Consolidated half-year report including interim condensed financial statements for H1 2018

Transcription

1 Consolidated half-year report including interim condensed financial statements for H Grupa Azoty Zakłady Chemiczne Police S.A.

2 Contents I. FINANCIAL HIGHLIGHTS... 5 Consolidated financial highlights... 6 Separate financial highlights... 7 II. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED JUNE 30TH 2018 PREPARED IN ACCORDANCE WITH IAS 34 INTERIM FINANCIAL REPORTING, AS ENDORSED BY THE EUROPEAN UNION... 8 Interim condensed consolidated statement of profit or loss and other comprehensive income... 9 Interim condensed consolidated statement of financial position Interim condensed consolidated statement of changes in equity Interim condensed consolidated statement of cash flows NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Information about the Group Organisation of the Grupa Azoty Zakłady Chemiczne Police Group Composition of the Group Composition of the Parent s Management and Supervisory Boards Key events in the six months ended June 30th 2018 and until the authorisation date Bankruptcy petition by African Investment Group S.A Profit distribution Effects of loss of control over subsidiary African Investment Group S.A Policies applied in the preparation of the interim condensed consolidated financial statements Statement of compliance and general policies Accounting policies and computation methods Selected supplementary and explanatory notes Explanatory notes NOTE 1REVENUE NOTE 2 OPERATING EXPENSES NOTE 3 OTHER INCOME NOTE 4 OTHER EXPENSES NOTE 5 FINANCE INCOME NOTE 6 FINANCE COSTS NOTE 7 INCOME TAX NOTE 8 EARNINGS PER SHARE NOTE 9 PROPERTY, PLANT AND EQUIPMENT NOTE 10 INTANGIBLE ASSETS NOTE 11 EQUITY-ACCOUNTED INVESTEES NOTE 12 INVENTORIES NOTE 13 PROPERTY RIGHTS NOTE 14 TRADE AND OTHER RECEIVABLES NOTE 15 CASH AND CASH EQUIVALENTS NOTE 16 ASSETS HELD FOR SALE NOTE 17 NON-CONTROLLING INTERESTS NOTE 18 BORROWINGS Grupa Azoty Zakłady Chemiczne Police S.A. Page 2 of 120

3 NOTE 19 EMPLOYEE BENEFIT OBLIGATIONS NOTE 20 PROVISIONS NOTE 21 TRADE AND OTHER PAYABLES NOTE 22 GRANTS NOTE 23 FINANCIAL INSTRUMENTS NOTE 24 CONTINGENT LIABILITIES AND ASSETS, SURETIES AND GUARANTEES NOTE 25 RELATED-PARTY TRANSACTIONS NOTE 26 INVESTMENT COMMITMENTS Events after the reporting period that could affect financial results in the future Dividends Seasonality of operations III. INTERIM CONDENSED SEPARATE FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30TH 2018 PREPARED IN ACCORDANCE WITH IAS 34 INTERIM FINANCIAL REPORTING, AS ENDORSED BY THE EUROPEAN UNION Interim condensed separate statement of profit or loss and other comprehensive income Interim condensed separate statement of financial position Interim condensed separate statement of changes in equity Interim condensed separate statement of cash flows NOTES TO THE INTERIM CONDENSED SEPARATE FINANCIAL STATEMENTS Overview of the Company Organisation of the Company Key events in the six months ended June 30th 2018 and until the authorisation date Profit distribution Share capital increase at PDH Polska Spółka Akcyjna Effects of loss of control over subsidiary African Investment Group S.A Policies applied in the preparation of the interim condensed separate financial statements Statement of compliance and general policies Accounting policies and computation methods Selected notes Explanatory notes NOTE 1 REVENUE NOTE 2 OPERATING EXPENSES NOTE 3 OTHER INCOME NOTE 4 OTHER EXPENSES NOTE 5 FINANCE INCOME NOTE 6 FINANCE COSTS NOTE 7 INCOME TAX NOTE 8 EARNINGS PER SHARE NOTE 9 PROPERTY, PLANT AND EQUIPMENT NOTE 10 INTANGIBLE ASSETS NOTE 11 INVESTMENTS IN EQUITY INSTRUMENTS Note 11.1 Impairment of investments in equity instruments NOTE 12 INVENTORIES NOTE 13 PROPERTY RIGHTS NOTE 14 TRADE AND OTHER RECEIVABLES Grupa Azoty Zakłady Chemiczne Police S.A. Page 3 of 120

4 NOTE 15 CASH AND CASH EQUIVALENTS NOTE 16 ASSETS HELD FOR SALE NOTE 17 BORROWINGS NOTE 18 EMPLOYEE BENEFIT OBLIGATIONS NOTE 19 PROVISIONS NOTE 20 TRADE AND OTHER PAYABLES NOTE 21 GRANTS NOTE 22 FINANCIAL INSTRUMENTS NOTE 23 CONTINGENT LIABILITIES AND ASSETS, SURETIES AND GUARANTEES NOTE 24 RELATED-PARTY TRANSACTIONS NOTE 25 INVESTMENT COMMITMENTS Events after the reporting period that could affect financial results in the future Dividends Seasonality of operations Grupa Azoty Zakłady Chemiczne Police S.A. Page 4 of 120

