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.
PricewaterhouseCoopers Polska spółka z ograniczoną odpowiedzialnością Audyt sp.k., Andersia Business Center, Plac Andersa 7,
61-894 Poznań, Polska, T: +48 (61) 851 1500, F: +48 (61) 851 1501, www.pwc.com
PricewaterhouseCoopers Polska spółka z ograniczoną odpowiedzialnością Audyt sp.k., entered in the National Court Register maintained by the District Court for the Capital City of Warsaw under entry number KRS 0000750050, Tax Identification Number 526-021-02-28. The company’s registered office is at ul.Polna 11, Warsaw, Poland.
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Independent Registered Auditor’s Report
To the General Shareholders’ Meeting and the Supervisory Board of ENEA S.A.
Report on the audit of consolidated financial statements
Our opinion
In our opinion, the accompanying annual consolidated financial statements:
give a true and fair view of the consolidated financial position of the group ENEA S.A (the “Group”), in which ENEA S.A is the parent entity (the “Parent Company”) as at 31 December 2021 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 ENEA S.A. which comprise:
the consolidated statement of financial position as at 31 December 2021;
and the following prepared for the financial year from 1 January to 31 December 2021:
the consolidated statement of comprehensive income;
the consolidated statement of changes in equity;
the consolidated statement of cash flows, and
the additional information and explanations, including a description of the adopted accounting policies and other explanatory notes.
Basis for opinion
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.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
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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 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 Act on Registered Auditors and in the EU Regulation.
Our audit approach
Overview
The overall materiality threshold for the audit was set at PLN 85 million which represents 2.5% of EBITDA (determined at the audit planning stage), as defined in the ‘Operating segments’ note
We have audited the Parent Company and 22 subsidiaries in Poland.
Our audit covered 94% of the Group’s revenue and 96% of the value of total assets of all consolidated Group companies before consolidation eliminations.
Impairment of non-current assets
Claims for non-contractual use of land
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.
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Materiality
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Group scoping
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Key audit matters
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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 operated.
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 85 million
How we determined it
2.5% of EBITDA (determined at the planning stage)
Rationale for the materiality benchmark applied
We used EBITDA as the basis for determining materiality, because we believe that this measure is commonly used to assess the Group’s performance by users of the financial statements and is a generally accepted benchmark. The use of EBITDA to determine materiality does not imply our confirmation that this measure is appropriate for making economic decisions or confirmation that it has been determined in a correct manner. We adopted a 2,5% materiality threshold, because, based on our professional judgement, it lies within the range of acceptable quantitative materiality thresholds.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above PLN 8.5 million, as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the 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.
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Key audit matter
How our audit addressed the key audit matter
Impairment of non-current assets
In the Note "Impairment of non-financial assets" to the consolidated financial statements, the Group presented the disclosures concerning impairment tests of cash-generating units (CGUs) in the area of energy generation by type of generation sources and in mining operations. The Group disclosed test results, assumptions used to calculate the value in use and an analysis of sensitivity of the calculations to a reasonably possible change in the key assumptions used in the calculation of the recoverable amount.
As at 31 December 2021, the carrying amount of the cash-generating units tested for impairment was PLN 10 005 million, which accounts for 29% of the Group's total assets and comprises property, plant and equipment and net working capital allocated to the units. In 2021, following the impairment tests, an impairment loss of PLN 26 million was recognised.
At the end of the reporting period, in accordance with IAS 36 “Impairment of Assets”, the Parent Company’s Management Board analyses the indicators of impairment, and for assets for which there are indicators of impairment or a decrease in previously recognised impairment loss, impairment tests are carried out as at the reporting date.
Calculation of the recoverable amount involves a number of assumptions and judgements to be made by the Management Board of the Parent Company, including the Group's strategy, financial plans and cash flow projections for subsequent years, as well as macroeconomic and market assumptions (mainly concerning – for the generation area – electricity prices, fuel prices, prices of CO 2 emission allowances, the support system for renewable energy sources and the power market, and for the mining activity – primarily the level of production and coal prices). The assumptions adopted for the impairment tests of non-current assets did not include the concept of separating from the Group the assets related to the generation of electricity in conventional coal-fired units and their integration within the National Agency for Energy Safety, described in note 48 of additional information and explanations to the consolidated financial statements.
