Annual Report for FY2023- restated
COAL ENERGY S.A., ANNUAL REPORT FY2023 Content_____________________________________________________________________ Page CEO letter 3 Business overview 4 Financial overview 6 Corporate governance 10 Consolidated financial statements 20 2
COAL ENERGY S.A., ANNUAL REPORT FY2023 Dear Shareholders, Herewith we are presenting our restated unaudited consolidated financial report for FY2023 and 4Q FY2023, ended 30 th June 2023. This was the second year of full-scale military invasion of Russia, massive artillery shelling and rocket attacks, occupation of certain regions of Ukraine and significant civilian casualties. In the midst of on-going military actions, disruptions of supply chains, infrastructure damage and challenges related to ensuring the safety of workers operations within the Company’s business became notably complicated. Taking into account the impossibility of conducting mining activities in mines located directly in the war zone, the company's Management Board in decided to transfer most of the operational activities to European Union countries. Transferring part of the activities to the European Union, using the knowledge and competences of the management staff in the search for and extraction of minerals other than coal are the most important elements of the new strategy. In line with this strategy further in 2024FY the Company has acquired three assets: LLC UKRMINERAL TRADING (Ukraine), ADVANCED INDUSTRIAL TECHNOLOGIES Sp. z o.o. (Poland) and GREENTECH SOLUTIONS Sp. z o.o. (Poland). By the end of 2022 calendar year the Company sold 79.92% of shares in the Svyato-Pokrovska mine (Tekhinovatsiya LLC) that was mining thermal coal. Mine St.Matrona was working on maintaining systems and ensuring safety and security of facilities of the site during second half of FY2023. As of the day of this report military clashes have intensified and the line of military actions is shifting due to Russia’s occupation of more territories in the East of the country, where the St. Matrona mine is located. These events prevent the Company's management from planning the resumption of coal mining operations in Ukraine. Summarized highlights of the 4Q FY2023 and FY2023 are presented below: Total output. Annual mining underground output in FY2023 amounted to 9.3 thousand tonnes as compared to 25.3 thousand tonnes in FY2022, decreasing by 63.2% y-o-y. There was no coal output in the 4Q FY2023. Coal volume sales. For the FY2023 coal volume sales composed 10.1 thousand tonnes or decreased by 55.7% y-o-y (22.8 thousand tonnes for FY2022). There were no coal sales in the 4Q FY2023. Revenue from coal sales. For the FY2023 revenue from coal sales composed US$0.8 million as opposed to US$2.3 million for FY2022. There were no revenues from coal sales in the 4Q FY2023. EBITDA. In the 4Q FY2023 the Company recorded negative EBITDA of US$0.5 million, while for FY2023 negative EBITDA composed US$0.4 million. I am more than convinced that the decision to initially transfer the operational activities to European Union countries and in the near future to other continents will be reflected in positive information about the company's financial data. These data will certainly be an impulse for investors to become interested in the assets of our company and an incentive to increase the importance of Coal Energy in the minds of capital market participants With best regards, Viktor Vyshnevetskyy Chairman of the Board of Directors and Chief Executive Officer 3
COAL ENERGY S.A., ANNUAL REPORT FY2023 Business overview Coal Energy S.A. (hereinafter “Coal Energy” or “the Company” or “the Group”) incorporated in the Grand Duchy of Luxembourg is a holding company for a group of 6 companies operating in the mining industry (as of the day of publication of this report). In July 2011 the Group placed 25% of its shares on the Warsaw Stock Exchange via initial public offering. Structure of the Coal Energy S.A. Group The Company’s principal business comprises of underground coal mining and sale of coking coal and providing mining services. The war in Ukraine and the location of the Company's mine in the fighting area make it practically impossible for the Company to conduct mining and commercial activities. Therefore, in accordance with the decision adopted by the Management Board, the Company plans to use the intellectual potential and its employees to conduct business abroad. On December 22, 2022, the Company sold 79.92% of shares in the "Svyato-Pokrovska" mine to the LLC "Shidna Vugledobuvna Grupa". The transaction value amounted to USD 1.3 million. The proceeds from the sale of shares are divided into tranches. At the same time, after the end of hostilities in Ukraine and the implementation of the mine modernization project, for each tonne of coal mined by the buyer, Coal Energy will be entitled to a “royalty” in the amount of $2 per tonne. Coal Energy Cyprus Limited has been dissolved. The Group accounted this disposal as of 31 March 2023. As of 4 July 2023, Coal Energy Trading Limited has been dissolved. Detailed description of the following liquidation will be presented in the appropriate financial statements. Subsequently, as was reported, after ending of the reporting period on December 2023 the Company has signed an agreement on acquisition of 100% of shares of ADVANCED INDUSTRIAL TECHNOLOGIES Sp. z o.o. - company registered in Katowice, Poland. LLC Coal Energy S.A. (“Company”) Nertera Investments Limited CwAL LE “Mine St.Matrona” Perspective resources LLC Coal mining Underground mining services Search for new deposits and business opportunities Asset holding company UKRMINERAL TRADING LLC GREENTECH SOLUTIONS Sp. z o.o. Reclamation and processing of industrial rock dumps ADVANCED INDUSTRIAL TECHNOLOGIES Sp. z o.o. 4
