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., ul. Powstańców Śląskich 9, 53-332 Wrocław, Poland;
T: +48 (71) 366 1200, F: +48 (71) 366 1201,
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.
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Independent Registered Auditor’s Report
To the Shareholders’ Meeting and the Supervisory Board of KGHM Polska Miedź Spółka Akcyjna
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 finan cial position of KGHM Polska Miedź S.A. Group (the “Group”), in which KGHM Polska Miedź S.A. is the parent entity (the “Parent Company”) as at 31 December 2022 and the Group’s consoli dated financial performance and the conso lidated cash flows for the year then ended in accordan ce with the applicable International Fin ancial Reporting Standards as adopted by the European Uni on and the adopted accounting pol icies,
• 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 KGHM Polska Miedź S.A. Group which comprise:
• the consolidated statement of financial posi tion as at 31 December 2022
and the following prepared for the financial year from 1 January to 31 December 2022:
• the consolidated statement of profit or loss,
• the consolidated statement of comprehensive income,
• the consolidated statement of changes in equ ity,
• the consolidated statement of cash flows, and
• the notes comprising a description of the significa nt adopted accounting policies and othe r explanations.
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 b elieve that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion .
Independence
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We are independent of the Group in accordan ce with the International Code of Ethics for Professio nal Accountants (including International Indepe ndence Standards) issued by the International E thics Standards Board for Accountants (“IESBA Code”) as adopted by resolutio n of the National Council of Statutory Auditors and other ethical requirements that are rele vant to our audit of the financial statements in Pola nd. We have fulfilled our other ethical responsibil ities in accordance with these requirements a nd the IESBA Code. During the audit, the key registered aud itor and the registered audit firm remained inde pendent of the Group in accordance with the indep endence requirements set in the Act on Reg istered Auditors and in the EU Regulation.
Our audit approach
Overview
• The overall materiality threshold adopted for the purposes of our audit was set at PLN 380 million, which represents 4.5% of the arithmetic average of consolidated pre-tax profit from the last three financial years, adjusted for the effect of the tax on the extraction of certain minerals.
• As an audit firm we have audited the Parent Company’s annual separate financial statement, and 10 subsidiaries based in Poland.
• We have received an audit report from another certified auditor examining the consolidation package of the KGHM International Ltd. Group. The audit of this financial information was carried out by a certified auditor belonging to the PwC network in accordance with our instructions and under our supervision.
• The scope of our audit covered 97% of the Group’s revenue and 98% of the sum of total assets of all the consolidated Group companies, before consolidation eli minations.
• Recognition of revenues from contracts with customers.
• Valuation of financial assets from loans granted to the Sierra Gorda S.C.M. joint venture.
• Assessment of the recoverability of the key non-current assets of KGHM International LTD. and domestic subsidiaries and investments in the joint venture Sierra Gorda S.C.M.
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Materiality
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Audit scope
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Key audit matters
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• Fair value measurement of derivatives and hedge accounting.
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 of the Management Board 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 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 dete rmined certain quantitative thresholds for materiali ty, including the overall materiality for the conso lidated financial statements as a whole, as set out in the table below. These, together with quali tative considerations, helped us to determine th e scope of our audit and the nature, timing and extent of our aud it procedures and to evaluate the effect of misstatements, if any, both individually and in aggreg ate on the consolidated financial state ments as a whole.
Overall Group materiality
PLN 380 million.
How we determined it
4.5% of the arithmetic average of consolidated pre-tax profit from the last three financial years, adjusted for the amount of tax on the extraction of certain minerals.
Rationale for the materiality benchmark applied
We have adopted consolidated pre-tax profit as the basis for determining materiality, because in our opinion this measu re is commonly used to assess the Group's operations by users of financial statements and is a generally accepted benchmark. We adopted the arithmetic average of the last three years due to the volatility of the financia l result. We have adjusted the impact of the extraction tax on certain mine rals due to the fact that this fee is not dependent on the results achi eved by the Group. We assumed significance at the level of 4.5% because based on our professional judgment it is within the acceptable quantitative thresholds of materiality.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above PLN 32 million, as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
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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
Recognition of revenues from contracts with customers
In 2022 the Group recognized revenues from contracts with customers in the amount of PLN 33 847 million, which were described in part 2 of the consolidated financial statements.
