ZE PAK : Report of audit firm on the audit of the annual consolidated financial statements of ZE PAK SA Capital Group for 2022 (download)

TRANSLATORS' EXPLANATORY NOTE

The English content of this report is a free translation of the registered auditor's report of the below- mentioned Polish Company. In Poland statutory accounts as well as the auditor's report should be prepared and presented in Polish and in accordance with Polish legislation and the accounting principles and practices generally adopted in Poland.

The accompanying translation has not been reclassified or adjusted in any way to conform to the accounting principles generally accepted in countries other than Poland, but certain terminology current in Anglo-Saxon countries has been adopted to the extent practicable. In the event of any discrepancies in interpreting the terminology, the Polish language version is binding.

Independent Registered Auditor's Report

To the Shareholders' Meeting and the Supervisory Board of ZE PAK S.A.

Report on the audit of consolidated financial statements

Our opinion

In our opinion, section of our report, the accompanying annual consolidated financial statements:

• give a true and fair view of the consolidated financial position of the group ZE PAK S.A. (the "Group"), in which ZE PAK S.A. is the parent entity (the "Parent Company") as at 31 December 2022 and the Group's consolidated financial performance and the consolidated cash flows for the year then ended in accordance with the applicable International Financial Reporting Standards as adopted by the European Union and the adopted accounting policies;
• comply in terms of form and content with the laws applicable to the Group and the Parent Company's Articles of Association.

Our opinion is consistent with our additional report to the Audit Committee issued on the date of this report.

What we have audited

We have audited the annual consolidated financial statements of the Group ZE PAK S.A. which comprise:

• the consolidated statement of financial position as at 31 December 2022;

and the following prepared for the financial year from 1 January to 31 December 2022:

• the consolidated income statement;
• the consolidated statement of comprehensive income;
• the consolidated statement of changes in equity;
• the consolidated statement of cash flows, and
• the notes comprising a description of the significant adopted accounting policies and other explanations notes.

Basis for opinion

We conducted our audit in accordance with the National Standards on Auditing in the wording of the International Standards on Auditing as adopted by the resolution of the National Council of Statutory Auditors ("NSA") and pursuant to the Law of 11 May 2017 on Registered Auditors, Registered Audit Companies and Public Oversight (the "Law on Registered Auditors") and the Regulation (EU) No.

537/2014 of 16 April 2014 on specific requirements regarding the statutory audit of public-interest entities (the "EU Regulation"). Our responsibilities under NSA are further described in the Auditor's responsibilities for the audit of the consolidated financial statements section of our report.

PricewaterhouseCoopers Polska spółka z ograniczoną odpowiedzialnością Audyt sp. k., ul. Polna 11, 00-633 Warsaw, Poland, T: [phone], F:[phone] , www.pwc.pl

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

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

Independence

We are independent of the Group in accordance with the International Code of Ethics for Professional Accountants (including International Independence Standards) issued by the International Ethics Standards Board for Accountants (IESBA Code) as adopted by resolution of the National Council of Statutory Auditors and other ethical requirements that are relevant to our audit of the consolidated financial statements in Poland. We have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. During the audit, the key registered auditor and the registered audit firm remained independent of the Group in accordance with the independence requirements set out in the Law on Registered Auditors and in the EU Regulation.

Our audit approach

Overview

Materiality

Group scoping

Key audit

matters

• The overall materiality threshold adopted for the purposes of our audit was set at PLN 37,7 million, which represents 0,9% of the consolidated revenues.
• We have audited the Parent Company and 2 subsidiaries and selected balances of selected subsidiaries.
• The scope of our audit covered 98% of the Group's revenue and 85% of the sum of total assets of all the consolidated Group companies before consolidation eliminations.
• Impairment of fixed tangible assets
• Provisions for recultivations

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

We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the consolidated financial statements as a whole, taking into account the structure of the Group, the accounting processes and controls, and the industry in which the Group operates.

Materiality

The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements.

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

Overall Group materiality	PLN 37,7 million
How we determined it	0.9% of consolidated revenue
Rationale for the	We chose consolidated revenue as the benchmark because, in our
materiality benchmark	view this measure best reflects Group's operations, and is free from
applied	fluctuations in market prices of cost components, which have had a
	significant impact on the Group's profitability in recent years. We have
	adopted materiality at 0.9% because, based on our professional
	judgment, it falls within the acceptable quantitative materiality
	thresholds.

