Consolidated and statutory QUARTARLY REPORT for the period since till Zakłady Chemiczne Police S.A.

Transcription

1 Consolidated and statutory QUARTARLY REPORT for the period since till Zakłady Chemiczne Police S.A. Capital Group

2 CONTENTS I. Financial infromation of Grupa Kapitałowa Zakłady Chemiczne "Police" S.A. for quarter III Consolidated financial statement Consolidated report on total incomes Consolidated report on changes in equity capital Consolidated report on cash flows Additional information to consolidated financial statement General information Description of more important applied rules of accounting Segment results Adjourned income tax Reserves for liabilities Descriptions updating the value of assets Transactions with affiliates and subsidiaries Contingent receivables and liabilities Dividend Summary II. Business activity of Z.Ch. "Police" Capital Group S.A Market environment description Seasonal character of activity Fertilizer market Titanic white market Markets of remaining chemical products Operational activity results of the Capital Group Sales Fertilizers Titanic white Chemicals Costs Consumption costs of raw materials and energy Remaining sort costs Financial results Consolidated and statutory quarterly report for the period since till Page 2

3 2.4. Current financial situation Liabilities on account of credits and loans Financial liquidity Issue, buying out, repayment of securities Dividend Factors to shape long-term results of the Capital Group Creation of product and raw material prices in the following period Implementation of Restructuring Plan Meaningful achievements and failures The current evaluation of open currency positions of prompt transactions Asset investments III. Financial information of the Dominant Subject for quarter III Financial situation report Report on total incomes Report on changes in equity capital Report on cash flows Other information Segment results Adjourned income tax Reserves for liabilities Descriptions updating the value of assets Transactions with affiliates and subsidiaries Contingent receivables and liabilities Result partition IV. Other information Description of the Capital Group organization Description of more important events connected with the dependent and associated companies The stand of the Management connected with the realization of the Capital Group forecasts Other information important for the assessment of personel, property, financial situation, financial results of the Company and their changes, and information that is crucial for the assessment of possibilities of liabilities realization by the Issuer that was not presented in other parts of the report Changes in the Management of the Issuer composition Consolidated and statutory quarterly report for the period since till Page 3

4 Changes in the composition of the Issuer Supervisory Board Public support Prospect of privatization Company Collective Labour Agreement Redemption of the claim of Z.Ch. "Police" S.A. by BOŚ S.A. from PGN&G S.A Repayment of the bought out by BOŚ S.A. claim Other important events that took place after the reporting period Separation of the business entities Realization of liquidation proceedings of "Supra" Co. Ltd. in the process of liquidation Diversification of gas supply "Infrapark" S.A. loan restructuring Initiating of proceedings before the Court of Conciliation Shareholding The balance sheet of the state of possession of the Issuer's shares by the managing and supervising persons Court, arbitration and administrative proceedings Transactions with associated subjects Credit, loan warranties or guarantee issuing Consolidated and statutory quarterly report for the period since till Page 4

5 I. FINANCIAL INFROMATION OF GRUPA KAPITAŁOWA ZAKŁADY CHEMICZNE "POLICE" S.A. FOR QUARTER III 1.1. Consolidated financial statement Assets State for State for Fixed assets Permanent fixed assets Intangible assets Investment real estates Investments in dependent and associated entities Long term prepayments and accruals Business and other receivables Assets connected with the deferment of income tax Fixed assets total Current assets Reserves Business and other receivables Receivables connected with current income tax Monetary means and their equivalents Current assets total ASSETS TOTAL Consolidated and statutory quarterly report for the period since till Page 5

6 Liabilities Balance for Balance for Equity capital Share capital Reserve capitals Retained profits Non-controlling shares Equity capital total Liabilities Long term liabilities Reserves on account of old-age benefits and similar Reserve for other liabilities Assets on account of the deferment income tax Financial liabilities on account of leasing Business liabilities and remaining liabilities Long term liabilities total Short-term liabilities Business liabilities and remaining liabilities Bank credits and loans Financial liabilities on account of leasing Reserves on account of old-age benefits and similar Reserve for other liabilities Short-term liabilities total Liabilities total LIABILITIES TOTAL Consolidated and statutory quarterly report for the period since till Page 6

7 1.2. Consolidated report on total incomes Continued activity since till since till for the period since till since till Sales income Sales own cost Sales gross profit Sales costs General Management costs Other operating incomes/costs Profit (loss) from operating activity Financial incomes/costs Shares in net profits (losses) of the subordinated entities estimated by equity method Incomes on account of shares in affiliates and subsidiaries Profit (loss) before tax Income tax current part adjourned part Nett profit (loss) Total incomes altogether Nett profit (loss) for: - shareholders of Dominant Subject uncontrolling shareholders Profit (loss) for one ordinary share for the shareholders of Dominant Subject (PLN for one share) 0,62 2,16 0,02-0,27 - basic 0,62 2,16 0,02-0,27 - diluted 0,62 2,16 0,02-0,27 Consolidated and statutory quarterly report for the period since till Page 7

8 1.3. Consolidated report on changes in equity capital Equity capital (for shareholders of dominant subject) Share capital Remaining reserve capitals Retained profits Equity capital total Noncontrolling shares Equity capital total Balance for Coverage of last years loss from the profit of Using the supplementary capital for last years loss coverage Dividend Nett profit (loss) in the quarter Change of Group structure Balance for Equity capital (assigned to the shareholders of dominant subject) Share capital Remaining reserve capitals Retained profits Equity capital total Noncontrolling shares Equity capital total Balance for Coverage of 2009 loss from supplementary capital Appropriation of 2009 net profit for reserve capital Change of profit distribution for Change of profit distribution for dividend payment Nett profit (loss) in the quarter Change of Group structure Balance for Consolidated and statutory quarterly report for the period since till Page 8

