These consolidated financial statements are prepared in accordance with International Financial Reporting Standards, as endorsed by the European Union, and are approved by the Management Board of ENEA S.A.

Members of the Management Board

President of the Management Board

Paweł Szczeszek

Member of the Management Board

Rafał Mucha

Member of the Management Board

Tomasz Siwak

Member of the Management Board

Tomasz Szczegielniak

Member of the Management Board

Marcin Pawlicki

Prepared by:

Robert Kiereta

Head of Consolidated Reporting

Poznań, 25 March 2021

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

The consolidated statement of comprehensive income should by analysed in conjunction with the additional information and explanations, which constitute an integral part of these consolidated financial statements

5

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Year ended

Note

31 December 2020

31 December 2019

restated*

Revenue from sales

8

18 241 997

15 867 593

Excise duty

(65 492)

(71 295)

Net revenue from sales

18 176 505

15 796 298

Compensations

3 284

597 278

Revenue from operating leases and subleases

14 765

7 722

Revenue from sales and other income

18 194 554

16 401 298

Other operating revenue

10

248 815

285 962

Change in provision for onerous contracts

17 745

10 415

Depreciation/amortisation

9

(1 598 063)

(1 548 268)

Employee benefit costs

9

(1 963 108)

(1 904 022)

Use of materials and raw materials and value of goods sold

9

(3 643 315)

(3 333 521)

Purchase of electricity and gas for sales purposes

9

(7 514 300)

(6 090 506)

Transmission services

9

(472 104)

(447 154)

Other third-party services

9

(914 208)

(925 799)

Taxes and fees

9

(443 407)

(414 439)

Loss on change, sale and liquidation of property, plant and equipment and right- of-use assets

(34 890)

(57 585)

Impairment losses on non-financial non-current assets

(3 410 154)

(5 521)

Other operating costs

10

(173 824)

(186 733)

Operating (loss)/profit

(1 706 259)

1 784 127

Finance costs

11

(346 336)

(369 234)

Finance income

11

54 346

63 890

Dividend income

283

201

Impairment of financial assets at amortised cost

(144 014)

(65 771)

Share of profit of associates and jointly controlled entities

18

(332 361)

(482 165)

Impairment of investments in associates and jointly controlled entities

18

(129 208)

(59 777)

(Loss)/profit before tax

(2 603 549)

871 271

Income tax

12

369 212

(330 574)

Net (loss)/profit for the reporting period

(2 234 337)

540 697

Other comprehensive income

Subject to reclassification to profit or loss:

- measurement of hedging instruments

(108 862)

(1 645)

- income tax

20 684

313

Not subject to reclassification to profit or loss:

- restatement of defined benefit plan

(77 658)

(85 281)

- income tax

14 755

16 203

Net other comprehensive income

(151 081)

(70 410)

Comprehensive income for the reporting period

(2 385 418)

470 287

Including net (loss)/profit:

attributable to shareholders of the Parent

(2 268 412)

423 205

attributable to non-controlling interests

34 075

117 492

Including comprehensive income:

attributable to shareholders of the Parent

(2 418 898)

354 521

attributable to non-controlling interests

33 480

115 766

Net (loss)/profit attributable to shareholders of the Parent

(2 268 412)

423 205

Weighted average number of ordinary shares

441 442 578

Net (loss)/profit attributable to the Parent's shareholders, per share (in PLN per share)

13

(5.14)

0.96

Diluted (loss)/profit per share (in PLN per share)

(5.14)

0.96

* the presentation restatement of data for the comparative period is presented in note 6 to the financial statements.

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

The consolidated statement of financial position should by analysed in conjunction with the additional information and explanations, which constitute an integral part of the consolidated financial statement s

6

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at

Note

31 December 2020

31 December 2019

ASSETS

Non-current assets

Property, plant and equipment

14

18 903 722

21 470 804

Right-of-use assets

16

730 078

719 948

Intangible assets

15

359 365

379 024

Investment properties

17

21 239

23 109

Investments in associates and jointly controlled entities

18

133 647

373 016

Deferred income tax assets

12

1 296 061

569 369

Financial assets measured at fair value

35

97 957

40 172

Debt financial assets at amortised cost

36

−

48 649

Trade and other receivables

22

72 381

20 862

Costs related to the conclusion of agreements

11 256

12 749

Finance lease and sublease receivables

23.1

513

319

Funds in the Mine Decommissioning Fund

141 591

133 998

Total non-current assets

21 767 810

23 792 019

Current assets

CO 2 emission allowances

19

2 529 059

1 375 128

Inventories

20

1 129 975

1 376 295

Trade and other receivables

22

2 132 191

2 123 567

Costs related to the conclusion of agreements

13 428

12 646

Assets arising from contracts with customers

24

322 446

330 447

Finance lease and sublease receivables

23.1

975

950

Current income tax receivables

10 470

59 746

Financial assets measured at fair value

35

41 894

7 056

Debt financial assets at amortised cost

36

61

3 576

Other short-term investments

−

477

Cash and cash equivalents

25

1 941 554

3 761 947

Total current assets

8 122 053

9 051 835

TOTAL ASSETS

29 889 863

32 843 854

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

The consolidated statement of financial position should by analysed in conjunction with the additional information and explanations, which constitute an integral part of the consolidated financial statement s

7

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at

Note

31 December 2020

31 December 2019

EQUITY AND LIABILITIES

Equity

Equity attributable to shareholders of the parent

Share capital

588 018

Share premium

3 632 464

Revaluation reserve - measurement of financial instruments

(16 295)

Revaluation reserve - measurement of hedging instruments

(105 534)

(17 356)

Retained earnings

7 938 162

10 268 882

Total equity attributable to shareholders of the parent

12 036 815

14 455 713

Non-controlling interests

27

1 057 538

1 024 058

Total equity

26

13 094 353

15 479 771

LIABILITIES

Non-current liabilities

Credit facilities, loans and debt securities

30

6 607 756

7 803 113

Trade and other payables

31

132 793

119 775

Liabilities arising from contracts with customers

24

10 833

5 023

Lease liabilities

30

529 140

504 324

Accounting for subsidies and road lighting modernisation services

34

261 162

227 413

Deferred income tax provision

12

445 094

413 392

Employee benefit liabilities

32

1 097 643

983 818

Financial liabilities measured at fair value

35

75 131

24 496

Provisions for other liabilities and other charges

33

849 990

774 065

Total non-current liabilities

10 009 542

10 855 419

Current liabilities

Credit facilities, loans and debt securities

30

1 224 061

2 102 911

Trade and other payables

31

2 037 926

1 913 440

Liabilities arising from contracts with customers

24

246 629

110 678

Lease liabilities

30

25 172

27 939

Accounting for subsidies and road lighting modernisation services

34

13 308

12 804

Current income tax liabilities

73 500

121 703

Employee benefit liabilities

32

497 483

466 082

Liabilities concerning the equivalent for rights to free purchase of shares

281

Financial liabilities measured at fair value

35

70 987

36 438

Provisions for other liabilities and other charges

33

2 596 621

1 716 388

Total current liabilities

6 785 968

6 508 664

Total liabilities

16 795 510

17 364 083

TOTAL EQUITY AND LIABILITIES

29 889 863

32 843 854

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

The consolidated statement of changes in equity should by analysed in conjunction with the additional information and explanations, which constitute an integral part of the consolidated financial statement s

8

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Equity attributable to shareholders of the parent

Share capital (nominal amount)

Reserve for revaluation and merger accounting

Total share capital

Share premium

Revaluation reserve - measurement of financial instruments

Revaluation reserve - measurement of hedging instruments

Retained earnings

Non-controlling interests

Total equity

As at 1 January 2019

441 443

146 575

588 018

3 632 464

(16 295)

(16 024)

9 908 842

952 157

15 049 162

Net profit for the reporting period

−

423 205

117 492

540 697

Net other comprehensive income

−

(1 332)

(67 352)

(1 726)

(70 410)

Net comprehensive income recognised in the period

−

(1 332)

355 853

115 766

470 287

Dividends

−

(8 673)

Buy-out of non-controlling interests in subsidiaries

−

(4 531)

(25 209)

(29 740)

Other

−

8 718

(9 983)

(1 265)

As at 31 December 2019

441 443

146 575

588 018

3 632 464

(16 295)

(17 356)

10 268 882

1 024 058

15 479 771

Net (loss)/profit for the reporting period

−

(2 268 412)

34 075

(2 234 337)

Net other comprehensive income

−

(88 178)

(62 308)

(595)

(151 081)

Net comprehensive income recognised in the period

−

(88 178)

(2 330 720)

33 480

(2 385 418)

As at 31 December 2020

441 443

146 575

588 018

3 632 464

(16 295)

(105 534)

7 938 162

1 057 538

13 094 353

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

The consolidated statement of cash flows should by analysed in conjunction with the additional information and explanations, which constitute an integral part of the consolidated financial statement s

9

CONSOLIDATED STATEMENT OF CASH FLOWS

Year ended

Note

31 December 2020

31 December 2019

Cash flows from operating activities

Net (loss)/profit for the reporting period

(2 234 337)

540 697

Adjustments:

Income tax in profit or loss

12

(369 212)

330 574

Depreciation/amortisation

9

1 598 063

1 548 268

Loss on change, sale and liquidation of property, plant and equipment and right-of-use assets

34 890

57 585

Impairment losses on non-financial non-current assets

3 410 154

5 521

Loss on sale of financial assets

17 964

26 813

Interest income

(14 743)

(14 961)

Dividend income

(283)

(201)

Interest costs

241 823

233 557

(Gain)/loss on measurement of financial instruments

(77 311)

39 233

Impairment of financial assets at amortised cost

144 014

65 771

Share of profit of associates and jointly controlled entities

332 361

482 165

Impairment of investments in associates and jointly controlled entities

129 208

59 777

Other adjustments

(26 779)

(22 587)

Total adjustments

5 420 149

2 811 515

Paid income tax

(300 100)

(206 925)

Changes in working capital:

CO 2 emission allowances

40

(1 153 931)

(794 428)

Inventories

40

241 866

(109 992)

Trade and other receivables

40

(50 875)

(257 095)

Trade and other payables

40

431 129

(481 941)

Employee benefit liabilities

40

67 694

129 960

Accounting for subsidies and road lighting modernisation services

40

33 259

30 151

Provisions for other liabilities and charges

40

702 910

482 673

Total changes in working capital

272 052

(1 000 672)

Net cash flows from operating activities

3 157 764

2 144 615

Cash flows from investing activities

Purchase of non-current tangible and intangible assets and right-of-use assets

(2 382 772)

(2 076 510)

Proceeds from sale of non-current tangible and intangible assets and right-of-use assets

9 841

10 129

Purchase of financial assets

40

(199 415)

(29 904)

Proceeds from sale of financial assets

476

611

Purchase of subsidiaries

−

(29 740)

Purchase of associates and jointly controlled entities

(1 700)

(181 698)

Received dividends

283

201

Inflows concerning funds at Mine Decommissioning Fund bank account

(7 592)

(5 719)

Received interest

3 443

5 648

Other inflows/(outflows) from investing activities

1 136

(5 836)

Net cash flows from investing activities

(2 576 300)

(2 312 818)

Cash flows from financing activities

Credit and loans received

2 308

−

Bond issuance

−

2 000 000

Repayment of credit and loans

(176 371)

(166 222)

Bond buy-back

(1 894 310)

(277 910)

Dividends paid

−

(8 673)

Repayment of lease liabilities

(52 154)

(16 419)

Expenditures concerning future bond issues

−

(195)

Interest paid

(276 256)

(249 545)

Other outflows under financing activities

(5 074)

(1 724)

Net cash flows from financing activities

(2 401 857)

1 279 312

Total net cash flows

(1 820 393)

1 111 109

Cash at the beginning of reporting period

25

3 761 947

2 650 838

Cash at the end of reporting period

25

1 941 554

3 761 947

including restricted cash

754 321

477 382

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

The additional information and explanations presented on pages

10

-

112

constitute an integral part of these consolidated financial statements

10

ADDITIONAL INFORMATION AND EXPLANATIONS

General information

1. General information on the Parent

Name:

ENEA Spółka Akcyjna

Legal form:

Spółka Akcyjna (joint-stock company)

Country of registration:

Poland

Registered office:

Poznań, Poland

Address:

ul. Górecka 1, 60-201 Poznań

Location of business:

Poland

KRS:

0000012483

Telephone number:

(+48 61) 884 55 44

Fax number:

(+48 61) 884 59 59

E-mail:

enea@enea.pl

Website:

www.enea.pl

REGON number:

630139960

NIP number:

777-00-20-640

ENEA S.A. ("Company," "Parent") is the parent entity for ENEA Group ("Group").

The Parent's name and other identifying data did not change in the 12-month period ended on 31 December 2020.

As at 31 December 2020, the Parent's shareholding structure was as follows:

Poland's State Treasury

Other shareholders

Total

As at 31 December 2020

51.50%

48.50%

100.00%

As at 31 December 2020, the Parent's highest-level controlling entity was the State Treasury.

As at 31 December 2020, ENEA S.A.'s statutory share capital amounted to PLN 441 443 thousand (PLN 588 018 thousand after restatement to EU IFRS, taking into account hyperinflation and other adjustments) and was divided into 441 442 578 shares.

The Parent's duration is indefinite.

Its activities are conducted on the basis of relevant concessions issued for the Parent and for specific Group companies.

The Group's consolidated financial statements cover the year ended on 31 December 2020 and contain comparative data for the year ended on 31 December 2019.

2. Group composition and consolidation rules

As at 31 December 2020, ENEA Group consisted of the parent - ENEA S.A., 14 subsidiaries, 10 indirect subsidiaries, 2 associates and 2 jointly controlled entities.

ENEA Group's principal business activities are as follows:

− production of electric and thermal energy (ENEA Wytwarzanie Sp. z o.o., ENEA Elektrownia Połaniec S.A., Przedsiębiorstwo Energetyki Cieplnej Sp. z o.o. w Obornikach, Miejska Energetyka Cieplna Piła Sp. z o.o., ENEA Ciepło Sp. z o.o.);

− trade of electricity (ENEA S.A., ENEA Trading Sp. z o.o.);

− distribution of electricity (ENEA Operator Sp. z o.o.);

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

The additional information and explanations presented on pages

10

-

112

constitute an integral part of these consolidated financial statements

11

− distribution of heat (Przedsiębiorstwo Energetyki Cieplnej Sp. z o.o. w Obornikach, Miejska Energetyka Cieplna Piła Sp. z o.o., ENEA Ciepło Sp. z o.o.);

− mining and enriching of hard coal (LW Bogdanka S.A.)

Accounting rules

Subsidiaries

A subsidiary is a company under the control of another company. The definition of control results directly from IFRS 10. An investor controls a company in which it has invested if and only if the investor has all of the following elements:

1) power over the investee,

2) exposure, or rights, to variable returns from its involvement with the investee,

3) the ability to use its power over the investee to affect the amount of the investor's returns.

Subsidiaries are fully consolidated from the date on which control over them is obtained by the Group. They are deconsolidated on the date control ceases.

As regards acquisitions of companies that are not under joint control, the cost of the acquisition is determined as the fair value of acquired assets, issued equity instruments and liabilities incurred or assumed as at the exchange date. Identifiable acquired assets and liabilities and conditional liabilities from a merger are initially measured at fair value as of the acquisition date, regardless of the size of non-controlling interests.

The Group measures non-controlling interests proportionately to its share of the fair value of acquired net assets. In subsequent periods, the value of non-controlling interests covers the initially recognised value adjusted by changes in the subsidiary's equity in proportion to the stake held. Comprehensive income is allocated to non-controlling interests even if this creates a negative value for these interests. Goodwill is determined in accordance with the accounting policy (note 15).

In the case of a negative value, the Group reviews the fair values of each component of acquired net assets. If as a result of such a review the value continues to be negative, it is immediately recognised in the present period profit or loss.

Transactions, settlements and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also subject to elimination unless the transaction provides evidence for impairment of the given asset. The accounting rules applied by subsidiaries were adjusted wherever necessary to ensure compliance with the Group's accounting rules.

Associates and jointly controlled entities

Associates are all entities in respect of which the Group exerts significant influence but does not have control, which typically means holding 20-50% of voting rights. Investments in associates are accounted for using the equity method and initially recognised at cost. The excess of purchase price over fair value of an associate's identifiable net assets as at the acquisition date is recognised as goodwill. Goodwill is included in the investment's balance sheet value, while goodwill impairment is measured for the entire value of the investment. Any excess of the Group's stake in the fair value of identifiable net assets, liabilities and conditional liabilities over the acquisition cost after revaluation is immediately recognised in current-period profit or loss.

