QUARTERLY CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Transcription

1 QUARTERLY CONDENSED CONSOLIDATED FINANCIAL STATEMENTS of Zakłady Tłuszczowe "Kruszwica Spółka Akcyjna Capital Group for the 9 30 September 2017 Kruszwica, 14 November 2017

2 CONTENTS OF THE CONSOLIDATED QUARTERLY REPORT: SELECTED CONSOLIDATED FINANCIAL DATA... 4 SELECTED SEPARATE FINANCIAL DATA... 5 A. QUARTERLY CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF ZAKŁADY TŁUSZCZOWE KRUSZWICA SPÓŁKA AKCYJNA CAPITAL GROUP... 7 INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME... 7 INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION... 8 INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY... 9 INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS NOTES TO THE QUARTERLY CONDENSED CONSOLIDATED FINANCIAL STATEMENTS GENERAL INFORMATION IFRS AND ACCOUNTING PRINCIPLES APPLIED OPERATING SEGMENTS INFORMATION ON MATERIAL CHANGES OF ESTIMATES SIGNIFICANT ACHIEVEMENTS AND FAILURES OF THE GROUP DURING THE REPORTING PERIOD DESCRIPTION OF EXTRAORDINARY FACTORS AND EVENTS WITH A SIGNIFICANT EFFECT ON THE FINANCIAL PERFORMANCE DESCRIPTION OF ITEMS AFFECTING ASSETS, LIABILITIES, EQUITY, NET PROFIT/LOSS AND CASH FLOWS, WHICH ARE EXTRAORDINARY DUE TO THEIR TYPE, SIZE OR EFFECT SEASONAL AND CYCLICAL NATURE OF BUSINESS RELATED-PARTY TRANSACTIONS GAINS/(LOSSES) ON MEASUREMENT OF UNREALISED DERIVATIVES AND EXCHANGE DIFFERENCES FX DERIVATIVES COMMODITY DERIVATIVES CHANGES IN THE STRUCTURE OF THE ENTITY DURING THE THREE QUARTERS OF THE YEAR ISSUE, REDEMPTION AND REPAYMENT OF NON-EQUITY AND EQUITY SECURITIES DIVIDEND PAID (OR DECLARED) CHANGES IN CONTINGENT LIABILITIES OR CONTINGENT ASSETS DESCRIPTION OF THE ISSUER'S CAPITAL GROUP POSITION OF THE MANAGEMENT BOARD CONCERNING PREVIOUSLY PUBLISHED FORECASTS FOR THE FINANCIAL YEAR SHAREHOLDERS WHO, EITHER DIRECTLY OR INDIRECTLY (THROUGH THEIR SUBSIDIARIES), HOLD AT LEAST 5% OF VOTES AT THE ISSUER'S GENERAL SHAREHOLDERS MEETING ISSUER S SHARES AND SUBSCRIPTION RIGHTS ASSIGNED TO MEMBERS OF THE ISSUER S MANAGEMENT AND SUPERVISORY BODIES PROCEEDINGS PENDING BEFORE COURT, ARBITRATION AUTHORITY OR PUBLIC ADMINISTRATION AUTHORITY, INCLUDING INFORMATION ON: PROCEEDINGS CONCERNING THE ISSUER S LIABILITIES OR RECEIVABLES WHOSE VALUE CORRESPONDS TO AT LEAST 10% OF THE ISSUER'S EQUITY; TWO OR MORE CASES CONCERNING LIABILITIES AND RECEIVABLES WHOSE TOTAL VALUE CORRESPONDS TO AT LEAST 10% OF THE ISSUER'S EQUITY INFORMATION ON ONE OR MORE TRANSACTIONS WITH RELATED PARTIES WHICH ARE, SEPARATELY OR JOINTLY, REGARDED AS SIGNIFICANT AND WERE NOT CARRIED OUT ON AN ARM'S LENGTH BASIS INFORMATION ON LOAN/BORROWING SURETIES OR GUARANTEES GIVEN BY THE ISSUER TO ONE OF ITS SUBSIDIARIES, IF THEIR AGGREGATE VALUE CORRESPONDS TO AT LEAST 10% OF THE ISSUER S EQUITY INFORMATION ON SIGNIFICANT TRANSACTIONS OF PURCHASE AND SALE OF PROPERTY, PLANT AND EQUIPMENT INFORMATION ON SIGNIFICANT LIABILITIES TO ACQUIRE PROPERTY, PLANT AND EQUIPMENT INFORMATION ON SIGNIFICANT LIABILITIES OR RECEIVABLES DUE TO COURT CASES ADJUSTMENTS OF PRIOR PERIOD ERRORS INFORMATION ON CHANGES IN THE BUSINESS POSITION AND CONDITIONS OF CARRYING OUT BUSINESS ACTIVITIES WHICH CONSIDERABLY AFFECT THE FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES OF THE ENTITY, IRRESPECTIVE WHETHER SUCH ASSETS AND LIABILITIES HAVE BEEN RECOGNISED AT FAIR VALUE OR ADJUSTED ACQUISITION PRICE (AMORTISED COST) Page 2 of 52