Our procedures included, without limitation, the following:
understanding and assessing the process of identifying evidence of impairment of assets and the correctness of grouping assets into cash-generating units in accordance with relevant financial reporting standards;
verifying the mathematical correctness and methodological consistency (using internal valuation specialists from PwC) of the valuation model based on discounted cash flows developed by the Parent Company's Management Board;
critical assessment of assumptions and estimates made by the Parent Company's Management Board to determine the recoverable amount of non-current assets, including but not limited to:
- the period of future cash flow projections and the level of revenues, operating margin and expenditures necessary to maintain operations in the unchanged scope assumed therein,
- the discount rate applied (based on the weighted average cost of capital),
- the marginal growth rate after the projection period if such rate was used in the calculation of the recoverable amount;
assessing the analysis of sensitivity of assumptions that may affect the valuation result, carried out by the Management Board;
assessing the accuracy and completeness and disclosures in the consolidated financial statements.
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Considering the materiality of these items in the consolidated financial statements, as well as the sensitivity of the results of the aforementioned test to the assumptions made, we have conducted an extensive analysis of this matter.
Claims for non-contractual use of land
Notes 33 and 43.4 to the consolidated financial statements presented disclosures regarding the claims for the Group’s non-contractual use of land owned by third parties.
Due to the fact that the Group does not hold the legal title to use the land for all facilities where power lines and other network assets are located, the Group recognises provisions for outstanding claims for non-contractual use of land.
The Group estimated the provision for compensation both for the land for which the claim was made and for those for which the claim has not yet been raised on the basis of an assessment of the likelihood of further claims in the entire population of cases of non-contractual use of the land.
As at 31 December 2021, the provision for claims for non-contractual use of land amounts to PLN 214 million. The provision decreased by PLN 26 million compared to the balance as at 31 December 2020.
Considering the materiality of this item in the consolidated financial statements, as well as the inherent risk of uncertainty in determining the amount of the provision, we have conducted an extensive analysis of this matter.
Our procedures included, without limitation, the following:
understanding and assessing the conformity of the Group's accounting policy as regards the recognition of provisions for claims for non-contractual use of land with the respective financial reporting standards and learning about the applicable laws and market practice;
analysing letters received independently from lawyers providing services to the Group in disputable cases in terms of:
- correct and complete recognition of the amount of claims raised in the models used by the Group to calculate the provision, and
- the legal assessment of the likelihood of their settlement unfavourable to the Group,
Selected issues in this respect have been discussed with the management boards of the Group companies to whom the claims relate;
based on an analysis of a selected sample of the claims submitted, including in particular the course of the pending court proceedings, a critical assessment of the Group's assumptions and estimates (including the likelihood of a negative outcome) in relation to the recognised provision for claims for non-contractual use of land;
analysis of the methodology for calculating the provision for claims not submitted to the Group, including assumptions as to the probability of further claims in the entire population of cases of non-contractual use of land, and an assessment of the consistency of the assumptions with those made in previous years,
assessing the accuracy and completeness and disclosures in the consolidated financial statements.
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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 Articles of Association, and for such internal control as the Management Board determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the Parent Company’s Management Board is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Management Board either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
The Parent Company’s Management Board and members of the Supervisory Board are obliged to ensure that the consolidated financial statements comply with the requirements specified in the Accounting Act of 29 September 1994 (“the Accounting Act”).
Members of the Supervisory Board are responsible for overseeing the financial reporting process.
Auditor’s responsibility for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the NSA will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence economic decisions of users taken on the basis of these consolidated financial statements.
The scope of the audit does not include an assurance on the Group’s future profitability nor the efficiency and effectiveness of the Parent Company’s Management Board conducting its affairs, now or in future.
As part of an audit in accordance with NSA, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Parent Company’s Management Board.
Conclude on the appropriateness of the Parent Company’s Management Board’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated
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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 Group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.
We communicate with the Audit Committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide the Audit Committee with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied
From the matters communicated to the Audit Committee, we determine 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 operations
Other information
Other information comprises a Report on the Parent Company’s and Group’s operations for the financial year ended 31 December 2021 (“the Report on the operations”) and the corporate governance statement and the statement on non-financial information referred to in Article 55(2b) of the Accounting Act which are separate parts of the Report on the operations, and the Annual Report for the financial year ended 31 December 2021 (“the Annual Report”) (together “Other Information”). Other information does not include the financial statements and our auditor’s report thereon.