9 1.4. Consolidated report on cash flows since till for the period since till Flow of cash from operating activity Profit (loss) before tax Adjustment by items: Share in net profits (losses) of the subordinated entities estimated by equity method Amortization Profits/losses connected with difference of exchange Interests and profit sharing Profits/losses form investment activity Change of business receivables and remaining receivables Change of stock state Change of business liability balance and remaining liabilities Change of reserve state Remaining items 8 78 Tax paid/overpayment reimbursement NETT CASH FLOW FROM OPERATING ACTIVITY Cash flow from investment activity Incomes Alienation of intangible assets and permanent capital assets Gained dividends and profit sharing in affiliates and subsidiaries Repayment of granted long-term loans by affiliates and subsidiaries Gained interests from loans from affiliates and subsidiaries Alienation of financial assets - affiliates and subsidiaries Expenditures Acquisition of intangible assets and permanent capital assets Consolidated and statutory quarterly report for the period since till Page 9

10 since till for the period since till Advance payments for permanent asset purchase Granted loans FLOWS OF NETT CASH FORM INVESTMENT ACTIVITY Flows of cash from financial activity Incomes Nett income from share issuing and additional payments to capital - 69 Gained credits and loans Other financial incomes 5 - Expenditures Repayments of credits and loans Payments of liabilities on account of financial leasing agreements Interests Other financial expenditures 83 - NETT CASH FLOWS FROM FINANCIAL ACTIVITY NETT CASH FLOWS TOTAL Balance change of state of cash including: change of capital on account of exchange differences Capital for period opening Capital for period closing including: capital of limited possibility disposal Consolidated and statutory quarterly report for the period since till Page 10

11 1.5. Additional information to consolidated financial statement General information Presented statement is a shortened consolidated controlling report of Zakłady Chemiczne "Police" Capital Group Joint Stock Co. for the period since till The shortened consolidated controlling report was prepared on the basis of financial statements of Parties: Zakłady Chemiczne "Police" Joint Stock Company (hereinafter Z.Ch. "Police" S.A., " "Dominant Subject") and dependent entities. Dominant Subject with headquarters in Police ul. Kużnicka 1 (1 Kużnicka St.) registered in Szczecin-Centrum District Court in Szczecin, XII Economic Department of the National Register Court, KRS no. (National Court Register no.): , Regon (National Official Business Register): , NIP (Tax Identification no.): created as a sole shareholder company of State Treasury by way of a government enterprise transformation. Since the Dominant Subject is quoted on the Stock Exchange in Warsaw. The Dominant Subject runs an activity in the field of artificial fertilizers, pigments and inorganic chemicals production. Three parties are a subject of full consolidation: "INFRAPARK Police" Joint Stock Co., Zarząd Morskiego Portu Police Co. Ltd. (Management of Police Marine Port), REMECH Grupa Remontowo Inwestycyjna (REMECH Repair and Investment Group) Limietd Liability Company. "INFRAPARK Police" JSC where the Dominant Subject has 54% of shares runs an activity that consists in the management of Police Park Przemysłowy (PPP) [Police Industrial Park], the management of a superfluous estate (investment terrains) taken over from Z.Ch. (Chemical Works) "Police" S.A. (Joint Stock Company) and from Police Commune and its hire or sale, help for entrepreneurs who act in PPP terrain, in undertaking and carrying out business ventures. Zarząd Morskiego Portu Police Sp. z o.o. (the Management of Police Marine Port Co. Ltd.) where the Dominant Subject has 90% of shares runs an activity that consists in the management of Police Marine Port following the rules arising from the Law of 20 December 1966 on marine ports and harbours 1. REMECH Co. Ltd., where the Dominant Subject has 100% of shares, runs repair and investment works of mechanical branch: repair works carried out on industrial installations, performance of installations and apparatuses including also those made of plastics, mechanical branch services, workshop works, metal treatment, supervision dealings. The Dominant Subject has minority interests in two associated companies: KEMPO Co. Ltd. and "budochem" Co. Ltd. They consist in the consolidation by equity method. KEMPOL Co. Ltd. where the Dominant Subject has 34% of shares; the company manufactures coagulants for water and savage treatment. "budochem" Co. Ltd. where the Dominant Subject has 49% of shares; the company acts in the field of general and industrial construction Description of more important applied rules of accounting According to the resolution of General Assembly of , since the Dominant Subject applies the accounting standards accepted by the International 1 O J of 2010 No. 33, paragraph 179. Consolidated and statutory quarterly report for the period since till Page 11

12 Accounting Standards Board and approved by the European Committee while working out its single and consolidated financial statements. The Companies belonging to the Dominant Subject Capital Group prepare their single statements according to the accounting rules indicated in the Law on accounting. For the needs of consolidated financial statement preparation, the information included in the statements of consolidated subjects are adjusted to the rules of accounting accepted by the Dominant Subject. This shortened consolidated controlling financial report is prepared on the basis of MSR 34 and paragraph 45 item 1a - 1c of the Law on accounting 2 and issued on its basis law enforcement provisions and the Minister of Finances Order of on current and periodical information passed by the issuers of securities and the rules to accept as equal the information required by the provisions of the country that is not a member country 3 with the preservation of rules for the current and comparable period that were published on in consolidated and single annual report for The shortened consolidated controlling financial report shall be red together with the consolidated financial statement of the Capital Group for the period since till and as far as the data of the Dominant Subject are concerned, together with the single financial statement for the period since till Shortened consolidated controlling financial report is presented in thousands of PLN unless otherwise stated. The comparable data include the consolidated and single report on the financial situation on , the report on general incomes, the report on changes in equity capital and the report on cash flows for the period of 9 months coming to an end on Chapter III presents data connected with Zakłady Chemiczne "Police" Dominant Subject Joint Stock Company. In the period for which the financial statement is prepared, no fusion with other entity took place. None of the conducted activities was stopped that would require to be indicated in this consolidated financial statement. The shortened consolidated controlling financial report of Zakłady Chemiczne "Police" Capital Group Joint Stock Company for the period since till was made with the assumption of activity continuation in essentially static range in-the-possible-to foresee future. To prepare this statement, the International Accounting Standards were applied in the unchanged range with reference to the standards applied while making annual financial statements for By preparation of the shortened consolidated controlling financial report none of the published, but not obligatory standards and standard interpretation was applied. 2 O J of 2009 no. 152, paragraph 1223 unified text as amended 3 O J of , Consolidated and statutory quarterly report for the period since till Page 12

