consolidated interim report for q3 2015...consolidated interim report for q3 2015 (all figures in...

Grupa Azoty Zakłady Chemiczne Police Group

Consolidated interim report

for Q3 2015

Grupa Azoty Zakłady Chemiczne Police Group Consolidated interim report for Q3 2015

(all figures in PLN ‘000 unless indicated otherwise)

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Contents 1. FINANCIAL HIGHLIGHTS .................................................................................... 4 1.1. Consolidated financial information ....................................................................... 5 1.2. Separate financial information ............................................................................ 6 2. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND

NINE MONTHS ENDED SEPTEMBER 30TH 2015 ........................................................ 8 2.1. Statement of the Management Board .................................................................... 9 2.2. Condensed consolidated statement of profit or loss and other comprehensive income ...... 10 2.3. Condensed consolidated statement of financial position ........................................... 12 2.4. Condensed consolidated statement of changes in equity .......................................... 14 2.5. Condensed consolidated statement of cash flows ................................................... 17 2.6. Supplementary information to the interim condensed consolidated financial statements ... 19 2.6.1. Information about the Group ............................................................................ 19 2.6.1.1. Organisation of the Group .............................................................................. 19 2.6.1.2. Changes in the Group’s organisation ................................................................. 21 2.6.2. Key events in the three months ended September 30th 2015 ..................................... 22 2.6.3. Policies applied in the preparation of the interim condensed consolidated financial

statements .................................................................................................. 22 2.6.3.1. Statement of compliance and general policies ..................................................... 22 2.6.3.2. Accounting policies and computation methods ..................................................... 22 2.6.4. Selected supplementary notes .......................................................................... 24 2.6.4.1. Segment reporting ....................................................................................... 24 2.6.4.2. Contingent assets and liabilities, sureties, guarantees and other collateral.................. 29 2.6.4.3. Accounting estimates and assumptions .............................................................. 30 2.6.4.4. Related parties ........................................................................................... 31 2.6.4.5. Events after the end of the reporting period that could impact future financial

performance .............................................................................................. 31 2.6.4.6. Dividends .................................................................................................. 32 2.6.4.7. Seasonality of operations ............................................................................... 32 3. INTERIM CONDENSED SEPARATE FINANCIAL STATEMENTS FOR THE THREE AND NINE

MONTHS ENDED SEPTEMBER 30TH 2015 ................................................................ 33 3.1. Statement of the Management Board .................................................................. 34 3.2. Condensed separate statement of profit or loss and other comprehensive income ........... 35 3.3. Condensed separate statement of financial position ................................................ 36 3.4. Condensed separate statement of changes in equity ............................................... 38 3.5. Condensed separate statement of cash flows ........................................................ 39 3.6. Supplementary information to the interim condensed separate financial statements ........ 41 4. MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE GRUPA AZOTY ZAKŁADY CHEMICZNE

POLICE GROUP’S PERFORMANCE IN Q3 2015 .......................................................... 42 4.1. Discussion of the interim consolidated financial statements ...................................... 43 4.1.1. Assessment of factors and non-typical events having a material impact on the Group’s

operations and financial performance ............................................................... 43 4.1.1.1. Factors having a material impact on the business and financial performance ............... 43 4.1.1.2. Market overview ......................................................................................... 43 4.1.2. Key financial data of the Group ....................................................................... 47 4.1.2.1. Consolidated financial information ................................................................... 47 4.1.2.2. Segments’ financial results ............................................................................ 47 4.1.2.3. Sales by product group .................................................................................. 49 4.1.2.4. Operating expenses ...................................................................................... 51 4.1.2.5. Structure of assets, equity and liabilities ........................................................... 52 4.1.2.6. Financial ratios ........................................................................................... 53 4.1.3. Significant agreements.................................................................................. 55 4.1.4. Type and amounts of one-off events affecting the assets, equity and liabilities, capital,

net profit/loss or cash flows ........................................................................... 55 4.1.5. Issue, redemption, and repayment of debt and equity securities .............................. 55 4.2. Other information ......................................................................................... 55 4.2.1. Organisation of the Grupa Azoty Zakłady Chemiczne Police Group ............................ 55 4.2.2. Changes in the Group’s organisation ................................................................. 55



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4.2.3. Management Board’s position on the achievement of forecasts ................................ 56 4.2.4. Shareholding structure .................................................................................. 56 4.2.5. Parent shares held by management and supervisory personnel ................................. 56 4.2.6. Litigation .................................................................................................. 57 4.2.7. Related parties ........................................................................................... 57 4.2.8. Sureties for borrowings, guarantees granted ....................................................... 57 4.2.9. Other information relevant for the assessment of the staffing levels, assets, financial

standing and financial performance .................................................................. 57 4.2.9.1. Execution of key investment projects ................................................................ 57 4.2.9.2. Financial liquidity and liabilities under loans and borrowings ................................... 60 4.2.9.3. Environmental performance ........................................................................... 61 4.2.9.4. Composition and powers of the Management Board and the Supervisory Board ............. 62 4.2.10. Factors which will affect the Group’s performance over at least the next reporting

period ...................................................................................................... 65 4.2.10.1. Exchange rates ........................................................................................... 65 4.2.10.2. Interest rates in Poland ................................................................................. 65 4.2.10.3. Prices of raw materials and products in the next reporting period ............................. 65

1. FINANCIAL HIGHLIGHTS


Financial highlights (all figures in PLN ‘000 unless indicated otherwise)

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1.1. Consolidated financial information

PLN ‘000 EUR ‘000

For the period Jan 1 2015– Sep 30 2015


restated*



restated* Revenue 2,039,916 1,753,658 490,541 419,696 Operating profit 153,752 66,652 36,973 15,952 Profit before tax 150,532 64,104 36,199 15,342 Net profit 122,247 54,314 29,397 12,999 Total profit or loss and other comprehensive income 121,137 55,331 29,130 13,242 Number of shares 75,000,000 75,000,000 75,000,000 75,000,000 Earnings per ordinary share (PLN) 1.64 0.73 0.39 0.17 Net cash from operating activities 235,754 139,134 56,692 33,298 Net cash from investing activities (223,222) (124,084) (53,678) (29,697) Net cash from financing activities (15,300) (52,016) (3,679) (12,449) Net increase/(decrease) in cash and cash equivalents (2,768) (36,966) (666) (8,847) Cash and cash equivalents at the beginning of the period 55,031 82,158 13,233 19,663 Cash and cash equivalents at the end of the period 52,286 45,398 12,573 10,865

as at Sep 30 2015

as at Dec 31 2014

restated*

as at Sep 30 2015

as at Dec 31 2014

restated* Non-current assets 1,458,587 1,368,235 344,120 321,009 Current assets 594,770 710,477 140,322 166,689 Non-current liabilities 391,505 304,356 92,367 71,407 Current liabilities 475,382 667,023 112,155 156,494 Equity 1,186,470 1,107,333 279,920 259,797 Share capital 750,000 750,000 176,945 175,961 Non-controlling interests 94,043 94,907 22,187 22,267 * The financial data was restated due to the final accounting for the acquisition of a controlling interest in

African Investment Group S.A., as described in Note 1.2 to the consolidated financial statements for the year ended December 31st 2014, and due to the change in presentation of advances and prepayments presented in Note 3.2 b) to these consolidated financial statements.



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1.2. Separate financial information

PLN ‘000 EUR ‘000





Revenue 2,023,634 1,752,472 486,626 419,222 Operating profit 159,132 71,835 38,267 17,184 Profit before tax 160,019 76,914 38,480 18,399 Net profit 130,501 63,870 31,382 15,279 Total profit or loss and other comprehensive income 129,969 62,868 31,254 15,039 Number of shares 75,000,000 75,000,000 75,000,000 75,000,000 Earnings per ordinary share (PLN) 1.74 0.85 0.42 0.20

Net cash from operating activities 242,165 151,563 58,234 36,256 Net cash from investing activities (223,980) (107,966) (53,861) (25,827) Net cash from financing activities (28,972) (67,695) (6,967) (16,194) Net increase/(decrease) in cash and cash equivalents (10,787) (24,098) (2,594) (5,765) Cash and cash equivalents at the beginning of the period 32,085 57,872 7,716 13,844 Cash and cash equivalents at the end of the period 21,538 33,935 5,179 8,118

as at Sep 30 2015

as at Dec 31 2014

restated*

as at Sep 30 2015

as at Dec 31 2014

restated* Non-current assets 1,325,532 1,191,719 312,729 279,595 Current assets 573,615 683,824 135,331 160,435 Non-current liabilities 309,030 194,117 72,909 45,543 Current liabilities 461,364 640,642 108,848 150,304 Equity 1,128,753 1,040,784 266,303 244,184 Share capital 750,000 750,000 176,945 175,961

∗ The financial data was restated due to the change in presentation of advances and prepayments described in Note 3.2 b) to these consolidated financial statements.

The selected items of the statement of profit or loss and other comprehensive income, statement of financial position and statement of cash flows have been translated into the euro using the method specified below: • individual items of assets and equity and liabilities in the statement of financial position have

been translated using the exchange rate effective for the last day of the reporting period: the exchange rate as at December 31st 2014 was EUR 1 = PLN 4.2623 (table No. 252/A/NBP/2014), the exchange rate as at September 30th 2015 was EUR 1 = PLN 4.2386 (table No. 190/A/NBP/2015),

• items of the statement of profit or loss and other comprehensive income and statement of cash flows have been translated using the arithmetic averages of the EUR/PLN rates quoted by the National Bank of Poland as effective for the last day of each month in the reporting period: in January 1st–September 30th 2014, the average exchange rate was EUR 1 = PLN 4.1803. in Jan 1st–Sep 30th 2015, the average exchange rate was EUR 1 = PLN 4.1585.



Page7 of 66


The translation was made using the exchange rates specified above by dividing amounts expressed in thousands of the złoty by the exchange rate.

2. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30TH 2015

Grupa Azoty Zakłady Chemiczne Police Group Interim condensed consolidated financial statements for the three and nine months ended September 30th 2015


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2.1. Statement of the Management Board The Management Board of the Parent of the Grupa Azoty POLICE Group presents the interim condensed consolidated financial statements for the three and nine months ended September 30th 2015, comprising: • Condensed consolidated statement of profit or loss and other comprehensive income for the

period July 1st−September 30th 2015 and for the period January 1st–September 30th 2015, • Condensed consolidated statement of financial position as at September 30th 2015, • Condensed consolidated statement of changes in equity for the period January 1st–September 30th

2015, • Condensed consolidated statement of cash flows for the period January 1st–September 30th 2015, • Supplementary information to the interim condensed consolidated financial statements. These interim condensed consolidated financial statements have been prepared in accordance with IAS 34 ‘Interim Financial Reporting’, as endorsed by the European Union, and give a fair and clear view of the financial position and performance of the Group. Signatures of the Members of the Management Board of the Parent

………………………………

……………………………… Krzysztof Jałosiński Rafał Kuźmiczonek

President of the Management Board

Vice-President of the Management Board

………………………………

……………………………… Wojciech Naruć Anna Podolak



Person entrusted with maintaining accounting records

……………………………… Józefa Żurawska Chief Accountant

Police, November 2nd 2015



Page10 of 66


2.2. Condensed consolidated statement of profit or loss and other comprehensive income

For the period Jul 1 2015– Sep 30 2015


For the period Jul 1–

Sep 30 2014 restated*


restated*

unaudited unaudited unaudited unaudited

Revenue 600,091 2,039,916 504,967 1,753,658 Cost of sales (512,467) (1,682,679) (435,109) (1,512,498)

Gross profit 87,624 357,237 69,858 241,160 Selling and distribution expenses (22,258) (69,390) (24,576) (60,963) Administrative expenses (47,016) (136,475) (38,839) (118,989) Other income 2,183 6,008 1,997 8,249 Other expenses (2,428) (3,628) (621) (2,805)

Operating profit 18,105 153,752 7,819 66,652 Finance income 519 1,226 195 2,433 Finance costs (1,085) (12,628) (4,944) (13,405)

Net finance income/(costs) (566) (11,402) (4,749) (10,972) Share of profit of equity-accounted associates 2,690 8,182 2,958 8,424

Profit before tax 20,229 150,532 6,028 64,104 Tax expense (4,746) (28,285) 85 (9,790)

Net profit 15,483 122,247 6,113 54,314

* The financial data was restated due to the final accounting for the acquisition of a controlling interest in African Investment Group S.A., as described in Note 1.2 to the consolidated financial statements for the financial year ended December 31st 2014.

The supplementary and explanatory notes are an integral part of these interim condensed consolidated financial statements.