5 I. FINANCIAL HIGHLIGHTS

6 Interim condensed financial statements for the six months ended June 30th 2018 Financial highlights Consolidated financial highlights PLN 000 EUR 000 restated* restated* unaudited unaudited unaudited unaudited Revenue 1,245,322 1,349, , ,822 Operating profit 36, ,279 8,712 29,966 Profit before tax (12,266) 127,777 (2,893) 30,084 Net profit (14,545) 100,228 (3,431) 23,597 Comprehensive income for period (20,043) 104,602 (4,728) 24,627 Number of shares 75,000,000 75,000,000 75,000,000 75,000,000 Earnings per ordinary share (0.17) 1.36 (0.04) 0.32 Net cash from operating activities 36,001 50,928 8,492 11,990 Net cash from investing activities (85,756) (113,819) (20,228) (26,797) Net cash from financing activities (13,935) 76,344 (3,287) 17,974 Total net cash flows (63,690) 13,453 (15,023) 3,167 Cash and cash equivalents at beginning of period 145,003 95,798 34,203 22,555 Cash and cash equivalents at end of period 82, ,206 19,372 25,711 Dec Dec unaudited audited unaudited audited Non-current assets 1,545,297 1,526, , ,081 Current assets 707, , , ,214 Non-current liabilities 458, , , ,008 Current liabilities 576, , , ,337 Equity 1,217,837 1,121, , ,950 Share capital 750, , , ,817 Non-controlling interests 116,168 (33,052) 26,634 (7,924) * The financial data was restated due to the changes described in Note 3.2.c to these interim condensed consolidated financial statements. Grupa Azoty Zakłady Chemiczne Police S.A. Page 6 of 120

7 Separate financial highlights Grupa Azoty Zakłady Chemiczne Police S.A. Interim condensed financial statements for the six months ended June 30th 2018 Financial highlights PLN 000 EUR 000 unaudited unaudited unaudited unaudited Revenue 1,240,260 1,343, , ,287 Operating profit 46, ,768 11,015 31,494 Profit before tax 60, ,831 14,336 32,686 Net profit 52, ,821 12,419 26,562 Comprehensive income for period 49, ,744 11,608 26,544 Number of shares 75,000,000 75,000,000 75,000,000 75,000,000 Earnings per ordinary share Net cash from operating activities 51,042 64,207 12,040 15,117 Net cash from investing activities (66,889) (129,282) (15,778) (30,438) Net cash from financing activities (38,642) 48,138 (9,115) 11,334 Total net cash flows (54,489) (16,937) (12,853) (3,988) Cash and cash equivalents at beginning of period 69,338 39,939 16,355 9,403 Cash and cash equivalents at end of period 15,654 23,038 3,692 5,424 Dec Dec unaudited audited unaudited audited Non-current assets 1,639,437 1,615, , ,398 Current assets 563, , , ,710 Non-current liabilities 437, , ,410 94,980 Current liabilities 593, , , ,620 Equity 1,171,092 1,161, , ,508 Share capital 750, , , ,817 The selected items of the statement of profit or loss and other comprehensive income, statement of financial position and statement of cash flows were translated into the euro using the method described below: individual items of assets and equity and liabilities in the statement of financial position were translated at the exchange rate effective for the last day of the reporting period: the exchange rate December 31st 2017 was EUR 1 = PLN (table No. 251/A/NBP/2017), the exchange rate June 30th 2018 was EUR 1 = PLN (table No. 125/A/NBP/2018), items of the statement of profit or loss and other comprehensive income and statement of cash flows were translated at 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 the period January 1st June 30th 2017, the average exchange rate was EUR 1 = PLN , in the period January 1st June 30th 2018, the average exchange rate was EUR 1 = PLN The amounts were translated at the exchange rates specified above by dividing amounts expressed in thousands of the złoty by the respective exchange rates. Grupa Azoty Zakłady Chemiczne Police S.A. Page 7 of 120

8 II. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED JUNE 30TH 2018 PREPARED IN ACCORDANCE WITH IAS 34 INTERIM FINANCIAL REPORTING, AS ENDORSED BY THE EUROPEAN UNION

9 Interim condensed consolidated statement of profit or loss and other comprehensive income Profit or loss Note restated* Apr 1 Apr 1 restated* unaudited unaudited unaudited unaudited Revenue 1 1,245,322 1,349, , ,433 Cost of sales 2 (1,067,615) (1,081,297) (558,878) (510,373) Gross profit 177, ,621 71, ,060 Selling and distribution expenses 2 (53,717) (50,976) (26,716) (23,037) Administrative expenses 2 (79,435) (82,504) (40,927) (40,549) Other income 3 5,363 8,561 2,817 7,094 Other expenses 4 (12,982) (16,423) (9,833) (15,854) Operating profit 36, ,279 (3,171) 67,714 Finance income 5 4,092 1,718 1,764 1,013 Finance costs 6 (60,204) (7,860) (57,100) (3,596) Net finance costs (56,112) (6,142) (55,336) (2,583) Share of profit of equityaccounted investees 6,910 6,640 3,327 3,573 Profit before tax (12,266) 127,777 (55,180) 68,704 Income tax 7 (2,279) (27,549) 7,502 (14,981) Net profit (14,545) 100,228 (47,678) 53,723 * The financial data was restated due to the changes described in Note 3.2.c to these interim condensed consolidated financial statements. Notes to the interim condensed consolidated financial statements are an integral part thereof. Grupa Azoty Zakłady Chemiczne Police S.A. Page 9 of 120

10 Interim condensed consolidated statement of profit or loss and other comprehensive income (continued) Note restated* Apr 1 Apr 1 restated* unaudited unaudited unaudited unaudited Other comprehensive income Items that will never be reclassified to profit or loss Actuarial gains/(losses) from defined benefit plans (4,242) (95) (4,242) (95) Tax on items that will never be reclassified to profit or loss (3,436) (77) (3,436) (77) Items that are or may be reclassified to profit or loss Exchange differences on translating foreign operations (2,062) 4,451 (1,465) 995 (2,062) 4,451 (1,465) 995 Total other comprehensive income (5,498) 4,374 (4,901) 918 Comprehensive income for period (20,043) 104,602 (52,579) 54,641 Net profit/(loss) attributable to: Owners of the Parent (12,622) 102,131 (46,596) 54,919 Non-controlling interests (1,923) (1,903) (1,082) (1,196) Comprehensive income for the year attributable to: Owners of the Parent (17,191) 104,449 (50,838) 55,387 Non-controlling interests (2,852) 153 (1,741) (746) Earnings per share **: 8 Basic (PLN) Diluted (PLN) * The financial data was restated due to the changes described in Note 3.2.c to these interim condensed consolidated financial statements. ** The calculation method is presented in Note 8 Earnings per share. Notes to the interim condensed consolidated financial statements are an integral part thereof. Grupa Azoty Zakłady Chemiczne Police S.A. Page 10 of 120