The Group generates revenues mainly from sales of copper (71,4%), silver (12,9%) and gold (2,8%). Revenues are recognized when the Group meets the obligation to perform the service in the form of transferred good or services with simultaneous acquisition of control over this asset by the buyer. Revenue is recognized at an amount equal to the transaction price representing the consideration for the goo ds and services provided, including the prici ng formulas used.
Bearing in mind the importance of revenues item in the consolidated financial statements of the Group, as well as the susceptibility of the item to the risk of misstatement, we recognized that this s a key matter for our audit.
Our testing procedures included in particular:
• determining whether, in relation to the previous audited year, there were changes to the internal control system or the principles adopted by the Group in terms of recognizing revenue from contracts with customers and identifying the moment of passing control over the good or service provided, and understanding of any changes in the above-mentioned scope,
• analysis of the conditions contained in significant sales contracts,
• conducting, on a selected sample, efficiency tests of selected internal controls, important for determining the correct moment of revenue recognition and the correct value of revenues from contracts with customers,
• analysis of trends in recognized revenues from contracts with customers and explanation of unusual events and one-off transactions,
• conducting tests of details on a selected sample, the selection of which used quantitative and qualitative criteria, including agreeing price rates and quantities used on issued sales invoices to contracts with customers, delivery documents and payment documents,
• confirmation of selected sales transactions directly with the Group's customers,
• verification, on a selected sample, of revenue recognition in the proper reporting peri od, taking into account Incoterms and other terms and conditions of contracts concluded with the Group's customers,
• assessment of the correctness and completeness of disclosures in the separate financial statemen ts regarding revenues from contracts with customers.
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Valuation of financial assets due to loans granted to the Sierra Gorda S.C.M. Joint Venture
As at 31 December 2022 the Group reported the balance of loans granted to the Sierra Gorda S.C.M. joint venture in the amount of PLN 9 603 million, which represents 17,9% of the total assets of the Group .
Receivables from loans granted to Sierra Gorda S.C.M. disclosed in the consolidated financial statements are measured at amortized cost, including an allowance for expected credit losses. At the time of initial recognition, according to IFRS 9, the loans were classified as POCI loans (purchased or originated credit-impaired), i.e. affected by impairment due to credit risk , and losses related to such recognition and assessment were recognized in previous reporting peri ods.
In the financial year, a gain on reversal of impairment of these loans was recognized in the amount of PLN 873 million. associated with a change in the estimate of expected cash flows.
Disclosures regarding the valuation of loan receivables from Sierra Gorda S.C.M., including assessments of their recoverability, are presented in section 6.2 and note 7.5.2.4 of the consolidated financial statements.
Determining the expected credit losses in relation to financial assets from loans is associated with the necessity of applying a number of significant assumptions and making judgments, in particular regarding the Parent Company's strategy for investments in a joint venture, macroeconomic and market assumptions as well as predictions regarding legal conditions, financial plans and cash flow projections.
Considering the inherent risk of uncertainty associated with significant estimates made by the Management Board, as well as the significance of this item in the consolidated financial statements, we have determined that this is a key issue for our audit.
Our testing procedures included in particular :
● understanding and assessing the correctness of the applied principles of measuring loan receivables in accordance with the relevant financial reporting standards ,
● verifying the mathematical accuracy and methodological consistency (using internal valuation experts) of the valuation model of the impairment loss on loans granted, prepared by The Management Board of the Parent Company based on the methodology developed with the use of external experts in previous reporting period s,
• critical assessment of the assumptions made by the Management Board of the Parent Company and the estimates made to determine the expected credit losses, including:
– the projection period of future cash flows generated by the mine and the level of revenues, operating margin and future investment expenditures assumed in it,
– planned recovery scenarios adopted to estimate the level of future cash flows from loan receivables and the probability weights assigned to them.
● comparing the valuation of the receivable with the determinable terms of the sale of the 45% interest in the joint venture between the other joint venturer and the unrelated investor to determine whether the cash flow assumptions used for the amortized cost measurement are consistent with the cash flow estimates that the independent investor has adopted as the basis for concluding the transaction to the extent that this determination was possible on the basis of publicly available information. Obtaining explanations from the Management Board as to the reasons for the differences,
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● assessment of the sensitivity analysis carried out by the Management Board of the adopted assumptions for the valuation result ,
● assessment of the correctness and completeness of disclosures in the consolidated financial statements in relation to valuation of financial assets from loans granted and assessment of their recoverability .