COAL ENERGY S.A., ANNUAL REPORT FY2023 ADVANCED INDUSTRIAL TECHNOLOGIES was established in 2018 and provides underground mining services to coal mines in Poland. Further in January 2024 ADVANCED INDUSTRIAL TECHNOLOGIES (Poland) jointly with DSB GROUP Sp. Zo.o. have incorporated GREENTECH SOLUTIONS Sp. z o.o. in Poland. The authorized capital of the new Company is 100 000 PLN, each party holds 50% share. The main activity of the new company will be the reclamation and processing of industrial rock dumps and mine waste dumps, as well as the reclamation of lands disturbed by man-made activities. Production overview/ Coal mining Coal output for the FY2023 comprised 9.3 thousand tonnes as the Company did not conduct mining operations in the second half of FY2023 as opposed to 25.3 thousand tonnes in FY2022. The table below shows mining volumes by types of coal (numbers are rounded): Our markets (based on available statistical and media information) In FY2023 Ukrainian economy was affected by military invasion and hostilities from Russian Federation. Meanwhile according to International Energy Agency (IEA) in 2023 global demand for coal was rising by 1.4%, surpassing 8.5 billion tonnes for the first time. Russia’s invasion of Ukraine significantly altered coal trade dynamics, price levels and supply and demand patterns. After the start of the full-scale invasion in Ukraine coal mining decreased considerably, due to the fact that about 60% of the country's coal deposits are occupied by Russia. Also, since the implementation of martial law certain government restrictions were introduced to address energy security concerns, like prohibition of anthracite export or quotas on coking coal export. Coal import volumes have been heavily hit by lower demand from domestic consumers and disruption of supply chains, as Ukrainian Black Sea ports have been shut down and Ukraine couldn’t import coal by sea. According to authorities the priority of Ukraine in the near future is the diversification of logistics routes due to the expansion of land transport corridors to the EU in order to reduce dependence on maritime exports. In response to Russia’s invasion of Ukraine, several western countries and institutions imposed sanctions on Russia, including exclusion from the international payment system SWIFT, impeding the settlement of Russian coal trades in dollars. Furthermore, the European Union implemented a ban on Russian coal effective from August 2022, and some Japanese and Korean utilities announced their intention to cease buying Russian coal. (in 2021, the European Union, Japan and Korea collectively accounted for about 40% of Russian coal exports). According to State Statistics Service industrial production in Ukraine in the first half of 2023 decreased by 2.9%, while in 2022 during this period the fall amounted to 31.9%. According to the sectors for January-June 2023, the greatest decrease by 11.4% was noted in the supply of electricity, gas and steam, while mining industry declined by 9.2%. Metallurgy, which has historically been among the locomotives of the Ukrainian economy and exports in particular, in thousand of tonnes FY2023 FY2022 change in % Thermal coal 9.3 19.7 (52.8%) Coking coal - 5.6 - Total mining 9.3 25.3 (63.2%) 5
COAL ENERGY S.A., ANNUAL REPORT FY2023 incurred the most extensive losses with loss of the assets located mainly in the East and South of the country. In total, in the first half of 2023, 2.83 million tonnes of steel were produced in Ukraine, which is 37.0% less than in January-June 2022. In January-April 2023, Ukraine reduced electricity production by 19.4% as compared to the same period of 2022. As before, more than half of electricity in the country continues to produce atomic generation, and thermal power plants are ranked second. The National Bank improved its estimate of Ukrainian real GDP growth in 2023 up to 5.7%, maintained growth expectations for 2024 at 3.6% and worsened its forecast for 2025 to 5.8%.The National Bank noted, among other positive factors, the high adaptability of business and the population to war conditions, as well as a soft fiscal policy, which was supported by international financing. People In FY2023 the Group employed 47 employees (weighted average headcount) demonstrating a decrease by 29.8% y-o-y. As the operations facilities were in the sustained/idled mode the headcount of personnel is declining. The Company used subcontractor services for underground mining thus headcount of mining personnel also decreased. Additional information concerning the average number of the Group’s employees by category for FY2023 and FY2022 is set forth in the table below: Summary of payments to the Ukrainian authorities The Company did not perform payments to authorities in FY2023. Financial overview Business of the Company was adversely affected by the on-going full-scale hostilities and invasion from Russian Federation. The following table summarizes the Group’s key indicators for FY2023 and FY2022 (numbers are rounded): FY2023 FY2022 M ining 4 4 Support production 30 45 Administrative and sales personnel 13 18 Total 47 67 in thousand of US$ FY2023 FY2022 Social Insurance Funds employer - - Social Insurance Funds individual - - Concession fee - - Income tax 7 - Natural resources payment - - VAT - - Environmental tax payments - - Total 7 - 6