11 Interim condensed consolidated statement of financial position Assets Non-current assets Note unaudited Dec audited Property, plant and equipment 9 1,416,900 1,407,252 Perpetual usufruct of land 6,586 6,690 Investment property 5,381 5,381 Intangible assets 10 49,911 34,013 Equity-accounted investees 11 20,773 26,964 Other receivables 10,291 9,154 Deferred tax assets 7 35,455 37,432 Total non-current assets 1,545,297 1,526,886 Current assets Inventories , ,108 Property rights 13 35,449 32,223 Other financial assets Called-up share capital not paid 70,500 - Current tax assets 3, Trade and other receivables , ,498 Cash and cash equivalents 15 82, ,003 Non-current assets held for sale 16 7,477 7,376 Total current assets 707, ,040 Total assets 2,252,710 2,165,926 Notes to the interim condensed consolidated financial statements are an integral part thereof. Grupa Azoty Zakłady Chemiczne Police S.A. Page 11 of 120

12 Interim condensed consolidated statement of financial position (continued) Equity and liabilities Equity Note unaudited Dec audited Share capital 750, ,000 Exchange differences on translating foreign operations Retained earnings, including: 351, ,446 Net profit for period (12,622) 108,976 Equity attributable to owners of the Parent 1,101,669 1,154,816 Non-controlling interests ,168 (33,052) Total equity 1,217,837 1,121,764 Liabilities Borrowings , ,427 Other financial liabilities 6,886 7,128 Employee benefit obligations 19 69,265 62,347 Trade and other payables 21 3,453 3,016 Provisions 20 65,956 58,054 Grants 22 25,136 26,109 Deferred tax liabilities Total non-current liabilities 458, ,123 Borrowings 18 64, ,705 Other financial liabilities 1,324 1,673 Employee benefit obligations 19 8,655 8,488 Current tax liabilities Trade and other payables , ,536 Provisions 20 4,814 8,107 Grants 22 14,470 2,063 Liabilities directly related to assets held for sale Total current liabilities 576, ,039 Total liabilities 1,034,873 1,044,162 Total equity and liabilities 2,252,710 2,165,926 Notes to the interim condensed consolidated financial statements are an integral part thereof. Grupa Azoty Zakłady Chemiczne Police S.A. Page 12 of 120

13 Interim condensed consolidated statement of changes in equity for the six months ended June 30th 2018 Share capital Exchange differences on translating subordinates Retained earnings Equity attributable to owners of the Parent Non-controlling interests Total equity Balance January 1st , ,446 1,154,816 (33,052) 1,121,764 Accounting policy change effect of IFRS (73) (73) - (73) Balance at beginning of period after adjustments 750, ,373 1,154,743 (33,052) 1,121,691 Profit or loss and other comprehensive income Net profit (12,622) (12,622) (1,923) (14,545) Other comprehensive income - (1,133) (3,436) (4,569) (929) (5,498) Comprehensive income for period - (1,133) (16,058) (17,191) (2,852) (20,043) Transactions with owners, recognised directly in equity Dividends - - (39,750) (39,750) - (39,750) Total contributions by and distributions to owners - - (39,750) (39,750) - (39,750) Changes in ownership interests in subsidiaries Acquisition of non-controlling interests, not resulting in change in control - - 3,263 3,263 90,737 94,000 Total transactions with owners - - (36,487) (36,487) 90,737 54,250 Loss of control over a subsidiary (163) ,335 61,939 Balance June 30th 2018 (unaudited) 750, ,665 1,101, ,168 1,217,837 Notes to the interim condensed consolidated financial statements are an integral part thereof. Grupa Azoty Zakłady Chemiczne Police S.A. Page 13 of 120

14 Interim condensed consolidated statement of changes in equity (continued) for the six months ended June 30th 2017 restated* Share capital Exchange differences on translating subordinates Retained earnings Equity attributable to owners of the Parent Non-controlling interests Total equity Balance January 1st ,000 (2,387) 348,041 1,095,654 (21,540) 1,074,114 Correction of prior period error - (123) (23,124) (23,247) (12,758) (36,005) Balance at beginning of period after adjustments 750,000 (2,510) 324,917 1,072,407 (34,298) 1,038,109 Profit or loss and other comprehensive income Net profit , ,131 (1,903) 100,228 Other comprehensive income - 2,395 (77) 2,318 2,056 4,374 Comprehensive income for period - 2, , , ,602 Transactions with owners, recognised directly in equity Dividends - - (31,500) (31,500) - (31,500) Total contributions by and distributions to owners - - (31,500) (31,500) - (31,500) Changes in ownership interests in subsidiaries Acquisition of non-controlling interests, not resulting in change in control ,821 22,821 Total transactions with owners - - (31,500) (31,500) 22,821 (8,679) Balance June 30th 2017 (unaudited) 750,000 (115) 395,471 1,145,356 (11,324) 1,134,032 * The financial data was restated due to the changes described in Note 3.2.c to these interim condensed consolidated financial statements. Notes to the interim condensed consolidated financial statements are an integral part thereof. Grupa Azoty Zakłady Chemiczne Police S.A. Page 14 of 120