Responsibility of the Management and Supervisory Board
The Management Board of the Parent Company is responsible for the preparation of the Other Information in accordance with the law.
The Parent Company’s Management Board and the members of the Supervisory Board are obliged to ensure that the Report on the operations of the Group including its separate parts complies with the requirements of the Accounting Act.
Registered auditor’s responsibility
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 information in the consolidated financial statements, our knowledge obtained in our audit, or otherwise appears to be materially misstated. If, based on the work performed, we identified a material misstatement in the Other Information, we are obliged to inform about it in our audit report.
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In accordance with the requirements of the Law on the Registered Auditors, we are also obliged to issue an opinion on whether the Report on the operations has been prepared in accordance with the law and is consistent with information included in annual consolidated financial statements.
Moreover, we are obliged to issue an opinion on whether the Parent Company provided the required information in its corporate governance statement and to inform whether the Parent Company prepared a statement on non-financial information.
If we identify a material misstatement in the Annual Report, we are obliged to inform the Parent Company’s Supervisory Board of this fact.
Opinion on the Report on the operations
Based on the work we carried out during our audit, in our opinion, the Report on the operations of the Group:
has been prepared in accordance with the requirements of Article 49 of the Accounting Act and para. 71 of the Regulation of the Minister of Finance dated 29 March 2018 on current and periodical information submitted by issuers of securities and conditions for considering as equivalent the information required under the legislation of a non-Member State (“Regulation on current information”);
is consistent with the information in the consolidated financial statements.
Moreover, based on the knowledge of the Group and its environment obtained during our audit, we have not identified any material misstatements in the Report on the operations of the Group and the remaining Other information.
Opinion on the corporate governance statement
In our opinion, in its corporate governance statement, the Group included information set out in para. 70.6 (5) of the Regulation on current information. In addition, in our opinion, information specified in paragraph 70.6 (5)(c)–(f), (h) and (i) of the said Regulation included in the corporate governance statement are consistent with the applicable provisions of the law and with information included in the consolidated financial statements.
Information on non-financial information
In accordance with the requirements of the Act on the Registered Auditors, we confirm that the Group has prepared a statement on non-financial information referred to in Article 55(2b) of the Accounting Act as a separate section of the Report on the operations.
We have not performed any assurance work relating to the statement on non-financial information and we do not provide any assurance with regard to it.
Report on other legal and regulatory requirements
Report on the compliance of the marking up of consolidated financial statements with the requirements of the European Single Electronic Format (“ESEF”)
In connection with the audit of consolidated financial statements we have been engaged by the Parent Company’s Management Board as part of our audit engagement letter to conduct a reasonable assurance engagement to express an opinion whether the consolidated financial statements of the Group as at and for the year ended 31 December 2021 prepared in the single electronic format contained in the file named enea-2021-12-31-pl.zip (the “consolidated financial statements in the ESEF format“) was marked up in accordance with the requirements in the article 4 of the 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”).
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Description of a subject matter and applicable criteria
The consolidated financial statements were prepared in the ESEF format by the Parent Company’s Management Board to comply with the technical requirements regarding the specification of a single electronic reporting format and marking up, which are set out in the ESEF Regulation.
The subject matter of our assurance engagement is the compliance of the consolidated financial statements in the ESEF format with the requirements of the ESEF Regulation and the requirements of this regulation, in our view, constitute appropriate criteria to form a reasonable assurance conclusion.
Responsibility of the Management Board of the Parent Company and the Supervisory Board
The Parent Company’s Management Board is responsible for the preparation of the consolidated financial statements in the ESEF format in accordance with the technical requirements regarding the specification of a single electronic reporting format which are set out in the ESEF Regulation. This responsibility includes the selection and application of appropriate markups in iXBRL using taxonomy specified in the ESEF Regulation. The responsibility of the Management Board includes also designing, implementing and maintaining internal controls relevant for the preparation of the consolidated financial statements in the ESEF format which are free from material non-compliance with the requirements of the ESEF Regulation and their marking-up in compliance with these requirements .
Members of the Parent Company’s Supervisory Board are responsible for overseeing the financial reporting process, which includes also the preparation of the consolidated financial statements in accordance with the format compliant with legal requirements.