13 Segment results Segment results according to the consolidated statement for the period since till Fertilizer segment Titanium white segment Remaining activity Outside sales Inter-segment sales Segment incomes Segment costs including: sales costs general management costs Other incomes/operating costs Total Segment result on EBIT operating activity Incomes/ financial costs Shares in profits/nett losses of the subordinated entities estimated by equity method Before tax result Corporate income tax Nett result Amortization EBITDA Significant changes of assets and liabilities for the period since till Fertilizer segment Titanium white segment Remaining activity Amortization Total Deductions of raw materials and products Reserves for liabilities Deductions updating share value Deductions updating receivables and interests Updating not-funded permanent assets Consolidated and statutory quarterly report for the period since till Page 13

14 Segment results according to the consolidated statement for the period since till Titanium Fertilizer Remaining white Total segment activity segment Outside sales Inter-segment sales Segment incomes Segment costs including: sales costs general management costs Other incomes/operating costs Segment result on EBIT operating activity Incomes/ financial costs Shares in profits/nett losses of the subordinated entities estimated by equity method Incomes on account of shares in affiliates and subsidiaries Before tax result Corporate income tax Nett result Amortization EBITDA Significant changes of assets and liabilities for the period since till Fertilizer segment Titanium white segment Remaining activity Amortization Total Deductions of raw materials and products Reserves for liabilities Deductions updating share value Deductions updating receivables and interests Updating not-funded permanent assets Consolidated and statutory quarterly report for the period since till Page 14

15 Segment results according to the consolidated statement for the period since till Fertilizer segment Titanium white segment Remaining activity Outside sales Inter-segment sales Segment incomes Segment costs including: sales costs general management costs Other incomes/operating costs Total Segment result on EBIT operating activity Incomes/ financial costs Shares in profits/nett losses of the subordinated entities estimated by equity method Incomes on account of shares in affiliates and subsidiaries Before tax result Corporate income tax Nett result Amortization EBITDA Significant changes of assets and liabilities for the period since till Fertilizer segment Titanium white segment Remaining activity Amortization Deductions of raw materials and products Total Reserves for liabilities Deductions updating receivables and interests Result from derivatives Consolidated and statutory quarterly report for the period since till Page 15

16 Segment results according to the consolidated statement for the period since till Fertilizer segment Titanium white segment Remaining activity Outside sales Inter-segment sales Segment incomes Segment costs including: sales costs general management costs Other incomes/operating costs Total Segment result on EBIT operating activity Incomes/ financial costs Shares in profits/nett losses of the subordinated entities estimated by equity method Incomes on account of shares in affiliates and subsidiaries Before tax result Corporate income tax Nett result Amortization EBITDA Significant changes of assets and liabilities for the period since till Fertilizer segment Titanium white segment Remaining activity Amortization Total Deductions of raw materials and products Reserves for liabilities Deductions updating receivables and interests Result from derivatives Consolidated and statutory quarterly report for the period since till Page 16

17 The change of presentation of operating segment outcomes is the result of adjustment of reporting configuration to that used in Zakłady Azotowe Tarnów-Mościce S.A. Capital Group. The costs of general management were assigned to the segments and thus the segment costs are presented as the sum of sales own cost, sales costs and general management. Incomes from interests, difference in exchange and write-offs updating the value of shares were categorized as financial incomes/costs Adjourned income tax Changes of adjourned income tax Assets connected with the deferment of income tax including: assets on account of tax loss to be accounted in the following periods Reserve on account of adjourned income tax Write-off on account of adjourned income tax Assets connected with the adjourned income tax in the report Liabilities connected with the adjourned income tax in the report Balance for Increases Decreases Balance for Assets on account of the tax loss to be accounted in the following periods Balance for Balance for Assets on account of the tax loss for period opening Loss of the loss amount to be written-off (budget updating) Assets on account of tax loss for the years of Increasing the asset on account of the tax loss in the period Decreasing the asset on account of the loss use in the period Assets on account of the tax loss for period closing The asset fall for in comparison with is as high as PLN thousand (before decreasing its value by the updating write-off. The change results mainly in decreasing of the asset entry for the adjourned income tax on account of increasing and use the tax loss in total amount of PLN thousand, release of asset part on account of the reserve for jubilee awards in the amount of PLN thousand, increasing of the asset on account of the difference between the tax and balance value of permanent assets by PLN thousand. Reserve decreasing on account of adjourned tax by PLN thousand results mainly in the release of a reserve part connected with the difference between tax and balance value of permanent assets. Consolidated and statutory quarterly report for the period since till Page 17

18 Reserves for liabilities Reserve changes for liabilities Reserves for old-age benefits and similar Balance for Increases Decreases Balance for Reserve on account of group lay offs Remaining reserves for employee affairs Reserves for environment protection Reserve on account of passive affairs Remaining reserves The change of reserve value for old-age benefits and similar was shaped, before everything else, as a result of introduction on in the Dominant Subject "Work Regulations and Remuneration Rules" (the change of rules to determine jubilee awards, discretionary bonuses, additional day offs) and also the "Blanket layoff Regulations" in force since The most important value change in this group is observed in the reserves on account of jubilee awards, the fall of which in comparison with the value on was as high as PLN thousand. The new "Blanket layoff Regulations" resulted also in the increase of reserves on account of blanket layoffs up to PLN thousand. The reserves for remaining employee affairs also got decreased. Their fall in the amount of PLN thousand compared to the value of took place in connection with their expiration. Reserve increase value for the environment protection in the amount of PLN thousand results in the change of factors (discount rate, amount of planned costs, dates of reserve use) to be the base of assessments. Consolidated and statutory quarterly report for the period since till Page 18