Page11 of 66


Condensed consolidated statement of profit or loss and other comprehensive income (continued)




Sep 30 2014 restated*


restated*


Other comprehensive income

Items that will never be reclassified to profit or loss

Revaluation of obligations/assets from defined benefit plans - (657) - (1,178) Tax on items that will never be reclassified to profit or loss - 125 - 176

- (532) - (1,002)

Items that are or may be reclassified to profit or loss

Translation reserve 4,249 (578) 1,782 2,019

4,249 (578) 1,782 2,019

Total other comprehensive income 4,249 (1,110) 1,782 1,017 Total profit or loss and other comprehensive income 19,732 121,137 7,895 55,331

Net profit/(loss) attributable to:

Owners of the parent 16,111 122,732 6,981 54,422 Non-controlling interests (628) (485) (868) (108)

Total profit or loss and other comprehensive income attributable to:

Owners of the parent 18,625 122,001 7,960 54,530 Non-controlling interests 1,107 (864) (65) 801

Earnings/(loss) per share:

Basic (PLN) 0.21 1.64 0.09 0.73 Diluted (PLN) 0.21 1.64 0.09 0.73 * The financial data was restated due to the final accounting for the acquisition of a controlling interest in

African Investment Group S.A., as described in Note 1.2 to the consolidated financial statements for the financial year ended December 31st 2014.




Page12 of 66


2.3. Condensed consolidated statement of financial position

as at Sep 30 2015

as at Dec 31 2014

restated*

unaudited audited

Assets Non-current assets Property, plant and equipment

1,274,044 1,198,768 Investment property

2,581 2,575

Intangible assets

81,920 49,185 Investments in subordinated entities

24,380 27,233

Other financial assets

7,735 76 Non-current receivables

- 351

Deferred tax assets

62,978 85,743 Other assets

4,949 4,304

Total non-current assets

1,458,587 1,368,235 Current assets

Inventories

302,685 416,450 Other financial assets

1,505 1,391

Current tax assets

- 114 Trade and other receivables

224,633 228,884

Cash and cash equivalents

52,286 55,031 Other assets

13,661 8,607

Total current assets

594,770 710,477 Total assets

2,053,357 2,078,712

∗ The financial data was restated due to the change in presentation of advances and prepayments described in

Note 3.2 b) to these consolidated financial statements.




Page13 of 66


Condensed consolidated statement of financial position (continued)

as at Sep 30 2015

as at Dec 31 2014

unaudited audited

Equity and liabilities Equity Share capital

750,000 750,000 Translation reserve

(113) 86

Retained earnings, including:

342,540 262,340 Profit for the period

122,732 63,544

Equity attributable to owners of the parent

1,092,427 1,012,426 Non-controlling interests

94,043 94,907

Total equity

1,186,470 1,107,333

Liabilities Borrowings

203,234 118,716 Employee benefit obligations

63,326 62,326

Other non-current liabilities

975 261 Provisions

46,669 46,203

Government grants

14,229 13,279 Deferred tax liabilities

57,492 57,701

Other financial liabilities

5,580 5,870 Total non-current liabilities

391,505 304,356

Borrowings


6,801 6,637

Current tax expense

- 480 Trade and other payables

335,667 484,978

Provisions

38,423 40,582 Government grants

10,027 1,289

Deferred revenue

365 9 Other financial liabilities

2,057 1,922

Total current liabilities

475,382 667,023 Total liabilities

866,887 971,379

Total equity and liabilities

2,053,357 2,078,712




Page14 of 66


2.4. Condensed consolidated statement of changes in equity for the period ended September 30th 2015

Share capital Translation reserve Retained earnings

Equity attributable to owners of the

parent Non-controlling

interests Total equity

Balance at January 1st 2015 750,000 86 262,340 1,012,426 94,907 1,107,333

Profit or loss and other comprehensive income

Net profit - - 122,732 122,732 (485) 122,247

Other comprehensive income - (199) (532) (731) (379) (1,110)

Total profit or loss and other comprehensive income - - 122,200 122,001 (864) 121,137 Transactions with owners of the Company, recognised directly in equity

Dividends - - (42,000) (42,000) - (42,000)

Total contributions by and distributions to owners - - (42,000) (42,000) - (42,000)

Total transactions with owners - - (42,000) (42,000) - (42,000)

Other - - - - - -

Balance at September 30th 2015 (unaudited) 750,000 (113) 342,540 1,092,427 94,043 1,186,470




Page15 of 66


Consolidated statement of changes in equity (continued) for the period ended September 30th 2014, restated*





Balance at January 1st 2014 750,000 (3,253) 225,083 971,830 94,384 1,066,214


Net profit - - 54,422 54,422 (108) 54,314

Other comprehensive income - 1,110 (1,002) 108 909 1,017

Total profit or loss and other comprehensive income - 1,110 53,420 54,530 801 55,331 Transactions with owners of the Company, recognised directly in equity

Dividends - - (23,250) (23,250) - (23,250)



Other - - (133) (133) 133 -

Balance at September 30th 2014 (unaudited) 750,000 (2,143) 255,120 1,002,977 95,318 1,098,295

* The financial data was restated due to the final accounting for the acquisition of a controlling interest in African Investment Group S.A., as described in Note 1.2 to the consolidated financial statements for the financial year ended December 31st 2014.




Page16 of 66


Consolidated statement of changes in equity (continued) for the year ended December 31st 2014





Balance at January 1st 2014 750,000 (3,253) 225,083 971,830 94,384 1,066,214


Net profit - - 63,544 63,544 (2,333) 61,211

Other comprehensive income - 3,339 (2,904) 435 2,723 3,158

Total profit or loss and other comprehensive income - 3,339 60,640 63,979 390 64,369 Transactions with owners of the Company, recognised directly in equity

Dividends - - (23,250) (23,250) - (23,250)



Other - - (133) (133) 133 -

Balance at December 31st 2014 (audited) 750,000 86 262,340 1,012,426 94,907 1,107,333




Page17 of 66


2.5. Condensed consolidated statement of cash flows



restated*

unaudited unaudited

Cash flows from operating activities Profit before tax 150,532 64,104

Adjustments for: 60,573 69,696 Depreciation and amortisation 62,928 67,889 Impairment 354 732 (Profit)/loss from investing activities (1,923) (642) Share of profit of equity-accounted associates (8,182) (8,424) Interest, foreign exchange gains or losses 7,396 10,141

Cash from operating activities before changes in working capital 211,105 133,800 Changes in trade and other receivables (10,812) 68,686

Changes in inventory 114,440 (31,452) Changes in trade and other payables (86,217) (24,379) Changes in provisions, prepayments and grants 7,606 (7,072) Other adjustments (5) 1,225

Cash from operating activities 236,117 140,808 Income taxes paid (363) (1,674)

Net cash from operating activities 235,754 139,134 * The financial data was restated due to the final accounting for the acquisition of a controlling interest in

African Investment Group S.A., as described in Note 1.2 to the consolidated financial statements for the year ended December 31st 2014, and due to the change in presentation of advances and prepayments presented in Note 3.2 b) to these consolidated financial statements.

The supplementary and explanatory notes are an integral part of these interim condensed consolidated

financial statements.



Page18 of 66


Condensed consolidated statement of cash flows (continued)



restated*

unaudited unaudited

Cash flows from investing activities Proceeds from sale of property, plant and equipment,

intangible assets and investment property 6,482 760 Acquisition of property, plant and equipment, intangible assets and investment property (143,821) (99,907) Mineral resources exploration and evaluation expenditures (21,565) (12,079) Dividends received 11,035 9,740 Acquisition of subsidiaries, net of cash acquired (70,477) (21,932) Interest received

Government grants 2,201 - Loans (7,000) (645) Other disbursements (77) (21)

Net cash from investing activities (223,222) (124,084) Cash flows from financing activities

Proceeds from share capital increase - 936 Dividends paid (42,000) (23,250) Proceeds from borrowings 93,428 57,086 Payment of borrowings (58,109) (81,104) Interest paid (5,408) (6,462) Payment of finance lease liabilities (3,117) (2,417) Other proceeds/(disbursements) (94) 3,195

Net cash from financing activities (15,300) (52,016) Net increase/(decrease) in cash and cash equivalents (2,768) (36,966)

Cash and cash equivalents at the beginning of the period 55,031 82,158 Effect of exchange rate fluctuations 23 206

Cash and cash equivalents at the end of the period 52,286 45,398

* The financial data was restated due to the final accounting for the acquisition of a controlling interest in

African Investment Group S.A., as described in Note 1.2 to the consolidated financial statements for the financial year ended December 31st 2014.



Notes (all figures in PLN ‘000 unless indicated otherwise)

Page19 of 66


2.6. Supplementary information to the interim condensed consolidated financial statements

2.6.1. Information about the Group 2.6.1.1. Organisation of the Group The Group’s parent, Grupa Azoty Zakłady Chemiczne Police Spółka Akcyjna of Police (the ‘Parent’), was established on December 14th 1995 on the basis of Notarial Deed A No. 20142. The Parent operates as a joint-stock company in the territory of Poland. The Parent is registered with the District Court for Szczecin-Centrum of Szczecin, 13th Commercial Division of the National Court Register, under No. KRS 0000015501. The Parent has been assigned REGON (industry identification) No. 810822270 and NIP (tax identification) No. 851-02-05-573.

The duration of the Parent and the entities comprising the Grupa Azoty POLICE Group (the ‘Group’) is unlimited.

The Group’s business includes in particular: • manufacture and sale of chemical fertilizers, • manufacture and sale of titanium white and other chemicals, • generation, transmission and distribution of electricity.

The Grupa Azoty POLICE Group is a part of the Grupa Azoty Group, whose parent is Grupa Azoty S.A. Composition of the Group As at September 30th 2015, the Group comprised Grupa Azoty Zakłady Chemiczne Police S.A. (the Parent) and: • nine subsidiaries (in which the Parent held ownership interests above 50%), including one

company in liquidation, • one indirect subsidiary, • two associates (in which the Parent holds ownership interests below 50%, including one

company in bankruptcy by liquidation.



Page20 of 66


Structure of the Group as at September 30th 2015:

Jednostki zależne objęte konsolidacją Consolidated subsidiaries Jednostki zależne nieobjęte konsolidacją Non-consolidated subsidiaries Jednostki stowarzyszone wyceniane metodą praw własności

Equity-accounted associates

w likwidacji (in liquidation)

w upadłości likwidacyjnej (in bankruptcy by liquidation)

Acquisition of controlling interest in African Investment Group S.A.

As at December 31st 2014, the acquisition of African Investment Group S.A. shares was finally accounted for. The amounts of acquired assets and assumed liabilities were disclosed in the full-year consolidated financial statements for 2014.

The table below presents the effect of the final accounting for the acquisition of the controlling interest in African Investment Group S.A. on data disclosed in the approved interim condensed consolidated financial statements for the nine months ended September 30th 2014:



Grupa Azoty Zakłady Chemiczne Police Group Page21 of 66

Previously reported Restated



Effect of change

Profit or loss

Revenue 1,753,658 1,753,658 - Cost of sales (1,519,534) (1,512,498) 7,036

Gross profit 234,124 241,160 7,036

Selling and distribution expenses (64,459) (60,963) 3,496 Administrative expenses (116,166) (118,989) (2,823) Other income 8,249 8,249 - Other expenses (2,805) (2,805) -

Operating profit 58,943 66,652 7,709 Net finance income/(costs) (10,972) (10,972) -

Share of profit of equity-accounted associates 8,424 8,424 -

Profit before tax 56,395 64,104 7,709

Tax expense (8,638) (9,790) (1,152)

Net profit 47,757 54,314 6,557 Total other comprehensive income, including: 4,339 1,017 (3,322)

Translation reserve 5,341 2,019 (3,322) Total profit or loss and other comprehensive income 52,096 55331 3,235

Total profit or loss and other comprehensive income attributable to:

Owners of the parent 51,286 54,530 3,244 Non-controlling interests 810 801 (9)

2.6.1.2. Changes in the Group’s organisation Merger of subsidiaries Remech Sp. z o.o. and Automatika Sp. z o.o. On April 1st 2015, the Supervisory Board of Grupa Azoty Zakłady Chemiczne Police S.A. passed a resolution to approve the merger of REMECH Sp. z o.o. and Automatika Sp. z o.o. in accordance with Art. 492.1.1 of the Commercial Companies Code, through the transfer of all assets of Automatika Sp. z o.o. (the acquiree) to REMECH Sp. z o.o. (the acquirer). On June 1st 2015, the merger was entered in the Register of Entrepreneurs of the National Court Register, along with the change of name of Remech Grupa Remontowo-Inwestycyjna Spółka z ograniczoną odpowiedzialnością to Grupa Azoty Police Serwis Spółka z ograniczoną odpowiedzialnością.

Establishment of PDH Polska S.A. On September 10th 2015, a company under the name of PDH Polska Spółka Akcyjna of Police, with the share capital of PLN 60,000 thousand, was established. The Parent acquired 100% of its shares. The company was established in connection with the ‘PDH propylene production unit with infrastructure’ project. On September 24th 2015, PDH Polska Spółka Akcyjna was entered in the Register of Entrepreneurs of the National Court Register.