3 28. INFORMATION ON OUTSTANDING CREDIT FACILITIES OR LOANS OR BREACHING COVENANTS OF FACILITY OR LOAN AGREEMENTS WITH NO REMEDIAL ACTION TAKEN BY THE END OF THE REPORTING PERIOD OTHER INFORMATION ESSENTIAL FOR ASSESSING THE ISSUER'S HUMAN RESOURCES, ECONOMIC, FINANCIAL POSITION AND PERFORMANCE AS WELL AS THEIR CHANGES AND THE ISSUER'S ABILITY TO DISCHARGE ITS LIABILITIES POST BALANCE SHEET EVENTS FACTORS WHICH, IN THE ISSUER'S OPINION, WILL AFFECT ITS PERFORMANCE AT LEAST DURING THE NEXT QUARTER B. QUARTERLY CONDENSED FINANCIAL STATEMENTS OF ZAKŁADY TŁUSZCZOWE KRUSZWICA S.A INTERIM STATEMENT OF COMPREHENSIVE INCOME INTERIM STATEMENT OF FINANCIAL POSITION INTERIM STATEMENT OF CHANGES IN EQUITY INTERIM STATEMENT OF CASH FLOWS NOTES PRINCIPLES ADOPTED DURING THE PREPARATION OF THE QUARTERLY FINANCIAL INFORMATION INFORMATION ON MATERIAL CHANGES OF ESTIMATES Page 3 of 52

4 SELECTED CONSOLIDATED FINANCIAL DATA (all figures in '000, except for the number of shares and earnings per share) For the 3 For the 3 For the 3 For the 3 PLN 000 EUR 000 Revenue from sales of products and goods Operating profit / (loss) Profit / (loss) before tax Net profit / (loss) Number of shares Earnings/(loss) per ordinary share (in PLN/EUR) 0,87 0,86 0,20 0,20 Net cash flows from operating activities ( ) ( ) (38 117) (40 011) Net cash flows from investing activities (10 804) (13 139) (2 527) (3 024) Net cash flows from financing activities 445 (49 420) 104 (11 373) Total net cash flows ( ) ( ) (40 540) (54 408) PLN 000 EUR 000 Revenue from sales of products and goods Operating profit / (loss) Profit / (loss) before tax Net profit / (loss) Number of shares Earnings/(loss) per ordinary share (in PLN/EUR) 0,83 1,20 0,20 0,28 Net cash flows from operating activities ( ) (30 740) 480 Net cash flows from investing activities (8 234) (11 087) (1 934) (2 538) Net cash flows from financing activities (53) (50 244) (12) (11 501) Total net cash flows ( ) (59 233) (32 686) (13 558) Period Period 31/12/2016 Period Period 31/12/2016 PLN 000 EUR 000 Non-current assets Current assets Total assets Non-current liabilities Current liabilities Equity Share capital Page 4 of 52

5 SELECTED SEPARATE FINANCIAL DATA (all figures in '000, except for the number of shares and earnings per share) For the 3 For the 3 For the 3 For the 3 PLN 000 PLN 000 EUR 000 EUR 000 Revenue from sales of products and goods Operating profit / (loss) Profit / (loss) before tax Net profit / (loss) Number of shares (items) Earnings/(loss) per ordinary share (in PLN/EUR) 0,85 0,86 0,20 0,20 Net cash flows from operating activities ( ) ( ) (37 638) (40 000) Net cash flows from investing activities (10 804) (13 139) (2 527) (3 024) Net cash flows from financing activities 488 (49 399) 114 (11 368) Total net cash flows ( ) ( ) (40 051) (54 392) PLN 000 PLN 000 EUR 000 EUR 000 Revenue from sales of products and goods Operating profit / (loss) Profit / (loss) before tax Net profit / (loss) Number of shares (items) Earnings/(loss) per ordinary share (in PLN/EUR) Net cash flows from operating activities ( ) (30 263) 792 Net cash flows from investing activities (8 234) (11 087) (1 934) (2 538) Net cash flows from financing activities (8 075) (42 223) (1 897) (9 665) Total net cash flows ( ) (49 852) (34 095) (11 411) Period Period 31/12/2016 Period Period 31/12/2016 EUR 000 EUR 000 Non-current assets Current assets Total assets Non-current liabilities Current liabilities Equity Share capital Page 5 of 52

6 Euro exchange rates to convert selected financial data : Individual assets and liabilities in the statement of financial position as at 30 September 2017 and 31 December 2016 were translated at the average exchange rate of the National Bank of Poland valid for euro as at those dates. Individual items recognised in the statement of comprehensive income, statement of changes in equity as well as in the statement of cash flows were translated using the arithmetic mean of average exchange rates of the National Bank of Poland valid on the last day of each month of the presented period. Foreign exchange rates used to covert selected financial data : Period Period 31/12/2016 Statement of financial position For the 3 For the 3 Statement of comprehensive income Statement of changes in equity Statement of cash flows Statement of comprehensive income Statement of changes in equity Statement of cash flows The presented quarterly report includes: - interim condensed consolidated financial statements of the Zakłady Tłuszczowe Kruszwica S.A. Capital Group for the current period from 1 January to 30 September 2017 and for the comparative period from 1 January to 30 September 2016 with notes (Section A); - interim condensed financial statements of Zakłady Tłuszczowe Kruszwica S.A. for the period from 1 January to 30 September 2017 and for the comparative period from 1 January to 30 September 2016, and notes (Section B). The interim consolidated financial statements for the 9 30 September 2017 and the interim separate financial statements for the 9 30 September 2016 were not audited by a certified auditor. Page 6 of 52