15 Interim condensed consolidated statement of cash flows Cash flows from operating activities unaudited restated* unaudited Profit before tax (12,266) 127,777 Adjustments for: 102,574 50,087 Amortisation and depreciation 56,594 50,128 Recognition of impairment losses for property, plant and equipment (Profit)/loss from investing activities 47,240 (410) Share of profit of equity-accounted investees (6,910) (6,640) Interest, foreign exchange gains or losses 5,164 5,141 Net change in fair value of financial assets at fair value through profit or loss - 1,786 90, ,864 (Increase)/Decrease in trade and other receivables (36,377) (60,571) (Increase)/Decrease in inventories (6,219) (19,644) Increase/(Decrease) in trade and other payables (32,821) (50,130) Increase in provisions, grants and employee benefit obligations 16,684 6,571 Other adjustments 3,562 (3,118) Cash generated from operating activities 35,137 50,972 Income taxes refunded/(paid) 864 (44) Net cash from operating activities 36,001 50,928 * The financial data was restated due to the changes described in Note 3.2.c to these interim condensed consolidated financial statements. Notes to the interim condensed consolidated financial statements are an integral part thereof. Grupa Azoty Zakłady Chemiczne Police S.A. Page 15 of 120

16 Interim condensed consolidated statement of cash flows (continued) unaudited restated* unaudited Cash flows from investing activities Proceeds from sale of property, plant and equipment, intangible assets and investment property Acquisition of property, plant and equipment, intangible assets and investment property (84,283) (122,433) Exploration and evaluation expenditures (450) (2,247) Dividend received - 11,851 Inflow from/(outflows on) lease of investment property (884) 44 Loans advanced (300) (1,225) Net cash from investing activities (85,756) (113,819) Cash flows from financing activities Net proceeds from issue of share capital** 23,500 22,821 Proceeds from borrowings 96,378 83,539 Payment of borrowings (127,408) (20,743) Interest paid (5,529) (7,659) Payment of finance lease liabilities (1,510) (2,063) Other proceeds Net cash from financing activities (13,935) 76,344 Total net cash flows (63,690) 13,453 Cash and cash equivalents at beginning of period 145,003 95,798 Effect of exchange rate fluctuations on cash held 816 (45) Cash and cash equivalents at end of period 82, ,206 * The financial data was restated due to the changes described in Note 3.2.c to these interim condensed consolidated financial statements. ** Outflow due to issue of shares by subsidiary PDH Polska S.A., taken up by non-controlling shareholders. Notes to the interim condensed consolidated financial statements are an integral part thereof. Grupa Azoty Zakłady Chemiczne Police S.A. Page 16 of 120

17 Notes to the interim condensed consolidated financial statements 1. Information about the Group 1.1. Organisation of the Grupa Azoty Zakłady Chemiczne Police Group The Group s parent, Grupa Azoty Zakłady Chemiczne Police Spółka Akcyjna, with its registered office in Police (the Parent or Company ), was established on December 14th 1995 on the basis of Notarial Deed A No The Parent operates as a joint-stock company in Poland. The Parent is registered with the District Court for Szczecin-Centrum in Szczecin, 13th Commercial Division of the National Court Register, under No. KRS The Parent has been assigned REGON (industry identification) No and NIP (tax identification) No , as well as BDO (Database on Products and Packaging, and on Waste Management) No The duration of the Parent and the entities comprising the Grupa Azoty Zakłady Chemiczne Police Group (the Group ) is unlimited. The Parent 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 Zakłady Chemiczne Police Group is part of the Grupa Azoty Group, whose parent is Grupa Azoty S.A Composition of the Group As at June 30th 2018, the Group comprised Grupa Azoty Zakłady Chemiczne Police S.A. (the Parent) and eight subsidiaries (in which the Parent held ownership interests above 50%), including two companies in liquidation. In addition, two associates (with the Parent s interests in the share capital below 50%), including one in liquidation bankruptcy, were consolidated using the equity method. Organisational chart of the Grupa Azoty POLICE Group Grupa Azoty Zakłady Chemiczne Police S.A. Page 17 of 120

18 Changes in the structure of business entities Share capital increase at PDH Polska Spółka Akcyjna, a subsidiary On November 10th 2017, an Extraordinary General Meeting of the subsidiary PDH Polska S.A. resolved to increase the company s share capital by PLN 124,000 thousand through an issue of 12,400,000 new shares with a par value of PLN 10 per share, of which: Grupa Azoty Zakłady Chemiczne Police S.A. took up shares with a par value of PLN 30,000 thousand, Grupa Azoty S.A. took up shares with a par value of PLN 94,000 thousand. In the six months ended June 30th 2018, payments for the new shares were made, in the amount of PLN 7,500 thousand by Grupa Azoty Zakłady Chemiczne Police S.A., and in the amount of PLN 23,500 thousand by Grupa Azoty S.A. As at June 30th 2018, the increased share capital of the subsidiary PDH Polska S.A. was PLN 304,000 thousand. On April 9th 2018, the District Court for Szczecin-Centrum in Szczecin, 13th Commercial Division of the National Court Register, registered the increase of PDH Polska S.A. s share capital. Following the registration, the share capital of the subsidiary amounts to PLN 304,000 thousand, including paid-up capital of PLN 211,000 thousand. The rest of PDH Polska S.A. s share capital will be paid up by its shareholders by September 1st 2018: PLN 22,500 thousand to be paid by Grupa Azoty Zakłady Chemiczne Police S.A., PLN 70,500 thousand to be paid by Grupa Azoty S.A. As at June 30th 2018 and December 31st 2017, the Parent s shares in total voting rights at the subsidiaries and associates were equal to the Parent s respective ownership interests in these companies. Since April 9th 2018, i.e. the date of registration of the share capital increase at the subsidiary PDH Polska S.A., Grupa Azoty Zakłady Chemiczne Police S.A. has held 59.93% of the company s share capital and 84.54% of the total voting rights at its general meeting (votes attached to shares which were fully paid-up). Pursuant to Art of the Commercial Companies Code, shareholders acquire voting rights once they have paid in full for their shares (the Articles of Association of PDH Polska S.A. do not stipulate otherwise). Loss of control over subsidiary African Investment Group S.A. Following the execution of a termination agreement, including annexes, with DGG Eco Sp. z o.o., on May 30th 2018 the shares in African Investment Group S.A. acquired under an agreement between DGG ECO Sp. z o.o. and the Parent were returned to the seller. As a result, on May 30th 2018 the Parent lost control of the subsidiary African Investment Group S.A. and, indirectly, of AFRIG Trade SARL. For full details of the events and effects of the loss of control, see Section 2.3 hereof Composition of the Parent s Management and Supervisory Boards As at the date of authorisation of the interim condensed consolidated financial statements for issue, the composition of the Parent s Management Board was as follows: Wojciech Piotr Wardacki President of the Management Board of the eighth joint term of office, appointed by Supervisory Board Resolution No. 223/VII/18 of May 30th 2018; Tomasz Grzegorz Panas Vice President of the Management Board of the eighth joint term of office, appointed by Supervisory Board Resolution No. 225/VII/18 of May 30th 2018; Włodzimierz Zasadzki Vice President of the Management Board of the eighth joint term of office, appointed by Supervisory Board Resolution No. 224/VII/18 of May 30th 2018; Anna Tarocińska Member of the Management Board of the eighth joint term of office, elected by Parent employees and appointed by Supervisory Board Resolution No. 226/VII/18 of May 30th As at the date of authorisation of the interim condensed consolidated financial statements for issue, the composition of the Parent s Supervisory Board was as follows: Joanna Habelman Chairwoman of the Supervisory Board of the seventh joint term of office, appointed to the Supervisory Board by General Meeting Resolution No. 22 of June 30th 2016 (appointed Chairwoman of the Supervisory Board on January 26th 2017); Grupa Azoty Zakłady Chemiczne Police S.A. Page 18 of 120