19 Descriptions updating the value of assets Changes of write offs updating assets value Balance for Increases Decreases Balance for Permanent fixed assets Fixed assets in construction Investments in dependent and associated entities Materials Finished products, half-finished products and running production Receivables Given loans (long-term and shortterm investments) Decrease of write-offs updating the value of stocks of finished products, half-finished products, running production, materials was connected with the reserves that were made productive in a given reporting period (used for production, sailed, liquidated) and also those the value of which possible to gain reached the level to cover suffered costs. Making, in the reporting period, write-offs updating the value of reserves resulted in the loss of their value and the estimation not higher than nett value possible to gain. For the value of shares in the balance was updated and the write-off was added (in the amount of PLN thousand) to update the value of shares in the dependent partnership "Supra" Co. Ltd. that is in process of liquidation. On , in the purpose of redemption, shares of the dependent partnership "Transtech" Co. Ltd. were disposed of. The fixed sales price was equal to the fair price of shares included in the Z.Ch. report. "Police" S.A. The change of the quantity of the owned shares in the entire effect did not influence the Company result, but resulted in the release of updating write-offs in the amount of PLN 715 thousand. Consolidated and statutory quarterly report for the period since till Page 19

20 Transactions with affiliates and subsidiaries Business receivables and liabilities Affiliates and subsidiaries outside Z.Ch. "Police" S.A. Group, including: Zakłady Azotowe Tarnów-Mościce S.A. (JSC) Balance for Balance for Business receivables Business liabilities Business receivables Business liabilities PGNiG S.A ENEA S.A PSE Operator Sp. z o.o. (Co.Ltd.) Ciech S.A PKP CARGO S.A Zakłady Azotowe Puławy S.A Kampania Węglowa S.A Associated entities, from where: KEMIPOL Sp. z o.o budchem Sp. z o.o Dependent entities, from where: Transtech Sp. z o.o Koncept Sp. z o.o CENTRUM Elektrotechnika Instalacje Serwis Sp. z o.o AUTOMATIKA Sp. z o.o Supra Sp. z o.o. in process of liquidation Interests calculated for the balance day Consolidated and statutory quarterly report for the period since till Page 20

21 Turnover value on account of purchase and sales Affiliates and subsidiaries outside Z.Ch. "Police" S.A. Group, including: Zakłady Azotowe Tarnów-Mościce S.A. (JSC) Turnover value on account of purchase Since till Turnover value on account of sales for the period Turnover value on account of purchase Since till Turnover value on account of sales PGNiG S.A ENEA S.A PSE Operator Sp. z o.o. (Co. Ltd.) Ciech S.A PKP CARGO S.A Zakłady Azotowe Puławy S.A Kampania Węglowa S.A Associated entities, from where: KEMIPOL Sp. z o.o budchem Sp. z o.o Dependent entities, from where: Transtech Sp. z o.o Koncept Sp. z o.o CENTRUM Elektrotechnika Instalacje Serwis Sp. z o.o AUTOMATIKA Sp. z o.o Supra Sp. z o.o. in process of liquidation Interests calculated for the balance day Turnover value was indicated taking into account the goods and services tax. Consolidated and statutory quarterly report for the period since till Page 21

22 Contingent receivables and liabilities Change of receivables and contingent liabilities Balance for Balance for Contingent receivables From affiliates and subsidiaries on account of: - guarantee of proper contract implementation From remaining entities on account of: - proper realization of sales agreement terms Contingent liabilities Guarantees and warranties given by associated entities on account of: - guarantee of proper contract implementation Guarantees and warranties given by remaining entities on account of: custom debt securities proper implementation of the terms of share sales agreement guarantee of proper contract implementation 43 - On the guarantee of customs debt payment in the amount of PLN thousand issued by PKO BP S.A expired. The signed Annex to it on settled the guarantee amount as PLN thousand and the term of validity till On an Annex to increase the amount to PLN thousand was signed. Decreasing of liabilities in the amount of PLN 800 thousand applies to the implementation of provisions connected with the cooperation agreement according to the signed agreement on cession of Kargo Sp. z o.o. shares Dividend The Resolution Adopted by Ordinary General Meeting of the Shareholders of "Zarząd Morskiego Portu Police" Co. Ltd of granted a dividend of which value for uncontrolling shareholders of Z.Ch. "Police" S.A. Capital Group was as high as PLN 75 thousand. In 2010 the dividend paid to minority shareholders was as high as PLN thousand. Consolidated and statutory quarterly report for the period since till Page 22

23 SUMMARY The most important achievements of Zakłady Chemiczne,,Police Capital Group Joint Stock Company in III quarter of 2011: obtaining the nett profit on the level of PLN thousand, 12% increase of nett sales turnover in comparison with the analogous period of 2010 (from PLN thousand to PLN thousand), nett profit increase in comparison with III quarter of 2010 (from PLN thousand to PLN thousand), obtaining by by the Dominant Subject a total sales volume of all chemical products as high as PLN thousand tons, working out in the fourth quarter in raw a profit for one common stock (PLN 0.62) falling to a shareholder of the Dominant Subject. Decisive influence on the results of Zakłady Chemiczne "Police" Capital Group Joint Stock Company had the financial situation of the Dominant Subject. Z.Ch. "Police" S.A. making use of favourable market conditions and consistently carrying out assumed restructuring activities and conducting deep changes in the operation of the Company, obtained in III quarter of 2011 nett profit on the level of PLN thousand. Obtaining by the Company significant economic benefits was in particular a result of: higher prices realization with simultaneous increasing sales margins, consistent realization of Restructuring Plan, significant weakening of PLN what improved the profitability of foreign transactions and limited availability of imported fertilizers on Polish market, consistent price increase of fertilizers till the end of III quarter following a small sales correction of fertilizers quoted in April, coverage of sales price increase, increase of strategic raw materials prices observed since the beginning of Consolidated and statutory quarterly report for the period since till Page 23