Jointly controlled entities are all entities in respect of which the Group exercises, through contractual arrangements, control jointly with other entities. Investments in jointly controlled entities are accounted for using the equity method identically as investments in associates.

The Group's share of the financial results of associates and/or jointly controlled entities from the acquisition date is recognised in current-period profit or loss, while its share in changes in other comprehensive income generated from the acquisition date - in other comprehensive income. The balance sheet value of an investment is adjusted by total changes in equity from the acquisition date. If the Group's share of the losses of an associate or a jointly controlled entity is equal to or greater than the Group's stake in this associate or jointly controlled entity, including any potential unsecured receivables, the Group ceases to recognise further losses, unless it assumed the given associate's or jointly controlled entity's obligations or made a payment on its behalf. The Group analyses impairment of investments in associates and jointly controlled entities, and impairment losses are recognised in the financial result of the present year.

Unrealised gains on transactions between the Group and its associates or jointly controlled entities are eliminated proportionately to the Group's stake in associates or jointly controlled entities. Unrealised losses are also eliminated unless the transaction provides evidence of impairment for the given asset. The accounting rules applied by associates or jointly controlled entities are adjusted as necessary to ensure consistency with the Group's accounting rules.

Mergers and acquisitions

Mergers and acquisitions of entities that are not under joint control are accounted for using the equity method.

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

The additional information and explanations presented on pages

10

-

112

constitute an integral part of these consolidated financial statements

12

Purchase of associates and jointly controlled entities

Based on agreements concerning a given investment, the Company judges whether there is joint control or significant influence.

Company name

Segment

Registered office

ENEA S.A.'s stake in total number of voting rights as at 31 December 2020

ENEA S.A.'s stake in total number of voting rights as at 31 December 2019

SUBSIDIARIES

1.

ENEA Operator Sp. z o.o.

distribution

Poznań

100% 8

100%

2.

ENEA Wytwarzanie Sp. z o.o.

generation

Świerże Górne

100% 10

100%

3.

ENEA Elektrownia Połaniec S.A.

generation

Połaniec

100%

4.

ENEA Oświetlenie Sp. z o.o.

other activity

Szczecin

100%

5.

ENEA Trading Sp. z o.o.

trade

Świerże Górne

100%

6.

ENEA Serwis Sp. z o.o.

distribution

Lipno

100%

7.

ENEA Centrum Sp. z o.o.

other activity

Poznań

100%

8.

ENEA Pomiary Sp. z o.o.

distribution

Poznań

100%

9.

ENERGO-TOUR Sp. z o.o. w likwidacji

other activity

Poznań

100% 6

10.

ENEA Innowacje Sp. z o.o.

other activity

Warsaw

100% 9

100%

11.

Lubelski Węgiel BOGDANKA S.A.

mining

Bogdanka

65.99%

12.

Annacond Enterprises Sp. z o.o. w likwidacji

distribution

Warsaw

- 7

61%

13.

ENEA Ciepło Sp. z o.o.

generation

Białystok

99.94%

14.

ENEA Ciepło Serwis Sp. z o.o.

generation

Białystok

100%

15.

ENEA Nowa Energia Sp. z o.o.

generation

Poznań

100% 10

100%

INDIRECT SUBSIDIARIES

16.

ENEA Logistyka Sp. z o.o.

distribution

Poznań

100% 5,8

100% 8

17.

ENEA Bioenergia Sp. z o.o.

generation

Połaniec

100% 1

18.

ENEA Połaniec Serwis Sp. z o.o.

generation

Połaniec

100% 1

19.

Przedsiębiorstwo Energetyki Cieplnej Sp. z o.o.

generation

Oborniki

99.93% 2

20.

Miejska Energetyka Cieplna Piła Sp. z o.o.

generation

Piła

71.11% 2

21.

EkoTRANS Bogdanka Sp. z o.o.

mining

Bogdanka

65.99% 3

22.

RG Bogdanka Sp. z o.o.

mining

Bogdanka

65.99% 3

23.

MR Bogdanka Sp. z o.o.

mining

Bogdanka

65.99% 3

24.

Łęczyńska Energetyka Sp. z o.o.

mining

Bogdanka

58.53% 3

25.

ENEA Badania i Rozwój Sp. z o.o.

other activity

Warsaw

100% 4

JOINTLY CONTROLLED ENTITIES

26.

Polska Grupa Górnicza S.A.

-

Katowice

7.66%

27.

Elektrownia Ostrołęka Sp. z o.o.

-

Ostrołęka

50%

ASSOCIATES

28.

Polimex – Mostostal S.A.

-

Warsaw

16.48%

29.

ElectroMobility Poland S.A.

-

Warsaw

25%

1 – indirect subsidiary through stake in ENEA Elektrownia Połaniec S.A.

2 – indirect subsidiary through stake in ENEA Wytwarzanie Sp. z o.o.

3 – jointly controlled entity through stake in Lubelski Węgiel BOGDANKA S.A.

4 – indirect subsidiary through stake in ENEA Innowacje Sp. z o.o.

5 – indirect subsidiary through stake in ENEA Operator Sp. z o.o.

6 – on 30 March 2015 the company's extraordinary general meeting adopted a resolution on the dissolution of the company following a liquidation proceeding; the resolution entered into force on 1 April 2015. An application for the company to be removed from the National Court Register was filed on 5 November 2015. At the date on which these financial statements were prepared, procedural activities connected with removing the entity from the National Court Register were in progress.

7 – on 24 February 2020 Annacond Enterprises Sp. z o.o. w likwidacji was removed from the National Court Register.

8 – on 27 August 2020, an Extraordinary General Meeting of ENEA Operator Sp. z o.o. adopted a resolution on a capital

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

The additional information and explanations presented on pages

10

-

112

constitute an integral part of these consolidated financial statements

13

increase by PLN 13 864 thousand, i.e. from PLN 4 683 074 to PLN 4 696 938, by issuing 138 638 new shares with a nominal value of PLN 100 each and total nominal value of PLN 13 864 thousand. On 8 September 2020, ENEA S.A. signed a commitment to acquire 138 638 new, equal and undivided shares in exchange for a non-cash contribution in the form of 165 407 shares in ENEA Logistyka Sp. z o.o., with a nominal value of PLN 100 each. The share capital increase was registered at the National Court Register on 27 October 2020. At 31 December 2019, ENEA Logistyka Sp. z o.o. was a subsidiary of ENEA S.A.

9 – on 1 September 2020 an Extraordinary General Meeting of ENEA Innowacje Sp. z o.o. adopted a resolution to increase the company's share capital by PLN 9 300 thousand, i.e. from PLN 17 060 thousand to PLN 26 360 thousand, by issuing 93 000 new shares with a nominal value of PLN 100 each. On 2 September 2020 ENEA S.A. acquired all of the newly- issued ENEA Innowacje Sp. z o.o. shares in exchange for a cash contribution. The share capital increase was registered at the National Court Register on 15 October 2020.

10 – on 10 November 2020 an Extraordinary General Meeting of ENEA Wytwarzanie Sp. z o.o., based in Świerże Górne, (Divided Company), adopted a resolution on the division of ENEA Wytwarzanie Sp. z o.o. through a spin-off as part of the reorganisation of ENEA Group's renewables segment. The division was performed pursuant to art. 529 § 1 point 4 of the Polish Commercial Companies Code, through the transfer of an organisationally, financially and functionally separate set of tangible and intangible assets, including liabilities, constituting an organised part of enterprise in the meaning of art. 4a point 4 of the Act of 15 February 1992 on corporate income tax and art. 2 point 27e of the Act of 11 March 2004 on tax on goods and services, from the Dividend Company to ENEA Nowa Energia Sp. z o.o., based in Radom (Acquiring Company), on the terms and conditions specified in the Division Plan dated 25 August 2020. The division was carried out without reducing the Divided Company's share capital, by way of reducing the Divided Company's other equity, i.e. retained earnings amounting to PLN 526 431 thousand.

On 10 November 2020 an Extraordinary General Meeting of the Acquiring Company adopted a resolution on the division of the Divided Company through a spin-off - transfer of an organised part of the Divided Company's enterprise, in the form of the renewables segment, to the Acquiring Company. As part of this resolution, in connection with the transfer of the renewables segment, the Acquiring Company's share capital was increased from PLN 5 thousand to PLN 52 648 thousand, i.e. by PLN 52 643 thousand, through the issue of 1 052 862 new shares, which were allotted to the sole shareholder of the Acquiring Company, i.e. ENEA S.A., in accordance with art. 530 § 2 of the Polish Commercial Companies Code. The division was performed on the Division Date, i.e. on the date on which the increase in the Acquiring Company's share capital was registered at the National Court Register, i.e. on 1 December 2020. Following registration of the capital increase by the National Court Register, ENEA S.A. holds 1 052 962 shares of ENEA Nowa Energia Sp. z o.o., which constitutes 100% of its share capital.

3. Management Board and Supervisory Board composition

Management Board

As at

31 December 2020

Appointment

31 December 2019

Dismissal / resignation

President of the Management Board

Paweł Szczeszek

30 June 2020

Mirosław Kowalik

5 June 2020

Member of the Management Board, responsible for finance

Rafał Mucha

21 December 2020

Jarosław Ołowski

17 November 2020

Member of the Management Board, responsible for trade

Tomasz Siwak

17 August 2020

Piotr Adamczak

10 August 2020

Member of the Management Board, responsible for corporate affairs

Tomasz Szczegielniak

7 August 2020

Zbigniew Piętka

24 July 2020

Member of the Management Board, responsible for operations

Marcin Pawlicki

29 October 2020

-

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

The additional information and explanations presented on pages

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constitute an integral part of these consolidated financial statements

14

Supervisory Board

As at

31 December 2020

Appointment

31 December 2019

End of term / resignation

Chairperson of the Supervisory Board

Izabela Felczak-Poturnicka

19 March 2020

Stanisław Hebda

6 February 2020

Deputy Chairperson of the Supervisory Board

Roman Stryjski

Mariusz Pliszka

Secretary of the Supervisory Board

Michał Jaciubek

Member of the Supervisory Board

Maciej Mazur

Member of the Supervisory Board

Piotr Mirkowski

Member of the Supervisory Board

Paweł Koroblowski

Member of the Supervisory Board

Ireneusz Kulka

Member of the Supervisory Board

Mariusz Pliszka

Roman Stryjski

Member of the Supervisory Board

Mariusz Fistek

19 March 2020

Member of the Supervisory Board

Rafał Włodarski

16 September 2020

On 3 February 2020, the Company received a statement from the Minster of State Assets of the same date on the use by the Minister of State Assets of an authorisation to appoint, pursuant to § 24 sec. 1 of the Company's Articles of Association, a member of the Supervisory Board of ENEA S.A. Under the aforementioned authorisation, Mr. Bartosz Nieścior was appointed to the Company's Supervisory Board as of 3 February 2020.

On 6 February 2020, the Company received a letter of resignation from the Chairperson of the Supervisory Board, Mr. Stanisław Hebda, resigning as member of ENEA S.A.'s Supervisory Board.

On 6 February 2020, Mr. Mariusz Pliszka resigned from the Supervisory Board of ENEA S.A., effective from the same date.

On 6 February 2020, the Supervisory Board appointed Mr. Bartosz Nieścior as Deputy Chairperson of ENEA S.A.'s Supervisory Board.

The following persons were appointed to the Company's Supervisory Board on 19 March 2020: Mrs. Izabela Felczak- Poturnicka, as Chairperson of the Supervisory Board, and Mr. Mariusz Fistek.

On 27 May 2020, the Company received statements from the Minister of State Assets of the same date on exercise of his authorisation to appoint and dismiss a member of ENEA S.A.'s Supervisory Board pursuant to § 24 sec. 1 of the Company's Articles of Association. According to these statements, the Minister of State Assets dismissed Mr. Bartosz Nieścior from the Company's Supervisory Board, effective from 27 May 2020, and appointed Mr. Paweł Szczeszek to the Company's Supervisory Board, effective from the same date.

On 4 June 2020 the Supervisory Board appointed Mr. Roman Stryjski as Deputy Chairperson of ENEA S.A.'s Supervisory Board.

On 4 June 2020 Mr. Mirosław Kowalik tendered his resignation as President and member of ENEA S.A.'s Management Board, effective from 5 June 2020. On the same date, the Company's Supervisory Board adopted a resolution delegating Supervisory Board Member Paweł Szczeszek to temporarily serve as President of ENEA S.A.'s Management Board, effective from 6 June 2020, until a new Management Board President is appointed, however not later than three months counting from the delegation date.

In connection with Mr. Paweł Szczeszek being appointed as President of ENEA S.A.'s Management Board on 30 June 2020, Mr. Paweł Szczeszek's mandate as Member of the Company's Supervisory Board expired.

On 22 July 2020 Mr. Zbigniew Piętka tendered his resignation as Member of ENEA S.A.'s Management Board for Corporate Affairs, effective from 24 July 2020.

On 23 July 2020 Mr. Piotr Adamczak tendered his resignation as Member of ENEA S.A.'s Management Board for Trade, effective from 10 August 2020.

On 7 August 2020 the Company's Supervisory Board adopted a resolution appointing Mr. Tomasz Szczegielniak as Member of ENEA S.A.'s Management Board for Corporate Affairs.

On 7 August 2020 the Company's Supervisory Board adopted a resolution appointing Mr. Tomasz Siwak as Member of ENEA S.A.'s Management Board for Trade, effective from 17 August 2020.

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

The additional information and explanations presented on pages

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constitute an integral part of these consolidated financial statements

15

On 17 September 2020, the Company received a statement from the Minster of State Assets of the same date regarding use by the Minister of State Assets of an authorisation to appoint, pursuant to § 24 sec. 1 of the Company's Articles of Association, of a member of the Supervisory Board of ENEA S.A. Under the aforementioned authorisation, Mr. Rafał Włodarski was appointed to the Company's Supervisory Board as of 16 September 2020.

On 23 October 2020, the Company's Supervisory Board adopted a resolution appointing Mr. Marcin Pawlicki as Member of ENEA S.A.'s Management Board for operations, effective from 29 October 2020.

On 17 November 2020 the Supervisory Board of ENEA S.A. adopted a resolution to dismiss Mr. Jarosław Ołowski as Member of ENEA S.A.'s Management Board in charge of finance.

On 9 December 2020 the Company's Supervisory Board adopted a resolution appointing Mr. Rafał Mucha as Member of ENEA S.A.'s Management Board for finance, effective from 21 December 2020.

On 4 January 2021, the Company received a letter of resignation from Mrs. Izabela Felczak-Poturnicka as Chairperson of the Supervisory Board and as Supervisory Board member, effective from 5 January 2021.

On 7 January 2021, an Extraordinary General Meeting of ENEA S.A. appointed Mr. Rafał Włodarski as Chairperson of ENEA S.A.'s Supervisory Board.

On 7 January 2021, the Company's Extraordinary General Meeting adopted a resolution appointing Mrs. Dorota Szymanek as member of ENEA S.A.'s Supervisory Board, 10th term, effective from the same date.

The following table contains the composition of ENEA S.A.'s Supervisory Board as of the date on which these consolidated financial statements:

As at

25 March 2021

Chairperson of the Supervisory Board

Rafał Włodarski

Secretary of the Supervisory Board

Roman Stryjski

Member of the Supervisory Board

Michał Jaciubek

Member of the Supervisory Board

Mariusz Fistek

Member of the Supervisory Board

Paweł Koroblowski

Member of the Supervisory Board

Ireneusz Kulka

Member of the Supervisory Board

Maciej Mazur

Member of the Supervisory Board

Piotr Mirkowski

Member of the Supervisory Board

Mariusz Pliszka

Member of the Supervisory Board

Dorota Szymanek

4. Basis for preparing financial statements

These consolidated financial statements are prepared in accordance with International Financial Reporting Standards, as endorsed by the European Union ("EU IFRS"), and are approved by the Management Board of ENEA S.A.

EU IFRS cover standards and interpretations approved by the International Accounting Standards Board ("IASB") and the IFRS Interpretations Committee.

The Parent's Management Board used its best knowledge as to the application of standards and interpretations as well as methods and rules for the measurement of items in ENEA Group's consolidated financial statements in accordance with EU IFRS as at 31 December 2020. The presented tables and explanations are prepared with due diligence. These consolidated financial statements have been audited by a statutory auditor. The accounting rules are applied consistently across all of the presented periods unless stated otherwise.