Our responsibility
Our objective was to express an opinion, based on the conducted reasonable assurance engagement, whether the consolidated financial statements prepared in the ESEF format were marked up, in all material respects, with the requirements of the ESEF Regulation.
We conducted our engagement in accordance with the National Standard on Assurance Engagements other than Audit and Review 3001 - audit of financial statements prepared in the single electronic reporting format (“KSUA 3001pl”) and where relevant with the National Standard on Assurance Engagements 3000 (R) in the wording of the International Standard on Assurance Services 3000 (Revised) - ‘Assurance Engagements other than Audits and Reviews of Historical Financial Information’ as issued by the National Council of Statutory Auditors (KSUA 3000(R)). These standards require that we comply with ethical requirements, plan and perform procedures to obtain reasonable assurance whether the consolidated financial statements in the ESEF format were marked up, in all material aspects, in compliance with the specified criteria.
Reasonable assurance is a high level of assurance, but it does not guarantee that the service performed in accordance with KSUA 3001pl and KSUA 3000 (R) will always detect the existing material misstatement (significant non-compliance with the requirements).
The selection of the procedures depend on the auditor's judgement, including the auditor's assessment of the risk of material misstatements, whether due to fraud or error. In performing the assessments of this risk, the auditor shall consider the internal control related to the preparation of the consolidated financial statements in the ESEF format and its marking-up in order to plan appropriate procedures to provide the auditor with sufficient evidence appropriate to the circumstances. The assessment of the functioning of the internal control system was not carried out in order to express an opinion on the effectiveness of its operation.
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Quality control and ethical requirements
We apply the provisions of the regulation of the National Council of Statutory Auditors with regard to internal quality control in the wording of International Standard on Quality Control 1 and accordingly maintain a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements.
We comply with the independence and other ethical requirements of the International Code of Ethics for Professional Accountants (including International Independence Standards) issued by the International Ethics Standards Board for Accountants as adopted by resolution of the National Council of Statutory Auditors, which is founded on fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour.
Summary of the work performed
Our planned and performed procedures were aimed at obtaining reasonable assurance whether the consolidated financial statements in the ESEF format were marked-up, in all material aspects, in compliance with the applicable requirements. Our procedures included in particular:
obtaining an understanding of the process of preparation of the consolidated financial statements in the ESEF format, including the process of selection and application by the Group of the XBRL tags and ensuring the compliance with the ESEF Regulation, including understanding the mechanism of the internal control system related to this process;
reconciliation, on a selected sample, of the marked-up information contained in the consolidated financial statements in the ESEF format to the audited consolidated financial statements;
evaluating compliance with the technical standards regarding the specification of a single electronic reporting format, including the use of XHTML;
evaluating the completeness of marking up the consolidated financial statements in the ESEF format using the iXBRL tags;
evaluating the appropriateness of the use of XBRL tags selected from the ESEF taxonomy and whether the extension markups were used appropriately where no suitable element in the ESEF taxonomy has been identified;
evaluating the appropriateness of anchoring of the extension elements to the ESEF taxonomy from the ESEF regulation.
We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our conclusion.
Conclusion
In our opinion, based on the procedures performed, the consolidated financial statements in the ESEF format were marked-up, in all material respects, in compliance with the requirements of the ESEF Regulation.
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Statement on the provision of non-audit services
To the best of our knowledge and belief, we declare that the non-audit services we have provided to the Parent Company and its subsidiaries are in accordance with the applicable laws and regulations in Poland and that we have not provided any non-audit services prohibited under Article 5(1) of the EU regulation and Article 136 of the Law on Registered Auditors.
The non-audit services which we have provided to the Parent Company and its subsidiaries during the audited period are disclosed in the Report on the Parent Company’s and Group’s operations.
Appointment
We were first appointed to audit the annual consolidated financial statements of the Group by resolution of the Supervisory Board dated 19 December 2017 and re-appointed by resolution dated 28 January 2021. We have been auditing the Group’s financial statements without interruption since the financial year ended 31 December 2018, i.e. for four consecutive years.
The Key Registered Auditor responsible for the audit on behalf of PricewaterhouseCoopers Polska spółka z ograniczoną odpowiedzialnością Audyt sp.k., a company entered on the list of Registered Audit Companies with the number 144., is Borys Malinowski:
Borys Malinowski
Key Registered Auditor
No. 12798
Poznań, 23 march 2022