24 II. BUSINESS ACTIVITY OF Z.CH. "POLICE" CAPITAL GROUP S.A Market environment description Financial results of Z.Ch. Capital Group During the reporting period, "Police" S.A. was in strong correlation with the situation in the market environment of the Dominant Subject. It is a regularity from the beginning of Company's activity and still is out of influence and control possibilities by the Issuer. To begin with the first quarter of 2011, systematic improvement of financial condition of the Dominant Subject was observed. After the first, a very good half of year, III quarter brought an expected cooling of economic situation on agricultural market. Distributors afraid of the crisis scenery from 2008 to come back, limited the purchase of fertilizers trying to keep store stocks on minimal level. Similar careful purchases were observed in the behaviour of farmers. Evident fall of sales volume was compensated by high margins. Increase of sales prices was quoted in all assortment groups, especially in export transactions where the weakening zloty influenced the increase of margins. Disadvantageous for importers relations of currency exchange rates additionally stimulated the demand for country manufacturer products what was observed in all assortment groups. The most important factors to influence the obtained sales results achieved during three quarters of 2011 were: improvement of revenues of agricultural production; positive trend of buying prices of grain, oil plants, root crops, milk and pigs significantly influenced farmers purchase tendency, it is true that a half of the year caused a correction of buying prices of agricultural produces, but their level still justified the purchase of production means and investment in intensive agricultural production, significant weakening of zloty improved the profitability of foreign transactions and limited the availability of imported fertilizers on Polish market; on the other hand, however, a phenomenon of export sales of fertilizers on the markets of neighbour counties by country distributors was observed what made difficult a direct sales realization in these countries by the Company, after a small correction of fertilizer prices quoted in April, till the end of III quarter the fertilizer prices were increasing systematically, numerous, unplanned standstills of the installation to produce urea in III quarter limited the supply of this product and prevented from market demand satisfaction, Consolidated and statutory quarterly report for the period since till Page 24

25 from the beginning of 2011 there are observed significant price increases of strategic raw materials, in case of phosphorites, apart from the increasing purchase costs, problems are issued by limitations in the availability of raw material caused by destablization of North Africa countries, i.e. the region that is a basic source of phosphorite supply. The observed from the beginning of I quarter of 2011 increase of DAP world prices slowed down at the end of April and the beginning of May so that from the beginning of June continue the increase with much more dynamics. Slowing down the price increase and a moderate adjustment of quotations took place at the turn of vacation months. As a result of price changes, average prices in the harbours of the Baltic Sea increased during 9 months by about 18% (from USD 572 to 675 per ton), in the United States by more than 7% (from USD 595 to 678 per ton). DAP quotations in the period January - September 2011 [in USD/t] Source: FMB. European quotations of urea prices after a fall in two last months of quarter I, from the beginning of April started a dynamic increase that was stopped at the end of June and after continued till the end of quarter III. During 9 months the urea prices in the Baltic coast harbours increased by 38% (from USD 360 to 503 per ton) and in the Black Sea harbours by 33% (from USD 379 to 503 per ton). Consolidated and statutory quarterly report for the period since till Page 25

26 Urea quotations in the period January - September 2011 [in USD/t] Source: FMB. World prices quotations of titanic white after changes late in 2010 show an increasing trend. During 9 months of 2011 the average price increased from EUR 2.27 to 3.00 for 1 kg, i.e. by more than 32%. Quotations of titanic white in the period of January - September [EUR/kg] Source: ICIS LOR. Ammonia prices after a significant increase in the first quarter of 2011, in the second quarter got stabilized at the level of about USD 500 per ton and after increased violently up to about USD 600 per ton. As an average, during 9 months of this year, the increase reached 46% in the Balck Sea harbours (from USD 428 to 623 per ton) and almost 43% in Baltic Ventspils (from USD 425 to 608 per ton). Consolidated and statutory quarterly report for the period since till Page 26

27 Ammonia quotations in the period January - September 2011 [in USD/t] Source: FMB. Lasting crisis in North Africa countries limits availability of phosphates, key raw material for the Company. Great demand of fertilizers and made-hard phosphate purchases influenced the level of these raw material prices. During 9 months of this year the prices increased by 20%. In spite of troubles with availability of phosphates, Z.Ch. "Police" S.A. did not quoted losses in fertilizer sales caused by the shortage of raw materials for production. Supporting continuous supply was possible thanks to the use of diversification policy of supply sources. Apart from three basic directions of supply: Morocco, Tunis, Syria there were realized supplies from other directions: Algeria, Togo, Egypt. Similarly increasing trend of purchase prices was observed in case of potassium salt. Salt prices from eastern direction increased in quarter III by EUR 20 per ton and counting from the beginning of the year by 40 EUR Seasonal character of activity Seasonal character of Issuer incomes causes that for majority of service companies of the Capital Group the intensity of works (including incomes) increases in the second half year Fertilizer market Fertilizer sales is characterized by significant seasonal character that is connected with an agrotechnological calendar of works arising due to plant growing season. After,in general, good economic situation in quarter I, on quarter II of the year falls the end of spring peak of fertilizer sales. The opening moment and the time of the season duration depends on existing weather conditions that normally falls on months: February - April. In 2011 the intensive season of sales was finished in mid-march, but in April significant decrease of fertilizer demand was quoted. An economic boom and increase of demand was again quoted in May when a decrease of fertilizer prices caused an increase of interest in buying by wholesalers and big production farms. Late in August the increase of demand connected with autumn feeding of winter crops was quoted while late in quarter III purchases of fertilizers for the needs of spring season were started. Consolidated and statutory quarterly report for the period since till Page 27

28 Titanic white market Titanic white is used in the production of paints, varnishes as well as paper and plastics. The phenomenon of seasonal changes takes place in case of the first of the above mentioned applications. The level of titanic white sales increases in spring and summer season (quarter II and III). The turn of quarter IV/V is normally a traditional season of sales fall to the sector of paints, varnishes that translates into the sales value in this productive group Markets of remaining chemical products In case of chemical market, the seasonal character in principle is not seen. In winter season, sporadically you can see an increase of phosphoric acid sales used for the production of phosphate feeds Operational activity results of the Capital Group Sales Sales results of the Dominant Subject products are determined, before everything else, by market situation in the fertilizer segment. In quarter III of 2011 total nett sales incomes were as high as PLN thousand what indicates an increase by 12% as compared to the analogous season of last year. Incomes per assortment groups Source: Own study. Higher sales incomes were achieved as a result of sales value increase of NP (mineral) fertilizers and ammonium and an increase of product sales prices. Sales prices achieved in quarter III 2011for main assortment groups were higher as compared to those obtained in the analogous season of last year. The key position of the Issuer incomes is fertilizer sales. In quarter III 2011 the value of incomes in this assortment group was higher by 1% as compared to the analogous season of last year. At the same time, their participation in the sales incomes fell to the level of 75% from the level of 83% in quarter III Consolidated and statutory quarterly report for the period since till Page 28