These consolidated financial statements are prepared on a going concern basis for the foreseeable future. There are no circumstances such as would indicate a threat to the Group's going concern.

These consolidated financial statements are prepared on an historic cost basis, except for financial instruments measured at fair value.

5. Accounting rules (policy) and significant estimates and assumptions

The key accounting rules applied in preparing these consolidated financial statements are presented as an element of specific explanatory notes to these consolidated financial statements. These rules were applied in all of the presented periods continuously, except for the application of the changes to Standards and Interpretations described in note 6.

Preparing consolidated financial statements in accordance with EU IFRS requires the Management Board to make certain assumptions and estimates that have an impact on the adopted accounting rules and the amounts shown in consolidated financial statements and notes to financial statements. Assumptions and estimates are based on the Management Board's

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

The additional information and explanations presented on pages

10

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112

constitute an integral part of these consolidated financial statements

16

best knowledge regarding current and future events and activities. However, actual results may differ from forecasts. The estimated values presented in previous financial years do not have a material impact on the present interim period. The key areas where the Management Board's estimates have considerable impact on consolidated financial statements are presented in the following explanatory notes:

Notes describing significant estimates and assumptions

Note

Impairment of non-financial assets

chapter (without a number)

Tax

12

Property, plant and equipment

14

Intangible assets and goodwill

15

Right-of-use assets

16

Investment properties

17

CO 2 emission allowances

19

Inventories

20

Energy origin certificates

21

Trade and other receivables

22

Assets and liabilities arising from contracts with customers

24

Cash and cash equivalents

25

Employee benefit liabilities

32

Provisions

33

Financial instruments and fair value

35

6. Impact of new standards and interpretations, changes in accounting rules and data presentation

New Standards, amendments to Standards and Interpretations awaiting approval by the European Union:

Standard

Entry into force

IFRS 17 Insurance Contracts

1 January 2023

IAS 1 Presentation of Financial Statements

1 January 2023

IAS 16 Property, plant and equipment

1 January 2022

IAS 37 Provisions, contingent liabilities and contingent assets

1 January 2022

IFRS 1 First-time Adoption of International Financial Reporting Standards - these improvements contain explanations and clarify guidelines on recognition and measurement for the standards

1 January 2022

IFRS 3 Business Combinations - updating a reference to the Conceptual Framework

1 January 2022

IFRS 9 Financial Instruments - these improvements contain explanations and clarify guidelines on recognition and measurement for the standards

1 January 2022

IAS 41 Agriculture - the improvements contain explanations and clarify guidelines on recognition and measurement for the standards

1 January 2022

IFRS 16 Leases - improvements in illustrative examples

1 January 2022

IFRS 4 Insurance contracts - deferred application of IFRS 9 Financial Instruments

1 January 2021

IFRS 4 Insurance contracts - amendments concerning IBOR reform

1 January 2021

IFRS 7 Financial Instruments: disclosure of information - changes related to IBOR reform

1 January 2021

IFRS 9 Financial Instruments - amendments concerning IBOR reform

1 January 2021

IFRS 6 Leases - amendments concerning IBOR reform

1 January 2021

IAS 39 Financial Instruments: disclosure and measurement - amendments concerning IBOR reform

1 January 2021

IFRS 10 Consolidated Financial Statements - amendments concerning the sale or contribution of assets between an investor and its associates or joint ventures

-

IAS 28 Investments in Associates and Joint Ventures - amendments concerning the sale or contribution of assets between an investor and its associates or joint ventures

-

Changes in applied accounting rules

The accounting rules (policy) applied in preparing these separate financial statements are consistent with those applied in preparing the Group's annual consolidated financial statements for the year ended 31 December 2020, except for the application of new standards, amendments to standards and interpretations as described below:

• IFRS 3 Business combinations - the amendments introduce a modified definition of a business, narrow the existing definition of outputs and will likely result in more acquisitions being classified as asset acquisition;

• IFRS 9 Financial instruments, IAS 39 Financial instruments: recognition and measurement and IFRS 7 Financial instruments - disclosure of information concerning IBOR reform, the amendments published in 2019 modify certain specific requirements concerning hedge accounting, mainly to ensure that the expected reference rate reform (IBOR reform) does not substantially lead to the end of hedge accounting;

• IFRS 16 Leases - simplification concerning changes resulting from lease agreements in connection with COVID-

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

The additional information and explanations presented on pages

10

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112

constitute an integral part of these consolidated financial statements

17

19, e.g.: lease payment deferral or exemption. This simplification concerns an assessment of whether or not these changes constitute a modification of the lease. Lessees can apply this simplification so that they do not apply IFRS 16 guidelines concerning lease modifications. This will result in relief and exemptions applicable to leases being recognised as variable lease payments during the period in which the event occurs or as a condition that causes the payments to be reduced;

• IAS 1 Presentation of financial statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors - the amendments clarify the definition of materiality and increase consistency between standards;

• Amendments to IFRS Conceptual Framework - amendments to the IFRS Conceptual Framework published in 2019, effective from 1 January 2020. A verified Conceptual Framework is applied by the IASB and the Interpretations Committee in work on new standards. Nonetheless, entities preparing financial statements can apply the Conceptual Framework in order to develop accounting policies for transactions that are not yet regulated by the existing IFRSs.

The Group concludes that these amendments to Standards and Interpretations have no impact on its financial statements.

Change in presentation of items in statement of comprehensive income

In these consolidated financial statements, the Group changed the scope of presentation, within the statement of comprehensive income, for derivative transactions concerning CO 2 as well as electricity, gas and property rights, along with associated currency forward transactions. Results of the measurement of these transactions, previously presented as finance income or finance costs, were presented as other operating revenue or other operating costs. At the same time, the Group currently presents the results of these transactions on a net basis together with the results of other related derivatives transactions, previously presented as other operating revenue / other operating costs. According to the Group, this form of presentation reflects the Group's financial results better and more consistently because these transactions are related to the Group's operating activities.

For the 12-month period ended 31 December 2019

Approved data

Change in presentation of derivative transactions

Restated data

Revenue from sales

15 867 593

Excise duty

(71 295)

Net revenue from sales

15 796 298

Compensations

597 278

Revenue from operating leases and subleases

7 722

Revenue from sales and other income

16 401 298

Other operating revenue

320 076

(34 114)

285 962

Change in provision for onerous contracts

10 415

Depreciation/amortisation

(1 548 268)

Employee benefit costs

(1 904 022)

Use of materials and raw materials and value of goods sold

(3 333 521)

Purchase of electricity and gas for sales purposes

(6 090 506)

Transmission services

(447 154)

Other third-party services

(925 799)

Taxes and fees

(414 439)

Loss on change, sale and liquidation of property, plant and equipment and right-of-use assets

(57 585)

Reversal of impairment losses on non-financial non-current assets

(5 521)

Other operating costs

(148 454)

(38 279)

(186 733)

Operating profit

1 856 520

(72 393)

1 784 127

Finance costs

(441 858)

72 624

(369 234)

Finance income

64 121

(231)

63 890

Dividend income

201

Impairment of financial assets at amortised cost

(65 771)

Share of results of associates and jointly controlled entities

(482 165)

Impairment losses on non-financial non-current assets

(59 777)

Profit before tax

871 271

Income tax

(330 574)

Net profit for the reporting period

540 697

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

The additional information and explanations presented on pages

10

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112

constitute an integral part of these consolidated financial statements

18

7. Functional currency and transactions in foreign currencies

Accounting rules

Functional currency and presentation currency

Items in the financial statements of individual Group entities are measured in the main currency of the economic setting in which the entity operates (in the functional currency). Consolidated financial statements are presented in PLN, which is the functional and presentation currency for all of the Group's entities. Items in financial statements are rounded to full thousands of zlotys (PLN 000s), unless otherwise stated.

Transactions and balances

Transactions expressed in foreign currencies are translated at initial recognition into the functional currency at the exchange rate valid on the transaction date.

At the balance sheet date, foreign currency cash items are translated using the closing exchange rate (closing rate is the average exchange rate published by the National Bank of Poland for the measurement day).

Gains and losses on exchange differences arising from settlement of transactions in foreign currencies and balance sheet measurement of foreign currency cash assets and liabilities are recognised in the gain or loss for the period, while gains and losses on exchange differences concerning tangible assets under construction are recognised as expenditures on tangible assets under construction.

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

The additional information and explanations presented on pages

10

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112

constitute an integral part of these consolidated financial statements

19

Operating segments

The Group presents segment information in accordance with IFRS 8 Operating Segments . Operating segments correspond to the reporting segments and are not aggregated. The Group's activities are managed in operating segments that are distinct in terms of products and services. ENEA Group reports four operating segments and other activity, as shown below.

TRADE

Purchase and sale of electricity.

DISTRIBUTION

Electricity distribution and transmission services.

GENERATION

Generation of electricity from conventional and renewable sources, generation of industrial heat.

MINING

Production and sale of coal, companies providing support services to mines.

AND

OTHER ACTIVITY

Maintenance and modernisation of road lighting equipment, transport services, repair and construction services.

Segment revenue is revenue generated from sales to external customers and transactions with other segments that can be directly attributed to the given segment. In 2020, within the mining segment, external customers whose shares in the Group's external sales exceeded 10% included: Grupa Azoty Zakłady Azotowe "Puławy" (50.0%) and PGE Group (14.0%). Segment costs include the cost of sales to external customers and costs of transactions with other segments within the Group that result from the operating activities of a given segment and can be directly attributed to the given segment. Market prices are applied to inter-segment transactions, which makes it possible for units to generate margins sufficient to independently operate on the market. In analysing segment results, the Group especially focuses on EBITDA. EBITDA is defined as operating profit (calculated as result before tax adjusted by the share of results of associates and jointly controlled entities, impairment of financial assets at amortised cost, impairment of investments in associates and jointly controlled entities, finance income, dividend income and finance costs) plus amortisation and impairment of non-financial non-current assets. Rules for determining segment results and segment assets and liabilities are in compliance with the accounting rules used in preparing consolidated financial statements.

In the third quarter of 2020, ENEA Logistyka Sp. z o.o. became a subsidiary of ENEA Operator Sp. z o.o. According to the Parent’s Management Board, placing this company in the distribution segment better reflects the nature of its business. This is why the revenue, costs, assets and liabilities of ENEA Logistyka Sp. z o.o. are presented in these consolidated financial statements in the distribution segment rather than in the other activities segment. The comparative period in notes concerning segments was also appropriately restated.

Information on geographic segments

The Group's activities in 2020 and 2019 were in one geographic segment, i.e. in Poland, and all of its assets were located in Poland.

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

The additional information and explanations presented on pages

10

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112

constitute an integral part of these consolidated financial statements

20

Segment results:

Segment results for the period from 1 January to 31 December 2020 are as follows:

TRADE

DISTRIBUTION

GENERATION

MINING

OTHER ACTIVITY

EXCLUSIONS

TOTAL

Net revenue from sales

6 749 844

3 190 313

7 855 482

267 094

113 772

−

18 176 505

Inter-segment sales

3 585 598

37 829

565 189

1 545 731

354 936

(6 089 283)

−

Total net revenue from sales

10 335 442

3 228 142

8 420 671

1 812 825

468 708

(6 089 283)

18 176 505

Compensations

3 284

−

3 284

Revenue from operating leases and subleases

−

603

9 287

4 925

(50)

14 765

Revenue from sales and other income

10 338 726

3 228 142

8 421 274

1 822 112

473 633

(6 089 333)

18 194 554

Total costs

(10 355 101)

(2 548 287)

(10 864 630)

(1 694 685)

(459 548)

6 093 093

(19 829 158)

Segment result

(16 375)

679 855

(2 443 356)

127 427

14 085

3 760

(1 634 604)

Depreciation/amortisation

(1 540)

(633 451)

(569 439)

(336 549)

(73 371)

Impairment losses on non-financial non-current assets

−

(3 403 993)

(6 161)

−

Segment result - EBITDA

(14 835)

1 313 306

1 530 076

470 137

87 456

% of revenue from sales and other income

(0.1%)

40.7%

18.2%

25.8%

18.5%

Unallocated costs at Group level (administration expenses)

(71 655)

Operating loss

(1 706 259)

Finance costs

(346 336)

Finance income

54 346

Dividend income

283

Impairment of financial assets at amortised cost

(144 014)

Share of results of associates and jointly controlled entities

(332 361)

Impairment of investments in associates and jointly controlled entities

(129 208)

Income tax

369 212

Net loss

(2 234 337)

Share of profit attributable to non-controlling interests

34 075

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

The additional information and explanations presented on pages

10

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112

constitute an integral part of these consolidated financial statements

21

Segment results:

Segment results for the period from 1 January to 31 December 2019 are as follows:

TRADE

DISTRIBUTION

GENERATION

MINING

OTHER ACTIVITY

EXCLUSIONS

TOTAL

Net revenue from sales

7 377 688

2 922 390

5 082 660

314 635

98 925

−

15 796 298

Inter-segment sales

2 260 086

44 471

2 989 230

1 840 921

345 481

(7 480 189)

−

Total net revenue from sales

9 637 774

2 966 861

8 071 890

2 155 556

444 406

(7 480 189)

15 796 298

Compensations

597 163

−

115

−

597 278

Revenue from operating leases and subleases

−

340

2 302

5 151

(71)

7 722

Revenue from sales and other income

10 234 937

2 966 861

8 072 345

2 157 858

449 557

(7 480 260)

16 401 298

Total costs

(10 286 317)

(2 473 819)

(7 041 787)

(1 739 665)

(423 242)

7 416 425

(14 548 405)

Segment result

(51 380)

493 042

1 030 558

418 193

26 315

(63 835)

1 852 893

Depreciation/amortisation

(1 711)

(603 664)

(553 534)

(352 984)

(61 295)

(Impairment loss)/reversal of impairment loss on non-financial non-current assets

−

4 279

(10 050)

250

−

Segment result - EBITDA

(49 669)

1 092 427

1 594 142

770 927

87 610

% of revenue from sales and other income

(0.5%)

36.8%

19.8%

35.7%

19.5%

Unallocated costs at Group level (administration expenses)

(68 766)

Operating profit

1 784 127

Finance costs

(369 234)

Finance income

63 890

Dividend income

201

Impairment of financial assets at amortised cost

(65 771)

Share of results of associates and jointly controlled entities

(482 165)

Impairment of investments in associates and jointly controlled entities

(59 777)

Income tax

(330 574)

Net profit

540 697

Share of profit attributable to non-controlling interests

117 492

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

The additional information and explanations presented on pages

10

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constitute an integral part of these consolidated financial statements

22

Other information concerning segments as at 31 December 2020 and for the 12-month period ended on that date is as follows:

Trade

Distribution

Generation

Mining

Other activity

Exclusions

Total

Property, plant and equipment

14 392

9 889 504

5 978 596

3 158 735

368 500

(515 537)

18 894 190

Trade and other receivables

1 421 069

313 950

735 455

268 999

93 293

(630 881)

2 201 885

Costs related to the conclusion of agreements

24 684

-

24 684

Assets arising from contracts with customers

127 988

206 426

18

-

311

(12 297)

322 446

Total

1 588 133

10 409 880

6 714 069

3 427 734

462 104

(1 158 715)

21 443 205

ASSETS excluded from segments

8 446 658

- including property, plant and equipment

9 532

- including trade and other receivables

2 687

TOTAL ASSETS

29 889 863

Trade and other payables

338 466

526 855

625 379

244 462

204 054

(351 012)

1 588 204

Liabilities arising from contracts with customers

324 455

222 155

-

1 329

1 689

(292 166)

257 462

Total

662 921

749 010

625 379

245 791

205 743

(643 178)

1 845 666

Equity and liabilities excluded from segments

28 044 197

- including trade and other payables

582 515

TOTAL EQUITY AND LIABILITIES

29 889 863

For the year ended 31 December 2020

Investment expenditures on property, plant and equipment and intangible assets

627

1 128 385

531 754

612 461

47 395

(55 566)

2 265 056

Investment expenditures on property, plant and equipment and intangible assets excluded from segments

−

Depreciation/amortisation

1 540

633 451

569 439

336 549

73 371

(18 530)

1 595 820

Amortisation excluded from segments

2 243

Recognition/(reversal/use) of impairment losses on receivables

4 095

(11 429)

(10 143)

(1 100)

445

(117)

(18 249)

Recognition of impairment losses on non-financial non-current assets

-

3 403 993

6 161

-

3 410 154

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

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23

Other information concerning segments as at 31 December 2019 and for the 12-month period ending on that day is as follows:

Trade

Distribution

Generation

Mining

Other activity

Exclusions

Total

Property, plant and equipment

14 777

9 286 046

9 399 673

2 877 136

370 997

(487 292)

21 461 337

Trade and other receivables

1 276 901

311 253

1 068 321

245 030

86 534

(891 869)

2 096 170

Costs related to the conclusion of agreements

25 395

-

25 395

Assets arising from contracts with customers

119 665

214 946

388

-

504

(5 056)

330 447

Total

1 436 738

9 812 245

10 468 382

3 122 166

458 035

(1 384 217)

23 913 349

ASSETS excluded from segments

8 930 505

- including property, plant and equipment

9 467

- including trade and other receivables

48 259

TOTAL ASSETS

32 843 854

Trade and other payables

562 020

468 229

873 069

251 396

194 856

(396 943)

1 952 627

Liabilities arising from contracts with customers

512 613

101 221

-

444

1 405

(499 982)

115 701

Total

1 074 633

569 450

873 069

251 840

196 261

(896 925)

2 068 328

Equity and liabilities excluded from segments

30 775 526

- including trade and other payables

80 588

TOTAL EQUITY AND LIABILITIES

32 843 854

For the year ended 31 December 2019

Investment expenditures on property, plant and equipment and intangible assets

722

986 337

788 326

409 507

84 841

(36 992)

2 232 741

Investment expenditures on property, plant and equipment and intangible assets excluded from segments

−

Depreciation/amortisation

1 711

603 664

553 534

352 984

61 295

(27 094)

1 546 094

Amortisation excluded from segments

2 174

Recognition/(reversal/use) of impairment losses on receivables

(5 560)

1 610

(822)

724

(353)

141

(4 260)

Recognition/(reversal) of impairment losses on non-financial non-current assets

-

(4 279)

10 050

(250)

-

5 521

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

The additional information and explanations presented on pages

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constitute an integral part of these consolidated financial statements

24

Impairment of non-financial assets

Accounting rules

The Group's assets that are subject to depreciation are analysed in terms of impairment whenever indications of impairment are identified.