Assessment of the recoverability of key non-current assets of KGHM International LTD. and domestic subsidiaries and involvement in the joint venture Sierra Gorda S.C.M.
As at 31 December 2022, in the consolidated financial statements, the Group presents tangible and intangible assets in the total amount of PLN 28 630 million, which represents 53,6% of the total assets disclosed in the consolidated statement of financial position.
As at 31 December 2022, the Group did not identify any indications to perform impairment tests with respect to any of the key cash-generating units.
During 2022 (as at 30 June 2022), the Group identified triggers for impairment tests of the assets of the following subsidiaries, which are not the key assets of the Group:
● Uzdrowiska Kłodzkie S.A.,
● Uzdrowisko Połczyn S.A.,
● Uzdrowisko Cieplice Sp. z o.o.,
● Uzdrowisko Świeradów - Czerniawa Sp. z o.o. (collectively referred to as "health resort companies".
As a result of the conducted impairment tests, the Group recognized in the consolidated financial statements an impairment loss on non-current assets of health resort companies in the total amount of PLN 46 million.
Our testing procedures included in particular :
● understanding and assessing the process of identifying evidence for impairment of assets or reducing an impairment loss previously recognized ,
● understanding and assessing the correctness of the methods used for testing for impairment in accordance with the relevant financial reporting standards ,
● understanding and assessing the principles for determining cash-generating units ,
• a critical assessment of the assumptions and judgments adopted by the Management Board in determining no impairment triggers for the key non-current assets, including the projection period of future cash flows based on the approved budgets of cash-generating units for which an analysis was carried out and the level of revenues, operating margin and future replacement and investment expenditures assumed in them,
● assessment of the correctness and completeness of disclosures regarding impairment tests in the consolidated financial statements.
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Disclosures regarding the assessment of impairment of non-current assets are presented in part 3 of the consolidated financial statements (note 3.1).
As at 31 December 2022, the Group reported the carrying amount of investments in the Sierra Gorda S.C.M. joint venture in the amount of PLN 0 (zero). In 2022, there was an increase in the estimated expected cash flows from the joint venture's assets, which affected the valuation of loans granted to the joint venture as at 31 December 2022 (the key audit matter " Valuation of financial assets due to loans granted to the Sierra Gorda S.C.M. Joint Venture "), but did not result in a reversal a previously recognized impairment loss on an investment. Disclosures in this regard are presented in note 6.1.
In line with the Group's accounting policy , investments in joint ventures are measured usin g the equity method less impairment losses .
Pursuant to IAS 36 "Impairment of Assets", the Management Board of the Parent Company conducts at the end of the reporting period, and in the event of special events also during the year, an assessment of the occurrence of premises indicating the possibility of impairment or reduction of a previously recognized write-off in relation to tangible and intangible assets and investments in joint ventures.
In the event of occurrence of such indicators, the Management Board calculates the recoverable amount of cash-generating uni ts.
Considering the inherent risk of uncertainty associated with significant estimates made by the Parent Company’s Management Board when assessing the triggers for impairment of non-current assets, we have determined that this is a key audit matter.
Fair value measurement of derivatives and hedge accounting
The Group is a party to derivative transactions related to volatility of prices, interest rates and exchange rates. Disclosures related to derivative instruments are presented in note 7.2 of the separate financial statements.
Our testing procedures included in particular :
● assessment of compliance of the accounting policy adopted by the Company with respe ct to the initial recognition and subsequen t measurement of derivative instruments with the relevant financial reporting standards ,
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The value of derivative financial assets as at 31 December 2022 amounted to 1 510 million, including PLN 1 464 million under hedge accounting .
The value of derivative financial liabilities as at 31 December 2022 amounted to PLN 1 153 million, including PLN 980 million under hedge accounting .
The Group applies hedge accounting for cash flows.
In accordance with the accounting policy o f the Group, derivatives are measured at fair value at the end of each reporting period or at transaction settlement date. In relation to instruments hedging future cash flows, gains and losses resulting from changes in the fair value of these instrument, in the portion which i s effective, are deferred in other comprehensive income and accumulated in the capital fo r the valuation of financial instruments, until the transactions that are the subject of the hedge have an impact on financial re sult. As at 31 December 2022, the accumulated amount of other comprehensive income from the valuation of hedging derivatives recog nized in equity amounted to PLN 59 million.