29 Sales incomes structure per (in accordance with) assortment groups Source: Own study. As compared to quarter III 2010,in the structure of sales incomes, the participation of titanic white increased (from 14% to 18%) an chemicals (from 1% to 18%). The quoted increase of value and share in chemical sales incomes was dictated by the resume of many-tone ammonium sales in September Geographic structure of sales incomes in quarter III Source: Own study. In the reporting period, the Issuer country sales value was as high as PLN thousand. 4 and were lower by 5% as compared to quarter III Participation of export in sales incomes in this range increased to the level of 48% from the level of 39% in comparison with the compared season Fertilizers In quarter III 2011 fertilizer sales incomes amounted to PLN thousand and determined 75% of total sales incomes of the Company. Significant increase of sales incomes was quoted for the export market - increase of sales incomes of fertilizers by 30% with a decrease of value by 3%. At the same time, lower by 12% incomes on the fertilizer country market were obtained(fall of value by 35%). 4 Country sales were corrected by the sales to companies that were in-between in export sales, mainly to: Ciech S.A. and Keytrade Polska Sp. z o.o. (treated as sales for export). Consolidated and statutory quarterly report for the period since till Page 29

30 In quarter III 2011, 283 thousand tons were sold (less by 23% in reference to quarter III 2010). On the country market, that made 52% of share in the fertilizer sales value, in total 147 thousand tons were sold (including 56% NPK fertilizers, 25% - urea, 19% - NP and NS fertilizers). Parallel, the Company exported 126 tons of fertilizers (divided into 50% NPK sales, 34% NP and NS sales, 16% urea sales). Fertilizer sales Value Incomes Source: Own study. Measurement unit thousand tons PLN thousand 03Q Q 2010 Change [%] Market favourable conditions made possible for the Company to increase prices of majority of fertilizer formulas. In comparison with quarter III 2010, significant increase of the average price 5 It was quoted for urea (country +53% and +45% in export) and for NPK fertilizers (country +28% with 29% export price increase). In NP fertilizer group, the obtained increase of the average sales price on the county market amounted to 26%, on the export market 11%). 5 The average price is calculated as a sum of sales incomes by sales quantity of all assortments. In this case, a significant influence on the average price configuration can be forced by changes in sales structure of separate fertilizer formulas in the comparative seasons. Consolidated and statutory quarterly report for the period since till Page 30

31 Quantitative sales of compound fertilizers [in thousand tons] Source: Own study Titanic white Gained in quarter III 2011 titanic white sales incomes amounted to 18% of total sales incomes of the Company. 10 thousand tons of titanic white were sold (5% less than in quarter III 2010) including about 52% on export market. Obtained sales prices were about 49% higher than in the analogous season of Titanic white sales Value Incomes Source: Own study Chemicals Measureme nt unit thousand tons PLN thousand 03Q Q 2010 Change [%] Chemicals sales incomes in quarter III 2011 make about 5% of total incomes of the Company against 1.4% in the analogous quarter of last year. Significant increase of value and share of this group in the total incomes of the Company is, before everything else, a result of the resume of many-ton sales of ammonia. In the chemicals group, an increase of sales (value and incomes) of urea AdBlue and sulphuric acid solution was quoted. Chemicals sales Measurement unit 03Q Q 2010 Change [%] Value thousand tons Incomes PLN thousand Source: Own study. Consolidated and statutory quarterly report for the period since till Page 31

32 Value structure of chemicals sales in quarter III 2011 Source: Own study Costs Consumption costs of raw materials and energy In quarter III 2011, the consumption costs of raw materials and energy were higher by 21% as compared to the analogous season of last year what was mainly caused by the increase of strategic raw material prices used for production. Their participation in activity costs amounted to the level of 76% from the level of 72% in quarter III The highest participation in the box of material and energy consumption make: costs of phosphate, potassium salt and natural gas consumption. In the described season, a significant increase of value and share in the structure of phosphate consumption costs was quoted, what was dictated by the increase of this material price and also by increase of fertilizer formula production of higher P2O5 content of which source are phosphates. Moreover, in connection with an alternative phosphate supply source, a change of purchase conditions took place (price is created together with purchase costs). In quarter III 2011, the value and share in potassium salt costs were lower what was caused mainly by a decrease of NPK fertilizer production. The quoted increase of natural gas consumption results in the start of the second ammonia production line in September The higher value and share of the remaining costs field is connected with a purchase of ammonia for production. The ammonia purchases are short-term activities used in case of unprofitable sales of unbalanced own production of ammonia or a lack of technical possibilities to start the second ammonia production line. Consolidated and statutory quarterly report for the period since till Page 32

33 Cost structure of raw materials and energy consumption [%] 03Q Q 2010 Phosphates Potassium salt Natural gas Energy including: Natural gas 2 3 Coal 3 4 Sulphur 7 5 Titanic slag 2 2 Ilmenite 2 2 Other Source: Own study Remaining sort costs Remaining sort costs in quarter III 2011 made 25% of activity costs, in the analogous season of last year 28%. Structure of remaining sort costs [%] 03Q Q 2010 Amortization 12,7 12,2 Foreign services 41,1 43,1 Remunerations, surcharges and benefit box 31,4 32,1 Taxes and charges 12,1 11,3 Remaining costs 2,8 1,3 Source: Own study. Analyzing changes in single fields of remaining costs you shall indicate: the fall of foreign services dictated mainly by the position of transport service costs as an effect of decreasing sales of Company's products, increasing of taxes and charges, in particular, charges for environment protection that reflect the increase of NP fertilizer production, decreasing labour costs in the range of consistently carried out initiatives of the Restructuring Plan in the field of employment cost optimization; they are effects of the Voluntary Redundancy Program and permanent limitation of employment, the remaining costs increase results in the increasing of write-offs updating finished product value. Consolidated and statutory quarterly report for the period since till Page 33