2.6.2. Key events in the three months ended September 30th 2015 Establishment of a subsidiary PDH Polska S.A.

For the discussion of the establishment of PDH Polska S.A., see Section 1.2.

2.6.3. Policies applied in the preparation of the interim condensed consolidated financial statements

2.6.3.1. Statement of compliance and general policies These interim condensed consolidated financial statements have been prepared in accordance with IAS 34 ‘Interim Financial Reporting’, as endorsed by the European Union, and in accordance with the Minister of Finance’s Regulation on current and periodic information to be published by issuers of securities and conditions for recognition as equivalent of information whose disclosure is required under the laws of a non-member state, dated February 19th 2009 (consolidated text: Dz.U. of 2014, item 133), and present the financial standing of the Grupa Azoty Police S.A. Group as at September 30th 2015, its operating performance for the three and nine months ended September 30th 2015, and its cash flows for the nine months ended September 30th 2015. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Grupa Azoty POLICE Group for the financial year ended December 31st 2014, prepared in accordance with the International Financial Reporting Standards endorsed by the European Union (the ‘IFRS’) and other applicable laws. All figures in these interim condensed consolidated financial statements are presented in thousands of złoty. 2.6.3.2. Accounting policies and computation methods a) Applied accounting policies

The accounting policies applied in these interim condensed consolidated financial statements are the same as those applied in the full-year consolidated financial statements for 2014. b) Changes in presentation of financial statements

In the reporting period, there were changes in the presentation of advances and prepayments in the statement of financial position. Advances paid for property, plant and equipment, intangible assets and inventories are now recognised under trade and other receivables.

The effect of the change on the data disclosed in the statement of financial position as at December 31st 2014 is presented below:





As at

Dec 31 2014 As at

Dec 31 2014 Effect of change

Assets

Non-current assets, including: 1,369,234 1,368,235 (999)

Property, plant and equipment 1,199,316 1,198,768 (548) Intangible assets 49,636 49,185 (451)

Current assets, including: 709,478 710,477 999 Inventories 418,202 416,450 (1,752) Trade and other receivables 226,133 228,884 2,751

Total assets 2,078,712 2,078,712 - Equity and liabilities

Equity, including: 1,107,333 1,107,333 -

Equity attributable to owners of the parent 1,012,426 1,012,426 -

Non-controlling interests 94,907 94,907 -

Non-current liabilities 304,356 304,356 -

Current liabilities 667,023 667,023 -

Total equity and liabilities 2,078,712 2,078,712 - c) Changes in International Financial Reporting Standards

The Group intends to adopt the changes in IFRS issued but not yet effective as at the date of issue of these interim condensed consolidated financial statements, as of their effective date. d) Judgements and estimates

The preparation of interim condensed consolidated financial statements requires the Management Board to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. The estimates and underlying assumptions are based on historical experience and other factors reasonable in the circumstances and are the basis for determining the carrying amounts of assets and liabilities that do not result directly from other sources. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Changes to accounting estimates are recognised in the period in which the estimates are revised or in current and any future periods affected.

The key judgements and estimates made by the Management Board in preparing these interim condensed consolidated financial statements were the same as those made in preparing the consolidated financial statements for the financial year ended December 31st 2014.




2.6.4. Selected supplementary notes 2.6.4.1. Segment reporting

The Group identifies operating segments based on internal reports. The operating results of each segment are reviewed on a regular basis by the Parent’s chief operating decision maker, who decides about the allocation of resources to different segments and analyses their results. Separate information prepared for each segment is available.

The Group identifies the following operating segments: • the Fertilizers Segment (the Fertilizers and Nitro Business Unit), • the Pigments Segment (the Pigments Business Unit),

and other activities, which include power generation, port services, wastewater disposal, waste storage, laboratory services, property rental, and other activities which cannot be allocated to any of the segments specified above.

Subsidiaries Grupa Azoty Africa S.A. and African Investment Group S.A. together with its subsidiary AFRIG Trade SARL are included in the Fertilizers Segment, and other subsidiaries − in other activities.

The Group presents administrative, selling and distribution expenses and other income and expenses allocated to the segments.

Performance of each of the segments is discussed in the ‘Operating segments’ Note. Performance of each segment is measured based on its revenue, EBIT and EBITDA.

Geographical areas The Group identifies the following geographical areas (countries or regions): • Poland, • Germany, • Other European Union countries, • South American countries, • Other countries.

If information is presented by geographical areas, revenue is determined based on the country of destination, i.e. the country where the product will be sold (irrespective of the location of the wholesaler whose operations frequently have a global reach). Assets allocated to a geographical area are identified on the basis of their geographical location.




Operating segments Revenue, expenses and financial result of operating segments for the three months ended September 30th 2015

Fertilizers Pigments Other Total

External revenue 527,826 57,168 15,097 600,091 Inter-segment revenue 82,168 (76) 191,907 273,999

Total revenue 609,994 57,092 207,004 874,090 Operating expenses, including: (-) (587,907) (60,890) (206,943) (855,740)

Selling and distribution expenses (-) (20,370) (1,888) - (22,258) Administrative expenses (-) (36,361) (4,497) (6,158) (47,016)

Other income 120 501 1,562 2,183 Other expenses (-) (424) (296) (1,708) (2,428)

Segment’s EBIT* 21,783 (3,593) (85) 18,105 Finance income x x x 519 Finance costs (-) x x x (1,085) Share of profit of equity-accounted associates x x x 2,690

Profit before tax x x x 20,229

Tax expense x x x (4,746) Net profit x x x 15,483

EBIT* 21,783 (3,593) (85) 18,105 Depreciation and amortisation 15,464 4,037 1,464 20,965

EBITDA** 37,247 444 1,379 39,070 * EBIT is calculated as operating profit (loss) as disclosed in the statement of profit or loss. ** EBITDA is calculated as operating profit (loss) before depreciation and amortisation.




Revenue, expenses and financial result of operating segments for the nine months ended September 30th 2015


External revenue 1,788,980 212,846 38,090 2,039,916 Inter-segment revenue 250,928 259 579,385 830,572

Total revenue 2,039,908 213,105 617,475 2,870,488 Operating expenses, including: (-) (1,881,240) (220,526) (617,350) (2,719,116)


Other income 834 842 4,332 6,008 Other expenses (-) (493) (307) (2,828) (3,628)

Segment’s EBIT* 159,009 (6,886) 1,629 153,752 Finance income x x x 1,226 Finance costs (-) x x x (12,628) Share of profit of equity-accounted associates x x x 8,182



EBIT* 159,009 (6,886) 1,629 153,752 Depreciation and amortisation 46,593 12,341 3,994 62,928

EBITDA** 205,602 5,455 5,623 216,680 * EBIT is calculated as operating profit (loss) as disclosed in the statement of profit or loss. ** EBITDA is calculated as operating profit (loss) before depreciation and amortisation.




Revenue, expenses and financial result of operating segments for the three months ended September 30th 2014, restated*


External revenue 416,229 76,345 12,393 504,967 Inter-segment revenue 78,691 46 188,454 267,191

Total revenue 494,920 76,391 200,847 772,158 Operating expenses, including: (-) (492,972) (73,965) (198,778) (765,715)


Other income 179 151 1,667 1,997 Other expenses (-) (514) (5) (102) (621)

Segment’s EBIT** 1,613 2,572 3,634 7,819 Finance income x x x 195 Finance costs (-) x x x (4,944) Share of profit of equity-accounted associates x x x 2,958


Tax expense x x x 85 Net profit x x x 6,113

EBIT** 1,613 2,572 3,634 7,819 Depreciation and amortisation 16,230 4,260 1,496 21,986

EBITDA*** 17,843 6,832 5,130 29,805 * The financial data was restated due to the final accounting for the acquisition of a controlling interest in African Investment Group S.A., as described in

Note 1.2 to the consolidated financial statements for the financial year ended December 31st 2014. ** EBIT is calculated as operating profit (loss), as disclosed in the statement of profit or loss. *** EBITDA is calculated as operating profit (loss) before depreciation and amortisation.




Revenue, expenses and financial result of operating segments for the nine months ended September 30th 2014, restated*


External revenue 1,480,515 242,547 30,596 1,753,658 Inter-segment revenue 234,156 622 561,511 796,289

Total revenue 1,714,671 243,169 592,107 2,549,947 Operating expenses, including: (-) (1,672,813) (228,557) (587,369) (2,488,739)


Other income 1,566 464 6,219 8,249 Other expenses (-) (627) (144) (2,034) (2,805)

Segment’s EBIT** 42,797 14,932 8,923 66,652 Finance income x x x 2,433 Finance costs (-) x x x (13,405) Share of profit of equity-accounted associates x x x 8,424



EBIT** 42,797 14,932 8,923 66,652 Depreciation and amortisation 51,786 12,706 3,397 67,889

EBITDA*** 94,583 27,638 12,320 134,541 * The financial data was restated due to the final accounting for the acquisition of a controlling interest in African Investment Group S.A., as described in

Note 1.2 to the consolidated financial statements for the financial year ended December 31st 2014. ** EBIT is calculated as operating profit (loss), as disclosed in the statement of profit or loss. *** EBITDA is calculated as operating profit (loss) before depreciation and amortisation.




Geographical areas

Revenue*





Poland 370,329 1,166,080 352,736 1,041,714 Germany 63,582 236,568 52,031 180,057 Other EU countries 85,839 384,855 79,788 319,629 South American countries 73,841 222,663 12,920 179,160 Other countries 6,500 29,750 7,492 33,098

Total 600,091 2,039,916 504,967 1,753,658

*Presentation of the segments has changed relative to presentation in the Q3 2014 report.

2.6.4.2. Contingent assets and liabilities, sureties, guarantees and other collateral

As at September 30th 2015, the Group did not identify any disclosable contingent liabilities or contingent assets. As at September 30th 2015, the Parent issued sureties for the following credit facility agreements:

Type/ Issuer Beneficiary Details Currency Issue date Amount

Surety for syndicated credit

facility Grupa Azoty S.A.

Revolving credit facility

agreement PLN Apr 23 2015 600,000

Surety for PKO BP credit facility Grupa Azoty S.A. Overdraft facility


Surety for PKO BP credit facility Grupa Azoty S.A.

Multi-purpose credit facility


Guarantee for EIB credit facility Grupa Azoty S.A. Credit facility

agreement PLN May 28 2015 220,000

Guarantee for EBRD credit facility Grupa Azoty S.A. Credit facility

agreement PLN May 28 2015 60,000

1,095,600

Guarantees issued by banks to the Parent under available credit limits as at September 30th 2015: Type/ Issuer Beneficiary Details Currency Issue date Amount

PKO BP S.A. PGE S.A. Performance bond in open

tender contract PLN Feb 4 2015 118

PKO BP S.A.

Customs Chamber in

Szczecin

Customs debt payment guarantee

PLN Mar 25 2015 (annex) 3,000

PKO BP S.A. PSE S.A.

Payment guarantee for electricity transmission

contract PLN May 11 2015 800

PKO BP S.A.

GAZ-SYSTEM S.A.

Payment guarantee for gas fuel transmission

contract PLN Jun 1 2015 80

PKO BP S.A.

GAZ-SYSTEM S.A.

Payment guarantee for gas fuel transmission

contract PLN Jun 1 2015 7,731

11,729 As at September 30th 2015, Grupa Azoty Police Serwis Sp. z o.o., a subsidiary, was the only Group company to have provided performance bonds (two separate performance bonds for an aggregate amount of PLN 452 thousand).

As at the reporting date, guarantees provided to the Parent totalled PLN 116,488 thousand.




2.6.4.3. Accounting estimates and assumptions Changes in provisions and employee benefit obligations (excluding deferred tax liability)

For the period Jul 1–Sep 30

2015

For the period Jan 1–Sep 30

2015

For the period Jan 1–Dec 31

2014


2014


2014 Balance at the beginning of the period 146,941 155,748 140,953 131,969 140,953

Recognised 8,394 41,089 56,345 5,903 30,801 Reversed (-) - (60) (3,925) (57) (57) Used (-) (119) (41,559) (37,628) (475) (34,357) Foreign currency exchange differences 3 1 3 - -

Balance at the end of the period 155,219 155,219 155,748 137,340 137,340

Changes in impairment loss on property, plant and equipment

For the period Jul 1 2015-Sep

30 2015


2015


2014


2014



Recognised 279 366 1,955 41 733 Reversed (-) - - (4,254) - - Used (-) (396) (1,584) (12,645) (9,119) (9,249)


Changes in inventory write-downs


2015


2015


2014


2014



Recognised 458 3,188 5,461 127 2,044 Reversed (-) (1,890) (4,952) (3,047) (1,074) (1,727) Used (-) (97) (692) (796) 217 (780)


Changes in impairment loss on receivables


2015


2015


2014


2014



Recognised 86 172 1,128 26 168 Reversed (-) (47) (351) (828) (87) (692) Used (-) (5) (3,849) (121) (1) (95)





2.6.4.4. Related parties Significant related-party transactions: a) Significant related-party transactions executed by the Group on non-arm’s length terms.

