation experts, assessing the assumptions and estimates used by the Management in financial instrument measurement models, including: analyzing the assumptions relating to the sources of market data feeding the measurement models, assessing the continuity of application and reasonableness of the methodology applied to the models; − evaluating the adequacy of disclosures relating to derivative instruments. Other Matters – scope of the audit The Company’s financial statements for the financial year ended 31 December 2021 have been audited by an engagement partner acting on behalf of another audit firm, who expressed an unmodified opinion on the financial statements on 29 March 2022. Responsibilities of the Company’s Management and Supervisory Board for the Financial Statements The Company’s Management is responsible for the preparation, based on properly kept books of account, of the financial statements that give a true and fair view of the Company’s financial position and financial result in accordance with International Financial Reporting Standards as adopted by the European Union, the adopted accounting methods (policies), the applicable binding regulations and the Company’s Statute. The Company’s Management is also responsible for such internal controls as it considers necessary to ensure that the financial statements are free from material misstatements resulting from fraud or error. 5 In preparing the financial statements the Management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, any matters related to going concern and using the going concern basis of accounting, except in situations where the Management intends to either liquidate the Company or discontinue its operations, or has no realistic alternative but to do so. The Company’s Management and members of its Supervisory Board are required to ensure that the financial statements meet the requirements of the Accounting Act. Members of the Supervisory Board are responsible for overseeing the Company’s financial reporting process. Responsibilities of the Auditor for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatements due to fraud or error, and to issue an independent auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but it is not a guarantee that an audit conducted in accordance with NSA will always detect an existing material misstatement. Misstatements can arise from fraud or error and are considered material if it could be reasonably expected that they, individually or in the aggregate, could influence the economic decisions of users made on the basis of these financial statements. The concept of materiality is applied by the auditor at the planning stage and when performing the audit and evaluating the effect of identified misstatements on the audit and of uncorrected misstatements, if any, on the financial statements, as well as when formulating the auditor’s opinion. In view of the above, all of the opinions and statements contained in the auditor’s report are expressed subject to the qualitative and quantitative level of materiality set in accordance with the applicable standards on auditing and the auditor’s professional judgement. The scope of the audit does not include an assurance regarding the Company’s future profitability, or regarding the Management’s effectiveness in the handling of the Company’s affairs now or in the future. Throughout an audit in accordance with NSA, we exercise professional judgement and maintain professional skepticism, as well as: − identify and assess the risks of a material misstatement of the financial statements resulting from fraud or error, design and perform audit procedures in response to such risks and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than the risk of not detecting a material misstatement resulting from error, because fraud may involve collusion, forgery, deliberate omission, misrepresentation or override of internal controls; − obtain an understanding of the internal controls relevant to the audit in order to plan our audit procedures, but not to express an opinion on the effectiveness of the Company’s internal controls; − evaluate the appropriateness of the accounting policies used and the reasonableness of the estimates and related disclosures made by the Company’s Management; − conclude on the appropriateness of the Management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s 6 report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern; − evaluate the overall presentation, structure and contents of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We provide the Supervisory Board with information about, among others, the planned scope and timing of the audit and significant audit findings, including any significant weaknesses of internal controls that we identify during our audit. We provide the Supervisory Board with a statement that we have complied with the relevant ethical requirements relating to independence, and that we will communicate to them all relationships and other matters that may reasonably be considered to constitute a threat to our independence, and where applicable, inform them of the related safety measures. From the matters communicated to the Supervisory Board we determined those matters that were of the most significance to the audit of the financial statements for the current reporting period and were therefore chosen as key audit matters. We describe these matters in our auditor’s report, unless law or regulations prohibit their public disclosure or when, in exceptional cases, we find that a given matter should not be presented in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such information. Other Information, Including Report on Activities In accordance with the provisions of Article 55 par. 2a of the Accounting Act and par. 71 point 8 of the Minister’s of Finance Decree of 29 March 2018 on the current and periodic information submitted by issuers of securities and on the conditions for recognizing as equally valid the information