Management Board Report on performance of the Energa Capital Group and of Energa SA in 2019 Gdańsk, 27 May 2020 Management Board Report on performance of the Energa Capital Group and of Energa SA in 2019 Contents 1. SUMMARY ...................................................................................................................................................... 4 2. KEY INFORMATION ABOUT THE GROUP ................................................................................................... 7 2.1. Activities of the Energa Group ................................................................................................................ 7 2.2. Group’s structure and governance model ............................................................................................... 9 2.3. Key events in 2019 and after the balance sheet date ........................................................................... 12 2.4. Innovation activities .............................................................................................................................. 23 2.5. Capital expenditures ............................................................................................................................. 24 2.6. The Energa Group Strategy and Directions of Development for 2016–2025 ........................................ 26 2.7. Awards and distinctions ........................................................................................................................ 31 2.8. Corporate Social Responsibility at the Energa Group .......................................................................... 33 3. REGULATORY AND BUSINESS ENVIRONMENT ...................................................................................... 37 3.1. Macroeconomic situation ...................................................................................................................... 37 3.2. Electricity market in Poland .................................................................................................................. 39 3.3. Regulatory environment ........................................................................................................................ 47 3.4. Description of the Group’s position in relation to other energy groups ................................................. 50 3.5. Factors affecting the Energa Group’s performance .............................................................................. 52 4. FINANCIAL AND ASSETS SITUATION OF THE GROUP ........................................................................... 54 4.1. Rules of preparing the annual consolidated financial statements ......................................................... 54 4.2. Explanation of the economic and financial data disclosed in the annual consolidated financial statements ............................................................................................................................................ 54 4.3. Structure of assets and liabilities in the consolidated statement of financial position ........................... 62 4.4. Description of significant off-balance sheet items ................................................................................. 63 4.5. Projected financial results ..................................................................................................................... 63 5. ACTIVITIES OF BUSINESS LINES .............................................................................................................. 65 5.1. Distribution Business Line .................................................................................................................... 65 5.1.1. Business and operating activities ......................................................................................................... 65 5.1.2. Financial performance ............................................................................................................................. 68 5.2. Generation Business Line ..................................................................................................................... 70 5.2.1. Business and operating activities ......................................................................................................... 70 5.2.2. Financial results ...................................................................................................................................... 73 5.3. Sales Business Line ............................................................................................................................. 78 5.3.1. Business and operating activities ......................................................................................................... 78 5.3.2. Financial performance .......................................................................................................................... 83 6. FINANCIAL AND ASSETS SITUATION OF ENERGA SA ........................................................................... 87 6.1. Rules of preparing the annual standalone financial statements ............................................................ 87 6.2. Explanation of the economic and financial data disclosed in the annual standalone financial statements ............................................................................................................................................................. 87 6.3. Structure of assets and liabilities in the standalone statement of financial position .............................. 90 6.4. Description of significant off-balance sheet items ................................................................................. 91 7. RISK MANAGEMENT ................................................................................................................................... 93 7.1. Integrated Risk Management System of the Energa Group ................................................................. 93 2 Management Board Report on performance of the Energa Capital Group and of Energa SA in 2019 7.2. Description of major factors and risks ................................................................................................... 95 8. SHARES AND SHAREHOLDING STRUCTURE ........................................................................................ 102 8.1. Energa’s shareholding structure ......................................................................................................... 102 8.2. Prices of the Company’s shares and recommendations ..................................................................... 103 8.3. Investor relations at Energa SA .......................................................................................................... 106 8.4. Recommendations for the Company’s stock ...................................................................................... 107 8.5. Ratings ............................................................................................................................................... 107 8.6. Dividend .............................................................................................................................................. 108 9. OTHER INFORMATION ON THE GROUP ................................................................................................. 110 9.1. Information on material contracts, agreements and transactions ....................................................... 110 9.2. Proceedings pending before courts, arbitration or public administration bodies ................................. 114 9.3. HR and payroll situation ...................................................................................................................... 128 9.4. Information on the statutory audit firm ................................................................................................ 133 10. CORPORATE GOVERNANCE STATEMENT ............................................................................................ 135 10.1. Application of corporate governance principles .................................................................................. 135 10.2. Significant shareholders ..................................................................................................................... 135 10.3. Holders of stock with special control rights and a description of special control rights ....................... 135 10.4. Restrictions on voting rights ................................................................................................................ 136 10.5. Restrictions on transfer of ownership of securities ............................................................................. 136 10.6. Amendments to the Articles of Association ......................................................................................... 136 10.7. Corporate bodies ................................................................................................................................ 137 10.8. Salaries of executive and supervisory staff ......................................................................................... 153 10.9. Diversity policy .................................................................................................................................... 155 10.10. Main features of internal control and risk management systems in relation to the financial reporting process ..............................................................................................................................................