COAL ENERGY S.A., ANNUAL REPORT FY2023 Revenue For the FY2023 total revenue composed U$0.8 million as compared to the US$2.3 million for the FY2022 declining by 65.2% y-o-y representing absence of more high-price coking coal in the structure of sales as well as considerable exchange difference factor due to devaluation of Ukrainian hrivnya. The Company did not generate any revenue for the 4Q FY2023 under discontinuation of operation activity in the 2H of FY2023. Revenues in FY2023 are presented in the table below: There were no export operations during the reporting period. Coal sales volumes are presented in the table below: In line with production levels decline total coal sales also decreased by 56.5% y-o-y. At the same time there were no coal sales in the 4Q and 3Q FY2023. Company’s weighted average sales prices for thermal coal in FY2023 were in range 1975-3600 UAH/tonne (for FY2022 thermal coal prices composed 820-6180 UAH/tonne for thermal coal). Cost of sales and cash cost of production The following table demonstrates cost of sales of the Company in the FY2023 and the FY2022: in million of US$ FY2023 FY2022 Relative change y-o-y Revenue 0.8 2.3 (65.2%) Gross profit (0.1) 0.2 n/a EBIT (0.6) (0.1) n/a EBITDA (0.4) 0.8 n/a Net loss/profit (13.7) (0.7) n/a in thousand of US$, except percentages FY2023 FY2022 change in % Revenue Revenue received from sale of finished goods 760 2,284 (66.7%) Trade activity - - n/a Other activity - 7 (100.0%) Total revenue 760 2,291 (66.8%) in thousand tonnes FY2023 FY2022 change in % Thermal 10 17 (41.9%) Coking - 6 (100.0%) Total 10 23 (56.5%) 7
COAL ENERGY S.A., ANNUAL REPORT FY2023 Cash cost of mining in FY2023 composed US$79.5 tonne and increased by 95.8% due to change in accounting approach and the inclusion of the cost of services received in the part of the cash cost. Gross loss/profit The Company recorded gross loss of US$0.1 million for the reporting FY2023 as opposed to gross profit of US$0.2million for the FY2022, under discontinuation of operation activity in the 2H of FY2023. While for the 4Q FY2023 did not generate gross profit. Operating profit/ loss For the FY2023 the Company recorded operating loss of US$0.6 million, as opposed to US$0.1million of loss for the FY2022 reflecting ceased operational activity. For the 4Q FY2023 operating loss amounted to US$0.5 million versus US$0.03 million of loss for the 3Q FY2023 due to write-off of accounts receivable. Financial costs For the FY2023 financial costs composed US$0.8 million increasing y-o-y as opposed to US$0.2 million for the FY2022 in line with UAH devaluation resulted foreign exchange losses. Net loss / profit The Company recorded US$13.7 million of net loss for FY2023 as opposed to US$0.7 million of net loss for the FY2022 due to the discontinuation of its main operational activities in the 2H FY2023 under the circumstances of war. For the 4Q FY2023 the Company recorded loss of US$11.6 million versus US0.1 million losses for the 3Q FY2023 attributable to asset write-offs of Mine St.Matrona due to ceasing operations in the zone of military actions. Risks and uncertainties The Company’s financial performance is dependent on the global price of and demand for coal The Company’s business is dependent on the global market price of coal. Sale prices and volumes in the worldwide coal market depend predominantly on the prevailing and expected levels of demand for and supply of coal, mainly from energy and steel manufacturers. But the in thousand of US$ FY2023 FY2022 Cost of sales 896 2,106 Less: Cost of merchandising inventory - - Change in inventories 8 (190) Cost of other services - 542 Depreciation and amortization 149 727 Total cash cost of production 739 1,027 in US$ per tonne Cash cost of mining per 1 tonne of ROM coal 79.5 40.6 8
COAL ENERGY S.A., ANNUAL REPORT FY2023 company's financial results will increasingly depend on the situation on the coal market in the countries where the company will operate. In general, European countries are taking steps to slowly move away from coal mining, but at the same time, more and more attention is being paid to the extraction of other minerals that may also be of interest to the Company. The Company’s production costs and costs of technologies applied by the Company may increase The Company’s main production expenses are energy costs, salaries and consumables. Due to the company's new strategy, which provides for the transfer of operations abroad, it is expected that there will be additional costs related to starting operations in new markets, acquiring new entities and acquiring customers.. The Company’s activity may be impacted by limited banking financing for its projects and operating activity as well as local currency devaluation In order to continue investment program at the levels which would allow reaching the expected targets the Company needs external financing. Macroeconomic and political instability in the country make the banks reassess their country risk policies and they may either stop providing new financing to customers or even lower their credit exposures. Macroeconomic instability could also push the population to transfer their savings into US$ (creating devaluating pressure on the local