7 A. QUARTERLY CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF ZAKŁADY TŁUSZCZOWE KRUSZWICA SPÓŁKA AKCYJNA CAPITAL GROUP INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (all figures in PLN 000, except for the number of shares and earnings per share) For the 3 For the 3 Revenue Revenue from sales of products Revenue from sales of goods Other operating revenue Total revenue Expenses Cost of products sold Cost of goods sold Costs to sell General and administrative expenses (Gain)/loss on measurement of unrealised derivatives and unrealised exchange differences (Gain)/loss on sale of fixed assets and other expenses related to fixed assets (1 392) (18 751) (4 112) (239) 403 (2 499) 501 Other operating expenses Total expenses Operating profit / (loss) Financial revenue Financial expenses Profit/(loss) from continuing operations before tax Income tax current portion deferred portion (1 164) (45) (1 379) Net profit/(loss) Other comprehensive income that will be reclassified to profit or loss when certain conditions have been met including: Hedge accounting (8) 572 (6) (29) Income tax relating to components of other comprehensive income (60) (8) 560 (5) (89) Total comprehensive income Profit attributable to: equity holders of the Parent non-controlling interest Total comprehensive income attributable to: equity holders of the Parent non-controlling interest Basic and diluted earnings/(loss) per share attributable to equity holders of the Parent Weighted average number of ordinary shares Page 7 of 52

8 INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION Period Period 31/12/2016 Non-current assets Property, plant and equipment Investment property Goodwill Intangible assets Long-term financial assets 8 11 Deferred tax assets Long-term prepayments Other long-term receivables Current assets Property, plant and equipment held for sale Inventories Trade receivables Income tax receivables - - Other receivables Short-term financial assets Cash and cash equivalents Short-term prepayments Total assets Period Period 31/12/2016 Equity Share capital Share premium Reserve capital Retained earnings Equity attributable to non-controlling interest - - Non-current liabilities Deferred tax liability - - Liabilities due to employee benefits Other provisions Current liabilities Provisions Short-term loans and borrowings Financial liabilities Liabilities due to employee benefits Trade liabilities Current income tax liabilities Dividend liabilities - - Other current liabilities Total equity and liabilities Page 8 of 52

9 INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Share capital Share premium Equity attributable to shareholders of the Parent Reserve capital appropriated for dividend payout Revaluation reserve measurement of derivatives Revaluation reserve actuarial measurement of retirement and disability benefits Retained earnings Total Equity attributable to non-controlling interest Total equity Equity as at 01/01/ (45) (1 008) Net comprehensive income for the period (40) Dividend paid - - ( ) - - (47 813) ( ) - ( ) Allocation of profit to other reserve capital (47 403) Round figures - - (1) (1) - (1) Equity as at 31/12/ (794) Equity as at 01/01/ (794) Net comprehensive income for the period (5) Dividend paid (54 709) (54 709) - (54 709) Allocation of profit to other reserve capital (10 627) Round figures (1) (1) - (1) Equity as at (794) Page 9 of 52

10 INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS Cash flows from operating activities months months Net profit/(loss) Total adjustments ( ) (25 539) Depreciation and amortisation Gains/losses on measurement of derivatives (5 884) (9 799) Interest 458 (1 615) Gain/loss on sale or liquidation of property, plant and equipment and intangible assets (2 500) 501 Change in provisions Change in inventories ( ) ( ) Change in receivables (21 851) Change in current liabilities, except for loans and borrowings (35 135) Change in prepayments/accruals (2 598) 237 Income tax due Income taxes paid (8 004) (7 945) Other adjustments - - Net cash flows from operating activities ( ) Cash flows from investing activities Receipts from sale of property, plant and equipment and intangible assets Acquisition of intangible assets and property, plant and equipment (11 095) (14 300) Interest (Originated) / repaid long-term borrowings 2 14 Advance payments for purchase of fixed assets (1 795) (1 885) Other adjustments - - Net cash flows from investing activities (8 234) (11 087) Cash flows from financing activities Proceeds from contracted loans/credit facilities Interest paid (2 464) (2 431) Dividend paid (54 709) (47 813) Other adjustments - - Net cash flows from financing activities (53) (50 244) Total net cash flows ( ) (59 233) Change in cash and cash equivalent balances ( ) (59 233) Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period Page 10 of 52

11 NOTES TO THE QUARTERLY CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL INFORMATION Parent Zakłady Tłuszczowe Kruszwica Spółka Akcyjna (Parent or ZT Kruszwica) operates in Poland on the basis of the entry in the Commercial Register, Section B, under number 3698, pursuant to a decision of the District Court in Bydgoszcz VIII Business Division of 21 December On 12 June 2001 the Parent was recorded in the National Court Register in the District Court in Bydgoszcz, XIII Division of the National Court Register, under number KRS Composition of the Parent's management and supervisory bodies as at the date of preparation of these condensed financial statements: Management Board: 1. Wojciech Jachimczyk President of the Management Board 2. Wojciech Bauman Member of the Management Board 3. Marcin Brodowski Member of the Management Board 4. Jacek Michalak Member of the Management Board 5. Piotr Piotrowski Member of the Management Board 6. Dariusz Szymański Member of the Management Board 7. Tomasz Wika Member of the Management Board Supervisory Board: 1. Tommy Jensen Chairman of the Supervisory Board 2. Vesselina Shaleva Vice-Chairperson of the Supervisory Board 3. George Allard Member of the Supervisory Board 4. William Dujardin Member of the Supervisory Board 5. Roman Górny Member of the Supervisory Board 6. Sławomir Ludwikowski Member of the Supervisory Board 7. Jerzy Rajski Member of the Supervisory Board 8. Andrzej Różycki Member of the Supervisory Board 9. Markus Walter Sieger Member of the Supervisory Board 10. Mariusz Szeliga Member of the Supervisory Board Parent s shareholding structure as at 30 September 2017: Entity Registered office Number of shares Koninklijke Bunge Besloten Vennootschap (KBBV) Windstorm Trading & Investments Limited Percentage interest in capital the Netherlands 14,763, % 64.22% Cyprus 5,805, % 25.26% ALTUS TFI S.A. Poland 1,170, % 5.09% Other 1,247, % 5.43% Total 22,986, % % Percentage share in voting rights The Parent is a member of the Bunge Group, a world leader in processing oilseed and production of vegetable oils. 22,986,949 shares of the Parent are publicly traded and listed on the primary market of the Warsaw Stock Exchange (Giełda Papierów Wartościowych w Warszawie S.A.). According to the classification of the Warsaw Stock Exchange, ZT "Kruszwica S.A. operates in the food sector. Page 11 of 52