An impairment loss is recognised in the amount by which the asset's balance sheet value exceeds its recoverable value. The recoverable value is determined as the higher of the following two amounts: fair value less cost to sell or usable value (i.e. estimated present value of future cash flows that are expected to be obtained from further use of the asset or cash generating unit). For impairment analysis purposes, assets are grouped at the lowest level where it is possible to identify separate cash flows (cash generating units). Cash generating units are never larger than operating segments.

All impairment losses are recognised in profit or loss. Impairment losses may be reversed in subsequent periods (except for goodwill) if events occur that justify a lack of or change in impairment.

Significant judgements and estimates

Recoverable value of tangible and intangible assets

Cash generating units are tested for impairment using a variety of assumptions, some of which are beyond the Group's control. Significant changes in these estimates have an impact on impairment test results and, in consequence, on the Group's financial position and financial results, described further below.

As at 30 September 2020, in connection with information and analyses concerning changes in the market prices of CO 2 emission allowances, electricity, energy origin certificates and forecasts for macroeconomic indicators, ENEA Group carried out impairment tests for property, plant and equipment in areas involved in the generation of electricity, among others. Based on these tests, the necessity to recognise the following events was identified.

Based on the analysis, impairment losses were recognised on non-financial non-current assets at CGU Elektrownie Systemowe Kozienice amounting to PLN 2 881 174 thousand. This impairment loss reduced the Group’s net financial result by PLN 2 333 751 thousand. As at 30 June 2020, impairment losses on non-financial non-current assets at CGU Elektrownie Kozienice amounted to PLN 522 822 thousand. This impairment loss reduced the Group’s financial result by a total of PLN 423 486 thousand. The Group decided not to reverse the impairment losses on non-financial non-current assets that had been recognised in previous years.

Presented below are the results of these impairment tests:

CGU [PLN 000s]

Recoverable value

Book

value

CGU Elektrownie Systemowe Kozienice – ENEA Wytwarzanie's generating assets at Świerże Górne

4 447 689

7 358 863

CGU Wind – ENEA Nowa Energia’s wind-based generating assets

511 214

331 617

CGU Hydro – ENEA Nowa Energia’s hydro-based generating assets

359 466

190 576

CGU Biogas – ENEA Nowa Energia’s biogas-based generating assets

483

1 585

CGU Elektrownie Systemowe Połaniec – ENEA Elektrownia Połaniec generating assets (coal-based sources)

1 111 854

1 113 768

CGU Zielony Blok – ENEA Elektrownia Połaniec generating assets (biomass unit)

1 332 347

284 053

CGU Białystok – ENEA Ciepło's generating assets

798 828

699 754

The recoverable value of each CGU was estimated on the basis of useful value using the discounted cash flows approach based on financial projections.

The following forecast periods were used for testing the CGUs:

− CGU Elektrownie Systemowe Kozienice – until 2043,

− CGU Wind:

− wind farm Darżyno until 2039,

− wind farm Bardy until 2043,

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

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25

− wind farm Baczyna until 2043,

− CGU Hydro – until 2043,

− CGU Biogas – until 2024,

− CGU Elektrownie Systemowe Połaniec – until 2034,

− CGU Zielony Blok – until 2043,

− CGU Białystok – until 2043.

Presented below are the key assumptions used in impairment tests:

− assets were tested in seven CGUs (CGU Elektrownie Systemowe Kozienice, CGU Wind, CGU Hydro, CGU Biogas, CGU Elektrownie Systemowe Połaniec, CGU Zielony Blok, CGU Białystok),

− the main price paths, based on forecasts prepared by ENEA Trading (a company operating as ENEA Group's competence centre for wholesale trade of electricity, emission allowances and fuels), taking into account the specific nature of products and knowledge about existing contracts:

− wholesale "base" prices for electricity: for 2021-2043: prices are expected to see the largest growth, from 230.1 PLN/MWh in 2021 to PLN 286.3 in 2033, followed by conservative annual growth by an average of 0.4% in the period 2034-2043 [fixed prices 2020],

− prices of energy origin certificates (renewables): the support system for renewables until 2031 was taken into account, and specific renewable-source plants will use support within a 15-year period; until 2023, prices are expected to grow by an average of approx. 7% in reference to 2021. After 2023, prices are forecast to remain in a downtrend at the average rate of approx. 3% annually until 2028, while in the final years they are expected to dynamically decline until the support system ends [fixed prices 2020],

− prices of CO 2 emission allowances: the forecast sees gradual growth in the price of CO 2 emission allowances by an average of 5.5%, from 21.42 EUR/t in 2021 until 2028. From 2028 to 2037, further growth in price is expected, at approx. 3%. From 2038, growth is expected to reach approx. 1% [fixed prices 2020],

− coal prices: coal prices are expected to remain stable at approx. 11 PLN/GJ [fixed prices 2020],

− biomass prices: biomass prices are expected to grow until 2027, from the average level of 20 PLN/GJ in 2021, at approx. 2%. After 2027, prices are expected to decline at approx. 4% until 2031. In 2032, prices are expected to grow by 3%, followed by slow growth until 2043 at approx. 1% [fixed prices 2020],

− heating prices: an average annual growth of approx. 1% is expected until 2043, from the average price level of 71.9 PLN/GJ in 2021 [fixed prices 2020],

− natural gas: prices are expected to grow until 2030, at an average annual rate of approx. 3%, from 80.5 PLN/MWh in 2021, follows by stabilisation until 2043 [fixed prices 2020].

− quantity of CO 2 emission allowances received for free for years 2020-2025 in accordance with derogation application (pursuant to art. 10c sec. 5 of Directive 2003/87/EC of the European Parliament and of the Council),

− revenue related to maintaining generation capacities from 2021 pursuant to the Act on the Capacity Market, adopted in December 2017, based on auctions won in 2018, 2019 and 2020,

− inflation, taking into account the inflation target, at a maximum level of 2.5%,

− nominal discount rate – 4.41% [discount rate before tax is 5.12%]. The Group used a premium for specific risk for the following CGUs:

1. CGUs Wind, Water and Green Block: 2%. Discount rate reflecting specific risk premium was 4.92% [discount rate reflecting specific risk premium before tax is 5.63%]

2. CGU Elektrownie Systemowe Kozienice and Elektrownie Systemowe Połaniec: 4%. Discount rate reflecting specific risk premium was 5.44% [discount rate reflecting specific risk premium before tax is 6.15%]

3. CGU Białystok: 2.5%. Discount rate reflecting specific risk premium was 5.05% [discount rate reflecting specific risk premium before tax is 5.76%]

− growth rate in residual period - 0%.

The sensitivity analysis shows that significant factors having impact on the estimated recoverable values of CGUs include: discount rates, inflation, electricity prices and CO 2 emission allowance prices. Future financial results and thus the recoverable amounts of CGUs will also be driven by the prices of energy origin certificates, coal, heat and biomass prices.

The following table shows the value impact of selected factors on the total recoverable value (output value) of CGUs:

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

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26

Impact of change in discount rate (starting point depending on the CGU)

Change in assumptions

-0.5pp

Output value

+0.5pp

Change in recoverable value

655 042

8 591 881

(550 018)

- CGU Elektrownie Systemowe Kozienice

296 343

4 477 689

(251 907)

- CGU Wind

25 235

511 214

(23 423)

- CGU Hydro

45 476

359 466

(36 985)

- CGU Biogas

4

483

(4)

- CGU Elektrownie Systemowe Połaniec

38 912

1 111 854

(37 136)

- CGU Zielony Blok

34 101

1 332 347

(32 648)

- CGU Białystok

214 971

798 828

(167 915)

Impact of changes in inflation from 2022 (starting point 2.45% for 2022, 2.4% for 2023 and 2.5% in subsequent years)

Change in assumptions

-0.5pp

Starting value

+0.5pp

Change in recoverable value

(610 965)

8 591 881

665 972

- CGU Elektrownie Systemowe Kozienice

(314 519)

4 477 689

344 045

- CGU Wind

(23 503)

511 214

25 009

- CGU Hydro

(31 671)

359 466

34 573

- CGU Biogas

(2)

483

2

- CGU Elektrownie Systemowe Połaniec

(36 496)

1 111 854

36 978

- CGU Zielony Blok

(31 163)

1 332 347

32 316

- CGU Białystok

(173 611)

790 828

193 050

Impact of changes in electricity prices (impact of changes from 2022)

Change in assumptions

-1.0%

Starting value

+1.0%

Change in recoverable value

(1 255 958)

8 591 881

1 228 269

- CGU Elektrownie Systemowe Kozienice

(969 758)

4 477 689

953 523

- CGU Wind

(6 220)

511 214

6 220

- CGU Hydro

(9 046)

359 466

9 046

- CGU Biogas

(59)

483

59

- CGU Elektrownie Systemowe Połaniec

(183 229)

1 111 854

172 678

- CGU Zielony Blok

(54 709)

1 332 347

53 805

- CGU Białystok

(32 937)

798 828

32 938

Impact of change in price of CO 2 emission allowances (impact of changes from 2022)

Change in assumptions

-1.0%

Starting value

+1.0%

Change in recoverable value

347 268

8 591 881

(349 335)

- CGU Elektrownie Systemowe Kozienice

294 493

4 477 689

(295 372)

- CGU Wind

-

511 214

-

- CGU Hydro

-

359 466

-

- CGU Biogas

-

483

-

- CGU Elektrownie Systemowe Połaniec

46 054

1 111 854

(47 241)

- CGU Zielony Blok

-

1 332 347

-

- CGU Białystok

6 721

798 828

(6 722)

The Group performed a periodic assessment of asset impairment indications in the Mining segment (LWB) in accordance with IAS 36 Impairment of Assets. Due to the COVID-19 pandemic, which forces companies to operate in volatile, entirely unusual and unprecedented conditions, analysing these indications must be done especially carefully. Performing this evaluation for the purposes of the consolidated financial statements for 2020, the Group, based on an analysis of the current economic and market situation, believes that LWB’s current market capitalisation remains below the balance sheet value of its net assets. It should be noted that this indication was already present at the end of the previous financial year and was the main reason for an impairment test performed as at 31 December 2019. Despite the fact that the full-scale pandemic took place in 2020, this does not constitute the main indication of possible impairment of non-current assets, rather merely an additional indication confirming the need to perform an impairment test.

During 2020 (in comparison with the end of the previous financial year) the share price and thus also market capitalisation continued to decline, although not as substantially. According to the Group, this situation mainly stems from factors that are beyond its control such as political factors and the EU's climate policy, and partly also low share liquidity and low free- float, as well as the economic slowdown brought on by the coronavirus pandemic. In connection with the above, despite the fact that the company’s non-current assets were tested for impairment at the end of 2019 and at the end of June 2020, the Group is required to perform an impairment test for the Mining segment also at the end of 2020.

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

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27

Due to the inability to determine fair values for a very large group of assets for which there is no active market and no comparable transactions, the recoverable values of these assets were determined by estimating their useful values using the discounted cash flow approach based on the Group’s financial projections for 2021-2051.

Presented in the table below are the results of this impairment test:

CGU [PLN 000s] - as at 31 December 2020

Recoverable value

Book

value

CGU Mining

3 099 059

2 818 172

The key assumptions used in estimating the value in use of the tested assets are presented below:

− given the links between the various divisions and the mine's organisational scheme, all of LWB's assets were considered as one CGU;

− the average volume of coal production and sales in 2021-2030 was set at 9.2 million tonnes. Given a conservative approach to the assumptions (also taking into account the provisions of “Poland’s energy policy 2040,” for test purposes it was assumed that in subsequent years coal sales will decline as the economy moves away from coal used for energy-generation purposes. However, due to the low unit cost of production of coal, market share is expected to remain at the level specified in the Strategy;

− forecast period from 2021 to 2051 - was estimated on the basis of the company's extractable coal resources as at the balance sheet date (i.e. resources that are currently available using infrastructure existing as of the balance sheet date, which mainly concerns shafts. From 2035, the average annual output decreases as a result of deposits in the "Bogdanka" field being depleted and the assumption that only currently existing infrastructure is used);

− coal price: for the period 2021-2043, prices from studies prepared for the entire Group were used: the average coal sales price was estimated at 11.35 PLN/GJ, assuming a side-trend in the range +/-5%; from 2044, a constant price was used at the 2043 level,

− the entire model is inflation-free;

− real wage growth is assumed for the entire forecast period at a level that reflects the Group’s best possible estimate as at the test date;

− the discount rate is the weighted average cost of capital (WACC) of 6.00% throughout the entire forecast period, estimated based on the latest economic data (using a risk-free rate of 1.71% and a beta coefficient of 1.07);

− an average annual level of investment expenditures in the entire forecast period of PLN 291 014 thousand, including on average PLN 421 729 thousand in 2021-2035.

The sensitivity analysis shows that significant factors having impact on the estimated recoverable values of CGUs include: discount rate, prices of coal for energy-generation purposes and the level of sales. Results of the analysis of the model’s sensitivity (change in recoverable value) on changes in key assumptions are presented below.

Impact of changes in coal prices

Change in assumptions

-0.5%

Starting value

+0.5%

Change in recoverable value

(106 236)

3 099 059

106 236

Impact of changes in real wage growth

Change in assumptions

-0.5pp

Starting value

+0.5pp

Change in recoverable value

258 349

3 099 059

(280 455)

Furthermore, being aware of the significant impact of the effect of scale and optimal use of resources on LWB’s financial and operating results, and taking into account the trend to move away from hard coal, the Group also analysed changes in recoverable values in the model in the case of a reduction in the output of coal for sales purposes during the entire forecast period by 5% (vs. the existing recoverable resources, for example if it should become necessary to shut down a mine earlier). The results of the analysis of changes in recoverable values are presented in the following table. However, it should be noted that if demand is reduced or other factors that can have an adverse impact on the overall level of output materialise, the Group is automatically taking appropriate optimisation activities in order to ensure the most effective use of resources and maximise economic benefits at a given level of production.

Impact of change in discount rate (starting point 6.00%)

Change in assumptions

-0.5pp

Starting value

+0.5pp

Change in recoverable value

189 228

3 099 059

(174 898)

Impact of changes in commercial coal output

Change in assumptions

-5%

Starting value

Change in recoverable value

(81 791)

3 099 059

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

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Explanatory notes to the consolidated statement of comprehensive income

8. Revenue from sales

Accounting rules

Revenue recognition

The Group recognises revenue when an obligation to provide a consideration by providing a promised good or service (i.e. asset) to the customer is performed (or is being performed), thus obtaining the right to remuneration and legal title to the asset. The asset is transferred when the customer obtains control over it.