currency) and/or even to take their savings away from the banking system which may additionally squeeze the banking system’s liquidity. During the last years foreign currency loans had a more attractive interest rate, had longer tenors of financing and were easier available than local currency (hryvnia) loans, hence foreign currency loans may be more attractive in general. Nevertheless foreign currency loans expose to the exchange rate risks which may inflate liabilities denominated in the foreign currencies in case of local currency devaluation. In order to fulfil obligations under the conditions of limited export proceeds restructuring may be needed with the goal of extending maturities and postponing interest payments until the markets rebound and sufficient resources are accumulated to cover the realized risk. The majority of existing loan facilities is either in the process of restructuring or in the “on hold” status. The Company’s activity may be influenced by political instability and/or uncertainty and escalation of military conflict in Ukraine The risk has been realized: the ongoing war with Russian Federation may lead to damages to assets and inventories in scope which will make it impossible or economically not viable to restore them. Mitigation of the risk is mainly outside of control of the Company on macro level at the same time the company has set a course to diversify its business outside of Ukraine (outside the military conflict). Liquidity risk 9
COAL ENERGY S.A., ANNUAL REPORT FY2023 The Company is in constant dialogue with its current financing banks in order to secure timely rolling over and extending of the credit facilities. Nevertheless the ability of banking institutions to lend depends highly on country risks of Ukraine and there own liquidity (UAH liquidity is formed mainly from the deposits of the local individuals and enterprises) which diminishes dramatically in the times of macroeconomic and political instability. The Company is cooperating with a number of private commercial banks which are subject to the regulations of the Ukrainian authorities. Banks’ ability to perform in accordance with such regulations is out of control of the Company. Nevertheless if banks fail to comply with the Ukrainian legislation the regulator may impose various sanctions against them which may influence the ability of such banks to provide financing resources or might force the banks to draw back the financial resources provided to the Company if the Company does not fulfil obligations according to the loan agreements. The Company can not mitigate the risk that the banks may demand early repayment and the Company will not be able to fund refinancing for such funds. Corporate Governance The Company has decided to observe the majority of the WSE Corporate Governance Rules included in the Code of Best Practice for WSE Listed Companies to the form and extent determined by the Resolution No. 19/1307/2012 of the Exchange Supervisory Board dated November 21, 2012. However, certain principles apply to the Company accordingly, with due observance of Luxembourg corporate law and the Company's corporate structure, especially the single board structure as opposed to the two-tier system that the WSE Corporate Governance Rules assume. The Company does not have two separate governing bodies (supervisory board and management board) which are obligatory in Polish joint stock companies. Instead, the Board of Directors of the Company performs both the management and supervisory functions. As a result, the Company applies those principles of the WSE Corporate Governance Rules which refer to relations between supervisory board and management board not directly, but accordingly. In all cases, the Company endeavours to create procedures maintaining the spirit of all rules applied accordingly. Therefore, the Company is of an opinion that it complies with the rules that refer to relations between supervisory board and management board or to the functioning of those bodies. RULE STATUS IN THE COMPANY I. Recommendations for Best Practice for Listed Companies 1. A company should pursue a transparent and effective information policy using both traditional methods and modern technologies and latest communication tools ensuring fast, secure and effective access to information. Using such methods to the broadest extent possible, a company should in particular: - maintain a company website whose scope and method of presentation should be based on the model investor relations service available at http://naszmodel.gpw.pl/; - ensure adequate communication with The Company made the broad use of both traditional and modern methods /i.e. Internet tools/ to ensure effective communication and access to information for shareholders, analysts and investors. The Company’s website is not identical with the scope and method of presentation specified by naszmodel.gpw.pl, however the Company has launched website which in Company’s opinion meets the requirements for fast and secure communication with stakeholders and is designed to pursue effective information policy. 10