In the three months ended September 30th 2015, the Group did not execute any related-party transactions on non-arm’s length terms. b) Transactions with members of the Management Board and Supervisory Board of the Parent,

their spouses, siblings, ascendants, descendants or other closely related persons

During the three months ended September 30th 2015, the Group did not grant any advances, loans, guarantees or sureties to management or supervisory personnel or persons closely related to them, nor did it enter into any agreements with them to provide benefits to the Group. a) Significant related-party transactions executed by the Group.

Transactions with the following entities are considered related party transactions of the Grupa Azoty POLICE Group: companies of the Grupa Azoty Group, companies of the Grupa Azoty ZAK Group, companies of the Grupa Azoty PUŁAWY Group, companies of the Grupa Azoty PKCh Group, and with the associated and non-consolidated companies of the Grupa Azoty POLICE Group.

The most important transactions executed by the Grupa Azoty POLICE Group with its related parties in the period January–September 2015 were the following: • sale of liquid ammonia to Grupa Azoty S.A. for PLN 100,678 thousand, • sale of urea and fertilizers to Agrochem Puławy Sp. z o.o. for PLN 20,053 thousand, • sale of liquid ammonia to Grupa Azoty Zakłady Azotowe Kędzierzyn S.A. for PLN 13,002

thousand, • purchase of ammonium sulfate from Grupa Azoty Zakłady Azotowe Puławy S.A. for PLN 19,662

thousand, • purchase of liquid sulfur from Grupa Azoty Kopalnie i Zakłady Chemiczne Siarki Siarkopol S.A. for

PLN 19,570 thousand.

Furthermore, Grupa Azoty POLICE S.A. Group entered into a PLN 164,000 thousand intra-Group financing agreement, of which: • PLN 60,000 thousand concerns the financing of PDH propylene production project, • PLN 104,000 thousand concerns the financing of investment projects.

As at September 30th 2015, the debt from non-bank borrowings comprised: • PLN 20,000 thousand on account of disbursement of the first tranche of the loan for activities

related to the PDH propylene production project, • PLN 18,625 thousand on account of disbursement of the first tranche of the loan for the

implementation of investment projects. 2.6.4.5. Events after the end of the reporting period that could impact future

financial performance There were no events subsequent to the end of the reporting period that could impact the Group’s future financial performance.




2.6.4.6. Dividends The Annual General Meeting of Grupa Azoty Zakłady Chemiczne Police S.A., held on May 27th 2015, passed a resolution to pay to its shareholders a total dividend of PLN 42,000 thousand. The dividend was paid on June 25th 2015. The Annual General Meeting of Kemipol Sp. z o.o., held on May 27th 2015, passed a resolution to pay dividend to its shareholders; as a result, Grupa Azoty Zakłady Chemiczne Police S.A. received a dividend income of PLN 11,035 thousand. The dividend was paid on June 30th 2015. 2.6.4.7. Seasonality of operations Fertilizers Spring is the main fertilizer application season. Nitrogen fertilizers are then applied as the main source of nutrients for plants, supplemented by phosphatic and potassium fertilizers. In Poland, winter crops account for a significant share of the total grain production, therefore the basic sowing of grains takes place in autumn. In autumn, mainly phosphatic and potassium fertilizers are applied for winter crops. For reasons of logistics, in the fourth quarter fertilizers are stocked for application in spring, primarily nitrogen fertilizers and − to a lesser extent − phosphatic and potassium fertilizers.

Pigments The second and third quarters of the year usually see higher demand for titanium white, especially from the paint and varnish industry, which consumes more than 50% of the total production of titanium white pigments. In winter and early spring (the fourth and the first quarters of the year), the activity of the key titanium white consumers subsides markedly, which is traditionally reflected in a periodic decline in demand for the product. Longer maintenance shutdowns of the production installations usually take place during this time.

Ammonia Ammonia is used chiefly by the nitrogen fertilizer industry, and therefore the demand for ammonia is largely correlated with production of nitrogen fertilizers. Demand for the product usually peaks in the fourth and the first quarters of each year. However, given the fact that ammonia, unlike fertilizers, cannot be stockpiled in large quantities, its price is significantly affected by, besides supply and demand, non-market factors, such as plant failures, disruptions in gas supply, or logistical problems (unavailability of tankers or specialist marine vessels).

Chemicals Seasonality is hardly a factor on the chemicals market.

3. INTERIM CONDENSED SEPARATE FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30TH 2015

Grupa Azoty Zakłady Chemiczne Police S.A. Interim condensed separate financial statements for the three and nine months ended September 30th 2015



3.1. Statement of the Management Board The Management Board of Grupa Azoty Zakłady Chemiczne Police Spółka Akcyjna presents interim condensed separate financial statements for the three and nine months ended September 30th 2015, comprising: • Condensed separate statement of profit or loss and other comprehensive income for the period

July 1st−September 30th 2015 and for the period January 1st–September 30th 2015, • Condensed separate statement of financial position as at September 30th 2015, • Condensed separate statement of changes in equity for the period January 1st–September 30th 2015, • Condensed separate statement of cash flows for the period January 1st–September 30th 2015, • Supplementary information to the interim condensed separate financial statements. These interim condensed separate financial statements have been prepared in accordance with IAS 34 ‘Interim Financial Reporting’, as endorsed by the European Union, and give a fair and clear view of the financial position and performance of the Company. Signatures of the Members of the Management Board

………………………………




………………………………




Person entrusted with maintaining accounting records

……………………………… Józefa Żurawska Chief Accountant





3.2. Condensed separate statement of profit or loss and other comprehensive income




Sep 30 2014



Revenue 591,618 2,023,634 499,846 1,752,472 Cost of sales (508,639) (1,679,785) (434,297) (1,521,045)

Gross profit 82,979 343,849 65,549 231,427 Selling and distribution expenses (22,258) (69,390) (23,705) (57,683) Administrative expenses (39,046) (114,883) (31,673) (100,687) Other income 901 3,253 879 2,907 Other expenses (1,995) (3,697) (1,743) (4,129)

Operating profit 20,581 159,132 9,307 71,835 Finance income 492 12,295 131 17,650 Finance costs (860) (11,408) (4,784) (12,571)

Net finance income/(costs) (368) 887 (4,653) 5,079 Profit before tax 20,213 160,019 4,654 76,914

Tax expense (4,655) (29,518) (512) (13,044) Net profit 15,558 130,501 4,142 63,870

Other comprehensive income

Items that will never be reclassified to profit or loss

Revaluation of obligations/assets from defined benefit plans - (657) - (1,178) Tax on items that will never be reclassified to profit or loss - 125 - 176

Total other comprehensive income - (532) - (1,002) Total profit or loss and other comprehensive income 15,558 129,969 4,142 62,868

Earnings per share:

Basic (PLN) 0.21 1.74 0.06 0.85 Diluted (PLN) 0.21 1.74 0.06 0.85

The supplementary and explanatory notes are an integral part of these interim condensed separate financial statements.




3.3. Condensed separate statement of financial position

as at Sep 30 2015

as at Dec 31 2014

restated*

unaudited audited

Assets Non-current assets Property, plant and equipment

985,481 906,769 Investment property

24,422 24,428

Intangible assets

31,136 20,037 Investments in subordinated entities

221,060 160,693

Other financial assets

7,061 - Deferred tax assets

52,439 76,504

Other assets

3,933 3,288 Total non-current assets

1,325,532 1,191,719

Current assets Inventories

286,559 398,413 Other financial assets

1,505 1,391

Trade and other receivables

252,021 244,643 Cash and cash equivalents

21,538 32,085

Other assets

11,992 7,292 Total current assets

573,615 683,824

Total assets

1,899,147 1,875,543 ∗ The financial data was restated due to the change in presentation of advances and prepayments described in






Condensed separate statement of financial position (continued)

as at Sep 30 2015

as at Dec 31 2014

unaudited audited

Equity and liabilities Equity Share capital

750,000 750,000 Retained earnings, including:

378,753 290,784

Profit for the period

130,501 82,677

Total equity

1,128,753 1,040,784

Liabilities Borrowings


52,165 51,260

Other non-current liabilities

40,975 247 Provisions

46,622 46,156

Government grants

8,291 7,169 Other financial liabilities

4,370 4,616

Total non-current liabilities

309,030 194,117 Borrowings

79,794 131,126

Employee benefit obligations

5,138 4,800 Current tax expense

- 187

Trade and other payables

326,251 461,585 Provisions

37,795 39,894

Government grants

9,964 1,203 Deferred revenue

365 9

Other financial liabilities

2,057 1,838 Total current liabilities

461,364 640,642

Total liabilities

770,394 834,759 Total equity and liabilities

1,899,147 1,875,543





3.4. Condensed separate statement of changes in equity for the period ended September 30th 2015

Share capital

Retained earnings

Total equity

Balance at January 1st 2015 750,000 290,784 1,040,784 Profit or loss and other comprehensive income

Net profit - 130,501 130,501 Other comprehensive income - (532) (532)

Total profit or loss and other comprehensive income - 129,969 129,969 Transactions with owners of the Company, recognised directly in equity

Dividends - (42,000) (42,000) Total contributions by and distributions to owners - (42,000) (42,000) Total transactions with owners - (42,000) (42,000) Balance at September 30th 2015 (unaudited) 750,000 378,753 1,128,753

for the period ended September 30th 2014

Share capital

Retained earnings

Total equity

Balance at January 1st 2014 750,000 233,861 983,861 Profit or loss and other comprehensive income

Net profit - 63,870 63,870 Other comprehensive income - (1,002) (1,002)


Dividends - (23,250) (23,250) Total contributions by and distributions to owners - (23,250) (23,250) Total transactions with owners - (23,250) (23,250) Balance at September 30th 2014 (unaudited) 750,000 273,479 1,023,479

for the year ended December 31st 2014

Share capital

Retained earnings

Total equity

Balance at January 1st 2014 750,000 233,861 983,861 Profit or loss and other comprehensive income

Net profit - 82,677 82,677 Other comprehensive income - (2,504) (2,504)


Dividends - (23,250) (23,250) Total contributions by and distributions to owners - (23,250) (23,250) Total transactions with owners - (23,250) (23,250) Balance at December 31st 2014 (audited) 750,000 290,784 1,040,784

The supplementary and explanatory notes are an integral part of these interim condensed separate financial

statements.




3.5. Condensed separate statement of cash flows



restated*

unaudited unaudited

Cash flows from operating activities Profit before tax 160,019 76,914

Adjustments for: 56,887 58,978 Depreciation and amortisation 61,169 61,833 Impairment 354 732 Loss from investing activities (175) 1,314 Interest, foreign exchange gains or losses 6,751 9,885 Dividends (11,035) (14,786) Profit/loss on change in fair value of financial assets at fair value through profit or loss (177) -

Cash from operating activities before changes in working capital 216,906 135,892

Changes in trade and other receivables (23,145) 71,499 Changes in inventory 111,854 (26,893) Changes in trade and other payables (70,309) (23,434) Changes in provisions, prepayments and grants 7,046 (5,122) Other adjustments - (379)

Cash from operating activities 242,352 151,563 Income taxes paid (187) -

Net cash from operating activities 242,165 151,563 ∗ The financial data was restated due to the change in presentation of advances and prepayments described in






Condensed separate statement of cash flows (continued)



unaudited unaudited

Cash flows from investing activities Proceeds from sale of property, plant and equipment,

intangible assets and investment property 6,259 495 Acquisition of property, plant and equipment, intangible assets and investment property (144,113) (98,775) Dividends received 11,035 14,786 Acquisition of financial assets - (24,952) Acquisition of subsidiaries, net of cash acquired (90,667) (21,932) Proceeds from sale of financial assets - 24,952 Government grants 2,201 - Loans (7,000) (813) Other disbursements (1,695) (1,727)

Net cash from investing activities (223,980) (107,966)

Cash flows from financing activities Dividends paid (42,000) (23,250)

Proceeds from borrowings 78,716 31,610 Payment of borrowings (58,109) (70,529) Interest paid (5,089) (6,453) Payment of finance lease liabilities (2,975) (2,268) Other proceeds 485 3,195

Net cash from financing activities (28,972) (67,695) Net increase/(decrease) in cash and cash equivalents (10,787) (24,098)

Cash and cash equivalents at the beginning of the period 32,085 57,872 Effect of exchange rate fluctuations 240 161

Cash and cash equivalents at the end of the period 21,538 33,935





3.6. Supplementary information to the interim condensed separate financial statements

These interim condensed separate financial statements of Grupa Azoty Zakłady Chemiczne Police Spółka Akcyjna should be read in conjunction with the interim condensed consolidated financial statements of the Grupa Azoty Zakłady Chemiczne Police Spółka Akcyjna Group for the three and nine months ended September 30th 2015, and the audited separate financial statements of Grupa Azoty Zakłady Chemiczne Police Spółka Akcyjna for the financial year ended December 31st 2014. The accounting policies applied in these interim condensed separate financial statements are the same as those applied in the full-year separate financial statements for 2014, except for the changes in recognition of advances and prepayments in the statement of financial position. Advances paid for property, plant and equipment, intangible assets and inventories are now recognised under trade and other receivables.