34 Financial results Making use of favourable market conditions and consistently carrying out the Restructuring Plan, the Company in quarter III 2011 achieved positive financial results. Nett profit of the Dominant Subject amounted to PLN , EBITDA result reached the level of PLN thousand. In the analogous season of last year, the financial result was also positive (PLN thousand) EBITDA reached a positive (PLN thousand) During the balance period, the dynamics of income increase was higher than that of variable costs what resulted in the increase of nett sales result. The quoted increase of prices of fundamental raw materials used for production was, as a whole, covered by the increase of product sales prices. As a result, supporting the operating activity of the Company positive changes of income- cost relation caused the increase of margins from the product sales in 2011 as compared to the analogous season of last year. Essential increase of economic benefits of the Company resulted in the improvement of situation on the two fundamental sales markets (fertilizer and titanic white), and also in the sequence of consistently realized inner activities with the aim of optimization of Company costs. Single results of the Dominant Subject 03Q Q 2010 Change Change (%) Nett sales income Nett sales profit EBIT EBITDA Incomes/ financial costs Nett profit Source: Own study. For the remaining operating activity, a negative result was registered (- PLN thousand). Decisive influence on its level had a loss on fixed asset alienation (PLN thousand) connected, before everything else, with the costs of abandoned (omitted) investments and differences in rates (PLN ). In analogous season of last year, the result in this area amounted to PLN thousand. In quarter III 2011, financial income/cost balance was negative (PLN thousand). Significant influence on its level had the costs of interests from financial liabilities and against PGN&G S.A. (resulting in an agreement on debt repayment). At the same time a positive result on derivatives was achieved (PLN thousand). The profit on derivatives resulted in immediate transactions and currency exchange on the spot market. In analogous season of last year, the result of financial activity was also negative and amounted to (PLN thousand). Quarter III results of Z.Ch. "Police" Capital Group S.A. were similar to the results of the Dominant Subject. Sales incomes amounted to PLN thousand, profit from operating activity PLN thousand while nett profit PLN thousand Current financial situation Liabilities on account of credits and loans The above tables present the liability level of the Company on account of short-term-taken credits as for the state on and The Issuer informed about the above in the current report no 34/2011 "Credit Agreement Conclusion" of Consolidated and statutory quarterly report for the period since till Page 34

35 Liabilities on account of credits state on Bank name Liability type Granted limit on Engagement Consumption Consumption level PKO BP S.A. credit in form of many-purpose limit % PEKAO S.A. credit in drawing account % Total % Source: Own study. Liabilities on account of credits state on Bank name PKO BP S.A. BOŚ S.A. Liability type credit in form of multi-purpose limit credit in form of multi-purpose line Granted limit on Engagement Consumption Consumption level % % Total % Source: Own study. In January 2010 the Company got from Agencja Rozwoju Purzemysłu S.A. (Industrial Development Agency JSC) a loan in the amount of PLN thousand) as part of individual public help for saving with a consent of European Commission 7. The current loan repayment term resulting in the agreement was fixed on On the Company signed a credit agreement with Bank Ochrony Środowiska S.A. (Environment Protection Bank JSC) for credit in form of multi-purpose line with a limit of PLN thousand. The term of credit maturity was settled on with an option of prolongation. At the same time PEKAO S.A. liabilities were repaid and the credit agreement of was terminated. The agreement expired on In quarter III 2011, an increase of financial means consumption level took place as part of granted short-term credit limits. As for the state on , the credit liabilities amounted to PLN thousand, for amounted altogether to the level of PLN thousand. The remaining value of financial means to be used in total as part of obligatory credit limits as for amounted to PLN thousand Financial liquidity The financial condition of the Company stays in strong correlation with the events generated in the environment of the Entity. They are of direct influence on the ability to control current liabilities. An essential factor conditioning the maintenance of the current liquidity in longer period is the recovery by the Issuer of capability to generate positive margins on fundamental products sold both on country and foreign markets as well. The liquidity situation during analyzed term got significantly improved what the table below illustrates. Liquidity factor 7 The loan was granted for 6 months with a possibility to be changed into a long-term loan for restructuring. The Company received a positive ARP S.A. opinion on the possibility of conversion of the short-term loan for saving into a long-term loan support for restructuring. The change can be introduced on condition of its notification by European Commission. Until an announcement of appropriate decision by EC, the term of liability repayment is prolonged. Consolidated and statutory quarterly report for the period since till Page 35

36 r r. Current liquidity factor 1,11 0,72 Quick liquidity factor 0,52 0,40 Increased liquidity factor 0,06 0,06 Source: Own study. Effectiveness of carried out activities in the field of circulating capital management is confirmed by positive changes of its value. Circulating capital increase during nine months 2011 to the positive level of PLN thousand from a negative value (-) PLN thousand for was achieved as an effect of current assets increase with simultaneous decrease of short-term liabilities. Consolidated and statutory quarterly report for the period since till Page 36