COAL ENERGY S.A., ANNUAL REPORT FY2023 investors and analysts, and use to this purpose also modern methods of Internet communication. 3. A company should make every effort to ensure that any cancellation of a General Meeting or change of its date should not prevent or restrict the exercise of the shareholders’ right to participate in a General Meeting Complies 4. Where securities issued by a company are traded in different countries (or in different markets) and in different legal systems, the company should strive to ensure that corporate events related to the acquisition of rights by shareholders take place on the same dates in all the countries where such securities are traded Not applicable, the Company’s securities are listed and traded on the WSE only 5. A company should have a remuneration policy and rules of defining the policy. The remuneration policy should in particular determine the form, structure, and level of remuneration of members of supervisory and management bodies. Commission Recommendation of 14 December 2004 fostering an appropriate regime for the remuneration of directors of listed companies (2004/913/EC) and Commission Recommendation of 30 April 2009 complementing that Recommendation (2009/385/EC) should apply in defining the remuneration policy for members of supervisory and management bodies of the company. Currently, the Company does not have a remuneration policy adopted. The Company does not exclude that the remuneration policy will be adopted by the General Meeting in the future 6. A member of the Supervisory Board should have appropriate expertise and experience and be able to devote the time necessary to perform his or her duties. A member of the Supervisory Board should take relevant action to ensure that the Supervisory Board is informed about issues significant to the company Complies with the reservation that according to the Luxembourg corporate law there is a single board structure in the Company. 7. Each member of the Supervisory Board should act in the interests of the company and form independent decisions and judgments, and in particular: - refuse to accept unreasonable benefits which could have a negative impact on the independence of his or her opinions and Complies with the reservation that according to the Luxembourg corporate law there is a single board structure in the Company. 11
COAL ENERGY S.A., ANNUAL REPORT FY2023 judgments; - raise explicit objections and separate opinions in any case when he or she deems that the decision of the Supervisory Board is contrary to the interest of the company. 8. No shareholder may be given undue preference over other shareholders with regard to transactions and agreements made by the company with shareholders and their related entities Complies 9. The WSE recommends to public companies and their shareholders that they ensure a balanced proportion of women and men in management and supervisory functions in companies, thus reinforcing the creativity and innovation of the companies’ economic business Currently, the Company does not comply with this recommendation. The Company supports this recommendation however the members of the Board of Directors are appointed by the General Meeting of Shareholders and therefore the compliance with this recommendation depends on the shareholders' future decisions 10. If a company supports different forms or artistic and cultural expression, sport activities, educational or scientific activities, and considers its activity in this area to be a part of its business mission and development strategy, impacting the innovativeness and competitiveness of the enterprise, it is good practice to publish, in a mode adopted by the company, the rules of its activity in this area. Complies 11. As part of a listed company’s due care for the adequate quality of reporting practice, the company should take a position, expressed in a communication published on its website, unless the company considers other measures to be more adequate, wherever with regard to the company: - published information is untrue or partly untrue from the beginning or at a later time; - publicly expressed opinions are not based on material objective grounds from the beginning or as a result of later circumstances. This rule concerns opinions and information expressed publicly by company representatives in the broad sense or by other persons whose statements may have an opinion-making effect, whether such information or opinions contain suggestions advantageous or disadvantageous to the company Complies A company should enable its shareholders to exercise the voting right during a General Currently, the Company complies with this recommendation partially. Articles of 12
COAL ENERGY S.A., ANNUAL REPORT FY2023 Meeting either in person or through a plenipotentiary, outside the venue of the General Meeting, using electronic communication means. Association of the Company provide that all the meetings take place in Luxembourg, in the place specified in the convening note and the Company has not implemented the technology enabling electronic communication. The Company however supports its shareholders to exercise their voting rights by authorizing the proxies who are bound by instruction or a third party. The Company does not preclude the possibility of providing shareholders with electronic communication tools during General Meetings in the future. II. Best Practice for Management Boards of Listed Companies 1. A company should operate a corporate website and publish on it, in addition to information required by legal regulations: 1) basic corporate regulations, in particular the statutes and internal regulations of its governing bodies; 2) professional CVs of the members of its governing bodies; 2a)on an annual basis, in the fourth quarter – information