19 Mirosław Kozłowski Deputy Chairman of the Supervisory Board of the seventh joint term of office, appointed to the Supervisory Board by General Meeting Resolution No. 24 of June 30th 2016 and appointed Deputy Chairman on February 6th 2017; Bożena Licht Secretary of the Supervisory Board, Representative of the Ministry of State Treasury, appointed to the Supervisory Board by the Minister of State Treasury (letter of July 8th 2016); Agnieszka Ewa Dąbrowska Member of the Supervisory Board of the seventh joint term of office, appointed by General Meeting Resolution No. 23 of June 30th 2016; Andrzej Malicki Member of the Supervisory Board of the seventh joint term of office, elected by Parent employees and appointed by the Parent s Annual General Meeting (Resolution No. 25 of June 30th 2016); Maria Więcek Member of the Supervisory Board of the seventh joint term of office, elected by Parent employees and appointed by the Parent s Extraordinary General Meeting (Resolution No. 3 of December 14th 2016). As at the date of authorisation of the interim condensed consolidated financial statements for issue, the composition of the Audit Committee was as follows: Joanna Habelman Chairwoman of the Audit Committee, appointed by Supervisory Board Resolution No. 3/VII/16 of July 15th 2016; Agnieszka Ewa Dąbrowska Secretary of the Audit Committee, appointed by Supervisory Board Resolution No. 4/VII/16 of July 15th 2016; Mirosław Kozłowski Member of the Audit Committee, appointed by Supervisory Board Resolution No. 5/VII/16 of July 15th 2016; Maria Więcek Member of the Audit Committee, appointed by Supervisory Board Resolution No. 140/VII/17 of October 19th Key events in the six months ended June 30th 2018 and until the authorisation date 2.1. Bankruptcy petition by African Investment Group S.A. On March 29th 2018, the subsidiary African Investment Group S.A. announced its insolvency and filed a petition in bankruptcy with the Commercial Court of Dakar, Senegal Profit distribution On June 4th 2018, the Annual General Meeting of Grupa Azoty Zakłady Chemiczne Police S.A. allocated the 2017 net profit of PLN 133,206 thousand as follows: PLN 39,750 thousand to be distributed as dividend payments, PLN 93,456 thousand to be allocated to statutory reserve funds. The dividend was paid on July 24th Effects of loss of control over subsidiary African Investment Group S.A. The Parent lodged a claim against DGG Eco Sp. z o.o. for refund of undue tranches of the purchase price for a 55% interest in African Investment Group S.A. ( AFRIG S.A. ). The price tranches were not due as AFRIG S.A. had failed to produce phosphate rock volumes provided for in the agreement. On December 20th 2017, the parties signed a termination agreement (confirmed by court settlement) providing for withdrawal from and reversal of the legal effects of the agreement of August 28th 2013 for purchase of the majority interest in AFRIG S.A. The consequences of the agreement (settlement) taking legal effect, involving mutual recovery of performance under the purchase agreement being terminated, were made conditional upon a refund of the first tranche of the price and creation of security for repayment of the balance by February 28th As DGG Eco Sp. z o.o. had failed to meet these conditions, the settlement was not consummated by the originally set date. As a result of further negotiations, an annex to the agreement was signed on May 22nd/23rd 2018, amending the terms of its consummation and mutual recovery of performance. In accordance with the annex, on May 30th 2018 the Parent confirmed that the shares in AFRIG S.A. had been transferred back to DGG Eco Sp. z o.o. Grupa Azoty Zakłady Chemiczne Police S.A. Page 19 of 120