The effect of the change on the data disclosed in the statement of financial position as at December 31st 2014 is presented below:


As at

Dec 31 2014 As at

Dec 31 2014 Effect of change

Assets

Non-current assets, including: 1,193,678 1,191,719 (1,959)

Property, plant and equipment 908,277 906,769 (1,508) Intangible assets 20,488 20,037 (451)

Current assets, including: 681,865 683,824 1,959 Inventories 403,479 398,413 (5,066) Trade and other receivables 237,618 244,643 7,025

Total assets 1,875,543 1,875,543 -

Equity and liabilities

Equity 1,040,784 1,040,784 -

Non-current liabilities 194,117 194,117 -

Current liabilities 640,642 640,642 - Total equity and liabilities 1,875,543 1,875,543 - In the opinion of the Management Board of Grupa Azoty Zakłady Chemiczne Police Spółka Akcyjna, notes to the interim condensed consolidated financial statements of the Grupa Azoty Zakłady Chemiczne Police Spółka Akcyjna Group contain all relevant information required to properly assess the Company’s assets and financial position in the presented period.

4. MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE GRUPA AZOTY ZAKŁADY CHEMICZNE POLICE GROUP’S

PERFORMANCE IN Q3 2015

Grupa Azoty Zakłady Chemiczne Police S.A. Management’s discussion and analysis: Q3 2015



4.1. Discussion of the interim consolidated financial statements 4.1.1. Assessment of factors and non-typical events having a material impact

on the Group’s operations and financial performance 4.1.1.1. Factors having a material impact on the business and financial performance The financial performance of the Group is strongly influenced by the costs of maintaining the production assets, mainly costs of repairs performed at the Parent. The production process significantly depends on the maintenance shutdowns of the ammonia units, since ammonia is the key semi-finished product used to manufacture fertilizers. Compared with other quarters of 2015, the urea and ammonia units were used less in Q3 2015 due to maintenance shutdowns. Lower production volume resulted in a higher unit production cost and, consequently, a decrease in sales in Q3 2014, but it will have a positive effect on the future results of the Company. Establishment of PDH Polska S.A. On August 31st 2015, the Management Board of Grupa Azoty Zakłady Chemiczne Police S.A. passed a resolution to approve the establishment by Grupa Azoty Zakłady Chemiczne Police S.A. of a joint-stock company with its registered office in Police and acquisition of 100% of the shares comprising its share capital. On September 10th 2015, a company under the name of PDH POLSKA Spółka Akcyjna with its registered office at Police, with the share capital of PLN 60m, was established. The Issuer acquired 100% of its shares. The company was established in connection with the ‘PDH propylene production unit with infrastructure’ project. On September 24th 2015, PDH Polska Spółka Akcyjna was entered in the Register of Entrepreneurs of the National Court Register.1 4.1.1.2. Market overview FERTILIZERS Agricultural market Global market The improvement of global supply prospects and strong crops in the EU, together with a strong competition in exporters’ market (Russia, Ukraine), reduced wheat prices in the contracts for September by more than 2%. The supply-demand situation in the EU indicated that the prices remained low due to strong crops and competition from producers from the Black Sea region.

Poland In Q3 2015, rain shortage caused a small decrease in grain and rape crops, but also enabled effective harvest. The quality of grain and rape seeds was generally very good. However, drought decreased significantly the crops (of corn, potatoes and sugar beet in particular) and prevented winter rape sowing in many regions. According to GUS, this year’s harvest of main grain types is estimated at 25.9−26.6m tonnes, i.e. 2.8−5.1% less than the previous year’s. Rapeseed harvest is estimated at 2.8−2.9m tonnes approximately, i.e. 15% less than last year’s production, but 10% more than last five years’ average harvest. Milk and beef cattle producers suffered major problems with gathering feeds for the winter. Many milk producers must pay severe fines for exceeding milk quota and the current milk prices do not ensure profitability of production. After the harvest, grain trading was limited as many farmers preferred to store grains in anticipation of higher prices. Grains were sold by the farmers who had to repay loans, buy fertilizers, seeds and plant protection products or who did not have enough storage space. An important factor behind the absence of price increases in Poland was grain import from Ukraine. Service providers to the farming industry point to the sector’s growing financial pressures. More and more agricultural farms are having liquidity issues and postponing the payment of their debts. 1 The Company disclosed this information in Current Reports No. 5/2015 of March 27th 2015, No. 23/2015 of August 31st 2015 and No. 25/2015 of September 25th 2015.




Ammonia and urea prices [USD/t]

Source: Company data.

Ammonia The ammonia supply and demand levels remained low in Q3 2015. On the supply side, this was an effect of reduced production volumes at a number of manufacturers selling their products abroad, which resulted from limitations in gas supplies (Trinidad, Egypt, Ukraine, Libya), plant failures (Qatar, Saudi Arabia) and planned overhauls (Russia). Decreased demand for ammonia for agricultural purposes (direct application into soil) and the resultant lower imports were seen primarily in the US. The overall economic slowdown led to reduced demand for technical grade ammonia, especially from Asian producers. Urea The revived demand for urea seen in the spring season across global markets ended in mid-June, and in July urea prices started to show a downward trend. The decrease was most strongly driven by higher supply. The annual production capacities have increased by a total of approximately 4 million tonnes so far this year, and approximately 1 million tonnes is planned to be added by the year end, when a new production unit is launched in the US. Production line shutdowns in Egypt, Trinidad and Ukraine (due to gas supply shortages) and low supply in China (after the Chinese government imposed production limits) prevented any major turmoil on the urea market. Throughout most of August urea prices were rising on global markets, driven primarily by continued supply limitations and the periodic increase in demand. However, in late August the downward trend in urea prices returned and continued throughout September. The declining urea purchases and prices were in the first place an effect of macroeconomic factors, such as the currency devaluation in Brazil and several Asian countries, low prices of basic agricultural products and the rising global oversupply of urea. In September, new production units, with a total annual capacity of approximately 2 million tonnes of urea, were launched in Algeria and China. September is usually a period when farmers use less urea and those who buy the fertilizer do it with the spring application season in mind.

NPK fertilizers In July, retail sales points in Poland reported a stagnation in fertilizer sales, mainly due to the crop harvesting period, but also shortage of funds faced by many farms. Some farmers, especially small farm owners, postponed the decision to buy fertilizers to the last possible moment, i.e. until the beginning of winter crop sowing. Large farmers bought NPK fertilizers to be used in the sowing of winter crops already in May and June. After the harvest, an increased interest in compound fertilizers to be used in rapeseed sowing was observed at retail sales points. However, the drought which hit many regions of Poland frequently made winter rapeseed sowing impossible. As a result, rape acreage and demand for fertilizers went down. Distribution networks took a conservative approach and stocked NPK fertilizers for the purposes of the autumn application season. In September, retail sales of fertilizers slowed down, but purchases of compound fertilizers for winter crops continued. Many distributors and producers (e.g. Luvena) started offering farmers long-term loans repayable in late March 2016 or even later.

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Ammonia Urea




Prices of NPK, DAP [USD/t]


The market of imported NPK fertilizers saw less activity than a year before. Farmers chose to buy imported NPK fertilizers mainly because of lower prices and during temporary shortage of domestic supply. The largest volumes of NPK fertilizers are imported to Poland from Belarus, Finland, Russia, and Lithuania. In the current fertilizer application season, retailers point out to the growing number of farmers postponing payment deadlines or in delay with payment for purchased fertilizers. Throughout most of Q3 2015, purchases of compound NPK fertilizers in Western Europe remained low. Uncertainty about the volume and quality of crops and, in particular, low prices of grains discouraged European farmers from purchasing larger amounts of NPK fertilizers. In anticipation of higher demand in September (sowing of winter crops), European producers raised the prices of NPK fertilizers by EUR 5 per tonne in August. DAP fertilizers In Q3 2015, all major global markets saw weak demand for phosphatic fertilizers, including DAP. The pressures on DAP price, which continued throughout Q3 2015 on the global markets, were caused by low prices of corn and soya in the US and Brazil. Other factors included devaluation of currencies in Brazil, Malaysia, Indonesia and India and the turmoil on global stock markets (China). At the beginning of July, the price of DAP slightly grew, but the overall market environment forced the largest manufacturers to reduce the prices in the entire Q3 2015. The weak demand for DAP in Europe made Russian manufacturers switch to the production of MAP, cut the price by USD 10/t and direct their sales to the US, Brazil and Argentina. Thanks to the price reduction, OCP Morocco signed large contracts with trading partners in the US, Brazil and European and African countries. In view of the declining exports of DAP, Mosaic, the US’s largest manufacturer of the fertilizer, began to stock it in its US distribution network. It also announced that because of insufficient demand and declining prices, it would reduce the production volume. The low value of the rupee against the US dollar was a factor considerably complicating sales of DAP to India. In Brazil, weak demand for phosphate fertilizers continued, mainly due to low prices of agricultural products and limited availability of credits for farmers. The devaluation of the local currency (by 45% from the beginning of the year) drove the prices of imported fertilizers markedly up. Phosphate rock, sulfur, potassium chloride The prices of phosphate rock remained stable throughout most of Q3 2015, with a slight increase in the prices of phosphorus-bearing raw materials from some suppliers from Morocco, Algeria and Egypt seen at the end of the period. At the beginning of Q3 2015, the world’s largest manufacturers of potassium chloride concluded large contracts for supplies to India and Indonesia. Later in the period, a downward trend was seen in potassium chloride prices on most global markets, due to weak demand for the product. The devaluation of currencies in the key markets for exporters, namely China, India, Malaysia, Indonesia and Brazil, gave rise to pressures to cut the prices of potassium chloride in Q3 2015. Because of the

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NPK 16-16-16 DAP




harvest season, the demand for potassium chloride remained sluggish throughout most European markets and in the US. The US’s Mosaic, one of the world’s largest manufacturers of potassium chloride, announced that due to the poor demand on a majority of markets it would reduce its production volume. Hence, one of Mosaic mines did not resume operations after the year-long maintenance shutdown completed in September. In Q3 2015 the prices of sulfur in Europe remained unchanged relative to Q2 2015. Other key markets also saw stable sulfur prices in July. During the period, the supply of sulfur from the Persian Gulf was steadily rising, after a new ADNOC desulfurization unit, with an annual capacity of 3 million tonnes, went on stream. Meanwhile, the demand for sulfur was going steadily down in Q3 2015. Globally, sulfur prices began to show a downward trend in Q3 2015, especially in the case of large importers, with particularly large decreases recorded in September in the Persian Gulf countries, China, Canada, India and Brazil. PIGMENTS Market prices of titanium white [EUR/t]


The global oversupply of titanium white drove the market prices down in Q3 2015. Because of the global economic downturn, the demand for titanium white declined. The challenging economic climate in the US and Europe was aggravated by stock market collapse and slower economic growth in China. The situation in China has a strong bearing on the market as 35% of global production capacities are located in the country. Chinese manufacturers increased the volumes of titanium white designed for export sales, pushing the global prices down. In Europe, the supply of titanium white fell after Huntsman reduced its production volume following a gas explosion in its German branch, and also as a result of closing down of its production business in Calais, France. Other manufacturers also reduced their production volumes, to less than 80%, or chose to shut down their production units for maintenance works as a way to deal with insufficient demand for their output. In the summer season, the demand from the paint and coating sector (the largest consumer of titanium white) was far lower than expected, due to unfavourable macroeconomic conditions in Europe. On the American market, Chemours, a spin-off from DuPont, decided to suspend production of titanium white at two units in the US until the end of Q1 2016. This will reduce the annual titanium white output by 150,000 tonnes. However, this move will have no major impact on the global market, because in mid-2016 Chemours plans to launch a new titanium white unit, with an annual production capacity of 200,000 tonnes, in Mexico. In Q3 2015, the prices of titanium white in Europe remained stable. On the global markets (the US, Asia), the spot prices of titanium white dropped 4−6% in the period. Ilmenite and titanium slag In Q3 2015, the market of raw materials for pigment production faced falling prices due to weak demand for titanium white and lower prices of the product. On the representative Chinese market,

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Titanium white




the average price of ilmenite dropped 7% and the price of titanium slag went down by 9%. The largest manufacturers of titanium slag reduced their production volumes by 20%. 4.1.2. Key financial data of the Group 4.1.2.1. Consolidated financial information The Group’s key achievements in Q3 2015 included: • EBIT and net profit more than two times higher than in Q3 2014, • 100% higher EBIT margin and more than 100% higher net profit margin (up from 1.2% to 2.6%)

relative to Q3 2014.