12 Capital Group As at 30 September 2017 the ZT "Kruszwica" S.A. Capital Group (Capital Group or Group) comprised Zakłady Tłuszczowe "Kruszwica" S.A. as the parent and ZTK Property Management spółka z ograniczoną odpowiedzialnością as the subsidiary. As at 30 September 2016 the ZT "Kruszwica" S.A. Capital Group (Capital Group or Group) comprised Zakłady Tłuszczowe "Kruszwica" S.A. as the parent and the following subsidiaries: Mauresa spółka z ograniczoną odpowiedzialnością in liquidation ZTK Property Management spółka z ograniczoną odpowiedzialnością Mauresa spółka z ograniczoną odpowiedzialnością in liquidation ( Mauresa ) with its registered office in Warsaw, ul. 17 Stycznia 45B, entered in the Register of Entrepreneurs of the National Court Register under number On 17 May 2016 the Extraordinary Shareholders Meeting of Mauresa passed a resolution to dissolve the company and to commence the liquidation process as of the date of the resolution. Katarzyna Woźniak-Mrygoń, a member of the Management Board of the subsidiary, was appointed the liquidator. ZTK Property Management spółka z ograniczoną odpowiedzialnością ( ZTK Property Management ) with its registered office in Warsaw, ul. 17 Stycznia 45B, is entered in the Register of Entrepreneurs of the National Court Register under number Shareholding structure of subsidiary ZTK Property Management as at 30 September 2016: Entity Zakłady Tłuszczowe Kruszwica S.A. Registered office Number of shares ul. Niepodległości 42, Kruszwica Total value of shares (PLN) Percentage interest in the share capital 1,508,340 PLN 75,417, % Total 1,508,340 PLN 75,417, % The shareholding structure of ZTK Property Management did not change compared to 31 December The duration of the Parent and subsidiary ZTK Property Management is unlimited. The financial year of the Parent and subsidiary ZTK Property Management is the calendar year. The financial statements of subsidiary ZTK Property Management, used to prepare the consolidated financial statements of the Group, was prepared for the same reporting period as the financial statements of the Parent and using the same accounting principles. The core business of the Group is processing oilseed, manufacture of bottled vegetable oils, manufacture of margarines and edible fats. 2. IFRS AND ACCOUNTING PRINCIPLES APPLIED Statement of compliance These have been prepared in accordance with the International Accounting Standard (IAS) 34 Interim Financial Reporting and in accordance with relevant International Financial Reporting Standards (IFRS) applicable for interim financial reporting, as approved by the International Accounting Standards Board (IASB) and IFRS Interpretations Committee, in the form approved by the European Union and applicable as at 30 September 2017 and in line with the Ordinance of the Minister of Finance of 19 February 2009 on current and periodic information provided by issuers of securities and conditions for recognizing as equivalent information required under the law of a non-member state, as am. IFRS includes the following documents adopted by the International Accounting Standards Board (IASB): - International Financial Reporting Standards; - International Accounting Standards; Interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) or by its predecessor the Standing Interpretation Committee (SIC), which were adopted by the IASB. Page 12 of 52

