6. Information on the business segments

SIGNIFICANT ACCOUNTING PRINCIPLES
*Segmenty operacyjne* An operating segment is a component of the Group: that engages in economic activities in connection with which it may earn revenue and incur expenses (including revenue and expenses related to transactions with other constituent part of the same entity), whose operating results are regularly reviewed by the Group’s chief operating decision making body and which uses such results in deciding on the allocation of resources to the segment and in assessing the segment’s performance, for which separate financial information is available. Segment revenue is revenue generated from either sales to external customers or transactions with other segments within the PGE Capital Group, which are reported in the PGE Capital Group’s statement of profit or loss and are directly attributable to a given segment along with the appropriate portion of revenue that can be reasonably attributed to that segment. Segment expenses comprise the cost of sales to external customers and the cost of transactions with other segments within the Group that result from the operating activities of the segment and are directly attributable to the segment along with the appropriate portion of the entity’s expenses that can be reasonably attributed to that segment. Segment result is the difference between segment revenue and segment expenses. Segment assets are operating assets that are employed by a segment in its operating activities and that are either directly attributable to the segment or can be reasonably attributed to the segment. Segment liabilities are operating liabilities that result from the operating activities of a segment and that are either directly attributable to the segment or can be reasonably attributed to the segment. Segment assets and liabilities do not include income tax settlements. Segment liabilities include, for example, trade payables, other payables, accruals, prepayments received from customers, provisions for claims relating to goods supplied and services rendered. The liabilities of a segment whose activities are not primarily financial activities do not include loans and similar liabilities.

SIGNIFICANT ACCOUNTING PRINCIPLES

Segmenty operacyjne
An operating segment is a component of the Group:

that engages in economic activities in connection with which it may earn revenue and incur expenses (including revenue and expenses related to transactions with other constituent
part of the same entity),

whose operating results are regularly reviewed by the Group’s chief operating decision making body and which uses such results in deciding on the allocation of resources to the
segment and in assessing the segment’s performance,

for which separate financial information is available.

Segment revenue is revenue generated from either sales to external customers or transactions with other segments within the PGE Capital Group, which are reported in the PGE Capital Group’s statement of profit or loss and are directly attributable to a given segment along with the appropriate portion of revenue that can be reasonably attributed to that segment.
Segment expenses comprise the cost of sales to external customers and the cost of transactions with other segments within the Group that result from the operating activities of the segment and are directly attributable to the segment along with the appropriate portion of the entity’s expenses that can be reasonably attributed to that segment.
Segment result is the difference between segment revenue and segment expenses.
Segment assets are operating assets that are employed by a segment in its operating activities and that are either directly attributable to the segment or can be reasonably attributed to the segment. Segment liabilities are operating liabilities that result from the operating activities of a segment and that are either directly attributable to the segment or can be reasonably attributed to the segment.
Segment assets and liabilities do not include income tax settlements.
Segment liabilities include, for example, trade payables, other payables, accruals, prepayments received from customers, provisions for claims relating to goods supplied and services rendered.
The liabilities of a segment whose activities are not primarily financial activities do not include loans and similar liabilities.

The companies of the PGE Capital Group conduct their activities on the basis of relevant concessions, including in particular concessions for the generation, trading and distribution of electricity, the generation, transmission and distribution of heat, granted by the President of the Energy Regulatory Office, as well as concessions for the mining of lignite from deposits granted by the Minister of the Environment. Concessions are generally granted for periods of from 10 to 50 years. The key concessions held by the PGE Capital Group expire in the years 2024-2044.

The concessions for lignite mining, electricity and heat generation as well as electricity and heat distribution have corresponding assets allocated to them, as shown in the detailed information on the operating segments. In connection with the electricity and heat concessions, the PGE Group incurs annual fees dependent on revenue. In the case of the activities related to the mining of lignite, the PGE Group incurs extraction fees dependent on applicable rates and mining volumes, as well as mining usage fees. In 2023, the PGE Group’s costs related to concessions amounted to approximately PLN 17 million (PLN 17 million in 2022), while the mining fee and the mining usage fee amounted to PLN 123 million in 2023 and PLN 157 million in 2022.

The PGE Capital Group presents information on its operating segments for the current and comparative reporting periods in accordance with IFRS 8 Operating Segments. The division of the reporting system of the PGE Capital Group is based on its operating segments:

Conventional Power Generation comprises lignite exploration and extraction, electricity generation from conventional sources, as well as related ancillary activities.
Heat Generation comprises the generation of electricity in cogeneration sources as well the transmission and distribution of heat.
Renewable Power Generation includes electricity generation in pumped storage hydro power plants and from renewable sources.
Distribution comprises the management of local distribution networks and the transmission of electricity through these networks.
Railway Power Engineering primarily comprises the distribution and sale of electricity to railway operators and rail-focused customers, the sale of fuels and the maintenance and upgrading of the contact lines network, along with other electricity services.
Trade comprises the sale and purchase of electricity and natural gas on the wholesale market, trade in CO₂ emission allowances and property rights resulting from certificates of origin, the purchase and supply of fuels, the sale of electricity and the provision of services to end customers.
Circular Economy comprises the management of combustion by-products.
Other Activities include the provision of services by subsidiaries for the benefit of the Group, e.g. organisation of financing acquisition, provision of IT, transport services and investments in start-ups. In addition, the segment structures include special purpose vehicles responsible for the construction of new, low-emission generation units.

The organisation and management of the PGE Capital Group is divided into segments based on the type of products and services offered. Each segment constitutes a strategic business unit offering different products and serving different markets. The allocation of particular entities to operating segments is presented in note 1.3 to these consolidated financial statements. The PGE Capital Group settles transactions between segments as if they concerned unrelated entities – on an arm’s length basis. Analysing the results of particular operating segments, the management of the PGE Group pays attention first of all to achieved EBITDA.

Seasonality of the business segments’ activities

The main factors influencing demand for electricity and heat include atmospheric factors such as air temperature, wind power, precipitation, socio-economic factors such as the number of energy consumers, prices of energy carriers, economic development and GDP, as well as technological factors such as technological progress and particular product manufacturing technologies. Each of these factors influences the technical and economic conditions for generation and distribution of energy carriers, and thus affects the results achieved by the companies of the PGE Capital Group.

The level of electricity sales throughout the year is variable and depends primarily on the atmospheric factors such as air temperature and the length of day. Increased demand for electricity is particularly visible during the winter period, while lower demand is observed in the summer. Moreover, seasonal changes are visible among selected groups of end users. Seasonality effects are more significant for households than the industrial sector.

In the Renewable Power Generation segment, electricity is generated from environmental resources such as water, wind and sun. Meteorological conditions are an important factor affecting electricity production in this segment.

Sales of heat depend in particular on air temperature and are higher in the winter and lower in the summer.

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6. Information on the business segments

Seasonality of the business segments’ activities