In Q3 2015, the Group generated a net profit of PLN 15,483 thousand, with EBIT at PLN 18,105 thousand and EBITDA at PLN 39,070 thousand. Compared with Q3 2014, EBIT increased by PLN 10,286 thousand (132%), and EBITDA rose by PLN 9,265 thousand (31%). The EBIT margin and net profit margin generated by the Group were higher compared with the corresponding period of 2014. In the reporting period, the financial performance of the Group was strongly correlated with the situation in the Parent’s market environment. The year-on-year improvement in the Company’s performance was attributable to the increased fertilizer sales volume and lower price of natural gas. Consolidated financial data

Item Q3 2015 Q3 2014 change % change Revenue 600,091 504,967 95,124 19

Cost of sales 512,467 435,109 77,358 18

Gross profit 87,624 69,858 17,766 25

Selling and distribution expenses 22,258 24,576 -2,318 -9

Administrative expenses 47,016 38,839 8,177 21

Net profit on sales 18,350 6,443 11,907 185

Other income/(expenses) -245 1,376 -1,621 -118

EBIT 18,105 7,819 10,286 132

Finance income/(costs) -566 -4,749 4,183 -88

Share of profit (loss) of equity-accounted associates 2,690 2,958 -268 -9

Profit before tax 20,229 6,028 14,201 236

Tax expense -4,746 85 -4,831 -5,684

Net profit/loss 15,483 6,113 9,370 153

EBIT 18,105 7,819 10,286 132

Depreciation and amortisation 20,965 21,986 -1,021 -5

EBITDA 39,070 29,805 9,265 31 In Q3 2015, revenue was higher by 19% compared with the corresponding period of the previous year. The key revenue growth driver was the increase in the sales volume of compound fertilizers. Administrative expenses were higher than in the same period last year, affected primarily by higher salaries in H2 2014 and Q1 2015. In Q3 2015, other expenses were PLN -245 thousand, compared with other income of PLN 1,376 thousand in Q3 2014. Net finance income/costs was negative at PLN -566 thousand. In Q3 2014, the figure was also negative, at PLN -4,749 thousand. 4.1.2.2. Segments’ financial results In Q3 2015, EBIT in the Fertilizers Segment was PLN 21,783 thousand, marking a twelvefold increase year on year. The improvement was driven mainly by the increased sales volume with higher fertilizer prices. Due to difficult conditions on the titanium white market, the Pigments Segment recorded a weaker result year on year.




The Fertilizers Segment accounted for the largest share (88%) of the Group’s revenue. The Pigments Segment generated 10% of the Group’s total revenue, while revenue from Other Activities represented 2% of the total. EBIT by segment

Item Fertilizers Pigments Other Activities

Revenue from external sales 527,826 57,168 15,097

Share [%] 88 10 2

EBIT 21,783 -3,593 -85

Revenue by segment

Source: Company data. Fertilizers

In Q3 2015, revenue of the Fertilizers Segment was PLN 527,826 thousand, up 27% year on year. The key contributor to the Fertilizers Segment’s revenue are compound fertilizers (NPK, NP and NS). Revenue from this product group increased year on year, chiefly on stronger sales of NPK and NS fertilizers.

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ilize

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viti

es

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Revenue of the Fertilizers Segment

Source: Company data. Pigments

In Q3 2015, revenue from external sales posted by the Pigments Segment was PLN 57,168 thousand, down 25% year on year. The decline in the Segment’s revenue was primarily attributable to lower sales volume of titanium white. Revenue of the Pigments Segment

Source: Company data. Other

Revenue classified in Other Activities accounts for 2% of the Group’s revenue from sales to external customers.

4.1.2.3. Sales by product group In Q3 2015, revenue from sales of compound fertilizers amounted to PLN 413,972 thousand, having risen 39% year on year. The sales value growth in this product group is attributable to an increase in NPK fertilizer sales and NS fertilizer sales (which contributed 57% and 38%, respectively). The principal drivers of revenue increase relative to Q3 2014 were both higher sales volume and higher NPK fertilizer prices.

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Source: Company data. In Q3 2015, revenue from sales of urea amounted to PLN 60,303 thousand, having dropped 16% year on year. In Q3 2015, revenue from sales of titanium white was PLN 54,547 thousand, having declined compared with Q3 2014, mainly due to the sales volume lower by 22%. Revenue in the chemical product category, in which urea has the largest share in sales value, was 8% higher than in the corresponding period of 2014, despite a slight drop in revenue from sales of ammonia. Revenue of the ‘Other Activities’ segment accounts for 3% of the Parent’s total revenue and is derived mainly from occasional sales of merchandise and services. Revenue by product group

The largest item in the Group’s revenue by products is the compound fertilizer product group, accounting for more than a half of the Group’s total revenue. Compared with Q3 2014, the share of compound fertilizers in total revenue rose by 10pp, while the shares of urea and titanium white fell by 4pp and 6pp, respectively. Revenue by product group

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Compound fertilizers 69%

Urea 10%

Titanium white; 9%

Chemicals 9%

Other 3%

Q3 2015





4.1.2.4. Operating expenses In Q3 2015, operating expenses rose by 12% year on year. The most important item of operating expenses was raw materials and consumables used, most of which generated by the Parent. The main cause of the year-on-year increase in operating expenses was higher compound fertilizer production. The increase in taxes and charges is attributable to a change in the manner of posting of CO2 costs (which were reclassified from raw materials and consumables used to taxes and charges) and higher waste storage fees, which stemmed from increased production of fertilizers. Salaries and wages are higher due to a pay agreement signed in 2014 and in Q1 2015. Operating expenses by nature

Item Expenses Structure %

Q3 2015 Q3 2014 Q3 2015 Q3 2014

Depreciation and amortisation 20,965 21,986 4 5

Raw materials and consumables used 367,337 317,277 67 65

Services 43,012 47,409 8 10 Salaries and wages, including overheads, and other benefits 77,052 68,489 14 14

Taxes and charges 22,357 19,499 4 4

Other expenses 15,055 11,768 3 2 In Q3 2015, raw materials and consumables used at the Group were 16% higher than in the corresponding period of the previous year. The increase was mostly attributable to a higher production volume of compound fertilizers and related semi-finished products. Also, a significantly higher USD/PLN exchange rate resulted in higher prices of phosphorites used in the production of fertilizers, as well as prices of ilmenite and titanium slag − raw materials for the production of titanium white. The share of raw materials and consumables used in total operating expenses remained relatively unchanged year on year. It should be noted that the key factor driving the Group’s expenses was the value and cost structure of raw materials/feedstock. In Q3 2015, the Group’s other expenses were higher year on year. In the compared periods, the share of other expenses in total operating expenses was similar.

Compound fertilizers 59%

Titanium white; 15%

Urea 14%

Chemicals 10%

Other 2%

Q3 2014




Structure of other expenses [%]

Item Q3 2015 Q3 2014 Depreciation and amortisation 12 13 Services 24 28 Salaries and wages, including overheads, and other benefits 43 40

Taxes and charges 13 12 Other expenses 8 7 4.1.2.5. Structure of assets, equity and liabilities Changes in assets relative to the comparative period: • the amount of property, plant and equipment was up by PLN 113,307 thousand (or 10%) due to

an increase in the amount of property, plant and equipment under construction, • intangible assets were up by PLN 49,209 thousand (or 150%), mainly driven by research and

development work comprising mineral resource exploration and evaluation at AFRIG S.A., • inventories fell by PLN 85,024 thousand (down 22%) and trade and other receivables were up by

PLN 33,091 thousand (17%). Structure of assets

Item Q3 2015 Q3 2014 change % change

Non-current assets, including: 1,458,587 1,313,371 145,216 11

Property, plant and equipment 1,274,044 1,160,737 113,307 10

Intangible assets 81,920 32,711 49,209 150

Investment property 2,581 2,456 125 5

Investments in subordinated entities 24,380 24,614 -234 -1

Current assets, including: 594,770 641,370 -46,600 -7

Inventories 302,685 387,709 -85,024 -22

Trade and other receivables 224,633 191,542 33,091 17

Cash and cash equivalents 52,286 45,398 6,888 15

Other financial assets 1,505 1,350 155 11

Total assets 2,053,357 1,954,741 98,616 5 Significant changes in equity and liabilities in the period under review: • Increase in the Group’s equity attributable to net profit earned in Q3 2014 and in the nine

months ended September 2015, reduced by dividends for 2014 distributed to the shareholders; • Increase in non-current liabilities by 8% (PLN 28,991 thousand) due to an increase in liabilities

under borrowings; • Decrease in current liabilities by PLN 18,550 thousand (4%), mostly due to a PLN 48,481 thousand

(13%) decrease in trade and other payables, including the payment related to the acquisition of AFRIG S.A.’s shares;

• A PLN 59,824 thousand increase in borrowings used.




Structure of equity and liabilities

Item Q3 2015 Q3 2014 change % change

Equity 1,186,470 1,098,295 88,175 8

Non-current liabilities, including: 391,505 362,514 28,991 8

Borrowings 203,234 160,769 42,465 26

Other non-current liabilities 975 22,015 -21,040 -96

Employee benefit obligations 63,326 58,449 4,877 8

Provisions 46,669 45,729 940 2

Deferred tax liabilities 57,492 57,493 -1 0

Current liabilities, including: 475,382 493,932 -18,550 -4

Trade and other payables 335,667 384,148 -48,481 -13

Borrowings 82,042 64,683 17,359 27

Provisions 38,423 27,555 10,868 39

Total liabilities 876,827 851,053 25,774 3

Total equity and liabilities 2,053,357 1,954,741 98,616 5

4.1.2.6. Financial ratios Profitability In Q3 2015, the Group’s financial performance improved significantly on the year before, all of which translated into much improved profitability at individuals levels of the P&L. An over two-fold increase in the performance compared with the same period last year yielded a similar rate of growth of returns on both assets and equity. Profitability ratios

Ratio Q3 2015 Q3 2014 Gross margin 14.6% 13.8% EBIT margin 3.0% 1.5% EBITDA margin 6.5% 5.9% Net margin 2.6% 1.2% ROA 0.8% 0.3% ROCE 1.1% 0.5% ROE 1.3% 0.6% Return on non-current assets 1.1% 0.5%

Ratio formulas: Gross margin = gross profit (loss) / revenue EBIT margin = EBIT / revenue EBITDA margin = EBITDA / revenue Net profit margin = net profit (loss) / revenue ROA (return on assets) = net profit (loss) / total assets Return on capital employed (ROCE) = EBIT / total assets less current liabilities (TALCL), that is EBIT / total assets less current liabilities Return on equity (ROE) = net profit (loss) / equity Return on non-current assets = net profit (loss) / non-current assets

Liquidity In Q3 2015, the Group’s current ratio remained at its Q3 2014 level due to a proportionate decline both in current assets and current liabilities. The quick ratio increased only slightly year on year due to a lower proportion of inventories in total current assets. The cash ratio remained unchanged year on year.




Liquidity ratios

Ratio Q3 2015 Q3 2014 Current ratio 1.3 1.3 Quick ratio 0.6 0.5 Cash ratio 0.1 0.1

Ratio formulas: Current ratio = current assets / current liabilities Quick ratio = (current assets - inventories - current prepayments and accrued income) / current liabilities Cash ratio = (cash + other financial assets) / current liabilities

Operating efficiency In Q3 2015, the Group’s cash conversion cycle shortened relative to the previous year, from 35 days to 28 days. Relative to Q3 2014, the inventory turnover period and the average payment period shortened by 27 and 20 days, respectively, chiefly due to a decrease in inventories and liabilities accompanied by higher cost of sales.

Operating efficiency ratios

Ratio Q3 2015 Q3 2014 Inventory turnover period (days) 53 80 Average collection period (days) 34 34 Average payment period (days) 59 79 Cash conversion cycle 28 35

Ratio formulas: Inventory turnover = (inventory * 180) / cost of sales Average collection period = (trade and other receivables * 180) / revenue Average payment period = (trade and other payables * 180) / cost of sales Cash conversion cycle = inventory turnover + average collection period - average payment period Debt The financial situation of the Parent has a decisive effect on the Group’s debt and financial security. In Q3 2015, the Group’s total debt ratio remained relatively unchanged year on year. The Group recorded a slight increase in its long-term debt ratio on account of higher liabilities under borrowings, and a decrease in its short-term debt due to payment of liabilities related to the acquisition of shares in AFRIG S.A. The equity to debt ratio increased as equity grew faster than liabilities. The ratios for Q3 2015 were at levels guaranteeing financial security for the Group.