The transfer of control may be gradual if the obligation to provide a consideration is satisfied or over time, i.e. when:

− the customer simultaneously receives and consumes all of the benefits provided by the Group as the Group performs,

− the Group's performance creates or enhances an asset that the customer controls as the asset is created or enhanced (production in progress, for example), or

− the Group's performance does not create an asset with an alternative use to the Group and the Group has an enforceable right to payment for performance completed to date.

The performance-based method and overlay approach are used to determine the level of completion, taking into account the nature of the good or service being transferred.

In the item revenue from core activities, the Group recognises revenue from the sale of the following product and service groups:

− services provided on a continuous basis - the amount of revenue depends on consumption (delivery of electricity, thermal energy, natural gas, provision of distribution services): revenue is recognised when the Group transfers control over a portion of the service being provided; the Group recognises revenue in the amount of remuneration from a client, to which it is entitled, which directly corresponds to the value of service so far provided to the client - this value is the amount that the Group is authorised to invoice for;

− delivery of goods/services settled at a fixed moment in time (sale of property rights): revenue is recognised when control over the product/service is transferred; the transfer of control takes place when the goods are made available to the client or when service is provided;

− services provided on a continuous basis - the amount of revenue depends on the passage of time (sale of lighting services, process support services): revenue from the sale of services is recognised over time because these services are provided on a continuous basis and therefore a certain portion of such service is subject to transfer at every point in time when service is provided; due to the fact that the value of services rendered to the client does not differ between specific settlement periods, the Group recognises revenue from services provided on the basis of fixed monthly payments (depending on consumption);

− services provided on a continuous basis - based on the status of work (construction services): commitment to provide a service is satisfied over time because as a result of service being provided an asset is created or improved and control over this asset is with the client; revenue from the provision of service is recognised over time - using the overlay approach - cost approach, based on which the level of contract progress is determined by comparing the amount of costs incurred to perform the contract to the overall costs budgeted in the contract.

Revenue from sales is recognised in the net amount of remuneration when the Group acts as agent, i.e. its performance perform is subject to the delivery of goods or services by another entity. Such revenue is recognised in the form of fee or commission to which - according to the Group's expectations - the Group will be entitled in exchange for the provision of goods or services by another entity. The fee or commission due for the Group may be a net amount that the Group retains after payment to another entity of consideration in exchange for goods or services provided by this entity. The Group recognises as revenue the Price difference amount and the Financial compensations from the Zarządca Rozliczeń S.A.; this revenue does not constitute public aid.

Costs related to the conclusion of agreements

Costs related to the conclusion of agreements are costs incurred by the Group in order to conclude an agreement with a customer that would not have been incurred by the Group had the agreement not been concluded (including the costs of commissions for partners for concluding electricity sale agreements). Costs that would have been incurred regardless of agreement conclusion are recognised in results for the period in which they are incurred.

Connection fees

Revenue from connection fees is recognised on a one-off basis as revenue when connection works are completed.

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

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29

Net revenue from sales

Year ended

31 December 2020

31 December 2019

Revenue from the sale of electricity

13 872 606

11 865 052

Revenue from the sale of distribution services

3 097 810

2 823 514

Revenue from the sale of goods and materials

106 296

105 744

Revenue from the sale of other products and services

166 286

170 810

Revenue from origin certificates

9 268

29 587

Revenue from the sale of industrial heat

356 547

352 746

Revenue from the sale of coal

234 817

269 146

Revenue from the sale of gas

332 875

179 699

Total net revenue from sales

18 176 505

15 796 298

The Group mainly classifies revenue by type of product/service. The key revenue groups are revenue from the sale of electricity (ENEA S.A., ENEA Wytwarzanie, ENEA Trading and ENEA Elektrownia Połaniec) and revenue from the sale of distribution services (ENEA Operator).

Sale of electricity: The Group recognises revenue when an obligation to provide a consideration by providing a promised good or service to the customer is performed (or is being performed). Revenue is recognised on the basis of prices specified in sale agreements, less estimated rebates and other deductions. The key groups of contracts include electricity sale contracts (including framework contracts) for retail, business, key and strategic customers. Under these contracts, service is provided in a continuous manner and the level of revenue depends on usage. Sales to the clearing-house Izba Rozliczeniowa Giełd Towarowych S.A. and the TGE power exchange also take place.

The standard payment deadline for invoices for the sale of electricity at ENEA S.A. is 14 days from VAT invoice date. In the case of business, key and strategic customers, payment deadlines may be negotiated.

Payment deadlines for invoices concerning electricity sales to IRGiT are 1-3 days from delivery and invoice issue. For sales to TGE, payment deadlines are governed by TGE's regulations.

Sale of distribution services : In the case of distribution services sales, ENEA Operator charges a fee that contains separate components: grid fee (variable component), quality fee, grid fee (fixed component), instalment fee, transition fee and renewables fee.

In the case of the quality fee, transition fee and renewables fee, ENEA Operator serves, as a rule, as entity collecting fees and providing this consideration to other market participants, e.g. to Polskie Sieci Elektroenergetyczne S.A. (PSE). These fees (quality fee, transition fee, renewables fee) constitute quasi-taxes collected on behalf of other entities. ENEA Operator acts as agent collecting fees for other energy market participants, including PSE. In consequence, revenue from the sale of distribution services is decreased by the amount of renewables fee, quality fee and transition fee collected. Costs related to the procurement of transmission services and costs related to invoices for renewables support and support for producers are subject to adjustment.

Presented below is revenue from sales, divided into categories that reflect how economic factors influence the amount, payment deadline and the uncertainty of revenue and cash flows.

Year ended

31 December 2020

31 December 2019

Revenue from continuous services

17 303 291

14 868 265

Revenue from services provided at specified time

873 214

928 033

Total

18 176 505

15 796 298

Compensations

In accordance with art. 9 of the Act of 28 December 2018 on amendment of the act on excise duty and certain other acts, ENEA S.A., having confirmed data with distribution system operators regarding the volume of electricity sold and used during the period 1 January 2019 - 31 December 2019, adjusted on 29 September 2020 the Price difference amount and Compensation, in effect receiving in December 2020 a refund of PLN 3 208 thousand.

In accordance with the aforementioned act and the Ordinance of the Minister of Energy on the method for calculating the Price difference amount and Financial compensation and on determining reference prices, the Company submitted a request to Zarządca Rozliczeń S.A. for payment of the Price difference amount for H1 2019 and requests for payment of the Financial compensation for July-December 2019, worth in total PLN 597 163 thousand. The Price difference amount and the Financial compensations constitute the Company's revenue and are recognised under the line Compensations. As at 31 December 2019, the Group received PLN 545 026 thousand in payments of the Price difference amount and the Financial compensation. The remaining part of the PLN 597 163 thousand, i.e. PLN 52 137 thousand, is recognised in the line Trade and other receivables in the statement of financial position.

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

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30

9. Operating costs

Accounting rules

The Group presents costs using the comparative approach (costs by nature).

Costs have an impact on financial result to the extent that they apply to a given reporting period, thus ensuring that they are commensurate to revenue or other economic benefits.

Costs by nature

Year ended

31 December 2020

31 December 2019

Depreciation/amortisation

(1 598 063)

(1 548 268)

Employee benefit costs

(1 963 108)

(1 904 022)

- remuneration

(1 448 846)

(1 403 998)

- social insurance and other benefits

(514 262)

(500 024)

Use of materials and raw materials and value of goods and materials sold

(3 643 315)

(3 333 521)

- use of materials and energy

(3 223 367)

(3 211 245)

- value of goods and materials sold

(419 948)

(122 276)

Value of purchased electricity and gas for sales purposes

(7 514 300)

(6 090 506)

Third-party services

(1 386 312)

(1 372 953)

- transmission services

(472 104)

(447 154)

- other third-party services

(914 208)

(925 799)

Taxes and fees

(443 407)

(414 439)

Total

(16 548 505)

(14 663 709)

Employee benefit costs

Year ended

31 December 2020

31 December 2019

Wage costs

(1 448 846)

(1 403 998)

- present wages

(1 352 972)

(1 293 333)

- longevity bonuses

(41 570)

(65 351)

- retirement and disability severance payments

(10 104)

(7 042)

- Other

(44 200)

(38 272)

Cost of social insurance and other benefits

(514 262)

(500 024)

- social security contributions (ZUS)

(285 665)

(271 603)

- contributions to Company Social Benefit Fund (ZFŚS)

(59 076)

(49 996)

- other social benefits

(97 508)

(102 443)

- other post-employment benefits

(1 568)

(2 651)

- Other

(70 445)

(73 331)

Total

(1 963 108)

(1 904 022)

The costs of longevity awards and retirement/disability severance payments as presented in the above note are actual costs.

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

The additional information and explanations presented on pages

10

-

112

constitute an integral part of these consolidated financial statements

31

10. Other operating revenue and costs

Other operating revenue

Year ended

31 December 2020

31 December 2019

Release of provision for compensation claims

-

1 035

Release of other provisions

29 568

150 834

Reimbursement of costs by insurer

17 448

7 372

Accounting for income from subsidies

11 414

8 915

Compensation, penalties, fines

47 782

42 100

Reversal of unused impairment losses

23 330

8 338

Property, plant and equipment received for free

48 623

41 514

Realised exchange differences - hedging operations

22 636

-

Unrealised exchange differences - hedging operations

8 094

-

Changes in fair value of financial instruments

-

231

Other operating revenue

39 920

25 623

Total

248 815

285 962

Other operating costs

Year ended

31 December 2020

31 December 2019

Recognition of provision for compensation claims

(28 745)

(41 116)

Recognition of other provisions

(54 075)

(32 427)

Impairment of receivables

(4 953)

(2 631)

Write-off of uncollectible receivables

(12 754)

(12 831)

Impairment of inventory

-

(84)

Costs of court proceedings

(14 774)

(15 162)

Trade union costs

(1 940)

(1 641)

Compensation for non-contractual use of land

(1 065)

(1 464)

Realised exchange differences - hedging operations

-

(30 147)

Unrealised exchange differences - hedging operations

-

(4 137)

Changes in fair value of financial instruments

(618)

(3 995)

Other operating costs

(54 900)

(41 098)

Total

(173 824)

(186 733)

11. Finance income and finance costs

Accounting rules

Interest income is recognised on an accrual basis using the effective interest rate approach, provided that this income is not in doubt.

Finance income

Year ended

31 December 2020

31 December 2019

Interest income

24 880

42 117

- bank accounts and deposits

11 767

41 219

- other loans and receivables

10 568

618

- financial leases and sub-leases

339

280

- other

2 206

−

Exchange differences

312

2

Changes in fair value of financial instruments

28 592

15 732

Other finance income

562

6 039

Total

54 346

63 890

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

The additional information and explanations presented on pages

10

-

112

constitute an integral part of these consolidated financial statements

32

Finance costs

Year ended

31 December 2020

31 December 2019

Interest costs

(242 992)

(254 510)

- cost of interest on loans and credit

(45 427)

(45 802)

- cost of interest on bonds

(132 423)

(171 473)

- cost of interest on lease liabilities

(13 578)

(14 988)

- cost of interest on IRS swaps

(38 760)

(11 259)

- other interest

(12 804)

(10 988)

Exchange differences

(158)

(138)

Cost of discount concerning employee benefits and provisions

(46 754)

(55 080)

Changes in fair value of financial instruments

(45 212)

(47 153)

Other finance costs

(11 220)

(12 353)

Total

(346 336)

(369 234)

12. Tax

Accounting rules

Income tax (including deferred income tax)

Income tax recognised in profit or loss for the period covers actual the actual tax burden for the given reporting period, calculated in accordance with the applicable provisions of the act on corporate income tax and potential adjustments of tax returns for previous years.

Deferred tax is the tax effect of events in a given period recognised using the accrual principle in accounting books for the period but is performed in the future. It arises when the tax effect of revenue and costs is the same as the balance sheet effect but takes place in different periods.

Deferred income tax arises in respect of all temporary differences, except for cases where deferred income tax results from:

a) initial recognition of goodwill; or

b) initial recognition of an asset or liability from a transaction that:

− is not a merger of economic entities; and

− has no impact at the transaction date on gross financial result or taxable income (tax loss);

c) investment in subsidiaries, branches, associates and interests in joint ventures.

In reference to all negative temporary differences, a deferred income tax asset is recognised up to an amount of likely taxable income to be generated that will offset the negative temporary differences.

The amount of deferred tax is set using income tax rates in effect for the year in which the tax obligation arises.

Significant judgements and estimates

Recoverability of deferred income tax assets

Deferred income tax assets are measured using tax rates in effect when the asset is performed. The Group recognises a deferred income tax asset with the assumption that it will generate a tax profit in the future to use it.

The likelihood of using deferred income tax assets against future tax profits is based on the budgets of Group companies.

Income tax

Year ended

31 December 2020

31 December 2019

current tax

(290 339)

(350 370)

deferred tax

659 551

19 796

Income tax

369 212

(330 574)

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

The additional information and explanations presented on pages

10

-

112

constitute an integral part of these consolidated financial statements

33

Income tax on the Group's gross profit before tax differs from the theoretical amount that would be received by using the applicable nominal tax rate applicable to the consolidated companies as follows:

Year ended

31 December 2020

31 December 2019

(Loss)/profit before tax

(2 603 549)

871 271

Tax calculated using the 19% rate

494 674

(165 541)

Non-deductible costs (permanent differences * 19%)

(128 728)

(138 066)

Non-taxable revenue (permanent differences * 19%)

8 075

7 038

Other * 19%

(4 809)

(34 005)

Decrease of financial result due to income tax

369 212

(330 574)

Impairment of investment in associates and jointly-controlled entities constitutes the largest item of non-deductible costs.

Deferred income tax

Changes in deferred income tax assets and provision (after offsetting assets and provision at Group level) are as follows:

As at

31 December 2020

31 December 2019

Deferred income tax assets

2 262 460

1 360 169

Offset of deferred income tax assets and provision

(966 399)

(790 800)

Deferred income tax assets after offset

1 296 061

569 369

Deferred income tax provision

1 411 493

1 204 192

Offset of deferred income tax assets and provision

(966 399)

(790 800)

Deferred income tax provision after offset

445 094

413 392

Deferred income tax assets as at 31 December 2020 to be realised within 12 months amounted to PLN 876 244 thousand (PLN 675 818 thousand as at 31 December 2019), while those over 12 months PLN 1 386 216 thousand (PLN 684 351 thousand as at 31 December 2019).

Deferred income tax provision as at 31 December 2020 to be realised within 12 months amounted to PLN 361 512 thousand (PLN 186 769 thousand as at 31 December 2019), while those over 12 months PLN 1 049 981 thousand (PLN 1 017 423 thousand as at 31 December 2019).

At 31 December 2020, there were no indications of the risk that deferred income tax assets would not be recovered. The increase in deferred income tax assets mainly results from recognised impairment losses on non-financial non-current assets. According to the Group, the differences between the tax values and balance sheet values of tangible assets will be fully realised in the coming periods.

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

The additional information and explanations presented on pages

10

-

112

constitute an integral part of these consolidated financial statements

34

Change in deferred income tax assets and liabilities during the year (before offset):

Deferred income tax assets:

Employee benefit liabilities

Provision for the cost of energy origin certificates

Provision for storage, rehabilitation and CO 2 emission allowance purchases

Taxable costs after end of settlement period

Differences between balance sheet value and tax value of intangible assets

Impairment of non-financial tangible assets*

Other

Total

As at 1 January 2019

202 605

57 271

117 685

103 544

157 721

353 399

453 805

1 446 030

Adjustments

-

(103 138)

-

104 354

1 216

As at 1 January 2019, adjusted

202 605

57 271

117 685

406

157 721

353 399

558 159

1 447 246

(Charge)/addition to profit or loss

14 763

(20 680)

138 877

1 982

(32 834)

(2 743)

(201 437)

(102 072)

(Charge)/addition to other comprehensive income

16 267

-

(2)

-

16

(1 286)

14 995

As at 31 December 2019 using the 19% rate

233 635

36 591

256 562

2 386

124 887

350 672

355 436

1 360 169

As at 1 January 2020

233 635

36 591

256 562

2 386

124 887

350 672

355 436

1 360 169

(Charge)/addition to profit or loss

3 363

(4 176)

117 157

142

(27 202)

646 608

131 493

867 385

Recognised in other comprehensive income

14 423

-

20 483

34 906

As at 31 December 2020 using the 19% rate

251 421

32 415

373 719

2 528

97 685

997 280

507 412

2 262 460

* including property, plant and equipment, other intangible assets and perpetual usufruct of land.