20 Key terms and conditions of the termination agreement between the Parent and DGG Eco Sp. z o.o. are as follows: DGG Eco Sp. z o.o. is to refund the amounts paid by the Parent towards the purchase price for the shares, i.e. the entire amount of USD 28,850 thousand, in instalments payable over five years, the first one due by December 31st 2018 and the last one by December 31st 2023, the Parent is to cancel its trade receivables from AFRIG S.A. in the total amount of EUR 11,090 thousand and USD 1,258 thousand (in aggregate, equivalent to PLN 51,942 thousand), the Parent, as a co-borrower, is to take over the obligation to repay the loan granted by BGŻ BNP Paribas S.A. to finance the operations of AFRIG S.A., drawn in the amount of EUR 20,079 thousand (equivalent to PLN 86,734 thousand), AFRIG S.A. is to remain liable towards the Parent for the repayment of the drawn portion of the loan and its servicing. In order to secure the performance of the settlement, DGG Eco Sp. z o.o. submitted a declaration of voluntary submission to enforcement under Art. 777 of the Code of Civil Procedure regarding the obligation to refund the above amount. Nevertheless, in the Parent s opinion, given especially the fact that AFRIG S.A. (whose future operations, according to DGG Eco Sp. z o.o., are to serve as the source of financing to satisfy the Company s claims) has declared insolvency (and filed a petition in bankruptcy on March 29th 2018) and that tax enforcement proceedings have been instituted against it, as well as the fact that DGG Eco Sp. z o.o. failed to fulfil its original obligation to secure the refund of the price for the shares in AFRIG S.A. by a bank guarantee, the fair value of the amount due from DGG Eco Sp. z o.o. for the re-transfer of the shares in AFRIG S.A. was initially recognised at USD 3,000 thousand (equivalent to PLN 11,160 thousand). The estimate was substantiated by an actual inflow of funds after the reporting date. The Parent still has a recourse claim against AFRIG S.A. with regard to the obligation to repay the equivalent of the loan drawn by the subsidiary (EUR 20,079 thousand plus service costs). In view of the insolvency of AFRIG S.A., the amount to be repaid was recognised at nil fair value on initial recognition in the consolidated statement of financial position. Cancellation of trade receivables from AFRIG S.A. with the debtor s consent, which in the previous years constituted income due but not received by the Parent, reduced the income tax expense by PLN 8,211 thousand. Following the loss of control over AFRIG S.A., as of May 30th 2018 AFRIG S.A. s net assets of PLN 137,250 thousand, adjusted for cancelled receivables of the Parent (PLN 51,942 thousand), adjusted for loan liabilities assumed by the Parent (PLN 86,734 thousand) and negative non-controlling interests (PLN 61,734 thousand), were excluded from the Group s consolidated statement of financial position, with the effect recognised in consolidated profit/(loss) for the current period. Also taken into account in recognising the effect of AFRIG S.A. s exclusion from consolidated financial statements was the fair value of receivables from DGG Eco for the re-transfer of AFRIG shares (PLN 11,160 thousand). The total effect of the loss of control over the subsidiary AFRIG S.A. on consolidated net profit/(loss) is presented below. Item Amount Finance costs Effects of loss of control over subsidiary (52,205) Profit/(loss) before tax (52,205) Income tax 8,211 Net profit/(loss) (43,994) Grupa Azoty Zakłady Chemiczne Police S.A. Page 20 of 120

21 3. Policies applied in the preparation of the interim condensed consolidated financial statements 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 April 20th 2018 (Dz.U. of 2018, item 757). These interim condensed consolidated financial statements of the Group present the Group s statement of financial position June 30th 2018 and December 31st 2017, statement of profit or loss and other comprehensive income for the six months ended June 30th 2018 and June 30th 2017 as well as for the three months ended June 30th 2018 and June 30th The statement of cash flows and the statement of changes in equity cover the six months ended June 30th 2018 and June 30th The data June 30th 2018 and for the six months then ended, and the comparative financial data for the six months ended June 30th 2017, contained in these interim condensed consolidated financial statements, has been reviewed by an independent auditor. The financial data for the three months ended June 30th 2018, and the comparative financial data for the three months ended June 30th 2017, contained in these interim condensed consolidated financial statements, has not been reviewed by an independent auditor. These interim condensed consolidated financial statements of the Grupa Azoty Police Group for the six months ended June 30th 2018 were authorised for issue by the Parent s Management Board on August 24th These interim condensed consolidated financial statements do not include all the information and disclosures required to be given or made in full-year financial statements and should be read in conjunction with the Group s consolidated financial statements for the year ended December 31st 2017, authorised for issue on April 12th The interim profit/loss may not fully reflect the realisable profit/loss for the full financial year. All figures in these interim condensed consolidated financial statements are presented in thousands of złoty. These interim condensed consolidated financial statements were prepared under the assumption that the Group companies will continue to operate as going concerns in the foreseeable future, with the exception of the subsidiaries in liquidation (Grupa Azoty Africa S.A. w likwidacji and Infrapark Polska S.A. w likwidacji). As at the date of authorisation of these interim condensed consolidated financial statements, no circumstances were identified which would indicate that the Group companies may be unable to continue as going concerns, with the exception of the aforementioned subsidiaries Accounting policies and computation methods a) Applied accounting policies, changes in International Financial Reporting Standards The accounting policies applied to prepare these interim condensed consolidated financial statements are consistent with the policies applied to draw up the Group s full-year consolidated financial statements for the year ended December 31st 2017, except for the application of new or amended standards and interpretations effective for annual periods beginning on or after January 1st The amendments to the IFRSs presented below have been applied in these financial statements in accordance with their effective dates. However, they had no material effect on the disclosed financial information or did not apply to any of the executed transactions: Grupa Azoty Zakłady Chemiczne Police S.A. Page 21 of 120