required by the regulations of a state that is not a member state (2018 Journal of Laws, item 757 with subsequent amendments), the Company’s Management prepared as a single document the Management’s Report on the Activities of the Company and the CIECH Group for the financial year ended 31 December 2022 (“Report on Activities”), along with a Statement on Corporate Governance, which constitutes a separate section of the Report, which we addressed in the auditor’s report on the consolidated financial statements of the CIECH Group. In the Report on Activities the Company included information on the preparation of the Statement on Non-Financial Information of the CIECH Group for the year 2022 as a single document referred to in Article 49b par. 9 of the Accounting Act. The other information also includes a letter from the President of the Company’s Management Board, the Management Board’s statement, which we obtained prior to the date of this auditor’s report, as well as the Supervisory Board statements and the Management Board’s information on auditor appointment we expect to be made available to us after the date of this auditor’s report. 7 Responsibilities of the Company’s Management and Supervisory Board The Company’s Management is responsible for the preparation of Other Information in accordance with binding regulations. The Company’s Management and members of its Supervisory Board are required to ensure that the Report on Activities along with its separate sections meets the requirements of the Accounting Act. Responsibilities of the Auditor Our opinion on the financial statements does not cover Other Information. In connection with our audit of the financial statements, our responsibility is to read Other Information and, in doing so, consider whether it is materially inconsistent with the financial statements or with our knowledge obtained during the audit, or otherwise appears to be materially misstated. If based on the work we have performed, we find a material misstatement of Other Information, we are required to state this fact in our auditor’s report. In accordance with the requirements of the Certified Auditors Act, it is also our responsibility to issue an opinion whether the Report on Activities has been prepared in accordance with binding regulations, and whether it is consistent with the information presented in the financial statements. We are also required to report whether the Company has prepared a Statement on Non-financial Information and to issue an opinion whether the Statement on the Application of Corporate Governance contains the required information. We received the Report on Activities prior to the issue of the present auditor’s report, whereas the Annual Report will be available after this date. In the event that we find a material misstatement in the Annual Report, we are required to communicate this to the Company’s Supervisory Board. Opinion on the Report on Activities Based on the work we have performed during the audit, in our opinion the Report on Activities: − has been prepared in accordance with Article 49 of the Accounting Act and par. 70 of the Minister’s of Finance Decree of 29 March 2018 on the current and periodic information reported by the issuers of securities and on the conditions for recognizing as equally valid the information required by the regulations of a state that is not a member state (the “Current Information Decree” – 2018 Journal of Laws, item 757 with subsequent amendments); − is consistent with the information presented in the financial statements. Furthermore, based on our knowledge obtained during the audit about the Company and its environment we have identified no material misstatements in the Report on Activities. Opinion on the Statement on the Application of Corporate Governance In our opinion, the Company’s Statement on the Application of Corporate Governance contains the information specified in paragraph 70 section 6 point 5 of the Current Information Decree. In addition, in our opinion, the information indicated in paragraph 70 section 6 point 5 letters 8 c-f, h and i of the Decree contained in the Statement on the Application of Corporate Governance is consistent with the applicable regulations and with the information contained in the financial statements. Information on Non-financial Information In accordance with the requirements of the Certified Auditors Act we confirm that the Company has prepared a Statement on Non-financial Information referred to in Article 49b par. 1 of the Accounting Act as a separate section of the Report on Activities. We have performed no assurance work on the Statement on Non-financial Information and, accordingly, do not express any assurance thereon. Report on Other Legal and Regulatory Requirements Declaration on the Provision of Non-audit Services To the best of our knowledge and belief we declare that any non-audit services we have provided to the Company and its subsidiaries were consistent with the law and the regulations binding and Poland and that we have not provided any non-audit services prohibited by virtue of Article 5 par. 1 of Regulation EU and Article 136 of the Certified Auditors Act. The non-audit services we have provided to the Company and its subsidiaries in the audited period are listed in note 7.16 to the Report on Activities. Appointment of the Auditor We were appointed as auditors of the Company’s financial statements in a resolution passed by the Company’s Supervisory Board on 10 January 2022. We have audited the Company’s financial statements for the first time. The auditor in charge of the audit resulting in this independent auditor’s report is Dr. Anna Bernaziuk. BDO spółka z ograniczoną odpowiedzialnością sp.k. with its registered office in Warsaw entered on the list of audit firms in number 3355 on behalf of which the audit was performed by the auditor in charge Signed with a qualified electronic signature Dr. Anna Bernaziuk Certified Auditor Registration No. 173 Warsaw, 23 March 2023