Estimating the fair value of derivatives and the effectiveness of the established hedging relationships is an area that requires a significant estimates by the Management Board as to future metal prices, interest rates and exchange rates, and involves the use of an appropriate instrument valuation model .
Considering the inherent risk of uncertainty related to significant estimates made by the Management Board, as well as the materiality of the impact of these transactions on the consolidated separate financial statements, we considered this to be a key audit matter.
● understanding of the hedging policy adopted by the Group against the risk of changes in metals prices, interest rate risk and currency risk ,
● understanding and evaluation of the process of valuation of derivative instruments, including the adopted methodology and sources of obtaining market data and unobservable valuation parameters ,
● verification, on a sample, of key parameters of selected derivatives to external independent data sources ,
● performing and independent valuations of all open derivatives at fair value at the balance sheet date, with the use of PwC's internal valuation experts, and comparing them with results of Group's valuations. Assessing the differences in the fair value measurement of derivative instruments between independent PwC valuations and the valuations prepared by the Group. In cases where the obtained results differed from those calculated by the management of the Group, we assessed whether these differences are within acceptable ranges, taking into account the estimates of future metal prices, interest rates and exchange rates in the valuation ,
● verification, performed by internal PwC valuation expert, of the correctness of the application of hedge accounting, determining the part of an effective hedging relationship, conducting qualitative effectiveness tests and verification of the division of relationships into effective and ineffective portion ,
• verification of disclosures in the separate financial statements in terms of meeting the requirements of the standards.
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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 Law”). 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 consoli dated financial statements, whether due to fraud or error, design and perform audit procedu res 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 on e resulting from error, as fraud may involve collusion, forgery, intentional omissi ons, misrepresentations, or the override of internal control,
• obtain an understanding of internal contro l relevant to the audit in order to design audit proce dures 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 Comp any’s Management Board
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• conclude on the appropriateness of the Parent Company’s Management Board’s use of the go ing 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 doub t on the Group’s ability to continue as a going concern. If we conclude that a material unce rtainty exists, we are required to draw attention in our auditor’s report to the related disclosu res in the consolidated financial statemen ts 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 statemen ts, including the disclosures, and whether the consolidated financial statements represen t the underlying transactions and events in a manner that achieves fair prese ntation,
• 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 statemen ts. We are responsible for the direction, supervision and performance of the Group audit and we remain sole ly responsible for our audit opinion.
We communicate with the Audit Committee of the Parent Company 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 ma tters that were of most significance in the audit of the consolida ted financial statements of the current period and a re therefore the key audit matters. We describe these matters in our auditor’s repo rt unless law or regulation precludes public disclosure about the matter or when, in e xtremely rare circumstances, we determine that a matter should not be communicated in our repo rt because the adverse consequences of doin g so would reasonably be expected to outweigh the public intere st benefits of such communication .
Other information, including the Report on the activities
Other information
Other information comprises a :
• joint report on the activities of the Company’s and the KGHM Polska Miedź S.A. Group’s. (“the Group”) in which KGHM Polska Miedź S.A. is the parent company, for the financial year ended December 31, 2022 ("the joint Report on activities"), together with a statement on the application of corporate governance and a statement of the Company and the Group on non-financial information referred to in art. 49b sec. 1 and art. 55 sec. 2b of the Accounting Law, which are separate parts of this joint Report on activities,
• consolidated report on payments to public administration,
other documents comprising the Consolidated Annual Report for the financial year ended 31 December 2022 (together "Other information").
Other information does not include the separate financial statements and our auditor’s report thereon.
We obtained the Consolidated Annual Report before the date of this audit report, except for the Report of the Supervisory Board on the results of the assessment of the consolidated financial statements, and the Statement of the Supervisory Board regarding the Audit Committee, which will be available after this date.
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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 Joint Report on the Parent Company’s and Group’s activities and a separate Consolidated report on payments complies with the requirements of the Accounting Law.
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. In accordance with the requirements of the Law on the Registered Auditors, we are also obliged to issue an opinion on whether the Joint Report on the activities has been prepared in accordance with the law and is consistent with information included in annual stand-alone and consolidated financial statements.
Moreover, we are obliged to issue an opinion on whether the Parent Company and the Group provided the required information in its corporate governance statement and to inform whether the Group prepared a separate report on non-financial information.
Statement on the Other information
We declare, based on the knowledge of the Company and the Group and its environment obtained during our audit, that we have not identified any material misstatements in the joint Report on the operations of the Company and the Group and the remaining Other information which we obtained before the date of this audit report.
