Photon Energy N : Management Report and Interim Consolidated Financial Statements H1 2023

Financial highlights:

• Unaudited consolidated revenues increased to EUR 40.231 million in H1 2023 from EUR 32.367 million in H1 2022, up by 24.3% YoY.
• EBITDA amounted to EUR 2.833 million in H1 2023 com- pared to EUR 10.143 million in H1 2022, down by 72.1% YoY.
• EBIT declined to a negative of EUR -1.469 million in H1 2023 compared to EUR 5.169 million in H1 2022.
• Net loss amounted to EUR 7.445 million in H1 2023 com- pared to a net profit of EUR 0.539 million a year ago.
• Total comprehensive income amounted to EUR -0.885 million, compared to a profit of EUR 2.335 million rec- orded in the same period last year.
• Equity increased to EUR 72.152 million, compared to EUR 70.475 million at the end of 2022. The adjusted eq- uity ratio stays at 29.4%, still in line with the bond gov- ernance.
• The Management reviewed its full year 2023 guidance and revised revenues expectations from EUR 150 million to EUR 110 million and EBITDA expectations from EUR 29.0 million to EUR 10 million, compared to earlier as- sumptions. Other Comprehensive Income from the re- valuation of newly connected PV power plants and capital gains from the potential disposal of project rights are expected to contribute positively to the Group's Total Comprehensive Income during H2 2023.

Other highlights:

• Commissioning of new power plants in Romania with a total capacity of 22.1 MWp increased the proprietary portfolio by 23.0% YTD. Additional 3.2 MWp in Romania has been connected after the reporting date, bringing the proprietary portfolio to a total generating capacity of 116.3 MWp as of the reporting date;
• Start of the construction works on 20.1 MWp of new PV power plants in Romania with another 18.5 MWp or pro- jects at the ready-to-built stage to move into construction phase in Q4 2023.
• Expansion of project pipeline to 1.2 GWp primarily driven by new projects based on RayGen technology in Aus- tralia.
• Signing of 158 MWp assets under O&M contracts bring- ing the total O&M portfolio to a total of 542 MWp, up by 41.3% YTD.
• Very encouraging results in PFAS trail; Efforts concen- trated on commercialisation..
• Renewal of 'Very Good' Rating from ESG Rating Agency imug rating
  Completion of the share buyback programme which re- sulted in the acquisition of 250,000 shares for the total amount of EUR 0.720 million.

in Thousands

Total revenues

EBITDA

EBIT

Profit / loss before taxation

Profit / loss from continuing operations

Total comprehensive income

Operating cash flow

Investment cash flow

Financial cash flow

Net change in cash

EUR exchange rate - low

EUR exchange rate - average

EUR exchange rate - end of period

EUR exchange rate - high

EUR

PLN

CZK

PLN

CZK

31.12.2022

2,377,507

2,682,168

496,813

5,059,675

2,482,925

192,248

1,935,738

30.06.2023

2,407,900

2,434,435

31,843

4,842,335

2,517,182

394,110

1,931,043

2. Management Report

2.1 A note from the management board

Wayne Gretzky was one of the most successful ice hockey players of all time. When asked about the secret of his success, he replied: 'I skate to where the puck is going to be, not where it has been.'

This is easier said than done in most businesses, but given the market's volatility, regulatory uncertainties and technological devel- opments, it is definitely the case in the global energy sector at this point in time. The puck is moving at unprecedented speed, creating the appearance of multiple pucks in play at the same time. This in turn makes operational and financial planning a complex exercise requiring a profound understanding of underlying trends, combined with substantial operational agility.

This dynamic situation has turned 2023 to date into a very challenging year with several negative trends adversely impacting our financial results. However, there have been also several positive developments which we would like to highlight. While they are not yet visible in our financial statements, the progress achieved has been tangible and will bring us closer towards our strategic long- term goals.

Key factors underpinning our financial results in H1 2023 include material delays in the connection process of Romanian power plants with a total capacity of 32 MWp. The construction works commenced mid-2022 with expected connection dates in late 2022 to early 2023. Unfortunately, there were impediments related to grid-connection works, commissioning and DSO contracting. This resulted in no visibility on the connection dates and up to eight months' delay in commissioning. However, the lesson was learned and we managed to ensure that the second batch of power plants which are currently under construction (20.1 MWp) are set to be executed smoothly and ready to generate electricity before the sunny season kicks off in 2024. If we achieve this milestone, at the beginning of 2024 our proprietary portfolio will increase to over 143 MWp, representing a 56% increase versus YE 2022..

Unfavourable weather conditions also had a detrimental impact on our financial results in H1 2023, resulting in a weak specific performance ratio of our existing generation assets. This created an output in H1 2023 15.6% lower than initial forecasts. On top of that, reduced energy prices with significant deterioration of the energy market trends in the second quarter of the reporting period (in details described in chapter 2.4) caused a material erosion of our prof- itability, with approximately EUR 4.0 million less profits contributed by the generation segments at EBITDA level. Additional negative trends were recorded in the technology trading segment, where we observed significant deterioration of market conditions with less demand and increased inventories, driving technology prices down. This was visible in the prices of residential batteries, added for distribution in 2022, but also to a lesser extent in the drop of module prices.