13 Standards and interpretations applied for the first time in 2017 The following standards, amendments to the existing standards and interpretations issued by the International Accounting Standards Board (IASB) and endorsed for use in the EU become effective as of 2017: As at the date of approval of these financial statements, no changes to the existing standards as issued by IASB and endorsed by the EU occurred that would be first time applied to the Group s financial statements for New standards and amendments to the existing standards that have been issued by IASB and endorsed by the EU but are not yet effective IFRS 9 "Financial Instruments" endorsed by the EU on 22 November 2016 (applicable to annual periods beginning on or after 1 January 2018); IFRS 15 "Revenue from Contracts with Customers" and amendments to IFRS 15 "Effective Date of IFRS 15" endorsed by the EU on 22 September 2016 (applicable to annual periods beginning on or after 1 January 2018). New and revised Standards issued by the IASB, but not yet approved by the EU At present, IFRS as adopted by the EU, do not significantly differ from the regulations adopted by the International Accounting Standards Board (IASB) except for the following standards, amendments to the existing standards and interpretations, which were not endorsed for use in the EU as at 14 November 2017: IFRS 14 "Regulatory Deferral Accounts" (applicable to annual periods beginning on or after 1 January 2016) the European Commission decided not to begin the process of endorsing the draft version of the standard for use in the EU until the publication of the final version of IFRS 14; IFRS 16 "Leases" (applicable to annual periods beginning on or after 1 January 2019); IFRS 17 Insurance Contracts (applicable to annual periods beginning on or after 1 January 2021); Amendments to IFRS 2 Share-based Payments Classification and Measurement of Share-based Payment Transactions (applicable to annual periods beginning on or after 1 January 2018); Amendments to IFRS 4 Insurance Contracts - Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts (applicable to annual periods beginning on or after 1 January 2018 or upon first-time application of IFRS 9 Financial Instruments ); Amendments to IFRS 9 Financial Instruments - Prepayment Features with Negative Compensation (applicable to annual periods beginning on or after 1 January 2019); Amendments to IFRS 10 "Consolidated Financial Statements" and IAS 28 "Investments in Associates and Joint Ventures" Sale or Contribution of Assets between an Investor and its Associate or Joint Venture, with subsequent amendments (the effective date has been postponed until the moment of completing research regarding the equity method); Amendments to IFRS 15 "Revenue from Contracts with Customers" Clarifications to IFRS 15 "Revenue from Contracts with Customers" (applicable to annual periods beginning on or after 1 January 2018); Amendments to IAS 7 "Statement of Cash Flows" Disclosure Initiative (applicable to annual periods beginning on or after 1 January 2017); Amendments to IAS 12 "Income Taxes" Recognition of Deferred Tax Assets for Unrealised Losses (applicable to annual periods beginning on or after 1 January 2017). Amendments to IAS 28 Investments in Associates and Joint Ventures - Long-term Interests in Associates and Joint Ventures (applicable to annual periods beginning on or after 1 January 2019). Amendments to IAS 40 "Investment Property" Transfers of Investment Property (applicable to annual periods beginning on or after 1 January 2018); Amendments to standards IFRS Improvements ( ) amendments to standards resulting from the annual improvements process (IFRS 1, IFRS 12 and IAS 28), primarily with a view to removing inconsistencies and clarifying wording (amendments to IAS 12 are applicable to annual periods beginning on or after 1 January 2017, while amendments to IFRS 1 and IAS 28 to annual periods beginning on or after 1 January 2018); IFRIC 22 "Foreign Currency Transactions and Advance Consideration" (applicable to annual periods beginning on or after 1 January 2018). Page 13 of 52

14 IFRIC 23 Uncertainty over Income Tax Treatments (applicable to annual periods beginning on or after 1 January 2019). According to the Group s estimates, the above new and revised standards, apart from IFRS 16 "Leases", would not have had a significant impact on the financial statements for Q3 2017, if they had been adopted by the Group as of the end of the reporting period. The Company will analyse the effect of the new IFRS 16 Leases on the key items disclosed in the financial statements at a later time. In addition, hedge accounting principles applicable to the portfolio of financial assets and financial liabilities continue to remain outside the scope of the regulations adopted by the EU, as they have not been endorsed for use in the EU. According to the Group s estimates, application of hedge accounting principles with respect to the portfolio of financial assets or liabilities in line with IAS 39 Financial Instruments: Recognition and Measurement would not have had a material impact on the financial statements if they had been adopted for use as at the end of the reporting period. Basis for the preparation of the financial statements The interim condensed consolidated financial statements were prepared on the historical cost basis, except for the measurement of derivatives and hedged items, recognised under hedge accounting, which were measured at fair value. The interim condensed consolidated financial statements were prepared on the assumption that the Group will continue as a going concern for at least 12 months after the end of the reporting period. In the opinion of the Management Boards of the Parent and the subsidiary (ZTK Property Management) there is no risk to the ability to continue as a going concern in that period. The interim condensed consolidated financial statements were prepared in the Polish zloty (PLN), which is the functional currency of the Group and in which all of the Group s business operations are denominated. Figures are presented in PLN 000, in accordance with the principle whereby amounts under PLN 500 are discarded, whereas amounts of PLN 500 and more are rounded up to the full thousand. Appropriate information is provided in case any data is presented in other currencies or units. Changes in the accounting principles applied In the presented interim financial statements, the Group did not introduce any material changes to the accounting principles and calculation methods. The Group used the same accounting policy, presentation of data and measurement as in the reporting period 31 December A detailed description of the key accounting principles applied by the Group was included in the annual consolidated financial statements of the Group for 2016, published on 20 March OPERATING SEGMENTS Identified operating segments Operating segments identified and disclosed as part of the Group s operations result from the divisions introduced for internal management purposes of the Group as well as for the needs of consolidation with the Bunge Group. The Group has identified two main operating segments: - The Agricultural Commodities Segment (Agri); - Food Products Segment (Food). The Parent carries out business in both segments whereas the subsidiaries only in the Food segment. The Agricultural Commodities Segment (Agri) includes: - rapeseed processing: from purchases of seed to sales of raw/desludged rapeseed oil, rapeseed meal, or resale of rapeseed to third parties or to the Food segment; - trading in other oils: purchases of other crude or refined oils (including rapeseed oil) from third parties for the purpose of resale to external clients or to the Food segment. The Food Products Segment (Food) involves purchases of crude and refined oils from the Agri segment (originally bought from third parties), sales of refined oils, bottled oils, table and industrial margarines, and confectionery fat to third parties. The Food segment does not sell any goods to the Agri segment. Page 14 of 52