As at 31 December 2020, tax losses to be settled in future periods amounted to PLN 35 464 thousand. This amount was taken into consideration in calculating deferred income tax assets.

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

The additional information and explanations presented on pages

10

-

112

constitute an integral part of these consolidated financial statements

35

Deferred income tax provision:

Taxable income after end of settlement period

Recorded, uninvoiced sales

Differences between balance sheet value and tax value of tangible assets*

Net provision for mine liquidation

Other

Total

As at 1 January 2019

122 690

47 476

901 752

10 397

244 050

1 326 365

Adjustments

(103 138)

-

104 354

1 216

As at 1 January 2019, adjusted

19 552

47 476

901 752

10 397

348 404

1 327 581

Charge/(addition) to profit or loss

(2 278)

(1 841)

153 283

(133)

(270 899)

(121 868)

Recognised in other comprehensive income

-

(1 521)

As at 31 December 2019 using the 19% rate

17 274

45 635

1 055 035

10 264

75 984

1 204 192

As at 1 January 2020

17 274

45 635

1 055 035

10 264

75 984

1 204 192

Charge/(addition) to profit or loss

(4 311)

(425)

55 761

212

156 597

207 834

Recognised in other comprehensive income

-

(533)

As at 31 December 2020 using the 19% rate

12 963

45 210

1 110 796

10 476

232 048

1 411 493

* The differences stem from fair-value measurements of tangible assets and differences in amortisation rates.

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

The additional information and explanations presented on pages

10

-

112

constitute an integral part of these consolidated financial statements

36

13. Loss/profit per share

Accounting rules

Net profit (loss) per share for each period is calculated by dividing the net profit (loss) attributable to the Parent's shareholders for the period by the weighted average number of shares in that reporting period.

Diluted profit per share is calculated by dividing the period's net profit attributable to common shareholders (after deduction of interest on redeemable preference shares convertible into ordinary shares) by the weighted average number of outstanding ordinary shares during the period (adjusted by the impact of dilutive options and dilutive redeemable preference shares convertible into ordinary shares).

Loss/profit per share

Year ended

31 December 2020

31 December 2019

Net (loss)/profit attributable to shareholders of the Parent

(2 268 412)

423 205

Weighted average number of ordinary shares

441 442 578

Net (loss)/profit per share (in PLN per share)

(5.14)

0.96

Diluted (loss)/profit per share (in PLN per share)

(5.14)

0.96

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

The additional information and explanations presented on pages

10

-

112

constitute an integral part of these consolidated financial statements

37

Explanatory notes to the consolidated statement of financial position

14. Property, plant and equipment

Accounting rules

Property, plant and equipment items are measured at purchase price or cost to manufacture, less accumulated depreciation and impairment.

Subsequent expenditures are included in the book value of a given tangible asset or are recognised as a separate asset (wherever appropriate) only if it is likely that this item will bring economic benefits to the Group and the item's cost can be reliably measured. All other expenses on repairs and maintenance are recognised as profit or loss in the reporting period in which they are incurred.

Mine closure costs initially recognised in the value of tangible assets are subject to depreciation using the same method as the tangible assets they concern, starting from the moment a given tangible asset is put into service, over a period specified in the mine closure plan within the expected mine closure schedule.

Land is not subject to depreciation. Other tangible assets are depreciated on a straight-line basis throughout the period of use or using the natural method based on the longwall length (in the case of operational excavations). The base for calculating depreciation constitutes the initial value less final value, if significant. Each significant part of a property, plant and equipment item with a different period of use is depreciated separately.

Depreciation begins when an asset is available for use. Depreciation ends when an asset is designated as available for sale in accordance with IFRS 5 or when it is removed from the statement of financial position, depending on which occurs earlier.

Within its activities, the Group receives tangible assets for free, which are initially measured at fair value. Property, plant and equipment received for free, in the form of power infrastructure (connections, lighting grid) is recognised by the Group on a one-off basis in other operating revenue when it is received (except for the receipt of lighting infrastructure in exchange for services - in which case they are accounted for over time).

External financing costs

Costs of external financing that can be directly attributed to an asset purchase, build or manufacture are capitalised as part of the purchase price or cost to manufacture such an asset. Other external financing costs are recognised as a cost in the period in which they are incurred.

The capitalisation of external financing costs begins at the later of the two dates: commencement of investment or commencement of financing. The Group ceases to capitalise external financing costs when the asset is handed over for use. The Group suspends capitalising external financing costs over a longer time period in which it suspended works focused on adapting the asset.

Significant judgements and estimates

Economic life and residual value

The amount of depreciation charges is determined on the basis of expected period of use for tangible assets. The verification conducted this year resulted in changes to depreciation/amortisation periods. Their impact in 2021 on the amount of depreciation is PLN (3 461 thousand).

The residual values and economic life of property, plant and equipment are verified at least once a year. Each change of depreciation period requires agreement and necessitates an adjustment to the depreciation charges in subsequent financial years.

At each balance sheet date ending a financial year, impairment assessments are carried out in compliance with IAS 36. If indications of impairment are identified, an impairment test is carried out in accordance with IAS 36 (section in these financial statements concerning impairment of non-financial assets).

Use periods for property, plant and equipment are as follows:

− buildings and structures 10 – 80 years

including power grids 33 years

− structures (operational excavations) natural method depreciation based on length of wall

− technical equipment and machinery 2 – 50 years

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

The additional information and explanations presented on pages

10

-

112

constitute an integral part of these consolidated financial statements

38

− means of transport 3 – 30 years

− other property, plant and equipment 3 – 25 years

Estimating the useful life of mines and coal resources

The end of the life-cycle of the mine (LWB) is currently estimated to be 2051, and this did not change from the previous annual financial statements, for 2019. The actual deadline for mine closure might be different from the Group's estimates. This results from the calculation being based on the mine's estimated life-cycle and only the coal resources being available as at the reporting date. A decline in demand for the Group's coal might result in production falling below production capacities, which would extend the mine life-cycle.

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

The additional information and explanations presented on pages

10

-

112

constitute an integral part of these consolidated financial statements

39

Property, plant and equipment

For the financial year ended 31 December 2020:

Land

Buildings and structures

Technical equipment and machinery

Means of transport

Other tangible assets

Tangible assets under construction

Total

including excavations

Gross value

As at 1 January 2020

120 238

17 537 426

1 669 857

14 710 216

368 826

792 254

1 132 323

34 661 283

Transfers

1 752

1 145 338

279 922

990 211

22 968

112 279

(2 240 001)

32 547

Purchase

-

(42 823)

-

(7 204)

1 500

4 613

2 292 130

2 248 216

Sale

(115)

(82)

-

(400)

(5 750)

(18 154)

-

(24 501)

Discontinued investments

-

(12)

Liquidation

(214)

(139 536)

(84 770)

(19 347)

(4 978)

(4 629)

-

(168 704)

Other

(3 156)

75 872

-

2 620

-

(2 477)

12 412

85 271

As at 31 December 2020

118 505

18 576 195

1 865 009

15 676 096

382 566

883 886

1 196 852

36 834 100

Accumulated depreciation

As at 1 January 2020

-

(5 995 024)

(459 045)

(5 140 290)

(147 049)

(449 694)

(2 656)

(11 734 713)

Sale

4

73

-

379

4 321

18 154

-

22 931

Depreciation

-

(722 661)

(163 343)

(698 378)

(24 981)

(58 734)

-

(1 504 754)

Liquidation

-

101 832

55 678

17 985

6 167

4 598

-

130 582

Other

-

153

8

1 154

-

1 036

-

2 343

As at 31 December 2020

4

(6 615 627)

(566 702)

(5 819 150)

(161 542)

(484 640)

(2 656)

(13 083 611)

Impairment

As at 1 January 2020

(1 635)

(461 429)

-

(965 641)

(3 435)

(5 006)

(18 620)

(1 455 766)

Decreases

225

26 242

-

28 151

94

250

1 050

56 012

Increases

(965)

(1 023 345)

-

(2 321 304)

(10 694)

(14 940)

(75 765)

(3 447 013)

As at 31 December 2020

(2 375)

(1 458 532)

-

(3 258 794)

(14 035)

(19 696)

(93 335)

(4 846 767)

Net value at 1 January 2020

118 603

11 080 973

1 210 812

8 604 285

218 342

337 554

1 111 047

21 470 804

Net value at 31 December 2020

116 134

10 502 036

1 298 307

6 598 152

206 989

379 550

1 100 861

18 903 722

No collateral is established on property, plant and equipment assets. External financing costs capitalised in 2020 were negligible.

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

The additional information and explanations presented on pages

10

-

112

constitute an integral part of these consolidated financial statements

40

For the financial year ended 31 December 2019:

Land

Buildings and structures

Technical equipment and machinery

Means of transport

Other tangible assets

Tangible assets under construction

Total

including excavations

Gross value

As at 1 January 2019

114 786

16 376 934

1 465 088

14 196 007

344 174

674 706

1 336 239

33 042 846

Adjustment due to implementation of IFRS 16

-

(10 028)

-

(10 028)

As at 1 January 2019, adjusted

114 786

16 376 934

1 465 088

14 196 007

334 146

674 706

1 336 239

33 032 818

Purchase

-

7 213

-

229 189

1 409

6 178

1 936 810

2 180 799

Sale

(50)

(339)

-

(172)

(8 540)

(43)

-

(9 144)

Transfers

5 528

1 375 054

410 125

320 884

47 444

110 968

(2 137 891)

(278 013)

Transfer to available-for-sale non-current assets

-

(35)

-

(35)

Liquidation

-

(305 206)

(205 356)

(38 122)

(5 849)

(3 622)

-

(352 799)

Transfer to investment properties

-

(43)

-

(43)

Discontinued investments

-

(120)

Other

(26)

83 848

-

2 430

216

4 067

(2 715)

87 820

As at 31 December 2019

120 238

17 537 426

1 669 857

14 710 216

368 826

792 254

1 132 323

34 661 283

Accumulated depreciation

As at 1 January 2019

-

(5 514 659)

(446 214)

(4 502 257)

(140 122)

(399 340)

(2 656)

(10 559 034)

Adjustment due to implementation of IFRS 16

-

2 981

-

2 981

As at 1 January 2019, adjusted

-

(5 514 659)

(446 214)

(4 502 257)

(137 141)

(399 340)

(2 656)

(10 556 053)

Depreciation

-

(721 026)

(176 070)

(670 746)

(23 817)

(54 593)

-

(1 470 182)

Sale

-

189

-

121

6 628

-

6 938

Liquidation

-

239 057

161 834

32 747

7 371

3 641

-

282 816

Other

-

1 415

1 405

(155)

(90)

598

-

1 768

As at 31 December 2019

-

(5 995 024)

(459 045)

(5 140 290)

(147 049)

(449 694)

(2 656)

(11 734 713)

Impairment

As at 1 January 2019

(1 459)

(467 947)

-

(960 022)

(3 480)

(4 870)

(18 641)

(1 456 419)

Decreases

-

12 785

-

8 022

52

32

260

21 151

Increases

(176)

(6 267)

-

(13 641)

(7)

(168)

(239)

(20 498)

As at 31 December 2019

(1 635)

(461 429)

-

(965 641)

(3 435)

(5 006)

(18 620)

(1 455 766)

Net value at 1 January 2019

113 327

10 394 328

1 018 874

8 733 728

200 572

270 496

1 314 942

21 027 393

Adjustment due to implementation of IFRS 16

-

(7 047)

-

(7 047)

Net value at 1 January 2019, adjusted

113 327

10 394 328

1 018 874

8 733 728

193 525

270 496

1 314 942

21 020 346

Net value at 31 December 2019

118 603

11 080 973

1 210 812

8 604 285

218 342

337 554

1 111 047

21 470 804

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

The additional information and explanations presented on pages

10

-

112

constitute an integral part of these consolidated financial statements

41

Future contract liabilities related to the purchase of property, plant and equipment incurred as at the reporting date but not yet recognised in the statement of financial position amounted to PLN 1 067 174 thousand as at 31 December 2020 (as at 31 December 2019: PLN 1 306 454 thousand).

15. Intangible assets and goodwill

Accounting rules

Goodwill

Goodwill arising on acquisition results from an excess, on the acquisition date, of the sum of payments, non-controlling interests and the fair value of previously held interests in the acquired entities over the net fair value of identifiable assets, liabilities and conditional liabilities of the acquired entity as at the acquisition date.

In the case of a negative value, the Group reviews the fair values of each component of acquired net assets. If as a result of such a review the value continues to be negative, it is immediately recognised in the present period profit or loss.

Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less impairment.

For impairment testing purposes, goodwill is allocated to the Group's specific cash generating units that should receive the synergy benefits from the merger. The cash generating units to which goodwill is allocated are tested for impairment once a year or more frequently, if it can be reliably expected that impairment has occurred. If the recoverable value of a cash generating unit is smaller than its balance sheet value, an impairment loss is allocated first to reduce the balance sheet value of the goodwill allocated to this cash generating unit and subsequently to this unit's other assets proportionately to the balance sheet value of specific assets in this unit. An impairment loss on goodwill is irreversible.

Geological information

Purchased geological information is recognised in accordance with IFRS 6 Exploration for and Evaluation of Mineral Resources , in an amount resulting from the agreement executed with the Ministry of the Environment. Until a mining concession is secured, this is not subject to amortisation. Subsequently, capitalised costs are amortised throughout the term of the concession.

Fees

Fees for mining usufruct for hard coal mining areas within the "Bogdanka" deposit are capitalised in the amount of such fees. Capitalised costs are recognised throughout the expected period of mining usufruct (note 41).

Other intangible assets

Other intangible assets include: computer software, licences and other intangible assets. Intangible assets are measured at purchase price or cost to manufacture, less accumulated amortisation and accumulated impairment. Amortisation is calculated on a straight-line basis, using the following estimated period of use.

Costs of R&D work

The costs of research works are recognised in profit or loss in the period in which they are incurred. The costs of development work that meet their capitalisation criteria are measured at purchase price or cost to manufacture, less accumulated amortisation and accumulated impairment. Amortisation is calculated on a straight-line basis, using the follow ing estimated period of use.

Significant judgements and estimates

Economic life and residual value

The amount of amortisation changes is determined on the basis of expected period of use for intangible assets. The verification conducted this year resulted in changes to amortisation periods. Their impact in 2021 on the amount of amortisation will be PLN (2 thousand).

Each year, the Group verifies the correctness of periods of use for intangible assets. Each change of amortisation period requires agreement and necessitates an adjustment to the amortisation charges in subsequent financial years.

At each balance sheet date ending a financial year, impairment assessments are carried out in compliance with IAS 36. If indications of impairment are identified, an impairment test is carried out in accordance with IAS 36 (section in these financial statements concerning impairment of non-financial assets).

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

The additional information and explanations presented on pages

10

-

112

constitute an integral part of these consolidated financial statements

42

Useful life of intangible assets:

− licences and software 2 – 10 years

− geological information over the mining concession period (note 41)

− other intangible assets 2 – 40 years

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

The additional information and explanations presented on pages

10

-

112

constitute an integral part of these consolidated financial statements

43

Intangible assets

For the financial year ended 31 December 2020:

Costs of development work

Goodwill

Computer software, licences, concessions, patents

Geological information

Total

Gross value

As at 1 January 2020

10 485

229 323

624 016

40 856

904 680

Transfers

-

23 831

-

23 831

Purchase

392

-

16 448

-

16 840

Transfer to available-for-sale non-current assets

-

(8)

-

(8)

Liquidation

-

(2 506)

-

(2 506)

Other

(284)

-

(347)

-

(631)

As at 31 December 2020

10 593

229 323

661 434

40 856

942 206

Accumulated amortisation

As at 1 January 2020

(3 313)

-

(286 084)

(2 598)

(291 995)

Amortisation

(867)

-

(52 099)

(1 266)

(54 232)

Liquidation

-

2 316

-

2 316

Other

-

155

-

155

As at 31 December 2020

(4 180)

-

(335 712)

(3 864)

(343 756)

Impairment

As at 1 January 2020

-

(227 517)

(6 144)

-

(233 661)

Decreases

-

124 919

47

-

124 966

Increases

-

(124 919)

(5 471)

-

(130 390)

As at 31 December 2020

-

(227 517)

(11 568)

-

(239 085)

Net value at 1 January 2020

7 172

1 806

331 788

38 258

379 024

Net value at 31 December 2020

6 413

1 806

314 154

36 992

359 365

No collateral is established on intangible assets. No intangible assets were produced internally in 2020.