22 Grupa Azoty Zakłady Chemiczne Police S.A. IFRIC 22 Foreign Currency Transactions and Advance Consideration The interpretation clarifies that the date of a transaction for the purpose of determining the exchange rate to be applied on initial recognition of the related asset, expense or income (or a part thereof) is the date on which an entity initially recognises the non-monetary asset or nonmonetary liability arising from prepayment or receipt of advance consideration. If there are multiple payments or receipts in advance, the date of the transaction is established for each payment or receipt. The interpretation has no material effect on the Company s interim condensed financial statements. Amendments to IAS 40 Transfers of Investment Property The amendments specify when an entity transfers property (including property under construction) to, or from, investment property. They clarify that a change of use occurs if property meets, or ceases to meet, the definition of investment property and there is evidence of a change in use. A change in the management s intentions for the use of property by itself does not constitute evidence of a change in use. The amendments have no material effect on the Company s interim condensed financial statements. Amendments to IFRS 2 Classification and Measurement of Share-based Payment Transactions The International Accounting Standards Board (IASB) issued amendments to IFRS 2 Share-based Payment to clarify the following areas: accounting for vesting and non-vesting conditions in the measurement of cash-settled share-based payment transactions; recognition of share-based payments settled net of tax withholdings; and accounting for modification of share-based payment transactions from cash-settled to equity-settled. The amendments have no material effect on the Company s interim condensed financial statements. Amendments to IFRS 4 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts The amendments give companies whose business model is to predominantly issue insurance contracts the option to defer the effective date of IFRS 9 until January 1st Those entities that apply such deferral approach may continue to prepare their financial statements in accordance with IAS 39. Those amendments do not apply to the Company. Amendments to IAS 28 Investments in Associates and Joint Ventures introduced as part of the Annual Improvements to IFRS Cycle The amendments specify that an entity which is a venture capital organisation, mutual fund, trust fund or similar entity, including an investment-related insurance fund, may elect to measure its investment in an associate or joint venture at fair value through profit or loss in accordance with IFRS 9. An entity makes such election separately for each associate or joint venture on initial recognition of that associate or joint venture. If an entity that is not itself an investment entity holds an interest in an associate or joint venture that is an investment entity, such entity may elect, using the equity method, to maintain the fair value measurement used by the associate or joint venture that is an investment entity in respect of that associate s or joint venture s interests in subsidiaries. This election is made separately for each associate or joint venture on: a) the initial recognition of that associate or joint venture that is an investment entity; b) the date on which the associate or joint venture becomes an investment entity; and c) the date on which the associate or joint venture that is an investment entity becomes a parent. The amendments have no material effect on the Company s interim condensed financial statements. Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards introduced as part of the Annual Improvements to IFRS Cycle The short-term exemptions from applying other IFRSs included in par. E3 E7 of IFRS 1 were deleted. The amendments have no material effect on the Company s interim condensed financial statements. The Parent has not elected to early adopt any of the standards, interpretations or amendments that have been published but are not yet effective in accordance with the European Union regulations. As at the date of authorisation of these interim condensed consolidated financial statements for issue, the Parent s Management Board did not complete its assessment of the effect of the new standards Grupa Azoty Zakłady Chemiczne Police S.A. Page 22 of 120

23 and interpretations on the Parent s accounting policies applied to its business or financial performance. IFRS 15 The Group applies IFRS 15 as of January 1st IFRS 15 replaces the existing revenue recognition guidance contained in IAS 18 Revenue, IAS 11 Construction Contracts, and the related Interpretations. In line with the core principle of IFRS 15, the Group recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Parent expects to be entitled in exchange for those goods or services. In view of the above, it is critical to correctly determine the moment and amount of revenue recognised by the Group. In accordance with IFRS 15, the Group recognises revenue when (or as) a performance obligation is satisfied, i.e. when (or as) control of the goods or services is passed to the customer, either over time or at a point in time. The Group decided to implement IFRS 15 using the modified retrospective method (i.e. with the cumulative impact recognised at the date of initial application (January 1st 2018), only with respect to contracts that were not yet complete that date). The Group enters into contracts with customers for the sale of goods, including contracts with delivery terms based on Incoterms CIF, CIP, CPT. To date, the Company has recognised the entire revenue at the moment control over goods was transferred to a customer. Under IFRS 15, a transport service (or transport and insurance service) provided in accordance with the Incoterms specified above will be subject, after transfer of control over goods, to separation as a separately identifiable obligation to perform the service, to which a part of the transaction price will be allocated and revenue will be recognised separately when the service is provided (i.e. at a later date than before). As at June 30th 2018, the value of transport services in progress was PLN 674 thousand. Based on calculations of the effect that the application of IFRS 15 will have on individual items of its financial statements, the Group presents in the tables below the effect on the interim condensed consolidated financial statements January 1st 2018, June 30th 2018 and for the six months ended June 30th IFRS 9 The Group applies IFRS 9 as of January 1st It replaces IAS 39 Financial Instruments: Recognition and Measurement. The standard introduces amendments to the classification and measurement of financial assets, their impairment, and (as an option) hedge accounting. The Group has changed its accounting policies to ensure effective implementation of IFRS 9 with respect to: classification of financial assets, impairment of financial assets. The changes introduced by the Group are consistent with the transitional provisions under IFRS 9, i.e. the Group applies the standard retrospectively with respect to all financial instruments outstanding January 1st 2018, without correcting its comparative data. Based on estimates of the effect of IFRS 9 on its individual financial assets, the Group decided not to disclose the differences January 1st 2018 due to their immaterial values. As at June 30th 2018, the Group identified the following classes of financial assets for which, in accordance with IFRS 9, it estimated the effect of the expected credit losses on the financial statements: 1) trade receivables 2) loans granted 3) cash and cash equivalents. Having calculated the expected credit losses on these financial assets, the Group allocated the estimated loss on trade receivables in the amount of PLN 243 thousand to selling and distribution expenses, and the estimated loss on cash and cash equivalents in the amount of PLN 11 thousand to finance costs. Grupa Azoty Zakłady Chemiczne Police S.A. Page 23 of 120