about the participation of women and men respectively in the Management Board and in the Supervisory Board of the company in the last two years; 3) current and periodic reports; 4) deleted 5) where members of the company’s governing body are elected by the General Meeting – the basis for proposed candidates for the company’s Management Board and Supervisory Board available to the company, together with the professional CVs of the candidates within a timeframe enabling a review of the documents and an informed decision on a resolution; 6) annual reports on the activity of the Supervisory Board taking account of the work of its committees together with the evaluation of the internal control system and the significant risk management system submitted by the Supervisory Board; 7) shareholders’ questions on issues on the agenda submitted before and during a Complies with the reservation that according to the Luxembourg corporate law there is a single board structure in the Company. Currently, the Company has not adopted rules of changing the company authorized to audit financial statements - rule II.1.14). The Company does not exclude that the rules will be adopted in the future. The Company has not implemented registration of General Meetings in audio or video format, nonetheless the Company does not exclude that such rule will be adopted in the future. 13
COAL ENERGY S.A., ANNUAL REPORT FY2023 General Meeting together with answers to those questions; 8) information about the reasons for cancellation of a General Meeting, change of its date or agenda together with grounds; 9) information about breaks in a General Meetings and the grounds of those breaks; 9a) a record of the General Meeting in audio or video format; 10) information on corporate events such as payment of the dividend, or other events leading to the acquisition or limitation of rights of a shareholder, including the deadlines and principles of such operations. Such information should be published within a timeframe enabling investors to make investment decisions; 11) information known to the Management Board based on a statement by a member of the Supervisory Board on any relationship of a member of the Supervisory Board with a shareholder who holds shares representing not less than 5% of all votes at the company’s General Meeting; 12) where the company has introduced an employee incentive scheme based on shares or similar instruments – information about the projected cost to be incurred by the company from its introduction; 13) a statement on compliance with the corporate governance rules contained in the last published annual report, as well as the report referred to in § 29.5 of the Exchange Rules, if published; 14) information about the content of the company’s internal rule of changing the company authorized to audit financial statements or information about the absence of such rule. 2. A company should ensure that its website is also available in English, at least to the extent described in section II.1. Complies 3. Before a company executes a significant agreement with a related entity, its Management Board shall request the approval Not applicable. According to the Luxembourg corporate law there is a single board structure in the Company. 14
COAL ENERGY S.A., ANNUAL REPORT FY2023 of the transaction/agreement by the Supervisory Board. This condition does not apply to typical transactions made on market terms within the operating business by the company with a subsidiary where the company holds a majority stake. 4. A member of the Management Board should provide notification of any conflicts of interest which have arisen or may arise, to the Management Board and should refrain from taking part in the discussion and from voting on the adoption of a resolution on the issue which gives rise to such a conflict of interest. Complies with the reservation that according to the Luxembourg corporate law there is a single board structure in the Company. The Articles of Association address the conflict of interest issue in article 14. 6. A General Meeting should be attended by members of the Management Board who can answer questions submitted at the General Meeting. Complies with the reservation that according to the Luxembourg corporate law there is a single board structure in the Company. 7. A company shall set the place and date of a General Meeting so as to enable the participation of the highest possible number of shareholders. Complies 8. If a company’s Management Board is informed that a General Meeting has been summoned pursuant to Article 399 § 2–4 of the Code of Commercial Partnerships and Companies, the company’s Management Board shall immediately perform the actions it is required to take in connection with organizing and conducting a General Meeting. This rule shall also apply if a General Meeting is summoned on the basis of authorization given by the registration court pursuant to Article 400 § 3 of the Code of Commercial Partnerships and Companies. Complies with the reservation that the Code of Commercial Partnerships and Companies is not applicable to the Luxembourg based companies and according to the Luxembourg corporate law there is a single board structure in the Company. Nonetheless the Articles of Association in article 15.3. states that shareholders representing one tenth of the subscribed share capital may, in compliance with the law of 10 August, as amended, on commercial companies, request the Board of Directors to call a General Meeting of shareholders. III. Best Practice for Supervisory Board Members 1. In addition to its responsibilities laid down in legal provisions the Supervisory Board should: 1) once a year prepare and present to the Ordinary General Meeting a brief assessment of the company’s standing including an evaluation of the internal control system and the significant risk management system; 2) deleted 3) review and present opinions on issues subject to resolutions of the General Meeting. Not applicable. According to the Luxembourg corporate law there is a single board structure in the Company. The Board of Directors reports are available together with the auditor report and the annual accounts prior to the Annual General Meeting. 15