We agreed with the Audit Committee of the Parent Company that we would report to them misstatements of the consolidated financial statements identified during our audit above PLN 3.7 million except for misstatements related to classification (presentation) and disclosures for which the level of PLN 37.7 million was adopted, as well as misstatements below this amount, if in our opinion it would be justified due to qualitative factors.

3

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. They include the most significant identified risks of material misstatements, including the identified risks of material misstatement resulting from fraud. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon. We do not provide a separate opinion on these matters.

		Key audit matter		How our audit addressed the key audit matter

Impairment of tangible fixed assets

Pursuant to the IAS 36 Impairment of assets, the Management Board of the Company Parent at the end of the reporting period conducts an analysis of indications of impairment, and for assets with indications of impairment or reduction of a previously recognized impairment loss tests are carried out for impairment on a given reporting date.

The value of tangible fixed assets as at 31 December 2022 amounted to PLN 1,727 million. In Note 20.1 to the consolidated financial statements, the Group presented the required analysis of the premises to perform impairment tests as at 31 December 2022 for identifiable cash-generating units (CGUs). The analysis showed no need to perform impairment tests as at the balance sheet date. There were also no indications for reversing impairment losses recognized in previous reporting periods.

Bearing in mind the significance of the items in the consolidated financial statements, as well as due to the complexity of the regulatory environment, this issue was the subject of our analysis and was a key audit matter.

Our procedures included in particular:

• assessment of compliance of the Group's accounting policy with respect to fixed tangible assets with the relevant financial reporting standards;
• understanding and evaluating the process of identifying impairment indicators of assets and the correctness of grouping assets into cash-generating units in accordance with the relevant financial reporting standards;
• assessment of the sensitivity analysis on the assumptions made by the Management Board of the Parent Company, which may affect the identification of impairment premises;
• assessment the correctness and completeness of disclosures in the consolidated financial statements.

4

Provision for decommissioning costs

Due to the type of its activity, the Group is required to recognize provisions specific to the activity of power generation industry. These include, inter alia, provisions for the costs of fixed assets liquidation and provisions for decommissioning costs of land used in connection with the conducted activity, including ash landfill. As at 31 December 2022, these provisions totaled PLN 431 million.

The issue of estimating the provision for decommissioning costs and other costs related to the conducted activity is a key audit issue due to the value of the provisions, which is material from the point of view of the consolidated financial statements. Additionally, estimates of future costs require professional judgment and the adoption of significant assumptions regarding carrying out decommissioning works, the time of their implementation, the amount of expected costs and discount rates. When determining the amount of the provisions, the services of external independent experts were used.

Accounting policy, details of the assumptions made and calculations of a significant estimate and other significant information regarding provisions for liabilities are included in Notes 5.3,

12.24 and 32.2 to the consolidated financial statements. Considering the materiality of the items in the financial statements, this issue was the subject of our analyzes and was a key audit matter.

In order to address the identified risk, we obtained detailed knowledge of the processes related to estimating provisions for liabilities, the adopted assumptions and the accounting policies applied in this area.

Our procedures also included:

• evaluating assumptions adopted by the Group for the calculation of the provision, correctness of input data used in the calculation (including the completeness of the components of fixed assets that will be liquidated or recultivated) and the applied discount rate (with the use of internal PwC specialists);
• verification of the mathematical correctness of the provisions calculation, as well as the correctness of the depreciation of assets related to future liquidation costs and the discount settlement;
• assessment of the independence and competence of an external expert, in particular considering whether he has the appropriate knowledge, experience and database to reliably estimate the amount of future costs of decommissioning a mining plant and land reclamation;
• assessment of the correctness and completeness of disclosures in the consolidated financial statements.

Responsibility of the Management and Supervisory Board for the consolidated financial statements

The Management Board of the Parent Company is responsible for the preparation, of the annual consolidated financial statements that give a true and fair view of the Group's financial position and results of operations, in accordance with International Financial Reporting Standards as adopted by the European Union, the adopted accounting policies, the applicable laws and the Parent Company's

5