On the other hand, there were numerous positive developments on the operational side of our business, bringing the Group closer towards our long-term goals, which aim to expand recurring stream of revenues through the combination of high-performance PV generation and storage assets, combined with the enhanced ability to access the full revenue stack available to grid-connected energy storage assets, resulting from our acquisition of Lerta.

Firstly, our New Energy division, which was created as of January 2023 after the acquisition of Lerta, has already a material contribution to the Group's top line. But what is even more remarkable is the prospects it has generated for the coming year. In March 2023, through its subsidiaries, the New Energy division succeeded in the

DSR capacity auctions in Poland and secured revenues of EUR 25 million for 2024, representing a triple increase compared to this year (EUR 7.7 million).

Our EPC business in Australia recorded a positive expansion as we completed EPC projects with a value of EUR 3.2 million in H1, and continue working on additional projects in Australia set to be completed in the second half of this year and which will contribute additional EUR5.4 million from our commercial and industrial (C&I) clients.

Finally, we have recorded a significant expansion of our O&M portfolio in the reporting period, with approximately 158 MWp of new assets added under contractual operational and maintenance ser- vices. Unfortunately, profitability in H1 2023 suffered, as detailed in the comments to the results of the business segments (chapter 5.0), but we expect the growth momentum to be maintained, driven primarily by bundling these services with origination and trading (O&T) and DSR services, provided by the New Energy division.

Other positive developments worth highlighting include the trial project for the Australian Government Department of Defence, which included the implementation and testing of our in-situ PFAS remediation technology. Our continued R&D of our proprietary In- situ nano-remediation technology is showing very encouraging results in removing per and polyfluoroalkyl substances (PFAS) form ground water and soil and we are now concentrating our efforts on commercialisation. Additionally, contingency time has been added to our pilot project for the Australian Department of Defence to manage coordination risks and allow the trial to explore synergies with the Remediation Action Plan works planned at this location. The overall extension of time is to be to be seven months, adjusting the completion date to 29 January 2024.

Likewise, developments on RayGen's technology are progressing, with RayGen's first's energy storage project of 50MWh in Carwarp Victoria progressing well, with an official event scheduled for late August this year. Additionally, our project pipeline increased to 1.2 GWp driven primarily by utility-scale projects in Australia, based on RayGen technology. Photon Energy Australia also advanced the development works of the Yadnarie project, bringing us closer to the ready-to-build stage. Based on the geotechnical investigation and environmental review, we have had to revisit the areas of land that are suitable to construct on, and have therefore downsized the project to 200 MWp DC and 115 MW AC..

To conclude, the results for the six-months period and the prospects for the remaining part of year 2023, which currently remain subject to a high-level of uncertainty, made the management board to revise its full-year guidance down, expecting consolidated revenues to amount to EUR 110 million versus EUR 150 million communicated earlier. At the same time, we expect EBITDA to amount to EUR 10 million, compared to EUR 29 million communicated ear- lier. This represents an expected increase of 15.6% YOY on the top line and a decline of 58.9% YOY at EBITDA level. Other Comprehensive Income from the revaluation of newly connected PV power plants and capital gains from the potential disposal of project rights are expected to contribute positively to the Group's Total Comprehensive Income during H2 2023.

2.2 Comments to the consolidated financial results of the Group, in H1 2023

In the first six months of 2023, Photon Energy Group increased its consolidated revenues to EUR 40.231 million (+24.3% YOY)

compared to EUR 32.367 million a year earlier, despite a challenging situation on the energy market and unfavourable weather con- ditions. Revenues from electricity generation amounted to EUR 11.344 million, down by 28.7% YOY mainly due to lower average realized electricity prices which declined from EUR 245 / MWh in H1 2022 to EUR 176 / MWh in the reporting period (-28.2% YoY). At the same time electricity generation remained stable at 66.5 GWh (-0.9% YoY) but 15.5% below the expected level.

The drop of electricity generation revenues was more than compensated by an increase of revenues from other segments which totalled EUR 28.887 million in the reporting period, up by 75.6% YOY. This growth was attributable mainly to the additional revenues from the capacity market (Demand Side Response) as well as origination and trading which are currently represented under the segment - New Energy. Additional growth has also been recorded in other segments including PV component trading, engineering services and operations & maintenance business.

Unaudited consolidated EBITDA dropped to EUR 2.833 million compared to EUR 10.143 million a year earlier, down by 72.1% YOY. Semi-annual EBIT swung from EUR 5.169 million in H1 2022 to a negative amount of EUR -1.469 million in the reporting period. The Group's operating profitability has been negatively impacted by lower contribution of power generation with a higher share of lower margin segments, growing headcount (nearly doubled YOY) and hence personnel costs. It is also worth noting that the Group is carrying out significant efforts related to business development and R&D (see details in chapter 9) which in the short-term impact the bottom line.