Debt ratios

Ratio Q3 2015 Q3 2014

Total debt ratio 43% 44%

Long-term debt ratio 20% 18%

Short-term debt ratio 23% 25%

Equity-to-debt ratio 135% 129%

Interest cover ratio 3,049% 524%

Ratio formulas: Total debt ratio = current and non-current liabilities / total assets Long-term debt ratio = non-current liabilities / total assets Short-term debt ratio = current liabilities / total assets Equity-to-debt ratio = equity / current and non-current liabilities Interest cover ratio = [EBIT + interest expense] / interest expense




4.1.3. Significant agreements Significant agreements of Grupa Azoty Zakłady Chemiczne Police S.A.

Parties Subject matter Agreement date

Date and number of

current report

Value*

PST PGNiG Sales & Trading GmbH Supply of gaseous fuel 23 Sep 2015

23 Sep 2015 Current

Report No. 24/2015

160,000

(214,000*)

* Total value of contracts signed over the last 12 months or from the submission date of the last current report concerning agreements with this entity. 4.1.4. Type and amounts of one-off events affecting the assets, equity and

liabilities, capital, net profit/loss or cash flows In the reporting period there were no one-off events affecting the assets, equity and liabilities, capital, net profit/loss or cash flows. 4.1.5. Issue, redemption, and repayment of debt and equity securities In Q3 2015, the Parent and other Group companies did not issue, redeem or repay any debt or equity securities.

4.2. Other information 4.2.1. Organisation of the Grupa Azoty Zakłady Chemiczne Police Group As at September 30th 2015, the Group comprised Grupa Azoty Zakłady Chemiczne Police S.A. (the Parent) and: • nine subsidiaries (in which the Parent held ownership interests above 50%), including one

company in liquidation, • one indirect subsidiary, • two associates (in which the Parent holds ownership interests below 50%, including one company

in bankruptcy by liquidation. For description of the organisation of the Parent and presentation of the Group subsidiaries, see pp. 4−9 of the Directors’ Report on the operations of the Grupa Azoty Zakłady Chemiczne Police Group in the twelve months ended December 31st 2014. 4.2.2. Changes in the Group’s organisation In connection with the Recommendation of the Management Board of Grupa Azoty S.A. of July 14th 2015, as well as the Resolution of the Management Board of Grupa Azoty Zakłady Chemiczne POLICE of June 26th 2015 and the Resolution of the Management Board of Grupa Azoty Zakłady Chemiczne POLICE of August 4th 2015, on August 31st 2015 the Management Board of Grupa Azoty Zakłady Chemiczne Police S.A. passed a resolution to approve the establishment by Grupa Azoty Zakłady Chemiczne Police S.A. of a joint-stock company with its registered office in Police and acquisition of 100% of the shares comprising its share capital. On September 10th 2015, a company under the name of PDH Polska Spółka Akcyjna of Police, with the share capital of PLN 60,000 thousand, was established. The Parent acquired 100% of its shares. The company was established in connection with the ‘PDH propylene production unit with infrastructure’ project. On September 24th 2015, PDH Polska Spółka Akcyjna was entered in the Register of Entrepreneurs of the National Court Register.




The Issuer disclosed this information in Current Reports No. 5/2015 of March 27th 2015, No. 23/2015 of August 31st 2015 and No. 25/2015 of September 25th 2015.

4.2.3. Management Board’s position on the achievement of forecasts The Group did not publish any performance forecasts for 2015 on account of continued unpredictability in the product and raw material markets on which the Group heavily depends. Developments on these markets have a material effect on the Group’s financial performance. Forecasting of key economic indicators would, therefore, carry a considerable risk, and their publication could lead to wrong investment decisions by potential investors. 4.2.4. Shareholding structure Shareholding structure

Shareholder Number of

shares % ownership

interest Number of

votes % of total voting

rights

Grupa Azoty S.A. 49,500,000 66.00 49,500,000 66.00

OFE PZU Złota Jesień 11,257,189 15.01 11,257,189 15.01

ARP S.A. 6,607,966 8.81 6,607,966 8.81

State Treasury of Poland 3,759,356 5.01 3,759,356 5.01

Other 3,875,489 5.17 3,875,489 5.17

75,000,000 100.00 75,000,000 100.00 4.2.5. Parent shares held by management and supervisory personnel Parent shares held by management personnel

Number of shares / voting rights

As at

Jan 1 2015 As at

Sep 30 2015 As at

this Report date

Jałosiński Krzysztof 1,000 1,000 1,000

Kuźmiczonek Rafał - - -

Naruć Wojciech - - -

Podolak Anna - - -




Parent shares held by supervisory personnel

Number of shares / voting rights

As at

Jan 1 2015 As at

Sep 30 2015 As at

this Report date

Jarczewski Paweł - - -

Likierski Marcin - - -

Markwas Wiesław 500 500 500

Skolmowski Andrzej - - -

Tarocińska Anna 1 1 1

Zielińska Patrycja - - - 4.2.6. Litigation There were no new developments relative to the information published in the Directors’ Report on the operations of the Grupa Azoty Zakłady Chemiczne Police Group in the twelve months ended December 31st 2014, concerning a compensation claim by Grupa Azoty Zakłady Chemiczne Police S.A. against Bank Polska Kasa Opieki Spółka Akcyjna for damage suffered in connection with derivative transactions. Grupa Azoty Zakłady Chemiczne Police S.A. and its subsidiaries are not parties to any other proceedings before any court, or body having arbitration jurisdiction, or public administration body, conducted in connection with receivables or liabilities of the Company or its subsidiary whose value would be equal to at least 10% of the Company’s equity, nor are they parties to two or more proceedings concerning liabilities or receivables whose total value would be equal, respectively, to at least 10% of the equity of Grupa Azoty Zakłady Chemiczne Police S.A. 4.2.7. Related parties In Q3 2015, Grupa Azoty Zakłady Chemiczne Police S.A. did not enter into any related-party transactions on non-arm’s length terms. 4.2.8. Sureties for borrowings, guarantees granted In Q3 2015, the Parent did not issue any sureties or guarantees. For complete information on sureties and guarantees issued in 2015, see Section 4.2.8. ‘Sureties for borrowings, guarantees granted’ in the Consolidated Interim Report for H1 2015. 4.2.9. Other information relevant for the assessment of the staffing levels,

assets, financial standing and financial performance 4.2.9.1. Execution of key investment projects On February 26th 2015, the Supervisory Board of Grupa Azoty Zakłady Chemiczne Police S.A. passed a resolution to approve the acquisition of non-current assets under the project ‘PDH unit for propylene production with infrastructure’. The project is included in Grupa Azoty Zakłady Chemiczne Police S.A.’s 2015 Capital Expenditure Plan and adopted by Grupa Azoty S.A. in the Grupa Azoty Group Strategy for 2014–2020 – Operationalisation. The project is designed to improve the security of supply of propylene as the key raw material for production of OXO alcohols, and will also open up new directions for growth thanks to new possibilities in propylene processing. The PDH propylene production unit will be Europe’s largest and most advanced facility of such type. In the first nine months of 2015, the Group spent PLN 143,821 thousand on property, plant and equipment and intangible assets (of which PLN 144,113 thousand was attributable to the Company), and PLN 21,565 thousand on exploration for and evaluation of mineral resources. The Parent’s capital expenditure amounted to PLN 122,056 thousand and included:




• Business development PLN 79,813 thousand; • Mandatory investments PLN 25,276 thousand; • Business continuity PLN 10,203 thousand; • Purchase of finished goods PLN 6,764 thousand, and the balance was spent on significant overhaul work. Structure of the Parent’s capital expenditure in 2015

Source: Company data. Key projects in 2015 Continued projects Exhaust gas treatment unit and upgrade of the EC II CHP plant The project’s objective is to bring the operation of the CHP plant’s units in line with the requirements of Directive 2010/75/EU. As part of the project, two boilers were upgraded and placed in service. A denitrification unit was placed in service on both boilers, and optimisation of the unit’s operation was completed. The unit was passed for warranty testing. Work is currently under way on construction of a flue gas desulfurization unit. The project, with a budget of PLN 163,700 thousand, is scheduled to be completed in 2016. Upgrade of the ammonia unit The objective of the upgrade is to reduce energy consumption of the ammonia production process and to improve the operational reliability of individual process nodes. The upgrade will eliminate bottlenecks in the ammonia unit and increase its efficiency by 200 tonnes of ammonia per day. The first phase of construction and assembly work (dismantling, construction of foundation) has been completed at the Gas Preparation Unit. One carbon monoxide conversion unit has been optimised. One process air system has also been modernised. Local inlets for process air and instrument air compressors have been constructed. One turbine powering the synthetic gas compressor has been replaced. The project, with a budget of PLN 155,600 thousand, is scheduled to be completed in 2016. Change of the DA-HF phosphoric acid production technology The main purpose of the project is to raise the efficiency of phosphoric acid production and improve the acid’s quality by reducing impurities. The project, with a budget of PLN 67,000 thousand, is scheduled to be completed in 2016.

Business development

65% Mandatory 21%

Preparation 8%

Business continuity 6%




New projects PDH propylene production unit with infrastructure The project involves construction of Europe’s largest and most advanced on-purpose propylene production unit. The budget of the project is expected to amount to PLN 1.7bn. As part of the project, a power generating unit will also be constructed and a chemicals handling terminal will be added at the sea port in Police. The target annual output is at least 400,000 tonnes of propylene. The construction is expected to begin in H1 2016. Some 1,000 staff will work at the construction site and, once it comes on stream in 2019, the plant will provide permanent employment to approximately 200 people. It will also enable Police to develop new products based on organic compounds. Propylene is used as an intermediate product in the manufacturing of such products as OXO alcohols (solvents, acrylic coatings, plasticisers), acrylic acid (acrylic coatings, superabsorbent polymers) and polypropylene which finds applications in the textile and automotive industries (bumpers, car battery casings) and in the packaging industry (crates, containers, films). The primary objective of the project is to diversify the sources of the Grupa Azoty Zakłady Chemiczne Police Group’s revenue. Revenue is estimated to grow by approximately PLN 2bn, and profit by hundreds of million złoty. Propylene will be produced by propane dehydrogenation. Hydrogen generated in the process will be used at the ammonia production unit, which will improve the efficiency of ammonia production. The propylene production process involving propane dehydrogenation is one of the most advanced technologies and the unit to be constructed in Police will be one of Europe’s largest facilities using this technology. The project involving the construction of the propylene production unit is designed to improve the security of supply of the key raw material for the production of OXO alcohols. According to preliminary estimates, 60% of propylene produced in Police (i.e. 250,000 tonnes) will be exported, and 150,000 will be delivered to Grupa Azoty Zakłady Azotowe Kędzierzyn S.A. Also, due to different product market cycles, revenue streams will be diversified, thus improving the security of the Company’s business. Propylene is a raw material used not only for the production of OXO alcohols, but also for the production of acrylic acid and polypropylene, which will enable the Company to add new products to its product portfolio in the future. UOP LLC of USA has been selected to supply the propane dehydrogenation technology. Agreements on licence, warranty and provision of basic engineering services were signed with UOP LLC. As part of basic engineering services, PFD (Process Flow Diagram) documentation has been received. Furthermore, geological reports have been prepared and site preparation works have been executed. The project is scheduled to be completed in 2018.

Modernisation of the floodbank around the phosphogypsum landfill site The project’s objective is to increase the floodbank’s leaktightness and to better secure the phosphogypsum landfill site from external waters. The efforts will improve environmental safety and ensure coherence with the surrounding area. The project, with a budget of PLN 9,500 thousand, is scheduled to be completed in 2016.

Modernisation of phosphate rock storage facility The planned project consists in alteration of the storage facility to ensure that raw materials are stored properly and are protected against unfavourable weather conditions. The project, with a budget of PLN 8,350 thousand, is scheduled to be completed in 2016. Remote (online) monitoring of physical and chemical parameters of liquids at production units The project will involve installation of an automated system for measuring physical and chemical parameters of liquids at individual production units. Automated measuring will reduce the number of measurements performed manually by 520 per day (out of 634). The project, with a budget of PLN 3,900 thousand, is scheduled to be completed in 2016.




4.2.9.2. Financial liquidity and liabilities under loans and borrowings Grupa Azoty Zakłady Chemiczne Police S.A.’s financial standing is closely tied to its market environment, which has a substantial effect on the Company’s ability to meet its current liabilities. The Parent operates an active cash flow (payables and receivables) management policy based on trade credit, prepayments (sale transactions) and extended payment terms (purchase transactions). To secure financial liquidity, the Company uses external and intra-group sources of financing. The availability of credit facilities (presented in the table below) is lower year on year, but given the Parent’s sound financial standing the risk of liquidity loss is considered low. The amount of funds used under available credit facilities fell in Q3 2015 year on year. As at September 30th 2015, outstanding bank borrowings totalled PLN 68,930 thousand. The total amount of cash available under the credit facilities was PLN 201,342 thousand as at the end of Q3 2015. Parent’s liabilities under bank borrowings as at September 30th 2015*

Bank Type of liability

Limit granted Amount drawn Utilisation (%) Available

amount

PKO BP S.A. overdraft facility 120,000 4,906 4% 115,094

PKO BP S.A. multi-purpose credit facility

limit 82,000 62,000 76% 8,272**

BGK S.A. overdraft facility 80,000 2,024 3% 77,976

Total (PLN): 282,000 68,930 24% 201,342

*In nominal terms. ** Guarantees of PLN 11,728 thousand have been issued as part of the facility. Parent’s liabilities under bank borrowings as at September 30th 2014*

Bank Type of liability Limit

granted Amount drawn Utilisation (%) Available amount

PKO BP S.A. overdraft facility 126,700 39,254 31% 87,446

PKO BP S.A. multi-purpose credit facility 82,000 62,000 76% 878**

BGK overdraft facility 80,000 25,253 32% 57,747 Raiffeisen

Bank Polska S.A.

overdraft facility 80,000 0 0% 80,000

Total: 368,700 126,507 34% 242,193

*In nominal terms. ** Guarantees of PLN 19,122 thousand have been issued as part of the facility.




