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Directors Report on the Operations Of PGNiG GROUP DIRECTORS' REPORT FOR 2020 (in PLN million, unless stated otherwise) Page 2 of 122 Free translation of the official Polish version in XHTML PGNiG GROUP DIRECTORS' REPORT FOR 2020 (in PLN million, unless stated otherwise) Financial highlights of the PGNiG Group Table 1 Financial highlights of the PGNiG Group for 2019–2020 PLNm EURm 2020 2019 2020 2019 Change (%) Change y/y Revenue 39,197 42,023 8,761 9,769 (7%) (2,826) Total operating expenses (29,612) (39,575) (6,619) (9,200) (25%) 9,963 Operating profit before interest, taxes, depreciation 13,009 5,504 2,908 1,279 136% 7,505 and amortisation (EBITDA) Depreciation and amortisation expense (3,424) (3,056) (765) (710) 12% (368) Operating profit 9,585 2,448 2,142 569 292% 7,137 Profit before tax 9,025 2,159 2,017 502 318% 6,866 Net profit 7,340 1,371 1,641 319 435% 5,969 Net cash from operating activities 14,118 4,938 3,155 1,148 186% 9,180 Net cash from investing activities (6,254) (6,152) (1,398) (1,430) 2% (102) Net cash from financing activities (3,653) 327 (817) 76 (1,217%) (3,980) Net increase/(decrease) in cash and cash 4,211 (887) 941 (206) (575%) 5,098 equivalents December December December December Change (%) Change y/y 31st 2020 31st 2019 31st 2020 31st 2019 Total assets 62,871 59,185 13,624 13,898 6% 3,686 Non-current assets 46,243 43,939 10,021 10,318 5% 2,304 Current assets, including 16,628 15,246 3,603 3,580 9% 1,382 Inventories 2,684 4,042 582 949 (34%) (1,358) Total equity and liabilities 62,871 59,185 13,624 13,898 6% 3,687 Total equity 44,125 38,107 9,562 8,948 16% 6,018 Total non-current liabilities 11,666 10,378 2,528 2,437 12% 1,288 Total current liabilities 7,080 10,700 1,534 2,513 (34%) (3,620) Total liabilities 18,746 21,078 4,062 4,950 (11%) (2,332) Selected financial data of PGNiG Table 2 Financial highlights of PGNiG for 2019–2020 PLNm EURm 2020 2019 2020 2019 Change (%) Change y/y Revenue 21,237 22,615 4,747 5,257 (6%) (1,378) Total operating expenses, including (13,342) (22,229) (2,982) (4,795) (35%) 7,284 Operating profit before interest, taxes, depreciation 8,714 1,241 1,948 288 602% 7,473 and amortisation (EBITDA) Depreciation and amortisation expense (819) (856) (183) (199) (4%) 37 Operating profit 7,895 386 1,765 90 1,935% 7,507 Profit before tax 8,490 1,989 1,898 462 327% 6,501 Net profit 6,909 1,748 1,544 406 295% 5,161 Net cash from operating activities 9,394 1,989 2,100 462 372% 7,405 Net cash from investing activities (2,794) (2,256) (624) (524) 24% (538) Net cash from financing activities (3,591) (52) (803) (12) 6,806% (3,539) Net increase/(decrease) in cash and cash 3,009 (319) 672 (74) (1,043%) 3,328 equivalents December December December December Change (%) Change y/y 31st 2020 31st 2019 31st 2020 31st 2019 Total assets 43,746 41,044 9,480 9,638 7% 2,702 Non-current assets 30,737 28,885 6,661 6,783 6% 1,852 Current assets, including 13,009 12,159 2,819 2,855 7% 850 Inventories 2,070 3,230 449 758 (36%) (1,160) Total equity and liabilities 43,746 41,044 9,480 9,638 7% 2,702 Total equity 36,230 30,618 7,851 7,190 18% 5,612 Total non-current liabilities 3,871 3,315 839 778 17% 557 Total current liabilities 3,645 7,111 790 1,670 (49%) (3,466) Total liabilities 7,516 10,426 1,629 2,448 (28%) (2,909) EUR/PLN mid exchange rates quoted by the National Bank of Poland: Average exchange rate in 2020: 4.4742; 2019: 4.3018; Exchange rate at year-end 2020: 4.6148; 2019: 4.2585. Page 3 of 122 Free translation of the official Polish version in XHTML PGNiG GROUP DIRECTORS' REPORT FOR 2020 (in PLN million, unless stated otherwise) Page 4 of 122 Free translation of the official Polish version in XHTML PGNiG GROUP DIRECTORS' REPORT FOR 2020 (in PLN million, unless stated otherwise) Table of contents Financial highlights of the PGNiG Group ............................................................................................................................................. 3 Selected financial data of PGNiG ........................................................................................................................................................ 3 1. Business model and organisation of the PGNiG Group ................................................................................................................. 7 1.1 PGNiG Group's business and business model ........................................................................................................................ 7 1.2 Organisation of the PGNiG Group ............................................................................................................................................ 8 1.3 Shareholding structure and PGNiG on the WSE ...................................................................................................................... 8 1.3.1 Shareholding structure .................................................................................................................................................. 8 1.3.2 Price performance of the PGNiG shares ....................................................................................................................... 9 1.3.3 Stock exchange indicators ........................................................................................................................................... 10 1.3.4 PGNiG Investor Relations............................................................................................................................................ 10 1.3.5 Dividend policy ............................................................................................................................................................ 11 2. Strategy of the PGNiG Group ...................................................................................................................................................... 12 2.1 Mission and vision .................................................................................................................................................................. 12 2.2 Key challenges ....................................................................................................................................................................... 12 2.3 PGNiG Group Strategy for 2017−2022 with an Outlook until 2026 ........................................................................................ 13 2.3.1 Objectives and ambitions for 2017−2022 Implementation of the Strategy in 2017–2020 ............................................ 13 2.3.2 Investment projects in 2017−2022 ............................................................................................................................... 17 2.3.3 Capital expenditure in 2021 ......................................................................................................................................... 17 3. Business environment ................................................................................................................................................................. 20 3.1 Market overview ..................................................................................................................................................................... 20 3.1.1 Gas market in Europe and globally .............................................................................................................................. 20 3.1.2 Gas market in Poland .................................................................................................................................................. 21 3.2 Regulatory environment ......................................................................................................................................................... 23 3.2.1 Regulatory environment in Poland ............................................................................................................................... 24 3.2.2 European regulatory environment ............................................................................................................................... 24 4. Operating activities in 2020.......................................................................................................................................................... 28 4.1 Exploration and Production .................................................................................................................................................... 28 4.1.1 Key operating metrics .................................................................................................................................................. 29 4.1.2 Operations in Poland ................................................................................................................................................... 29 4.1.3 Foreign operations ....................................................................................................................................................... 33 4.1.4 Activities supporting the segment in Poland and abroad ............................................................................................. 38 4.1.5 Development prospects and challenges for the future ................................................................................................. 39 4.2 Trade and Storage ................................................................................................................................................................. 41 4.2.1 Key operating metrics .................................................................................................................................................
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