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

The additional information and explanations presented on pages

10

-

112

constitute an integral part of these consolidated financial statements

44

For the financial year ended 31 December 2019:

Costs of development work

Goodwill

Computer software, licences

Right to establish easement

Geological information

Total

Gross value

As at 1 January 2019

6 588

229 323

588 668

71 433

40 856

936 868

Adjustment due to implementation of IFRS 16

-

(71 433)

-

(71 433)

As at 1 January 2019, adjusted

6 588

229 323

588 668

-

40 856

865 435

Transfers

-

(775)

-

(775)

Purchase

983

-

50 959

-

51 942

Liquidation

-

(14 158)

-

(14 158)

Transfer to available-for-sale non-current assets

-

(678)

-

(678)

Other

2 914

-

2 914

As at 31 December 2019

10 485

229 323

624 016

-

40 856

904 680

Accumulated amortisation

As at 1 January 2019

(2 417)

-

(255 121)

(8 096)

(1 705)

(267 339)

Adjustment due to implementation of IFRS 16

-

8 096

-

8 096

As at 1 January 2019, adjusted

(2 417)

-

(255 121)

-

(1 705)

(259 243)

Amortisation

(896)

-

(44 661)

-

(893)

(46 450)

Liquidation

-

13 572

-

13 572

Transfer to available-for-sale non-current assets

-

184

-

184

Other

-

(58)

-

(58)

As at 31 December 2019

(3 313)

-

(286 084)

-

(2 598)

(291 995)

Impairment

As at 1 January 2019

-

(227 517)

(6 201)

(99)

-

(233 817)

Adjustment due to implementation of IFRS 16

-

99

-

99

As at January 2019, adjusted

-

(227 517)

(6 201)

-

(233 718)

Decreases

-

57

-

57

As at 31 December 2019

-

(227 517)

(6 144)

-

(233 661)

Net value at 1 January 2019

4 171

1 806

327 346

63 238

39 151

435 712

Adjustment due to implementation of IFRS 16

-

(63 238)

-

(63 238)

As at 1 January 2019, adjusted

4 171

1 806

327 346

-

39 151

372 474

Net value at 31 December 2019

7 172

1 806

331 788

-

38 258

379 024

As at 31 December 2020 and 31 December 2019, goodwill covered goodwill at Miejska Energetyka Cieplna Piła Sp. z o.o.

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

The additional information and explanations presented on pages

10

-

112

constitute an integral part of these consolidated financial statements

45

Future contract liabilities related to the purchase of intangible assets incurred as at the reporting date but not yet recognised in the statement of financial position reached PLN 29 173 thousand as at 31 December 2020 (as at 31 December 2019: PLN 29 716 thousand).

16. Right-of-use assets

Accounting rules

A contract contains a lease if:

a) it concerns an identified asset that is explicitly specified in the contract (e.g. using an inventory number or indication of a specific floor of a building) or indirectly specified when it is made available to the customer; and

b) the lessee receives essential all of the economic benefits from such assets during the period of use, i.e. both basic benefits and the benefits derived from it; and

c) the lessee has the right to specify the method in which it uses the identified asset.

As lessee, the Group recognises Leases in its financial statements as:

a) right-of-use assets at purchase price;

− covering the value of the lease liability plus payments made on or before the contract date, initial direct costs, an estimate of costs to be incurred by the lessee in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease, unless those costs are incurred to produce inventories,

− less any lease incentives received.

b) lease liabilities constituting the sum of the present value of lease payments and the present value of payments expected at the end of the lease term.

Subsequent to initial recognition, the Group measures the right-of-use assets at purchase price less amortisation and impairment. The amortisation period is set as:

a) if the lease transfers ownership of the underlying asset to the lessee or if the lessee is certain that it will exercise a purchase option, the amortisation period is from the commencement date to the end of the useful life of the underlying asset, or

b) the amortisation period starts from the commencement date to the earlier of:

− the end of the useful life of the right-of-use asset, or

− the end of the lease term.

The present value of future lease payments is calculated using a discount rate. ENEA S.A., ENEA Operator Sp. z o.o., ENEA Wytwarzanie Sp. z o.o., Enea Elektrownia Połaniec S.A. and Lubelski Węgiel „Bogdanka” S.A. apply a residual interest rate, i.e. a rate that ENEA S.A. would be required to pay based on a similar lease or, if not possible to determine, an interest rate at the commencement date that ENEA S.A. would have to use to make a loan necessary to purchase the given asset for a similar period and with similar collateral. ENEA S.A. uses an interest rate equal to 6-month WIBOR from the last day of the year preceding the financial year, plus margin. The other companies use an interest rate equal to 1-month WIBOR from the last day of the year preceding the financial year, plus margin. The discount rate is analysed and updated every year. In the case of sub-leases, lessees at ENEA Group use the lessor's discount rate.

The Group sets the lease term, i.e. irrevocable lease term, together with:

a) term for an option to extend the lease if the Group is sufficiently certain that it will exercise this right; and

b) term for an option to terminate the lease if the Group is sufficiently certain that it will not exercise that right.

In most of its leases, the Group uses a lease period in accordance with the contractual period. For contracts executed for an indefinite period, the Group determines the minimum contractual term for both of the parties. If the Group is unable to determine how long it intends to use the asset and such an estimate could be treated as a lease term in the case of contracts with an indefinite period, the Group assumes that the irrevocable contractual period will be the termination period for that lease.

In the case of rights to perpetual usufruct of land, the lease term is the same as the term for the right to perpetual usufruct.

In subsequent periods, the lease liability is measured taking into account:

a) interest charged (unwind of discount),

b) lease payments made,

c) reflection of the re-evaluation of contract, changes in the contract or changes in the nature of variable payments that are fixed in substance.

The liability in a given period will constitute the difference between the present value of lease payments and the sum of lease payments for the given period. The interest part of a lease payment is directly recognised in the statement of profit and loss.

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

The additional information and explanations presented on pages

10

-

112

constitute an integral part of these consolidated financial statements

46

For multi-element contracts, the Group recognises lease components separately from non-lease components. The Group allocates contractual remuneration to all components, using individual sales prices in the case of lease components and aggregated individual sales prices in the case of non-lease components.

The Group applies a practical expedient and does not apply the lease model in reference to:

a) short-term leases (contracts with a term of up to 12 months and without the right to purchase the asset),

b) the leasing of low-value assets, the initial value of which does not exceed PLN 10 thousand (even if the value of such assets is significant after aggregation) and assets that are not largely depended on or tied to other assets specified in the contract.

This exemption does not apply in situations where the Group transfers the asset under a sub-lease or expects to transfers it. If the Group decides to use this expedient, it recognises lease payments as cost on a straight-line basis throughout the lease term.

From 1 January 2019, rights to the perpetual usufruct of land are recognised as right-of-use assets and are subject to amortisation.

In June 2019, the IFRS Interpretations Committee issued a summary of decisions taken at public meetings concerning interpretations regarding IFRS 16, including regarding the right to underground parts of land. Prior to this decision being issued by the IFRIC, the Group had not treated contracts giving it the right to use underground portions of land as contracts constituting a lease in accordance with the definition of a lease introduced by IFRS 16. The Group also had not treated transmission easements as Leases both when electricity poles are situated on land covered by the easement and when infrastructure is not present and the easement only concerns an overhead power line. Following a detailed analysis of the impact of the Committee's decisions on accounting rules, the Group considered these contracts as leases. This led to an increase in right-of-use assets and lease liabilities presented in the statement of financial position. Right-of-use assets concerning easements for State Forests was recognised at zero value due to the variability of fees. Detailed impact of this change is presented in note 15 and in the table below.

Significant judgements and estimates

Right to use underground parts of land

The value of right-of-use assets and lease liabilities were estimated on the basis of annual payments and the estimated period of economic use resulting from the register of tangible asset. In the future, the Group plans to identify in detail contracts concerning the use of underground parts of roadways and other contracts concerning the placement of equipment on roadways, and to specify on this basis the precise values of the right to use these assets.

Discount rate

The way in which the discount rate is determined is described above in accounting rules.

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

The additional information and explanations presented on pages

10

-

112

constitute an integral part of these consolidated financial statements

47

Right-of-use assets

For the financial year ended 31 December 2020:

Right to perpetual usufruct of land

Buildings

Technical equipment and machinery

Means of transport

Right to establish easement

Right-of-use assets concerning underground parts of land

Other

Total

Gross value

As at 1 January 2020

352 276

15 483

611

15 080

98 550

300 544

−

782 544

Purchase

1 199

2 949

−

10 954

104

−

213

15 419

Received free-of-charge

3 565

5 001

−

9 959

18 873

4 591

41 989

Liquidation

(1 304)

(1 079)

−

(2 793)

−

(219)

(116)

(5 511)

Other

2 935

7

(173)

(170)

22

(102)

(23)

2 496

As at 31 December 2020

358 671

22 361

438

23 071

108 635

319 096

4 665

836 937

Accumulated amortisation

As at 1 January 2020

(13 192)

(5 026)

(14)

(9 021)

(11 244)

(12 022)

−

(50 519)

Amortisation

(5 382)

(5 845)

(29)

(5 012)

(3 625)

(15 034)

(283)

(35 210)

Liquidation

52

80

−

2 706

−

17

−

2 855

Other

(2)

−

(2)

27

9

−

32

As at 31 December 2020

(18 524)

(10 791)

(45)

(11 300)

(14 860)

(27 039)

(283)

(82 842)

Impairment

As at 1 January 2020

(11 978)

−

(99)

−

(12 077)

Decreases

76

−

90

−

166

Increases

(11 707)

−

(292)

(107)

−

(12 106)

As at 31 December 2020

(23 609)

−

(292)

(116)

−

(24 017)

Net value at 1 January 2020

327 106

10 457

597

6 059

87 207

288 522

−

719 948

Net value at 31 December 2020

316 538

11 570

393

11 479

93 659

292 057

4 382

730 078

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

The additional information and explanations presented on pages

10

-

112

constitute an integral part of these consolidated financial statements

48

For the financial year ended 31 December 2019

Right to perpetual usufruct of land

Buildings

Technical equipment

and machinery

Means of transport

Right to establish easement

Right-of-use assets concerning underground parts of land

Total

Gross value

As at 1 January 2019

124 978

−

124 978

Adjustment due to implementation of IFRS 16

230 328

14 365

−

14 024

71 433

300 544

630 694

As at 1 January 2019, adjusted

355 306

14 365

−

14 024

71 433

300 544

755 672

Purchase

2 875

1 017

892

1 462

27 118

−

33 364

Sale

(103)

(38)

−

(141)

Transferred under a finance sub-lease

−

246

−

246

Liquidation

(7)

−

(281)

(151)

−

(439)

Other

(5 795)

(107)

−

(255)

(1)

−

(6 158)

As at 31 December 2019

352 276

15 483

611

15 080

98 550

300 544

782 544

Accumulated amortisation

As at 1 January 2019

(7 932)

−

(7 932)

Adjustment due to implementation of IFRS 16

−

(2 981)

(8 096)

−

(11 077)

As at 1 January 2019, adjusted

(7 932)

−

(2 981)

(8 096)

−

(19 009)

Sale

3

−

3

Amortisation

(5 276)

(5 057)

(14)

(6 165)

(3 148)

(12 022)

(31 682)

Liquidation

−

31

−

37

−

68

Other

13

−

88

−

101

As at 31 December 2019

(13 192)

(5 026)

(14)

(9 021)

(11 244)

(12 022)

(50 519)

Impairment

As at 01 January 2019

(11 905)

−

(11 905)

Adjustment due to implementation of IFRS 16

−

(99)

−

(99)

As at 1 January 2019, adjusted

(11 905)

−

(99)

−

(12 004)

Decreases

1

−

1

Increases

(74)

−

(74)

As at 31 December 2019

(11 978)

−

(99)

−

(12 077)

Net value at 1 January 2019

105 141

−

105 141

Adjustment due to implementation of IFRS 16

230 328

14 365

−

11 043

63 238

300 544

619 518

Net value at 1 January 2019, adjusted

335 469

14 365

−

11 043

63 238

300 544

724 659

Net value at 31 December 2019

327 106

10 457

597

6 059

87 207

288 522

719 948

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

The additional information and explanations presented on pages

10

-

112

constitute an integral part of these consolidated financial statements

49

17. Investment properties

Accounting rules

Investment properties are maintained in order to generate income from rent, growth in value or both. The Group selected the purchase price model at initial recognition.

Investments in properties are amortised on a straight-line basis. Amortisation begins in the month following the month in which the investment in property is accepted for use.

Income from renting investment properties is recognised in profit or loss on a straight-line basis throughout the contract term.

Significant judgements and estimates

Key assumptions regarding verifying the economic life of investment properties are described in an explanatory note concerning property, plant and equipment (note 14), and key assumptions concerning impairment are described in a note in the section of these financial statements relating to the impairment of non-financial assets.

Investment properties

As at

31 December 2020

31 December 2019

Gross value

As at 1 January

33 682

32 770

Transfers

-

836

Purchase

77

33

Liquidation

(2 777)

-

Other

-

43

As at 31 December

30 982

33 682

Accumulated amortisation

As at 1 January

(9 892)

(6 222)

Amortisation

(1 009)

(3 670)

Liquidation

2 776

-

Other

(29)

-

As at 31 December

(8 154)

(9 892)

Impairment

As at 1 January

(681)

(684)

Decreases

5

3

Increases

(913)

-

As at 31 December

(1 589)

(681)

Net value

Net value at 1 January

23 109

25 864

Net value at 31 December

21 239

23 109

No collateral was established on investment properties.

Presented below are revenue and costs related to investment properties:

Year ended

31 December 2020

31 December 2019

Income from investment properties

2 520

2 556

Operating costs related to income-generating investment properties

(4 544)

(6 425)

The Group classifies office buildings and other premises as investment properties.

The ENEA S.A. headquarters was the most valuable investment property recognised in the books at PLN 7 816 thousand. The Group estimates that the fair value is close to the value recognised in the books.

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

The additional information and explanations presented on pages

10

-

112

constitute an integral part of these consolidated financial statements

50

18. Investments in associates and jointly controlled entities

Accounting rules

Accounting rules concerning investments in subsidiaries, associates and jointly controlled entities are presented in note entitled Group composition and consolidation rules (note 2).

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

The additional information and explanations presented on pages

10

-

112

constitute an integral part of these consolidated financial statements

51

The following table shows key financial data concerning associates and jointly controlled entities consolidated using the equity approach:

As at 31 December 2020

Elektrownia Ostrołęka Sp. z o.o.

Polimex - Mostostal S.A.*

Polska Grupa Górnicza S.A.

ElectroMobility Poland S.A.

Total

Stake

50.00%

16.48%

7.66%

25%

Current assets

38 172

1 390 029

1 799 476

17 537

3 245 214

Non-current assets

95 229

673 930

9 080 500

39 274

9 888 933

Total assets

133 401

2 063 959

10 879 976

56 811

13 134 147

Current liabilities

912 443

1 175 007

6 568 576

2 901

8 658 927

Non-current liabilities

−

213 913

2 733 135

17

2 947 065

Total liabilities

912 443

1 388 920

9 301 711

2 918

11 605 992

Net assets

(779 042)

675 039

1 578 265

53 893

1 528 155

Share in net assets

−

111 246

120 895

13 473

245 614

Goodwill

7 080

15 954

52 697

−

75 731

Impairment of goodwill

(7 080)

−

(52 697)

−

(59 777)

Impairment of investments

−

(129 208)

−

(129 208)

Elimination of unrealised gains/losses

−

(7 026)

8 313

−

1 287

Book value of equity-accounted investments at 31 December 2020

−

120 174

−

13 473

133 647

Revenue

32 562

1 500 978

7 271 145

483

8 805 168

Net result

(625 208)

94 309

(1 751 246)

(3 762)

(2 285 907)

Elimination of unrealised gains/losses

−

(7 026)

8 313

−

1 287

Share of profit of associates and jointly controlled entities

−

15 683

(125 213)

(631)

(110 161)

Impairment of investments in jointly controlled entities

−

(129 208)

−

(129 208)

* package data - this can marginally differ from published data.

The Group made a consolidation adjustment concerning margins on sales in transactions between the Group and Polimex - Mostostal S.A. and Polska Grupa Górnicza S.A.

Taking into account the difficult financial situation at Polska Grupa Górnicza S.A. (PGG), negative changes in that company's market and economic environment as well as plans to extinguish hard coal mining in Poland, the Group identified grounds for the impairment of its investment in PGG. Due to the above, having carried out an impairment test, the Group decided to recognise an impairment loss on the entire value of its investment in PGG. At 31 December 2020, the value of investment in PGG in the consolidated financial statements was zero.

