Integrated Annual Report 2020
LOTOS Group
PL EN

Corporate governance standards and scope of application

GRI:
Table of contents

Since its shares were publicly floated in June 2005, Grupa LOTOS has adhered to most of the recommendations contained in the Best Practices for Public Companies. Since 2016, the Company has been bound by the corporate governance standards set out in the Code of Best Practice for WSE Listed Companies 2016, which was approved by the WSE Supervisory Board’s Resolution No. 26/1413/2015 of October 13th 2015.

The corporate governance code is publicly available on the website of the Warsaw Stock Exchange at: → www.gpw.pl/pub/GPW/o-nas/DPSN2016_EN.pdfwww.gpw.pl/dobre-praktyki

Corporate governance principles that were not applied by Grupa LOTOS S.A. in 2016–2020 with comments on reasons for the non-application.

Principle Grupa LOTOS S.A. comment
I. Disclosure policy and investor communication
I.Z.1. A company should operate a corporate website and publish on it, in a legible form and in a separate section, in addition to information required under the legislation:
I.Z.1.16. Information about the planned transmission of a general meeting not later than seven days before the date of the general meeting: not applied. The Company has never broadcast any of its General Meetings, but may do so in the future.
I.Z.1.20. An audio or video recording of a general meeting: not applied. The Company has never made audio or video recordings of its General Meeting. In the Company’s opinion, the existing form of documentation of its General Meetings has ensured transparency and protection of shareholder rights. Moreover, the information on resolutions passed by the Company is disclosed in current reports and published on the http://www.lotos.pl website. The Company does not rule out documenting the proceedings of its General Meeting in the form of audio or video recordings in the future.
IV. General meeting and shareholder relations
IV.Z.2. If justified by the structure of shareholders, companies should ensure publicly available real-time broadcasts of general meetings: Not applied. The Company enables its Shareholders to attend General Meetings in person or by proxy. Additionally, General Meetings are held at the Company’s registered office in Gdańsk, which facilitates attendance by Shareholders or their proxies. The Company complies with the disclosure requirements imposed by legal regulations and promptly, within 24 hours of the close of a General Meeting, issues current reports with information on resolutions passed, ballot results and objections raised, and also publishes such information on its corporate website. Furthermore, the Company publishes questions posed by, and answers given to, Shareholders during General Meetings. In the Company’s opinion, these measures are sufficient to ensure Shareholders’ participation in General Meetings.

Source: the Company.

Extended comment on reasons why the Company has not yet decided to apply the above principles:

According to the PFSA’s position of April 29th 2020, the obligation to ensure real-time broadcast of General Meetings applies only to those public companies which will give their shareholders the possibility of participating in General Meetings via electronic means of communication.

The Company has carried out preliminary analyses of the possibility of organising General Meetings using electronic means of two-way communication. However, due to legal, organisational and technical risks, it has not yet broadcast its General Meetings for attendance by shareholders using electronic means of communication. In the Company’s opinion, no practices have yet been developed to ensure reliable identification of shareholders and the security of electronic communication, including the voting procedure. The Company believes there is a risk that shareholders may challenge resolutions in the event of any technical or organisational issues. In addition, the Company shareholders have not yet requested that General Meetings be broadcast in real time.

In the Company’s opinion, the documentation of its General Meetings in the form of a notarial deed drawn up by a notary public in attendance, which is available for inspection by shareholders at the Company’s registered office, ensures full transparency and protection of shareholder rights.

All documents related to a General Meeting’s agenda, i.e. draft resolutions with reasons, resolutions passed, voting results on the proposed resolutions, questions submitted by, and answers given to, shareholders during the General Meeting are provided by the Company promptly and on time, in current reports and on its website at → www.lotos.pl in Polish and English. The Company shareholders have not yet requested to be provided with audio or video recordings of the General Meetings.

The Company monitors the development of electronic tools for organising General Meetings, including the application deployed by the CSDP in 2020, while maintaining a cautious approach and taking into account the potential risk of a wide range of legal, organisational or technical issues that may arise during an online General Meeting.

The Company recognises, among others, the organisational risk of disruptions to a General Meeting due to a broken connection with any of the voting participants, which would, in turn, render the vote invalid and trigger the need to resume it.

The broadcast of General Meetings may be delayed, making them difficult to follow, depending on the internet connection quality, speed, local and global load, as well as on many other parameters, such as the location of servers used in the broadcast, or the internet connection access technology (cable, Wi-Fi, LTE).

Internal control and financial reporting risk management systems

The Management Board of Grupa LOTOS S.A. is responsible for the internal control function and its effective application in the financial reporting process. The Internal Audit Office of Grupa LOTOS S.A. makes an annual assessment of the internal control framework. Its findings show that in 2020 there were no changes in the internal control system that would affect the financial reporting process. Taking into account the assumptions adopted in assessing the systems, the Company has put in place organisational and process solutions making up the internal control, corporate governance, compliance and risk management framework. The solutions set out in the assessment model (good business practices) have been implemented in each of the systems and are applied in practice.

Financial statements are prepared, approved and released to the public in line with an internal procedure, whereunder oversight of the financial reporting process lies within the remit of the Head of the Finance and Accounting Centre’s Office, Chief Accountant. Responsibility for preparing the consolidated and separate financial statements lies with the Financial Reporting Office of Grupa LOTOS S.A.

The consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRSs), based on the financial statements of Grupa LOTOS S.A. and the entities controlled by Grupa LOTOS S.A.

Consolidated financial statements include adjustments which are absent from the accounting books of the Group’s entities applying accounting standards other than IFRSs, and which have been introduced to ensure consistency of the entities’ financial information with the IFRSs.

In order to ensure accounting uniformity, the accounting policies effective at the Company were implemented across the LOTOS Group companies for application in preparing their consolidation packages.

Structure of the LOTOS Group

  • 102-18
  • 102-45

As at December 31st 2020

1) State Treasury – 0.01% 2) Limited partner 3) General partner
4) CalEnergy Resources Poland Sp. z o.o. – 50%
5) CalEnergy Resources Poland Sp. z o.o. – Limited partner
6) BP Europa SE – 50%
7) Odin Energi A/S – 50%

Companies classified as joint ventures; they are not part of the LOTOS Group

  • Grupa LOTOS S.A. owns an 8.97% equity interest in P.P.P.P. Naftoport Sp. z o. o. (a company of the PERN Group of Płock
  • 7.3% of shares in Grupa Azoty Polyolefins S.A.

Source: the Company.

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