15 Volume, value and costs of intra-segment trading in the Parent Company Due to their defined operations within the Parent company, the segments have to carry out intra-segment trading including sales from the Agri segment to the Food segment of crude rapeseed oil and other purchased vegetable oils, crude or refined, subsequently used for production of finished products. The volume of intra-segment transactions, determined as at the end of each reporting period, is measured as the equivalent of production sold, i.e. as the amount of oils needed to produce a given quantity of finished goods sold by the Food segment in the reporting period. The prices of oil, used for the production of finished goods by the Food segment, as applied in the intra-segment sales (transfer prices) correspond to the market prices, determined based on market quotations for various periods depending on the assortment of finished goods of the Food segment. In the case of refined rapeseed oil sold to external clients, the prices in sales from the Agri segment to the Food segment are determined by deducting a fixed refining bonus, applicable for a given period based on the market refining bonus (the difference between the market prices of refined oil and crude oil) from the actual prices achieved in external sales. The cost of goods/raw materials sold in intra-segment transactions is measured as follows: - for sales of self-produced crude rapeseed oil the current standard price of rapeseed, adjusted for actual production gains and the selling price of rapeseed meal (main by-product obtained during the production of crude oil); - for sales of other raw materials at a historical cost. Allocation of other operating items in profit or loss Production overheads direct production costs (incurred by production departments) are allocated to the segments in line with the allocation of the types of products manufactured; indirect production costs (incurred by support departments and administration of production departments) are allocated to the segments using fixed allocation coefficients determined for a given financial year on the basis of the planned involvement of individual departments in manufacturing of particular products. Selling expenses are allocated to the segments in the same manner as the sale itself. All costs related to sales of products and goods attributable to the Agri segment are allocated to this segment. Similarly, all selling expenses related to sales of products and goods attributable to the Food segment are allocated to the Food segment. General and administrative expenses are allocated on the basis of attribution of particular operating departments to a given segment. The criterion for such attribution is the type of activities performed by each department. The costs of general administration departments that manage both areas of operations are attributed to both segments in a 1/1 ratio. Exchange differences: Differences relating to financial instruments are allocated to the Agri segment as follows: - all unrealised gains/losses on derivatives; - realised gains/losses on derivatives in the portion relating to the realised hedges on the Agri segment and subject to hedge accounting; - all realised exchange gains/losses on derivatives excluded from hedge accounting. A portion of gains/losses on hedging transactions, subject to hedge accounting, which are used to hedge the value of proceeds from sales of refined bulk oil is allocated to the Food segment. Exchange differences (resulting from measurement of balance sheet items or from made/received payments in foreign currencies) are allocated based on assignment of a counterparty to a given segment. All exchange differences on cash are allocated to the Food segment. Agri. Items from the statement of comprehensive income are allocated to individual segments only up to the level of the operating profit. Balance sheet items Inventories The criteria for allocation of inventories coincide with the principles followed in recognition of the segment turnover, which enables detailed identification of inventories allocated to a given segment. Settlements with suppliers/clients Both suppliers and clients have been allocated to a given segment according to the type of materials/goods purchased or the type of products/goods sold, respectively. This enables identification of all liabilities/receivables pertaining to a given segment. The correctness of such allocations is reviewed once a year. Page 15 of 52

16 Fixed assets, fixed assets under construction, intangible assets Items of property, plant and equipment are attributed to a given segment on the basis of their function in the Group s operating segments. Goodwill The goodwill originated from business combination which took place on 13 December It was determined based on the fair value of net assets of individual acquirees. The Group attributed goodwill to both separated segments, which correspond to the definition of the lowest level at which goodwill is monitored for internal management purposes. The goodwill was allocated to both segments in accordance with the segment structure of the surplus of payments made over the Group's interest in the net fair value of identifiable assets and liabilities of acquirees as at the acquisition date. Allocation of goodwill to the segments: Agri Food Total Goodwill (PLN 000) 28,544 55,249 83,793 Goodwill (%) 34.1% 65.9% 100% Debt Debt is allocated to the segments in line with the structure of net assets. Other balance sheet items Any balance sheet items which are not included in the primary allocation are assigned to the Food segment. This stems from an assumption that this segment is used to recognise all settlements with third parties, not resulting from sales and purchases. Key measures and criteria for assessing the performance of business segments The Group uses two basic measures to assess its business segment performance: - EBIT, understood as the operating profit, i.e. before tax and financial expenses/revenue - RONA (return on net assets) Return on net assets is based only on working capital, i.e. it is determined following elimination of fixed assets under construction from non-current assets. Key financial data regarding the operating segments: Segment assets and liabilities Period AGRI FOOD TOTAL Period 31/12/2016 Period Period 31/12/2016 Period Period 31/12/2016 Non-current assets Current assets Total assets Non-current liabilities Current liabilities (excluding loans and borrowings) Total liabilities (excluding loans and borrowings) Net assets (total assets less total liabilities, excluding loans and borrowings) Debt Page 16 of 52

17 Segment revenue, profit/loss and other information months AGRI FOOD ELIMINATIONS TOTAL months months months months months months months Revenue Sales to third parties Intra-segment sales ( ) ( ) - - Total revenue ( ) ( ) EBIT (18 380) (13 696) Other information Capital expenditure (including changes in advance payments for fixed assets and intangible assets) (3 300) Depreciation of fixed assets Amortisation of intangible assets Depreciation of investment property Impairment loss on fixed assets and intangible assets (6) (6) Page 17 of 52