COAL ENERGY S.A., ANNUAL REPORT FY2023 2. A member of the Supervisory Board should submit to the company’s Management Board information on any relationship with a shareholder who holds shares representing not less than 5% of all votes at the General Meeting. This obligation concerns financial, family, and other relationships which may affect the position of the member of the Supervisory Board on issues decided by the Supervisory Board. Not applicable. According to the Luxembourg corporate law there is a single board structure in the Company. 3. A General Meeting should be attended by members of the Supervisory Board who can answer questions submitted at the General Meeting. Complies 4. A member of the Supervisory Board should notify any conflicts of interest which have arisen or may arise to the Supervisory Board and should refrain from taking part in the discussion and from voting on the adoption of a resolution on the issue which gives rise to such a conflict of interest. Complies with the reservation that according to the Luxembourg corporate law there is a single board structure in the Company. The Articles of Association address the conflict of interest issue in article 14. 5. A member of the Supervisory Board should not resign from this function if this action could have a negative impact on the Supervisory Board’s capacity to act, including the adoption of resolutions by the Supervisory Board. Complies with the reservation that according to the Luxembourg corporate law there is a single board structure in the Company. 6. At least two members of the Supervisory Board should meet the criteria of being independent from the company and entities with significant connections with the company. The independence criteria should be applied under Annex II to the Commission Recommendation of 15 February 2005 on the role of non-executive or supervisory directors of listed companies and on the committees of the (supervisory) board. Irrespective of the provisions of point (b) of the said Annex, a person who is an employee of the company or an associated company cannot be deemed to meet the independence criteria described in the Annex. In addition, a relationship with a shareholder precluding the independence of a member of the Supervisory Board as understood in this rule is an actual and significant relationship with any shareholder who has the right to exercise at least 5% of all votes at the General Meeting. Complies with the reservation that according to the Luxembourg corporate law there is a single board structure in the Company. 2 members of the Board of Directors are independent. 8. Annex I to the Commission Complies partially. The Board of Directors 16
COAL ENERGY S.A., ANNUAL REPORT FY2023 Recommendation of 15 February 2005 on the role of non-executive or supervisory directors… should apply to the tasks and the operation of the committees of the Supervisory Board. established from among its members the Audit Committee. The Company did not establish the Remuneration Committee. The tasks and duties contemplated by a remuneration committee and selection and appointment committee were performed by the entire Board of Directors 9. Execution by the company of an agreement/ transaction with a related entity which meets the conditions of section II.3 requires the approval of the Supervisory Board. Not applicable. According to the Luxembourg corporate law there is a single board structure in the Company. IV. Best Practices of Shareholders 1. Presence of representatives of the media should be allowed at General Meetings. Complies 2. The rules of General Meetings should not restrict the participation of shareholders in General Meetings and the exercising of their rights. Amendments of the rules should take effect at the earliest as of the next General Meeting. Complies 4. A resolution of the General Meeting concerning an issue of shares with subscription rights should specify the issue price or the mechanism of setting it or obligate the competent body to set it before the date of subscription rights within a timeframe enabling an investment decision. Complies 5. Resolutions of the General Meeting should allow for a sufficient period of time between decisions causing specific corporate events and the date of setting the rights of shareholders pursuant to such events. Complies 6. The date of setting the right to dividend and the date of dividend payment should be set so to ensure the shortest possible period between them, in each case not longer than 15 business days. A longer period between these dates requires detailed grounds. Complies 7. A resolution of the General Meeting concerning a conditional dividend payment may only contain such conditions whose potential fulfillment must take place before the date of setting the right to dividend. Complies 9. A resolution of the General Meeting to split the nominal value of shares should not set the new nominal value of the shares at a Complies 17