24 In addition, in connection with the concluded guarantee and surety agreements that support the corporate loans of Grupa Azoty S.A., the Group estimated its pro-rata share of the expected credit loss June 30th Based on the carrying amount of bank borrowings, the terms of expected cash flows during the agreements term, and an evaluation of Grupa Azoty S.A. s creditworthiness, the Group computed the expected credit losses at PLN 151 thousand. The tables below present the effect of application of IFRS 9 and IFRS 15 on the items of the interim condensed consolidated statement of financial position January 1st 2018 and June 30th 2018, and on the items of the interim condensed consolidated statement of profit or loss and other comprehensive income and the interim condensed consolidated statement of cash flows for the six months ended June 30th 2018, compared with the standards and interpretations effective prior to the change: Interim condensed consolidated statement of financial position Jan As at Dec (audited) Adjustments due to the implementation of IFRS 15 As at Jan unaudited Current assets Trade and other receivables 200,498 (160) 200,338 Equity Retained earnings 404,446 (73) 404,373 Current liabilities Provisions 8,107 (87) 8,020 Grupa Azoty Zakłady Chemiczne Police S.A. Page 24 of 120

25 Interim condensed consolidated statement of financial position Jun 30th 2018 After implementa tion of IFRS 9 and IFRS 15 Difference resulting from implementa tion of IFRS 15 Difference resulting from implementa tion of IFRS 9 Based on standards and interpretations applied before implementation of IFRS 9 and IFRS 15 Current assets Trade and other receivables 240, (243) 240,704 Cash 82,129 - (11) 82,140 Equity Retained earnings 340, (405) 340,778 Net profit for period (23,854) 60 (405) (23,509) Non-current liabilities Trade and other payables 3, ,434 Current liabilities Other financial liabilities 1, ,173 Interim condensed consolidated statement of profit or loss and other comprehensive income for the six months ended June 30th 2018 After implementation of IFRS 9 and IFRS 15 Difference resulting from implementation of IFRS 15 Difference resulting from implementation of IFRS 9 Based on standards and interpretations applied before implementation of IFRS 9 and IFRS 15 Revenue 1,245,322 (587) - 1,245,909 Selling and distribution expenses (53,717) 647 (243) (54,121) Finance costs (70,076) - (162) (69,914) Net profit (23,854) 60 (405) (23,509) Interim condensed consolidated statement of cash flows for the six months ended June 30th 2018 After implementat ion of IFRS 9 and IFRS 15 Difference resulting from implementat ion of IFRS 15 Difference resulting from implementatio n of IFRS 9 Based on standards and interpretations applied before implementation of IFRS 9 and IFRS 15 Cash flows from operating activities Profit before tax (23,498) 60 (405) (23,153) Increase in trade and other receivables (36,377) (79) 243 (36,541) Decrease in trade and other payables (32,821) (32,991) Grupa Azoty Zakłady Chemiczne Police S.A. Page 25 of 120

26 b) New standards and interpretations which have been issued but are not yet effective The following standards and interpretations have been issued by the International Accounting Standards Board, but are not yet effective: IFRS 14 Regulatory Deferral Accounts (issued on January 30th 2014) pursuant to the European Commission s decision, the process leading to the approval of a preliminary version of the standard will not be initiated until the issue of its final version (not endorsed by the EU by the date of authorisation of these financial statements for issue) effective for annual periods beginning on or after January 1st 2016; Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (issued on September 11th 2014) work leading to endorsement of the amendments was deferred by the EU for an indefinite period effective date was deferred by the IASB for an indefinite period; IFRS 16 Leases (issued on January 13th 2016) effective for annual periods beginning on or after January 1st 2019; IFRS 17 Insurance Contracts (issued on May 18th 2017) not endorsed by the EU the date of authorisation of these financial statements for issue effective for annual periods beginning on or after January 1st 2021; IFRIC 23 Uncertainty over Income Tax Treatments (issued on June 7th 2017) not endorsed by the EU the date of authorisation of these financial statements for issue effective for annual periods beginning on or after January 1st 2019; Amendments to IFRS 9 Prepayment Features with Negative Compensation (issued on October 12th 2017) effective for annual periods beginning on or after January 1st 2019; Amendments to IAS 28 Long-term Interests in Associates and Joint Ventures (issued on October 12th 2017) not endorsed by the EU the date of authorisation of these financial statements for issue effective for annual periods beginning on or after January 1st 2019; Amendments to IFRS introduced as part of the Annual Improvements to IFRS Cycle (issued on December 12th 2017) not endorsed by the EU by the date of authorisation of these financial statements for issue effective for annual periods beginning on or after January 1st 2019; Amendments to IAS 19 Plan Amendment, Curtailment or Settlement (issued on February 7th 2018) not endorsed by the EU by the date of authorisation of these financial statements effective for annual periods beginning on or after January 1st Revised Conceptual Framework for Financial Reporting (issued on March 29th 2018) not endorsed by the EU by the date of authorisation of these financial statements effective for annual periods beginning on or after January 1st The effective dates are set in the text of the standards issued by the International Accounting Standards Board. The effective dates of the standards in the European Union may differ from those specified in the text of the standards and are announced on approval of a standard by the European Union. c) Correction of prior period errors These interim condensed consolidated financial statements for the six months ended June 30th 2018 present the effect of adjustments made as corrections of prior period errors, described in the fullyear consolidated financial statements for 2017, on the data for the six months ended June 30th 2017, which are a consequence of: Adjustment 1 erroneously disclosed other income and liabilities under provision for site restoration by the subsidiary Supra Agrochemia Sp. z o.o. ( Supra ); Adjustment 2 repeated review of operating lease contracts concluded in previous periods, under which the subsidiary Transtech Sp. z o.o. uses construction and transport equipment. The review showed that these contracts met the criteria of a finance lease. Accordingly, the subsidiary reclassified all leases for the equipment in operation. And retrospectively recognised the effect of the reclassification on the comparative data for the year ended December 31st 2017 and on the opening balance of the earliest presented period ( January 1st 2017). Below is presented the effect of the correction of prior period errors on the data disclosed in the interim condensed consolidated statement of profit or loss and other comprehensive income and the interim condensed consolidated statement of cash flows January June The effect of the correction on the data disclosed in the consolidated statement of financial position January 1st 2016, December 31st 2016 and December 31st 2017 is presented in the full-year consolidated financial statements for Grupa Azoty Zakłady Chemiczne Police S.A. Page 26 of 120