A PLN 222 200 thousand provision for future investment commitments toward Elektrownia Ostrołęka Sp. z o.o. is presented in the item: Share of the results of associates and jointly- controlled entities in the consolidated statement of comprehensive income.

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

The additional information and explanations presented on pages

10

-

112

constitute an integral part of these consolidated financial statements

52

As at 31 December 2019

Elektrownia Ostrołęka Sp. z o.o.

Polimex - Mostostal S.A.

Polska Grupa Górnicza S.A.

ElectroMobility Poland S.A.

Total

Stake

50.00%

16.48%

7.66%

25.00%

Current assets

37 549

964 470

2 226 017

40 174

3 268 210

Non-current assets

65 419

718 259

9 794 651

17 542

10 595 871

Total assets

102 968

1 682 729

12 020 668

57 716

13 864 081

Current liabilities

86 271

779 861

4 040 084

1 297

4 907 513

Non-current liabilities

170 532

319 677

4 694 514

3

5 184 726

Total liabilities

256 803

1 099 538

8 734 598

1 300

10 092 239

Net assets

(153 835)

583 191

3 286 070

56 416

3 771 842

Share in net assets

−

96 110

251 713

14 104

361 927

Goodwill

7 080

15 954

52 697

−

75 731

Impairment

(7 080)

−

(52 697)

−

(59 777)

Goodwill after impairment

−

15 954

−

15 954

Elimination of unrealised gains/losses

−

(7 573)

2 708

−

(4 865)

Book value of equity-accounted investments at 31 December 2019

−

104 491

254 421

14 104

373 016

Revenue

8 360

1 502 896

9 189 382

394

10 701 032

Net result

(1 038 720)

4 490

(427 079)

(5 531)

(1 466 840)

Elimination of unrealised gains/losses

−

(7 573)

2 708

−

(4 865)

Elimination of surplus of net loss over balance sheet value of stake

(76 916)

−

(76 916)

Share of profit of associates and jointly controlled entities

(442 444)

5 511

(44 342)

(890)

(482 165)

Impairment of investments in jointly controlled entities

(7 080)

−

(52 697)

−

(59 777)

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

The additional information and explanations presented on pages

10

-

112

constitute an integral part of these consolidated financial statements

53

Change in investments in subsidiaries, associates and jointly controlled entities

As at

31 December 2020

31 December 2019

As at 1 January

373 016

734 268

Change in the change in net assets

(110 161)

(482 165)

Impairment of investments in jointly controlled entities

(129 208)

(59 777)

Purchase of investments

−

180 690

As at 31 December

133 647

373 016

Implementation of project to build Elektrownia Ostrołęka C

At 31 December 2020, ENEA S.A. held 9 124 821 shares of Elektrownia Ostrołęka Sp. z o.o., with a nominal value of PLN 50 each and total nominal value of PLN 456 241 thousand.

On 23 December 2019 ENEA S.A. and ENERGA S.A. executed a loan agreement with Elektrownia Ostrołęka Sp. z o.o., pursuant to which ENERGA S.A. issued a loan of up to PLN 340 million to Elektrownia Ostrołęka Sp. z o.o. until 26 February 2021. Under the agreement, if the circumstances indicated in point 1.8 of the Agreement of 30 April 2019, executed between ENEA S.A. and ENERGA S.A., materialise, ENERGA S.A. would conditionally sell half of receivables from Elektrownia Ostrołęka Sp. z o.o. to ENEA S.A., payable by 31 January 2021, for a price equal to the nominal value of the debt, covering especially principal and interest as of 31 January 2021. In accordance with the loan agreement, ENEA S.A. was required to pay the price for the debt by 31 January 2021. ENERGA S.A. paid Elektrownia Ostrołęka Sp. z o.o. the first tranche of the loan on 23 December 2019, amounting to PLN 160 million, the second tranche on 13 January 2020, amounting to PLN 17 million, and the third tranche (PLN 163 million) on 22 April 2020. The aforementioned condition for the second and third tranche of the loan, totalling PLN 180 million, was met as of 30 June 2020 (and in December 2019 for the first tranche). In connection with this, in its financial statements as at 30 June 2020 ENEA S.A. recognised a future receivable concerning the aforementioned two tranches of PLN 90 million plus PLN 1 299 thousand in interest, and a liability towards ENERGA S.A. of the same amount.

On 30 April 2020, PKN Orlen S.A. completed the process of accounting for all transactions to purchase ENERGA S.A. shares following a tender offer to subscribe for the sale of all shares issued by ENERGA S.A., announced by PKN Orlen S.A. on 5 December 2019. As a result of the tender offer, PKN Orlen S.A. purchase 331 313 082 shares of ENERGA S.A., which constitutes approx. 80% of ENERGA S.A.'s share capital and approx. 85% of voting rights at ENERGA S.A.'s general meeting. On 30 November 2020 PKN Orlen S.A., following the settlement of a purchase of shares under a subsequent tender offer for ENERGA S.A. shares, announced by PKN Orlen S.A. on 21 September 2021, increased its stake in ENERGA S.A.'s share capital and voting rights to 90.92% and 93.28%, respectively.

On 13 February 2020, ENEA S.A. executed an agreement with ENERGA S.A. suspending financing by ENERGA S.A. and ENEA S.A. for the project to build Elektrownia Ostrołęka C. In the agreement, ENEA S.A. and ENERGA S.A. undertook to carry out analyses, especially concerning the project's technical, technological, economic and organisational parameters and further financing.

ENERGA S.A. and ENEA S.A. assumed that suspending financing for the project would result in the company having to suspend its contract executed on 12 July 2018 to build Elektrownia Ostrołęka C with capacity of approx. 1000 MW, along with a contract to convert rail infrastructure for Elektrownia Ostrołęka C of 4 October 2019.

On 14 February 2020, Elektrownia Ostrołęka Sp. z o.o. issued to the General Contractor for the contract to build Elektrownia Ostrołęka C with capacity of approx. 1000 MW of 12 July 2018 a notice to suspend all works related to that contract, effective 14 February 2020.

On 18 April 2020, an agreement was signed between PKN Orlen and the State Treasury regarding PKN Orlen's planned acquisition of ENERGA S.A. The parties to the agreement envisaged that once PKN Orlen obtains control over ENERGA S.A., ENERGA S.A.'s flagship investments will be continued. PKN Orlen declared that immediately after assuming control over ENERGA S.A. it would review the terms for continuing these investments, especially the construction of Elektrownia Ostrołęka C.

On 7 May 2020, ENERGA S.A. announced that it had extended the analysis period for project Ostrołęka C. In accordance with the current report, it was assumed that analytical work would continue for about a month.

As part of the analytical work performed under the agreement, ENEA S.A. and ENERGA S.A. worked on updating business and technical assumptions as well as assumptions concerning the financing structure within the financial model. On ENERGA S.A.'s part, the results of this work were provided to Elektrownia Ostrołęka Sp. z o.o. on 14 May 2020, when the company received calculations concerning the Project's profitability in the coal fuel variant. These results were used by the company to perform a CGU test. The CGU test carried out at Elektrownia Ostrołęka Sp. z o.o. shows that completing the Project would generate a negative value, meaning that continuing the Project would be unjustified.

On 19 May 2020, PKN Orlen S.A. published current report 31/2020, announcing that it had issued a statement to ENERGA S.A. in response to a question submitted by ENERGA S.A. to PKN Orlen S.A. regarding its intent to directly invest in the construction of a coal-based energy-generation unit, being implemented by Elektrownia Ostrołęka Sp. z o.o., based in Ostrołęka (Investment). PKN Orlen S.A. declared preliminary readiness to directly invest in the Investment only if the

Consolidated financial statements in compliance with EU IFRS for the financial year ended 31 December 2020 (in PLN 000s)

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Investment's technological assumptions were to be changed to gas-based technology. PKN Orlen S.A. also declared readiness to hold discussions with the company's shareholders, i.e. ENERGA S.A. and ENEA S.A., regarding the form, extent and way of investing in the Investment.

Furthermore, on 19 May 2020 ENERGA S.A. published current report 41/2020, announcing that on 19 May 2020 it had received from PKN Orlen S.A., majority shareholder in ENERGA S.A., a declaration of preliminary readiness to directly invest in the construction of a power-generation unit by Elektrownia Ostrołęka Sp. z o.o. The declaration constituted a response to ENERGA S.A.'s question addressed to PKN Orlen S.A. and was made only on the condition that the Investment's technological assumptions would be changed to gas fuel, which was one of the scenarios being analysed, as announced by ENERGA S.A. in current reports 8/2020 of 13 February 2020, 11/2020 of 23 February 2020 and 38/2020 of 7 May 2020.

On 19 May 2020, ENEA S.A. received an electronic copy of Resolution no. 39/2020 of the Management Board of Elektrownia Ostrołęka Sp. z o.o. of 19 May 2020 regarding recognition of impairment losses on the book value of the Company's assets. As a result of an impairment test on non-current assets performed at Elektrownia Ostrołęka Sp. z o.o., which followed an update of business assumptions by Elektrownia Ostrołęka Sp. z o.o. regarding the construction of power plant Ostrołęka C based on coal technology, the Group's consolidated financial statements for 2019 include ENEA S.A.'s share of the net loss generated by Elektrownia Ostrołęka Sp. z o.o. Given the fact that it was higher than the value of the stake in this company, it was reduced to zero. At 31 December 2020, ENEA S.A.'s stake in Elektrownia Ostrołęka Sp. z o.o. was worth PLN 0.

On 2 June 2020 the Management Board of ENEA S.A. accepted a final report on analyses conducted in collaboration with ENERGA S.A. regarding the project's technical, technological, economic, organisational and legal aspects and further financing. Conclusions from these analyses do not justify continuing the project in its existing form, i.e. the construction of a power plant generating electricity in a process of hard coal combustion. This evaluation was driven by the following:

1) regulatory changes at the EU level and the credit policy of certain financial institutions, which show that there is far greater access to financing for energy projects based on gas than coal;

and

2) the acquisition of control over Energa by PKN Orlen S.A., the strategy of which does not include investments in electricity generation based on coal combustion.

At the same time, technical analysis confirmed the viability of a variant in which the power plant would use gas ("Gas Project") at the current location of the coal-unit being built. As a result of the above, ENEA S.A.'s Management Board decided to continue building a generating asset in Ostrołęka and change the fuel source from coal to gas.

On 2 June 2020, a three-party agreement was executed between ENEA S.A., ENERGA S.A. and PKN Orlen S.A., spelling out the following key cooperation rules for the Gas Project:

− subject to the reservations expressed below, continue cooperation between ENEA S.A. and ENERGA S.A. via the existing special-purpose vehicle, i.e. Elektrownia Ostrołęka Sp. z o.o., and settle costs related to the Project between ENEA S.A. and ENERGA S.A., along with settlements with Project contractors, in accordance with the existing rules,

− take into account PKN Orlen S.A.'s potential role in the Gas Project as a new shareholder,

− ENEA S.A.'s participation in the Gas Project as a minority shareholder with an investment cap, as a result of which the Company will not be an entity co-controlling Elektrownia Ostrołęka Sp. z o.o.,

− subject to the essential corporate approvals, execute a new shareholders agreement regarding the Gas Project that incorporates the aforementioned cooperation rules,

− undertake activities intended to secure financing for the Gas Project by ENERGA S.A. together with PKN Orlen S.A.

From 2 June 2020, the parties to this agreement had been holding talks regarding a new investment agreement specifying rules for the further implementation of the Gas Project, including investment by each of the parties. At the same time, ENEA S.A. on its own evaluated the prospect of participating in the project.

On 22 December 2020, the Supervisory Board of ENEA S.A. decided as follows:

− withdraw ENEA S.A. from investing in the construction of a gas-based unit as part of project Ostrołęka C, and

− make arrangements with ENERGA regarding the settlement of costs pertaining to the project to build a coal- based unit as part of project Ostrołęka C.

Decisions in the above areas taken by the Supervisory Board of ENEA S.A. and the parties involved in Project Ostrołęka C will result in the spin-off of an organised part of enterprise related to the gas project from Project Ostrołęka C (including in accounting and organisational terms). From the spin-off date, investment costs related to settling the gas project will not be incurred by ENEA S.A.

Further, the following documents were signed on 22 December 2020:

• agreement between ENEA S.A., ENERGA S.A. and Elektrownia Ostrołęka Sp. z o.o. regarding cooperation on the division of Elektrownia Ostrołęka Sp. z o.o. (Division Agreement),

• agreement between the Company and ENERGA S.A. regarding cooperation on settling the coal-based project as part of Project Ostrołęka C (Settlement Agreement, Coal Project).

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These agreements were signed in connection with a decision to change the source of power for the Elektrownia Ostrołęka C power plant being constructed with capacity of approx. 1000 MW from coal to gas, and ENEA S.A.'s decision to not participate in the Gas Project.

Both of the agreements include a statement by ENEA S.A. on withdrawal from further participation in the Gas Project. The reasons for withdrawing from further investment in the construction of the gas unit are especially related to ENEA Group's intention to intensify investing activity in the area of renewable energy sources as well as to invest in the conversion of coal-based sources to gas-based across ENEA S.A.'s existing wholly-owned generating assets.

Reaching these agreements also serves to confirm that in light of ENEA S.A.'s withdrawal from the Gas Project the remaining parties will not be seeking any claims from ENEA S.A. based on this decision.

In accordance with the Division Agreement, Elektrownia Ostrołęka Sp. z o.o. will be divided through the spin-off (in the meaning of the Polish Commercial Companies Code) of assets and liabilities (rights and obligations) and other elements that make up the Gas Project. The process of dividing this company is expected to be completed in the second quarter of 2021.

The Settlement Agreement is essential to the performance of the Division Agreement, which requires cooperation by the shareholders of Elektrownia Ostrołęka Sp. z o.o., including the settlement of costs related to the Coal Project. In accordance with the Settlement Agreement, costs related to the Coal Project will be settled based on the existing arrangements between the company and ENERGA S.A. and ENEA S.A.

On 31 December 2020, in accordance with the Settlement Agreement (which amended the loan agreement of 23 December 2019 in this regard), ENEA S.A. bought from ENERGA S.A. half of ENERGA S.A.'s receivables due from Elektrownia Ostrołęka Sp. z o.o. for a price equal to the nominal value of the receivables being sold, i.e. PLN 170 000 thousand, plus interest accrued from 31 December 2020, amounting to PLN 11 617 thousand.

Impairment of loans issued to Elektrownia Ostrołęka Sp. z o.o. as at 31 December 2020 amounted to PLN 209 785 thousand, together with interest (the value of these loans was written off to zero). The total impairment loss on loans issued to Elektrownia Ostrołęka Sp. z o.o. recognised in the nine-month period ended 31 December 2020 was PLN 144 014 thousand, and this amount was recognised in the consolidated statement of comprehensive income under "Impairment of financial assets at amortised cost."

Furthermore, in reference to a settlement proposal presented by the General Contractor on 23 June 2020, with regard to an investment consisting of the construction of coal-fired power plant Ostrołęka C, grounds were identified for recognising a PLN 222 200 thousand provision (this amount was recognised in the consolidated statement of comprehensive income under "Impairment of interests in subsidiaries, associates and jointly-controlled entities") for future investment liabilities toward Elektrownia Ostrołęka Sp. z o.o. Due to considerable uncertainty as to the final amounts of claims, the amount of this provision is the best possible estimate, based on the General Contractor's proposals, among other things. The amounts required to settle the Coal Project are currently being analysed in detail by Elektrownia Ostrołęka Sp. z o.o. and agreed with the General Contractor.

On 26 February 2021, ENEA S.A. and ENERGA S.A. executed with Elektrownia Ostrołęka Sp. z o.o. Annex no. 1 to the PLN 340 million Loan Agreement of 23 December 2019 and Annex no. 6 to the PLN 58 million Loan Agreement of 17 July 2019. Pursuant to these annexes, Elektrownia Ostrołęka Sp. z o.o. has made a commitment to repay the loans to ENEA S.A. on a one-off basis – PLN 170 million and PLN 29 million, respectively, along with due interest, by 30 June 2021.

ENEA S.A.'s commitment to provide funding for Elektrownia Ostrołęka Sp. z o.o. resulting from the existing agreements (especially the agreements dated 28 December 2018 and 30 April 2019 and the Settlement Agreement) that is still outstanding amounts to PLN 620 million. ENEA S.A. does not have sufficient information on any potential additional contributions or their potential deadlines, aside from those above.

19. CO 2 emission allowances

Accounting rules