37 Circulating capital formation Source: Own study Issue, buying out, repayment of securities In quarter III 2011 Z.Ch. "Police" S.A. did not issue, did not buy out and did not repay debenture and capital securities Dividend During the balance period, the Issuer did not repay or declare dividend repayment Factors to shape long-term results of the Capital Group Creation of product and raw material prices in the following period Since a new tariff for gas fuels PGN i G S.A. is in force. Introduction of new rates caused an increase of consumption costs of natural gas by 11%. For the market of fundamental raw materials for the production of Company fertilizers for quarter III 2011 further increase of prices is forecasted on the level between ten and twenty percent. It is assumed that in quarter IV 2011 the increase of phosphate prices will be closed in the range of 5-10%. A similar value of the increase is forecasted in quarter I Later in the year a stabilization of prices is possible with a small down correction in case of the fertilizer market satisfaction. In case of potassium salt a small increase is expected, about 3%. In the range of coal dust supplies till the end of 2011no changes in the range of supplies and prices are expected - a many years' contract with the Coal Company is carried out. A longterm agreement (e.g. 3 years') is expected to be concluded for coal supplies from the Coal Company that should stay a main supplier for the Company. An increase of prices is forecasted by about 15-18% early in To improve the terms of coal purchase, a common policy of partnerships of Azoty Tarnów Group is planned. The beginning of the fourth quarter did not bring greater changes both in the structure of sulphur supply and its price. Price agreements made in June with country suppliers were kept till the end of December. PGN&G S.A. is an exception, where sulphur price for November and December will be decreased by more than 5%. It is a result of consolidation of common purchase regions - Police, Kędzierzyna and Tarnów. In quarter IV 2011, the German price of sulphur is waiting for approval even though market trends show that its level shall be unchanged. Consolidated and statutory quarterly report for the period since till Page 37

38 The stabilization of sulphur prices should be also assumed in the prospect of quarter I The sources of supplies will be unchanged. Since the beginning of next year Tarnów Group will carry out common purchase policy in the range of sulphur supplies from Grzybowo, PLN Orlen S.A. and PGN&G S.A. LOTOSA Group and Chemtrade will be sole suppliers for the Company. Till the end of 2011 no changes of price levels as well as titanic slag and ilmenite suppliers are forecasted. At the beginning of 2012, a drastic increase of prices of these raw materials is expected, even by 100%. So high expected increases result in high demand for the raw material, accelerated by profitable economic situation on the market of titanic pigments. Early in next year, a resignation from the settlement of yearly prices is expected for the benefit of quarterly prices (because of possible turn of dynamic increase trend later in 2012). Signalized above increases of raw material prices will be directly translated into product price increase. In quarter IV 2011, increases of fertilizer and titanic white prices are planned to index increasing costs of production and unprofitable for importers relations of currency exchanges. Foreseen increases of fertilizer prices will reach the level of 1-2% monthly and a price peak is forecasted on the turn of quarter I and II In case of titanic white, increase of prices till the end of this year will not exceed an average 8% in comparison with the prices form quarter III In reference to the ammonia prices, it is foreseen that the prices keep an increase trend till the end of November and then an after-season stabilization or correction of prices in the range of USD per product tone will be observed Implementation of Restructuring Plan Zakłady Chemiczne "Police" S.A. carry out "Restructuring Plan of the Company for the years of " (Restructuring Plan) in accordance with the assumptions passed to the European Commission in the motion on the notification of individual public support for restructuring. On the motion of the Managing Board, the Consumer and Competition Protection Office in Warsaw turned to the European Commission to stop administrative proceedings in the case of declared support for restructuring. The Commission stopped the proceedings till It means that no decisions can be made in reference to the above mentioned notification of public support. The withdrawal of the administrative proceedings has no influence on activity continuation in the range of Restructuring Plan. Noted after three quarters of 2011 realization of recommended in the Restructuring Plan initiatives allowed to increase the Company results by PLN thousand what is more than 37% of the assumed for this year economic potentials. For 2011 achievement of economic profits was planned in the amount of PLN thousand The presented effects of the Restructuring Plan include the following economic categories: gross margin change, cost decrease, nett financial incomes from asset sales. Consolidated and statutory quarterly report for the period since till Page 38

39 The degree of the Restructuring Plan realization after 9 months of Source: Own study. The analysis of structure of the identified effects in individual areas of Company activity indicates a different stage of works development. Majority of production undertakings has already got corporate agreements. Currently, auction procedures are carried out to select contractors. In process of administrative proceedings are motions put forward by the Company to get permits that fall within the competence of self-government agencies. At present, the source of profits mainly are initiatives in the field of employment restructuring. The savings in this area are noted at the level of PLN thousand what is the result of the accomplished in December 2010 Voluntary Redundancy Program and effects of employment restriction. The remaining measurable effects from the realization of the Restructuring Plan, the Company achieved from optimization of raw material purchases and sales activation Meaningful achievements and failures The current evaluation of open currency positions of prompt transactions At present, the Company has not any open prompt currency transactions. In quarter III 2011 the Company did not implement new derivative currency transactions. In the range of currency risk management, the Company implements natural hedging it means balances incomes and expenditures in the same currency Asset investments Investment expenditures incurred in quarter III 2011 are kept on the level of PLN thousand. The Company mainly carried out new tasks of modernization, reconstruction and development character - new investments. Consolidated and statutory quarterly report for the period since till Page 39

40 Investment expenditure structure Source: Own study. In quarter III 2011, the realization of 12 investment tasks was accomplished including among others: "Replacement of the protections of average voltage motor fields in P XII distribution board, performed in Zakład Azotowy ( Nitrogen Works), total expenditures were as high as PLN 182 thousand, "Reconstruction of technical efficiency of the double ionite exchanger in the area of W-170, performed in Zakład Gospodarki Wodnej (Water Economy Works), expenditures reached PLN thousand, two tasks connected with registration according to REACH chemical substances produced in Z.Ch. "Police" S.A.: titanium dioxide and sulphuric acid, total expenditures were PLN 546 thousand, the task connected with the delivery of licence for software supporting Balanced Scorecrd system, total expenditures were PLN 191 thousand, "Air heater 20E-109 A", the task carried out in Zakład Azotowy (Nitrogen Works), total expenditures were PLN 132 thousand, "Purchase of a gripping device to handle bulk goods by the aid of Q-8t crane in Port Barkowy (Barge Harbour)" total expenditures were PLN 81 thousand. In the reporting period the realization of new investment projects was started including among others: "Adjustment of the measuring systems of 14/15C521 turbocompressors for the production of energy in cogeneration" in Zakład Azotowy (Nitrogen Works). The investment is connected with realization of stage II of the initiative of the Restructuring Plan. The budget of the task is as high as PLN 980 thousand, Consolidated and statutory quarterly report for the period since till Page 40