If we identify a material misstatement in list the elements of the Consolidated Annual Report which were not obtained by the date of this report, we are obliged to inform the Parent Company’s Supervisory Board of this fact.
Opinion on the Joint Report on the activities
Based on the work we carried out during our audit, in our opinion, the Joint Report on the Company’s and Group’s activities :
• has been prepared in accordance with the requirements of Article 49 of the Accounting Act para. 70 and 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 stand-alone and the consolidated separate financial statements.
Opinion on the corporate governance statement
In our opinion, in its corporate governance statement, the Company and 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 stand-alone and the consolidated separate financial statements.
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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 49b(1) and 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 separate report 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 labelling of the consolidated financial statements with the requirements of the European Single Electronic Format ("ESEF")
In connection with the audit of the consolidated financial statements, we have been engaged by the Parent Company's management to perform an attestation service that provides reasonable assurance to express an opinion on whether the consolidated financial statements of the Group as at and for the year ended 31 December 2022 prepared in a single electronic reporting format contained in a file named [ G30CO71KTT9JDYJESN22-2022-12-31-pl .zip] (the "consolidated financial statements in ESEF format") have been labelled in accordance with the requirements set out in Article 4 of Commission Delegated Regulation (EU) No 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 concerning the specifications of the uniform electronic reporting format (the "ESEF Regulation").
Description of the subject matter of the contract 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 financia l statements in the ESEF format in accordance with the techn ical requirements regarding the specificatio n of a single electronic reporting format which are set out in the ESEF Regulation. This responsibility incl udes the selection and application of approp riate markups in XBRL using taxonomy specified i n the ESEF Regulation. The responsibility of the Mana gement Board includes also designing , implementing and maintaining internal controls relevant for the prep aration of the consolidated financial state ments in the ESEF format which are free from material non-complia nce with the requirements of the ESEF Regulation and their marking-up in compl iance with these requirements.
Members of the Supervisory Board of the Parent Entity 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 .
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Registered auditor’s 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 3001pl - audit of financial statements prepared in the single electronic reporting format (“KSUA 3001pl”) and where relevant with the National Standard on Assurance Engagements 3000 (Z) in the wording of the International Standard on Assurance Services 3000 (revised) - ‘Assurance Engagements other than Audits and Reviews of Historical Financial Information’ a/s issued by the National Council of Statutory Auditors (KSUA 3000(Z)) . 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 (Z) 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.
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 and 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 work done
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:
• understand the internal controls and processes specific to the use of the Electronic Reporting Format for the consolidated financial statements, including the use of XHTML format and labelling of the consolidated financial statements,
• reconciliation, on a selected sample, of tagged information contained in the consolidated financial statements in the ESEF format to the audited consolidated financial statements,
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• assessment of compliance with the technical standards relating to the specification of a single electronic reporting format, including the use of XHTML, using a specialized IT tool,
• an assessment of the completeness of the labelling of the consolidated financial statements using XBRL tags,
• an assessment of the appropriateness of the Group's use of XBRL tags selected from the ESEF taxonomy and the creation of extension tags where no relevant element has been identified in the ESEF taxonomy specified in the ESEF Regulation,
• an assessment of the appropriateness of anchoring the used taxonomy extensions to the core taxonomy defined in the ESEF Regulation .
We believe that the evidence we have obtained is sufficient and appropriate to form the basis of 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 .
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 .
Non-audit services that we provided to the Parent Company and its subsidiaries in the audited period are listed in note 2.15 in the joint Report on activities. In addition, in the audited period, we provided the following non-audit services to the Parent Company and its controlled entities in the European Union, which were not disclosed in the joint Report on the activities of the Company and the Group or in the separate and consolidated separate financial statements:
● Attestation service regarding the report on the use of a special-purpose subsidy received pursuant to Art. 648 - 660 of the Homeland Defense Act of March 11, 2022 in the company subsidiary Nitroerg S.A.
Appointment
We have been appointed to audit the annual separate financial statements of the Group by the Resolution of the Supervisory Board of 22 October 2021 for the period of three years, i.e. 2022-2024. We have been auditing the Group’s separate financial statements without interruption since the financial year ended 31 December 2019, i.e. for 4 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 Rafał Matusiak.
Rafał Matusiak
Key Registered Auditor
No. 13858
Wrocław, 21 March 2023 r.