Depreciation remained stable amounting to EUR 4.373 million in H1 2023, compared to EUR 4.350 million in the same period last year.

The bottom line has been negatively impacted by interest expenses which increased to EUR 5.472 million in H1 2023, up by +27.5 YOY, driven by increased interest costs as a result of the refinanc- ing of our Czech portfolio in the total amount of EUR 28.1 million and non-recurse project refinancing in the amount of EUR 21.9 million related to our newly-connected power plants in Romania.

On the bottom line, the Group recorded a net loss of EUR 7.445 million versus a profit of EUR 0.539 million in H1 2022.

Other comprehensive income has been positively impacted by the revaluation of our newly connected Romanian power plants in Siria, Calafat, Teius and Aiud in the total amount of approximately EUR

4.0 million, the revaluation of the existing proprietary portfolio in the amount of approximately EUR 0.940 million and a positive foreign exchange difference in the Czech Republic and Hungary. The total comprehensive income amounted to a loss of EUR 0.885 million compared to a profit of EUR 2.335 million a year earlier.

Consolidated equity increased to EUR 72.152 million, up by 2.4% YTD. The adjusted equity ratio decreased slightly to 29.4% compared to 32.0% at the end of 2022, remaining soundly above the level required under the Green Bond covenants.

2.3 Photon Energy Group revises its guidance for 2023

Following the semi-annual results the management decided to revise its full year guidance and decrease estimations of consolidated revenues for 2023 to EUR 110.0 million from EUR 150 million announced on 15 February 2023. Current revenue expectations compared to 2022 consolidated revenues of EUR 95.1 million translate into a 15.6% increase YOY. At the same time management decided to decrease its EBITDA guidance from EUR 29.0 million announced on 15 February 2023 to EUR 10 million, which compared

to EBITDA of EUR 24.3 million achieved in 2022 represents a decline of 58.9% YOY.

2.4 Summary of key events material for the Group's operations in the reporting period.

In the management's view the most important events which influenced the Group's operations and consolidated financial results in the first half of year 2023 include:

Expansion of the proprietary IPP portfolio by 22.1 MWp

During the reporting period, the Group has completed and grid- connected its first Romanian PV power plants with a total capacity of 22.1 MWp including: 5.7 MWp in the municipality of Șiria, 6.0 MWp in Calafat, 4.7 MWp in Aiud, and 4.7 MWp in Teius. Additional

1. MWp located in Făget town, western Romania was connected to the grid after the reporting period i.e. on 10 August 2023, bring- ing the total capacity of proprietary portfolio to 116.2 MWp. Due to the delays in the commissioning process electricity production of those power plants commenced later than initially assumed and hence resulted in lower generation results than expected in the re- porting period. Nevertheless, the expansion of our IPP portfolio by

1. MWp added in H1 2023 (up by 23.0% YTD) and additional
2. MWp of generating assets to be added in H2 2023, shall bring the total IPP portfolio to a total of at least 123.2 MWp at year end. Additionally, the Group commenced construction works on addi- tional 20.1 MWp power plants in Romania which shall be com- pleted at the verge of 2023/2024 and shall translate into a total capacity of over 143 MWp in the proprietary portfolio, up by 56% versus 2022 year-end levels.

Commencement of the construction works on additional 20.1 MWp of new power plants in Romania.

During the reporting period the Group commenced the construction works on 20.1 MWp of new power plants in Romania scheduled to be completed by the end of 2023. The construction of another 18.5 MWp, which have reached the ready-to-built stage is scheduled to commence in Q4 2023, in line with the conditions agreed with respective DSO and providing the financing sources are secured. Expanding our IPP portfolio has always been at the top of our strategic goals, aimed at growing the recurring revenue stream from clean electricity generation. The successful construction and commissioning of our first PV assets in Romania this year represents a true milestone for Photon Energy Group which combined with the non-recurse refinancing agreement secured with Austrian Raiffeisen Bank International (RBI) confirms that our integrated business model has been successfully deployed in the Romanian energy market.

Unfavourable weather conditions adversely impacted the performance of the Group's generation assets.

Unfavourable weather conditions resulted in the material underper- formance of our power generating assets, which generated approximately 15.6% less electricity than expected by the energy audits. This was related to a higher number of cloudy days and higher tem- peratures, both of which have a negative impact on the efficiency of PV panels. The lower efficiency has been partially compensated by the increased capacity of newly commissioned power plants in Romania. However, due to the delay in the commissioning process mentioned above, the positive impact of the portfolio expansion could not fully offset unfavourable weather conditions.

Electricity prices declined in H1 2023 compared to the corresponding period of the previous year.

Electricity prices on the day-ahead market declined on all markets where the Group is selling electricity on a merchant basis. In