18 Revenue from sales of key products and services (excluding intra-segment transactions) months AGRI FOOD TOTAL months months months months months Revenue from sales of products Bulk oil Rapeseed meal Bottled oils Consumer margarines Industrial margarines Confectionery fat Other Sales of products Revenue from sales of goods Bulk oil Rapeseed meal Bottled oils Consumer margarines Rapeseed Other Sales of goods Total sales Return on net assets AGRI FOOD TOTAL months Average balance of assets (less average balance of fixed assets under construction) Average balance of liabilities (excluding loans and borrowings) Average balance of net operating assets Operating profit / (loss) Income tax (on operating profit) Operating profit / (loss) after tax Annualized Operating profit / (loss) after tax Return on net assets* (18 380) (13 696) (8 000) (8 839) (4 508) (6 237) (14 888) (11 094) (19 850) (14 792) ,8% -4,4% 12,4% 10,8% 3,6% 4,4% Key Accounts The Group s revenue from sales to external customers is not subject to concentration where a single client would generate 10 or more percent of the Group's total revenue in the presented period. Page 18 of 52

19 4. INFORMATION ON MATERIAL CHANGES OF ESTIMATES Deferred tax assets and liabilities Year 31/12/2016 Adjustments 2016 Charged to (+) / credited to (-) profit/loss Period 31/12/2016 after adjustment Period Charged to (+) / credited to (-) profit/loss Charged to (+) / credited to (-) equity Deferred tax liability, due to: Difference between carrying amounts and tax value of fixed assets (882) - Total deferred tax liability: (882) - Deferred tax asset, due to: Fair value revaluation of forwards - financial instruments Impairment losses on non-collectible receivables (24) - Provisions (455) (149) (1) Accruals and other deferred expenses (731) - Interest accrued but not received/paid on deposits and factoring (25) - Tax loss (359) Other 104 (2) Total deferred tax asset (320) (816) (1) Deferred income tax charge/credit (1 698) (1) On net balance Surplus of deferred tax asset over deferred tax liability (320) Liabilities due to employee benefits During the three quarters of 2017, as a result of the change in the estimates of liabilities and derecognition of a provision for the annual bonus, the liability decreased by PLN 10,000 thousand. As at 30 September 2017, the liabilities due to employee benefits amounted to PLN 18,320 thousand (as at 31 December 2016: PLN 18,330 thousand). Impairment losses on property, plant and equipment and intangible assets During the three quarters of 2017 the Group did not recognise an impairment loss on property, plant and equipment and intangible assets. Impairment losses on receivables Balance as at as at 31 December increase of impairment losses 197 decrease due to cancellation 13 - decrease due to payment 33 Balance as at 30 September Page 19 of 52

20 Balance as at 31 December increase of impairment losses 580 decrease due to cancellation decrease due to payment 53 - decrease due to derecognition of impairment loss Balance as at 30 September Impairment losses on inventories Balance as at 31 December increase in impairment loss on inventories applied impairment loss on inventories Balance as at 30 September Balance as at 31 December increase in impairment loss on inventories applied impairment loss on inventories Balance as at 30 September SIGNIFICANT ACHIEVEMENTS AND FAILURES OF THE GROUP DURING THE REPORTING PERIOD During the reporting period the Group did not report any significant achievements or failures which could materially affect its financial condition. Page 20 of 52

21 6. DESCRIPTION OF EXTRAORDINARY FACTORS AND EVENTS WITH A SIGNIFICANT EFFECT ON THE FINANCIAL PERFORMANCE DESCRIPTION OF ITEMS AFFECTING ASSETS, LIABILITIES, EQUITY, NET PROFIT/LOSS AND CASH FLOWS, WHICH ARE EXTRAORDINARY DUE TO THEIR TYPE, SIZE OR EFFECT Key business figures months months Change % Sales volume (tonnes [k]) % Revenue from sales of products and goods % Manufacturing cost of products and costs of goods sold % (Gains)/losses on derivatives and foreign exchange (18 751) (4 112) (14 639) 5% Gross profit on sales (22 550) (14%) Gross sales margin 7,4% 9,5% (2,1%) Profit from continuing operations (9 102) (28%) % of sales 1,3% 2,0% (0,7%) EBITDA (1) (9 491) (17%) % of sales 2,5% 3,3% (0,8%) Profit before tax (10 772) (31%) Gross profit margin 1,3% 2,1% (0,8%) Net profit (8 534) (31%) Net profit margin 1,0% 1,7% (0,7%) Net cash flows from operating activities ( ) ( ) (6 337%) Closing balance of total assets (79 255) (7%) Closing balance of equity ( ) (19%) Average working capital (2) ( ) (31%) days of sales (3) (30) (37%) Closing balance of loans and borrowings (4) % ROA (5) 1,4% 3,5% (2,1%) (60%) ROE (6) 2,0% 4,6% (2,6%) (57%) Legend: (1) = Profit/(loss) from continuing operations + Depreciation/amortisation (2) = Current assets Current liabilities + Current liabilities due to loans and borrowings Average balance based on quarterly data (3) = Average working capital / Revenue from sales of products and goods * 270 days (4) = Current liabilities due to loans and borrowings + Long-term credit loans and borrowings (5) = Annualised net profit/(loss) / average balance of assets (opening balance, closing balance) (6) = Annualised net profit/(loss) / average balance of equity (opening balance, closing balance) Page 21 of 52