COAL ENERGY S.A., ANNUAL REPORT FY2023 level which could result in a very low unit market value of the shares, which could consequently pose a threat to the correct and reliable valuation of the company listed on the Exchange. 10. A company should enable its shareholders to participate in a General Meeting using electronic communication means through: 1) real-life broadcast of General Meetings; 2) real-time bilateral communication where shareholders may take the floor during a General Meeting from a location other than the General Meeting. Currently, the Company complies with this recommendation partially. Articles of Association of the Company provide that all the meetings take place in Luxembourg, in the place specified in the convening note and the Company has not implemented the technology enabling real-life broadcasting or real-time bilateral communication. The Company however supports its shareholders to exercise their voting rights by authorizing the proxies who are bound by instruction or a third party. The company does not preclude the possibility of providing shareholders with real-time bilateral communication during General Meetings in the future. Board of Directors The Company has a one-tier corporate governance structure and is administered and managed by the Board of Directors. In FY2023 Company’s Board of Directors composed of 4 directors. The information below sets forth the names, positions, election date, and terms of office of the members of the Board of Directors, discharging their responsibilities as for reporting date of 30th June 2023. Name Position/ Function Class Viktor Vyshnevetskyy Chairman of the Board of directors, executive director Class A director Oleksandr Reznyk Executive director Class A director Arthur David Johnson Non-executive independent director Class A director Diyor Yakubov Non-executive independent director Class B director The business address for all directors is: 33 rue du Puits Roman, L-8070 Bertrange, Luxembourg. According to Articles of Association the number of directors is fixed by General Meeting of Shareholders. The General Meeting of Shareholders may decide to appoint Directors of two different classes, being class A Director(s) and class B Director(s). Any such classification of Directors shall be duly recorded in the minutes of the relevant meeting and the Directors be identified with respect to the class they belong. The Directors are to be appointed by the General Meeting of Shareholder for a period not exceeding six years until their successors are elected. Decision to suspend or dismiss a Director must be adopted by the General Meeting of Shareholders with a majority of more than one-half of all voting rights present or represented. 18
COAL ENERGY S.A., ANNUAL REPORT FY2023 Committees of the Board of Directors In FY2011, the Board of Directors has established from among its members the Audit Committee. The Company did not establish the Remuneration Committee. The tasks and duties contemplated by a remuneration committee and selection and appointment committee were performed by the entire Board of Directors. General Meeting of Shareholders The General Meeting of Shareholders has the powers conferred upon it by the Luxembourg act dated 10 August 1915 on commercial companies as amended. In 2022 calendar year the Company had postponed the Annual General meeting and held Annual General Meeting of Shareholders on 21st December 2023. Equity and ownership structure of the parent company As at the report's publication date and on the June 30, 2023, share capital of Coal Energy S.A. comprised 45,011,120 shares. The following changes in the ownership structure occurred during FY2023: Ownership structure of significant blocks of shares (at least 5% of the total number of votes at the Shareholder Meeting of Coal Energy S.A.) as of the date of releasing this financial report is as follows: There are no restrictions on transferability of the Company’s Shares. According to Articles of Association any transfer of registered shares shall be recorded in the register by the delivery to the Company of an instrument of transfer satisfactory to the Company. There are no holders with special control rights. As at the date of this report there are no agreements between shareholders which are known to the company and may result in restrictions on the transfer of securities or voting right. The Company may acquire its own Shares to the extent permitted by law. To the extent permitted by Luxembourg law the Board of Directors or as the case may be the Sole Director, is irrevocably authorized and empowered to take any and all steps to execute any and all documents and to do and perform any and all acts for and in the name and on behalf of the Company which may be necessary or advisable in order to effectuate the acquisition of the Shares and the accomplishment and completion of all related action. There are no agreements between the company and its board members or employees providing for compensation if they resign or are made redundant without valid reason or if their employment ceases because of a takeover bid. Lycaste Holdings 60,15% Held by employees 14,85% WSE free float 25,00% 19