Parent’s liabilities under borrowings from related parties as at September 30th 2015*

Related party Type of liability Amount granted

Amount used as at September 30th

2015 Utilisation (%) Available

amount

Grupa Azoty S.A.

Loan for investment

projects 104,000 18,625 18% 85,375

Grupa Azoty S.A.

Loan for payment towards PDH Polska S.A.

share capital

60,000 20,000 33% 40,000

Total: 164,000 38,625 24% 125,375 *In nominal terms. Company’s liabilities under non-bank borrowings as at September 30th 2015*

Co-financing institution

Liability amount

Utilisation (PLN) Utilisation (%) Project

Regional Fund for

Environmental Protection and Water

Management in Szczecin

90,000 90,000** 100% Exhaust gas treatment unit and upgrade of the

EC II CHP plant

National Fund for



90,000 44,601 50% Upgrade of the ammonia synthesis process

Regional Fund for Environmental

Protection and Water Management in

Szczecin

6,228 0 0%

Expansion of the post-calcination gas

desulfurization system through the addition of

two new reactors

National Fund for



2,945 2,578 88%

Reclamation of Stawostadion No. 1 at

the iron sulfate (II) landfill site through the

use of geomembrane

Total: 189,173 137,179 73%

*In nominal terms. * By September 30th 2015, the Parent had paid three principal instalments of PLN 8,437.5 thousand under the loan from the Regional Fund for Environmental Protection and Water Management; as a result, as at September 30th 2015 debt outstanding under the loan was PLN 81,562.5 thousand.

4.2.9.3. Environmental performance The Company operates with due care for the environment based on an integrated permit for the operation of process units situated on the Company’s premises, granted by virtue of the decision of the Marshall of the Province of Szczecin of January 9th 2014, ref. WOŚ.II.7222.13.9.2013.MG. The permit was issued for an indefinite period.




In Q3 2015, the Company’s integrated permit was amended for the fourth time in connection with the need to bring the permit in compliance with new legal regulations concerning titanium white installations.

The ‘Assessment of soil, land and groundwater contamination risk’, performed in line with Scheme No. SP-O-P06-01, did not reveal any risk of soil and groundwater contamination.

On September 1st 2015, the Minister of Economy’s Regulation on waste landfill of July 16th 2015 was announced. The Regulation contains provisions proposed by the Company. It removes the requirement to landfill iron(II) sulfate at dedicated sites.

The Parent met all of its legal obligations related to environmental reporting for 2014 and complied with all the requirements under the integrated permit in a timely manner. 4.2.9.4. Composition and powers of the Management Board and the Supervisory

Board Management Board During the reporting period, there was no change in the composition of the Management Board, which as at the date of issue of this report was as follows:

• Krzysztof Jałosiński - President of the Management Board,

• Rafał Kuźmiczonek - Vice-President of the Management Board (representing Company employees),

• Wojciech Naruć - Vice-President of the Management Board,

• Anna Podolak - Vice-President of the Management Board.

Powers and responsibilities of the Parent’s Management Board members In accordance with the Commercial Companies Code and the Articles of Association, the Management Board is the Company’s executive body responsible for managing its affairs and representing it in and out of court. The Management Board, headed by the President, manages the Company and represents it before third parties. All matters connected with the management of the Company’s affairs which are not reserved under the law or the Articles of Association for the General Meeting or the Supervisory Board, fall within the scope of powers and responsibilities of the Management Board. The Management Board operates in compliance with effective laws and is accountable for the management of the Company’s affairs before the Supervisory Board and the General Meeting. Division of powers and responsibilities within the Management Board Pursuant to Supervisory Board’s Resolution No. 26/VI/13 on approval of amendments to the Rules of Procedure for the Management Board of Grupa Azoty Zakłady Chemiczne Police S.A., the division of powers and responsibilities for the supervision of the Company’s individual organisational areas is each time determined and approved by the Company’s Management Board by way of a resolution. As at the date of issue of this report, the division of powers and responsibilities of the Management Board members is governed by:

• Management Board Resolution No. 527/VI/15 of June 26th 2015 concerning the division of powers and responsibilities among the Management Board members with regard to the supervision of organisational areas and business processes,

• Organisational Rules adopted by the Management Board in Resolution No. 9/VI/12 of July 6th 2012, as amended (most recently amended by Management Board Resolution No. 526/VI/15 of June 26th 2015), approved by the Supervisory Board in Resolution No. 160/VI/15 of July 7th 2015.




Pursuant to Management Board Resolution No. 527/VI/15 of June 26th 2015, the supervisory powers and responsibilities are divided among the Company’s Management Board members as follows:

• Krzysztof Jałosiński, President of the Management Board and Chief Executive Officer: − Central Dispatch Division, − Fertilizers Business Unit − Nitro Business Unit − Internal Audit Division, − Marketing Division, − Strategy and Development Department, − Fertilizer Sales Department, − Human Resources and Management Department, − Public Relations Office, − Security Office.

• Rafał Kuźmiczonek, Vice-President of the Management Board: − Technical Safety Department, − Laboratory Analysis Centre.

Wojciech Naruć, Vice-President of the Management Board: − Finance Department, − Strategic Procurement Department.

• Anna Podolak, Vice-President of the Management Board: − Pigments Business Unit − Logistics Centre, − Power Centre − Infrastructure Centre.

As regards the division of duties among the Management Board members, the above-mentioned resolution also determines their powers and responsibilities in the coordination of business processes. The individual Management Board members supervise and coordinate the following business processes:

• Krzysztof Jałosiński, President of the Management Board and Chief Executive Officer: − Strategic management, − Comprehensive customer support, − Human resources management, − Marketing.

• Rafał Kuźmiczonek, Vice-President of the Management Board: − Technical and environmental safety.

• Wojciech Naruć, Vice-President of the Management Board: − Financial management, − Financial controlling, − Availability of feedstocks and raw materials.

• Anna Podolak, Vice-President of the Management Board: − Logistics support, − Production asset management, − Investment project management.

The President of the Management Board, assisted by the unit responsible for providing support to the Issuer’s governing bodies, performs ongoing supervision of the implementation of resolutions of the Parent’s Management Board, Supervisory Board, and General Meeting. The President of the Management Board, or in his absence the Vice-President designated by the President, convenes, determines the agenda of and presides over Management Board meetings. In accordance with the Organisational Rules of Grupa Azoty Zakłady Chemiczne Police S.A., President of the Management Board - Chief Executive Officer exercises general supervision of the




Parent’s operations and is assisted by directors of departments, business units and centres, and by managers of other organisational units. Powers and responsibilities of the President of the Management Board - Chief Executive Officer include: − general supervision and coordination of Company operations, − promoting a good corporate image of the Group, − managing the work of the Company’s Management Board and presiding over its meetings, − performing the Company’s responsibilities as an employer within the bounds of the Polish Labour

Code, − supervising the restructuring and privatisation processes at the Company and its subsidiaries, − supervising and coordinating business processes specified in the Management Board Rules of

Procedure, and supervising of organisational units that report directly to the President of the Management Board – Chief Executive Officer,

− approving internal audit, business control and stocktaking plans, as well as making decisions on their implementation, and

− representing the Company in all procedures in and out of court, jointly with another Management Board member or proxy.

Supervisory Board In the reporting period, there were no changes in the composition of the Supervisory Board. As at the date of publication of this Report, the Supervisory Board was composed of the following six members:

• Paweł Jarczewski − Chairperson of the Supervisory Board,

• Andrzej Skolmowski − Deputy Chairperson of the Supervisory Board,

• Anna Tarocińska − Secretary of the Supervisory Board (representing the Company employees),

• Marcin Likierski − Member of the Supervisory Board,

• Wiesław Markwas − Member of the Supervisory Board (representing the Company employees), and

• Patrycja Zielińska – Member of the Supervisory Board.

The Supervisory Board operates on the basis of: • Commercial Companies Code of September 15th 2000 (Dz.U. No. 94, item 1037, as amended), • Act on Commercialisation and Privatisation, • Accountancy Act, • Company Articles of Association, and • Rules of Procedure for the Supervisory Board of Grupa Azoty Zakłady Chemiczne Police S.A. On November 23rd 2009, the Supervisory Board established an Audit Committee (Resolution No. 342/IV/09) in order to improve the productivity of the Board’s work and to strengthen control over the Parent and the Group. The Audit Committee is an advisory body acting collectively within the Supervisory Board. During the reporting period, there was no change in the composition of the Parent’s Audit Committee, and as at the end of the period it was as follows:

• Andrzej Skolmowski − Chairman of the Audit Committee, • Anna Tarocińska − Secretary of the Audit Committee, and • Paweł Jarczewski − Member of the Audit Committee.

The Audit Committee’s tasks include in particular: • monitoring of the financial reporting process, • monitoring of the effectiveness of internal financial control, internal audit and risk management

systems in place at the Company, • monitoring of financial audit activities, • monitoring of the independence of the qualified auditor and the entity qualified to audit

financial statements, also in the case of its provision of services referred to in Art. 48.2 of the




Act on Qualified Auditors, Their Self-Government, Entities Qualified to Audit Financial Statements and on Public Supervision, dated May 7th 2009,

• recommending to the Supervisory Board an entity qualified to audit financial statements in order to perform the financial audit of the Company.

Detailed rules of operation of the Audit Committee are provided for in the Rules of Procedure for the Audit Committee approved by Resolution No. 341/IV/09 of the Parent’s Supervisory Board of November 23rd 2009, and amended by Resolution No. 10/VI/2013 of the Supervisory Board of July 31st 2013. 4.2.10. Factors which will affect the Group’s performance over at least the next

reporting period 4.2.10.1. Exchange rates Bank analysts predict that by the end of 2015 the EUR/USD exchange rate will go down to 1.10 and the EUR/PLN exchange rate will go up to 4.27.Until the end of 2015, the EUR/PLN market will remain affected by the anticipated further slowdown of economic growth in China and interest rate increases in the USA. Analysts expect the US Federal Reserve to launch a series of interest rates increases in December 2015, which will reduce demand for riskier assets, such as the Polish złoty. This will lead to a depreciation of the złoty against the US dollar and the exchange rate at the end of 2015 will go up to 3.88. However, because the Company uses natural hedging and balances its average annualised currency position, the above factors should not have a material effect on the Company’s performance in Q4 2015. 4.2.10.2. Interest rates in Poland In Q3 2015, the Monetary Policy Council did not change any parameters of its monetary policy. The reference rate is 1.50%, the lombard rate – 2.50%, the deposit rate – 0.50%, and the rediscount rate – 1.75%. According to analysts, the interest rates will not change until the end of 2015 and no decisions in this respect should be expected before 2016, when the new Monetary Policy Council takes office. 4.2.10.3. Prices of raw materials and products in the next reporting period In Q4 2015, the frequency of NPK fertilizer application will decrease. In this period (November in particular), manufacturers frequently offer after-season price discounts to encourage distributors and farmers to accumulate stocks of fertilizers for the spring fertilizer application period. The price of urea is driven by developments on global markets. The launch of new production capacities in the USA, Algeria, China and Persian Gulf will have a substantial effect on the price level. By the end of 2015, new facilities with an annual production capacity of approximately 5 million tonnes will be launched. As in the case of urea, the market price of DAP will change in response to developments in global markets and demand from India, the US, Brazil and other South American countries. Therefore, a limited demand and price decreases should be expected. Until the end of 2015, global markets will see limited demand for ammonia and lower ammonia production. The price of ammonia is expected to remain at the Q3 2015 level. High volatility and unpredictability of the ammonia market results from storage constraints. In Q4 2015, the prices of the basic materials for the production of NPK and DAP fertilizers (phosphorites and potassium chloride) should remain virtually unchanged or change only slightly. The price of sulphur, in Europe in particular, is expected to change by 10−20 USD/t. Given the lack of prospects of any economic revival, demand for titanium white should be expected to remain week and titanium white prices − to decline further. The downward trend in prices of raw materials for titanium white production will persist.

Consolidated interim report for Q3 2015 (all figures in PLN ‘000 unless indicated otherwise)


This consolidated interim report of Grupa Azoty Zakłady Chemiczne Police S.A. for Q3 2015 contains 65 pages. Signatures of the Members of the Management Board of the Parent

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consolidated interim report for q3 2015...consolidated interim report for q3 2015 (all figures in...

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