22 Despite the successful Q3 this year, the financial performance of the Capital Group for the first three quarters of this year were strongly affected by the performance of the Agri segment in the first two quarters of the year. In this period, the margin on the processing of rapeseed was much lower than expected and than achieved in the first half of The main reason for this was a small supply of rapeseed in 2016 as well as high levels of exports of the rapeseed. In Q3 2017, as a result of good rapeseed yield in Poland (Approx. 2.8 million tons) and increasing demand for raw rapeseed oil for biodiesel purposes, the Group achieved higher margins on its processing. Total sales in the three quarters of this year increased by PLN 158 million (+10%) year-on-year. The increase in the value of consolidated revenue from sales of goods and products resulted mostly from a increase in the sales of bulk oil (+11%) and industrial fats (+36%), i.e. those used as half-products in food industry. Sales revenue increased also in relation to bottled oils and rapeseed meal (by 10% and 6%, respectively). Sales of table margarines kept on the last year s level while sales of industrial ones slightly increased (by 1%). Total costs of production and sale increased by PLN 180,6 million (+12%). A year-on-year increase in manufacturing costs in the first three quarters of 2017 resulted from higher costs of key raw materials, mostly rapeseed, in H Consequently, gross profit on sales of goods and products in the first three quarters of this year wend down by PLN 21.6 million (-14%). This way gross margin went down from 9.5% in the first three quarters of the last year to 7.4% in the same period of this year. The increase in the sales volumes, mainly rapeseed meal, bulk oil and professional fat resulted in increase of costs to sell by PLN 6.1 million, to PLN million (+6%). General and administrative expenses remained at last year's levels and totalled PLN 24.9 million. In the first three quarters of 2017 the Group recorded a gain of PLN 18.8 million on unrealised currency and commodity derivatives and unrealised exchange differences (last year a gain of PLN 1 million). This comprises a PLN 4.0 million gain on unrealised exchange differences (remained at last year s level), a PLN 13.2 million gain on commodity hedging instruments (2016: gain of PLN 4.7 million) and a PLN 1.6 million gain on currency hedging instruments (2016: loss of PLN 4.6 million). The purpose of hedging instruments and how they are recorded has been described in Note 10 and Note 11. The operating profit in the first three quarters of 2017 totalled PLN 23,7 million, which denotes a drop of PLN 9,1 million (-28%) year-on-year. Therefore, the EBITDA went down by PLN 29.5 million (-17%) year-onyear, and EBITDA to sales by 0.8 p.p. Gain on financing activities in the first half of 2017 was lower by PLN 1.7 million compared to the profit generated in the first three quarters of 2016, which results directly from drop of free cash (lower deposits). In the first three quarters of 2017 the Group did not incur any restructuring expenses. Worse financial performance for the three quarters of 2017 led to lower return on assets and return on equity in the Group. The return on assets dropped to 1.4% (2016: 3.5%) and the return on equity to 2.0% (2016: 4.6%) In the three quarters of 2017 operating cash flows totalled PLN million (in the same period of 2016: PLN 2.1 million). The drop was mainly the effect of the increase of the inventory (PLN million). The cash flows from financing activities were negative and totalled PLN 0.1 million, mainly due to a dividend paid out from the profits generated in 2016 in the amount of PLN 54.7 million and from loans contracted in the amount of PLN 57.1 million. During the three quarters of 2017 total cash flows went down by PLN million (in 2016: PLN 59.2 million). As at the end of Q3 2017, the value of the Group s non-current assets went down by PLN 5.7 million compared to the end of The change resulted mainly from current period depreciation charges. Page 22 of 52

23 At the end of Q the Group's current assets totalled PLN 700 million and were higher by PLN 27.9 million compared to the end of The change in the value of current assets was the effect of: an increase in the value of inventory by PLN million resulting mainly from the purchases of rapeseed in July and August 2017; a decrease in cash by PLN million; Following purchases of rapeseed during the harvest season (July, August) the structure of Group s liabilities changed and demand for borrowings increased. As a result, short-term loan balance increased by PLN 57.2 million, while trade and financial liabilities dropped by PLN 19.3 million and PLN 17.1 million, respectively. In the reported period 2017, there were no other significant changes in the Group's individual assets and liabilities that would result from events other than those presented above. In the immediate future, the Group does not anticipate any significant changes in its assets and liabilities other than those resulting from its day-today operations. In 2017 the Group paid its liabilities within the determined deadlines and carried out investments as planned. 7. SEASONAL AND CYCLICAL NATURE OF BUSINESS The Group s business operations are affected by seasonality of certain important factors determining the financial performance, which include: - cost of raw materials rapeseed; - sales volume; - inventories of raw materials. The Group purchases a significant portion of rapeseed during the harvest (July, August) and then the seed is being processed until the next harvest time. Rapeseed is the main raw material used in manufacturing of finished products by the Group, and it accounts for approx. 70% of the total cost of products sold. The cost of rapeseed is determined by its current quotations on the European commodity exchanges at the time of purchase. Hence, during the financial year (which in the Group s case corresponds to the calendar year) the unit cost of rapeseed consumption changes at the beginning of the second half of the year, when consumption of the newly-supplied rapeseed crops is commenced; this may have a substantial effect on the Group s financial performance in comparison with the first six months of the year. Also the volumes of rapeseed inventories are subject to significant fluctuations during the year. The lowest levels are recorded at the end of June to be subsequently replenished during the next purchasing campaign, which results in increased borrowings being the main source of financing the rapeseed purchases. Fluctuations in the levels of borrowings are a consequence of seasonality in the acquisition of rapeseed. In the purchasing process, the need for external financing increases and in the following months it is gradually reduced as the consumption of rapeseed in stock progresses.. However, in recent years there has been a tendency to buy more rapeseed outside the harvest time, which to some extent helps mitigate the discussed seasonality effects. The sales value of bottled oils and margarines also demonstrates seasonal changes, with increased sales level in the first and fourth quarter of the year. Page 23 of 52